Commentaries to Consolidated Financial Statements of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’and its Subsidiaries for the Year 2014

Dynamics of main components of assets and liabilities

(Analysison the basis of comparing balance indicators as of 31.12.2014 and 31.12.2013)

As of the year 2014, assets amounted to 3 885.8 billion rubles. Assets increased by 571.9 billion rubles (+17.3%) from the start of 2014.

The portfolio of loans extended to customers increased in 2014 by 796.0 billion rubles (+43.1%) to 2 643.0 billion rubles. The proportion of credits to customers in the assets of Vnesheconombank Group as compared to the start of 2014 increased from 56% to 68%.

The amount of funds with banks over the period under review decreased by 255.5 billion rubles (-58.9%) to 178.3 billion rubles which was brought about by Vnesheconombank’s repayment of subordinated loans with the par value of 279.0 billion rubles (the value in the financial statements as of 31.12.2013 was 260.8 billion rubles) extended in accordance with Federal Law dated October 13.2008 № 173-FZ “On Additional Measures for Supporting the Financial System of the Russian Federation” (hereinafter referred to Law № 173-FZ).

The following changes occurred in the resource base.

The amount of liabilities for 2014 increased by 770.2 billion rubles (+28.1%) to 3 507.3 billion rubles.

The amount of issued debt securities increased by 379.8 billion rubles (+63.0%) to 983.1 billion rubles) over the period under review. In June of 2014, bonds with the par value of 212.6 billion rubles were issued and placed. The remaining increase was caused mainly by the growth in the exchange rates of foreign currencies against the Russian ruble.

The debt to the Russian Government (including subordinated deposits stated in the financial statements as of 31.12.2014 separately) and the Bank of Russia decreased by 118.7 billion rubles (-12.1%) to 862.3 billion rubles.In June, Vnesheconombank repaid (including ahead of schedule) Bank of Russia deposits raised for implementing a program of rendering financial assistance to CJSC Svyaz Bank and JSC GLOBEXBANK with the par value of 212.6 billion rubles (the value in the financial statements as of 31.12.2013 was 205.4 billion rubles) which were replaced with funds received through the said issue of bonds.In September-December, due to the fact that the banks repaid early some subordinated loans worth 279.0 billion rubles extended by Vnesheconombank from financial resources of the National Wealth Fund in accordance to Law №173-FZ, National Wealth Fund deposits were early repaid in the said amount (the value in the financial statements as of 31.12.2013 was 261.8 billion rubles). In September of 2014, agreements on placing foreign currency deposits of the National Wealth Fund worth 6 254.0 million US dollars were early terminated.In accordance with Russian Government Decree dated September 6, 2014 №1749-r agreements on placing foreign currency deposits with Vnesheconombank from financial resources of the National Wealth Fund for a total amount 6 254.0 million US dollars were concluded. Out of them the funds in the amount of 5 966.0 million US dollars were placed on the terms of subordination in order to additionally capitalize Vnesheconombank (the value in the financial statements as of 31.12.2014 was 303.0 billion rubles).

Over 2014, the amount of funds in banks increased by 324.0 billion rubles (+47.2%) to 1 010.5 billion rubles which was mainly brought about by the growth in foreign currency exchange rates against the ruble.

The amount of customers’ funds increased by 105.4 billion rubles (+26.1%) and amounted to 508.7 billion rubles as of 31.12.2014. The increase was mainly caused by the growth in fixed-term deposits with subsidiary banks incorporated in Vnesheconombank Group.

The amount of liabilitiesunder financial leasing agreements increased by 65.4 billion rubles to 89.8 billion rubles.

Over 2014, the amount of capital decreased by 198.3 billion rubles (-34.4%) and as of 31.12.2014 it amounted to 378.6 billion rubles. The capital deceased due to the recognized loss of 249.7 billion rublesover 2014. The aggregated amount of the uncovered loss included income worth 25.2 billion rubles from the original recognition of foreign currency deposits placed with Vnesheconombank through using financial resources of the National Wealth Fund at a rate below the market level. Moreover, in December 2014, Vnesheconombank was provided with the subsidy from the Federal budget in the amount of 30.0 billion rubles to increase its authorized capital. As a result, the Bank’s authorized capital increased to 418.1 billion rubles.

Dynamics of main profit and loss components

(Analysis on the basis of comparing data for 2014 and 2013)

In 2014, Vnesheconombank Group recognized a loss of 249.7 billion rubles as compared to a profit of 8.5 billion rubles generated in 2013.

Net interest income amounted to 100.3 billion rubles, an increase of 1.3 billion rubles, (+1.3%) from the same period in the previous year (99.0 billion rubles).

Interest incomes increased by 36.6 billion rubles (+15.0%) from 2013 and amounted to 280.3 billion rubles for the most part as a result of the growth of 31.9 billion rubles in interest incomes to 182.5 billion rubles under credits to customers and a growth of 7.5 billion rubles to 34.2 billion rubles under financial leasing due to the increased volumes of the said transactions. At the same time, interest incomes on the funds with banks and their cash equivalents decreased by 4.3 billion rubles to 37.2 billion rubles.

Interest expenses increased by 35.3 billion rubles (+24.4%) to 180.0 billion rubles and interest expenses on funds raised from banks and the debt to the Bank of Russia increased by 16.3 billion rubles (+32.4%) to 66.7 billion rubles which was caused by the increase in average amounts of funds raised. Expenses on issued debt securities increased by 14.8 billion rubles (+48.0%) to 45.7 billion rubles which was also caused by the growth in the volumes of issued debt securities.

In 2014, as to transactions with financial instruments revaluated at fair value through profit or loss and transactions with financial assets as held for trading, a net loss of 10.3 billion rubles was recognized and it was caused by the market conditions against the net income in the amount of 69.7 billion rubles in 2013, with the income being generated through selling packages of bonds.

Incomes less expenses from the original recognition of financial instruments, changes in contractual terms and conditions and early repayment amounted to 57.9 billion rubles in 2014 (in 2013 – 8.5 billion rubles).

In 2014 as in 2013, there was a negative balance of incomes/expenses with regard to transactions in foreign currency in the amount of 35.0 billion rubles and 7.9 billion rubles respectively.

Other operational expenses increased by 9.0 billion rubles to 30.7 billion rubles in 2014 as compared to 2013.

The main reason for the negative financial result of Vnesheconombank Group’s activity in 2014 was expenses on forming reserves against depreciation of assets and other reserves. They amounted to 326.1 billion rubles against 127.1 billion rubles in the same period of 2013. The said expenses are associated with forming reserves under customers’ credits (in accordance with standard requirements stipulated in the procedures approved at Vnesheconombank), as well as under credits extended to fund the Olympic projects.