Post on 07-Apr-2018
8/6/2019 Sbank Ar2006 Eng
1/48
8/6/2019 Sbank Ar2006 Eng
2/48
8/6/2019 Sbank Ar2006 Eng
3/48
Fresh Ideas. Mature Decisions.
8/6/2019 Sbank Ar2006 Eng
4/48
1 2 3
ontents:
08The Bank's Activities in 2006:Macroeconomic Environment
04 Introduction
122006 Financial Results.
The Bank's Funding Policy
Chairman's statement
General Information about the Bank
05
06
The Bank's Corporate Business
Services to IndividualsOperations in Securities Market
Interbank Cooperation
Regional Business
16
2223
26
27
8/6/2019 Sbank Ar2006 Eng
5/48
4 5
32The Bank's Financial Statementsand Independent Auditors' Report
28 Factors of SuccessRisk Management
Information Technologies
Personnel Policy
Working with the Community
29
30
31
31
Independent Auditor's Report on Financial Statements
(Russian Accounting Standards)
Independent Auditor's Report on Financial Statements (IFRS)
34
39
8/6/2019 Sbank Ar2006 Eng
6/48
4
Fresh Ideas. Mature Decisions.
8/6/2019 Sbank Ar2006 Eng
7/48
Dear friends and colleagues,
the year of 2006 became strategically important
for Sudostroitelny Bank that reached a new mile-stone in its development marked by the Bank's
internal and external renewal.
In the past year Sudostroitelny Bank and De-
loitte&Touche, an international consulting com-
pany, made a joint effort to complete developing
the Bank's medium term strategic prospect and
took into account the current banking trends and
global successful business achievements in the
financial market. We will follow this strategy andcontinue our evolution as a dynamic, highly prof-
itable bank primarily oriented towards servicing
small and medium businesses, their owners and
employees.
To effectively compete in banking markets and
maintain fast pace of development the Bank
needed its own strong and instantly recognisable
brand which led to the Bank's re-branding cam-
paign. We strove to emphasise the Bank's being
up-to-date, dynamic and emotionally open and
its experience in state-of-the-art information
technologies. The very first stage of the re-bran-
ding campaign proved our happy choice: the
brand awareness grew considerably.
Generally, in 2006 we managed to reach high
business growth rates: the Bank's assets
incr eas ed b y mo r e than 30% ex ceed ing
RUR 33.7bn, the equity capital grew up to
RUR 3.3bn, the loans to corporate customers and
individuals reached RUR 11.7bn.
Loans in the open market were one of the major
resources of raised funds in 2006. We succeed-
ed in placing our first bond loan to the amount ofRUR 1.5bn and started the practice of raising
funds in international markets issuing Loan
Participation Notes. The increased market loans
encouraged further diversification of the Bank's
liabilities and growth of the long-term resources
necessary for implementing projects in the busi-
ness sector.
In the near future we set out to keep the high
growth rates. We will continue to expand our pres-ence in Moscow region and other Russian cities
with particular attention to maintaining the Bank's
position as one of the market leaders in mortgage
and small and medium business lending.
In conclusion, I would like to express my grati-
tude to Sudostroitelny Bank's shareholders and
customers for their trust and readiness to search
and move forward. My special thanks go to all
the Bank's go-ahead and responsible employees
for their persistence, dedicated care and creativ-
ity in achieving objectives that are not always
simple. I hope that we will successfully imple-
ment our most ambitious plans.
Alexey Golubkov
Chairman of the Management Board
51 CHAIRMAN'S STATEMENT
ANNUAL REPORT 2006
8/6/2019 Sbank Ar2006 Eng
8/48
Sudostroitelny Bank (LTD) Russian private commercial bank
Established July, 1994
General license of the Central Bank of the Russian Federation 2999
Full-service bank for small and medium businesses
RATINGS:
Moody's Investors Service
Long-term foreign currency deposit rating B3
National scale rating Baa2.ru
Ratings outlook StableTop-50 among Russian banks by assets and equity
40th by Tier I capital The Banker, November 2006
48th by assets The Finans magazine, February 2007
Top-10 in FOREX market in Russia (RUR/USD trades at MICEX)
Top-15 by business activity The Expert magazine, March 2006
Top-15 by LORO account balances of other Russian banks
MEMBERSHIP AND PARTICIPATION IN PROFESSIONAL ORGANISATIONS:
Deposit Insurance System,
Moscow Interbank Currency Exchange,Moscow International Currency Association,
Russian Regional Banks' Association,
SWIFT,
VISA International, Sublicense of Diners Club International,
Member of a payment system Customs Card,
the authorized bank of the Federal Customs Service of Russia.
BRANCHES :
the head office and three additional offices in Moscow (including 1 office in Zelenograd)
the branch in Saint Petersburg
the credit and cash office in Nizhny Novgorod
the representative office in Ekaterinburg
NUMBER OF EMPLOYEES:
more than 350
6 1 GENERAL INFORMATION ABOUT THE BANK
General Information about the Bank
8/6/2019 Sbank Ar2006 Eng
9/48
7
ANNUAL REPORT 2006
1 GENERAL INFORMATION ABOUT THE BANK
CUSTOMERS:
Corporate customers consumer goods manufacturers, wholesale and retail companies, transport
companies, construction companies, investment and financial institutions,
insurance companies, development companies, telecommunications compa-
nies, consulting companies.
Private customers business owners, senior managers of the Bank's corporate customers, upper
middle-class population.
Individual customers employees of the Bank's corporate customers, customers by the Bank's
mortgage programs.
THE BANK'S OWNERS:
5 companies each holding a 20% stake. The beneficiaries of the companies are 12 private persons. The maximum share of each owner does not
exceed 17%; over 64% is controlled by the Bank management.
THE BOARD OF DIRECTORS:
Chairman of the Board of Directors Leonid Tyukhtyaev
There are 2 independent directors (citizens of Cyprus and Switzerland)
THE MANAGEMENT BOARD:
Chairman of the Management Board Alexey GolubkovMembers of the Management Board:
First Deputy Chairman Dmitry Kunda
Deputy Chairman Andrey Egorov
Deputy Chairman Andrey Vovchenko
Deputy Chairman Vasily Melnikov
Deputy Chairman Sergey Panteleev
Deputy Chairman Yaroslav Steshko
Deputy Chairman, Head of Internal Control Alexander Titovets
Chief Accountant Elena Zubova
The Bank's top management has not changed since 2001.
8/6/2019 Sbank Ar2006 Eng
10/48
8
Fresh Ideas. Mature Decisions.
8/6/2019 Sbank Ar2006 Eng
11/48
9
2006 was a year of success for Russian econo-
my in general and banking sector in particular.
The stability of the core financial market seg-
ments, high level of business activity in various
sectors of the country's economy, favourable
global economic conditions contributed to the
positive macroeconomic trends.
The further inflation slowdown was one of the
most important results of the past year. Thus, the
consumer price growth rate in the reporting year
was 9% compared to 10.9% in the preceding
year. It is worthy of note, that inflation was
decreasing against a background of the signifi-
cant rise in the monetary aggregates (M2
increased by 48.8%) and that was mostly attrib-
uted to the high economic growth and increasing
demand for the national currency from all eco-
nomic participants.
GDP growth continued to stay at high levels
6.7%, and the index of industrial production
remained almost unchanged at 103.9%.
According to experts' opinions, the GDP growth
was mainly due to rising domestic demand for
local goods and favourable conditions in the
global commodity markets. For instance, prices
of Urals oil went up by 21% on average, oil prod-
ucts by 19%, natural gas in Europe by 34%,
non-ferrous metals 50%.
The steadily high inflow of export revenues
and, therefore, of foreign currency in the domes-
tic market encouraged strengthening the
Russian ruble exchange rate against the dollar-
euro currency basket and increased Russia's
gold and foreign currency reserves. In the course
of 2006 Russian international reserves incre-
ased by 67% and reached USD 303.7bn as at
2The Bank'sActivities in 2006:
MacroeconomicEnvironment
8/6/2019 Sbank Ar2006 Eng
12/48
10
1 January 2007. The sharp strengthening of
Russian ruble, resulted from the external trade
surplus (the 2006 annual export volumeequalled USD 304.5bn compared to the import
volume of USD 163.6bn), was prevented by the
Central Bank of the Russian Federation. The
Central Bank that was the major foreign currency
buyer levelling up currency exchange rate fluctu-
ations. For the reporting period the nominal ruble
exchange rate against US dollar grew by 9.6%,
against euro fell by 1.7%; the real ruble
exchange rate against US dollar grew by 16.7%,
against euro 5.6%.
Investment climate in Russia improved and
investment (both foreign and domestic) to the
production sectors of economy increased due to
macroeconomic stability. By comparison with the
previous year, equity investments grew 13.7%. In
addition, 2006 brought portfolio investors'
strong interest in shares of Russian companies
which caused their considerable price increase.
As at the end of 2006 the Russian Trading
System Index reached its historical maximum
and exceeded 1900 points; thus, for the report-
ing year the RTS Index rose by more than 60%.
The economic growth in the production sector,
services and trade was accompanied by rising
demand for various financial institutions' prod-
ucts and banking development in general. Thus,
the reporting year saw the substantial capitalisa-
tion growth of the Russian banking system. As at
the end of 2006 the total equity capital of domes-
tic banks grew by 36.3% to RUR 1.69 trillion (cor-
respondingly, from 5.7% to 6.4% of GDP). The
increase in their assets was even more impres-
sive totalling 44% of GDP from RUR 9.75 trillion
up to RUR 14.05 trillion.
Maintaining stability in the financial sector of
the economy and increasing the population's
disposable income contributed to the attractive-
ness of bank deposits. For the reporting period
the volume of funds placed on time depositaccounts for a period of 31 days 1 year rose by
19.5%, over 1 year 41%. At the same time it
should be noted that raised funds from individu-
als were mainly in the national currency. As at
the end of 2006 the volume of RUR funds placed
on time deposit accounts for a period of 31 days-
1 year grew by 37.3%, when the volume of cur-
rency deposits fell by 22.5%; RUR deposits for
over 1 year rose by 53.5% when the volume of
currency deposits dropped by 0.7%.
The increased long-term liabilities in the
structure of bank funding encouraged bank
loans. In the reporting year the loans granted by
financial institutions to companies and individu-
als grew by 47.3% and exceeded RUR 8 trillion.
Thus, share of loans given to non-financial sec-
tor relative to GDP reached 30.2%, and relative
to total bank assets 57.2% (in the previous
year 25.2% and 55.9%, three years ago
20.3% and 47.9%).
In spite of the growth in the number of bank
loans, the quality of bank loan portfolios remained
quite high. As at the end of 2006 the amount of
overdue loans to companies was 0.7% of the total
loan portfolio of the banking sector (in the previ-
ous year 0.8%); at the same time the consumer
lending rose from 0.3% up to 0.6%.
During the reporting period the smooth
decrease in the number of credit institutions con-
tinued: reduced by 64, by the end of December
2006 there were 1189 institutions. Meanwhile,
it led neither to any negative consequences for
people nor to the destabilisation in the banking
sector. The stable financial market and high bank
liquidity facilitated activity in the interbank mar-
ket and mutual credit lines. The total amount of
2 THE BANK'S ACTIVITIES IN 2006: MACROECONOMIC ENVIRONMENT
8/6/2019 Sbank Ar2006 Eng
13/48
112 THE BANK'S ACTIVITIES IN 2006: MACROECONOMIC ENVIRONMENT
ANNUAL REPORT 2006
funds granted to banks by other credit institu-
tions increased by 59.2% to RUR 1.73 trillion as
at the reporting date.The positive economic trends, stable macro-
economic environment in the country encour-
aged Sudostroitelny Bank's long-term business
progressive development programme, raising
considerable resources in the open market tofinance companies, introduction of new promis-
ing products for its customers and partners.
8/6/2019 Sbank Ar2006 Eng
14/48
12
Fresh Ideas. Mature Decisions.
8/6/2019 Sbank Ar2006 Eng
15/48
13
32006 FinancialResults. The Bank's
Funding Policy
The Sudostroitelny Bank's financial highlights
illustrate its active development. The Bank's
assets grew 35.9%, exceeding RUR 33bn,
which demonstrated maximum growth in the
past three years. The equity also grew and
reached RUR 3.28bn as at 1 January 2007.
The Bank's high efficiency is proved by the
profit growth as well: for the reporting period it
increased by 21.1% and exceeded RUR 404m;
the net profit amounted to RUR 358.3m. 2006
saw the Bank's further improvement of operat-
ing efficiency and profitability: the income-cost
ratio was one of the lowest indicators in the
Russian market and amounted to 33.7%.
Last year the major part of the Bank's liabili-
ties consisted of customer (37.8% of the total li-
abilities as at the end of the year) and corre-
spondent banks' (27.6% of the total liabilities as
at the end of the year) balances. The increasing
popularity of time deposits became a positive
trend: for the reporting period the volume of indi-
vidual time deposits for a period from 6 months
to 1 year grew 2.5 times and reached RUR
628.3m, for a period from 1 year to 3 years by
22.4% to RUR 52m; the total time deposits of dif-
ferent customer groups increased 4.4 times to
RUR 2.14bn. The total amount on the current
and deposit accounts of the Bank's corporate
and private customers reached RUR 10.9bn as
compared to RUR 6.8bn in the previous year.
Loans in the open market were one of the
major resources of raised funds in 2006. In order
to increase its long-term funding necessary to
implement its loan programs, the Bank utilised
various borrowing instruments: the issue of
a domestic ruble-denominated bond, issue of
8/6/2019 Sbank Ar2006 Eng
16/48
a Eurobond in the international markets, its own
promissory note programe. As at 1 January
2007, the volume of the notes issued by the
Bank amounted to RUR 6.5bn (with the rate
decreased from 11.5% to 9.75% p.a.).
In the third quarter of 2006 the first issue of
Sudostroitelny Bank's bonds with nominal value
of RUR 1.5bn was placed successfully among 50
investors; the first and the second coupon rates
were set up 10.5%. In December 2006 the Bank
started to raise funds in international markets,
establishing a USD 200m Loan Participation
Note (LPN) program. The program was arranged
by BCP Securities, LLC.; the first issue amounted
to USD 11m. Thus, the total amount of the
Bank's own securities in circulation grew almost
1.5 times and exceeded RUR 8 trillion. For the
whole reporting period the Bank's long-term lia-
bilities rose by over 37.2%. The considerable part
of the Bank's funds is placed as loans to corpo-
rate customers and individuals. As at the end of
the reporting year the Bank's loan portfolio grew
by 75.3% and exceeded RUR 16.3bn; the share
of loans in the Bank's total assets reached
almost 50%. The loans were also responsible for
the major part of the Bank's revenues 69.4%.
The Bank's investments in the stock market
instruments made up a sizable part in the struc-
ture of its assets. As at the end of the year the
securities purchased by the Bank equalled
14.4% of its assets, and the total income from
the Bank's activities in the stock market totalled
19.1% of the net operating income. As at 1 Ja-
nuary 2007 the Bank's investment portfolio
exceeded RUR 4.7bn.
The liquidity management has been tradition-
ally important for the Bank's funding policy.
Having highly liquid securities of reliable issuers
in its investment portfolio and maintaining con-
siderable balances on accounts with the Central
Bank of the Russian Federation (as at 1 January
2007 RUR 5.6bn) provided for the Bank's high
liquidity.
14 3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY
8/6/2019 Sbank Ar2006 Eng
17/48
153 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY
ANNUAL REPORT 2006
Equity Capital (RUR bn)
2006
2005
2004
2003
2002
33.8
24.9
19.1
14.3
8.8
Assets (RUR bn)
2006
2005
2004
2003
2002
3.3
3.2
3.0
2.7
1.7
Net Profit (RUR m)
2006
2005
2004
2003
2002
405
333
282
110
24
Profit (RUR m)
2006
2005
2004
2003
2002
358
321
278
106
21
Dynamics of Amounts on Customers Accounts (RUR bn)
2006
2005
2004
2003
2002
16.3
9.3
6.5
3.4
2.1
Loans (RUR bn)
2006
2005
2004
2003
2002
11.0
6.8
4.7
3.2
1.8
Source (here and further): Financial Statements of the Bank in accordance with RAS, audited
8/6/2019 Sbank Ar2006 Eng
18/48
3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY16
The Bank's CorporateBusiness
Dynamics of Securities Issued by the Bank (RUR bn)
2006
2005
2004
2003
2002
8.0
5.4
2.6
1.4
0.5
Delivering a full array of high quality financial
products to companies has been one of the
Bank's key tasks for the years of its operations.
In the past year the Bank particularly focused on
its customer service enhancement, introduction
of state-of-the-art banking technologies, devel-
opment of new products and services.
2006 saw the continued increase in the num-
ber of the Bank's customers. As at the end of
the reporting period the Bank opened over
7500 accounts of corporate customers; the bal-
ances on their accounts grew more than 1.5 ti-
mes over the past year from RUR 6.3bn to
RUR 9.6bn. Besides, the Bank continued to
diversify its customer base, each sector having
no more than 7% in it.
Among our customers there are consumergoods manufacturers, wholesale and retail com-
panies, construction and transport companies.
20% of the Bank's customers fall at wholesale
and retail companies, including such well-
known Russian chain stores as Wild Orchid,
Econika, Baltman, Caligula, Nezhny Vozrast,
Magnolia, and dealerships for Bentley, Ferrari,
Harley-Davidson, etc.
The Bank has long been servicing transport
companies, including such long-term customers
as Airport Ramenskoye, the Air Cargo Carriers
Association, Tesis cargo airline, Dobrolyot airline,
Russian Sky Airlines, F.E. Trans, MTC UniTrans.
The Bank's cooperation with production com-
panies has always been strategically important:
Temp Moscow radio manufacturing plant,
Lytkarino Optical Glass Factory, Dmitrov Experi-
mental Engineering Plant, Zavod Izmeritel, Zavod
Komponent, Electroshield, Zavod Micropribor.
Providing services for companies engaged in
investment, finance, insurance, development,
telecommunications, consulting has always
been essential for the Bank's operations: the
Expert magazine, Eksmo publishing house, City-
XXI construction company, UNICOMM, UniversalFinancial Systems, Kimberly Land fitness centre,
Eurasian Pipeline Consortium ZAO, Proffessional
Hockey League, Zurab Tsereteli's Studio, quite a
few insurance companies (Ingosstrakh, Rostra,
ESCO, TNP-Garant, Pomosch, Priroda, UNISO,
Sotsium, etc.).
The Bank's further improvement of its product
range, introduction of new and innovative prod-
8/6/2019 Sbank Ar2006 Eng
19/48
3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY
ANNUAL REPORT 2006
17
ucts and services to meet needs of various com-
panies, invariably high quality contributed to the
increase in the number of the Bank's customers.
The Bank's distinguishing features have always
been its special attention to the individual cus-
tomer's demands, maintaining close and trusting
partner relationships. Over the reporting year the
Bank's experts undertook research into the corpo-
rate customers' requirements and their business
characteristics in order to offer them the very
selection of the Bank's services to highly promote
their business development and financial stability.
Thus, in 2006 the Bank's competitive rates
(particularly attractive terms for payroll solu-
tions), its flexibility and mobility in granting loans
provided an inflow of new customers.
Dynamics of Balances on Corporate Customers Accounts (RUR bn)
2006
2005
2004
2003
2002
9.6
6.3
4.4
3.1
1.7
8/6/2019 Sbank Ar2006 Eng
20/48
3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY18
Structure of Balances by Sectors
as at the end of 2006
Insurance 4.9%
Financial 8.1%
Telecommunications 3.4%
Leasing 4.2%
Industrial Construction 4.9%
Transport 8.4%
FMCG Manufacturing 7.8%
Other 6.6%
7.8% Wholesale Trade
3.5% Services
6.5% Industry
5.1% Construction
4.7% Real Estate
8.2% Retail Trade
13.3% Individuals
2.4% Consulting
8/6/2019 Sbank Ar2006 Eng
21/48
ANNUAL REPORT 2006
193 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY
Payment Services
The invariably high quality of its payment and
cash services is one of the Bank's competitive
advantages. In the past year the Bank settled
its customers' accounts through both the
Central Bank payment system (the payment
processing centre) and its own wide correspon-
dent network.
The high-grade and rapid settlements in for-
eign currency were attributable to the Bank's
successful work in SWIFT and its correspondent
accounts with the best foreign clearing banks.
The customers' demand for services to man-
age their accounts without visiting the Bank's
offices personally grew substantially in 2006.
24/7 on-line access to account information and
financial transactions SBANK.RU allows the
customers in a real-time mode to see their
account activity (including crediting) and send
payment documents to the Bank for their pro-
cessing within the operation day. Foreign
exchange operations performed by the Bank
according to its customers' requests were sub-
stantial in the reporting year. Over the past year
the Bank was one of the most active trading par-
ticipants at the Moscow Interbank Currency
Exchange (MICEX). The Bank's turnover in inter-
national currency markets also increased. The
total volume of the Bank's currency purchase
and sale operations increased by 2.2 times com-pared to the previous year and equalled USD
1.24bn.
Due to the cooperation with retail and services
companies, the Bank continued to develop its
acquiring services. In 2006 the number of such
contractors increased by 5% and exceeded 450.
The acquiring turnover increased by 38% and
reached RUR 1.37bn.
An increasing emphasis was placed on payroll
programmes in the reporting period. Sudostro-
itelny Bank issued about 2000 VISA payroll
cards.
Corporate Lending
In the past year Sudostroitelny Bank continued
to provide various lending solutions to its corpo-
rate customers. As at the end of the reporting
period the overall volume of loans granted to
companies reached RUR 10.7bn the bulk of
which went to production, trading and construc-
tion companies. At the same time the structure
of the loan portfolio remained diversified, each
sector having no more than 15%.
Strong demand for the Bank's loan products
was attributable to their attractive terms and the
Bank's flexible approach to each customer. The
Bank's employees not only checked potential
borrowers' credit rating but also assisted them in
choosing the best loan product in accordance
with their business characteristics and further
development prospects. The Bank worked out
special loan terms for each company individually.
The most popular loans were classical commer-
cial loans, overdrafts on current accounts, and
credit lines.
When granting loans, the Bank paid special
attention to the borrower's repayment abilities,
credit history and business reputation, exercisedextreme caution when managing loan-specific
risks and required guarantees and different
forms of collateral. All through the crediting peri-
od the Bank monitored borrowers' financial posi-
tion in order to timely identify problems and solve
them as appropriate.
The improved loan portfolio quality resulted
from the Bank's well-considered policy. In 2006
8/6/2019 Sbank Ar2006 Eng
22/48
3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY
bad debts in the Bank's loan portfolio decreased
by 5 times down to 0.14% of the overall granted
loans.
Small and medium business remained strate-
gically important for the Bank's activities in
2006. The Bank paid special attention to its
product line renewal and standardisation of loan
products and service conditions for such cus-
tomers.
Customer International Economic
Activity Servicing.
Trade Finance
Sudostroitelny Bank's customer international
operation servicing is one of the Bank's promis-
ing activity. The Bank's considerable internation-
al prestige, correspondent relations with the
largest international banks, ability to effect high
quality and rapid foreign currency exchange set-
tlements makes it possible to offer advanta-
geous terms for export and import payments and
build a strong demand for such services from
companies of different sectors.
In the past year the Bank effected all kinds of
documentary operations, including import letters
of credit with financing and confirming letters of
credit and guarantees by first-rate western
banks. The Bank's customers were especially
interested in payments by letters of credit stipu-
lating for short-term finance of trade contracts(documentary letters of credit, letters of credit
with post-financing, standby letters of credit) and
guarantee operations (guarantees of payment,
performance guarantees, advance repayment
guarantees, tender guarantees, customs guar-
antees, etc.)
The total volume of credit lines for documen-
tary operations opened to Sudostroitelny Bank
exceeded EUR 40m. The overall volume of the
Bank's operations relating to these products
equalled more than EUR 30m.
The major part of export contracts serviced by
the Bank went to the food industry and publish-
ing; the imported products included equipment,
food, home appliances, cars, consumer goods,
construction materials.
Remaining a leading operator in the foreign
currency exchange market (the Bank's daily
turnover in the ruble-dollar market is about
USD 300-500m), Sudostroitelny Bank provided
its customers with the most favourable terms
for foreign exchange transactions to complete
their external trade contracts in dollars, euros,
the CIS currencies. While purchasing and sell-
ing foreign currency for its customers both in
the domestic currency market and in the
FOREX market, the Bank offered the best ex-
change rates.
The past year also saw the significantly incre-
ased demand for Customs Card services. The
card allowed the Bank's customers to pay fees,
excise payments, customs duties, fines directly
in the course of customs clearance which sub-stantially facilitated their export and import ope-
rations.
20
8/6/2019 Sbank Ar2006 Eng
23/48
3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY
ANNUAL REPORT 2006
21
Structure of Loan Portfolio by Sectors
as at the end of 2006
Industrial Construction 4%
Individuals 5%
Financial 5%
Wholesale Trade 7%
Industry 9%
Rent 12%
Other 4%
Insurance 1%
Advertising 2%
5% Construction
5% Pipelining
7% Entertaining
8% Leasing
9% Consumer goods
15% Retail Trade
1% Publishing
2% Transport
22
8/6/2019 Sbank Ar2006 Eng
24/48
3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY22
Sudostroitelny Bank's services to individuals
continued their dynamic development in the
reporting year. By the end of the reporting period
the balances on the individuals' accounts
increased by 2.4 times; as at 1 January 2007 the
Bank had 18,600 accounts opened by individu-
als. The total volume of the raised funds in rubles
and foreign currency from individuals reached
RUR 1.24bn, about 80% of which went to ruble
deposits. Thus, the volume of individuals' funds
in the Bank's total liabilities amounted to 5.9%
The increase in the raised funds was mainly
due to growing time deposit accounts. In the
reporting year the Bank offered a number of
diverse deposit programs for individuals. Sudo-
stroitelny Bank's attractive terms, high quality
service, participation in the Deposit insurance
System encouraged individual customers' loy-
alty to the Bank. Over 2006 the volume of the
individual time deposits increased by 3.1 times
up to RUR 1.06bn. As at the latest reporting
date 59.4%, or RUR 628.3m, went to the
deposits for a period from 6 months to 1 year;
the volume of deposits for a period of more
than a year reached RUR 55.9m.
The growing number of card holders promoted
the increase in demand accounts. In 2006 the
Bank doubled its issue of Visa International and
Diners Club cards; the balances of the card
accounts grew more than 3.5 times.
The volume of operations via SBANK.RU PRIVATE
on-line access system substantially increased in
the past year. Its further upgrading and populari-
sation facilitated increasing demand for a num-
ber of the Bank's services and optimised individ-
uals' service expenses.
In 2006 Sudostroitelny Bank went on with its
active development of lending programmes for
individuals. As at the end of the year the volume
of loans granted to individuals more than tripled
and reached RUR 991.4m, making it 8.5% of the
Bank's loan portfolio compared to 4.8% in the
previous year.
The mortgage programs launched in 2006
were of great significance to the Bank that grant-
ed 46 mortgage loans totalling USD 8.1m.
Services to Individuals
233 2006 FINANCIAL RESULTS THE BANK'S FUNDING POLICY
8/6/2019 Sbank Ar2006 Eng
25/48
233 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY
ANNUAL REPORT 2006
Dynamics of Individuals Accounts Balances (RUR m)
2006
2005
2004
2003
2002
1 239.1
418.0
213.6
52.8
73.9
Private Banking
Being part of the private banking program and
including a wide range of financial, advisory and
other products, the Bank's full and integrated
service to its well off customers was of great
importance in 2006. This made it possible for
the Bank's VIP customers to entrust their current
financial issues to their personal managers, thus
substantially saving their time and effort and
optimising their financial flows.
Sudostroitelny Bank's private banking servic-
es were in strong demand from numerous top
managers, owners of companies that were the
Bank's corporate customers, representatives of
the higher level of the Russian middle class. By
the beginning of 2007 the Bank served more
than 1200 VIP customers.
The Bank's private banking program included
both its standard banking services enhanced
according to the well off customers' needs and
innovative products. The past year saw the massive
increase in Visa Gold and Diners Club cards issued
by the Bank. In the near future the Bank is planning
to enlarge an array of financial consulting and asset
management services to these customers.
In 2006 Sudostroitelny Bank remained a major
participant in the securities market. Comparedto the previous year the total volume of its secu-
rities trading grew by 15% up to RUR 46.2bn.
The Bank's increasing presence in interna-
tional stock markets was one of its major objec-
tives in the past year. Thus, it gained direct
access to European stock exchanges via UBS
Investment Bank (London) the largest invest-
ment bank that set the limit of EUR 100m on
Sudostroitelny Bank. At present the Bank is able
to operate with assets at all European stockexchanges: Eronext, LSE, Xetra, Virt-x (in Spain,
Germany, Switzerland, Italy).
In 2006 the Bank started to increase fee
income in the total income from stock market
operations in accordance with the Board of
Directors' decision and paid special attention to
its brokerage services and development of new
integrated products to completely meet its
Operations
in Securities Market
2 2006 24 3 2006 FINANCIAL RESULTS THE BANK'S FUNDING POLICY
8/6/2019 Sbank Ar2006 Eng
26/48
2 2006 24
Dynamics of Corporate Bonds Portfolio (RUR m)
2006
2005
2004
2003
2002
1 392
622
538
448
92
Dynamics of Portfolio of Other Issuers Securities (RUR m)
2006
2005
2004
2003
2002
2 929
2 185
923
698
250
3 2006 FINANCIAL RESULTS. THE BANK S FUNDING POLICY
corporate and individual customers' needs. In
December 2006 the Bank put into operation
QUIK Internet trading system and started provid-
ing its customers with access to GL Trade plat-
form. This made Sudostroitelny Bank a major
broker in Russia according to the Kommersant-
BUSINESS GUIDE rating.
By using its financial instruments, the Bank
participated in netting schemes on behalf of its
customers (repayment of amounts due to budg-
ets of different levels, repayment of amounts
payable, etc.). Its considerable experience in the
promissory note market provided the Bank's
customers with a wide breadth of the relevant
services (purchase and sale, REPO operations).
The Bank also performed as an arranger of loans
for its customers including loans secured by the
customers' promissory notes or bonds.
The efficient management of its investment
portfolio was still one of the main issues for the
bank. As at the end of the reporting period the
portfolio increased by 34% and exceeded RUR
2.9bn. The Bank pursued the well-balanced
policy in placing its resources and giving pref-
erence to highly liquid securities of reliable
issuers. As at the end of the year the substan-
tial part of the portfolio included promissory
notes of top banks (36%), corporate bonds
(24%) and the US Treasury notes (28%). The
volume of securities issued grew by 28.9%
making it 61.7% of the total investment in
securities.
In 2006 Sudostroitelny Bank substantially
increased its presence in the REPO market. As at
the end of the reporting period its turnover
equalled RUR 9.75bn.
253 2006 FINANCIAL RESULTS THE BANK'S FUNDING POLICY
8/6/2019 Sbank Ar2006 Eng
27/48
ANNUAL REPORT 2006
253 2006 FINANCIAL RESULTS. THE BANK S FUNDING POLICY
Structure of Securities Portfolio
as at the end of 2006
US Treasury notes 28%
Bonds issued by banks 5%
Shares of companies 2%
Promissory notes
of companies 3%
Securities purchased
2% under repo
Bonds issued
24% by companies
36% Promissorynotes of banks
26 3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY
8/6/2019 Sbank Ar2006 Eng
28/48
Over the reporting year the Bank continued its
active cooperation with financial institutions,
paying special attention to long-term partner
relationships with the largest banks worldwide,
including the CIS and Baltic States, and develop-
ment of correspondent network according to its
business requirements and customers' needs.
In 2006 the Bank established correspondent
relations with three credit institutions and
opened eight NOSTRO accounts. Thus, as at
1 January 2007 the Bank had 72 NOSTRO
accounts with 38 correspondent banks. The
overall balance on NOSTRO accounts more than
doubled and reached RUR 6.3bn.
Being one of the main settlement banks for
Russian medium-scale financial institutions and
providing a significant number of international
settlements for the domestic credit institutions,
the Bank had maintained LORO accounts for 200
banks. Over the reporting period the Bank
opened 90 LORO accounts; as at the end of the
reporting year the Bank had 455 LORO accountsopened for the domestic and foreign banks.
Many reliable credit institutions, both Russian
and overseas, including Gazprombank, Interna-
tional Moscow Bank, TransCreditBank, Absolut
Bank, Promsvyazbank, Bank Petrocommerce,
NOMOS-BANK (Moscow), Tatfondbank (Kazan),
Rossiya Bank (Saint Petersburg), Khaanty-Mansi
Bank (Khanty-Mansiysk), Siboilbank (Tyumen),
Bank Forshtadt (Orenburg), Omsk-Bank (Omsk),
Ursa-Bank (Novosibirsk), Koltso Urala Bank
(Ekaterinburg), First United Bank (Togliatti),
Center-invest Bank (Rostov-on-Don), Alliance
Bank (Kazakhstan), Eurasian Bank (Kazakhstan),
PrivatBank (Ukraine), Donghorbank (Ukraine),
Deutsche Bank, Dresdner Bank, Commerzbank
(Germany), American Express Bank, National City
Bank (USA), Banque de Commerce et Placements
(Switzerland) are among our partners. The Bank
was also establishing and developing relations
with other financial institutions of the USA, Japan,
Europe, South East Asia and Latin America.
The expansion of the correspondent network
helped the Bank to fully and completely meet the
needs of its customers and partners that use
international settlement products, cut costs and
increase efficiency of settlements for customers
engaged in international economic activity. Thus,
the Bank considered it extremely important to
have the agreements on trade finance, money
markets and foreign exchange operations with a
number of foreign correspondent banks.In 2006 by obtaining loans from large and
medium-scale Russian banks and placing signif-
icant funds with reliable Russian and foreign
financial institutions, Sudostroitelny Bank
remained one of the most active players in the
interbank lending market; its annual turnover in
this market was about RUR 4.5 trillion. The Bank
signed 51 General Interbank Cooperation Agree-
ments making the total number 436.
Interbank Cooperation
273 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY
8/6/2019 Sbank Ar2006 Eng
29/48
ANNUAL REPORT 2006
Regional Business
Dynamics of Interbank Loans Granted (RUR bn)
2006
2005
2004
2003
2002
6.3
3.1
4.0
3.3
4.1
Dynamics of Nostro accounts balances (RUR bn)
2006
2005
2004
2003
2002
4.5
5.0
4.1
4.0
1.0
Sudostroitelny Bank further expanded its region-
al presence in 2006. Its active marketing strate-
gy and impeccable services facilitated an inflow
of new customers, a growing demand for a vari-
ety of the Bank's services. The Bank's main cus-
tomers in regions are companies engaged in
production, transportation, trade and com-merce, telecommunications, construction, fi-
nance. As at the end of the reporting year the
balances on the accounts of the corporate cus-
tomers of the Bank's branch in Saint Petersburg
rose by 84% up to RUR 497.8m, that of the cred-
it and cash office in Nizhny Novgorod up to
RUR 21.5m. The turnover on the corporate cus-
tomers accounts equalled RUR 2.89bn and RUR
0.45bn respectively. The balances on theaccounts of the Bank's private customers
reached RUR 49.8m in Saint Petersburg and
RUR 6.6m in Nizhny Novgorod.
In the past year the Bank's office network con-
tinued to grow. In March 2006 the Bank's ope-
ned its representative office in Ekaterinburg, in
May 2006 it opened its additional office in the
dealership for Bentley in Barvikha Luxury Village
retail centre, in October 2006 it set up its
payment office in the dealership for Harley-
Davidson.
The increased turnovers of the Bank's region-
al network were boosted by the dynamic promo-
tion of the Internet banking products and servic-es. Being a leader and having advanced multi-
functional Internet banking technologies
Sudostroitelny Bank put an emphasis on the on-
line sales channels that allowed to unload the
offices and reduce service expenses compared
to standard services.
The past year saw the continued expansion
of the Bank's presence in regions with high
investment potential. Within the next two yearsthe Bank is planning to set up its offices in
Moscow region, Sverdlovsk region, Perm region
and in the city of Sochi. The developed office
network will enable the Bank to actively partici-
pate in interregional business projects, enlarge
its customer base, expand its product line in
regions.
28
8/6/2019 Sbank Ar2006 Eng
30/48
Fresh Ideas. Mature Decisions.
29
8/6/2019 Sbank Ar2006 Eng
31/48
The Bank's well-designed risk management sys-tem is essential for its successful development.
On a regular basis the Bank monitors, assesses,
and promptly minimizes various risks.
Due to the high loan portfolio growth the
Bank's credit risk management was especially
important in 2006. It comprised risk assessment
and control for both standalone borrowers and
groups of related borrowers. The Bank's credit
analysts developed specific recommendationson lending limits for each customer/counterpar-
ty; borrowers' repayment abilities, their current
financial position and business reputation influ-
enced the Bank's decision whether to grant a
loan. The credit risk related to banks was con-
trolled by the system of credit lines set by the
Bank's Financial Committee and based on the
Bank's own methodology.
Minimising market risks was of paramountimportance to Sudostroitelny Bank in the past
year. The Bank's market risk management sys-
tem allowed to timely identify and estimate risks
and to make prompt and relevant decisions on
the portfolio structure optimisation. The method-
ology was developed by the Risk Analysis
Department which is a dedicated and independ-
ent unit of the Bank. The main techniques for
minimising market risks in 2006 were the Bank'sopen positions (foreign exchange, interest,
investments in securities) within the set limits;
besides, the Bank hedged market risks. Striking
the right balance between risks of operations
and their profitability was one of the Bank's spe-
cial concerns.
The Bank's liquidity management is an impor-
tant part of its risk management system. The
4Factorsof Success
Risk Management
30 4 FACTORS OF SUCCESS
8/6/2019 Sbank Ar2006 Eng
32/48
layered system of the triple control (the Manage-
ment Board, the Financial Committee, the Trea-
sury) ensures the integrated approach to manag-
ing long-term, medium-term and short-term liq-
uidity. To estimate risks relating to the liquidity
the Bank's employees applied the scenario
analysis that simulated fluctuations of different
groups of assets and liabilities by changing
(including unfavourable) a series of market
and/or bank parameters. The Bank's well-bal-
anced approach to managing its liquidity leads to
all the Bank's commitments met at all times.
In the reporting year the Bank further impro-
ved its operational risk management system.
These risks are connected with possible draw-
backs of systems and procedures of manage-
ment and control of the banking processes, the
wrong decisions of the Bank's employees of dif-
ferent ranks, and the system errors. To minimise
the risks the Bank's employees optimised the
organisational structure to make its technologi-
cal units and departments react to all kinds of
changes both out and in the Bank as soon as
possible.
InformationTechnologies
In 2006 the Bank continued to enhance its infor-
mation technologies in accordance with the busi-
ness needs. The customer inflow, increase in the
Bank's operations were accompanied by devel-
opment of the Bank's automated systems and
introduction of new ones that optimally ensured
its top quality and fast services and cost minimi-
sation.The Bank put particular emphasis on upgrad-
ing SBANK.RU and SBANK.RU PRIVATE on-line
access systems that allow the corporate and pri-
vate customers to operate their accounts, do
transfers, get account statements, make foreign
exchange transactions in the real-time. Their
comfortable user interface, wide range of func-
tions and reliable and stable operations encour-
aged further demand for the Internet-bankingservices. Thus, 90% of the corporate customers
and about 50% of the private customers made
their payments via SBANK.RU in 2006.
The Bank paid special attention to providing
its Internet-banking services in the regions. The
IT specialists worked to install remote modules
in the Bank's regional offices and integrate them
into the corporate system. Over the year the
modules were customised for each office, its
business operations, services, etc.
Upgrading the technological base to support
the Bank's increased activity in financial mar-
kets remained among the most important priori-
ties of the IT department. UBS Equity Trader and
GL Trade trading platforms optimised the Bank's
operations in international stock exchanges. TheBank's access to the Bloomberg terminals
allowed for the increased financial markets infor-
mation and technology support of the customers
and the Bank itself.
In 2007 the Bank is planning to further en-
hance its IT infrastructure to accelerate the
development of the most promising and popular
activities. In the near future a dedicated team of
business technologists will be created within theBank's IT Department.
Another strategic goal for 2007 is a creation of
an efficient Management Information System
(MIS). It will encourage the Bank's management
system transparency, allow to set more precise
goals for the Bank's departments and employ-
ees and assess profitability of the Bank's busi-
ness lines.
314 FACTORS OF SUCCESS
8/6/2019 Sbank Ar2006 Eng
33/48
ANNUAL REPORT 2006
All through the years of its activities Sudostroi-
telny Bank has sought to implement a deliberate
and sound personnel policy to form an efficient
and highly competitive team. In the past year the
major priorities of the Bank's personnel policy
were increasing professionalism in accordance
with the market requirements, maintaining
a high level of employees' motivation and pre-
serving a climate of friendliness and trust.
The high level of its personnel training influ-
ences greatly the Bank's competitive position and
further development. In 2006 the Bank carried on
with its employees' professional development planfinanced as a dedicated on-budget expense item.
The employees attended specialized courses and
were given training in innovative technologies in
new customers attraction and service (specifically,
at the Institute for Professional Development and
Training of Financial Professionals).
At Sudostroitelny Bank's staff selection crite-
ria traditionally receive special attention. In the
past year the Bank developed a series of tests to
check potential employees' special knowledge
and determine their general level of competence;
besides, they underwent psychological testing.
The priority was given to those having essential
experience in financial institutions and skills in
using modern banking technologies.
Social partnership and keeping the employ-
ees interested in final results are strategically
important for the Bank's personnel policy. In the
reporting period the Bank's employee incentiveplan included both financial (salary, bonuses,
various kinds of remuneration) and non-finan-
cial (awards, employee benefits, medical exami-
nations, retirement insurance, employees' chil-
dren summer healthcare, etc.) components, the
latter being especially emphasised.
Personnel Policy
Working withthe Community
Community and charity programmes aimed atsupporting cultural values, sports and fitness
activities, as well as sponsoring talented young
people and disadvantaged social groups, have
been an essential part of Sudostroitelny Bank's
activities since its foundation. The Bank tradi-
tionally considers it important to preserve the
fundamentals of Orthodox culture and con-
tributes to spiritual growth. In 2006 the Bank
made a charitable contribution to the Cathedralof Christ the Saviour. As a constant guardian of
Suzdal Orthodox School, the Bank supported the
school's students.
Sudostroitelny Bank's financial assistance
in holding one of the major cultural event
a concert of the great Russian cellist and
coductor Mstislav Rostropovich devoted to
the centenary of D. Shostakovich's birth on
23 September 2006 was of great signifi-cance for the Bank.
The Bank's cooperation with organizations
that promote sports and fitness activities plays
an important role in its working with the commu-
nity. The Bank continued to support the Russian
Federation of the Close Fight and Karate that is
engaged in physical training and realising one's
inner potential. The Bank also was a sponsor to
the All stars 2005/2006 hockey game. At the2005/2006 closing ceremony the Bank award-
ed Alexey Morozov (forward of Ak Bars, Kazan) as
the Best Play-Off Player.
Considering it our honor and civic duty to sup-
port veterans of the World War II and the Great
Patriotic War, the Bank organized the Victory day
celebrations and congratulated defenders of our
country.
32
8/6/2019 Sbank Ar2006 Eng
34/48
Fresh Ideas. Mature Decisions.
33
8/6/2019 Sbank Ar2006 Eng
35/48
5The Bank'sFinancial
Statementsand IndependentAuditors' Report
34 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)
8/6/2019 Sbank Ar2006 Eng
36/48
thousand rubles
No. Name of line As at the As at the correspon-
reporting ding reporting date
date last year
1 2 3 4
I. ASSETS
1. Cash 176 757 116 866
2. Placements with the Central Bank of the Russian Federation 5 898 955 2 913 727
2.1. Required reserves 247 883 113 040
3. Placements with credit institutions 892 934 281 411
4. Net investment in trading securities 80 779 0
5. Net loans to customers 19 835 263 16 888 685
6. Net investment in investment held-to-maturity securities 1 396 933 544 250
7. Net investment in available-for-sale securities 1 448 249 1 640 368
8. Fixed assets, intangible assets and inventories 77 650 27 924
9. Interest receivables 8 445 4 212
10. Other assets 296 142 50 050
11. Total assets 30 112 107 22 467 493
Balance Sheet (for publication purposes)as at 01 January 2007
Credit institution
Commercial bank "Sudostroitelny bank" (LTD)
(Limited Liability Company)
Sudostroitelny bank (LTD)
Main state registration number 2999 BIC
044579918
Postal address: 5 Sadovnicheskaya Street,
Moscow, Russia, 115035
No Name of line As at the As at the correspon
8/6/2019 Sbank Ar2006 Eng
37/48
No. Name of line As at the As at the correspon-
reporting date ding reporting date last
(thousand rubles) year (thousand rubles)
1 2 3 4
II. LIABILITIES12. Loans from the Central Bank of the Russian Federation 0 0
13. Amounts due to credit institutions 7 016 453 6 810 658
14. Customer accounts (non- credit institutions) 11 090 149 6 795 927
14.1. Deposits from individuals 1 239 093 418 045
15. Debt securities issued 8 044 570 5 428 829
16. Interest payables 422 745 161 115
17. Other liabilities 60 583 14 788
18. Provision for possible losses on off-balance sheet credit related commitments, other possible
losses and settlements with off-shore residents 308 733 60 55319. Total liabilities 26 943 233 19 271 870
III. EQUITY
20. Funds of shareholders (participants) 2 660 000 2 660 000
20.1. Registered ordinary shares 2 660 000 2 660 000
20.2. Registered preference shares 0 0
20.3. Unregistered authorized capital of non-incorporated credit institutions 0 0
21. Treasury shares bought out from shareholders 0 0
22. Share premium 0 0
23. Revaluation of fixed assets 0 024. Expenses of future periods and pending payments effecting equity (capital) 587 933 201 396
25. Funds and retained earnings available to credit institution (prior year losses) 736 770 417 810
26. Profit (loss) for the reporting period 360 037 319 209
27. Total equity 3 168 874 3 195 623
28. Total liabilities 30 112 107 22 467 493
IV. OFF-BALANCE LIABILITIES
29. Irrevocable commitments of credit institution 11 427 753 5 377 676
30. Guarantees issued by credit institution 774 241 359 297
The following operations of Section V Trust man-
agement accounts do not appear on the Balance
Sheet as they were not business lines of the bank
in the reporting period:
1. Cash on hand, 2. Securities in trust manage-
ment, 3. precious metals, 4. loans granted,
5. funds used for other purposes, 6. trust man-
agement settlements, 7. Accrued interest (cou-
pon) income on bonds paid, 8. current acco-
unts, 9. trust management expenses , 10. trust
management loss, 11. Capital in trust manage-
ment, 12. trust management settlements,
13. accrued interest (coupon) income on bonds
received, 14. trust management revenues,
15. trust management profit.
Chairman of the Management Board Golubkov A.K.
Chief Accountant Zubova E. K.
36 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)
8/6/2019 Sbank Ar2006 Eng
38/48
(for publication purposes)
for the year 2006
Credit institution
Commercial bank "Sudostroitelny bank" (LTD)
(Limited Liability Company)
Sudostroitelny bank (LTD)
Main state registration number 2999
BIC 044579918
Postal address: 5 Sadovnicheskaya Street,
Moscow, Russia, 115035
Profit and lossStatement
No. Name of line As at the As at the correspon-
reporting date ding reporting date last
(thousand rubles) year (thousand rubles)
1 2 3 4
Interest received and similar income from:
1 Placements with credit institutions 483 656 391 298
2 Loans to customers (non-credit institutions) 1 893 906 1 368 319
3 Financial leasing services 0 0
4 Fixed income securities 178 248 123 939
5 Other sources 1 240 1 423
6 Total interest received and similar income 2 557 050 1 884 979
Interest paid and similar expenses:
7 Funds borrowed from credit institutions 300 278 188 339
8 Funds borrowed from customers (non-credit institutions) 55 781 19 304
9 Debt securities issued 417 431 277 802
10 Total interest paid and similar expenses 773 490 485 445
11 Net interest and similar income 1 783 560 1 399 534
12 Net income from securities transactions -31 229 -105 869
13 Net income from FX transactions -1 536 -17 389
14 Net income from transactions with precious metals and other financial instruments 0 0
15 Net foreign currency revaluation gain 138 104 -176 385
16 Fee income 129 949 96 083
17 Fee expenses 46 833 30 253
18 Net income from extraordinary transactions 4 511 1 510
19 Other net operating income -18 771 -5 535
20 General and administrative expenses 318 533 199 178
21 Possible loss provisions -1 209 304 -614 845
22 Pre-tax profit 429 918 347 673
23 Taxes accrued (including profit tax) 69 881 28 464
24 Profit (loss) for the reporting period 360 037 319 209
Chairman of the Management Board Golubkov A.K.
Chief Accountant Zubova E. K.
8/6/2019 Sbank Ar2006 Eng
39/48
38 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)
8/6/2019 Sbank Ar2006 Eng
40/48
In our opinion, the financial statements of Com-
mercial bank "Sudostroitelny bank" (LTD) present
fairly in all material aspects its financial position
as at 31 December 2006 and the results of its
performance for the period from 01 January
2006 to 31 December 2006 inclusively in com-
pliance with the legislation of the Russian Fe-
deration.
AUDIT DATE: 04 April 2007
Audit firm: "FinExpertiza" Ltd.
State registration number and date: State Registration Certificate 937.341,
issued by Moscow Registration Chamber 05 May 1997
Number and date of license issue: E 002588, issued 06 November 2002
License is valid from 06 November 2002License is valid until 05 November 2007
License is issued by Ministry of Finance of the Russian Federation
Membership in accredited audit association: yes
Last name, first name, patronymic of audit firm CEO: Trubnikova Yelena Aleksandrovna Data on person who
HAS AUDITED (HEAD OF AUDIT):
Last name, first name, patronymic: Borzova Natalya Evgenyevna
Position: Deputy General Director
Number and date of qualification certificate issue: 002167 as of 20 December 2002
Qualification certificate is valid until Unlimited validityDocument that authorizes person who has audited (type, number, date): Order 1/1 as of 09 January 2007
IndependentAuditors' Report
395 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)
8/6/2019 Sbank Ar2006 Eng
41/48
ANNUAL REPORT 2006
IndependentAuditors' Report
To the Members and the Board of Directors ofCommercial Bank Sudostroitelny Bank (Limi-
ted Liability Company):
We have audited the accompanying financial
statements of Commercial Bank Sudostroitelny
Bank (Limited Liability Company) (the Bank),
which comprise the balance sheet as of
31 December 2006, and the income state-
ment and statement of cash flows for the year
then ended, and a summary of significant acco-unting policies and other explanatory notes.
Management's responsibility for
the financial statements
Management is responsible for the preparation
and fair presentation of these financial state-
ments in accordance with International Financial
Reporting Standards. This responsibility inclu-
des: designing, implementing and maintaining
internal control relevant to the preparation and
fair presentation of financial statements that are
free from material misstatement, whether due to
fraud or error; selecting and applying appropri-
ate accounting policies; and making accountingestimates that are reasonable in the circum-
stances.
Auditor's responsibility
Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with
International Standards on Auditing. Those stan-dards require that we comply with ethical
requirements and plan and perform the audit to
obtain reasonable assurance whether the finan-
cial statements are free from material misstate-
ment.
An audit involves performing procedures to
obtain audit evidence about the amounts and
disclosures in the financial statements. The pro-
cedures selected depend on the auditor's judg-
ment, including the assessment of the risks of
material misstatement of the financial state-
ments, whether due to fraud or error. In making
those risk assessments, the auditor considers
internal control relevant to the entity's prepara-
tion and fair presentation of the financial state-ments in order to design audit procedures that
are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An
audit also includes evaluating the appropriate-
ness of accounting policies used and the rea-
sonableness of accounting estimates made by
management, as well as evaluating the overall
presentation of the financial statements.We believe that the audit evidence we have
obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the financial statements present
fairly, in all material respects the financial posi-
tion of the Bank as of 31 December 2006, its
financial performance and cash flows for the
year then ended in accordance with Internatio-
nal Financial Reporting Standards.
20 February 2007, Moscow
ZAO Deloitte & Touche CIS
Business Center "Mokhovaya"
4/7 Vozdvizhenka St., bldg. 2
125009 Moscow
Russian Federation
Phone Number: 7 (495) 787 0600
Fax Number: 7 (495) 787 0601
www.deloitte.ru
40 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)
8/6/2019 Sbank Ar2006 Eng
42/48
The following statement, which should be read
in conjunction with the independent auditors'
responsibilities stated in the independent
auditors' report set out on pages 2-3, is madewith a view to distinguishing the respective
responsibilities of management and those of
the independent auditors in relation to the
financial statements of Commercial Bank
Sudostroitelny Bank (Limited Liability
Company) (the Bank).
Management is responsible for the prepara-
tion of the financial statements that present fair-
ly the financial position of the Bank as of 31December 2006, the results of its operations
and cash flows for the year then ended, in accor-
dance with International Financial Reporting
Standards (IFRS).
In preparing the financial statements, man-
agement is responsible for:
Selecting suitable accounting principles
and applying them consistently; Making judgements and estimates that
are reasonable and prudent;
Stating whether IFRS have been followed,
subject to any material departures dis-
closed and explained in the financial
statements; and
Preparing the financial statements on
a going concern basis, unless it is inap-
propriate to presume that the Bank will
continue in business for the foreseeable
future.
Management is also responsible for:
Designing, implementing and maintain-
ing an effective and sound system of
internal controls for the Bank;
Maintaining proper accounting records
that disclose, with reasonable accuracy
at any time, the financial position of theBank, and which enable them to ensure
that the financial statements of the Bank
comply with IFRS;
Maintaining statutory accounting records
in compliance with legislation and
accounting standards of the Russian
Federation;
Taking such steps as are reasonably
available to them to safeguard the assetsof the Bank; and
Detecting and preventing fraud and other
irregularities.
These financial statements for the year ended
31 December 2006 were approved on 19 Feb-
ruary 2007 by the Bank's Board of Directors.
Statementof Management's
Responsibilities for thePreparation and Approval
of the FinancialStatements
for the year ended
31 December 2006
On behalf of the Board of Directors:
__________________________________
Chairman of the Management Board
19 February 2007
Moscow
__________________________________
Chief Accountant
19 February 2007
Moscow
415 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)
8/6/2019 Sbank Ar2006 Eng
43/48
ANNUAL REPORT 2006
Notes Year ended Year ended31 December 31 December
2006 2005
(RUR'000) (RUR'000)
Interest income 4, 24 1,736,477 1,559,522
Interest expense 4, 24 (911,095) (672,307)
NET INTEREST INCOME BEFORE PROVISION FOR IMPAIRMENT LOSSES
ON INTEREST BEARING ASSETS 825,382 887,215
Provision for impairment losses on interest bearing assets 5 (44,945) (9,111)
NET INTEREST INCOME 780,437 878,104
Net loss on assets at fair value through profit or loss 6 (92,217) (13,617)
Net gain on foreign exchange operations 7 238,087 34,551
Fee and commission income 8 155,548 96,188
Fee and commission expense 8 (58,995) (52,867)
Other income 9 47,520 9,963
NET NON-INTEREST INCOME 289,943 74,218
OPERATING INCOME 1,070,380 952,322
OPERATING EXPENSES 10, 24 (360,682) (225,189)
OPERATING PROFIT 709,698 727,133
(Other provision)/recovery of other provision 5 (21,693) 3,524
PROFIT BEFORE INCOME TAX 688,005 730,657
Income tax expense 11 (186,544) (250,328)
CHANGE OF NET ASSETS ATTRIBUTABLE TO THE MEMBERS OF THE BANK 501,461 480,329
Income Statement for the Year Ended 31 December 2006
On behalf of the Board of Directors:
__________________________________
Chairman of the Management Board
19 February 2007
Moscow
__________________________________
Chief Accountant
19 February 2007
Moscow
42 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)
8/6/2019 Sbank Ar2006 Eng
44/48
Notes Year ended Year ended31 December 31December
2006 (RUR'000) 2005 (RUR'000)
ASSETS:
Cash and balances with the Central Bank of the Russian Federation 12 6,051,986 3,029,499
Assets at fair value through profit or loss 13 5,458,709 7,309,073
Loans and advances to banks 14 5,693,345 5,038,052
Loans to customers 15, 24 11,129,802 6,337,227
Fixed assets 16 77,749 32,429Other assets 17 292,188 4,668
TOTAL ASSETS 28,703,779 21,750,948
LIABILITIES:
Deposits from banks 18 7,922,287 7,006,531
Customer accounts 19, 24 10,843,082 6,836,774
Debt securities issued 20 5,046,930 3,772,891
Other provisions 5, 23, 24 23,884 2,191
Current income tax liabilities 11 29,271 1,509
Deferred income tax liabilities 11 504,409 364,086
Other liabilities 21 81,956 16,217
TOTAL LIABILITIES 24,451,819 18,000,199
Net assets attributable to the members of the Bank 22 4,251,960 3,750,749
Balance Sheet as of 31 December 2006
On behalf of the Board of Directors:
__________________________________
Chairman of the Management Board
19 February 2007
Moscow
__________________________________
Chief Accountant
19 February 2007
Moscow
435 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)
8/6/2019 Sbank Ar2006 Eng
45/48
ANNUAL REPORT 2006
Notes Year ended Year ended
31 December 31 December
2006 2005
(RUR'000) (RUR'000)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before income tax 688,005 730,657
Adjustments for:Provision for impairment losses on interest bearing assets 44,945 9,111
Other provision/(recovery of other provision) 21,693 (3,524)
Amortization of discount on debt securities issued 40,665 (11,647)
Adjustment of fair value of financial instruments at fair value through profit or loss (87,149) (1,857)
Net change in replacement value of derivative financial instruments and spot deals (17,039) 14,359
Accrued expenses 4,333 4,709
Depreciation of fixed assets 10,634 7,527
Loss on disposal of fixed assets 173 142
Net change in interest accruals 119,412 (28,513)Loss/(gain) from foreign currency revaluation 209,428 (76,790)
Cash flows from operating activities before changes in operating assets and liabilities 1,035,100 644,174
Changes in operating assets and liabilities
(Increase)/decrease in operating assets:
Minimum reserve deposit with the Central Bank of the Russian Federation (133,288) (49,368)
Assets at fair value through profit or loss 1,794,518 (3,505,401)
Loans and advances to banks (504,289) 858,911
Loans to customers (4,988,435) (740,313)
Other assets (272,742) 5,925
Increase/(decrease) in operating liabilities:
Deposits from banks 1,063,658 (74,316)
Customer accounts 4,020,403 2,150,290
Other liabilities 68,446 (17,873)
Cash inflow/(outflow) from operating activities before income tax 2,083,371 (727,971)
Income tax paid (18,459) (11,585)
Net cash inflow/(outflow) from operating activities 2,064,912 (739,556)
Statement of Cash Flowsfor the Year Ended 31 December 2006
44 5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)
8/6/2019 Sbank Ar2006 Eng
46/48
Notes Year ended Year ended
31 December 31 December
2006 2005
(RUR'000) (RUR'000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (58,000) (16,730)
Proceeds from disposal of fixed assets 1,873 267
Acquisition of investments available-for-sale (1,615)
Net cash outflows from investing activities (57,742) (16,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt securities issued 1,154,443 1,133,872
Payments from net assets attributable to the members of the Bank (250) (2,100)
Net cash inflows from financing activities 1,154,193 1,131,772
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,161,363 375,753
Effects of exchange rate changes on cash and cash equivalents (21,189) 15,145
NET INCREASE IN CASH AND CASH EQUIVALENTS AFTER EFFECT OF EXCHANGE RATE CHANGES 3,140,174 390,898
CASH AND CASH EQUIVALENTS, beginning of the period 12 3,142,045 2,751,147
CASH AND CASH EQUIVALENTS, end of the period 12 6,282,219 3,142,045
Interest paid and received by the Bank during the
year ended 31 December 2006 amounted to
RUR 696.590 thousand and RUR 1.682.049
thousand, respectively.
Interest paid and received by the Bank during the
year ended 31 December 2005 amounted to
RUR 712.994 thousand and RUR 1.571.696
thousand, respectively.
On behalf of the Board of Directors:
__________________________________
Chairman of the Management Board
19 February 2007
Moscow
__________________________________
Chief Accountant
19 February 2007
Moscow
8/6/2019 Sbank Ar2006 Eng
47/48
Moscow Head Office
Address: 5, Sadovnicheskaya st., Moscow, 115035, Russia
Tel.: +7 (495) 777 1121, 745 9890, 745 7990
Fax: +7 (495) 959 0888
www.sbank.ru
Office "Volokolamka, 14"
Address: 14, Volokolamskoe shosse, Moscow, 125080, Russia
Tel.: +7 (495) 411 7883, 411 8087
Office "Yakimanka, 21"
Address: 21, Bolshaya Yakimanka st., Moscow 109180, Russia
Tel.: +7 (495) 230 7461
Fax.: +7 (495) 230 7516
"Bentley" office
Address: 114/2 "Bentley Moscow", Barvikha Luxury Village, Moscow region, Russia
Tel.: +7 (495) 980 6813
Office "Zelenograd"
Address: 1, str. 2, 4th Zapadnyi pr., Zelenograd, Moscow, 143083, Russia
Tel.: +7 (495) 535 1373, 535 0933
St-Petersburg
Address: Office 18-H, bld. 12 lit.A, Ryuchina st., St.-Petersburg, 191186, Russia
Tel.: +7 (812) 234 0333, 234 0066
Fax: +7 (812) 234 0333
Nizhny Novgorod
Address: 3, Novaya st., Nizhny Novgorod, 603000, Russia
Tel./Fax: +7 (8312) 78 0518, 78 0519
Ekaterinburg
Address: 3, Chernyshevskogo st., Ekaterinburg, 620014, Russia
Tel./Fax: +7 (343) 376 6390
8/6/2019 Sbank Ar2006 Eng
48/48