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#1 Privately Owned Bank for Pensioners
In any corner of Russia for people above 45 years old
Moscow
January 2014
DISCLAIMER
THE INFORMATION SET FORTH HEREIN HAS BEEN PREPARED BY SOVCOMBANK (HEREINAFTER, “SCB” OR THE “BANK”)
SOLELY TO PROVIDE LIMITED INFORMATION CONCERNING THE BANK’S CURRENT OPERATIONS AS DESCRIBED IN THIS
PRESENTATION. THIS INFORMATION IS INTENDED FOR A GENERAL UNDERSTANDING OF THE BANK’S BUSINESS AND
DEVELOPMENT PROSPECTS AND IS NOT INTENDED FOR JUSTIFICATION FOR ANY DECISION.
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1
SOVCOMBANK IN A NUTSHELL
In any corner of Russia for people above 45 years old
KEY FACTS ABOUT SOVCOMBANK
Market Positioning (1)
Client Base
Specialization
 #1 privately owned bank by loan portfolio to
 Unsecured consumer lending and retail
 #2 by ROAE among specialized consumer
 Clients above 45 years old
lenders (2)
 #3 by Net Income among specialized
 Small territories and residential areas
consumer lenders (2)
 1,066,000 retail borrowers and over
161,000 retail depositors
deposits
pensioners
 55% pensioners and people above 45 years
old
 Stable income, high payment discipline,
strong demand and high growth, limited
customer mobility
 #26 by consumer loan portfolio in Russia
Financial Performance
Geographies
9m.'13/9m.'12
YTD
 Small and medium-sized towns and territories in
114
36%
20%
53
66
32%
24%
regional markets with population below 100,000
inhabitants, under penetrated in terms of
banking services and with low level of
competition
bn rub
2011
Assets
57
95
Loans
36
Deposits
2012 3Q 2013
42
62
73
29%
17%
Equity
7
9
12
46%
28%
Net Income
3
4
3
ROAA
6.6%
4.6%
3.3%
ROAE
57%
43%
33%
 780 small towns in 38 regions across 8 time zones
 The close proximity to our customers and their
needs
Management Team
 Highly professional management team with
proven track record of success in Russian
banking sector
 Clear development strategy with clear focus
on high profitability, sustainable growth and
financial delivery
Efficiency
 Low-cost distribution network of a federal
Risk management
 Effective control of credit risk
scale with centralized back-office functions
 Strong operating level (79% of total costs
are variable)
 Scalable platform
 Significant liquidity buffer in profitable low-
risk fixed-income instruments
 Well capitalized (CAR N1 = 13.5%)
(1) Source:
(2) Banks-specialists in consumer lending: Russian Standard Bank, Home Credit, The Orient Express, OTP Bank, Renaissance
IFRS reporting for 1H 2013
Credit, Asian-Pacific Bank, Tinkoff Credit Systems, Credit Europe Bank
3
KEY NUMBERS
Assets
bn rub
Loans and Deposits
CAGR
bn rub
Note: CAGR – Compound annual growth rate
Revenue = interest and fee and commission income
Equity
bn rub
Net income
ROAA/ROAE
bn rub
Source: IFRS reporting
*annual rate based on 9 months data
4
MARKET POSITIONING
Market positioning in banking sector
2010
2011
2012 3Q 2013
Assets
#80
#76
#59
#52
Equity
#81
#79
#71
#57
Consumer
loans
#35
#34
#27
#26
Retail
deposits
#43
#37
#34
#32
#7 by consumer loan portfolio (1)
bn rub
6 months 2013
#5 by retail deposit portfolio (1)
bn rub
6 months 2013
Source: Interfax
#3 by net income (1)
bn rub
#2 by return on equity (ROAE) (1)
6 months 2013
6 months 2013
#2 by Loans \ Deposits (1)
Consumer loans/Retail deposits
6 months 2013
(1) – IFRS reporting, * - assessment on the basis of historical data under IFRS and RAS
BRC - Russian Standard Bank, HCF - Home Credit, VE - The Orient Express, OTP - OTP Bank, RC - Renaissance Credit, ATB - Asian-Pacific Bank, TCS - Tinkoff Credit Systems, CE – Credit Europe Bank
5
KEY DEVELOPMENT MILESTONES
2001-2006
2007-2008
 Acquisition of the
Bank by the current
management team
 Acquisition of a stake
in the Bank by Kardan
group
 Rebranding into
inSovcombank
 Merger with ARKA
(regional network of
credit agencies)
 Retail license
obtained
 Development of a
consumer lending
platform
2009-2010
2011-2012
2013
 Commercial launch of
consumer lending
 Active growth and
high profitability
 Expansion into 30 new
regions via over 1,000
mini-offices
 Kardan group quit SCB
 Enhancing credit risk
management
procedures and cost
optimization
 Targeting customers with
higher IRR
 Rolling up corporate
business segment
 Rated by Moody's and
S&P
 Development of
investment business
segment
 Deeper penetration into
smaller territories in
regional markets
 Debt securities of SCB
included into Lombard
list of the Central Bank
 Acquisition of GE Money
Russia announced
Total assets of Sovcombank
bn rub
+27%
CAGR
+70%
CAGR
Source: IFRS reporting
6
BUSINESS STRATEGY
#1 PRIVATELY OWNED BANK FOR ACTIVE ADULTS
AND THEIR PARENTS
FEDERAL COVERAGE OF SMALL AND MEDIUM
TOWNS AND RURAL TERRITORIES
 #1 specialized privately owned Bank for active adult
population and pensioners (older than 45)
 Federal presence and deep penetration into local regional
markets of small and medium towns and rural territories
with population over 5,000 inhabitants
 Top-5 among privately owned specialized players in
consumer loans and credit cards
 Located in close proximity to customers and their needs
 Top-5 among privately owned specialized players by retail
deposits
 Low-cost distribution and servicing model
STABLE GROWTH MANAGED TO MAINTAIN
PROFITABILITY
FOCUS ON SUSTAINABILITY OF BUSINESS
 Stable managed growth
 ROAE above 30%
 Further utilization of operating leverage and economy of
scale to enhance operating efficiency (C/I < 40%)
 Optimization of funding cost
 Conservative credit, market and liquidity management
policies
 Liquidity cushion and solid capital position, partially
employed in profitable and low-risk fixed income
investments
 Diversifying funding mix into public debt instruments while
maintaining at least 50% share of retail deposits
 Maintain ability to adapt for changes in demand and macro
environment
 Remain cautions on cost of risk
7
CUSTOMERS
For people above 45 years old
UNIQUE CUSTOMER NICHE – ACTIVE ADULTS
AND THEIR PARENTS
Stable demand



The fastest growing segment of
the population in Russia
Strong demand for banking
services while supply is limited
Low income makes difficult the
accumulation for significant
purchases
Stable income
PENSIONERS AND
ELDER PEOPLE
ABOVE 45+
Population 45+
(mln people)
Percentage of population 45+
in the general population
38%
55
40%
41%
57
58
44%
64
47%
68
49%
49%
70
70

Pensions

Stable salaries

Income from natural economy

Financial support from families
2028F
2024F
2020F
Unique brand, product knowhow, high level of service help
SCB to win customer trust and
loyalty
2016F

2012
Besides national banks and SCB
there are no other players with a
strong expertise in the segment
2008

High payment discipline
2004
Low competition

Low risk appetite

High payment discipline

Low level of delinquency
Source: Rosstat data and forecasts, SCB estimates
9
#1 BANK FOR PEOPLE ABOVE 45

Brand
- Strong, well-established and well recognized brand among
the target clientele
 Long-term investments in marketing and unique advertising expertise
Service
 Permanent analysis and change of processes according to demand of people
above 45
 Specialized training programs to serve pensioners
 Simple, understandable, affordable products
Products
 Affordable interest rates for pensioners and people older than 45 as a result of
lower cost of risk
 Wide regional distribution platform
Proximity
to customers
 Convenient locations in close proximity to customers
 Social projects
10
SCB FOCUSES ON TARGET SEGMENT
Retail portfolio by segments
Source: IFRS reporting
Operating profit by segments
Source: IFRS reporting
11
MARKETS AND DISTRIBUTION
In any corner of Russia
NATIONWIDE REGIONAL FOOTPRINT
780 towns and territories in 38 Federal regions and 8 time zones
- SCB operations
x
- Number of offices
96% retail loans ...
Coverage of over 60% population
Retail loan portfolio
SbFD
UFD
CFD
NWFD
SFD
VFD
14
Kamchatka Krai
Yaroslavl Obl
Moscow and
Moscow Obl
Tula Obl
3
Lipetsk Obl 17
Voronezh Obl
35
Vologda Obl
23
87
31
33 49 Vladimir Obl
20 Nizhny Novgorod Obl
Ivanovo Obl
Samara Obl
Sakha Rep
2
Krasnoyarsk Krai
155
Moscow
Khabarovsk Krai
66
Amur Obl
48
Tyumen Obl
Tomsk Obl
Chelyabinsk Obl
42
123
59
7
Irkutsk Obl
11
Omsk
Obl
Rostov Obl
6
86
Bashkortostan 87
142 Buryatia Rep
Orenburg
Obl
Kemerovo
Obl
104
Rep
4
Novosibirsk Obl 165
Stavropol Krai
3
33
Zabaykalsky Krai
155
Khakassia Rep
Altai Krai
8
Altai Rep
Krasnodar Krai
184
4
Adygea Rep
42
... and 55% retail deposits in
regional markets
Retail deposit portfolio
Kostroma Obl
29
FEFD
7
Evreyskaya
АО
Sakhalin Obl
24
Primorsky Krai
153
Note: Sovcombank, data as of October 1, 2013; SbFD - The Siberian Federal District, CFD - Central Federal District, FEFD - Far Eastern Federal
District, SFD - Southern Federal District, UFD - Urals Federal District, VFD - Volga Federal District, NWFD - North-West Federal District
Regions
Source: Sovcombank, data as of October 1, 2013
13
«LIGHT» COST-EFFICENT DISTRIBUTION NETWORK ALLOWS
TO REACH OUT TO …
Expansion of distribution platform via
cost-efficient mini-offices
«Light» distribution network
Offices
943
1 017
205
206
400
176
555
614
183
1Q
2011
2Q
2011
811
235
1 223 1 326
1 548
282
297
363
395
1 068
1 184
1 251
1 258
1 275
1 319
219
222
786
877
197
218
227
249
265
273
272
275
275
3Q
2011
4Q
2011
1Q
2012
2Q
2012
3Q
2012
4Q
2012
1Q
2013
2Q
2013
3Q
2013
Offices
Mini-offices
Points of Sale
Source: Sovcombank, data as of October 1, 2013

1,319 mini-offices

395 points of sale

275 offices

1,148 ATMs

1,520 EFTPOS-terminals
Source: Sovcombank, data as of October 1, 2013
Points of sale
1 913 1 989
1 705 1 806 1 827
256
231
Mini-offices
Loans, deposits,
payments
Loans, payments,
deposits (possible)
Loans
5 employees
3 employees per 2
mini-offices
3 employees per 2
points of sales
Regions: сentral
locations, on the
front line of main
streets with heavy
traffic
Moscow: near
metro stations, in
easily accessible
locations
Regions: shopping
Regions: shopping
centers and large
centers and large
stores
stores
Equipped with ATM
with cash-in
functionality
14
… DEFENSIVE REGIONAL MARKETS OF SMALL TOWNS
AND RESIDENTIAL AREAS
Focus on small towns and territories
Retail customer base Sovcombank by towns of residence
0-100 thous.
people
100-300 thous. people
300-700 thous. people
 Low Competition
 High margins
 Low level of credit risk
>700 thous. people
Distribution network of Sovcombank towns of presence
0-100 thous.
people
100-300 thous. people
300-700 thous. people
 The low mobility of population
 Stable income
>700 thous. people
77% of SCB customers lives in towns with populations
of below 300 '000 people
 Well protected against
potential competitors
Source: Sovcombank, data as of October 1, 2013
15
BUSINESS EFFICIENCY INCREASES DUE TO ECONOMIES
OF SCALE
Growing efficiency of distribution network
Increasing operating efficiency (Cost / Income)
Retail loans / Offices (mln RUR)
Source: Sovcombank
Source: Sovcombank
OPEX/ Offices
Strong operating leverage
mln RUR per annum
OPEX breakdown
Source: Sovcombank
Source: Sovcombank
16
BUSINESS
Retail, Dynamic, Quality
QUALITY GROWTH OF RETAIL PORTFOLIO
Quality growth of retail portfolio
Active growth of customer base
'000
customers
30%
30%
10%
19%
bn rub
104%
69%
13%
30%
*Sum of the number of customers by product is different from total number of
customers because some customers have more than one product
Moderate growth in average loan balances
'000 rub
Source: Sovcombank
18
LOW DEBT-CAPACITY UTILIZATION OF SCB CLIENTS
Average contractual loan of SCB
'000 rub
Average monthly client payment for SCB loan
'000 rub per month
Source: Sovcombank, Ministry of Finance
19
QUALITY PORTFOLIO AND CONSERVATIVE
PROVISIONING POLICY
NPL 90+ \ Gross retail portfolio
Source: IFRS reporting
Provisions \ NPL 90+
Source: IFRS reporting
 NPL 90+ is 100% provisioned
 Conservative NPL provisioning policy
 NPL 360+ is written-off
 Total NPL 90+ coverage at 121%
20
FUNDING AND CAPITAL
Solid, Sustainable
FUNDING BASE
Rating
agencies
Funding structure
Average cost of funding
Credit ratings
Debt instruments of SCB ...
International
rating
National
Scale
Рублёвые
облигации
B2
Baa1
B
BBB+
Source: Sovcombank, data as of October 1, 2013
Ruble bonds
3 000 000 000 RUB
2 000 000 000 RUB
3 000 000 000 РУБ
11.25%
ПЛАНИРУЕТСЯ
Moody’s
Ruble bonds
PLANNED
18/06/2013
20/06/2016
... included in the Lombard list of the Central Bank
Source: Sovcombank, data as of October 1, 2013
22
RETAIL DEPOSITS – KEY SOURCE OF FUNDING
 Over 160,000 retail
depositors and 67 bn rub
outstanding deposit
portfolio
Retail deposits
Key source of funding
Depositors '000
65
bn rub
92
11
3
141
160
 An average deposit
account is 370,000 rub
 Over 80% SCB deposits
are fully insured and SCB
faces a low risk of
sudden withdrawal of
deposits
 About 90% of portfolio in
RUR to match lending
currency mix
Note: The data on the amount indicated including current
accounts, number of clients only on term deposits
Average cost of retail deposits
Over 80% of retail portfolio insured with
DIA
<=1mln rub
 SCB effectively manages
deposit inflows to match
loan disbursements as a
result of balancing of
deposit rate and
marketing activity
 Term deposits are almost
100% of the portfolio
>1 mln rub
Source: Sovcombank, data as of October 1, 2013
DIA – State Deposit Insurance Agency
23
SOLID CAPITAL BASE
Capital base

Positive dynamics of equity under
RAS and IFRS

The high level of security of capital under
RAS and IFRS

Capital adequacy N1 at the level of 13.5%,
well above the minimum of 10%
Source: Sovcombank, Central Bank of Russia
Capital adequacy (N1)
Well positioned among
specialized consumer lenders
Source: Central Bank of Russia
24
FINANCIAL PERFORMANCE
Efficient, Dynamic
ATTRACTIVE FINANCIAL PERFORMANCE
Revenue* (12 months)
Revenue* (9 months)
+42%
+40%
+59%
+37%
Net income (12 months)
+109%
Net income (9 months)
+6%
+8%
+4%
Source: IFRS reporting
*Revenue = interest and fee and commission income
26
KEY FINANCIAL HIGHLIGHTS
bn rub
Assets
Gross loans
Consumer
Corporate
Provisions
Net loans
Securities(Debt)
Equity
Deposits
Consumer
Corporate
REPO and other
Net interest income
Net fee and commissions income
Provisions
Operating expenses
Net income
ROAE
ROAA
Net margin**
Cost/Income
Loans/Deposits
Cost of risk
NPL 90+/Gross loans
Provisions/NPL 90+
N1
Source: IFRS reporting
2010
2011
2012
43.3
23.0
12.2
10.8
1.3
21.7
13.7
4.4
31.0
24.0
7.1
0.0
5.1
0.5
1.3
2.8
1.6
44%
4.1%
17.0%
46%
74%
7.2%
6.1%
90%
12.9%
57.3
36.2
24.2
12.0
1.4
34.8
14.3
7.2
42.6
35.8
6.8
3.1
5.7
4.2
1.7
4.2
3.3
57%
6.6%
22.7%
41%
85%
6.0%
4.6%
85%
11.7%
95.2
53.4
45.6
7.8
4.1
49.3
30.8
9.2
62.6
56.2
6.5
17.4
7.5
6.3
3.9
6.1
3.5
43%
4.6%
20.4%
42%
85%
9.2%
7.1%
109%
11.5%
* Annual rate based on 9 months data
** Net margin = (net interest and fee income) / earning assets
CAGR'10-12 9 months 2012* 9 months 2013*
48%
52%
93%
-15%
80%
51%
50%
44%
42%
53%
-4%
22%
265%
71%
46%
49%
84.1
50.0
40.4
9.6
3.3
46.7
19.7
8.1
57.5
50.9
6.6
12.6
5.3
4.5
2.6
4.3
2.4
43%
4.6%
17.1%
43%
87%
8.6%
6.2%
107%
11.6%
114.3
66.0
59.3
6.7
6.0
60.0
40.4
11.8
73.1
66.9
6.2
23.1
7.6
5.7
5.0
5.5
2.6
33%
3.3%
20.2%
40%
90%
12.1%
7.4%
122%
13.5%
Y-o-Y
36%
32%
47%
-30%
79%
28%
106%
46%
27%
31%
-5%
83%
43%
26%
89%
27%
6%
27
CONTACT INFORMATION
E-mail:
[email protected]
Andrei Osnos, CFO
Internet:
http://www.sovcombank.ru/about/