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

Dynamics of main components of assets and liabilities
(Analysis on the basis of comparing balance indicators as of 30.06.2015 and 31.12.2014)

As of the end of the first half year of 2014, the amount of assets decreased by 27.3 billion rubles (-0.7%) and was 3.858.5 billion rubles.

The portfolio of loans extended to customers and the portfolio of net investments in leasing decreased by 27.8 billion rubles (-1.1%) in the first half-year of 2015 and amounted to 604.2 billion rubles in the aggregate 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 2015 decreased slightly from 68% to 67%

The amount of monetary funds and their equivalents decreased from the start of 2015 by 14.1 billion rubles (-4.3%) and was 311.9 billion rubles. Amounts of cash funds and funds in correspondent accounts with banks in current accounts with other non-bank institutions decreased. Balances of funds in current accounts with the Bank of Russia as well as amounts of short-term (up to 90 days) interest-bearing loans and deposits placed with banks increased.

In the first half-year of 2015, reduction in the amount of financial assets transferred under loan agreements and put up as collateral under REPO agreements by 31.0 billion rubles with simultaneous growth in financial assets held to maturity by25.6 billion rubles was associated with the repurchase of bonds under direct REPO transactions.

The amount of funds with banks in the first half-year of 2015 increased by 17.2 (9.6%) billion rubles to195.5 billion rubles.

The following changes occurred in the resource base.

The amount of liabilities for the first half-year of 2015 decreased by 26.1 billion rubles (-0.7%) to 3 481.2 billion rubles.

The reduction in the amount of liabilities for the accounting period was caused for the most part by the reduction by 118.7 billion rubles (-11.8%) to 891.8 billion rubles of banks’ funds. The main reason for this was the fact that repayment amounts under agreements on long-term funding received from Russian and foreign banks exceeded the amounts of newly raised funds.

The debt to the Russian Government and the Bank of Russia increased by55.3 billion rubles (+9.9%) to 614.5 billion rubles. The main changes in the structure of the stated debt were caused by increased debt to the Bank of Russia (the amount of the Bank of Russia’s interest-bearing credits and deposits increased by 74.3 billion rubles and the amount of raised funds under REPO agreements decreased by31.3 billion rubles).

The amount of customers’ funds increased by 38.2 billion rubles (+7.5%) and amounted to 546.9 billion rubles for the first half-year of 2015.. The increase was mainly caused by the growth in the amount of balances in customers’ time deposits with subsidiary institutions incorporated in Vnesheconombank Group.

For the first-half of 2015, Vnesheconombank’s capital decreased by 1.2 billion rubles (-03%) to 377.3 billion rubles. The capital decreased due to the loss recognized by Vnesheconombank Group in the amount 73.5 billion rubles in the first half of 2015. Moreover, in the firs-half-year the foreign currency revaluation fund decreased by 11.2 billion rubles due to the fact that the Ukrainian hryvna fell against the ruble by 26%. An increase in Vnesheconombank’s authorized capital by 27.5 billion rubles had a significant positive influence. In accordance with Federal Law dated 02.05.2015 № 109-FZ “On the Specifics of Transferring Profit in 2015 that was generated by the Russian Central Bank in 2014”, in May of 2015, a monetary contribution in the amount of 15% of the profit generated by the Bank of Russia in 2014 was made to Vnesheconombank’s authorized capital. Moreover, additional capital included subsidies in the form of monetary contribution worth 10.0 billion rubles to purchase shares of JSC EXIAR to further increase JSC Roseximbank’s authorized capital and a contribution worth 2.3 billion rubles to purchase additional units of the closed share investment fund. Besides the listed factors a positive influence on the size of Vnesheconombank’s capital was exerted by a change in the unrealized revaluation of investment financial assets available for sale. In 2014, this indicator was negative (-13.9 billion rubles) but by the end of the first half of 2015 unrealized revaluation of investment financial assets was a positive value of 29.9 billion rubles. The said change in the unrealized revaluation (by 43.9billion rubles) was caused not only by the increased market value of the assets but to a large extent by reclassification of unrealized negative revaluation of bonds in the amount of 18.1 billion rubles with recognizing a loss from depreciation of the said bonds recognized in the loss and profit statement.

Dynamics of main profit and loss components
(Analysis on the basis of comparing data for the first half of 2015 and the first half of 2014)

In the first half-year of 2015, Vnesheconombank Group recognized a loss of 73.5 billion rubles as compared to a profit of 2.5 billion rubles generated in the first half-year of 2014.

Net interest income amounted to 41.2 billion rubles, a decrease of 6.7 billion rubles, (-14.0%) from the same period in the previous year (47.9 billion rubles).

Interest incomes increased by 32.0 billion rubles (+24.7.0%) from the first half of 2014 2013 and amounted to 161.2 billion rubles, for the most part as a result of the growth of 35.6 (+44.5%) billion rubles in interest incomes to 115.5 billion rubles under credits to customers caused but the increased portfolio of such credits as compared to the first half of 2014.

Interest expenses increased by 38.7 billion rubles (+47.6%) to 120.0 billion rubles. The growth was caused for the most part, by the increase in interest expenses on funds raised from banks and the Bank of Russia 17.2 billion rubles (+59.0%) and on issued debt securities increased by 14.9 billion rubles (+76.5%) which was also caused by the growth in the volumes and cost of raising the said funds.

In the first half of 2015, expenses on transactions with investment financial assets available for sale increased by 15.8 billion rubles to 19.2 billion rubles from the first half-year of 2014. In the accounting period a part of unrealized negative revaluation of bonds recognized earlier in the Bank’ capital was booked to expenses.

In the first half-year of 2015, net incomes from the original recognition of financial instruments, changes in contractual terms and conditions and early repayment amounted to 8 billion rubles. In the same period of 2014, such net incomes were recognized in the amount 81.0 t billion rubles. This was caused by the recognition of income in the amount of 82.9 billion rubles from the original recognition of bonds (the bond issue was worth 212. 6 billion rubles) placed in favor of the Bank of Russia with a below market coupon yield rate. The recognition of income in the first half of 2015 was caused for the most part by the recognition of income from rolling over the deposit of the Federal Treasury for a period of 10 years at a below market rate to fund through VEB’s subsidiary – JSC SME Bank banks and legal entities involved in supporting small and medium-sized enterprises

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

Non-interest expenses (except for expenses on forming other reserves and reserves against depreciation of other assets) decreased by 2.6 billion rubles to 31.1 billion rubles in the accounting period from the first half-year of 2014.

Expenses on forming reserves against depreciation of assets and other reserves amounted to 82.1 billion rubles in the first half-year of 2015 against 102.1 billion rubles in the same period of 2014.