PLEASE READ FIRST - Expobank · Balance at 30 September 2019 (unaudited) 9,500,998 548,256 (128,470) 7,169,067 372,814 444,172 17,906,837 109,831 18,016,668 . Expobank Group Interim

Expobank LLC Interim Condensed Consolidated Financial Information

In accordance with International Financial Reporting Standards

(unaudited)

30 September 2019

Expobank Group Interim Condensed Consolidated Financial Information For the nine months ended 30 September 2019

Contents Interim Condensed Consolidated Statement of Financial Position .................................................................... 3 Interim Condensed Consolidated Statement of Profit or Loss ........................................................................... 4 Interim Condensed Consolidated Statement of Comprehensive Income .......................................................... 5 Interim Condensed Consolidated Statement of Changes in Equity ................................................................... 6 Interim Condensed Consolidated Statement of Cash Flows .............................................................................. 7 Notes to the Interim Condensed Consolidated Financial Information

1 Introduction ............................................................................................................................................... 8 2 Significant Accounting Policies ................................................................................................................ 9 3 Critical Accounting Estimates and Judgements in Applying Accounting Policies .................................. 13 4 Cash and Cash Equivalents ................................................................................................................... 14 5 Trading Securities .................................................................................................................................. 16 6 Due from Credit Institutions .................................................................................................................... 17 7 Loans to Customers ............................................................................................................................... 18 8 Investment Securities ............................................................................................................................. 31 9 Due to Credit Iinstitutions ....................................................................................................................... 33 10 Customer Accounts ................................................................................................................................ 33 11 Debt Securities in Issue.......................................................................................................................... 34 12 Subordinated Eurobonds in Issue .......................................................................................................... 35 13 Share Capital .......................................................................................................................................... 35 14 Interest Income and Expense ................................................................................................................ 36 15 Fee and Commission Income and Expense .......................................................................................... 36 16 Administrative and Other Operating Expenses ...................................................................................... 37 17 Income Tax ............................................................................................................................................. 37 18 Segment Analysis ................................................................................................................................... 37 19 Contingencies and Commitments .......................................................................................................... 40 20 Fair Value of Financial Instruments ........................................................................................................ 44 21 Related Party Transactions .................................................................................................................... 52 22 Business Combinations .......................................................................................................................... 56

Expobank Group Interim Condensed Consolidated Statement of Profit or Loss For the nine months ended 30 September 2019

The accompanying notes 1-22 are an integral part of this Interim Condensed Consolidated Financial Information 4

Three months ended 30 September

(unaudited)

Nine months ended 30 September

(unaudited)

(in RUB ‘000) Note 2019 2018 2019 2018

Interest income calculated using the effective interest rate 14 2,332,890 1,206,837 5,934,157 3,474,345 Other interest income 14 206,065 326,821 762,437 906,161 Interest expense calculated using the effective interest rate 14 (993,165) (545,173) (2,700,817) (1,589,515)

Net interest income 1,545,790 988,485 3,995,777 2,790,991 Credit loss allowance for cash and cash equivalents, due

from credit institutions and loans to customers 4, 6, 7,

22 (227,920) (32,879) (1,344,707) (10,704)

Net interest income after credit loss allowance for cash

and cash equivalents, due from credit institutions and loans to customers 1,317,870 955,606 2,651,070 2,780,287

Fee and commission income 15 369,484 141,365 1,051,705 357,790 Fee and commission expense 15 (51,859) (27,514) (112,866) (84,198) Gains net of losses / (losses net of gains) from trading

securities 64,305 (206,886) 362,104 (267,610) Gains net of losses from mark to market valuation of loans to

customers at fair value through profit or loss 26,440 4,559 70,660 6,800 Gains net of losses / (losses net of gains) from financial

derivatives 15,458 (51,805) 22,595 (42,080) Gains net of losses from trading in foreign currencies 139,257 83,029 80,535 212,064 Foreign exchange translation gains net of losses / (losses

net of gains) (58,331) (24,765) 78,469 (55,334) Gains net of losses from derecognition of investment

securities at fair value through other comprehensive income 79,601 3,644 78,133 3,275

Recovery of credit loss allowance / (credit loss allowance) for investment securities at fair value through other comprehensive income 8 8,809 (39,101) 67,141 (74,892)

Recovery of credit loss allowance for investment securities at amortised cost 8 − 54 − 451

Other operating income 55,995 57,783 294,099 272,676 Other income from recovery of provision and impairment 164,946 29,900 139,495 105,778 Administrative and other operating expenses 16 (906,054) (585,863) (2,421,202) (1,894,552) Excess of the acquirees’ net assets over the value of

investments 22 - − 1,555,508 −

Profit before tax 1,225,921 340,006 3,917,446 1,320,455 Income tax expense 17 (241,204) (23,575) (462,257) (256,469)

Profit for the reporting period 984,717 316,431 3,455,189 1,063,986

Profit / (loss) for the reporting period attributable to: Participants of the Bank 959,625 316,431 3,506,735 1,063,986 Non-controlling interest 25,092 − (51,546) −

Expobank Group Interim Condensed Consolidated Statement of Comprehensive Income For the nine months ended 30 September 2019


Three months ended 30 September

(unaudited)


(unaudited)

(in RUB ‘000) Note 2019 2018 2019 2018

Profit for the reporting period 984,717 316,431 3,455,189 1,063,986 Other comprehensive income/(loss) Other comprehensive income / (loss) to be subsequently

reclassified to profit or loss Gains net of losses / (losses net of gains) from debt

investment securities at fair value through other comprehensive income (52,805) 22,146 302,886 (272,163)

Amount of change in the expected credit loss allowance for debt investment securities at fair value through other comprehensive income (8,809) 39,101 (67,141) 74,892

Income tax effect 12,323 (12,250) (47,149) 39,454 Other comprehensive income / (loss) not to be subsequently

reclassified to profit or loss (Losses net of gains) / gains net of losses from equity

investment securities at fair value through other comprehensive income (44,057) 75,758 (118,618) 124,086

Income tax effect 8,812 (15,151) 23,724 (24,817)

Other comprehensive income / (loss) for the reporting

period (84,536) 109,604 93,702 (58,548)

Comprehensive income for the reporting period 900,181 426,035 3,548,891 1,005,438

Comprehensive income / (loss) attributable to: Participants of the Bank 875,089 426,035 3,600,437 1,005,438 Non-controlling interest 25,092 − (51,546) −

Expobank Group Interim Condensed Consolidated Statement of Changes in Equity For the nine months ended 30 September 2019


Equity attributable to the participants of the Bank

(in RUB ‘000)

Share capital

Share premium

Treasury shares

Retained earnings

Unrealised gains from

revaluation of investment

securities

Revaluation reserve for

premises and

equipment

Total equity attributable

to the participants of the Bank

Non-controlling

interest

Total equity

Balance at 1 January 2018 10,413,412 548,256 (1,220,018) 2,232,158 310,836 420,576 12,705,220 – 12,705,220

Effects of IFRS 9 adoption – – – (9,829) 25,120 – 15,291 – 15,291

Balance at 1 January 2018, adjusted under IFRS 9 10,413,412 548,256 (1,220,018) 2,222,329 335,956 420,576 12,720,511 – 12,720,511

Profit for the reporting period (unaudited) – – – 1,063,986 – – 1,063,986 – 1,063,986 Other comprehensive loss for the reporting period (unaudited) – – – – (58,548) – (58,548) – (58,548)

Total comprehensive income/(loss) for the reporting period (unaudited) – – – 1,063,986 (58,548) – 1,005,438 – 1,005,438

Redemption of treasury shares upon reorganisation (Note 13) (912,414) – 1,220,018 (307,604) – – – – –

Balance at 30 September 2018 (unaudited) 9,500,998 548,256 – 2,978,711 277,408 420,576 13,725,949 – 13,725,949

Balance at 1 January 2019 9,500,998 548,256 (128,470) 3,550,445 307,369 444,172 14,222,770 – 14,222,770 Profit/(loss) for the reporting period (unaudited) – – – 3,506,734 – – 3,506,734 (51,546) 3,455,188 Other comprehensive income for the reporting period (unaudited) – – – – 93,702 – 93,702 – 93,702

Total comprehensive income/(loss) for the reporting period (unaudited) – – – 3,506,734 93,702 – 3,600,436 (51,546) 3,548,890

Acquisition of the subsidiary bank (unaudited) (Note 22) – – – – – – – 726,501 726,501 Buy-out of non-controlling interest in the subsidiary

bank (unaudited) (Note 22) – – – 83,631 – – 83,631 (565,124) (481,493) Disposal of revaluation reserve for investment securities at fair value

through other comprehensive income (unaudited) – – – 28,257 (28,257) – – – –

Balance at 30 September 2019 (unaudited) 9,500,998 548,256 (128,470) 7,169,067 372,814 444,172 17,906,837 109,831 18,016,668

Expobank Group Interim Condensed Consolidated Statement of Cash Flows For the nine months ended 30 September 2019


(in RUB ‘000) Note

Nine months ended

30 September 2019 (unaudited)

Nine months ended


Cash flows from operating activities Interest received 7,016,106 4,167,660 Interest paid (2,429,783) (1,565,962) Fees and commissions received 1,275,714 388,404 Fees and commissions paid (112,866) (84,198) Gains earned / (losses incurred) on dealing in trading securities 210,929 (41,555) Gains earned on loans to customers at fair value through profit or loss 66,493 9,823 Gains earned on dealing in foreign currencies 80,535 212,458 Other operating income received 287,195 86,186 Administrative and other operating expenses paid (2,268,272) (1,907,164) Income tax paid (410,811) (75,021)

Cash flows from operating activities before changes in operating assets and liabilities 3,715,240 1,190,631

Net decrease / (increase) in operating assets Mandatory cash balances with the Central Bank of the Russian Federation 93,087 (24,043) Trading securities (2,208,699) 4,152,263 Due from credit institutions 142,740 (970,056) Loans to customers (11,323,396) (8,175,908) Other assets (88,878) (37,646) Net (decrease) / increase in operating liabilities Due to credit institutions (2,344,509) (59,553) Customer accounts 127,933 1,581,411 Debt securities in issue (225,787) 19,165 Other liabilities 962,710 284,715

Net cash used in operating activities (11,149,559) (2,039,021)

Cash flows from investing activities Acquisition of the subsidiary, net of cash acquired 22 4,559,697 – Acquisition of investment securities at fair value through other comprehensive

income (1,761,887) (8,427,622) Proceeds from disposal and redemption of investment securities at fair value

through other comprehensive income 11,802,640 5,559,663 Dividends from investment securities at fair value through other comprehensive

income 18,076 183,480 Acquisition of investment securities at amortised cost (500,000) – Proceeds from redemption of investment securities at amortised cost 1,385,485 597,285 Acquisition of premises and equipment (17,196) (22,367) Proceeds from sale of premises and equipment 178,447 7,985 Proceeds from sale of investment property 38,290 – Acquisition of intangible assets (13,597) (10,073)

Net cash gained from / (used in) investing activities 15,689,955 (2,111,649)

Cash flows from financing activities Cash outflows under lease liabilities (75,809) – Buy-out of non-controlling interest in the subsidiary bank 22 (481,493) –

Net cash used in financing activities (557,302) –

Effect of exchange rate changes on cash and cash equivalents (878,264) (52,267) Effect of changes in the expected credit loss allowance for cash and cash

equivalents 379 (789)

Net increase / (decrease) in cash and cash equivalents 3,105,209 (4,203,726)

Cash and cash equivalents at the beginning of the period 4 12,892,242 9,452,890

Cash and cash equivalents at the end of the period 4 15,997,451 5,249,164

Expobank Group Notes to the Interim Condensed Consolidated Financial Information 30 September 2019

8

1 Introduction

This interim condensed consolidated financial information have been prepared in accordance with International Financial Reporting Standards (“IFRS”) for the nine months ended 30 September 2019 for Expobank Limited Liability Company (the “Bank”), its subsidiary bank “Kurskprоmbank”, its structured entity Expo Capital Designated Activity Company that was incorporated to place the Bank’s debt securities at the Vienna Stock Exchange, and its subsidiary EXPOINVEST LLC (together referred to as the “Group”).

The Bank is neither directly nor indirectly a shareholder of Expo Capital Designated Activity Company. However, Expo Capital Designated Activity Company is a special purpose entity established by the Bank solely to attract funds through the issue of the Bank's debt securities at the Vienna Stock Exchange, and therefore shall be consolidated.

The Bank is a commercial bank owned by its participants whose liability is limited by their stake (shares). The Bank was set up and exists in accordance with Russian law. The stakes in the share capital as at 30 September 2019 and 31 December 2018 are as follows:

Participant

30 September 2019

%

31 December 2018

%

Igor Vladimirovich Kim 75.5 75.5 German Alekseevich Tsoy 19.3 19.3 Kirill Vladimirovich Nifontov 2.0 2.0 MORELAM Limited Liability Company 2.0 2.0 Other 0.3 0.3 Treasury shares 0.9 0.9

Total 100.0 100.0

As at 30 September 2019, the Board of Directors and the Management Board controlled 96.9% of the Bank’s interest (31 December 2018: 96.9%).

Principal activity

The Bank’s priority business includes offering a full range of banking services to corporate clients and affluent private customers, issue of car loans and bank guarantees, as well as acquisition and consolidation of banking assets. The Bank has operated under full banking license No. 2998 issued on 6 February 2012 by the Central Bank of the Russian Federation (“CBR”). The Bank participates in the state deposit insurance scheme introduced by Federal Law No. 177-FZ dated 23 December 2003 “On Insurance of Deposits of Individuals with Russian Banks”. The deposit insurance scheme guarantees repayment of 100% of deposits up to RUB 1,400 thousand per depositor in case the banking license is revoked or CBR imposes moratorium on payments.

On 30 April 2019, “Kurskprоmbank” was included in the Group due to the latter’s acquiring 86.9% of the bank’s voting shares and receiving control over its business and operations.

In June 2019, the Bank sent a mandatory offer to the shareholders of “Kurskprоmbank” on the acquisition of 100% shares in “Kurskprombank” in accordance with Federal Law No. 208-FZ of 26 December 1995 “On Joint Stock Companies”. According to the mandatory offer, Expobank LLC acquired 4,617,750 shares in “Kurskprombank” from “Kurskprombank’s” shareholders in August 2019. As a result, the Group’s interest in the share capital of “Kurskprombank” increased to 97.9%.

In April 2018, EXPOINVEST LLC, whose sole participant is Expobank LLC, was established and included in the Group.

The Bank’s head office is located in Moscow. As at 30 September 2019, the Bank had five branches (31 December 2018: five branches). All branches are located in the Russian Federation. The Bank’s registered address is: Kalanchevskaya str., 29, bldg. 2, Moscow, 107078, Russia. In addition, the Bank carries out activities through additional and operational offices in the Russian Federation. As at 30 September 2019, the Bank had 18 offices (31 December 2018: 12 offices).


9

1 Introduction (continued)

Principal activity (continued)

The head office of “Kurskprоmbank” is located in the city of Kursk. As at 30 September 2019, “Kurskprоmbank” had no branches. “Kurskprоmbank’s” registered address is: Lenina str., 13, Kursk, 305000, Russia. In addition, “Kurskprоmbank” carries out activities through additional and operational offices, POS loan desks and standalone cash desks. As at 30 September 2019, “Kurskprоmbank” had 14 additional offices, 6 operational offices, 6 POS loan desks and 7 standalone cash desks.

As at 30 September 2019, the Group had 1,326 employees (31 December 2018: 715 employees).

The Bank has credit ratings assigned by leading rating agencies. In September 2019, Fitch Ratings upgraded the Bank’s Long-Term International Credit Rating to ‘BB-’ from ‘B+’, Outlook Stable. In May 2019, Expert RA rating agency assigned to the Bank a credit rating of ruА-, Outlook Stable. In March 2019, Russian Analytical Credit Rating Agency (ACRA) affirmed the Bank’s BBB+(RU) credit rating under the national scale, revising the Outlook to ‘Positive’ from ‘Stable’.

2 Significant Accounting Policies

General information

This interim condensed consolidated financial information for the nine months ended 30 September 2019 has been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”.

This interim condensed consolidated financial information does not contain all information and data required to be disclosed in the annual consolidated financial statements, therefore it should be read in conjunction with the annual consolidated financial statements of the Group for the year ended 31 December 2018.

This interim condensed consolidated financial information is presented in thousands of Russian Rubles ("RUB ‘000"), unless otherwise stated.

As at 30 September 2019, the principal rate of exchange used for translating foreign currency balances was USD 1 = RUB 64.4156 (31 December 2018: USD 1 = RUB 69.4706) and EUR 1 = RUB 70.3161 (31 December 2018: EUR 1 = RUB 79.4605).

The interim condensed consolidated financial information in accordance with Russian law can be found at the Bank’s web-site www.expobank.ru.

Consolidated Financial Statements

Subsidiaries are those investees, including the structured entity that the Group controls because the Group

(i) has power to direct relevant activities of the investees that significantly affect their returns,

(ii) has exposure, or rights, to variable returns from its involvement with the investees, and

(iii) has the ability to use its power over the investees to affect the amount of investor’s returns.

The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than the majority of voting power in an investee. In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group, and are deconsolidated from the date on which control ceases.

http://www.expobank.ru/


10

2 Significant Accounting Policies (continued)

Consolidated Financial Statements (continued)

The acquisition method of accounting is used to consolidate subsidiaries. The identifiable assets acquired and the liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.

The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis at the non-controlling interest's proportionate share of net assets of the acquiree. Non-controlling interests that are not present ownership interests are measured at fair value.

Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognised in profit or loss, after the management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed, and reviews the appropriateness of their measurement.

The consideration transferred for the acquiree is measured at fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including the fair value of assets or liabilities from contingent consideration arrangements, but excluding the acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt securities are deducted from their carrying amount and all other transaction costs associated with the acquisition are expensed.

Intercompany transactions, balances and unrealised gains on transactions between the Group companies are eliminated. Unrealised losses are also eliminated unless the cost cannot be recovered. The Bank and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies.

Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Bank. Non-controlling interest forms a separate component of the Group’s equity.

Changes in accounting policies

The accounting principles used to prepare this interim condensed consolidated financial information are consistent with the principles applied by the Group to prepare its annual consolidated financial statements for the year ended 31 December 2018, except where new standards were adopted from 1 January 2019. The nature and effect of these changes are disclosed below. The Group did not adopt early any other standards, interpretations or amendments that were issued but did not become effective.

Right-of-use assets and lease liabilities

From 1 January 2019, all lease agreements where the Group is a lessee are recognised as a right-of-use asset and a corresponding liability at the date when the leased asset is available to the Group. Each lease payment is allocated between the liabilities and finance costs. Finance costs are recognised within profit or loss for the lease period to ensure a fixed periodic interest rate on the outstanding balance of the liabilities for each period. The right-of-use asset is amortised on a straight-line basis from the start of lease to the earlier of the end of the right-of-use asset’s useful life or the end of lease.

As an exception, the Group keeps records of low-value property, recognising lease payments as an expense on a straight-line basis.


11


Right-of-use assets and lease liabilities (continued)

Assets and liabilities arising from leases are initially measured based on present value. Lease liabilities include net present value of the following lease payments:

fixed payments (including in-substance fixed payments) less any lease incentives receivable under cancellable or uncancellable leases;

variable lease payments that depend on an index or a rate;

amounts expected to be payable by the Group under residual value guarantees;

the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and

payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

A lease term includes any uncancellable lease periods, along with the periods subject to a lease extension option, if it is reasonably certain that such option will be exercised in accordance with IFRS 16 “Leases”. Lease payments are discounted using the interest rate implicit in a lease. If such a rate cannot be determined, then the incremental borrowing rate is used that represents the interest rate the Group would have to pay to borrow funds necessary to obtain an asset of a similar value in a similar economic environment on similar terms. Right-of-use assets are measured at cost, including:

the amount of the initial measurement of the lease liability;

any lease payments made at or before the commencement date, less any lease incentives received;

any initial direct costs incurred; and

an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the land on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

Depreciation of right-of-use assets is recognised within administrative and other operating expenses in the interim condensed consolidated statement of profit or loss. Finance costs are recognised within interest expenses calculated using the effective interest rate in the interim condensed consolidated statement of profit or loss. Payments under lease liabilities are disclosed within cash flows from financing activities in the interim condensed consolidated statement of cash flows.

This measurement is subject to review upon the occurrence of a significant event or a material change in the circumstances that affect such measurement and is under the lessee’s control. The lease terms and conditions reflecting the effect of exercising options to extend or terminate the lease have not been reviewed in the current financial year.

Adoption of new or revised standards and interpretations

IFRS 16 “Leases”

The Group adopted IFRS 16 issued on 13 January 2016 from its effective date of 1 January 2019.

The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases in the interim condensed consolidated financial information. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 “Leases” and, instead, introduces a single lessee accounting model. The Group has implemented this standard in accordance with IFRS 16 transition period provisions, using the modified retrospective method, without restatement of comparatives. As at 1 January 2019, the Group recognised right-of-use assets in the amount of RUB 252,181 thousand and a related lease liability.


12


Adoption of new or revised standards and interpretations (continued)

A reconciliation of operating lease commitments with recognised lease liabilities under IFRS 16 is presented below:

(in RUB ‘000) 1 January 2019

(unaudited)

Operating lease payments due and payable 181,157 Adjustments to lease payments: Future lease payments for the period of the lease extension option if such an option is reasonably certain to be exercised 91,255 Practical exemption: low value of the underlying asset (1,322)

Future lease payments recognised for IFRS 16 purposes 271,090

Effect of discounting (26,541)

Lease liabilities under IFRS 16 244,549

Previously paid advances and non-refundable guarantee deposits under contracts 7,632

Right-of-use assets under IFRS 16 252,181

These liabilities were measured at the present value of the remaining lease payments discounted using the lessee's incremental borrowing rates at 1 January 2019. As at 1 January 2019, the lessee’s weighted average incremental borrowing rate applied to lease liabilities is 7.02%.

The following amended standards became effective for the Group from 1 January 2019, but did not have any material impact on the Group.

IFRIC 23 "Uncertainty over Income Tax Treatments" (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019).

Annual Improvements to IFRSs 2015-2017 cycle – Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019).

Assessment of loans to customers at amortised cost

The Group has changed the procedure for calculating the amortised cost of loans to customers since 1 January 2019. In accordance with the new approach, commissions for originating loans are recorded within the Group’s income as a lump-sum and are not included in the amortised cost calculation, if their amount does not exceed 5% of the loan issued and/or total commissions for the loans issued during the year do not exceed 1% of the Group’s equity. The Group did not retrospectively restate comparatives in the interim condensed consolidated financial information due to their insignificant impact on its interim condensed consolidated financial information.


13

3 Critical Accounting Estimates and Judgments in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognised in the interim condensed consolidated information statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on the management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. While applying the accounting policies, the management also uses professional judgments and estimations. Professional judgments that have the most significant effect on the amounts recognised in the interim condensed consolidated financial information and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Expected credit losses on financial assets

Loss measurement under IFRS 9 “Financial instruments” related to all categories of financial assets requires judgment. In particular, when determining expected credit losses (“ECL”) and assessing a significant increase in credit risk (“SICR”), it is necessary to estimate the amount and timing of future cash flows and collateral value. Such estimates depend on a number of factors that, if changed, may result in different amounts of impairment allowances. The Group’s ECL measurements are based on complex models that include a number of base assumptions regarding the choice of variable inputs and their interdependencies. The elements of the ECL measurement models that are deemed to be judgments and estimates include the following:

a system of assigning an internal credit rating used by the Group to determine the probability of default (“PD”);

criteria used by the Group to assess whether a SICR has occurred that results in estimating an impairment allowance for financial assets in the amount equal to lifetime ECL, and qualitative assessment;

grouping of financial assets when their ECLs are assessed on a collective basis;

development of ECL measurement models, including different formulae and the choice of inputs;

identification of correlations between macro-economic scenarios and economic data, as well as effect on PD;

selection of forward-looking macroeconomic scenarios and their weighting against probabilities to obtain economic inputs for the ECL measurement models.

Initial recognition of related party transactions

In the ordinary course of business, the Group enters into transactions with its related parties. IFRS 9 requires initial recognition of financial instruments based on their fair value. Judgment is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgment is pricing for similar types of transactions with unrelated parties and effective interest rate analysis. Terms and conditions of related party transactions are disclosed in Note 21.


14

3 Critical Accounting Estimates and Judgments in Applying Accounting Policies (continued)

Valuation of own land and buildings

Land and buildings of the Group are stated at fair value based on the report prepared by an independent valuation company. The valuation is made by an independent company specialising in the assessment of similar assets in a similar region and of a similar category. To measure the fair value of the land and buildings, the independent appraiser used a comparison approach and an income approach. The sales comparison appraisal was made through comparing sales as there exist market information on sales offers for similar properties, and is based on the prices used in market transactions significantly adjusted for the differences in the nature, location and condition of a specific property. The income approach appraisal reflects the utility of the property as far as its income generation potential is concerned, and is based on the lease rates data as of the appraisal date. Based on the revaluation of the Group’s land and buildings at 31 December 2018, an increase in the fair value recorded within other comprehensive income totaled RUB 29,495 thousand before deferred tax.

Fair value of financial instruments

If a quoted market price is not available, the fair value of financial assets and financial liabilities recorded in the interim condensed consolidated statement of financial position is estimated using various valuation techniques including mathematical models. Inputs to build such models are determined based on the observable market where possible; otherwise, judgments are to be applied for determining the fair value. Additional information on estimating fair value of assets and liabilities is provided in Note 20.

4 Cash and Cash Equivalents

(in RUB ‘000) 30 September 2019

(unaudited) 31 December

2018

Cash on hand 1,185,034 652,589 Cash balances with CBR (other than mandatory cash balances) 2,029,003 2,241,240 Correspondent accounts and overnight placements with credit institutions 5,257,870 5,124,998 Deposits placed with CBR with original maturities of less than three months 4,504,258 – Reverse sale and repurchase agreements with credit institutions with original maturities of less than three months 1,858,523 3,080,312 Loans to credit institutions with original maturities of less than three months 800,000 1,560,318 Settlement accounts with financial institutions 364,196 233,839

Total cash and cash equivalents before ECL allowance 15,998,884 12,893,296 Less ECL allowance (1,433) (1,054)

Total cash and cash equivalents 15,997,451 12,892,242

Correspondent accounts and overnight placements with credit institutions as at 30 September 2019 and 31 December 2018 represent funds placed with Russian and foreign credit institutions.


15

4 Cash and Cash Equivalents (continued)

As at 30 September 2019, reverse sale and repurchase agreements with credit institutions with original maturities of less than three months represent funds placed with a Russian credit institution with contractual interest rates from 6.71% to 6.9% p.a. (31 December 2018: from 7.5% to 7.95% p.a.) and maturities in October 2019 (31 December 2018: in January 2019). These agreements are collateralised by Russian federal loan bonds and bonds of a large Russian bank and of a large Russian company with a fair value of RUB 1,999,533 thousand (31 December 2018: Russian federal loan bonds and bonds of large Russian companies with a fair value of RUB 3,368,415 thousand).

As at 30 September 2019, loans to credit institutions with original maturities of less than three months include a loan to a large Russian bank (31 December 2018: loans to a large Russian bank and foreign banks) with a contractual interest rate of 6.75% p.a. (31 December 2018: from 2.25% to 7.65% p.a.) and maturity in October 2019 (31 December 2018: from January 2019 to March 2019).

As at 30 September 2019, settlement accounts with financial institutions represent broker accounts with financial institutions in the amount of RUB 302,381 thousand (31 December 2018: RUB 111,874 thousand), settlements with Central Counterparty National Clearing Centre in the amount of RUB 38,273 thousand (31 December 2018: RUB 99,914 thousand), settlements with payment systems in the amount of RUB 23,542 thousand (31 December 2018: RUB 22,051 thousand).

As at 30 September 2019, cash and cash equivalents with regards to four major counterparties amounted to RUB 7,265,831 thousand (31 December 2018: RUB 8,450,593 thousand), or 45.4% (31 December 2018: 65.5%) of total cash and cash equivalents.

Movements in ECL allowances for cash and cash equivalents for the nine months ended 30 September are presented in the table below:

(in RUB ‘000) 2019

(unaudited) 2018

(unaudited)

ECL allowance at 1 January 1,054 139 New purchased or originated assets 1,608 837 Derecognised or redeemed assets (4,787) (187) Net remeasurement of loss allowance 3,563 − Exchange differences (5) −

ECL allowance at 30 September (unaudited) 1,433 789

For ECL allowance purposes, all cash and cash equivalents during the nine months ended 30 September 2019 and the nine months ended 30 September 2018 are classified in Stage 1.

Movements in ECL allowances for cash and cash equivalents for the three months ended 30 September are presented in the table below:

(in RUB ‘000) 2019

(unaudited) 2018

(unaudited)

ECL allowance at 1 July (unaudited) 3,717 34 New purchased or originated assets 1,405 809 Derecognised or redeemed assets (3,690) (53) Exchange differences 1 (1)

ECL allowance at 30 September (unaudited) 1,433 789

For ECL allowance purposes, all cash and cash equivalents during the three months ended 30 September 2019 and the three months ended 30 September 2018 are classified in Stage 1.

Refer to Note 20 for the disclosure of the fair value of cash and cash equivalents. The information on related party transactions is disclosed in Note 21.


16

5 Trading Securities



2018

Corporate bonds 3,896,876 2,951,480 Bonds of state corporations 1,374,064 − Bonds of banks 951,971 − Corporate shares 447,480 46,516 Shares of banks 50,035 311,314 Investment units 32,258 84,414 CBR bonds − 1,009,670 Federal loan bonds of the Russian Federation − 2,157

Total not pledged trading securities 6,752,684 4,405,551

Federal loan bonds of the Russian Federation 2,115,496 2,253,303 Corporate shares 74,025 −

Total pledged trading securities sold under direct repo agreements 2,189,521 2,253,303

Total trading securities 8,942,205 6,658,854

Trading securities are recorded at fair value determined based on observable market data using the weighted average quotes of Moscow Exchange or other observable market data. Where quoted market prices are not available, the Group uses various valuation techniques. Refer to Note 20.

As at 30 September 2019, corporate bonds represent interest bearing securities denominated in Russian Rubles and foreign currency (31 December 2018: in Russian Rubles) issued by large Russian companies and tradable on the Russian and foreign markets (31 December 2018: on the Russian market).

Bonds of state corporations represent interest bearing debt securities denominated in foreign currency issued by Vneshekonombank and tradable on foreign markets. The debt securities issuer is not a commercial bank and its operation is regulated by special legislation.

Bonds of banks represent interest bearing debt securities denominated in Russian Rubles and foreign currency issued by Russian and foreign banks and tradable on the Russian and foreign markets.

Corporate shares are equity securities denominated in Russian Rubles issued by large Russian companies and tradable on the Russian market.

Shares of banks are equity securities denominated in Russian Rubles issued by a large Russian bank and tradable on the Russian market.

As at 30 September 2019, trading securities in the amount of RUB 967,164 thousand (31 December 2018: RUB 438,769 thousand) were restricted under the Master Loan Agreement signed with CBR with an overdraft limit in the amount of RUB 3,500,000 thousand.

The information on due to credit institutions and customer accounts under direct repo agreements is disclosed in Notes 9 and 10.

Refer to Note 20 for the disclosure of the fair value of each class of trading securities.


17

6 Due from Credit Institutions

As at 30 September 2019, amounts due from credit institutions include loans provided to a large Russian bank and foreign banks in the amount of RUB 1,560,385 thousand with contractual interest rates from 2.6% p.a. to 4.65% p.a. and maturities from March 2020 to September 2020. The ECL allowance amounted to RUB 1,026 thousand (unaudited).

As at 31 December 2018, amounts due from credit institutions include loans provided to a large Russian bank and foreign banks in the amount of RUB 1,831,303 thousand with contractual interest rates from 2.6% p.a. to 4.88% p.a. and maturities from March 2019 to September 2020. The ECL allowance amounted to RUB 15,037 thousand.

Movements in ECL allowances for the amounts due from credit institutions for the nine months ended 30 September are presented in the table below:

(in RUB ‘000) 2019

(unaudited) 2018

(unaudited)

ECL allowance at 1 January 15,037 3,094 New originated or purchased assets and effects of other increases in gross carrying amount 556 20,942 Derecognised or redeemed assets and effects of other decreases in gross carrying amount (4,481) (3,031) Net remeasurement of loss allowance (9,065) (2,992) Exchange differences (1,021) 1,930

ECL allowance at 30 September (unaudited) 1,026 19,943

For ECL allowance purposes, all amounts due from credit institutions during the nine months ended 30 September 2019 and the nine months ended 30 September 2018 are classified in Stage 1.

Movements in ECL allowances for the amounts due from credit institutions for the three months ended 30 September are presented in the table below:

(in RUB ‘000) 2019

(unaudited) 2018

(unaudited)

ECL allowance at 1 July (unaudited) 1,510 17,052 New originated or purchased assets and effects of other increases in gross carrying amount − 3,895 Derecognised or redeemed assets and effects of other decreases in gross carrying amount (83) (5) Net remeasurement of loss allowance (423) (2,957) Exchange differences 22 1,958

ECL allowance at 30 September (unaudited) 1,026 19,943

For ECL allowance purposes, all amounts due from credit institutions during the three months ended 30 September 2019 and the three months ended 30 September 2018 are classified in Stage 1.

Amounts due from credit institutions are not collateralised.

Refer to Note 20 for the disclosure of the fair value of amounts due from credit institutions. The information on related party transactions is disclosed in Note 21.


18

7 Loans to Customers

(in RUB ‘000)

30 September 2019


2018

State and municipal organisations 103,455 − Large business 18,212,856 14,802,706 Medium business 10,374,258 6,666,310 Small business 7,804,139 2,257,395 Loans to individuals 27,281,666 15,234,985

Total loans to customers at amortised cost before ECL allowance 63,776,374 38,961,396 Less ECL allowance (2,374,873) (1,074,638)

Total loans to customers at amortised cost 61,401,501 37,886,758

Loans to legal entities at FVTPL 1,208,914 2,517,065 Loans to individuals at FVTPL 681,952 −

Total loans to customers at FVTPL 1,890,866 2,517,065

Total loans to customers 63,292,367 40,403,823

The Group has a portfolio of loans to customers that do not pass the “Solely payments of principal and interest” test in order to be classified at amortised cost under IFRS 9. As a result, these loans were classified as at FVTPL from the date of initial recognition. The loans to customers at FVTPL are measured taking into account credit risk. The carrying amount presented in the interim condensed consolidated statement of financial position best represents the Group's maximum exposure to credit risk arising from loans to customers.

Portfolios of loans recognised by the Group are divided into:

loans to large businesses (annual revenue exceeds RUB 3 billion);

loans to medium businesses (annual revenue is from RUB 400 million to RUB 3 billion inclusive);

loans to small businesses (annual revenue is up to RUB 400 million inclusive), as well as loans originated under the Regional Business Lending Programme that was in effect in the Group until 1 January 2009;

retail loans – consumer loans provided to individuals.


19

7 Loans to Customers (continued)

Movements in ECL allowances for loans to state and municipal organisations for the nine months ended 30 September 2019 are presented in the table below:

(in RUB ‘000) Stage 1 Stage 2 Total

State and municipal organizations ECL allowance at 1 January 2019 − − − Business combinations 5,585 − 5,585 Derecognised or redeemed assets (excluding write-offs) and effects of other

decreases in gross carrying amount (570) (518) (1,088) Transfers to Stage 2 (2,542) 2,542 − Net remeasurement of loss allowance 27 − 27

ECL allowance at 30 September 2019 (unaudited) 2,500 2,024 4,524

Movements in ECL allowances for loans to large businesses for the nine months ended 30 September 2019 are presented in the table below:

(in RUB ‘000) Stage 1 Stage 2 POCI Total

Large business ECL allowance at 1 January 2019 93,110 110,804 − 203,914 Business combinations 138,090 − − 138,090 New originated or purchased assets and effects of other increases in

gross carrying amount 102,379 2,385 − 104,764 Derecognised or redeemed assets (excluding write-offs) and effects of

other decreases in gross carrying amount (76,984) (1,337) (568) (78,889) Transfers to Stage 2 (70,340) 70,340 − − Net remeasurement of loss allowance (133,246) (25,534) 568 (158,212) ECL allowance for loans assigned during the period (30) − − (30) Exchange differences (2,618) (8,276) − (10,894)

ECL allowance at 30 September 2019 (unaudited) 50,361 148,382 − 198,743

Movements in ECL allowances for loans to medium businesses for the nine months ended 30 September 2019 are presented in the table below:

(in RUB ‘000) Stage 1 Stage 2 Stage 3 Total

Medium business ECL allowance at 1 January 2019 50,346 309 10,675 61,330 Business combinations 183,019 − − 183,019 New originated or purchased assets and effects of other increases in

gross carrying amount 67,580 56,796 18,649 143,025 Derecognised or redeemed assets (excluding write-offs) and effects of

other decreases in gross carrying amount (113,481) (2,144) (30,888) (146,513) Transfers to Stage 1 12 (12) − − Transfers to Stage 2 (90,535) 90,535 − − Transfers to Stage 3 − (35,660) 35,660 − Unwinding of discounting (recognised in interest income) − − 2,826 2,826 Net remeasurement of loss allowance 190,576 39,493 41,545 271,614 Exchange differences (442) (5) − (447)

ECL allowance at 30 September 2019 (unaudited) 287,075 149,312 78,467 514,854


20


Movements in ECL allowances for loans to small businesses for the nine months ended 30 September 2019 are presented in the table below:

(in RUB ‘000) Stage 1 Stage 2 Stage 3 POCI Total

Small business ECL allowance at 1 January 2019 15,143 19,463 498,438 − 533,044 Business combinations 250,042 − − − 250,042 New originated or purchased assets and effects of other

increases in gross carrying amount 86,487 8,951 35,639 − 131,077 Derecognised or redeemed assets (excluding write-offs) and

effects of other decreases in gross carrying amount (52,529) (8,659) (49,313) − (110,501) Transfers to Stage 2 (104,442) 104,442 − − − Transfers to Stage 3 (10,052) (114) 10,166 − − Unwinding of discounting (recognised in interest income) − − 26,180 − 26,180 Net remeasurement of loss allowance (47,803) (16,541) 14,829 482 (49,033) ECL allowance for loans assigned during the period − − (13,014) − (13,014) Write-offs − − (61,780) − (61,780)

ECL allowance at 30 September 2019 (unaudited) 136,846 107,542 461,145 482 706,015

Movements in ECL allowances for loans to individuals for the nine months ended 30 September 2019 are presented in the table below:


Individuals ECL allowance at 1 January 2019 130,734 31,018 114,598 276,350 Business combinations 197,081 − − 197,081 New originated or purchased assets and effects of other increases in


other decreases in gross carrying amount (101,871) (8,798) (39,658) (150,327) Transfers to Stage 1 36,429 (30,543) (5,886) − Transfers to Stage 2 (48,226) 49,264 (1,038) − Transfers to Stage 3 (14,523) (109,786) 124,309 − Unwinding of discounting (recognised in interest income) − − 25,043 25,043 Net remeasurement of loss allowance 83,971 176,427 116,927 377,325 ECL allowance for loans assigned during the period (23,077) (3,971) (10,281) (37,329) Exchange differences (46) − (69) (115)



21


Movements in ECL allowances for loans to state and municipal organisations for the three months ended 30 September 2018 are presented in the table below:


State and municipal organisations ECL allowance at 1 July 2019 5,279 − 5,279 Derecognised or redeemed assets (excluding write-offs) and effects of other

decreases in gross carrying amount (237) (518) (755) Transfers to Stage 2 (2,542) 2,542 −

ECL allowance at 30 September 2019 2,500 2,024 4,524

Movements in ECL allowances for loans to large businesses for the three months ended 30 September 2019 are presented in the table below (unaudited):


Large business ECL allowance at 1 July 2019 252,999 102,056 355,055 New originated or purchased assets and effects of other increases in

gross carrying amount 13,537 864 14,401 Derecognised or redeemed assets (excluding write-offs) and effects of

other decreases in gross carrying amount (47,345) (1,337) (48,682) Transfers to Stage 2 (70,340) 70,340 − Net remeasurement of loss allowance (98,491) (25,534) (124,025) Exchange differences 1 1,993 1,994

ECL allowance at 30 September 2019 50,361 148,382 198,743

Movements in ECL allowances for loans to medium businesses for the three months ended 30 September 2019 are presented in the table below (unaudited):


Medium business ECL allowance at 1 July 2019 183,242 35,660 − 218,902 New originated or purchased assets and effects of other increases in


other decreases in gross carrying amount (85,191) (1,809) (20,213) (107,213) Transfers to Stage 2 (90,213) 90,213 − − Transfers to Stage 3 − (35,660) 35,660 − Unwinding of discounting (recognised in interest income) − − 2,826 2,826 Net remeasurement of loss allowance 234,428 4,124 41,545 280,097 Exchange differences 9 − − 9

ECL allowance at 30 September 2019 287,075 149,312 78,467 514,854


22


Movements in ECL allowances for loans to small businesses for the three months ended 30 September 2019 are presented in the table below (unaudited):


Small business ECL allowance at 1 July 2019 310,653 9,900 453,723 − 774,276 New originated or purchased assets and effects of

other increases in gross carrying amount 17,340 8,673 28,730 − 54,743 Derecognised or redeemed assets (excluding write-

offs) and effects of other decreases in gross carrying amount (16,056) (8,592) (18,138) − (42,786)

Transfers to Stage 2 (104,442) 104,442 − − − Transfers to Stage 3 (10,052) (67) 10,119 − − Unwinding of discounting (recognised in interest

income) − − 18,073 − 18,073 Net remeasurement of loss allowance (60,597) (6,814) 12,671 482 (54,258) Write-offs − − (44,033) − (44,033)

ECL allowance at 30 September 2019 136,846 107,542 461,145 482 706,015

Movements in ECL allowances for loans to individuals for the three months ended 30 September 2019 are presented in the table below (unaudited):


Individuals ECL allowance at 1 July 2019 467,390 76,544 263,071 807,005 New originated or purchased assets and effects of

other increases in gross carrying amount 96,882 7,698 7,411 111,991 Derecognised or redeemed assets (excluding write-offs) and

effects of other decreases in gross carrying amount (57,991) (6,121) (21,878) (85,990) Transfers to Stage 1 21,622 (19,026) (2,596) − Transfers to Stage 2 (43,520) 44,196 (676) − Transfers to Stage 3 (5,966) (48,290) 54,256 − Unwinding of discounting (recognised in interest income) − − 11,009 11,009 Net remeasurement of loss allowance 20,297 60,915 29,715 110,927 ECL allowance for loans assigned during the period (4,060) (147) − (4,207) Exchange differences 1 − 1 2


Movements in ECL allowances for loans to large businesses for the nine months ended 30 September 2018 are presented in the table below:


Large business ECL allowance at 1 January 2018 253,576 5,190 258,766 New purchased or originated assets 72,837 − 72,837 Derecognised or redeemed assets (excluding write-offs) (105,995) (4,493) (110,488) Net remeasurement of loss allowance (52,172) (697) (52,869) Exchange differences 18,666 − 18,666

ECL allowance at 30 September 2018 186,912 − 186,912


23


Movements in ECL allowances for loans to medium businesses for the nine months ended 30 September 2018 are presented in the table below:


Medium business ECL allowance at 1 January 2018 43,806 22,930 40,594 107,330 New purchased or originated assets 71,749 19 7,969 79,737 Derecognised or redeemed assets (excluding write-offs) (41,733) (18,724) (16,884) (77,341) Transfers to Stage 1 3,590 (3,590) − − Net remeasurement of loss allowance (14,929) 3,610 (10,996) (22,315) Exchange differences 4,061 223 220 4,504


Movements in ECL allowances for loans to small businesses for the nine months ended 30 September 2018 are presented in the table below:


Small business ECL allowance at 1 January 2018 96,869 − 397,207 494,076 New purchased or originated assets 10,694 2,022 12,716 Derecognised or redeemed assets (excluding write-offs) (33,951) (2,560) (4,555) (41,066) Transfers to Stage 2 (12,484) 12,484 − − Net remeasurement of loss allowance (39,324) 12,456 15,170 (11,698)


Movements in ECL allowances for loans to individuals for the nine months ended 30 September 2018 are presented in the table below:


Individuals ECL allowance at 1 January 2018 15,789 4,454 46,444 66,687 New purchased or originated assets 74,300 1,291 2,178 77,769 Derecognised or redeemed assets (excluding write-offs) (15,668) (2,163) (4,562) (22,393) Transfers to Stage 1 4,553 (3,890) (663) − Transfers to Stage 2 (772) 1233 (461) − Transfers to Stage 3 (2,218) (11,076) 13,294 − Net remeasurement of loss allowance 11,847 21,795 30,601 64,243 ECL allowance for loans assigned during the period (288) − − (288) Exchange differences 35 − 868 903


Movements in ECL allowances for loans to large businesses for the three months ended 30 September 2018 are presented in the table below (unaudited):

(in RUB ‘000) Stage 1 Total

Large business ECL allowance at 1 July 2018 193,658 193,658 New purchased or originated assets 16,857 16,857 Derecognised or redeemed assets (excluding write-offs) (21,124) (21,124) Net remeasurement of loss allowance (8,324) (8,324) Exchange differences 5,845 5,845

ECL allowance at 30 September 2018 186,912 186,912


24


Movements in ECL allowances for loans to medium businesses for the three months ended 30 September 2018 are presented in the table below (unaudited):


Medium business ECL allowance at 1 July 2018 70,512 3,743 46,842 121,097 New purchased or originated assets 15,308 1 2,288 17,597 Derecognised or redeemed assets (excluding write-offs) (10,829) (352) (12,107) (23,288) Net remeasurement of loss allowance (9,229) 927 (16,326) (24,628) Exchange differences 782 149 206 1,137


Movements in ECL allowances for loans to small businesses for the three months ended 30 September 2018 are presented in the table below (unaudited):


Small business ECL allowance at 1 July 2018 25,747 − 419,399 445,146 New purchased or originated assets 10,153 − − 10,153 Derecognised or redeemed assets (excluding write-offs) (834) (2,560) (4,305) (7,699) Transfers to Stage 2 (12,484) 12,484 − − Net remeasurement of loss allowance (778) 12,456 (5,250) 6,428


Movements in ECL allowances for loans to individuals for the three months ended 30 September 2018 are presented in the table below (unaudited):


Individuals ECL allowance at 1 July 2018 55,978 5,653 69,107 130,738 New purchased or originated assets 33,338 376 790 34,504 Derecognised or redeemed assets (excluding write-offs) (6,707) (357) (1,729) (8,793) Transfers to Stage 1 1,261 (988) (273) − Transfers to Stage 2 (406) 760 (354) − Transfers to Stage 3 (1,467) (4,503) 5,970 − Net remeasurement of loss allowance 5,674 10,703 13,893 30,270 ECL allowance for loans assigned during the period (96) − − (96) Exchange differences 3 − 295 298



25


Economic sector risk concentrations within the customer loan portfolio are as follows:

(in RUB ‘000)


31 December 2018

Amount % Amount %

Individuals 27,963,618 42.6 15,234,985 36.7 Financing and insurance activities 5,442,574 8.3 5,622,139 13.6 Development 4,138,079 6.3 1,883,910 4.5 Wholesale trade 3,510,461 5.3 3,230,569 7.8 Agriculture, forestry, hunting, fishing and fishery 3,397,805 5.2 65,866 0.2 Real estate operations 3,000,000 4.6 − 0 Metallurgy 2,734,505 4.2 1,512,257 3.7 Construction 2,153,035 3.3 1,110,833 2.7 Residential construction 2,138,982 3.3 1,602,383 3.9 Infrastructure construction 2,105,041 3.2 588,547 1.4 Retail trade 1,711,197 2.6 1,839,487 4.4 Other manufacturing 1,273,334 1.9 1,726,844 4.2 Oil and gas 1,269,677 1.9 799,995 1.9 Food products 1,191,549 1.8 602,070 1.4 Trade in motor vehicles, motorcycles and their repair 1,160,713 1.8 894,899 2.2 Energy 833,181 1.3 206,500 0.5 Manufacture and repair of transport vehicles and

equipment 674,162 1.0 810,370 1.9

Information and communication activities 221,134 0.3 1,087,697 2.6 Other 748,193 1.1 2,659,110 6.4

Total loans and advances to customers (before

ECL allowance for loan portfolio) 65,667,240 100.0 41,478,461 100.0

As at 30 September 2019, loans provided to 30 largest borrowers amounted to RUB 25,614,957 thousand before ECL allowance for the loan portfolio (31 December 2018: RUB 22,318,853 thousand), or 39% (31 December 2018: 54%) of total loans to customers.

The analysis by credit quality of loans to state and municipal organisations at amortised cost as at 30 September 2019 is as follows (unaudited):


State and municipal organisations Neither past due nor impaired – standard portfolio 27,783 75,672 103,455

Total neither past due nor impaired 27,783 75,672 103,455

Total loans and advances to state and municipal organisations (before ECL allowance) 27,783 75,672 103,455

Less ECL allowance (2,500) (2,024) (4,524)

Total loans and advances to state and municipal organisations 25,283 73,648 98,931


26


The analysis by credit quality of loans to large businesses at amortised cost as at 30 September 2019 is as follows (unaudited):

(in RUB ‘000) Stage 1 Stage 2 POCI Total

Large business Neither past due nor impaired – standard portfolio 12,953,653 4,979,334 − 17,932,987

Total neither past due nor impaired 12,953,653 4,979,334 − 17,932,987

Individually impaired – not past due − − 279,869 279,869

Total individually impaired − − 279,869 279,869

Total loans and advances to large businesses (before ECL allowance) 12,953,653 4,979,334 279,869 18,212,856

Less ECL allowance (50,361) (148,382) − (198,743)

Total loans and advances to large businesses 12,903,292 4,830,952 279,869 18,014,113

The analysis by credit quality of loans to medium businesses at amortised cost as at 30 September 2019 is as follows (unaudited):


Medium business Neither past due nor impaired – standard portfolio 9,048,201 1,226,633 − 10,274,834


Past due but not impaired – over 90 days overdue − − 214 214

Total past due but not impaired − − 214 214

Individually impaired – over 90 days overdue − − 99,210 99,210


Total loans and advances to medium businesses (before ECL allowance) 9,048,201 1,226,633 99,424 10,374,258

Less ECL allowance (287,075) (149,312) (78,467) (514,854)

Total loans and advances to medium businesses 8,761,126 1,077,321 20,957 9,859,404


27


The analysis by credit quality of loans to small businesses at amortised cost as at 30 September 2019 is as follows (unaudited):


Small business Neither past due nor impaired – loans renegotiated in 2019 − − 454 − 454 – standard portfolio 5,326,786 1,861,960 3,006 − 7,191,752

Total neither past due nor impaired 5,326,786 1,861,960 3,460 − 7,192,206

Past due but not impaired – less than 30 days overdue 7,114 − − − 7,114 – 31 to 90 days overdue − 10,350 36,529 − 46,879 – over 90 days overdue − − 5,238 − 5,238

Total past due but not impaired 7,114 10,350 41,767 − 59,231

Individually impaired – not past due − − − 99,998 99,998 – over 90 days overdue − − 424,625 28,079 452,704

Total individually impaired − − 424,625 128,077 552,702

Total loans and advances to small businesses (before ECL allowance) 5,333,900 1,872,310 469,852 128,077 7,804,139

Less ECL allowance (136,846) (107,542) (461,145) (482) (706,015)

Total loans and advances to small businesses 5,197,054 1,764,768 8,707 127,595 7,098,124

The analysis by credit quality of loans to individuals at amortised cost as at 30 September 2019 is as follows (unaudited):


Loans to individuals Neither past due nor impaired – loans renegotiated in 2019 1,188 − − 1,188 – loans renegotiated in prior reporting periods 3,172 − − 3,172 – standard portfolio 26,059,074 84,540 372 26,143,986

Total neither past due nor impaired 26,063,434 84,540 372 26,148,346

Past due but not impaired – less than 30 days overdue 519,555 1,225 − 520,780 – 31 to 90 days overdue − 151,682 11 151,693 – over 90 days overdue − 666 1,857 2,523

Total past due but not impaired 519,555 153,573 1,868 674,996



Total loans and advances to individuals (before ECL allowance) 26,582,989 238,113 460,564 27,281,666


Total loans and advances to individuals 26,088,334 122,344 120,251 26,330,929


28


The analysis by credit quality of loans to large businesses at amortised cost as at 31 December 2018 is as follows:


Large business Neither past due nor impaired – standard portfolio 12,586,627 2,216,079 − 14,802,706


Total loans and advances to large businesses (before ECL allowance) 12,586,627 2,216,079 − 14,802,706

Less ECL allowance (93,110) (110,804) − (203,914)

Total loans and advances to large businesses 12,493,517 2,105,275 − 14,598,792

The analysis by credit quality of loans to medium businesses at amortised cost as at 31 December 2018 is as follows:


Medium business Neither past due nor impaired – loans renegotiated in 2018 18,170 103,971 − 122,141 – standard portfolio 6,366,169 167,325 − 6,533,494

Total neither past due nor impaired 6,384,339 271,296 − 6,655,635



Total loans and advances to medium businesses (before ECL allowance) 6,384,339 271,296 10,675 6,666,310

Less ECL allowance (50,346) (309) (10,675) (61,330)

Total loans and advances to medium businesses 6,333,993 270,987 − 6,604,980


29


The analysis by credit quality of loans to small businesses at amortised cost as at 31 December 2018 is as follows:


Small business Neither past due nor impaired – standard portfolio 1,263,705 476,977 − 1,740,682


Individually impaired - over 90 days overdue − − 516,713 516,713


Total loans and advances to small businesses (before ECL allowance) 1,263,705 476,977 516,713 2,257,395


Total loans and advances to small businesses 1,248,562 457,514 18,275 1,724,351

The analysis by credit quality of loans to individuals at amortised cost as at 31 December 2018 is as follows:


Loans to individuals Neither past due nor impaired – loans renegotiated in 2018 3,943 1,960 − 5,903 – standard portfolio 14,911,427 − − 14,911,427


Past due but not impaired - less than 30 days overdue 122,775 − − 122,775 - 31 to 90 days overdue − 52,258 − 52,258

Total past due but not impaired 122,775 52,258 − 175,033

Individually impaired - over 90 days overdue − − 142,622 142,622


Total loans and advances to individuals (before ECL allowance) 15,038,145 54,218 142,622 15,234,985 Less ECL allowance (130,734) (31,018) (114,598) (276,350)

Total loans and advances to individuals 14,907,411 23,200 28,024 14,958,635

Loans renegotiated during the period represent loans with revised terms and conditions that otherwise would be past due or impaired.


30


Past due but not impaired loans primarily include collateralised loans where the fair value of collateral covers the overdue interest and principal repayments. The amount reported as past due but not impaired is the entire balance of such loans, not only the individual instalments that are past due.

As at 30 September 2019, loans to individuals include loans acquired from other financial institutions with a right of recourse in the amount of RUB 1,280,437 thousand before ECL allowance, with the recourse period under them of 6 months, and in the amount of RUB 681,953 thousand before ECL allowance, with the unlimited recourse period under them (31 December 2018: RUB 1,230,081 thousand, with the recourse period under them of 6 months). Total loans acquired with a right of recourse during the nine months ended 30 September 2019 equaled RUB 591,296 thousand, with the recourse period under them of 6 months, and RUB 707,142 thousand, with the unlimited recourse period under them (during the nine months ended 30 September 2018: RUB 1,108,324 thousand, with the recourse period under them of 6 months, and RUB 553,796 thousand, with the unlimited recourse period under them).

The Group derecognises a financial asset, e.g. a loan provided to a customer, if the contractual terms and conditions are renegotiated in such a way that such loan becomes a new loan and the difference is recognised as profit or loss from derecognition before the ECL allowance is recorded. Upon initial recognition, loans are classified in Stage 1 for ECL measurement purposes, unless a created loan is deemed to be a purchased or created impaired (‘POCI’) asset.

If modification does not trigger significant changes in cash flows, modification does not result in derecognition. Based on changes in cash flows discounted at the original effective interest rate, the Group recognises profit or loss from modification before the ECL allowance is recorded.

During the nine months ended 30 September 2019 the Group did not renegotiate loans to customers of Stage 2 and Stage 3.

Below are assets of Stage 2 with terms and conditions renegotiated during 2018 that were recorded as restructured or were included in the standard portfolio, with recognition of corresponding modification losses incurred by the Group.

(in RUB ‘000) 31 December

2018

Loans to customers modified during the period Amortised cost before modification 917,627 Net expense from modification (10,523)

The information on the fair value of each class of loans to customers is disclosed in Note 20. The information on related party transactions is disclosed in Note 21.


31

8 Investment Securities

Investment securities include the following items:



2018

Corporate bonds 2,611,502 5,894,714 Federal loan bonds of the Russian Federation − 850,593 Shares of banks 2,030,977 2,181,112 Bonds of state corporations 260,142 717,384 Bonds of banks 152,938 1,965,870 Corporate shares 42,564 268,516 Investment units − 10,958 Russian Federation Eurobonds − 310,563

Total not pledged investment securities at FVOCI 5,098,123 12,199,710

Federal loan bonds of the Russian Federation − 1,333,300 Bonds of banks − 1,012,406 Corporate bonds − 684,092 Russian Federation Eurobonds − 592,892

Total pledged investment securities at FVOCI sold under direct repo agreements − 3,622,690

Total investment securities at FVOCI 5,098,123 15,822,400

Federal loan bonds of the Russian Federation 508,673 −

Total not pledged investment securities at amortised cost 508,673 −

Total investment securities 5,606,796 15,822,400

Debt investment securities at fair value through other comprehensive income (‘FVOCI’) are recorded at fair value determined based on the observable market data. Where quoted market prices are not available, the Group uses various valuation techniques. Refer to Note 20.

As at 30 September 2019, shares of banks with carrying amount of RUB 2,030,977 thousand (31 December 2018: RUB 2,181,112 thousand) were represented by equity securities issued by foreign and Russian banks. The Group took a decision to irrevocably designate these shares into investment securities at FVOCI, as they are not held for trading. During the nine months ended 30 September 2019, the Group recognised, within other operating income, dividend income attributable to equity investment securities in the amount of RUB 18,076 thousand (during the nine months ended 30 September 2018: RUB 183,480 thousand).

As at 30 September 2019, securities at amortised cost and represented by the federal loan bonds of the Russian Federation with carrying amount of RUB 508,673 thousand were restricted under the Master Loan Agreement signed with CBR with an overdraft limit in the amount of RUB 2,000,000 thousand.

As at 31 December 2018, securities at FVOCI and represented by corporate bonds with carrying amount of RUB 699,213 thousand were restricted under the Master Loan Agreement signed with CBR with an overdraft limit in the amount of RUB 3,500,000 thousand.


32

8 Investment Securities (continued)

The information on due to credit institutions and customer accounts under direct repo agreements is disclosed in Notes 9 and 10.

Movements in ECL allowances for investment securities at FVOCI for the nine months ended 30 September 2019 are presented in the table below:

(in RUB ‘000) Stage 1

ECL allowance at 1 January 73,323 New originated or purchased assets and effects of other increases in gross carrying amount 9,780 Derecognised or redeemed assets and effects of other decreases in gross carrying amount (32,051) Net remeasurement of loss allowance (42,816) Exchange differences (2,054)

ECL allowance at 30 September (unaudited) 6,182

Movements in ECL allowances for investment securities at FVOCI for the three months ended 30 September 2019 are presented in the table below (unaudited):

(in RUB ‘000) Stage 1

ECL allowance at 1 July (unaudited) 14,991 New originated or purchased assets and effects of other increases in gross carrying amount − Derecognised or redeemed assets and effects of other decreases in gross carrying amount (5,466) Net remeasurement of loss allowance (3,467) Exchange differences 124

ECL allowance at 30 September (unaudited) 6,182

Movements in ECL allowances for investment securities at FVOCI for the nine months ended 30 September 2018 are presented in the table below:


ECL allowance at 1 January 31,400 − 31,400 New purchased or originated assets 57,655 − 57,655 Derecognised or redeemed assets (excluding write-offs) (7,503) − (7,503) Transfers to Stage 2 (3,301) 3,301 − Net remeasurement of loss allowance 794 17,378 18,172 Exchange differences 4,453 2,115 6,568

ECL allowance at 30 September (unaudited) 83,498 22,794 106,292

Movements in ECL allowances for investment securities at FVOCI for the three months ended 30 September 2018 are presented in the table below (unaudited):


ECL allowance at 1 July (unaudited) 44,383 22,808 67,191 New purchased or originated assets 42,137 − 42,137 Derecognised or redeemed assets (excluding write-offs) (4,987) − (4,987) Net remeasurement of loss allowance 585 (2,129) (1,544) Exchange differences 1,380 2,115 3,495

ECL allowance at 30 September (unaudited) 83,498 22,794 106,292

Refer to Note 20 for the disclosure of the fair value of each class of investment securities. The information on related party transactions is disclosed in Note 21.


33

9 Due to Credit Institutions



2018

Correspondent accounts and overnight placements of credit institutions 617,854 706,543 Deposits of credit institutions 366,549 959,818 Sale and repurchase agreements with credit institutions 64,655 1,909,209

Total due to credit institutions 1,049,058 3,575,570

As at 30 September 2019 and 31 December 2018, correspondent accounts and overnight placements represent funds placed by Russian and foreign credit institutions.

Deposits of credit institutions represent deposits of foreign banks (31 December 2018: of a large Russian bank and foreign banks) with maturities from October 2019 to February 2020 (31 December 2018: in January 2019) and with contractual interest rates from 2.3% to 5.45% p.a. (31 December 2018: from 1.81% to 6.0% p.a.).

Sale and repurchase agreements with credit institutions represent funds attracted from a Russian credit institution with maturity in October 2019 (31 December 2018: in January 2019) and contractual interest rates from 4.51% to 4.75% p.a. (31 December 2018: from 0.2% to 7.95% p.a.). The information on securities pledged under the sale and repurchase agreements with credit institutions is disclosed in Note 5.

The information on the fair value of amounts due to credit institutions is disclosed in Note 20. The information on related party transactions is disclosed in Note 21.

10 Customer Accounts



2018

State and public organisations - Current/settlement accounts 96,588 2,481 - Term deposits 2,085,251 3,475,135 Legal entities - Current/settlement accounts 10,779,954 8,608,419 - Term deposits 9,634,872 13,269,155 Individuals - Current/demand accounts 3,358,971 1,961,192 - Term deposits 49,640,119 32,409,878

Total customer accounts 75,595,755 59,726,260

State and public organisations exclude government owned profit orientated businesses.


34

10 Customer Accounts (continued)

Economic sector concentrations within the customer accounts are as follows:

(in RUB ‘000)

30 September 2019 (unaudited) 31 December2018

Amount % Amount %

Individuals 52,999,090 70.1 34,371,070 57.5 Trade 5,219,262 6.9 3,969,271 6.7 Construction 2,692,594 3.6 4,167,734 7.0 State and public organisations 2,181,839 2.9 3,477,616 5.8 Financial services 2,125,301 2.8 1,263,320 2.1 Oil and gas 1,899,785 2.5 6,599,981 11.1 Manufacturing 1,655,034 2.2 711,960 1.2 Real estate 1,492,830 2.0 693,864 1.2 Transport and logistics 999,770 1.3 668,766 1.1 Non-commercial organisations 730,891 1.0 366,679 0.6 Food products 591,427 0.8 122,797 0.3 Agricultural industry 558,733 0.7 15,817 – Services 454,633 0.6 295,391 0.5 Consulting services 408,635 0.5 896,889 1.5 Information and communication activities 337,729 0.4 1,009,620 1.7 Energy 316,434 0.4 34,764 0.1 Advertising and mass media 86,981 0.1 240,676 0.4 Telecommunications 65,894 0.1 109,461 0.2 Mining 41,258 0.1 207,824 0.3 Other 737,635 1.0 502,760 0.7

Total customer accounts 75,595,755 100.0 59,726,260 100.0

As at 30 September 2019, customer accounts are recorded in the amount of RUB 4,774 thousand (31 December 2018: RUB 35,550 thousand) held as collateral for irrevocable letter of credit commitments (Note 19).

As at 30 September 2019, balances of 10 largest customers amounted to RUB 9,082,581 thousand (31 December 2018: RUB 17,079,687 thousand), or 12.2% (31 December 2018: 28.6%) of total customer accounts.

As at 30 September 2019, balances on customer accounts in the amount of RUB 543,553 thousand (31 December 2018: RUB 1,718,335 thousand) represented collateral on loans provided by the Group in the amount of RUB 3,923,190 thousand (31 December 2018: RUB 6,103,697 thousand).

As at 30 September 2019, balances on customer accounts in the amount of RUB 413,992 thousand (31 December 2018: RUB 310,982 thousand) represented collateral on guarantees issued by the Group in the amount of RUB 1,258,500 thousand (31 December 2018: RUB 375,931 thousand) (Note 19).

The information on the fair value of customer accounts is disclosed in Note 20. The information on related party transactions is disclosed in Note 21.

11 Debt Securities in Issue



2018

Promissory notes 193,500 381,573

Savings certificates 300 22,515 Bonds issued on domestic market − 924

Total debt securities in issue 193,800 405,012

As at 30 September 2019, the Group issued promissory notes with a total nominal value of RUB 208,496 thousand (31 December 2018: RUB 394,242 thousand) with maturities from October 2019 to November 2020 (31 December 2018: from January 2019 to December 2019) and contractual interest rates from 0.0% to 6.15% p.a. (31 December 2018: from 0.0% to 7.0% p.a.).


35

11 Debt Securities in Issue (continued)

As at 30 September 2019, the Group issued savings certificates with a total nominal value of RUB 226 thousand (31 December 2018: RUB 20,918 thousand) with maturities in February 2019 (31 December 2018: from January 2019 to February 2019) and contractual interest rate of 11.0% p.a. (31 December 2018: from 7.0% to 11.0% p.a.).

As at 31 December 2018, the Group issued bonds with a total nominal value of RUB 924 thousand with maturity on 12 July 2019 and a coupon rate of 8.0%.a. The bonds were timely repaid under the issue terms and conditions.

Refer to Note 20 for the disclosure of the fair value of debt securities in issue.

12 Subordinated Eurobonds in Issue

In October 2015, the Group placed subordinated Eurobonds with a nominal value of USD 20,000 thousand, interest rate of 8.0% p.a. and maturity in April 2021. Subordinated Eurobonds were issued by Expo Capital Designated Activity Company registered in Ireland. As at 30 September 2019, the amortised cost of subordinated Eurobonds was RUB 1,299,888 thousand (unaudited) (31 December 2018: RUB 1,398,052 thousand).

13 Share Capital

As at 30 September 2019, the authorised, issued and fully paid share capital adjusted for hyperinflation was RUB 9,500,998 thousand (31 December 2018: RUB 9,500,998 thousand).

During the nine months ended 30 September 2019 and 2018 the Bank did not distribute profits to its participants.

On 15 November 2018, the Bank signed an agreement on purchasing 0.9084% interest in the Bank’s share capital from one of its participants for RUB 128,470 thousand; this stake was transferred to the Bank when a corresponding entry was made to the Unified State Register of Legal Entities on 30 November 2018.

On 30 November 2017, the Bank bought out 8.7619% interest from one of its participants for RUB 1,220,018 thousand.

30 January 2018, the General Meetings of the Bank’s participants elected to reorganise the Bank by merging “Bank in Goncharnaya” (JSC). In accordance with par. 3.1.4 of Article 53 of Federal Law No.14-FZ dated 8 February 1998 “On Limited Liability Companies”, the stakes in the share capital of an entity to be merged with the entity that holds these stakes should be redeemed upon merger. Therefore, the General Meeting of the Bank’s participants resolved to form a new amount of the share capital. On 26 March 2018, Amendment No.1 to the Bank’s Charter was registered, specifying a new amount of the share capital.

In accordance with the Russian Accounting Standards, the share capital totaled RUB 3,227,511 thousand as at 30 June 2019 (31 December 2018: RUB 3,227,511 thousand).

The Bank is a limited liability company. According to the effective Russian law, the number of votes held by each participant of a limited liability company is proportionate to the participant’s stake in the company’s share capital.


36

14 Interest Income and Expense

Three months ended

30 September (unaudited) Nine months ended

30 September (unaudited)

(in RUB ‘000) 2019 2018 2019 2018

Interest income calculated using the effective interest rate Loans to individuals 1,058,269 514,733 2,725,639 1,060,694 Loans to legal entities 1,094,066 551,235 2,505,895 1,846,977 Investment securities at FVOCI 86,249 128,361 448,380 317,795 Due from credit institutions 84,872 7,240 235,455 215,301 Investment securities at amortised costs 9,434 5,268 18,788 33,578

Total interest income calculated using the effective interest rate 2,332,890 1,206,837 5,934,157 3,474,345

Other interest income Trading securities 173,835 243,443 573,917 782,551 Loans provided to large business at FVTPL 20,486 76,373 168,872 112,274 Loans provided to medium business at FVTPL 2,396 − 8,745 − Loans provided to small business at FVTPL 1,762 − 3,317 − Loans provided to individuals at FVTPL 7,586 7,005 7,586 11,336

Total other interest income 206,065 326,821 762,437 906,161

Total interest income 2,538,955 1,533,658 6,696,594 4,380,506

Interest expense calculated using the effective interest rate Term deposits of individuals 756,894 338,812 1,849,358 1,030,584 Term deposits of legal entities 199,923 177,138 716,099 430,419 Term deposits of credit institutions 27,611 21,183 106,725 102,858 Debt securities in issue 4,376 8,040 16,548 25,654 Operating lease commitments 4,361 − 12,087 −

Total interest expense calculated using the effective interest rate 993,165 545,173 2,700,817 1,589,515

Net interest income 1,545,790 988,485 3,995,777 2,790,991

The information on related party transactions is disclosed in Note 21.

15 Fee and Commission Income and Expense

Three months ended

30 September (unaudited) Nine months ended

30 September (unaudited)

(in RUB ‘000) 2019 2018 2019 2018

Fee and commission income Guarantees issued 140,751 49,424 290,942 97,763 Settlement transactions 125,333 60,327 539,843 165,609 Cash transactions 42,918 6,259 79,561 15,154 Transactions with plastic cards 25,419 10,524 55,538 31,977 Remote banking 18,406 11,513 45,281 33,600 Other 16,657 3,318 40,540 13,687

Total fee and commission income 369,484 141,365 1,051,705 357,790

Fee and commission expense Transactions with plastic cards 24,946 13,118 50,947 39,917 Settlement transactions 16,538 8,089 40,217 28,491 Guarantees received 2,709 3,188 5,388 8,244 Cash transactions 1,284 1,482 3,120 3,424 Other 6,382 1,637 13,194 4,122

Total fee and commission expense 51,859 27,514 112,866 84,198

Net fee and commission income 317,625 113,851 938,839 273,592



37

16 Administrative and Other Operating Expenses

Three months ended 30 September (unaudited)

Nine months ended 30 September (unaudited)

(in RUB ‘000) 2019 2018 2019 2018

Staff costs 577,432 380,313 1,581,268 1,236,749 Insurance, including contributions to the State Deposit Insurance Agency 88,738 42,456 191,090 117,680

Telecommunication and information services 56,039 60,375 135,685 151,456 Taxes other than income tax 33,926 27,509 94,955 84,170 Loss on disposal of property, write-off of low-value assets and accounts receivable 11,392 5,656 41,533 44,707

Depreciation of right-of-use assets 27,485 − 70,510 − Depreciation of premises and equipment and write-off of leasehold improvements 13,712 4,778 49,685 21,945

Other costs related to premises and equipment 22,034 12,168 56,997 41,083 Professional services 4,419 5,141 16,629 34,703 Business travel and related expenses 14,001 7,754 24,135 20,607 Security services 6,681 3,026 15,380 9,726 Amortisation of software and other intangible assets 11,872 1,687 19,114 5,402 Advertising and marketing services 6,328 2,331 10,961 4,472 Decrease in carrying amount of other non-financial assets 401 1,654 605 2,246 Other 31,594 31,015 112,655 119,606

Total administrative and other operating expenses 906,054 585,863 2,421,202 1,894,552

Staff costs include insurance contributions in the amount of RUB 299,783 thousand (for the nine months ended 30 September 2018: RUB 222,110 thousand), of which RUB 212,249 thousand (for the nine months ended 30 September 2018: RUB 158,269 thousand) are pension contributions. The information on related party transactions is disclosed in Note 21.

17 Income Tax

Income tax expense for the reporting period recorded within profit and loss comprises the following:

Three months ended 30 September (unaudited)


(unaudited)

(in RUB ‘000) 2019 2018 2019 2018

Current income tax expense 270,331 25,406 606,638 73,862 Deferred income tax (benefit)/expense (29,127) (1,831) (144,381) 182,607

Income tax expense for the period 241,204 23,575 462,257 256,469

The income tax rate applicable to the majority of the Group’s income for the nine months ended 30 September 2019 and for the nine months ended 30 September 2018 is 20%.

18 Segment Analysis

Operating segments are components which are engaged in financial and business activities as a result of which they can receive profit or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker, and for which discrete financial information is available. The chief operating decision maker is a person or a group of persons that allocates resources and assesses the performance of the Group. The functions of the chief operating decision maker are performed by the Chairman of the Management Board and the executive directors from the Board of Directors of the Group. Segment reporting is based on the management accounting data in line with the Group’s accounting policies under the Russian Accounting Standards (“RAS”).


38

18 Segment Analysis (continued)

Segment information of the reportable segments as at 30 September 2019 is set out below (unaudited):

(in RUB ‘000) Corporate

banking Retail

banking Treasury

transactions Total

Total reportable segment assets 41,235,082 28,429,241 30,653,311 100,317,634 Total reportable segment liabilities 22,665,688 52,593,154 6,102,464 81,361,306

Segment information of the reportable segments as at 31 December 2018 is set out below:


banking Retail

banking Treasury

transactions Total

Total reportable segment assets 26,690,959 16,199,498 37,834,264 80,724,721 Total reportable segment liabilities 23,719,304 34,383,973 8,237,013 66,340,290

As at 30 September 2019 and 31 December 2018, the Group had no contractual capital expenditure commitments in respect of reconstruction of buildings and acquisition of equipment.

Segment information of the reportable segments for the nine months ended 30 September 2019 is set out below (unaudited):


banking Retail

banking Treasury

transactions Total

Nine months ended 30 September 2019 External revenues: - Interest income 2,909,266 2,930,509 1,254,415 7,094,190 - Fee and commission income 591,038 51,233 35,784 678,055 Timing of revenue recognition - At point in time 300,096 51,233 35,784 387,113 - Over time 290,942 − − 290,942 Income / (expense) from other segments: - Interest income / (expense) (1,573) (140,401) 141,974 −

Total revenues 3,498,731 2,841,341 1,432,173 7,772,245

Interest expense (505,338) (1,889,775) (298,639) (2,693,752) Expected credit loss allowance (536,898) (468,934) 348 (1,005,484) Depreciation and amortisation (40,547) (3,961) - (44,508) Fee and commission expense (8,584) (30,566) (70,710) (109,860) Gains net of losses from trading in securities − − 506,672 506,672 Gains net of losses from trading in foreign

currencies − − 89,278 89,278 Foreign exchange translation gains net of losses − − 85,937 85,937 Income from participation in equity of other legal

entities − − 33,180 33,180 Administrative and other operating expenses less

income (1,823,607) (130,463) 11,988 (1,942,082)

Segment result 583,757 317,642 1,790,227 2,691,626


39

18 Segment Analysis (continued)

Segment information of the reportable segments for the nine months ended 30 September 2018 is set out below (unaudited):


banking Retail

banking Treasury

transactions Total

Nine months ended 30 September 2018 External revenues: - Interest income 1,909,236 1,011,009 1,302,834 4,223,079 - Fee and commission income 325,264 51,027 2,208 378,499

Timing of revenue recognition - At point in time 227,501 51,027 2,208 280,736 - Over time 97,763 − − 97,763

(Expense) / income from other segments: - Interest (expense) / income (589,871) 904,080 (314,209) −

Total revenues 1,644,629 1,966,116 990,833 4,601,578

Interest expense (341,272) (1,068,522) (165,150) (1,574,944) Provision for loan impairment (6,135) (132,501) 10,627 (128,009) Depreciation and amortisation (22,530) (23,691) (8,509) (54,730) Fee and commission expense (14,540) (59,301) (1,913) (75,754) Losses net of gains from trading in securities − − (281,076) (281,076) Gains net of losses from trading in foreign currencies − − 215,380 215,380 Foreign exchange translation gains net of losses − − 48,519 48,519 Income from participation in equity of other legal entities − − 207,055 207,055 Administrative and other operating expenses less

income (691,294) (714,270) (210,508) (1,616,072)

Segment result 568,858 (32,169) 805,258 1,341,947

Reconciliation of the reportable segment profit with profit before tax for the reporting period is provided below:

(in RUB ‘000)

Nine months ended 30 September 2019

(unaudited)


(unaudited)

Profit for reportable segments 2,691,627 1,341,947 Excess of the acquiree’s net assets over the value of investments 1,555,508 − Recovery of RAS provisions and accrual of IFRS provisions (552,384) 143,155 Redemption of purchased credit-impaired financial assets 168,778 116,378 Adjustment of loans to customers to amortised cost 67,727 (90,289) Revaluation of loans at fair value (23,117) 6,800 Adjustment of investment securities at amortised cost − (9,519) Adjustment of investment securities at FVOCI, from RAS to IFRS − (110,720) Amortisation of commission income on guarantees issued 82,586 (30,694) Write-offs of other assets 16,235 13,218 Reclassification of other taxes in administrative and other operating expenses (96,793) (84,576) Other 7,280 24,755 Profit before tax 3,917,447 1,320,455

The Group does not have clients, revenues from which exceed 10% of the total revenues. The Group carries out a significant part of transactions, receives income and incurs expenses, as well as has assets and liabilities in the Russian Federation.


40

19 Contingencies and Commitments

Operating environment

Russia proceeds with economic reforms and develops the legal, tax and administrative infrastructure that would meet the requirements of the market economy. The stability of Russian economy will largely depend on the progress of these reforms, as well as on the efficiency of measures taken by the government in the economy, fiscal and monetary policy.

The Russian economy continues to be negatively impacted by low oil prices and sanctions against Russia imposed by certain countries. Ruble interest rates remain high. These factors combined have decreased availability of capital and raised its cost, increasing uncertainty with regard to further economic growth. This may have an adverse effect on the financial position, performance and economic prospects of the Group. The Group’s management believes it takes all necessary measures to ensure the Group’s economic sustainability in the current environment.

Legal proceedings

From time to time and in the normal course of business, claims against the Group may be received. On the basis of its own estimates and internal professional advice, the management is of the opinion that no material losses will be incurred by the Group in respect of claims, and accordingly no provision to cover litigation related loss has been made in this interim condensed consolidated financial information.

Taxation

Some provisions of the effective Russian tax, currency and customs legislation are not clear and explicit enough that often results in their varying interpretations (which, in particular, can be applied retrospectively), selective and inconsistent application and frequent and sometimes unpredictable changes. In view of the above, interpretation of these laws by the Group’s management with regard to its certain transactions and operations, including their economic justification and sufficiency of documentary evidence, may be challenged by relevant regulatory authorities at any time in the future. Therefore, tax authorities may challenge the Group’s transactions and tax accounting methods that have not been challenged before. As a result, additional taxes, interest and penalties may be accrued.

Interpretation of certain provisions of Russian tax law together with the recent trends in law enforcement practices are indicative of a stricter position taken by tax authorities and courts in applying laws and reviewing tax calculations. It is impossible to determine the amount of potential, but not filed claims and to assess the probability of unfavorable outcome.

Russian transfer pricing legislation allows Russian tax authorities to apply transfer pricing adjustments and charge additional income tax and VAT on controlled transactions if the transaction price differs from the market price. The management believes that the Group fully complies with transfer pricing rules and the prices applied by the Group for controlled transactions are consistent with the market levels.

Field audits of taxpayers performed by tax authorities can cover three calendar years of operations preceding the year when the tax authorities decided to perform a tax review. Under certain circumstances tax reviews may cover longer periods.

As at 30 September 2019, the Group believes that its interpretation of applicable legal regulations is substantiated and that the Group’s position in respect of tax, currency and customs law matters can be sustained.

Capital expenditure commitments

As at 30 September 2019 and 31 December 2018, the Group had no contractual capital expenditure commitments in respect of reconstruction of buildings and acquisition of equipment.

The Group believes that future net income and funding will be sufficient to cover this and any similar commitments.


41

19 Contingencies and Commitments (continued)

Credit related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit.

As at 30 September 2019, the unused limits on guarantees totaled RUB 2,915,551 thousand (31 December 2018: RUB 4,413,716 thousand), the undrawn credit lines amounted to RUB 7,323,283 thousand (31 December 2018: RUB 4,020,412 thousand).

The information on guarantees issued and uncovered letters of credit issued as at 30 September 2019 and 31 December 2018 is provided below:



2018

Guarantees issued 24,011,181 8,038,878 Letters of credit issued − 38,354 Less ECL allowance (65,293) (143,165)

Total 23,945,888 7,934,067

As at 30 September 2019, irrevocable covered letters of credit amounted to RUB 4,774 thousand (31 December 2018: RUB 35,550 thousand) and were collateralised by term deposits in the amount of RUB 4,774 thousand (31 December 2018: RUB 35,550 thousand) (Note 10).

As at 30 September 2019, balances on customer accounts in the amount of RUB 413,992 thousand (31 December 2018: RUB 310,982 thousand) represented collateral on guarantees issued by the Group in the amount of RUB 1,258,500 thousand (31 December 2018: RUB 375,931 thousand) (Note 10).

The total outstanding contractual amount of letters of credit and guarantees does not necessarily represent future cash requests, as these financial instruments may expire or terminate without being funded.

Movements in ECL allowances for guarantees and uncovered letters of credit provided by the Group for the nine months ended 30 September 2019 are presented in the table below (unaudited):


Guarantees and uncovered letters of credit issued ECL allowance at 1 January 2019 20,551 1,642 120,972 143,165 Acquisitions of the subsidiary bank 63,739 − − 63,739 New guarantees issued and uncovered letters of credit and effects of

other increases in value 30,161 24,029 − 54,190 Derecognised guarantees and uncovered letters of credit and effects

of other decreases in value (53,926) (16,889) (120,972) (191,787) Transfers to Stage 2 (3,761) 3,761 − Net remeasurement of loss allowance (6,012) 1,972 − (4,040) Exchange differences 26 − − 26



42


Credit related commitments (continued)

Movements in ECL allowances for guarantees and uncovered letters of credit provided by the Group for the three months ended 30 September 2019 are presented in the table below (unaudited):


Guarantees and uncovered letters of credit issued ECL allowance at 1 July 2019 (unaudited) 105,211 1,805 120,972 227,988 New guarantees issued and uncovered letters of credit and effects of other increases in value 9,154 22,247 − 31,401 Derecognised guarantees and uncovered letters of credit and effects of other decreases in value (37,495) (16,881) (120,972) (175,348) Transfers to Stage 2 (3,753) 3,753 − − Net remeasurement of loss allowance (22,386) 3,591 − (18,795) Exchange differences 47 − − 47


Movements in ECL allowances for guarantees issued by the Group for the nine months ended 30 September 2018 are presented in the table below (unaudited):


Guarantees and uncovered letters of credit issued ECL allowance at 1 January 2018 118,298 1,057 120,972 240,327 New purchased or originated assets 79,295 − − 79,295 Derecognised or redeemed assets (excluding write-offs) (60,860) (871) − (61,731) Transfers to Stage 2 (538) 538 − − Net remeasurement of loss allowance (96,750) (724) − (97,474) Exchange differences 223 − − 223

ECL allowance at 30 September 2018 39,668 − 120,972 160,640

Movements in ECL allowances for guarantees issued by the Group for the three months ended 30 September 2018 are presented in the table below (unaudited):


Guarantees and uncovered letters of credit issued ECL allowance at 1 July 2018 (unaudited) 72,243 1,639 120,972 194,854 New purchased or originated assets 27,824 − − 27,824 Derecognised or redeemed assets (excluding write-offs) (11,177) − − (11,177) Net remeasurement of loss allowance (49,246) (1,639) − (50,885) Exchange differences 24 − − 24

ECL allowance at 30 September 2018 (unaudited) 39,668 − 120,972 160,640

Movements in ECL allowances for undrawn credit lines provided to customers for the nine months ended 30 September 2019 are presented in the table below (unaudited):


Undrawn credit lines ECL allowance at 1 January 2019 3,587 – 47 3,634 Acquisitions of the subsidiary bank 30,267 – 1,082 31,349 New purchased or originated assets 20,170 3,784 6,917 30,871 Derecognised or redeemed assets (excluding write-offs) (34,504) (3,135) (972) (38,611) Transfers to Stage 2 (7,211) 7,211 – – Net remeasurement of loss allowance 8,736 5,074 – 13,810 Exchange differences (21) (1) – (22)



43


Credit related commitments (continued)

Movements in ECL allowances for undrawn credit lines provided to customers for the three months ended 30 September 2019 are presented in the table below (unaudited):


Undrawn credit lines ECL allowance at 1 July 2019 (unaudited) 41,381 – 157 41,538 New purchased or originated assets 7,125 3,784 6,917 17,826 Derecognised or redeemed assets (excluding write-offs) (15,273) (3,135) – (18,408) Transfers to Stage 2 (7,211) 7,211 – – Net remeasurement of loss allowance (4,999) 5,074 – 75 Exchange differences 1 (1) – –


Movements in ECL allowances for undrawn credit lines provided to customers for the nine months ended 30 September 2018 are presented in the table below (unaudited):


Undrawn credit lines ECL allowance at 1 January 2018 30,412 12,126 47 42,585 New purchased or originated assets 43,538 – – 43,538 Derecognised or redeemed assets (excluding write-offs) (69,715) (183) – (69,898) Transfers to Stage 1 11,943 (11,943) – – Net remeasurement of loss allowance (6,997) – – (6,997) Exchange differences 1 – – 1

ECL allowance at 30 September 2018 9,182 – 47 9,229

Movements in ECL allowances for undrawn credit lines provided to customers for the three months ended 30 September 2018 are presented in the table below (unaudited):


Undrawn credit lines ECL allowance at 1 July 2018 (unaudited) 20,325 47 20,372 New purchased or originated assets 5,057 – 5,057 Derecognised or redeemed assets (excluding write-offs) (14,746) – (14,746) Net remeasurement of loss allowance (1,454) – (1,454)

ECL allowance at 30 September 2018 9,182 47 9,229



44

20 Fair Value of Financial Instruments

Fair value measurement procedures

Fair value measurement policies and procedures are determined both for periodic fair value measurement, e.g. with regards to unquoted trading securities, investment securities at FVOCI, unquoted financial derivatives, investment property, land and buildings, and for one-time measurement, e.g. with regards to assets held for sale.

External appraisers may be engaged to assess significant assets, such as real estate, trading securities, investment securities at FVOCI, financial derivatives. Appraiser selection criteria include market knowledge, reputation, independence and compliance with professional standards. After discussions with external appraisers, a decision is taken on the valuation methods and inputs that should be used in each particular case.

The fair value of assets and liabilities subject to remeasurement or re-analysis under the Group’s accounting policies is measured at each reporting date. For measurement purposes, main inputs and their correlation with the prior measurement inputs are reviewed. The fair value measurement results (including measurements of external appraisers) are regularly provided to the Internal Audit Function and independent auditors of the Group. Main assumptions used in the measurement are discussed.

Methods and assumptions applied in determining fair values

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value is best evidenced by the active quoted market price of a financial instrument. Where quoted market prices are not available, the Group uses various valuation techniques. The fair value of unquoted fixed interest rate instruments is estimated based on cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing fair values of financial instruments depending on the valuation technique:

Level 1 – quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 – valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 – valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

To disclose fair values, the Group has determined the classes of assets and liabilities based on the nature, features and risks inherent to the asset or liability, as well as the level in the fair value hierarchy.


45

20 Fair Value of Financial Instruments (continued)

Fair value hierarchy (continued)

For financial instruments carried at fair value, the levels in the fair value hierarchy are as follows:

30 September 2019


2018

(in RUB ‘000)

Quoted price in an

active market

(Level 1)

Valuation technique

with inputs observable in

markets (Level 2)

Significant non-

observable inputs

(Level 3)

Quoted price in an

active market

(Level 1)

Valuation technique

with inputs observable in markets

(Level 2)

Significant non-

observable inputs

(Level 3)

Financial assets at fair value Trading securities 7,201,522 820,183 920,500 5,724,115 934,739 − - Corporate bonds 2,275,861 700,515 920,500 2,016,741 934,739 − - Federal loan bonds of the Russian

Federation 2,115,496 − − 2,255,460 − − - Bonds of state corporations 1,374,064 − − − − − - Bonds of banks 832,303 119,668 − − − − - Corporate shares 521,505 − − 46,516 − − - Shares of banks 50,035 − − 311,314 − − - Investment units 32,258 − − 84,414 − − - CBR bonds − − − 1,009,670 − − Loans to customers − − 1,890,866 − − 2,517,065 - loans to customers at FVTPL − − 1,890,866 − − 2,517,065 Investment securities at FVOCI 3,067,146 − 2,030,977 12,001,846 1,418,514 2,402,040 - Corporate bonds 2,611,502 − − 6,357,878 − 220,928 - Bonds of state corporations 260,142 − − 717,384 − − - Bonds of banks 152,938 − − 1,559,762 1,418,514 − - Corporate shares 42,564 − − 268,516 − − - Shares of banks − − 2,030,977 − − 2,181,112 - Federal loan bonds of the Russian

Federation − − − 2,183,893 − − - Investment units − − − 10,958 − − - Russian Federation Eurobonds − − − 903,455 − − Other financial assets − 18,131 − − 896 − - Derivative financial instruments − 14,070 − − 896 − - Settlements on FX transactions − 4,061 − − − −

Total financial assets at fair value 10,268,668 838,314 4,842,343 17,725,961 2,354,149 4,919,105

Financial assets with fair value

disclosed Cash and cash equivalents − − 15,993,193 − − 12,898,544 Mandatory cash balances with CBR − − 708,604 − − 666,999 Due from credit institutions − − 1,543,150 − − 1,806,222 Loans to customers − − 60,249,935 − − 38,579,620 Investment securities at amortised costs − − 510,475 − − − Other financial assets − − 51,404 − − 6,820

Total financial assets with value

disclosed − − 79,056,761 − − 53,958,205


46



30 September 2019 (unaudited) 31 December

2018

(in RUB ‘000)

Quoted price in an

active market

(Level 1)

Valuation technique


(Level 2)

Significant non-

observable inputs

(Level 3)

Quoted price in an

active market

(Level 1)

Valuation technique


(Level 2)

Significant non-

observable inputs

(Level 3)

Financial liabilities carried

at fair value Other financial liabilities 1,582,273 291 − 516,181 109,427 − - Obligations to return securities

received under the reverse sale and repurchase agreement 1,582,273 − − 516,181 − −

- Settlements on brokerage operations − − − − 94,615 − - Derivative financial instruments − 291 − − 14,812 −

Total financial liabilities

at fair value 1,582,273 291 − 516,181 109,427 −

Financial liabilities with fair value

disclosed Due to credit institutions − − 1,051,880 − − 3,576,138 Customer accounts − − 76,035,385 − − 60,633,717 Debt securities in issue − − 193,628 − − 401,241 Subordinated Eurobonds in issue − 1,299,888 − − 1,398,052 − Lease liabilities − − 238,533 − − − Other financial liabilities − − 453,576 − − 151,126

Total financial liabilities with fair

value disclosed − 1,299,888 77,973,002 − 1,398,052 64,762,222


47



Set out below is a comparison, by class, of the carrying amounts and fair values of the Group’s financial instruments that are not recorded at fair value in the interim condensed consolidated financial information. The table below does not include fair values of non-financial assets and non-financial liabilities.

30 September 2019


2018

(in RUB ‘000)

Carrying amount

Fair value Unrecognised (losses) /

gains

Carrying amount

Fair value Unrecognised gains /

(losses)

Financial assets Cash and cash equivalents 15,997,451 15,993,193 (4,258) 12,892,242 12,898,544 6,302 Mandatory cash balances with CBR 708,604 708,604 − 666,999 666,999 − Due from credit institutions 1,559,359 1,543,150 (16,209) 1,816,266 1,806,222 (10,044) Loans to customers 61,401,501 60,249,935 (1,151,566) 37,886,758 38,579,620 692,862 Investment securities at amortised

costs 508,673 510,475 1,802 − − − Other financial assets 51,404 51,404 − 6,820 6,820 −

Total financial assets

at amortised cost 80,226,992 79,056,761 (1,170,231) 53,269,085 53,958,205 689,120

Financial liabilities Due to credit institutions 1,049,058 1,051,880 (2,822) 3,575,570 3,576,138 (568) Customer accounts 75,595,755 76,035,385 (439,630) 59,726,260 60,633,717 (907,457) Lease liabilities 238,533 238,533 − − − − Other financial liabilities 453,576 453,576 − 151,126 151,126 − Debt securities in issue 193,800 193,628 172 405,012 401,241 3,771 Subordinated Eurobonds in issue 1,299,888 1,299,888 − 1,398,052 1,398,052 −

Total financial liabilities

at amortised cost 78,830,610 79,272,890 (442,280) 65,256,020 66,160,274 (904,254)

Total unrecognised change in the

unrealised fair value (1,612,511) (215,134)

Valuation techniques and assumptions used to determine the fair value of assets and liabilities

Below are valuation techniques and assumptions used to determine the fair value of assets and liabilities carried at fair value in the interim condensed consolidated financial information, as well as items not recorded at fair value in the interim condensed consolidated statement of financial position, but whose fair value is disclosed.

Assets for which fair value approximates their carrying amount

Fair value of liquid or short term (less than three months) financial assets and financial liabilities is assumed to approximate their carrying amount. This assumption is also used for demand deposits and accounts without a set maturity.


48


Valuation techniques and assumptions used to determine the fair value of assets and liabilities (continued)

Derivatives

Derivatives valued using a valuation technique with market observable inputs are mainly interest rate swaps, currency swaps and forward foreign exchange contracts. The most frequently applied valuation techniques include forward pricing and swap pricing models using present value calculations. The models combine various inputs, including counterparties’ credit quality, forward and spot exchange rates as well as interest rate curves. Derivatives valued using a valuation technique with significant unobservable inputs are mainly long-term option contracts. These derivatives are valued using the binomial models. The models combine various unobservable assumptions which include market rate volatilities.

Trading securities and investment securities

Trading securities and investment securities valued using a valuation technique are mainly unquoted shares and debt securities. Such assets are valued using models which incorporate either only observable market data or both observable and unobservable market inputs. The unobservable inputs include assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates.

Loans at FVTPL

The fair value of loans to customers measured at FVTPL is determined using internal models based on the present value calculation models or, in some cases (e.g. with regards to cash flows on assets held as collateral), using external valuation sources. Unobservable inputs for valuation techniques include adjustments for the credit risk related to expected cash flows resulting from operating activities of the borrower or to collateral assessment.

Financial assets and financial liabilities carried at amortised cost

Fair value of the quoted bonds is based on price quotations as of the reporting date. Fair value of unquoted instruments, loans to customers, customer deposits, amounts due from credit institutions and amounts due to CBR, amounts due to credit institutions, other financial assets and liabilities is estimated by discounting future cash flows using rates currently available for debt with similar terms, credit risk and remaining maturities. These rates are analysed below:

30 September 2019


2018

Due from credit institutions Term deposits with credit institutions 0.0% p.a. 0.0% p.a. Loans to customers State and municipal organizations 9.3%-9.5% p.a. − Large business 2.1%-9.5% p.a. 2.0%-10.2% p.a. Medium business 5.2%-9.5% p.a. 4.3%-10.2% p.a. Small business 7.4%-9.5% p.a. 8.3%-10.2% p.a. Loans to individuals 0.0%-17.7% p.a. 0.0%-18.4% p.a. Due to credit institutions Deposits of credit institutions 0.0% p.a. − Customer accounts Term deposits of legal entities 0.0%-8.2% p.a. 0.1%-7.9% p.a. Term deposits of individuals 0.1%-6.3% p.a. 0.0%-6.9% p.a.


49


Valuation techniques and assumptions used to determine the fair value of assets and liabilities (continued)

Investment property, premises and equipment – land and buildings

At the measurement date, the fair value of the real estate is based on the valuations made by an independent firm of professional appraisers, who hold a recognised and relevant qualification and who have professional experience in the valuation of assets in similar locations and in a similar category. To measure the fair value of the land and buildings, the independent appraiser used a comparison approach and an income approach. The sales comparison appraisal was made through comparing sales as there exist market information on sales offers for similar properties, and is based on the prices used in market transactions significantly adjusted for the differences in the nature, location and condition of a specific property. The income approach appraisal reflects the utility of the property as far as its income generation potential is concerned, and is based on the lease rates data as of the appraisal date.

Movements in Level 3 assets and liabilities carried at fair value

The following table shows reconciliation of Level 3 assets recorded at fair value at the beginning and at the end of the reporting period:

(in RUB ‘000)

At 1 January

2019

Gains / (losses)

recognised in profit or loss

Gains / (losses) recognised in

other comprehensive

income

Acquisition / origination

Redemption Transfers from

Levels 1 and 2

Transfers to

Levels 1 and 2

At 30 September

2019 (unaudited)

Assets Trading securities − 40,166 − − (55,472) 935,806 − 920,500

Loans at FVTPL 2,517,065 259,180 − 1,610,642 (2,496,021) − − 1,890,866

Investment securities at FVOCI 2,402,040 (28,054) 58,201 − − − (401,210) 2,030,977

Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.

During the nine months ended 30 September 2019 the Group did not transfer investment securities at FVOCI from Levels 1 and 2 to Level 3 of the fair value hierarchy. During the reporting period the Group transferred trading securities from Level 1 to Level 3 of the fair value hierarchy. The total carrying amount of transferred assets was RUB 935,806 thousand. The aggregate unrealised gain at the date of transfer was RUB 10,478 thousand. Transfer from Level 1 to Level 3 was triggered by the fact that the market for certain securities ceased to be active which led to changes in the fair value measurement method. Before transfer, the fair value of financial instruments was determined based on the observable market transactions or broker quoted prices for the same or similar instruments. From the date of transfer, the financial instruments were assessed based on the valuation techniques that used significant unobservable inputs.

During the nine months ended 30 September 2019, as a result of increased market activity investment securities were transferred from Level 3 to Level 1 of the fair value hierarchy in the amount of RUB 401,210 thousand. The aggregate unrealised loss at the date of transfer was RUB 16,676 thousand. These securities represent corporate bonds. Transfer from Level 3 to Level 1 was triggered by the fact that the market for certain securities became active, and from the date of transfer these financial instruments were assessed using quoted market prices for identical assets.


50


Movements in Level 3 assets and liabilities carried at fair value (continued)

The following table shows reconciliation of Level 3 assets recorded at fair value at the beginning and at the end of 2018:

(in RUB ‘000)

At 1 January

2018

Gains recognised in profit or

loss

Gains recognised

in other comprehensive

income

Acquisition / origination

Redemption Transfers from

Levels 1 and 2

Transfers to

Levels 1 and 2

At 31 December

2018

Assets Trading securities − 41,176 − 6,506 (57,642) 899,328 (889,368) − Loans at FVTPL 177,241 241,113 − 3,018,758 (920,047) − − 2,517,065 Investment securities

at FVOCI 1,092,485 57,252 159,455 903,000 (10,761) 200,609 − 2,402,040

Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.

During the year ended 31 December 2018 the Group transferred investment securities at FVOCI from Level 1 to Level 3 of the fair value hierarchy and trading securities from Level 2 to Level 3 of the fair value hierarchy. The total carrying amount of transferred assets was RUB 1,099,937 thousand. The aggregate unrealised loss at the date of transfer was RUB 206,701 thousand. Transfer from Level 1 to Level 3 was triggered by the fact that the market for certain securities ceased to be active which led to changes in the fair value measurement method. The reason for transfer from Level 2 to Level 3 was that inputs used in valuation techniques ceased to be observable. Before transfer, the fair value of financial instruments was determined based on the observable market transactions or broker quoted prices for the same or similar instruments. From the date of transfer, these financial instruments were assessed based on the valuation techniques that used significant unobservable inputs.

During 2018, as a result of increased market activity trading securities were transferred from Level 3 to Level 1 of the fair value hierarchy in the amount of RUB 889,368 thousand. The aggregate unrealised loss at the date of transfer was RUB 12,216 thousand. These securities represent corporate bonds. Transfer from Level 3 to Level 1 was triggered by the fact that the market for certain securities became active, and from the date of transfer these financial instruments were assessed using quoted market prices for identical assets.

Significant unobservable inputs and sensitivity of Level 3 financial instruments measured at fair value to changes in key assumptions

The following table shows the quantitative information about significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy as at 30 September 2019:

30 September 2019 (unaudited) Carrying amount Valuation techniques Unobservable inputs

Range (weighted average)

Trading securities

Corporate bonds 920,500 Income approach Underlying asset

value Not applicable Loans to customers

Loans to large business at FVTPL 1,004,725 Discounted cash

flows Probability of default 2.4%

Loans to medium business at FVTPL 130,220 Discounted cash


Loans to small business at FVTPL 73,969 Discounted cash


Loans to individuals at FVTPL 681,952 Discounted cash

flows Probability of default 9.9% - 21.2% Investment securities at FVOCI

Shares of banks 2,030,977 Price/Equity ratio Underlying asset

value Not applicable


51


Significant unobservable inputs and sensitivity of Level 3 financial instruments measured at fair value to changes in key assumptions (continued)

The following table shows the quantitative information about significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy as at 31 December 2018:

31 December 2018 Carrying amount

Valuation techniques Unobservable inputs

Range (weighted average)

Trading securities

Corporate bonds − Income approach Underlying asset

value Not applicable Loans to customers

Loans to large business at FVTPL 2,398,230 Discounted cash

flows Probability of default 4.3% - 12.5%

Loans to medium business at FVTPL 118,835 Discounted cash

flows Probability of default 3.0% Investment securities at FVOCI

Shares of banks 2,181,112 Price/Equity ratio Underlying asset


Corporate bonds 220,928 Income approach Underlying asset


The following table shows the quantitative information about sensitivity of fair value of financial instruments categorised within Level 3 of the fair value hierarchy to changes in significant unobservable inputs:

(in RUB ‘000)


31 December 2018

Carrying amount

Effect of possible alternative

assumptions

Carrying amount

Effect of possible alternative

assumptions

Trading securities 920,500 (617) − − Corporate bonds 920,500 (617) − −

Loans to customers 1,890,866 (94,543) 2,517,065 (125,854) Loans to large business at FVTPL 1,004,725 (50,236) 2,398,230 (119,912) Loans to medium business at FVTPL 130,220 (6,511) 118,835 (5,942) Loans to small business at FVTPL 73,969 (3,698) − − Loans to individuals at FVTPL 681,952 (34,098) − −

Investment securities at FVOCI 2,030,977 (101,549) 2,402,040 (136,021) Shares of banks 2,030,977 (101,549) 2,181,112 (109,056) Corporate bonds − − 220,928 (26,965)

To determine possible alternative assumptions, the Group has adjusted key unobservable inputs as follows:

For debt securities, the Group has adjusted assumptions on the yield to maturity by increasing the assumption indicator by 5 p.p., which in the Group’s opinion lies within the range of possible alternative changes of this indicator.

For loans to customers, the Group has adjusted assumptions on the probability of default by increasing the assumption indicator by 5 p.p., which in the Group’s opinion lies within the range of possible alternative changes of this indicator.

For shares, the Group has adjusted the average indicator of share price to issuer’s equity (Price/Equity) by decreasing the indicator by 5 p.p., which in the Group’s opinion lies within the range of possible alternative changes of this indicator for other companies in this industry with similar risks.


52


Transfers between Level 1 and Level 2

During the nine months ended 30 September 2019, as a result of decreased market activity trading securities were transferred from Level 1 to Level 2 of the fair value hierarchy in the amount of RUB 117,392 thousand. These securities represent bonds of Russian banks.

During the nine months ended 30 September 2019, as a result of increased market activity trading securities were transferred from Level 2 to Level 1 of the fair value hierarchy in the amount of RUB 288,961 thousand. These securities represent corporate bonds.

During 2018, as a result of increased market activity trading securities were transferred from Level 2 to Level 1 of the fair value hierarchy in the amount of RUB 4,827,302 thousand. These securities represent bonds of state corporations, corporate bonds and bonds of Russian banks.

During 2018, as a result of decreased market activity trading securities were transferred from Level 1 to Level 2 of the fair value hierarchy in the amount of RUB 1,084,245 thousand. These securities represent bonds of state corporations and corporate bonds.

During 2018, as a result of decreased market activity investment securities were transferred from Level 1 to Level 2 of the fair value hierarchy in the amount of RUB 1,275,165 thousand. These securities represent bonds of Russian banks.

Significant unobservable inputs and sensitivity of Level 3 non-financial instruments measured at fair value to changes in key assumptions

The table below shows summarised information on the sensitivity of fair value measurements of the Group’s investment property, land and buildings categorised within Level 3 of the fair value hierarchy to changes in unobservable inputs as at 30 September 2019:

Unobservable inputs

Range (weighted average) Sensitivity

Trade discount 10%

If the trade discount increases/decreases by 10%, the fair value of the Group’s investment property, land and buildings (before deferred tax) may increase/decrease by RUB 264,937 thousand.

The table below shows summarised information on the sensitivity of fair value measurements of the Group’s investment property, land and buildings categorised within Level 3 of the fair value hierarchy to changes in unobservable inputs as at 31 December 2018:

Unobservable inputs

Range (weighted average) Sensitivity

Trade discount 10%

If the trade discount increases/decreases by 10%, the fair value of the Group’s investment property, land and buildings (before deferred tax) may increase/decrease by RUB 228,153 thousand.

21 Related Party Transactions

Parties are generally considered to be related if the parties are under common control, or one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

For the purposes of disclosing the Group’s transactions with related parties, the “Participants” include entities and individuals that own, directly or indirectly, stakes in the share capital that allow them to exercise significant influence over the Group’s activities.

“Other related parties” include close relatives of individuals and key management personnel who can influence on or be influenced by these individuals while conducting transactions with the Group.


53

21 Related Party Transactions (continued)

As at 30 September 2019, the outstanding balances with related parties were as follows (unaudited):

(in RUB ‘000)

Participants Key management

personnel

Other companies

under common control

Other related parties

Cash and cash equivalents (contractual interest rate: 0.0%) – – 330 – ECL allowance for cash and cash equivalents – – – – Due from credit institutions (contractual interest rate: 2.6%) – – 386,739 – ECL allowance for amounts due from credit institutions – – (393) – Loans to customers (contractual interest rate: 9.0%- 19.0%) 548 15,920 79,998 1,990 ECL allowance for loans to customers (7) (201) (211) (25) Investment securities at FVOCI – – 1,117,866 – Other financial assets – 1,399 3 – Other non-financial assets – 108 363 – Due to credit institutions (contractual interest rate: 0.0%) – – 112,863 – Customer accounts (contractual interest rate: 0.0%- 8.3%) 806,802 356,978 290,998 175,776 Debt securities in issue 19,875 – – – Subordinated Eurobonds in issue 28,354 – – 45,577 Other financial liabilities – – 2 – Other non-financial liabilities – 10,707 130 –

As at 30 September 2019, loans to key management personnel and other related parties in the amount of RUB 15,651 thousand were collateralised by balances on customer accounts in the amount of RUB 10,518 thousand; loans of other companies under common control in the amount of RUB 14,998 thousand were collateralised by the Bank’s promissory notes in the amount of RUB 14,998 thousand.

As at 30 September 2019, amounts receivable from these related parties are not past due or impaired.

The income and expense items with related parties for the nine months ended 30 September 2019 were as follows:

(in RUB ‘000)


personnel

Other companies



Interest income calculated using the effective interest rate – 1,398 16,492 20 Interest expense calculated using the effective interest rate (22,272) (10,276) (10,765) (5,408) Credit loss allowance for cash and cash equivalents, due

from credit institutions, loans to customers and other assets (7) (75) 6,840 (25)

(Losses net of gains)/ gains net of losses from trading in foreign currencies 177 72 (4,902) 50

Foreign exchange translation (losses net of gains)/ gains net of losses 22,004 21,081 (50,810) 5,822

Gains net of losses from financial derivatives – 1,011 41,670 193 Fee and commission income 88 363 3,776 162 Fee and commission expense – – (317) – Other operating income 6 29 2,438 – Administrative and other operating expenses (51) (235,082) (16,589) (219)


54


As at 30 September 2019, contingent claims and obligations with related parties were as follows:

(in RUB ‘000)


personnel

Other companies



Guarantees issued by the Group – – 5 – Guarantees and sureties received by the Group – 5,431 – 1,184 Other contingent liabilities 5,265 3,999 65,002 1,300 ECL allowance (28) (21) (42) (7)

Aggregate amounts lent to and repaid by related parties during the nine months ended 30 September 2019 were as follows:

(in RUB ‘000)


personnel

Other companies



Amounts lent to related parties during the reporting

period 1,928 29,753 18,951,029 1,490 Amounts repaid by related parties during the reporting

period 1,381 31,648 19,301,167 1,000 Loans to customers excluded from the related party

list − 1,750 − −

As at 31 December 2018, the outstanding balances with related parties were as follows:

(in RUB ‘000)


personnel

Other companies



Cash and cash equivalents − − 533,937 − ECL allowance for cash and cash equivalents − − (567) − Due from credit institutions − − 437,033 − ECL allowance for amounts due from credit

institutions − − (4,555) − Loans to customers (contractual interest rate: 8.0%-

12.0%) − 19,732 2,000 − ECL allowance for loans to customers − (126) − − Investment securities at FVOCI − − 1,268,001 − Other financial assets − 388 − − Other non-financial assets − 72 46,781 − Impairment allowance for other non-financial assets − − (2,322) − Due to credit institutions (contractual interest rate:

0%- 1.81%) − − 411,282 − Customer accounts (contractual interest rate: 0%-

7.7%) 585,252 381,025 354,897 173,479 Subordinated Eurobonds in issue 30,495 − − 31,544 Other financial liabilities − − 8,441 − Other non-financial liabilities 3 9,615 130 −

As at 31 December 2018, loans to key management personnel in the amount of RUB 17,960 thousand were collateralised by balances on customer accounts in the amount of RUB 12,728 thousand; loans of other companies under common control in the amount of RUB 2,000 thousand were collateralised by the Bank’s promissory notes in the amount of RUB 2,000 thousand.


55


The income and expense items with related parties for the nine months ended 30 September 2018 (unaudited) were as follows:

(in RUB ‘000) Participants

Key management

personnel

Other companies



Interest income calculated using the effective interest rate – 1,178 7,294 65 Interest expense calculated using the effective interest rate (44,447) (5,869) (10,661) (3,050) Credit loss allowance for cash and cash equivalents, due

from other banks and loans to customers – (79) (411) (9) Gains net of losses from trading in foreign currencies 84 113 21,634 24 Foreign exchange translation losses net of gains (138,905) (25,723) (51,380) (5,662) Gains net of losses / (losses net of gains) from financial

derivatives – 3 (29,174) – Fee and commission income 164 379 1,633 93 Fee and commission expense – – (485) – Other operating income – 31 185,384 – Administrative and other operating expenses (21,713) (242,890) (80,725) (3,471)

As at 31 December 2018, other rights and obligations with related parties were as follows:

(in RUB ‘000)


personnel

Other companies



Guarantees received by the Group, at the year end − 10,431 − 1,184 Other contingent liabilities 5,384 4,247 13,000 1,790 ECL allowance (20) (16) − (7)

Aggregate amounts lent to and repaid by related parties during 2018 were as follows:

(in RUB ‘000)


personnel

Other companies



Amounts lent to related parties during the year 1,269 63,968 10,914,202 2,697 Amounts repaid by related parties during the year 1,269 54,788 10,283,282 2,697 Loans to customers excluded from the related party list − − (109,308) −

Short-term compensations to key management personnel are presented below:

(in RUB ‘000)


(unaudited)


(unaudited)

Short-term payments - Salaries 206,395 241,312 - Short-term bonuses 13,434 4,545

Total 219,829 245,857

Short-term compensation to key management personnel includes insurance contributions in the amount of RUB 31,566 thousand (for the nine months ended 30 September 2018: RUB 34,461 thousand).

Short-term bonuses fall due wholly within twelve months after the end of the period in which management rendered the related services.

During the nine months ended 30 September 2019 and 2018, the Group conducted transactions with related parties on market conditions.


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22 Business Combinations

In the second quarter 2019, Expobank LLC acquired 86.9082% of shares in “Kurskprоmbank” and received control over the business and operations of its subsidiary bank.


Name Business type Country of registration

Subsidiary

“Kurskprоmbank” Commercial bank Russian Federation

The main activity of the acquired bank is commercial lending, issue of bank guarantees, retail lending, corporate and individual deposits, and settlement services to legal entities. The principal objective of acquiring “Kurskprombank” is to implement the strategy on consolidating bank assets.

For the purposes of this interim condensed consolidated financial information, the fair value of assets and liabilities of “Kurskprombank” was determined at the acquisition date based on the independent appraisers’ report. Below is the information on the assets and liabilities acquired and on the gain from a bargain purchase (negative goodwill) upon the acquisition of “Kurskprombank”:

(in RUB ‘000)

Fair value recognised at the

acquisition date

Assets Cash and cash equivalents 7,826,969 Mandatory cash balances with CBR 134,692 Loans to customers 13,894,285 Investment securities 1,405,723 Intangible assets 134,055 Investment property 22,793 Property and equipment 665,769 Right-of-use assets 13,249 Other assets 55,406

Total assets 24,152,941

Liabilities Customer accounts 17,996,352 Debt securities in issue 3,361 Lease liabilities 12,883 Current income tax liabilities Deferred tax liabilities 316,825 Other liabilities 274,239

Total liabilities 18,603,660

Total net identifiable assets 5,549,281 Consideration transferred (3,267,273) Acquired ownership interest 86.9082%

Excess of the acquiree’s net assets fair value over the value of investments 1,555,508

In accordance with IFRS 3 “Business Combinations”, all financial instruments were carried at fair value at the date of the acquisition of “Kurskprombank”. Subsequently, these financial instruments are recognised under the accounting requirements for assets at amortised cost in accordance with IFRS 9 “Financial Instruments”, with a corresponding ECL allowance and allocation to profit or loss of the current period.


57

22 Business Combinations (continued)

The ECL allowance for financial instruments in Stage 1 was recognised and included in the line “(Credit loss allowance) / recovery of credit loss allowance for cash and cash equivalents, due from other banks and loans to customers” in the interim condensed consolidated statement of comprehensive income in the amount of RUB 850,695 thousand for the period from the date of the acquisition of “Kurskprombank” to the reporting date.

Analysis of cash flows upon acquisition

(in RUB ‘000)

Net cash acquired with the subsidiary (included in cash flows from investing activities) 7,826,969 Cash paid upon acquisition (included in cash flows from investing activities) (3,267,273)

Net cash flow 4,559,697


Documents

PLEASE READ FIRST - Expobank · Balance at 30 September 2019 (unaudited) 9,500,998 548,256 (128,470) 7,169,067 372,814 444,172 17,906,837 109,831 18,016,668 . Expobank Group Interim