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Approved by The General Meeting of Shareholders of OJSC AK BARS BANK (Protocol No 13/30-05-14 dated 04.06.2014) ANNUAL REPORT 2013 CONTENTS The Address of the Chairman of the Board of Directors __________________________________3 The Address of the Chairman of the Management Board _________________________________5 The Report of the Board of Directors on the Bank’s Progress in Priority Areas ______________6 1. The State of the Banking Industry and the Market Positions of the Bank _____________________6 2. The Key Indicators of the Bank’s Performance ________________________________________7 3. The Development of Bank Business in 2013 ____________________________________________8 3.1 Corporate Business ____________________________________________________________8 3.2 Retail Business _______________________________________________________________9 3.3 Investment Business __________________________________________________________12 3.4 Social Activity ______________________________________________________________14 4. The Development Prospects for AK BARS Bank _______________________________________16 Corporate Governance ____________________________________________________________17 Shareholders ___________________________________________________________17 The Board of Directors ___________________________________________________18 The Management Board __________________________________________________31 Remuneration of Persons that Make up the Bank’s Corporate Bodies ______________34 Dividend Policy ________________________________________________________ 35 Risk Management _______________________________________________________35 Human Resource Management _____________________________________________41 Major Transactions ______________________________________________________44 Related Party Transactions ________________________________________________44 Amount of Consumed Power Resources ______________________________________46 Financial Reporting _______________________________________________________________47 The Audit Report ________________________________________________________52 Information on Auditors __________________________________________________52 Reference Information _____________________________________________________________54 -2- The Address of the Chairman of the Board of Directors Dear shareholders, partners and customers of the Bank! On behalf of the Board of Directors, let me introduce the Annual Report of AK BARS BANK for the year of 2013 and summarize the outcome of another successful year. The year 2013 was special for AK BARS Bank because of its anniversary. For 20 years the Bank has continued its consistent development as the universal financial institution and as an active participant in the economic life of Russia. Today the Bank is a powerful systematically important financial institution which is among the Russian leaders by its equity and assets. Throughout the entire history of development, the Bank has repeatedly proved its credibility and efficiency and has proven itself as a stable and reliable partner. Last year was the turning point in the development AK BARS Bank strategy. One of the key events became the purposeful coordinated work of the Board of Directors and executive bodies on the strategic efficiency improvement program. The branch network commercial efficiency improvement, centralization of the accompanying and supporting functions in the Unified Service Center, as well as the improvement of the credit risk management quality became the main drivers of the modernization of the Bank's operations. The initiatives on the business efficiency improvement were completed in the record-breaking time and aimed to achieve the optimal business volumes at lower costs, and further work on the events of key areas of development will contribute to the strategic goals of the Bank. When analyzing the results of 2013, it is important to note the efficiency of interaction between the Board of Directors and the Bank's executive body, which allowed to reach agreement on the key issues of governance of AK BARS Bank and the main business areas. In its activities, the Bank continued to apply the advanced standards of corporate governance, with an emphasis on increasing transparency of corporate procedures and on strengthening the role of the Board of Directors in its strategic and control functions. 2013 turned out as the time of active social investments. Being the General Partner of the Summer Universiade 2013 AK BARS Bank acted as a socially responsible and public organization, involved in the process of formation of an investment-attractive image of Tatarstan. As a result, the Bank's significant resources were directed to the development of various sports, promotion of public health, support of sports, educational, cultural and environmental programs. Furthermore, the Bank continued its active participation in sponsorship and patronage projects aimed to help seriously ill children. -3- We highly appreciate your support, opportunities and prospects for further work and we look forward to a fruitful and mutually beneficial cooperation. Yours Sincerely, The Chairman of the Board of Directors of AK BARS Bank V. Sorokin -4- The Address of the Chairman of the Management Board Dear shareholders, partners and customers of the Bank! In the year of 2013 AK BARS Bank once again confirmed its status as one of the largest Russian banks and reached the strategic objectives in key business segments. As part of the efficiency improvement programme in 2013 AK BARS Bank centralized the support and accompanying functions of the Unified Service Center, has increased the efficiency of the branch network by implementation of commercial initiatives and also has improved credit risk management system. Retail business operations of AK BARS Bank in 2013 were aimed at the development of new sales channels, implementation of the new products, also in the status of the General Partner of the 27th Summer Universiade Kazan 2013. As for the corporate business AK BARS Bank has focused in 2013 on improvement of the product offering and upgrade of technologies of corporate lending. AK BARS Bank continues to develop mutually beneficial relationships with its customers and partners, adhering to its traditional corporate values. In the current year the Bank will continue to work on stable improvement of its efficiency using all existing opportunities for potential growth. On behalf of the Board and myself, I would like to extend my heartfelt thanks to our shareholders and customers for their trust and productive cooperation. I am positive that our common accomplishments will be a solid base for the future success. Kind regards, The Chairman of the Management Board of AK BARS Bank R. Minnegaliev -5- The Report of the Board of Directors on the Bank’s Progress in Priority Areas 1. The State of the Banking Industry and the Market Positions of the Bank The Russian banking system demonstrated a slowdown in 2013. The assets of the banking system increased by 16% in 2013. The lending institutions received the profit in the amount of 993.6 billion rubles, which is 1.8% less than in 2012. Compared with the beginning of 2013 the number of functioning lending institutions declined by 3.5% or by 33 and made up 923 in total. The return on assets and funds of Russian banks reached 1.9% and 15.2% respectively as at 1.01.14 (for comparison: 2.3% and 18.2% as of 1.01.13), but remained lower than the indexes of pre-crisis period (3.3% and 26.3 as of 01.01.07). In 2013 public funds increased by 19.0%, funds of legal entities increased by 13.2%. Corporate lending increased by 13.7% in the reporting year (including loans to government bodies), compared to 13.4% in 2012. The volume of loans granted to individuals increased by 28.7% during the year (in 2012 loans to the population grew by 39.4%). Thanks to the regulator aimed at slowing the growth of consumer lending and due to the rapid growth of unsecured retail loans, observed in 2012, the growth of lending to individuals in 2013 have been decreased. The quality of the loan portfolios of credit institutions was marked by significant growth in the volume of overdue debts in the retail loan portfolio (+40.7%), in the corporate loan portfolio the volume of overdue debts grew by 1.0%. The overall liquidity of the Russian banking sector in 2013 can be characterized as moderately strained. Banks’ debts on loans, deposits and other funds received from the Bank of Russia, as well as deposits and other borrowings of the Russian Finance Ministry at the end of the fourth quarter of 2013 increased, exceeding the maximum level of February 2009. In 2013 the Central Bank of the Russian Federation (CBRF) worked actively in the area of monetary policies, as well as in establishing the new supervision system of the banks. At the moment the main purpose of CBRF is to ensure price stability – before 2015 the regulator plans to complete the switch to inflation targeting regime. In September 2013 there were changes in the structure of the Bank of Russia – the unified financial ‘Mega-regulator’ has been created. Also in September of the reporting year the members of the Board of Directors meeting of the Central Bank of Russia decided to introduce the key rate. The regulator intends to use the key rate as the main indicator of monetary policies. It should be noted that CBRF has decided to allocate a list of systemically important banks for better risk management in the banking system of the Russian Federation. -6- In the current situation, the Bank operates occupying a strong position in the top twenty largest Russian banks. In the ranking of Russian banks AK BARS Bank places 17th in terms of equity and 19th in terms of assets (as of 01.01.2014). Within the Republic of Tatarstan, AK BARS Bank assets account for 37% of total assets of banks registered in the region, and its equity capital takes 45% of the market. As per the reporting date, the Bank holds a 31% share of Tatarstan’s market in the volume of allocated loans and 39% of the volume of raised funds. 2. The Key Indicators of the Bank’s Performance Units of measure As of 01.01.2014 As of 01.01.2013 Variance Growth rate Assets mln.rubles 363 231 336 621 26 609 108% Capital (incl. the subordinate loan) mln.rubles 50 186 50 751 -565 99% Stock capital mln.rubles 28 215 28 215 0 100% Net loans receivable Net investments in securities mln.rubles 227 420 218 779 8 641 104% 54 282 31 267 23 015 174% Customer deposits mln.rubles mln.rubles mln.rubles 240 330 212 374 27 956 113% 168 952 71 378 152 374 59 999 16 577 11 379 111% 119% 1 149 324 825 355% 938 188 750 499% 399 387 12 103% 53 343 51 074 2 269 104% 2 934 586 2 525 240 409 346 116% Indicators Legal entities Individuals mln.rubles Profit mln.rubles Net profit Points of presence Branch network Number of customers mln.rubles corporate Number of retail customers Entities People -7- 3. The Development of Bank Business in 2013 3.1 Corporate Business Today the Bank's product line for corporate customers offers over 30 kinds of products and can meet the needs of any client. In 2013 the Bank continued to consolidate its positions in the banking services market. Today the Bank’s share exceeds 49% of corporate funds in the settlement accounts, 31% of loans, over 34% of deposits within the Republic of Tatarstan. In some regions of the Russian Federation the corporate funds reach 15%, loans – 8%, and deposits – 8%. In the reporting year the Bank took part in tenders for depositing funds of budgetary and large companies. As a result, major deposits were attracted from the budget of St Petersburg, LLC AIJK (Moscow), the Ministry of Finance of the Republic of Tatarstan, and Pension funds under the management of VneshEconomBank and so on. From the moment of its foundation the Bank has put emphasis on the diversification of its sales where the key role has always been given to small and midsize businesses. As of January 1, 2014 the loan portfolio on small and medium-sized enterprises reached 31.8 bln.rubles. AK BARS Bank provides loans to small businesses all over Russia. The cooperation with small and midsize enterprises is carried out with its own loan products aimed to support small and medium-sized businesses, also through federal programmes of financial support implemented by the Bank together with JSC MSP Bank. The Bank is an active participant of the regional support programmes of small businesses in Tatarstan and other regions together with regional trust fund guarantees (guarantee funds) on the obligations of small and medium-sized businesses. Currently, the Bank has updated the product line for small businesses, which includes 11 standard credit products available between 0.3 million rubles to 100 million rubles with the 10 years repayment period, including the loans under the State programme of financial support for small and midsize businesses, implemented jointly with JSC MSP Bank – ‘Financing for Innovations and Modernization’ with the loan amount up to 60 million rubles and 5 years repayment period at an interest of no more than 12.25% interest rate per year. AK BARS Bank offers its customers all kinds of documentary operations which help to reduce the risks of foreign trade operations and to eliminate cases when the foreign counterparties violate the terms and conditions of contracts. AK BARS Bank issues letters of credit collateralized with cash deposits, and without them, letters of credit involving foreign funding, as well as production and advising of international guarantees and conduct of collection operations. -8- In 2013 AK BARS Bank continued its long-term cooperation with the leading European banks. The main types of services received by the Bank within the existing limits of documentary operations were the confirmation of the letters of credit proposed by AK BARS Bank by international bankpartners and offers of guarantees from the foreign bank-partners against counter guarantees of the Bank. In 2013, the Bank managed to maintain and strengthen its position as the leader in precious metals market of the Republic of Tatarstan. The Bank carried out operations of purchase/sale of coins and bullions, purchase of bullions from mineral developers, and sales of precious metals under commission agreements. In 2013 the sales volume of commemorative coins made out of precious metals has significantly increased. The commission income received from the sales of precious metals has increased by 15% in 2013, the unallocated metal account balances grew by 45%. In 2012, AK BARS Bank actively continued the financing of investment projects in housing construction, such as: ‘Sun City’, ‘Dubrava’, ‘Svetlaya Dolina’. With the support of the Government of Russian Federation and Tatarstan the Bank implemented of one of the largest investment projects of OJSC ‘Ammonium’ – ‘Construction of the integrated complex for the production of ammonia, methanol and granulated urea in the city of Mendeleevsk’. The main objectives of the OJSC ‘Ammonium’ project are to satisfy the needs of the Republic of Tatarstan in mineral fertilizers and to expand the export opportunities. Planned capital project costs are estimated at 1.7 billion US dollars. The sources of project financing are shareholders funds, guaranteed debt and equity financing of Vnesheconombank, commercial lending of AK BARS Bank. The bank provides financing of OJSC Ammonium to pay VAT on capital investments, the credit limit is 7.5 billion rubles. In 2013 the Bank has opened the credit line to OJSC Tatchempreparaty in the amount of 380 million rubles in order to create the modern pharmaceutical production. 3.2 Retail Business In 2013 the Bank carried out the well-balanced credit policy in order to maintain the moderate growth in the retail loan portfolio with an emphasis on qualitative assessment of borrowers. The Bank organized the following activities to increase the competitiveness of the product line: - introduced the ‘AutoHIT’ car loans programme (for the purchase of new cars of several models of popular brands from the authorized dealers); - Extended the mortgage lending programme allowing to buy under-construction homes with state support for such aquisition; -9- - Implemented the ‘Simply brilliant’ programme providing preferential conditions for the loans in cases of availability of 50% of the property cost; - Reduced interest rates on mortgage programs by 0.9 - 1.5 percentage points; - Organized ‘Car for Less’ promotion (car loans with zero down payment); - Participated in the state programme of subsidies for car loans’ interest rates; - Actively participated in ‘Mortgage Saturdays’ events; - Replicated the pilot project for the Bank’s package sales throughout the branch network; - Organized promotions within the framework of consumer loans: ‘Hit the Rate’, ‘Better Together’, ‘Million opportunities with AK BARS "Bank’; - Held ‘AK BARS-Bonus’ promo event to promote credit cards. Within the ‘Operational Model’ project the lending conditions for consumer, mortgage and car loans were standardized. . The implementation of a large-scale project to create the new effective sales channel – remote workstations with the possibility for loan applications in the Bank’s software programmes, along with the loan approval with no office visit required – was continued in 2013. Thus, 15 remote workstations (with built-in self-service terminal and a plasma screen for advertising video clips broadcasting) were launched in shopping centers at 25 Bank branches. At present, 68 workstations operate under this project in 24 Bank branches. However, in 2013 the project of consumer loans and credit cards to be sold in the organizations – Bank’s payroll projects was carried out through the on-site visits. The ‘Field Sales’ project helped to provide more than 2.3 thousand loans. In 2013 within the mortgage lending project the Bank continued to actively use the motivation instruments for its partners by offering them the preferential interest rate. The Bank offered preferences to more than 10 large real estate agencies in 2013. In addition Bank approved the list of the developers involved into construction projects of the Bank; the list is not attached to the degree of completeness of a house, and also reduces the size of the down payment. Furthermore, the Bank extensively increased its lending share in the primary real estate market by working closely with development companies in 2013. For instance, 230 real estate developers were accredited by the Bank in 2013. In addition to the Bank’s own loan program for the purchase of residential real estate under construction, the Bank also took part in the VneshEconomBank’s Programme for stimulation of the housing market – Mortgage Programme for the housing under construction with the state support. - 10 - In 2013 the Bank’s loan portfolios increased by 26%, arrears - 6%. Despite the dynamic growth of arrears in the banking system, AK BARS Bank managed to improve the quality of the loan portfolio. In 2013, the Bank continued the further development and expansion of commission products. To cover a bigger share of the target audience, the Bank attached its branch network offices to the money transfer systems money transfer systems: CONTACT, Zolotaya Korona, Unistream, Western Union. As for the payment systems development, 2013 was marked by significant accomplishments in this area. The Bank increased the equipment amount: 180 ATM machines, 3 568 terminals in retail enterprises. By the end of the reporting year 236 252 cards were issued by the Bank. The number of valid cards reached 1 142 077. In 2013 AK BARS Bank acted as the General Partner of the 27th Summer Universiade Kazan 2013. By using the most advanced banking technologies the Bank could implement a variety of innovative projects, and ensure the participants and spectators of the World University Games, visitors and residents of Kazan with the up-to-date banking services. Overall during the preparation and staging of the Universiade 2013, the Bank has installed more than 300 ATMs and 90 payment terminals, more than 2 500 retail outlets were ready to accept the bank cards and over 190 000 multiservice cards have been issued. It should be noted that in 2013 the multiservice card was recognized as the winner of ‘The Best Goods and Services of the Republic of Tatarstan’ and ‘100 Best Goods of Russia contest in the ‘Services’ nomination. During the reporting year the Bank launched the self-service network was – ‘Information kiosks of AK BARS "Bank’. The information kiosks of the Bank allow operations with cash and bank cards in favor of service providers. The Bank cards product line was expanded with the co-branded cards developed in conjunction with ‘Ak Bars’ Hockey Club, ‘Rubin’ Football Club, ‘AK BARS SOZIDANIE’ charitable foundation, ESSEN. In addition, the Bank initiated the emission of cards with Visa payWavevcontactless payment technology, Visa payWave, emission and acquiring of universal electronic cards, launched the card-to card MoneySend and Visa Money Transfer services, completed the ‘Information Kiosks’ projects and through services between the cities of Tatarstan and Kazan at discounted transport cards, implemented MasterCard and Visa IPS transactions. Another important aspect is the participation of the Bank in the implementation of national projects. ‘Housing’ national project, the subprogramme ‘Providing housing for young families in the Republic of Tatarstan’ - 11 - Within the present contract AK BARS Bank elaborated and adopted the loan programme for young families wishing to buy real estate property. According to the approved loan programme, the Bank makes the solvency analysis of the young families and draws a conclusion on mortgaging options. As a part of the “Providing housing for young families in the Republic of Tatarstan" programme the Bank granted 55 loans in 2012 in the amount of 55 154 ths. rubles. National Programme “The Development of Agroindustrial Complex’, the subprogramme ‘Financing of private farms’ In compliance with the programme terms, AK BARS Bank grants concessional lending as part of the priority project ‘Agribusiness development in the Republic of Tatarstan’ in order to stimulate small farming households. Loans are granted to the owners of private farms. In 2013, the Bank granted 5 187 loans in the total sum of 1 178 251 ths. rubles. ‘Mail-Bank’ Project Since 2004, AK BARS Bank together with Federal post offices ‘Tatarstan Pochtasy’ – the branch of ‘Russian Post’ Federal state unitary enterprise - has been working on the ‘Mail-Bank’ project, which let the Bank obtain new customer service outlets for deposit and credit operations; lowered the workload on Bank’s cash desks; and gave depositors an opportunity to choose from a variety of service outlets, which is particularly important for the Bank’s benefits monetization and pension payment programmes. The total number of post offices connected to the united network reached 472 branches. 3.3 Investment Business AK BARS Bank holds a professional participant of the securities market license for dealing activities, brokerage, depositary activities and securities management; and is an active bidder in both main stock exchanges and OTC market. During the reporting year, AK BARS Bank operated in the securities market and accurately followed the adopted strategy of the optimal risk and return ratio. AK BARS Group of companies offers complex services to its clients for effective investment of funds in the securities market in the mode of a ‘financial supermarket’: brokerage service in the securities market, Internet trading trade analytics; collective investments (unit investment funds) and trust management (together with the Management Company AK BARS Capital Ltd.). derivatives market (together with Investment company CJSC AK BARS Finance). - 12 - The Bank provides a full range of brokerage services. Among them: brokerage services on the Moscow Stock Exchange and on the OTC market, ‘Internet Trading through the new ‘QUIK’ system, purchase and sale of Eurobonds, depository services. In addition, the Bank provides the mediation support to perform operations on the derivatives markets for the customers of Investment company CJSC AK BARS Finance. The total turnover of client operations amounted to 197.5 billion rubles. In the conditions of low volatility in stock markets and the lack of clear trend the market players notice the weakening of clients’ activities and the overall tendency to save their own positions. In 2013 the following major activities were organized to increase the sales volume: - Quik internet-trading system was implemented and launched into business; - The authorized employees of all branches and supplementary offices in Russia and Tatarstan went through the training programmes, the retail specialists went through the brokerage services training and services rendering organised by the Investment company CJSC AK BARS Finance. - New brochures on brokerage services of the Bank and Internet trading were elaborated, promotions in restaurants and business centers of Kazan were organized, audio clips advertising the brokerage services were broadcasted, contextual advertising in the online search engines through online banners was placed. The Analysts of AK BARS groups of companies are accredited by the major Russian issuers who have the quickest access to information affecting trading, both on the Russian and the international trading platforms. Specialists have a working experience in major international investment houses and are certified by various American and Russian institutions. Trust management of AK BARS Bank is performed by the AK BARS CAPITAL Management Company - one of the leading companies in the assets management market of the Republic of Tatarstan. The company manages 25 open-end funds, individual assets, funds of the Pension Fund of the Russian Federation, the assets of private pension funds and insurance companies, funds of self-regulating compensation funds with the total value of over 37.2 billion rubles. ‘AK BARS Finance’ Investment Company is a 100% subsidiary of the Bank. In addition to the company’s own operations ‘AK BARS Finance’ offers to its customers the high-speed access to the futures market trading via ‘QUIK’ system. The company provides the maximum bandwidth of Internet channels to deliver the applications to the stockexchange, using powerful and reliable servers in the largest and most advanced data centers. AK BARS Bank offers a full range of investment services for corporate financing for Russian and foreign organizations, including the following: issuing activity for debt securities (ruble bonds, bills of exchange, loan notes, Eurobonds and other) and equity securities (shares); - 13 - underwriter services for debt security issue; restructuring services for enterprises, including mergers and acquisitions (M&A); services in offering securities to the Russian and international financial markets, inclusion of securities in quotation lists of leading trading floors. AK BARS Bank performs a quality and timely service of bond issues in the domestic market. In March and August 2013 the Bank successfully placed the three-year bonds in the amount of 5 blb rubles. At the moment there are three issues of the Bank’s ruble bonds floating in the stock market with the combined worth of 15 bln rubles, and they were included in the Bank of Russia Lombard list and in the MICEX “A” level Quotation list, which proves the high level of corporate governance of the emitter. The redemption of the issues of BO-01, BO-02 and BO-03 bonds series will is planned for October 2015, March 2016 and August 2016 respectively. Currently the MICEX Stock Exchange solution enables the admission to trading of the Bank’s three-year commercial bonds with the total amount of 8 billion rubles. In October 2013, the Bank fully repaid its own ruble bonds of 04 series in the total amount of 5 billion rubles placed earlier in 2008. The fulfillment of its obligations within the set period of time confirms the sufficient liquidity level and the reputation of a reliable partner. AK BARS Bank continues to maintain the status of a reliable borrower both at domestic market and also in the international financial arena. Bank attracted the funds in the amount of 100 million U.S. dollars into the economy of the region within the framework of the international syndicated Murabaha financing principles. The organizers and the deal bookrunners were the following organizations: Citi, COMMERZBANK Aktiengesellschaft and Emirates NBD Capital Limited. The project became the second Islamic Deal of AK BARS Bank in compliance with Sharia principles after the very first deal in Russia and CIS accomplished in 2011 in the amount of 60 million U.S. dollars. Today AK BARS Bank is the leader and pioneer in the development and implementation of alternative sources of funding on the markets of Russia and CIS. To attract finance aside from bond issues, the bills of exchange programs were also carried out in 2013. AK BARS Bank raised funds by issuing discount and interest-bearing bills. 3.4 Social Activity In 2013 the Bank continued to fulfill its social obligations, supported the initiatives of non-profit organizations and helped hundreds of residents of the community. - 14 - Social programmes The major objective of AK BARS Bank charity is the support for seriously ill children. During the reporting year the Bank has provided funds for the medical treatment and expensive surgeries. Thanks to the timely financing over 30 children received hope for recovery. AK BARS Bank constantly patronizes Arsky home for the elderly and disabled people, as well as Elabuzhskiy orphanage, these institutions received financial assistance and holidays gifts during the year. One of the largest social projects of AK BARS Bank in 2013 was the financing of complete renovation and remodeling of the dental office of one of the clinics in Zainsk town, and the support of the ‘Fund of system medicine’ non-profit organization which studies the new approaches of treatment and prevention of atherosclerosis and related diseases. Support of sports The Bank supports sports traditions of the Republic of Tatarstan and makes passive contribution into the development of Russian sport. In 2013 AK BARS Bank has successfully acted as the General Partner of the 27th Summer Universiade in Kazan. Also last year the Bank maintained its cooperation with major sports teams of Tatarstan, such as ‘UNIKS’ basketball club, ‘RUBIN’ football club and ‘Neftekhimik’ hockey club. Educational programmes of the Bank Social responsibility of the Bank is aimed at the all-round development of children and youth, and this includes implementation of own educational programmes. The contest ‘Top 50 innovative ideas for the Republic of Tatarstan’ was held in 2013 in Tatarstan, the Bank provided nominal grants to 10 young specialists to be used in their academic researches. The Bank continued its cooperation with Kazan (Volga) Federal University and launched the new multipurpose educational programme - Business School. This project is designed for training and retraining of the Bank employees and human resources pool candidates (students, young professionals), and also includes the traditional ‘Open University’ programme for students. AK BARS Bank also participated in the implementation of the ‘IT-Champion’ republican contest for schoolchildren initiated by the Ministry of Information and Communication of the RT. Among its own educational projects – the charity give-away of textbooks to the first graders. 47 000 first graders of secondary schools of the Republic of Tatarstan and some of the Russian regions with concentration of Tatar people, received the printed and digital book editions called ‘Barsik and the - 15 - Book of Knowledge’ consisting of a book and computer game designed for studying Russian and Tatar languages. This project is traditionally held every year from 1997. Support of arts and cultural programmes In 2013 AK BARS Bank has accomplished public and cultural programmes. Together with AK BARS SOZIDANIE Charity Fund the Bank provided financial assistance for the celebration of the Victory Day, Sabantuy and the Day of Older People and People with Disabilities, International Children’s Day and Christmas holidays in Kazan, Republic of Tatarstan areas and regions of Russia. AK BARS Bank also sponsored a few professional and cultural projects: beauty, motherhood and family contest for ‘Nechkebil’, the Republican award ‘Doctor of the year – Ak chechekler’ and children’s beauty contest ‘Little Misses of Tatarstan – 2013’. 4. The Development Prospects for AK BARS BANK The key strategic goal of the Bank, defined by its shareholders, is the increase of its value and performance efficiency. AK BARS Bank’s development strategy is aimed at retaining the market share within the Republic of Tatarstan and the dynamic development in key regions with the purpose of gaining significant shares of the existing market. Achievement of target market shares is intended by the means of further development of retail and corporate business and technology upgrade. The retail business development strategy expects the dynamic growth of credit portfolio and the increase of market share in most promising regions to be achieved by improving the product line, developing sale techniques and raising efficiency of business processes. The corporate business development strategy implies the introduction of bank products active sales, where midsize business is the top priority. The development strategy assumes the diversification of credit portfolio, including expanding the business beyond the borders of the Republic of Tatarstan. Furthermore, while being an economic agent of the Republic of Tatarstan, AK BARS Bank sets as its primary goal to provide comprehensive assistance to the Republic’s economic development as a part of the common Russian economic space. In years to come AK BARS Bank will continue its development as a large full-service bank of federal scale, whose tasks include further growth and prosperity in the Russian banking market. - 16 - Corporate Governance Shareholders At present, the authorized capital of AK BARS Bank equals 28 215 396 326 rubles and is divided into 28 215 396 326 registered ordinary (voting) shares with nominal value of 1 (one) ruble each. All shares were placed. The authorized capital of the Bank was paid in full. The Charter of AK BARS Bank provides the availability of 9 800 000 000 declared registered ordinary shares with nominal value of 1 (one) ruble each, within the limits of which the additional issue of shares is possible. As of December 31, 2013 AK BARS Bank has no outstanding preferred shares. The total number of the Bank shareholders is 47, of which 34 are legal entities; 13 are individuals. AK BARS Bank jointly with an independent registrar provides reliable and efficient ways of registering ownership of shares and other registered uncertified securities issued by the Bank. In accordance with current legislation, the owners of the Bank in 2013 used the discretion to freely dispose of their shares. Within the reporting year there were insignificant changes in the Bank’s share capital structure as a result of the secondary market transactions. For instance, JSC Nizhnekamskneftekhim, one of the Bank’s shareholders obtained the Bank’s shares from its own subsidiaries LLC ‘Polymer NKNH’ and JSC NefteHimSevilen’ and thus increased its share in the Bank’s capital up to 2.482%. Information on the Bank owners and on the structure and shares’ amount of shareholders owning no less than 1 percent of the Bank’s share capital can be found on the official website of AK BARS Bank in the Internet and is available to public. The ownership structure of the Bank is presented on the website of the Bank in the form of interrelationship diagram with the list of persons who control or have a significant influence on the Bank, it also contains information on major Bank’s shareholders and is available to the general public. As of the end of 2013, the structure of share capital is as follows: The shareholder’s name Open Joint Stock Company ‘Svyazinvestneftekhim’ The Republic of Tatarstan in the person of the Ministry of Land and Property Relations Limited Liability Company ‘IKS-LUCH’ Company ‘OSMAND HOLDING LIMITED’ Limited Liability Company ‘Investments and Consulting’ Share in the authorized capital (%) 18.492 15.309 13.600 11.611 11.528 - 17 - Company ‘Sinek Investment &Development Limited’ Open Joint Stock Company ‘Holding Company AK BARS’ Closed Joint Stock Company ‘Eurobest’ Open Joint Stock Company “Nizhnekamskneftekhim” Limited Liability Company ‘Zvezda’ Limited Liability Company ‘Prosper invest’ Shareholders possessing less than 1% of the share capital Total: 9.213 8.955 3.400 2.482 1.678 1.210 2.522 100 The Board of Directors Last year the composition of the Board of Directors has significantly changed. May 31 2013, the General Shareholders Meeting elected the new composition of the Board of Directors in the quantity of 11 members, with 3 new directors – S.Alexeev, A.Lavrentyev, A.Khairullin. At its first meeting the newly elected Board of Directors elected Valeriy Sorokin the representative of OJSC ‘Svyazinvestneftekhim’, the Bank’s major shareholder as the Chairman of the Board of Directors. All members of the Board of Directors meet the legal, personal and professional requirements established by the legislation of the Russian Federation and the Bank of Russia, the Charter and internal documents of the Bank and have an extensive experience in the field of banking, accounting and auditing necessary for making rational decisions within the competence of the Board of Directors. In addition, the evaluation of the members of the Board of Directors of AK BARS Bank and their compatibility with the independence criteria, that was held in June 2013, showed that five people from the newly elected Board of Directors are independent directors, two of them supervise the specialized committees - the Audit Committee and Risks Committee. The independent directors are S.Alekseev, A.Lavrentiev, Y.Levin, A.Khayrullin and S.Shibaev. The composition of the Board of Directors of AK BARS Bank 1. Igor Avanesyan Was born in 1953. Graduated from Moscow Institute of Petrochemical and Gas Industry named after Gubkin in 1975 and from the School of Financial Management of the Academy of National Economy under the Government of the Russian Federation in 2000. Honoured Economist of the Republic of Tatarstan. From 2007 – the President of CJSC ‘United leasing company 'CENTER-CAPITAL’; From 2010 – the General Director of CJSC ‘United leasing company 'CENTER-CAPITAL’; From 2010 – Member of the Board of Directors of CJSC ‘Olkhovskaya Furniture Factory’; From 2013 – Member of the Board of Directors of CJSC ‘NATEK-Energo’; - 18 - From 1991 to 2012 – the Director of OJSC ‘PETROKAM’, Member of Directorate, Member of the Board of Directors; From 2003 to 2010 – Member of the Board of Directors of OJSC ‘Tatoilgas’; From 2004 to 2010 - Member of the Board of Directors of OJSC ‘Bank ZENIT’; From 2004 to 2012 – Member of the Board of Directors of OJSC ‘TECHNOFORM’; From 2007 to 2010 – the Chairman of the Board of Directors of CJSC ‘United leasing company 'CENTER-CAPITAL’. From 2010 to 2013– Member of the Board of Directors of CJSC ‘United leasing company 'CENTERCAPITAL’; No share in the authorized capital of the Bank as at 31.12.2013. 2. Sergei Alexeev Was born in 1966. Graduated from Kazan State University named after V.I. Ulianov-Lenin in 1989, from the University of Management ‘TISBI’ in 1999. From 2004 to present – First Deputy General Director of OJSC ‘Svyazinvestneftekhim’; From 2006 - Member of the Supervisory Board of non-profit organisation ‘Regional Fund for Social and Economic Development ‘Tugan Il’; From 2006 - Member of the Board of Directors of OJSC ‘Tatnefteproduct’ holding; From 2006 - Member of the Board of Directors of JSC ‘Kazanorgsintez’; From 2006 - Member of the Board of Directors of JSC ‘Tattelecom’; From 2006 - Member of the Board of Directors of ‘KMPO’; From 2009 - Member of the Supervisory Board of non-profit organisation ‘Fund of assistance to the development of a special economic zone ‘Alabuga’; From 2010 - Member of the Board of Directors of JSC ‘Tatenergo’; From 2011 - Member of the Board of Directors of JSC ‘First Transport Directorate’; From 2011 - Member of the Board of Directors of JSC ‘Nizhnekamskneftekhim’; From 2011 - Member of the Board of Directors of JSC ‘Generating Company’; From 2012 - Member of the Board of Directors of JSC ‘Kazan Heating Company’; From 2013 - Member of the Board of Directors of ‘Tatenergosbyt’; From 2013 - Member of the Board of Directors of ‘Naberezhnochelninskaya heating company’; From 2013 - Member of the Board of Directors of JSC ‘Tatkhimpreparaty’; From 2005 to 2011 - Member of the Board of Directors of ‘Sinek Capital SA’; From 2006 to 2013 - Member of the Supervisory Board of non-profit organisation ‘Regional Fund for Economic Development’; - 19 - From 2007 to 2012 - Member of the Board of Directors of JSC ‘Kazankompressormash’; From 2007 to 2010 - Member of the Board of Directors of ‘First Construction Directorate’; From 2007 to 2013 - Member of the Board of Directors of LLC ‘OmegaFinansGrupp’; From 2007 to 2013 - Member of the Board of Directors of OJSC ‘Aviamotor’. No share in the authorized capital of the Bank as at 31.12.2013. 3. Farida Volkova Was born in 1957. Graduated from Kazan State University named after V.I. Ulianov-Lenin in 1983. From 2010 – Head of State Legal Administration of the President of the Republic of Tatarstan; From 2010 – Member of the Supervisory Board of the State Housing Fund under the President of the Republic of Tatarstan; From 2011 – Member of the Board of Directors of OJSC ‘Svyazinvestneftekhim’; From 2006 to 2009 – public prosecutor of the Public Prosecution of the Republic of Tatarstan; From 2009 to 2010 – the judge of the Kirovskiy district court of Kazan. No share in the authorized capital of the Bank as at 31.12.2013 4. Alexandr Lavrentyev Was born in 1946. Graduated from Kazan Aviation Institute (KAI) named after Andrey N.Tupolev. From 2007 - Advisor to the General Director, Chairman of the Board of Directors of JSC ‘Kazan Helicopter Plant’; From 2007 - Chairman of the Board of Directors of JSCB ‘Zarechye’ (OJSC); From 2008 - President of 'Association of companies and entrepreneurs of the Republic of Tatarstan’; From 2013 - Member of the Board of Directors of JSC ‘Special Economic Zone ‘Alabuga’. No share in the authorized capital of the Bank as at 31.12.2013 5. Yuri Levin Was born in 1953. Graduated from the Department of International Economic Relations of Moscow Finance Institute (currently Finance Academy under the Government of the Russian Federation) in 1975 and completed his postgraduate studies in the Institute of World Economy and International Relations of the USSR Academy of Sciences (currently the Russian Academy of Sciences) in 1979. Candidate of Economic Sciences, PhD in Economics (Stanford University). - 20 - From 1997 – the Managing Director, Member of the Management Board ‘B.V. Murray & Co., Inc.’; From 2001 – the Managing Partner of the Company ‘BVM Capital Partners Ltd’; From 2013 – Member of the Board of Directors of the Company ‘Winter Finanz AG”; From 1997 to 2013 – the Councilor of the Management Board of ‘Bank 'Winter & Go., AG’ (Vienna); No share in the authorized capital of the Bank as at 31.12.2013. 6. Robert Minnegaliev Was born in 1972. Graduated from Kazan Finance and Economic Institute in 1993, from Chicago University (USA) in 2007, Candidate of Economic Sciences. Honoured Economist of the Russian Federation and the Republic of Tatarstan. From 2003 – the Chairman of the Management Board of AK BARS Bank; From 2004 –Member of the Supervisory Board of the State Nonprofit Organization ‘Investment and Venture Fund of the Republic of Tatarstan’; From 2006 - the Chairman of the Board of Directors of the LLC ‘Ak Bars Gallery’; From 2007 - the Chairman of the Board of Directors of LLC ‘Insurance Company AK BARS – Med’; From 2007 – Member of Supervisory Board of ‘AK BARS Sozidanie’ Charity Fund; From 2008 - Member of the Board of Directors of CJSC ‘AK BARS-Strakhovanie’; From 2009 – Member of the Board of Directors of OJSC ‘Tatneftekhiminvest-holding’; From 2012 – First Vice-President of Basketball Club ‘UNICS’; From 2006 to 2010 - the Chairman of the Board of Directors of OJSC ‘Transport Card’; From 2006 to 2013 - the Chairman of the Board of Directors of the LLC ‘AK BARS IPOTEKA’; From 2006 to 2013 - the Chairman of the Board of Directors of CJSC ‘Investment Company AK BARS Finance’; From 2008 to 2009 – the Chairman of the Board of Directors of OJSC ‘SafPet’; From 2008 to 2010 - the Chairman of the Board of Directors of LLC ‘FinEcoStroy’. No share in the authorized capital of the Bank as at 31.12.2013. 7. Valeriy Sorokin Was born in 1964. Graduated from Kazan State University named after V. Ulyanov- Lenin in 1986. Honoured economist of the Republic of Tatarstan. From 2003 – the General Director of OJSC ‘Svyazinvestneftekhim’; From 2005 – Member of the Board of Directors of OJSC ‘Svyazinvestneftekhim’; - 21 - From 2005 - Member of the Board of Directors of OJSC ‘Tatneft’; From 2006 - Member of the Supervisory Board of non-profit organization ‘The Fund for the Promotion of Special Economic Zone of 'Alabuga’; From 2006 - Member of the Supervisory Board of non-profit organization ‘Regional Fund for the Social and Economic Development ‘Tugan Il’; From 2006 – the Director of LLC ‘Investneftekhim’; From 2007 - Member of the Board of Directors of OJSC ‘Tatneftekhiminvest-Holding’; From 2007 - Member of the Board of Directors of OJSC ‘Tattelecom’; From 2007 - Member of the Board of Directors of LLC ‘First Construction Directorate’; From 2008 – the Director of the Company ‘SINEK INVESTMENT & DEVELOPMENT LIMITED’; From 2008 – the Director of the Company ‘SINEK INVESTMENT MANAGEMENT LIMITED’; From 2009 – Member of the Supervisory Board of the State non-profit organization ‘Investment and Venture Fund of the Republic of Tatarstan’; From 2009 – Member of the Supervisory Board of State non-profit organisation ‘Fund of Systematic Medicine’; From 2010 - Member of the Supervisory Board of ‘Kazan (Volga Region) Federal University’; From 2012 – Member of the Supervisory Board of ‘Interregional Clinical and Diagnostic Centre’; From 2012 – Member of the Board of Directors of OJSC ‘Innopolis City’; From 2012 – Chairman of the Board of ‘Kama innovative regional production cluster’; From 2012 – President of Municipal Autonomous Institution ‘Football Club ‘Rubin’; From 2013 – member of the Supervisory Board of non-profit organization ‘Fund for Support of the Development of Physical education and Sport’; From 2004 to 2009 - Member of the Board of Directors of OJSC ‘AK BARS’ holding; From 2006 to 2013 – Member of the Supervisory Board of non-profit organization ‘Regional Fund of Economic Development’; From 2006 to 2013 – Member of the Board of Directors of OJSC ‘Tatenergo’; From 2008 to 2011- Member of the Supervisory Board of State non-profit organization ‘Mortgage and Insurance Stabilization Fund of the Republic of Tatarstan’; From 2012 to 2013 – Member of the Board of Directors of OJSC ‘Generating Company’. No share in the authorized capital of the Bank as at 31.12.2013 8. Yevgeny Tikhturov Was born in 1960. Graduated from Moscow Institute of Management named after S. Ordzhonikidze in 1982. Honored Economist of the Republic of Tatarstan. - 22 - From 1999 - the Head of Financial Management Department, Member of the Management Board of OJSC ‘Tatneft’ named after V. Shashin; From 2001 - Member of the Board of Directors of OJSC Bank ‘Devon-Credit’; From 2004 - Member of the Board of Directors of OJSC Bank ‘ZENIT’; From 2005 - Member of the Board of Directors of OJSC JSCB ‘Tatfondbank’; From 2005 - Member of the Board of Directors of CJSC ‘Olkhovskaya Furniture Factory ‘; From 2006 - the Chairman of the Board of Directors of OJSC ‘LDS-1000’; From 2008 - Member of the Board of Directors of CJSC ‘Chulpan’ Insurance Company; From 2008 - Member of the Board of Directors of CJSC ‘Severgasnefteprom’; From 2008 - Member of the Board of Directors of CJSC ‘Severgeology’; From 2010 – Member of the Board of Directors of OJSC ‘Tatoilgas’; From 2010 – Member of the Board of Directors of ‘Al Bu Kamal Petroleum Co’ joint venture (Syria); From 2011 – Member of the Board of Directors of OJSC ‘Taneko’; From 2011 –Mmember of the Board of Directors of OJSC ‘Tatekh’; From 2006 to 2011 - Member of the Board of Directors of the International Petrochemical Investment Fund (open investment company) INTERNATIONAL PETRO-CHEMICAL GROWTH FUND LIMITED. No share in the authorized capital of the Bank as at 31.12.2013 9. Artur Khairullin Was born in 1974. Graduated from Kazan Finance and Economics Institute in 1995, from Business College of Colorado State University in 2012. From 2008 - Director of the Company ‘SINEK INVESTMENT & DEVELOPMENT LIMITED’; From 2008 - Director of the Company ‘SINEK INVESTMENT MANAGEMENT LIMITED’; From 2011 - Deputy General Director of JSC ‘Svyazinvestneftekhim’; From 2012 - Director of the Company ‘Sinek Capital S.A.’; From 2012 - Director of the Company ‘Edel Capital S.A.’; From 2008 to 2011 - Director of State non-profit organization ‘Stabilization Deposit-insurance Fund of the Republic of Tatarstan’; From 2011 to 2013 - Member of the Board of Directors of ‘Intekhbank’. No share in the authorized capital of the Bank as at 31.12.2013 - 23 - 10. Midkhat Shagiakhmetov Was born in 1969. Graduated from Kazan Finance and Economics Institute in 1991. Doctor of Science in Economics. Honoured Economist of the Republic of Tatarstan. From July 2010 – the Minister of Economy of the Republic of Tatarstan; From 2010 – Member of the Board of Directors of OJSC ‘Kazanorgsintez’; From 2010 - Member of the Supervisory Board of the State non-profit organization ‘Investment and Venture Fund of the Republic of Tatarstan’; From 2010 - Member of the Supervisory Board of the ‘State Housing Fund under the President of the Republic of Tatarstan’; From 2011 – Member of the Board of Directors OJSC ‘Tatneftekhiminvest-holding’; From 2007 to 2009 – the Head of Federal Tax Service Office in the Republic of Tatarstan; From 2009 to 2010 – the Aid to the Prime Minister of the Republic of Tatarstan; From April 2010 to July 2010 – the Aid to the President of the Republic of Tatarstan. No share in the authorized capital of the Bank as at 31.12.2013 11. Sergey Shibaev Was born in 1959. Graduated from Moscow State Institute of International Relations of the Ministry of Foreign Affairs of USSR in 1981; from 1995 – the Certified Accountant, the Association of Chartered Certified Accountants (ACCA) (Great Britain); from 1997 - Henly Management College (MBA). Candidate of Economic Sciences. From 2007 – the Director of the company ‘Kafa Finance Inc.’, Canada; From 2008 - Member of the Board of Directors of OJSC ‘RESO-Guarantee’; From 2012 – Member of the Board of Directors of OJSC ‘Katren’; From 2012 - Member of the Board of Directors of CJSC ‘Transcapitalbank’; From 2012 - Member of the Board of Directors of ‘Kernel Holding S.A.’ (Luxemburg); From 2008 to 2010 - Member of the Board of Directors of OJSC ‘Sotsgorbank’; From June 2011 to September 2011 - Member of the Board of Directors of OJSC ‘PIK Group of Companies’; From 2009 to 2012 - Member of the Board of Directors of OJSC ‘Kazcommercebank’; From 2010 to 2012 – Member of the Board of Directors of ‘Centravis Ltd’ (Cyprus). From June 2013 to October 2013 - Member of the Board of Directors of OJSC ‘Centre fpr Development of the Investment Projects’. No share in the authorized capital of the Bank as at 31.12.2013. - 24 - Activity of the Board of Directors The meetings of the Board of Directors in the reporting year were held according to the approved work plan. All issues were reviewed in a timely manner. During the year of 2013 7 face-to-face and 7 remote meetings were held, including two meetings beyond the work plan schedule. In December 2012, the Board of Directors approved the annual financial plan of OJSC AK BARS BANK for the year 2013, and during 2012 the Board regularly heard the reports by the Management Board on the progress of its implementation. and the Board of Directors set as its primary objective to control the preservation of indicators characterizing the stability of the Bank at the highest levels. At the meetings the Board also regularly heard the reports of the Internal Control Service on the results of audits of the Company and the reports of the Inspector on AK BARS BANK as a professional participant of the securities market. The Board of Directors paid much attention to the improvement of the Bank's internal documents especially related to risk management. Within the reporting year the Board of Directors approved the Regulation ‘On the Compliance Risks Management Order of AK BARS Bank’, as well as amendments to the following Regulations: ‘On the Risk Management Order of AK BARS Bank’, ‘On the Credit Risk Management Order of AK BARS Bank, ‘On the Operational Risks Management Order of AK BARS Bank’, ‘On the Legal Risks Management Order of AK BARS Bank’, ‘On the Reputational Risks Management Order of AK BARS Bank’, ‘On the Market Risks Management Order of AK BARS Bank’, ‘On the Stress Testing Order of AK BARS Bank’,’ On the Liquidity Management of AK BARS Bank’ and ‘On the Corporate Secretary of AK BARS Bank. The Board of Directors within the responsibility bearing for the Bank as a whole over the past year used its powers to solve the decisions on business strategy and risk management, financial resistance and corporate governance, performed effective control over the activities of the executive bodies, cared about respecting the interests of all shareholders within the Bank's operations and so on. In order to maximize compliance with international standards and improve the efficiency of economic and social activities, the Board of Directors put particular emphasis on the progress of the Bank’s development strategy for 2012-2015, budgeting forecasting for 2014 -2016, the advancement of corporate procedures and Bank’s IT systems, increase of the Bank’s transparency for all stakeholders, the quality of business processes, system of incentives for members of the Management Board, as well as other aspects of the activity. In the reporting period the Board of Directors continued its work initiated in 2012 on monitoring the implementation of a joint project with PWC consultants ‘ The Key Initiatives Implementation Plan for Business Efficiency Improvement’ (including the optimization of the branch network). During the year of 2013 the Board of Directors also heard the reports of the Management Board on the progress of - 25 - the project specifically related to risk management part. Together with the Management Board members, the Board of Directors discussed the Business Efficiency Improvement (BEI) Project as the stage of implementation of international approaches in accordance with the requirements of Basel II and Basel III. Furthermore the Board continued the annual procedures of evaluation of the Bank’s corporate governance and the self-assessment of the Board of Directors and its specialized committees. The results of the evaluation identify flaws and shortcomings to be corrected. Under the supervision of the Board of Directors, the charity work and sponsorship activity was continued. Each year the Board of Directors prepares the report for the annual shareholders’ meeting with the recommendations for distribution of the profit received by the end of financial year to specialized funds and organizations, including the fund of sponsor support and charity. In the reporting year the fund could support financially sport promotion public health support programmes, programmes for seriously ill children and also social and cultural projects. Committees of the Board of Directors Specialized Committees of the Board of Directors created to assist the effective performance of the Boards of Directors’ control functions continued their work in 2013. Their decisions had a recommendatory form. Within the scope of their competence, Committees worked closely with the Bank’s management and control bodies, auditors and consultants. The Auditing Committee The Auditing Committee solely consists of independent directors (3 Committee members) and nonexecutive directors (1 Committee member) which indicates the improvement in its qualitative composition. The Chairman of the Committee, independent Director – Sergey Shibaev Members of the Committee: Yuri Levin (independent Director) Yevgeny Tikhturov (non-executive Director) Artur Khairullin (independent Director) In 2013 the Committee continued to maintain the scope of its activities focusing on the implementation of measures aimed at improving the effectiveness of internal control, control of the accuracy and completeness of financial reporting of the Bank. In the reporting period, the Committee regularly reviewed the financial reports of the Bank, prepared in compliance with Russian and - 26 - international standards, analyzed the results of audit and discussed further actions to eliminate the issues identified by the audit inspectors. Within the reporting period the Auditing Committee raised the questions related to the implementation of IT solutions into the Internal Control service, the conditions of the internal control system and its information technologies, the formation of transactions database. Within its competence the Committee set the tasks related to the dynamics of the interest margin, assets quality and etc. Considerable attention was paid to the return on equity increase and its most effective use. Besides the Committee controlled the delivery of the project realized jointly with ZAO PricewaterhouseCoopers consultants aimed to increase the Banks’ effective performance. Auditing Committee members discussed the project details and its potential influence on the business efficiency improvement through a substantial restructuring of business processes. The Human Resource and Remuneration Committee The Committee consists of 4 members of the Board of Directors, Chairman of the Committee (non-executive director) – Avanesyan Igor Grigoryevich. Members of the Committee: Alexander Lavrentyev (independent Director) Valeriy Sorokin Midkhat Shagiakhmetov During the year one of the target tasks for the Human Resources and Remuneration Committee were issues related to the restructuring of the Bank's organizational structure in line with the efficiency improvement plan and also the regular monitoring of the unplanned staff turnover at the top – management level, upper and mid-management level, experts due to the ongoing changes. Considerable attention has been paid to the analysis of staff performance and staff costs in comparison with local banks and banks that are comparable with AK BARS Bank's volume of business and regional presence. Committee members initiated the optimization of personnel incentive system of AK BARS Bank in line with the new operational model of the Bank. During the year the Committee also reviewed issues relating to the Bank’s strategy realization in labour remuneration, the ‘Human Resource Pool’ programme implementation and the work plan implementation for sharing the corporate values and the implementation of individual development plans by the Management Board members were constantly supervised. In the end of the year the Committee reviewed and approved the work plan draft for 2014 related to personnel management as one of the strategic directions of the Bank development, organized the assessment of the independence of the Board of Directors members, selfevaluation of the Board of Directors and specialized Committees for 2013. - 27 - The Risks Committee The Committee consists of 5 members of the Board of Directors, three out of them are independent directors which indicates the improvement of the Committee’s composition quality. The Chairman of the Committee, independent Director – Juri Levin Members of the Committee: Sergey Alexeev (independent director) Farida Volkova Yevgeny Tikhturov Sergey Shibaev (independent Director) In 2013 the Risk Committee was focused mainly on risks analysis and control which are fundamentally important for the development of the Bank, on improvement of the management systems for various types of banking risks, on improvement of quality and standards of corporate governance in relation to risk management, on systematic organization of multi-stress testing of AK BARS Bank and bank groups on the key indicators. Committee raised the question related to the determination of an aggregate level of risk that the Bank is prepared to accept and the general ‘risk appetite’ as the fundamental indicators of the development strategy of the Bank. During the year, the Committee paid special attention to control the major types of banking risks of AK BARS Bank priority projects including: the pilot project of the accelerated lending programme for small businesses and the comprehensive programme of the Bank efficiency improvement which is developed and implemented jointly with PWC consultants. In the given period, the Committee continued to work on minimization of banking risks by improving the approval procedures of transactions by the Board of Directors, mainly concerning transactions with AK BARS Bank affiliates and the related party transactions. The Risks Committee members also paid significant attention to the Bank liquidity, measures for its support, as well as asset and liabilities quality analysis. The Strategy Committee The Committee consists of 4 members of the Board of Directors. The head of the Committee is the Chairman of the Board of Directors (non-executive director) – Sorokin Valeriy. Members of the Committee: Igor Avanesyan Alexander Lavrentyev (independent director) Robert Minnegaliev In the reporting period the Strategy Committee was focused on monitoring of the implementation of the major project of the Bank's efficiency improvement, implemented jointly with the experts of the - 28 - international consulting companies. The Committee members put emphasis on the issues of the operating model reformation and the implementation of the initiatives aimed at achieving the optimal business volumes at lower costs, all of these issues were repeatedly discussed at the meetings during 2013. During the year the Strategy Committee reviewed the quarterly reports presented by the Management Board on the Bank's budget implementation and regularly monitored the progress of the main development strategies of AK BARS Bank for 2012 - 2015. The Committee reviewed and recommended for the Board of Directors’ approval the Bank’s budget targets for 2014, the budget plan draft and the key performance indicators in major areas of work. Committee approved by the key tasks and activities for the development of retail and corporate business units. The special attention was given to the questions related to the development of Bank’s priority projects: the implementation and promotion of Accelerated lending programme for small businesses, ‘AK BARS Online’ platform development, ‘Universal electronic card’ project. In addition the Committee members started to track the new trends in monetary policies of the Central Bank and discuss their influence on the development of the Bank at the Committee meetings. Information on compliance with the Code of Corporate Governance Corporate governance system of AK BARS Bank is oriented on international standards and helps to enhance the Bank’s attractiveness, facilitates access to external funding sources and promotes the growth of the loan portfolio. AK BARS Bank recognizes the corporate governance efficiency as one of the most important conditions for the stability and successful business development. The system of corporate governance of AK BARS Bank represents an effective interaction between all management bodies - General Shareholders Meeting, the Board of Directors, Management Board and the Chairman of the Management Board and Bank Committees of various levels. The main principles of the Bank’s corporate governance are unconditional compliance with the Russian legislation, supervisory and regulatory bodies, as well as protection of the rights of shareholders, investors and other stakeholders, monitoring and timely disclosure of information on financial and economic activities of the Bank, ensuring of the effective operations, maintenance of financial stability and profitability. In its activities, the Bank adheres to the principles of the Corporate Governance Code, approved by the Board of Directors in 2008. The Code regulates the fundamental principles of corporate behavior, the order for corporate actions, as well as the interaction of the public managing bodies and it’s provisions are currently an integral part of the Bank’s corporate governance. The Code determines the main corporate governance development goals of the Bank: - 29 - Information transparency level increase; Management process improvement; Risks exposure level decrease; Prevention of conflict interests; Usage of high ethical principles in relations to all stakeholders. The main trends of AK BARS BANK activities aimed to improve the corporate governance system are the following: Guarantees of shareholders’ rights and interests; Effective management, including the separation of the authorities, competency issues and accountability between the management bodies; organization of effective work of the Board of Directors and the Management Board of the Bank; Strategic management of the Bank activity by the Board of Directors, the development strategy determination and control over its realization; Formation of the balanced system of relations and prevention of conflict of interests between the shareholders, the Board of Directors and the Management Board members, bank employees, clients and counterparts; Transparency of the ownership structure; Order and control determination in terms of full and reliable information disclosure about the Bank; coordination of the executive body responsible for elaboration and realization of the Bank information policy; Equal attitude towards all Bank shareholders; granting an opportunity of the effective protection in case of violation of their rights; Effective control over financial and economic activities of the Bank; Determination and elaboration by the Board of Directors the Risk Management policies, their constant review; Management of the process of selection, appointment and succession of senior management level of the Bank; Social responsibility and development of partnerships with stakeholders; Compliance with legislation of the Russian Federation, founding and internal documents of the Bank. The structure of corporate governance of AK BARS Bank maintains the adequate balance between the management bodies, distributes powers and delimits general management responsibilities between shareholders and the Board of Directors and management of the current - 30 - activities of the Bank performed by its executive bodies. Guided by the interests of shareholders, creditors, customers, business partners and counter agents, AK BARS Bank continuously controls the compliance of its activities with the Code of Corporate Governance. In 2013, the Bank continued to develop the system of corporate governance and bring internal corporate procedures in line with the changes in the Russian legislation and best practices. The Bank recognizes that improving corporate governance is a critical measure necessary to ensure the stability and success of the financial markets, as well as In 2013, in the area of corporate governance AK BARS Bank continued to develop internal procedures in accordance with changes in the Russian legislation and best practice. The Bank recognizes that the effective functioning of the corporate governance system is the essential factor for the Bank’s financial stability and success on the financial markets, as well as maintenance of the high standards of corporate governance and business ethics for business success. The implementation of the new internal corporate governance standards could help to make a step to such improvement. The Management Board The Members of the Management Board of AK BARS Bank, the collegiate executive body (as of January 1, 2014): 1. Robert Minnegaliev Was born in 1972. Graduated from Kazan Finance and Economic Institute in 1993 majoring in ‘Accounting, control and analysis of economic activity’. Candidate of Economic Sciences. Honoured Economist of the Russian Federation and the Republic of Tatarstan. Started his career in 1987. Beginning from 1993 – the Deputy Chief Accountant, subsequently – the Deputy General Director and the Head of the Finance Center at Kazan Dairy Plant. In 1996 was appointed as the Head of the Banks and Extrabudgetary Funds Department at the Ministry of Finance of the Republic of Tatarstan. From September 1997 headed the Specialized Funds Management Department at the Ministry of Finance of the Republic of Tatarstan. In July 1998 was appointed as the First Deputy Minister of Finance of the Republic of Tatarstan. In 1999 - 2003 – the Director of the Treasury Department at the Ministry of Finance of the Republic of Tatarstan. From April 2003— the Chairman of AK BARS Bank Management Board. - 31 - 2. Zufar Garaev Was born in 1972. Graduated from Kazan State University named after V. Ulyanov-Lenin majoring in ‘Jurisprudence’ in 1994, from the International Academy of Marketing and Management majoring in ‘Finance and Credit’ in 1996. The Honoured Economist of the Russian Federation and the Republic of Tatarstan. Started his career in 1992 as a legal adviser at the Republic Centre of Emergency Medical Service. Worked as a legal adviser, later on became the Deputy Head of the Department of Foreign Exchange Transactions and International Settlements at Kazan branch of ‘Mezhkombank’, the Vice-Chairman of the Management Board – the Managing Director of Kazan branch of LLC ‘Kamsky Commercial Bank’. In July 2003 became the First Vice-Chairman of AK BARS Bank Management Board. 3. Marat Shagitov Was born in 1968. Graduated from Kazan Finance and Economic Institute majoring in ‘Economics and Sociology of Labour’ in 1993. Started his career in 1993 as the Chief Accountant of Limited liability partnership ‘Rummad’. Subsequently worked as the Head of Funds Department, the Financial Director of JSC ‘Group Light’. From 1998— the Head of the Department, then the Director of the Department of Treasury— the First Deputy Minister of Finance of the Republic of Tatarstan. From May 2007— the First Vice-Chairman of AK BARS Bank Management Board. 4. Radik Salyakhutdinov Was born in 1971. Graduated from Kazan State University named after V. Ulyanov-Lenin majoring in ‘Applied Mathematics’ in 1993 and later on from Kazan Social and Legal Institute majoring in ‘Law’ in 2002. The Honoured Economist of the Republic of Tatarstan. Started his career in 1993 as the laboratory assistant-technician at the Academy of Sciences of the Republic of Tatarstan. From 1994 - the Expert of AK BARS Bank’s Department of Interbank Settlements and Crediting, followed by promotion to the Head of the Department of Interbank Settlements and Crediting position. In 1998 was appointed as the Chairman of the Management Board of OJSC ‘Volzhsko-Kamsky JointStock Bank’. In January 2000 returned to the Bank as the Director of Treasury. - 32 - From October 2000 – the Deputy Chairman of AK BARS Bank Management Board. 5. Ilfan Gubaidullin Was born in 1975. Graduated from Kazan State University named after V. Ulyanov-Lenin majoring in ‘Jurisprudence’ in 1998 and Kazan Finance and Economic Institute majoring in ‘Management’ in 2001. Started his career at AK BARS Bank in December 1997 as an Expert of the Department of Foreign Relations and Legal Department operations. In 1999 was appointed as the Head of the Corporate Clients Department. From February 2004 – the Deputy Chairman of AK BARS Bank Management Board. 6. Bulat Davletshin Was born in 1974. Graduated from Moscow State University of Commerce majoring in ‘Management’ in 1996 and Higher School of Corporate Governance of the Academy of National Economy under the Government of the Russian Federation majoring in ‘Euro-Management – Executive Master of Business Administration’ in 2010. Started his career in 1996 in OJSC ‘Tatneft’ as a software engineer in the Information Processing Service of the Oil-And-Gas Production Department ‘Almetievneft’. From 1997 - the Regional Representative and starting from 1999 – the Director of the Almetyevsk branch of CJSC ‘Finance Leasing Company’. From 2003 – the Head of the Department of Project Finance of the Bank. From October 2006 - headed the Department of Project Finance. From August 2009 – the Deputy Chairman of AK BARS Bank Management Board. 7. Airat Bayazitov Was born in 1971. Graduated from Kazan Finance and Economic Institute majoring in ‘Accounting, control and analysis of economic activity’ in 1992. Started his career in 1992 in a commercial bank named ‘Selskie Dorogi’ (Rural Roads) as the Deputy Chief Accountant. From November 1993 - the Chief Accountant of AK BARS Bank. 8. Gulnara Sattarova Was born in 1969. - 33 - Graduated from Kazan State University majoring in ‘Applied Mathematics’ activity” in 1991 and Kazan Finance and Economic Institute majoring in ‘Management’ in 1999. Started her career in 1993 as an accountant in the National Investment Fund of the Republic of Tatarstan. From July 1998 worked as a senior specialist of the Department of Interbank Settlements and Crediting of AK BARS Bank, subsequently the chief specialist of the Department for attracting deposits of legal entities and individuals; chief specialist of the Department of Corporate clients; chief specialist of the Treasury and head of the Department of analysis of current liquidity and short-term Treasury operations of OJSC AK BARS Bank. In 2003 headed the Treasury of AK BARS Bank. From 2007 - Deputy Manager of the branch of the ‘Absolut Bank’ commercial bank. From 2011 - Advisor to the Chairman of the Management Board, Deputy Chairman of the Management Board of Medical Commercial Bank ‘Avers’. From May 2012 - Director of Risks Department of AK BARS Bank. The members of the Management Board did not hold shares of the Bank during the reporting period. Remuneration of Persons that Make up the Bank’s Corporate Bodies The order and conditions of the remuneration for AK BARS BANK Management Board members are defined by the Labour contract and the Statement on remuneration (motivation) of AK BARS Bank Management Board members. The statement was elaborated in 2010 by the Human Resource and Remuneration Committee jointly with the Bank Management Board and approved by the Board of Directors of AK BARS Bank. The Statement regulates the evaluation of the activity of the Management Board members and the Management Board as the collegiate executive body on key performance indicators. The list of key performance indicators is annually approved by the Board of Directors in connection with annual budget numbers. The establishment of the main key indicator of the bank effective performance is one of the conditions for the bonus system. The Management Board members are not eligible for bonuses in case when the key indicator of the bank effective performance is less than 50%, this provides the proportionality of paid remuneration and Banks’ financial - 34 - performance. The profile Human Resource and Remuneration Committee of the Board of Directors control the implementation of this statement 2 times per year. The remuneration calculations and payment order to AK BARS Bank Board of Directors are defined by the Statement on remuneration of AK BARS Bank Board of Directors members approved by the decision of General Shareholders’ meeting on June 23 2008. According to this statement the Board of Directors members are paid remuneration and compensation according to their performance. The remuneration of the Board of Directors members consists of the fixed fee (for the work as a part of the Board of Directors and for the fulfillment of obligations of the Chairman of the Board of Directors) and additional remuneration (bonus), paid in case of successful financial performance and achievement of strategic objectives. Remuneration for the members of the Board of Directors shall be paid in the following order: the fixed fee - four times a year; additional remuneration (bonus) - once a year (in case of successful financial performance and accomplishment of strategic objectives), not later than one month after the approval by the Annual General Shareholders’ Meeting of the Bank in the amount approved at the Annual General Shareholders’ Meeting. For the year of 2013 the total amount for remuneration and compensation for the Board of Directors members and Management Board members amounted to 198, 2 million rubles. Dividend Policy The Bank Charter and the Statement ‘On dividend policy of AK BARS BANK’ approved by the Board of Directors in 2007 establishes the main principles of the Bank dividend policy, the rights of shareholders on dividends, the order of decisions for dividend payments, their amount and payment order. The decision on the dividend payment (declaration), on the recommended amount and form of dividend payments is concluded at the Annual General meeting of shareholders on the basis of the recommendations of the Board of Directors. In 2013 the Annual General meeting of Bank shareholders made the decision not to pay the dividends on ordinary nominal shares of AK BARS BANK according to the results of the financial year of 2012. Risk Management The main objective of the Bank’s Risk management system creation is to achieve the most effective results at the acceptable levels of associated risks and maintaining financial stability of the Bank as a whole. The Risk Department is focused on the construction of risk management system, - 35 - which allows monitoring of all existing risks of the Bank on a constant basis, to keep them within the approved limits and covered with appropriate reserves. The concept of risk management system is based on the proposals of the Basel Committee on Banking Supervision and the recommendations of the Central Bank of Russia. The risk management is becoming integrally important in the context of large-scale development of the Bank, the expansion of its territorial network. All structural units of the Bank from loan officers to the Management Board and the Board of Directors members are somehow involved in the process of risk management. The Bank’s risk management system is based on the following general principles for risk management: e of risk-free operations. The Bank makes its main economic priority to increase the number of risk-free commission operations in total operating profit. Aversion. The Bank makes a decision whether to conduct an operation with all potential risks associated with it. In cases if the amount of potential loss exceeds the set limits of risks or potential economic profit the Bank chooses risk aversion strategy. Limitation of the amount of possible losses in the course of operations by establishing threshold amounts for losses. issipation. Limitation of the scope of possible losses through diversification of assets and liabilities of the bank (limits on the volume of transactions with counterparties, economy agents, limits on usage of financial instruments, the position VaR limits on tools). The accounting of risk-premium when evaluating the comparative efficiency of the bank's operations. Effectiveness of the bank's operations is evaluated with the volume of expected losses and costs necessary to cover the costs of potential losses. Compensation. Limitation (hedging) of risks by: - Insurance; - Use of derivative financial instruments able to compensate potential losses on the hedged assets; - Inclusion into the trading portfolio of financial instruments with multiple sensitivity to homogeneous risks. Full risk management cycle includes the following: 1. Selection of an object at risk; 2. Classification of risks specific to an object; - 36 - 3. Development and verification methods for evaluation and control of these risks; 4. The risk assessment; 5. Preparation and decision-making on risk limitation; 6. Risk monitoring, including monitoring the proper use of the approved limits; 7. Preparation of standardized forms of reporting on the current risk of the bank and its structure. Credit Risk The credit risk is still one of the main risks for AK BARS Bank, particularly the risk that a counterparty will not be able to fully and timely (in due time) repay the debt to the Bank Credit risk management includes the evaluation and control of credit risk inherent to both individual borrowers and groups of related borrowers. The efficiency of credit risks management is achieved through accurate regulation of risk assessment process, decision making on loan granting, creating an adequate provision for possible loan losses and further monitoring of credit risks on every transaction. There are effectively functioning collegiate bodies established in the Bank (Limit and Credit Committees), whose tasks are to determine the limits for counterparties and to make decisions on loan granting and other investments. Evaluation and regular monitoring of credit risks are accomplished using the methodology elaborated in the Bank and based on the rating evaluation of counterparties. Methods for credit risks assessment are monitored and tested constantly in order to improve them on the basis of gained experience and changes in legislation, regulatory requirements and international financial institutions. The system of reasoned estimation of credit risk level for every counterparty also operates in order to form adequate reserves. An important aspect of credit risk management system for the Bank with an extensive territorial network, is the balance of the risk management process centralization and the reasonable share of responsibility. This problem is solved by the limitation system of territorial divisions, by the establishment of personal responsibility limits with the division of powers based on the correspondence of risk amount to the official status of a person. The limitation system build in the Bank allows to track and make decisions on large credit risks and, at the same time, to ensure the efficiency of the lending process transactions with insignificant risks for the Bank. Country and Regional Risk The main activity of the Bank is concentrated within the territory of the Russian Federation and the Republic of Tatarstan. The stability of political and economical situation in Russia as s whole and in the Republic of Tatarstan significantly decreases the influence of this particular type of risk on the Bank activity. The support of the Government of the Republic of Tatarstan stabilizes the positions of the Bank in the current region. With the expansion of the regional network the influence of regional risks can increase, but the present strategy of the Bank development presumes to open the branch - 37 - offices in the most economically developed and prosperous regions of Russia, which allows to minimize the influence of regional risks on the Bank activity. The biggest branch offices of the Bank (outside the Republic of Tatarstan) are located in successfully developing regions, most of which are the donors of the federal budget system. The Bank does not expect any major social or political conflicts, which can lead to material or any other type of damage to the Bank. The Bank activity is mainly oriented on active operations with the counterparties who are residents of the Russian Federation. AK BARS BANK actively operates with non-resident banks from countries with high investment and credit ratings that belong to the group of ‘developed countries’. The financial positions of these counterparties and countries is considered as stable and approved by the leading rating agencies. Market Risk The market risk is the risk of loss arising from adverse changes in prices on the assets and / or liabilities of the Bank. Currency, fund and interest risks belong to the group of market risks. The Management of market and structural risks is accomplished by the Assets and Liabilities Committee. To manage the market risks, the Bank accepted the system of limits which restrict potential losses from the unfavourable changes in the market conjuncture. The limits are set and adjusted according to total VaR assessment of price risks on the components of securities portfolio, currency risks and interest risks. The limits system includes the limits on the investments amount, the values of opened positions, the maximum amount of affordable losses, and so on. Potential market risks should not exceed the planned quarterly profit. The estimation of the market risks level is carried out on a monthly basis. It can be also estimated at any other moment, for instance, in case of abrupt changes in market conjuncture. Fund (price) Risk Fund risk management is carried out through active management of trading securities portfolio, including regular revision of the whole portfolio according to the changing trends of the securities’ fair value. Currency Risk Currency risk management is accomplished using VaR methodology. The Bank handles the currency risks using general methods of management, maintaining the indication and the volume of - 38 - opened currency positions consistent with the observed and prognosticated dynamics of exchange rate changes and limits for opened currency positions. Interest Risk Interest risk management is done by limiting the difference in volumes (‘gap’) between the volume of assets and liabilities, sensitive to basic interest rates changes with mutual correlation of these rates. Total ‘gap’, assets and liabilities ‘gaps’, sensitive to the changes of the same basic interest rates are being limited. Liquidity Risk According to the management technology, the Bank allocates the risk of instant liquidity of an operational day, risk of current urgent liquidity and risk of structured balance liquidity. Liquidity risk is limited in the Bank by a range of internal rules and is regulated daily by the Liquidity Management Committee on the basis of existing latest information on assets and liabilities ratio on terms of maturity date and the payment calendar. The share of liquid assets is maintained at the level sufficient enough to satisfy the responsibilities to the customers at any changes of the external environment. Bank liquidity is kept at a sufficient level, and in case of emergencies, leading to the liquidity decrease, the Bank disposes the contingency plan, which can return the liquidity rates to a safe level in a short period of time. AK BARS BANK steadily meets the requirements of the Central Bank of the Russian Federation on mandatory economic standards execution. The economic standards indicators are sufficient for normal functioning in the conditions of current financial situation. Legal Risk Legal risk is a risk of Bank’s possible losses caused by the influence of internal and external factors of legal nature. The distinctive feature of a legal risk is the possibility to control its scale by full compliance with current legislative and regulatory acts, internal documents and Bank procedures. Legal risk management is an integral part of the Bank Risk Management System. The combination of such risk management methods as authorities and decision-making system, information system, legislation monitoring system is used for monitoring and keeping the Bank legal risks at an acceptable level. Regulations for the transactions and procedures adopted by the Bank, as well as an effective monitoring of the legislation allow to minimize legal risks associated with non-compliance with legislation, internal regulations and other legal norms. - 39 - The whole amount of claim work is carried out in the Bank in the regular course of work. The emergency legal risks are not expected anytime soon. Structured business units operate within the framework of the existing limited structure for the counterparties, positions, instruments, units, profit and losses restrictions, and personal limits of responsibility. Risk of Business Reputation Loss (reputation risk) Reputation risk is a risk of possible losses caused by negative changes in business reputation due to the influence of external and internal factors of non-financial nature. Business reputation is a qualitative evaluation of the Bank activity, the actions of its owners, affiliated parties, subsidiaries and dependent organizations by the participants and the society. Management of the business reputation loss risk is an integral part of the Bank Risk Management System. The combination of such risk management methods as authorities and decision-making system, information system, Bank’s business reputation monitoring system (including Banks’ shareholders and affiliates) is used for monitoring and keeping the Bank legal risks at an acceptable level. In its activity, the Bank follows the ‘Know your employee’ and ‘Know your customer’ principles recommended by the Central Bank of the Russian Federation. The elaborate system of the Reputation Risk management allows to sustain the risk at an acceptable level. Strategy Risk Strategy risk is a risk of losses due to the mistakes (disadvantages), wrong choices for the Bank development strategy or failure to fulfill its guidelines. Management of this type of risk is ensured by the adequate planning of economic operations of the Bank. Adequacy of the planning system is achieved by the multi-variance and continuity of planning, centralization of methodological and supervisory functions in the sphere of planning, clarity of objectives and personal responsibility for their achievement, and constant control of the implementation process. Operational risk Operational risk is a risk arising from direct and indirect losses resulting from the disparity to the character and the scale of the bank activity and/or to the current legislation requirements, internal rules and procedures of bank operations execution or other transactions and their violation by the Bank employees and/or other persons. - 40 - Among the main reasons of operational risk are the staff risk, automated banking system and technology risk and the risk of physical action. The determination and the evaluation of operational risks are made on the regular basis. The control of the operational risk events and indicators is held online using the specially developed database of operational risks which allows to track the issues and take timely measures to eliminate the results of the operational risks issues and prevent the new ones. Apart from that the Вank has clearly regulated internal policies and procedures that minimize the operational risks caused by staff risk and automated banking system risk. Physical actions risk management is controlled by the insurance system, which also reduces possible negative consequences of force majeure nature. The existing risk management system of the Bank proved its credibility in 2008-2009 the actual crisis period and in the post-crisis period. The Bank continues to effectively minimize losses from the certain risks types, and existing risk management procedures of the Bank and applied methodologies regularly undergo updates and verification. Human Resource Management The average number of the bank employees amounted to 6 299 people in 2013. In 2013, the Activities for the realization of HR Management Strategy wer presented in the following strategic initiatives: Organizational design Elaboration of the new recruiting model Staff motivation Staff training and development Corporate culture development The improvement of the organizational structure was aimed at reduce the share of inefficient functions in the branch network as a result of the centralization of middle, back-office and support functions in order to increase the productivity of employees of the branch network, to reduce the operational load of the regional head managers, to increase business volume of the branch network without hiring additional workforce, to optimize costs through centralization (the scale effect, improved formatting of sales points), to increase the productivity and work quality through standardization. In the reporting year, the Bank opened the new division - Unified Service Center in order to transfer the functions from the level of branches and their divisions to the Head office level. - 41 - There are several large structural units in the Center. Centers of support of corporate and retail business are responsible for the analyses of loan applications, loans decision-making and overall further business support loans throughout the branch network. Back-support and payment transactions division carries out operational support of the whole range of banking operations. There is a division responsible for the legal support and expertise of pledges. The Contact Center is represented in separate unit and its purpose is to interact with customers of the Bank. As for recruitment area, the main objective for 2013 was to fill the Unified Service Centre (USC) with 999 staff posts. At the end of the reporting year the USC staff was represented by 851 people. The new recruitment model helped to achieve such results: 1) implementation of the new methodology for assessment and approval of candidates at the recruitment stage which helps to optimize time for decision making on candidates (up to two business days), and to speed up the start of work by the employees (up to 7 to 10 business days); 2) the active use of mass interviews methods for the following fields: telemarketing and callcenter, verification, middle support, back support of individuals and legal entities. This helped to increase the candidates flow; 3) mass recruitment from the labor market as a result of the active promotion of AK BARS Bank brand as a potential employer using the advertising campaigns and hotline phone system for candidates; 4) human resources pool of candidates. The formation of HR pool was done in 2012, 2013, including the on-site trips of personnel services to the branch offices. As a result over 90 employees were transferred to USC; 5) events for staff rotation to managerial positions to fill the newly created managing positions in ESC. In addition the active rotation of the branch network employees allowed to retain qualified staff and enable professional growth by filling the new job opening in USC. The qualified staff members from other branches received the relocation package with additional payments for housing in Kazan for up to 6 months. In 2013 the main programmes designed to attract young professionals have been implemented: ‘Business School’, ‘Personal Scholarship’, ‘Open University’, ‘Business Game’, internship options. The Bank uses the system of basic labour remuneration which takes into account the value of bank professionals in the labour market, modifies it depending on the qualification and productivity of an employee, and all these factors allow to retain the key employees of the Bank. This particular system of forming the salary based on the clear wage and time rules for certain positions also allows to control the labour costs. - 42 - The motivation system adopted in 2007 is based on key performance indicators (KPI) and confirmed its efficiency under the ‘Efficiency management system’ project. The KPI incentive system had a new round of development in 2013: within the decomposition of KPI of the branch offices into structural divisions the front-office employees working with individuals and working for the small business development were taken out of the existing system of KPI bonuses. The main objective of the innovative motivation system for personnel was the improvement of personal productivity rate including the risk taken by the Bank. The Bank developed its own continuous training system to maintain the level of qualification in line with current and possible business needs and continuous renovation of theoretical and practical knowledge of managers and professionals. The training includes the following: • external training of managers and specialists of the Head Office in professional programmes, seminars, forums and conferences; • training of managers and specialists of the territorial network with external providers of educational services for corporate clients; • internal training in the corporate format with knowledge transfer from the managers of various Bank departments to other employees of the Head office and branch network offices; • internal training of employees through the implementation of training programmes of the Assessment and Development Center. Staff training and development programmes in 2013 were organized for the employees of the branch network and the newly created structural division – the Unified Service Center. 250 employees of the Head Office participated in external training events: seminars, conferences and forums. In 2013, the education and training programmes have been associated with the implementation of major projects: the Universiade in Kazan and the project of the Bank Efficiency Improvement. Within the preparation for the University Kazan 2013 project, the Assessment and Development Center have trained 190 employees of cash services division on the technologies of service for non-residents - the participants and guests of the Universiade. The training included the use of the new Directory of Bank Operations presented in 6 foreign languages, behavior in difficult situations and study of basic communication skills with customers in English. The key factor for successful implementation of the Bank Efficiency Improvement Project was the organization of comprehensive classroom training programs with the knowledge evaluation procedures for all front-staff representatives of the branch network. Training - 43 - programmes were focused on studying of the new business processes, product line, automated banking systems and learning the sales skills of retail and corporate products. The system of internal training in the Bank was the combination of the following educational activities: Adaptation training programmes aimed to reduce operational risks and control the probation period for the newly hired employees or the Bank staff members transferred to different positions; Strategic sessions for the managers of business sectors at the Bank branches, where the participants learn the strategic business tasks, annual perspective plans, innovations in normative documents, product line and business processes, analyze and discuss existing problems and issues; Mandatory educational programmes for all Bank employees according to the requirements of external normative acts; In order to improve the corporate culture of the Bank in 2013 the following activities were realized in 3 directions – translation of corporate values, contests among the Bank's employees, including together with partners (international MasterCard payment system) and the nomination to external and corporate awards based on the annual results. Major Transactions Within the reporting year of 2013, the Bank did not carry out neither transactions recognized as major transactions by the Federal Law ‘On Joint Stock Companies’ and by the Regulation ‘On Transactions with AK BARS BANK affiliates’, nor related party transactions and major transactions (Protocol 12/19-04-12 of 19 April 2012 approved by the Board of Directors). Related Party Transactions Within the reporting year, all transactions considered to be the related party transactions according to the Federal Law ‘On Joint Stock Companies’ were approved by the Board of Directors or by the General Shareholders Meeting in compliance with the authorities of AK BARS Bank’s executive bodies. The subject matters of these transactions were loans, pledge agreements, guarantees, letters of credit, deposits, interbank loans, purchase/sale of the securities, and reverse/direct repurchase agreement. All related party transactions were concluded within the framework of the Bank’s license and Charter. - 44 - Type of transaction The sum of completed transactions (mln rub.) Amount of transactions The Bank’s shareholder 1 1 Annual general shareholders meeting The Bank’s shareholder 27 10 Board of Directors The Bank’s shareholder 3 500 1 Board of Directors 185 8 Board of Directors Affiliate shareholder of the Bank, the Chairman of the Board of Directors, the Chairman of the Management Board, the Member of the Board of Directors, the Member of the Management Board, the Bank’s shareholder 10 657 187 Annual general shareholders meeting The Member of the Management Board, the Bank’s shareholder, affiliate shareholder of the Bank 1 513 13 Board of Directors 332 18 Annual general shareholders meeting 243 6 Annual general shareholders meeting 1 012 10 Annual general shareholders meeting 100 1 Board of Directors 1 130 9 Annual general shareholders meeting 485 4 Board of Directors 1 890 7 Annual general shareholders meeting 2 155 23 Annual general shareholders meeting 109 275 456 Annual general shareholders meeting 370 2 Board of Directors 5 302 21 Annual general Related party Letter of Credit Guarantee Affiliate shareholder of the Bank Deposit Pledge agreement Receivables assignment contract Credit Credit line Interbank lending attraction Interbank lending placement Reverse REPO Purchase of securities Purchase/sale of The Member of the Management Board, the Member of the Board of Directors, affiliate shareholder of the Bank The Member of the Management Board The Member of the Management Board, the Bank’s shareholder, affiliate shareholder of the Bank The Member of the Management Board The Member of the Management Board, affiliate shareholder of the Bank The Member of the Management Board The Member of the Board of Directors The Member of the Board of Directors, the Member of the Management Board The Member of the Management Board The Chairman of the Board of Directors, the Member of the Management Board The Member of the Board of Body that approved the transaction - 45 - securities Guarantee Bond Claim on supply contracts Direct REPO Directors, the Members of the Management Board The Member of the Management Board, The Bank’s shareholder The Bank’s shareholder, the Member of the Management Board The Member of the Management Board The member of the Board of Directors, the Members of the Management Board Total shareholders meeting 6 806 15 Annual general shareholders meeting 4 388 20 Board of Directors 16 3 Annual general shareholders meeting 562 4 Annual general shareholders meeting 149 951 819 Amount of Consumed Power Resources In 2013 AK BARS BANK consumed the following types of power resources: Name Thermal energy, (Gcal) Electrical energy, (kWh) Natural gas, cubic meters Water supplies, (cubic meters) Car petrol, (liter) Diesel fuel, (liter) Quantity 3 849,6 4 834,0 82 831,0 26 967,0 487 136,0 52 199,0 Cost, rubles 4 892 395,0 22 365 980,0 418 757,3 780 650,0 14 296 200,0 1 600 620,0 - 46 - Financial Reporting RCPS (All-Russian Classifier of Political Subdivisions) territory code 92401370000 Code of the credit organization (branch) According to RBOC (Russian Business and Organizations Classifier) 13001745 Primary state registration number Registration number (/ranking number) BIC 1021600000124 2590 049205805 BALANCE SHEET (published form) as of 01 January 2014 Credit organization Joint stock commercial bank "AK BARS" (OJSC) (OJSC "AK BARS" BANK) (full name and abbreviated company name) 1, Dekabristov st., Kazan, 420066 NIAD (National Index of Administrative Documentation) form code 0409806 Quarterly (Annual), (thousand RUR) Address Number Article title 1 2 As of the reporting date As of the reporting date of the last year 3 4 10 901 097 17 559 387 2 684 303 4 387 848 26 548 380 227 420 221 27 734 053 1 313 106 0 3 957 865 44 721 836 363 230 687 10 190 069 13 177 327 3 071 642 5 707 870 11 878 468 218 779 013 19 389 010 1 313 106 0 3 478 316 54 021 191 336 621 264 12 783 249 14 464 190 240 330 227 71 378 479 0 52 266 414 5 019 263 18 341 162 18 251 013 212 373 822 59 999 414 0 45 304 028 4 264 750 477 128 325 340 471 543 120 299 077 895 28 215 396 0 0 2 203 310 -367 238 6 393 6 894 175 938 180 37 890 216 28 215 396 0 0 2 175 121 224 143 6 558 6 734 223 187 928 37 543 369 49 769 215 23 973 678 0 42 670 804 34 496 056 0 I. ASSETS 1 2 2.1 3 4 5 6 6.1 7 8 9 10 11 12 13 13.1 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Cash assets Funds of credit institutions with the Central Bank of the Russian Federation Statutory reserves Funds in credit institutions Net investments in securities appraised at their fair value through profit or loss Net lending receivables Net investments in securities and other financial assets available for sale Investments in subsidiary and affiliated companies Net investments in held-to-maturity securities Fixed assets, intangible assets and inventories Other assets Total assets II. LIABILITIES Loans, deposits and other funds of the Central Bank of the Russian Federation Funds of credit institutions Funds of clients other than credit institutions Deposits of individuals (in the names of natural persons) Financial liabilities appraised at their fair value through profit or loss Outstanding bonds Other liabilities Provisions for possible losses from contingent commitments, other possible loss and transactions with off-shore residents. Total liabilities III. SOURCES OF EQUITY Shareholders (members)capital Own shares repurchased from the shareholders (members) Share premium Reserve fund Fair value of securities available for sale Revaluation of capital assets Unrealized earnings (uncovered losses) in prior years Retained earnings (losses) in reporting period Total equity IV. OFF-BALANCE LIABILITIES Irrevocable liabilities of the credit institutions Bonds and guarantees issued by credit institutions Contingent non-credit liabilities The Chairman of the Management Board of AK BARS BANK The Chief Accountant Robert Minnegaliev Airat Bayazitov 26 March 2014 - 47 - RCPS (All-Russian Classifier of Political Subdivisions) territory code 92401370000 Code of the credit organization (branch) According to RBOC (Russian Business and Organizations Classifier) 13001745 Primary state registration number Registration number (/ranking number) BIC 1021600000124 2590 049205805 INCOME STATEMENT (published form) For the year of 2013 (reporting year) Credit organization Joint stock commercial bank "AK BARS" (OJSC) (OJSC "AK BARS" BANK) (full name and abbreviated company name) 1, Dekabristov st., Kazan, 420066 Address NIAD (National Index of Administrative Documentation) form code 0409807 Quarterly (Annual)(ths. rub.) Number 1 1 1.1 1.2 1.3 1.4 2 2.1 2.2 2.3 3 4 4.1 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 23.1 23.2 24 Article title 2 Total interest income including: From placement of funds with credit institutions: From Loans issued to clients other than credit institutions From financial lease services (leasing) From securities investments Total interest expenses, including: Related to funds raised from credit institutions Related to funds raised from clients other than credit institutions Related to issued bonds Net interest income (negative interest margin) Changes in provisions for possible loan loss, or similar receivables, funds placed on correspondent accounts and accrued interest income in total, including: Changes in provisions for possible loss of accrued interest income Net interest income (negative interest margin) after the establishment of possible loss provision Net receipts from transactions with securities appraised at their fair value through profit or loss Net receipts from transactions with securities available for sale Net receipts from transactions with securities held to maturity Net receipts from foreign exchange transactions Net receipts from foreign exchange evaluation Receipts from interests in other legal entities Fee and commission income Commission expenses Changes in the provisions due to possible loss on securities available for sale Changes in the provisions due to possible loss on securities held to maturity Changes in provisions for other losses Other operating income Net income (expenses) Operating expenses Profit (loss) before tax Accrued (settled) taxes Profit (loss) after tax Disbursements of profit after tax in total, including: Distribution among the shareholders (members) in the form of dividends Deductions to reserve fund Retained profit (loss) of the reporting period: The Chairman of the Management Board of AK BARS BANK The Chief Accountant 3 28 558 676 179 571 25 267 852 0 3 111 253 22 908 986 1 870 669 16 512 296 4 526 021 5 649 690 As of the reporting date of the last year 4 24 775 290 125 824 22 437 143 0 2 212 323 18 612 220 2 239 504 12 412 485 3 960 231 6 163 070 -625 276 -4 353 402 -115 674 -76 965 5 024 414 1 809 668 As of the reporting date -329 292 9 330 -17 734 0 87 935 -552 115 193 829 2 067 492 306 972 -71 893 0 34 685 12 319 224 18 449 573 17 020 730 1 428 843 490 663 938 180 0 0 0 938 180 235 517 0 213 667 196 629 180 173 1 804 139 525 652 620 563 0 154 441 8 148 503 12 846 978 12 213 883 633 095 445 167 187 928 0 0 28 189 159 739 Robert Minnegaliev Airat Bayazitov 26 March 2014 - 48 - RCPS (AllRussian Classifier of Political Subdivisions) territory code 92401370000 Code of the credit organization (branch) According to RBOC (Russian Business and Organizations Classifier) 13001745 Primary state registration number Registration number (/ranking number) BIC 1021600000124 2590 049205805 STATEMENT ON CAPITAL ADEQUACY, BAD DEBT RESERVES AND OTHER ASSETS (published form) As of 01.01.2014 Credit organization Joint stock commercial bank "AK BARS" (OJSC) (OJSC "AK BARS" BANK) (full name and abbreviated company name) 1, Dekabristov st., Kazan, 420066 Address NIAD (National Index of Administrative Documentation) form code 0409808 Quarterly (Annual ) As of the beginning of the reporting year Gain (+)/ decrease (-) over the reporting period As of the reporting date 2 Total equity (capital) (RUR, thousand) including: Charter capital of credit institutions, including: Par value of ordinary registered shares (participatory interests) Par value of privileged registered shares 3 50 750 992 28 215 396 28 215 396 4 -565 314 0 0 5 50 185 678 28 215 396 28 215 396 0 0 0 Treasury shares (participatory interests) repurchased from shareholders (members) Share premium The credit institution’s provisional fund Financial performance taken into account for calculation of equity (capital): Of previous years of the reporting year Intangible assets Subordinated loans (borrowings, deposits, bond issues) Sources (partly) of additional capital formed by investors from inappropriate assets 0 0 2 175 121 5 492 912 5 709 647 233 265 57 116 16 999 719 0 0 28 189 -257 114 -179 798 -77 316 -22 931 -246 092 0 0 2 203 310 5 685 798 5 529 849 155 949 34 185 16 753 627 902 124 -22 613 897 511 The capital adequacy requirement (per cent) Actual capital adequacy ratio (per cent) Actually available provisions for loss (RUR thousand) in total, including: For loans, lending receivables and their equivalents For other assets exposed to risk of loss, and other losses For contingent credit-related commitments reflected in off-balance accounts, and forward transactions For transactions with offshore residents 10 14,0 16 980 827 15 610 476 845 766 X X 642 374 565 024 150 090 10,0 12,8 17 623 201 16 175 500 995 856 524 585 -72 740 451 845 0 0 0 Num ber 1 1 1.1 1.1.1 1.1.2 1.2 1.3 1.4 1.5 1.5.1 1.5.2 1.6 1.7 1.8 2 3 4 4.1 4.2 4.3 4.4 Article title For reference: 1. Formation (supplementing) of loss provision for possible loans, lending receivables and their equivalents in the reporting period (RUR thousand): in total 26 995 797, including as a result of: 1.1. Granted loans 15 629 546; 1.2. Changed quality of loans 7 916 485; 1.3. Differences in foreign currency/ ruble exchange rates established by the Bank of Russia 333 723; 1.4. Other reasons 3 116 043. 2. Recovery (reduction) of loss provision for loans, lending receivables and their equivalents in the reporting period (RUR thousand): in total 26 430 773 as a result of: 2.1. Writing-off bad loans 22 613; 2.2. Loan repayments 19 024 763; 2.3. Changed quality of loans 4 577 435; 2.4. Differences in foreign currency/ ruble exchange rates established by the Bank of Russia 64 177; 2.5. Other reasons 2 741 785. The Chairman of the Management Board of AK BARS BANK Robert Minnegaliev The Chief Accountant 26 March 2014 Airat Bayazitov - 49 - RCPS (AllRussian Classifier of Political Subdivisions) territory code 92401370000 Code of the credit organization (branch) According to RBOC (Russian Business and Organizations Classifier) 13001745 Primary state registration number Registration number (/ranking number) BIC 1021600000124 2590 049205805 STATUTORY RATIO REQUIREMENTS (published form) As of 1 January 2014 Credit organization Joint stock commercial bank "AK BARS" (OJSC) (OJSC "AK BARS" BANK) (full name and abbreviated company name) 1, Dekabristov st., Kazan, 420066 Address NIAD (National Index of Administrative Documentation) form code 0409813 Annual (per cent) Numb er 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Article title Required ratio 2 Bank’s capital adequacy ratio (H1) Capital adequacy ratio of the non-banking credit organization with the right for fund transfers without opening a bank account and other related banking transactions (Н1.1) Bank’s instant liquidity ratio (H2) Bank’s current liquidity ratio (H3) Bank’s long-term liquidity ratio (H4) Maximum risk per one borrower or a group of related borrowers (H6) Maximum limit of large credit risks (H7) Maximum amount of loans, bank guarantees and sureties provided by the bank to its members (shareholders) (H9.1) The aggregate risk of bank insiders (H10.1) Use of bank’s equity (capital) for purchase of shares (participatory interests) in other companies (H12) Ratio between the total liquid assets with up to 30 calendar days maturity and the total liabilities of nonbanking credit institutions (NBCI) (H15) Capital adequacy ratio of the non-banking credit organization with the right for fund transfers without opening a bank account and other related banking transactions (Н15.1) Maximum aggregate amount of loans issued to clients being parties to settlements as at the settlements close date (H16) Loans issued by NBCI on its behalf and at its account to borrowers other than clients being parties to settlements (H16.1) Minimum ratio between loans secured by mortgage and equity (capital) (H17) Minimum ratio between mortgage security interest and the amount of bonds secured by mortgage (H18) Maximum ratio between the aggregate liabilities of an issuer credit institution to its creditors entitled by federal laws to priority of claims before mortgage secured bonds holders and equity (capital) (H19) 3 10 The Chairman of the Management Board of AK BARS BANK The Chief Accountant 26 March 2014 Actual value As of the previous As of the reporting date reporting date 4 5 12.8 14.0 0.0 15 50 120 25 800 58.6 113.2 103.0 Maximum Maximum 236.9 0.0 23.5 0.3 46.3 98.6 95.4 Maximum Maximum 220.3 50 4.6 4.4 3 1.0 1.0 25 0.6 0.5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 17,5 0,5 Robert Minnegaliev Airat Bayazitov - 50 - RCPS (All-Russian Classifier of Political Subdivisions) territory code 92401370000 Code of the credit organization (branch) According to RBOC (Russian Business and Organizations Classifier) 13001745 Primary state registration number Registration number (/ranking number) BIC 2590 049205805 1021600000124 CASH FLOW STATEMENT (published form) For the year of 2013 (reporting year) Joint stock commercial bank ‘AK BARS’ (OJSC) (OJSC ‘AK BARS’ BANK) (full name and abbreviated company name) 1, Dekabristov st., Kazan, 420066 NIAD (National Index of Administrative Documentation) form code 0409814 Annual (thousand, RUR) Credit organization Address Number Article title 1 1 1.1 1.1.1 1.1.2 1.1.3 1.1.4 2 Net cash received from (used in) operations Cash received from (used in) operations prior to changes in operating assets and liabilities in total, including: Interests received Interests paid Commissions received Commissions paid Earnings less costs of transactions with financial assets appraised at their fair value through profit or loss, available for sale Earnings less costs of transactions with securities held to maturity Earnings less costs of foreign exchange transactions Other operating income Operating expenses Tax expenses (refund) Gain (decrease) of net cash flows from operating assets and liabilities in total, including: Net gain (decrease) of statutory reserves held at the accounts of the Bank of Russia Net gain (decrease) of investments in securities appraised at their fair value through profit or loss Net gain (decrease) of lending receivables Net gain (decrease) of other assets Net gain (decrease) of loans, deposits and other funds of the Bank of Russia Net gain (decrease) of funds from other credit institutions Net gain (decrease) of funds from clients other than credit institutions Net gain (decrease) of financial liabilities appraised at their fair value through profit or loss Net gain (decrease) of outstanding bonds Net gain (decrease) of other liabilities Section 1 in total (lines 1.1 + 1.2) Net cash received from (used in) investment transactions Purchase of securities and other financial assets falling within the category of those available for sale Proceeds from sales and redemption of securities and other financial assets falling within the category of those available for sale Purchase of securities falling within the category of those held to maturity Proceeds from redemption of securities falling within the category of those held to maturity Acquisition of fixed assets, intangibles and inventory Proceeds from sales of fixed assets, intangibles and inventory Dividends received Section 2 in aggregate (total of lines 2.1 to 2.7) Net cash received from (used in) financial transactions Contributions of shareholders (members) to authorized capital Acquisition of treasury shares (participatory interests) repurchased from shareholders (members) Sales of treasury shares (participatory interests) repurchased from shareholders (members) Dividends paid out Section 3 in aggregate (total of lines 3.1 to 3.4) Affect of exchange differences (fluctuations of foreign currencies/ rubles exchange rates fixed by the Bank of Russia) on cash and equivalents Gain (application) of cash and equivalents Cash and equivalents as of the beginning of the reporting year Cash and equivalents as of the end of the reporting year 1.1.5 1.1.6 1.1.7 1.1.8 1.1.9 1.1.10 1.2 1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.2.6 1.2.7 1.2.8 1.2.9 1.2.10 1.3 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 3 3.1 3.2 3.3 3.4 3.5 4 5 5.1 5.2 The Chairman of the Management Board of AK BARS BANK The Chief Accountant 26 March 2014 3 Cash flows for the previous reporting period 4 2 537 635 27 161 055 -22 108 380 2 067 492 -306 972 4 497 993 24 557 375 -17 606 889 1 804 139 -525 652 417 347 -126 170 0 87 935 12 409 930 -16 711 896 -478 876 11 834 532 387 339 -15 057 904 -8 221 171 10 905 444 -5 557 913 -3 914 928 26 217 342 0 7 112 730 -36 407 14 372 167 0 213 667 8 567 651 -11 938 506 -447 622 -19 780 664 -335 127 1 136 287 -39 528 037 -18 867 889 8 195 094 -11 469 643 38 635 208 -864 507 3 421 455 -103 505 -15 282 671 Cash flows for the reporting period -20 732 354 -1 547 137 11 897 283 25 130 809 0 0 -790 119 71 052 13 656 -9 540 482 0 0 -242 451 304 096 148 23 645 465 0 0 0 0 0 0 0 0 -184 641 -184 641 -572 560 171 614 4 259 125 25 904 569 30 163 694 8 349 767 17 554 802 25 904 569 Robert Minnegaliev Airat Bayazitov - 51 - The Audit Report Auditor’s Opinion In our opinion, the Annual Financial Statement of Joint-Stock Commercial Bank AK BARS (Open Joint-Stock Company) reliably reflects all essential aspects of its financial position as of December, 31, 2013 as well as the results of its financial and economic activities and cash assets flow for 2013 in full compliance with the established annual statements’ requirements for credit institutions of the Russian Federation. Director of LLC ‘SVEB’ ____________ A. Falaleev STAMP: OJSC ‘SredneVolzhskoeExpert Bureau’ for dicuments Head of Audit: _____________ L.Efimova Auditor’s Qualification certificate No 05-000065, issued by the decision of the self-regulatory Organization of Auditors of Nonprofit partnership ‘Russian Collegium of Auditors’ of 20.01.2012 # 01. Principal Number of Registration Entry (PNRE 21005003351) 31 March 2014 Information on Auditors 1. The information on the audit organization authorized to implement the audit of Bank statements in compliance with the Russian Accounting Standards (RAS) for the financial year of 2013: - 52 - Full name of the organization Limited liability company ‘SredneVolzhsky expert bureau’ Abbreviated name of the organization LLC ‘SVEB’ Address 60 Vosstaniya St, Kazan, the Republic of Tatarstan, Russian Federation, 420039 Telephone and fax numbers +7 (843) 555-62-92, 555-62-52 E-mail address [email protected] Main registration number of the record of the selfregulatory organization of auditors ‘Non-profit Partnership ‘Russian Collegium of Auditors’ into the 10205008931 register of Auditors and Audit Organizations Information on the auditor’s membership in Member of the self-regulatory collegiums, associations or other professional unions organization ‘Non-profit Partnership (organizations) ‘Russian Collegium of Auditors’ – actual member of the International Federation of Accountants (IFAC) Financial year (years) for which the auditor 2003, 2004, 2005, 2006, 2007, 2008, conducted the independent audit of the accounting 2009, 2010, 2011, 2012, 2013 and financial (accounting) statements of the emitting credit institution. Director of the audit organization Alexander Falaleev 2. Information on the audit organization authorized to implement the audit of the Bank in compliance with the International Financial Reporting Standards (IFRS) for the financial year of 2013: Full name of the organization Closed Joint-Stock Company ‘PriceWaterHouseCoopersAudit’ Abbreviated name of the organization CJSC ‘PwC Audit Address Business center ‘Belaya Ploschad’, 10 Butyrskiy val St., Moscow, Russia, 125047 Telephone and fax number Telephone: +7 (495) 967-6000 Fax: +7 (495) 967-6001 E-mail address www.pwc.ru - 53 - Number, date of issue and duration of license for No Е 000376 auditing activity Dated May 20, 2002 (date of issue) (extended from May 20, 2007) From January 1, 2010 the activity is no longer subject for licensing The authority which issued the license The Ministry of Finance of the Russian Federation CJSC ‘PriceWaterHouseCoopersAudit’ is a member of a self-regulatory organization of auditors ‘Non-profit Partnership ‘Audit Chamber of Russia’ (NP ACR) according to Information on the auditor’s membership in the decision of the Board of NP ACR from collegiums, associations or other professional 22.04.2004 and has the registration number unions (organizations) 870 in the register of NP ACR members, the Main Registration Number of the Record (MRNR) in the public register of auditors and audit organizations 10201003683. Financial year (years), for which the auditor conducted the independent audit of the accounting and the financial (accounting) statements of the emitting credit institution. Annual accounting statements for 1997, 1998, 1999, 2001, 2002, 2003, 2004, 2005, 2006. Consolidated statements for 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013 Partner of the audit organization Vladimir Demushkin Reference Information Joint-Stock Commercial Bank AK BARS (Open Joint-Stock Company) is registered in the Central Bank of the Russian Federation and has successfully operates in the financial market of Russia since 1993. The Licenses of the Bank AK BARS Bank possesses all necessary licenses to conduct the banking activity. - 54 - General License for banking operations in rubles and foreign currency Issued by: The Central Bank of the Russian Federation Number: 2590 Date of issue (renewal): 31.07.2012 License to conduct banking operations with the right to attract precious metals to deposits and allocate them to other precious metals operations in compliance with the Russian legislation Issued by: The Central Bank of the Russian Federation Number: 2590 Date of issue (renewal): 02.09.2002 License of the professional participant of the securities market to perform the brokerage activities Issued by: Federal Commission for Securities Market (FCSM) Number:116-03460-100000 Date of issue (renewal): 07.12.2000 - 55 - License of the professional participant of the securities market to perform dealer activities Issued by: Federal Commission for Securities Market (FCSM) Number:116-03564-010000 Date of issue (renewal): 07.12.2000 License of the professional participant of the securities market to perform the management of securities Issued by: Federal Commission for Securities Market (FCSM) Number:116-03666-001000 Date of issue (renewal): 07.12.2000 License of the professional participant of the securities market to perform the depositary activity Issued by: Federal Commission for Securities Market (FCSM) Number:116-04175-000100 Date of issue (renewal): 20.12.2000 License of the stock broker with the rights for trading, futures and option transactions at the stock market. Issued by: Federal Commission for financial markets Number: 1116 Date of issue (renewal): 20.12.2007 - 56 - License conduct business using the National Security Information Issued by: Federal Security Service of Russia in the Republic of Tatarstan Number: 1724 Date of issue (replacement): 25.07.2012 License to provide services related to data encryption Issued by: Federal Security Service of Russia in the Republic of Tatarstan Number: 121У Date of issue (replacement): 20.03.2009 License to distribute encryption tools Issued by: Federal Security Service of Russia in the Republic of Tatarstan Number: 123P Date of issue (replacement): 20.03.2009 License to carry out maintenance of encryption tools Issuing authority: Federal Security Service of Russia in the Republic of Tatarstan Number: 123H Date of issuance (replacement): 20.03.2009 AK BARS BANK is the participant of: Society for Worldwide Interbank Financial Telecommunications (S.W.I.F.T), Russian National Association of Securities Market Participants, Information-dealing system ‘Reuters Dealing’ Moscow Interbank Currency Exchange (MICEX), Association of the Participants of Bills Market, Member of the Banking Association of Tatarstan Association of the Russian Banks. AK BARS BANK Details Full name Abbreviated name Joint-Stock Commercial Bank AK BARS (Open Joint-Stock Company) OJSC AK BARS BANK Brand name used for external economic activity AK BARS Bank Registration date in the Bank of Russia 29.11.1993 1021600000124 Main State Registration Number Legal address 1 Dekabristov St., Kazan, The Republic of Tatarstan, Russia, 420066 - 57 - Physical address Telephone E-mail address The Chairman of the Board of Directors The Chairman of the Management Board Correspondent account in Payment Processing Center of the National Bank of the Republic of Tatarstan Taxpayer Identification Number Tax Registration Reason Code Bank Identification Code All-Russian Classifier of Businesses and Organizations Code Government Agency Code System (National Classifier of Government Entities and Administration) Indications System of Administrative-Territorial Formations (All-Russian Classifier of Political Subdivisions) All-Russia Classifier of Types of Activity All-Russia Classifier of Forms of Ownership All-Russia Classifier of Forms of Incorporation SWIFT Code The Chairman of the Management Board of AK BARS BANK The Chief Accountant 1 Dekabristov St., Kazan, The Republic of Tatarstan, Russia, 420066 (843) 519-39-99, (843) 519 39-75 (fax) [email protected] Valery Sorokin Robert Minnegaliev 30101810000000000805 1653001805 165801001 49205805 13001745 49011 92401000000 96190 32 47 ARRSRU2K Robert Minnegaliev Airat Bayazitov - 58 -
