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        <h2><a href="/en/" title="Main page"">ANNUAL REPORT FOR 2012</a></h2>
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<h1>3. Basis of Preparation and Significant Accounting Policies</h1>
            <h3>Basis of&nbsp;Preparation</h3>

<p>These consolidated financial statements have been prepared in&nbsp;accordance with International Financial Reporting Standards (&ldquo;IFRS&rdquo;) under the historical cost convention, as&nbsp;modified by&nbsp;the revaluation of&nbsp;office premises, investment property, available for sale financial assets and financial instruments at&nbsp;fair value through profit or&nbsp;loss. </p>
 			 
<p>The principal accounting policies applied in&nbsp;the preparation of&nbsp;these consolidated financial statements are set out below. These policies have been consistently applied to&nbsp;all the periods presented, unless otherwise stated. </p>
 			 
<h3>Consolidated financial statements</h3>

<p>Subsidiaries are those companies and other entities (including special purpose entities) in&nbsp;which the Group, directly or&nbsp;indirectly, has an&nbsp;interest of&nbsp;more than one half of&nbsp;the voting rights or&nbsp;otherwise has power to&nbsp;govern the financial and operating policies so&nbsp;as&nbsp;to&nbsp;obtain benefits. The existence and effect of&nbsp;potential voting rights that are readily exercisable and convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on&nbsp;which control is&nbsp;transferred to&nbsp;the Group (acquisition date) and are deconsolidated from the date when control ceases. </p>
 			 
<p>Business combinations are accounted for using the acquisition method. For each business combination, the acquirer measures the non-controlling interest in&nbsp;the acquiree that are present ownership interests either at&nbsp;fair value or&nbsp;at&nbsp;the proportionate share of&nbsp;the acquiree&rsquo;s identifiable net assets and other components of&nbsp;non-controlling interests at&nbsp;their acquisition date fair value.</p>
 			 
<p>Non-controlling interest is&nbsp;the interest in&nbsp;subsidiaries not held by&nbsp;the Group. Acquisition costs incurred are expensed. Non-controlling interest is&nbsp;presented within equity.</p>
 			 
<p>Goodwill is&nbsp;initially measured at&nbsp;cost being the excess of&nbsp;the aggregate of&nbsp;consideration transferred, any non-controlling interest in&nbsp;the acquiree and the acquisition-date fair value of&nbsp;the acquirer’s previously held equity interest in&nbsp;the acquiree over the net of&nbsp;the acquisition-date amounts of&nbsp;the identifiable assets acquired and the liabilities assumed. If&nbsp;the aggregate of&nbsp;consideration transferred, any non-controlling interest in&nbsp;the acquiree and the acquisition-date fair value of&nbsp;the acquirer’s previously held equity interest in&nbsp;the acquiree is&nbsp;lower than the fair value of&nbsp;the net assets of&nbsp;the subsidiary acquired, the difference (“gain from bargain purchase”) is&nbsp;recognised in&nbsp;profit or&nbsp;loss. After initial recognition, goodwill is&nbsp;measured at&nbsp;cost less any accumulated impairment.</p>
 			 
<p>Intercompany transactions, balances and unrealised gains on&nbsp;transactions between group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be&nbsp;recovered. The Bank and all of&nbsp;its subsidiaries use uniform accounting policies consistent with the Group’s policies.</p>
 			 
<h3>Key measurement terms</h3>

<p>Depending on&nbsp;their classification financial instruments are carried at&nbsp;cost, fair value, or&nbsp;amortised cost as&nbsp;described below.</p>
 			 
<p><i>Cost</i> is&nbsp;the amount of&nbsp;cash or&nbsp;cash equivalents paid or&nbsp;the fair value of&nbsp;the other consideration given to&nbsp;acquire an&nbsp;asset at&nbsp;the time of&nbsp;its acquisition and includes transaction costs. Measurement at&nbsp;cost is&nbsp;only applicable to&nbsp;investments in&nbsp;equity instruments that do&nbsp;not have a&nbsp;quoted market price and whose fair value cannot be&nbsp;reliably measured, derivatives that are linked to&nbsp;and must be&nbsp;settled by&nbsp;delivery of&nbsp;such unquoted equity instruments and fixed assets except for office premises. </p>
 			 
<p><i>Transaction costs</i> are incremental costs that are directly attributable to&nbsp;the acquisition, issue or&nbsp;disposal of&nbsp;a&nbsp;financial instrument. An&nbsp;incremental cost is&nbsp;one that would not have been incurred if&nbsp;the transaction had not taken place. Transaction costs include fees and commissions paid to&nbsp;agents (including employees acting as&nbsp;selling agents), advisors, brokers and dealers, levies by&nbsp;regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do&nbsp;not include debt premiums or&nbsp;discounts, financing costs or&nbsp;internal administrative or&nbsp;holding costs. </p>
 			 
<p><i>Fair value</i> is&nbsp;the amount for which an&nbsp;asset could be&nbsp;exchanged, or&nbsp;a&nbsp;liability settled, between knowledgeable, willing parties in&nbsp;an&nbsp;arm’s length transaction. Fair value is&nbsp;the current bid price for financial assets, current ask price for financial liabilities and the average of&nbsp;current bid and ask prices when the Group is&nbsp;both in&nbsp;short and long position for the financial instrument. A&nbsp;financial instrument is&nbsp;regarded as&nbsp;quoted in&nbsp;an&nbsp;active market if&nbsp;quoted prices are readily and regularly available from an&nbsp;exchange or&nbsp;other institution and those prices represent actual and regularly occurring market transactions on&nbsp;an&nbsp;arm’s length basis. </p>
 			 
<p><i>Valuation techniques</i> are used to&nbsp;fair value certain financial instruments for which external market pricing information is&nbsp;not available. Such valuation techniques include discounted cash flows models, generally accepted option pricing models, models based on&nbsp;recent arm’s length transactions or&nbsp;consideration of&nbsp;financial data of&nbsp;the investees. Valuation techniques may require assumptions not supported by&nbsp;observable market data. Disclosures are made in&nbsp;these consolidated financial statements if&nbsp;changing any such assumptions to&nbsp;a&nbsp;reasonably possible alternative would result in&nbsp;significantly different profit, income, total assets or&nbsp;total liabilities.</p>
 			 
<p><i>Amortised cost</i> is&nbsp;the amount at&nbsp;which the financial instrument was recognised at&nbsp;initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of&nbsp;transaction costs deferred at&nbsp;initial recognition and of&nbsp;any premium or&nbsp;discount to&nbsp;maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount and premium (including fees deferred at&nbsp;origination, if&nbsp;any), are not presented separately and are included in&nbsp;the carrying values of&nbsp;the related statement of&nbsp;financial position items.</p>
 			 
<p><i>The effective interest method</i> is&nbsp;a&nbsp;method of&nbsp;allocating interest income or&nbsp;interest expense over the relevant period so&nbsp;as&nbsp;to&nbsp;achieve a&nbsp;constant periodic rate of&nbsp;interest (effective interest rate) on&nbsp;the carrying amount. The effective interest rate is&nbsp;the rate that exactly discounts estimated future cash payments or&nbsp;receipts (excluding future credit losses) through the expected life of&nbsp;the financial instrument or&nbsp;a&nbsp;shorter period, if&nbsp;appropriate, to&nbsp;the net carrying amount of&nbsp;the financial instrument. Premiums and discounts on&nbsp;variable interest instruments are amortised to&nbsp;the next interest repricing date except for premiums and discounts which reflect the credit spread over the floating rate specified in&nbsp;the instrument, or&nbsp;other variables that are not reset to&nbsp;market rates. Such premiums or&nbsp;discounts are amortised over the whole expected life of&nbsp;the instrument. </p>
 			 
<p>The present value calculation includes all fees and points paid or&nbsp;received between parties to&nbsp;the contract that are an&nbsp;integral part of&nbsp;the effective interest rate (refer to&nbsp;income and expense recognition policy). </p>
 			 
<h3>Initial recognition of&nbsp;financial instruments</h3>

<p>Trading securities, other securities at&nbsp;fair value through profit or&nbsp;loss and derivatives are initially recorded at&nbsp;fair value. All other financial assets are initially recorded at&nbsp;fair value plus transaction costs. Fair value at&nbsp;initial recognition is&nbsp;best evidenced by&nbsp;the transaction price. A&nbsp;gain or&nbsp;loss on&nbsp;initial recognition is&nbsp;only recorded if&nbsp;there is&nbsp;a&nbsp;difference between fair value and transaction price which can be&nbsp;evidenced by&nbsp;other observable current market transactions in&nbsp;the same instrument or&nbsp;by&nbsp;a&nbsp;valuation technique whose inputs include only data from observable markets.</p>
 			 
<p>All purchases and sales of&nbsp;financial assets that require delivery within the time frame established by&nbsp;regulation or&nbsp;market convention (“regular way” purchases and sales) are recorded at&nbsp;trade date, which is&nbsp;the date that the Group commits to&nbsp;deliver a&nbsp;financial instrument. All other purchases and sales are recognised when the entity becomes a&nbsp;party to&nbsp;the contractual provisions of&nbsp;the instrument.</p>
 			 
<h3>Cash and cash equivalents</h3>

<p>Cash and cash equivalents are items which are readily convertible to&nbsp;known amounts of&nbsp;cash and which are subject to&nbsp;an&nbsp;insignificant risk of&nbsp;changes in&nbsp;value. </p>
 			 
<p>Cash and cash equivalents include interbank deposits and reverse sale and repurchase agreements with original maturity up&nbsp;to&nbsp;30&nbsp;days. Amounts, which relate to&nbsp;funds that are of&nbsp;a&nbsp;restricted nature, are excluded from cash and cash equivalents. </p>
 			 
<h3>Mandatory cash balances with Central Banks</h3>

<p>Mandatory cash balances with Central Banks are carried at&nbsp;amortised cost and represent mandatory reserve deposits which are not available to&nbsp;finance the Group’s day to&nbsp;day operations and hence are not considered as&nbsp;part of&nbsp;cash and cash equivalents for the purposes of&nbsp;the consolidated statement of&nbsp;cash flows. </p>
 			 
<h3>Precious metals</h3>

<p>Physical precious metals and deposits in&nbsp;precious metals are recorded at&nbsp;the lower of&nbsp;cost and net realiz able value on&nbsp;the reporting date. </p>
 			 
<h3>Plastic cards settlements</h3>

<p>Plastic cards settlements are accounted for on&nbsp;the accruals basis and are carried at&nbsp;amortised cost. Plastic cards settlements are recorded when the legal right to&nbsp;receive the payment or&nbsp;legal obligation to&nbsp;execute payment arise under the agreement. </p>
 			 
<h3>Trading securities</h3>

<p>Trading securities are securities, which are either acquired for generating a&nbsp;profit from short-term fluctuations in&nbsp;price or&nbsp;trader’s margin, or&nbsp;are securities on&nbsp;initial recognition included in&nbsp;a&nbsp;portfolio in&nbsp;which a&nbsp;pattern of&nbsp;short-term trading exists. The Group classifies securities into trading securities if&nbsp;it&nbsp;has an&nbsp;intention to&nbsp;sell them within a&nbsp;short period after purchase, i.e. within six months. </p>
 			 
<p>Trading securities are carried at&nbsp;fair value. Interest earned on&nbsp;trading securities calculated using the effective interest rate method is&nbsp;accounted for in&nbsp;the consolidated income statement as&nbsp;interest income. Dividends are included in&nbsp;dividend income within other operating income when the Group’s right to&nbsp;receive the dividend payment is&nbsp;established. Translation differences are included in&nbsp;Net gains arising from trading in&nbsp;foreign currencies, operations with foreign currency derivatives and foreign exchange translation. All other elements of&nbsp;the changes in&nbsp;the fair value and gains or&nbsp;losses on&nbsp;derecognition are recorded in&nbsp;the consolidated income statement as&nbsp;net gains/ (losses) arising from trading securities in&nbsp;the period in&nbsp;which they arise. </p>
 			 
<h3>Securities designated at&nbsp;fair value through profit or&nbsp;loss</h3>

<p>Securities designated at&nbsp;fair value through profit or&nbsp;loss are securities designated irrevocably, at&nbsp;initial recognition, into this category. Management designates securities into this category only if&nbsp;a&nbsp;group of&nbsp;financial assets is&nbsp;managed and its performance is&nbsp;evaluated on&nbsp;a&nbsp;fair value basis and information on&nbsp;that basis is&nbsp;regularly provided to&nbsp;and reviewed by&nbsp;the Group’s key management personnel. Recognition and measurement of&nbsp;this category of&nbsp;financial assets is&nbsp;consistent with the above policy for trading securities. </p>
 			 
<h3>Due from other banks</h3>

<p>Amounts due from other banks are recorded when the Group advances money to&nbsp;counterparty banks with no&nbsp;intention of&nbsp;trading the resulting unquoted non-derivative receivable due on&nbsp;fixed or&nbsp;determinable dates. Amounts due from other banks are carried at&nbsp;amortised cost. </p>
 			 
<h3>Loans and advances to&nbsp;customers</h3>

<p>Loans and advances to&nbsp;customers are recorded when the Group advances money to&nbsp;purchase or&nbsp;originate an&nbsp;unquoted non-derivative receivable from a&nbsp;customer due on&nbsp;fixed or&nbsp;determinable dates and has no&nbsp;intention of&nbsp;trading the receivable. Loans and advances to&nbsp;customers are carried at&nbsp;amortised cost. </p>
 			 
<h3>Impairment of&nbsp;financial assets carried at&nbsp;amortised cost</h3>

<p>Impairment losses on&nbsp;financial assets carried at&nbsp;amortised cost are recognised in&nbsp;profit or&nbsp;loss when incurred as&nbsp;a&nbsp;result of&nbsp;one or&nbsp;more events (“loss events”) that occurred after the initial recognition of&nbsp;the financial asset and which have an&nbsp;impact on&nbsp;the amount or&nbsp;timing of&nbsp;the estimated future cash flows of&nbsp;the financial asset or&nbsp;group of&nbsp;financial assets that can be&nbsp;reliably estimated. If&nbsp;the Group determines that no&nbsp;objective evidence exists that impairment was incurred for an&nbsp;individually assessed financial asset, whether significant or&nbsp;not, it&nbsp;includes the asset in&nbsp;a&nbsp;group of&nbsp;financial assets with similar credit risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers when deciding whether a&nbsp;financial asset is&nbsp;impaired or&nbsp;not are (i) past due status of&nbsp;financial asset, (ii) financial position of&nbsp;underlying borrower, (iii) unsatisfactory debt servicing and (iv) realisability of&nbsp;related collateral, if&nbsp;any.</p>
 			 
<p>A&nbsp;loan is&nbsp;considered past due when the borrower fails to&nbsp;make any payment due under the loan at&nbsp;the reporting date. In&nbsp;this case a&nbsp;past due amount is&nbsp;recognized as&nbsp;the aggregate amount of&nbsp;all amounts due from borrower under the respective loan agreement including accrued interest and commissions. As&nbsp;defined by&nbsp;the Group for the purposes of&nbsp;internal credit risk assessment, loans fall into the “non-performing” category when a&nbsp;principal and/or interest payment becomes more than 90&nbsp;days overdue. </p>
 			 
<p>Impairment losses are recognised through an&nbsp;allowance account to&nbsp;write down the asset’s carrying amount to&nbsp;the present value of&nbsp;expected cash flows (which exclude future credit losses that have not been incurred) discounted at&nbsp;the original effective interest rate of&nbsp;the asset. The calculation of&nbsp;the present value of&nbsp;the estimated future cash flows of&nbsp;a&nbsp;collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.</p>
 			 
<p><i>Reversals of&nbsp;impairment.</i> If, in&nbsp;a&nbsp;subsequent period, the amount of&nbsp;the impairment loss decreases and the decrease can be&nbsp;related objectively to&nbsp;an&nbsp;event occurring after the impairment was recognised (such as&nbsp;an&nbsp;improvement in&nbsp;the debtor’s credit rating), the previously recognised impairment loss is&nbsp;reversed by&nbsp;adjusting the allowance account through profit or&nbsp;loss.</p>
 			 
<p><i>Write-off of&nbsp;assets at&nbsp;amortised cost.</i> Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to&nbsp;recover the asset have been completed and the amount of&nbsp;the loss has been determined. </p>
 			 
<p><i>Impairment of&nbsp;loans and advances to&nbsp;legal entities.</i> Estimating loan portfolio impairment provision for corporate loans involves the following steps:</p>
 			 
<ul> 				 
  <li>identification of&nbsp;loans that are individually significant and contain signs of&nbsp;impairment, i.e. those loans, that, if&nbsp;fully impaired, would have a&nbsp;material impact on&nbsp;the Group’s expected average level of&nbsp;operating income;</li>
 				 
  <li>determination of&nbsp;whether an&nbsp;individually significant loan shows objective evidence of&nbsp;impairment. This requires estimating the expected timing and amount of&nbsp;cash flows from interest and principal payments and other cash flows, including amounts recoverable from guarantees and collateral, and discounting them at&nbsp;the loan’s original effective interest rate. The loan is&nbsp;considered impaired if&nbsp;its carrying amount materially exceeds its estimated recoverable amount. A&nbsp;separate impairment loss is&nbsp;recorded on&nbsp;an&nbsp;individually significant impaired loan;</li>
 				 
  <li>all remaining loans and individually significant loans without objective evidence of&nbsp;impairment are assessed on&nbsp;a&nbsp;portfolio basis. </li>
 			</ul>
 			 
<p>The Group applies the portfolio provisioning methodology prescribed by&nbsp;IAS 39, <i>Financial Instruments: Recognition and Measurement</i>, and creates portfolio provisions for impairment losses that were incurred but have not been specifically identified with any individual loan by&nbsp;the reporting date. Total impairment provisions may exceed the gross amount of&nbsp;individually impaired loans as&nbsp;a&nbsp;result of&nbsp;this methodology.</p>
 			 
<p>For the purposes of&nbsp;credit risk measurement and analysis the Group internally classifies loans depending on&nbsp;their quality. The quality of&nbsp;a&nbsp;corporate loan is&nbsp;monitored regularly on&nbsp;the basis of&nbsp;a&nbsp;comprehensive analysis of&nbsp;the borrower’s financial position and includes analysis of&nbsp;liquidity, profitability and sufficiency of&nbsp;own funds. The capital structure, organisational structure, credit history and business reputation of&nbsp;the borrower are also taken into consideration. The Group takes into account the customer’s position in&nbsp;the industry and the region, production equipment and level of&nbsp;the technology used as&nbsp;well as&nbsp;the general efficiency of&nbsp;management. Upon analysis corporate borrowers are assigned internal ratings and classes. For the purpose of&nbsp;collective assessment of&nbsp;not past due loans and advances the Group analyses loans of&nbsp;each class in&nbsp;terms of&nbsp;its historical loss and recovery rate separately for renegotiated and non-renegotiated loans. Past experience is&nbsp;adjusted on&nbsp;the basis of&nbsp;current observable data to&nbsp;reflect the effects of&nbsp;current conditions that did not affect past periods and to&nbsp;remove the effects of&nbsp;past conditions that do&nbsp;not exist currently. For the purpose of&nbsp;collective assessment of&nbsp;past due loans and advances Group analyses ageing of&nbsp;past due debts.</p>
 			 
<p><i>Impairment of&nbsp;loans and advances to&nbsp;individuals.</i> For the purpose of&nbsp;credit quality analysis, loans to&nbsp;individuals are grouped by&nbsp;type of&nbsp;credit product into homogeneous sub-portfolios with similar risk characteristics. The Group analyses each portfolio by&nbsp;the ageing of&nbsp;past due debts.</p>
 			 
<h3>Investment securities available for sale</h3>

<p>This classification includes investment securities, which the Group intends to&nbsp;hold for an&nbsp;indefinite period of&nbsp;time and which may be&nbsp;sold in&nbsp;response to&nbsp;needs for liquidity or&nbsp;changes in&nbsp;interest rates, exchange rates or&nbsp;equity prices. The Group classifies investments as&nbsp;available for sale at&nbsp;the time of&nbsp;purchase. </p>
 			 
<p>Investment securities available for sale are carried at&nbsp;fair value. Interest income on&nbsp;available for sale debt securities is&nbsp;calculated using the effective interest method and recognised in&nbsp;profit or&nbsp;loss. Dividends on&nbsp;available-for-sale equity instruments are recognised in&nbsp;profit or&nbsp;loss in&nbsp;other operating income when the Group’s right to&nbsp;receive payment is&nbsp;established and inflow of&nbsp;economic benefits is&nbsp;probable. Exchange differences arising on&nbsp;debt investment securities available for sale are recognised in&nbsp;profit or&nbsp;loss in&nbsp;the period in&nbsp;which they arise. All other elements of&nbsp;changes in&nbsp;the fair value are recognised in&nbsp;other comprehensive income until the investment is&nbsp;derecognised or&nbsp;impaired, at&nbsp;which time the cumulative gain or&nbsp;loss is&nbsp;reclassified to&nbsp;profit or&nbsp;loss. </p>
 			 
<p>Impairment losses are recognised in&nbsp;profit or&nbsp;loss when incurred as&nbsp;a&nbsp;result of&nbsp;one or&nbsp;more events (“loss events”) that occurred after the initial recognition of&nbsp;investment securities available for sale. A&nbsp;significant or&nbsp;prolonged decline in&nbsp;the fair value of&nbsp;an&nbsp;equity security below its cost is&nbsp;an&nbsp;indicator that it&nbsp;is&nbsp;impaired. The cumulative impairment loss&nbsp;&mdash; measured as&nbsp;the difference between the acquisition cost and the current fair value, less any impairment loss on&nbsp;that asset previously recognised in&nbsp;profit or&nbsp;loss&nbsp;— is&nbsp;reclassified from other comprehensive income and recognised in&nbsp;profit or&nbsp;loss. Recognised impairment losses on&nbsp;equity instruments are not reversed through profit or&nbsp;loss in&nbsp;a&nbsp;subsequent period. As&nbsp;for debt instrument classified as&nbsp;available for sale, if, in&nbsp;a&nbsp;subsequent period, the fair value of&nbsp;such instrument increases and the increase can be&nbsp;objectively related to&nbsp;an&nbsp;event, occurring after the impairment loss was recognised in&nbsp;profit or&nbsp;loss, the impairment loss is&nbsp;reversed through current period’s profit or&nbsp;loss. The unrealised gains/(losses) on&nbsp;revaluation of&nbsp;investment securities available for sale other than impairment losses are presented in&nbsp;other comprehensive income as&nbsp;Net gains/(losses) on&nbsp;revaluation of&nbsp;investment securities available for sale. </p>
 			 
<p>If&nbsp;the Group has both the intention and ability to&nbsp;hold investment securities available for sale to&nbsp;maturity, they may be&nbsp;reclassified as&nbsp;investment securities held to&nbsp;maturity. In&nbsp;this case the fair value of&nbsp;securities as&nbsp;at&nbsp;the date of&nbsp;reclassification becomes their new amortised cost. For instruments with a&nbsp;fixed maturity the revaluation reserve as&nbsp;at&nbsp;the date of&nbsp;reclassification is&nbsp;amortised to&nbsp;profit or&nbsp;loss during the period until maturity using the effective interest rate method.</p>
 			 
<h3>Sale and repurchase agreements</h3>

<p>Sale and repurchase agreements (“repo agreements”) are treated as&nbsp;secured financing transactions. Securities sold under sale and repurchase agreements are not derecognised. The securities are not reclassified in&nbsp;the statement of&nbsp;financial position unless the transferee has the right by&nbsp;contract or&nbsp;custom to&nbsp;sell or&nbsp;repledge the securities, in&nbsp;which case they are reclassified as&nbsp;securities pledged under repurchase agreements. The corresponding liability is&nbsp;presented within amounts due to&nbsp;banks or&nbsp;due to&nbsp;corporate customers.</p>
 			 
<p>Loans granted under reverse repo agreements are recorded as&nbsp;cash and cash equivalents, due from banks or&nbsp;loans and advances to&nbsp;customers, in&nbsp;accordance with the nature of&nbsp;the counterparty and the term of&nbsp;the deal. </p>
 			 
<p>The difference between the sale and repurchase price is&nbsp;treated as&nbsp;interest income/expense and accrued over the life of&nbsp;repo agreements using the effective interest rate method. </p>
 			 
<p>Securities lent to&nbsp;counterparties are retained in&nbsp;the consolidated financial statements in&nbsp;their original statement of&nbsp;financial position category unless the counterparty has the right by&nbsp;contract or&nbsp;custom to&nbsp;sell or&nbsp;repledge the securities, in&nbsp;which case they are reclassified and presented separately. Securities borrowed are not recorded in&nbsp;the consolidated financial statements, unless these are sold to&nbsp;third parties, in&nbsp;which case the sale proceeds are recorded as&nbsp;a&nbsp;liability held for trading representing the obligation to&nbsp;repurchase and return the securities. The liability is&nbsp;carried at&nbsp;fair value with effects of&nbsp;remeasurement presented as&nbsp;net gains/ (losses) arising from trading securities in&nbsp;the consolidated income statement. </p>
 			 
<h3>Investment securities held to&nbsp;maturity</h3>

<p>This classification includes quoted non-derivative financial assets with fixed or&nbsp;determinable payments and fixed maturities that the Group has both the intention and ability to&nbsp;hold to&nbsp;maturity. Management determines the classification of&nbsp;investment securities held to&nbsp;maturity at&nbsp;their initial recognition or&nbsp;upon reclassification from available for sale category when the Group changes its expectations and has the ability to&nbsp;hold investment securities which were previously classified as&nbsp;available for sale to&nbsp;maturity. The investment securities held to&nbsp;maturity are carried at&nbsp;amortised cost.</p>
 			 
<h3>Derecognition of&nbsp;financial assets</h3>

<p>The Group derecognises financial assets when (a) the assets are redeemed or&nbsp;the rights to&nbsp;cash flows from the assets otherwise expired&nbsp;or (b) the Group has transferred the rights to&nbsp;the cash flows from the financial assets or&nbsp;entered into a&nbsp;qualifying pass-through arrangement while (i) also transferring substantially all the risks and rewards of&nbsp;ownership of&nbsp;the assets&nbsp;or (ii) neither transferring nor retaining substantially all risks and rewards of&nbsp;ownership but not retaining control. Control is&nbsp;retained if&nbsp;the counterparty does not have the practical ability to&nbsp;sell the asset in&nbsp;its entirety to&nbsp;an&nbsp;unrelated third party without needing to&nbsp;impose additional restrictions on&nbsp;the sale. Refer to&nbsp;paragraph below on&nbsp;treatment of&nbsp;renegotiations which lead to&nbsp;derecognition of&nbsp;financial assets.</p>
 			 
<h3>Renegotiated financial assets</h3>

<p>From time to&nbsp;time in&nbsp;the normal course of&nbsp;business the Group performs restructuring of&nbsp;financial assets, mostly of&nbsp;loans. </p>
 			 
<p><i>Accounting treatment of&nbsp;renegotiations which do&nbsp;not lead to&nbsp;derecognition of&nbsp;financial assets.</i> If&nbsp;terms of&nbsp;an&nbsp;agreement are not materially modified, restructuring of&nbsp;financial instruments leads to&nbsp;reassessment of&nbsp;effective interest rate based on&nbsp;current carrying amount and modified future cash flows. </p>
 			 
<p><i>Accounting treatment of&nbsp;renegotiations which lead to&nbsp;derecognition of&nbsp;financial assets.</i> Material modifications of&nbsp;agreement terms lead to&nbsp;derecognition of&nbsp;a&nbsp;financial asset and a&nbsp;recognition of&nbsp;a&nbsp;new asset at&nbsp;fair value. The following principal modifications in&nbsp;terms are considered to&nbsp;be&nbsp;material:</p>
 			 
<ul> 				 
  <li>Change of&nbsp;currency in&nbsp;which cash flows are denominated;</li>
 				 
  <li>Consolidation or&nbsp;separation of&nbsp;several financial instruments;</li>
 				 
  <li>Present value of&nbsp;the cash flows under the new terms discounted using the original effective interest rate, is&nbsp;at&nbsp;least 10&nbsp;per cent different from the discounted present value of&nbsp;the remaining cash flows of&nbsp;the original financial asset.</li>
 			</ul>
 			 
<p>In&nbsp;all cases if&nbsp;the restructuring of&nbsp;financial assets is&nbsp;due to&nbsp;financial difficulties of&nbsp;a&nbsp;borrower, financial assets are assessed for impairment before recognition of&nbsp;a&nbsp;renegotiation. </p>
 			 
<h3>Goodwill</h3>

<p>Goodwill represents the excess of&nbsp;the aggregate of&nbsp;consideration transferred, any non-controlling interest in&nbsp;the acquiree and the acquisition-date fair value of&nbsp;the acquirer’s previously held equity interest in&nbsp;the acquiree over the net of&nbsp;the acquisition-date amounts of&nbsp;the identifiable assets acquired and the liabilities assumed. Goodwill on&nbsp;acquisitions of&nbsp;subsidiaries is&nbsp;included in&nbsp;other assets or&nbsp;separately disclosed on&nbsp;the face of&nbsp;the statement of&nbsp;financial position if&nbsp;material. Goodwill on&nbsp;acquisitions of&nbsp;associates is&nbsp;included as&nbsp;part of&nbsp;investment in&nbsp;associates. Goodwill is&nbsp;carried at&nbsp;cost less accumulated impairment losses, if&nbsp;any. The Group tests goodwill for impairment at&nbsp;least annually and whenever there are indications that goodwill may be&nbsp;impaired. Goodwill is&nbsp;allocated to&nbsp;the cash-generating units, or&nbsp;groups of&nbsp;cash-generating units, that are expected to&nbsp;benefit from the synergies of&nbsp;the business combination. Such units or&nbsp;group of&nbsp;units represent the lowest level at&nbsp;which the Group monitors goodwill and are not larger than a&nbsp;segment before aggregation. Gains or&nbsp;losses on&nbsp;disposal of&nbsp;an&nbsp;operation within a&nbsp;cash generating unit to&nbsp;which goodwill has been allocated include the carrying amount of&nbsp;goodwill associated with the operation disposed&nbsp;of, generally measured on&nbsp;the basis of&nbsp;the relative values of&nbsp;the operation disposed of&nbsp;and the portion of&nbsp;the cash-generating unit which is&nbsp;retained.</p>
 			 
<h3>Premises and equipment</h3>

<p>Equipment and premises other than office premises are stated at&nbsp;cost less accumulated depreciation. Office premises of&nbsp;the Group are held at&nbsp;revalued amount subject to&nbsp;revaluation to&nbsp;market value on&nbsp;a&nbsp;regular basis. The revaluation gains are recognised in&nbsp;other comprehensive income. The frequency of&nbsp;revaluation depends upon the movements in&nbsp;the fair values of&nbsp;the premises being revalued. The revaluation reserve for office premises included in&nbsp;equity is&nbsp;transferred directly to&nbsp;retained earnings on&nbsp;a&nbsp;straight-line basis as&nbsp;the asset is&nbsp;used by&nbsp;the Group. On&nbsp;the retirement or&nbsp;disposal of&nbsp;the asset the remaining revaluation reserve is&nbsp;immediately transferred to&nbsp;the retained earnings. </p>
 			 
<p>Construction in&nbsp;progress is&nbsp;carried at&nbsp;cost, less provision for impairment where required. Upon completion, assets are transferred to&nbsp;office premises, other premises or&nbsp;equipment at&nbsp;their carrying amount. Construction in&nbsp;progress is&nbsp;not depreciated until the asset is&nbsp;available for use. </p>
 			 
<p>Costs of&nbsp;minor repairs and maintenance are expensed when incurred. Cost of&nbsp;replacing major parts or&nbsp;components of&nbsp;premises and equipment items are capitalised and the replaced part is&nbsp;retired.</p>
 			 
<p>If&nbsp;impaired premises are written down to&nbsp;the higher of&nbsp;their value in&nbsp;use and fair value less costs to&nbsp;sell. The decrease in&nbsp;carrying amount is&nbsp;charged to&nbsp;profit or&nbsp;loss to&nbsp;the extent it&nbsp;exceeds the previous revaluation surplus in&nbsp;other comprehensive income. </p>
 			 
<p>Positive revaluation shall be&nbsp;recognised in&nbsp;profit or&nbsp;loss to&nbsp;the extent that it&nbsp;reverses a&nbsp;negative revaluation of&nbsp;the same asset previously recognised in&nbsp;profit or&nbsp;loss. The amount that exceeds negative revaluation previously charged to&nbsp;profit or&nbsp;loss shall be&nbsp;recognised in&nbsp;other comprehensive income. </p>
 			 
<p>Gains and losses on&nbsp;disposals determined by&nbsp;comparing proceeds with carrying amount are recognised in&nbsp;profit or&nbsp;loss. </p>
 			 
<h3>Depreciation</h3>

<p>Land is&nbsp;not depreciated. Depreciation on&nbsp;other items of&nbsp;premises and equipment is&nbsp;calculated using the straight-line method to&nbsp;allocate cost or&nbsp;revalued amounts of&nbsp;premises and equipment to&nbsp;their residual values over the estimated remaining useful lives. The following annual rates are applied for the main categories of&nbsp;premises and equipment: </p>
 			 
<ul> 				 
  <li>Office premises <nobr>2.5-3.3%;</nobr></li>
 				 
  <li>Other premises 2.5%;</li>
 				 
  <li>Office and computer equipment&nbsp;25%; and</li>
 				 
  <li>Vehicles and other equipment 18%.</li>
 			</ul>
 			 
<p>The residual value of&nbsp;an&nbsp;asset is&nbsp;the estimated amount that the Group would currently obtain from disposal of&nbsp;the asset less the estimated costs of&nbsp;disposal, if&nbsp;the asset was already of&nbsp;the age and in&nbsp;the condition expected at&nbsp;the end of&nbsp;its useful life. The residual value of&nbsp;an&nbsp;asset is&nbsp;nil if&nbsp;the Group expects to&nbsp;use the asset until the end of&nbsp;its physical life. The assets’ residual values and useful lives are reviewed and adjusted if&nbsp;appropriate, at&nbsp;each reporting date. </p>
 			 
<h3>Investment property</h3>

<p>Investment property is&nbsp;property held by&nbsp;the Group to&nbsp;earn rental income or&nbsp;for capital appreciation and which is&nbsp;not occupied by&nbsp;the Group. </p>
 			 
<p>Investment property is&nbsp;stated at&nbsp;fair value which reflects current market value and represents potential price between knowledgeable, willing parties in&nbsp;an&nbsp;arm’s length transaction. Revaluation of&nbsp;investment property is&nbsp;held on&nbsp;each reporting date and recognised in&nbsp;consolidated income statement as&nbsp;gains/losses on&nbsp;investment property revaluation. Earned rental income is&nbsp;recorded in&nbsp;consolidated income statement within other operating income. </p>
 			 
<p>Subsequent expenditure on&nbsp;investment property is&nbsp;capitalised only when it&nbsp;is&nbsp;probable that future economic benefits associated with it&nbsp;will flow to&nbsp;the Group and the cost can be&nbsp;measured reliably. All other repairs and maintenance costs are expensed when incurred.</p>
 			 
<p>If&nbsp;an&nbsp;investment property becomes occupied by&nbsp;the Group, it&nbsp;is&nbsp;reclassified to&nbsp;premises and equipment, and its carrying value at&nbsp;the date of&nbsp;reclassification becomes its deemed cost to&nbsp;be&nbsp;subsequently revalued and depreciated. </p>
 			 
<h3>Operating leases</h3>

<p>Where the Group is&nbsp;a&nbsp;lessee in&nbsp;a&nbsp;lease which does not transfer substantially all the risks and rewards incidental to&nbsp;ownership from the lessor to&nbsp;the Group, the total lease payments are charged to&nbsp;profit or&nbsp;loss on&nbsp;a&nbsp;straight-line basis over the period of&nbsp;the lease.</p>
 			 
<h3>Finance leases</h3>

<p>A&nbsp;finance lease is&nbsp;a&nbsp;lease that transfers substantially all the risks and rewards incidental to&nbsp;ownership of&nbsp;an&nbsp;asset. Where the Group is&nbsp;a&nbsp;lessor lease receivables are recognised at&nbsp;value equal to&nbsp;the net investment in&nbsp;the lease, starting from the date of&nbsp;commencement of&nbsp;the lease term. Finance income is&nbsp;based on&nbsp;a&nbsp;pattern reflecting a&nbsp;constant periodic rate of&nbsp;return on&nbsp;the net investment outstanding. Initial direct costs are included in&nbsp;the initial measurement of&nbsp;the lease receivables. The net investment in&nbsp;finance lease is&nbsp;recorded within loans and advances to&nbsp;customers.</p>
 			 
<h3>Due to&nbsp;banks</h3>

<p>Amounts due to&nbsp;banks are recorded when money or&nbsp;other assets are advanced to&nbsp;the Group by&nbsp;counterparty banks. The non-derivative liability is&nbsp;carried at&nbsp;amortised cost.</p>
 			 
<h3>Due to&nbsp;individuals and corporate customers</h3>

<p>Amounts due to&nbsp;individuals and corporate customers are non-derivative liabilities to&nbsp;individuals and corporate customers (including state agencies) and are carried at&nbsp;amortised cost.</p>
 			 
<h3>Debt securities in&nbsp;issue</h3>

<p>Debt securities in&nbsp;issue include promissory notes, certificates of&nbsp;deposit, savings certificates and other debt securities issued by&nbsp;the Group. Debt securities in&nbsp;issue except structured notes which are described below are stated at&nbsp;amortised cost. If&nbsp;the Group repurchases its debt securities in&nbsp;issue, they are removed from the consolidated statement of&nbsp;financial position and the difference between the carrying amount of&nbsp;the liability and the consideration paid is&nbsp;included in&nbsp;other operating income.</p>
 			 
<h3>Structured notes</h3>

<p>Structured notes are issued by&nbsp;the Group and are stated at&nbsp;fair value. The underlying assets of&nbsp;structured notes are securities issued by&nbsp;Russian companies which cannot be&nbsp;purchased by&nbsp;the Group’s foreign clients directly from the market. Recognition and measurement of&nbsp;these financial liabilities is&nbsp;consistent with the policy for trading securities stated above in&nbsp;this Note. Structured notes are included in&nbsp;Debt securities in&nbsp;issue. </p>
 			 
<h3>Other borrowed funds</h3>

<p>Other borrowed funds represent syndicated loans attracted by&nbsp;the Group on&nbsp;financial markets and trade finance deals. Other borrowed funds are carried at&nbsp;amortised cost. </p>
 			 
<h3>Securities sold, not yet purchased</h3>

<p>Securities sold, not yet purchased are transactions in&nbsp;which the Group sells securities which it&nbsp;does not own, and which it&nbsp;is&nbsp;obligated to&nbsp;deliver at&nbsp;a&nbsp;future date. Such transactions are initially recorded at&nbsp;cost as&nbsp;liabilities and then are carried at&nbsp;fair value. Any unrealized gain or&nbsp;loss is&nbsp;recorded in&nbsp;the consolidated income statement in&nbsp;net gains/ (losses) arising from trading securities for the difference between the proceeds receivable from the sale and the value of&nbsp;the open short position. The Group realizes a&nbsp;gain or&nbsp;loss when the short position is&nbsp;closed. Valuation of&nbsp;securities sold, not yet purchased is&nbsp;consistent with the accounting policy of&nbsp;the Group for trading securities.</p>
 			 
<h3>Subordinated debt</h3>

<p>Subordinated debt represents long-term funds attracted by&nbsp;the Group on&nbsp;the international financial markets or&nbsp;domestic market. The holders of&nbsp;subordinated debt would be&nbsp;subordinate to&nbsp;all other creditors to&nbsp;receive repayment on&nbsp;debt in&nbsp;case of&nbsp;the Bank liquidation. Subordinated debt is&nbsp;carried at&nbsp;amortised cost.</p>
 			 
<h3>Derivative financial instruments</h3>

<p>Derivative financial instruments, including forward and future contracts, option contracts on&nbsp;financial instruments and Swap contracts are carried at&nbsp;their fair value. All derivative instruments are carried as&nbsp;assets when fair value is&nbsp;positive and as&nbsp;liabilities when fair value is&nbsp;negative. Changes in&nbsp;the fair value of&nbsp;foreign exchange derivative financial instruments are included in&nbsp;the Consolidated income statement in&nbsp;net gains/ (losses) arising from trading in&nbsp;foreign currencies, operations with foreign currency derivatives and foreign exchange translation; changes in&nbsp;the fair value of&nbsp;derivative financial instruments on&nbsp;precious metals are included in&nbsp;net gains/(losses) arising from operations with precious metals and precious metals derivatives; changes in&nbsp;the fair value of&nbsp;derivatives on&nbsp;securities, interest rates and other derivatives&nbsp;— in&nbsp;net gains/(losses) arising from operations with other derivatives. The Group does not apply “hedge accounting” according to&nbsp;IAS 39.</p>
 			 
<h3>Income taxes</h3>

<p>Income taxes have been provided for in&nbsp;the consolidated financial statements in&nbsp;accordance with Russian legislation and legislation of&nbsp;other jurisdictions in&nbsp;which the Group performs business enacted or&nbsp;substantively enacted by&nbsp;the reporting date. The income tax charge comprises current tax and deferred tax and is&nbsp;recognised in&nbsp;the profit or&nbsp;loss except if&nbsp;it&nbsp;is&nbsp;recognised in&nbsp;other comprehensive income because it&nbsp;relates to&nbsp;transactions that are also recognised, in&nbsp;the same or&nbsp;a&nbsp;different period, in&nbsp;other comprehensive income. </p>
 			 
<p>Current tax is&nbsp;the amount expected to&nbsp;be&nbsp;paid to&nbsp;or&nbsp;recovered from the taxation authorities in&nbsp;respect of&nbsp;taxable profits or&nbsp;losses for the current and prior periods. Taxes, other than on&nbsp;income, are recorded within operating expenses.</p>
 			 
<p>Deferred income tax is&nbsp;recognised for tax loss carry forwards and temporary differences arising between the tax bases of&nbsp;assets and liabilities and their carrying amounts for financial reporting purposes. In&nbsp;accordance with the initial recognition exemption, deferred taxes are not recognised for temporary differences on&nbsp;initial recognition of&nbsp;goodwill or&nbsp;any other asset or&nbsp;liability if&nbsp;the transaction, when initially recorded, affects neither accounting nor taxable profit. </p>
 			 
<p>Deferred tax balances are measured at&nbsp;tax rates enacted or&nbsp;substantively enacted at&nbsp;the reporting date which are expected to&nbsp;apply to&nbsp;the period when the temporary differences will reverse or&nbsp;the tax loss carry forwards will be&nbsp;utilised. Deferred tax assets and liabilities are netted only within the individual companies of&nbsp;the Group.</p>
 			 
<p>Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded in&nbsp;the statement of&nbsp;financial position only to&nbsp;the extent that it&nbsp;is&nbsp;probable that future taxable profit will be&nbsp;available against which the deductions can be&nbsp;utilised. </p>
 			 
<p>Deferred income tax is&nbsp;provided on&nbsp;post acquisition retained earnings of&nbsp;subsidiaries, except where the Group controls the subsidiary’s dividend policy and it&nbsp;is&nbsp;probable that the difference will not reverse through dividends or&nbsp;otherwise in&nbsp;the foreseeable future.</p>
 			 
<h3>Provision for liabilities and charges</h3>

<p>Provisions for liabilities and charges are non-financial liabilities of&nbsp;uncertain timing or&nbsp;amount. They are accrued when the Group has a&nbsp;present legal or&nbsp;constructive obligation as&nbsp;a&nbsp;result of&nbsp;past events, it&nbsp;is&nbsp;probable that an&nbsp;outflow of&nbsp;resources embodying economic benefits will be&nbsp;required to&nbsp;settle the obligation, and a&nbsp;reliable estimate of&nbsp;the amount of&nbsp;the obligation can be&nbsp;made.</p>
 			 
<h3>Trade and other payables</h3>

<p>Trade payables are accrued when the counterparty performed its obligations under the contract and are carried at&nbsp;amortised cost. </p>
 			 
<h3>Share premium</h3>

<p>Share premium represents the excess of&nbsp;contributions over the nominal value of&nbsp;the shares issued.</p>
 			 
<h3>Preference shares</h3>

<p>Preference shares are not redeemable. Dividend payments are at&nbsp;the discretion of&nbsp;the Bank. When a&nbsp;dividend is&nbsp;paid, the preference shares attract a&nbsp;minimum payment of&nbsp;annual dividends of&nbsp;15% of&nbsp;their nominal value, subject to&nbsp;confirmation of&nbsp;the shareholders’ meeting. Preference shares are classified as&nbsp;a&nbsp;part of&nbsp;equity. </p>
 			 
<h3>Treasury shares</h3>

<p>Where the Bank or&nbsp;its subsidiaries purchase the Bank’s equity instruments, the consideration paid including any attributable incremental external costs net of&nbsp;income taxes is&nbsp;deducted from equity until they are cancelled or&nbsp;disposed&nbsp;of. Where such shares are subsequently disposed or&nbsp;reissued, any consideration received is&nbsp;included in&nbsp;equity.</p>
 			 
<h3>Dividends</h3>

<p>Dividends are recorded in&nbsp;equity in&nbsp;the period in&nbsp;which they are declared. Dividends declared after the reporting date and before the consolidated financial statements are authorised for issue are disclosed in&nbsp;the subsequent events note. Dividends are calculated based on&nbsp;IFRS net profit and distributed out from statutory net results.</p>
 			 
<h3>Income and expense recognition</h3>

<p>Interest income and expense are recorded in&nbsp;profit or&nbsp;loss for interest-bearing instruments on&nbsp;an&nbsp;accrual basis using the effective interest rate method. This method defers, as&nbsp;part of&nbsp;interest income or&nbsp;expense, all fees paid or&nbsp;received between the parties to&nbsp;the contract that are an&nbsp;integral part of&nbsp;the effective interest rate, transaction costs and all other premiums or&nbsp;discounts. </p>
 			 
<p>Fees integral to&nbsp;the effective interest rate include origination fees received or&nbsp;paid by&nbsp;the entity relating to&nbsp;the creation or&nbsp;acquisition of&nbsp;a&nbsp;financial asset or&nbsp;issuance of&nbsp;a&nbsp;financial liability, for example fees for evaluating creditworthiness, evaluating and recording guarantees or&nbsp;collateral, negotiating the terms of&nbsp;the instrument and for processing transaction documents. Commitment fees received by&nbsp;the Group to&nbsp;originate loans at&nbsp;market interest rates are integral to&nbsp;the effective interest rate if&nbsp;it&nbsp;is&nbsp;probable that the Group will enter into a&nbsp;specific lending arrangement and does not expect to&nbsp;sell the resulting loan shortly after origination. The Group does not designate loan commitments as&nbsp;financial liabilities at&nbsp;fair value through profit or&nbsp;loss.</p>
 			 
<p>When loans and other debt instruments become doubtful of&nbsp;collection, they are written down to&nbsp;present value of&nbsp;expected cash inflows and interest income is&nbsp;thereafter recorded based on&nbsp;the asset’s original effective interest rate which was used to&nbsp;measure the impairment loss and net exposure.</p>
 			 
<p>Commissions and fees arising from negotiating, or&nbsp;participating in&nbsp;the negotiation of&nbsp;a&nbsp;transaction for a&nbsp;third party, such as&nbsp;the acquisition of&nbsp;loans, shares or&nbsp;other securities or&nbsp;the purchase or&nbsp;sale of&nbsp;businesses, which are earned on&nbsp;execution of&nbsp;the underlying transaction are recorded on&nbsp;its completion. Portfolio and other management advisory and service fees are recognised based on&nbsp;the applicable service contracts, usually on&nbsp;a&nbsp;time-proportion basis. Trust and custody services fees related to&nbsp;investment funds are recorded proportionally over the period the service is&nbsp;provided. </p>
 			 
<p>All other fees, commissions and other income and expense items are generally recorded on&nbsp;an&nbsp;accrual basis by&nbsp;reference to&nbsp;completion of&nbsp;the specific transaction assessed on&nbsp;the basis of&nbsp;the actual service provided as&nbsp;a&nbsp;proportion of&nbsp;the total services to&nbsp;be&nbsp;provided. </p>
 			 
<h3>Credit related commitments</h3>

<p>The Group enters into credit related commitments, including letters of&nbsp;credit and financial guarantees. Financial guarantees represent irrevocable assurances to&nbsp;make payments in&nbsp;the event that a&nbsp;customer cannot meet its obligations to&nbsp;third parties and carry the same credit risk as&nbsp;loans. Financial guarantees and commitments to&nbsp;provide a&nbsp;loan are initially recognised at&nbsp;their fair value, which is&nbsp;normally evidenced by&nbsp;the amount of&nbsp;fees received. This amount is&nbsp;amortised on&nbsp;a&nbsp;straight line basis over the life of&nbsp;the commitment, except for commitments to&nbsp;originate loans if&nbsp;it&nbsp;is&nbsp;probable that the Group will enter into a&nbsp;specific lending arrangement and does not expect to&nbsp;sell the resulting loan shortly after origination; such loan commitment fees are deferred and included in&nbsp;the carrying value of&nbsp;the loan on&nbsp;initial recognition. </p>
 			 
<h3>Foreign currency translation</h3>

<p>The functional currency of&nbsp;each of&nbsp;the Group’s consolidated entities is&nbsp;the currency of&nbsp;the primary economic environment in&nbsp;which the entity operates. The Bank’s functional currency and the Group’s presentation currency is&nbsp;the national currency of&nbsp;the Russian Federation, Russian Roubles (“RUB”). </p>
 			 
<p>Monetary assets and liabilities are translated into each entity’s functional currency at&nbsp;the applicable exchange rate at&nbsp;the respective reporting dates. Foreign exchange gains and losses resulting from the settlement of&nbsp;the transactions and from the translation of&nbsp;monetary assets and liabilities into each entity’s functional currency are recognised in&nbsp;profit or&nbsp;loss. Effects of&nbsp;exchange rate changes on&nbsp;the fair value of&nbsp;equity instruments are recorded as&nbsp;part of&nbsp;the fair value gain or&nbsp;loss.</p>
 			 
<p>The results and financial position of&nbsp;each group entity (except for the subsidiary bank in&nbsp;Belarus the economy of&nbsp;which is&nbsp;considered hyperinflationary) are translated into the presentation currency as&nbsp;follows: </p>
 			 
<p>(I) assets and liabilities for each statement of&nbsp;financial position presented are translated at&nbsp;the applicable closing rate at&nbsp;the respective reporting date; </p>
 			 
<p>(II) income and expenses for each statement of&nbsp;comprehensive income are translated either at&nbsp;the rates prevailing at&nbsp;the dates of&nbsp;the transactions or&nbsp;at&nbsp;average exchange rates (in&nbsp;case this average is&nbsp;a&nbsp;reasonable approximation of&nbsp;the cumulative effect of&nbsp;the rates prevailing on&nbsp;the transaction dates).</p>
 			 
<p>The results and financial position of&nbsp;an&nbsp;entity whose functional currency is&nbsp;the currency of&nbsp;a&nbsp;hyperinflationary economy shall be&nbsp;translated into a&nbsp;different presentation currency using the following procedure: all amounts (ie&nbsp;assets, liabilities, equity items, income and expenses, including comparatives) shall be&nbsp;translated at&nbsp;the closing rate at&nbsp;the date of&nbsp;the most recent statement of&nbsp;financial position.</p>
 			 
<p>When amounts are translated into the currency of&nbsp;a&nbsp;non-hyperinflationary economy, comparative amounts shall be&nbsp;those that were presented as&nbsp;current year amounts in&nbsp;the relevant prior year financial statements (ie&nbsp;not adjusted for subsequent changes in&nbsp;the price level or&nbsp;subsequent changes in&nbsp;exchange rates).</p>
 			 
<p>Exchange differences arising on&nbsp;the translation of&nbsp;results and financial position of&nbsp;each of&nbsp;the Group’s consolidated entities are included in&nbsp;other components of&nbsp;comprehensive income and taken to&nbsp;a&nbsp;separate component of&nbsp;equity.</p>
 			 
<p>The cumulative balance of&nbsp;currency translation differences presented in&nbsp;equity at&nbsp;31&nbsp;December 2012 amounted to&nbsp;a&nbsp;loss of&nbsp;4.7 billion RUB (31&nbsp;December 2011: a&nbsp;loss of&nbsp;5.7 billion RUB). </p>
 			 
<p>At&nbsp;31 December 2012 the principal rates of&nbsp;exchange used for translating each entity’s functional currency into the Group’s presentation currency and foreign currency monetary balances were as&nbsp;follows:</p>
 			 
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  <table> 				 					 					 					 					 					 					 					 					 				 				<thead> 					 
      <tr> <th></th> <th>/RUR</th> <th>/UAH</th> <th>/BYR</th> <th>/KZT</th> <th>/EUR</th> <th>/CHF</th> <th>/TRY</th> 					</tr>
     				</thead> 				 
    <tbody> 					 
      <tr><td>RUR/</td> <td>1</td> <td>0.266</td> <td>282.985</td> <td>4.948</td> <td>0.025</td> <td>0.030</td> <td>0.059</td> 					</tr>
     					 
      <tr><td>USD/</td> <td>30.373</td> <td>8.080</td> <td>8,595.009</td> <td>150.280</td> <td>0.755</td> <td>0.912</td> <td>1.790</td> 					</tr>
     					 
      <tr> <td>EUR/</td> <td>40.229</td> <td>10.702</td> <td>11,384.078</td> <td>199.046</td> <td>1</td> <td>1.208</td> <td>2.371</td> 					</tr>
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<p>At&nbsp;31 December 2011 the principal rates of&nbsp;exchange used for translating each entity’s functional currency into the Group’s presentation currency and foreign currency monetary balances were as&nbsp;follows:</p>
 			 
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  <table> 				 					 					 					 					 					 					 					 					 				 				<thead> 					 
      <tr> <th></th> <th>/RUR</th> <th>/UAH</th> <th>/BYR</th> <th>/KZT</th> <th>/EUR</th> <th>/CHF</th> <th>/TRY</th> 					</tr>
     				</thead> 				 
    <tbody> 					 
      <tr><td>RUR/</td> <td>1</td> <td>0.250</td> <td>259.348</td> <td>4.611</td> <td>0.024</td> <td>0.029</td> <td>0.059</td> 					</tr>
     					 
      <tr><td>USD/</td> <td>32.196</td> <td>8.038</td> <td>8,350.001</td> <td>148.455</td> <td>0.773</td> <td>0.940</td> <td>1.913</td> 					</tr>
     					 
      <tr> <td>EUR/</td> <td>41.671</td> <td>10.404</td> <td>10,807.403</td> <td>192.146</td> <td>1</td> <td>1.217</td> <td>2.477</td> 					</tr>
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<h3>Accounting for the effects of&nbsp;hyperinflation</h3>

<p>With the effect from 1&nbsp;January 2011, the Belorusian economy is&nbsp;considered to&nbsp;be&nbsp;hyperinflationary in&nbsp;accordance with the criteria in&nbsp;IAS 29&nbsp;<i>Financial Reporting in&nbsp;Hyperinflationary Economies</i> (“IAS 29”). The standard requires that the financial statements prepared in&nbsp;the currency of&nbsp;a&nbsp;hyperinflationary economy be&nbsp;stated in&nbsp;terms of&nbsp;the measuring unit current at&nbsp;the reporting date. </p>
 			 
<p>In&nbsp;applying IAS&nbsp;29, the Group has used conversion factors derived from the Belorusian consumer price index (“CPI”), published by&nbsp;the State Committee on&nbsp;Statistics of&nbsp;the Republic of&nbsp;Belarus. The CPIs for the six year period and respective conversion factors after Belarus previously ceased to&nbsp;be&nbsp;considered hyperinflationary on&nbsp;1&nbsp;January 2006 were as&nbsp;follows:</p>
 			 
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  <table> 				 					 					 					 				 				<thead> 					 
      <tr> <th>Year</th> <th>Index, %</th> <th>Conversion factors</th> 					</tr>
     				</thead> 				 
    <tbody> 					 
      <tr><td>2006</td> <td>106.5</td> <td>389.9</td> 					</tr>
     					 
      <tr><td>2007</td> <td>112.0</td> <td>348.2</td> 					</tr>
     					 
      <tr><td>2008</td> <td>113.5</td> <td>306.9</td> 					</tr>
     					 
      <tr><td>2009</td> <td>109.9</td> <td>279.4</td> 					</tr>
     					 
      <tr><td>2010</td> <td>110.0</td> <td>253.9</td> 					</tr>
     					 
      <tr><td>2011</td> <td>208.7</td> <td>121.7</td> 					</tr>
     					 
      <tr> <td>2012</td> <td>121.7</td> <td>100.0</td> 					</tr>
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<p>Monetary assets and liabilities are not restated because they are already expressed in&nbsp;terms of&nbsp;the monetary unit current as&nbsp;of&nbsp;31&nbsp;December 2012. Non-monetary assets and liabilities (items which are not already expressed in&nbsp;terms of&nbsp;the monetary unit current as&nbsp;of&nbsp;31&nbsp;December 2012) are restated by&nbsp;applying the relevant index. The effect of&nbsp;inflation on&nbsp;the Group’s net monetary position is&nbsp;included in&nbsp;profit or&nbsp;loss.</p>
 			 
<h3>Fiduciary assets</h3>

<p>Assets and liabilities held by&nbsp;the Group in&nbsp;its own name, but on&nbsp;the account of&nbsp;third parties, are not reported on&nbsp;the consolidated statement of&nbsp;financial position. The extent of&nbsp;such balances and transactions is&nbsp;indicated in&nbsp;<a href="/en/financial-statement/consolidated-financial-statement/notes-to-consolidated-financial-statements/33.php" target="_blank" >Note&nbsp;33</a>. For the purposes of&nbsp;disclosure, fiduciary activities do&nbsp;not encompass safe custody functions. Commissions received from fiduciary activities are shown in&nbsp;fee and commission income. </p>
 			 
<h3>Assets under management</h3>

<p>The Group has set up&nbsp;mutual investment funds and acts as&nbsp;the manager of&nbsp;their assets. The assets of&nbsp;these funds do&nbsp;not represent assets of&nbsp;the Group and therefore are not reported on&nbsp;the consolidated statement of&nbsp;financial position. The management fee income is&nbsp;recorded in&nbsp;the consolidated income statement within fee and commission income.</p>
 			 
<h3>Contingent assets</h3>

<p>Contingent assets are possible assets that arise from past events and whose existence will be&nbsp;confirmed only by&nbsp;the occurrence or&nbsp;non-occurrence of&nbsp;one or&nbsp;more uncertain future events not wholly within the control of&nbsp;the Group. Contingent assets are not recognised by&nbsp;the Group in&nbsp;its consolidated statement of&nbsp;financial position, but disclosed in&nbsp;the notes to&nbsp;the consolidated financial statements if&nbsp;inflow of&nbsp;economic benefits is&nbsp;probable.</p>
 			 
<h3>Offsetting</h3>

<p>Financial assets and liabilities are offset and the net amount reported in&nbsp;the consolidated statement of&nbsp;financial position only when there is&nbsp;a&nbsp;legally enforceable right to&nbsp;offset the recognised amounts, and there is&nbsp;an&nbsp;intention to&nbsp;either settle on&nbsp;a&nbsp;net basis, or&nbsp;to&nbsp;realise the asset and settle the liability simultaneously.</p>
 			 
<h3>Earnings per share</h3>

<p>Preference shares are not redeemable and are not considered to&nbsp;be&nbsp;participating shares. Earnings per share are determined by&nbsp;dividing the profit or&nbsp;loss attributable to&nbsp;equity holders of&nbsp;the Bank by&nbsp;the weighted average number of&nbsp;ordinary shares outstanding during the reporting period, excluding treasury shares. </p>
 			 
<h3>Staff costs and related contributions</h3>

<p>Wages, salaries, contributions to&nbsp;the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, pensions, bonuses, and non-monetary benefits are accrued in&nbsp;the year in&nbsp;which the associated services are rendered by&nbsp;the employees of&nbsp;the Group. </p>
 			 
<h3>Segment reporting</h3>

<p>The Group determined its operating segments on&nbsp;the basis of&nbsp;organizational structure of&nbsp;the Group and geographical areas. Operating segments are reported in&nbsp;a&nbsp;manner consistent with the internal reporting provided to&nbsp;the Management Board. Segments whose revenue, result or&nbsp;assets are&nbsp;10% or&nbsp;more of&nbsp;all the segments are reported separately.</p>
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								Ваше имя<font color='red'><span class='form-required starrequired'>*</span></font>							</td>
			<td><input type="text"  class="inputtext"  name="form_text_2" value="" size="0" /></td>
		</tr>
			<tr>
			<td>
								Кому отправить<font color='red'><span class='form-required starrequired'>*</span></font>							</td>
			<td><input type="text"  class="inputtext"  name="form_email_3" value="" size="0" /></td>
		</tr>
			<tr>
			<td>
								Ваш комментарий							</td>
			<td><textarea name="form_textarea_4" cols="40" rows="5"  class="inputtextarea" ></textarea></td>
		</tr>
		</tbody>
	<tfoot>
		<tr>
			<th colspan="2">
				<input  type="submit" name="web_form_submit" value="Сохранить" />
								&nbsp;<input type="reset" value="Reset" />
			</th>
		</tr>
	</tfoot>
</table>
<p>
<font color='red'><span class='form-required starrequired'>*</span></font> - Required fields</p>
</form></div>    </div>

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