Alfa-Bank - Alfa Group

Petr AvenPresident of Alfa-Bank“We are happy to report, that Alfa-Bank has again led the market in meeting the demands ofthe growing economy of Russia. Our success is a result of an unwavering commitment to ourprinciples. We combine international standards of business and corporate management withour unique expertise in the Russian market. Having chosen universality as the centerpiece ofour business development strategy, today we are able to offer our clients a full spectrum oftop quality, world class banking products and services. We continue to innovate, continuallystrengthening our professional team and technology, always seeking to improve the serviceand reliability that has become associated with the name of Alfa-Bank.”Despite the significant growth of the loanportfolio, the share of overdue loans isgradually decreasing. In 2006, overdueloans decreased to 0.4% from 0.8% at theend of 2005 of the total amount of loans.The top priority for Alfa-Bank’s developmentin 2006 was intensive regional businessgrowth, especially among mediumsizedcompanies. In response to these marketrequirements, the Bank made a concertedeffort to improve infrastructure andbusiness processes, and to consolidateproduct lines in its regional divisions. Thecash management business was anothertop priority, and for further developmentof this area, branch offices began implementinga special IT platform which willbecome the basis for development of thecash and settlement business in the yearsto come. In 2006, the overall volume ofAlfa-Bank’s regional business (excludingMoscow) amounted US $3.24 billion (36%of credit portfolio) compared to US $1.83billion (31% of credit portfolio) at the endof 2005, which demonstrates steadygrowth of the regional credit portfolio.In 2006, Alfa-Bank continued to strengthenits position in the area of structuredcredit products.The most significant deals included theparticipation in provision of a RUR 1.85billion syndicated loan to SakhaRepublic (Yakutia) and participation asthe joint sponsor of a syndicated loan foran amount of RUR 1 billion for threeyears to the pharmaceutical distributorCJSC NPK “Katren”.Trade finance has traditionally been oneof the top priorities in the developmentof Alfa-Bank. In 2006, the total amountof trade finance deals reached almost US$500 million.Alfa-Bank’s International Funding InitiativesFollowing the strategy of increasingdiversification of funding sources, Alfa-Bank was very active in internationalcapital markets.In 2006, Alfa-Bank increased itsMedium-Term Notes Program (“MTN”)from US $1 billion to US $2 billion. Inaddition, the Euro-Commercial Paper(“ECP”) Program increased in size fromUS $400 million to US $1 billion.In December 2005, Alfa-Bank issued US$225 million tranche of 10-year subordinatedunsecured notes, which is includedin its equity capital calculations – thefirst private Russian bank ever to havedone so. In February 2007, Alfa-Bankissued another US $300 million trancheof subordinated unsecured notes.In March 2006, Alfa-Bank successfullyclosed its debut US $350 million transactionfor the securitization of diversifiedpayment rights (“DPR”). This transactionmarked the first ever securitizationof diversified payment rights by aRussian institution. The second diversifiedpayment rights transaction (twotranches of US $260 million and EUR230 million) was completed in December2006. In March 2007, Alfa-Bank successfullyclosed the third securitization issueunder its DPR Program, which consistsof two tranches — EUR 145 million andUS $200 million.During 2006 Alfa-Bank raised US $778million through syndicated loans. InOctober 2006, Alfa-Bank also closed aUS $400 million note issuance under itsMTN Program.The total amount of funds raised by Alfa-Bank in the international capital marketsthrough syndicated loans, under its DPR,Short and Medium-Term Note Programsapproximated US $2.6 billion.Alfa-Bank intends to expand further itsfunding base and to diversify its overallsources of funding among corporate,consumer and international funding.Corporate Banking2006 was a successful year for Alfa-Bank’s Corporate Banking division,which offers its customers a wide-rangeof services including lending and foreigntrade transactions, bank account,deposit and settlement services, tradefinance, structured corporate lending,corporate finance and leasing.Top priorities in the Corporate Bankingdivision in the past year were thedevelopment of structured debt instruments,and innovative settlement productsfor the Russian market offered bythe cash management group. Specialattention was given to the developmentof strategies to promote cross-sales ofproducts between Alfa-Bank businesses(investment banking and retail bankingproducts). This helps to create significantsynergies, both for clients andfor Alfa-Bank.By the end of 2006, Alfa-Bank’s commercialloan portfolio before provisionsexpanded by 54.1% to US $9 billion,while its total customer accounts grewby 42.1% and totalled US $5.2 billion. Interms of the volume of loans placed,Alfa-Bank is still the most active privatebank in providing finance. Its portfolioyields only to those of state-ownedSberbank, VTB, and Gazprombank. Interms of customer accounts attracted,Alfa-Bank was in fifth place in the countryas at the end of 2006.At the end of 2006, Alfa-Bank had morethan 45,000 corporate clients, includinggovernmental customers. The leadingindustries in Alfa-Bank’s credit portfolioin 2006 were trade, construction, ferrousmetallurgy, electric power, and mechanicalengineering. The highest growth wasachieved by companies in power generation,trade, construction, ferrous metallurgy,and aviation industries.For the past several years Alfa-Bank has significantlyincreased the diversification of itsloan portfolio. In 2006, the credit portfolioconcentration demonstrated a positivetrend when the share of the 10 largest borrowerswas reduced to 22.3% by end of2006 from 24.1% at the end of 2005.President of Alfa-Bank Petr Aven and Director of the Lauder Institute Richard Herring presented to Peter Tils, CEO Central and Eastern Europe, Deutsche Bank AG, Award forExcellence in Foreign Investment in Russia – Moscow, Russia (June, 2006)24 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 25