Annual Report 2011
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Operations on financial markets

Breakdown of revenues from
securities transactions, 2011

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In the first half of 2011, domestic and foreign financial markets continued to recover after the crisis of 2008-09. Interest rates were relatively low, inflation was moderate, demand for investment and consumer durables was relatively solid, and energy prices rose. All these factors pushed Russian stock market indexes higher and caused the ruble to appreciate against major world currencies.

In the second half of the year, risk aversion of domestic investors increased due to rising tension on global financial markets (especially in Europe and the US). Combined with volatility in world oil prices, this led to a weakening of the national currency, a fall in stock market indexes, short-term capital outflows and a deterioration in banking liquidity.

The Central Bank implemented measures aimed at increasing the flexibility of the ruble and maintaining an effective interest rate policy. In the first half of 2011, it twice raised its refinancing rate and interest rates on its operations; then in December, it cut rates. The instability of the global economy ultimately had a moderately negative impact on the financial and economic situation in Russia. At the same time, the domestic market was substantially supported by low public debt and higher world energy prices.

Bank Vozrozhdenie’s priority on financial markets in 2011 was diversifying its securities portfolio to maintain strong liquidity, reduce risk and increase return on assets. The Bank focused on transactions with debt instruments and work on the interbank lending market. Last year, the Bank conducted securities transactions totaling RUB 48 billion through auctions on MICEX and on the OTC market. The average size of its securities portfolio was RUB 14 billion.

The bulk of the Bank’s operations in debt instruments involved Central Bank bonds, sovereign Eurobonds and high-quality municipal and corporate Eurobonds that provide an optimum combination of profitability, reliability and liquidity. The portfolio also included “quasi-sovereign” corporate bonds, bluechip securities and municipal bonds with a put/redemption within one year.

The Bank also carried out operations on the stock market with shares of blue-chip Russian companies, especially those in the commodity sectors.

The quality of the securities portfolio enabled the Bank to minimize losses during the market correction in the second half of 2011.

Meanwhile, the interbank lending market experienced a gradual liquidity squeeze. This pushed interest rates on overnight interbank loans up from 2.7% at the beginning of 2011 to 5% at the end of the year.

Throughout 2011, the Bank continued to participate actively in the interbank lending market, placing funds in rubles and foreign currencies. Interbank loans were granted via credit lines with highly reliable banks using high-quality assets as collateral.

Some of the Bank’s available funds were placed in deposits with the Central Bank to maintain liquidity.

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International funding

In 2011, Bank Vozrozhdenie worked closely with financial institutions under existing agreements and developed relationships with new foreign partners.

The Bank continued to place funds secured through an agreement with the European Bank for Reconstruction and Development (EBRD), aimed at supporting the real economy. Tranches of credit lines totaling US$35 million were fully utilized for lending to SMEs, and US$16 million was allocated from the EBRD’s Small Business Fund Bank to micro- and small businesses.

Through credit lines from numerous foreign lending institutions, the Bank organized backing for letters of credit and drew short-term loans to cover clients’ foreign trade contracts. To attract long-term loans from overseas banks to finance foreign trade contracts, clients used the EBRD guarantees and insurance coverage of the national export credit agencies of Germany, Italy, the Netherlands, Denmark, the Czech Republic and other countries.

Meanwhile, the Bank increased the number of counterparty banks used in international funding. In particular, a framework loan agreement was signed with German bank Unicredit Bank AG, which also applies to other banks in the Unicredit group. This stipulated the involvement of medium-term loans (up to five years) guaranteed by national export credit agencies to finance the projects of Bank Vozrozhdenie’s clients.

In 2011, the Bank signed a total of 34 deals to attract international loans, including 20 short-term loans totaling some US$23.5 million and 14 long-term loans (three to five years) amounting to around US$43 million. In addition, an issue of five guarantees by foreign banks, including undertakings regarding performance and payment, was organized on behalf of clients.

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Priorities on financial markets in 2012

In 2012, the Bank’s operations on financial markets will focus on further diversifying the securities portfolio to maintain sufficient liquidity, reduce risk and increase return on assets. The Bank will continue to carry out transactions with government securities, including sub-federal and municipal debt and Central Bank bonds. The Bank aims to use investments in government and Central Bank bonds as a tool for managing liquidity. It will also operate on the interbank market, placing free funds in loans and deposits with highly reliable banks.

Meanwhile, the Bank will continue to enter into master agreements for deposit, foreign-exchange and securities transactions with Russian and foreign banks. These include agreements with the International Swaps and Derivatives Association (ISDA), as well as contracts for information services with brokerage firms. There are plans to hold talks with the major clearing banks to reduce fees for servicing correspondent accounts.

The Bank also intends to increase the volume of credit lines and terms of lending from foreign banks, as well as the number of bank counterparties using in international financing. The number of foreign banks funds engaged for trade financing is expected to be at least the same as in 2011.

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IR contacts

Tel.:  +7 (495) 620 9071
Fax: +7 (495) 620 1953
Web-site: http://www.vbank.ru
Email:  investor@voz.ru

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