Annual Report • Apr 29, 2021
Annual Report
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ANNUAL REPORT 2020 TCS GROUP HOLDING PLC
Summary of presentation of financial and other information:
All financial information in this report is derived from the consolidated financial statements of TCS Group Holding PLC and has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of Cyprus Companies Law, Cap 113, which have been included in this report. A detailed description of the presentation of financial and other information is set out from page F-1 of this report.
Data: Market data used in this report, including statistics in respect of market share, have been extracted from official and industry sources TCS Group Holding PLC believes to be reliable and is sourced where it appears. Such information, data and statistics may be approximations or estimates. Some of the market data in this document has been derived from official data of Russian government agencies, including the CBRF, Rosstat and the FSFM. Data published by Russian federal, regional and local governments are substantially less complete or researched than those of Western countries.
| Board of directors. | 44 |
|---|---|
| Tinkoff group: decision making bodies at a glance. | 46 |
| Corporate governance. | 48 |
| Management team. | 54 |
Forward looking statements: Certain statements and/or other information included in this document may not be historical facts and may constitute "forward looking statements". The words "believe", "expect", "anticipate", "intend", "estimate", "plan", "forecast", "target", "project", "will", "may", "should" and similar expressions may identify forward looking statements but are not the exclusive means of identifying such statements. Forward looking statements include statements concerning our plans, expectations, projections, objectives, targets, goals, strategies, future events, future revenues, operations or performance, capital expenditures, financing needs, our plans or intentions relating to the expansion or contraction of our business as well as specific acquisitions and dispositions, our competitive strengths and weaknesses, our plans or goals relating to forecasted operations, reserves, financial position and future operations and development, our business strategy and the trends we anticipate in the industry and the political, economic, social and legal environment in which we operate, together with the assumptions underlying these forward looking statements. We do not make any representation, warranty or prediction that the results anticipated by such forward looking statements will be achieved.
Nothing in this document constitutes an invitation to invest in securities of TCS Group.
TCS Group is Russia's leading provider of online financial and lifestyle services via its Tinkoff Ecosystem.
| STRATEGIC REVIEW | DIRECTORS' REVIEW |
|---|---|
| About us. . | Board of directors. |
| 2 | 44 |
| 2020 Highlights. . | Tinkoff group: decision making bodies at a glance. |
| 4 | 46 |
| Our history. . | Corporate governance. |
| 5 | 48 |
| Business model. . | Management team. |
| 6 | 54 |
| Market сontext and position. . 8 |
|
| Strategy. . 12 |
FINANCIALS |
| What makes us different. . 14 |
International Financial Reporting Standards |
| CEO strategic review. . 18 |
Consolidated Financial Statements and Independent |
| Our recent awards. | Auditor's Report 2020. |
| 23 | F-1 |
| CFO financial review. | International Financial Reporting Standards |
| 24 | Separate Financial Statements and Independent |
| Asset, liability and risk management. | Auditor's Report 2020. . |
| 30 | F-137 |
| Corporate social responsibility. 36 |
|
| Employees and corporate social responsibility. | GLOSSARY. . |
| 39 | G-1 |
| INVESTOR INFORMATION. G-3 |
*Source: Global Finance
Utilities payments
Business account
Business loans • Accounting
Deposits
Investment strategy
Fines
• Own mobile network code • Own SIM cards
13.3mn Total customers
Life
Higher deposit rates
Higher P2P transfer limits
E-commerce
9.1mn Active customers
9.3mn monthly active users
3.2mn daily active users
№1 World's Best Consumer
Digital Bank*
LIFESTYLE BANKING IN YOUR MOBILE PHONE
626.8 RUBbn
44.2 RUBbn
13.1
%
+0.8 mn
N1.0 at the end of 2020
New credit customers
2020 44.2
• Launch of CoronaIndex, to showcase how transactional activity across the Tinkoff customer base responded to the pandemic
• Voice assistant 'Oleg' integrated into the mobile apps of Tinkoff Investments and Tinkoff Mobile
• Tinkoff non-credit product customers overtakes the number of credit product customers for the first time
• Tinkoff deploys its cloud home call centre platform to assist the Moscow City Government in fielding calls on pandemic-related problems
• Tinkoff maintains dividend policy through 2020, paying four interim dividends (total \$0.80 per GDR).
• Increased equity stake in CloudPayments from 55% to 95% • Launch of Tinkoff Mobile • Roll-out of own ATM's across Russia
• Acquisition of a 55% stake in CloudPayments
• Launch of Stories for mobile app
• A partnership with Skolkovo Innovation Center announced • Tinkoff joined the FinTech Association
• Became Russia's second largest credit card provider • Launched a range of new business lines, transitioning to online financial marketplace Tinkoff.ru • Issued new co-branded cards • New brand - Tinkoff Bank
• Launch of a number of mono mobile applications
• Launch of mobile banking • Launch of the mobile and telesales sub-channels of Tinkoff Bank online customer acquisition platform • Launch of online acquisition channel for credit cards • Launch of "smart courier" service
• Launch of internet bank • First credit card issued • Tinkoff Credit Systems Bank was created by Oleg Tinkov
TCS Group has built an advanced platform that is highly suit- ed for the Russian market and operating environment. The Group's platform is entirely branchless, with a low fixed cost base and high degree of operating flexibility. Cost efficien- cies are enhanced by its best-in-class centralised IT system, with continued investments and advancements in the field of artificial intelligence and machine learning. The low level of retail financial services penetration in Russia, the rapid growth of online and mobile payments, and high margins and barriers to entry make our business model attractive in terms of sustainable profitability, growth potential and competitive edge.
TCS Group employs a highly scientific, data-driven and conservative risk management approach, which underpins the success of the business model. All aspects of the client life cycle – from acquisition to services and collections – are carefully monitored and evaluated. We make loan approval decisions based on a range of available information, including credit bureau data, a rigorous application verification process and proprietary scoring models.
Originally the first purpose-built credit card focused lender in Russia, Tinkoff has evolved into a fully digital advanced online financial and lifestyle ecosystem, providing a wide range of its own retail financial services such as retail lending, transactional, savings products, insurance, SME, internet acquiring, securi- ties dealing, mobile solutions as well as non-Tinkoff products through its marketplace built-in the superapp. Tinkoff continues to operate both in the mass market and mass affluent segments by way of offering an ever expanding range of financial services and targeted lifestyle recommendations, advice and entertainment features.
Tinkoff has established a robust liquidity risk management framework that ensures it maintains sufficient liquidity, including a significant cushion of liquid assets. TCS Group's funding strategy provides effective diversification in the sources and tenor of funding. The Group maintains strong relationships with market participants to promote effective diversification of funding sources.
WELL BEYOND FINANCIAL SERVICES. COMBINED WITH A SMART BALANCE SHEET, A BEST IN CLASS BROKER PLATFORM SOLUTION AND AN INTEGRATED ARTIFICIAL INTELLIGENCE AND MACHINE LEARNING ALGORITHMS IT GIVES THE UNIQUE COMPETITIVE ADVANTAGE IN A RAPIDLY DEVELOPING FINTECH MARKET
Tinkoff is a fully digital ecosystem offering customers the full range of financial, transactional, and lifestyle services. Through our mobile and internet platforms we offer Tinkoff-branded products – credit products, current accounts, deposits, securities dealing, insurance and mobile solutions, as well as non-Tinkoff products through our lifestyle marketplace. For small businesses, we offer current accounts, transactional services, credit products salary projects and on- line merchant acquiring. We deliver premium services to mass market and mass affluent customers in Russia through a unique online, branchless platform.
Tinkoff offers remote access customer service through its award-winning mobile banking as well as through internet banking and high-volume call centres. Our use of direct marketing channels has revolutionised the way customers are acquired in Russia. Distribution channels, which include online (the Internet, mobile services and telesales) and direct sales agents, allow TCS Group to attract new customers right across the country. Supporting the branchless platform is a "smart courier" network which allows next day delivery along with unlocking the huge cross-sell potential of that delivery force.
TCS Group is unusual among Russian retail financial services providers in offering a premium-level service to mass market and mass affluent customers. Our customers enjoy conven ient 24 hours a day, 7 days a week access to their accounts and financial transaction services through the combination of Tinkoff's free mobile, Internet, call centre service and chat bots platforms.
STRATEGIC REVIEW DIRECTORS' REVIEW FINANCIALS
2020 has been a ground shaking year across the globe in many industries, but in the Russian credit market the dislocations proved less impactful than during the previous crises of 2008-09 or 2013-2015, in part helped by government support and more disciplined lending practices of the biggest banks. In 2020 the CBR relaxed risk weights for the first time in many years. This coupled with restructuring programs launched by many banks helped the credit card market to still grow by 1.6% in 2020.
In 2020 Tinkoff further enhanced its position as the number 2 credit card player in Russia after Sberbank increasing its market share to 14%. In the overall consumer credit market (loans < 3 years) Tinkoff market share also increased to 8.6% as it kept its second place. Secured lending (home equity and car loans) remained key contributor to Group's lending portfolio growth due to their continued scale up. Overall despite elevated risk costs amid Covid, Tinkoff's credit business remains extremely profitable and should continue to contribute to growth in future years.
*6th largest player in RUB balances, 3rd largest in number of customers
*Group MAU and Group DAU refers to unique monthly and daily active users of all Tinkoff platforms (including Tinkoff Banking App, Tinkoff Investments, Tinkoff Internet Banking, SME, Tinkoff Junior, and other smaller platforms)
2020 saw a surge in retail interest in equity market amid heightened volatility and suppressed deposit interest rates. Tinkoff Investments acted as a primary driver of this market as Tinkoff's Investment's active client base reached 1 mn, quadrupling from a year ago. Tinkoff has solidified its dominant position as it accounts for 60% of active accounts on Moscow Exchange, almost 4x ahead of Sberbank and has been consistently largest by trading volume on Saint Petersburg Exchange. Tinkoff Investments should continue to an important driver of group's revenues and earnings for the years to come.
In 2020, the Tinkoff active client base exceeded 9 million, of which 4.8 million were debit card active clients with total utilized cards reaching 7.5 mln. Tinkoff Black remains the main feeder for Tinkoff ecosystem growth and drives crosssell potential. This product is key in accessing a younger and more mass affluent customer base: the average user is 34 years old customers and predominantly urban. These customers have shown a higher propensity to utilize more of the Tinkoff product suite and Tinkoff Black remains a key feeder for our Tinkoff Investments, Insurance, Credit and SME business lines. The Tinkoff Black debit card is also the main tool to access Tinkoff's increasingly comprehensive array of lifestyle services - including ticketing, entertainment, and e-commerce services that Tinkoff provides itself and often in conjunction with partners.
The share of mobile internet users in Russia is growing year-on-year. Tinkoff being a leader in the mobile space from its very first day continues to pay a close attention to not only interfaces and seamlessness of processes in its mobile application but also hugely invests into customer satisfaction and retention. Tinkoff Super-App launched in 2019 is a revolutionary product with integrated Tinkoff platform which not only aggregates all of the Tinkoff Group products under one umbrella, but seamlessly allows customers to satisfy their daily banking, credit, transactional, and lfiestyle needs. The app is complemented by Stories – targeted AI based tips based on customer's transaction activity, restaurant reservations, shopping experience, cinema, theatre and concert tickets, travel and many more.
Free SMS notifications
More cashback categories
— Higher transfer limits for
— individual entrepreneurs
We continue to see strong growth opportunities across all our business lines. We see two main runways for our growth – we can deepen markets where penetration is still low, and we can continue to gain market share across all the various markets in which we operate. Ranging from credit cards to investments, Russia remains underpenetrated and we think our serviceable addressable net revenue pie can rise from \$40 bn to \$50 bn in the next 3 years. In 2020 we only captured about 3% of the latter figure and we aim to achieve this through doubling the base of our customer engagement in two ways. First, we target to expand our active customer base from 9.1 mn MAU to over 16.5 mn by 2023. Second, we want to en- gage more with each customer and see average products per customer rising from 1.4x at YE20 to over 1.7x by 2023 helped by our crosssell initiative. This would allow us to more than double our revenue generating products to over 28 mn. In financial terms we target to maintain >30% ROE and grow earnings >20% per year to Rub75 bn in 2023.
The technology and experience acquired by Tinkoff in building its high-tech online customer acquisition and service platform has helped it to expand its transactional and payment products such as current accounts, SME solutions, online acquiring, and mobile mono-applications. We intend to support the growth of these products that constitute an important channel for acquiring new customers and for cross-selling other products, particularly credit cards. These transactional and payment products are also being offered to existing customers of Tinkoff, helping to boost retention rates.
Retail lending remains Tinkoff's core business. IIn 2019/20 we significantly broadened the range of our credit products, with credit cards accounting for 60% of the loan portfolio, while contribution from non-credit related business lines further improved in 2020.
Tinkoff Investments, the final business line, was successfully launched in April. Since our non-credit business lines are up and running our focus now is on scaling, monetization and cross-sell potential within our ecosystem. In 2019 we significantly improved our lifestyle and entertainment offering to the customers - culminating in the launch of our Super App - the aggregator of all Tinkoff Group products and a platform that enables customers to satisfy all their credit, transactional, and lifestyle needs.
The Super App enables seamless integration with partners and now allows customers to access Stories (AI*-based recommendations and user tips based on transactional activity) as well as complete restaurant reservations, purchase cinema, theatre and concert tickets and com- plete e-commerce transactions. The introduction of Oleg, the world's first financial services voice assistant, makes navigation through the Tinkoff platforms seamless and convenient.
By developing and cross-selling new products to existing customers, Tinkoff expects to diversify its revenue streams, increase its revenue per customer and increase its customer retention and life time value rates. Recently launched Tinkoff Pro subscription tool called for driving customer loyalty and engagement by a wide range of value added services, discounts and lower fees on existing products.
Tinkoff Insurance product set consist of personal accident insurance, property, travel and car insurance - KASKO and OSAGO.
High quality customer service has been a key driver of Tinkoff Bank's rapid growth. Tinkoff invests to maintain and improve key components, such as our simple application processes, convenient and 24/7 access to accounts, the reach of our "smart courier" service, free loan repayments and straightforward complaints resolution process. Through the launch of a new financial supermarket portal Tinkoff Bank is now able to serve not only its existing customers but also non-clients when they are allowed to make transactions without full identification within the legislatively approved limit of 15,000 Roubles. This is a strategic step for Tinkoff Bank to increase its exposure throughout the financial market.
Tinkoff Bank operates a low-cost, branchless model and seeks to outsource wherever feasible while retaining core functions in-house. This complementary outsourcing strategy allows us to retain focus on and develop core competencies to economise on capital expenditures, to manage workflow and to maintain a flexible cost base with low fixed expenses.
The Group's in-house IT team develops a significant part of the software used by Tinkoff, including software used in its online customer acquisition and service platform. This enables Tinkoff to regularly and quickly roll-out new products and services to customers or new versions with enhancements.
Tinkoff Bank continues to expand its technological advantages over traditional Russian banks. In 2020 Tinkoff Bank announced the launch of super-computer Kolmoborov to support AI-based processes and expertise. The toolkit 'speech to text and text to speech', Tinkoff's own software created in-house, became available for third parties
The Group has established a robust liquidity risk management framework that ensures it maintains sufficient liquidity, including a significant cushion of liquid assets. Tinkoff Group's funding strategy provides effective diversification in the sources and tenor of funding. The Group aims to maintain an on-going presence in a broad range of capital market segments and strong relationships with market participants to promote effective diversification of funding sources.
As a data-driven organisation, the Group uses a wide range of databases in its loan approval processes and portfolio management and is constantly in search of new sources of relevant data. We take loan approval decisions based on a range of available information, including credit bureau data and scores, proprietary scoring models, a proprietary application verification process and sophisticated NPV models.
The Group will continue to develop credit risk management capabilities and to use increasingly more sophisticated data analysis and modelling to achieve this goal. Credit risk management remains one of the core strengths of Tinkoff and will remain critical to sustaining its competitive advantage.
The Group intends to further increase the cost-efficiency of its operations by placing an even greater emphasis on its Internet banking, mobile banking and Home Call Centre operations and constantly seeking new ways to achieve further reductions in operating and customer acquisition costs.
TINKOFF IS A CLOUD ECOSYSTEM PROVIDING A FULL SCOPE
Tinkoff is the second largest credit card and short term retail lender in Russia, offering a variety of retail unsecured loans as well as secured home equity and car loans. In addition to our market-leading credit offering, Tinkoff successfully manages online retail deposits programme, retail and car and other insurance, financial products in the fast emerging mobile payments and retail brokerage. Leveraging its innovative approach, existing infrastructure and customer base, Tinkoff has been expanding to bring additional partners' products and services through its full-cycle brokerage platform and further expanding our lifestyle and entertainment offering with travel, ticketing and shopping experience.
Tinkoff has built an advanced hightech retail financial services platform that is highly suited for the Russian market and operating environment, particularly in underserved parts of the country. This platform is entirely branchless, with a low fixed cost base and high degree of operating flexibility. This high-tech platform includes the mobile app, internet platform, a real-time voice authentication system which creates voice prints during the traditional Q&A verification process for each new caller and highly efficient chat-bots and call-bots. We successfully implemented robotisation through the use of Machine Learning, Artificial Intelligence and Computer Vision of a number of processes on an operational level that helps to significantly improve operating efficiency and cost control.
27mn
call and chat enquiries solved by bots or cloud service agents in 2020 >18.4mn
Credit cards issued
14.0%
Credit card market share
4.1 * mn
applications per month on average during 2020
* by Global Finance
Tinkoff offers remote access customer service through its award-winning Internet banking as well as through mobile banking and high-volume call centres. Our use of direct marketing channels has transformed the way customers are acquired in Russia. Distribution channels, which include online (the Internet, mobile services and telesales), direct mail and direct sales agents, allow Tinkoff to attract new customers anywhere in the country. Supporting the branchless platform is a "smart courier" network covering around 2,100 cities and towns in Russia which allows next day delivery. In addition, Tinkoff 's online origination process makes extensive use of online data and behavioural profiles, and gives it clear advantages over competitors in terms of underwriting.
Our entrepreneurial approach to products, premium-quality customer service and effective credit risk management, based on sophisticated data analysis and modelling, enable us to achieve a combination of sustainable growth and good returns even in a market downturn. The strong trend to adoption of online and mobile consumer technology in Russia, together with the low penetration and growth potential in the country's retail financial services, represent a tremendous opportunity for Tinkoff to continue its success.
TCS GROUP IS TRANSFORMING THE RUSSIAN FINANCIAL SERVICES MARKET AND DRIVING A DIFFERENTIATED CUSTOMER PROPOSITION.
44.3% Net loan portfolio CAGR 2010-2020
95x Equity grew by 95x in 10 years (from 2010 to 2020)
of all customer requests across the products processed by chat-bots in 2020
№1
World's Best Consumer
Digital Bank*
FOR 2020 WE DELIVERED NET PROFIT OF RUB44.2BN, UP 22% YEAR ON YEAR, WITH AN ROAE OF NEARLY 41%. THIS WAS NO EASY FEAT GIVEN THE TRICKY OPERATING ENVIRONMENT
Oliver Hughes Chief Executive Officer
In mid March I was delighted to report the results of yet another record-breaking year for Tinkoff Group.
For 2020 we delivered net profit of RUB44.2bn, up 22% year on year, with an ROAE of nearly 41%. This was no easy feat given the tricky operating environment, and this once again testifies to the resilience of our business model and the agility of our management team.
In this strategic review I would like to share my thoughts on four areas:
First I will move onto some of our operational and financial highlights from FY2020.
Our InvestTech business, Tinkoff Investments, concluded the year on a high, and its brand has become synonymous with retail investment in Russia. In 2020, the Tinkoff Investments customer base grew 4x to over 1.25 million, assets under custody grew 6x to over RUB300bn, and quarterly trading volumes grew 8x to RUB4.2tn. 60% of all active customers on the Moscow Exchange are Tinkoff Investments customers, a market share that is 4x higher than that of the second largest player in the market. A key point here is that we are catering to all types of investors – from first-timers, to active traders, all the way to higher net worth individuals who need more of an advisory service. We really can say that we are forming this market as it evolves from an early stage. Our customers typically have a similar profile to those that come through Tinkoff Black – young, urban, more mass affluent. Although this business line only broke even in mid-2019, it has already become a meaningful bottom line driver, with some of the most attractive unit economics in our product portfolio. Over time, we expect this business line can become the largest contributor to our bottom line out of all of our non-credit businesses.
Tinkoff Business, our provider of SME Services, delivered outstanding results, adding 60K new customers to reach 385K total customers. Our increasing focus on medium sized enterprises that are more NPV accretive is paying off: we grew balances by 48% year on year to almost RUB 90bn, and this business line's profit before tax grew by 71% YoY. Our SME customers see us not only as a financial partner, but also as a partner that can help them grow their business through an impressive array of merchant solutions like cloud accounting, website construction, delivery services, CRM tools, and increasingly SME lending. We believe SME represents a huge addressable market for us.
TCS GROUP HOLDING PLC
Fee and commission income (RUBbn)
merchants and industries. This is a highly technological and innovative business, as shown by the recent launch of 'Tinkoff Checkout'– a one-stop payment platform that will combine all existing payment technologies of the Tinkoff Ecosystem as well as new solutions, including services provided by CloudPayments, a leading Russian online payments aggregator in which we hold a 95% stake. We have big plans for the business line in 2021 as we build more solutions for our partners.
• Our Consumer finance business also ended 2020 on a high, after an understandably slower first half of the year. We delivered 14% net loan growth for the full year, despite virtually no growth in the first half of the year. The share of lower risk, but high NPV, collateralised loans grew to a record 19% of the portfolio, contribut ing to both growth and diversification of the consumer lending business. Our high frequency asset quality data continues to give us the confidence that we are issuing positive NPV loans as we further ramp up our loan issu ance volumes into 2021.
All of these products are integrated into one Ecosystem which is accessible to customers through our award win ning super app. Across all our main apps and interfaces, our group MAU reached 9.3m in Q4 2020, up from 6.0m a year ago. And our DAU reached 3.2m up from 1.9m a year ago. Our ability to cross-sell existing products and consequently lengthen the lifetime value of our customers is constant ly improving. This underpins the growth in product per customers from 1.3 at the end of 2019 to 1.4 at the end of 2020, in spite of the denominator effect from fast custom er growth. With only a 2% market share of the total retail lending market, we believe that our credit business can generate high growth and high returns for many years to come. We believe we will be able to further grow this metric thanks to the 'Tinkoff Pro' subscription, which although at an early stage, is already showing good traction in our customer base.
With regard to the economic impact of the COVID-19 pandemic, we currently do not see any delayed or unreal ized negative effects on either our existing portfolio or on new issuance. This is not to downplay the seriousness of the pandemic - the health and safety of our employees is always of paramount importance - and elsewhere in this report, as in last year's report, you will see a very wide range of initiatives in which Tinkoff has actively participat ed. We take our role as responsible lender and responsible corporate citizen extremely seriously.
Last year in my strategic review, I explained our philoso phy here. We have always striven to maintain the highest standards of corporate governance at Tinkoff, to go well beyond the legal minimum, always incorporating as much stakeholder feedback as possible. We want workable, robust solutions to these multi-dimensional issues while safeguarding the viability of the business.
Corporate governance enhancements come in many forms, some more high profile than others, but when taken togeth er, are all tangible marks on our roadmap.
In our financial and other statements for 2020 we have introduced some changes to our reporting formats, which we believe will work to improve investors' understanding of the key growth and profitability drivers of the Tinkoff business. Firstly, we formally introduced two new customer number metrics, total customers and active customers. The concept of "Total customers" represents those customers who have utilised a Tinkoff product and have not closed it. At the end of FY2020, we had 13.3m 'Total customers', up
3.1m from the end of FY2019. And the concept of "Active customers", what we also call Financial MAU, represents those customers that have generated revenue for us over the last month. At the end of 2020, we had 9.1m monthly-ac tive customers. These are real customers who are loyal and have chosen Tinkoff as their main financial services provid er. Secondly, we have revamped our segmental disclosure in the notes to our financial statements. We now present our P&L across seven different segments:
In FY2020 the share of revenues from non-consumer finance businesses (i.e. non-credit revenue) amounted to 37% and the share of non-credit net profit amounted to 36%, up from 31% and 18% respectively in 2019. These new reporting changes give extra visibility on the fundamental changes that have been happening in our business and provide further insight into both the pace of our growth and the diversification of our business.
At the same time, we are pressing ahead with other aspects of our corporate governance enhancement program. The unprec edented voluntary declassification by our Founder Oleg Tinkov of his weighted voting shares and conversion into ordinary shares at the beginning of the year, as a by-product removed the cap on the number of directors allowed and so paved the way for more change, such as increasing the size of the TCSGH Board.
We are looking to build on the great work of our existing Board by bringing in new members that can further enhance existing oversight functions, but also bring new skills, new experience, and add a stronger strategic dimension to the Board. The Board will be responsible for steering Tinkoff Group as it grows its business, makes larger capital allocation decisions and thinks about international moves. We will expand the Board in waves to around nine Directors, most of whom will be independent, non-executive directors. I too will be joining the Board from Q1 2021.
We will soon have four special purpose Board committees: in addition to the existing Audit and Remuneration Committees, we will have a Risk and Emerging Risk (Sustainability) Commit tee and a Strategy Committee. These initiatives will be rolled out through 2021, and beyond. Your thoughts and feedback on this and all aspects of our corporate governance and ESG initiatives and disclosures are always welcome, to the Tinkoff IR team or through any channel including to stakeholderengage [email protected]
Tinkoff has been involved in number of ground-breaking inno vations over 2020 and I would like to mention a few to show the very wide range of Tinkoff activities:
• Best Mobile Banking App at the Core of a Financial Ecosystem • Best Mobile Banking for Daily Operations for iOS and Android • Best Daily Banking and Digital Office (Internet Banking Rank
2020)
• Best daily banking in the premium segment
• Named among the Largest Merchant Acquirers in Europe 2019
• Maximum score in the rating of banks' satisfaction according to the NPS methodology
• 50 Best Employers Ranking by Forbes (3rd Place)
Best European Retail Bank of the Year
Joins the Brand Finance global Top 500 most valuable banking brands
• Best bank for entrepreneurs
These are a few of my personal, non-financial highlights; many more have been highlighted in this Report, including by our CFO Ilya Pisemsky in his Financial Review, and feature in our regular market announcements showing what a remarkably creative business Tinkoff is.
Despite all, 2020 was yet another good year for Tinkoff. We launched several new innovative products some of which I highlighted above, we grew our customer base significantly, we deepened relationships with our customers, and we delivered strong and diversified earnings growth in the process. This is a result of our customer-centric approach, our technological capabilities, our disciplined approach to capital allocation and our organisational mind-set. We are confident we can do this for many more years to come, and we will provide more detail about how we will do this and our medium term targets during our virtual Strategy Day in Q2 2021.
2021 will be another interesting year for Tinkoff. As we move into 2021, we feel we have very strong growth momentum and think this is the right time to move up another gear- additional growth now is the best way of guaranteeing a sustainable and profitable business into the future. We also see both organic and potentially inorganic growth opportunities through acquisitions of businesses complementary to Tinkoff.
To close, I am happy to have been able to report another year of record Tinkoff profits; a great many people have contributed to this, worked very hard to deliver this for you, in 2020. It's not possible to name them all but particular mention should go to my colleagues in the Management team, our employees, our investors, our business partners as well as other stakeholders, but above all our customers. We invite more of you to join us, try our suite of transactional, lending and lifestyle offerings, from right across Russia.Keep safe and thank you.
Oliver Hughes Chief Executive Officer
ANOTHER YEAR OF RECORD HIGH PROFITS. TINKOFF REMAINS THE SECOND LARGEST PLAYER IN THE RUSSIAN CREDIT CARD MARKET WITH A MARKET SHARE OF 14% AT 31 DECEMBER 2020, AND IS THE THIRD LARGEST RETAIL BANK IN RUSSIA IN TERMS OF ACTIVE CLIENT BASE.
Ilya Pisemsky Chief Financial Officer
Assets growth RUBmn Last year I wrote that FY2019 was the latest in a string of record breaking years for Tinkoff and it might prove hard to beat-this was at a time of great uncertainty as the impact of the pandemic broadened out. I assured readers that every effort would be made to beat FY2019's results, that I was confident we would deliver in 2020. And this is just how things turned out, another year of record high profits for both Q4 and FY2020. Tinkoff remains the second largest player in the Russian credit card market with a market share of 14% at 31 December 2020, and is the third largest retail bank in Russia in terms of active client base.
Naturally I will take you through the financial results in my review but as in the past I would like to share with you some particular business highlights of 2020. These showcase the great range of activities the Group carries on as Russia's leading fintech brand. Throughout 2020 we continued to innovate, launching new products, improving existing ones, trialling others, building a sustainable future for the business.
My highlights of the many for 2020 would include these:
I would now like to describe some of the main trends that we observed in our business through FY2020.
STRATEGIC REVIEW DIRECTORS' REVIEW FINANCIALS
Following convention I will start with the composition of the Balance Sheet. Total Assets of the Group grew for the full year by 48.1%, with over 18% in Q4. The substantial growth in cash balances during Q4 was a result of strong inflows from SME and retail current accounts, pushing the share of cash on the balance sheet to 16% at the year end. At the same time, in anticipation of the interest rate increase, we decided not to grow the bond investment portfolio during the winter. It remained flat during the quarter at slightly below RUB240 bn and fell proportionally to 28% of the total assets of the Group. Throughout the year we built a significant positive revaluation on this portfolio which was realized during 2020, contributing nicely to our net income.
Our net loan portfolio showed solid 8.7% sequential growth in Q4, commencing the return to the pre-pandemic levels of lending. This allowed us to show double digit growth for 2020 despite the portfolio decrease in H12020. This growth was driven by several components of the credit book, which I will discuss later in detail. Observing the full year dynamic in the total net assets composition, proportionally the net loan book declined to 44% of the total assets due to the faster growth of cash and investment portfolio.
There was an increase in other assets which rose over RUB100bn and reached 13% of our total portfolio. Among usual other assets such as security deposits with Payment Systems, settlements and Fixed Assets there are RUB24 bn of short-term receivables from Tinkoff Investments' cus tomers who made margin trades before the year end. We expect this balance should grow further in 2021.
Our funding base is growing strongly, mirroring asset growth. The total funding balance of the Group grew by 48.3% year-on-year and by a stellar 18% in Q4, allowing us to build a significant liquidity buffer on the assets side. Growth is most visible in retail current accounts, brokerage accounts and funds from SME customers which grew by 62%, 500% and 49% respectively during FY2020. At the same time, the term deposits balance remained flat for the year, as deposit rates went down significantly more recent ly and new possibilities to earn decent returns on the funds through our brokerage platform became widely available to the public. This is positive news for our profitability, as we are spending less on interest expense and earning more in fees, while keeping our customers happy. Ample liquidity on the asset side and generally short duration of our loan book allows to us keep our ALM proportions intact and liquidity ratios at high levels.
Another funding source that did not grow much (apart from currency revaluation) during 2020 was wholesale funding. Nevertheless we are keeping an eye on the wholesale market, especially on the perpetual market, as our unused capacity for AT1 capital will be growing in absolute terms in 2021-2022.
Shareholders' equity increased by 9% in Q4 to RUB127 bn thanks to strong quarterly profits. Our Basel ratios went down a bit due to the yearly re-measuring of operational risk under IFRS. We also recorded a reduction in RWA density as the share of loan portfolio in our assets declined compared to cash and investments. Statutory ratios also came down slightly - the N1.0 and N1.1 to 13.07% and to 10.2% respectively.
Now I will turn to the Income Statement and the breakdown of our profit and loss statements by the major business verticals. These are set out in greater detail in "Segment analysis" of our financial statements where both revenue breakdown and net profit breakdown by business line are shown, one of our governance enhancement measures. We hope this new level of granularity will give a better insight into the key drivers of profitability and growth of our business.
Next a few words on revenue dynam ics. Compared to 2019 our revenue grew by 21% to almost RUB196 bn, and most of this growth came in Q4 FY2020 when we emerged from the pandemic slowdown. The share of revenue from non-credit business lines rose from 31% in 2019 to 37% in 2020 (and to 43% in Q4 2020), despite the strong growth of the credit busi ness. We expect this trajectory would continue in 2021.
On cost management, there was a return to growth in Q3 in acquisition costs after two quarters of cost preservation, and that continued into Q4. Now we see momentum, and op portunity, to acquire more customers across all business verticals. So our acquisition costs more than doubled in Q4 2020 compared to Q4 2019 or to last year's pandemic period and com -
prised almost half of total administra tive costs. The growth in acquisition costs corresponds to the doubled figures in our operating statistics. It also shows how our business model allows us to manage costs very rap idly depending on market conditions, and we believed this was an appropri ate moment to spend more. Looking forward into 2021 we intend to keep our marketing effort on this level in absolute terms, with cost to income normalizing around 40%.
As for the dynamic of our net income and the contribution that credit and non-credit businesses give to that growth, Q4 net income is in line with that of Q3, despite the fact that we have stepped up customer acquisi tion costs. You can also see that the magnitude of acquisition costs effect is higher for non-credit businesses compared to credit. Despite this, the share of net income coming from non-credit businesses rose from 18% in 2019 to 37% in 2020.
I will turn now the results of each business segment one-by one starting with our bread-and-butter credit business.
Our loan portfolio showed a healthy 8.7% growth during Q4 on a gross ba sis and 14.4% growth for the year on a net basis. Looking forward into 2021 we see a growth opportunity. Growth in 2020 was driven by several com ponents of the credit book, including unsecured and collateralized loans. SME lending remains in test mode, but even there positive results are
starting to come through. In terms of the composition of the book, the share of credit cards is slowly but gradually falling towards half of the loan book, now representing 57% of the total. Credit cards remain a key product and we see huge potential still in this market. In Q4 we added 800K new activated credit cards, 2.3m cards in FY2020. The disbursements in other credit segments were also strong but from a lower base, which is the reason for the declining share of the credit card part of the portfolio.
Turning to the economics of our credit business, in 2020 interest income grew 15% to RUB128 bn. Our head line gross interest yield on the credit portfolio decreased from 32.4% to 28.1% year-on-year, mostly due to the growing share of the non-credit card loan portfolio. This gives roughly a 1% per-quarter reduction in yield, which rarely happens smoothly. Q42020 is a good example as the reduction in yield was less than half-a-percent, after a sharper descent in Q3. It is reasonable to assume that during 2021 gross yield should continue to gradually move down as a result of the changing portfolio mix.
Our blended cost of borrowing de clined from 5.7% to 4% year-on-year and was as low as 3.3% in Q4 2020, thanks to large inflows of cheaper SME, retail and brokerage accounts funds. Despite the recent increase in interest rates worldwide, we have hopes of our cost of funding remain ing at these lower levels.
Cost of Borrowing
Net interest margin declined year-on-year by 4% because of the reduction of the gross yield and in Q4 due to exceptional inflows of retail funding. Cost of risk improved marginally in Q4 but more importantly it has improved significantly in the second half of 2020, proving the V-shaped nature of the pandemic crisis in Russia. As a reminder, we also still have RUB 5.6bn of macro-factor adjustment that we incurred throughout 2020. The improvement in cost of risk allowed our risk-adjusted net interest margin to remain over 13%. The annual 4% decrease in our risk-adjusted net interest margin from 15.4% to 11.3% is a result both of the reduction in gross margin and elevated credit risks in H1 2020.
I can share some more granular information about the unsecured and secured parts of the loan book, including gross yield and cost of risk. For the more mature unsecured loan book, we found a mild improvement in asset quality but still very attractive risk-adjusted margins. For the younger secured part of the portfolio, the risk parameters and NPLs are not yet fully shaped on fast-growing portfolios, but are heading in the right direction. This portfolio has a lower cost of risk than our unsecured portfolio – this was the case both during the pandemic crisis and now.
Now some comments on our non-credit businesses, starting with our debit card business. With 7.5 million total customers and with almost RUB323bn of balances, our current account business contributed RUB21.2bn in revenues in 2020, net of the cashback returned to customers. We continue to develop this product as the cornerstone of subsequent cross-sell opportunities. We still intend to keep our bottom-line result for this business close to break-even – and note that in the first half of the year the profit before tax from this segment were in positive territory because of
the realized gains on our treasury portfolio. We see more value in growing the customer base and in the potential synergetic effect with other business lines rather than as a source of pure net income.
Our SME business is returning to growth after a rebalancing phase, focusing more on per-client profitability rather than the absolute growth in number of customers. At the end of 2020 we had 385K total customers with almost RUB90bn in balances on SME current accounts. We earned revenue of RUB11.5 bn in fees, treasury income and some interest on SME loans. Our focus on per-client profitability is coming through, as profit before tax grew 71% year on year to RUB5.6bn, while revenue grew 17% year on year.
2020 was a year of exponential growth for our investment business. Over 1.5m customers utilized brokerage accounts on our Tinkoff Investments platform, with quarterly transaction volumes well over 4 trillion Rubles compared to half a billion just a year ago. Our assets under custody grew 6x year-on-year to almost RUB315bn. This business line's revenues grew over 8x year-on-year. Tinkoff Investment's contribution to group net results is already visible despite the fact that we still spend proportionally high amounts on product development and customer acquisition. This was particularly visible in Q4, when we ran certain TV campaigns. We will continue to develop our platform, product proposition and grow our customer base in 2021, as ever, trying to find the ideal balance between profitability and growth. We are already a market leader by number of customers but the retail brokerage market itself is only starting to develop, so we feel there is could be lot of room to grow.
Acquiring is a business line which is benefitting from the
accelerated transition to ecommerce. Our internet acquiring business is the second largest in Russia, providing best in class conversion metrics for our merchants. Including our offline acquiring business, we processed more than RUB210bn of TPV in Q4, which represents 79% growth year-on-year. Combined with a stable commission of 1.7%, this led to revenues of RUB 11.2bn during 2020, up by 33% year-on-year. Its profit before tax rose 52% year on year to RUB 2.3bn. This business works both with large aggregators and individual merchants, in roughly a 50-50 split. It is also an important part of the value proposition to many of our SME customers.
Last but by no means least, profits. You have already seen our quarterly profit number; to reiterate, it is in line with the previous quarter in spite of acquisition activity stepping up a gear. The Group annual profit of RUB44.2bn is 22% higher than a year ago, despite the pandemic. Return on equity is normalizing around 40%, while remaining industry-leading. Return on assets went down to 6.4% due to additional provisions charged during the pandemic and to the extra liquidity obtained before the year-end by successful current account and investment businesses.
How to wind up my review of FY2020? A busy year certainly, the year when the pandemic made its effects felt. But a year too in which the resilience of the Tinkoff business model shone through again, in another crisis. Our robust performance is made possible by our deep bench of first rate talents, attracted to Tinkoff's unique corporate culture and hard work. Looking ahead, FY2021 looks promising and I hope to be writing to you next year with equally good news.
THE GOAL OF THE GROUP'S RISK MANAGEMENT FUNCTION IS TO IDENTIFY POTENTIAL PROBLEMS BEFORE THEY MATERIALIZE AND HAVE A PLAN FOR ADDRESSING THEM IF AND WHEN, AND IN THE FORM, THEY DO. COVERING BOTH INTERNAL AND EXTERNAL RISKS WHICH MIGHT HAVE AN ADVERSE IMPACT ON THE GROUP, THE GROUP'S APPROACH CAN BE STRIPPED DOWN TO FOUR ESSENTIALS: DEFINING A RISK MANAGEMENT STRATEGY, IDENTIFYING AND ANALYZING AND RE-ANALYZING RISKS, PRO-ACTIVELY MANAGING RISKS THROUGH IMPLEMENTING THAT STRATEGY AND DRAWING UP A CONTINGENCY PLAN AND/OR PREVENTATIVE MEASURES. The purpose of the Group's asset,
liability and risk management ("risk management") strategy is to evaluate, monitor and manage the risks arising from the Group's activities. The main types of risk inherent in the Group's business are credit risk, market risk, which includes foreign currency exchange risk, interest rate risk and liquidity risk. The Group designs its risk management policy to manage these risks by establishing procedures and setting limits that are monitored by the relevant departments.
The Group's risk management organisation is divided between policy making bodies that are responsible for establishing risk management policies and procedures (including the establishment of limits) and policy implementation bodies whose function is to implement those policies and procedures, including monitoring and controlling risks and limits.
The policy making level of the Group's risk management organisation consists of the Board of Directors, and at the Tinkoff Bank level its Board of Directors and the Management Board, the Finance Committee, the Credit Committee and the Business Development Committee.
These bodies perform the following functions:
The Board of Directors is responsible for the creation and supervision of the operations of the internal control system of the Group and approves the Group's credit policy ("Credit Policy") and approves certain decisions that fall outside the scope of the Credit Committee's authority.
The Bank's Management Board, which, in addition to its Chairman, also includes the Group's Risk Director, Chief Financial Officer, Chief Accountant, Chief Legal Counsel, Chief Operational Officer and Head of Payment Systems, has overall responsibility for the Bank's asset, liability and risk management operations, policies and procedures. The Management Board delegates individual risk management functions to each of the various decision making and execution bodies within the Group's risk management structure.
The purpose of the Finance Committee is to ensure the long-term economic effectiveness and stability of the Group's operations. The Finance Committee establishes the Group's policy with respect to capital adequacy and market risks, including market limits, manages the Group's assets and liabilities, establishes the Group's medium term and long term liquidity risk management policy and sets interest rate policy and charges with respect to individual loan products. The Finance Committee meets on a weekly basis.
The Credit Committee supervises and manages the Group's credit risks. With respect to credit cards, the Credit Committee approves the consumer lending policy, the underwriting methodologies and the scoring models used for assessment of the probability of default, the initial credit limit assignment and subsequent account management strategies, provisioning rates and decisions to write off non-performing loans.
The Business Development Committee is responsible for the development, design and marketing of the Group's financial products and provides recommendations to the Group's risk management bodies with respect to changes to the Group's lending policies and procedures and the pricing of the Group's loan products.
The policy implementation level of the Group's risk management organisation consists of the Finance Department, the Risk Management Department, the Collections Department and the Internal Control Service.
The Finance Department is responsible for managing correspondent accounts, daily currency liquidity, money transfer control and daily money transfer modelling to support the required currency liquidity level for correspondent accounts and compliance with the CBR's liquidity ratios.
The Finance Department is also responsible for closing international and local transactions in accordance with the Group's limits as approved by the Finance Committee and in compliance with the CBR's regulations, as well as for short term placements, currency hedging and interest rate hedging.
The Risk Management Department is responsible for the development and implementation of the Group's consumer lending policy after the final approval of such policy by the Credit Committee. The Risk Management Department is also responsible for credit risk assessment of all proposed new products and related marketing communications, for approval of credit card applications and other loan products applications and for subsequent account management programmes.
The Collections Department is responsible for collection of amounts due but unpaid by delinquent Group customers. The Management Board approves the Group's collections policy, which is then implemented by the Collections Department.
The Internal Control Service assesses the adequacy of internal procedures and professional standards, as well as their compliance with CBR regulations. The Internal Control Service is controlled by, and reports to, the Bank's Board of Directors.
The Group has implemented an online analytical processing management reporting system based on a common SAS data warehouse; it is updated on a daily basis. The set of daily reports includes sales reports, application processing reports, reports on the risk characteristics of the credit card portfolio, vintage reports, transition matrix (roll rates) reports, reports on pre, early and late collections activities, reports on compliance with the CBR's requirements, capital adequacy and liquidity reports, operational liquidity forecast reports and information on intraday cash flows.
Some reports are submitted for the review of the Tinkoff Bank Board of Directors on a monthly basis. These include selected financial information based on IFRS and adjusted to meet the requirements of internal reporting, analytical reports on credit risk and lending, reports on the status of the Group's credit card business accompanied by management commentary and analysis and reports on the Group's performance versus budget and operational risk reports.
The Group is subject to a number of principal risks which might adversely impact its performance.
Substantially all of the Group's assets and customers are located in or have businesses related to Russia. Consequently the Group is affected by the state of the Russian economy which is itself to a significant degree dependent on exports of key commodities such as oil, gas, iron ore and other raw materials, on imports of material amounts of consumer and other goods and on access to international sources of financing. During recent years the Russian economy has been significantly and negatively impacted by a combination of macroeconomic and geopolitical factors such as a significant decline in the price of oil, ongoing political tension in the region, economic sanctions imposed against Russian individuals and companies, economic restrictions imposed by Russia on other countries, capital outflows as well as depreciation of the Rouble and a decrease in Russia's international reserves. In addition emerging markets such as Russia are subject to greater risks than more mature markets, including significant political, economic and legal risks. This over-arching risk environment could impact one or more of the principal risks.
The principal activity of the Group is banking operations and so it is within this area that the Principal Risks occur. Management considers that those principal risks, are:
These are discussed on the following pages.
The Group is exposed to credit risk, which is the risk that a customer will be unable to pay amounts in full when due. Credit risk arises mainly in the context of the Group's consumer lending activities.
The general principles of the Group's credit policy are outlined in the Credit Policy approved by the Board of Directors. This document also outlines credit risk controls and monitoring procedures and the Group's credit risk management systems. Credit limits with respect to credit card applications are established by the Credit Committee and by officers of the Risk Management Department.
The Group structures the levels of its credit risk exposure by placing limits on the amount of risk accepted in relation to different online (Internet, mobile and telesales) and offline (sales through retailers) customer acquisition channels and sub-channels. Such risks are monitored on an ongoing basis and are subject to frequent review with the approval of the Management Board.
The Group uses automated systems to evaluate an applicant's creditworthiness ("scoring"). The system is regularly modified to incorporate past experience and new data acquired on an iterative basis. The Group performs close credit risk monitoring throughout the life of a loan.
In almost all cases, the decision to issue a credit card or other loan product to a potential customer is made automatically, based on the credit bureaus information, verification of the customer's identity and credit score of the applicant calculated using one of the acquisition channel-specific scoring models.
The Group employs a multi stage collection process that seeks to achieve greater efficiency in the recovery of overdue credit card loans. Collections on loans that are overdue by 0 to 90 days are performed by the Group's internal Collections Department. After 90 days of delinquency, when it is clear that the early collection efforts are unlikely to be effective, a customer's debt may be restructured into instalment loans (which is the option preferred by the Group), transferred to collections through courts or sold to the Group's its internal collection agency or external collection agencies.
The Group's collections methodology is based on customer behaviour and corresponding collection scores. Under this
approach, at initial stage of collections (pre collections and early collections), delinquent customers are allocated to one of three groups depending on their risk profile (high risk of default, medium risk of default and low risk of default). This enables the Group to apply a variety of collections tools and collections treatments to different groups of delinquent customers.
All of the stages described may be accelerated in cases where the Group has grounds to believe that the delinquent customer will not repay the debt voluntarily or that fraud has taken place. In such circumstances, the time periods between each collections stage are shortened or omitted (the respective loans are accelerated into collections used for non-performing loans) to increase the chances of recovery.
The Group's management uses monthly second payment default rate (percentage of accounts on which payment has not been received within 30 days of the first due date) as an important measure of asset quality that provides early indication of how non-performing loans levels and provisions might change in the future.
When loans are overdue by more than 90 days, the Group collection efforts consists of (i) the restructuring of credit card debt to personal instalment loans, which is the preferred option of the Group to handle such delinquency, or, if customers do not agree to such restructuring, then either (ii) collections through courts with the enforcement of judgments with the help of the Federal Service of Court Bailiffs of the Russian Federation or (iii) sales of non-performing loans to its internal collection agency (Feniks) or external collection agencies.
The Group maintains a fraud prevention strategy which is based on identification and fraud monitoring.
Access to customers' accounts is secured via smart identification system, which takes into account various customer profile parameters and sets an identification level. Depending on such identification level, the customer needs to acknowledge the entry into the account by way of a login and password, four-digit access code, fingerprint, security question or a password sent to the customer's contact number. In securing access to customers' accounts a two-factor identification is used.
Customer support centres use a unified identification man-
ager, which allows to request a customer's identification data and passwords without providing access to such data to the customer support service. In addition, a real-time voice authentication system is used to verify the identity of a caller. The system is based on the NICE Real-Time Voice Authentication System. The system is synchronised with the universal authentication manager processing customer calls to the centre. This technology enables customer voice identification during a regular phone call, reducing verification times. This dramatically improved customer experience by saving customer time and helped to reduce traffic costs and enhance security, given the prevalent risk of personal data in the age of social engineering.
Payment operations are generally secured via one-time SMS codes. Any operations with cash and movements on customer accounts are only carried out upon confirmation using a code sent via SMS and push notifications. IMSI system is used to check to authenticate a sim card.
Unauthorised operations are prevented by our fraud monitoring system, which is based on the IBM Safer Payments solution. The system allows us to effectively prevent fraud at various stages of a payment process using a cross-channel monitoring.
The monitoring system may, inter alia, automatically reject or suspend a payment, block an account or send an alert report of a suspicious operation.
Provisioning policy falls under the responsibility of Tinkoff Bank's Management Board that approves internal documents regulating the determination of delinquency groups and creation of allowances for potential losses in connection with the Group's loan portfolio.
The Management Board makes decisions on loans to be written off based on information provided by the Risk Management Department. Generally, loans recommended to be written off are those in respect of which further steps to enforce collection are regarded as not economically viable. Loans sold to external collection agencies are also written off from the Group's balance sheet.
The Group's exposure to market risk arises from open interest rate and foreign currency positions, which are exposed to general and specific market movements.
The Group is generally not engaged in trading operations. It has mismatches in its foreign currency positions that arise generally due to relatively short term lending in Roubles and relatively long term borrowings in U.S. dollars. The Group manages the positions through hedging, matching or controlled mismatching.
The CBR sets limits on the open currency position that may be accepted by the Group on a stand-alone level, which is monitored on a daily basis. These limits prevent the Group from having an open currency position in any currency exceeding five per cent. of the Group's equity.
The Group suffered from the Rouble devaluation in Novem ber 2008 to February 2009 and has since implemented a "low foreign exchange risk tolerance" policy aiming to minimise exposure to foreign currency exchange risks. The policy imposes neutral hedging that matches assets and liabilities by currency, foreign exchange hedging of funding received in foreign currency and prohibits foreign exchange trading for speculative purposes.
Non-monetary assets are not considered to give rise to any material currency risk.
The Group's exposure to interest rate risks arises due to the impact of fluctuations in the prevailing levels of market in terest rates on its financial position and cash flows. Interest margins may increase as a result of such changes, but may also decrease or create losses in the event that unexpect ed movements arise. The Group's management monitors on a daily basis and sets limits on the level of mismatch of interest rate repricing that may be undertaken.
The Group has no significant risk associated with variable interest rates on loans and advances provided to custom ers or loans received.
The Group monitors interest rates for its financial instru ments.
Liquidity risk is the risk that an entity will encounter difficul ty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash re sources from unused limits on issued credit cards, retail de posits from customers, current accounts and due to banks. The Group does not maintain cash resources to meet all of these needs as experience shows that only a certain level of calls will take place and it can be predicted with a high level of certainty. Liquidity risk is managed by the Finance Committee of the Bank.
The Group seeks to maintain a stable funding base primarily consisting of amounts due to institutional investors, corpo rate and retail customer deposits and debt securities. The Group keeps all available cash in diversified portfolios of liq uid instruments, such as a correspondent account with the CBR and overnight placements in high rated commercial banks, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements. The Group believes that the available cash at all times is sufficient to cover (i) debt repayments due within a month and accrued interest for one month ahead and (ii) a deposit liquidity cushion. The Group believes that it has a proven ability to control loan portfolio cash flows to maintain levels of liquidity reflecting changing market realities. The Group also believes that its loan portfolio is responsive to change in inputs (such as stopping the issuance of any new credit cards or other loans and any increases in credit card limits) and that the Group can go from being cash-negative to being cash posi tive in a short period of time.
All daily reports also include week-to-day and month-to-day comparisons.
On the basis of all these reports, the CFO then ensures the availability of an adequate portfolio of short term liquid as sets, made up of an amount in the correspondent account with the CBR and overnight deposits with banks, to ensure that sufficient liquidity is maintained within the Group as a whole.
Regular liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions and credit card portfolio behaviour is reviewed by the CFO.
All the investment securities available for sale are classified within demand and less than one month as they are easy repoable in the CBR or on the open market securities and can provide immediate liquidity to the Group. All current accounts of individuals are classified within demand and less than one month.
The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamen - -
tal to the management of the Group. It is unusual for banks ever to be com pletely matched since business trans acted is often of an uncertain term and of different types. An unmatched position potentially enhances profita bility, but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing li abilities as they mature, are important factors in assessing the liquidity of the Group and its exposure to changes in interest and exchange rates.
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The Group is exposed to operational risk which is the risk of losses result ing from inadequate management and control procedures, fraud, poor business decisions, system errors relating to employee mistakes and abuse by employees of their positions, technical failures, settlement errors, natural disasters and misuse of the Group's property.
The Group has established internal control systems intended to comply with Basel guidelines and the CBR's requirements regarding operational risk. The Board of Directors adopts general risk management policy, as sesses the efficiency of risk manage ment, approves the Group's manage ment structure, adopts measures designed to ensure continuous busi ness activities of the Group including measures designed for extraordinary and emergency situations and supervises other executive bodies in respect of operational risk management. The Management Board generally oversees the implementation of risk management processes at the Group including relevant internal policies, adopts internal regulations on the Group's risk management, determines limits for monitoring operational risks and allocates duties among various bodies responsible for operational risk management.
Regular monitoring of activities is intended to detect in a timely manner and correct deficiencies in policies and procedures designed to manage operational risk, which can reduce the potential frequency and/or severity of a loss event. Dedicated personnel track all problems the Group encoun ters in its operations and record all operation errors/issues and remedial measures taken on a special helpdesk system. Reports on such errors or issues are sent to key managers and all such errors are issues are recorded in incident log. In order to minimise operational risk, the Group strives to regularly improve its busi ness processes and its organisational structure as well as incentivise its staff.
The Group insures against operation al risks through several insurance policies that cover, among other things, property risks in respect of the Group's offices, IT infrastructure and certain third-party liabilities.
The Group has not experienced any material operational failures in recent years. In order to minimise potential losses from such failures, ensure busi ness continuity in case of disruption to IT systems and provide reliable and continuous access to business data and services, the Group's IT systems are located in two dedicated data cen tres each connected to separate and independent power supply sources. Both data centres provide 24 hours a day, seven day a week, year round power, cooling, connectivity and security capabilities to protect mis sion-critical operations and preserve business continuity for IT systems. Moreover, the Group keeps additional hardware on its premises for back-up purposes and has stand-by servers for each key system, including active standby for critical systems such as processing and transaction authori sation. Data connections to the data centres are 100 per cent. reserved via separate physical lines.
As a member country of the FATF, Russia adopted the Anti-Money Laun dering Law. Subsequent to the adop tion of the Anti-Money Laundering Law, the CBR promulgated a number of anti-money laundering regulations specifically for the banking sector.
The Group has adopted internal regulations on anti-money laundering that are based on, and are in full compliance with, the requirements of the Russian anti-money laundering regulations, related instructions of the CBR and international standards. The supervision of the Russian anti-money laundering regime is shared by the CBR and the FSFMT.
The Group has created a specialised unit and appointed an authorised officer who coordinates activities aimed at preventing money laun dering and terrorism financing. The Group conducts identification and review of its customers, customer's representatives, beneficiaries and beneficiary owners, money laundering and terrorism financing risk manage ment, personnel training as well as daily analysis of banking operations, verifies information on operations that are subject to monitoring and sends all required information to the relevant state authorities. Employees of the Group have to take mandatory training on the Group's policies and proce dures for preventing money laundering and terrorism financing both as part of the initial training after being hired and as part of the subsequent training activities.
Mandatory internal control checks are conducted by the Group's Internal Control Service. External control is provided by the CBR and, within an annual audit, by a statutory auditor.
The Group cooperates with the FSFMT by timely addressing their requests re garding certain entities or operations.
CONTINUED
In 2020 the Group continued to contribute to the achievement of the 17 Sustainable Development Goals adopted by the United Nations. To this end, we launched a new service in our super app, which systematically supports the non-profit sector and local communities. The Group considers the following values and goals are firmly embedded in our corporate DNA:
GLOBAL PARTNERSHIP FOR SUSTAINABLE DE-VELOPMENT.
In 2020 the entire world found itself facing new conditions, specifically a pandemic and its consequences, including self-isolation. The Group reacted very swiftly to this by enabling employees to work remotely and providing comprehensive support to employees. Assistance was also provided to affected communities, low-income families, medical services and the Moscow government.
Our existing T-life program, which covers the five key elements of well-being (physical health, emotional comfort, professional development, finance and social life), was quickly adapted to the meet the needs of employees now working online.
The Group was quick to react to the pandemic with a variety of measures tailored to help our wide range of stakeholders.
In March Tinkoff Mobile launched a feature that allowed customers to open accounts using virtual SIM cards, and cancelled certain roaming charges for customers who found themselves stranded abroad, unable return to Russia.
Tinkoff's home call center was deployed to help the Moscow Government and the Popular Social Front (a consumer protection organization) handle calls from people affected by Covid-19. Tinkoff took a key part in discussions with the Russian government, the Central Bank of Russia and other lenders to the retail and SME sectors regarding debt restructuring programs and what form government-supported debt relief should take.
Tinkoff introduced a cash-back offer called "Surviving quarantine" allowing customers to benefit from significant discounts on online services, products and subscriptions that were particularly in demand during isolation (for example online movie streaming, home fitness gadgets, books, language courses, among many).
Tinkoff launched its own flexible loan restructuring packages for retail clients and small and medium-sized businesses in parallel with those promoted by the Russian government.
Some specific examples include the following; 500 Tinkoff Mobile SIM cards with free service packages were gifted to volunteers of the WE TOGETHER project. This project brings together volunteers to provide support for doctors and non-profit initiatives by helping isolated elderly people.
Tinkoff donated RUB10M to buy protective equipment for medical staff working with Covid-19 patients (at the Bakulevsky Center and the Davydovskaya Hospital) as well as RUB2M for the purchase of food kits for low-income families facing hardship (fund Rus).
The pandemic led to the cancellation of or restricted participation and attendance at almost all scheduled events, and that seriously impacted our plans to support sporting events. As a result, we were able to host just one of our planned events in 2020 many of which we have supported over many years.
Tinkoff Rosafest Ski Festival 2020 - Key results:
more than 12,500 attendees;
more than 2,800 took part in the quest "Game";
more than 30,000 prizes;
more than 3,000,000 online views of the night freestyle show.
In February 2020 Tinkoff became the title sponsor of the Russian Premier League in football.
To maintain the Company's path to well-being, Tinkoff continues to organise and maintain various initiatives:
Employees in all offices continue to collect plastic covers and batteries for recycling.
In 2020, Tinkoff quickly moved social initiatives online, and employees continued to participate in charity fairs as well as fundraising initiatives dedicated to Valentine's Day, Children's Day, the beginning of the school year and the lead-up to New Year holidays. Thanks to these initiatives, more than RUB800K were donated to charitable foundations supporting primarily orphans and the elderly.
In 2020 Tinkoff celebrated its fifth year successfully implementating its Tinkoff educational programs for school pupils and students. The main goal of these educational programmes is to teach best industry practices to the most talented and motivated school pupils, university students and graduates from all across the Russian Federation. All programmes are free to participants. Tinkoff Education has had a government license for educational activities since July 2019. The main difference in 2020 is that we ensured these courses were accessible online for everyone in Russia.
Tinkoff Fintech Middle is the new stream for mid-level Engineers. We organised si online courses (SRE,
Java to Scala, Java to Kotlin, iOS) for 187 specialists. 72 individuals ended up completing the courses Tinkoff team.
and seven of these now work in the
3) Tinkoff Generation – blended learn-
in partnership with the Moscow Institute of Physics and Technology, in which we offer three majors: Machine Learning, Analytics and Scala Development. We also opened a research laboratory as an additional facility there 20 students recently working on 7 projects.
We continued our partnership with the Department of Mechanics and Mathematics at Moscow State University and formed new partnerships with St Petersburg University and Ural Federal University. More than 1,000 students were registered in these university courses in 2020.
A new project we are offering is an online course called "Fintech Trends". It is available on YouTube and has over 3,000 views on each video.
Tinkoff Russian Premier League Tinkoff team race
We provide employment for thousands of our employees throughout Russia. More details on this can be found in the next section.
Tinkoff once again ordered New Year's gifts from its social partner Buy Social amounting to over RUB2.8M. This supported people with mental disabilities in Orenburg and elderly people in the Sverdlovsk region who work in social enterprises. It is also how we generated a significant donation to the the Zhivoi foundation for the treatment of adults struggling with illness.
1) Tinkoff payment systems continues to develop its "Charity" section for the Group's customers to make donations. We launched a partnership with the "Need Help" charitable platform and brought in experts to evaluate various charitable organizations. In 2020, the number of charitable non-profit organizations receiving donations increased from 294 to 358, more than double that of 2019. Customers can donate through Tinkoff.ru or our mobile application, both in the form of regular payments throughout the year and in the form of one-time fixed contributions, as well as donation of cashback. In 2020, Tinkoff customers increased the number of transfers they made to charitable foundations by almost 3 times to over two hundred thousand. Tinkoff does not charge for such transactions.
In August 2020, Tinkoff launched its first philanthropic service "Cashback for Good". Now Tinkoff customers can donate their cashback quickly and conveniently without leaving the super app. The project includes more than 350 charitable foundations whose credentials have been verified by experts. Foundations and their public foundation ambassadors supported the project by filming a support video which showed donors new way to donate to their charitable foundation of choice. Over the 5 months of the service's operation, about 10,000 customers have connected to it and over RUB3.5M has been donated. Donations and connections to the service continue to grow on average by 20% month on month.
Morning online show "Morning with taste" for employees, a comic demonstration of the importance of masks and antiseptics
Screen of the "Cashback for Good" social service in the Tinkoff app
In February 2020, additional health and safety measures were launched across all the Group's offices, including regular disinfection of public areas.
In March Tinkoff began the mass migration of employees to the cloud and provided online help to over 140 employees obtaining compulsory health insurance policies. Tinkoff also adopted enhanced security measures for its smart couriers and more broadly in its offices.
The Tinkoff hotline and Slack channel were also created, used by over 1,500 employees.
By the end of March, Tinkoff had successfully migrated 95% of office workers to the cloud, leaving only about 200 mission-critical employees left to work physically in the offices.
Tinkoff refocused its Tinkoff Life program to support the physical and emotional well-being of employees online during the pandemic. At the Tinkoff Life Club, more than 50 volunteer interest clubs were organized.
Individual support sessions with a psychologist and webinars on burnout prevention were organized for employees.
The Tinkoff Training Center adapted its training courses for employees into online formats in just a few weeks.
All social initiatives for employees - charity fairs, fundraising and eco-webinars - were quickly transferred to online formats. In June, employees were given the opportunity to become online volunteers, and the Group entered the ProCharity volunteering program.
The HR department switched to electronic document management in two weeks, automating the human resource and processes alongside other key tasks. The internal communications team in 2020 issued 173 communications with supportive and important information for employees. The communication portal SPACE was successfully launched. We also launched the T-mood bot, which collects information about the mood of employees in Slack, and a welcome bot was successfully launched. A system to rapidly test employees for COVID-19 was launched in our offices, and medical support was launched within the framework of the insurance program.
Throughout 2020, we continued to hire the best professionals on the market to support our new and existing business lines. By the end of 2020, the Group's headcount exceeded 29,500, 14,400 of whom are permanent office-based employees and 15,100 of whom work remotely. Mathematicians and IT specialists account for 80% of the total headcount at Tinkoff headquarters. The average employment term in the Group is over 2.4 years, with 12% of employees working at the Company for longer than five years. The share of vacancies filled internally is 12%, and the average period of reviewing new candidate applications ranges from three to five days. Our team is still among the youngest on the market: the average age of employees Group-wide stands at 28.
The Group's human resources policy focuses on:
bringing together smart people with analytical skills; a transparent structure with zero tolerance of bureaucracy or excessive hierarchy; a smart working environment; an effective learning environment; encouraging initiative and taking on responsibility; ensuring creativity and open dialogue between employees; promoting team spirit and an entrepreneurial culture; broadening employee capabilities and delegating
responsibilities;
ensuring an environment where employees can experiment, make mistakes and learn lessons.
In line with our Test and Learn approach, we test many concepts and implement only the most successful. Our employees are not afraid of making mistakes: in our quest for the most successful models we support experiments and promote open communication between colleagues. We welcome innovative ideas that seek to solve challenges in different ways, and believe in the importance of creating an environment that grants talented people far-reaching authority. We consider granting our team's greater freedoms and opportunities to be a crucial element of our success.
To achieve outstanding collaboration within our matrix orgstructure and deliver on the Group's objectives, we use various channels to facilitate communication between employees, including Intranet, internal messenger, project trackers and other digital means of communication uniting people from different locations and time zones. Any employee can address anyone in the Company regardless of their position and we are proud of our liberal values and open-door policy which help us to enhance our spirit of creativity and success.
We continue to strive to attract the best talent in the market using a variety of tools to motivate and retain people. the Group is recruiting new team members through advertising and job sites, student forums, social media and other online channels. We are actively looking for top students at leading national and global universities, including Olympiad winners in mathematics, physics and programming.
In 2020, we hired 1,581 people, which is 29% more than in 2019. Of these, 867 work in IT. The net increase in 2020 was + 1087, and the increase in the number of IT employees was 628.
Every sixth new employee came to Tinkoff on the recommendation of a friend.
Tinkoff Training Center recorded the following results in 2020:
The Group offers its employees a unique working environment and a transparent system of career growth. We provide fixed-rate salaries and bonuses, regularly assess employees' performance against KPIs, determine the amount of compensation and give feedback for future career development. The Group has a market-based salary structure, with KPI-related pay rises and bonuses.
In April 2020 we launched a new long-term incentive program – KERP (Key-Employee Retention Programme). It's cash-settled, equity-linked, and currently covers around 250 employee participants. These are top-and mid-level managers who work in all operational divisions of the Group. We expect to significantly expand KERP in the coming years. Income from this program is linked to the performance of individual participants.
We offer career and training opportunities for professionals of all levels. Tinkoff charity flower fair Photo zone for employees on St Valentine's Day 2020
The equity-based MLTIP was also redesigned with a number of the top managers receiving new awards in 2020/21.
Tinkoff 's flexible business model, based on a high-tech contactless platform, allows individuals with disabilities more easily to join our team. This helps us to expand and diversify the Group's recruiting pool and recruit people based on professional skills and merits alone. In 2020, we continued developing our home call centre where people can work for the Company at any hours and locations convenient for them. This working format is suitable for those residing in remote areas with limited access to transportation as well as those who can only work remotely (for example, women on maternity leave). By the end of 2020, 15,100 people across Russia were working in our home call centre.
Employees also include individuals with disabilities, who we allow to choose the work hours and locations that best suit their circumstances. These employees are trained online, having access to all the necessary corporate tools and materials by way of a special cloud platform.
Tinkoff took 4th place in the Forbes Woman ranking of the 25 Best Companies in Russia for Female Professionals, published in February 2020. Among IT companies and banks, Tinkoff has the highest ranking. The metrics considered included gender composition, remuneration, career opportunities and corporate programmes.
Morning online show "Morning with taste" for employees
The growing attractiveness of the Tinkoff employer brand, in the Forbes Russia 2020 ranking of the 50 Best Employers in Russia, Tinkoff Bank took 3rd place, rising from 28th place in 2019, overtaking such IT industry leaders as Sber and Mail.ru. Forbes' assessment methodology is very detailed and scientific: criteria such as salary, training programs, social benefits, working conditions, charity, investment in infrastructure and much more are taken into account, including assessments by experts from the Forbes board of directors and heads of reputable universities.
Another boost for the Tinkoff HR brand was that for the second year in a row we were a winner of the IT HR AWARDS. The Tinkoff Life program won first place in the Employee Development and Training nomination.
Thanks to Tinkoff Life, employees' work-life balance has improved significantly over the year, and employees continue to feel like a team despite working remotely.
New Year 2020 employees' party at the Tinkoff HQ cafe in Moscow. Employees were gifted branded winter hats and pins.
The Tinkoff Life program focused on wellbeing, created in 2019, has become a real ecosystem of services and events for our employees in 2020.
The Group sees 5 key elements of well-being and the way the Group aims to improve them are these:
Physical health Professional development Social life
Emotional comfort
Directors of the Company. Left to right: Alexios Ioannides (Director), Mary Trimithiotou (Director), Constantinos Economides (Chairman of the Board), Jacques Der Megreditchian (Director) and Martin Cocker (Director).
Chairman of the Board of Directors
Constantinos Economides has been a director of TCS Group Holding PLC since November 2008 and Chairman since June 2015.
Mr. Economides is also the Managing Director of Royal Pine & Associates Ltd since January 2016. He was previously the Managing Director of Orangefield Cyprus from October 2006 to December 2015. Prior to 2006, he worked with Deloitte Ltd in Cyprus from 2003 to 2006 and Ernst & Young in the United Kingdom from 1999 to 2002.
Mr. Economides is a Fellow Member of the Institute of Chartered Accountants in England & Wales (ICAEW) and holds an MSc in Management Sciences from Warwick Business School, United Kingdom. In addition, he is a Licensed Insolvency Practitioner of the Institute of Certified Public Accountants of Cyprus (ICPAC) since October 2015.
Alexios Ioannides has been a director of TCS Group Holding PLC since November 2008. Mr. Ioannides previously worked for Deloitte from 2001 to 2008 where he trained and qualified as a Chartered Accountant in 2004. Mr. Ioannides is also a member of the Board of Directors of The Copperlink Partners Limited (since 2015).
Mr. Ioannides is a fellow member of the Institute of Chartered Accountants in England & Wales (ICAEW) and a member of the Institute of Certified Public Accountants of Cyprus (ICPAC) and holds a BSc. in Business Administration from the University of Alabama, USA.
Member of the Board of Directors Independent Non-Executive Director Chairman of the Audit Committee Member of the Remuneration Committee
Martin Cocker has been a non-executive director since October 2013.
Mr Cocker also serves on the boards of Etalon Group plc, Beverley Building Society, Nostrum Oil and Gas PLC and Headhunter Group plc. Mr. Cocker previously held positions at Ernst & Young, Amerada Hess, Deloitte & Touche and KPMG in the United Kingdom, Russia and Kazakhstan.
Mr. Cocker is a member of the ICAEW and holds a bachelor of science (joint honours) degree in mathematics and economics from the University of Keele, United Kingdom.
Member of the Board of Directors Independent Non-Executive Director Chairman of the Remuneration Committee Member of the Audit Committee
Jacques Der Megreditchian has been a non-executive director since October 2013.
Mr. Der Megreditchian previously served as Chairman of the Exchange Council of the Moscow Exchange. Mr. Der Megreditchian has over 30 years of experience in finance from CCF, Societe Generale and Troika Dialog where he held the position of Chief Business Officer.
Mr. Der Megreditchian holds a degree in business administration from the European Business Institute, France and in financial analysis from the French Center for Financial Analysis, France.
Maria (Mary) Trimithiotou has been a director since May 2012.
Mrs. Trimithiotou previously worked for Deloitte Ltd holding the position of audit manager from October 2001 to February 2009 and subsequently, moved to Orangefield Fidelico Ltd where she held the position of Director from 2012 until 2015. Currently, Mrs. Trimithiotou is a member of the Board of Directors of Royal Pine & Associates Ltd (since 2016).
Mrs. Trimithiotou is a Fellow Chartered Certified Accountant and a Member of the Association of Chartered Certified Accountants as well as Member of the Institute of Certified Public Accountants of Cyprus (ICPAC). Mrs. Trimithiotou is also a licensed Insolvency Practitioner (from October 2015). She is also registered with CySEC as a holder of the Financial Services Regulatory Framework Advanced Certificate, and a holder of the CySEC AML certificate.
| Number of meetings in 2020 |
|---|
| 30 |
| 20 |
| Decision making body |
Members (31/12/2020) | Relationship to other key governing bodies | Key powers |
|---|---|---|---|
| TCS Group Holding PLC |
Constantinos Economides (Chairman) | Appoints members of the Tinkoff Bank Board of Directors. |
-Provides leadership and oversight to the Group within a framework of prudent and effective controls which enable risk to be assessed and managed; |
| (Cyprus) Board of Directors |
Mary Trimithiotou Alexios Ioannides |
The Company is sole shareholder of Tinkoff | -Sets the Group's strategic objectives and ensures the necessary financial and human re sources are in place for the Group to meet its objectives; |
| Martin Cocker (INED) | Bank and determines all the matters reserved to shareholders. |
-Appoints the Group's external auditors; | |
| Jacques Der Megreditchian (INED) | -Sets the Group's values and standards and ensures its obligations to shareholders/investors and other stakeholders are understood and met; |
||
| -Reviews management performance; | |||
| -Decides the Group's remuneration policy; | |||
| -Approves the Group's credit policies: | |||
| -Makes the Group's dividend policy and decides the level of dividends. | |||
| A more detailed description can be found on pages 48-51. | |||
| Tinkoff Bank Board of |
Stanislav Bliznyuk (Chairman) | Appoints and oversees the Tinkoff Bank Manage ment Board |
-Determines the strategic priorities of the Bank; |
| Directors | Oliver Hughes Sergey Pirogov |
-Approves capital markets operations of the Bank, major and related party transactions, risk and capital management strategy, procedures for managing conflicts of interest, HR policies, employee and management compensation and bonus policies; |
|
| Vadim Stasovsky | -convenes annual and extraordinary meetings of shareholders, decides on the agenda and the record date for meetings; |
||
| Svetlana Ustilovskaya (Independent) | -Recommends dividends; | ||
| Tinkoff Bank Management |
Oliver Hughes (Chairman) | Reports to the Tinkoff Bank Board of Directors | -Determines the Bank's asset, liability and risk management operations, policies and proce dures; |
| Board | Valeriya Pavlyukova | -The Chairman appoints the members of the Finance, Credit, Technology and Business | |
| Anatoliy Makeshin | Development Committees. The decisions of these Committees frame most of the day to day operations of Tinkoff Bank. |
||
| Evgeniy Ivashkevich | |||
| Ilya Pisemsky | A more detailed description can be found on page 30-31. | ||
| Natalia Izyumova | |||
| Viacheslav Tsyganov |
44
THE ROLE OF THE BOARD IS TO PROVIDE LEADERSHIP TO THE GROUP WITHIN A FRAMEWORK OF PRUDENT AND EFFECTIVE CONTROLS WHICH ENABLES RISK TO BE ASSESSED AND MANAGED.
Global Depositary Receipts (GDRs) of TCS Group Holding PLC (a Cyprus incorporated company), with each GDR issued under a deposit agreement dated on or about 24th October 2013 with JPMorganChase Bank N.A. as depositary representing one Ordinary (formerly Class A) share, are listed on London Stock Exchange. The Company's GDRs are also listed on the Moscow Exchange. No shares of TCS Group Holding PLC are listed on any exchange.
The Company is required to comply with the UK corporate governance regime to the extent it applies to foreign issuers of GDRs listed on London Stock Exchange. The Company has not adopted corporate governance measures of the same standard in all respects as those adopted by UK incorporated companies or companies with a premium listing on the London Stock Exchange.
As the shares themselves are not listed on the Cyprus Stock Exchange (or elsewhere), the Cypriot corporate governance regime, which only relates to companies that are listed on the Cyprus Stock Exchange, does not apply to the Company and accordingly the Company does not monitor its compliance with that regime.
From IPO in 2013 until 7th January 2021, the Company maintained a capital structure with two classes of shares, Class A and Class B. On 7th January 2021, all Class B shares were converted to Class A and simultaneously all shares were reclassified and redesignated as Ordinary shares all ranking pari passu for all purposes and in all respects with the other existing shares, with the provisions in the Articles of Association of the Company relating to B Class shares deemed deleted.
The Company's Home State is Cyprus.
A description of the terms and conditions of the GDRs can be found at 'Terms and Conditions of the Global Depositary Receipts', 'Summary of the Provisions relating to the GDRs whilst still in Master Form' and 'Description of Arrangements to Safeguard the Rights of the Holders of the GDRs' in the Prospectus issued by the Company dated 22 October 2013 and on the website at www.tinkoff.ru/eng.
Copies of the Articles of Association of the Company adopted on 21 October 2013 as amended, the terms of reference of the Committees, and other corporate governance related as well as investor relations related materials can also be found on the websites www.tinkoff.ru/eng, at the Company's main website www.tcsgh.com.cy, on the Company's page on the London Stock Exchange website (www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary) and at the official site of the Department of Registrar of Companies, Cyprus (http://www.mcit.gov.cy/).
The role of the Board is to provide entrepreneurial leadership to the Group within a framework of prudent and effective controls which enable risk to be assessed and managed. The Board sets the Group's strategic objectives, ensures that the necessary financial and human resources are in place for the Group to meet its objectives and reviews management's performance. The Board also sets the Group's values and standards and ensures that its obligations towards the shareholders and other stakeholders are understood and met.
The Board operates under a formal schedule of matters reserved to the Board for its decision, approved by shareholders in 2013.
The authorities of the members of the Board are specified by the Articles of Association of the Company and by law. The current five strong Board of directors is comprised of three executive directors including the chairman, and two non-executive directors both of whom are independent. There was no change in the composition of the Board or status of the directors in 2020. The Board of directors contains no Director B.
The longest serving director Mr. Constantinos Economides took over the role of Chairman of the Board of directors in June 2015. The names of the people who served on the Board during 2020 are listed at F–5.
The Group has established two Committees of the Board. Specific responsibilities have been delegated to those committees as described below.
The Board is required to undertake a formal and rigorous review annually of its own performance, that of its committees and of its individual directors. That review was recently carried out, in-house, in relation to 2020, looking at overall performance. All directors completed detailed questionnaires on the Board's, the committees' and individual director's performance. The role of appraising the Chairman of the Board for 2020 was performed by the Chairman of the Audit Committee. Analysis of the resultant feedback, which was discussed at a meeting of the Board of Directors in March 2021 did not show up any deficiencies in the performance of the Board, its committees or individual directors of a nature that required changes to be made.
The Board has not appointed a senior independent director. There are now only two independent directors of whom at least one will retire by rotation each year.
Unless and until otherwise determined by the Company in general meeting, the number of directors shall be no less than four, of whom two must be non-executive, and until 7 January 2021 was not permitted to exceed seven, when Class B shares were in issue. From 7 January 2021, there is no maximum number of directors. The Articles of Association of the Company provide for the retirement by rotation of certain directors at each Annual General Meeting. At the AGM 2020 on 24th August the director who retired by rotation was Mr. Jacques Der Me-The business of the Company is managed by the directors, who are empowered to exercise all such powers of the Company as are not, by the Cyprus Companies Law or by the Articles of Association, required to be exercised by the shareholders in general meeting, subject nevertheless to any provisions of the Articles of Association, of the Cyprus Companies Law and of any directions given by the general meeting by ordinary resolution; but no alteration of the Articles of Association and no direction made by the Company in general meeting shall invalidate any prior act of the directors which would have been valid had that alteration or
greditchian who was duly reappointed that day by vote of all the shareholders. direction not been made or given.
The quorum necessary for the transaction of the business of the directors shall be at least four directors.
Questions arising at any meeting of the Board of directors shall be decided by a majority of votes. In the case of equality of votes, the chairman shall have a second or casting vote. A director may, and the secretary on the requisition of a director shall, at any time, summon a meeting of the directors. A resolution in writing signed or approved by letter, telex, facsimile or telegram by all directors or in relation to a committee by all its directors, shall be as valid and effectual as if it had been passed at a meeting of the Board of directors or (as the case may be) at a committee meeting duly convened and held. Any such resolution in writing signed may consist of several documents each signed by one or more of the persons described.
Any notice shall include an agenda identifying in reasonable detail the matters to be discussed at the meeting together with copies of any relevant documents.
The directors may delegate any of their powers to a committee or committees consisting of one or more members of their body as they think fit; any committee so formed shall, in the exercise of the powers so delegated to it, comply with the rules which may have been imposed on it by the directors, in respect of its powers, composition, proceedings, quorum or any other matter.
| Board Attendance | AC Attendance | RC attendance | |
|---|---|---|---|
| Director | 2020 | 2020 | 2020 |
| Constantinos Economides (Chairman) | 30/30 | n/a | n/a |
| Maria Trimithiotou | 30/30 | n/a | n/a |
| Alexios Ioannides | 30/30 | n/a | n/a |
| Martin Cocker | 30/30 | 4/4 | 7/7 |
| Jacques Der Megreditchian | 30/30 | 4/4 | 7/7 |
Last year I wrote that 2020 was shaping up to be a more turbulent, volatile and challenging year. Even though all that turned out to be a fair assessment of last year and the pandemic is still ongoing, I always felt our deep and ever-deepening pool of management talent would be capable of handling whatever was thrown at them. Tinkoff has survived a number of crises in its life-even though these crises have all been 'different', the Tinkoff business model has always been and remains highly flexible, very resilient and led by a skillful management team which has proved true this time around too. But Tinkoff has done more than survive, far more. It is emerging even stronger; crises amplify Tinkoff's strengths. Another set of super financial results for FY2020 evidence this and I recommend reading our CFO Ilya's Financial Review.
As COVID-19 has spread throughout the world, all of us I believe have been forced to change our behaviours, in so many aspects of our lives. But as and when we come through the worst of it and reach a new state of normal, I feel it will not be a return to 2019, but there will be long lasting effects on societies, on our economies, our behaviours. COVID-19 hit the fast forward button on a number of existing trends from e-commerce to workplace culture and much else. So whether its avoiding queues and busy places, spending more of one's life at a screen, working from home or at least more flexible work patterns, the move away from cash to online spending, the general disruption of consumer spending patterns among many, these trends are Tinkoff's opportunities, where Tinkoff can help its customers in more and better ways. Tinkoff has consistently shown itself very quick to anticipate trends in this as in many other spheres -on employee and customer health and safety, to offering products tailored for customers' changed and changing needs under lockdown, to assisting those whose financial health and mental wellness were impacted by the pandemic, to helping governmental authorities in meeting their responsibilities, to mention a few. We set these out in some detail in last year's annual report.
On the governance side the Board was able to continue its supervisory and oversight work much as usual; all of us are now experts in call technologies whose names have entered everyday conversation during the pandemic. The one exception was the Board's visits to Moscow to meet the wider management team face to face in the Bank's HQ which we had to put back; the next such visit is though already in the planning stage. We expect to continue our rollout of corporate governance enhancements-some major some less so but all part of a concerted trend to greater transparency- this year and into the future, following the unprecedented voluntary renunciation of weighted votes by our Founder in January. Some like the recent Board changes and the business segment financial disclosures in FY2020 FS are public already. Others will follow in the coming months.
I would like to close by thanking all of those who have put their faith in Tinkoff. We will not disappoint in 2021, I am confident.
Keep safe in these difficult times. Yours sincerely
Constantinos Economides Chairman of the Board of Directors
The Company has established two Committees of the Board of directors: the Audit Committee and the Remu neration Committee. Their terms of reference are summarized below. Both Committees were formed in October 2013. The Board reserves the right to amend their terms of reference and arranges a periodic review of each Committee's role and activ ities and considers the appropriate ness of additional committees.
The Audit Committee is chaired by an independent non-executive director Mr. Martin Cocker. From 16 August 2019 the Audit Committee is comprised of its chairman Mr. Martin Cocker and one independent non-ex ecutive director.
The Remuneration Committee is also chaired by an independent non-ex ecutive director Mr. Jacques Der Megreditchian. From 16 August 2019 the Remuneration Committee is com prised of its chairman Mr. Jacques Der Megreditchian and one independent non-executive director.
The current terms of reference of both Committees are available to the public and can be found on the Group's websites. A short summary of both is set out below.
The Audit Committee's primary purpose and responsibility is to assist the Board in its oversight responsibilities. In executing this role the Audit Committee mon itors the integrity of the financial statements of the Group prepared under IFRS as adopted by the EU and any formal announcements relating to the Group's and the Company's financial performance, reviewing significant financial reporting judgments contained in them, oversees the financial reporting controls and procedures implemented by the Group and monitors and assesses the effec tiveness of the Company's internal financial controls, risk management systems, internal audit function, the independence and qualifications of the independent auditor and the effectiveness of the external audit process. The Audit Committee is required to meet at appropriate times in the reporting and audit cycle but in practice meets more often, as required. In 2020 the Audit Committee convened 4 times.
Under its terms of reference the Audit Committee is required at least once a year to review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and to recommend any changes it con siders necessary for Board approval. The Audit Committee met this obligation through members participating in the main Board review described above. After consideration of the review, no changes were proposed to the committee's terms of reference.
The Audit Committee operates a structured framework around the extensive work it does on non-financial statements related matters holding at least two additional meetings annually, which would typically be held at the Bank's head office in Moscow, to consider specific, non-financial statements related areas within its terms of reference. No such meeting was held in 2020 due to COVID-19 travel restrictions but at least two are planned for 2021.
The Audit Committee has developed a risk matrix which constantly evolves to reflect new risks, the perceived impact of, and the Group's appetite for, any given risk and the measures taken to mitigate those risks. This matrix is run in conjunc tion with the internal audit function.
The Group has further broadened its top management team with a number of senior external hires.
The Remuneration Committee is responsible for determining and reviewing among other things the framework of remuneration of the executive directors, senior management and its overall cost and the Group's remuneration policies. The objective is to ensure that the executive management of the Group are pro vided with appropriate incentives to encourage enhanced performance and are in a fair and responsible manner rewarded for their individual contributions to the success of the Group. The Remuneration Committee's terms of reference in clude reviewing the design and determining targets for any performance related pay schemes and reviewing the design of all share incentive plans for approval by the Board. The Remuneration Committee is required to meet at least twice a year but in practice meets far more often.
The Remuneration Committee continued with its work into 2020 on an ongoing review of the operation of the Group's equity based incentive and retention plan for key, senior and middle management (MLTIP) which launched in 2016 and in considering additional awards to both existing and new participants for this and subsequent years.
The Committee has also been working on plans for an incentive and compensation arrangements within MLTIP for when, in the period 2022 to 2024, existing awards made to MLTIP joiners in 2016-2017 start to go into run off. The Remuneration Committee recommended in 2020 members of key management should be offered new Awards under MLTIP, all on a five year vesting schedule from August 2021.
The Group also introduced in April 2020 15 a new equity linked long term compensation plan for around 250 senior and mid dle employees with a planned further expansion of around 200 additional employees in 2021. In 2020, Changes were made to the remuneration calendar to enhance its retentive effects.
Under its terms of reference the Remuneration Committee is required at least once a year to review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and to recommend any changes it considers necessary for Board approval. The Remuneration Committee met this obligation through members participating in the main Board review (described above) under which detailed questionnaires were completed by all directors assessing the operation of the Board and both committees as well as individual directors. Although earlier reviews had resulted in certain minor changes to the Remuneration Committee's terms of reference, no further changes were felt required based on the most recent review.
The Committee continues to meet as required. In 2020 it convened 7 times.
The directors of the Company are appointed by the general meeting of shareholders with the sanction of an ordinary res olution. Such an appointment may be made to fill a vacancy or as an additional director. But no director may be appointed unless nominated by the Board of directors or a committee duly authorized by the Board of directors or by a shareholder or shareholders together holding or representing shares which in aggregate constitute or represent at least 5% in number of votes carried or conferred by the shares giving a right to vote at a general meeting.
The Board of directors may at any time appoint any person to the office of director either to fill a vacancy or as an addition al director and every such director shall hold office only until the next following annual general meeting and shall not be taken into account in determining the directors who are to retire by rotation.
One third of the directors (or if their number is not a multiple of three, the number nearest to three but not exceeding onethird) shall retire by rotation at every annual general meeting. Directors holding an executive office are excluded from retirement by rotation.
Directors may be removed from office by the shareholders at a general meeting with the sanction of an ordinary resolution, subject to giving 28 days' notice to that director in accord ance with the Articles of Association.
The office of director shall be vacated if the director:
.
Independent Non-Executive Director, Chairman of the Audit Committee, Member of the Remuneration Committee.
Independent Non-Executive Director, Chairman of the Remuneration Committee, Member of the Audit Committee.
STRATEGIC REVIEW DIRECTORS' REVIEW FINANCIALS
As at 31 December 2020, the Company's issued share capital was US\$7,972,219.68 divided in to 199,305,492 shares, each of nominal value of US\$0.04 per share and fully paid. Of these 129,391,449 were Class A shares and 69, 914,043 Class B shares, each with a nominal value of US\$0.04 per share and fully paid. As of 31 December 2020, the Company's authorized share capital was USD8,401,385.92 (with 10,729,156 undesignated shares of nominal value US\$0.04 each).
With effect from 7th January 2021 the Company's issued share capital comprised 199,305,492 Ordinary shares.
Neither the Company nor any of its subsidiaries has any outstanding convertible securities, exchangeable securities or securities with warrants or any relevant acquisition rights or obligations over the Company's or any of the subsidiaries' authorised but unissued capital or undertakings to increase its issued share capital.
Certain rights of pre-emption are conferred, by the Cyprus Companies Law and the Articles of Association of the Company, on existing shareholders for issue of new shares to the Company in cash. Please refer to the section below on pre-emption rights for further information.
In this section Cyprus Companies Law means the Companies Law, Cap. 113 of Cyprus and any successor statute or as the same may from time to time be amended.
The Company's current Articles of Association were adopted on 21 October 2013 and, except as to share capital and conversion of the B Class with deemed deletion of the Class B special rights on 7 January 2021, have not changed since.
The following is a brief summary of certain material provisions of the Articles of Association, in force as at 7 January 2021.
Holders of GDRs are not direct shareholders in the Company but instead derive their rights through holding a GDR. A description of the terms and conditions of the GDRs can be found at 'Terms and Conditions of the Global Depositary Receipts', 'Summary of the Provisions relating to the GDRs whilst still in Master Form' and 'Description of Arrangements to Safeguard the Rights of the Holders of the GDRs' in the Prospectus issued by the Company dated 22 October 2013 and on the website at www.tinkoff.ru/ eng.
With effect from 7 January 2021 none of the shareholders of the Company has any rights different from any other holder of shares of the Company. A summary of the rights attached to the shares of the Company is set out below.
The Company is required to hold an annual general meeting each year on such date and at such place as the directors may determine provided that not more than 15 months should elapse between annual general meetings.
The board of directors or any director may convene general meetings. The board of directors will also convene extraordinary general meetings of the Company on the requisition of a shareholder or shareholders together, holding or representing in aggregate, shares which constitute or represent at least five per cent. of the total number of votes carried or conferred by the shares.
An annual general meeting and a meeting called at which a special resolution will be proposed shall be called by at least twenty-one days' prior written notice. All other general meetings may be convened by the board by issuing at least 14 days' prior written notice. General meetings of the Company may be called by shorter notice and shall be deemed to have been duly called if it is so agreed:
All shareholders are entitled to attend the general meeting or be represented by a proxy authorised in writing.
The quorum for a general meeting will consist of such number of shareholders holding in aggregate more than 50 per cent. of the issued capital. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned to the same day in the following week, at the same time and place or to such other day and at such other time and place as the chairman of the general meeting may determine, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the shareholders present shall be a quorum.
A resolution in writing which has been signed by or on behalf of shareholders conferring in aggregate at least 75 per cent. of the votes exercisable on such resolution at general meeting of the Company is valid and effectual as if the resolution were sanctioned by the general meeting, provided that a notice of the intention to propose the resolution together with a copy of the resolution, are given to all the shareholders conferring the right to vote on the resolution, at least 30 days prior to the date of the resolution. Such a resolution in writing may consist of several documents in the like form each signed by, or on behalf of, one or more shareholders.
Under the Cyprus Companies Law, each existing shareholder has a right of pre-emption to subscribe for any new shares to be issued by the Company in cash, in proportion to the aggregate number of such shares of the shareholder. There are no pre-emption rights with respect to shares issued for non-cash consideration.
Specifically, all new shares and/or other securities giving rights to purchase shares in the Company, or which are convertible into shares in the Company that are to be issued for cash, shall be offered to the existing shareholders on a pro-rata basis to the participation of each shareholder in the capital of the Company, on a specific date fixed by the directors.
Any such offer shall be made upon written notice to all the shareholders specifying the number of the shares and/ or other securities giving rights to purchase shares in the Company, or which are convertible into shares in the Company, which the shareholder is entitled to acquire and the time periods (which shall not be less than 14 days from the date of notification of the offer (or)/from the date of the dispatch of the written notice), within which the offer, if not accepted, shall be deemed to have been rejected. If, until the expiry of the said time period, no notification is received from the person to whom the offer is addressed or to whom the rights have been assigned that such person accepts all or part of the offered shares or other securities giving rights to purchase shares in the Company, or which are convertible into shares of the Company, the directors may dispose of them in any manner that they deem fit.
These pre-emption rights may be disapplied by a resolution of the general meeting which is passed by a specified majority, being a majority in favour of over one half of all the votes cast if the attendance represents not less than half the issued share capital and a majority in favour of not less than two-thirds of the votes cast in all other cases ("Special Majority Resolution"). In connection with such a waiver, the directors have an obligation to present to the relevant general meeting a written report which explains the reasons for the proposed disapplication of pre-emption rights and justifies the proposed issue price of the shares.
Every holder of shares who is present (if a natural person) in person or by proxy or (if a corporation) is present by a representative, shall have one vote for each Ordinary share of which he is a holder.
The Ordinary shares carry the right to one vote per Ordinary share and confer on the Ordinary shareholders the right:
No shareholder shall be entitled to vote (either in person or by proxy) at any general meeting unless all calls or other sums presently owed by him in respect of those shares have been paid or the Board of directors otherwise determine.
The Ordinary shares have the right to an equal share in any dividend or other distribution paid by the Company, and any dividend or other distribution may only be declared and paid by the Company to the holders of all shares together.
Oliver oversees the strategic direction of Tinkoff Bank.
He joined Tinkoff as CEO in 2007 and has been at the helm every step of the way, helping Tinkoff grow into the world's largest independent digital bank by customer base. Before joining Tinkoff, Oliver worked for Visa International for a decade, including as Head of Visa in Russia from 2005 until 2007. Prior to Visa, he held various positions including at Reebok, Shell UK and the British Library.
Oliver holds a Master of Arts degree in International Politics from Leeds University and a Master's degree in Information Management and Technology from City University in London. He also has a Bachelor's (First Class) degree in Russian and French from the University of Sussex.
Chief Financial Officer, Deputy Chairman of the Management Board of Tinkoff Bank
Ilya is responsible for financial management, corporate strategy and planning. He has been Chief Financial Officer at Tinkoff since July 2008 and Deputy Chairman of the Management Board since April 2010. Prior to joining Tinkoff, he was Deputy Chief Financial Officer at Bank Soyuz and held a managerial position at Ernst & Young CIS.
Ilya graduated from the Finance Academy under the Government of the Russian Federation in Moscow and holds an MBA from the F.W. Olin Graduate School of Business at Babson College in Wellesley, Massachusetts.
Sergey has been responsible for capital raising and debt portfolio management at Tinkoff as Head of Corporate Finance since January 2010. Since July 2016, he has served on Tinkoff Bank's Board of Directors. Previously Sergey worked at Citigroup, where he was Director of Corporate Finance for Russia and the CIS from 2002 to 2008. Prior to that, he was Programme Coordinator and Head of Investment Projects at IBS Intertraining.
Sergey graduated from the Moscow State Institute for International Relations. He also holds an MBA from the Darden Graduate School of Business at the University of Virginia, USA.
George Chesakov is responsible for Tinkoff's mobile virtual network operator (MVNO Tinkoff Mobile) and has been in this role since January 2017. He also served as Chief Operating Officer and Chairman of the Management Board from 2006 until 2011. Prior to his returning to Tinkoff in February 2016, George was President of OTP Bank and co-founder of Revo Technology.
Prior to Tinkoff, George worked at McKinsey & Company, Russian Standard Bank and launched a consumer finance business at Investsberbank (now OTP Bank).
George holds a Master's degree in Computer Science from Princeton University and a Master's degree with honors in Mathematics from Moscow State University.
Stanislav oversees operations at Tinkoff. Before being appointed Chief Operating Officer in June 2012, he was Head of Technologies at the Bank from 2006. Prior to this, Stanislav worked in the banking sector, including as Process & Project Director at Raiffeisen Bank Russia.
Stanislav graduated from Moscow State University with a Master's degree in Mathematics and Economics.
of Tinkoff Bank
Valeria has overseen all legal matters at Tinkoff as Chief Legal Officer and Deputy Chairman of the Board since January 2017. Before joining the Bank, she was Head of Legal for Sberbank's international division and a Legal Director for InBev for/in
Russia.
Valeria graduated from the International University in Moscow and studied finance at Hult International Business School.
Fedor joined the Company in 2015 and is responsible for developing Tinkoff's SME offering and is head of Tinkoff Business.
He started his career in banking in 2002 and previously worked on developing the SME business portfolios of UniCredit Bank and other Russia banks.
Fedor graduated from Novosibirsk State Technical University in 2003 and holds a Finance and Credit degree from the Finance Academy under the Government of the Russian Federation.
Human Resources Director
As Head of Tinkoff's HR department, Nadezhda oversees employee engagement, talent management, development of motivational programs and the overall wellbeing of employees and all processes related to it.
Nadezhda has been working in HR for more than 15 years, including more than 10 years in senior positions. Before joining the Tinkoff team, she was Head of HR for Yandex Market.
Nadezhda graduated from Novgorod State University. She also holds a bachelor's degree in business administration from the Russian-Norwegian School.
Evgeny is in charge of risk management at Tinkoff. He has been in his current role since 2007, having also joined Tinkoff Bank's Management Board as Deputy Chairman in 2011. Before joining Tinkoff, he was a portfolio manager at Renaissance Capital Bank and Head of Product Development at Russian Standard Bank.
Evgeny graduated from the Moscow Institute of Physics and Technology and obtained a PhD in Theoretical Physics from the Joint Institute for Nuclear Research.
Anatoly has been responsible for Tinkoff's payments systems since 2006. He has also been a member of Tinkoff's Management Board since September 2012.
Anatoly graduated from Moscow Power Engineering Institute and holds a PhD in Technical Science from the Russian Academy of State Service.
Natalia oversees Tinkoff's accounting. She stepped into her current role and became a member of Tinkoff Bank's Management Board when she joined the Bank in February 2011. Natalia has also been a member of the Financial Committee of Tinkoff Bank since November 2011. Prior to joining Tinkoff, Natalia held a number of senior-level positions, including that of CFO and Deputy Chairwoman of Dvizheniye Bank's Management Committee.
Natalia graduated from Moscow State University with a degree in Economics and holds a PhD in Economics from the Research Institute of Economy.
Viacheslav has been with Tinkoff Bank from the beginning of its story. He is in charge of information technology and computer systems at Tinkoff. Viacheslav has been Chief Information Officer since 2009 after transitioning from his role as Head of IT Architecture and Development at the Bank.
Viacheslav holds a Master's degree in Computer Science from Southwest State
University.
Dmirty joined the Company in 2019. Prior to joining Tinkoff, Dmitry held a variety of managerial positions in several leading brokerage firms, including head of brokerage business at BCS Broker and Deputy CEO at Freedom Finance. Before that he worked for National Standard Bank, Rosenergobank and the Moscow Capital investment fund.
Dmitry graduated from the Higher School of Economics in 2004 and earned his Master's degree from Moscow State University in 2012.
Neri Tollardo joined Tinkoff in 2019 and is responsible for building and developing relationships with international investors and partners. Prior to joining Tinkoff, he was a top-ranked sell-side research analyst at Morgan Stanley for seven years, during which he covered a number of different emerging markets and sectors.
Neri holds a MSc in Finance and Private Equity from the London School of Economics and a BSc in International Economics and Management from Bocconi University Milan.
Artem has been in charge of Tinkoff Group's strategic communications and public relations since early 2019.
Previously Artem held managerial positions in PR, GR and marketing with MegaFon, Vnesheconombank, Russian Standard, Avtobank among others. He has more than 10 years of experience in journalism, having contributed to Kommersant Publishing House, Russian Telegraph and Moskovskiye Novosti. He was also the founder of Russian Policy, an insurance magazine.
Artem graduated from Moscow State University with a degree in PR and advertising and holds a financial degree from the Finance Academy under the Government of the Russian Federation.
As Head of Lifestyle Banking for Tinkoff, Anna oversees strategic development of partner and non-financial services for the Tinkoff group of companies. Prior to joining the Tinkoff team in November 2012, Anna worked as a mobile product manager for Yandex, Rambler and Mail.ru.
Anna graduated from the Humanities Institute of Television and Radio Broadcasting in Moscow with a degree in journalism.
Larisa oversees two functions in Tinkoff: she leads the IR strategy which covers all aspects of investor communication and interaction as well as being is responsible for supervising fixed income and equity related transactions. Before joining the Tinkoff team in August 2012, Larisa worked as a relationship manager for financial institutions for Citigroup Corporate Bank Moscow.
Prior to Citigroup Larisa worked as a legal assistant for Freshfields Bruckhaus Deringer Moscow office. Larisa holds masters degree in management and media communications from the Moscow State University of Culture and is certified by the College of Ministry of Foreign Affairs of the Russian Federation in Business Administration.
Konstantin Markelov is responsible for implementing new technologies at Tinkoff, as well as for business analytics, partnerships with technical universities, talent acquisition and educational programmes.
He has been with the Company since 2007, starting out as an analyst and taking an active part in its development. He launched several important projects and led the Company to employ business analysts (technologists).
In 2007, he graduated with honours from the Faculty of Mechanics and Mathematics of Moscow State University.
31 DECEMBER 2020
International Financial Reporting Standards Consolidated Financial Statements and Independent Auditor's Report
Constantinos Economides, Chairman Alexios Ioannides Mary Trimithiotou Jacques Der Megreditchian Martin Robert Cocker
The above all served throughout 2020 and through to the date of these consolidated financial statements.
The Company's Articles of Association include regulations for the retirement by rotation of Directors at each annual general meeting. These regulations will operate in 2021 on the basis of the composition of the Board at the relevant date.
25 Spyrou Araouzou Berengaria 25, 5th floor, 3036, Limassol, Cyprus
25 Spyrou Araouzou Berengaria 25, 5th floor, 3036, Limassol, Cyprus
| Board of Directors and other officers. . F-2 |
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|---|---|
| Consolidated Management Report. . F-3 |
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| Independent Auditor's Report. F-11 |
| Consolidated Statement of Financial Position. . F-21 |
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| Consolidated Statement of Profit or Loss and Other Comprehensive Income. . F-22 |
| Consolidated Statement of Changes in Equity. . F-23 |
| Consolidated Statement of Cash Flows. . F-24 |
| 1 Introduction. . F-25 |
|---|
| 2 Operating Environment of the Group. . F-27 |
| 3 Critical Accounting Estimates and Judgements in Applying Accounting Policies. . F-29 |
| 4 Segment Analysis. . F-31 |
| 5 Cash and Cash Equivalents. F-35 |
| 6 Due from Other Banks.F-37 |
| 7 Loans and Advances to Customers. . F-37 |
| 8 Investments in Securities and Repurchase Receivables. . F-57 |
| 9 Guarantee Deposits with Payment Systems. F-64 |
| 10 Brokerage Receivables and Brokerage Payables. . F-64 |
| 11 Tangible Fixed Assets, Intangible Assets and Right-of-use Assets. F-65 |
| 12 Other Financial and Non-financial Assets. F-66 |
| 13 Due to Banks. . F-67 |
| 14 Customer Accounts. . F-67 |
| 15 Debt Securities in Issue. F-68 |
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|---|---|
| 16 Subordinated Debt. F-69 |
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| 17 Insurance Provisions. F-69 |
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| 18 Other Financial and Non-financial Liabilities. . F-70 |
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| 19 Share Capital, Share Premium and Treasury Shares. . F-73 |
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| 20 Net Margin. . F-75 |
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| 21 Fee and Commission Income and Expense. . F-76 |
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| 22 Customer Acquisition Expense. . F-77 |
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| 23 Insurance Premiums Earned and Claims Incurred. F-77 | |
| 24 Administrative and Other Operating Expenses. . F-78 |
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| 25 Other Operating Income. . F-79 |
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| 26 Income Taxes. . F-79 |
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| 27 Dividends. . F-81 |
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| 28 Reconciliation of Liabilities Arising from Financing Activities. . F-82 |
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| 29 Financial and Insurance Risk Management. F-83 |
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| 30 Management of Capital. F-100 |
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| 31 Contingencies and Commitments. . F-101 |
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| 32 Offsetting Financial Assets and Financial Liabilities. F-105 |
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| 33 Transfers of Financial Assets. F-106 |
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| 34 Non-Controlling Interest. F-106 |
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| 35 Financial Derivatives. . F-107 |
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| 36 Fair Value of Financial Instruments. . F-107 |
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| 37 Presentation of Financial Instruments by Measurement Category. . F-113 |
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| 38 Related Party Transactions. . F-115 |
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| 39 Events after the End of the Reporting Period. . F-117 |
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| 40 Significant Accounting Policies. . F-117 |
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| 41 Adoption of New or Revised Standards and Interpretations. F-134 |
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| 42 New Accounting Pronouncements. F-134 |
The Board of directors presents its report together with the audited consolidated financial statements of TCS Group Holding PLC (the "Company") and its subsidiaries (collec tively the "Group") for the year ended 31 December 2020.
(31 December 2019: increased by 35% to RR 135,178 million). This growth has been fuelled by the continued development of the debit card and SME business lines. The Group continues to maintain a good quality and diversified securities portfolio. During the year the Bank developed the Tinkoff Investments product by increasing the customer base and providing of new trading instru ments to its clients. The Group's Insurance business continues to develop at a good pace. This year insurance premiums earned increased by 31.6% to RR 18,567 million (2019: increase by 111.4% to RR 14,110 million). The growth was as a result of a continuous development of auto (including CTP and VTP) and travel insurance, as well as the growth of personal accident insurance along with the credit portfolio and providing a wider coverage of insured risks. In order to reflect appropriately the uncertainty associated with the COVID-19 pandemic, the Group has made changes to its ECL model, which resulted in approximately RR 5.6 billion of additional credit loss allowance charge in the first half of 2020 and was the main driver of increased cost of risk. Refer to Notes 2 and 3.
Empowerment is an important ingredient in the success of our organization. To achieve this, decision-making is delegated to levels deep below the management team, discussion, idea generation and exchange and transparency are actively promoted and encouraged and an open leadership style ensures that information can move freely. The Group utilizes all types of forums to promote continual dialogue – such as email, online chat rooms, flash meetings, as well as formalized meeting structures. The Group offers clear far-reaching career path for its employees, a unique work environment and fair and transparent compensation.
As the Group is an online-only financial institution, the management of the Group believes that none of the Group's business relationships, products or services are likely to have any significant actual or potential significant environmental impacts and do not believe its operations are exposed to any material environmental risks. Management, in reaching this view, have taken into account the risk of adverse impacts that may stem from the Company's own activities as well as its busi ness relationships including its supply and subcontract ing chains. This belief is based on continuous scrutiny of the business. The Group is continuously reviewing its processes to identify opportunities to reduce their environmental impact. transformation into a financial marketplace, the Group has hired a significant number of new managers to develop and manage new business lines and to strengthen internal controls, including cyber security. 16. In April 2020 the Group launched a key employees retention plan (KERP), which is a new long term incentive program for more than 250 senior and middle management level employees. The purpose of the program is to retain and motivate key employees with high potential. This is a performance-based cash-settled program linked to the market price of the Group's GDRs.
GDRs of TCS Group Holding PLC (a Cyprus incorporated company), with each GDR issued under a deposit agreement dated on or about 24 October 2013 with JPMorgan-Chase Bank N.A. as depositary representing one ordinary (formerly class A) share, are listed on London Stock Exchange. The Company's GDRs are also listed on the Moscow Exchange. No shares of TCS Group Holding PLC are listed on any exchange.
The Company is required to comply with the UK corporate governance regime to the extent it applies to foreign issuers of GDRs listed on the London Stock Exchange. The Company has not adopted corporate governance measures of the same standard in all respects as those adopted by UK incorporated companies or companies with a premium listing on the London Stock Exchange.
As the shares themselves are not listed on the Cyprus Stock Exchange (or elsewhere), the Cypriot corporate governance regime, which only relates to companies that are listed on the Cyprus Stock Exchange, does not apply to the Company and accordingly the Company does not monitor its compliance with that regime.
From IPO in 2013 until 7 January 2021, the Company maintained a capital structure with two classes of shares, class A and class B. On 7 January 2021, all class B shares were converted to class A and simultaneously all shares were reclassified and redesignated as ordinary shares all ranking pari passu for all purposes and in all respects with the other existing shares, with the provisions in the Articles of Association of the Company relating to class B shares deemed deleted.
The Company's Home State is Cyprus.
A description of the terms and conditions of the GDRs can be found at "Terms and Conditions of the Global Depositary Receipts", "Summary of the Provisions relating to the GDRs whilst still in Master Form" and "Description of Arrangements to Safeguard the Rights of the Holders of the GDRs" in the Prospectus issued by the Company dated 22 October 2013 and on the website at www.tinkoff.ru/eng.
Copies of the Articles of Association of the Company adopted on 21 October 2013, the terms of reference of the Committees, and other corporate governance related as well as investor relations related materials can also be found on the website www.tinkoff.ru/eng, at the Company's main website www.tcsgh.com.cy, on the Company's page on the London Stock Exchange website (www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary) and at the official site of the Department of Registrar of Companies, Cyprus (http://www.mcit.gov.cy/).
The role of the Board is to provide entrepreneurial leadership to the Group within a framework of prudent and effective controls which enable risk to be assessed and managed. The Board sets the Group's strategic objectives, ensures that the necessary financial and human resources are in place for the Group to meet its objectives and reviews management's performance. The Board also sets the Group's values and standards and ensures that its obligations towards the shareholders and other stakeholders are understood and met.
The Board operates under a formal schedule of matters reserved to the Board for its decision, approved by shareholders in 2013.
The authorities of the members of the Board are specified by the Articles of Association of the Company and by law. The current five strong Board of directors is comprised of three executive directors including the chairman, and two non-executive directors both of whom are independent. There was no change in the composition of the Board or status of the directors in 2020. The Board of directors contains no Director B.
The longest serving director Mr. Constantinos Economides took over the role of Chairman of the Board of directors in June 2015. The names of the people who served on the Board during 2020 are listed at the Board of directors and other officers.
The Group has established two Committees of the Board. Specific responsibilities have been delegated to those committees as described below.
The Board is required to undertake a formal and rigorous review annually of its own performance, that of its committees and of its individual directors. That review was recently carried out, in-house, in relation to 2020, looking at overall performance. All directors completed detailed questionnaires on the Board's, the committees' and individual director's performance. The role of appraising the Chairman of the Board for 2020 was performed by the Chairman of the Audit Committee. Analysis of the resultant feedback will be discussed at a meeting of the Board of directors on 10 March 2021 and no changes are expected to be made in the performance of the Board, its committees or individual directors.
The Board has not appointed a senior independent director. There are only two independent directors of whom at least one will retire each year.
Unless and until otherwise determined by the Company in general meeting, the number of directors shall be no less than four, of whom two must be non-executive, and until 7 January 2021 was not permitted to exceed seven, when class B shares were in issue. From 7 January 2021, there is no maximum number of directors.
The Articles of Association of the Company provide for the retirement by rotation of certain directors at each Annual General Meeting (AGM). At the AGM on 24th August 2020 the director who retired by rotation was Mr. Jacques Der Megreditchian who was duly reappointed that day by vote of all the shareholders.
The Company has established two Committees of the Board of directors: the Audit Committee and the Remuneration Committee. Their terms of reference are summarized below. Both Committees were formed in October 2013. The Board reserves the right to amend their terms of reference and arranges a periodic review of each Committee's role and activities and considers the appropriateness of additional committees.
The Audit Committee is chaired by an independent non-executive director Mr. Martin Cocker, and had, until 16 August 2019, two other members both non-executive directors, one of whom was independent. From 16 August 2019 the Audit Committee has comprised its chairman Mr. Martin Cocker and one independent non-executive director.
The Remuneration Committee is also chaired by an independent non-executive director, Mr. Jacques Der Megreditchian, and had until 16 August 2019 two other members both non-executive directors, one of whom was independent. From 16 August 2019 the Remuneration Committee has comprised its chairman Mr. Jacques Der Megreditchian and one independent non-executive director.
The current terms of reference of both Committees are available to the public and can be found on the Group's websites. A short summary of both is set out below.
The Audit Committee's primary purpose and responsibility is to assist the Board in its oversight responsibilities. In executing this role the Audit Committee monitors the integrity of the financial statements of the Group prepared under International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU) and any formal announcements relating to the Group's and the Company's financial performance, reviewing significant financial reporting judgments contained in them, oversees the financial reporting controls and procedures implemented by the Group and monitors and assesses the effectiveness of the Company's internal financial controls, risk management systems, internal audit function, the independence and qualifications of the independent auditor and the effectiveness of the external audit process. The Audit Committee is required to meet at appropriate times in the reporting and audit cycle but in practice meets more often as required.
Under its terms of reference, the Audit Committee is required, at least once each year, to review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and to recommend any changes it considers necessary for Board approval. The Audit Committee met this obligation through members participating in the main Board review described above. After consideration of the review, no changes were proposed to the committee's terms of reference. The Audit Committee operates a structured framework around the extensive work it does on non-financial statements related matters holding at least two additional meetings annually, which would typically be held at the Bank's head office in Moscow, to consider specific, non-financial statements related areas within its terms of reference. No such meeting was held in 2020 due to COVID-19 travel restrictions but at least two are planned for 2021.
The Audit Committee has developed a risk matrix which constantly evolves to reflect new risks, the perceived impact of, and the Group's appetite for, any given risk and the measures taken to mitigate those risks. This matrix is run in conjunction with the internal audit function.
A new post of chief information security officer was created in late 2017 and filled, with additional personnel expert in cyber-security recruited, in a very competitive market, through 2019 and 2020 to support the Group's ever-increasing efforts to stay ahead of trends and threats in this sphere. The Group has further broadened its top management team with a new chief investment officer appointed in 2019 and a new chief operating officer appointed in early 2020.
The Remuneration Committee is responsible for determining and reviewing among other things the framework of remuneration of the executive directors, senior management and its overall cost and the Group's remuneration policies. The objective is to ensure that the executive management of the Group are provided with appropriate incentives to encourage enhanced performance and are in a fair and responsible manner rewarded for their individual contributions to the success of the Group. The Remuneration Committee's terms of reference include reviewing the design and determining targets for any performance related pay schemes and reviewing the design of all share incentive plans for approval by the Board. The Remuneration Committee is required to meet at least twice a year but in practice meets far more often.
The Remuneration Committee continued with its work into 2020 on an ongoing review of the operation of the Group's MLTIP which launched in 2016 and in considering additional awards to both existing and new participants for this and subsequent years.
In the end of Q2 2020 the Committee approved the proposals of launching a new incentive and retention plan for more than 250 senior and middle managers (KERP).
The Committee has also been working on plans for an incentive and compensation arrangement within MLTIP for when, in the period 2022 to 2024, existing awards made to MLTIP joiners in 2016-2017 start to go into run off. The Remuneration Committee recommended in June 2020 and December 2020 7 and 8 members of key management respectively be granted new awards under MLTIP in Q3 2021.
Under its terms of reference the Remuneration Committee is required at least once each year to review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and to recommend any changes it considers necessary for Board approval. The Remuneration Committee met this obligation through members participating in the main Board review (described above) under which detailed questionnaires were completed by all directors assessing the operation of the Board and both committees as well as individual directors. Although earlier reviews had resulted in certain minor changes to the Remuneration Committee's terms of reference, no further changes were felt required based on the most recent review. The Committee continues to meet as required.
STRATEGIC REVIEW DIRECTORS' REVIEW FINANCIALS
The directors of the Company are appointed by the general meeting of shareholders with the sanction of an ordinary resolution. Such an appointment may be made to fill a vacancy or as an additional director. But no director may be appointed unless nominated by the Board of directors or a committee duly authorized by the Board of directors or by a shareholder or shareholders together holding or representing shares which in aggregate constitute or represent at least 5% in number of votes carried or conferred by the shares giving a right to vote at a general meeting.
The Board of directors may at any time appoint any person to the office of director either to fill a vacancy or as an additional director and every such director shall hold office only until the next following annual general meeting and shall not be taken into account in determining the directors who are to retire by rotation.
One third of the directors (or if their number is not a multiple of three, the number nearest to three but not exceeding one-third) shall retire by rotation at every annual general meeting. Directors holding an executive office are excluded from retirement by rotation.
Directors may be removed from office by the shareholders at a general meeting with the sanction of an ordinary resolution, subject to giving 28 days' notice to that director in accordance with the Articles of Association.
The office of director shall be vacated if the director:
For the significant direct and indirect shareholdings held in the share capital of the Company, please refer to Note 1 of the consolidated financial statements.
Policies, procedures and controls exist around financial reporting. Management is responsible for executing and assessing the effectiveness of these controls.
The Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113, and for such internal control as the Board of directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Board has delegated to the Audit Committee the responsibility for reviewing the consolidated financial statements to ensure that they are in compliance with the applicable framework and legislation and for recommending these to the Board for approval. The Audit Committee is responsible for overseeing the Group's financial reporting process.
Management is responsible for setting the principles in relation to risk management. The risk management organisation is divided between Policy Making Bodies and Policy Implementation Bodies. Policy Making Bodies are responsible for establishing risk management policies and procedures, including the establishment of limits. The main Policy Making Bodies are the Board of directors, the Management Board, the Finance Committee, the Credit Committee and the Business Development Committee.
The policy implementation level of the Group's risk management organisation consists of the Finance Department, the Risk Management Department, the Collections Department and the Internal Control Service.
In addition the Group has implemented an online analytical processing management system based on a common SAS data warehouse that is updated on a daily basis. The set of daily reports includes but is not limited to sales reports, application processing reports, reports on the risk characteristics of the card portfolios, vintage reports, transition matrix (roll rates) reports, reports on the pre-, early and late
collections activities, reports on compliance with CBR requirements, capital adequacy and liquidity reports, operational liquidity forecast reports and information on intra-day cash flows.
The Group is committed to offering equal opportunity to all current and prospective employees, such that no applicant or employee is discriminated in favour of or against on the grounds of sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation in recruitment, training, promotion or any other aspect of employment.
Recruitment, training and promotion are exclusively based on merit. All the Group employees involved in the recruitment and management of staff are responsible for ensuring the policy is fairly applied within their areas of responsibility. The Group applies this approach throughout, at all levels. This includes its administrative, management and supervisory bodies, including the Board of directors of the Company.
The composition and diversity information of the Board of directors of the Group for the year ended and as at 31 December 2020 is set out below:
| Name | Age | Male/Female | Educational/professional background |
|---|---|---|---|
| Constantinos Economides 45 | Male | ICAEW, MSc in Management Sciences, experience in 'Big Four' professional services firms |
|
| Alexios Ioannides | 44 | Male | ICAEW, ICPAC, BSc in Business Administration, experience in 'Big Four' professional services firms |
| Mary Trimithiotou | 43 | Female | ICPAC, FCCA, Licensed insolvency practitioner, experience in 'Big Four' professional services firms |
| Martin Robert Cocker | 61 | Male | ICAEW, BSc in Mathematics and Economics, experience in 'Big Four' professional services firms |
| Jacques Der Megreditchian 61 | Male | BSc in Business Administration and in Financial Analysis, banking and finance experience |
Further details of the corporate governance regime of the Company can be found on the website: https://www.tinkoff.ru/eng/investor-relations/corporate-governance/.
By Order of the Board
Constantinos Economides Chairman of the Board Limassol
10 March 2021
| Overall group materiality: Russian Roubles ("RR") 2 800 million, which represents approximately 5% of profit before tax. |
|
|---|---|
| Materiality Audit scope |
We planned and conducted our audit to cover the two largest business components of the Group, being Banking and Insurance operations, for which we performed full scope audits of each of their complete financial information. For the other components, we performed substantive $\bullet$ audit procedures where necessary. |
| Key audit matters |
We have identified the following key audit matters: Credit loss allowance for loans and advances to customers, using the expected credit loss model in line with the requirements of IFRS 9 "Financial Instruments"; Recognition of interest income calculated using the effective interest rate method on loans and advances to customers. |
| Overall group materiality | RR 2 800 mi |
|---|---|
| How we determined it | Approximate |
| Rationale for the materiality benchmark applied |
We chose pro view, it is the the Group is consolidated accepted ben an acceptable |
| henchmark. |
| Key Audit Matter | How our audit addressed the Key Audit Matter |
|
|---|---|---|
| detailed information on the interest income calculated using the effective interest rate method and effective interest rates of loans and advances to customers. |
periods of the loans by considering historic information. We also assessed the mathematical accuracy of the calculations through re-performance of a sample of them. |
|
| In addition, we performed substantive analytical procedures to assess the reasonableness of the interest income calculated using the effective interest rate method recognised by the Group. |
||
| Our testing did not identify any material errors in management's application of the effective interest rate method for interest income from loans and advances to customers. |
| In millions of RR | Note | 31 December 2020 | 31 December 2019 |
|---|---|---|---|
| ASSETS | |||
| Cash and cash equivalents | 5 | 136,351 | 55,564 |
| Mandatory cash balances with the CBRF | 5,379 | 3,448 | |
| Due from other banks | 6 | 1,887 | 2,084 |
| Loans and advances to customers | 7 | 376,521 | 329,175 |
| Financial derivatives | 35 | 5,035 | 390 |
| Investments in securities | 8 | 238,454 | 135,178 |
| Repurchase receivables | 8 | 29 | - |
| Guarantee deposits with payment systems | 9 | 15,475 | 8,877 |
| Brokerage receivables | 10 | 24,064 | 2,799 |
| Current income tax assets | 3,133 | 815 | |
| Deferred income tax assets | 26 | 947 | 1,517 |
| Tangible fixed assets and right-of-use assets | 11 | 10,481 | 10,560 |
| Intangible assets | 11 | 7,082 | 5,435 |
| Other financial assets | 12 | 31,070 | 21,673 |
| Other non-financial assets | 12 | 3,386 | 2,510 |
| TOTAL ASSETS | 859,294 | 580,025 | |
| LIABILITIES | |||
| Due to banks | 13 | 4,819 | 23 |
| Customer accounts | 14 | 626,837 | 411,614 |
| Debt securities in issue | 15 | 23,910 | 26,078 |
| Financial derivatives | 35 | 109 | 590 |
| Brokerage payables | 10 | 9,206 | 1,207 |
| Deferred income tax liabilities | 26 | 333 | 142 |
| Subordinated debt | 16 | 20,755 | 18,487 |
| Insurance provisions | 17 | 6,067 | 6,280 |
| Other financial liabilities | 18 | 34,337 | 14,648 |
| Other non-financial liabilities | 18 | 5,905 | 4,874 |
| TOTAL LIABILITIES | 732,278 | 483,943 | |
| EQUITY | |||
| Share capital | 19 | 230 | 230 |
| Share premium | 19 | 26,998 | 26,998 |
| Treasury shares | 19 | (3,238) | (3,164) |
| Share-based payment reserve | 38 | 1,548 | 1,039 |
| Retained earnings | 99,540 | 66,880 | |
| Revaluation reserve for investments in debt securities | 1,849 | 3,996 | |
| Equity attributable to shareholders of the Company | 126,927 | 95,979 | |
| Non-controlling interest | 34 | 89 | 103 |
| TOTAL EQUITY | 127,016 | 96,082 | |
| TOTAL LIABILITIES AND EQUITY | 859,294 | 580,025 |
Approved for issue and signed on behalf of the Board of directors on 10 March 2021.
Constantinos Economides Director
Mary Trimithiotou Director
The notes № 1-42 are an integral part of these Consolidated Financial Statements.
The notes № 1-42 are an integral part of these Consolidated Financial Statements.
| In millions of RR | Note | 2020 | 2019 |
|---|---|---|---|
| Interest income calculated using the effective interest rate method | 20 | 128,084 | 111,129 |
| Other similar income | 20 | 83 | 118 |
| Interest expense calculated using the effective interest rate method | 20 | (21,581) | (21,317) |
| Other similar expense | 20 | (139) | (134) |
| Expenses on deposit insurance | 20 | (1,745) | (1,870) |
| Net margin | 20 | 104,702 | 87,926 |
| Credit loss allowance for loans and advances to customers and credit related commitments |
7,18 | (38,972) | (26,551) |
| Credit loss allowance (charge)/reversal for debt securities at FVOCI | 8 | (369) | 139 |
| Total credit loss allowance for debt financial instruments | (39,341) | (26,412) | |
| Net margin after сredit loss allowance | 65,361 | 61,514 | |
| Fee and commission income | 21 | 47,609 | 35,858 |
| Fee and commission expense | 21 | (21,599) | (15,123) |
| Customer acquisition expense | 22 | (22,588) | (18,177) |
| Net gains/(losses) from derivatives revaluation | 4,163 | (2,563) | |
| Net (losses)/gains from foreign exchange translation | (6,850) | 2,216 | |
| Net gains/(losses) from operations with foreign currencies | 1,595 | (968) | |
| Net gains from disposals of debt securities at FVOCI | 7,210 | 301 | |
| Net gains from financial assets at FVTPL | 603 | 389 | |
| Insurance premiums earned | 23 | 18,567 | 14,110 |
| Insurance claims incurred | 23 | (3,814) | (4,891) |
| Administrative and other operating expenses | 24 | (35,621) | (27,852) |
| Net gains from repurchase of subordinated debt | 168 | ||
| Other operating income | 25 | 1,445 | 722 |
| Profit before tax | 56,249 | 45,536 | |
| Income tax expense | 26 | (12,036) | (9,413) |
| Profit for the year | 44,213 | 36,123 | |
| Other comprehensive (loss)/income | |||
| Items that may be reclassified to profit or loss | |||
| Debt securities at FVOCI and Repurchase receivables: | |||
| - Net gains arising during the year, net of tax | 3,621 | 5,381 | |
| - Net gains reclassified to profit or loss upon disposal, net of tax | (5,768) | (241) | |
| Other comprehensive (loss)/income for the year, net of tax | (2,147) | 5,140 | |
| Total comprehensive income for the year | 42,066 | 41,263 | |
| Profit is attributable to: | |||
| - Shareholders of the Company | 44,209 | 36,122 | |
| - Non-controlling interest | 4 | 1 | |
| Total comprehensive income is attributable to: | |||
| - Shareholders of the Company | 42,062 | 41,262 | |
| - Non-controlling interest | 4 | 1 | |
| Earnings per share for profit attributable to the Shareholders of the Company, basic (expressed in RR per share) |
19 | 225.60 | 193.62 |
| Earnings per share for profit attributable to the Shareholders of the Company, | 19 | 223.73 | 190.05 |
| Attributable to shareholders of the Company | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | Note | Share capital | Share premium | Share-based pay ment reserve |
Revaluation reserve for investments in debt securities |
Treasury shares | Retained earnings | Total | Non-control-ling Interest |
equity Total |
| Balance at 31 Decem - ber 2018 |
188 | 8,623 1,232 (1,144) | (3,670) 36,785 42,014 | 236 42,250 | ||||||
| Profit for the year | - | - | - | - | - | 36,122 | 36,122 | 1 | 36,123 | |
| Other comprehensive income: |
||||||||||
| Investments in debt securities at FVOCI and Repurchase re - ceivables |
- | - | - | 5,140 | - | - | 5,140 | - | 5,140 | |
| Total comprehensive income for the year |
- | - | - | 5,140 | - | 36,122 41,262 | 1 41,263 | |||
| Shares issued | 19 | 42 18,874 | - | - | - | - | 18,916 | - | 18,916 | |
| Secondary public offering costs |
19 | - | (499) | - | - | - | - | (499) | - | (499) |
| Acquisition of non-con - trolling interest in subsidiaries |
- | - | - | - | - | (327) | (327) | (134) | (461) | |
| Share-based payment reserve |
19 | - | - | (193) | - | 506 | 156 | 469 | - | 469 |
| Dividends declared | 27 | - | - | - | - | - | (5,856) | (5,856) | - (5,856) | |
| Balance at 31 Decem - ber 2019 |
230 26,998 1,039 | 3,996 | (3,164) | 66,880 95,979 | 103 96,082 | |||||
| Profit for the year | - | - | - | - | - | 44,209 | 44,209 | 4 | 44,213 | |
| Other comprehensive loss: |
||||||||||
| Investments in debt securities at FVOCI and Repurchase re - ceivables |
- | - | - (2,147) | - | - | (2,147) | - | (2,147) | ||
| Total comprehensive (loss)/income for the year |
- | - | - (2,147) | - 44,209 42,062 | 4 42,066 | |||||
| GDRs buy-back | 19 | - | - | - | - | (661) | - | (661) | - | (661) |
| Share-based payment reserve |
19 | - | - | 509 | - | 587 | (4) | 1,092 | - | 1,092 |
| Dividends declared | 27 | - | - | - | - | - (11,545) (11,545) | (18) (11,563) | |||
| Balance at 31 Decem - ber 2020 |
230 26,998 1,548 | 1,849 (3,238) 99,540 126,927 | 89 127,016 |
| In millions of RR | Note | 2020 | 2019 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Interest income received calculated using the effective interest rate method | 129,555 | 107,854 | |
| Other similar income received | 11 | 175 | |
| Interest expense paid calculated using the effective interest rate method | (22,280) | (21,334) | |
| Recoveries from written-off loans | 7 | 4,063 | 3,420 |
| Expenses on deposits insurance paid | (1,792) | (1,673) | |
| Fees and commissions received | 47,613 | 35,802 | |
| Fees and commissions paid | (22,236) | (15,993) | |
| Customer acquisition expense paid | (21,116) | (19,272) | |
| Gains/(losses) from operations with foreign currencies received/(paid) | 831 | (968) | |
| Losses from operations with derivatives paid | (934) | (647) | |
| Insurance premiums received | 18,193 | 16,254 | |
| Insurance claims paid | (3,629) | (4,337) | |
| Recoveries from the purchased loans received | 1,750 | 693 | |
| Other operating income received | 1,053 | 1,137 | |
| Administrative and other operating expenses paid | (30,456) | (26,119) | |
| Income tax paid | (12,930) | (13,606) | |
| Cash flows from operating activities before changes in operating assets and | |||
| liabilities | 87,696 | 61,386 | |
| Changes in operating assets and liabilities | |||
| Net increase in CBRF mandatory reserves | (1,931) | (1,013) | |
| Net decrease/(increase) in due from banks | 197 | (1,308) | |
| Net increase in loans and advances to customers | (81,724) | (151,771) | |
| Net increase in brokerage receivables | (21,265) | (2,799) | |
| Net (increase)/decrease in debt securities measured at FVTPL | (3,788) | 5,879 | |
| Net increase in guarantee deposits with payment systems | (4,325) | (4,848) | |
| Net increase in other financial assets | (9,708) | (4,046) | |
| Net (increase)/decrease in other non-financial assets | (1,038) | 19 | |
| Net increase/(decrease) in due to banks | 4,777 | (2,685) | |
| Net increase in customer accounts | 201,922 | 135,633 | |
| Net increase in brokerage payables | 7,999 | 1,207 | |
| Net increase in other financial liabilities | 16,512 | 1,387 | |
| Net decrease in non-financial liabilities | (39) | (524) | |
| Net cash from operating activities | 195,285 | 36,517 | |
| Cash flows (used in)/from investing activities | |||
| Acquisition of tangible fixed assets | (2,076) | (1,783) | |
| Acquisition of intangible assets | (3,642) | (2,539) | |
| Acquisition of investments in securities, repurchase receivables and other invest - |
|||
| ments | (375,444) | (108,246) | |
| Proceeds from sale and redemption of investments in securities | 282,288 | 71,000 | |
| Net cash used in investing activities | (98,874) | (41,568) | |
| Cash flows (used in)/from financing activities | |||
| Dividends paid | 27 | (11,853) | (5,601) |
| Repayment of debt securities in issue | 28 | (2,894) | (6,583) |
| Repayment of subordinated debt | 28 | (1,937) | - |
| GDRs buy-back | 19 | (661) | - |
| Repayment of principal of lease liabilities | 28 | (758) | (1,087) |
| Proceeds from subordinated debt | 28 | 710 | 46 |
| Proceeds from debt securities in issue | 28 | 331 | 23,254 |
| Proceeds from secondary public offering | 19 | - | 18,916 |
| Secondary public offering costs paid | 19 | - | (499) |
| Other financing activities cash flows | - | (461) | |
| Net cash (used in)/from financing activities | (17,062) | 27,985 | |
| Effect of exchange rate changes on cash and cash equivalents | 1,438 | (1,172) | |
| Net increase in cash and cash equivalents | 80,787 | 21,762 | |
| Cash and cash equivalents at the beginning of the year | 5 | 55,564 | 33,802 |
| Cash and cash equivalents at the end of the year | 5 | 136,351 | 55,564 |
The notes № 1-42 are an integral part of these Consolidated Financial Statements. The notes № 1-42 are an integral part of these Consolidated Financial Statements.
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") for the year ended 31 December 2020 for TCS Group Holding PLC (the "Company") and its subsidiaries (together referred to as the "Group"), and in accordance with the requirements of the Cyprus Companies Law, Cap.113.
The Company was incorporated, and is domiciled, in Cyprus in accordance with the provisions of the Companies Law, Cap. 113.
The Board of directors of the Company at the date of authorisation of these consolidated financial statements consists of: Constantinos Economides, Alexios Ioannides, Mary Trimithiotou, Jacques Der Megreditchian and Martin Robert Cocker.
The Company Secretary is Caelion Secretarial Limited, 25 Spyrou Araouzou, 25 Berengaria, 5th floor, Limassol 3036, Cyprus.
At 31 December 2020 and 2019 the share capital of the Company is comprised of class A shares and class B shares. A "class A" share is an ordinary share with a nominal value of USD 0.04 per share and carrying one vote. A "class B" share is an ordinary share with a nominal value of USD 0.04 per share and carrying 10 votes. As at 31 December 2020 the number of issued class A shares is 129,391,449 (2019: 119,291,268) and issued class B shares is 69,914,043 (2019: 80,014,224). Refer to Note 19 for further information on the share capital. On 25 October 2013 the Group completed an initial public offering of its class A ordinary shares in the form of global depository receipts (GDRs) listed on the London Stock Exchange plc. On 2 July 2019 the Group completed a secondary public offering (SPO) of its class A shares in the form of GDRs. On 28 October 2019 the Group's GDRs started trading also on the Moscow Exchange.
As at 31 December 2020 and 2019 the entities and the individuals holding either class A or class B shares of the Company were:
| Class of shares |
31 December 2020 |
31 December 2019 |
Country of Incorporation |
|
|---|---|---|---|---|
| Guaranty Nominees Limited (JP Morgan Chase Bank NA) |
Class A | 64.92% | 59.85% | United Kingdom |
| Virtue Trustees (Switzerland) AG as Trustee of the Bernina Trust |
Class B | 18.47% | - | Switzerland |
| Virtue Trustees (Switzerland) AG as Trustee of the Rigi Trust |
Class B | 16.61% | - | Switzerland |
| Ioanna Georgiou | Class A | 0.00% | 0.00% | Cyprus |
| Panagiota Charalambous | Class A | 0.00% | 0.00% | Cyprus |
| Maria Vyra | Class A | 0.00% | 0.00% | Cyprus |
| Chloi Panagiotou | Class A | 0.00% | 0.00% | Cyprus |
| Leonora Chagianni | Class A | 0.00% | 0.00% | Cyprus |
| Antonis Strati | Class A | 0.00% | - | Cyprus |
| Marios Panayides | Class A | - | 0.00% | Cyprus |
| Altoville Holdings Limited | Class B | - | 18.47% | Cyprus |
| Nemorenti Limited | Class B | - | 21.68% | Cyprus |
| Total | 100.00% | 100.00% |
Guaranty Nominees Limited is a company holding class A shares of the Company for which GDRs are issued under a deposit agreement made between the Company and JP Morgan Chase Bank NA signed in October 2013.
On 19 March 2020 Altoville Holdings Limited and Nemorenti Limited transferred all of the Company's class B shares owned by them to two Tinkov family trusts. Russian entrepreneur Mr. Oleg Tinkov, who was the beneficial owner of Altoville Holdings Limited and Nemorenti Limited at 31 December 2019, remained the ultimate beneficiary of these B shares.
On 14 December 2020 10,100,181 class B shares of the Group held by the Rigi Trust were converted to class A shares. As a result of the conversion, Mr. Oleg Tinkov's voting rights in the Group decreased from 87.03% to 84.38%.
As at 31 December 2020 the ultimate controlling party of the Company was Mr. Oleg Tinkov, who controlled approximately 84.38% (2019: 87.03%) of the aggregated voting rights attached to the class A and B shares, excluding voting rights attaching to TCS Group Holding PLC GDRs he holds, if any.
On 7 January 2021 all 69,914,043 class B shares (35.08% of the total number of issued shares) held by the Rigi Trust and the Bernina Trust were converted to class A shares, and on the same date all issued shares were reclassified and redesignated as ordinary shares. Following the conversion, each share carries a single vote, and the total number of votes capable of being exercised are equal to the total number of issued shares (currently 199,305,492 shares following the class B share conversion). The number of GDRs in issue remained unchanged. As a result of the conversion, Mr. Oleg Tinkov's voting rights in the Group decreased from 84.38% to 35.08%. As a result his control over the Group was ceased.
As at 31 December 2020 and 2019 the six individuals listed in the table above each held one share. The individuals hold them as nominees of Mr. Oleg Tinkov (31 December 2019: as nominees of Altoville Holdings Limited).
The subsidiaries of the Group are set out below. Except where stated the Group owns 100% of shares and has 100% of voting rights of each of these subsidiaries as at 31 December 2020 and 2019.
JSC "Tinkoff Bank" (the "Bank") provides on-line retail banking services in Russia. The Bank specialises in issuing credit cards and other credit products.
JSC "Tinkoff Insurance" (the "Insurance Company") provides insurance services such as accident, property, travellers, financial risks and auto insurance.
LLC Microfinance company "Т-Finans" provides micro-finance services.
TCS Finance D.A.C. is a structured entity which issued debt securities including subordinated perpetual bonds for the Group. The Group neither owns shares nor has voting rights in this company. However, this entity was consolidated as it was specifically set up for the purposes of the Group, and the Group has exposure to substantially all risks and rewards through outstanding guarantees of the entity's obligations.
LLC "TCS" provides printing, distribution and other services to the Group.
LLC "Phoenix" is a debt collection agency.
LLC "Tinkoff Software DC" and LLC "Fintech DC" provide software development services. In August 2020 the Group acquired a 22.15% shareholding in Incantus Holding Limited by transferring its 100% shareholding in LLC "Fintech DC" to Incantus Holding Limited and by providing a convertible loan (Notes 7 and 38). Incantus Holding Limited is a group of fintech start-ups launched in 2020 to provide a range of services to retail customers in Europe (excluding CIS) through the mobile banking platform Vivid Money. In October 2020 a new venture capital fund has invested into the share capital of Incantus Holding Limited. As a result the Company's shareholding in Incantus Holding Limited has decreased to 16.32%.
LLC "Tinkoff Mobile" is a mobile virtual network operator set up in 2017 to provide mobile services.
LLC "CloudPayments" is a developer of online payment solutions whose core business is online merchant acquiring in Russia. As at 31 December 2020 and 2019 the Group held 95% of the shares of LLC "CloudPayments".
ANO "Tinkoff Education" is a non-commercial organization set up by the Bank as the sole founder.
LLC "Tinkoff Capital" is an asset management company established in June 2019 to manage investment funds, mutual funds and non-state pension funds.
LLC "Tinkoff Invest Lab" is an infrastructure company created for supporting and optimizing of the Group's investment services.
EBT is a special purpose trust which has been specifically created for the long-term incentive programme for Management of the Group (MLTIP). The Group neither owns shares nor has voting rights in EBT.
Principal activity. The Group's principal business activities are retail banking to private individuals, individual entrepreneurs' ("IE") and small and medium enterprises' ("SME") accounts and banking services, brokerage services and insurance operations within the Russian Federation through the Bank and the Insurance Company. The Bank operates under general banking license No. 2673 issued by the Central Bank of the Russian Federation ("CBRF") on 8 December 2006. The Insurance Company operates under an insurance license issued by the CBRF.
The Bank participates in the state deposit insurance scheme, which was introduced by Federal Law No. 177-FZ "Deposits insurance in banks of the Russian Federation" dated 23 December 2003. The State Deposit Insurance Agency guarantees repayment of up to RR 1.4 million per individual, individual entrepreneur and small enterprise deposits in case of the withdrawal of a license of a bank or a CBRF-imposed moratorium on payments.
Registered address and place of business. The Company's registered address is 25 Spyrou Araouzou, Berengaria 25, 5th floor, Limassol, Cyprus, and place of business is Office 403, Lophitis Business Centre I, Corner of 28th October/Emiliou Chourmouziou Streets, Limassol 3035 Cyprus. The Bank's registered address is 1-st Volokolamsky proezd, 10, building 1, 123060, Moscow, Russian Federation. The Insurance Company's registered address is 2-nd Khutorskaya Street, building 38A, 127287, Moscow, Russian Federation. The Group's principal place of business is the Russian Federation.
Presentation currency. These consolidated financial statements are presented in millions of Russian Rubles (RR).
Russian Federation. The Group operates mainly within the Russian Federation. There were a number of significant changes in the operating and economic environment during 2020, which had an impact on the Group's business including:
As of the reporting date and subsequently some of the restrictions imposed by government authorities in the Russian Federation due to the COVID-19 pandemic have been lifted and the Group observes that business activity in the Russian Federation is recovering. However, the level of ongoing uncertainty in relation to further negative developments around the COVID-19 pandemic and possible impact on the Group remains high. Hence it is practically impossible to make a comprehensive quantitative assessment with a high degree of certainty of the impact of these changes to the economic environment on the Group's financial position, and in particular in considering credit loss allowances on the loan portfolio which requires to consider the probability of default of most borrowers in the next 12 months and for others over the life of their loan. Some other factors impacting on this are set out below.
The Government of the Russian Federation has implemented various support measures for individuals and corporates impacted by the COVID-19 pandemic including their right in certain circumstances to obtain repayment holidays on their loans for up to 6 months and reduced rates of interest in this period.
The Group has itself implemented several measures to support its clients, especially those who face financial difficulties and a significant decrease of current income due to the situation, including the below:
will result in either deferral or decrease in the minimal payments of outstanding loan balance for one or more months;
According to IFRS 9 "Financial Instruments", the Group uses forecast information in the expected credit loss models, including forecasts of macroeconomic indicators. For the purpose of calculating credit loss allowances as at 31 December 2020, the Group took into account expectations regarding the following macro-factors and allocated higher weight to the pessimistic macroeconomic scenario:
In order to reflect appropriately the uncertainty associated with the COVID-19 pandemic the Group has made the following changes to their ECL model:
More detailed information about the changes and their impact on the results of the Group's operations for the year ended 31 December 2020 is disclosed in Note 3.
The management of the Group considers that the Group has demonstrated over the years and during the current COV-ID-crisis its ability to withstand shocks and retains its positive long-term outlook in particular due to the following advantages of the Group's business model:
The Group regularly stress tests its business to assess the sustainability of its liquidity and capital positions. These tests demonstrate that Group's current levels of capital and liquidity are more than sufficient to absorb potential economic and operational shocks related to a second wave of the COVID-19 pandemic.
The Group makes estimates and assumptions that affect the amounts recognized in the consolidated financial statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognized in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:
ECL measurement. Calculation and measurement of ECLs is an area of significant judgement and involves methodology, models and data inputs. The following components of ECL calculation have a major impact on credit loss allowance: probability of default ("PD") (impacted by definition of default, SICR, forward-looking scenarios and theirs weights) and loss given default ("LGD"). Refer to Note 29 for explanation of terms. The Group makes estimates and judgments, which are constantly analyzed based on statistical data, actual and forecast information, as well as management experience, including expectations regarding future events that are considered reasonable in the current circumstances. Refer to Note 29 for further information on ECL measurement.
In order to address rising credit risks the Group adjusted the main approaches to assessing the level of expected credit losses that have the most significant effect on the amounts recognised in the consolidated financial statements:
The impact of the changed macroeconomic conditions assessed using the approaches described above was approximately RR 5.6 billion of additional credit loss allowance charge in the first half of 2020 and was the main driver of increased cost of risk. This additional credit loss allowance was charged at the end of the first quarter of 2020 in the early days of the pandemic. Despite most problems arising from such loans have rolled into the general ECL model, and also most loans that were restructured in early 2020 as a result of the government of the Russian Federation and the bank's response to the pandemic have subsequently been repaid and/or normalised, but given the unpredictability of current economic environment and uncertainty regarding its development the Group made a decision to keep the macro-adjustment at this level at 31 December 2020.
In the second quarter of 2020 for the purposes of LGD estimation the Group has refined the approach to calculation of the rate used for discounting expected cash flows from defaulted loans. The refined approach is that the Group uses more disaggregated and specific discount rates for each credit product in the overall loan portfolio of the Group rather than one generic rate, which makes the estimate more precise. The impact of introducing this change comprised RR 0.9 billion of additional credit loss allowance charge.
In the fourth quarter of 2020 having accumulated additional information the Group has refined its behavioural PD model used for PD estimation for credit card loans. Also the Group has refined PD models for secured loans and car loans using the most recent statistical data. The impact of introducing these changes comprised RR 0.2 billion of credit loss allowance recovery.
In 2020 the Group has refined its approach to calculation of the impact of modification of original cash flows without derecognition on stage 3 loans credit loss allowance and gross carrying amount (refer to Note 7).
In particular the Group refined the approach to estimation of timing of receipt of expected cash flows and related discounting effect.
This refinement has not affected either amounts recognised in the consolidated statement of profit or loss and other comprehensive income or the amounts recognised in consolidated statement of financial position.
An increase or decrease in PDs by 2% compared to PDs used in the ECL estimates calculated at 31 December 2020 would result in an increase or decrease in credit loss allowances of RR 5.2 billion (31 December 2019: by 1% RR 2.1 billion).
An increase or decrease in LGDs by 2% compared to LGDs used in the ECL estimates calculated at 31 December 2020 would result in an increase or decrease in credit loss allowances of RR 1.5 billion (31 December 2019: by 1% RR 0.5 billion).
Credit exposure on revolving credit facilities. For credit card loans, the Group's exposure to credit losses extends beyond the maximum contractual period of the facility. For such facilities the Group measures ECLs over the period that the Group is exposed to credit risk and ECLs are not mitigated by credit risk management actions. Application of this approach requires judgement: determining a period for measuring ECLs — the Group considers historical information and experience about: (a) the length of time for related defaults to occur on similar financial instruments following a SICR and (b) the credit risk management actions that the Group expects to take once the credit risk has increased (e.g. the reduction or removal of undrawn limits).
For details of the period over which the Group is exposed to credit risk on revolving facilities and which is used as an approximation of lifetime period for ECL calculation for stage 2 and stage 3 loans and advances to customers, refer to Note 29.
Perpetual subordinated bonds. A perpetual subordinated bond issue in June 2017 was initially recognised in the amount of USD 295.8 million (RR 16.9 billion) represented by the funds received from investors less issuance costs. Subsequent measurement of this instrument is consistent with the accounting policy for debt securities in issue. Interest expense on the instrument is calculated using the effective interest rate method and recognised in profit or loss for the year.
In the event the accrued interest is paid, the payment decreases the balance of the liability. A cancellation of accrued interest for a given period results in its conversion, at the Group's option, into equity and therefore the respective amount of the liability is reclassified to equity. Foreign exchange translation gains and losses on the bond are recognised in profit or loss for the period. Application of this approach requires judgement: the Group has taken into consideration that there are contingent settlement provisions that could genuinely arise and as such has classified the perpetual subordinated bond instrument in its entirety as a liability, rather than equity, on the basis of the terms of issue which stipulate the possible redemption of the instrument in several cases other than liquidation of the issuer. If the Group had recognized this instrument as equity, then interest expense would only have been recognized when it was paid and treated as a distribution from equity rather than an expense in profit or loss.
The Group also from time to time invests in perpetual subordinated bonds issued by third parties. The Group has taken into consideration that there are genuine contingent settlement provisions that could arise and as such has classified the investments in perpetual subordinated bonds as investments in debt securities on the basis of terms of issue which stipulate the possible redemption of the instrument in several cases other than liquidation of the issuer.
The investments in these instruments are classified as debt investment securities measured at FVTPL since the analysis of the contractual cash flow characteristics resulted in acquired perpetual bonds not passing SPPI test. If the Group had recognized this instrument as equity instrument, then it could have been measured at FVTPL or FVOCI as the Group does not hold it for trading purposes.
Interest income recognition. The effective interest method incorporates significant assumptions around expected loan lives as well as judgements of type of fees and costs that are included in interest income. Refer to Note 40.
Unbundling of loans and insurance products. Certain loans issued by the Group are forgivable upon events such as the borrower's death, or the borrower becoming unemployed because the borrower had opted to purchase the Insurance Company's products to cover repayments of the related loan products issued by the Bank in such cases. The Group is able to measure the loans separately. Also the borrowers are able to take a loan without insurance at the time of issuance with no different interest rate and the borrowers can cancel the insurance products at any time, separately from the loan. Accordingly, the Group unbundles the loans from the insurance arrangement.
The portion of the fee attributable to the insurance component (i.e. the amount paid to the Insurance Company to cover the insured risk) is recognised within Insurance premiums earned line (refer to Note 23). The remaining portion of the fee approximates a fee that the Bank would have earned on market terms for selling third party insurance products and it is recognised as a fee for selling credit protection within Fee and commission income line (refer to Note 21). The timing of recognition of the two income streams does not materially vary as the insurance coverage is sold on a monthly basis.
Tax legislation. Russian and Cypriot tax, currency and customs legislation are subject to varying interpretations. Refer to Note 31.
Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM) and for which discrete financial information is available. The CODM is the person or group of persons who allocates resources and assesses the performance for the Group. The functions of CODM are performed by the Management of the Bank and the Management of the Insurance Company.
Since the business of the Group is expanding certain operating segments became significant enough to be considered as separate reportable segments. This triggered changes in the number and composition of segments to be presented. Disclosures for comparative periods were amended accordingly. The Group is organised on the basis of 7 main business segments:
Consumer finance – representing retail loans (credit cards, cash loans, consumer loans, car loans, secured loans), deposits and savings, also lifestyles and travel services to individuals.
Retail debit cards – representing customer current accounts services to individuals with the loyalty programmes, co-branded offers, and also lifestyles and travel services to individuals. Assets of the segment are represented by placements of the funds attracted in investments in securities, treasury transactions, other financial and non-financial assets.
InsurTech – representing insurance services provided to individuals, such as personal accident insurance, personal property insurance, travel insurance and vehicle insurance (Note 23).
SME services – representing customer current accounts, savings, deposits services and loans to individual entrepreneurs and small to medium businesses. Assets of the segment are represented by placements of the funds attracted into investments in securities, treasury transactions, other financial and non-financial assets.
Acquiring and payments – providing merchants and businesses the ability to process payments online using internet and offline acquiring services, through direct-to-merchant agreements, aggregators and the Group's own aggregator CloudPayments.
InvestTech - representing online brokerage platform for investing in a range of securities including Russian and international securities (ETFs, stocks, bonds, etc.).
Mobile virtual network operator (MVNO) services - providing full coverage across Russia and international roaming, offering a number of value-added options such as virtual numbers, music and video streaming services, etc.
The Group's principal activities are mainly undertaken within the Russian Federation. Given the retail nature of business of the segments, the Group does not have any significant revenue stream from any single customer.
The Group's segments are strategic business units that focus on different services to the customers of the Group. Their performance is analysed separately by the CODM and they are managed separately because each business unit requires different marketing strategies and represents different types of businesses.
The CODM reviews financial information prepared based on International financial reporting standards adjusted to meet the requirements of internal reporting. The CODM evaluates performance of each segment based on profit before tax.
| In millions of RR | Con sumer Finance |
Retail Debit Cards |
Insur Tech |
SME Services |
Acquiring and Pay ments |
Invest Tech |
MVNO servic es |
Elimina tions |
Total |
|---|---|---|---|---|---|---|---|---|---|
| Reportable seg ment assets |
458,245 245,923 | 12,437 | 55,517 | 15,563 73,773 | 755 | (2,919) 859,294 | |||
| Reportable seg ment liabilities |
203,723 345,585 | 6,901 | 91,412 | 649 83,428 | 3,499 | (2,919) | 732,278 |
| In millions of RR | Con sumer Finance |
Retail Debit Cards |
Insur Tech |
SME Services |
Acquiring and Pay ments |
Invest Tech |
MVNO servic es |
Elimina tions |
Total |
|---|---|---|---|---|---|---|---|---|---|
| Reportable seg ment assets |
386,690 135,925 | 10,911 | 36,566 | 8,812 | 4,666 | 734 | (4,279) 580,025 | ||
| Reportable seg ment liabilities |
198,057 205,840 | 7,032 | 62,054 | 644 13,625 | 970 | (4,279) 483,943 |
All jointly used assets, such as fixed assets, rights of use assets and intangible assets were allocated to the segments on the basis of detailed analysis of usage of those assets by segments.
Segment reporting of the Group's income and expenses for the year ended 31 December 2020 is set out below:
| Acquiring | In | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Consumer | Retail Deb | Insur | SME | and Pay | vest | MVNO | Elimina | ||
| In millions of RR | Finance | it Cards | Tech | Services | ments | Tech | services | tions | Total |
| External revenues | |||||||||
| Interest income calculated using the effective interest rate method |
113,494 | 9,092 | 409 | 2,358 | - 2,804 | 10 | - 128,167 | ||
| Fee and commission income |
|||||||||
| - Fee and commis sion income on cards' and current accounts' services |
2,715 | 11,154 | - | 9,147 | - | 261 | 15 | - | 23,292 |
| - Fee for selling cred it protection |
4,657 | - | - | - | - | - | - | - | 4,657 |
| - Acquiring commis sion |
- | - | - | - | 11,049 | - | - | - | 11,049 |
| - MVNO and invest ments services |
- | - | - | - | - 4,998 | 1,815 | - | 6,813 | |
| - Other fees receiv able |
739 | 982 | - | - | 77 | - | - | - | 1,798 |
| Timing of fee and commission income recognition: |
|||||||||
| - At point in time | 5,906 | 10,396 | - | 5,346 | 11,126 4,927 | 511 | - | 38,212 | |
| - Over time | 2,205 | 1,740 | - | 3,801 | - | 332 | 1,319 | - | 9,397 |
| Acquiring | In | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | Consumer Finance |
Retail Deb it Cards |
Insur Tech |
SME Services |
and Pay ments |
vest Tech |
MVNO services |
Elimina tions |
Total |
| Total fee and com mission income |
8,111 | 12,136 | - | 9,147 | 11,126 5,259 | 1,830 | - | 47,609 | |
| Insurance premiums earned |
- | - 18,567 | - | - | - | - | - | 18,567 | |
| Other operating income |
1,169 | - | 250 | - | 26 | - | - | - | 1,445 |
| Total external rev enues |
122,774 | 21,228 19,226 | 11,505 | 11,152 8,063 | 1,840 | - 195,788 | |||
| Revenues from other segments |
|||||||||
| Interest income | - | 2,737 | 56 | 1,244 | - | - | - (4,037) | - | |
| Fee and commission income |
|||||||||
| - Acquiring commis sion |
- | - | - | - | 85 | - | - | (85) | - |
| - Other fees receiv able |
2 | 251 | - | - | - | - | 379 | (632) | - |
| Insurance premiums earned |
- | - | 72 | - | - | - | - | (72) | - |
| Other operating income |
371 | - | - | - | - | - | - | (371) | - |
| Total revenues from other segments |
373 | 2,988 | 128 | 1,244 | 85 | - | 379 (5,197) | - | |
| TOTAL REVENUES | 123,147 | 24,216 19,354 | 12,749 | 11,237 8,063 | 2,219 (5,197) 195,788 | ||||
| Interest expense | (16,965) | (9,322) | - | (1,215) | - | - | - | 4,037 (23,465) | |
| Credit loss allow ance charge |
(38,243) | (372) | - | (726) | - | - | - | - (39,341) | |
| Fee and commission expense |
(1,889) | (9,266) | (88) | (803) | (6,976) (1,491) | (1,214) | 128 (21,599) | ||
| Customer acquisi tion expense |
(12,466) | (4,042) (1,143) | (1,385) | (311) (3,111) | (1,028) | 898 (22,588) | |||
| Insurance claims incurred |
- | - (3,842) | - | - | - | - | 28 | (3,814) | |
| Administrative and other operating |
|||||||||
| expenses | (17,304) | (5,698) (3,759) | (4,322) | (1,656) (2,027) | (961) | 106 (35,621) | |||
| Other (losses)/ gains | (610) | 5,935 | 219 | 1,345 | - | - | - | - | 6,889 |
| SEGMENT RESULT | 35,670 | 1,451 10,741 | 5,643 | 2,294 1,434 | (984) | - | 56,249 |
| Retail | Acquir ing and |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| Consumer | Debit | Insur | SME | Pay | Invest | MVNO | Elimina | ||
| In millions of RR External revenues |
Finance | Cards | Tech | Services | ments | Tech | services | tions | Total |
| Interest income calculated using the effective interest rate method |
103,077 | 5,673 | 322 | 1,883 | - | 284 | 8 | - 111,247 | |
| Fee and commission income |
|||||||||
| - Fee and commission income on cards' and current accounts' services |
2,665 | 8,759 | - | 7,867 | - | 33 | 15 | - | 19,339 |
| - Fee for selling credit protection |
5,550 | - | - | - | - | - | - | - | 5,550 |
| - Acquiring commis sion |
- | - | - | - | 8,342 | - | - | - | 8,342 |
| - MVNO and invest ments services |
- | - | - | - | - | 635 | 890 | - | 1,525 |
| - Other fees receivable | 456 | 592 | - | - | 54 | - | - | - | 1,102 |
| Timing of fee and commission income recognition: |
|||||||||
| - At point in time | 6,656 | 8,122 | - | 4,791 | 8,396 | 530 | 235 | - | 28,730 |
| - Over time | 2,015 | 1,229 | - | 3,076 | - | 138 | 670 | - | 7,128 |
| Total fee and commis sion income |
8,671 | 9,351 | - | 7,867 | 8,396 | 668 | 905 | - 35,858 | |
| Insurance premiums earned |
- | - 14,110 | - | - | - | - | - | 14,110 | |
| Other operating income |
364 | - | 288 | 69 | - | - | 1 | - | 722 |
| Total external reve nues |
112,112 | 15,024 14,720 | 9,819 | 8,396 | 952 | 914 | - 161,937 | ||
| Revenues from other segments |
|||||||||
| Interest income | - | 3,739 | 83 | 1,327 | - | - | 1 (5,150) | - | |
| Fee and commission income |
|||||||||
| - Acquiring commis sion |
- | - | - | - | 85 | - | - | (85) | - |
| - Other fees receivable | - | 83 | - | - | - | - | 250 | (333) | - |
| Insurance premiums earned |
- | - | 135 | - | - | - | - | (135) | - |
| Other operating income |
380 | - | - | - | - | - | - | (380) | - |
| Acquir | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Retail | ing and | ||||||||
| Consumer | Debit | Insur | SME | Pay | Invest | MVNO | Elimina | ||
| In millions of RR | Finance | Cards | Tech | Services | ments | Tech | services | tions | Total |
| Total revenues from other segments |
380 | 3,822 | 218 | 1,327 | 85 | - | 251 (6,083) | - | |
| TOTAL REVENUES | 112,492 | 18,846 14,938 | 11,146 | 8,481 | 952 | 1,165 (6,083) 161,937 | |||
| Interest expense | (18,273) | (8,561) | - | (1,632) | - | - | (5) | 5,150 (23,321) | |
| Credit loss allowance (charge)/reserval |
(26,429) | 61 | - | (44) | - | - | - | - (26,412) | |
| Fee and commission expense |
(2,581) | (4,682) | (21) | (729) | (6,119) | (166) | (910) | 85 (15,123) | |
| Customer acquisition expense |
(11,380) | (2,024) (1,392) | (2,150) | (112) | (841) | (1,064) | 786 (18,177) | ||
| Insurance claims incurred |
- | - (4,891) | - | - | - | - | - | (4,891) | |
| Administrative and other operating ex penses |
(15,052) | (4,615) (2,320) | (3,408) | (967) | (715) | (837) | 62 (27,852) | ||
| Other (losses)/ gains | (1,299) | 581 | (16) | 109 | - | - | - | - | (625) |
| SEGMENT RESULT | 37,478 | (394) 6,298 | 3,292 | 1,283 | (770) | (1,651) | - 45,536 |
Fee and commission income on cards' and current accounts' services include SME services commission, SMS fee, interchange fee, foreign currency exchange transactions fee, fee for money transfers, cash withdrawal fee and replenishment fee.
Interest income and interest expense from other segments amounted to RR 4,037 million for the year ended 31 December 2020 (2019: RR 5,150 million) are calculated using the funds transfer pricing curve.
| 31 December | 31 December | |
|---|---|---|
| In millions of RR | 2020 | 2019 |
| Cash on hand | 21,069 | 11,118 |
| Cash balances with the CBRF (other than mandatory reserve deposits) | 38,646 | 16,599 |
| Placements with other banks with original maturities of less than three months: | ||
| - AA- to AA+ rated | 6,404 | 2,302 |
| - A- to A+ rated | 1,328 | 599 |
| - BBB- to BBB+ rated | 1,276 | 1,430 |
| - BB- to BB+ rated | 646 | 503 |
| - B- to B+ rated | 499 | 67 |
| - CCC+ rated | - | 2 |
| Non-bank credit organizations: | ||
| - BBB- to BBB+ rated | 53,764 | 20,088 |
| - Unrated | 12,719 | 2,856 |
| Total Cash and Cash Equivalents | 136,351 | 55,564 |
Cash on hand includes cash balances in ATMs and cash balances in transit. Placements with other banks and organizations with original maturities of less than three months include placements under reverse sale and repurchase agreements in the amount of RR 33,210 million as at 31 December 2020 (31 December 2019: RR 18,449 million). The Group has a right to sell or repledge securities received under reverse sale and repurchase agreements.
The table below discloses the credit quality of cash and cash equivalents balances based on credit risk grades at 31 December 2020:
| In millions of RR | Cash balances with the CBRF |
Placements with other banks and non-bank credit organizations |
Total |
|---|---|---|---|
| Excellent | - | 7,732 | 7,732 |
| Good | 38,646 | 55,686 | 94,332 |
| Monitor | - | 12,956 | 12,956 |
| Sub-standard | - | 262 | 262 |
| Total cash and cash equivalents, excluding cash on hand |
38,646 | 76,636 | 115,282 |
The table below discloses the credit quality of cash and cash equivalents balances based on credit risk grades at 31 December 2019:
| In millions of RR | Cash balances with the CBRF |
Placements with other banks and non-bank credit organizations |
Total |
|---|---|---|---|
| Excellent | - | 2,901 | 2,901 |
| Good | 16,599 | 22,023 | 38,622 |
| Monitor | - | 2,921 | 2,921 |
| Doubtful | - | 2 | 2 |
| Total cash and cash equivalents, excluding cash on hand |
16,599 | 27,847 | 44,446 |
The carrying amount of cash and cash equivalents at 31 December 2020 and 2019 also represents the Group's maximum exposure to credit risk on these assets. Refer to Note 29 for the description of the Group's credit risk grading system.
For the purpose of ECL measurement cash and cash equivalents balances are included in Stage 1 for excellent, good and monitor credit quality, in Stage 2 for sub-standard and Stage 3 for doubtful credit quality. The ECL for these balances represents an immaterial amount, therefore the Group did not recognise any credit loss allowance for cash and cash equivalents. Except for reverse sale and repurchase agreements, amounts of cash and cash equivalents are not collateralised. As at 31 December 2020 the fair value of collateral under reverse sale and repurchase agreements was RR 34,527 million (31 December 2019: RR 20,130 million). There is no material impact of collateral on credit loss allowance for cash and cash equivalents.
Refer to Note 36 for the disclosure of the fair value of cash and cash equivalents. ECL measurement approach, interest rate, maturity and geographical risk concentration analysis of cash and cash equivalents are disclosed in Note 29.
| In millions of RR | 31 December 2020 | 31 December 2019 |
|---|---|---|
| Placements with other banks with original maturities of more than three months |
||
| - BBB- rated | - | 204 |
| - BB- to BB+ rated | 1,406 | 1,419 |
| - B- to B+ rated | 481 | 461 |
| Total due from other banks | 1,887 | 2,084 |
The table below discloses the credit quality of due from banks balances based on credit risk grades:
| In millions of RR | 31 December 2020 | 31 December 2019 |
|---|---|---|
| Good | 1,406 | 1,577 |
| Monitor | 481 | 507 |
| Total due from other banks | 1,887 | 2,084 |
The carrying amount of due from other banks at 31 December 2020 and 2019 also represents the Group's maximum exposure to credit risk on these assets. Refer to Note 29 for the description of credit risk grading system used by the Group. For the purpose of ECL measurement due from other banks balances are included in Stage 1.
The ECL for these balances represents an immaterial amount, therefore the Group did not create any credit loss allowance for due from other banks. Refer to Note 29 for the ECL measurement approach. Refer to Note 36 for the disclosure of the fair value of due from other banks. Interest rate, maturity and geographical risk concentration analysis are disclosed in Note 29.
| In millions of RR | 31 December 2020 31 December 2019 | |
|---|---|---|
| Gross carrying amount of loans and advances to customers at AC | 445,529 | 383,912 |
| Less credit loss allowance | (70,900) | (54,737) |
| Total carrying amount of loans and advances to customers at AC | 374,629 | 329,175 |
| Loans and advances to customers at FVTPL | 1,892 | - |
| Total loans and advances to customers | 376,521 | 329,175 |
Loans and advances to customers at FVTPL represent a loan that does not meet SPPI requirement and that was issued to related party (refer to Note 38).
Gross carrying amount and credit loss allowance amount for loans and advances to customers at AC by classes at 31 December 2020 and 2019 are disclosed in the table below:
| In millions of RR | Gross carry ing amount |
Credit loss allowance |
Carrying amount |
Gross carry ing amount |
Credit loss allowance |
Carrying amount |
|
|---|---|---|---|---|---|---|---|
| Credit card loans | 267,586 | (54,242) | 213,344 | 244,937 | (44,129) | 200,808 | |
| Cash loans | 68,131 | (11,055) | 57,076 | 62,265 | (8,029) | 54,236 | |
| Secured loans | 40,232 | (1,099) | 39,133 | 29,601 | (496) | 29,105 | |
| POS loans | 32,690 | (1,611) | 31,079 | 25,940 | (1,057) | 24,883 | |
| Car loans | 33,991 | (2,144) | 31,847 | 20,156 | (913) | 19,243 | |
| Loans to IE and SME | 2,899 | (749) | 2,150 | 1,013 | (113) | 900 | |
| Total loans and advances to customers at AC |
445,529 | (70,900) | 374,629 | 383,912 | (54,737) | 329,175 |
Credit cards are issued to customers for cash withdrawals or payment for goods or services, within the range of limits established by the Bank. These limits may be increased or decreased from time-to-time based on management decision. Credit card loans are not collateralized.
Cash loans represent a product for the borrowers who have a positive credit history and who do not have overdue loans in other banks. Cash loans are loans provided to customers via the Bank's debit cards. These loans are available for withdrawal without commission.
Secured loans represent loans secured with a car or real estate.
POS ("Point of sale") loans represent loans to fund online and offline purchases through internet and offline shops for individual borrowers.
Car loans represent loans for the purchase of a vehicle which is used as collateral under the loan.
Loans to IE and SME represent loans provided by the Bank to individual entrepreneurs and small and medium businesses for the purpose of working capital management.
The credit loss allowance for loans and advances to customers recognised in the period is impacted by a variety of factors. The main movements in the tables presented below are described as follows:
The following tables disclose the changes in the credit loss allowance and gross carrying amount for loans and advances to customers between the beginning and the end of the reporting and comparative periods:
| Credit loss allowance | Gross carrying amount | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 SICR) |
(lifetime ECL for credit impaired) Stage 3 |
Total | (12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 SICR) |
(lifetime ECL for credit impaired) Stage 3 |
originated credit Purchased/ impaired |
Total |
| Credit card loans | |||||||||
| At 31 December 2019 | 11,704 | 6,853 | 25,572 44,129 197,796 | 11,432 | 35,373 | 336 244,937 | |||
| Movements with impact on credit loss allowance charge for the year: |
|||||||||
| New originated or purchased |
4,037 | - | - | 4,037 | 49,264 | - | - | 130 | 49,394 |
| Transfers: | |||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(2,520) | 6,396 | - | 3,876 (11,557) | 11,557 | - | - | - | |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(5,642) (6,697) | 29,371 17,032 (27,133) | (9,677) | 36,810 | - | - | |||
| - recovered (from Stage 3 to Stage 2 and from Stage 2 to Stage 1) |
328 | (784) | (23) | (479) | 1,416 | (1,388) | (28) | - | - |
| Changes to ECL measurement model assumptions and estimates |
2,960 | 633 | 1,936 | 5,529 | - | - | - | - | - |
| Movements other than transfers and new orig - inated or purchased |
|||||||||
| loans | 5,574 | 1,159 | (4,307) | 2,426 | 288 | (166) | (4,089) | (285) | (4,252) |
| Total movements with impact on credit loss allowance charge for the year |
4,737 | 707 | 26,977 32,421 12,278 | 326 | 32,693 | (155) | 45,142 | ||
| Movements without impact on credit loss allowance charge for the year: |
|||||||||
| Unwinding of discount (for Stage 3) |
- | - | 5,713 | 5,713 | - | - | 5,713 | - | 5,713 |
| Write-offs | - | - (14,071) (14,071) | - | - | (14,071) | - (14,071) | |||
| Sales | - | - | (2,134) (2,134) | - | - | (2,319) | - | (2,319) | |
| Modification of original cash flows without derecognition |
- | - | (11,816) (11,816) | - | - | (11,816) | - (11,816) | ||
| At 31 December 2020 | 16,441 | 7,560 | 30,241 54,242 210,074 | 11,758 | 45,573 | 181 267,586 |
| Credit loss allowance | Gross carrying amount | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 SICR) |
(lifetime ECL for credit impaired) Stage 3 |
Total | (12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 SICR) |
(lifetime ECL for credit impaired) Stage 3 |
originated credit Purchased/ impaired |
Total |
| Credit card loans | |||||||||
| At 31 December 2018 | 9,266 | 4,708 | 19,322 33,296 145,732 | 6,654 | 25,497 | 107 177,990 | |||
| Movements with impact on credit loss allowance charge for the year: |
|||||||||
| New originated or purchased |
5,356 | - | - | 5,356 | 63,177 | - | - | 241 | 63,418 |
| Transfers: | |||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(2,478) | 6,097 | - | 3,619 (11,142) | 11,142 | - | - | - | |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(4,644) | (4,111) | 21,348 12,593 (21,206) | (5,322) | 26,528 | - | - | ||
| - recovered (from Stage 3 to Stage 2 and from Stage 2 to Stage 1) |
233 | (756) | (21) | (544) | 1,101 | (1,077) | (24) | - | - |
| Changes to ECL measurement model assumptions and estimates |
(387) | - | (26) | (413) | - | - | - | - | - |
| Movements other than transfers and new originated or purchased loans |
4,358 | 915 | (4,267) | 1,006 | 20,134 | 35 | (5,771) | (12) | 14,386 |
| Total movements with impact on credit loss allowance charge for the year |
2,438 | 2,145 | 17,034 21,617 52,064 | 4,778 | 20,733 | 229 | 77,804 | ||
| Movements without impact on credit loss allowance charge the year |
|||||||||
| Unwinding of discount (for Stage 3) |
- | - | 3,133 | 3,133 | - | - | 3,133 | - | 3,133 |
| Write-offs | - | - (10,999) (10,999) | - | - | (10,999) | - (10,999) | |||
| Sales | - | - | (986) | (986) | - | - | (1,059) | - | (1,059) |
| Modification of origi - nal cash flows without |
|||||||||
| derecognition At 31 December 2019 11,704 |
- | - 6,853 |
(1,932) | (1,932) 25,572 44,129 197,796 |
- | - 11,432 |
(1,932) 35,373 |
- | (1,932) 336 244,937 |
| Credit loss allowance | Gross carrying amount | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Purchased/ originated credit im paired |
Total | ||
| In millions of RR | ||||||||||
| Cash loans | ||||||||||
| At 31 December 2019 Movements with impact on credit loss allowance charge for the year: |
2,358 | 1,882 | 3,789 | 8,029 | 51,925 | 5,034 | 4,670 | 636 62,265 | ||
| New originated or purchased |
2,532 | - | - | 2,532 | 40,074 | - | - | 259 40,333 | ||
| Transfers: | ||||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(686) | 3,078 | - | 2,392 | (5,116) | 5,116 | - | - | - | |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(1,393) | (1,809) | 5,911 | 2,709 | (4,273) (2,353) | 6,626 | - | - | ||
| - recovered (from Stage 3 to Stage 2 and from Stage 2 to Stage 1) |
60 | (258) | (2) | (200) | 982 | (979) | (3) | - | - | |
| Changes to ECL measurement model assumptions and estimates |
701 | 126 | 291 | 1,118 | - | - | - | - | - | |
| Movements other than transfers and new originated or pur chased loans |
548 | (978) | (876) | (1,306) | (27,406) | (2,051) | (297) | (465) (30,219) | ||
| Total movements with impact on credit loss allowance charge for the year |
1,762 | 159 | 5,324 | 7,245 | 4,261 | (267) | 6,326 | (206) 10,114 | ||
| Movements without impact on credit loss allowance charge for the year: |
||||||||||
| Unwinding of discount (for Stage 3) |
- | - | 519 | 519 | - | - | 519 | - | 519 | |
| Write-offs | - | - | (2,363) (2,363) | - | - | (2,363) | - (2,363) | |||
| Sales | - | - | (397) | (397) | - | - | (426) | - | (426) | |
| Modification of origi nal cash flows without |
||||||||||
| derecognition | - | - | (1,978) | (1,978) | - | - | (1,978) | - (1,978) | ||
| At 31 December 2020 | 4,120 | 2,041 | 4,894 11,055 | 56,186 | 4,767 | 6,748 | 430 68,131 |
| Credit loss allowance | Gross carrying amount | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| (12-months ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
credit impaired Purchased/ originated |
Total | |
| 106 (1,017) | 193 (718) | (16,134) | (1,298) | 676 | (87) (16,843) | ||||
| 1,242 | 1,337 | 4,119 6,698 | 19,274 | 3,258 | 4,911 | 335 27,778 | |||
Stage 1 (12-months ECL) Stage 2 (lifetime ECL for SICR) Stage 3 (lifetime ECL for credit impaired) Total In millions of RR Cash loans At 31 December 2018 1,116 545 670 2,331 32,651 1,776 767 301 35,495 Movements with impact on credit loss allowance charge for the year: New originated or purchased 2,628 - - 2,628 44,199 - - 422 44,621 Transfers: - to lifetime (from Stage 1 to Stage 2) (587) 2,960 - 2,373 (5,663) 5,663 - - - - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) (897) (528) 3,927 2,502 (3,536) (699) 4,235 - - - recovered (from Stage 3 to Stage 2 and from Stage 2 to Stage 1) 14 (78) - (64) 408 (408) - - - Changes to ECL measurement model assumptions and estimates (22) - (1) (23) - - - - - Movements other than transfers and new originated or purchased loans Total movements with impact on credit loss allowance charge for the year Movements without impact on credit loss allowance charge the year Unwinding of discount (for Stage 3) - - 138 138 - - 138 - 138 Write-offs - - (524) (524) - - (524) - (524) Sales - - (114) (114) - - (122) - (122) Modification of original cash flows without derecognition - - (500) (500) - - (500) - (500) At 31 December 2019 2,358 1,882 3,789 8,029 51,925 5,034 4,670 636 62,265
| Credit loss allowance | Gross carrying amount | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total | |
| Secured Loans | |||||||||
| At 31 December 2019 | 150 | 264 | 82 | 496 | 27,366 | 2,037 | 198 29,601 | ||
| Movements with impact on credit loss allowance charge for the year: |
|||||||||
| New originated or purchased | 141 | - | - | 141 | 21,517 | - | - | 21,517 | |
| Transfers: | |||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(40) | 954 | - | 914 | (4,120) | 4,120 | - | - | |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(15) | (135) | 371 | 221 | (524) | (355) | 879 | - | |
| - recovered (from Stage 3 to Stage 2 and from Stage 2 to Stage 1) |
3 | (41) | (3) | (41) | 516 | (509) | (7) | - | |
| Changes to ECL measure ment model assumptions and estimates |
67 | 3 | 9 | 79 | - | - | - | - | |
| Movements other than trans fers and new originated or purchased loans |
(50) | (563) | (21) (634) | (9,512) | (1,178) | (119) (10,809) | |||
| Total movements with impact on credit loss allow ance charge for the year |
106 | 218 | 356 | 680 | 7,877 | 2,078 | 753 10,708 | ||
| Movements without impact on credit loss allowance charge for the year: |
|||||||||
| Unwinding of discount (for Stage 3) |
- | - | 46 | 46 | - | - | 46 | 46 | |
| Write-offs | - | - | (16) | (16) | - | - | (16) | (16) | |
| Modification of original cash flows |
- | - | (107) (107) | - | - | (107) | (107) | ||
| At 31 December 2020 | 256 | 482 | 361 1,099 | 35,243 | 4,115 | 874 40,232 |
| Credit loss allowance | Gross carrying amount | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 SICR) |
(lifetime ECL for credit impaired) Stage 3 |
Total | (12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 SICR) |
(lifetime ECL for credit impaired) Stage 3 |
Total |
| Secured Loans | ||||||||
| At 31 December 2018 | 15 | 1 | - | 16 | 2,641 | 3 | - | 2,644 |
| Movements with impact on credit loss allowance charge for the year: |
||||||||
| New originated or purchased | 168 | - | - | 168 | 27,907 | - | - | 27,907 |
| Transfers: | ||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(23) | 499 | - | 476 | (2,141) | 2,141 | - | - |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(6) | - | 81 | 75 | (203) | - | 203 | - |
| - to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) |
- | - | - | - | 1 | (1) | - | - |
| Movements other than transfers and new originated or purchased loans |
(4) | (236) | 6 | (234) | (839) | (106) | - | (945) |
| Total movements with impact on credit loss allowance charge for the year |
135 | 263 | 87 | 485 | 24,725 | 2,034 | 203 26,962 | |
| Movements without impact on credit loss allowance charge the year |
||||||||
| Unwinding of discount (for Stage 3) |
- | - | 3 | 3 | - | - | 3 | 3 |
| Modification of original cash flows |
- | - | (8) | (8) | - | - | (8) | (8) |
| At 31 December 2019 | 150 | 264 | 82 | 496 | 27,366 | 2,037 | 198 29,601 |
| Credit loss allowance | Gross carrying amount | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 SICR) |
(lifetime ECL for credit impaired) Stage 3 |
Total | (12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 SICR) |
(lifetime ECL for credit impaired) Stage 3 |
originated credit Purchased/ impaired |
Total |
| POS loans | |||||||||
| At 31 December 2019 | 298 | 190 | 569 1,057 | 24,031 | 1,053 | 658 | 198 | 25,940 | |
| Movements with impact on credit loss allowance charge for the year: |
|||||||||
| New originated or pur chased |
525 | - | - | 525 | 29,695 | - | - | 226 | 29,921 |
| Transfers: | |||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(83) | 642 | - | 559 | (1,863) | 1,863 | - | - | - |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(119) | (234) | 1,023 | 670 | (751) | (354) | 1,105 | - | - |
| - recovered (from Stage 3 to Stage 2 and from Stage 2 to Stage 1) |
3 | (15) | - | (12) | 206 | (206) | - | - | - |
| Changes to ECL measure ment model assumptions and estimates |
40 | 3 | 16 | 59 | - | - | - | - | - |
| Movements other than transfers and new origi nated or purchased loans |
(137) | (359) | (209) | (705) (21,040) | (1,276) | (173) | (137) (22,626) | ||
| Total movements with impact on credit loss allowance charge for the year |
229 | 37 | 830 1,096 | 6,247 | 27 | 932 | 89 | 7,295 | |
| Movements without impact on credit loss allowance charge for the year: |
|||||||||
| Unwinding of discount (for Stage 3) |
- | - | 46 | 46 | - | - | 46 | - | 46 |
| Write-offs | - | - | (360) | (360) | - | - | (360) | - | (360) |
| Sales | - | - | (50) | (50) | - | - | (53) | - | (53) |
| Modification of origi nal cash flows without derecognition |
- | - | (178) | (178) | - | - | (178) | - | (178) |
| At 31 December 2020 | 527 | 227 | 857 1,611 | 30,278 | 1,080 | 1,045 | 287 | 32,690 |
Credit loss allowance Gross carrying amount
| (12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
(12-months ECL) Stage 1 |
(lifetime ECL for Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
originated credit Purchased/ impaired |
|||
|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | SICR) | Total | SICR) | Total | |||||
| POS loans | |||||||||
| At 31 December 2018 | 190 | 81 | 189 | 460 | 14,560 | 505 | 210 | 105 15,380 | |
| Movements with impact on credit loss allowance charge for the year: |
|||||||||
| New originated or pur chased |
357 | - | - | 357 | 23,779 | - | - | 145 23,924 | |
| Transfers: | |||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(61) | 479 | - | 418 | (1,673) | 1,673 | - | - | - |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(71) | (92) | 614 | 451 | (518) | (137) | 655 | - | - |
| - recovered (from Stage 3 to Stage 2 and from Stage 2 to Stage 1) |
1 | (7) | - | (6) | 112 | (112) | - | - | - |
| Changes to ECL meas urement model assump tions and estimates |
(15) | (7) | (1) | (23) | - | - | - | - | - |
| Movements other than transfers and new originated or purchased |
|||||||||
| loans | (103) | (264) | (61) | (428) (12,229) | (876) | (34) | (52) (13,191) | ||
| Total movements with impact on credit loss allowance charge for the year |
108 | 109 | 552 | 769 | 9,471 | 548 | 621 | 93 10,733 | |
| Movements without impact on credit loss allowance charge the year |
|||||||||
| Unwinding of discount (for Stage 3) |
- | - | 19 | 19 | - | - | 19 | - | 19 |
| Write-offs | - | - | (131) | (131) | - | - | (131) | - | (131) |
| Sales | - | - | (23) | (23) | - | - | (24) | - | (24) |
| Modification of original cash flows without |
|||||||||
| derecognition | - | - | (37) | (37) | - | - | (37) | - | (37) |
| At 31 December 2019 | 298 | 190 | 569 | 1,057 24,031 | 1,053 | 658 | 198 25,940 |
| Credit loss allowance | Gross carrying amount | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Total | |
| Car Loans | |||||||||
| At 31 December 2019 | 368 | 285 | 260 | 913 | 18,725 | 1,060 | 371 | 20,156 | |
| Movements with impact on credit loss allowance charge for the year: |
|||||||||
| New originated or pur chased |
485 | - | - | 485 | 21,598 | - | - | 21,598 | |
| Transfers: | |||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(141) | 844 | - | 703 | (1,926) | 1,926 | - | - | |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(184) | (232) | 770 | 354 | (739) | (352) | 1,091 | - | |
| - recovered (from Stage 3 to Stage 2 and from Stage 2 to Stage 1) |
10 | (50) | - | (40) | 308 | (307) | (1) | - | |
| Changes to ECL measure ment model assumptions and estimates |
105 | 13 | 32 | 150 | - | - | - | - | |
| Movements other than transfers and new originat ed or purchased loans |
21 | (302) | 38 | (243) | (7,250) | (315) | (20) | (7,585) | |
| Total movements with impact on credit loss allowance charge for the year |
296 | 273 | 840 | 1,409 | 11,991 | 952 | 1,070 | 14,013 | |
| Movements without im pact on credit loss allow ance charge for the year: |
|||||||||
| Unwinding of discount (for Stage 3) |
- | - | 81 | 81 | - | - | 81 | 81 | |
| Write-offs | - | - | (63) | (63) | - | - | (63) | (63) | |
| Modification of original cash flows |
- | - | (196) | (196) | - | - | (196) | (196) | |
| At 31 December 2020 | 664 | 558 | 922 | 2,144 | 30,716 | 2,012 | 1,263 | 33,991 |
| Credit loss allowance | Gross carrying amount | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Total | |
| Car Loans | |||||||||
| At 31 December 2018 | 56 | 25 | 4 | 85 | 2,754 | 78 | 6 | 2,838 | |
| Movements with impact on credit loss allowance charge for the year: |
|||||||||
| New originated or pur chased |
469 | - | - | 469 | 18,238 | - | - | 18,238 | |
| Transfers: | |||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(98) | 466 | - | 368 | (1,087) | 1,087 | - | - | |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(72) | (23) | 248 | 153 | (320) | (34) | 354 | - | |
| - to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) |
1 | (4) | - | (3) | 24 | (24) | - | - | |
| Changes to ECL measure ment model assumptions and estimates |
(1) | - | - | (1) | - | - | - | - | |
| Movements other than transfers and new originat ed or purchased loans |
13 | (179) | (1) | (167) | (884) | (47) | 2 | (929) | |
| Total movements with impact on credit loss allowance charge for the year |
312 | 260 | 247 | 819 | 15,971 | 982 | 356 | 17,309 | |
| Movements without im pact on credit loss allow ance charge the year |
|||||||||
| Unwinding of discount (for Stage 3) |
- | - | 12 | 12 | - | - | 12 | 12 | |
| Modification of original cash flows |
- | - | (3) | (3) | - | - | (3) | (3) | |
| At 31 December 2019 | 368 | 285 | 260 | 913 | 18,725 | 1,060 | 371 | 20,156 |
| Credit loss allowance | Gross carrying amount | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Total |
| Loans to IE and SME | ||||||||
| At 31 December 2019 | 57 | 10 | 46 | 113 | 940 | 21 | 52 | 1,013 |
| Movements with impact on credit loss allowance charge for the year: |
||||||||
| New originated or purchased | 28 | - | - | 28 | 676 | - | - | 676 |
| Transfers: | ||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(143) | 314 | - | 171 | (375) | 375 | - | - |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(16) | (13) | 77 | 48 | (69) | (17) | 86 | - |
| Movements other than trans fers and new originated or purchased loans |
399 | (20) | - | 379 | 1,268 | (56) | 1 | 1,213 |
| Changes to ECL measurement | 10 | - | 3 | 13 | - | - | - | - |
| Movements other than trans fers and new originated or purchased loans |
399 | (20) | - | 379 | 1,268 | (56) | 1 | 1,213 |
| Total movements with impact on credit loss allowance charge for the year |
278 | 281 | 80 | 639 | 1,500 | 302 | 87 1,889 | |
| Movements without impact on credit loss allowance charge for the year: |
||||||||
| Unwinding of discount (for Stage 3) |
- | - | 11 | 11 | - | - | 11 | 11 |
| Write-offs | - | - | (14) | (14) | - | - | (14) | (14) |
| At 31 December 2020 | 335 | 291 | 123 | 749 | 2,440 | 323 | 136 2,899 |
| Credit loss allowance | Gross carrying amount | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit impaired) Stage 3 |
Total |
| Loans to IE and SME | ||||||||
| At 31 December 2018 | 13 | 10 | 10 | 33 | 332 | 21 | 10 | 363 |
| Movements with impact on credit loss allowance charge for the year: |
||||||||
| New originated or pur chased |
13 | - | - | 13 | 301 | - | - | 301 |
| Transfers: | ||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(4) | 26 | - | 22 | (58) | 58 | - | - |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(8) | (7) | 44 | 29 | (39) | (8) | 47 | - |
| - to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) |
- | - | - | - | 1 | (1) | - | - |
| Movements other than transfers and new originat ed or purchased loans |
43 | (19) | (13) | 11 | 403 | (49) | (10) | 344 |
| Total movements with impact on credit loss allowance charge for the year |
44 | - | 31 | 75 | 608 | - | 37 | 645 |
| Movements without im pact on credit loss allow ance charge the year |
||||||||
| Unwinding of discount (for Stage 3) |
- | - | 5 | 5 | - | - | 5 | 5 |
| Modification of original cash flows |
- | - | - | - | - | - | - | - |
| At 31 December 2019 | 57 | 10 | 46 | 113 | 940 | 21 | 52 | 1,013 |
The credit loss allowance charge during the year ended 31 December 2020 presented in the tables above differs from the amount presented in the consolidated statement of profit or loss and other comprehensive income for the year due to RR 4,063 million (2019: RR 3,420 million) recovery of amounts previously written-off as uncollectible, due to RR 1,750 million (2019: RR 693 million) recovery from the purchased loans in excess of their gross carrying amount, and due to RR 1,295 million (2019: RR 201 million) charge of ECL for credit related commitments, including RR 638 million of charge due to changes to ECL measurement model assumptions and estimates. The amount of the recovery received from written-off loans and purchased loans during the year was credited directly to the credit loss allowance line in the consolidated statement of profit or loss and other comprehensive income.
The contractual amount outstanding of loans and advances to customers which were written off during the reporting period ended 31 December 2020 and are still subject to enforcement activity is equal to RR 13,966 million (reporting period ended 31 December 2019: RR 10,095 million).
The amount of the ECL for credit related commitments is accounted separately from ECL for credit cards loans and is included in other financial liabilities in the consolidated statement of financial position.
During the year ended 31 December 2020 the Group sold credit-impaired loans to third parties (external debt collection agencies) with a gross amount of RR 2,798 million (2019: RR 1,205 million) and credit loss allowance of RR 2,581 million (2019: RR 1,123 million). The difference between the carrying amount of these loans and the consideration received was recognised as losses in the amount of RR 186 million within credit loss allowance for loans and advances to customers and credit related commitments for the year ended 31 December 2020 (2019: losses in the amount of RR 73 million).
Presented below is an analysis of issued, activated and utilised cards based on their credit card limits as at the end of the reporting period:
| In units | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Credit card limits | ||
| Up to 20 RR thousand | 1,046,228 | 781,128 |
| 20-40 RR thousand | 538,746 | 482,343 |
| 40-60 RR thousand | 497,940 | 451,425 |
| 60-80 RR thousand | 495,431 | 455,978 |
| 80-100 RR thousand | 479,786 | 440,139 |
| 100-120 RR thousand | 331,606 | 322,726 |
| 120-140 RR thousand | 378,547 | 365,750 |
| 140-200 RR thousand | 870,503 | 772,992 |
| More than 200 RR thousand | 225,417 | 180,731 |
| Total number of cards (in units) | 4,864,204 | 4,253,212 |
Table above only includes credit cards less than 180 days overdue.
The following table contains an analysis of the credit risk exposure of loans and advances to customers measured at AC and for which an ECL allowance is recognised. The carrying amount of loans and advances to customers below also represents the Group's maximum exposure to credit risk on these loans.
Loans and advances to customers at 31 December 2020 are disclosed as follows:
| Stage 1 | Stage 2 (lifetime ECL for |
Stage 3 (lifetime ECL for |
Purchased/ originated credit |
||
|---|---|---|---|---|---|
| In millions of RR | (12-months ECL) | SICR) | credit impaired) | impaired | Total |
| Credit card loans | |||||
| - Excellent | 68,398 | - | - | - | 68,398 |
| - Good | 131,957 | 1,891 | - | - | 133,848 |
| - Monitor | 9,719 | 3,757 | - | - | 13,476 |
| - Sub-standard | - | 6,110 | 9,326 | - | 15,436 |
| - NPL | - | - | 36,247 | 181 | 36,428 |
| Gross carrying amount | 210,074 | 11,758 | 45,573 | 181 | 267,586 |
| Credit loss allowance | (16,441) | (7,560) | (30,241) | - | (54,242) |
| Carrying amount | 193,633 | 4,198 | 15,332 | 181 | 213,344 |
| Cash loans | |||||
| - Excellent | 33,877 | - | - | - | 33,877 |
| - Good | 22,053 | 3,189 | - | - | 25,242 |
| - Monitor | 256 | 546 | - | - | 802 |
| - Sub-standard | - | 1,032 | 989 | - | 2,021 |
| - NPL | - | - | 5,759 | 430 | 6,189 |
| Gross carrying amount | 56,186 | 4,767 | 6,748 | 430 | 68,131 |
| Credit loss allowance | (4,120) | (2,041) | (4,894) | - | (11,055) |
| Carrying amount | 52,066 | 2,726 | 1,854 | 430 | 57,076 |
| Secured Loans | |||||
| - Excellent | 21,201 | - | - | - | 21,201 |
| - Good | 13,937 | 3,307 | - | - | 17,244 |
| - Monitor | 105 | 442 | - | - | 547 |
| - Sub-standard | - | 366 | - | - | 366 |
| - NPL | - | - | 874 | - | 874 |
| Gross carrying amount | 35,243 | 4,115 | 874 | - | 40,232 |
| Credit loss allowance | (256) | (482) | (361) | - | (1,099) |
| Carrying amount | 34,987 | 3,633 | 513 | - | 39,133 |
| closed as follows: | ||
|---|---|---|
| In millions of RR | Stage 1 (12-months ECL) |
Stage 2 (lifetime ECL for SICR) |
Stage 3 (lifetime ECL for credit impaired) |
Purchased/ originated credit impaired |
Total |
|---|---|---|---|---|---|
| POS loans | |||||
| - Excellent | 25,159 | - | - | - | 25,159 |
| - Good | 4,998 | 793 | - | - | 5,791 |
| - Monitor | 121 | 121 | - | - | 242 |
| - Sub-standard | - | 166 | 28 | - | 194 |
| - NPL | - | - | 1,017 | 287 | 1,304 |
| Gross carrying amount | 30,278 | 1,080 | 1,045 | 287 | 32,690 |
| Credit loss allowance | (527) | (227) | (857) | - | (1,611) |
| Carrying amount | 29,751 | 853 | 188 | 287 | 31,079 |
| Car loans | |||||
| - Excellent | 21,444 | - | - | - | 21,444 |
| - Good | 9,136 | 1,427 | - | - | 10,563 |
| - Monitor | 136 | 263 | - | - | 399 |
| - Sub-standard | - | 322 | - | - | 322 |
| - NPL | - | - | 1,263 | - | 1,263 |
| Gross carrying amount | 30,716 | 2,012 | 1,263 | - | 33,991 |
| Credit loss allowance | (664) | (558) | (922) | - | (2,144) |
| Carrying amount | 30,052 | 1,454 | 341 | - | 31,847 |
| Loans to IE and SME | |||||
| - Excellent | 1,673 | - | - | - | 1,673 |
| - Good | 760 | 295 | - | - | 1,055 |
| - Monitor | 7 | 12 | - | - | 19 |
| - Sub-standard | - | 16 | - | - | 16 |
| - NPL | - | - | 136 | - | 136 |
| Gross carrying amount | 2,440 | 323 | 136 | - | 2,899 |
| Credit loss allowance | (335) | (291) | (123) | - | (749) |
| Carrying amount | 2,105 | 32 | 13 | - | 2,150 |
Loans and advances to customers at 31 December 2019 are disclosed as follows:
| Stage 1 | Stage 2 (lifetime ECL for |
Stage 3 (lifetime ECL for |
Purchased/ originated credit |
||
|---|---|---|---|---|---|
| In millions of RR | (12-months ECL) | SICR) | credit impaired) | impaired | Total |
| Credit card loans | |||||
| - Excellent | 87,716 | - | - | - | 87,716 |
| - Good | 102,020 | 1,582 | - | - | 103,602 |
| - Monitor | 8,060 | 3,722 | - | - | 11,782 |
| - Sub-standard | - | 6,128 | 6,661 | - | 12,789 |
| - NPL | - | - | 28,712 | 336 | 29,048 |
| Gross carrying amount |
197,796 | 11,432 | 35,373 | 336 | 244,937 |
| Credit loss allowance | (11,704) | (6,853) | (25,572) | - | (44,129) |
| Carrying amount | 186,092 | 4,579 | 9,801 | 336 | 200,808 |
| Cash loans | |||||
| - Excellent | 34,258 | - | - | - | 34,258 |
| - Good | 17,321 | 3,315 | - | - | 20,636 |
| - Monitor | 346 | 585 | - | - | 931 |
| - Sub-standard | - | 1,134 | 758 | - | 1,892 |
| - NPL | - | - | 3,912 | 636 | 4,548 |
| Gross carrying amount |
51,925 | 5,034 | 4,670 | 636 | 62,265 |
| Credit loss allowance | (2,358) | (1,882) | (3,789) | - | (8,029) |
| Carrying amount | 49,567 | 3,152 | 881 | 636 | 54,236 |
| Secured Loans | |||||
| - Excellent | 19,941 | - | - | - | 19,941 |
| - Good | 7,319 | 1,496 | - | - | 8,815 |
| - Monitor | 106 | 322 | - | - | 428 |
| - Sub-standard | - | 219 | - | - | 219 |
| - NPL | - | - | 198 | - | 198 |
| Gross carrying amount |
27,366 | 2,037 | 198 | - | 29,601 |
| Credit loss allowance | (150) | (264) | (82) | - | (496) |
| Carrying amount | 27,216 | 1,773 | 116 | - | 29,105 |
| POS loans | |||||
| - Excellent | 19,525 | - | - | - | 19,525 |
| - Good | 4,406 | 763 | - | - | 5,169 |
| - Monitor | 100 | 117 | - | - | 217 |
| - Sub-standard | - | 173 | 26 | - | 199 |
| - NPL | - | - | 632 | 198 | 830 |
| Gross carrying amount |
24,031 | 1,053 | 658 | 198 | 25,940 |
| Credit loss allowance | (298) | (190) | (569) | - | (1,057) |
| Carrying amount | 23,733 | 863 | 89 | 198 | 24,883 |
| Car loans | |||||
| - Excellent | 15,581 | - | - | - | 15,581 |
| - Good | 3,051 | 702 | - | - | 3,753 |
| In millions of RR | Stage 1 (12-months ECL) |
Stage 2 (lifetime ECL for SICR) |
Stage 3 (lifetime ECL for credit impaired) |
Purchased/ originated credit impaired |
Total |
|---|---|---|---|---|---|
| - Monitor | 93 | 157 | - | - | 250 |
| - Sub-standard | - | 201 | - | - | 201 |
| - NPL | - | - | 371 | - | 371 |
| Gross carrying amount |
18,725 | 1,060 | 371 | - | 20,156 |
| Credit loss allowance | (368) | (285) | (260) | - | (913) |
| Carrying amount | 18,357 | 775 | 111 | - | 19,243 |
| Loans to IE and SME | |||||
| - Excellent | 622 | - | - | - | 622 |
| - Good | 314 | 6 | - | - | 320 |
| - Monitor | 4 | 6 | - | - | 10 |
| - Sub-standard | - | 9 | - | - | 9 |
| - NPL | - | - | 52 | - | 52 |
| Gross carrying amount |
940 | 21 | 52 | - | 1,013 |
| Credit loss allowance | (57) | (10) | (46) | - | (113) |
| Carrying amount | 883 | 11 | 6 | - | 900 |
Stage 3 includes restructured loans that are less than 90 days overdue which are not considered as NPL according to the Group's credit risk grading master scale. Refer to Note 29 for the description of credit risk grading system used by the Group.
Loans in courts are included in Stage 3 and are loans to delinquent borrowers, against which the Group has filed claims to courts in order to recover outstanding balances. As at 31 December 2020 the gross carrying amount of the loans in courts was RR 31,082 million (31 December 2019: RR 22,228 million).
Description of collateral held for loans to individuals carried at amortised cost is as follows at 31 December 2020:
| In millions of RR | Secured loans | Car loans | Total |
|---|---|---|---|
| Loans collateralised by: | |||
| - residential real estate | 37,896 | - | 37,896 |
| - cars | 2,084 | 24,713 | 26,797 |
| Total | 39,980 | 24,713 | 64,693 |
| Unsecured exposures | 252 | 9,278 | 9,530 |
| Total gross carrying amount (representing exposure to credit risk for each class of loans at AC) |
40,232 | 33,991 | 74,223 |
| In millions of RR | Secured loans | Car loans | Total |
|---|---|---|---|
| Loans collateralised by: | |||
| - residential real estate | 27,437 | - | 27,437 |
| - cars | 1,904 | 15,256 | 17,160 |
| Total | 29,341 | 15,256 | 44,597 |
| Unsecured exposures | 260 | 4,900 | 5,160 |
| Total gross carrying amount (representing exposure to credit risk for each class of loans at AC) |
29,601 | 20,156 | 49,757 |
The disclosure above represents the lower of the carrying value of the loan or collateral taken; the remaining part is disclosed within the unsecured exposures which arise mainly due to application of a discount in determining the carrying value of collateral.
The extent to which collateral and other credit enhancements mitigate credit risk for financial assets carried at amortised cost that are credit impaired, is presented by disclosing collateral values separately for (i) those assets where collateral and other credit enhancements are equal to or exceed carrying value of the asset ("over-collateralised assets") and (ii) those assets where collateral and other credit enhancements are less than the carrying value of the asset ("under-collateralised assets").
The effect of collateral on credit impaired assets at 31 December 2020 is as follows.
| Over-collateralised assets | Under-collateralised assets | ||||
|---|---|---|---|---|---|
| In millions of RR | Gross carrying amount of the assets |
Value of collateral | Gross carrying amount of the assets |
Value of collateral | |
| Credit impaired assets: | |||||
| Secured loans | 855 | 2,136 | 19 | 10 | |
| Car loans | 200 | 296 | 1,063 | 715 |
The effect of collateral on credit impaired assets at 31 December 2019 is as follows.
| Over-collateralised assets | Under-collateralised assets | ||||
|---|---|---|---|---|---|
| In millions of RR | Gross carrying amount of the assets |
Value of collateral | Gross carrying amount of the assets |
Value of collateral | |
| Credit impaired assets: | |||||
| Secured loans | 194 | 442 | 4 | 2 | |
| Car loans | 25 | 31 | 346 | 208 |
The values of collateral considered in this disclosure are after a valuation haircut of 20% (2019: 20%) for residential real estate and 30% (2019: 30%) for cars applied to consider liquidity and quality of the pledged assets.
All contractual modifications of loans with the lifetime ECL that did not lead to derecognition did not have gains less losses on modification recognised in profit or loss for the year ended 31 December 2020 (2019: same).
Refer to Note 36 for the disclosure of the fair value of loans and advances to customers. Interest rate, maturity and geographical risk concentration analysis are disclosed in Note 29. Information on related party balances is disclosed in Note 38.
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Debt securities measured at fair value through other comprehensive income |
234,189 | 134,765 |
| Securities measured at fair value through profit or loss | 4,265 | 413 |
| Total investments in securities | 238,454 | 135,178 |
| Repurchase receivables at fair value through other comprehensive income | 29 | - |
| Total investments in securities and repurchase receivables | 238,483 | 135,178 |
Repurchase receivables represent securities sold under sale and repurchase agreements which the counterparty has the right, by contract or custom, to sell or repledge. As at 31 December 2020 the sale and repurchase agreements are shortterm and mature in January 2021.
The table below discloses investments in debt securities and repurchase receivables measured at FVOCI by classes:
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Investments in securities | ||
| Russian government bonds | 123,916 | 56,382 |
| Corporate bonds | 96,200 | 72,032 |
| Municipal bonds | 9,474 | 6,351 |
| Foreign government bonds | 4,599 | - |
| Repurchase receivables | ||
| Corporate bonds | 29 | - |
| Total investments in securities and repurchase receivables measured at FVOCI |
234,218 | 134,765 |
| Including credit loss allowance | 714 | 345 |
The table below contains an analysis of the credit risk exposure of investments in securities and repurchase receivables measured at FVOCI at 31 December 2020, for which an ECL allowance is recognised, based on credit risk grades:
| Stage 2 | Stage 3 | |||
|---|---|---|---|---|
| In millions of RR | Stage 1 (12-months ECL) |
(lifetime ECL for SICR) |
(lifetime ECL for credit im-paired) |
Total |
| Russian government bonds | ||||
| - Good | 125,422 | - | - | 125,422 |
| Total AC gross carrying amount | 125,422 | - | - | 125,422 |
| Credit loss allowance | (255) | - | - | (255) |
| Fair value adjustment from AC to FV | (1,251) | - | - | (1,251) |
| Carrying value | 123,916 | - | - | 123,916 |
| Corporate bonds | ||||
| - Excellent | 560 | - | - | 560 |
| - Good | 85,653 | - | - | 85,653 |
| - Monitor | 6,726 | 620 | - | 7,346 |
| Total AC gross carrying amount | 92,939 | 620 | - | 93,559 |
| Credit loss allowance | (334) | (14) | - | (348) |
| Fair value adjustment from AC to FV | 2,953 | 36 | - | 2,989 |
| Carrying value | 95,558 | 642 | - | 96,200 |
| Municipal bonds | ||||
| - Good | 7,750 | - | - | 7,750 |
| - Monitor | 1,523 | - | - | 1,523 |
| Total AC gross carrying amount | 9,273 | - | - | 9,273 |
| Credit loss allowance | (45) | - | - | (45) |
| Fair value adjustment from AC to FV | 246 | - | - | 246 |
| Carrying value | 9,474 | - | - | 9,474 |
| Foreign government bonds | ||||
| - Good | 908 | - | - | 908 |
| - Monitor | 3,119 | - | - | 3,119 |
| - Sub-standard | 494 | - | - | 494 |
| Total AC gross carrying amount | 4,521 | - | - | 4,521 |
| Credit loss allowance | (66) | - | - | (66) |
| Fair value adjustment from AC to FV | 144 | - | - | 144 |
| Carrying value | 4,599 | - | - | 4,599 |
The table below contains an analysis of the credit risk exposure of debt securities measured at FVOCI at 31 December 2019, for which an ECL allowance is recognised, based on credit risk grades:
| In millions of RR | Stage 1 (12-months ECL) |
Stage 2 (lifetime ECL for SICR) |
Stage 3 (lifetime ECL for credit im-paired) |
Total |
|---|---|---|---|---|
| Russian government bonds | ||||
| - Good | 54,471 | - | - | 54,471 |
| Total AC gross carrying amount | 54,471 | - | - | 54,471 |
| Credit loss allowance | (99) | - | - | (99) |
| Fair value adjustment from AC to FV | 2,010 | - | - | 2,010 |
| Carrying value | 56,382 | - | - | 56,382 |
| Corporate bonds | ||||
| - Excellent | 411 | - | - | 411 |
| - Good | 61,042 | - | - | 61,042 |
| - Monitor | 8,192 | - | - | 8,192 |
| Total AC gross carrying amount | 69,645 | - | - | 69,645 |
| Credit loss allowance | (225) | - | - | (225) |
| Fair value adjustment from AC to FV | 2,612 | - | - | 2,612 |
| Carrying value | 72,032 | - | - | 72,032 |
| Municipal bonds | ||||
| - Good | 5,663 | - | - | 5,663 |
| - Monitor | 422 | - | - | 422 |
| Total AC gross carrying amount | 6,085 | - | - | 6,085 |
| Credit loss allowance | (21) | - | - | (21) |
| Fair value adjustment from AC to FV | 287 | - | - | 287 |
| Carrying value | 6,351 | - | - | 6,351 |
Refer to Note 29 for the description of credit risk grading system used by the Group and the approach to ECL measurement, including the definition of default and SICR as applicable to investments in securities and repurchase receivables at FVOCI. The investments at FVOCI are not collateralised. Refer to Note 36 for the disclosure of the fair value.
Securities at FVOCI reclassified to repurchase receivables continue to be carried at fair value in accordance with accounting policies for these categories of assets. Refer to Note 13 for the related liabilities.
The following table explains the changes in the credit loss allowance (including those pledged under repurchase agreements) and gross carrying amount for debt securities at FVOCI for the year ended 31 December 2020:
| Credit loss allowance | Gross carrying amount | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total |
| Russian government bonds | ||||||||
| At 31 December 2019 | 99 | - | - | 99 | 54,471 | - | - | 54,471 |
| Movements with impact on credit loss allowance charge: |
||||||||
| New originated or pur chased |
522 | - | - | 522 289,955 | - | - 289,955 | ||
| Foreign exchange gains | 1 | - | - | 1 | 767 | - | - | 767 |
| Redemption during the year | (160) | - | - | (160) | (89,000) | - | - (89,000) | |
| Disposal during the year | (233) | - | - | (233) (129,350) | - | - (129,350) | ||
| Interest income accrued | 8 | - | - | 8 | 5,318 | - | - | 5,318 |
| Interest received | (12) | - | - | (12) | (6,739) | - | - | (6,739) |
| Other movements | 30 | - | - | 30 | - | - | - | - |
| Total movements with impact on credit loss allow ance charge |
156 | - | - | 156 | 70,951 | - | - | 70,951 |
| At 31 December 2020 | 255 | - | - | 255 125,422 | - | - 125,422 | ||
| Corporate bonds | ||||||||
| At 31 December 2019 | 225 | - | - | 225 | 69,645 | - | - | 69,645 |
| Movements with impact on credit loss allowance charge: |
||||||||
| New originated or pur chased |
198 | - | - | 198 | 70,438 | - | - | 70,438 |
| Transfers: | ||||||||
| - to lifetime (from Stage 1 to Stage 2) |
(3) | 3 | - | - | (620) | 620 | - | - |
| Foreign exchange gains | 15 | - | - | 15 | 5,061 | - | - | 5,061 |
| Redemption during the year | (13) | - | - | (13) | (4,171) | - | - | (4,171) |
| Disposal during the year | (117) | - | - | (117) | (46,924) | - | - | (46,924) |
| Interest income accrued | 14 | - | - | 14 | 4,587 | 45 | - | 4,632 |
| Interest received | (16) | (1) | - | (17) | (5,077) | (45) | - | (5,122) |
| Other movements | 31 | 12 | - | 43 | - | - | - | - |
| Total movements with impact on credit loss allow ance charge |
109 | 14 | - | 123 | 23,294 | 620 | - | 23,914 |
| Credit loss allowance | Gross carrying amount | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total |
| At 31 December 2020 | 334 | 14 | - | 348 | 92,939 | 620 | - | 93,559 |
| Municipal bonds | ||||||||
| At 31 December 2019 | 21 | - | - | 21 | 6,085 | - | - | 6,085 |
| Movements with impact on credit loss allowance charge: |
||||||||
| New originated or pur chased |
25 | - | - | 25 | 7,440 | - | - | 7,440 |
| Redemption during the year | 0 | - | - | 0 | (91) | - | - | (91) |
| Disposal during the year | (19) | - | - | (19) | (4,140) | - | - | (4,140) |
| Interest income accrued | 3 | - | - | 3 | 474 | - | - | 474 |
| Interest received | (2) | - | - | (2) | (495) | - | - | (495) |
| Other movements | 17 | - | - | 17 | - | - | - | - |
| Total movements with impact on credit loss allow ance charge |
24 | - | - | 24 | 3,188 | - | - | 3,188 |
| At 31 December 2020 | 45 | - | - | 45 | 9,273 | - | - | 9,273 |
| Foreign government bonds | ||||||||
| At 31 December 2019 | - | - | - | - | - | - | - | - |
| Movements with impact on credit loss allowance charge: |
||||||||
| New originated or pur chased |
68 | - | - | 68 | 7,516 | - | - | 7,516 |
| Foreign exchange gains | 1 | - | - | 1 | 246 | - | - | 246 |
| Disposal during the year | (11) | - | - | (11) | (3,224) | - | - | (3,224) |
| Interest income accrued | 1 | - | - | 1 | 61 | - | - | 61 |
| Interest received | (1) | - | - | (1) | (78) | - | - | (78) |
| Other movements | 8 | - | - | 8 | - | - | - | - |
| Total movements with impact on credit loss allow ance charge |
66 | - | - | 66 | 4,521 | - | - | 4,521 |
| At 31 December 2020 | 66 | - | - | 66 | 4,521 | - | - | 4,521 |
The following table explains the changes in the credit loss allowance (including those pledged under repurchase agreements) and gross carrying amount for debt securities at FVOCI for the year ended 31 December 2019:
| Credit loss allowance | Gross carrying amount | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total |
| Corporate bonds | ||||||||
| At 1 January 2019 | 255 | 128 | - | 383 | 64,951 | 1,607 | - | 66,558 |
| Movements with impact on credit loss allowance charge: |
||||||||
| New originated or pur chased |
89 | - | - | 89 | 25,936 | - | - | 25,936 |
| Transfers: | ||||||||
| - to lifetime (from Stage 1 to Stage 2) |
24 | (26) | - | (2) | 1,318 | (1,318) | - | - |
| Foreign exchange losses | (12) | (6) | - | (18) | (2,702) | (96) | - | (2,798) |
| Redemption during the year | (12) | - | - | (12) | (3,609) | - | - | (3,609) |
| Disposal during the year | (91) | (40) | - | (131) | (16,348) | (193) | - (16,541) | |
| Interest income accrued | 12 | 4 | - | 16 | 4,074 | 43 | - | 4,117 |
| Interest received | (12) | (4) | - | (16) | (3,975) | (43) | - | (4,018) |
| Other movements | (28) | (56) | - | (84) | - | - | - | - |
| Total movements with impact on credit loss allow ance charge |
(30) | (128) | - | (158) | 4,694 | (1,607) | - | 3,087 |
| At 31 December 2019 | 225 | - | - | 225 | 69,645 | - | - | 69,645 |
| Russian government bonds | ||||||||
| At 1 January 2019 | 66 | - | - | 66 | 25,190 | - | - | 25,190 |
| Movements with impact on credit loss allowance charge: |
||||||||
| New originated or pur chased |
167 | - | - | 167 | 81,179 | - | - | 81,179 |
| Foreign exchange losses | (2) | - | - | (2) | (833) | - | - | (833) |
| Redemption during the year | (63) | - | - | (63) | (30,858) | - | - (30,858) | |
| Disposal during the year | (53) | - | - | (53) | (20,414) | - | - (20,414) | |
| Interest income accrued | 4 | - | - | 4 | 2,119 | - | - | 2,119 |
| Interest received | (4) | - | - | (4) | (1,912) | - | - | (1,912) |
| Other movements | (16) | - | - | (16) | - | - | - | - |
| Total movements with impact on credit loss allow ance charge |
33 | - | - | 33 | 29,281 | - | - | 29,281 |
| At 31 December 2019 | 99 | - | - | 99 | 54,471 | - | - | 54,471 |
1 Investments in securities and repurchase receivables measured at fair value through other comprehensive income (Continued)
| Credit loss allowance | Gross carrying amount | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total | (12-months Stage 1 ECL) |
(lifetime ECL for SICR) Stage 2 |
(lifetime ECL for credit im Stage 3 paired) |
Total |
| Municipal bonds | ||||||||
| At 1 January 2019 | 35 | - | - | 35 | 5,833 | - | - | 5,833 |
| Movements with impact on credit loss allowance charge: |
||||||||
| New originated or pur chased |
3 | - | - | 3 | 968 | - | - | 968 |
| Redemption during the year | (1) | - | - | (1) | (482) | - | - | (482) |
| Disposal during the year | (4) | - | - | (4) | (216) | - | - | (216) |
| Interest income accrued | 2 | - | - | 2 | 469 | - | - | 469 |
| Interest received | (3) | - | - | (3) | (487) | - | - | (487) |
| Other movements | (11) | - | - | (11) | - | - | - | - |
| Total movements with impact on credit loss allow ance charge |
(14) | - | - | (14) | 252 | - | - | 252 |
| At 31 December 2019 | 21 | - | - | 21 | 6,085 | - | - | 6,085 |
The table below discloses investments in securities measured at FVTPL by classes:
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Perpetual corporate bonds | 4,265 | - |
| Other securities | - | 413 |
| Total securities measured at FVTPL | 4,265 | 413 |
At 31 December 2019 the other securities were represented by assets of the mutual funds which were controlled by the Group and managed by LLC "Tinkoff Capital". These assets were sold at 30 September 2020.
Investments in securities measured at FVTPL are carried at fair value, which also reflects any credit risk related write-downs and best represents Group's maximum exposure to credit risk. The securities measured at FVTPL are not collateralized. Interest rate, maturity and geographical risk concentration analysis of investment in securities are disclosed in Note 29.
As at 31 December 2020 and 2019 guarantee deposits were placed in favour of MasterCard with Barclays Bank Plc London (A rated), in favour of Visa with United Overseas Bank Ltd Singapore (AA- rated), and in favour of Russia payment card Mir with Russian National payment card system (NSPK).
As at 31 December 2020 the carrying value of guarantee deposits with payment systems was RR 15,475 million (2019: RR 8,877 million).
The table below discloses the credit quality of guarantee deposits with payment systems balances based on credit risk grades:
| In millions of RR |
|---|
| ------------------- |
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| - Excellent | 14,803 | 8,376 |
| - Good | 672 | 501 |
| Total guarantee deposits with payment systems | 15,475 | 8,877 |
The carrying amount of guarantee deposits with payment systems at 31 December 2020 and 2019 also represents the Group's maximum exposure to credit risk on these assets. Refer to Note 29 for the description of credit risk grading system used by the Group. For the purpose of ECL measurement guarantee deposits with payment systems balances are included in Stage 1. Guarantee deposits with payment systems are unsecured financial assets.
The ECL for these balances represents an immaterial amount, therefore the Group did not create any credit loss allowance for guarantee deposits with payment systems. Refer to Note 29 for the ECL measurement approach. Interest rate, maturity and geographical risk concentration analysis are disclosed in Note 29.
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Amounts receivable from brokers and clearing organizations | 24,064 | 2,799 |
| Total brokerage receivables | 24,064 | 2,799 |
| Amounts payable to brokers and clearing organizations | 9,206 | 1,207 |
| Total brokerage payables | 9,206 | 1,207 |
Brokerage receivables represent placements under reverse sale and repurchase agreements made by the Bank with central counterparty to provide customers of the Bank who have brokerage accounts with the Bank with the possibility to acquire securities in case those customers have insufficient own funds to acquire those securities. These balances are fully collateralized by highly liquid securities and have minimal credit risk. As at 31 December 2020 the fair value of collateral of brokerage receivables was RR 24,113 million (31 December 2019: RR 2,239 million). For the purpose of ECL measurement brokerage receivables are included in Stage 1. The ECL for these balances represents an immaterial amount, therefore the Group did not recognise any credit loss allowance for brokerage receivables.
Brokerage payables represent funds attracted under sale and repurchase agreements made by the Bank with central counterparty to provide customers of the Bank who have brokerage accounts with the Bank with the possibility to borrow securities and make a short sale.
As at 31 December 2020 the fair value of collateral of brokerage payables was RR 9,696 million (31 December 2019: RR 1,282 million).
ECL measurement approach, interest rate, maturity and geographical risk concentration analysis are disclosed in Note 29. Refer to Note 32 for the disclosure of the the offsetting assets and liabilities. Refer to Note 36 for the disclosure of the fair value of brokerage receivables and brokerage payables.
1 Investments in securities and repurchase receivables measured at fair value through other comprehensive income (Continued)
| In millions of RR | Land | Building | Equip ment |
Leasehold improve ments |
Vehicles | Total tan gible fixed assets |
Intangible assets |
|---|---|---|---|---|---|---|---|
| Cost | |||||||
| At 31 December 2018 | 396 | 4,219 | 4,341 | 1,536 | 42 | 10,534 | 6,625 |
| Additions | - | - | 1,788 | 86 | 46 | 1,920 | 2,564 |
| Disposals | - | - | (59) | (2) | - | (61) | (72) |
| At 31 December 2019 | 396 | 4,219 | 6,070 | 1,620 | 88 | 12,393 | 9,117 |
| Additions | - | - | 2,168 | 2 | - | 2,170 | 3,669 |
| Disposals | - | - | (164) | (231) | - | (395) | (73) |
| At 31 December 2020 | 396 | 4,219 | 8,074 | 1,391 | 88 | 14,168 | 12,713 |
| Depreciation and amor tisation |
|||||||
| At 31 December 2018 | - | (90) | (1,527) | (515) | (33) | (2,165) | (2,402) |
| Charge for the year (Note 24) |
- | (43) | (1,076) | (160) | (8) | (1,287) | (1,331) |
| Disposals | - | - | 9 | 2 | - | 11 | 51 |
| At 31 December 2019 | - | (133) | (2,594) | (673) | (41) | (3,441) | (3,682) |
| Charge for the year (Note 24) |
- | (43) | (1,421) | (149) | (4) | (1,617) | (1,961) |
| Disposals | - | - | 103 | 128 | - | 231 | 12 |
| At 31 December 2020 | - | (176) | (3,912) | (694) | (45) | (4,827) | (5,631) |
| Net book value | |||||||
| At 31 December 2019 | 396 | 4,086 | 3,476 | 947 | 47 | 8,952 | 5,435 |
| At 31 December 2020 | 396 | 4,043 | 4,162 | 697 | 43 | 9,341 | 7,082 |
Intangible assets additions in the amount of RR 1,854 million related to capitalised the software developments by Tinkoff Software DC during the year ended 31 December 2020 (2019: RR 1,212 million).
Other intangible assets acquired during the year ended 31 December 2020 and 2019 mainly represent accounting software, retail banking software, insurance software, licenses and development of software.
Right-of-use assets and lease liabilities. Right-of-use-assets relate to the office premises leased by the Group. Rental contracts are typically for fixed periods from 1 to 5 years. The Group does not have extension or termination options of its lease agreements other than lease agreements of low value items.
The right of use assets by class of underlying items is analysed as follows:
| In millions of RR | Office premises |
|---|---|
| Carrying amount at 1 January 2019 | 1,671 |
| Additions | 664 |
| Depreciation charge (Note 24) | (727) |
| Carrying amount at 31 December 2019 | 1,608 |
| Additions | 234 |
| Depreciation charge (Note 24) | (702) |
| Carrying amount at 31 December 2020 | 1,140 |
| Prior to 1 January 2019 Group's leases of premises and equipment were classified as operating leases. From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability from the date when the leased asset be comes available for use by the Group. |
Expenses relating to leases of low-value assets and short-term leases in the amount of RR 548 million are included in administrative and other operating expenses (2019: RR 410 million). Refer to Note 24. Total cash outflow for leases during the year ended 31 December 2020 was RR 758 million (2019: RR 1,087 million).
| 31 December 2020 |
31 December 2019 |
|---|---|
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Other Financial Assets | ||
| Settlement of operations with plastic cards | 23,882 | 16,384 |
| Other | 7,188 | 5,289 |
| Total Other Financial Assets | 31,070 | 21,673 |
| Other Non-Financial Assets | ||
| Prepaid expenses | 1,478 | 1,223 |
| Other | 1,908 | 1,287 |
| Total Other Non-Financial Assets | 3,386 | 2,510 |
Settlement of operations with plastic cards represents settlements with payment systems and payment channels on operations of the customers with banking cards due to be settled within 3 working days. This amount also includes prepayment to the payment systems for operations during holiday period.
At 31 December 2020, included in other financial assets are receivables, investments in associates and subrogation rights (2019: same).
As at 31 December 2020 and 2019 prepaid expenses consist of prepayments for marketing, IT support, security and ATM-service.
Refer to Note 36 for the disclosure of the fair value of customer accounts. Interest rate, maturity and geographical risk concentration analysis of customer accounts amounts is disclosed in Note 29. Information on related party balances is disclosed in Note 38.
| 31 December | 31 December | ||
|---|---|---|---|
| In millions of RR | Date of maturity | 2020 | 2019 |
| RR denominated bonds issued in April 2019 | 21 March 2029 | 10,134 | 10,158 |
| RR denominated bonds issued in September 2019 | 12 September 2029 | 10,166 | 10,157 |
| RR denominated bonds issued in April 2017 | 22 April 2022 | 2,492 | 2,468 |
| RR denominated bonds issued in June 2016 | 24 June 2021 | 836 | 835 |
| Structured debt notes issued in December 2020 | 5 December 2023 | 119 | - |
| Structured debt notes issued in October 2020 | 5 October 2023 | 89 | - |
| Structured debt notes issued in December 2020 | 1 December 2023 | 74 | - |
| EUR denominated ECP issued in December 2019 | 20 November 2020 | - | 1,030 |
| EUR denominated ECP issued in February 2019 | 18 February 2020 | - | 831 |
| USD denominated ECP issued in December 2019 | 20 November 2020 | - | 599 |
| Total debt securities in issue | 23,910 | 26,078 |
On 3 April 2019 the Bank issued RR denominated bonds with a nominal value of RR 10,000 million at 9.25% coupon rate maturing on 21 March 2029.
On 25 September 2019 the Bank issued RR denominated bonds with a nominal value of RR 10,000 million at 8.25% coupon rate maturing on 12 September 2029.
On 28 April 2017 the Bank issued RR denominated bonds with a nominal value of RR 5,000 million at 9.65% coupon rate maturing on 22 April 2022.
On 30 June 2016 the Group issued RR denominated bonds with a nominal value of RR 3,000 million at 11.7% coupon rate maturing on 24 June 2021.
During October and December 2020 the Bank issued structured debt notes with the total nominal value of RR 282 million at 0.01% coupon rate maturing in October and December 2023. The structured debt notes are linked to the performance of the underlying assets, such as the gold trust and equity indexes. The derivative instruments embedded in the structured notes were separated and accounted within financial derivatives line in the consolidated statement of financial position.
On 20 December 2019 the Group issued two tranches of ECP denominated in USD and EUR maturing on 20 November 2020. USD denominated ECP has a nominal value of USD 10 million with a discount of 3.6%. EUR denominated ECP has a nominal value of EUR 15 million with a discount of 1.0%.
On 19 February 2019 the Group issued Euro-Commercial Paper (ECP) denominated in EUR maturing on 18 February 2020, which has a nominal value of EUR 12 million with a discount of 1.25%.
The Group redeemed all outstanding ECP at maturity date.
All RR denominated bonds and structured debt notes issued by the Bank are traded on the Moscow Exchange. Refer to Note 36 for the disclosure of the fair value of debt securities in issue. Interest rate, maturity and geographical risk concentration analysis of debt securities in issue are disclosed in Note 29.
The table below discloses the credit quality of other financial assets based on credit risk grades:
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| - Excellent | 19,683 | 9,219 |
| - Good | 11,387 | 12,454 |
| Total other financial assets | 31,070 | 21,673 |
Refer to Note 29 for the description of the Group's credit risk grading system.
For the purpose of ECL measurement settlement of operations with plastic cards balances and other receivables are included in Stage 1. The ECL for these balances represents an immaterial amount, therefore the Group did not recognise any credit loss allowance. Refer to Note 29 for the ECL measurement approach. Refer to Note 36 for the disclosure of the fair value of other financial assets. The maturity and geographical risk concentration analysis of amounts of other financial assets is disclosed in Note 29.
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Correspondent accounts and overnight placements of other banks | 4,795 | 23 |
| Sale and repurchase agreements with other banks | 24 | - |
| Total due to banks | 4,819 | 23 |
At 31 December 2020, included in the amounts due to other banks are liabilities of RR 24 million (31 December 2019: nil) arising from sale and repurchase agreements with debt securities at FVOCI. Refer to Note 8.
Refer to Note 36 for the disclosure of the fair value of amounts due to banks. Interest rate, maturity and geographical risk concentration analysis of due to banks is disclosed in Note 29. Refer to Notes 32 and 33 for information on the amounts included in due to banks received under sale and repurchase agreements and fair value of securities pledged.
| 31 December | 31 December | |
|---|---|---|
| In millions of RR | 2020 | 2019 |
| Individuals | ||
| - Current/demand accounts | 323,145 | 199,408 |
| - Brokerage accounts | 73,970 | 12,253 |
| - Term deposits | 135,995 | 137,292 |
| IE and SME | ||
| - Current/demand accounts | 89,199 | 60,174 |
| - Term deposits | 2,213 | 1,880 |
| Other legal entities | ||
| - Current/demand accounts | 2,267 | 495 |
| - Term deposits | 48 | 112 |
| Total customer accounts | 626,837 | 411,614 |
As at 31 December 2020 the carrying value of the subordinated debt was RR 20,755 million (31 December 2019: RR 18,487 million).
On 15 June 2017 the Group issued perpetual subordinated loan participation notes with a nominal value of USD 300 million with zero premium. The notes have no stated maturity. The Group has a right to repay the notes at its discretion starting from 15 September 2022 and they are repayable in case of certain events other than liquidation. The notes bear a fixed interest rate of 9.25% p.a. payable quarterly starting from 15 September 2017. Interest payments may be cancelled by the Group at any time.
The claims of lenders against the Group in respect of the principal and interest on these bonds are subordinated to the claims of other creditors in accordance with the legislation of the Russian Federation.
The perpetual subordinated loan participation notes are traded on the Global Exchange Market. Interest rate, maturity and geographical risk concentration analysis of subordinated debt is disclosed in Note 29. Refer to Note 36 for the disclosure of the fair value of financial instruments.
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Insurance Provisions | ||
| Provision for unearned premiums | 3,907 | 3,938 |
| Loss provisions | 2,160 | 2,342 |
| Total Insurance Provisions | 6,067 | 6,280 |
Movements in provision for unearned premiums for the year ended 31 December 2020 and 2019 are as follows:
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| In millions of RR | Gross provi sion |
Reinsurer's share of provision |
Provision net of reinsur ance |
Gross provi sion |
Reinsurer's share of provision |
Provision net of rein surance |
| Provision for unearned premiums as at 1 January |
3,938 | (11) | 3,927 | 1,760 | (3) | 1,757 |
| Change in provision, gross | (31) | - | (31) | 2,178 | - | 2,178 |
| Change in reinsurers' share of provision |
- | - | - | - | (8) | (8) |
| Provision for unearned premiums as at 31 De cember |
3,907 | (11) | 3,896 | 3,938 | (11) | 3,927 |
| Note | OCP and IBNR |
URP | Provision for claims handling expenses |
Total loss provisions |
|---|---|---|---|---|
| 965 | 9 | 125 | 1,099 | |
| 4,026 | - | - | 4,026 | |
| (138) | - | (39) | (177) | |
| 23 | (2,923) | - | (2,923) | |
| - | - | 862 | 862 | |
| 23 | - | - | (733) | (733) |
| - | 253 | - | 253 | |
| - | (65) | - | (65) | |
| 1,930 | 197 | 215 | 2,342 | |
| 3,456 | - | - | 3,456 | |
| (119) | - | 147 | 28 | |
| 23 | (3,500) | - | (3,500) | |
| - | - | 528 | 528 | |
| 23 | - | - | (497) | (497) |
| - | (197) | - | (197) | |
| 1,767 | - | 393 | 2,160 | |
| 31 December | 31 December | |
|---|---|---|
| In millions of RR | 2020 | 2019 |
| Other financial liabilities | ||
| Settlement of operations with plastic cards | 23,079 | 6,427 |
| Trade payables | 6,150 | 4,621 |
| Credit related commitments (Note 31) | 3,537 | 2,242 |
| Other | 1,571 | 1,358 |
| Total other financial liabilities | 34,337 | 14,648 |
| Other non-financial liabilities | ||
| Accrued administrative expenses | 2,171 | 1,277 |
| Taxes payable other than income tax | 1,731 | 1,321 |
| Lease liabilities | 1,340 | 1,694 |
| Other | 663 | 582 |
| Total other non-financial liabilities | 5,905 | 4,874 |
Settlements of operations with plastic cards include funds that were spent by customers of the Bank by usage of plastic cards but have not yet been compensated to payment systems by the Bank. Accrued administrative expenses are mainly represented by accrued staff costs.
During 2020 the Group has managed to apply an online posting mechanism which allowed customer accounts to be debited and payment systems to be credited for their transactions at the time of authorisation of the transaction. In prior periods transactions were posted only after their clearing by payment systems which could require another business day.
Movements in the credit loss allowance for credit related commitments were as follows for the year ended 31 December 2020:
| In millions of RR | Stage 1 (12-months ECL) |
Stage 2 (lifetime ECL for SICR) |
Stage 3 (lifetime ECL for credit im-paired) |
Gross committed amount |
|---|---|---|---|---|
| At 31 December 2019 | 2,228 | 14 | - | 2,242 |
| Movements with impact on pro vision for credit related commit ments charge for the year: |
||||
| New originated or purchased | 920 | - | - | 920 |
| Transfers: | ||||
| - to lifetime (from Stage 1 to Stage 2) |
(36) | 15 | - | (21) |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(59) | (6) | - | (65) |
| - to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) |
7 | (15) | - | (8) |
| Changes to ECL measurement model assumptions and esti mates |
(637) | (1) | - | (638) |
| Movements other than transfers and new originated or purchased loans |
1,090 | 17 | - | 1,107 |
| Total charge to profit or loss for the year |
1,285 | 10 | - | 1,295 |
| At 31 December 2020 | 3,513 | 24 | - | 3,537 |
Movements in the credit loss allowance for credit related commitments were as follows for the year ended 31 December 2019:
| In millions of RR | Stage 1 (12-months ECL) |
Stage 2 (lifetime ECL for SICR) |
Stage 3 (lifetime ECL for credit im-paired) |
Gross committed amount |
|---|---|---|---|---|
| At 31 December 2018 | 2,024 | 17 | - | 2,041 |
| Movements with impact on pro vision for credit related commit ments charge for the year: |
||||
| New originated or purchased | 840 | - | - | 840 |
| Transfers: | ||||
| - to lifetime (from Stage 1 to Stage 2) |
(23) | 9 | - | (14) |
| - to credit-impaired (from Stage 1 and Stage 2 to Stage 3) |
(45) | (7) | - | (52) |
| - to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) |
5 | (15) | - | (10) |
| Changes to ECL measurement model assumptions and estimates |
(163) | - | - | (163) |
| Movements other than transfers and new originated or purchased loans |
(410) | 10 | - | (400) |
| Total charge to profit or loss for the year |
204 | (3) | - | 201 |
| At 31 December 2019 | 2,228 | 14 | - | 2,242 |
The main movements in the table presented above are described as follows:
• movements other than transfers and new originated or purchased loans category represents all other movements of
Interest rate, maturity and geographical risk concentration analysis of other financial liabilities is disclosed in Note 29. Refer to Note 36 for disclosure of fair value of other financial liabilities. Refer to Note 31 for analysis of loan commitments by credit risk grades.
| In millions of RR except for the number of shares |
Number of authorised shares |
Number of outstanding shares |
Ordinary shares |
Share pre mium |
Treasury shares |
Total |
|---|---|---|---|---|---|---|
| At 1 January 2019 | 191,770,766 | 182,638,825 | 188 | 8,623 | (3,670) | 5,141 |
| Shares issued | 18,263,882 | 16,666,667 | 42 | 18,874 | - | 18,916 |
| Secondary public offering (SPO) costs |
- | - | - | (499) | - | (499) |
| GDRs and shares trans ferred under MLTIP |
- | - | - | - | 506 | 506 |
| At 31 December 2019 | 210,034,648 | 199,305,492 | 230 | 26,998 | (3,164) | 24,064 |
| GDRs buy-back | - | - | - | - | (661) | (661) |
| GDRs and shares trans ferred under MLTIP |
- | - | - | - | 587 | 587 |
| At 31 December 2020 | 210,034,648 | 199,305,492 | 230 | 26,998 | (3,238) | 23,990 |
At 31 December 2020 the total number of outstanding shares is 199,305,492 shares (31 December 2019: 199,305,492 shares) with a par value of USD 0.04 per share (31 December 2019: USD 0.04 per share).
At 31 December 2020 and 2019 treasury shares represent GDRs of the Group repurchased from the market for the purposes permitted by Cyprus law including contribution to MLTIP. Refer to Note 38.
At 31 December 2020 the total number of treasury shares is 3,013,379 (31 December 2019: 4,185,166).
During the year ended 31 December 2020 the Group repurchased 650,000 GDRs at market price for RR 661 million (2019: no GDRs were repurchased by the Group).
During the year ended 31 December 2020 the Group transferred 1,809,681 GDRs (2019: 2,419,187 GDRs), representing 0.91% (2019: 1.21%) of the issued shares, upon vesting under the MLTIP. This resulted in a transfer of RR 587 million (2019: RR 506 million) out of treasury shares to retained earnings.
In June 2019 the Company's shareholders approved a resolution to increase the authorised share capital to USD 8,401,385.92 by the creation of 18,263,882 new undesignated ordinary shares of nominal value USD 0.04 each. At 31 December 2020 the total number of authorised shares is 210,034,648 shares (31 December 2019: 210,034,648 shares) with a par value of USD 0.04 per share (31 December 2019: USD 0.04 per share).
On 2 July 2019 the Group completed a SPO on the London Stock Exchange plc and issued 16,666,667 class A shares of the Company in the form of GDRs at a price of USD 18.00 per GDR, raising aggregate gross proceeds of USD 300 million (RR 18,916 million). All issued ordinary shares are fully paid.
All the incurred SPO costs were primary direct expenses accounted within share premium.
Basic earnings per share are calculated by dividing the profit or loss attributable to owners of the Company by the weighted average number of ordinary shares in issue during the year, excluding treasury shares. For the purpose of calculating diluted earnings per share the Group considered the dilutive effect of share options granted under MLTIP.
| In millions of RR except for the number of shares | 2020 | 2019 |
|---|---|---|
| Profit for the year attributable to ordinary shareholders of the Company | 44,209 | 36,122 |
| Weighted average number of ordinary shares in issue used for basic earnings per ordinary share calculation (thousands) |
195,962 | 186,559 |
| Weighted average number of ordinary shares in issue used for diluted earnings per ordinary share calculation (thousands) |
197,604 | 190,070 |
| Basic earnings per ordinary share (expressed in RR per share) | 225.60 | 193.62 |
| Diluted earnings per ordinary share (expressed in RR per share) | 223.73 | 190.05 |
Information on dividends is disclosed in Note 27.
Reconciliation of the number of shares used for basic and diluted EPS:
| In thousands | Note | 2020 | 2019 |
|---|---|---|---|
| Weighted average number of ordinary shares in issue used for basic earnings per ordinary share calculation |
195,962 | 186,559 | |
| Number of shares attributable for MLTIP | 15,290 | 9,940 | |
| Number of shares transferred out of treasury shares upon vesting under the MLTIP to retained earnings or forfeited |
38 | (8,014) | (6,158) |
| Number of shares that would have been issued at fair value | (5,634) | (271) | |
| Weighted average number of ordinary shares in issue used for diluted earnings per ordinary share calculation |
197,604 | 190,070 |
Weighted average number of ordinary shares in issue used for diluted earnings per ordinary share calculation 197,604 190,070
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Interest income calculated using the effective interest rate method | ||
| Loans and advances to customers, including: | ||
| Credit card loans | 89,253 | 84,325 |
| Cash loans | 11,439 | 11,878 |
| Secured loans | 4,950 | 2,285 |
| POS loans | 4,806 | 3,452 |
| Car loans | 3,342 | 1,512 |
| Loans to IE and SME | 529 | 325 |
| Debt securities and repurchase receivables at FVOCI | 10,510 | 6,705 |
| Brokerage operations | 2,629 | 184 |
| Placements with other banks and non-bank credit organizations with original maturities of less than three months |
626 | 463 |
| Total interest income calculated using the effective interest rate method | 128,084 | 111,129 |
| Other similar income | ||
| Financial assets at FVTPL | 83 | 118 |
| Total interest income | 128,167 | 111,247 |
| Interest expense calculated using the effective interest rate method | ||
| Customer accounts, including: | ||
| Individuals | ||
| - Current/demand accounts | 9,590 | 8,988 |
| - Term deposits | 6,499 | 7,006 |
| IE and SME | 1,022 | 1,421 |
| Other legal entities | 24 | 40 |
| RR denominated bonds | 2,027 | 1,282 |
| Subordinated debt | 1,948 | 1,846 |
| Due to banks | 439 | 634 |
| Euro-Commercial Paper | 32 | 100 |
| Total interest expense calculated using the effective interest rate method | 21,581 | 21,317 |
| Other similar expense | ||
| Lease liabilities | 139 | 134 |
| Total interest expense | 21,720 | 21,451 |
| Expenses on deposit insurance | 1,745 | 1,870 |
| Net margin | 104,702 | 87,926 |
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Fee and commission income | ||
| Acquiring commission | 11,049 | 8,342 |
| SME services commission | 7,437 | 6,757 |
| Brokerage fee | 4,998 | 635 |
| Fee for selling credit protection | 4,657 | 5,550 |
| Interchange fee SMS fee Foreign currency exchange transactions fee Fee for money transfers Income from MVNO services Cash withdrawal fee Marketing services fee Replenishment fee Other fees receivable Total fee and commission income |
3,963 | 3,473 |
| 3,945 | 3,244 | |
| 3,943 | 3,024 | |
| 3,117 | 1,980 | |
| 1,815 | 890 | |
| 746 | 720 | |
| 394 | 340 | |
| 141 | 141 | |
| 1,404 | ||
| 47,609 | ||
| SME services commission represents commission for services to individual entrepreneurs and small to medium busi nesses. Fee for selling credit protection represents fee which the Bank receives for selling voluntary credit insurance to borrowers of the Group. Acquiring commission represents commission for processing card payments from online and offline points of sale. Income from MVNO services represents income from providing mobile services such as full coverage across Russia and international roaming, offering a number of value-added options such as virtual numbers, music and video streaming services, etc. The Group has refined the presentation of the Group's revenue structure by reclassifying the sum of merchant acquiring fee from SME services commission to acquiring commission. The comparative information was amended accordingly. |
||
| In millions of RR | 2020 | 2019 |
| Fee and commission expense | ||
| Payment systems | 14,684 | |
| Service fees | 2,177 | |
| Banking and other fees | 2,225 | |
| Payment channels | 1,288 | |
| Costs of MVNO services | 1,225 | 762 35,858 10,420 2,043 423 1,327 910 |
Payment systems fees represent fees for MasterCard, Visa and other payment systems' services. Service fees represent fees for statement printing, mailing service, sms services and others. Payment channels represent fees paid to third parties through whom borrowers make loan repayments. Costs of MVNO services represent expenses for the traffic, telecommunications service and roaming.
Refer to Note 40 that describes the types of revenues recognized on a point in time basis and on the over time basis.
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Marketing and advertising | 10,636 | 8,106 |
| Staff costs | 6,689 | 5,916 |
| Taxes other than income tax | 1,869 | 1,413 |
| Partnership expenses | 1,065 | 979 |
| Cards issuing expenses | 890 | 411 |
| Credit bureaux | 878 | 697 |
| Telecommunication expenses | 284 | 326 |
| Other acquisition | 277 | 329 |
| Total customer acquisition expenses | 22,588 | 18,177 |
Customer acquisition expenses represent expenses paid by the Group on services related to origination of customers which are not directly attributable to the recognised assets and are not incremental. The Group uses a variety of different channels for the acquisition of new customers.
Staff costs represent salary expenses and related costs of employees directly involved in customer acquisition. Included in staff costs are statutory social contributions to the state non-budgetary funds in the amount of RR 1,650 million for the year ended 31 December 2020 (2019: RR 1,561 million).
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Insurance premiums earned | ||
| Insurance premiums on insurance, co-insurance and reinsurance operations | 18,536 | 16,289 |
| Change in provision for unearned premiums | 31 | (2,178) |
| Reinsurers' share | - | (1) |
| Total Insurance premiums earned | 18,567 | 14,110 |
| Insurance claims incurred | ||
| Insurance claims on insurance, co-insurance and reinsurance operations | (3,500) | (2,923) |
| Changes in loss provisions | 182 | (1,243) |
| Claims handling expenses | (497) | (733) |
| Reinsurers' share | 1 | 8 |
| Total Insurance claims incurred | (3,814) | (4,891) |
The Insurance company provides following types of insurance:
Personal accident insurance and collective insurance against accidents, illnesses or loss of work provides compensation and financial protection in the event of injuries, disability, death or loss of loss of work of the borrower. It is different from life insurance and medical and health insurance. In accordance with the terms of individual insurance contracts, the policyholder and beneficiary is an individual who has entered into an insurance contract. In accordance with the terms of the collective insurance contract, the insurer is the Bank that has concluded the collective insurance contract with the Insurance Company, the beneficiary is the insured individual.
Motor vehicle insurance and property insurance provides compensation for damage to a client's vehicle or other property.
Compulsory third party liability insurance (CTP) contracts provide the insured with financial protection from the risk of civil liability of vehicle owners, which may occur as a result of harm to life, health or property of others when using vehicles.
Voluntary third party (VTP) risk insurance contracts provide the insured with financial protection in case of insufficiency of insurance payment for compulsory third party liability insurance of motor vehicle owners (CTP) to compensate for harm caused to life, health and / or property.
Travel insurance provides compensation in case of medical or other unforeseen expenses of the client while being away from their place of permanent residence.
Staff and administrative expenses for insurance operations are included in Note 24.
| In millions of RR | Note | 2020 | 2019 |
|---|---|---|---|
| Staff costs | 24,335 | 19,204 | |
| Amortization of intangible assets | 11 | 1,961 | 1,331 |
| Depreciation of fixed assets | 11 | 1,617 | 1,287 |
| Taxes other than income tax | 1,421 | 1,473 | |
| Information services | 1,299 | 787 | |
| Other provisions | 1,206 | 260 | |
| Depreciation of right-of-use assets | 11 | 702 | 727 |
| Professional services | 600 | 773 | |
| Short-term and low-value lease | 11 | 548 | 410 |
| Collection expenses | 393 | 165 | |
| Office maintenance and office supplies | 391 | 383 | |
| Communication services | 275 | 280 | |
| Security expenses | 189 | 167 | |
| Other administrative expenses | 684 | 605 | |
| In millions of RR | Note | 2020 | 2019 |
|---|---|---|---|
| Staff costs | 24,335 | 19,204 | |
| Amortization of intangible assets | 11 | 1,961 | 1,331 |
| Depreciation of fixed assets | 11 | 1,617 | 1,287 |
| Taxes other than income tax | 1,421 | 1,473 | |
| Information services | 1,299 | 787 | |
| Other provisions | 1,206 | 260 | |
| Depreciation of right-of-use assets | 11 | 702 | 727 |
| Professional services | 600 | 773 | |
| Short-term and low-value lease | 11 | 548 | 410 |
| Collection expenses | 393 | 165 | |
| Office maintenance and office supplies | 391 | 383 | |
| Communication services | 275 | 280 | |
| Security expenses | 189 | 167 | |
| Other administrative expenses | 684 | 605 | |
| Total administrative and other operating expenses | 35,621 | 27,852 |
The total fees charged by the Company's statutory auditor for the statutory audit of the annual consolidated and separate financial statements of the Company for the year ended 31 December 2020 amounted to RR 6.9 million (2019: RR 2.8 million). The total fees charged by the Company's statutory auditor for the year ended 31 December 2020 for other assurance services amounted to RR 0.8 million (2019: RR 3.8 million), for tax advisory services amounted to RR 3.4 million (2019: RR 2.3 million) and for other non-assurance services amounted to RR 0.1 million (2019: 2.2 million).
Included in staff costs are statutory social contributions to the non-budget funds and share-based remuneration:
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Statutory social contribution to the non-budget funds | 4,223 | 3,398 |
| Total | 4,223 | 3,398 |
| Share-based remuneration | ||
| - Management long-term incentive programme | 1,092 | 469 |
| - Key employees retention plan | 372 | - |
| Total | 1,464 | 469 |
The average number of employees employed by the Group during the reporting year, including those who are working under civil contracts, was 25,970 (2019: 26,780).
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Subrogation fee | 250 | 218 |
| Reimbursement fee | 190 | 194 |
| Other | 1,005 | 310 |
| Total other operating income | 1,445 | 722 |
Income tax expense comprises the following:
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Current tax | 10,612 | 13,844 |
| Deferred tax | 1,424 | (4,431) |
| Total income tax expense | 12,036 | 9,413 |
The income tax rate applicable to the majority of the Group's income is 20% (2019: 20%). The operations of the Group are subject to multiple tax jurisdictions. The income tax rate applicable to the Russian subsidiaries of the Company is 20%. The income tax rate applicable to the Company registered in Cyprus is 12.5% (2019: 12.5%).
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Profit before tax | 56,249 | 45,536 |
| Theoretical tax expense at statutory rate of 20% (2019: 20%) | 11,250 | 9,107 |
| Tax effect of items, which are not deductible or assessable for taxation purposes: | ||
| - Non-deductible expenses | 418 | 272 |
| - Other expenses including dividend tax | 709 | 38 |
| Unrecognised tax losses | 109 | 226 |
| Effects of different tax rates: | ||
| - Income on government and corporate securities taxed at different rates | (448) | (214) |
| - Results of companies of the Group taxed at different statutory rates | (2) | (16) |
| Income tax expenses for the year | 12,036 | 9,413 |
tween the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. As all of the Group's temporary differences arise in Russia, the tax effect of the movements in these temporary differences is detailed below and is recorded at the rate of 20% (2019: 20%).
In the context of the Group's current structure and Russian tax legislation, tax losses and current tax assets of different group companies may not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss.
Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity and the same taxation authority.
The tax effect of the movements in temporary differences for the year ended 31 December 2020 is detailed below.
| In millions of RR | 31 December 2019 |
(Charged)/credit ed to profit or loss |
Credited to OCI |
31 Decem ber 2020 |
|---|---|---|---|---|
| Tax effect of deductible and taxable temporary differences |
||||
| Loans and advances to customers | 3,515 | 35 | - | 3,550 |
| Tangible fixed assets | (604) | 98 | - | (506) |
| Right-of-use assets | (322) | 136 | - | (186) |
| Intangible assets | (271) | 26 | - | (245) |
| Revaluation of debt investments at FVOCI | (1,019) | (1,117) | 663 | (1,473) |
| Revaluation of debt investments at FVTPL | - | (34) | - | (34) |
| Accrued expenses and other temporary differences | (187) | 564 | - | 377 |
| Lease liabilities | 339 | (108) | - | 231 |
| Customer accounts | (44) | (9) | - | (53) |
| Debt securities in issue | (62) | 4 | - | (58) |
| Financial derivatives | 40 | (1,031) | - | (991) |
| Insurance provisions | (10) | 12 | - | 2 |
| Net deferred tax assets | 1,375 | (1,424) | 663 | 614 |
The tax effect of the movements in temporary differences for the year ended 31 December 2019 is detailed below.
| 31 Decem | 1 January 2019 (IFRS |
Credited/ (charged) to profit or |
Charged to | 31 December | |
|---|---|---|---|---|---|
| In millions of RR | ber 2018 | 16 adoption) | loss | OCI | 2019 |
| Tax effect of deductible and taxable temporary differences |
|||||
| Loans and advances to customers | 696 | - | 2,819 | - | 3,515 |
| Tangible fixed assets | (601) | - | (3) | - | (604) |
| Right-of-use assets | - | (334) | 12 | - | (322) |
| Intangible assets | (285) | - | 14 | - | (271) |
| Revaluation of debt investment at FVOCI | (487) | - | 702 | (1,234) | (1,019) |
| Revaluation of debt investment at FVTPL | 1 | - | (1) | - | - |
| Accrued expenses and other temporary differences |
(773) | - | 586 | - | (187) |
| Lease liabilities | - | 333 | 6 | - | 339 |
| Customer accounts | (21) | - | (23) | - | (44) |
| Debt securities in issue | (40) | - | (22) | - | (62) |
| Financial derivatives | (324) | - | 364 | - | 40 |
| Insurance provisions | 13 | - | (23) | - | (10) |
| Net deferred tax (liabilities)/assets | (1,821) | (1) | 4,431 | (1,234) | 1,375 |
The movements in dividends during the year ended 31 December 2020 and 2019 are as follows:
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Dividends payable at 1 January | 582 | 760 |
| Dividends declared | 11,563 | 5,856 |
| Dividends paid | (11,853) | (5,601) |
| Foreign exchange differences and other movements | 364 | (433) |
| Dividends payable at 31 December | 656 | 582 |
| Dividends per share declared (in USD) | 0.80 | 0.49 |
Dividends declared in the tables above represent dividends declared by the Board of directors are reduced by RR 74 million for the year ended 31 December 2020 due to dividends on GDRs acquired by the Company from the market not for the immediate purposes of the existing MLTIP (2019: RR 25 million).
On 11 November 2020 the Board of directors declared an interim dividend in line with the current dividend policy of USD 0.25 (RR 19.10) per share/per GDR with a total amount allocated for dividend payment of around USD 49.8 million (RR 3,807 million). Declared dividends were paid in USD on 30 November 2020.
On 5 August 2020 the Board of directors declared an interim dividend in line with the current dividend policy of USD 0.20 (RR 14.68) per share/per GDR with a total amount allocated for dividend payment of around USD 39.9 million (RR 2,925 million). Declared dividends were paid in USD on 24 August 2020.
On 11 May 2020 the Board of directors declared an interim dividend in line with the current dividend policy of USD 0.14 (RR 10.34) per share/per GDR with a total amount allocated for dividend payment of around USD 28 million (RR 2,061 million). Declared dividends were paid in USD on 1 and 2 June 2020.
On 10 March 2020 the Board of directors declared an interim dividend of USD 0.21 (RR 14.18) per share/per GDR with a total amount allocated for dividend payment of around USD 41.9 million (RR 2,826 million). Declared dividends were paid in USD on 30 March and 1 April 2020.
On 13 May 2019 the Board of directors declared an interim dividend of USD 0.17 (RR 11.09) per share/per GDR amounting to USD 31.05 million (RR 2,026 million). Declared dividends were paid in USD on 28 and 30 May 2019.
On 11 March 2019 the Board of directors declared an interim dividend of USD 0.32 (RR 21.11) per share/per GDR amounting to USD 58.4 million (RR 3,855 million). Declared dividends were paid in USD on 25 and 27 March 2019.
Dividends were declared and paid in USD throughout the years ended 31 December 2020 and 2019. Dividends payable at 31 December 2020 related to treasury shares acquired under MLTIP amounting to RR 656 million are included in other non-financial liabilities (31 December 2019: RR 582 million).
The table below sets out an analysis of the Group's debt and the movements in the Group's debt for each of the periods presented. The debt items are those that are reported as financing in the consolidated statement of cash flows.
| Debt securities | Perpetual subor | |||
|---|---|---|---|---|
| In millions of RR | in issue | dinated bonds Lease liabilities | Total | |
| At 31 December 2018 | 9,605 | 20,644 | - | 30,249 |
| Adoption of IFRS 16 | - | - | 1,665 | 1,665 |
| Cash flows from repayments | (6,583) | - | (1,087) | (7,670) |
| Cash flows from proceeds | 23,254 | 46 | 23,300 | |
| Foreign exchange adjustments | (432) | (2,267) | - | (2,699) |
| Other non-cash movements | 234 | 64 | 1,116 | 1,414 |
| At 31 December 2019 | 26,078 | 18,487 | 1,694 | 46,259 |
| Cash flows from repayments | (2,894) | (1,937) | (758) | (5,589) |
| Cash flows from proceeds | 331 | 710 | - | 1,041 |
| Foreign exchange adjustments | 459 | 3,609 | - | 4,068 |
| Other non-cash movements | (64) | (114) | 404 | 226 |
| At 31 December 2020 | 23,910 | 20,755 | 1,340 | 46,005 |
The risk management function within the Group is carried out with respect to financial risks, operational risks and legal risks by the management of the Bank and Insurance Company. Financial risk comprises market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The primary function of financial risk management is to establish risk limits and to ensure that any exposure to risk stays within these limits. The operational and legal risk management functions are intended to ensure the proper functioning of internal policies and procedures in order to minimize operational and legal risks.
Credit risk. The Group exposes itself to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to meet an obligation. Exposure to credit risk arises as a result of the Group's lending and other transactions with counterparties giving rise to financial assets. The Group grants retail loans and SME loans to customers across all regions of Russia, therefore its credit risk is broadly diversified.
The management of the Group takes special measures to mitigate growing credit risk such as decreasing of credit limits for unreliable clients, diversifying of modes of work with overdue borrowers, toughening of scoring for the new borrowers etc., giving rise to financial assets and off-balance sheet credit-related commitments.
The Group's maximum exposure to credit risk is reflected in the carrying amounts of financial assets in the consolidated statement of financial position. For financial guarantees issued, commitments to extend credit, undrawn credit lines, the maximum exposure to credit risk is the amount of the commitment (Note 31).
The Bank created a credit committee, which establishes general principles for lending to individual borrowers. According to these principles, the minimum requirements for potential customers are listed below:
For cash loans, minimum requirements are listed below:
For POS loans minimum requirements are listed below:
For secured loans minimum requirements are listed below:
For car loans minimum requirements are listed below:
For loans to SME minimum requirements are listed below:
• Credit for individual entrepreneurs for any purpose: loan volumes up to RR 2,000 thousand and loan term to 36 months; • Credit for individual entrepreneurs secured by real estate: loan volumes up to RR 15 million and loan term to 15 years. The
Management of the Group manages the credit risk on unused limits on credit cards in the following way:
When a customer experiences serious difficulties with his/her current debt servicing, he/she may be offered loan restructuring. In this case the Bank stops accrual of interest, commissions and fines and the debt amount is restructured according to a fixed instalment payment plan with not more than 36 equal monthly payments. Another way of working with overdue loans is initiation of the state court process. This collection option statistically gives greater recovery than the sale of credit-impaired loans. Defaulted clients that could be subject to the court process are chosen by the Bank's Collection Department considering the following criteria:
When loans become unrecoverable or not economically viable to pursue further collection efforts, the Collection Department may decide to sell these loans to a debt collection agency. The Collection Department considers the following criteria for credit-impaired loans qualifying for sale to external debt collection agencies:
a) loans remain unpaid after all collection procedures were performed (no payment during last 4-6 months);
e) it is determined that it is not cost effective to continue collection efforts.
Credit risk grading system. For measuring credit risk and grading financial instruments except for loans and advances to customers by the level of credit risk, the Group applies risk grades estimated by external international rating agencies in case these financial instruments have risk grades estimated by external international rating agencies (using Fitch ratings and in case of their absence - Moody's or Standard & Poor's ratings adjusting them to Fitch's categories using a reconciliation table):
| Master scale credit risk grade | Corresponding ratings of external international rating agency (Fitch) |
|---|---|
| Excellent | AAA, AA+ to AA-, A+ to A |
| Good | BBB+ to BBB-, BB+ |
| Monitor | BB to B+ |
| Sub-standard | B, B |
| Doubtful | CCC+ to CC |
| Default | C, D |
Each master scale credit risk grade is assigned a specific degree of creditworthiness:
For measuring credit risk and grading loans and advances to customers, credit related commitments and those financial instruments which do not have risk grades estimated by external international rating agencies, the Group applies risk grades and the corresponding range of probabilities of default (PD):
| Master scale credit risk grade | Corresponding interval |
|---|---|
| For credit cards: non-overdue with PD < 5%; for other types of loans: non-overdue for the last 12 months with PD < 5% or with early |
|
| Excellent | repayments |
| Good | all other non-overdue loans |
| Monitor | 1-30 days overdue for all types of loans or without first due date for credit card loans |
| Sub-standard | 31-90 days overdue or restructured loans 0-90 days overdue |
| NPL | 90+ days overdue |
The condition of early repayments is satisfied, as described in the table above, if cumulative amount of early repayments exceed 5% of the gross carrying amount at the date of recognition of the loan.
Each master scale credit risk grade is assigned a specific degree of creditworthiness:
• Sub-standard – low credit quality with a substantial credit risk, includes restructured loans that are less than 90 days
• NPL – non-performing loans, credit-impaired loans more than 90 days overdue.
The rating models are regularly reviewed by the Credit Risk Department, backtested on actual default data and updated if necessary. Despite the method used, the Group regularly validates the accuracy of ratings estimates and appraises the predictive power of the models.
Expected credit loss (ECL) measurement – definitions and description of estimation techniques. ECL is a probability-weighted estimate of the present value of future cash shortfalls (i.e., the weighted average of credit losses, with the respective risks of default occurring in a given time period used as weights). ECL measurement is based on the following components used by the Group:
Default occurs when a financial asset is 90 days past due or less than 90 days overdue but with the final statement issued, i.e. the limit is closed, the balance is fixed, interest and commissions are no longer accrued.
Probability of Default (PD) – an estimate of the likelihood of default to occur over a given time period.
Exposure at Default (EAD) – an estimate of exposure at a future default date, taking into account expected changes in exposure after the reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities.
Loss Given Default (LGD) – an estimate of the loss arising on default as a percentage of the EAD. It is based on the difference between the contractual cash flows due and those that the Group would expect to receive.
Discount Rate – a rate to discount an expected loss to its present value at the reporting date. The discount rate represents the effective interest rate (EIR) for the financial instrument or an approximation thereof.
Lifetime period – the maximum period over which ECL should be measured. For loans with fixed maturity, the lifetime period is equal to 20 months. For revolving facilities, it is based on statistics of the average period between the moment of the loan falling into the Stage 2 until the write-off or attrition. Currently the Group estimates that this period equals to 4 years, though it is subject to periodical reassessment.
Lifetime ECL – losses that result from all possible default events over the remaining lifetime period of the financial instrument.
12-month ECL – the portion of lifetime ECLs that represent the ECLs resulting from default events on a financial instrument that are possible within 12 months after the reporting date that are limited by the remaining contractual life of the financial instrument.
Forward looking information – the information that includes the key macroeconomic variables impacting credit risk and expected credit losses for each portfolio segment. A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward-looking information.
Credit Conversion Factor (CCF) – a coefficient that shows that the probability of conversion of an off-balance sheet amount to exposure on the consolidated statement of financial position within a defined period. It can be calculated for a 12-month or lifetime period. Based on the analysis performed, the Group considers that 12-month and lifetime CCFs are the same.
Purchased or originated credit-impaired (POCI) financial assets - financial assets that are credit-impaired upon initial recognition.
Default and credit-impaired assets – assets for which a default event has occurred.
The default definition stated above should be applied to all types of financial assets of the Group.
An instrument is considered to no longer be in default (i.e. to have "cured") when it no longer meets any of the default criteria.
Significant increase in credit risk (SICR) – the SICR assessment is performed on an individual basis for all financial assets by monitoring the triggers stated below. The criteria used to identify SICR are monitored and reviewed periodically for appropriateness by the Group's Risk Management Department.
The Group considers a financial instrument to have experienced a SICR when one or more of the following quantitative, qualitative or backstop criteria have been met.
For interbank operations, bonds issued by banks and bonds issued by corporates and sovereigns:
If the SICR criteria are no longer met, the instrument will be transferred back to Stage 1.
For non-POCI financial assets, ECLs are generally measured based on the risk of default over one of two different time periods, depending on whether or not the credit risk of the borrower has increased significantly since initial recognition.
This approach can be summarised in a three-stage model for ECL measurement:
ECL for POCI financial assets is always measured on a lifetime basis (Stage 3), so at the reporting date, the Group only recognises the cumulative changes in lifetime expected credit losses.
The Group carries out two separate approaches for ECL measurement:
The Group performs an assessment on a portfolio basis for the retail loans. This approach incorporates aggregating the portfolio into homogeneous segments based on borrower-specific information, such as delinquency, the historical data on losses and other.
Principles of assessment on portfolio basis – to assess the staging of exposure and to measure a loss allowance on a collective basis, the Group combines its exposures into segments on the basis of shared credit risk characteristics, such as that exposures to risk within a group are homogeneous.
Examples of shared characteristics include type of customer, product type, credit risk rating, date of initial recognition, overdue level and repayment statistics.
The different segments reflect differences in PD. The appropriateness of groupings is monitored and reviewed on a periodic basis by the Risk Management Department.
In general, ECL is the multiplication of the following credit risk parameters: EAD, PD and LGD (definitions of the parameters are provided above). The general approach used for ECL calculation is stated below.
where:
– probability of default in moment (can't be higher than 100%); – exposure at default in moment ; – loss given default in moment ; – number of months in the loan's lifetime; – effective interest rate;
– remaining amount of payments.
The ECL is determined by predicting credit risk parameters (EAD, PD and LGD) for each future month during the lifetime period for each exposure or segment. These three components are multiplied together. This effectively calculates an ECL for each future month, which is then discounted back to the reporting date and summed up. The discount rate used in the ECL calculation is the effective interest rate or an approximation thereof.
The EADs are determined based on the expected payment profile, on an individual basis. For revolving products, the EAD is predicted by taking the current withdrawn balance and adding a "credit conversion factor" that accounts for the expected drawdown of the remaining limit of utilised loans by the time of default. These assumptions vary by product type, current limit utilisation and other borrower-specific behavioural characteristics. For other products EAD is equal to current exposure as there is no credit limit to utilize.
Two types of PDs are used for calculating ECLs: 12-month and lifetime PD:
LGD represents the Group's expectation of the extent of loss on a defaulted exposure. For credit card loans, cash loans and POS loans LGDs are calculated on portfolio basis based on recovery statistics of defaulted loans over the period of 24 or 36 months. For secured loans, car loans and loans to SME LGDs are calculated using current market data in relation to the expected recoveries.
ECL measurement for loan commitments. The ECL measurement for these instruments includes the same steps as described above for on-balance sheet exposures and differs with respect to EAD calculation. The EAD is a product of credit conversion factor ("CCF") and amount of the commitment. CCF for undrawn credit limits of credit cards and overdrafts is defined based on statistical analysis of exposures at default.
Principles of assessment based on external ratings – the principles of ECL calculations based on external ratings are the same as for their assessment on a portfolio basis. Credit risk parameters (PD and LGD) are taken from the default and recovery statistics published by international rating agencies (Fitch and in case of their absence - Moody's or Standard & Poor's).
Forward-looking information incorporated in the ECL models. The calculation of ECLs incorporates forward-looking information. The Group has performed historical analysis and identified the key economic variables impacting credit risk and ECLs for each portfolio. The list of variables:
The impact of these economic variables on the ECL has been determined by performing statistical regression analysis in order to understand the way how changes in these variables historically impacted default rates. Three different scenarios are used: base, optimistic and pessimistic. The scenarios are weighted accordingly with base scenario having the 71.1% (2019: 90.8%) weight, optimistic scenario having the 0.1% (2019: 1.3%) weight and pessimistic scenario having the 28.8% (2019: 7.9%) weight.
Backtesting – the Group regularly reviews its methodology and assumptions to reduce any difference between the estimates and the actual loss of credit. Such backtesting is performed on a quarterly basis.
The results of backtesting the ECL measurement methodology are communicated to Group Management and further steps for refining models and assumptions are defined after discussions between authorised persons.
Market risk. The Group takes on exposure to market risks. Market risks of the Group arise from open positions in (a) currency and (b) interest rate, both of which are exposed to general and specific market movements. The priority goal of market risk management is to maintain the risks assumed by the Group at a level determined by the Group in accordance with its own strategic objectives. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.
Currency risk. In respect of currency risk, the management sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily.
The table below summarizes the Group's exposure to foreign currency exchange rate risk at the end of the year:
| 31 December 2020 | At 31 December 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| In millions of RR |
Non-de rivative monetary financial assets |
Non-de rivative monetary financial liabilities |
Deriva tives |
Net posi tion |
Non-de rivative monetary financial assets |
Non-de rivative monetary financial liabilities |
Deriva tives |
Net posi tion |
|
| RR | 674,171 | (545,395) | (24,276) | 104,500 | 491,635 | (390,010) | (12,995) | 88,630 | |
| USD | 116,693 | (140,851) | 29,207 | 5,049 | 46,930 | (62,098) | 13,422 | (1,746) | |
| Euro | 35,019 | (31,909) | (5) | 3,105 | 18,902 | (20,261) | (595) | (1,954) | |
| GBP | 1,405 | (1,414) | - | (9) | 677 | (675) | (32) | (30) | |
| Others | 1,942 | (2,455) | - | (513) | 87 | (788) | - | (701) | |
| Total | 829,230 | (722,024) | 4,926 | 112,132 | 558,231 | (473,832) | (200) | 84,199 |
Derivatives presented above are monetary financial assets or monetary financial liabilities but are presented separately in order to show the Group's gross exposure. Amounts disclosed in respect of derivatives represent the fair value, at the end of the reporting period, of the respective currency that the Group agreed to buy (positive amount) or sell (negative amount) before netting of positions and payments with the counterparty. The amounts by currency are presented gross as stated in Note 35.
The net total represents the fair value of the currency derivatives. The above analysis includes only monetary assets and liabilities.
The following table presents sensitivities of profit or loss and equity to reasonably possible changes in exchange rates applied at the end of the reporting period, with all other variables held constant:
| 31 December 2020 | At 31 December 2019 | ||||
|---|---|---|---|---|---|
| In millions of RR | Impact on profit for the year |
Impact on total equity |
Impact on profit for the year |
Impact on total equity |
|
| USD strengthening by 20% (2019: by 20%) | 794 | 794 | (277) | (277) | |
| USD weakening by 20% (2019: by 20%) | (794) | (794) | 277 | 277 | |
| Euro strengthening by 20% (2019: by 20%) | 488 | 488 | (310) | (310) | |
| Euro weakening by 20% (2019: by 20%) | (488) | (488) | 310 | 310 | |
| GBP strengthening by 20% (2019: by 20%) | (1) | (1) | (5) | (5) | |
| GBP weakening by 20% (2019: by 20%) | 1 | 1 | 5 | 5 |
The exposure was calculated only for monetary balances denominated in currencies other than the functional currency of the respective entity of the Group.
Interest rate risk. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. Management monitors on a daily basis and sets limits on the level of mismatch of interest rate repricing that may be undertaken.
The Group is exposed to prepayment risk through providing fixed rate loans, which give the borrower the right to repay the loans early. The Group's current year profit and equity at the end of the current reporting period would not have been significantly impacted by changes in prepayment rates because such loans are carried at amortised cost and the prepayment right is at or close to the amortised cost of the loans and advances to customers (2019: no material impact).
The table below summarizes the Group's exposure to interest rate risks. The table presents the aggregated amounts of the Group's financial assets and liabilities at carrying amounts, categorized by the earlier of contractual interest repricing or maturity dates:
| Demand and | ||||||
|---|---|---|---|---|---|---|
| less than | From 1 to | From 6 to | From 1 to | More than 3 | ||
| In millions of RR | 1 month | 6 months | 12 months | 3 years | years | Total |
| 31 December 2020 | ||||||
| Total financial assets | 249,316 | 149,031 | 77,988 | 138,248 | 219,682 | 834,265 |
| Total financial liabilities | (379,481) | (165,961) | (75,564) | (90,975) | (10,152) | (722,133) |
| Net interest sensitivity gap at 31 December 2020 |
(130,165) | (16,930) | 2,424 | 47,273 | 209,530 | 112,132 |
| 31 December 2019 | ||||||
| Total financial assets | 136,773 | 153,392 | 66,962 | 121,755 | 80,306 | 559,188 |
| Total financial liabilities | (200,447) | (155,323) | (62,923) | (44,109) | (12,187) | (474,989) |
| Net interest sensitivity gap at 31 December 2019 |
(63,674) | (1,931) | 4,039 | 77,646 | 68,119 | 84,199 |
The Group has no significant risk associated with variable interest rates on loans and advances provided to customers or loans received.
The aim of interest rate risk management is to maintain the risks assumed by the Group within the limits determined by the Group in accordance with its own strategic objectives. The interest rate risk is managed by setting caps and floors in relation to interest rates on financial assets and liabilities depending on their types and maturities and balancing the assets and liabilities which are sensitive to changes in interest rates.
The assessment of the magnitude of interest rate risk is carried out by performing a sensitivity analysis which imply assessment of impact on net interest income of a shift in interest rates by 200 basis points. At 31 December 2020, if interest rates at that date had been 200 basis points lower/higher (2019: 200 basis points), with all other variables held constant, profit for the year would have been RR 2,243 million (2019: RR 1,684 million) lower/higher, equity would have been RR 2,243 million (2019: RR 1,684 million) lower/higher.
The Group monitors interest rates for its financial instruments. The table below summarizes interest rates for the years 2020 and 2019 based on reports reviewed by key management personnel. For securities, the interest rates represent yields to maturity based on market quotations at the reporting date:
| 31 December 2020 | At 31 December 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| In % p.a. | RR | USD EURO | GPB Other | RR | USD EURO | GPB Other | ||||
| Assets | ||||||||||
| Cash and cash equivalents | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Loans and advances to customers | 33.5 | - | 1.7 | - | - | 37.2 | - | - | - | - |
| Due from banks | 3.2 | - | - | - | - | 5.3 | 1.6 | - | - | - |
| Investments in securities | 6.9 | 2.6 | 1.3 | - | - | 7.9 | 4.3 | 2.4 | - | - |
| Repurchase receivables | 6.9 | 3.3 | - | - | - | 6.5 | 4.3 | 3.1 | - | - |
| Brokerage receivables | 15.5 | 15.4 | 13.5 | - | - | 15.4 | 14.7 | 13.7 | - | - |
| Liabilities | ||||||||||
| Due to banks | 4.4 | 0.0 | - | - | - | 6.2 | 0.0 | - | - | - |
| Customer accounts | 3.3 | 0.5 | 0.1 | 0.1 | 0.0 | 5.1 | 1 | 0.1 | 0.1 | 0.0 |
| Debt securities in issue | 8.6 | - | - | - | - | 9.0 | 3.8 | 1.2 | - | - |
| Brokerage payables | 15.6 | 15.6 | - | - | - | 15.8 | 15.3 | - | - | - |
| Subordinated debt | - | 10.0 | - | - | - | - | 10.0 | - | - | - |
The sign "-" in the table above means that the Group does not have the respective assets or liabilities in the corresponding currency.
Geographical risk concentrations. The geographical concentration of the Group's financial assets and liabilities at 31 December 2020 is set out below:
| Other | |||||
|---|---|---|---|---|---|
| In millions of RR | Russia | OECD | Non-OECD | Listed | Total |
| Financial assets | |||||
| Cash and cash equivalents | 128,536 | 7,815 | - | - | 136,351 |
| Mandatory cash balances with the CBRF | 5,379 | - | - | - | 5,379 |
| Due from other banks | 1,887 | - | - | - | 1,887 |
| Loans and advances to customers | 374,629 | - | 1,892 | - | 376,521 |
| Financial derivatives | 5,035 | - | - | 5,035 | |
| Investments in securities | 231,872 | - | 6,582 | - | 238,454 |
| Repurchase receivables | 29 | - | - | - | 29 |
| Brokerage receivables | 24,064 | - | - | - | 24,064 |
| Guarantee deposits with payment systems | 672 | 14,803 | - | - | 15,475 |
| Other financial assets | 30,912 | - | 158 | - | 31,070 |
| Total financial assets | 803,015 | 22,618 | 8,632 | - | 834,265 |
| Financial liabilities | |||||
| Due to banks | 4,819 | - | - | - | 4,819 |
| Customer accounts | 626,837 | - | - | - | 626,837 |
| Debt securities in issue | - | - | - | 23,910 | 23,910 |
| Financial derivatives | 109 | - | - | - | 109 |
| Brokerage payables | 9,206 | - | - | - | 9,206 |
| Subordinated debt | - | - | - | 20,755 | 20,755 |
| Insurance provisions | 2,160 | - | - | - | 2,160 |
| Other financial liabilities | 34,291 | - | 46 | - | 34,337 |
| Total financial liabilities | 677,422 | - | 46 | 44,665 | 722,133 |
| Credit related commitments (Note 31) | 204,868 | - | - | 204,868 |
The geographical concentration of the Group's financial assets and liabilities at 31 December 2019 is set out below:
| In millions of RR | Russia | OECD | Other Non-OECD |
Listed | Total |
|---|---|---|---|---|---|
| Financial assets | |||||
| Cash and cash equivalents | 52,661 | 2,903 | - | - | 55,564 |
| Mandatory cash balances with the CBRF | 3,448 | - | - | - | 3,448 |
| Due from other banks | 2,084 | - | - | - | 2,084 |
| Loans and advances to customers | 329,175 | - | - | - | 329,175 |
| Financial derivatives | 390 | - | - | 390 | |
| Investments in securities | 134,765 | 413 | - | - | 135,178 |
| Brokerage receivables | 2,799 | - | - | - | 2,799 |
| Guarantee deposits with payment systems | 501 | 8,376 | - | - | 8,877 |
| Other financial assets | 21,673 | - | - | - | 21,673 |
| Total financial assets | 547,496 | 11,692 | - | - | 559,188 |
| Financial liabilities | |||||
| Due to banks | 23 | - | - | 23 | |
| Customer accounts | 411,504 | - | 110 | - | 411,614 |
| Debt securities in issue | 2,460 | - | - | 23,618 | 26,078 |
| Financial derivatives | 590 | - | - | - | 590 |
| Brokerage payables | 1,207 | - | - | - | 1,207 |
| Subordinated debt | - | - | - | 18,487 | 18,487 |
| Insurance provisions | 2,342 | 2,342 | |||
| Other financial liabilities | 14,589 | 59 | - | - | 14,648 |
| Total financial liabilities | 432,715 | 59 | 110 | 42,105 | 474,989 |
| Credit related commitments (Note 31) | 168,059 | - | - | 168,059 |
Assets, liabilities and credit related commitments have been based on the country in which the counterparty is located. Cash on hand has been allocated based on the country in which they are physically held. Balances with Russian counterparties actually outstanding to/from offshore companies of these Russian counterparties, are allocated to the caption "Russia".
Other risk concentrations. Management monitors and discloses concentrations of credit risk by obtaining reports listing exposures to borrowers with aggregated loan balances in excess of 10% of net assets. The Group did not have any such significant risk concentrations at 31 December 2020 and 2019.
Liquidity risk. Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources from unused limits on issued credit cards, retail deposits from customers, current accounts and due to banks. The Group does not maintain cash resources to meet all of these needs as experience shows that only a certain level of calls will take place and it can be predicted with a high level of certainty. Liquidity risk is managed by the Financial Committee of the Bank. The Group seeks to maintain a stable funding base primarily consisting of amounts due to institutional investors, corporate and retail customer deposits and debt securities. The Group keeps all available cash in diversified portfolios of liquid instruments such as a correspondent account with CBRF and overnight placements in high-rated commercial banks, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements. The available cash at all times exceeds all accrued financing costs falling due within half a year plus two months of regular operating costs.
The liquidity management of the Group requires consideration of the level of liquid assets necessary to settle obligations as they fall due; maintaining access to a range of funding sources; maintaining funding contingency plans; and monitoring liquidity ratios against regulatory requirements.
The liquidity analysis takes into account the covenant requirements and ability of the Group to waive any potential breaches within the grace period. The Bank calculates liquidity ratios on a daily basis in accordance with the requirements of the CBRF. The Bank has complied with these ratios throughout 2020 and 2019. The CFO receives information about the liquidity profile of the financial assets and liabilities. This includes daily, weekly, monthly and quarterly updates on the level of credit card transactions and repayments, statistics on credit card issuance and credit card limit utilisation, inflow and outflow of retail deposits, changes in the investment securities portfolio, level of expected outflows such as operating costs and financing activities. The CFO then ensures the availability of an adequate portfolio of short-term liquid assets, made up of an amount on the correspondent account with the CBRF and overnight deposits with banks, to ensure that sufficient liquidity is maintained within the Group as a whole. Regular liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions and credit card portfolio behaviour is reviewed by the CFO.
The table below shows liabilities at 31 December 2020 by their remaining contractual maturity. The amounts of liabilities disclosed in the maturity table are the contractual undiscounted cash flows and gross loan commitments. Such undiscounted cash flows differ from the amount included in the consolidated statement of financial position because the consolidated statement of financial position amount is based on discounted cash flows. When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at the end of the reporting period.
The maturity analysis of financial liabilities at 31 December 2020 is as follows:
| In millions of RR | Demand and less than 1 month |
From 1 to 3 months |
From 3 to 6 months |
From 6 to 12 months |
More than 1 year |
Total |
|---|---|---|---|---|---|---|
| Liabilities | ||||||
| Due to banks | - | - | - | - | 4,819 | 4,819 |
| Customer accounts | 335,710 | 84,412 | 80,149 | 80,306 | 49,184 | 629,761 |
| Debt securities in issue | 173 | 316 | 515 | 1,930 | 23,245 | 26,179 |
| Financial derivatives | 51 | 198 | 251 | 501 | 25,842 | 26,843 |
| Brokerage payables | 9,206 | - | - | - | - | 9,206 |
| Subordinated debt | 168 | 322 | 496 | 998 | 22,126 | 24,110 |
| Insurance provisions | 345 | 207 | 953 | 358 | 297 | 2,160 |
| Other financial liabilities | 34,337 | - | - | - | - | 34,337 |
| Lease liabilities | 64 | 102 | 166 | 330 | 686 | 1,348 |
| Credit related commitments (Note 31) |
204,868 | - | - | - | - | 204,868 |
| Total potential future payments for financial obligations |
584,922 | 85,557 | 82,530 | 84,423 | 126,199 | 963,631 |
The maturity analysis of financial liabilities at 31 December 2019 is as follows:
| Demand | ||||||
|---|---|---|---|---|---|---|
| In millions of RR | and less than 1 month |
From 1 to 3 months |
From 3 to 6 months |
From 6 to 12 months |
More than 1 year |
Total |
| Liabilities | ||||||
| Due to banks | 23 | - | - | - | - | 23 |
| Customer accounts | 189,176 | 84,108 | 70,530 | 60,627 | 11,605 | 416,046 |
| Debt securities in issue | 168 | 338 | 487 | 2,082 | 23,795 | 26,870 |
| Financial derivatives | - | 199 | 203 | 399 | 19,833 | 20,634 |
| Brokerage payables | 1,207 | - | - | - | - | 1,207 |
| Subordinated debt | 149 | 291 | 440 | 891 | 18,541 | 20,312 |
| Insurance provisions | 463 | 917 | 438 | 296 | 228 | 2,342 |
| Other financial liabilities | 14,648 | - | - | - | - | 14,648 |
| Lease liabilities | 11 | 109 | 111 | 209 | 1,254 | 1,694 |
| Credit related commitments (Note 31) |
168,059 | - | - | - | - | 168,059 |
| Total potential future payments for financial obligations |
373,904 | 85,962 | 72,209 | 64,504 | 75,256 | 671,835 |
Financial derivatives receivable and payable are disclosed in the Note 35. The tables above present only the gross payables.
Insurance provisions are disclosed in the table above based on their expected maturities.
Customer accounts are classified in the above analysis based on contractual maturities. However, in accordance with the Russian Civil Code, individuals have a right to withdraw their deposits prior to maturity if they forfeit their right to accrued interest.
The Group takes on exposure to liquidity risk, which is the risk of cash surplus in case of assets-liabilities cash-flow profile mismatch. Exposure to liquidity risk arises as a result of the Group's borrowing and operational activities that assume cash payment obligations. The Group uses daily, short-term and long-term reporting, stress-testing and forecasting practices to monitor and prevent potential liquidity problems. The Group is actively increasing the number of counterparties for interbank lending, looks for new wholesale markets, improves and creates additional debit and credit products to have more instruments over cash-flow management. The recent economic situation has resulted in increased liquidity risk.
In response the management of the Group preserves cash safety cushions for possible cash outflows and has planned Group's liquidity position for the next year to ensure it can cover all upcoming payment obligations.
The expected maturity analysis of financial instruments at carrying amounts as monitored by management at 31 December 2020 is presented in the table below.
| Demand and less |
|||||||
|---|---|---|---|---|---|---|---|
| In millions of RR | than 1 month |
From 1 to 3 months |
From 3 to 6 months |
From 6 to 12 months |
From 1 to 5 years |
More than 5 years |
Total |
| Assets | |||||||
| Cash and cash equivalents | 136,351 | - | - | - | - | - | 136,351 |
| Mandatory cash balances with the CBRF |
2,756 | 546 | 454 | 531 | 1,092 | - | 5,379 |
| Due from other banks | - | - | - | - | 1,887 | - | 1,887 |
| Loans and advances to customers |
52,623 | 67,843 | 69,011 | 72,407 | 98,002 | 16,635 | 376,521 |
| Financial derivatives | 82 | - | - | - | 4,953 | - | 5,035 |
| Investments in securities | 238,454 | - | - | - | - | - | 238,454 |
| Repurchase receivables | 29 | - | - | - | - | - | 29 |
| Brokerage receivables | 24,064 | 24,064 | |||||
| Guarantee deposits with payment systems |
2,163 | 2,788 | 2,836 | 2,976 | 4,028 | 684 | 15,475 |
| Other financial assets | 30,820 | 44 | 21 | 12 | 173 | - | 31,070 |
| Total financial assets | 487,342 | 71,221 | 72,322 | 75,926 | 110,135 | 17,319 | 834,265 |
| Liabilities | |||||||
| Due to banks | - | - | - | - | 4,819 | - | 4,819 |
| Customer accounts | 321,104 | 63,601 | 52,958 | 61,899 | 127,275 | - | 626,837 |
| Debt securities in issue | - | 870 | 944 | 981 | 11,281 | 9,834 | 23,910 |
| Financial derivatives | 76 | - | - | - | 33 | - | 109 |
| Brokerage payables | 9,206 | - | - | - | - | - | 9,206 |
| Subordinated debt | - | 481 | 481 | 961 | 18,832 | - | 20,755 |
| Insurance provisions | 345 | 207 | 953 | 358 | 297 | - | 2,160 |
| Other financial liabilities | 34,337 | - | - | - | - | - | 34,337 |
| Total financial liabilities | 365,068 | 65,159 | 55,336 | 64,199 | 162,537 | 9,834 | 722,133 |
| Net liquidity gap at 31 December 2020 |
122,274 | 6,062 | 16,986 | 11,727 | (52,402) | 7,485 | 112,132 |
| Cumulative liquidity gap at 31 December 2020 |
122,274 | 128,336 | 145,322 | 157,049 | 104,647 | 112,132 | - |
Provision for unearned premiums in the amount of RR 3,907 million is not included in the insurance provisions stated above. Refer to Note 17.
The expected maturity analysis of financial instruments at carrying amounts as monitored by management at 31 December 2019 is presented in the table below.
| In millions of RR | Demand and less than 1 month |
From 1 to 3 months |
From 3 to 6 months |
From 6 to 12 months |
From 1 to 5 years |
More than 5 years |
Total |
|---|---|---|---|---|---|---|---|
| Assets | |||||||
| Cash and cash equivalents | 55,564 | - | - | - | - | - | 55,564 |
| Mandatory cash balances with the CBRF |
1,508 | 510 | 346 | 513 | 571 | - | 3,448 |
| Due from other banks | - | - | 46 | - | 2,038 | - | 2,084 |
| Loans and advances to custom ers |
48,391 | 63,640 | 63,466 | 61,884 | 79,105 | 12,689 | 329,175 |
| Financial derivatives | - | - | - | - | 390 | - | 390 |
| Investments in securities | 135,178 | - | - | - | - | - | 135,178 |
| Brokerage receivables | 2,799 | 2,799 | |||||
| Guarantee deposits with pay ment systems |
1,304 | 1,717 | 1,712 | 1,669 | 2,133 | 342 | 8,877 |
| Other financial assets | 21,569 | 63 | 20 | 10 | 11 | - | 21,673 |
| Total financial assets | 266,313 | 65,930 | 65,590 | 64,076 | 84,248 | 13,031 | 559,188 |
| Liabilities | |||||||
| Due to banks | 23 | - | - | - | - | - | 23 |
| Customer accounts | 180,017 | 60,879 | 41,259 | 61,298 | 68,161 | - | 411,614 |
| Debt securities in issue | - | 411 | 599 | 1,008 | 12,463 | 11,597 | 26,078 |
| Financial derivatives | - | - | - | - | 590 | - | 590 |
| Brokerage payables | 1,207 | 1,207 | |||||
| Subordinated debt | - | 158 | - | - | 18,329 | - | 18,487 |
| Insurance provisions | 463 | 917 | 438 | 296 | 228 | - | 2,342 |
| Other financial liabilities | 14,648 | - | - | - | - | - | 14,648 |
| Total financial liabilities | 196,358 | 62,365 | 42,296 | 62,602 | 99,771 | 11,597 | 474,989 |
| Net liquidity gap at 31 December 2019 |
69,955 | 3,565 | 23,294 | 1,474 | (15,523) | 1,434 | 84,199 |
| Cumulative liquidity gap at 31 December 2019 |
69,955 | 73,520 | 96,814 | 98,288 | 82,765 | 84,199 | - |
Provision for unearned premiums in the amount of RR 1,760 million is not included in the insurance provisions stated above. Refer to Note 17.
As at the 31 December 2020 all the investment in debt securities are classified within demand and less than one month as they are easy repoable in CBR or on the open market securities and can provide immediate liquidity to the Group. All current accounts of individuals are classified within demand and less than one month (2019: the same).
The allocation of deposits of individuals considers the statistics of autoprolongations and top-ups of longer deposits with the funds from shorter deposits after their expiration in case when the customers have more than one active deposit. The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks ever to be completely matched since business transacted is often of an uncertain term and of different types.
An unmatched position potentially enhances profitability but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Group and its exposure to changes in interest and exchange rates.
Management believes that in spite of a substantial portion of customer accounts being on demand, diversification of these deposits by number and type of depositors, and the past experience of the Group would indicate that these customer accounts provide a long-term and stable source of funding for the Group.
Insurance risk. Insurance risk is the risk associated with insurance contracts, consisting in the possibility of the occurrence of an insurance event and the uncertainty of the amount and time of occurrence of the loss associated with it.
The insurance risk management process covers all stages, from the stage of development of insurance rates to the settlement of losses.
The main steps in the insurance risk management process include:
Tariff policy. The process of underwriting and regulation of the tariff policy includes the formation of tariffs for certain areas of activity based on the analysis of results for previous periods, existing market conditions and the Insurance Company's strategy.
The insurance tariff is set on the basis of the analysis of the expected loss ratio based on Group's insurance portfolio and similar products on the market, the commission ratio based on the analysis of product profitability and commission rates for similar products on the market, and the analysis of the average market rate. When developing tariffs, factors such as expected inflation and changes in the legislation of the Russian Federation are also taken into account.
The Insurance Company monitors the correctness of the calculation of the insurance premium under the insurance contract by analyzing, on a regular basis, the deviations of the actual received premiums from the estimated premiums.
Loss settlement process. In accordance with the insurance contract, the policyholder is obliged to notify the insurance company of a loss within a certain period of time. Losses are settled by specialized units, other than selling business units. The insurance claims will be paid only after receiving all the necessary documents confirming the fact of the insured event. Also, if necessary, economic security department and legal department are involved in checking documents for settlement of losses. If at the time of payment of the insurance claims the policyholder had outstanding debt of the insurance premium, the unpaid part is deducted from the amount of compensation.
If there is a third party that caused an insurance loss to the insured client, the Group has a right to pursue third parties responsible for loss for payment of some or all costs related to the claims settlement process of the Group.
Diversification of the insurance portfolio. To reduce insurance risk, the Group also uses the diversification of its insurance portfolio - it insures a large number of small risks, which, in particular, is achieved through the remote provision of insurance services almost throughout the Russian Federation. The company does not operate outside the Russian Federation and is exposed to risks associated with the geographical features of the regions of the Russian Federation.
Sensitivity analysis. The following analyses the possible changes in the key assumptions used in the calculation of insurance liabilities under contracts other than life insurance, provided that the other assumptions are constant. This analysis reflects the impact on gross and net liabilities, profit before tax and equity of the Group.
Effect of changes in the key assumptions as at 31 December 2020:
| In millions of RR except for the number of claims |
Change in assump tions |
Effect on insurance obligations other than life insurance |
Effect on the reinsur ers' share in insurance obligations other than life insurance |
Effect on profit be fore tax |
Effect on equity |
|---|---|---|---|---|---|
| The average cost of insurance | |||||
| claims | – 10% | (180) | 1 | 179 | 143 |
| + 10% | 180 | (1) | (179) | (143) | |
| The average number of claims | – 10% | (180) | 1 | 179 | 143 |
| + 10% | 180 | (1) | (179) | (143) |
Effect of changes in the key assumptions as at 31 December 2019:
| In millions of RR except for the number of claims |
Change in assumptions |
Effect on insurance obligations other than life insurance |
Effect on the reinsur ers' share in insurance obligations other than life insurance |
Effect on profit be fore tax |
Effect on equity |
|---|---|---|---|---|---|
| The average cost of insurance | |||||
| claims | – 10% | (193) | 1 | 193 | 154 |
| + 10% | 193 | (1) | (193) | (154) | |
| The average number of claims | – 10% | (193) | 1 | (193) | 154 |
| + 10% | 193 | (1) | 193 | (154) |
The Group's objectives when managing capital are (i) for the Bank to comply with the capital requirements set by the Central Bank of Russian Federation (CBRF), (ii) for the Insurance Company to comply with the capital requirements set by the legislation of the Russian Federation, (iii) for the Group to comply with the financial covenants set by the terms of securities issued; (iv) to safeguard the Group's ability to continue as a going concern.
The Group considers total capital under management to be equity attributable to shareholders of the Company as shown in the consolidated statement of financial position. The amount of capital that the Group managed as of 31 December 2020 was RR 127,016 million (31 December 2019: RR 96,082 million).
Compliance with capital adequacy ratios set by the CBRF is monitored daily and submitted to the CBRF monthly with reports outlining their calculation reviewed and signed by the Bank's Chief Executive Officer and Chief Accountant. Other objectives of capital management are evaluated annually. The amount of regulatory capital of Tinkoff Bank calculated in accordance with the methodology set by CBRF as at 31 December 2020 was RR 121,350 million, and the equity capital adequacy ratio (N1.0) was 13.07% (31 December 2019: RR 99,731 million and 12.12%). Minimum required statutory equity capital adequacy ratio (N1.0) was 8% as at 31 December 2020 (31 December 2019: 8%).
The Group also monitors capital requirements including capital adequacy ratio under the Basel III methodology of the Basel Committee on Banking Supervision: global regulatory framework for more resilient banks and banking systems (hereinafter "Basel III"). The composition of the Group's capital calculated in accordance with the methodology set by Basel Committee with capital adjustments as set out in Basel III is as follows:
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Share capital | 230 | 230 |
| Share premium | 26,998 | 26,998 |
| Treasury shares | (3,238) | (3,164) |
| Share-based payment reserve | 1,548 | 1,039 |
| Retained earnings | 99,540 | 66,880 |
| Revaluation reserve for investments in debt securities | 1,849 | 3,996 |
| Less intangible assets | (7,082) | (5,435) |
| Non-controlling interest | 89 | 103 |
| Common Equity Tier 1 (CET1) | 119,934 | 90,647 |
| Additional Tier 1 | 20,755 | 18,487 |
| Tier 1 capital | 140,689 | 109,134 |
| Total capital | 140,689 | 109,134 |
| Risk weighted assets (RWA) | ||
| Credit risk | 562,918 | 412,741 |
| Operational risk | 199,184 | 152,881 |
| Market risk | 24,707 | 12,170 |
| Total risk weighted assets (RWA) | 786,809 | 577,792 |
| Common equity Tier 1 capital adequacy ratio (CET1/ Total RWA), % | 15.24% | 15.69% |
| Tier 1 capital adequacy ratio (Tier 1 capital / Total RWA), % | 17.88% | 18.89% |
| Total capital adequacy ratio (Total capital / Total RWA), % | 17.88% | 18.89% |
The Group and the Bank have complied with all externally imposed capital requirements throughout the years ended 31 December 2020 and 2019.
The Insurance Company has complied with all capital requirements set by the legislation of the Russian Federation throughout the years ended 31 December 2020 and 2019.
Legal proceedings. From time to time and in the normal course of business, claims against the Group may be received. On the basis of its own estimates and internal professional advice, management is of the opinion that no material unprovided losses will be incurred in respect of claims.
Tax contingencies. Russian tax legislation which was enacted or substantively enacted at the end of the reporting period, is subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management and the formal documentation supporting the tax positions may be challenged tax authorities. Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year when decision about review was made. Under certain circumstances reviews may cover longer periods. The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD), although it has specific features. This legislation provides for the possibility of additional tax assessment for controlled transactions (transactions between related parties and certain transactions between unrelated parties), if such transactions are not on an arm's length.
Tax liabilities arising from controlled transactions are determined based on their actual transaction prices. It is possible, with the evolution of the interpretation of transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.
The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the assumption that these companies are not subject to Russian profits tax, because they do not have a permanent establishment in Russia. The Company is a tax resident of Cyprus only and full beneficial owner of the Bank and Insurance Company. This interpretation of relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be significant to the financial position and/or the overall operations of the Group.
The Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties). The CFC income is subject to a 20% tax rate if the CFC is controlled by a legal entity and a rate of 13% if it is controlled by an individual. As a result, management reassessed the Group's tax positions and recognised current tax expense as well as deferred taxes that arose from the expected taxable manner of recovery of the relevant Group's operations to which the CFC legislation applies to and to the extent that the Group (rather than its owners) is obliged to settle such taxes.
In third quarter 2020 amendments to Russia-Cyprus double tax treaty were made. The Group is currently assessing the impact of those amendments.
As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of such uncertain areas that reduce the overall tax rate of the Group. While management currently estimates that the tax positions and interpretations that it has taken can probably be sustained, there is a possible risk that outflow of resources will be required should such tax positions and interpretations be challenged by the tax authorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group. As at 31 December 2020 and 2019 no material tax risks were identified.
Future lease payments related to leases where leased asset is of low value The future cash outflows to which the Group is exposed and which are not reflected in the lease liabilities amounted to RR 233 million at 31 December 2020 and relate primarily to leases of assets which are of low value (31 December 2019: RR 268 million).
Compliance with covenants. The Group is subject to certain covenants related primarily to its subordinated perpetual debt. Non-compliance with such covenants may result in negative consequences for the Group. Management believes that the Group was in compliance with all such covenants as at 31 December 2020 and 31 December 2019.
Credit related commitments and performance guarantees issued. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of credit card loans, guarantees. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments, if the unused amounts were to be drawn down. Most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit related commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
Performance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation. Such contracts do not transfer credit risk. The risk under performance guarantee contracts is the possibility that the insured event (i.e. the failure to perform the contractual obligation by another party) occurs. The key risks the Group faces are significant fluctuations in the frequency and severity of payments incurred on such contracts relative to expectations. The Group uses a scoring model to predict levels of such payments. Claims must be made before the contract matures and most claims are settled within short term. This allows the Group to achieve a high degree of certainty about the estimated payments and therefore future cash flows.
Outstanding credit related commitments and performance guarantees are as follows:
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Unused limits on credit card loans | 208,405 | 168,059 |
| Credit loss allowance | (3,537) | (2,242) |
| Total credit related commitments, net of сredit loss allowance | 204,868 | 165,817 |
| Performance guarantees issued | 498 | 660 |
| Provisions | (4) | (3) |
| Total performance guarantees issued, net of provisions | 494 | 657 |
The total outstanding contractual amount of unused limits on contingencies and commitments liability does not necessarily represent future cash requirements, as these financial instruments may expire or terminate without being funded. In accordance with credit card service conditions the Group has a right to refuse the issuance, activation, reissuing or unblocking of a credit card, and is providing a credit card limit at its own discretion and without explaining its reasons.
The following table contains an analysis of credit related commitments by credit quality at 31 December 2020 based on credit risk grades.
| Stage 1 | Stage 2 | Stage 3 | ||
|---|---|---|---|---|
| In millions of RR | (12-months ECL) | (lifetime ECL for SICR) |
(lifetime ECL for credit impaired) |
Total |
| Credit related commitments | ||||
| - Excellent | 180,619 | - | - | 180,619 |
| - Good | 14,905 | 84 | - | 14,989 |
| - Monitor | 12,546 | 251 | - | 12,797 |
| Unrecognised gross amount | 208,070 | 335 | - | 208,405 |
| Credit loss allowance | (3,513) | (24) | - | (3,537) |
| Unrecognised net amount | 204,557 | 311 | - | 204,868 |
The following table contains an analysis of credit related commitments by credit quality at 31 December 2019 based on credit risk grades.
| In millions of RR | Stage 1 (12-months ECL) |
Stage 2 (lifetime ECL for SICR) |
Stage 3 (lifetime ECL for credit impaired) |
Total |
|---|---|---|---|---|
| Credit related commitments | ||||
| - Excellent | 145,154 | - | - | 145,154 |
| - Good | 12,285 | 84 | - | 12,369 |
| - Monitor | 10,360 | 176 | - | 10,536 |
| Unrecognised gross amount | 167,799 | 260 | - | 168,059 |
| Credit loss allowance | (2,228) | (14) | - | (2,242) |
| Unrecognised net amount | 165,571 | 246 | - | 165,817 |
Also, the Group may decide to increase or decrease a credit card limit using a scoring model, which is based on the client's behaviour model. Therefore, the fair value of the contractual amount of revocable unused limits on contingencies and commitments is close to zero. Credit related commitments are denominated in RR.
| 31 December 2020 31 December 2019 | ||
|---|---|---|
| Stage 1 | Stage 1 | |
| In millions of RR | (12-months ECL) | (12-months ECL) |
| Performance guarantees issued | ||
| - Excellent | 310 | 415 |
| - Good | 188 | 245 |
| Unrecognised gross amount | 498 | 660 |
| Provisions | (4) | (3) |
| Unrecognised net amount | 494 | 657 |
Mandatory cash balances with the CBRF of RR 5,379 million as at 31 December 2020 (31 December 2019: RR 3,448 million) represent mandatory reserve deposits which are not available to finance the Bank's day to day operations.
Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 December 2020:
| Gross amounts before off setting |
Gross amounts set off in the consolidated statement of financial position |
Net amount after offset ting in the consolidated statement of financial position |
Amounts subject to master netting and similar arrange ments not set off in the consolidated statement of financial position |
Net amount of expo sure |
||
|---|---|---|---|---|---|---|
| In millions of RR | Financial instruments |
Cash collat eral |
||||
| ASSETS | ||||||
| Reverse repurchase agreements | 33,210 | - | 33,210 | 34,527 | - (1,317) | |
| Brokerage receivables | 24,064 | - | 24,064 | 24,113 | - | (49) |
| Financial derivatives | 4,920 | - | 4,920 | - | 4,795 | 125 |
| Total assets subject to offset ting, master netting and similar arrangement |
62,194 | - | 62,194 | 58,640 | 4,795 (1,241) | |
| LIABILITIES | ||||||
| Due to banks | 4,819 | - | 4,819 | 4,949 | - | (130) |
| Brokerage payables | 9,206 | - | 9,206 | 9,696 | - | (490) |
| Total liabilities subject to offset ting, master netting and similar arrangement |
14,025 | - | 14,025 | 14,645 | - | (620) |
Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 December 2019:
| Gross amounts |
Gross amounts set off in the con solidated |
Net amount after offset ting in the consolidated |
Amounts subject to master netting and similar arrange ments not set off in the consolidated statement of financial position |
Net amount of expo sure |
||
|---|---|---|---|---|---|---|
| In millions of RR | before offset ting |
statement of financial position |
statement of financial position |
Financial | instruments Cash collateral | |
| ASSETS | ||||||
| Reverse repurchase agreements | 18,449 | - | 18,449 | 20,130 | - (1,681) | |
| Brokerage receivables | 2,799 | - | 2,799 | 2,239 | - | 560 |
| Due from banks | 204 | - | 204 | 227 | - | (23) |
| Financial derivatives | 20 | - | 20 | - | 23 | (3) |
| Total assets subject to offsetting, master netting and similar arrange ment |
21,472 | - | 21,472 | 22,596 | 23 (1,147) | |
| LIABILITIES | ||||||
| Due to banks | 23 | - | 23 | 20 | - | 3 |
| Brokerage payables | 1,207 | - | 1,207 | 1,282 | - | (75) |
| Financial derivatives | 227 | - | 227 | - | 204 | 23 |
| Total liabilities subject to offset ting, master netting and similar arrangement |
1,457 | - | 1,457 | 1,302 | 204 | (49) |
As at 31 December 2020 the Group has master netting arrangements with counterparty banks, which are enforceable in case of default. The Group also made margin deposits with clearing house counterparty as collateral for its outstanding derivative positions. The counterparty may set off the Group's liabilities with the margin deposit in case of default (2019: same). The disclosure does not apply to loans and advances to customers and related customer deposits.
The Group transferred financial assets in transactions that did not qualify for derecognition in the current periods.
The table below shows the amount of operations under sale and repurchase agreements which the Group enters into in the normal course of business:
| 31 December 2020 | 31 December 2019 | |||||
|---|---|---|---|---|---|---|
| In millions of RR | Notes | Carrying amount of the assets |
Carrying amount of the associat ed liabilities |
Carrying amount of the assets |
Carrying amount of the associat ed liabilities |
|
| Debt securities at FVOCI pledged under repur chase agreements |
13 | 29 | 24 | - | - | |
| Total | 29 | 24 | - | - |
In the normal course of business, the Group makes borrowings on interbank market using different financial instruments as collateral to support its everyday operations in terms of liquidity.
The Group also enters into reverse sale and repurchase agreements. The summary of such operations is provided in the table below:
| 31 December 2020 | 31 December 2019 | ||||
|---|---|---|---|---|---|
| In millions of RR | Notes | Amounts granted under repo agree ments |
Fair value of securities received as collateral |
Amounts granted under repo agree ments |
Fair value of securities received as collateral |
| Cash and cash equivalents | 5 | 33,210 | 34,527 | 18,449 | 20,130 |
| Brokerage receivables | 10 | 24,064 | 24,113 | 2,799 | 2,239 |
| Total | 57,274 | 58,640 | 21,248 | 22,369 |
The following table provides information about each subsidiary that has non-controlling interest:
| In millions of RR | Place of business (and coun try of incor po-ration if different) |
Propor tion of non-con trolling interest |
Proportion of non-con trolling inter est's voting rights held |
Profit or loss attribu-table to non-con trolling interest |
Accumu-lat ed non-con trolling in terest in the subsidiary |
Dividends paid to non-con trolling in terest during the year |
|---|---|---|---|---|---|---|
| Year ended 31 December 2020 | ||||||
| LLC "Cloudpayments" | Russia | 5% | 5% | 4 | 89 | 18 |
| Year ended 31 December 2019 | ||||||
| LLC "Cloudpayments" | Russia | 5% | 5% | 1 | 103 | - |
The summarised financial information of these subsidiaries was as follows:
| In millions of RR | Current assets |
Non-cur rent assets |
Current liabilities |
Non-cur rent liabilities Revenue |
Profit | Total com pre-hensive income |
Cash flows |
|
|---|---|---|---|---|---|---|---|---|
| Year ended 31 Decem ber 2020 |
||||||||
| LLC "Cloudpayments" | 389 | 277 | 105 | - | 1,226 | 606 | 606 | (13) |
| Year ended 31 Decem ber 2019 |
||||||||
| LLC "Cloudpayments" | 329 | 301 | 136 | - | 512 | 91 | 91 | 2 |
The table below sets out fair values, at the end of the reporting period, of currencies receivable or payable under foreign exchange forwards and swap contracts entered into by the Group. The table reflects gross positions before the netting of any counterparty positions (and payments) and covers the contracts with settlement dates after the end of the respective reporting period.
| 31 December 2020 | 31 December 2019 | ||||
|---|---|---|---|---|---|
| In millions of RR | Contracts with positive fair value |
Contracts with negative fair value |
Contracts with positive fair value |
Contracts with negative fair value |
|
| Foreign exchange forwards and swaps: discounted notional amounts, at the end of the reporting period, of |
|||||
| - USD receivable on settlement (+) | 29,311 | - | 8,768 | 8,888 | |
| - USD payable on settlement (-) | - | (104) | (1,570) | (2,664) | |
| - RR receivable on settlement (+) | 75 | - | 1,896 | 2,971 | |
| - RR payable on settlement (-) | (24,351) | - | (8,388) | (9,474) | |
| - EUR payable on settlement (-) | - | (5) | (301) | (294) | |
| - GBP payable on settlement (-) | - | - | (15) | (17) | |
| Fair value of foreign exchange forwards and swaps |
5,035 | (109) | 390 | (590) |
Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuation techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on observable market data (that is, unobservable inputs).
Recurring fair value measurements are those that the accounting standards require or permit in the consolidated statement of financial position at the end of each reporting period. The levels in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows:
| 31 December 2020 | 31 December 2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| ASSETS AT FAIR VALUE | ||||||||
| Loans and advances to custom ers |
- | - | 1,892 | 1,892 | - | - | - | - |
| Financial derivatives | - | 5,035 | - | 5,035 | - | 390 | - | 390 |
| Investments in securities | 232,198 | 6,256 | - 238,454 133,239 | 1,939 | - | 135,178 | ||
| Repurchase receivables | 29 | - | - | 29 | - | - | - | - |
| Total assets recurring fair value measurements |
232,227 | 11,291 | 1,892 245,410 133,239 | 2,329 | - 135,568 | |||
| LIABILITIES AT FAIR VALUE | ||||||||
| Other financial liabilities | - | - | - | - | 161 | - | - | 161 |
| Financial derivatives | - | 109 | - | 109 | - | 590 | - | 590 |
| Total liabilities recurring fair value measurements |
- | 109 | - | 109 | 161 | 590 | - | 751 |
Investments in securities categorised in level 2 are represented by liquid debt securities classified in "Good" credit risk grade.
The description of valuation techniques and the description of the inputs used in the fair value measurement for level 2 and level 3 measurements at 31 December 2020 are as follows:
| In millions of RR | Fair value Valuation technique | Inputs used | |
|---|---|---|---|
| Assets AT FAIR VALUE | |||
| Investments in securities 6,256 | Observable quotes for comparable secu rities adjusted by multiplicator depending on the degree of the market activity |
Quotes from the automated fair value system for financial instruments of NSD Price Center* |
|
| Russian rouble curve. USD Dollar Swaps Curve. EUR Swaps Curve. |
|||
| Foreign exchange swaps and forwards |
5,035 | Discounted cash flows adjusted for coun terparty credit risk |
CDS quotes assessment of counter party credit risk or reference entities. |
| Total recurring fair value measurements at level 2 11,291 |
|||
| Revaluation of the convertible loan based on the Incantus Holding Limited's share price as per its most recent sale |
|||
| Loans and advances to customers |
1,892 | purchase transactions with shares of Incantus Holding Limited (Note 38) |
Share price as per the most recent sale purchase transaction |
| Total recurring fair value measurements at level 3 1,892 |
|||
| Liabilities AT FAIR VALUE |
|||
| Russian rouble curve. USD Dollar Swaps Curve. EUR Swaps Curve. |
|||
| Foreign exchange swaps and forwards |
109 | Discounted cash flows adjusted for coun terparty credit risk |
CDS quotes assessment of counter party credit risk or reference entities. |
| Total recurring fair value measurements at level 2 109 |
The description of valuation techniques and the description of the inputs used in the fair value measurement for level 2 measurements at 31 December 2019 are as follows:
| In millions of RR | Fair value Valuation technique | Inputs used | |
|---|---|---|---|
| Assets AT FAIR VALUE | |||
| Investments in securities | 1,939 | Observable quotes for comparable secu rities adjusted by multiplicator depending on the degree of the market activity |
Quotes from the automated fair value system for financial instruments of NSD Price Center* |
| Russian rouble curve. USD Dollar Swaps Curve. EUR Swaps Curve. |
|||
| Foreign exchange swaps and forwards |
390 | Discounted cash flows adjusted for coun terparty credit risk |
CDS quotes assessment of counter party credit risk or reference entities. |
| Total recurring fair value measurements at level 2 2,329 |
|||
| Liabilities AT FAIR VALUE | |||
| Foreign exchange swaps | Discounted cash flows adjusted for coun | Russian rouble curve. USD Dollar Swaps Curve. EUR Swaps Curve. CDS quotes assessment of counter |
|
| and forwards | 590 | terparty credit risk | party credit risk or reference entities. |
| Total recurring fair value measurements at level 2 590 |
There were no changes in the valuation techniques for level 2 recurring fair value measurements during the year ended 31 December 2020 and 2019. Level 2 derivatives comprise foreign exchange forwards and swaps.
The foreign exchange forwards have been fair valued using forward exchange rates that are quoted in an active market. Foreign exchange swaps are fair valued using forward interest rates extracted from observable yield curves. The effects of discounting are generally insignificant for level 2 derivatives.
Changes of the fair value measurements at Level 3 for the year ended 31 December 2020 are as follows:
| In millions of RR | Loans and advances to customers |
|---|---|
| Fair value at the date of recognition | 1,374 |
| Other interest income | 8 |
| Net gains from foreign exchange translation | 16 |
| Net gains from revaluation of convertible loan | 494 |
| Fair value as at 31 December 2020 - Level 3 | 1,892 |
As at 31 December 2020, if the share price had been 10% lower/higher, fair value of loans and advances to customers carried at fair value would have been RR 64 million lower/higher.
Fair values analysed by level in the fair value hierarchy and carrying value of assets not measured at fair value are as follows:
| 31 December 2020 | 31 December 2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Carrying | Carrying | |||||||
| In millions of RR | Level 1 | Level 2 | Level 3 | value | Level 1 | Level 2 | Level 3 | value |
| FINANCIAL ASSETS CARRIED AT AMORTISED COST | ||||||||
| Cash and cash equiva lents |
||||||||
| - Cash on hand | 21,069 | - | - | 21,069 | 11,118 | - | - | 11,118 |
| - Cash balances with the CBRF (other than mandato ry reserve deposits) |
- | 38,646 | - | 38,646 | - | 16,599 | - | 16,599 |
| - Placements with other banks and non-bank credit organizations with original maturities of less than |
||||||||
| three months | - | 76,636 | - | 76,636 | - | 27,847 | - | 27,847 |
| Mandatory cash balances with the CBRF |
- | 5,379 | - | 5,379 | - | 3,448 | - | 3,448 |
| Due from other banks | - | 1,887 | - | 1,887 | - | 2,084 | - | 2,084 |
| Loans and advances to customers |
- | - 374,996 | 374,629 | - | - 329,340 | 329,175 | ||
| Guarantee deposits with payment systems |
- | - | 15,475 | 15,475 | - | - | 8,877 | 8,877 |
| Brokerage receivables | - | 24,064 | - | 24,064 | - | 2,799 | - | 2,799 |
| Other financial assets | ||||||||
| Settlement of operations with plastic cards receiv |
||||||||
| able | - | 23,882 | - | 23,882 | - | 16,384 | - | 16,384 |
| Other receivables | - | 7,188 | - | 7,188 | - | 5,289 | - | 5,289 |
| Total financial assets car ried at amortised cost |
21,069 177,682 390,471 588,855 | 11,118 | 74,450 338,217 423,620 |
Fair values analysed by level in the fair value hierarchy and carrying value of liabilities not measured at fair value are as follows:
| 31 December 2020 | 31 December 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| In millions of RR | Level 1 | Level 2 | Level 3 | Carrying value |
Level 1 | Level 2 | Level 3 | Carrying value |
||
| FINANCIAL LIABILITIES CARRIED AT AMORTISED COST | ||||||||||
| Due to banks | - | 4,819 | - | 4,819 | - | 23 | - | 23 | ||
| Brokerage payables | - | 9,206 | - | 9,206 | - | 1,207 | - | 1,207 | ||
| Customer accounts | ||||||||||
| Individuals | ||||||||||
| -Current/demand accounts | - | 323,145 | - | 323,145 | - 199,408 | - 199,408 | ||||
| - Brokerage accounts | - | 73,970 | - | 73,970 | - | 12,253 | - | 12,253 | ||
| -Term deposits | - | 138,971 | - 135,995 | - | 139,114 | - | 137,292 | |||
| SME | ||||||||||
| -Current/demand accounts | - | 89,199 | - | 89,199 | - | 60,174 | - | 60,174 | ||
| -Term deposits | - | 1,915 | - | 2,213 | - | 1,879 | - | 1,880 | ||
| Other legal entities | ||||||||||
| -Current/demand accounts | - | 2,267 | - | 2,267 | - | 495 | - | 495 | ||
| -Term deposits | - | 48 | - | 48 | - | 112 | - | 112 | ||
| Debt securities in issue | ||||||||||
| RR Bonds issued on domes tic market |
24,824 | - | - | 23,910 | 24,442 | - | - | 23,618 | ||
| Euro-Commercial Paper | - | - | - | - | - | 2,460 | - | 2,460 | ||
| Subordinated debt | ||||||||||
| Perpetual subordinated bonds |
22,174 | - | - | 20,755 | 19,604 | - | - | 18,487 | ||
| Other financial liabilities | ||||||||||
| Settlement of operations with plastic cards |
- | 23,079 | - | 23,079 | - | 6,427 | - | 6,427 | ||
| Trade payables | - | 6,150 | - | 6,150 | - | 4,621 | - | 4,621 | ||
| Credit related commitments | - | - | - | 3,537 | - | - | - | 2,242 | ||
| Other financial liabilities | - | 1,571 | - | 1,571 | - | 1,358 | - | 1,358 | ||
| Total financial liabilities carried at amortised cost |
46,998 674,340 | - 719,864 | 44,046 429,531 | - 472,057 |
Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by an active quoted market price. Where quoted market prices are not available, the Group used valuation techniques. The fair value of floating rate instruments that are not quoted in an active market was estimated to be equal to their carrying amount. The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.
As at 31 December 2020 and 2019 the fair value of the debt securities in issue and subordinated debt has been calculated based on quoted prices from the Moscow Exchange MICEX-RTS, St. Petersburg Exchange and Global Exchange Market, where the Group's debt securities are listed and traded.
Weighted average discount rates used in determining fair value as of 31 December 2020 and 2019 are disclosed below:
| 31 December | 31 December | |
|---|---|---|
| In % p.a. | 2020 | 2019 |
| Assets | ||
| Cash and cash equivalents | 0.0 | 0.0 |
| Due from other banks | 3.2 | 5.2 |
| Loans and advances to customers | 33.5 | 37.2 |
| Investments in securities | 5.4 | 7.1 |
| Repurchase receivables | 5.1 | 4.7 |
| Brokerage receivables | 15.4 | 15.2 |
| Liabilities | ||
| Due to banks | 4.4 | 7.2 |
| Customer accounts | 2.2 | 3.9 |
| Debt securities in issue | 6.1 | 7.5 |
| Brokerage payables | 15.6 | 15.5 |
| Subordinated debt | 5.3 | 6.8 |
For the purposes of measurement, IFRS 9 "Financial Instruments" classifies financial assets into the following categories: (a) financial assets at FVTPL; (b) financial assets at FVOCI and (c) financial assets at AC. Financial assets at FVTPL have two sub-categories: (i) assets measured at FVTPL mandatorily, and (ii) assets designated as such upon initial recognition.
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2020:
| In millions of RR | AC | FVTPL | FVOCI | Total |
|---|---|---|---|---|
| Cash and cash equivalents | ||||
| - Cash on hand | 21,069 | - | - | 21,069 |
| - Cash balances with the CBRF (other than mandatory reserve deposits) |
38,646 | - | - | 38,646 |
| - Placements with other banks and non-bank credit organiza tions with original maturities of less than three months |
76,636 | - | - | 76,636 |
| Mandatory cash balances with the CBRF | 5,379 | - | - | 5,379 |
| Due from other banks | 1,887 | 1,887 | ||
| Loans and advances to customers | 374,629 | 1,892 | - | 376,521 |
| Financial derivatives | - | 5,035 | - | 5,035 |
| Guarantee deposits with payment systems | 15,475 | - | - | 15,475 |
| Investments in securities | - | 4,265 | 234,189 | 238,454 |
| Repurchase receivables | - | - | 29 | 29 |
| Brokerage receivables | 24,064 | - | - | 24,064 |
| Other financial assets | ||||
| - Settlement of operations with plastic cards receivable | 23,882 | - | - | 23,882 |
| - Other receivables | 7,188 | - | - | 7,188 |
| TOTAL FINANCIAL ASSETS | 588,855 | 11,192 | 234,218 | 834,265 |
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2019:
| In millions of RR | AC | FVTPL | FVOCI | Total |
|---|---|---|---|---|
| Cash and cash equivalents | ||||
| - Cash on hand | 11,118 | - | - | 11,118 |
| - Cash balances with the CBRF (other than mandatory reserve deposits) | 16,599 | - | - | 16,599 |
| - Placements with other banks and non-bank credit organizations with original maturities of less than three months |
27,847 | - | - | 27,847 |
| Mandatory cash balances with the CBRF | 3,448 | - | - | 3,448 |
| Due from other banks | 2,084 | 2,084 | ||
| Loans and advances to customers | 329,175 | - | - | 329,175 |
| Financial derivatives | - | 390 | - | 390 |
| Guarantee deposits with payment systems | 8,877 | - | - | 8,877 |
| Investments in securities | - | 413 | 134,765 | 135,178 |
| Brokerage receivables | 2,799 | - | - | 2,799 |
| Other financial assets | ||||
| - Settlement of operations with plastic cards receivable | 16,384 | - | - | 16,384 |
| - Other receivables | 5,289 | - | - | 5,289 |
| TOTAL FINANCIAL ASSETS | 423,620 | 803 134,765 559,188 | ||
As of 31 December 2020 and 2019 all of the Group's financial liabilities except derivatives were carried at amortised cost.
Parties are generally considered to be related if the parties are under common control or one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Other related parties (excluding associates and joint ventures) in the tables below are represented by entities which are under the control of the Group's ultimate controlling party Oleg Tinkov. The outstanding balances with related parties were as follows:
| 31 December 2020 | 31 December 2019 | ||||
|---|---|---|---|---|---|
| In millions of RR | Key management personnel |
Associates, joint ventures and other relat ed parties |
Key management personnel |
Associates, joint ventures and other related parties |
|
| ASSETS | |||||
| Gross amounts of loans and advances to cus tomers (contractual interest rate: 1.7-16.5% p.a. (31 December 2019: 11.7-25.7% p.a.)) |
422 | 1,892 | 437 | 150 | |
| Other financial assets | - | 158 | - | 843 | |
| TOTAL ASSETS | 422 | 2,050 | 437 | 993 | |
| LIABILITIES | |||||
| Customer accounts (contractual interest rate: 0.8-3.7% p.a. (31 December 2019: 0.5-7.2% p.a.)) |
1,221 | 2,086 | 1,779 | 227 | |
| Debt securities in issue (yield: 1.0-3.6% p.a. (31 December 2019: 1.0-3.6% p.a.)) |
- | - | - | 2,460 | |
| Other non-financial liabilities | 584 | - | 521 | - | |
| TOTAL LIABILITIES | 1,805 | 2,086 | 2,300 | 2,687 | |
| EQUITY | |||||
| Share-based payment reserve | |||||
| - Management long-term incentive program | 1,378 | - | 930 | - | |
| TOTAL EQUITY | 1,378 | - | 930 | - |
At 31 August 2020 the Group acquired 22.15% shareholding in Incantus Holding Limited, which is a group of fintech start-ups launched in 2020 to provide a range of services to retail customers in Europe (excluding CIS). The investment in Incantus Holding Limited was classified as an investment in associates and accounted for using the equity method. Also the Group provided a convertible loan to Incantus Holding Limited in the amount of EUR 15.4 million (RR 1,374 million) at 1.7% p.a. with a maturity date of 31 August 2025. The convertible loan agreement implies that the Group may convert the loan into the borrower's shares at the price of initial acquisition of shares of Incantus Holding Limited by the Group subject to compliance with a number of conversion requirements including a cap in relation to overall shareholding of the Group in Incantus Holding Limited of 24.5%.
As at 31 December 2020 the shareholding of the Group in Incantus Holding Limited is equal to 16.32%, and the carrying value of the convertible loan is equal to RR 1,892 million. The Company has extended rights under the Shareholder Agreement at the board meeting level (Board Reserved matters) and at the shareholder meeting level (Shareholder Reserved matters) in Incantus Holding Limited which provides the Company significant influence over it and allows to treat it as associate.
| 2020 | 2019 | ||||
|---|---|---|---|---|---|
| In millions of RR | Key manage ment personnel |
Associ ates, joint ventures and other related parties |
Key manage ment personnel |
Associ ates, joint ventures and other related parties |
|
| Interest income calculated using the effective interest rate method |
18 | 32 | 2 | 27 | |
| Other similar income | - | 8 | - | - | |
| Interest expense calculated using effective interest rate method |
(29) | (33) | (64) | (101) | |
| Net (losses)/gains from foreign exchange translation | - | (40) | - | 31 | |
| Net gains from financial assets at FVTPL | - | 494 | - | - | |
| Administrative and other operating expenses | (2,895) | (248) | (1,913) | (173) | |
| Other operating income | - | 447 | - | 49 | |
| Key management compensation is presented below: In millions of RR |
2020 | 2019 | |||
| Short-term benefits: | |||||
| - Salaries | 1,086 | 906 | |||
| - Short-term bonuses | 921 | 586 | |||
| Long-term benefits: | |||||
| - Management long-term incentive programme | 862 | 421 | |||
| - Key employees retention plan | 26 | - | |||
| Total | 2,895 | 1,913 |
Key employees retention plan (KERP). On 14 April 2020 the Group launched a new long term incentive program for more than 250 senior and middle management level employees. The purpose of the program is to retain and motivate key employees with high potential. This is a performance-based cash-settled program linked to the market price of GDRs. The expenses related to those participants who are considered to be key management personnel are disclosed in the table above.
Management long-term incentive program. On 31 March 2016 the Group introduced a MLTIP as both a long-term incentive and a retention tool for the management of the Group. Total number of GDRs attributable to the management is 15,290 thousand as at 31 December 2020 (31 December 2019: 9,940 thousand).
Participants of the program receive the vested parts of their grants provided that they remain employed by the Group throughout the vesting period. Participants are entitled to the dividends, if any. Participants who leave the Group lose their right for the unvested parts of the grants.
The fair value of the awards as at grant dates (31 March 2016, 8 February 2017, 22 February 2018, 15 January 2019, 5 June 2020 and 11 December 2020) is determined on the basis of market quotes of GDRs as at those dates.
Each grant before 2020 is divided into 4 equal awards. Each award vests over 4 years in equal tranches. The delivery dates as of which the GDRs are allowed to be sold by the participants correspond to the vesting dates 31 March, as well as each subsequent 31 March (with the exception of 2019 when the vesting date for all participants was 31 January 2019) until 2022 for participants joining in 2016, until 2023 for participants joining in 2017, until 2024 for participants joining in 2018, until 2025 for participants joining in 2019.
Each grant provided in 2020 is divided into 5 equal tranches. The delivery dates as of which the GDRs are allowed to be sold by the participants correspond to the vesting dates 31 August, as well as each subsequent 31 August until 2025.
The following table discloses the changes in the numbers of GDRs attributable to the MLTIP:
| In thousands | Number of GDRs attributa ble to the MLTIP |
|---|---|
| At 31 December 2018 | 6,178 |
| Granted | 91 |
| Vested | (2,419) |
| Forfeited | (68) |
| At 31 December 2019 | 3,782 |
| Granted | 5,350 |
| Vested | (1,810) |
| Forfeited | (46) |
| At 31 December 2020 | 7,276 |
On 10 March 2021 the Board of directors declared an interim dividend in line with the current dividend policy of USD 0.24 per share/per GDR with a total amount allocated for dividend payment of approximately USD 47.8 million.
On 7 January 2021 all 69,914,043 class B shares (35.08% of the total number of issued shares) held by the Rigi Trust and the Bernina Trust were converted to class A shares and on the same date all isued shares were reclassified and redesignated as ordinary shares. Following the conversion, each share carries a single vote, and the total number of votes capable of being exercised are equal to the total number of issued shares (currently 199,305,492 shares following the class B share conversion). As a result of the conversion, Mr. Oleg Tinkov's voting rights in the Group decreased from 84.38% to 35.08%. As a result his control over the Group was ceased.
Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law Cap. 113.
The consolidated financial statements have been prepared under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, and by revaluation of financial instruments categorised at fair value through profit or loss ("FVTPL") and at fair value through other comprehensive income ("FVOCI"). The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. Refer to Note 41. Management prepared these consolidated financial statements on a going concern basis.
Consolidated financial statements. Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of investor's returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than majority of voting power in an investee.
In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes of investee's activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date on which control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.
The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest's proportionate share of net assets of the acquiree. Non-controlling interests that are not present ownership interests are measured at fair value.
Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount ("negative goodwill") is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed, and reviews appropriateness of their measurement.
The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements, but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt are deducted from its carrying amount and all other transaction costs associated with the acquisition are expensed.
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with the Group's policies.
Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Group. Non-controlling interest forms a separate component of the Group's equity.
When the Group acquires a dormant company with no business operations holding an asset and this asset is the main reason of acquisition of the company such transaction is treated as an asset acquisition. No goodwill is recognized as a result of such acquisition.
Purchases and sales of non-controlling interests. The Group applies the economic entity model to account for transactions with owners of non-controlling interest. Any difference between the purchase consideration and the carrying amount of non-controlling interest acquired is recorded as a capital transaction directly in equity. The Group recognises the difference between sales consideration and carrying amount of non-controlling interest sold as a capital transaction in the consolidated statement of changes in equity.
Associates. Associates are entities over which the Group has significant influence (directly or indirectly), but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The carrying amount of associates includes goodwill identified on acquisition less accumulated credit losses, if any. Dividends received from associates reduce the carrying value of the investment in associates. Other post-acquisition changes in Group's share of net assets of an associate are recognised as follows: (i) the Group's share of profits or losses of associates is recorded in the consolidated profit or loss for the year as share of result of associates, (ii) the Group's share of other comprehensive income is recognised in other comprehensive income and presented separately, (iii); all other changes in the Group's share of the carrying value of net assets of associates are recognised in profit or loss within the share of result of associates.
However, when the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Otherwise the Group continue to recognise further losses if it has commitments to fund the associate's operations.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The Group applies the impairment requirements in IFRS 9 to long-term loans and similar long-term interest that in substance form part of the investment in associate before reducing the carrying value of the investment by a share of a loss of the investee that exceeds the amount of the Group's interest in the ordinary shares.
Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss, where appropriate.
Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair value or amortised cost as described below.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the quantity held by the entity. This is the case even if a market's normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price.
The price within the bid-ask spread which management considers to be the most representative of fair value for quoted financial assets and liabilities is the last bid price of the business day. A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an active market is measured at the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (an asset) for a particular risk exposure or paid to transfer a net short position (a liability) for a particular risk exposure in an orderly transaction between market participants at the measurement date.
This is applicable for assets carried at fair value on a recurring basis if the Group: (a) manages the group of financial assets and financial liabilities on the basis of the entity's net exposure to a particular market risk (or risks) or to the credit risk of a particular counterparty in accordance with the entity's documented risk management or investment strategy; (b) it provides information on that basis about the group of assets and liabilities to the entity's key management personnel; and (c) the market risks, including duration of the entity's exposure to a particular market risk (or risks) arising from the financial assets and financial liabilities is substantially the same.
Valuation techniques such as discounted cash flow models or models based on recent arm's length transactions or consideration of financial data of the investees, are used to measure fair value of certain financial instruments for which external market pricing information is not available.
Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs). Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. Refer to Note 36.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.
Amortised cost ("AC") is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any allowance for expected credit losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the consolidated statement of financial position.
The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.
The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees and points paid or secured that are integral to the effective interest rate such as origination fees.
The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount, which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.
For assets that are purchased or originated credit impaired ("POCI") at initial recognition, the effective interest rate is adjusted for credit risk, i.e. it is calculated based on the expected cash flows on initial recognition instead of contractual payments.
Financial instruments – initial recognition. Financial instruments at FVTPL are initially recorded at fair value. All other financial instruments are initially recorded at fair value adjusted for transaction costs that are incremental and directly attributable to the acquisition or the issue of the financial asset or financial liability. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.
After the initial recognition, an ECL allowance is recognised for financial assets measured at AC and investments in debt instruments measured at FVOCI, resulting in an immediate accounting loss.
All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention ("regular way" purchases and sales) are recorded at trade date, which is the date on which the Group commits to deliver a financial asset.
The Group uses discounted cash flow valuation techniques to determine the fair value of currency swaps, foreign exchange forwards that are not traded in an active market. Differences may arise between the fair value at initial recognition, which is considered to be the transaction price, and the amount determined at initial recognition using a valuation technique. The differences are immediately recognised in profit or loss if the valuation uses only level 1 or level 2 inputs.
Financial assets – classification and subsequent measurement – measurement categories. The Group classifies financial assets in the following measurement categories: FVTPL, FVOCI and AC. The classification and subsequent measurement of debt financial assets depends on:
Financial assets – classification and subsequent measurement – business model. The business model reflects how the Group manages the assets in order to generate cash flows – whether the Group's objective is:
Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities that the Group undertakes to achieve the objective set out for the portfolio available at the date of the assessment. Factors considered by the Group in determining the business model include the purpose and composition of a portfolio, past experience on how the cash flows for the respective assets were collected, how risks are assessed and managed, how the assets' performance is assessed and how managers are compensated.
Based on the analysis performed the Group included the following financial instruments in the business model "hold to collect contractual cash flows" since the Group manages these financial instruments solely to collect contractual cash flows: cash and cash equivalents, mandatory cash balances with the CBRF, due from other banks, loans and advances to customers, guarantee deposits with payment systems, brokerage receivables and other financial assets. The Group included debt securities at FVOCI in the business model "hold to collect contractual cash flows and sell" since the Group manages these financial instruments to collect both the contractual cash flows and the cash flows arising from the sale of assets. The Group included debt securities measured at FVTPL and financial derivatives in the business model "other".
Financial assets – classification and subsequent measurement – cash flow characteristics. Where the business model is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses whether the cash flows represent solely payments of principal and interest (the SPPI test). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are consistent with the SPPI feature.
In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only consideration for credit risk, time value of money, other basic lending risks and profit margin.
Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the financial asset is classified and measured at FVTPL. The SPPI assessment is performed on initial recognition of an asset and it is not subsequently reassessed. However, if the contractual terms of the asset are modified, the Group considers if the contractual cash flows continue to be consistent with a basic lending arrangement in assessing whether the modification is substantial. See below for "Financial assets – modification".
Financial assets – reclassification. Financial instruments are reclassified only when the business model for managing the portfolio as a whole changes. The reclassification has a prospective effect and takes place from the beginning of the first reporting period that follows after the change in the business model. The Group did not change its business model during the current and comparative period and did not make any reclassifications.
Financial assets – impairment – credit loss allowance for ECL. The Group assesses on a forward-looking basis the ECL for debt instruments (including loans) measured at AC and FVOCI and for the exposure arising from loan commitments and financial guarantee contracts. The Group measures ECL and recognises credit loss allowance at each reporting date.
The measurement of ECL reflects:
Debt instruments measured at AC are presented in the consolidated statement of financial position net of the allowance for ECL.
For loan commitments (where those components can be separated from the loan) and financial guarantees, a separate provision for ECL is recognised as a financial liability in the consolidated statement of financial position. For debt instruments at FVOCI, changes in amortised cost, net of allowance for ECL, are recognised in profit or loss and other changes in carrying value are recognised in OCI as gains less losses on debt instruments at FVOCI.
The Group applies a "three stage" model for impairment in accordance with IFRS 9, based on changes in credit quality since initial recognition:
3) If the Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is measured as a lifetime ECL. Refer to Note 29 for a description of how the Group defines credit-impaired assets and default. For financial assets that are purchased or originated credit-impaired ("POCI Assets"), the ECL is always measured at a lifetime ECL. Note 29 provides information about inputs, assumptions and estimation techniques used in measuring ECL, including an explanation of how the Group incorporates forward-looking information in the ECL models.
As an exception, for certain financial instruments, such as credit cards, that may include both a loan and an undrawn commitment component, the Group measures expected credit losses over the period that the Group is exposed to credit risk, that is, until the expected credit losses would be mitigated by credit risk management actions, even if that period extends beyond the maximum contractual period. This is because contractual ability to demand repayment and cancel the undrawn commitment does not limit the exposure to credit losses to such contractual notice period. Refer to Note 3 for critical judgements applied by the Group in determining the period for measuring ECL.
Financial assets – write-off. Uncollectible assets are partly written-off against the related сredit loss allowance usually after one year since they become overdue. The amount of uncollectible part of loan is estimated on a loan portfolio basis taking into account defaulted loans recovery statistics. The Group writes-off financial assets that are mostly still subject to enforcement activity, however, there is no reasonable expectation of recovery. If credit-impaired loans are sold to third parties, the Group remeasures the amount of ECL prior to sale taking into consideration the expected sales proceeds so that there are no gains or losses on derecognition upon sale.
Repayments of written-off loans. Recovery of amounts previously written-off as uncollectible is credited directly to the credit loss allowance line in the consolidated statement of profit or loss and other comprehensive income. Cash flows related to repayments of written-off loans are separately presented within recoveries from written-off loan in the consolidated statement of cash flows.
Financial assets – derecognition. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership, but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose restrictions on the sale.
Financial assets – modification. The Group sometimes renegotiates or otherwise modifies the contractual terms of the financial assets. The Group assesses whether the modification of contractual cash flows is substantial considering, among other, the following factors: any new contractual terms that substantially affect the risk profile of the asset, significant change in interest rate, change in the currency denomination, new collateral or credit enhancement that significantly affects the credit risk associated with the asset, or a significant extension of a loan when the borrower is not in financial difficulties.
If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Group derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation purposes, including determining whether a SICR has occurred.
The Group also assesses whether the new loan or debt instrument meets the SPPI criterion. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners.
In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally agreed payments, the Group compares the original and revised expected cash flows to assets whether the risks and rewards of the asset are substantially different as a result of the contractual modification. If the risks and rewards do not change, the modified asset is not substantially different from the original asset and the modification does not result in derecognition.
The Group recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets) and recognises a modification gain or loss in profit or loss. Usually modifications of stage 3 loans do not result in derecognition since they do not change the expected cash flows substantially and represent the way of collection of past due balances.
Financial liabilities – measurement categories. Financial liabilities are classified as subsequently measured at AC, except for financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in securities).
Financial liabilities – derecognition. Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).
An exchange between the Group and its original lenders of debt instruments with substantially different terms, as well as substantial modifications of the terms and conditions of existing financial liabilities, are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability.
In addition, other qualitative factors, such as the currency that the instrument is denominated in, changes in the type of interest rate, new conversion features attached to the instrument and change in loan covenants are also considered. If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability.
Modifications of liabilities that do not result in extinguishment are accounted for as a change in estimate using a cumulative catch up method, with any gain or loss recognised in profit or loss, unless the economic substance of the difference in carrying values is attributed to a capital transaction with owners.
Cash and cash equivalents. Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents include all interbank placements and reverse sale and repurchase agreements with other banks with original maturities of less than three months. Funds restricted for a period of more than three months on origination are excluded from cash and cash equivalents. Cash and cash equivalents are carried at amortised cost as: (i) they are held for collection of contractual cash flows and those cash flows represent SPPI, and (ii) they are not designated at FVTPL.
The payments or receipts presented in the consolidated statement of cash flows represent transfers of cash and cash equivalents by the Group, including amounts charged or credited to current accounts of the Group's counterparties held with the Group, such as loan interest income or principal collected by charging the customer's current account or interest payments or disbursement of loans credited to the customer's current account, which represents cash or cash equivalent from the customer's perspective.
Mandatory cash balances with the CBRF. Mandatory cash balances with the CBRF are carried at amortised cost and represent non-interest bearing mandatory reserve deposits which are not available to finance the Group's day to day operations and hence are not considered as part of cash and cash equivalents for the purposes of the consolidated statement of cash flows.
Due from other banks. Amounts due from other banks are recorded when the Group advances money to counterparty banks with no intention of trading the resulting unquoted non-derivative receivable due on fixed or determinable dates. Amounts due from other banks are carried at amortised cost as: (i) they are held for collection of contractual cash flows and those cash flows represent SPPI, and (ii) they are not designated at FVTPL.
Certain bank deposits are subject to the "bail-in" legislation that permits or requires a national resolving authority to impose losses on holders in particular circumstances. Where the bail-in clauses are included in the contractual terms of the instrument and would apply even if legislation subsequently changes, the SPPI test is not met and such instruments are mandatorily measured at FVTPL. The Group did not identify such balances due from other banks. Where such clauses in the contract merely acknowledge the existence of the legislation and do not create any additional rights or obligation for the Group, the SPPI criterion is met and the respective instruments are carried at AC.
Investments in debt securities. Based on the business model and the contractual cash flow characteristics, the Group classifies investments in debt securities as carried at AC, FVOCI or FVTPL.
Debt securities are carried at AC if they are held for collection of contractual cash flows and where those cash flows represent SPPI, and if they are not voluntarily designated at FVTPL in order to significantly reduce an accounting mismatch.
Debt securities are carried at FVOCI if they are held for collection of contractual cash flows and for selling, where those cash flows represent SPPI, and if they are not designated at FVTPL. Interest income from these assets is calculated using the effective interest method and recognised in profit or loss. An impairment allowance estimated using the expected credit loss model is recognised in profit or loss for the year. All other changes in the carrying value are recognised in OCI except for foreign exchange translation gains/(losses) and interest income calculated using the effective interest rate method. When the debt security is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from OCI to profit or loss.
Investments in debt securities are carried at FVTPL if they do not meet the criteria for AC or FVOCI. The Group may also irrevocably designate investments in debt securities at FVTPL on initial recognition if applying this option significantly reduces an accounting mismatch between financial assets and liabilities being recognised or measured on different accounting bases.
Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to purchase or originate a loan due from a customer.
Based on the business model and the cash flow characteristics, the Group classifies loans and advances to customers into one of the following measurement categories:
1) AC: loans that are held for collection of contractual cash flows and those cash flows represent SPPI and loans that are not voluntarily designated at FVTPL;
2) FVTPL: loans that do not meet the criteria for AC or FVOCI are measured at FVTPL (mandatory FVTPL).
Impairment allowances of the loans measured at AC are determined based on the forward-looking ECL model. Note 29 provides information about inputs, assumptions and estimation techniques used in measuring ECL, including an explanation of how the Group incorporates forward-looking information in the ECL models.
Credit related commitments. The Group issues commitments to provide loans. Commitments to provide loans are initially recognised at their fair value, which is normally evidenced by the amount of fees received. Such loan commitment fees are deferred and included in the carrying value of the loan on initial recognition. At the end of each reporting period, the commitments are measured at the amount of the loss allowance determined based on the expected credit loss model. For loan commitments (where those components can be separated from the loan), a separate provision for ECL is recognised as a liability in the consolidated statement of financial position.
Performance guarantees. Performance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation. Such contracts transfer non-financial performance risk in addition to credit risk. Performance guarantees are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the contract. At the end of each reporting period, the performance guarantee contracts are measured at the higher of (i) the unamortised balance of the amount at initial recognition and (ii) the best estimate of expenditure required to settle the contract at the end of each reporting period, discounted to present value. Where the Group has the contractual right to revert to its customer for recovering amounts paid to settle the performance guarantee contracts, such amounts will be recognised as an asset upon transfer of the loss compensation to the guarantee's beneficiary. These fees are recognised within fee and commission income in profit or loss.
Sale and repurchase agreements and lending of securities. Sale and repurchase agreements ("repo agreements"), which effectively provide a lender's return to the counterparty, are treated as secured financing transactions. Securities sold under such sale and repurchase agreements are not derecognised. The securities are not reclassified in the consolidated statement of financial position unless the transferee has the right by contract or custom to sell or repledge the securities, in which case they are reclassified as repurchase receivables. The corresponding liability is presented within amounts due to other banks or other borrowed funds.
Securities purchased under agreements to resell ("reverse repo agreements"), which effectively provide a lender's return to the Group, are recorded as due from other banks or loans and advances to customers, as appropriate. The difference between the sale and repurchase price, adjusted by interest and dividend income collected by the counterparty, is treated as interest income and accrued over the life of reverse repo agreements using the effective interest method.
Securities lent to counterparties for a fixed fee are retained in the consolidated financial statements in their original category in the consolidated statement of financial position unless the counterparty has the right by contract or custom to sell or repledge the securities, in which case they are reclassified and presented separately.
Securities borrowed for a fixed fee are not recorded in the consolidated financial statements, unless these are sold to third parties, in which case the purchase and sale are recorded in profit or loss for the year within gains less losses arising from trading securities. The obligation to return the securities is recorded at fair value in other borrowed funds.
Based on classification of securities sold under the sale and repurchase agreements, the Group classifies repurchase receivables into one of the following measurement categories: AC, FVOCI, FVTPL.
Guarantee deposits with payment systems. Amounts of guarantee deposits with payment systems are recorded when the Group advances money to payment systems with no intention of trading the resulting unquoted non-derivative receivable. Amounts of guarantee deposits with payment systems are carried at amortised cost.
Tangible fixed assets. Tangible fixed assets are stated at cost less accumulated depreciation and provision for impairment, where required.
Costs of minor repairs and day-to-day maintenance are expensed when incurred. Costs of replacing major parts or components of premises and equipment items are capitalised, and the replaced part is retired.
At the end of each reporting period management assesses whether there is any indication of impairment of tangible fixed assets. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset's fair value less costs to sell and its value in use. The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in profit or loss for the year. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset's value in use or fair value less costs to sell.
Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit or loss for the year (within other operating income or expenses).
Depreciation. Depreciation of each item of tangible fixed assets is calculated using the straight-line method to allocate its cost to its residual value over its estimated useful life as follows:
| Useful lives in years |
|---|
| Building | 99 |
|---|---|
| Equipment | 3 to 10 |
| Vehicles | 5 to 7 |
| Leasehold improvements | Shorter of their useful economic life and the term of the underlying lease |
| Others (safes, fireproof cabinets) | 20 |
The residual value of an asset is an estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Intangible assets. Intangible assets are stated at cost less accumulated amortization. The Group's intangible assets other than insurance license have definite useful life and include capitalised acquired computer software and internally developed software. Development costs that are directly associated with identifiable and unique software controlled by the Group are recorded as intangible assets if the inflow of incremental economic benefits exceeding costs is probable. Capitalised costs include staff costs of the software development team and an appropriate portion of relevant overheads.
Computer software licenses acquired are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. All other costs associated with computer software, e.g. its maintenance, are expensed when incurred. Capitalised computer software is amortised on a straight line basis over expected useful lives of 1 to 10 years.
At each reporting date management assesses whether there is any indication of impairment of intangible assets with an indefinite useful life. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset's fair value less costs to sell and its value in use.
The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in profit or loss. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset's value in use or fair value less costs to sell. Intangible assets including goodwill with indefinite useful life are tested annually for impairment.
Accounting for leases by the Group as a lessee. Leases, where the Group is the lessee, are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
The lease term includes any non-cancellable and optional extension periods which have been assessed as reasonably certain to be exercised. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following:
As an exception to the above, the Group accounts for short-term leases and leases of low value assets by recognising the lease payments as an operating expense on a straight line basis. Short-term leases are leases with a lease term of 12 months or less, and the lease does not provide for the possibility of repurchase of the asset at the end of the contract. Low value assets are assets with a value of RR 300,000 or less at the date of conclusion of the contract.
Right-of-use assets are included in tangible fixed assets, lease liabilities are included in other non-financial liabilities in the consolidated statement of financial position. Depreciation of right-of-use assets are recognised in administrative and other operating expenses in the consolidated statement of profit or loss and other comprehensive income. Finance cost is recognised within other similar expense line of the consolidated statement of profit or loss and other comprehensive income. Repayment of principal of lease liabilities is disclosed within cash flows from financing activities of the consolidated statement of cash flows.
Due to other banks. Amounts due to banks are recorded when money or other assets are advanced to the Group by counterparty banks. Non-derivative liability is carried at amortised cost.
Customer accounts. Customer accounts are non-derivative liabilities to corporate entities and individuals and are carried at amortised cost.
Debt securities in issue. Debt securities are stated at amortised cost. If the Group purchases its own debt securities in issue, they are removed from the consolidated statement of financial position and the difference between the carrying amount of the liability and the consideration paid is included in a separate line of consolidated statement of profit or loss and other comprehensive income.
Subordinated debt. Subordinated debt can only be paid in the event of a liquidation after the claims of other higher priority creditors have been met. Subordinated debt is carried at AC.
Financial derivatives. Financial derivatives represented by forwards and foreign currency swaps are carried at their fair value. Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of financial derivatives are recorded in profit or loss within Net gains/(losses) from derivatives revaluation. The Group does not apply hedge accounting.
Income taxes. Income taxes have been provided for in the consolidated financial statements in accordance with Russian legislation and Cyprus legislation enacted or substantively enacted by the end of the reporting period. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if the consolidated financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within administrative and other operating expenses.
Deferred income tax is provided using the liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of reporting period which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.
Deferred income tax is not recognised on post-acquisition retained earnings and other post acquisition movements in reserves of subsidiaries, where the Group controls the subsidiary's dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future.
Uncertain tax positions. The Group's uncertain tax positions are assessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted at the end of reporting period and any known court or other rulings on such issues.
Liabilities for penalties, interest and taxes other than on income are recognised based on management's best estimate of the expenditure required to settle the obligations at the end of the reporting period.
Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
Levies and charges, such as taxes other than income tax or regulatory fees based on information related to a period before the obligation to pay arises, are recognised as liabilities when the obligating event that gives rise to pay a levy occurs, as identified by the legislation that triggers the obligation to pay the levy. If a levy is paid before the obligating event, it is recognised as a prepayment.
Other liabilities. Other liabilities are accrued when the counterparty has performed its obligations under the contract and are carried at amortised cost.
Share capital. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds and debited against share premium.
Share premium. Share premium is the difference between the fair value of the consideration receivable for the issue of shares and the nominal value of the shares. The share premium account can only be resorted to for limited purposes, which do not include the distribution of dividends, and is otherwise subject to the provisions of the Cyprus Companies Law on reduction of share capital.
Treasury shares. Where the Company or its subsidiaries purchase the Company's equity instruments, the consideration paid, including any directly attributable incremental external costs, net of income taxes, is deducted from equity attributable to the owners of the Company until the equity instruments are reissued, disposed of or cancelled. Where such shares are subsequently disposed of or reissued, any consideration received is included in equity. The value of GDRs transferred out of treasury shares for the purposes of the long-term incentive programme for management of the Group are determined based on the weighted average cost.
Dividends. Dividends are recorded in equity in the period in which they are declared. Any dividends declared after the end of the reporting period and before the consolidated financial statements are authorised for issue, are disclosed in the Note 39. The accounting reports of the Group entities are the basis for profit distribution and other appropriations. The separate financial statements of the Company prepared in accordance with IFRS as adopted by the EU and in accordance with Cyprus Companies Law is the basis of available reserves for distribution.
Dividend distribution to the Company's shareholders is recognised as a liability in the Company's consolidated financial statements in the year in which the dividends are appropriately authorised and are no longer at the discretion of the Company. More specifically, interim dividends are recognised as a liability in the period in which these are authorised by the Board of directors and in the case of final dividends, these are recognised in the period in which these are approved by the Company's shareholders.
Interest income and expense recognition. Interest income and expense calculated using effective interest method are recorded for all debt instruments, other than those at FVTPL, on an accrual basis using the effective interest method. This method defers, as part of interest income or expense, all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Fees integral to the effective interest rate include origination fees (e.g. interchange fee on credit card loans) received or paid by the entity relating to the creation or acquisition of a financial asset or issuance of a financial liability.
Commitment fees (e.g. annual fee on credit card loans) received by the Group to originate loans at market interest rates are integral to the effective interest rate if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination. The Group does not designate loan commitments as financial liabilities at FVTPL.
For financial assets that are originated or purchased credit-impaired, the effective interest rate is the rate that discounts the expected cash flows (including the initial expected credit losses) to the fair value on initial recognition (normally represented by the purchase price). As a result, the effective interest is credit-adjusted.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for:
Customer acquisition expense recognition. Customer acquisition expenses are represented by the costs incurred by the Group on services related to attraction of the client, mailing of advertising materials, processing of responses etc. Those costs, which can be directly attributed to the acquisition of a particular client, are included in the effective interest rate of the originated financial instruments; the remaining costs are expensed on the basis of the actual services provided.
Other income and expense recognition. All other income is generally recorded on an accrual basis by reference to completion of the specific performance obligation assessed on the basis of measurement of the Group's progress towards complete satisfaction of that performance obligation.
All other expenses are generally recorded on an accrual basis by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Other similar income. Other similar income represents interest income recorded for debt instruments measured at fair value through profit or loss ("FVTPL") and is recognised on an accrual basis using nominal interest rate.
Other similar expense. Other similar expense represents finance cost related to the discounted lease payments using the incremental borrowing rate.
Fee and commission income and expense. Fee and commission income is recognised over time as the services are rendered, when the customer simultaneously receives and consumes the benefits provided by the Group's performance. Such income includes SMS fee, part of SME services commission, part of brokerage fee and income from MVNO services which represents fixed monthly payments.
Variable fees are recognised only to the extent that management determines that it is highly probable that a significant reversal will not occur.
Other fee and commission income is recognised at a point in time when the Group satisfies its performance obligation, usually upon execution of the underlying transaction. The amount of fee or commission received or receivable represents the transaction price for the services identified as distinct performance obligations. Such income includes acquiring commission, part of SME services commission, brokerage fee and income from MVNO services, which represents payments for each transaction, fee for selling credit protection, interchange fee, cash withdrawal fee, foreign currency exchange transactions fee, fee for money transfers and other.
All fee and commission expenses are generally recorded on an accrual basis by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Customer loyalty program. The group operates loyalty programs where retail clients accumulate points, which entitle them to reimbursement of purchases made with credit and debit cards.
A financial liability is recognised for the amount of fair value of points expected to be redeemed until they are actually redeemed or expire with the corresponding entries to interest income calculated using the effective interest rate method or commission expenses depending on whether the points were accumulated by credit card clients or debit card clients respectively.
Insurance contracts. Insurance contracts are those contracts that transfer significant insurance risk. Insurance risk exists when the Group has uncertainty in respect of at least one of the following matters at inception of the contract: occurrence of insurance event, date of occurrence of the insurance event, and the claim value in respect of the occurred insurance event. Such contracts may also transfer financial risk.
Non-life insurance (short-term insurance). The below items from the consolidated statement of financial position of the Group are accounted within Other financial assets and Other financial liabilities lines, the below items from the consolidated statement of profit or loss and other comprehensive income of these consolidated financial statements are accounted within Income from insurance operations and Insurance claims incurred lines.
expenses of claims handling department and administrative expenses directly related to activities of this department.
They are reviewed by line of business at the time of the policy issue and at the end of each accounting period to ensure they are recoverable based on future estimates. For the insurance contracts with duration of less than one month and with automatic prolongation condition amortisation of one-off acquisition costs occurs over the period determined based on statistical assessment of duration of the insurance contract taking into account all of the expected future prolongations.
Foreign currency translation and operations. The functional currency of the Company and each of the Group's consolidated entities is the Russian Rouble ("RR"), which is the currency of the primary economic environment in which each entity operates. Monetary assets and liabilities are translated into each entity's functional currency at the official exchange rate of the CBRF at the end of the respective reporting period.
Foreign exchange gains and losses resulting from the translation of monetary assets and liabilities into each entity's functional currency at year-end official exchange rates of the CBRF are recognised in profit or loss for the year as Net (losses)/ gains from foreign exchange translation.
Foreign exchange gains and losses resulting from the settlement of transactions with foreign currencies are recognised in profit or loss for the year as net gains/(losses) from operations with foreign currencies (except for clients' foreign currency exchange transactions fee, which is recognised in profit or loss as fee and commission income).
Translation at year-end rates does not apply to non-monetary items that are measured at historical cost.
At 31 December 2020 the rate of exchange used for translating foreign currency balances was USD 1 = RR 73.8757 (31 December 2019: USD 1 = RR 61.9057), and the average rate of exchange was USD 1 = RR 72.1464 (2019: USD 1 = RR 64.7362).
Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Such a right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following circumstances: (i) in the normal course of business, (ii) the event of default and (iii) the event of insolvency or bankruptcy.
Earnings per share. Earnings per share are determined by dividing the profit or loss attributable to owners of the Company by the weighted average number of participating shares outstanding during the reporting year, excluding treasury shares. For the purpose of diluted earnings per share calculation the Group considers dilutive effects of shares granted under employee share option plans.
Staff costs and related contributions. Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by the employees of the Group. The Group has no legal or constructive obligation to make pension or similar benefit payments beyond the payments to the statutory defined contribution scheme.
Segment reporting. Segments are reported in a manner consistent with the internal reporting provided to the Group's chief operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately.
Equity-settled share-based payment. The expense is recognized over the vesting period and is measured at the fair value of the award determined at the grant date, which is amortized over the service (vesting) period. The fair value of the equity award is estimated only once at the grant date and is trued up to the estimated number of instruments that are expected to vest. Dividends declared during the vesting period accrue and are paid to the employee together with the sale proceeds of the vested shares upon a liquidity event. Expected dividends (including those expected during the vesting period) are therefore included in the determination of fair value of the share-based payment.
Cash-settled share-based program. The expense is recognized gradually over the vesting period and is measured at the fair value of the liability at each end of the reporting period. The fair value of the liability reflects all vesting conditions, except for the requirement of the employee to stay in service which is reflected through the amortization schedule. The liability is measured, initially and at the end of each reporting period until settled, at fair value, taking into account the terms and conditions on which the instruments were granted and the extent to which the employees have rendered service to date.
Amendments of the consolidated financial statements after issue. The Board of directors of the Company has the power to amend the consolidated financial statements after issue.
Changes in presentation. In 2020 because of significant growth in the brokerage operations and the related balances and volumes of transactions, the Group made a detailed review of the relevant accounting policies to achieve more relevant and reliable presentation. As a result of such review and because of significantly increased balances the Group reclassified brokerage receivables and brokerage payables from cash and cash equivalents and due to banks, respectively, into separate line items in the Consolidated statement of financial position. Also the Group identifed that certain portion of brokerage operations fee and commission income related to margin trading of Group's clients has more characteristics of being interest income rather than fee and commission income. Hence the Group made relevant reclassification from fee and commission income into interest income in the Consolidated statement of profit or loss and other comprehensive income. Similar reclassifications were made in the Consolidated statement of cash flows. Management considers that the above reclassifications will result in a more reliable and relevant presentation of the financial information which is more consistent with the market practice of many other banks.
In September 2020 as a result of a detailed review of the marketing agreements with the payment systems the Group changed its accounting policy in relation to income received under these agreements by reclassifying it from Other operating income to reduce the Payment System fees accounted for in Interest income and Fee and commission expenses. Part of the net payment system fees which relates to the borrowers' transactions is included in the effective interest income of the loans. Another part which relates to the customer's transactions was reclassified to Fee and commission expenses and presented on a net basis within the payment systems. Management considers that this reclassification results in a more reliable and relevant presentation of the substance of these agreements since such income from payment systems primarily represents volume rebates, hence it could be offset against related expenses.
In December 2020 given the increase in the related amounts the Group refined its accounting policy in relation to recoveries received in excess of gross carrying amount of purchased loans and reclassified them from Other operating income line to Credit loss allowance for loans and advances to customers and credit related commitments line of consolidated statement of profit or loss and other comprehensive income.
The effect of changes described above on the consolidated statement of financial position for the year ended 31 December 2019 is as follows:
| As originally pre | |||
|---|---|---|---|
| In millions of RR | sented | Reclassification | As reclassified |
| Cash and cash equivalents | 57,796 | (2,232) | 55,564 |
| Due to banks | 663 | (640) | 23 |
| Brokerage receivables | - | 2,799 | 2,799 |
| Brokerage payables | - | 1,207 | 1,207 |
The effect of changes described above on the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2019 is as follows:
| As originally pre | |||
|---|---|---|---|
| In millions of RR | sented | Reclassification | As reclassified |
| Interest income calculated using the effective interest rate method |
109,972 | 1,157 | 111,129 |
| Credit loss allowance for loans and advances to customers and credit related commitments |
(27,244) | 693 | (26,551) |
| Fee and commission income | 36,042 | (184) | 35,858 |
| Fee and commission expense | (17,448) | 2,325 | (15,123) |
| Other operating income | 4,713 | (3,991) | 722 |
The effect of changes described above on the consolidated statement of cash flows for the year ended 31 December 2019 is as follows:
| In millions of RR | As originally pre sented |
Reclassification | As reclassified |
|---|---|---|---|
| Interest income received calculated using the effective interest rate method |
106,975 | 879 | 107,854 |
| Fees and commissions received | 35,986 | (184) | 35,802 |
| Fees and commissions paid | (17,492) | 1,499 | (15,993) |
| Recoveries from the purchased loans received | - | 693 | 693 |
| Other operating income received | 4,024 | (2,887) | 1,137 |
| Net increase in cash and cash equivalents | 23,994 | (2,232) | 21,762 |
| Net increase in brokerage receivables | - | (2,799) | (2,799) |
| Net decrease in due to banks | (2,045) | (640) | (2,685) |
| Net increase in brokerage payables | - | 1,207 | 1,207 |
The following amended standards became effective from 1 January 2020, but did not have any material impact on the Group:
Certain new amendments have been issued that are mandatory for the annual periods beginning on or after 1 January 2021, which the Group has not early adopted:
IFRS 17 "Insurance Contracts" (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2023)*. IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts using existing practices. As a consequence, it was difficult for investors to compare and contrast the financial performance of otherwise similar insurance companies. IFRS 17 is a single principle-based standard to account for all types of insurance contracts, including reinsurance contracts that an insurer holds. The standard requires recognition and measurement of groups of insurance contracts at: (i) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus (if this value is an asset) (ii) an amount representing the unearned profit in the group of contracts (the contractual service margin). Insurers will be recognising the profit from a group of insurance contracts over the period they provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss-making, an entity will be recognising the loss immediately. The Group is currently assessing the impact of IFRS 17 on the insurance contracts issued by the Insurance Company as well as the impact for credit cards and similar loan products which may include insurance component.
Amendments to IFRS 17 and an amendment to IFRS 4 (issued on 25 June 2020 and effective for annual periods beginning on or after 1 January 2023)*. The amendments relate to eight areas of IFRS 17, and they are not intended to change the fundamental principles of the standard. The following amendments to IFRS 17 were made: effective date, expected recovery of insurance acquisition cash flows, contractual service margin attributable to investment services, reinsurance contracts held – recovery of losses and other amendments.
The following other new pronouncements are not expected to have any material impact on the Group when adopted:
* Denotes standards, interpretations and amendments which have not yet been endorsed by the European Union.
31 DECEMBER 2020
International Financial Reporting Standards Separate Financial Statements and Independent Auditor's Report Board of Directors
Constantinos Economides, Chairman Alexios Ioannides Mary Trimithiotou Jacques Der Megreditchian Martin Robert Cocker
The above all served throughout 2020 and through to the date of these separate financial statements.
The Company's Articles of Association include regulations for the retirement by rotation of Directors at each annual general meeting. These regulations will operate in 2021 on the basis of the composition of the Board at the relevant date.
25 Spyrou Araouzou Berengaria 25, 5th floor, 3036, Limassol, Cyprus
25 Spyrou Araouzou Berengaria 25, 5th floor, 3036, Limassol, Cyprus
| Board of Directors and other officers. | F-138 |
|---|---|
| Management Report. | F-139 |
| Independent Auditor's Report. . | F-147 |
| Separate Statement of Financial Position. . | F-155 |
|---|---|
| Separate Statement of Profit or Loss and Other Comprehensive Income. |
F-156 |
| Separate Statement of Changes in Equity. . | F-157 |
| Separate Statement of Cash Flows. | F-158 |
| 1 Introduction. F-159 |
|---|
| 2 Operating Environment of the Company. . F-161 |
| 3 Significant Accounting Policies. . F-162 |
| 4 Critical Accounting Estimates and Judgements in Applying Accounting Policies. . F-173 |
| 5 Adoption of New or Revised Standards and Interpretations . F-173 |
| 6 New Accounting Pronouncements. . F-174 |
| 7 Cash and Cash Equivalents. . F-174 |
| 8 Loans and Deposit Placements with Related Parties. . F-175 |
| 9 Investments in Equity Securities. . F-176 |
| 10 Debt Securities in Issue. . F-177 |
| 11 Other Financial and Non-financial Liabilities. . F-178 |
| 12 Share Capital, Share Premium and Treasury Shares. . F-178 |
| 13 Interest income and expense. . F-179 |
| 14 Administrative and Other Operating Expenses. . F-179 |
| 15 Income Taxes. | F-180 |
|---|---|
| 16 Dividends. . | F-181 |
| 17 Reconciliation of Liabilities Arising from Financing Activities. . |
F-182 |
| 18 Financial Risk Management. . | F-182 |
| 19 Contingencies and Commitments. | F-189 |
| 20 Fair Value of Financial Instruments. | F-189 |
| 21 Presentation of Financial Instruments by Measurement Category. |
F-194 |
| 22 Related Party Transactions. . | F-195 |
| 23 Events after the End of the Reporting Period. . | F-197 |
The Board of directors presents its report together with the audited separate financial statements of TCS Group Holding PLC (the "Company") for the year ended 31 Decem ber 2020.
channels are Internet and Mobile, but it also uses Direct Sales Agents and partnerships (co-brands) to acquire new customers. These customer acquisition models, combined with the Bank's virtual network, af ford it a geographic reach across all of Russia's regions resulting in a highly diversified portfolio.
move freely. The Company utilizes all types of forums to promote continual dialogue – such as email, online chat rooms, flash meetings, as well as formalized meeting structures. The Company offers clear far-reaching career path for its employees, a unique work environment and fair and transparent compensation.
GDRs of TCS Group Holding PLC (a Cyprus incorporated company), with each GDR issued under a deposit agreement dated on or about 24 October 2013 with JPMorganChase Bank N.A. as depositary representing one ordinary (formerly class A) share, are listed on the London Stock Exchange. The Compa ny's GDRs are also listed on the Moscow Exchange. No shares of TCS Group Holding PLC are directly listed on any exchange.
The Company is required to comply with the UK corporate governance regime to the extent it applies to foreign issuers of GDRs listed on the London Stock Exchange. The Company has not adopted corporate governance measures of the same standard in all respects as those adopted by UK incorporated companies or companies with a premium listing on the London Stock Exchange.
As the shares themselves are not listed on the Cyprus Stock Exchange (or elsewhere), the Cypriot corporate governance regime, which only relates to companies that are listed on the Cyprus Stock Exchange, does not apply to the Company and accordingly the Company does not monitor its compliance with that regime.
From the IPO in 2013 until 7 January 2021, the Company main tained a capital structure with two classes of shares, class A and class B. On 7 January 2021, all class B shares were convert ed to class A and simultaneously all shares were reclassified and redesignated as ordinary shares all ranking pari passu for all purposes and in all respects with the other existing shares, with the provisions in the Articles of Association of the Compa ny relating to class B shares deemed deleted.
The Company's Home State is Cyprus.
A description of the terms and conditions of the GDRs can be found at "Terms and Conditions of the Global Depositary Receipts", "Summary of the Provisions relating to the GDRs whilst still in Master Form" and "Description of Arrange ments to Safeguard the Rights of the Holders of the GDRs" in the Prospectus issued by the Company dated 22 October 2013 and on the website at www.tinkoff.ru/eng.
Copies of the Articles of Association of the Company adopted on 21 October 2013, the terms of reference of the Committees, and other corporate governance related as well as investor relations related materials can also be found on the website www.tinkoff.ru/eng, at the Company's main website (www.tcsgh.com.cy), on the Company's page on the London Stock Exchange website (www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary) and at the official site of the Department of Registrar of Companies, Cyprus (http://www.mcit.gov.cy/).
The role of the Board is to provide entrepreneurial leadership to the Company within a framework of prudent and effective controls which enable risk to be assessed and managed. The Board sets the Company's strategic objectives, ensures that the necessary financial and human resources are in place for the Company to meet its objectives and reviews manage ment's performance. The Board also sets the Company's val ues and standards and ensures that its obligations towards the shareholders and other stakeholders are understood and met.
The Board operates under a formal schedule of matters reserved to the Board for its decision, approved by share holders in 2013.
The authorities of the members of the Board are specified by the Articles of Association of the Company and by law. The current five strong Board of directors is comprised of three executive directors including the chairman, and two non-executive directors both of whom are independent. There was no change in the composition of the Board or status of the directors in 2020.
The longest serving director is Mr. Constantinos Econo mides who became a director in 2008, and later took over the role of Chairman of the Board of directors in June 2015. The names of the people who served on the Board during 2020 are listed at the Board of directors and other officers.
The Company has established two Committees of the Board. Specific responsibilities have been delegated to those com mittees as described below.
The Board is required to undertake a formal and rigorous review annually of its own performance, that of its commit -
tees and of its individual directors. That review was recently carried out, in-house, in relation to 2020, looking at overall performance. All directors completed detailed question naires on the Board's, the committees' and individual director's performance. The role of appraising the Chairman of the Board for 2020 was performed by the Chairman of the Audit Committee. Analysis of the resultant feedback will be discussed at a meeting of the Board of directors on 10 March 2021 and no changes are expected to be made in the performance of the Board, its committees or individual directors.
The Board has not appointed a senior independent director. There are only two independent directors of whom at least one will retire each year.
Unless and until otherwise determined by the Company in general meeting, the number of directors shall be no less than four, of whom two must be non-executive, and until 7 January 2021 was not permitted to exceed seven, when class B shares were in issue. From 7 January 2021, there is no maximum number of directors.
The Articles of Association of the Company provide for the retirement by rotation of certain directors at each Annual General Meeting (AGM). At the AGM on 24 August 2020 the director who retired by rotation was Mr. Jacques Der Megreditchian who was duly reappointed that day by vote of all the shareholders.
The Company has established two Committees of the Board of directors: the Audit Committee and the Remuneration Committee. Their terms of reference are summarized below. Both Committees were formed in October 2013. The Board reserves the right to amend their terms of reference and arranges a periodic review of each Committee's role and activities and considers the appropriateness of addi tional committees.
The Audit Committee is chaired by an independent non-ex ecutive director Mr Martin Cocker, and had, until 16 August 2019, two other members both non-executive directors, one of whom was independent. From 16 August 2019 the Audit Committee has comprised its chairman Mr Martin Cocker and one independent non-executive director.
The Remuneration Committee is also chaired by an inde pendent non-executive director, Mr Jacques Der Megred itchian, and had until 16 August 2019 two other members both non-executive directors, one of whom was independ ent. From 16 August 2019 the Remuneration Committee has comprised its chairman Mr Jacques Der Megreditchian and one independent non-executive director.
The current terms of reference of both Committees are available to the public and can be found on the Company's websites. A short summary of both is set out below.
The Audit Committee's primary purpose and responsibility is to assist the Board in its oversight responsibilities. In executing this role the Audit Committee monitors the in tegrity of the separate financial statements of the Company prepared under International Financial Reporting Stand ards ("IFRS") as adopted by the European Union (EU) and any formal announcements relating to the Group's and the Company's financial performance, reviewing significant financial reporting judgments contained in them, oversees the financial reporting controls and procedures imple mented by the Company and monitors and assesses the effectiveness of the Company's internal financial controls, risk management systems, internal audit function, the inde pendence and qualifications of the independent auditor and the effectiveness of the external audit process. The Audit Committee is required to meet at appropriate times in the reporting and audit cycle but in practice meets more often as required.
Under its terms of reference, the Audit Committee is required, at least once each year, to review its own performance, consti tution and terms of reference to ensure it is operating at maximum effectiveness and to recommend any changes it considers necessary for Board approval. The Audit Committee met this obligation through members participating in the main Board review described above. After consideration of the review, no changes were proposed to the committee's terms of reference. The Audit Committee operates a structured framework around the extensive work it does on non-financial statements related matters holding at least two additional meetings annually, at least one of which would typically be held at the Bank's head office in Moscow, to consider specific, non-financial statements related areas within its terms of reference. No such meeting was held in 2020 due to COVID-19 travel restrictions but at least two are planned for 2021.
The Audit Committee has developed a risk matrix which constantly evolves to reflect new risks, the perceived impact of, and the Company's appetite for, any given risk and the measures taken to mitigate those risks. This matrix is run in conjunction with the internal audit function.
The Remuneration Committee is responsible for determin ing and reviewing among other things the framework of remuneration of the executive directors, senior manage ment and its overall cost and the Company's remuneration policies. The objective is to ensure that the executive man agement of the Company are provided with appropriate incentives to encourage enhanced performance and are in a fair and responsible manner rewarded for their individual contributions to the success of the Company. The Remu neration Committee's terms of reference include reviewing the design and determining targets for any performance related pay schemes and reviewing the design of all share incentive plans for approval by the Board. The Remunera tion Committee is required to meet at least twice a year but in practice meets far more often.
The Remuneration Committee continued with its work into 2020 on its ongoing review of the operation of the Com pany's MLTIP which launched in 2016 and in considering additional awards to both existing and new participants for this and subsequent years.
The Committee has also been working on plans for an incentive and compensation arrangement within MLTIP for when, in the period 2022 to 2024, existing awards made to MLTIP joiners in 2016-2017 start to go into run off. The Remuneration Committee recommended in June 2020 and December 2020 7 and 8 members of key management re spectively be granted new awards under MLTIP in Q3 2021.
Under its terms of reference the Remuneration Committee is required at least once each year to review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and to recommend any changes it considers necessary for Board approval. The Remuneration Committee met this obligation through members participating in the main Board review (described above) under which detailed questionnaires were complet ed by all directors assessing the operation of the Board and both committees as well as individual directors. Although earlier reviews had resulted in certain minor changes to the Remuneration Committee's terms of reference, no further changes were felt required based on the most recent re view. The Committee continues to meet as required.
The directors of the Company are appointed by the general meeting of shareholders with the sanction of an ordinary resolution. Such an appointment may be made to fill a vacancy or as an additional director. But no director may be appointed unless nominated by the Board of directors or by a committee duly authorized by the Board of directors or by a shareholder or shareholders together holding or repre senting shares which in aggregate constitute or represent at least 5% in number of votes carried or conferred by the shares giving a right to vote at a general meeting.
The Board of directors may at any time appoint any person to the office of director either to fill a vacancy or as an addi tional director and every such director shall hold office only until the next following annual general meeting and shall not be taken into account in determining the directors who are to retire by rotation.
One third of the directors (or if their number is not a multi ple of three, the number nearest to three but not exceeding one-third) shall retire by rotation at every annual general meeting. Directors holding an executive office are excluded from retirement by rotation.
Directors may be removed from office by the sharehold ers at a general meeting with the sanction of an ordinary resolution, subject to giving 28 days' notice to that director in accordance with the Articles of Association.
The office of director shall be vacated if the director:
At any time when class B Shares cease to exist by virtue of conversion into class A Shares, each Director B shall thereby become (undesignated) a director and shall remain in office until the next annual general meeting and such director will not be taken into account in determining the directors who are to retire by rotation at such meeting.
For the significant direct and indirect shareholdings held in the share capital of the Company, please refer to Note 1 of the separate financial statements.
Policies, procedures and controls exist around financial reporting. Management is responsible for executing and assessing the effectiveness of these controls.
The Board of Directors is responsible for the preparation of the separate financial statements in accordance with IFRS as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap.113, and for such internal control as the Board of directors determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the separate financial statements, the Board of directors is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board has delegated to the Audit Committee the responsibility for reviewing the separate financial statements to ensure that they are in compliance with the applicable framework and legislation and for recommending these to the Board for approval. The Audit Committee is responsible for overseeing the Company's financial reporting process.
Management is responsible for setting the principles in relation to risk management. The risk management organisation is divided between Policy Making Bodies and Policy Implementation Bodies. Policy Making Bodies are responsible for establishing risk management policies and procedures, including the establishment of limits. The main Policy Making Bodies are the Board of directors, the Management Board, the Finance Committee, the Credit Committee and the Business Development Committee.
The policy implementation level of the Group's risk management organisation consists of the Finance Department, the Risk Management Department, the Collections Department and the Internal Control Service.
In addition the Company has implemented an online analytical processing management system based on a common SAS data warehouse that is updated on a daily basis. The set of daily reports includes but is not limited to sales reports, application processing reports, reports on the risk characteristics of the card portfolios, vintage reports, transition matrix (roll rates) reports, reports on the pre-, early and late collections activities, reports on compliance with CBR requirements, capital adequacy and liquidity reports, operational liquidity forecast reports and information on intra-day cash flows.
The Company is committed to offering equal opportunity to all current and prospective employees, such that no applicant or employee is discriminated in favour of or against on the grounds of sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation in recruitment, training, promotion or any other aspect of employment. Recruitment, training and promotion are exclusively based on merit. All the Company's and the Company's employees involved in the recruitment and management of staff are responsible for ensuring the policy is fairly applied within their areas of responsibility. The Company applies this approach throughout, at all levels. This includes its administrative, management and supervisory bodies, including the Board of directors of the Company.
The composition and diversity information of the Board of directors of the Company for the year ended and as at 31 December 2020 is set out below:
| Name | Age | Male/Female | Educational/professional background |
|---|---|---|---|
| Constantinos Economides | 45 | Male | ICAEW, MSc in Management Sciences, experience in 'Big Four' professional services firms |
| ICAEW, ICPAC, BSc in Business Administration, | |||
| Alexios Ioannides | 44 | Male | experience in 'Big Four' professional services firms |
| Mary Trimithiotou | 43 | Female | ICPAC, FCCA, Licensed insolvency practitioner, expe rience in 'Big Four' professional services firms |
| ICAEW, BSc in Mathematics and Economics, | |||
| Martin Robert Cocker | 61 | Male | experience in 'Big Four' professional services firms |
| Jacques Der Megreditchian | 61 | Male | BSc in Business Administration and in Financial Anal ysis, banking and finance experience |
| ICAEW, MSc in Management Sciences, experience in 'Big Four' professional services firms |
|---|
| ICAEW, ICPAC, BSc in Business Administration, |
| experience in 'Big Four' professional services firms |
| ICPAC, FCCA, Licensed insolvency practitioner, expe rience in 'Big Four' professional services firms |
| ICAEW, BSc in Mathematics and Economics, |
| experience in 'Big Four' professional services firms |
| ysis, banking and finance experience |
Further details of the corporate governance regime of the Company can be found on the website: https://www.tinkoff.ru/eng/investor-relations/corporate-governance/.
By Order of the Board
Constantinos Economides Chairman of the Board Limassol
23 March 2021
| Materiality | Overall materiality: Russian Roubles ("RR") 2 402 million, which represents approximately 0.5% of total equity. |
|---|---|
| Key audit matters | We have identified the following key audit matter: Valuation of investments in subsidiaries. $\bullet$ |
| Overall materiality | RR 2 402 million |
|---|---|
| How we determined it | Approximately 0.5% of total equity |
| Rationale for the materiality benchmark applied |
The Company is a holding company with limited operations. It elects to measure its investments in subsidiaries at fair value. Therefore, we chose total equity as the benchmark because, in our view, it is the benchmark against which the performance of the Company is most commonly measured by users. We chose 0.5%, which in our experience is an acceptable quantitative materiality threshold for this benchmark. |
| In millions of RR | Note | 31 December 2020 | 31 December 2019 |
|---|---|---|---|
| ASSETS | |||
| Cash and cash equivalents | 7 | 777 | 598 |
| Loans and deposit placements with related parties | 8 | 7,664 | 5,594 |
| Investments in equity securities | 9 | 472,395 | 257,293 |
| Other financial assets | 164 | 64 | |
| Other non-financial assets | 30 | 18 | |
| TOTAL ASSETS | 481,030 | 263,567 | |
| LIABILITIES | |||
| Debt securities in issue | 10 | - | 2,460 |
| Deferred income tax liabilities | - | 168 | |
| Other financial liabilities | 11 | 46 | 81 |
| Other non-financial liabilities | 11 | 656 | 585 |
| TOTAL LIABILITIES | 702 | 3,294 | |
| EQUITY | |||
| Share capital | 12 | 230 | 230 |
| Share premium | 12 | 26,998 | 26,998 |
| Treasury shares | 12 | (3,238) | (3,164) |
| Share-based payment reserve | 1,548 | 1,039 | |
| Accumulated losses | (5,556) | (10,901) | |
| Revaluation reserve | 460,346 | 246,071 | |
| TOTAL EQUITY | 480,328 | 260,273 | |
| TOTAL LIABILITIES AND EQUITY | 481,030 | 263,567 |
Approved for issue and signed on behalf of the Board of Directors on 23 March 2021.
Constantinos Economides Director
Mary Trimithiotou Director
| In millions of RR | Note | 2020 | 2019 |
|---|---|---|---|
| Interest income calculated using the effective interest rate method | 13 | 53 | 272 |
| Other similar income | 13 | 8 | 28 |
| Interest expense calculated using the effective interest rate method | 13 | (32) | (732) |
| Net interest income/ (expense) | 29 | (432) | |
| Dividend income | 9 | 17,954 | 17,158 |
| Net losses from derivatives revaluation | (3) | (678) | |
| Net gains from foreign exchange translation | 183 | 477 | |
| Net (losses)/gains from operations with foreign currencies | (45) | 111 | |
| Net gains from financial assets at FVTPL | 494 | 31 | |
| Share of result of associates and joint ventures | (926) | - | |
| Administrative and other operating expenses | 14 | (500) | (251) |
| Other operating income | 603 | 284 | |
| Profit before tax | 17,789 | 16,700 | |
| Income tax expense | 15 | (899) | (884) |
| Profit for the year | 16,890 | 15,816 | |
| Other comprehensive income: | |||
| Items that will not be reclassified subsequently to profit or loss: | |||
| Net gains arising during the year on investments in equity securities at fair value through other comprehensive income |
214,111 | 37,362 | |
| Income tax credit recorded directly in other comprehensive income | 168 | 1,019 | |
| Other comprehensive income for the year net of tax | 214,279 | 38,381 | |
| Total comprehensive income for the year | 231,169 | 54,197 |
| In millions of RR | Note | Share capital | Share premi um |
Revaluation reserve |
Share-based payment |
ed (losses)/ Accumulat income |
Treasury shares |
Total |
|---|---|---|---|---|---|---|---|---|
| Balance at 31 December 2018 | 188 | 8,623 207,534 | 1,232 (20,861) | (3,670) 193,046 | ||||
| Profit for the year | - | - | - | - | 15,816 | - | 15,816 | |
| Other comprehensive income: | ||||||||
| Investments in equity securities at FVOCI |
- | - | 37,362 | - | - | - | 37,362 | |
| Income tax credit recorded directly in other comprehensive income |
- | - | 1,019 | - | - | - | 1,019 | |
| Total comprehensive income for the year |
- | - 38,381 | - 15,816 | - | 54,197 | |||
| Shares issued | 12 | 42 | 18,874 | - | - | - | - | 18,916 |
| Secondary public offering costs | 12 | - | (499) | - | - | - | - | (499) |
| Share-based payment reserve | 12 | - | - | 156 | (193) | - | 506 | 469 |
| Dividends | 16 | - | - | - | - | (5,856) | - | (5,856) |
| Balance at 31 December 2019 | 230 26,998 246,071 | 1,039 (10,901) | (3,164) 260,273 | |||||
| Profit for the year | - | - | - | - 16,890 | - | 16,890 | ||
| Other comprehensive income: | ||||||||
| Investments in equity securities at FVOCI |
- | - 214,111 | - | - | - | 214,111 | ||
| Income tax credit recorded directly in other comprehensive income |
- | - | 168 | - | - | - | 168 | |
| Total comprehensive income for the period |
- | - 214,279 | - 16,890 | - 231,169 | ||||
| GDRs buy-back | 12 | - | - | - | - | - | (661) | (661) |
| Share-based payment reserve | 12 | - | - | (4) | 509 | - | 587 | 1,092 |
| Dividends | 16 | - | - | - | - (11,545) | - (11,545) | ||
| Balance at 31 December 2020 | 230 26,998 460,346 | 1,548 (5,556) | (3,238) 480,328 |
| In millions of RR | Note | 2020 | 2019 |
|---|---|---|---|
| Cash flows used in operating activities | |||
| Interest income calculated using the effective interest rate method received | 60 | 248 | |
| Interest expense calculated using the effective interest rate method paid | - | (741) | |
| Administrative and other operating expenses paid | (485) | (456) | |
| Income tax paid | (2) | (26) | |
| Cash paid from operations with financial derivatives | (10) | (651) | |
| Cash received from trading in foreign currencies | - | 111 | |
| Other operating income received | 180 | 300 | |
| Cash flows from operating activities before changes in operating assets and liabilities |
(257) | (1,215) | |
| Changes in operating assets and liabilities | |||
| Net increase in loans and deposit placement with related parties | (1,552) | (5,215) | |
| Net decrease in other non-financial liabilities | (39) | (373) | |
| Net increase in investments in debt securities at FVTPL | - | 410 | |
| Net cash used in operating activities | (1,848) | (6,393) | |
| Cash flows from/(used in) investing activities | |||
| Dividend received from subsidiaries | 17,056 | 17,583 | |
| Acquisition of investments in equity securities at FVOCI | (575) | (416) | |
| Acquisition of debt securities at FVOCI | - | (21,317) | |
| Proceeds from sale and redemption of debt securities at FVOCI | - | 21,312 | |
| Proceeds from investments in equity securities at FVOCI | - | 206 | |
| Net cash from investing activities | 16,481 | 17,368 | |
| Cash flows (used in)/from financing activities | |||
| Dividends paid | 16 | (11,835) | (5,601) |
| Repayment of debt securities in issue | 17 | (2,938) | (3,418) |
| GDRs buy-back | 12 | (661) | - |
| Proceeds from secondary public offering | 12 | - | 18,916 |
| Proceeds from debt securities in issue | 17 | - | 2,527 |
| Loans repaid | 17 | - | (23,092) |
| Secondary public offering costs paid | 12 | - | (499) |
| Repayment of principal of lease liabilities | - | (3) | |
| Net cash used in financing activities | (15,434) | (11,170) | |
| Effect of exchange rate changes on cash and cash equivalents | 980 | 32 | |
| Net increase/(decrease) in cash and cash equivalents | 179 | (163) | |
| Cash and cash equivalents at the beginning of the year | 7 | 598 | 761 |
| Cash and cash equivalents at the end of the year | 7 | 777 | 598 |
These separate financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") for the year ended 31 December 2020 for TCS Group Holding PLC (the "Company"), and in accordance with the requirements of the Cyprus Companies Law, Cap.113.
The Соmраnу has also prepared consolidated financial statements in accordance with IFRS as adopted by the EU and the requirements of the Cyprus Companies Law Cap. 113 for the Company and its subsidiaries ("the Group") for the year ended 31 December 2020. These are available to view onhttps://tinkoffgroup.com/financials/quarterly-earnings/.
The Company was incorporated, and is domiciled, in Cyprus in accordance with the provisions of the Companies Law, Cap.113.
The Board of directors of the Company at the date of authorisation of these separate financial statements consists of: Constantinos Economides, Alexios Ioannides, Mary Trimithiotou, Jacques Der Megreditchian and Martin Robert Cocker.
The Company Secretary is Caelion Secretarial Limited, 25 Spyrou Araouzou, 25 Berengaria, 5th floor, Limassol, Cyprus.
At 31 December 2020 and 2019 the share capital of the Company is comprised of class A shares and class B shares. A "class A" share is an ordinary share with a nominal value of USD 0.04 per share and carrying one vote. A "class B" share is an ordinary share with a nominal value of USD 0.04 per share and carrying 10 votes. As at 31 December 2020 the number of issued class A shares is 129,391,449 (2019: 119,291,268) and issued class B shares is 69,914,043 (2019: 80,014,224). Refer to Note 12 for further information on the share capital. On 25 October 2013 the Company completed an initial public offering of its class A ordinary shares in the form of global depository receipts (GDRs) listed on the London Stock Exchange plc. On 2 July 2019 the Company completed a secondary public offering (SPO) of its class A shares in the form of GDRs. On 28 October 2019 the Company's GDRs started trading also on the Moscow Exchange.
As at 31 December 2020 and 2019 the entities and the individuals holding either class A or class B shares of the Company were:
| Class of shares |
31 December 2020 |
31 December 2019 |
Country of Incorporation |
|
|---|---|---|---|---|
| Guaranty Nominees Limited | ||||
| (JP Morgan Chase Bank NA) | Class A | 64.92% | 59.85% United Kingdom | |
| Virtue Trustees (Switzerland) AG as Trustee of the Bernina Trust |
Class B | 18.47% | - | Switzerland |
| Virtue Trustees (Switzerland) AG as Trustee of the Rigi Trust |
Class B | 16.61% | - | Switzerland |
| Ioanna Georgiou | Class A | 0.00% | 0.00% | Cyprus |
| Panagiota Charalambous | Class A | 0.00% | 0.00% | Cyprus |
| Maria Vyra | Class A | 0.00% | 0.00% | Cyprus |
| Antonis Strati | Class A | 0.00% | - | Cyprus |
| Chloi Panagiotou | Class A | 0.00% | 0.00% | Cyprus |
| Leonora Chagianni | Class A | 0.00% | 0.00% | Cyprus |
| Marios Panayides | Class A | - | 0.00% | Cyprus |
| Altoville Holdings Limited | Class B | - | 18.47% | Cyprus |
| Nemorenti Limited | Class B | - | 21.68% | Cyprus |
| Total | 100.00% | 100.00% |
Guaranty Nominees Limited is a company holding class A shares of the Company for which GDRs are issued under a deposit agreement made between the Company and JP Morgan Chase Bank NA signed in October 2013.
On 19 March 2020 Altoville Holdings Limited and Nemorenti Limited transferred all of the Company's class B shares owned by them to two Tinkov family trusts. Russian entrepreneur Mr. Oleg Tinkov, who was the beneficial owner of Altoville Holdings Limited and Nemorenti Limited at 31 December 2019, remained the ultimate beneficiary of these class B shares.
On 14 December 2020 10,100,181 class B shares in the Company held by the Rigi Trust were converted to class A shares. As a result of the conversion, Mr. Oleg Tinkov's voting rights decreased from 87.03% to 84.38% as at 31 December 2020.
As at 31 December 2020 the ultimate controlling party of the Company was Mr. Oleg Tinkov, who controlled approximately 84.38% (2019: 87.03%) of the aggregated voting rights attached to the class A and B shares, excluding voting rights attaching to TCS Group Holding PLC GDRs he holds, if any.
On 7 January 2021 all 69,914,043 class B shares (35.08% of the total number of issued shares) held by the Rigi Trust and the Bernina Trust were converted to class A shares, and on the same date all issued shares were reclassified and redesignated as ordinary shares. Following the conversion, each share carries a single vote, and the total number of votes capable of being exercised are equal to the total number of issued shares (currently 199,305,492 shares following the class B share conversion). The number of GDRs in issue remained unchanged. As a result of the conversion, Mr. Oleg Tinkov's voting rights decreased from 84.38% to 35.08%. As a result his ability to exercise control over the Company and the Group was ceased.
As at 31 December 2020 and 2019 the six individuals listed in the table above each held one share as nominees of Mr. Oleg Tinkov (31 December 2019: as nominees of Altoville Holdings Limited).
The Company owns 100% of the shares and has 100% of the voting rights (directly or indirectly) of the following subsidiaries at 31 December 2020: JSC "Tinkoff Bank" ("the Bank"), LLC "Microfinance company "Т-Finans", LLC TCS, LLC "Phoenix", LLC "Tinkoff Software DC", LLC "Тinkoff Mobile", LLC "Tinkoff Capital", ANO "Tinkoff Education" and LLC "Tinkoff Invest Lab" (2019: the Bank, LLC "Microfinance company "Т-Finans", LLC TCS, LLC "Phoenix", LLC "Tinkoff Software DC", LLC "Тinkoff Mobile", Goward Group Limited (since February 2018 Goward Group Ltd was in liquidation process, and on 16 April 2019 the company was liquidated), LLC "Fintech DC", LLC "Tinkoff Capital" and ANO "Tinkoff Education").
As at 31 December 2020 the Company owns 88.98% and the Bank owns 11.02% of the shares of the JSC "Tinkoff Insurance" ("the Insurance Company") (2019: the Company owns 80.08% and the Bank owns 9.92%).
At 31 December 2020, the Company owns directly 95% of the shares of LLC "CloudPayments" (2019: directly 55% and indirectly 40% through the shares owned by the Bank). In 2020 the Company acquired 40% of the shares held by the Bank.
The Company and its subsidiaries together referred to as the "Group".
Principal activity. The Company's principal business activities are the holding of investments in Russian subsidiary companies and starting from December 2017 offering Cyprus based home call center services to customers and potential customers outside of Russia. The Bank operates under general banking license No. 2673 issued by the Central Bank of the Russian Federation ("CBRF") since 8 December 2006. The Insurance Company operates under an insurance license issued by the CBRF.
The Bank participates in the state deposit insurance scheme, which was introduced by Federal Law No. 177-FZ "Deposits insurance in banks of the Russian Federation" dated 23 December 2003. The State Deposit Insurance Agency guarantees repayment of insurance compensation up to RR 1.4 million per individual, individual entrepreneur and small enterprise deposits in case of the withdrawal of a licence of a bank or a CBRF-imposed moratorium on payments.
JSC "Tinkoff Insurance" (the "Insurance Company") provides insurance services such as accident, property, travellers, financial risks and auto insurance.
The subsidiary LLC "Microfinance company "Т-Finans" provides micro-finance services to clients.
The subsidiary LLC "TCS" provides printing and distribution services to the Bank.
The subsidiary LLC "Tinkoff Mobile" is a mobile virtual network operator set up in 2017 to provide mobile services.
The subsidiary LLC "CloudPayments" is a developer of online payment solutions whose core business is online merchant acquiring in Russia.
The subsidiary LLC "Phoenix" is a debt collection agency.
LLC "Tinkoff Software DC" and LLC "Fintech DC" provide software development services. In August 2020 the Group acquired a 22.15% shareholding in Incantus Holding Limited by transferring its 100% shareholding in LLC "Fintech DC" to Incantus Holding Limited and by providing a convertible loan (Notes 8 and 22). Incantus Holding Limited is a group of fintech start-ups launched in 2020 to provide a range of services to retail customers in Europe (excluding the CIS) through the mobile banking platform Vivid Money. In October 2020 a new venture capital fund invested into the share capital of Incantus Holding Limited. As a result the Company's shareholding in Incantus Holding Limited has decreased to 16.32%.
LLC "Tinkoff Capital" is an asset management company established in June 2019 to manage investment funds, mutual funds and non-state pension funds.
ANO "Tinkoff Education" is a non-commercial organization set up by the Bank as the sole founder.
LLC "Tinkoff Invest Lab" is an infrastructure company created for supporting and optimizing of the Group's investment services.
EBT is a special purpose trust which has been specifically created for the long-term incentive programme for Management of the Company (MLTIP).
Registered address and place of business. The Company's registered address is 25 Spyrou Araouzou, 25 Berengaria, 5th floor, Limassol, Cyprus.
Presentation currency. These separate financial statements are presented in millions of Russian Rubles (RR).
Russian Federation. The Company's main subsidiaries all operate within the Russian Federation, which displays certain characteristics of an emerging market. There were a number of significant changes in the operating and economic environment during 2020, which had an impact on the Company's business and its subsidiaries including:
As of the reporting date and subsequently some of the restrictions imposed by government authorities in the Russian Federation due to the COVID-19 pandemic have been lifted and the Company and its subsidiaries observe that business activity in the Russian Federation is recovering. However, the level of ongoing uncertainty in relation to further negative developments around the COVID-19 pandemic and possible impact on the Company and its subsidiaries remain high.
Hence it is practically impossible to make a comprehensive quantitative assessment with a high degree of certainty of the impact of these changes to the economic environment on the Company's and its subsidiaries' financial position, and in particular in considering credit loss allowances on the loan portfolio which requires to consider the probability of default of most borrowers in the next 12 months and for others over the life of their loan.
The Government of the Russian Federation has implemented various support measures for individuals and corporates impacted by the COVID-19 pandemic including their right in certain circumstances to obtain repayment holidays on their loans for up to 6 months and reduced rates of interest in this period.
Basis of preparation. These separate financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law Cap.113.
The Company has prepared these separate financial statements for compliance with the requirements of the Cyprus lncome Тах Law and the Disclosure Rule as issued by the Financial Security Authority of the United Kingdom.
The separate financial statements have been prepared under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, and by revaluation of financial instruments categorised at fair value through profit or loss ("FVTPL") and at fair value through other comprehensive income ("FVOCI"). The principal accounting policies applied in the preparation of these separate financial statements are set out below.
Management prepared these separate financial statements on a going concern basis.
Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair value or amortised cost as described below.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is the quoted price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the quantity held by the entity. This is the case even if a market's normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price.
The price within the bid-ask spread which management considers to be the most representative of fair value for quoted financial assets and liabilities is the last bid price of the business day. A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an active market is measured at the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (an asset) for a particular risk exposure or paid to transfer a net short position (a liability) for a particular risk exposure in an orderly transaction between market participants at the measurement date.
This is applicable for assets carried at fair value on a recurring basis if the Company: (a) manages the group of financial assets and financial liabilities on the basis of the entity's net exposure to a particular market risk (or risks) or to the credit risk of a particular counterparty in accordance with the entity's documented risk management or investment strategy; (b) it provides information on that basis about the group of assets and liabilities to the entity's key management personnel; and (c) the market risks, including duration of the entity's exposure to a particular market risk (or risks) arising from the financial assets and financial liabilities is substantially the same.
Valuation techniques such as discounted cash flow models or models based on recent arm's length transactions or consideration of financial data of the investees, are used to measure fair value of certain financial instruments for which external market pricing information is not available.
Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs). Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. Refer to Note 20.
Associates. Associates are entities over which the Company has significant influence (directly or indirectly), but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The carrying amount of associates includes goodwill identified on acquisition less accumulated credit losses, if any. Dividends received from associates reduce the carrying value of the investment in associates. Other post-acquisition changes in Company's share of net assets of an associate are recognised as follows: (i) the Company's share of profits or losses of associates is recorded in the profit or loss for the year as share of result of associates, (ii) the Company's share of other comprehensive income is recognised in other comprehensive income and presented separately, (iii); all other changes in the Company's share of the carrying value of net assets of associates are recognised in profit or loss within the share of result of associates.
However, when the Company's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Otherwise the Company continue to recognise further losses if it has commitments to fund the associate's operations.
Unrealised gains on transactions between the Company and its associates are eliminated to the extent of the Company's interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The Company applies the impairment requirements in IFRS 9 to long-term loans and similar long-term interest that in substance form part of the investment in associate before reducing the carrying value of the investment by a share of a loss of the investee that exceeds the amount of the Company's interest in the ordinary shares.
Disposals of subsidiaries, associates or joint ventures. When the Company ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity, are accounted for as if the Company had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss, where appropriate.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.
Amortised cost ("AC") is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any allowance for expected credit losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method.
Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the separate statement of financial position.
The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the gross carrying amount of a financial asset or to the amortised cost of a financial liability.
The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees and points paid or secured that are integral to the effective interest rate such as origination fees.
The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount, which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. For assets that are purchased or originated credit impaired ("POCI") at initial recognition, the effective interest rate is adjusted for credit risk, i.e. it is calculated based on the expected cash flows on initial recognition instead of contractual payments.
Financial instruments – initial recognition. Financial instruments at FVTPL are initially recorded at fair value. All other financial instruments are initially recorded at fair value adjusted for transaction costs that are incremental and directly attributable to the acquisition or the issue of the financial asset or financial liability. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. After the initial recognition, an ECL allowance is recognised for financial assets measured at AC and investments in debt instruments measured at FVOCI, resulting in an immediate accounting loss.
All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention ("regular way" purchases and sales) are recorded at trade date, which is the date on which the Company commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.
The Company uses discounted cash flow valuation techniques to determine the fair value of currency swaps, foreign exchange forwards that are not traded in an active market. Differences may arise between the fair value at initial recognition, which is considered to be the transaction price, and the amount determined at initial recognition using a valuation technique. The differences are immediately recognised in profit or loss if the valuation uses only level 1 or level 2 inputs.
Financial assets – classification and subsequent measurement – measurement categories. The Company classifies financial assets in the following measurement categories: FVTPL, FVOCI and AC. The classification and subsequent measurement of debt financial assets depends on:
Financial assets – classification and subsequent measurement – business model. The business model reflects how the Company manages the assets in order to generate cash flows – whether the Company's objective is:
Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities that the Company undertakes to achieve the objective set out for the portfolio available at the date of the assessment. Factors considered by the Company in determining the business model include the purpose and composition of a portfolio, past experience on how the cash flows for the respective assets were collected, how risks are assessed and managed, how the assets' performance is assessed and how managers are compensated.
Based on the analysis performed the Company included the following financial instruments in the business model "hold to collect contractual cash flows" since the Company manages these financial instruments solely to collect contractual cash flows: cash and cash equivalents, loans and deposit placements with related parties and other financial assets. The Company included debt securities at FVOCI in the business model "hold to collect contractual cash flows and sell" since the Company manages these financial instruments to collect the contractual cash flows.). The Company included debt securities measured at FVTPL and financial derivatives in the business model "other".
Financial assets – classification and subsequent measurement – cash flow characteristics. Where the business model is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Company assesses whether the cash flows represent solely payments of principal and interest (the SPPI test). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are consistent with the SPPI feature.
In making this assessment, the Company considers whether the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only consideration for credit risk, time value of money, other basic lending risks and profit margin.
Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the financial asset is classified and measured at FVTPL. The SPPI assessment is performed on initial recognition of an asset and it is not subsequently reassessed. However, if the contractual terms of the asset are modified, the Company considers if the contractual cash flows continue to be consistent with a basic lending arrangement in assessing whether the modification is substantial. See below for "Financial assets – modification".
Financial assets – reclassification. Financial instruments are reclassified only when the business model for managing the portfolio as a whole changes. The reclassification has a prospective effect and takes place from the beginning of the first reporting period that follows after the change in the business model. The Company did not change its business model during the current and comparative period and did not make any reclassifications.
Financial assets – impairment – credit loss allowance for ECL. The Company assesses on a forward-looking basis the ECL for debt instruments (including loans) measured at AC and FVOCI and for the exposure arising from loan commitments and financial guarantee contracts. The Company measures ECL and recognises credit loss allowance at each reporting date.
The measurement of ECL reflects:
Debt instruments measured at AC are presented in the separate statement of financial position net of the allowance for ECL.
For financial guarantees a separate provision for ECL is recognised as a financial liability in the separate statement of financial position. For debt instruments at FVOCI, changes in amortised cost, net of allowance for ECL, are recognised in profit or loss and other changes in carrying value are recognised in OCI as gains less losses on debt instruments at FVOCI.
The Company applies a "three stage" model for impairment in accordance with IFRS 9, based on changes in credit quality since initial recognition:
Note 18 provides information about inputs, assumptions and estimation techniques used in measuring ECL.
Financial assets – write-off. Financial assets are written-off, in whole or in part, when the Company exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. The write-off represents a derecognition event. The Company may write-off financial assets that are still subject to enforcement activity when the Company seeks to recover amounts that are contractually due, however, there is no reasonable expectation of recovery.
Financial assets – derecognition. The Company derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Company has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership, but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose restrictions on the sale.
Financial assets – modification. The Company sometimes renegotiates or otherwise modifies the contractual terms of the financial assets. The Company assesses whether the modification of contractual cash flows is substantial considering, among other, the following factors: any new contractual terms that substantially affect the risk profile of the asset, significant change in interest rate, change in the currency denomination, new collateral or credit enhancement that significantly affects the credit risk associated with the asset, or a significant extension of a loan when the borrower is not in financial difficulties.
If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Company derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation purposes, including determining whether a SICR has occurred.
The Company also assesses whether the new loan or debt instrument meets the SPPI criterion. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners.
In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally agreed payments, the Company compares the original and revised expected cash flows to assets whether the risks and rewards of the asset are substantially different as a result of the contractual modification. If the risks and rewards do not change, the modified asset is not substantially different from the original asset and the modification does not result in derecognition. The Company recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective interest rate, and recognises a modification gain or loss in profit or loss.
Financial liabilities – measurement categories. Financial liabilities are classified as subsequently measured at AC, except for financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in securities).
Financial liabilities – derecognition. Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).
An exchange between the Company and its original lenders of debt instruments with substantially different terms, as well as substantial modifications of the terms and conditions of existing financial liabilities, are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
The terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability.
In addition, other qualitative factors, such as the currency that the instrument is denominated in, changes in the type of interest rate, new conversion features attached to the instrument and change in loan covenants are also considered. If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability.
Modifications of liabilities that do not result in extinguishment are accounted for as a change in estimate using a cumulative catch up method, with any gain or loss recognised in profit or loss, unless the economic substance of the difference in carrying values is attributed to a capital transaction with owners.
Cash and cash equivalents. Cash and cash equivalents include deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at AC because: (i) they are held for collection of contractual cash flows and those cash flows represent SPPI, and (ii) they are not designated at FVTPL.
Loans and deposit placements with related parties. Loans and deposit placement with related parties are recorded when the Company advances money to purchase or originate receivable from related party due on fixed or determinable dates and has no intention of trading the receivable. Loans and deposit placement with related parties are classified within held to collect business model and carried at amortised cost using effective interest rate if they pass SPPI test. Otherwise loans and deposit placement with related parties are classified within other business model and carried at fair value through profit or loss. Refer to Note 8 for details of ECL measurement for loans and deposit placements with related parties.
Financial derivatives. Financial derivatives represented by foreign exchange swaps and forwards are carried at their fair value. Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of financial derivatives are recorded within Net losses from derivatives revaluation. The Company does not apply hedge accounting.
Tangible fixed assets. Tangible fixed assets are stated at cost less accumulated depreciation and provision for impairment, where required.
Costs of minor repairs and day-to-day maintenance are expensed when incurred. Costs of replacing major parts or components of premises and equipment items are capitalised, and the replaced part is retired.
At the end of each reporting period management assesses whether there is any indication of impairment of tangible fixed assets. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset's fair value less costs to sell and its value in use. The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in profit or loss for the year. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset's value in use or fair value less costs to sell.
Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit or loss for the year (within other operating income or expenses).
Depreciation. Depreciation of each item of tangible fixed assets is calculated using the straight-line method to allocate its cost to its residual value over its estimated useful life as follows:
| Useful lives in years | ||
|---|---|---|
| Equipment | 3 to 10 | |
The residual value of an asset is an estimated amount that the Company would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Accounting for leases by the Company as a lessee. Leases, where the Company is the lessee, are recognised as a rightof-use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
The lease term includes any non-cancellable and optional extension periods which have been assessed as reasonably certain to be exercised. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the Company's incremental borrowing rate is used, being the rate that the Company would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms, security and conditions.
Right-of-use assets are measured at cost comprising the following:
As an exception to the above, the Company accounts for short-term leases and leases of low value assets by recognising the lease payments as an operating expense in profit or loss on a straight line basis. Short-term leases are leases with a lease term of 12 months or less, and the lease does not provide for the possibility of repurchase of the asset at the end of the contract. Low value assets are assets with a value of RR 300,000 or less at the date of conclusion of the contract.
Right-of-use assets are included in other non-financial assets, lease liabilities are included in other non-financial liabilities in the separate statement of financial position. Depreciation of right-of-use assets are recognised in administrative and other operating expenses in the separate statement of profit or loss and other comprehensive income. Finance cost is recognised within interest expense of the separate statement of profit or loss and other comprehensive income. Repayment of principal of lease liabilities is disclosed within cash flows from financing activities of the separate statement of cash flows.
Right-of-use asset are reviewed for impairment in accordance with the Company's accounting policy for impairment of non-financial assets.
Investments in debt securities. Based on the business model and the contractual cash flow characteristics, the Company classifies investments in debt securities as carried at AC, FVOCI or FVTPL.
Debt securities are carried at AC if they are held for collection of contractual cash flows and where those cash flows represent SPPI, and if they are not voluntarily designated at FVTPL in order to significantly reduce an accounting mismatch. Debt securities are carried at FVOCI if they are held for collection of contractual cash flows and for selling, where those cash flows represent SPPI, and if they are not designated at FVTPL. Interest income from these assets is calculated using the effective interest method and recognised in profit or loss. An impairment allowance estimated using the expected credit loss model is recognised in profit or loss for the year. All other changes in the carrying value are recognised in OCI except for net results from operations with foreign currencies and interest income calculated using the effective interest rate method. When the debt security is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from OCI to profit or loss.
Investments in debt securities are carried at FVTPL if they do not meet the criteria for AC or FVOCI. The Company may also irrevocably designate investments in debt securities at FVTPL on initial recognition if applying this option significantly reduces an accounting mismatch between financial assets and liabilities being recognised or measured on different accounting bases.
Sale and repurchase agreements and lending of securities. Sale and repurchase agreements ("repo agreements"), which effectively provide a lender's return to the counterparty, are treated as secured financing transactions. Securities sold under such sale and repurchase agreements are not derecognised. The securities are not reclassified in the separate statement of financial position unless the transferee has the right by contract or custom to sell or repledge the securities, in which case they are reclassified as repurchase receivables. The corresponding liability is presented within amounts loans received.
Securities purchased under agreements to resell ("reverse repo agreements"), which effectively provide a lender's return to the Company, are recorded as loans received. The difference between the sale and repurchase price, adjusted by interest and dividend income collected by the counterparty, is treated as interest income and accrued over the life of reverse repo agreements using the effective interest method.
Securities lent to counterparties for a fixed fee are retained in the separate financial statements in their original category in the separate statement of financial position unless the counterparty has the right by contract or custom to sell or repledge the securities, in which case they are reclassified and presented separately.
Securities borrowed for a fixed fee are not recorded in the separate financial statements, unless these are sold to third parties, in which case the purchase and sale are recorded in profit or loss for the year within gains less losses arising from trading securities. The obligation to return the securities is recorded at fair value in other borrowed funds.
Based on classification of securities sold under the sale and repurchase agreements, the Company classifies repurchase receivables into one of the following measurement categories: AC, FVOCI or FVTPL.
Investments in equity securities. Financial assets that meet the definition of equity from the issuer's perspective, i.e. instruments that do not contain a contractual obligation to pay cash and that evidence a residual interest in the issuer's net assets, are considered as investments in equity securities by the Company. Investments in equity securities are measured at FVTPL, except where the Company elects at initial recognition to irrevocably designate an equity investment at FVO-CI. The Company's policy is to designate equity investments (including Invesments in subsidiaries) as FVOCI when those investments are held for strategic purposes other than solely to generate investment returns.
When the FVOCI election is used, fair value gains and losses are recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal. Impairment losses and their reversals, if any, are not measured separately from other changes in fair value. Dividends continue to be recognised in profit or loss when the Company's right to receive payments is established except when they represent a recovery of an investment rather than a return on such investment.
Investments in equity securities include investments in subsidiaries. Subsidiaries are all entities (including structured entities) over which the Company has control. The Company controls an entity when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In cases of acquisitions of subsidiaries from entities under common control or subsidiaries of the Company, the cost of acquisition is determined to be the fair value of the investment acquired as opposed to the transaction price.
Any differences between the transaction price and the fair value of the investment acquired reflect notional contributions/ distributions from entities under common control or subsidiaries and are recognised as such, i.e. directly in equity in cases of transactions with common control entities and as an additional contribution to or distribution from the subsidiary transferring the investment to the Company.
Debt securities in issue. Debt securities are stated at amortised cost. If the Company purchases its own debt securities in issue, they are removed from the separate statement of financial position and the difference between the carrying amount of the liability and the consideration paid is included in a separate line of the separate statement of profit or loss and other comprehensive income.
Other liabilities. Other liabilities are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Other liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Income taxes. Income taxes have been provided for in the separate financial statements in accordance with Cyprus legislation enacted or substantively enacted as of the end of the reporting period. The income tax (charge)/credit comprises current tax and deferred tax and is recognised in profit or loss for the year except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes other than on income are recorded within administrative and other operating expenses.
Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.
Deferred income tax is not recognised on post-acquisition retained earnings and other post acquisition movements in reserves of subsidiaries where the Company controls the subsidiary's dividend policy, and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future. Provision for deferred tax on the undistributed profits of the Company's subsidiaries is made when the dividend payment is probable to be made out of economic resources of the subsidiaries at the reporting date and is recognised in other comprehensive income. Withholding taxes incurred on actual dividend distributions by subsidiaries are recognised in profit or loss once the right of dividend income is established.
Uncertain tax positions. The Company's uncertain tax positions are assessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted at the end of reporting period and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management's best estimate of the expenditure required to settle the obligations at the end of the reporting period.
Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
Levies and charges, such as taxes other than income tax or regulatory fees based on information related to a period before the obligation to pay arises, are recognised as liabilities when the obligating event that gives rise to pay a levy occurs, as identified by the legislation that triggers the obligation to pay the levy. If a levy is paid before the obligating event, it is recognised as a prepayment.
Share capital. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds and debited against share premium.
Share premium. Share premium is the difference between the fair value of the consideration receivable for the issue of shares and the nominal value of the shares. The share premium account can only be resorted to for limited purposes, which do not include the distribution of dividends, and is otherwise subject to the provisions of the Cyprus Companies Law on reduction of share capital.
Treasury shares. Where the Company purchases the Company's equity instruments, the consideration paid, including any directly attributable incremental external costs, net of income taxes, is deducted from equity attributable to the owners of the Company until the equity instruments are reissued, disposed of or cancelled. Where such shares are subsequently disposed of or reissued, any consideration received is included in equity. The value of GDRs transferred out of treasury shares for the purposes of the long-term incentive programme for management of the Company are determined based on the weighted average cost.
The Company's equity instruments acquired by employee share trust entity are treated as treasury shares when the Company retains the majority of the risks and rewards relating to the funding arrangement for the trust entity.
Share-based payments. The Company grants equity settled share based payments to employees of its subsidiary. No share-based payment charge is recognised as no employees are providing services to the Company. The Company records a debit to the investment in the subsidiaries as a capital contribution from the parent to the subsidiary and a credit to sharebased payment reserve within equity. When the rewards granted under share-based payment programs vest the Company reclassifies accumulated share based payment reserve to revaluation reserve.
Dividends. Dividends are recorded in equity in the period in which they are declared. Any dividends declared after the end of the reporting period and before the separate financial statements are authorised for issue, are disclosed in the Note 23. The separate financial statements of the Company prepared in accordance with IFRS as adopted by the EU and in accordance with Cyprus Companies Law is the basis of available reserves for distribution. Management considers the Revaluation Reserve to be a distributable reserve. Dividend distribution to the Company's shareholders is recognised as a liability in the Company's separate financial statements in the year in which the dividends are appropriately authorised and are no longer at the discretion of the Company. More specifically, interim dividends are recognised as a liability in the period in which these are authorised by the Board of directors and in the case of final dividends, these are recognised in the period in which these are approved by the Company's shareholders.
Interest income and expense recognition. Interest income and expense are recorded for all debt instruments, other than those at FVTPL, on an accrual basis using the effective interest method. This method defers, as part of interest income or expense, all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Fees integral to the effective interest rate include origination fees received or paid by the entity relating to the creation or acquisition of a financial asset or issuance of a financial liability. Commitment fees received by the Company to originate loans at market interest rates are integral to the effective interest rate if it is probable that the Company will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination. The Company does not designate loan commitments as financial liabilities at FVTPL.
For financial assets that are originated or purchased credit-impaired, the effective interest rate is the rate that discounts the expected cash flows (including the initial expected credit losses) to the fair value on initial recognition (normally represented by the purchase price). As a result, the effective interest is credit-adjusted.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for:
Other income and expense recognition. All other income is generally recorded on an accrual basis by reference to completion of the specific performance obligation assessed on the basis of measurement of the Company's progress towards complete satisfaction of that performance obligation.
All other expenses are generally recorded on an accrual basis by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Other similar income. Other similar income represents interest income recorded for debt instruments measured at fair value through profit or loss ("FVTPL") and is recognised on an accrual basis using nominal interest rate.
Other similar expense. Other similar expense represents finance cost related to the discounted lease payments using the incremental borrowing rate.
Foreign currency translation. Functional currency is the currency of the primary economic environment in which the entity operates. The Company's results are dependent upon the receipt of dividends from and the valuation of its primary subsidiaries which operate in the Russian Federation. Therefore the functional currency of the Company is the national currency of the Russian Federation, Russian Rouble ("RR"). The Russian Rouble is also the presentation currency of the Company.
Foreign exchange gains and losses resulting from the translation of monetary assets and liabilities into each entity's functional currency at year-end official exchange rates of the CBRF are recognised in profit or loss for the year as Net gains/ (losses) from foreign exchange translation.
Foreign exchange gains and losses resulting from the settlement of transactions with foreign currencies are recognised in profit or loss for the year as Net gains from operations with foreign currencies.
At 31 December 2020 the rate of exchange used for translating foreign currency balances was USD 1 = RR 73.8757 (31 December 2019: USD 1 = RR 61.9057), and the average rate of exchange was USD 1 = RR 72.1464 ( 2019: USD 1 = RR 64.7362).
Of fsetting. Financial assets and liabilities are offset and the net amount reported in the separate statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
Such a right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following circumstances: (i) in the normal course of business, (ii) the event of default and (iii) the event of insolvency or bankruptcy.
Amendments of the separate financial statements after issue. The Board of directors of the Company has the power to amend the separate financial statements after issue.
The Company makes estimates and assumptions that affect the amounts recognised in the separate financial statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the separate financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:
Investments in subsidiaries. The estimated fair value of investments in subsidiaries recognises that the majority of the value of the Company resides in its main operating subsidiaries. Thus in estimating the fair value of the subsidiaries the primary input is the market quote of the Company's GDRs which are traded on the London and Moscow Stock Exchanges. Other inputs include the estimated fair value of the assets and liabilities held by the Company other than its investment in the subsidiaries. Refer to Note 20.
Perpetual subordinated bonds. The Company from time to time invests in perpetual subordinated bonds issued by third parties. The Company has taken into consideration that there are genuine contingent settlement provisions that could arise and as such has classified the investments in perpetual subordinated bonds as investments in debt securities on the basis of terms of issue which stipulate the possible redemption of the instrument in several cases other than liquidation of the issuer.
The investments in these instruments are classified as debt investment securities measured at FVTPL since the analysis of the contractual cash flow characteristics resulted in acquired perpetual bonds not passing SPPI test. If the Company had recognized this instrument as equity instrument, then it could have been measured at FVTPL or FVOCI as the Company does not hold it for trading purposes.
Initial recognition of related party transactions. In the normal course of business the Company enters into transactions with its related parties. IFRS 9 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analysis. Terms and conditions of related party balances are disclosed in Note 22.
Determination of functional currency. The Company follows the guidance of IAS 21 "The Effects of Changes in Foreign Exchange Rates" for the determination of the functional currency of the Company. The Company's functional currency is RR.
Tax legislation. Cypriot and Russian tax, currency and customs legislation are subject to varying interpretations. Refer to Note 19.
The following amended standards became effective from 1 January 2020, but did not have any material impact on the Company:
Certain new amendments have been issued that are mandatory for the annual periods beginning on or after 1 January 2021, which the Company has not early adopted:
IFRS 17 "Insurance Contracts"(issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2023)*. IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts using existing practices. As a consequence, it was difficult for investors to compare and contrast the financial performance of otherwise similar insurance companies. IFRS 17 is a single principle-based standard to account for all types of insurance contracts, including reinsurance contracts that an insurer holds. The standard requires recognition and measurement of groups of insurance contracts at: (i) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus (if this value is an asset) (ii) an amount representing the unearned profit in the group of contracts (the contractual service margin). Insurers will be recognising the profit from a group of insurance contracts over the period they provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss-making, an entity will be recognising the loss immediately. The Company is currently assessing the impact of IFRS 17 on the insurance contracts issued by the Insurance Company as well as the impact for credit cards and similar loan products which may include insurance component.
Amendments to IFRS 17 and an amendment to IFRS 4 (issued on 25 June 2020 and effective for annual periods beginning on or after 1 January 2023)*. The amendments relate to eight areas of IFRS 17, and they are not intended to change the fundamental principles of the standard. The following amendments to IFRS 17 were made: effective date, expected recovery of insurance acquisition cash flows, contractual service margin attributable to investment services, reinsurance contracts held – recovery of losses and other amendments.
The following other new pronouncements are not expected to have any material impact on the Company when adopted:
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Placements with other banks with original maturities of less than three months | ||
| - placements with UK Bank (A+ rated) | 705 | 596 |
| - placements with European bank (B- rated) | 72 | - |
| - placements with European bank (CCC+ rated) | - | 2 |
| Total cash and cash equivalents | 777 | 598 |
The table below discloses the credit quality of cash and cash equivalents balances based on credit risk grades at 31 December 2020. The gross carrying amount of cash and cash equivalents at 31 December 2020 below also represents the Company's maximum exposure to credit risk on these assets:
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Placements with other banks with original maturities of less than three months | ||
| Excellent | 705 | 596 |
| Sub-standard | 72 | - |
| Doubtful | - | 2 |
| Total cash and cash equivalents | 777 | 598 |
Refer to Note 18 for the description of the Company's credit risk grading system.
For the purpose of ECL measurement cash and cash equivalents balances are included in Stage 1. The ECL for these balances represents an immaterial amount, therefore the Company did not recognise any credit loss allowance for cash and cash equivalents. Amounts of cash and cash equivalents are not collateralised. Refer to Note 18 for the ECL measurement approach. Interest rate, maturity and geographical risk concentration analysis of cash and cash equivalents is disclosed in Note 18. Refer to Note 20 for the disclosure of the fair value of cash and cash equivalents.
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Deposit placements with subsidiary Bank | 5,772 | 5,594 |
| Loans and advances to related parties at FVTPL | 1,892 | - |
| Total loans and deposit placements with related parties | 7,664 | 5,594 |
At 31 December 2020 the deposit placements with subsidiary Bank are represented by three deposits: deposit placement in USD with a nominal value of RR 30 million at 0.90% per annum maturing on 10 August 2021, deposit placement in EUR with a nominal value of RR 13 million at 0.29% per annum maturing on 4 August 2021, deposit placement in RR with a nominal value of RR 5,729 million at 4.50% per annum maturing on 24 December 2021.
Loans and advances to customers at FVTPL represent a loan that does not meet SPPI requirement and that was issued to a related party (refer to Note 22) in EUR with a nominal value of RR 1,892 million at 1.70% per annum maturing on 31 August 2025.
At 31 December 2019 the deposit placements with subsidiary Bank are represented by three deposits: deposit placement in USD with a nominal value of RR 2,114 million at 2.5% per annum matured on 10 August 2020, deposit placement in EUR with a nominal value of RR 1,806 million at 0.35% per annum matured on 7 February 2020, deposit placement in RR with a nominal value of RR 1,674 million at 7.5% per annum matured on 25 December 2020.
For the purpose of ECL measurement deposit placements with subsidiary Bank balances are included in Stage 1. The ECL for these balances represents an immaterial amount, therefore the Company did not create any credit loss allowance for deposit placements with subsidiary Bank. Refer to Note 18 for the ECL measurement approach.
As at 31 December 2020 for the purpose of credit risk measurement loans and deposit placements with related parties balances are included in "Monitor" credit risk grade based on credit risk grade master scale (31 December 2019: same). Refer to Note 18 for the description of the credit risk grading system.
Refer to Note 20 for the disclosure of the fair value of loans and deposit placements with related parties. Interest rate, maturity and geographical risk concentration analysis are disclosed in Note 18. Information on related party balances is disclosed in Note 22.
| In millions of RR | |
|---|---|
| ------------------- | -- |
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Investments in subsidiaries including: | 472,221 | 256,443 |
| - Investments in financial institutions | 443,921 | 231,535 |
| - Investments in non-financial institutions | 28,300 | 24,908 |
| Other investments in equity securities | 174 | 850 |
| Total investments in securities | 472,395 | 257,293 |
As at 31 December 2020 investments in financial institutions include investments in share capital of JSC "Tinkoff Bank", JSC "Tinkoff Insurance", LLC "Microfinance company "Т-Finans", LLC "Tinkoff Capital" and LLC "Tinkoff Invest Lab" (2019: JSC "Tinkoff Bank", JSC "Tinkoff Insurance", LLC "Microfinance company "Т-Finans", LLC "Tinkoff Capital").
As at 31 December 2020 investments in non-financial institutions include investments in share capital of LLC "CloudPayments", LLC "Тinkoff Mobile", LLC "Phoenix", LLC "Tinkoff Software DC", LLC "TCS" and ANO "Tinkoff Education" (2019: LLC "CloudPayments", LLC "Тinkoff Mobile", LLC "Phoenix", LLC "Tinkoff Software DC", LLC "TCS", LLC "Fintech DC" and ANO "Tinkoff Education"). On 16 April 2019 Goward Group Limited was liquidated.
The Bank is registered in the Russian Federation and was acquired by the Company in November 2006 (Note 1). The Bank is 100% owned and controlled by the Company.
The Insurance Company is registered in the Russian Federation and was acquired by the Company in August 2013 (Note 1). In June 2019 the Company sold 10% in the Insurance Company to the Bank for cash consideration of RR 206 million, there were no transfers of any cumulative gain or loss within equity relating to these changes. As at 31 December 2020 the Company owns 88.98% of the shares of the Insurance Company and controls it, the Bank owns 11.02% of the shares of the Insurance Company (2019: the Company owns 80.08%, the Bank owns 9.92%).
In October 2017 the Company acquired a 55% shareholding in LLC "CloudPayments". During 2019 the Bank acquired a 40% shareholding in LLC "CloudPayments", and thus the Company owns directly and indirectly a 95% holding in the shares of LLC "CloudPayments". As at 31 December 2020 the Company owns 95% shares of LLC "CloudPayments".
Investments in subsidiaries are stated at fair value at the end of each reporting period (Notes 3, 4 and 20). The movements in investments in subsidiaries for the period ended 31 December 2020 are as follows:
| Carrying amount at 31 December | 472,221 |
|---|---|
| Share-based payment | 1,092 |
| Revaluation of investment in subsidiaries | 214,111 |
| Investments in subsidiaries | 575 |
| Carrying amount at 1 January | 256,443 |
| In millions of RR | 2020 |
The movements in investments in subsidiaries for the period ended 31 December 2019 are as follows:
| In millions of RR | 2019 |
|---|---|
| Carrying amount at 1 January | 218,818 |
| Investments in subsidiaries | (206) |
| Revaluation of investment in subsidiaries | 37,362 |
| Share-based payment | 469 |
| Carrying amount at 31 December | 256,443 |
Dividend income from investments in subsidiaries recognised during the year is as follows:
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Investment in JSC "Tinkoff Insurance" | 8,185 | 4,461 |
| Investment in JSC "Tinkoff Bank" | 7,998 | 12,697 |
| Investment in LLC "Phoenix" | 1,421 | - |
| Investment in LLC "CloudPayments" | 350 | - |
| Total dividend income | 17,954 | 17,158 |
Interest rate, maturity and geographical risk concentration analysis of investment in equity securities are disclosed in Note 18. Refer to Note 20 for the disclosure of the fair value of investments in equity securities.
| In millions of RR | Date of maturity | 31 December 2019 |
|---|---|---|
| EUR denominated ECP issued in December 2019 | 20 November 2020 | 1,030 |
| EUR denominated ECP issued in February 2019 | 18 February 2020 | 831 |
| USD denominated ECP issued in December 2019 | 20 November 2020 | 599 |
| Total Debt Securities in Issue | 2,460 |
No debt securities were issued during 2020 and none were outstanding as at 31 December 2020.
On 20 December 2019 the Company issued two tranches of Euro-Commercial Paper (ECP) denominated in USD and EUR maturing on 20 November 2020. USD denominated ECP had a nominal value of USD 10 million at 3.6% coupon rate. EUR denominated ECP had a nominal value of EUR 15 million at 1.0% coupon rate.
On 19 February 2019 the Company issued Euro-Commercial Paper (ECP) denominated in EUR maturing on 18 February 2020. EUR denominated ECP had a nominal value of EUR 12 million at 1.25% coupon rate.
The Company redeemed all outstanding ECP at maturity date.
Refer to Note 20 for the disclosure of the fair value of debt securities in issue. Maturity analysis of debt securities in issue are disclosed in Note 18. Reconciliation of liabilities arising from financing activities is disclosed in Note 17.
| In millions of RR | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Other Financial Liabilities | ||
| Accrued audit and accountancy fees | 46 | 18 |
| Advances payable | - | 63 |
| Total Other Financial Liabilities | 46 | 81 |
| Other Non-financial Liabilities | ||
| Dividends payable under GDRs repurchased for MLTIP purposes | 656 | 582 |
| Other provision | - | 3 |
| Total Other Non-financial Liabilities | 656 | 585 |
Interest rate, maturity and geographical risk concentration analysis of other financial liabilities are disclosed in Note 18. Refer to Note 20 for disclosure of fair value of other financial liabilities.
| In millions of RR except for the number of shares |
Number of author ised shares |
Number of out standing shares |
Ordinary shares |
Share premium |
Treasury shares |
Total |
|---|---|---|---|---|---|---|
| At 31 December 2018 | 191,770,766 | 182,638,825 | 188 | 8,623 | (3,670) | 5,141 |
| Shares issued | 18,263,882 | 16,666,667 | 42 | 18,874 | - | 18,916 |
| Secondary public offering costs |
- | - | - | (499) | - | (499) |
| GDRs and shares trans ferred under MLTIP |
- | - | - | - | 506 | 506 |
| At 31 December 2019 | 210,034,648 | 199,305,492 | 230 | 26,998 | (3,164) | 24,064 |
| GDRs buy-back | - | - | - | - | (661) | (661) |
| GDRs and shares trans ferred under MLTIP |
- | - | - | - | 587 | 587 |
| At 31 December 2020 | 210,034,648 | 199,305,492 | 230 | 26,998 | (3,238) | 23,990 |
At 31 December 2020 the total number of outstanding shares is 199,305,492 (31 December 2019: 199,305,492 shares) with a par value of USD 0.04 per share (31 December 2019: USD 0.04 per share).
At 31 December 2020 and 2019 treasury shares represent GDRs of the Company repurchased from the market for the purposes permitted by Cyprus law including contribution to MLTIP. Refer to Note 22.
At 31 December 2020 the total number of treasury shares is 3,013,379 (31 December 2019: 4,185,166).
During the year ended 31 December 2020 the Company repurchased 650,000 GDRs at market price for RR 661 million (2019: no GDRs were repurchased by the Company).
During the year ended 31 December 2020 the Company transferred 1,809,681 GDRs (2019: 2,419,187 GDRs), representing 0.91% (2019: 1.21%) of the issued shares, upon vesting under the MLTIP. This resulted in a transfer of RR 587 million (2019: RR 506 million) out of treasury shares to retained earnings.
In June 2019 the Company's shareholders approved a resolution to increase the authorised share capital to USD 8,401,385.92 by the creation of 18,263,882 new undesignated ordinary shares of nominal value USD 0.04 each. At 31 December 2020 the total number of authorised shares is 210,034,648 shares (31 December 2019: 210,034,648 shares) with a par value of USD 0.04 per share (31 December 2019: USD 0.04 per share).
On 2 July 2019 the Company completed a SPO on the London Stock Exchange plc and issued 16,666,667 class A shares of the Company in the form of GDRs at a price of USD 18.00 per GDR, raising aggregate gross proceeds of USD 300 million (RR 18,916 million). All issued ordinary shares are fully paid.
All the incurred SPO costs were primary direct expenses accounted within share premium.
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Interest income calculated using the effective interest rate method | ||
| Loans and deposit placement with related parties including: | ||
| Deposit placements with subsidiary Bank | 53 | 228 |
| Debt securities and repurchase receivables at FVOCI | - | 44 |
| Total Interest income calculated using the effective interest rate method | 53 | 272 |
| Other similar income | ||
| Financial assets at FVTPL | 8 | 28 |
| Total interest income | 61 | 300 |
| Interest expense calculated using the effective interest rate method | ||
| Euro-Commercial Papers | 32 | 100 |
| Loans from subsidiary Bank | - | 536 |
| Loans from subsidiary company | - | 86 |
| Other loans received | - | 10 |
| Total Interest expense calculated using the effective interest rate method | 32 | 732 |
| Net interest income/ (expense) | 29 | (432) |
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Legal and consulting fees | 270 | 110 |
| Staff costs | 177 | 99 |
| Audit and accountancy fees | 43 | 30 |
| Other administrative expenses | 5 | 3 |
| Depreciation of right-of-use assets | 4 | 3 |
| Depreciation of tangible fixed assets | 1 | 1 |
| Taxes other than income tax | - | 5 |
| Total administrative and other operating expenses | 500 | 251 |
The total fees charged by the Company's statutory auditor for the statutory audit of the annual consolidated and separate financial statements of the Company for the year ended 31 December 2020 amounted to RR 6.9 million (2019: RR 2.8 million). The total fees charged by the Company's statutory auditor for the year ended 31 December 2020 for other assurance services amounted to RR 0.8 million (2019: RR 3.8 million), for tax advisory services amounted to RR 3.4 million (2019: RR 2.3 million) and for other non-assurance services amounted to RR 0.1 million (2019: 2.2 million).
Included in staff costs are statutory social contributions to the non-budget funds:
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Statutory social contribution to the non-budget funds | 31 | 12 |
At 31 December 2020 there are 50 employees employed by the Company (31 December 2019: 63). The average number of employees employed by the Company during the reporting year was 56 (2019: 53).
Income tax expense comprises the following:
| Corporation tax | |
|---|---|
| Overseas tax withheld at source | |
| Income tax expense for the year |
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Corporation tax | 2 | 26 |
| Overseas tax withheld at source | 897 | 858 |
| Income tax expense for the year | 899 | 884 |
The tax on the Company's profit before tax differs from the theoretical amount that would arise using the applicable tax rates as follows:
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Profit before income tax | 17,789 | 16,700 |
| Theoretical tax charge at statutory rate of 12.5% (2019: 12.5%) | 2,224 | 2,088 |
| Tax effect of expenses not deductible for tax purposes | 173 | 111 |
| Tax effect of allowances and income not subject to tax | (2,395) | (2,191) |
| Overseas tax withheld at source | 897 | 858 |
| Underprovision of tax for prior year | - | 18 |
| Income tax expense for the year | 899 | 884 |
Gains on disposal of qualifying titles (including shares, bonds, debentures, rights thereon etc.) are exempt from Cyprus income tax. At 31 December 2020 and 2019 the Company had no tax losses carried forward.
Differences between IFRS and statutory taxation regulations in Cyprus give rise to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below.
| 31 December | Credited | 31 December | |
|---|---|---|---|
| In millions of RR | 2019 | to OCI | 2020 |
| Investments in subsidiaries | (168) | 168 | - |
| Net deferred tax liabilities | (168) | 168 | - |
| In millions of RR | 31 December 2018 |
Credited to OCI |
31 December 2019 |
| Investments in subsidiaries | (1,187) | 1,019 | (168) |
| Income tax expense for the year | (1,187) | 1,019 | (168) |
The movement in dividends during the year are as follows:
| In millions of RR | 2020 | 2019 |
|---|---|---|
| Dividends payable at 1 January | 582 | 760 |
| Dividends declared during the year | 11,545 | 5,856 |
| Dividends paid during the year | (11,835) | (5,601) |
| Foreign exchange differences and other movements | 364 | (433) |
| Dividends payable at 31 December | 656 | 582 |
| Dividends per share declared during the year (in USD) | 0.80 | 0.49 |
| Dividends per share paid during the year (in USD) | 0.80 | 0.49 |
Dividends declared in the tables above represent dividends declared by the Board of directors are reduced by RR 74 million for the year ended 31 December 2020 due to dividends on GDRs acquired by the Company from the market not for the immediate purposes of the existing MLTIP (2019: RR 25 million).
On 11 November 2020 the Board of directors declared an interim dividend in line with the current dividend policy of USD 0.25 (RR 19.10) per share/per GDR with a total amount allocated for dividend payment of around USD 49.8 million (RR 3,807 million). Declared dividends were paid in USD on 30 November 2020.
On 5 August 2020 the Board of directors declared an interim dividend in line with the current dividend policy of USD 0.20 (RR 14.68) per share/per GDR with a total amount allocated for dividend payment of around USD 39.9 million (RR 2,925 million). Declared dividends were paid in USD on 24 August 2020.
On 11 May 2020 the Board of directors declared an interim dividend in line with the current dividend policy of USD 0.14 (RR 10.34) per share/per GDR with a total amount allocated for dividend payment of around USD 28 million (RR 2,061 million). Declared dividends were paid in USD on 1 and 2 June 2020.
On 10 March 2020 the Board of directors declared an interim dividend of USD 0.21 (RR 14.18) per share/per GDR with a total amount allocated for dividend payment of around USD 41.9 million (RR 2,826 million). Declared dividends were paid in USD on 30 March and 1 April 2020.
On 13 May 2019 the Board of directors declared an interim dividend of USD 0.17 (RR 11.09) per share/per GDR amounting to USD 31.05 million (RR 2,026 million). Declared dividends were paid in USD on 28 and 30 May 2019.
On 11 March 2019 the Board of directors declared an interim dividend of USD 0.32 (RR 21.11) per share/per GDR amounting to USD 58.4 million (RR 3,855 million). Declared dividends were paid in USD on 25 and 27 March 2019.
Dividends were declared and paid in USD throughout the years ended 31 December 2020 and 2019. Dividends payable at 31 December 2020 relating to treasury shares acquired under MLTIP amounting to RR 656 million are included in other non-financial liabilities (31 December 2019: RR 582 million).
The table below sets out an analysis of the Company's debt and the movements in the Company's debt for each of the periods presented. The debt items are those that are reported as financing in the separate statement of cash flows.
| Liabilities from financing activities | |||
|---|---|---|---|
| In millions of RR | Debt securities in issue | Loans received | Total |
| Net debt at 31 December 2018 | 3,754 | 23,243 | 26,997 |
| Cash flows from repayments | (3,418) | (23,092) | (26,510) |
| Cash flows from proceeds | 2,527 | - | 2,527 |
| Foreign exchange adjustments | (403) | 45 | (358) |
| Other non-cash movements | - | (196) | (196) |
| Net debt at 31 December 2019 | 2,460 | - | 2,460 |
| Cash flows from repayments | (2,938) | - | (2,938) |
| Foreign exchange adjustments | 478 | - | 478 |
| Net debt at 31 December 2020 | - | - | - |
The risk management function within the Company is carried out in respect of financial risks (credit, market, currency, liquidity and interest rate), operational risks and legal risks. The primary objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.
Credit risk. The Company takes on exposure to credit risk which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the debt financial instruments, cash and cash equivalents and Company's lending and other transactions with counterparties giving rise to financial assets.
The Company's maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the separate statement of financial position. The credit risk is controlled by management of the Company, by approving limits on the level of credit risk by borrowers.
Credit risk grading system. For measuring credit risk and grading financial instruments by the level of credit risk, the Company applies risk grades estimated by external international rating agencies in case these financial instruments have risk grades estimated by external international rating agencies (Fitch and in case of their absence - Moody's or Standard & Poor's ratings adjusting them to Fitch's categories using a reconciliation table):
| Master scale credit risk grade | Corresponding ratings of external international rating agency (Fitch) |
|---|---|
| Excellent | AAA, AA+ to AA-, A+ to A |
| Good | BBB+ to BBB-, BB+ |
| Monitor | BB to B+ |
| Sub-standard | B, B |
| Doubtful | CCC+ to CC |
| Default | C, D |
Each master scale credit risk grade is assigned a specific degree of creditworthiness:
For measuring credit risk and grading those financial instruments which do not have risk grades estimated by external international rating agencies, the Company applies risk grades and the corresponding range of probabilities of default (PD):
| Master scale credit risk grade | Corresponding interval |
|---|---|
| Excellent | non-overdue for the last 12 months with PD < 5% or with early repayments |
| Good | all other non-overdue loans |
| Monitor | 1-30 days overdue |
| Sub-standard | 31-90 days overdue |
| NPL | 90+ days overdue |
Each master scale credit risk grade is assigned a specific degree of creditworthiness:
The rating models are regularly reviewed by the Credit Risk Department, backtested on actual default data and updated if necessary.
ECL is a probability-weighted estimate of the present value of future cash shortfalls (i.e. the weighted average of credit losses, with the respective risks of default occurring in a given time period used as weights). ECL measurement is based on the following components used by the Company:
Default occurs when a financial asset is 90 days past due.
Probability of Default (PD) – an estimate of the likelihood of default to occur over a given time period.
Exposure at Default (EAD) – an estimate of exposure at a future default date, taking into account expected changes in exposure after the reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities.
Loss Given Default (LGD) – an estimate of the loss arising on default as a percentage of the EAD. It is based on the difference between the contractual cash flows due and those that the Company would expect to receive.
Discount Rate – a rate to discount an expected loss to its present value at the reporting date. The discount rate represents the effective interest rate (EIR) for the financial instrument or an approximation thereof.
Lifetime period – the maximum period over which ECL should be measured. For financial instruments held by the Company the lifetime period is equal to contractual maturity of the respective financial instruments.
Lifetime ECL – losses that result from all possible default events over the remaining lifetime period of the financial instrument.
12-month ECL – the portion of lifetime ECLs that represent the ECLs resulting from default events on a financial instrument that are possible within 12 months after the reporting date that are limited by the remaining contractual life of the financial instrument.
Credit Conversion Factor (CCF) – a coefficient that shows that the probability of conversion of an off-balance sheet amount to exposure on the statement of financial position within a defined period. It can be calculated for a 12-month or lifetime period. Based on the analysis performed, the Company considers that 12-month and lifetime CCFs are the same.
Default and credit-impaired assets – assets for which a default event has occurred.
The default definition stated above should be applied to all types of financial assets of the Company.An instrument is considered to no longer be in default (i.e. to have "cured") when it no longer meets any of the default criteria.
Significant increase in credit risk (SICR) - the SICR assessment is performed on an individual basis for all financial assets by monitoring the triggers stated below. The criteria used to identify SICR are monitored and reviewed periodically for appropriateness by the Company's Risk Management Department.
The Company considers a financial instrument to have experienced a SICR when one or more of the following quantitative, qualitative or backstop criteria have been met:
• decrease of assigned external rating by 2 notches, which corresponds to an approximate increase of PD by 2.5 times. If the SICR criteria are no longer met, the instrument will be transferred back to Stage 1.
For financial assets, ECLs are generally measured based on the risk of default over one of two different time periods, depending on whether or not the credit risk of the borrower has increased significantly since initial recognition.
This approach can be summarised in a three-stage model for ECL measurement:
The Company carries out the following approach for ECL measurement:
Principles of assessment based on external ratings – the principles of ECL calculations based on external ratings are the same as for their assessment on a portfolio basis. Credit risk parameters (PD and LGD) are taken from the default and recovery statistics published by international rating agencies (Fitch and in case of their absence – Moody's or Standard & Poor's).
Market risk. The Company takes on exposure to market risks. Market risks arise from open positions in (a) currency, (b) interest rate and (c) equity products, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which are monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.
Currency risk. In respect of currency risk, the management sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily.
The table below summarises the Company's exposure to foreign currency exchange rate risk at the end of the reporting period:
| At 31 December 2020 | At 31 December 2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | Non-de rivative monetary financial assets |
Non-de rivative mon etary financial |
liabilities Derivatives | Net bal ance sheet position |
Non-de rivative monetary financial assets |
Non-de rivative monetary financial |
liabilities Derivatives | Net bal ance sheet position |
| RR | 5,732 | - | - | 5,732 | 1,738 | - | - | 1,738 |
| US Dollars | 739 | - | - | 739 | 2,710 | (677) | - | 2,033 |
| EUR | 2,134 | (46) | - | 2,088 | 1,808 | (1,864) | - | (56) |
| Total | 8,605 | (46) | - | 8,559 | 6,256 | (2,541) | - | 3,715 |
The above analysis includes only monetary assets and liabilities. Non-monetary assets are not considered to give rise to any material currency risk.
The following table presents sensitivities of profit or loss and equity to reasonably possible changes in exchange rates applied at the end of the reporting period, with all other variables held constant:
| At 31 December 2020 | At 31 December 2019 | ||||
|---|---|---|---|---|---|
| In millions of RR | Impact on profit for the year |
Impact on total equity |
Impact on profit for the year |
Impact on total equity |
|
| USD strengthening by 20% (2019: by 20%) | 155 | 155 | 385 | 385 | |
| USD weakening by 20% (2019: by 20%) | (155) | (155) | (385) | (385) | |
| EUR strengthening by 20% (2019: by 20%) | 439 | (439) | (11) | (11) | |
| EUR weakening by 20% (2019: by 20%) | (439) | 439 | 11 | 11 |
Interest rate risk. The Company takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event of unexpected movements. Management monitors on a daily basis and sets limits on the level of mismatch of interest rate repricing that may be undertaken. The table below summarises the Company's exposure to interest rate risk. The table presents the aggregated amounts of the Company's financial assets and liabilities at carrying amounts, categorised by the earlier of contractual interest repricing or maturity dates.
| In millions of RR | On demand and less than 1 month |
From 1 to 6 months |
From 6 to 12 months |
More than 1 year |
Non-inter est bearing financial instruments |
Total |
|---|---|---|---|---|---|---|
| 31 December 2020 | ||||||
| Total financial assets | 777 | 164 | 5,772 | 1,892 | 472,395 | 481,000 |
| Total financial liabilities | - | (46) | - | - | - | (46) |
| Net interest sensitivity gap at 31 December 2020 |
777 | 118 | 5,772 | 1,892 | 472,395 | 480,954 |
At 31 December 2020 if interest rates at that date had been 200 basis points higher/lower (2019: 200 basis points higher/ lower), with all other variables held constant, profit and equity would have been RR 171 million higher/lower (2019: RR 72 million higher/lower).
| In millions of RR | Demand and less than 1 month |
From 1 to 6 months |
From 6 to 12 months |
From 1 to 5 years |
Non-inter est bearing financial instruments |
Total |
|---|---|---|---|---|---|---|
| 31 December 2019 | ||||||
| Total financial assets | 598 | 1,870 | 3,788 | - | 257,293 | 263,549 |
| Total financial liabilities | - | (912) | (1,629) | - | - | (2,541) |
| Net interest sensitivity gap at 31 December 2019 |
598 | 958 | 2,159 | - | 257,293 | 261,008 |
The Company monitors interest rates for its financial instruments. The table below summarises effective interest rates set as at 31 December 2020 and 2019 based on reports reviewed by key management personnel:
| 2020 | 2019 | |||||
|---|---|---|---|---|---|---|
| In % p.a. | RR | USD | EUR | RR | USD | EUR |
| Assets | ||||||
| Cash and cash equivalents | - | - | - | - | - | - |
| Loans and deposit placements with related parties |
||||||
| - Deposit placements with subsidiary Bank |
4.5 | 0.9 | 0.3 | 7.5 | 2.5 | 0.4 |
| - Convertible loan to subsidiary Bank | - | - | 1.7 | - | - | - |
| Liabilities | ||||||
| Debt securities in issue | - | - | - | - | 3.8 | 1.2 |
The sign "-" in the table above means that the Company does not have the respective assets or liabilities in the corresponding currency.
Other price risk. The Company has exposure to equity price risk mainly as a result of a decrease in the fair value of investments in subsidiaries. Sensitivity analysis of investments in subsidiaries is disclosed in Note 20.
Geographical risk concentrations. The geographical concentration of the Company's financial assets and liabilities at 31 December 2020 is set out below:
| Russian | Other | |||
|---|---|---|---|---|
| In millions of RR | Federation | OECD | Non-OECD | Total |
| Financial assets | ||||
| Cash and cash equivalents | - | 705 | 72 | 777 |
| Loans and deposit placements with related parties | 5,772 | - | 1,892 | 7,664 |
| Investments in equity securities | 472,395 | - | - | 472,395 |
| Other financial assets | - | - | 164 | 164 |
| Total financial assets | 478,167 | 705 | 2,128 | 481,000 |
| Financial liabilities | ||||
| Other financial liabilities | - | - | 46 | 46 |
| Total financial liabilities | - | - | 46 | 46 |
| Net separate statement of financial position | 478,167 | 705 | 2,082 | 480,954 |
| Russian Fed | Other | |||
|---|---|---|---|---|
| In millions of RR | eration | OECD | Non-OECD | Total |
| Financial assets | ||||
| Cash and cash equivalents | - | 596 | 2 | 598 |
| Loans and deposit placements with related parties | 5,594 | - | - | 5,594 |
| Investments in equity securities | 257,293 | - | - | 257,293 |
| Other financial assets | - | - | 64 | 64 |
| Total financial assets | 262,887 | 596 | 66 | 263,549 |
| Financial liabilities | ||||
| Debt securities in issue | 2,460 | - | - | 2,460 |
| Other financial liabilities | 15 | 63 | 3 | 81 |
| Total financial liabilities | 2,475 | 63 | 3 | 2,541 |
| Net separate statement of financial position | 260,412 | 533 | 63 | 261,008 |
Assets and liabilities have been based on the country in which the counterparty is located. Cash and cash equivalents have been allocated based on the country in which they are physically held.
Other risk concentrations. Most financial assets are due from the subsidiary Bank.
Liquidity risk. Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
The table below shows liabilities at 31 December 2020 by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows. Such undiscounted cash flows differ from the amount included in the separate statement of financial position because the separate statement of financial position amount is based on discounted cash flows. When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at the end of the reporting period.
The maturity analysis of financial liabilities at 31 December 2020 is as follows:
| In millions of RR | Demand and less than 1 month |
From 1 to 6 months |
From 6 to 12 months |
From 1 to 5 years |
Total |
|---|---|---|---|---|---|
| Liabilities | |||||
| Other financial liabilities | - | 46 | - | - | 46 |
| Total potential future payments for financial obligations |
- | 46 | - | - | 46 |
The maturity analysis of financial liabilities at 31 December 2019 is as follows:
| Demand and less than |
From 1 to | From 6 to | From 1 to | ||
|---|---|---|---|---|---|
| In millions of RR | 1 month | 6 months | 12 months | 5 years | Total |
| Liabilities | |||||
| Debt securities in issue | 4 | 846 | 1,671 | - | 2,521 |
| Other financial liabilities | - | 81 | - | - | 81 |
| Total potential future payments for financial obligations |
4 | 927 | 1,671 | - | 2,602 |
Legal proceedings. From time to time and in the normal course of business, claims against the Company may be received. On the basis of its own estimates and internal professional advice management is of the opinion that no material losses will be incurred in respect of any current or potential claims and accordingly no provision has been made in these separate financial statements.
Taxation. Cypriot tax legislation is subject to varying interpretations. There are transactions and calculations for which the ultimate tax determination is uncertain. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Company is incorporated outside Russia. Tax liabilities of the Company are determined on the assumption that it is not subject to Russian profits tax because it does not have a permanent establishment in Russia. The Company is a tax resident of Cyprus only and full beneficial owner of the Bank and Insurance Company. This interpretation of relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be significant to the financial position and/or the overall operations of the Company.
During the third quarter of 2020 amendments to Russia-Cyprus double tax treaty were made. The Company is currently assessing the impact of those amendments.
Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuation techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on observable market data (that is, unobservable inputs).
Recurring fair value measurements are those that the accounting standards require or permit in the separate statement of financial position at the end of each reporting period. The levels in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows:
| 31 December 2020 | 31 December 2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| In millions of RR | Level 1 Level 2 | Level 3 | Total | Level 1 Level 2 | Level 3 | Total | ||
| ASSETS AT FAIR VALUE | ||||||||
| Loans and advances to related parties at FVTPL |
- | - | 1,892 | 1,892 | - | - | - | - |
| Investments in subsidiaries | - 472,221 | - 472,221 | - 256,443 | - 256,443 | ||||
| Other investments in equity securities |
- | - | 174 | 174 | - | - | 850 | 850 |
| Total assets recurring fair value measurements |
- 472,221 | 2,066 474,287 | - 256,443 | 850 257,293 |
Investments in subsidiaries are stated at fair value based on market valuation (2019: same).
The description of valuation techniques and the description of the inputs used in the fair value measurement for level 2 measurements at 31 December 2020 are as follows:
| In millions of RR | Fair value | Valuation technique | Inputs used |
|---|---|---|---|
| Assets AT FAIR VALUE | |||
| The estimated fair value of investments in subsidiaries recognises that the majority of the value of the Company resides in its main operating subsidiaries. Thus in estimating the fair value of the subsidiaries the primary input is the market quote of the Company's GDRs which are traded on the London and Moscow Stock Exchanges. Other inputs include the estimated fair value of the assets and liabilities held by the Company other than its investment |
Market quote of USD 32.9 for 1 share at 31 December 2020; Market |
||
| Investments in subsidiaries | 472,221 | in the subsidiaries | interest rates |
The description of valuation techniques and the description of the inputs used in the fair value measurement for level 2 measurements at 31 December 2019 are as follows:
| In millions of RR | Fair value | Valuation technique | Inputs used |
|---|---|---|---|
| ASSETS AT FAIR VALUE | |||
| Investments in subsidiaries | 256,443 | The estimated fair value of investments in sub sidiaries recognises that the majority of the val ue of the Company resides in its main operating subsidiaries. Thus in estimating the fair value of the subsidiaries the primary input is the market quote of the Company's GDRs which are traded on the London and Moscow Stock Exchanges. Other inputs include the estimated fair value of the assets and liabilities held by the Company other than its investment in the subsidiaries |
Market quote of USD 21.3 for 1 share at 31 December 2019; Market interest rates |
| Total recurring fair value meas |
urements at level 2 256,443
There were no changes in the valuation techniques for level 2 recurring fair value measurements during the years ended 31 December 2020 and 2019.
At 31 December 2020 if market quote of GDR of the Company at that date had been 69% higher/lower (2019: 60% higher/ lower), with all other variables held constant, the fair value of the investments in equity securities would have been RR 329,192 million higher/lower (2019: RR 154,370 million higher/lower).
The description of valuation techniques and the description of the inputs used in the fair value measurement for level 3 measurements at 31 December 2020 are as follows:
| In millions of RR | Fair value | Valuation technique | Inputs used |
|---|---|---|---|
| ASSETS AT FAIR VALUE | |||
| Loans and advances to related parties at FVTPL |
1,892 | Revaluation of the convertible loan based on the Incantus Holding Limited's share price as per its most recent sale purchase transactions with shares of Incantus Holding Limited (Note 22) |
Share price as per the most recent sale purchase transaction |
| Other investments in equity secu rities |
174 | Cost less impairment approach | Cost of acqui sition. Share in post-acquisi tion profit |
| Total recurring fair value meas urements at level 3 |
2,066 |
The description of valuation techniques and the description of the inputs used in the fair value measurement for level 3 measurements at 31 December 2019 are as follows:
| In millions of RR | Fair value | Valuation technique | Inputs used |
|---|---|---|---|
| ASSETS AT FAIR VALUE | |||
| Other investments in equity secu rities |
850 | Cost less impairment approach | Cost of acquisition. Share in post-acquisi tion profit |
| Total recurring fair value meas urements at level 3 |
850 |
Changes of the fair value measurements at Level 3 for the year ended 31 December 2020 are as follows:
| In millions of RR | 31 December 2020 |
|---|---|
| Loans and advances to related parties at FVTPL | |
| Fair value at the date of recognition | 1,374 |
| Other interest income | 8 |
| Net gains from foreign exchange translation | 16 |
| Net gains from revaluation of convertible loan | 494 |
| Fair value - Level 3 | 1,892 |
As at 31 December 2020, if the share price had been 10% lower/higher, fair value of loans and advances to related parties at FVTPL would have been RR 64 million lower/higher.
(b) Assets and liabilities not measured at fair value but for which fair value is disclosed
Fair values analysed by level in the fair value hierarchy and carrying value of assets not measured at fair value are as follows:
| 31 December 2020 | 31 December 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Carrying | Carrying | ||||||||
| In millions of RR | Level 1 | Level 2 | Level 3 | value | Level 1 | Level 2 | Level 3 | value | |
| FINANCIAL ASSETS CARRIED AT AMORTISED COST | |||||||||
| Cash and cash equiva lents |
|||||||||
| - placements with UK Bank (A+ rated) |
- | 705 | - | 705 | - | 596 | - | 596 | |
| - placements with European bank (B- rated) |
- | 72 | - | 72 | - | 2 | - | 2 | |
| Loans and deposit place ments with related parties |
|||||||||
| Deposit placements with subsidiary Bank |
- | - | 5,772 | 5,772 | - | - | 5,774 | 5,594 | |
| Loans and advances to related parties at FVTPL |
- | - | 1,892 | 1,892 | - | - | - | - | |
| Other financial assets | - | 164 | - | 164 | - | 64 | - | 64 | |
| Total financial assets car ried at amortised cost |
- | 941 | 7,664 | 8,605 | - | 662 | 5,774 | 6,256 | |
| FINANCIAL LIABILITIES CARRIED AT AMORTISED COST | |||||||||
| Debt securities in issue | - | - | - | - | - | 2,460 | - | 2,460 | |
| Other financial liabilities | - | 46 | - | 46 | - | 81 | - | 81 | |
| Total financial liabilities carried at amortised cost |
- | 46 | - | 46 | - | 2,541 | - | 2,541 |
Weighted average discount rates used in determining fair value as of 31 December 2020 and 31 December 2019 depend on currency:
| In % p.a. | 31 December 2020 |
31 December 2019 |
|---|---|---|
| Assets | ||
| Cash and cash equivalents | - | - |
| Loans and deposit placements with related parties | ||
| - Loans and advances to related parties at FVTPL | 1.7 | - |
| - Deposit placements with subsidiary Bank | 4.5 | 2.8 |
| Liabilities | ||
| Debt securities in issue | - | 1.9 |
The fair values in level 2 and level 3 of the fair value hierarchy were estimated using the discounted cash flows valuation technique. The fair value of floating rate instruments that are not quoted in an active market was estimated to be equal to their carrying amount. The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.
For the purposes of measurement, IFRS 9 "Financial Instruments" classifies financial assets into the following categories: (a) financial assets at FVTPL; (b) financial assets at FVOCI and (c) financial assets at AC. Financial assets at FVTPL have two sub-categories: (i) assets measured at FVTPL mandatorily, and (ii) assets designated as such upon initial recognition.
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2020:
| In millions of RR | AC | FVTPL | FVOCI | Total |
|---|---|---|---|---|
| Cash and cash equivalents | 777 | - | - | 777 |
| Loans and deposit placements with related parties | 5,772 | 1,892 | - | 7,664 |
| Investment in equity securities | - | - | 472,395 | 472,395 |
| Other financial assets | 157 | 7 | - | 164 |
| TOTAL FINANCIAL ASSETS | 6,706 | 1,899 | 472,395 | 481,000 |
| The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 | ||||
| December 2019: | ||||
| In millions of RR | AC | FVTPL | FVOCI | Total |
| Cash and cash equivalents | 598 | - | - | 598 |
| Loans and deposit placements with related parties: | ||||
| Deposit placements with subsidiary Bank | 5,594 | - | - | 5,594 |
| Investment in equity securities | - | - | 257,293 | 257,293 |
| Other financial assets | 64 | - | - | 64 |
As of 31 December 2020 and 2019 all of the Company's financial liabilities were carried at amortised cost.
Parties are generally considered to be related if the parties are under common control or one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Other related parties (excluding associates and joint ventures) in the tables below are represented by entities which are under the control of the Company's major shareholder Oleg Tinkov, who until 7 January 2021 was the Company's ultimate controlling shareholder (see Note 1). The outstanding balances with related parties were as follows:
| 31 December 2020 | 31 December 2019 | ||||
|---|---|---|---|---|---|
| In millions of RR | Subsidiary | Associ ates, joint ventures and other related parties |
Subsidiary | Associates, joint ven tures and other relat ed parties |
|
| ASSETS | |||||
| Investments in equity securities | 472,221 | 174 | 256,443 | 850 | |
| Loans and advances to related parties (contractual interest rate 2020: from 0.29% to 4.5%; 2019: from 0.35% to 7.5%) |
5,772 | 1,892 | 5,594 | - | |
| Other financial assets | 129 | - | 64 | - | |
| TOTAL ASSETS | 478,122 | 2,066 | 262,101 | 850 | |
| LIABILITIES | |||||
| Debt securities in issue | - | - | - | 2,460 | |
| Other non financial liabilities | - | 656 | - | 582 | |
| TOTAL LIABILITIES | - | 656 | - | 3,042 |
On 31 August 2020 the Company acquired a 22.15% shareholding in Incantus Holding Limited, which is a group of fintech start-ups launched in 2020 to provide a range of services to retail customers in Europe (excluding the CIS). The investment in Incantus Holding Limited was classified as an investment in associates and accounted for using the equity method. Also, the Company provided a convertible loan to Incantus Holding Limited in the amount of EUR 15.4 million (RR 1,374 million) at 1.7% p.a. with a maturity date of 31 August 2025. The convertible loan agreement implies that the Company may convert the loan into the borrower's shares at the price of initial acquisition of shares of Incantus Holding Limited by the Company subject to compliance with a number of conversion requirements including a cap in relation to overall shareholding of the Company in Incantus Holding Limited of 24.5%.
As at 31 December 2020 the shareholding of the Company in Incantus Holding Limited is equal to 16.32%, and the carrying value of the convertible loan is equal to RR 1,892 million. The Company, in addition to the convertible loan, has extended rights under the Shareholder Agreement at the board meeting level (Board Reserved matters) and at the shareholder meeting level (Shareholder Reserved matters) in Incantus Holding Limited which provides the Company significant influence over it and allows to treat it as associate.
The income and expense items with related parties were as follows:
| 31 December 2020 | 31 December 2019 | ||||
|---|---|---|---|---|---|
| In millions of RR | Subsidiary | Associ ates, joint ventures and other related parties |
Subsidiary | Associ ates, joint ventures and other related parties |
|
| Interest income calculated using the effective interest rate method |
53 | 8 | 228 | - | |
| Interest expense calculated using the effective interest rate method |
- | (32) | (622) | (110) | |
| Net gains/(losses) from foreign exchange translation | 965 | (424) | (94) | 403 | |
| Net gains from financial assets at FVTPL | - | 494 | - | - | |
| Dividend income | 17,954 | - | 17,158 | - | |
| Net gains from operations with foreign currencies | - | - | 111 | - | |
| Net losses from derivatives revaluation | - | (678) | - | ||
| Other comprehensive income: | |||||
| Revaluation of investments in subsidiaries | 214,111 | - | 37,362 | - |
| Interest income calculated using the effective interest rate |
|---|
| Interest expense calculated using the effective interest |
| Other comprehensive income: |
In 2020 the total remuneration of Directors listed in the Board of directors and other officers amounted to RR 17.4 million (2019: RR 17,3 million).
Management long-term incentive program. On 31 March 2016 the Company introduced a MLTIP as both a long-term incentive and a retention tool for the management of the Company. Total number of GDRs attributable to the management is 15,290 thousand as at 31 December 2020 (31 December 2019: 9,940 thousand).
Participants of the program receive the vested parts of their grants provided that they remain employed by the Company throughout the vesting period. Participants are entitled to the dividends, if any. Participants who leave the Company lose their right for the unvested parts of the grants.
The fair value of the awards as at grant dates (31 March 2016, 8 February 2017, 22 February 2018, 15 January 2019, 5 June 2020 and 11 December 2020) is determined on the basis of market quotes of GDRs as at those dates.
Each grant before 2020 is divided into 4 equal awards. Each award vests over 4 years in equal tranches. The delivery dates as of which the GDRs are allowed to be sold by the participants correspond to the vesting dates 31 March, as well as each subsequent 31 March (with the exception of 2019 when the vesting date for all participants was 31 January 2019) until 2022 for participants joining in 2016, until 2023 for participants joining in 2017, until 2024 for participants joining in 2018, until 2025 for participants joining in 2019.
Each grant provided in 2020 is divided into 5 equal tranches. The delivery dates as of which the GDRs are allowed to be sold by the participants correspond to the vesting dates 31 August, as well as each subsequent 31 August until 2025.
The following table discloses the changes in the numbers of GDRs attributable to the MLTIP:
| In thousands | Number of GDRs attributa ble to the MLTIP |
|---|---|
| At 31 December 2018 | 6,178 |
| Granted | 91 |
| Vested | (2,419) |
| Forfeited | (68) |
| At 31 December 2019 | 3,782 |
| Granted | 5,350 |
| Vested | (1,810) |
| Forfeited | (46) |
| At 31 December 2020 | 7,276 |
On 10 March 2021 the Board of directors declared an interim dividend in line with the current dividend policy of USD 0.24 per share/per GDR with a total amount allocated for dividend payment of approximately USD 47.8 million. The Board at the same time announced its intent to not pay any further dividends in 2021, but to keep the funds inside the Group to provide for organic and/or inorganic growth opportunities.
On 7 January 2021 all 69,914,043 class B shares (35.08% of the total number of issued shares) held by the Rigi Trust and the Bernina Trust were converted to class A shares and on the same date all issued shares were reclassified and redesignated as ordinary shares. Following the conversion, each share carries a single vote, and the total number of votes capable of being exercised are equal to the total number of issued shares (currently 199,305,492 shares following the class B share conversion). As a result of the conversion, Mr. Oleg Tinkov's voting rights decreased from 84.38% to 35.08%. As a result his ability to exercise control over the Company and the Group was ceased.
| Active Users | AU | A performance metric for the success of an internet prod uct commonly assessed per month (MAU), per week (WAU), or per day (DAU) |
|---|---|---|
| Artificial Intelligence | АI | n/a |
| Anti-money laundering | AML | Laws regulating money laundering and terrorist financing |
| Average cost of funding | n/a | Interest expense / Average IEL |
| Average interest rate on loans | n/a | Core revenue on loans / Average net loan portfolio |
| Capital adequacy ratio | CAR | Capital/RWA |
| CBRF | CBRF | Central Bank of the Russian Federation |
| Charge-off rate | n/a | Loan charge-off / Average gross loans |
| Charge-offs | n/a | Loans written off the balance |
| Class A share | n/a | One share in TCSGH PLC having one vote |
| Class B share | n/a | One share in TCSGH PLC having ten votes |
| Compound Annnual Growth Rate | CAGR | n/a |
| Compulsory car insurance programme |
OSAGO | n/a |
| Corporate social responsibility | CSR | n/a |
| Cost of borrowing | n/a | Interest expense/interest bearing liabilities |
| Cost of risk | n/a | Loan loss provision / Average gross loans |
| Cost to income ratio | C/I | Operating and acquisition expense / Core revenue |
| Cost to income ratio (excl. acquisition costs) |
n/a | Operating expense / Core revenue |
| Country by Country Reporting | CbCR | |
| CRM | n/a | Online customer relationship management system |
| Cyprus Securities and Exchange Commission |
CySec | Cyprus regulator of financial markets |
| Days past due | dpd | n/a |
| Financial Conduct Authority | FCA | UK regulator of financial markets |
| GIBDD | GIBDD | Law enforcement agency responsible for traffic |
| Global depositary receipt | GDR | One TCS Group Holding PLC GDR represents an interest in one class A share |
| Gross portfolio yield | n/a | Core revenue on loans /Average gross loan portfolio |
| Interest-earning assets | IEA | Gross loans + interbank loans and accounts + securities + interest earning cash equivalents |
| Interest-earning liabilities | IEL | Deposits + interbank + debt securities + subordinated loans + syndicated loan |
| International financial reporting standards |
IFRS | n/a |
| IPO | n/a | Initial public offering, in the case of TCSGH plc with listing on the London Stock Exchange in October 2013 |
| KASKO | KASKO | Voluntary car insurance programme |
| Key performance indicators | KPI | n/a |
|---|---|---|
| Loan loss provision | LLP | Allowance for bad loans |
| London Stock Exchange | LSE | n/a |
| M&A | - | Mergers and acquisitions activity, consolidation of compa nies |
| Management report/consolidated management report |
MR/CMR | n/a |
| Mobile virtual network operator | MVNO | n/a |
| N1.0 | N1.0 | Russian statutory capital adequacy ratio |
| Net charge-offs | n/a | Loan charge-offs less recoveries |
| Net interest margin | NIM | Net interest income / Average IEA |
| Net Promoter Score | NPS | n/a |
| NFC | NFC | Near Field Communication |
| Non-financial statement/consolidated non-financial statement |
NFS/CFNS | n/a |
| Non-performing loans | NPLs | Loans 90+ days overdue |
| NPV | NPV | Net present value |
| Person discharging managerial responsibilities |
PDMR | n/a |
| PIE | Public interest entity |
n/a |
| POS | Point-of-Sale loans |
Credit offering at merchant and retail points of sale |
| Revenue | n/a | Operating income |
| Return on average assets | ROAA | Net income / Average assets |
| Return on average equity | ROAE | Net income / Average equity |
| Risk-adjusted net interest margin | Risk-adjusted NIM |
(Net interest income - PL provisions) / Average IEA |
| Risk-weighted assets | RWA | Assets weighted by risk as per the CBRF methodology |
| Russian accounting standards | RAS | n/a |
| Smart Couriers | n/a | The Group's courier network, completing KYC and delivering cards to customers |
| SMEs | n/a | Small and medium enterprises |
| The Group's management long term incentive plan |
MLTIP | n/a |
| Treasury portfolio | n/a | Investment securities and repos |
| nies |
|---|
| n/a |
| Credit offering at merchant and retail points of sale |
| (Net interest income - PL provisions) / Average IEA |
| delivering cards to customers |
More up to date investor information, including the Group's current and historic share prices, corporate news, latest operational and financial results, presentations and other updates, is available on the TCS Group corporate websites at www.tinkoff.ru/eng
More up to date information can be found at the TCS Group Holding corporate
website at www.tcsgh.com.cy and www.tinkoff.ru/eng
TCS Group Holding PLC (registered number HE107963)
Telephone: +357 2505 0668 Email: [email protected]
Registered office address: 5th floor Berengaria 25 Spyrou Araouzou 25 Limassol 3036 Cyprus Mail to: PO Box 56356, 3306 Limassol.
Office 301B, Limassol 4102 Cyprus Telephone: +357 25 05 0668 [email protected]
Larisa Chernysheva, Head of Investor Relations [email protected] [email protected] [email protected]
Artem Lebedev, Head of PR
[email protected] [email protected]
(registered number HE351260) 4th floor Berengaria 25 Spyrou Araouzou 25 Limassol 3036 Cyprus
Telephone: +357 2504 0404 Fax: +357 2504 0415
Existing investors are encouraged in the first instance to speak to their brokers/custodians, and then direct queries and questions through the Depositary's contacts page on adr.com
https://adr.com/contact/jpmorgan
HSBC Bank plc (acting by way of its Athens branch) HSBC Bank plc (Greece) via its department HSBC Securities Services, Greece 109–111, Messoghion Ave. 115 26 Athens Greece
City House, 6 Karaiskakis Street CY-3032 Limassol Cyprus
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