Download Stand alone income statement

Bank Solidarnost
Financial Statements
Year ended December 31, 2009
Together with Independent Auditors' Report
Bank Solidarnost
2009 Stand alone financial statements
Contents
Independent Auditors' Report
Stand alone statement of financial position .............................................................................................................. 1
Stand alone income statement ................................................................................................................................. 2
Stand alone statement of comprehensive income ................................................................................................... 3
Stand alone statement of changes in equity ........................................................................................................... 4
Stand alone statement of cash flows ........................................................................................................................ 5
Notes to stand alone financial statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
Principal activities ......................................................................................................................................... 6
Basis of preparation ...................................................................................................................................... 6
Summary of accounting policies ................................................................................................................... 7
Significant accounting estimates ................................................................................................................. 18
Cash and cash equivalents ......................................................................................................................... 18
Amounts due from credit institutions ........................................................................................................... 18
Loans to customers..................................................................................................................................... 19
Investment securities available-for-sale ...................................................................................................... 20
Property and equipment.............................................................................................................................. 21
Taxation ...................................................................................................................................................... 21
Other assets and liabilities .......................................................................................................................... 23
Amounts due to the Central Bank ............................................................................................................... 24
Amounts due to credit institutions ............................................................................................................... 24
Amounts due to customers ......................................................................................................................... 24
Debt securities issued ................................................................................................................................. 25
Equity .......................................................................................................................................................... 26
Commitments and contingencies ................................................................................................................ 27
Net fee and commission income ................................................................................................................. 28
Salaries and other operating expenses....................................................................................................... 28
Risk management ....................................................................................................................................... 28
Fair values of financial instruments ............................................................................................................. 37
Maturity analysis of assets and liabilities .................................................................................................... 38
Related party disclosures ............................................................................................................................ 39
Capital adequacy ........................................................................................................................................ 41
Trust activities ............................................................................................................................................. 41
Events after the reporting period ................................................................................................................. 41
Independent Auditors' Report
To the Shareholders and Board of Directors of Bank Solidarnost –
We have audited the accompanying stand alone financial statements of Bank Solidarnost, which comprise the stand
alone statement of financial position as of December 31, 2009, and the stand alone income statement, stand alone
statements of comprehensive income, of changes in equity and of cash flows for the year then ended, and a summary
of significant accounting policies and other explanatory notes.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these stand alone financial statements in
accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and
maintaining internal control relevant to the preparation and fair presentation of stand alone financial statements that are
free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies;
and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on these stand alone financial statements based on our audit. We conducted
our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance whether the stand alone financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the stand alone financial statements present fairly, in all material respects, the financial position of Bank
Solidarnost as of December 31, 2009, and its financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards.
June 25, 2010
Bank Solidarnost
Stand alone financial statements
Stand alone statement of financial position
As of December 31, 2009
(Thousands of Russian Rubles)
Notes
Assets
Cash and cash equivalents
Amounts due from credit institutions
Loans to customers
Investment securities available-for-sale
Property and equipment
Current income tax assets
Deferred income tax assets
Other assets
5
6
7
8
9
10
11
Total assets
Liabilities
Amounts due to the Central Bank
Amounts due to credit institutions
Amounts due to customers
Debt securities issued
Other liabilities
Total liabilities
Equity
Share capital
Additional paid-in capital
Retained earnings
Other reserves
Total equity
Total equity and liabilities
12
13
14
15
11
2009
2008
2,066,631
3,569,459
7,961,284
1,123,819
165,387
37,264
20,036
202,512
15,146,392
1,890,369
2,146,668
8,180,664
411,500
168,365
34,599
2,631
100,135
12,934,931
–
1,873,296
9,041,295
1,704,399
62,284
12,681,274
716,790
971,104
7,375,035
1,295,636
51,855
10,410,420
354,963
482,971
1,486,534
140,650
2,465,118
354,963
482,971
1,548,020
138,557
2,524,511
15,146,392
12,934,931
16
Signed and authorized for release on behalf of the Management Board of the Bank
Oleg Yu. Sinitsin
Iskander S. Pulatov
President
Chief Accountant
June 25, 2010
The accompanying notes on pages 6 to 41 are an integral part of these stand alone financial statements.
1
Bank Solidarnost
Stand alone financial statements
Stand alone income statement
For the year ended December 31, 2009
(Thousands of Russian Rubles)
Notes
Interest income
Loans to customers
Amounts due from credit institutions
Investment securities
Cash and cash equivalents
Interest expense
Amounts due to the Central Bank
Amounts due to customers
Amounts due to credit institutions
Debt securities issued
Net interest income
Allowance for loan impairment
Net interest income (expense) after allowance for loan impairment
Net fee and commission income
Net gains /(losses) from trading securities
Net gains /(losses) from investment securities available-for-sale
Net gains/(losses) from foreign currencies:
- dealing
- translation differences
Other income
7
18
2009
2008
1,453,316
284,952
99,529
2,896
1,840,693
1,538,048
58,520
64,030
897
1,661,495
29,268
629,293
109,582
147,036
915,179
925,514
(366,483)
559,031
27,431
350,623
155,995
131,288
665,337
996,158
(143,980)
852,178
194,193
261,848
(1,983)
–
(1,687)
17,078
(10,192)
36,059
–
42,075
(3,166)
6,815
235,451
305,589
453,728
54,137
42,771
312,124
1,310
426,444
40,217
304
327,650
234
Non-interest expense
864,070
794,849
Profit / (loss) before income tax
Income tax expense
(69,588)
(8,102)
(61,486)
362,918
110,767
252,151
Non-interest income
Salaries and benefits
Depreciation
Loss from realization of loans and accounts receivable
Other operating expenses
Other impairment and provisions
Profit / (loss) for the year
19
9
19
11
10
The accompanying notes on pages 6 to 41 are an integral part of these stand alone financial statements.
2
Bank Solidarnost
Stand alone financial statements
Stand alone statement of comprehensive income
For the year ended December 31, 2009
(Thousands of Russian Rubles)
Notes
Profit / (loss) for the year
Other comprehensive income
Unrealized gains /(losses) on investment securities available-for-sale
Realized gains/(losses) on investment securities available-for-sale
reclassified to the income statement
Income tax relating to components of other comprehensive income
Other comprehensive income for the year, net of tax
Total comprehensive income / (loss) for the year
2009
2008
(61,486)
252,151
16
21,645
(18,632)
16
10, 16
(24,403)
4,851
2,093
(6,301)
5,066
(19,867)
(59,393)
232,284
The accompanying notes on pages 6 to 41 are an integral part of these stand alone financial statements.
3
Bank Solidarnost
Stand alone financial statements
Stand alone statement of changes in equity
For the year ended December 31, 2009
(Thousands of Russian Rubles)
Share
capital
December 31, 2007
Total comprehensive income for the year
Reallocation of retained earnings to general reserve
December 31, 2008
Total comprehensive income for the year
December 31, 2009
354,963
–
–
354,963
–
354,963
Additional
paid-in
capital
482,971
–
–
482,971
–
482,971
Retained
earnings
1,315,869
252,151
(20,000)
1,548,020
(61,486)
1,486,534
Other
reserves
138,424
(19,867)
20,000
138,557
2,093
140,650
Total
equity
2,292,227
232,284
–
2,524,511
(59,393)
2,465,118
The accompanying notes on pages 6 to 41 are an integral part of these stand alone financial statements.
4
Bank Solidarnost
Stand alone financial statements
Stand alone cash flow statement
For the year ended December 31, 2009 (continued)
(Thousands of Russian Rubles)
Notes
Cash flows from operating activities
Interest received
Interest paid
Fees and commissions received
Fees and commissions paid
Gains less losses from trading securities
Realized gains less losses from dealing in foreign currencies
Other income received
Salaries and benefits paid
Other operating expenses paid
Cash flows from operating activities before changes in operating
assets and liabilities
Net (increase)/decrease in operating assets
Trading securities
Amounts due from credit institutions
Loans to customers
Other assets
Net increase /(decrease) in operating liabilities
Amounts due to the Central Bank
Amounts due to credit institutions
Amounts due to customers
Promissory notes and certificates of deposit issued
Other liabilities
Net cash from operating activities before income tax
2009
2008
1,617,874
(894,733)
207,417
(23,825)
–
16,152
36,059
(434,920)
(369,664)
1,590,633
(685,248)
300,546
(51,144)
(1,983)
42,075
6,815
(517,648)
(303,198)
154,360
380,848
–
(1,415,610)
43,962
(91,327)
155,853
,(1,812,811)
3,304,122
36,123
(715,000)
888,661
1,623,711
465,179
3,129
957,065
715,000
(1,793,321)
556,112
(766,887)
6,567
781,606
(7,117)
949,948
(93,447)
688,159
(863,624)
208,045
(54,912)
2,816
(707,675)
(217,325)
201,663
(37,487)
483
(52,666)
Cash flows from financing activities
Redemption of bonds issued
(64,423)
(439,910)
Net cash flows used in financing activities
(64,423)
(439,910)
(1,588)
(1,138)
Income tax paid
Net cash flows from operating activities
Cash flows from investing activities
Purchase of investment securities
Proceeds from sale and redemption of investment securities
Purchase of property and equipment
Proceeds from sale of property and equipment
Net cash used in investing activities
Effect of exchange rates changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning
5
Cash and cash equivalents, ending
5
176,262
194,445
1,890,369
2,066,631
1,695,924
1,890,369
The accompanying notes on pages 6 to 41 are an integral part of these stand alone financial statements.
5
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
1.
Principal activities
Bank Solidarnost (the “Bank”) was formed on October 23, 1990, as a limited liability partnership under the laws of the
Russian Federation and reorganized to an open joint-stock company on June 5, 2000. The Bank operates under a
general banking license issued by the Central Bank of Russia (“CBR”) on June 5, 2000. The Bank also possesses
licenses for securities operations and custody services from the Federal Service for the Securities Market issued on
November 16, 2000, and December 15, 2000, respectively.
The Bank accepts deposits from the public, extends credit and transfers payments in Russia and abroad, exchanges
currencies and provides other banking services to its commercial and retail customers. Its main office is in Samara and
it has 5 branches and 13 additional offices in Samara region, as well as representative offices in Cheboksary,
Kostroma and Ulyanovsk and operating outlets in Saratov and Orenburg. The Bank’s registered legal address is
Kuibisheva Street 90, 443099 Samara, Russia.
The Bank had an average of 787 employees during 2009 (2008 – 831) and 782 employees as of the end of 2009
(2008 – 861).
Starting September 21, 2004, the Bank is a member of the obligatory deposit insurance system. The system operates
under the Federal laws and regulations and is governed by State Corporation “Agency for Deposits Insurance”
(hereinafter, "ADI"). Insurance covers the Bank’s liabilities to individual depositors in the amount up to RUB 700 for
each individual in case of business failure or revocation of the CBR banking license.
The Bank is ultimately controlled by Mr. Alexei K. Titov, Chairman of the Board of Directors of the Bank.
2.
Basis of preparation
General
These stand alone financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”).
The Bank is required to maintain its records and prepare its financial statements for regulatory purposes in Russian
Rubles in accordance with Russian accounting and banking legislation and related instructions (“RAL”). These stand
alone financial statements are based on the Bank’s RAL books and records, as adjusted and reclassified in order to
comply with IFRS. The reconciliation between RAL and IFRS is presented later in this note.
The stand alone financial statements have been prepared under the historical cost convention except as disclosed in
the accounting policies below. For example, trading and available-for-sale investment securities have been measured
at fair value.
These stand alone financial statements are presented in thousands of Russian Rubles (“RUB”), unless otherwise
indicated.
The Bank’s operations are highly integrated and primarily constitute a single industry segment, commercial banking.
Inflation accounting
The Russian economy was considered hyperinflationary until December 31, 2002. As such, the Bank applied IAS 29,
"Financial Reporting in Hyperinflationary Economies". The effect of applying IAS 29 is that non-monetary items,
including components of equity, were restated to the measuring units current as of December 31, 2002, by applying the
relevant inflation indices to the historical cost, and that these restated values were used as a basis for accounting in
subsequent periods.
6
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Subsidiaries
As of December 31, 2009, the Bank owned 100% of Commercial bank “Potential”.
LLC Commercial Bank Potential was formed on November 29, 1990, as a limited liability company under the laws of
the Russian Federation. The Bank operates under a general banking license issued by the Central Bank of Russia
(“CBR”) on July 6, 1999. The Bank also possesses licenses for securities operations and custody services from the
Federal Service for the Securities Market issued on May 25, 2001, and May 16, 2001, respectively.
In the meantime these financial statements is not consolidated and does not include the accounts of the stated
subsidiary due to the fact that in accordance with the requirements of CBR the Bank should present both consolidated
and stand alone financial statements. Audited consolidated financial statements of the Bank prepared in accordance
with IFRS as of December 31, 2009, was signed and authorized for release on behalf of the Management Board of the
Bank on June 25, 2010.
Reconciliation of RAL and IFRS equity and profit (loss) for the year
Equity and profit/(loss) for the year are reconciled between RAL and IFRS as follows:
2009
Equity
Russian Accounting Legislation (in IFRS format)
Inflation impact on non monetary items
Property and equipment
Reversal of statutory revaluation reserve
Effect of accrued interest
Impairment of financial assets
Fair value re-measurement of securities
Provision for unused vacations
Current tax
Deferred tax
Intangible assets
Expenses recorded directly in equity
Other
International Financial Reporting Standards
3.
2,666,746
45,213
6,748
(188,190)
12,221
(21,967)
(27,215)
(52,939)
1,882
20,036
7,488
–
(4,905)
2,465,118
Loss for
the year
16,047
(4,582)
20,367
–
15,726
(83,731)
(20,324)
(18,808)
439
12,554
7,488
–
(6,662)
(61,486)
Equity
2,632,551
49,795
(13,619)
(188,190)
(3,313)
61,793
(4,457)
(34,131)
21,453
2,631
–
–
(2)
2,524,511
2008
Profit for the
year
151,950
(1,093)
9,815
–
33,149
59,723
20,626
91,204
(51,141)
(59,929)
–
(890)
(1,263)
252,151
Summary of accounting policies
Changes in accounting policies
The Bank has adopted the following amended IFRS and new IFRIC Interpretations during the year. The principal
effects of these changes are as follows.
Improvements to IFRS
In May 2008, the IASB issued the first volume of amendments to its standards, primarily with a view to removing
inconsistencies and clarifying wording. There are separate transitional provisions for each standard. Amendments
included in “Improvements to IFRS” published in May 2008 did not have any impact on the accounting policies,
financial position or financial results of the Bank.
IAS 1 "Presentation of Financial Statements" (Revised)
Revised IAS 1 was issued in September 2007, and becomes effective for annual periods beginning on or after
January 1, 2009. The revised Standard separates owner and non-owner changes in equity. The statement of changes
in equity will include only details of transactions with owners, with non-owner changes in equity to be presented
separately. In addition, the standard introduces the statement of comprehensive income: it presents all items of
recognized income and expense, either in one single statement, or in two linked statements. The revised standard also
requires that the income tax effect of each component of comprehensive income be disclosed. In addition, it requires
entities to present a comparative statement of financial position as of the beginning of the earliest comparative period
when the entity has retrospectively applied changes in accounting policies, makes a retrospective restatement, or
reclassifies items in the financial statements.
The Bank has elected to present comprehensive income in two separate statements: income statement and statement
of comprehensive income.
7
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
IFRS 7 "Financial Instruments: Disclosures"
Amendments to IFRS 7 were issued in March 2009 to enhance fair value and liquidity disclosures. With respect to fair
value, the amendments require disclosure of a three-level fair value hierarchy, by class, for all financial instruments
recognized at fair value and specific disclosures related to the transfers between levels in the hierarchy and detailed
disclosures related to level 3 of the fair value hierarchy. The amendments also clarify the requirements for liquidity risk
disclosures with respect to derivative transactions and assets used for liquidity management. Comparative information
has not been provided by the Bank as permitted by the transition provisions of the amendment.
IAS 23 "Borrowing Costs" (Revised)
Revised IAS 23 "Borrowing Costs" was issued in March 2007 and becomes effective for financial years beginning on or
after January 1, 2009. The standard has been revised to require capitalization of borrowing costs when such costs
relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready
for its intended use or sale. In accordance with the transitional requirements in the Standard, the Bank adopted this as
a prospective change. No changes will be made for borrowing costs incurred to this date that have been expensed.
Amendments to IAS 32 "Financial Instruments: Presentation" and IAS 1 "Presentation of Financial Statements" –
"Puttable Financial Instruments and Obligations Arising on Liquidation"
Amendments to IAS 32 and IAS 1 were issued in February 2008, and become effective for annual periods beginning on
or after January 1, 2009. The amendments require puttable instruments that represent a residual interest in an entity to
be classified as equity, provided that they satisfy certain conditions. These amendments did not have any impact on the
Bank’s stand alone financial statements.
Amendments to IFRS 2 "Share-based Payment" – "Vesting Conditions and Cancellations"
Amendments were issued in January 2008 and became effective for annual periods beginning on or after January 1,
2009. These amendments clarify the definition of vesting conditions and prescribe the accounting treatment of an
award that is effectively cancelled because a non-vesting condition is not satisfied. These amendments did not have
any impact on the Bank’s stand alone financial statements.
IFRS 8 "Operating Segments"
IFRS 8 becomes effective for annual periods beginning on or after January 1, 2009. This Standard requires disclosure
of information about the Bank’s operating segments and replaces the requirement to determine primary (business) and
secondary (geographical) reporting segments of the Bank. Adoption of this Standard did not have any impact on the
financial position or performance of the Bank.
IFRIC 13 "Customer Loyalty Programs"
IFRIC Interpretation 13 was issued in June 2007 and became effective for annual periods beginning on or after July 1,
2008. This Interpretation requires customer loyalty award credits to be accounted for as a separate component of the
sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated
to the award credits and deferred over the period that the award credits are fulfilled. This interpretation did not have any
impact on the Bank’sstand alone financial statements as no such programs are currently executed.
IFRIC 15 "Agreements for the Construction of Real Estate"
IFRIC 15 was issued in July 2008 and should be retrospectively applied to annual periods beginning on or after
January 1, 2009. This Interpretation clarifies when and how revenue and related expenses from the sale of a real estate
unit should be recognized if an agreement between a developer and a buyer is reached before the construction of the
real estate is completed. The interpretation also provides guidance determining whether the agreement is within the
scope of IAS 11 "Construction Contracts" or IAS 18 "Revenue" and supersedes the current guidance contained in the
appendix of IAS 18. This interpretation did not have any impact on the Bank’s stand alone financial statements.
IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”
IFRIC Interpretation 16 was issued in July 2008 and is applicable for annual periods beginning on or after October 1,
2008. This Interpretation provides guidance on identifying the foreign currency risks that qualify for hedge accounting in
the hedge of net investment, where within the group the hedging instrument can be held and how an entity should
determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument,
to be recycled on disposal of the net investment. This interpretation did not have any impact on the Bank’s stand alone
financial statements.
Amendments to IFRIC 9 "Reassessment of Embedded Derivatives"
The amendments require entities to assess whether to separate an embedded derivative from a host contract in the
case where the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This
assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to
the contract and the date of any contract amendments that significantly change the cash flows of the contract. The
amendments are applicable for annual periods ending on or after June 30, 2009. The application of the amendment did
not have a significant impact on the Bank’s stand alone financial statements as no reclassifications were made for
instruments that contained embedded derivatives.
8
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
IFRIC 18 "Transfers of Assets from Customers"
IFRIC 18 was issued in January 2009 and becomes effective for transfers of assets from customers received on or after
July 1, 2009, with early application permitted, provided valuations were obtained at the date those transfers occurred.
This Interpretation should be applied prospectively. IFRIC 18 provides guidance on accounting for agreements in which
an entity receives from a customer an item of property, plant and equipment that the entity must then use either to
connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or
to do both. This Interpretation did not have any impact on the financial position or performance of the Bank as the Bank
has no transfers of assets from its customers.
Financial assets
Initial recognition
Financial assets in the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, loans
and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. When financial
assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through
profit or loss, directly attributable transaction costs. The Bank determines the classification of its financial assets upon
initial recognition, and subsequently can reclassify financial assets in certain cases as described below.
Date of recognition
All regular way purchases and sales of financial assets are recognized on the trade date i.e. the date that the Bank
commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require
delivery of assets within the period generally established by regulation or convention in the marketplace.
'Day 1' profit
Where the transaction price in a non-active market is different to the fair value from other observable current market
transactions in the same instrument or based on a valuation technique whose variables include only data from
observable markets, the Bank immediately recognizes the difference between the transaction price and fair value (a
'Day 1' profit) in the stand alone income statement. In cases where use is made of data which is not observable, the
difference between the transaction price and model value is only recognized in the stand alone income statement when
the inputs become observable, or when the financial instrument is derecognized.
Financial assets at fair value through profit and loss
Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or
loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term.
Derivatives are also classified as held for trading unless they are designated as and are effective hedging instruments.
Gains or losses on financial assets held for trading are recognized in the stand alone income statement.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity
when the Bank has the positive intention and ability to hold them to maturity. Investments intended to be held for an
undefined period are not included in this classification. Held-to-maturity investments are subsequently measured at
amortized cost. Gains and losses are recognized in the stand alone income statement when the investments are
impaired as well as through the amortization process.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are not entered into with the intention of immediate or short-term resale and are not classified as
trading securities or designated as investment securities available-for-sale. Such assets are carried at amortized cost
using the effective interest method. Gains and losses are recognized in the stand alone income statement when the
loans and receivables are derecognized or impaired, as well as through the amortization process.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or
are not classified in any of the three preceding categories. After initial recognition available-for-sale financial assets are
measured at fair value with gains or losses being recognized in other comprehensive income until the investment is
derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously
reported in other comprehensive income is reclassified to the stand alone income statement. However, interest
calculated using the effective interest method is recognized in the stand alone income statement.
9
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Determination of fair value
The fair value for financial instruments traded in active market at the reporting date is based on their quoted market
price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for
transaction costs.
For all other financial instruments not listed in an active market, the fair value is determined by using appropriate
valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for
which market observable prices exist, options pricing models and other relevant valuation models.
Offsetting
Financial assets and liabilities are offset and the net amount is reported in the stand alone statement of financial
position when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on
a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master
netting agreements, and the related assets and liabilities are presented gross in the stand alone statement of financial
position.
Reclassification of financial assets
If a non-derivative financial asset classified as held for trading is no longer held for the purpose of selling in the near
term, it may be reclassified out of the fair value through profit or loss category in one of the following cases:
•
a financial asset that would have met the definition of loans and receivables above may be reclassified to loans
and receivables category if the Bank has the intention and ability to hold it for the foreseeable future or until
maturity;
•
other financial assets may be reclassified to available-for-sale or held to maturity categories only in rare
circumstances.
A financial asset classified as available-for-sale that would have met the definition of loans and receivables may be
reclassified to loans and receivables category of the Bank has the intention and ability to hold it for the foreseeable
future or until maturity.
Financial assets are reclassified at their fair value on the date of reclassification. Any gain or loss already recognized in
profit or loss is not reversed. The fair value of the financial asset on the date of reclassification becomes its new
historical cost or amortized cost, as applicable.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, amounts due from the CBR, excluding obligatory reserves, and
amounts due from credit institutions that mature within ninety days of the date of origination and are free from
contractual encumbrances.
Repurchase and reverse repurchase agreements and securities lending
Sale and repurchase agreements ("repos") are treated as secured financing transactions. Securities sold under
repurchase agreements are retained in the stand alone statement of financial position and, in case the transferee has
the right by contract or custom to sell or repledge them, reclassified as securities pledged under sale and repurchase
agreements. The corresponding liability is presented within amounts due to credit institutions or customers. Securities
purchased under agreements to resell (“reverse repo”) are recorded as amounts due from credit institutions or loans to
customers as appropriate. The difference between sale and repurchase price is treated as interest and accrued over
the life of repo agreements using the effective yield method.
Securities lent to counterparties are retained in the stand alone statement of financial position. Securities borrowed are
not recorded in the stand alone statement of financial position, unless these are sold to third parties, in which case the
purchase and sale are recorded within gains less losses from trading securities in the stand alone income statement.
The obligation to return them is recorded at fair value as a trading liability.
10
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Derivative financial instruments
In the normal course of business, the Bank enters into various derivative financial instruments including futures,
forwards, swaps and options in the foreign exchange and capital markets. Such financial instruments are held for
trading and are recorded at fair value. The fair values are estimated based on quoted market prices or pricing models
that take into account the current market and contractual prices of the underlying instruments and other factors.
Derivatives are carried as assets when their fair value is positive and as liabilities when it is negative. Gains and losses
resulting from these instruments are included in the stand alone income statement as net gains/(losses) from trading
securities or net gains/(losses) from foreign currencies dealing, depending on the nature of the instrument.
Promissory notes
Promissory notes purchased are included in trading securities, or in amounts due from credit institutions or in loans to
customers, depending on the aim and terms of their purchase. They are accounted for in accordance with the
accounting policies for these categories of assets.
Borrowings
Issued financial instruments or their components are classified as liabilities, where the substance of the contractual
arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder, or to
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number
of own equity instruments. Such instruments include amounts due to the Central Bank, amounts due to credit
institutions, amounts due to customers and debt securities issued. After initial recognition, borrowings are measured at
amortized cost using the effective interest method. Gains and losses are recognized in the stand alone income
statement when the borrowings are derecognized as well as through the amortization process.
If the Bank purchases its own debt, it is removed from the stand alone statement of financial position and the difference
between the carrying amount of the liability and the consideration paid is recognized in the stand alone income
statement.
Leases
Finance – Bank as lessee
The Bank recognizes finance leases as assets and liabilities in the stand alone statement of financial position at the
date of commencement of the lease term at amounts equal to the fair value of the leased property or, if lower, at the
present value of the minimum lease payments. In calculating the present value of the minimum lease payments the
discount factor used is the interest rate implicit in the lease, when it is practicable to determine; otherwise, the Bank’s
incremental borrowing rate is used. Initial direct costs incurred are included as part of the asset. Lease payments are
apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to
periods during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the
liability for each period. The costs identified as directly attributable to activities performed by the lessee for a finance
lease, are included as part of the amount recognized as an asset under the lease.
Finance – Bank as lessor
The Bank recognizes lease receivables at value equal to the net investment in the lease, starting from the date of
commencement of the lease term. Finance income is based on a pattern reflecting a constant periodic rate of return on
the net investment outstanding. Initial direct costs are included in the initial measurement of the lease
receivables.
Operating – Bank as lessee
Leases of assets, under which the risks and rewards of ownership are effectively retained with the lessor, are classified
as operating leases. Lease payments under an operating lease are recognized as expenses on a straight-line basis
over the lease term and included in other operating expenses.
Operating – Bank as lessor
The Bank presents assets subject to operating leases in the stand alone statement of financial position according to the
nature of the asset. Lease income from operating leases is recognized in the stand alone income statement on a
straight-line basis over the lease term as other income. The aggregate cost of incentives provided to lessees is
recognized as a reduction of rental income over the lease term on a straight-line basis. Initial direct costs incurred
specifically to earn revenues from an operating lease are added to the carrying amount of the leased asset.
11
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Impairment of financial assets
The Bank assesses as of each balance sheet date whether there is any objective evidence that a financial asset or a
group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and
only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial
recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future
cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other
financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.
Amounts due from credit institutions and loans to customers
For amounts due from credit institutions and loans to customers carried at amortized cost, the Bank first assesses
individually whether objective evidence of impairment exists individually for financial assets that are individually significant,
or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of
financial assets with similar credit risks characteristics and collectively assesses them for impairment. Assets that are
individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included
in a collective assessment of impairment.
If there is an objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the
difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future
expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an
allowance account and the amount of the loss is recognized in the stand alone income statement. Interest income
continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset. Loans
together with the associated allowance are written off when there is no realistic prospect of future recovery and all
collateral has been realized or has been transferred to the Bank. If, in subsequent reporting years, the amount of the
estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized,
the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off
is later recovered, the recovery is credited to the stand alone income statement.
The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate.
If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest
rate. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects
the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not
foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank’s
internal credit grading system that considers similar credit risk characteristics.
Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the
basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss
experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not
affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical
period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with,
changes in related observable data from year to year (such as changes in unemployment rates, property prices,
commodity prices, payment status, or other factors that are indicative of incurred losses in the group or their
magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce
any differences between loss estimates and actual loss experience.
Held-to-maturity financial investments
For held-to-maturity investments the Bank assesses individually whether there is objective evidence of impairment. If
there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the
difference between the assets’ carrying amount and the present value of estimated future cash flows. The carrying
amount of the asset is reduced and the amount of the loss is recognized in the stand alone income statement.
If, in subsequent reporting years, the amount of the estimated impairment loss decreases because of an event
occurring after the impairment was recognized, the previously recognized impairment loss is recognized in the stand
alone income statement.
12
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Available-for-sale financial investments
For available-for-sale financial investments, the Bank assesses at each balance sheet date whether there is objective
evidence that an investment or a group of investments is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would include a significant or
prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the
cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that investment previously recognized in the stand alone income statement – is reclassified from
other comprehensive income and recognized in the stand alone income statement. Impairment losses on equity
investments are not reversed through the stand alone income statement; increases in their fair value after impairment
are recognized directly in other comprehensive income.
In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as
financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is
accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment
loss. The interest income is recorded in the stand alone income statement. If, in a subsequent year, the fair value of a
debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss
was recognized in the stand alone statement of operations, the impairment loss is reversed through the stand alone
income statement.
Renegotiated loans
Where possible, the Bank seeks to restructure loans rather than to take possession of collateral. This may involve
extending the payment arrangements and the agreement of new loan conditions. Once the terms have been
renegotiated, the loan is no longer considered past due. Management continuously reviews renegotiated loans to
ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an
individual or collective impairment assessment, calculated using the loan’s original effective interest rate.
Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is
derecognized in the statement of financial position where:
•
the rights to receive cash flows from the asset have expired;
•
the Bank has transferred its rights to receive cash flows from the asset, or retained the right to receive cash
flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party
under a ‘pass-through’ arrangement; and
•
the Bank either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither
transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.
Where the Bank has transferred its rights to receive cash flows from an asset and has neither transferred nor retained
substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the
extent of the Bank’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee
over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum
amount of consideration that the Bank could be required to repay.
Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or
similar provision) on the transferred asset, the extent of the Bank’s continuing involvement is the amount of the
transferred asset that the Bank may repurchase, except that in the case of a written put option (including a cash-settled
option or similar provision) on an asset measured at fair value, the extent of the Bank’s continuing involvement is
limited to the lower of the fair value of the transferred asset and the option exercise price.
13
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition
of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is
recognized in the stand alone statement income.
Financial guarantees
In the ordinary course of business, the Bank gives financial guarantees, consisting of letters of credit, guarantees and
acceptances. Financial guarantees are initially recognized in the stand alone financial statements at fair value, in ‘Other
liabilities’, being the premium received. Subsequent to initial recognition, the Bank’s liability under each guarantee is
measured at the higher of the amortized premium and the best estimate of expenditure required to settle any financial
obligation arising as a result of the guarantee.
Any increase in the liability relating to financial guarantees is taken to the stand alone income statement. The premium
received is recognized in the stand alone income statement on a straight-line basis over the life of the guarantee.
Taxation
The current income tax expense is calculated in accordance with the regulations of the Russian Federation.
Deferred tax assets and liabilities are calculated in respect of temporary differences using the liability method. Deferred
income taxes are provided for all temporary differences arising between the tax bases of assets and liabilities and their
carrying values for financial reporting purposes, except where the deferred income tax arises from the initial recognition
of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss.
A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which
the deductible temporary differences can be utilized. Deferred tax assets and liabilities are measured at tax rates that
are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have
been enacted or substantively enacted at the reporting date.
Russia also has various operating taxes that are assessed on the Bank’s activities. These taxes are included as a
component of other operating expenses.
Property and equipment
Property and equipment is carried at restated cost, excluding the costs of day-to-day servicing, less accumulated
depreciation. Such cost includes the cost of replacing part of equipment when that cost is incurred if the recognition
criteria are met.
Depreciation of an asset begins when it is available for use. Depreciation is calculated on a straight-line basis over the
following estimated useful lives:
Buildings
Fixtures and office equipment
Motor vehicles
Years
50
5
5
The asset’s residual values, useful lives and depreciation methods are reviewed, and adjusted as appropriate, at each
financial year-end.
Costs related to repairs and renewals are charged when incurred and included in other operating expenses, unless
they qualify for capitalization.
14
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Intangible assets
Intangible assets include computer software and licenses.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired
in a business combination is fair value as of the date of acquisition. Following initial recognition, intangible assets are
carried at cost less any accumulated amortization. Intangible assets are amortized over the useful economic lives of 2
to 10 years.
Provisions
Provisions are recognized when the Bank has a present obligation, whether legal or constructive, as a result of a past
event, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
Retirement and other employee benefit obligations
The Bank does not have any pension arrangements separate from the State pension system of the Russian
Federation, which requires current contributions by the employer calculated as a percentage of current gross salary
payments; such expense is charged in the period the related salaries are earned. In addition, the Bank has no
significant post-retirement benefits.
Share capital
Share capital and additional paid-in capital
Share capital is recognized at restated cost. Any excess of the fair value of consideration received over the par value of
shares issued is recognized as additional paid-in capital, which is also recognized at restated cost.
Treasury shares
Where the Bank or its subsidiaries purchases the Bank’s shares, the consideration paid, including any attributable
transaction costs, net of income taxes, is deducted from total equity as treasury shares until they are cancelled or
reissued. Where such shares are subsequently sold or reissued, any consideration received is included in equity.
Treasury shares are stated at cost.
Dividends
Dividends are recognized as a liability and deducted from equity at the reporting date only if they are declared before or
on the reporting date. Dividends are disclosed when they are proposed before the reporting date or proposed or
declared after the reporting date but before the financial statements are authorized for issue.
Fiduciary assets
Assets held in a fiduciary capacity are not reported in the stand alone financial statements, as they are not the assets of
the Bank.
Contingencies
Contingent liabilities are not recognized in the stand alone statement of financial position but are disclosed unless the
possibility of any outflow in settlement is remote. A contingent asset is not recognized in the stand alone statement of
financial position but disclosed when an inflow of economic benefits is probable.
15
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Recognition of income and expenses
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Bank and the revenue
can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:
Interest and similar income and expense
For all financial instruments measured at amortized cost and interest bearing securities classified as trading or
available-for-sale, interest income or expense is recorded at the effective interest rate, which is the rate that exactly
discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter
period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes
into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees
or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate,
but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the Bank revises
its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective and
the change in carrying amount is recorded as interest income or expense.
Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an
impairment loss, interest income continues to be recognized using the original effective interest rate applied to the new
carrying amount.
Fee and commission income
The Bank earns fee and commission income from a diverse range of services it provides to its customers. Fee income
can be divided into the following two categories:
•
Fee income earned from services that are provided over a certain period of time
Fees earned for the provision of services over a period of time are accrued over that period. These fees include
commission income and asset management, custody and other management and advisory fees. Loan commitment
fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental
costs) and recognized as an adjustment to the effective interest rate on the loan.
•
Fee income from providing transaction services
Fees arising from negotiating or participating in the negotiation of a transaction for a third party – such as the
arrangement of the acquisition of shares or other securities or the purchase or sale of businesses – are recognized on
completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are
recognized after fulfilling the corresponding criteria.
Dividend income
Revenue is recognized when the Bank’s right to receive the payment is established.
Foreign currency translation
The stand alone financial statements are presented in Russian Rubles, which is the Bank’s functional and presentation
currency. Transactions in foreign currencies are initially recorded in the functional currency, converted at the rate of
exchange ruling as of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling as of the reporting date. Gains and losses resulting from
the translation of foreign currency transactions are recognized in the stand alone income statement as gains less
losses from foreign currencies – translation differences. Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when
the fair value was determined.
Differences between the contractual exchange rate of a transaction in a foreign currency and the Central Bank
exchange rate on the date of the transaction are included in gains less losses from dealing in foreign currencies. The
official CBR exchange rates as of December 31, 2009 and 2008, were 30.2442 Rubles and 29.3804 Rubles to 1 USD,
respectively.
16
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Future changes in accounting policies
Standards and interpretations issued but not yet effective
IAS 24 "Related Party Disclosures" (Revised)
Revised IAS 24, issued in November 2009, simplifies the disclosure requirements for government-related entities and
clarifies the definition of a related party. Previously, an entity controlled or significantly influenced by a government was
required to disclose information about all transactions with other entities controlled or significantly influenced by the
same government. The revised standard requires disclosure about these transactions only if they are individually or
collectively significant. The revised IAS 24 is effective for annual periods beginning on or after January 1, 2011.
Amendment to IAS 39 “Financial Instruments: Recognition and Measurement” – "Eligible Hedged Items"
Amendments to IAS 39 were issued in August 2008 and become effective for annual periods beginning on or after
July 1, 2009. The amendments address the designation of a one-sided risk in a hedged item, and the designation of
inflation as a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of
the fair value changes or cash flow variability of a financial instrument as hedged item. The Bank does not expect these
amendments to affect its stand alone financial statements as the Bank has not entered into any such hedges.
IFRS 3 "Business Combinations" (Revised) and IAS 27 "Consolidated and Separate Financial Statements" (Revised)
Revised standards were issued in January 2008 and become effective for financial years beginning on or after July 1,
2009. Revised IFRS 3 introduces a number of changes in the accounting for business combinations that will impact the
amount of goodwill recognized, the reported results in the period that an acquisition occurs, and future reported results.
Revised IAS 27 requires that a change in the ownership interest of a subsidiary is accounted for as an equity
transaction. Therefore, such a change will have no impact on goodwill, nor will it give raise to a gain or loss.
Furthermore, the revised standard changes the accounting for losses incurred by a subsidiary as well as the loss of
control of a subsidiary. The changes introduced by the revised IFRS 3 and IAS 27 must be applied prospectively and
will affect only future acquisitions and transactions with minority interests.
Amendments to IFRS 2 "Share-based Payment" - Group Cash-settled Share-based Payment Transactions
The amendment to IFRS 2 was issued in June 2009 and becomes effective for annual periods beginning on or after
January 1, 2010. The amendments clarify the scope and the accounting for group cash-settled share-based payment
transactions. This amendment also supersedes IFRIC 8 and IFRIC 11. The Bank expects that the amendments will
have no impact on the Bank’s stand alone financial statements.
IFRIC 17 "Distribution of Non-Cash Assets to Owners"
IFRIC Interpretation 17 was issued on November 27, 2008, and is effective for annual periods beginning on or after
July 1, 2009. IFRIC 17 applies to pro rata distributions of non-cash assets except for common control transactions and
requires that a dividend payable should be recognized when the dividend is appropriately authorized and is no longer at
the discretion of the entity; an entity should measure the dividend payable at the fair value of the net assets to be
distributed; an entity should recognize the difference between the dividend paid and the carrying amount of the net
assets distributed in profit or loss. IFRIC 17 also requires an entity to provide additional disclosures if the net assets
being held for distribution to owners meet the definition of a discontinued operation. The Bank expects that this
interpretation will have no impact on the Bank’s stand alone financial statements.
Improvements to IFRS
In April 2009, the IASB issued the second volume of amendments to its standards, primarily with a view to removing
inconsistencies and clarifying wording. Most of the amendments are effective for annual periods beginning on or after
January 1, 2010. There are separate transitional provisions for each standard. Amendments included in the April 2009
"Improvements to IFRS" will have no impact on the accounting policies, financial position or performance of the Bank,
except the following amendments resulting in changes to accounting policies, as described below.
•
Amendment to IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" clarifies that the
disclosures required in respect of non-current assets and disposal groups classified as held for sale or
discontinued operations are only those set out in IFRS 5. The disclosure requirements of other IFRSs only apply
if specifically required for such non-current assets or discontinued operations. The Bank expects that this
amendment will have no impact on the Bank’s stand alone financial statements.
•
Amendment to IFRS 8 "Operating Segments" clarifies that segment assets and liabilities need only be reported
when those assets and liabilities are included in measures that are used by the chief operating decision maker.
The adoption of this amendment will have no impact on the financial position or performance of the Bank.
•
Amendment to IAS 7 "Statement of Cash Flows" explicitly states that only expenditure that results in recognizing
an asset can be classified as a cash flow from investing activities.
•
Amendment to IAS 36 "Impairment of Assets" clarifies that the largest unit permitted for allocating goodwill,
acquired in a business combination, is the operating segment as defined in IFRS 8 before aggregation for
reporting purposes. The amendment will have no impact on the Bank’s financial statements.
17
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Amendments to IAS 32 "Financial instruments: Presentation" - Classification of Rights Issues
In October 2009, the IASB issued amendment to IAS 32. Entities shall apply that amendment for annual periods
beginning on or after February 1, 2010. Earlier application is permitted. The amendment alters the definition of a
financial liability in IAS 32 to classify rights issues and certain options or warrants as equity instruments. This is
applicable if the rights are given pro rata to all of the existing owners of the same class of an entity's non-derivative
equity instruments, in order to acquire a fixed number of the entity's own equity instruments for a fixed amount in any
currency. The Bank expects that these amendments will have no impact on the Bank’s stand alone financial
statements.
IFRS 9 "Financial Instruments" (first phase)
In November 2009, the IASB issued the first phase of IFRS 9 "Financial Instruments". This standard will eventually
replace IAS 39 "Financial Instruments: Recognition and Measurement". IFRS 9 becomes effective for annual periods
beginning on or after January 1, 2013. Entities may adopt the first phase for reporting periods ending on or after
December 31, 2009. The first phase of IFRS 9 introduces new requirements for the classification and measurement of
financial assets. In particular, for subsequent measurement all financial assets are to be classified at amortized cost or
at fair value through profit or loss with the irrevocable option for equity instruments not held for trading to be measured
at fair value through other comprehensive income. The Bank now evaluates the impact of the adoption of new standard
and considers the initial application date.
4.
Significant accounting estimates
In the process of applying the Bank’s accounting policies, management has used its judgments and made estimates in
determining the amounts recognized in the financial statements.
Allowance for loan impairment
The Bank regularly reviews its loans and receivables to assess impairment. The Bank uses its professional judgment to
estimate the amount of any impairment loss in cases where a borrower is in financial difficulties and there are few
available historical data relating to similar borrowers. Similarly, the Bank estimates changes in future cash flows based
on the observable data indicating that there has been an adverse change in the payment status of borrowers in a
group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses
estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of
impairment similar to those in the group of loans and receivables. The Bank uses its professional judgment to adjust
observable data for a group of loans or receivables to reflect current circumstances.
5.
Cash and cash equivalents
Cash and cash equivalents comprise:
2009
770,862
181,067
583,032
531,670
2008
600,744
504,208
761,021
24,396
2,066,631
1,890,369
Obligatory reserve with the Central Bank
Time deposits for more than 90 days
2009
55,755
3,513,704
2008
9,085
2,137,583
Amounts due from credit institutions
3,569,459
2,146,668
Cash on hand
Current accounts with the CBR
Current accounts with other credit institutions
Time deposits with credit institutions up to 90 days
Cash and cash equivalents
6.
Amounts due from credit institutions
Amounts due from credit institutions comprise:
Credit institutions are required to maintain a non-interest earning cash deposit (obligatory reserve) with the CBR, the
amount of which depends on the level of funds attracted by the credit institution. The Bank’s ability to withdraw such
deposit is significantly restricted by the statutory legislation.
18
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
As of December 31, 2009, interbank time deposits include RUB 1,961,660 (2008 – RUB 2,014,997) placed with the
subsidiary credit institution.
Deposits with aggregated value of RUB 257,611 (2008 – 0) were provided as collateral against open interbank limits.
7.
Loans to customers
Loans to customers comprise:
Less - Allowance for impairment
2009
4,608,877
3,070,506
789,629
167,797
20,500
14,709
8,672,018
(710,734)
2008
5,221,035
2,120,167
927,801
155,537
75,471
35,583
8,535,594
(354,930)
Loans to customers
7,961,284
8,180,664
Small and medium business lending
Corporate lending
Consumer lending
Residential mortgages
Local authorities
Car lending
Loans for the total amount of RUB 300,000 (2008 – RUB 960,000) were pledged to the Central Bank (see Note 12).
Allowance for impairment of loans to customers
A reconciliation of the allowance for impairment of loans to customers by class is as follows:
As of January 1, 2009
Charge (reversal) for the year
Amounts written off
As of December 31, 2009
Individual impairment
Collective impairment
Gross amount of loans,
individually determined to be
impaired, before deducting
any individually assessed
impairment allowance
As of January 1, 2008
Charge (reversal) for the year
Amounts written off
As of December 31, 2008
Individual impairment
Collective impairment
Gross amount of loans,
individually determined to be
impaired, before deducting
any individually assessed
impairment allowance
Corporate
lending
2009
Local
authorities
2009
Small and
medium
business
lending
2009
52,015
154,578
–
206,593
548
(413)
–
135
160,274
170,025
–
330,299
107,075
31,110
(7,801)
130,384
31,828
4,696
(696)
35,828
3,190
6,487
(2,182)
7,495
354,930
366,483
(10,679)
710,734
180,981
25,612
206,593
–
135
135
316,657
13,642
330,299
90,430
39,954
130,384
27,229
8,599
35,828
7,025
470
7,495
622,322
88,412
710,734
727,134
–
1,002,888
136,553
27,229
7,025
1,900,829
Consumer
lending
2008
Consumer
lending
2009
Residential
mortgage
2009
Car lending
2009
Total
2009
Corporate
lending
2008
Local
authorities
2008
Small and
medium
business
lending
2008
73,680
(21,665)
–
52,015
787
(239)
–
548
27,016
133,258
–
160,274
91,296
34,188
(18,409)
107,075
28,104
3,724
–
31,828
11,886
(5,286)
(3,410)
3,190
232,769
143,980
(21,819)
354,930
26,974
25,041
52,015
–
548
548
137,767
22,507
160,274
60,796
46,279
107,075
21,708
10,120
31,828
1,658
1,532
3,190
248,903
106,027
354,930
251,974
–
706,757
89,691
21,708
1,658
1,071,788
Residential
mortgage
2008
Car lending
2008
Total
2008
19
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Individually impaired loans
Interest income accrued on loans, for which individual impairment allowances have been recognized, for the year
ended December 31, 2009, comprised RUB 200,974 (2008 – RUB 4,511).
In accordance with the CBR requirements, loans may only be written off with the approval of the Board of Directors
and, in certain cases, with the respective decision of the Court.
Collateral and other credit enhancements
The amount and type of collateral requested by the Bank depends on an assessment of the credit risk of the
counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.
The main types of collateral obtained are as follows:
•
For commercial lending, charges over real estate properties and inventory,
•
For retail lending, mortgages over residential properties.
Management monitors the market value of collateral, requests additional collateral in accordance with the underlying
agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance for
loan impairment.
Concentration of loans to customers
As of December 31, 2009, the Bank had a concentration of loans represented by RUB 3,666,447 due from ten largest
third party borrowers (42% of total gross loan portfolio) (2008 – RUB 3,328,827 (39% of total gross loan portfolio)).
Allowance of RUB 128,145 (2008 – RUB 80,741) was recognized against these loans.
Loans have been extended to the following types of customers:
Private companies
Individuals
Local authorities
2009
7,679,383
972,135
20,500
2008
7,341,202
1,118,921
75,471
Loans to customers
8,672,018
8,535,594
Manufacturing
Trading enterprises
Finance and investments
Individuals
Real estate construction
Agriculture
Transport and communication
Local authorities
Other
2009
2,955,046
1,881,753
1,689,585
972,135
490,185
305,128
248,210
20,500
109,476
2008
2,210,161
2,185,837
2,281,641
1,118,921
389,222
50,310
123,497
75,471
100,534
Loans to customers
8,672,018
8,535,594
2009
Loans are made principally within Russia in the following industry sectors:
8.
Investment securities available-for-sale
Investment securities available-for-sale comprise:
Russian State bonds (OFZ)
Corporate bonds
Corporate shares
–
1,092,943
30,876
2008
179,528
230,558
1,414
Securities available-for-sale
1,123,819
411,500
Corporate bonds represent corporate debt securities of six Russian credit institutions with interest rates ranging from
7.74% to 16.75% p.a. (2008 – from 7.55% to 12%). These securities mature in February 2010 – August 2014
(2008 – March 2009 –May 2011).
20
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Corporate shares comprise shares of the blue-chip Russian banks and companies.
As of December 31, 2008, Russian state bonds (OFZ) were Ruble denominated government securities issued and
guaranteed by the Ministry of Finance of the Russian Federation. OFZ bonds held by the Bank as of December 31,
2008, bore interest rates ranging from 5.8% to 10%, depending on the type of bond issue and coupon period. The
securities had medium to long-term maturities. All OFZs held by the Bank as of December 31, 2008, were transferred
to the CBR as collateral against outstanding loan facilities.
9.
Property and equipment
The movements in property and equipment were as follows:
Buildings
Fixtures and
office
equipment
Cost
As of December 31, 2008
Additions
Disposals
As of December 31, 2009
46,760
165
–
46,925
259,483
28,830
(21,730)
266,583
27,240
25,744
(3,493)
49,491
–
173
–
173
333,483
54,912
(25,223)
363,172
Accumulated depreciation
As of December 31, 2008
Depreciation charge
Disposals
As of December 31, 2009
8,770
935
–
9,705
141,274
39,004
(19,123)
161,155
15,074
14,198
(2,347)
26,925
–
–
–
–
165,118
54,137
(21,470)
197,785
As of December 31, 2008
37,990
118,209
12,166
–
168,365
As of December 31, 2009
37,220
105,428
22,566
173
165,387
Motor
vehicles
Assets under
construction
Total
Net book value
Buildings
Fixtures and
office
equipment
Cost
As of December 31, 2007
Additions
Transfers
Disposals
As of December 31, 2008
46,757
3
–
–
46,760
233,913
32,627
607
(7,664)
259,483
24,439
4,857
–
(2,056)
27,240
Accumulated depreciation
As of December 31, 2007
Depreciation charge
Disposals
As of December 31, 2008
7,835
935
–
8,770
111,657
34,843
(5,226)
141,274
12,180
4,439
(1,545)
15,074
As of December 31, 2007
38,922
122,256
12,259
607
174,044
As of December 31, 2008
37,990
118,209
12,166
–
168,365
Motor vehicles
Assets under
construction
607
–
(607)
–
–
–
–
–
–
Total
305,716
37,487
–
(9,720)
333,483
131,672
40,217
(6,771)
165,118
Net book value
10.
Taxation
The corporate income tax expense comprises:
2009
Current tax charge
Deferred tax charge / (benefit)
Income tax expense
4,452
(12,554)
(8,102)
2008
50,838
59,929
110,767
Russian legal entities must file individual tax declarations. The tax rate for banks for profits other than on state
securities was 20% for 2009 and 24% for 2008. The tax rate for companies other than banks was also 20% for 2009
and 24% for 2008. The tax rate for interest income on state securities was 15% for Federal taxes.
21
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
The effective income tax rate differs from the statutory income tax rates. A reconciliation of the income tax expense
based on statutory rates with actual is as follows:
2009
2008
Profit / (loss) before tax
(69,588)
362,918
20%
24%
Statutory tax rate
Theoretical income tax expense at the statutory rate
Income on state securities taxed at different rates
Income recognized for tax purposes only
Non deductible expenditures
Non taxable income
Change in applicable tax rate
Unrecognized deferred tax assets
Other items
(13,918)
(627)
2,151
3,373
(5,496)
–
5,212
1,203
87,100
(1,707)
–
2,769
(119)
(4,989)
–
27,713
(8,102)
Income tax expense
110,767
Deferred tax assets and liabilities as of December 31 and their movements for the respective years comprise:
2007
Tax effect of deductible temporary
differences:
Allowance for loan impairment
Provision for unused vacations
Investment securities available-for-sale
Fair value re-measurement of trading
securities
Accrued expenses
Other
Deferred tax asset
Tax effects of taxable temporary
differences:
Allowance for loan impairment
Property and equipment
Investment securities available-for-sale
Accrued income
Intangible assets
Deferred commission
Other
Deferred tax liabilities
Unrecognized tax asset
Deferred tax assets / (liabilities)
Origination
and reversal
of temporary differences
In other
In the
compreincome
hensive
statement
income
2008
Origination
and reversal
of temporary differences
In other
In the
compreincome
hensive
statement
income
2009
11,130
30,080
–
(11,130)
(23,254)
–
–
–
4,597
–
6,826
4,597
19,046
3,762
–
–
–
4,851
19,046
10,588
9,448
5,513
12,395
6,964
66,082
(5,513)
(10,802)
(6,071)
(56,770)
–
–
–
4,597
–
1,593
893
13,909
–
(1,141)
551
22,218
–
–
–
4,851
–
452
1,444
40,978
–
5,722
469
–
–
2,397
–
8,588
2,862
1,513
–
–
–
(1,340)
124
3,159
2,862
7,235
–
–
–
1,057
124
11,278
(2,862)
5,213
–
1,571
1,498
(902)
(66)
4,452
–
–
–
–
–
–
–
12,448
–
1,571
1,498
155
58
15,730
–
57,494
–
(59,929)
–
2,631
(5,212)
12,554
–
4,851
–
(469)
–
–
–
–
(469)
–
5,066
–
(5,212)
20,036
22
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
11.
Other assets and liabilities
Other assets comprise:
Settlements on operations with securities
Intangible assets
Prepayments
Prepaid operating taxes
Settlements with clients
Settlements with employees
Other
Less – Allowance for impairment of other assets
Other assets
2009
106,437
40,345
29,038
10,171
4,853
2,403
11,341
204,588
(2,076)
202,512
2008
18,827
46
66,247
6,866
1,828
2,584
5,815
102,213
(2,078)
100,135
As of December 31, 2009 and 2008, settlements for operations with securities mostly comprise balances with
international brokerage companies and security deposits with stock exchanges.
Included in other assets are intangible assets in the amount of RUB 40,345 (2008 – RUB 46), net of accumulated
amortization. The respective amortization charge for 2009 and 2008 is RUB 15,265 and RUB 3, respectively, which is
included in other operating expenses in the stand alone income statement.
The movements in allowances for impairment of other assets were as follows:
Other assets
As of December 31, 2007
Charge
Write-offs
As of December 31, 2008
2,110
234
(266)
2,078
Charge
Write-offs
1,310
(1,312)
2,076
As of December 31, 2009
Other liabilities comprise:
2009
2008
Payables to employees for unused vacations
Payables to ADI
Operating taxes payable
Trade payables
Financial guarantees
Other
52,939
3,943
3,204
465
835
898
34,131
2,557
4,544
1,476
6,390
2,757
Other liabilities
62,284
51,855
23
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
12.
Amounts due to the Central Bank
Amounts due to the Central Bank consist of the following:
2009
–
–
–
Loans secured by loan portfolio
Non secured loans
Amounts due to the Central Bank
2008
466,179
250,611
716,790
The Bank raised loans from the Central Bank of the Russian Federation in the course of pledge-free loan auctions as
well as under general agreement for loans granting secured by loan portfolio of the Bank in November and December
2008 (see Note 7). The loans bore interest rates from 10.00% to 12.77% per annum and matured in January –
February 2009.
13.
Amounts due to credit institutions
Amounts due to credit institutions comprise:
Current accounts
Time deposits and loans
Amounts due to credit institutions
2009
415,685
1,457,611
1,873,296
2008
791,104
180,000
971,104
As of December 31, 2009, RUB 571,394 (2008 – RUB 180,000) was received from OJSC “Russian Bank of
Development” under federal program of financing of small and medium business. Loans issued under this program are
reported as small and medium business lending and corporate lending in Note 7.
As of December 31, 2008, current accounts include RUB 318,309 (2008 – RUB 579,456) due to subsidiary credit
institution.
14.
Amounts due to customers
Amounts due to customers include the following:
Current accounts and "on demand" deposits
Time deposits
Amounts due to customers
2009
2008
2,240,310
6,800,985
9,041,295
2,166,553
5,208,482
7,375,035
As of December 31, 2009 and 2008, included in time deposits are unsecured subordinated deposits of RUB 350,000
received by the Bank in December 2004 and April 2006. The deposits mature in April and December 2015 and their
repayment prior to maturity is prohibited by the deposit agreements.
As of December 31, 2009, amounts due to customers of RUB 807,513 (9%) were due to the ten largest third party
customers (2008 – RUB 865,449 (12%)).
Included in time deposits are deposits of individuals in the amount of RUB 3,826,417 (2008 – RUB 2,191,826). In
accordance with the Russian Civil Code, the Bank is obliged to repay time deposits of individuals upon demand of a
depositor. In case a time deposit is repaid upon demand of the depositor prior to maturity, interest on it is paid based on
the interest rate for demand deposits, unless a different interest rate is specified in the agreement.
24
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Amounts due to customers include accounts with the following types of customers:
Private enterprises
Individuals
Local authorities and state companies
Amounts due to customers
2009
2,378,661
4,529,911
2,132,723
9,041,295
2008
2,571,638
2,710,830
2,092,567
7,375,035
As of December 31, 2009, amounts due to local authorities and state companies include RUB 1,916,660 (2008 –
RUB 2,009,413) received by the Bank from ADI in the course of rehabilitation of LLC CB Potential.
Analysis of customer accounts by economic sector is as follows:
Individuals
Local authorities and state companies
Manufacturing
Finance and investments
Automobile industry
Real estate construction
Trade
Oil and gas
Transport
Agriculture
Communication
Other
Amounts due to customers
15.
2009
2008
4,529,911
2,132,723
584,634
469,109
470,590
285,197
206,912
41,348
27,556
16,424
14,268
262,623
9,041,295
2,710,830
2,092,567
616,605
783,111
39,123
194,426
286,480
4,704
204,306
8,017
15,522
419,344
7,375,035
2009
930,728
754,389
19,282
1,704,399
2008
993,109
264,062
38,465
1,295,636
Debt securities issued
Debt securities issued consisted of the following:
Non-documentary bonds
Promissory notes
Saving certificates
Debt securities issued
In March 2007 CBR registered the second bond issue of the Bank, which was placed in the amount of RUB 950,000 on
Moscow Interbank Currency Exchange (MICEX). The bonds bear annual interest rate 10.7% for the four first coupon
payments. The Bank established the following annual coupon rates: 14% for the fourth-eighth coupon payments and
15% for the remaining payments. The bonds mature on April 20, 2010, and were repaid when due. The terms of issue
provide for early redemptions in April 2009, and part of investors realized their right. Accordingly, as of December 31,
2009, total outstanding balance of the second issue amounted to RUB 930,728 including RUB 27,541of accrued
interest (2008 – RUB 949,998 including accrued interest RUB 25,868).
In December 2006 CBR registered the first bond issue of the Bank. The Bank placed bonds in the amount of
RUB 1,000,000 on MICEX. The bonds issued bore annual interest rate 10.75% for the four first coupon payments.
Coupon rates of 14% for the fifth and sixth payments and of 12.5% for the rest of coupon payments were established
by the Bank. The bonds were repaid on December 1, 2009. The terms of issue provided for early redemption in
December 2007 and December 2008, and part of investors realized their right. Accordingly, as of December 31, 2008,
total outstanding balance of the second issue amounted to RUB 43,111 including RUB 428 of accrued interest.
As of December 31, 2009, the Bank had issued non-interest-bearing promissory notes and certificates of deposit
having an aggregate nominal value of RUB 384,907 (2008 – RUB 65,533) maturing on demand and in February –
June 2010 (2008 – on demand). Other debt securities issued by the Bank as of December 31, 2009, bear annual
interest rates ranging from 4.5% to 14% (2008 – from 5% to 14%).
25
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
16.
Equity
Movements in ordinary shares outstanding, issued and fully paid were as follows:
Number of shares Nominal amount
Inflation
adjustment
Total
As of December 31, 2007
As of December 31, 2008
210,629,331
210,629,331
210,629
210,629
144,334
144,334
354,963
354,963
As of December 31, 2009
210,629,331
210,629
144,334
354,963
All authorized shares have been issued and fully paid.
The share capital of the Bank has been contributed by shareholders in Rubles. Shareholders are entitled to dividends
and capital distributions in Rubles. The share capital consists of ordinary shares with a nominal value of 1 Ruble each.
At the Annual Shareholders’ Meeting on June 25, 2009, the Bank decided not to pay dividends for the year ended
December 31, 2008. At the Annual Shareholders’ Meeting on July 8, 2008, the Bank decided not to pay dividends for
the year ended December 31, 2007.
In accordance with Russian legislation, dividends may only be declared to the shareholders of the Bank from
accumulated undistributed and unreserved earnings as shown in the Bank’s financial statements prepared in
accordance with RAL. The Bank had RUB 1,699,996 of undistributed and unreserved earnings as of December 31,
2009 (2008 – RUB 1,591,469).
Movements in other reserves
Movements in other reserves were as follows:
As of December 31, 2007
Net unrealized losses on investment securities available-for-sale
Realized gains on investment securities available-for-sale reclassified to the
income statement
Tax effect of net gains on investment securities available-for-sale
Reallocation of retained earnings to general reserve
As of December 31, 2008
Net unrealized losses on investment securities available-for-sale
Realized gains on investment securities available-for-sale reclassified to the
income statement
Tax effect of net gains on investment securities available-for-sale
As of December 31, 2009
Unrealized gains
(losses) on
investment
securities
Statutory general
available-for-sale
reserve
1,484
136,940
(18,632)
–
(6,301)
5,066
–
(18,383)
21,645
–
–
20,000
156,940
–
(24,403)
4,851
–
–
(16,290)
156,940
Nature and purpose of other reserves
Unrealized gains /(losses) on investment securities available-for-sale
This reserve records fair value changes on investments available-for-sale.
Statutory general reserve
The statutory general reserve is created as required by the regulations of the Russian Federation, in respect of general
banking risks, including future losses and other unforeseen risks or contingencies. The reserve has been created in
accordance with the Bank’s charter, which provides for the creation of a reserve for these purposes of not less than
15% of the Bank’s share capital reported in accordance with RAL.
26
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
17.
Commitments and contingencies
Operating environment
Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a
market economy. The future stability of the Russian economy is largely dependent upon these reforms and
developments and the effectiveness of economic, financial and monetary measures undertaken by the Government.
The Russian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. The global
financial crisis has resulted in a decline in the gross domestic product, capital markets instability, significant
deterioration of liquidity in the banking sector, and tighter credit conditions within Russia. While the Russian
Government has introduced a range of stabilization measures aimed at providing liquidity to Russian banks and
companies, there continues to be uncertainty regarding the access to capital and cost of capital for the Bank and its
counterparties, which could affect the Bank’s financial position, results of operations and business prospects.
In addition, factors including increased unemployment in Russia, reduced corporate liquidity and profitability, and
increased corporate and personal insolvencies, have affected the Bank’s borrowers’ ability to repay the amounts due to
the Bank. In addition, changes in economic conditions have resulted in deterioration in the value of collateral held
against loans and other obligations. To the extent that information is available, the Bank has reflected revised estimates
of expected future cash flows in its impairment assessment.
While management believes it is taking appropriate measures to support the sustainability of the Bank’s business in the
current circumstances, unexpected further deterioration in the areas described above could negatively affect the Bank’s
results and financial position in a manner not currently determinable.
Legal
In the ordinary course of business, the Bank is subject to legal actions and complaints. Management believes that the
ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial
condition or the results of future operations of the Bank.
Taxation
Russian tax, currency and customs legislation is subject to varying interpretations and changes, which can occur
frequently. Management's interpretation of such legislation as applied to the transactions and activity of the Bank may
be challenged by the relevant regional and federal authorities. Tax authorities are sometimes taking a more assertive
position in its interpretation of the legislation and assessments and, as a result, it is possible that transactions and
activities that have not been challenged in the past may be challenged. As such, significant additional taxes, penalties
and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three
calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.
As of December 31, 2009, management believes that its interpretation of the relevant legislation is appropriate and that
the Bank’s tax, currency and customs positions will be sustained.
Commitments and contingencies
As of December 31, the Bank’s commitments and contingencies comprise the following:
2009
Credit related commitments
Undrawn loan commitments
Guarantees
Promissory note guarantees
Letters of credits
Operating lease commitments
Not later than 1 year
Later than 1 year but not later than 5 years
Commitments and contingencies
2008
1,333,751
840,336
–
–
2,174,087
2,573,623
278,408
2,000
576
2,854,607
18,207
5,525
23,732
35,432
11,022
46,454
2,197,819
2,901,061
27
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Insurance
The Bank has not currently obtained insurance coverage related to liabilities arising from errors or omissions. Liability
insurance is generally not available in Russia at present.
18.
Net fee and commission income
Net fee and commission income comprises:
2009
2008
90,679
71,142
13,431
33,867
1,308
561
3,560
214,548
134,855
73,423
33,537
40,957
2,720
898
14,986
301,376
Settlements and wire transfers
Securities operations
Cash operations
Operations with issued securities
Other
Fee and commission expense
6,126
4,893
4,754
4,228
354
20,355
18,682
5,558
5,954
7,449
1,885
39,528
Net fee and commission income
194,193
261,848
2009
2008
Salaries and bonuses
Social security costs
Other employment benefits
399,923
52,906
899
348,188
59,549
18,707
Salaries and benefits
453,728
426,444
85,597
83,705
41,989
37,077
15,265
13,202
4,818
2,734
27,737
127,483
73,041
41,514
41,687
3
12,816
6,095
1,266
23,745
312,124
327,650
Settlements and wire transfers
Cash operations
Securities operations
Guarantees and letters of credit
Custody services
Trust activities
Other
Fee and commission income
19.
Salaries and other operating expenses
Salaries and benefits, and other operating expenses comprise:
Occupancy and rent
Business development
Communications
Operating taxes
Amortization charge
Contributions to obligatory deposit insurance system
Professional services
Charity
Other
Other operating expenses
20.
Risk management
Introduction
Risk is inherent in the Bank’s activities but it is managed through a process of ongoing identification, measurement and
monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing
profitability and each individual within the Bank is accountable for the risk exposures relating to his or her
responsibilities. The Bank is exposed to credit risk, liquidity risk and market risk, the latter being subdivided into interest
rate, currency and equity risks. It is also subject to operating risks.
The independent risk control process does not include business risks such as changes in the environment, technology
and industry. They are monitored through the Bank’s strategic planning process.
28
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Risk management structure
The Board of Directors is ultimately responsible for identifying and controlling risks; however, there are separate
independent bodies responsible for managing and monitoring risks.
Authorities and responsibility of the management of the Bank as well as heads of the respective departments in respect
of participation in the risk management system are provided for by the Charter of the Bank, by internal regulations on
the respective departments and job descriptions as well as other applicable internal documents.
Board of Directors
The Board of Directors:
•
controls the completeness and frequency of the audits of compliance with the main principles of risk
management by respective departments and the Bank as a whole performed by the Internal Control
Department;
•
evaluates the effectiveness of risk management system and procedures;
•
controls the activity of executive bodies of the Bank in respect of risk management.
Management Board
The Management Board:
•
approves the main principles in risk management;
•
•
•
approves measures in order to ensure the ability of the Bank to continue as a going concern including actions to
be taken in case of any emergencies;
assures timely adoption of the internal documents in respect of risk management policies and procedures;
•
•
executes delegation of duties and responsibilities in respect of risk management process between heads of the
respective departments;
establishes coordination procedures and reporting rules;
controls the execution of decisions in respect of risk management process;
•
approves risks, which can be taken by the Bank, before the launch of new product or services.
President
The President of the Bank:
•
executes operational management;
•
is responsible for organization, coordination and control over the activities and coordination of actions of the
respective departments and employees of the Bank;
•
determines the responsibility for the proper execution of the decisions of the Board of Directors, realization of
the Bank’s risk management and internal control strategy and policy.
Chief accountant
The Chief accountant of the Bank:
•
controls the legitimacy of the operations of the Bank;
•
•
takes actions aimed to prediction of illegal cash and materials outflows as well as of violation of the applicable
legislation;
controls observation of cash and financial discipline.
29
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Assets and liabilities’ committee
Assets and liabilities’ committee:
•
approves the balance sheet’ structure and the main balance sheet ratios;
•
manages liquidity and capital adequacy risks;
•
approves limits for various financial instruments;
•
•
•
•
•
advices the Management Board in respect of changes to be made to the current versions of the internal
documents regarding assets and liabilities’ management;
manages interest rate risk by setting limit rates for funds’ attractions and investments, interest margin, possible
deviations of interest rates both for branches and for separate operations within minimal and maximum range
set by the Management Board;
manages equity risk by setting limits for trading and investment portfolios, necessary requirements in respect of
portfolio diversification, limits for trading and market operations as well as sets stop-loss limits for market
instruments;
approves minimal initial and additional amounts of deposits;
approves internal limits for different operations and limits for branches within its responsibilities.
Tariffs and banking services’ committee
Tariffs and banking services’ committee:
•
approves decisions taken by the Bank in respect of price setting for products and services depending on the
Bank’s strategy as well as considering changes in customers’ demand on the banking market;
•
approves terms and tariffs for new products of the Bank as well as any changes to the initial terms of the
existing products and services;
•
takes decisions in respect of termination of the existing products and services based on the analysis of market
changes as well as changes in the Bank’s strategic and tactical targets.
Credit committees
Credit committees (based on their level of responsibility):
•
develop changes to be made to the Credit Policy of the Bank;
•
evaluate the overall quality of the Bank’s loan portfolio, determine the main directions of loan activities;
•
•
evaluate risks in respect of each concrete borrower;
elaborate approaches and actions to handle doubtful debts.
Heads of the departments
Heads of the departments:
•
are owners of risks taken by their departments on executing their functions;
•
have adequate authorities to manage the respective risks;
•
control execution of work programs in respect of risk minimization;
arrange the registration process of loss events.
•
Risk management department
Risk management department:
•
is responsible for the organization of information collection regarding quantitative risk assessment;
•
•
•
takes part in the process of limits’ setting;
controls the informational security of the Bank;
is responsible for the development, implementation and management of different risk management programs;
•
is responsible for the analysis of losses incurred by the Bank and for the preparation of the respective reports
for the management of the Bank;
is responsible for the methodological support in the process of evaluation of risks.
•
30
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Risk measurement and reporting systems
The Bank’s risks are measured using a method, which reflects the incurred or/ and expected losses likely to arise in the
normal circumstances.
Monitoring and controlling risks is primarily performed based on limits established by the Bank. These limits reflect the
business strategy and market environment of the Bank as well as the level of risk that the Bank is willing to accept, with
additional emphasis on selected industries. In addition, the Bank monitors and measures the overall risk bearing
capacity in relation to the aggregate risk exposure across all risks types and activities.
Information compiled from all the businesses is examined and processed in order to analyze, control and identify early
risks. This information is presented and explained to the Management Board, the President and the heads of
respective departments. On a monthly basis detailed reporting of industry, customer and geographic risks takes place.
Top management assesses the appropriateness of the allowance for credit losses on a constant basis. The Board of
Directors receives a comprehensive risk report once a quarter, which is designed to provide all the necessary
information to assess and conclude on the risks of the Bank.
For all levels throughout the Bank, specifically tailored risk reports are prepared and distributed in order to ensure that
all business divisions have access to extensive, necessary and up-to-date information.
A daily briefing is given to the top management and other relevant employees of the Bank on the utilization of market
limits, proprietary investments and liquidity, plus any other risk developments.
The following main reports in respect of the current standing of the Bank and the levels of accepted risks are prepared
on a daily basis and are used by the management bodies of the Bank for management decision making:
•
operational report on obligatory economic ratios;
•
•
•
•
report on the changes in the current liquidity of the Bank;
report on violation of (non compliance with) the limits;
report on the securities’ portfolio;
information on changes in quotes on equity market;
•
•
•
report on the loan portfolio of the Bank;
report on open currency position;
payment calendar;
•
•
information of cash flows of the main customers of the Bank;
daily financial plan, which reflects the current payment position of the Bank.
In addition, reports on legal and operational risks are prepared on a monthly basis.
Risk mitigation
As part of its overall risk management, the Bank uses financial instruments to manage exposures resulting from
changes in interest rates, foreign currencies, equity risks, credit risks, and exposures arising from forecast transactions.
The Bank actively uses collateral to reduce its credit risks.
Excessive risk concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the
same geographic region, or have similar economic features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the
relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risks, the Bank’s policies and procedures include specific guidelines to
focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed
accordingly.
31
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Credit risk
Credit risk is the risk that the Bank will incur losses because its customers, clients or counterparties failed to discharge
their contractual obligations. The Bank manages and controls credit risk by setting limits on the amount of risk it is
willing to accept for individual counterparties and for geographical and industry concentrations, and by monitoring
exposures in relation to such limits.
The Bank has established a credit quality review process to provide early identification of possible changes in the
creditworthiness of counterparties, including regular collateral revisions. Counterparty limits are established by the use
of a credit risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular
revision. The credit quality review process allows the Bank to assess the potential loss as a result of the risks, to which
it is exposed, and take corrective action.
Derivative financial instruments
Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as
recorded in the stand alone statement of financial position.
Credit-related commitments risks
The Bank makes available to its customers guarantees, which may require that the Bank make payments on their
behalf. Such payments are collected from customers based on the terms of the letter of credit. They expose the Bank to
similar risks to loans and these are mitigated by the same control processes and policies.
The table below shows the maximum exposure to credit risk for the components of the stand alone statement of
financial position, including derivatives. The maximum exposure is shown gross, before the effect of mitigation through
the use of collateral agreements:
Cash and cash equivalents (excluding cash on hand)
Amounts due from credit institutions (excluding obligatory
reserve with the CBR)
Loans to customers
Debt investment securities available-for-sale
Other assets (excluding intangible assets and prepaid
operational taxes)
Financial commitments and contingencies
Total credit risk exposure
Notes
5
Maximum
exposure
2009
1,295,769
Maximum
exposure
2008
1,289,625
6
7
8
3,513,704
7,961,284
1,092,943
2,137,583
8,180,664
410,086
11
151,996
14,015,696
2,174,087
16,189,783
93,223
12,111,181
2,854,607
14,965,788
17
Where financial instruments are recorded at fair value, the amounts shown above represent the current credit risk
exposure but not the maximum risk exposure that could arise in the future as a result of changes in values.
For more detail on the maximum exposure to credit risk for each class of financial instrument, references shall be made
to the specific notes.
Credit quality per class of financial asset
The credit quality of financial assets is managed by the Bank through internal credit ratings system. Assignment of a
credit rating to loan granted to legal entities is made based on the analysis of the borrower’s financial position as of the
reporting date and debt servicing. The Bank analyzes the financial performance of the borrower based on system of
criteria/ ratios, each of which is weighted, and the sum of values gives credit rating of financial standing of the borrower.
Among the factors considered by the Bank for performance assessment are volume of sales, existence of agreements
for supplies/sales of finished goods, structure of assets and liabilities, turnovers on current accounts opened with all
banks, credit history with the Bank. Financial position is considered on a case by case basis.
32
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
The table below shows the credit quality by class of assets for credit-related lines of the stand alone statement of
financial position, based on the Bank’s credit rating system. Standard grade corresponds to collectively assessed loans.
Neither past due nor impaired
High
Standard
grade
grade
Notes
2009
2009
Amounts due from credit institutions (excluding
obligatory reserve with the CBR)
6
Loans to customers
Small business lending
Corporate lending
Consumer lending
Residential mortgages
Local authorities
Car lending
7
Debt investment securities available-for-sale
8
Total
6
Loans to customers
Small business lending
Corporate lending
Consumer lending
Residential mortgages
Local authorities
Car lending
7
Debt investment securities available-for-sale
8
Total
Total
2009
3,513,704
–
–
3,513,704
–
–
–
–
–
–
–
1,092,943
2,057,143
3,881,743
653,076
140,568
20,500
7,684
6,760,714
–
1,013,363
727,134
136,553
27,229
–
7,025
1,911,304
–
3,070,506
4,608,877
789,629
167,797
20,500
14,709
8,672,018
1,092,943
4,606,647
6,760,714
1,911,304
13,278,665
Past due or
individually
impaired
2008
Total
2008
Neither past due nor impaired
High
Standard
grade
Grade
Notes
2008
2008
Amounts due from credit institutions (excluding
obligatory reserve with the CBR)
Past due or
individually
impaired
2009
2,137,583
–
–
2,137,583
–
–
–
–
–
–
–
410,086
1,413,410
4,969,061
838,110
133,829
75,471
33,925
7,463,806
–
706,757
251,974
89,691
21,708
–
1,658
1,071,788
–
2,120,167
5,221,035
927,801
155,537
75,471
35,583
8,535,594
410,086
2,547,669
7,463,806
1,071,788
11,083,263
Past due loans to customers include those that are only past due by a few days and, accordingly, are not considered to
be impaired. As of December 31, 2009, past due but not impaired loans were past due for 1 day. As of December 31,
2008, all past due loans were impaired.
It is the Bank’s policy to maintain accurate and consistent risk ratings across the credit portfolio. This facilitates focused
management of the applicable risks and the comparison of credit exposures across all lines of business, geographic
regions and products. The rating system is supported by a variety of financial analytics combined with processed
market information to provide the main inputs for the measurement of counterparty risk. All internal risk ratings are
tailored to the various categories and are derived in accordance with the Bank’s rating policy. The attributable risk
ratings are assessed and updated regularly.
Carrying amount per class of financial assets whose terms have been renegotiated
The table below shows the carrying amount for renegotiated financial assets by class:
2009
2008
Small and medium business lending
Corporate lending
Consumer lending
Local authorities
221,950
555,848
19,221
4,500
–
239,730
75,956
–
Total
801,519
315,686
33
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Impairment assessment
The main considerations for the loan impairment assessment include whether any payments of principal or interest are
overdue by more than 60 days or there are any known difficulties in the cash flows of counterparties, credit rating
downgrades, or infringement of the original terms of the contract. The Bank addresses impairment assessment in two
areas: individually assessed allowances and collectively assessed allowances.
Individually assessed allowances
The Bank determines the allowances appropriate for each individually significant loan on an individual basis. For the
assessment of individual significance total amount of loans granted to the borrower is considered. Items considered
when determining allowance amounts include the sustainability of the counterparty’s business plan; its ability to
improve performance once a financial difficulty has arisen; projected receipts and the expected dividend payout should
bankruptcy ensue; the availability of other financial support and the realizable value of collateral; and the timing of the
expected cash flows. The impairment losses are evaluated at each reporting date, unless unforeseen circumstances
require more careful attention.
Collectively assessed allowances
Allowances are assessed collectively for losses on loans to customers that are not individually significant (including
overdrafts on credit cards, residential mortgages and car and consumer lending) and for individually significant loans
where there is not yet objective evidence of individual impairment. Allowances are evaluated on each reporting date
with each portfolio receiving a separate review.
The collective assessment takes account of impairment that is likely to be present in the portfolio even though there is
no yet objective evidence of the impairment in an individual assessment. Impairment losses are estimated by taking
into consideration of the following information: historical losses on the portfolio; current economic conditions; and
expected receipts and recoveries once impaired. The impairment allowance is then reviewed by credit management to
ensure alignment with the Bank’s overall policy.
Financial guarantees and letters of credit are assessed and provision made in a similar manner as for loans.
The geographical concentration of the Bank’s monetary assets and liabilities is set out below:
Russia
Assets:
Cash and cash equivalents
Amounts due from credit
institutions
Loans to customers
Investment securities
available-for-sale
Other assets
Liabilities:
Amounts due to the Central
Bank
Amounts due to credit
institutions
Amounts due to customers
Debt securities issued
Other liabilities
Net balance sheet position
2009
CIS and
other
foreign
OECD
countries
Total
Russia
2008
CIS and
other
foreign
OECD
countries
Total
1,616,847
449,784
–
2,066,631
1,247,682
642,687
–
1,890,369
3,569,459
7,961,284
–
–
–
–
3,569,459
7,961,284
2,146,668
8,180,664
–
–
–
–
2,146,668
8,180,664
64
52,711
502,559
–
–
–
1,123,819
411,439
202,512
97,017
14,923,705 12,083,470
61
3,118
645,866
–
–
–
411,500
100,135
12,729,336
–
–
–
–
716,790
1,123,755
149,801
14,421,146
–
1,873,296
9,036,450
1,704,399
62,284
12,676,429
1,744,717
–
–
–
–
–
502,559
–
4,845
–
–
4,845
(4,845)
–
1,873,296
9,041,295
1,704,399
62,284
12,681,274
2,242,431
716,790
971,104
7,373,456
1,295,636
51,855
10,408,841
1,674,629
–
–
–
–
–
645,866
–
1,579
–
–
1,579
(1,579)
971,104
7,375,035
1,295,636
51,855
10,410,420
2,318,916
34
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Liquidity risk and funding management
Liquidity risk is the risk that the Bank will be unable to meet its payment obligations when they fall due under normal
and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core
deposit base, manages assets with liquidity in mind, and monitors future cash flows and liquidity on a daily basis. This
incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to
secure additional funding if required.
The Bank maintains a portfolio of diverse assets that can be liquidated in the event of an unforeseen interruption of
cash flow. The Bank also has committed lines of credit that it can access to meet liquidity needs. In addition, the Bank
maintains a cash deposit (obligatory reserve) with the CBR, the amount of which depends on the level of customer
funds attracted.
The liquidity position is assessed and managed by the Bank based on certain liquidity ratios established by the CBR.
As of December 31 these ratios calculated for the Bank were as follows:
N2 “Instant Liquidity Ratio” (assets receivable or realizable within one day / liabilities
repayable on demand) (allowed minimum – 15%)
N3 “Current Liquidity Ratio” (assets receivable or realizable within 30 days / liabilities
repayable within 30 days) (allowed minimum – 50%)
N4 “Long-Term Liquidity Ratio” (assets receivable in more than one year / sum of capital
and liabilities repayable in more than one year) (allowed maximum – 120%)
2009
2008
49.0%
60.0%
67.0%
70.6%
33.0%
33.2%
Analysis of financial liabilities by remaining contractual maturities
The tables below summarize the maturity profile of the Bank’s financial liabilities as of December 31 based on
contractual undiscounted repayment obligations. Repayments, which are subject to notice, are treated as if notice were
to be given immediately. However, the Bank expects that many customers will not request repayment on the earliest
date the Bank could be required to pay and the table does not reflect the expected cash flows indicated by the Bank’s
deposit retention history.
Financial liabilities
As of December 31, 2009
Less than 3
months
Amounts due to credit institutions
Amounts due to customers
Debt securities issued
Other liabilities (excluding payables to employees
for unused vacations)
Total undiscounted financial liabilities
Financial liabilities
As of December 31, 2008
Total undiscounted financial liabilities
Over
1 year
Total
1,319,189
4,960,000
525,044
45,466
876,686
1,161,601
30,163
1,108,151
–
645,497
2,876,011
78,759
2,040,315
9,820,848
1,765,404
9,345
6,813,578
–
2,083,753
–
1,138,314
–
3,600,267
9,345
13,635,912
Less than 3
months
Amounts due to the CBR
Amounts due to credit institutions
Amounts due to customers
Debt securities issued
Other liabilities (excluding payables to employees
for unused vacations)
3 to 6 months 6 to 12 months
3 to 6 months 6 to 12 months
Over
1 year
Total
722,171
798,419
3,495,618
236,149
–
5,161
640,074
34,502
–
39,622
1,095,262
116,853
–
157,429
3,128,936
1,125,811
722,171
1,000,631
8,359,890
1,513,315
17,724
5,270,081
–
679,737
–
1,251,737
–
4,412,176
17,724
11,613,731
The table below shows the contractual expiry by maturity of the Bank’s credit-related contingencies. Each undrawn loan
commitment is included in the time band containing the earliest date it can be drawn down. For issued financial
guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee
could be called.
2009
2008
Less than 3
months
603,564
238,051
3 to 6 months 6 to 12 months
439,422
895,497
461,271
1,945,923
Over
1 year
171,793
121,896
No stated
maturity
63,811
87,466
Total
2,174,087
2,854,607
The Bank expects that not all of the credit-related contingencies will be drawn before expiry thereof.
35
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
The Bank’s capability to repay its liabilities relies on its ability to realize an equivalent amount of assets within the same
period of time. There is a significant concentration of balances on customers’ current accounts in “less than 3 months”
period. The maturity analysis does not reflect the historical stability of current accounts. Their liquidation has historically
taken place over a longer period than indicated in the tables above. These balances are included in amounts due in less
than three months in the tables above.
Amounts due to customers include term deposits of individuals. In accordance with the Russian legislation, the Bank is
obliged to repay such deposits upon demand of a depositor. Refer to Note 14.
Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in
market variables such as interest rates, foreign exchanges, and equity prices. The market risk is managed and
monitored using sensitivity analysis.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of
financial instruments. The following table demonstrates the sensitivity to a reasonably possible change in interest rates,
with all other variables held constant, of the Bank’s income statement.
The sensitivity of the income statement is the effect of the assumed changes in interest rates on the net interest income
for one year, based on the floating rate financial assets and financial liabilities held as of December 31, 2009 and 2008.
The sensitivity of equity is calculated by revaluing fixed rate available-for-sale financial assets as of December 31, 2009
and 2008, for the effects of the assumed changes in interest rates based on the assumption that there are parallel
shifts in the yield curve.
Currency
RUR
RUR
Sensitivity of net
interest income
2009
–
–
+8.00%
–8.00%
Currency
RUR
RUR
Change in %
2009
Change in %
2008
91,208
(91,208)
Sensitivity of net
interest income
2008
–
–
+6.85%
–6.85%
Sensitivity of
equity
2009
Sensitivity of
equity
2008
64,320
(64,320)
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
The Management Board has set limits on positions by currency based on the CBR regulations. Positions are monitored
on a daily basis.
The table below indicates the currencies to which the Bank had significant exposure as of December 31, 2009 and
2008, on its non-trading monetary assets and liabilities and its forecast cash flows. The analysis calculates the effect of
a reasonably possible movement of the currency rate against the Rouble, with all other variables held constant on the
income statement (due to the fair value of currency sensitive non-trading monetary assets and liabilities). The effect on
equity does not differ from the effect on the income statement. All other variables are held constant. A negative amount
in the table reflects a potential reduction in income statement or equity, while a positive amount reflects a potential
increase.
Currency
USD
USD
EUR
EUR
Change in
currency rate
in %
2009
Effect on profit
before
tax
2009
+14.8%
–14.8%
+14.0%
–14.0%
(23,931)
23,931
(741)
741
Change in
currency rate
in %
2008
+26.9%
+9.3%
+15.5%
–2.7%
Effect on profit
before
tax
2008
1,130
391
(404)
70
36
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Equity price risk
Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity
indices and the value of individual shares. The equity price risk exposure arises from the Bank’s both trading and
investment portfolios.
The effect on profit before tax and equity (as a result of a change in the fair value of equity instruments both trading and
held as available-for-sale as of December 31, 2009) due to a reasonably possible change in equity indices, with all
other variables held constant, is as follows:
Change in
Change in
Effect on
Market index
index
equity price
equity
MICEX index
MICEX index
+47.1%
–47.1%
+48.0%
–48.0%
11,769
(11,769)
As of December 31, 2008, the Bank did not have listed shares in its portfolio. The Bank had insignificant amount of
investment sin shares of Russian entities. The management of the Bank believes that as of December 31, 2008, the
risk of the decrease of the fair value of shares following changes in shares prices indexes and quotes of each share is
not significant.
Operational risk
Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail
to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial
loss. The Bank cannot expect to eliminate all operational risks but through a control framework and by monitoring and
responding to potential risks the Bank is able to manage the risks. Controls include effective segregation of duties,
access, authorisation and reconciliation procedures, staff education and assessment processes, including the use of
internal audit.
The head of Operational risks management group (part of Risk management department) is responsible for the
collection, systemization and reporting of the information in respect of operational risks. Collection and registration of
the respective information is executed by making periodic reports on identified loss events as well as events not
resulted in actual losses by the respective departments of the Bank.
21.
Fair values of financial instruments
The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
•
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
•
Level 2: techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly;
•
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not
based on observable market data.
As of December 31, 2009 and 2008, almost all financial instruments (except insignificant amounts of investments in
shares of Russian entities) recorded at fair value in the financial statements belong to Level 1.
37
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Fair value of financial instruments not carried at fair value
Set out below is a comparison, by class, of the carrying values and fair values of the Bank’s financial instruments that
are not carried at fair value in the stand alone statement of financial position. The table does not include the fair values
of non-financial assets and non-financial liabilities.
Financial assets
Cash and cash equivalents
Amounts due from credit institutions
Loans to customers
Financial liabilities
Amounts due to the Central Bank
Amounts due to credit institutions
Amounts due to customers
Debt securities issued
Total unrecognized change in
unrealized fair value
Carrying
value
2009
Fair
value
2009
2,066,631
3,569,459
7,961,284
2,066,631
3,569,459
8,658,007
–
1,873,296
9,041,295
1,704,399
–
1,873,296
8,896,149
1,748,232
Unrecognized
gain/(loss)
2009
Carrying
value
2008
Fair
value
2008
Unrecognized
gain/(loss)
2008
–
–
696,723
1,890,369
2,146,668
8,180,664
1,890,369
2,146,668
8,271,828
–
–
91,164
–
–
145,146
(43,833)
716,790
971,104
7,375,035
1,295,636
716,790
971,104
7,383,049
1,303,560
–
–
(8,014)
(7,924)
798,036
75,226
The following describes the methodologies and assumptions used to determine fair values for those financial
instruments, which are not already recorded at fair value in the financial statements.
Assets for which fair value approximates carrying value
For financial assets and financial liabilities that are liquid or having a short term maturity (less than three months) it is
assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits
and savings accounts without a specific maturity.
Fixed rate and variable rate financial instruments
For quoted debt securities fair values are calculated based on quoted market prices. The fair values of unquoted debt
instruments are estimated by discounting future cash flows using rates currently available for debt on similar terms,
credit risk and remaining maturities.
22.
Maturity analysis of assets and liabilities
The table below shows an analysis of assets and liabilities according to when they are expected to be recovered or
settled. See Note 20 "Risk management" for the Bank’s contractual undiscounted repayment obligations.
Within one
year
2009
More than
one year
Total
Within one
year
2008
More than
one year
Total
Financial assets
Cash and cash equivalents
Amounts due from credit institutions
Loans to customers
Investment securities available-forsale
Total
2,066,631
3,553,936
7,763,551
–
15,523
197,733
2,066,631
3,569,459
7,961,284
1,890,369
2,146,045
4,557,551
–
623
3,623,113
1,890,369
2,146,668
8,180,664
230,285
13,614,403
893,534
1,106,790
1,123,819
14,721,193
48,779
8,642,744
362,721
3,986,457
411,500
12,629,201
Financial liabilities
Amounts due to the Central Bank
Amounts due to credit institutions
Amounts due to customers
Debt securities issued
Total
–
1,873,296
6,524,028
1,625,640
10,022,964
–
–
2,517,267
78,759
2,596,026
–
1,873,296
9,041,295
1,704,399
12,618,990
716,790
971,104
5,956,040
188,710
7,832,644
–
–
1,418,995
1,106,926
2,525,921
716,790
971,104
7,375,035
1,295,636
10,358,565
3,591,439
(1,489,236)
2,102,203
810,100
1,460,536
2,270,636
Net position
38
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
23.
Related party disclosures
In accordance with IAS 24 "Related Party Disclosures", parties are considered to be related if one party has the ability
to control the other party or exercise significant influence over the other party in making financial or operational
decisions. In considering each possible related party relationship, attention is directed to the substance of the
relationship, and not merely the legal form.
Related parties may enter into transactions, which unrelated parties might not, and transactions between related parties
may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.
Transactions between related parties may not be effected on the same terms, conditions and amounts as transactions
between unrelated parties.
The volumes of related party transactions, outstanding balances as of the year end, and related expense and income
for the year are as follows:
39
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Shareholders
Amounts due from credit institutions (current accounts)
–
Amounts due from credit institutions (loans and deposits) as of January 1
Loans and deposits issued during the year
Loans and deposits repaid during the year
Amounts due from credit institutions (loans and deposits) as of December 31
–
–
–
–
Interest income, credit institutions
–
Subsi-diaries
2009
Entities
under
Other
common
related
control
parties
Key management
personnel
Shareholders
–
–
–
–
2,000,015
–
(41,685)
1,958,330
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
227,777
–
–
–
–
3
86,890
295,549
(245,124)
137,315
(8,404)
128,911
–
–
–
–
–
–
119,673
813,798
(699,922)
233,549
(1,541)
232,008
15,502
3,417
–
–
27,463
244
–
318,309
–
–
–
Amounts due to credit institutions (loans and term deposits) as of Janauary 1
Loans and deposits received during the year
Loans and deposits repaid during the year
Amounts due to credit institutions (loans and term deposits) as of December 31
–
–
–
–
–
221,303
–
221,303
–
–
–
–
Interest expenses,credit institutions
–
52,031
–
–
–
–
–
–
–
–
–
31,204
–
634
32,590
-
6,058
–
–
34,099
7,982
Debt securities issued as of January 1
Debt securities issued as of December 31
91,875
41,396
374,354
648,469
–
8,499
12,000
12,416
Interest expense on debt securities issued
(3,149)
69,932
Loans outstanding as of January 1, gross
Loans issued during the year
Loans repaid during the year
Loans outstanding as of December 31, gross
Less: allowance for impairment as of December 31
Loans outstanding as of December 31, net
Interest income on loans
Impairment of loans (reversal)
Amounts due to credit institutions (current accounts)
Deposits as of January 1
Deposits received during the year
Deposits repaid during the year
Deposits as of December 31
Current accounts as of December 31
Interest expense on deposits
99,402
1,317,382
(1,386,644)
30,140
Subsidiaries
2008
Entities
under
Other
common
related
control
parties
Key management
personnel
–
–
–
–
2,000,015
–
2,000,015
–
–
–
–
–
–
–
–
–
–
–
–
16,301
–
–
–
726,407
7,911,520
(8,613,727)
24,200
(160)
24,040
67,355
129,394
(138,047)
58,702
(3,593)
55,109
294,775
321,451
(529,336)
86,890
(4,987)
81,903
–
–
–
–
–
–
52,429
(32,402)
5,293
(273)
21,559
(321)
–
–
6,361
1,129
91,154
22,191
–
579,456
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,118
–
4,701
43,435
8,207
–
–
30,597
625
-
29,875
91,875
–
374,354
77,000
–
5,000
12,000
537,500
7,000
(190,000)
354,500
98,203
5,555,984
(5,525,659)
128,528
84,323
1,707,065
(1,691,986)
99,402
16,373
653,060
(549,760)
119,673
(1,297)
118,376
1,224,319
14,122,520
(14,620,432)
726,407
(32,562)
693,845
205,342
384,042
(522,029)
67,355
(3,866)
63,489
22,103
(7,046)
533,500
11,500
(7,500)
537,500
–
–
–
1,857
–
109
Financial commitments and contingencies
–
–
74,682
100,000
8,579
–
–
29,128
61,100
Net gains (losses) from securities
Fee and commission income
Other operating income
Other operating expenses
–
–
–
–
–
–
–
–
–
6,215
–
18,530
(52,429)
45
–
29,171
–
–
–
–
–
26
461
–
–
–
–
–
–
–
–
22,049
(81,975)
111
13
4,477
(53)
40
Bank Solidarnost
Notes to 2009 Stand alone Financial Statement
(Thousands of Russian Rubles)
Other operating expenses paid to related parties during 2009 mainly represent insurance premium for the amount of
RUB 29,171 (2008 – RUB 4,031) paid to an insurance company – related party and lease expenses for the amount of
RUB 18,530 (2008 – RUB 22,495).
Compensation of key management personnel comprised the following:
2009
Salaries and other short-term benefits
Provision for unused vacations
Social security costs
Total key management compensation
24.
147,391
21,854
12,084
181,329
2008
78,909
7,084
3,296
89,289
Capital adequacy
The Bank maintains actively managed capital base to cover risks inherent in the business. The adequacy of the Bank’s
capital is monitored using, among other measures, the ratios established by the CBR in supervising the Bank.
The primary objectives of the Bank’s capital management are to ensure that the Bank complies with externally imposed
capital requirements (CBR capital adequacy ratio) and that the Bank maintains strong credit ratings and healthy capital
ratios in order to support its business and to maximize shareholders’ value.
The Bank manages its capital structure and makes adjustments to it in the light of changes in economic conditions and
the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Bank may adjust the
amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes
were made in the objectives, policies and processes from the previous years.
CBR capital adequacy ratio
The CBR requires banks to maintain a capital adequacy ratio of 10% of risk-weighted assets, computed based on RAL.
As of December 31, 2009 and 2008, the Bank’s capital adequacy ratio on this basis was as follows:
2009
Main capital
Additional capital
Total capital
Risk weighted assets
Capital adequacy ratio
25.
2008
2,460,822
488,780
2,949,602
2,292,536
683,026
2,975,562
14,994,954
12,315,623
19.7%
24.2%
Trust activities
The Bank provides custody, trustee, and corporate administration services to third parties, which involve the Bank
making allocation and purchase and sales decisions in relation to a wide range of financial instruments. Those assets
that are held in fiduciary capacity are not included in these financial statements. As of December 31, 2009, the Bank
held RUB 1,492 assets in a fiduciary capacity (2008 – RUB 28,383). Funds received by the Bank for management
amounted to RUB 54,574 (2008 – RUB 98,287).
26.
Events after the reporting period
In June 2010 it was announced that, together with CBR and ADI, the Bank decided to take addtiional measures aimed
to strengthen the financial stability of LLC CB Potential. These additional measures, which include recapitalization of
LLC CB Potential for up to RUB 1.29 billion and purchase of its impaired assets by ADI, provide that during 2010 and
2011 the Bank and LLC CB Potential will be combined into a single bank with a state-owned interest of up to 30% held
by ADI.
41