condensed interim consolidated financial statements b&n …n bank conden… · ·...
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Condensed interim
consolidated financial statements
B&N Bank and its subsidiaries for the six-month period ended
June 30, 2017
August 2017
Condensed interim consolidated financial statements
B&N Bank and its subsidiaries
2
Contents
Page
Condensed interim consolidated statement of financial position 3
Condensed interim consolidated statement of profit or loss and other comprehensive
income 4
Condensed interim consolidated statement of cash flows 5
Condensed interim consolidated statement of changes in equity 6
Notes to the condensed interim consolidated financial statements
1 Organization of the Group and its principal activities 8 2 Operating environment of the Group 9 3 Basis of preparation 9 4 Significant accounting policies 10 5 Business combinations 11 6 Cash and cash equivalents 12 7 Due from banks 12 8 Loans and advances to customers 13 9 Customer accounts 17 10 Debt securities issued 18 11 Subordinated debt and perpetual subordinated deposits 19 12 Share capital and reserves 19 13 Interest income and interest expense 20 14 Net gains (losses) from trading financial assets and financial assets available for sale 20 15 Fee and commission income and expense 21 16 Other allowances 21 17 Operating expenses 21 18 Segment analysis 22 19 Risk management 25 20 Fair value 30 21 Transactions with related parties 34 22 Subsequent events 36
B&N Bank Condensed interim consolidated statement of cash flows for the six-month period ended June 30, 2017
(in millions of Russian rubles)
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
5
Note 2017 2016
Cash flows from operating activities
Interest received 52,410 11,826
Interest paid (39,478) (9,008)
Net receipts from trading in precious metals 31 -
Net receipts/(payments) from trading in foreign currencies 2,741 (1,848)
Fees and comissions received 8,176 2,843
Fees and comissions paid (2,716) (1,026)
Other income received 982 273
Other expences paid (1,082) (378)
Operating expences paid (14,023) (4,538)
Income tax paid (2,584) 15
Cash flows from/(used in) operating activities before changes in operating assets
and liabilities 4,457 (1,841)
Net (decrease)/increase in operating assets
Obligatory reserves with the CBR (738) 21
Due from banks (36,539) 7,896
Loans to customers (11,880) 2,366
Other assets 448 (1,890)
Net (decrease)/increase in operating liabilities
Due to the Central Bank of the Russian Federation 12,462 1,385
Due to other banks (9,712) 8,993
Customer accounts 13,965 (14,862)
Debt securities issued 4,450 (1,176)
Other liabilities 1,800 653
Net cash (used in)/from operationg activities (21,287) 1,545
Cash flow from investing activities
Purchase of property and equipment and intangible assets (600) (215)
Proceeds from sale of property and equipment and intangible assets 766 363
Acquisition of investments available for sale (40,512) (6,638)
Sale of investments available for sale 37,049 17,391
Proceeds from sale of investment property 138 -
Cash received in business combination 5 2,772 -
Net cash (used in)/from investing activities (387) 10,901
Cash flow from financing activities
Proceeds from issue of domestic bonds 14,139 -
Redemption and repurchase of domestic bonds issued (17,237) -
Redemption of deposits from the State Corporation “Deposit Insurance Agency” (3,000) -
Interest paid on perpetual subordinated deposits (533) -
Sale of treasury shares - 5,518
Net cash (used in)/from financing activities (6,631) 5,518
Effect of exchange rate changes on cash and cash equivalents 481 (1,381)
Net (decrease)/increase in cash and cash equivalents (27,824) 16,583
Cash and cash equivalentsm beginning 83,923 35,057
Cash and cash equivalents, ending 6 56,099 51,640
For the six-month period
ended June 30
(unaudited)
B&N Bank Condensed interim consolidated statement of changes in equity for the six-month period ended June 30, 2017
(in millions of Russian rubles)
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
6
Share
capital
Share
premium
Treasury
shares
Revalua-
tion of
buildings
Revaluation
of financial
assets
available for
sale
Debt-free
financing
Accumu-
lated
foreign
exchange
gains and
losses
Accumu-
lated
deficit
Total equity
attributable to
shareholders
of the parent
Non-controlling
interest
Total
equity
January 1, 2016 4,207 31,852 (5,518) 4,705 171 - 101 (20,122) 15,396 (9) 15,387
Loss for the period - - - - - - - (1,287) (1,287) - (1,287)
Other comprehensive income for the period
Items wich are or may be subsequently reclassified to profit or
loss:
Revaluation of f inancial assets available for sale, net of taxes - - - - 764 - - - 764 - 764
Translation differences - - - - - - 23 - 23 - 23
Total items which are or may be subsequently reclassified to
profit or loss - - - - 764 - 23 - 787 - 787
Total other comrehensive income for the priod ended
June 30, 2016 - - - - 764 - 23 - 787 - 787
Total comprehensive income/(loss) for the period
ended June 30, 2016 - - - - 764 - 23 (1,287) (500) - (500)
Debt-free f inancing - - - - - 4,133 - - 4,133 4,133
Sale of treasury shares - - 5,518 - - - - - 5,518 - 5,518
Balance as at June 30, 2016 (Unaudited) 4,207 31,852 - 4,705 935 4,133 124 (21,409) 24,547 (9) 24,538
Equity attributable to shareholders of the Bank
B&N Bank Condensed interim consolidated statement of changes in equity for the six-month period ended June 30, 2017
(in millions of Russian rubles)
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
7
Share
capital
Share
premium
Treasury
shares
Perpetual
subordi-
nated
deposits
Revaluation
of buildings
Revaluation of
financial
assets
available for
sale
Debt-free
financing
Accumula-
ted
foreign
exchange
gains and
losses
Retained
earnings/(accu-
mulated
deficit)
Total equity
attributable to
shareholders of
the parent
Non-
control-
ling
interest
Total
equity
January 1, 2017 17,237 31,852 (5) 9,098 5,117 390 4,133 131 14,009 81,962 (171) 81,791
Income for the period - - - - - - - - 1,190 1,190 2 1,192
Other comprehensive income for the period
Items wich are or may be subsequently reclassified to profit or
loss:
Revaluation of f inancial assets available for sale, net of taxes - - - - - (543) - - - (543) - (543)
Translation differences - - - - - - - 7 - 7 - 7
Total items which are or may be subsequently reclassified to
profit or loss - - - - - (543) - 7 - (536) - (536)
Total other comrehensive income/(loss) for the priod
ended June 30, 2017 - - - - - (543) - 7 - (536) - (536)
Total comprehensive income/(loss) for the period
ended June 30, 2017 - - - - - (543) - 7 1,190 654 2 656
Business combination w ith JSC B&N Bank Stolitsa (Note 5) 515 - - - - - - - 1,060 1,575 - 1,575
Acquisition of non-controlling interest - - - - - - - - (942) (942) 228 (714)
Transfer of revaluation reserve related to disposal - - - - (16) - - - 16 - - -
Currency translation differences on perpetual subordinated
deposits - - - (235) - - - - 235 - - -
Payments on perpetual subordinated deposits - - - - - - - - (533) (533) - (533)
Tax effect on perpetual subordinated deposits - - - - - - - - 60 60 - 60
Balance as at June 30, 2017 (Unaudited) 17,752 31,852 (5) 8,863 5,101 (153) 4,133 138 15,095 82,776 59 82,835
Equity attributable to shareholders of the Bank
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
8
1 Organization of the Group and its principal activities These condensed interim consolidated financial statements include financial statements of B&N Bank (Public Joint-Stock Company) (the “Bank” or “B&N Bank”) and its subsidiaries. B&N Bank and its subsidiaries are collectively referred to herein as the “Group”. B&N Bank, the parent and main operating company of the Group, is engaged in banking operations in the Russian Federation. The Bank operates under a general license issued by the Central Bank of Russia (the “CBR”). B&N Bank is a member of the state deposit insurance system. The Bank also has broker and dealer licenses issued by the Russian Federal Financial Markets Service. The Group operates in four major business areas: Corporate banking, Retail banking, Small and medium entities (“SMEs”) and Financial market transactions (Note 18). The activities of the Group are conducted principally in the Russian Federation, although the Group also operates on international markets. The registered address of B&N Bank is Russia 115172, Moscow, Kotelnicheskaya naberezhnaya, 33, building 1, 3-6 floors. The Bank had 15 branches as at June 30, 2017 (December 31, 2016: 20). The consolidated Group’s network includes 14 branches in the Russian Federation, 1 foreign branch and 432 points of sale (December 31, 2016: 454). Going concern The Group’s management prepared these condensed interim consolidated financial statements based on the assumption that the Group will operate as a going concern in the foreseeable future and that it neither intends nor has to liquidate or significantly curtail its activities, and, therefore, its liabilities will be duly discharged. Beginning from November 2014, State Corporation “Deposit Insurance Agency” (hereinafter, “SC DIA”) and the Bank of Russia have been implementing bankruptcy prevention procedures in respect of “Rost Bank” (JSC). The plan of SC DIA’s participation in preventing bankruptcy of “Rost Bank” (JSC) (the “Participation Plan”) was approved by decisions of the Management Board of SC DIA and the Banking Supervision Committee of the Bank of Russia of November 27, 2014. On December 12, 2014, the Bank and “Rost Bank” (JSC) signed General Agreement setting out the procedure and conditions under which the parties shall cooperate to implement the Participation Plan. On December 17, 2014, the Bank purchased 100% of shares in “Rost Bank” (JSC). On December 22, 2015, the Banking Supervision Committee of the Bank of Russia approved amendments to the Participation Plan, according to which Mr. Mikhail Osmanovich Shishkhanov was appointed as new investor (hereinafter, the “Investor”). On December 24, 2015, the Investor purchased 100% of shares in “Rost Bank” (JSC) from the Bank. On January 11, 2016, SC DIA, the Bank, Mr. Shishkhanov and “Rost Bank” (JSC) signed new General Agreement setting out the procedure and conditions under which the parties shall cooperate to implement the revised Participation Plan. “Rost Bank” (JSC), together with the Investor and B&N Bank, prepared and presented a Financial Rehabilitation Plan for “Rost Bank” (JSC) (hereinafter, the “Rehabilitation Plan”) to SC DIA on February 1, 2016. As at the date of approval of these condensed interim consolidated financial statements, the Rehabilitation Plan is under consideration by the Banking Supervision Committee of the Bank of Russia. It is expected to be approved in the third quarter of 2017. In accordance with the Participation Plan, the Bank provides funding to “Rost Bank” (JSC) in the form of interbank loans. As at June 30, 2017, the mentioned funding comprised RUR 590,907 million. In accordance with the Rehabilitation Plan, interbank loans obtained from the Bank are the main source of financing of “Rost Bank” (JSC) during the entire period of the Participation Plan until “Rost Bank” (JSC) merge with the Bank in 2025. Implementation of measures on financial rehabilitation of “Rost Bank” (JSC) in the future may have an impact on financial position and operating results of the Group.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
9
2 Operating environment of the Group 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 the effectiveness of economic, financial and monetary measures undertaken by the government. The Russian economy has been negatively impacted by a decline in oil prices and sanctions imposed on Russia by a number of countries. The ruble interest rates remain high. The combination of the above resulted in reduced access to capital, a higher cost of capital and uncertainty regarding economic growth, which could negatively affect the Group’s future financial position, results of operations and business prospects. Management of the Group believes it is taking appropriate measures to support the sustainability of the business in the current circumstances. 3 Basis of preparation (a) Statement of compliance These condensed interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. These condensed interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements prepared in accordance with IFRS, and should be read in conjunction with the Group’s annual financial statements for the year ended December 31, 2016, as these condensed interim consolidated financial statements provide an update of previously reported financial information. (b) Basis of measurement These condensed interim consolidated financial statements include selected notes explaining significant events and transactions, which are essential to form an understanding of changes in the Group’s financial position and financial results after the annual reporting period ended December 31, 2016. These condensed interim consolidated financial statements are prepared on the historical cost basis, except for derivative financial instruments, other financial instruments held for trading, financial instruments available for sale and investment property stated at fair value, certain types of property and equipment stated at revalued amounts, and assets held for sale stated at the lower of the carrying amount and fair value less costs to sell. (c) Presentation currency of the condensed interim consolidated financial statements The condensed interim consolidated financial statements are presented in Russian rubles. All amounts in rubles have been rounded to the nearest million. (d) Use of estimates and judgments The preparation of the condensed interim consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Adjustments to estimates are recognized in the reporting period in which the estimate is revised and in any future periods affected. In preparing these condensed interim consolidated financial statements, the management applied its professional judgment in the same areas of applying of the Group’s accounting policies as in the process of preparation of the consolidated financial statements for the year ended December 31, 2016.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
10
3 Basis of preparation (continued) (e) Prior period information and reclassifications In preparing these condensed interim consolidated financial statements, the Group corrected comparable data for the six-month period ended June 30, 2016. In its financial statements for the six-month period ended June 30, 2016 the Group incorrectly recorded forgiveness of a subordinated loan in the statement of profit or loss and other comprehensive income. The table below includes the effect on the comparable information for the six-month period ended June 30, 2016 in the statement of profit or loss and other comprehensive income in these condensed interim consolidated financial statements:
As previously
reportedAdjustments As restated
Other income 5,024 (4,133) 891
Net operating income (loss) before impairment losses other than
impairment of interest-bearing assets, revaluation losses and other
losses 3,508 (4,133) (625)
Profit/(loss) before tax 3,508 (4,133) (625)
Profit/(loss) for the period 2,846 (4,133) (1,287)
Total comprehensive income/(loss) for the period 3,633 (4,133) (500) The table below includes the effect on the comparable data for the six-month period ended June 30, 2016 in the statement of changes in equity:
As previously
reportedAdjustments As restated
Accumulated loss (17,276) (4,133) (21,409)
Debt-free financing - 4,133 4,133 4 Significant accounting policies The accounting policies have been consistently applied and they are consistent with those followed in the consolidated financial statements for the year ended December 31, 2016, except for the below changes resulting from the amendments to IFRSs. Since January 1, 2017, the Group has adopted the following amended IFRS and Interpretations described below: Amendments to IAS 12 Income Taxes issued on January 19, 2016 become effective for annual periods beginning on or after January 1, 2017, with early adoption permitted. Amendments clarify the requirements on recognition of deferred tax assets related to debt instruments measured at fair value, as well as requirements for recognition of deferred tax assets for unrealized losses. These amendments did not have any material impact on the Group. Amendments to IAS 7 Statement of Cash Flows – Disclosure Initiative become effective for annual periods beginning on or after January 1, 2017. The amendments require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). On initial application of the amendments, entities are not required to provide comparative information for preceding periods. The Group is not required to disclose additional information in condensed interim consolidated financial statements, however it will disclose it in the annual consolidated financial statements for the year ending December 31, 2017.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
11
4 Significant accounting policies (continued) Annual improvements 2014-2016 cycle. Disclosure of Interests in Other Entities − Clarification of the Scope of the Disclosure Requirements in IFRS 12 The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10-B16, apply to an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale. Disclosure requirements of IFRS 12 are not directly applicable to the condensed interim consolidated financial statements. These amendments did not have any material impact on the Group. 5 Business combinations In the course of reorganization of B&N Bank, B&N Bank Stolitsa, the entity under common control, was merged with the Group in March 2017. As a result of business combination, the merged bank was liquidated as a legal entity. The bank’s assets and liabilities were integrated into the Group’s processes and operations. In February 2017, the Board of Directors of B&N Bank approved additional issue of ordinary registered uncertified shares of B&N Bank. The nominal value of the additional issue of 515,000,000 shares amounted to RUR 515,000,000. The issue was placed through conversion of ordinary registered uncertified shares of merged credit institution − B&N Bank Stolitsa. The conversion ratio applied was 1:1. This share issue was registered on April 20, 2017. The acquisition of B&N Bank Stolitsa was accounted for using the pooling of interests method as it was a business combination involving banks under common control. These condensed interim consolidated financial statements were prepared without restatement of the comparative data. Assets and liabilities of the acquired bank are recorded in the Group’s financial statements from the date of reorganization (March 24, 2017). The carrying amounts of assets and liabilities of B&N Bank Stolitsa were as follows:
As at the date of
acquisition
Assets:
Cash and cash equivalents 2,772
Obligatory reserves with the CBR 26
Loans and advances to customers 1,683
Property and equipment, intangible assets 8
Other assets 11
Total assets 4,500
Liabilities
Customer accounts 2,892
Other liabilities 33
Total liabilities 2,925
Net assets 1,575
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
12
6 Cash and cash equivalents
June 30, 2017
(unaudited) December 31, 2016
Cash on hand 13,663 19,488
Correspondent accounts with the CBR 31,339 24,216
Correspondent accounts with other banks 8,196 6,948
Overnight deposits with other banks 418 1,317
Settlements with trade systems 2,483 11,949
Overnight deposits with the CBR - 20,005
Total cash and cash equivalents 56,099 83,923
Correspondent accounts and overnight deposits with other banks comprise:
June 30, 2017
(unaudited) December 31, 2016
International banks with investment ratings 2,281 4,489
Russian subsidiaries of international banks with investment ratings 25 9
Large Russian banks 5,126 1,026
Other Russian banks 420 1,847
Other foreign banks 762 894
Total correspondent accounts and overnight deposits 8,614 8,265
7 Due from banks
June 30, 2017
(unaudited) December 31, 2016
Current interbank loans
Large Russian banks 588,069 528,530
International banks with investment ratings 21,142 32,147
Other foreign banks 7,072 7,327
Other Russian banks 2,581 2,395
Total current interbank loans 618,864 570,399
Reverse repurchase agreements
Large Russian banks 33,073 29,423
Total reverse repurchase agreements 33,073 29,423
Due from banks before allowance for impairment 651,937 599,822
Net of allowance for impairment (9,574) (12,107)
Total due from banks 642,363 587,715
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
13
7 Due from banks (continued) The movements in allowances for impairment of due from banks, including placed under reverse repurchase agreements for the six-month periods ended June 30 were as follows:
2017 2016
Allowance for impairment of due from banks as at January 1 12,107 28
Reversal of allowance for impairment (2,533) -
Allowance for impairment of due from banks as at June 30
(unaudited) 9,574 28
For the six-month period
ended June 30
(unaudited)
As at June 30, 2017, the Group had two counterparties, whose balances individually exceeded 10% of the Group’s equity (December 31, 2016: three counterparties). The total aggregate amount of these accounts was RUR 620,454 million, or 95% of the total amount due from banks (December 31, 2016: RUR 564,902 million, or 96% of the total amount due from banks). As at June 30, 2017, interbank loans provided to “Rost Bank” (JSC) amounted to RUR 590,907 million (December 31, 2016: RUR 545,835 million). The Group assesses these interbank loans for individual impairment based on projected financial performance and expected cash flows of “Rost Bank” (JSC) until 2025 as part of implementation of financial rehabilitation measures. As at June 30, 2017, interbank loans provided to “Rost Bank” (JSC) were collectively assessed for impairment. The Group estimates loan impairment allowance for these interbank loans based on statistical information on losses incurred and recovered amounts on collectively assessed loans granted by the Group to the corporate borrowers of the same industry as the borrowers of “Rost Bank” (JSC). As at June 30, 2017, securities received as collateral under reverse repurchase agreements are listed corporate shares and debt securities (December 31, 2016: listed corporate debt securities). The following table presents information about the fair value of these securities:
June 30, 2017
(unaudited)December 31, 2016
Securities received as collateral under reverse repurchase agreements 37,342 33,941 8 Loans and advances to customers
June 30, 2017
(unaudited)December 31, 2016
Corporate loans 241,253 230,421
Loans to individuals 67,579 73,942
Small business loans 10,421 12,716
Factoring 6,168 6,869
Lease financing 1,326 1,595
Total loans to customers before allowance for impairment 326,747 325,543
Allowance for loan impairment (50,384) (52,918)
Total loans and advances to customers 276,363 272,625
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
14
8 Loans and advances to customers (continued) (a) Allowance for loan impairment The movements in allowance for impairment of loans and advances to customers for the six-month period ended June 30, 2017 were as follows:
Corporate
loans
Loans to
individuals
Small
business
loans Factoring
Lease
financing Total
Allowance for loan impairment
as at January 1, 2017 33,626 17,436 1,498 265 93 52,918
Charge/(reversal) of allowance 4,573 2,146 (24) 10 56 6,761
Loans written off as uncollectible (2,462) (606) (211) (103) (36) (3,418)
Loans sold (1,413) (4,494) (380) (19) - (6,306)
Business combinations - 429 - - - 429
Allowance for loan impairment as at
June 30, 2017 (unaudited) 34,324 14,911 883 153 113 50,384
The movements in allowance for impairment of loans and advances to customers for the six-month period ended June 30, 2016 were as follows:
Corporate
loans
Loans to
individuals
Small
business
loans Factoring
Lease
financing Total
Allowance for loan impairment
as at January 1, 2016 35,178 6,704 628 2,362 397 45,269
Charge/(reversal) of allowance (159) 653 229 (17) 57 763
Loans written off as uncollectible (415) (261) (78) - (2) (756)
Loans sold (1,015) (549) - - - (1,564)
Effects of foreign currency
translation (266) (16) - - - (282)
Allowance for loan impairment as at
June 30, 2016 (unaudited) 33,323 6,531 779 2,345 452 43,430
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
15
8 Loans and advances to customers (continued) (a) Allowance for loan impairment (continued) The Group analyzed the loan portfolio as at June 30, 2017 and December 31, 2016, and recognized the loan impairment allowance as follows:
June 30, 2017
(unaudited)December 31, 2016
Corporate loans
Total loans not individually impaired 155,210 140,728
Loans individually determined to be impaired
- not overdue 68,230 73,113
- overdue less than 90 days 10,262 11,172
- overdue more than 90 days and less than 1 year 3,419 1,933
- overdue more than 1 year 4,132 3,475
Total loans individually determined to be impaired 86,043 89,693
Total loans to corporate customers 241,253 230,421
Allowance for impairment of corporate loans (34,324) (33,626)
Total corporate loans, net of allowance for impairment 206,929 196,795
Loans to individuals
Consumer loans
- not overdue 19,198 24,906
- overdue less than 30 days 1,154 712
- overdue from 30 to 89 days 324 454
- overdue from 90 to 179 days 314 549
- overdue from 180 to 360 days 710 1,487
- overdue more than 360 days 4,171 7,214
Total consumer loans 25,871 35,322
Allowance for impairment of consumer loans (5,394) (8,514)
Total consumer loans, net of allowance for impairment 20,477 26,808
Car loans
- not overdue 1,238 234
- overdue less than 30 days 177 5
- overdue from 30 to 89 days 75 9
- overdue from 90 to 179 days 75 13
- overdue from 180 to 360 days 93 26
- overdue more than 360 days 173 174
Total car loans 1,831 461
Allowance for impairment of car loans (493) (161)
Total car loans, net of allowance for impairment 1,338 300
Refinanced loans
- not overdue 1,388 1,187
- overdue less than 30 days 211 26
- overdue from 30 to 89 days 59 68
- overdue from 90 to 179 days 42 60
- overdue from 180 to 360 days 105 154
- overdue more than 360 days 512 542
Total refinanced loans 2,317 2,037
Allowance for impairment of refinanced loans (755) (472)
Total refinanced loans, net of allowance for impairment 1,562 1,565
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
16
8 Loans and advances to customers (continued) (a) Allowance for loan impairment (continued)
June 30, 2017
(unaudited)December 31, 2016
Mortgage loans
- not overdue 8,991 9,063
- overdue less than 30 days 88 85
- overdue from 30 to 89 days 97 109
- overdue from 90 to 179 days 86 83
- overdue from 180 to 360 days 462 178
- overdue more than 360 days 1,223 1,034
Total mortgage loans 10,947 10,552
Allow ance for impairment of mortgage loans (1,299) (852)
Total mortgage loans, net of allowance for impairment 9,648 9,700
Plastic cards of individuals
- not overdue 16,610 15,239
- overdue less than 30 days 1,502 2,083
- overdue from 30 to 89 days 521 554
- overdue from 90 to 179 days 1,457 1,544
- overdue from 180 to 360 days 1,878 1,705
- overdue more than 360 days 4,645 4,445
Total plastic cards of individuals 26,613 25,570
Allow ance for impairment of plastic cards of individuals (6,970) (7,437)
Total plastic cards of individuals, net of allowance for impairment 19,643 18,133
Total loans to individuals 67,579 73,942
Total allow ance for impairment of loans to individuals (14,911) (17,436)
Total loans to individuals, net of allowance for impairment 52,668 56,506
Small business loans
Total loans not individually impaired 9,227 10,714
Loans individually determined to be impaired
- not overdue 335 487
- overdue less than 90 days 60 101
- overdue more than 90 days and less than 1 year 189 653
- overdue more than 1 year 610 761
Total loans individually determined to be impaired 1,194 2,002
Total small business loans 10,421 12,716
Allow ance for impairment of small business loans (883) (1,498)
Total small business loans, net of allowance for impairment 9,538 11,218
Factoring
Total loans not individually impaired 5,811 6,260
Loans individually determined to be impaired
- not overdue 227 219
- overdue less than 90 days 3 44
- overdue more than 90 days and less than 1 year - 269
- overdue more than 1 year 127 77
Total loans individually determined to be impaired 357 609
Total factoring 6,168 6,869
Allow ance for impairment of factoring (153) (265)
Total factoring, net of allowance for impairment 6,015 6,604
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
17
8 Loans and advances to customers (continued) (a) Allowance for loan impairment (continued)
June 30, 2017
(unaudited)December 31, 2016
Lease financing
Total loans not individually impaired 1,190 1,125
Loans individually determined to be impaired
- not overdue 92 462
- overdue less than 90 days 42 1
- overdue more than 90 days and less than 1 year 1 1
- overdue more than 1 year 1 6
Total loans individually determined to be impaired 136 470
Total lease financing 1,326 1,595
Allowance for impairment of lease financing (113) (93)
Total lease financing, net of allowance for impairment 1,213 1,502
Total loans to legal entities 259,168 251,601
Allowance for impairment of loans to legal entities (35,473) (35,482)
Total loans to legal entities, net of allowance for impairment 223,695 216,119
Total loans to customers 326,747 325,543
Allowance for impairment of loans to customers (50,384) (52,918)
Total loans to customers, net of allowance for impairment 276,363 272,625 As at June 30, 2017, total loans issued to ten major groups of borrowers (before allowance for impairment) amounted to RUR 120,407 million, or 37% of the loan portfolio before allowance for impairment (December 31, 2016: RUR 106,628 million, or 33%). 9 Customer accounts
June 30, 2017
(unaudited)December 31, 2016
State organizations
- Current/settlement accounts 7,725 8,910
- Term deposits 20,814 16,871
Legal entities
- Current/settlement accounts 45,055 55,730
- Term deposits 99,200 79,283
Individuals
- Current/settlement accounts 44,928 43,675
- Term deposits 539,785 537,911
Total amounts due to customers 757,507 742,380 As at June 30, 2017, customer accounts of RUR 60,099 million, or 8% of total customer accounts were due to the ten largest customers (or groups of customers) (December 31, 2016: RUR 52,198 million, or 7%). As at June 30, 2017, the Group has two customers with aggregated accounts greater than 10% of the Group’s equity (December 31, 2016: two customers). The gross value of these accounts was RUR 24,286 million or 3.2% of the total customer accounts (December 31, 2016: RUR 17,406 million or 2.3% of the total customer accounts).
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
18
10 Debt securities issued
Debt securities issued comprise the following:
June 30, 2017 (unaudited) December 31, 2016
Domestic bonds issued 107,598 111,501
Eurobonds 8,982 9,127
Promissory notes issued 10,435 5,868
Total debt securities issued 127,015 126,496
As at June 30, 2017, securities issued by the Bank included:
Carrying value Date of issue Maturity dateThe next offer
date
Coupon
rate
Domestic bonds issued
B&N Bank BO-2 24,056 24.09.2013 24.09.2025 27.09.2018 12.00%
B&N Bank BO-3 18,583 16.07.2013 16.07.2025 19.07.2017 12.00%
B&N Bank BO-4 24,090 14.02.2014 07.02.2020 14.02.2018 12.00%
B&N Bank BO-5 8,657 10.12.2014 02.12.2020 11.12.2017 12.00%
B&N Bank BO-6 3,144 26.01.2015 18.01.2021 25.01.2018 13.90%
B&N Bank BO-7 7,222 26.01.2015 18.01.2021 25.01.2018 13.90%
B&N Bank BO-8 784 03.04.2015 26.03.2021 04.04.2018 14.50%
B&N Bank BO-9 193 03.04.2015 26.03.2021 04.04.2018 14.50%
B&N Bank BO-10 2,061 10.06.2015 02.06.2021 11.06.2018 14.00%
B&N Bank BO-11 2,781 10.06.2015 02.06.2021 11.06.2018 14.00%
B&N Bank BO-12 2,570 10.06.2015 02.06.2021 11.06.2018 14.00%
B&N Bank BO-13 372 10.06.2015 02.06.2021 11.06.2018 14.00%
B&N Bank BO-14 4,052 03.06.2015 26.05.2021 11.06.2018 14.25%
B&N Bank BO-P01 3,003 27.03.2017 27.03.2018 - 12.15%
B&N Bank BO-P02 3,016 14.04.2017 14.04.2018 - 12.15%
B&N Bank BO-P03 3,014 15.06.2017 17.06.2020 - 12.15%
Total domestic bonds issued 107,598
Eurobonds
B&N BONDS D.A.C. 2019 8,982 21.03.2016 27.03.2019 8.50%
As at December 31, 2016, securities issued by the Bank included:
Carrying value Date of issue Maturity dateThe next offer
date
Coupon
rate
Domestic bonds issued
B&N Bank BO-2 24,106 24.09.2013 24.09.2025 27.09.2018 12.00%
B&N Bank BO-3 18,740 16.07.2013 16.07.2025 19.07.2017 12.00%
B&N Bank BO-4 24,879 14.02.2014 07.02.2020 14.02.2018 13.50%
B&N Bank BO-5 8,807 10.12.2014 02.12.2020 11.12.2017 12.00%
B&N Bank BO-6 5,303 26.01.2015 18.01.2021 25.01.2017 13.90%
B&N Bank BO-7 4,107 26.01.2015 18.01.2021 25.01.2017 13.90%
B&N Bank BO-8 3,018 03.04.2015 26.03.2021 05.04.2017 14.50%
B&N Bank BO-9 3,110 03.04.2015 26.03.2021 05.04.2017 14.50%
B&N Bank BO-10 2,999 10.06.2015 02.06.2021 13.06.2017 14.00%
B&N Bank BO-11 2,918 10.06.2015 02.06.2021 13.06.2017 14.00%
B&N Bank BO-12 5,704 10.06.2015 02.06.2021 13.06.2017 14.00%
B&N Bank BO-13 2,781 10.06.2015 02.06.2021 13.06.2017 14.00%
B&N Bank BO-14 5,029 03.06.2015 26.05.2021 13.06.2017 14.25%
Total domestic bonds issued 111,501
Eurobonds
B&N BONDS D.A.C. 2019 9,127 21.03.2016 27.03.2019 8.50%
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
19
11 Subordinated debt and perpetual subordinated deposits
As at June 30, 2017, perpetual subordinated loan received from a related party under common control equals RUR 4,525 million (December 31, 2016: RUR 4,880 million).
In case of bankruptcy, the repayment of the subordinated loans shall be made after all other liabilities of the Group are fully discharged. The subordinated debt may also be terminated or converted into ordinary shares when certain circumstances arise.
As at June 30, 2017, perpetual subordinated deposits recognized within equity in the condensed interim consolidated financial statements amounted to RUR 8,863 million (December 31, 2016: RUR 9,098 million). In accordance with IAS 32 Financial Instruments: Presentation, such instruments are classified as equity components.
The Group records USD-denominated perpetual subordinated deposits in their ruble equivalents at the CBR exchange rates as at the reporting date with recognition of the translation effect within retained earnings.
As the Bank may unilaterally refuse to pay interest on subordinated loans and perpetual subordinated deposits and it is solely to the Bank’s decision whether to pay the interest or not, the respective expenses are recognized within equity as dividends.
12 Share capital and reserves
(a) Share capital
The Bank’s share capital as at June 30, 2017, comprises the following:
Number of shares Nominal valueHyperinflation
adjustment
Total share
capital
Ordinary shares 17,409,851,387 17,410 274 17,684
Preference shares: -
- first-class 150,000 - 8 8
- fourth-class 1,415,280 1 - 1
- fifth-class 1,210 - - -
- sixth-class 21,450 - - -
- seventh-class 2,530,800 3 - 3
- eighth-class 55,710,289 56 - 56
Total share capital 17,469,680,416 17,470 282 17,752
The Bank’s share capital as at December 31, 2016, comprises the following:
Number of shares Nominal valueHyperinflation
adjustment
Total share
capital
Ordinary shares 16,894,851,387 16,895 274 17,169
Preference shares: -
- first-class 150,000 - 8 8
- fourth-class 1,415,280 1 - 1
- fifth-class 1,210 - - -
- sixth-class 21,450 - - -
- seventh-class 2,530,800 3 - 3
- eighth-class 55,710,289 56 - 56
Total share capital 16,954,680,416 16,955 282 17,237
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
20
12 Share capital and reserves (continued) (a) Share capital (continued) All shares have a fixed nominal value of 1 ruble per share. In March 2017, the Bank made an additional issue of 515,000,000 common shares through a conversion procedure (Note 5). 13 Interest income and interest expense Interest income and interest expense comprise:
2017 2016 2017 2016
Interest income
Loans and advances to customers 15,579 10,356 9,147 4,475
Overnight deposits and due from other banks 33,477 1,735 16,742 1,077
Total interest income on assets recorded at amortized cost 49,056 12,091 25,889 5,552
Financial assets available for sale 4,504 1,195 2,392 545
Total interest income on assets recorded at amortized cost and available
for sale53,560 13,286 28,281 6,097
Total interest income 53,560 13,286 28,281 6,097
Interest expense
Customer accounts (27,104) (9,196) (13,899) (4,674)
Debt securities issued (7,047) (24) (3,890) (19)
Due to the CBR and other banks (3,742) (353) (1,835) (172)
Deposits from State Corporation “Deposit Insurance Agency” and
subordinated debt (537) (389) (199) (146)
Total interest expense on liabilities recorded at amortized cost (38,430) (9,962) (19,823) (5,011)
Total interest expenses (38,430) (9,962) (19,823) (5,011)
Net interest income 15,130 3,324 8,458 1,086
For the six-month period
ended June 30
(unaudited)
For the three-month period
ended June 30
(unaudited)
14 Net gains (losses) from trading financial assets and financial assets available for sale Net gains (losses) from trading financial assets and financial assets available for sale comprise:
2017 2016 2017 2016
Net gains/(losses) from available-for-sale financial assets 756 (627) 444 (14)
Losses from trading securities (79) - (47) -
Net gains from interest-bearing derivative financial instruments - - - 4
Total net gains/(losses) from trading financial assets and financial
assets available for sale 677 (627) 397 (10)
(unaudited)
For the six-month period
ended June 30
For the three-month period
ended June 30
(unaudited)
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
21
15 Fee and commission income and expense
Fee and commission income and expense comprise:
2017 2016 2017 2016
Settlement transactions 4,579 1,946 2,480 957
Agency fee for insurance 1,393 128 777 72
Trade finance 1,236 62 781 22
Cash operations 667 516 355 353
Brokerage and other services related to investment 102 31 69 5
Other 585 160 293 16
Total fee and commission income 8,562 2,843 4,755 1,425
Settlement transactions (2,053) (802) (1,119) (427)
Cash operations (200) (142) (108) (118)
Trade finance (6) (8) (4) (3)
Other (457) (83) (298) (17)
Total fee and commission expense (2,716) (1,035) (1,529) (565)
Net fee and commission income 5,846 1,808 3,226 860
For the three-month period
ended June 30
(unaudited)
For the six-month period
ended June 30
(unaudited)
16 Other allowances
Major part of the litigation provisions relate to a claim of temporary administration of PJSC Tatfondbank to invalidate B&N Bank’s acquisition of assets in the amount of RUR 2.7 billion. The Bank charged this provision in order to mitigate its risks. The provision does not reflect the Bank’s position on the matter.
Set out below are impairment losses (other than loans impairment) and allowances:
2017 2016 2017 2016
Reversal of income/(losses) from impairment of other assets 377 28 239 360
Impairment of financial assets available for sale (245) - (43) -
Reversal (charge) of provisions for credit-related commitments 162 (3) 215 -
(Charge) reversal of provisions for legal claims (1,900) (24) 240 (12)
Other allowances (1,606) 1 651 348
For the three-month period
ended June 30
(unaudited)
For the six-month period
ended June 30
(unaudited)
17 Operating expenses
Operating expenses are as follows:
2017 2016 2017 2016
Staff costs 7,128 2,627 3,657 1,470
Amortization, depreciation, rent and other expenses related to property and
equipment 2,474 752 1,120 337
Deposit insurance expenses 1,341 593 670 430
Taxes other than income tax 736 287 371 153
Advertisement and marketing 474 22 303 14
Professional services 488 193 425 35
Computer software 414 140 58 53
Telecommunications 349 67 52 25
Security 84 62 41 33
Other 928 338 530 192
Total operating expense 14,416 5,081 7,227 2,742
(unaudited)
For the three-month period
ended June 30
(unaudited)
For the six-month period
ended June 30
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
22
18 Segment analysis The Group’s activities are managed within the Corporate banking, Retail banking, Small and medium entities, Financial market transactions segments presented as reporting segments.
► ‘Corporate banking’ includes deposit attraction and lending to corporate clients, leasing, factoring, settlements, cash management, cash collection, trade finance, syndications, guarantee finance, corporate finance and export lending finance.
► ‘Retail banking’ includes deposit attraction and lending to individuals, money transfers and currency transactions, a range of banking card products to individuals, settlements and cash management.
► ‘Small and medium entities’ includes deposit attraction and lending to small and medium entities and individual entrepreneurs, foreign exchange services, settlements, cash management transactions and cash collection for small and medium businesses.
► ‘Financial market transactions’ includes debt and equity capital markets, money markets, securities trading and brokerage, transactions with foreign currencies and precious metals, repurchase transactions, banknotes and derivatives trading, transactions initiated by the Assets and Liabilities Management Committee (“ALCO”) that manages liquidity, undertakes fund raising and performs centralized risk management activities through borrowings, issue of debt securities and investing in liquid assets.
The Group evaluates performance of its operating segments on the basis of profit or loss before tax and other comprehensive income excluding non-recurring gains and losses, such as those on disposal of property and equipment or business combinations. Assets and liabilities, gains and losses of the segments are measured in accordance with the Group’s accounting policies (Note 4). All assets and liabilities of operating segments are subject to mandatory placement/funding, which results in internal gains/(losses) related to such placement/funding. Such gains (losses) are calculated using internal interest rates, which are based on current market rates. Most operations, credit related contingencies, capital expenditures and revenues relate to residents of the Russian Federations (including subsidiaries and associates registered outside the Russian Federation). Revenues from external counterparties registered overseas primarily represent interest income on placements with foreign banks.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
23
18 Segment analysis (continued) Information on the reporting segments for the six-month period ended June 30, 2017 is provided in the table below:
Corporate
banking SME
Retail
banking
Financial
markets Unallocated
Consolidated
(Group)
Interest income 8,525 960 6,094 37,981 - 53,560
Interest expense (4,939) (1,570) (20,595) (11,326) - (38,430)
Net interest income/(expense) 3,586 (610) (14,501) 26,655 - 15,130
Internal funding (5,214) 2,576 27,968 (25,330) - -
Fee and commission income 3,291 1,650 2,117 1,504 - 8,562
Fee and commission expense (1,397) (14) (1,257) (48) - (2,716)
Net fee and commission income 1,894 1,636 860 1,456 - 5,846
Net (losses)/gains from foreign currencies (1,061) - 58 278 - (725)
Gains less losses arising from trading financial assets and financial
assets available for sale- - - 677 - 677
Other income 1,079 34 221 15 - 1,349
Other expense (686) (25) (42) (329) - (1,082)
Operating expenses (3,825) (2,193) (8,042) (356) - (14,416)Net operating income/(loss) before impairment losses, revaluation
losses and other losses (4,227) 1,418 6,522 3,066 - 6,779
Charge of other allowances (1,361) - - (245) - (1,606)
(Charge) reversal of allowance for impairment of interest-bearing assets (4,639) 24 (2,146) 2,533 - (4,228)
Gain on initial recognition of financial instruments - - - 5 - 5
Income/(loss) before tax (10,227) 1,442 4,376 5,359 - 950
Income tax benefit - - - - 242 242
Income/(loss) after tax (10,227) 1,442 4,376 5,359 242 1,192
Fair value loss - - - (2) - (2)
Realized losses reclassified to profit or loss - - - (677) - (677)
Translation differences - - - - 7 7
Income tax relating to components of other comprehensive income - - - - 136 136
Total segment results (unaudited) (10,227) 1,442 4,376 4,680 385 656
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
24
18 Segment analysis (continued) Information on the reporting segments for the six-month period ended June 30, 2016 is provided in the table below:
Corporate
banking SME
Retail
banking
Financial
markets Unallocated
Consolidated
(Group)
Interest income 7,199 788 2,712 2,587 - 13,286
Interest expense (911) (401) (8,306) (344) - (9,962)
Net interest income/(expense) 6,288 387 (5,594) 2,243 - 3,324
Internal funding (6,460) 801 8,480 (2,821) - -
Fee and commission income 689 715 1,423 16 - 2,843
Fee and commission expense (258) (47) (727) (3) - (1,035)
Net fee and commission income 431 668 696 13 - 1,808
Net gains/(losses) from foreign currencies 389 75 134 (397) - 201
Gains less losses arising from trading financial assets and financial
assets available for sale - - - (627) - (627)
Other income - - - - 891 891
Other expense (379) - - - - (379)
Operating expenses (1,245) (880) (2,481) (475) - (5,081)Net operating income/(loss) before impairment losses, revaluation
losses and other losses (976) 1,051 1,235 (2,064) 891 137
Reversal of other allowances 1 - - - - 1
(Charge) reversal of allowance for impairment of interest-bearing assets 119 (229) (653) - - (763)
(Loss)/income before tax (856) 822 582 (2,064) 891 (625)
Income tax expense - - - - (662) (662)
(Loss)/income after tax (856) 822 582 (2,064) 229 (1,287)
Fair value gains - - - 328 - 328
Realized losses reclassified to profit or loss - - - 627 - 627
Translation differences - - - - 23 23
Income tax relating to components of other comprehensive income - - - - (191) (191)
Total segment results (unaudited) (856) 822 582 (1,109) 61 (500)
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
25
18 Segment analysis (continued) Major portion of all external revenues is attributable to residents of the Russian Federation. The total amount of revenues from one external customer under common control exceeds 10% of revenues and amounts to RUR 29,069 million (six-month period ended June 30, 2016: no such customers). Most of non-current assets are located in the Russian Federation. The segment breakdown of assets and liabilities of the Group is set out below:
June 30, 2017
(unaudited)
December 31,
2016
Assets
Corporate banking 298,536 264,080
SME 10,717 12,305
Retail banking 61,019 64,852
Financial markets 745,448 739,795
Unallocated assets 27,767 21,741
Total assets 1,143,487 1,102,773
Liabilities
Corporate banking 218,520 166,465
SME 57,029 58,338
Retail banking 597,901 583,405
Financial markets 187,202 212,774
Total liabilities 1,060,652 1,020,982 The segment breakdown of the Group’s loans and advances to customers and customer accounts as at June 30, 2017 is set out below:
GroupCorporate
bankingSME
Retail
banking
Loans and advances to customers 276,363 214,157 9,538 52,668
Customer accounts 757,507 116,891 55,903 584,713 The segment breakdown of the Group’s loans and advances to customers and customer accounts as at December 31, 2016 is set out below:
GroupCorporate
bankingSME
Retail
banking
Loans and advances to customers 272,625 204,901 11,218 56,506
Customer accounts 742,380 105,646 57,408 579,326 19 Risk management (a) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in discharging its financial obligations in full in a timely manner. Liquidity risk may occur when the maturities of assets and liabilities do not match. Liquidity risk may also result from untimely discharge of obligations by the Group’s counterparties or an unforeseen need of early discharge of Group’s obligations.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
26
19 Risk management (continued) (a) Liquidity risk (continued) (i) Liquidity risk management The objective of liquidity risk management is to set the structure of assets and liabilities so as to:
► retain capacity of the Group to discharge its financial obligations;
► satisfy customers’ demand for the Group’s products;
► ensure that the Group’s business support and development plans are implemented. Liquidity risk management includes:
► assessment and control of liquidity risk for various time horizons;
► assessment and forecast of liquidity of financial markets including their influence on the Group’s liquidity;
► optimization of the structure of liquidity sources and reserves. The liquidity risk management is carried out using the following tools:
► liquidity risk assessment based on the assessment of instant, short-term and long-term liquidity, planning of customer payments and proceeds, gap analysis, stress-testing and calculation of liquidity ratios according to the requirements of the CBR;
► creating liquidity reserves comprising the most liquid financial instruments of the highest credit quality and maintaining their volume in sufficient amount to secure stable liquidity position both in normal and crisis conditions. Implementation of a stress-testing system based on analysis of the current and projected environment and selection of a test scenario allows to determine the necessary amount of liquidity reserve;
► a system of early warning indicators of liquidity crisis;
► performing work to determine and increase credit risk limits of the counterparties in order to expand opportunities on the interbank market when managing short-term liquidity.
Liquidity risk management is aimed at ensuring balanced structure of assets and liabilities in terms of demand and timelines. ALCO is responsible for making decisions related to liquidity risk management. The Treasury Department manages liquidity on a centralized basis at the consolidated level. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities, as well as their settlement, are important factors in assessing the liquidity of the Group and its risks in case of changes in interest and exchange rates. Liquidity risk is assessed by the Risk Block. The following tables show carrying amounts of assets and liabilities by their remaining contractual maturity, excluding the following instruments. The amounts placed at “Rost Bank” (JSC) as part of implementation of financial rehabilitation measures are presented in the table below by contractual maturities of borrowers of “Rost Bank” (JSC). In addition, according to Financial Rehabilitation Plan of “Rost Bank” (JSC), these loans are the main source of its financing during the entire life of the Participation Plan. According to Financial Rehabilitation Plan, the current level of funding provided to “Rost Bank” (JSC) by the Group will be retained until 2021; after that its amount will be gradually decreased. Assets available for sale are presented broken down by estimated sales dates. Overdue loans to customers are included in the category maturing from one to three years. Despite the fact that a significant portion of customer accounts are demand deposits (current/settlement client accounts), management deems them a long-term stable source of financing and presents the stable part of these accounts in category maturing from one month to five years based on classification on these accounts by client type and on historical experience. As at June 30, 2017, the amount of these accounts was RUR 43,280 million (December 31, 2016: RUR 47,331 million). In accordance with the Russian legislation, individuals have the right to withdraw their deposits, including term deposits, at any point of time, usually with a loss of accrued interest.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
27
19 Risk management (continued) (a) Liquidity risk (continued) As at June 30, 2017, the liquidity position is as follows:
Less than
1 month
1 to
6 months
6 to 12
months
1 to 3 years Over
3 years
No stated
maturity
Total (unaudited)
Assets
Cash and cash equivalents 56,099 - - - - - 56,099
Obligatory reserves with the CBR 1,808 849 589 3,393 616 - 7,255
Due from banks 81,688 106,257 100,776 50,163 303,479 - 642,363
Derivative financial instruments 67 2 - - - - 69
Financial assets available for sale
- owned by the Group 12,307 - - - - 5,235 17,542
- pledged under sale and repurchase
agreements 85,371 - - - - - 85,371
Loans and advances to customers 25,157 49,556 27,527 119,249 54,874 - 276,363
Investment property - - - - - 18,482 18,482
Property and equipment, intangible
assets - - - - - 16,950 16,950
Current income tax assets - - - - - 4,462 4,462
Deferred tax assets - - - - - 6,355 6,355
Other assets 6,860 - 2,502 2,814 - - 12,176
Total assets 269,357 156,664 131,394 175,619 358,969 51,484 1,143,487
Liabilities
Due to the CBR 55,406 - - - - - 55,406
Due to other banks 21,068 24,270 3,341 1,191 42,125 - 91,995
Derivative financial instruments 1,109 14 - - - - 1,123
Customer accounts 188,790 88,598 61,513 354,299 64,307 - 757,507
Debt securities issued 19,506 13,709 56,795 36,958 47 - 127,015
Deposits from State Corporation “Deposit
Insurance Agency” - - 2,848 - 4,406 - 7,254
Subordinated debt - - - - - 4,525 4,525
Other liabilities 15,827 - - - - - 15,827
Total liabilities 301,706 126,591 124,497 392,448 110,885 4,525 1,060,652
Net liquidity gap (32,349) 30,073 6,897 (216,829) 248,084 46,959 82,835
Cumulative liquidity gap (32,349) (2,276) 4,621 (212,208) 35,876 82,835
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
28
19 Risk management (continued) (a) Liquidity risk (continued) As at December 31, 2016, the liquidity position is as follows:
Less than
1 month
1 to
6 months
6 to 12
months
1 to 3 years Over
3 years
No stated
maturity
Total
Assets
Cash and cash equivalents 83,923 - - - - - 83,923
Obligatory reserves with the CBR 1,612 753 546 3,085 493 - 6,489
Due from banks 30,284 78,533 161,057 114,878 202,963 - 587,715
Derivative financial instruments 2 - - 116 - - 118
Financial assets available for sale
- owned by the Group 13,408 - - - - 2,754 16,162
- pledged under sale and repurchase
agreements 83,942 - - - - - 83,942
Loans and advances to customers 13,432 76,681 35,144 111,692 35,676 - 272,625
Investment property - - - - - 16,667 16,667
Property and equipment, intangible
assets - - - - - 17,604 17,604
Current income tax assets - - - - - 1,099 1,099
Deferred tax assets - - - - - 6,475 6,475
Other assets 4,946 - 2,147 2,861 - - 9,954
Total assets 231,549 155,967 198,894 232,632 239,132 44,599 1,102,773
Liabilities
Due to the CBR 43,319 - - - - - 43,319
Due to other banks 40,232 29,446 - 7,090 4,461 - 81,229
Derivative financial instruments 9 - - - - - 9
Customer accounts 184,449 86,125 62,452 352,961 56,393 - 742,380
Debt securities issued 10,034 28,768 29,099 58,550 45 - 126,496
Deposits from State Corporation “Deposit
Insurance Agency” - 2,929 - 2,763 4,439 - 10,131
Subordinated debt - - - - - 4,880 4,880
Other liabilities 7,646 - 4,892 - - - 12,538
Total liabilities 285,689 147,268 96,443 421,364 65,338 4,880 1,020,982
Net liquidity gap (54,140) 8,699 102,451 (188,732) 173,794 39,719 81,791
Cumulative liquidity gap (54,140) (45,441) 57,010 (131,722) 42,072 81,791
The Group deems transactions with financial assets as available for sale as one of the instruments to cover liquidity gaps. In addition, a significant part of customer amounts are not closed according to repayment schedule but are prolonged. Considering these factors, the Group believes that the liquidity gap will be covered within 3 years. The Bank also calculates mandatory liquidity ratios on a daily basis in accordance with the requirements of the CBR. These ratios include:
► instant liquidity ratio (N2), which is calculated as the ratio of highly liquid assets to liabilities payable on demand;
► current liquidity ratio (N3), which is calculated as the ratio of liquid assets to liabilities maturing within 30 calendar days;
► long-term liquidity ratio (N4), which is calculated as the ratio of assets maturing after 1 year to the capital and liabilities maturing after 1 year.
As at June 30, 2017 and 2016, the Bank was in compliance with these regulatory ratios.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
29
19 Risk management (continued) (a) Liquidity risk (continued) In order to ensure timely identification and mitigation of liquidity risk, the Group also monitors early warning indicators. The system of early warning indicators include several indicators of the Group’s liquidity risk exposure, indicators of financial market conditions (volatility of stock market indices, foreign exchange rates, the level of interest rates, etc.) and other external qualitative information evidencing potential deterioration of external environment. The Risk Block monitors early warning indicators on a daily basis. Based on the results of the monitoring, recommendations on measures to mitigate the risk are developed, if necessary. (b) Capital management The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of its business. The CBR sets and monitors regulatory capital requirements for B&N Bank, which is the Group’s key operational entity. The CBR sets and monitors regulatory capital requirements for the Group. The Group defines as capital the items, which in accordance with the legislation of the Russian Federation are defined as capital (equity) of credit institutions. Starting from January 1, 2014, the Group calculates its capital in accordance with CBR Regulation No. 395-P On the Methodology for Determining the Value of Equity (Capital) of Credit Institutions (Basel III) dated December 28, 2012 (hereinafter, “CBR Regulation No. 395-P”). The Group maintains the capital adequacy ratio on the level, which corresponds to the nature and scope of the Bank’s operations. On a quarterly basis, as at the first day of each month, the Group submits information on calculation of obligatory ratios to the CBR according to the established procedure. Reporting analysis and forecast Department controls compliance with capital adequacy ratios on a daily basis. If capital adequacy ratios approximate threshold values set by the CBR and the Group’s internal policies, such information is communicated to the Management Board and the Board of Directors. As at June 30, 2017 and 2016, the Group’s capital adequacy ratios were in compliance with the statutory requirements. In addition, the Group and the Bank calculate capital adequacy level in accordance with the requirements of the Basle Accord, as defined in the International Convergence of Capital Measurement and Capital Standards (updated April 1998) and Amendment to the Capital Accord to incorporate market risks (updated November 2005), commonly known as Basel I. The risk-weighted assets are measured based on a hierarchy of risk levels classified according to the nature of risk and reflecting an estimate of credit, market and other risks associated with each asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment, with some adjustments, is adopted for credit-related commitments.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
30
19 Risk management (continued) (b) Capital management (continued) The following table shows the composition of the capital calculated in accordance with the Basel Accord (Basel I) as at June 30, 2017 and December 31, 2016:
June 30, 2017
(unaudited) December 31, 2016
Tier 1 capital
Share capital 17,752 17,237
Share premium 31,852 31,852
Accumulated translation differences 138 131
Retained earnings 15,095 14,009
Non-controlling interests 59 (171)
Debt-free financing 4,133 4,133
Less: Treasury shares (5) (5)
Subordinated loans and perpetual subordinated deposits 13,388 13,978
Total Tier 1 Capital 82,412 81,164
Tier 2 capital
Asset revaluation reserve 4,948 5,507
Subordinated deposits 20,521 20,050
Total Tier 2 Capital 25,469 25,557
Total equity 107,881 106,721
Risk-weighted assets
Banking book 696,499 725,634
Trading book 23,433 10,408
Total risk-weighted assets 719,932 736,042
Total capital expressed as a percentage of risk-weighted assets ("total
capital ratio") 15.0 14.5
Total Tier 1 capital expressed as a percentage of risk-weighted assets
("tier 1 capital ratio") 11.4 11.0
As at June 30, 2017, subordinated debt within Tier 1 capital included subordinated debt in the amount of RUR 13,388 million (December 31, 2016: RUR 13,978 million), which comply in full with Basel III and Basel I adopted in the Russian Federation. 20 Fair value The Group performed an assessment of its financial instruments pursuant to requirements of IFRS 13 Fair Value Measurement and IFRS 7 Financial Instruments: Disclosures. The measurement of the fair value is intended to determine the price that would be received from the sale of an asset or paid upon the transfer of a liability as part of an orderly transaction between market participants at the valuation date. However, given the uncertainties and the use of subjective judgment, the fair value should not be interpreted as being realizable in an immediate sale of assets or transfer of liabilities. The fair value of cash and cash equivalents, balances on accounts with other banks and balances on accounts with the CBR is their carrying amount.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
31
20 Fair value (continued) The estimated fair value of quoted trading securities, derivative financial instruments and liquid financial assets available for sale is based on quoted market prices at the reporting date without any deduction for transaction costs. For securities and derivative financial instruments not traded in an active market, the fair value is estimated by using valuation techniques, which include the use of recent arm’s length transactions with these instruments, discounted cash flow analysis and other valuation techniques commonly used by market participants. The estimated fair value of loans and advances to customers is determined based on discounted estimated future cash flows expected to be received. The estimated fair value of customer accounts, which are payable on demand, is their carrying amount. The estimated fair value of customer accounts, with defined maturity and amounts due to banks, debt securities issued and subordinated debt, which are not quoted in an active market, is calculated based on discounted expected future principal and interest cash flows. The estimated fair value of other financial instruments is determined based on the discounted future cash flows expected to be received or paid. Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market-based rate for a similar instrument at the reporting date. Fair value hierarchy The following table shows an estimated fair value of financial instruments recorded at fair value, broke down to those which fair value is based on quoted market prices and those involving valuation techniques where inputs observable in the market are used as at June 30, 2017.
Quoted
market prices
(Level 1)
Significant
observable
inputs (Level 2)
Significant
unobservable
inputs (Level 3)
Total
(unaudited)
Financial assets
Derivative financial instruments - 69 - 69
Financial assets available for sale
- held by the Group 16,070 - 1,472 17,542
- pledged under sale and repurchase
agreements 85,371 - - 85,371
Financial liabilities
Derivative financial instruments - 1,123 - 1,123
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
32
20 Fair value (continued) Fair value hierarchy (continued) The following table shows an estimated fair value of financial instruments recorded at fair value, broke down to those which fair value is based on quoted market prices and those involving valuation techniques where inputs observable in the market are used as at December 31, 2016.
Quoted
market prices
(Level 1)
Significant
observable
inputs (Level 2)
Significant
unobservable
inputs (Level 3)
Total
Financial assets
Derivative financial instruments - 118 - 118
Financial assets available for sale
- held by the Group 14,566 - 1,596 16,162
- pledged under sale and repurchase
agreements 83,942 - - 83,942
Financial liabilities
Derivative financial instruments - 9 - 9 There were no transfers of financial instruments between Levels I, II and III of the fair value hierarchy during the six-month period ended June 30, 2017. As at June 30, 2017, assets measured using Level 3 models included financial assets available for sale, represented by investments in closed mutual investment fund of real estate in the amount of RUR 1,361 million and investments in the shares of JSC Analytical Credit Rating Agency (ACRA) in the amount of RUR 111 million. The units of closed-end mutual investment fund were measured by net assets method under the market and income approaches using valuation models which main assumption is real estate prices. If the Group had used a range of real estate prices of +10%/-10% of underlying assumptions, the fair value of the investments in closed mutual investment fund of real estate as at June 30, 2017 would have ranged from RUR 1,225 million to RUR 1,497 million.
As at
December 31, 2016
Gain (loss) recognized
in other comprehensive
income
As at June 30, 2017
(unaudited)
Financial assets available for sale 1,596 (124) 1,472
Total Level III assets 1,596 (124) 1,472
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
33
20 Fair value (continued) Fair value hierarchy (continued) The following table shows the analysis of the fair value of financial instruments not measured at fair value as at June 30, 2017 by level of the fair value hierarchy.
Level 1 Level 2 Level 3 Fair value, totalCarrying
value, total
Assets
Cash and cash equivalents - 56,099 - 56,099 56,099
Obligatory reserves with the CBR - 7,255 - 7,255 7,255
Due from banks - 40,973 601,390 642,363 642,363
Loans and advances to customers - - 265,286 265,286 276,363
Liabilities
Due to the CBR - 55,406 - 55,406 55,406
Due to other banks - 102,321 - 102,321 91,955
Customer accounts - 756,656 - 756,656 757,507
Debt securities issued 126,601 10,556 - 137,157 127,015
Deposits from State Corporation “Deposit
Insurance Agency” - - 7,254 7,254 7,254
Subordinated loans - 5,765 - 5,765 4,525 The following table shows the analysis of the fair value of financial instruments not measured at fair value as at December 31, 2016 by level of the fair value hierarchy.
Level 1 Level 2 Level 3 Fair value, totalCarrying
value, total
Assets
Cash and cash equivalents - 83,923 - 83,923 83,923
Obligatory reserves with the CBR - 6,489 - 6,489 6,489
Due from banks - 53,987 533,728 587,715 587,715
Loans and advances to customers - - 263,486 263,486 272,625
Liabilities
Due to the CBR - 43,319 - 43,319 43,319
Due to other banks - 87,372 - 87,372 81,229
Customer accounts - 743,456 - 743,456 742,380
Debt securities issued 126,457 5,923 - 132,380 126,496
Deposits from State Corporation “Deposit
Insurance Agency” - - 10,131 10,131 10,131
Subordinated loans - 5,765 - 5,765 4,880 The fair values of other assets and liabilities do not differ significantly from their carrying amounts.
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
34
21 Transactions with related parties For the purposes of these condensed interim consolidated financial statements, parties are considered to be related if one party has the ability to control the other party, exercise significant influence over the other party in making financial or operational decisions or jointly controls the entity as defined by IAS 24 Related Party Disclosures. In considering each possible related party relationship, the substance of the relationship is taken into consideration, not merely the legal form. Related parties include the ultimate beneficiaries and entities, where they have beneficiary interests, as well as the directors and senior management. As at June 30, 2017, ownership interests of Mikhail Shishkhanov and Mikhail Gutseriev were 67.967% and 28.488% of the voting shares of B&N Bank, respectively (December 31, 2016: 67.964% and 28.488%, respectively). Banking transactions with the related parties are entered in the normal course of business. These include settlements, loans, deposit attraction, trade finance, securities, foreign currency transactions and funding of “Rost Bank” (JSC) in the form of interbank loans. These transactions are concluded on market conditions. The outstanding balances of transactions with the related parties as at June 30, 2017 are as follows (unaudited):
Entities under
common control
Key management
personnel of the
Group
Total
Assets
Correspondent accounts and bank loans 610,964 - 610,964
Provision for amounts due from banks and other
financial institutions (9,574) - (9,574)
Financial assets available for sale 2,262 - 2,262
Loans and advances to customers (before
allowance for impairment) 72,812 68 72,880
Allowance for loan impairment (9,331) (11) (9,342)
Other assets 73 14 87
Total assets 667,206 71 667,277
Liabilities
Due to other banks 20,496 - 20,496
Derivative financial instruments 1,086 1,086
Customer accounts
– Current accounts 2,107 125 2,232
– Term deposits 18,770 178 18,948
Subordinated debt 4,525 - 4,525
Total liabilities 46,984 303 47,287
Credit-related commitments 2,897 81 2,978
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
35
21 Transactions with related parties (continued) The results of transactions with related parties as at June 30, 2017 are as follows (unaudited):
Entities under common
control
Key management
personnel of the
Group
Total
Interest income on amounts due from banks 29,069 - 29,069
Interest income on loans to customers 637 - 637
Interest expense on amounts due to customers (485) - (485)
Reversal of allowance for impairment of due from
banks 2,533 - 2,533
Reversal of allowance for impairment of interest-
earning assets 122 (11) 111
Fee and commission expense (3) - (3)
As at June 30, 2017, guarantees received by the Group from related parties as collateral for loans issued amount to RUR 8,032 million (December 31, 2016: RUR 7,610 million) (Note 8). The outstanding balances of transactions with the related parties as at December 31, 2016 are as follows:
Entities under common
control
Key management
personnel of the
Group
Total
Assets
Correspondent accounts and bank loans 545,835 - 545,835
Provision for amounts due from banks and other
financial institutions (12,107) - (12,107)
Financial assets available for sale 430 - 430
Loans and advances to customers (before allowance
for impairment) 61,729 5 61,734
Allowance for loan impairment (13,239) - (13,239)
Other assets 72 - 72
Total assets 582,720 5 582,725
Liabilities
Due to other banks 2,213 - 2,213
Customer accounts
– Current accounts 1,678 176 1,854
– Term deposits 1,197 340 1,537
Subordinated debt 4,880 - 4,880
Total liabilities 9,968 516 10,484
Credit-related commitments 346 30 376
B&N Bank Notes to the condensed interim consolidated financial statements for the six-month period ended June 30, 2017
(in millions of Russian rubles)
36
21 Transactions with related parties (continued) The results of transactions with related parties as at June 30, 2016 are as follows (unaudited):
Entities under
common control
Key management
personnel of the
Group
Total
Interest income on loans to customers 594 - 594
Interest expense on amounts due to customers - (13) (13)
Interest expense on subordinated debt (345) - (345)
Reversal of allowance for impairment of interest-
earning assets 803 - 803
For the six-month period ended June 30, 2017, the total remuneration of the members of the Board of Directors of B&N Bank, including discretionary compensation amounted to RUR 69 million (six-month period ended June 30, 2016: RUR 48 million). For the six-month period ended June 30, 2017, the total remuneration to the senior management of the Group including discretionary compensation amounted to RUR 197 million (six-month period ended June 30, 2016: RUR 69 million). The Group’s senior management includes the members of the Management Board of B&N Bank and the heads of the key divisions. As at June 30, 2017, senior management comprised 29 persons (June 30, 2016: 10 persons). 22 Subsequent events In July 2017, the Group placed an issue of stock-exchange bonds of BO-P04 series. The issue amounted to RUR 3 billion; coupon rate was 11.15% p.a. In August 2017, the Group placed an issue of stock-exchange bonds of BO-P05 series. The issue amounted to RUR 3 billion; coupon rate was 11.15% p.a. In August 2017, the Group sold LLC SEVERROS (a subsidiary). On August 7, 2017, the Board of Directors approved Yevgeny Davydovich as Chairman of the Bank’s Management Board. Official appointment should take place upon the approval of the candidate by the Bank of Russia.