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    Fresh Ideas. Mature Decisions.

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    1 2 3

    ontents:

    08The Bank's Activities in 2006:Macroeconomic Environment

    04 Introduction

    122006 Financial Results.

    The Bank's Funding Policy

    Chairman's statement

    General Information about the Bank

    05

    06

    The Bank's Corporate Business

    Services to IndividualsOperations in Securities Market

    Interbank Cooperation

    Regional Business

    16

    2223

    26

    27

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    4 5

    32The Bank's Financial Statementsand Independent Auditors' Report

    28 Factors of SuccessRisk Management

    Information Technologies

    Personnel Policy

    Working with the Community

    29

    30

    31

    31

    Independent Auditor's Report on Financial Statements

    (Russian Accounting Standards)

    Independent Auditor's Report on Financial Statements (IFRS)

    34

    39

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    4

    Fresh Ideas. Mature Decisions.

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    Dear friends and colleagues,

    the year of 2006 became strategically important

    for Sudostroitelny Bank that reached a new mile-stone in its development marked by the Bank's

    internal and external renewal.

    In the past year Sudostroitelny Bank and De-

    loitte&Touche, an international consulting com-

    pany, made a joint effort to complete developing

    the Bank's medium term strategic prospect and

    took into account the current banking trends and

    global successful business achievements in the

    financial market. We will follow this strategy andcontinue our evolution as a dynamic, highly prof-

    itable bank primarily oriented towards servicing

    small and medium businesses, their owners and

    employees.

    To effectively compete in banking markets and

    maintain fast pace of development the Bank

    needed its own strong and instantly recognisable

    brand which led to the Bank's re-branding cam-

    paign. We strove to emphasise the Bank's being

    up-to-date, dynamic and emotionally open and

    its experience in state-of-the-art information

    technologies. The very first stage of the re-bran-

    ding campaign proved our happy choice: the

    brand awareness grew considerably.

    Generally, in 2006 we managed to reach high

    business growth rates: the Bank's assets

    incr eas ed b y mo r e than 30% ex ceed ing

    RUR 33.7bn, the equity capital grew up to

    RUR 3.3bn, the loans to corporate customers and

    individuals reached RUR 11.7bn.

    Loans in the open market were one of the major

    resources of raised funds in 2006. We succeed-

    ed in placing our first bond loan to the amount ofRUR 1.5bn and started the practice of raising

    funds in international markets issuing Loan

    Participation Notes. The increased market loans

    encouraged further diversification of the Bank's

    liabilities and growth of the long-term resources

    necessary for implementing projects in the busi-

    ness sector.

    In the near future we set out to keep the high

    growth rates. We will continue to expand our pres-ence in Moscow region and other Russian cities

    with particular attention to maintaining the Bank's

    position as one of the market leaders in mortgage

    and small and medium business lending.

    In conclusion, I would like to express my grati-

    tude to Sudostroitelny Bank's shareholders and

    customers for their trust and readiness to search

    and move forward. My special thanks go to all

    the Bank's go-ahead and responsible employees

    for their persistence, dedicated care and creativ-

    ity in achieving objectives that are not always

    simple. I hope that we will successfully imple-

    ment our most ambitious plans.

    Alexey Golubkov

    Chairman of the Management Board

    51 CHAIRMAN'S STATEMENT

    ANNUAL REPORT 2006

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    Sudostroitelny Bank (LTD) Russian private commercial bank

    Established July, 1994

    General license of the Central Bank of the Russian Federation 2999

    Full-service bank for small and medium businesses

    RATINGS:

    Moody's Investors Service

    Long-term foreign currency deposit rating B3

    National scale rating Baa2.ru

    Ratings outlook StableTop-50 among Russian banks by assets and equity

    40th by Tier I capital The Banker, November 2006

    48th by assets The Finans magazine, February 2007

    Top-10 in FOREX market in Russia (RUR/USD trades at MICEX)

    Top-15 by business activity The Expert magazine, March 2006

    Top-15 by LORO account balances of other Russian banks

    MEMBERSHIP AND PARTICIPATION IN PROFESSIONAL ORGANISATIONS:

    Deposit Insurance System,

    Moscow Interbank Currency Exchange,Moscow International Currency Association,

    Russian Regional Banks' Association,

    SWIFT,

    VISA International, Sublicense of Diners Club International,

    Member of a payment system Customs Card,

    the authorized bank of the Federal Customs Service of Russia.

    BRANCHES :

    the head office and three additional offices in Moscow (including 1 office in Zelenograd)

    the branch in Saint Petersburg

    the credit and cash office in Nizhny Novgorod

    the representative office in Ekaterinburg

    NUMBER OF EMPLOYEES:

    more than 350

    6 1 GENERAL INFORMATION ABOUT THE BANK

    General Information about the Bank

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    7

    ANNUAL REPORT 2006

    1 GENERAL INFORMATION ABOUT THE BANK

    CUSTOMERS:

    Corporate customers consumer goods manufacturers, wholesale and retail companies, transport

    companies, construction companies, investment and financial institutions,

    insurance companies, development companies, telecommunications compa-

    nies, consulting companies.

    Private customers business owners, senior managers of the Bank's corporate customers, upper

    middle-class population.

    Individual customers employees of the Bank's corporate customers, customers by the Bank's

    mortgage programs.

    THE BANK'S OWNERS:

    5 companies each holding a 20% stake. The beneficiaries of the companies are 12 private persons. The maximum share of each owner does not

    exceed 17%; over 64% is controlled by the Bank management.

    THE BOARD OF DIRECTORS:

    Chairman of the Board of Directors Leonid Tyukhtyaev

    There are 2 independent directors (citizens of Cyprus and Switzerland)

    THE MANAGEMENT BOARD:

    Chairman of the Management Board Alexey GolubkovMembers of the Management Board:

    First Deputy Chairman Dmitry Kunda

    Deputy Chairman Andrey Egorov

    Deputy Chairman Andrey Vovchenko

    Deputy Chairman Vasily Melnikov

    Deputy Chairman Sergey Panteleev

    Deputy Chairman Yaroslav Steshko

    Deputy Chairman, Head of Internal Control Alexander Titovets

    Chief Accountant Elena Zubova

    The Bank's top management has not changed since 2001.

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    9

    2006 was a year of success for Russian econo-

    my in general and banking sector in particular.

    The stability of the core financial market seg-

    ments, high level of business activity in various

    sectors of the country's economy, favourable

    global economic conditions contributed to the

    positive macroeconomic trends.

    The further inflation slowdown was one of the

    most important results of the past year. Thus, the

    consumer price growth rate in the reporting year

    was 9% compared to 10.9% in the preceding

    year. It is worthy of note, that inflation was

    decreasing against a background of the signifi-

    cant rise in the monetary aggregates (M2

    increased by 48.8%) and that was mostly attrib-

    uted to the high economic growth and increasing

    demand for the national currency from all eco-

    nomic participants.

    GDP growth continued to stay at high levels

    6.7%, and the index of industrial production

    remained almost unchanged at 103.9%.

    According to experts' opinions, the GDP growth

    was mainly due to rising domestic demand for

    local goods and favourable conditions in the

    global commodity markets. For instance, prices

    of Urals oil went up by 21% on average, oil prod-

    ucts by 19%, natural gas in Europe by 34%,

    non-ferrous metals 50%.

    The steadily high inflow of export revenues

    and, therefore, of foreign currency in the domes-

    tic market encouraged strengthening the

    Russian ruble exchange rate against the dollar-

    euro currency basket and increased Russia's

    gold and foreign currency reserves. In the course

    of 2006 Russian international reserves incre-

    ased by 67% and reached USD 303.7bn as at

    2The Bank'sActivities in 2006:

    MacroeconomicEnvironment

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    10

    1 January 2007. The sharp strengthening of

    Russian ruble, resulted from the external trade

    surplus (the 2006 annual export volumeequalled USD 304.5bn compared to the import

    volume of USD 163.6bn), was prevented by the

    Central Bank of the Russian Federation. The

    Central Bank that was the major foreign currency

    buyer levelling up currency exchange rate fluctu-

    ations. For the reporting period the nominal ruble

    exchange rate against US dollar grew by 9.6%,

    against euro fell by 1.7%; the real ruble

    exchange rate against US dollar grew by 16.7%,

    against euro 5.6%.

    Investment climate in Russia improved and

    investment (both foreign and domestic) to the

    production sectors of economy increased due to

    macroeconomic stability. By comparison with the

    previous year, equity investments grew 13.7%. In

    addition, 2006 brought portfolio investors'

    strong interest in shares of Russian companies

    which caused their considerable price increase.

    As at the end of 2006 the Russian Trading

    System Index reached its historical maximum

    and exceeded 1900 points; thus, for the report-

    ing year the RTS Index rose by more than 60%.

    The economic growth in the production sector,

    services and trade was accompanied by rising

    demand for various financial institutions' prod-

    ucts and banking development in general. Thus,

    the reporting year saw the substantial capitalisa-

    tion growth of the Russian banking system. As at

    the end of 2006 the total equity capital of domes-

    tic banks grew by 36.3% to RUR 1.69 trillion (cor-

    respondingly, from 5.7% to 6.4% of GDP). The

    increase in their assets was even more impres-

    sive totalling 44% of GDP from RUR 9.75 trillion

    up to RUR 14.05 trillion.

    Maintaining stability in the financial sector of

    the economy and increasing the population's

    disposable income contributed to the attractive-

    ness of bank deposits. For the reporting period

    the volume of funds placed on time depositaccounts for a period of 31 days 1 year rose by

    19.5%, over 1 year 41%. At the same time it

    should be noted that raised funds from individu-

    als were mainly in the national currency. As at

    the end of 2006 the volume of RUR funds placed

    on time deposit accounts for a period of 31 days-

    1 year grew by 37.3%, when the volume of cur-

    rency deposits fell by 22.5%; RUR deposits for

    over 1 year rose by 53.5% when the volume of

    currency deposits dropped by 0.7%.

    The increased long-term liabilities in the

    structure of bank funding encouraged bank

    loans. In the reporting year the loans granted by

    financial institutions to companies and individu-

    als grew by 47.3% and exceeded RUR 8 trillion.

    Thus, share of loans given to non-financial sec-

    tor relative to GDP reached 30.2%, and relative

    to total bank assets 57.2% (in the previous

    year 25.2% and 55.9%, three years ago

    20.3% and 47.9%).

    In spite of the growth in the number of bank

    loans, the quality of bank loan portfolios remained

    quite high. As at the end of 2006 the amount of

    overdue loans to companies was 0.7% of the total

    loan portfolio of the banking sector (in the previ-

    ous year 0.8%); at the same time the consumer

    lending rose from 0.3% up to 0.6%.

    During the reporting period the smooth

    decrease in the number of credit institutions con-

    tinued: reduced by 64, by the end of December

    2006 there were 1189 institutions. Meanwhile,

    it led neither to any negative consequences for

    people nor to the destabilisation in the banking

    sector. The stable financial market and high bank

    liquidity facilitated activity in the interbank mar-

    ket and mutual credit lines. The total amount of

    2 THE BANK'S ACTIVITIES IN 2006: MACROECONOMIC ENVIRONMENT

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    112 THE BANK'S ACTIVITIES IN 2006: MACROECONOMIC ENVIRONMENT

    ANNUAL REPORT 2006

    funds granted to banks by other credit institu-

    tions increased by 59.2% to RUR 1.73 trillion as

    at the reporting date.The positive economic trends, stable macro-

    economic environment in the country encour-

    aged Sudostroitelny Bank's long-term business

    progressive development programme, raising

    considerable resources in the open market tofinance companies, introduction of new promis-

    ing products for its customers and partners.

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    12

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    13

    32006 FinancialResults. The Bank's

    Funding Policy

    The Sudostroitelny Bank's financial highlights

    illustrate its active development. The Bank's

    assets grew 35.9%, exceeding RUR 33bn,

    which demonstrated maximum growth in the

    past three years. The equity also grew and

    reached RUR 3.28bn as at 1 January 2007.

    The Bank's high efficiency is proved by the

    profit growth as well: for the reporting period it

    increased by 21.1% and exceeded RUR 404m;

    the net profit amounted to RUR 358.3m. 2006

    saw the Bank's further improvement of operat-

    ing efficiency and profitability: the income-cost

    ratio was one of the lowest indicators in the

    Russian market and amounted to 33.7%.

    Last year the major part of the Bank's liabili-

    ties consisted of customer (37.8% of the total li-

    abilities as at the end of the year) and corre-

    spondent banks' (27.6% of the total liabilities as

    at the end of the year) balances. The increasing

    popularity of time deposits became a positive

    trend: for the reporting period the volume of indi-

    vidual time deposits for a period from 6 months

    to 1 year grew 2.5 times and reached RUR

    628.3m, for a period from 1 year to 3 years by

    22.4% to RUR 52m; the total time deposits of dif-

    ferent customer groups increased 4.4 times to

    RUR 2.14bn. The total amount on the current

    and deposit accounts of the Bank's corporate

    and private customers reached RUR 10.9bn as

    compared to RUR 6.8bn in the previous year.

    Loans in the open market were one of the

    major resources of raised funds in 2006. In order

    to increase its long-term funding necessary to

    implement its loan programs, the Bank utilised

    various borrowing instruments: the issue of

    a domestic ruble-denominated bond, issue of

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    a Eurobond in the international markets, its own

    promissory note programe. As at 1 January

    2007, the volume of the notes issued by the

    Bank amounted to RUR 6.5bn (with the rate

    decreased from 11.5% to 9.75% p.a.).

    In the third quarter of 2006 the first issue of

    Sudostroitelny Bank's bonds with nominal value

    of RUR 1.5bn was placed successfully among 50

    investors; the first and the second coupon rates

    were set up 10.5%. In December 2006 the Bank

    started to raise funds in international markets,

    establishing a USD 200m Loan Participation

    Note (LPN) program. The program was arranged

    by BCP Securities, LLC.; the first issue amounted

    to USD 11m. Thus, the total amount of the

    Bank's own securities in circulation grew almost

    1.5 times and exceeded RUR 8 trillion. For the

    whole reporting period the Bank's long-term lia-

    bilities rose by over 37.2%. The considerable part

    of the Bank's funds is placed as loans to corpo-

    rate customers and individuals. As at the end of

    the reporting year the Bank's loan portfolio grew

    by 75.3% and exceeded RUR 16.3bn; the share

    of loans in the Bank's total assets reached

    almost 50%. The loans were also responsible for

    the major part of the Bank's revenues 69.4%.

    The Bank's investments in the stock market

    instruments made up a sizable part in the struc-

    ture of its assets. As at the end of the year the

    securities purchased by the Bank equalled

    14.4% of its assets, and the total income from

    the Bank's activities in the stock market totalled

    19.1% of the net operating income. As at 1 Ja-

    nuary 2007 the Bank's investment portfolio

    exceeded RUR 4.7bn.

    The liquidity management has been tradition-

    ally important for the Bank's funding policy.

    Having highly liquid securities of reliable issuers

    in its investment portfolio and maintaining con-

    siderable balances on accounts with the Central

    Bank of the Russian Federation (as at 1 January

    2007 RUR 5.6bn) provided for the Bank's high

    liquidity.

    14 3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

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    153 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

    ANNUAL REPORT 2006

    Equity Capital (RUR bn)

    2006

    2005

    2004

    2003

    2002

    33.8

    24.9

    19.1

    14.3

    8.8

    Assets (RUR bn)

    2006

    2005

    2004

    2003

    2002

    3.3

    3.2

    3.0

    2.7

    1.7

    Net Profit (RUR m)

    2006

    2005

    2004

    2003

    2002

    405

    333

    282

    110

    24

    Profit (RUR m)

    2006

    2005

    2004

    2003

    2002

    358

    321

    278

    106

    21

    Dynamics of Amounts on Customers Accounts (RUR bn)

    2006

    2005

    2004

    2003

    2002

    16.3

    9.3

    6.5

    3.4

    2.1

    Loans (RUR bn)

    2006

    2005

    2004

    2003

    2002

    11.0

    6.8

    4.7

    3.2

    1.8

    Source (here and further): Financial Statements of the Bank in accordance with RAS, audited

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    3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY16

    The Bank's CorporateBusiness

    Dynamics of Securities Issued by the Bank (RUR bn)

    2006

    2005

    2004

    2003

    2002

    8.0

    5.4

    2.6

    1.4

    0.5

    Delivering a full array of high quality financial

    products to companies has been one of the

    Bank's key tasks for the years of its operations.

    In the past year the Bank particularly focused on

    its customer service enhancement, introduction

    of state-of-the-art banking technologies, devel-

    opment of new products and services.

    2006 saw the continued increase in the num-

    ber of the Bank's customers. As at the end of

    the reporting period the Bank opened over

    7500 accounts of corporate customers; the bal-

    ances on their accounts grew more than 1.5 ti-

    mes over the past year from RUR 6.3bn to

    RUR 9.6bn. Besides, the Bank continued to

    diversify its customer base, each sector having

    no more than 7% in it.

    Among our customers there are consumergoods manufacturers, wholesale and retail com-

    panies, construction and transport companies.

    20% of the Bank's customers fall at wholesale

    and retail companies, including such well-

    known Russian chain stores as Wild Orchid,

    Econika, Baltman, Caligula, Nezhny Vozrast,

    Magnolia, and dealerships for Bentley, Ferrari,

    Harley-Davidson, etc.

    The Bank has long been servicing transport

    companies, including such long-term customers

    as Airport Ramenskoye, the Air Cargo Carriers

    Association, Tesis cargo airline, Dobrolyot airline,

    Russian Sky Airlines, F.E. Trans, MTC UniTrans.

    The Bank's cooperation with production com-

    panies has always been strategically important:

    Temp Moscow radio manufacturing plant,

    Lytkarino Optical Glass Factory, Dmitrov Experi-

    mental Engineering Plant, Zavod Izmeritel, Zavod

    Komponent, Electroshield, Zavod Micropribor.

    Providing services for companies engaged in

    investment, finance, insurance, development,

    telecommunications, consulting has always

    been essential for the Bank's operations: the

    Expert magazine, Eksmo publishing house, City-

    XXI construction company, UNICOMM, UniversalFinancial Systems, Kimberly Land fitness centre,

    Eurasian Pipeline Consortium ZAO, Proffessional

    Hockey League, Zurab Tsereteli's Studio, quite a

    few insurance companies (Ingosstrakh, Rostra,

    ESCO, TNP-Garant, Pomosch, Priroda, UNISO,

    Sotsium, etc.).

    The Bank's further improvement of its product

    range, introduction of new and innovative prod-

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    3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

    ANNUAL REPORT 2006

    17

    ucts and services to meet needs of various com-

    panies, invariably high quality contributed to the

    increase in the number of the Bank's customers.

    The Bank's distinguishing features have always

    been its special attention to the individual cus-

    tomer's demands, maintaining close and trusting

    partner relationships. Over the reporting year the

    Bank's experts undertook research into the corpo-

    rate customers' requirements and their business

    characteristics in order to offer them the very

    selection of the Bank's services to highly promote

    their business development and financial stability.

    Thus, in 2006 the Bank's competitive rates

    (particularly attractive terms for payroll solu-

    tions), its flexibility and mobility in granting loans

    provided an inflow of new customers.

    Dynamics of Balances on Corporate Customers Accounts (RUR bn)

    2006

    2005

    2004

    2003

    2002

    9.6

    6.3

    4.4

    3.1

    1.7

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    3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY18

    Structure of Balances by Sectors

    as at the end of 2006

    Insurance 4.9%

    Financial 8.1%

    Telecommunications 3.4%

    Leasing 4.2%

    Industrial Construction 4.9%

    Transport 8.4%

    FMCG Manufacturing 7.8%

    Other 6.6%

    7.8% Wholesale Trade

    3.5% Services

    6.5% Industry

    5.1% Construction

    4.7% Real Estate

    8.2% Retail Trade

    13.3% Individuals

    2.4% Consulting

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    ANNUAL REPORT 2006

    193 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

    Payment Services

    The invariably high quality of its payment and

    cash services is one of the Bank's competitive

    advantages. In the past year the Bank settled

    its customers' accounts through both the

    Central Bank payment system (the payment

    processing centre) and its own wide correspon-

    dent network.

    The high-grade and rapid settlements in for-

    eign currency were attributable to the Bank's

    successful work in SWIFT and its correspondent

    accounts with the best foreign clearing banks.

    The customers' demand for services to man-

    age their accounts without visiting the Bank's

    offices personally grew substantially in 2006.

    24/7 on-line access to account information and

    financial transactions SBANK.RU allows the

    customers in a real-time mode to see their

    account activity (including crediting) and send

    payment documents to the Bank for their pro-

    cessing within the operation day. Foreign

    exchange operations performed by the Bank

    according to its customers' requests were sub-

    stantial in the reporting year. Over the past year

    the Bank was one of the most active trading par-

    ticipants at the Moscow Interbank Currency

    Exchange (MICEX). The Bank's turnover in inter-

    national currency markets also increased. The

    total volume of the Bank's currency purchase

    and sale operations increased by 2.2 times com-pared to the previous year and equalled USD

    1.24bn.

    Due to the cooperation with retail and services

    companies, the Bank continued to develop its

    acquiring services. In 2006 the number of such

    contractors increased by 5% and exceeded 450.

    The acquiring turnover increased by 38% and

    reached RUR 1.37bn.

    An increasing emphasis was placed on payroll

    programmes in the reporting period. Sudostro-

    itelny Bank issued about 2000 VISA payroll

    cards.

    Corporate Lending

    In the past year Sudostroitelny Bank continued

    to provide various lending solutions to its corpo-

    rate customers. As at the end of the reporting

    period the overall volume of loans granted to

    companies reached RUR 10.7bn the bulk of

    which went to production, trading and construc-

    tion companies. At the same time the structure

    of the loan portfolio remained diversified, each

    sector having no more than 15%.

    Strong demand for the Bank's loan products

    was attributable to their attractive terms and the

    Bank's flexible approach to each customer. The

    Bank's employees not only checked potential

    borrowers' credit rating but also assisted them in

    choosing the best loan product in accordance

    with their business characteristics and further

    development prospects. The Bank worked out

    special loan terms for each company individually.

    The most popular loans were classical commer-

    cial loans, overdrafts on current accounts, and

    credit lines.

    When granting loans, the Bank paid special

    attention to the borrower's repayment abilities,

    credit history and business reputation, exercisedextreme caution when managing loan-specific

    risks and required guarantees and different

    forms of collateral. All through the crediting peri-

    od the Bank monitored borrowers' financial posi-

    tion in order to timely identify problems and solve

    them as appropriate.

    The improved loan portfolio quality resulted

    from the Bank's well-considered policy. In 2006

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    3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

    bad debts in the Bank's loan portfolio decreased

    by 5 times down to 0.14% of the overall granted

    loans.

    Small and medium business remained strate-

    gically important for the Bank's activities in

    2006. The Bank paid special attention to its

    product line renewal and standardisation of loan

    products and service conditions for such cus-

    tomers.

    Customer International Economic

    Activity Servicing.

    Trade Finance

    Sudostroitelny Bank's customer international

    operation servicing is one of the Bank's promis-

    ing activity. The Bank's considerable internation-

    al prestige, correspondent relations with the

    largest international banks, ability to effect high

    quality and rapid foreign currency exchange set-

    tlements makes it possible to offer advanta-

    geous terms for export and import payments and

    build a strong demand for such services from

    companies of different sectors.

    In the past year the Bank effected all kinds of

    documentary operations, including import letters

    of credit with financing and confirming letters of

    credit and guarantees by first-rate western

    banks. The Bank's customers were especially

    interested in payments by letters of credit stipu-

    lating for short-term finance of trade contracts(documentary letters of credit, letters of credit

    with post-financing, standby letters of credit) and

    guarantee operations (guarantees of payment,

    performance guarantees, advance repayment

    guarantees, tender guarantees, customs guar-

    antees, etc.)

    The total volume of credit lines for documen-

    tary operations opened to Sudostroitelny Bank

    exceeded EUR 40m. The overall volume of the

    Bank's operations relating to these products

    equalled more than EUR 30m.

    The major part of export contracts serviced by

    the Bank went to the food industry and publish-

    ing; the imported products included equipment,

    food, home appliances, cars, consumer goods,

    construction materials.

    Remaining a leading operator in the foreign

    currency exchange market (the Bank's daily

    turnover in the ruble-dollar market is about

    USD 300-500m), Sudostroitelny Bank provided

    its customers with the most favourable terms

    for foreign exchange transactions to complete

    their external trade contracts in dollars, euros,

    the CIS currencies. While purchasing and sell-

    ing foreign currency for its customers both in

    the domestic currency market and in the

    FOREX market, the Bank offered the best ex-

    change rates.

    The past year also saw the significantly incre-

    ased demand for Customs Card services. The

    card allowed the Bank's customers to pay fees,

    excise payments, customs duties, fines directly

    in the course of customs clearance which sub-stantially facilitated their export and import ope-

    rations.

    20

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    3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

    ANNUAL REPORT 2006

    21

    Structure of Loan Portfolio by Sectors

    as at the end of 2006

    Industrial Construction 4%

    Individuals 5%

    Financial 5%

    Wholesale Trade 7%

    Industry 9%

    Rent 12%

    Other 4%

    Insurance 1%

    Advertising 2%

    5% Construction

    5% Pipelining

    7% Entertaining

    8% Leasing

    9% Consumer goods

    15% Retail Trade

    1% Publishing

    2% Transport

    22

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    3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY22

    Sudostroitelny Bank's services to individuals

    continued their dynamic development in the

    reporting year. By the end of the reporting period

    the balances on the individuals' accounts

    increased by 2.4 times; as at 1 January 2007 the

    Bank had 18,600 accounts opened by individu-

    als. The total volume of the raised funds in rubles

    and foreign currency from individuals reached

    RUR 1.24bn, about 80% of which went to ruble

    deposits. Thus, the volume of individuals' funds

    in the Bank's total liabilities amounted to 5.9%

    The increase in the raised funds was mainly

    due to growing time deposit accounts. In the

    reporting year the Bank offered a number of

    diverse deposit programs for individuals. Sudo-

    stroitelny Bank's attractive terms, high quality

    service, participation in the Deposit insurance

    System encouraged individual customers' loy-

    alty to the Bank. Over 2006 the volume of the

    individual time deposits increased by 3.1 times

    up to RUR 1.06bn. As at the latest reporting

    date 59.4%, or RUR 628.3m, went to the

    deposits for a period from 6 months to 1 year;

    the volume of deposits for a period of more

    than a year reached RUR 55.9m.

    The growing number of card holders promoted

    the increase in demand accounts. In 2006 the

    Bank doubled its issue of Visa International and

    Diners Club cards; the balances of the card

    accounts grew more than 3.5 times.

    The volume of operations via SBANK.RU PRIVATE

    on-line access system substantially increased in

    the past year. Its further upgrading and populari-

    sation facilitated increasing demand for a num-

    ber of the Bank's services and optimised individ-

    uals' service expenses.

    In 2006 Sudostroitelny Bank went on with its

    active development of lending programmes for

    individuals. As at the end of the year the volume

    of loans granted to individuals more than tripled

    and reached RUR 991.4m, making it 8.5% of the

    Bank's loan portfolio compared to 4.8% in the

    previous year.

    The mortgage programs launched in 2006

    were of great significance to the Bank that grant-

    ed 46 mortgage loans totalling USD 8.1m.

    Services to Individuals

    233 2006 FINANCIAL RESULTS THE BANK'S FUNDING POLICY

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    233 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

    ANNUAL REPORT 2006

    Dynamics of Individuals Accounts Balances (RUR m)

    2006

    2005

    2004

    2003

    2002

    1 239.1

    418.0

    213.6

    52.8

    73.9

    Private Banking

    Being part of the private banking program and

    including a wide range of financial, advisory and

    other products, the Bank's full and integrated

    service to its well off customers was of great

    importance in 2006. This made it possible for

    the Bank's VIP customers to entrust their current

    financial issues to their personal managers, thus

    substantially saving their time and effort and

    optimising their financial flows.

    Sudostroitelny Bank's private banking servic-

    es were in strong demand from numerous top

    managers, owners of companies that were the

    Bank's corporate customers, representatives of

    the higher level of the Russian middle class. By

    the beginning of 2007 the Bank served more

    than 1200 VIP customers.

    The Bank's private banking program included

    both its standard banking services enhanced

    according to the well off customers' needs and

    innovative products. The past year saw the massive

    increase in Visa Gold and Diners Club cards issued

    by the Bank. In the near future the Bank is planning

    to enlarge an array of financial consulting and asset

    management services to these customers.

    In 2006 Sudostroitelny Bank remained a major

    participant in the securities market. Comparedto the previous year the total volume of its secu-

    rities trading grew by 15% up to RUR 46.2bn.

    The Bank's increasing presence in interna-

    tional stock markets was one of its major objec-

    tives in the past year. Thus, it gained direct

    access to European stock exchanges via UBS

    Investment Bank (London) the largest invest-

    ment bank that set the limit of EUR 100m on

    Sudostroitelny Bank. At present the Bank is able

    to operate with assets at all European stockexchanges: Eronext, LSE, Xetra, Virt-x (in Spain,

    Germany, Switzerland, Italy).

    In 2006 the Bank started to increase fee

    income in the total income from stock market

    operations in accordance with the Board of

    Directors' decision and paid special attention to

    its brokerage services and development of new

    integrated products to completely meet its

    Operations

    in Securities Market

    2 2006 24 3 2006 FINANCIAL RESULTS THE BANK'S FUNDING POLICY

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    2 2006 24

    Dynamics of Corporate Bonds Portfolio (RUR m)

    2006

    2005

    2004

    2003

    2002

    1 392

    622

    538

    448

    92

    Dynamics of Portfolio of Other Issuers Securities (RUR m)

    2006

    2005

    2004

    2003

    2002

    2 929

    2 185

    923

    698

    250

    3 2006 FINANCIAL RESULTS. THE BANK S FUNDING POLICY

    corporate and individual customers' needs. In

    December 2006 the Bank put into operation

    QUIK Internet trading system and started provid-

    ing its customers with access to GL Trade plat-

    form. This made Sudostroitelny Bank a major

    broker in Russia according to the Kommersant-

    BUSINESS GUIDE rating.

    By using its financial instruments, the Bank

    participated in netting schemes on behalf of its

    customers (repayment of amounts due to budg-

    ets of different levels, repayment of amounts

    payable, etc.). Its considerable experience in the

    promissory note market provided the Bank's

    customers with a wide breadth of the relevant

    services (purchase and sale, REPO operations).

    The Bank also performed as an arranger of loans

    for its customers including loans secured by the

    customers' promissory notes or bonds.

    The efficient management of its investment

    portfolio was still one of the main issues for the

    bank. As at the end of the reporting period the

    portfolio increased by 34% and exceeded RUR

    2.9bn. The Bank pursued the well-balanced

    policy in placing its resources and giving pref-

    erence to highly liquid securities of reliable

    issuers. As at the end of the year the substan-

    tial part of the portfolio included promissory

    notes of top banks (36%), corporate bonds

    (24%) and the US Treasury notes (28%). The

    volume of securities issued grew by 28.9%

    making it 61.7% of the total investment in

    securities.

    In 2006 Sudostroitelny Bank substantially

    increased its presence in the REPO market. As at

    the end of the reporting period its turnover

    equalled RUR 9.75bn.

    253 2006 FINANCIAL RESULTS THE BANK'S FUNDING POLICY

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    ANNUAL REPORT 2006

    253 2006 FINANCIAL RESULTS. THE BANK S FUNDING POLICY

    Structure of Securities Portfolio

    as at the end of 2006

    US Treasury notes 28%

    Bonds issued by banks 5%

    Shares of companies 2%

    Promissory notes

    of companies 3%

    Securities purchased

    2% under repo

    Bonds issued

    24% by companies

    36% Promissorynotes of banks

    26 3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

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    Over the reporting year the Bank continued its

    active cooperation with financial institutions,

    paying special attention to long-term partner

    relationships with the largest banks worldwide,

    including the CIS and Baltic States, and develop-

    ment of correspondent network according to its

    business requirements and customers' needs.

    In 2006 the Bank established correspondent

    relations with three credit institutions and

    opened eight NOSTRO accounts. Thus, as at

    1 January 2007 the Bank had 72 NOSTRO

    accounts with 38 correspondent banks. The

    overall balance on NOSTRO accounts more than

    doubled and reached RUR 6.3bn.

    Being one of the main settlement banks for

    Russian medium-scale financial institutions and

    providing a significant number of international

    settlements for the domestic credit institutions,

    the Bank had maintained LORO accounts for 200

    banks. Over the reporting period the Bank

    opened 90 LORO accounts; as at the end of the

    reporting year the Bank had 455 LORO accountsopened for the domestic and foreign banks.

    Many reliable credit institutions, both Russian

    and overseas, including Gazprombank, Interna-

    tional Moscow Bank, TransCreditBank, Absolut

    Bank, Promsvyazbank, Bank Petrocommerce,

    NOMOS-BANK (Moscow), Tatfondbank (Kazan),

    Rossiya Bank (Saint Petersburg), Khaanty-Mansi

    Bank (Khanty-Mansiysk), Siboilbank (Tyumen),

    Bank Forshtadt (Orenburg), Omsk-Bank (Omsk),

    Ursa-Bank (Novosibirsk), Koltso Urala Bank

    (Ekaterinburg), First United Bank (Togliatti),

    Center-invest Bank (Rostov-on-Don), Alliance

    Bank (Kazakhstan), Eurasian Bank (Kazakhstan),

    PrivatBank (Ukraine), Donghorbank (Ukraine),

    Deutsche Bank, Dresdner Bank, Commerzbank

    (Germany), American Express Bank, National City

    Bank (USA), Banque de Commerce et Placements

    (Switzerland) are among our partners. The Bank

    was also establishing and developing relations

    with other financial institutions of the USA, Japan,

    Europe, South East Asia and Latin America.

    The expansion of the correspondent network

    helped the Bank to fully and completely meet the

    needs of its customers and partners that use

    international settlement products, cut costs and

    increase efficiency of settlements for customers

    engaged in international economic activity. Thus,

    the Bank considered it extremely important to

    have the agreements on trade finance, money

    markets and foreign exchange operations with a

    number of foreign correspondent banks.In 2006 by obtaining loans from large and

    medium-scale Russian banks and placing signif-

    icant funds with reliable Russian and foreign

    financial institutions, Sudostroitelny Bank

    remained one of the most active players in the

    interbank lending market; its annual turnover in

    this market was about RUR 4.5 trillion. The Bank

    signed 51 General Interbank Cooperation Agree-

    ments making the total number 436.

    Interbank Cooperation

    273 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

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    ANNUAL REPORT 2006

    Regional Business

    Dynamics of Interbank Loans Granted (RUR bn)

    2006

    2005

    2004

    2003

    2002

    6.3

    3.1

    4.0

    3.3

    4.1

    Dynamics of Nostro accounts balances (RUR bn)

    2006

    2005

    2004

    2003

    2002

    4.5

    5.0

    4.1

    4.0

    1.0

    Sudostroitelny Bank further expanded its region-

    al presence in 2006. Its active marketing strate-

    gy and impeccable services facilitated an inflow

    of new customers, a growing demand for a vari-

    ety of the Bank's services. The Bank's main cus-

    tomers in regions are companies engaged in

    production, transportation, trade and com-merce, telecommunications, construction, fi-

    nance. As at the end of the reporting year the

    balances on the accounts of the corporate cus-

    tomers of the Bank's branch in Saint Petersburg

    rose by 84% up to RUR 497.8m, that of the cred-

    it and cash office in Nizhny Novgorod up to

    RUR 21.5m. The turnover on the corporate cus-

    tomers accounts equalled RUR 2.89bn and RUR

    0.45bn respectively. The balances on theaccounts of the Bank's private customers

    reached RUR 49.8m in Saint Petersburg and

    RUR 6.6m in Nizhny Novgorod.

    In the past year the Bank's office network con-

    tinued to grow. In March 2006 the Bank's ope-

    ned its representative office in Ekaterinburg, in

    May 2006 it opened its additional office in the

    dealership for Bentley in Barvikha Luxury Village

    retail centre, in October 2006 it set up its

    payment office in the dealership for Harley-

    Davidson.

    The increased turnovers of the Bank's region-

    al network were boosted by the dynamic promo-

    tion of the Internet banking products and servic-es. Being a leader and having advanced multi-

    functional Internet banking technologies

    Sudostroitelny Bank put an emphasis on the on-

    line sales channels that allowed to unload the

    offices and reduce service expenses compared

    to standard services.

    The past year saw the continued expansion

    of the Bank's presence in regions with high

    investment potential. Within the next two yearsthe Bank is planning to set up its offices in

    Moscow region, Sverdlovsk region, Perm region

    and in the city of Sochi. The developed office

    network will enable the Bank to actively partici-

    pate in interregional business projects, enlarge

    its customer base, expand its product line in

    regions.

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    The Bank's well-designed risk management sys-tem is essential for its successful development.

    On a regular basis the Bank monitors, assesses,

    and promptly minimizes various risks.

    Due to the high loan portfolio growth the

    Bank's credit risk management was especially

    important in 2006. It comprised risk assessment

    and control for both standalone borrowers and

    groups of related borrowers. The Bank's credit

    analysts developed specific recommendationson lending limits for each customer/counterpar-

    ty; borrowers' repayment abilities, their current

    financial position and business reputation influ-

    enced the Bank's decision whether to grant a

    loan. The credit risk related to banks was con-

    trolled by the system of credit lines set by the

    Bank's Financial Committee and based on the

    Bank's own methodology.

    Minimising market risks was of paramountimportance to Sudostroitelny Bank in the past

    year. The Bank's market risk management sys-

    tem allowed to timely identify and estimate risks

    and to make prompt and relevant decisions on

    the portfolio structure optimisation. The method-

    ology was developed by the Risk Analysis

    Department which is a dedicated and independ-

    ent unit of the Bank. The main techniques for

    minimising market risks in 2006 were the Bank'sopen positions (foreign exchange, interest,

    investments in securities) within the set limits;

    besides, the Bank hedged market risks. Striking

    the right balance between risks of operations

    and their profitability was one of the Bank's spe-

    cial concerns.

    The Bank's liquidity management is an impor-

    tant part of its risk management system. The

    4Factorsof Success

    Risk Management

    30 4 FACTORS OF SUCCESS

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    layered system of the triple control (the Manage-

    ment Board, the Financial Committee, the Trea-

    sury) ensures the integrated approach to manag-

    ing long-term, medium-term and short-term liq-

    uidity. To estimate risks relating to the liquidity

    the Bank's employees applied the scenario

    analysis that simulated fluctuations of different

    groups of assets and liabilities by changing

    (including unfavourable) a series of market

    and/or bank parameters. The Bank's well-bal-

    anced approach to managing its liquidity leads to

    all the Bank's commitments met at all times.

    In the reporting year the Bank further impro-

    ved its operational risk management system.

    These risks are connected with possible draw-

    backs of systems and procedures of manage-

    ment and control of the banking processes, the

    wrong decisions of the Bank's employees of dif-

    ferent ranks, and the system errors. To minimise

    the risks the Bank's employees optimised the

    organisational structure to make its technologi-

    cal units and departments react to all kinds of

    changes both out and in the Bank as soon as

    possible.

    InformationTechnologies

    In 2006 the Bank continued to enhance its infor-

    mation technologies in accordance with the busi-

    ness needs. The customer inflow, increase in the

    Bank's operations were accompanied by devel-

    opment of the Bank's automated systems and

    introduction of new ones that optimally ensured

    its top quality and fast services and cost minimi-

    sation.The Bank put particular emphasis on upgrad-

    ing SBANK.RU and SBANK.RU PRIVATE on-line

    access systems that allow the corporate and pri-

    vate customers to operate their accounts, do

    transfers, get account statements, make foreign

    exchange transactions in the real-time. Their

    comfortable user interface, wide range of func-

    tions and reliable and stable operations encour-

    aged further demand for the Internet-bankingservices. Thus, 90% of the corporate customers

    and about 50% of the private customers made

    their payments via SBANK.RU in 2006.

    The Bank paid special attention to providing

    its Internet-banking services in the regions. The

    IT specialists worked to install remote modules

    in the Bank's regional offices and integrate them

    into the corporate system. Over the year the

    modules were customised for each office, its

    business operations, services, etc.

    Upgrading the technological base to support

    the Bank's increased activity in financial mar-

    kets remained among the most important priori-

    ties of the IT department. UBS Equity Trader and

    GL Trade trading platforms optimised the Bank's

    operations in international stock exchanges. TheBank's access to the Bloomberg terminals

    allowed for the increased financial markets infor-

    mation and technology support of the customers

    and the Bank itself.

    In 2007 the Bank is planning to further en-

    hance its IT infrastructure to accelerate the

    development of the most promising and popular

    activities. In the near future a dedicated team of

    business technologists will be created within theBank's IT Department.

    Another strategic goal for 2007 is a creation of

    an efficient Management Information System

    (MIS). It will encourage the Bank's management

    system transparency, allow to set more precise

    goals for the Bank's departments and employ-

    ees and assess profitability of the Bank's busi-

    ness lines.

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    ANNUAL REPORT 2006

    All through the years of its activities Sudostroi-

    telny Bank has sought to implement a deliberate

    and sound personnel policy to form an efficient

    and highly competitive team. In the past year the

    major priorities of the Bank's personnel policy

    were increasing professionalism in accordance

    with the market requirements, maintaining

    a high level of employees' motivation and pre-

    serving a climate of friendliness and trust.

    The high level of its personnel training influ-

    ences greatly the Bank's competitive position and

    further development. In 2006 the Bank carried on

    with its employees' professional development planfinanced as a dedicated on-budget expense item.

    The employees attended specialized courses and

    were given training in innovative technologies in

    new customers attraction and service (specifically,

    at the Institute for Professional Development and

    Training of Financial Professionals).

    At Sudostroitelny Bank's staff selection crite-

    ria traditionally receive special attention. In the

    past year the Bank developed a series of tests to

    check potential employees' special knowledge

    and determine their general level of competence;

    besides, they underwent psychological testing.

    The priority was given to those having essential

    experience in financial institutions and skills in

    using modern banking technologies.

    Social partnership and keeping the employ-

    ees interested in final results are strategically

    important for the Bank's personnel policy. In the

    reporting period the Bank's employee incentiveplan included both financial (salary, bonuses,

    various kinds of remuneration) and non-finan-

    cial (awards, employee benefits, medical exami-

    nations, retirement insurance, employees' chil-

    dren summer healthcare, etc.) components, the

    latter being especially emphasised.

    Personnel Policy

    Working withthe Community

    Community and charity programmes aimed atsupporting cultural values, sports and fitness

    activities, as well as sponsoring talented young

    people and disadvantaged social groups, have

    been an essential part of Sudostroitelny Bank's

    activities since its foundation. The Bank tradi-

    tionally considers it important to preserve the

    fundamentals of Orthodox culture and con-

    tributes to spiritual growth. In 2006 the Bank

    made a charitable contribution to the Cathedralof Christ the Saviour. As a constant guardian of

    Suzdal Orthodox School, the Bank supported the

    school's students.

    Sudostroitelny Bank's financial assistance

    in holding one of the major cultural event

    a concert of the great Russian cellist and

    coductor Mstislav Rostropovich devoted to

    the centenary of D. Shostakovich's birth on

    23 September 2006 was of great signifi-cance for the Bank.

    The Bank's cooperation with organizations

    that promote sports and fitness activities plays

    an important role in its working with the commu-

    nity. The Bank continued to support the Russian

    Federation of the Close Fight and Karate that is

    engaged in physical training and realising one's

    inner potential. The Bank also was a sponsor to

    the All stars 2005/2006 hockey game. At the2005/2006 closing ceremony the Bank award-

    ed Alexey Morozov (forward of Ak Bars, Kazan) as

    the Best Play-Off Player.

    Considering it our honor and civic duty to sup-

    port veterans of the World War II and the Great

    Patriotic War, the Bank organized the Victory day

    celebrations and congratulated defenders of our

    country.

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    5The Bank'sFinancial

    Statementsand IndependentAuditors' Report

    34 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)

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    thousand rubles

    No. Name of line As at the As at the correspon-

    reporting ding reporting date

    date last year

    1 2 3 4

    I. ASSETS

    1. Cash 176 757 116 866

    2. Placements with the Central Bank of the Russian Federation 5 898 955 2 913 727

    2.1. Required reserves 247 883 113 040

    3. Placements with credit institutions 892 934 281 411

    4. Net investment in trading securities 80 779 0

    5. Net loans to customers 19 835 263 16 888 685

    6. Net investment in investment held-to-maturity securities 1 396 933 544 250

    7. Net investment in available-for-sale securities 1 448 249 1 640 368

    8. Fixed assets, intangible assets and inventories 77 650 27 924

    9. Interest receivables 8 445 4 212

    10. Other assets 296 142 50 050

    11. Total assets 30 112 107 22 467 493

    Balance Sheet (for publication purposes)as at 01 January 2007

    Credit institution

    Commercial bank "Sudostroitelny bank" (LTD)

    (Limited Liability Company)

    Sudostroitelny bank (LTD)

    Main state registration number 2999 BIC

    044579918

    Postal address: 5 Sadovnicheskaya Street,

    Moscow, Russia, 115035

    No Name of line As at the As at the correspon

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    No. Name of line As at the As at the correspon-

    reporting date ding reporting date last

    (thousand rubles) year (thousand rubles)

    1 2 3 4

    II. LIABILITIES12. Loans from the Central Bank of the Russian Federation 0 0

    13. Amounts due to credit institutions 7 016 453 6 810 658

    14. Customer accounts (non- credit institutions) 11 090 149 6 795 927

    14.1. Deposits from individuals 1 239 093 418 045

    15. Debt securities issued 8 044 570 5 428 829

    16. Interest payables 422 745 161 115

    17. Other liabilities 60 583 14 788

    18. Provision for possible losses on off-balance sheet credit related commitments, other possible

    losses and settlements with off-shore residents 308 733 60 55319. Total liabilities 26 943 233 19 271 870

    III. EQUITY

    20. Funds of shareholders (participants) 2 660 000 2 660 000

    20.1. Registered ordinary shares 2 660 000 2 660 000

    20.2. Registered preference shares 0 0

    20.3. Unregistered authorized capital of non-incorporated credit institutions 0 0

    21. Treasury shares bought out from shareholders 0 0

    22. Share premium 0 0

    23. Revaluation of fixed assets 0 024. Expenses of future periods and pending payments effecting equity (capital) 587 933 201 396

    25. Funds and retained earnings available to credit institution (prior year losses) 736 770 417 810

    26. Profit (loss) for the reporting period 360 037 319 209

    27. Total equity 3 168 874 3 195 623

    28. Total liabilities 30 112 107 22 467 493

    IV. OFF-BALANCE LIABILITIES

    29. Irrevocable commitments of credit institution 11 427 753 5 377 676

    30. Guarantees issued by credit institution 774 241 359 297

    The following operations of Section V Trust man-

    agement accounts do not appear on the Balance

    Sheet as they were not business lines of the bank

    in the reporting period:

    1. Cash on hand, 2. Securities in trust manage-

    ment, 3. precious metals, 4. loans granted,

    5. funds used for other purposes, 6. trust man-

    agement settlements, 7. Accrued interest (cou-

    pon) income on bonds paid, 8. current acco-

    unts, 9. trust management expenses , 10. trust

    management loss, 11. Capital in trust manage-

    ment, 12. trust management settlements,

    13. accrued interest (coupon) income on bonds

    received, 14. trust management revenues,

    15. trust management profit.

    Chairman of the Management Board Golubkov A.K.

    Chief Accountant Zubova E. K.

    36 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)

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    (for publication purposes)

    for the year 2006

    Credit institution

    Commercial bank "Sudostroitelny bank" (LTD)

    (Limited Liability Company)

    Sudostroitelny bank (LTD)

    Main state registration number 2999

    BIC 044579918

    Postal address: 5 Sadovnicheskaya Street,

    Moscow, Russia, 115035

    Profit and lossStatement

    No. Name of line As at the As at the correspon-

    reporting date ding reporting date last

    (thousand rubles) year (thousand rubles)

    1 2 3 4

    Interest received and similar income from:

    1 Placements with credit institutions 483 656 391 298

    2 Loans to customers (non-credit institutions) 1 893 906 1 368 319

    3 Financial leasing services 0 0

    4 Fixed income securities 178 248 123 939

    5 Other sources 1 240 1 423

    6 Total interest received and similar income 2 557 050 1 884 979

    Interest paid and similar expenses:

    7 Funds borrowed from credit institutions 300 278 188 339

    8 Funds borrowed from customers (non-credit institutions) 55 781 19 304

    9 Debt securities issued 417 431 277 802

    10 Total interest paid and similar expenses 773 490 485 445

    11 Net interest and similar income 1 783 560 1 399 534

    12 Net income from securities transactions -31 229 -105 869

    13 Net income from FX transactions -1 536 -17 389

    14 Net income from transactions with precious metals and other financial instruments 0 0

    15 Net foreign currency revaluation gain 138 104 -176 385

    16 Fee income 129 949 96 083

    17 Fee expenses 46 833 30 253

    18 Net income from extraordinary transactions 4 511 1 510

    19 Other net operating income -18 771 -5 535

    20 General and administrative expenses 318 533 199 178

    21 Possible loss provisions -1 209 304 -614 845

    22 Pre-tax profit 429 918 347 673

    23 Taxes accrued (including profit tax) 69 881 28 464

    24 Profit (loss) for the reporting period 360 037 319 209

    Chairman of the Management Board Golubkov A.K.

    Chief Accountant Zubova E. K.

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    38 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)

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    In our opinion, the financial statements of Com-

    mercial bank "Sudostroitelny bank" (LTD) present

    fairly in all material aspects its financial position

    as at 31 December 2006 and the results of its

    performance for the period from 01 January

    2006 to 31 December 2006 inclusively in com-

    pliance with the legislation of the Russian Fe-

    deration.

    AUDIT DATE: 04 April 2007

    Audit firm: "FinExpertiza" Ltd.

    State registration number and date: State Registration Certificate 937.341,

    issued by Moscow Registration Chamber 05 May 1997

    Number and date of license issue: E 002588, issued 06 November 2002

    License is valid from 06 November 2002License is valid until 05 November 2007

    License is issued by Ministry of Finance of the Russian Federation

    Membership in accredited audit association: yes

    Last name, first name, patronymic of audit firm CEO: Trubnikova Yelena Aleksandrovna Data on person who

    HAS AUDITED (HEAD OF AUDIT):

    Last name, first name, patronymic: Borzova Natalya Evgenyevna

    Position: Deputy General Director

    Number and date of qualification certificate issue: 002167 as of 20 December 2002

    Qualification certificate is valid until Unlimited validityDocument that authorizes person who has audited (type, number, date): Order 1/1 as of 09 January 2007

    IndependentAuditors' Report

    395 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

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    ANNUAL REPORT 2006

    IndependentAuditors' Report

    To the Members and the Board of Directors ofCommercial Bank Sudostroitelny Bank (Limi-

    ted Liability Company):

    We have audited the accompanying financial

    statements of Commercial Bank Sudostroitelny

    Bank (Limited Liability Company) (the Bank),

    which comprise the balance sheet as of

    31 December 2006, and the income state-

    ment and statement of cash flows for the year

    then ended, and a summary of significant acco-unting policies and other explanatory notes.

    Management's responsibility for

    the financial statements

    Management is responsible for the preparation

    and fair presentation of these financial state-

    ments in accordance with International Financial

    Reporting Standards. This responsibility inclu-

    des: designing, implementing and maintaining

    internal control relevant to the preparation and

    fair presentation of financial statements that are

    free from material misstatement, whether due to

    fraud or error; selecting and applying appropri-

    ate accounting policies; and making accountingestimates that are reasonable in the circum-

    stances.

    Auditor's responsibility

    Our responsibility is to express an opinion on

    these financial statements based on our audit.

    We conducted our audit in accordance with

    International Standards on Auditing. Those stan-dards require that we comply with ethical

    requirements and plan and perform the audit to

    obtain reasonable assurance whether the finan-

    cial statements are free from material misstate-

    ment.

    An audit involves performing procedures to

    obtain audit evidence about the amounts and

    disclosures in the financial statements. The pro-

    cedures selected depend on the auditor's judg-

    ment, including the assessment of the risks of

    material misstatement of the financial state-

    ments, whether due to fraud or error. In making

    those risk assessments, the auditor considers

    internal control relevant to the entity's prepara-

    tion and fair presentation of the financial state-ments in order to design audit procedures that

    are appropriate in the circumstances, but not for

    the purpose of expressing an opinion on the

    effectiveness of the entity's internal control. An

    audit also includes evaluating the appropriate-

    ness of accounting policies used and the rea-

    sonableness of accounting estimates made by

    management, as well as evaluating the overall

    presentation of the financial statements.We believe that the audit evidence we have

    obtained is sufficient and appropriate to provide

    a basis for our audit opinion.

    Opinion

    In our opinion, the financial statements present

    fairly, in all material respects the financial posi-

    tion of the Bank as of 31 December 2006, its

    financial performance and cash flows for the

    year then ended in accordance with Internatio-

    nal Financial Reporting Standards.

    20 February 2007, Moscow

    ZAO Deloitte & Touche CIS

    Business Center "Mokhovaya"

    4/7 Vozdvizhenka St., bldg. 2

    125009 Moscow

    Russian Federation

    Phone Number: 7 (495) 787 0600

    Fax Number: 7 (495) 787 0601

    www.deloitte.ru

    40 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

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    The following statement, which should be read

    in conjunction with the independent auditors'

    responsibilities stated in the independent

    auditors' report set out on pages 2-3, is madewith a view to distinguishing the respective

    responsibilities of management and those of

    the independent auditors in relation to the

    financial statements of Commercial Bank

    Sudostroitelny Bank (Limited Liability

    Company) (the Bank).

    Management is responsible for the prepara-

    tion of the financial statements that present fair-

    ly the financial position of the Bank as of 31December 2006, the results of its operations

    and cash flows for the year then ended, in accor-

    dance with International Financial Reporting

    Standards (IFRS).

    In preparing the financial statements, man-

    agement is responsible for:

    Selecting suitable accounting principles

    and applying them consistently; Making judgements and estimates that

    are reasonable and prudent;

    Stating whether IFRS have been followed,

    subject to any material departures dis-

    closed and explained in the financial

    statements; and

    Preparing the financial statements on

    a going concern basis, unless it is inap-

    propriate to presume that the Bank will

    continue in business for the foreseeable

    future.

    Management is also responsible for:

    Designing, implementing and maintain-

    ing an effective and sound system of

    internal controls for the Bank;

    Maintaining proper accounting records

    that disclose, with reasonable accuracy

    at any time, the financial position of theBank, and which enable them to ensure

    that the financial statements of the Bank

    comply with IFRS;

    Maintaining statutory accounting records

    in compliance with legislation and

    accounting standards of the Russian

    Federation;

    Taking such steps as are reasonably

    available to them to safeguard the assetsof the Bank; and

    Detecting and preventing fraud and other

    irregularities.

    These financial statements for the year ended

    31 December 2006 were approved on 19 Feb-

    ruary 2007 by the Bank's Board of Directors.

    Statementof Management's

    Responsibilities for thePreparation and Approval

    of the FinancialStatements

    for the year ended

    31 December 2006

    On behalf of the Board of Directors:

    __________________________________

    Chairman of the Management Board

    19 February 2007

    Moscow

    __________________________________

    Chief Accountant

    19 February 2007

    Moscow

    415 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

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    ANNUAL REPORT 2006

    Notes Year ended Year ended31 December 31 December

    2006 2005

    (RUR'000) (RUR'000)

    Interest income 4, 24 1,736,477 1,559,522

    Interest expense 4, 24 (911,095) (672,307)

    NET INTEREST INCOME BEFORE PROVISION FOR IMPAIRMENT LOSSES

    ON INTEREST BEARING ASSETS 825,382 887,215

    Provision for impairment losses on interest bearing assets 5 (44,945) (9,111)

    NET INTEREST INCOME 780,437 878,104

    Net loss on assets at fair value through profit or loss 6 (92,217) (13,617)

    Net gain on foreign exchange operations 7 238,087 34,551

    Fee and commission income 8 155,548 96,188

    Fee and commission expense 8 (58,995) (52,867)

    Other income 9 47,520 9,963

    NET NON-INTEREST INCOME 289,943 74,218

    OPERATING INCOME 1,070,380 952,322

    OPERATING EXPENSES 10, 24 (360,682) (225,189)

    OPERATING PROFIT 709,698 727,133

    (Other provision)/recovery of other provision 5 (21,693) 3,524

    PROFIT BEFORE INCOME TAX 688,005 730,657

    Income tax expense 11 (186,544) (250,328)

    CHANGE OF NET ASSETS ATTRIBUTABLE TO THE MEMBERS OF THE BANK 501,461 480,329

    Income Statement for the Year Ended 31 December 2006

    On behalf of the Board of Directors:

    __________________________________

    Chairman of the Management Board

    19 February 2007

    Moscow

    __________________________________

    Chief Accountant

    19 February 2007

    Moscow

    42 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

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    Notes Year ended Year ended31 December 31December

    2006 (RUR'000) 2005 (RUR'000)

    ASSETS:

    Cash and balances with the Central Bank of the Russian Federation 12 6,051,986 3,029,499

    Assets at fair value through profit or loss 13 5,458,709 7,309,073

    Loans and advances to banks 14 5,693,345 5,038,052

    Loans to customers 15, 24 11,129,802 6,337,227

    Fixed assets 16 77,749 32,429Other assets 17 292,188 4,668

    TOTAL ASSETS 28,703,779 21,750,948

    LIABILITIES:

    Deposits from banks 18 7,922,287 7,006,531

    Customer accounts 19, 24 10,843,082 6,836,774

    Debt securities issued 20 5,046,930 3,772,891

    Other provisions 5, 23, 24 23,884 2,191

    Current income tax liabilities 11 29,271 1,509

    Deferred income tax liabilities 11 504,409 364,086

    Other liabilities 21 81,956 16,217

    TOTAL LIABILITIES 24,451,819 18,000,199

    Net assets attributable to the members of the Bank 22 4,251,960 3,750,749

    Balance Sheet as of 31 December 2006

    On behalf of the Board of Directors:

    __________________________________

    Chairman of the Management Board

    19 February 2007

    Moscow

    __________________________________

    Chief Accountant

    19 February 2007

    Moscow

    435 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

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    ANNUAL REPORT 2006

    Notes Year ended Year ended

    31 December 31 December

    2006 2005

    (RUR'000) (RUR'000)

    CASH FLOWS FROM OPERATING ACTIVITIES:

    Income before income tax 688,005 730,657

    Adjustments for:Provision for impairment losses on interest bearing assets 44,945 9,111

    Other provision/(recovery of other provision) 21,693 (3,524)

    Amortization of discount on debt securities issued 40,665 (11,647)

    Adjustment of fair value of financial instruments at fair value through profit or loss (87,149) (1,857)

    Net change in replacement value of derivative financial instruments and spot deals (17,039) 14,359

    Accrued expenses 4,333 4,709

    Depreciation of fixed assets 10,634 7,527

    Loss on disposal of fixed assets 173 142

    Net change in interest accruals 119,412 (28,513)Loss/(gain) from foreign currency revaluation 209,428 (76,790)

    Cash flows from operating activities before changes in operating assets and liabilities 1,035,100 644,174

    Changes in operating assets and liabilities

    (Increase)/decrease in operating assets:

    Minimum reserve deposit with the Central Bank of the Russian Federation (133,288) (49,368)

    Assets at fair value through profit or loss 1,794,518 (3,505,401)

    Loans and advances to banks (504,289) 858,911

    Loans to customers (4,988,435) (740,313)

    Other assets (272,742) 5,925

    Increase/(decrease) in operating liabilities:

    Deposits from banks 1,063,658 (74,316)

    Customer accounts 4,020,403 2,150,290

    Other liabilities 68,446 (17,873)

    Cash inflow/(outflow) from operating activities before income tax 2,083,371 (727,971)

    Income tax paid (18,459) (11,585)

    Net cash inflow/(outflow) from operating activities 2,064,912 (739,556)

    Statement of Cash Flowsfor the Year Ended 31 December 2006

    44 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

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    Notes Year ended Year ended

    31 December 31 December

    2006 2005

    (RUR'000) (RUR'000)

    CASH FLOWS FROM INVESTING ACTIVITIES:

    Purchases of fixed assets (58,000) (16,730)

    Proceeds from disposal of fixed assets 1,873 267

    Acquisition of investments available-for-sale (1,615)

    Net cash outflows from investing activities (57,742) (16,463)

    CASH FLOWS FROM FINANCING ACTIVITIES:

    Proceeds from debt securities issued 1,154,443 1,133,872

    Payments from net assets attributable to the members of the Bank (250) (2,100)

    Net cash inflows from financing activities 1,154,193 1,131,772

    NET INCREASE IN CASH AND CASH EQUIVALENTS 3,161,363 375,753

    Effects of exchange rate changes on cash and cash equivalents (21,189) 15,145

    NET INCREASE IN CASH AND CASH EQUIVALENTS AFTER EFFECT OF EXCHANGE RATE CHANGES 3,140,174 390,898

    CASH AND CASH EQUIVALENTS, beginning of the period 12 3,142,045 2,751,147

    CASH AND CASH EQUIVALENTS, end of the period 12 6,282,219 3,142,045

    Interest paid and received by the Bank during the

    year ended 31 December 2006 amounted to

    RUR 696.590 thousand and RUR 1.682.049

    thousand, respectively.

    Interest paid and received by the Bank during the

    year ended 31 December 2005 amounted to

    RUR 712.994 thousand and RUR 1.571.696

    thousand, respectively.

    On behalf of the Board of Directors:

    __________________________________

    Chairman of the Management Board

    19 February 2007

    Moscow

    __________________________________

    Chief Accountant

    19 February 2007

    Moscow

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    Moscow Head Office

    Address: 5, Sadovnicheskaya st., Moscow, 115035, Russia

    Tel.: +7 (495) 777 1121, 745 9890, 745 7990

    Fax: +7 (495) 959 0888

    www.sbank.ru

    Office "Volokolamka, 14"

    Address: 14, Volokolamskoe shosse, Moscow, 125080, Russia

    Tel.: +7 (495) 411 7883, 411 8087

    Office "Yakimanka, 21"

    Address: 21, Bolshaya Yakimanka st., Moscow 109180, Russia

    Tel.: +7 (495) 230 7461

    Fax.: +7 (495) 230 7516

    "Bentley" office

    Address: 114/2 "Bentley Moscow", Barvikha Luxury Village, Moscow region, Russia

    Tel.: +7 (495) 980 6813

    Office "Zelenograd"

    Address: 1, str. 2, 4th Zapadnyi pr., Zelenograd, Moscow, 143083, Russia

    Tel.: +7 (495) 535 1373, 535 0933

    St-Petersburg

    Address: Office 18-H, bld. 12 lit.A, Ryuchina st., St.-Petersburg, 191186, Russia

    Tel.: +7 (812) 234 0333, 234 0066

    Fax: +7 (812) 234 0333

    Nizhny Novgorod

    Address: 3, Novaya st., Nizhny Novgorod, 603000, Russia

    Tel./Fax: +7 (8312) 78 0518, 78 0519

    Ekaterinburg

    Address: 3, Chernyshevskogo st., Ekaterinburg, 620014, Russia

    Tel./Fax: +7 (343) 376 6390

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