Financial Statements
Closed Joint-Stock Company
“Petrocommerсе-Ukraine Ваnk”
as of December 31, 2008
Contents
PageIndependent Auditor’s Report / 3
Balance Sheet / 5
Income Statement / 6
Statement of Changes in Equity / 7
Cash Flow Statement / 8
Notes to the Financial Statements / 9
1
Closed Joint-Stock Company“Petrocommerce-Ukraine Bank”
Financialstatementsasof 31 December 2008
Balance Sheet
Note / 31 December 2008 / 31 December 2007UAH'000 / UAH'000
Assets
Cash, cash equivalents and statutory reserve / 8 / 319 915 / 175 610
Amounts due to other banks / 9 / 85 115 / 50 973
Loans and advances to the clients / 10 / 639 727 / 531 762
Investment securities for resale / 11 / 2 226 / 81
Other assets / 12 / 3 413 / 7 545
Deferred tax asset / 22 / 7 748 / 1 739
Buildings and equipment / 13 / 10 278 / 12 451
Total assets / 1068 422 / 780 161
Liabilities
Amounts due to other banks / 14 / 322 018 / 47 517
Clients’ money / 15 / 600 018 / 620 610
Subordinated debt / 16 / - / 32 406
Other liabilities / 14 633 / 9 414
Total liabilities / 936 669 / 709 947
Equity
Share capital / 17 / 120 773 / 52 598
Share premium / 124 / 124
Accumulated surplus/(deficit) / 11 836 / 19 972
Securities revaluation result / (980) / (2 480)
Totalequity / 131 753 / 70 214
Total liabilitiesandequity / 1068 422 / 780 161
Authorised for issue by the Board and signed on their behalf on April 7, 2009
______/ ______Andrey Kutasin / Alexandra Gulova
Chairman of the Board / Chief Accountant
Income Statement
Note / For 2008 / For 2007UAH'000 / UAH'000
Interest income / 18 / 106 673 / 94 160
Interest expense / 19 / (57229) / (50431)
Netinterest income / 49 444 / 43 729
Allowance for loan impairment / 10 / (32152) / 3 995
Netinterest incomenet of allowance for loan impairment / 17 292 / 47 724
Gains less losses / (losses less gains) from investment securities for resale / (11) / 25
Gains less lossesfrom foreign currency transactions / 14 817 / 6 667
Financial result from revaluation of currency balances / 12 391 / (2606)
Fee and commission earnings / 20 / 24 617 / 29 073
Fee and commission expenses / 20 / (3687) / (5492)
Other operating gains / 257 / 1 993
Operating profit / 65 676 / 77 384
Administrative expenses / 21 / (70865) / (62515)
Profit (loss) before tax / (5189) / 14 869
taxes / 22 / (2 947) / (8672)
Net profit / (8 136) / 6 197
Authorised for issue by the Board and signed on their behalf on April 7, 2009
______/ ______Andrey Kutasin / Alexandra Gulova
Chairman of the Board / Chief Accountant
Statement of Changes in Equity
Share capital / Share premium / Securities revaluation / Accumulated surplus (deficit)) / TotalequityUAH'000 / UAH'000 / UAH'000 / UAH'000 / UAH'000
Balance at 31 December2006 / 52 598 / 124 / (2480) / 13 775 / 64 017
Net profit / - / - / - / 6 197 / 6 197
Balance at 31 December2007 / 52 598 / 124 / (2 480) / 19 972 / 70 214
Securities revaluation / 1 500 / 1 500
Share issue / 68 175 / 68 175
Loss of the current year / - / - / - / (8 136) / (8 136)
Balance at 31 December2008 / 120 773 / 124 / (980) / 11 836 / 131 753
Authorised for issue by the Board and signed on their behalf on April 7, 2009
______/ ______Andrey Kutasin / Alexandra Gulova
Chairman of the Board / Chief Accountant
Cash Flow Statement
Note / 31 December 2008 / 31 December 2007UAH'000 / UAH'000
Cash flows from operating activities
Interest received / 97 247 / 86 308
Interest paid / (51128) / (46843)
Gains from foreign currency transactions / 27 208 / 4 061
Fees and commissions received / 24 617 / 29 073
Fees and commissions paid / (3686) / (5492)
Trading income from securities transactions / (9) / 25
Other operating income received / 257 / 1 982
Operating expenses paid / (67868) / (58020)
Income tax paid / (4716) / (8382)
Cash flows from operating activities before changes in operating assets and liabilities / 21 920 / 2 713
Changes in operating assets and liabilities
Net increase in statutory reserve / (4596) / 2 470
Net (increase)/decrease in amounts due from other banks / (34166) / 18 315
Net increase of loans and advances to customers / (137230) / 139 109
Net decrease in other assets / 1 210 / 450
Net increase in amounts due to other banks / 274 452 / (38771)
Net increase in clients’ money / (21695) / (105734)
Net change in other obligations / (26602) / 18 717
Net cash from operating activities / 73 292 / 37 268
Cash flows from investing activities
Acquisition of investment securities for resale / (100) / 2 670
Acquisition of premises and facilities / (1658) / (4844)
Net cash from investing activities / (used for investing activities) / (1758) / (2174)
Cash flows from financing activities
Raising funds to share capital / 68 175 / -
Net cash (used for financial activities) /from financial activities / - / -
Net increase of cash and cash equivalents / 139 709 / 35 094
Cash and cash equivalents at the beginning of the year / 161 585 / 126 491
Cash and cash equivalents at the end of the year / 7 / 301 294 / 161585
Authorised for issue by the Board and signed on their behalf on April 7, 2009
______/ ______Andrey Kutasin / Alexandra Gulova
Chairman of the Board / Chief Accountant
The financial statements should be read with consideration of Notes to the Financial Statements, which are stated on pages 9 to 39 and are an integral part of these statements.
1
Closed Joint-Stock Company“Petrocommerce-Ukraine Bank”
Financialstatementsasof 31 December 2008
Notes to the Financial Statements
1General information about the Bank
Closed Joint-Stock Company “Petrocommerce-Ukraine Bank”was registered with the National Bank of Ukraine on September 26, 1996 under the name Joint-Stock Commercial Bank “Aviatekbank”.On February 14, 2002 Joint-Stock Commercial Bank “Aviatekbank” was renamed as Closed Joint-Stock Company “Petrocommerce-Ukraine Bank”.
CJSC “Petrocommerсе-Ukraine Ваnk” carries out its activities in accordance with Ukrainian legislation in force, in particular, with the Law of Ukraine “On Banks and Banking Activities”, regulations of the National Bank of Ukraine and in compliance with License No. 108 of April 9, 2002 issued by the National Bank of Ukraine.
The Bank is universal bank and is a part of the united banking system of Ukraine.
The primary activity of the Bank is allowance of banking services to the legal entities and individuals on the territory of Ukraine.
As of 31 December2008the Bank renders services to57,697clients.
The Bank’s regional network comprises two branches and seventeen divisions in various oblasts of Ukraine.
Legal address of the Bank is: 20, Bolshaya Zhytomirskaya Street, Kiev 01025, Ukraine.
Average Bank’s staff on the payroll as of 31 December2008is433 (2007: 539 employees).
2Bank’s operating environment
In the reporting year a drastic change in the economic environment has occurred in connection with the world financial crisis.
In addition, the year 2008 is characterized by increase in statutory capital, assets and profit of the most of banking institutions of Ukraine.
The growth rates of bank lending in Ukraine were high during recent 5 years; the growth was approximately 60% annually.The growth in the lending volume, including foreign currency loans, the adverse impacts of a drastic change in the currency exchange rate have led to a high level of problem assets in the banking sector.
It is forecasted that further exacerbation of the financial crisis in Ukraine and progress of adverse events would occur in the Ukrainian economy.In this connection, the Bank is engaged in resource base retention and debt collection, as well as is considering the overall economic situation in setting the subsequent policies.
Under the Resolution of the Commission of the National Bank of Ukraine “On Supervision and Regulation of Bank Activities” dated 1 December 2008 that approved grouping of the banks, the Bank was assigned to Group IV of the banks (regulatory capital less than UAH 200 mln, assetsless than 1,500mln), ranking No. 92among 182 banks (total number of banks).
The factors are still inherent to the economy of Ukraine, specific of the transition economy.These factors include, but not limit to, the lack of a single approach to interpretations of currency, tax and customs legislation of Ukraine.
In Ukraine political and economic changes are in process that affect and may continue affecting activities of institutions operating under such conditions.As a result, doing business in Ukraine is related with risks not inherent to other markets.These financial statements reflect the management’s estimates with regard to the effects of operating environment in Ukraine on transactions and financial position of the Bank. Future conditions may differ from the management’s estimates.Impact of such differences on transactions and financial position of the Bank can be material.
3Basis for presentation
The financial statements of the Bank have been prepared in accordance with the International Financial Reporting Standards (IFRS).The Bank maintains accounting records in accordance with the rules and allowances which regulate the banking activities in Ukraine.The above financial statements were prepared on basis of such accounting records and adjusted, if required, to IFRS-compliant reporting.
Measurement and presentation currency in these financial statements is Hryvnya (UAH), the national currency of Ukraine.
Because of adjustments made to comply with IFRS, the financial statements presented are not identical with the statements prepared for the General Meetings of the Shareholders and the National Bank of Ukraine, which, in turn, was prepared in accordance with the Ukrainian legislation in force and the requirements of the National Bank of Ukraine.
The main differences between the Ukrainian and international accounting principles used to prepare the statements are:
- recognition and measurement of the financial instruments;
- measurement of tangible assets;
- measurement and recognition of impairment of assets;
- format of statements presentation.
The preparation of the financial statements requires management to make estimates and assumptions, which affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities at the reporting date, as well as the amounts of income and expenses recorded in the financial statements during the reporting period.Yet those calculations are based on the information about current events and actions, available to the management, actual results can be different.
4Underlying principles of the Bank’s accounting policies
Completeness – all banking transaction should be recorded on accounts without any exceptions.The financial statements should include all information on actual and expected results of the Bank’s transactions, which can influence decision-making based on it.
Trade date – the transactions should be recorded on accounts on the date when they are made, that is, on the date when the rights (assets) or obligations (liabilities) arise regardless of the cash flows from them.
Value date is the date shown by a payer in the pay document or the document for cash transfer, starting from which cash, transferred by the payer to the transferee, passes into ownership of the transferee.
Substance over form – the transactions are accounted for and disclosed in the reporting in accordance with their substance and economic reality and not merely their legal form.
Self-sufficiency – assets and liabilities of the Bank should be separated form the assets and liabilities of other banks (entities) and from those of the Bank’s owners.
Separate presentation of assets and liabilities – all accounts of assets and liabilities are measured and disclosed separately.All accounts are assets and liabilities, except current account of the clients (which may have positive and negative balances), clearing accounts, transit accounts or support accounts.
Measurement – assets and liabilities are accounted primarily at acquisition cost or original cost (whichever dates are earlier).Assets and liabilities in foreign currency, except non-monetary items, should be subject to revaluation when the official exchange rate is changed at the reporting date.
Prudence – use of accounting estimates such that assets and /or income are not overstated and liabilities or expenses are not understated.
Going concern – the Bank’s assets are measured under the assumption that it will continue in operation for the foreseeable future.If the Bank has the intention to curtail the scale of its operations, this fact should be disclosed in the financial statements.
Accrual basis and matching costs with revenues means evaluation of the results of the reporting period, the revenues of the reporting period should match with expenses incurred to earn the revenues.In doing this, revenues and expenses are recorded and reported when they occur and not as cash is received or paid.
Materiality – the financial statements should provide all material information that is useful in making decisions.Information is material, if its omission or misstatement could influence the economic decisions of users.
Transparency – financial statement should be readily understandable and complete to avoid any ambiguity, must represent faithfully the transactions of Bank with required explanations and notes about the procedures for measuring assets and liabilities.The transactions should meet the information in the financial statements.The reporting should be stated clearly and understandable to the users.
Consistency – the methods chosen should be applied consistently by the Bank from one year to the next.
5Measurement principles for individual assets and liabilities
Cash and cash equivalents.Cash and cash equivalents include the Bank’s cash on hand, balances on the correspondent account with the National Bank of Ukraine and other banks.Statutory reserves of the Bank cannot be used for funding daily transactions of the Bank and are not treated as components of cash and cash equivalents for the purposes of preparation of the cash flow statement.
Available-for-sale investment securities. The Bank considers investment securities held by it as such which they have intent to hold for an indefinite period of time and which can be sold to secure liquidity, cover changes in interest or exchange rates.
The Bank recognizes these assets in the Balance Sheet only when the Bank is a party to the contract to buy asset. Available-for-sale investment securities are initially recognized at cost which is the fair value of consideration for such assets and the amount of all expenses for such transactions.Upon initial recognition available-for-sale investment securities are measured at the fair value, except for financial instruments that do not have an active market and whose fair value cannot be reliably measured.
When market value is determined, all securities are measured based on averaged quoted value.
Loans and advances given and allowances for impairment of loans.The Bank carries out credit operations in accordance with the Lending policies of the Bank and Ukrainian legislation in force.
The Bank issues loans to the entities and individuals in national and foreign currency.
The loans are granted for a term of one year (short-term) and over one year (long-term) on diverse lines of earmarked uses of funds.The loans are given as a lump sum and as tranches in accordance with the open credit lines.
The Bank grants lending in the form of overdrafts: lending of extension of short-term loans to the solvent borrowers to pay payment documents in excess of the balance of funds on their current accounts.In this case debit balance which arises on the client’s account cannot not exceed predetermined amount of cash.
The Bank provides factoring service to the clients – short-term financing from the non-recourse sale of accounts receivable.Factoring is made in tranches after receipt from the client of all documents confirming the fact of the sale of goods, performance of work or rendering of the services.Factoring is restricted by the limit fixed both for the client and the debtor.
All loans and advances are recorded when cash is issued to the borrowers.
Loans issued are carried at original cost at inception which is the fair value of funds given and subsequently at amortized cost less the allowance for loan impairment.
The Bank periodically tests loans for impairment and, if required, creates allowances.Allowance for impairment is set up when there is objective evidence that the Bank may not collect the whole amount of outstanding principal or interest.
Based on the past experience of the Bank in relation with losses on loans, the Management assesses periodically the adequacy of the reserve created against risks in the loan portfolio, unfavourable situations, which could affect the borrower’s ability to settle the loan.
The allowances set upduring the current year less the amounts written-off and earlier written-off loans recovered are allocated to the expenses of the current period.The loans recognized as uncollectible are written-off out of the allowances set up for doubtful and bad debts.They are not written-off, unless all due legal procedures are completed and the amount of loss is accurately determined.
Premises and facilities. Premises and facilitiesare carried at initial value, which includes actual expenses to acquire or manufacture them; delivery and installation costs and other expenses required to bring them to operating condition.
Uncompleted capital investments are carried at cost.After completion of all required works those assets are transferred to be included in the corresponding fixed assets.
Expenses attributable to principal tangible assets are capitalized and added to the carrying amount of an asset, if they result in enhancement or operational improvement of such asset or in increase of the useful life of an asset. Expenses for repair and maintenance are allocated to the period expenses.
Gains and losses from the sale of principal tangible assets are determined based on their carrying amount and realisable value and are considered in determining profit (loss).Depreciation is computed with straight-line method based on the useful life of an asset over which it is expected to be used.Capitalised expenses on leased assets are depreciated during the expected useful life, but not more than the lease term.
Depreciation periods are the following: premises, 20 years; furniture and computers, 3 to 7 years; motor vehicles,4 years; improvement of the leased property, during the lease term.
Raised funds.Raised funds are carried at their original cost at inception, representing the funds received net of costs incurred for transaction.Subsequently raised funds are recorded at amortised cost, and any difference between the net proceeds and settlement value is reflected in the Statement of Financial Results during the period of use of the raised funds using the effective interest rate method.
The funds raised at interest rate differing from the market rates are restated at fair value when they are received. The fair value is future interest payments and settlement of the principal discounted at market interest rates which are applied for similar raised funds.
The difference between the fair value and par value of the raised funds when they are received is recognized in the Statement of Financial Results as profit, when the liabilities arise at the rates lower that market rates, or as loss, when the liabilities arise at the rates exceeding the market rates.Subsequently the carrying amount of such raised funds is adjusted by amortization of gains (losses) arising when they are received and related expenses are included as interest expenses in the Statement of Financial Results using the effective interest method.
Share premium. Share premiumis the amount by which the amounts contributed exceed the par value of the shares issued.
Derivatives.Derivatives, including currency exchange contracts are carried at fair value.All derivatives are accounted for as assets, if the fair value of these instruments is positive, and as liabilities, if their fair value is negative.The changes in the fair value of derivatives are allocated to income less the expenses for foreign currency transactions or to income less the expenses for securities transactions depending on the deal type.The Bank does not apply hedge accounting.