tcs group holding plc international financial … financial reporting standards consolidated...

TCS Group Holding PLC

International Financial Reporting StandardsConsolidated Condensed Interim Financial Information(Unaudited)

31 March 2016

TCS Group Holding PLC

CONTENTS

CONSOLIDATED CONDENSED INTERIM FINANCIAL INFORMATION

Consolidated Condensed Interim Statement of Financial Position.............................................................................. 1Consolidated Condensed Interim Statement of Profit or Loss and Other Comprehensive Income............................. 2Consolidated Condensed Interim Statement of Changes in Equity............................................................................. 3Consolidated Condensed Interim Statement of Cash Flows....................................................................................... 4

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL INFORMATION

1 Introduction...................................................................................................................................................... 52 Operating Environment of the Group ............................................................................................................... 63 Summary of Significant Accounting Policies .................................................................................................... 74 Critical Accounting Estimates and Judgements in Applying Accounting Policies ............................................ 85 New Accounting Pronouncements................................................................................................................... 96 Cash and Cash Equivalents ............................................................................................................................ 97 Loans and Advances to Customers............................................................................................................... 108 Investment Securities Available for Sale........................................................................................................ 129 Repurchase Receivables............................................................................................................................... 1310 Due to Banks ................................................................................................................................................. 1411 Customer Accounts ....................................................................................................................................... 1412 Debt Securities in Issue ................................................................................................................................. 1413 Subordinated Debt......................................................................................................................................... 1514 Share Capital ................................................................................................................................................. 1515 Net margin ..................................................................................................................................................... 1616 Customer Acquisition Expenses .................................................................................................................... 1617 Insurance Claims Incurred............................................................................................................................. 1718 Fee and Commission Income and Expense .................................................................................................. 1719 Administrative and Other Operating Expenses.............................................................................................. 1820 Income Taxes ................................................................................................................................................ 1821 Segment Analysis .......................................................................................................................................... 1822 Management of Capital.................................................................................................................................. 2223 Contingencies and Commitments .................................................................................................................. 2324 Financial Derivatives...................................................................................................................................... 2525 Fair Value of Financial Instruments ............................................................................................................... 2626 Related Party Transactions ........................................................................................................................... 2927 Events after the End of the Reporting Period ................................................................................................ 31

pwc

Report on review of Interim Financial Information To TCS Group Holding PLC

Introduction

We have reviewed the accompanying consolidated condensed interim statement of financial position of TCS Group Holding PLC and its subsidiaries (the 'Group') as of March 31, 2016 and the related consolidated condensed statements of profit or loss and other comprehensive income, changes in equity and cash flows for the three-month period then ended and other explanatory notes. Management is responsible for the preparation and fair presentation of this consolidated condensed interim financial information in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union. Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated condensed interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union.

PricewaterhouseCoopers Limited Chartered Accountants

Limassol, June 3, 2016

PricewaterhouseCoopers Ltd, City House, 6 Karaiskakis Street, CY-3032 Limassol, Cyprus P 0 Box 53034, CY-3300 Limassol, Cyprus T: +357 25 - 555 000, F: +357 - 25 555 001, www.pwc.com.cy

PricewaterhouseCoopers Ltd is a member firm of PricewaterhouseCoopers International Ltd, each member firm of which is a separate legal entity. PricewaterhouseCoopers Ltd is a private company registered in Cyprus (Reg. No. 143594). A list of the company's directors including for individuals the present name and surname, as well as any previous names and for legal entities the corporate name, is kept by the Secretary of the company at its registered office at 3 Themistocles Dervis Street, 1066 Nicosia and appears on the company's web site. Offices in Nicosia, Limassol, Larnaca and Paphos.

TCS Group Holding PLCConsolidated Condensed Interim Statement of Financial Position

The notes set out on pages 5 to 31 form an integral part of this Consolidated Condensed Interim Financial Information

1

In thousands of RR Note31 March

201631 December

2015

ASSETSCash and cash equivalents 6 15,433,796 13,689,044Mandatory cash balances with the CBRF 812,811 674,717Due from other banks 576,430 726,209Loans and advances to customers 7 87,006,511 82,067,018Financial derivatives 24 9,978,921 11,344,871Investment securities available for sale 8 19,632,522 15,935,866Repurchase receivables 9 1,896,578 2,344,080Current income tax assets 20 444,700 742,722Guarantee deposits with payment systems 3,134,723 3,376,795Tangible fixed assets 2,384,648 2,051,514Intangible assets 1,492,769 1,418,621Other financial assets 2,353,093 3,499,560Other non-financial assets 1,622,954 1,780,966

TOTAL ASSETS 146,770,456 139,651,983

LIABILITIESDue to banks 10 5,886,250 6,391,636Customer accounts 11 95,969,960 89,342,642Debt securities in issue 12 1,969,779 1,904,857Financial derivatives 24 - 7,514Current income tax liabilities 41,779 35,784Deferred income tax liabilities 2,172,745 1,783,657Subordinated debt 13 13,792,425 14,609,295Insurance provisions 586,950 515,460Other financial liabilities 1,235,505 1,296,224Other non-financial liabilities 1,228,742 818,443

TOTAL LIABILITIES 122,884,135 116,705,512

EQUITYShare capital 14 188,112 188,112Share premium 14 8,622,919 8,622,919Treasury shares 14 (1,573,869) (327,718)Share-based payment reserve 26 729,119 614,394Retained earnings 15,605,147 13,716,168Revaluation reserve 314,893 132,596

TOTAL EQUITY 23,886,321 22,946,471

TOTAL LIABILITIES AND EQUITY 146,770,456 139,651,983

Approved for issue and signed on behalf of the Board of Directors on 3 June 2016.

TCS Group Holding PLCConsolidated Condensed Interim Statement of Profit or Loss and Other Comprehensive Income


2

In thousands of RR

Note Three monthsended

31 March2016

(Unaudited)

Three monthsended

31 March2015

(Unaudited)

Interest income 15 11,847,733 9,387,151Interest expense 15 (3,447,976) (2,895,760)Expenses on deposits insurance (91,318) (46,236)

Net margin 8,308,439 6,445,155Provision for loan impairment 7 (2,666,770) (4,140,539)

Net margin after provision for loan impairment 5,641,669 2,304,616Customer acquisition expense 16 (1,445,757) (716,899)Net gains/(losses) from operations with foreign currencies 170,032 (277,930)Gain from sale of impaired loans 13,011 -Insurance premiums earned 313,334 276,262Insurance claims incurred 17 (143,701) (40,840)Fee and commission income 18 794,892 110,810Fee and commission expense 18 (714,857) (294,099)Administrative and other operating expenses 19 (2,381,220) (1,654,661)Other operating income 235,704 36,466

Profit/(Loss) before tax 2,483,107 (256,275)Income tax 20 (594,128) 63,300

Profit/(Loss) for the period 1,888,979 (192,975)

Other comprehensive income/(loss):Items that may be reclassified to profit or lossInvestment securities available for sale and Repurchase

receivables- Net gains arising during the period, net of tax 170,055 58,415- Net losses reclassified to profit or loss upon disposal or

impairment, net of tax 12,242 2,692

Other comprehensive income for the period, net of tax 182,297 61,107

Total comprehensive income/(loss) for the period 2,071,276 (131,868)

Earnings/(Loss) per share for profit/loss attributable to theowners of the Company, basic (in RR per share) 10.91 (1.08)

Earnings/(Loss) per share for profit/loss attributable to theowners of the Company, diluted (in RR per share) 10.46 (1.07)

TCS Group Holding PLCConsolidated Condensed Interim Statement of Changes in Equity


3

In thousands of RR

Note Sharecapital

Sharepremium

Share-based

paymentreserve

Revalua-tion

Reserve

Treasuryshares

Retainedearnings

Total

Balance at31 December 2014 188,112 8,622,919 587,200 (225,047) (4,474) 11,800,358 20,969,068

Loss for the three-monthsperiod ended31 March 2015 (Unaudited) - - - - - (192,975) (192,975)

Other comprehensiveincome:

Revaluation of investmentsecurities available for saleand Repurchasereceivables - - - 61,107 - - 61,107

Total comprehensiveincome/(loss) for thethree-months periodended31 March 2015(Unaudited) - - - 61,107 - (192,975) (131,868)

Share-based paymentreserve 14,26 - - 33,394 - - - 33,394

Balance at31 March 2015(Unaudited) 188,112 8,622,919 620,594 (163,940) (4,474) 11,607,383 20,870,594

Balance at1 January 2016 188,112 8,622,919 614,394 132,596 (327,718) 13,716,168 22,946,471

Profit for the three-monthsperiod ended31 March 2016 (Unaudited) - - - - - 1,888,979 1,888,979

Other comprehensiveincome:

Revaluation of investmentsecurities available for saleand Repurchasereceivables - - - 182,297 - - 182,297

Total comprehensiveincome for the three-months period ended31 March 2016(Unaudited) - - - 182,297 - 1,888,979 2,071,276

GDRs buy-back 14 - - - - (1,246,151) - (1,246,151)Share-based payment

reserve 14,26 - - 114,725 - - - 114,725

Balance at31 March 2016(Unaudited) 188,112 8,622,919 729,119 314,893 (1,573,869) 15,605,147 23,886,321

TCS Group Holding PLCConsolidated Condensed Interim Statement of Cash Flows


4

In thousands of RR

Note Three-monthsperiod ended

31 March 2016(Unaudited)

Three-monthsperiod ended

31 March 2015(Unaudited)

Cash flows from operating activitiesInterest received 10,462,351 8,313,920Interest paid (2,758,797) (2,718,886)Expenses on deposits insurance paid (77,398) (41,476)Customers acquisition expenses paid (687,407) (410,323)Cash (paid)/received from trading in foreign currencies 434,568 760,502Cash received from insurance operations 241,697 318,713Cash received from sale of impaired loans 7 16,272 -Fees and commissions paid (638,249) (348,886)Fees and commissions received 677,459 110,810Other operating income received 215,343 21,363Administrative and other operating expenses paid (1,181,372) (847,363)Income tax paid (71,364) (15,291)

Cash flows from operating activities before changes inoperating assets and liabilities 6,633,103 5,143,083

Changes in operating assets and liabilitiesNet (increase) in CBRF mandatory reserves (138,094) (62,475)Net decrease in due from banks 154,251 -Net increase in loans and advances to customers (6,306,372) (1,095,325)Net decrease in guarantee deposits with payment systems - 373,021Net decrease other financial assets 540,356 932,905Net (decrease) in due to banks (355,649) (6,730,077)Net increase in customer accounts 6,355,494 10,820,589Net increase/(decrease) in other financial liabilities 545,967 (92,972)

Net cash from operating activities 7,429,056 9,288,749

Cash flows used in investing activitiesAcquisition of tangible fixed assets (384,831) (7,579)Acquisition of intangible assets (87,783) (57,477)Acquisition of investments available for sale (5,558,398) (2,070,000)Proceeds from sale of investments available for sale 2,036,251 473,504

Net cash used in investing activities (3,994,761) (1,661,552)

Cash flows from financing activitiesRepayment of debt securities in issue - (694,173)Repayment of subordinated debt (258,980) -GDR s buy-back (1,246,151) -

Net cash used in financing activities (1,505,131) (694,173)

Effect of exchange rate changes on cash and cash equivalents (184,412) (721,101)

Net increase in cash and cash equivalents 1,744,752 6,211,923

Cash and cash equivalents at the beginning of the period 6 13,689,044 10,699,577

Cash and cash equivalents at the end of the period 6 15,433,796 16,911,500

TCS Group Holding PLCNotes to the Consolidated Condensed Interim Financial Information 31 March 2016

5

1 Introduction

This consolidated condensed interim financial information for the three-months period ended31 March 2016

ccordance with International Accounting.

The Company was incorporated, and is domiciled, in Cyprus in accordance with the provisions ofthe Companies Law, Cap.113.

The Board of Directors of the Company at the date of authorisation of this consolidated financialinformation consists of: Constantinos Economides, Alexios Ioannides, Mary Trimithiotou, Philippe Delpal,Jacques Der Megreditchian and Martin Cocker.

The Company Secretary is: Altruco Secretarial Limited, 2nd Floor, Sotiri Tofini 4, Agios Athanasios, 4102Limassol, Cyprus.

At 31 March 2016 and 31 December 2015an ordinary share with a nominal value of USD 0.04 per share

and carrying 10 votes. At 31 March 2016 and 31 December 2015 es is

form of global depository receipts (GDRs) listed on the London Stock Exchange plc.

As at 31 March 2016 and 31 December 2015 the entities holding either Class A or Class B shares of theCompany were:

Class ofshares

31 March2016

31 December2015

Country ofIncorporation

Tadek Holding & Finance S.A. Class B 50.45% 50.45% British Virgin IslandsGuaranty Nominees Limited (JP

Morgan Chase Bank NA) Class A 42.52% 42.52% United KingdomRousse Nominees Limited Class A 2.88% 2.88% GuernseyVostok Emerging Finance Ltd Class A 3.49% 3.49% BermudaAltruco Trustees Limited Class A 0.66% 0.66% CyprusTasos Invest & Finance Inc. Class B 0.00% 0.00% British Virgin IslandsVizer Limited Class B 0.00% 0.00% British Virgin IslandsMaitland Commercial Inc. Class B 0.00% 0.00% British Virgin IslandsNorman Legal S.A. Class B 0.00% 0.00% British Virgin Islands

Total 100.00% 100.00%

Guaranty Nominees Limited is a company holding class A shares of the Company for which globaldepositary receipts are issued under a deposit agreement made between the Company and JP MorganChase Bank NA signed in October 2013.

The shareholding of Altruco Trustees Limited represents shares held under the ESOP only (Note 26).

As at 31 March 2016 and 31 December 2015 the beneficial owner of Tadek Holding & Finance S.A.,Tasos Invest & Finance Inc., Vizer Limited, Maitland Commercial Inc and Norman Legal S.A. wasRussian entrepreneur Mr. Oleg Tinkov and the beneficial owner of Rousse Nominees Limited was BaringVostok Private Equity Fund IV, L.P.

As at 31 March 2016 and 31 December 2015 the ultimate controlling party of the Company isMr. Oleg Tinkov. Mr. Oleg Tinkov controls 91.1% of the aggregated voting rights attaching to the Class Aand B shares.


6

1 Introduction (Continued)

The Group owns 100% of shares and has 100% of voting rights of each of these subsidiaries as at31 March 2016 and 31 December 2015 except for TCS Finance Ltd (see below).

-line retail banking services in Russia. The Bank specialisesin issuing credit cards.

urance services.

LLC "Microfinance organization -Finans provides micro-finance services to clients of the Group.

TCS Finance Ltd is a structured entity which issued debt securities for the Group. The Group has neithershares nor voting rights of this company. However, this entity was consolidated as it was specifically setup for the purposes of the Group, and the Group has exposure to substantially all risks and rewardsthrough outstanding guarantees of the entity s obligations.

LLC TCS provides printing and distribution services to the Group.

Goward Group Ltd is an investment holding company which manages part of the Group s assets.

LLC Feniks is a debt collection agency.

Principal activity. The Group s principal business activity is retail banking and insurance operationswithin the Russian Federation through the Bank and the Insurance Company. The Bank has operated

since 8 December 2006. The Insurance Company operates under an insurance license issued by theCBRF.

The Bank participates in the state deposit insurance scheme, which was introduced by Federal Law177-

State Deposit Insurance Agency guarantees repayment of 100% of individual deposits up toRR 1,400 thousand per individual in case of the withdrawal of a licence of a bank or a CBRF-imposedmoratorium on payments.

Registered address and place of business. The Company s registered address is 2nd floor, SotiriTofini 4, Agios Athanasios, 4102 Limassol, Cyprus. The Bank s registered address is 1-st Volokolamskyproezd, 10, building 1, 123060, Moscow, Russian Federation. The Group s principal place of business isthe Russian Federation.

Presentation currency. This consolidated condensed interim financial information is presented inthousands of Russian Rubles (RR).

2 Operating Environment of the Group

Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Itseconomy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continueto develop and are subject to frequent changes and varying interpretations (Note 23). During threemonths ended 31 March 2016 the Russian economy was negatively impacted by low oil prices, ongoingpolitical tension in the region and continuing international sanctions against certain Russian companiesand individuals, all of which contributed to the country s economic recession characterised by a decline ingross domestic product, increased interest rates and inflation and devaluation of Russian Rouble againstnearly all major foreign currencies. This has led to increased economic challenges to Russian population,which has led to significantly higher defaults in the commercial banking sector.


7

2 Operating Environment of the Group (Continued)

The financial markets continue to be volatile and are characterised by frequent significant pricemovements and increased trading spreads. Russia s credit rating was downgraded to below investmentgrade. This operating environment has a significant impact on the Group s operations and financialposition. Management is taking necessary measures to ensure sustainability of the Group s operations.However, the future effects of the current economic situation are difficult to predict and management scurrent expectations and estimates could differ from actual results.

Management determines loanapplicable accounting standards. These standards require recognition of impairment losses that arosefrom past events and prohibit recognition of impairment losses that could arise from future events,including future changes in the economic environment, no matter how likely those future events are. Thusfinal impairment losses from financial assets could differ significantly from the current level of provisions.Refer to Note 4.

3 Summary of Significant Accounting Policies

Basis of preparation. This consolidated condensed interim financial information has been prepared in

be read in conjunction with the annual consolidated financial statements for the year ended31 December 2015 which have been prepared in accordance with International Financial ReportingStandards (IFRS), as adopted by the EU, and the requirements of the Cyprus Companies Law, Cap. 113.

Except as described below, the same accounting policies and methods of computation were followed inthe preparation of this consolidated condensed interim financial information as compared with the annualconsolidated financial statements for the year ended 31 December 2015.

Interim period tax measurement. Interim period income tax expense is accrued using the effective taxrate that would be applicable to expected total annual earnings, that is, the estimated weighted averageannual effective income tax rate applied to the pre-tax income of the interim period.

Seasonality. The management does not consider that the Group s business exhibits material differencesdue to seasonality.

Repayments of written-off loans. Cash payments received on previously written-off loans arerecognised as other operating income.

Adoption of New or Revised Standards and Interpretations. Certain new standards, interpretationsand amendments to the existing standards, as disclosed in the consolidated financial statements for theyear ended 31 December 2015, became effective for the Group from 1 January 2016.

These new or amended standards or interpretations did not have any material impact on this consolidatedcondensed interim financial information.

At 31 March 2016 the principal rate of exchange used for translating foreign currency balances wasUSD 1 = RR 67.6076 (31 December 2015: USD 1 = RR 72.8827), the principal average rate of exchangewas USD 1= RR 74.6283 for three months period ended 31 March 2016 (three months period ended31 March 2015: USD 1= RR 62.1919).

Changes in presentation. Where necessary, corresponding figures have been adjusted to conform tothe presentation of the current period amounts.

The effect of reclassifications for presentation purposes was as follows on amounts in the consolidatedcondensed statement of profit or loss and other comprehensive income for the three-months periodended 31 March 2015:


8

3 Summary of Significant Accounting Policies (Continued)

Expenses on deposit insurance were reallocated from administrative expenses to a separate line withinconsolidated condensed interim statement of profit or loss and other comprehensive income:

In thousands of RR

As originallypresented

Reclassification As reclassified forthe three-months

period ended31 March 2015

Expenses on deposits insurance - (46,236) (46,236)Administrative and other expenses (1,700,897) 46,236 (1,654,661)

Expenses on deposit insurance were reallocated from administrative expenses to a separate line withinconsolidated condensed interim statement of cash flows:

In thousands of RR

As originallypresented

Reclassification As reclassified forthe three-months

period ended31 March 2015

Expenses on deposits insurance paid - (41,476) (41,476)Administrative and other operating

expenses paid (888,839) 41,476 (847,363)

The effect of reclassifications for presentation purposes was as follows on amounts in the consolidatedcondensed statement of cash flows for the three months period ended 31 March 2015:

In thousands of RRAs originally

presentedReclassification As reclassified

Net increase in loans and advances tocustomers (1,816,833) 721,508 (1,095,325)

Net decrease in customer accounts 11,542,097 (721,508) 10,820,589

4 Critical Accounting Estimates and Judgements in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognised in the consolidatedcondensed interim financial information and the carrying amounts of assets and liabilities within the nextfinancial year. Estimates and judgements are continually evaluated and are based on management sexperience and other factors, including expectations of future events that are believed to be reasonableunder the circumstances. Management also makes certain judgements, apart from those involvingestimations, in the process of applying the accounting policies. Judgements that have the most significanteffect on the amounts recognised in the consolidated condensed interim financial information andestimates that can cause a significant adjustment to the carrying amount of assets and liabilities withinthe next financial year include:

Impairment losses on loans and advances. The Group regularly reviews its loan portfolio to assessimpairment. In determining whether an impairment loss should be recorded in profit or loss for the period,the Group makes judgments as to whether there is any observable data indicating that there is ameasurable decrease in the estimated future cash flows from a portfolio of loans before the decrease canbe identified with an individual loan in that portfolio. This evidence may include observable data indicatingthat there has been an adverse change in the payment status of borrowers in a group, or national or localeconomic conditions that correlate with defaults on assets in the group. The primary factor that the Groupconsiders as objective evidence of impairment is the overdue status of the loan. In general, loans wherethere are no breaches in loan servicing are considered to be unimpaired. Given the nature of theborrowers and the loans it is the Group s view and experience that there is a very short time lag betweena possible loss event that could lead to impairment and the non or under payment of a monthlyinstalment.


9

4 Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued)

Management uses estimates based on historical loss experience for assets with credit risk characteristicsand objective evidence of impairment similar to those in the portfolio when estimating its future cashflows. The methodology and assumptions used for estimating both the amount and timing of future cashflows are reviewed regularly to reduce any differences between loss estimates and actual lossexperience.

In accordance with the internal methodology for the provision estimation the Group uses its historicalretail loan loss statistics for assessment of probabilities of default. The last twelve months of historicalloss data are given the most weight in calculating the provision for impairment. This allows the Group toapply most recent data to estimate losses on loans to individuals as the latest trends are accounted for,and to decrease the default probabilities volatility. The loan loss provision includes adjustment for theexpected future recovery of impaired loans based on conservative sampling of historical data. As at31 March 2016 the positive effect of the above adjustment on provision for loan impairment isapproximately RR 236,323 thousand (31 December 2015: RR 256,372 thousand).

To the extent that the incurred losses as at 31 March 2016 resulting from future cash flows vary by 1.0%(31 December 2015: 1.0%) from the calculated estimate, the profit would be approximatelyRR 1,049,169 thousand (31 December 2015: RR 1,010,813 thousand) higher or lower.

5 New Accounting Pronouncements

Since the Group published its last annual consolidated financial statements for the year ended31 December 2015, certain new standards and interpretations have been issued that are mandatory forthe Group s annual accounting periods beginning on or after 1 January 2016 or later and which the Grouphas not early adopted:

Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016 andeffective for annual periods beginning on or after 1 January 2018). The amendments do not changethe underlying principles of the Standard but clarify how those principles should be applied. Theamendments clarify how to identify a performance obligation (the promise to transfer a good or a serviceto a customer) in a contract; how to determine whether a company is a principal (the provider of a good orservice) or an agent (responsible for arranging for the good or service to be provided); and how todetermine whether the revenue from granting a licence should be recognised at a point in time or overtime. In addition to the clarifications, the amendments include two additional reliefs to reduce cost andcomplexity for a company when it first applies the new Standard.

The amendments have not yet been endorsed by the European Union:

The Group has also not early adopted any of the new standards and interpretations disclosed in the NewAccounting Pronouncements note in its last annual financial statements and effective for its annualperiods beginning on or after 1 January 2016.

6 Cash and Cash Equivalents

In thousands of RR31 March

201631 December

2015

Cash on hand 34,074 34,991Cash balances with the CBRF (other than mandatory reserve deposits) 3,392,750 5,314,736Placements with other banks and organizations with original maturities of

less than three months 12,006,972 8,339,317

Total Cash and Cash Equivalents 15,433,796 13,689,044


10

6 Cash and Cash Equivalents (Continued)

Placements with other banks and organizations with original maturities of less than three months includeplacements under reverse sale and repurchase agreements in the amount of RR 9,047,347 thousand asat 31 March 2016 (31 December 2015: 5,733,462).

Cash and cash equivalents are neither impaired nor past due. Refer to Note 25 for the disclosure of thefair value of cash and cash equivalents.

7 Loans and Advances to Customers


201631 December

2015

Loans to individuals:Credit card loans 94,369,729 90,381,616Instalment loans 8,136,166 8,283,462Cash loans 1,683,021 1,724,352POS loans 727,986 691,824

Total loans and advances to customers before impairment 104,916,902 101,081,254Less: Provision for loan impairment (17,910,391) (19,014,236)

Total loans and advances to customers 87,006,511 82,067,018

Credit cards are issued to customers for cash withdrawals or payment for goods or services, within therange of limits established by the Bank. These limits may be increased or decreased from time-to-timebased on management decision. Credit card loans are not collateralized.

The Bank has a restructuring programme for delinquent borrowers who demonstrate a willingness tosettle their debt by switching to fixed monthly repayments

Cash loans represent a product for the borrowers who have a positive credit history and who do not haveoverdue loans in other banks. Cash loans are loans provided to customers via the Bank s debit cards.These loans are available for withdrawal without commission.

(KupiVKredit). This programme funds online purchases through internet shops for individual borrowers.

Presented below is an analysis of issued, activated and utilised cards based on their credit card limits asat the end of the reporting period:

In units31 March

201631 December

2015

Credit card limitsUp to 20 RR thousand 457,109 441,85420-40 RR thousand 336,828 334,21440-60 RR thousand 244,380 240,45960-80 RR thousand 200,457 200,19480-100 RR thousand 179,351 171,692100-120 RR thousand 157,581 144,918120-140 RR thousand 280,095 266,349More than 140 RR thousand 81,023 71,613

Total cards 1,936,824 1,871,293

Table above includes only credit cards overdue less than 180 days.


11

7 Loans and Advances to Customers (Continued)

Movements in the provision for loan impairment for the 3 months-period ended 31 March 2016 are asfollows:

In thousands of RR

As at31 December

2015

Sales ofimpaired

loans

Amountswritten-offduring the

period

Provision forimpairmentduring the

period

As at31 March

2016

Loans to individuals:Credit card loans 14,486,579 (154,689) (2,959,789) 2,010,312 13,382,413Instalment loans 4,093,487 (6,852) (490,128) 598,230 4,194,737Cash loans 272,087 (2,433) (81,650) 33,019 221,023POS loans 162,083 - (75,074) 25,209 112,218

Total provision for loanimpairment 19,014,236 (163,974) (3,606,641) 2,666,770 17,910,391

Movements in the provision for loan impairment for the 3 months-period ended 31 March 2015 are asfollows:

In thousands of RR

As at31 December

2014

Sales ofimpaired

loans

Amountswritten-offduring the

period

Provision forimpairmentduring the

period

As at31 March

2015

Loans to individuals:Credit card loans 15,609,454 - (3,709,959) 3,037,690 14,937,185Instalment loans 3,133,634 - (527,786) 934,133 3,539,981Cash loans 457,893 - - 91,066 548,959POS loans 126,347 - (34,469) 77,650 169,528

Total provision for loanimpairment 19,327,328 - (4,272,214) 4,140,539 19,195,653

During three-months period ended 31 March 2016 the Group sold impaired loans to third parties (externaldebt collection agencies) with a gross amount of RR 167,235 thousand and provision for impairment ofRR 163,974 thousand (three months period ended 31 March 2015: none). The difference between thecarrying amount of these loans and the consideration received was recognised in profit or loss as gainfrom the sale of impaired loans in the amount of RR 13,011 thousand for the three months period ended31 March 2016.


12

7 Loans and Advances to Customers (Continued)

Analysis of loans to individuals by credit quality is as follows:

31 March 2016 31 December 2015

In thousands of RR

Credit cardloans

Instal-mentloans

Cashloans

POSloans

Credit cardloans

Instal-mentloans

Cashloans

POSloans

Neither past duenor impaired:

- new 2,566,684 - 196,978 167,683 2,166,188 - 347,515 130,487Loans collectively

assessed forimpairment(gross):

- non-overdue 77,025,542 5,262,354 1,251,319 439,142 72,609,522 5,460,407 1,097,210 391,435- less than 30 days

overdue 2,491,114 585,141 48,630 18,016 2,346,495 626,659 42,075 15,842- 30 to 90 days

overdue 2,383,311 576,368 46,651 19,621 2,622,035 680,646 40,160 20,669- 90 to 180 days

overdue 2,911,422 828,174 46,356 24,621 2,795,976 582,822 49,980 24,390- 180 to 360 days

overdue 2,892,996 884,129 93,087 58,903 3,516,483 932,928 147,412 109,001- loans in courts 4,098,660 - - - 4,324,917 - - -

Less: Provision forloan impairment (13,382,413) (4,194,737) (221,023) (112,218) (14,486,579) (4,093,487) (272,087) (162,083)

Total loans toindividuals 80,987,316 3,941,429 1,461,998 615,768 75,895,037 4,189,975 1,452,265 529,741

Loans innot occur before the reporting date and thus no impairment provision is considered necessary.

Loans in courts are loans to delinquent borrowers, against which the Group has filed claims to courts inorder to recover outstanding balances.

The Group assesses non-overdue loans for impairment collectively as a homogeneous population withsimilar credit quality as disclosed above.

The Group considers overdue loans as impaired.

Refer to Note 25 for the estimated fair value of loans and advances to customers. Information on relatedparty balances is disclosed in Note 26.

8 Investment Securities Available for Sale


201631 December

2015

Corporate bonds 19,362,152 15,623,636Russian government bonds 270,370 312,230

Total investment securities available for sale 19,632,522 15,935,866


13

8 Investment Securities Available for Sale (Continued)

The movements in investment securities available for sale during three months ended 31 March 2016 areas follows:


2016

Carrying amount at 1 January 15,935,866Purchases 5,558,398Redemption of investment securities available for sale (1,648,220)Disposal of investment securities available for sale (388,031)Interest income accrued on investment securities available for sale 407,493Interest received (304,823)Receipt under Sale and Repurchase agreements 327,471Foreign exchange loss on investment securities available for sale in currency (460,761)Revaluation through other comprehensive income 205,129

Carrying amount at 31 March 2016 19,632,522

The movements in investment securities available for sale during three months ended 31 March 2015 areas follows:

In thousands of RR 2015

Carrying amount at 1 January 216,535Purchases 2,070,000Redemption of investment securities available for sale (473,504)Interest income accrued on investment securities available for sale and repurchase receivables 136,170Interest received (121,952)Receipt under sale and repurchase agreements 5,366,280Pledged under Sale and Repurchase agreements (648)Foreign exchange loss on investment securities available for sale in currency (12,125)Revaluation through other comprehensive income 76,384

Carrying amount at 31 March 2015 7,257,140

9 Repurchase Receivables

Repurchase receivables represent securities sold under sale and repurchase agreements through whichthe counterparty has the right, by contract or custom, to sell or repledge the securities. The repurchaseagreements mature by 20 April 2016 (31 December 2015: the short-term repurchase agreements maturebetween 11 January 2016 and 20 April 2016).


201631 December

2015

Available-for-sale securities sold under sale and repurchaseagreements

Corporate bonds 1,896,578 2,060,815Russian government bonds - 283,265

Total repurchase receivables 1,896,578 2,344,080


14

10 Due to Banks


201631 December

2015

Short-term loan from CBRF 4,013,934 4,014,043Sale and repurchase agreements with CBRF 1,721,642 2,127,346Due to other banks 150,674 250,247

Total due to banks 5,886,250 6,391,636

On 17 February 2016 the Group raised two loans from CBRF in the total amount of RR 2,000 mln with acontractual interest rate of 12.75% maturing 31 October 2016.

On 25 February 2016 the Group raised two loans from CBRF in the total amount of RR 2,000 mln with acontractual interest rate of 12.75% maturing 25 May 2016.

On 14 October 2015 the Group raised two loans from CBRF in the total amount of RR 2,000 mln with acontractual interest rate of 12.75%. The loan was fully redeemed on 12 January 2016.

On 5 November 2015 the Group raised two loans from CBRF in the total amount of RR 2,000 mln with acontractual interest rate of 12.75%. The loan was fully redeemed on 3 February 2016.

Refer to Note 25 for the disclosure of the fair value of due to banks.

11 Customer Accounts


201631 December

2015

Legal entities- Current/settlement accounts of corporate entities 792,668 517,715- Term deposits of corporate entities 345,464 375,123

Individuals- Current/settlement accounts of individuals 26,626,364 24,505,510- Term deposits of individuals 68,205,464 63,944,294

Total Customer Accounts 95,969,960 89,342,642

Refer to Note 25 for the estimated fair value of customer accounts. Information on related party balancesis disclosed in Note 26.

12 Debt Securities in Issue

In thousands of RRMaturity date 31 March

201631 December

2015

Euro-Commercial Paper issued in December 2015 20 June 2016 1,940,809 1,876,764RR denominated bonds issued in May 2013 24 May 2016 28,970 28,093

Total Debt Securities in Issue 1,969,779 1,904,857

On 2 December 2015 the Group issued RR denominated Euro-Commercial Paper (ECP) with a nominalvalue of RR 2 bln with a discount of 7.2% maturing on 20 June 2016.


15

12 Debt Securities in Issue (Continued)

On 28 May 2013 the Group issued RR denominated bonds with a nominal value of RR 3,000 mln at10.25% coupon rate maturing on 24 May 2016. As a result of an offer event as at 25 November 2014securities with nominal value of RR 1,880 mln were repurchased by the Group. In November 2014 theGroup set the coupon rate at 14.00% till the next offer event. On 29 May 2015 as a result of an offerevent securities with nominal value of RR 1,092 mln were repurchased by the Group. In May 2015 theGroup set the coupon rate at 12.50% till maturity.

All bonds issued by the Group are traded on stock exchanges. Refer to Note 25 for the disclosure of thefair value of debt securities in issue.

13 Subordinated Debt

As at 31 March 2016 the carrying value of the subordinated debt was RR 13,792,425 thousand(31 December 2015: RR 14,609,295 thousand). On 6 December 2012 and 18 February 2013 the Groupissued USD denominated subordinated bonds with a nominal value of USD 125 mln with zero premiumand USD 75 mln at a premium of 7.0% respectively, at 14.0% coupon rate (applicable to both tranches)maturing on 6 June 2018. The claims of lenders against the Group in respect of the principal and intereston these bonds are subordinated to the claims of other creditors in accordance with the legislation of theRussian Federation.

Refer to Note 25 for the disclosure of the fair value of financial instruments.

14 Share Capital

In thousands of RR exceptfor number of shares

Number ofauthorised

shares

Number ofoutstanding

shares

Ordinaryshares

Sharepremium

Treasuryshares

Total

At 31 December 2014 190,479,500 182,638,825 188,112 8,622,919 (4,474) 8,806,557

At 31 December 2015 190,479,500 182,638,825 188,112 8,622,919 (327,718) 8,483,313

GDRs buy-back - - - - (1,246,151) (1,246,151)

At 31 March 2016 190,479,500 182,638,825 188,112 8,622,919 (1,573,869) 7,237,162

During the three months ended 31 March 2016 the Group repurchased 5,659,853 GDRs at amount of RR1,246,151 thousand at market prices.

Treasury shares represent GDRs and shares of the Group under the ESOP, Equity LTIP and MLTIP andall held by a trustee and GDRs repurchased from the market in 2015 and during the three months periodended 31 March 2016. Refer to Note 26.


16

15 Net margin

In thousands of RR

Three-MonthsPeriod Ended

31 March 2016


31 March 2015

Interest incomeLoans and advances to customers, including:

Credit card loans 10,628,433 8,783,849Instalment loans 234,311 202,468Cash loans 190,349 164,887POS loans 106,695 94,745

Investment securities available for sale and Repurchasereceivables 433,116 136,170

Placements with other banks 251,344 5,032Other interest income 3,485 -

Total Interest Income 11,847,733 9,387,151

Interest expenseCustomer accounts 2,716,566 1,680,001Subordinated debt 535,415 440,317Due to banks 131,075 193,973Euro-Commercial Paper 64,045 2,305RR denominated bonds 875 134,993Eurobonds - 444,171

Total Interest Expense 3,447,976 2,895,760

Expenses on deposit insurance (91,318) (46,236)

Net margin 8,308,439 6,445,155

16 Customer Acquisition Expenses

In thousands of RR


31 March 2016


31 March 2015

Marketing and advertising 738,403 330,990Staff costs 619,775 337,136Credit bureaux 56,086 35,413Telecommunication expenses 31,385 13,137Personalisation, printing and distribution 108 223

Total customer acquisition expenses 1,445,757 716,899

Customer acquisition expenses represent expenses paid by the Group on services related to originationof credit card customers. The Group uses a variety of different channels for the acquisition of newcustomers.

Staff costs represent salary expenses and related costs of employees involved in customer acquisition.Included in staff costs are statutory social contributions to the state pension fund in the amount ofRR 120,065 thousand (three-months period ended 31 March 2015: RR_68,669 thousand).


17

17 Insurance Claims Incurred

In thousands of RR


31 March 2016


31 March 2015

Claims paid 87,584 21,076Change in loss provision 50,741 16,883Claims handling expenses 5,376 2,881

Total insurance claims incurred 143,701 40,840

Staff and administrative expense for insurance operations are included in Note 19.

18 Fee and Commission Income and Expense

In thousands of RR


31 March 2016


31 March 2015

Fee and commission incomeMerchant acquiring commission 320,726 -Interchange fee 180,043 52,145Court fees reimbursement 117,433 -Card to card commission 37,716 10,169Cash withdrawal fee 36,067 21,141SMS fee 30,133 12,463Placement fee 21,967 12,723Other fees receivable 50,807 2,169

Total fee and commission income 794,892 110,810

In thousands of RR


31 March 2016


31 March 2015

Fee and commission expensePayment systems 601,333 176,948Service fees 100,836 103,201Banking and other fees 12,688 13,950

Total fee and commission expense 714,857 294,099

Service fees represent fees for statement printing, mailing services and sms services.

Payment systems fees represent fees for MasterCard and Visa services.


18

19 Administrative and Other Operating Expenses

In thousands of RR


31 March 2016


31 March 2015

Staff costs 1,563,811 992,148Taxes other than income tax 271,324 245,522Rental expenses 149,521 116,898Communication services 96,324 52,528Information services 78,225 48,912Depreciation of tangible fixed assets 55,872 66,938Amortization of intangible assets 54,786 44,537Security expenses 27,287 15,377Professional services 26,597 24,142Stationary and office expenses 22,532 14,170Transportation 2,494 3,028Other administrative expenses 32,447 30,461

Total administrative and other operating expenses 2,381,220 1,654,661

Included in staff costs are statutory social contributions to the pension fund and share-basedremuneration:

In thousands of RR


31 March 2016


31 March 2015

Statutory social contribution to the pension fund 249,644 197,173Share-based remuneration 114,725 33,394

20 Income Taxes

Income tax expense comprises the following:

In thousands of RR


31 March 2016


31 March 2015

Current tax (255,002) (8,882)Deferred tax (339,126) 72,182

Income tax (expense)/credit for the period (594,128) 63,300

21 Segment Analysis

Operating segments are components that engage in business activities that may earn revenues or incurexpenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM)and for which discrete financial information is available. The CODM is the person or group of personswho allocates resources and assesses the performance for the Group. The functions of CODM areperformed by the Board of Directors of the Group.


19

21 Segment Analysis (Continued)

Description of products and services from which each reportable segment derives its revenue

The Group is organised on the basis of 2 main business segments:

Retail banking representing private banking services, private customer current accounts, savings,deposits, investment savings products, custody, credit and debit cards, consumer loans andmortgages;

Insurance operations representing insurance services provided to individuals.

Factors that management used to identify the reportable segments

The Group s segments are strategic business units that focus on different services to the customers ofthe Group. They are managed separately because each business unit requires different marketingstrategies and represents different types of businesses.

Measurement of operating segment profit or loss, assets and liabilities

The CODM reviews financial information prepared based on International financial reporting standardsadjusted to meet the requirements of internal reporting. The CODM evaluates performance of eachsegment based on profit before tax.

Information about reportable segment profit or loss, assets and liabilities

Segment information for the reportable segments as at 31 March 2016 is set out below:

In thousands of RRRetail

bankingInsurance

operationsEliminations Total

Cash and cash equivalents 15,253,659 589,754 (409,617) 15,433,796Mandatory cash balances with the CBRF 812,811 - - 812,811Due from other banks - 576,430 - 576,430Loans and advances to customers 87,006,511 - - 87,006,511Financial derivatives 9,978,921 - - 9,978,921Investment securities available for sale 19,632,522 - - 19,632,522Repurchase receivables 1,896,578 - - 1,896,578Current income tax assets 415,096 29,604 - 444,700Guarantee deposits with payment systems 3,134,723 - - 3,134,723Tangible fixed assets 2,382,190 2,458 - 2,384,648Intangible assets 1,159,376 333,393 - 1,492,769Other financial assets 2,338,103 34,086 (19,096) 2,353,093Other non-financial assets 1,489,284 133,670 - 1,622,954

Total reportable segment assets 145,499,774 1,699,395 (428,713) 146,770,456

Due to banks 5,886,250 - - 5,886,250Customer accounts 96,379,577 - (409,617) 95,969,960Debt securities in issue 1,969,779 - - 1,969,779Current income tax liability 41,779 - - 41,779Deferred income tax liability 2,150,137 22,608 - 2,172,745Subordinated debt 13,792,425 - - 13,792,425Insurance provisions - 586,950 586,950Other financial liabilities 1,176,681 77,920 (19,096) 1,235,505Other non-financial liabilities 1,208,946 19,796 - 1,228,742

Total reportable segment liabilities 122,605,574 707,274 (428,713) 122,884,135


20


Segment information for the reportable segments for the year ended 31 December 2015 is set out below:


bankingInsurance


Cash and cash equivalents 13,665,935 386,254 (363,145) 13,689,044Mandatory cash balances with the CBRF 674,717 - - 674,717Due from other banks - 726,209 - 726,209Loans and advances to customers 82,067,018 - - 82,067,018Financial derivatives 11,344,871 - - 11,344,871Investment securities available for sale 15,935,866 - - 15,935,866Repurchase receivables 2,344,080 - - 2,344,080Current income tax assets 713,118 29,604 - 742,722Guarantee deposits with payment systems 3,376,795 - - 3,376,795Tangible fixed assets 2,049,283 2,231 - 2,051,514Intangible assets 1,089,227 329,394 - 1,418,621Other financial assets 3,455,799 65,582 (21,821) 3,499,560Other non-financial assets 1,664,619 116,347 - 1,780,966

Total reportable segment assets 138,381,328 1,655,621 (384,966) 139,651,983

Due to banks 6,391,636 - - 6,391,636Customer accounts 89,705,787 - (363,145) 89,342,642Debt securities in issue 1,904,857 - - 1,904,857Current income tax liabilities 35,784 - - 35,784Deferred income tax liability 1,752,673 30,984 - 1,783,657Subordinated debt 14,609,295 - - 14,609,295Financial derivatives 7,514 - - 7,514Insurance provisions - 515,460 515,460Other financial liabilities 1,246,530 71,515 (21,821) 1,296,224Other non-financial liabilities 805,438 13,005 - 818,443

Total reportable segment liabilities 116,459,514 630,964 (384,966) 116,705,512


21


Segment information for the reportable segments for three months ended 31 March 2016 and31 March 2015 is set out below:


bankingInsurance


Three Months ended 31 March 2016

External revenues:Interest income 11,823,709 24,024 - 11,847,733Insurance premiums earned - 313,334 313,334Gain from sale of impaired loans 13,011 - - 13,011Fee and commission income 856,828 - (61,936) 794,892Net gains from operations with foreign

currencies 170,032 - - 170,032Other operating income 233,983 4,786 (3,065) 235,704

Total revenues 13,097,563 342,144 (65,001) 13,374,706

Interest expense (3,447,976) - - (3,447,976)Expenses on deposit insurance (91,318) - - (91,318)Provision for loan impairment (2,666,770) - - (2,666,770)Customer acquisition expense (1,373,705) (133,988) 61,936 (1,445,757)Insurance claims incurred - (143,701) - (143,701)Fee and commission expense (714,857) - - (714,857)Administrative and other operating expenses (2,278,917) (105,368) 3,065 (2,381,220)

Segment result 2,524,020 (40,913) - 2,483,107


bankingInsurance


Three Months ended 31 March 2015

External revenues:Interest income 9,385,879 1,272 - 9,387,151Insurance premiums earned - 276,262 - 276,262Fee and commission income 186,583 - (75,773) 110,810Other operating income 36,989 - (523) 36,466

Total revenues 9,609,451 277,534 (76,296) 9,810,689

Interest expense (2,895,760) - - (2,895,760)Expenses on deposit insurance (46,236) - - (46,236)Provision for loan impairment (4,140,539) - - (4,140,539)Customer acquisition expense (660,393) (132,279) 75,773 (716,899)Insurance claims incurred - (40,840) - (40,840)Net losses from operations with foreign

currencies (277,930) - - (277,930)Fee and commission expense (294,099) - - (294,099)Administrative and other operating expenses (1,585,739) (69,445) 523 (1,654,661)

Segment result (291,245) 34,970 - (256,275)


22


Reconciliation of reportable segment revenues, profit or loss, assets and liabilities:

In thousands of RR


31 March 2016


31 March 2015

Total revenues for reportable segments 13,439,707 9,886,985Intercompany transactions (65,001) (76,296)

Total consolidated revenues 13,374,706 9,810,689

Total consolidated revenues comprise interest income, income from insurance operations, gain from saleof impaired loans, fee and commission income, net gains from operations with foreign currencies andother operating income.

In thousands of RR


31 March 2016


31 March 2015

Total reportable segment result 2,483,107 (256,275)

Profit before tax 2,483,107 (256,275)


201631 December

2015

Total reportable segment assets 147,199,169 140,036,949Intercompany balances (428,713) (384,966)

Total consolidated assets 146,770,456 139,651,983


201631 December

2015

Total reportable segment liabilities 123,312,848 117,090,478Intercompany balances (428,713) (384,966)

Total consolidated liabilities 122,884,135 116,705,512

22 Management of Capital

The Group s objectives when managing capital are (i) for the Bank to comply with the capitalrequirements set by the CBRF, (ii) for the Group to comply with the financial covenants set by the termsof RR and USD denominated securities issued; (iii) to safeguard the Group s ability to continue as a goingconcern.

The Group considers total capital under management to be equity as shown in the consolidatedcondensed interim statement of financial position. The amount of capital that the Group managed as of31 March 2016 was RR 23,886,321 thousand (31 December 2015: RR 22,946,471 thousand).Compliance with capital adequacy ratios set by the CBRF is monitored daily and submitted to the CBRFmonthly with reports outlining their calculation reviewed and signed by the Bank s Chief Executive Officerand Chief Accountant. Other objectives of capital management are evaluated annually.


23

22 Management of Capital (Continued)

Under the current capital requirements set by the CBRF banks have to maintain a ratio of regulatorycapital to of 8%. Basedon the report submitted to CBRF the Bank s statutory capital ratio is higher than the prescribed minimumlevel as of 31 March 2016.

The Group also monitors capital requirements including capital adequacy ratio under the Basel IIImethodology of the Basel Committee on Banking Supervision: international regulatory standards for more

capital calculated inaccordance with the methodology set by Basel Committee with capital adjustments as set out in Basel IIIas at 31 March 2016 was RR 27,910,522 thousand (31 December 2015: RR 28,102,033 thousand), theamount of Tier 1 capital as at 31 March 2016 was RR 22,393,552 thousand (31 December 2015: RR21,527,850 thousand). Total capital adequacy ratio and Tier 1 capital adequacy ratio were 17.72% and14.22% respectively (31 December 2015: 18.25% and 13.98% respectively). The Group and the Bankhave complied with all externally imposed capital requirements throughout three months period ended31 March 2016 and 2015.

23 Contingencies and Commitments

Legal proceedings. From time to time and in the normal course of business, claims against the Groupmay be received. On the basis of its own estimates and internal professional advice management is ofthe opinion that no material losses will be incurred in respect of claims.

Tax contingencies. Russian tax legislation which was enacted or substantively enacted at the end of thereporting period, is subject to varying interpretations when being applied to the transactions and activitiesof the Group. Consequently, tax positions taken by management and the formal documentationsupporting the tax positions may be challenged tax authorities. Russian tax administration is graduallystrengthening, including the fact that there is a higher risk of review of tax transactions without a clearbusiness purpose or with tax incompliant counterparties. Fiscal periods remain open to review by theauthorities in respect of taxes for three calendar years preceding the year when decision about reviewwas made. Under certain circumstances reviews may cover longer periods.

The Russian transfer pricing legislation is generally aligned with the international transfer pricingprinciples developed by the Organisation for Economic Cooperation and Development (OECD) but hasspecific characteristics. This legislation provides the possibility for tax authorities to make transfer pricingadjustments and impose additional tax liabilities in respect of controlled transactions (transactions withrelated parties and some types of transactions with unrelated parties), provided that the transaction priceis not arm s length.

Tax liabilities arising from transactions between companies are determined using actual transactionprices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transferprices could be challenged. The impact of any such challenge cannot be reliably estimated; however, itmay be significant to the financial position and/or the overall operations of the Group.

The Group includes companies incorporated outside of Russia. The tax liabilities of the Group aredetermined on the assumption that these companies are not subject to Russian profits tax, because theydo not have a permanent establishment in Russia. This interpretation of relevant legislation may bechallenged but the impact of any such challenge cannot be reliably estimated currently; however, it maybe significant to the financial position and/or the overall operations of the Group.

In 2014, the Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits offoreign companies and non-corporate structures (including trusts) controlled by Russian tax residents(controlling parties). Starting from 2015, CFC income is subject to a 20% tax rate. As a result,management reassessed the Group s tax positions and recognised current tax expense as well asdeferred taxes for temporary differences that arise from the expected taxable manner of recovery of therelevant Group s operations to which the CFC legislation applies to and to the extent that the Group(rather than its owners) is obliged to settle such taxes.


24

23 Contingencies and Commitments (Continued)

As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, fromtime to time, interpretations of such uncertain areas that reduce the overall tax rate of the Group. Whilemanagement currently estimates that the tax positions and interpretations that it has taken can probablybe sustained, there is a possible risk that outflow of resources will be required should such tax positionsand interpretations be challenged by the tax authorities. The impact of any such challenge cannot bereliably estimated; however, it may be significant to the financial position and/or the overall operations ofthe Group.

As at 31 March 2016 no material tax risks were identified (2015: same).

Operating lease commitments. Where the Group is the lessee, the future minimum lease paymentsunder non-cancellable operating leases are as follows:


201631 December

2015

Not later than 1 year 512,645 660,345

Total operating lease commitments 512,645 660,345

Other commitments. Other commitments include the fixed sponsorship fee under contract with theTinkoff-Saxo Cycling Team. The future sponsorship payments are as follows:


201631 December

2015

Not later than 1 year 574,040 597,729

Total other commitments 574,040 597,729

Compliance with covenants. The Group is subject to certain covenants related primarily to itssubordinated debt. Non-compliance with such covenants may result in negative consequences for theGroup. Management believes that the Group was in compliance with all such covenants as at31 March 2016 and 31 December 2015.

Credit related commitments. The primary purpose of these instruments is to ensure that funds areavailable to a customer as required. Commitments to extend credit represent unused portions ofauthorisations to extend credit in the form of credit card loans. With respect to credit risk on commitmentsto extend credit, the Group is potentially exposed to loss in an amount equal to the total unusedcommitments, if the unused amounts were to be drawn down. Most commitments to extend credit arecontingent upon customers maintaining specific credit standards. The Group monitors the term to maturityof credit related commitments because longer-term commitments generally have a greater degree ofcredit risk than shorter-term commitments.

Outstanding credit related commitments are as follows:


201631 December

2015

Unused limits on credit card loans 55,750,706 50,829,812

The total outstanding contractual amount of unused limits on contingencies and commitments liabilitydoes not necessarily represent future cash requirements, as these financial instruments may expire orterminate without being funded. In accordance with credit card service conditions the Group has a right torefuse the issuance, activation, reissuing or unblocking of a credit card, and is providing a credit card limitat its own discretion and without explaining its reasons. Also the Group has a right to increase ordecrease a credit card limit at any time without prior notice. Credit related commitments are denominatedin RR. Therefore, the fair value of the contractual amount of revocable unused limits on contingenciesand commitments is close to zero.


25

23 Contingencies and Commitments (Continued)

Assets pledged. The Group had assets pledged as collateral with the following carrying value:

In thousands of RR Note31 March 2016 31 December 2015

Asset pledged Related liability Asset pledged Related liability

Repurchase receivables 9,10 1,896,578 1,721,642 2,344,080 2,127,346

Total 1,896,578 1,721,642 2,344,080 2,127,346

Mandatory cash balances with the CBRF of RR 812,811 thousand (31 December 2015:RR 674,717 thousand) represent mandatory reserve deposits which are not available to finance theBank s day to day operations as disclosed in Note 3.

24 Financial Derivatives

The table below sets out fair values, at the end of the reporting period, of currencies receivable orpayable under foreign exchange swap contracts entered into by the Group. The table reflects grosspositions before the netting of any counterparty positions (and payments) and covers the contracts withsettlement dates after the end of the respective reporting period.


In thousands of RR

Contractswith positive

fair value

Contractswith negative

fair value

Contractswith positive

fair value

Contractswith negative

fair value

Foreign exchange forwards and swaps:fair values, at the end of the reportingperiod, of

- USD receivable on settlement (+) 18,872,087 - 20,083,723 27,639- USD payable on settlement (-) (3,441,227) (805) - (3,313,552)- RR payable on settlement (-) (8,909,249) - (8,738,852) (35,897)- RR receivable on settlement (-) 3,976,997 1,892 - 3,544,679- EUR receivable on settlement (+) 13,952 - - 8,258- EUR payable on settlement (-) (535,770) (990) - (238,641)- GBP receivable on settlement (+) 2,131 - - -- GBP payable on settlement (-) - (97) - -

Net fair value of foreign exchangeforwards and swaps 9,978,921 - 11,344,871 (7,514)

Included in financial derivatives held by the Group as at 31 March 2016 is one outstanding swap contractwith positive fair value of RR 1,641,240 thousand, which includes reference to the default of JSC VTBBank, JSC Gazprom or the Russian Federation (31 December 2015: RR 1,857,124 thousand). There arealso three other outstanding swap contracts with total positive fair value of RR 8,337,681 thousand whichinclude reference to the default of the Bank (31 December 2015: RR 9,487,747 thousand).

Where there is a reference in the swap contract to default of the entity or the country the swap contractwould be cancelled and all of the rights and obligations are terminated in the event of an actual default ofthis entity or the country.


26

25 Fair Value of Financial Instruments

Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one aremeasurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) leveltwo measurements are valuation techniques with all material inputs observable for the asset or liability,either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level threemeasurements are valuations not based on observable market data (that is, unobservable inputs).Management applies its judgement in categorising financial instruments using the fair value hierarchy. If afair value measurement uses observable inputs that require significant adjustment, that measurement is alevel 3 measurement. The significance of a valuation input is assessed against the fair valuemeasurement in its entirety.

(a) Recurring fair value measurements

Recurring fair value measurements are those that the accounting standards require or permit in theconsolidated statement of financial position at the end of each reporting period. The levels in the fairvalue hierarchy into which the recurring fair value measurements are categorised are as follows:

31 March 2016 31 December 2015In thousands of RR Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

ASSETS AT FAIR VALUEFinancial derivatives - 9,978,921 - 9,978,921 - 11,344,871 - 11,344,871Investment securities

available for sale 19,632,522 - - 19,632,522 15,935,866 - - 15,935,866Repurchase receivables 1,896,578 - - 1,896,578 2,344,080 - - 2,344,080

Total assets recurringfair valuemeasurements 21,529,100 9,978,921 - 31,508,021 18,279,946 11,344,871 - 29,624,817

31 March 2016 31 December 2015In thousands of RR Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

LIABILITIES AT FAIRVALUE

Financial derivatives - - - - - 7,514 - 7,514

Total liabilities recurringfair valuemeasurements - - - - - 7,514 - 7,514

The description of valuation techniques and the description of the inputs used in the fair valuemeasurement for level 2 measurements at 31 March 2016 are as follows:

In thousands of RR Fair value Valuation technique Inputs used

ASSETS AT FAIR VALUE

Foreign exchange swaps 9,978,921Discounted cash flows adjustedfor counterparty credit risk.

Russian rouble curve.USD Dollar Swaps Curve.CDS quotes assessment ofcounterparty credit risk orreference entities.

Total recurring fair valuemeasurements at level 2 9,978,921


27

25 Fair Value of Financial Instruments (Continued)

There were no changes in the valuation techniques for level 2 recurring fair value measurements duringthe period ended 31 March 2016 (2015: none).

Level 2 trading and hedging derivatives comprise foreign exchange forwards and swaps. The foreignexchange forwards have been fair valued using forward exchange rates that are quoted in an activemarket. Foreign exchange swaps are fair valued using forward interest rates extracted from observableyield curves. The effects of discounting are generally insignificant for level 2 derivatives.

(b) Assets and liabilities not measured at fair value but for which fair value is disclosed

Fair values analysed by level in the fair value hierarchy and carrying value of assets not measured at fairvalue are as follows:


In thousands of RRLevel 1 Level 2 Level 3 Carrying

valueLevel 1 Level 2 Level 3 Carrying

value

FINANCIAL AssetsCARRIED ATAMORTISEDCOST

Cash and cashequivalents

- Cash on hand 34,074 - - 34,074 34,991 - - 34,991- Cash balances

with the CBRF(other thanmandatoryreserve deposits) - 3,392,750 - 3,392,750 - 5,314,736 - 5,314,736

- Placements withother banks withoriginal maturitiesof less than threemonths - 12,006,972 - 12,006,972 - 8,339,317 - 8,339,317

Mandatory cashbalances withthe CBRF - 812,811 - 812,811 - 674,717 - 674,717

Due from otherbanks 570,958 - 576,430 - 724,266 - 726,209

Loans andadvances tocustomers - - 87,006,511 87,006,511 - - 82,067,018 82,067,018

Guaranteedeposits withpaymentsystems - - 3,134,723 3,134,723 - - 3,376,795 3,376,795

Other financialassets - - - -

Settlement ofoperations withplastic cardsreceivable - 1,843,006 - 1,843,006 - 3,355,490 - 3,355,490

Trade and otherreceivables - - 101,381 101,381 - - 127,104 127,104

Other financialassets - - 408,706 408,706 - - 16,966 16,966

Total financialassets carried atamortised cost 34,074 18,626,497 90,651,321 109,317,364 34,991 18,408,526 85,587,883 104,033,343


28



In thousands of RRLevel 1 Level 2 Level 3 Carrying

valueLevel 1 Level 2 Level 3 Carrying

value

FINANCIAL liabilitiesCARRIED ATAMORTISED COST

Due to banks - 5,897,187 - 5,886,250 - 6,381,803 - 6,391,636Customer accountsLegal entities-Current/settlement

accounts of corporateentities - 792,668 - 792,668 - 517,715 - 517,715

-Term deposits ofcorporate entities - 404,438 - 345,464 - 375,123 - 375,123

Individuals-Current/settlement

accounts ofindividuals - 26,626,364 - 26,626,364 - 24,505,510 - 24,505,510

-Term deposits ofindividuals - 70,008,674 - 68,205,464 - 65,919,231 - 63,944,294

Debt securities inissue

RR Bonds issued ondomestic market 29,230 - - 28,970 28,354 - - 28,093

ECP 1,958,227 - - 1,940,809 1,894,200 - - 1,876,764Subordinated debt 14,839,372 - 13,792,425 15,377,715 - 14,609,295Other financial

liabilitiesSettlement of

operations withplastic cards - 567,129 - 567,129 - 622,390 - 622,390

Trade payables - - 630,779 630,779 - - 637,792 637,792Other financial liabilities - - 37,597 37,597 - - 36,042 36,042

Total financialliabilities carried atamortised cost 16,826,829 104,296,460 668,376 118,853,919 17,300,269 98,321,772 673,834 113,544,654

Fair value is the amount at which a financial instrument could be exchanged in a current transactionbetween willing parties, other than in a forced sale or liquidation, and is best evidenced by an activequoted market price. Where quoted market prices are not available, the Group used valuation techniques.The fair value of floating rate instruments that are not quoted in an active market was estimated to beequal to their carrying amount. The fair value of unquoted fixed interest rate instruments was estimatedbased on estimated future cash flows expected to be received discounted at current interest rates for newinstruments with similar credit risk and remaining maturity.

The fair value of the debt securities in issue and subordinated debt has been calculated based on quotedprices from OJSC Moscow Exchange MICEX-RTS and Irish Stock Exchange, where the Group s debtsecurities are listed and traded (2015: OJSC Moscow Exchange MICEX-RTS and Irish Stock Exchange).


29


Weighted average discount rates used depend on currency, maturity of the instrument and credit risk ofthe counterparty and were as follows:

In % p.a.31 March

201631 December

2015

AssetsCash and cash equivalents 0.0 0.0Due from other banks 10.3 10.5Loans and advances to customers 52.8 51.7Investment securities available for sale 12.4 13.5Repurchase receivables 6.1 6.4

LiabilitiesDue to banks 9.9 9.4Customer accounts 10.0 11.9Debt securities in issue 7.2 10.6Subordinated debt 11.2 11.8

26 Related Party Transactions

Parties are generally considered to be related if the parties are under common control or one party hasthe ability to control the other party or can exercise significant influence over the other party in makingfinancial or operational decisions. In considering each possible related party relationship, attention isdirected to the substance of the relationship, not merely the legal form.

The outstanding balances with related parties were as follows:


In thousands of RR

Keymanagement

personnel

Other relatedparties

Keymanagement

personnel

Other relatedparties

ASSETSGross amounts of loans and advances to

customers (contractual interest rate: 24.7%(2015: 24.7%)) 3,982 - 2,670 -

Other financial assets - 392,461 - -Other non-financial assets - 343,394 - 567,744

LIABILITIESCustomer accounts (contractual interest rate:

8.01% p.a. (2015: 8.01% p.a.)) 692,367 441,220 788,672 497,264Other non-financial liabilities 117,585 - 40,700 -

EQUTYShare-based payment reserve- Employee share option plan 537,309 - 537,309 -- Equity long term incentive plan 81,156 - 77,085 -- Management long-term incentive programme 100,058 - - -

Other related parties in the tables above are represented by entities which are under control of theGroup s ultimate controlling party Oleg Tinkov.

Other non-financial assets represent a prepayment made under the sponsorship contract with theTinkoff SaxoThe Team is owned by the Group s ultimate controlling party. Commitments in relation to this sponsorshipagreement are disclosed in Note 23.


30

26 Related Party Transactions (Continued)

The income and expense items with related parties were as follows:

Three months period ended31 March 2016

Three months period ended31 March 2015

In thousands of RRKey management

personnelOther related

partiesKey management

personnelOther related

parties

Interest income 73 2,718 87 -Interest expense (15,004) (9,151) (14,577) (49,857)Customer acquisition

expense - (276,732) - (185,020)Unrealised foreign

exchange translationlosses less gains - 21,955 - (46,132)

Key management compensation is presented below:

In thousands of RRThree months periodended 31 March 2016

Three months periodended 31 March 2015

Short-term benefits:- Salaries 120,878 67,403- Short-term bonuses 97,439 -

Long-term benefits:

- Management long-term incentive programme 100,058 -- Equity long term incentive plan 4,071 4,026- Employee share option plan - 29,368

Total 322,446 100,797

Management long-term incentive programme. On 31 March 2016 the Group introduced a long-termincentive programme for Management of the Group (MLTIP) as both a long-term incentive and retentiontool for the management of the Group. The maximum share capital attributable to the plan was 4.1% ofissued share capital at 31 March 2016.

The employees cannot own or exercise their shareholder rights over GDRs within MLTIP directly.Employees are entitled to the dividends, if any.

The total number of GDRs attributable to the Management according to MLTIP is 7,488 thousand.

The fair value as at recognition dates of the equity-settled share-based payments (31 March 2016 forMLTIP) is determined on the basis of a market quote.

Should the market quote increase/decrease by 20% the carrying value of the share-based paymentreserve as at 31 March 2016 would be RR 22,131 thousand higher/lower.

The delivery dates as of which the GDRs are allowed to be sold by the participants correspond to thevesting dates.

Employee share option plan. In May 2011 the Group introduced a share-based payment plan (ESOP)as a long-term incentive and retention tool for the key management of the Bank. The maximum sharecapital attributable to the plan was 2.98% of issued share capital at 20 May 2011 (i.e. 2.65% of issuedshare capital at 31 March 2016 and 31 December 2015).


31

26 Related Party Transactions (Continued)

The plan vests gradually in three tranches and expenses are recognised in accordance with the gradedvesting schedule. 40% vested on 30 June 2012; 30% vested on 30 June 2013 and 30% vested on30 June 2014. The shares do not give the employees any voting power. The employees cannot own orexercise their shareholder rights directly, except for the dividends, if any.

The number of shares in issue for ESOP purposes is 3,383 thousand.

The liquidity event when vested shares could be sold by the key management was the earliest of the IPO,change of control or 1 January 2016 (unless shareholders extend this date to 30 September 2016 ifchange of control is seen as likely in the first half of 2016).

In October 2013 1,214 thousand of the vested shares were sold for the benefit of ESOP participants inthe IPO.

In November 2013 one of the ESOP participants forfeited his rights on vested and unvested shares ofESOP. On 25 September 2014 these shares were reallocated among one new and two existingparticipants of the plan. The number of reallocated shares comprised 756,571 and their fair value as at25 September 2014 comprised RR 134,946 thousand.

On 27 October 2014 amendments to the ESOP were signed. According to them the shares within theplan become sellable for the benefit of participants, in three tranches of approximately 33% each from25 October 2014; from 1 June 2015 and from 1 June 2016, respectively. These amendments resulted inaccelerated recognition of the expenses.

Equity long term incentive plan. In 2011 the Group also introduced a long term incentive plan (EquityLTIP) for the management of the Bank. The senior and middle management, not participating in theESOP, was entitled to cash payment calculated under their individual packages defined as a percentageof shares as at the date of the plan introduction. The liquidity event was the earliest of the IPO or changeof control.

In July 2013, management of the Bank and the shareholders agreed to settle the existing cash-settledshare-based compensation plan for USD 1 and to introduce a new equity-settled share-basedcompensation plan. Except for the manner of settlement and maturity of the plan which is expected tocontinue for at least five years from July 2013, other financial terms and conditions of the newarrangement remained unchanged, including the amount of instruments granted.

At the date of modification the full carrying amount of the liability was transferred to equity as thisrepresents settlement provided by the employees for the equity instruments granted to them.

In October 2013 310 thousand of the shares were vested in Altruco Trustees Limited as trustee of EquityLTIP and sold for the benefit of plan participants in the IPO.

27 Events after the End of the Reporting Period

In April 2016 Tinkoff Bank won the tender to service the credit card portfolio of JSC Svyaznoy Bank(following the revocation of its license) which is administered by the State Deposit Insurance Agency.

On 16 May 2016 the Board of Directors declared an interim dividend of USD 0.17 per ordinary shareamounting to USD 31,049 thousand due for payment on 6 June 2016.

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