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Report 2005: [ Company Overview | Balance Sheet | Income Statement | Cash Flows | Cash and Cash Equivalents | Trading Securities | Other Securities | Due from Other Banks | Loans and Advances to Customers | Other Assets | Due to Other Banks | Deposits from Individuals and Customer Accounts | Debt Securities in Issue | Other Borrowed Funds | Other Liabilities | Share Capital and Share Premium | Interest Income and Expense | Fee and Commission Income and Expense | Administrative and Other Operating Expenses | Income Taxes | Earnings per Share | Dividends | Business Segments | Geographical Segments | Geographical Risk | Currency Risk | Liquidity Risk | Capital Adequacy Ratio | Glossary ] [ Ratio Analysis | Statistics | Financial Data Schedule ]
( All these terms and some more you may find in Sberbank's Financial Statements and Independent Auditors' Report for the year ended 31 December 2005. )
Cash and cash equivalents. Cash and cash equivalents are items which can be converted into cash within a day. All short term interbank placements, beyond overnight placements, are included in due from other banks. Amounts, which relate to funds that are of a restricted nature, are excluded from cash and cash equivalents.
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 Bank's day to day operations and hence are not considered as part of cash and cash equivalents for the purposes of the statement of cash flows.
Precious metals. Gold and other precious metals are recorded at the balance sheet date at London fixing rates. Precious metals are included in other assets.
Trading securities. Trading securities are securities, which are either acquired for generating a profit from short-term fluctuations in price or trader's margin, or are securities included in a portfolio in which a pattern of short-term trading exists. The Bank classifies securities into trading securities if it has an intention to sell them within a short period after purchase, i.e. within six months. Trading securities are not reclassified out of this category even when the Bank's intentions subsequently change. Trading securities are carried at fair value with changes in the fair value and gains or losses on derecognition recorded in profit or loss as gains less losses from trading securities in the period in which they arise. Interest earned on trading securities calculated using the effective interest method is presented in the statement of income as interest income. Dividends are included in other operating income when the Bank's right to receive the dividend payment is established.
Other securities at fair value through profit or loss. Other securities at fair value through profit or loss are securities designated irrevocably, at initial recognition, into this category. Recognition and measurement of this category of financial assets is consistent with the above policy for trading securities.
Due from other banks. Amounts due from other banks are recorded when the Bank 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.
Loans and advances to customers. Loans and advances to customers are recorded when the Bank advances money to purchase or originate an unquoted non-derivative receivable from a customer due on fixed or determinable dates and has no intention of trading the receivable. Loans and advances to customers are carried at amortised cost.
Investment securities available for sale. This classification includes investment securities which the Bank intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The Bank classifies investments as available for sale at the time of purchase and reassesses that classification at each subsequent balance sheet date.
Due to other banks. Amounts due to other banks are recorded when money or other assets are advanced to the Bank by counterparty banks. The non-derivative liability is carried at amortised cost.
Deposits from individuals and customer accounts. Deposits from individuals and customer accounts are non-derivative liabilities to individuals, state or corporate customers and are carried at amortised cost.
Debt securities in issue. Debt securities in issue include promissory notes, certificates of deposit and savings certificates issued by the Bank. Debt securities are stated at amortised cost.
Other borrowed funds. Other borrowed funds represent medium and long-term funds attracted by the Bank on the international financial markets. Other borrowed funds are carried at amortised cost. If the Bank repurchases its borrowed funds, they are removed from the balance sheet and the difference between the carrying amount of the liability and the consideration paid is included in gains/(losses) arising from retirement of debt.
Derivative financial instruments. Derivative financial instruments, including forward and futures foreign exchange contracts and forwards with precious metals, are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss as gains less losses arising from trading in foreign currencies and other operating income. The Bank does not apply hedge accounting.
Income taxes. Income taxes have been provided for in the financial statements in accordance with Russian legislation enacted or substantively enacted by the balance sheet date. The income tax charge comprises current tax and deferred tax and is recognised in the statement of income except if it is recognised directly in equity because it relates to transactions that are also recognised, in the same or a different period, 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 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 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 balance sheet date 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 in the balance sheet only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.
Provision for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Bank 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.
Trade and other payables. Trade payables are accrued when the counterparty performed its obligations under the contract and are carried at amortised cost.
Share premium. Share premium represents the excess of contributions over the nominal value of the shares issued.
Preference shares. Preference shares are not redeemable. Dividend payments are at the discretion of the Bank. When a dividend is paid, the preference shares attract a minimum payment of annual dividends of 15% of their nominal value, subject to confirmation of the shareholders' meeting. Dividend payments in excess of that minimum level are determined at the Bank's annual shareholders' meeting. Preference shares are classified as a part of equity.
Treasury shares. Where the Bank purchases the Bank's equity instruments, the consideration paid including any attributable incremental external costs net of income taxes is deducted from equity attributable to the equity holders of the Bank until they are cancelled or disposed of. Where such shares are subsequently disposed or reissued, any consideration received is included in equity.
Dividends. Dividends are recorded in equity in the period in which they are declared. Dividends declared after the balance sheet date and before the financial statements are authorised for issue are disclosed in the subsequent events note. The statutory accounting reports of the Bank are the basis for profit distribution and other appropriations. Russian legislation identifies the basis of distribution as the current year net profit.
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 Bank.
Segment reporting. A segment is a distinguishable component of the Bank that is engaged either in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segments with a majority of revenue earned from sales to external customers and whose revenue, result or assets are ten percent or more of all the segments are reported separately.
Held-to-maturity financial assets. Management applies judgement in assessing whether financial assets can be categorised as held-to-maturity, in particular its intention and ability to hold the assets to maturity. If the Bank fails to keep these investments to maturity other than for certain specific circumstances - for example, selling an insignificant amount close to maturity, or sale or reclassification is attributable to an isolated event that is beyond the Bank's control, is non-recurring and could not have been reasonably anticipated by the Bank - it will be required to reclassify the entire class as available-for-sale. The investments would therefore be measured at fair value rather than amortised cost. If the entire class of held-to-maturity investments was tainted, the carrying amount would increase by RR 25 102 431 thousand, with a corresponding entry to the fair value reserve in equity net of deferred tax of RR 6 024 583 thousand.
Impairment of equity investment securities available for sale. The Bank determines that available-for-sale equity investment securities available for sale are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In making this judgement, the Bank evaluates among other factors, the volatility in share price. In addition, impairment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational or financing cash flows.
Impairment losses on loans and advances. The Bank regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in the statement of income, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. For new types of loans, where the Bank has not collected statistics of historical losses, market information on historical losses of similar groups of loans is used to assess incurred but not yet reported losses on such groups of loans. Also, the Bank's management accounting system in some cases does not allow to collect all necessary information on incurred losses for certain groups of loans. Management uses estimates and incurred loss models for groups of loans with similar credit risk profile. Management is also in process of upgrading Bank's accounting systems to produce fully the information required for proper application of loan portfolio impairment assessment. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
Tax legislation. Russian tax, currency and customs legislation is subject to varying interpretations.
Fair Value of Financial Instruments. 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. The estimated fair values of financial instruments have been determined by the Bank using available market information, where it exists, and appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to determine the estimated fair value. The fair values of financial derivatives that are not quoted in active markets are determined by using valuation techniques. To the extent practical, models use only observable data, however certain areas require Management to make estimates. Changes in assumptions about these factors could affect reported fair values. The Russian Federation continues to display some characteristics of an emerging market and economic conditions continue to limit the volume of activity in the financial markets. Market quotations may be outdated or reflect distress sale transactions and therefore not represent fair values of financial instruments. Management has used all available market information in estimating the fair value of financial instruments.
Capital Adequacy Ratio. Capital Adequacy Ratio is calculated in accordance with the International Convergence of Capital Measurement and Capital Standards (July 1988, updated to April 1998) (or Basel Capital Accord) requirements. Such requirements are subject to interpretation and accordingly the appropriateness of the inclusion, exclusion, and/or classification of amounts included in the calculation of the Capital Adequacy Ratio requires Management judgement.
Related party transactions. The Bank's principal shareholder is the Central Bank of the Russian Federation (refer to Note 1). As the Bank adopted IAS 24 "Related Party Disclosures" (revised), disclosures are made in these financial statements for transactions with state-controlled entities and government bodies. Currently the Government of the Russian Federation does not provide to the general public or entities under its ownership/control a complete list of the entities which are owned or controlled directly or indirectly by the State. Judgement is applied by the Management in determining the scope of operations with related parties to be disclosed in the financial statements.
the CBRF - the Central Bank of the Russian Federation
RR - Russian Rouble
USD - United States Dollar
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