translation from ukrainian original - alfa-bank

Translation from Ukrainian original

JOINT STOCK COMPANY

“ALFA-BANK”

Annual financial statements in accordance with IFRS

for the year ended 31 December 2019

and INDEPENDENT AUDITOR’S REPORT

JSC “ALFA-BANK” Financial Statements for 2019

CONTENTS INDEPENDENT AUDITOR’S REPORT

Statement of Financial Position ............................................................................................................................................ 1 Statement for Profit or Loss and Other Comprehensive Income ....................................................................................... 2 Statement of Changes in Equity ............................................................................................................................................ 3 Statement of Cash Flows ....................................................................................................................................................... 4 1. Introduction ................................................................................................................................................................... 5 2. Bank’s Operating Environment ...................................................................................................................................... 6 3. Basis for Preparation ..................................................................................................................................................... 6 4. Accounting Policy .......................................................................................................................................................... 7 5. New and Revised Standards ....................................................................................................................................... 22 6. Cash and Cash Equivalents ........................................................................................................................................ 23 7. Due from Other Banks ................................................................................................................................................. 24 8. Loans and Advances to Customers............................................................................................................................. 25 9. Investments in Securities ............................................................................................................................................ 32 10. Investment Property .................................................................................................................................................... 34 11. Property, Plant, Equipment and Intangible Assets ...................................................................................................... 35 12. Other Assets ............................................................................................................................................................... 36 13. Non-Current Assets Held for Sale and Disposal Group ............................................................................................... 38 14. Due to Banks ............................................................................................................................................................... 39 15. Due to Customers ....................................................................................................................................................... 39 16. Debt Securities in Issue ............................................................................................................................................... 40 17. Provisions .................................................................................................................................................................... 40 18. Other Liabilities............................................................................................................................................................ 41 19. Subordinated Debt ...................................................................................................................................................... 42 20. Share Capital, Share Premium and Additional Paid-in Capita ..................................................................................... 42 21. Revaluation Reserve (Component of Other Comprehensive Income)......................................................................... 43 22. Interest Income and Expense ...................................................................................................................................... 44 23. Fee and Commission Income and Expense ................................................................................................................ 44 24. Other Operating Income and Expense ........................................................................................................................ 45 25. Administrative Expenses ............................................................................................................................................. 45 26. Income Tax ................................................................................................................................................................. 46 27. Earnings per Share ..................................................................................................................................................... 47 28. Operating Segments ................................................................................................................................................... 47 29. Risk Management ....................................................................................................................................................... 49 30. Management of Capital ............................................................................................................................................... 56 31. Contingencies and Commitments................................................................................................................................ 57 32. Derivatives .................................................................................................................................................................. 58 33. Fair Value .................................................................................................................................................................... 59 34. Related Party Transactions ......................................................................................................................................... 60 35. Subsequent Events ..................................................................................................................................................... 62

JSC “ALFA-BANK” Notes to Financial Statements for 2019

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1.Introduction

JOINT-STOCK COMPANY “ALFA-BANK” (hereinafter – the Bank) was registered with the National Bank of Ukraine on

24 March 1993, № 158. The Bank is the resident of Ukraine. The Bank’s main office is located at: 100 Velyka Vasylkivska

St., Kyiv, 03150, Ukraine.

On 9 August 2018 the Bank changed its name from PUBLIC JOINT-STOCK COMPANY “ALFA-BANK” to JOINT-STOCK

COMPANY “ALFA-BANK” after the Law of Ukraine “On Amendments to Certain laws of Ukraine that Simplify Running

Business and Investment Climate for Issuers” was enforced and made amendments to the Laws of Ukraine “On Banks and

Banking” and “On Joint Stock Companies” that permitted the banks to be established in the form of joint-stock companies

and set forth requirements to public and private joint stock companies.

Operation of the Bank is regulated by the Bank License to provide banking services №61 of 05 October 2011 and General

License №61 of 05 October 2011 authorising transactions in foreign currency. The Bank has been a permanent member of

Individuals Deposit Guarantee Fund since 02 September 1999.

The Bank’s strategy is the development of a big universal bank that operates in all segments. The Bank’s core business is

providing banking services to legal enmities and private individuals all over Ukraine. These services include raising funds,

deposits, granting loans, advances, investing in securities, cash transfers in Ukraine and abroad, and forex operations.

The Bank is created in the form of a joint-stock company (private), the shareholder’s responsibilities are limited by the

amount of shares they hold.

As at 31 December 2019 the Bank has the Head office and 257 outlets that operate and provide services in various regions

of Ukraine (in 2018 - the Head office and 253 outlets). As at 31 December 2018 total number of the Bank’s staff was 8,909

people, as at 31 December 2018 – 7,495 people respectively.

Following the requirements of the Regulation on Procedure for Banking Groups Regulation approved by the Board of

National Bank of Ukraine resolution № 254 dd 20 June 2012 the financial statements of the banking group is prepared,

which, as at the 31 December 2019, comprises the Bank, PrJSC “Insurance company “Alfa Insurance”, LLC “PARITET

FINANCE”, LLC “ALFA-LEASING”, LLC “LCM “ALFA” and LLC SIB AMC “UKRSOTS-REAL ESTATE”. The responsibility for

the banking group rests with the Bank.

On 10 September 2019 ABH HOLDINGS SA, the sole shareholder of JSC “UKRSOTSBANK”, approved a Decision

№3/2019 to terminate JSC “UKRSOTSBANK” and merge with the Bank under the simplified reorganization procedure set

forth by the Law of Ukraine “On simplifying reorganization and capitalization procedures at the banks” dd 23 March 2017.

The General Meeting of Shareholders of the Bank Minutes № 4/2019 and the sole shareholder of JSC “UKRSOTSBANK”

(Minutes №5/2019) approved the decision on authorization of the acceptance register, under which assets, liabilities and

capital of JSC “UKRSOTSBANK” were transferred to the Bank’s balance sheet , as to the bank-successor.

On 15 October 2019 the Bank became a legal successor of all rights, obligations and property of JSC “UKRSOTSBANK”

(Note 4.14), inter alia acquired as a successor all rights for transferred assets of JSC “UKRSOTSBANK”, including (but not

limited to) rights under collateral agreements (including warranty agreements), and also acquired debtors’ obligations to

creditors’ claims (depositors) under obligations transferred from JSC "UKRSOTSBANK" without the need to amend the

relevant agreements. As at 31 December 2019 the Bank made a decision to reclassify investments in subsidiaries LLC

“UKRSOTSBUD” and LLC SIB AMC “UKRSOTS-REAL ESTATE” (received from JSC "UKRSOTSBANK" as a result of a

merge) to disposals.

Under the acceptance register from JSC "UKRSOTSBANK" the Bank also received property and cash under encumbrance

(i.a. public) and under restriction for use (i.a. in seized) with retained terms of encumbrance and seizure.

On 16 December 2019 the Bank received from the Central Securities Depositary a register of registered securities holders

with information on changes in shareholding size of shareholders that own voting shares. As a result of reorganization of

JSC "UKRSOTSBANK” and its merge with the Bank the authorized capital of the Bank increased from UAH 12,179,756

thousand to UAH 28,726,248 thousand (Note 20), the shares in direct and indirect ownership of shares has changed.


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As at 31 December 2019 the Bank’s shares are owned by:

ABH Holdings S.A. (Prince Anri Bould. 3, Luxemburg, L-1724, Grand Duchy of Luxembourg) with direct ownership of

57.6006% of the Bank’s authorized capital (the shareholder's part in total number of voting shares before the

change in shareholding is 0%);

ABH Ukraine Limited (Temistokleks Dervi 5, Elenion Building, 2 nd floor, P.C. 1066, Nicosia, Cyprus) with direct

ownership of 38.2019% of the Bank’s authorized capital (the shareholder's part in total number of voting shares

before the change in shareholding is 90,1%). Indirect share in the Bank (through ABH Ukraine Limited) is owned

by ABH Holdings S.A. (Luxemburg) in the amount of 38.2019% of the Bank’s authorized capital;

MSP STIFTUNG (LMH Lighthouse Trust Reg., Aushtrasse 14, FL-9495 Trisen, Liechtenstein) with direct ownership

of 4.1975% of the Bank’s authorized capital (the shareholder's part in total number of voting shares before the

change in shareholding is 9,9%).

There are no shares in the ownership of the Bank’s management. There are eight ultimate owners of the Bank: Mr. Mikhailo

Fridman (with indirect share of 31.483767%), Mr. German Khan (with indirect share of 20.085856%), Mr. Oleksiy

Kuzmichyov (with indirect share of 15.638704 %), Mr. Piotr Aven (with indirect share of 11.881234%), Mr. Andriy Kosogov

(with indirect share of 3.517485%), MSP STIFTUNG (with combined share of 4.1975%), UniCredit S.p.A (with indirect and

combined share of 9.484448%) and non-profit organisation The Mark Foundation for Cancer Research (charity trust, which

is not a legal entity, with indirect share of 3.711006%).

The ownership structure is published on the Bank's website and on the official site of the National Bank of Ukraine. Each

individual does not have a separate controlling vote and / or does not own 50% or more of the rights in ABH Holdings S.A.

2.Bank’s Operating Environment

Comparing to the previous years, economy of Ukraine did not experience significant disturbances in 2019. By the year

results real GDP in 2019 was 3.3% y/y (according to the National Bank of Ukraine assessments), which is practically the

same as in 2018.

The major drivers were increased private consumption based on rise in wages, pensions and improved consumer sentiment,

together with rapid growth in investments. This, in turn, encouraged the growth in trade, transport, construction and in a

number of service sectors. Another record harvest of crops and oilseeds has been a significant driver of GDP growth and

exports.

As a result of the year, industrial production indicators were weak due to adverse impact of the external price environment,

the weakened price competitiveness against the backdrop of a real effective exchange rate, and a rapid climate warming.

Economic growth in 2019 has led to increased demand for labor, which has led to a reduced unemployment and increased

employment rates.

Low and stable inflation environment created by the National Bank of Ukraine has contributed to the country's sustainable

economic growth. Consumer inflation slowed down to 4.1% in 2019 (from 9.8% in 2018), which was the lowest level in the

last six years. This is primarily the result of a consistent monetary policy pursued by the National Bank in combination with

the prudent fiscal policy of the Government.

The swift improvement of the macroeconomic situation in the country allowed the National Bank of Ukraine to continuously

ease monetary policy, accelerating the reduction of the interest rate to 13.5% per annum. Lowering the key rate and

expectations as to its further reduction contributed to a decline in the yield on government bonds and the most of the hryvnia

rates for bank customers.

3.Basis for Preparation

These financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS),

adopted by the International Accounting Standards Board (IASB), and interpretations released by the International Financial

Reporting Interpretations Committee (IFRIC).

These financial statements are presented in thousands of Ukrainian Hryvnias (UAH thousands) unless otherwise stated.


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4.Accounting Policy

4.1 Key Measurements for Preparation of the Financial Statements

These financial statements are prepared based on different value measurements of various basis and combination,

including:

- Historical cost – where assets are recorded at the amount of cash or cash equivalents paid, or the fair value of the

consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of

proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the

amount of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business;

- Fair value – is the price that was formed based on the following conditions:

-it is an output price, i.e. received as a result of sale or paid for transfer;

-it is received in an arm’s length transaction;

-it is received at the main or the most favourable market;

-the participants of the main or the most favourable market are independent and knowledgeable buyers and

sellers;

-the price is received in the current market conditions as at the date of fair value measurement;

-the received price is not dependable of whether it is directly observable or is measured by other evaluation

methods;

-it is a market price, not the measurement with consideration of the Bank’s specifics.

- Gross carrying amount of the financial instruments is the amount at which the financial asset or financial liability is

measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation of any

difference between that initial amount and the maturity amount (adjusted for any loss allowance in case of financial

assets) using the effective interest method.

- Book value of financial instruments is the amount at which an asset or a liability is carried in the balance sheet.

The carrying amount of a financial asset or a financial liability is comprised of principal amount, accrued interest,

unamortised premium (discount), revaluation amount, and for a financial asset - the amount of estimated provision

for expected credit losses;

- Book value of non-financial assets is the amount at which an asset is recognized after deducting any accumulated

depreciation and accumulated impairment loss or the amount of estimated provision, taking into account

revaluations, where applicable;

- Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus

the principal repayments, plus or minus the cumulative amortisation of any difference between that initial amount

and the maturity amount (adjusted for any loss allowance in case of financial assets) using the effective interest

method.

4.2 Financial Instruments

Initial Recognition

Derivative financial instruments and other financial instruments at fair value through profit or loss are initially recognized at

fair value. All other financial instruments are initially recognized at fair value plus transaction cost. Gains or loss at initial

recognition is recognized only in case there is difference between fair value and contractual price.

The best evidence of the fair value of the financial instrument at initial recognition is usually a contractual price.

The Bank concludes that fair value at initial recognition is different from the contractual price:

- if fair value is confirmed by quotations on active market for similar asset or liability (i.e. Level 1 input data), or is

based on evaluation technique that exclusively use observable markets data, the Bank recognizes difference

between fair value at initial recognition contractual price through profit or loss;

- in other cases initially designated financial instrument is adjusted to carry forward the difference between fair value

at initial recognition and contractual price. At initial recognition the Bank recognizes the difference carried forward

through profit or loss only in case when input data becomes observable or at derecognition of a financial

instrument.

Recognition Date

All transactions on purchase or sale of financial assets that provide for delivery during the period specified by law or market

traditions ("ordinary" sale and purchase agreements) are recognized at the settlement date, i.e. at the date when the Bank

actually delivers a financial asset. All other transactions on purchase of financial instruments are recognized when the Bank

becomes a party to the contract to purchase a financial instrument.


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Classification

The Bank recognizes financial assets under 3 categories depending on the objective and asset management policy:

- Financial assets designated at amortised cost, if the objective for holding the financial asset (i.e. business model) is

to receive the contractual cash flows. For classification of financial instruments the Bank performs SPPI tests

(Solely payments of principal and interest), which tests the terms of financial instrument where cash flows are solely

payments of principal and interest on the principal amount outstanding (business model І );

- Financial assets designated at fair value through other comprehensive income (equity), if an asset is held within a

business model ІІ, which foresees both collecting contractual cash flows and selling financial assets;

- Financial assets designated at fair value through profit or loss, i.e., all other assets, including the contracts that

embeds one or several derivatives (business model III).

Financial liabilities can be classified under 2 categories:

- Financial liabilities designated at amortised cost;

- Financial liabilities designated at fair value.

Impairment of Financial Assets

The Bank uses the expected credit losses model that timely represents impairment or improvement of credit quality of

financial instruments using the available and forecast information. The amount of expected credit losses depends on the

extent the credit quality has impaired since the date of comparison determined for the financial instrument. Provisions are

evaluated for the financial assets carried at amortized cost and fair value through other comprehensive income (equity).

Apart from financial assets, the Bank calculates expected credit losses for financial receivables, loan commitments not

carried at fair value and financial guarantees not carried at fair value.

The Bank evaluates allowances for impairment of financial instruments using the following approaches:

- general approach is used for correspondent accounts, interbank asset operations, corporate loans and loans and

advances to customers, investments in debt securities, debt on assets sold with delay of repayment, finance lease

operations;

- simplified approach is used for financial receivables from banking and business operations.

General approach. According to general approach the Bank designates financial assets to one of the following stages,

depending on credit quality impairment since initial recognition:

- Stage 1: financial instruments for which credit risk has not significantly increased and 12 months expected credit

losses are calculated;

- Stage 2: financial instruments with significant increase of credit risk without probability of default, for which lifetime

expected credit losses are calculated;

- Stage 3: financial instruments at default; for which lifetime expected losses are calculated (including initially

impaired assets).

The Bank uses the existence of outstanding debt 31 to 90 days past due as a criterion to indicate a significant increase in

credit risk. Also, the Bank uses additional criteria that indicate significant increase in credit risk, including, a significant

reduction of the borrower's rating, adoption (or high probability of adoption) of legal acts that may restrict the borrower’s

operation, information about a corporate conflict, etc.

The Bank considers the financial asset in default in case of the following indicators:

- the borrower’s debt to the Bank is past due for more than 90 calendar days;

- the borrower is not able to commit its obligations to the Bank in full within the terms established by the agreement

unless the Bank enforces the procedure for collateral collection.

In case of impairment of quality of a financial asset, it is transferred to Stage 2 or Stage 3 as follows:

- a financial asset is transferred to Stage 2 in the event the signs of high credit risk exist without signs of impairment;

- a financial asset is transferred to Stage 3 in the event the signs of default exist.


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If the financial asset shows signs of recovery, including:

- the outstanding debt is repaid and there is no other debts past due within the next 30 days; or the borrower’s rating

has improved by 3 points, the financial asset is transferred back from Stage 2;

- the outstanding debt is repaid and there is no other debts past due within the next 90 days; or the borrower’s rating

is not default, the financial asset is transferred back from Stage 3.

The Bank applies two approaches to calculate allowances:

- an individual approach is used for financial instruments, for which a significant increase in credit risk or a sign of

default has been detected; under individual approach the evaluation is performed at the client level;

- a collective approach is used for financial instruments, for which a significant increase in credit risk has not been

detected, as well as for those instruments that showed a significant increase in credit risk or a sign of default, but

which are not individually assessed. Under collective approach the evaluation is performed at the portfolio level

using the following procedure:

corporate loans are grouped according to internal rating of the borrower;

loans to individuals and SMEs are grouped by segments depending on the number of days past due.

Under individual approach, the expected credit losses for each borrower's loan is evaluated based on weighted probability of

discounted cash flows. The Bank considers the following scenarios for credit debt repayment:

- self-repayment of credit debt according to the current repayment schedule;

- repayment based on debt restructuring;

- repayment based on sale of collateral (default scenario);

- debt write-off (default scenario);

- customized scenario (repayment schedule cannot be described by any of the above scenarios).

The probability of default is calculated using the historical data of the default frequency. The Bank uses the Weibull function

to determine the probability of default on the horizon for more than 1 year. The significance of the default probability is

adjusted based on the scenario of economic development forecast, which is described by different predictive

macroeconomic indicators (for example, real GDP, devaluation of the national currency or unemployment rate).

The sources of forward-looking information for macroeconomic indicators used by the Bank include:

- The National Bank of Ukraine (www.nbu.gov.ua);

- The Ministry of Economic Development and Trade of Ukraine (www.me.gov.ua);

- The International Monetary Fund (www.imf.org);

- The World Bank (www.worldbank.org) and others.

Derecognition

Financial assets. Financial assets (or, if either a part of a financial asset or a part of a group of similar financial assets) is

derecognized if:

- assets are repaid or the contractual rights to the cash flows from financial assets have otherwise expired, or

- the Bank transferred the contractual rights to receive the cash flows of the financial assets or made a contractual

arrangement for such a transfer, while also transferring substantially all risks and rewards of ownership of the

assets; or the Bank has not transferred or retained substantially all risks and rewards of ownership the assets, but

ceased exercising the control. Control is considered to be retained if the transferee has no practical ability to sell

the asset in its entirety to an unrelated third party without restrictions for its resale;

- the asset is write-off against provisions or debt forgiveness.

Financial liabilities. Financial liability is derecognized when it is discharged, cancelled or expires. In case of exchange of the

existing financial liability to the new financial liability from the same lender on the substantially different terms; or if

substantial modification is made to the terms of an existing financial liability, this exchange or modification is accounted for

as a derecognition of initial liability and the recognition of a new liability and the difference of the relevant carrying amount is

recognized in the Statement of profit or loss.

Financial assets write-off. The Bank reduces the gross carrying amount of the financial asset if the Bank does not have

reasonable expectations of recovering the financial asset in its entirety or a portion thereof. A write-off constitutes a

derecognition event. Write-off can relate to the whole financial instrument or to the part of it, if this part includes cash flows

that can be specifically identified or a proportionate (pro rata) share of cash flows.


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If the Bank is planning to change the terms of the financial asset in a way that modification anticipates forgiveness of the part

of existing cash flows specified in the contract, such part of asset should be written off before modification, and the

evaluation of the modification significance should not take into account the cash flows that are planned for write-off.

Income from recovery of previously written off assets. The Bank recognizes income from recovery of previously written-off

assets by deducting it from allowances for expected credit losses in the Statement of profit or loss and other comprehensive income.

The Bank set forth the following criteria for financial instruments write-off:

• loans to legal entities (corporate loans):

- limitation period for a legal entity obligations has expired;

- a legal entity is declared a bankrupt in accordance with the procedure established by law or a legal entity

termination as a result of its liquidation;

- write-off of a legal entity’s debt past due for more than 180 days, where the amount of the Bank's combined

claim does not exceed the minimum amount of unquestioned claims of the Bank for initiation of bankruptcy

proceedings;

- write-off of an asset in the form of corporate rights or non-debt securities, for which the issuer is declared

bankrupt in accordance with the procedure established by law, or liquidated;

- write-off of a financial loan debt (or a part of it) past due for more than 360 days (including the principal

amount and / or the amount of accrued income) of a legal entity.

• loans to individuals (loans and advances to customers):

- forgiveness of debt to an individual, except for the debt of the Bank’s related parties and persons, who have

or had labour relations with the Bank, and the period between the date of termination of such labour relations

and the date of debt forgiveness is not more than three years;

- write-off of past due debt of an individual who is declared missing by a court decision;

- write-off of past due debt of an individual, who is declared deceased by a court decision, in the absence of

the hereditary property, which can be susceptible of encumbrance;

- write-off of overdue debt of a deceased individual, in the absence of the hereditary property, which can be

susceptible of encumbrance;

- limitation period for obligations of an individual has expired;

- write-off of an individual’s debt past due for more than 180 days if the amount of such debt is not more than

25% of the minimum salary (per year) established as at January 1 of the fiscal reporting year (in the absence

of legally approved bankruptcy procedure for individuals);

- write-off of a financial loan debt (or a part of it) past due for more than 360 days (including the principal

amount and / or the amount of accrued income), except for debt of the Bank’ related parties and persons, who

have or had labour relations with the Bank, and the period between the date of termination of such labour

relations and the date of debt forgiveness is not more than three years.

Specifics of Certain Classes of Financial Instruments and Classes of Assets, for which Allowances for Expected

Credit Losses are Calculated

Cash and cash equivalents are assets that can be converted in cash at first request and inherent of little risk of value

fluctuation, including loans and deposits “overnight” due from other banks. Cash and cash equivalents include deposit

certificates issued by the National Bank of Ukraine with maturity of less than three months with no risk exposure for the

Bank.

According to selected accounting policy for disclosure of information in this report, loans and deposits “overnight” due from

other banks are recorded within Due from banks, including guarantee deposits in case of credit risk exposure existence.

Monetary security due from other banks is recognised in other financial assets.

For the purpose of disclosures in the Statement of Cash Flows, cash flows received in repayment of loan debt are firstly

directed to repayment of interest, as foreseen by applicable law and agreements concluded with clients.

Repurchase (“Repo”) and reverse repurchase (“reverse repo”) agreements. “Repo” and “reverse repo” agreements are

presented in the financial statements as secured finance transactions. Securities sold under “repo” are still recognized in the

Statement of Financial Position and transferred to securities provided as collateral under “repo” agreements if the

counterparty has the right to sell or re-pledge these securities based on the agreement terms or common practice. The

respective liabilities are recorded within Due to banks or Customer accounts.

Securities acquired under “reverse repo” agreements are recorded within Due from banks or Loans and advances to

customers depending on the situation. The difference between the acquisition cost and the sale price is interest and accrued

during the term of ”repo” agreement by effective profitability method.


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Securities transferred to counterparties as loans continue to be recorded in the Statement of Financial Position. Securities

borrowed by the Bank are recognized in the Statement of financial position only when they are realized to third parties and

are recorded in the Statement of profit or loss as a result (gain/loss) from transaction with investment securities available for

sale. Their repayment obligations are carried at fair value as part of trade commitments.

Financial guarantees. In the normal course of business the Bank provides financial guarantees in the form of letters of credit,

warranties, letters of comfort, avals and acceptances. Financial guarantee contracts are initially recognized at fair value.

After initial recognition the Bank’s obligations under each financial guarantee contract are measured at the higher of: the

amount of amortized fee received or the best estimation of expenditure required to settle the guarantee-related commitment.

Subordinated debt is regular, unsecured debt equity instruments, which pursuant to the Contract cannot be settled earlier

than five years; and in the event of Bank’s bankruptcy or liquidation will be repaid to the investor after meeting claims of all

other creditors. The amount of subordinated debt, included into the capital, is annually reduced by 20% of its initial size

within the five successive years after the contract. Subordinated debt may be included into the Bank’s capital upon receiving

a permission of the National Bank of Ukraine. Subordinated debt is carried at amortised cost.

Derivative is the financial instrument or other contract that contains the following characteristics:

- its value changes in relation to the change of established interest rate, cost of financial instrument, sale price,

currency exchange rate, price indices or rates, credit rate of credit index, or similar variable (on the condition that a

non-financial variable is not specific for either party to the contract);

- its purchase does not require initial net investments, or investments are smaller than those, which would be

required for other contract types, that as expected, similarly respond to changes of market factors;

- is a forward contract.

At initial recognition the Bank classifies derivatives as designated at fair value through profit or loss.

After initial recognition financial assets and financial liabilities at fair value through profit or loss (including derivatives) are

measured at fair value less transaction costs.

Due to Customers that comprise the Bank’s deposit certificates in issue.

Credit-related commitments are financial credit obligations, including letters of credit and financial guarantees (avals, letters

of comfort), acceptances. Allowances for expected credit losses on credit-related commitments are recognized and

recorded in the Statement of Financial Position, in accordance with the Bank's methodology, using the approaches to

balance-sheet transactions.

E- money are units of value stored in an electronic device, that are accepted as means of payment by others, are cash

obligations of the issuing Bank, and are issued in cash or cashless form. According to the legislation of Ukraine, only banks

are eligible to issue e-money. E-money is released by providing it to users or commercial agents in exchange for cash or

cashless money. The Bank has the right to issue e-money for the amount that does not exceed the amount of money

received. The procedure for e-money transactions and the maximum amount of e-money held in an electronic device

available for user's disposal are determined by the legal acts of the National Bank of Ukraine. The Bank repays the issued e-

money upon the user's request.

Purchased/Originated Credit-Impaired Financial Assets

Purchased or originated credit-impaired asset is purchased or originated financial asset which is impaired as at the date of

initial recognition.

Credit-impaired financial asset is a financial asset, for which there is objective evidence of impairment or when one or more

events that have a detrimental impact on the estimated cash flows of that financial asset have occurred, including:

- significant financial difficulty of the issuer or the borrower;

- a breach of contract, such as a default or past due event;

- the Bank has granted a concession to the borrower, for economic or contractual reasons related to the borrower’s

financial difficulty, which the Bank would not otherwise consider;

- it is becoming probable that the borrower will enter bankruptcy or other financial reorganization;

- the disappearance of an active market for that financial asset because of financial difficulties;

- the purchase or origination of a financial asset at a deep discount that reflects the incurred credit loses.


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As at the date of initial recognition the Bank does not recognise estimate allowance for purchased or originated credit-

impaired financial assets. Initially expected credit losses for these financial assets are included in credit-adjusted effective

interest rate. As an estimated allowance for credit-impaired assets the Bank recognizes only changes in expected credit

losses accumulated during the entire lifetime since its initial recognition. At the same time, a positive change in expected

credit losses is recognized as a gain on impairment, even if this amount is higher than the previously recognized loss of

impairment of the financial asset.

Modified Assets Modified financial asset is an asset, on which the contractual cash flows have been renegotiated.

At modifying the financial asset (renegotiating of contractual terms on the financial asset by mutual agreement of the parties)

the Bank analyses whether modification results in:

- derecognition of modified (original) financial asset and recognition of a new financial asset at fair value;

or

- continuing recognition of original financial asset under new terms.

The new financial asset arises when the value of modified asset discounted at the effective interest rate of the current

financial asset significantly differs from the gross carrying amount of the current financial asset. This new financial asset

arises in the case of changing the currency, in which the financial instrument was denominated for credit-impaired borrowers

in Stage 1 and Stage 2 or, in the case of modification with other significant qualitative characteristics, determined by the

decision of the collegial body of the respective level.

If the change in the terms of a financial asset results in the repayment of the original financial asset and the recognition of a

new financial asset, the new asset is recognized at the modification date at fair value less transaction costs (except for a

new asset that is carried at fair value through profit or loss).

The expected credit losses of the new asset is measured as at the modification date:

- in the amount of credit losses expected within 12 months - if the financial asset is not initially impaired;

- in the amount of credit losses expected over the lifetime of the financial asset - if the new financial asset is

recognized as originated credit-impaired.

If the modification of a financial asset is not resulted in its derecognition, the Bank adjusts the gross carrying amount of the

financial asset to the present amount of renegotiated contractual cash flows discounted at the original effective interest rate

(for purchased or originated credit-impaired financial assets at the credit-adjusted effective interest rate). The difference

between the gross carrying amount under the original contractual terms and the gross carrying amount under renegotiated

contractual terms is recognized by the Bank as income or expense from modification.

Offsetting

Assets and liabilities are offset and the net amount reported in the Statement of Financial Position only when there is a

legally enforceable right to offset and there is an intention to realise the asset and settle the liability simultaneously. This, as

a rule, does not apply to general netting agreements, and the respective assets and liabilities are reported in the Statement

of Financial Position in full amounts.

4.3 Investment Property

Under the Bank’s defines investment property by meeting the following criteria:

- Land held for gains from capital appreciation in the long-term perspective, but not for disposal in the short term in

the course of operations;

- Land held for a currently undetermined use;

- Buildings, held for a currently undetermined use;

- Buildings, the object is defined by the Bank as investment property, if the floor area that is provided in lease (or

intended for lease) equals or exceeds 95% of the total floor area of the building.

At initial recognition the Bank measures and carries the investment property at historical cost. After initial recognition

investment property is further measured at fair value through profit or loss, while amortization and impairment are not

recognised.


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4.4 Property, Equipment and Intangible Assets

Property, plant and equipment include tangible assets the Bank holds to use in its operation, estimated useful life of which is

over one year and which value per unit or set is over UAH 6,000. Noncurrent fixed assets of initial cost under UAH 6,000 and

useful life of over a year are low-value noncurrent tangible assets.

Purchased property, plant and equipment are assessed at initial cost. The carrying value of purchased tangible assets

consists of acquisition cost, state duty, customs duty, costs of delivery and installment and other costs directly attributable to

the acquisition. Administrative and other expenses that are not directly associated with the acquisition cost or putting it in

operation are not included in the initial cost of an asset. After initial recognition of a tangible asset it is carried at carrying

amount: historical cost less accumulated depreciation and accumulated impairment loss of all groups of assets except for

groups “Buildings, constructions and transmitting devices” and “Land”, which are carried at fair value less accumulated

depreciation and accumulated impairment loss. Asset’s repair and maintenance costs are recognised at expenses when

incurred and do not change the carrying amount of noncurrent assets.

Intangible assets include non-monetary assets, which do not have material form and can be identified. Intangible assets

comprise acquired licenses and software and are carried at initial cost, which comprise actual acquisition cost (production)

and costs to put them in operation for intended purpose. Every intangible asset has definite useful life determined by the

Bank based on the following criteria: the Bank’s experience with similar assets, modern trends in software development and

their technical characteristics.

At initial recognition intangible assets are measured at historical cost. Subsequently, intangible assets are recognized at

carrying amount: historical cost less accumulated depreciation and accumulated impairment loss.

Royalty. The Bank’s selected policy is to recognise expenses incurred for intangible asset on straight-line basis during the

term of validity of agreement that entitles the Bank with the right of use an intangible asset.

Depreciation. Useful life of property. Plant and equipment and intangible assets is established by the Bank depending on

their expected useful life. The Bank applies to the following useful lives for the groups of assets below:

- Buildings, construction and transmitting devices - 7 to 50 years with depreciation rate from 2% to 15%;

- Machinery and equipment - 2 to 10 years with depreciation rate from 10% to 50%;

- Tools, appliances, inventory (furniture) – 2 to 10 years with depreciation rate from 10% to 50%;

- Other property, plant and equipment – 2 to 10 years with depreciation rate from 10% to 50%;

- Renovation of leased premises – during the lease term;

- Title for goods and services’ brand - 2 to 10 years with depreciation rate from 10% to 50%;

- Software – 0.5 to 20 years with depreciation rate from 5% to 100%;

- Other intangible assets - 3 to 10 years with depreciation rate from 10% to 34%;

- Depreciation of low-value noncurrent assets is recognised in the first month of asset use in 100% of its value.

Property, plant and equipment and intangible assets are depreciated on a straight-line bases. Depreciation is accrued from

the first day of the month following the month they are put in operation until the first day of the month following their disposal.

Depreciation rates are calculated based on the expected useful life of assets. Depreciation rates and useful life are revised

every year end.

4.5 Non-Current Assets Held for Sale and Disposals Group

The Bank classifies non-current assets as held for sale if their carrying amount is recoverable through sale, but not in the

course of their use. For this purpose, non-current assets should be available for immediate sale in their present condition only

under terms that are common for selling such non-current assets, with a high probability of their sale.

High probability of sale means the firm intention of the Bank's management to follow the plan for selling a non-current asset.

And it is necessary that program of active action to find a buyer and implement sales intentions has commenced.

Subsequently, a non-current asset should be actively offered for sale at a price that is reasonable, based on its current fair

value. In addition, a sale presentation as a completed transaction should be expected within one year from the date of

classification of non-current assets as held for sale.

The Bank estimates an asset classified as held for sale at a lower of two amounts: its carrying amount or fair value less costs

for sale. The Bank recognizes an impairment loss at initial or subsequent write-off of an asset to its fair value less costs for

sale if events or changes in circumstances indicate a possible reduction in the carrying amount.


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As at 31 December 2019 the Bank made a decision to reclassify investments in subsidiaries LLC “Ukrsotsbud” and LLC SIB

AMC “UKRSOTS-REAL ESTATE” to a disposal group of assets according to IFRS 5 requirements

The recognized reclassification of investments in disposal group category as follows:

investment in subsidiary LLC SIB AMC “UKRSOTS-REAL ESTATE” at a carrying amount, which is less than fair value

less derecognition costs;

investment in subsidiary LLC “Ukrsotsbud” at fair value less derecognition costs, as it is less than their carrying amount.

The difference between the carrying amount and fair value of investment in LLC “Ukrsotsbud” in the amount of UAH 1,611

thousand was recognized in other operating expenses.

4.6 Allowance for Impairment of Other Non-Financial Assets

For non-financial accounts receivable, the Bank calculates an allowance for impairment, based on the norm of the loss / risk

indicator, depending on the number of days of debt recognition in the Bank's balance sheet or the number of days of debt

overdue.

4.7 Contingent Assets and Liabilities

Contingent liabilities are not recognized in the Statement of Financial Position. Information on such liabilities is disclosed,

except in cases when the outflow of resources as a result of their repayment is insignificant. Contingent assets are not

recognized in the Statement of Financial Position. Information on such assets is disclosed when it is probable to receive

related to them economic benefits.

4.8 Income Tax

Current tax is the amount, which, as expected, is due to or from tax authorities based on taxable profit/ loss for the current or

previous periods. Taxable profit or loss is based on the estimates if the financial statements are approved before appropriate

tax returns are submitted. Other taxes, apart from income tax, are recorded in administrative expenses.

Deferred income tax is calculated at balance sheet liability method regarding tax losses carried forward and temporary

differences between the tax base of assets and liabilities and their carrying amount for the purpose of these financial

statements. Deferred tax assets and liabilities are determined using tax rates that are enacted at the end of the reporting

period and which are expected to apply to the period when the temporary difference will reverse or the tax loss carry

forwards will be utilised. Deferred tax assets on temporary differences that decrease the tax base and carried forward tax

losses are recognized to the extent that it is probable that future taxable profit will be available against which the deductible

taxable differences can be utilised.

Income tax expenses include current taxes and deferred tax and are recognised in profit/loss for the year.

4.9 Share Capital and Share Premium

Share capital is the shareholders’ paid commitments in subscription to the shares which were duly registered in full

compliance with Ukrainian legislation. Increase (decrease) in the Bank’s share capital is in strict conformity to the procedure

established by the National Securities and Stock Market Commission. Under the Laws of Ukraine “On Banks and Banking”

and “On Joint Stock Companies”, as well as the Bank’s Articles of Association a decision to issue shares is taken by the

General Meeting of Shareholders. As at 31 December 2019 the Bank did not issue preferred shares or paid dividends.

Share premium and other income from transactions with shareholders. Share premium represents the excess of

contributions over the nominal value of shares issued and their placement cost, as well as debt forgiveness by shareholders,

providing non-repayable financial assistance and profit (loss) at initial recognition of financial instruments at neither a market

rate nor a fair value.

Reserve funds. According to the legislation of Ukraine, banks are obliged to form a reserve fund to cover contingent losses

on all items of assets and off-balance sheet liabilities. The reserve is formed by deductions from net income received by the

Bank for the reporting year, after tax.

The deductions to the reserve fund shall be at least 5% of the Bank's profit until the reserve fund reaches 25% of the Bank's

regulatory capital.


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4.10 Earnings per Share

Basic earnings per share is calculated by dividing the net profit or loss for the year by the weighted average number of

ordinary shares outstanding during the year. The Bank does not have convertible preferred shares or convertible bonds,

thus the diluted earnings per share will be equal to the basic earnings per share. The Bank did not conduct operations with

shares or potential shares that could affect the amount of earnings per share as of the reporting date.

4.11 Foreign Currency Transactions

Monetary assets and liabilities in the foreign currency are translated into Ukrainian hryvnia at the official exchange rate on

the respective reporting date. Transactions with foreign currency are carried at the official exchange rate at the date of the

transaction. Gains and losses arising from revaluation of foreign currency are recognised in Gain/Loss from Foreign

Currency Revaluation item of the Statement of Profit or Loss and Other Comprehensive Income. Income and expense

carried forward raised in foreign currency on non-monetary items are non-monetary and carried at the official exchange rate

at the transaction date, i.e. date of their actual income received/expense incurred; and were not revaluated at every change

in the official exchange rate until were finally recognised in respective income/expense account. Income and expense

carried forward raised in foreign currency on monetary items are monetary and carried at the official exchange rate at the

balance sheet date; and were revaluated at every change in the official exchange rate.

The Bank applied the following exchange rates for preparation of these financial statements.

31 December 2019 31 December 2018

UAH/1 US Dollar 23.686200 27.688264

UAH/1 EUR 26.422000 31.714138

4.12 Income and Expense Recognition

Income is recognized if there is a high probability that the Bank will obtain economic benefits and the income can be reliably

determined. To recognize income in the financial statements, the following criteria must be met:

Interest income and expense

Interest income and expense for debt instruments is recognized at the effective interest rate, which is the rate that accurately

discounts expected future payments and receipts through the expected life of the financial instrument or a shorter period,

where applicable, to the gross carrying amount of the financial asset or the amortised cost of the financial liability.

Effective interest rate is calculated considering all contractual terms of the financial instrument (for example, prepayment)

and all other premiums and (or) discounts directly related to the financial instrument and are an integral part of the effective

interest rate.

Credit-adjusted effective interest rate is calculated considering all contractual terms of the financial instrument (for example,

prepayment) and all other premiums and (or) discounts directly related to the financial instrument and are an integral part of

the effective interest rate, and expected credit losses. Credit-adjusted effective interest rate is used to recognize interest

income from originated credit-impaired financial assets.

The carrying amount of a financial asset or financial liability is adjusted when the Bank reviews its payments or receipts

estimation. The adjusted carrying amount of a financial instrument is calculated on the basis of the original effective interest

rate, and the change in carrying amount is recorded as interest income or expense (except for changes resulted from review

of payments and receipts estimation that is caused by impairment of financial assets that are recognized as a credit loss of

that asset).

Interest income for financial assets in Stage 1 and Stage 2 (an estimated allowance is recognised in Stage 1 and Stage 2) is

recognized by applying the original effective interest rate to the gross carrying amount of these financial assets.

Interest income for financial assets in Stage 3 (an estimated allowance is recognised in Stage 3) is recognised by applying

the effective interest rate to the amortised cost (less the credit loss allowance).

For credit-impaired financial assets (Stage 3), interest income continue to be recognised by applying original effective

interest rate (or a nominal rate if the effective interest rate cannot be applied) to the amortised cost. Recognition of interest

income for such financial assets stops when amortised cost becomes nil (100% depreciated).


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Commission and Fee Income

The Bank receives commission and fee income from different services provided to customers. Commission and fee income

can be split into two categories:

Commission and fee income from services provided for a certain period

Commission and fees received from services provided for a certain period are accrued during this period. Such items include

commission and fee income, asset management fees, custody and other management and advisory services fees.

Commissions and fees for providing loans that are likely to be utilised, and other fees related to the provision of loans are

carried forward to subsequent periods (together with any additional expenses) and recognized as an adjustment to the

effective interest rate applied to the loan.

Commission and fee income for transaction services

Commission and fees received for conducting or participating in negotiations regarding transaction on behalf of a third party,

for example, entering into agreement on purchase of shares or other securities, or on acquisition or sale of an enterprise,

are recognized after the relevant transaction is completed. Commission and fees, or a part of commission and fees related

to certain yields are recognized after the relevant criteria are met.

If the above conditions are not met, the Bank recognises income/expenses at the time it is received/incurred.

4.13 Operating Segments

Operating segments are components of the Bank engaged in its commercial activities (earn revenues/incur expenses),

whose reporting is regularly reviewed by their chief operating decision makers and for which discrete financial information is

available.

Chief operating decision maker is a person or a group of people that allocate the Bank’s resources and assess its operating

results. The Board of the Bank acts as a chief operating decision maker that analyzes internal reports to assess operating

results and allocation of the Bank’s resources. Information about operating segments is presented in the form of internal

reporting and submitted to the chief operating decision maker of the Bank.

Reportable segments criteria. Reportable segment is a separate component engaged in providing a separate product or

service (or the group of related products or services), faces risks and ensures profitability separately from other segments.

Segment’s assets are 10% or more of the Bank’s combined assets. External revenue from all reportable segments

constitutes at least 75% of the Bank’s total revenue.

According to the above the Bank has the following operating segments:

- Retail banking is a business segment that represents private banking services, private customer current and saving

accounts, deposits, custody, credit and debit cards, consumer and car loans, mortgage loans, etc.;

- Corporate banking is a business segment that represents corporate current accounts, deposits, overdrafts, loan

and other credit facilities, foreign currency and derivative products, asset management of repossessed collaterals,

etc.;

- Centralized treasury banking is a business segment that arranges financing and risk management of the Bank by

raising funds in the financial markets, issue of securities, investing in liquid assets.

Transactions between segments are carried out on general market conditions. Resources are reallocated between

segments, which causes segment’s transfer expenses or income (recognised in operating result). There are no other

significant reallocations between segments. Segment’s assets and liabilities constitute the biggest part of the total equity and

do not exclude the possibility of tax consequences. Capital is not assigned to segments except for the segment results of the

current year.


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4.14 Business Combination under Common Control

On 15 October 2019 the General Meeting of Shareholders of the Bank (Minutes № 4/2019) and the sole shareholder of JSC

“UKRSOTSBANK” (Minutes №5/2019) approved the decision on authorization of the acceptance register, under which

assets, liabilities and capital of JSC “UKRSOTSBANK” in the amount of UAH 10,115,562 thousand, UAH 8,630,866

thousand and UAH 1,484,696 thousand respectively, were transferred to the Bank. Transfer of assets, liabilities and equity

was conducted according to the requirements of the Resolution of the Board of the National Bank of Ukraine “Regulations on

specifics of reorganization of the bank according to its owners’ decision” №189 dd 27.06.2008. in accepting the assets,

liabilities and equity the Bank netted the following intra-group balances:

- asset balances on correspondent accounts of JSC “UKRSOTSBANK” with the Bank in the amount of UAH 1,708,601

thousand;

- asset balances on correspondent accounts and interbank loans of the Bank with JSC “UKRSOTSBANK” in the amount

of UAH 7,749,351 thousand.

In thousands of hryvnias As at 15 October 2019

ASSETS

Cash and cash equivalents 1,706,329

Due from other banks 21,258

Loans and advances to customers 6,131,624

Investments in securities 60

Investments in associates and subsidiaries 8,612

Investment property 347,538

Current income tax assets 1,919

Property, equipment and intangible assets 227,532

Other assets 232,033

Non-current assets held for sale 1,438,657

Total assets 10,115,562

LIABILITIES

Due to banks 7,792,493

Due to customers 749,804

Deferred income tax liabilities 2,104

Provisions 534

Other liabilities 85,932

Total liabilities 8,630,867

EQUITY

Share capital 16,545,990

Share premium and additional paid-in capital 1,628,083

Reserve capital 2,332,221

Revaluation reserve 60,007

Accumulated deficit (19,081,606)

Total equity 1,484,695

Total liabilities and equity 10,115,562

On November 21, 2019, the conversion of ordinary registered shares of JSC “UKRSOTSBANK” in the amount of UAH

16,545,990 thousand and preference registered shares in the amount of UAH 502 thousand, which were carried in liabilities

in the acceptance register (Note 20), was completed. This balance sheet item, assets, liabilities and capital received from

JSC “UKRSOTSBANK” are presented in this financial statements in accordance with the Bank's accounting policy for

information disclosure.

Given the lack of specific IFRS requirements for accounting for business combinations under common control, the Bank has

selected accounting policies based on the requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and

Errors.

The Bank has selected a (prospective) pooling of interest method that provides for the following:

- assets, liabilities and capital of the merging banks are reflected in the Statement of Financial Position (balance sheet) at

carrying amount from the date of a merger less intragroup balances;

- the financial result of JSC “UKRSOTSBANK” for 2019 is presented in retained earnings in equity, and intragroup

turnover before the date of a merger is not excluded from the Statement of Profit or Loss and Other Comprehensive

Income;

- cash flow is presented in the Statement of Cash Flow for the date of a merger.


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The capital received from JSC “UKRSOTSBANK” includes negative financial result (loss) in the amount of UAH 1,588,591

thousand at the date of a merge. On 2 December 2019 the Extraordinary General Meeting of the Bank's Shareholders

adopted a decision that the loss of the current year of JSC “UKRSOTSBANK” in the amount of UAH 1,588,591 thousand

shall be repaid at the expense of reserve and other funds received from JSC “UKRSOTSBANK” (Statement of Changes in

Equity).

4.15 Critical Accounting Estimates and Judgments

In the course of preparation of IFRS financial statements the Bank’s management is required to make estimates and

assumptions that affect the amounts recognized in the financial statements. The management makes estimates and takes

professional judgments on a regular basis. Estimates and judgments are based on information, available to the Bank’s

management as at the financial statements preparation date. Consequently, actual results may differ from such estimates

and judgments. Apart from judgments that envisage accounting estimates, the management also uses professional

judgments in the process of applying the accounting policies. Judgments that have the most significant effect on the

amounts recognized in the financial statements and estimates that can cause a significant adjustment to the carrying amount

of assets and liabilities within the next financial year include:

Judgments

Going concern. After analysing the existing internal, economic and political factors of uncertainty and taking into

consideration their possible impact, the management of the Bank came to the conclusion that their assumption regarding

going concern in preparation of these financial statements is appropriate, which involves sale of assets and payment of

liabilities in the normal course of business. The management of the Bank monitors the current situation and takes measures,

as necessary, to minimize any negative effects as far as possible. The Bank has sufficient liquidity to fulfil all its financial

obligations.

Initial recognition of related party transactions. In the normal course of business, the Bank has transactions with related

parties. IFRS requires accounting for financial instruments at initial recognition at fair value. In the absence of an active

market for such transactions, professional judgments are used to determine whether such transactions are carried out at

market or non-market prices and rates. The basis for such judgments is pricing for similar financial instruments and

accompanying transactions, including analysis of the effective interest rate and terms of agreements signed.

Derecognition through financial assets write-off. The Statement of Financial Position of the Bank includes financial

instruments with nil book value, which gross carrying amount was as follows::

- corporate loans (including to small business) in the amount of UAH 2,074,755 thousand;

- loans to individuals in the amount of UAH 2,393,657 thousand.

Most of the above loans migrated to the Bank’s balance sheet after the Bank’s merger with JSC “UKRSOTSBANK”.

The work on problem assets management is organized on the basis the Strategy of problem assets management of JSC

"ALFA-BANK", approved by the Supervisory Board. The Bank is actively working with bad debts at various stages of debt

past due, both in court and out of court, and has expectations for the recovery of the above financial assets. In accordance

with internal procedures, the Bank writes-off financial assets in case of it is absolutely confident about the absence of

prospects for repayment of the debt or part thereof, after all procedures for execution of the creditor's rights are completed,

including the search for additional assets of a debtor or a guarantor.

Due to the low activity of debt collection in JSC "UKRSOTSBANK" until 2017, the recovery / review of the collection

processes of the above loans requires time from the Bank’s units that work with bad debts, especially given the long period

of litigation.

Gross carrying amount of loans written-off by the Bank during 2019 are the following:

- corporate loans in the amount of UAH 2,334,820 thousand (Note 8);

- loans to individuals in the amount of UAH 5,404,792 thousand (Note 8).

In addition, the capital in the acceptance register of JSC "UKRSOTSBANK" contained losses from loans written off during

2019 with a gross book carrying amount of UAH 5,763,287 thousand.

After the date of the financial statements the Bank has written off corporate loans and loans to individuals with gross carrying

amount of UAH 608,213 thousand and UAH 166,572 thousand, respectively (Note 35).


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According to the Bank's management, the gross carrying amount of financial instruments that are not written off as at 31

December 2019 do not affect the financial position of the Bank, its performance results and cash flows.

Uncertainty of Estimates

The most significant estimates and judgments include the following:

Allowance for loan impairment. Estimation of allowance for loan impairment requires a significant amount of professional

judgment. The Bank regularly reviews provided loans to assess their impairment. The Bank estimates allowances for

impairment losses to maintain the allowances at the level, which management believes to be sufficient to cover losses

incurred with respect to the Bank’s loan portfolio. Allowance for loan impairment is calculated based on the estimates made

using statistical techniques based on historical experience taking into account forward-looking information. The results are

adjusted based on management's judgment. The Bank expects that the accounting estimate related to determination of

allowance for loan impairment is a major source of estimation uncertainty because of the fact that:

- they are particularly sensitive to change from period to period, as assumptions about future default rates and

valuation of potential losses related to impaired loans and given funds is based on recent performance experience,

and

- any significant difference between the expected losses of the Bank and actual losses would require the Bank

provisioning, which, in case of significant differences, could significantly affect its Statement of Profit or Loss and

Other Comprehensive Income and Statement of Financial Position in the future periods.

The allowances for impairment of financial assets in the financial statements have been determined on the basis of existing

economic and political conditions. The Bank is not able to predict what changes in economic and political situation will take

place in Ukraine and what effect such changes might have on the adequacy of allowance for impairment of financial assets

in future periods.

Collateral was used in the calculation of credit risk provisions at fair value based on reports prepared by independent

appraisal companies and appraisers - employees of the Bank that are certified appraisers and are not related parties of the

Bank. The collateral value was measured on the basis of assessed value, which was based on the professional opinion of

appraisers.

Assessment of fair value of collateral requires the use of judgments and assumptions about the property comparability and

other factors. Based on the above, the allowance for loan impairment may be affected by use of the collateral assessed

value. Accounting estimates related to valuation of property is a key source of the assessment uncertainty, because

recognition of changes in estimates can potentially have a significant impact.

Tax legislation and deferred tax recognition. Ukrainian tax, currency and customs legislation is subject to varying

interpretations, resulting in significant differences in assessing taxes due and other payments to the budget. Deferred tax

assets are recognised by the Bank only to the extent that it is probable to get taxable profit in future periods, which are

assessed based on the medium-term plan of the Bank's development. These plans are based on the management’s

assumptions that are considered to be reasonable in the current circumstances.

Fair value of property. Owner-occupied property and investment property is subject to regular revaluation. This revaluation is

based on evaluation results carried out by an independent appraiser, who applies professional judgment and assessment to

assess similar buildings, useful life of assets and income capitalization norms.

Assets in Crimea and some territories of Donetsk and Lugansk regions. The financial statements of the Bank includes

assets located in Crimea and some territories of Donetsk and Lugansk regions. As at the date of these financial statements

the Bank did not have safe and unlimited access to all assets located in the territories of Donetsk and Lugansk regions.

There is a significant uncertainty regarding these assets, the Bank recognised carrying amount of non-financial assets

located in those regions as nil. Carrying amount of financial assets is disclosed in respective notes.

Restrictions on ownership rights: for disposal and use. As at 31 December 2019, the Bank's balance sheet includes

investment property and non-current assets held for sale with restricted ownership rights: for disposal and use in the amount

of UAH 334,589 thousand. There is an uncertainty is the exact time when all the Bank's ownership rights for these assets

will be restored.


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4.16 Changes in Accounting Policy, Accounting Estimates, Presentations and Adjustments

New IFRS effective in 2019. IFRS 16 titled Leases becomes effective on1 January 2019 (hereinafter – IFRS 16) with a

mandatory application from that date. IFRS 16 was issued in January 2016 and superseded IAS 17 Leases. IFRS 16

requires that all leases are recognized in the balance sheet, the right-of-use asset and the lease liability are recognized at

the inception of lease, with recognizing the asset depreciation expense in the form of a right-of-use and an interest accrued

separately. The Bank does not record a right-of-use asset under lease agreements of less than one year or when the value

of a leased asset is less than USD 5,000 at the National Bank of Ukraine rate on the date of the relevant agreement.

The Bank determines the lease term as follows:

- for Bank outlets: depending on an outlet current performance, the Department of Development and Efficiency of the

regional network determines the expected lease term as one, three or five years. The Lease Department analyzes

the information and records an asset at the shorter of: expected or contractual term (if there is no prolongation

option).

- for all other lease agreements it is a contractual term.

To calculate the present value of future lease payments, the Bank uses the rate for deposits without early termination option

with monthly interest reduced by 1% per month (by the amount of the standard business margin in UAH). If an agreement or

its individual components contain a lease, the Bank records each lease component as a lease, separately from the non-

lease components of the agreement. If the Bank cannot reliably measure (allocate) the amount of non-lease components,

the value of which is included in lease payments, such components are considered a lease.

The right-of-use asset is impaired from the lease commencement date until the end of the useful life of the underlying asset.

After the lease commencement date, variable lease payments (due to exchange rate changes) that are not included in

measurement of lease liability in the period when events / conditions that caused such payments occurred, are recognized

by the Bank in other operating expenses / income. In this case, future discounted cash flows are not reviewed. The Bank re-

measures lease liabilities by discounting the revised lease payments using a fixed discount rate, if the future lease payments

change due to amendments in the index used to determine such payments.

Under lease agreements that are indexed to the exchange rate, the Bank indexes the value of the current payment without

recalculation of the right-of-use asset and lease liability. The Bank presents the re-measured lease liability as an adjustment

to a right-of-use asset (unless the carrying amount of a right-of-use asset is reduced to nil). If the carrying amount of a right-

of-use asset has reduced to nil and is further decreasing, the Bank recognizes the remaining amount in profit or loss.

Long-term land leases, where the Bank's own real estate is located, are not subject to IFRS 16 in terms of recognizing a

right-of- use asset. The Bank re-measures lease liabilities if: lease terms change, future lease payments change as a result

amendments in index or rate used to determine such payments. In most cases, the re-measured lease liability is carried as

an adjustment to a right-of-use asset.

The Bank measures a right-of-use asset at amortized cost.

For the purposes of presentation in the financial statements, liabilities for lease payments in interest rate risk and liquidity

risk have been transferred to other financial liabilities.

For the Bank as a lessor, the accounting procedure in accordance with IFRS 16 has not changed compared to IAS 17, the

same classification principles are used as before, with two types of lease: operating and financial.

Operating lease (lease) is a business transaction of the Bank that provides for transfer of fixed assets to the lessee on terms

other than those provided for finance lease (lease). If the Bank acts as a lessor, income from operating lease is recognized

on a straight-line basis over the life of a lease. Where the Bank acts as a lessee, lease payments under operating lease are

recognized as an expense on a straight-line basis over the life of a lease. For the Bank as a lessor, expenses toward the

improvement of an object in operating lease are recorded as capital investments in other non-current tangible assets.

Finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset. While the title

may be transferred to the lessee or may remain with the lessor, depending on the operation


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Lease is classified as a finance lease if:

under the lease term, ownership for an asset is transferred to a lessee at the end of the lease term;

there is an option for a lessee to purchase an asset at a price that is expected to be significantly lower than its fair value

at the date of purchase; and at a lease commencement date there is reasonable assurance that such an option will

be realized;

lease term is most part of an asset useful life, even if an ownership right is not transferred;

at a lease commencement date, the present value of minimum lease payments is substantially equal to fair value of a

leased asset;

leased assets are such a specialized assets that only a lessee can use them without making significant modifications.

At a lease commencement date the Bank recognizes assets in finance leases in the Statement of Financial Position

presented as receivables in the amount equal to net investment in lease.

In 2018-2019 the Bank provide non-current assets in finance lease. The Bank, as a lessor, recognizes assets in finance

lease in a separate Statement of Financial Position presented as Due from customers with initial value equal to net

investment in lease..

The effect of transition to IFRS 16 is disclosed in Reconciliation of the Statement of Financial Position.

Interest Income from Credit-Impaired Financial Instruments. In March 2019, the IFRS Interpretations Committee issued

an explanation "Curing of a credit-impaired financial asset (IFRS 9)", which clarifies that in applying paragraph 5.5.8 of IFRS

9, the entity recognizes in the statement of profit or loss a difference following subsequently cured asset as a reversal of

impairment loss by an adjustment required to reduce allowance to nil when the asset is paid in full. In this regard, the Bank

restated information to the Statement of Profit or Loss and Other Comprehensive Income for 2018 in the amount of UAH

206,920 thousand retrospectively, as presented in Reconciliation of the Statement of Profit or Loss and Other

Comprehensive Income.

Presentation of Movement of Revaluation Reserve. The Bank excluded from other comprehensive income for 2018 in the

Statement of Profit or Loss and Other Comprehensive Income the presentation of the movement of revaluation reserve

related to sale of the main office building in the amount of UAH (361,260) thousand (as presented in Reconciliation of the

Statement of Profit or Loss and Other Comprehensive Income). Indicated presentation did not affect the financial position of

the Bank, its financial performance or cash flows for 2018, which were presented in the financial statements of the Bank for

2018.

Changes in Presentation of Derivatives. In 2019, in accordance with the requirements of IAS 1, the Bank revised its

approaches to presentation of information, combination of items in the Statement of Financial Position (as presented in

Reconciliation of the Statement of Financial Position) for derivative assets and liabilities due to increase of their materiality.

The results of all above changes are presented below. Reconciliation of the Statement of Financial Position as at 31 December 2018

In thousands of hryvnias As at 31 December 2018

according to the

previous disclosure

Effect of changes

As at 31 December 2018

as amended

ASSETS

Derivatives (Note 32) - 166,832 166,832

Other assets (Note 12) 726,080 290,098 1,016,178

-derivatives 166,832 (166,832) -

-right-of-use asset - 456,930 456,930

Total assets 60,287,202 456,930 60,744,132

LIABILITIES

Derivatives (Note 32) - 4,205 4,205

Other liabilities (Note 18) 1,243,331 452,725 1,696,056

derivatives 4,205 (4,205) -

leases - 456,930 456,930

Total liabilities 55,246,114 456,930 55,703,044

Total liabilities and equity 60,287,202 456,930 60,744,132


22

Reconciliation of the Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018

In thousands of hryvnias As at 31 December 2018

according to the

previous disclosure

Effect of changes

As at 31 December 2018

as amended

Interest income 6,866,469 (206,920) 6,659,549 Net interest income 3,778,100 (206,920) 3,571,180 Change in expected credit losses and other credit impairment charges (2,147,605) 206,920 (1,940,685)

ITEMS THAT WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS

Revaluation for fixed assets (361,260) 361,758 498

Total other comprehensive income after income tax for the year (323,872) 361,758 37,886

Total comprehensive income for the year 986,388 361,758 1,348,146

5. New and Revised Standards

Key amendments effective from 1 January 2020

Amendments to IFRS 3 Business Combinations. According to the amendment, a business is an integrated set of activities

and assets, the implementation and management of which can lead to the provision of goods or services to customers,

generate investment income or other income from ordinary activities.

Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting

Estimates and Errors:

unify the definition of "materiality" in various IFRS standards and the Conceptual basis of financial reporting;

give explanations for materiality definition.

Key new IFRSs in issue but not yet effective

IFRS 17 Insurance Contracts becomes effective for annual periods beginning on or after 1 January 2021, early application is

permitted. The management believes that application of the standard will not have a material effect on the financial

performance or financial position of the Bank.

Amendments in reporting Important amendments of the next year can be considered amendments to the Law of Ukraine "On Accounting and Financial

Reporting in Ukraine", which establishes 2020 as the first reporting period for which the companies with obligatory

application of international standards shall submit financial statements on the basis of taxonomy under international

standards in soft format. The Bank is working on transition to a new reporting format.


23

6. Cash and Cash Equivalents

Table 6.1 Cash and cash equivalents

In thousands of hryvnias 2019 2018

Cash on hand 2,912,148 1,078,305

Current accounts with the National Bank of Ukraine 2,270,753 1,010,582

Current accounts with other banks 1,980,072 4,284,513

“Overnight” deposits - 1,123,384

Deposit certificates of the National Bank of Ukraine 6,310,869 2,200,385

Allowance for impairment (370) (1,990)

Book value at amortised cost 13,473,472 9,695,179

Deposit certificates of the National Bank of Ukraine are short-term risk-free instrument used by the Bank to manage short-term liquidity and comply with mandatory reserve on a correspondent account and is managed by type I business model.

Cash for the purpose of the Statement of cash flow are presented below:


Cash and cash equivalents 13,473,472 9,695,179

Accrued income (11,498) (6,085)

Allowance for impairment (table 6.1) 370 1,990

Revaluation of deposit certificates of the National Bank of Ukraine (Note 21) - 2,968

Cash and cash equivalents for the Statement of Cash Flows 13,462,344 9,694,052

As at 31 December 2019 and 31 December 2018 maximum credit risk exposure per one contractor is UAH 1,238,810

thousand and UAH 1,297,725 thousand respectively. The foreign currency, geographical and cash and cash equivalents

concentration by maturity on the basis of expected maturities is disclosed in Note 29 “Risk Management”. As at 31

December 2019 provision for expected credit losses of cash and cash equivalents is in Stage 1 and collectively assessed.

Credit quality analysis of correspondent accounts based on ratings of internationally recognized rating agencies (Fitch, Moody’s, Standard Poor’s) is presented below. Banks of Ukraine are rated by rating of Ukraine В.


AA+/AA/AA- 99,301 1,123,361

A+/A/A- 1,428,972 1,619,783

BBB+/BBB/BBB- 231,039 1,478,337

BB+/BB/BB- 181,651 214,726

В+/В/В- 38,269 968,950

without rating 470 750

Current accounts with other banks 1,979,702 5,405,907

Table 6.2. Analysis of changes in allowance for impairment of cash and cash equivalents for 2019

In thousands of hryvnias Current accounts with other banks

“Overnight” deposits

“Overnight” loans

Total

Allowance for impairment as at 01 January 2019 (1,966) (24) - (1,990)

Banks’ merger (3,850) - - (3,850)

Charge for the year 5,347 22 (5) 5,364

Stage 1 5,347 22 (5) 5,364

Currency translation differences 99 2 5 106

Allowance for impairment as at 31 December 2019 (370) - - (370)

Table 6.3. Analysis of changes in allowance for impairment of cash and cash equivalents for 2018

In thousands of hryvnias Current

accounts with other banks

“Overnight” deposits

“Overnight” loans

Total

Allowance for impairment as at 01 January 2018 (3,146) (46) - (3,192)

Charge for the year 905 68 (4) 969

Stage 1 905 68 (4) 969

Currency translation differences 275 (46) 4 233

Allowance for impairment as at 31 December 2018 (1,966) (24) - (1,990)


24

7.Due from Other Banks

Table 7.1 Due from other banks


Loans 87,057 9,011,967

Deposits 473,849 -

Allowance for impairment (12,602) (12,159)

Book value at amortised cost 548,304 8,999,808

As at 31 December 2019 and 31 December 2018 maximum credit risk exposure per one contractor is UAH 473,849 thousand

and UAH 8 987 568 thousand respectively (Note 34 “Related party transactions”). The foreign currency, geographical and due

from other banks concentration by maturity on the basis of expected maturities is disclosed in Note 29 “Risk Management”.

Table 7.2. Analysis by ECL stages of due from other banks for 2019

In thousands of hryvnias Stage 1

12-month ECL

Stage 2

Lifetime ECL

Stage 3

Lifetime ECL

Total

Gross carrying amount 544,079 - 16,827 560,906

Loans 70,230 - 16,827 87,057

Deposits 473,849 - - 473,849 Allowance for impairment (9) - (12,593) (12,602)

Book value at amortised cost 544,070 - 4,234 548,304

Table 7.3 Analysis by stage of expected credit losses of due from other banks for 2018


12-month ECL

Stage 2

Lifetime ECL

Stage 3

Lifetime ECL

Total

Gross carrying amount 8,995,140 - 16,827 9,011,967

Loans 8,995,140 - 16,827 9,011,967 Deposits - - - - Allowance for impairment - - (12,159) (12,159)

Book value at amortised cost 8,995,140 - 4,668 8,999,808

Table 7.4. Individual or collective measurement of expected credit losses of due from banks for 2019

In thousands of hryvnias Deposits Loans Total

Individual impairment - 4,234 4,234

Gross carrying amount - 16,827 16,827

Allowance for impairment - (12,593) (12,593)

Collective impairment 473,844 70,226 544,070

Gross carrying amount 473,849 70,230 544,079

Allowance for impairment (5) (4) (9)

Book value at amortised cost 473,844 74,460 548,304

Table 7.5. Individual or collective measurement of expected credit losses of due from banks for 2018

In thousands of hryvnias Deposits Loans Total

Individual impairment - 4,668 4,668

Gross carrying amount - 16,827 16,827

Allowance for impairment - (12,159) (12,159)

Collective impairment - 8,995,140 8,995,140

Book value at amortised cost - 8,999,808 8,999,808

Table 7.6. Analysis by credit quality of due from other banks according to ratings


А+/А/А- 473,844 -

BBB+/BBB/BBB- - -

В+/В/В- 74,460 8,999,808

Book value at amortised cost 548,304 8,999,808


25

Ratings are reported by rating agencies (Fitch, Moody’s, Standard Poor’s). Banks of Ukraine are rated by rating of Ukraine В.

Table 7.7. Analysis of changes in allowance for impairment of due from other banks by stages for 2019


12-month ECL

Stage 2

Lifetime ECL

Stage 3

Lifetime ECL

Total

Allowance for impairment as at 31 December 2018 - - (12,159) (12,159)

Loans - - (12,159) (12,159)

Deposits - - - -

Charge for the year (15) - (434) (449) Loans - - (434) (434)

Deposits (15) - - (15)

Currency translation differences 6 - - 6

Allowance for impairment as at 31 December 2019 (9) - (12,593) (12,602)

Loans - - (12,593) (12,593)

Deposits (9) - - (9)

Table 7.8. Analysis of changes in allowance for impairment of due from other banks by stages for 2018


12-month ECL

Stage 2

Lifetime ECL

Stage 3

Lifetime ECL

Total

Allowance for impairment as at 31 December 2017 (837) - (13,770) (14,607)

Loans (746) - (13,770) (14,516)

Deposits (91) - - (91)

Charge for the year 829 - 1,611 2,440

Loans 744 - 1,611 2,355

Deposits 85 - - 85

Currency translation differences 8 - - 8

Allowance for impairment as at 31 December 2018 - - (12,159) (12,159)

Loans - - (12,159) (12,159)

Deposits - - - -

The effect of collateral value on credit quality of due from other banks for 2019 is UAH 78,637 thousand, for 2018 is UAH 112,565 thousand. 8.Loans and Advances to Customers

Table 8.1 Loans and advances to customers


Gross carrying amount 55,078,910 41,617,865

Corporate loans 24,465,905 25,677,583

Leases to corporate contractors 480,101 120,873

Leases to individuals 10,998 -

Mortgage loans to individuals 11,020,956 1,824,927

Consumer loans to individuals 17,158,162 13,095,364

Other loans to individuals 1,942,788 899,118

Allowance for impairment (15,879,076) (9,159,707)

Corporate loans (5,325,727) (5,669,001)

Leases (11,760) (3,898)

Mortgage loans to individuals (652) -

Consumer loans to individuals (7,576,538) (1,369,878)

Other loans to individuals (1,302,634) (1,276,152)

Corporate loans (1,661,765) (840,778)


As at 31 December 2019 and 31 December 2018 maximum credit risk exposure per one contractor is UAH 2,106,201 thousand and UAH 2,818,441 thousand respectively. As at 31 December 2019 and 31 December 2018 maximum credit risk exposure per 20 contractors is UAH 16 123 806 thousand and UAH 19,272,901 thousand respectively.


26

In 2019 the Bank purchased noncurrent assets to transfer in finance lease in the amount of UAH 233,686 thousand. During

the year the purchased noncurrent assets were transferred to finance lease in full.

Table 8.2. Loan concentration as per economic sectors


Economic sector amount % amount %

Individuals 30,132,904 54.7 15,819,409 38.0

Constructions and real estate 4,136,240 7.5 2,489,429 6.0

Agriculture 3,869,401 7.0 4,810,815 11.6

Wholesale 2,562,553 4.7 1,669,090 4.0

Chemical industry 2,203,867 4.0 1,927,756 4.6

Retail food trade 2,120,675 3.8 2,320,992 5.6

Power industry 2,018,953 3.7 4,489,619 10.8

Financial services 1,509,676 2.7 452,662 1.1

Oil and gas industry 1,410,666 2.6 956,597 2.3

Mechanical engineering 1,244,392 2.3 3,932,912 9.4

Other 3,869,583 7.0 2,748,584 6.6

Gross carrying amount 55,078,910 100.0 41,617,865 100.0

The foreign currency, geographical and loans and advances to customers concentration by maturity on the basis of expected maturities is disclosed in Note 29 “Risk Management”. Table 8.3 Analysis by ECL stages of loans and advances to customers for 2019


12-month ECL

Stage 2

Lifetime ECL

Stage 3

Lifetime ECL

Purchased credit-

impaired

Total

Gross carrying amount 29,508,432 5,481,809 18,214,165 1,874,504 55,078,910

Corporate loans 12,913,859 4,872,508 5,391,173 1,288,365 24,465,905

Leases to corporate contractors 479,862 - 239 - 480,101

Leases to individuals 3,479 735 6,784 - 10,998

Mortgage loans to individuals 382,947 172,126 10,053,890 411,993 11,020,956

Consumer loans to individuals 15,716,805 434,732 857,990 148,635 17,158,162

Other loans to individuals 11,480 1,708 1,904,089 25,511 1,942,788

Allowance for impairment (385,605) (573,580) (14,456,970) (462,921) (15,879,076)

Book value at amortised cost 29,122,827 4,908,229 3,757,195 1,411,583 39,199,834

Net transfers

Corporate loans

Gross carrying amount (3,461,622) 1,278,151 2,183,471 - - Allowance for impairment 16,401 913,754 (930,155) - -

Leases to corporate contractors

Gross carrying amount - - - - -

Allowance for impairment - - - - -

Leases to individuals

Gross carrying amount - 282 (282) - -

Allowance for impairment - (282) 282 - -

Mortgage loans to individuals

Gross carrying amount (35,403) 2,317 33,086 - -

Allowance for impairment 3,226 1,339 (4,565) - -

Consumer loans to individuals

Gross carrying amount (1,320,209) 576,840 743,369 - -


Other loans to individuals

Gross carrying amount (2,219) (585) 2,804 - -

Allowance for impairment 8 825 (833) - -

Net gross carrying amount in transfers (4,819,453) 1,857,005 2,962,448 - -

Net allowance for impairment in transfers (Table 8.8)

162,665 1,102,188 (1,264,853) - -


27

Table 8.4 Analysis by ECL stages of loans and advances to customers for 2018


12-month ECL

Stage 2

Lifetime ECL

Stage 3

Lifetime ECL

Purchased credit-

impaired

Total

Corporate loans 23,983,988 9,262,441 7,165,129 1,206,307 41,617,865

Leases to corporate contractors 12,015,949 8,916,179 3,909,506 835,949 25,677,583

Leases to individuals 120,873 - - - 120,873

Mortgage loans to individuals 148,549 11,304 1,448,941 216,133 1,824,927

Consumer loans to individuals 11,675,195 333,984 956,272 129,913 13,095,364

Other loans to individuals 23,422 974 850,410 24,312 899,118

Allowance for impairment (314,123) (2,029,937) (6,468,740) (346,907) (9,159,707)

Book value at amortised cost 23,669,865 7,232,504 696,389 859,400 32,458,158

Net transfers

Corporate loans

Gross carrying amount (54,987) (371,196) 426,183 - -

Allowance for impairment (12,775) 31,263 (18,488) - -

Leases , , , , ,

Gross carrying amount - - - - -

Allowance for impairment - - - - -

Mortgage loans to individuals , , , , ,

Gross carrying amount (7,708) (12,377) 20,085 - -

Allowance for impairment (90) 2,780 (2,690) - -

Consumer loans to individuals , , , , ,

Gross carrying amount (925,106) 402,989 522,117 - -


Other loans to individuals , , , , ,

Gross carrying amount (867) 107 760 - -

Allowance for impairment (477) (37) 514 - -

Net gross carrying amount in transfers (988,668) 19,523 969,145 - -

Net allowance for impairment in transfers (Table 8.9)

60,910 114,035 (174,945) - -

Table 8.5. Individual or collective measurement of expected credit losses and credit quality of loans and advances to

customers for 2019

In thousands of hryvnias Corporate

loans Leases to

corporate

contractors

Leases to

individuals

Mortgage loans to

individuals

Consumer loans to

individuals

Other loans to

individuals

Total

Individual impairment 4,905,473 - - 183,990 - - 5,089,463 Gross carrying amount: 9,844,603 - - 252,500 - - 10,097,103

large borrowers/contractors 5,124,672 - - - - - 5,124,672

small and medium-sized

borrowers

3,431,566 - - 252,500 - - 3,684,066

purchased credit-impaired

assets

1,288,365 - - - - - 1,288,365

Allowance for impairment

(4,939,130) - - (68,510) - - (5,007,640)

Collective impairment 14,234,705 468,341 10,346 3,260,428 15,855,528 281,023 34,110,371

Gross carrying amount by past due

- - 10,998 10,356,463 17,009,527 1,917,277 29,294,265

not overdue - - 9,718 666,514 15,137,710 11,708 15,825,650

past due up to 30 days - - 282 73,871 736,207 3,737 814,097

past due from 31 to 90 days

- - 454 92,392 312,874 638 406,358

past due from 91 to 365 days

- - 544 162,993 719,962 6,336 889,835

past due over 365 days - - - 9,360,693 102,774 1,894,858 11,358,325


28

In thousands of hryvnias)

Corporate loans

Leases to

corporate

contractors

Leases to

individuals

Mortgage loans to

individuals

Consumer loans to

individuals

Other loans to

individuals

Total

Gross carrying amount by rating

14,621,302 480,101 - - - - 15,101,403

А 1,201,297 40,490 - - - - 1,241,787

A- 4,537,316 - - - - - 4,537,316

А+ 510,774 - - - - - 510,774

B 1,900,786 119,960 - - - - 2,020,746

B- 1,392,254 - - - - - 1,392,254

B+ 2,052,227 - - - - - 2,052,227

C 937,629 - - - - - 937,629

C- 73,278 319,413 - - - - 392,691

C+ 894,684 - - - - - 894,684

D 5,156 238 - - - - 5,394

without rating 1,115,901 - - - - - 1,115,901

purchased credit-impaired assets

- - - 411,993 148,635 25,511 586,139

Allowance for impairment

(386,597) (11,760) (652) (7,508,028) (1,302,634) (1,661,765) (10,871,436)

Book value at amortised cost

19,140,178 468,341 10,346 3,444,418 15,855,528 281,023 39,199,834

Table 8.6. Individual or collective measurement of expected credit losses and credit quality of loans and advances to

customers for 2018

In thousands of hryvnias Corporate loans

Leases Mortgage loans to

individuals

Consumer loans to

individuals

Other loans to

individuals

Total

Individual impairment 7,994,209 - - - - 7,994,209 Gross carrying amount: 13,511,958 - - - - 13,511,958

large borrowers/contractors 11,220,842 - - - - 11,220,842

small and medium-sized borrowers 1,455,167 - - - - ,1,455,167

purchased credit-impaired assets 835,949 - - - - 835,949

Allowance for impairment (5,517,749) - - - - (5,517,749)

Collective impairment 12,014,373 116,975 455,049 11,819,212 58,340 24,463,949

Gross carrying amount by past due - - 1,608,794 12,965,451 874,806 15,449,051

not overdue - - 147,903 11,251,670 22,214 11,421,787

past due up to 30 days - - 11,819 535,323 1,899 549,041

past due from 31 to 90 days - - 15,046 249,749 460 265,255

past due from 91 to 365 days - - 23,544 424,412 1,103 449,059

past due over 365 days - - 1,410,482 504,297 849,130 2,763,909

Gross carrying amount by rating 12,165,625 120,873 - - - 12,286,498

А

А 2,286,257 - - - - 2,286,257

А- 3,772,737 - - - - 3,772,737

А+ 400,562 - - - - 400,562

B 1,263,042 - - - - 1,263,042

B- 341,038 - - - - 341,038

B+ 1,146,464 - - - - 1,146,464

C 1,435,122 - - - - 1,435,122

C+ 544,626 - - - - 544,626

without rating 444,453 120,873 - - - 565,326

purchased credit-impaired assets 531,324 - - - - 531,324

Allowance for impairment - - 216,133 129,913 24,312 370,358

Collective impairment (151,252) (3,898) (1,369,878) (1,276,152) (840,778) (3,641,958)

Book value at amortised cost 20,008,582 116,975 455,049 11,819,212 58,340 32,458,158

The Bank determined that as at 31 December 2019 large borrowers/contractors are represented by borrowers with risk exposure amounted to 5% of regulatory capital or UAH 10,216,779 thousand. The Bank determined that as at 31 December


29

2018 large borrowers/contractors are represented by borrowers with risk exposure amounted to 5% of regulatory capital or UAH 18,759,442 thousand. The Bank uses the own rating system. The Bank established probability of default indicators as presented in the table below. To calculate the probability of default, the rating system is limited to the following ratings: А,B,C,D. The lowest amount is the probability of default for loans with lifetime of 1 month. The highest amount is the probability of default for loans with lifetime of 60 months.

Rating PD, % Economic characteristics

А 0,3% - 2,1% Credit risk is low. Borrowers’ ability to repay their financial obligations is high, the probability of failure to repay the debt is low.

B 2,4% - 21,3% Credit risk is medium. Borrowers have certain safety margin that enables them to repay their financial obligation, the probability of failure to repay the debt is above average

C 7,6% - 57,9% Credit risk is higher. Borrowers have ability to repay their financial obligations, however the credit risks are higher, the probability of failure to repay the debt is medium.

D 100% Default

Table 8.7 Analysis of changes in allowance for impairment of loans and advances to customers for 2019


12-month ECL

Stage 2

Lifetime ECL

Stage 3

Lifetime ECL

Purchased credit-

impaired

Total

Allowance for impairment as at 31 December 2018 (recalculated)

(314,123) (2,029,937) (6,468,740) (346,907) (9,159,707)

including non-recognized Interest income for

credit-impaired assets

(40) (42) (1,394,747) (57,819) (1,452,648)

Corporate loans (144,137) (1,938,332) (3,511,299) (75,233) (5,669,001)

Leases to corporate contractors (3,898) - - - (3,898)

Leases to individuals - - - - -

Mortgage loans to individuals (5,009) (787) (1,209,238) (154,844) (1,369,878)

Consumer loans to individuals (160,364) (90,710) (927,959) (97,119) (1,276,152)

Other loans to individuals (715) (108) (820,244) (19,711) (840,778)

Banks’ merger (11,075) (87,254) (13,683,202) (109,223) (13,890,754)

Corporate loans (92) (75,871) (2,577,551) (48,904) (2,702,418)


Leases to individuals (471) - (191) - (662)

Mortgage loans to individuals (7,096) (11,069) (9,888,940) (56,355) (9,963,460)

Consumer loans to individuals - - (22) - (22)

Other loans to individuals (223) (314) (1,216,498) (3,964) (1,220,999)

Charge for the year including by stages ECL

(84,749) 1,440,322 (2,872,407) (45,644) (1,562,478)

Corporate loans 52,470 1,489,271 (1,653,037) (135,607) (246,903)


Leases to individuals 446 (68) (368) - 10

Mortgage loans to individuals 3,194 (13,136) (171,707) 74,656 (106,993)

Consumer loans to individuals (136,806) (35,949) (932,550) 13,778 (1,091,527)

Other loans to individuals 616 204 (114,745) 1,529 (112,396)

Bad debt write off 554 3 7,735,605 3,450 7,739,612

Loans sold write off against provisions 5,340 3,148 701,534 16,392 726,414

Currency translation differences 18,422 100,240 1,146,423 40,644 1,305,729

Changes in non-recognized Interest income for credit-impaired assets

26 (102) (1,016,183)

(21,633)

(1,037,892)

Allowance for impairment as at 31

December 2019

(385,605) (573,580) (14,456,970) (462,921) (15,879,076)

including non-recognized Interest income for

credit-impaired assets

(14) (144) (2,410,930) (79,452) (2,490,540)

Corporate loans (68,826) (425,634) (4,557,743) (273,524) (5,325,727)


Leases to individuals (25) (68) (559) - (652)

Mortgage loans to individuals (7,617) (21,099) (7,454,349) (93,473) (7,576,538)

Consumer loans to individuals (297,088) (126,592) (804,833) (74,121) (1,302,634)

Other loans to individuals (289) (187) (1,639,486) (21,803) (1,661,765)


30

Table 8.8 Analysis of changes in allowance for impairment of loans and advances to customers by stages for 2019

In thousands of hryvnias Corporate

loans

Leases to

corporate

contractors

Leases to

individuals

Mortgage loans to

individuals

Consumer loans to

individuals

Other loans to

individuals

Total


(5,669,001) (3,898) - (1,369,878) (1,276,152) (840,778) (9,159,707)

including non-recognized Interest income for credit-impaired assets

(764,851) - - (350,225) (130,767) (206,805) (1,452,648)

Banks’ merger (2,702,418) (3,193) (662) (9,963,460) (22) (1,220,999) (13,890,754)

Charge for the year including by stages ECL:

(246,903) (4,669) 10 (106,993) (1,091,527) (112,396) (1,562,478)

Stage 1 52,470 (4,669) 446 3,194 (136,806) 616 (84,749)

Stage 2 1,489,271 - (68) (13,136) (35,949) 204 1,440,322

Stage 3 (1,653,037) - (368) (171,707) (932,550) (114,745) (2,872,407)

purchased credit-impaired assets

(135,607) - - 74,656 13,778 1,529 (45,644)

Bad debt write off 2,334,820 - - 3,999,152 817,209 588,431 7,739,612

Loans sold write off against provisions

189,664 - - 296,582 189,858 50,310 726,414

Net transfers

(Table 8.3)

Stage 1 16,401 - - 3,226 143,030 8 162,665

Stage 2 913,754 - (282) 1,339 186,552 825 1,102,188

Stage 3 (930,155) - 282 (4,565) (329,582) (833) (1,264,853)

Modification of financial assets (Table 8.10)

(136,940) - - - - - (136,940)

Initiation of loans and

advances

(88,520) - (11) - (522,512) - (611,043)

Currency translation differences

633,971 - - 535,943 3,267 132,548 1,305,729


134,140 - - (967,884) 54,733 (258,881) (1,037,892)

Allowance for impairment as at 31 December 2019

(5,325,727) (11,760) (652) (7,576,538) (1,302,634) (1,661,765) (15,879,076)


(630,711) - - (1,318,109) (76,034) (465,686) (2,490,540)

In 2019 bad debt previously written off against provisions was repaid in the amount of UAH 138,535 thousand. The amount of

unrecognized interest directed to reduce impairment loss is UAH130,524 thousand.

As at 31 December 2019 the Bank’s loan portfolio (Table 8.1) accounts for loans and advances to customers located in some territories of Donetsk and Lugansk regions and in Crimea in the carrying amount of: corporate loans – UAH 1,557,492 thousand, with provision coverage of 86% (not a 100% coverage Is explained, among others, by receiving pledged property located in Ukraine outside Donetsk and Lugansk region and Crimea in the amount of UAH 77,665 thousand); and loans to individuals – UAH 581,213 thousand, with provision coverage 96.7%.


31

Table 8.9 Analysis of changes in allowance for impairment of loans and advances to customers by stages for 2018

In thousands of hryvnias Corporate loans

Leases Mortgage loans to

individuals

Consumer loans to

individuals

Other loans to individuals

Total


(6,833,295) (11,009) (1,351,544) (512,877) (834,546) (9,543,271)

Changes on initial application of IFRS 9

563,337 5,002 (83,075) (74,221) (1,057) 409,986


(6,269,958) (6,007) (1,434,619) (587,098) (835,603) (9,133,285)


(614,671) - (275,817) (50,231) (151,228) (1,091,947)

Charge for the year including by stages ECL:

(1,546,874) 2,109 (57,522) (611,961) 5,672 (2,208,576)

Stage 1 (15,700) 2,109 (1,811) (76,182) 749 (90,835)

Stage 2 (915,869) - 299 (53,591) 95 (969,066)

Stage 3 (545,529) - (48,925) (462,587) 4,731 (1,052,310)

purchased credit-impaired assets (69,776) - (7,085) (19,601) 97 (96,365)

Bad debt write off 44,082 - 55,895 1,579 9,439 110,995

Loans sold write off against provisions

2,066,420 - 118,015 1,767 26,434 2,212,636

Net transfers (Table 8.3)

Stage 1 (12,775) - (90) 74,252 (477) 60,910

Stage 2 31,263 - 2,780 80,029 (37) 114,035

Stage 3 (18,488) - (2,690) (154,281) 514 (174,945)

Modification of financial assets (Table 8.10)

(32,501) ,- -, -, -, (32,501)

Currency translation differences 187,509 - 22,761 97 8,857 219,224


(150,180) - (74,408) (80,536) (55,577) (360,701)


(5,669,001) (3,898) (1,369,878) (1,276,152) (840,778) (9,159,707)


(764,851) - (350,225) (130,767) (206,805) (1,452,648)

In 2018 bad debt previously written off against provisions was repaid in the amount of UAH 57,562 thousand. The amount of

unrecognized interest directed to reduce impairment loss is UAH206,920 thousand (Note 4.16).

As at 31 December 2018 the Bank’s loan portfolio (Table 8.1) accounts for loans and advances to customers located in some territories of Donetsk and Lugansk regions and in Crimea in the carrying amount of: corporate loans – UAH 1,940,076 thousand, with provision coverage of 47% (not a 100% coverage Is explained, among others, by receiving pledged property located in Ukraine outside Donetsk and Lugansk region and Crimea in the amount of UAH 1,046,753 thousand); and loans to individuals – UAH 628 236 thousand, with provision coverage of 99.4%.

Table 8.10. Modification of assets for 2019

In thousands of hryvnias Book value at amortised cost at the end of the

year

Book value at the moment

of Modification

Changes in ECL related to

Modification (Table 8.8)

Result of Modification

(Statement for Profit or Loss and

Other Comprehensive

Income)

Corporate loans 4,088,087 4,022,488 (136,940) (157,452)

Total 4,088,087 4,022,488 (136,940) (157,452)


32

Table 8.11. Modification of assets for 2018

In thousands of hryvnias Book value at amortised cost at the end of the

year

Book value at the moment

of Modification

Changes in ECL related to

Modification (Table 8.8)

Result of Modification

(Statement for Profit or Loss and

Other Comprehensive

Income)

Corporate loans 3,234,939 4,405,296 (32,501) (77,680)

Total 3,234,939 4,405,296 (32,501) (77,680)

Table 8.12.The effect of collateral value on quality of loans and advances to customers for 2019

In thousands of hryvnias Gross carrying amount

ECL Book value at

amortised cost

Collateral value

Corporate loans 24,465,905 (5,325,727) 19,140,178 22,216,792 Leases to corporate contractors 480,101 (11,760) 468,341 539,264

Leases to individuals 10,998 (652) 10,346 22,620

Mortgage loans to individuals 11,020,956 (7,576,538) 3,444,418 8,942,120

Consumer loans to individuals 17,158,162 (1,302,634) 15,855,528 -

Other loans to individuals 1,942,788 (1,661,765) 281,023 590,349

Total 55,078,910 (15,879,076) 39,199,834 32,311,145

Table 8.13. The effect of collateral value on quality of loans and advances to customers for 2018

In thousands of hryvnias Gross carrying amount

ECL Book value at

amortised cost

Collateral value

Corporate loans (5,669,001) 20,008,582 16,617,676

Leases 120,873 (3,898) 116,975 188,248

Mortgage loans to individuals 1,824,927 (1,369,878) 455,049 1,260,255

Consumer loans to individuals 13,095,364 (1,276,152) 11,819,212 -

Other loans to individuals 899,118 (840,778) 58,340 243,004

Total 41,617,865 (9,159,707) 32,458,158 18,309,183

Valuation of collateral in the Bank is performed by the department for valuation and dealing with pledged property and

appraisal companies accredited by the Bank. Department employees are experienced professionals with extensive expertise

and practice in banking and certified appraisers by the State Property Fund of Ukraine.

9.Investments in Securities

Table 9.1 Investments in securities


SECURITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

Bank bonds nominated in US dollars 113,793 -

Non-financial entities bonds nominated in US dollars 128,767 -

Government bonds nominated in US dollars - 3,110,923

Government bonds nominated in hryvnias - 736,972

Government bonds nominated in euro - 423,583

Total securities designated at fair value through profit or loss 242,560 4,271,478

SECURITIES DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Government bonds nominated in US dollars 8,296,083 -

Government bonds nominated in hryvnias 452,120 -

Government bonds nominated in euro 248,940 -

Allowance for impairment (29,672) -

Corporate’ shares 1,098 400

Total securities designated at fair value through other

comprehensive income 8,968,569 400

Book value 9,211,129 4,271,878


33

As at 31 December 2019 and 31 December 2018 all debt securities were not either impaired or past due.

In the third quarter of 2019, the Bank reclassified the government bonds portfolio from financial assets designated at fair

value through profit or loss to financial assets designated at fair value through other comprehensive income.

Table 9.2 Analysis of changes in allowance for impairment of securities for 2019

In thousands of hryvnias Securities designated at fair value through other

comprehensive income


-

Charge for the year (29,672)


(29,672)

In order to manage credit risk of transactions with securities issued by the central executive bodies of Ukraine in national

and foreign currencies, the Bank applies the following approaches:

- rating of the country issuing the security is determined according to the established sovereign credit ratings by world

rating agencies by choosing from three different ratings of the debtor (from three different rating agencies) a rating

with the lowest (the worst) of two highest;

- probability of default (PD) of the issuing country with a selected rating is determined according to default statistics of

sovereign Eurobonds, confirmed in the bulletin of Standard & Poor's, which are officially published annually. As at

31 December 2019, PD is 2.73% (for both government bonds denominated in hryvnia and in foreign currency);

- loss given default (LGD) on securities is determined based available facts of default on debt securities of Ukraine for

the last 10 years (separately in national and foreign currencies) and the level of debt repayment on these defaults.

As at 31 December 2019, LGD for government bonds denominated in hryvnia is 0%, for government bonds

denominated in foreign currency is 20%.

Table 9.3 Main investments in equity instruments designated at fair value through other comprehensive income carried at

book value

Company

In thousands of hryvnias

Activity Country of

issue

2019 2018

CJSC "Ukrainian Stock

Exchange"

Financial markets management, stock

exchange transactions with securities, data

processing

Ukraine 2 -

PJSC “The National

Depositary of Ukraine”



processing

Ukraine 10 10

CJSC “Stock Exchange

“INNEX”



processing

Ukraine 10 -

Stock Exchange “PFTS” Stock exchange transactions with securities Ukraine 120 60

PJSC “Settlement

Centre”



processing

Ukraine 356 330

PrJSC “FAUCHB” (First

All-Ukrainian Credit

History Bureau)

Collection agency and credit bureau

activities

Ukraine 600 -

Total 1,098 400

Increase in investments in equity instruments designated at fair value through other comprehensive income was the result of merger of JSC “UKRSOTSBANK” with JSC “ALFA-BANK” as at the date of a merger.


34

10.Investment Property


Book value at fair value at the beginning of the year 1,976,750 2,424,823

Acquisitions 908,285 -

cash paid 904,996 -

transaction costs 3,289 -

Change in tax credit (126,455) -

Construction in progress 31,886 168,344

Acquisitions from repossession of collateral 263,442 73,412

funds used to repay loans debts 263,442 72,476

cash paid - 502

transaction costs - 434

Banks’ merger (Note 4.14) 347,538 -

Transfers to leases (992) -

Transfers from/to assets held for sale (Note 13) 886,952 -

Transfers from/to property (Note 11) (1,986,496) -

Disposal (99,283) (811,538)

Losses from disposal (22,572) (17,890)

Changes at renewal/loss of ownership - 9,920

Revaluation to fair value (74,898) 129,822

Gains 199,720 142,615

Losses (274,618) (12,793)

Other - (143)

Book value at fair value at the end of the year 2,104,157 1,976,750

In 2019 and 2018 the Bank did not sign non-cancellable operating lease agreements.

As at 1 December 2019 investment property was revalued by independent appraiser, Private enterprise “Аverti” (Certificate

of appraising entity № 472/19 dd 20 June 2019).

For valuation the appraisers used the following approaches:

- for land plots - a comparative approach (method of adjusting the value of similar land plots);

- for premises - an income approach (indirect capitalization method) and a comparative approach (method of adjusting

the value of similar property).

Given the Bank's ownership of a significant number of real estate objects (in the form of operating, investment real estate, as

well as assets acquired as a result of foreclosure), the Bank is exposed to real estate risk, which is defined as the probability

of losses or additional losses or failure to receive the planned income due to a sudden significant impairment of real estate

owned by the Bank due to changes in the real estate market of Ukraine.

The main factors identified by the Bank in identification of the real estate risk are the following:

- change in the real estate market of Ukraine or its change in a particular region or segment, due to a general change in

macroeconomic indicators that affect the situation in real estate market;

- change in pricing factors that affect the value of objects considered on an individual basis (for example, change in

rental rates due to increased vacancy in the location, etc.).

Real estate risk does not include the following factors:

- natural obsolescence of real estate;

- insured events or natural disasters;

- change in tax burden triggered by real estate ownership or their running costs;

- effectiveness and completeness of using operating property in accordance with the Bank's business plan.

The Bank uses qualitative and quantitative indicators to assess real estate risk.

Qualitative risk indicators are assessed by analyzing the investment real estate portfolio structure for its appropriateness to

investment attractiveness of the region, representation of the Bank's outlets in the region, the needs and objectives of

business units.


35

Quantitative risk indicators are assessed by using, inter alia, the method of scenario modelling by calculating the probable

amount of real estate depreciation in the event of changes in the real estate market of Ukraine.

Calculation includes:

- calculating depreciation of real estate portfolios for objects selected on a portfolio basis by using empirical formulas

describing the dependence of the average market level of real estate prices on macroeconomic indicators;

- modeling of objects’ depreciation by appraiser for objects selected on individual basis by calculating the value using

assumptions about the probable deterioration of object parameters (reduction of rental rates, increased vacancy

rate, etc.);

- determining general indicators of real estate portfolio impairment by the lists of objects selected on an individual and

portfolio basis.

Real estate risk is managed through regular analysis of quantitative and qualitative indicators of risk, monitoring the

compliance with limits in case of acquiring ownership rights for assets covered by the "Decision-making procedures for

buying / selling a significant volume of loan portfolio and / or non-operating assets (property) in JSC "ALFA-BANK", providing

recommendations and explanations to the units involved in changing the volume of real estate portfolios as to the quality

characteristics of real estate portfolios; management of development plans of real estate portfolio structure and volume, by

prognostication of the activity of units involved in changing the volume of real estate portfolios; and regular identification and

review of limits, taking into account the needs and objectives of the business - units and the Bank's strategy in general.

11.Property, Plant, Equipment and Intangible Assets

In thousands of hryvnias Land

plots

Buildings Machinery,

equipment

Other Construction

in progress

Intangible assets Total

Book value as at 31 December 2017

80 086 308 783 521 752 38 495 94 821 214 185 1 258 122

Initial (revalued) cost 80 086 448 700 885 313 232 539 94 821 443 003 2 184 462

Accumulated depreciation - (139 917) (363 561) (194 044) - (228 818) (926 340)

Additions - - 193 825 22 707 459 929 88 314 764 775

Capital investment - 168 5 074 861 - 91 448 97 551

Transfers to assets held for

sale (Note 13)

(80 086) (254 338) - - - - (334 424)

Disposals - (2 615) - (162) (401 252) - (404 029)

Depreciation (Note 25) - (8 214) (136 619) (27 633) - (108 982) (281 448)

Revaluation: - (826) - - - - (826)

revaluation of initial cost - 25 - - - - 25

revaluation of accumulated depreciation

- (851) - - - - (851)


- 42 958 584 032 34 268 153 498 284 965 1 099 721

Initial (revalued) cost - 54 430 1 079 408 244 360 153 498 622 766 2 154 462

Accumulated depreciation - (11 472) (495 376) (210 092) - (337 801) (1 054 741)

Transfers to assets held for

sale (Note 13)

- - - - - - -

Transfers from/to Investment

property (Note 10)

- 1 786 658 8 128 199 702 - 1 986 496

Additions - 55 192 420 96 892 849 346 95 693 1 234 406

Capital investment - 270 358 16 187 7 162 - 157 134 450 841

Disposals - (69 488) (360) (1 549) (835 873) (27) (907 297)

Depreciation (Note 25) - (26 059) (164 663) (37 592) - (163 413) (391 727)

Revaluation: (1) (6 434) - - - - (6 435)

revaluation of initial cost (1) (6 380) - - - - (6 381)

revaluation of accumulated depreciation

- (54) - - - - (54)

Change in tax credit (288) (475) (26) - (458) (1 247)

Banks’ merger (Note 4.14) 175 70 293 49 699 22 741 6 008 78 616 227 532

Initial (revalued) cost 175 76 157 286 870 97 104 6 008 1 825 414 2 291 728

Accumulated depreciation - (5 864) (237 171) (74 363) - (1 746 798) (2 064 196)


174 2 068 053 676 848 122 024 372 681 452 510 3 692 290

Initial (revalued) cost 174 2 110 251 1 538 642 419 843 372 681 2 698 420 7 140 011

Accumulated depreciation - (42 198) (861 794) (297 819) - (2 245 910) (3 447 721)


36

During the reporting year as at 1 December 2019 property, plant and equipment groups “Land plots” and “Building,

constructions and transmittal devices” were revalued by an independent appraiser, Private enterprise “Аverti” (Certificate of

appraising entity № 472/19 dd 20 June 2019).

For valuation the appraiser applied the following approaches:

Cost approach. The appraiser researched statistical data available in scientific and normative sources.

Income approach (income capitalization method). The appraiser used information regarding rental rates in the area of

the valuation property location through analyzing available sources of real estate agencies, periodicals and private

advertisements in newspapers and Internet.

Comparative approach (method of sales analogues). The appraiser used on-sale offers for non-residential property

located near the valuation property in the similar condition and functional use. Prices in the offers were determined

based on the data contained in Kyiv real estate agencies databases, in the Internet and other available sources.

The appraiser decided to adopt the results of the comparative approach for premises of less than 250 square meters, as the

most realistic in terms of reflecting the real market situation due to well-developed system of information support. Market

value of premises with bigger floor area was determined using the income approach.

As at 31 December 2019 the Bank’ balance sheet records thirty one object located in some territories of Donetsk and

Lugansk regions. These objects were depreciated to a notional value of UAH 1 each. The Bank does not possess property,

plant and equipment or intangible assets restricted for possession, use or disposal by law.

The historical value of fully amortized property, plant and equipment and intangible assets are UAH 431,509 thousand and

UAH 325,488 thousand respectively.

As at the reporting date the Bank has one originated intangible asset – the software of processing center SmartVista that

was put in operation in 2019.

As at 31 December 2019 the carrying amount of intangible asset is UAH 47,732 thousand, its residual value is UAH 46,612

thousand.

As at 31 December the Bank pledged the main office building with a carrying amount of UAH 1,876,566 thousand as

collateral (Note 31).

12. Other Assets

Table 12.1 Other assets


(recalculated)

Other financial assets

Cash deposits placed with other banks 707,198 401,663

Accrued income on bank operations 66,961 60,420

Receivables on operations with customers 70,661 10,747

Receivables on securities 43,174 -

Receivables on operations with banks 4,486 3,525

Other 2,701 -

Allowance for impairment (49,642) (27,797)

Total other financial assets less provision for impairment 845,539 448,558

Other non-financial assets

Right-of-use asset 540,236 456,930

Deferred expense 114,134 58,128

Receivables on purchase of assets and prepaid services 69,998 52,781

Prepaid expenses and payments for taxes 131,374 3,994

Inventory 2,417 339

Receivables on settlements with bank employees 68 25

Acquisitions from repossession of collateral 226 -

Provision for impairment of other nonfinancial assets (24,177) (4,577)

Total other non-financial assets less provision for impairment 834,276 567,620

Total provision for impairment of other assets (73,819) (32,374)

Book value 1,679,815 1,016,178


37

Maximum risk exposure as per counterparty as at 31 December 2019 and as at 31 December 2018 is UAH 589,622

thousand and UAH 259,639 thousand respectively. The foreign currency, geographical and other assets concentration by

maturity on the basis of expected maturities is disclosed in Note 29 ‘Risk Management’.

Table 12.2. Individual or collected measurement of expected credit losses and credit quality of other assets for 2019

In thousands of hryvnias Cash

deposits

placed with

other banks

Accrued

income on

bank

operations

Receivables

on operations

with

customers

Receivables on

operations with

banks

Total

Collective impairment 706,962 34,199 100,619 3,759 845,539

Gross carrying amount by past due 707,198 70,707 112,790 4,486 895,181

not overdue 707,198 37,441 111,403 4,485 860,527

past due up to 30 days - 2,929 357 - 3,286

past due from 31 to 90 days - 5,432 342 - 5,774

past due from 91 to 365 days - 15,693 212 - 15,905

past due over 365 days - 9,212 476 1 9,689

Allowance for impairment (236) (36,508) (12,171) (727) (49,642)

Book value at amortised cost 706,962 34,199 100,619 3,759 845,539

Table 12.3. Individual or collected measurement of expected credit losses and credit quality of other assets for 2018


deposits

placed with

other banks

Accrued income on

bank operations

Receivables on operations

with customers

Receivables on operations with

banks

Total

Collective impairment 400,267 38,239 7,477 2,575 448,558

Gross carrying amount by past due 401,663 60,420 10,747 3,525 476,355

not overdue 401,663 48,021 10,045 3,523 463,252

past due up to 30 days - 4,090 210 1 4,301

past due from 31 to 90 days - 1,424 2 1 1,427

past due from 91 to 365 days - 876 5 - 881

past due over 365 days - 6,009 485 - 6,494

Allowance for impairment (1,396) (22,181) (3,270) (950) (27,797)

Book value at amortised cost 400,267 38,239 7,477 2,575 448,558

Table 12.4. Analysis of changes in allowance for impairment of other assets designated at amortised cost for 2019


deposits

placed

with other

banks

Accrued

income on

bank

operations

Receivables

on operations

with banks

Receivables on operations with customers

Receivables

on other

operations

Total

Allowance for impairment as at 31 December 2018 (1,396) (22,181) (3,270) (950) (4,577) (32,374)

Banks’ merger (9) (22,684) (25) - (14,073) (36,791)

Charge for the year 1,178 7,976 (10,930) 140 (5,527) (7,163)

Bad debt write off - 333 2,045 - - 2,378

Currency translation differences (9) 48 9 83 - 131

Allowance for impairment as at

31 December 2019 (236) (36,508) (12,171) (727) (24,177) (73,819)


38

Table 12.5. Analysis of changes in allowance for impairment of other assets designated at amortised cost for 2018


deposits

placed

with other

banks

Accrued

income on

bank

operations

Receivables

on operations

with banks

Receivables on operations with customers

Receivables

on other

operations

Total


(7) (19,931) (3,397) (1,278) (1,473) (26,086)

Charge for the year (1,490) (2,256) 127 466 (3,104) (6,257)

Currency translation differences 101 6 - (138) - (31)


(1,396) (22,181) (3,270) (950) (4,577) (32,374)

Table 12.6 Right-of-use asset at amortised cost

In thousands of hryvnias Buildings Machinery, equipment

Other Total

Book value as at 31 December 2018 - - - -

Initial cost - - - -

Accumulated depreciation - - - -

Changes on initial application of IFRS 16 443,360 13,570 - 456,930

Initial cost 443,360 13,570 - 456,930

Accumulated depreciation - - - -

Additions 221,915 3,810 2,475 228,200 Disposals (8,267) - - (8,267)

Depreciation (Note 25) (140,263) (3,901) (185) (144,349)

Indexing 7,716 6 - 7,722 Initial cost 21,345 6 - 21,351

Accumulated depreciation (13,629) - - (13,629)

Book value as at 31 December 2019 524,461 13,485 2,290 540,236

Initial / revaluated cost 671,560 17,386 2,475 691,421

Accumulated depreciation (147,099) (3,901) (185) (151,185)

13. Non-Current Assets Held for Sale and Disposal Group

Table 13.1 Non-current assets held for sale and disposal group


Non-current assets held for

Book value at the beginning of the year 334,424 878

Acquisitions from repossession of collateral 15,835 -

cash paid 15,835 -

Banks merger (Note 4.14), including 1,589,111 -

non-current assets 1,438,657

acquisitions from repossession of collateral 150,454

Transfers from property (Note 11) - 334,424

Transfers from /to Investment property (Note 10) (886,952) -

Disposal (536,457) (878)

Losses from disposal (44,487) -

Impairment of assets (60,456) -

Lost ownership (20,344) -

Book value at the end of the year 390,674 334,424

Disposal group assets

Book value at the beginning of the year - -

Subsidiaries reclassified to disposal group 7,000 -

Book value at the end of the year 7,000 -

Total non-current assets held for sale and disposal group assets 397,674 334,424


39

Table 13.1 Disposal group liabilities

Disposal group liabilities are liabilities on current accounts to subsidiaries of LLC “UKRSOTSBUD” and LLC SIB AMC

“UKRSOTS-REAL ESTATE”, investments to which were reclassified to disposal group assets according to IFRS 5.


Book value at the beginning of the year - -

Disposal group liabilities 11,904 -

Book value at the end of the year 11,904 -

For the purpose of disclosing open positions by risks disposal group liabilities are included in financial liabilities.

14.Due to Banks


Correspondent accounts 6,718 21,742

Deposits of other banks 43,617 -

Loans received - 13,847

Book value at amortised cost 50,335 35,589

The foreign currency, geographical and due to banks concentration by maturity on the basis of expected maturities is disclosed in Note 29 ‘Risk Management’.

15. Due to Customers


State and public entities: 33,629 2,281

accounts on demand and current accounts 33,629 2,281

Legal entities: 22,582,841 20,446,061

accounts on demand and current accounts 16,575,072 13,438,525

term deposits 6,000,950 6,814,653

inactive accounts 6,801 86

other 18 192,797

Individuals: 36,660,410 32,040,005

accounts on demand and current accounts 10,924,317 8,147,144

deposit certificates on demand 26,474 38,858

term deposits 23,814,852 21,845,137

deposit certificates 1,893,865 2,001,964

inactive accounts 134 155

other customer accounts 768 6,747


The foreign currency, geographical and due to customers concentration by maturity on the basis of expected maturities is disclosed in Note 29 ‘Risk Management’.

Information about guarantee deposits received by the Bank to cover credit risk is presented below:


Guarantees 662,160 102,124

Guarantee of payments 1,700 1,024,526

Corporate loans 966,505 866,527

Letters of credit 132,296 400,873

Loans to individuals 13,804 14,985

Overdrafts, loans on payment cards 1,501 1,138

Total 1,777,966 2,410,173


40

An economic sector concentration within customer accounts is presented below:


amount % amount %

Individuals – residents 35,729,726 60.3 31,338,638 59.7

Trade, repair of motor-car vehicles, household goods and

personal use items

5,811,296 9.8 4,242,901 8.1

Real estate, lease, engineering operations and services 3,957,889 6.7 2,817,172 5.4

Processing industry 3,387,080 5.7 3,060,651 5.8

Transpiration and communication 2,307,664 3.9 3,770,632 7.2

Financial activity 2,015,150 3.4 1,833,859 3.5

Agriculture, hunting and forestry 1,579,301 2.7 1,116,475 2.1

Individuals – non-residents 933,143 1.6 701,367 1.3

Electricity, natural gas and water production and distribution 672,108 1.1 303,678 0.6

Legal entities –non-residents 432,190 0.7 1,202,505 2.3

Other 2,451,333 4.1 2,100,469 4.0

Book value at amortised cost 59,276,880, 100.0 52,488,347 100.0

16. Debt Securities in Issue


Bonds issued on internal market 6,902 44,937

Book value at amortised cost 6,902 44,937

Information about bonds series “S” in issue in 2019-2018 is presented below:

In thousands of

hryvnias

2019 2018

Nominal value of bonds in issue

Coupon rate (percent per annum)

Nominal value of bonds in issue

Coupon rate (percent per annum)

Series «S» 6,864 18.5 45,819 14.0

Total 6,864 45,819

The series “S” bonds do not have additional coverage and exchange for the issuer shares is not provided. The Certificate of

issue registration of issue No. 73/2/2017 dated 5 September 2017 was issued by the National Securities and Stock Market

Commission on 29 November 2018. The maturity date of bonds series "S" is 21-26 June 2023, the bonds issue anticipates

for preterm repayment and annual revision of interest rate.

17. Provisions

Table 17.1 Provisions for credit-related and other commitments


Credit-related commitments 68,037 39,430

Guarantees 19,704 10,069

Legal claims 1,640 -

Bank’s merger 78 -

Total 89,459 49,499

Table 17.2 Changes in provisions for credit-related commitments for 2019

In thousands of hryvnias Guarantees Credit-related commitments

Total

Provisions as at 01 January 2019 10,069 39,430 49,499

Banks’ Merger - - -

Charge for the year: 10,209 28,607 38,816

Stage 1 5,286 23,404 28,690

Stage 2 4,923 1,010 5,933

Stage 3 - 4,193 4,193

Currency translation differences (574) - (574)

Use of reserves - - -

Provisions as at 31 December 2019 19,704 68,037 87,741


41

Table 17.3 Changes in provisions for other commitments for 2019

In thousands of hryvnias Provisions for legal claims

Provision for Banks’ merger

Total

Provisions as at 01 January 2019 - - -

Banks’ Merger 9,692 353 10,045

Charge for the year: (7,557) (275) (7,832)


Use of reserves (238) - (238)

Provisions as at 31 December 2019 1,640 78 1,718

Table 17.4 Changes in provisions for credit-related commitments for 2018

In thousands of hryvnias Guarantees Credit-related commitments

Total

Provisions as at 01 January 2018 - - -

Changes on initial application of IFRS 9 38,755 554 39,309

Provisions as at 01 January 2018 (recalculated) 38,755 554 39,309

Charge for the year: (28,624) 38,876 10,252

Stage 1 (14,583) 33,966 19,383

Stage 2 (14,041) 720 (13,321)

Stage 3 - 4,190 4,190


Provisions as at 31 December 2018 10,069 39,430 49,499

18. Other Liabilities

Table 18.1 Other liabilities

In thousands of hryvnias 2019 2018 (recalculated)

Other financial liabilities

Payables on bank operations 1,219,653 600,735

Leases 570,489 456,930

Liabilities on e-money issued 143,853 61,152

Payables on other financial liabilities 62,280 45,446

Other leases 9,033 17,370


Other non-financial liabilities

Payables on settlements with bank employees 421,243 309,423

Provision for remuneration of labour 122,417 94,239

Payables on taxes and mandatory payments other than income tax 169,734 79,539

Payables on assets acquisition and payment for services 28,734 18,751

Deferred income 21,456 12,471

Total other nonfinancial liabilities 763,584 514,423

Book value 2,768,892 1,696,056

Table 18.2 Lease liabilities (undiscounted)


up to 30 days 22,620 18,149 from 31 to 90 days 47,174 27,730 from 91 to 180 days 69,791 41,941 from 181 to 365 days 131,898 85,460 over 365 days 523,291 477,342

Total 794,774 650,622


42

19. Subordinated Debt

Information about subordinated debt for 2019 is as follows:

Name Date of agreement

Maturity date Amount Interest rate at the reporting date (%)

«SELINE LIMITED» (Cyprus) 28.08.2014 02.09.2024 1,184,309 8.56

Book value at amortised cost 1,184,309

Information about subordinated debt for 2018 is as follows:

Name Date of agreement

Maturity date Amount Interest rate at the reporting date (%)

«SELINE LIMITED» (Cyprus) 28.08.2014 02.09.2024 1,384,411 8.56

Book value at amortised cost 1,384,411

There is no need to provide information for preparation of the Statement of Cash Flows for 2018 and 2019. The Bank did not

have proceeds or payments on subordinated debt.

20. Share Capital, Share Premium and Additional Paid-in Capita

In thousands of hryvnias Number of

shares in issue

Share capital Unregistered paid-in capital

Share premium and additional paid-in capital

Share

premium

Additional

paid-in

capital

Other

Balance at 31 December 2017 121,797,564,660 12,179,756 - 373,031 366,598 1

Balance at 31 December 2018 121,797,564,660 12,179,756 - 373,031 366,598 1

Banks’ Merger 165,464,910,824 16,546,492 - 1,628,083 - -

Expenses on securities in issue - - - (141) - -

Balance at 31 December 2019 287,262,475,484 28,726,248 - 2,000,973 366,598 1

Nominal value per share as at 31 December 2019 and 31 December 2019 is UAH 0.10. As at the reporting date, the Bank

did not issue preferred shares and did not pay dividends. There are no restrictions on the ownership of shares at the end of

the reporting period. There are no share options for issue or sale agreements.

As at Joint General Meeting of Shareholders of JSC “ALFA-BANK” and JSC “UKRSOTSBANK” on 21 November 2019, as

specified in Minutes № 1/2019, the conversion of ordinary registered shares in the amount of UAH 16,545,990 thousand and

preferred registered shares of JSC “UKRSOTSBANK” in the amount of UAH 502 thousand to ordinary registered shares of

JSC “ALPHA-BANK” was completed. (Note 4.14). On 5 December 2019 pursuant to the orders of the National Securities

and Stock Market Commission, registration of issue of ordinary registered and preferred registered shares of JSC

“UKRSOTSBANK” was canceled with cancellation of related certificates of issue.

To calculate earnings per share, the Bank calculates the weighted average number of ordinary shares outstanding. The

weighted average number of ordinary shares outstanding during 2019 was 133,584,106,253, calculated as follows:

Table 20.1 Weighted average number of ordinary shares in issue

Date Number of shares in

issue

Days Weighted average number of ordinary shares in issue

05 December 2019 121,797,564,660 339 113,121,573,753

31 December 2019 287,262,475,484 26 20,462,532,500

365 133,584,106,253


43

21. Revaluation Reserve (Component of Other Comprehensive Income)

In thousands of hryvnias Revaluation of fixed assets

Revaluation of bonds at fair value

through other comprehensive

income

Revaluation of other securities at fair value through

other comprehensive

income

Total

Balance as at 31 December 2017 336,477 (1,333) - 335,144

Revaluation of financial assets at fair value through other comprehensive income

- (1,635) - (1,635)

changes in revaluation to fair value, including:

- (1,635) - (1,635)

unrealised income from securities - (1,635) - (1,635) Revaluation for fixed assets: (361,260) - - (361,260)

changes in revaluation to fair value 498 - - 498 movement of revaluation reserve due to disposal of buildings

(361,758) - - (361,758)

Income tax related to (Note 26): 39,023 - - 39,023 changes in revaluation reserve for fixed assets

39,023 - - 39,023

Total revaluation reserve (other

comprehensive income)

(322,237) (1,635) - (323,872)

Balance as at 31 December 2018 14,240 (2,968) - 11,272

Revaluation of financial assets at fair value through other comprehensive income

- 77,925 - 77,925

changes in revaluation to fair value, including:

- 77,925 - 77,925

unrealised income from securities - 60,381 - 60,381 change in credit risk - 29,672 - 29,672 realized income - (12,128) - (12,128)

Revaluation of other securities at fair value through other comprehensive income

- -, 638 638

changes in revaluation to fair value - - 638 638 Revaluation for fixed assets: (387) - - (387)

changes in revaluation to fair value 2,309 - - 2,309 movement of revaluation reserve due to disposal of buildings

(2,696) - - (2,696)

Income tax related to (Note 26): 69 (13,492) - (13,423) changes in revaluation reserve for securities

- (13,492) - (13,492)

changes in revaluation reserve for fixed assets

69 - - 69

Total revaluation reserve (other comprehensive income)

(318) 64,433 638 64,753

Banks’ Merger, including: 60,713 - (706) 60,007

Revaluation of other securities at fair value through other comprehensive income

- - (706) -

revaluation for fixed assets 62,817 - - - Income tax related to revaluation reserve for fixed assets

(2,104) - - -

Balance as at 31 December 2019 74,635 61,465 (68) 136,032

Revaluation reserve of property, plant and equipment is used to record increase in the fair value of buildings, and its

subsequent decrease, but only to the extent that such decrease is related to a previous increase in fair value of the same

asset previously recognized in equity.

Revaluation reserve of investments in securities record changes in fair value of investments in debt securities designated at

fair value through other comprehensive income, and in equity designated at fair value through other comprehensive income.


44

22.Interest Income and Expense


(recalculated)

INTEREST INCOME FOR FINANCIAL ASSETS MEASURED AT AMORTISED

COST

Loans and advances to customers 6,669,535 5,621,142

Due from other banks 655,151 462,764

Interest income for financial assets in Stage 3 173,457 96,345

Deposit, overnight placements with other banks 70,924 90,265

Debt securities 61,813 -

Leases 31,355 36,816

Correspondent accounts with other banks 17,877 12,570

Other 55,431 12,859

Total interest income for financial assets measured at amortised cost 7,735,543 6,332,761

INTEREST INCOME FOR FINANCIAL ASSETS MEASURED AT FAIR VALUE

THROUGH OTHER COMPREHENSIVE INCOME

Debt securities 304,608 86,083

Total interest income for financial assets measured at fair value through other

comprehensive income

304,608 86,083

INTEREST INCOME FOR FINANCIAL ASSETS MEASURED AT FAIR VALUE

THROUGH PROFIT OR LOSS

Debt securities 211,716 240,705

Financial leases 373 -

Total interest income for financial assets measured at fair value through profit

or loss 212,089 240,705

Total interest income 8,252,240 6,659,549

INTEREST EXPENSE FOR FINANCIAL LIABILITIES MEASURED AT

AMORTISED COST

Term deposits of individuals (2,143,435) (1,541,614)

Placements on demand (1,078,654) (600,443)

Term deposits of legal entities (690,365) (631,416)

Subordinated debt (111,533) (118,450)

Leases (102,310 -

Debt securities in issue (93,655) (76,328)

“Overnight” loans (39,593) (35,094)

Term deposits of banks (11,754) (28,471)

Due to the National Bank of Ukraine (3,538) (45,150)

Correspondent accounts (809) (10,577)

Term deposits of international and other organizations and legal entities - (752)

“Overnight” deposits - (74)

Total interest expense (4,275,646) (3,088,369)

Net interest income 3,976,594 3,571,180

23.Fee and Commission Income and Expense


FEE AND COMMISSION INCOME

Settlement and cash transitions 3,390,796 2,240,346

Transactions in foreign exchange market 171,343 154,177

Guarantees issued and off-balance sheet transactions 49,598 37,525

Credit service 25,309 235,513

Transactions with securities 3,604 2,007

Others 3,737 309

Total fee and commission income 3,644,387 2,669,877

FEE AND COMMISSION EXPENSE

Settlement and cash transitions (661,672) (327,437)

Settlement with international payment systems (140,872) (87,577)

Transactions with securities (1,127) (656)

Total fee and commission expense (803,671) (415,670)


45

24. Other Operating Income and Expense


Fines and penalties received 311,334 273,684

Royalty 255,194 -

Agency fees 232,013 363,449

Income from operating lease, sublease 147,489 81,476

Income from disposal of property, equipment and intangible assets 31,547 522

Compensation from international payment systems 29,843 21,011

Payables write off in income 25,744 5,548

Additional income from purchased and repaid loans to individuals 20,054 20,057

Income from disposal of investment property 16,953 154,836

Realized income from financial instrument designated at fair value through other comprehensive income

12,128 -

Additional income from purchased and repaid corporate loans 1,585 103,473

Modification of leases 259 -

Income from financial consulting services 25 288

Income from assets recovery - 3,268

Dividends - 1

Other operating income 55,390 24,952

Total other operating income 1,139,558 1,052,565

Agency costs (212,671) (223,656)

Cultural events (31,247) (28,406)

Collection and transportation of valuables (28,877) (18,950)

Royalty (27,681) (37,935)

Losses from disposal of investment property (22,573) (17,890)

Cash desk shortages, PTKS terminals (self-service terminals) (12,258) (5,029)

Reimbursements and compensations to contractors for banking operations (10,126) (6,281)

Revaluation of property, plant and Equipment (8,877) (1,323)

Debt repayment services (8,669) (471)

Notary services (7,136) (1,291)

Fines and penalties paid (4,835) (1,117)

Modification of leases (376) -

Expense on financial consulting services (67) (42)

Other (33,785) (11,812)

Total other operating expense (409,178) (354,203)

Net other operating income and expense 730,380 698,362

25.Administrative Expenses


Staff costs (2,870,523) (1,875,591)

Maintenance costs of fixed assets and intangibles, telecommunication and other maintenance services

(663,852) (490,835)

Aamortisation, including: (536,076) (281,448)

fixed assets and intangible assets (Note 11) (391,727) (281,448)

leases (Note 12) (144,349) -

Charges to Individuals’ Deposit Guarantee Fund (277,536) (199,035)

Professional services (143,855) (124,510)

Advertising and marketing expenses (137,626) (109,291)

Operating lease expenses (128,868) (231,609)

Security costs (48,646) (12,850)

Business trip expenses (47,461) (27,699)

Taxes and charges other than income tax (35,488) (8,800)

Sponsorship and charity (3,754) (6,981)

Representative costs (3,151) (3,598)

Other expenses (3,290) 29

Total administrative expenses (4,900,126) (3,372,218)


46

26. Income Tax

Table 26.1 Income tax expenses


Current income tax (858) (715)

Changes in deferred income tax related to temporary differences emergence or

write off

148,759 (356,449)

Income tax expenses 147,901 (357,164)

Current income taxes expenses, due to tax loss for the reporting year, are explained by non-deductible amount of income

tax paid abroad carried to expenses (due to tax losses).

Table 26.2. Reconciliation of taxable profit or loss and tax expense


Profit before tax 1,777,919 1,667,424

Theoretical tax charge at statutory rate (320,025) (300,136)

The adjustments of profit:

Non-deductible expenses 14,487 (30,181)

Non-deductible income - 41,037

Deferred income tax assets unrecognized in previous periods 467,908 -

Unrecognised deferred tax asset - (50,369)

Other adjustments (14,469) (17,515)

Income tax expenses 147,901 (357,164)

According to the tax legislation of Ukraine income tax rate did not change during the reporting period, effective rate is 18%.

Table 26.3 Tax consequences related to recognition of deferred tax assets and deferred tax liabilities for 2019

In thousands of hryvnias Balance at

the beginning

of the period

Banks’ Merger

Recognised

through profit/

loss

Recognised

in equity

Balance at

the end of the

period

Property and equipment (28,955) (2,077) 157,266 69 126,303

Land revaluation - (27) - - (27)

Revaluation of at fair value - - - (13,492) (13,492)

Provision for assets impairment and

other reserves 11,992 - 4,068 - 16,060

Tax losses carried forward 1,557,815 4,265,581 (360,376) - 5,463,020

Tax effect of deductible/ (taxable)

temporary differences and tax losses

carried forward 1,540,852 4,263,477 (199,042) (13,423) 5,591,864

Unrecognized deferred tax (815,710) (4,265,581) 347,801 - (4,733,490)

Recognised deferred tax

asset/(liability) 725,142 (2,104) 148,759 (13,423) 858,374

Table 26.4 Tax consequences related to recognition of deferred tax assets and deferred tax liabilities for 2018

In thousands of hryvnias Balance at

the

beginning of

the period

Recognised

through

profit/ loss

Recognised

in equity

Balance at

the end of

the period

Property and equipment (15,616) (39,407) 26,068 (28,955)

Land revaluation (12,955) - 12,955 -

Provision for assets impairment and other reserves 77,873 (65,881) - 11,992

Tax losses carried forward 1,758,607 (200,792) - 1,557,815

Tax effect of deductible/ (taxable) temporary differences and

tax losses carried forward

1,807,909 (306,080) 39,023 1,540,852

Unrecognized deferred tax (765,341) (50,369) - (815,710)

Recognised deferred tax asset/(liability) 1,042,568 (356,449) 39,023 725,142


47

27. Earnings per Share


Profit for the year 1,925,820 1,310,260

Weighted average number of ordinary shares in issue (thousands) 133,584,106 121,797,565

Basic and diluted loss per ordinary share (in UAH) 0.01 0.01

Earning per one ordinary share as at 31 December 2019 is UAH 0.01. 28. Operating Segments

Table 28.1. Reportable segments income, expenses and results for 2019

In thousands of hryvnias Services to

individuals

Services to

corporate

customers

Centralized treasury

banking and other

operations

Total

External segments revenue

interest income 4,666,754 2,062,661 1,522,825 8,252,240

fee and commission income 2,589,737 1,046,901 7,749 3,644,387

Inter-segments revenues 4,203,996 2,918,237 (7,122,233) -

Total revenues 11,460,487 6,027,799 (5,591,659) 11,896,627

Interest expense (2,478,743) (1,517,144) (279,759) (4,275,646)

Credit impairment losses (1,114,949) (178,468) 4,913 (1,288,504)

Net loss of impairment of other assets (2,616) (6,122) 1,575 (7,163)

Net loss of impairment of commitments

(20,200) (10,784) - (30,984)

Net loss in allowance for impairment of debt securities designated at fair value through other comprehensive income

- - (29,672) (29,672)

Net gains/(losses) from initial recognition of financial assets at rates below market

(16,757) - - (16,757)

Fee and commission expense (691,963) (91,309) (20,399) (803,671)

Net gains from derivative - - 212,917 212,917

Net gains from revaluation of derivative

- 1 588,534 588,535

Net income from trading in foreign currencies

75,626 - 190,060 265,686

Foreign exchange translation - - (534,842) (534,842)

Net income from securities designated at fair value through profit or loss

- - 283,114 283,114

Result from reclassification of securities

- - 1,020 1,020

Net loss of modification of financial assets

1 (157,453) - (157,452)

Net income from derecognition of financial assets

52 93 100 245

Net income from derecognition of financial liabilities

1,896 993 (33) 2,856

Net income from revaluation of investment property

(17,787) 128,859 (185,970) (74,898)

Other operating income and expense, result from disposal of assets held for sale

626,948 11,394 8,292 646,634

Administrative expense (3,367,403) (1,278,113) (254,610) (4,900,126)

Inter-segments expenses (3,017,146) (1,529,422) 4,546,568 -

Inter-segments expenses (leases) - - - -

Income tax expenses - - 147,901 147,901

Segment result 1,437,446 1,400,324 (911,950) 1,925,820


48

Table 28.2. Reportable segments income, expenses and results for 2018

in thousands of hryvnias Services to

individuals

Services to

corporate

customers


banking and other

operations

Total

External segments revenue

interest income 3,235,067 2,415,008 1,009,474 6,659,549

fee and commission income 1,867,621 770,102 32,154 2,669,877

Inter-segments revenues 3,903,690 1,901,440 (5,805,130) -

Total revenues 9,006,378 5,086,550 (4,763,502) 9,329,426

Interest expense (1,770,950) (1,049,261) (268,158) (3,088,369)

Credit impairment losses (478,397) (1,465,697) 3,409 (1,940,685)

Net loss of impairment of other assets -, (6,257) -, (6,257)

Net loss of impairment of credit-related commitments

34,692 (44,944) - (10,252)

Net gains/(losses) from initial recognition of financial assets at rates below market

(2,876) -, - (2,876)

Fee and commission expense (397,090) (325) (18,255) (415,670)

Net gains/(losses) from derivative - (4) 402,605 402,601

Net income from trading in foreign currencies and foreign exchange translation

38,253 1,077 (59,842) (20,512)

Net income from securities designated at fair value through profit or loss

- - 36,752 36,752

Net loss of modification of financial assets

(1) (77,677) (2) (77,680)

Net income from derecognition of financial assets

91 17 72 180

Net income from derecognition of financial liabilities

3,776 1,032 (8) 4,800

Net income from revaluation of investment property

,- 129,822 - 129,822

Other operating income and expense (2,031,233) (550,861) (91,762) (2,673,856)

Inter-segments expenses (1,894,936) (2,197,883) 4,092,819 -

Inter-segments expenses (leases) (32,443) (17,845) 50,288 -

Income tax expenses - - (357,164) (357,164)

Segment result 2,475,264 (192,256) (972,748) 1,310,260

Table 28.3. Reportable segment assets and liabilities for 2019


individuals

Services to

corporate

customers


banking and other

operations

Total

Reportable segment assets 19,640,592 19,813,903 32,454,884 71,909,379

Reportable segment liabilities 36,886,665 23,116,717 3,386,584 63,389,966

Capital investment for the year 179,769 67,429 203,643 450,841

Depreciation (335,667) (175,034) (25,375) (536,076)

Table 28.4. Reportable segment assets and liabilities for 2018


individuals

Services to

corporate

customers


banking and other

operations

Total

Reportable segment assets 12,276,751 20,349,720 28,117,661 60,744,132

Reportable segment liabilities 32,050,363 19,150,714 4,501,967 55,703,044

Capital investment for the year 76,138 20,069 1,344 97,551

Depreciation (219,668) (57,901) (3,879) (281,448)


49

29. Risk Management

The objective of the Bank's risk management process is optimization of business processes, assets and liabilities structure

(taking into account the specifics of the Bank’s business, volume and nature of its operations, risk profile and its importance

to the banking system) in order to minimize its exposure to risks.

The Bank’s risk management system is based on implemented three independent lines of defense model with underlying

principles of efficiency, timeliness, structure, segregation of duties, complex and comprehensive approaches, proportionality,

independence, confidentiality and transparency.

All risks are regularly assessed and checked for compliance and significance in accordance with the developed Methodology

for Significant Risks Identification of JSC "Alfa-Bank". As part of significant risks management, the Bank has developed

appropriate policies, regulations, methods, techniques, and mandatory tools. The Bank manages all significant risks, which

as at 31 December 2019 comprise the following.

- credit risk;

- market risk;

- banking book interest rate risk;

- liquidity risk;

- operational risk;

- compliance risk;

- real estate risk (Note 10).

Credit risk. The Bank is exposed to credit risk, which is defined as the present or potential risk of incurring losses or

additional costs or inability to receive the planned income as a result of the borrower/contractor’s failure to perform

contractual obligations. Credit risk is inherent to all Bank operations where the result depends on the activity of the

contractor, issuer or borrower. It arises whenever the Bank provides financing, undertakes obligation on financing, makes

investments, or otherwise takes financial risks under the terms of real or conceptual agreements, regardless of whether

transaction is on- or off-balance sheet.

Within credit risk assessment, the Bank identifies the following risks:

country risk includes all types of risks that arise in the economic, political and social environment of the country where

a non-resident debtor is registered and runs business and which may have a potential impact on its ability to

service debts. Country risk arises specifics of the economy, social and political system of the debtor's country.

However, this risk shall always be taken into account in lending and investment activities (disregarding of sector -

public or private).

transfer risk is a probability of losses or additional losses or expenses, or inability to receive planned income due

inability of a debtor to receive and / or transfer foreign currency to service a loan debt;

contractor risk, means the risk at which a party to the transaction may not fulfil its obligations until the final settlement

of transaction cash flows;

investment in subsidiary risk is a probability of losing part of the Bank's funds, shortage in income, unjustified

expenses and (or) failure to achieve a social effect as a result of the Bank's investment operations.

In assessing credit risk, the Bank separates individual and portfolio credit risk. The Bank manages credit risk using the following instruments:

optimizing lending process;

improving assessment of potential and existing customers (contractors);

setting credit limits (by sectors, geographical regions, product range, maturity, etc.);

stress tests of credit risk according to NBU and internal bank regulation requirements;

monitoring execution of terms of loan agreements, collateral agreements, letters of comfort and loan administration;

adequate control for credit risks, including at the client level by controlling the relevant credit risk indicators;

system of “3 lines of defense” principle;

information systems;

internal rating systems of the Bank / member of the Banking Group. Open credit risk positions are disclosed in Notes: 4.2. "Financial instruments", 6 "Cash and cash equivalents", 7 "Due from banks", 8 "Loans and advances to customers", 9. "Investments in securities", and 12 "Other assets". The Bank also controls the geographical concentration of assets and liabilities according to the borrower’s country of origin. An important component of the geographical concentration analysis is consideration of potential risk of default and the Bank's dependence on the resource base of one country.


50

Table 29.1. Analysis of geographical concentration of financial assets and liabilities for 2019

In thousands of hryvnias Notes Ukraine ОЕСD Other

countries

Total

ASSETS

Cash and cash equivalents 6 11,530,252 1,757,975 185,245 13,473,472

Due from other banks 7 74,460 473,844 - 548,304

Loans and advances to customers 8 38,638,621 542,901 18,312 39,199,834

Investments in securities 9 8,968,569 242,560 - 9,211,129

Derivatives 32 157,055 7 585,287 742,349

Other financial assets 12 88,251 714,104 43,184 845,539

Disposal group assets 13 7,000 - - 7,000

Total financial assets 59,464,208 3,731,391 832,028 64,027,627

LIABILITIES

Due to banks 14 3,592 43,992 2,751 50,335

Due to customers 15 57,911,547 507,247 858,086 59,276,880

Derivatives 32 1,024 261 - 1,285

Debt securities in issue 16 6,902 - - 6,902

Other financial liabilities 18 1,758,344 240,368 6,596 2,005,308

Subordinated debt 19 - - 1,184,309 1,184,309

Disposal group liabilities 13 11,904 - - 11,904

Total financial liabilities 59,693,313 791,868 2,051,742 62,536,923

Net position in on-balance sheet financial

instrument

(229,105) 2,939,523 (1,219,714) 1,490,704

Credit-related commitments 31.1 9,084,539 - - 9,084,539

Table 29.2. Analysis of geographical concentration of financial assets and liabilities for 2018

In thousands of hryvnias Notes Ukraine ОЕСD Other

countries

Total

ASSETS

Cash and cash equivalents 6 5,258,222 4,221,786 215,171 9,695,179

Due from other banks 7 8,999,808 - - 8,999,808

Loans and advances to customers 8 32,455,640 268 2,250 32,458,158

Investments in securities 9 4,271,878 - - 4,271,878

Derivatives 32 97,241 1,035 68,556 166,832

Other financial assets 12 48,390 400,121 47 448,558

Total financial assets 51,131,179 4,623,210 286,024 56,040,413

LIABILITIES

Due to banks 14 34,561 268 760 35,589

Due to customers 15 50,584,475 349,280 1,554,592 52,488,347

Derivatives 32 3,256 - 949 4,205

Debt securities in issue 16 44,937 - - 44,937

Other financial liabilities 18 1,167,097 11,885 2,651 1,181,633

Subordinated debt 19 - - 1,384,411 1,384,411

Total financial liabilities 51,834,326 361,433 2,943,363 55,139,122

Net position in on-balance sheet financial

instrument

(703,147) 4,261,777 (2,657,339) 901,291

Credit-related commitments 31.1 6,312,849 - - 6,312,849

Market risk. The Bank is exposed to market risks that arise from possible adverse changes in foreign exchange rates,

interest rates, and the value of financial instruments. The Bank set zero tolerance for stock risk, commodity risk and volati lity

risk. The Bank identified an appetite risk for currency risk and trading book risk. To mitigate market risks, the Bank has set

limits on the size of open currency positions, VaR (Value at Risk) of currency positions, a trading book volume limit and a

limit on the risk generated by the trading book.

The Bank applied the following instruments to manage market risk:

volatility quotes estimation (exchange rates, quotes for debt securities, etc.);

scenario modeling (stress test) for each type of market risk;

continuous monitoring of major risk factors and prompt unscheduled review of limits.


51

Currency risk. The Bank considers currency risk as the effect of concentration of the Bank’s assets and liabilities by currency. Currency risk is interpreted as an existing or potential risk to earnings or capital arising from unfavourable fluctuations of foreign exchange rates. The financial position and cash flows of the Bank are subject to fluctuations in exchange rates in the event of open currency positions.

Possible financial losses of the Bank depend on the amount of open currency position. The amount of open currency positions is calculated as the difference between the Bank's claims and liabilities for each currency at the reporting date, taking into account balance sheet and off-balance sheet items. The general strategy of currency risk management is based on minimizing the amount of open currency positions.

Table 29.3. Analysis of currency risk for 2019

In thousands of hryvnias Notes UAH US Dollar Euro Others Total

Non-derivative financial assets

Cash and cash equivalents 6 10,692,342 2,038,440 545,120 197,570 13,473,472

Due from other banks 7 74,460 473,844 - - 548,304

Loans and advances to customers 8 22,239,504 14,007,614 2,896,188 56,528 39,199,834

Investments in securities 9 453,218 8,509,547 248,364 - 9,211,129

Other financial assets 12 85,849 697,514 62,176 - 845,539

Disposal group assets 13 7,000 - - - 7,000

Total 33,552,373 25,726,959 3,751,848 254,098 63,285,278

Derivative 742,349 - - - 742,349

Assets receivable under forward and FX-swap contracts

3,732,012 516,754 - - 4,248,766

Total 38,026,734 26,243,713 3,751,848 254,098 68,276,393

Non-derivative financial liabilities

Due to banks 14 40,787 7,579 1,953 16 50,335

Due to customers 15 33,969,732 21,748,367 3,380,805 177,976 59,276,880

Debt securities in issue 16 6,902 - - - 6,902

Other financial liabilities 18 1,936,859 37,275 24,191 6,983 2,005,308

Subordinated debt 19 - 1,184,309 - - 1,184,309

Disposal group liabilities 11,904 11,904

Total 35,966,184 22,977,530, 3,406,949 184,975 62,535,638

Derivative 1,285 - - - 1,285

Liabilities payable under forward and FX-swap contracts

105,540 3,598,862 338,092 71,176 4,113,670

Total 36,073,009 26,576,392 3,745,041 256,151 66,650,593

Net position 1,953,725 (332,679) 6,807 (2,053) 1,625,800

Table 29.4. Analysis of currency risk for 2018

In thousands of hryvnias Notes UAH US Dollar Euro Others Total

Non-derivative financial assets

Cash and cash equivalents 6 4,670,273 2,904,153 1,780,227 340,526 9,695,179

Due from other banks 7 3,102,205 5,897,603 - - 8,999,808

Loans and advances to customers 8 15,721,673 16,009,591 726,894 - 32,458,158

Investments in securities 9 737,372 3,110,923 423,583 - 4,271,878

Other financial assets 12 45,914 321,067 81,577 - 448,558

Total 24,277,437 28,243,337 3,012,281 340,526 55,873,581

Derivative 166,832 - - - 166,832

Assets receivable under forward and FX-swap contracts

4,327,463 110,227 - - 4,437,690

Total 28,771,732 28,353,564 3,012,281 340,526 60,478,103

Non-derivative financial liabilities

Due to banks 14 9,912 22,290 1,472 1,915 35,589

Due to customers 15 26,582,729 22,817,289 2,862,984 225,345 52,488,347

Debt securities in issue 16 44,937 - - - 44,937

Other financial liabilities 18 1,107,511 42,852 25,906 5,364 1,181,633

Subordinated debt 19 - 1,384,411 - - 1,384,411

Total 27,745,089 24,266,842 2,890,362 232,624 55,134,917

Derivative 4,205 - - - 4,205

Liabilities payable under forward and FX-swap contracts

- 3,827,091 281,120 109,997 4,218,208

Total 27,745,089 28,093,933 3,171,482 342,621 59,353,125

Net position 1,026,643 259,631 (159,201) (2,095) 1,124,978


52

Analysis of the Bank’s sensitivity to currency risk. The Bank's sensitivity to exchange rate fluctuations of major currencies

against hryvnia is presented below. An important outcome of this analysis for the Bank's management is the impact on

equity. Risk management performs stress-tests of the Bank's sensitivity to currency risk and assesses potential extreme

losses. The basic assumption is the invariability of assets and liabilities. An acceptable rate of currency strengthening

(weakening) determined by the Bank by analyzing volatility of currency pairs is +50%/-15% for 2019 and 2018.

Table 29.5. Sensitivity of profit or loss and equity to possible changes in exchange rates applied at the reporting date on the

condition that all other variables held constant

2019 2018

+50% -15% +50% -15%

US Dollar (136,399) 40,920 106,449 (31,935)

Euro 2,791 (837) (65,272) 19,582

Other currencies (843) 253 (859) 258

As at 31 December 2019, VaR of currency position (the amount of losses that with 99.0% probability will not be exceeded on

3 days’ time horizon, is calculated by VaR historical modeling method with 1 calendar year sample depth and correlated)

was UAH 8.4 million (as at 31 December 2018, VaR was UAH 6.8 million).

Table 29.6. VaR of currency position as a result of possible fluctuation of exchange rate as at the reporting date, on the

condition that all other variables held constant


VaR 3-days (8,399) (6,787)

Trading book risk. The Bank considers a trading book risk to be the largest of the two calculated indicators: a default risk and

the aggregate trading book risk. The aggregate trading book risk is calculated by modified duration method using the shock

interest rate changes (according to requirements of the National Bank of Ukraine) and the convexity of trading book

instruments. As at the end of the reporting year, the trading book of UAH 242,560,000 included Eurobonds of financial and

non-financial institutions with investment ratings (Note 9).

Trading book risk (aggregate trading book risk: trading book interest rate risk and spread credit risk) as at 31 December

2019 amounted to UAH 1,500 thousand, s correlated by positions in the portfolio.

Banking book interest rate risk. The Bank is exposed to banking book interest rate risk as a result of adverse changes in

interest rates applied to assets and liabilities, mainly caused by providing loans with fixed interest rates in the amounts and

terms that differ from the amounts and terms of fixed interest rate liabilities. The Bank seeks to avoid significant maturity

gaps between assets and liabilities. Interest rate risk limits ensure that the optimal structure of the Bank's assets / liabilities is

maintained at a level that does not threaten the Bank's financial stability. The Bank measures the banking book interest rate

risk as the amount of change in economic value of the Bank's equity (EVE method) and the Bank's net interest income (NII

method) on the basis of a complete and economically reasonable list of changes in interest rates and stress scenarios.

The Bank's management, considering the Bank’s experience gained in previous periods, believes that part of the customer

resources "on demand" make a long-term and stable source of the Bank’s financing.

Table 29.7. Analysis of total interest rate risk

In thousands of hryvnias Demand and less

than 1 month

From 1 to 12 months

Over one yea Financial instruments free

from interest rate risk

Total

31 December 2019

Total financial assets 19,853,364 22,890,808 14,661,583 6,621,872 64,027,627

Total financial liabilities 22,358,050 25,898,126 12,645,423 1,635,324 62,536,923

Net interest sensitivity gap (2,504,686) (3,007,318) 2,016,160 4,986,548 1,490,704

31 December 2018


Total financial liabilities 17,781,717 24,755,786 11,674,271 927,348 55,139,122

Net interest sensitivity gap (1,453,866) (7,578,854) 8,610,843 1,323,168 901,291


53

Analysis of the Bank's sensitivity to interest rate risk. In analyzing total interest rate risk, the Bank considered the maturities

of financial instruments together with terms of agreements related to probability of interest rate revision. If such a possibility

exists, contractual flows are considered within the periods of interest rate revision.

Table 29.8. Sensitivity of interest income for the year

In thousands of hryvnias Demand and less

than 1 month

From 1 to 12 months Total

2019 Sensitivity of financial assets 574,093 381,835 955,928

Sensitivity of financial liabilities (676,942) (446,707) (1,123,649)

Sensitivity of annual interest income (102,849) (64,872) (167,721)

2018

Sensitivity of financial assets 156,475 93,042 249,517

Sensitivity of financial liabilities 170,408 134,094 304,502

Sensitivity of annual interest income (13,933) (41,052) (54,985)

The impact of possible interest rate changes on net interest income for one year is determined by the changing the amount

of accrued interest in case interest rate increases / decreases by at least 4% for up to 1 year for hryvnia and group 2

currencies; and by 2% for group 1 currencies in 2019 (by 1% for all currencies in 2018) and assets / liabilities are extended

for up to 1 year in total. This means: at the date a contract for raising / depositing funds expires (provided that its term is less

than a year), the contract extension (prolongation) is offered for a period that supplements its term to 1 year, on the condition

interest rate is increased / decreased by the respective percentage points. Sensitivity analysis to interest rate risk is given

below.

Table 29.9. Sensitivity to interest rate risk

2019 2018

+1% -1% +1% -1%

Sensitivity of financial assets 314,253 314,253 249,517 (249,517)

Sensitivity of financial liabilities (356,461) 356,461 (304,502) 304,502

Impact on profit/loss and impact on equity (42,208) 42,208 (54,985) 54,985

Rates applied to accrue interest for assets and liabilities types are as follows:

fixed and floating rates for Cash and cash equivalents;

fixed rates for Securities measured at fair value through profit or loss;

fixed rates for Due from banks;

fixed and floating rates for Loans and advances to customers;

fixed rates for Debt securities available for sale;

fixed and floating rates for Due to banks;

fixed rates for Due to customers;

fixed rates for Debt securities in issue;

fixed rates for Subordinated debt.

Table 29.10. Monitoring of weighted average interest rates for its financial instruments

% 2019 2018

UAH Other UAH Other

Cash and cash equivalents 7.72 1.01 8.03 0.27

Due from other banks 13.11 1.90 18.10 5.08

Loans and advances to customers 28.69 8.22 37.63 11.29

Investments in securities 15.38 5.45 15.50 6.89

Due to banks 7.74 0.44 7.98 3.75

Due to customers 10.33 2.74 13.87 3.73

Debt securities in issue 18.50 - 14.96 -

Subordinated debt - 8.91 - 8.91


54

Liquidity risk is defined as the probability of losses or additional losses or inability to get the planned income as a result of

the Bank's failure to ensure financing for the growth of assets and / or perform its obligations in due terms. The Bank

identified risk appetite indicators for liquidity risk as follows: the period needed for the Bank to fulfill its payment (settlement)

obligations in time and in full during the stressful situation without attracting loans from the National Bank for urgent liquidity

support; and the amount of high quality liquid assets (HQLA) required to do so.

In order to monitor its liquidity, the Bank daily calculates the liquidity ratios of the NBU, LCR (Liquidity Coverage Ratio),

generates reports on liquidity gaps using the GAP analysis method, and analyzes the Bank’s liquidity risk within the

operational day, and also analysis concentration of the Bank’s obligations by important contractor groups, by instruments /

products. To mitigate the risk, the Bank ensures appropriate amount of unpledged HQLA that can be collateralized to raise

funds in the shortest possible time without significant losses and discounts under different conditions of the Bank's operation.

Also, the Bank monitors assets by issuers, currencies, other indicators that can be pledged, diversify assets that can be

used as a collateral in order to avoid dependence on individual creditors and funding markets.

To counteract liquidity crises in 2019, a Crisis Financing Plan was developed. In 2020, the Bank will introduce NSFR ratio,

which is currently in test mode. For liquidity risk assessment and management the Bank applies a model that reflects its

assets and liabilities over time by making Bank’s payment calendar (Cash Flow). By this calculation is assessed the Bank’s

ability to continue operation on the condition of suspending all asset transactions, for which the Bank had no prior

commitments for allocation of funds; and fund-raising for some financial instruments are accounted for based on the special

technique for booking term liabilities.

Payment calendar is daily calculated by the Treasury Department. Payment calendar analysis allows for advance estimation

of the size and terms of the Bank’s existing resources to predict liquidity problems and decide on the appropriate timing and

amount of funding or realization of less liquid assets to more liquid. The Bank ‘s liquidity management requires analyzing the

level of liquid assets necessary to settle liabilities as they mature; access to various sources of funding; contingency plans in

case of problems with financing and monitoring the liquidity ratio compliance with legislation requirements.

Controlling and governing body of the Bank's liquidity risk management is ALMC. The main goals and objectives of ALMC

regarding liquidity risk are:

to form the optimal structure of the Bank’s balance sheet in order to obtain the desired level of return while limiting

unacceptable level of risk;

to control over capital adequacy and risk diversification;

to determine the Bank's policy on liquidity management;

to maintain adequate solvency monitoring of the Bank’s current liquidity and resources with regard to market risk

and liquidity risk;

matching assets and liabilities by maturity;

to make decisions regarding the outlook for asset and liability management;

to maintain the liquidity ratio set forth by the National Bank of Ukraine.

The Treasury Department provides for an adequate portfolio of liquid assets, which mainly consists of short-term deposits

with banks and other inter-bank facilities to ensure the sufficient liquidity is maintained within the Bank as a whole.

Table 29.11. Maturity analysis of financial liabilities for 2019

In thousands of hryvnias On demand and less

than 1 month

From 1 to 12 months

From 1 to 5 years

Over 5 years Total

Due to banks 52,736 5,306 - - 58,042

Customer accounts 38,999,232 19,564,538 3,389,514 - 61,953,284

Debt securities in issue 157 667 6878 - 7,702

Subordinated debt 8,733 94,371 1,561,793 - 1,664,897

Other financial liabilities 1,461,707 279,553 517,927 5,539 2,264,726

Delivery forward contract, gross amount 1,208,521 1,863,722 304,045 - 3,376,288

Financial guarantees 85,154 2,572,984 79,207 - 2,737,345

Other credit commitments 253,924 6,093,270 - - 6,347,194

Disposal group liabilities - 11,904 - - 11,904

Total potential future payments on financial liabilities

42,070,164 30,486,315 5,859,364 5,539 78,421,382


55

Table 29.12. Maturity analysis of financial liabilities for 2018

In thousands of hryvnias On demand and less than

1 month

From 1 to 12 months

From 1 to 5 years

Over 5 years Total

Due to banks 37,574 3,011 - - 40,585

Customer accounts 18,278,262 26,285,220 10,098,727 44 54,662,253

Debt securities in issue 676 539 44,832 - 46,047

Subordinated debt 10,208 109,987 561,789 1,384,411 2,066,395

Other financial liabilities 769,791 179,290 477,533 2 1,426,616

Delivery forward contract, gross amount 721,324 2,490,541 1,006,343 - 4,218,208

Financial guarantees 25,230 1,292,299 191,780 44 1,509,353

Other credit commitments 254,046 4,549,450 - - 4,803,496

Total potential future payments on financial liabilities

20,097,111 34,910,337 12,381,004 1,384,501 68,772,953

Table 29.13 Expected maturity analysis of financial assets and liabilities for 2019


1 month

From 1 to 12 months

From 1 to 5 years

Over 5 years Total

ASSETS

Cash and cash equivalents 13,473,472 - - - 13,473,472

Due from other banks 548,304 - - - 548,304

Loans and advances to customers 10,393,632 18,050,505 8,631,347 2,124,350 39,199,834

Investments in securities 620,856 4,684,386 3,905,887 - 9,211,129

Derivatives 7 742,342 - - 742,349

Other financial assets 689,622 155,917 - - 845,539

Disposal group assets - 7,000 - - 7,000


LIABILITIES

Due to banks 50,335 - - - 50,335

Due to customers 22,495,577 25,897,595, 10,883,708 - 59,276,880

Derivatives 1,285 - - - 1,285

Debt securities in issue - 24 6,878 - 6,902

Other financial liabilities 1,456,501 160,709 382,559 5,539 2,005,308

Subordinated debt - - 1,184,309 - 1,184,309

Disposal group liabilities - 11,904 - - 11,904

Total financial liabilities 24,003,698 26,070,232 12,457,454 5,539 62,536,923

Net liquidity gap as at 31 December 1,722,195 (2,430,082) 79,780 2,118,811 1,490,704

Cumulative liquidity gap as at 31 December 1,722,195 (707,887) (628,107) 1,490,704 -

Table 29.14 Expected maturity analysis of financial assets and liabilities for 2018


1 month

From 1 to 12 months

From 1 to 5 years

Over 5 years Total

ASSETS

Cash and cash equivalents 9,695,179 - - - 9,695,179

Due from other banks 12,240 - 8,987,568 - 8,999,808

Loans and advances to customers 7,724,494 14,301,402 8,991,859 1,440,403 32,458,158

Investments in securities 984,825 2,421,769 865,284 - 4,271,878

Derivatives 2,121 164,711 - - 166,832

Other financial assets 159,508 289,050 - - 448,558


LIABILITIES

Due to banks 35,589 - - - 35,589

Due to customers 17,945,913 24,754,382 9,788,008 44 52,488,347

Derivatives 3,256 949 - - 4,205

Debt securities in issue -, 105 44,832 - 44,937

Other financial liabilities 742,456 129,665 302,983 6,529 1,181,633

Subordinated debt - - - 1,384,411 1,384,411

Total financial liabilities 18,727,214 24,885,101 10,135,823 1,390,984 55,139,122

Net liquidity gap as at 31 December (148,847) (7,708,169) 8,708,888 49,419 901,291

Cumulative liquidity gap as at 31 December (148,847) (7,857,016) 851,872 901,291 -


56

The Bank classifies financial assets and financial liabilities of both, with maturity on demand and less than 1 month, and from

1 month to 1 year, as current financial assets and liabilities; and with maturity from 1 to 5 years and over 5 years - as non-

current financial assets and liabilities.

Operational risk is the risk of direct and indirect financial losses due to errors or malfunctions of internal business processes,

personnel, systems or external events. Operational risk includes legal risk, but excludes strategic risk and reputational risk.

In its internal system the Bank maintains a database of operational risk incidents (DB “Incident Registration”) to collect

statistical data and investigate losses from operational risks. The database accumulates data on actual losses from

operational risk incidents, information on break - even incidents of operational risks and incidents with potential losses; data

about incidents that may affect the Bank 's business processes in the future. In order to minimize the impact of operational

risks, the Bank introduced tools for monitoring, strengthened supervision, testing, and employee training; additional reserves

are accumulated (to reduce losses), business processes that are a source of risk may be terminated (to avoid operational

risk).

Compliance risk. Considering instability of legislation and introducing new requirements for banking institutions, the Bank

may be subject to compliance risk - the probability of losses / sanctions, additional expenses or inability to receive the

planned income, or loss of reputation due to non-compliance with laws, regulations, market standards, rules of fair

competition, corporate ethics, conflicts of interests, as well as non-compliance with internal documents of the Bank, etc.

Compliance risk is regulated by the Compliance Risk Management Policy, the Code of Corporate Ethics, the Anti-Corruption

Program and other internal documents.

30. Management of Capital

The Bank manages capital in order to accomplish objectives set forth by the shareholders. Global capital management is the

responsibility of the Bank’s Supervisory Board.

Capital management tactic task is to ensure that the requirements of the National Bank of Ukraine regarding the Bank’s

regulatory capital and capital adequacy norm were met. The Guidelines on the Procedure for Regulating the Operation of

Banks in Ukraine approved by the Board of the National Bank of Ukraine # 368 of 28 August 2001 as amended, sets forth

the following capital norms:

Minimal regulatory capital norm (N1);

Regulatory capital adequacy norm (N2).

Regulatory capital. Minimal amount of regulatory capital for the bank that was licensed before 11 July 2014 is: as at 1

January 2021 - UAH 300,000 thousand; after 11 July 2022 –UAH 400,000 thousand; after 11 July 2024 – it is UAH 500,000

thousand.

Regulatory capital adequacy norm. It is set to prevent excessive shifting of credit risk and risk of default to recover the

bank’s assets from the bank to its creditors/ depositors. Normative value of this ratio for operating banks shall not be less

than10%.

By the results of the first stage of the Bank’s sustainability test (stress-testing) performed according to decision of the Board

of the National Bank of Ukraine №141 “On approval of Regulation on the assessment of sustainability of banks and banking

system of Ukraine” dd 22 December 2017, the Bank’s regulatory capital and capital ratios as at 31 December 2019 are

within the amounts required by the Regulation of Board of the National Bank of Ukraine “Guidelines on the procedure for

regulation of the banks in Ukraine” №368 dd 28.08.2001.

The results of stress-testing of banks and the banking system of Ukraine performed by the National Bank of Ukraine as at

COB 31 December 2018, identified the required regulatory capital adequacy norm for the Bank (N2) and 1-Tier adequacy

norm of 18.03%. This result of the Bank's sustainability assessment takes into account the effect of reorganizationby the

Bank’s merger with JSC “UKRSOTSBANK”.

In 2019, pursuant to this decision, the Bank developed a Restructuring Program (approved by the decision of the

Management Board №273 of 18 December 2019 and approved by the decision of the Supervisory Board №90 of 20

December 2019), which contains information on measures taken by the Bank and actual events occurred after 1 January

2019.

According to the results of verification by the National Bank of Ukraine, the required level of N2 ratio was reduced from

18.03% to the updated required level of 14.76% and the required level of N3 - from 18.03% to the updated required level of


57

14.76% (decision of the Board of the National Bank of Ukraine №993- рш/БТ dated 24 December 2019. The Bank shall

ensure compliance with N2 and N3 standard norms as at 1 October 2020.

As at 31 December 2019, the capital ratios calculated in accordance with the first stage of the Bank’s sustainability testing in

accordance with the requirements of the above decision of the Board of the National Bank of Ukraine №141 dated 22

December 2017, were as follows:

- regulatory capital norm (N1) - UAH 8,131,997 thousand;

- regulatory capital adequacy norm (N2) - 15.4%;

- capital adequacy norm (N3) - 11.2%.

As at the date of these financial statements, the procedures of following stages of the Bank's sustainability assessment have

not yet been completed.

Economic norms and components of the regulatory capital calculation are published monthly on the Bank’s website in

accordance with the requirements set forth by the Resolution of the Board of the National Bank of Ukraine No.11 dated 15

February 2018, "On establishing the list of information for mandatory publication by the banks of Ukraine".

31. Contingencies and Commitments

Legal proceedings. As at COB 31 December 2019 the court adjudges 2,258 claims from the Bank regarding debt collection

in the total amounts of UAH 1,668,228 thousand, USD 710,840 thousand, EUR 4,542 thousand, CHF 3,151 thousand, RUB

26,801 thousand and 222 of non-material claims of the Bank. Also, as at the reporting date courts examine 1,340 claims to

the Bank for total amount of UAH 295,669 thousand, USD 112,174 thousand, EUR 2,363 thousand, CHF 3,346 thousand

and 67 of non-material claims.

The Bank periodically receives claims and pretensions related to obligations to customers. In 2019 the Bank accumulated

additional reserves for possible litigations and claims to the Bank in the amount of UAH 1,640 thousand (Note 17). Results of

consideration of cases in court did not have material effect on the Bank’s financial performance

Credit related commitments

Table 31.1. Structure of credit related commitments


Card ‘overdrafts’ provided to individual customers 5,195,188 3,878,187

Credit commitments provided 454,784 402,169

Undrawn credit lines 133,004 29,394

Import letters of credit 564,218 493,746

Guarantees issued 2,737,345 1,509,353

Provision (89,459) (49,499)

Total credit related commitments, net of provision 8,995,080 6,263,350

Table 31.2 Credit related commitments by currency


UAH 7,862,651 5,652,701

US Dollar 884,682 573,193

Euro 247,744 37,456

Total 8,995,080 6,263,350

Pledged assets

Table 31.3. Assets pledged without derecognition


Assets pledged Related liability Assets pledged Related liability

Investment property (Note 10) - - 1,808,438 1,120,614

Property (Note 11) 1,876,566 933,617 - -

Total 1,876,566 933,617 1,808,438 1,120,614


58

32. Derivatives


Derivatives – assets 742,349 166,832

Derivatives – liability 1,285 4,205

Table 32.2. Positive and negative fair value of derivatives


Positive fair value

Negative fair value

Positive fair value

Negative fair value

Forward contracts on “FX-swap” terms - (1 024) 2 121 (3 256)

Spot contracts on “FX-swap” terms 7 (261) - -

Forward contracts of sale of government bonds 585 287 - 68 556 (949)

Forward contracts of sale of foreign currencies 157 054 - 96 155 -

Option contacts of sale of property 1 - - -

Net fair value 742 349 (1 285) 166 832 (4 205)

Table 32.3 Derivatives by currency for 2019

In thousands of hryvnias Positive fair value Negative fair value

Forward contracts on “FX-swap” terms

UAH receivable (+) - 69 011

US Dollar payable (-) - (70 035)

Fair value of forward contracts on “FX-swap” terms - (1 024)

Euro payable (-) (79 259) (266 862)

US Dollar receivable (+) 79 266 339 415

Other currencies payable (-) - (72 814)

Fair value of spot contracts on “FX-swap” terms 7 (261)

Forward contracts of sale of government bonds

US Dollar payable (-) (2 523 955) -

UAH receivable (+) 3 109 242 -

Fair value of forward contracts of sale of government bonds 585 287 -

Forward contracts of sale of foreign currencies

US Dollar receivable (+) 106 830 -

US Dollar payable (-) (384 893) -

UAH receivable (+) 540 657 -

UAH payable (-) (105 540) -

Fair value of forward contracts of sale of foreign currencies 157 054 -

Option contacts of sale of property

UAH receivable (+) 135 043 -

UAH payable (-) (135 042) -

Fair value of option contacts of sale of property 1 -

Fair value of derivatives 742 349 (1 285)

Table 32.4 Derivatives by currency for 2018

In thousands of hryvnias Positive fair value Negative fair value

Forward contracts on “FX-swap” terms

US Dollar receivable (+) 114 027 -

US Dollar payable (-) (332 259) -

Euro payable (-) - (285 427)

Other currencies payable (-) (112 992) -

UAH receivable (+) 333 345 282 171

Fair value of forward contracts on “FX-swap” terms 2 121 (3 256)

Forward contracts of sale of foreign currencies

US Dollar payable (-) (1 384 413) -

UAH receivable (+) 1 480 568 -

Fair value of forward contracts of sale of foreign currencies 96 155 -

Forward contracts of sale of government bonds

US Dollar payable (-) (1 875 152) (221 029)

UAH receivable (+) 1 943 708 220 080

Fair value of forward contracts of sale of government bonds 68 556 (949)

Fair value of derivatives 166 832 (4 205)


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33. Fair Value

All assets and liabilities, which are measured or disclosed in the financial statements at fair value, are classified as

presented below in accordance with the fair value hierarchy based on the lowest level of output data important for

measurement of fair value in general.

Level 1 – Market quotes on the active market for identical assets or liabilities (without any adjustments);

Level 2 – Evaluation models where output data of the lowest level of hierarchy and significant for the fair value measurement

are observed in the market directly or indirectly;

Level 3 – Evaluation models where output data of the lowest level of hierarchy and significant for the fair value measurement

are not observed in the market.

Table 33.1. Analysis of financial instruments carried at amortized cost or at historical cost


Fair value Carrying amount

Fair value Carrying amount

Cash and cash equivalents 13,473,472 13,473,472 9,695,179 9,695,179

Due from other banks 548,304 548,304 8,999,808 8,999,808

Loans and advances to customers 38,822,461 39,199,834 32,704,664 32,458,158

Shares designated at fair value through other comprehensive income

1,098 1,098 400 400

Other financial assets 845,539 845,539 448,558 448,558

Disposal group assets 10,289 7,000 - -

Total financial assets 53,701,163 54,075,247 51,848,609 51,602,103

Due to banks 50,335 50,335 35,589 35,589

Due to customers 59,278,108 59,276,880 52,488,347 52,488,347

Debt securities in issue 6,902 6,902 44,937 44,937

Other financial liabilities 2,005,308 2,005,308 1,181,633 1,181,633

Subordinated debt 1,184,309 1,184,309 1,384,411 1,384,411

Disposal group liabilities 11,904 11,904 - -

Total financial liabilities 62,536,866 62,535,638 55,134,917 55,134,917

Table 33.2. Analysis of assets and liabilities recorded at fair value by level of the measurement hierarchy for 2019

In thousands of hryvnias Fair value by measurement models Total fair value

Carrying amount

Level І Level ІІ Level ІІІ

Assets designated at fair value

Securities designated at fair value through profit or loss

242,560 - - 242,560 242,560

Securities designated at fair value through other comprehensive income

8,967,471 - - 8,967,471 8,967,471

Derivatives - 742,349 - 742,349 742,349


- - 1,098 1,098 1,098

Buildings and land - 2,068,227 - 2,068,227 2,068,227

Investment property - 2,104,157 - 2,104,157 2,104,157

Non-current assets held for sale - 390,674 - 390,674 390,674

Assets with fair value disclosed

Cash and cash equivalents 7,162,603 6,310,869 - 13,473,472 13,473,472

Due from other banks - - 548,304 548,304 548,304

Loans and advances to customers - - 38,822,461 38,822,461 39,199,834

Other financial assets - - 845,539 845,539 845,539

Liabilities designated at fair value

Derivatives - 1,285 - 1,285 1,285

Liabilities with fair value disclosed

Due to banks - - 50,335 50,335 50,335 Due to customers - 27,533,018 31,745,090 59,278,108 59,276,880

Debt securities in issue - - 6,902 6,902 6,902

Other financial liabilities - - 2,005,308 2,005,308 2,005,308

Subordinated debt - - 1,184,309 1,184,309 1,184,309

Disposal group liabilities - 11,904 11,904 11,904


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Table 33.3. Analysis of assets and liabilities recorded at fair value by level of the measurement hierarchy for 2018

Methods and assumption used at fair value measurement. The Bank has applied following methods and assumptions at

presentation of the financial instruments at fair value:

- imputed fair value of the instruments with floating interest rate quoted at the active market is equal to their carrying amount;

- fair value of investments in shares and other securities with non-fixed income (Table 9.2), carried at fair value through other comprehensive income and purchased by the Bank to comply with legal requirements to participants of regulated stock market, is equal to their carrying amount;

- fair value of the instruments with fixed interest rate which do not have market quotes is defined on the basis of estimated future cash flows;

- most of the Bank’s borrowed funds are short-term with the carrying amount being approximation of the fair value; - other assets and liabilities are short-term and their value is approximately equal to the fair one.

34. Related Party Transactions

Parties are considered to be related if one party has the ability to control the other party, either directly or indirectly, or can exercise significant influence over the other party in making financial or operational decisions. For the purpose of presentation of information in these financial statements, the key management personnel are the personnel responsible for the management, planning and control of the Bank's activities, including the Chairman and members of the Bank's Supervisory Board, the Chairman of the Management Board and members of the Management Board. Table 34.1. Outstanding balances with related parties for 2019

In thousands of hryvnias ABH Ukraine Limited

ABH Holdings S.A.

Individual shareholders

Key management

personnel

Other related parties

Cash and cash equivalents - - - - 182,116 contractual interest rate (%) - - - - 0.64

Loans and advances to customers - - - 338 653,111 contractual interest rate (%) - - - 0.01 10.54

Other assets 585,291 3 - - 44,390 Due to banks - - - - 2,870

contractual interest rate (%) - - - - -

Due to customers 721 2,109 946 84,911 307,201 contractual interest rate (%) - - 0.01 5.08 6.60

Other liabilities - - - 16 2,503

In thousands of hryvnias Fair value by measurement models Total fair value

Carrying amount Level І Level ІІ Level ІІІ

Assets designated at fair value

Cash and cash equivalents - - 2,200,385 2,200,385 2,200,385

Securities designated at fair value through profit or loss

4,271,478 - - 4,271,478 4,271,478

Derivatives - 166,832 - 166,832 166,832


- - 400 400 400

Buildings and land - - 42,958 42,958 42,958

Investment property - - 1,976,750 1,976,750 1,976,750

Non-current assets held for sale - - 334,424 334,424 334,424

Assets with fair value disclosed

Cash and cash equivalents 7,494,794 - - 7,494,794 7,494,794

Due from other banks - 8,999,808 - 8,999,808 8,999,808

Loans and advances to customers - - 32,704,664 32,704,664 32,458,158

Other financial assets - - 448,558 448,558 448,558

Liabilities designated at fair value

Derivatives - 4,205 - 4,205 4,205

Liabilities with fair value disclosed

Due to banks - 35,589 - 35,589 35,589 Due to customers - 52,488,347 - 52,488,347 52,488,347 Debt securities in issue - 44,937 - 44,937 44,937

Other financial liabilities - 724,703 - 724,703 724,703

Subordinated debt - 1,384,411 - 1,384,411 1,384,411


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Table 34.2. Income and expenses from transactions with related parties for 2019


ABH Holdings S.A.


Key management

personnel


Interest income - - - 24 676,929

Interest expense - - - (1,238) (21,996)

Fee and commission income 1,258 45 174 241 1,700

Fee and commission expense - - - - (57,020)

Net increase in provisions for impairment of interest financial assets

- - - (1) 13,470

Gain from securities at fair value through profit or loss

92,304 - - - 364

Gain from derivatives 191,014 - - - - Result from revaluation of derivatives 527,778 - - - - Result from operations in foreign currencies

- - - - 44,367

Result from revaluation of foreign currencies

60,494 - - - -

Net increase of provision for impairment of other assets

- - - - 7,832

Net decrease of provision for commitments

- - - - (235)

Net gain from derecognition of financial assets

- - - - 8

Other operating income and expense - - - 6 335,792 Administrative expenses - - - (1,236) (43,499)

Table 34.3. Other rights and obligations on transactions with related parties for 2019



Credit-related commitments - 10,000 Assets receivable under forward contracts carried at fair value through profit/loss 3,109,242 - Assets payable under forward contracts carried at fair value through profit/loss (3,109,242) - Guarantees received - (814,212)

Table 34.4. Aggregate amounts lent to and repaid by related parties during 2019

In thousands of hryvnias Key management personnel


Due from banks - 390,000 Repaid by banks - 5,563,872 Loans extended (4,312) (273,617) Loans repaid 4,283 254,474

Table 34.5. Outstanding balances with related parties for 2018


ABH Holdings S.A.


Key management

personnel


Cash and cash equivalents - - - - 1,132,574 contractual interest rate (%) - - - - 0.93

Due from banks - - - - 8,987,568 contractual interest rate (%) - - - - 10.25

Loans and advances to customers - - - 311 20,172 contractual interest rate (%) - - - 25.37 15.03

Other assets 68,557 2 - 1 21,496 Due to banks - - - - 19,468

contractual interest rate (%) - - - - 0.69

Due to customers 560 2,658 1,272 5,013 1,311,316 contractual interest rate (%) - - 0.01 5.37 1.29

Other liabilities 949 - - 5,653 10,363


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Table 34.6. Income and expenses from transactions with related parties for 2018


ABH Holdings S.A.


Key management

personnel


Interest income - - - 78 482,479

Interest expense - - - (1,180) (28,969)

Fee and commission income 917 1,656 142 219 2,415

Fee and commission expense - - - - (32,100)

Net increase in provisions for impairment of interest financial assets

- - - (3) 34,140

Gain /(loss) from securities at fair value through profit or loss

- - - - 2,764

Gain /(loss) from derivatives 8,205 - - - 7,397 Result from revaluation of derivatives 111,184 - - - 767 Result from operations in foreign currencies

- - - - 51,505

Result from revaluation of foreign currencies

(14,184) - - - (1)

Net loss from modification of financial assets

- - - - (2)

Net gain from derecognition of financial assets

- - - - 1

Net increase of provision for impairment of other assets

- - - - (2,517)

Other operating income and expense - - - - 307,675 Administrative expenses - - - (88,095) (118,231)

Table 34.7. Other rights and obligations on transactions with related parties for 2018


Інші пов’язані особи

Assets receivable under forward contracts carried at fair value through profit/loss 2,096,180 - Assets payable under forward contracts carried at fair value through profit/loss (2,096,180) - Guarantees received - (969,089)

Table 34.8. Aggregate amounts lent to and repaid by related parties during 2018

In thousands of hryvnias Key management personnel


Due from banks - (9,036,034) Repaid by banks - 2,446,799 Loans extended (3,207) (23,046) Loans repaid 3,393 499,684

Table 34.9 Key management compensation

In thousands of hryvnias

2019 2018

Expense Accrued liability Expense Accrued liability

Current payments (138,649) 7,072 (85,236) 2,193

35. Subsequent Events

Effect of coronavirus COVID-19 spread. On 11 March 2020 the Regulation of the Cabinet of Ministers of Ukraine # 211

“On preventing the spread of coronavirus COVID-19 on the territory of Ukraine” imposed restrictions on entities’ operation

and introduced quarantine measures. The Bank does not consider this event as an amendment that is able to adjust

information in these financial statements.

The immediate effects of coronavirus COVID-19 spread affected the physical channels of relationships and operations. In

response, the Bank has already implemented a number of counteractive measures to minimize the impact of quarantine on

customers (cash foreign currency purchase, introducing credit holidays and new remote service opportunities through

updated ALFA-MOBILE application, etc.); and employees (remote work for the majority of staff, protective equipment for

office personnel, additional paid leaves provided by the Bank).


63

The Bank is exposed to risks that are common for the entire banking system. At the same time, the vulnerability of each

banking institution to the consequences of COVID-19 shall be assessed on an individual basis, based on its organizational

structure model, the Bank's activity in individual markets, quality of asset and liability management, investment quality and

passive base stability.

For disclosure of subsequent events in these financial statements the Bank considered actual and projected outcomes of the

above factors on the financial position and performance of the Bank in the future.

In its assessments of the impact of macroeconomic indicators, the Bank used revised forecasts and assumptions of the

Government of Ukraine on the country's economic and social development for 2020. Expected indicators include: fall in

Ukraine’s GDP to 4.8%, the unemployment rate of 9.4%, and rise of inflation rate to 11.6%. Forecast of the dynamics of real

estate value on the basis of above macroeconomic indicators (using standard models based on the experience of economic

crises of 2008-2009 and 2014-2016 that are used by the Bank for stress testing) shows a possible 5-6 % decline in prices.

At the same time, the real estate market response to such macroeconomic changes is at least 3-6 months. Given the

possible property value fluctuations range to 10%, collateral revaluation for the purpose of calculating credit losses at the

date of approval of these financial statements is not reasonable.

According to preliminary estimates of the Bank, the increase in CoR (Cost of Risk) by the end of 2020 for corporate loans

may be 2 percentage points, for blank loans to individuals may increase by 4 percentage points, for other loans to individuals

the increase in CoR is estimated by the Bank as insignificant, including the impact of changes in macroeconomic indicators

on expected credit losses of loan portfolio as at 1 January 2020, excluding increased credit risk on the Bank's contractor’s

level, may amount to UAH 120 million loss.

The Bank's assumptions in the stress test calculations contain the above and significantly more conservative

macroeconomic indicators, for example, the Bank's own stress test included indicators of devaluation of the national

currency, which significantly exceed the values reviewed by the Government of Ukraine. According to the results of internal

stress testing, the Bank will comply with regulatory capital adequacy ratios.

The Bank considered the EUROPEAN BANKING AUTHORITY report “Statement on the application of the prudential

framework regarding Default, Forbearance and IFRS9 in light of COVID19 measures” dated 25 March 2020, and in doing so,

the Bank, similarly to the European banking regulator, does not consider performed restructuring as borrowers' default

indicators, and restructured loans as automatically “in default”. IFRS 9 contains some flexibility and does not set absolute

indicators of changes in credit risk. In each case of restructuring, it is necessary to separate the temporary inconveniences in

debt service related to quarantine from the actual deterioration of the credit quality of financial instruments.

The restructuring program introduced by the Bank for physical persons and individual entrepreneurs as a result of COVID19

provides for credit holidays for the period of quarantine for blank loans. The Bank provides credit holidays at the client's

request for 2 months and allow for deferral of two scheduled contractual payments of the client to repay debt. Credit holiday

program is available to customers with no past due payments as at 1March 2020. The total loan term is extended by 2

months, and accrued interest for holiday period is proportionally allocated to the remaining period plus additional two

months.

As at 15 of April the Bank restructured 14.5 thousand loan agreements for UAH 714 million. As at 15 April, due to restrictions

imposed by pandemic, the Bank restructured corporate loans portfolio in the amount of UAH 19.6 million. The restructure is

mainly related to deferring principal debt repayment.

The Bank's highly liquid assets continued to grow in the first quarter 2020. The LCR liquidity ratio increased from 245% at

the end of 2019 to 346% as at 1 April 2020, which is 3.5 times higher than the minimum required level set by the National

Bank of Ukraine. The Bank has a significant liquidity buffer to ensure timely settlement of all liabilities to customers, including

in the event of a possible increase in outflows of customer funds due to escalation COVID-19 spread and its impact on the

social and economic situation in the country. In addition, the National Bank of Ukraine supportive position toward the

banking system enables the Bank quickly and effectively respond to possible stress scenarios in the monetary market.

However, the Bank does not expect significant outflows of customer funds, given the specifics of pandemic crisis.

Systematic and timely powerful measures of the National Bank of Ukraine (including economy de-dollarization, prudent

strategy in applying monetary policy and discount rate) have a positive impact on the financial market of Ukraine, which

directly led to reduction in deposit interest rates for customers. The Bank does not expect realization of interest risk stress

scenarios in both, foreign and national currencies. Moreover, the Bank expects that interest rates on deposits in foreign

currency continue to decrease, which will have a positive effect on the Bank's interest margin. As for the value of savings in

hryvnia, the Bank assumes a possible slight increase in 2020, but without sharp and shocking changes. The impact of the

pandemic crisis on international financial markets, as well as the significant share of non-resident investors in hryvnia-

denominated government bonds, put significant pressure on Ukraine’s sovereign bond quotes.


64

The Bank expects significant negative changes in the yield on Eurobonds of Ukraine and government bonds, in particular for

government bonds denominated in hryvnia the Bank expects growth ranged from 5% to 8%, for bonds denominated in

foreign currency of 2% to 3%. However, a significant part of negatively revaluated security portfolios will be short-term.

The Bank plans to update its business plans, to formalize additional emergency measures in its internal regulations on going

concern, to develop specific measures for integrated credit risk management and to update credibility assessment strategies

to make decisions on extending loans, by introducing new approaches to detection, monitoring and measuring risk of

customers vulnerable to primary and secondary consequences of COVID-19 epidemic outbreak and to anticipate the

deterioration of their creditworthiness.

Financial instruments write-off. Prior to the date of approval of these financial statements, the Bank has written off

corporate loans and loans to individuals with a gross carrying amount as at 31 December 2019 of UAH 608,213 thousand

and UAH 166,572 thousand, respectively.

Uncertainty about future events. According to the management assessment the Bank may be largely affected by the

uncertainty, the outcome of which depends on future events that are not under the Bank's direct control but may affect its

financial statements in the future. The negative development of political situation, macroeconomic conditions and further

cooperation with the International Monetary Fund is possible and may adversely affect the financial position and

performance results of the Bank in the future, but it cannot be objectively estimated at present. It can firstly affect the

following items the Statement of Financial Position: "Loans and advances to customers", "Deferred tax asset" and "Equity".

Management monitors the current situation development and, if necessary, takes measures to minimize any negative

consequences as much as possible.

translation from ukrainian original - alfa-bank

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