Annual report 2011 - VTB

VTB Annual Report 2011Statement of the President and Chairman of the Management Board4Statement of the President andChairman of the Management BoardDear Shareholders, Clients and Partners,2011 was another successful year for VTB Group.Despite the difficult situation in the global economy,VTB has demonstrated strong financial performanceby increasing operational efficiency and businessvolumes across all of its business lines, as wellas expanding its geographical footprint. Duringthe year, we conducted a number of importanttransactions which, along with the first positiveresults of the implementation of our efficientgrowth strategy, created the potential for furthershareholder value increase.During the reporting period, we made a big stepforward in achieving our strategic objectives, whichare revenue growth and the sustained increase inreturns on capital. In 2011, we generated a recordnet profit of RUB 90.5 billion, an increase of 65%when compared to 2010. The level of return onequity increased to 15.0%, compared to 10.3%in the previous year. I would like to highlightthat these results were achieved in conditions ofconsiderable uncertainty in the global economy andvolatility on the financial markets, which once againendorses our development strategy.One of the most significant events of 2011 wasthe acquisition of an almost 95% shareholding inthe Bank of Moscow. This transaction enabled VTBto strengthen its position in the Moscow regionand expand its client base. We believe that theconsolidation of the Bank of Moscow is in linewith VTB’s long-term strategy and will support thefurther business growth of VTB Group in this highlyprofitable region of Russia. We also increased ourstake in TransCreditBank to almost 78%. In 2011,both banks adopted new development strategies.The Bank of Moscow will continue operatingas a universal bank with a particular focus onpartnership with the Moscow City Government, andwill work with small and medium-sized businesses,while TransCreditBank will be fully consolidated intoVTB Group by the end of 2014. We are presentlyfocusing on the seamless integration of these newmembers into our Group.Our solid financial performance in 2011 is theresult of our systematic efforts to grow our businessorganically, as well as evidence of our successfulM&A activities. The reporting period was alsosignificant for the steps we took to change VTB’srevenue structure and to increase our operatingefficiency.In 2011 we completed the setting up of the CorporateInvestment Banking (CIB) unit of VTB Group. The unitoffers a wide range of banking services on a globalbasis. The CIB unit comprises three business lines –credit services, investment banking and transactionbanking – and three customer service units, thusre-defining our sales efficiency and customer service.In the reporting period, we concentrated on theoptimisation of our business processes. We improvedlending procedures for small and medium-sizedbusinesses, which significantly rationalised thedecision-making process. We also focused on thedevelopment of the Group’s corporate transactionbusiness in 2011, building a highly professionalteam, introducing a range of advanced new productsfor clients’ management of settlements and accountbalances, and developing packaged offers fortransaction banking.All these developments had a positive impact on theCIB unit’s performance. Its profit before taxation in2011 amounted to RUB 84 billion, compared toRUB 59 billion in 2010. Credit services madethe most substantial contribution to the Group’stotal profits. The Group’s corporate loan portfolioincreased by 49.6% year-on-year, and as a resultVTB’s market share for corporate lending grew to18.7%. We reached the number one position inRussia for our corporate deposit portfolio, with amarket share of 21.1% at the end of 2011.Our retail banking business, one of the contributorsto growth in 2011, also demonstrated successfulresults. Profitable growth continued due to the highqualityVTB24 product line, its solid customer baseand our extensive geographical presence. As atthe end of 2011, VTB’s retail segment profit beforetaxation increased to RUB 39 billion, compared toRUB 21 billion in 2010. During the year, the Grouphas been actively increasing its market share in theretail lending market (13.7% as at 31 December2011), mainly through high-margin lendingproducts. In addition, VTB continued strengtheningits funding activities and increased its share in theretail deposit market to 9.0%.Following the consolidation of the Bank of Moscowand TransCreditBank, our retail client base wasincreased by eight million new active clients and ourretail network by more than 600 branches and salesoffices. This provides the Group with significant newopportunities for mass segment growth.The Group was also an active player in thecapital markets in 2011. In February, the RussianGovernment sold 10% of the share capital ofVTB Bank to a wide range of institutional investors.Demand for VTB shares exceeded the offer by oneand a half times, which enabled shares to be soldwith minimal discount to their market value, andalso enabled the Bank to diversify its shareholderbase by attracting long-term investors, includingsovereign wealth funds. VTB was also active inthe debt capital market. In July 2011, the Groupreceived a syndicated loan in the total amountof USD 3.1 billion with a record low floatinginterest rate of LIBOR +1.3%, which has becomea benchmark in the Russian market. Thirty banksparticipated in this transaction. Furthermore, weplaced two Eurobond issues for SGD 300 billion andCHF 225 million. This enabled us to strengthen theGroup’s funding base, and therefore to increase ourlending activities.5

VTB Group has one of the largest corporatecustomer bases in the Russian market. At the endof 2011, VTB provided services to at least 50% oflarge Russian companies. In 2011, market recoveryallowed the Group to increase its corporate loanportfolio by 50% (to RUB 3.8 trillion), whichresulted in the growth of VTB’s market share in thissegment to 18.7%. Over the reporting period,VTB’s corporate deposits portfolio expanded by 66%(to RUB 2.4 trillion), and VTB’s market sharereached 21.1%. The Group was ranked 1st in termsof customer deposits in Russia.Diversification:a driver of efficient growth

VTB Annual Report 20111. Financial highlights101. Financial highlightsTotal shareholders’ equity (in RUB, billion)11578.22010Total assets (in RUB, billion)625.120114,290.920106,789.62011Net profit (in RUB, billion)Loan portfolio (in RUB, billion)54.820103,059.6201090.520114,590.12011Selected indicators, %Customer deposits (in RUB, billion)2010 1 2011Net interest margin 5.1 5.0Cost to operating income before provision 43.0 49.4Return on assets (ROA) 1.5 1.7Return on equity (ROE) 10.3 15.02,212.920103,596.720111 Calculated excluding the effect of TCB consolidation.

VTB Annual Report 20112. VTB’s market position122. VTB’s market position13VTB Group’s international presenceVTB Group is a leading Russian universal bankinggroup that offers a wide range of financial servicesacross Russia, as well as in a number of countriesin the CIS, Western Europe, Asia and Africa.The Group’s main business areas are made up oftwo business lines: corporate and investmentbanking, and retail banking. Besides thosebusinesses, VTB is also actively developing nonbankingfinancial services, such as insurance,factoring, leasing, and pension funds, to enable it tooffer a complete range of services to its clients.VTB Group possesses a unique international networkamong Russian banks that is made up of over 30banks and financial companies across 22 countriesworldwide.Corporate and investment bankingVTB Group’s largest business. This includes investment, transactionbanking and lending business that focus on servicing large and mediumsizedcompanies, financial institutions, as well as government executivebodies and local authorities.76% of Group’s assets 1Loans: RUB 3,424 billionDeposits: RUB 2,291 billionProfit 2 in 2011: RUB 84.4 billionRetail bankingThe key element of VTB Group’s business. This segment focuses onworking with individual customers and small businesses.20% of Group’s assets 1Loans: RUB 851 billionDeposits: RUB 1,299 billionProfit 2 in 2011: RUB 38.8 billionVTB Group in the Russian banking market2011 2010 2009Segments Market share, % Rank Market share, % Rank Market share, % RankCorporate loans 18.7 2 12.0 2 12.1 2Corporate accounts and deposits 21.1 1 15.0 2 12.7 2Retail loans 13.7 2 12.1 2 10.2 2Retail accounts and deposits 9.0 2 7.2 2 6.0 2Source: VTB estimates based on data by the Bank of Russia and RAS financial results of VTB Bank, VTB24, TransCreditBank and the Bank of Moscow.Corporate loan market share calculated based on the Bank of Russia data (for Russian corporate loan market) and Rosstat data (for loans provided toRussian companies from abroad). Numerator represents VTB Group’s consolidated corporate loan portfolio (under IFRS).1 The proportion of VTB Group’s total assets before elimination of intersegment transactions.2 Profit before taxation.

VTB Annual Report 20113. The economy and banking sector14VTB Group’s key strengths3. The economy and banking sector15Impressive business scale and strongmarket positionVTB Group is the leading Russian financial group. The Group’s universal business model and thescale of the business enable it to successfully compete in Russia and abroad.Brilliant success storyBy implementing its strategy for aggressive growth and diversification, VTB Group has substantiallyincreased its business volumes. Between 2001–2011, VTB Group’s assets grew 35-fold,transforming the Group from a corporation bank to a global financial institution.The Russian economy in 2011In 2011, the Russian economy continued its postcrisisrecovery at a moderate pace, growing by 4.3%in real terms. National GDP totalled RUB 54.4 trillion,or nearly USD 1.9 trillion, for the year. The key growthdrivers throughout the year were domestic consumptionand fixed capital investments. Retail turnover grew by7.2%, investments increased by 8.3% and industrialproduction saw growth of 4.7%.Broad network of sales offices across RussiaVTB Group’s network of sales offices is one of the most developed in Russia and covers more than90% of the country’s population. Its widespread presence in the regions brings VTB closer to itsclients, enabling it to build long-lasting relationships, based on a clear understanding of clientneeds.Real growth of Russian GDP compared to other countries, % year-on-yearExtensive corporate customer base andwell-established relationships withthe largest Russian companiesVTB Group has one of the largest corporate customer bases in Russia that covers a diverse range ofindustries. At the end of 2011, VTB served at least 50% of large Russian companies.RussiaGlobalEuro area CentralChina USAand Eastern Europe14.2Well-developed expertise in investmentbankingOne of the largest retail bankingbusinesses in RussiaVTB has quickly established itself as one of the strongest investment banks in Russia and the CISthrough VTB Capital. The Group’s investment banking business regularly receives top rankings fromDealogic, Institutional Investor, Thomson Reuters, Cbonds, etc., for work conducted in segmentscovering debt and equity transactions, M&A activities, trading and market research.As at the end of 2011, VTB Group was the second-largest bank in Russia by the number of retailloans and deposits of individual customers. Today, around 15 million individuals are VTB clients.8.55.24.3 4.35.45.14.02.8–0.73.00.41.81.65.53.14.5 4.39.6 9.210.39.51.9–0.33.01.5–4.3–3.6–3.5A recognised and trusted brandThe VTB brand has more than 20 years of history in Russia and its name is associated with reliabilityand quality of services. VTB has won numerous awards, including the well-known internationalaward “The Best Russian Bank”, organised by Global Finance magazine–7.820072008200920102011Source: IMF World Economic Outlook Database and Federal State Statistics Services (Rosstat) for Russian data.

VTB Annual Report 20113. The economy and banking sector16Russian macroeconomic indicators, % year-on-yearIndustrial productionCapital investments22.79.98.26.84.70.6–9.3–15.720072008200920102011Source: Rosstat.6.08.3Retail turnover16.113.6–5.16.37.2In 2011, trading of Russian Eurobonds was drivenby investor sentiment rather than by marketfundamentals. However, this investor sentimentdeteriorated in the second half of 2011 following theworsening debt and banking crisis in the Eurozone.At the same time, the fundamental macroeconomicfactors for Russia as a sovereign borrower, suchas a flexible exchange rate, moderate inflationrates, favourable oil prices, surplus budget andan increase in international reserves, were mostlypositive or neutral. The level of activity of Russianbanks on the international debt market was low,mainly due to lower funding costs in the country.It became even more profitable to place bonds inthe domestic market in 2011, as the difference inspreads between rouble and US dollar instrumentsincreased by approximately 50-70 basis points.Overall, according to the Bank of Russia, Russia’sgross foreign debt increased by USD 56.3 billion in2011 to a total of USD 545.2 billion. Banking sectordebt rose by USD 18.7 billion to USD 162.9 billion,while corporate borrowers increased their foreigndebt by USD 39.7 billion to USD 337.9 billion.loan portfolio in 2010. The key drivers for the growthof the lending sector were economic growth and theexpectation of a lending rate increase in the secondhalf of the year – they had reached a record low inthe summer of 2011. The state-owned banks werethe leading players in the lending sector.At the same time, acceleration in loan portfoliogrowth rates occurred mainly in the second half ofthe year due to the depreciation of the rouble (theRUB/USD exchange rate decreased by 16.5% fromAugust to December 2011), as foreign currency loansaccounted for 18% of the total loan portfolio.In 2011 there was further significant improvementin asset quality as, by the end of the reportingperiod, the proportion of non-performing loans in thebanking sector as a whole had decreased to 4.8%,compared to 5.7% at the end of 2010, supported bythe growth in Russian banks’ loan portfolios.The proportion of non-performing corporate loanswas down to 4.6% (5.3% at end 2010), with a nonperformingretail loans figure of 5.2% (6.9% at end2010).17The rate of inflation in Russia decreased to 6.1% perannum by the end of the reporting period, mainlydue to the Bank of Russia’s transition from a fixedexchange rate policy to a more flexible one, as wellas a good harvest in 2011. In December 2011, thefood price inflation rate reached 3.9%.The Bank of Russia shifted from tightening monetarypolicy in the first half of the year to easing it later inthe year. Taking into account excess rouble liquidityand the high inflation rate at the beginning of 2011,it raised key interest rates and increased reserverequirements. In the first six months of the year,the Bank of Russia base rate increased to 8.25%,50 basis points higher than in December 2010. Withdecreased inflationary pressure, the Bank of Russiakept the base rate unchanged until December,when it decided to lower the base rate by 25 basispoints to 8.00%. During the year the Bank of Russianarrowed the interest rate corridor by graduallyincreasing deposit rates, which reached 4% at theend of 2011, a 1.25 percentage point increase fromthe previous year.The RUB/USD exchange rate was 32.20 at the end of2011, representing a depreciation of 5.6% comparedto the end of 2010. The exchange rate fluctuatedsubstantially over the year, reaching a high of27.28 roubles per US dollar on 2 May, and a low of32.72 roubles per US dollar on 4 October. The exchangerate was significantly affected by high oil prices arisingfrom the tense geopolitical situation in the MiddleEast, the escalation of the sovereign debt crisis in theEurozone, and capital outflows from Russia, whichintensified at the end of the fourth quarter. In 2011,the net capital outflow from the Russian private sectoramounted to USD 84.2 billion, which greatly exceededthe 2010 figure of USD 33.6 billion.The Russian banking sectorThe Russian banking sector grew strongly in 2011on the back of the robust economic recovery, whichfuelled an increased demand for loan products fromcorporate and retail clients. The Russian bankingsector’s assets increased by 23% year-on-year,compared to a 15% increase in 2010. At the sametime, the penetration of the banking sector, which isdefined as the ratio between the banks’ total assetsand GDP, rose from 75% in 2010 to 77% in 2011.The penetration of the lending sector relative toGDP also increased to 43% in the reporting year,compared to 40% in 2010. This increase wasunderpinned by strong loan portfolio growthof 28% year-on-year in 2011, including a 26%year-on-year increase in the corporate loan portfolioand a 36% year-on-year increase in the retail loanportfolio, compared to a 13% increase in the totalThe improvement in asset quality allowed banks toreduce their allowances for loan loss provisions bythe end of 2011, as well as to restore a proportion ofreserves. This in turn resulted in a lower proportionof reserves in the total portfolio – 8.5%, as opposedto 10.5% in December 2010. At the same time,the credit risk coverage ratio amounted to 179% atthe end of 2011, which was a suitable level for thebanking sector.Lower allowances for loan loss provisions and thestronger reserves position positively impacted manybanks’ financial results. The sector’s total profitreached a record level of RUB 848 billion, comparedto RUB 573 billion in 2010. In 2011, the growth intotal profit was accompanied by a decrease in thenumber of unprofitable banks in the sector to 50,compared to 81 in 2010.

VTB Annual Report 20113. The economy and banking sector18Banking system indicators (in RUB, billion)200720,1252,672508200828,0223,109409200929,4303,766205201033,8054,339573Growth in deposits remained at a consistent levelin 2011, amounting to 24% compared to 23% in2010. Retail banking deposits grew at 21% in 2011,which was slower than the 31% figure of the previousyear. However, corporate banking deposits growthaccelerated to 26%, up from 16% in 2010. At thesame time, the proportion of customer funds in grossliabilities remained at the 2010 figure of 70%.Despite the strong growth in deposits, the evengreater increase in loans resulted in a higher loan todeposit ratio of 83% in 2011, compared to 78% in2010. This increase creates a strong foundation forfurther potential growth in the lending segment.A total capital adequacy ratio of 14.7% at the end of2011 is evidence that the banking sector is able tomitigate negative factors and can further develop itslending operations in 2012.However, the deterioration in liquidity at the end ofthe year resulted in an increase in interest rates ondeposits as banks tried to increase their fundingbase for active operations. This led to an increase inlending rates, which indicates a potential decline inthe demand for loans. At the same time, a possibleslowdown in economic growth and lower GDP growthworldwide also suggests a potential reduction inlending in 2012.Due to the state-owned banks’ market-leadingpositions, they were the most active in 2011.The four largest state-owned banks – Sberbank,VTB Group, Gazprombank and Russian AgriculturalBank – accounted for 51.0% of all banking assetsin the country as at the end of 2011, compared to46.3% in the previous year. Against this background,and also due to growing pressure from the developingbanking crisis in Europe, some subsidiaries of foreignfinancial institutions were forced either to reduce thescale of their operations or to close down completely.The concentration of assets in the Russian bankingsector increased in the reporting year. At the endof December 2011, the 20 largest banks (includingconsolidation) held 69.0% of assets compared to66.5% in 2010. Additionally, the share of the fivelargest banks in the sector increased to 53.4%,compared to 48.9% a year earlier.Russian banking sector loan portfolio and customerdeposits (in RUB, billion)2007200820092,9714,0173,5745,1595,9076,7537,4859,3168,4969,35812,51012,542192010201114,06341,6284,0854,96310,8938489,8182011AssetsCorporate loans17,715EquityNet profitRetail loansCorporate deposits5,551Retail deposits13,701Source: the Bank of Russia.Source: the Bank of Russia.11,871

VTB Annual Report 20114. Management report204. Management report1To achieve ROE of 15-20% acrossthe Group2011ROE: 15.0% (+470 basis points, compared to 2010)214.1. Key events in 20111st quarter:The Russian government, the main shareholder ofVTB Bank, represented by the Federal Agency forState Property Management, sold a 10% stake in theBank. Following the transaction, the state’s stake inthe Bank decreased from 85.5% to 75.5%.The interest rate was set at 1.3% over LIBOR (LondonInterbank Offered Rate) per annum.VTB Bank and JSC Russian Railways signed a sharepurchase agreement whereby VTB Bank will acquireRussian Railways’ shareholding in TransCreditBank(TCB). The agreement was signed within theframework of the phased acquisition of TCB approvedby the VTB Supervisory Council.234To more than double profit, whencompared to 2010 figuresTo achieve a qualitative change in profitstructure, and enhance sustainability offinancial resultsTo increase the proportion of highmarginbusinesses in the Group’s profitfiguresNet income: RUB 90.5 billion (+65.2%, compared to2010)The proportion of fee and commission income in theGroup’s operating income before provisions increasedto 14% in 2011, compared to 11% in 2010• Profit before taxation of the retail banking businessgrew by 83% to RUB 38.8 billion• Profit before taxation of the corporate and investmentbanking business grew by 43.8% to RUB 84.4 billion.VTB Group completed the acquisition of 46.48% ofthe Bank of Moscow’s shares and also acquired a25% +1 share stake in JSC Capital Insurance Group.The merger of VTB Bank North-West and VTB Bankwas completed. Together with the finalisation of alllegal procedures, the VTB North-West Regional Centrewas established at the former head office ofVTB Bank North-West.2nd quarter:The Supervisory Council established the Strategy andCorporate Governance Committee in order to optimiseits decision-making process on issues of strategicdevelopment and to improve VTB’s corporategovernance.Sergey Dubinin was elected as Chairman ofthe VTB Bank Supervisory Council.3rd quarter:VTB Group obtained a USD 3.13 billion syndicatedloan, the largest syndicated transaction in the historyof financial institutions in Central and Eastern Europe.VTB Group consolidated the Bank of Moscow,increasing its stake in the bank’s share capital to80.57%.4th quarter:VTB Capital opened its office in Hong Kong.VTB was named “Company of the Year 2011” inawards organised by RosBusinessConsulting Group.VTB increased its stake in the Bank of Moscow to94.84% through purchase of the bank’s additionalshare issue.4.2. VTB Group strategyVTB Group consistently implements the strategy itapproved in 2010, which is to grow the businesseffectively and improve its structure. The strategyprovides for the achievement of the following fourambitious targets by 2013:Strategic objectives, and the results of theimplementation of strategy in 2011Achieving large-scale transformations to increase theproportion of fee and commission income, and toimprove overall operational efficiencyEstablishing an integrated corporate and investmentbanking business;Ensuring a clear division between customer-focusedand product-focused functions;Establishing a system of product managers withresponsibility for financial results;Active development of transaction banking –establishing the management team and theorganisational structure, launching a number ofadvanced cash management products, developingpackaged offerings, implementing a new system ofremote banking services;Reform of credit procedures – a 30-70% reduction intime spent on the decision-making process;Beginning reform of the regional network –transformation of branches into operational offices,and centralisation of back-office functions;Efficient integration of assetsCompletion of the largest merger in the Russianbanking industry at the time: VTB Bank North-Westwas transformed into the VTB North-West RegionalCentre;Acquisition of 94.84% of the Bank of Moscow’sshares, enabling the Group to strengthen itspositions in the corporate and retail banking sectors.The Group’s network in Moscow and the Moscowregion increased by 2.5 times, with 135 officesadded. The customer base expanded by more than100,000 corporate clients and six million active retailclients;Beginning the integration of TransCreditBank:development of long-term partnerships with RussianRailways and other companies in the industry;putting into action a number of synergies provided bynew sources of cross-sales and an improved resource

VTB Annual Report 20114. Management report22base; expansion of the network by 288 TCB salespoints; access to a customer base of more than twomillion retail clients;Gaining operational control over MetropolitanInsurance Group, one of the largest players in themotor insurance market: the company is ranked thirdamong insurance companies for compulsory civilliability insurance of owners of motor vehicles, andsixth for fully comprehensive motor insurance. Keyshort-term tasks for VTB Group include optimisationof the company’s ownership structure and adoptionof a new development strategy, which will includea range of initiatives aimed at improving theprofitability of Metropolitan Insurance Group.Improving the Group’s management system in orderto create a platform for growth in Russia and abroadCreation of two global business lines (retail bankingand corporate and investment banking);A centralised allocation of responsibilities and anintegrated approach to the management of the keyfunctional divisions within the Group: finance, risks,IT and the operational support of the business;Implementation of a new business model forservicing global clients.The Group’s new management system enables allits subsidiary banks and companies to utilise theglobal expertise and resources of the Group moreefficiently, as well as to provide clients with packagedofferings, developed with the direct participation ofspecialists from head office. The new model enablesthe reduction of risks, the building of a truly globalmodel for servicing key clients, and the coordinationof each business line’s operations in all the Group’sgeographical locations.4.3. Review of operatingperformance4.3.1. Corporate and Investment BankingDuring the reporting period, VTB completed theintegration of its corporate and investment bankingbusinesses within the framework of the developmentstrategy adopted by the Bank’s Supervisory Councilfor the period from 2010 to 2013. In autumn 2011,VTB Group began building a major business line –Corporate and Investment Banking (CIB) – in the keyregions in which the Group is present. CIB providesservices to major corporate clients in the key areas ofcorporate and investment banking.CIB comprises three product units – investmentbanking, credit services and transaction banking –and three customer service units, focused on largecorporate clients from market-based sectors andmedium-sized businesses and large corporate clientsin the state sector.VTB Group’s investment banking business offersits corporate customers a full range of investmentbanking products, including the support ofcommercial transactions, organising debt and equityissuance, financial consulting in relation to capitalmarkets and M&A transactions, development of directinvestment business, asset management and others.The credit services unit provides various types ofloan products. The structure of the unit is designedto take into account the particular requirements ofservicing clients from various industries and businesssegments, with the objective of improving methodsof credit analysis and the quality of the Group’s loanportfolio.The key purposes of establishing a separatetransaction banking unit are to grow the Group’scommission-based income by increasing sales ofexisting transaction-related products and services,including settlement and cash services, controlof foreign exchange transactions, products toattract funds, centralised settlements and liquiditymanagement for its customers, and trade financeproducts, as well as to expand the range of products.The integration of the corporate and investmentbanking businesses within the Group will enableVTB to implement an integrated approach toservicing large corporate customers, based on theplatform offered by VTB Group. The Group will alsotake advantage of synergies arising from combinedproduct and service offerings in key business areas,and from services tailored to the specific needs ofclients.Investment bankingVTB Group offers its Russian and internationalcustomers operating in various regions of theworld a full range of investment banking services,including trade operations in the global markets,research, transactions in the debt and equity capitalmarkets, structured products, M&A transactions andconsulting services, asset management servicesand more. Investment services within the Group’scorporate investment banking business are primarilyprovided by VTB Capital.During the reporting period, VTB Capital opened anew office in Hong Kong, thus expanding its presencein the Asia-Pacific region. Also, in autumn 2011,VTB Capital received FINRA’s licence to carry outbroker and dealer activities in the USA and openedan office in New York in April 2012.Trade operations in the global marketsThe Group offers a full spectrum of trade operationsin the debt and equity markets, currency exchangetransactions, operations in the global commoditiesmarkets, share and bond trades, as well as currencyand interest rate risk management services, includinghedging services, structured finance, structureddeposits and notes, and other structured credit andhybrid products.In 2011, VTB began offering share trading operationsin Ukraine in cooperation with its subsidiaryVTB Bank (Ukraine). VTB Capital became a memberof the Warsaw Stock Exchange and also commencedoperations in the futures and options market (FORTS)of the RTS Stock Exchange and Eurex markets.VTB Capital has continued to develop its cooperationwith the Russian Commercial Bank (RCB) Cyprus,enabling VTB clients actively to trade shares andderivative instruments.According to Euromoney magazine, VTB Grouptransactions account for up to 31% of the totalforeign exchange operations, carried out by Russiancompanies. As well as operations in the maincurrencies, in 2011 the Group offered products toRussian companies that involved exotic currenciessuch as Chinese yuan and Indian rupees. During thereporting period, the Group executed its first Russianrouble / Chinese yuan swap transaction.VTB is one of the leading traders in the governmentand corporate bonds market on MICEX and on overthe-countermarkets, as well as being the leadingtrader on the Russian fixed-income instrumentsmarket. The Group conducts a significant volume oftrade and investment operations with governmentsecurities, including bonds issued by the RussianMinistry of Finance and Russian Federation sovereignEurobonds. According to the Emerging Markets TradeAssociation (EMTA), VTB’s share of trades in thebond market in 2011 exceeded 10% for both roubledenominatedbonds and Eurobonds.Since 2011, VTB has been conducting bond tradesin Central and Eastern European countries, includingPoland, Croatia, Hungary, Lithuania, Romania andBulgaria, as well as transactions with the main typesof securities in Turkey.Investment banking operationsVTB offers its clients a full range of investmentbanking services, including consulting services in23

VTB Annual Report 201124In just a few years VTB Group has created one of thestrongest investment banks in Russia and the CIS,VTB Capital. In 2011, according to Dealogic,VTB Capital was named the number one equitybookrunner in Russia and the CIS, the number oneM&A Advisor in Russia and the CIS, and the numberone rouble bond bookrunner in Russia.In the Bloomberg ranking, VTB Capital is the numberone among Eastern Europe Equity Capital Marketbookrunners and the number one among roublebond bookrunners. In 2011, VTB Capital researchteam was recognised the best in Russia in theThomson Reuters Extel and Institutional InvestorAll-Russia surveys.New territories: freedom of operation

VTB Annual Report 20114. Management report26relation to M&A transactions, placements of debt andequity issuances, etc.VTB Capital took part in the arranging of a numberof key transactions on the M&A market in 2011,including the merger of two leading Russianproducers of potash fertilisers: OJSC Silvinit andOJSC Uralkali (with a total value of USD 23.9 billion)and the USD 4.9 billion merger of the RTS and MICEXstock exchanges. According to Thomson Reuters,as at the end of the reporting period VTB was thenumber one M&A advisor and arranger of debt andequity transactions in Russia.ResearchVTB Capital’s research team provides coverageon the operations of more than 90 companies inthe main sectors of the economy. It also regularlyconducts independent research on the fixed-incomeinstruments markets, on the equity and commoditiesmarkets, carries out analysis of the macroeconomicsituation, and provides analytical support to thecompanies of the Group. According to ThomsonReuters’ 2011 rankings, VTB analysts took five of thetop-ten places in the Russian research team category.Operations in the commodities marketsVTB Capital offers a wide range of risk managementservices for participants in commodities marketstransactions, including risk hedging products,commodity–linked finance, etc. The spectrum ofVTB Capital’s services encompasses structuredinvestment instruments, including structureddeposits and structured notes with interest rateslinked to commodities prices and commoditiesindices. The Bank also participates in the tradingof precious metals, operations with derivativeinstruments and export operations. The Bank sellsprecious metals acting in its own name, or on behalfof its clients that are producers of precious metals, oron behalf of other banks.Custody servicesVTB Group’s Custody is one of the largest custodiansin Russia, providing a full range of services in respectof all types of securities issued by Russian andforeign issuers.The Group’s Custody was in 2011 awarded“top-rated” for the fifth consecutive year in theinternational custodian ranking Agent Banks inEmerging Markets.Asset managementVTB Group offers effective asset managementsolutions in the Russian and international markets.Services in this market segment are provided byVTB Capital Asset Management (VTB Capital AM).In 2011, VTB Capital Asset Management signed trustmanagement agreements for pension savings withseveral non-governmental pension funds, includingNPF Norilsk Nickel, NPF UMMC-Perspective,NPF Raiffeisen, NPF Telekom-Soyuz and NPF Sistema.VTB Capital AM is among the companies that areauthorised to manage the funds of the PensionFund of the Russian Federation (managing theaccumulative portion of government pensions), andalso successfully manages the assets of severalinstitutional clients.VTB Capital AM has a range of 15 open unit fundswith various investment strategies, includinginvestments in foreign assets.In 2011, the company continued to develop itsactivities in the collective investment market,attracting new investors and expanding its networkof sales points. As a result, VTB AM has become oneof the top-ten asset management companies in thecollective investment market, as measured by thevolume of investment attracted into open funds.The company established its first venture fund VTBVenture together with the Russian Venture Companyin 2007. VTB contributed 50% of the fund’s assets.VTB Capital AM manages the assets of the fund.As of 31 December 2011, approximately RUB 2.2billion of VTB Venture’s funds have been invested in15 companies, which operate in high-tech sectors ofthe economy, such as telecommunications, opticalelectronics, space and information technologies.Within the framework of public-private partnership,VTB Capital AM established four regional venturefunds for investing into small businesses in variousregions of Russia. In December 2011, an agreementto create a Russian-Kazakh Nanotechnology Fund wassigned, and it is expected that this fund will be setup in the course of 2012. VTB Capital AM will managethe fund in cooperation with the international venturecompany I2BF, which operates in the USA, Europeand countries of the Asia-Pacific region.Credit servicesIn 2011, the Russian corporate lending market wasdeveloping during a period of moderate growth in theRussian economy. Against a background of growthin industrial production, the financial condition ofcorporate borrowers also gradually improved, whichhad a positive impact on the lending market.VTB Group was able to take full advantage of thelending market recovery and increased its corporateloan portfolio to RUB 3.8 trillion, which was 50%higher than the equivalent figure for 2010. VTB’smarket share in this sector amounted to 18.7%.An important factor in the growth of the Group’scorporate lending portfolio was the proactive salesof loan products through relationship managers,assisted by highly-qualified product specialists.In addition to traditional corporate lending,VTB Group offers its large and mid-sized corporateclients complex lending instruments, includingstructured repo, investment and project financing,debt and equity financing services, consultancyservices on the structuring of investment projects,and services to attract direct financing fromCorporate loan portfolio (in RUB, billion)2,11020092,51820103,7662011Source: VTB Group’s IFRS consolidated financial statements.Total gross loans and advances to customers byindustry as at 31 December 2011Retail loans (18%)Finance (13%)Building construction (12%)Manufacturing (10%)Metals (8%)Trade (8%)Transport (8%)Loans to government authorities (5%)Chemical (5%)Oil & Gas (3%)Energy (3%)Food & agriculture (2%)Other (5%)Source: VTB Group’s IFRS consolidated financial statements.27

VTB Annual Report 20114. Management report28institutional investors and commercial banks.VTB Group’s subsidiaries also offer their customersa range of leasing and factoring products.VTB Group is one of the few banks in the financialsector to offer long-term project financing in theRussian regions. In 2011, VTB funded several projectswith the participation of Russian and CIS companiesin various sectors of the economy.Among the key areas of future development forVTB are the optimisation of business processes incorporate lending, the improvement of utilisation ofresources by the Group’s subsidiaries and expandingthe geographic range of the Group’s bankingproducts.To rationalise the decision-making process, the Bankintroduced a new Credit Procedure in 2011. Thisoptimised the turnaround time for the credit andexpert divisions, and thus reduced the time requiredfor an authorised person/body to make a decisionregarding a customer application.Despite the improvement in the overall economicenvironment and the financial position of most ofits customers, VTB Group continues to pay closeattention to monitoring the quality of its loanportfolio. The Group actively utilised various formsof risk reduction in credit transactions, such as thecreation of collateral (real estate and other property,pledge of receivables, etc.), guarantees, stateguarantees, remittance speed requirements, transferof service contracts, settlements through the Bank’saccounts, and establishing financial covenants andrestrictions and the control of their execution.In addition, VTB Group uses state guarantees as oneof the most reliable instruments for risk reductionwhen lending to major strategic customers.In 2011, VTB Group systematically worked to reducebad, and potentially bad, debt. The Group usedstandard procedures in the banking industry for theearly detection, prevention and settlement of suchobligations.A more detailed analysis of the quality of the Group’sloan portfolio can be found in the Risk Managementsection.Transaction bankingDepositsUnfavourable cash liquidity conditions in the secondhalf of 2011 intensified competition among lendinginstitutions for the funds customers had available.In the light of this, the Group increased its sale ofdeposit products by developing a deposit line andincreasing its competitiveness. As at the end of thereporting period, the portfolio of corporate fundsdeposited increased by 66% to RUB 2.4 trillion, andthe Group’s market share in Russia rose to 21.1%(+610 basis points). As a result, the Group held thenumber one position in Russia in terms of volume ofdeposits received.VTB Group’s customers can manage their temporarilyavailable funds effectively by utilising a whole rangeof deposit products – both in roubles and in foreigncurrencies – with options such as to pay in or partiallywithdraw, to close an account prematurely or utilisean interest capitalisation option. To meet the diverseneeds of its clients, the Bank offers flexible choices ofterms and rates.Corporate deposits (in RUB, billion)1,09247262020091,4654909752010Current depositsTerm deposits2,4356491,7862011Source: VTB Group’s IFRS consolidated financial statements.In 2011, a mechanism for conducting deposittransactions under a general agreement wasintroduced, which substantially simplified theprocess of placing funds by clients. VTB also startedoffering new banking products, such as depositsin Chinese yuan, as well as structured depositswith a rate linked to the price of gold. The launchof these products was due to increased interestfrom customers in investments in the commoditiesmarkets and in the increasing volume of foreign tradeoperations in the Chinese currency.Settlement transactionsThe development of settlement products in 2011was aimed at improving the system of remotebanking services, integrated solutions for centralisedsettlements and liquidity management for customers.Users of the remote banking services system wereable to use the Bank-to-Client service and InternetCustomer service to accept third-party paymentdocuments, to deposit funds and to make paymentswith letters of credit.The Group’s transaction banking unit paid particularattention to the improvement of business processesdesigned to reduce the time taken to make servicesavailable to clients. With this aim, the methodof logging on to the remote banking system wassimplified, including for those clients who have aserver network. Moreover, the procedure for openingan account was simplified, as well as a mechanismbeing developed for carrying out deposit transactionsunder general agreements. This made the process ofallocating funds by clients more straightforward, aswell as simplifying the procedure for issuing importletters of credit via subsidiary banks.In order to improve the efficiency of settlementtransactions, a team of highly-qualified specialists,possessing in-depth knowledge of the products andsubstantial experience of working in the leadingWestern banks, was created. The main task of thisteam is to identify clients’ needs and to implementintegrated solutions designed to optimise liquidityand working capital, thus enhancing operational andfinancial efficiency through the management andcontrol of clients’ cash flows. As a result, integratedsolutions were implemented in 28 of Russia’s largestholding companies in 2011. This generated a 25%increase in commission-based income on servicesarising from the centralisation of settlements andliquidity management, as well as a sevenfoldincrease in the closing balances of the accounts ofthese clients, when compared to a year earlier.Documentary businessDocumentary business is a key area of VTBGroup’s activities. The Bank offers all types of bankguarantees and a full range of products and servicesfor foreign trade transactions in documentaryform, including settlements by letters of credit andguarantee operations on the territory of Russia.For the past several years VTB has been the numberone bank in the Russian market in terms of the sizeof its portfolio and level of income from documentaryoperations. The Bank is the leading credit institutionin Russia in the sphere of foreign trade operations.Obligations under the VTB name have always inspiredtrust in international financial circles.VTB introduced a new model for the sale ofdocumentary business products in 2011, alsoforming a team of product managers, who providea full spectrum of services in this area. Theseinitiatives have enabled the Group to accelerate thesynergy effect arising from cooperation betweenthe Bank’s client and product divisions, and VTBhas thus secured its position as the Russian marketleader in the sphere of documentary business.Close attention was also paid to improving pricingmethodology. As a result of this, VTB Group has beensuccessful in achieving a 69% increase in incomefrom documentary operations, in maintaining a14% share in total commission income, in reducingthe concentration of documentary business andincreasing the proportion of deals with a reducedlevel of risk (performance guarantees for government29

VTB Annual Report 20114. Management report30contracts, guarantees of reimbursement of ValueAdded Tax, etc.)During the reporting period, a number of measureswere implemented to develop cross-selling within theVTB Group on the basis of documentary business.In particular, client service models were developedand introduced with the participation of the Bank’sforeign branches in India and China, as well as withother subsidiary banks of the Group.In 2011, intensive efforts were made to introducea system for the sale of letters of credit through theremote banking service. The practice of selling bankguarantees and letters of credit under the frameworkof general agreements was also actively promoted.Working with clientsIn order to improve the quality of client service,the Bank adopted new approaches to customersegmentation in 2011. In particular, the criteria fordefining large and medium-sized corporate clientshave been revised, and the model for servicing largecorporate clients has been modified.During the reporting period, VTB formed two clientservice divisions to deal with large corporate clients.One of them is focused on servicing the state anddefence sectors of the economy, and the otherdivision focuses on providing services to clientsin market-based sectors of the economy (metalsand mining, oil and gas, power generation, trade,information technology and communications,mechanical engineering, the chemical industry, etc.).The new servicing model is based on the creation ofsector directorates within the client divisions thathave responsibility for developing business withclients in each sector of the economy. This approachto client servicing enables the quality of sectorexpertise to be improved and banking services to becustomised to each client’s needs.The medium-sized corporate client segment iscrucial to the development and diversification ofVTB Group’s business. The model for servicingmedium-sized businesses focuses on developing astandard line of banking products and services, andso maintaining an integrated offering. Medium-sizedand regional corporate clients are serviced bya separate client division.4.3.2. Retail bankingIn 2011, VTB Group’s retail banking businessdeveloped in a dynamic fashion and grewsignificantly faster than both the market and VTB’smajor competitors, as a result of organic growth andthe successful completion of acquisitions. As thesecond largest bank in Russia serving individualcustomers, VTB24 continues to form a core part ofthe Group’s retail business. VTB Group retail bankingservices in Russia are also provided by the Bank ofMoscow and TransCreditBank.At the end of 2011, VTB24’s active customer basetotalled 5.9 million, compared to 4.9 million at theend of 2010. As at the end of the reporting period,VTB Group’s total active Russian retail customerbase totalled around 15 million active customers,including the Bank of Moscow and TransCreditBankactive customer base. At the end of the reportingperiod, the number of small businesses working withVTB Group amounted to more than 250,000.By the end of 2011, VTB Group banks in CIS countries(Ukraine, Armenia, Azerbaijan, Kazakhstan andBelarus) and Georgia were providing services toapproximately 1 million individuals. The Group’sretail business in Europe is also developingsuccessfully in France and Germany, where Groupactivities are mainly focused on attracting retailcustomer funds at present.The Group continued to implement its retail bankingstrategy during 2011. The strategy centres on acustomer-oriented approach to business development,which aims to improve customer service qualitywithout losing sight of the Group’s commitmentto delivering greater profitability. In addition toexpanding VTB’s retail banking scale and marketshare, the Group’s medium-term retail business plan isto intensively develop its customer relations, as well asexpand and grow remote sales channels.The most significant market factors that influencedVTB Group’s retail business performance during2011 included the recovery of the Russian economyagainst the backdrop of the European debt crisisand the reduction of the US credit rating, increasedcompetition in the retail lending market as well asthe stabilisation of the level of non-performing loans.The savings-oriented consumer behaviour model thatestablished itself during the credit crunch, changedto a consumer growth model over the course of theyear. This trend was confirmed by a growth in loansamidst falling growth in savings.In the context of a dynamic and growing retaillending market in 2011, VTB24 not only focusedon the extensive development of its network andthe growth of its loan portfolio, it also focused onthe improvement of customer services and theintroduction of innovative approaches to workingwith key customer segments. VTB24’s maincompetitive advantages are not restricted to therange and attractiveness of its retail product offering,as the high level of technological development ofits banking and its segmented approach to differentgroups of customers are also key. All these factorsVTB Group retail lending market share, %10.212.213.72009 2010 2011Source: VTB estimates based on RAS financial results of VTB Bank, VTB24,the Bank of Moscow and TransCreditBank.combined contributed to record levels of profit beingregained by VTB retail business-line in 2011.The improved economic situation in Russiacontributed to the dynamic growth of VTB Group’sretail loan portfolio, which grew by 52.2% toRUB 824.1 billion as at the year-end, compared toRUB 541.5 billion in 2010. In addition to organicgrowth driven by VTB24’s positive lending activity,the expansion of its portfolio was greatly enhancedby the consolidation of the Bank of Moscow in 2011.The high rate of growth in lending to individualsenabled VTB Group to increase its market share inthe Russian retail lending sector to 13.7% (versus12.2% in 2010). For the past five years, the Grouphas consistently been second-largest player in thissegment of the Russian market.In 2011, the Group managed to maintain growth ratesin retail deposits, far outpacing the market average.At the end of the reporting period, VTB Group’sportfolio of retail deposits reached RUB 1,161.4 billion,an increase of 55.3% compared to 2010. In anincreasingly competitive environment, VTB was ableto capitalise on its brand reputation and secure asignificant organic influx of customer funds. Theconsolidation of the Bank of Moscow contributedsignificantly to the growth in customer funds.VTB Group retail deposit market share, %6.07.29.02009 2010 2011Source: VTB estimates based on RAS financial results of VTB Bank, VTB24,the Bank of Moscow and TransCreditBank.31

VTB Annual Report 20114. Management report32At the end of 2011, VTB increased its share of theretail deposit market in Russia from 7.2% to 9.0%.Loan productsThe development of new loan products and theeffective targeting of different customer groupsenabled VTB Group to increase its retail portfolio in2011. Against the background of active operations,the Group continued to focus on the effectivemanagement of non-performing loans.Consumer loansDuring 2011, consumer lending continued to be akey organic growth driver of VTB Group’s retail loanportfolio. To increase sales volumes, the consumerloan application process at VTB24 was significantlysimplified. Furthermore, VTB24 also optimised theproduct line for employees of companies that areVTB Group corporate clients; the sale of cash advanceloans were made available through the bank’swebsite, and compulsory registration in the regionof the branch arranging the loan and individualcustomer guarantees were abolished.In 2011, VTB Group’s consumer loan portfolioincreased by 62.5% to RUB 436.2 billion, comparedto RUB 268.4 billion at the end of 2010.During the reporting period VTB24 issued 775,000consumer loans. The average consumer loan in 2011was RUB 256,000, which was 18.5% higher than the2010 figure.VTB24’s cash loan product line is distinguished bytransparent financial terms and conditions, shortapplication approval periods, high limit levels andlong repayment periods, a broad sales and servicenetwork and high quality of service.Loans to individuals (in RUB, billion)43520845200954227253824440Source: VTB Group’s IFRS consolidated financial statements.76182 217 30920102011Consumer loans and other 1Car loansMortgagesprimarily by optimising lending procedures andoffering new attractive products aimed at individualcustomer needs. The Group also intends to continuewith the liberalisation of terms and conditions for thelending and the servicing of loans.Car loansIn 2011, VTB Group significantly strengthened itspositions in the car loan market. During the courseof the year, the Group’s car loan portfolio increasedby 43.0% to RUB 75.5 billion, compared toRUB 52.8 billion at the end of 2010.During 2011, VTB24 started offering car loansthrough new sales channels: namely throughthe Internet, by offering pre-approved loans tocustomers, as well as through additional bankoffices. In 2011, the government subsidised car loanprogramme continued to operate and more than37,000 loans worth RUB 10.2 billion were arrangedas part of the scheme. In the three years of running ofthe scrappage programme, VTB24 issued more than66,000 loans, amounting to RUB 16.9 billion.motor vehicle companies led to an increase inVTB24’s share in direct sales of car brands. Schemesinvolving Lada, KIA, Hyundai and Suzuki saw aparticularly high growth in sales.In 2011, particular focus was placed on the quality ofservices provided to the bank’s car loan customers.The past year saw a significant increase in customersatisfaction indicators. Complaints attributed tocar loans represent the smallest proportion of all ofVTB24’s customer complaints.In 2012, the bank plans to further develop its jointschemes with car manufacturers and attract newpartners. Particular attention will be paid next year toincreasing the competitiveness of car loan schemesin the market and to the development of additionalservices within new sales channels.Mortgage lendingIn 2011, the mortgage lending market continuedto recover and market players became more active,which resulted in increased competition. During thecourse of the year, the home loan market grew by25.2% compared to 9.7% in 2010. In the reportingperiod, mortgage sales exceeded the 2008 recordfigures for home loans arranged, marking a transitionfrom market recovery to a period of active growth.In addition to working with current mortgage lendingschemes in 2011, such as state programmes tosupport the mortgage market (State MortgageSupport Programme), VTB24 also introduced arange of innovative products aimed at new customersegments:“Mortgage + Maternity Capital” – provides highvaluemortgage loans to customers without their ownsavings set against the use of maternity capital.shortest possible period by presenting only twodocuments.“Military Mortgage Loan” – a special offer for militaryservicemen participating in the Savings and MortgageSystem.Today, VTB24’s mortgage loan product line is one ofthe most extensive in the market, as it encompassesall market segments and covers practically allcustomer needs, from the purchase of existinghousing and new development projects, to thepurchase of parking spaces in garage complexes,both existing and under construction, to therefinancing of mortgage loans arranged by otherbanks, to general purpose mortgage loans securedagainst an existing home, and mortgage loans withfixed, variable and combined interest rates, amongmany other types of loans.In 2011, VTB24 actively sought to offer loansfor new build housing projects. This was madepossible following the development of relations withconstruction market players and an upgraded productoffering. During the reporting period, the proportionof loans arranged for the purchase of propertydevelopments amounted to 29% of total mortgageloans arranged in 2011, reaching pre-crisis levels.Other significant events relating to mortgage lendingin 2011 included:VTB24’s acquisition of KIT Finance Bank’s mortgageportfolio, worth more than RUB 30 billion;VTB24 was the first among banks, participating inVnesheconombank’s programme for Investments inAffordable Housing and Mortgage Lending Projects,to place mortgage-backed securities, being amortisedbonds totalling RUB 5 billion.33Positive trends in cash lending will continue in 2012.VTB Group’s main goal for the next year will be togrow its sales volume and increase its market share,Throughout 2011, the bank was actively involved indeveloping joint programmes with car manufacturers.Special loan offers jointly developed with leading“Beat the Formalities” – a unique offer in this marketsegment, which enables clients with an initial downpayment of more than 50% to obtain a loan in theIn 2011, VTB Group’s mortgage loan portfolio showedsignificant growth. At the end of the reporting periodit totalled RUB 309.0 billion, an increase of 42.3%compared to the figure at the end of 2010.1 Presented including reverse sale and repurchase agreements.

VTB Annual Report 20114. Management report34VTB24 was responsible for the majority of VTBGroup’s mortgage loan sales. In December 2011,the bank achieved an all-time record for monthlymortgage sales, issuing mortgage loans worthRUB 13.6 billion. Today, VTB24’s mortgage loanportfolio comprises more than 165,000 active loans.In 2011, the bank’s share of the Russian mortgageloan market increased by 1.57 p.p. to 15.1% (takinginto account its transaction with KIT Finance bank).VTB24’s regional branches account for 70% of thetotal mortgage loan portfolio and more than 60% ofthe portfolio is attributed to eight leading regions:Moscow, St. Petersburg, Ekaterinburg, Novosibirsk,Krasnoyarsk, Kemerovo, Tyumen and Chelyabinsk.By the end of the year, the bank’s mortgage salesnetwork comprised of 146 mortgage offices locatedin 116 cities in Russia.Deposit productsIn 2011, VTB24 brought a number of popular specialoffers to the market, which enabled individuals todeposit their funds favourably in the short and mediumterm. At the beginning of the year, the bank improvedthe terms of VTB24’s Growing Income account andintroduced the possibility of making payments from theaccount once funds have been in the account for morethan six months. During the reporting period, VTB24maintained a balanced pricing policy in line with majormarket trends.During the reporting period, the bank successfullyintroduced a number of special offers to regionalmarkets, including Belgorod, Vologda, Irkutsk,Kemerovo, Nizhny Novgorod, Novosibirsk andYaroslavl regions, as well as Altai Krai, Perm Krai,Primorsky Krai and the Republic of Bashkortostan. Ineach case the offers were based on targeted productstailored to the needs of each specific regional market.A notable trend in 2011 was the growth in popularityof remote banking service channels to place fundsin deposit accounts. These included the use of theDeposits by individual customers (in RUB, billion)4778539220097481436052010Current depositsTerm deposits1,1622559072011Source: VTB Group’s IFRS consolidated financial statements.Telebank system and VTB24 ATMs. At the end of thereporting period, the portion of such deposits inVTB24’s deposit portfolio exceeded 12%.Commission-based productsA significant proportion of the Group’s retail bankingincome is attributable to commission-basedincome. VTB24 made the greatest contribution tothe growth of this type of income. Commissionsearned on card transactions continue be the maincontributors of non-interest income, and this stemsfrom growth in VTB’s card portfolio. Commissionsearned on settlement and cash services for smallbusiness customers, achieved by the growth ofVTB24’s customer base and by the bank’s activetransition to a principle of providing packagedbanking services also contribute to this. Servicesprovided to individuals were also one of the keysources of commission-based income in 2011. Inaddition to the standard range of services for retailcustomers, including processing payment ordersand transfers of funds, VTB24 also offers a range ofinnovative services, which enhance the quality ofcustomer service offered and subsequently drive theprofitability of commission-based transactions.Bank cardsIn 2011, the total number of VTB24 cards incirculation grew by 26% year-on-year.As of 31 December 2011, the total number of thebank’s cards in circulation (credit and debit cards)was more than 9.0 million, of which more than4.0 million were credit cards (including payroll cards).This positive trend was driven by the optimisationof and improvements made to VTB24’s product linewhich, in turn attracted new customers.An additional contributing factor to the positivetrend was improvements recorded in the quality ofthe existing card portfolio – the success of variousmarketing campaigns developed by VTB24 togetherwith payment system providers.In 2011, 5,865 companies participated in VTB24payroll projects (crediting employee payrolls throughVTB24 bank card accounts). Thus, as of31 December 2011, the total number of businessesusing the bank’s services reached 38,264.In 2012, to increase the number of active cards inits portfolio, VTB24 plans to run more marketingcampaigns (and competitions) for card holdersand develop partnership programmes, includingthe creation of new co-branded card products. Thebank intends to continue developing programmes toimprove packaged services for card products.As at the end of 2011, the total number of cards(credit and debit cards) in circulation issued byVTB24, the Bank of Moscow and TransCreditBankreached more than 18 million.Remote banking servicesIn 2011, following mobile device market trends,VTB24 launched applications for its customers:Mobile Bank VTB24 for iOS (iPhone) and Androidplatforms. In less than three months more than45,000 users installed VTB24’s mobile application.The bank upgraded its SMS notification serviceduring 2011 and launched a standard Cards packagefor plastic card holders, which provides informationon any card activities. VTB24 also launched anexpanded Telebank+ package for Telebank users,which provides information not only on cardtransactions but also on operations conducted viathe Telebank system. The service can be purchasedfor six or 12 months and includes an unlimitednumber of notifications during this period. The bank’scard holders are also able to subscribe to and payfor an SMS notification service at any ATM operatedby the bank. This led to a five-fold increase in thepenetration of paid-for SMS service packages.At the end of 2011, a new two-tier system wasintroduced in the Telebank system, whereby eachcustomer now has daily and monthly spendinglimits set within the system. At the same time, limitlevels were reviewed, which led to a reduction in thenumber of customers needing to confirm Internetbanking and mobile banking operations in the bank’soffices.During the year, the bank continued to extend thelist of companies whose services can be paid forremotely. 188 new payee companies were added tothe list during 2011 and at the end of the year thetotal number exceeded 450.Number of bank cards in circulation, million2009 2010 2011VTB24 VTB24 TCB VTB24 Bank of Moscow TCB TotalCredit 1.9 2.7 0 4.0 0.2 0.1 4.3Debit 3.9 4.3 2.0 5.0 6.9 2.1 14.0Total 5.8 7.0 2.0 9.0 7.1 2.2 18.3Including payroll cards 3.2 3.8 1.9 4.7 0.9 2.1 7.735

VTB Annual Report 20114. Management report36VTB24 Internet banking clients8%505200913%974201015%1,4332011Number of customers using Telebank and Teleinfo systems(in thousand users)Percentage of all customersThe bank’s constant efforts to develop its remotebanking services contributed to a significant increasein its number of users. Thus, during the year thenumber of customers using Telebank and Teleinfosystems grew by 47% to more than 1.43 million bythe end of 2011, and the share of active Internetbanking users grew by 4 p.p. from 48% to 52%.The number of transactions (operations carriedout via Telebank) increased by 95.6% in 2011and reached 1.32 million at the end of the year.The balance on term deposit accounts in the Telebanksystem grew by 46% as at the year-end.In 2012, the bank plans to focus on developingits mobile banking platform. The bank expects tolaunch a mobile (PDA) version and applicationsfor WindowsMobile and Symbian platforms. It willconcentrate on increasing the usage of Internetbanking, mobile banking and SMS notificationservices among VTB24 clients.Transfers and payments for servicesVTB24 continued to develop payment services andmoney transfers via money transfer systems during2011. Transactions carried out by individuals topay for services provided by various organisationsexceeded RUB 83 billion in 2011, a 71% increaseover the figure for 2010. The total number oftransactions grew by 29% to 32.6 million.The significant growth in these transactions wasdriven by a higher demand for services from bothnew and current customers of the bank, with ahigher number of organisations, whose products andservices are available for purchase by individualswithout having to pay commission to VTB24.In 2011, more than 200 new organisations joinedthe programme and their total number exceeded700 across Russia.In 2011, VTB24 introduced a service that collectsconsular fees for processing different types of USvisas. The introduction of this service was a majorevent in the area of payment services business.The proportion of transactions carried out via remotebanking channels (such as self-service devices andthe Telebank system) continued to gradually increaseduring 2011. These are preferred by a greaternumber of VTB24’s clients due to the high level ofaccessibility and convenience they offer.As at the end of 2011, the number of activeunallocated bullion accounts was in excess of 17,500and these were held in more than 590 bank’s offices.The number of coins sold during 2011 exceeded49,000, one and a half times more than what wassold in 2010.Services for high net-worth customersIn 2011, VTB24 continued to pursue its programmefor attracting privileged and high net-worthcustomers to use the bank’s comprehensive longtermservices. The bank offered its privilegedcustomers the Privilege package, which VTB24started to offer its high net-worth customers inJanuary 2011. The packaged offering includes arange of banking products and services, exclusiveservices in the bank’s offices and special offersprovided by the bank’s partners.At the end of 2011, the number of customerssubscribed to the Privilege package reached morethan 14,000. The product was improved by enhancingthe quality and quantity of services offered as part ofthe package and by extending the range of additionalbanking products, offered on special terms andwith special rates. Guided by the needs of Privilegepackage holders, the bank also adapted its approachto customer service offered to premium customers inbank branches.In its first year, the Priority package was purchasedby more than 40,000 customers. In addition to apremium VISA Platinum card, the package’s mainfeatures include more favourable deposit terms thanthe standard offering as well as individual servicein a private front office area by a dedicated financialadvisor. Furthermore, Priority package holders alsohave access to special terms on loan products andexclusive offers from the bank’s partners.In 2012, VTB24 plans to further develop its customerpackaged offerings by improving and expandingthe quantity of banking and non-banking servicesincluded in each package.VTB24 Private BankingVTB24 Private Banking is a special business unitthat is part of VTB24 and is the leading provider ofprivate banking services in Russia. Its purpose is toprovide a tailored approach to each customer on thebasis of mutual trust. VTB24 Private Banking offersa comprehensive range of investment solutionsfor its customers, as well as access to VTB Group’sbest financial instruments, thus creating uniqueopportunities for maintaining and growing itscustomers’ funds.Given the complexity of VIP customers’ businessesand their needs, VTB24 Private Banking adopts asynergetic approach to dealing with clients’ affairs byinteracting with other VTB Group companies.In 2011, to diversify its clients’ currency risks, VTB24Private Banking launched a VTB24 – Prime (Yuan)deposit account, which accepts deposits in Chineseyuan. The existing Prime deposit product line wasalso optimised by setting new deposit limits and1 RBC estimate based on 2011 figures.maturity periods. Prime package holders can alsobenefit from preferential terms for financial andnon-financial services offered by many of the bank’spartners. In the reporting year, VTB24 Private Bankingsignificantly extended the range of services it offersto customers within partnership programmes.The provision of investment services were enhancedby offering customers new management strategiesand structured products developed in conjunctionwith VTB Asset Management and VTB Capital.The number of VIP customers increased by 40.7% tomore than 2,000 during 2011. In total, they placedmore than RUB 143 billion with VTB24. The averagecredit balance per customer grew by 11%, reachingRUB 69.8 million at the year-end.VTB24 Private Banking sells its products and serviceswithin a premium network. A VIP office was openedin Rostov-on-Don in 2011 and VTB24 Private Bankingnow has eight offices in seven Russian cities,including two offices in Moscow. VTB24 PrivateBanking is also represented in retail sales points ineleven other Russian cities.In 2011, for the second consecutive year, VTB24Private Banking was named “Russian Private Bankof the Year” in Spear’s Russia Wealth ManagementAwards for its private banking and wealthmanagement services.Investment services for retail customersVTB Group – represented by VTB24 – is a leaderin the retail investment services segment, rankingseventh 1 amongst the largest brokers in Russia andmaintaining its leading positions for customer servicein the Forex market.The introduction of a new segmented approach to thesales of brokerage services in 2011 enabled VTB24to increase its brokerage services customer base bymore than 11,000, which is 1.7 times more comparedto 2010. As at the end of 2011, a total of 170,54837

Today, about 16 million individuals and smallcompanies are customers of VTB Group retailbank. During 2011, the Group actively increasedits share in the Russian consumer loans market(13.7% at the year-end). VTB also continued tostrengthen its funding base and attained a marketshare of 9.0% in the retail deposit market. In thereporting period, the pre-tax profit of VTB retailbusiness amounted to RUB 39 billion, showing an86% gain compared to RUB 21 billion in 2010.Diverse directions: new perspectives

VTB Annual Report 20114. Management report40broker accounts were registered with MICEX for VTB24customers.In 2011, the volume of VTB24 customer transactionsin shares on MICEX exceeded RUB 1.4 trillion roubles,representing a brokerage service market shareof 9.5% 1 for VTB24. The volume of transactionscompleted by the bank’s customers in the FORTStotalled more than RUB 2.6 trillion, 1.6 times morethan the 2010 figure.During the reporting period, an additional onlineForex trading platform was introduced, whichincreased the number of customers using the serviceby more than 1,000. At the end of 2011, more than6,561 customers were registered to trade on the Forexmarket. The volume of customer Forex transactionsduring the reporting period was over USD 135 billion,including SWAP transactions.VTB24’s customer-oriented approach and theimproved quality of its retail investment services werethe key drivers behind the growth in retail customerinvestment activity during the 12 month period.In 2011, the number of active customers reachedmore than 25,000.In 2011, VTB24 reduced the down payments requiredto set up individual trust management agreements.At the end of 2011, the number 2 of active individualtrust management agreements was 1.7 times biggercompared to the same period of 2010. During thereporting period, as part of the development of itsproduct line, the bank introduced trust managementservices for property, constituting special-purposecapital of non-commercial organisations.In 2011, funds attracted through VTB24 agencies intomutual funds grew by 2.5 times compared to 2010and exceeded RUB 1.1 billion. The number of officesresponsible for selling mutual fund equity units grewby 72 in 2011, making a total of 567.In 2012, VTB24’s investment business will focus itsefforts on improving the quality of customer serviceand expanding the range of its services and retailinvestment products.Services for small businessesSmall business customers make up a key part of VTBGroup’s retail business. Prior to the Bank of Moscow’sconsolidation in the third quarter of 2011, the Groupprovided services to individual entrepreneurs andsmall enterprises mainly through VTB24. As at theend of 2011, the volume of lending by the bankto small businesses increased by 70% comparedto 2010, and the bank provided RUB 50 billion offinancing in 2011. The bank’s loan portfolio for thissegment rose to RUB 68.7 billion during the year.The number of companies and individual entrepreneursusing the bank’s settlement and cash services reached218,000. The total volume of funds deposited by smallbusiness customers amounted to RUB 97 billion.In 2011, the bank continued to implement its strategyof growing its market share and customer base. A keydevelopment towards the fulfilment of this strategywas the bank’s transition from a single product salesmodel to providing integrated banking services tosmall business customers.In the reporting period the bank:Increased the limit for the “small business”classification category from RUB 90 million toRUB 300 million of annual revenues;Moved to a new customer service model for smallbusiness customers and established an effectivesales unit;Introduced a new product range for lendingtransactions and guarantees;1 Proportion of overall MICEX trading volume in which VTB24 customers took part (in the main trading mode).2 Customers who concluded Forex and stock market transactions during the reporting period.Made changes to its lending procedure to rationalisethe decision-making process and increase theaffordability of loan products to small businesscustomers;Approved a Business Express product concept (forloans of up to RUB 4 million) designed for standardsegment small business customers for whom lendingis subject to a scoring system as part of the bank’scredit decision-making process. In the fourth quarterof 2011, the bank successfully completed a pilottesting of this product and expects that the productwill be rolled out during the second quarter of 2012;Completed a project to develop a new remotebanking system – Bank-to-Customer Online – a Betaversion of which was launched in 2011.Today, the bank offers one of the most extensiveproduct ranges in the market for small businesses,covering most of its segments and meeting almostany customer need.In 2011, as part of the state support programmefor small businesses, VTB24 used OJSC MSE Bank’slending resources of RUB 5 billion to providefinancing to small businesses and individualentrepreneurs. The total volume of lending to smallbusinesses granted through this project amountedto RUB 10 billion, as VTB24‘s Co-financing productcontributed an additional RUB 5 billion of the bank’sown funds to the financing of small businesses.During 2011, the bank continued to develop itsrelationship with regional institutions responsible forsupporting small businesses. The number of currentagreements between VTB24 and such institutionsreached 51.VTB Group’s main aim for its small business lendingand servicing segment in 2012 is to grow salesvolumes and increase its market share. This will beachieved by optimising internal procedures relatedto processing lending applications and by offeringattractive new products. The Bank of Moscow willplay a particular role in the development of thisbusiness area. Just as VTB24 has done, it will provideservices to small and medium-sized businessesindependently. The Bank of Moscow intends to focusits efforts primarily on Moscow and the Moscowregion, as well as other ten key regions where it ispresent, thus covering more than 65% of mediumsizedbusiness in Russia.ATMsIn 2011, VTB Group had one of the largest ATMnetworks in Russia, and taking into accountTransCreditBank’s and the Bank of Moscow’sinfrastructure, the total number of ATMs reached10,161 units as at the year-end.As at the end of the reporting period, VTB24’s ATMnetwork totalled more than 5,700 units, 28% of whichare equipped with a cash pay-in function. Customerscan withdraw and pay in money, transfer funds andopen deposit accounts at the bank’s ATMs. They canalso make payments to more than 100 payees.As at the year-end, the bank’s ATM network hadprocessed more than 420 million transactions.More than RUB 214 billion was received and creditedto customers’ card accounts and payments of morethan RUB 31.5 billion were made.The bank is continuously improving its ATM networkby expanding its size and enhancing service quality.In 2011, the bank installed 749 ATMs, including thereplacement of existing ATMs, 495 of which have acash pay-in function.In 2011, the technical availability of ATMs, definedas the ratio of time when the devices wereoperational to the total time for the period, increasedfrom 91.0% to 92.4%.In 2012, the bank plans to expand its own network ofATMs to 6,370 units and put new devices into service,such as information and payment terminals for noncashpayments.41

VTB Annual Report 20114. Management report42NetworkVTB Group has one of the most developed networks ofsales and service offices in Russia. This includes VTB andVTB24 offices, as well as offices belonging to the Bank ofMoscow and TransCreditBank, which when combined,amount to 1,371 units as at the end of 2011.In 2011, VTB24 achieved impressive growth ratesin the scale, efficiency and quality of its network.During the year, business volumes per branch grewby 17% for retail loans (to RUB 1 billion) and 15% forretail deposits (to RUB 1.4 billion). VTB24’s networkstill remains the most efficient in the industry, withgrowth far outpacing its main competitors.During the reporting period, the bank accomplishedall of its network development plans. VTB24 opened76 new sales points, and the biggest growth in thenetwork was within the Moscow region (17 newoffices), St. Petersburg and Ekaterinburg (five newoffices). As a result, the number of VTB24 officestotalled 606 units as at the end of 2011. Today,the bank operates sales offices in 69 regions and212 cities in Russia, providing coverage for 72%of the country’s urban population.An important stage in the development of the bank’snetwork was the introduction of a new customerservice model for the high net-worth segment in2011. This enabled the bank to reach a new level inthe provision of customer service for this segmentand to significantly increase its customer base.The bank confidently maintains its leading marketpositions for customer service quality. According tothe results of two independent surveys, conducted byVTB24 retail networkEPSI, an international research company, and RetailFinance magazine, VTB24 was the absolute leaderin terms of customer service quality among Russianbanks in 2011.In 2011, a number of systemic measures wereimplemented to improve the quality of service:Half of the bank’s branches switched to the singlewaiting line system. During the year, the numberof offices using this system increased from 133 to309. This allowed VTB24 to significantly increasebranches’ rate of throughput while maintainingsustainable growth in incoming business streams;As part of the development of the segment-orientedapproach to customer service, 238 private servicezones for high net-worth customers were created;Lending application procedures became simpler andfaster due to optimised internal business processesand the time needed to process a cash loanapplication was reduced by 40%;Since July 2011, the bank’s customers have beenable to conduct commission-free transactions throughTransCreditBank and the Bank of Moscow ATMs. Thecombined ATM network comprises 10,000 units, twiceas many as at the beginning of 2011.In 2012, VTB24 will continue to expand its regionalnetwork by consolidating its presence in high-volumemarkets and also by increasing the number ofmobile offices to render sales and services to payrollcustomers. The 2012 network development plan aimsto deliver 80 new sales points.2009 2010 2011Number of sales points, including 476 531 606Branches 9 8 8Regional operational offices 59 61 61Additional offices / operational offices 401 455 530Cash desks 7 7 7VTB Group’s plans provide for additional salesnetwork growth with a higher proportion of servicingoperations and sales conducted through alternativechannels.4.3.3. Other businessesIn addition to retail and corporate and investmentbanking services, VTB Group provides financial servicesin such areas as leasing, factoring, insurance andprivate pensions. Establishing synergies and promotingthe cross-selling of banking and non-banking productsremain a key priority in developing the Group.LeasingVTB Leasing is today one of the leading Russianleasing companies, offering a broad range ofservices, with regional offices across Russia andsubsidiaries in the CIS and Europe.At the end of 2010, VTB Group acquired a controllingstake in TransCreditBank, and as a result theactivities of VTB Leasing and TransCreditLeasing wereintegrated. Both leasing companies are currentlyworking on furthering cooperation with each other,and on developing common approaches to dealingwith customers.As at the end of 2011, the combined leasingportfolio of VTB and TransCreditLeasing amountedto RUB 326.8 billion, and the volume of new leasingcontracts totalled RUB 212.9 billion. Key segments ofthe company’s leasing portfolio include rail transport,aviation technology, oil extraction and processingequipment, power and mechanical engineeringequipment.VTB Leasing is, according to the Russian Expert RARating Agency, one of the top-three companies in theRussian leasing market and, based on Leaseuropedata, it is among the top-50 leasing companies inEurope. In December 2011, the Expert RA RatingAgency rated VTB Leasing as the “Leader in RailwayEquipment Leasing – 2011”, repeating the ranking ithad given VTB Leasing in 2010.InsuranceVTB Insurance provides individuals and institutionswith a full range of services: property insurance, civiland professional liability insurance, and personalinsurance (excluding life insurance).The authorised capital of VTB Insurance was increasedto RUB 1.54 billion in 2011. During the reportingperiod, the amount of premiums accrued for all directinsurance businesses increased to RUB 9.3 billion, upby 69% when compared to 2010. This was primarilythe result of the dynamic growth of the company’sretail business, with the amount of premiums accrueddoubling year-on-year to RUB 6.1 billion.In 2011, VTB Insurance continued to focus onthe development of its bancassurance segment,increasing its market share for accident insuranceto 8.6% from a figure of 5% in 2010. During thereporting year, accident insurance and financialrisk insurance demonstrated the greatest growth inpremiums, at 166% and 122% respectively.VTB Insurance continued to expand its retail network.At the end of 2011, 209 insurance sales outlets wereoperating in the branches of VTB Group’s banks.Furthermore, the first sales outlets were opened inbranches of TransCreditBank and the Bank of Moscowduring the reporting year.The company strengthened its market position asa result of its performance in 2011, rising to 15thposition amongst the largest Russian insurers byvolume of premiums, and accounting for 1.4% of theRussian insurance market.VTB Insurance remains one of the most reliableinsurance companies in Russia. In 2011, Fitch Ratingsupgraded the company’s financial strength rating from“BB” to “BBB-“ (Outlook: “Stable”), while the Expert43

VTB Annual Report 20114. Management report44RA Rating Agency raised the company’s rating from“A+” to “A++” (“Exceptionally high level of reliability”).FactoringVTB Factoring was launched at the end of 2008, andbegan active market operations in the second halfof 2009. The authorised capital of the company wasRUB 670 million as at the end of the reporting period.During 2011, VTB Factoring significantly increasedits business volumes. At the end of the year,VTB Factoring’s turnover amounted to RUB 125 billion,while the portfolio of accounts receivable grew toRUB 36 billion. The company’s operations in 2011led to it being ranked in first position among thelargest Russian factoring companies in termsof portfolio size. The company’s market share,measured on the same basis, totalled 22%.In 2011, VTB Factoring financed approximately650,000 deliveries of goods and services.The company’s portfolio includes 423 activecustomers and 667 debtors. In 2011, VTB Factoringsigned more than 300 new agreements to providefactoring services.During the reporting period, apart from its traditionalintensive work with companies in the FMCG sector,VTB Factoring actively cooperated with companiesfrom the industrial sector, including those involved inmetallurgy, automobile and equipment manufacturing.The size of the regional segment of VTB Factoring’sbusiness grew rapidly in 2011, and amounted toapproximately RUB 8 billion at the end of the year.The company’s regional network of sales outletsincreased to 16, covering Russia’s largest cities byyear-end. VTB Factoring worked actively with theVTB Bank branch network to attract new customers.NPF VTB Pension FundNPF VTB Pension Fund is a dynamically developingnon-state pension fund, which provides a full range1 In April 2012, the official opening of VTB Capital’s office in New York took place.of services for mandatory pension insurance and nonstateretirement benefits to individuals and corporateclients.In 2011, the fund’s assets grew by more than eighttimes, reaching RUB 16.6 billion.By the end of the reporting year, more than 600,000people had signed contracts with VTB PensionFund for mandatory pension insurance. The fundactively cooperated with the Group’s banks in orderto attract new clients. In 2011, VTB launched theselling of mandatory pension insurance policiesin the branches of the Bank of Moscow andTransCreditBank.As at the end of 2011, VTB Pension Fund had movedup from tenth to seventh position in the rankingcompiled by the Pension Fund of the RussianFederation, which is based on the number ofcontracts signed for mandatory pension insuranceduring the year. It also moved up 20 positions to 15thin the rating of the Federal Financial Markets Service,which is based on the total pension assets undermanagement. The Expert RA Rating Agency upgradedthe Fund’s rating to “A+” (“High level of reliability”)with a “stable” outlook, while the National RatingAgency raised its rating to “AA+” (“Very highreliability and the highest level of responsibility”).4.3.4. Business outside of RussiaToday, VTB is the only Russian banking group that hasa significant presence outside of the country.The Group’s international network enables it toprovide banking services in Europe, Asia, NorthAmerica 1 and Africa. VTB’s international presencealso assists businesses from Russia and the CISto cooperate with and expand their presence intointernational markets. VTB’s international operationsalso enable the Group to diversify its business andincrease its profitability by providing access to highmarginmarkets.VTB Group has 12 subsidiary banks with operationsoutside of Russia. In the CIS, the Group is present inArmenia, Ukraine, Belarus, Kazakhstan, Azerbaijanand Georgia. VTB banks in Austria, Germany andFrance operate as part of the European sub-holdingheaded by VTB Bank (Austria). The Group also hassubsidiary banks in Cyprus and Angola, and branchesin China and India. In addition, VRB bank operates inVietnam, which was jointly established by VTB and theBank for Investment and Development of Vietnam.Business in the CIS and GeorgiaThe development of VTB’s business in CIS countries isthe key priority of the Group’s international strategy.The Bank’s active presence in the financial marketsof the former Soviet Union states facilitates thestrengthening of economic relations between thecountries and enables VTB to provide a broader rangeof services to its corporate clients. Ukraine is themain priority for VTB in the region. As at the end of2011, VTB had 386 sales points in CIS countries andGeorgia.PJSC VTB Bank (Ukraine) performed well in 2011and strengthened its market position in Ukraine,increasing VTB’s brand awareness and raisingcustomer trust.In 2011, net assets of VTB Bank (Ukraine) increasedby 11.5% and totalled UAH 36 billion(USD 4.5 billion 1 ). The corporate loan portfolio,excluding reserves, grew by 9.3% in 2011 to reachUAH 29.7 billion (USD 3.7 billion 1 ). In the reportingyear, the bank issued loans to a number of strategiccompanies, a significant proportion of whichincluded state enterprises. A balanced approachand a focus on active development securedVTB Bank (Ukraine)’s position among the top-fivelargest lenders in the corporate segment of Ukraine’seconomy. As at the end of 2011, the bank held a4.8% share of the market, making it the fourth largestplayer in the segment.In 2011, the bank’s corporate liabilities portfolioincreased by 110%, moving the bank from 13thplace to 9th place among Ukraine’s largest financialinstitutions, in terms of corporate deposits, givingit a 3% share of the market. Furthermore, the bankbecame the fourth largest bank by commissionbasedincome from trade finance transactions, whichtotalled UAH 31.1 million or USD 3.9 million 2 , ascommission-based income grew by 58%.VTB Bank (Ukraine)’s total corporate customerbase increased by 13% to 4,300 during the year.The growth in corporate banking was mainly driven bythe introduction of new banking products as well asby the upgrade of existing ones, and by the changesin tariffs for settlement and cash services.Growth in the bank’s lending to retail customers wasjust as prominent, with the bank’s position in thissegment rising from 17th place to 14th place in 2011.As at the end of the year, VTB Bank (Ukraine) wasservicing 474,700 individuals and small businesses.Despite all the difficulties faced by the Belarusianeconomy and its financial sector in 2011,CJSC VTB Bank (Belarus) reported excellent resultsin 2011, across all main business performanceindicators. The bank’s profit for the reporting yearwas 2.9 times higher than in 2010 and totalledBYR 93.2 billion (USD 17.9 million 3 ). The bankattracted 2.6 times more resources during 2011 toequal more than BYR 5.7 trillion (USD 679.0 million 4 ).The bank’s assets grew 2.5 times to BYR 6.2 trillion(USD 738.5 million 4 ). The volume of customer depositsincreased to BYR 2.0 trillion (USD 238.2 million 4 ),2.1 times more than what was achieved in 2010. Thecustomer loan portfolio doubled year-on-year to reachBYR 3.1 trillion (USD 369.3 million 4 ).1 The USD equivalent is calculated on the basis of USD/UAH spot rate as of 30 December 2011. Source: Bloomberg.2 The USD equivalent is calculated on the basis of average USD/UAH exchange rate for 2011. Source: Bloomberg.3 The USD equivalent is calculated on the basis of average USD/BYR exchange rate for 2011. Source: Bloomberg.4 The USD equivalent is calculated on the basis of USD/BYR spot rate as of 30 December 2011. Source: Bloomberg.45

VTB Annual Report 20114. Management report46VTB Bank (Belarus) successfully managed to growits corporate customer base in 2011. The bankexpanded its presence in the food, trade andconstruction industries, which resulted in a 23.1%increase in the number of corporate clients andentrepreneurs using the bank’s services, to total10,152 as at the end of 2011. During 2011, thebank actively cooperated with resource-intensivecompanies, engaged in R&D in engineering sciences,transportation of oil products, engineering servicesand design.The bank’s small business customer segment alsodelivered good growth dynamics. During the reportingperiod, the volume of loans provided by the bank tothis customer segment rose by more than seven times,while the volume of non-performing loans decreasedby more than 50%. The account balances of smallbusiness customers increased by 70% in 2011.In 2011, VTB Bank (Belarus) also strengthened itsmarket position in the retail banking segment. Thebank opened new offices in Minsk, Vitebsk and Pinskduring the year and the development of its retailnetwork, as well as its new and upgraded offeringof banking products contributed to a 66% growth inthe bank’s retail deposit portfolio. The bank’s retailloan portfolio increased by 71%, the highest growthrecorded for the last three years.CJSC VTB Bank (Armenia) delivered another year ofsuccess and growth by significantly strengthening itsleading market positions in 2011. The bank’s assetsincreased by 39.2% to AMD 177.5 billion(USD 459.8 million 1 ) as at the year-end, mainly dueto an increase in lending volume to individuals.The bank’s total loan portfolio grew by 41.8% toAMD 122.7 billion (USD 317.8 million 1 ) in 2011.VTB Bank (Armenia) increased its share of the lendingsegment to 9.6% during the year.Customers account balances were up byAMD 21.0 billion, reaching a total of AMD 79.5 billion(USD 205.9 million 1 ) as at the end of the reportingperiod. Individual customers’ funds increased by28.9% compared to the 2010 figure, and equalledAMD 47 billion (USD 121.7 million 1 ). Funds beingheld by corporate customers amounted toAMD 32.4 billion (USD 83.9 million 1 ). Overall,the bank’s deposit market share expanded to7.5% during the year.As at the end of 2011, the bank’s customer basecomprised of 286,400 individuals and over 5,300companies – small, medium- and large-sizedbusinesses.In 2011, VTB Bank (Armenia) continued to finance keysectors of the Armenian economy, contributing to thedevelopment of large and medium-sized businesses,financial institutions and state companies. Thebank’s corporate client portfolio includes marketleaders and promising medium-sized businessesfrom a broad spectrum of sectors, such as insurance,construction, trade, power, transportation, small- andlarge-scale industry, IT and telecommunications.During the reporting period, JSC VTB Bank(Kazakhstan), which started its operations in 2009,delivered high growth rates that exceeded theforecasts set out in the bank’s business plan.In 2011, the bank completed the formation of itsbranch network, which comprised 24 sales points,covering 17 Kazakh regions as at the year-end.Due to the expansion of its regional branch network,the bank managed to nearly double its customer baseto 14,200 in 2011.VTB Bank (Kazakhstan) rapidly attracted newcustomers and further developed its relations withcurrent clients, which enabled the bank to increasethe volume of its active operations. In 2011, thebank’s loan portfolio grew by 269.4% and itsproportion of total assets increased by 25.4 p.p.In May 2011, VTB Bank (Kazakhstan) signed anagreement with the European Bank for Reconstructionand Development (EBRD) for a USD 20 million tradefinance guarantee facility, as part of the EBRD TradeFacilitation Programme. In June 2011, the bankwas admitted to JSC Kazakhstan Stock Exchange totrade in the Forex market category, gaining a rightto participate in the trading of foreign currencies. InOctober 2011, the bank issued international bankcards for its customers on a large scale. By the end ofthe year, more than 4,000 cards had been issued.In 2011, Fitch Ratings assigned VTB Bank(Kazakhstan) with a “BBB-“ long-term issuer defaultrating (Outlook: “Stable”), which is evidence of thebank’s stable financial position.JSC VTB Bank (Georgia) continued its activedevelopment during 2011. Today, the bank is amongthe ten largest banks in the country and has beenassigned with the highest long-term issuer defaultrating among Georgian banks, which is “BB”.The bank’s activities were focused on attractingfunding from international financial institutionsduring 2011. For example, the bank obtained aUSD 11.4 million credit facility from the EBRD tofinance the country’s agriculture and small andmedium-sized businesses.In 2011, VTB Bank (Georgia)’s assets rose by24.4% to GEL 423.7 million (USD 254.4 million 1 ).The bank’s loan portfolio increased by 30.1%totalling GEL 304.8 million (USD 183.0 million 1 ) as atthe year-end. In 2011, the bank mostly developed itscooperation with individuals and as a result, the loanportfolio of this customer segment grew by 42.8%.OJSC VTB Bank (Azerbaijan) is a universal bankproviding corporate as well as retail bankingservices in the Republic of Azerbaijan. In 2011, thebank started the formation of its new managementteam with the appointment of a new Chairman ofthe Management Board. The bank plans to recruitnew managers for the retail banking and riskmanagement divisions. The bank’s organisationalstructure and the internal documents regulating VTBBank (Azerbaijan) were also started to be updated.Automated processes are employed within the keybank’s business lines. The bank also initiated acomprehensive development programme for itsstrategy for the coming years.With the help of VTB Group, the bank set plans toconduct large-scale investment banking transactionsin Azerbaijan. In October 2011, the bank opened itsfirst branch in Baku to help the expansion of its retailbusiness. As at the year-end, the loan portfolio ofthe bank’s retail business increased by more than2.5 times. VTB Bank (Azerbaijan), which started itsoperations in 2009, has been demonstrating highgrowth rates, exceeding the forecasts set out in thebank’s business plan.Business in EuropeIn 2011, the Bank’s European sub-holding continuedto strengthen its positions in servicing the exportand import operations of the largest Russian and CISexporters. Overall, 2011 saw a rapid growth in thecorporate lending sector. For example, the Europeansub-holding’s loan portfolio grew by 190.3% year-onyearto EUR 5.9 billion (USD 7.6 billion). More thanhalf of these funds were lent to Russian borrowers.One of the main areas of activity of VTB’s Europeansub-holding in 2011 were transactions of pre-exportand trade financing. During the year, large transactionswere arranged for companies such as Acron, RMKGroup, Belorusneft, Panrusgas Gas Trading, for a totalamount of approximately EUR 1.0 billion.In 2011, VTB’s European sub-holding developedtwo main areas of its business with local corporatecustomers. These included growing its lendingoperations to European companies and implementingthe VTB Direct project. As at the end of 2011,European corporate clients accounted for 55%of the total corporate customer base of VTB Bank(Deutschland) AG and VTB Bank (France).471 The USD equivalent is calculated on the basis of USD/AMD spot rate as of 30 December 2011. Source: Bloomberg. 1 The USD equivalent is calculated on the basis of USD/GEL spot rate as of 30 December 2011. Source: Bloomberg.

VTB Annual Report 20114. Management report48In 2011, VTB Bank (Austria) and VTB Bank (France)launched an innovative retail product for VTB Group– VTB Direct, an electronic savings deposit account.The new banking product was offered to individualcustomers in France, Austria and Germany, andapproximately EUR 504 million was deposited byindividuals during the reporting period.The Russian Commercial Bank (Cyprus), VTB’ssubsidiary in Cyprus also focused on thedevelopment of corporate lending. As at the end ofthe reporting period, the bank’s loan portfolio morethan doubled from USD 5.3 billon to USD 11.5 billion.Business in Asia and AfricaThe main objective of VTB Group’s bankingoperations in Asia and Africa is to establish strongpartner relationships with companies from Russiaand the CIS that operate in these markets, and withlocal businesses looking to expand into the CIS.VTB Bank Branch in Shanghai was launched in March2008 and is currently the only bank from Russiaand the CIS, that has a banking licence in China.It aims to provide support to VTB’s large corporateclients in China and facilitate access to the Chinesecapital markets for CIS companies and banks. Thebranch has been active in trade finance transactions,servicing Russian importers and exporters, and inlending to the subsidiaries of Russian businessesin China. The bank is also expanding its Chineseenterprise customer base, particularly those whocooperate with Russian and CIS companies, andprovides a full range of trade finance services inpartnership with VTB Group’s banks.The branch places particular emphasis on thedevelopment of operations in national currencies.The branch received official confirmation of its marketmaker status from the People’s Bank of China, markinga milestone for the Bank at the end of 2010.This unique status allows the branch to participate inthe setting of rouble/yuan exchange rates and conductoperations on the China Foreign Exchange Trade System(CFETS). As at the end of 2011, the VTB Bank Branchin Shanghai was acknowledged as the market makerwith the largest number and volume of transactions forthe rouble/yuan currency pair. It was also named theforex market participant who demonstrated the mostdynamic development in 2011 by CFETS.During the reporting period, the branch played a majorrole in maintaining rouble liquidity in the Chinesemarket, as it provided Chinese banks with a full rangeof services for rouble-denominated bank accounts andforeign exchange operations within China.In 2011, VTB Bank Branch in Shanghai also met allthe necessary regulatory requirements to obtainpermission for conducting transactions using theyuan currency. Presently, the branch conductstransactions in roubles and freely convertiblecurrency and plans to obtain permission that wouldenable it to conduct transactions in yuan in 2012.In 2011, the branch also launched Internet bankingservices, enabling it to expand its cooperation withcustomers across China from a single sales point.The joint Russian-Angolan bank, Banco VTB AfricaS.A. (VTB-Africa), has been a success since its launchin 2007. VTB-Africa has worked hard to attract newclients and develop transactional banking experience,primarily international settlements, trade finance,currency exchange and working capital loans. In2011, the bank operated in line with the businessdevelopment strategy approved for VTB-Africa in 2010.A new organisational structure was therefore developedand a number of business priorities were defined. As aresult, the bank increased its client business volumesand it built a high-quality loan portfolio.In 2011, new grounds were established to furtherdevelop the Vietnam-Russia Joint Venture Bank (VRB),whose mandate is to provide reliable support toRussian companies operating in the SoutheastAsian markets. To increase its market representationand create a convenient infrastructure to serviceRussian and Vietnamese companies, VRB has beenfocusing on the development of its sales network.Currently, it consists of the head office in Hanoi, fivebranches in Vung Tau, Ho Chi Minh, Da Nang, NhaTrang and Hai Phong; it has centres that deal withspecific transactions and card requests; as well asan extensive network of additional offices in thecountry’s economic centres of Hanoi, Ho Chi Minh,Vung Tau; and it also has a wholly-owned subsidiarybank in Moscow. The Bank also plans to launchbranches in Can Tho and Vinh. VRB is a universalcommercial bank providing an extensive rangeof banking products and services for Vietnameseand Russian companies, such as debt and projectfinancing, import and export financing, trade financeand other products, including those, which are newto the Vietnamese market.VTB Bank Branch in New Delhi (India) is the flagshipof Russian banking in the country. Its key objective isto become an intermediary between both countries’businesses in their cooperation and collaboration,the development of new projects and the opening ofnew markets. The branch focuses on the foreign tradeoperations of Russian companies that operate in India,as well as their subcontractors, and it also servesIndian companies with interests in Russia. The branchhas established a customer base that comprises oflarge Indian and Russian enterprises. The branch’ssolid development is reflected in its financial results.Today, VTB Bank Branch in India examinesopportunities to participate in Russian-Indianjoint projects in India in sectors covering technicalmilitary projects, chemicals, metals, energy,agriculture, telecommunications, the developmentof infrastructure and more. The branch is alsoconsidering the prospect of conducting exportand import settlements in national currencies andopportunities are being evaluated to help the branchto structure payments and arrange project financing,involving VTB’s subsidiary banks in Ukraine, Belarus,Kazakhstan and Armenia.4.4. Review of financial performance 1Financial highlightsRecord net profit of RUB 90.5 billion in 2011, up65.1% year-on-year, with ROE of 15.0%, versus10.3% for 2010;Net interest income for 2011 amounted toRUB 227.0 billion, up 32.7% from 2010;Net fee and commission income in 2011 amounted toRUB 39.2 billion, up 58.7% year-on-year;Net interest margin remained stable year-on-year at 5.0%;Cost of risk was at 0.9% of average gross loans in2011, versus 1.9% in 2010;Balance sheet improved, due to organic growthand the consolidation of the Bank of Moscow:total gross loan portfolio increased by 50.0% toRUB 4,590.1 billion and customer deposits wereup 62.5% to RUB 3,596.7 billion;Loans-to-deposits ratio improved to 119.6%,compared to 125.9% as at the end of 2010.Profit & loss statement analysisOperating incomeAs at the end of 2011, VTB Group’s operating incomebefore provisions totalled RUB 286.6 billion, anincrease of 29.6% from RUB 221.1 in 2010. Thisdynamic growth resulted primarily from VTB receivinggreater income from interest charges, fees andcommission charges, and was also due to the netrecovery of losses on initial recognition of financialinstruments and on loans restructuring.491 This review is based on VTB Group’s IFRS consolidated financial statements for the years ended 31 December 2011 and 2010.

VTB Annual Report 20114. Management report50VTB Group key financial indicatorsNet interest income51(in RUB, billion) 2010 2011 ChangeNet interest income 171.1 227.0 32.7%Net fee and commission income 24.7 39.2 58.7%Operating income before provisions 1 221.1 286.6 29.6%Net profit 54.8 90.5 65.1%Total gross loans and advances to customers 3,059.6 4,590.1 50.0%Customer deposits 2,212.9 3,596.7 62.5%Net interest margin 5.1% 5.0% –10 b.p.Provision charge for loan impairment / Average gross loan portfolio 1.9% 0.9% –100 b.p.NPL ratio 2 8.6% 5.4% –320 b.p.Net interest incomeNet interest income has historically been the largestcomponent of the Group’s operating income. In 2011,net interest income contributed RUB 227.0 billionto operating income, which was 32.7% more than in2010 (RUB 171.1 billion).The Group generates interest income on loans andadvances to customers, its securities portfolio andamounts due from other banks. The following tableshows the principal components of VTB Group’sinterest income in 2010 and 2011.In 2011, VTB’s interest income increased by 26.1% toRUB 416.7 billion. The key contributing factors to thiswere organic growth in the Group’s loan portfolio,and the Bank of Moscow consolidation.Interest income from lending to customers amountedto RUB 376.7 billion in 2011, up 24.9% comparedto 2010. At the same time, interest income from theretail banking segment grew more rapidly than thatfrom corporate and investment banking. This wasprimarily due to greater stability in interest rates overthe course of the whole year. The worsening liquiditysituation in the Russian banking sector in the secondhalf of 2011, accompanied by the growth in interestrates, enabled the Group to increase its income frominterbank lending to RUB 8.8 billion, compared toRUB 7.1 billion in 2010.The Group’s interest expenses grew at significantlylower rates than interest income in 2011. At theyear-end, VTB’s interest expenses totalledRUB 189.7 billion, up 19.0% compared to 2010.Interest expenses increased primarily due toliabilities on customer deposits, the costs of whichwere up 31.1% to RUB 112.6 billion. This was theresult of the organic growth of the Group’s customerbase and the consolidation of the Bank of Moscow’sdeposit portfolio.In 2011, VTB continued to focus its efforts on reducingthe costs of funding. Despite a significant growth incustomer funds, the costs of attracting those fundswere lowered to 4.0%, compared to 5.0% in 2010.Net interest spread and marginThe Group’s net interest margin was nearly flat yearon-yearat 5.0% in 2011. The margin decreased by(in RUB, billion) 2010 2011 ChangeInterest incomeFinancial assets at fair value through profit or loss 19.2 28.3 47.4%Loans and advances to customers 301.5 376.7 24.9%Due from other banks 7.1 8.8 23.9%Other financial assets, including securities 2.7 2.9 7.4%Financial assets not at fair value through profit or loss 311.3 388.4 24.8%Total interest income 330.5 416.7 26.1%Interest expenseCustomer deposits (85.9) (112.6) 31.1%Debt securities issued (40.1) (36.8) –8.2%Subordinated debt (17.0) (17.2) 1.2%Due to other banks and other borrowed funds (16.4) (23.1) 40.9%Total interest expense (159.4) (189.7) 19.0%Net interest income 171.1 227.0 32.7%Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.10 b.p. in the reporting period as a result of a growthin interest earning assets. This growth outpaced thegrowth rates of net interest income before provisions.Net fee and commission incomeOne of the Group’s strategic objectives is to createa strong transaction banking business through anenhanced product offering and an improved salessystem of commission-based products tailored tothe needs of each customer segment. During thereporting period, VTB achieved notable success inthis regard, with a 58.7% increase in net fee andcommission income to RUB 39.2 billion.Net interest spread and marginGross fee and commission income in 2011 increasedby 64.6% to RUB 47.4 billion, compared toRUB 28.8 billion in 2010. The bulk of fee andcommission income (63.5%) is generated bysettlements and cash transactions. Aggregate feeand commission income received by VTB Group fromsettlements and cash transactions in the reportingperiod was RUB 30.1 billion, an increase of 64.5%year-on-year.In contrast to 2010, the Group demonstrated asignificant increase in fee and commission incomegenerated from the provision of customer servicesin the sphere of trade finance and the issue of(in RUB, billion) 2010 1 2011 ChangeAverage interest rate on interest earning assets 9.9% 9.2% –70 b.p.Average interest rate on interest bearing liabilities 5.3% 4.3% –100 b.p.Net interest spread 4.6% 4.9% 30 b.p.1 Here and below, operating income before provisions is calculated before provisions for impairment of debt financial assets and impairment ofother assets, contingencies and credit-related commitments.Net interest margin 5.1% 5.0% –10 b.p.2 Non-performing loans (NPLs) represent impaired loans with repayments overdue by over 90 days. NPLs are calculated including the entireprincipal and interest payments. Ratio is calculated to total gross loans including financial assets classified as loans and advances to customersSource: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.pledged under repurchase agreements. 1 Calculated excluding the effect of TCB consolidation.

VTB Group is a leading Russian financialgroup. The Bank’s universal business modeland scale of operations enable the Group tobe a successful competitor both in Russia andabroad. VTB Group has an international network,which is unique for Russian banks, comprisingover 30 banks and financial companies in 21countries all over the globe.More options:wider growth opportunities

VTB Annual Report 20114. Management report54Net fee and commission income(in RUB, billion) 2010 2011 ChangeCommission on settlement transactions 15.4 24.8 61.0%Commission on guarantees issued and trade finance 3.9 6.6 69.2%Commission on cash transactions 2.9 5.3 82.8%Commission on operations with securities and capital markets 4.5 5.9 31.1%Other 2.1 4.8 128.6%Total fee and commission income 28.8 47.4 64.6%Commission on settlement transactions (2.2) (5.0) 127.3%Commission on cash transactions (1.0) (1.9) 90.0%Other (0.9) (1.3) 44.4%Total fee and commission expense (4.1) (8.2) 100.0%Net fee and commission income 24.7 39.2 58.7%Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.guarantees. Revenues for this item were up by69.2% to RUB 6.6 billion in 2011, driven by the rapiddevelopment of the trade finance business.In 2011, the Group’s fee and commission expensesdoubled to RUB 8.2 billion, compared toRUB 4.1 billion in 2010. In parallel with this,commission expenses on settlement and cashtransactions amounted to RUB 6.9 billion, up by115.6% compared to 2010. This increase is relatedto the growing volume of operations conducted byVTB.Gains less losses / (losses net of gains) arising fromfinancial instrumentsProvision charge for impairment of debtfinancial assetsDuring the reporting period, VTB Group was ableto reduce significantly the provision charges forimpairment of its debt financial assets, due to theimproved financial stability of its corporate clients.In 2011, the provision charge for impairment of debtfinancial assets decreased to RUB 31.6 billion fromRUB 51.6 billion a year earlier. During the reportingperiod, due to an improvement in the economicconditions in Russia, the amount of the provisioncharge for loan impairment was 0.9% of the averagegross loan portfolio, compared to 1.9% 1 in 2010.loan impairment to the total loan portfolio reduced to6.3% from 9.0% at the end of 2010.Staff costs and administrative expensesVTB Group’s staff costs and administrative expensesincreased by 48.8% in 2011 to RUB 141.5 billion,primarily due to the consolidation of TransCreditBankand the Bank of Moscow, as well as the intensivedevelopment of VTB24’s retail network. The cost-toincomeratio before provisions grew to 49.4% in thereporting period, compared to 43.0% in 2010.Net profitFor the second consecutive year the Group generateda record net profit, which was RUB 90.5 billion,compared to RUB 54.8 billion for the previousyear. Substantial income growth in the Group’score businesses and a significant reduction in theprovision charge for loan impairment were key inachieving this positive financial result for 2011.AssetsAnalysis of VTB Group’s financial positionVTB Group’s total assets in 2011 stood atRUB 6,789.6 billion, compared to RUB 4,290.9 billionat the end of 2010. Asset growth in the reportingperiod was driven by organic growth and theconsolidation of the Bank of Moscow.The Group’s gross loan portfolio (loans and advancesto customers before allowance) increased by 50.0%to RUB 4,590.1 billion in 2011.VTB’s corporate loan portfolio increased by 49.6%to RUB 3,776.0 billion due to the organic growth oflending in this segment, caused by a higher demandfor loans in the second half of the year.In 2011, the growth in retail lending was slightlyhigher than in corporate lending. As at the year-end,the retail loan portfolio had increased by 52.2%and had reached RUB 824.1 billon. The key growthdrivers of the retail loan portfolio were mortgagesand consumer loans, which increased by 42.3% and62.5% respectively over the year.(in RUB, billion) 31.12.2010 31.12.2011 ChangeCash and short-term funds 275.5 407.0 47.7%Mandatory reserve deposits with central banks 26.4 71.9 172.3%Financial assets at fair value through profit or loss 344.6 571.5 65.8%Financial assets pledged under repurchase agreements and loaned financial assets 16.9 198.6 1075.1%Due from other banks 349.9 424.6 21.3%Loans and advances to customers 2,785.4 4,301.6 54.4%Assets of disposal group held for sale – 10.3 –Financial assets available-for-sale 55.9 167.7 200.0%Investments in associates and joint ventures 15.7 32.5 107.0%Investment securities held-to-maturity 34.2 32.4 –5.3%Premises and equipment 113.2 116.8 3.2%Investment property 102.2 122.5 19.9%Intangible assets and goodwill 30.5 141.2 363.0%Deferred tax asset 37.9 42.7 12.7%Other assets 102.6 148.3 44.5%55The Group’s losses net of gains arising from financialinstruments amounted to RUB 26.7 billion for thereporting period, compared to a gains less lossesfigure of RUB 14.7 billion in the previous year.This negative financial result for transactions withsecurities is related to the volatility of the globalcapital markets.The total allowance for loan impairment increased toRUB 288.5 billion in 2011, from RUB 274.2 billion in2010. The biggest contributor to this is the allowancefor corporate loan impairment, which decreased to84.5% of the total allowance for loan impairment in2011, compared to 86.3% in 2010.As a result of the lower provision charge for loanimpairment in 2011, the ratio of the allowance forTotal assets 4,290.9 6,789.6 58.2%1 Calculated excluding the effect of TCB consolidation.Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.

VTB Annual Report 20114. Management report56LiabilitiesCorporate and investment banking57(in RUB, billion) 31.12.2010 31.12.2011 ChangeDue to other banks 397.3 699.7 76.1%Customer deposits 2,212.9 3,596.7 62.5%Liabilities of disposal group held for sale – 8.5 –Other borrowed funds 185.7 734.6 295.6%Debt securities issued 593.1 664.5 12.0%Deferred tax liability 7.3 10.0 37.0%Other liabilities 110.9 209.4 88.8%Total liabilities before subordinated debt 3,507.2 5,923.4 68.9%Subordinated debt 205.5 241.1 17.3%Total liabilities 3,712.7 6,164.5 66.0%(in RUB, billion) 2010 2011 ChangeNet interest income before provisions 120.5 152.2 26.3%Net fee and commission income 14.2 23.0 62.0%Gains less losses / (losses net of gains) arising from financial instruments 14.2 (26.7) –Operating income before provisions 155.0 184.5 19.0%Provision charge for impairment (37.8) (20.7) –45.2%Profit before taxation 58.7 84.4 43.8%Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.The Group’s securities portfolio more than doubledin value in 2011 to RUB 970.2 billion, primarily asa result of: a RUB 226.9 billion increase in financialassets at fair value through profit or loss; aRUB 181.7 billion increase in financial assetspledged under repurchase agreements and loanedfinancial assets; and a RUB 111.8 billion increasein financial assets available-for-sale.In the reporting year, the Group increased itsinvestments in debt and equity securities by 44.0%and 142.0% respectively.LiabilitiesThe Group’s total liabilities in 2011 increased by66.0% to RUB 6,164.5 billion, mainly as a result of anTotal capital and capital adequacyincrease in funding from customer deposits and theconsolidation of the Bank of Moscow. As at the yearend,VTB’s deposit portfolio had increasedby RUB 1,383.8 billion and amounted toRUB 3,596.7 billion. At the same time, the volumeof funds on customers’ current and settlementaccounts, which are among the cheapest sourcesof funding for the Group, increased by 42.9% toRUB 903.5 billion, due to the Group’s strategyof developing its transaction banking business.Customer funds remained the major contributor tothe Group’s resource base. In 2011, the proportion ofcustomer deposits within the Group’s liabilities wasdown by 1.2 p.p. to 58.3%.The reduction in the proportion of customer depositswithin the Group’s resource base was driven by theGroup’s extensive activity in the debt capital marketsand interbank lending, as well as by greater liabilitiesto the Bank of Russia. The amount due to other banksincreased by 76.1% to RUB 699.7 billion during thereporting period. The Group’s liabilities to centralbanks in countries where the Group is present,including the Bank of Russia, grew from RUB 1.4 billionat the beginning of 2011 to RUB 365.9 billion.Total capital and capital adequacyIn the course of 2011, the Group considerablyenhanced capital utilisation efficiency throughacquisitions and organic growth of operations.In 2011, the Group’s capital adequacy ratio 1 stoodat 13.0%, compared to 16.8% in 2010. VTB’s Tier 1capital adequacy ratio was 9.0% at the year-end.All of the Group’s capital adequacy indicators exceedthe standards set by the Basel Committee on BankingSupervision.Retail bankingAnalysis by segment 2Profit before taxation for the corporate andinvestment banking business totalledRUB 84.4 billion, a 43.8% increase compared to 2010.The operating income before provisions of thisbusiness increased by 19.0% and amounted toRUB 184.5 billion, while a greater contribution camefrom a 26.3% year-on-year increase in net interestincome, which reached RUB 152.2 billion in thereporting period.The loans and deposits segment made the majorcontribution to VTB’s corporate and investmentbanking business. In 2011, the loans and depositssegment’s profit before taxation increased by 374.1%to RUB 64.0 billion compared to RUB 13.5 billion inthe previous year.(in RUB, billion) 2010 2011 ChangeNet interest income before provisions 54.2 79.2 46.1%Net fee and commission income 11.3 18.3 61.9%Gains less losses / (losses net of gains) arising from financial instruments 0.3 (0.2) –Operating income before provisions 68.4 102.0 49.1%Provision charge for impairment (14.9) (11.5) –22.8%Profit before taxation 21.2 38.8 83.0%(in RUB, billion) 31.12.2010 31.12.2011 ChangeTier 1 capital 546.9 509.0 –6.9%Tier 2 capital 214.8 245.4 14.2%Less: deductions from total capital (21.7) (21.0) –3.2%Total capital 740.0 733.4 –0.9%Risk weighted assets 4,413.2 5,655.9 28.2%Tier 1 capital ratio 12.4% 9.0% –340 b.p.Capital adequacy ratio 16.8% 13.0% –380 b.p.Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.1 The ratio is calculated in accordance with the Bank for International Settlements’ methods.2 This analysis covers VTB Group’s key business areas – corporate and investment banking and retail banking.

VTB Annual Report 20114. Management report60The setting of consolidated limits related toborrowers and groups of borrowers that are clientsof several companies within VTB Group, as well asappointing global client managers to manage mutualclients, which will further enhance the efficiency ofthis process.Consideration and approval of Group-wide standardsfor lending procedures and credit risk management;Centralised regulation and control of strategic andother important matters related to lending proceduresand credit risk management, both within subsidiariesand in the Group as a whole.VTB subsidiary banks that operate in the retaillending sector are guided by the corporate plan andthe Basic Rules for Managing Retail Credit Riskswithin VTB Group, which were approved by theGroup’s Management Committee and which establishthe standards for managing retail risks at the level ofeach subsidiary bank and at Group level.portfolio, individual customers, transactions andcollaterals (including the ranking of borrowers);Prevention at the loan application review stage, andby taking prompt measures as soon as credit riskfactors have been identified during the course ofmonitoring.61Credit riskCredit risk is the risk of financial loss should acounterparty fail to meet its contractual obligations.VTB Group and VTB Bank are primarily exposed tocredit risk through their loan portfolios, securitiesportfolios, guarantees, commitments and derivativesportfolios.VTB Group-level credit risk managementThe key approaches and procedures are defined bythe Basic Principles and Provisions of VTB Group’sCredit Policy for 2011-2012, approved by the Group’sManagement Committee.The management of credit risk within the Group isbased on a combination of the following approaches:Local credit risk management at Group company level;Consolidated credit risk management at the VTBGroup level.Consolidated risk management covers the most essentialassets, items and off-balance sheet operations of Groupcompanies, that bear credit risk and require control overtheir concentration within VTB Group as a whole. Withinthe context of consolidated control and reporting, thescope and range of such operations is defined by thecoordinating bodies of the Group.The key elements of consolidated credit riskmanagement within the Group are as follows:Development of a unified lending policy for VTBGroup, and ensuring that the lending policies ofsubsidiaries are harmonised and streamlined withthe Group’s lending policy;Development and application of unified principlesand methods within the Group for borrowerassessment (rating systems for large corporate clientsand credit institutions; scoring systems for retailclients), setting the fees for lending transactions,security, monitoring, provisioning, etc.;VTB Bank-level credit risk managementVTB Bank manages credit risk by:Setting limits on the basis of the Bank’s existingsystem of consolidated limits in relation to decisionsregarding the concentration of credit risk forindividual borrowers; regular reviews of credit limitsby the VTB Risk Management Department, which areapproved by the Credit Committee and comply withthe regulations, set by the Bank of Russia;Coverage of credit risk by taking collateral andinsurance, charging adequate fees for the risk, andestablishing reserves to compensate for potentiallosses on loans;Assessment of the credit risk assumed by theBank for individual borrowers, as well as withinthe framework of regular monitoring of the creditThe Group continued to undertake measures toimprove the credit risk management system in 2011:New lending procedures were approved;The methodology used to rank the Bank’s customerswas significantly revised on the basis of statistics oncustomer defaults and financial status;Basic approaches to stress-testing the Bank’s creditportfolio were developed;The pricing system was further refined in terms ofcalculating the value of credit risks;Improvements were made to the centralised systemfor identifying and monitoring credit risk factors inrespect of credit transactions and borrowers.An analysis of the credit quality of loans and advancesto customers and financial assets classified as loansWithin the framework of the local credit riskmanagement system, the Group’s companiesassume and manage credit risks independently(including insurance and hedging risks), withinthe scope of their authority and limits with regardto risk indicators, and in accordance with nationalregulations and the standards of VTB Group. TheGroup’s companies are responsible for the resultsof their lending activity, for the quality of their loanportfolios, and for the monitoring and control ofcredit risks associated with their portfolios.Consolidated credit risk management includes thefollowing functions:Control over the Group’s combined credit portfolioand the level of risk taken by the Group with regard tocounterparties and/or groups of related counterparties,as well as countries and industry sectors, through theestablishment of consolidated limits and other types oflimits (restrictions) within the Group;Assessment of the “economic capital” (Capital-at-Risk) necessary to cover the Group’s credit risks;Preparation of consolidated reports on the Group’scredit risks and their submission to the managementbodies for review.Credit quality by class of loans and advances to customers and financial assets classified as loans and advancesto customers pledged under repurchase agreements as at 31 December 2011(in RUB, billion) Not impaired Impaired TotalPass Watch SubstandardDoubtful LossLoans to legal entities 2,617.8 541.4 362.7 30.7 213.4 3,766.0Financial assets classified as loans and advances tocustomers pledged under repurchase agreements188.3 – – – – 188.3Loans to individuals 746.2 4.2 14.1 18.0 41.6 824.1Total loans and advances to customers and financialassets classified as loans and advances to customerspledged under repurchase agreements 3,552.3 545.6 376.8 48.7 255.0 4,778.4Source: VTB Group’s IFRS consolidated financial statements.

VTB Annual Report 20114. Management report62VTB Group loan portfolio quality under IFRS as at 31 December 2011Total gross loans and advances to customers (in RUB, billion) 4,590.1NPL ratio 1 (%) 5.4Allowance for loan impairment (in RUB, billion) 288.5Allowance for loan impairment / Total gross loans (%) 6.3Allowance for loan impairment / NPLs (%) 111.3and advances to customers pledged under repurchaseagreements (gross) is presented in the table above,on both an individual and collective basis.The credit quality of loans and advances to customersand financial assets classified as loans and advancesto customers pledged under repurchase agreementsis presented according to five categories:Pass – provision rate from 0% to 2%;Watch – provision rate from 2% to 5%;Substandard – provision rate from 5% to 20%;Doubtful – provision rate from 20% to 50%;Loss – provision rate from 50% to 100%.The provision rate represents the weighted ratio ofallowance for impairment to the gross loan portfolio(before provisions) under each pool of loans withsimilar credit risk, or an individually impaired loan.VTB Group-level liquidity risk managementVTB’s liquidity management policy was applied in 2011not only within VTB Bank, but across the Group as awhole, based on internal regulations approved by theGroup’s Management Committee. Liquidity managementwithin the Group is carried out at three basic levels:Each bank/company of the Group manages its ownliquidity on a separate basis in order to meet itsobligations and to comply with the requirements ofthe national regulator and the recommendations ofVTB Bank;VTB manages Group liquidity on the basis ofcentralised control and management of the keymeasures taken by the Group;The Group’s medium-term and long-term financingprogramme is developed and implemented under thesupervision of VTB Bank.VTB Bank-level liquidity risk managementway, the Bank ensures that it meets its obligations,completes settlements on behalf of customers andfunds active operations.Current liquidity management is carried out by theTreasury Finance Department based on real-time(intraday) determination of the Bank’s currentpayment position and forecasted future paymentposition, taking into account the payments scheduleand other scenarios.The main task in forecasted liquidity management isto develop and implement a number of instrumentsfor managing assets and liabilities, aimed atsupporting the Bank’s instant funding capability, andto plan increases in its asset portfolio by optimisingthe ratio of liquid assets and profitability.The Bank achieves this by making long-term liquidityforecasts and by adhering to internal liquiditystandards (standards for liquid and highly-liquidassets and a standard for the Treasury securitiesportfolio), as formulated by the Assets and LiabilitiesManagement Committee. The liquidity accountingstandards of the Bank of Russia are also appliedwhen carrying out forecasted liquidity management.Liquidity risk and contractual maturity analysis as at 31 December 2011 (in RUB, billion)Time band Inflow Outflow Gap GapcumulativeRUB positionsFX SwapcumulativeDynamicgap (total)cumulativeOpening balance – – 285.9 285.9 – 285.9Up to 1 month 358.8 (879.9) (521.1) (235.2) 105.5 (129.7)From 1 to 3 months 228.3 (717.5) (489.2) (724.4) 98.5 (625.9)From 3 months to 1 year 1,009.4 (678.0) 331.4 (393.0) 101.4 (291.6)From 1 to 3 years 1,396.8 (486.9) 909.9 516.9 40.5 557.4More than 3 years 1,852.6 (891.0) 961.6 1,478.5 10.1 1,488.6Other currency positionsOpening balance – – 150.8 150.8 – 150.8Up to 1 month 609.8 (745.4) (135.6) 15.2 (108.1) (92.9)From 1 to 3 months 213.8 (227.7) (13.9) 1.3 (101.3) (100.0)From 3 months to 1 year 888.7 (951.2) (62.5) (61.2) (106.7) (167.9)From 1 to 3 years 1,278.0 (1,178.1) 99.9 38.7 (46.6) (7.9)63Liquidity riskLiquidity risk is the risk of a mismatch between thematurity dates of assets and liabilities, which mayresult in the inability to liquidate a position in atimely manner at a reasonable price to meet fundingobligations (including the non-utilisation of funds atan above-average market rate).The Bank separates current and forecasted liquidityrisk management.Management of current liquidity is one of theessential tasks handled by the Bank as part of itsoperational management of assets and liabilities,and entails short-term forecasting and control offund flows in terms of currencies and timings. In thisMore than 3 years 811.5 (639.1) 172.4 211.1 (8.8) 202.3TotalOpening balance – – 436,7 436.7 – 436.7Up to 1 month 968.6 (1,625.3) (656.7) (220.0) (2.6) (222.6)From 1 to 3 months 442.1 (945.2) (503.1) (723.1) (2.8) (725.9)From 3 months to 1 year 1,898.1 (1,629.2) 268.9 (454.2) (5.3) (459.5)From 1 to 3 years 2,674.8 (1,665.0) 1,009.8 555.6 (6.1) 549.5More than 3 years 2,664.1 (1,530.1) 1,134.0 1,689.6 1.3 1,690.91 NPL ratio is calculated to total gross loans including financial assets classified as loans and advances to customers pledged under repurchaseagreements.Source: VTB Group’s IFRS consolidated financial statements.

VTB Annual Report 20114. Management report64Long-term liquidity forecasts and risk analysisacross VTB Group and within VTB Bank are preparedby the Market Risk Division, which presents theresults in a consolidated report to the Bank’s Assetsand Liabilities Committee, the VTB ManagementCommittee and the Assets and Liabilities Commissionoperating under the Management Committee.Each forecast includes receivables and paymentsaccording to the contractual terms for operations,while also taking into account the following:planned transactions;possible extensions in terms of clients’ funds(deposits and promissory notes);possible outflows of unstable “on-demand” capital(clients’ current accounts).In addition, the Risk Division conducts stress-testingthat allows for risk factors liable to influence theBank’s forecast liquidity and takes into considerationits ability to mobilise liquid assets in order toalleviate a lack of liquidity.The table above illustrates VTB Group cash flows asat 31 December 2011, categorised according to timeperiods to contractual maturity / payment on assetsand liabilities.Liquidity gaps are closed by new borrowing and therenewal of existing deposits. The Group’s mediumtermliquidity is managed by attracting customerdeposits and interbank loans and the Bank ofRussia’s secured loans, as well as repo transactions.VTB also has a number of additional opportunities toraise finance to cover medium-term negative liquiditygaps, such as Eurobonds and bonds traded onstock exchanges in Russia. The currency structure ofliquidity is managed by conducting ‘conversion swap’transactions.A significant proportion of VTB Group’s liabilities isrepresented by customer deposits, promissory notes,bonds, the current accounts of corporate and retailcustomers, Federal Treasury deposits, Eurobonds andsyndicated loans.Despite the fact that a considerable portion ofcustomer liabilities are short-term deposits and“on-demand” accounts, diversification of theseliabilities and VTB’s past experience indicate thatthese liabilities are consistently refinanced bycustomers, and for the most part they are a stablesource of funding. The stable element of shorttermcustomer liabilities is determined for variouscurrencies on the basis of a statistical trend analysis ofthe cumulative balances of these accounts over time.Money market instruments (interbank loans anddeposits, repurchase agreements) are used to controlshort-term liquidity, and are not considered as asource of funding for long-term assets.Market riskMarket risk is the risk of downward pressure onthe Group’s financial results in response to therevaluation of balance-sheet assets and liabilities,off balance-sheet demands and liabilities andderivative financial instruments, due to unfavourablechanges in market parameters, such as interest rates(interest rate risk), exchange rates (currency risk) andthe prices of securities (price risk).Interest rate riskInterest rate risk management is conducted on thebasis of internal regulations adopted by the Group’sManagement Committee and includes:Setting standard interest rates for deposits andinternal rates for funding, which take the current stateof the market into consideration;VTB Group interest rate sensitivity analysis as at 31 December 2011 (in RUB, billion)Interest rateincrease, b.p.Calculating interest rate risk indicators (VaR, EaR);Setting capital limits for covering interest rate risk forVTB Group and individual banks.The basic parameters used to assess interest rate risk are:The sensitivity of the Group’s interest position toa change in interest rates, determined in relation(i) to the reduction in the net present value of theinterest position and (ii) to net interest income underan unfavourable parallel movement of the yieldcurves by 100 basis points;The economic capital for covering interest rate risk,evaluated using the IRRC indicator (Interest RateRisk Charge), and assessment of a reduction in thenet present value of the Bank’s position under apotentially unfavourable parallel movement of theyield curves by an amount determined using theValue-at-Risk indicator.Effect on netinterest incomeThe table above shows the sensitivity of the Group’sannual net interest income to a parallel shift of theyield curves by currencies as at 31 December 2011.Currency riskInterest ratedecrease, b.p.Effect on netinterest incomeRUB 249 (19.6) (249) 19.6USD 15 (0.1) (15) 0.1EUR 15 0.2 (15) (0.2)GBP 17 – (17) –Other 15 (0.1) (15) 0.1Total (19.6) 19.6Source: VTB Group’s IFRS consolidated financial statements.VTB Group currency risk indicators as at 31 December 2011 (in RUB, billion)The Group manages its currency risk on the basisof internal regulations adopted by the Group’sManagement Committee, by matching the currencyof its assets with that of its liabilities and bymaintaining an open currency position (OCP) ineach of the Group’s banks within established limits,including internal OCP and VaR limits and regulatoryOCP limits set by the Bank of Russia.A quantitative risk assessment is carried out usingthe VaR (Value-at-Risk) method, which estimates thelargest potential negative effect (within a specifiedconfidence interval) of changes in the value of foreignexchange positions on the financial result.OCP 11.1VaR 1.065Source: VTB Group’s IFRS consolidated financial statements.

VTB Annual Report 20114. Management report66The VaR assessment is based on an historicalmodelling approach over a period of two years witha ten trading day time horizon and a confidenceinterval of 99%.Price riskThe general principles for managing price risk at VTBare as follows:Restricting the size of price risk that is taken on bysetting limits across instruments, portfolios andtypes of transactions;Controlling adherence to established limits andrestrictions for taking on price risk (for example, aminimum discount size on “reverse repo” operationsand margin call conditions);Organisation of ongoing monitoring, analysis andreporting of price risk.A quantitative risk assessment is carried out usingthe VaR method and the above parameters forcurrency risk. Original historical data was used forinstruments with a quote history of at least 100trading days in the previous year, no more than tensuccessive trading days without quotes, and an issuedate no later than the beginning of the reporting year.The vast majority of such instruments in the Group’sportfolio had a history of 250 trading days in thereporting year.For instruments not satisfying these criteria (butnevertheless circulating in the market and carryingmarket risk), the price history used was that ofequivalent (proxy) instruments, expertly selectedusing the following criteria:the proxy instrument is the same type of financialinstrument as the original instrument (bonds/Eurobonds);the issuer of the proxy instrument is in the same sectorand the same country as the original instrument, andthe issuers have comparable credit ratings;the proxy instrument and original instrument aredenominated in the same currency;the proxy instrument and original instrument havecomparable durations.Proxy instruments are used for the VaR calculation inrespect of approximately a quarter of the securities inthe portfolio. In 2010, the Group implemented a VaRassessment method adjusted for diversification.As at 31 December 2011, this indicator stood atRUB 19.0 billion.Operational riskOperational risk is the risk of loss resulting fromhuman factors, possible flaws in internal processesor inconsistency between them and legislativerequirements, breakdowns in IT and othertechnological systems, or damaging external events(natural disasters).VTB Bank’s operational risk management system isdesigned to prevent potential losses and to reducethe possibility of business process failures and theinability to provide high-quality services to the Bank’sclients caused by staff errors, system breakdowns,internal or external fraud or violations of the law.In managing operational risk, the Bank followsthe principles contained in the Bank of Russiaregulations as well as the recommendations of theBasel Committee on Banking Supervision (includingBasel II). To implement its strategy, VTB carries outregular procedures to identify, assess, control andlimit operational risk. All significant deficienciesfrom a risk perspective, identified within the internalcontrol system, are subjected to rigorous analysis.Based on the analysis, measures are developed andimplemented to eliminate the causes and sources ofthe risk.To monitor and assess the consolidated operationalrisk, the Bank and its subsidiary financial companieshave implemented unified mechanisms to collectinformation on incidents of operational risk andrelated operating losses, as well as key risk andcontrol indicators.The procedure used by the Group’s subsidiaries tosubmit regular operational risk indicator updates toVTB Bank’s centralized risk management service issupported by the Report on Operational Risk moduleon the Group’s Corporate Information System (CIS).This module provides multi-level control over thequality of downloaded data and the possibility tocreate intra-group analytical reports with an optionallevel of consolidation.The key methods for limiting operational risk are:Maintaining a complex system of current and followupinternal control that is common to all businessunits and operations throughout the Bank;The regulation of all key operations by internalstandards and codes of practice;The registration and documentation of bankingoperations and transactions and consistent controlover primary documents and operating accounts;The application of the principles of dividing andlimiting the functions, authorities and responsibilitiesof employees; implementation of dual controls;collective decision-making and the setting of limitson the terms and scale of operations;The automation of banking operations based onthe use of high-performance IT systems that areconstantly monitored, and repaired promptly in caseof breakdown;Good systems of physical and information securityand control over access to the Bank’s facilities;A well-managed HR policy, good staff training andeducation.These risk limitation strategies are augmented byinsurance programmes that cover the various typesand scopes of operations. In 2011, the Group’stotal operational risk insurance amounted toapproximately RUB 137 billion, includingRUB 11 billion coverage of the Bank’s risks. Theseinsurance programmes have traditionally includedinsurance against criminal acts under the FinancialInstitution’s Blanket Bond scheme (includingelectronic and computer crime), insurance ofvaluables during transit and while in storage, liabilityinsurance, and the insurance of the “card business”,including cash machines and cover against bank cardfraud.Programme for implementing Basel IIstandardsIn 2011, VTB Group banks continued working oncomprehensive diagnostics regarding their degree ofreadiness for the implementation of Basel II standardsand a general analysis of the potential impact on thebanks’ activities 1 . Key aspects of this work have beencoordinated at the level of VTB Bank (primarily by theRisk Management Department of VTB).At the same time, VTB Bank and VTB24 participatedin a working group for the implementation of theBasel II IRB approach, organised by the Bank ofRussia jointly with the European Union’s leadingexperts on banking regulation.The Bank has also participated in the work ofthe Committee on Basel II Standards and RiskManagement, organised by the Association ofRussian Banks. In particular, a number of topicalmeetings and contacts with Bank of Russiarepresentatives took place within the frameworkof this committee, in which the capabilities andlimitations of the prospective implementation ofBasel II standards were fully assessed.1 VTB Group’s Western European banks have been operating according to Basel II standards since 1 January 2008.67

VTB Annual Report 20114. Management report68Once the timeframe for incorporation of the Basel IIrecommendations into Russian banking legislationbecomes clear, VTB Bank intends to formulate astrategy for the transition of its risk managementsystems to the new standards and the introductionof the necessary procedural documents, withsimultaneous preparation of a corresponding budgetand close coordination of initiatives by the Bank’ssubdivisions to carry this project forward.Key priorities in 2012In line with the current VTB Group DevelopmentStrategy for 2010-2013, and within the frameworkof the new Group management model, the riskmanagement system will be improved in 2012 byimplementing the following measures:Further unification of the risk management methodsand approaches applied by VTB Group companies;Improvement of the existing risk control proceduresat Group level, based on best practices – inparticular, creating new committees under the GroupManagement Committee and refining the functions ofexisting ones in the sphere of managing the Group’scredit and financial risks;Improvement and implementation of the Group’s“risk appetite” and “economic capital” models;5. Corporate governance5.1. Overview of the corporategovernance systemVTB Bank’s corporate governance system is foundedon the principle of unconditional compliance withthe requirements imposed by Russian legislationand the Bank of Russia, and the recommendationsof the Russian Federal Financial Markets Service. Italso takes into account international best practices,including the globally recognised principles ofcorporate governance developed by the Organisationfor Economic Co-operation and Development (OECD).VTB Bank guarantees that all its shareholders areExternal Auditorapprovestreated equally, and gives them the opportunity toparticipate in the management of the Bank via theGeneral Shareholders Meeting and to exercise theirright to receive dividends and information about theBank’s operations.The General Shareholders Meeting is VTB Bank’shighest governing body. The Bank’s SupervisoryCouncil, elected by the shareholders and accountableto them, provides strategic management andoversight of the work of the executive bodies, namelythe President and Chairman of the ManagementBoard and the Management Board. The executivebodies are responsible for the day-VTB Bank corporate governance structureGeneral Shareholders MeetingelectsreportsStatutory AuditCommission69Completion of the consolidation of the riskmanagement system within the Group’s investmentbusiness into the Group-wide risk managementframework, which is an important element of theactive development of this type of business;Development of risk-oriented approaches to businessplanning within VTB Group.Strategy andCorporateGovernanceCommitteeappointspreparesrecommendationsand reportsappointselectsreportsSupervisory Councilappointsreportselectspreparesrecommendationsand reportsreportsAudit CommitteereportsStaff andRemunerationCommitteepreparesrecommendationsand reportsPresident and ChairmanManagement BoardInternal ControlDepartment

VTB Annual Report 20115. Corporate governance70to-day management of the Bank and carry out thetasks entrusted to them by the shareholders and theSupervisory Council.VTB Bank has built an effective system of corporategovernance and internal control of its financial andeconomic affairs as a means of safeguarding therights and lawful interests of its shareholders.The Supervisory Council oversees the AuditCommittee which, in conjunction with the InternalControl Department, supports the managementfunction in ensuring the smooth running of theBank’s operations. The Audit Commission monitorsthe Bank’s compliance with the relevant lawsand regulations and the legality of its businesstransactions.VTB annually engages an external auditor, who hasno connection to the Bank’s or its shareholders’proprietary interests, to inspect and verify the Bank’sfinancial reports.The Staff and Remuneration Committee reports to theSupervisory Council and drafts recommendations onkey appointments and incentives for members of theSupervisory Council and the Bank’s executive andcontrol bodies.The Strategy and Corporate Governance Committeeunder the Supervisory Council, was established inorder to optimise the decision-making process of theSupervisory Council on issues of strategic developmentand to improve VTB’s corporate governance.The Bank operates a policy of timely and fulldisclosure of reliable information, including detailsof its financial position, economic performance andownership structure, thereby giving shareholders andinvestors the opportunity to make properly informeddecisions. Information is disclosed in compliancewith the requirements of Russian legislation andthe UK financial regulator, the Financial ServicesAuthority (FSA). In 2008, VTB Bank introduced its ownRegulation on Information Policy which, inter alia,establishes rules for the protection of confidentialand insider information.5.2. Development of the corporategovernance system in 2011In 2011, the Bank continued to develop its corporategovernance system in line with best practices.The main activities in this area included:Introducing the office of Corporate Secretary, whichentailed election of the Corporate Secretary by theBank’s Supervisory Council and approval of theregulations governing the Corporate Secretary, whichcomply with the relevant recommendations of theCode of Corporate Conduct of the Federal FinancialMarkets Service of Russia;Establishing the Strategy and Corporate GovernanceCommittee under the Supervisory Council, whoserole is to provide a thorough preliminary reviewof strategic and corporate governance issues forconsideration by the Supervisory Council;The election of representatives of large institutionalinvestors to the Supervisory Council;Approval by the Supervisory Council of methodsfor evaluating the corporate governance system,developed in accordance with internationalbest practices and in compliance with therecommendations of the Bank of Russia;The annual evaluation of VTB’s corporate governancesystem by the Russian Institute of Directors, a leadingindependent corporate governance expert body.The result of the evaluation was to confirm thescore of seven received by the Bank in 2010 onthe RID-Expert RA National Corporate GovernanceScale, which corresponds to the level of “DevelopedCorporate Governance Practice”;Conducting a number of meetings and seminars withshareholders as part of a nationwide programmeaimed at improving financial literacy in Russia’sregions.In 2011, the Bank also actively participatedin discussions with experts and the businesscommunity to develop a national model of corporategovernance. VTB sponsored and participated in theTenth National Congress of Corporate Directors, whichfocused on the development of corporate governancesystems in companies with state participation,the implementation of innovative developmentprogrammes, and the enhancement of the efficiencyof boards of directors.VTB won the prestigious “Bank of the Year 2011”award in November 2011. The award marks theachievements of highly efficient Russian companiesthat combine stability with rapid development, andare also considered to have a corporate policy that istransparent to foreign investors. The other good newsin 2011 was the recognition of the VTB 2010 AnnualReport as “The Best Annual Report in the FinancialSector of the Economy” in two independent annualreport competitions, one arranged by the RTS andMICEX stock exchanges and the other by the ExpertRA Rating Agency. This is not the first time VTB hasbeen successful in such competitions. The Bank’sannual reports consistently earn the highest ratingsgiven by the professional financial community.5.3. The General ShareholdersMeeting of JSC VTB BankThe General Shareholders Meeting is VTB Bank’shighest governing body. In making decisions atshareholders meetings, the Bank’s owners exercisetheir right to participate in its management.General Shareholders Meetings can be annual orextraordinary. The Annual General ShareholdersMeeting must be held once every year. Accordingto the applicable Russian law, the Annual GeneralShareholders Meeting must be held no earlier thanthe 1st of March and no later than the 30th of June.The procedure at the Meeting is governed by theRegulation on Procedures for Preparing and Holdingthe General Shareholders Meeting.The 2011 Annual General Shareholders Meeting ofVTB Bank was held on the 3rd of June in Moscowunder the chairmanship of Alexey Ulyukaev,First Deputy Chairman of the Bank of Russiaand a member of the VTB Supervisory Council.The Meeting was attended by 733 shareholdersand their representatives. For the first time theAnnual General Shareholders Meeting was held inaccordance with the new Regulation on GeneralShareholders Meetings, which was adopted in 2010.The shareholders’ debate on issues included in theagenda and the answering of questions submitted byshareholders in writing were moved to the last partof the meeting, after all the speakers had made theirpresentations. This enabled time to be allocated in amore rational manner, and full answers to be given toshareholders’ questions.During the Meeting, shareholders took part indiscussions and voted on the following matters:approval of VTB Bank’s Annual Report for 2010;approval of the annual accounts for 2010;distribution of profits and the announcement ofdividends for 2010;approval of remuneration payments to thoseSupervisory Council members that are not stateemployees;approval of the composition of the SupervisoryCouncil and election of its members;approval of the composition of the Audit Commissionand election of its members;approval of the external auditor;approval of the new edition of the VTB Bank Charter;approval of the new edition of the SupervisoryCouncil Regulation;71

VTB Annual Report 20115. Corporate governance741998–2001 – Deputy Chairman of OJSC GazpromManagement Board;1995–1998 – Chairman of the Bank of Russia;1995–1995 – Member of OJSC Gazprom ManagementBoard;1994–1995 – First Deputy Chairman of theManagement Board of Imperial Commercial Bank;1994–1994 – Acting Minister of Finance of theRussian Federation;1993–1994 – First Deputy Minister of Finance of theRussian Federation;1992–1993 – Deputy Chairman of the Russian StateCommittee for Economic Cooperation with the CIScountries;1991–1992 – Economics Expert in the ExecutiveOffice of the USSR President;1981–1991 – Associate Professor of ForeignEconomies and Foreign Economic Relations of theDepartment of Economics, Lomonosov Moscow StateUniversity;1977–1981 – Assistant Professor of ForeignEconomies and Foreign Economic Relations of theDepartment of Economics, Lomonosov Moscow StateUniversity;1976–1977 – Teaching Assistant of ForeignEconomies and Foreign Economic Relations of theDepartment of Economics, Lomonosov Moscow StateUniversity;1975–1976 – Junior Research Associate atLomonosov Moscow State University;1974–1975 – Secretary of the Komsomol Committeein the Department of Economics, Lomonosov MoscowState University.Born in 1950 in Moscow. Graduated in 1973 fromLomonosov Moscow State University, and in 1976as an extramural postgraduate of Moscow StateUniversity. Ph.D and Higher Doctorate in Economics.Holds no shares in the Bank.David BondermanMember of the Supervisory Council of VTB Bank since3 June 2011Founding Partner and President of Texas PacificGroup Investment Fund (TPG). Member of the Boardsof Armstrong Worldwide Industries Inc., CoStarGroup Inc., General Motors Company; Chairmanof the Board of Directors of Ryanair Holdings plc;member of the Board of Directors of the followingnon-profit organizations: The Wilderness Society, TheGrand Canyon Trust, The University of WashingtonFoundation, and The American Himalayan Foundation.Previous positions:1992 to date – Founder of Texas Pacific GroupInvestment Fund;1983–1992 – Chief Operating Officer of the Robert M.Bass Group, Inc. (now Keystone Group, L.P.);Prior to 1983 – Partner in the law firm of Arnold & Porterin Washington, D.C., where he specialised in corporate,securities, bankruptcy and antitrust litigation;1969–1970 – Fellow in Foreign and Comparative Law,studied Islamic Law at the American University inCairo in conjunction with Harvard University;1968–1969 – Special Assistant to the U.S. AttorneyGeneral in the Civil Rights Division;1967–1968 – Assistant Professor at Tulane UniversitySchool of Law in New Orleans;Born in 1942. Graduated in 1963 from the Universityof Washington and from Harvard Law School in 1966.Holds no shares in the Bank.Matthias WarnigIndependent member of the Supervisory Council ofVTB Bank2006 to date – Managing Director of Nord-Stream AG(Switzerland). Chairman of the Board of Directors ofJSC Transneft; Board member of JSC Bank Rossiya andJSC Rosneft Oil Company; President of the Board ofGAZPROM Schweiz AG; member of the internationalconsultative committee of Credit Agricole S.A.; memberof the Supervisory Board of Verbundnetz Gas AG.Previous positions:2005–2006 – Chairman of the Board of Directors ofCJSC Dresdner Bank;2004–2005 – Chairman of the Management Committeeof Dresdner Kleinwort for Russia and the CIS;2002–2005 – President of CJSC Dresdner Bank;2000–2002 – Chief Coordinator of Dresdner BankGroup in Russia;1999–2000 – Managing Director of the BNP-DresdnerBank branch in St. Petersburg, later renamedDresdner Bank;1997–1999 – Deputy Manager of the Moscow branchof BNP-Dresdner Bank;From 1990 – Management Board Advisor, Head of theTrade Finance Division of Dresdner Bank;1981–1990 – Officer at the Cabinet of Ministersof the German Democratic Republic and Ministryof Foreign Trade, the German Main IntelligenceDirectorate. Retired in 1989 in the rank of Major.Born in 1955. Graduated in 1981 from the HigherSchool of Economics (Berlin), majoring in Economics.Holds no shares in the Bank.Grigory Y. GlazkovIndependent member of the Supervisory Council ofVTB Bank2004 to date – Independent consultant.Previous positions:2002–2004 – Director of the Viewpoint PsychologicalConsulting Centre, Consultant Psychologist;1997–2002 – Head of the International FinancialInstitutions Department of the Ministry of Finance ofthe Russian Federation;1995–1997 – Regional Representative of theEuropean Bank for Reconstruction and Development(EBRD) in St. Petersburg & Advisor to the EBRDRussian Department in London;1992–1995 – Advisor to the Russian Director at theInternational Monetary Fund, Washington D.C.Acting State Advisor of the Russian Federation, Class 3.Born in 1953. Graduated in 1979 from LeningradState University (now St. Petersburg State University),and in 2006 from the Higher School of Psychology.Mr. Glazkov is an economist and psychologist.Holds no shares in the Bank.Arkady V. DvorkovichMember of the Supervisory Council of VTB Bank until3 June 2011May 2008 to date – Aide to the President of theRussian Federation. Since June 2004, a member ofthe National Banking Council (representative of thePresident of the Russian Federation); Chairman ofthe Supervisory Council of the Agency for HousingMortgage Lending; member of the SupervisoryCouncil of JSC Sberbank; Board member of the StateCorporation – Deposit Insurance Agency; memberof the Supervisory Council of the State Corporation– Housing and Utilities Reform Foundation; Deputy75

VTB Annual Report 20115. Corporate governance76Chairman of the Board of Trustees of the Federal Fundfor the Development of Residential Construction.Previous positions:2004–2008 – Head of the Expert Directorate of theRussian President;2000–2004 – Ministerial Advisor, Deputy Ministerfor Economic Development and Trade of the RussianFederation;1994–2000 – Consultant, Senior Expert, GeneralDirector and Scientific Director of the JSC EconomicExpert Group.Acting State Advisor of the Russian Federation, Class 1.Born in 1972. Graduated in 1994 from LomonosovMoscow State University, the Russian School ofEconomics, and in 1997 from Duke University (USA).Economist-mathematician, Master of Economics.Holds no shares in the Bank.Andrey L. KostinMember of the Supervisory Council of VTB BankInterregional Bank Council under the FederationCouncil of the RF Federal Assembly.Previous positions:1996–2002 – Chairman of Vnesheconombank;1995–1996 – First Deputy Chairman of theManagement Board of the National Reserve Bank;1993–1995 – Deputy Head of Foreign InvestmentDepartment, Imperial Bank;1979–1992 – Diplomatic service: during 1979–1982– in the USSR Consulate General in Australia, in1985–1990 – in the USSR Embassy in Great Britain.Born in 1956. Graduated with Honours in 1979 fromthe Economics Department of Lomonosov MoscowState University. PhD in Economics.Holds shares equivalent to 0.00183% of theauthorised capital of the Bank.Nikolay M. KropachevIndependent member of the Supervisory Council ofVTB BankSt. Petersburg State University). Doctor of Law andProfessor.Holds no shares in the Bank.Anna V. PopovaMember of the Supervisory Council of VTB Bank until3 June 2011October 2010 to date – Deputy Chief of theGovernment Staff of the Russian Federation.Board member of the State Corporation – DepositInsurance Agency and Moscow Interbank CurrencyExchange Ltd; member of the Supervisory Councils ofthe State Corporation – Housing and Utilities ReformFoundation and OJSC VEB Capital; Chairman of theBoard of Directors of Industrial Park Odintsovo-1.Previous positions:2008–2010 – Secretary of State – Deputy Minister ofEconomic Development of the Russian Federation;2007–2008 – Secretary of State – Deputy Ministerof Economic Development and Trade of the RussianFederation;Born in 1964. Graduated in 1986 from the LeningradInstitute of Finance and Economics named afterVoznesenskiy. PhD in Economics.Holds no shares in the Bank.Ivan V. OskolkovMember of the Supervisory Council of VTB Bank since3 June 20112011 to date – Director of Innovation Developmentand Corporate Governance Department, the Ministryfor Economic Development of Russia. Memberof the Board of Directors and member of theHR Committee and Strategy Committee at OJSC RVC;member of the HR and Remuneration Committee ofthe Board of Directors of the Russian Corporation ofNanotechnologies.Previous positions:2007 – Director of the Corporate GovernanceDepartment, the Ministry for Economic Developmentof Russia;2007 – Associate Professor of Finance andAccounting, St. Petersburg State University;772002 to date – President and Chairman of theManagement Board. Chairman of SupervisoryCouncils of CJSC Bank VTB 24 and PJSC VTB Bank(Ukraine); Chairman of the Board of OJSC Bankof Moscow; Deputy Chairman of JSC Rosneft OilCompany; Board member of CJSC VTB Capital,CJSC VTB Capital Holding, VTB Capital IB HoldingLtd., Konstantinovskiy Congress-Centre LLC andthe White Nights Foundation of America (USA).Member of the Council of the Association of RussianBanks; President of the Non-commercial PartnershipFinancial and Banking Council of the CIS and theAll-Russian Public Organisation GymnasticsFederation of Russia; member of the Bureau ofthe Board of Directors of the Russian Union ofIndustrialists and Entrepreneurs; member ofPresidium of Non-profit partnership NationalCouncil on Corporate Governance; member of the2008 to date – Rector of St. Petersburg StateUniversity. Head of St. Petersburg and Leningradregion Bar Associations and Presidium member of theAssociation of Lawyers of Russia.Previous positions:2006–2008 – First Vice Principal of St. PetersburgState University;2000–2005 – President of the Statutory Court ofSt. Petersburg.Acting State Advisor of St. Petersburg, Class 1.Born in 1959. Graduated in 1981 from the LegalDepartment of Leningrad State University (now2004 – Head of the Corporate GovernanceDepartment of the Ministry of Economic Developmentand Trade of the Russian Federation;2002–2004 – Advisor to the Office of the Committeeon Financial Markets and Monetary Circulation, Officeof the Council of Federation of the Federal Assemblyof the Russian Federation;1990–2002 – Scientific researcher and teacher atLeningrad Institute of Finance and Economics namedafter Voznesensky; St. Petersburg University ofEconomics and Finance under the Ministry of Science,Higher Education and Technical Policy; the EuropeanUniversity in St. Petersburg and St. Petersburg StateUniversity.Acting State Advisor of the Russian Federation, Class 3.2003–2007 – Assistant Professor of Finance Theoryof the Management Department, St. Petersburg StateUniversity;1997–2003 – Teaching Assistant, Assistant Professorof Economic Cybernetics, St. Petersburg StateUniversity;1996–1999 – Postgraduate of the EuropeanUniversity at St. Petersburg.Acting State Advisor of the Russian Federation, Class 3.Born in 1973. Graduated in 1996 from St. PetersburgState University, majoring in Economics; in 1998, fromthe European University at St. Petersburg; and in 2001,from the Interdisciplinary Institute of Advanced Training

VTB Annual Report 20115. Corporate governance78for Executive Staff under St. Petersburg State Engineeringand Economic University. Ph.D in Economics.Holds no shares in the Bank.Alexey L. SavatyuginMember of the Supervisory Council of VTB BankJanuary 2010 to date – Deputy Finance Ministerof the Russian Federation. Board Chairman of JSCRosgosstrakh; member of the Supervisory Council ofJSC Sberbank; Board member of the State Corporation– Deposit Insurance Agency.Previous positions:2004–2009 – Director of the Department of FinancialPolicy at the Ministry of Finance of the RussianFederation;1992–2004 – Assistant and senior lecturer in theDepartment of Economic Theory and Economic Policyat St. Petersburg State University.Acting State Advisor of the Russian Federation, Class 3.Born in 1970. Graduated in 1992 from St. PetersburgState University, majoring in Political Economy.Holds no shares in the Bank.Pavel M. TeplukhinIndependent member of the Supervisory CouncilIndependent expert since 2010. Board memberof GeoProMining Ltd and the Russian ManagersAssociation; Chairman of the Investment PolicyCommittee under Rusnano’s Supervisory Council.Previous positions:1997–2010 – Chairman of the Board of Directors ofTroika Dialog Asset Management;1997–May 2008 – Member of the Board of Directorsof OJSC Volga TGC (TGC-7);1994 – Head of the Moscow office of the LondonSchool of Economics;1993 – Cooperated with the Ministry of Finance andthe Ministry of Economy as Economic Adviser inJeffrey Sachs’ Task Force, and Expert Economist in theRussian-European Centre of Economic Policy;1991–1993 – Senior Research Associate, Institute forEconomic Policy, headed by Yegor Gaidar;1990–1991 – Executive Director of the USSR’s firstprivate consulting company, Academia Inc., where heparticipated in a number of pioneering privatisationprojects in many former USSR republics;1989–1990 – Senior Research Associate andResearch Associate under Professor Yasin in theSoviet Academy of Sciences at the Central Institute ofEconomics and Mathematics.Born in 1964. Graduated in 1986 from LomonosovMoscow State University, majoring in Economics.Graduated from the London School of Economicswith a Master of Economics degree and a PhD inEconomics.Holds no shares in the Bank.Alexey V. UlyukaevMember of the Supervisory Council of VTB Bank2004 to date – First Deputy Chairman of the CentralBank of the Russian Federation. Deputy Chairman ofthe Supervisory Council of JSC Sberbank.Previous positions:2000–2004 – First Deputy Finance Minister of theRussian Federation;1999–2000 – Deputy Director of the Institute for theEconomy in Transition Foundation;1998–1999 – Deputy Director of the Institute forProblems of the Economy in Transition;1996–1998 – Member of the Moscow City Duma.Acting State Advisor of the Russian Federation, Class 1.Born in 1956. Graduated in 1979 from the EconomicsDepartment of Lomonosov Moscow State University.PhD in Economics and Professor.Holds no shares in the Bank.Muhadin A. EskindarovIndependent member of the Supervisory Council2006 to date – Principal of the Federal Instituteof the Higher Professional Education – FinancialUniversity under the Government of the RussianFederation. Board member of OJSC TMK,OJSC Bank of Moscow, OJSC Moscow Industrial Bank,OJSC Bank Vozrozhdenie; member of the SupervisoryBoard of OJSC Russian Agricultural Bank.Previous positions:1996-2006 – Vice Principal for Economic Affairs;Vice Principal for Academic Affairs; First Vice Principalfor Academic Affairs; and First Vice Principal of theFinancial Academy under the Government of theRussian Federation.Born in 1951. Graduated in 1976 from the MoscowFinancial Institute with a PhD in Economics. Professorand Fellow of the Academy of Management andMarkets of the Russian Federation.Holds no shares in the Bank.Meetings of the Supervisory CouncilMeetings of the Bank’s Supervisory Council areconvened at the initiative of its Chairman, or at therequest of a member of the Supervisory Council, theAudit Commission, the auditor, the ManagementBoard, or the President and Chairman. A quorum formeetings of the Bank’s Supervisory Council is formedby the attendance of half of the elected members ofthe Supervisory Council. Decisions at SupervisoryCouncil meetings are made by a majority vote ofthe participating members, except where otherwiseprovided in the Charter and the Supervisory CouncilRegulation. For decision-making purposes atSupervisory Council meetings, each member of theCouncil has one vote.Meetings of the Supervisory Council are held on ascheduled basis, however they may be held outsidethe schedule, using postal ballots.The work schedule for the Supervisory Council iscompiled for the period between the Annual GeneralMeetings of Shareholders and is approved by theSupervisory Council. Meetings of the SupervisoryCouncil are scheduled in advance, based on thebusiness cycle of the Bank.VTB Bank’s regulations do not establish a minimumnumber of meetings of the Supervisory Council.Nevertheless, meetings are normally held three timesa quarter according to a pre-arranged plan, includingthose conducted by postal ballots. All membersof the Supervisory Council receive the agenda andsupplementary materials for the meeting no laterthan 15 days prior to the meeting. SupervisoryCouncil meetings may be held by postal ballot.In 2011, the Supervisory Council held seven meetingsand ten postal ballots. During the reporting period,the Supervisory Council reviewed 128 different issuesin total.During the reporting period, the SupervisoryCouncil made a number of decisions on priorityareas of the Bank’s activities, including a reviewof the development strategy of VTB Group, thereorganisation and optimisation of the Bank’s branchnetwork, the creation of the Strategy and CorporateGovernance Committee, the election of membersof the Supervisory Council, the appointment ofthe Corporate Secretary and the approval of theRegulation on the VTB Bank Corporate Secretary.In addition, the Supervisory Council considered thefollowing matters in 2011:79

VTB Annual Report 20115. Corporate governance802010 2011Number of meetings in presentia 5 7Number of meetings conducted by postal ballots 14 10drafting proposals for their improvement. The AuditCommittee is chaired by an independent member ofthe Supervisory Council.Regular consolidated financial reporting incompliance with International Financial ReportingStandards (IFRS);81Setting the agenda for the annual GeneralShareholders Meeting, preliminary approval of theAnnual Report, determining the auditor’s fee andrecommendations on the level of dividends;Review and approval of quarterly reports byinspectors of the Bank’s professional activity in thesecurities market and specialised depositary;Review of activity reports and approval of the plans ofthe Bank’s Internal Control Department;Approval of interested party transactions;Election of members of the Supervisory Council;Approval of directorship positions for the Presidentand Chairman of the Management Board andmembers of the Management Board of VTB Bankwithin other organisations;Committees of the Supervisory CouncilThe Supervisory Council has three standingcommittees, which support the effectiveimplementation of the Council’s managerial andsupervisory functions and provide preliminarydetailed analysis and recommendations regardingthe issues that the Council deems most important.As at 31 December 2011, these were:Audit CommitteeStaff and Remuneration CommitteeStrategy and Corporate Governance CommitteeThe Supervisory Council committees are notgoverning bodies of the Bank, and cannot act in thename of the Supervisory Council.Audit CommitteeThe Audit Committee performs an analysis andsupport function to ensure that the Bank’s internalcontrol system works adequately and effectively. TheCommittee’s exclusive remit includes the appraisal ofcandidates for VTB Bank’s external audit team, reviewof the audit report, assessment of the effectivenessof the Bank’s internal control procedures andAs of 31 December 2011, the Audit Committeecomprised the following members:Matthias A. Warnig, Committee Chairman, independentmember of the Supervisory Council of VTB BankAlexei L. Savatyugin, Committee Member, member ofthe Supervisory Council of VTB BankAleksey V. Ulyukaev, Committee Member, member ofthe Supervisory Council of VTB BankDuring the reporting period, a total of three meetingsand nine postal ballots were organised by the AuditCommittee in which matters covering all priority areasof the Bank’s activity were considered. Considerablefocus was placed on improving internal controlprocedures within the Bank and VTB Group and ondeveloping the risk management system. The workof the Committee was based on the approved actionplan, in accordance with the established roles of theCommittee, as well as global good practice regardingthe work of audit committees.Within the area of internal control, the following topicswere addressed:Regular reports by VTB Group’s independentauditor on the results of the audit of VTB Group’sconsolidated IFRS reporting;The status and prospects for development andperformance of the investment and retail business ofVTB Group;Strategic development and risk management ofindividual member companies of VTB Group.The Supervisory Council considered the followingmatters in 2011:Supervisory Council memberNumber of meetings / postal ballots attended bySupervisory Council membersAlexei L. Kudrin (left office on 03.06.2011) 9Sergey K. Dubinin (elected on 03.06.2011) 8David Bonderman (elected on 03.06.2011) 8Matthias Warnig 15Grigory Y. Glazkov 16Arkady V. Dvorkovich (left office on 03.06.2011) 9Andrey L. Kostin 14Nikolay M. Kropachev 17Ivan V. Oskolkov (elected on 03.06.2011) 7Anna V. Popova (left office on 03.06.2011) 9Alexey L. Savatyugin 17Pavel M. Teplukhin 17Alexey V. Ulyukaev 17Muhadin A. Eskindarov 17Results of the tender for an external auditor;Plan and activity report of the Bank’s Internal ControlDepartment;Review of regular reports by the Bank’s internalcontrol units on significant violations, errors andshortcomings that had been detected at VTB Bankand its subsidiaries, and on measures taken toaddress those violations.The Committee looked into the following aspects ofthe Bank’s and VTB Group’s activity in the area offinancial oversight and risk management:Corporate governance and procedural matters (26%)Approval of transactions (32%)Review of reports, business planning (16%)Debt write-off (10%)Personnel-related matters (8%)Reorganisation of the branch network (5%)Development of VTB Group’s companies (3%)

VTB Annual Report 20115. Corporate governance82Members of the Audit Committeeof the Supervisory CouncilNumber of meetings / postal ballots attended by membersof the Audit Committee of the Supervisory CouncilMembers of the Staff and RemunerationCommittee of the Supervisory CouncilNumber of meetings / postal ballots attended by member ofthe Staff and Remuneration Committee of the Supervisory Council83Matthias A. Warnig 12Alexey L. Savatyugin 11Alexey V. Ulyukaev 12Nikolai M. Kropachev 5Ivan V. Oskolkov 5Pavel M. Teplukhin 5Muhadin A. Eskindarov 5Staff and Remuneration CommitteeThe Staff and Remuneration Committee’s role is to assistthe Supervisory Council in the sphere of appointmentsand remuneration for members of the Bank’s governingbodies and the Statutory Audit Commission.The Committee is comprised of members of theSupervisory Council who have relevant expertise andexperience in this area. The Staff and RemunerationCommittee is chaired by an independent member ofthe Supervisory Council.As at 31 December 2011, the Staff and RemunerationCommittee comprised the following members:Nikolai M. Kropachev, Committee Chairman,independent member of the Supervisory Council;Ivan V. Oskolkov, Committee member, member of theSupervisory Council;Pavel M. Teplukhin, Committee member, member ofthe Supervisory Council;Muhadin A. Eskindarov, Committee member,independent member of the Supervisory Council.In 2011, a total of five postal ballots were organisedby the Staff and Remuneration Committee, inwhich matters concerning the composition andremuneration of the members of the ManagementBoard were considered. The Committee also maderecommendations to the Supervisory Councilregarding candidates for the position of VTBCorporate Secretary.Strategy and Corporate Governance CommitteeOn 5 March 2012, the Strategy and CorporateGovernance Committee was established to optimisethe decision-making process of the SupervisoryCouncil on issues of strategic development and theimprovement of corporate governance at VTB.The Committee’s main tasks are the determinationof strategic objectives and priorities for the Bank’sdevelopment; the support and improvement of thecorporate governance system of VTB; and puttingforward suggestions for the strategic management ofthe Bank’s stock.The Committee comprises members of theSupervisory Council who have relevant expertiseand experience in the area. The Committee isrequired to include at least one Independent Director.As at 31 December 2011, the Strategy and CorporateGovernance Committee was composed of thefollowing members:Sergey K. Dubinin, Committee Chairman,Chairman of the Supervisory Council;David Bonderman, Committee member,member of the Supervisory Council;Grigory Y. Glazkov, Committee member,independent member of the Supervisory Council;Andrey L. Kostin, Committee member, VTB BankPresident and Chairman of the Management Board;Ivan V. Oskolkov, Committee member,member of the Supervisory Council;Alexey L. Savatyugin, Committee member,member of the Supervisory Council;Pavel M. Teplukhin, Committee member,member of the Supervisory Council;Alexey V. Ulyukaev, Committee member,member of the Supervisory Council.Since its creation, the Committee has held a total offour meetings, during which it has considered mattersincluding the strategic development of companieswithin the VTB Group, reports on the implementationof VTB Group strategy, the development of corporategovernance and the internal documents that regulate it.Corporate SecretaryIn 2011, VTB Bank approved the creation of theposition of Corporate Secretary as part of measuresundertaken by the Bank to improve its corporategovernance. The Bank also approved a Regulationon the Corporate Secretary, which was developed inaccordance with the relevant recommendations of theFederal Financial Markets Service Code of CorporateMembers of the Strategy and CorporateGovernance Committee of theSupervisory CouncilConduct. The Corporate Secretary of VTB Bankensures that the rules and procedures of corporategovernance, which guarantee the rights and interestsof shareholders of the Bank and cooperation betweenthe Bank and its shareholders, are followed by theBank and its employees.The Corporate Secretary of VTB Bank is elected by, andreports on a functional basis to, the Supervisory Council.In relation to administrative procedures, the CorporateSecretary also reports to the President and Chairman ofthe Management Board of VTB Bank. The SupervisoryCouncil’s Strategy and Corporate Governance Committeereviews the candidates for the position of CorporateSecretary, and provides recommendations to themembers of the Supervisory Council.The main responsibilities of the Corporate Secretary are:Supervision over the preparations for andproceedings of General Shareholders Meetings,and their compliance with the requirements of theapplicable Russian legislation, the Bank’s Charterand its other internal regulations;Number of meetings / postal ballots attended by membersof the Strategy and Corporate Governance Committee of theSupervisory CouncilSergey K. Dubinin 3David Bonderman 3Grigory Y. Glazkov 4Andrey L. Kostin 4Ivan V. Oskolkov 3Alexey L. Savatyugin 4Pavel M. Teplukhin 4Alexey V. Ulyukaev 4Anna V. Popova 1

VTB Annual Report 20115. Corporate governance86from the Financial Academy under the Government ofthe Russian Federation.He holds shares equivalent to 0.00049% of theauthorised capital of the Bank.Herbert MoosDeputy President and Chairmanof the Management BoardMr. Moos joined VTB Bank in 2009 and wasappointed Deputy Chairman of the ManagementBoard in November 2009. Until November 2009, hewas Senior Vice President.He is also Chairman of the Board of Directors ofVTB Capital Plc; member of the Board of Directors ofJSC VTB-Leasing, CJSC Holding VTB Capital, CJSC VTBDebt Centre, VTB Factoring Ltd, VTB Capital IB HoldingLtd., CJSC VTB Capital, OJSC Hals-Development,OJSC Bank of Moscow, OJSC TransCreditBank andVTB Debt Centre Ltd.; member of the SupervisoryCouncil of CJSC Bank VTB24 and VTB Bank (Ukraine).Previous positions:2008–2009 – CEO at VTB Capital plc, London;2007–2008 – CFO at Lehman Brothers Asia-Pacific,Hong Kong;2002–2007 – Head of Asset and LiabilityManagement and Treasurer at Lehman BrothersAsia-Pacific, Tokyo;1995–2002 – Debt Management, Capitaland Transaction Planning, Asset and LiabilityManagement, Lehman Brothers Bank, London.Born in 1972. Graduated in 2002 from the LondonBusiness School with a Masters Degree in Finance.He holds shares equivalent to 0.00341% of theauthorised capital of the Bank.Andrey S. PuchkovDeputy President and Chairmanof the Management BoardMr. Puchkov joined VTB Bank in 2002 and wasappointed Deputy Chairman of the ManagementBoard in December 2008. He has held the followingpositions in the Bank’s legal department: DeputyHead of Department, Head of Department, VicePresident (Head of Department), Senior VicePresident (Head of Department), Senior VicePresident and member of the Management Board.He is also Chairman of the Supervisory Council ofCJSC VTB-Development; member of the SupervisoryCouncils of OJSC VTB Bank (Ukraine) and CJSC BankVTB24; Chairman of the Board of Directors ofCJSC VTB Debt Centre, OJSC Sistema-Hals andVTB Debt Centre Ltd.; and member of the Board ofDirectors of the Russian Commercial Bank (Cyprus)Ltd., Petersburg-City Ltd. and OJSC Bank of Moscow.Previous positions:1999–2002 – Member of the Moscow City Bar;1996–1997 – Legal consultant in the CentralEconomic Department of the Bank of Russia.Born in 1977. Graduated in 1998 from the LawDepartment of Lomonosov Moscow State University.Lawyer.He holds shares equivalent to 0.00037% of theauthorised capital of the Bank.Denis A. BortnikovMember of the Management BoardMr. Bortnikov joined VTB in January 2006. SinceNovember 2011, he has been a member of VTB BankManagement Board.Previous positions:March 2011 – November 2011 – Head of the North-West Regional Centre of VTB Bank, Senior VicePresident of JSC VTB Bank;2007–2011 – Deputy Chairman of the ManagementBoard, First Deputy Chairman of the ManagementBoard, Chairman of the Management Board ofJSC VTB Bank North-West;2006–2007 – Deputy Head of the JSC VneshtorgbankBranch in St. Petersburg;2004–2006 – Advisor to the General Manager of theNorth-West Branch of GUTA-BANK, Deputy GeneralManager of the North-West Branch;1996–2004 – Consultant with the LiquidityManagement Department, Consultant with theTransfer Operations Department, Consultant withthe Department of Financial Instruments, SeniorConsultant with the Brokerage Department, ChiefAcquiring and Authorisation Expert, Head of theAcquiring and Authorisation Department atJSC Industry and Construction Bank.Born in 1974. Graduated in 1996 from SaintPetersburg State University of Economics and Financewith a degree in National Economy.He holds no shares in the Bank.Victoria G. VanurinaMember of the Management BoardMs. Vanurina joined VTB Bank in October 2009.Since August 2011, she has been a member of theManagement Board.She is also Chairwoman of the Board of Directors ofCJSC Holding VTB Capital and CJSC VTB SpecializedDepository.Previous positions:2009–2011 – Senior Vice President of JSC VTB Bank;Chief Operating Officer, member of the ManagementBoard of CJSC VTB Capital;2008–2009 – Managing Director, Head of theBusiness Support Division at CJSC VTB Capital;1998–2008 – Head of the Fixed Income SecuritiesTransactions Unit, Head of the Forex Transactionsand Fixed Income Transactions Unit, Head of theOperational Division at Deutsche Bank Ltd;1994–1998 – Economist, Head of Back Office,Head of the Interbank Transactions Unit of the ForexTransactions Division at JSCB Avtobank;1992–1994 – Forex Transactions Economist atRosvooruzhenie.Born in 1972. Graduated in 1995 from theInternational Relations Department of Moscow StateInstitute of International Relations (University) of theMFA of Russia.She holds no shares in the Bank.Olga K. DergunovaMember of the Management BoardMs. Dergunova joined VTB Bank in 2007.She is also Chairwoman of the Supervisory Council ofVTB Bank (France) S.A. and VTB Bank (Deutschland)AG; Deputy Chairman of the Supervisory Council ofJSC VTB Bank (Georgia); a member of the SupervisoryCouncil of CJSC Bank VTB 24, VTB Bank (Ukraine) andVTB Bank (Austria) AG; Chairwoman of the Board ofDirectors of Subsidiary JSC VTB Bank (Kazakhstan)and CJSC VTB Bank (Armenia); member ofthe Board of Directors of CJSC VTB Bank (Belarus),OJSC Sistematika Group, VTB Factoring Ltd.,CJSC Holding VTB Capital and OJSC Transneft.Previous positions:1994–2007 – Key Client Manager, General Director,Head of the Representative Office, President ofMicrosoft Russia;1992–1994 – Sales and Marketing Director atMicroinform;87

VTB Annual Report 20115. Corporate governance881990–1991 – Senior Researcher for the Soviet-American joint venture Paragraph.Born in 1965. Graduated with honours in 1987 fromthe G.V. Plekhanov Russian Academy of NationalEconomy, majoring in Economic Cybernetics. Shegained the qualification of Economist-Mathematicianin 1991 from the Postgraduate School of the G.V.Plekhanov Russian Academy of National Economy.In February 2009, she became one of the top-100managers to receive the patronage of the President ofthe Russian Federation.She holds shares equivalent to 0.00021% of theauthorised capital of the Bank.Valery V. LukyanenkoMember of the Management BoardMr. Lukyanenko joined VTB Bank in 2002 and wasappointed a member of the Management Board inDecember 2008. Before 2008, he was Head of theFirst Corporate Business Division and Senior VicePresident; Senior Vice President and Head of Mid-SizeBusiness in the First Corporate Business Division;Senior Vice President in the First Corporate BusinessDivision; Vice President and Head of Large CorporateBusiness in the First Corporate Business Division;Vice President; and Advisor to the President andChairman of the Management Board of VTB.He is also a member of the Board of Directors ofOJSC United Aircraft Corporation.Previous positions:2001–2002 – Chairman of the Council of Experts inProject Financing and Forecasting at Lanta Bank;1994–2002 – Deputy Head of the State ProgrammesDivision, Head of the Foreign Economic RelationsDivision at the Office of the President of the RussianFederation;1993–1994 – Director, Chairman of the GagarinStroiIndustrial and Investment Centre.Born in 1955. Graduated in 1982 from NovosibirskAgricultural Institute, and in 1991 from the Academyof the Office of the President of the RussianFederation. Doctor of Economics and Professor.He holds shares equivalent to 0.00058% of theauthorised capital of the Bank.Erkin R. NorovMember of the Management BoardMr. Norov joined VTB Bank in 2002 and was aManagement Board member from 2002 to 2007.He has again been a VTB Bank Management Boardmember from September 2009 to date.He is also a member of the Board of Directors of OJSCBank of Moscow.Previous positions:2007–2009 – Senior Vice President, ManagementBoard member of JSC NOMOS-BANK;2002–2007 – Vice President, Senior Vice President,Management Board member of the Bank for ForeignTrade of the Russian Federation (JSC Vneshtorgbank);1999–2002 – Development Director, Developmentand Strategic Planning Director, USSR Bank forForeign Economic Activities;1999 – Department Head, Calculation of TaxableBase and Tax Revenue Planning Department, RussianMinistry of Taxes and Duties;1992–1999 – AvtoVaz Corporation, Deputy Chairmanof the Management Board for Development ofJSC AvtoVAZ servicing – Lada Service, Marketing andTrade Director, General Director of the Economy andFinance Department.Born in 1954. Graduated in 1976 from LomonosovMoscow State University, and in 2001 from theAcademy of National Economy under the Governmentof the Russian Federation. Executive Master ofBusiness Administration (EMBA), Bank Managementand Candidate of Economic Sciences.He holds no shares in the Bank.Ekaterina V. PetelinaMember of the Management BoardMs. Petelina joined VTB Bank in 2006 and wasappointed a member of the Management Boardin February 2010. Prior to February 2010, she wasSenior Vice President – Head of the Strategy andCorporate Development Department; Senior VicePresident – Head of the Corporate Development andStrategy Division; and Vice President – Head of theCorporate Development and Strategy Division.She is also a member of the Supervisory Council ofPJSC VTB Bank, CJSC Bank VTB24; a member of theBoard of Directors of VTB Insurance Ltd., MultiCardLtd., VTB Factoring Ltd., CJSC Holding VTB Capitaland OJSC Bank of Moscow, as well as OJSC CapitalInsurance Group, OJSC MSK Insurance Group andOJSC TransCreditBank.Previous positions:2003–2006 – Junior Consultant and then Consultant inthe Moscow Office of McKinsey & Company, Inc., FSU;2000–2003 – Manager of the Praktika TrainingCenter;1993–2000 – Expert in the Public Relations &Advertising, Marketing and Banking ProductsPromotion departments of NBD Bank.Born in 1973. Graduated with Honours in 1996from the N.I. Lobachevsky State University in NizhnyNovgorod, and with Distinction in 2003 from the MBADegree Programme at Emory University, Atlanta, USA.She holds shares equivalent to 0.00002% in thecharter capital of the Bank.President and Chairman of the Management Boardof VTB BankThe President and Chairman of the ManagementBoard of VTB Bank oversees the Bank’s day-to-dayoperations, and ensures that its targets are metand its strategy is put into effect. The ManagementBoard Chairman reports to the General ShareholdersMeeting and the Supervisory Council of the Bank.Andrei Leonidovich Kostin has been President andChairman of the Management Board of VTB Banksince June 2002. In April 2007, he was re-elected tothis position until June 2012.5.6. Remuneration of the membersof the Supervisory Council and theManagement BoardIn accordance with a resolution of the GeneralShareholders Meeting, the members of VTB Bank’sSupervisory Council may, during their term in office,receive remuneration and be compensated forexpenses incurred in the course of their duties.VTB Bank’s Regulations on remuneration andcompensation for expenses of the members of theSupervisory Council have been in force since 2010.According to the Regulations, the total amountof remuneration of a member of the SupervisoryCouncil over a reporting period is, as a rule,determined by taking into account their actualparticipation in Council activities, both as a memberof the Supervisory Council and as a member and/or Chairman of a Supervisory Council committee.In accordance with current Russian legislation,members of the Supervisory Council who are civilservants do not receive any remuneration.The decision to pay remuneration and compensationis made by the Annual General Shareholders Meeting89

VTB Annual Report 20115. Corporate governance90(AGM) of VTB Bank. On 3 June 2011, the AGMapproved the following:a) To pay remuneration as follows to VTB BankSupervisory Council members who are not stateemployees:for their work in the VTB Bank Supervisory Council –RUB 2,322,352 each;for chairmanship of a VTB Bank Supervisory Councilcommittee – RUB 464,470 each;for membership of a VTB Bank Supervisory Councilcommittee – RUB 232,235 each.b) To provide compensation for expenses incurredby VTB Bank Supervisory Council members who arenot state employees in relation to their duties, i.e.accommodation and travel expenses and other dutiesand fees for using air and/or railway transportation.In 2011, the amount paid to the independentmembers of the Bank’s Supervisory Council wasRUB 16,024,230 (RUB 7,773,760 in 2010). Othermembers of the Supervisory Council did not receiveany remuneration.The Supervisory Council is responsible fordetermining the amount of the remuneration andcompensation paid to members of the ManagementBoard of VTB Bank. Salaries, including compensationand incentive payments, are fixed in the contracts ofemployment of the Management Board members.In 2011, the members of the Management Boardreceived remuneration in the sum of RUB 607,856,960(compared to RUB 174,398,480 in 2010).5.7. Internal control and auditVTB Group’s internal control and auditVTB Group’s internal control and audit system isintegral to its corporate governance philosophy and isone of the most important factors in ensuring that theBank performs effectively. The internal control andaudit departments support the stable development ofthe Bank and ensure the protection of shareholders’and investors’ interests, which increases theattractiveness of the Bank to investors.The internal control and audit functions within VTBGroup operate in compliance with international bestpractices, the requirements of Russian legislationand the applicable legislation in the countries wherethe Group’s subsidiaries and affiliates are present.The arrangements for interaction between the variousfunctions, and the order of priority between them,provide the necessary level of independence, whichenables the entire system to function effectively.VTB’s internal control system ensures:Efficient transactions and delivery of results;Effective management of assets and liabilities,including the safekeeping of assets;Reliability and timeliness of financial andmanagement information and reporting;Security of information;Compliance with the requirements of legislation,regulations and standards;Avoidance of involvement of the Bank and itsemployees in unlawful activity;Management of banking risks on a consolidatedbasis.The key requirements in respect of the organisationof the internal control and audit systems, the mainstandards and principles of operation of internalaudit within VTB Group, and the allocation ofaccountabilities and responsibilities are establishedin the Group’s internal regulatory documents.The Coordination Commission for Internal Control andAudit was established by the VTB Group ManagementCommittee to provide the effective coordination ofinternal control and audit of the Group, as well as toenable practical interaction between experts.The main objectives of the internal control and auditfunctions at VTB Bank include:Independent monitoring and assessment of theeffectiveness of the internal control system, the riskmanagement system, accounting reports, businessprocesses and the activities of departments andindividual employees;Ongoing monitoring of key risk areas andmechanisms to control risks, with a view toidentifying shortcomings in the internal controlsystem, emerging risks and trends, and in order tocreate mechanisms to control these risks;The development of recommendations to improvethe efficiency of systems, processes, procedures anddepartmental activities;The control of compliance with legislation,professional standards of activity and VTB Groupinternal regulations, as well as assistance in thedevelopment of regulations that comply fully withcurrent legislation and global best practices;The organisation of efficient communications withexternal regulatory bodies and external auditors.VTB Bank’s internal control and auditInternal control within VTB Bank is currentlyundertaken by:The Bank’s governing bodies (the GeneralShareholders Meeting, the Supervisory Council,including the Audit Committee, the ManagementBoard and the Chairman and President);The Audit Commission;The Bank’s Chief Accountant;The Directors and Chief Accountants of the Bank’sbranches;The Internal Control Division;Other operational divisions and managers in chargeof internal control, in accordance with powers grantedby the Bank’s by-laws.To further improve the quality of its internal controlsystem, the Bank established the Compliance ControlDivision in 2011. This new division is responsiblefor managing and minimising the risks that the Bankfaces from regulators and judicial bodies, and thereputational risks resulting from non-compliance withlaws, other legal acts, the Bank’s internal regulations,standards set by self-regulatory organisations andthe usual business practices associated with bankingactivities (“compliance risks”).VTB Group places particular importance on measuresto prevent the laundering of money obtained bycriminal means, and the financing of terrorism.A survey programme and internal control rules basedon the ‘know your client’ principle helped the Bankto improve the effectiveness of its risk managementstrategy in this area in 2011.Audit CommitteeResponsibility for the smooth running of the internalcontrol system lies with the Supervisory Council ofVTB Bank. The Audit Committee was set up underthe aegis of the Supervisory Council to ensure thatthis task is carried out effectively. Its objectivesalso include the detailed analysis and support of an91

VTB Annual Report 20115. Corporate governance92effective and adequate functioning of the internalcontrol system, in accordance with global bestpractices in corporate governance.The Committee’s activity is governed by theRegulations of the Audit Committee of theSupervisory Council of VTB Bank.More detailed information about the composition andactivity of the Audit Committee can be found in theSupervisory Council section on pages 80–81.Statutory Audit CommissionThe Statutory Audit Commission, operating withinthe Bank, verifies the Bank’s compliance with theapplicable legislation and other statutory instrumentsthat govern its activity, the proper functioning ofthe Bank’s internal controls, and the legality oftransactions carried out by the Bank.The Statutory Audit Commission is elected at theAnnual General Shareholders Meeting of the Bank,which determines its size and composition for theperiod to the next annual General ShareholdersMeeting.The composition of the Statutory Audit Commission,elected at the Bank’s Annual General ShareholdersMeeting on 3 June 2011, is as follows:Vladimir V. Lukov – Chairman of the Statutory AuditCommission, Professor at the International Universityin Moscow;Tatyana A. Bogomolova – Member of the StatutoryAudit Commission; Deputy Head of the Departmentfor Organisations in the Non-productive Sector andForeign Property; and Head of the Department forCredit and Finance, Foreign Trade, Land Use and TaxOrganisations of the Federal Agency for State PropertyManagement;Marina A. Kostina – Member of the Statutory AuditCommission; Deputy Head of the Consolidation andAnalytics Unit, Department for Organisations in theNon-productive Sector and Foreign Property of theFederal Agency for State Property Management;Zakhar B. Sabantsev – Member of the Statutory AuditCommission; Head of the Banking Sector Monitoring,Consolidation and Analytics Unit of the FinancialPolicy Department of the Russian Ministry of Finance;Natalia A. Satina – Member of the Statutory AuditCommission; Head of the Banking Unit of the FinancialPolicy Department, Russian Ministry of Finance;Dmitry V. Skripichnikov – Member of the StatutoryAudit Commission and Deputy Director of theCorporate Governance Department of the RussianMinistry of Economic Development.Internal Control DepartmentThe Internal Control Department (ICD) operates withinthe Bank to provide direct support to its governingbodies, in order to ensure that both the Bankand VTB Group work effectively. The ICD monitorsinternal control systems, conducts targeted andGroup-wide inspections, and provides impartialrecommendations on how banking operations andcontrol procedures may be improved.The ICD is an independent structural departmentthat operates under the direct supervision of theSupervisory Council of VTB Bank, which approvesits plans and monitors their implementation. TheSupervisory Council also reviews reports on theresults of ICD audits and its monitoring of internalcontrol systems, as well as on the implementation ofthe ICD’s recommendations and the measures takento address issues that have been identified.The Supervisory Council also considers mattersrelated to the resourcing of the ICD, including theappointment of the Department’s Head.The Department’s organisational structure comprisesa number of units responsible for day-to-daymonitoring, the coordination of internal controlsystems across the VTB Group and auditing, as wellas a Control Group, which supervises the Bank’sactivities as a participant in the securities marketand the operations of the specialised depositary forinvestment funds, mutual funds and pension funds.To increase the effectiveness with which internalcontrol systems are monitored in Bank branches,the ICD structure includes dedicated internal controlteams.The Internal Control Department is responsible for:Monitoring and assessing the effectiveness of theinternal control system;Monitoring the operation of the risk managementsystem;Verifying the reliability and adequacy of proceduresinstituted to safeguard the Bank’s property;Verifying the reliability, completeness, objectivity andtimely preparation of accounting and managementreports;Verifying the compliance of self-regulating institutionswith statutory requirements and standards;Verifying the adequacy and reliability of internal controlover the use of computerised information systems;Establishing uniform approaches to the organisation ofinternal control systems in subsidiary organisations.Within its terms of reference, the ICD liaises withthe Bank’s Audit Committee and external auditors,providing information on the internal control systemand reporting any deficiencies identified by thedepartment during the period being audited.VTB Bank’s independent auditorVTB Bank appoints an independent professionalfirm of auditors to externally audit and verify thecompliance of its annual financial statements.In accordance with the applicable legislation, theauditor is chosen by means of an open tender, whichis based on the following selection criteria:Qualifications and impartiality;Work plan and the scope of the auditing procedures,including the proposed duration of the external auditor’sservices for auditing the Bank’s financial statements;Independence of the auditor and potential conflictsof interest, including whether or not the externalauditor has proprietary interests in the Bank (exceptfor receiving payment for auditing services), andwhether or not there is any affiliation between theexternal auditor and the Bank or members of theBank’s governing bodies;The level of remuneration payable by the Bank to theexternal auditor;The provision or otherwise by the external auditor ofconsulting services to the Bank as defined in Article1, paragraph 6 of the Federal Law on Auditing.The Audit Committee has the responsibility foroverseeing the tender process and for draftingrecommendations on the award of the role ofindependent auditor for presentation to the Bank’sSupervisory Council. It is the Supervisory Council thatapproves the appointment, which is endorsed at theAnnual General Shareholders Meeting.Based on its inspection of the financial andcommercial operations of VTB Bank, the independentauditor prepares a report, which is submitted to theAudit Committee for preliminary review. The finalaudit report is submitted to the Bank’s SupervisoryCouncil and is also presented to the Annual GeneralShareholders Meeting.Ernst & Young Vneshaudit JSC, a Russian subsidiaryof one of the world’s leading auditing firms, wasappointed external auditor to VTB Bank in 2011.93

VTB Annual Report 20115. Corporate governance94Ernst & Young Vneshaudit JSC has been VTB Bank’sexternal auditor since 2003. Besides the paymentit receives for auditing services, the company hasno other proprietary interests in VTB Bank, hasno relationship of affiliation with the Bank, withmembers of its governing bodies or VTB subsidiaries,and has not provided consultancy services to theBank as defined in Article 1, paragraph 6 of theFederal Law on Auditing.5.8. Relations with individualshareholdersVTB Bank follows a policy of open communicationswith regard to all its activities. This is clearly seen inthe Bank’s interaction with its shareholders.In 2011, VTB continued to improve the channels ofcommunication with its shareholders by increasingthe effectiveness of existing forms of interaction andcreating new ways to work with them.VTB’s Individual Shareholders Relations departmentis responsible for communications with individualshareholders. The department has put in place anumber of ways in which shareholders can obtainfull updates on the Bank’s operations and detailedanswers to all of their questions. All enquiries fromindividual shareholders are reviewed and answeredpromptly, and are also analysed in order to establishif communications with the Bank’s shareholders maybe further improved.Open Days and WorkshopsIn 2011, VTB Bank expanded the geographical range andthe size of its meetings with shareholders. Up until 2010,meetings were held only in Moscow and St. Petersburg,but during the year under review these activities spreadfar beyond the metropolitan areas. As a result, 2011was a record year in this context, with 22 meetings beingheld with individual shareholders in different regions ofthe country.Open days held in Moscow and St. Petersburgat the Bank’s Shareholder Interaction Centrestake the form of individual counseling sessions.During these meetings, shareholders can receiveprofessional advice on any matters related to thestock from specialists employed by VTB Bank and itssubsidiaries (VTB24, VTB Insurance, VTB Registrar).Members of the Shareholders’ Consultative Council(SCC) of VTB Bank always participate in VTB OpenDay events, helping individual shareholders tounderstand the work of the stock market. In addition,SCC members listen to shareholders’ views and passthem on to the Bank’s management.Another channel of communications withshareholders, which has been developing duringthe reporting year, is the holding of workshopsin different regions of Russia. During 2011, morethan 1,000 individual shareholders from Ufa,Voronezh, Novosibirsk, Volgograd, Krasnodar,Samara, Stavropol and St. Petersburg participated inthese workshops. During the course of the events,representatives of VTB Group provided consultationon personal finance, the ownership and managementof VTB shares, financial performance, depositaryand brokerage services, the activities of the SCC andbeneficial products and services.In 2011, VTB Bank also introduced a new practiceof members of the Management Board participatingin regional workshops via video conferencing. VasilyTitov, First Deputy President and Chairman of theManagement Board, and Ekaterina Petelina, memberof the Management Board, provided answers toshareholders during video workshops in 2011. Inaddition, the Bank continued to work on improvingthe workshop programme. Speakers’ presentationswere optimised to meet shareholders’ needs andinterests, and particularly to cover the most importantand topical issues. Other key people from VTB, VTB24,VTB Insurance and VTB Registrar have taken part inthe regional workshops, and the Corporate Secretaryof the Bank has participated since the end of 2011.NewslettersInvitations to participate in VTB workshops aresent to all regional shareholders, so that those whoare unable to attend an event are informed of thecommunications channels that exist. So that theymay receive the most up-to-date information, VTBoffers its shareholders the opportunity to sign up forthe Bank’s monthly “VTB Shareholder Newsletter” byregistering on the VTB website.The VTB Shareholder Newsletter is also distributedto shareholders who have registered their emailaddress on a VTB24 Depositary form. The subscriberbase comprises approximately 35,000 VTBshareholders.The VTB Shareholder Newsletter contains the mostup-to-date and relevant information for the Bank’sshareholders, including the Group’s financialperformance, information about the AGM anddividend payments, invitations to meetings withother shareholders and reports on events that havetaken place, news on VTB Group companies andinformation on the activities of the SCC. The successof this method of communicating with shareholdersis clear from the growing subscriber base, as well asfrom positive feedback received from shareholders.In 2011, following legislative changes, VTB sentemails to shareholders who were to lose dividendsthat had been unclaimed for three years. Thesechanges impacted only unpaid dividends for 2007announced by OJSC VTB Bank and OJSC VTB BankNorth-West. As a result of the email notifications,dividends, which would otherwise have been lost,were paid to 108 VTB shareholders (out of 555shareholders to whom emails were sent) and to241 shareholders of VTB Bank North-West.Prompt adviceShareholders can receive prompt consultation inShareholders’ Support Centres and by telephone.The Bank’s website and all its printed materials alsoprovide contact details. The Bank’s advisers providethe most up-to-date information on matters related toownership and disposition of VTB shares, the currentshare price and dividends. They handle more than1,500 email enquiries and phone calls per month.Individual shareholders can also receive supportthrough the VTB Unified Information Service, wherecall-centre operators and an automated menu provideinformation about VTB shares.Shareholders’ Consultative CouncilThe Shareholders’ Consultative Council (SCC) isan independent advisory body consisting of tenshareholders. Its work in 2011 was based mainlyon meetings with VTB shareholders and themanagement teams of the Bank and its subsidiaries.During the reporting year, members of the SCCparticipated in regional workshops as externalexperts, answered shareholders’ questions regardingthe Council’s activities, and provided individualcounselling during Open Day events. A new formatof interaction with individual shareholders was ameeting with a shareholder action group in Moscowin September 2011.In 2011, the Shareholder Consultative Council heldfive meetings, which were attended by membersof the SCC and managers of the Bank and itssubsidiaries, including VTB Insurance, VTB Capitaland VTB Registrar. Among the key issues on theagenda was the privatisation of a 10% stake inVTB Bank, the acquisition of the Bank of Moscow andthe outdoor advertising agency News Outdoor, thefinancial results of VTB Group, progress reports onthe Group’s subsidiaries and the SCC, and changesto the Regulation of the Shareholder ConsultativeCouncil. In one of these meetings SCC members hadthe opportunity to discuss current issues with SergeyDubinin, Chairman of the Supervisory Council ofVTB Bank.95

VTB Annual Report 20115. Corporate governance96Printed publications for individual shareholdersThe SCC’s activities are extensively covered in VTB’squarterly newspaper for its shareholders called“The Controlling Interest”. The newspaper alsocovers other important and interesting topics forshareholders, including the performance ofVTB Group and recent news on its activities,overviews of the global markets and expertcommentary, interviews with senior managers andshareholders, announcements of workshops andprogress reports, and special offers to shareholders.In 2011, “The Controlling Interest” newspaper wasalso distributed to shareholders in Russia’s regionsand its circulation increased from 2,000 to 15,000copies during the reporting year.VTB also distributes various brochures forshareholders through its regional network. Thesecontain information about VTB shares, dividends andthe AGM, as well as contact information. By the endof 2011, information stands for shareholders hadbeen placed in VTB24 offices across 37 regions, andmore than 60% of the VTB24 branches in Moscowand St. Petersburg have supplies of shareholderinformation materials.VTB Bank websiteVTB shareholders can access up-to-date and in-depthinformation on the Bank’s official website www.vtb.ru. The Investor Relations section of the websitecontains information on share price performance,financial results and the dividend policy, corporategovernance and key upcoming events. VTB Bankdiscloses information as required by the applicablelaws, as well as additional data. The structure ofthe IR section has undergone significant changes inorder to meet shareholders’ needs. New sub-sectionshave been created and the menu has been mademore user-friendly, which enables shareholders tofind information easily and to navigate the site morequickly.In 2012, VTB Bank plans to continue to communicateactively with individual shareholders. In additionto Moscow and St. Petersburg, Open Days will takeplace in Ekaterinburg, the third largest city by numberof VTB shareholders. Workshops are scheduledin nine cities, including Kaliningrad, Khabarovsk,Ekaterinburg, Kazan, Moscow, Ufa, Nizhny Novgorod,Rostov-on-Don and St. Petersburg. The Bank is alsoplanning to change the format of “The ControllingInterest” newspaper, as well as to make furtherimprovements to its corporate website.5.9. Relations with institutionalinvestorsIn 2011, VTB Bank continued to communicateactively with the international investment community.Regular communications were particularly importantas financial markets were very volatile due to theEuropean debt crisis, and as a result there was asignificant outflow of funds from emerging markets inthe second half of 2011.Much attention was paid in the reporting period topersonal meetings with investors. In 2011, VTB helda total of 374 meetings with investment funds andparticipated in 18 conferences with investors fromEurope, North and South America, Asia and the Pacificregion. A number of meetings were held as part of theBank’s traditional roadshows to major global financialcentres, including Moscow, London, Frankfurtand New York, in which top management activelyparticipated. Andrey Kostin, President and Chairmanof the Management Board, held meetings with178 investment funds; Herbert Moos, CFO, with197 funds; Yuri Soloviev, First Deputy President andChairman of the Management Board, with 183 funds;Ekaterina Petelina, Member of the Management Board,with 112 funds; and Mikhail Zadornov, President ofVTB24, with 154 funds, including meetings held aspart of VTB Group’s first Investor Day.One of the most important results of activecollaboration with the international investmentcommunity in 2011 was the sale of a 10% stakein VTB Bank by the Russian Federation, the Bank’smajority shareholder as represented by the FederalState Property Agency, to Russian and foreigninvestors. The transaction was beneficial for allstakeholders. The State raised funds from the saleof its stake at the market price; VTB Bank increasedthe number of shares outstanding from 14.5% to24.5% and improved its shareholder structure; andinvestors acquired VTB shares at a 12% discount tothe maximum transaction price. Long-term investorsdemonstrated the greatest interest in VTB shares,representing 75% of the total placement. Existingshareholders accounted for 41% of orders and for49% of shares placed.In 2011, VTB continued borrowing, both on thetraditional debt market and the local currency debtmarket. During the reporting year, the Bank has beenactively developing relationships with credit analysts,it arranged three roadshows with debt investors andparticipated in three investment conferences.As a result, in 2011 VTB attracted a total ofUSD 4.4 billion in financing on the internationalcapital markets, including in such currencies as theSingapore Dollar and the Swiss Franc. In addition,VTB attracted a record-sized syndicated loan ofUSD 3.13 billion, the largest in the history of theCentral and Eastern European financial sector.Despite the market volatility, the Bank managed toarrange the financing on favourable terms.During the reporting year VTB Bank also developeda special programme to keep shareholders andinvestors informed about the Bank’s objectivesregarding the acquisition of the Bank of Moscow,as well as on progress made on the transaction.In addition, the Bank has developed and introducedeffective mechanisms to communicate theinvestment community’s perceptions of the Bank toVTB management. VTB conducted a comparativeanalysis on its interaction with investors, similarto that carried out by other issuers. The results ofthis exercise showed that VTB’s interaction withthe investment community in 2011 complied withgenerally accepted international practices.For the third consecutive year, VTB is preparing thebest possible annual report in the Russian financialsector for its shareholders and investors. In 2011,VTB Group’s Annual Report was recognised as the“Best Annual Report in the Financial Sector” categoryin two separate competitions. The first was organisedby the RTS and MICEX stock exchanges, and thesecond was arranged by the Expert RA rating agency.VTB Group’s Annual Report received the highestmarks from the jury, which was composed of expertsfrom the Russian Federal Financial Markets Service,the Ministry of Finance of the Russian Federation,the Ministry of Economic Development of the RussianFederation, leading professional organisations andthe financial media.5.10. Management of VTB GroupVTB Bank has a management system based onthe “strategic holding” model, which means thereis a common single development strategy forall companies within the Group, a single brand,centralised management of financial performanceand risk, unified control systems, and a focus oninteraction in order to disseminate best practices andcreate common standards.In accordance with VTB’s current management model,the Group is governed along two key lines:1. Administrative management – this relates tomanaging subsidiary companies within the Group’sorganisational structure. This is done by using themechanism of corporate governance, wherebyVTB participates in the management bodies of itssubsidiaries as a major shareholder.2. Functional management – this relates to managingthe Group’s business areas and other functionaldivisions within the Group as a whole. Functional97

VTB Annual Report 20115. Corporate governance98coordination is a supplementary governancemechanism that enables cooperation andconsultation between various parts of the Group inthe early stages of the decision-making process.At a Group level, the main coordination and advisorybody is the VTB Group Management Committee(VTB GMC), which analyses the developmentstrategies of various business areas, the businessplans for the Group and its subsidiaries, examinesreports on their implementation, assesses liquidityand risks, oversees the implementation of priorityprojects, and approves the standards, approachesand principles of the Group’s operations.As of 31 December 2011, the VTB Group ManagementCommittee consisted of the following members:Andrey L. Kostin – Chairman of the GMC, Presidentand Chairman of VTB Bank Management Board;Yuri A. Soloviev – member of the GMC, First DeputyChairman of VTB Bank Management Board;Vasily N. Titov – member of the GMC, First DeputyChairman of VTB Bank Management Board;Herbert Moos – member of the GMC, DeputyChairman of VTB Bank Management Board;Andrei S. Puchkov – member of the GMC, DeputyChairman of VTB Bank Management Board;Victoria G. Vanurina – member of the GMC,member of VTB Bank Management Board;Olga K. Dergunova – member of the GMC,member of VTB Bank Management Board;Valery V. Lukyanenko – member of the GMC,member of VTB Bank Management Board;Erkin R. Norov – member of the GMC,member of VTB Bank Management Board;Ekaterina V. Petelina – member of the GMC,member of VTB Bank Management Board;Denis A. Bortnikov – member of the GMC,member of VTB Bank Management Board;Riccardo Orcel – member of the GMC, Head of theClient Coverage Department, Senior Vice-President ofVTB Bank;David Brawn – member of the GMC, Advisor tothe Deputy Chairman, Senior Vice-President of theFinance Department at VTB Bank;Mikhail M. Zadornov – member of the GMC,President and Chairman of VTB24 Management Board;Mikhail V. Kuzovlev – member of the GMC,President of the Bank of Moscow;Yuri V. Novozhilov – member of the GMC,President of OJSC TransCreditBank;Dmitry Y. Olyunin – member of the GMC,First Vice-President of OJSC TransCreditBank;Alexei A. Yakovitsky – member of the GMC,Chief Executive Officer of CJSC VTB Capital Holding;Vadim V. Pushkarev – member of the GMC,Chairman of VTB Ukraine Management Board;Dmitry V. Rudenko – member of the GMC, First DeputyPresident and Chairman of VTB24 ManagementBoard;Alexander G. Yastrib – member of the GMC,First Deputy Chairman of the Bank of MoscowManagement Board.GMC meetings are held regularly on the basis ofquarterly work plans. In 2011, the GMC of VTB held20 meetings.In order to provide a platform for discussionand analysis of VTB Group’s performance, theManagement Committee has set up 13 CoordinationCommissions within the Bank’s main businesslines (corporate and investment business, businesswith financial institutions, risks, planning andreporting, assets and liabilities, internal controland audit, internal control for the prevention ofmoney laundering and the financing of terrorism,branding and marketing/external communications,personnel, property management, IT and security).The Commissions are managed by the heads ofthe relevant divisions of the Bank. Members of theCommissions are experts drawn from all of the banksand companies in the Group. The Commissions areresponsible for identifying best practices and findingways to implement them, prior to their final approvalby the Management Committee.In addition to the Commissions, the Group CreditCommittee, which oversees the management andcontrol of credit risk, also functions as an element ofthe Management Committee.In September 2011, the Group’s ManagementCommittee approved a decision to reform the Group’smanagement system. The main objective of thisreform is to improve coordination and cooperationbetween the Group’s companies in various keybusiness and support functions.Three key directions of reform were established toachieve this:1. To create a major business line known as Corporateand Investment Banking, which is responsible for thefinancial results of VTB Group’s corporate bankingbusiness in all the geographical areas in which it ispresent;2. To create a major business line known as RetailBanking, which is responsible for the financial resultsof the retail banking services provided byVTB Group to individuals and small businesses in allthe geographical areas in which it is present;3. To increase the centralisation of responsibility andthe integration of management of the key functionsof support and control, primarily the management ofrisks, finance, IT and operational activities.Developments in the management system willnot lead to any changes in the Bank’s strategyand policies. On the contrary, this developmentmerely provides a different approach to theirimplementation. The new system will enable theBank to reduce risks, develop a major global modelfor corporate banking, closely coordinate the work ofevery business line in all geographic locations, andto increase profitability through synergies betweenbusiness lines and best practices. It will also enablethe Group to cut costs by sharing infrastructureand resources more extensively among VTB’ssubsidiaries. Furthermore, the new system will bea platform for the effective integration of assetsacquired by VTB.VTB Group’s governance system is designed to complyfully with the corporate and antimonopoly legislationof the countries in which the Group’s companiesoperate, and undergoes continual review andimprovement in order that it remains in compliance.In particular, the regulations of the VTB GroupManagement Committee ensure that no decisions canbe made that would limit competition in the marketsin which VTB Group companies operate or wouldviolate legislative norms or the statutory documentsof those companies. Also, in accordance with Civillaw requirements, VTB Group’s governance system isbased on the principle of the independence of each ofthe legal entities within the Group.99

VTB Annual Report 20116. Corporate social responsibility1006. Corporate social responsibilityVTB Group strives to position itself as a leader inall areas where it conducts business. At the sametime, VTB is fully aware that achieving a high level ofoperating and financial performance, managementefficiency and sustainable growth depend on thosewhose interests are affected by its business. TheGroup recognises its responsibility towards allstakeholders, communicates with them on a regularbasis and takes into account their interests, not onlyin its ongoing operations, but also while settingits strategic objectives and directions for furtherdevelopment.6.1. PersonnelIn 2011, VTB continued to implement the strategyfor effective development that was adopted theprevious year. In accordance with this strategy,VTB Group designed a matrix system to manageits major business lines. The HR management systemis one of its main elements.On 31 December 2011, VTB Group employedmore than 65,000 people. Within the frameworkof the Group’s Human Resources Strategy, VTBimplemented a number of initiatives during 2011to unify processes and other projects to improvethe HR management system. The main goal ofthese activities was to provide an optimal balancebetween the Group deriving benefit from employees’professional activities, which go towards achieving ourstrategic goals, and meeting the needs, interests andexpectations of employees in the best possible way.In 2011, teams within the Group’s banks andcompanies were strengthened by rotating staffinternally, as well as by attracting well-qualifiedand successful external candidates with experienceof working in Russia and abroad. A number ofprofessionals, who have experience of working forleading international companies in the financialsector in Russia and abroad, joined the Group’smanagement team in 2011. All of this will help VTB toaccomplish its ambitious goals.AppraisalVTB operates a modern and effective system ofpersonnel assessment. The system is used to selectboth external and internal candidates, determineemployees’ training requirements, and createdevelopment and career plans. It also helps usto identify the most promising employees, form atalent pool, and assess employees’ performance.The methodological basis of VTB Group’s appraisalsystem combines all the assessment techniquesthat exist in the market. In 2011, the AssessmentCentre method was used to assess the performanceof regional client teams, in order to confirm that clientmanagers’ competencies correspond to their jobprofiles. When changes in organisational structuretook place, the Competency-Based Interview rapidassessment method was used as the basis forselection of internal candidates.The competency model has a special place in theappraisal system for VTB’s employees – it sets thestandards for employee conduct, promotes theachievement of corporate goals, and defines thecriteria for personnel selection and assessment.It reflects the values of VTB Group and representsa single procedural system for assessment in theGroup’s banks and companies in Russia, the CIS,Europe and Asia. It also enables employees to betterunderstand the banks’ and companies’ expectationsand corporate standards of conduct, and to receivefeedback on their performance.Incentive systemIn 2011, as part of the integration processes withinthe Group, VTB implemented a project to unify itsapproaches and programmes in the framework ofthe Incentive and Remuneration System and socialpolicy. The project was also related to the merger ofVTB Bank North-West with VTB Bank. The Group alsostarted synchronising the policies and procedures onremuneration and social programmes for employeesof the Bank of Moscow and TransCreditBank with thestandards of the Group during the reporting period.VTB paid special attention to an analysis andevaluation of the Group’s incentive and remunerationprinciples in the context of international standardsand regulations on remuneration, which wereestablished for financial organisations following the2008 crisis, and which are aimed at maintainingfinancial stability. In this regard, during theThe proportion of managers to the total number ofVTB Bank’s employees who participated in trainingprogrammes, %162009292010402011assessment of an employee’s performance, the focusis on adopting a balanced approach that takes intoaccount results obtained and risks taken.In addition, in accordance with internationalstandards, high priority is given to the maintenanceof financial organisations’ long-term stability. Thus,in order to strengthen the focus on achievement oflong-term results, an incentive programme runningover a long time period was introduced for VTBCapital employees. It is expected that this programmewill be expanded to the Group’s other banks andcompanies, while taking into account any relevantlegal or regulatory requirements in the countrieswhere the Group operates.Training and developmentVTB’s Human Resources Strategy also sets out thedevelopment of the corporate training scheme. In2011, training sessions were designed and conductedfor employees of the Group’s companies in order toensure that personnel have the knowledge and skillsBreakdown of VTB Bank’s employees who participatedin training programmes, by internal divisions, in 2011Business Divisions (82%)Control Divisions (12%)Support Divisions (6%)101

VTB Annual Report 20116. Corporate social responsibility102required to achieve efficient results and to meet VTB’squalitative performance indicators, as accordingto the Group’s key strategic initiatives. The trainingimproved the overall level of professional expertise ofpersonnel in subjects such as customer service, salestechniques, product lines, cross-sales, etc.The number of client managers involved in trainingfor cross-selling of financial products of the Group’scompanies more than tripled in 2011. Productmanagers and specialists of the Group’s sevenbanks and companies participated in developingand conducting the training programmes. Overall,more than 3,500 VTB client managers participated inintensive on- and off-site training during the reportingperiod. Training was also conducted in other keyareas of the Group’s activities, including IT, businessplanning, internal control, financial monitoring andcredit-related work. These training programmeswere conducted by both VTB internal staff and byrepresentatives of specialised training centres andbusiness schools.The most important task in 2011 was to increasethe effectiveness of management. This is the roleof the VTB Corporate University, which is a unifiedtraining centre for VTB Group’s senior and middlemanagement. In September 2011, the “Energyof Leadership” training programme held its sixthgraduation ceremony. The parameters for admission,which is on a competitive basis, and the academiccontent of the programme were developed having inmind the Bank’s key strategic initiatives, includingthe development of transactional banking and thetransformation of the corporate investment business.14 managers from VTB Group’s companies in Russiaand the CIS were enrolled in the programme. Whilestudying at the University, they developed andimplemented business projects related to variouselements of the Bank’s strategy.The focus of corporate training in 2011, as in2010, was on training management personnel andemployees of the Group’s business divisions.Corporate cultureOne of the main tasks in VTB’s HR managementprogramme during 2011 was to increase theeffectiveness of internal communications channels,such as awareness-raising events, in which VTBsenior managers participated, the Team Energycorporate magazine, surveys of employees onthe most important issues via the intranet portal,information notices, announcements, and mail shots.Activities uniting the whole Group on the basisof common values and interests have becomeparticularly important in the life of VTB – theseinclude family and sporting events, volunteeractivities, Open Doors Day and others. In particular,after a two-year break, VTB Group held its 7th“Spartakiad”. This large-scale event united 1,050sportsmen and sportswomen, representing theGroup’s 12 companies from eleven countries, andapproximately 3,000 guests and supporters. Forthe first time, teams from the Bank of Moscow andTransCreditBank participated in the “Spartakiad”,and our sportsmen and sportswomen competed ineleven disciplines.6.2. Responsible resourcemanagementThe rapid development of VTB Bank’s businessinevitably results in the consumption of naturalresources. VTB therefore strives constantly toreduce the volume of resources it uses in order tominimise any negative impact on the environment.VTB Bank uses both technical and administrativeapproaches to keep the environmental impact of itsoperations to a minimum. The Bank’s key objectivesare to have ecologically efficient principles in mindduring construction and renovation projects, whileat the same time using its various resources in aconsiderate manner and managing waste.In 2011, VTB implemented a number ofadministrative measures that were aimed at reducingthe consumption of resources. The Bank launchedthe test phase of an automated system of propertymanagement, optimised the location of its officesand expanded the implementation of electronicdocument management. In order to consolidatethe various activities of the Bank in this area, VTBhas merged its property management and logisticsdivisions.The most significant events of 2011 in relation tothe optimisation of office locations included thecompletion of the move of VTB Bank’s head officeto the Federation Tower of Moscow-City BusinessCentre and the beginning of construction of a newadministrative building on Vorontsovskaya Streetin Moscow. These measures will enable the Bank tomake the most efficient use of its real estate portfoliothrough the implementation of cost-effective spaceplanning solutions and the highest standards ofworkplace facilities.By using modern technologies and equipment,VTB aims to employ a system that guarantees goodmonitoring and control of energy consumption duringthe construction and renovation of the Bank’s officebuildings. New office buildings and other large VTBGroup facilities are equipped with state-of-theartenergy efficiency equipment. Unique lightingand microclimate control systems allow for theadjustment of electricity and heating consumptiondepending on the time of day and weatherconditions. Such equipment is 15–20% more energyefficient when compared to the previous generationof climate control systems. The Federation Tower,where the head office of the Bank is now located,has a panoramic glass facade and transparent officeVolume of resource consumption by JSC VTB Bank in 2010–2011partitions with the lowest degree of shading. Thosefeatures increase the transmission of light throughthe building and allow for the efficient use of naturallight, enabling significant energy savings. In order tomonitor electricity consumption and control costs,the Bank has installed 70 electricity meters in itshead office. Scheduled maintenance tests of climatecontrol systems are also conducted in the building, inorder to ensure the equal distribution of electricity tofan coil units, and to reduce the consumption of heattransfer fluids and coolants.In addition to energy savings, VTB pays specialattention to reducing the risk of environmentalpollution. The Group makes extensive use of safeand natural materials when building and decoratingits offices, and obliges construction companiesto use only environmentally friendly and certifiedmaterials. VTB Bank also considers it important thatits employees work in a comfortable environmentthat complies with the highest health and safetystandards. VTB is developing specific parametersfor repair and refurbishment works, so that costsfor the renovation of facilities may be planned andoptimised. Implementation of these parameters willalso enable the Bank to monitor the extent to whichnew facilities comply with the Bank’s requirements,including those related to ecology.The Bank aims to use all available resourcesefficiently. VTB regularly carries out technicaland administrative checks aimed at reducing theconsumption of electricity, heating, water and paperin its offices. During renovation works, the Groupuses special technology to insulate the exterior ofbuildings, ensures that heating systems are workingefficiently and replaces ventilation equipment withmore energy efficient variants in order to save energy.Unit 2010 2011 % changeHeating Gcal 17,919 17,259 –3.7Electricity kW ‘000 22,730 21,658 –4.7Water m 3 72,662 73,132 0.6103

VTB Annual Report 20116. Corporate social responsibility104Automatic control systems for energy consumptionare installed in the Bank’s offices. VTB was one ofthe first companies to start using fluorescent lights,and subsequently LED and halogen lights, insteadof incandescent bulbs. In 2012, the lamps in varioustechnical facilities and the hallways of three of theBank’s buildings will be replaced with more advancedLED lights. According to preliminary estimates, thischange will reduce the annual electricity consumptionat these facilities by a factor of two.The Programme for Energy Conservation and EnergyEfficiency in VTB Bank for 2011–2012, which wasapproved by the Management Board, is in theprocess of realisation. As part of this programme,VTB optimises the performance of air conditioningsystems, uses energy-saving lighting fixtures moreextensively, and has gradually been reducing thenumber of household electrical appliances.In addition, VTB Bank is trying to reduce theconsumption of paper. For this reason, an electronicdocument management system was introducedthroughout many offices. Internal correspondenceis conducted via electronic channels, and modernsoftware is installed to automate processes. Whennegotiating contracts in the electronic documentmanagement system, scanned or electronic versions ofdocuments are sent out to departments for review andapproval. If necessary, amendments may also be doneelectronically, approved by a digital signature, and nohard copy is required. These measures have enabledthe Bank to substantially reduce its paper consumption.VTB continues to increase the use ofvideoconferencing to reduce the amount of businesstravel, normally required as a result of the diversenature of the Group’s business. This helps to savefuel, energy and financial resources.Along with the responsible management ofresources, the Bank ensures that the production andconsumption waste that is generated by its workingprocesses is properly disposed of at specialisedfacilities. Paper that has been used is recycled forthe production of secondary raw materials andhousehold waste is disposed of in special landfills.A contractor with the relevant licence deals with usedfluorescent lights.When replacing old vehicles, in addition to theprice and operational capabilities of the potentialreplacement, VTB Bank pays special attention tofuel consumption figures and the level of hazardousemissions. Currently, all VTB motor vehicles complywith Euro-3 and Euro-4 standards.6.3. Social programmesVTB Bank’s long-term success is inseparable fromthe wellbeing of society, which is why VTB supportssocially important initiatives that are not directlyrelated to the Group’s core activities. The support weprovide mainly takes the form of charitable projectsand sponsorships.In 2011, VTB Bank donated approximatelyRUB 1.9 billion in total to charitable causes and tosponsor various projects across Russia and abroad.The most important activities of VTB Group in thesocial sphere include support for projects related tosocial development, cultural and scientific heritagein countries where the Group operates, as well asthe promotion and development of sports and theprovision of aid to vulnerable groups within society.The Bank also actively develops partnerships withhealthcare and educational institutions. In March2011, VTB was awarded the ‘Patron of the Decade’award, following the ‘Benefactors of the Decade’rating, which is compiled by Profile magazine.SportsOne of the priority tasks of VTB Group’s social activityis to support sporting events and to create a stablefinancial base that enables Russian sportsmen andsportswomen to compete successfully in varioussports worldwide. In 2011, VTB Bank lent its financialsupport to various Russian and international sportsorganisations, including:Dynamo Moscow Football ClubVTB United LeagueUnited Hockey Club DynamoFutsal Club DynamoRussian Basketball FederationRussian Gymnastics FederationKAMAZ-Master rally teamVolleyball Federation of RussiaInternational Judo FederationInternational Association of Athletics Federations(IAAF)International Gymnastics Federation (FIG)Russian Mountain Ski and Snowboarding FederationVTB Bank has been the primary sponsor of the KAMAZ-Master rally team for the past five years. The long-termpartnership between the Bank and the team is anexample of fruitful collaboration between businessand sport, and the team’s huge success in the 2011Dakar Rally is evidence of this. For the first time inthe history of Dakar, four crews from one team wonthe first four places in the competition. This victorymarked an anniversary for the Russian team – it wastheir tenth victory. The efficiency of the collaborationbetween VTB and KAMAZ-Master is now well proven –a Russian team has never achieved such a significantsuccess at the international level in any other form ofmotorsports.VTB also contributes to the strengthening of theRussian national teams’ status in Olympic sportsdisciplines, as the Bank has sponsored the RussianBasketball Federation and the Volleyball Federation ofRussia in their preparations for two Olympic Games.Results in 2011 have shown that Russian supportershave every reason to expect good performancesfrom Russian sportsmen and sportswomen in the2012 London Olympic Games. During the reportingperiod, the Russian women’s basketball team had asuccessful season and won the European Women’sBasketball Championship. Another highlight was thevictory of the Russian men’s national volleyball teamin the World League 2011 and their gold medal inthe Volleyball World Cup in Japan, which secured theteam’s participation in the London Olympics.Arts and CultureOne of the main areas of focus of the Bank’s socialpolicy is to support cultural institutions. In recentyears, VTB has collaborated with Russia’s largestmuseums and theatres to implement a number oflarge-scale projects. The Bank is actively involvedin the cultural life of Moscow and St. Petersburg, itfacilitates the promotion of substantial projects inthe Russian regions and it helps to develop culturalties with other countries.In 2011, as a present for the Tretyakov Gallery’s155th birthday, the Bank financed the Gallery’spurchase of unique paintings by Nikolai Ge sothat they could be displayed at the ‘What is Truth?180th Anniversary of Nikolai Ge’s Birth’ exhibition.Previously, the paintings had for over a century beenin the possession of Swiss art collectors.In addition, VTB sponsored an exhibition devotedto the 150th anniversary of the birth of KonstantinKorovin, an outstanding Russian painter, which washeld in the halls of the Benois Wing of the RussianMuseum. For the first time, about 250 of the artist’sworks from 15 Russian museums were presented tothe public.VTB also continues to support Russia’s leadingtheatres. VTB is a member of the Bolshoi Theatre105

VTB Annual Report 20117. Management responsibility statement106Board of Trustees and a General Partner of theMariinsky Theatre. The Bank provides ongoingsupport to the Pyotr Fomenko Workshop Theatre inMoscow.In 2011, VTB sponsored Pyotr Tchaikovsky’s ballet‘Sleeping Beauty’, which was staged in the BolshoiTheatre. It was the first ballet premier on the stageof the historic building after its re-opening.In June 2011, the Bank supported a charity tour ofthe Pyotr Fomenko Workshop Theatre. The theatregave two charity performances on the stage ofthe Black Sea Fleet Lavrenev Drama Theatre inSevastopol. One performance was given for thesailors and their families, the other was opento the public. The funds raised from the secondperformance were donated to Lavrenev DramaTheatre in Sevastopol, which is one of the culturaland artistic divisions of the Russian Black Sea Fleet.The Bank supported the 10th Moscow EasterFestival in 2011. This music forum expanded on thisoccasion outside Russia – the concert programmecovered five capitals: Moscow, Kiev, Minsk, Vilniusand Astana, as well as 38 cities in Russia. In total,there were 122 concerts.With the support of the VTB Group, the 19th Stars ofthe White Nights Music Festival also reached outsideSt. Petersburg. 115 concerts and performanceswere held not only in the northern capital of Russia,but also in Moscow and Veliky Novgorod. Thefestival was opened at the Mariinsky Theatre witha sparkling premiere of Gaetano Donizetti’s opera’L’Elisir d’Amore’, starring Anna Netrebko.As usual, the Bank also sponsored the 11thMariinsky International Ballet Festival.In 2011, for the second consecutive year, VTB actedas an official sponsor of the TEFI-Region (NationalTelevision Competition), which was established in1994. The TEFI award is the most prestigious awardin the Russian television industry.Social InvestmentsOver the last eight years, VTB has been developingits own charity programme, ‘World Without Tears’,which is aimed at providing support to children’shealthcare institutions. In 2011, events within theprogramme were held in Ufa, Orenburg, Voronezh,Kursk, Vladimir, Ulan-Ude, Yuzhno-Sakhalinsk,Petropavlovsk-Kamchatskiy, Volgograd and Moscow.The annual budget of the programme amountedto RUB 15 million. All funds were used for thepurchase of medical equipment and pharmaceuticalsexclusively for children’s hospitals.VTB also traditionally provides support to Russianeducational institutions. Over the course of thereporting period, VTB partnered with the followinghigher education establishments:Saint Petersburg State UniversityThe Finance University under the Government of theRussian FederationThe Baltic State Technical University ‘Voenmeh’The Russian State University for the HumanitiesThe Moscow School of Economics of LomonosovMoscow State UniversityThe Military Academy of the General Staff of theArmed Forces of the Russian FederationIn addition, during the year the Bank regularly lentits financial support to residential schools andorphanages, normal schools, veterans’ funds andassociations, as well as to religious organisations.7. Management responsibility statementVTB Management is responsible for preparing theAnnual Report and the Group’s consolidated financialstatements in accordance with applicable lawsand regulations. The management responsibilitystatement forms an integral part of the Annual Reportand is prepared in accordance with the requirementsof the UK Financial Services Authority (FSA).VTB Group’s internal regulations require itsmanagement to prepare the consolidated financialstatements in accordance with International FinancialReporting Standards (IFRS) and applicable laws andregulations.The consolidated financial statements, as requiredby law and IFRS, present a true and fair view of theGroup’s state of affairs and profit.In preparing the consolidated financial statements,VTB Management is required to:select suitable accounting policies and then applythem consistently;make judgments and estimates that are reasonableand prudent;state whether applicable accounting standards havebeen followed, with any material deviations fromthe standards being disclosed and explained in thestatements;prepare consolidated financial statements on a goingconcern basis, unless it is inappropriate to presumethat the Group will continue its business activity inthe near future.VTB Management is responsible for keeping properaccounting records, which enable them to disclosewith reasonable accuracy at any time, the financialposition of the Group, and to ensure that theaccounts comply with the Companies Act 1985.They are also responsible for safeguarding the assetsof the Group and, hence, for taking reasonable stepsfor the prevention and detection of fraud and otherirregularities.VTB Bank President and Chairmanof the Management BoardAndrey L. Kostin107

VTB Annual Report 20118. 8. Выдержка Summary из consolidated консолидированной financial statements финансовой in отчетности accordance по with МСФО IFRS1088. Summary consolidated financialstatements in accordance with IFRSIndependent auditors’ report109Summary consolidated financial statements derived from the auditedconsolidated financial statements and independent auditors’ reportfor the years ended 31 December 2011 and 2010To the Supervisory Council and Shareholders of VTBBank:The accompanying summary consolidatedfinancial statements, which comprise theconsolidated statements of financial position asat 31 December 2011 and 2010, the consolidatedincome statements, consolidated statements ofcomprehensive income, consolidated statements ofcash flows, and consolidated statements of changesin shareholders’ equity for the years then ended,are derived from the audited consolidated financialstatements of VTB Bank and its subsidiaries (together“the Group”) for the years ended 31 December2011 and 2010. We expressed an unmodified auditopinion on those consolidated financial statementsin our auditors’ report dated 25 April 2012.The summary consolidated financial statementsdo not contain all the disclosures required byInternational Financial Reporting Standards. Readingthe summary consolidated financial statements,therefore, is not a substitute for reading the auditedconsolidated financial statements of the Group.Management’s responsibility for the summaryconsolidated financial statementsManagement is responsible for the preparation ofa summary of the audited consolidated financialstatements on the basis described in the footnote tothe summary consolidated financial statements.Auditors’ responsibilityOur responsibility is to express an opinion on thesummary consolidated financial statements based onour procedures, which were conducted in accordancewith International Standard on Auditing (ISA) 810“Engagements to Report on Summary FinancialStatements.”OpinionIn our opinion, the summary consolidated financialstatements derived from the audited consolidatedfinancial statements of the Group for the years ended31 December 2011 and 2010 are consistent, in allmaterial respects, with those audited consolidatedfinancial statements, on the basis described in thefootnote to the summary consolidated financialstatements.25 April 2012These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS),namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statementsof VTB Bank and its subsidiaries (together “the Group”) prepared in accordance with IFRS for the years ended 31 December 2011 and 2010.For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financialstatements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidatedfinancial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.

VTB Annual Report 20118. Summary consolidated financial statements in accordance with IFRSConsolidated Statements of FinancialPosition as at 31 December(in billions of Russian Roubles)110Consolidated Statements of Financial Position as at 31 December(in billions of Russian Roubles)(continued)111Assets 2011 2010Cash and short-term funds 407.0 275.5Mandatory reserve deposits with central banks 71.9 26.4Financial assets at fair value through profit or loss 571.5 344.6Financial assets pledged under repurchase agreements and loaned financial assets 198.6 16.9Due from other banks 424.6 349.9Loans and advances to customers 4,301.6 2,785.4Assets of disposal group held for sale 10.3 –Financial assets available-for-sale 167.7 55.9Investments in associates and joint ventures 32.5 15.7Investment securities held-to-maturity 32.4 34.2Premises and equipment 116.8 113.2Investment property 122.5 102.2Intangible assets and goodwill 141.2 30.5Deferred tax asset 42.7 37.9Other assets 148.3 102.6Total assets 6,789.6 4,290.9Equity 2011 2010Share capital 113.1 113.1Share premium 358.5 358.5Treasury shares (0.6) (0.3)Unrealized gain on financial assets available-for-sale and cash flow hedge 7.9 4.0Premises revaluation reserve 11.4 11.4Currency translation difference 11.0 11.0Retained earnings 102.2 56.6Equity attributable to shareholders of the parent 603.5 554.3Non-controlling interests 21.6 23.9Total equity 625.1 578.2Total liabilities and equity 6,789.6 4,290.9Approved for issue and signed on 25 April 2012.LiabilitiesDue to other banks 699.7 397.3Customer deposits 3,596.7 2,212.9Liabilities of disposal group held for sale 8.5 –Other borrowed funds 734.6 185.7Debt securities issued 664.5 593.1Deferred tax liability 10.0 7.3Other liabilities 209.4 110.9Total liabilities before subordinated debt 5,923.4 3,507.2Subordinated debt 241.1 205.5Total liabilities 6,164.5 3,712.7A.L. KostinPresident – Chairman of the Management BoardHerbert MoosChief Financial Officer – Deputy Chairman of the Management BoardThese summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS),namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statementsof VTB Bank and its subsidiaries (together “the Group”) prepared in accordance with IFRS for the years ended 31 December 2011 and 2010.For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financialstatements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidatedfinancial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS),namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statementsof VTB Bank and its subsidiaries (together “the Group”) prepared in accordance with IFRS for the years ended 31 December 2011 and 2010.For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financialstatements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidatedfinancial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.

VTB Annual Report 20118. Summary consolidated financial statements in accordance with IFRSConsolidated Income Statementsfor the Years Ended 31 DecemberConsolidated Statements of ComprehensiveIncome for the Years Ended 31 December112(in billions of Russian Roubles)(in billions of Russian Roubles)1132011 20102011 2010Interest income 416.7 330.5Net profit 90.5 54.8Interest expense (189.7) (159.4)Other comprehensive income:Net interest income 227.0 171.1Net result on financial assets available-for-sale, net of tax 2.7 0.6Provision charge for impairment of debt financial assets (31.6) (51.6)Actuarial losses net of gains arising from difference between pension plan assets and obligations (0.5) (0.2)Net interest income after provision for impairment 195.4 119.5Share of other comprehensive income of associates and joint ventures (0.5) (0.2)(Losses net of gains) / gains less losses arising from financial instruments at fair value through profit or loss (30.8) 14.8Effect of translation, net of tax 2.4 (2.4)Gains less losses / (losses net of gains) from available-for-sale financial assets 4.1 (0.1)Other comprehensive income, net of tax 4.1 (2.2)Losses net of gains arising from extinguishment of liability (0.7) –Total comprehensive income 94.6 52.6Net recovery of losses / (losses) on initial recognition of financial instruments, restructuring and other gains /(losses) on loans and advances to customers20.2 (0.2)Gains less losses / (losses net of gains) arising from dealing in foreign currencies 6.1 (7.5)Foreign exchange translation (losses net of gains) / gains less losses (6.5) 12.1Total comprehensive income attributable to:Shareholders of the parent 93.7 56.3Non-controlling interests 0.9 (3.7)Fee and commission income 47.4 28.8Fee and commission expense (8.2) (4.1)Share in income /(loss) of associates and joint ventures 7.5 (0.7)Provision charge for impairment of other assets, contingencies and credit related commitments (1.4) (2.2)Income arising from non-banking activities 20.4 11.0Expenses arising from non-banking activities (9.1) (7.2)Other operating income 9.2 3.1Net non-interest income 58.2 47.8Operating income 253.6 167.3Staff costs and administrative expenses (141.5) (95.1)Impairment of goodwill – (1.1)Profit from disposal of subsidiaries and associates 3.4 –Profit before taxation 115.5 71.1Income tax expense (25.0) (16.3)Net profit 90.5 54.8Net profit / (loss) attributable to:Shareholders of the parent 89.4 58.2Non-controlling interests 1.1 (3.4)Basic and diluted earnings per share(expressed in Russian Roubles per share) 0.00855 0.00557These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS),namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statementsof VTB Bank and its subsidiaries (together “the Group”) prepared in accordance with IFRS for the years ended 31 December 2011 and 2010.For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financialstatements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidatedfinancial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.

VTB Annual Report 20118. Summary consolidated financial statements in accordance with IFRSConsolidated Statements of Cash Flowsfor the Years Ended 31 December(in billions of Russian Roubles)1142011 2010Cash flows from operating activitiesInterest received 382.3 302.6Interest paid (176.4) (158.0)(Loss incurred) / income received on operations with financial instruments at fair value through profit or loss (23.3) 13.9Consolidated Statements of Cash Flows for the Years Ended 31 December(in billions of Russian Roubles)(continued)115Income received / (loss incurred) on dealing in foreign currency 10.8 (7.6)Fees and commissions received 48.0 28.3Fees and commissions paid (7.6) (4.6)Cash flows used in financing activities2011 2010Other operating income received 2.0 1.6Dividends paid (7.3) (6.1)Staff costs, administrative expenses paid (122.1) (83.5)Income received from non-banking activities 17.8 7.0Expenses paid in non-banking activities (7.3) (1.8)Income tax paid (28.8) (22.8)Cash flows from operating activities before changes in operating assets and liabilities 95.4 75.1Net decrease / (increase) in operating assetsNet increase in mandatory reserve deposits with central banks (37.3) (0.5)Net decrease in restricted cash – 0.2Net increase in correspondent accounts in precious metals (6.8) (1.6)Net (increase) / decrease in financial assets at fair value through profit or loss (159.8) 42.8Net decrease in due from other banks 11.6 58.4Net increase in loans and advances to customers (971.2) (289.3)Proceeds from issuance of local bonds 21.0 36.1Repayment of local bonds (53.9) (30.7)Buy-back of local bonds (16.7) (33.9)Proceeds from sale of previously bought-back local bonds 14.9 29.7Proceeds from issuance of Eurobonds 45.6 92.4Repayment of Eurobonds (100.8) (11.5)Buy-back of Eurobonds (35.3) (64.1)Proceeds from sale of previously bought-back Eurobonds 33.9 68.3Proceeds from syndicated loans 87.3 0.6Repayment of syndicated loans (43.2) (14.9)Buy-back of syndicated loans (5.9) –Net increase in other assets (44.1) (22.3)Proceeds from other borrowings and funds from local central banks 452.3 275.4Net (decrease) / increase in operating liabilitiesNet increase in due to other banks 232.5 79.8Net increase in customer deposits 832.7 361.5Net increase / (decrease) in debt securities issued other than bonds 78.9 (14.6)Net increase in other liabilities 19.2 7.6Net cash from operating activities 51.1 297.1Cash flows used in investing activitiesDividends received 0.8 0.8Proceeds from sale or redemption of financial assets available-for-sale 58.5 13.3Purchase of financial assets available-for-sale (125.6) (43.9)Purchase of subsidiaries, net of cash acquired 5.8 8.1Disposal of subsidiaries, net of cash disposed (1.1) 0.2Repayment of other borrowings and funds from local central banks (122.7) (562.6)Repayment of subordinated debt – (9.3)Buy-back of subordinated debt (4.8) (0.3)Proceeds from sale of previously bought-back subordinated debt 3.1 0.9Proceeds from sale of treasury shares 1.3 –Purchase of treasury shares (1.6) –Share issue to minorities 0.2 0.3Purchase of non-controlling interests in subsidiaries (34.8) (0.2)Net cash from / (used in) financing activities 232.6 (229.9)Effect of exchange rate changes on cash and cash equivalents 2.6 (1.7)Effect of hyperinflation (1.3) –Purchase of and contributions to associates and joint ventures (109.1) (0.6)Net increase in cash and cash equivalents 124.7 14.0Proceeds from sale of share in associates and joint ventures 6.6 –Purchase of investment securities held-to-maturity (1.2) (0.8)Proceeds from redemption of investment securities held-to-maturity 2.3 1.2Cash and cash equivalents at the beginning of the year 272.8 258.8Cash and cash equivalents at the end of the year 397.5 272.8Purchase of premises and equipment (36.9) (31.3)Proceeds from sale of premises and equipment 40.1 2.9Purchase or construction of investment property (0.3) –Proceeds from sale of investment property 1.3 –Purchase of intangible assets (2.7) (1.4)Proceeds from sale of intangible assets 1.2 –Net cash used in investing activities (160.3) (51.5)These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS),namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statementsof VTB Bank and its subsidiaries (together “the Group”) prepared in accordance with IFRS for the years ended 31 December 2011 and 2010.For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financialstatements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidatedfinancial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.

VTB Annual Report 20118. Summary consolidated financial statements in accordance with IFRS116Consolidated Statements of Changesin Shareholders’ Equity for the Years Ended31 December(in billions of Russian Roubles)Consolidated Statements of Changes in Shareholders’ Equity for the YearsEnded 31 December (in billions of Russian Roubles)117(continued)Share capital Share premium Treasury shares Unrealized gain onfinancial assetsavailable-for-saleand cash flowhedgeAttributable to shareholders of the parentPremisesrevaluationreserveCurrencytranslationdifferenceRetained earningsTotalNoncontrollinginterestsTotalequityBalance at 1 January 2010 113.1 358.5 (0.4) 3.4 11.8 13.2 2.7 502.3 2.6 504.9Net result from treasury shares transactions - - 0.1 – – – (0.1) – – –Total comprehensive income for the period – – – 0.6 (0.1) (2.2) 58.0 56.3 (3.7) 52.6Transfer of premises revaluation reserve upon disposal or depreciation – – – – (0.3) – 0.3 – – –Dividends declared – – – – – – (6.1) (6.1) – (6.1)Acquisition of subsidiaries – – – – – – – – 23.2 23.2Increase in share capital of subsidiaries – – – – – – (1.5) (1.5) 1.9 0.4Acquisition of non-controlling interests – – – – – – (0.1) (0.1) (0.1) (0.2)Expiration of put options over non-controlling interests – – – – – – 3.4 3.4 – 3.4Balance at 31 December 2010 113.1 358.5 (0.3) 4.0 11.4 11.0 56.6 554.3 23.9 578.2Net result from treasury shares transactions – – (0.3) – – – – (0.3) – (0.3)Total comprehensive income for the period – – – 2.8 – 2.8 88.1 93.7 0.9 94.6Transfer of premises revaluation reserve upon disposal or depreciation – – – – (0.2) – 0.2 – – –Transfer of currency translation difference upon legal merger of subsidiary – – – – – (2.4) 2.4 – – –Dividends declared – – – – – – (6.1) (6.1) (1.2) (7.3)Increase in share capital of subsidiaries – – – – – – (3.2) (3.2) 3.4 0.2Acquisition of subsidiaries – – – – – – – – 17.0 17.0Disposal of subsidiaries – – – – – – – – (0.5) (0.5)Acquisition of non-controlling interests – – – 1.1 0.2 (0.4) (13.9) (13.0) (21.9) (34.9)Obligation to purchase non-controlling interests – – – – – – (21.9) (21.9) – (21.9)Balance at 31 December 2011 113.1 358.5 (0.6) 7.9 11.4 11.0 102.2 603.5 21.6 625.1These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS),namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statementsof VTB Bank and its subsidiaries (together “the Group”) prepared in accordance with IFRS for the years ended 31 December 2011 and 2010.For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financialstatements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidatedfinancial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS),namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statementsof VTB Bank and its subsidiaries (together “the Group”) prepared in accordance with IFRS for the years ended 31 December 2011 and 2010.For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financialstatements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidatedfinancial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.

VTB Annual Report 20119. Summary financial statements in accordance with RASTranslation from the original in Russian1189. Summary financial statements inaccordance with RASAudit reporton the Annual Report prepared on the basis of VTB Bank’s(open joint stock company) results for 2011119Translation from the original in RussianTo the shareholders of VTB Bank (open joint stockcompany)The Audited Entity:Company name: VTB Bank (open joint stock company)Entry of state registration of the credit organisation bythe Central Bank of the Russian Federation: No. 1000dated 17 October 1990.Certificate of entry made to the Unified State RegisterNo. 1027739609391, issued by the Ministry of Taxesand Levies of the Russian Federation on 22 November2002.Address: 29, Bolshaya Morskaya St., St. PetersburgThe Auditor:Company name: CJSC Ernst & Young VneshauditMain State Registration Number: 1027739199333Address: 77 bldg 1, Sadovnicheskaya Emb., Moscow115035, RussiaCJSC Ernst & Young Vneshaudit is a member ofNon-Profit Partnership Audit Chamber of Russia(NPP ACR). CJSC Ernst & Young Vneshaudit isregistered in the NPP ACR register of auditors andaudit organisations under record number 3027and included in the controlled copy of the auditorsand audit organisations register under main recordnumber 10301017410.We have audited the accompanying Annual Reportof VTB Bank (open joint stock company), whichincludes: the annual balance sheet as of 1 January2012, the income statement for 2011, the cashflow statement for 2011, the statement of capitaladequacy and loan impairment for bad loans andother assets as of 1 January 2012, the informationon mandatory ratios as of 1 January 2012 and theexplanatory note (only in terms of points 1.1, 2.1-2.4,2.6-2.7, 3.1-3.5, 6, 7).The responsibility of the audited entity for the AnnualReportIt is the responsibility of JSC VTB Bank Management toprepare and present the Annual Report in compliancewith the accounting procedures applicable underthe Russian legislation and to maintain the internalcontrol system needed to prepare the Annual Reportfree of any material misrepresentation caused bynegligence or error.The responsibility of the AuditorOur responsibility is to express an opinion on thefairness of the Annual Report based on our audit.We conducted our audit in accordance with theFederal Standards of Auditing and InternationalAuditing Standards, which imply compliance withethical principles and obtainment of reasonableassurance that the Annual Report is free from anymaterial misrepresentation.The audit includes various auditing proceduresaimed at gaining evidence to support the amountsand disclosures in the Annual Report. The choice ofthe auditing procedures is subject to our judgmentbased on the assessment of risk of materialmisrepresentations in the Annual Report caused

VTB Annual Report 20119. Summary financial statements in accordance with RASTranslation from the original in RussianTranslation from the original in RussianBalance sheet(published form)as at 1 January 2012120by negligence or error. While assessing the risk,the Auditor shall review the internal control systemunderpinning the preparation and presentation of theAnnual Report in order to select the relative auditingprocedure, rather than express opinion of theefficiency of such internal control system. The auditalso includes an assessment of compliance with theaccounting policy, and a review of the significantestimates derived by the Management of the auditedentity; as well as the evaluation of the overallpresentation of the Annual Report.We believe that the audit evidence we have gainedprovides a reasonable and due basis for our opinion.OpinionIn our opinion, the Annual Report presents fairly, inall material respects, the financial position of VTBBank (open joint stock company) as at 31 December2011, its financial performance and cash flows forthe year 2011 in accordance with the rules regulatingthe preparation of annual reports in the RussianFederation.MiscellaneousSubject to Clause 9 of the Explanatory Notes,JSC VTB Bank Management has decided not topublish the Explanatory Notes within the AnnualReport in the mass media in compliance withDirective No.2172-U of the Bank of Russia as at20 January 2009 “On Publishing and DisclosingInformation on Performance of Lending Institutionsand Bank (Consolidated) Groups”. Please note thatthis Audit Opinion shall be considered togetherwith all forms of annual financial statements andexplanatory notes, being an integral part of theAnnual Report. The full Annual Report comprising allfinancial statements and the explanatory notes shallbe accessible at the relative page used by the Bankfor information disclosure at www.vtb.ru.The accompanying Annual Report is not intendedto present the financial position and financialperformance in accordance with accounting andreporting principles or practices generally acceptedin countries and jurisdictions other than the RussianFederation. Accordingly, this Annual Report is notdesigned for those who are not informed aboutaccounting and reporting principles, procedures andpractices in the Russian Federation.No. Line item Data as at thereporting date(RUB thousand)I. AssetsData as at thereporting date of theprevious year(RUB thousand)1 Cash 25,191,760 8,083,5152 Funds with the Central Bank of the Russian Federation 158,945,660 67,527,8612.1 Mandatory reserves 32,079,621 10,627,4893 Due from other credit institutions 44,628,606 57,319,8274 Net investments into securities at fair value through profit or loss 285,456,452 152,489,5895 Net loans 2,804,629,583 1,883,198,0386Net investments into securities and other financial assetsavailable-for-sale589,310,298 419,475,9076.1 Investments into subsidiaries and associates 351,482,525 250,875,1577 Net investments into securities held-to-maturity 3,576,783 5,340,2328 Fixed assets, intangible assets and materials 107,911,984 96,333,7179 Other assets 151,800,456 94,892,71310 Total assets 4,171,451,582 2,784,661,39911II. LiabilitiesLoans, deposits and other funds of the Central Bankof the Russian FederationForm code 0409806198,544,975 012112 Due to other credit institutions 1,148,405,077 750,529,634Par tnerAndrey V. Sorokin13 Funds of clients (non-credit institutions) 1,907,937,588 1,228,392,83213.1 Individual deposits 13,503,267 10,101,11314 Financial liabilities at fair value through profit or loss 2,652,612 1,016,188ZAO Ernst & Young Vneshaudit15 Debt instruments issued 215,069,960 146,476,73916 Other liabilities 60,310,594 35,780,7736 April 201217Provisions for possible losses on the credit commitments andcontingencies, for other possible losses and for operations withoffshore residents8,759,353 4,396,75418 Total liabilities 3,541,680,159 2,166,592,920

VTB Annual Report 20119. Summary financial statements in accordance with RASTranslation from the original in RussianTranslation from the original in RussianIncome statement(published form)for 2011122Balance sheet (published form)as at 1 January 2012(continued)123Form code 0409807III. Equity19 Share capital 104,605,413 104,605,41320 Treasury shares 0 621 Share premium 361,901,101 361,901,10122 Reserve fund 5,230,271 4,549,66223 Unrealised gain on securities available-for -sale (7,579,468) 1,590,09824 Premises revaluation reserve 9,234,410 6,717,36925 Retained earnings / (accumulated deficit) of the previous years 131,973,715 95,362,01826 Profit / (loss) for the reported period 24,405,981 43,342,82427 Total equity 629,771,423 618,068,479No. Line item Data for thereporting period (RUBthousand)Data for the sameperiod of the previousyear (RUB thousand)1 Total interest income including income from: 199,292,384 192,198,3871.1 Due from other credit organisations 35,221,620 28,054,7371.2 Loans to customers (non-credit organisations) 138,254,516 145,516,1291.3 Financial leasing 0 01.4 Investments in securities 25,816,248 18,627,5212 Total interest expenses including expenses on: 121,930,939 112,756,6562.1 Due to other credit organisations 47,064,798 42,125,8052.2 Customer (non-credit organisations) deposits 66,496,111 57,856,287IV. Off-balance liabilities2.3 Debt securities issued 8,370,030 12,774,56428 Irrevocable commitments 1,598,991,540 952,387,3453 Net interest income 77,361,445 79,441,73129 Guarantees issued 426,216,095 148,952,28030 Contingent non-credit related commitments 60,537 0The annual report is available at the Bank’s website: www.vtb.ru.4Change of provisions for possible losses on loans, other similarindebtedness and funds on correspondent accounts including:(12,532,600) (19,142,789)4.1 Change of provisions for possible losses on accrued interest (8,957,890) (6,087,290)5 Net interest income after provisions for possible losses 64,828,845 60,298,9426Gains less losses / (losses net of gains) arising from securities at fairvalue through profit or loss(23,486,635) (4,708,045)7 Gains less losses arising from securities available-for-sale 7,121,931 9,397,138President and Chairman of the Management BoardAndrey L. Kostin8Gains less losses / (losses net of gains) arising from securitiesheld-to-maturity(78,124) (210)Chief AccountantOlga A. Avdeeva9Gains less losses / (losses net of gains) arising from dealing in foreigncurrencies(13,658,834) (10,351,770)10 Foreign exchange translation gains less losses 1,740,759 9,196,55411 Income from participation in other companies 26,121,766 10,577,33412 Fee and commission income 12,506,037 10,918,90613 Fee and commission expense 2,493,040 911,80414Change of provisions for possible losses on securitiesavailable-for-sale(152,809) (508,810)15 Change of provisions for possible losses on securities held-to-maturity (5,370) (1,454,322)16 Change of provisions for other losses (4,508,666) (2,730,341)

VTB Annual Report 20119. Summary financial statements in accordance with RASTranslation from the original in RussianTranslation from the original in RussianStatement of capital adequacy and loanimpairment for bad loans and other assets124Income statement (published form)for 2011(continued)(published form)as at 1 January 2012Form code 0409808125No. Line item Data for thereporting period (RUBthousand)Data for the sameperiod of the previousyear (RUB thousand)17 Other operating income 70,050,923 15,295,87618 Net income 137,986,783 95,019,44819 Operating expenses 103,183,370 33,689,95520 Profit before taxes 34,803,413 61,329,49321 Accrued / (paid) taxes 10,397,432 17,986,66922 Profit after taxation 24,405,981 43,342,82423 Total payments from profit after tax, including: 0 023.1 Distribution of dividends among shareholders (participants) 0 023.2 Assignments for creation and charging of Reserve Fund 0 024 Profit for the reported period 24 405 981 43 342 824The annual report is available at the Bank’s website: www.vtb.ru.President and Chairman of the Management BoardChief AccountantAndrey L. KostinOlga A. AvdeevaNo. Line item Data as at thereporting dateof the previousyearIncrease (+)/ decrease(-) during thereporting periodData as at thereporting date1 Equity (capital),RUB thousand, including: 529,659,300 (86,384,432) 443,274,8681.1 Authorised capital, including 104,605,413 0 104,605,4131.1.1 Face value of registered common shares 104,605,413 0 104,605,4131.1.2 Face value of registered preferred shares 0 0 01.2 Treasury shares 6 (6) 01.3 Share premium 361,901,101 0 361,901,1011.4 Reserve fund 4,549,662 680,609 5,230,2711.5 Retained earnings: 122,095,639 16,702,227 138,797,8661.5.1 of the previous years 79,323,628 36,611,693 115,935,3211.5.2 of the reporting period 42,772,011 (19,909,466) 22,862,5451.6 Intangible assets 22,306 (949) 21,3571.7 Subordinated loan (credit, deposit) 200,000,000 8,690,616 208,690,6161.8Sources (part of sources) of additional capital for creation ofwhich investors utilised inappropriate assets0 0 02 Standard capital adequacy ratio, % 10.0 X 10.03 Actual capital adequacy ratio, % 22.6 X 11.04Actual provisions for possible losses (RUB thousand),including:129,859,080 32,164,471 162,023,5514.1 on loans and similar indebtedness 119,473,031 27,047,967 146,520,9984.24.3on other assets liable to risk of losses and for other possiblelosseson credit commitments and contingencies recordedon off-balance accounts and forward transactions6,234,403 925,831 7,160,2344,151,646 3,780,932 7,932,5784.4 on operations with offshore residents 0 409,741 409,741

VTB Annual Report 20119. Summary financial statements in accordance with RASTranslation from the original in RussianTranslation from the original in RussianInformation on mandatory ratios(published form)as of 1 January 2012126Statement of capital adequacy and loan impairment for bad loansand other assets (published form) as at 1 January 2012(continued)Form code 0409813127Additional information:1. Provision charge for / (increase in) possible losses on loans duringthe reporting period (RUB thousand) due to: 61,408,6481.1. New loans issued 25,860,0021.2. Changes in loan quality 20,095,0531.3. Currency translation difference 3,065,0651.4. Other 12,388,528No. Line item Regulatoryvalue, %as at thereporting dateActual value, %as at theprecedingreporting date1 Capital adequacy ratio (N1) 10.0 11.0 22.62Capital adequacy ratio of the non-banking financialinstitution entitled to carry out cash transfers withoutopening bank account (N1.1)2. Recovery of / (decrease in) provisions for possible losses on loans during3 Instant liquidity ratio (N2) 15.0 51.4 54.0the reporting period (RUB thousand) due to: 50,486,7914 Current liquidity ratio (N3) 50.0 57.4 110.12.1. Write-offs 2,253,9455 Long-term liquidity ratio (N4) 120.0 94.7 71.52.2. Repayment of loans 26,723,5252.3. Changes in loan quality 8,680,0526The ratio of maximum risk per borrower / group of relatedborrowers (N6)25.0Maximum 24.0 Maximum 19.8Minimum 0.5 Minimum 0.32.4. Currency translation difference 2,415,9247 Maximum large credit risk ratio (N7) 800.0 432.0 215.82.5. Other 10,413,345The annual report is available at the Bank’s website: www.vtb.ru.8Maximum loans, bank guarantees and sureties granted bythe bank to its shareholders (N9.1)50.0 0.0 0.09 Aggregate risk by the bank’s insiders (N10.1) 3.0 0.0 0.010Allocation of equity funds (capital) to purchase shares(stake) in other legal entities (N12)25.0 23.2 2.1President and Chairman of the Management BoardChief AccountantAndrey L. KostinOlga A. Avdeeva

VTB Annual Report 20119. Summary financial statements in accordance with RASTranslation from the original in RussianTranslation from the original in RussianCash flow statement(published form)for 2011128Information on mandatory ratios (published form)as of 1 January 2012(continued)Form code 0409814129No. Line item Regulatoryvalue, %11121314151617The ratio of liquid assets with 30-day maturity to NSCA totalliabilities (N15)Capital adequacy ratio of the non-banking financialinstitution entitled to carry out cash transfers withoutopening bank account (N15.1)Maximum aggregate loans to customers, participating insettlements to complete payment (Н16)Provision of loans to borrowers granted on behalf and foraccount of NSCA, excluding customers participating insettlements (N16.1)The ratio of minimum mortgage-backed loans to equityfunds (capital) (N17)The ratio of minimum mortgage-backed amount to thevolume of mortgage-backed bonds issued (N18)Maximum ratio of total liabilities of a credit institution,acting as the issuer, to senior debt lenders (in accordancewith the applicable federal law) with respect to holders ofmortgage-backed bonds, to equity funds (capital) (N19)The annual report is available at the Bank’s website: www.vtb.ru.President and Chairman of the Management BoardChief Accountantas at thereporting dateActual value, %as at theprecedingreporting dateAndrey L. KostinOlga A. AvdeevaNo. Line item Cash flows for thereporting period(RUB thousand)1 Net cash from (used in) operating activities1.1Total cash from (used in) operating activities before changes in operatingassets and liabilities, including:Cash flows for thepreceding reportingperiod(RUB thousand)(8,735,257) 18,757,6911.1.1 Interest received 171,985,457 170,381,9391.1.2 Interest paid (117,724,828) (110,816,799)1.1.3 Fees and commissions received 12,506,037 10,918,9061.1.4 Fees and commissions paid (2,493,040) (911,804)1.1.5Gains less losses on financial assets at fair value through profit or loss,financial assets available-for-sale(16,706,546) (3,233,767)1.1.6 Gains less losses on investment securities held-to-maturity 0 01.1.7 Gains less losses arising from dealing in foreign currency (17,315,299) (15,468,941)1.1.8 Other operating income received 72,448,127 16,067,1171.1.9 Operating expense (99,812,083) (35,607,700)1.1.10 Taxes paid (11,623,082) (12,571,260)1.21.2.11.2.2Total increase (decrease) in net cash from operating assets and liabilities,including:Net increase (decrease) in mandatory cash balances with the Central Bankof RussiaNet increase (decrease) in investment securities at fair value through profitor loss250,007,092 41,337,039(20,356,965) (1,127,461)(124,191,768) 90,127,5421.2.3 Net increase (decrease) in loans to customers (679,040,270) (131,666,494)1.2.4 Net increase (decrease) in other assets (39,191,350) (944,825)1.2.5Net increase (decrease) in loans, deposits and due from the Central Bankof Russia198,544,975 (287,170,904)1.2.6 Net increase (decrease )in due to other credit institutions 326,697,414 161,547,3861.2.7 Net increase (decrease) in customer deposits (non-credit institutions) 513,925,515 221,035,9041.2.8Net increase (decrease) in financial liabilities at fair value throughprofit or loss1,636,424 1,016,1881.2.9 Net increase/decrease in debt securities issued 52,993,017 (7,651,036)1.2.10 Net increase (decrease) in other liabilities 18,990,100 (3,829,261)1.3 Section 1 (items 1.1 + 1.2), total 241,271,835 60,094,730

VTB Annual Report 201110. Transactions of JSC VTB BankTranslation from the original in Russian130Cash flow statement (published form)for 2011(continued)10. Transactions of JSC VTB Bank131No. Line item Cash flows for thereporting period(RUB thousand)2 Net cash from (used in) investing activitiesCash flows for thepreceding reportingperiod(RUB thousand)Major transactions of JSC VTB BankIn 2011, VTB Bank did not perform any transactions that were material as defined in accordance with article78 of the Federal Law No. 208-FZ of 26 December 1995 on Joint Stock Companies.2.1 Purchase of securities and other financial assets available-for-sale (465,966,231) (165,200,104)2.2Proceeds from sale and maturities of securities and other financial assetsavailable-for-sale265,879,097 112,263,828Interested party transactions of JSC VTB Bank2.3 Purchase of securities held-to-maturity 146,277 (1,344,390)2.4 Proceeds from redemption of securities held-to-maturity 1,670,203 1,269,5772.5 Purchase of premises and equipment, intangible assets and inventories (6,221,037) (3,350,364)VTB participated in the following interested party transactions between 2007 and 2011, which were approvedby either its Supervisory Council or the General Shareholders Meeting:2.6Proceeds from sale of premises and equipment, intangible assets andinventories829,629 812,7752.7 Dividends received 25,836,316 5,008,3652.8 Section 2 (items 2.1 – 2.7), total (177,825,746) (50,540,313)YearTotal numberof transactionsTotal amount of transactionsin RUB thousand3 Net cash from (used in) financing activities3.1 Proceeds from share issue 0 03.2 Purchase of treasury shares 0 (6)3.3 Sale of treasury shares 6 03.4 Dividends paid (6,067,431) (6,066,566)2007 5,309 4,071,978,3682008 6,640 7,811,570,2332009 7,157 8,919,312,5022010 9,872 12,715,935,2792011 215,355 21,541,159,7933.5 Section 3 (items 3.1 – 3.4), total (6,067,425) (6,066,572)4Effect of exchange rate changes on cash and cashequivalents2,436,449 (32,392)5 Increase in cash and cash equivalents 59,815,113 3,455,4535.1 Cash and cash equivalents at the beginning of the year 130,988,602 118,632,3575.2 Cash and cash equivalents at the end of the year 190,803,715 122,087,810The annual report is available at the Bank’s website: www.vtb.ru.President and Chairman of the Management BoardChief AccountantAndrey L. KostinOlga A. Avdeeva

VTB Annual Report 201111. Other Group information13211. Other Group information13311.1. Details of JSC VTB BankGeneral informationFull nameVTB Bank (joint stock company)General banking licence No. 1000Legal addressPostal address29, Bolshaya Morskaya St., St. Petersburgfor Russian mail 37, Plyushchikha St., Moscow 119121for international mail 43, Vorontsovskaya St., Moscow 109044Call centre8 800 200 77 99 (Russian toll-free)+7 495 739 7799Fax +7 495 258 4781Email addressWebsiteDetailsinfo@vtb.ru (for queries and proposals)http://www.vtb.ru/OKPO code 00032520TIN 7702070139Correspondent account with the Clearing House of the Moscow MainTerritorial Department of the Bank of Russia30101810700000000187Russian BIC 044525187All-Russian Classifier of Political Subdivisions 40262563000Taxpayer Record Validity Code 997950001TELEXSPRINTMAILSWIFT412362 BFTR RUPROTOCOL / MOSVTB0 / CEAVTBRRUMM11.2. Licences of JSC VTB BankGeneral licence to conduct banking operationsNo. 1000, dated 9 March 2007.Licence for performing banking activities withprecious metals No. 1000, dated 9 March 2007.Licence of professional participation in the securitiesmarket for depository activitiesNo. 178-06497-000100, dated 25 March 2003.Licence of professional participation in the securitiesmarket for brokerage activitiesNo. 177-06492-100000, dated 25 March 2003.Licence of professional participation in the securitiesmarket for dealing activities No. 177-06493-010000,dated 25 March 2003.Licence of professional participation in the securitiesmarket for securities managementNo. 177-06496-001000, dated 25 March 2003.Licence of a specialised depository for investmentfunds, unit trust and non-governmental pensionfunds No. 22-000-0-00011, dated 4 October 2000.Licence of stock exchange intermediary for futuresand options transactions at stock exchangesNo. 1451, dated 9 October 2009.General licence for exports of refined gold in standardand minted bars No. 093RU11002000662, dated4 July 2011.General licence for exports of refined silver.999 Fine in standard and minted bars No.093RU11002000100, dated 9 February 2011.Licence for activities involving State secrecyinformation No. 3872/5895, dated2 December 2011.Licence to take measures and/or provide services toprotect State secrecy information No. 3927, dated13 December 2010.Licence to perform technical maintenance ofencoding devices No. 342X, dated16 November 2009.Licence for distribution of encoding devicesNo. 343R, dated 16 November 2009.Licence to render information encoding servicesNo. 344U, dated 16 November 2009.

VTB Annual Report 201111. Other Group information13411.3. Contact informationVTB Bank regional branch networkOperating office No. 19 “Alekseevskiy”Address: 81, Mira Avenue, Moscow 129085Phone: + 7 495 775 5454Branch of JSC VTB Bank in VoronezhAddress: 58, Revolyutsii Avenue, Voronezh 394006Phone: +7 4732 53 1926Branch of JSC VTB Bank in YaroslavlAddress: 44A, Rybinskaya St., Yaroslavl 150014Phone: +7 4852 45 7157135VTB Bank’s operating offices in Moscowand the Moscow regionOperating office Financial Services CentreAddress: 1, Burdenko St., Moscow 119121Phone: + 7 495 775 5454Operating office No. 3 “Turgenevskiy”Address: 35, Myasnitskaya St., Moscow 103450Phone: + 7 495 775 5454Operating office No. 4 “Kutuzovskiy”Address: 2 bldg 2, Pobedy St., Moscow 121170Phone: + 7 495 775 5454Operating office No. 5Address: 7 bldg 2, Pogorelskiy Per., Moscow 119017Phone: + 7 495 775 5454Operating office No. 6Address: 43 bldg 1, Vorontsovskaya St.,Moscow 109147Phone: + 7 495 775 5454Operating office No. 11 “Danilovskiy”Address: 72, Lyusinovskaya St., Moscow 115162Phone: + 7 495 775 5454Operating office No. 13 “Mayakovskiy”Address: 7, Gasheka St., Moscow 123056Phone: + 7 495 775 5454Operating office No. 16 “Zemlyanoy Val”Address: 14-16 bldg 1, Zemlyanoy Val St.,Moscow 105064Phone: + 7 495 775 5454Operating office No. 18 “Gagarinskiy”Address: 11 bldg 1, Leninskiy Avenue,Moscow 119049Phone: + 7 495 775 5454Operating office No. 26 “Lubyanskiy”Address: 14 bldg 1, B. Lubyanka St., Moscow 101000Phone: + 7 495 775 5454Operating office No. 31 “Podolskiy”Address: 8, Klementa Gotvalda St., Podolsk,Moscow Region 142114Phone: + 7 495 775 5454Operating office No. 39 “Ramenskiy”Address: 3a, Karla Marksa St., Ramenskoye,Moscow Region 140100Phone: + 7 495 775 5454Operating office No. 40 “Dmitrovskiy”Address: 75/74 bldg 1, Butyrskaya St.,Moscow 127015Phone: + 7 495 775 5454Operating office No. 41 “Khimki”Address: 8 bldg 1, Proletarskaya St., Khimki,Moscow Region 141400Phone: + 7 495 775 5454Central Federal DistrictBranch of JSC VTB Bank in BelgorodAddress: 35A, Slavy Avenue, Belgorod 308600Phone: +7 4722 58 0200Branch of JSC VTB Bank in BryanskAddress: 16, Arsenalskaya St., Bryansk 241050Phone: +7 4832 66 0695Branch of JSC VTB Bank in VladimirAddress: 21, Razina St., Vladimir 600001Phone: +7 4922 32 0970Branch of JSC VTB Bank in KalugaAddress: 20, Dostoevskogo St., Kaluga 248000Phone: +7 4842 56 5085Branch of JSC VTB Bank in KostromaAddress: 49, Sovetskaya St., Kostroma 156000Phone: +7 4942 31 4448Branch of JSC VTB Bank in KurskAddress: 24, Radishcheva St., Kursk 305000Phone: +7 4712 36 0500Branch of JSC VTB Bank in LipetskAddress: 1, Pervomaiskaya St., Lipetsk 398001Phone: +7 4742 22 7007Branch of JSC VTB Bank in OryolAddress: 47, Maksima Gorkogo St., Oryol 302040Phone: +7 4862 43 7273Branch of JSC VTB Bank in RyazanAddress: 39 bldg 5, Moskovskoe Shosse,Ryazan 390044Phone: +7 4912 34 7080Branch of JSC VTB Bank in SmolenskAddress: 5A, Gagarina Avenue, Smolensk 214000Phone: +7 4812 49 9604Branch of JSC VTB Bank in TambovAddress: 16A, Internatsionalnaya St., Tambov 392000Phone: +7 4752 63 2035Branch of JSC VTB Bank in TverAddress: 9, Svobodny Per., Tver 170100Phone: +7 4822 77 7067Branch of JSC VTB Bank in TulaAddress: 134, L. Tolstogo St., Tula 300034Phone: +7 4872 36 6798Northwestern Federal DistrictBranch of JSC VTB Bank in VologdaAddress: 9, Chelyuskintsev St., Vologda 160001Phone: +7 8172 57 1601Branch of JSC VTB Bank in KaliningradAddress: 5, Bolnichnaya St., Kaliningrad 236040Phone: +7 401 235 0111Branch of JSC VTB Bank in St. PetersburgAddress: 30A, B. Morskaya St., St. Petersburg 190000Phone: +7 812 494 9454Branch of JSC VTB Bank in SyktyvkarAddress: 78 bldg 1, Pervomaiskaya St., Syktyvkar,Komi Republic 167610Phone: +7 8212 21 5180Southern Federal DistrictBranch of JSC VTB Bank in AstrakhanAddress: 67, Kuibysheva St., Astrakhan 414056Phone: +7 8512 25 5878Branch of JSC VTB Bank in VolgogradAddress: 30A, Raboche-Krestyanskaya St.,Volgograd 400074Phone: +7 8442 93 0969Branch of JSC VTB Bank in KrasnodarAddress: 116 bldg 2, Krasnoarmeiskaya/Kuznechnaya St., Krasnodar 350000Phone: +7 8612 79 5701Branch of JSC VTB Bank in Rostov-on-DonAddress: 62 bldg 284, Voroshilovsky Avenue,Rostov-on-Don 344010Phone: +7 8632 97 2728

VTB Annual Report 201111. Other Group information136Branch of JSC VTB Bank in StavropolAddress: 7, Marshala Zhukova St., Stavropol 350000Phone: +7 8652 26 1754Volga Federal DistrictBranch of JSC VTB Bank in IzhevskAddress: 63, Krasnogeroiskaya St., Izhevsk,Udmurt Republic 426034Phone: +7 3412 68 7319Branch of JSC VTB Bank in Ioshkar-OlaAddress: 112, Palantaya St., Ioshkar-Ola,Republic of Mari El 424000Phone: +7 8362 45 0403Tatar Branch of JSC VTB Bank in KazanAddress: 84, Ostrovskogo St., Kazan,Republic of Tatarstan 420107Phone: +7 843 570 6701Branch of JSC VTB Bank in Nizhny NovgorodAddress: 4, Reshetnikovskaya St., GSP 78,Nizhny Novgorod 603950Phone: +7 831 428 0434Branch of JSC VTB Bank in OrenburgAddress: 15/1, Chkalova St., Orenburg 460058Phone: +7 3532 99 4992Branch of JSC VTB Bank in PenzaAddress: 9, Moskovskaya St., Penza 440000Phone: +7 8412 52 0353Branch of JSC VTB Bank in PermAddress: 54, Lunacharskogo St., Perm 614000Phone: +7 342 237 7711Branch of JSC VTB Bank in SamaraAddress: 14, Mayakovskogo St., Samara 443100Phone: +7 8463 37 5333Branch of JSC VTB Bank in SaranskAddress: 42A, Bogdana Khmelnitskogo St., Saransk,Republic of Mordovia 430005Phone: +7 8342 27 0458Branch of JSC VTB Bank in SaratovAddress: 28A, M.Yu. Lermontova St., Saratov 410002Phone: +7 8452 48 9828Branch of JSC VTB Bank in UlyanovskAddress: 5A, Kuznetsova St., Ulyanovsk 432063Phone: +7 8422 41 6206Branch of JSC VTB Bank in UfaAddress: 52, Shafieva St., Ufa,Republic of Bashkortostan 450096Phone: +7 3472 37 6000Branch of JSC VTB Bank in CheboksaryAddress: 80A, K. Ivanova St., Cheboksary,Chuvash Republic 428018Phone: +7 8352 58 0402Urals Federal DistrictBranch of JSC VTB Bank in EkaterinburgAddress: 5, Marshala Zhukova St.,Ekaterinburg 620219Phone: +7 343 379 6696Branch of JSC VTB Bank in TyumenAddress: 143A, Respubliki St., Tyumen 625026Phone: +7 3452 54 0454Branch of JSC VTB Bank in ChelyabinskAddress: 2, Karla Liebknechta St., Chelyabinsk 454092Phone: +7 3512 39 6201Siberian Federal DistrictBranch of JSC VTB Bank in BarnaulAddress: 10, Krasnoarmeiskiy Avenue,Barnaul 656043Phone: +7 3852 39 9166Branch of JSC VTB Bank in IrkutskAddress: 10, Rossiyskaya St., Irkutsk 664025Phone: +7 3952 24 3940Branch of JSC VTB Bank in KemerovoAddress: 12, N. Ostrovskogo St., Kemerovo 650000Phone: +7 3842 36 7767Branch of JSC VTB Bank in KrasnoyarskAddress: 3B, Krasnaya Sq., Krasnoyarsk 660021Phone: +7 3912 56 0802Branch of JSC VTB Bank in NovosibirskAddress: 44, Kirova St., Novosibirsk 630102Phone: +7 3832 02 1002Branch of JSC VTB Bank in OmskAddress: 6, Tarskaya St., Omsk 644043Phone: +7 3812 94 8395Branch of JSC VTB Bank in TomskAddress: 39, Lenin Avenue, Tomsk 634034Phone: +7 3822 56 4603Branch of JSC VTB Bank in Ulan-UdeAddress: 55B, Klyuchevskaya St., Ulan-Ude,Republic of Buryatia 670013Phone: +7 3012 41 5415Branch of JSC VTB Bank in ChitaAddress: 41, Amurskaya St., Chita 672010Phone: +7 3022 36 9001Far Eastern Federal DistrictBranch of JSC VTB Bank in BlagoveshchenskAddress: 65/1, Sovetsky Per.,Blagoveshchensk 675005Phone: +7 4162 22 3101Branch of JSC VTB Bank in VladivostokAddress: 8A, Mordovtseva St., Vladivostok 690091Phone: +7 4232 30 1455Branch of JSC VTB Bank in MagadanAddress: 30B, Lenin Avenue, Magadan 685000Phone: +7 4132 60 7334Branch of JSC VTB Bank in Petropavlovsk-KamchatskyAddress: 11, Lukashevskogo St.,Petropavlovsk-Kamchatsky 683024Phone: +7 4152 26 8900Branch of JSC VTB Bank in KhabarovskAddress: 7, Moskovskaya St., Khabarovsk 680000Phone: +7 4212 41 3601Branch of JSC VTB Bank in YakutskAddress: 3, Oktyabrskaya St., Yakutsk,Republic of Sakha (Yakutia) 677000Phone: +7 4112 36 7300Banks and financial companiesof VTB Group in RussiaJSC VTB BankAddress: 29, Bolshaya Morskaya St.,St. Petersburg 190000Phone: 8 800 200 7799 (toll-free in Russia);+7 495 739 7799Fax: +7 495 258 4781Website: www.vtb.comEmail: info@vtb.ruCJSC Bank VTB24Address: 35, Myasnitskaya St., Moscow 101000Phone: 8 800 100 2424; +7 495 777 2424Fax: +7 495 980 4666Website: www.vtb24.ruEmail: info@vtb24.ruOJSC TransCreditBankAddress: 37A, Novaya Basmannaya St.,Moscow 105066Phone: +7 495 788 0880Fax: +7 495 788 0879Website: www.tcb.ruEmail: info@bnk.ru137

VTB Annual Report 201111. Other Group information138OJSC Bank of MoscowAddress: 8/15 bldg 3, Rozhdestvenka St.,Moscow 107996Phone: +7 495 925 8000Fax: +7 495 795 2600Website: www.bm.ruEmail: info@mmbank.ruCJSC VTB CapitalAddress: 12, Presnenskaya Emb., Moscow 123100Phone: +7 495 960 9999Fax: +7 495 664 4700Website: www.vtbcapital.comEmail: info@vtbcapital.comInsurance Company VTB Insurance Ltd.Address: 2/4 bldg 1, Turgenevskaya Sq.,Moscow 101000Phone: +7 495 580 7333; +7 495 644 4440;8 800 100 4440 (toll-free in Russia)Fax: +7 495 589 2408Website: www.vtbins.ruEmail: info@vtbins.ruOJSC VTB LeasingAddress: 10, 2nd Volkonskiy Per., Moscow 127473Phone: +7 495 514 1651Fax: +7 495 514 1650Website: www.vtb-leasing.comEmail: info@vtb-leasing.comVTB Factoring Ltd.Address: 52/1, Kosmodamianskaya Emb.,Moscow 115054Phone: +7 495 783 3534Fax: +7 495 783 3534Website: www.vtbf.ruEmail: factoring@vtbf.ruCJSC VTB RegistrarAddress: 23, Pravdy St., Moscow 125040Phone: +7 495 787 4483Fax: +7 499 257 1700Website: www.vtbreg.ruEmail: info@vtbreg.ruCJSC VTB Specialised DepositoryAddress: 35, Myasnitskaya St., Moscow 101000Phone: +7 495 956 3070Fax: +7 495 956 3071Website: www.odk.ruEmail: odk@odk.ruNPF VTB Pension FundAddress: 52 bldg 4, Kosmodamianskaya Emb.,Moscow 115035Phone: +7 495 228 0989Fax: +7 495 228 0989Website: www.vtbnpf.ruEmail: info@vtbnpf.ruVTB Real Estate Ltd.Address: 70, Mosfilmovskaya St., Moscow 119590Phone: +7 495 925 4570Fax: +7 495 925 4570Website: www.vtbr.ruEmail: info@vtbr.ruMultiCarta Ltd.Address: 43, Vorontsovskaya St., Moscow 109147Phone: +7 495 784 6055; +7 495 785 1515(customer helpdesk)Fax: +7 495 785 1224Website: www.multicarta.ruEmail: info@multicarta.vtb.ruCJSC VTB Debt CentreAddress: P.O. Box 281, room 4094, 35,Myasnitskaya St., Moscow 101000Phone: +7 495 645 4325Fax: +7 495 645 4367CJSC VTB-DevelopmentAddress: 29, B. Morskaya St., St. Petersburg 190000Phone: +7 812 329 2219Fax: +7 812 329 2218Email: info@vtbd.ruVTB Group banks and financialcompanies outside of RussiaBanks and financial companies in EuropeVTB Capital PlcAddress: 14, Cornhill, London EC3V 3ND,United KingdomPhone: + 44 20 3334 8000Fax: +44 20 3345 8900Website: www.vtbcapital.comVTB Bank (Austria) AGAddress: Postfach 560, Parkring 6,Wien A-1010, AustriaPhone: + 43 15 153 50Fax: + 43 15 153 5316Website: www.vtb.atEmail: general@vtb.atVTB Bank (France) SAAddress: 79/81, Boulevard Haussmann 75382,Paris Cedex 08, FrancePhone: +33 14 006 4321Fax: +33 14 006 4848Website: vtb.frVTB Bank (Deutschland) AGAddress: 13, Walter-Kolb-Strasse,Frankfurt-am-Main D-60594, GermanyPhone: +49 69 216 8208Fax: + 49 69 216 8389Website: www.vtb.deEmail: service@vtb.deRussian Commercial Bank (Cyprus) Ltd.Address: 2, Amathuntos St., P.O. Box 56868,Limassol 3310, CyprusPhone: + 357 2583 7300Fax: +357 2534 2350Website: www.rcbcy.comEmail: rcb@rcbcy.comBanks in the CIS and GeorgiaPJSC VTB Bank (Ukraine)Address: 8/26, Taras Shevchenko Blv./ PushkinskayaSt., Kiev 01004, UkrainePhone: +380 44 391 5409, +380 44 239 3539Fax: +380 44 391 5409Website: www.vtb.com.uaEmail: info@vtb.com.uaCJSC VTB Bank (Belarus)Address: 14, Moskovskaya St.,Minsk 220007, BelarusPhone: +375 17 309 1515Fax: +375 17 309 1530Website: www.vtb-bank.byEmail: info@vtb-bank.byCJSC VTB Bank (Armenia)Address: 46, Nalbandyana St., Yerevan 375010,ArmeniaPhone: +374 1056 5860Fax: +374 1056 5578Website: www.vtb.amEmail: headoffice@vtb.amOJSC VTB Bank (Azerbaijan)Address: 96, Nizami St., Baku AZ1010, AzerbaijanPhone: +99 412 492 0080Fax: +99 412 437 7121Website: www.vtb.azEmail: info@vtb.com.azJSC VTB Bank (Kazakhstan)Address: 28B, Timiryazeva St., Almaty 050040,KazakhstanPhone: +7727 330 5050Fax: +7727 330 4050Website: www.vtb-bank.kzEmail: info@vtb-bank.kz139

VTB Annual Report 201112. Shareholders’ information140JSC VTB Bank (Georgia)Address: 37, D. Uznadze St., Tbilisi 0102, GeorgiaPhone: +99 532 50 5505Fax: +99 532 99 9139; +99 532 95 6085Website: www.vtb.com.geEmail: admin@vtb.com.geJSC VTB Bank Branch in New Delhi (India)Address: Mezzanine floor, Taj Mahal Hotel, 1,Mansingh Road, New Delhi 110011, IndiaPhone: +9111 6622 1000Fax: +9111 6622 1024Email: indiabranch@vtb.com12. Shareholders’ information141Banks and financial companies in Asia and AfricaBanco VTB Africa S.A.Address: 22, Rua da Missao, Luanda, AngolaPhone: +244 222 39 5889Fax: +244 222 39 5297Email: info@vtb.aoVietnam-Russia Joint Venture BankAddress: 85, Ly Thuong Kiet St., Hoan Kiem District,Hanoi, VietnamPhone: + 844 942 6668Fax: +844 942 6669Website: www.vrbank.com.vnEmail: vrbank@vrbank.com.vnBranches and representative offices abroadJSC VTB Bank Branch in Shanghai (China)Address: offices 1101A, 1102-03 (11 floor), 1266,Nanjing Xilu, Jing’an District, Shanghai municipality200040, the People’s Republic of ChinaPhone: + 8621 6136 6288Fax: + 8621 6136 6265Email: shanghaibranch@vtb.ruRepresentative office of JSC VTB Bank in ChinaAddress: 18BC, CITIC bldg, 19, Jianguomenwai dajie,Beijing 100004, ChinaPhone: +86 10 8526 2800Fax: +86 10 8526 2810Email: chinavtb@public3.bta.net.cnRepresentative office of JSC VTB Bank in ItalyAddress: 8, Piazzale Principessa Clotilde, Milan20121, ItalyPhone: +39 02 2901 3278Fax: +39 02 2906 0007Email: m.volkov@vtbitalia.comRepresentative office of JSC VTB Bank in the KyrgyzRepublicAddress: 55, Manasa Avenue, Bishkek 720017,the Kyrgyz RepublicPhone: +996 775 98 3308Fax: +996 775 55 4670Share capitalThe authorised share capital of VTB Bank amountsto RUB 104,605,413,373.38 and is divided into10,460,541,337,338 shares. All shares of the Bankare ordinary registered shares, issued in a nondocumentaryform with a par value of RUB 0.01 each.In accordance with the Bank’s Charter, it has the rightto issue a maximum number of 14,000,000,000,000ordinary shares with a par value of RUB 0.01 each, inaddition to the shares already placed.As of 31 December 2011, there were no outstandingpreferred shares of VTB Bank.The state registration number of VTB Bank’soutstanding ordinary shares is 10401000B. The recorddate for the state registration of the additional issue ofVTB Bank’s ordinary shares is 29 September 2006.The Bank’s shares are traded on the Russian mergedMICEX-RTS stock exchange in Quotation List B, andon the London Stock Exchange (LSE) in the form ofGlobal Depositary Receipts (GDRs).Each VTB GDR is equivalent to 2,000 ordinary shares.The Bank of New York International Nominees is thedepositary bank for the VTB GDR Programme.On 31 December 2011, GDRs accounted for 16.4% ofthe Bank’s share capital.Shareholder structureAt the beginning of 2011, the Federal Agencyfor State Property Management made a decision todecrease its stake in the authorised capital ofVTB Bank. The amount of shares, offered by the Stateto the open market, was 1.04 trillion or 10% of theBank’s share capital. VTB’s share sale became themost successful placement of Russian equity capitalon the stock exchange since the financial crisis.The order book was oversubscribed by more thantwo times, meaning that the demand from investorssubstantially exceeded the number of shares offeredduring the sale.Assicurazioni Generali became the largest singleinvestor in the offering, investing more thanUSD 300 million in VTB shares. Over ten investors eachbought VTB shares worth more than USD 100 million.Number of shares and % of the totalShareholder as of 21 April 2011 as of 31 December 2011Russian Federation, represented by the Federal Agencyfor State Property ManagementFree float of GDRs (Bank of New York InternationalNominees)7,897,477,400,292 shares75.5 %1,781,970,029,875 shares17.03 %7,897,477,400,292 shares75.5 %1,714,445,519,875 shares16.4 %Other institutional investorsIndividual investorsTotal464,662,116,960 shares4.44 % 848,618,417,171 shares316,431,790,211 shares3.03 %10,460,541,337,338 shares100 %8.1 %

VTB Annual Report 201112. Shareholders’ information142TPG Capital and the Chinese sovereign wealth fundChina Investment Corporation (CIC) each investedUSD 100 million. Investors from 20 countries acrossthe world participated in the share offering, which wasorganised by Merrill Lynch, Deutsche Bank and VTBCapital.Following the offering, the stake of the Federal Agencyfor State Property Management in the Bank decreasedfrom 85.5% to 75.5%, while the stakes of foreigninstitutional investors almost doubled and reached17%. The proportion of individual investors in theBank’s share capital increased from 2.8% to 3%.The total number of the Bank’s shareholdersincreased by 9,400 to 168,681 shareholders betweenApril 2010 and April 2011. A significant proportionof the Bank’s shares is held by individual investors.At the end of the reporting period, VTB shares wereowned by 167,126 individuals, 114,062 of whomparticipated in the Bank’s IPO in 2007.VTB Bank is not aware of any shareholders owningmore than 1% of the Bank’s authorised share capital,except those mentioned above. Information on theparticipation of the members of the SupervisoryCouncil and the Management Board in VTB’s sharecapital is available in the Corporate Governancesection of this report.The General Shareholders MeetingThe General Shareholders Meeting is VTB Bank’shighest governing body, and a meeting is heldannually. The date of the meeting is set by theSupervisory Council.The Bank notifies its shareholders about the GeneralShareholders Meeting by a notice, which is publishedin Rossiyskaya Gazeta and on the official website ofthe Bank no later than 30 days prior to the Meeting.Decisions taken at the Annual General ShareholdersMeeting and the results of voting are communicatedto shareholders in the same manner. Ballot papersare sent to shareholders by post no later than 20days prior to the Meeting.Materials related to the General ShareholdersMeeting are available to shareholders at theShareholders’ Support Centres or on the officialcorporate website www.vtb.ruVTB Bank’s GDR holders, who wish to participatein voting on the agenda of the Annual GeneralShareholders Meeting, should contact the depositarybank (The Bank of New York International Nominees)for the GDR programme. The depositary bank’scontact details can be found below.Information about the 2011 Annual GeneralShareholders Meeting can be found in the CorporateGovernance section of this report.Dividend policyOne of the main rights of VTB shareholders is theright to receive a share of the Bank’s net profit inthe form of dividend payments. Dividend paymentsare approved by the Annual General ShareholdersMeeting of VTB Bank, following recommendationsmade by the Supervisory Council. The SupervisoryCouncil bases its recommendations as to the size ofthe dividend payment on the Bank’s net profit.VTB’s Strategy and Corporate Governance Committee,established in 2011, recommended to the SupervisoryCouncil that dividend amounts for 2010-2013 shouldbe between 10% and 20% of the full year net profit,as shown in VTB Group’s IFRS financial results for thereporting years of 2010, 2011, 2012 and 2013.The size of the dividend payment per share, as wellas the period and form of payment are determined atthe Annual General Shareholders Meeting. The sizeof the dividend payment cannot exceed the amountrecommended by the Supervisory Council.Declared dividend payments are made in Russianroubles during a 60-day period following the decisiontaken by the Annual General Shareholders Meeting,either by bank transfer into shareholders’ accounts orin cash, depending on the shareholder’s preference.In accordance with amendments to Russian legislationthat came into force in 2011, any dividends accrued,but unclaimed by shareholders within a period ofthree calendar years, are subject to allocation backto the profit of the Bank. Thus, if a shareholder doesnot claim his or her accrued dividends within threeyears, he or she loses the right to receive them. Thisrule does not apply to shareholders, who receive theirdividends by bank transfer, as the transfer of fundsto a shareholder’s account is considered sufficientevidence of a dividend payment.Dividend paymentsOn 3 June 2011, the Annual General ShareholdersMeeting approved the decision to pay dividends for2010 in the amount of RUB 0.00058 per share.The dividend amount remained at the same levelas in the previous year. The total funds allocated fordividends equalled RUB 6,067 million. The dividendswere paid out to the Bank’s shareholders in July 2011.The amount of dividend payments for 2011 will beapproved by the Annual General Shareholders Meetingof VTB Bank in June 2012. The record of dividendpayments for the years 2007-2010 is set out below.Dividend taxationAs a tax agent, VTB Bank calculates and deducts taxfrom the dividend payments it makes at the year-end.The dividend tax rate for individuals and companieswho are residents of the Russian Federation is 9%,and for non-residents the rate is 15%. The rate isapplied to the taxable dividend amount, which canbe less than the total dividends payable, becausetax has already been withheld from income in theform of dividends that the Bank has earned from itsinvestments in other companies.If a double taxation agreement applies, tax paymentsare made in accordance with the rate specified in theagreement.Mutual funds, foreign institutional and individualinvestors can apply for a tax exemption or a reducedtax rate on dividends received by submittingdocuments to the Bank’s registrar, CJSC VTB Registrar,that demonstrate that they have a right to preferentialtax treatment. A complete list of the requireddocuments can be found at www.vtb.ru.DisclosureVTB Bank strives to maintain the highest level oftransparency in relation to its activities, and disclosesa wide range of information. The publication ofinformation that has to be disclosed in accordance withthe requirements of the Central Bank of the RussianFederation, and in accordance with the Federal Law onthe Securities Market and the Regulation on InformationDisclosure by Issuers of Securities (approved by DecreeNo 06-117/pz-n of the Federal Financial Markets Service(FFMS) on 10 October 2006), is conducted throughauthorised news agencies and the Bank’s corporatewebsite at www.vtb.ru/we/ir/disclosure/VTB publishes its audited consolidated financialstatements under IFRS at the end of the fiscal year.Additionally, the Bank discloses its unauditedcondensed consolidated financial statements at theend of the first, second and third quarters.2007 2008 2009 2010Net profit in accordance with RAS (in RUB million) 17,978 26,894 23,751 43,343Dividend amount per one ordinary share (RUB) 0.00134 0.000447 0.00058 0.00058Total amount of dividend payments (in RUB million) 9,010 3,006 6,067 6,067Dividend payout ratio (% of net profit in accordance with RAS) 50.10 11.10 25.54 14143

VTB Annual Report 2011144VTB places announcements of its financial resultson the website of the London Stock Exchange via aninformation distribution system (RNS), followed by thepublication of press releases on the corporate websiteand their dissemination to the media.An electronic version of the Annual Report is uploadedonto the Bank’s corporate website www.vtb.ruHard copies of the Annual Report are available atShareholders’ Support Centres, or can be requested bysending an email to InvestorRelations@vtb.ru.Contact informationLegal address29, Bolshaya Morskaya St., St. Petersburg 190000,RussiaPrimary State Registration Number (PSRN) –1027739609391Postal address37, Plyushchikha St., Moscow 119121, RussiaAuditorCJSC Ernst & Young Vneshaudit77, bldg 1, Sadovnicheskaya Emb., Moscow 115035,RussiaPhone: +7 495 755 9700Depositary Bank for the VTB GDR ProgrammeThe Bank of New York International NomineesLegal address:One Wall Street, New York, NY 10286, USAPostal address:BNY Mellon, Depositary Receipts Division101 Barclay Street – 22nd FloorNew York, NY 10286, USAFax: +1 212 571 3050RegistrarCJSC VTB RegistrarAddress: 23, Pravdy St., Moscow 125040, RussiaPostal address: P.O. Box 54, Moscow 127137, RussiaPhone/Fax: +7 495 787 4483General Enquiries of VTB BankPhone: +7 495 739 7799, 8 800 200 7799Investor Relations Department(institutional investors and analysts)Phone: +7 495 775 7139E-mail: InvestorRelations@vtb.ruShareholder Relations Department(individual shareholders)Phone: +7 495 258 4947, +7 495 775 7075,+7 495 775 7094E-mail: Shareholders@vtb.ruShareholders’ Consultative CouncilWebsite: www.vtb.ru/we/ir/sovetPhone: +7 985 774 3155E-mail: KSA@vtb.ruShareholders’ Support Centre in MoscowAddress: Room 1026, 35, Myasnitskaya St.Phone: +7 495 645 4361Shareholders’ Support Centre in St. PetersburgAddress: Room 40, 29, Bolshaya Morskaya St.Phone: +7 812 494 9446Shareholders’ Support Centre in EkaterinburgAddress: Room 204, 5, Marshala Zhukova St.Phone: +7 343 379 6615

VTB BANKConsolidated Financial Statementsand Auditors’ ReportFor the years ended 31 December 2011 and 2010

VTB BankConsolidated Financial Statements and Independent Auditor’s ReportCONTENTSINDEPENDENT AUDITORS’ REPORTCONSOLIDATED FINANCIAL STATEMENTSConsolidated Statements of Financial Position ......................................................................................................... 1Consolidated Income Statements ............................................................................................................................ 2Consolidated Statements of Comprehensive Income ............................................................................................... 3Consolidated Statements of Cash Flows.................................................................................................................. 4Consolidated Statements of Changes in Shareholders’ Equity .................................................................................. 6NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1. Principal Activities ........................................................................................................................................ 72. Operating Environment of the Group............................................................................................................. 73. Basis of Preparation ..................................................................................................................................... 84. Changes in Accounting Policies .................................................................................................................... 85. Summary of Principal Accounting Policies................................................................................................... 126. Significant Accounting Estimates and Judgements ...................................................................................... 257. Cash and Short-Term Funds ...................................................................................................................... 268. Financial Assets at Fair Value Through Profit or Loss .................................................................................. 269. Financial Assets Pledged under Repurchase Agreements and Loaned Financial Assets .............................. 2810. Due from Other Banks................................................................................................................................ 2811. Loans and Advances to Customers ............................................................................................................ 2912. Financial Assets Available-for-Sale ............................................................................................................. 3013. Investments in Associates and Joint Ventures ............................................................................................. 3114. Investment Securities Held-to-Maturity ........................................................................................................ 3215. Premises and Equipment ........................................................................................................................... 3216. Investment Property ................................................................................................................................... 3317. Intangible Assets and Goodwill ................................................................................................................... 3418. Other Assets .............................................................................................................................................. 3619. Disposal Group Held for Sale ..................................................................................................................... 3720. Due to Other Banks.................................................................................................................................... 3721. Customer Deposits .................................................................................................................................... 3722. Other Borrowed Funds ............................................................................................................................... 3823. Debt Securities Issued ............................................................................................................................... 3924. Subordinated Debt ..................................................................................................................................... 4125. Other Liabilities .......................................................................................................................................... 4226. Share Capital ............................................................................................................................................. 4327. Interest Income and Expense ..................................................................................................................... 4328. Gains Less Losses Arising from Financial Instruments at Fair Value Through Profit or Loss ......................... 4429. Fee and Commission Income and Expense ................................................................................................ 4430. Income Arising from Non-Banking Activities and Other Operating Income .................................................... 4431. Staff Costs and Administrative Expenses .................................................................................................... 4532. Allowances for Impairment and Provisions .................................................................................................. 4533. Income Tax ................................................................................................................................................ 4734. Basic and Diluted Earnings per Share ......................................................................................................... 4935. Dividends .................................................................................................................................................. 4936. Contingencies, Commitments and Derivative Financial Instruments ............................................................. 5037. Analysis by Segment .................................................................................................................................. 5438. Financial Risk Management ....................................................................................................................... 5939. Fair Values of Financial Instruments ........................................................................................................... 8840. Related Party Transactions ........................................................................................................................ 9141. Consolidated Subsidiaries .......................................................................................................................... 9342. Business Combinations and Disposal of Subsidiaries .................................................................................. 9443. Capital Management and Capital Adequacy ................................................................................................ 9644. Subsequent Events .................................................................................................................................... 97

VTB BankConsolidated Income Statements for the Years Ended 31 December(in billions of Russian Roubles)Note 2011 2010Interest income 27 416.7 330.5Interest expense 27 (189.7) (159.4)Net interest income 227.0 171.1Provision charge for impairment of debt financial assets 32 (31.6) (51.6)Net interest income after provision for impairment 195.4 119.5(Losses net of gains) / gains less losses arising from financialinstruments at fair value through profit or loss 28 (30.8) 14.8Gains less losses / (losses net of gains) from available-for-salefinancial assets 12 4.1 (0.1)Losses net of gains arising from extinguishment of liability (0.7) –Net recovery of losses / (losses) on initial recognition of financialinstruments, restructuring and other gains / (losses) on loans andadvances to customers 20.2 (0.2)Gains less losses / (losses net of gains) arising from dealing inforeign currencies 6.1 (7.5)Foreign exchange translation (losses net of gains) / gains less losses (6.5) 12.1Fee and commission income 29 47.4 28.8Fee and commission expense 29 (8.2) (4.1)Share in income /(loss) of associates and joint ventures 13 7.5 (0.7)Provision charge for impairment of other assets, contingencies andcredit related commitments 32 (1.4) (2.2)Income arising from non-banking activities 30 20.4 11.0Expenses arising from non-banking activities (9.1) (7.2)Other operating income 30 9.2 3.1Net non-interest income 58.2 47.8Operating income 253.6 167.3Staff costs and administrative expenses 31 (141.5) (95.1)Impairment of goodwill 17 – (1.1)Profit from disposal of subsidiaries and associates 3.4 –Profit before taxation 115.5 71.1Income tax expense 33 (25.0) (16.3)Net profit 90.5 54.8Net profit / (loss) attributable to:Shareholders of the parent 89.4 58.2Non-controlling interests 1.1 (3.4)Basic and diluted earnings per share(expressed in Russian Roubles per share) 34 0.00855 0.00557The notes 1 - 44 form an integral part of these consolidated financial statements 2

VTB BankConsolidated Statements of Comprehensive Income for the Years Ended 31 December(in billions of Russian Roubles)2011 2010Net profit 90.5 54.8Other comprehensive income:Net result on financial assets available-for-sale, net of tax 2.7 0.6Actuarial losses net of gains arising from difference between pension planassets and obligations (0.5) (0.2)Share of other comprehensive income of associates and joint ventures (0.5) (0.2)Effect of translation, net of tax 2.4 (2.4)Other comprehensive income, net of tax 4.1 (2.2)Total comprehensive income 94.6 52.6Total comprehensive income attributable to:Shareholders of the parent 93.7 56.3Non-controlling interests 0.9 (3.7)The notes 1 - 44 form an integral part of these consolidated financial statements 3

VTB BankConsolidated Statements of Cash Flows for the Years Ended 31 December(in billions of Russian Roubles)Note 2011 2010Cash flows from operating activitiesInterest received 382.3 302.6Interest paid (176.4) (158.0)(Loss incurred) / income received on operations with financialinstruments at fair value through profit or loss (23.3) 13.9Income received / (loss incurred) on dealing in foreign currency 10.8 (7.6)Fees and commissions received 48.0 28.3Fees and commissions paid (7.6) (4.6)Other operating income received 2.0 1.6Staff costs, administrative expenses paid (122.1) (83.5)Income received from non-banking activities 17.8 7.0Expenses paid in non-banking activities (7.3) (1.8)Income tax paid (28.8) (22.8)Cash flows from operating activities before changes in operatingassets and liabilities 95.4 75.1Net decrease / (increase) in operating assetsNet increase in mandatory reserve deposits with central banks (37.3) (0.5)Net decrease in restricted cash – 0.2Net increase in correspondent accounts in precious metals (6.8) (1.6)Net (increase) / decrease in financial assets at fair value throughprofit or loss (159.8) 42.8Net decrease in due from other banks 11.6 58.4Net increase in loans and advances to customers (971.2) (289.3)Net increase in other assets (44.1) (22.3)Net (decrease) / increase in operating liabilitiesNet increase in due to other banks 232.5 79.8Net increase in customer deposits 832.7 361.5Net increase / (decrease) in debt securities issued other than bonds 78.9 (14.6)Net increase in other liabilities 19.2 7.6Net cash from operating activities 51.1 297.1Cash flows used in investing activitiesDividends received 0.8 0.8Proceeds from sale or redemption of financial assets available-for-sale 58.5 13.3Purchase of financial assets available-for-sale (125.6) (43.9)Purchase of subsidiaries, net of cash acquired 42 5.8 8.1Disposal of subsidiaries, net of cash disposed 42 (1.1) 0.2Purchase of and contributions to associates and joint ventures 13 (109.1) (0.6)Proceeds from sale of share in associates and joint ventures 6.6 –Purchase of investment securities held-to-maturity (1.2) (0.8)Proceeds from redemption of investment securities held-to-maturity 2.3 1.2Purchase of premises and equipment (36.9) (31.3)Proceeds from sale of premises and equipment 40.1 2.9Purchase or construction of investment property (0.3) –Proceeds from sale of investment property 1.3 –Purchase of intangible assets (2.7) (1.4)Proceeds from sale of intangible assets 1.2 –Net cash used in investing activities (160.3) (51.5)The notes 1 - 44 form an integral part of these consolidated financial statements 4

VTB BankConsolidated Statements of Cash Flows for the Years Ended 31 December (continued)(in billions of Russian Roubles)Note 2011 2010Cash flows used in financing activitiesDividends paid 35 (7.3) (6.1)Proceeds from issuance of local bonds 21.0 36.1Repayment of local bonds (53.9) (30.7)Buy-back of local bonds (16.7) (33.9)Proceeds from sale of previously bought-back local bonds 14.9 29.7Proceeds from issuance of Eurobonds 45.6 92.4Repayment of Eurobonds (100.8) (11.5)Buy-back of Eurobonds (35.3) (64.1)Proceeds from sale of previously bought-back Eurobonds 33.9 68.3Proceeds from syndicated loans 87.3 0.6Repayment of syndicated loans (43.2) (14.9)Buy-back of syndicated loans (5.9) –Proceeds from other borrowings and funds from local central banks 452.3 275.4Repayment of other borrowings and funds from local central banks (122.7) (562.6)Repayment of subordinated debt – (9.3)Buy-back of subordinated debt (4.8) (0.3)Proceeds from sale of previously bought-back subordinated debt 3.1 0.9Proceeds from sale of treasury shares 1.3 –Purchase of treasury shares (1.6) –Share issue to minorities 41 0.2 0.3Purchase of non-controlling interests in subsidiaries 41 (34.8) (0.2)Net cash used in financing activities 232.6 (229.9)Effect of exchange rate changes on cash and cash equivalents 2.6 (1.7)Effect of hyperinflation (1.3) –Net increase in cash and cash equivalents 124.7 14.0Cash and cash equivalents at the beginning of the year 7 272.8 258.8Cash and cash equivalents at the end of the year 7 397.5 272.8The notes 1 - 44 form an integral part of these consolidated financial statements 5

VTB BankConsolidated Statements of Changes in Shareholders’ Equity for the Years Ended 31 December2011 and 2010(in billions of Russian Roubles)SharecapitalSharepremiumTreasurysharesAttributable to shareholders of the parentUnrealizedgain onfinancialassetsavailablefor-saleandcash flowhedgePremisesrevaluationreserveCurrencytranslationdifferenceRetainedearningsTotalNoncontrollinginterestsTotalequityBalance at 1 January 2010 113.1 358.5 (0.4) 3.4 11.8 13.2 2.7 502.3 2.6 504.9Net result from treasuryshares transactions – – 0.1 – – – (0.1) – – –Total comprehensive incomefor the period – – – 0.6 (0.1) (2.2) 58.0 56.3 (3.7) 52.6Transfer of premisesrevaluation reserve upondisposal or depreciation – – – – (0.3) – 0.3 – – –Dividends declared (Note 35) – – – – – – (6.1) (6.1) – (6.1)Acquisition of subsidiaries – – – – – – – – 23.2 23.2Increase in share capital ofsubsidiaries – – – – – – (1.5) (1.5) 1.9 0.4Acquisition of non-controllinginterests – – – – – – (0.1) (0.1) (0.1) (0.2)Expiration of put options overnon-controlling interests – – – – – – 3.4 3.4 – 3.4Balance at 31 December2010 113.1 358.5 (0.3) 4.0 11.4 11.0 56.6 554.3 23.9 578.2Net result from treasuryshares transactions – – (0.3) – – – – (0.3) – (0.3)Total comprehensive incomefor the period – – – 2.8 – 2.8 88.1 93.7 0.9 94.6Transfer of premisesrevaluation reserve upondisposal or depreciation – – – – (0.2) – 0.2 – – –Transfer of currencytranslation difference uponlegal merger of subsidiary(Note 41) – – – – – (2.4) 2.4 – – –Dividends declared (Note 35) – – – – – – (6.1) (6.1) (1.2) (7.3)Increase in share capital ofsubsidiaries (Note 41) – – – – – – (3.2) (3.2) 3.4 0.2Acquisition of subsidiaries(Note 42) – – – – – – – – 17.0 17.0Disposal of subsidiaries(Note 42) – – – – – – – – (0.5) (0.5)Acquisition of non-controllinginterests (Note 41) – – – 1.1 0.2 (0.4) (13.9) (13.0) (21.9) (34.9)Obligation to purchase noncontrollinginterests(Note 25) – – – – – – (21.9) (21.9) – (21.9)Balance at 31 December2011 113.1 358.5 (0.6) 7.9 11.4 11.0 102.2 603.5 21.6 625.1The notes 1 - 44 form an integral part of these consolidated financial statements 6

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)1. Principal ActivitiesVTB Bank and its subsidiaries (the “Group”) comprise Russian and foreign commercial banks, and other companiesand entities controlled by the Group.VTB Bank, formerly known as Vneshtorgbank (the “Bank”, or “VTB”), was formed as Russia’s foreign trade bankunder the laws of the Russian Federation on 17 October 1990. In 1998, following several reorganizations, VTB wasreorganized into an open joint stock company. In October 2006 the Group started re-branding to change its namefrom Vneshtorgbank to VTB. Simultaneously, the names of some of VTB’s subsidiaries were changed as presented inNote 41. In March 2007, the Bank for Foreign Trade was renamed into “VTB Bank” (Open Joint-Stock Company).On 2 January 1991, VTB received a general banking license (number 1000) from the Central Bank of the RussianFederation (CBR). In addition, VTB holds licenses required for trading and holding securities and engaging in othersecurities-related activities, including acting as a broker, a dealer and a custodian, and providing asset managementand special depositary services. VTB and other Russian Group banks are regulated and supervised by the CBR andthe Federal Financial Markets Service. Foreign Group banks operate under the bank regulatory regimes of theirrespective countries.On 29 December 2004, the Bank became a member of the obligatory deposit insurance system provided by the StateCorporation “Deposit Insurance Agency” (DIA). All Group subsidiary banks in Russia: ’Bank VTB 24”, CJSC,“TransCreditBank”, JSC, “Bank of Moscow”, OJSC, “Mosvodokanalbank”, OJSC and “Bezhitsa-Bank”, OJSC are alsomembers of the obligatory deposit insurance system provided by DIA. The State deposit insurance scheme impliesthat DIA guarantees repayment of individual deposits up to the maximum total amount of guaranteed payment ofRUR 700 thousand with a 100% compensation of deposited amount from 1 October 2008.On 5 October 2005, VTB re-registered its legal address to 29 Bolshaya Morskaya Street, Saint-Petersburg 190000,Russian Federation. VTB’s Head Office is located in Moscow.A list of principal subsidiaries included in these consolidated financial statements is provided in Note 41.The Group operates in the corporate and investment banking, retail, real estate and other segments. Corporate andinvestment banking include deposit taking and commercial lending in freely convertible currencies and in RussianRoubles, support of clients’ export/import transactions, foreign exchange, securities trading and trading in derivativefinancial instruments. The Group’s operations are conducted in both Russian and international markets. The Group’soperations are not subject to seasonal fluctuations. The Group conducts its banking business in Russia through VTBas a parent and 5 subsidiary banks with its network of 166 full service branches, including 69 branches of VTB, 8branches of ’Bank VTB 24”, CJSC, 41 branches of “TransCreditBank”, JSC and 48 branches of “Bank of Moscow”,OJSC located in major Russian regions. Within acquisition of “Bank of Moscow”, OJSC the Group has also obtainedcontrol over “Mosvodokanalbank”, OJSC and “Bezhitsa-Bank”, OJSC, “Bank Moscow-Minsk”, OJSC and “BM Bank”,Ltd. In March 2011 VTB North-West ceased its operations as a subsidiary of VTB following the legal merger of VTBand VTB North-West. The Group operates outside Russia through 15 bank subsidiaries, located in theCommonwealth of Independent States (“CIS”) (Armenia, Ukraine (2 banks), Belarus (2 banks), Kazakhstan andAzerbaijan), Europe (Austria, Cyprus, Germany, France, Great Britain and Serbia), Georgia, Africa (Angola); through2 representative offices located in Italy and China; through 2 VTB branches in China and India and 3 branches of“VTB Capital”, Plc in Singapore, Dubai and Hong Kong.VTB’s majority shareholder is the Russian Federation state, acting through the Federal Property Agency, which holds75.5% of VTB’s issued and outstanding shares at 31 December 2011 (31 December 2010: 85.5%).In February 2011, the Russian Federation state, acting through the Federal Property Agency, reduced its share from85.5% to 75.5% of VTB’s issued and outstanding shares as a result of offering in the form of shares and globaldepositary receipts.The number of employees of the Group at 31 December 2011 was 67,912 (31 December 2010: 51,781).Unless otherwise noted herein, all amounts are expressed in billions of Russian Roubles rounded off to one decimal.2. Operating Environment of the GroupRussia continues economic reforms and development of its legal, tax and regulatory frameworks as required by amarket economy. The future stability of the Russian economy is largely dependent upon these reforms anddevelopments and the effectiveness of economic, financial and monetary measures undertaken by the government.The Russian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. In 2011the Russian Government continued to take measures to support the economy in order to overcome theconsequences of the global financial crisis. Despite some indications of recovery there continues to be uncertaintyregarding further economic growth, access to capital and cost of capital, which could negatively affect the Group’sfuture financial position, results of operations and business prospects.7

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)2. Operating Environment of the Group (continued)Also, factors including increased unemployment in Russia, reduced corporate liquidity and profitability and increasedcorporate and personal insolvencies may affect the Group’s borrowers’ ability to repay the amounts due to the Group.In addition, changes in economic conditions may result in deterioration in the value of collateral held against loansand other obligations. To the extent that information is available, the Group has reflected revised estimates ofexpected future cash flows in its impairment assessment.In 2011 deterioration in economic conditions in Belarus accompanied by considerable devaluation of local currency,high inflation rates and large negative trade balance lead Management to consider the Belorussian economy to behyperinflationary as defined by IAS 29 Financial Reporting in Hyperinflationary Economies with the effect from1 January 2011.While management believes it is taking appropriate measures to support the sustainability of the Group’s business inthe current circumstances, unexpected further deterioration in the areas described above could negatively affect theGroup’s results and financial position in a manner not currently determinable.3. Basis of PreparationGeneralThese consolidated financial statements (“financial statements”) have been prepared in accordance with InternationalFinancial Reporting Standards (“IFRS”). The Bank and its subsidiaries and associates maintain their accountingrecords in accordance with regulations applicable in their country of registration. These financial statements arebased on those accounting books and records, as adjusted and reclassified to comply with IFRS.These financial statements have been prepared under the historical cost convention, as modified by the initialrecognition of financial instruments based on fair value, the revaluation of premises and investment properties,available-for-sale financial assets, and financial instruments categorized as at fair value through profit or loss. Thesummary of principal accounting policies applied in the preparation of these financial statements is set out below inNote 5. These policies have been consistently applied to all the periods presented, unless otherwise stated.These financial statements are presented in Russian Roubles (RUR), the national currency of the RussianFederation, where the Bank is domiciled.4. Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previous financial year, except for certain newstandards and interpretations, which became effective for the Group from 1 January 2011, as described below:IAS 24 Related Party Disclosures (effective for annual periods beginning on or after 1 January 2011). – IAS 24 wasrevised in November 2009 by: (a) simplifying the definition of a related party, clarifying its intended meaning andeliminating inconsistencies; and by (b) providing a partial exemption from the disclosure requirements forgovernment-related entities. The Group has not applied the exemption provided for government-related entities in therevised IAS 24 and disclosed all transactions with government-related entities.IAS 32 Financial Instruments: Presentation – Classification of Rights Issues (effective for annual periodsbeginning on or after 1 February 2010). – The Amendment was issued in October 2009. It exempts certain rightsissues of shares with proceeds denominated in foreign currencies from classification as derivatives. The amendmentdoes not have any impact on the Group's financial statements.IFRS 1 First-time Adoption of International Financial Reporting Standards – Amendment: Limited Exemptionfrom Comparative IFRS 7 Disclosures for First-time Adopters (effective for annual periods beginning on or after1 July 2010). – Existing IFRS preparers were granted relief from presenting comparative information for the newdisclosures required by the March 2009 amendments to IFRS 7 Financial Instruments: Disclosures. This amendmentto IFRS 1 provides first-time adopters with the same transition provisions as included in the amendment to IFRS 7.The amendment does not have any impact on the Group's financial statements.IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction– Amendment: Prepayments of a Minimum Funding Requirement (effective for annual periods beginning on orafter 1 January 2011). – This amendment will have a limited impact as it applies only to companies that are requiredto make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence ofIFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement. The amendmentdoes not have any impact on the Group's financial statements.8

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)4. Changes in Accounting Policies (continued)IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on orafter 1 July 2010). – IFRIC Interpretation 19 was issued in November 2009. The interpretation clarifies the accountingfor the transactions when the terms of a financial liability are renegotiated and result in the entity issuing equityinstruments to a creditor of the entity to extinguish all or part of the financial liability. IFRIC 19 does not have anyimpact on the Group's financial statements.Improvements to International Financial Reporting Standards (effective for annual periods beginning on or after1 January 2011). – The improvements were issued in May 2010. The improvements consist of a mixture ofsubstantive changes and clarifications in the following standards and interpretations:IFRS 1 was amended (i) to allow previous GAAP carrying value to be used as deemed cost of an item ofproperty, plant and equipment or an intangible asset if that item was used in operations subject to rateregulation, (ii) to allow an event driven revaluation to be used as deemed cost of property, plant andequipment even if the revaluation occurs during a period covered by the first IFRS financial statements and (iii)to require a first-time adopter to explain changes in accounting policies or in the IFRS 1 exemptions betweenits first IFRS interim report and its first IFRS financial statements;IFRS 3 was amended (i) to require measurement at fair value (unless another measurement basis is requiredby other IFRS standards) of non-controlling interests that are not present ownership interest or do not entitlethe holder to a proportionate share of net assets in the event of liquidation, (ii) to provide guidance onacquiree’s share-based payment arrangements that were not replaced or were voluntarily replaced as a resultof a business combination and (iii) to clarify that the contingent considerations from business combinationsthat occurred before the effective date of revised IFRS 3 (issued in January 2008) will be accounted for inaccordance with the guidance in the previous version of IFRS 3;IFRS 7 was amended to clarify certain disclosure requirements, in particular (i) by adding an explicit emphasison the interaction between qualitative and quantitative disclosures about the nature and extent of financialrisks, (ii) by removing the requirement to disclose carrying amount of renegotiated financial assets that wouldotherwise be past due or impaired, (iii) by replacing the requirement to disclose fair value of collateral by amore general requirement to disclose its financial effect, and (iv) by clarifying that an entity should disclose theamount of foreclosed collateral held at the reporting date and not the amount obtained during the reportingperiod;IAS 1 was amended to clarify the requirements for the presentation and content of the statement of changes inequity with regard to a reconciliation between the carrying amount at the beginning and the end of the periodfor each component of equity either in the statement of changes in equity or in the notes to the financialstatements;IAS 27 was amended by clarifying the transition rules for amendments to IAS 21, 28 and 31 made by therevised IAS 27 (as amended in January 2008);IAS 34 was amended to provide additional examples of significant events and transactions requiringdisclosure in a condensed interim financial report, including transfers between the levels of fair valuehierarchy, changes in classification of financial assets or changes in business or economic environment thataffect the fair values of the entity’s financial instruments; andIFRIC 13 was amended to clarify measurement of fair value of award credits.The amendments do not have any material effect on the Group’s financial statements.The Group has not early adopted the following IFRSs (IASs) and Interpretations of the International FinancialReporting Interpretations Committee (IFRICs) that have been issued but are not yet effective:IFRS 9 Financial Instruments Part 1: Classification and Measurement. IFRS 9, issued in November 2009,replaces those parts of IAS 39 relating to the classification and measurement of financial assets. IFRS 9 was furtheramended in October 2010 to address the classification and measurement of financial liabilities. Key features of thestandard are as follows:Financial assets are required to be classified into two measurement categories: those to be measuredsubsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to bemade at initial recognition. The classification depends on the entity’s business model for managing its financialinstruments and the contractual cash flow characteristics of the instrument.An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) theobjective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) theasset’s contractual cash flows represent payments of principal and interest only (that is, it has only “basic loanfeatures”). All other debt instruments are to be measured at fair value through profit or loss.9

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)4. Changes in Accounting Policies (continued)IFRSs (IASs) and IFRIC interpretations not yet effective (continued)All equity instruments are to be measured subsequently at fair value. Equity instruments that are held fortrading will be measured at fair value through profit or loss. For all other equity investments, an irrevocableelection can be made at initial recognition, to recognize unrealised and realised fair value gains and lossesthrough other comprehensive income rather than profit or loss. There is to be no recycling of fair value gainsand losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are tobe presented in profit or loss, as long as they represent a return on investment.Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carriedforward unchanged to IFRS 9. The key change is that an entity will be required to present the effects ofchanges in own credit risk of financial liabilities designated as at fair value through profit or loss in othercomprehensive income.While adoption of IFRS 9 is mandatory from 1 January 2015, earlier adoption is permitted.The Group is considering the implications of the standard, the impact on the Group’s future financial statements andthe timing of its adoption by the Group.IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013). –The standard was issued in May 2011. It replaces all of the guidance on control and consolidation in IAS 27Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities. IFRS 10changes the definition of control so that the same criteria are applied to all entities to determine control. This definitionis supported by extensive application guidance. The Group is currently assessing the impact of the amendedstandard on its financial statements.IFRS 11 Joint Arrangements (effective for annual periods beginning on or after 1 January 2013). – The standardwas issued in May 2011. It replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities –Non-Monetary Contributions by Ventures. Changes in the definitions have reduced the number of types of jointarrangements to two: joint operations and joint ventures. The existing policy choice of proportionate consolidation forjointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. TheGroup is currently assessing the impact of the amended standard on its financial statements.IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January2013). – The standard was issued in May 2011. It applies to entities that have an interest in a subsidiary, a jointarrangement, an associate or an unconsolidated structured entity. It replaces the disclosure requirements currentlyfound in IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31Interests in Joint Ventures. IFRS 12 requires entities to disclose information that helps financial statement readers toevaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, jointarrangements and unconsolidated structured entities. To meet these objectives, the new standard requiresdisclosures in a number of areas, including significant judgements and assumptions made in determining whether anentity controls, jointly controls, or significantly influences its interests in other entities, extended disclosures on shareof non-controlling interests in group activities and cash flows, summarised financial information of subsidiaries withmaterial non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities. TheGroup is currently assessing the impact of the standard on its financial statements.IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013). – Thestandard was issued in May 2011. The new standard replaces the fair value measurement guidance contained inindividual IFRSs with a single source of fair value measurement guidance. The Group is currently assessing theimpact of the standard on its financial statements.IAS 27 Separate Financial Statements (effective for annual periods beginning on or after 1 January 2013). – Thestandard was revised in May 2011. Its objective is now to prescribe the accounting and disclosure requirements forinvestments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. Theguidance on control and consolidated financial statements was replaced by IFRS 10 Consolidated FinancialStatements. The Group is currently assessing the impact of the amended standard on its financial statements.IAS 28 Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January2013). – The standard was revised in May 2011. The amendment of IAS 28 resulted from the Board’s project on jointventures. When discussing that project, the Board decided to incorporate the accounting for joint ventures using theequity method into IAS 28 because this method is applicable to both joint ventures and associates. With thisexception, other guidance remained unchanged. The Group is currently assessing the impact of the amendedstandard on its financial statements.10

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)4. Changes in Accounting Policies (continued)IFRSs (IASs) and IFRIC interpretations not yet effective (continued)IFRS 1 First-time Adoption of International Financial Reporting Standards – Amendments: SevereHyperinflation and Removal of Fixed Dates for First-time Adopters (effective for annual periods beginning on orafter 1 July 2011). – The first amendment provides guidance on how an entity should resume presenting financialstatements in accordance with IFRSs after a period when the entity was unable to comply with IFRSs because itsfunctional currency was subject to severe hyperinflation. The second amendment replaces references to a fixed dateof ‘1 January 2004’ with ‘the date of transition to IFRSs’, thus eliminating the need for companies adopting IFRSs forthe first time to restate derecognition transactions that occurred before the date of transition to IFRSs. The Groupdoes not expect the amendments to have any material effect on its financial statements.IFRS 7 Financial Instruments: Disclosures – Amendment: Transfers of Financial Assets (effective for annualperiods beginning on or after 1 July 2011). – The amendment was issued in October 2010. It requires additionaldisclosures in respect of risk exposures arising from transferred financial assets. The amendment includes arequirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards offinancial assets that have been transferred to another party, yet remain on the entity's statement of financial position.Disclosures are also required to enable a user to understand the amount of any associated liabilities, and therelationship between the financial assets and associated liabilities. Where financial assets have been derecognised,but the entity is still exposed to certain risks and rewards associated with the transferred asset, additional disclosureis required to enable the effects of those risks to be understood. The Group is currently assessing the impact of theamended standard on disclosures in its financial statements.IFRS 7 Financial Instruments: Disclosures – Amendment: Disclosures – Offsetting Financial Assets andFinancial Liabilities (effective for annual periods beginning on or after 1 January 2013). – The amendment wasissued in December 2011. The amendment requires to include information that will enable users of an entity’sfinancial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-offassociated with the entity’s recognized financial assets and recognized financial liabilities, on the entity’s financialposition. The Group is currently assessing the impact of the amended standard on disclosures in its financialstatements.IAS 32 Financial Instruments: Presentation – Amendment: Offsetting Financial Assets and FinancialLiabilities (effective for annual periods beginning on or after 1 January 2013). – The amendment was issued inDecember 2011. The amendment clarifies the meaning of “currently has a legally enforceable right to set-off” andalso clarifies the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing housesystems) which apply gross settlement mechanisms that are not simultaneous. The Group is currently assessing theimpact of the amended standard on disclosures in its financial statements.IAS 1 Presentation of Financial Statements – Amendment: Presentation of Items of Other ComprehensiveIncome (effective for annual periods beginning on or after 1 July 2012). – The amendment was issued in June 2011.The amendment requires that an entity present separately items of other comprehensive income that may bereclassified to profit or loss in the future from those that will never be reclassified to profit or loss. Additionally, theamendment changes the title of the statement of comprehensive income to statement of profit or loss and othercomprehensive income. The Group expects the amended standard to change presentation of its financial statements,but have no impact on measurement of transactions and balances.IAS 12 Income Taxes – Amendments: Deferred tax: Recovery of underlying assets (effective for annual periodsbeginning on or after 1 January 2012). – The amendment was issued in December 2010. The amendment clarifiesthe determination of deferred tax on investment property measured at fair value. The amendment introduces arebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introducesthe requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16always be measured on a sale basis of the asset. The Group is currently assessing the impact of the amendedstandard on its financial statements.Amendment to IAS 19 Employee Benefits (effective for annual periods beginning on or after 1 January 2013). –The amendment was issued in June 2011. The amendment makes significant changes to the recognition andmeasurement of defined benefit pension expense and termination benefits, and to the disclosures for all employeebenefits. The standard requires recognition of all changes in the net defined benefit liability (asset) when they occur,as follows: (i) service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income.The Group is currently assessing the impact of the amended standard on its financial statements.Currently the Group is analyzing the potential effect of the adoption of these standards and amendments, theirinfluence on the Group and the date of adoption of the standards and amendments.11

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting PoliciesSubsidiariesSubsidiaries are those entities, in which the Group has direct or indirect interest of more than one half of the votingrights, or otherwise has power to govern the financial and operating policies so as to obtain benefits from its activities.The existence and effect of potential voting rights that are currently exercisable or currently convertible areconsidered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date,on which control is transferred to the Group (acquisition date) and are no longer consolidated from the date whencontrol ceases. All intragroup balances and transactions, including income, expenses, dividends and unrealized gainson transactions between the Group members are eliminated in full; unrealized losses are also eliminated unless thetransaction provides evidence of an impairment of the asset transferred. Where necessary, accounting policies forsubsidiaries have been changed to ensure consistency with the accounting policies adopted by the Group.Acquisition of subsidiariesThe acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. Identifiableassets acquired and liabilities assumed, including contingent liabilities, which are a present obligation and can bemeasured reliably, are measured initially at their fair values at the acquisition date, irrespective of the extent of anynon-controlling interest.The excess of the aggregate of: i) purchase consideration paid, ii) the amount of any non-controlling interest in theacquiree and iii) acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree (in case ofthe business combination achieved in stages), over the fair value of the acquiree’s identifiable net assets is recordedas goodwill. If the result of above calculation is negative, the difference is recognized directly in the income statement.Non-controlling interest is the interest in subsidiaries not attributable, directly or indirectly to the Group. The Groupmeasures non-controlling interest that represents present ownership interest and entitles the holder to a proportionateshare of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) thenon-controlling interest's proportionate share of net assets of the acquiree. This choice is made by the acquirer foreach business combination. Non-controlling interests that are not present ownership interests are measured at fairvalue. Non-controlling interest at the subsequent reporting date represents the initially recognized amount of noncontrollinginterest at the acquisition date and the non-controlling interest's portion of movements in comprehensiveincome and equity since the date of the combination. Non-controlling interest is presented as a separate componentwithin the Group's equity except for the non-controlling interests in mutual funds under the Group’s control, which areaccounted for within Group’s liabilities.In a business combination achieved in stages, the acquirer has to remeasure its previously held equity interest in theacquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss. Acquisitionrelatedcosts should be accounted for separately from the business combination and therefore recognized asexpenses rather than included in goodwill. An acquirer has to recognize at the acquisition date a liability for anycontingent purchase consideration. The Group has early adopted revised IFRS 3 and IAS 27 from 1 January 2009.Increases in ownership interests in subsidiariesThe differences between the carrying values of net assets attributable to interests in subsidiaries acquired and theconsideration given for such increases are charged or credited directly to retained earnings as a capital transaction.Investments in associates and joint venturesAssociates are entities, in which the Group generally has between 20% and 50% of the voting rights, or is otherwiseable to exercise significant influence, but which it does not control or jointly control. Investments in associates areaccounted for under the equity method and are initially recognized at cost, including goodwill. Subsequent changes inthe carrying value reflect the post-acquisition changes in the Group’s share of net assets of the associate andaccumulated goodwill impairment losses, if any. The Group’s share of its associates’ profits or losses is recognized inthe income statement, and its share of other comprehensive income is recognized in other comprehensive income ofthe Group. However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate,the Group does not recognize further losses, unless the Group is obliged to make further payments to, or on behalfof, the associate.Profits and losses from transactions between the Group and its associates are eliminated to the extent of the Group'sinterest in the associates.A joint venture exists where the Group has a contractual arrangement with one or more parties to undertake activitiestypically, however not necessarily, through entities that are subject to joint control. The Group recognizes interests ina jointly controlled entity using the equity method and applies the same accounting policies as those for investmentsin associates.12

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Investments in associates and joint ventures (continued)Venture Capital InvestmentsInvestments in companies that are managed as part of the Group’s investment portfolio of securities at fair valuethrough profit and loss and over which the Group may have significant influence are carried at fair value as permittedby IAS 28 which requires investments in associates that are held by venture capital organizations to be excluded fromthe scope of IAS 28 if these investments are designated upon initial recognition as at fair value through profit or lossor are classified as held for trading and accounted in accordance with IAS 39. These venture capital investments ofthe Group are classified as financial assets designated as at fair value through profit or loss and accountedaccordingly as described below.Financial assetsInitial recognition of financial assetsWhen financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not atfair value through profit or loss, directly attributable transaction costs. The Group determines the classification of itsfinancial assets at initial recognition and subsequently can reclassify financial assets in certain cases as describedbelow.Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is onlyrecorded if there is a difference between fair value and transaction price which can be evidenced by other observablecurrent market transactions in the same instrument or by a valuation technique whose inputs include only data fromobservable markets.The Group uses valuation techniques, which are based on discounted cash flow models and other pricing models, todetermine the fair value of financial assets that are not traded in an active market. For such assets differences mayarise between the fair value at initial recognition, which is considered to be the transaction price, and the amountdetermined at initial recognition using the valuation technique. Any such differences are not recognized as “day 1”gain or loss but rather are amortized on a straight line basis over the term of the relevant financial asset.Classification and reclassification of financial assetsFinancial assets in the scope of IAS 32 and IAS 39 are classified as either financial assets at fair value through profitor loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate.Financial assets at fair value through profit or loss:(a)Financial assets held for tradingFinancial assets classified as held for trading are included in the category ‘financial assets at fair value through profitor loss’. Financial assets are classified as held for trading if they are acquired or generated for the purpose of sellingin the near term. Derivatives are also classified as held for trading unless they are designated as and are effectivehedging instruments. Gains or losses on financial assets held for trading are recognized in the income statement.Financial assets held for trading, are either acquired for generating a profit from short-term fluctuations in price ortrader’s margin, or are securities included in a portfolio, in which a pattern of short-term trading exists. The Groupmay choose to reclassify a non-derivative trading financial asset out of the fair value through profit or loss category ifthe asset is no longer held for the purpose of selling it in the near term. Financial assets other than loans andreceivables are permitted to be reclassified out of fair value through profit or loss category only in rare circumstancesarising from a single event that is unusual and highly unlikely to reoccur in the near term. Financial assets classifiedas trading financial assets that would have met the definition of loans and receivables may be reclassified if theGroup has the intention and ability to hold these financial assets for the foreseeable future or until maturity.Non-derivative trading financial assets are carried at fair value. Interest earned on non-derivative debt tradingfinancial assets calculated using the effective interest method is presented in the income statement as interestincome. Dividends are included in dividend income within other operating income when the Group’s right to receivethe dividend payment is established. All elements of the changes in the fair value are recorded in the incomestatement as gains less losses from financial assets at fair value through profit or loss in the period, in which theyarise.13

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Financial assets (continued)(b)Financial assets designated as at fair value through profit or lossOther financial assets at fair value through profit or loss are those designated irrevocably, at initial recognition, intothis category. Management designates financial assets into this category only if (a) such classification eliminates orsignificantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities orrecognizing the gains and losses on them on different bases; or (b) a group of financial assets, financial liabilities orboth is managed and its performance is evaluated on a fair value basis, in accordance with a documented riskmanagement or investment strategy, and information on that basis is regularly provided to and reviewed by theGroup’s key management personnel as defined in IAS 24. Recognition and measurement of this category of financialassets is consistent with the above policy for trading securities and is in accordance with IAS 39.The fair value of investments that are actively traded in organized financial markets is determined by reference toquoted market bid prices at the close of business on the reporting date. For investments where there is no activemarket, fair value is determined using valuation techniques. Such techniques include using recent arm’s lengthmarket transactions, reference to the current market value of another instrument, which is substantially the same,discounted cash flow (net present value) analysis, option pricing models and other relevant valuation models.Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted inan active market and not classified or designated as at fair value through profit or loss upon initial recognition. Suchassets are carried at amortized cost using the effective interest method. This cost is computed as the amount initiallyrecognized minus principal repayments, plus or minus the cumulative amortization using the effective interest methodof any difference between the initially recognized amount and the maturity amount. This calculation includes all feesand points paid or received between parties to the contract that are an integral part of the effective interest rate,transaction costs and all other premiums and discounts. Gains and losses are recognized in the income statementwhen the loans and receivables are derecognized or impaired, as well as through the amortization process.Loans and receivables of acquired subsidiaries are initially recorded in the statement of financial position at theirestimated fair value at the date of acquisition.The Group may change the intention of holding certain loans and receivables for foreseeable future and intend to sellthese items. In the above case the Group reclassifies these specific items from loans and receivables to available-forsalefinancial assets. These reclassified assets are measured at fair value through other comprehensive income.Held-to-maturity investmentsQuoted non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as heldto-maturitywhen the Group has the positive intention and ability to hold to maturity. Investments intended to be heldfor an undefined period are not included in this category. Held-to-maturity investments are subsequently measured atamortized cost. For investments carried at amortized cost, gains and losses are recognized in the income statementwhen the investments are disposed or impaired, as well as through the amortization process.Held-to-maturity investments of acquired subsidiaries are initially recorded in the statement of financial position attheir estimated fair value at the date of acquisition.Available-for-sale financial assetsAvailable-for-sale financial assets are those non-derivative financial assets that are designated as available-for-saleor are not classified in any of the three preceding categories. After initial recognition available-for-sale financial assetsare measured at fair value with gains or losses being recognized in other comprehensive income in a separatecomponent of equity until the investment is derecognized or until the investment is determined to be impaired.However, interest calculated using the effective interest method is recognized in the income statement.When the Group derecognizes available-for sale financial assets, the Group reclassifies the cumulative gain or losspreviously recognized in other comprehensive income in a separate component of equity to a separate line in theincome statement.If there is objective evidence that available-for-sale financial asset is impaired the cumulative loss previouslyrecognized in other comprehensive income being the difference between the acquisition cost and the current fairvalue (less any impairment loss on that asset previously recognized in income statement) – is reclassified from equityto the income statement.14

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Financial assets (continued)The fair value of investments that are actively traded in active financial markets is determined by reference to quotedcurrent bid prices. For investments where there is no active market, fair value is determined using valuationtechniques. Such techniques include using recent arm’s length market transactions, reference to the current marketvalue of another instrument, which is substantially the same, and discounted cash flow analysis.Financial assets classified as available-for-sale that would have met the definition of loans and receivables may bereclassified if the Group has the intention and ability to hold these financial assets for the foreseeable future or untilmaturity.Derecognition of financial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) isderecognized where:the rights to receive cash flows from the asset have expired; orthe Group has transferred its rights to receive cash flows from the asset, or retained the right to receive cashflows from the asset, but has assumed an obligation to pay them in full without material delay to a third partyunder a ‘pass-through’ arrangement and has no obligation to pay amounts to eventual recipients unless itcollects equivalent amounts from the original assets. The Group either (a) has transferred substantially all therisks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks andrewards of the asset, but has transferred control of the asset.Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred norretained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset isrecognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes theform of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the assetand the maximum amount of consideration that the Group could be required to repay.Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option orsimilar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of thetransferred asset that the Group may repurchase, except that in the case of a written put option (including a cashsettledoption or similar provision) on an asset measured at fair value, the extent of the Group’s continuinginvolvement is limited to the lower of the fair value of the transferred asset and the option exercise price.Restructuring of financial assetsThe Group from time to time may restructure some of its financial assets. This mostly relates to loans andreceivables. The accounting treatment of such restructuring is conducted in the following basic scenarios:If the currency of the loan has been changed the old loan is derecognized and the new loan is recognized. Asa result the new loan will be recognized which requires the estimation of a new effective interest rate. If thenew effective interest rate is below the market interest rate, the loss on initial recognition is recognized in thereporting period.If the loan restructuring is not caused by the financial difficulties of the borrower but the cash flows wererenegotiated on the favorable terms for the borrower: in this case the loan is not recognized as impaired. Theloan is not derecognized but the new effective interest rate is determined based on the remaining cash flowsunder the loan agreement till maturity. If the new effective interest rate is below the market rate at the date ofrestructuring, the new carrying amount is calculated as the fair value of the loan after restructuring, being thepresent value of the future cash flows discounted using the market rate at the date of restructuring. In thiscase, the difference between the carrying amount before restructuring and the fair value of the loan afterrestructuring is recognized as a loss on loan restructuring.If the loan is impaired after being restructured, the Group uses the original effective interest rate in respect ofthe new cash flows after renegotiation to estimate the recoverable amount of the loan. The difference betweenthe recalculated present value of the new cash flows taking into account collateral and the carrying amountbefore restructuring is included in the provision charges for debt financial assets for the period.Securitization of financial assetsAs part of its operational activities, the Group securitizes financial assets, generally through the transfer of these assetsto special purpose entities that issue debt securities to investors. The transferred securitized assets may qualify forderecognition in full or in part. Interests in the securitized financial assets may be retained by the Group and are primarilyclassified as loans to customers. Gains or losses on securitizations are based on the carrying amount of the financialassets derecognized and the retained interest, based on their relative fair values at the date of transfer.15

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Financial liabilitiesFinancial liabilities in the scope of IAS 32 and IAS 39 are classified as either financial liabilities at fair value throughprofit or loss, or other financial liabilities, as appropriate. The Group determines the classification of its financialliabilities at initial recognition. When financial liabilities are recognized initially, they are measured at fair value, minus,in the case of financial liabilities not at fair value through profit or loss, directly attributable transaction costs. Otherfinancial liabilities are carried at amortized cost using the effective interest rate method.Financial liabilities of acquired subsidiaries are initially recorded in the statement of financial position at theirestimated fair value at the date of acquisition.Financial liabilities are classified as financial liabilities at fair value through profit or loss if they are issued for thepurpose of repurchasing them in the near term. They normally contain trade financial liabilities or "short" positions insecurities. Derivatives with negative fair value are also classified as financial liabilities at fair value through profit orloss. Gains or losses on financial liabilities at fair value through profit or loss are recognized in the income statement.The fair value of financial liabilities, classified as financial liabilities at fair value through profit or loss, that are activelytraded in organized financial markets is determined by reference to quoted current ask prices. For financial liabilitiesclassified as financial liabilities at fair value through profit or loss, where there is no active market, fair value isdetermined using valuation techniques. Such techniques include using recent arm’s length market transactions,reference to the current market value of another instrument, which is substantially the same, discounted cash flow(net present value) analysis, option pricing models and other relevant valuation models.Derecognition of financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Wherean existing financial liability is replaced by another from the same creditor on substantially different terms, or theterms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognitionof the original liability and the recognition of a new liability, and the difference in the respective carrying amounts isrecognized in the income statement.When a financial liability is repurchased (bought-back) by a certain Group member, it is derecognized. The differencebetween the carrying value (amortized cost) of a financial liability as of the date of buy-back and the considerationpaid is recognized in the income statement as the gain or loss arising from extinguishment of liability.OffsettingFinancial assets and liabilities are offset and the net amount is reported in the statement of financial position whenthere is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis,or to realize the asset and settle the liability simultaneously.Cash and cash equivalentsCash and cash equivalents are items, which can be converted into cash within a day. All short-term interbankplacements, including overnight placements, are included in due from other banks. Amounts, which relate to fundsthat are of a restricted nature, and correspondent accounts in precious metals are excluded from cash and cashequivalents. Cash and cash equivalents are carried at amortized cost, which approximates fair value.Mandatory reserve deposits with central banksMandatory reserve deposits with the CBR and other central banks are carried at amortized cost and represent noninterestbearing deposits, which are not available to finance the Group’s day-to-day operations and hence are notconsidered as part of cash and cash equivalents for the purposes of the statement of cash flows.Due from other banksAmounts due from other banks are recorded when the Group advances money to counterparty banks with nointention of trading the resulting receivable, which is due on fixed or determinable dates. Amounts due from otherbanks are carried at amortized cost less allowance for impairment.16

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Repurchase and reverse repurchase agreements and lending of financial instrumentsSale and repurchase agreements (“repo agreements”) are treated as secured financing transactions. Securities orother financial assets sold under sale and repurchase agreements are not derecognized. The financial assets are notreclassified in the statement of financial position unless the transferee has the right by contract or custom to sell orrepledge the financial assets, in which case they are reclassified as financial assets pledged under sale andrepurchase agreements (repurchase receivables). The corresponding liability is presented within customer deposits,amounts due to other banks or other borrowed funds.Financial assets purchased under agreements to resell (“reverse repo agreements”) are recorded as due from otherbanks or loans and advances to customers, as appropriate.The difference between the sale and repurchase price is treated as interest income/expense and accrued over the lifeof repo agreements using the effective interest method.Financial assets lent to counterparties are retained in the financial statements in their original statement of financialposition category unless the counterparty has the right by contract or custom to sell or repledge the financial assets,in which case they are reclassified and presented separately.Financial assets borrowed are not recorded in the financial statements, unless these are sold to third parties, in whichcase obligation to return the financial assets (“short position”) is recorded at fair value through profit or loss in otherliabilities in the statement of financial position. The revaluation of this obligation is recorded in the income statementwithin gains less losses arising from financial instruments at fair value through profit or loss.Derivative financial instrumentsIn the normal course of business, the Group enters into various derivative financial instruments including futures,forwards, swaps and options and other instruments in the foreign exchange, capital and commodities markets. Suchfinancial instruments are primarily held for trading and are initially recognized in accordance with the policy for initialrecognition of financial instruments and are subsequently measured at fair value. The fair values are estimated basedon quoted market prices or pricing models that take into account the current market and contractual prices of theunderlying instruments and other factors. Derivatives are carried as assets when their fair value is positive and asliabilities when it is negative. Gains and losses resulting from these instruments are included in the income statementas gains less losses arising from financial instruments at fair value through profit or loss or gains less losses arisingfrom dealing in foreign currencies, depending on the nature of the instrument.An embedded derivative is a component of a hybrid (combined) financial instrument that includes both the derivativeand a host contract with the effect that some of the cash flows of the combined instrument vary in a similar way to astand-alone derivative. Derivative instruments embedded in other financial instruments are treated as separatederivatives if their risks and characteristics are not closely related to those of the host contracts and the host contractsare not carried at fair value with unrealized gains and losses reported in the income statement.Hedge accountingThe Group uses derivative instruments to manage exposures to fluctuations both of cash flows from interest receivedand paid, and of fair values for specifically determined items. As a result, the Group applies hedge accounting fortransactions, which meet the specified criteria.As at inception of the hedge relationship, the Group formally documents the relationship between the hedged itemand the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge andthe method that will be used to assess the effectiveness of the hedging relationship.Also at the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrumentis expected to be highly effective in offsetting the designated risk in the hedged item. Hedges are formally assessedeach quarter. A hedge is regarded as highly effective if the changes in fair value or cash flows attributable to thehedged risk during the period, for which the hedge is designated, are expected to offset in a range of 80% to 125%.For situations where that hedged item is a forecast transaction, the Group assesses whether the transaction is highlyprobable and presents an exposure to variations in cash flows that could ultimately affect the income statement.Fair value hedgesFor designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognized inthe income statement within “Gains less losses arising from financial instruments at fair value through profit or loss”caption. Meanwhile, the change in the fair value of the hedged item attributable to the risk being hedged is recordedas part of the carrying value of the hedged item and is also recognized in the income statement in “Gains less lossesarising from financial instruments at fair value through profit or loss” caption.17

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Derivative financial instruments (continued)If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteriafor hedge accounting, the hedge relationship is terminated. For hedged items recorded at amortized cost, using theeffective interest rate method, the difference between the carrying value of the hedged item on termination and theface value is amortized over the remaining term of the original hedge. If the hedged item is derecognized, theunamortized fair value adjustment is recognized immediately in the income statement.Cash flow hedgesFor designated and qualifying cash flow hedges, the effective portion of the gain or loss on the hedging instrument isinitially recognized through other comprehensive income directly in equity in the cash flow hedge reserve within“Unrealized gain on financial assets available-for-sale and cash flow hedge” caption. The ineffective portion of thegain or loss on the hedging instrument is recognized immediately in the income statement in “Gains less lossesarising from financial instruments at fair value through profit or loss”.When the hedged cash flow affects the income statement, the gain or loss on the hedging instrument is “recycled” inthe corresponding income or expense line of the income statement. When a hedging instrument expires, or is sold,terminated, exercised, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain orloss existing in equity at that time remains separately in equity until the forecast transaction occurs. When a forecasttransaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediatelytransferred to the income statement in “Gains less losses arising from financial instruments at fair value through profitor loss”.Regular way transactionsRegular way transactions are purchases or sales of financial assets that require delivery of assets within the periodgenerally established by regulation or convention in the marketplace. All regular way purchases and sales of financialassets are recognized or derecognized on the contractual settlement date which is the date when the asset is to bedelivered to or by the Group. Regular way transactions are not recognized as derivatives because of the shortduration of the commitment to deliver financial assets between the trade and settlement date.Any change in the fair value of the financial assets at fair value through profit or loss to be received during the periodbetween the trade date and the settlement date is recognized in the income statement and for financial assetsavailable for sale is recognized in other comprehensive income for financial assets purchased. For financial assetssold on a regular way basis no changes in fair value are recognized in the income statement or in othercomprehensive income between the trade and settlement date. Assets carried at cost or amortized cost are notaffected by the change in fair value during the period between the trade and settlement date.Promissory notes purchasedPromissory notes purchased are included in financial assets at fair value through profit or loss or in due from otherbanks or in loans and advances to customers or in investment securities held-to-maturity, depending on theirsubstance and are recorded, subsequently remeasured and accounted for in accordance with the accounting policiesfor these categories of assets.LeasesFinance lease – Group as lessor. The Group presents leased assets as lease receivables equal to the netinvestment in the lease in loans and advances to customers. Finance income is based on a pattern reflecting aconstant periodic rate of return on the net investment outstanding and is presented as interest income. Initial directcosts are included in the initial measurement of the lease receivables.Operating lease – Group as lessee. Leases of assets, under which the risks and rewards of ownership areeffectively retained with the lessor, are classified as operating leases. Lease payments under operating leases arerecognized as expenses on a straight-line basis over the lease term and included into operating expenses.Allowances for impairment of financial assetsImpairment of financial assets carried at amortized costImpairment losses are recognized in profit or loss when incurred as a result of one or more events (“loss events”) thatoccurred after the initial recognition of the financial asset and which have an impact on the amount or timing of theestimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Groupdetermines that no objective evidence exists that impairment was incurred for an individually assessed financial asset,whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics andcollectively assesses them for impairment. The primary factors that the Group considers in determining whether afinancial asset is impaired include its overdue status and realizability of related collateral, if any.18

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Allowances for impairment of financial assets (continued)For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar creditrisk characteristics within classification categories. Those characteristics are relevant to the estimation of future cashflows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to thecontractual terms of the assets being evaluated.Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on thebasis of the contractual cash flows of the assets and the experience of management in respect of the extent, to whichamounts will become overdue as a result of past loss events and the success of recovery of overdue amounts. Pastexperience is adjusted on the basis of current observable data to reflect the effects of current conditions that did notaffect past periods and to remove the effects of past conditions that do not exist currently.Impairment losses are recognized through an allowance account to reduce the asset’s carrying amount to the presentvalue of expected cash flows (which exclude future credit losses that have not been incurred) discounted at theeffective interest rate of the asset. The calculation of the present value of the estimated future cash flows of acollateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining andselling the collateral, whether or not foreclosure is probable.If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectivelyto an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), thepreviously recognized impairment loss is reversed by adjusting the allowance account through profit or loss, to theextent that the carrying value of the asset does not exceed its amortized cost at the reversal date.Uncollectible assets are written-off against the related allowance for impairment after all the necessary procedures torecover the asset have been completed and the amount of the loss has been determined.Impairment of available-for-sale financial assetsIf an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principalpayment and amortization) and its current fair value, less any impairment loss previously recognized in the incomestatement, is transferred from equity to the income statement. Reversals in respect of equity instruments classified asavailable-for-sale are not recognized in the income statement, but are rather retained in other comprehensive incomein a separate component of equity. Reversals of impairment losses on debt instruments are reversed through theincome statement if the increase in fair value of the instrument can be objectively related to an event occurring afterthe impairment loss was recognized in profit or loss. A significant or prolonged decline in the fair value of an equityinstrument classified as available-for-sale below its cost is also objective evidence of impairment of this instrument.Non-current assets and disposal group held for saleNon-current assets (or disposal groups, which may include both non-current and current assets and liabilities) , areclassified in the statement of financial position as ‘non-current assets held for sale’ (or as ‘assets of disposal groupheld for sale’ and ‘liabilities of disposal group held for sale’) if their carrying amount will be recovered principallythrough a sale transaction, including deconsolidation of a subsidiary holding the assets, within twelve months after theend of the reporting period. Assets (or disposal groups) are reclassified when all of the following conditions are met:(a) the assets are available for immediate sale in their present condition; (b) the Group’s management approved andinitiated an active programme to locate a buyer; (c) the assets are actively marketed for a sale at a reasonable price;(d) the sale is expected to occur within one year and (e) it is unlikely that significant changes to the plan to sell will bemade or that the plan will be withdrawn. Non-current assets or disposal groups classified as held for sale in thecurrent period’s statement of financial position are not reclassified or re-presented in the comparative statement offinancial position to reflect the classification at the end of the current period.A disposal group represent assets current and/or non-current assets to be disposed of, by sale or otherwise, togetheras a group in a single transaction, and liabilities directly associated with those assets that will also be transferred inthe transaction. Goodwill is included if the disposal group includes an operation within a cash-generating unit to whichgoodwill has been allocated on acquisition. Non-current assets are assets that include amounts expected to berecovered or collected more than twelve months after the end of the reporting period. If reclassification is required,both the current and non-current portions of an asset are reclassified.Held for sale disposal groups as a whole are measured at the lower of their carrying amount and fair value less coststo sell. Held for sale premises and equipment and intangible assets are not depreciated or amortised.Reclassified financial instruments, deferred taxes and investment properties held at fair value are not subject to thewrite down to the lower of their carrying amount and fair value less costs to sell. Reclassified financial instruments,deferred taxes and investment properties held at fair value shall be remeasured in accordance with applicable IFRSsbefore the fair value less cost to sell of the disposal group is remeasured.Liabilities directly associated with disposal groups that will be transferred in the disposal transaction are reclassifiedand presented separately in the statement of financial position.19

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Investment propertyInvestment property is land or building or a part of building held to earn rental income or for capital appreciation andwhich is not used by the Group or held for the sale in the ordinary course of business. Property that is being constructedor developed or redeveloped for future use as investment property is also classified as investment property.Investment property is initially recognized at cost, including transaction costs, and subsequently remeasured at fair valuereflecting market conditions at the end of the reporting period. Fair value of the Group’s investment property is determinedon the base of various sources including reports of independent appraisers, who hold a recognized and relevantprofessional qualification and who have recent experience in valuation of property of similar location and category.Investment property that is being redeveloped for continuing use as investment property or for which the market hasbecome less active continues to be measured at fair value. Earned rental income is recorded in the income statementwithin income arising from non-banking activities. Gains and losses resulting from changes in the fair value ofinvestment property are recorded in the income statement and presented within income or expense arising from nonbankingactivities.Subsequent expenditure is capitalized only when it is probable that future economic benefits associated with it willflow to the Group and the cost can be measured reliably. All other repairs and maintenance costs are expensed whenincurred. If an investment property becomes owner-occupied, it is reclassified to premises and equipment, and itscarrying amount at the date of reclassification becomes its deemed cost to be subsequently depreciated.Premises and equipmentPremises and equipment are stated at revalued amounts and cost, respectively, less accumulated depreciation andallowance for impairment where required. Land is stated at revalued amounts. Land has indefinite term of usage and,therefore, is not depreciable. Where the carrying amount of an asset is greater than its estimated recoverableamount, it is written down to its recoverable amount and the difference is recognized in the income statement. Theestimated recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use.Land, premises and equipment of acquired subsidiaries are initially recorded in the statement of financial position attheir estimated fair value at the date of acquisition. No accumulated depreciation on the premises and equipmentacquired in the business combinations is presented in the financial statements on the date of acquisition.Land and premises of the Group are subject to revaluation on a regular basis, approximately every three to five years.The frequency of revaluation depends upon the change in the fair values. When the fair value of a revalued assetdiffers materially from its carrying amount further revaluation is performed. The revaluation is applied simultaneouslyto the whole class of property to avoid selective revaluation.Any revaluation surplus is credited to the other comprehensive income and increases land and premises revaluationreserve which is a separate equity section of the statement of financial position, except to the extent that it reversesan impairment of the same asset previously recognized in the income statement, in which case the increase isrecognized in the income statement. A revaluation deficit is recognized in the income statement, except for the deficitdirectly offsetting a previous surplus on the same asset is directly offset against the surplus in the asset revaluationreserve for land and premises.The land and premises revaluation reserve included in equity is transferred directly to retained earnings when thesurplus is realized, i.e. on the retirement or disposal of the asset or as the asset is used by the Group; in the lattercase, the amount of the surplus realized is the difference between depreciation based on the revalued carryingamount of the asset and depreciation based on the asset’s original cost.Land and premises were revalued to market value at 31 December 2009. The revaluation was performed based onthe reports of independent appraisers, who hold a recognized and relevant professional qualification and who haverecent experience in valuation of assets of similar location and category. As at 31 December 2011 and 2010 theGroup has not performed revaluation of land and premises as the fair value of these assets did not differ materiallyfrom their carrying amounts.Construction in progress is carried at cost less allowance for impairment, if any. Upon completion, assets aretransferred to premises and equipment at their carrying value. Construction in progress is not depreciated until theasset is available for use.If impaired, land, premises and equipment are written down to the higher of their value in use and fair value less coststo sell.The decrease in carrying amount is charged to income statement to the extent it exceeds the previous revaluationsurplus in equity. An impairment loss recognized for an asset in prior years is reversed if there has been a change inthe estimates used to determine the asset’s value in use or fair value less costs to sell.20

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Premises and equipment (continued)Gains and losses on disposal of land, premises and equipment are determined by reference to their carrying amountand are taken into account in determining profit or loss. Repairs and maintenance are charged to the incomestatement when the expense is incurred.DepreciationDepreciation is recognized on a straight-line basis over the estimated useful lives of the assets using the followingbasic annual rates:Useful life Depreciation ratesPremises 40 years 2.5% per annumEquipment 4 – 20 years 5% – 25% per annumEstimated useful lives and residual values are reassessed annually.GoodwillGoodwill acquired in a business combination represents the future economic benefits arising from other assetsacquired in a business combination that are not individually identified and separately recognized and is calculated asthe excess of (a) over (b) below:(a)(b)the aggregate of:the consideration transferred, which generally requires acquisition-date fair value;the amount of any non-controlling interest in the acquiree; andin a business combination achieved in stages, the acquisition-date fair value of the acquirer’spreviously held equity interest in the acquiree.the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.If the above resulting amount is negative, the acquirer has made a gain from a bargain purchase that gain isrecognized in profit or loss.The revised IFRS 3 allows the acquirer to measure any non-controlling interests, which are present ownershipinterests in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’sidentifiable net assets for each business combination. This results in different amount of goodwill or gain from bargainpurchase to be recognized in financial statements depending on the choice of the acquirer.Goodwill on an acquisition of a subsidiary is disclosed in the caption “Intangible assets and goodwill” of the statementof financial position. Goodwill on an acquisition of an associate or joint venture is included in the carrying amount ofinvestments in associates and joint ventures. Following initial recognition, goodwill is measured at cost less anyaccumulated impairment losses, if any.Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate thatthe carrying amount may be impaired. For the purpose of impairment testing, goodwill acquired in a businesscombination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cashgeneratingunits, that are expected to benefit from the synergies of the combination, irrespective of whether otherassets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units, to whichthe goodwill is so allocated:represents the lowest level within the Group, at which the goodwill is monitored for internal managementpurposes; andis not larger than an operating segment in accordance with IFRS 8 “Operating Segments” before aggregation.Impairment of goodwill is determined by assessing the recoverable amount of the cash-generating unit (group ofcash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit(group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. Where goodwillforms a part of a cash-generating unit (group of cash-generating units) and a part of the operation within that unit isdisposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operationwhen determining the gain or loss on disposal of the operation.Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of andthe portion of the cash-generating unit retained.21

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Intangible assetsIntangible assets include licenses, computer software, and other identifiable intangible assets, including thoseacquired in business combinations.Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assetsacquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangibleassets are carried at cost less any accumulated amortization and any accumulated impairment losses. The usefullives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortizedover the useful economic lives, which normally do not exceed 5 years, and assessed for impairment whenever thereis an indication that the intangible asset may be impaired. Amortization periods and amortization methods forintangible assets with finite useful lives are reviewed at least at each financial year-end.Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually or morefrequently if events or changes in circumstances indicate that the carrying amount may be impaired either individuallyor at the cash-generating unit level. The useful life of an intangible asset with an indefinite life is reviewed annually todetermine whether indefinite life assessment continues to be supportable.Core deposit and loan to customer intangiblesCore deposit and loan to customer intangibles relate to the acquisition of the Group’s subsidiaries and are attributableto the customer demand deposits, loans to customers, stable client base, are identified as an intangible assets. Theidentification is based on examination of the subsidiaries’ customer base. The core deposit intangible is recognized ifit was concluded that the acquired subsidiaries has a well-established and long-dated relationship with its majorcustomers and that demand deposits actual maturity was significantly longer than contract maturity. The loan tocustomer intangible is determined by applying income approach and calculated as discounted cash-flow from newloans to existing borrowers. The useful life of the core deposit and loan to customer intangibles was estimated fromfive to eight years and is amortized over its useful life using the straight-line method.Due to other banksAmounts due to other banks are recorded when money or other financial assets are advanced to the Group bycounterparty banks. The liability is carried at amortized cost using the effective interest method.Customer depositsCustomer deposits are liabilities to individuals, state or corporate customers and are carried at amortized cost usingthe effective interest method. Customer deposits include both demand and term deposits. Interest expense isrecognized in the income statement over the period of deposits using effective interest method.Debt securities issuedDebt securities issued include promissory notes, certificates of deposit, eurobonds and debentures issued by theGroup. Debt securities are stated at amortized cost using the effective interest method. If the Group purchases itsown debt securities in issue, they are removed from the statement of financial position and the difference between thecarrying amount of the liability the consideration paid is included in gains less losses arising from extinguishment ofliability in the income statement.Other borrowed fundsOther borrowed funds include some specific borrowings, which differ from the above items of liabilities and includesyndicated loans, revolving, other credit lines and other specific items. Other borrowed funds are carried at amortizedcost using the effective interest method. Interest expense is recognized in the income statement over the period ofother borrowed funds using effective interest method.Current and deferred taxTaxation has been provided for in the financial statements in accordance with taxation legislation currently in force inthe respective territories that the Group operates. The income tax charge in the income statement comprises currenttax and changes in deferred tax. Current tax is calculated on the basis of the taxable profit for the year, using the taxrates enacted at the reporting date. The income tax charge/credit comprises current tax and deferred tax and isrecognized in the income statement except if it is recognized through other comprehensive income directly in equitybecause it relates to transactions that are also recognized, in the same or a different period, directly in equity.Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxableprofits or losses for the current and prior periods. Taxable profits or losses are based on estimates if financialstatements are authorized prior to filing relevant tax returns. Taxes, other than on income, are recorded withinadministrative expenses.22

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Current and deferred tax (continued)Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporarydifferences arising between the tax bases of assets and liabilities and their carrying amounts for financial reportingpurposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporarydifferences on initial recognition of an asset or a liability in a transaction other than a business combination if thetransaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are notrecorded for temporary differences on initial recognition of goodwill and subsequently for goodwill, which is notdeductible for tax purposes. Deferred income tax is provided on temporary differences arising on investments insubsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can becontrolled and it is probable that the temporary difference will not reverse in the foreseeable future.Deferred tax balances are measured at tax rates enacted or substantively enacted by the reporting date, which areexpected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will beutilized. Deferred tax assets and liabilities are netted only within the individual companies of the Group, when anentity has a legally enforceable right to set off current tax assets against current tax liabilities; and the deferred taxassets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxableentity.Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extentthat it is probable that future taxable profit will be available, against which the deductions can be utilized.Provisions for liabilities and chargesProvisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are recordedwhen the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflowof resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of theamount of the obligation can be made.Credit related commitmentsIn the normal course of business, the Group enters into irrevocable credit related commitments, including letters ofcredit and guarantees. Financial guarantees represent irrevocable assurances to make payments in the event that acustomer cannot meet its obligations to third parties, and carry the same credit risk as loans. Financial guaranteecontracts are recognized initially at fair value and remeasured at the higher of the amount determined in accordancewith IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognized less, whenappropriate, cumulative amortization recognized in accordance with IAS 18 Revenue. Commitments to provide loansat a below-market interest rate are initially recognized at fair value, and subsequently measured at the higher of (i) theunamortized balance of the related fees received and deferred and (ii) the amount determined in accordance withIAS 37 Provisions, Contingent Liabilities and Contingent Assets. Specific provisions are recorded against creditrelated commitments when losses are considered more likely than not.Share premiumShare premium represents the excess of contributions over the nominal value of the shares issued.DividendsDividends are recorded as a separate debit caption in equity in the period, in which they are declared. Dividendsdeclared after the reporting date and before the financial statements are authorized for issue are disclosed in thesubsequent events note. The statutory accounting reports of the Bank are the basis for profit distribution and otherappropriations. Russian legislation identifies the basis of distribution as the current year net profit.Income and expense recognitionInterest income and expense are recognized on an accrual basis calculated using the effective interest method. Loanorigination fees for loans issued to customers are deferred (together with related incremental direct costs) andrecognized as an adjustment to the effective yield of the loans. Commission fees and other incremental direct costs,related to the issuance of debt securities and other borrowed funds are recognized as an adjustment to the effectiveyield of the relevant liability. Fees, commissions and other income and expense items are generally recorded on anaccrual basis when the service has been provided. Fee and commission income are usually collected by debitingcustomers deposits upon provision of services. Portfolio and other management advisory and service fees arerecorded based on the applicable service contracts. Asset management fees related to investment funds arerecorded over the period the service is provided. The same principle is applied for wealth management, financialplanning and custody services that are continuously provided over an extended period of time.23

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Staff costs and related contributionsThe Group’s contributions to the State and Group’s social insurance, and obligatory medical insurance funds inrespect of its employees are expensed as incurred and included in staff costs within staff costs and administrativeexpenses. The Group’s contributions to the State and Group pension schemes are included in defined contributionpension expense within staff costs and administrative expenses. Non-used vacations accrued amounts are alsoincluded in staff costs within staff costs and administrative expenses.The Group recognizes all actuarial gains and losses related to defined benefit plan directly in other comprehensiveincome.Inflation accountingIf an economy in which a Group’s subsidiary operates is considered to be hyperinflationary as defined by IAS 29Financial Reporting in Hyperinflationary Economies than this subsidiary applies IAS 29. The standard requires thatthe financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuringunit current at the reporting date.Foreign currency translationEach Group member determines its own functional currency and items included in the financial statements of eachentity are measured using that functional currency. Transactions in foreign currencies are initially recorded in thefunctional currency equivalent, translated at the rate of exchange ruling at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchangeruling at the reporting date. Gains and losses resulting from the translation of foreign currency transactions arerecognized in the income statement as foreign exchange translation gains less losses. Non-monetary items that aremeasured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates ofthe initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was determined.These financial statements are presented in Russian Roubles (RUR), the national currency of the RussianFederation, where the Bank is domiciled. As at the reporting date, the assets and liabilities of the entities, whosefunctional currency is different from the presentation currency of the Group and is not a currency of hyperinflationaryeconomy, are translated into RUR at the closing rate of exchange at the reporting date and, their income statementsare translated into RUR at the average exchange rates for the reporting period. The exchange differences arising onthe translation are recognized in other comprehensive income in a separate component of equity (“Currencytranslation difference”). If the entity’s functional is a currency of hyperinflationary economy, all amounts (assets,liabilities, equity items, income and expenses) of these entities are translated into RUR at the closing rate ofexchange at the reporting date; and, before applying this translation method, the entity restates its financialstatements in accordance with IAS 29 (see above “Inflation accounting”), except for comparative amounts that aretranslated into RUR. Differences which arise each period between the closing equity items of the previous year andthe opening equity items of the current year presented in RUR, are recognized as an “Effect of translation, net of tax”in other comprehensive income, as to the related equity items. The remaining exchange differences arising on theconsolidation are recognized in other comprehensive income in a separate component of equity (“Currencytranslation difference”).On disposal of a subsidiary or an associate or joint venture, whose functional currency is different from thepresentation currency of the Group, the deferred cumulative amount recognized in equity relating to that particularentity is reclassified to the income statement.As at 31 December 2011, the principal closing rate of exchange used for translating balances in USD to RussianRoubles was USD 1 to RUR 32.1961 (at 31 December 2010: USD 1 to RUR 30.4769), and the principal closing rateof exchange used for translating balances in Euro was EUR 1 to RUR 41.6714 (at 31 December 2010: EUR 1 toRUR 40.3331).Fiduciary assetsAssets held by the Group in its own name, but for the account of third parties, are not reported in the statement offinancial position. Commissions received from such operations are shown within fee and commission income in theincome statement.24

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Segment reportingAn operating segment is a distinguishable component of the Group that is engaged in business activities from which itmay earn revenues and incur expenses (including revenues and expenses relating to transactions with othercomponents of the same entity), whose operating results are regularly reviewed by the entity’s chief operatingdecision maker to make decisions about resources to be allocated to the segment and assess its performance, andfor which discrete financial information is available. Segments with a majority of revenue earned from sales toexternal customers and whose revenue, net profit (loss) or combined assets are ten percent or more of all thesegments are reported separately (reportable segments). The segments, that are below the above materialitythresholds, but can be aggregated on the basis of their activities, production processes, products or services, shouldbe tested for the meeting the criteria of reportable segments on these aggregated amounts.In accordance with IFRS 8 Operating Segments the Group defined as the operating segments its global businesslines. This segment disclosure is presented on the basis of IFRS compliant data of the global business lines andentities adjusted, where necessary, for intersegment reallocation.6. Significant Accounting Estimates and JudgementsThe key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, thathave a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the nextfinancial year are discussed below:The preparation of financial statements requires management to make estimates and assumptions that affectreported amounts. These estimates are based on information available as of the date of the financial statements.Actual results can differ significantly from such estimates.Allowance for impairment of loans, receivables and provision for commitments to provide loansThe Group reviews its loans and receivables and loan commitments for impairment on a regular basis. The Groupuses its experienced judgement to estimate the amount of any impairment loss in cases where a borrower is infinancial difficulties and sufficient historical data relating to similar borrowers is not available. Similarly, the Groupestimates changes in future cash flows based on observable data to obtain indication of any adverse change in thepayment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assetsin the group. Management uses estimates based on historical loss experience for assets with credit riskcharacteristics and objective evidence of impairment similar to those in the group of loans and receivables. TheGroup uses its experienced judgement to adjust observable data for a group of loans or receivables to reflect currentcircumstances.For the purposes of calculation of allowances and provisions for impairment of loans and commitments to provideloans at 31 December 2011 and 2010, the Bank applied the internally approved formalized provisioning methodologyfor loans and commitments to provide loans with signs of individual impairment and collectively assessed loans onportfolio basis with no signs of individual impairment and similar credit risk characteristics.Impairment of goodwillThe Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of thevalue in use or fair value less cost to sell of the cash-generating units, to which goodwill is allocated. Estimating thevalue in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unitand also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carryingamount of goodwill at 31 December 2011 was RUR 104.7 billion (31 December 2010: RUR 19.9 billion) (Note 17).Impairment of investments in associatesThe Group performs impairment review for its investments in associates where indication of impairment exists at thereporting date. The recoverable amount of investments is determined as their fair value less costs to sell. When theGroup’s investments are not quoted in active markets, their fair values are determined using various valuationmethods, including valuation multiples and discounted cash flow techniques.Existence of significant influence in other entitiesThe Group may have voting rights in other entities approaching to but lower than 20%. In assessing whether theGroup has significant influence over such entities, judgment is exercised to determine whether the Group had thepower to participate in the financial and operating policy decisions of the investee. The Group’s investments in thoseentities where the Group has significant influence are detailed in Note 13.25

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)6. Significant Accounting Estimates and Judgements (continued)TaxationRussian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occurfrequently, unexpectedly and with retroactive effect. Further, the provisions of Russian tax law applicable to financialinstruments (including derivative transactions) are subject to significant uncertainty and lack interpretive guidance.Management's interpretation of such legislation as applied to the transactions and activity of the Group may bechallenged by the relevant regional and federal authorities. Trends within the Russian Federation suggest that the taxauthorities are taking a more assertive position in their interpretation of the legislation and assessments and, as aresult, it is possible that transactions and activities that have not been challenged in the past may be challenged. Assuch, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review bythe authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstancesreviews may cover longer periods. (Note 36)Consolidation of fundsThe Group consolidates mutual funds considering the following key factors for each fund:whether the share owned by the Group provides control over the fund’s activities giving the Group the ability tochange the fund-management company, orwhether the Group’s control over the management company provides control over the fund’s activities givingthe Group the ability to retain the controlled fund-management company.Fair value estimation of unquoted sharesDetails of fair value estimation of unquoted shares, classified as financial assets at fair value through profit or lossand financial assets available-for-sale are provided in Note 39. Assessment of significance of particular fair valuemeasurement input requires management judgment and is disclosed in Note 39.7. Cash and Short-Term Funds31 December201131 December2010Cash on hand 104.3 70.1Cash balances with central banks (other than mandatory reserve deposits) 197.1 105.9Correspondent accounts with other banks- Russian Federation 31.2 18.4- Other countries 74.4 81.1Total cash and short-term funds 407.0 275.5Less: correspondent accounts in precious metals (8.4) (1.6)Less: restricted cash (1.1) (1.1)Total cash and cash equivalents 397.5 272.8Restricted cash balances represent the balances in the amount of RUR 1.1 billion (31 December 2010:RUR 1.1 billion) under legal restrictions. Restricted cash balances were collateralized by amounts due to customersand banks in the amount of RUR 1.0 billion (31 December 2010: RUR 1.1 billion). For the purposes of theconsolidated statement of cash flows cash represented by restricted cash and correspondent accounts in preciousmetals are not included in cash and cash equivalents.8. Financial Assets at Fair Value Through Profit or Loss31 December201131 December2010Financial assets held for trading 540.7 320.0Financial assets designated as at fair value through profit or loss 30.8 24.6Total financial assets at fair value through profit or loss 571.5 344.626

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)8. Financial Assets at Fair Value Through Profit or Loss (continued)The financial assets designated as at fair value through profit or loss are managed on a fair value basis, inaccordance with the risk management or investment strategies adopted by each Group member and the informationprovided to key management personnel.Financial assets held for trading31 December201131 December2010Debt securities denominated in USDEurobonds of Russian companies and banks 33.4 16.1Bonds and eurobonds of foreign governments 16.0 5.1Bonds and eurobonds of foreign companies and banks 13.6 13.0Eurobonds of the Russian Federation 1.4 1.4Debt securities denominated in RURBonds of Russian companies and banks 200.0 129.1Russian Federal loan bonds (OFZ) 55.6 18.7Russian municipal bonds 4.1 2.8Promissory notes of Russian companies and banks 3.3 0.1Bonds of foreign governments 0.7 –Eurobonds of foreign companies and banks 0.4 0.3Bonds of the Central Bank of the Russian Federation – 14.4Debt securities denominated in other currenciesBonds of foreign governments 4.5 3.5Bonds and eurobonds of foreign companies and banks 2.3 0.8Eurobonds of Russian companies and banks 1.1 0.2Russian municipal bonds 0.5 –Equity securities 124.9 75.6Balances arising from derivative financial instruments (Note 36) 78.9 38.9Total financial assets held for trading 540.7 320.0As at 31 December 2011 bonds of Russian companies and banks are mostly represented by debt securities issuedby Russian oil and gas companies, banks, transportation and telecommunication companies.As at 31 December 2011 equity securities are represented by securities issued by Russian banks, oil and gascompanies and metal companies.Financial assets designated as at fair value through profit or loss31 December201131 December2010Equity securities 11.0 6.7Bonds of foreign companies and banks 10.9 8.4Bonds and eurobonds of Russian companies and banks 7.5 4.6Bonds of foreign governments 1.4 4.9Total financial assets designated as at fair value through profit or loss 30.8 24.6As at 31 December 2011 Financial assets at fair value through profit or loss include the amount of RUR 1.4 billionwhich is pledged against amounts due to other banks (Note 20) (31 December 2010: RUR 0.6 billion).Fair value measurements for each class of financial instruments in accordance with a value hierarchy are disclosed inNote 39.27

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)9. Financial Assets Pledged under Repurchase Agreements and Loaned Financial Assets31 December201131 December2010Financial assets at fair value through profit or lossFinancial assets held for tradingBonds of Russian companies and banks 2.4 6.1Russian Federal loan bonds (OFZ) 0.9 –Equity securities 0.1 1.2Bonds of foreign companies and banks – 0.1Bonds of foreign governments – 0.1Total Financial assets held for trading 3.4 7.5Financial assets designated as at fair value through profit or lossEurobonds of Russian companies and banks 2.9 1.2Bonds of foreign companies and banks 0.8 0.7Bonds of foreign governments 0.5 1.5Total Financial assets designated as at fair value through profit or loss 4.2 3.4Total Financial assets at fair value through profit or loss 7.6 10.9Financial assets available-for-saleBonds of Russian companies and banks 1.3 1.7Bonds of foreign governments 0.6 3.0Russian Federal loan bonds (OFZ) 0.4 –Total Financial assets available-for-sale 2.3 4.7Financial assets classified as loans and advances to customers 188.3 –Financial assets classified as due from other banks 0.4 1.3Total financial assets pledged under repurchase agreements and loanedfinancial assets 198.6 16.9As at 31 December 2011 bonds of Russian companies and banks included in the above table are mostly representedby debt securities issued by Russian oil and gas companies, transportation, telecommunication companies andbanks.As at 31 December 2011 financial assets classified as loans and advances to customers pledged under repurchaseagreements are mostly represented by federal loan bonds with debt amortization (OFZ-AD) with the carrying amountof RUR 175.5 billion which were purchased by “Bank of Moscow”, OJSC in September 2011 from proceeds of loanfrom DIA (Note 22).10. Due from Other Banks31 December201131 December2010Russia 171.8 176.6OECD 204.6 163.1Other countries 50.8 13.1Total gross due from other banks 427.2 352.8Less: Allowance for impairment (Note 32) (2.6) (2.9)Total due from other banks 424.6 349.9As at 31 December 2011, reverse sale and repurchase agreements with other banks amounted to RUR 78.9 billion(31 December 2010: RUR 64.8 billion). These reverse sale and repurchase agreements with other banks werecollateralized by securities with fair value of RUR 82.0 billion (31 December 2010: RUR 70.2 billion).As at 31 December 2011, amount included in due from other banks of RUR 0.5 billion is pledged against issued localmortgage-backed bonds (31 December 2010: RUR 1.5 billion).28

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)11. Loans and Advances to CustomersThe table below shows loans and advances to customers by class.Loans to legal entities31 December201131 December2010Current activity financing 2,091.9 1,438.2Project finance and other 1,314.7 888.9Finance leases 244.1 142.2Reverse sale and repurchase agreements 115.3 48.8Total loans to legal entities 3,766.0 2,518.1Loans to individualsConsumer loans and other 436.2 268.4Mortgages 309.0 217.2Car loans 75.5 52.8Reverse sale and repurchase agreements 3.4 3.1Total loans to individuals 824.1 541.5Less: Allowance for impairment (Note 32) (288.5) (274.2)Total loans and advances to customers 4,301.6 2,785.4Finance leases represent loans to leasing companies and net investment in leases.The finance lease receivables were as follows:31 December201131 December2010Gross investment in leases 245.5 165.0Less: Unearned finance lease income (79.1) (48.4)Net investment in leases before allowance 166.4 116.6Less: Allowance for impairment (10.3) (9.5)Net investment in leases 156.1 107.1Future minimum lease payments to be received by the Group were as following:31 December201131 December2010Within 1 year 50.3 40.2From 1 to 5 years 141.7 93.0More than 5 years 53.5 31.8Minimum lease payments receivable 245.5 165.0Net investments in leases were as following:31 December201131 December2010Within 1 year 44.6 34.0From 1 to 5 years 95.5 62.9More than 5 years 26.3 19.7Net investment in leases 166.4 116.629

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)11. Loans and Advances to Customers (continued)Economic sector risk concentrations within the customer loan portfolio are as follows:31 December 2011 31 December 2010Amount % Amount %Individuals 824.1 18 541.5 18Finance 619.6 13 382.3 12Building construction 530.7 12 303.2 10Manufacturing 464.3 10 267.7 9Transport 386.9 8 186.2 6Metals 363.2 8 334.5 11Trade and commerce 357.0 8 230.6 7Government bodies 248.8 5 115.4 4Chemical 214.9 5 226.6 7Energy 145.7 3 97.8 3Oil and gas 119.2 3 139.7 4Food and agriculture 94.1 2 81.6 3Telecommunications and media 69.5 2 23.6 1Coal mining 58.0 1 55.6 2Aircraft 18.0 – 20.5 1Other 76.1 2 52.8 2Total gross loans and advances tocustomers 4,590.1 100 3,059.6 100Finance industry includes loans issued to holding companies of industrial groups, mergers and acquisitions financing,and loans to leasing, insurance and other non-bank financial companies.As at 31 December 2011, the total amount of outstanding loans issued by the Group to 10 largest groups ofinterrelated borrowers comprises RUR 1,036.8 billion, or 22% of the gross loan portfolio represented by loans andadvances to customers and financial assets pledged under repurchase agreement classified as loans to customers(31 December 2010: RUR 643.7 billion, or 21%).As at 31 December 2011, loans and advances to customers represented by federal loan bonds with debt amortization(OFZ-AD) purchased in September 2011 by “Bank of Moscow”, OJSC with the carrying amount of RUR 115.4 billionare included in loans to government bodies for the purpose of economic sector risk concentrations disclosure.As at 31 December 2011, the Group received collateral of securities under reverse sale and repurchase agreementswith customers with a fair value of RUR 177.0 billion (31 December 2010: RUR 85.3 billion).As at 31 December 2011, the total amount of pledged loans to corporate customers is RUR 72.3 billion (31 December2010: RUR 12.3 billion). The loans are pledged against the funds accounted within Other borrowed funds (Note 22)and Due to other banks (Note 20) captions in Liabilities. Included in the above amount of pledged loans are mortgageloans of RUR 5.0 billion (31 December 2010: RUR 5.0 billion).As at 31 December 2011, the carrying value of mortgage loans pledged against debt securities issued amounted toRUR 8.2 billion (31 December 2010: RUR 14.8 billion).During 2011 interest income on impaired loans, recognized by the Group amounted to RUR 10.8 billion (2010:RUR 13.4 billion).12. Financial Assets Available-for-Sale31 December201131 December2010Equity investments 135.8 28.8Bonds and eurobonds of foreign governments 10.6 16.4Russian Federal loan bonds (OFZ) 10.2 –Eurobonds of Russian companies and banks 6.4 1.0Bonds of foreign companies and banks 3.7 9.0Promissory notes of Russian companies and banks 0.6 0.3Bonds of Russian companies and banks 0.4 0.4Total financial assets available-for-sale 167.7 55.930

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)12. Financial Assets Available-for-Sale (continued)As at 31 December 2011 equity investments are represented mostly by shares of Russian metal and financecompanies.The Group recognized an impairment loss of RUR 2.1 billion before tax, transferred from unrealized gain on financialassets available-for-sale to the income statement, and realized portion of revaluation of available-for-sale financialassets transferred to income statement due to the sale of available-for-sale financial assets of RUR 6.2 billion beforetax for the year ended 31 December 2011 (2010: RUR 0.7 billion and RUR 0.6 billion respectively).13. Investments in Associates and Joint VenturesCountry ofregistrationActivity31 December 2011 31 December 2010Carrying Ownership Carrying Ownershipamount percentage amount percentage“Metropolitan Insurance Group”, OJSC Russia Insurance 16.0 50.00% – –“KS Holding”, CJSC Russia Insurance 5.7 49.00% 4.8 49.00%“Eurofinance Mosnarbank”, OJSC Russia Banking 3.3 25.00% 4.3 35.85%“Vietnam-Russia Joint Venture Bank” Vietnam Banking 2.0 50.00% 0.9 49.00%“Haberma Enterprises”, Ltd Cyprus Real estate 1.2 39.10% – –“Sistemapsys S.a.r.l.” Luxembourg Construction 1.0 50.00% 1.3 50.00%“Hals-Technopark”, CJSC Russia Construction 1.0 50.00% 1.0 50.00%“Thalita Trading”, Ltd Cyprus Finance 0.7 50.00% 0.9 50.00%“Finnist Real Estate S.a.r.l.” Luxembourg Real estate 0.5 19.99% 0.8 19.99%"Russian National Commercial Bank", JSC Russia Banking 0.5 39.80% – –“Gelosa Holdings”, Ltd Cyprus Real estate 0.4 21.16% – –"Estonian Credit Bank", JSC Estonia Banking 0.2 43.79% – –“Izumrudniy Gorod 2000”, Ltd Russia Construction – 50.00% – 50.00%“Tagar-City”, Ltd Russia Construction – 50.00% – 50.00%“Amiral' B. V.”, Ltd Russia Construction – 50.00% – 50.00%“Ilinoza investments limited”, Ltd Russia Construction – 45.00% – 45.00%“Interbank Trading House”, Ltd Russia Commerce – 50.00% – 50.00%"Automated Banking Technologies", CJSC Russia IT – 25.86% – –"Pension Reserve", Ltd Russia Finance – 19.00% – –“POLIEF”, OJSC Russia Chemical – – 1.1 32.50%“Telecom-Development”, CJSC Russia Construction – – 0.6 50.00%Total investments in associates andjoint ventures 32.5 15.7In January 2011, “Vietnam-Russia Joint Venture Bank” increased its share capital to USD 168.5 million, and VTBincreased its share in “Vietnam-Russia Joint Venture Bank” from 49.00% to 50.00% by contribution ofUSD 53.6 million (RUR 1.6 billion).In February 2011, VTB purchased 46.48% of “Bank of Moscow”, OJSC for RUR 92.8 billion and 25% plus 1 share of“Metropolitan Insurance Group”, OJSC for RUR 10.2 billion. In September 2011, the Group obtained control over“Bank of Moscow”, OJSC and consolidated it in these financial statements (Note 42). The Group recognizedRUR 6.4 billion as share in income of associates and joint ventures for the period when “Bank of Moscow”, OJSC wasassociate of the Group. As a result of consolidation of “Bank of Moscow”, the Group increased its share in“Metropolitan Insurance Group”, OJSC to 50% less 1 share.In February 2011, the Group entered into the agreement to sell shares of “Eurofinance Mosnarbank”, OJSC, forRUR 2.3 billion effectively decreasing the Group’s ownership in “Eurofinance Mosnarbank”, OJSC associate to 25%plus 0.5 share and recognizing profit before tax of RUR 0.9 billion from partial disposal of the associate."Automated Banking Technologies", CJSC, "Pension Reserve", Ltd and "Estonian Credit Bank", JSC representassociates of “Bank of Moscow”, OJSC initially consolidated at 30 September 2011 (Note 42).In December 2011, the Group acquired a 39.80% share of "Russian National Commercial Bank", JSC as a result ofobtaining control by “Bank of Moscow”, OJSC in "Consolidated companies", OJSC (Note 42).As at 31 December 2011, investment in Associate in the amount of RUR 0.7 billion was pledged against the fundsobtained by the other Associate of the Group (31 December 2010: nil).31

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)13. Investments in Associates and Joint Ventures (continued)The following table contains the summarized aggregated financial information on the associates and joint ventures:31 December201131 December2010Assets 250.6 130.2Liabilities 193.9 97.9Net assets 56.7 32.3Revenue 57.0 32.5Net profit 1.2 0.2The unrecognized share of losses of associates for 2011 and cumulatively at 31 December 2011 was RUR 0.1 billionand RUR 0.2 billion, respectively (31 December 2010: RUR 0.1 billion and RUR 0.1 billion, respectively).14. Investment Securities Held-to-Maturity31 December201131 December2010Bonds of Russian companies and banks 32.8 32.6Russian municipal bonds 1.0 2.4Bonds of foreign governments 0.5 0.8Russian Federal loan bonds (OFZ) 0.1 –Bonds of foreign companies and banks – 0.4Total gross investment securities held-to-maturity 34.4 36.2Less: Allowance for impairment (Note 32) (2.0) (2.0)Total investment securities held-to-maturity 32.4 34.2Bonds of Russian companies and banks are mostly represented by debt securities issued by major Russian banks.15. Premises and EquipmentThe movements in property and equipment were as follows:PremisesEquipmentConstructionin progressEquipment inoperatingleaseNet book amount at 31 December 2010 61.1 15.1 3.1 33.9 113.2Cost or revalued amountOpening balance at 1 January 2011 62.3 28.2 3.1 35.0 128.6Effect of hyperinflation 0.7 0.6 0.2 – 1.5Acquisitions of subsidiaries (Note 42) 14.0 3.2 3.3 – 20.5Additions 4.5 6.8 7.8 21.7 40.8Transfer (7.8) (2.8) 0.3 3.2 (7.1)Disposals (1.0) (1.7) (3.9) (37.4) (44.0)Impairment – – (0.5) – (0.5)Translation difference (0.5) (0.6) (0.2) 0.3 (1.0)Closing balance at 31 December 2011 72.2 33.7 10.1 22.8 138.8Accumulated depreciationOpening balance at 1 January 2011 1.2 13.1 – 1.1 15.4Effect of hyperinflation – 0.3 – – 0.3Depreciation charge 1.8 4.8 – 1.9 8.5Disposals (0.2) (0.4) – (1.5) (2.1)Translation difference – (0.1) – – (0.1)Closing balance at 31 December 2011 2.8 17.7 – 1.5 22.0Net book amount at 31 December 2011 69.4 16.0 10.1 21.3 116.8Total32

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)15. Premises and Equipment (continued)The Transfer caption in 2011 includes both transfers between the categories of the Premises and equipment, andtransfers to / from Property intended for sale in the ordinary course of business in Other assets.PremisesEquipmentConstructionin progressEquipment inoperatingleaseNet book amount at 31 December 2009 37.9 10.5 11.4 6.1 65.9Cost or revalued amountOpening balance at 1 January 2010 37.9 20.3 11.4 6.2 75.8Acquisitions of subsidiaries 14.0 1.4 – – 15.4Additions 2.0 5.5 4.2 29.6 41.3Transfer 8.9 2.1 (11.0) – –Disposals (0.2) (0.9) (1.5) (0.8) (3.4)Translation difference (0.3) (0.2) – – (0.5)Closing balance at 31 December 2010 62.3 28.2 3.1 35.0 128.6Accumulated depreciationOpening balance at 1 January 2010 – 9.8 – 0.1 9.9Depreciation charge 1.3 3.8 – 1.0 6.1Disposals (0.1) (0.5) – – (0.6)Closing balance at 31 December 2010 1.2 13.1 – 1.1 15.4Net book amount at 31 December 2010 61.1 15.1 3.1 33.9 113.2TotalPremises of the Group are subject to revaluation on a regular basis. The date of the latest revaluation was31 December 2009. As at 31 December 2011 and 31 December 2010 the Group analyzed market prices in relation toits premises and concluded that the market value of premises was not materially different from their carrying valueand has not performed revaluation.As at 31 December 2011 the Group recognized impairment loss in the amount of RUR 0.5 billion with regard toconstruction in progress.If the premises were measured using the cost model, the carrying amounts would be as follows:31 December201131 December2010Cost 62.8 52.9Less: Accumulated depreciation and impairment 4.4 3.0Net carrying amount 58.4 49.916. Investment Property2011 2010Investment property at 1 January 102.2 79.8Acquisitions of subsidiaries 10.7 15.7Disposal of subsidiaries (0.6) –Additions 4.8 13.1Disposals (1.3) (1.7)Reclassified to premises – (0.1)Reclassified from premises – 0.4Reclassified to property held for sale (2.1) (7.0)Reclassified from property held for sale 0.2 1.9Revaluation 4.5 (0.2)Capitalization of expenses 4.1 0.3Investment property at 31 December 122.5 102.233

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)16. Investment Property (continued)As at 31 December 2011 investment property was revalued by RUR 4.5 billion (in 2010 – decreased by RUR 0.2 billion).The valuation was carried out by the Group’s internal appraisers and by independent appraisers on the basis of marketprices for comparable real estate.In 2011 the Group received directly a property title for land plots and commercial and residential properties valued atRUR 3.9 billion (2010: RUR 12.3 billion) in exchange for settlement of the outstanding loans granted by the Group.The property of RUR 0.6 billion (2010: RUR 0.8 billion) was obtained through foreclosure of collateral under mortgageloans. The acquired investment properties were valued by an independent, professionally qualified appraiser at fairvalue at the acquisition date.In 2011, the Group’s investment property increased due to property valued at RUR 3.3 billion received a result ofacquisition of “Bank of Moscow”, OJSC (Note 42). The investment property for the amount of RUR 5.5 billion andRUR 1.9 billion was received by "Hals-Development", OJSC and "TransCreditBank", JSC, respectively, whenacquiring subsidiaries.In 2010, the Group’s investment property increased due to property valued at RUR 15.7 billion received a result ofacquisition of “M”, CJSC, “TransCreditBank”, JSC and “VTB Arena”, CJSC (Note 42).The Group leased out a portion of its investment property under operating lease. Future minimum receivables undernon-cancellable operating lease are RUR 2.0 billion (RUR 0.8 billion as of 31 December 2010) of whichRUR 0.6 billion to be received in less than one year and of which RUR 1.4 billion to be received later than one yearand not later than five years (2010: RUR 0.3 billion and RUR 0.5 billion, respectively).In 2011 the Group has recognized rental income as part of income arising from non-banking activities ofRUR 0.9 billion (2010: RUR 0.2 billion) and direct operating expenses of RUR 0.3 billion (2010: no material directoperating expenses) in relation to investment property that generated rental income.17. Intangible Assets and GoodwillThe movements in intangible assets were as follows in 2011:Core depositand customerloan intangibleComputersoftwareOtherrightsBrands andtrademarks Goodwill TotalNet book amount at 31 December 2010 5.0 3.0 2.6 – 19.9 30.5Cost less impairmentOpening balance at 1 January 2011 9.8 4.6 2.9 – 19.9 37.2Additions – 2.0 1.6 – – 3.6Acquisition through businesscombinations (Note 42) 25.4 0.3 0.3 1.5 84.8 112.3Disposals – (0.3) (0.8) – – (1.1)Write-offs through impairment – – (0.1) – – (0.1)Translation difference – (0.1) – – – (0.1)Transfer – – (0.3) – – (0.3)Closing balance at 31 December 2011 35.2 6.5 3.6 1.5 104.7 151.5Accumulated amortizationOpening balance at 1 January 2011 4.8 1.6 0.3 – – 6.7Amortization charge 1.9 0.9 1.2 – – 4.0Disposals – (0.4) – – – (0.4)Closing balance at 31 December 2011 6.7 2.1 1.5 – – 10.3Net book amount at 31 December 2011 28.5 4.4 2.1 1.5 104.7 141.234

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)17. Intangible Assets and Goodwill (continued)The Transfer caption in 2011 includes transfers to Property intended for sale in the ordinary course of business inOther assets.The movements in intangible assets were as follows in 2010:Core depositand customerloan intangibleComputersoftware Other rights Goodwill TotalNet book amount at 31 December 2009 1.2 2.1 0.7 7.9 11.9Cost less impairmentOpening balance at 1 January 2010 5.0 3.4 0.7 7.9 17.0Additions – 1.0 0.4 – 1.4Acquisition through business combinations 4.8 0.3 2.4 13.1 20.6Disposals – (0.1) (0.6) – (0.7)Write-offs through impairment – – – (1.1) (1.1)Closing balance at 31 December 2010 9.8 4.6 2.9 19.9 37.2Accumulated amortizationOpening balance at 1 January 2010 3.8 1.3 – – 5.1Amortization charge 1.0 0.3 0.7 – 2.0Disposals – – (0.4) – (0.4)Closing balance at 31 December 2010 4.8 1.6 0.3 – 6.7Net book amount at 31 December 2010 5.0 3.0 2.6 19.9 30.5The carrying amount of goodwill and core deposit and customer loan intangible allocated to each of the followingcash-generating units:31 December 2011 31 December 2010Carryingamount ofgoodwillCarryingamount ofcore depositand customerloanintangibleTotalCarryingamount ofgoodwillCarryingamount ofcore depositand customerloanintangible“Bank of Moscow”, OJSC 84.7 24.4 109.1 – – –“TransCreditBank”, JSC 7.7 3.9 11.6 7.7 4.8 12.5“VTB North-West Regional Center”(branch) (former “Bank VTB North-West”, OJSC) 5.2 – 5.2 5.2 – 5.2“VTB Arena”, CJSC 4.3 – 4.3 4.3 – 4.3“Bank VTB 24”, CJSC 2.1 – 2.1 2.1 – 2.1“VTB Bank (Azerbaijan)”, OJSC 0.4 – 0.4 0.4 – 0.4“VTB Specialized Depository”, CJSC – 0.2 0.2 – 0.2 0.2“VTB Bank (Armenia)” CJSC 0.1 – 0.1 0.1 – 0.1“VTB Asset Management”, CJSC 0.1 – 0.1 0.1 – 0.1“Citer Invest”, B. V. 0.1 – 0.1 – – –Net book amount 104.7 28.5 133.2 19.9 5.0 24.9TotalAs at 31 December 2011, the recoverable amount of “TransCreditBank”, JSC has been determined based on a fairvalue of the business, which amounted to RUR 51.4 billion. The fair value was calculated using the market price of“TransCreditBank”, JSC shares.In March 2011, “Bank VTB North-West”, OJSC ceased its operations as a subsidiary of VTB following the legalmerger of VTB and “Bank VTB North-West”. This reorganization was accompanied by formation of a new cashgeneratingunit VTB North-West Regional Center established on the basis of former the “Bank VTB North-West”,OJSC Head Office. As a result, the Group has reallocated the respective goodwill to the new cash-generated unit. Asat 31 December 2011, the recoverable amount of the new cash-generating unit “VTB North-West Regional Center”has been determined based on a value in use calculation using pretax cash flow projections based on financialbudgets approved by the Management covering a five-year period, which amounted to RUR 113.0 billion. Thediscount rate applied to cash flow projections is 9%.35

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)17. Intangible Assets and Goodwill (continued)The goodwill related to “VTB Arena”, CJSC is allocated to the development project of subsidiary as the separatecash-generated unit. The recoverable amount of the development project at 31 December 2011 has been determinedbased on a value in use calculation using pretax cash flow projections based on financial budgets approved by theManagement covering a ten-year period, which amounted to RUR 20.9 billion. The longer period was used to reflectthe duration of investment project. The discount rate applied to cash flow projections is 15%.The calculation of value in use for Group is most sensitive to assumptions in discount rates, terminal capitalizationrate, weighted average rent rates for shopping and entertainment centers, prices and sales schedules for apartments,occupancy rates and average prices per room in hotels and apart hotels, etc.For VTB Arena development project, the estimated recoverable amount is close to its carrying value and,consequently, any adverse change in key assumptions would result in impairment losses, e.g. increase of terminalcapitalization rate by 0.75% or increase of the discount rate by 0.5% would lead to a decrease in recoverable amountand recognition of related goodwill impairment loss.The recoverable amount of “Bank VTB 24”, CJSC at 31 December 2011 has been determined based on a value inuse calculation using pretax cash flow projections based on financial budgets approved by the Management coveringa five-year period, which amounted to RUR 641.1 billion. The discount rate applied to cash flow projections is 11%.Management believes that reasonable possible changes in key assumptions used to determine the recoverableamount will not result in an impairment of goodwill, except for that attributable to VTB Arena development project,described above.18. Other Assets31 December201131 December2010Property intended for sale in the ordinary course of business 34.3 20.0Other assets related to non-banking activities 27.7 16.3Precious metals 19.9 2.2Tax prepayments 17.8 9.1Trade debtors and prepayments 9.2 7.3Equipment purchased for subsequent leasing 8.5 11.7Amounts in course of settlement 8.3 14.8Deferred expenses 5.8 6.5Advances issued to leasing equipment suppliers 4.9 3.4Accrued commission income 3.8 2.8Inventories 2.8 2.2Leasehold for development and sale 1.6 1.5Positive fair value of derivatives (fair value hedges) (Note 36) 0.5 0.6Rights of claim to construct and receive the title of ownership ofpremises under investment contracts and related capitalizedfurnishing costs 0.4 0.1Other 5.5 6.5Total other assets before allowance for impairment 151.0 105.0Less: Allowance for impairment (Note 32) (2.7) (2.4)Total other assets 148.3 102.6As at 31 December 2011 and 2010, equipment purchased for subsequent leasing and advances issued to leasingequipment suppliers represents operations of VTB Leasing.As at 31 December 2011, included in Property intended for sale in the ordinary course of business is the amount ofRUR 1.4 billion (31 December 2010: RUR 1.4 billion), which is pledged against Other borrowings within Otherborrowed funds (Note 22).36

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)19. Disposal Group Held for SaleIn September 2011, when acquiring "Bank of Moscow", OJSC the Group received controlling interest in "BM Bank", Ltd.,located in Kiev, Ukraine. In the fourth quarter of 2011 the Management decided to sell these investments and intends todo it within 12 months, as of 31 December 2011 the negotiations had not been finished. The Group accounted for theseinvestments as a disposal group held for sale under IFRS 5. The Bank has calculated fair values of the received assetsand liabilities at the acquisition date amounting to RUR 10.3 billion and RUR 8.5 billion, respectively. These investmentsare included in “Corporate-Investment banking” and “Retail banking” segments (Note 37).20. Due to Other Banks31 December201131 December2010Term loans and deposits 369.2 161.6Correspondent accounts and overnight deposits of other banks 310.6 226.7Sale and repurchase agreements with other banks 19.9 9.0Total due to other banks 699.7 397.3Included in amounts due to other banks at 31 December 2011 are restricted deposits of RUR 1.0 billion(31 December 2010: RUR 0.9 billion), where matching deposits were placed by the Group in other balances in nonfreelyconvertible currencies (Note 7).As at 31 December 2011 term loans and deposits contain the amount of RUR 1.4 billion (31 December 2010:RUR 0.6 billion) secured with a pledge of financial assets at fair value through profit or loss in the amount ofRUR 1.4 billion (31 December 2010: RUR 0.6 billion) (Note 8).Financial assets pledged against sale and repurchase agreements are financial assets at fair value through profit orloss and financial assets available-for-sale with a total fair value of RUR 8.1 billion (31 December 2010:RUR 11.4 billion), and those classified as due from other banks and loans and advances to customers with amortizedcost of RUR 13.2 billion (31 December 2010: RUR 1.3 billion) (Note 9).As at 31 December 2011, term loans and deposits in the amount of RUR 1.9 billion (31 December 2010:RUR 4.2 billion) are collateralized with loans to customers in the amount of RUR 2.0 billion (Note 11) (31 December2010: RUR 5.6 billion).As at 31 December 2011 financial assets pledged against sale and repurchase agreements with other banks werealso represented by financial assets received under reverse sale and repurchase agreements in the total amount ofRUR 5.9 billion (31 December 2010: nil).21. Customer Deposits31 December201131 December2010Government bodiesCurrent / settlement deposits 38.0 14.0Term deposits 482.1 83.6Other legal entitiesCurrent / settlement deposits 610.8 475.7Term deposits 1,296.3 882.0IndividualsCurrent / settlement deposits 254.7 142.6Term deposits 906.1 605.3Sale and repurchase agreements 8.7 9.7Total customer deposits 3,596.7 2,212.9As at 31 December 2011 deposits of RUR 11.9 billion (31 December 2010: RUR 9.6 billion) were held as collateralagainst irrevocable commitments under import letters of credit and guarantees (Note 36).37

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)21. Customer Deposits (continued)Economic sector risk concentrations within customer deposits are as follows:31 December 2011 31 December 2010Amount % Amount %Individuals 1,161.4 32 747.9 34Government bodies 520.1 14 97.6 4Oil and gas 348.1 10 407.5 18Finance 319.9 10 240.2 12Transport 258.2 7 124.2 6Building construction 190.3 5 98.8 4Manufacturing 153.8 4 94.1 4Trade and commerce 118.4 4 70.3 3Telecommunications and media 86.3 2 56.3 3Energy 80.6 2 69.8 3Metals 79.9 2 29.6 1Food and agriculture 25.1 1 20.5 1Chemical 20.5 1 22.9 1Aircraft 13.6 – 16.7 1Coal mining 10.1 – 6.7 –Other 210.4 6 109.8 5Total customer deposits 3,596.7 100 2,212.9 100As at 31 December 2011 financial assets pledged against sale and repurchase agreements represent financial assetsat fair value through profit or loss and financial assets available-for-sale with fair value of RUR 0.2 billion(31 December 2010: RUR 4.2 billion) (Note 9) and securities received under reverse sale and repurchaseagreements with fair value of RUR 9.0 billion (31 December 2010: RUR 8.9 billion).22. Other Borrowed Funds31 December201131 December2010Funds from local central banks 365.9 1.4Syndicated loans 106.8 45.1Other borrowings 261.9 139.2Total other borrowed funds 734.6 185.7As at 31 December 2011 funds from local central banks include payables to local central banks on sale andrepurchase agreements in amount of RUR 159.7 billion (31 December 2010: nil) and other funds attracted from localcentral banks in amount of RUR 206.2 billion (31 December 2010: RUR 1.4 billion).As at 31 December 2011 financial assets pledged under the sale and repurchase agreements with local central banksare financial assets with a total carrying amount of RUR 177.2 billion (31 December 2010: nil), which comprised ofboth the financial assets available-for-sale with fair value of RUR 1.7 billion (31 December 2010: nil), and pledgedfinancial assets classified as loans and advances to customers of RUR 175.5 billion (31 December 2010: nil)(Note 9). As at 31 December 2011 financial assets pledged against sale and repurchase agreements with localcentral banks are also represented by Bonds of foreign governments received under reverse sale and repurchaseagreements with non-banking customers of RUR 0.3 billion (31 December 2010: nil).As at 31 December 2011 other funds attracted from local central banks contain the amount of RUR 6.3 billion(31 December 2010: RUR 1.4 billion) secured by pledged loans to customers in the amount of RUR 13.6 billion(31 December 2010: RUR 1.7 billion) (Note 11).In June 2011, VTB fully repaid USD 1.0 billion (RUR 28.3 billion) of Tranche A of a dual tranche syndicated loan uponmaturity.In July 2011, VTB received a syndicated loan in the total amount of USD 3,130 million (RUR 87.3 billion) maturing inJuly 2014 with a floating interest rate of LIBOR + 1.3% p.a. payable semi-annually. As at 31 December 2011 theGroup bought back RUR 6.3 billion from the syndicated loan participants, which resulted in the recognition of a gainon the extinguishment of debt of RUR 0.4 billion for the period.38

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)22. Other Borrowed Funds (continued)In December 2011 “Bank of Moscow”, OJSC fully repaid a syndicated loan in the amount of USD 348.8 million(RUR 10.9 billion).In the first quarter 2011 “VTB Bank (Austria)” AG fully repaid a syndicated loan in the amount of USD 120 million(RUR 3.5 billion). In the fourth quarter 2011 “VTB Bank (Austria)” AG fully repaid a syndicated loan in the amount ofEUR 15 million (RUR 0.6 billion).In the first quarter 2010 “VTB Bank (Austria)” AG fully repaid a syndicated loan in the amount of USD 200 million(RUR 6.0 billion). In the second quarter 2010 “VTB Bank (Austria)” AG partially repaid a syndicated loan in theamount of EUR 50 million (RUR 1.9 billion). In July 2010 “VTB Bank (Austria)” AG received a tranche of syndicatedloan in the amount of EUR 15 million (RUR 0.6 billion) with maturity in June 2012 at interest rate of 2.75%.In February and July 2010 “VTB Bank (Austria)” AG fully repaid at maturity two syndicated loan in the amount of USD70 million (RUR 2.1 billion) and USD 75 million (RUR 2.3 billion), respectively. In September 2010 “VTB Bank(Austria)” AG fully repaid a syndicated loan in the amount of USD 80 million (RUR 2.5 billion) at maturity.In September 2011 “Bank of Moscow”, OJSC received a RUR 294.8 billion loan from the related party DIA at 0.51%per annum maturing in 10 years under the plan of support of “Bank of Moscow”, OJSC earlier signed by CBR andDIA. The Group recognized the loan initially at fair value. As at 31 December 2011 the carrying amount of the loan ofRUR 144.4 billion was included in Other borrowings. This loan was securitized with a pledge of loans to customerswith carrying amount of RUR 51.7 billion. (Note 11)As at 31 December 2011 other borrowed funds also contain other borrowings in the amount of RUR 6.7 billion(31 December 2010: RUR 7.3 billion) securitized with a pledge of loans to customers of RUR 5.0 billion(31 December 2010: 5.0) (Note 11), other assets of RUR 1.4 billion (31 December 2010: RUR 1.4 billion) (Note 18)and investment property of nil (31 December 2010: RUR 2.2 billion).23. Debt Securities Issued31 December201131 December2010Bonds 457.5 470.6Promissory notes 206.1 122.2Deposit certificates 0.9 0.3Total debt securities issued 664.5 593.1In February 2011, VTB issued USD 750 million (RUR 21.9 billion) Series 12 Eurobonds under European MediumTerm Notes (EMTN) Programme 2 with maturity in February 2018 and a fixed coupon rate of 6.315% p.a. payablesemi-annually.In February 2011, VTB partially redeemed Series 9 Eurobonds in the amount of EUR 195 million (RUR 7.8 billion)under investor put option.In February 2011, “Bank VTB 24”, CJSC redeemed local bonds in the amount of RUR 10.0 billion under investor putoption.In April 2011, “VTB Bank (Austria)“ AG issued a private placement of Eurobonds in the amount of EUR 20 million(RUR 0.8 billion) maturing in April 2013 with a coupon rate of 2.806% p.a. payable semi-annually.In June 2011, VTB issued SGD 300 million (RUR 6.8 billion) Series 13 Eurobonds under European Medium TermNotes (EMTN) Programme 2 with maturity in June 2014 and a fixed coupon rate of 3.4% p.a. payable semi-annually.In June 2011, VTB redeemed Series 5 Eurobonds under EMTN Programme 2 in the outstanding amount ofEUR 900 million (RUR 36.4 billion) upon maturity.In June 2011, “Bank VTB 24”, CJSC redeemed Series 3 local bonds in the amount of RUR 6.0 billion under investorput option.In June 2011, a subsidiary of “TransCreditBank”, JSC redeemed RUR 3.0 billion of Series 2 local bonds uponmaturity.39

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)23. Debt Securities Issued (continued)In June 2011, “TransCreditBank”, JSC redeemed its Eurobonds in the outstanding amount of USD 303 million(RUR 8.4 billion) upon maturity.In June 2011, “VTB-Leasing Finance”, Ltd. redeemed Series 3 local bonds in the amount of RUR 1.7 billion andSeries 4 local bonds in the amount of RUR 2.0 billion under investor put option.During 2011 “VTB-Leasing Finance”, Ltd. partially redeemed nominal value of Series 1, 2, 3, 4, 7, 8 and 9 of localbonds in the total amount of RUR 5.0 billion.In July 2011, “TransCreditBank”, JSC redeemed RUR 5.0 billion of Series 3 local bonds upon maturity.In 2011 “VTB Capital”, Plc issued notes under EMTN Program in the amount of RUR 5.0 billion at a fixed ratesranging from 9.05% p.a. to 11.6% p.a. maturing from June 2014 till June 2016.In September 2011, “Bank VTB 24”, CJSC issued RUR-nominated amortizing mortgage-backed Series A bonds inthe nominal amount of RUR 3.3 billion at a fixed rate of 9.0% and Series B bonds in the nominal amount ofRUR 1.7 billion at a fixed rate of 3.0% with both bonds maturing in 2043.During first half of 2011 “VTB Bank”, PJSC (Ukraine) issued bonds in total amount of RUR 2.8 billion with maturity upto 2015 and a fixed coupon rate of 12% p.a.In August 2011, VTB redeemed Series 6 Eurobonds under EMTN Programme 2 in the total amount ofCHF 750 million (RUR 29.2 billion) upon maturity.In October 2011, “Bank VTB 24”, CJSC redeemed upon maturity Series 1 local bonds in the amount ofRUR 6.0 billion.In October 2011, VTB redeemed Series 4 Eurobonds in the amount of USD 450 million (RUR 14.1 billion).In November 2011, VTB issued CHF 300 million (RUR 10.0 billion) Series 14 Eurobonds under EMTN Programme 2with maturity in November 2015 and a fixed coupon rate of 5% p.a. payable annually.In November 2011, “Bank VTB (Kazakhstan)”, JSC issued additional tranches in the amount of KZT 9,005 million(RUR 1.9 billion) of local bonds maturing in December 2014 with fixed coupon rate of 7.0% p.a. payable semiannually.In December 2011, VTB placed Series 6 of domestic stock exchange traded bonds for the total amount ofRUR 10.0 billion. The securities due December 2014 are issued with a coupon rate of 8.0% p.a. payable quarterly.In December 2011, “Bank VTB 24”, CJSC partially redeemed local mortgage-backed bonds in the amount ofRUR 11.4 billion under investor put option. The quarterly payable rate of the bonds maturing in December 2014 is tobe fixed by the issuer for the remaining coupon payments periods.In December 2011, “VTB Bank (Austria)” AG redeemed private placement of USD-denominated Eurobonds in theamount of USD 55 million (RUR 1.7 billion) upon maturity.During 2011, “VTB Capital”, Plc redeemed Eurobonds in the outstanding amount of UAH 800 million (RUR 3.1 billion)upon maturity.“VTB Capital”, Plc has established a USD 5.0 billion European Medium Term Note program. Under the terms of theprogram “VTB Capital”, Plc is issuing short and medium term notes and structured notes with embedded derivatives,which are mainly linked to Russia / CIS risk. The outstanding amount of the notes as at 31 December 2010 ofUSD 20 million (RUR 0.6 billion) issued at a discount of 3.25% was redeemed upon maturity in May and November2011.In March 2010, VTB issued USD 1,250 million (RUR 37.3 billion) Series 7 Eurobonds under EMTN Programme 2 withmaturity in March 2015 and a fixed coupon rate of 6.465% p.a. payable semi-annually.In March 2010, VTB placed Series 1, 2 and 5 of domestic stock exchange traded bonds for the total amount ofRUR 20.0 billion. The securities due March 2013 are issued with a coupon rate of 7.6% p.a. payable quarterly.In March 2010, VTB redeemed Series 12 Eurobonds under EMTN Programme 1 in the outstanding amount ofGBP 234 million (RUR 10.4 billion) upon maturity.In April 2010, “Hals-Development”, OJSC repaid Series 1 and 2 domestic bonds with notional amount ofRUR 5.0 billion under investor put option.40

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)23. Debt Securities Issued (continued)In April 2010, VTB repaid RUR 13.4 billion of Series 5 domestic bonds under investor put option. In the third quarter2010, VTB placed RUR 2.7 billion of these bonds.In August 2010, “VTB-Leasing Finance”, Ltd. issued tranches 8 and 9 of local amortizing bonds for RUR 5.0 billion eachmaturing in August 2017. One tranche bears 6.65% p.a. coupon rate payable quarterly with 1-year investor put option,the other tranche bears 7.05% p.a. coupon rate payable quarterly with 1.5-year put investor option. During 2010“VTB-Leasing Finance”, Ltd repaid RUR 4.7 billion of the principal amount in accordance with the amortization schedule.In August 2010, VTB issued SGD 400 million (RUR 8.9 billion) Series 8 Eurobonds under EMTN Programme 2maturing in August 2012 with fixed coupon rate of 4.2% p.a. payable semi-annually.In August 2010, VTB issued CHF 400 million (RUR 11.6 billion) Series 9 Eurobonds under EMTN Programme 2maturing in August 2013 with fixed coupon rate of 4.0% p.a. payable annually.In August 2010, “VTB Bank (Belarus)”, CJSC issued BYR 40,000 million (RUR 0.4 billion) local bonds maturing inAugust 2011 with fixed coupon rate of 10.5%.In September 2010, “Bank VTB 24”, CJSC repaid Series 4 local bonds with notional amount of RUR 6.1 billion underinvestor put option.In October 2010, VTB issued USD 1.0 billion (RUR 30.1 billion) Series 10 Eurobonds under EMTN Programme 2maturing in October 2020 with fixed coupon rate of 6.551% p.a. payable semi-annually.In October 2010, “VTB Bank (Belarus)”, CJSC redeemed BYR 60,000 million (RUR 0.6 billion) discounting local bonds.In November 2010, “VTB Capital”, Plc also issued under its EMTN program a UAH 800 million (RUR 3.1 billion)foreign exchange linked note which pays a fixed rate of interest. These securities mature in November 2011.In December 2010, VTB issued CNY 1,000 million (RUR 4.6 billion) Series 11 Eurobonds under EMTN Programme 2maturing in December 2013 with fixed coupon rate of 2.95% p.a. payable semi-annually.In December 2010, “Bank VTB (Kazakhstan)”, JSC issued KZT 3,780 million (RUR 0.8 billion) local bonds maturing inDecember 2014 with fixed coupon rate of 7.0% p.a. payable semi-annually.In December 2010, “VTB Bank (Belarus)”, CJSC issued BYR 60,000 million (RUR 0.6 billion) discounting local bondsmaturing in December 2012 with fixed coupon rate of 10.5%.VTB Group members from time to time seek to retire all or part of any of their issued and outstanding debt throughopen market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any,depend on prevailing market conditions, VTB's liquidity requirements, contractual restrictions and other factors.During 2011 and 2010 the Group did not retire any Eurobonds or bonds issued.Promissory notes represent notes primarily issued by VTB in the local market, which primarily act as an alternative tocustomer/bank deposits. As at 31 December 2011 promissory notes issued included both discount and interestbearing promissory notes denominated mainly in RUR with maturity ranging from demand to June 2015(31 December 2010: from demand to June 2015).24. Subordinated DebtOn 29 September 2005, OJSC “Industry and Construction Bank” (further renamed to OJSC “Bank VTB North-West”)issued USD 400 million subordinated Eurobonds due September 2015 with early redemption call option on 1 October2010 at par. The Eurobonds bear interest rate at 6.2% p.a. payable semi-annually. From 1 October 2010 interest rateunder the Eurobonds is equal to US Treasury yield increased by 226 b.p. and step-up of 150 b.p. In August 2010 theGroup announced a decision not to exercise the redemption option. The transaction was structured as an issue ofnotes by Or-ICB S.A. (Luxembourg) for the purpose of financing a subordinated loan to OJSC “Bank VTB North-West”. As at 31 December 2011 the carrying amount of this subordinated debt was RUR 11.1 billion (31 December2010: RUR 10.2 billion).In October and November 2008, VTB received two subordinated loans of RUR 100 billion each with a rate of 8% p.a.maturing in December 2019 from Vnesheconombank (VEB), which is a related party to the Group. As at31 December 2008 in accordance with IAS 20 Accounting for Government Grants and Disclosure of GovernmentAssistance the Group discounted these loans using an appropriate market rate adjusted for loan premium. In August2010 an interest rate on these two subordinated loans was reduced from 8% to 6.5% p.a. in accordance with theFederal Law requirements. As at 31 December 2011 the carrying amount of this subordinated debt wasRUR 179.7 billion (31 December 2010: RUR 178.0 billion).41

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)24. Subordinated Debt (continued)Over a period from 2003 to 2009 “TransCreditBank”, JSC received subordinated loans from JSC “RZD” and itsrelated parties in the aggregate amount of RUR 13.1 billion with interest rates from 9% p.a. to 12.1% p.a. maturing inthe period from December 2012 to November 2020. As at 31 December 2011 the carrying amount of thissubordinated debt was RUR 14.2 billion. As at 31 December 2010 the carrying amount of these subordinated loanswas RUR 14.5 billion which represented the fair value determined on the acquisition date for the consolidationpurposes.In July 2009, “TransCreditBank”, JSC received a subordinated loan of RUR 2.9 billion with an interest rate of 8% p.a.maturing in October 2019 from Vnesheconombank (VEB), which is a related party to the Group. In August 2010 aninterest rate on this subordinated loan was reduced from 8% to 6.5% p.a. in accordance with the Federal Lawrequirements. As at 31 December 2011 the carrying amount of this subordinated debt was RUR 2.9 billion. As at31 December 2010 the carrying amount of this subordinated loan was RUR 2.8 billion, which represented the fairvalue determined on the acquisition date for the consolidation purposes.In November 2005, “Bank of Moscow”, OJSC issued USD 300 million subordinated Loan Participation Notes dueNovember 2015 bearing interest rate 7.5% p.a. payable semi-annually and with early redemption call option inNovember 2010, which was not exercised. From 25 November 2010 step-up interest rate was set at 5.967%, equal to5-year US Treasury yield increased by 306.7 b.p. and step-up of 150 b.p. The transaction was structured as an issueof notes by “Kuznetski Capital” S.A. (Luxembourg) for the purpose of financing a subordinated loan to “Bank ofMoscow”, OJSC. As at 31 December 2011 the carrying amount of this subordinated debt was RUR 9.0 billion.In December 2006, “Bank of Moscow”, OJSC received a subordinated loan of USD 100 million with an interest rate ofLIBOR + 2.65% p.a. maturing in December 2016 from Royal Bank of London N.V. (London). As at 31 December2011 the carrying amount of this subordinated debt was RUR 3.2 billion.In May 2007, “Bank of Moscow”, OJSC issued USD 400 million subordinated Loan Participation Notes due in May2017 bearing interest rate 6.807% p.a. payable semi-annually and with early redemption call option in May 2012. Thestep-up interest rate is equal to 5-year US Treasury yield increased by 375 b.p. and step-up of 150 b.p. Thetransaction was structured as an issue of notes by “Kuznetski Capital” S.A. (Luxembourg) for the purpose of financinga subordinated loan to “Bank of Moscow”, OJSC. As at 31 December 2011 the carrying amount of this subordinateddebt was RUR 10.8 billion.In October 2009, “Bank of Moscow”, OJSC received a subordinated loan of RUR 11.1 billion with an interest rate of8.0% p.a. maturing in December 2019 from Vnesheconombank (VEB), which is a related party to the Group. InAugust 2010 an interest rate on this subordinated loan was reduced to 6.5% p.a. in accordance with the Federal Lawrequirements. As at 31 December 2011 the carrying amount of this subordinated debt was RUR 10.2 billion.25. Other Liabilities31 December201131 December2010Financial liabilities at fair value through profit or loss – held for trading(negative fair value of derivatives (Note 36)) 81.5 36.0Amounts in course of settlement 29.8 18.2Obligation to purchase non-controlling interests 21.1 –Payable to employees 16.6 14.9Other liabilities related to non-banking activities 13.5 9.4Trade creditors and prepayments received 10.5 2.6Obligation to deliver securities 8.1 4.2Insurance reserves 5.8 2.0Liabilities to pay taxes 5.1 7.1Non-controlling interests in consolidated mutual funds 4.2 3.7Liabilities on pension plans 2.2 4.0Provisions for credit related commitments and legal claims (Note 32) 2.0 1.7Advances received from lessees 1.5 0.7Deferred income 1.2 1.1Dividends payable 0.2 0.2Other 6.1 5.1Total other liabilities 209.4 110.942

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)25. Other liabilities (continued)As at 30 September 2011 the Group recognized obligation to purchase non-controlling interests of RUR 21.9 billionas a financial liability arising from a forward purchase agreement with a related party to the Group to acquire a noncontrollinginterest share in “TransCreditBank”, JSC held by this related party. In accordance with the forwardpurchase agreement the settlement amount to be paid by the Group in the future period is calculated in accordancewith a formula specified in the forward purchase agreement. The determination of the fair value is based ondiscounted cash flows method, and key assumptions take into consideration the expected performance of“TransCreditBank”, JSC and the discount factor.The Group continues to recognize non-controlling interests in “TransCreditBank”, JSC over which the forwardpurchase agreement is concluded as the non-controlling shareholder has a present ownership interest in theunderlying shares. As at 31 December 2011 the carrying amount of obligation to purchase non-controlling interestswas RUR 21.1 billion.26. Share CapitalAuthorized, issued and fully paid share capital of the Bank comprises:31 December 2011 31 December 2010Nominal Numberamount of sharesNumberof sharesNominalamountOrdinary shares 10,460,541,337,338 113.1 10,460,541,337,338 113.1Total share capital 10,460,541,337,338 113.1 10,460,541,337,338 113.1Contributions to the Bank’s share capital were originally made in RUR, foreign currency and gold bullion. All ordinaryshares have nominal value of RUR 0.01, rank equally and carry one vote.During 2011 the net change in Group members’ balances of the Bank’s shares increased by 6,542,473,783 and thenumber of treasury shares increased to 9,677,493,999. As a result, the number of the outstanding shares at31 December 2011 amounted to 10,450,863,843,339.During 2010 the net change in Group members’ balances of the Bank’s shares increased by 357,608,449 and thenumber of treasury shares increased to 3,135,020,216. As a result, the number of the outstanding shares at31 December 2010 amounted to 10,457,406,317,122.As at 31 December 2011 authorized but not issued shares comprise 10,263,597,171,681 shares (2010:10,263,597,171,681) with a par value of RUR 0.01 each.As at 31 December 2011 and 2010, the reserves included both distributable and non-distributable reserves.27. Interest Income and ExpenseInterest income2011 2010Financial assets at fair value through profit or loss 28.3 19.2Loans and advances to customers 376.7 301.5Due from other banks 8.8 7.1Other financial assets, including securities 2.9 2.7Financial assets not at fair value through profit or loss 388.4 311.3Total interest income 416.7 330.5Interest expenseCustomer deposits (112.6) (85.9)Debt securities issued (36.8) (40.1)Due to other banks and other borrowed funds (23.1) (16.4)Subordinated debt (17.2) (17.0)Total interest expense (189.7) (159.4)Net interest income 227.0 171.143

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)28. Gains Less Losses Arising from Financial Instruments at Fair Value Through Profit or Loss2011 2010(Losses net of gains) / gains less losses arising from trading financialinstruments (23.8) 13.9(Losses net of gains) / gains less losses arising from financial instrumentsdesignated as at fair value through profit or loss (6.0) 0.9Losses net of gains from financial obligation to purchase non-controllinginterests (Note 25) (1.0) –Total (losses net of gains) / gains less losses arising from financialinstruments at fair value through profit or loss (30.8) 14.829. Fee and Commission Income and Expense2011 2010Commission on settlement transactions 24.8 15.4Commission on guarantees issued and trade finance 6.6 3.9Commission on operations with securities and capital markets 5.9 4.5Commission on cash transactions 5.3 2.9Other 4.8 2.1Total fee and commission income 47.4 28.8Commission on settlement transactions (5.0) (2.2)Commission on cash transactions (1.9) (1.0)Other (1.3) (0.9)Total fee and commission expense (8.2) (4.1)Net fee and commission income 39.2 24.730. Income Arising from Non-Banking Activities and Other Operating IncomeIncome arising from non-banking activities for 2011 and 2010 was as follows:2011 2010Operating lease and rental income 5.8 2.1Net insurance premium earned 5.6 2.3Revaluation of investment property 4.5 0.2Sale of property intended for sale in the ordinary course of business 0.1 3.8Other 4.4 2.6Total income arising from non-banking activities 20.4 11.0Other operating income for 2011 and 2010 was as follows:2011 2010Income arising from disposal of property 4.4 0.1Dividends received 0.9 0.9Fines and penalties received 0.8 0.2Other 3.1 1.9Total other operating income 9.2 3.144

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)31. Staff Costs and Administrative Expenses2011 2010Staff costs 69.2 47.3Defined contribution pension expense 5.4 3.1Depreciation and other expenses related to premises and equipment 16.9 11.6Taxes other than on income 7.3 5.0Leasing and rent expenses 6.6 4.8Advertising expenses 5.8 4.2Professional services 5.3 4.7Impairment, amortization and other expenses related to intangibles, except foramortization of core deposit intangible 4.3 2.1Payments to deposit insurance system 3.5 2.2Post and telecommunication expenses 2.8 2.0Transport expenses 2.3 1.2Charity 1.9 1.5Security expenses 1.9 1.3Amortization of core deposit and customer loan intangibles 1.9 1.0Insurance 0.5 0.7Other 5.9 2.4Total staff costs and administrative expenses 141.5 95.132. Allowances for Impairment and ProvisionsThe movements in allowances for impairment of due from other banks by classes for 2011 and 2010 were as follows:Russia OECD Other Total31 December 2009 0.5 0.1 0.7 1.3Provision for impairment during the period 1.6 – – 1.631 December 2010 2.1 0.1 0.7 2.9(Reversal of provision) / provision forimpairment during the period (0.3) (0.1) 0.1 (0.3)31 December 2011 1.8 – 0.8 2.6The movements in allowances for impairment of loans and advances to legal entities by class for 2011 and 2010were as follows:Reverse saleFinanceleasesCurrentactivityfinancingand repurchaseagreements withlegal entitiesProjectfinance andother Total31 December 2009 12.3 126.3 0.1 66.5 205.2Provision for impairment /(reversal of provision) duringthe period (0.1) 24.7 – 14.7 39.3Write-offs – (4.5) – (4.6) (9.1)Recoveries of amounts writtenoffin previous period – 0.7 – – 0.7Currency translation difference – (0.4) – 0.7 0.331 December 2010 12.2 146.8 0.1 77.3 236.4Provision for impairment /(reversal of provision) duringthe period 4.8 (4.9) (0.1) 21.1 20.9Write-offs (0.6) (9.3) – (2.2) (12.1)Recoveries of amounts writtenoffin previous period – – – 0.1 0.1Currency translation difference 0.1 0.6 – (2.2) (1.5)Reclassification to assets ofdisposal group held for sale – – – (0.1) (0.1)31 December 2011 16.5 133.2 – 94.0 243.745

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)32. Allowances for Impairment and Provisions (continued)Allowance for finance leases represents allowances for loans to leasing companies and net investment in leases.The movements in allowances for impairment of loans and advances to individuals by class for 2011 and 2010 wereas follows:MortgagesCar loansConsumerloans andother31 December 2009 5.4 2.8 21.5 29.7Provision for impairment during the period 3.9 0.5 6.5 10.9Write-offs (0.1) (0.1) (2.8) (3.0)Recoveries of amounts written-off in previousperiod 0.1 – 0.1 0.231 December 2010 9.3 3.2 25.3 37.8Provision for impairment / (reversal of provision)during the period (0.6) 0.5 11.1 11.0Write-offs (0.3) – (4.1) (4.4)Recoveries of amounts written-off in previousperiod – – 0.1 0.1Currency translation difference 0.1 – 0.2 0.331 December 2011 8.5 3.7 32.6 44.8TotalThe movements in allowances for impairment of other assets and investment securities held-to-maturity andprovisions for credit related commitments and legal claims were as follows:Other assetsInvestmentsecuritiesheld-tomaturityCredit relatedcommitments Legal claims Total31 December 2009 1.4 2.2 1.6 0.1 5.3Provision for impairment /(reversal of provision) duringthe period 2.1 (0.2) – 0.1 2.0Currency translation difference (1.1) – – (0.1) (1.2)31 December 2010 2.4 2.0 1.6 0.1 6.1Provision for impairment /(reversal of provision) duringthe period 1.3 – (0.7) 0.8 1.4Write-offs (1.0) – – – (1.0)Acquisition of subsidiary – – 0.2 – 0.231 December 2011 2.7 2.0 1.1 0.9 6.7–Allowances for impairment of assets are deducted from the carrying amounts of the related assets. Provisions forclaims, guarantees and credit-related commitments are recorded in liabilities. In accordance with Russian legislation,loans may only be written-off with the approval of the authorized management body and, in certain cases, with therespective decision of the Court.46

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)33. Income TaxIncome tax expense and income tax recovery comprise the following:2011 2010Current tax expense 24.1 24.5Deferred taxation movement due to the origination and reversal of temporarydifferences 0.9 (8.2)Income tax expense for the year 25.0 16.3The income tax rate applicable to the majority of the Group’s income in 2011 is 20% (2010: 20%). The income taxrate applicable to subsidiaries’ income ranges from 10% to 32% in 2011 (2010: 10% to 32%).2011 2010IFRS profit before taxation 115.5 71.1Theoretical tax expense at the applicable statutory rate of each companywithin the Group 24.9 14.1Tax effect of items, which are not deductible or assessable for taxationpurposes:- Change in unrecognized deferred taxes (1.9) (0.4)- Non-deductible expenses 4.4 2.8- Unrecognized deferred tax effect related to investments in subsidiaries andassociates – 0.2- Adjustments recognized in the period for current tax of prior periods 0.3 0.4- Income, which is exempt from taxation (0.2) (0.1)- Income taxed at different rates (3.8) (0.1)- Income recorded in tax books only 0.1 –- Effect of change in tax rates 0.2 0.1- Other 1.0 (0.7)Income tax expense for the year 25.0 16.3The difference between the theoretical and actual income tax expense for 2011 is mainly attributable to nondeductibleexpenses and income taxed at different rates (for 2010 is mainly attributable to non-deductible expenses).47

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)33. Income Tax (continued)Differences between IFRS and taxation regulations give rise to certain temporary differences between the carrying amount of certain assets and liabilities for financial reporting purposesand for profits tax purposes. The tax effect of the movement on these temporary differences is recorded at rates from 10% to 32% (2010: from 10% to 32%). The Bank and its subsidiarieshave no right to set off current tax assets and tax liabilities between legal entities, so deferred tax assets and deferred tax liabilities are separately assessed for each entity.Origination and reversal of temporarydifferences 2009Origination and reversal oftemporary differencesCredited/(charged) toprofit or lossCurrencytranslationdifferenceBusinesscombination 2010Origination and reversal oftemporary differencesCredited/(charged) toprofit or lossCredited/(charged) toothercomprehensiveincomeCurrencytranslationdifferenceDisposalGroup heldfor saleBusinesscombination 2011Tax effect of deductible temporarydifferences:Fair value of loans acquired throughbusiness combinations – – – 0.5 0.5 (3.3) – – – 31.8 29.0Allowances for impairment and provisionsfor other losses 16.8 3.1 – – 19.9 0.7 – 0.1 – – 20.7Tax losses carried forward 14.6 0.3 (0.2) – 14.7 (2.5) – 0.1 – 5.5 17.8Fair value measurement of derivatives 0.8 (0.4) – – 0.4 – – – – – 0.4Accruals 10.2 4.4 – 0.8 15.4 4.3 – – – 0.7 20.4Fair value of securities 0.7 0.1 – 0.3 1.1 0.5 (0.8) – – 5.8 6.6Fair value of investment property 1.5 0.5 – 0.5 2.5 1.3 – – – 0.6 4.4Other 1.6 (0.7) – 0.9 1.8 2.9 – 0.1 (0.5) 2.3 6.6Gross deferred tax assets 46.2 7.3 (0.2) 3.0 56.3 3.9 (0.8) 0.3 (0.5) 46.7 105.9Unrecognized deferred tax assets (8.2) 0.4 – (0.1) (7.9) 1.9 – – – (1.4) (7.4)Gross deferred tax asset 38.0 7.7 (0.2) 2.9 48.4 5.8 (0.8) 0.3 (0.5) 45.3 98.5Tax effect of taxable temporarydifferences:Fair value measurement of securities – (0.8) – (0.3) (1.1) 0.6 – – – (1.6) (2.1)Property and equipment (3.8) (0.2) 0.1 (0.3) (4.2) (1.9) – – – (1.7) (7.8)Intangible assets (0.3) 0.3 – (1.0) (1.0) 0.4 – – – (5.4) (6.0)Net investment in lease (2.1) 0.6 – – (1.5) 0.7 – – – – (0.8)Fair value of investment property (4.5) (0.5) – (1.8) (6.8) (3.2) – – – (0.7) (10.7)Allowances for impairment and provisionsfor other losses – – – (0.4) (0.4) 0.3 – – – – (0.1)Fair value measurement of derivatives – (0.1) – (0.4) (0.5) (1.6) – – – – (2.1)Other borrowed funds – – – – – 0.7 – – – (30.4) (29.7)Other (2.9) 1.2 – (0.6) (2.3) (2.7) – (0.2) – (1.3) (6.5)Gross deferred tax liability (13.6) 0.5 0.1 (4.8) (17.8) (6.7) – (0.2) – (41.1) (65.8)Deferred tax asset, net 31.4 6.0 (0.2) 0.7 37.9 0.5 (0.8) (0.1) (0.5) 5.7 42.7Deferred tax liability, net (7.0) 2.2 0.1 (2.6) (7.3) (1.4) – 0.2 – (1.5) (10.0)48

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)33. Income Tax (continued)As at 31 December 2011 VTB, “VTB Arena”, CJSC, “VTB Bank (Austria)” AG and “VTB Bank (Georgia)”, JSC hadunused tax losses of RUR 23.1 billion (2010: VTB, “VTB Capital”, Plc and “VTB Bank (Georgia)”, JSC –RUR 29.1 billion) for which no deferred tax asset was recognized due to uncertainty that these entities wouldanticipate to have sufficient future taxable profits against which unused tax losses could be utilized. Tax losses ofVTB incurred in 2008-2009 can be utilized over next 7-8 years in accordance with the Russian Tax Coderequirements. Losses of “VTB Bank (Austria)” AG and “VTB Capital”, Plc do not expire.As at 31 December 2011, the aggregate amount of temporary differences associated with investments in subsidiaries,associates and joint ventures for which deferred tax liability has not been recognized amounted to RUR 17.7 billion(31 December 2010: RUR 14.2 billion).The following table provides disclosure of income tax effects relating to each component of other comprehensiveincome for 2011 and 2010:2011 2010BeforetaxTax(expense)/recoveryNet of taxBeforetaxTax(expense)/recoveryNet of taxNet result on financial assets availablefor-sale,net of tax 3.5 (0.8) 2.7 0.6 – 0.6Actuarial losses net of gains arising fromdifference between pension planassets and obligations (0.5) – (0.5) (0.2) – (0.2)Share of other comprehensive incomeof associates and joint ventures (0.5) – (0.5) (0.2) – (0.2)Effect of translation 2.4 – 2.4 (2.4) – (2.4)Other comprehensive income 4.9 (0.8) 4.1 (2.2) – (2.2)34. Basic and Diluted Earnings per ShareBasic earnings per share are calculated by dividing the net profit or loss attributable to ordinary shareholders by theweighted average number of ordinary shares in issue during the year, excluding the average number of ordinaryshares purchased by the Group and held as treasury shares.The Group has no dilutive potential ordinary shares; therefore, the diluted earnings per share are equal to basicearning per share.2011 2010Net profit attributable to shareholders of the parent 89.4 58.2Weighted average number of ordinary shares in issue 10,458,649,872,302 10,458,002,643,882Basic and diluted earnings per share(expressed in Russian Roubles per share) 0.00855 0.0055735. DividendsThe Regulation on VTB’s Dividend Policy states that the proposals on dividend payments are made by theSupervisory Council taking into consideration the Bank’s financial performance in the appropriate year and otherfactors and, as a rule, should envisage a dividend payment constituting at least 10 percent of the Bank’s statutory netprofit. The dividend payment is proposed by the VTB Supervisory Council to the General Shareholders’ Meeting. Thefinal decision on dividend payment, including decisions on dividend amount and payout mode, is taken by the GeneralShareholders’ Meeting.The amount of dividends to be declared and paid is decided at the VTB’s annual shareholders’ meeting on the basisof VTB’s net profit for the previous fiscal year determined in accordance with Russian Accounting Legislation on astand-alone basis.In June 2011 the annual general meeting of VTB shareholders declared dividends in the amount of RUR 6.1 billion for2010 (RUR 0.00058 per share). In June 2010 the annual general meeting of VTB shareholders declared dividends ofRUR 6.1 billion for 2009 (RUR 0.00058 per share).In July 2011 “Russian Commercial Bank (Cyprus) Limited” paid interim dividends in the amount of USD 100 million(RUR 2.8 billion), including USD 40 million (RUR 1.1 billion) attributable to non-controlling shareholders.49

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)36. Contingencies, Commitments and Derivative Financial InstrumentsLegal proceedings. From time to time and in the normal course of business, claims against the Group are received.As at the reporting date the Group had several unresolved legal claims. Management is of the opinion that therewould be no material outflow of resources and accordingly no material provision has been made in these consolidatedfinancial statements.Tax contingencies. Transfer pricing legislation became effective in the Russian Federation on 1 January 1999. Thislegislation allows the tax authorities to make transfer pricing adjustments and impose additional tax liabilities inrespect of all “controlled” transactions, provided that the transaction price differs from the market price by more than20 percent. “Controlled” transactions include transactions with related parties, barter transactions, foreign tradetransactions and transactions with third (unrelated) parties with significant price fluctuations (i.e., if the price of suchtransactions differs from the prices on similar transactions by more than 20 percent within a short period of time). Inaddition, specific transfer pricing rules allow the tax authorities to make transfer pricing adjustments in respect ofsecurities and derivative transactions. There has been no formal guidance as to how some of the rules relating totransfer pricing legislation should apply.The new transfer pricing rules became effective from 1 January 2012. Compared to the previous Russian transferpricing rules, the new rules are more technically elaborate and, to a certain extent, better aligned with the internationaltransfer pricing principles developed by the OECD. The list of the “controlled” transactions under the new transferpricing legislation includes transactions with related parties and certain types of cross-border transactions. The newtransfer pricing rules may have a potential impact on tax costs arising from the pricing mechanism applied in“controlled” transactions, in particular, transactions with related parties located in and outside of Russia. The price ofthe “controlled” transactions should be confirmed by functional and benchmarking analysis as well as by the relevanttransfer pricing documentation which should be available for the Russian tax authorities.The tax authorities will have right to accrue additional tax liabilities if the prices under the “controlled” transactionsdiffer from those which would have been used by independent counterparties under similar conditions. However, it isstill unclear what effect the new transfer pricing rules may have on the Russian entities of the Group.The Group also operates in various jurisdictions and includes companies incorporated outside of Russia that aretaxed at different rates and under different legislation. Tax liabilities of the Group are determined on the basis thatthese companies do not have a permanent establishment in Russia and hence are not subject to Russian profits taxexcept for Russian tax withheld at source (i.e. dividend, interest, certain capital gains, etc.). Russian tax laws do notprovide detailed rules on taxation of foreign companies. It is possible that with the evolution of these rules andchanges in the approach of the Russian tax authorities, some or all of the foreign companies of the Group may betreated as having a permanent establishment in Russia and thus subject to Russian taxation in a manner broadlysimilar to the taxation of a Russian legal entity.The interpretations of the relevant authorities could differ and if the authorities were successful in enforcing theirinterpretation, additional taxes and related fines and penalties may be assessed, the effect, of which cannot be practicablyestimated, but could be significant to the financial condition of the Group. However, based upon Management’sunderstanding of the tax regulations, Management believes that its interpretation of the relevant tax legislation isreasonable and will be sustainable. Moreover, Management believes that the Group has accrued all applicable taxes.The Group includes subsidiaries incorporated and operating in various jurisdictions. In some jurisdictions where theGroup operates tax, currency and customs legislation as currently in effect is subject to varying interpretations, andchanges, which can occur frequently at short notice and may apply retroactively. Based upon its understanding of theapplicable tax regulations Management of the Group believes that based upon the best estimates Group subsidiarieshave paid or accrued all taxes that are applicable to their operations as of 31 December 2011, in jurisdictions of theirincorporation, and complied with all provisions of laws and regulations in the jurisdictions to which the Group issubject. If however the relevant tax authorities differently interpret the applicable tax legislation as applied to thetransactions and activity of the Group, the tax position may be challenged; if the authorities were successful inenforcing their interpretation of these regulations, additional taxes, penalties and interest may be assessed, whichmay affect the financial position of the Group.The Russian Ministry of Finance on its official website placed a draft of Federal Law which defines the conditions ofexemption for companies reside in Russia from the tax agent’s obligations in case such companies pay income toforeign companies which issue Eurobonds. Such draft appeared due to the Russian Ministry of Finance opinion thatspecial purpose entities set up in Ireland to issue Eurobonds are not eligible for the benefits of the double tax treatybetween Ireland and Russia with regard to interest payments. If this view were to be enforced by the Russian taxauthorities (and potentially applied to other structured entities set up for issuing bonds from any foreign jurisdictionother than Ireland), the Group may face a fine at 20% of tax not withheld on interest paid on Eurobonds for the periodof 2011 and for prior periods and late payment interest. If such Federal Law is adopted as proposed by the RussianMinistry of Finance, the tax contingency will be fully remediated for 2011 and prior periods. At the moment the draft ofthe Law is in the State Duma and is planned to be adopted during 2012 year. Management believes its tax positionwith respect to the Eurobonds is sustainable and the resolution of this contingency will not have a material effect onthe consolidated financial statements of the Group.50

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)36. Contingencies, Commitments and Derivative Financial Instruments (continued)Credit related commitments. The primary purpose of these instruments is to ensure that funds are available to acustomer as required. Guarantees that represent irrevocable assurances that the Group will make payments in theevent that a customer cannot meet its obligations to third parties carry the same credit risk as loans. Documentaryand commercial letters of credit (L/Cs), which are written undertakings by the Group on behalf of a customerauthorizing a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions,are collateralized by cash deposits and therefore carry less risk than direct borrowings.Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans,guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentiallyexposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less thanthe total unused commitments since most commitments to extend credit are contingent upon customers maintainingspecific credit standards and/or the Bank confirming its willingness to extend a loan. The Group monitors the term tomaturity of credit related commitments because longer-term commitments generally have a greater degree of creditrisk than shorter-term commitments.The total outstanding contractual amount of irrevocable undrawn credit lines, letters of credit and guarantees does notnecessarily represent future cash requirements, as these financial instruments may expire or terminate without beingfunded.Outstanding credit related commitments are as follows:31 December201131 December2010Guarantees issued 510.9 216.5Undrawn credit lines 43.1 21.5Letters of credit 35.4 28.6Commitments to extend credit 36.7 –Less: provision for impairment on credit related commitments (Note 32) (1.1) (1.6)Total credit related commitments 625.0 265.0The Bank has received export letters of credit for further advising to its customers. The total amount of receivedletters of credit as at 31 December 2011 is RUR 172.8 billion (31 December 2010: RUR 154.0 billion). Commitmentsunder import letters of credit and guarantees are collateralized by customer deposits of RUR 11.9 billion(31 December 2010: RUR 9.6 billion).As at 31 December 2011, included in guarantees issued are guarantees issued for a Russian company ofRUR 27.4 billion or 5% of the guarantees issued. As at 31 December 2010, included in guarantees issued areguarantees issued for 2 related Russian companies of RUR 48.1 billion or 22% of the guarantees issued.Commitments under operating leases. The Group’s commitments under operating leases mainly of premisescomprised the following:Remaining contractual maturity31 December201131 December2010Not later than 1 year 3.5 2.9Later than 1 year but not later than 5 years 6.2 5.1Later than 5 years 3.7 3.4Total operating lease commitments 13.4 11.4Derivative financial instruments. Foreign exchange and other financial instruments are generally traded in an overthe-countermarket with professional market counterparties on standardized contractual terms and conditions.51

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)36. Contingencies, Commitments and Derivative Financial Instruments (continued)The table below includes derivative contracts outstanding at 31 December 2011:Positivefair valueNegativefair valueForeign exchange and precious metals contractsForwards 5.5 (2.6)Futures 3.6 (1.6)Swaps 12.8 (16.5)Optionswritten put – (2.4)purchased put 2.2 –written call – (1.6)purchased call 0.8 –Contracts with securitiesForward purchase of Debt Securities 0.2 (0.2)Forward sale of Equity Securities 0.1 –Futures sale of Equity Securities – (0.1)Optionswritten put – (0.6)purchased put 3.5 –written call – (0.9)purchased call 1.2 –Interest Rate contractsSingle Currency Interest Rate swaps 11.9 (23.2)Cross Currency Interest Rate swaps 23.3 (18.2)Swaptionsbuy 0.1 –sell 0.1 (0.1)Interest Rate futuressell – (0.1)Contracts with other basic variablesSale of Credit Default swaps 8.5 (0.8)Purchase of Credit Default swaps 1.2 (9.5)Options on Indexeswritten put – (1.1)purchased put 1.1 –written call – (0.3)purchased call 0.2 –Commodity swaps 1.6 (1.7)Commodity futuressell 0.6 –Embedded derivatives on structured instrumentsEmbedded derivatives on forex instruments 0.4 –Derivatives held as fair value hedgesInterest Rate swaps 0.5 –Total derivatives 79.4 (81.5)52

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)36. Contingencies, Commitments and Derivative Financial Instruments (continued)The table below includes derivative contracts outstanding at 31 December 2010:Positivefair valueNegativefair valueForeign exchange and precious metals contractsForwards 3.0 (1.5)Futures 0.5 (0.5)Swaps 9.7 (1.8)Optionswritten put – (1.5)purchased put 0.5 –written call – (1.6)purchased call 0.4 –Contracts with securitiesForward purchase of Equity Securities 0.1 –Optionswritten put – (0.5)purchased put 3.3 –written call – (3.4)purchased call 3.6 –Interest Rate contractsSingle Currency Interest Rate swaps 3.9 (15.2)Cross Currency Interest Rate swaps 8.3 (4.7)Interest Rate futuressell – (0.1)buy – (0.2)Contracts with other basic variablesSale of Credit Default swaps – (0.6)Purchase of Credit Default swaps 0.1 –Futures on Indicesbuy 0.3 (0.3)Options on Indiceswritten put – (0.2)purchased put 0.2 –written call – (0.5)purchased call 0.4 –Commodity swaps 2.8 (2.9)Commodity futuressell – (0.4)buy 0.1 –Options on Commoditieswritten call – (0.1)purchased call 0.1 –Embedded derivatives on structured instrumentsEmbedded derivatives on forex instruments 1.6 –Derivatives held as fair value hedgesInterest Rate swaps 0.6 –Total derivatives 39.5 (36.0)Purchase commitments. As at 31 December 2011 the Group had RUR 21.1 billion of outstanding commitments forthe purchase of precious metals (31 December 2010: RUR 26.8 billion). As the price of these contracts is linked to thefair value of precious metals at the date of delivery, no gain or loss is recognized on these contracts.53

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)37. Analysis by SegmentIn accordance with IFRS 8, Operating Segments, the Group defined as the major operating segments the globalbusiness lines. Majority of the Group’s entities’ activities and resources are allocated and managed and theirperformance is assessed based on the respective global business line segment information. These operatingsegments represented by the global business lines are accompanied by entity based segments of those Group’sentities that have not yet been integrated into the global business lines as of the reporting date. On this basis, theGroup aggregated these operating segments in accordance with IFRS 8 into the following reportable segments:Corporate-Investment banking (CIB) (Investment banking, Loans and Deposits, Transaction banking subsegments),Retail banking, CIS and Georgia, and Other.This segment disclosure is presented on the basis of IFRS compliant data of the global business lines and entitiesadjusted, where necessary, for intersegment reallocation. Qualitative and quantitative information about operatingsegments is reported to the appropriate operating decision makers for the purposes of making operating decisions onallocation of resources to the segment and assessment of its performance.The change in reportable segment composition is mainly caused by the change in the system of the Groupmanagement and the integration of activities of certain entities into the global business lines. The united Corporate-Investment Banking function in the Group was established in the first quarter 2011, which resulted in the combinationof Corporate business and Investment business reportable segments data presented in 2010 annual consolidatedfinancial statements into the one Corporate-Investment banking (CIB) segment with further subdivision to3 subsegments as described above. Additionally following the further integration of activities of “TransCreditBank”,JSC, “VTB Bank”, PJSC (Ukraine) and “Bank of Moscow”, OJSC into the Group’s global business lines such as CIBand Retail banking, the data for these subsidiaries is presented within CIB, Retail and Other segments starting fromthe second (“TransCreditBank”, JSC) and the third quarter 2011 (“VTB Bank”, PJSC (Ukraine) and “Bank of Moscow”,OJSC).Revenues disclosed in the note include the following: interest income, fee and commission income, other operatingincome, income arising from non-banking activities, gains less losses from financial assets available-for-sale, gainsless losses arising from financial assets at fair value through profit or loss, gains less losses from dealing in foreigncurrencies together with foreign exchange translation gains less losses, gains less losses arising from extinguishmentof liability, recovery of losses on initial recognition of financial instruments and loans restructuring and other gains /(losses) on loans and advances to customers and share in income of associates. Each element is included incalculation of revenues by each subsegment / segment without subsegments in case it is positive for this subsegment/ segment without subsegments. The totals are calculated as sum of the line components.Intersegment transactions were executed predominantly in the normal course of business.54

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)37. Analysis by Segment (continued)Segment information for the reportable segments of the Group at 31 December 2011 and results for the year ended 31 December 2011 is set out below:InvestmentbankingCorporate-Investment banking (CIB)Loans anddepositsTransactionbankingInter-CIBeliminations Total CIBRetailbankingCIS andGeorgia OtherTotal beforeIntersegmenteliminationsIntersegmenteliminations TotalFor the year ended 31 December 2011:Revenues from:External customers 45.2 311.5 15.6 – 372.3 140.0 2.8 18.0 533.1 – 533.1Other segments 51.0 41.2 15.9 (88.4) 19.7 34.8 – 2.4 56.9 (56.9) –Total revenues 96.2 352.7 31.5 (88.4) 392.0 174.8 2.8 20.4 590.0 (56.9) 533.1Segment income and expenseInterest income 62.5 303.8 15.8 (65.0) 317.1 146.3 2.3 1.1 466.8 (50.1) 416.7Interest expense (48.3) (177.8) (3.8) 65.0 (164.9) (67.1) (0.8) (6.7) (239.5) 49.8 (189.7)Net interest income 14.2 126.0 12.0 – 152.2 79.2 1.5 (5.6) 227.3 (0.3) 227.0(Provision charge) / reversal of provision for impairment ofdebt financial assets 0.1 (19.5) – – (19.4) (11.5) (0.3) (0.3) (31.5) (0.1) (31.6)Net interest income after provision for impairment 14.3 106.5 12.0 – 132.8 67.7 1.2 (5.9) 195.8 (0.4) 195.4(Losses net of gains) / gains less losses arising from otherfinancial instruments (19.6) (7.4) – 0.3 (26.7) (0.2) – (0.1) (27.0) 0.3 (26.7)Gains less losses arising from extinguishment of liability – (0.7) – – (0.7) – – – (0.7) – (0.7)Net recovery of losses / (losses) on initial recognition offinancial instruments, restructuring and other gains /(losses) on loans and advances to customers – 19.4 – – 19.4 0.8 – – 20.2 – 20.2Gains less losses / (losses net of gains) arising fromdealing in foreign currencies (7.0) 9.8 – – 2.8 2.8 0.2 0.3 6.1 – 6.1Foreign exchange translation (losses net of gains) / gainsless losses (0.4) (5.9) – – (6.3) (0.2) – – (6.5) – (6.5)Net fee and commission income / (expense) 5.4 3.9 14.0 (0.1) 23.2 18.3 0.2 (2.6) 39.1 0.1 39.2Share in income / (loss) of associates and joint ventures 0.3 7.5 – – 7.8 – – (0.3) 7.5 – 7.5(Provision charge) / reversal of provision for impairment ofother assets and credit related commitments – (1.3) – – (1.3) (0.1) (0.1) 0.1 (1.4) – (1.4)Other operating income / (expense) 23.4 (10.4) – (0.2) 12.8 1.3 0.1 8.6 22.8 (2.3) 20.5Operating income 16.4 121.4 26.0 – 163.8 90.4 1.6 0.1 255.9 (2.3) 253.6Staff costs and administrative expenses (16.7) (58.9) (6.8) 0.2 (82.2) (51.6) (1.4) (8.6) (143.8) 2.3 (141.5)- of which: depreciation / amortization charge (0.4) (7.3) (0.2) – (7.9) (3.0) (0.2) (1.4) (12.5) – (12.5)Profit from disposal of subsidiaries and associates 1.3 1.5 – – 2.8 – – 0.6 3.4 – 3.4Segment results: Profit before taxation 1.0 64.0 19.2 0.2 84.4 38.8 0.2 (7.9) 115.5 – 115.5Income tax expense (25.0)Net profit 90.5Capital expenditure 0.5 36.4 0.2 – 37.1 4.7 0.3 2.3 44.4 – 44.455

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)37. Analysis by Segment (continued)InvestmentbankingCorporate-Investment banking (CIB)Loans anddepositsTransactionbankingInter-CIBeliminations Total CIBRetailbankingCIS andGeorgia OtherTotal beforeIntersegmenteliminationsIntersegmenteliminations TotalAs at 31 December 2011:Cash and short-term funds 13.5 303.6 – (1.4) 315.7 107.7 1.7 6.0 431.1 (24.1) 407.0Mandatory reserve deposits with central banks – 56.3 – – 56.3 13.8 1.6 0.2 71.9 – 71.9Due from other banks 68.1 345.6 – – 413.7 9.3 1.0 0.6 424.6 – 424.6Loans and advances to customers 200.8 3,222.9 – – 3,423.7 851.3 17.2 9.4 4,301.6 – 4,301.6Other financial instruments 537.0 420.5 – (9.1) 948.4 18.5 1.3 2.6 970.8 (0.6) 970.2Investments in associates and joint ventures 2.8 27.7 – – 30.5 – – 2.0 32.5 – 32.5Other assets items 30.3 319.2 1.2 (0.3) 350.4 32.5 2.8 196.8 582.5 (0.7) 581.8Net amount of intersegment settlements 237.6 – 504.1 (741.7) – 446.3 – – 446.3 (446.3) –Segment assets 1,090.1 4,695.8 505.3 (752.5) 5,538.7 1,479.4 25.6 217.6 7,261.3 (471.7) 6,789.6Due to other banks 23.5 671.0 – (0.3) 694.2 20.8 1.7 0.1 716.8 (17.1) 699.7Customer deposits 759.6 1,027.6 504.7 (1.2) 2,290.7 1,298.5 10.3 1.5 3,601.0 (4.3) 3,596.7Other borrowed funds 55.2 664.6 – – 719.8 8.3 2.3 4.2 734.6 – 734.6Debt securities issued 98.9 560.4 – (4.8) 654.5 10.3 – 0.2 665.0 (0.5) 664.5Subordinated debt – 243.8 – (2.7) 241.1 – – – 241.1 – 241.1Other liabilities items 68.9 121.2 0.1 (1.5) 188.7 6.1 0.3 36.3 231.4 (3.5) 227.9Net amount of intersegment settlements – 1,087.1 – (741.7) 345.4 – 6.1 94.8 446.3 (446.3) –Segment liabilities 1,006.1 4,375.7 504.8 (752.2) 5,134.4 1,344.0 20.7 137.1 6,636.2 (471.7) 6,164.556

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)37. Analysis by Segment (continued)Segment information for the reportable segments of the Group at 31 December 2010 and results for the year ended 31 December 2010 is set out below:InvestmentbankingCorporate-Investment banking (CIB)Loans anddepositsTransactionbankingInter-CIBeliminations Total CIBRetailbankingCIS andGeorgia OtherTotal beforeIntersegmenteliminationsIntersegmenteliminations TotalFor the year ended 31 December 2010:Revenues from:External customers 50.8 224.9 9.8 – 285.5 102.6 2.4 11.6 402.1 – 402.1Other segments 41.2 23.1 11.4 (67.7) 8.0 16.1 – 1.4 25.5 (25.5) –Total revenues 92.0 248.0 21.2 (67.7) 293.5 118.7 2.4 13.0 427.6 (25.5) 402.1Segment income and expenseInterest income 53.5 242.1 11.2 (58.5) 248.3 101.4 1.9 0.8 352.4 (21.9) 330.5Interest expense (43.3) (140.4) (2.6) 58.5 (127.8) (47.2) (0.9) (5.4) (181.3) 21.9 (159.4)Net interest income 10.2 101.7 8.6 – 120.5 54.2 1.0 (4.6) 171.1 – 171.1(Provision charge) / reversal of provision for impairmentof debt financial assets (1.0) (35.2) – – (36.2) (14.9) (0.5) – (51.6) – (51.6)Net interest income after provision for impairment 9.2 66.5 8.6 – 84.3 39.3 0.5 (4.6) 119.5 – 119.5Gains less losses / (losses net of gains) arising fromother financial instruments 19.7 (5.5) – – 14.2 0.3 – 0.2 14.7 – 14.7Net recovery of losses / (losses) on initial recognition offinancial instruments, restructuring and other gains /(losses) on loans and advances to customers – 0.2 – – 0.2 (0.4) – – (0.2) – (0.2)(Losses net of gains) / gains less losses arising fromdealing in foreign currencies 3.7 (12.4) – – (8.7) 0.6 0.2 0.4 (7.5) – (7.5)Foreign exchange translation gains less losses 1.2 9.5 – – 10.7 1.3 – – 12.0 0.1 12.1Net fee and commission income / (expense) 2.8 2.2 9.3 (0.1) 14.2 11.3 0.2 (1.2) 24.5 0.2 24.7Share in (loss) / income of associates and joint ventures 0.4 0.2 – – 0.6 – – (1.3) (0.7) – (0.7)Provision charge for impairment of other assets andcredit related commitments – (1.6) – – (1.6) – – (0.6) (2.2) – (2.2)Other operating income / (expense) 10.0 (6.5) – (0.2) 3.3 1.1 0.1 3.8 8.3 (1.4) 6.9Operating income 47.0 52.6 17.9 (0.3) 117.2 53.5 1.0 (3.3) 168.4 (1.1) 167.3Staff costs and administrative expenses (16.3) (39.1) (3.6) 0.4 (58.6) (32.3) (1.1) (4.3) (96.3) 1.2 (95.1)- of which: depreciation / amortization charge (0.4) (4.5) – – (4.9) (2.3) (0.1) (0.8) (8.1) – (8.1)Impairment of goodwill – – – – – – – (1.1) (1.1) – (1.1)Profit from disposal of subsidiaries and associates 0.1 – – – 0.1 – – (0.1) – – –Segment results: Profit before taxation 30.8 13.5 14.3 0.1 58.7 21.2 (0.1) (8.8) 71.0 0.1 71.1Income tax expense (16.3)Net profit 54.8Capital expenditure 0.6 38.1 – – 38.7 2.9 0.2 0.9 42.7 – 42.757

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)37. Analysis by Segment (continued)InvestmentbankingCorporate-Investment banking (CIB)Loans anddepositsTransactionbankingInter-CIBeliminations Total CIBRetailbankingCIS andGeorgia OtherTotal beforeIntersegmenteliminationsIntersegmenteliminations TotalAs at 31 December 2010:Cash and short-term funds 5.1 198.4 – (2.2) 201.3 78.4 1.6 3.5 284.8 (9.3) 275.5Mandatory reserve deposits with central banks – 19.8 – – 19.8 6.0 0.6 – 26.4 – 26.4Due from other banks 82.6 245.6 – – 328.2 21.0 0.6 0.1 349.9 – 349.9Loans and advances to customers 132.1 2,078.6 (0.1) – 2,210.6 559.8 11.3 3.7 2,785.4 – 2,785.4Other financial instruments 282.5 147.3 – (5.1) 424.7 22.9 1.5 3.3 452.4 (0.8) 451.6Investments in associates and joint ventures 1.7 11.1 – – 12.8 – – 2.9 15.7 – 15.7Other assets items 22.6 192.7 1.4 (0.2) 216.5 24.0 2.5 148.4 391.4 (5.0) 386.4Net amount of intersegment settlements 304.2 – 336.9 (641.1) – 241.7 – – 241.7 (241.7) –Segment assets 830.8 2,893.5 338.2 (648.6) 3,413.9 953.8 18.1 161.9 4,547.7 (256.8) 4,290.9Due to other banks 8.1 389.8 – – 397.9 4.4 1.1 – 403.4 (6.1) 397.3Customer deposits 580.7 502.1 338.0 (2.2) 1,418.6 787.7 8.3 0.7 2,215.3 (2.4) 2,212.9Other borrowed funds 52.0 115.0 – – 167.0 11.9 0.9 5.9 185.7 – 185.7Debt securities issued 76.4 479.0 – (3.4) 552.0 41.0 – 0.3 593.3 (0.2) 593.1Subordinated debt – 205.9 – (0.4) 205.5 – – – 205.5 – 205.5Other liabilities items 44.2 50.0 0.2 (1.4) 93.0 9.9 0.3 21.2 124.4 (6.2) 118.2Net amount of intersegment settlements – 821.1 – (641.1) 180.0 – 2.8 58.9 241.7 (241.7) –Segment liabilities 761.4 2,562.9 338.2 (648.5) 3,014.0 854.9 13.4 87.0 3,969.3 (256.6) 3,712.758

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)37. Analysis by Segment (continued)Geographical segment information is based on geographical location of entities within the Group. Information for thegeographical areas of the Group is set out below for the years ended 31 December 2011 and 2010:RussiaOther2011 2010TotalbeforeintersegmenteliminationsIntersegmenteliminationsTotal Russia OtherTotalbeforeintersegmenteliminationsIntersegmenteliminationsRevenues fromexternal customersfor the year ended 434.8 74.3 509.1 – 509.1 334.7 61.6 396.3 – 396.3Non-current assets asat end of period 391.9 21.3 413.2 (0.2) 413.0 243.7 18.1 261.8 (0.2) 261.6Total38. Financial Risk ManagementThe Group is exposed to financial risks, including credit, liquidity and market risks.The Management Board of VTB has overall responsibility for risk management at VTB. In each subsidiary bank ofVTB risks are managed by the appropriate authorities, predominantly Supervisory Council (Board of Directors) andManagement Board. The standard organizational structure of subsidiary banks includes a Chief Risk Officer and Riskdivision responsible for risk management. In the subsidiary financial companies whose activity implies assumption offinancial risks (such as “VTB Leasing”, OJSC, “VTB Factoring” Ltd, “VTB Capital”, Plc and “VTB Capital Holding”,CJSC) the general principles of risk management organization are the same as in the subsidiary banks.In addition to that, on the Group level and within the Group members (including VTB, its subsidiary banks and abovementionedsubsidiary companies) a number of the collective bodies and units are established to coordinate day-todayconsolidated risk management activities. On a Group level risk management is overseen by the GroupManagement Committee (“GM ”).Being a high-level Group’s management coordination body, GMC considers the regular consolidated risk reports ofthe Group and takes decisions in the area of the Group’s risk management policies and procedures based on powersdelegated to it, in particular it approves Group-wide risk management standards and approaches. Decisions andrecommendations of the GMC taken in a coordinated and consolidated way serve as a basis for respectivemanagerial decisions in the entities of the Group.The Risk Management Commission (“RMC”) is one of the specialized commissions under the GMC which isresponsible for preparing drafts of approaches and procedures within the Group in respect of risk evaluation andmanagement, their submission for approval by the GM and further implementation, as well as for providing efficientinteraction between entities of the Group in this area. RM is chaired by Group Chief Risk Officer (the Senior Vice-President of VTB who is responsible for the Group-wide risk management) and includes chief risk officers ofsubsidiary banks / financial companies and representatives of VTB’s units involved in consolidated risk control (RiskDept., Financial Dept., Internal Control Dept. and others).The main tasks set for the RMC include:Regular supervising the risk management systems in VTB’s subsidiaries and review of the current profile andlevel of risks in VTB Group;Development and increase in the quality of risk management in the Group on the basis of applying and sharingbest practices, methodological and consulting support, implementation of unified risk management standards;Maintaining information gathering / interaction among the Group companies in the field of risk management,establishment and development of formats and procedures with respect to regular analytical reporting on theGroup risks;Preparation and discussion of draft basic documents in the field of consolidated risk control (including Groupconsolidated risk management concepts, basic principles and provisions of Group credit policies, regulationsfor setting and applying consolidated risk limits, calculation of Group Capital-at-Risk, etc.);The further professional and other necessary training of key staff in the field of risk management.59

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)In addition to that, in the area of balance sheet risks (which are taken into account within the Group Asset and LiabilityManagement system) the key role is played by Asset and Liabilities Management Commission (“ALMC”) under theGM . It is chaired by Head of VTB Treasury. The various issues with regard to Group liquidity, interest rate risks andforeign exchange risks are discussed and elaborated by ALMC.Within the process of the realization of the Group-wide policy for credit risk concentration control, the Group CreditCommittee continued working in this area during 2011.In VTB the Risk Department (“RD”) is responsible for independent financial risks management (in respect of liquidityrisk – jointly with Treasury). As at the end of 2011 RD consisted of the following sub-divisions:Consolidated risk analysis division;Credit risk division;Market and operational risks division;Credit applications analysis service.The functions of Consolidated risk analysis division in the area of risk management on a Group-wide basis includeunification of risk policies and procedures, participation in implementation of the concept of “economic capital” in VTBBank and VTB Group, Group data consolidation, development of consolidated risk control system and support ofactivities of appropriate Group coordination bodies. Market and operational risks division participates in consolidatedrisk management in respect of market and operational risks.The RD proposes risk limits on various banking operations and prepares recommendations regarding market risk andliquidity risk management for the Asset and Liability Management Committee of VTB (“ALCO”). The RD reports to theALCO, the VTB’s Credit Committee (“CC”) and the Management Board.The ALCO establishes major target parameters for VTB’s statement of financial position for the purposes of asset andliability management and monitors VTB’s compliance with these targets with the assistance of VTB’s RD. The ALCO,the CC, the RD and the Treasury carry out risk management functions in respect of credit, market (interest rate,currency and price) and liquidity risks.During 2011 the VTB continued to work on development and strengthening of the Group risk management (inaccordance with the VTB Group development strategy for 2010-2013), particularly, the VTB Management Boarddecided to reorganize during 2012 Consolidated risk analysis division and establish a new Risk strategy andmethodology division.Analysis of financial assets and liabilities by measurement basisFinancial assets and financial liabilities are measured on an ongoing basis either at fair value or at amortized cost.The summary of principal accounting policies in Note 5 describes how the classes of financial instruments aremeasured, and how income and expenses, including fair value gains and losses, are recognized.The following tables disclose the carrying amounts of financial assets and liabilities by category as defined in IAS 39and by lines in the statement of financial position.60

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Analysis of financial assets and liabilities by measurement basis (continued)As at 31 December 2011:Held fortradingDesignatedas at fairvaluethroughprofit orlossLoans andreceivablesHeld-tomaturityAvailablefor-saleFinancial Otherliabilities financialmeasured liabilitiesat amortized measuredcost at fair valueFinancial assetsCash and short-term funds – – – 407.0 – – – 407.0Mandatory cash balanceswith central banks – – – 71.9 – – – 71.9Financial assets at fair valuethrough profit or loss 540.7 30.8 – – – – – 571.5Financial assets pledgedunder repurchaseagreements and loanedfinancial assets 3.4 4.2 – 188.7 2.3 – – 198.6Due from other banks – – – 424.6 – – – 424.6Loans and advances tocustomers – – – 4,301.6 – – – 4,301.6Financial assetsavailable-for-sale – – – – 167.7 – – 167.7Investment securitiesheld-to-maturity – – 32.4 – – – – 32.4Other financial assets 0.2 0.5 – 16.8 – – – 17.5Total financial assets 544.3 35.5 32.4 5,410.6 170.0 – – 6,192.8Financial liabilitiesDue to other banks – – – – – 699.7 – 699.7Customer deposits – – – – – 3,596.7 – 3,596.7Other borrowed funds – – – – – 734.6 – 734.6Debt securities issued – – – – – 664.5 – 664.5Subordinated debt – – – – – 241.1 – 241.1Other financial liabilities 90.0 – – – – 38.5 21.1 149.6Total financial liabilities 90.0 – – – – 5,975.1 21.1 6,086.2Total61

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Analysis of financial assets and liabilities by measurement basis (continued)As at 31 December 2010:Held fortradingDesignatedas at fairvaluethroughprofit orlossLoansandreceivablesHeld-tomaturityAvailablefor-saleFinancialliabilitiesmeasuredatamortizedcostTotalFinancial assetsCash and short-term funds – – – 275.5 – – 275.5Mandatory cash balances with centralbanks – – – 26.4 – – 26.4Financial assets at fair value throughprofit or loss 320.0 24.6 – – – – 344.6Financial assets pledged underrepurchase agreements and loanedfinancial assets 7.5 3.4 – 1.3 4.7 – 16.9Due from other banks – – – 349.9 – – 349.9Loans and advances to customers – – – 2,785.4 – – 2,785.4Financial assets available-for-sale – – – – 55.9 – 55.9Investment securities held-to-maturity – – 34.2 – – – 34.2Other financial assets 0.2 0.6 – 21.1 – – 21.9Total financial assets 327.7 28.6 34.2 3,459.6 60.6 – 3,910.7Financial liabilitiesDue to other banks – – – – – 397.3 397.3Customer deposits – – – – – 2,212.9 2,212.9Other borrowed funds – – – – – 185.7 185.7Debt securities issued – – – – – 593.1 593.1Subordinated debt – – – – – 205.5 205.5Other financial liabilities 40.6 – – – – 24.9 65.5Total financial liabilities 40.6 – – – – 3,619.4 3,660.0Credit riskCredit risk is the risk of financial loss if a counterparty fails to meet its contractual obligations. VTB Group’s credit riskexposures arise principally from banking activities such as corporate and retail lending, issuance of letters of creditand guarantees, operations of Treasury, Investment Banking and leasing business.redit risk management within the Group is based on a combination of the following approaches:local credit risk management at the level of individual Group members;consolidated credit risk management at the Group level.Within the frame of the local credit risk management system, the Group members assume and manage credit risksindependently (including insurance, hedging, etc.) in the scope of the established powers and limits with regard to riskindicators, in accordance with the national regulations and the standards of the Group. The Group members areresponsible for the results of their lending activity, for the quality of their loan portfolios and for monitoring and controlof credit risk level in their portfolios.As per the “VTB Group Consolidated Risk Management Concept”, adopted by the GMC, the consolidated credit riskmanagement comprises the following functions:consideration and approval of the Group-wide strategy, policies, unified basic principles and approachesrelated to the lending / investment activities and credit risk management;control of the current credit risk level on a consolidated basis and elaboration of the necessary measures tomitigate risks (potential losses).Consolidated credit risk management covers the main types of assets and off-balance sheet exposures of the Groupmembers, which bear credit risk and require control of their concentration at the Group level. In the context ofconsolidated control and reporting the scope of such operations is defined by the coordinating bodies of the Group.62

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Credit risk (continued)The key elements of consolidated credit risk management in the Group are as follows:periodic review of the credit risk policies of the VTB Group, harmonizing and streamlining of credit policies ofthe subsidiaries with the Group’s credit policy;setting of consolidated limits, portfolio limits (including limits on common counterparties / groups of relatedcounterparties, countries, industry sectors), internal indicative limitations of large credit exposure, etc.;optimization and unifying within the Group credit procedures and methods of credit risk assessment (creditrating systems - for corporate customers and credit institutions, scoring systems – for retail customers);assessment of economic capital (Capital-at-Risk) sufficient to cover Group credit risks;consolidated analytical reporting on credit risks.“The basic principles and provisions of VTB Group credit policies”, which are adopted and periodically revised by theGMC, outline the main approaches and standards of risk management and organization of credit operations in theGroup. These principles should be complied with by each subsidiary bank and financial companies of the Group. TheGroup’s credit policy covers, particularly, the following areas:roles and responsibilities of different committees, departments of VTB in the area of Group lending and creditrisk management;matters related to the approval and revision of credit policies in VTB subsidiary banks;general approaches to credit risk management (limits, risk planning, monitoring, provisioning, reporting etc.);principles of pricing policy (interest rates and commissions) and others.Subsidiary banks should implement credit risk management system as well as credit policies and procedures incompliance with the Group’s standards.Credit risk policies are adopted by each subsidiary bank and are subject to a regular review, usually once in one ortwo years.The general (typical) procedure for adopting a credit policy is as follows:a draft credit policy or significant amendments are subject to the preliminary consideration and approval byVTB and by “Bank VTB 24”, CJSC (in respect of retail credit risks);the credit policy and amendments should be approved by the Supervisory Council (Board of Directors) of thesubsidiary bank;VTB may propose amendments to the credit policy of a subsidiary bank as part of centralized regulation andcredit risk control for the Group, provided that such amendments are in line with local regulations.The authorities of management and executive bodies of the Group members in relation to decision making andlending transactions are determined by their constituent documents and applicable statutory legislation.On a Group-wide basis credit risk management is overseen and coordinated by the following bodies: the GM ; the RM ;the VTB Group Credit Committee (“GCC”);the VTB Group Risk Escalation Committee (“GREC”).GCC is a permanent collective decision-making committee under the GM . GCC is chaired by Group Chief RiskOfficer (the Senior Vice-President of VTB who is responsible for the group-wide risk management) and includesrepresentatives of VTB departments / divisions (Risk, Legal, Corporate & Investment Banking, etc.). The key tasks ofthis committee are as follows:putting in place efficient mechanisms of credit risk consolidated management at VTB Group;setting consolidated limits for the credit risk assumed by the Group;consideration of some individual operations and large-scale transactions of Group members.Additionally the VTB Group Risk Escalation Committee under the GMC was established in 2011. GREC is chaired byCEO and includes some senior executive managers of VTB. The main purpose of this committee is the considerationand making final decisions on deals, which have been declined by the GCC or exceed its authorities.63

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Credit risk (continued)In VTB the RD is responsible for credit risk management on a Group-wide basis including development of credit riskmanagement systems and relevant Group data consolidation.The Risk analysis department of Bank VTB24 co-ordinates retail credit risk management across the Group and isresponsible for:developing systems of retail credit risk limits;developing standards of monitoring and reporting of retail credit risks (methodology and formats);consolidating reports on retail lending of the Group;monitoring performance and management of retail loan portfolios across the Group.The VTB subsidiary banks, which engage in retail credit granting, apply the Concept (basic statements) of retail creditrisk management in the Group, developed by Bank VTB24 and approved by the GMC.Credit risk monitoring at the Group level is supported by regular reporting from subsidiaries to the RD for assessing ofcredit risk exposures on a consolidated basis. The RD reports to the GMC.The following table discloses the Group’s maximum credit risk exposure:Balance sheet exposure31 December201131 December2010Cash and short-term funds (excluding cash on hand) 302.7 205.4Debt securities 623.6 306.1Financial assets held for trading 341.0 211.2debt securities of Russian companies and banks 237.8 145.5debt securities of Russian Federal and municipal authorities 61.6 37.3debt securities of foreign government and municipal authorities 21.2 8.6debt securities of foreign companies and banks 20.4 19.8Financial assets designated as at fair value through profit or loss 19.8 17.9debt securities of foreign companies and banks 10.9 8.4debt securities of Russian companies and banks 7.5 4.6debt securities of foreign government and municipal authorities 1.4 4.9Financial assets pledged under repurchase agreements and loanedfinancial assets – held for trading 3.3 6.3debt securities of Russian companies and banks 2.4 6.1debt securities of Russian Federal and municipal authorities 0.9 –debt securities of foreign companies and banks – 0.1debt securities of foreign government and municipal authorities – 0.1Financial assets pledged under repurchase agreements and loanedfinancial assets – designated as at fair value through profit or loss 4.2 3.4debt securities of Russian companies and banks 2.9 1.2debt securities of foreign companies and banks 0.8 0.7debt securities of foreign government and municipal authorities 0.5 1.5Financial assets pledged under repurchase agreements and loanedfinancial assets – available-for-sale 2.3 4.7debt securities of Russian companies and banks 1.3 1.7debt securities of foreign government and municipal authorities 0.6 3.0debt securities of Russian Federal and municipal authorities 0.4 –Financial assets pledged under repurchase agreements and loanedfinancial assets – classified as due from other banks 0.4 1.3Financial assets pledged under repurchase agreements and loanedfinancial assets – classified as loans and advances to customers 188.3 –64

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Credit risk (continued)31 December201131 December2010Financial assets available-for-sale 31.9 27.1debt securities of foreign government and municipal authorities 10.6 16.4debt securities of Russian Federal and municipal authorities 10.2 –debt securities of Russian companies and banks 7.4 1.7debt securities of foreign companies and banks 3.7 9.0Investment securities held-to-maturity 32.4 34.2debt securities of Russian companies and banks 30.8 30.6debt securities of Russian government and municipal authorities 1.1 2.4debt securities of foreign government and municipal authorities 0.5 0.8debt securities of foreign companies and banks – 0.4Due from other banks 424.6 349.9OECD 204.6 163.0Russia 170.0 174.5Other 50.0 12.4Loans and advances to customers 4,301.6 2,785.4Loans to legal entities 3,522.3 2,281.7Current activity financing 1,958.7 1,291.4Project finance and other 1,220.7 811.6Finance leases 227.6 130.0Reverse sale and repurchase agreements 115.3 48.7Loans to individuals 779.3 503.7Mortgages 300.5 207.9Car loans 71.8 49.6Reverse sale and repurchase agreements 3.4 3.1Consumer loans and other 403.6 243.1Exposure arising from credit default swaps 9.7 0.1sale of credit default swaps 8.5 –purchase of credit default swaps 1.2 0.1Other financial assets 16.8 21.1Total balance sheet exposure 5,679.0 3,668.0Off-balance sheet exposureGuarantees issued 510.9 216.5Undrawn credit lines 43.1 21.5Import letters of credit 34.3 27.0Commitments to extend credit 36.7 –Total off-balance sheet exposure 625.0 265.0Total maximum exposure to credit risk 6,304.0 3,933.0Total credit risk exposureWhere financial instruments are recorded at fair value the amounts shown above represent the current credit riskexposure but not the maximum risk exposure that could arise in the future as a result of changes in values.65

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Credit quality by class of due from other banks and financial assets classified as due from other bankspledged under repurchase agreementsCredit quality of due from other banks and financial assets classified as due from other banks pledged underrepurchase agreements (gross) neither past due nor impaired, which are neither past due nor impaired at 31December 2011 is presented in the table below:Not impairedIndividuallyassessedCollectivelyassessedDue from other banks 261.7 162.9Russia 120.7 49.3OECD 100.9 103.7Other countries 40.1 9.9Financial assets classified as due from other banks pledged underrepurchase agreements 0.4 –Russia 0.4 –Total due from other banks and financial assets classified as due fromother banks pledged under repurchase agreements (gross) neither pastdue nor impaired 262.1 162.9Credit quality of due from other banks and financial assets classified as due from other banks pledged underrepurchase agreements (gross) neither past due nor impaired, which are neither past due nor impaired at31 December 2010 is presented in the table below:Not impairedIndividuallyassessedCollectivelyassessedDue from other banks 181.3 168.8Russia 101.0 73.9OECD 75.9 87.1Other countries 4.4 7.8Financial assets classified as due from other banks pledged underrepurchase agreements 1.3 –Russia 1.3 –Total due from other banks and financial assets classified as due fromother banks pledged under repurchase agreements (gross) neither pastdue nor impaired 182.6 168.8Not impaired individually assessed amounts due from other banks are subsequently included in the pools ofcollectively assessed loans.Credit quality by class of loans and advances to customersThe credit quality of loans and advances to customers is presented according to five categories: Pass – provision rate from 0% to 2%; Watch – provision rate from 2% to 5%; Substandard – provision rate from 5% to 20%; Doubtful – provision rate from 20% to 50%; Loss – provision rate from 50% to 100%.Provision rate represents the weighted ratio of allowance for impairment to gross loans under each pool of loans withsimilar credit risk or individually impaired loan.66

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Credit quality by class of loans and advances to customers and financial assets classified as loans andadvances to customers pledged under repurchase agreements (continued)The table below shows credit quality by class of loans and advances to customers and financial assets classified asloans and advances to customers pledged under repurchase agreements (gross) at 31 December 2011, individuallyassessed. For individually assessed loans, which were not qualified as impaired, allowance was subsequentlycalculated on a collective basis.Not impairedImpairedPass WatchSubstandardDoubtful Loss TotalLoans to legal entities 1,445.2 271.6 258.2 29.6 203.0 2,207.6Finance leases 74.7 23.7 3.7 10.7 10.4 123.2Current activity financing 509.8 140.6 136.9 16.0 107.8 911.1Reverse sale and repurchaseagreements 57.8 – – – – 57.8Project finance and other 802.9 107.3 117.6 2.9 84.8 1,115.5Financial assets classified as loansand advances to customers pledgedunder repurchase agreements 188.3 – – – – 188.3Current activity financing 188.3 – – – – 188.3Loans to individuals 4.6 – – 1.0 6.1 11.7Mortgages 0.8 – – 0.1 5.5 6.4Car loans – – – – 0.3 0.3Consumer loans and other 3.8 – – 0.9 0.3 5.0Total loans and advances tocustomers and financial assetsclassified as loans and advances tocustomers pledged underrepurchase agreements individuallyassessed 1,638.1 271.6 258.2 30.6 209.1 2,407.6The table below shows credit quality by class of loans and advances to customers and financial assets classified asloans and advances to customers pledged under repurchase agreements (gross) at 31 December 2011, collectivelyassessed.PassWatchSubstandardDoubtful Loss TotalLoans to legal entities 1,172.6 269.8 104.5 1.1 10.4 1,558.4Finance leases 114.6 5.8 0.5 – – 120.9Current activity financing 834.8 249.8 84.8 1.1 10.3 1,180.8Reverse sale and repurchaseagreements 57.5 – – – – 57.5Project finance and other 165.7 14.2 19.2 – 0.1 199.2Loans to individuals 741.6 4.2 14.1 17.0 35.5 812.4Mortgages 284.2 0.2 3.3 13.2 1.7 302.6Car loans 69.7 1.6 0.1 0.3 3.5 75.2Reverse sale and repurchaseagreements 3.4 – – – – 3.4Consumer loans and other 384.3 2.4 10.7 3.5 30.3 431.2Total loans and advances tocustomers collectively assessed 1,914.2 274.0 118.6 18.1 45.9 2,370.867

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Credit quality by class of loans and advances to customers (continued)The table below shows credit quality by class of loans and advances to customers (gross) at 31 December 2010,individually assessed. For individually assessed loans, which were not qualified as impaired, allowance wassubsequently calculated on a collective basis.Not impairedImpairedPass WatchSubstandardDoubtful Loss TotalLoans to legal entities 1,074.9 129.2 264.7 55.2 183.9 1,707.9Finance leases 20.0 34.5 0.2 13.5 8.6 76.8Current activity financing 451.6 78.9 102.5 32.2 112.3 777.5Reverse sale and repurchaseagreements 16.1 0.4 – – – 16.5Project finance and other 587.2 15.4 162.0 9.5 63.0 837.1Loans to individuals 6.6 – 0.3 1.3 4.8 13.0Mortgages 1.3 – 0.3 0.7 4.4 6.7Car loans – – – – 0.1 0.1Consumer loans and other 5.3 – – 0.6 0.3 6.2Total loans and advances tocustomers individually assessed 1,081.5 129.2 265.0 56.5 188.7 1,720.9The table below shows credit quality by class of loans and advances to customers (gross) at 31 December 2010,collectively assessed.SubstandardDoubtful Loss Pass WatchTotalLoans to legal entities 479.7 133.3 161.9 22.0 13.3 810.2Finance leases 54.3 10.6 0.5 – – 65.4Current activity financing 359.8 108.1 158.2 21.4 13.2 660.7Reverse sale and repurchaseagreements 32.3 – – – – 32.3Project finance and other 33.3 14.6 3.2 0.6 0.1 51.8Loans to individuals 473.6 1.9 9.8 15.9 27.3 528.5Mortgages 192.7 0.3 2.7 13.2 1.6 210.5Car loans 48.2 1.1 0.2 0.5 2.7 52.7Reverse sale and repurchaseagreements 3.1 – – – – 3.1Consumer loans and other 229.6 0.5 6.9 2.2 23.0 262.2Total loans and advances tocustomers collectively assessed 953.3 135.2 171.7 37.9 40.6 1,338.768

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Credit quality by class of loans and advances to customers (continued)The table below shows credit quality by class of loans and advances to customers and financial assets classified asloans and advances to customers pledged under repurchase agreements (gross) at 31 December 2011, neither pastdue nor impaired.SubstandardDoubtful Loss Pass WatchTotalLoans to legal entities 2,613.4 539.8 354.2 0.5 0.1 3,508.0Finance leases 189.4 29.0 4.1 – – 222.5Current activity financing 1,343.0 389.3 218.3 0.5 0.1 1,951.2Reverse sale and repurchaseagreements 115.2 – – – – 115.2Project finance and other 965.8 121.5 131.8 – – 1,219.1Financial assets classified as loansand advances to customerspledged under repurchaseagreements 188.3 – – – – 188.3Current activity financing 188.3 – – – – 188.3Loans to individuals 743.7 3.9 13.0 7.0 12.9 780.5Mortgages 283.9 0.1 2.7 3.5 1.3 291.5Car loans 69.9 1.5 0.1 0.3 0.7 72.5Reverse sale and repurchaseagreements 3.4 – – – – 3.4Consumer loans and other 386.5 2.3 10.2 3.2 10.9 413.1Total loans and advances tocustomers and financial assetsclassified as loans and advances tocustomers pledged underrepurchase agreements 3,545.4 543.7 367.2 7.5 13.0 4,476.8The table below shows credit quality by class of loans and advances (gross) to customers at 31 December 2010,neither past due nor impaired.SubstandardDoubtful Loss Pass WatchTotalLoans to legal entities 1,549.9 256.9 423.5 20.1 1.3 2,251.7Finance leases 74.4 41.1 0.7 – – 116.2Current activity financing 808.2 185.4 257.8 20.1 1.2 1,272.7Reverse sale and repurchaseagreements 48.4 0.4 – – – 48.8Project finance and other 618.9 30.0 165.0 – 0.1 814.0Loans to individuals 478.8 1.5 9.4 8.1 10.4 508.2Mortgages 192.6 – 2.7 5.6 1.1 202.0Car loans 48.3 1.0 0.2 0.5 0.8 50.8Reverse sale and repurchaseagreements 3.1 – – – – 3.1Consumer loans and other 234.8 0.5 6.5 2.0 8.5 252.3Total loans and advances tocustomers 2,028.7 258.4 432.9 28.2 11.7 2,759.969

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Credit quality by class of loans and advances to customers (continued)Analysis of loans and advances to customers (gross) individually impaired by economic sector at 31 December 2011and 2010 is presented in the table below.31 December 31 December20112010Trade and commerce 47.6 56.2Building construction 47.0 41.7Oil and gas 46.3 44.2Manufacturing 25.5 32.4Food and agriculture 24.7 23.1Transport 16.1 19.9Finance 7.3 8.3Individuals 7.1 6.1Metals 6.1 2.3Chemical 2.6 1.6Telecommunications and media 1.3 0.7Energy 0.8 0.7Coal mining 0.7 2.9Other 6.6 5.1Total loans and advances to customers individually impaired 239.7 245.2Ageing analysis (by days of delay in repayment) of past due, but not impaired loans and advances to customers(gross) by class at 31 December 2011 is presented in the table below.From 1 to30 daysFrom 31 to60 daysFrom 61 to90 daysFrom 91 to180 daysFrom 181days to1 yearMore than1 year TotalLoans to legal entities 10.0 1.8 4.8 12.2 4.8 7.3 40.9Finance leases 5.6 0.1 0.9 0.6 0.8 1.3 9.3Current activity financing 3.6 0.9 0.5 3.1 0.4 4.4 12.9Project finance and other 0.8 0.8 3.4 8.5 3.6 1.6 18.7Loans to individuals 17.8 1.5 1.2 0.2 0.1 0.7 21.5Mortgages 4.8 1.0 1.1 0.1 – 0.2 7.2Car loans 1.7 0.1 – – – 0.1 1.9Consumer loans and other 11.3 0.4 0.1 0.1 0.1 0.4 12.4Total loans and advances tocustomers past due but notimpaired 27.8 3.3 6.0 12.4 4.9 8.0 62.4Ageing analysis (by days of delay in repayment) of past due, but not impaired loans and advances to customers(gross) by class at 31 December 2010 is presented in the table below.From 1 to30 daysFrom 31 to60 daysFrom 61 to90 daysFrom 91 to180 daysFrom 181days to1 yearMore than1 year TotalLoans to legal entities 2.2 2.7 3.2 5.2 21.7 17.7 52.7Finance leases 0.2 – – 0.3 16.5 1.2 18.2Current activity financing 1.8 1.1 2.4 4.6 5.2 15.4 30.5Project finance and other 0.2 1.6 0.8 0.3 – 1.1 4.0Loans to individuals 13.0 0.8 1.3 0.7 3.5 19.5 38.8Mortgages 5.0 0.7 1.2 0.4 1.1 6.0 14.4Car loans 1.2 – – – 0.3 1.5 3.0Consumer loans and other 6.8 0.1 0.1 0.3 2.1 12.0 21.4Total loans and advances tocustomers past due but notimpaired 15.2 3.5 4.5 5.9 25.2 37.2 91.570

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Credit quality by class of loans and advances to customers (continued)For the purposes of the above table, the amount of past due loans and advances includes the entire outstandingamount of the loans, out of which the current portion amounts to RUR 0.5 billion and overdue portion amounts toRUR 61.9 billion at 31 December 2011 (31 December 2010: RUR 37.0 billion and RUR 54.5 billion correspondingly).Collateral and other credit enhancementsExposure to credit risk is managed, in part, by obtaining collateral and guarantees issued by state authorities, entitiesand individuals.The amount and type of collateral accepted by the Group depends on credit risk assessment of the counterparty.Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.Collateral received by the Group from borrowers as a result of loan settlement is usually represented by real estate,inventory and trade receivables.Securities and guarantees are also obtained from counterparties for all types of lending.The list of acceptable forms of credit support is subject to periodical review. Different forms of credit support may beused in combination. In cases when a loan is secured by guarantees received, the Group performs an analysis of theguarantor’s financial performance, except for the state authorities.The Group has a set of requirements applicable to each form of credit support. The value of the pledged property isdetermined by reference to its market value taking into account a liquidity margin. The value of the assets determinedfor these purposes must be sufficient to recover principal, interest, commissions and expenses related to theenforcement of the pledge. A liquidity margin related to different types of pledges varies from 15% to 70%.The valuation and acceptance of each type and item of collateral may vary depending on individual circumstances.Generally, the Group takes collateral with a view to ensure that an adequate margin is obtained and maintainedthroughout the term of the facility, where applicable. The appropriate department responsible for collateralassessment establishes parameters for each individual facility.In cases where a loan is secured by a pledge, the borrower is required to insure such assets and name the Group asthe beneficiary of the insurance policy. The Group takes a complex approach to pledged assets insured. It dependson the level of risk involved in the loan operation, the borrower's financial condition and the risk of loss of the pledgedproperty.Collateral is taken to enhance an acceptable credit proposal, rather than being used as the sole rationale for anycredit approval. Where facilities are approved against security, full details, including the type, value, and thefrequency of review of the security should be detailed in the Application for Credit Facility Form. Where practical, anbank officer conducts inspection the physical existence of collateral offered.The Group reassesses the fair value of pledged property with frequency stated for each form of pledge and, ifnecessary, requires additional collateral or other acceptable forms of credit support.The financial effect of collateral is presented below by disclosing the gross carrying value of the customer loanportfolio values separately for (i) those loans where collateral and other credit enhancements are equal to or exceedcarrying value of the loan ("over-collateralized ") and (ii) those loans where collateral and other credit enhancementsare less than the carrying value of the loan or where credit support obtained is not considered by the Group as asufficient for credit risk mitigation ("under-collateralized ").The Group treated “over–collateralized” loans as loans for which a credit risk is minimized nearly in full as at thereporting date. As to “under-collateralized” loans the Group estimates a percentage of credit risk mitigated byobtaining a credit support in range from 0% to 75% of carrying value of the loan.71

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Collateral and other credit enhancements (continued)The effect of collateral at 31 December 2011 and 2010 by class is presented below:overcollateralized31 December 2011 31 December 2010undercollateralizedovercollateralizedundercollateralizedLoans to legal entities 2,311.3 1,454.7 1,617.8 900.3Financial lease 205.8 38.3 101.2 41.0Current activity financing 1,348.4 743.5 860.5 577.7Reverse sale and repurchaseagreements 115.3 – 48.8 –Project finance and other 641.8 672.9 607.3 281.6Loans to individuals 727.4 96.7 484.7 56.8Mortgage 305.2 3.8 211.6 5.6Car loans 75.3 0.2 52.4 0.4Reverse sale and repurchaseagreements 3.4 – 3.1 –Consumer loans and other 343.5 92.7 217.6 50.8Total loans and advances tocustomers 3,038.7 1,551.4 2,102.5 957.1The Group’s policy is to dispose of repossessed properties in accordance with the established internal and legalprocedures. The proceeds are used to reduce or repay the outstanding claim.Collateral repossessedDuring 2011 and 2010 the Group obtained assets by taking possession in accordance with additional agreementswith its borrowers of collateral held as security in exchange for the indebtedness of these borrowers. The carryingvalues and the nature of assets received as the collateral repossessed during the relevant year are as follows:2011 2010Investment property 4.5 13.1Financial assets at fair value through profit or loss 0.6 –Premises and equipment – 3.6Investments in associates and subsidiaries – 0.9Other assets 3.7 1.8Total collateral repossessed during the period 8.8 19.4After finalization of transferring procedures these assets were accounted in accordance with the Group accountingpolicies and included in the relevant items in the statement of financial position.The table below shows carrying amount and the nature of the assets obtained and held as at the reporting date:31 December201131 December2010Investment property 72.4 68.9Investments in associates 5.9 5.9Premises and equipment 4.8 8.6Other assets 2.2 0.9Financial assets at fair value through profit or loss 0.6 ––Total collateral repossessed 85.9 84.372

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Geographical concentrationGeographical concentration information is based on geographical location of the Group’s counterparts. As at31 December 2011 the geographical concentration of the Group’s assets and liabilities is set out below:RussiaOECDOthercountriesAssetsCash and short-term funds 307.7 80.5 18.8 407.0Mandatory cash balances with central banks 58.3 2.5 11.1 71.9Financial assets at fair value through profit orloss 461.6 68.5 41.4 571.5Financial assets pledged under repurchaseagreements and loaned financial assets 196.6 0.2 1.8 198.6Due from other banks 170.0 204.6 50.0 424.6Loans and advances to customers 3,112.4 164.4 1,024.8 4,301.6Assets of disposal group held for sale – – 10.3 10.3Financial assets available-for-sale 142.2 11.7 13.8 167.7Investments in associates and joint ventures 26.5 1.5 4.5 32.5Investment securities held-to-maturity 31.9 – 0.5 32.4Premises and equipment 103.2 3.1 10.5 116.8Investment property 118.6 – 3.9 122.5Intangible assets 139.6 0.6 1.0 141.2Deferred tax asset 32.6 3.2 6.9 42.7Other assets 127.0 7.3 14.0 148.3Total assets 5,028.2 548.1 1,213.3 6,789.6LiabilitiesDue to other banks 440.3 164.5 94.9 699.7Customer deposits 3,331.8 78.1 186.8 3,596.7Liabilities of disposal group held for sale – – 8.5 8.5Other borrowed funds 570.5 152.0 12.1 734.6Debt securities issued 299.5 358.0 7.0 664.5Deferred tax liability 9.1 – 0.9 10.0Other liabilities 100.4 103.5 5.5 209.4Subordinated debt 207.0 34.1 – 241.1Total liabilities 4,958.6 890.2 315.7 6,164.5Net balance sheet position 69.6 (342.1) 897.6 625.1Net off-balance sheet position – Credit RelatedCommitments 537.2 23.9 63.9 625.0Total73

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Geographical concentration (continued)Geographical concentration information is based on geographical location of the Group’s counterparts. As at31 December 2010 the geographical concentration of the Group’s assets and liabilities is set out below:RussiaOECDOthercountriesAssetsCash and short-term funds 177.8 83.8 13.9 275.5Mandatory cash balances with central banks 19.0 1.6 5.8 26.4Financial assets at fair value through profit or loss 283.3 45.4 15.9 344.6Financial assets pledged under repurchaseagreements and loaned financial assets 11.5 5.0 0.4 16.9Due from other banks 174.5 163.0 12.4 349.9Loans and advances to customers 1,919.4 71.9 794.1 2,785.4Financial assets available-for-sale 26.3 15.7 13.9 55.9Investments in associates and joint ventures 11.8 2.1 1.8 15.7Investment securities held-to-maturity 33.0 0.4 0.8 34.2Premises and equipment 103.1 3.2 6.9 113.2Investment property 101.4 – 0.8 102.2Intangible assets 29.2 0.5 0.8 30.5Deferred tax asset 32.0 4.3 1.6 37.9Other assets 78.4 10.8 13.4 102.6Total assets 3,000.7 407.7 882.5 4,290.9LiabilitiesDue to other banks 275.9 81.0 40.4 397.3Customer deposits 2,045.5 28.0 139.4 2,212.9Other borrowed funds 63.5 114.7 7.5 185.7Debt securities issued 251.5 338.9 2.7 593.1Deferred tax liability 6.3 – 1.0 7.3Other liabilities 54.3 53.5 3.1 110.9Subordinated debt 195.3 10.2 – 205.5Total liabilities 2,892.3 626.3 194.1 3,712.7Net balance sheet position 108.4 (218.6) 688.4 578.2Net off-balance sheet position – Credit RelatedCommitments 229.8 12.7 22.5 265.0Total74

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Market riskMarket risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes inmarket variables such as interest rates, foreign exchange rates, securities prices and other basic variables. TheGroup is exposed to market risks, which include securities portfolio price risk, currency risk and interest rate risk.Interest rate risk exposure and sensitivity analysisThe Group is exposed to interest rate risk. Interest rate risk is defined as the risk of the decrease of interestincome/increase of interest expense resulting from adverse changes of market interest rates.The RD presents to the ALCO on a monthly basis a sensitivity analysis of the Group and of individual banks of theGroup, including assets and liabilities, net present value sensitivity, VaR, CaR, Earnings-at-Risk and Net InterestIncome analysis. To mitigate the interest rate risk the ALCO set up CaR limitations to cover interest rate risk of theGroup as well as individual banks of the Group.To mitigate interest rate risk the Treasury manages and hedges VTB’s exposures by entering into interest ratederivative transactions within the limits and parameters set by the ALCO.As at 31 December 2011 the Group has the following interest rate exposures based on information provided internallyto key management personnel. Included in the table are Group’s monetary assets and liabilities, categorized by thecontractual repricing date.On demandand up to1 monthFrom1 month to3 monthsFrom3 months to6 monthsFrom6 monthsto 1 yearFrom1 year to3 yearsFrom3 years to5 yearsMore than5 years TotalAssetsCorrespondent accounts withother banks 94.9 – – – – – – 94.9Corporate loans and advances tocustomers 396.7 497.6 430.2 411.2 871.6 462.7 119.4 3,189.4Retail loans and advances tocustomers 14.1 21.2 29.6 60.2 251.3 157.0 232.7 766.1Due from other banks 305.2 18.9 10.3 9.6 38.8 5.7 5.1 393.6Reverse sale and repurchaseagreements 64.8 50.7 1.3 31.1 – – – 147.9Fixed income (quick assets) 0.6 5.4 86.4 14.5 45.4 51.6 49.1 253.0Fixed income (low liquid or heldto-maturityfinancial assets) 15.2 12.0 8.1 37.0 25.5 69.2 340.0 507.0Foreign exchange swaps 552.5 161.2 58.8 54.6 58.4 34.0 19.7 939.2Interest rate derivative financialinstruments 54.7 463.2 17.5 74.7 197.1 81.1 55.1 943.4Other interest earning assets 0.2 – 1.0 – – – – 1.2Total assets 1,498.9 1,230.2 643.2 692.9 1,488.1 861.3 821.1 7,235.7LiabilitiesCorrespondent accounts andovernight deposits 262.2 8.0 2.7 6.3 6.3 9.8 – 295.3Current/settlement deposits 723.3 0.3 0.3 0.2 – – – 724.1Term deposits of legal entities andgovernment bodies 818.7 433.6 149.1 222.0 150.3 8.6 312.9 2,095.2Term deposits of individuals 67.2 105.2 123.2 166.3 383.5 31.2 12.9 889.5Due to other banks 323.9 108.9 235.6 95.3 86.0 19.4 242.6 1,111.7Reverse sale and repurchaseagreements 21.5 161.4 0.5 – – – – 183.4Promissory notes issued 6.0 28.0 72.3 55.9 2.9 33.4 0.8 199.3Bonds issued 2.6 7.2 9.0 104.5 175.2 120.4 61.0 479.9Foreign exchange swaps 550.6 162.0 62.1 55.1 52.2 29.2 16.1 927.3Interest rate derivative financialinstruments 8.0 481.8 19.7 64.1 299.6 28.7 54.4 956.3Other interest bearing liabilities 1.7 0.9 0.4 0.1 0.9 1.0 2.7 7.7Total liabilities 2,785.7 1,497.3 674.9 769.8 1,156.9 281.7 703.4 7,869.7Net repricing gap (1,286.8) (267.1) (31.7) (76.9) 331.2 579.6 117.7 (634.0)75

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Interest rate risk exposure and sensitivity analysis (continued)As at 31 December 2010 the Group has the following interest rate exposures based on information provided internallyto key management personnel. Included in the table are Group’s monetary assets and liabilities, categorized by thecontractual repricing date.On demandand up to1 monthFrom1 month to3 monthsFrom3 months to6 monthsFrom6 monthsto 1 yearFrom1 year to3 yearsFrom3 years to5 yearsMore than5 years TotalAssetsCorrespondent accounts withother banks 87.3 – – – – – – 87.3Corporate loans and advances tocustomers 153.7 335.2 242.7 248.7 634.8 305.3 329.5 2,249.9Retail loans and advances tocustomers 8.4 15.6 24.0 60.8 142.6 81.1 161.8 494.3Due from other banks 222.2 25.9 5.5 14.6 2.6 3.7 1.6 276.1Reverse sale and repurchaseagreements 81.8 8.7 15.3 13.9 0.8 – – 120.5Fixed income (quick assets) 1.9 20.2 39.6 30.1 87.9 44.6 13.8 238.1Fixed income (low liquid or heldto-maturityfinancial assets) 4.5 12.7 7.5 7.3 15.4 35.9 24.5 107.8Foreign exchange swaps 317.4 87.4 21.1 32.1 53.0 2.6 18.7 532.3Interest rate derivative financialinstruments 54.1 301.2 17.1 10.1 91.9 73.4 27.5 575.3Other interest earning assets 1.7 – – – – – – 1.7Total assets 933.0 806.9 372.8 417.6 1,029.0 546.6 577.4 4,683.3LiabilitiesCorrespondent accounts andovernight deposits 207.6 – – – – – – 207.6Current/settlement deposits 457.7 – – – – – – 457.7Term deposits of legal entities andgovernment bodies 253.9 255.6 178.7 171.8 161.8 7.1 20.1 1,049.0Term deposits of individuals 45.9 68.0 63.1 120.9 281.9 18.1 6.6 604.5Due to other banks 82.0 104.0 59.6 45.5 58.6 22.0 228.6 600.3Reverse sale and repurchaseagreements 13.5 2.5 3.5 1.1 – – – 20.6Promissory notes issued 15.5 39.1 15.9 41.7 8.9 – 0.1 121.2Bonds issued 1.1 26.2 29.5 119.1 201.1 73.1 30.5 480.6Foreign exchange swaps 316.6 86.7 21.5 32.0 54.3 2.8 15.2 529.1Interest rate derivative financialinstruments 5.2 292.8 17.2 10.0 127.4 97.3 27.5 577.4Other interest bearing liabilities 1.3 0.9 0.4 0.1 0.3 0.3 1.5 4.8Total liabilities 1,400.3 875.8 389.4 542.2 894.3 220.7 330.1 4,652.8Net repricing gap (467.3) (68.9) (16.6) (124.6) 134.7 325.9 247.3 30.576

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Interest rate sensitivity analysisThe interest rate sensitivities set out in the tables below represent an effect on the historical net interest income forone-year period in case of a parallel shift in all yield curves. The calculations are based on the Group’s actual interestrate risk exposures at the relevant reporting dates.Interest rate sensitivity analysis as at 31 December 2011 as an effect on net interest income is as follows.CurrencyInterest rateincrease, b.p.Effect on netinterest incomeInterest ratedecrease, b.p.Effect on netinterest incomeRUR 249 (19.6) (249) 19.6USD 15 (0.1) (15) 0.1EUR 15 0.2 (15) (0.2)GBP 17 – (17) –Other 15 (0.1) (15) 0.1Total (19.6) 19.6Interest rate sensitivity analysis as at 31 December 2010 as an effect on net interest income is as follows.CurrencyInterest rateincrease, b.p.Effect on netinterest incomeInterest ratedecrease, b.p.Effect on netinterest incomeRUR 100 (2.2) (75) 1.6USD 100 0.4 (25) (0.1)EUR 100 0.5 (25) (0.1)GBP 100 0.1 (25) –Other 100 0.1 (25) –Total (1.1) 1.4The total interest rate sensitivity, disclosed in the above tables, is attributable to assets and liabilities sensitive topossible changes of interest rates except current/settlement customer accounts. Management considers sensitivity ofthese accounts to fluctuations of interest rates in the financial market as low based on historical performance andcompetitive environment. The Group uses, and has access to, a number of market instruments, including IRS, tomanage its interest rate sensitivity and repricing gaps.Currency risk and VaR analysisThe Group is exposed to currency risk. Currency risk arises from open positions in foreign currencies and adversemovements of market exchange rates that may have a negative impact on financial performance of the Group.The Group manages its currency risk by seeking to match the currency of its assets with that of its liabilities on acurrency-by-currency basis within established limits. For VTB Bank, such limits include internal VaR limits for opencurrency position (OCP) and stop-loss limits set by the ALCO for trading operations and regulatory OCP limits set bythe CBR.The RD of VTB performs VaR evaluations, analyses the structure of open currency positions and prepares reports forthe ALCO on a monthly basis. The ALCO approves the methodology of the currency risk analysis, management andcontrol procedures and sets limits on open currency positions. The Treasury manages and hedges VTB’s currencypositions on a daily basis by entering into foreign exchange spot and forward/option transactions within the limits setby the ALCO. Compliance with these limits and the relevant CBR limits is monitored by the Bank on a daily basis.VTB measures its currency risk exposures by using VaR approach. It estimates the largest potential negative effect inpre-tax profit due to changes in value of foreign currency denominated positions over a given holding period for aspecified confidence level. The VaR methodology is a statistically defined, probability-based approach that takes intoaccount market volatilities as well as risk diversification by recognizing offsetting positions and correlations betweenproducts and markets. Risks can be measured consistently across all markets and products, and risk measures canbe aggregated to arrive at a single risk measurement.77

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Currency risk and VaR analysis (continued)The use of VaR has limitations because it is based on historical correlations and volatilities in market prices and assumesthat future price movements will follow a statistical distribution. Due to the fact that VaR relies heavily on historical data toprovide information and may not clearly predict the future changes and modifications of the risk factors, the probability oflarge market moves may be underestimated if changes in risk factors fail to align with the normal distribution assumption.Even though positions may change throughout the day, the VaR only represents the risk of the open currency positions atthe close of the reporting dates, and it does not account for any losses that may occur beyond the 99% confidence level.The use of ten-day holding period assumes as well that all positions can be liquidated or hedged in 10 business days. Inpractice, the actual effect on profit or loss before tax will differ from the VaR calculation and, in particular, the calculationdoes not provide a meaningful indication of profits and losses in stressed market conditions.The VaR model used by the Group is based on the historical simulation approach, which incorporates exchange ratesinterdependency. When calculating VaR the following parameters and assumptions were used:Currency exposures of the Group on the relevant reporting dates;Historical data on exchange rates for the last 2 years;99% confidence level;10 business days holding period.As at 31 December 2011 and 2010, the Group had the following exposures to currency risk, which include balancesheet positions and off-balance sheet foreign currency derivatives positions against RUR (open positions).Currency31 December2011Open positions31 December2010USD (27.1) (8.2)EUR 1.1 (2.4)GBP 4.2 0.2CHF (16.9) (1.5)JPY (0.8) –UAH 41.9 30.5GEL 2.7 2.5A98 2.4 –AMD 1.6 1.7AZN 0.9 0.9SGD 0.8 (0.2)SEK (0.7) –RSD 0.7 –CNY (0.6) 0.1TRY – 0.6BYR 0.5 1.1AOA 0.4 0.2HKD 0.3 –AUD (0.3) (0.9)NOK 0.2 –KZT (0.2) 0.4A99 (0.1) –Other 0.1 0.1Total 11.1 25.1As at 31 December 2011 and 2010, the Group had the following VaR for its foreign currency positions:31 December201131 December2010Open currency position 11.1 25.1Value at Risk 1.0 3.9The VaR figures above take into account all currencies with exposures over RUR 100 million.78

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Price riskThe Group is exposed to market risk of its securities portfolio, which is the risk of loss resulting from changes inmarket quotes of securities.The RD reports on a weekly basis to the ALCO on price risk exposures and VaR analysis. To mitigate price riskALCO sets exposure limits, VAR-limits and stop-loss limits for particular equity, transactions types and assets types.Exposure limits for particular debt securities are set by the Credit Committee.VTB measures its securities portfolio risk exposures using VaR measurement of risk. The basic assumptionsapplicable to the calculation of VaR for currency risk, as described above, are also applicable for the calculation ofVaR for securities portfolio market risk.Parameters for VaR calculation are following:look-back period – 1 year;holding period – 10 trading days; confidence level – 99%;method – historical simulation.Due to limited liquidity of the Russian market of corporate fixed income instruments (typical for emerging markets),historical quotes were chosen according to the following methodology.Original historical data is used for instruments with quotes history at least for 100 days and not more than10 successive days without quotes and the issue date of the instrument is as early as the reporting year.Quote history of proxy instruments are used to estimate the VaR for less liquid securities which do not meet thoserequirements. Proxy instrument should fulfill following criteria:proxy instrument should be the same type of financial instruments as original security;issuer country and industry of proxy instrument has to be the same as original security and credit rating shouldbe close to the original security rating;currencies of proxy instrument and original security have to coincide;the durations of the proxy instrument and the original one should be comparable.Approximately one fourth of the portfolio by volume was interchanged by proxy instruments for VaR evaluation.During 2011 the Bank enhanced its Risk valuation software through the implementation of Kamakura Risk Manager.Total Group’s VaR for 2011 with diversification amounts to RUR 19.0 billion (2010: RUR 11.9 billion).Financial assets at fair value through profit or loss31 December201131 December2010Debt securities 4.1 2.4Equity securities 14.3 9.7Commodities 3.0 –Portfolio of financial assets at fair value through profit or loss 14.6 12.1Financial assets available-for-sale31 December201131 December2010Debt securities 0.9 0.2Equity securities 5.6 0.5Portfolio of financial assets available-for-sale 5.0 0.579

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Sensitivity analysisSensitivity analysis for low-liquid instruments, non-quoted securities was performed for the following marketindicators:for fixed income securities – volatility of yield curve for similar instruments in the same currency for period of12 months (or in absence of such instruments, approximations based on expert opinion);for shares – volatility of main stock exchange indices for period of 12 months (or in absence of suchinstruments, approximations based on expert opinion).Interest rate shifts differ from the net interest income sensitivity analysis due to the structure and the maturity of theportfolio used for the low-liquid instruments sensitivity analysis.The Group’s interest rate sensitivity analysis is applicable to all assets and liabilities sensitive to interest rate.Market value sensitivity figures on debt financial assets were as follows as at 31 December 2011:CurrencyInterest rateincrease, b.p.Sensitivity ofprofit beforetaxationSensitivity ofequity (AFSinstruments)before taxationAMD 657 – (0.0)EUR 15 (0.0) (0.0)RUR 249 (0.1) (0.0)UAH 1,528 (0.0) –USD 15 (0.0) (0.0)Total (0.1) (0.0)CurrencyInterest ratedecrease, b.p.Sensitivity ofprofit beforetaxationSensitivity ofequity (AFSinstruments)before taxationAMD 657 – 0.0EUR 15 0.0 0.0RUR 249 0.1 0.0UAH 358 0.0 –USD 15 0.0 0.0Total 0.1 0.0As at 31 December 2011 market value sensitivity figures on equity financial assets were as follows:Country Currency Index Index changeSensitivity ofprofit beforetaxationSensitivity ofequity (AFSinstruments)before taxationRussia RUR MICEX 48.22% (1.1) 43.9USA USD S&P 500 29.73% 1.3 0.2Great Britain GBP FTSE100 28.27% 0.9 0.0Total 1.1 44.1Country Currency Index Index changeSensitivity ofprofit beforetaxationSensitivity ofequity (AFSinstruments)before taxationRussia RUR MICEX (48.22%) 1.1 (43.9)USA USD S&P 500 (29.73%) (1.3) (0.2)Great Britain GBP FTSE100 (28.27%) (0.9) (0.0)Total (1.1) (44.1)80

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Sensitivity analysis (continued)Market value sensitivity figures on debt financial assets were as follows as at 31 December 2010:CurrencyInterest rateincrease, b.p.Sensitivity ofprofit beforetaxationSensitivity ofequity (AFSinstruments)before taxationAMD 1,825 – (0.1)AZN 679 (0.0) –BYR 800 (0.0) (0.0)EUR 100 (0.5) (0.0)GEL 2,695 (0.1) –KZT 3,863 (0.1) –RUR 100 (0.5) (0.0)UAH 2,859 – (0.7)USD 100 (0.4) (0.1)Total (1.6) (0.9)CurrencyInterest ratedecrease, b.p.Sensitivity ofprofit beforetaxationSensitivity ofequity (AFSinstruments)before taxationAMD 1,825 – 0.1AZN 679 0.0 –BYR 800 0.0 0.0EUR 100 0.1 0.0GEL 2,695 0.1 –KZT 3,863 0.1 –RUR 100 0.3 0.0UAH 2,859 – 0.7USD 100 0.1 0.0Total 0.7 0.8As at 31 December 2010 market value sensitivity figures on equity financial assets were as follows:Country Currency Index Index changeSensitivity ofprofit beforetaxationSensitivity ofequity (AFSinstruments)before taxationEU EUR FTSE 18.3% (0.0) 0.2Russia RUR MICEX 23.4% 0.4 4.1USA USD DJ 18.1% (0.0) 0.5Great Britain GBP FTSE100 17.4% 0.0 –Ukraine UAH PFTS 31.6% 0.0 0.4Total 0.4 5.2Country Currency Index Index changeSensitivity ofprofit beforetaxationSensitivity ofequity (AFSinstruments)before taxationEU EUR FTSE (18.3%) 0.0 (0.2)Russia RUR MICEX (23.4%) (0.4) (4.1)USA USD DJ (18.1%) 0.0 (0.5)Great Britain GBP FTSE100 (17.4%) (0.0) –Ukraine UAH PFTS (31.6%) (0.0) (0.4)Total (0.4) (5.2)81

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Liquidity risk and contractual maturity analysisLiquidity risk is a risk resulting from inability of the Group to meet in full its obligations when they fall due and withoutborrowing funds at rates higher than market rates. The Group’s exposure to liquidity risk arises due to a mismatch ofmaturities of assets and liabilities.Liquidity risk management within the Group is carried out at two main levels:Bank/company level: Each bank / company of the Group manages its liquidity on an individual basis to meetits obligations and to comply with the requirements of its national regulator and standards of the Group.Group level: Liquidity of the Group is managed on the basis of centralized control and management of keyactivities of the Group including:- universal policy and approaches to liquidity management, including hedging;- integrated methodology of liquidity risk;- centralized system of on-going reporting and data warehousing.The tools used by VTB for measurement, management and mitigation of liquidity risk include:Contractual maturity analysis(gap analysis) and cash flow forecasts including:- planned transactions;- forecasted roll-over of clients’ funds (deposits and promissory notes);- possible outflow of unstable “on-demand” funds (clients’ current accounts);Analysis of deposit base concentration;Stress-test analysis;Setting of internal liquidity indicators/limits, including (1) the minimum amount of highly liquid assets to coverpossible outflow of resources on demand/one day and other short-term liabilities (up to 30 days); (2) Treasuryportfolio limits which are monitored on a daily basis;Allocation and utilization of securities from Treasury portfolio, which provide financing from the CBR throughreverse repo operations and help manage short-term liquidity; andDevelopment of emergency plans (funding contingency plans).VTB and other banks of the Group are also subject to liquidity requirements set by regulatory authorities, includingthose set by the CBR in the form of prudential ratios.The RD analyses the liquidity position of the Group and prepares liquidity forecasts and recommendations for ALCOon a monthly basis. VTB’s Treasury manages short-term liquidity on an ongoing basis through its cash position andportfolio of highly liquid securities and prepares information on short-term liquidity of the Bank and reports to theALCO on a weekly basis.The Inflow column in the tables below includes gross amounts to be received by the Group within a certain time bandupon maturities/redemptions of financial instruments (assets/claims). Outflow column includes gross amounts to berepaid by the Group in a certain time band upon maturities/redemptions of financial instruments (liabilities/obligationsexcept current and settlement accounts). Gap represents the difference between Inflow and Outflow columns. GapCumulative column represents the cumulative gap. FX Swap Cumulative column represents the cumulative gaps onforeign exchange swaps. Dynamic Gap (total) Cumulative column represents the cumulative gap including FX SwapCumulative. Opening balance represents highly liquid assets, which mostly consist of cash and Nostro accounts withother banks.82

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Liquidity risk and contractual maturity analysis (continued)As at 31 December 2011, VTB Group had the following cash flow by remaining contractual maturities.Time Band Inflow Outflow GapGapCumulativeFX SwapCumulativeDynamic Gap(total)CumulativeRUR positionsOpening balance – – 285.9 285.9 – 285.9Up to 1 month 358.8 (879.9) (521.1) (235.2) 105.5 (129.7)From 1 to 3 months 228.3 (717.5) (489.2) (724.4) 98.5 (625.9)From 3 months to 1 year 1,009.4 (678.0) 331.4 (393.0) 101.4 (291.6)From 1 to 3 years 1,396.8 (486.9) 909.9 516.9 40.5 557.4More than 3 years 1,852.6 (891.0) 961.6 1,478.5 10.1 1,488.6Other currency positionsOpening balance – – 150.8 150.8 – 150.8Up to 1 month 609.8 (745.4) (135.6) 15.2 (108.1) (92.9)From 1 to 3 months 213.8 (227.7) (13.9) 1.3 (101.3) (100.0)From 3 months to 1 year 888.7 (951.2) (62.5) (61.2) (106.7) (167.9)From 1 to 3 years 1,278.0 (1,178.1) 99.9 38.7 (46.6) (7.9)More than 3 years 811.5 (639.1) 172.4 211.1 (8.8) 202.3TotalOpening balance – – 436.7 436.7 – 436.7Up to 1 month 968.6 (1,625.3) (656.7) (220.0) (2.6) (222.6)From 1 to 3 months 442.1 (945.2) (503.1) (723.1) (2.8) (725.9)From 3 months to 1 year 1,898.1 (1,629.2) 268.9 (454.2) (5.3) (459.5)From 1 to 3 years 2,674.8 (1,665.0) 1,009.8 555.6 (6.1) 549.5More than 3 years 2,664.1 (1,530.1) 1,134.0 1,689.6 1.3 1,690.9Management believes that in spite of a substantial portion of customer accounts being on demand or short-term,diversification of these deposits by number and type of depositors, and the past experience of the Group wouldindicate that these customer accounts provide a long-term and stable source of funding for the Group. Also portfoliosof Treasury and Trading securities could be used for short-term liquidity management through reverse sale andrepurchase operations.VTB Group medium-term liquidity needs are managed through interbank and customer deposits (new borrowings andrenewal of existing deposits), repurchase agreements and in the form of CBR collateralized loans (against corporateloans or securities) which allow the Bank to reduce the negative medium-term liquidity gaps.VTB Group has a number of additional funding facilities available to bridge negative medium term liquidity gaps suchas Eurobonds (EMTN) and domestic stock exchange traded bonds.Currency mismatches in the structure of liquidity gaps are managed with the use of foreign exchange swaps(FX Swaps).83

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Liquidity risk and contractual maturity analysis (continued)As at 31 December 2010, VTB Group had the following cash flow by remaining contractual maturities.Time Band Inflow Outflow GapGapCumulativeFX SwapCumulativeDynamic Gap(total)CumulativeRUR positionsOpening balance – – 158.1 158.1 – 158.1Up to 1 month 425.2 (499.7) (74.5) 83.6 (13.2) 70.4From 1 to 3 months 160.7 (293.7) (133.0) (49.4) (14.6) (64.0)From 3 months to 1 year 587.9 (437.5) 150.4 101.0 (25.1) 75.9From 1 to 3 years 814.8 (465.8) 349.0 450.0 (70.8) 379.2More than 3 years 1,049.5 (409.3) 640.2 1,090.2 (64.5) 1,025.7Other currency positionsOpening balance – – 117.3 117.3 – 117.3Up to 1 month 573.9 (613.9) (40.0) 77.3 14.1 91.4From 1 to 3 months 209.5 (215.5) (6.0) 71.3 16.5 87.8From 3 months to 1 year 439.3 (614.6) (175.3) (104.0) 25.9 (78.1)From 1 to 3 years 964.3 (899.7) 64.6 (39.4) 69.5 30.1More than 3 years 515.6 (390.4) 125.2 85.8 62.5 148.3TotalOpening balance – – 275.4 275.4 – 275.4Up to 1 month 999.1 (1,113.6) (114.5) 160.9 0.9 161.8From 1 to 3 months 370.2 (509.2) (139.0) 21.9 1.9 23.8From 3 months to 1 year 1,027.2 (1,052.1) (24.9) (3.0) 0.8 (2.2)From 1 to 3 years 1,779.1 (1,365.5) 413.6 410.6 (1.3) 409.3More than 3 years 1,565.1 (799.7) 765.4 1176.0 (2.0) 1,174.0The table below shows undiscounted cash flows payable under financial liabilities and credit-related commitments at31 December 2011 by their remaining contractual maturity.On demandand up to1 monthFrom1 month to3 monthsFrom3 month to6 monthsFrom6 monthsto 1 yearMore than1 year TotalNon-derivative liabilitiesDue to other banks 474.8 68.8 29.4 96.1 66.9 736.0Customer deposits 1,921.5 461.0 221.8 520.9 571.2 3,696.4Other borrowed funds 76.8 192.0 170.8 18.0 467.4 925.0Debt securities issued 8.3 44.7 87.8 155.5 534.6 830.9Subordinated debt 0.1 3.7 3.6 8.9 375.3 391.6Other liabilities 22.7 8.3 1.1 36.0 – 68.1Total cash flows payable under nonderivativeliabilities 2,504.2 778.5 514.5 835.4 2,015.4 6,648.0Derivative liabilitiesNegative fair value 9.3 8.2 8.1 6.7 49.2 81.5Derivative financial instruments –gross settledPositive fair value of derivatives(Inflow) (165.5) (161.8) (61.6) (72.2) (358.9) (820.0)Outflow 165.0 156.7 58.0 65.9 317.0 762.6Negative fair value of derivatives(Inflow) (303.8) (150.8) (105.5) (104.6) (481.5) (1,146.2)Outflow 309.7 155.9 111.7 109.7 518.4 1,205.4Derivative financial instruments – netsettled(Inflow) (2.2) (3.2) (1.4) (4.6) (10.1) (21.5)Outflow 3.0 3.2 1.9 1.6 12.6 22.3Credit related commitments 626.1 – – – – 626.184

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Liquidity risk and contractual maturity analysis (continued)The table below shows undiscounted cash flows payable under financial liabilities and credit-related commitments at31 December 2010 by their remaining contractual maturity.On demandand up to1 monthFrom1 month to3 monthsFrom3 month to6 monthsFrom6 monthsto 1 yearMore than1 year TotalNon-derivative liabilitiesDue to other banks 302.6 17.3 23.4 9.8 89.2 442.3Customer deposits 952.5 303.4 236.2 268.9 542.8 2,303.8Other borrowed funds 2.8 42.6 46.0 25.5 75.8 192.7Debt securities issued 19.5 47.1 44.6 147.5 470.1 728.8Subordinated debt – 3.6 3.4 8.2 342.3 357.5Other liabilities 13.5 3.6 6.7 5.7 – 29.5Total cash flows payable 1,290.9 417.6 360.3 465.6 1,520.2 4,054.6Derivative liabilitiesNegative fair value 4.3 3.6 2.4 6.3 19.4 36.0Derivative financial instruments –gross settledPositive fair value of derivatives(Inflow) (195.5) (102.3) (79.3) (85.3) (198.9) (661.3)Outflow 193.3 96.7 76.0 83.3 185.5 634.8Negative fair value of derivatives(Inflow) (175.0) (40.2) (49.3) (358.0) (177.1) (799.6)Outflow 176.8 41.7 50.0 358.9 184.7 812.1Derivative financial instruments – netsettled(Inflow) (1.9) (2.9) (1.5) (3.4) (2.7) (12.4)Outflow 2.5 2.1 1.7 5.4 11.8 23.5Credit related commitments 266.6 – – – – 266.6A significant portion of liabilities of the Group is represented by customer term deposits and promissory notes, currentaccounts of corporate and retail customers, bonds, Eurobonds and syndicated loans.Management believes that although a substantial portion of customer deposits are on demand and mature in lessthan one month, diversification of these deposits by number and type of depositors, and the past experience of theGroup indicates that these deposits provide a long-term and stable source of funding for the Group. Therefore, anessential part of current accounts is considered as stable resources for the purposes of liquidity analysis andmanagement. The stable part of resources on demand is statistically determined for separate currencies and basedon the dynamics of the on these cumulative balances accounts.85

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Current and non-current assets and liabilitiesAssets or liabilities are classified as current if they are expected to be recovered or settled within 12 months after thereporting date.The table below shows assets and liabilities at 31 December 2011 by their remaining contractual maturity.Less than1 yearMore than1 yearOverdue,maturityundefinedAssetsCash and short-term funds 407.0 – – 407.0Mandatory cash balances with central banks 60.1 11.8 – 71.9Financial assets at fair value through profit or loss 550.9 8.7 11.9 571.5Financial assets pledged under repurchaseagreements and loaned financial assets 2.1 196.5 – 198.6Due from other banks 400.0 24.3 0.3 424.6Loans and advances to customers 1,390.7 2,838.1 72.8 4,301.6Assets of disposal group held for sale 10.3 – – 10.3Financial assets available-for-sale 9.9 22.0 135.8 167.7Investments in associates and joint ventures – – 32.5 32.5Investment securities held-to-maturity 30.8 1.6 – 32.4Premises and equipment – – 116.8 116.8Investment property – – 122.5 122.5Intangible assets and goodwill – – 141.2 141.2Deferred tax asset – – 42.7 42.7Other assets 71.3 48.8 28.2 148.3Total assets 2,933.1 3,151.8 704.7 6,789.6LiabilitiesDue to other banks 660.2 39.5 – 699.7Customer deposits 2,967.0 629.7 – 3,596.7Liabilities of disposal group held for sale 8.5 – – 8.5Other borrowed funds 447.0 287.6 – 734.6Debt securities issued 264.8 399.7 – 664.5Deferred tax liability – – 10.0 10.0Other liabilities 150.6 49.6 9.2 209.4Subordinated debt 0.3 240.8 – 241.1Total liabilities 4,498.4 1,646.9 19.2 6,164.5TotalManagement believes that although equity securities included in financial assets held for trading category have nocontractual maturity these equity securities could be sold in less than one year and therefore they are included inrespective contractual maturity category. Debt securities included in financial assets held for trading category are alsoclassified as instruments with contractual maturity less than one year as Management believes that these debtsecurities could be sold in less than one year and it has no intentions to hold these debt securities until maturity.86

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Current and non-current assets and liabilities (continued)The table below shows assets and liabilities at 31 December 2010 by their remaining contractual maturity.Less than1 yearMore than1 yearOverdue,maturityundefinedAssetsCash and short-term funds 275.5 – – 275.5Mandatory cash balances with central banks 21.9 4.5 – 26.4Financial assets at fair value through profit or loss 324.1 13.8 6.7 344.6Financial assets pledged under repurchaseagreements and loaned financial assets 10.6 6.3 – 16.9Due from other banks 319.6 29.9 0.4 349.9Loans and advances to customers 778.5 1,932.0 74.9 2,785.4Financial assets available-for-sale 18.7 8.4 28.8 55.9Investments in associates and joint ventures – – 15.7 15.7Investment securities held-to-maturity 2.2 32.0 – 34.2Premises and equipment – – 113.2 113.2Investment property – – 102.2 102.2Intangible assets and goodwill – – 30.5 30.5Deferred tax asset – – 37.9 37.9Other assets 47.7 26.8 28.1 102.6Total assets 1,798.8 2,053.7 438.4 4,290.9LiabilitiesDue to other banks 342.9 54.4 – 397.3Customer deposits 1,712.5 500.4 – 2,212.9Other borrowed funds 114.5 71.2 – 185.7Debt securities issued 223.2 369.9 – 593.1Deferred tax liability – – 7.3 7.3Other liabilities 73.8 31.1 6.0 110.9Subordinated debt – 205.5 – 205.5Total liabilities 2,466.9 1,232.5 13.3 3,712.7Total87

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)39. Fair Values of Financial InstrumentsThe following table presents a fair value of financial instruments in comparison with its carrying amount as at31 December 2011 and 2010:31 December 2011 31 December 2010CarryingamountFairvalueCarryingamountFairvalueFinancial assetsCash and short-term funds 407.0 407.0 275.5 275.5Financial assets at fair value through profit or loss 571.5 571.5 344.6 344.6Financial assets pledged under repurchaseagreements and loaned financial assets 198.6 198.6 16.9 16.9Due from other banks 424.6 424.6 349.9 350.0Russia 170.0 170.1 174.5 174.6OECD 204.6 204.4 163.0 163.0Other 50.0 50.1 12.4 12.4Loans and advances to customers 4,301.6 4,339.0 2,785.4 2,886.8Loans to legal entities 3,522.3 3,550.4 2,281.7 2,364.2Loans to individuals 779.3 788.6 503.7 522.6Financial assets available-for-sale 167.7 167.7 55.9 55.9Investment securities held-to-maturity 32.4 31.8 34.2 34.2Other financial assets 17.5 17.5 21.9 21.9Financial liabilitiesDue to other banks 699.7 703.6 397.3 397.3Customer deposits 3,596.7 3,577.8 2,212.9 2,237.0Deposits of legal entities 2,435.3 2,433.8 1,465.0 1,473.9Deposits of individuals 1,161.4 1,144.0 747.9 763.1Other borrowed funds 734.6 725.7 185.7 183.3Debt securities issued 664.5 652.3 593.1 603.2Subordinated debt 241.1 238.5 205.5 205.1Other financial liabilities 149.6 149.6 65.5 65.5The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments byvaluation technique:Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;Level 2: techniques for which all inputs which have a significant effect on the recorded fair value areobservable, either directly or indirectly; andLevel 3: techniques which use inputs which have a significant effect on the recorded fair value that are notbased on observable market data.The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchyas at 31 December 2011:Level 1 Level 2 Level 3 TotalFinancial assetsNon-derivative financial assets at fair value throughprofit or lossFinancial assets held for trading 408.1 52.0 1.7 461.8Financial assets designated as at fair valuethrough profit or loss 19.1 1.9 9.8 30.8Trading Derivative financial instruments 10.2 68.0 0.7 78.9Hedging Derivative financial instruments – 0.5 – 0.5Financial assets pledged under repurchaseagreements and loaned financial assetsFinancial assets held for trading 3.4 – – 3.4Financial assets designated as at fair valuethrough profit or loss 4.1 0.1 – 4.2Financial assets available-for-sale 1.7 0.6 – 2.3Financial assets available-for-sale 20.6 97.7 49.4 167.7Financial liabilitiesTrading Derivative financial instruments (9.7) (71.6) (0.2) (81.5)Other financial liabilities – – (21.1) (21.1)88

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)39. Fair Values of Financial Instruments (continued)The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchyas at 31 December 2010:Level 1 Level 2 Level 3 TotalFinancial assetsNon-derivative financial assets at fair value throughprofit or lossFinancial assets held for trading 261.1 17.2 2.8 281.1Financial assets designated as at fair valuethrough profit or loss 23.0 1.2 0.4 24.6Trading Derivative financial instruments 0.4 37.5 1.0 38.9Hedging Derivative financial instruments – 0.6 – 0.6Financial assets pledged under repurchaseagreements and loaned financial assetsFinancial assets held for trading 7.5 – – 7.5Financial assets designated as at fair valuethrough profit or loss 1.0 2.4 – 3.4Financial assets available-for-sale 4.7 – – 4.7Financial assets available-for-sale 25.5 7.6 22.8 55.9Financial liabilitiesTrading Derivative financial instruments (0.6) (35.4) – (36.0)Financial assets at fair value through profit or loss are mainly dependent on the change of input variables used todetermine fair value, such as interest rates and foreign exchange rates. A significant portion of the available-for-salefinancial assets in Level 3 is invested in shares of a non-listed companies which are valued based on non-marketobservable information. Changes in assumptions can lead to adjustments in the fair value of the investment.Movement in Level 3 financial instruments measured at fair valueA reconciliation of movements in Level 3 of the fair value hierarchy by class of instruments for the year ended31 December 2011 is as follows:Financial assets at fair valuethrough profit or lossFinancialassetsdesignated asFinancial at fair valueassets held through profitfor trading or lossFinancialassetsavailable-forsaleFinancialderivativeassets andliabilities (net)OtherfinancialliabilitiesFair value at 1 January 2011 2.8 0.4 22.8 1.0 –Gains less losses / (losses net ofgains) recognized in profit or loss forthe year – 2.5 2.4 (0.5) (1.0)Losses net of gains recognized inother comprehensive income – – (0.1) – –Initial recognition (purchase or issue) 0.3 9.1 29.9 – (21.9)Derecognition (sale or settlement) (1.2) (1.8) (11.3) – 1.8Acquisition of subsidiary 2.1 – 7.7 – –Transfers into level 3 – – 0.2 – –Transfers out of level 3 (2.3) (0.4) (2.2) – –Fair value at 31 December 2011 1.7 9.8 49.4 0.5 (21.1)Unrealized gains less losses /(losses net of gains) recognizedin profit or loss or othercomprehensive income for thecurrent period for assets andliabilities held at 31 December2011 – 2.4 (1.6) 0.5 (1.0)89

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)39. Fair Values of Financial Instruments (continued)Movement in Level 3 financial instruments measured at fair value (continued)A reconciliation of movements in Level 3 of the fair value hierarchy by class of instruments for the year ended31 December 2010 is as follows:Financial assets at fair valuethrough profit or lossFinancialassetsdesignated asFinancial at fair valueassets held for through profittrading or lossFinancialassetsavailable-forsaleFinancialderivativeassets andliabilities (net)Fair value at 1 January 2010 – 1.6 18.1 1.0Losses net of gains recognized in profit or lossfor the year – (0.5) – –Gains less losses recognized in othercomprehensive income – – 0.2 –Initial recognition (purchase or issue) 0.3 – 2.0 –Derecognition (sale or settlement) (0.3) (0.7) (0.5) –Acquisition of subsidiary 2.7 – 5.4 –Eliminated at consolidation – – (2.6) –Transfers into level 3 0.1 – 0.2 –Fair value at 31 December 2010 2.8 0.4 22.8 1.0Unrealized gains less losses recognized inprofit or loss or other comprehensiveincome for the current period for assetsand liabilities held at 31 December 2010 – (0.5) 0.2 –Methods and assumptions for Level 2 and Level 3 financial assetsThe fair value of financial assets at fair value through profit or loss, available for sale and derivative financialinstruments valued according to Level 2 models was estimated based on DCF (projected cash flows) method usingthe assumption of future coupon payment and recent transactions prices. The fair value of structured financial assetswas estimated based on stochastic modeling (Level 2 model). Probability models were calibrated using marketindicators (currency forward, ITRAX Index). Value at Risk was calculated based on full historical recalculation andMonte-Carlo simulation.The fair value of financial assets at fair value through profit or loss, available for sale and derivative financialinstruments valued according to Level 3 models was estimated based on DCF (discounted cash flows) method andpeer based method. Peer based method is based on comparing certain financial ratios or multiples, such as the priceto book value, price to earnings, EV/EBITDA, etc., of the equity in question to those of its peers. This type ofapproach, which is popular as a strategic tool in the financial industry, is mainly statistical and based on historicaldata. Main assumptions used in Level 3 models were short-term revenue projections (one year), cost of equity,liquidity discount, cost of debt and net margin fall forecast. The sensitivity to valuation assumptions disclosed belowrepresents by how much the fair value could increase or decrease had management used reasonably possiblealternative valuation assumptions that are not based on observable market data.Sensitivity analysis to changes of key assumptions for financial instruments valued using Level 3 modelsAs at 31 December 2011, financial assets available-for-sale for the amount of RUR 49.4 billion were valued based onvaluation models by using the peer based valuations, discounted cash flow or combinations of these two methodsand others. The assumptions related to projections of discounted cash flows in the model up to 2015 were in thefollowing range: WACC is 10.1-17.6%; Terminal Growth rate is 2-5%; Liquidity discount applied to the valuation is 0-33%.90

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)39. Fair Values of Financial Instruments (continued)Sensitivity analysis to changes of key assumptions for financial instruments valued using Level 3 models(continued)If the Group had used other reasonably possible alternative assumptions at 31 December 2011, the fair value of theabove equity securities valued based on valuation models, would have been in the range from RUR 43.6 billion toRUR 58.3 billion.As at 31 December 2010, financial assets available-for-sale for the amount of RUR 22.8 billion were valued based onvaluation models by using the peer based valuations model and discounted cash flow method. The averageassumptions related to projections of discounted cash flows in the model up to 2013 were the following: WACC is 15.9%; Cost of debt is 10%;Net margin is 0.0001% less every next year; Liquidity discount applied to the valuation is 30%.If the Group had used other reasonably possible alternative assumptions at 31 December 2010, the fair value of theabove equity securities valued based on valuation models, would have been in the range from RUR 21.8 billion toRUR 23.4 billion.Transfers between levelsDuring the period ended 31 December 2011 the Group transferred financial assets designated as at fair valuethrough profit or loss and financial assets available-for-sale from Level 3 to Level 2 of the fair value hierarchy in thecarrying amount of RUR 2.3 billion. The remaining amount of RUR 0.3 billion was reclassified to investments inassociates. The Group transferred financial assets held for trading from Level 3 to Level 2 in the amount ofRUR 2.3 billion. The reason for the transfers from Level 3 to Level 2 is that inputs to the valuation models becameobservable. Prior to transfer, the fair value of the instruments was determined incorporating significant non marketobservableinputs.During the period ended 31 December 2011 the financial assets held for trading were transferred from Level 1 toLevel 2 in the amount of RUR 11.2 billion as they became estimated on the market internal model basis. Previouslytheir fair values were determined using market quotes.There have been no transfers from Level 2 to Level 1 during the period ended 31 December 2011.During 2010 the financial assets designated as at fair value through profit or loss for the total amount ofRUR 5.0 billion were transferred from Level 2 to Level 1 as they became actively traded during the year and fairvalues were consequently determined using market quotes.There have been no transfers between Level 1 and Level 2 in 2010.40. Related Party TransactionsParties are considered to be related if one party has the ability to control the other party or exercise significantinfluence over the other party in making financial or operational decisions as defined by IAS 24 Related PartyDisclosures. In considering each possible related party relationship, attention is directed to the substance of therelationship, not merely the legal form. A government-related entity is an entity that is controlled, jointly controlled orsignificantly influenced by a government.91

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)40. Related Party Transactions (continued)Transactions and balances with related parties comprise transactions and balances with Russian government-relatedentities and associates and joint ventures and are stated in the tables below:Statements of financial position31 December 2011 31 December 2010Associates and Governmentrelatedjoint ventures entitiesGovernmentrelatedentitiesAssociates andjoint venturesAssetsCash and short-term funds 174.4 – 104.8 –Mandatory reserve deposits with central banks 58.7 – 19.0 –Financial assets at fair value through profit or loss 308.0 – 164.2 –Financial assets pledged under repurchaseagreements and loaned financial assets 191.4 – 9.0 –Due from other banks 97.1 2.1 82.8 3.7Loans and advances to customers 778.7 27.0 391.7 12.4Allowance for loan impairment (20.3) (0.6) (16.9) (1.6)Financial assets available-for-sale 19.4 – 8.3 0.3Investment securities held-to-maturity 31.6 – 32.7 –LiabilitiesDue to other banks 176.0 0.3 75.5 1.3Customer deposits 1,276.5 8.4 565.8 3.5Other borrowed funds 558.7 – 170.2 –Subordinated debt 207.0 – 195.3 –Other liabilities 35.6 0.2 1.1 –Credit Related CommitmentsGuarantees issued 238.7 1.6 137.7 0.7Undrawn credit lines 1.8 – 4.5 –Import letters of credit 4.2 – 2.8 –Income statements2011 2010Interest incomeLoans and advances to customers 39.8 40.5Securities 18.4 15.5Due from other banks 3.0 2.3Interest expenseCustomer deposits (36.3) (23.5)Due to other banks and other borrowed funds (9.2) (7.0)Subordinated debt (16.4) (16.6)(Provision for) / recovery of impairment (2.4) 3.4For the period ended 31 December 2011, the total remuneration of the key management personnel of the Groupincluding pension contributions amounted to RUR 5.7 billion (31 December 2010: RUR 3.8 billion). Key managementpersonnel include VTB Supervisory Council, VTB Management Board, VTB Statutory Audit Committee and keymanagement of subsidiaries. Loans to the key management personnel as at 31 December 2011 amounted toRUR 0.4 billion (31 December 2010: RUR 0.5 billion). Compensation to key management personnel primarily consistsof short term employee benefits.92

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)41. Consolidated SubsidiariesThe principal subsidiaries, associates and joint ventures included in these consolidated financial statements arepresented in the table below:Percentage of ownershipNameActivityCountry ofregistration31 December201131 December2010“VTB Bank (Austria)” AG Banking Austria 100.00% 100.00%“Russian Commercial Bank (Cyprus) Limited” Banking Cyprus 60.00% 60.00%“VTB Bank”, PJSC (Ukraine) Banking Ukraine 99.97% 99.97%“VTB Bank (Armenia)”, CJSC Banking Armenia 100.00% 100.00%“VTB Bank (Georgia)”, JSC Banking Georgia 96.31% 96.31%“VTB Bank (Belarus)”, CJSC Banking Belarus 71.42% 71.42%“Bank VTB 24”, CJSC Banking Russia 100.00% 100.00%“TransCreditBank”, JSC Banking Russia 74.62% 43.18%“Bank of Moscow”, OJSC Banking Russia 94.85% –“Bezhitsa-Bank”, OJSC Banking Russia 100.00% –“Bank Moscow-Minsk”, OJSC Banking Belarus 100.00% –“BM Bank”, Ltd Banking Ukraine 100.00% –“Mosvodokanalbank”, OJSC Banking Russia 65.87% –“Bank of Moscow - Belgrade”, OJSC Banking Serbia 100.00% –“VTB Bank (Deutschland)”, AG Banking Germany 100.00% 100.00%“Bank VTB (Kazakhstan)”, JSC Banking Kazakhstan 100.00% 100.00%“VTB Bank (Azerbaijan)”, OJSC Banking Azerbaijan 51.00% 51.00%“Bank VTB North-West”, OJSC Banking Russia n/a 100.00%“VTB Bank (France)” Banking France 96.22% 87.04%“VTB Capital”, Plc Banking Great Britain 95.54% 95.54%“Banco VTB Africa S.A.” Banking Angola 66.00% 66.00%“VTB Capital (Namibia) (Proprietary)”, Ltd Investment Namibia 50.33% 50.33%“Multicarta”, LtdPlastic cards(processing) Russia 100.00% 100.00%“ITC Consultants (Cyprus)”, Ltd Finance Cyprus 100.00% 100.00%“VB-Service”, Ltd Commerce Russia 100.00% 100.00%“Almaz-Press”, CJSC Publishing Russia 100.00% 100.00%“VTB-Leasing”, OJSC Leasing Russia 100.00% 100.00%“Embassy Development Limited” Development Jersey 100.00% 100.00%“VTB-Development”, CJSC Development Russia 100.00% 100.00%“VTB Europe Strategic Investments Limited” Investment Great Britain 100.00% 100.00%“Nevsky Property”, Ltd Property Cyprus 100.00% 100.00%“Business-Finance”, Ltd Finance Russia 100.00% 100.00%“VTB Dolgovoi centre”, CJSC Finance Russia 100.00% 100.00%“VTB DC”, Ltd Finance Russia 100.00% –“Sistema Leasing 24”, CJSC Finance Russia 100.00% 100.00%“VTB-Capital”, CJSC Finance Russia 100.00% 100.00%“Insurance Company VTB-Insurance”, Ltd Insurance Russia 100.00% 100.00%“VTB-Leasing Ukraine”, Ltd Leasing Ukraine 100.00% 100.00%“Capablue”, Ltd Leasing Ireland 100.00% 100.00%“VTB Leasing (Europe)”, Ltd Leasing Cyprus 100.00% 100.00%"VTB-Leasing Finance”, Ltd Finance Russia 99.99% 99.99%“VTB-Leasing”, Ltd Leasing Belarus 99.00% 100.00%“VTB-Leasing Capital”, Ltd Finance Ireland 100.00% 100.00%"VTB Specialized Depository", CJSC Finance Russia 100.00% 100.00%“VTB Capital Asset Management”, CJSC Finance Russia 19.00% 19.00%“Holding VTB Capital”, CJSC Finance Russia 100.00% 100.00%“VTB Factoring”, Ltd Factoring Russia 100.00% 100.00%“Financial Assistant”, CJSC Finance Russia 100.00% –“VTB Registrar”, CJSC Finance Russia 100.00% 20.00%“Hals-Development”, OJSC Real Estate Russia 51.24% 51.24%“M”, CJSC Real Estate Russia 100.00% 100.00%“VTB Arena”, CJSC Real Estate Russia 77.30% 75.00%“VTB Real Estate”, LLC Real Estate Russia 100.00% –“Hotel and Office Complex ”Peking”, OJSC Real Estate Russia 100.00% –“Citer Invest”, B.V. Real Estate Netherlands 50.50% –“Pensionny Administator”, Ltd Finance Russia 100.00% –‘VTB Pension Fund’, NPF Pension fund Russia 100.00% 100.00%"Consolidated companies", OJSC Winery Russia 100.00% –In January 2011, Management Company “Dinamo”, CJSC sold its 50.92% stake in Football Club “Dinamo”, CJSC toPetrovsky Park Arena, CJSC. In July 2011 the Group renegotiated the investment agreements between co-investors(including Football Club “Dinamo”, CJSC) and developer Management Company “Dinamo”, CJSC and materiallyfinalized the Project concept. As a result of these transactions and other reallocations between subsidiaries of "VTBArena", CJSC non-controlling interest decreased by RUR 1.1 billion.93

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)41. Consolidated Subsidiaries (continued)In March 2011, “VTB Dolgovoi centre”, CJSC, a 100%-owned Group’s subsidiary, issued 2,825.2 million additionalordinary shares with nominal value of RUR 2,825.2 million, which are fully purchased by VTB at par.In March 2011, “Bank VTB North-West”, OJSC ceased its operations as a subsidiary of VTB following the legalmerger of VTB and “Bank VTB North-West”, OJSC. As a result of the legal merger RUR 2.4 billion of currencytranslation difference was transferred to the retained earnings.In June 2011, “Bank VTB (Kazakhstan)”, JSC issued 1,100,000 additional ordinary shares with nominal value ofKZT 10,000 each for KZT 11 billion (RUR 2.1 billion), which were fully purchased by the Group.In July and August 2011, the Group increased its ownership share in "TransCreditBank", JSC from 43.18% to 74.48%by purchasing 715,694,742 shares from the non-controlling interests for RUR 17.4 billion including 6,957,836 sharespurchased under the binding offer.In November 2011, the Group increased its ownership share in "TransCreditBank", JSC from 74.48% to 74.62% bypurchasing 3,186,312 shares from the non-controlling interests for RUR 0.1 billion.In December 2011, the Group increased its stake in “VTB Bank (France)” to 96.22%, receiving 15,275 shares of“VTB Bank (France)” from the Central Bank of the Russian Federation. This transfer was executed under the dealsigned in 2006, which was subject to successful completion of the legal suit in relation to these shares between theCentral Bank of the Russian Federation and the previous shareholder.In December 2011, "VTB Arena", CJSC issued 135,248 additional ordinary shares with notional amount ofRUR 24,010 each for the total amount of RUR 3.2 billion. 101,436 of these shares were purchased by the Group,which resulted in the increase of VTB's ownership in "VTB Arena", CJSC from 75% to 77.3%. The non-controllingshareholders can exercise their right to buy the remaining part of shares till August 2012.In December 2011, "VTB Dolgovoi centre", CJSC purchased 20,967,789 shares of "Bank of Moscow", OJSC fromnon-controlling shareholders which are related parties to the Group for RUR 17.3 billion. Also in December 2011"Bank of Moscow", OJSC placed an additional share issue of 100 million shares at RUR 1,111 per share. Thetransaction has been made in line with financial support program of “Bank of Moscow”, OJSC. The Group hasacquired share totally worth about RUR 102 billion. As a result of these transactions, the Group’s stake in “Bank ofMoscow”, OJSC has increased to 94.85%.42. Business Combinations and Disposal of SubsidiariesIn March 2011, the Group acquired a 100% ownership share in OJSC “Hotel and Office Complex “Peking” forRUR 1.7 billion which was equal to the fair value of the identifiable net assets at the acquisition date.In April 2011, VTB established a 100% subsidiary “VTB Real Estate”, LLC to manage its investment property projects.In May 2011, the Group purchased 80% of shares of “VTB Registrar”, CJSC (former “Central United Registrar” CJSC)for USD 4.5 million (RUR 0.1 billion) increasing its share to 100% in “VTB Registrar”, CJSC.In June 2011, the Group sold its 51% stake in “TCB Capital”, CJSC (a subsidiary of “TransCreditBank”, JSC) forRUR 0.4 billion to a third party. As at the date of disposal the net assets of “TCB Capital”, CJSC amounted toRUR 0.9 billion and cash items disposed amounted to RUR 1.5 billion.In June 2011, the Group purchased 50.5% of shares of “Citer Invest”, B.V. for USD 45.6 million (RUR 1.3 billion). Asat the date of acquisition the fair value of the net assets was RUR 2.4 billion and the share of non-controlling interestin the net assets of the acquired company was RUR 1.2 billion. As a result of the acquisition the Group recognizedgoodwill of RUR 0.1 billion.In October 2011, the Group purchased 100% share in Closed Investment Real Estate Fund Aruji Real Estate 1 forRUR 2.1 billion which was equal to the fair value of the identifiable net assets at the acquisition date.On 30 September 2011, the Group obtained control in “Bank of Moscow”, OJSC increasing its share to 80.57%through a 100% subsidiary of the Group “VTB Dolgovoi centre”, CJSC. “VTB Dolgovoi centre”, CJSC acquired “Bankof Moscow”, OJSC shares from the third parties, which are not related to the Group, and the Group’s associate. Thetransaction was done in accordance with the General Agreement on measures for financial support of “Bank ofMoscow”, OJSC which was signed in July 2011 by “Bank of Moscow”, OJSC, DIA and the Group companies. TheGroup acquired “Bank of Moscow”, OJSC implementing its strategy of further increasing its retail and corporatemarket share and improving profitability through economies of scale.94

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)42. Business Combinations (continued)The goodwill is primarily attributable to the profitability of the acquired business, potential synergies and combinedcost savings. The goodwill will not be deductible for tax purposes in future periods. The non-controlling interest hasbeen recognized as a proportion of net assets acquired.The initial accounting for this business combination had not been completed as at 30 September 2011 because thevaluation of loans and advances to customers had not yet been finalized. When finalized, the fair value of loans andadvances to customers at the acquisition date decreased by RUR 5.1 billion with a related increase in deferred taxasset of RUR 1.0 billion, increase in goodwill by RUR 3.3 billion and decrease of non-controlling interest byRUR 0.8 billion respectively.The gross contractual amounts of loans and advances to customers of “Bank of Moscow”, OJSC at the acquisitiondate amounted to RUR 918.7 billion. The estimate of the contractual cash flows which are not expected to becollected amounted to RUR 273.7 billion.The amounts of revenues and net profit of "Bank of Moscow", OJSC since the acquisition date included in theconsolidated statement of comprehensive income of the Group are RUR 41.7 billion and RUR 7.5 billion, respectively.Revenues were calculated in accordance with methodology applied in analysis by segment disclosure.For the purpose of determining goodwill from the acquisition the fair values of identifiable assets and liabilities of“Bank of Moscow”, OJSC based on results of both an independent external appraisal and managementconsiderations, at the acquisition date were as follows:Fair valueAssetsCash and short-term funds 61.1Mandatory reserve deposits with central banks 8.2Financial assets at fair value through profit or loss 16.8Financial assets pledged under repurchase agreements and loaned financial assets 13.1Due from other banks 78.5Loans and advances to customers 648.2Financial assets available-for-sale 18.6Investments in associates 6.0Investment securities held-to-maturity 0.2Premises and equipment 14.8Investment property 3.3Intangible assets (including core deposit and customer loan intangible) 26.9Deferred tax asset 5.7Other assets 11.1Total assets 912.5LiabilitiesDue to other banks 47.1Customer deposits 513.1Other borrowed funds 153.9Debt securities issued 75.8Deferred tax liability 0.1Subordinated debt 36.0Other liabilities 6.1Total liabilities 832.1Fair value of identifiable net assets of subsidiary 80.4Goodwill arising from the acquisition:Consideration paid 50.2Non-controlling interests (proportionate share of the acquiree’s identifiable net assets) 15.7Fair value of the acquirer's previously held interest in the acquiree 99.2Less: fair value of identifiable net assets of subsidiary (80.4)Goodwill arising from the acquisition 84.795

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)42. Business Combinations (continued)In December 2011 the Group obtained control in several interrelated companies by acquiring a 100% ownershipshare in "Consolidated companies", OJSC including: "Kornet", OJSC (94.2%), "Moscow Inter-Republic Winery",OJSC (94.1%), "Inter-Republican Winery Trading House Limited", OJSC (95.6%).The valuation of assets and liabilities, except for brands and trademarks, was carried out by the Group’s internalappraisers. The valuation of brands and trademarks was carried out by independent appraisers.The fair values of identifiable assets and liabilities of this group of companies at the acquisition date were as follows:Fair valueAssetsInvestments in associates and joint ventures 0.5Premises and equipment 3.5Intangible assets (brands and trademarks) 0.5Other assets 1.2Total assets 5.7LiabilitiesDue to other banks 1.6Customer deposits 0.5Deferred tax liability 0.4Other liabilities 3.1Total liabilities 5.6Fair value of identifiable net assets of subsidiary 0.1Goodwill arising from the acquisition:Consideration paid 0.0Non-controlling interests (proportionate share of the acquiree’s identifiable net assets) 0.1Less: fair value of identifiable net assets of subsidiary (0.1)Goodwill arising from the acquisition –If the acquisition of the OJSC “Consolidated companies” had taken place at the beginning of the year, the net profit ofthe Group and operating income would not have been materially different.43. Capital Management and Capital AdequacyThe Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence andto sustain future development of its business.Capital adequacy ratio in accordance with CBR requirementsThe CBR requires Russian banks to maintain a minimum capital adequacy ratio of 10% of risk-weighted assets,determined in accordance with CBR’s requirements. In other countries the Group members comply with theregulatory capital requirements of the local central banks or other supervisory authorities.During 2010 and 2011 the Bank’s capital adequacy ratio in accordance with CBR requirements exceeded theminimum level and as at 31 December 2011 and 2010 was as follows:31 December201131 December2010Capital 443.3 529.7Risk-weighted assets 4,017.9 2,347.7Capital adequacy ratio 11.0% 22.6%96

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)43. Capital Management and Capital Adequacy (continued)Capital adequacy ratio in accordance with the Basel Capital Accord 1988The Group’s objectives when managing capital is also to maintain a sufficient capital base to achieve a capitaladequacy ratio based on the Basel Accord above 8%. The Group’s international risk based capital adequacy ratio,computed in accordance with the Basel Accord guidelines issued in 1988, with subsequent amendments including theamendment to incorporate market risks, and modified as stated below, during 2010 and 2011 exceeded the minimumrequired level and as at 31 December 2011 and 2010 was 13.0% and 16.8% respectively.The components of computation of capital adequacy ratio were as follows:31 December201131 December2010Tier 1 capital 509.0 546.9Tier 2 capital 245.4 214.8Less: deductions from total capital (21.0) (21.7)Total capital 733.4 740.0Risk weighted assets 5,655.9 4,413.2Tier 1 capital ratio 9.0% 12.4%Capital adequacy ratio 13.0% 16.8%44. Subsequent EventsIn February 2012, CBR registered an additional share issue of “TransCreditBank”, JSC that increased its sharecapital to RUR 2.6 billion. The Group purchased 334,373,607 shares of the additional issue at price of RUR 22.69 pershare and increased its share in “TransCreditBank”, JSC to 77.86%.In March 2012 “VTB Dolgovoi centre”, CJSC was reorganized in “VTB Dolgovoi centre”, LLC according to the Group’sdecision.In the first quarter of 2012, “Bank VTB 24”, CJSC placed previously bought-back Series 2 RUR-denominated bonds inthe total amount of RUR 6.6 billion.In February 2012 a number of VTB Group entities introduced to its selected employees the equity-basedremuneration plan (the “Plan”). The Plan represents a contingent right of those employees to receive common shares(“Shares Plan”) or GDRs (“GDRs Plan”) of VTB Bank (depending on the employing entity’s country of incorporation)after a specified period of time. The vesting conditions envisage that an employee remains in service for three yearsto receive the full amount of the shares award. The awarded shares vest gradually in three equal installments overthe vesting periods of approximately one, two and three years, subject to employee’s continuous employment with theGroup during the relevant vesting period. An award, or portion of it, may be forfeited if the employee terminatesemployment before the end of the relevant vesting period voluntarily or subject to certain other conditions asdescribed in the Plan rules.The total value of the award granted subsequent to the reporting date and up to the date of approval of these financialstatements comprised RUR 1.4 bln for the Shares Plan and USD 0.03 bln. (ca. RUR 1.0 bln) for the GDRs Plan. Thenumber of shares and GDRs granted under the Plan comprised 19.6 mln shares and 7.1 mln GDRs, respectively.In March 2012, the Group made an offer to repurchase ordinary shares of the Bank from the shareholdersparticipated in 2007 IPO of the Bank at the price of RUR 0.136 and maximum number of 3,676,471 shares from oneeligible shareholder. The offer has expired on 13 April 2012. The payments to eligible shareholders, who hasaccepted the offer, will be executed by the end of April 2012 and will be finally completed in June 2012.In January 2012, the Group obtained 100% control in "Sistemapsys S.a.r.l." by purchasing additional 50% forRUR 1.3 billion.In January 2012, VTB placed RUR 10 billion series BO-07 local bond issue maturing in 2015 with 7.95% p.a couponrate and 1 year put option.In March 2012, VTB placed RUR 10 billion series BO-03 and BO-04 local bond issue maturing in 2015 with 8% p.a.coupon rate and 2 years put option.97

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)44. Subsequent Events (continued)In April 2012, VTB placed USD 1.5 billion Series 15 Eurobonds under EMTN Programme 2 with maturity in 2017 anda fixed coupon rate of 6% p.a.In February 2012, “VTB Bank”, PJSC (Ukraine) bought back Series C bonds in total amount of UAH 277.6 million(RUR 1.0 billion).In the first quarter 2012 “VTB Capital”, Plc has issued short and medium term notes in the outstanding amount ofUSD 219.6 million (RUR 6.5 billion) under USD 5.0 billion EMTN programme maturing in 2012, 2013 and 2015.In February 2012, the Group obtained 84.91% controlling share in "Russian National Commercial Bank", OJSC bypurchasing additional 45.11% for RUR 0.4 billion from the third parties which are not related to the Group.In March 2012, the Group made a voluntary offer to purchase ordinary shares of “Bank of Moscow”, OJSC fromselected current shareholders of “Bank of Moscow”, OJSC at the price RUR 1,108.65 per share. Maximum number ofshares to be purchased by the Group from these selected current shareholders should not exceed the number ofshares owned by these selected current shareholders at the date when the Group has purchased 46.48% “Bank ofMoscow”, OJSC in February 2011. The offer has expired on 15 April 2012. At the moment the Group is analyzing thenumber of offer acceptances received and the results of the offer. The Group expects that the share of non-controllinginterests acquired as the result of the offer would not exceed 0.03% of total number of shares of “Bank of Moscow”,OJSC.98