Corporate Banking

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Corporate Banking

www.rosbank.ru


Annual Report

2006


Contents

Annual Report

2006

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Foreword of the Chairman of the Management Board

Managing Bodies of ROSBANK

Russian Economy and Banking Sector in 2006

ROSBANK: Main Results

Statement by the Board of Directors

on the development of ROSBANK in 2006

Retail Business

Services for Small and Medium Enterprises

Corporate Banking

Private Banking

Financial Markets Activities

Investment Banking

Custody Services

Financial Report 2006

Appendix 1. The Bank’s Corporate Governance System and Compliance

with the Code of Corporate Conduct Recommended by the

Federal Service for Financial Markets of the Russian Federation

Appendix 2. Transactions Executed with “Interested-Parties” during

the Reporting Year

Contacts


Foreword of the Chairman

of the Management Board

Managing Bodies of ROSBANK

Ladies and Gentlemen!

In 2006, macroeconomic stability in Russia encouraged further expansion of the banking sector.

The results of the past year clearly demonstrate the potential for banking to act as a key driver in sustaining

economic growth in the country.

The reporting year can be considered successful for ROSBANK: the Bank’s equity grew 23.4%, the

Group’s consolidated assets totaled RUR 293 billion. Practically all of our targets were effectively met. The

Bank continued on-going development as a universal financial institution holding a unique position in the

market.

In corporate banking, the traditional field for ROSBANK, we focused on providing services to companies

in telecommunications, electric power, metals, oil and gas industries and trade. Our corporate portfolio totaled

RUR 84.6 billion. In retail banking, our efforts resulted in continued growth of client deposits, and our

loan portfolio increased 47.5%. We retained our leading position in the car loan market, doubled the share

of general loans in our portfolio, and increased mortgage loans eightfold. In 2006, our SME loan portfolio

grew 3.6 times. Our multilevel risk assessment system ensured an overall good quality of loans. In 2006,

we completed the formation of an in-house debt collection agency, which currently operates in the most

important regions of Russia.

We continued to optimize the structure and geography of our extensive regional branch network with

a focus on operating efficiency and cutting non-productive costs. Although several bank offices were closed,

ROSBANK opened 43 new offices, thereby expanding market proliferation to Tatarstan, Bashkortostan and

throughout the Moscow Region.

In 2006, the Bank considerably improved its management system, including changes in administrative

management, implementing a KPI system for branch office performance assessment.

Finally, the major event of 2006 was the change in ROSBANK ownership structure with Societe Generale

becoming a new shareholder of the Bank. Our cooperation with one of the world’s largest financial groups

extends our horizons, providing us opportunities to tap key international capital markets and gain exposure

to developments in banking technology, IT systems, risk management and financial planning. Our strategic

partnership with Societe Generale has encouraged leading international rating agencies, Standard & Poor’s,

Moody’s Investors Service and Fitch Ratings to upgrade their ratings and forecasts for ROSBANK.

In recognition of our 2006 achievements, The Banker (an authoritative Financial Times magazine)

named ROSBANK the Bank of the Year in Russia.

Now we look forward to strenuous but interesting efforts towards achieving our strategic goals. Our key

objectives include ensuring well-balanced growth, maintaining a reasonable return on equity, and providing

quality services to our partners and clients. I strongly believe that our banking team will succeed with

all of these tasks.

I would like to thank all personnel of ROSBANK for their professional competence, dedication and strong

team spirit. I am also grateful to the shareholders, clients and partners and believe that we will continue to

enjoy their support and confidence.

Board of Directors

Chairman of the Board of Directors

Andrey A. Klishas

General Director,

Chairman of the Board of Management of Interros

Holding Company

Deputy Chairman of the Board

of Directors

Georgy V. Zabolotskiy

First Vice President of ROSBANK,

General Director of LLC “Fincom – Investments and

Management”

Members of the Board of Directors

Andrey E. Bugrov

Managing Director, Interros

Alexander V. Popov

Chairman of the Management Board

Jean-Louis Mattei

Head of International Retail Banking, Societe Generale

Philippe Citerne

Director and Co-Chief Executive Officer, Societe

Generale

Mukhadin A. Eskindarov

Rector of the Finance Academy of the Government of

the Russian Federation

Martin Gilman

Independent Director

Management Board

Chairman

of the Management Board

Alexander V. Popov

Members

of the Management Board

Vladimir Yu. Golubkov

First Deputy Chairman

Guerman R. Aliev

Deputy Chairman

Igor S. Antonov

Deputy Chairman

Olesya V. Afanasyeva

Deputy Chairman

Alexander V. Vedernikov

Deputy Chairman

Larisa R. Dolotova

Deputy Chairman

Mikhail S. Kiselev

Deputy Chairman

Sergey A. Koshelenko

Deputy Chairman

Oksana V. Lifar

Deputy Chairman

Olga A. Ryabova

Deputy Chairman

Chairman of the Board

Alexander Popov

Allan Hirst

Independent Director

Maxim E. Frolov

Deputy Chairman


Throughout Russia. For you.


Russian Economy

and Banking Sector in 2006

In 2006, Russian economy continued

dynamic growth. The nominal gross

domestic product (GDP) increased

to RUR 26,6 trillion, while real GDP

grew by 6.9%.

Substantial growth of Russian economy in 2006

was supported by favorable market conditions as

well as by increase in investments and consumption

within the country. This allowed Russia to go 3

positions up by the volume of GDP compared to

the last year rating. Leaving India and Mexico

behind, Russia was number 11 this year. The

nominal gross domestic product (GDP) grew up to

RUR 26,6 trillion, while real GDP grew by 6.9%. The

main drivers of this growth were capital investments

(13.5%), retail trade (13%) and construction

(5.1%). As a result of general economy growth GDP

per capita increased 25% year on year, to RUR

189,000 (app. USD 7,200).

The Stabilization fund established by the

Federal Government was created to support

further growth and development of the Russian

economy. At the beginning of 2007, the Stabilization

fund amounted to RUR 2.3 trillion, or almost

USD 89.1 billion. There is a potential for the futher

growth of reserves due to the Presidential programme

which was launched in 2004 in order to

support high priority national projects.

The accumulation of the funds in the Stabilisation

fund in 2006 allowed for the considerable change

in the structure of Russia’s foreign debt. The

foreign sovereign debt declined from USD 76.5

billion to less than USD 52 billion, mainly through

the prepayment of debt to the Paris Club. At the

same time, the foreign debt of the corporate and

banking sectors increased from USD 175 billion to

USD 261 billion.

The positive trends in public finance persisted

largely due to the continuing growth in global oil

and gas prices and increasing export proceeds. In

2006, Russian Urals oil traded an average price of USD

61.2 per barrel (2005 – USD 50.4, 2004 – USD 34.2).

Solvency strengthening together with the

further increase of gold and foreign exchange

reserves, decrease of GDP to external debt ratio

and increase in stability and balancing of public

finance created strong support for the national

currency strengthening. In 2006 the real RUR/EUR

rate grew by 6.4% and RUR/USD rate by 14.6%.

The inflation rate dropped to 9%, remaining within

the projected range of 8.5–11%.

The unemployment rate, as defined by the

International Labor Organization, was 6.8% of the

73 million national labor force. GDP growth of 25%

resulted in an increase of real disposable personal

income by 10% year on year, while average

monthly wages increased by 13.5% in real terms.

The 12.1% increase in real consumer expenditures

was accompanied by a rapid growth of retail bank

lending. Remains the overall trend of a higher

growth of personal expenses compared to

personal income.

In a whole the macroeconomic situation in

Russia in 2006 can be characterized as favorable.

Despite a continuing imbalance in the composition

of GDP and foreign trade pattern, budget and

overall economic dependence on oil and gas

exports, as well as relatively high inflation, Russia

benefited from the macroecomomic situation and

concentrated on further strengthening its position.

Russian banking sector continued to perform

steady growth in 2006. The steps taken by the

Bank of Russia to improve efficiency of banking

supervision led to the revocation of 59 bank

licenses and the reduction of the total number of

banks from 1,356 to 1,293 over the year. At the

end of 2006, some 300 financial institutions held

general banking licenses and about 600 institutions

had a capital base exceeding EUR 5 million.

Along with that the level of consolidation in

banking sector is rather high. By the end of 2006,

the top 20 banks accumulated almost 65% of the

sector’s total assets. According to the industry

experts further consolidation in the industry will

be accelerated by the introduction of higher

minimum capital requirements, enhanced

financial monitoring, continued transition to

international financial reporting standards, etc.

The importance of the banking sector in Russia

is growing: as of the year end 2006 total banking

assets amounted to 53% of the GDP. Despite these

positive recent developments, the involvement

of the banking sector in the country’s economy

is still quite low, particularly compared to countries

within the European Community. Thus, the Russian

banking system has a long way to go.

Further development of the banking sector is


hindered by insufficient capitalization. By the end

of 2006, the aggregated banking capital base grew

36%, to RUR 1,692.7 billion. This makes exploration

of new capital sources an urgent necessity for

most banks. Banks consider IPO as an important

potential source of capital, but this option cannot

offer a universal solution to the banking sector in

general. While more and more banks announce

their IPO plans, the number of institutions that are

ready to go public remains limited.

At the same time, the number of banks with

foreign capital is growing. Currently, 50 out of 63

banks with foreign participation exceeding 50% of

capital are fully owned by foreign investors. In 2006,

competition from subsidiaries of foreign banks

further increased, especially in such segments as

consumer lending, car and mortgage loans, which

was not the case even a few years ago. In the

future, this pressure will continue to grow, particularly

after Russia joins the World Trade Organization

and the associated liberalization of the

national market for foreign banks. The evidence of

the higher competition is the increasing share of

the foreign-controlled-banks in total assets and

total capital of the banking system. As for crosscountry

M&A transactions, the most significant

deal of 2006 was the acquisition by the French

banking group, Societe Generale, of a 20% interest

(minus one share) and an option for another 30%

(plus 2 shares) in ROSBANK.

In 2006, banks continued to develop their

retail banking business. Deposits of individuals

increased 37% to RUR 3.8 trillion, which stands for

14.3% of GDP and 22.5% of total personal income.

The positive dynamics confirms recovered

confidence of the population towards local banks

driven by continued economic growth and the

introduction of deposit insurance. While the

market share of the Savings bank of the Russian

Federation (Sberbank) is declining (from 52% to

50% over 2006), it still dominates the retail

banking segment. Growth of the consumer spendings

resulted in a further growth of retail lending –

in total RUR 2.1 trillion loans to individuals were

issued in 2006. The range of the credit products

for individuals has expanded considerably. This is

especially notable in the central Russia. Car loans

demonstrate significant growth and mortgage

lending is gaining momentum, while regions

become primary market for consumer lending.

Undoubtedly, risks inherent in consumer operations

are rather high; therefore banks possessing

comprehensive customer databases and significant

experience have a competitive advantage,

which is crucial as credit reference agencies are

just emerging.

The favorable macroeconomic situation drove

considerable market growth, mainly on the equity

capital market. The Russian Trading System index

rose from 1,125 to over 1,900 points providing for

numerous opportunities for banks to benefit from

relevant trading gains and increase liquidity. On the

other hand continued ruble appreciation over the

year enabled banks to reduce currency risk,

though had a negative impact on revenues from

foreign exchange operations.

Growing price competition has resulted in a

stable reduction of corporate interest rates while

interest rates on individual deposits and market

borrowings remain quite high. Such a squeeze in

margins induce banks to expand more profitable

operations such as consumer lending which leads

to decrease of portfolio quality and relevant

increase in loan loss provisions.

Results of the year evidence the increase

of stability of banking system and its growing

importance for the economy of the country.

Further growth will be supported by the expansion

of the retail banking operations, as well as

operations with small and medium enterprises

together with the growing interest of corporates

towards the international operations, trade finance

and borrowings on the international capital markets.

Key indicators of Russian banking sector to GDP (%)

Indicator

December 31,

2004

December 31,

2005

December 31,

2006

Assets 42,3 45,0 52,8

Capital base 5,6 5,7 6,4

Customer loans 22,9 25,2 30,2

including retail loans 3,6 5,4 7,8

Corporate deposits 11,7 13,6 17,2

Individual deposits 11,6 12,7 14,2

Source: Bank of Russia

10 11


Throughout Russia. For you.


Top Banks by Total Assets (as of January 1, 2007)

ROSBANK: Main Results

800

3471

774

713

State-controlled banks

Private banks

600

In 2006, the Bank ranked 3rd and 6th

among privately-held banks in terms

of assets and equity, respectively.

RUR bnr

400

200

0

359

355

295

282

237

229 225

Sberbank

VTB

Gazprombank

Alfa Bank

Bank of Moscow

Uralsib

ROSBANK

Rosselkhozbank

IMB

Raiffeisenbank

Top Banks by Equity (as of January 1, 2007)

In 2006, ROSBANK further strengthened its

market position, increased its reliability and

transparency, achieved a new, higher level of

corporate governance and became a major player

in the Russian banking sector. In 2006, the Bank

ranked 3rd and 6th among privately-held banks in

terms of assets and equity, respectively. Moreover,

ROSBANK retained its leading positions ranking

1st in amount of customer deposits and 6th in the

volume of the customer loan portfolio. ROSBANK’s

market share in terms of assets, customer loans

and deposits exceeds 2%, which is a good result

given the dominance of major banks, directly or

indirectly controlled by the state and holding over

40% of Russia’s banking sector.

Over the last three years ROSBANK demonstrated

an impressive growth.

The deposit portfolio growth rate (37% year on

year) was similar to that of the loan portfolio (42%

year on year) and assets in whole (38% year on year).

One of the most important 2006 developments

for ROSBANK was the acquisition of an

share stake in the Bank by Societe Generale, which

demonstrates the high recognition of the Bank’s

RUR bnr

90

60

30

0

329

Sberbank

91

VTB

89

Gazprombank

40

Alfa Bank

38

Bank of Moscow

34

Uralsib

State-controlled banks

Private banks

32

28

27 25

Rosselkhozbank

MPB

Ak Bars

IMB

25

ROSBANK

14

15


RUR bnr

300

200

2417

260

Top Banks by Customer Loans (as of January 1, 2007)

State-controlled banks

240

Private banks

186

172

156

141 141

137 136

132

current position and outlook by the French

banking group. In addition, in 2006, the Bank

received the prominent Bank of the Year in Russia

Award from The Banker magazine.

In 2006, ROSBANK, formerly a corporate and

now fully universal bank, pursued the strategy of

expanding its market presence in the retail segment,

and became one of the Top 5 banks in all

key retail products. Furthermore, the Bank retained

its leadership in car loans, with its nearest competitor

lagging behind by more than RUR 5 billion.

The Bank expects to maintain a comparable

growth rate by successfully exploiting

the following competitive advantages:

• the second largest (after Sberbank) branch

network, comprising 621 branches, offices

and outlets as of December 31, 2006, which

establishes a unique platform for the development

of operations with individuals and

small and medium-sized enterprises (SME);

• cooperation with Societe Generale in the

main areas of corporate and retail business

100

0

Sberbank

VTB

Gazprombank

Bank of Moscow

Alfa Bank

Russian Standard

Bank

Uralsib

IMB

Raiffeisenbank

Rosselkhozbank

ROSBANK

2618

Top Banks by Costumer Deposits (as of January 1, 2007)

ROSBANK’s Assets

(RUR billion)

ROSBANK’s Equity

(RUR billion)

400

345

State-controlled banks

200

RUR bnr

300

200

293

259

198

185

169

Private banks

150

100

213,1

293,8

30

20

100

129

105

96

50

149,9

10

16,4

22,8

28,2

0

Sberbank

Gazprombank

VTB

Bank of Moscow

ROSBANK

Alfa Bank

Uralsib

IMB

Raiffeisenbank

PSB

0

2004 2005 2006

0

2004 2005 2006

Source: RBC Agency, Bank of Russia

16

17


120

80

40

0

ROSBANK’s Customer Loans

(RUR billion)

79,7

113,3

2004 2005 2006

Source: IFRS accounts

161,2

development will facilitate the implementation

of banking experience and technology of

a major Western European group in Russia;

• the capability of a large full service bank,

offering a wide range of services to all

customer groups, enables efficient reallocation

of resources to the most profitable

segments, diversification of risks and revenue

sources, and maximization of cross-selling

advantages;

• retail banking leadership creates a solid

ground for rapid growth supported by

expertise and knowledge of consumer

behavior, an extensive customer database,

risk management skills and a strong brand

recognition;

• an experienced management team and

highly qualified personnel possess the

required expertise and skills and are capable

of meeting the targets set by shareholders.

The main strategic goal of ROSBANK is to

further strengthen its position as a leading

120

80

40

0

ROSBANK’s Customer

Deposits (RUR billion)

101,2

149,1

204,7

2004 2005 2006

universal Russian bank. The strategy’s basic

components are as follows:

• Expansion of the retail business based on the

offering of new products and services,

expansion of distribution channels, improved

service quality and efficient use of the

customer database, efficient operation of the

branch network to intensify sales, staff

motivation, as well as improving living

standards, the evolution of consumer

behavior and relevant segment growth;

• Development of SME business, an emerging

market segment, and gaining a significant

market share through the first mover advantage;

• Optimization and expansion of the branch

network in major cities, opening of roundthe-clock

small retail outlets and more

efficient exploitation of high-tech distribution

channels such as ATMs, electronic access

points, etc.;

• Maintaining a strong position in the traditional

corporate banking segment through the

expansion of customer base, improved

service and the increasing share of commission

income in the earnings composition,

including broad cross-selling opportunities

with the Bank’s business partners.

ROSBANK’s tightens its prospects with the

expansion of its retail business, which is regarded

as the main driving force capable of compensating

for the declining profitability of corporate banking.

In this context, further development of the

distribution network, inherited by the Bank from

O.V.K. Group consolidation in 2005, remains crucial

for the Bank. The branch network covers virtually

all densely populated regions of the country, as it

has a comprehensive coverage in Moscow and St.

Petersburg, Central Russia, the North-Western

Region, the Volga Region, the Urals, Siberia and the

Far East. As of December 31, 2006, ROSBANK’s

network consisted of 68 full-service branches, 350

additional offices, 203 retail outlets, over 4,000 loan

officer desks at points of sale and about 1,000 ATMs.

ROSBANK is focused on an on-going branch

network optimization aimed at cost reduction and

re-allocation of resources from non-profitable

outlets to larger cities. The Bank is already present

in more than 90% of cities with populations

exceeding 500,000 and plans further expansion

within these areas.

In 2006, ROSBANK positioned itself as a major

domestic universal bank with a strong stance in

both corporate and retail banking segments,

rendering a full range of banking services to 7,000

corporate customers, 64,000 SMEs and about

5,000,000 individuals through a wide regional

network.

18

19


Statement

by the Board of Directors

on the development of ROSBANK

in 2006

I. Sale of an Equity Interest to a Strategic Investor – Societe Generale

In 2006, the banking sector witnessed a major M&A deal: ROSBANK shareholders signed an agreement

with the French banking group Societe Generale on the sale of a 20% interest in the Bank for USD 634

million. In addition, Societe Generale purchased an option for the acquisition of a 30% interest in ROSBANK

for USD 1.7 billion by the end of 2008. In total, French bankers placed a record price of USD 2.33 billion for

the control over the Bank.

Societe Generale Group has been operating in Russia through several subsidiaries: Bank Societe

Generale Vostok, Rusfinance Bank – a leader of the Russian consumer loan market, and Delta Credit Bank –

the leading provider of mortgage loans. Now this impressive list has been expanded to include ROSBANK,

a leading Russian retail bank with the largest branch network among privately-owned banks.

The new shareholder is also a strategic partner of the Bank, planning an active involvement in business

development and expansion.

In late 2006, changes in the ownership structure were reflected in the composition of the Board of

Directors – it was joined by Jean Louis Mattei, Chairman of Bank Societe General Vostok, and Philippe Henri

Citerne, Director and co-CEO of Societe Generale Group.

II. Branch Network Optimization

In 2006, ROSBANK continued development of its branch network, second only to that of Sberbank. As of

the end of 2006, this extensive network comprised 68 branches, 350 additional offices and 203 retail

outlets, and was managed by six regional offices located in major Russian cities. ROSBANK also supports and

develops its Swiss business via its subsidiary, ROSBANK (Switzerland) S.A., and operates in Belarus through

Belrosbank. Last year, the Bank launched a program of branch network optimization. Under this program, it

closed 8 branches and a regional office to cut down operating costs and improve general network efficiency.

In the coming year, ROSBANK plans further improvement of its network structure to ensure better

control and higher efficiency of network operations.

III. Corporate Governance

In 2006, the Bank went on with the process of improving its corporate governance policies and procedures

in line with the best Russian and international practices. Accordingly, in 2006, two independent

directors, Alan Hirst and Martin Grant Gilman, were elected to the Board of Directors. Both have an extensive

experience in economy and finance, having worked with major international corporations and noncommercial

organizations. Also, the Bank established three committees of the Board of Directors – Strategy,

Audit and Nomination (Personnel) and Remuneration committees. The last two committees are headed by

the independent directors.

In 2006, ROSBANK took major steps towards creating an efficient and transparent management system

capable of protecting minority shareholders.

IV. Listing of ROSBANK Shares

In 2006, in preparation for the scheduled initial public offering, ROSBANK applied for the listing with two

Russian stock exchanges: the Russian Trading System (RTS) and the Moscow Interbank Currency Exchange

(MICEX). Though later ROSBANK’s shareholders decided to postpone the IPO, its shares were listed and

have become traded at both stock exchanges since mid-2006. The growing investor interest to the Russian

banking sector in general and ROSBANK in particular, pushed the price of ROSBANK shares up 72% in the

period from the first date of trading on RTS to the end of 2006. This growth demonstrates the recognition

by the market of the current success and the huge future potential of the Bank in the Russian banking

services market.

Year-end closing prices on RTS (USD 7.05) and MICEX (RUR 190.09), indicate the market value of ROS-

BANK at 4.4–4.6 times its equity, while in the middle of the year, at the time of the acquisition of ROSBANK

shares by Societe Generale, the above valuation multiple was 3.4.

20

21


V. Community Activity

ROSBANK associates its progress with the prosperity of the country as a whole, understanding the

correlation between its business principles and community responsibility. The community activity concept

of the Bank provides for development of efficient management technology for its social projects, active

promotion in Russian society and voluntary involvement of both personnel and customers in these projects.

In addition to centralized charity activities, including the financing of the Bank’s social projects, ROSBANK

gives every employee an opportunity to participate in voluntary charities. The corporate charity program –

Every body has the right to help – offers employees the choice of several charity projects. Every private

charity donation made by a Bank employee is doubled by the Bank. In 2006, over RUR 1.2 million of

donations were allocated to support non-profit and government foundations.

Under the New Day Program, established jointly with UNICEF, ROSBANK offers its corporate and retail

clients a chance to support non-profit and government institutions working with children.

ROSBANK’s approach to charitable and community activity includes providing free access to professional

banking and consultancy services to charities. The leading experts of the Bank (lawyers, PR-managers

etc.) act as advisors on various issues, such as raising funds for charitable projects.

VI. Financial Performance

The following overview of the Bank’s performance is based on the data, contained in the 2006 IFRS

financial statements of ROSBANK Group. Financial statements include comparable data for 2005 allowing

evaluation of the scope of changes, occurring in the reporting period. The 2006 financial statements were

audited by Deloitte & Touche.

In 2006, the assets of ROSBANK increased by 38% from RUR 213.1 billion to RUR 293.8 billion, with

lending making the largest contribution to the growth. The total loan portfolio, which accounted for 54.9%

of the total assets, grew 42.3%. Retail loans grew faster than the corporate loan portfolio, by 47.5% vs. 37.9%.

The proportion of retail loans in the total loan portfolio (net of impairment) increased from 45.9% to 47.5%,

while the share of corporate loans declined from 54.1% to 52.5%. The Bank plans to gradually increase its

loan portfolio (in absolute terms) with a shift towards retail loans, which are expected to account for up to

60% of total loans. In order to support a comfortable liquidity level and a balanced maturity profile of its

assets and liabilities, ROSBANK maintained a rather high proportion of liquid assets, including short-term

interbank loans and marketable securities.

The expansion of the retail business was also reflected in the structure of liabilities. The share of individual

deposits increased to 24% of total liabilities, which represents a growth of 11.7% year on year.

The Bank was active in international and domestic capital markets. In 2006, it issued RUR 7 billion threeyear

ruble-denominated Euronotes to raise additional funding and improve the currency structure of its

liabilities. The Bank also expanded its promissory note program, mainly in Russian Rubles with average tenor

over one year, which increased from RUR 11.9 billion to RUR 14.4 billion in 2006.

The Bank is committed to maintaining a balanced profile of assets and liabilities by maturity, currency

and sources. For instance, the portfolio of retail loans generally matches retail deposits in terms of size,

average maturity and currency. Moreover, the weighted average asset maturity of 370 days is close to the

average liability maturity of 320 days and indicates a better-balanced maturity structure as compared to

peers. In 2006, the currency structure of assets and liabilities improved as a result of Ruble strengthening,

with the majority of asset and liability balances now denominated in the national currency. This improvement

had a positive effect on the Bank’s operations and resulted in reduced conversion costs.

As of December 31, 2006, the total equity of ROSBANK was RUR 28.2 billion (up 23.4% year on year),

which ensured a capital adequacy ratio (in accordance with the Basle Capital Accord) of 15.0%. The share of

Tier 1 capital was 75% and its capital adequacy ratio was 11.3%. The capital-to-assets ratio also remained at

a comfortable level of 9.6%. Thus, the current capitalization provides support for the Bank’s growth in the

near future, while a new share issue planned for 2007 will enable the Bank to further expand its operations.

In 2006, ROSBANK managed to improve its operating profitability despite increased competition and the

resulting margin squeeze. Net interest income again was a crucial component of the operating income

(61.2%), reflecting a commercial bank focus. The growth in interest income from RUR 9.1 billion to RUR 11.9

billion over the year was mainly driven by the increase in the retail loan book, which is traditionally characterized

by higher interest rates compared to corporate ones. The net interest margin and the net interest

spread remained practically unchanged at 7.7% and 7.9%, respectively.

Net fee and commission income represented the second largest component, amounting to RUR 4.9

billion, or 25% of the operating income, at the end of the reporting year. While the bulk of fees and commission

was generated by bank card services, depositary and investment banking fees also represent an

important sources of income.

In 2006, net trading gains decreased by 26.8% to RUR 1.52 billion. This trend reflects the policy of the

Bank, which does not consider its operations on financial markets as a key income generator, but rather as

an efficient liquidity management tool.

In 2006, staff costs contributed 46.6%, or RUR 6.2 billion, of operating expenses, demonstrating an

increase of 15.1% year on year. The high percentage of personnel costs was driven by the large headcount

of the banking group totaling 18,330 employees at the year-end, with most of them working at Bank offices

across Russia. In addition to branch network optimization, streamlining efforts in 2006 involved branch

headcounts. As a result, staff was downsized by over 1,000 employees, while the cost-to-income ratio

dropped by 4 percentage points to 68% at year-end. The Bank is committed to pursue its cost optimization

policy and is developing a program to minimize IT and administrative expenses to ensure large-scale savings

and gradually decrease the cost-to-income ratio to a more comfortable level of about 60%.

While the Bank’s net profit increased by 24% year on year to RUR 3.8 billion, the Bank still considers

performance improvement as a priority issue. The return on average assets was 1.5%, respectively, indicating

a new trend that will allow ROSBANK to achieve performance ratios above the industry average.

In conclusion, the Board of Directors would like to state that, in its opinion, the Management Board and

personnel of ROSBANK introduced major changes to improve the attractiveness, efficiency and performance

of the Bank in 2006, and successfully accomplished the goals set by the shareholders for the

reporting period, increasing the shareholders’ value of the Bank.

22

23


Throughout Russia. For you.


Retail Business

In 2006, according to RBC rating

ROSBANK ranked first in terms of retail

deposits among Russian privately held

banks, despite a stable trend towards

gradual decline in interest rates.

Retail deposits (net of private banking

accounts) grew 5.7% year on year.

In 2006, ROSBANK pursued its strategy of

expansion into different retail banking segments.

The 2006 year-end results have been the product

of several years of hard work in developing an

extensive branch network, competitive product

range, up-to-date banking technology, and high

brand recognition.

The acquisition of a strategic equity interest in

the Bank by Societe Generale proves that the Bank

has selected the right business strategy and

earned a strong position in the retail banking

market.

Today the Bank offers its individual clients

a full range of retail banking products:

• personal accounts including settlements and

payments;

• bank deposits;

• cash advances and overdrafts, express loans

at points of sale, car loans and mortgage

loans;

• plastic cards for major international payment

systems;

• money transfers;

• stock brokerage and transactions with

precious metals;

• lease of safe-deposit boxes;

• cross-selling of third-party insurance and

asset management products, i.e. mutual

funds.

In 2006, according to RBC rating ROSBANK

ranked first in terms of retail deposits among

Russian privately held banks, despite a stable

trend towards gradual decline in interest rates.

Retail deposits (net of private banking accounts)

grew 5.7% year on year (from RUR 34.9 billion on

31 December 2006, to RUR 36.9 billion on 31

December 2006).

Retail Deposits

In 2006, ruble deposits remained the most

popular product, accounting for about 70% of the

total retail deposits. This trend was supported by

the continued depreciation of the US dollar. The

average amount deposited exceeded RUR 200,000

and the majority of clients selected deposits with

maturities of 1 to 2 years.

Retail Deposits in 2006, RUR mln

34 913 34 537

35 636 35 785 36 916

01.01.06 01.04.06 01.07.06 01.10.06 01.01.07

In 2005, ROSBANK developed and introduced

across the country a unified deposit product line

called “savings”, which meets the requirements of

all customer groups. High demand for the Exclusive

(“Prestizhniy”) deposit (minimum deposit

balance – RUR 150,000) offered under this line in

2006, demonstrates the interest of affluent

customers in ROSBANK products. In addition,

seasonal deposits, offering higher interest rates,

became increasingly popular. The Bank also

launched regional deposit products tailored to

specific needs of regional clients.

Accelerated growth of the Russian banking

services market encouraged the revision of

current fees and unification of products offered by

the Bank. Therefore, in Q4 2006, the Bank initiated

the implementation of standard retail fees across

its branch network.

In the coming year, ROSBANK will continue to

develop and expand its range of deposit and cash

management products, including that through the

cooperation with the French banking group

Societe Generale.

26

27


Personal Accounts

and Plastic Cards

In 2006, ROSBANK also focused on retail

business line represented by personal accounts

and plastic cards. The total number of retail

customers who had chosen ROSBANK as their

bank exceeded 5 million individuals, which

represents 70% growth year on year. The Bank has

opened accounts to 1.1 million clients, with

almost 50% of them using ROSBANK plastic cards.

The majority of personal accounts are opened

under payroll payment options offered to employers.

These projects reflect a high level of confidence

in the Bank and offer the opportunity for

selling the full range of banking services to new

customers.

In 2006, retail customers increased consumption

of remote account management services

through Internet-Bank and SMS-Bank products.

ROSBANK is gradually expanding its range of

remote services available through these two

systems. At present, remote account management

includes access to account statements, payment

of bills, and transfers between accounts, as well as

information support and a variety of related

services.

Money Transfers

ROSBANK also offers traditional banking

services, such as money transfers. Remittances can

be made from an account in ROSBANK or in cash

(without opening an account). Strategic partners

of the Bank include MoneyGram and ALLURE

money transfer systems.

Retail Loans

The retail loan portfolio grew 47.5% year on

year to RUR 76.6 billion as of December 31, 2006

(2005 – RUR 52.0 billion). In 2006, the Bank issued

in total over 1.5 million loans.

The retail loan portfolio is dominated by car

loans (RUR 37.1 billion, 48.4% of total loans) and

consumer loans (RUR 15.3 billion, 20% of total

loans). The proportion of general purpose loans

increased to 20.5%, or RUR 15.7 billion. The

amount of mortgage loans exceeded RUR 5

billion, growing 8.3 times year on year. The ratio of

mortgage loans to total retail loans issued by the

Bank increased from 1.2% in 2005 to 7% at the end

of 2006.

In 2006, the Bank focused on secured lending,

mainly car and mortgage loans.

Car Loans

ROSBANK maintains its leadership in the car

loan market: in 2006, its car loan portfolio increased

by 54% to RUR 37 billion. In 2006, ROS-

BANK extended 92,800 car loans worth RUR 28.3

billion. At December 31, 2006, the total number of

outstanding loans exceeded 167,800, or up 36%

year on year.

In 2006, ROSBANK focused on further development

of its car loan products. Major developments

include the launch of products with zero

downpayment, discontinued the practice of

mandatory life insurance for borrowers, the option

to select the amount and dates of monthly

payments offered to borrowers, and the extension

of the maximum age limit for used cars purchsed

with Bank loans. During the year, the Bank participated

in joint campaigns with its car dealer

partners (Avtomir, Elex-Polus, Incom-Auto) to offer

the most attractive loan terms in various car

market segments.

Mortgage Loans

The Bank is actively expanding its mortgage

loan business and had a major breakthrough in

this market in 2006. After the launch of regional

mortgage programs, the mortgage loan portfolio

of the Bank increased more than 8-fold to RUR 5.4

billion. In 2006, loans to buy new homes being

under construction contributed 53% of the total

portfolio, while regular mortgages accounted for

the remaining 47%. The currency structure of the

loan book provides for 37% of loans in Rubles and

63% in US Dollars.

As of December 31, 2006, mortgage programs

were offered in 66 major Russian cities. In 2006,

regional branches contributed 40% of the total

mortgage loans issued.

In 2006, ROSBANK reduced interest rates for

ruble-denominated loans issued under the

mortgage lending program. Currently, the minimum

interest rate offered by ROSBANK for

traditional mortgage loans is 13% p.a. (down from

15%). The amount of downpayment for such loans

was cut down to 10% of the deal price.

In 2006, the Bank launched several new

programs, including the Home Loan (“Ipotechniy

Lombard”) with downpayment financing provided

by the Bank and secured by existing real estate

property of a borrower, and an interregional

program whereby a borrower can obtain a loan for

the purchase of housing in a different city.

In 2006, ROSBANK invested considerable effort

to develop its mortgage loan business, extend the

range of banking and related services and access

new client groups. This work included a number

of partnership agreements with major developers,

insurance companies, and realtors.

Retail Loans in 2006, RUR mln

Car Loans in 2006, RUR mln

Mortgage Loans in 2006, RUR mln

51 967

57 866

65 405

71 627 76 633

24 091 27 490 32 258 35 385

37 084

647

1 045

2 141

3 736

5 361

01.01.06 01.04.06 01.07.06 01.10.06 01.01.07

01.01.06 01.04.06 01.07.06 01.10.06 01.01.07

01.01.06 01.04.06 01.07.06 01.10.06 01.01.07

28

29


General Purpose Loans

The general-purpose loan portfolio more than

doubled in 2006 and amounted to RUR 15.7

billion at the end of the year.

Throughout the year the Bank issued 156.7

thousand general-purpose loans for a total of RUR

15.2 billion and extended 165 thousand overdraft

limits for a total of RUR 4.6 billion, mainly to

borrowers with a credit history with the Bank

(more than 104 thousand overdraft limits, or 63%

of the total amount). In order to meet new market

requirements 2006 the Bank developed and

launched new emergency lending program

(“Credit na neotlozhnie nuzhdi”) (loans issued

under the emergency lending program can be

used for any consumer purposes). Compared to

previously applicable terms, the Bank significantly

reduced the loan interest rate and monthly

commission, and increased the maximum loan

maturity and amount. Today the Bank offers two

general-purpose loan products: Big Money

(“Bolshie Dengi”) – a low-risk emergency loan

product with a low interest rate, secured with

personal guarantees, and Simply Money (“Prosto

Dengi”), an unsecured loan.

Credit Cards and Overdrafts

The credit card and overdraft portfolio grew by

more than 40% to RUR 2.9 billion. The Bank

modified overdraft terms for employees of its

corporate clients, optimized loan monitoring

procedures and continued the practice of sending

credit cards to borrowers with good credit

histories.

In 2006, ROSBANK further expanded this

segment of retail lending. The refined lending

terms were introduced throughout all Bank’s units.

Consumer (Express) Loans

As of December 31, 2006, the loan portfolio

under the “Express Loan” product line amounted

to RUR 15.3 billion. In 2006, the Bank issued 1.1

million of express loans. Some of these loans were

repaid in 2006, as the average loan maturity for

this product line is 10 months. The shift towards

general-purpose loans, which resulted in an

overall decrease in the number of express loans is

explained by the Bank’s strategy focused on the

streamlining of retail lending procedures.

In general, ROSBANK operations are growing

dynamically despite increased competition. The

Bank offers its clients new retail products and

opportunities, and ranks among the largest and

fast growing Russian universal banks.

The extensive regional network of over 620

sales points, a broad range of products, and a high

quality of services position ROSBANK as a market

leader in the retail banking segment.

The Bank’s strategy of retail business development

envisages further broadening of a comprehensive

product range, catering to various

categories of retail clients. In 2007, the Bank will

focus on regional expansion to increase the share

of network-distributed products in total sales.

In order to control the quality of its retail exposure

and customer base, the Bank will pay specific

attention to maintaining a comprehensive

customer database and relevant cooperation with

credit agencies.

General Purpose Loans

in 2006, RUR mln

Credit Cards and Overdrafts

in 2006, RUR mln

Consumer Loans in 2006, RUR mln

7 541 9 413

11 777

13 572

15 723

2 101

2 483

2 745

2 979 2 943

18 018 17 393

16 457 15 930 15 301

01.01.06 01.04.06 01.07.06 01.10.06 01.01.07

01.01.06 01.04.06 01.07.06 01.10.06 01.01.07

01.01.06 01.04.06 01.07.06 01.10.06 01.01.07

30 31


Services for Small

and Medium Enterprises

The number of loans issued to SME

customers increased by 257%.

the strong demand from SME customers operating

in the Central Region – that share increased to

18% from 12% in 2005.

In 2007, ROSBANK plans a comprehensive

upgrade of its SME product line, to increase the

maximum loan amount to RUR 26 million (USD

1 million) and segregate loan products into several

segments: micro-loans, small business loans and

medium business loans. The product range will

also be expanded to include special offers

targeting specific customer groups under partnership

programs.

With these innovations, ROSBANK will be able

to offer competitive SME products and services

targeting various customer groups in line with

modern business requirements.

The current favorable domestic macroeconomic

situation combined with the on-going

improvement of the product range will support

the growth of the SME banking segment in line

with the general growth of small and medium

businesses in Russia.

According to RBC ratings, in 2006, the SME

lending market grew 40–50% to RUR 1.6 trillion

(USD 60 billion). However, even this unprecedented

growth was insufficient to bring the share of

SME in the bank loan market to levels typical for

developed economies.

In 2006, ROSBANK focused on active development

of its SME lending business, gradually

expanding its market share in this segment.

Products offered by the Bank generate considerable

customer demand, and thereby the Bank

easily outperformed its 2006 targets. The number

of loans issued to SME customers increased by

257% (from 1,400 to 5,000 loans). The strong

demand for Bank products and services from SME

clients is explained by the availability of an

extensive branch network, which provides access

to banking services within maximum proximity to

business locations, while the Bank’s products are

broad enough to meet all client requirements.

In 2006, the Bank initiated major reforms of its

SME business. These initiatives were positively

met by customers and included the increase in

the minimum loan amount to RUR 15 million (USD

500 thousand). The maximum loan tenor was

extended to 60 months. The Bank also cancelled

the loan application commission.

In addition, the Bank significantly expanded

the range of its SME products and introduced two

new programs – loans to SME owners and individual

entrepreneurs, as well as overdrafts for SME

and individual entrepreneurs. Both programs were

launched in mid-2006 and are being actively

developed by the Bank. As of December 31, 2006,

the outstanding loan balance under the first

program was close to RUR 171 million, under the

second program – RUR 37 million. Both programs

are characterized by high asset quality, with a default

ratio of less than 0.03%.

In addition to loans, the Bank actively promoted

deposit and cash management products

targeting the SME segment. In 2006, the number

of customers using the Bank’s deposit products

grew 48% to 3,700 clients, while the aggregate

amount of customer deposits increased by 81.6%

to RUR 84.7 billion. Current account balances

increased by 48% to RUR 4.3 billion, with average

account balances rising 81.6%. This trend reflects

the growing confidence of SME clients in the Bank.

The strong demand for SME loans and the

expansion of the product line boosted the Bank’s

2006 revenue from SME operations to RUR 1.2

billion, or up 243% compared to 2005 revenue

(RUR 353.5 million). The SME loan portfolio tripled

by the end of 2006 to RUR 5.5 billion, while the

share of overdue loans remained low at 1.3%,

indicating the good credit standing of the Bank’s

SME customers.

The SME customer base has a nationwide

geographic spread: the majority of the SME

customers are located in Siberia (27%) and the Far

East (20%); however, they have lost a part of their

share (7% and 2%) to other regions as a result of

active efforts to expand the Bank’s client base in

all regions of Russia and a territorial diversification

of the loan portfolio. Another important trend is

Geographic Composition of SME Client Base

27% Siberia

13% Over

2% Southern District

6% North-Western District

20% Far East

5% Urals

10% Мoscow Region

18% Central District

32

33


Corporate Banking

The gross corporate loan portfolio

increased by RUR 20.3 billion to RUR

84.6 billion, while the number of the

corporate borrowers exceeded 7,000

companies.

In 2006, ROSBANK kept on successful expanding

its operations with large corporate clients.

A diversified customer base and a wide product

range enable the Bank to balance its risk profile

and to take full advantage of cross-selling opportunities

to different customer groups.

Currently, ROSBANK offers the following

services to domestic and foreign companies:

• cash management and settlement services,

including remote account management and

payroll solutions;

• loans;

• project finance;

• trade and structured finance;

• foreign exchange and term deposits;

• stock brokerage;

• corporate finance and advisory;

• depository services;

• asset management including cross-selling of

third-party products;

• insurance, cash carrier, acquiring and processing

in co-operation with ROSBANK’s business

partners.

Currently, the Bank’s corporate clients comprise

companies in practically all industries

throughout Russia. In 2006, ROSBANK focused on

co-operation with utility companies, including

such clients as RAO UES, Khabarovskenergo,

Yakutskenergo, Dalenergo, Kamchatskenergo,

Altaienergo, St. Petersburg Generation Company,

Sakhalinenergo, AEC Komienergo, South Generation

Company, Belgorodenergo, TGK-5, and

Amurenergo.

In addition, in 2006, the Bank strengthened its

relations with corporations operating in other

industries, including Surgutneftegaz, MICEX,

Copper Foil Production Association, Urals Steel,

Moldavian Metallurgical Works, MIAN Group, Ufa

Engine Works, MiG, Mortgage Lending Agency,

Gazprom, TAIF, and Transaero.

Another priority area for the Bank is the

development of business relations with regional

administrations and municipalities. In 2006,

ROSBANK executed 11 general co-operation

agreements with regional authorities and municipalities

of the Russian Federation. As of December

31, 2006, it had a total of 34 general agreements

with regional authorities. In 2006, ROSBANK

fostered business relations with the governments

and administrations of such regions as the

Khabarovsk Territory, Nizny Novgorod Region,

Astrakhan Region, Irkutsk Region, Kostroma Region,

Tula Region, Amour Region, Yaroslavl Region,

Kabardino-Balkarian Republic, Republic of

Kalmykia, and the cities of Kazan, Saratov, Omsk

and Yuzno-Sakhalinsk.

In 2006, ROSBANK focused on offering banking

services to regional companies. Compared to

2005, the share of regional customers, in the total

corporate deposits increased from 11% to 18%.

The Bank also plans to develop its regional

business through network expansion programs.

In 2006, following this strategy, the Bank increased

the number of offices targeting corporate clients

to 29 by the end of 2006. New offices were

opened in two regions – Bashkortostan and

Tatarstan.

The expansion of the regional network for

corporate services brought major regional

corporations to the Bank and facilitated the

implementation of package solutions for “network”

customers-major groups and their regional

subsidiaries and branches. The Bank’s clients such

as Sportmaster, Avtomir, Evrokommertz, Ingosstrakh,

and Paterson received a possibility for online

control and management of their groups’ cash

flows from a single center, as well as other business

process optimization tools.

To enhance its cooperation with corporate

customers, the Bank has developed retail programs

for these companies’ employees. In 2006,

the Bank arranged the promotion of its retail

programs directly at corporate customers to offer

a broad range of retail products to employees.

Corporate Accounts

Corporate accounts have traditionally been

a priority focus for the Bank, which maintains

strong positions in this market segment. According

to RBC ratings, at the end of 2006 the Bank was

ranked sixth among the largest Russian banks in

terms of corporate accounts. Corporate accounts

with ROSBANK contribute 3.2% of the total

amount of settlement, current and deposit

accounts opened with Russian banks by corporate

non-banking clients.

As of December 31, 2006, the aggregate

amount of corporate accounts (settlement,

current and deposit) exceeded RUR 122 billion,

which represents growth by more than 60% year

to year. Accounts opened by large corporates

remain an important component of the Bank’s

funding, contributing over 90% of the total nonbanking

client accounts in 2006.

Corporate Loans

Corporate lending preserves its position as one

of the most important business lines of ROSBANK.

As of December 31, 2006, the Bank’s share of the

corporate loan market was 1.2%. The gross

corporate loan portfolio increased by RUR 20.3

billion to RUR 84.6 billion, while the number of

34

35


Corporate Loan Portfolio by Industry

as of January 1, 2007

Corporate Loan Portfolio by Maturity

as of January 1, 2007

20,6% Trade

12,7% Construction

25,3% 6 months to 1 year

16,8% 1 to 2 years

11,9% Power Industry

14,8% Other

6,8% Defense

Industry

28,3% 2 and more years

2,7% Food industry

3% Oil & Gas Industry

3,7% Leasing

3,8% Hotels Business

4,6% Finance

4,0%

Heavy Industry

6,4% Government Authorities

5,3% Manufacturing iIdustry

23,6% 3 to 6 months

4,7%1 to 3 months

1,3% up to 1 month

36

37


the corporate borrowers exceeded 7,000 companies.

Throughout the 2006 the general structure of

the corporate loan portfolio was well diversified.

Over the year the proportion of loans to utility

companies grew from 7.7% to 11.9%, the share of

construction companies increased from 7.7% to

12.7%, defense companies – from 2.3% to 6.8%. As

of December 31, 2006, loans also extended to

trade (20.6%), government authorities (6.4%),

manufacturing industry (5.3%) and financial institutions

(4.6%).

Over the reporting year, the maturity profile of

the corporate loan portfolio slightly extended as

the share of loans with tenors over one year grew

to 45% of the total loans (RUR 33.3 billion), while

short-term loans with maturities of up to one year

accounted for 55% of the Bank’s portfolio (RUR

40.7 billion).

In 2006, the currency composition of the loan

portfolio was characterized by the increased

proportion of ruble-denominated loans. As of

December 31, 2006, loans in foreign currencies

accounted for 44.6% of the total loans, while

ruble-denominated loans represented 54.9% and

loans in precious metals – 0.6%.

The regional breakdown of the corporate loan

portfolio in 2006 demonstrated a decline in the

share of loans extended by the Head Office from

61.1% in 2005 to 57.2% (RUR 48.4 billion in 2006)

of the total corporate loans, while the branch loan

portfolio grew from 38.9% to 42.8% (RUR 36.2

billion in 2006).

In 2006, the Far Eastern branch was the major

regional lender accounting for 10.1% of the total

regional portfolio, with other major lenders being

the branches in the North-Western region (9.4%),

Kubansky (5.8%) and Primorsky branches (4%).

In addition to traditional lending, ROSBANK

offered trade finance services to its customers.

In 2006, the inflow of new customers, including

large corporate clients from the key Russian

industries, such as utilities, engineering and

defense, and the fast-growing medium-sized

businesses boosted the Bank’s documentary

credit portfolio. The total amount of letters of

credit and guarantees issued and accepted by

ROSBANK increased to RUR 23 billion, which was

25% more than in 2005 year on year. The Bank is a

leading player in the documentary credit market,

ranking high among the largest Russian financial

institutions, and is committed to on-going improvement

of its product line.

In 2006, ROSBANK continued to participate in

the construction and upgrade of major hydropower

plants both in Russia and abroad. The Bank

generally guaranteed the performance of contract

obligations by major Russian and foreign suppliers

of power equipment and services, such as Power

Machines, Engineering Center UES, and Technopromexport

and provided financial assistance to

numerous utility projects, including the Bureya

Hydropower Plant, Sochi Thermal Power Plant, El-

Kahon Hydropower Plant (Mexico), Ivanovo Power

Station, North-Western TPP (St. Petersburg),

Moscow City TPP and others.

In April 2006, the ROSBANK renewed its status

of an authorized bank of the Federal Customs

Service of the Russian Federation empowered to

issue guarantee letters in favor of Russian customs

authorities. The Bank plans to maintain mutually

beneficial cooperation with the largest customs

brokers, carriers and customs warehouse operators,

which require bank guarantees.

The Bank’s strategy is focused on expanding its

customer base through further development of its

regional branch network, diversification and

enhancement of its product range, as well as

tailoring traditional bank products to specific

client requirements.

In the short-term, the main objectives of the

corporate lending business will remain unchanged

and include a high quality of client services and

security of loans.

3,1% Ulan-Ude

3,2% Nizny Novgorod

3,5% Omsk Regional Branch

3,5% Volgograd

3,6% Western Siberia

Branch Corporate Loan Portfolio

(Net of HO Loans) as of 01.01.2007

46% Other branches

3,8% Central Russia

3,8% Sakhalin

4,0%

5,8% Kuban

Primorsky Territory

10,1% Far East

9,4% North West

38 39


Throughout Russia. For you.


Private Banking

As of December 31, 2006, high net

worth individuals placed a total of RUR

28 billion of assets with the Bank, on

term deposits, current or card accounts,

which together represented a 32%

growth year on year.

Six years of dedicated work has made ROS-

BANK a renowned leader in the private banking

segment with a 5% share of the RUR 527 billion

market. The Bank offers to its high net worth

clients comprehensive packages of financial,

advisory and other ancillary services specifically

tailored to client requirements.

In 2006, the Bank’s private customer base grew

to 1,460 clients. As of December 31, 2006, high net

worth individuals placed a total of RUR 28 billion

of assets with the Bank, on term deposits, current

or card accounts, which together represented a

32% growth year on year.

Financial products offered to private clients in

2006 enjoyed strong demand, and thus the Bank

expanded its product range in line with evolving

client requirements.

Deposits

Traditionally, deposits remain the most popular

product with high net worth clients. In 2006, the

Bank expanded the range of term deposits, adding

VIP-Replenishable Deposit and VIP-Term Deposit to

its traditional VIP-Term Deposit with Additional

Contributions and VIP-Child Deposit with Additional

Contributions, as well as raising interest rates on new

deposit products.

Bank Cards

ROSBANK clients have access to the full range

of MasterCard and Visa cards, with premium

plastic cards, such as VISA/MasterCard Gold and

VISA Platinum, EC/MC World Signia, enjoying the

highest demand. In the period from 2001 to 2006,

the Private Banking Department issued 1,775

plastic cards to high net worth clients and their

families. The Bank provided comprehensive plastic

card services, which include case-by-case credit

limits, on-line management of card accounts,

fraud prevention, and assistance in emergency

situations, including the loss or theft of cards

abroad, insufficient account balances, etc.

Asset Management Services

In 2006, collective investments, including

mutual funds, became increasingly popular with

ROSBANK customers – the total amount of client

assets invested in mutual funds grew more than

30 times, from RUR 41.9 million to RUR 1.4 billion.

ROSBANK Private Banking offers asset management

services in cooperation with ROSBANK

Management Company, ranking third among the

66 largest Russian management companies on the

list “Management Companies of the Year 2006.”

Loans

In 2006, the loan portfolio to high net worth

clients grew 273% to RUR 2.5 billion. Loans were

issued mainly for property construction and

acquisition as well as for various business purposes

of the clients. There have been no defaults in

this loan category.

In 2006, ROSBANK continued the cross-selling

of products in cooperation with its business

partners, including asset management and

insurance services. For instance, Soglasie Insurance

Company offered individual insurance packages

for the Bank’s high net worth clients, including

high-quality health insurance, spa treatment,

medical insurance for housekeeping personnel

VIP car insurance, as well as corporate and

personal life insurance programs.

At the requests of customers, ROSBANK invited

experts from its partner companies to provide

Lifestyle Management services. These include

professional assistance with the purchase of

jewelry and gemstone, collecting wines, town and

country real estate transactions, selection of exclusive

gifts, purchases of art from the best auction

houses (including transportation and insurance),

renting and purchasing of yachts, chartering

private aircrafts, and other similar arrangements

required by the clients.

ROSBANK Private Banking enjoys a unique

advantage of convenient location, as it offers a full

range of banking services both in the Head Office

and in additional offices carrying with Private

Banking desks: mainly, the Zhukovka office opened

in 2004 to service high net worth clients residing

in the Rublevo-Uspenskoye area, as well as VIPdesks

at certain Moscow offices of the Bank and at

St. Petersburg, Samara, Krasnoyarsk, and

Khabarovsk branches. The Bank also considers its

Voronezh branch as having high potential for

opening a new VIP-desk.

In 2006, the Bank completed the first stage of

a project to launch ROSBANK Private Banking

website that will provide up-to-date information

on private banking services to potential customers,

as well as online access to the Bank-Client

system for the existing clients.

42 43


Financial Markets Activities

At the same time, compared to 2005,

the Bank doubled its income from

broker services from RUR 26.3 million

to RUR 52.7 million in 2006.

ROSBANK’s efforts focused on new business

development, sales and broker services improvement,

combined with strong stock market growth

in 2006 further strengthened the Bank’s positions

in the financial markets segment. In the reporting

year, the Bank doubled its client securities portfolio,

boosting income from fees and commissions.

The Bank operates a very strong proprietary

trading business characterized by highly efficient

cash management. In addition to traditional

markets, ROSBANK has become more active in

derivatives and foreign asset markets to diversify

its investment portfolio. The trading portfolio is

traditionally characterized by a prevalence of

government and municipal debt securities, which

accounted for 50% of the total portfolio (in 2005 –

70%). The composition of the securities portfolio

reflects the current trend towards a growing focus

of large Russian corporate borrowers on foreign debt

capital markets. In 2006, the share of relevant debt

securities increased from 30% to 50% at year-end.

In 2006, the Bank’s the main source of earnings

from proprietary trading portfolio were operations

with Russian securities.

At the same time, compared to 2005, the Bank

doubled its income from broker services from

RUR 26.3 million to RUR 52.7 million in 2006.

In addition to equities, the Bank is active in the

equity derivatives market, mainly ADR, GDR and

futures for Russian equity securities.

Cooperation with financial institutions is

another important business area for the Bank.

In 2006, ROSBANK further consolidated its

positions in this segment of the financial market

by enhancing business relations with its existing

partners. By the end of 2006, the number of

financial institutions ROSBANK’s clients increased

to 900 banks from 85 countries worldwide,

compared to 820 banks in 2005. Nowadays,

ROSBANK provides services to 195 correspondent

banks, and the number of LORO accounts opened

at the Bank exceeds 500 accounts in 15 currencies.

In 2006, the total correspondent account

turnover exceeded USD 10 billion, while the

aggregate average account balance grew 7% to

USD 81 million.

In 2006, the Bank engaged in treasury operations

with 350 financial institutions (17% growth

year to year). The total volume of such operations

exceeded RUR 12 trillion (USD 460 billion), which

is more than 15% higher than in 2005. At the end

of 2006, the total amount due from other banks

was RUR 4.7 trillion, including RUR 658 billion

placed with resident banks.

ROSBANK also continued to raise loans in

precious metals from international banks for the

purposes of financing the Bank’s proprietary

programs. In July 2006, it entered into an agreement

with Commerzbank International S.A.

(Luxembourg), under which ROSBANK borrowed

2 metric tons of gold for a term of one year.

In 2006, the Bank significantly expanded its

cooperation with the European Bank for Reconstruction

and Development (EBRD). In March

2006, the Bank signed a syndicated loan agreement

for RUR 4 billion (USD 150 million). Under

this agreement, EBRD issued a 4-year loan of RUR

1.3 billion (USD 50 million), while the remaining

RUR 2.6 billion (USD 100 million) were provided

by an international banking syndicate for a term of

two years. The deal clearly demonstrated a high

credit standing of ROSBANK combined with its

strong market position and an international

reputation of a first class borrower, as well as the

growing confidence of EBRD and other international

institutions in the Bank. In 2006, ROSBANK

continued its involvement in special EBRD

cooperation programs. Within the framework of

the Trade Facilitation Program, ROSBANK raised

EUR 9.5 million to finance its customer’s greenfield

project. In addition, the EBRD extended the

second tranche of the 5-year, USD 10 million

facility for the development of SME lending, and

thus the aggregate amount of financing under this

program totaled USD 10 million. In 2006, ROSBANK

obtained another EBRD facility for mortgage

financing in the amount of RUR 900 million

maturing in five years.

Finally, ROSBANK is one of the most active

operators in the Russian primary and secondary

market for precious metals, enjoying a competitive

advantage of a year-round supply of precious

metals as well as the leading positions in the

platinum metals market. The Bank maintains longterm

business relations with major Russian

producers of precious metals, such as Polyus,

Norisk Nickel, AS Amour, Sovrudnik, Krastsvetment,

and Ekaternburg Precious Metals Refinery. In 2006,

the Bank expanded its customer base in the

domestic market for precious metals and increased

the physical volumes of its gold trade by

25%, to 29 metric tons of gold, while the volume

of transactions with platinum and palladium grew

9.3% and 44.8%, respectively.

ROSBANK plans to expand its retail trading in

precious metals and offer its customers a full range

of services, including seasonal loans, the export of

refined precious metals and their sale in the

international and domestic markets, trade in

precious metals and hedging of the price risks for

the producers and buyers thereof.

44 45


Throughout Russia. For you.


Investment Banking

ROSBANK again was No.1 in subsovereign

and municipal debt issuances,

ranked 1st both as bond arranger and

as underwriter.

• prepares an information memorandum;

• develops an appropriate transaction and

financing structure;

• registers transactions with the authorities in

accordance with the applicable local requirements;

• arranges for mutual settlements between

participants;

• provides bridge financing at different transaction

stages, if required.

In the reporting year, ROSBANK successfully

completed a number of equity financing and

business acquisition transactions acting on behalf

of asset sellers and buyers and provided postacquisition

restructuring services.

Acting as a financial advisor in 2006, the Bank,

successfully closed a deal for the acquisition of

a Dagestan mobile operator by Mobile TeleSystems

and was involved in other transactions in

Russia and other CIS countries.

In 2006, financial advisory services were again

primarily related to the preparation of businesses

for sale, raising funds in capital markets or investment

value enhancement.

In the reporting year, ROSBANK successfully

restructured and improved corporate governance

systems for a number of Russian retail chains and

manufacturing companies. The Bank offered to its

clients engaged in business restructuring a complete

package of financial solutions providing for

transparent corporate structure, cost cutting

initiatives, efficiency improvement and cash flow

optimization to facilitate subsequent access to

capital markets.

Issues Arranged by ROSBANK

In 2006, the efficient use of competitive

advantages and the excellent performance of its

professional team enabled ROSBANK to maintain

its leading positions in the Russian market of

investment banking services. During the reporting

year, the Bank continued to expand three primary

business lines:

• Debt financing on domestic & international

capital markets for institutional and corporate

clients;

• Mergers and acquisitions consulting;

• Financial advisory, including business restructuring.

Bond origination and placement represent

a core investment banking product for ROSBANK.

The Bank is one of major operators in the market

of corporate, sub-sovereign and municipal

borrowings. Its strong market positions are

supported by the consistently high ratings:

• In 2006, Cbonds ranked ROSBANK the 3d

among underwriters and the 4th among

domestic bond arrangers.

• The Bank ranked 4th among corporate bond

lead managers.

• ROSBANK again was No.1 in sub-sovereign

and municipal debt issuances, ranked 1st

both as bond arranger and as underwriter.

• Significant success in debt raisings through

corporate credit linked notes moved the Bank

to the 11th position among CIS investment

banks providing relevant services.

In 2005, ROSBANK, acting as lead manager,

arranged debt financing for 14 corporate borrowers

as well as 14 regional administrations and

municipalities of the Russian Federation, making

a total of 31 issues worth in excess of RUR 55 billion

in total. As an underwriter, the Bank placed 58

bond issues of 54 issuers for a total of more than

RUR 124 billion, or about 23% of all ruble-denominated

bond issues in 2006. ROSBANK raised funds

for Gazprom, AIZhK, TAIF-Finance, Transaero-

Finance, Sakhatransneftegaz, Synergia, Avtomir-

Finance, Dixis Trading and the Administrations of

Chuvashia and Mari-El, Irkutsk, Nizny Novgorod,

Tula, Yaroslavl, Voronezh and Kurgan Regions, the

Odintsovo District of the Moscow Region, the

cities of Novosibirsk, Kazan, Magadan, Yaroslavl

and other issuers.

The Bank acted as a senior co-lead manager of

Gazprom-6 10.5 EURO 500 million Eurobond issue

and Gazprom-7 10 year USD 1.4 billion Eurobond

issue.

In 2006, the Bank arranged two CLN issues:

USD 50 million CLN issue due in 2009 for Sunway

Group and the USD 20 million CLN issue due in

2008 for RosDorBank.

ROSBANK provides a complete range of M&A

related services for both sellers and buyers – from

the origination of a deal to its closing. In particular,

the Bank:

• searches for attractive acquisition targets,

investors/partners for sale of assets/shares;

• conducts comprehensive financial and legal

due diligence on participants;

Indicator 2004 2005 2006

Corporate bonds 11 12 16

Sub-sovereign bonds 12 13 15

Issues Underwritten by ROSBANK

Indicator 2004 2005 2006

Corporate bonds 13 36 37

Sub-sovereign bonds 21 23 21

2006 Investment Banks Ratings:

Composite Arrangers Rating (Cbonds Rating Agency) 3

Arrangers of sub-sovereign and municipal bond issues 1

Arrangers of corporate bond issues 4

Composite Underwriters Rating (Cbonds Rating Agency) 4

Underwriters of sub-sovereign and municipal bond issues 1

Underwriters of corporate bond issues 9

48 49


Custody Services

The customer base grew 13,9% year on

year to over 2,180 corporate and retail

customers.

accounts with national depositaries of Kazakhstan

and Uzbekistan. With its extensive correspondence

network covering major international

depositary systems, such as Clearstream Banking S.A.

(Luxemburg), EUROCLEAR (Belgium), and DTC (USA),

the Bank can offer foreign securities custody and

re-registration services virtually in any stock

market worldwide.

During the last year, the product range was

enhanced to include additional services. The Bank

launched a system of centralized safekeeping of

mortgages across its branch network, and thereby,

as of 31 December 2006, 138 of the Bank’s offices

accepted mortgages into custody, with 20 offices

authorized to handle mortgages for amounts in

excess of RUR 1.2 billion.

In 2007, ROSBANK Custody plans to launch

new packaged solutions for mutual mortgage

funds, including the keeping of mortgage collateral

registers for mortgage-backed securities

issues and specialized depositary services to

closed-end mortgage investment funds.

During the reporting year the total value of

securities in custody more than doubled to RUR

503 billion as of 31 December 2006.

The customer base grew 13,9% year on year to

over 2,180 corporate and retail customers.

In 2006, ROSBANK Custody expanded its

business as a settlement agent in the M&A market.

The Bank provided settlement structuring and

guarantee services for M&A transactions with

various equity securities for a total of more than

RUR 13.2 billion.

The business of ROSBANK as a specialized

depository also has demonstrated impressive

growth. The Bank serves a total of 60 mutual

funds, including 33 open-end funds, 5 interval

funds and 22 closed-end funds. Their aggregate

net asset value grew 78% to RUR 16 billion in

2006. As a result of 2006 the Bank ranked among

the top ten Russian operators in terms of assets in

custody as well as number of customers.

In 2006, ROSBANK Custody focused on the

expansion of its international correspondent

network in the CIS countries and became the first

Russian custodian to establish correspondent

relations with the National Depository of Ukraine

and the National Depository Center of the

Azerbaijan Republic in addition to correspondent

ROSBANK Custody

Customers in 2004–2006

2500

2000

1500

1000

500

0

1 758

1 914

2 180

2004 2005 2006

600

500

400

300

200

100

0

268,6

Jan

316

Feb

263,3

Mar

Assets in Custody, USD bln

416

413,4

363,4

337

295

Apr

May

Jun

Jul

Aug

392

Sep

366

Oct

526,6

Nov

503

Dec

50 51


Throughout Russia. For you.


Financial Report

2006


Financial Report

2006

Table of Contents

58

59

60

62

64

66

68

128

132

134

136

138

140

142

146

Statement of Management’s Responsibilities

Independent Auditors’ Report

Consolidated Income Statement for the Year Ended 31 December 2006

Consolidated Balance Sheet as of 31 December 2006

Consolidated Statement of Changes in equity

for the year ended 31 December 2006

Consolidated Statement of Cash Flows for

the Year Ended 31 December 2006

Notes to the Consolidated Financial Statements for the Year

Ended 31 December 2006

Joint Stock Commercial Bank “ROSBANK” (Open Joint Stock Company)

Balance Sheet (Published) as of January 1, 2007

Profit and Loss Statement (Published) for 2006

Statement of Capital Adequacy and Allowance for Impaired Loans and

Other Assets as of January 1, 2007

Consolidated Balance Sheet as of January 1, 2007

Consolidated Profit and Loss statement for 2006

Information on Participants of the Banking (Consolidated) Group,

Capital Adequacy and Allowance for Impaired Loans and Other Assets

as of January 1, 2007

Explanatory Notes to Annual Financial Statements for 2006

57


Statement of Management’s

Responsibilities

For the preparation and approval

of the consolidated financial statements

for the year ended 31 December 2006

The following statement, which should be read in conjunction with the independent auditors’ responsibilities stated in

the independent auditors’ report set out on pages 2–3, is made with a view to distinguishing the respective responsibilities

of management and those of the independent auditors in relation to the consolidated financial statements of ROSBANK

Group (the “Group”).

Management is responsible for the preparation of the consolidated financial statements that present fairly the financial

position of the Group at 31 December 2006, the results of its operations, cash flows and changes in equity for the year then

ended, in accordance with International Financial Reporting Standards (“IFRS”).

In preparing the consolidated financial statements, management is responsible for:

• Selecting suitable accounting principles and applying them consistently;

• Making judgments and estimates that are reasonable and prudent;

• Stating whether IFRS have been followed, subject to any material departures disclosed and explained in the consolidated

financial statements; and

• Preparing the consolidated financial statements on a going concern basis, unless it is inappropriate to presume that

the Group will continue in business for the foreseeable future.

Management is also responsible for:

• Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group;

• Maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial position of

the Group, and which enable them to ensure that the consolidated financial statements of the Group 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 assets of the Group; and

• Detecting and preventing fraud, errors and other irregularities.

The consolidated financial statements for the year ended 31 December 2006 were authorized for issue on 24 April

2007 by the Board of Directors of ROSBANK.

On behalf of the Board of Directors:

Independent Auditors’ Report

To the shareholders and Board

of the Directors of Joint Stock

Bank ROSBANK

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Joint Stock Bank ROSBANK and subsidiaries

(hereinafter – the “Group”), which comprise the consolidated balance sheet as of 31 December 2006, and the consolidated

income statement, consolidated statements of changes in equity and cash flows for the year then ended, and a summary of

significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in

accordance with International Financial Reporting Standards.

This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and

fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or

error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the

circumstances.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted

our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical

requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free

from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated

financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the

risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk

assessments, the auditor considers internal control relevant to the Group’s preparation and fair presentation of the

consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for

the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the consolidated 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 consolidated financial statements present fairly, in all material respects the financial position of the

Group as of 31 December 2006, and its financial performance and cash flows for the year then ended in accordance with

International Financial Reporting Standards.

Without qualifying our opinion we draw attention to Note 3 to the consolidated financial statements. The consolidated

financial statements as of 31 December 2005 and for the year then ended were restated.

Chairman of the Management Board

24 April 2007

Moscow

Chief Financial Officer

24 April 2007

Moscow

24 April 2007

Moscow

58 59


Consolidated Income Statement

for the Year Ended

31 December 2006

Notes

31 December

2006

RUR’000

31 December

2005

RUR’000

(restated)

Interest income 5,31 29,066,815 21,829,248

Interest expense 5,31 (12,923,578) (10,879,564)

Net interest income before provision for impairment

losses on interest bearing assets

16,143,237 10,949,684

Provision for impairment losses on interest bearing assets 6,31 (4,247,376) (1,852,920)

Net interest income 11,895,861 9,096,764

Net gain on financial assets at fair value through profit or

loss

7,31 251,627 749,562

Net gain on sale of investments available-for-sale 31 102,381 994,910

Net gain on foreign exchange operations 31 972,448 296,434

Net gain on precious metals operations 196,272 41,712

Profit from continued operations before income tax 6,066,695 4,314,419

Income tax expense 11 (2,393,171) (1,261,151)

Net profit from continued operations 3,673,524 3,053,268

Net profit from discontinued operations 4 57,660 30,794

Net gain from disposal of subsidiary 4 86,714 -

Net profit 3,817,898 3,084,062

Attributable to:

Equity holders of the parent 3,805,181 3,017,498

Minority interest 12,717 66,564

Earnings per share attributable to equity holders of the

parent

Basic and diluted (in rur)

3,817,898 3,084,062

12 5.59 7.80

Fee and commission income 8,31 5,954,049 4,074,487

Fee and commission expense 8,31 (1,060,716) (973,795)

Dividend income 31 129,837 61,823

Other income 9,31 1,008,354 1,142,110

Net non-interest income 7,554,252 6,387,243

Operating income 19,450,113 15,484,007

Operating expenses 10,31 (13,229,546) (11,162,243)

Operating profit 6,220,567 4,321,764

Other provisions 6 (153,872) (7,345)

On behalf of the Board:

Chairman of the Management Board

24 April 2007

Moscow

Chief Financial Officer

24 April 2007

Moscow

The selected notes on pages 68-127 form an integral part of these consolidated financial statements. The Independent Auditors’

Report is presented on page 59.

60 61


Consolidated Balance Sheet

as of 31 December 2006

Notes

31 December

2006

RUR’000

31 December 2005

RUR’000

(restated)

Assets:

Cash and balances with the Central and National banks 13 37,271,329 19,455,358

Financial assets at fair value through profit or loss 14,31 12,820,238 15,677,102

Precious metals 15 1,062,102 978,040

Loans and advances to banks 16,31 64,759,001 53,995,068

Loans to customers 18,31 161,243,117 113,318,224

Investments available-for-sale 19,31 3,428,158 478,334

Property and equipment purchased for transfer into

finance lease

2,212,847 329,005

Property, equipment and intangible assets 20 9,131,452 6,723,177

Current income tax assets 615,647 484,307

Other assets 21,31 1,291,728 1,617,987

Total assets 293,835,619 213,056,602

Liabilities and equity

Liabilities:

Deposits from banks 22,31 19,717,654 11,139,028

Customer accounts 23,31 204,662,195 149,060,894

Financial liabilities at fair value through profit or loss 24 947,172 1,840,641

Debt securities issued 25 33,963,427 26,044,207

Other provisions 29,31 196,379 174,729

Current income tax liabilities 20,657 11,155

Deferred income tax liabilities 11 1,548,137 926,371

Other liabilities 26,31 1,616,125 1,039,311

262,671,746 190,236,336

Subordinated debt 27,31 3,000,000 -

Total liabilities 265,671,746 190,236,336

Equity:

Share capital 28 8,876,500 8,876,500

Share premium 28 9,177,470 9,177,470

Translation reserve (41,460) (82,280)

Revaluation reserve 4,599,285 2,993,114

Fair value adjustment of available-for-sale investments 86,320 -

Reorganization reserve 1,783,615 1,881,029

Retained earnings/(accumulated deficit) 3,593,297 (245,266)

Equity attributable to equity holders of the parent 28,075,027 22,600,567

Minority interest 88,846 219,699

Total equity 28,163,873 22,820,266

Total liabilities and equity 293,835,619 213,056,602

On behalf of the Board:

Chairman of the Management Board

24 April 2007

Moscow

Chief Financial Officer

24 April 2007

Moscow

The selected notes on pages 68-127 form an integral part of these consolidated financial statements. The Independent Auditors’

Report is presented on page 59.

62 63


Consolidated Statement

of Changes in Equity for the Year

Ended 31 December 2006

Share

capital

Share

premium

Translation

reserve

31 December 2004 8,083,306 6,445,058 (62,387) 3,095,261 - - (1,229,819) 16,331,419 94,149 16,425,568

Increase in share capital

Активы:

3,398,321 5,505,280 - - - - - 8,903,601 - 8,903,601

Disposal of subsidiary - - - - - - - - (18,249) (18,249)

Group reorganization

Пассивы и капитал

- - - - - (97,414) 7,176 (90,238) (125,321) (215,559)

Revaluation

reserve

Fair value

adjustment

reserve of

available-forsale

investments

Reorganization

reserve

(Accumulated

deficit)/

Retained

earnings

Changes in translation reserve - - (19,893) - - - - (19,893) - (19,893)

Property disposal (net of deferred tax credit of RUR 86,440 thousand)

Equity attributable

to equity

holders of

the parent

- - - (102,147) - - 102,147 - - -

Dividends declared - - - - - (2,187,115) (2,187,115) - (2,187,115)

Group reorganization (2,605,127) (2,772,868) - - - 1,881,029 52,023 (3,444,943) 58,986 (3,385,957)

Net profit - - - - - - 3,017,498 3,017,498 66,564 3,084,062

31 December 2005 8,876,500 9,177,470 (82,280) 2,993,114 - 1,881,029 (245,266) 22,600,567 219,699 22,820,266

Changes in translation reserves - - 40,820 - - - - 40,820 - 40,820

Revaluation reserve (net of deferred tax expense of RUR 616,755

thousand)

Property disposal (net of deferred tax credit of RUR 8,275 thousand)

Fair value adjustment of available-for-sale investments (net of deferred

tax expense of RUR 27,258 thousand)

- - - 1,632,377 - - - 1,632,377 - 1,632,377

- - - (26,206) - - 26,206 - - -

- - - - 86,320 - - 86,320 - 86,320

Net profit - - - - - - 3,805,181 3,805,181 12,717 3,817,898

31 December 2006 8,876,500 9,177,470 (41,460) 4,599,285 86,320 1,783,615 3,593,297 28,075,027 88,846 28,163,873

Minority

interest

Total

equity

On behalf of the Board:

The selected notes on pages 68-127 form an integral part of these consolidated financial statements. The Independent Auditors’

Report is presented on page 59.

Chairman of the Management Board

24 April 2007

Moscow

Chief Financial Officer

24 April 2007

Moscow

64 65


Consolidated Statement of Cash

Flows for the Year Ended

31 December 2006

Notes

Cash flows from operating activities:

Year ended

31 December

2006

RUR’000

Year ended

31 December

2005

RUR’000 (restated)

Profit from continued operations before income tax 6,066,695 4,314,419

Provision for impairment losses on interest bearing assets 4,247,376 1,852,920

Other provisions 153,872 7,345

Depreciation charge on property, equipment and intangible assets 476,115 434,642

Gain on disposal of subsidiary (86,714) -

Property and equipment disposal gain (145,866) (36,871)

Property and equipment impairment - 7,624

Net change in value of derivatives and spot deals 175,614 (53,577)

Net change in interest and other accruals (1,346,809) 517,595

Net foreign currency revaluation (gain)/loss (320,733) 445,591

Net unrealized gain on financial assets at fair value through profit or loss (242,187) (439,436)

Profit from discontinued operations before income tax adjusted for

non-cash operations

Cash flow from operating activities before changes in operating assets

and liabilities

Changes in operating assets and liabilities (Increase)/decrease

in operating assets:

4

- 43,029

8,977,363 7,093,281

Minimum reserve deposit with the Central and National Banks (1,567,658) (917,585)

Financial assets at fair value through profit or loss (1,745,814) 248,353

Precious metals (84,062) (908,698)

Loans to customers (54,562,728) (32,680,805)

Loans and advances to banks (7,113,627) (2,164,277)

Purchase of property and equipment for transfer into finance lease (1,883,842) 60,371

Other assets 208,026 (370,755)

(Decrease)/increase in operating liabilities:

Deposits from banks 8,871,123 1,181,841

Customer accounts 62,691,939 45,448,494

Financial liabilities at fair value through profit or loss (834,174) 1,717,722

Other liabilities 681,796 (699,884)

Cash outflow from operating activities before taxation 13,638,342 18,008,058

Income tax paid (2,523,669) (1,499,310)

Net cash inflow from operating activities 11,114,673 16,508,748

Cash flows from investing activities:

Purchase of property, equipment and intangible assets (907,875) (578,865)

Proceeds on sale of property, equipment and intangible assets 356,878 400,514

Disposal of subsidiary 4 (261,022) -

Purchase of subsidiaries, net of cash acquired (100,602) (3,567,889)

Net (purchase)/sale of investment securities (3,008,956) 1,581,394

Net cash outflow from investing activities (3,921,577) (2,164,846)

Cash flows from financing activities:

Share capital issue - 3,398,321

Share premium received - 5,505,280

Proceeds from debt securities issued 8,466,310 4,926,623

(Repayment of)/ Proceeds from subordinated debt 3,000,000 (1,450,000)

Dividends paid - (2,176,747)

Net cash inflows from financing activities 11,466,310 10,203,477

Effect of exchange rate changes on cash and cash equivalents (2,009,747) 759,533

Net increase in cash and cash equivalents 16,649,659 25,306,912

Cash and cash equivalents, beginning of the period 13 66,822,582 41,515,670

Cash and cash equivalents, end of the period 13 83,472,241 66,822,582

Interest received and paid by the Group during the year ended 31 December 2006 amounted to RUR

27,242,691 thousand and RUR 12,585,545 thousand, respectively.

Interest received and paid by the Group from continued operations during the year ended 31 December

2005 amounted to RUR 20,598,006 thousand and RUR 9,863,787 thousand, respectively.

Interest received and paid by the Group from discontinued operations during the year ended 31

December 2005 amounted to RUR 130,975 thousand and RUR 55,189 thousand, respectively.

On behalf of the Board:

Chairman of the Management Board

24 April 2007

Moscow

Chief Financial Officer

24 April 2007

Moscow

The selected notes on pages 68-127 form an integral part of these consolidated financial statements. The Independent Auditors’

Report is presented on page 59.

66 67


Notes to the Consolidated

Financial Statements for the Year

Ended 31 December 2006

1. Organisation

ROSBANK (initially named “Nezavisimost”) is

a joint stock bank which was incorporated in the

Russian Federation in 1993. Over the subsequent

five years, ROSBANK customers were mainly

comprised of medium-sized trade, finance and

technology companies for which it conducted

a variety of activities, including corporate lending,

settlement, government bond trading, foreign

exchange and money market transactions. In 1998

ROSBANK was acquired by the Interros Group

with the initial purpose of providing banking

services to Interros Group companies. In 2000

ROSBANK acquired Uneximbank which was

merged into ROSBANK and ceased to exist as

a legal entity. In 2002 businesses of ROSBANK

and Commercial Bank “MFK Bank”, specializing in

investment banking, were consolidated. In 2003

the Interros Group acquired OVK group – one of

Russia’s largest retail banking institutions. The

integration of OVK with ROSBANK has transformed

ROSBANK into a financial institution capable of

offering universal services.

ROSBANK is regulated by the Central Bank of

the Russian Federation (the “CBR”) and conducts

its business under license number 2272. ROSBANK

is engaged in a full range of banking activities,

including commercial and investment banking

and custodial services.

The registered office of ROSBANK is located at

11, Masha Poryvaeva Street, Moscow, 107078,

Russian Federation.

As of 31 December 2006 ROSBANK had 68

branches in the Russian Federation.

ROSBANK is the parent company of the

banking group which consists of the following

enterprises as of 31 December 2006:

Name

Country

of incorporation

Group’s ownership interest/voting

rights, %

Type of operations

Rosbank (Switzerland) S.A. Switzerland 100/100 Banking

Rosbank International

Finance B.V.

The Netherlands 100/100 Issue of Eurobonds

RosInvest SA Luxembourg 99,97/99,97 Reorganization of UNEXIM

Finance Company

Belrosbank Byelorussia 80,77/80,77 Banking

Russia International Card

Finance S.A.

Luxembourg

0/100 (Contractual agreement)

Issue of Eurobonds

Rosbank Finance S.A Luxembourg 100/100 Issue of Eurobonds

ROSBANK-VOLGA CJSC Russia 100/100 Banking

RB Finance CJSC Russia 100/100 Operations with securities

Processing Company

NICKEL LLC

Russia

100/100 Processing of card operations

RB LEASING LLC Russia 20/100 Leasing

INKAHRAN OJSC Russia 100/100 Cash collection services

Bank Povolzhskoe OVK JSC Russia 98,04/100 Banking

Bank Centralnoe OVK JSC Russia 97,21/100 Banking

Bank Privolzhskoe OVK LLC Russia 100/100 Banking

Kapital i zdanie OJSC Russia 100/100 Real estate operations

Art Heiser LLC Russia 100/100 Real estate operations

Petrovsky Dom-XXI vek LLC Russia 100/100 Real estate operations

TOR-Service CJSC

Russia

100/100 Office buildings administration

PMD Service LLC Russia 100/100 Lease services

TD Druzhba LLC Russia 100/100 Other services

AVTO LLC Russia 100/100 Transportation services

RB Securities LLC Russia 100/100 Operations with securities

AVD LLC Russia 100/100 Recovery of bad debts

AVD Ekaterinburg LLC Russia 100/100 Recovery of bad debts

AVD Saratov LLC Russia 100/100 Recovery of bad debts

Dalnevostotnoe AVD LLC Russia 100/100 Recovery of bad debts

AVD Krasnoyarsk LLC Russia 100/100 Recovery of bad debts

AVD St-Peterburg LLC Russia 100/100 Recovery of bad debts

AVD Krasnodar LLC Russia 100/100 Recovery of bad debts

INKAHRAN SERVICE LLC Russia 99,6/100 Transportation services

68 69


In 2006 ROSBANK acquired additional 3.42% of

shares of Bank Pervoe OVK JSC and 1.09% of

shares of Bank Povolzhskoe OVK JSC from Interros.

In 2003 JSC “Interros estate”, the major

shareholder of the Group, purchased a controlling

interest in OVK group. OVK group consisted of 6

commercial banks and other financial and service

companies. The main activity of these banks is

retail banking. The management of ROSBANK has

commenced the process of integrating the

operations of OVK with those of ROSBANK and, on

26 January 2004, the CBR approved ROSBANK’s

proposed plan of consolidation. The integration of

banks as large as OVK group required extensive

management, personnel and monetary resources.

The integration was completed at the end of

2005, prior to which time management was faced

with modernisation of the OVK group network,

integrating its operations and personnel with

those of ROSBANK, merging its information

technology systems with those of ROSBANK, and

implementing group-wide financial and management

information systems and controls. OVK

group was acquired by ROSBANK and the Group

reorganization was completed substantially by the

end of 2005.

Interros controlled OVK group and had the

ability to obtain economic benefits from the banks

since the end of 2003. Since ROSBANK acquired

OVK group and obtained control over it at the end

of 2005, the financial statements as of 31 December

2005 were prepared on a consolidated basis.

In 2006 Interros has signed a call option with

Societe Generale on 30% + 2 shares of Rosbank,

which will enable Societe Generale to take control

of the Bank by the end of 2008. The strike price for

the further 30% + 2 shares of Rosbank equals to

USD 1,700 million. Between 2006 and the date of

execution of the call option, Societe Generale is

represented on Rosbank’s Board of Directors by

Philippe Citerne, Director and co-CEO, and Jean-

Louis Mattei, Head of International Retail Banking,

and will advise the Bank on its risk and finance

policies.

In December 2006 Bank Pervoe OVK JSC, Bank

Sibirskoe OVK JSC, Bank Dalnevostochnoe OVK

JSC and Bank Centralnoe OVK JSC were merged

into Bank Centralnoe OVK JSC on one-for-one

share basis, leaving the entire ownership and

controlling interest of the Group in those banks

unchanged.

In December 2006 Rosbank sold all ownership

interest into Baikal ROSBANK comprised 90.607%

to a third party.

As of 31 December 2006 and 2005, the following

shareholders owned the issued shares of ROSBANK:

31 December 2006, % 31 December 2005, %

These consolidated financial statements were

authorised for issue on 24 April 2007 by the Board

of Directors of ROSBANK.

2. Basis of Presentation

Accounting basis

These financial statements of the Bank have

been prepared in accordance with International

Financial Reporting Standards (“IFRS”) issued by

the International Accounting Standards Board

(“IASB”) and Interpretations issued by the International

Financial Reporting Interpretations Committee

(“IFRIC”).

These consolidated financial statements are

presented in thousands of Russian Roubles

(“RUR”), unless otherwise indicated. These

consolidated financial statements have been

prepared under the historical cost convention,

except for the revaluation of certain financial

instruments and property, equipment and

intangible assets and according to International

Accounting Standard 29 “Financial Reporting in

Hyperinflationary Economies” (“IAS 29”). Hyperinflation

ceased to exist in Russia from 1 January 2003.

Entities incorporated in the Russian Federation

maintain their accounting records in accordance

with Russian law. Other companies of the Group

maintain their accounting records in accordance

with statutory accounting standards generally

accepted in the countries where they operate.

For the purpose of incorporation in the financial

statements, the individual financial statements of

entities included in the Group prepared under the

statutory accounting standards generally accepted

in the countries of their origin have been adjusted

to conform with IFRS. These adjustments include

certain reclassifications to reflect the economic

substance of underlying transactions including

reclassifications of certain assets and liabilities,

income and expenses to appropriate financial

statement captions.

Key assumptions

The preparation of financial statements in

conformity with IFRS requires management to

make estimates and assumptions that affect the

reported amount of assets and liabilities and

disclosure of contingent assets and liabilities at

the date of the financial statements and reported

amounts of revenues and expenses during the

reporting period. Actual results could differ from

those estimates. Estimates that are particularly

susceptible to change relate to the allowances for

impairment losses.

Key assumptions concerning the future and

other key sources of estimation uncertainty at the

balance sheet date, that have a significant risk of

causing a material adjustment to the carrying

amounts of assets and liabilities within the next

financial period include:

Shareholde

KM TECHNOLOGIES (OVERSEAS)

LIMITED

69,46 97,26

Societe Generale S.A. 19,99 -

Others 10,55 2,74

Total 100,00 100,00

31 December 2006

RUR’000

31 December 2005

RUR’000

Loans to customers 161,243,117 113,318,224

Investments available-for-sale 3,428,158 478,334

Property, equipment and intangible assets 9,131,452 6,723,177

As of 31 December 2006 and 31 December 2005, the ultimate shareholders of the Group are:

31 December 2006, % 31 December 2005, %

Shareholder

Mr. Potanin V. O. 34,73 48,58

Mr. Prokhorov M. D. 34,73 48,58

Societe Generale S.A. 19,99 -

Others 10,55 2,84

Total 100,00 100,00

Loans to customers and investments availablefor-sale

are measured at amortised cost/cost less

allowance for impairment losses. The estimation

of allowance for impairment losses involves an

exercise of judgement. It is impracticable to assess

the extent of the possible effects of key assumptions

or other sources of uncertainty on these

balances at the balance sheet date.

Certain property (buildings) is measured at

revalued amounts. The date of the latest appraisal

was 31 December 2006. The next revaluation is

preliminary scheduled as of 31 December 2008.

Discussion of taxation is presented in Note 29.

Functional currency

The functional currency of these financial

statements is the Russian Rouble.

70 71


3. Significant Accounting Policies

Basis of consolidation

The financial statements incorporate the

financial statements of ROSBANK and entities

controlled by ROSBANK (its subsidiaries). Control

is achieved where there is the power to govern

the financial and operating policies of an investee

entity so as to obtain benefits from its activities.

On acquisition, the assets and liabilities and

contingent liabilities of a subsidiary are measured

at their fair values at the date of acquisition, unless

a business consolidation involves entities or

business under common control. Any excess of

the cost of acquisition over the fair values of the

identifiable net assets acquired is recognised as

goodwill. Goodwill is assessed at least annually for

impairment. Any deficiency of the cost of acquisition

below the fair values of the identifiable net

assets acquired (i.e. discount on acquisition) is

credited to the income statement in the period of

acquisition subject to reassessment of net assets

measurement.

The minority interest is stated at the minority’s

proportion of the fair values of assets and liabilities

recognised. Subsequently, any losses applicable

to minority interest in excess of minority

interest are allocated against the interests of the

parent. For a business consolidation involving

entities or business under common control, all

assets and liabilities of a subsidiary are measured

at historical/fair value according to subsidiary

stand-alone IFRS financial statements.

Reorganization reserve was recognized in

equity when entities included in combined

financial statements under common control were

purchased by ROSBANK and consolidated into

Group financial statements in 2005. This reserve

represented difference between value of net

assets of such entities and contribution paid.

Changes of reorganization reserve are due to

acquisition of additional shares of these entities

by the Group.

The results of subsidiaries acquired or disposed

of during the year are included in the

consolidated income statement from the effective

date of acquisition or up to the effective date of

disposal, as appropriate.

Where necessary, adjustments are made to the

financial statements of individual entities included

in the financial statements to bring the accounting

policies used into line with those used by the Group.

In translating the financial statements of a

foreign subsidiary into the presentation currency

for incorporation in the financial statements, the

Group follows a translation policy in accordance

with International Accounting Standard 21 “The

Effects of Changes in Foreign Exchange Rates”

(“IAS 21”) and the following procedures are

performed:

• Assets and liabilities, both monetary and nonmonetary,

of the foreign entity are translated

at the closing rate;

• Income and expense items of the foreign

entity are translated at exchange rates at the

date of respective transactions;

• All resulting exchange differences are classified

as equity until the disposal of the

investment;

• On disposal of the investment in the foreign

entity related exchange differences are

recognized in the consolidated income

statement.

All intra-group transactions, balances, income

and expenses are eliminated on consolidation.

Recognition and measurement of

financial instruments

The Group recognizes financial assets and

liabilities on its balance sheet when it becomes

a party to the contractual obligation of the

instrument. Regular way purchase and sale of the

financial assets and liabilities, except for investments

available-for-sale, are recognized using

settlement date accounting. Regular way purchases

and sale of investments available-for-sale are

recognized using trade date accounting. Regular

way purchases of financial instruments that will be

subsequently measured at fair value between

trade date and settlement date are accounted for

in the same way as that for acquired instruments.

Financial assets and liabilities are initially

recognized at fair value plus, in the case of a financial

asset or financial liability not at fair value

through profit or loss transaction costs that are

directly attributable to acquisition or issue of the

financial asset or financial liability. The accounting

policies for subsequent re-measurement of these

items are disclosed in the respective accounting

policies set out below.

Cash and cash equivalents

Cash and cash equivalents include cash on

hand, unrestricted balances on correspondent

and time deposit accounts with the Central bank

of the Russian Federation and National Banks,

loans and advances to banks in countries included

in the Organization for Economic Co-operation

and Development (“OECD”), except for margin

deposits for operations with plastic cards, with

original maturity within 90 days as well as trading

government debt securities, which may be

converted to cash within a short period of time.

For purposes of determining cash flows, the

minimum reserve deposits required by the Central

bank of the Russian Federation and the National

Banks is not included as a cash equivalent due to

restrictions on its availability.

Precious metals

Assets and liabilities denominated in precious

metals are measured at fair value which is determined

at the current rate computed based on the

second fixing of the London Bullion Market rates

using the RUR/USD exchange rate effective at the

date. Changes in the bid prices are recorded in net

gain on operations with precious metals in the

consolidated income statement.

Loans and advances to banks

In the normal course of business, the Group

maintains advances or deposits for various

periods of time with other banks. Loans and

advances to banks with a fixed maturity term are

subsequently measured at amortized cost using

the effective interest method. Those that do not

have fixed maturities are accounted for under the

effective interest method based on expected

maturity. Amounts due from credit institutions are

carried net of any allowance for impairment

losses.

Financial assets/liabilities at fair value

through profit or loss

Financial assets/liabilities at fair value through

profit or loss represent assets/liabilities acquired/

incurred principally for the purpose of selling/

settlement in the near term, or it is a part of

portfolio of a identified financial instruments that

are managed together and for which there is

evidence of a recent and actual pattern of shortterm

profit-taking, or as a derivative, or financial

asset/liability which upon initial recognition is

designated by the Group at fair value through

profit or loss. Financial assets/liabilities at fair value

through profit or loss are initially recorded and

subsequently measured at fair value.

The Group uses quoted market prices to

determine fair value for the Group’s financial

assets/liabilities at fair value through profit or loss.

Fair value adjustment on financial assets/liabilities

at fair value through profit or loss is recognized in

the consolidated income statement for the period.

Derivative financial instruments

The Group enters into derivative financial

instruments to manage currency and liquidity risks

and such financial instruments are held primarily

for trading purposes and are not qualified for

hedging. Derivatives entered into by the Group

include forwards and swaps.

Most of the derivatives the Group enters into

are of a short-term and trading nature. The results

of the valuation of derivatives are reported in

assets (aggregate of positive market values) or

liabilities (aggregate of negative market values),

respectively. Both positive and negative valuation

results are recognized in the consolidated income

statement for the period in which they arise under

net gain/(loss) on respective transactions.

Repurchase and reverse repurchase

agreements

The Group enters into sale and purchase back

agreements (“repos”) and purchase and sale back

agreements (“reverse repos”) in the normal course

of its business. Repos and reverse repos are

utilized by the Group as an element of its treasury

management and trading business.

A repo is an agreement to transfer a financial

asset to another party in exchange for cash or

other consideration and a concurrent obligation

to reacquire the financial assets at a future date for

an amount equal to the cash or other consideration

exchanged plus interest. These agreements

are accounted for as financing transactions.

Financial assets sold under repo are retained in

the financial statements and consideration

received under these agreements is recorded as

collateralized deposit received.

Assets purchased under reverse repos are

recorded in the financial statements as cash

placed on deposit which is collateralized by

securities and other assets.

In the event that assets purchased under

reverse repo are sold to third parties, the results

are recorded with the gain or loss included in net

gains/ (losses) on respective assets. Any related

income or expense arising from the pricing

difference between purchase and sale of the

underlying assets is recognized as interest income

or expense.

Originated loans

Loans originated are non-derivative assets with

fixed or determinable payments that are not

72 73


quoted in an active market other than those

classified in other categories of financial assets.

Loans granted by the Group with fixed maturities

are initially recognized at fair value plus related

transaction costs. Where the fair value of consideration

given does not equal the fair value of the

loan, for example where the loan is issued at lower

than market rates, the difference between the fair

value of consideration given and the fair value of

the loan is recognized as a loss on initial recognition

of the loan and included in the income

statement as losses on origination of assets.

Subsequently, the loan carrying value is measured

using the effective interest method. Loans to customers

that do not have fixed maturities are accounted

for under the effective interest method based

on expected maturity. Loans to customers are

carried net of any allowance for impairment losses.

Purchased loans

Loans acquired from another lender subsequently

to the origination date are either classified

as loans or as available-for-sale investments on

initial recognition. Purchased loans classified as

loans are initially recognized at fair value and

subsequently measured at amortised cost using

the effective interest method. For purchased loans

classified as available-for-sale investments, fair

value is based on an active market or on a discounted

cash flow (“DCF”) model. If market price

is not available and the DCF model is not practicable,

the price for similar assets is used.

Write off of loans and advances

Loans and advances are written off against

allowance for impairment losses when estimated

to be uncollectible, including through repossession

of collateral. Loans and advances are written

off after management has exercised all possibilities

available to collect amounts due to the Group

and after the Group has sold all available collateral.

The excess of cash received on such sale over the

outstanding debt is returned to the debtor. The

decision on writing off bad debt against allowance

for impairment losses for all major, preferential,

unsecured and insider loans is required to be

confirmed either by Management decision or by

a procedural document of judicial and notary bodies

certifying that at the time of the decision the

debt could not be repaid (partially repaid) with

the debtor’s funds.

Allowance for impairment losses

The Group establishes an allowance for

impairment losses of financial assets that are not

carried at fair value when there is objective

evidence that a financial asset or group of financial

assets is impaired. The allowance for impairment

losses is measured as the difference between

carrying amounts and the present value of

expected future cash flows, including amounts

recoverable from guarantees and collateral,

discounted at the financial asset’s original effective

interest rate, for financial assets which are carried

at amortised cost. If in a subsequent period the

amount of the impairment loss decreases and the

decrease can be related objectively to an event

occurring after the impairment was recognised,

the previously recognised impairment loss is

reversed by adjusting an allowance account. For

financial assets carried at cost the allowance for

impairment losses is measured as the difference

between the carrying amount of the financial

asset and the present value of estimated future

cash flows discounted at the current market rate

of return for a similar financial asset. Such impairment

losses are not reversed.

The determination of the allowance for

impairment losses is based on an analysis of the

risk assets and reflects the amount which, in the

judgment of management, is adequate to provide

for losses incurred. Provisions are made as a result

of an individual appraisal of risk assets for financial

assets that are individually significant, and an

individual or collective assessment for financial

assets that are not individually significant.

The change in the allowance for impairment

losses is charged to profit and the total of the

allowance for impairment losses is deducted in

arriving at assets as shown in the balance sheet.

Factors that the Group considers in determining

whether it has objective evidence that an impairment

loss has been incurred include information

about the debtors’ or issuers’ liquidity, solvency

and business and financial risk exposures, levels

of and trends in delinquencies for similar financial

assets, national and local economic trends and

conditions, and the fair value of collateral and

guarantees. These and other factors may, either

individually or taken together, provide sufficient

objective evidence that an impairment loss has

been incurred in a financial asset or group of

financial assets.

It should be understood that estimates of

losses involve an exercise of judgment. While it is

possible that in particular periods the Group may

sustain losses which are substantial relative to the

allowance for impairment losses, it is the judgment

of management that the allowance for

impairment losses is adequate to absorb losses

incurred on risk assets, at the balance sheet date.

Finance leases

Leases that transfer substantially all the risks

and rewards incident to ownership of an asset.

Title may or may not eventually be transferred.

Whether a lease is a finance lease or an operating

lease depends on the substance of the transaction

rather than the form of the contract. The lease

classified as finance lease if:

• The lease transfers ownership of the asset to

the lessee by the end of the lease term;

• The lessee has the option to purchase the

asset at a price which is expected to be

sufficiently lower than the fair value at the

date the option becomes exercisable such

that, at the inception of the lease, it is

reasonably certain that the option will be

exercised;

• The lease term is for the major part of the

economic life of the asset even if title is not

transferred;

• At the inception of the lease the present

value of the minimum lease payments

amounts to at least substantially all of the fair

value of the leased asset; and

• The leased assets are of a specialized nature

such that only the lessee can use them

without major modifications being made.

The date of initial recognition of the lease is

the date from which the lessee is entitled to

exercise its right to use the leased asset.

Initial direct costs are often incurred in connection

with specific leasing activities, such as

negotiating and securing leasing arrangements.

For finance leases, initial direct costs are included

in the initial measurement of the finance lease

receivable and reduce the amount of income

recognised over the lease term. The interest rate

implicit in the lease is defined in such a way that

the initial direct costs are included automatically

in the finance lease receivable.

Group as lessor

The Group presents leased assets as loans

equal to the net investment in the lease. Finance

income is based on a pattern reflecting a constant

periodic rate of return on the net investment

outstanding. Initial direct costs are recognized as

expenses when incurred.

Investments available-for-sale

Investments available-for-sale represent debt

and equity investments that are intended to be

held for an indefinite period of time. Such securities

are initially recorded at fair value. Subsequently

the securities are measured at fair value, with

such re-measurement recognized directly in

equity until sold when gain/loss previously

recorded in equity recycles through the income

statement, plus accrued coupon income recognized

in the consolidated income statement for

the period as interest income on investment

securities. The Group uses quoted market prices

to determine the fair value for the Group’s

investments available-for-sale. If the market for

investments is not active, the Group establishes

fair value by using a valuation technique. Valuation

techniques include using recent arm’s length

market transactions between knowledgeable,

willing parties, reference to the current fair value

of another instrument that is substantially the

same, discounted cash flow analysis and option

pricing models.

If there is a valuation technique commonly

used by market participants to price the instrument

and that technique has been demonstrated

to provide reliable estimates of prices obtained in

actual market transactions, the Group uses that

technique. Dividends received are included in

dividend income in the consolidated income

statement.

Non-marketable debt and equity securities are

stated at amortized cost and cost, respectively, less

impairment losses, unless fair value can be reliably

measured.

When there is objective evidence that such

securities have been impaired, the cumulative loss

previously recognized in equity is removed from

equity and recognized in the income statement

for the period. Reversals of such impairment losses

on debt instruments, which are objectively related

to events occurring after the impairment, are

74 75


ecognized in the income statement for the

period. Reversals of such impairment losses on

equity instruments are not recognized in the

income statement.

Property, equipment and intangible

assets

Property, equipment and intangible assets,

except for buildings, acquired after 1 January 2003

are carried at historical cost less accumulated

depreciation. Property, equipment and intangible

assets, acquired before 1 January 2003, except for

buildings, are carried at historical cost restated for

inflation less accumulated depreciation and any

recognized impairment loss. Depreciation on

assets under construction and those not placed in

service commences from the date the assets are

ready for their intended use.

The carrying amounts of property, equipment

and intangible assets are reviewed at each balance

sheet date to assess whether they are recorded in

excess of their recoverable amounts, and where

carrying values exceed this estimated recoverable

amount, assets are written down to their recoverable

amount. An impairment is recognized in the

respective period and is included in operating

expenses. After the recognition of an impairment

loss the depreciation charge for property, equipment

and intangible assets is adjusted in future

periods to allocate the assets’ revised carrying

value, less its residual value (if any), on a systematic

basis over its remaining useful life.

Depreciation of property, equipment and

intangible assets is charged on the carrying value

of property and equipment and is designed to

write off assets over their useful economic lives.

It is calculated on a straight line basis at the

following annual rates:

Buildings 2%

Leasehold improvements

Over the period of lease

Equipment 20%

Intangible assets

Buildings held for use in supply of services, or

for administrative purposes, are stated in the

balance sheet at their revalued amounts, being

the fair value at the date of revaluation, determined

from market-based evidence by appraisal

undertaken by professional valuers, less any

subsequent accumulated depreciation. Revaluations

are performed with sufficient regularity such

that the carrying amount does not differ materially

from that which would be determined using fair

values at the balance sheet date.

Three approaches were used to estimate the

market value of property:

• The sales comparison approach based on the

analysis of sales prices for similar properties

in the market;

• The income approach that assumes direct

relationship between income generated by

the property and its market value; and

Over useful life of 3–10 years

• The cost approach under which the value of

property equals the replacement cost

adjusted for depreciation.

Any revaluation increase arising on the

revaluation of such buildings is credited to the

property and equipment revaluation reserve,

except to the extent that it reverses a revaluation

decrease for the same asset previously recognised

as an expense, in which case the increase is

credited to the income statement to the extent of

the decrease previously charged. A decrease in

carrying amount arising on the revaluation of such

buildings is charged as an expense to the extent

that it exceeds the balance, if any, held in the

properties revaluation reserve relating to a previous

revaluation of that asset.

Depreciation on revalued buildings is charged

to income statement. On the subsequent sale or

retirement of a revalued property, the attributable

revaluation surplus remaining in the properties

revaluation reserve is transferred directly to

retained earnings.

Taxation

Income tax expense represents the sum of the

current and deferred tax expense.

The current tax expense is based on taxable

profit for the period. Taxable profit differs from net

profit as reported in the consolidated income

statement because it excludes items of income or

expense that are taxable or deductible in other

periods and it further excludes items that are

never taxable or deductible. The Group’s current

tax expense is calculated using tax rates that have

been enacted or substantively enacted by the

balance sheet date.

Deferred tax is the tax expected to be payable

or recoverable on differences between the

carrying amounts of assets and liabilities in the

financial statements and the corresponding tax

bases used in the computation of taxable profit,

and is accounted for using the balance sheet

liability method. Deferred tax liabilities are

generally recognised for all taxable temporary

differences and deferred tax assets are recognised

to the extent that it is probable that taxable profits

will be available against which deductible temporary

differences can be utilised. Such assets and

liabilities are not recognised if the temporary

difference arises from goodwill or from the initial

recognition (other than in a business consolidation)

of other assets and liabilities in a transaction

that affects neither the tax profit nor the accounting

profit.

Deferred tax liabilities are recognised for

taxable temporary differences arising on investments

in subsidiaries and associates, and interests

in joint ventures, except where the Group is able

to control the reversal of the temporary difference

and it is probable that the temporary difference

will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is

reviewed at each balance sheet date and reduced

to the extent that it is no longer probable that

sufficient taxable profits will be available to allow

all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that

are expected to apply in the period when the

liability is settled or the asset is realised. Deferred

tax is charged or credited in the consolidated

income statement, except when it relates to items

charged or credited directly to equity, in which

case the deferred tax is also dealt with in equity.

Countries where the Group operates also have

various other taxes, which are assessed on the

Group’s activities. These taxes are included as a

component of operating expenses in the consolidated

income statement.

Income taxes assets and liabilities are offset if:

• the Group has a legally enforceable right to

set off current tax assets against current tax

liabilities; and

• the deferred tax assets and the deferred tax

liabilities relate to income taxes levied by the

same taxation authority on the same taxable

entity.

Deposits from banks and customers

and subordinated debt

Customer and bank deposits and subordinated

debt are initially recognized at fair value.

Subsequently, amounts due are stated at amortized

cost and any difference between fair value at

recognition and the redemption value is recorded

in the consolidated income statement over the

period of the borrowings using the effective

interest method.

Debt securities issued

Debt securities issued represent promissory

notes, certificates of deposit and bonds issued by

the Group. They are accounted for according to

the same principles used for customer and bank

deposits.

Provisions

Provisions are recognized when the Group has

a present legal or constructive obligation as a

result of a past events, and it is probable that an

outflow of resources embodying economic benefits

will be required to settle the obligation and

a reliable estimate of the obligation can be made.

Financial guarantee contracts issued

and letters of credit

Financial guarantee contracts and letters of

credit issued by the Group are credit insurance

that provides for specified payments to be made

to reimburse the holder for a loss it incurs because

a specified debtor fails to make payment when

due under the original or modified terms of a

debt instrument. Such financial guarantee contracts

and letters of credit issued are initially

recognized at fair value. Subsequently they are

measured at the higher of (a) the amount recognized

as a provision and (b) the amount initially

recognized less, where appropriate, cumulative

76 77


amortization of initial premium revenue received

over the financial guarantee contracts or letter of

credit issued.

Share capital and share premium

Contributions to share capital and share

premium, made before 1 January 2003, are

recognized at their cost restated for inflation.

Contributions to share capital and share premium

made after 1 January 2003 are recognized at cost.

Share premium represents the excess of contributions

over the nominal value of shares issued.

Gains and losses on sales of treasury stock are

charged or credited to share premium.

External costs directly attributable to the issue

of new shares, other than on a business consolidation,

are deducted from equity net of any related

income taxes.

Dividends on ordinary shares are recognized in

equity as a reduction in the period in which they

are declared. Dividends that are declared after the

balance sheet date are treated as a subsequent

event under International Accounting Standard 10

“Events after the Balance Sheet Date” (“IAS 10”)

and disclosed accordingly.

Retirement and other benefit obligations

The Group does not have any pension arrangements

separate from the State pension system of

the Russian Federation and other countries, which

require current contributions by the Group

calculated as a percentage of current gross salary

payments. Such expense is charged in the period

the related salaries are earned. Upon retirement all

retirement benefit payments are made by pension

funds selected by employees. In addition, the

Group has no post-retirement benefits or other

significant compensated benefits requiring accrual.

Recognition of income and expense

Interest income and expense are recognized

on an accrual basis using the effective interest

method. Interest income also includes income

earned on investments in securities. Once a

financial asset or a group of similar financial assets

has been written down (partly written down) as

a result of an impairment loss, interest income is

thereafter recognized using the rate of interest

used to discount the future cash flows for the

purpose of measuring the impairment loss.

Fee and commission income includes loan

origination fees, loan commitment fees and loan

servicing fees. Loan origination fees are deferred,

together with the related direct costs, and

recognized as an adjustment to the effective

interest rate of the loan in interest income. Where

it is probable that a loan commitment will lead to

a specific lending arrangement, the loan commitment

fees are deferred, together with the related

direct costs, and recognized as an adjustment to

the effective interest rate of the resulting loan in

interest income. Where it is unlikely that a loan

commitment will lead to a specific lending

arrangement, the loan commitment fees are

recognized in profit and loss over the remaining

period of the loan commitment. Where a loan

commitment expires without resulting in a loan,

the loan commitment fee is recognized in profit

and loss on expiry. Loan servicing fees are recognized

as revenue as services are provided. Other

income is credited to the consolidated income

statement when the related transactions are

completed. Commission income for the guarantees

issued is deferred and recognised as revenue

on a time proportion basis over the period of

guarantees. Commission expense for guarantees

received is deferred and recognised as expense on

a time proportion basis over the period of

guarantees. All other commissions are recognized

when services are provided.

Foreign currency translation

Monetary assets and liabilities denominated in

foreign currencies are translated into Russian

Roubles at the appropriate spot rates of exchange

ruling at the balance sheet date. Foreign currency

transactions are accounted for at the exchange

rates prevailing on the date of the transaction.

Profits and losses arising from these translations

are included in net (loss)/gain on foreign exchange

operations.

Rates of exchange

The exchange rates at period-end used by the

Group in the preparation of the financial statements

are as follows:

31 December 2006 31 December 2005

RUR/1 US Dollar 26,331 28,783

RUR/1 Euro 34,697 34,185

RUR/Gold (1 ounce) 16.738,68 14.765,42

RUR/Platinum (1 ounce) 29.411,84 27.746,33

Offset of financial assets and liabilities

Financial assets and liabilities are offset and

reported net on the balance sheet when the

Group has a legally enforceable right to set off the

recognized amounts and the Group intends either

to settle on a net basis or to realize the asset and

settle the liability simultaneously. In accounting for

a transfer of a financial asset that does not qualify

for derecognition, the Group does not offset the

transferred asset and the associated liability.

Fiduciary activities

The Group provides trustee services to its

customers. The Group also provides depositary

services to its customers that include transactions

with securities on their depo accounts. Assets

accepted and liabilities incurred under the

fiduciary activities are not included in the Group’s

financial statements. The Group accepts the

operational risk on these activities, but the

Group’s customers bear the credit and market

risks associated with such operations.

Segment reporting

A segment is a distinguishable component of

the Group that is engaged either in providing

products or services (business segment) or in

providing products or services within a particular

economic environment (geographical segment),

which is subject to risks and rewards that are

different from those of other segments. Segments

with a majority of revenue earned from sales to

external customers and whose revenue, result or

assets are ten per cent or more of all the segments

are reported separately. Geographical segments of

the Group have been reported separately within

these consolidated financial statements based on

the ultimate domicile of the counterparty, e.g.

based on economic risk rather than legal risk of

the counterparty.

Adoption of new and revised International

Financial Reporting Standards

At the date of authorisation of these financial

statements, the following Standards and Interpretations

applicable to the Bank were issued but not

yet effective:

• IFRS 7 “Financial Instruments: Disclosures”

(effective 1 January 2007);

• Amendments to IAS 1 regarding disclosure on

the Bank’s objectives, policies and processes

for managing capital (effective 1 January 2007).

The management is currently assessing the

impact of the adoption of these new and revised

Standards in future periods.

Restatements of the consolidated

financial statements

During 2006 the Group’s Management restated

the consolidated financial statements for the year

ended 31 December 2005 due to correction of

error. These errors are due to calculative errors on

accounting for loans to customers. The effect of

restatement is presented below.

78 79


Balance sheet / income statement caption

31 December 2005

RUR’000

(as previously reported)

Consolidated income statement

31 December 2005

RUR’000

(as restated)

Interest income 21,021,944 21,829,248

Provision for impairment losses on interest bearing

assets

Consolidated balance sheet

(1,045,616) (1,852,920)

RUR’000

Total cash received on disposal 308,104

Cash and cash equivalents disposed (569,126)

Disposal of subsidiary for statement of cash flows (261,022)

The financial position of Baikal ROSBANK JSC as of the disposal date was as follows:

Loans to customers, gross 119,205,859 120,361,682

Allowance for impairment losses (5,887,635) (7,043,458)

RUR’000

Reclassifications to the consolidated

financial statements

Certain reclassifications have been made to the

financial statements as at 31 December 2005 and

for the year then ended to conform to the presentation

as at 31 December 2006 and for the year

then ended as current year presentation provides

better view of the financial position of the Group.

Assets:

Cash and balances with the central bank 594,423

Financial assets at fair value through profit or loss 28,275

Loans and advances to banks 392,646

Loans to customers 742,288

Investments available-for-sale 3,090

Nature of reclassification

Reclassification of net loss

on foreign exchange operations

Reclassification of net gain

on precious metals operations

Amount

RUR’000

(3,682)

59,809

Income statement line as

per the previous report

Net gain on foreign exchange

operations

Net gain on precious metals

operations

Income statement line as

per current report

Net gain on financial assets at fair value

through profit or loss

Net gain on financial assets at fair value

through profit or loss

Property, equipment and intangible assets 28,667

Other assets 6,247

Total assets 1,795,636

Liabilities and equity

Liabilities:

Deposits from banks 11,000

Customer accounts 1,504,165

Debt securities issued 13,580

Other provisions 106

4. Disposal of Subsidiary

On 26 December 2006 ROSBANK sold all ownership interest in Baikal-ROSBANK of 90.607% to a third party.

RUR’000

Share of net assets disposed 90,607%

Net assets attributable to the Group 221,390

Total consideration, satisfied by cash 308,104

Net gain from disposal of subsidiary 86,714

Current income tax liabilities 5,632

Deferred income tax liabilities 8,732

Other liabilities 8,080

Total liabilities 1,551,295

Equity:

Share capital 334,579

Accumulated deficit (90,238)

Total equity 244,341

Total liabilities and equity 1,795,636

80 81


Results from discontinued operations for the year ended 31 December 2006 and 2005 were as follows:

5. Net Interest Income

Year ended

31 December 2006

RUR’000

Year ended

31 December 2005

RUR’000

Interest income 153,131 131,492

Interest expense (61,165) (54,337)

Net interest income before provision for impairment

losses on interest bearing assets

Recovery of provisions for impairment losses on interest

bearing assets

91,966 77,155

13,014 7,050

Net interest income 104,980 84,205

Net gain on financial assets at fair value through profit or

loss

716 214

Net gain on foreign exchange operations 8,686 7,112

Net gain/(loss) on precious metals operations 8,170 (4,305

Fee and commission income 37,136 19,642

Fee and commission expense (2,044) (1,045)

Other income 4,196 4,732

Net non-interest income 56,860 26,350

Operating income 161,840 110,555

Operating expenses (86,874) (66,402)

Operating profit 74,966 44,153

Other (provisions)/recovery of provisions (71) 19

Interest income

Year ended

31 December 2006

RUR’000

Year ended

31 December 2005

RUR’000

Interest on loans to individuals 15,112,171 9,025,728

Interest on loans to corporate customers 10,345,804 10,460,508

Interest on loans and advances to banks 1,838,857 1,403,094

Interest on debt securities 1,025,515 849,263

Interest on reverse repurchase transactions 537,628 90,655

Other interest income 206,840 -

Total interest income 29,066,815 21,829,248

Interest expense

Interest on deposits from individuals 4,626,080 3,973,687

Interest on corporate customer accounts 4,360,449 5,143,358

Interest on debt securities issued 2,189,529 1,196,902

Interest on deposits from banks 944,361 524,778

Interest on repurchase agreements 803,159 40,839

Total interest expense 12,923,578 10,879,564

Net interest income before provision for impairment

losses on interest bearing assets

16,143,237 10,949,684

Profit before income tax 74,895 44,172

Income tax expense (note 11) (17,235) (13,378)

Net profit 57,660 30,794

Depreciation charge on property, equipment

and intangible assets included in operating

expenses from discontinued operations for the

year ended 31 December 2006 and 2005 amounted

to RUR 4,270 thousand and RUR 4,217

thousand, respectively.

The net cash inflow attributable to the operating

activities of discontinued operations for the

year ended 31 December 2005 amounted to RUR

96,001 thousand. The net cash outflows attributable

to the investing and financing activities of

discontinued operations for the year ended 31

December 2005 amounted to RUR 776 thousand

and RUR 33,709 thousand, respectively.

82 83


6. Allowance for Impairment Losses, Other Provisions

The movements in allowance for impairment losses on interest-bearing assets were as follows:

Allowance for impairment losses on assets are deducted from the respective assets. Provision for off

balance sheet transactions are recorded in liabilities.

Loans and

advances to

banks

RUR’000

Loans to

customers

RUR’000

Total

RUR’000

31 December 2004 12,206 5,269,385 5,281,591

(Recovery of provision)/Provision (12,206) 1,865,126 1,852,920

Write-off - (100,059) (100,059)

Allowance acquired with subsidiaries - 16,056 16,056

Recovery of provision from discontinued operations - (7,050) (7,050)

31 December 2005 - 7,043,458 7,043,458

Provision - 4,247,376 4,247,376

7. Net Gain on Financial Assets at Fair Value through Profit or Loss

Net gain on financial assets at fair value through profit or loss comprises:

Net realised gain on operations with financial assets at fair

value through profit or loss

Net unrealised gain on operations with financial assets at

fair value through profit or loss

Total net gain on financial assets at fair value

through profit or loss

Year ended

31 December 2006

RUR’000

Year ended

31 December 2005

RUR’000

9,440 310,126

242,187 439,436

251,627 749,562

Write-off - (132,912) (132,912)

Recovery of provision from discontinued operations - (13,014) (13,014)

Disposal of subsidiary - (17,731) (17,731)

31 December 2006 - 11,127,177 11,127,177

The movements in other provisions were as follows:

8. Fee and Commission Income and Expense:

Year ended

31 December 2006

RUR’000

Fee and commission income:

Year ended

31 December 2005

RUR’000

Investments

available-forsale

RUR’000

Other

assets

RUR’000

Provisions for

financial guarantees

issued,

claims and

other commitments

RUR’000

Total

RUR’000

31 December 2004 127,545 34,930 252,287 414,762

Provision/(Recovery of provision) 5,516 (15,771) 17,600 7,345

Write-off (13,292) (9,271) (95,104) (117,667)

Provision /(Recovery of provision)

from discontinued operations

35 - (54) (19)

31 December 2005 119,804 9,888 174,729 304,421

Provision 118,655 7,033 28,184 153,872

Write-off (2,745) (16,921) (6,501) (26,167)

(Recovery of provision)/Provision

from discontinued operations

(2) - 73 71

Disposal of subsidiary (33) - (106) (139)

31 December 2006 235,679 - 196,379 432,058

Settlements 1,900,037 1,726,010

Cash operations 1,508,074 789,432

Credit cards operations 1,123,749 418,578

Documentary operations 665,553 126,251

Depository and securities operations 269,931 622,625

Foreign exchange operations 221,428 211,830

Other operations 265,277 179,761

Total fee and commission income 5,954,049 4,074,487

Fee and commission expense:

Credit cards operations 746,901 517,204

Depository and securities operations 90,198 63,160

Cash operations 80,768 61,179

Settlements 56,457 166,075

Foreign exchange operations 50,670 125,536

Other operations 35,722 40,641

Total fee and commission expense 1,060,716 973,795

84 85


9. Other Income

11. Income Taxes

Other income for the year ended 31 December

2006 and 2005 includes rental income

amounting to RUR 346,300 thousand and RUR

836,950 thousand, respectively, property and

equipment disposal gain amounting to RUR

10. Operating Expenses

145,866 thousand and RUR 36,871 thousand,

respectively, and income received from trust

operations amounting to RUR 70,948 thousand

and 24,420 thousand, respectively.

The Group provides for taxes based on the tax

accounts maintained and prepared in accordance

with the tax regulations of countries where the

Group companies operate and which may differ

from International Financial Reporting Standards.

The Group is subject to certain permanent tax

differences due to non-tax deductibility of certain

expenses and a tax free regime for certain income.

Deferred taxes reflect the net tax effects of

temporary differences between the carrying

amounts of assets and liabilities for financial

reporting purposes and the amounts used for tax

purposes. Temporary differences as of 31 December

2006 and 2005 relate mostly to different

methods of income and expense recognition as

well as to recorded values of certain assets and

liabilities.

Temporary differences as of 31 December 2006

and 2005 comprise:

Year ended

31 December 2006

RUR’000

Year ended

31 December 2005

RUR’000

Salary and bonuses 6,167,565 5,356,324

Operating lease expense 1,093,923 1,272,384

Repairs and maintenance expense 980,011 401,549

Unified social tax contribution 975,654 868,117

Taxes, other than income tax 641,950 516,193

Depreciation charge on property, equipment and

intangible assets

476,115 434,642

Security 406,320 312,828

Expenses on stationery and other office expenses 305,382 171,268

Deposit insurance charge 348,257 246,919

Communications 326,969 260,241

Professional services 318,002 461,089

Advertising and marketing expenses 258,919 198,260

Transportation expenses 219,561 48,361

Charity expenses 105,053 29,474

Business trip expenses 73,635 80,207

Insurance 65,942 42,201

Representation expenses 43,939 25,056

Customs duties 24,700 14,459

Other 397,649 422,671

Total operating expenses 13,229,546 11,162,243

Deferred assets:

31 December 2006

RUR’000

31 December 2005

RUR’000

Loans to banks and customers 3,286,346 2,688,684

Financial assets at fair value through profit or loss 1,055,874 61,098

Other liabilities 961,457 726,833

Other assets 776,264 159,945

Precious metals 269,157 -

Financial liabilities at fair value through profit or loss 172,757 97,850

Debt securities issued 24,246 -

Total deferred assets 6,546,101 3,734,410

Deferred liabilities:

Property, equipment and intangible assets 6,166,545 3,762,607

Deposits from banks and customer accounts 157,641 -

Investments available-for-sale 133,400 7,133

Debt securities issued - 55,919

Precious metals - 30,226

Financial assets at fair value through profit or loss - 14,398

Total deferred liabilities 6,457,586 3,870,283

Net deferred assets/(liabilities) 88,515 (135,873)

Deferred tax liabilities recognized in income statement at the statutory

tax rates

(68,472) (82,444)

Deferred tax liabilities recognized in equity at the statutory tax rates (1,479,665) (843,927)

Deferred tax assets at the statutory tax rates 1,633,828 893,761

Unrecognized deferred tax asset (1,633,828) (893,761)

Net deferred tax liability (1,548,137) (926,371)

86 87


Relationships between tax expenses and accounting profit for the year ended 31 December 2006 and

2005 are explained as follows:

12. Earnings per Share Attributable to Equity Holders of the Parent

Profit from continued operations before income

tax

Profit from discontinued operations before

income tax (Note 4)

Year ended

31 December 2006

RUR’000

Year ended

31 December 2005

RUR’000

6,066,695 4,314,419

74,895 44,172

Total profit before income tax 6,141,590 4,358,591

Tax at the statutory tax rate (24%) 1,473,982 1,046,062

Net profit attributable to equity holders of the parent for

the period (RUR’000)

Profit

Year ended

31 December 2006

Weighted average number of ordinary shares

Year ended

31 December 2005

3,805,181 3,017,498

For basic and diluted earnings per share 680,360,538 387,080,765

Earnings per share – basic and diluted (RUR) 5,59 7,8

Change in unrecognized deferred tax asset 740,067 268,635

Tax effect due to different tax rates 10,828 4,133

Tax effect of permanent differences 185,529 (44,301)

Income tax expense 2,410,406 1,274,529

Income tax expense from continued operations 2,393,171 1,261,151

Income tax expense from discontinued operations 17,235 13,378

Income tax expense 2,410,406 1,274,529

Current income tax expense from continued operations

Deferred income tax (credit)/expense from continued

operations

Current income tax expense from discontinued operations

(Note 4)

Deferred income tax expense from discontinued

operations (Note 4)

2,407,143 1,230,807

(13,972) 30,344

9,052 12,829

8,183 549

Income tax expense 2,410,406 1,274,529

Deferred income tax liability

Beginning of period 926,371 982,467

13. Cash and Balances with the Central and National Banks

31 December 2006

RUR’000

31 December 2005

RUR’000

Cash 6,709,583 5,974,281

Balances with the Central and National banks 30,561,746 13,481,077

Total cash and balances with the Central and

National banks

The balances with the Central and National

banks comprise balances with the Central bank of

the Russian Federation, the National Bank of

Switzerland and the National Bank of Byelorussia

as of 31 December 2006 and 2005 and include

RUR 6,198,442 thousand and RUR 4,656,081

thousand, respectively, which represent the

37,271,329 19,455,358

minimum reserve deposits calculated as a percentage

of customers accounts balance required

by the Central and National banks. The Group is

required to maintain the reserve balances with

Central and National banks at all times. Cash and

cash equivalents for the purposes of the statement

of cash flows are comprised of the following:

Deferred tax (credit)/expense (13,972) 30,344

Deferred tax expense/(recovery) charged to equity 635,738 (86,440)

End of period 1,548,137 926,371

31 December 2006

RUR’000

31 December 2005

RUR’000

Loans and advances to banks in OECD countries 51,217,430 46,293,755

Cash and balances with the Central and National banks 37,271,329 19,455,358

Trading government debt securities 1,181,924 5,729,550

89,670,683 71,478,663

Less minimum reserve deposits (6,198,442) (4,656,081)

Total cash and cash equivalents 83,472,241 66,822,582

88 89


14. Financial assets at fair value through profit or loss

31 December 2006

RUR’000

31 December 2005

RUR’000

Assets held-for-trading 11,127,865 15,114,730

Assets at fair value through profit or loss upon initial

recognition

Total financial assets at fair value through profit

or loss

1,692,373 562,372

12,820,238 15,677,102

% rate to

nominal

31 December

2006

RUR’000

% rate to

nominal

31 December

2005

RUR’000

Bonds of LLC GAZ-Finance 8 149,868 - -

Bonds of LLC Techno-Nickol Finance 10 145,370 - -

Bonds of LLC Tranceaero finance 12 143,394 - -

Bonds of JSC Amurmetall 10 137,482 - -

Bonds of JSC PRODIMEX Holding 10 134,793 - -

Bonds of LLC Promtraktor-Finance 11 133,319 11 127,690

Bonds of JSC RZD 7 132,740 8 6,482

31 December 2006

RUR’000

31 December 2005

RUR’000

Debt securities of corporates 6,742,909 4,511,722

Debt securities of financial institutions 2,081,772 1,560,753

Debt securities of local authorities 1,767,901 1,919,267

Debt securities of central governments 1,215,440 6,336,185

Equity investments 899,018 1,166,303

Derivative financial instruments 113,198 182,872

Total financial assets at fair value through profit

or loss

12,820,238 15,677,102

Bonds of LLC Uralvagonzavod-Finance 9–13 121,136 9 211,559

Bonds of LLC Sanvey-Group 12 115,531

Eurobonds of JSC Evrazholding 11 114,015 - -

Bonds of JSC TVZ 9 107,543 - -

Bonds of JSC NPO Saturn 9 101,896 12 16,188

Eurobonds of JSC Nutrinvestholding 11 100,311 11 219,563

Bonds of LLC Paterson Invest 10 100,271 - -

Bonds of LLC Avtomir-Finance 12 91,003 - -

Bonds of LLC AirUnion 13 64,106 13 70,330

Bonds of JSC Vimpelcom 10 56,940 - -

Bonds of JSC MECHEL 8 54,946 - -

% rate to

nominal

Debt securities Corporates:

31 December

2006

RUR’000

% rate to

nominal

31 December

2005

RUR’000

Bonds of JSC Severstal 9 786,337 - -

Bonds of LLC Taif-Finance 8 627,331 - -

Eurobonds of JSC Gazprom 7 456,788 5 269,906

Bonds of JSC Kemerovskiy kokso-himicheskiy 9 313,388 - -

Bonds of JSC Saxatransneftegaz 12 304,905 - -

Bonds of LLC Mir-Finance 11 294,031 10 256,629

Eurobonds of LLC Sanvey-Group 10 292,274 12 176,346

Bonds of LLC Group Magnezit 10 270,039 10 250,593

Bonds of JSC AIZC 8 254,037 - -

Bonds of LLC AIF Media Press Finance 12 221,567 - -

Bonds of JSC Federal Net Company of RAO UES of Russia 7–8 221,460 - -

Bonds of JSC ROSTVERTOL 9 187,535 - -

Bonds of JSC Stolichnie gastronomy 9 159,373 - -

Bonds of LLC Neftegazovaya Kompaniya Itera 10 158,293 10 180,760

Bonds of JSC Lukoil 7 51,142 - -

Bonds of CJSC Trubnaia metallurgicheskaia compania 8 44,174 - -

Bonds of CJSC Ist line holding 12 35,057 - -

Bonds of JSC Sinergia 11 30,442 - -

Bonds of JSC MC GidroOGK 8 11,907 - -

Bonds of JSC Stalnaia Gruppa MECHEL 6 9,128 - -

Bonds of JSC Ochakovo 9 6,612 9 44,275

Bonds of JSC RTK-Leasing 9 2,425 10 217,327

Eurobonds of JSC Norilsk Nickel - - 7 507,751

Bonds of JSC RAO UES - - 8 322,417

Bonds of JSC Salyut-Energiya - - 10 289,644

Eurobonds of JSC Salavatnefteorgsintez - - 9 189,517

Bonds of LLC Russian Aluminium Finance - - 8 148,610

Eurobonds of LLC EurazHolding - - 11 125,722

Eurobonds of JSC Vympelcom-Kommunikatsii - - 8–10 124,289

Bonds of JSC Chelyabinsky Truboprokatny Zavod - - 10 121,930

Bonds of JSC Chelyabinsky Metallurgichesky Kombinat - - 11 111,683

Bonds of JSC NPO Irkut - - 9 98,307

90 91


% rate to

nominal

31 December

2006

RUR’000

% rate to

nominal

31 December

2005

RUR’000

% rate to

nominal

31 December

2006

RUR’000

% rate to

nominal

31 December

2005

RUR’000

Bonds of JSC Salavatnefteorgsintez - - 10 98,093

Local authorities:

Eurobonds of LLC FK EvrazHolding - - 8 72,528

Bonds of LLC Torgoviy Dom MECHEL - - 12 59,989

Bonds of JSC Eastline - - 12 55,404

Bonds of JSC Gazprom - - 8 48,520

Bonds of JSC OMK - - 9 41,191

Bonds of JSC TMK - - 11 31,488

Eurobonds of JSC Sibneft - - 11 16,991

6,742,909 4,511,722

Financial institutions:

Bonds of Russia Spread Trust 8 854,384 8 874,080

Eurobonds of JSC Bank Petrocommerce 8 173,565 - -

Promissory notes of JSC Globexbank - 166,564 - -

Eurobonds of JSC National Bank TRUST 9 133,965 - -

Promissory notes of JSC AK Barc bank - 97,830 - -

Promissory notes of JSC Absolut Bank - 81,217 - 55,350

Bonds of LLC Russkiy Mezhdunarodniy Bank 11 78,497 - 90,926

Promissory notes of JSC Moscommercebank - 76,824 - -

Promissory notes of JSC BinBank - 75,767 - -

Promissory notes of JSC Eurofinance bank - 75,024 - -

Promissory notes of CJSC National Reservniy Bank - 53,433 - -

Eurobonds of JSC Impexbank 9 53,320 9 267,708

Promissory notes of JSC Dalnevostochniy bank - 51,970 - -

Bonds of Irkutsk Region Authority 8–11 436,389 9–11 151,209

Bonds of Yakutia Region Authority 8–10 431,831 9 – 13 24,286

Bonds of Nizhniy Novgorod Authority 9 232,427 - -

Bonds of Krasnoyarsk Region Authority 7 192,331 7–11 224,694

Bonds of Kazan city Authority 9–10 135,905 10–11 228,683

Bonds of Belgorod Region Authority 8 98,296 8 146,409

Bonds of Tver Region 8 48,998 8 121,703

Bonds of Moscow Region Authority 9–10 41,808 10 1,253

Bonds of Yaroslavl Region Authority 8–9 40,296 8–13 83,284

Bonds of Kirov Region Authority 8–9 30,624 8 86,946

Bonds of Kurgan Region Authority 9 30,476 - -

Bonds of Chuvashia Region Authority 8–12 16,788 12 52,494

Bonds of Magadan City Authority 11 10,439 - -

Bonds of Moscow City Authority 10 10,067 - -

Bonds of Voronezh Region Authority 13 8,500 13 92,133

Bonds of Mariy El Region Authority 8 1,826 - -

Bonds of Lipetsk Region Authority 8 522 - -

Bonds of Tula Region Authority 9 354 - -

Bonds of Krasnoyarsk City Authority 9 24 6–13 135,053

Bonds of Khabarovsk Region Authority - - 9–11 276,859

Bonds of Novosibirsk City Authority - - 5–12 256,988

Bonds of Odintsovo Moscow region district - - 12 37,273

Promissory notes of JSC Slavinvest bank - 51,903 - -

Promissory notes of CJSC Russ-bank - 46,850 - -

Central governments:

1,767,901 1,919,267

Bonds of JSC Bank Centr Invest 10 10,067 - -

Promissory notes of JSC Gazprombank - 592 - -

Promissory notes of JSC Vneshtorgbank - - - 112,763

Promissory notes of JSC Russkiy Mezhregionalniy Bank

Razvitiya

- - - 56,295

Promissory notes of JSC Bank Sojuz - - - 55,735

Promissory notes of JSC Vserossiyskiy Bank Razvitiya

Regionov

- - - 37,726

Bonds of JSC Probiznesbank - - 11 10,170

OFZ bonds 7–9 876,969 6–10 4,638,622

Bonds of the MF of Byelorussia 10–11 286,973 10–14 243,735

Government Eurobonds of the Russian Federation 3–10 27,239 5–13 804,857

OVGVZ bonds 3 24,259 3 76,613

United States Treasury notes - - 4 572,358

1,215,440 6,336,185

2,081,772 1,560,753

92 93


As of 31 December 2006 and 2005 included in

financial assets at fair value through profit or loss is

accrued interest income on debt securities is

amounting to RUR 187,291 thousand and RUR

145,834 thousand, respectively.

As of 31 December 2006 securities sold under

the agreement to repurchase represent Bonds of

the MF of Byelorussia of RUR 33,885 thousand that

Equity investments:

are included in financial assets at fair value

through profit or loss.

As of 31 December 2005 securities sold under

the agreement to repurchase represent United

States Treasury notes and Bonds of the MF of

Byelorussia of RUR 606,635 thousand that are

included in financial assets at fair value through

profit or loss.

31 December

2006

RUR’000

31 December

2005

RUR’000

Investment in mutual fund Perviy Ipotechniy 283,344 466,631

Ordinary shares of JSC Surgutneftegaz 240,600 -

Ordinary shares of JSC Comstar 198,299 -

Ordinary shares of JSC NPO Irkut 94,069 89,354

Ordinary shares of JSC Lukoil 22,850 42,558

Ordinary shares of JSC GMK Norilsk Nickel 20,400 -

15. Precious Metals

31 December 2006

RUR’000

331 December 2005

RUR’000

Platinum 638,714 378,842

Gold 410,990 593,189

Silver 9,358 6,009

Palladium 3,040 -

Total precious metals 1,062,102 978,040

16. Loans and Advances to Banks

31 December 2006

RUR’000

31 December 2005

RUR’000

Loans to banks 31,937,574 26,436,710

Advances to banks 31,900,799 24,702,060

Loans under reverse repurchase agreements 920,628 2,856,298

Total loans and advances to banks 64,759,001 53,995,068

Ordinary shares of JSC Rostelecom 16,567 6,128

Ordinary shares of JSC MMK 10,921 7,253

Ordinary shares of JSC RAO UES 4,980 79,228

Ordinary shares of JSC Tattelekom 3,357 -

Ordinary shares of JSC Habarovsknefteproduct 1,939 -

Ordinary shares of JSC Gazprom 699 53,430

Ordinary shares of JSC MGTS 581 477

Ordinary shares of JSC TNK-BP 264 -

Preferred shares of RAO UES 125 1,823

As of 31 December 2006 and 2005 accrued

interest income is included in loans and advances

to banks amounting to RUR 31,781 thousand and

RUR 11,667 thousand, respectively.

As of 31 December 2006 and 2005 the Group

had loans and advances to three and seven banks

totalling RUR 45,578,592 thousand and RUR

41,732,678 thousand, respectively, which individually

exceeded 10% of the Group’s equity.

As of 31 December 2006 and 2005 the maximum

credit risk exposure of loans and advances

to banks amounted to RUR 64,759,001 thousand

and RUR 53,995,068 thousand, respectively.

As of 31 December 2006 and 2005 included in

loans and advances to banks are loans under

reverse repurchase agreements amounting to RUR

920,628 thousand and RUR 2,856,298 thousand

with maturity within 1 and 2 months, respectively.

Such loans are collateralised by the following

securities:

Ordinary shares of JSC Chernogorneft 20 -

Ordinary shares of JSC Niznevartovskneftegaz 3 -

Ordinary shares of JSC Avtovaz - 258,459

ADR on shares of JSC YUKOS - 89,456

Ordinary shares of JSC YUKOS - 56,426

ADR on shares of JSC Lukoil - 8,535

Ordinary shares of JSC Sibneft - 5,376

Ordinary shares of JSC Kurskenergo - 1,010

Other - 159

899,018 1,166,303

31 December 2006

RUR’000

Carrying

value

Fair

value

31 December 2005

RUR’000

Carrying

value

Fair

value

United States Treasury notes 762,828 731,272 1,009,095 1,005,645

Government Eurobonds of the Russian Federation 154,543 172,356 295,290 295,315

Bonds of the MF of Byelorussia 3,257 3,392 15,702 15,689

Ordinary shares of JSC Gazprom - - 771,248 1,146,365

Eurobonds of JSC Severstal - - 386,027 488,883

Eurobonds of the German Government - - 308,044 297,318

Bonds of the Krasnoyarsk Region Authority - - 70,892 71,157

Total loans under reverse repurchase agreements

920,628 907,020 2,856,298 3,320,372

94 95


17. Derivative Financial Instruments

31 December2006 31 December2005

Notional

amount

RUR’000

Fair

value

RUR’000

Foreign exchange contracts

Notional

amount

RUR’000

Fair

value

RUR’000

Forwards 17,279,714 (15,012) 5,681,260 10,561

Futures 9,815,726 (67,707) - -

Swaps 5,679,995 13,762 6,283,035 (39,571)

Total foreign exchange contracts

liability

Contracts on precious metals

(68,957) (29,010)

Forwards 417,291 2,265 626,998 90,651

Swaps 3,401,216 (36,012) 1,317,911 (1,688)

Total contracts on precious metals

(liability)/asset

Contracts on securities

(33,747) 88,963

Forwards 460 2 - -

Total contracts on securities asset 2 -

31 December 2006

RUR’000

31 December 2005

RUR’000

Loans collateralized by pledge of vehicles 40,541,151 25,315,386

Loans collateralized by pledge of real estate 17,717,623 9,539,907

Loans collateralized by pledge of securities 8,291,208 2,705,644

Loans collateralized by pledge of equipment 8,129,991 4,194,122

Loans collateralized by corporate guarantees 5,906,691 4,367,209

Loans collateralized by pledge of goods in turnover 4,120,106 6,533,995

Loans collateralized by rights of demand 1,532,507 1,443,094

Loans collateralized by pledge of cash 296,031 2,049,668

Loans collateralized by pledge of combined collateral - 975,886

Loans collateralized by others 475,859 861,209

Unsecured loans 74,231,950 55,332,104

Total loans to customers 161,243,117 113,318,224

Movements in allowances for impairment losses on loans to customers for the year ended 31 December

2006 and 2005 are disclosed in Note 6.

Total (102,702) 59,953

Analysis by sector:

31 December 2006

RUR’000

31 December 2005

RUR’000

18. Loans to Customers

31 December

2006

RUR’000

31 December

2005

RUR’000

Originated loans 169,944,866 118,777,068

Net investments in finance lease 1,777,100 1,164,303

Advances on finance lease 269,029 401,502

Loans under reverse repurchase agreements 379,299 18,809

172,370,294 120,361,682

Less allowance for impairment losses (11,127,177) (7,043,458)

Total loans to customers 161,243,117 113,318,224

As of 31 December 2006 and 2005 accrued interest income is included in originated loans amounting to

RUR 1,000,367 thousand and RUR 829,915 thousand, respectively.

Individuals 76,633,219 51,967,260

Trade 17,431,803 14,923,605

Construction 10,716,689 4,875,089

Energy industry 10,033,755 4,828,137

Defence industry 5,739,680 1,434,794

Government 5,409,195 5,453,930

Manufacturing 4,495,927 1,185,655

Finance 3,896,406 7,131,803

Heavy industry 3,362,728 1,920,602

Hotel business and services 3,197,649 11,010

Real estate and leasing 3,128,835 2,993,877

Oil and gas 2,393,421 441,552

Food industry 2,316,863 2,176,133

Transport 1,551,534 1,270,990

Engineering 1,517,971 3,476,648

Ferrous metals manufacturing 1,294,858 1,706,488

96 97


Agriculture 962,568 131,271

Chemical 961,569 665,739

Precious metals and diamond extraction and manufacturing 648,735 1,168,234

Non-ferrous metals manufacturing 540,569 10,968

Telecommunications 91,776 1,372,711

Public health and tourism 20,873 -

Insurance 9,204 -

Aircraft engineering 4,531 154,803

Other 4,882,759 4,016,925

Total loans to customers 161,243,117 113,318,224

As of 31 December 2006 and 2005 loans collateralized by pledge of securities purchased under agreement

to resell included in loans to customers are amounting to RUR 379,299 thousand and RUR 18,809

thousand, respectively:

31 December 2006

RUR’000

Carrying

value

31 December 2006

RUR’000

Fair value

31 December 2005

RUR’000

Carrying

value

31 December 2005

RUR’000

Fair value

Ordinary shares of JSC Gazprom 350,143 441,170 - -

Bonds of Transaero-Finance LLS 29,156 32,429 - -

Mortgages - - 18,809 18,654

379,299 473,599 18,809 18,654

As of 31 December 2006 and 2005 a substantial amount of loans is granted to companies operating in

the Russian Federation, which represents a significant geographical concentration in one region.

As of 31 December 2006 and 2005 the maximum credit risk exposure of loans to customers amounted

to RUR 172,370,294 thousand and RUR 120,361,682 thousand, respectively.

The components of net investment in finance lease as of 31 December 2006 and 2005 are as follows:

31 December 2006 31 December 2005

Minimum lease payments 2,287,905 1,922,113

Less: unearned finance income (510,805) (757,810)

Net investment in finance lease 1,777,100 1,164,303

Current portion 802,018 525,238

Long-term portion 975,082 639,065

Net investment in finance lease 1,777,100 1,164,303

The minimum lease payments due from customers under finance lease as of 31 December 2006 and

2005 are as follows:

31 December 2006 31 December 2005

Not later than one year 888,792 909,179

From one year to five years 1,399,113 1,012,934

Total minimum lease payments 2,287,905 1,922,113

19. Investments Available-For-Sale

31 December 2006

RUR’000

31 December 2005

RUR’000

Equity investments 3,398,882 482,416

Debt securities 264,955 115,722

3,663,837 598,138

Less allowance for impairment losses (235,679) (119,804)

Total investments available-for-sale 3,428,158 478,334

As of 31 December 2006 included in equity

investments is investment in mortgage investment

fund amounting to RUR 2,795,333 thousand,

including accrued interest income on such

investment of RUR 31,754 thousand.

As of 31 December 2006 and 2005 interest

income on debt securities amounting to RUR

20. Property, Equipment and Intangible Assets

1,645 thousand and RUR 3,303 thousand, respectively,

was accrued and included in securities

available-for-sale.

Movements of allowance for impairment

losses on investments available-for-sale for the

year ended 31 December 2006 and 2005 are

disclosed in Note 6.

Buildings

RUR`000

At cost/restated cost/revalued amount

Equipment

and other

RUR`000

Total

RUR`000

31 December 2004 5,731,578 2,084,151 7,815,729

Additions 147,321 431,544 578,865

Disposals (277,169) (302,577) (579,746)

Impairment (8,589) - (8,589)

Group reorganization - 42,528 42,528

31 December 2005 5,593,141 2,255,646 7,848,787

Additions 298,085 609,790 907,875

Disposals (120,559) (399,610) (520,169)

Revaluation 1,968,778 - 1,968,778

98 99


21. Other Assets

Disposal of subsidiary (29,882) (38,314) (68,196)

31 December 2006 7,709,563 2,427,512 10,137,075

Accumulated depreciation

Buildings

RUR`000

Equipment

and other

RUR`000

Total

RUR`000

31 December 2004 - 886,273 886,273

Charge for the period from continued operations 108,435 326,207 434,642

Charge for the period from discontinued operations 688 3,529 4,217

Disposals (4,621) (211,482) (216,103)

Impairment (965) - (965)

Group reorganization - 17,546 17,546

31 December 2005 103,537 1,022,073 1,125,610

Charge for the period from continued operations 189,836 286,279 476,115

Charge for the period from discontinued operations 744 3,526 4,270

Disposals (5,434) (275,056) (280,490)

Elimination on revaluation (280,352) - (280,352)

31 December 2006

RUR’000

31 December 2005

RUR’000

Taxes, other than income tax, recoverable 799,760 425,215

Due from suppliers and other contractors 446,845 389,147

Due from employees 9,249 8,939

Assets on spot deals 3,071 8,020

Non-current assets held-for-sale 10 65,002

Receivables from operation with securities 1 60,540

Receivable from investments disposal - 604,433

Other 32,792 66,579

1,291,728 1,627,875

Less allowance for impairment losses - (9,888)

Total other assets 1,291,728 1,617,987

Movement of allowance for impairment losses on other assets for the year ended 31 December 2006

and 2005 is disclosed in Note 6.

Taxes recoverable are mainly represented by valued added taxes on leasing transactions.

Disposal of subsidiary (8,331) (31,199) (39,530)

31 December 2006 - 1,005,623 1,005,623

Net book value

31 December 2006 7,709,563 1,421,889 9,131,452

31 December 2005 5,489,604 1,233,573 6,723,177

22. Deposits from Banks

31 December 2006

RUR’000

31 December 2005

RUR’000

Time deposits 17,180,181 8,295,891

Correspondent accounts 2,503,957 2,212,030

If buildings were stated at the historical cost restated according to IAS 29, the amounts would be as follows:

Loans under repurchase agreements 33,516 631,107

Total deposits from banks 19,717,654 11,139,028

31 December 2006

RUR’000

31 December 2005

RUR’000

Cost 2,034,783 1,858,438

Accumulated depreciation (184,308) (77,497)

Net book value 1,850,475 1,780,941

As of 31 December 2006 and 2005 accrued

interest expense is included in deposits from

banks amounting to RUR 270,091 thousand and

RUR 34,921 thousand, respectively.

As of 31 December 2006 securities sold under

the agreement to repurchase represent Bonds of

the MF of Byelorussia that are included in financial

assets at fair value through profit or loss at a fair

value of RUR 33,885 thousand.

As of 31 December 2005 securities sold under

the agreement to repurchase represent T-Bonds

of United States Treasury notes and Bonds of the

MF of Byelorussia that are included in financial

assets at fair value through profit or loss at a fair

value of RUR 606,635 thousand.

100 101


23. Customer Accounts

Customer accounts comprise:

31 December 2006

RUR’000

31 December 2005

RUR’000

Time deposits 156,493,640 111,941,812

Repayable on demand 48,168,555 37,119,082

Total customer accounts 204,662,195 149,060,894

31 December 2006

RUR’000

31 December 2005

RUR’000

Information technology 256,094 53,677

Culture and art 241,715 446,289

Agriculture 232,442 146,148

Mass-Media 181,906 -

Chemical 173,637 117,258

As of 31 December 2006 and 2005 accrued

interest expense is included in customer accounts

amounting to RUR 1,469,858 thousand and RUR

1,098,155 thousand, respectively.

As of 31 December 2006 and 2005 customer

accounts amounted to RUR 418,240 thousand and

RUR 133,896 thousand, respectively, were held as

security against letters of credit issued and other

transaction related contingent obligations. As of

31 December 2006 and 2005 customer accounts

amounted to RUR 71,594 thousand and RUR

18,756 thousand, respectively, were held as

security against guarantees issued.

Publishing 87,877 213,393

Aircraft industry 50,400 54,305

Defence industry 39,718 -

Housing 33,547 50,419

Ferrous metallurgy 31,887 3,670,258

Hotel business 12,943 671,044

31 December 2006

RUR’000

31 December 2005

RUR’000

Individuals 63,862,938 57,159,985

Finance 79,700,530 41,060,244

Trading 12,367,906 7,303,938

Oil and gas 9,793,202 9,926,141

Non-ferrous metallurgy 9,186,203 7,442,431

Precious metals and diamond extraction and manufacturing 5,873,510 867,579

Real estate dealership 4,251,078 2,054,094

Regional government 2,690,773 2,092,939

Insurance 2,552,333 502,589

Building construction 2,070,836 1,213,420

Energy 1,560,038 847,125

Mechanical engineering 1,075,702 989,517

Professional services 920,385 470,496

Social organizations 917,581 169,104

Manufacturing 838,616 647,184

Services 833,060 584,941

Public health and tourism 767,553 826,263

Mining 552,564 -

Transportation 486,324 1,227,532

Communications 341,881 491,912

Food industry 277,291 321,171

Forest 4,616 23,528

Geology 3,402 121,813

Other 2,391,707 7,294,157

Total customer accounts 204,662,195 149,060,894

24. Financial Liabilities at Fair Value through Profit or Loss

31 December 2006

RUR’000

31 December 2005

RUR’000

Short position on securities purchased 731,272 1,717,722

Derivative financial instruments 215,900 122,919

Total financial liabilities at fair value through profit or

loss

947,172 1,840,641

As of 31 December 2006 and 2005 the following assets were sold under repurchase agreements with a fair

value as follows:

31 December 2006

RUR’000

31 December 2005

RUR’000

T-Bonds of US Department of Treasury 731,272 1,005,645

Eurobonds of the German Government - 297,317

Eurobonds of the Russian Federation - 293,150

Eurobonds of JSC Severstal - 121,610

Total liabilities sold under repurchase agreements (short

position)

731,272 1,717,722

102 103


25. Debt Securities Issued

31 December 2006

RUR’000

31 December 2005

RUR’000

Eurobonds due in 2009 11,945,330 8,104,939

Discount bearing promissory notes 8,951,586 8,759,724

Subordinated debt of KM TECHNOLOGIES

(OVERSEAS) LIMITED

Currency

Maturity

date

year

Interest

rate

%

31 December

2006

RUR’000

RUR 2016 8 3,000,000

Total subordinated debt 3,000,000

Interest bearing promissory notes 5,452,078 1,148,687

Eurobonds due in 2007 4,080,641 4,436,034

Bonds due in 2009 2,744,827 832,555

Adjustable Rate Guaranteed Bonds due in 2012 761,646 744,093

Discount/interest free promissory notes 27,319 1,995,126

Certificates of deposit - 23,049

Total debt securities issued 33,963,427 26,044,207

As of 31 December 2006 and 2005 accrued

interest expense is included in debt securities

issued amounting to RUR 409,870 thousand and

RUR 678,711 thousand, respectively.

The Group issued Eurobonds due in 2009

26. Other Liabilities

collateralized by future receivables on credit card

settlements.

Discount/interest free promissory notes are

issued for settlement purposes, on demand, at

nominal value.

31 December 2006

RUR’000

31 December 2005

RUR’000

Accrued bonuses and salary 528,852 455,228

Unused vacations provision 345,215 205,932

Payable to suppliers, contractors and purchasers 196,124 128,823

Taxes, other than income tax, payable 182,224 71,133

28. Share Capital

As of 31 December 2006 and 2005 nominal

share capital authorized, issued and fully paid

comprised 680,360,538 ordinary shares with par

value of RUR 10 each. All shares are ranked equally

and carry one vote.

As of 31 December 2006 and 2005 share

premium of RUR 9,177,470 thousand represents

an excess of contributions received in share

capital over the nominal value of shares issued.

The Group’s reserves distributable among

shareholders are limited to the amount of reserves

as disclosed in its statutory accounts of the Bank.

As of 31 December 2006 and 2005 non-distributable

reserves are represented by a general

reserve fund, which is created as required by

statutory regulations in respect of general banking

risks, including future losses and other unforeseen

risks or contingencies. The reserve has been

created in accordance with statutes of individual

entities that provide for the creation of a reserve

for these purposes.

29. Financial Commitments and

Contingencies

In the normal course of business, the Group is

a party to financial instruments with off-balance

sheet risk in order to meet the needs of its

customers. These instruments, involving varying

degrees of credit risk, are not reflected in the

balance sheet.

Allowance for impairment losses on letters of

credit and guarantees amounted to RUR 196,379

thousand and RUR 174,729 thousand as of 31

December 2006 and 2005, respectively.

As of 31 December 2006 and 2005, letters of

credit and other transactions related to contingent

obligations covered by cash amounted to RUR

418,240 thousand and RUR 133,896 thousand,

respectively and guarantees issued covered by

cash amounted to RUR 71,594 thousand and RUR

18,756 thousand, respectively.

The risk-weighted amount is obtained by

applying a credit conversion factor and counterparty

risk weightings according to principles

employed by the Basle Committee on Banking

Supervision.

As of 31 December 2006 and 2005, the

nominal or contract amounts and risk-weighted

amounts were:

Creditors on other operations 131,945 34,107

Deposit insurance charge liability 89,705 74,977

Liability on spot deals 12,458 4,448

Dividends payable 8,116 10,368

Other 121,486 54,295

Total other liabilities 1,616,125 1,039,311

27. Subordinated Debt

In the event of bankruptcy or liquidation of the Group, repayment of this debt is subordinate to

repayment of ROSBANK’s liabilities to all other creditors.

31 December 2006 31 December 2005

Nominal

Amount

RUR’000

Contingent liabilities and credit commitments

Guarantees issued and similar commitments

Letters of credit and other transaction

related contingent obligations

Commitments on loans and unused

credit lines

Total contingent liabilities and

credit commitments

Risk weighted

amount

RUR’000

Nominal

Amount

RUR’000

Risk

weighted

amount

RUR’000

7,266,941 3,785,174 7,726,434 7,707,678

4,304,842 703,966 1,627,705 746,905

27,891,598 10,552,533 18,446,050 4,359,949

39,463,381 15,041,673 27,800,189 12,814,532

104 105


Capital commitments

As of 31 December 2006 and 2005 the Group

has commitments for capital expenditure on

finance lease outstanding amounting to RUR

750,950 thousand and RUR 872,475 thousand,

respectively.

Operating lease commitments

Where the Group is the lessee, the future minimum

lease payments under non cancellable operating

leases are as follows:

31 December 2006

RUR’000

31 December 2005

RUR’000

Not later than 1 year 1,392,182 1,027,430

Later than 1 year and not later than 5 years 872,758 1,052,024

Later than 5 years 243,049 457,910

Total operating lease commitments 2,507,989 2,537,364

Fiduciary activities

In the normal course of its business, the Group

enters into agreements with limited rights on

decision making with clients for asset management

in accordance with specific criteria established

by clients. The Group may be liable for

losses due to its gross negligence or wilful misconduct

until such funds or securities are returned to

the client. The maximum potential financial risk of

the Group at any given moment is equal to the

volume of the clients’ funds plus/minus any

unrealized gain/loss on the client’s position. In the

judgment of management, as of 31 December

2006 and 2005 the maximum potential financial

risk on securities accepted by the Group on behalf

of its clients does not exceed RUR 4,840,471

thousand and RUR 7,393,671 thousand, respectively.

The Group also provides depositary services to

its customers. As of 31 December 2006 and 2005,

the Group had customer securities totalling

357,061,386,274 items and 3,283,527,374 items,

respectively, in its nominal holder accounts.

Legal proceedings

From time to time and in the normal course of

business, claims against the Group are received

from customers and counterparties. Management

is of the opinion that no material unaccrued losses

will be incurred and accordingly no provision has

been made in these financial statements.

The Group is receiving claims from individual

customers with respect to certain commissions

withheld by the Group for loan agreements

service. The CBR issued an instruction requiring

banks to disclose effective interest rates on loans

granted to individuals. Management is of the

opinion that such claims would not have adverse

consequences for the Group, and is in the process

of establishing procedures on disclosing additional

information in loan agreements in compliance

with the CBR instruction.

Taxation

Provisions of the Russian tax legislation are

sometimes inconsistent and may have more than

one interpretation, which allows the Russian tax

authorities to take decisions based on their own

arbitrary interpretation of these provisions. In

practice, the Russian tax authorities often interpret

the tax legislation not in favour of the taxpayers,

who have to resort to court proceeding to defend

their position against the tax authorities. It should

be noted that the Russian tax authorities can use

the clarifications issued by the judicial bodies that

have introduced the concept of “unjustified tax

benefit”, “primary commercial goal of transaction”

and the criteria of “commercial purpose (substance)

of transaction”.

Such uncertainty could, in particular, be

attributed to tax treatment of financial instruments/derivatives

and determination of market

price of transactions for transfer pricing purposes.

It could also lead to temporary taxable differences

occurred due to loan impairment provisions and

income tax liabilities being treated by the tax

authorities as understatement of the tax base. The

management of the Bank is confident that applicable

taxes have all been accrued and, consequently,

creation of respective provisions is not required.

Generally, taxpayers are subject to tax audits

with respect to three calendar years preceding the

year of the audit. However, completed audits do

not exclude the possibility of subsequent additional

tax audits performed by upper-level tax

inspectorates reviewing the results of tax audits of

their subordinate tax inspectorates. Also according

to the clarification of the Russian Constitutional

Court the statute of limitation for tax liabilities may

be extended beyond the three year term set forth

in the tax legislation, if a court determines that the

taxpayers has obstructed or hindered a tax

inspection.

Pensions and retirement plans

Employees receive pension benefits in accordance

with the laws and regulations of the

respective countries. As of 31 December 2006 and

2005, the Group was not liable for any supplementary

pensions, post-retirement health care,

insurance benefits, or retirement indemnities to its

current or former employees.

Operating environment

The Group’s principal business activities are

within the Russian Federation. Laws and regulations

affecting the business environment in the

Russian Federation are subject to rapid changes

and the Group’s assets and operations could be at

risk due to negative changes in the political and

business environment.

30. Subsequent events

On 12 March 2007 Board of Directors of

ROSBANK approved additional issue of 39,435,000

ordinary shares with nominal value of RUR 10 per

each share. The statutory registration of issue is

planned to be completed at the end of April 2007.

31. Transactions with Related

Parties

Related parties or transactions with related

parties, as defined by IAS 24 “Related party

disclosures”, represent:

(a) Parties that directly, or indirectly through

one or more intermediaries: control, or are

controlled by, or are under common control

with, the Group (this includes parents,

subsidiaries and fellow subsidiaries); have

an interest in the Group that gives then

significant influence over the Bank; and that

have joint control over the Group;

(b) Associates – enterprises on which the

Group has significant influence and which is

neither a subsidiary nor a joint venture of

the investor;

(c) Joint ventures in which the Group is

a venturer;

(d) Members of key management personnel

of the Group or its parent;

(e) Close members of the family of any individuals

referred to in (a) or (d);

(f) Parties that are entities controlled, jointly

controlled or significantly influenced by, or

for which significant voting power in such

entity resides with, directly or indirectly, any

individual referred to in (d) or (e); or

(g) Post-employment benefit plans for the

benefit of employees of the Group, or

of any entity that is a related party of the

Group.

In considering each possible related party

relationship, attention is directed to the substance

of the relationship, and not merely the legal form.

The Group had the following transactions outstanding

with related parties:

31 December 2006

RUR’000

Related party

transactions

Total category

as per

financial

statement

caption

31 December 2005

RUR’000

Related party

transactions

Total category

as per

financial

statement

caption

Financial assets at fair value through profit or loss 65,838 12,820,238 974,382 15,677,102

- other related parties 65,838 974,382

Investments available-for-sale 208,157 3,428,158 - 478,334

- other related parties 208,157 -

Loans to banks 62,990 64,759,001 172,891 53,995,068

106 107


- other related parties 62,990 172,891

Loans to customers, gross 2,472,456 172,370,294 3,263,373 120,361,682

- key management personnel of the Group 761 30,909

- other related parties 2,471,695 3,232,464

Allowance for impairment losses 84,883 11,127,177 169,450 7,043,458

- key management personnel of the Group 56 1,524

- other related parties 84,827 167,926

Other assets 633 1,291,728 29,891 1,617,987

- other related parties 633 29,891

Deposits from banks 99,290 19,717,654 - 11,139,028

- other related parties 99,290 -

Customer accounts 61,883,766 204,662,195 38,471,040 149,060,894

- shareholders 6,751,005 8,266

- key management personnel of the Group 1,070,263 141,880

- other related parties 54,062,498 38,320,894

Other provisions 29,680 196,379 62,459 174,729

- shareholders 7,860 -

- key management personnel of the Group 290 159

- other related parties 21,530 62,300

Other liabilities 283,615 1,616,125 81,443 1,039,311

- shareholders 122,959 -

- key management personnel of the Group 160,656 74,400

- other related parties - 7,043

Subordinated debt 3,000,000 3,000,000 - -

- shareholders 3,000,000 -

Commitments on loans and unused credit lines 3,891,749 27,891,598 276,068 18,446,050

- key management personnel of the Group 17,927 -

- other related parties 3,873,822 276,068

Letters of credit and other transaction related

contingent obligations

31 December 2006

RUR’000

Related party

transactions

Total category

as per

financial

statement

caption

248,587 4,304,842 268,780 1,627,705

- other related parties 248,587 268,780

Guarantees issued and similar commitments 1,483,971 7,266,941 2,989,317 7,726,434

- shareholders 393,000 -

- key management personnel of the Group 14,482 7,627

- other related parties 1,076,489 2,981,690

31 December 2005

RUR’000

Related party

transactions

Total category

as per

financial

statement

caption

Included in the income statement for the years ended 31 December 2005 and 31 December 2006 are

the following amounts which arose due to transactions with related parties:

Year ended

31 December 2006 RUR’000

Related party

transactions

Total category

as per

financial

statements

caption

Year ended

31 December 2005 RUR’000

Related party

transactions

Total category

as per

financial

statements

caption

Interest income 807,403 29,066,815 1,088,199 21,829,248

- shareholders 47,318 19,781

- key management personnel of the Group 1,740 1,246

- other related parties 758,345 1,067,172

Interest expense 3,086,360 12,923,578 1,658,205 10,879,564

- shareholders 274,182 121,569

- key management personnel of the Group 76,459 15,801

- other related parties 2,735,719 1,520,835

Recovery of provision for impairment losses 84,567 4,247,376 31,243 1,852,920

- key management personnel of the Group 1,468 703

- other related parties 83,099 30,540

Net gain/(loss) on financial assets at fair value

through profit or loss

8,722 251,627 379,781 749,562

- shareholders (4,749) 16,544

- other related parties 13,471 363,237

Net gain on sale of investments available-for-sale - 102,381 115,851 994,910

- other related parties - 115,851

Net gain/(loss) on foreign exchange operations 68,927 972,448 69,904 296,434

- shareholders (2,231) -

- other related parties 71,158 69,904

Fee and commission income 758,538 5,954,049 823,578 4,074,487

- shareholders 29,418 351

- key management personnel of the Group 191 100

- other related parties 728,929 823,127

Fee and commission expense 249,378 1,060,716 163,295 973,795

- shareholders 29,418 -

- other related parties 219,960 163,295

Dividend income 12,487 129,837 - 61,823

- other related parties 12,487 -

Operating expense

- shareholders 501,783 13,229,546 185,663 11,162,243

- key management personnel of the Group - 73

108 109


Year ended

31 December 2006 RUR’000

Related party

transactions

Total category

as per

financial

statements

caption

- other related parties 243,737 142,474

Key management personnel compensation 258,046 43,116

Year ended

31 December 2005 RUR’000

Related party

transactions

Total category

as per

financial

statements

caption

- short-term employee benefits 243,737 6,167,565 142,474 5,356,324

Estimate

Description of position

0% Cash and balances with the Central and National banks

0% State debt securities

20% Loans and advances to banks for up to 1 year

100% Loans to customers

100% Guarantees

50% Obligations and commitments on unused loans with initial maturity of over 1 year

100% Other assets

32. Fair Value of Financial

Instruments

Estimated fair value disclosures of financial

instruments is made in accordance with the

requirements of IAS 32 “Financial Instruments:

Disclosure and Presentation” and IAS 39 “Financial

Instruments: Recognition and Measurement”. Fair

value is defined as the amount at which the instru-

ment could be exchanged in a current transaction

between knowledgeable willing parties in an

arm’s length transaction, other than in a forced or

liquidation sale.

The fair value of financial assets and liabilities

compared with the corresponding carrying

amount in the balance sheet of the Group is

presented below:

Capital amounts

and ratios

Actual

amount in RUR’000

For capital adequacy

purposes

amount in RUR’000

As of 31 December 2006

Ratio for

capital adequacy

purposes

Minimum required

ratio

Total capital 28,163,873 31,147,138 15,00 8

Tier 1 capital 23,478,268 23,478,268 11,30 4

As of 31 December 2005

Total capital 22,820,266 22,804,843 15,60 8

Cash and balances with the Central and National

banks

31 December 2006 31 December 2005

Carrying

value,

RUR’000

Fair value,

RUR’000

Carrying

value,

RUR’000

Fair value,

RUR’000

37,271,329 37,271,329 19,455,358 19,455,358

Financial assets at fair value through profit or loss 12,820,238 12,820,238 15,677,102 15,677,102

Loans and advances to banks 64,759,001 64,759,001 53,995,068 53,995,068

Deposits from banks 19,717,654 19,717,654 11,139,028 11,139,028

Customer accounts 204,662,195 204,662,195 149,060,894 149,060,894

Financial liabilities at fair value through profit or

loss

947,172 947,172 1,840,641 1,840,641

Debt securities issued 33,963,427 34,296,945 26,044,207 26,112,669

The fair value of loans to customers, investments

available-for-sale and subordinated debt

can not be measured reliably as it is not practicable

to obtain market information or apply any

other valuation techniques on such instruments.

33. Regulatory Matters

Quantitative measures established by regulation

to ensure capital adequacy require the Group to

maintain minimum amounts and ratios (as set forth

in the table below) of total (8%) and tier 1 capital

(4%) to risk weighted assets.

The ratio was calculated according to the

principles employed by the Basle Committee by

applying the following risk estimates to the assets

and off-balance sheet commitments net of

allowances for impairment losses:

Tier 1 capital 19,827,152 19,827,152 13,60 4

As of 31 December 2006 the Group included

in the computation of Total capital for capital

adequacy purposes subordinated debt received,

limited to 50% of Tier 1 capital. In the event of

bankruptcy or liquidation of the Group, repayment

of this debt is subordinate to repayment of

the Group’s liabilities to all other creditors.

34. Segment Reporting

The Group’s primary format for reporting

segment information is business segments. Most

operations of the Group are concentrated in the

Russian Federation.

Business segments – The Group is

organised on the basis of two main business

segments:

• Retail banking – representing individuals’

customer current accounts, savings, deposits,

investment savings products, custody, credit

and debit cards, consumer loans and mortgages

and private banking.

Corporate banking – representing direct debt

facilities, current accounts, deposits, overdrafts,

loan and other credit facilities, foreign

currency and derivative products as well as

transactions with small and medium enterprises.

In addition, ROSBANK’s headquarters, regional

centres administrative operations and certain

other business operations, including inter-bank

financial markets and financial institutions services

and custody and depositary services, are reported

separately under segment reporting as unallocated.

Segment assets and liabilities comprise

operating assets and liabilities, being the majority

of the balances sheet, but excluding items such as

taxation and borrowings. Internal charges and

transfer pricing adjustments have been reflected

in the performance of each business. Revenue

sharing agreements are used to allocate external

customer revenues to a business segment on a

reasonable basis.

Segment information about these businesses

is presented below.

110 111


Retail

banking

Corporate

banking

Unallocated

Year ended

31 December

2006 Consolidated

amount

RUR’000

Interest income 15,112,171 10,345,804 3,608,840 29,066,815

Interest expense (4,626,080) (4,360,449) (3,937,049) (12,923,578)

(Provisions)/recovery of provision for impairment

losses on interest bearing assets

(3,987,720) (259,656) - (4,247,376)

Fee and commission income 3,562,841 2,125,932 265,276 5,954,049

Fee and commission expense (80,768) (944,226) (35,722) (1,060,716)

Net gain on financial assets at fair value

through profit or loss

Net gain on sale of investments availablefor-sale

- - 251,627 251,627

- - 102,381 102,381

Net gain on foreign exchange operations 253,809 218,801 499,838 972,448

Net gain on precious metals operations 196 77,135 118,941 196,272

Dividend income - - 129,837 129,837

Other income 502,212 70,948 435,194 1,008,354

External operating income 10,736,661 7,274,289 1,439,163 19,450,113

Income/(expense) from other segments (1,604,694) 2,156,289 (551,595) -

Total operating income 9,131,967 9,430,578 887,568 19,450,113

Operating expenses (6,971,052) (2,921,485) (3,337,009) (13,229,546)

Operating profit 2,160,915 6,509,093 (2,449,441) 6,220,567

Other provisions - (28,184) (125,688) (153,872)

Profit before income tax 2,160,915 6,480,909 (2,575,129) 6,066,695

Income tax expense - - (2,393,171) (2,393,171)

Net profit 2,160,915 6,480,909 (4,968,300) 3,673,524

Segment assets 81,444,860 86,626,399 125,764,360 293,835,619

Segment liabilities 63,862,938 140,799,257 61,009,551 265,671,746

Depreciation charge on property, equipment

and intangible assets

Other segment items

(250,880) (105,141) (120,094) (476,115)

Loans to customers 76,633,219 84,609,898 - 161,243,117

Property, equipment and intangible assets 4,811,641 2,016,501 2,303,310 9,131,452

Customer accounts 63,862,938 140,799,257 - 204,662,195

Capital expenditure 478,387 200,486 229,002 907,875

Retail

banking

Corporate

banking

Unallocated

Year ended

31 December

2005 Consolidated

amount

RUR’000

Interest income 9,025,728 10,460,508 2,343,012 21,829,248

Interest expense (3,973,687) (5,143,358) (1,762,519) (10,879,564)

(Provisions)/recovery of provision for impairment

losses on interest bearing assets

(2,281,424) 507,351 (78,847) (1,852,920)

Fee and commission income 3,551,813 236,085 286,589 4,074,487

Fee and commission expense (845,711) (128,084) - (973,795)

Net gain on financial assets at fair value

through profit or loss

Net gain on sale of investments availablefor-sale

- - 749,562 749,562

- - 994,910 994,910

Net gain on foreign exchange operations 80,926 66,698 148,810 296,434

Net gain on precious metals operations 42 13,890 27,780 41,712

Dividend income - - 61,823 61,823

Other income 878,704 24,420 238,986 1,142,110

External operating income 6,436,391 6,037,510 3,010,106 15,484,007

Income/(expense) from other segments 485,248 2,239,490 (2,724,738) -

Total operating income 6,921,639 8,277,000 285,368 15,484,007

Operating expenses (5,471,521) (1,504,741) (4,185,981) (11,162,243)

Operating profit 1,450,118 6,772,259 (3,900,613) 4,321,764

Other provisions - (17,546) 10,201 (7,345)

Profit before income tax 1,450,118 6,754,713 (3,890,412) 4,314,419

Income tax expense - - (1,261,151) (1,261,151)

Net profit 1,450,118 6,754,713 (5,151,563) 3,053,268

Segment assets 55,243,270 62,252,007 95,561,325 213,056,602

Segment liabilities 57,159,985 91,900,909 41,175,442 190,236,336

Depreciation charge on property, equipment

and intangible assets

Other segment items

(213,848) (58,811) (161,983) (434,642)

Loans to customers 51,967,260 61,351,040 - 113,318,224

Property, equipment and intangible assets 3,276,010 900,967 2,546,200 6,723,177

Customer accounts 57,159,985 91,900,909 - 149,060,894

Capital expenditure 282,071 77,573 219,221 578,865

112 113


Geographical segments

Segment information for the main geographical segments of the Group is set out below as at

31 December 2006 and 2005 and for the years then ended.

Russia

Other

non-OECD

countries

OECD

countries

Year ended

31 December

2006

Consolidated

amount

RUR’000

Interest income 26,831,053 515,331 1,720,431 29,066,815

Interest expense (10,403,588) (1,907,267) (612,723) (12,923,578)

(Provisions)/recovery of provision for impairment

losses on interest bearing assets

(3,938,696) (153,619) (155,061) (4,247,376)

Fee and commission income 5,449,934 168,745 335,370 5,954,049

Fee and commission expense (888,960) (9,260) (162,496) (1,060,716)

Net gain on financial assets at fair value

through profit or loss

Net gain on sale of investments availablefor-sale

307,220 (13,601) (41,992) 251,627

51,265 8,750 42,366 102,381

Net gain on foreign exchange operations 1,261,365 (148,948) (139,969) 972,448

Net gain on precious metals operations (198,114) 3,192 391,194 196,272

Dividend income 129,837 - - 129,837

Other income 952,143 7,678 48,533 1,008,354

External operating income/(expense) 19,553,459 (1,528,999) 1,425,653 19,450,113

Cash and balances with Central and

National banks

Financial assets at fair value through profit

or loss

37,094,334 119,736 57,259 37,271,329

12,320,881 300,972 198,385 12,820,238

Precious metals 1,062,102 - - 1,062,102

Loans and advances to banks 12,112,116 643,461 52,003,424 64,759,001

Loans to customers 149,524,689 5,831,850 5,886,578 161,243,117

Investments available-for-sale 3,171,243 574 256,341 3,428,158

Property and equipment purchased for

transfer into finance lease

2,212,847 - - 2,212,847

Property, equipment and intangible assets 9,108,928 16,334 6,190 9,131,452

Other assets 1,231,491 52,248 7,989 1,291,728

Capital expenditure 895,129 10,740 2,006 907,875

Russia

Other

non-OECD

countries

OECD

countries

Year ended

31 December

2005 Consolidated

amount

RUR’000

Interest income 19,691,682 982,554 1,155,012 21,829,248

Interest expense (9,417,604) (1,207,004) (254,956) (10,879,564)

(Provisions)/recovery of provision for impairment

losses on interest bearing assets

(1,670,483) (106,979) (75,458) (1,852,920)

Fee and commission income 3,768,668 80,275 225,544 4,074,487

Fee and commission expense (948,938) (7,888) (16,969) (973,795)

Net gain on financial assets at fair value

through profit or loss

Net gain on sale of investments availablefor-sale

1,143,588 (225,300) (168,726) 749,562

676,811 280,794 37,305 994,910

Net gain on foreign exchange operations 181,912 116,107 (1,585) 296,434

Net gain on precious metals operations (112,088) 13,300 140,500 41,712

Dividend income 61,823 - - 61,823

Other income 1,117,529 8,216 16,365 1,142,110

External operating income/(expense) 14,492,900 (65,925) 1,057,032 15,484,007

Cash and balances with Central and

National banks

Financial assets at fair value through profit

or loss

19,387,997 51,943 15,418 19,455,358

13,839,516 243,735 1,593,851 15,677,102

Precious metals 978,040 - - 978,040

Loans and advances to banks 3,787,140 3,907,612 46,300,316 53,995,068

Loans to customers 102,160,988 6,542,492 4,614,744 113,318,224

Investments available-for-sale 448,024 29,910 400 478,334

Property and equipment purchased for

transfer into finance lease

329,005 - - 329,005

Property, equipment and intangible assets 6,705,873 8,699 8,605 6,723,177

Other assets 1,542,533 17,852 57,602 1,617,987

Capital expenditure 570,314 1,550 7,001 578,865

114 115


External operating income, assets, capital

expenditure have generally been allocated based

on domicile of the counterparty. Tangible assets

(cash on hand, precious metals, premises and

equipment) have been allocated based on the

country in which they are physically held.

35. Risk Management Policies

Management of risk is fundamental to the

Group’s banking business and is an essential

element of the Group’s operations. The main risks

inherent to the Group’s operations are those

related to credit exposures, liquidity and market

movements in interest rates and foreign exchange

rates. A description of the Group’s risk management

policies in relation to those risks follows.

Liquidity risk

Liquidity risk refers to the availability of

sufficient funds to meet deposit withdrawals and

other financial commitments associated with

financial instruments as they actually fall due.

Liquidity and cash flow risks are managed by

the Treasury department. Strategic decisions and

overall risk monitoring is provided by the Management

Board and Assets and Liabilities Committee.

The treasury department makes weekly

forecasts on the Group’s liquidity position. The

treasury department manages assets/liabilities’

structure (maturities up to 7 days). The treasury

department manages and controls the current

Financial assets at fair value

through profit or loss

Loans and advances to

banks

liquidity position of the Group. The Combined

Economic Department (CED) assesses any excess/

lack of liquidity. CED makes analytic reports about

assets/liabilities’ maturity structure every week

which is issued as a basic tool for liquidity risk

analysis. CED also analyzes and forecasts liquidity

conditions (maturities more than 7 days) and in

case of negative economic conditions, creditors’

and debtors’ delinquencies. CED calculates

internal liquidity limits and the Central Bank of the

Russian Federation’s obligatory ratios.

Cash flow interest rate risk

Cash flow interest rate risk is the risk that the

future cash flow of a financial instrument will

fluctuate because of changes in market interest rates.

Interest rate risk is managed within the limit

framework as established in accordance with the

standards set by the Group. Interest rate risks are

controlled via regular interest rate gap reporting.

The Group does not perform hedging activities,

thus no risk management policy for hedging

transactions has been developed.

The following table presents an analysis of

interest rate risk and thus the potential of the

Group for gain or loss. Effective average interest

rates are presented by categories of financial

assets and liabilities to determine interest rate

exposure and effectiveness of the interest rate

policy used by the Group.

31 December 2006 31 December 2005

RUR USD EUR

Assets

Precious

metals

RUR USD EUR

Precious

metals

9,29 9,08 - - 9,20 9.30 - -

5,35 4,59 7,03 - 8,50 3,70 6,20 -

Loans to customers 15,86 13,89 9,40 6,25 17,90 11,60 8,52 6,02

Investments availablefor-sale

7,48 7,61 - - 16,00 - - -

Liabilities

Deposits from banks 7,53 7,29 5,25 1,00 5,66 6,34 3,84 1,41

Customer accounts 5,39 6,14 4,09 4,26 8,67 5,94 3,90 4,60

The analysis of interest rate and liquidity risk on balance sheet transactions is presented in the following table:

Interest bearing assets

Financial assets at

fair value through

profit or loss

Loans and advances

to banks

Loans to customers

Investments

available-for-sale

Total interest

bearing assets

Cash and

balances with

Central and

National banks

Financial assets

at fair value

through profit

or loss

Up to

1 month

1 month

to

3 months

3 month

to

1 year

Assets

1 year to

5 years

Over

5 years

Maturity

undefined

31 December

2006

RUR’000

Total

11,808,022 - - - - - 11,808,022

32,173,460 146,798 537,949 - - - 32,858,207

11,112,960 38,964,530 46,203,756 63,449,629 1,512,242 - 161,243,117

- - 260,463 2,763,579 - - 3,024,042

55,094,442 39,111,328 47,002,168 66,213,208 1,512,242 - 208,933,388

31,072,887 - - - - 6,198,442 37,271,329

1,012,216 - - - - 1,012,216

Precious metals 1,062,102 - - - - - 1,062,102

Loans and advances

to banks

Investments

available-for-sale

Property and

equipment

purchased for

transfer into

finance lease

Property, equipment

and intangible

assets

Current income

tax assets

31,900,794 - - - - - 31,900,794

- - 7,207 396,909 - - 404,116

- - - 2,212,847 - - 2,212,847

- - - - - 9,131,452 9,131,452

- - 615,647 - - - 615,647

Other assets 12,321 799,769 479,638 - - - 1,291,728

Total non- interest

bearing

assets

65,060,320 799,769 1,102,492 2,609,756 - 15,329,894 84,902,231

Total assets 120,154,762 39,911,097 48,104,660 68,822,964 1,512,242 15,329,894 293,835,619

Debt securities issued 7,11 7,93 5,10 - 7,50 8,03 5,25 -

Subordinated debt 8,00 - - - - - - -

116

117


Up to

1 month

Interest bearing liabilities

Deposits from

banks

Customer

accounts and

subordinated

debt

Financial liabilities

at fair value

through profit

or loss

Debt securities

issued

Total interest

bearing

liabilities

Deposits from

banks

Customer accounts

Financial liabilities

at fair value

through profit

or loss

Debt securities

issued

1 month

to

3 months

3 month

to

1 year

Liabilities

1 year to

5 years

Over

5 years

Maturity

undefined

31 December

2006

RUR’000

Total

4,962,311 2,833,930 4,367,323 7,353,287 361 - 19,517,212

49,487,427 44,073,718 36,637,394 21,978,988 7,316,113 - 159,493,640

731,272 - - - - - 731,272

4,370,525 6,732,547 7,972,705 8,035,078 6,825,253 - 33,936,108

59,551,535 53,640,195 48,977,422 37,367,353 14,141,727 - 213,678,232

200,442 - - - - - 200,442

48,168,555 - - - - - 48,168,555

215,900 - - - - - 215,900

27,319 - - - - - 27,319

Other provisions 193,032 3,347 - - 196,379

Current income

tax liabilities

Deferred

income tax

liabilities

- - 20,657 - - - 20,657

- - 92,450 - - 1,455,687 1,548,137

Other liabilities 110,346 711,076 794,703 - - - 1,616,125

Total non-interest

bearing

liabilities

48,915,594 714,423 907,810 - - 1,455,687 51,993,514

Total liabilities 108,467,129 54,354,618 49,885,232 37,367,353 14,141,727 1,455,687 265,671,746

Liquidity gap 11,687,633 (14,443,521) (1,780,572) 31,455,611 (12,629,485)

Interest sensitivity

gap

Cumulative

interest sensitivity

gap

Cumulative

interest

sensitivity gap

as a percentage

of total assets

(4,457,093) (14,528,867) (1,975,254) 28,845,855 (12,629,485)

(4,457,093) (18,985,960) (20,961,214) 7,884,641 (4,744,844)

(1,50%) (6,50%) (7,10%) 2,70% (1,60%)

Interest bearing assets

Financial assets at

fair value through

profit or loss

Loans and advances

to banks

Loans to customers

Investments available-for-sale

Total interest

bearing assets

Cash and balances

with Central and

National banks

Financial assets at

fair value through

profit or loss

Up to

1 month

1 month

to

3 months

3 month

to

1 year

Assets

1 year to

5 years

Over

5 years

Maturity

undefined

31 December

2006

RUR’000

Total

14,327,927 - - - - - 14,327,927

35,348,694 51,137 431,850 - - - 35,831,681

10,803,424 21,917,477 40,449,490 39,648,843 498,990 - 113,318,224

- - 115,722 - - - 115,722

60,480,045 21,968,614 40,997,062 39,648,843 498,990 - 163,593,554

14,799,277 4,656,081 19,455358

1,251,671 13,129 84,375 1,349,175

Precious metals 978,040 - - - - - 978,040

Loans and

advances to banks

Investments

available-for-sale

Property and

equipment

purchased for

transfer into

finance lease

Property,

equipment and

intangible assets

Current income

tax assets

18,163,387 - - - - - 18,163,387

- - 145,490 217,122 - - 362,612

- - - 329,005 - - 329,005

- - - - - 6,723,177 6,723,177

- - 484,307 - - - 484,307

Other assets 673,912 - 944,075 - - - 1,617,987

Total noninterest

bearing

assets

35,866,287 13,129 1,658,247 546,127 - 11,379,258 49,463,048

Total assets 96,346,332 21,981,743 42,655,309 40,194,970 498,990 11,379,258 213,056,602

118 119


Up to

1 month

Interest bearing liabilities

Deposits from

banks

Customer

accounts

Financial liabilities

at fair value through

profit or loss

Debt securities

issued

Total interest

bearing liabilities

Deposits from

banks

1 month

to

3 months

3 month

to

1 year

Liabilities

1 year to

5 years

Over

5 years

Maturity

undefined

31 December

2006

RUR’000

Total

7,206,987 120,458 1,586,420 645,458 - - 9,559,323

45,377,188 20,671,806 48,085,198 21,247,331 506,873 - 135,888,396

1,700,955 11,977 4,790 - - - 1,717,722

2,491,187 2,482,354 3,846,443 14,154,773 1,074,324 - 24,049,081

56,776,317 23,286,595 53,522,851 36,047,562 1,581,197 -

1,579,705 - - - - - 1,579,705

Customer accounts 13,172,498 - - - - - 13,172,498

Financial liabilities

at fair value

through profit or

loss

Debt securities

issued

122,919 - - - - - 122,919

1,995,126 - - - - - 1,995,126

Other provisions 9,645 17,356 92,163 55,565 - - 174,729

Current income tax

liabilities

Deferred income

tax liabilities

- - 11,155 - - - 11,155

- - 82,444 - - 843,927 926,371

Other liabilities 559,443 71,133 408,735 - - - 1,039,311

Total noninterest

bearing

liabilities

17,439,336 88,489 594,497 55,565 - 843,927 19,021,814

Total liabilities 74,215,653 23,375,084 54,117,348 36,103,127 1,581,197 843,927

Liquidity gap 22,130,679 (1,393,341) (11,462,039) 4,091,843 (1,082,207)

Interest sensitivity

gap

Cumulative interest

sensitivity gap

Cumulative

interest sensitivity

gap as

a percentage of

total assets

3,703,728 (1,317,981) (12,525,789) 3,601,281 (1,082,207)

3,703,728 2,385,747 (10,140,042) (6,538,761) (6,538,761)

1,7% 1,1% (4,8%) (3,1%) (3,6%)

Substantially all of the Group’s interest earning

assets and interest bearing liabilities are at fixed

rates of assets.

Asset and liability maturity periods and the

ability to replace interest bearing liabilities at an

acceptance cost when they mature are crucial in

determining the Group’s liquidity and its fluctuation

of interest and exchange rates.

The maturity of time deposits of individuals is

based on contractual terms. However, time

deposits can be withdrawn by individuals on

demand.

Currently, a considerable part of customer

deposits are repayable on demand. However, the

fact that these deposits are diversified by the

number and type of customers and the Group’s

previous experience indicate that deposits are a

Cash and balances

with Central and

National banks

Financial assets at

fair value through

profit or loss

RUR

USD

1 USD =

26.3311

RUR

EUR

1 EUR =

34.6965

RUR

Assets

stable and long-term source of financing for the

Group.

Currency risk

Currency risk is defined as the risk that the

value of a financial instrument will fluctuate due to

changes in foreign exchange rates. The Group is

exposed to the effects of fluctuation in prevailing

foreign currency exchange rates on its financial

position and cash flows. The Management Board

sets limits on the level of exposure by currencies

(primarily US Dollar), by branches and in total.

These limits also comply with the minimum

requirements of the Central Bank of the Russian

Federation.

The Group’s exposure to foreign currency

exchange rate risk is presented in the table below:

Precious

metals

Other

currency

31 December

2006 RUR’000

Total

35,228,549 1,455,458 406,198 - 181,124 37,271,329

9,660,253 2,834,583 8,118 9,151 308,133 12,820,238

Precious metals - - - 1,062,102 - 1,062,102

Loans and advances

to banks

Loans to customers

Investments available-for-sale

Property and

equipment purchased

for transfer

into finance lease

Property, equipment

and intangible

assets

Current income

tax assets

12,015,064 47,562,682 4,860,669 12 320,574 64,759,001

110,218,074 45,027,223 4,435,382 824,937 737,501 161,243,117

3,161,750 265,116 1,258 - 34 3,428,158

2,212,847 - - - - 2,212,847

9,108,927 - - - 22,525 9,131,452

615,647 - - - - 615,647

Other assets 1,224,615 28,198 11,040 367 27,508 1,291,728

Total assets 183,445,726 97,173,260 9,722,665 1,896,569 1,597,399 293,835,619

120 121


Deposits from

banks

Customer accounts

and subordinated

debt

Financial liabilities

at fair value

through profit or

loss

Debt securities

issued

RUR

USD

1 USD =

26.3311

RUR

EUR

1 EUR =

34.6965

RUR

Liabilities

Precious

metals

Other

currency

31 December

2006 RUR’000

Total

3,868,811 11,150,049 1,567,136 3,043,962 87,696 19,717,654

113,987,731 83,880,315 7,444,151 510,872 1,839,126 207,662,195

25,532 881,709 12,037 15,200 12,694 947,172

18,673,648 14,952,730 336,127 - 922 33,963,427

Other provisions 193,183 - - - 3,196 196,379

Current income

tax liabilities

Deferred income

tax liabilities

17,794 - 2,420 - 443 20,657

1,544,468 - 3,669 - - 1,548,137

Other liabilities 840,678 674,042 18,606 - 82,799 1,616,125

Total liabilities 139,151,845 111,538,845 9,384,146 3,570,034 2,026,876 265,671,746

Open balance

sheet position

44,293,881 (14,365,585) 338,519 (1,673,465) (429,477)

Derivative financial instruments and

spot contracts

The fair value of derivative financial instruments

and spot contracts are included in the

currency analysis presented above and the

Receivables on

spot and derivative

contracts

Payables on spot

and derivative

contracts

Net position on

spot and derivative

contracts

Total open position

RUR

USD

1 USD =

26.3311

RUR

EUR

1 EUR =

34.6965

RUR

following table presents a further analysis of currency

risk by types of derivative financial instruments

and spot contracts as of 31 December 2006:

Precious

metals

Other

currency

31 December

2006

RUR’000

Total

6,301,097 25,478,990 1,417,182 2,975,607 2,002,805 38,175,681

(21,238,736) (12,233,439) (3,521,562) (932,504) (361,529) (38,287,770)

(14,937,639) 13,245,551 (2,104,380) 2,043,103 1,641,276

29,356,242 (1,120,034) (1,765,861) 369,639 1,211,799

Cash and balances

with Central and

National banks

Financial assets at fair

value through profit

or loss

RUR

USD

1 USD =

26.3311

RUR

EUR

1 EUR =

34.6965

RUR

Assets

Precious

metals

Other

currency

31 December

2006

RUR’000

Total

17,413,417 1,599,607 365,564 - 76,770 19,455,358

11,296,601 3,704,943 269,906 99,261 306,391 15,677,102

Precious metals - - - 978,040 - 978,040

Loans and advances

to banks

2,208,976 47,593,015 3,961,409 304 231,364 53,995,068

Loans to customers 77,187,049 32,333,076 1,757,064 832,381 1,208,654 113,318,224

Investments available-for-sale

Property and equipment

purchased for

transfer into finance

lease

Property, equipment

and intangible assets

Current income tax

assets

419,146 - 396 - 58,792 478,334

329,005 - - - - 329,005

6,705,872 - - - 17,305 6,723,177

484,129 - 178 - - 484,307

Other assets 1,293,873 147,993 1,396 83,206 91,519 1,617,987

Total assets 117,338,068 85,378,634 6,355,913 1,993,192 1,990,795 213,056,602

Liabilities

Deposits from banks 3,943,809 4,396,000 493,621 2,027,052 278,546 11,139,028

Customer accounts 73,154,491 71,252,557 3,551,807 285,054 816,985 149,060,894

Financial liabilities

at fair value through

profit or loss

- 1,543,323 297,318 - - 1,840,641

Debt securities issued 9,766,918 15,653,127 616,665 - 7,497 26,044,207

Other provisions 105,586 62,279 5,353 1,511 - 174,729

Current income tax

liabilities

Deferred income tax

liabilities

10,225 - 930 - - 11,155

914,416 11,955 926,371

Other liabilities 468,610 303,924 32,824 115,792 118,161 1,039,311

Total liabilities 88,364,055 93,211,210 5,010,473 2,429,409 1,221,189 190,236,336

Open balance sheet

position

28,974,013 (7,832,576) 1,345,440 (436,217) 769,606

122 123


Derivative financial instruments and

spot contracts

The fair value of derivative financial instruments

and spot contracts are included in the

currency analysis presented above and the

Receivables on

spot and derivative

contracts

Payables on spot

and derivative

contracts

Net position

on spot and

derivative

contracts

Total open

position

RUR

USD

1 USD =

28.7825

RUR

According to Regulation of the CBR N41 for open

currency position calculation purposes the Group

may exclude the contribution to share capital

made in foreign currency (US dollars) of RUR

equivalent of USD 148,776 thousand from total

assets in the respective currency.

Market risk

Market risk is assessed by CED using a value at risk

(VAR) methodology. VAR is calculated based on an

internationally accepted approach. CED provides

daily market risk evaluation and prepares

a report for the Board of Directors once a month.

The Group performs back testing of the adequacy

of the methodology at least quarterly with

reference to current market terms to ensure that

deviations for all statistics parameters included in

the calculation are within expected values. Based

on statistics for the preceding nine months and

maturities of debt securities, the Group produces

a model securities portfolio, calculates a proportion

of different types of securities in the portfolio

and the overall risk of the portfolio which is

viewed as a standard portfolio proportion in

current terms. In order to decrease risks, the

Group sets the following limits: open position

limit, stop-loss limit and structure limits.

EUR

1 EUR =

34.1850

RUR

following table presents a further analysis of currency

risk by types of derivative financial instruments

and spot contracts as of 31 December 2005:

Precious

metals

Other

currency

31 December

2005

RUR’000

Total

16,170,345 26,511,625 2,222,025 1,378,805 2,981,317 49,264,117

(24,911,417) (19,633,500) (3,718,313) (699,575) (237,787) (49,200,592)

(8,741,072) 6,878,125 (1,496,288) 679,230 2,743,530

20,232,941 (954,451) (150,848) 243,013 3,513,136

CED daily assesses current risks of the Group and

proposes limits for the Liquidity, Risks and Pricing

Committee. Currency position control provides

data to CED, which calculates the open currency

position (OCP) daily based on accounting data,

and to Operations Registration Department, which

calculates OCP daily according to CBR requirements.

A stop-loss instrument is used to prevent

unexpected significant losses resulting from

fluctuations in the securities portfolio. The stoploss

limits are set for accumulated losses per day

and per month as a percentage of investments.

The month stop-loss limit is set at 3/2 of a daily

limit. No operations are allowed after the loss

reaches the stop-loss limit. Daily limit utilization is

determined from realized and unrealized mark-tomarket

adjustment. Market prices used are based

on quotations in REUTERS and by brokers of

Tradition, ADIX, Eurobroker and Garban.

Credit risk

Credit activities are conducted in accordance

with the regulatory framework set by the Central

Bank of the Russian Federation as well as internationally

accepted criteria. Credit Policy is defined

by the Group’s Management Board and the Credit

Committee. Credit Risk is taken based on the

principles of risk adequacy, adequacy of profitability

and strategic rationale. Credit operations

conducted by the Group include term loans,

credit lines, overdraft facilities, syndications,

documentary operations and other operations

involving credit risk. The credit procedure is

structured in line with a strict segregation of duties,

based on the approved Credit Manual of the Group.

The Credit Committee is a standing body of

the Group, authorized to make decisions on all

issues relating to the credit operations of the

Group. Its task is to ensure design and implementation

of a single credit policy of the Group and its

branches. The Credit Committee consider issues

regarding the assumption of credit risks for

transactions within relevant limits (there are

separate limits for corporate clients, financial

institutions and individuals) established and

revised on an annual basis by the Management

Board and/or for which the period does not

exceed 12 months.

The assumption of credit risks for transactions

exceeding relevant limits established by the Board

and/or for which the period exceeds 12 months is

considered by the Management Board.

Credit risk management and control are

conducted using differentiated multilevel complex

approach to evaluation of credit applications.

Credit control is carried out at all stages of credit

work and credit portfolio structuring. Credit risk

policy is conducted in accordance with the

following internal documents:

Banking credit policy;

• Direction for credit operations.

The following methods of credit risk management

are used:

• Complex credit risk analysis;

• Approval of credit risk limits for individuals

and groups of clients;

• Control over maturity structure of assets;

• Limit and decision-making control;

• Planning spread between cash inflow and

outflow, plan vs. actual analysis;

• Analysis of borrower’s financial position,

monitoring of financial position of guarantors;

• Current banking assets monitoring for

management decisions-making.

Credit risk is evaluated by the following bodies:

• Credit operations Department – complex

analysis of the risk level;

• Credit Committee – credit limit determination;

• Project financing and control Department –

independent risk level evaluation of specific

deals;

• Combined Economic Department – standards

and essential adequacy of allowance

for impairment.

The procedure for credit risk assumption

comprises:

• Gathering of essential documents;

• Assessment of reliability and completeness of

documents;

• Complex analysis of all risks which may occur;

• Making decisions about credit risk assumption;

• Legal capacity control of clients and their

representatives.

Geographical concentration

The geographical concentration of assets and

liabilities is set out below:

124

125


Cash and balances with Central and

National banks

Financial assets at fair value through

profit or loss

Russia

Other CIS

countries

Assets

OECD

countries

Other non

OECD countries

31 December

2006

RUR’000

Total

37,094,334 119,736 57,259 - 37,271,329

12,320,881 286,973 198,385 13,999 12,820,238

Precious metals 1,062,102 - - - 1,062,102

Loans and advances to banks 12,112,116 411,838 52,003,424 231,623 64,759,001

Loans to customers 149,524,689 2,543,866 5,886,578 3,287,984 161,243,117

Investments available-for-sale 3,171,243 574 256,341 - 3,428,158

Property and equipment purchased

for transfer into finance lease

Property, equipment and intangible

assets

2,212,847 - - - 2,212,847

9,108,928 16,334 6,190 - 9,131,452

Current income tax assets 615,647 - - - 615,647

Other assets 1,231,491 52,248 7,989 - 1,291,728

Total assets 228,454,278 3,431,569 58,416,166 3,533,606 293,835,619

Liabilities

Deposits from banks 3,833,674 2,116,981 13,211,788 555,211 19,717,654

Customer accounts and subordinated

debt

Financial liabilities at fair value

through profit or loss

93,639,293 28,100,687 2,607,588 83,314,627 207,662,195

113,265 - 796,394 37,513 947,172

Debt securities issued 11,118,890 922 17,579,320 5,264,295 33,963,427

Other provisions 193,183 3,196 - - 196,379

Current income tax liabilities 17,794 - 2,863 - 20,657

Deferred income tax liabilities 1,544,468 - 3,669 - 1,548,137

Other liabilities 1,516,674 2,888 96,563 - 1,616,125

Total liabilities 111,977,241 30,224,674 34,298,185 89,171,646 265,671,746

Net position 116,477,037 (26,793,105) 24,117,981 (85,638,040)

Cash and balances with Central and

National banks

Financial assets at fair value through

profit or loss

Russia

Other CIS

countries

Assets

OECD

countries

Other non

OECD countries

31 December

2005

RUR’000

Total

19,387,997 51,943 15,418 - 19,455,358

13,839,516 243,735 1,593,851 - 15,677,102

Precious metals 978,040 - - - 978,040

Loans and advances to banks 3,787,140 771,675 46,300,316 3,135,937 53,995,068

Loans to customers 102,160,988 3,410,993 4,614,744 3,131,499 113,318,224

Investments available-for-sale 448,024 29,910 400 - 478,334

Property and equipment purchased

for transfer into finance lease

Property, equipment and intangible

assets

329,005 - - - 329,005

6,705,873 8,699 8,605 - 6,723,177

Current income tax assets 484,129 - 178 - 484,307

Other assets 1,542,533 17,329 57,602 523 1,617,987

Total assets 149,663,245 4,534,284 52,591,114 6,267,959 213,056,602

Liabilities

Deposits from banks 4,958,186 1,355,137 3,640,321 1,185,384 11,139,028

Customer accounts 107,615,584 891,584 5,481,584 35,072,142 149,060,894

Financial liabilities at fair value

through profit or loss

30,499 - 1,810,142 - 1,840,641

Debt securities issued 10,043,746 7,497 14,224,232 1768732 26,044,207

Other provisions 164,761 - 5091 4,877 174,729

Current income tax liabilities 10,225 - 930 - 11,155

Deferred income tax liabilities 914,416 - 11955 - 926,371

Other liabilities 988,144 13,671 35,036 2460 1,039,311

Total liabilities 124,725,561 2,267,889 25,209,291 38,033,595 190,236,336

Net position 24,937,684 2,266,395 27,381,823 (31,765,636)

126 127


Joint Stock

Commercial Bank “ROSBANK”

(Open Joint Stock Company)

Auditor’s report on the annual accounting

report, published financial statements

and published consolidated financial

statements prepared for the year ended

31 December 2006

Auditor: ZAO Deloitte & Touche CIS

Legal address: Russia, 125009, Moscow, 4/7 Vozdvizhenka St., Bldg. 2 Business Center “Mokhovaya”.

Location: Russia, 125009, Moscow, 4/7 Vozdvizhenka St., Bldg. 2 Business Center “Mokhovaya”.

Tel: +7 (495) 787 0600.

License No. E 002417 for audit issued on 6 November 2002 by resolution of the Ministry of Finance of the Russian Federation

for five years.

Registration certificate of Closed Joint Stock Company “Deloitte & Touche CIS” as a member of the Institute of Certified

Accountants and Auditors of Russia (Certificate No. D 0457/77 dated 23 November 2005).

Audited entity:

Joint Stock Commercial Bank “ROSBANK” (Open Joint Stock Company) OAO AKB “ROSBANK”.

Legal address: 107078, Moscow, 11, Mashi Poryvaevoy Street.

Location: 107078, Moscow, 11, Mashi Poryvaevoy Street.

State registration certificate of the Joint Stock Commercial Bank “ROSBANK” (Open Joint-Stock Company) OAO AKB

“ROSBANK” No. 1027739460737 issued by the Interdistrict Inspectorate of the Russian Ministry of Taxes and Levies No. 39

for the Moscow City on 25 October 2002.

Certificate of inclusion in the Unified State Register of Legal Entities regarding the legal entity registered before 1 July 2002

No. 1027700425444 issued by the Interdistrict Inspectorate of the Russian Ministry of Taxes and Levies No. 39 for the

Moscow City on 13 November 2002.

State registration certificate of Closed Joint-Stock Company “Deloitte and Touche CIS” No. 018.482, issued by the Moscow

Registration Chamber on 30 October 1992.

Ruble settlement account 40702810500700961028 in ZAO CB “CITIBANK”, correspondent account

30101810300000000202, BIC 044525202.

128 129


Auditors’ report

To Shareholders and Board of Directors of Joint Stock Commercial Bank “ROSBANK” (Open Joint Stock Company).

We have audited the accompanying annual accounting report, published financial statements and the consolidated

financial statements (the “Reporting pack”) of the Bank for the period of 1 January 2006 through 31 December 2006

inclusive.

The Bank’s annual accounting report comprises:

• Annual balance sheet of the Bank as of 1 January 2007 in the form of the account turnover schedule for the reporting year;

• Profit and loss account reflecting events after the balance sheet date;

• Combined schedule of account turnovers reflecting events after the balance sheet date;

• Explanatory note.

The Bank’s published financial statements comprise:

• Balance sheet as at 1 January 2007;

• Profit and loss account for 2006;

• Report on capital adequacy, allowance for doubtful debts and other assets as at 1 January 2007.

The Bank’s consolidated financial statements comprise:

• Consolidated balance sheet as at 1 January 2007;

• Consolidated profit and loss account for 2006;

• Information on members of the banking group, capital adequacy, allowance for doubtful debts and other assets

as at 1 January 2007.

This Reporting pack is the responsibility of the Bank’s Board. Our responsibility is to express an opinion on whether this

Reporting pack is reliable in all material respects and whether the accounting procedures are in compliance with the

legislation of the Russian Federation, based on our audit.

We conducted our audit in accordance with Federal Law of the Russian Federation No. 119-FZ dated 7 August 2001

“On Auditing Activity”; federal rules (standards) of auditing; effective rules (standards) of auditing approved by Committee

for Auditing Activity under President of the Russian Federation; and company standards.

The audit was planned and performed to obtain reasonable assurance that the Reporting pack is free from material

misstatements. The audit included examining, on a test basis, evidence supporting the amounts and disclosures in the

Reporting pack. The audit also included assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the Reporting pack and quality of management and internal

controls of the Bank with regard to this Reporting pack. We believe that our audit provides a reasonable basis for our

opinion regarding the reliability in all material respects of the accompanying Reporting pack and compliance of the

accounting procedures with the legislation of the Russian Federation.

In our opinion, the annual accounting report, published financial statements and published consolidated financial

statements of the Joint Stock Commercial Bank “ROSBANK” (Open Joint Stock Company) present fairly, in all material

respects, the financial position of the Bank as at 1 January 2007 and the results of its operations for the period of 1 January

2006 through 31 December 2006, inclusive, the capital adequacy level and the amount of allowance for loan losses and

other assets as at 1 January 2007 in accordance with the Russian accounting legislation.

Partner

Head of the Audit

Vadim Sorokin

(Power of Attorney dated 28 September 2005)

Anna Golovkova (Zyuzina)

Certificate to perform bank audit

No. K010038 issued on 30 December 2003, with

no expiry date

24 April 2007

ZAO Deloitte & Touche CIS

130 131


Balance Sheet (Published)

as of January 1, 2007

Lending Institution Joint Stock Commercial Bank ROSBANK

OAO ROSBANK (Open Joint Stock Company)

(full and abbreviated names)

Registration number 2272, RCBIC 044525256

Mailing Address: 11, Mashi Poryvaevoy St., 107078, Moscow

Appendix 1

to the Directive of the Bank of Russia

dated Jan 16, 2004 No. 1376-U

(version of the Directive of the CBR

dated Feb 17, 2006 No. 1660-U)

Form code 0409806

Annual

RUR’000

No. Item Reporting date Prior year

1 2 3 4

Assets

1 Cash and cash equivalents 8,407,205 6,841,808

2 Due from the Central Bank of the Russian Federation 29,826,167 12,929,358

2.1 Minimum reserve deposit 6,051,716 4,551,195

3 Due from other banks 29,675,598 21,894,949

4 Net investments in trading securities 7,346,369 7,470,954

5 Net loans issued 189,611,889 133,949,742

6 Net investments in investment securities held-to-maturity 7,754 16,779

7 Net investments in securities available-for-sale 13,139,984 13,332,099

8 Fixed assets, intangible assets and inventories 592,253 234,615

9 Interest receivable 262,911 176,634

10 Other assets 2,081,780 3,702,139

11 Total assets 280,951,910 200,549,077

Liabilities

12 Due to the Central Bank of the Russian Federation 0 0

13 Due to other banks 22,977,034 9,920,207

14 Corporate accounts 210,956,529 152,251,063

14.1 Retail deposits 52,654,359 47,480,195

15 Debt securities issued 17,639,583 13,303,613

16 Interest payable 2,103,730 1,097,854

17 Other liabilities 3,186,287 2,857,422

18

Provision for possible losses on contingent credit liabilities, other

possible losses and transactions with offshore residents

383,462 319,177

19 Total liabilities 257,246,625 179,749,336

Equity

20 Shareholders’ (participants’) capital 6,803,606 6,803,605

20.1 Registered ordinary shares and stakes 6,803,606 6,803,605

20.2 Registered preferred shares 0 0

20.3 Unregistered share capital of non-joint-stock lending organizations 0 0

21 Treasury stock 0 0

22 Share premium 7,628,919 7,628,919

23 Fixed assets revaluation 53 53

24 Prepaid expenses and forthcoming payments affecting equity 2,952,095 2,028,013

25

Reserves and prior year retained earnings (prior year accumulated

deficit)

8,395,177 6,422,346

26 Net income (loss) for the reporting period 3,829,625 1,972,831

27 Total equity 23,705,285 20,799,741

28 Total liabilities 280,951,910 200,549,077

Off balance sheet commitments

29 Irrevocable commitments 72,164,833 67,225,510

30 Guarantees issued 18,708,257 14,908,307

Asset accounts

Trust accounts

1 Cash 0 0

2 Securities in trust 5,055,500 7,727,829

3 Precious metals 0 0

4 Loans granted 0 0

5 Funds used for other purposes 0 0

6 Settlements per trust operations 30,479 33,470

7

Accrued interest (coupon) income paid on interest-bearing (coupon)

bonds

4,567 1,871

8 Current accounts 64,689 4,145

9 Expenses per trust operations 0 0

10 Loss per trust operations 105,355 0

Liability accounts

11 Capital in trust 4,840,471 7,393,671

12 Settlements per trust operations 4,422 139

13

Accrued interest (coupon) income received on interest-bearing

(coupon) bonds

0 0

14 Income from trust operations 0 0

15 Profit from trust operations 415,697 373,505

CEO

Chief Accountant

Stamp here

A.V. Popov

O. V. Firsik

132 133


Profit and Loss Statement

(Published) for 2006

Name of the Head Lending Institution OAO ROSBANK

Registration number 2272, RCBIC 044525256

Mailing Address: 11, Mashi Poryvaevoy Str., 107078, Moscow

Appendix 1

to the Directive of the Bank of Russia

dated Jan 16, 2004 No. 1376-U

(version of the Directive of the CBR dated

Feb 17, 2006 No. 1660-U)

Form code 0409807

Annual

RUR’000

No.

Item

Reporting

period

Corresponding

period of the

prior year

1 2 3 4

Interest recived and similar income from:

1 Due from other banks 1,402,589 1,268,318

2 Loans to corporate customers 17,954,211 12,931,560

3 Lease income 0 0

4 Income from fixed income securities 903,961 629,483

5 Other income 135,822 116,716

6 Total interest and similar income 20,396,583 14,946,077

Interest paid and similar expenses:

7 Due to other banks 394,403 336,821

8 Corporate accounts 9,227,940 7,436,501

9 Debt securities issued 780,493 1,208,860

10 Total interest and similar expenses 10,402,836 8,982,182

11 Net interest and similar income 9,993,747 5,963,895

12 Net income from securities transactions 1,122,297 1,340,940

13 Net income from foreign exchange transactions -521,411 647,748

14

Net income from transactions with precious metals and other financial

instruments

439,574 209,640

15 Net income from foreign exchange revaluation 105,567 -2,784,276

16 Fee income 8,672,417 5,465,955

17 Fee expenses 1,140,257 618,729

18 Net income from non-recurring transactions 1,139,046 468,911

19 Other net operating income -207,308 -20,796

20 General and administrative expenses 9,870,580 6,323,613

21 Reserve for possible losses -3,359,354 -1,224,945

22 Profit before taxation 6,373,738 3,124,730

23 Accrued taxes (including income tax) 2,544,113 1,133,046

24 Profit (loss) for the reporting period 3,829,625 1,991,684

CEO

Chief Accountant

A.V. Popov

O. V. Firsik

Stamp here

134 135


Statement of Capital Adequacy

and Allowance for Impaired

Loans and Other Assets

as of January 1, 2007

Name of the Parent Bank – OAO ROSBANK

Registration number 2272, RCBIC 044525256

Mailing Address: 11, Mashi Poryvaevoy Str., 107078, Moscow

No.

Item

Appendix 1

to the Directive of the Bank of Russia

dated Jan 16, 2004 No. 1376-U

(version of the Directive of the CBR dated

Feb 17, 2006 No. 1660-U)

Balance as of

the reporting

date

Form code 0409808

Annual

Prior year

1 2 3 4

1 Equity (capital), RUR’000 25,258,544 19,586,398

2 Actual capital adequacy ratio, % 12,1 13,4

3 Mandatory minimum capital adequacy ratio, % 10,0 10,0

4 Estimated provision for loan losses and other similar losses, RUR’000 6,529,529 3,251,837

5 Actual provision for loan losses and other similar losses, RUR’000 6,529,534 3,251,847

6 Estimated provision for possible losses, RUR’000 601,274 667,349

7 Actual provision for possible losses, RUR’000 601,274 667,349

CEO

Chief Accountant

A.V. Popov

O. V. Firsik

In the opinion of ZAO Deloitte & Touche CIS, the balance sheet, profit and loss statement and statement

of capital adequacy and allowance for impaired loans and other assets of the Joint Stock Commercial Bank

OAO ROSBANK (open joint-stock company) prepared for publication present fairly, in all material respects,

the financial position of the Joint Stock Commercial Bank OAO ROSBANK (open joint-stock company) as of

January 1, 2007 and for the year ended December 31, 2006, in accordance with the Russian legislation.

Detailed information on the published financial statements of the Joint Stock Commercial Bank OAO

ROSBANK, including information on the above data, is contained in the audit report on the fairness of the

annual balance sheet, the published financial statements and consolidated financial statements of the Joint

Stock Commercial Bank OAO ROSBANK for the year ended December 31, 2006.

• Auditor

ZAO Deloitte & Touche CIS

• License No. E002417

• Date of issue – November 6, 2002

• Valid for 5 years

• Name of the licensing authority:

Ministry of Finance of the Russian Federation

• Certificate of registration in the Unified State Register of Legal Entities

registered before July 1, 2002 No. 1027700425444

• Date of issue – November 13, 2002

• Name of the licensing/certifying authority:

Moscow Interdistrict Tax Office of the Russian Ministry of Taxes and Levies No. 39

• State registration certificate of ZAO Deloitte & Touche CIS No. 018.482

• Date of issue October 30, 1992

• Name of the licensing/certifying authority:

Moscow Registration Chamber

• Membership in the accredited professional audit association:

1 (The Institute of Professional Accountants and Auditors of Russia)

• Full name of the CEO (or another authorized person):

Vadim N. Sorokin,

Partner (Power of attorney dated September 28, 2005)

Details of the auditor certifying the published financial statements:

• Full name and position of the person attesting to the published financial statements:

Anna U. Golovkova (Zyuzina)

• position: Manager of ZAO Deloitte & Touche CIS Head of the Audit Group

• Date of the document certifying the authority of the auditor

attesting to the published financial statements issued on December 30, 2003

• Title of the document certifying the authority of the auditor

signing the report on the published financial statements:

Bank audit certificate

• Number of the document certifying the authority of the auditor

signing the report on the published financial statements: K 010038

• Validity of the document certifying the authority of the auditor

signing the report on the published financial statements: unlimited

Stamp here

________________

signature

April 24, 2007

________________

signature

April 24, 2007

Stamp here

136 137


Consolidated Balance Sheet

as of January 1, 2007

Name of the Parent Bank – OAO ROSBANK

Registration number 2272, RCBIC 044525256

Mailing Address: 11, Mashi Poryvaevoy Str., 107078, Moscow

No.

Item

Appendix 1

to the Directive of the Bank of Russia

dated Jan 16, 2004 No. 1376-U

(version of the Directive of the CBR

dated Feb 17, 2006 No. 1660-U)

Balance as of

the reporting

date

Form code 0409802

Annual

RUR’000

Prior year

1 2 3 4

Assets

1 Cash and cash equivalents 8,575,510 7,229,524

2 Due from the Central Bank of the Russian Federation 31,348,695 15,004,941

2.1 Minimum reserve deposit 6,053,560 4,651,636

3 Due from other banks 32,623,434 24,033,499

4 Net investments in trading securities 8,829,572 7,935,988

5 Net loans issued 198,790,576 145,311,545

6 Net investments in investment securities held-to-maturity 319,296 638,552

7 Net investments in securities available-for-sale 7,908,149 7,994,582

8 Investments in associates

9 Positive goodwill 311,924 378,054

10 Fixed assets, intangible assets and inventories 3,000,550 2,820,342

11 Interest receivable 432,848 359,585

12 Other assets 2,878,003 4,657,564

13 Total assets 295,018,557 216,364,176

Liabilities

14 Due to the Central Bank of the Russian Federation 0 0

15 Due to other banks 28,254,178 10,676,092

16 Corporate accounts 212,889,093 160,412,608

16.1 Retail deposits 52,786,953 49,557,261

17 Debt securities issued 23,108,727 19,202,631

18 Interest payable 2,350,236 1,541,843

19 Other liabilities 3,472,973 3,193,620

20 Negative goodwill 888,975 953,480

21

Provision for possible losses on contingent credit liabilities, other

possible losses and transactions with offshore zone residents

397,484 336,386

22 Total liabilities 271,361,666 196,316,660

Equity

23 Shareholders’ (participants’) capital 6,803,606 6,803,605

24 Treasury stock 0 0

25 Share premium 7,628,919 7,691,967

26 Fixed assets revaluation 27,799 5,222

27

Reserves and prior year retained earnings (prior year accumulated

deficit)

7,421,470 5,396,399

28 Prepaid expenses and other accruals chargeable to equity 2,890,453 2,039,221

29 Net income (loss) available for distribution for the reporting period 4,578,423 2,031,395

30 Total equity 23,569,764 19,889,367

31 Minority shareholders 87,127 158,149

31.1 Share of equity owned by minority shareholders 78,681 156,804

31.2 Minority shareholders’ profit (loss) 8,446 1,345

32 Total liabilities 295,018,557 216,364,176

Off balance sheet commitments

33 Irrevocable commitments 68,474,777 69,108,833

34 Guarantees issued 13,850,827 9,678,438

CEO of the Head Lending Institution

Chief Accountant of the Head Lending Institution

Stamp here

A.V. Popov

O. V. Firsik

138 139


Consolidated Profit and Loss

Statement for 2006

Name of the Parent Bank – OAO ROSBANK

Registration number 2272, RCBIC 044525256

Mailing Address: 11, Mashi Poryvaevoy Str., 107078, Moscow

Appendix 1

to the Directive of the Bank of Russia

dated Jan 16, 2004 No. 1376-U

(version of the Directive of the CBR

dated Feb 17, 2006 No. 1660-U)

Form code 0409803

Annual

RUR’000

No.

Item

Reporting

period

Prior year

1 2 3 4

Interest received and similar income from:

1 Due from other banks 1,619,663 1,216,382

2 Loans to corporate customers 18,859,128 13,385,485

3 Lease income 4,317 7,634

4 Income from fixed income securities 992,186 663,559

5 Other income 348,111 132,396

6 Total interest and similar income 21,823,405 15,405,456

Interest paid and similar expenses:

7 Due to other banks 439,575 317,846

8 Corporate accounts 9,691,572 7,305,706

9 Debt securities issued 1,197,544 1,473,898

10 Total interest paid and similar expenses 11,328,691 9,097,450

11 Net interest and similar income 10,494,714 6,308,006

12 Net income from securities transactions 1,479,224 1,348,004

13 Net income from foreign exchange transactions -522,541 646,316

14

Net income on transactions with precious metals and other financial

instruments

439,448 212,179

15 Net income from foreign exchange reveluation 214,294 -2,903,757

16 Fee income 9,672,720 5,682,369

17 Fee expenses 1,125,830 678,750

18 Net income from non-recurring transactions 1,328,444 481,826

19 Other net operating income -361,109 -12,202

20 General and administrative expenses 10,743,530 6,606,066

21 Provisions for possible losses -3,329,166 -1,347,692

22 Share of income of the associate, after tax 0 0

23 Profit before taxation 7,546,668 3,130,233

24 Accrued taxes (including income tax) 2,959,799 1,076,167

25 Profit for the reporting period 4,586,869 2,054,066

26 Group’s profit 4,578,423 2,052,016

27 Minority shareholders’ profit 8,446 2,050

CEO of the Parent Bank

Chief Accountant of the Parent Bank

A.V. Popov

O. V. Firsik

Stamp here

140 141


Information on Participants of the

Banking (Consolidated) Group,

Capital Adequacy and

Allowance for Impaired Loans

and Other Assets

as of January 1, 2007

Name of the Parent Bank – OAO ROSBANK

Registration number 2272 RCBIC 044525256

Mailing Address: 11 Mashi Poryvaevoy Str. 107078 Moskow

No.

Item

Reporting

period

Prior year

1 2 3 4

1 Information on participants of the banking (consolidated) group:

1.1

1.2

1.3

1.4

1.5

1.6

OAO Joint Stock Commercial Bank ROSBANK (name of the Group’s

participant)

ROSBANK (SWITZERLAND) SA (name of the Group’s participant)

(% of shares (stakes))

ROSBANK International Finance B.V. (name of the Group’s participant)

(% of shares (stakes))

ROSINVEST S.A. (name of the Group’s participant) (% of shares

(stakes))

ZAO ROSBANK-VOLGA Commercial Bank (name of the Group’s

participant) (% of shares (stakes))

OOO Shchit Plus Security Firm (name of the Group’s participant)

(% of shares (stakes))

Appendix 1

to the Directive of the Bank of Russia

dated Jan 16, 2004 No. 1376-U

(version of the Directive of the CBR dated

Feb 17, 2006 No. 1660-U)

Form code 0409812

Annual

100 100

100 100

99,97 99,97

100 100

100 100

1.7

1.8

1.9

1.10

1.11

1.12

1.13

1.14

1.15

1.16

1.17

ZAO RB Finance (name of the Group’s participant) (% of shares

(stakes))

OOO Regional Security and Investigation Agency (name of the

Group’s participant) (% of shares (stakes))

OOO NICKEL Processing Company (name of the Group’s participant)

(% of shares (stakes))

OOO Trapeznaya (name of the Group’s participant)

(% of shares (stakes))

ROSBANK Finance S.A. (name of the Group’s participant)

(% of shares (stakes))

OAO Kapital i Zdanie (name of the Group’s participant)

(% of shares (stakes))

OOO Art Haizer (name of the Group’s participant)

(% of shares (stakes))

OOO Petrovsky Dom–21st Century (name of the Group’s participant)

(% of shares (stakes))

ZAO TOP-Service (name of the Group’s participant) (% of shares

(stakes))

OOO PMD-Service (name of the Group’s participant) (% of shares

(stakes))

ZAO Druzhba-Universal Trading House (name of the Group’s participant)

(% of shares (stakes))

100 100

100 100

100 100

100 100

100 100

100 100

100 100

100 100

100 100

100 100

100 100

1.18 ZAO AVTO (name of the Group’s participant) (% of shares (stakes)) 100 100

1.19

1.20

1.21

1.22

1.23

1.24

1.25

1.26

1.27

1.28

Non-banking Lending Institution INKAKHRAN (name of the Group’s

participant) (% of shares (stakes))

ZAO RB Securities (name of the Group’s participant) (% of shares

(stakes))

OOO INKAKHRAN-HOLDING (name of the Group’s participant)

(% of shares (stakes))

OOO INKAKHRAN-CENTER (name of the Group’s participant)

(% of shares (stakes))

OOO INKAKHRAN-CENTER (name of the Group’s participant)

(% of shares (stakes))

OAO Povolzhskoe OVK (name of the Group’s participant)

(% of shares (stakes))

OAO Central OVK (name of the Group’s participant)

(% of shares (stakes))

OOO Privolzhskoye OVK (name of the Group’s participant)

(% of shares (stakes))

OOO Interbank Lending Union (non-banking lending institution)

(name of the Group’s participant) (% of shares (stakes))

OOO MONROS (name of the Group’s participant) (% of shares

(stakes))

100 100

100 100

100 0

100 0

99,6 0

97,8 97,84

97,2 99,91

100 100

60.9 60.86

60.4 80.2

1.29 BELROSBANK (name of the Group’s participant) (% of shares (stakes)) 100 80.77

2

Information on capital adequacy allowance for impaired loans and

other assets

2.1 Equity (RUR’000) 31,038,303 25,193,445

142 143


2.2 Mandatory minimum capital adequacy ratio, % 10 10

2.3 Actual capital adequacy ratio, % 14 15.1

2.4 Actual provision for loan lossesand other similar losses, RUR’000 8,381,951 5,079,944

2.5 Actual provision for possible losses, RUR’000 801,995 824,697

CEO of the Parent Bank

Chief Accountant of the Parent Bank

Stamp here

A.V. Popov

O. V. Firsik

In the opinion of ZAO Deloitte & Touche CIS, the balance sheet, profit and loss statement and report

on capital adequacy and the allowance for impaired loans and other assets of the Joint Stock Bank OAO

ROSBANK prepared for publication present fairly, in all material respects, the financial position of the Joint

Stock Bank OAO ROSBANK as of January 1, 2007 and for the year ended December 31, 2006, in accordance

with the Russian legislation.

Detailed information on the published financial statements of the Joint Stock Bank OAO ROSBANK,

including information on the above data, is contained in the audit report on the correctness of the annual

balance sheet, the published financial statements and consolidated financial statements of the Joint Stock

Bank OAO ROSBANK for the year ended December 31, 2006.

• Name of the Audit Firm:

ZAO Deloitte & Touche CIS

• License No. E002417

• Date of issue November 6, 2002

• Valid for 5 years

• Name of the licensing authority:

Ministry of Finance of the Russian Federation

• Certificate of registration in the Unified State Register of Legal Entities

registered before July 1, 2002 No. 1027700425444

• Date of issue – November 13, 2002

• Name of the licensing authority:

Moscow Interdistrict Tax Office of the Russian Ministry of Taxes and Levies No. 39

• State registration certificate of ZAO Deloitte & Touche CIS No. 018.482

• Date of issue – October 13, 2002

• Name of the licensing authority:

Moscow Registration Chamber

• Membership in the accredited professional audit association:

1 (The Institute of Professional Accountants and Auditors of Russia)

• Full name of the CEO (or another authorized person):

Vadim N. Sorokin, Partner (Power of attorney dated September 28, 2005)

Details of the auditor certifying the published financial statements:

• Full name and position of the person certifying the published financial statements:

Anna U. Golovkova (Zyuzina)

• Position: Manager of ZAO Deloitte & Touche CIS

Head of the Audit Group

• Date of the document certifying the authority of the auditor

attesting to the published financial statements issued on December 30, 2003

• Title of the document certifying the authority of the auditor

signing the report on the published financial statements:

Bank audit certificate

• Number of the document certifying the authority of the auditor

signing the report on the published financial statements: K 010038

• Validity of the document certifying the authority of the auditor

signing the report on the published financial statements: unlimited

Stamp here

________________

signature

April 24, 2007

________________

signature

April 24, 2007

144 145


Explanatory Notes to Annual

Financial Statements for 2006

1. Summary of the Bank’s activities and core operations having

the strongest impact on the financial results

1.1. Business profile

Joint Stock Commercial Bank ROSBANK (“ROSBANK”) was registered with the Bank of Russia on March 2,

1993, under registration No. 2272.

ROSBANK is a joint stock bank operating in the Russian Federation since 1993. The Bank is regulated by

the Central Bank of the Russian Federation (CBR).

The Bank’s Head Office is registered at the following legal address: 11 ul. Mashi Poryvaevoi, Moscow.

In 2006, the Bank registered three new branches (Ufa branch, Kazan branch and Moscow Region branch)

and closed 11 branches in the regions with more than one regional branch. As a result of these optimization

efforts, the total number of regional branches in Russia reduced from 76 to 68 in 2006. As of January 1,

2007 the following branches were listed in the State Register of Lending Institutions: Moscow branch,

Kurgan branch, Ekaterinburg branch, Orenburg branch, Udmurt branch, Prikamye branch, Chelyabinsk

branch, Archnagelsk branch, Murmansk branch, Vologda branch, Kaliningrad branch, Novgorod branch,

Pskov branch, North-West branch, Belgorod branch, Bryansk branch, Vladimir branch, Voronezh branch,

Ivanovo branch, Kaluga branch, Kirov branch, Kostroma branch, Kursk branch, Lipetsk branch, Orel branch,

Moscow Pegion branch, Ryazan branch, Smolensk branch, Srednerussky branch, Tambov branch, Tver branch,

Yaroslavl branch, Astrakhan branch, Nizhny Novgorod branch, Penza branch, Volgograd branch, Samara

branch, Saratov branch, Ulyanov branch, Chuvashia branch, Ufa branch, Kazan branch, Altai branch, East

Siberia branch, Dudinka branch, West Siberia branch, Irkutsk branch, Kemerovo branch, Norilsk branch,

Omsk regional branch, Tomsk regional branch, Tuva branch, Tyumen branch, Ulan-Ude branch, Khakassia

branch, Chita branch, Kuban branch, Stavropol branch, Kalmykia branch, Rostov branch, Amur branch,

Birobidzhan branch, Far East branch, Kamchatka branch, Magadan branch, Primorye branch, Sakhalin

branch, Yakutsk branch.

In 2006, seven branches of the Bank (Pskov branch, Dudinka branch, Murmansk branch, Norilsk branch,

Ufa branch, Moscow Region branch, Kazan branch), as well as two closed branches (Novosibirsk branch and

St. Petersburg branch) reported a total loss of RUR 234,901.2 thousand, while other branches of the Bank

reported a total profit of RUR 8,827,945.5 thousand. With the Head Office reporting a loss of RUR

2,718,033.7 thousand, the annual net income of the Bank was RUR 5,875,010.6 thousand.

In 2006, the average number of the Bank’s personnel was 15,739 employees.

On May 12, 2006, the Annual General Meeting of the Bank (Minutes of the Annual General Meeting No.

26 dated May 15, 2006) resolved not to pay any dividends for 2005.

ROSBANK is the parent bank if the banking (consolidated) group that includes, in addition to the Bank,

28 companies (ROSBANK (SWITZERLAND) SA, ROSBANK International Finance B.V., BELROSBANK, ROSIN-

VEST S.A., ROSBANK-VOLGA Commercial Bank, Shchit-Plus Security Firm, RB Finance, Regional Security and

Investigation Agency, NICKEL Processing Company, Trapeznaya Limited Liability Company, Rosbank Finance

S.A., Kapital I Zdaniye, Art Haizer, Petrovsky Dom – 21st Century, TOP-Service, Druzhba-Universal Trading

House, AVTO Limited Liability Company, INKAKHRAN Non-Banking Lending Institution, RB Securities,

INKAKHRAN-HOLDING, INKAKHRAN-CENTER, INKAKHRAN-SERVICE, Povolzhskoye OVK (open joint stock

bank), Central OVK (joint stock bank), Privolzhskoye OVK LLC (commercial bank), Interbank Lending Union

(non-banking lending institution), MONROS.

1.2. Core operations having the strongest impact on the financial results and information

on geographical segments

Core operations having the strongest impact on the Bank’s financial results in 2006:

- corporate and retail lending;

- foreign exchange operations and transactions with precious metals;

- securities transactions;

- settlements;

- documentary transactions.

In 2006, lending remained the core activity of the Bank, which continued to develop its retail lending

business, offering a variety of loan products and new services combined with attractive lending terms and

professional client service. The Bank traditionally focused on expanding its customer loan portfolio. The

main factors of loan portfolio growth included increased lending limits for major borrowers and new

business development. In addition, the Bank paid much attention to portfolio diversification. To increase its

potential borrower base, the Bank expanded and developed its branch network so that now it is represen-ted

practically in all industrially developed Russian regions. SME lending also remained high on the list of the

Bank’s strategic priorities, In 2006, ROSBANK significantly expanded he geography of its SME lending business.

In the reporting year, ROSBANK was active both in the traditional foreign exchange market and in the

derivatives market. Money market transactions on behalf of customers included the purchase and sale of

foreign currencies for Russian rubles and other foreign currencies with same day, next day and the day after

the next settlements; placement and acceptance of interbank deposits in the Russian and foreign currency;

foreign exchange operations with cash currency, forward currency transactions used for currency risk hedging.

In 2006, the Bank offered its clients a broad range of transactions in the precious metals market, including

unallocated bullion accounts, arbitration deals, export and commission transactions. A growing

number of Bank customers are using its RosTrade brokerage system, which offers access to on-line bidding

at securities markets and the possibility to manage investments in securities.

In the reporting year, the Bank focused on investment banking development and was ranked the largest

deal arranger in the corporate and municipal bond market.

In 2006, the Bank traditionally engaged in settlement and cash management business, providing all

kinds of settlement services in Russian rubles and foreign currencies. The Bank’s customers used the

Internet-Client-Bank system for on-line access and management of their accounts, while clients not using

this system were offered BiPrint two-dimensional bar coding technology for the preparation and processing

of hard copy payment orders.

In 2006, ROSBANK continued to further develop its documentary and trade finance business.

The regional strategy of ROSBANK is to ensure its presence in all Russian regions. The main objective of

the Bank branches is to provide reasonably priced high quality retail banking services and a broad range of

corporate banking products. Regional branches of ROSBANK offer a great variety of world class banking

services based on a unified product range.

The Bank has investments in subsidiaries registered and operating in Switzerland, the Netherlands,

Luxemburg and Belarus. These subsidiaries are consolidated in the financial statements of the Bank. The

principal activities of ROSBANK are based in the Russian Federation. The Bank works with corporate and

retail funds, trades in government, municipal and high profile corporate securities and maintains correspondence

relations with OECD-based banks.

1.3. Overview of significant changes in the Bank’s operations and events that affect

or may affect the financial stability of the Bank and its policy (strategy) in the reporting

year

On June 2, 2006, the Moscow Government renewed the Bank’s status as the authorized bank of the

Moscow Government. The Bank will further develop its relations with Moscow authorities, including the

expansion of its city network, cooperation with the Moscow Department of Food Resources, SME support

programs, development of mortgage lending and participation in charity events.

On September 7, 2006, ROSBANK increased its equity interest in Belrosbank (Belarus) from 76.92% to

99.99998%. Previously, ROSBANK owned 4,999,998 shares in the bank (76.92% of the total share capital).

After the deal, its shareholding increased to 6,499,999 shares (99.99998%).

In June 2006, Societe Generale, France, acquired a 10% interest in ROSBANK. Transaction amount totaled

146 147


USD 317 million.

In September 2006, Societe Generale increased its interest in ROSBANK to 20% less 1 share.

In September 2006, the Bank launched a lending program for SME owners and self-employed persons.

The program is offered in 63 branches across Russia. Loans are issued for current business needs to owners

of small and medium enterprises and self-employed persons with at lease 1 year of positive business

experience. Loan amounts vary from RUR 150 thousand to RUR 450 thousand and have maturities of up to

2 years. Interest rates depend on the loan amount and term and vary from 17% to 19% p.a. in rubles.

In 2006, the Bank significantly expanded its cooperation with the European Bank for Reconstruction and

Development (EBRD). In March 2006, the Bank signed a syndicated loan agreement for RUR 4 billion (USD

150 million). Under this agreement, EBRD issued a 4-year loan of RUR 1.3 billion (USD 50 million), while the

remaining RUR 2.6 billion (USD 100 million) were provided by an international banking syndicate for a term

of two years. The deal clearly demonstrated a high credit standing of ROSBANK combined with its strong

market positions and an international reputation of a first class borrower, as well as the growing confidence

of EBRD and other international institutions in the Bank. In 2006, ROSBANK continued its involvement in

special EBRD cooperation programs. Within the framework of the Trade Facilitation Program, ROSBANK

raised EUR 9.5 million to finance a customer’s green field project. In addition, the EBRD extended the

second tranche of the 5-year USD 20 million facility for the development of SME lending, so that the

aggregate amount of financing under this program totaled USD 20 million. In 2006, ROSBANK obtained

another EBRD facility for mortgage financing in the amount of RUR 900 million maturing in five years.

On May 29, 2006, Fitch Ratings upgraded ROSBANK’s Issuer Default rating (“IDR”) to “B+” from “B” and

National Long-term rating to “A-(minus)(rus)” from “BBB+(rus)”. Following the upgrades, the Outlook on

both ratings was Stable. On October 2, 2006, Fitch Ratings placed ROSBANK’s ratings of foreign currency

and local currency Issuer Default “B+”, Short-term “B”, Support “4” and National Long-term “A-(A

minus)(rus)” on Rating Watch Positive (“RWP”). Rosbank’s Individual rating was affirmed at “D”.

On September 29, 2006, Moody’s Investors Service changed the outlook on ROSBANK’s financial

strength rating (“FSR”), Ba3 long-term foreign currency deposit rating and Ba3 senior unsecured debt rating

to positive from stable. Moody’s Interfax Rating Agency also affirmed the bank’s Aa3.ru national scale rating.

On October 3, 2006, Standard & Poor’s upgraded the Bank’s long-term credit rating to “B+/B”, with

a positive outlook. Standard & Poor’s also raised the Bank’s Russia national scale rating to “ruAA-”.

In 2006, ROSBANK sold its equity interests in BaikalROSBAK and MONCHEBANK, its subsidiaries as at

January 1, 2006. Other significant changes in the ownership structure of ROSBANK Group include the

merger of the following banks: Central OVK in late 2006 (as of January 1, 2006, the Bank’s interest in COVK

was 99.91%), Far East OVK (100% as of January 1, 2006), Siberian OVK (96.28% as of January 1, 2006) and First

OVK (93.16% as of January 1, 2006).

1.4. Summary of risk concentrations inherent in banking transactions typical of the

Bank

The concentration of risks inherent in the Bank’s operations mainly follows the structure of its assets.

The Bank is exposed to the following main risks:

• credit risk inherent in lending and similar operations;

• liquidity risk and interest risk;

• market risk inherent in transactions with securities and money/currency market instruments;

• operational risks (internal procedures and IT risks).

The lending business accounts for the major part of the aggregate risk exposure. In 2006, ROSBANK

continued to develop its lending policy aimed at ensuring a diversified industry structure of the loan

portfolio through the issue of loans to borrowers from a broad variety of industries.

ROSBANK constantly develops its lending business, focusing on a detailed analysis of its credit exposure;

individual approach to each loan and borrower; assessment of the borrower’s financial position, feasibility

study review, loan collateral and continuous loan monitoring. This policy ensures control over the loan

portfolio quality and a high level of loan security. To reduce retail lending risks, the Bank focuses on secured

loans – mortgage and car loans.

In 2006, the Bank implemented an integrated risk management system for the on-going analysis and

control of the loan portfolio quality, the assessment of credit risks for new retail products and modification

of existing lending products. The system also supports prompt decisions to restrict the sale of retail products

with high risk levels and unification of credit risk assessment techniques and approaches to loan loss

provisioning.

Liquidity and interest risk management are essential for any company operating in the financial services

market. These risks are managed within the assets and liabilities management system by the Liquidity, Risk

Management and Pricing Committee. Liquidity risk management techniques applied by the Bank include

the following: setting the limits of acceptable liquidity ratios, liquidity mismatching analysis, asset/liability

management to ensure that asset maturities correspond to the maturity of respective liabilities, monitoring

of compliance with existing limits and decisions, gap analysis and planning of cash inflows and outflows,

control over the actual plan execution, liquidity analysis based on negative scenarios, including sensitivity to

changes in market situation, borrower status and other potential events; preparation of guidelines and

analytical reports on liquidity positions for management decisions made by Bank management.

Market risk assessment and control techniques are based on portfolio approach to risk analysis. The

Bank applies quantitative analysis methods based on Value-at-Risk methodology to determine the overall

level of risk. The risk management practice adopted by the Bank is based on on-going exchange of information

among front-office units engaged in financial market transactions and back-office units responsible for

asset/liabilities management, including liquidity, interest and currency risks.

The Bank has established an efficient internal control system to manage operational risks. The main

objective of this system is to develop internal policies and procedures in line with applicable laws to

regulate the preparation, execution, authorization and control of Bank transactions. Moreover, the internal

control function ensures accurate reporting of financial data in the accounting records. The Bank implemented

reliable risk management tools that ensure proper execution of control procedures.

The principal business of the Bank is concentrated in the Russian Federation. Laws and regulations

affecting the business environment in Russia are rapidly evolving; therefore, the assets and operations of the

Bank could be at risk in the event of negative changes in the political and economic situation.

In the normal course of business the Bank is from time to time subject to claims from its clients and

business partners. Management believes that such claims are unlikely to result in any material losses for the

bank. Accordingly, the Bank did not accrue any relevant provisions in its financial statements.

Retail banks face numerous claims from retail customers related to additional commission charges on

loan agreements. As a result, the CBR issued a regulation requiring banks to disclose their effective retail

loan rates. Management believes that such claims will have no material negative effect on the Bank and is

working on procedures to ensure the disclosure of additional information in loan agreements in accordance

with CBR requirements.

Certain provisions of Russian commercial law, in particular, tax law, allow for different interpretation.

Moreover, tax authorities have a practice of making arbitrary judgments on business activities. As a result, if a

particular treatment adopted by the Bank on the basis of management’s interpretation of laws governing

the Bank’s operations is challenged by tax authorities, they can assess additional taxes, penalties and

interest on the Bank. Management believes that the Bank has accrued all applicable taxes and, accordingly,

no allowance has been made in the financial statements.

2. Accounting policies

2.1. Material changes in the accounting policies affecting the comparability of

certain financial data reported in 2006 and in the previous year

As compared to 2006 accounting policies, the 2007 accounting policies adopt a new treatment of

leasehold improvements related to fixed assets leased by ROSBANK. These investments are now expensed

in accordance with Regulation No 1757-U of the Bank of Russia dated December 11, 2006.

2.2. Recognition and measurement of certain balance sheet items

Principles and methods of measurement and recognition applied to certain balance sheet items are set

in the accounting policies of ROSBANK as discussed below:

• Assets and liabilities are recognized at historical cost at the time of their acquisition or origination. Their

148 149


cost is changed only upon write-off, sale or redemption of respective assets or liabilities, unless

otherwise provided by applicable laws of the Russian Federation and CBR regulations;

• Assets and obligations in foreign currencies and precious metals are recognized in the balance sheet of

ROSBANK in Russian rubles at the CBR official exchange rate of the respective currency or at the

quoted price of the precious metal, unless otherwise provided by CBR regulations;

• Investments into equity and debt securities, for which market quotations are unavailable, are recognized

at their acquisition cost. Investments into quoted equity and debt securities are recognized at

market prices as provided in CBR regulations;

• The Bank applies FIFO method to determine the gain or loss from the sale of unquoted equity or debt

securities. Gains or losses from the sale (disposal) of other assets (fixed assets, inventory, intangible

assets, accounts receivable etc.) are determined using the historical cost method, unless otherwise

provided by CBR regulations;

• Gains or losses from the sale (disposal) of other assets (fixed assets, inventory, intangible assets, accounts

receivable etc.) are determined using the historical cost method, unless otherwise provided by CBR

regulations;

• Income and expense items are recognized under the accrual method, unless otherwise provided by

CBR regulations;

• Income and expense items earned or incurred in foreign currencies or precious metals are recognized

in Russian rubles at the official exchange rate of the respective currency or the quoted price of the

precious metal prevailing on the date of recognition;

• Income and expense items are posted to profit and loss accounts on a quarterly basis;

• Loss provisions are accrued in Russian rubles even for assets denominated in foreign currencies.

During the year, the Bank charges income tax expenses to account 70501 Appropriation of Current Year Profit.

3. Basis for preparation of 2006 annual financial statements

3.1. General

The 2006 financial statements of ROSBANK are prepared in accordance with applicable Russian law and

regulations issued by supervisory authorities.

The annual financial statements are prepared for the period from January 1, 2006 through December 31,

2006, and as of January 1, 2007.

The 2006 financial statements of the Bank are prepared in the national currency of the Russian Federation

and presented in rubles (RUR). The published stand-alone financial statements of the Bank and

consolidated financial statements of the Bank’s Group are presented in RUR thousand. Assets and liabilities

in foreign currencies are translated into rubles at official exchange rates quoted by the CBR as of January 31, 2006.

The annual financial statements have been updated for subsequent events.

Specifically, subsequent events include:

• Events that provide additional information on business conditions existing at the balance sheet date;

• Events creating new business conditions subsequent to the balance sheet date.

The first group of subsequent events is reflected in the financial statements and included in the Combined

Schedule of Account Turnovers Reflecting Subsequent Events attached to the annual financial

statements. The second group of subsequent events is disclosed in Note 4.

The issue of the annual financial statements of the Bank was preceded by certain preparatory work, the

results of which are discussed below.

3.2. Procedures governing the issue of bank statements

Pursuant to the terms of bank account agreements, agreements on the opening and maintenance of

correspondent accounts in the Russian currency, agreements on correspondent relations and correspondent

accounts in foreign currencies, deposit agreements, agreements on the issue and servicing of customs

plastic cards, agreements on the opening of accounts for settlements per corporate plastic cards, agreements

on correspondent accounts for settlements under transactions paid with STB plastic cards, the Bank

issues statements of account and primary documents supporting account records per settlement, current,

correspondent, transit and other accounts to its customers (corporate clients, self-employed clients and

other banks) when relevant transactions are performed.

Pursuant to the terms of correspondent account agreements, a bank statement is deemed confirmed

unless the correspondent sends written comments to the Bank within 10 days of the issue of the statement.

In accordance with the Rules governing the use of plastic cards issued by ROSBANK, balances per bank

statements are deemed confirmed unless clients send their objections within 30 days of the issue of respective

statements.

For the purpose of closing balance reconciliation as of January 1, 2007, the Bank sent statements of

account to correspondent banks, corporate clients and self-employed customers having plastic card

accounts with the Bank. The statements were accompanied with confirmation letters requesting the

confirmation of account balances as of January 1, 2007. The statements and confirmation letters were sent

via the delivery department of the Bank, the Internet Client-Bank remote access system, SWIFT/Telex

channels, and by post (to remote clients having no access to electronic means of communication).

The Bank did not receive any client objections against bank statements with respect to card account

balances within the established period.

Account and deposit agreements with retail customers of the Bank do not provide for the exchange of

balance confirmations. Statements of account are kept at the Bank and issued upon personal requests of

customers. Bank statements under retail lending programs (Simply Money and Express Loan) are issued via

ATMs of the Bank.

The Bank did not receive any objections from retail customers with respect to account balances within

the period established by the above agreements.

3.3. Amounts on suspense accounts

Prior to the preparation of the 2006 financial statements, the Bank investigated and minimized amounts

on suspense accounts. As of January 1, 2007, suspense account balances totaled RUR 2,051,224 thousand in

liabilities accounts and RUR 49 thousand in asset accounts.

Unreconciled amounts appeared as a result of the following: for amounts credited to correspondent

accounts – when the Bank received incorrect (none) beneficiary details; the Bank did not receive any

supporting documents (register of beneficiaries in case of wire transfers); funds were received before a

client account was opened or after it was closed; for amounts debited from correspondent accounts –

when the Bank incorrectly charged the base and additional fees for the transfer of funds by the Head Office,

and as a result of a local technical failure in payments processing at the Samara branch of the Bank.

3.4. Results of balance sheet item reconciliation

Prior to the preparation of the 2006 financial statements, the Bank performed the reconciliation of all

balance sheet items as of November 1, 2007 (including all cash and cash equivalents, fixed assets, intangible

assets, inventory, trade accounts receivable and payable, including balances per future contracts, other

receivables and payables recorded on balance-sheet and off-balance sheet accounts) and cash in hand as of

January 1, 2007, to ensure that the annual financial statements accurately reflect the actual property, assets

and liabilities of the Bank.

On the basis of reconciliation results, the Bank made appropriate adjustments to its accounting records.

The cash count in the Bank’s vaults as of January 1, 2007 did not identify any surplus or shortage.

The Bank also performed the reconciliation of its accounts receivable related to transactions with suppliers

and contractors with respect to balances carried forward and executed relevant bilateral reconciliation

statements to document the results thereof. The reconciliation did not identify any discrepancies.

3.5. Accounts receivable and payable

The average age of receivables calculated for accounts 474 Settlements per Specific Transactions (except

for accounts 47402 Settlements per Factoring and Forfeiting Transactions, 47408 Settlements per Currency

Conversion Transactions and Futures, 47410 Receivables Under Letters of Credit and Foreign Transactions,

and 47427 Interest Receivable), 603 Settlements with Debtors and Creditors (except for accounts 60315

Payments Under Guarantees Issued), and 30602 Settlements with Other Banks Acting as Principals under

Brokerage Deals with Securities and Other Financial Assets is 67.3 days. As at January 1, 2007, the total

150 151


amount of these receivables was RUR 1,326,023 thousand. Receivables aged less than 30 days totaled RUR

1,014,907 thousand, receivables aged from 30 days to 6 months – RUR 148,811 thousand, from 6 months to

1 year – RUR 65,279 thousand, over 1 year – RUR 84,802 thousand. Overdue receivables amounted to RUR

12,224 thousand, and the Bank accrued relevant bad debt provision in accordance with Regulation No 283-P

of the CBR On Bank Provisioning, dated March 20, 2006. The Bank had no overdue payables.

3.6. Reconciliation of mutual settlements between branches and between branches

and the Head Office, the matching of balances on interbranch settlement accounts

Settlements between ROSBANK branches in the system of interbranch settlements are performed

through the Head Office. Interbranch settlements bypassing the head Office are not practiced.

The matching of balances per interbranch settlement accounts is ensured through compliance with the

general principles and conditions of such settlements established by applicable CBR regulations and

Russian laws and reflected in the Bank’s internal policies. These policies set general rules for interbranch

settlements in ROSBANK and for settlements between ROSBANK and its branches acting as payment agents

in business operations.

Transactions per interbranch settlement accounts are recorded in the balance sheets of the Head Office

and respective ROSBANK branches on the same business day in accordance with the payment transfer date

fixed at the time of the transaction.

ROSBANK runs daily two-stage reconciliation of transactions recorded on interbranch accounts.

First stage: each branch reconciles interbranch transactions in accordance with interbranch account

statements received from the Head Office within the time required for prompt submission of branch

balance sheets to the Head Office. All transactions recorded on interbranch settlement accounts in the

head Office are to be recognized in branch balance sheets on the same date.

Second stage: the Head Office of ROSBANK receives branch balance sheets and reconciles interbranch

account balances for exact matching with amounts on respective interbranch settlement accounts opened

for each branch with the Head Office of ROSBANK.

Any discrepancies identified at any of the above reconciliation stages are immediately eliminated.

The above daily procedures ensure the accurate matching of amounts recorded on interbranch settlement

accounts with the Head Office and amounts on respective accounts in the branches.

3.7. Deviations from accounting rules where they fail to ensure accurate presentation

of the financial position and results of operations

In 2006, there were no cases of deviation from accounting rules where they fail to ensure accurate

presentation of the Bank’s financial position and the results of its operations.

3.8. Basis of preparation of published 2006 financial statements

All published financial reports of the Bank were prepared on the basis of the annual financial statements

as adjusted for subsequent events, with necessary reclassification of certain items based on the Combined

Schedule of Subsequent Events.

All reclassifications were made in accordance with Regulations No. 1376-U of the CBR On the List, Forms

and Preparation of Financial Statements by Lending Institutions and Their Submission to the Central Bank of

Russia, dated January 16, 2004 (as amended by CBR Regulation No. 1660-U of February 17, 2006).

decisions made by users on the basis of financial statements. Materiality depends on the amount of the

item or error estimated with regard to a specific non-disclosure or misstatement case. Thus, materiality

refers rather to a threshold or a cut-off point than to a quantitative characteristic a piece of information

should possess in order to be useful.

In accordance with the accounting policy of the Bank, a subsequent event is material if its effect on the

shareholders’ equity of ROSBANK calculated in accordance with CBR requirements exceeds 1%.

Material subsequent events include the accrual of additional income tax for 2006. The 2006 income tax

totaled RUR 2,002,490 thousand and was calculated in accordance with applicable Russian tax legislation.

Settlement of tax liabilities, net of advances paid by ROSBANK in 2006, was recognized on March 20, 2007

and included into the Combined Schedule of Subsequent Events.

In the period from the balance sheet date and the date of the annual financial statements certain events

occurred that should not be recognized in the financial statements but that affected the business operations

of the Bank. They include the following:

• On February 9, 2007, the Board of Directors of ROSBANK (Minutes No 11 of February 13, 2007) passed a

resolution to increase the Bank’s share capital by issuing 39,435,000 ordinary registered uncertified

shares with the par value of RUR 10 each. The shares are to be placed through open subscription;

• On March 7, 2007, the Board of Directors of ROSBANK (Minutes No 19 of March 12, 2007) approves the

resolution on the additional issue of 39,435,000 ordinary registered uncertified shares with the par

value of RUR 10 each and the issue prospectus;

• On April 19, 2007, the CBR Department for Licensing and Financial Recovery of Lending Institutions

registered the additional issue of ROSBANK shares for a total amount of RUR 394,350,000. The additional

issue of 39,435,000 ordinary registered uncertified shares with the par value of RUR 10 is placed

at a price of RUR 168 per share payable in cash in the national currency of the Russian Federation

under an open subscription. The post-money share capital of the Bank will be RUR 7,197,955,380.

5. Changes in accounting policies in 2007

The Bank announces the following material changes in its accounting policies in the next reporting year:

1. Following the enactment of Instructive Regulation No 1757-U of the CBR dated December 11, 2006,

the Bank excluded the breakdown of the share capital account by shareholders. The share capital shall be

recorded on one account; changes in the ownership structure are no longer recorded. As a result, trial

balances and other accounting statements will no longer report balances per share capital accounts, which

used to be significant.

2. Based on the accounting precedent, the Bank introduced the procedure for the treatment of expenses

referred to the acquisition of assets accounted for as inventory, in order to estimate their historical cost in

accordance with Appendix 10 to Accounting Rules for Lending Institutions Operating in the Russian

Federation, as approved by CBR Regulation No 205-P of December 5, 2002.

3. Based on the accounting precedent, the Bank introduced the procedure for the treatment of expenses

referred to the acquisition (construction) of assets accounted for as fixed assets, intangible assets or inventory,

where such expenses are incurred in Russian rubles, while the price is fixed in foreign or hypothetical currency.

4. The Bank introduced a number of immaterial amendments to its accounting policies that do not

affect the accounting principles applied by ROSBANK.

4. Subsequent events creating new business conditions after the

balance sheet date

The annual financial statements incorporate subsequent events applied and defined in accordance with

Regulation No 1530-U of the CBR On Preparation of Annual Financial Statements by Lending Institutions,

dated December 17, 2004.

Subsequent events include business events that occur between the balance sheet date and the date of

the annual financial statements and have or may have significant effect on the financial position of the Bank

and the results of its operations in the reporting year.

Information is considered material where is non-disclosure or misstatement may affect economic

Chairman of the Board

Chief Accountant

Stamp here

A.V. Popov

O.V. Firsik

152 153


Appendix 1

The Bank’s Corporate Governance

System and Compliance with the Code

of Corporate Conduct Recommended

by the Federal Service for Financial

Markets of the Russian Federation

No.

Provision of Code of Corporate Conduct

Compliance

(Y/N)

Comments

1 2 3 4

1

2

3

4

5

General Shareholders Meeting

Unless a long notice period Is provided for by the applicable

law, shareholders shall be given at least a 30 day prior notice of

the general shareholders meeting whatever the Items of the

agenda

Shareholders shall be given access to the list of рersons entitled

to attend the general shareholders meeting from the date of the

notice to the closing of the general shareholders meeting or the

deadline for filling ballots if the meeting held By absent voting

Shareholders shall be given the possibility to get familiar with

Information (materials) to be presented during the preparation

for the general shareholders meeting in electronic format

including web-sites

Shareholders may propose Items for the agenda of the general

shareholders meeting or demand calling of the general

shareholders meeting without excerpts from the shareholders

register if their shares are recorded In the shareholders register if

such shares are recorded in a depo account, a statement of the

account shall suffice

The articles of association or by-laws of joint stoсk companies

shall specify that the general shareholders meeting shall be

attended by director general members of the management

board, members of the board of directors, members of the

auditing commission and the company auditor

Y

Y

N

Partially

complied with

N

Article 12.11 of the

Articles of Association

Shareholders are given

access tothe list as

provided for by Article

51 of the Law on Joint

Stock Companies

To exercise the right

shareholders whose

shares are recorded in

depo accounts are

required to present

statements of such

accounts

Under the Bank’s practice

the General Shareholders

Meeting is attended by

the Chairman of the

Management Board and

members of the Board of

Directors

6

7

8

9

10

11

12

Nominees to the board of directors, to the office of director

general, to the management board, to the auditing commission

and a candidate for external auditor shall be present at the

general shareholders meeting which approves the above

mentioned persons

The company’s by-laws shall specify a recording procedure for

the general shareholders meeting

Board of Directors

The articles of association shall authorise the board of directors

to approve annual financial and business plans of the company

The board of directors shall approve the company’s risk

management procedure

The articles of association shall authorise the board of directors

to suspend from office director general appointed by the

general shareholders meeting

The articles of association shall empower the board of directors

to specify qualification requirements to and remuneration

of director general, members of the management board and

managers of major departments

The articles of association shall empower the board of directors

to approve contracts with director general and members of the

management board

N

N

Y

Y

N/A

Partially

compiled with

Y

Under the Bank’s practice

there is the recording

procedure

Paragraph 13.2.1 of the

Articles of Association

The operational risk

Management guidelines

were approved by the

Board of Directors.

Minutes No. 64 dd.

November 9, 2005

The single executive

organ is appointed by

the Board of Directors.

Paragraph 13.2.11 of the

Articles of Association

Under paragraphs 13.2.12,

13.2.26 of the Articles of

Association the Board

of Directors may specify

qualification requirements

to and remuneration of

Chairman and members

of the Management Board

Paragraphs 132.10,

13.2.11 of the Articles of

Association

154 155


13

14

15

16

17

18

19

20

21

22

23

24

The articles of association or by-laws shall require that the

votes of director general and members of the management

board shall not count in case of approval of contracts with

director general (management company, manager) and

members of the management board

The board of directors shall include at least 3 independent

directors meeting requirements of the Code of Corporate

Conduct

Рersons convicted of economic crime or offence against the

State, abuse of public office or office in local authorities or

penalised under administrative law for business malpractice or

abuse of financial, tax and securities market regulations shall

not be members of the board of directors

Members, director general (managing director), managers

or employees of the company’s competitor shall not be

appointed members of the board of directors

The articles of association shall require that the board of

directors elected by cumulative vote

Under the company’s by-laws, members of the board of

directors shall refrain from actions that result or might result

in the conflict of their and the company’s interests and shall

disclose to the board of directors any information relating to

such conflict

Under the company’s by-laws, members of the board of

directors shall notify the board of directors in writing of the

intention to execute transactions in securities of the сomрany

or subsidiaries (affiliates) thereof and disclose any such

transactions

The company’s by-laws shall specify that meetings of the board of

directors shall be conducted at least onсe in six weeks

Meetings of the board of directors during the year for which

annual accounts are prepared shall be held at least onсe in six

weeks

The company’s by-laws shall specify the order of meetings of

the board of directors

The company’s by-laws shall require approval by the board of

directors of any transactions worth 10 or more рerсent of the

company’s assets value exсeрt transactions executed in the

normal course of business

The company’s by-laws shall empower the board of directors

to obtain from managers of departments information required

for the exercise of their duties and specify responsibility for the

presentation of such irformation

Y

Y

Y

N

Y

Y

Partially

complied with

N

Y

Y

Y

Partially

complied with

Some of the Board

members are on the

boards of other financial

Institutions

Article 13.4 of the Articles

of Association

Paragraph 5.2 of the

Regulations on the Board

of Directors

Paragraphs 5.9 and 5.10

of the Regulations on the

Board of Directors require

that member of the Board

of Directors shall disclose

information on transactions

with such securities

Under the Bank’s practice.

meetings of the Board of

Directors are held at least

once a month

Section 2 of the

Regulations on the Board

of Directors

Paragraph 13.2.18 of the

Articles of Association

Paragraph 5.1 of the

Regulations on the Board

of Directors. Paragraph

3.2 of the Regulations on

Committees of the Board

of Directors. No particular

responsibility for nonрresentation

of such

information is specified

25

26

27

28

29

30

31

32

33

34

35

36

37

The board of directors shall form a strategic planning

committee or vest the functions thereof in other committee

(exсeрt the audit committee and the personnel and

remuneration committee)

The board of directors shall form a committee (audit

committee) responsible for the recommendation of an external

auditor and co-operate with such auditor and the company’s

auditing commission

The audit сommittee shall only consist of independent and

non-exeсutive directors

The audit committee shall be chaired by an independent

director

The company’s by-laws shall provide that all members of the

audit committee shall be given access to any records and

information of the сomрany subject to the confidentiality

The board of directors shall form a committee (personnel and

remuneration committee) to specify criteria for the selection of

nominees to the board of directors and develop the company’s

remuneration policy

The personnel and remuneration committee shall be chaired

by an independent director

No officers of the сomрany may be appointed to the personnel

and remuneration committee

The board of directors shall form a risk management

committee or vest the functions thereof in other committee

(except the audit committee and the personnel and

remuneration committee)

The board of directors shall form a committee for settlement

of corporate disputes or vest the functions thereof in other

committee (except the audit committee and the personnel and

remuneration committee)

No officers of the сomрany may be appointed to the

committee for settlement of corporate disputes

The committee for settlement of corporate disputes shall be

chaired by an independent director

The board of directors shall approve the сomрany by-laws

specifying the procedure of appointment and proceedings

such committees

Y

Y

Y

Y

Y

Y

Y

Y

N

N

N

N

Y

Paragraph 1.12 of the

Regulations on the Board

of Directors. Section 4

of the Regulations on

Committees of the Board

of Directors

Paragraph 1.12 of the

Regulations on the Board

of Directors. Section 5

of the Regulations on

Committees of the Board

of Directors

Paragraph 5.2 of

the Regulations on

Committees of the Board

of Directors

Paragraph 5.3 of

the Regulations on

Committees of the Board

of Directors

Paragraphs5.1,51 of the

Regulations on the Board

of Directors

Paragraph 1.12 of the

Regulations on the Board

of Directors

Paragraph 6.3 of

the Regulations on

Сommittees of the Board

of Directors

Paragraph 6.2 of

the Regulations on

committees of the Board

of Directors

The committee has not

been formed

The committee has not

been formed

The Regulations on

Committees of the Board

of Directors were approved

by the Board of Directors.

Minutes No. 9 dd. February

27,2006

156 157


38

The company’s articles of association shall specify the quorum

required at meeting of the board of directors to secure

attendance of independent directors at the meetings

Executive Bodies

39 The comрany shall appoint a management board Y

40

41

42

43

44

45

46

47

48

The articles of association or the company’s by-laws shall

provide for approval by the management board of real estate

transactions, borrowings subject to their major nature

The company’s by-laws shall specify a procedure of approving

any transactions beyond the scope of its financial and business

plan

Members, dlrector general (managing director), managers

or employees of the сomрany’ s competitor shall not be

appointed members of the company’s executive bodies

Рersons convicted of economic crime or offence against the

State, abuse of publilc office or office in local authorities or

penalised under administrative law for business malpractice or

abuse of financial, tax and securities market regulations shall not

be members of the company’s executive bodies. If the functions

of a sole executive are performed by a management сomрany

or manager director general and members of the board of

such management сomрany or manager shall meet the same

requirements as director general and members of the company’s

management board

The articles of association or the company’s by-laws shall

provide that the management company (manager) shall not

provide similar services to any competitor of the сomрany or

have with the сomрany property relations other than rendering

of management services

Under the company’s by-laws its executive bodies shall refrain

from actions that result or might result in the conflict of their

and the company’s interests and shall disclose to the board of

directors any information relating to such conflict

The articles of association or the company’s by-laws shall

specify criteria for the selection of the management company

(manager)

The company’s executive bodies shall monthly report to the

board of directors

The contracts executed by the company with director general

(management company, manager) shall specify liability for

disclosure of confidential and privileged information

N

N

N

Y

Y

N

N

N

N

Paragraph 14.1 of the

Articles of Association

Under point 7, paragraph

141 of the Articles

of Association the

Management Board shall

aррrove transactions to

the amount exceeding

50,000,000 US Dollars but

involving less than 5% of

the Company’s balance

sheet assets

The relevant provision

is provided for by

regulations of the Central

Bank of Russia

The relevant provision is

provided for in Article 82

of the Law on Joint-Stock

Companies

The relevant criteria are

specified in regulations of

the Central Bank of Russia

Liabillty of members

of the Management

Board for disclosure

of confidential and

privileged information is

specified In paragraphs 3.3

and 3.4 of the Regulations

on the Management Board

49

50

51

52

53

54

55

56

57

58

59

60

61

Corporate Secretary

The company shall appoint an officer (secretary) responsibIe

for the compliance by the сomрany’s bodies and officers with

specified procedures securing the exercise of shareholders’

powers and legitimate interests

The articles of association or the company’s by-laws shall

specify a procedure of appointing (electing) corporate secretary

and secretarial duties

The articles of association shall specify qualification

requirements to a corporate secretary

Material Corporate Actions

The articles of association or the company’s by-laws shall

require prior approval of major transactions

Any assets involved in a major transaction shall be evaluated by

an independent appraiser

The articles of association shall specify that if a major interest in

the company is acquired (take-over) no actions shall be taken

protecting interests of the executive bodies (members thereof)

and members of the board of directors or aggravating the

situation for shareholders (for instance, the board of directors

shall not approve the issue of convertible securities or grant

options to the сomрany’s shares event if 50 authorised by the

articles of association before exрiry of the expected acquisition

period)

The articles of association shall provide that an independent aррraiser

has to be invited to determine the market value of shares

and possible behavior thereof after take-over

According to the articles of association the purchaser taking

over shall offer shareholders to sell their ordinary shares in the

сomрany (regular convertible securities)

The articles of association and the company’s by-laws shall

require that an independent appraiser has to be invited to

determine the conversion rate in case of reorganisation

Information Disclosure

The board of directors shall approve by-laws specifying the

company’s regulations on and approach to information

disclosure (information policy)

The company’s by-laws shall require disclosure of information

on the issue, on purchasers of the issue including major

interests and whether any shares are purchased by the

сomрany’s management

The company’s by-laws shall specify a list of information,

documents and records to be presented to shareholders on

issues submitted for discussion at the general shareholders

meeting

The сomрany shall maintain a web-site and regularly publish

there the сomрany information

N

N

N

Y

N

N

N

Y

N

Y

N

N

Y

These functions are

performed by the

Secretary of the Board of

Directors

Paragraph 12.3.16 of the

Articles of Association

The company’s

information policy was

approved by the Board of

Directors. Minutes No. 9 dd.

February 27, 2006

The list is approved by

the Board of Directors

during preparation to the

meeting based on the

agenda and requirements

of the applicable law

Web-site address:

http://www.rosbank.ru

158 159


62

63

64

65

66

Under the company’s by-laws information shall be disclosed

on transactions with top managers of the сomрany and

business entities which management holds, whether directly or

indirectly, 20 and more рercent of the company’s shares or any

transactions which might be materially affected

The company’s by-laws shall provide that information has to be

disclosed on any transactions which might affect market value

of the company shares

The board of directors shall approve by-laws regulating the use

of material information on the company’s operations, shares

and other securities and transactions therein which shall not

be made public and might, if disclosed, materially affect market

value of the сomрany shares and other securities

Supervision of Financial and Business Operations

The board of directors shall approve the procedure of internal

control over financial and business operations of the company

The company shall form a special departrnent responsible for

the compliance with the internal control procedure (internal

control department)

N

N

Y

Y

Y

As required by the

applicable law such

information is disclosed

in quarterly statements

including: a block on

interested parties

transactions

Information on any

transactions which might

affect market value of

the company shares is

disclosed as required by

applicable law

The Board of Directors

approved the regulations

on the use of information

of ROSBANK’s operations,

securities and transactions

therein which shall not be

made public and might,

if disclosed, materially

affect market value of

ROSBANK’s securities.

Minutes No. 9 dd. February

27, 2006

The Regulations on

Internal Control were

approved by the Board of

Directors. Minutes No. 37

dd. December 27, 2004

Internal Control

Departrnent The

Regulations on Internal

Control Department were

approved by the Board of

Directors. Minutes No. 68

dd. October 6, 2006

67

68

69

70

71

72

The company’s by-laws shall require that the board of

directors approve the operation structure and organisation of

the Internal control departrnent

Рersons convicted of economic crime or offence against the State,

abuse of public office or office in local authorities or penalised

under administrative law for business malpractice or abuse

of financial, tax and securities market regulations shall not be

members of the Internal control department

The company executives and members, director general

(managing director), managers or employees of the company’s

competitor shall not be appointed members of the Internal

control department

The company’s by-laws shall specify the regularity of

presentation to the internal control department of records and

materials required for the assessment of financial and business

operations as well as responsibility of the company’s officers

and employees for non-presentation thereof

Company’s by-laws shall provide that the internal control

department shall notify any discovered irregularities to the

audit committee or, in case no audit committee has been

appointed, to the board of directors

Under the company’s by-laws the internal control departrnent

shall perform a prelimlnary assessment of transactions beyond

the scope of the company’s financial and business plans

(substandard transactions)

Y

Y

N

Partially

complied with

N

Under the regulations

of the Bark of Russia

the organisation and

operation structure of

the Internal Control

Departrnent are approved

by Chairman of the

Management Board

(paragraph 15.1 б of the

Articles of Association)

upon consultations with

the Board of Directors

(рaragraph 13.2.35 of the

Articles of Association)

Under paragraph 6.1.5

of the Regulations

on Internal Control

Departrnent all

discovered irregularities

shall be reported directly

to the Board of Directors

160 161


73

74

75

The company’s by-laws shall describe the procedure for

approval of substandard transactions by the board of directors

The board of directors shall approve a by-law specifying

the procedure of audit to be performed by the auditing

commission

The audit committee shall review the auditor opinion before

presentation thereof at the general shareholders meeting

N

N

Y

Such procedure is

specified by the

Regulations on the

Auditing Commission

approved by the General

Shareholders Meeting

according to the Law on

Joint-Stock Companies.

Minutes No.18 dd. June

20, 2002

Paragraph 5.5 of

the Regulations on

Committees d the Board

of Directors

Appendix 2

Transactions Executed with

Interested-Parties during

the Reporting Year

Dividends

76

The board of directors shall approve a by-law guiding

recommendations thereof for the size of dividends (dividend

policy)

Y

The Regulations on

Dividend Policy were

approved by the Board of

Directors. Minutes No. 25

dd. May 26, 2006

77

78

The dividend policy shall specify the procedure of determining

a minimum part of the company’s net profit payable as

dividends and circumstances under which dividends shall not

be paid or shall be partially paid on preference shares for which

the size of dividends is specified in the articles of association

The company’s dividend policy and amendments thereof

shall be published in a periodical specified by the articles

of association for the publication of notices of the general

shareholders meetings and on the company’s web-site

Y

Y

Paragraph 5 of the

Regulations on Dividend

Policy

According to paragraph

9 of the Regulations

on Dividend Policy

providing information

to shareholders is

arranged according

to the Regulations on

Information Policy which

were approved by the

Board of Directors.

Minutes No. 9 dd.

February 27, 2006

Shareholders and other parties concerned may

obtain information about the transactions referred

to as “interested¬ рarty transactions” by the

Federal Law “On JointStock Companies” at

ROSBANK’s website:

http://www.rosbank.ru/ru/ir/reports/oir archive/

Such information is also available from quarterly statements of ROSBANK.

162 163


Contacts

Kaluzhsky

73, Lenina Str., Kaluga, 248001

Tel./fax: (4842) 57-60-69

Kirovsky

119, Vorovskogo Str.

Kirov, 610021

Tel.: (8332) 63-53-00

Fax: (8332) 63-47-00

Rostovsky

7/1, Sovetskaya Str.

Rostov-оn-Dоn, 344019

Tel./fax: (8632) 51-23-29

Ryazansky

10, Petrova Str., Ryazan, 390000

Tel.: (4912) 28-97-85

Fax: (4912) 28-99-43

Privolzhskoye Territory

Regional Administration

Centre

Astrakhansky

18, К. Маrxа Str.

Astrakhan, 414006

Tel./fax: (8512) 63-08-38,

63-18-70, 39-00-83

Headquarters

Р.О. 208, 11, Mashi Poryvayevoi Str.

Moscow,107078

Tel.: (495) 725-05-95

Факс: (495) 725-05-11

Е-mail: mailbox@rosbank.ru

www.rosbank.ru

Regional

Administration

Centres

and Full Service

Branche

Moskovsky

17, Prishvina Str.

Moscow,127560

Tel./fax: (495) 230-37-92, 951-88-30

Central Territory

Regional Administration

Centre

55, Pyatnitskaya Str.

Moscow, 115184

Tel.: (495) 725-24-44,

Fax: (495) 951-45-60

Arkhangelsky

33, Vyucheiskogo Str.

Arkhangelsk, 163000

Tel./fax: (8182) 28-68-08

Belgorodsky

30, Mikhailovskoye Highway

Belgorod, 308013

Tel./fax: (4722) 21-12-77

Bryansky

108a, Fokina Str.

Bryansk, 241000

Tel./fax: (4832) 74-32-34

Vladimirsky

30, Razina Str., Vladimir, 600022

Tel.: (4922) 24-28-25

Fax: (4922) 24-97-58

Vologodsky

63, Gertsena Str., Vologda, 160011

Tel.: (8172) 75-45-49

Fax: (8172) 75-46-51

Voronezhsky

68, Karla Маrха Str.

Voronezh, 394000

Tel./fax: (4732) 53-26-41

lvanovsky

3, 11th Proezd, Ivanovo, 153006

Tel./fax: (4932) 33-09-40

Kaliningradsky

42, Yanalova Str.

Kaliningrad, 236023

Tel.: (4012) 95-60-11

Fax: (4012) 93-13-12

Kalmycky

15a, N. Ochirova Str.

358000, Elista

Tel./fax: (8472) 23-51-72

Kostromskoi

37, Ostrovskogo Str.

Kostroma, 156000

Tel./fax: (4942) 31-15-00

Kubansky

(Krasnodar)

114, Starokubanskaya Str.

Krasnodar, 350058

Tel./fax: (8612) 31-16-00,

73-14-40

Kursky

94, Lenina Str., Kursk, 305004

Tel./fax: (4712) 51-13-53

Lipetsky

4, Sovetskaya Str., Lipetsk, 398019

Tel./fax: (4742) 27-69-80

Murmansky

43, Shmidta Str., Murmansk, 183038

Tel./fax: (8152) 45-30-48

Orlovsky

140, Komsomolskaya Str.

Orel, 302016

Tel.: (4862) 43-70-90

Fax: (4862) 43-69-56

Moscow Region

25, Ilyinskoe Highway

Krasnogorsk, 143400

Tel.: (496) 562-10-24,

Fax: (496) 562-84-18

Pskovsky

11, Nekrasova Str., Pskov, 180000

Tel./fax: (8112) 16-05-31

North-West Territory

13, Nab. kanala Griboedova

Saint Petersburg, 191186

Tel.: (812) 571-18-17

Fax: (812) 315-69-42

Smolensky

10/2, Gagarina Pr.

Smolensk, 214000

Tel./fax: (4812) 55-62-52

Srednerussky (Tula)

7a, Frunze Str.

Tula, 300041

Tel.: (4872) 21-19-55

Fax: (4872) 36-89-13

Stavropolsky

375, Lenina Str.

Stavropol, 355029

Tel./fax: (8652) 35-08-66

Tambovsky

16b, lnternatsionalnaya Str.

Таmbov, 392000

Tel.: (4752) 71-07-18

Fax: (4752) 72-66-80

Tverskoi

9, Vagzhanovskiy Реr.

Tver, 170630

Tel.: (4822) 39-00-85

Fax: (4822) 48-10-27

Yaroslavsky

6, Pyatnitskaya Str.

Yaroslavl, 150003

Tel.: (4852) 72-05-34

Fax: (4852) 72-07-15

Volgogradsky

25, Lenina Str.

Volgograd, 400131

Tel./fax: (8442) 33-28-31

Kazansky

16, Safiullina Str.

Kazan, 420110

Tatarstan Republic

Tel./fax: (8432) 61-35-30

Nizhegorodsky

17b, Novaya Str.

Nizhniy Novgorod, 603000

Tel.: (495) 960-26-15

Fax: (8312) 18-63-20

Penzensky

62, Moskovskaya Str.

Реnzа, 440000

Tel.: (8412) 52-02-46

Fax: (8412) 52-02-40

Samarsky

27a, Dachnaya Str.

Samara, 443096

Tel.: (495) 928-06-24

Fax: (8462) 78-56-22

Saratovsky

14, S.M. Кirova Prospect

Saratov, 410600

Tel./fax: (8452) 26-16-93

Ulyanovsky

7а, К. Маrха Str.

Ulyanovsk, 432700

Tel.: (8422) 42-16-22

Fax: (8422) 41-30-20

164 165


Ufimsky

54, Gafury Str.

Bashkortostan Republic, 450076

Tel./fax: (347) 251-64-42, 251-10-95

Chuvashsky

4, Presidentsky boulevard

Cheboksary, 428032

Tel./fax: (8352) 62-03-38

Siberian Territory

Regional Administration

Centre

7а, Mira Prospect

Krasnoyarsk, 660049

Tel.: (495) 745-54-47

Fax: (3912) 23-95-61

Altaisky

43, Stroitelei Prospect

Barnaul, 656031

Tel.: (3852) 62-50-95

Fax: (3852) 62-49-93

East Siberian

(Кrаsnoyarsk)

7а, Mira Prospect

Krasnoyarsk, 660049

Tel.: (3912) 66-21-49

Fax: (3912) 66-21-04

Dudinsky

6, Begicheva Str., Dudinka,

Krasnoyarsk Territory, 647000

Tel./fax: (39111) 5-62-04

West Siberian

(Novosibirsk)

7/1, Garanina Str.

Novosibirsk, 630017

Tel.: (3832) 60-53-93

Fax: (3832) 60-53-94

Irkutsky

3, МОРRа Реr.

Irkutsk, 664007

Tel.: (3952) 25-52-80

Fax: (3952) 25-52-76

Kemerovsky

50, Krasnoarmeiskaya Str.

Kemerovo, 650010

Tel./fax: (3842) 25-62-23

Kurgansky

5, Lenina Str.

Kurgan, 640000

Tel./fax: (3522) 42-11-20

Norilsky

56, Talnakhskaya Str.

Norilsk, 663300

Tel.: (495) 721-12-60

Fax: (3919) 42-19-08

Omsky Regional

35, К. Libknekhta Str.

Omsk, 644099

Tel.: (3812) 23-19-15

Fax: (3812) 24-49-57

Orenburgsky

8, Aksakova Str.

Orenburg, 460024

Tel.: (3532) 31-13-00

Fax: (3532) 56-02-68

Prikamsky (Perm)

7a, Geroev Hasana Str.

Perm, 614990

Tel.: (3422) 44-77-19

Fax: (3422) 44-11-24

Tomsky Regional

63, Вelinskogo Str.

Tomsk, 634050

Tel.: (3822) 41-66-07

Fax: (3822) 41-79-24

Tuvinsky

10, Tuvinskikh Dobrovoltsev Str.

KyzyI, Tyva Republic, 667000

Tel./fax: (3942) 23-80-88

Tyumensky

34/1, 50 Let Octyabrya Str.

Tyumen, 625027

Tel.: (3452) 42-00-32

Fax: (3452) 41-62-64

Udmurtsky

159a, Krasnoarmeiskaya Str.

Izhevsk, 426058

Tel.: (3412) 51-15-31

Fax: (3412) 51-16-25

Ulan-Udensky

(Buryatiа)

3b, Tereshkovoi Str.

Ulan-Ude, Buryatia RepubIic, 670031

Tel./fax: (3012) 28-55-00

Khakassky

165, Pushkina Str.

Abakan, Khakassia RepubIic, 655017

Tel.: (3902) 25-25-92

Fax: (3902) 25-06-32

Chelyabinsky

8а, MOPRa Square

Chelyabinsk, 454000

Tel.: (3512) 65-79-14

Fax: (3512) 66-43-58

Chitinsky

88, Amurskaya Str.

Chita, 672000

Tel.: (3022) 26-34-75

Fax: (3022) 32-43-70

Far East Territory

Regional Administration

Centre

42, Krasnogo Znameni Prospect

Vladivostok, 690106

Tel.: (4232) 42-91-62

Fax: (4232) 42-91-66

Amursky

(Вlagoveshchensk)

187, Amurskaya Str,

Blagoveshchensk, 675000

Tel.: (4162) 22-02-50

Fax: (4162) 53-04-98

Вirobidzhansky

11, Lenina Str, Birobidzhan

Jewish Autonomous Region, 679016

Tel.: (4262) 24-15-95

Fax: (2562) 24-13-10

Dalnevostochny

26, Kim Ju Chena Str.

Khabarovsk, 680000

Tel.: (495) 960-26-71

Fax: (4212) 32-70-92

Kamchatsky

(Petropavlovsk-

Kamchatskiy)

2а, Frolova Str.

Petropavlovsk-Каmсhаtskiy, 683000

Tel.: (4152) 26-66-10

Fax: (4152) 26-64-12

Magadansky

6, Boldyreva Str.

Magadan, 685000

Tel.: (4132) 67-51-62

Fax: (4132) 67-51-60

Primorsky

(Vladivostok)

11, Uborevicha Str.

Vladivostok, 690001

Tel.: (4232) 26-41-04

Fax: (4232) 26-03-86

Sakhalinsky

(Juzhno-Sаkhаlinsk)

37, Chehova Str.

Juzhno-Sаkhаlinsk, 693000

Tel (4242) 72-61-12

Fax: (4242) 72-61-08

Yakutsky

23, Dzerzhinskogo Str.

Sakha Republic (Yakutia), 677007

Tel.: (4112) 22-68-31

Fax: (4112) 33-64-53

Subsidiary Banks

СВ ВAIKAL ROSBANK

5, Oktyabrskoy Revolyutsii Str.

Irkutsk, 664007

Tel.: (3952) 25-88-00

Fax: (3952) 24-31-60

Е-mail: mailbox@baikalrosbank.ru

http://www.baikalrosbank.ru/

CJSC ROSВANK-VOLGA

17b, Novaya Str.

Nizhniy Novgorod, 603000

Tel.: (8312) 30-39-40

Fax: (8312) 30-40-04

Е-mail: mailbox@rosbank-volga.ru

http://www.rosbank-volga.ru/

JSCB BELROSBANK

7, Кгаsnауа Str.

Minsk, Belarus Republic, 220029

Tel.: (+37517) 284-49-29

Fax: (+37517) 284-40-94

Е-mail: mailbox@belrosbank.by

ROSBANK

(SWIТZERLAND) S.A.

17, Rue Du Rhone, P.O.

Вох 5734, СН-1211, Geneva 11,

Switzerland

Tel.: (4422) 818-73-33

Fax: (4422) 818-73-50

Е-mail: rosbank@rosbank.ch

Web-site: www.rosbank.ch

Subsidiary

Financial

Companies

ROSINVEST S.A.

(ROSINVEST)

12, rue Leon Thyes, L-2636

Luxembourg, Grand Duchy of

Luxembourg

ROSBANK International

Finance B.V.

Arent Janszoon Ernststraat 595H

1082 LD, Amsterdam, Kingdom of

Netherlands

As of 01.06.2007

166 167

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