Tinkoff Annual Report 2014

← All annual reports

FY2014 Annual Report · Tinkoff

Loading PDF…

2014

Creating Value
in Challenging
Times

TINKOFF
ANNUAL
REPORT

2014
highlights

Proven track record of
driving high growth and
profitability.

Growth
• Gross loans up 12.6% since 2013YE

• More than 560,000 new active
customers acquired in 2014

Profitability
• FY net income at RUB3.4bn

• ROAE of 15.7%

Credit quality
• Focus on credit quality to maintain a robust portfolio

• NPLs (90d+) at 14.5% at year-end

• Conservative provisioning policy with provision

coverage of 1.4x NPLs at 2014 year-end

Key Events
• Tinkoff Insurance launched travel and home

insurance into the open market as well as car
insurance products: OSAGO and KASKO

•

Introduction of new co-branded credit cards
with OneTwoTrip, eBay, Afimall, Kanobu

• Launch of credit line to Kukuruza cards

(in partnership with Euroset)

Liquidity and capitalisation
• Cash at 10.0% of total assets and 25.0% of retail

deposits and customer accounts at year-end

• 1 January 2015 statutory N1 ratio at 15.5%

• Expansion of KupivKredit system: new partner – Ozon.ru

• Launch of card-to-card money transfer service

• Launch of a number of mobile mono apps,
including “Traffic Fines” and “Card-to-Card”

Credit cards issued in 2014

Total assets

Customer accounts

1.02mn

RUB109bn

RUB43.4bn

Net profit

Return on average equity for 2014

Strong N1 capital ratio at the end
of 2014 of

RUB3.4bn

15.7%

15.5%

Summary of presentation of financial and other information

All financial information in this document 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 are for the year
ended 31 December 2014 included in this document. A detailed description of
the presentation of financial and other information is set out from page 40 of this
document.

Market data used in this document, 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.

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”, “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.

About
us

Contents

STRATEGIC REVIEW

TCS Group at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02

Our history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .05

Chairman’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07

Business model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08

Market context. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Market position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

What makes us different? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Chief Executive's strategic review . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Our awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Financial review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Risk review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Employees and corporate social responsibility . . . . . . . . . . . . . . . . .30

DIRECTORS' REVIEW

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Corporate governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Management team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

FINANCIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1

TCS Group is an
innovative provider of
online retail financial
services operating in
Russia through a high-
tech branchless platform.

TCS Group is the name used in this document for TCS Group Holding PLC and its group of
companies operating under the Tinkoff brand in Russia. These include Tinkoff Bank and
Tinkoff Insurance (formerly TCS Bank and Tinkoff Online Insurance/TOI which carried on
business under those names in 2014 until rebranded early in 2015): their current names are
used in this document.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS Group
at a glance

Consumer lending

Tinkoff Bank offers its own Tinkoff branded credit cards including Tinkoff All Airlines and a
variety of co-branded credit cards. While the focus remains on the mass market segment,
Tinkoff Bank continues to expand into the mass affluent segment of the market.

Credit Cards

5 2 1 3 2 4 0 0 0 0 0 0 0 1 2 3

5213

VALID
THRU

1 2 / 1 5

C A R D H O L D E R N A M E

5 2 1 3 2 4 0 0 0 0 0 0 0 1 2 3

5213

VALID
THRU

1 2 / 1 5

C A R D H O L D E R N A M E

5 2 1 3 2 4 0 0 0 0 0 0 0 1 2 3

5213

C A R D H O L D E R N A M E

VALID
VALID
THRU

THRU 1 2 / 1 5

4,900,000

credit cards

Покупай умнее, живи веселее!

5 2 1 3 2 4 0 0 0 0 0 0 0 1 2 3

5213

VALID
THRU 1 2 / 1 5

C A R D H O L D E R N A M E

4 3 7 7 0 0 0 0 0 0 0 0 0 1 2 3

4377

VALID
THRU

1 2 / 1 5

C A R D H O L D E R N A M E

5 2 1 3 2 4 0 0 0 0 0 0 0 1 2 3

5213

C A R D H O L D E R N A M E

VALID
VALID
THRU

THRU 1 2 / 1 5

5213

VALID
THRU

1 2 / 1 5

C A R D H O L D E R N A M E

E-Commerce lending

Cash Loans

Tinkoff Bank offers point-of-sale unsecured lending to
customers making online purchases through online retailers,
for example, kupivkredit.ru. Tinkoff Bank has relationships
with over 700 such online retailers. This product is offered to
existing customers, as well as new customers without other
accounts with Tinkoff Bank.

Tinkoff Bank currently offers unsecured cash loans to its
existing customers without loan products with other banks.
The size of the loan depends on the customer’s income and
his or her behavioural risk score.

12/15CARDHOLDER NAME5213 2400 0000 012312/15CARDHOLDER NAME5213 2400 0000 012312/15CARDHOLDER NAME5213 2400 0000 012312/15CARDHOLDER NAME5213 2400 0000 012312/15CARDHOLDER NAME5213 2400 0000 012312/15CARDHOLDER NAME5213 2400 0000 012312/15CARDHOLDER NAME4377 0000 0000 0123TCS Group Holding PLC Annual report 2014
Transactional and savings products

Tinkoff Bank offers retail deposits, stand-alone debit cards, e-wallets, pre-paid cards
and payroll programmes. The main distribution channel for retail deposits is our online
customer acquisition platform which is supported by debit card and document delivery using
“smart couriers” who are full time employees of Tinkoff Bank.

Retail deposits

Payroll programme

For a retail deposit programme, Tinkoff Bank offers high-
quality customer service and competitive interest rates,
a black MasterCard Platinum debit card with free cash
withdrawals and account top-ups, the ability to switch
between monthly interest capitalisation or monthly interest
deposit on the card, a free option to convert deposited funds
into U.S. dollars or euro without losing accrued interest and
other features.

Tinkoff Bank has successfully launched an online platform
for payroll programmes for corporates. This was developed
entirely in-house.

8 800 555-25-50 (внутри России), +7 495 645-59-19, tinkof f.ru

8 800 555-80-99 (бесплатно для России), +7 495 974-35-86, https://money.yandex.ru

5 2 1 3 2 4 0 0 0 0 0 0 0 1 2 3

5213

1 2 / 1 5

C A R D H O L D E R N A M E

АО «Тинькофф Банк». 123060, Москва, 1-й Волоколамский проезд, 10, стр. 1.
Tinkoﬀ Bank. 10, bld. 1, 1st Volokolamskiy proezd, Moscow, 123060, Russia.

Issued by Tinkoﬀ Bank under license from MasterCard International.

5 1 8 9 0 0 0 0 0 0 0 0 0 1 2 3

C A R D H O L D E R N A M E

1 2 / 1 5

АО «Тинькофф Банк». 123060, Москва, 1-й Волоколамский
проезд, 10, стр. 1.
Tinkoﬀ Bank. 10, bld. 1, 1st Volokolamskiy proezd, Moscow,
123060, Russia.

Issued by Tinkoﬀ Bank under license from MasterCard International.

Stand-alone debit cards

Pre-Paid Cards

Tinkoff Bank offers stand-alone debit cards (cards not linked
to a term deposit) as a separate product under the “Tinkoff
Black” brand.

Tinkoff Bank offers a variety of pre-paid and virtual cards:
Yandex Money, Tinkoff Mobile Wallet and a white label mobile
wallet with NFC (Near Field Communication) capability. The
funds loaded on these cards can be used for shopping, bill
payments, everyday purchases and contactless payments.
No credit check. No overdraft fees.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS Group at a glance
continued

Insurance

Leveraging TCS Group’s vast tech expertise
to underwrite and sell best-in-class
online insurance products.

Tinkoff Insurance is a direct-to-customer provider of its own
innovative online insurance products and services in Russia.
We have developed a proprietary and highly advanced IT
platform and leveraged the vast expertise of Tinkoff Bank
to provide a customised choice of insurance products, and a
convenient claims settlement and sales process, which can be
accessed online from anywhere in Russia.

Tinkoff Insurance offers:

Since September 2013 Tinkoff Insurance has offered
personal accident insurance to Tinkoff Bank’s clients and
in February 2014 launched property insurance products to
the mass market. In 2014 we added direct online sales of
personal accident, travel and property insurance and motor
insurance to the product portfolio.

Personal accident
insurance

Personal property
insurance

Travel insurance

Car Insurance
(KASKO, OSAGO)

Mobile mono applications

Tinkoff Bank offers a number of mobile applications to cover daily needs of its customers for
smooth money transfer interaction.

Tinkoff Mobile Bank
application available for the
customers to satisfy their
daily activity in managing
accounts

Tinkoff Mobile Wallet
with a focus on peer-to-
peer money transfer and
payment features

GIBDD traffic fines
to access the track record
of traffic fines and fast
repayment of such

Card-to-Card
money transfers available
for peer-to-peer money
transfers regardless the
cards’ issuer entity

TCS Group Holding PLC Annual report 2014Our
history

Highlights of Tinkoff Bank’s
innovative development

• Tinkoff Insurance launched travel and home

insurance into the open market as well as car
insurance products: OSAGO and KASKO
Introduction of new co-branded credit cards
with OneTwoTrip, eBay, Afimall, Kanobu
• Launch of credit line to Kukuruza cards

•

(in partnership with Euroset)

• Expansion of KupivKredit system: new partner – Ozon.ru
• Launch of card-to-card money transfer service
• Launch of a number of mobile mono apps,
including “Traffic Fines” and “Card-to-Card”

• TCS Group IPO on the London Stock Exchange
• Tinkoff Insurance started offering personal
accident insurance to Tinkoff Bank’s clients

• Launch of cash loans
• Tinkoff All Airlines loyalty programme launched
• Launch of Tinkoff Mobile Wallet, a mobile payments solution
• Over 3.9m credit cards issued since inception

Net loan portfolio
growth (RUBmn)

2014 74,580

2013 73,962

• Minority stakes sold to Baring Vostok and Horizon
• Launch of online POS loan programme
• The number of Tinkoff Bank “smart couriers” reached 500

2012 47,784

• Launch of mobile banking
• Launch of the mobile and telesales sub-channels of
Tinkoff Bank online customer acquisition platform
• The online channel became the largest customer

acquisition channel for Tinkoff Bank

• Launch of online acquisition channel for credit cards
• Launch of “smart courier” service
• Expansion of the retail deposit programme

to all other regions of Russia

• Launch of the retail deposit programme in four
regions of Russia and a debit card product

• Minority stake sold to Vostok Nafta
• Launch of Internet bank

2011 21,359

2010 9,643

2009 5,254
2008 4,117

• Minority stake sold to Goldman Sachs
• First credit card issued
• Launch of Tinkoff Bank’s credit card lending programme using

direct mail as the primary customer acquisition channel

2007 1,593

Tinkoff Credit Systems Bank was
created by Oleg Tinkov

2006

Net loan portfolio, (RUBmn)
Source: IFRS financial statements

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTinkoff Bank has demonstrated
consistent long-term growth
throughout the phases of the Russian
economic cycle. The Group remains
very well capitalised and highly liquid.

Oleg Tinkov
Director and Chairman of the Board
of Directors

TCS Group Holding PLC Annual report 2014Chairman’s
statement

Dear Stakeholders,

2014 was another positive year for the
Group and its many stakeholders, but
very different from 2013.

We outperformed the market, as we
have done for a number of years,
thanks to our unique business model,
great customer service and innovative
new products. The Group delivered
impressive financial results in the
most testing environment: we remain
very well capitalised, highly liquid
and optimistic we can exploit the
opportunities which open up in 2015.

The years spent building and
developing our high tech retail financial
services platform again paid dividends.
As we have said before our entirely
branchless platform with a low fixed
cost base gives us a very high degree
of operating flexibility to ramp the
business up or slow the business down
according to the external environment.
That external environment in 2014
was a perfect storm – from plunging
commodities prices impacting Russia,
a stricter regulatory and prudential
regime, extreme volatility in the
Rouble – our business and reporting
currency, sanctions on a number of
Russian banks and other businesses
which had an impact though not
directly targeted at us, to a broader,
sharp downturn in the retail sector in
Russia. All these challenges and more
confronted us in 2014 and still we
outperformed our competitors and
count ourselves amongst the handful
of profit making retail-focused private
banks.

We always have in mind looking after
our public investors, not simply in
terms of the corporate governance
structures we have in place, but also
financially, our total shareholder
return. Even in the hostile business
environment of 2014, we had
confidence in the Group’s core business
to generate solid cashflow more than
adequate to support the need for

capital and to fund the organic growth
of the business, so in December 2014
we paid our first ever dividend of $.303
per share/GDR.

Besides the rebranding in 2014 of
TCS Bank and TOI to Tinkoff Bank
and Tinkoff Insurance, to reflect more
accurately what we are about, a full
service online retail bank with a broad
range of financial and insurance
products, other 2014 events which
stand out in my mind are:

•

•
•

•

the launch of auto insurance
by Tinkoff Insurance;
launching payroll programmes;
launching several high
profile co-brands including
OneTwo Trip and eBay; and
reaching a particular milestone-the
number of customers using the
mobile bank overtook the number
using the internet bank.

At the same time I want to take this
chance to thank our entrepreneurial
and multi-talented executive
management team as well as the
members of our seven – strong
board of directors, including our
non-executive board members Martin
Cocker, Philippe Delpal and Jacques
Der Megreditchian for offering their
expertise and experience working
in public companies in the Russian
markets as well as their financial
management skills and support in the
course of the year.

I would also like to thank our many
business and joint venture partners for
their continued cooperation in 2014;
they make an invaluable contribution to
our success.

With a ROAE of 15.7% in 2014,
and stable profitability over the
years, TCS Group has demonstrated
consistent long term growth
throughout the phases of the Russian
economic cycle. Looking ahead to
2015 and what many predict will be
an even more challenging business

Equity RUBmn

2 0 0 7–2 0 1 4 CA GR: 6 0 %

20,969

20,551

9,059

3,770

766 484 1,0601,337

2007

2008

2009

2010

2011

2012

2013

2014

Net income RUBmn

ROAE%

n/a

5,755

3,791

3,401

2,010

570

277

-68

-1,112

2007 2008 2009 2010 2011 2012 2013 2014

environment, I have renewed
confidence in our unique business
model, our flexibility to respond rapidly
to changing market conditions, our
financial strength, our proven ability
to innovate with new products, and
our dynamic and entrepreneurial
management team.

We will continue to deliver in 2015,
whatever 2015 brings.

Oleg Tinkov
Chairman of the Board

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS
Business
model

Tinkoff Bank Diversified retail financial
services provider delivering premium services
to mass market customers in Russia through a
unique online, branchless platform.

Operating Flexibility

Tinkoff Bank has built an advanced
high-tech retail financial services
platform that is highly suited for
the Russian market and operating
environment. The Bank’s platform
is entirely branchless, with a low
fixed cost base and high degree of
operating flexibility. Cost efficiencies
are enhanced by the best-in-class
centralised IT system. 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.

Robust data and risk
management

Tinkoff Bank 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.

Diversified provider
of retail financial and
insurance services

Originally the first purpose-built
credit card focused lender in
Russia, Tinkoff Bank has evolved
into a diversified provider of retail
financial services that include
retail lending, transactional and
savings products and insurance.
Tinkoff Bank principally targets
the mass market segment, but
also increasingly the mass affluent
segment of the market.

TCS Group Holding PLC Annual report 20141

Premium-level service and brand

Tinkoff Bank is unusual among Russian retail financial
services providers in offering a premium-level service to
mass-market customers. Our customers enjoy convenient
24 hours a day, 7 days a week access to their accounts and
financial transaction services through the combination of
Tinkoff Bank’s free Internet, mobile and call centres service
platforms.

Powerful Distribution

High liquidity and well-balanced
funding base

Tinkoff Bank has established a robust liquidity risk
management framework that ensures it maintains
sufficient liquidity, including a significant cushion of
liquid assets. Tinkoff Bank’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.

TCS Group continues to
diversify its business, evolve
its model and improve its
quality of customer service.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSMarket
context

Credit card lending

Retail banking in Russia

Credit card lending experienced significant turbulence in
2014 due to a number of factors such as the geopolitical and
macroeconomic situation. In particular continued customer
deleveraging resulted in slower growth of this sub-segments
of retail bank lending in Russia – the sector grew by 17% in
2014 vs 47% in 2013. At the same time the adoption of
credit cards as a more convenient alternative to cash keeps
rising. Russia is building up its electronic payments sector, as
customers become more accustomed to cashless payments,
such as payments made by credit cards, debit cards and
prepaid cards.

The Russian financial services sector stalled during 2014,
constrained by economic and geopolitical factors. However,
once the macroeconomic situation stabilises and Central
Bank’s efforts to regulate the financial market come into
force – this sector will revive strongly again as in Russia it
is still underdeveloped and underpenetrated relative to the
most developed economies, as well as certain emerging high
growth economies.

Credit card market in Russia (RUBbn)

Aggregate credit penetration in Russia

1,156
675
166

990

16%

15%

12%

9% 9%

10%

990

In 2014 the credit
card lending
sector in Russia
grew by

17%

Source: CBRF

2013

2014

2009

2010

2011

2012

2013

2014

Source: CBRF. % of retail loans against GDP

Internet and mobile markets

Russia has the 6th largest internet audience globally and
the largest in Europe with 83 mln internet users; TCS Group
expects this to grow. The rapid adoption of Internet and
mobile data services in Russia is creating significant
opportunities for technology based financial services
providers, such as Tinkoff Bank, to acquire and service
customers across the country. Good growth opportunities
should be driven by rising broadband and internet
penetration and growing use of smartphones.

Russia’s E-commerce market is expected to continue
outperforming other markets by over 2.0x in growth
and gain relevance relative to GDP. Greater volumes
of e-commerce and the development of processing
infrastructure mean Internet and mobile volumes could
grow rapidly and account for a significant share of payment
transactions.

Increasing internet availability in Russia

E-commerce penetration1 by country in 2014

3.0

2.5

2.0

1.5

1.0

0.5

2.3

2.1

33%

30%

1.9

1.6

27%

24%

2.7

2.5

35% 37%

Population
Using the
internet %

Number of
internet
Users (bn)

87%

73%

71%

Large
e-Commerce
Opportunity
in Growth
Markets

49%

46%

44%

40%

2009

2010

2011

2012

2013

2014

GBR

USA

KOR

CHN

ARG

ITA

RUS

Source: Goldman Sachs public research report

Source: Goldman Sachs public research report
1 Defined as at least one purchase via digital channel

TCS Group Holding PLC Annual report 2014

Market
position

A leading credit card lender in Russia

The overall slowdown in growth across the market and in
particular tighter risk controls implemented in good time by
Tinkoff Bank kept us in the top 4 by the year end with a share
of the Russian credit card market of 6.7% (the fourth largest
credit card loan portfolio in Russia).

Tinkoff Bank credit card market share (%)
(as of 2014YE)

7.2

7.5

6.7

5.8

4.2

2.5

2009

2010

2011

2012

2013

2014

Source: CBRF

Number of issued Tinkoff Bank credit cards (m)

Issued inactive
cards

Issued and
activated cards

4.9

3.9

3.5

2.9

2.8

2.0

1.6

1.1

2011

2012

2013

2014

0.8

0.6
2010

Tinkoff Bank credit card transactions (RUBbn)

94.2 93.3

64.4

30.1

11.2

2010

2011

2012

2013

2014

First Russian bank to go to market with
online deposits

Tinkoff Bank’s retail deposit programme forms part
of its strategy to diversify its funding sources. It was
initially launched in four regions of Russia in 2009 and
then in 2010 expanded to Moscow and St Petersburg
as well as other regions. The low cost model allows
Tinkoff Bank to attract deposits by offering convenient
and quality service, attractive interest rates and lower
fees. Applications are made online and by phone, while
deposits are typically made via bank transfer or third
party payment terminals.

Adherence to sound consumer protection
principles

Tinkoff Bank has from the beginning taken a distinct path
in terms of demonstrating a client-friendly approach. Full
transparency on customer disclosure is illustrated by a
description of full rates and fees. APR is set based on the
calculation agreed by the CBRF and FAS.

Tinkoff Bank monitors any customer complaints
frequently at senior management level in order to ensure
that feedback is received and proper action taken. The
bank has a policy of satisfying customer complaints, and
where appropriate refunding or waiving penalties. This
has the effect of increasing customer satisfaction and
retention rates.

Enhanced consumer protection

Several CBRF measures have been or are likely to be
implemented in 2013–15, including stricter risk-weighting
for consumer loans based on their full cost of credit (PSK),
higher provisioning rates for non-overdue and 1–30 day
overdue unsecured loans, changes to capital adequacy
ratios, and an interest rate cap on consumer loans.

In 2014 the Government performed two initiatives to
protect the consumers. The guaranteed deposit insurance
was increased up to RUB1.4mn. The new bankruptcy law
in relation to individual person came into force while still
subject of negotiation and change of bankruptcy threshold
level.

As one of the most efficient and flexible players in the
market, Tinkoff Bank is best positioned to adapt to new
consumer lending regulation and even benefit from its
disciplining effect on competition.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS

Strategy

Tinkoff Bank’s strategy is to be a full service,
online retail bank with a broad range of financial
and insurance products, serving customers
through a high-tech online and mobile platform
that offers premium-quality service and
convenience.

Effective data-driven risk management and tight control over operating expenses
are central to our success.

02. Develop and deploy transactional

and payment products to acquire
new customers and increase
retention rates for existing
customers

The technology and experience acquired by Tinkoff Bank
in building its high-tech online customer acquisition and
service platform has helped it to expand into transactional
and payment products. 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 Bank, helping to boost retention rates.

Tinkoff E-commerce products

Since the end of 2013 Tinkoff Bank has focused on the
high growth e-commerce market. Our existing electronic
online and mobile platforms together with significant growth
opportunities in this sector give us significant advantages
on the market. Since the launch of Tinkoff Mobile Wallet in
December 2013 TCS Group has released a number of mobile
mono applications (traffic fines payments, card-to-card
transfers) (and there are more to follow) and established a
network of partners to provide loans to internet shoppers.
A wide range of insurance products, now including car
insurance, is also available online for customers. We have
launched upgrades to our internet and mobile bank with
additional features in 2014 and these initiatives have already
been recognised and received awards from international
leaders in this sector.

01. Develop the high-growth credit

card platform and other products
for the consumer lending market

Credit card lending will remain Tinkoff Bank’s core business
for the foreseeable future and Tinkoff Bank intends to
continue to extend the range of its credit card products,
strengthen its existing credit card distribution channels and
develop new channels including retail partners with large
distribution networks, affinity programmes, and cross-selling
to customers using new products such as cobrand and payroll
programmes, insurance, mobile mono applications.

In addition, Tinkoff Bank will continue to grow recently
introduced consumer lending products, such as point-of-
sale lending to customers making online purchases through
Internet retailers and cash loans to Tinkoff Bank’s existing
customers. This will increase convenience for customers
by providing them with a one-stop lending shop, help in the
retention of the customer base and increase Tinkoff Bank’s
revenue per customer.

E-commerce loans

• New product introduced in 2012

• Represents Tinkoff Bank’s play on the

booming growth of Russian e-commerce

• Allows customers to purchase items online on
partnership websites at the press of a button

• Loan then paid off in instalments

• Tinkoff Bank has a relationship with

over 700 Internet shops

• More than 1,000 applications per day

• Cross selling potential, targeting not only

existing customers, but also new customers
without other accounts with Tinkoff Bank

• Average size of purchase transaction close to RUB20,000

• Main customers are 25–35 years

of age, predominantly male

•

Integration with credit card products

TCS Group Holding PLC Annual report 201403. Sell or cross-sell other new

financial and non-financial
products

06. Effectively manage credit risk in

reliance on sophisticated data
analysis and modelling

As a data-driven organisation, Tinkoff Bank 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.

Tinkoff Bank 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 Bank and will remain critical to sustaining its
competitive advantage in the future.

07. Further improve cost-efficiency of

Tinkoff Bank’s operations

Tinkoff Bank 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.

08. High liquidity and well-balanced

funding base

Tinkoff Bank has established a robust liquidity risk
management framework that ensures it maintains
sufficient liquidity, including an significant cushion of liquid
assets. Tinkoff Bank’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.

By developing and cross-selling new products to its existing
customers, Tinkoff Bank expects to diversify its revenue
streams, increase its revenue per customer and increase its
customer retention rates.

Tinkoff Insurance

Tinkoff Insurance has developed a proprietary and advanced
IT platform and leveraged the vast expertise of Tinkoff Bank
to build a customised choice of insurance products, as
well as a convenient claims settlement and sales process,
which can be done online from anywhere in Russia. The
new online insurance products are delivered according to
the Group’s traditionally high customer service standards.
Tinkoff Insurance started offering personal accident
insurance to Tinkoff Bank’s customers in September 2013
and in 2014 the range was extended to include property,
travel and car insurance – KASKO and OSAGO.

04. Maintain leadership

in customer service

High-quality customer service has been a key driver of
Tinkoff Bank’s rapid growth. Tinkoff Bank will 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.

05. Support business expansion by

using advanced IT systems

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 competences to
economise on capital expenditures, to manage workflow and
to maintain a flexible cost base with low fixed expenses.

Tinkoff Bank’s in-house IT team develops a significant part of
the software used by Tinkoff Bank, including software used
in its online customer acquisition and service platform. This
enables Tinkoff Bank to regularly roll-out new products and
services to customers or new versions with enhancements.
Tinkoff Bank intends to increase its technological advantages
over traditional Russian banks. In 2014 Tinkoff Bank
launched a real-time voice authentication system for its
call centres which received the “Technology Projects of the
Year” award for Customer Service, presented by The Banker
magazine, a part of the Financial Times Group.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSWhat makes us
different?

TCS Group is an innovative provider of online
retail financial services operating in Russia
through a high-tech branchless platform.
Tinkoff Bank has been transforming the
Russian financial services market and driving
a differentiated customer proposition. We
currently operate through two wholly-owned
subsidiaries: Tinkoff Bank and Tinkoff Insurance.

1034 6784 0037 9125

Leading credit
card lender

Since its creation in 2006 by Oleg Tinkov,
one of Russia’s best known entrepreneurs
with a substantial track record of creating
successful businesses, Tinkoff Bank has
grown into a leader in credit cards. In
addition to our market-leading credit
card offering, Tinkoff Bank has developed
a successful online retail deposits
programme, retail and car insurance,
financial products in the fast emerging
mobile payments and e-wallet segments.
Leveraging its innovative approach,
existing infrastructure and customer base,
Tinkoff Bank has been expanding to bring
additional online products and services to
Russian consumers such as mobile mono
applications, payroll programme and a
number of new concepts to be launched in
2015.

Nearly 5mn credit cards issued
since inception

5mn

Over RUB93bn of customer credit
card transactions in 2014

>RUB93bn

#4 player in the Russian credit card
market with 6.7% market share1

6.7%

As of 31 December 2014 based
on CBRF data.

TCS Group Holding PLC Annual report 20141034 6784 0037 9125

High-tech virtual
platform

Tinkoff Bank has built an advanced high-
tech 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
very low fixed cost base and high degree
of operating flexibility. This high-tech
platform includes the internet bank, mobile
bank and a real-time voice authentication
system implemented in 2014 which
creates voice prints during the traditional
Q&A verification process for each new
caller; these voice prints are later used
as a benchmark for verification when the
customer next calls.

Received over 500,000
applications per month on average
during 20141

500k

Approximately 2mn inbound calls
/ 8mn outbound calls in December
2014 via call centres

8mn

Most Efficient Retail
Internet Bank 2014 and
Best Mobile Bank App2

503,890 applications received and
115,284 applications approved monthly
average for 2014.

2 According to Markswebb Rand & Report.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSWhat makes us
different?

1034 6784 0037 9125

Powerful
distribution

Tinkoff Bank 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
revolutionised 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 Bank to
attract new customers practically anywhere
in the country. Supporting the branchless
platform is a “smart courier” network
covering around 600 cities and towns in
Russia which allows next day delivery. In
addition, Tinkoff Bank’s online origination
process makes extensive use of online data
and behavioural profiles, and gives it a clear
advantage over competitors in terms of
underwriting.

Diversified presence
in all regions of Russia,
including underbanked
small cities

c.1,000 smart couriers and sales
agents covering around 600 cities
and towns nationwide

600

Network of partners
(online, payment
terminals, retail and
other)

TCS Group Holding PLC Annual report 20141034 6784 0037 9125

Creating Value in
Adverse Markets

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
consistently high growth and 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 Bank’s continued success.

96% net loan portfolio CAGR in
2007–2014

96%

ROAE 2014

15.7%

More than 20x increase in equity
since 2007

20x

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSOur unique corporate culture is a
combination of entrepreneurship,
analytics and data management,
innovation and sheer drive.
We have the best people in the market,
who have shown huge loyalty and
commitment to the Tinkoff Bank
project from its inception.

Oliver Hughes
Chief Executive Officer

TCS Group Holding PLC Annual report 2014Chief Executive's
strategic review

By the end of 2014 Tinkoff Bank
had issued 4,9m credit cards

4.9m

ROAE is 15.7% and total equity hit
RUB21bn

15.7%

Dear Investor,

In 2014 challending year,
Tinkoff Bank delivered on its promise
of strong, profitable growth.

Total assets grew by 10% to
RUB109bn, net income reached
RUB3.4bn and ROAE was 15.7%.
Portfolio growth was the main driver of
top line growth with net interest income
up 15% to RUB30.8bn. These results
put us in a different space to most
other consumer lending specialists
and indeed many other banks in the
Russian market who struggled to grow
profitably in an increasingly challenging
and competitive market.

At the end of last year, we launched our
new brand Tinkoff Bank, a relatively
minor change to our brand but one
which more accurately reflects what we
are about and where we are heading-
namely a full service, online retail
bank with a broad range of financial
and insurance products. The brand
repositioning also applies to our
insurance company which is now known
as Tinkoff Insurance. This allows us
to leverage the strong Tinkoff brand
and grow our business in a number of
different directions.

Many factors contributed to these
impressive results. Some of the main
ones are highlighted below. However,
I think it important to repeat that the
fundamental reason for the consistent
outperformance of our company is
its people. We have the best people

in the market, who have shown
huge loyalty and commitment to the
Tinkoff Bank project from its inception
in 2007. The unique corporate
culture that underpins our business
ethos is an unrivalled combination of
entrepreneurship, analytics and data
management, innovation and sheer
drive. It is this massive human resource
that has enabled us to thrive in times
of growth and adapt quickly in more
difficult times like 2014.

The Tinkoff Bank business model is now
well tested and, beyond the team, the
main elements of its success in 2014
were:

• one of the strongest customer
service platforms in Russia
with award-winning Internet
and mobile banks

• a strong consumer brand, which
is associated with service and
technology, into which we have
been investing through innovative
advertising campaigns
• our unmatched analytical

•

and data management skills,
the cornerstones of our
superior risk management
and customer acquisition
through our branchless platform,
our nationwide reach, allowing us
to tap into demand in all of Russia’s
cities as well as in underserved
smaller towns and villages

• a unique, bespoke smart courier
delivery system that enables
us to deliver our product to
customers in over 750 cities
• our low fixed cost base, that gives
us significant operating leverage,
and which enables us to ramp the
business up and down quickly

• our industry-leading IT

platform that is fully scalable
and mainly supported and
developed in-house, giving us
increased competitive edge

The events of last December
were challenging for the Tinkoff
management team. But as a result of
the strength of our brand, service and

products, the sterling work of our call
centres team and some innovative
solutions that we introduced on the
fly, we acted decisively to limit the
negative impact on our liquidity
position.

Despite the negative view on the
Russian baking sector fuelled by bad
headlines around Russia, normal
business life goes on. Tinkoff continues
to diversify its business, evolve its
model and improve its quality of
customer service.

New, innovative products were
developed and successfully launched,
including:

•
launch of co-brands
• salary card programme
• new versions of our award
winning Internet Bank and
Mobile Banking application
• and last but not least, the in-
house insurance programme
“Tinkoff Insurance”.

All this will help put us even further
ahead in the online space where we are
already established as industry leaders.

By way of illustration of our
technological leadership, I give you a
few examples:

• by mid-2014, we had more monthly

visits by users of the Mobile
Banking App than the Internet
Bank and we expect this strong
trend will be cemented by other
initiatives in the mobile arena;

Net interest income RUBbn
+14.7%

30.8

26.9

+1.7%

7.5 7.4

7.8 7.9 7.7

2013 2014

4Q’13 1Q’14 2Q’14 3Q’14 4Q’14

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS
2014-strong delivery in a challenging year
continued

First to market with innovative offerings

MOBILE
BANKING

ONLINE
DEPOSITS

INTERNET
BANK

DIRECT
MARKETING

NATIONWIDE
COURIER NETWORK

User friendly
application

c.1,000 “smart
couriers” and sales
agents covering
almost 750 cities
and towns

“Smart couriers”
equipped with
Android
smartphones fully
integrated with CRM1

Best Internet bank
in Russia

Wide service
oﬀering online
24x7 support
functionality

10,000 unique
customers daily

User friendly
application

Attractive
convenient savings
channel

Market leading
rates, low fees and
high-quality service.

• we launched Real Time
Authentication (voice
authentication in the call centres)
in Spring 2014, and we now have
1.2 million voice prints and a major
part of calls are now identified
using the service-this enhances
the customer experience as well
as reducing call handling times
and further preventing fraud;
the share of card to card transfers
in our card repayments now
exceeds 11% and we are targeting
25% in the course of 2015;
• mobile mono apps will be a key

•

feature of Tinkoff’s development
in mobile and so far we have
exceeded 1.1million downloads
of “Traffic Fines”, 150,000
Tinkoff Mobile Wallet and
25,000 card to card transfers
with every prospect of more;

Tinkoff Bank issued over 1m cards
in 2014

1,000,000

As at 31 December 2014,
Tinkoff Bank was top 4 in Russia,
with a market share of

6.7%

At the same time measures that we
put in place in collections and portfolio
management throughout 2014 stood
us in good stead in 2014 and continue
to do so.

“Tinkoff Online Insurance” was
launched in Q4 2013 with a
separate management team of
insurance experts. Now renamed
“Tinkoff Insurance” it is actively
expanding its range of products
successfully beyond credit protection,
accident, home and car insurance.

On the banking side, we diversified
our sources of funding, optimised the
duration and cost of retail deposits to
retire older, more expensive wholesale
debt. Our cost of funding was 11% at
the end of 2014, a decrease of 1.5%
during the year. And there was strong
emphasis on improving the credit
profile of new customers, alongside
relentless focus on collections, to
ensure that cost-of-risk remained
at manageable levels in a more
challenging credit environment.

As I write this looking back at 2014,
but with my thoughts very much on
2015, I would like to thank a number
of stakeholders, employees and other
contributors for their creativity, skill
and energy. I know what a unique
business, what a special corporate
culture we have created at Tinkoff Bank.
Above all, I am pleased that the core
team of managers who led the Group
so successfully up to and through
the IPO remain with us, focused on
moving the Group forward. 2015 will
be another challenging year as we
maneuver through uncertain economic
terrain, now compounded by a
nationwide liquidity squeeze. However
as I think we amply demonstrated
last year, the Tinkoff model, team and
platform can handle the tests that are
thrown at it and can adapt quickly to
whatever comes our way.

I would also like to take this opportunity
to thank our public investors for their
belief, support and interest in our story.

Oliver Hughes
Chief Executive Officer

Customer relationship management programme

TCS Group Holding PLC Annual report 2014
Our
awards

The most profitable bank in Russia in 2013
The Banker (Top 1000 World Banks 2014)

The Banker’s Technology Project of the Year
Award for NICE real-time voice authentication
system at the call centres

Best Mobile Bank in Russia 2014
Best Mobile Bank in Russia 2013
Deloitte

The Banker

Bank of the Year 2013
The Banker

Best Internet Bank 2012
Global Finance

Event of the Year 2013:
TCS Group Holding PLC IPO

Best Internet Bank 2012
Bank of the Year 2012
Banki.ru – Russian leading online
banking portal

Best Payment Service 2013
Russian Mobile Awards

Award winner in the category
“Attractive Employer 2014”

Best Mobile Bank App 2014 for
iPhone (1st place)

Best Mobile Bank App for
iPhone 2013

Superjob.ru

Frank Research Group Ranking

Best Retail Internet Bank
2013 (the most user-friendly)

E-payments Russia

Most Efficient Retail Internet
Bank 2014

Bank Product of the Year 2013
(ALL Airlines Credit Card)

Best Mobile Bank App 2014 for
iPhone, Android, Windows Phone
and 3rd place for iPad

Best Mobile Bank for iPhone
2013

Markswebb Rank & Report

Non-bank of the Year 2013
(Tinkoff Mobile Wallet)

Event of the Year 2013:
TCS Group Holding PLC IPO

Bank Product of the Year 2012
(KupiVkredit)

Most Innovative Bank 2012
Bank Review Magazine

2nd place in
“Finance, Investment, Banks” best
website nomination 2013

Special Nomination
“Most Innovative Solution for the
Website” 2013

Award winner in
“Finance, Investment, Banks” best
website nomination 2012

Runet Ranking

Award winner in the category
“Best Mobile Bank” (2nd place)

One of the leaders of the
rating in the category “Best
Internet Bank” (3rd place)

Synovate Comcon Ranking

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNow that the year 2014 is over, I can
say that it was a year of re-learning.
We re-learned how to cope with the
credit cycle downturn in Russia and
how to remain healthily profitable
by managing costs while continuing
customer acquisition.

Ilya Pisemsky
Chief Financial Officer

TCS Group Holding PLC Annual report 2014Financial
review

Dear Investor,

Balance sheet

Total assets grew by almost 13%
to RUB109bn primarily due to a
positive revaluation of the Group's
financial derivatives

In 2014, the Group’s total assets
increased by almost 10% to RUB109bn.
Cross-currency swaps that we use
to hedge foreign exchange liabilities
were the main driver of that growth, as
significant Rouble devaluation kicked
in December. Gross loans grew by
12.6% to RUB94bn, which represents
a deliberate slowing down of the loan
portfolio expansion and significant
tightening of approval rates to address
the current credit risk environment.
Net loans remained flat during the past
year, and their share in the total assets
decreased to 68.5%. The increase in
other assets, again, was driven primarily
by the positive revaluation of the
Group’s financial derivatives (swaps).

Tinkoff Bank liquidity policy proved
to be highly robust with cash at
10% of assets

Despite a challenging December 2014
in particular and significant pressure
on our deposit base, we managed
to stabilise the situation. In the last
week of December we had strong cash
inflow from depositors. We continue to
deploy some excess cash into highly
liquid CBRF repo-able debt securities
in order to decrease negative carry on
our borrowings. Year-end cash balances
represent 10% of the assets and 25%
of customer accounts. At 31 December,
2014 cash and treasury portfolio
accounted to RUB16.3bn.

The total share of non-performing loans
(including loans in court) in total gross
loans increased to 14.5% from 7.0% as
at YE2013. The loan loss provisioning
coverage ratio stayed at 1.4x NPLs.
Balance sheet provisioning for

impairment of loans grew to RUB19.3bn
compared to RUB9.4bn as at YE2013.
The basket of loans that are 90 to 180
days delinquent reduced to 4.1% in the
third and fourth quarters of 2014 which
is a result of our enhanced collection
process. We continued to refrain largely
from selling overdue loans from our
portfolio since we judged we would
secure a much better recovery rate
under the instalment loan repayments
programme and court enforcement
collection strategies.

At 31 December 2014 total liabilities
increased to RUB87.8bn as result of
currency revaluation and short-term
interbank borrowings. Customer
deposits increased to RUB43.4bn and
accounted for 49% of total liabilities as
of 31 December 2014. The proportion
of Rouble denominated deposits to
currency denominated deposits has
changed considerably and the latter
increased to RUB11.1bn in fourth
quarter vs. RUB5.4bn in third quarter.
CBRF has increased the threshold
for DIA coverage from RUB700k to
RUB1.4mn and as a result 80% of
the deposit book now falls under the
protection of DIA.

At 31 December 2014, the book value
of TCS Group’s debt securities (including
subordinated debt) amounted to
RUB30.7bn representing an increase
due to the currency revaluation
of our Eurobonds while off-set by
repayment of USD175m Eurobond
in the second quarter 2014. There
were no debt issuances in 2014 and
as of 31 December 2014 the debt
profile contains a USD250m Eurobond
maturing in third quarter 2015,
USD200m subordinated debt maturing
in the second quarter of 2018 and three
series of RUB denominated bonds for an
aggregate amount of RUB4.6bn, with
two-thirds of the value to be redeemed
in 2015.

The Group is well capitalised with
the CBRF N1.0 capital adequacy
ratio at 15.5%

The equity of the Group amounting
to RUB21bn at 31 December 2014
demonstrates the solid capital position
of TCS Group. Our capital base remains
very strong, with the statutory CBRF
N1.0 total capital ratio at 15.5% at the
end of 2014. The N1.0 ratio decreased
by 100 bps from 16.5% at 9M14 mainly
due to the dividend payment made in
December 2014.

At the end of 2014 we maintained a
Core Tier 1 (or N1.1) capital ratio of
9.4% (and the same for Tier 1, or N1.2,
capital ratio), well above the 5% and 6%
respectively minimum requirements set
by the CBRF.

Assets growth RUBmn

9.9%

12.8%

99.0
18.8

101.2

17.5

1.4

94.9
9.8
3.8

96.5
6.4
5.8

74.0

75.0

74.6

74.7

6.2
4Q’13

7.3
1Q’14

6.6
2Q’14

9.6
3Q’14

108.8
10.7
5.6

74.6

17.9

4Q’14

Cash and cash equivalents

Investment securities and REPO

Net loans

Other

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS
Financial review
continued

PROFIT AND LOSS
STATEMENT

Net interest income increased by
15% year-on-year to RUB30.8bn

Despite 2014 being a challenging year
I believe the Group achieved good
results for the year. Gross interest
income grew to RUB39.1bn or by
almost 12% compared to 2013. Net
interest income increased by 15% to
RUB30.8bn. The 2014 gross yield was
7 percentage points lower than in the
same period 2013 which is attributable
to retention of non-performing loans
on the balance sheet and portfolio
ageing.

Average cost of borrowing for the
Group declined to 10.9% in 2014
from 12.4% in 2013 with interest
expense amounting to RUB8.3bn at
31 December 2014.

Net interest margin before credit
charge was sustained at 34.8% which
gives us substantial profitability and
meaningful loss absorption capacity.
Despite the increase in cost of risk
across the market, we were still able
to generate a very solid 16.9% risk-
adjusted net interest margin after
provisions for loan losses.

We are proud to report the continued
positive trend in cost of risk which has
decreased to 15.2% in fourth quarter
after a 20.5% spike in first quarter of
2014. Loan loss provision amounted
to RUB15.8bn in 2014 compared to
RUB9.8bn in 2013. We are still making
risk management and collections a
priority to help ensure that the cost of
risk is even better-managed in future
quarters, and to mitigate any further
deterioration in the Russian consumer
lending market.

Tinkoff Bank’s operating expenses in
2014 were at the same level as 2013
representing our moderate policy in
terms of growth we announced at the
end of 2013. At the same time we
have constant interest in our products
which resulted in more than 1 million
cards issued in 2014. A moderate pay
rise was made to the Group’s staff in
October to retain and motivate staff
in a market where there is still fierce
competition for good people. We paid
a performance-based bonus to the
management team in December. The
increase in administrative expenses
was off-set by a decrease in marketing
and acquisition expenses.

Among other items contributing to our
P/L in 2014 were:

• Tinkoff Insurance with almost
RUB0.8bn to non-interest
revenue. On a standalone
basis, the net income of
Tinkoff Insurance was RUB97mn.

• FX results had some material
importance in 2014 with
a net revaluation loss of
RUB1.1bn in 2014 compared
to RUB0.4bn in 2013.

• The dividend payment made
in December by Tinkoff Bank
entailed a 5% dividend tax.

Conservative credit risk policy, % of gross loan portfolio

161% 160%

147% 143% 142%

14.2%

14.5%

4.5%

4.2%

12.4%

3.7%

4.4%

5.6%

6.1%

4.4%

4.1%

0.4%

6.3%

0.7%

8.9%
2.9%
1.9%
4.1%

6.3%

7.0%
2.7%

3.7%

8.9%

LLP/NPL

Courts

180+ dpd (w/o courts)

90-180 dpd

Write-offs (annualised)

13.3%

Sale of bad debts (annualised)

4Q’13

1Q’14

2Q’14

3Q’14

4Q’14

Operating efficiency1

Cost to income (including acquisitions)

36%

30%

33%

30%

31%

28%

26%

2013

2014

4Q’13

1Q’14

2Q’14

3Q’14

4Q’14

Income is stated as operating income that includes net interest income, other operating and
fee income and is cleared from fee expense. Cost is stated as client acquisition expenses
plus administrative and other operating expenses.

TCS Group Holding PLC Annual report 2014

Operating efficiency further
improved in 2014 as a result of
continued strict control over costs

As a result of continued strict control
over costs the total cost-to-income
ratio remained under 30% in 2014
which is a 6 percentage points
reduction as compared to 2013. When
taken without acquisition expenses, the
cost-to-income ratio in 2014 fell below
20%.

The quarterly evolution of yields and
expense profile in 2014 demonstrates
the flexibility and agility of our business
model which successfully navigated
the various ups and downs of the year
by slowing down and speeding up card
issuance and a hands-on regime for
managing operating expenses.

The Group reported net income
of RUB3.4bn

Net income for 2014 amounted to
RUB3.4bn. Right after the challenging
first quarter we were able to generate
solid profit in the following quarters
despite significant losses from
currency revaluation and other
unplanned costs. This has resulted in
a robust ROAE at 15.7% for the year
2014.

Ilya Pisemsky
Chief Financial Officer

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSRisk
review

The purpose of TCS Group’s asset,
liability and risk management (“risk
management”) strategy is to evaluate,
monitor and manage the risks arising
from its activities.

technical failures, settlement errors,
natural disasters, legal risks, including
consumer protection or banking
legislation or their interpretation by
courts and regulators, and misuse of
TCS Group’s property.

The identification, assessment and
management of risk is central to the
continued successful execution of
TCS Group’s strategy. Accordingly, this
is an area of significant and constant
management focus.

TCS Group designs its risk management
policy to manage the Principal Risks,
described above, by establishing
procedures and setting limits that are
monitored by relevant departments of
Tinkoff Bank and Tinkoff Insurance.

TCS Group is subject to a number
of material, Principal Risks which
might adversely impact the Group’s
performance.

Russian interbank loan market, to
receive sufficient funding from retail
deposits or the withdrawal of a large
proportion of such deposits.

In addition, the Russian Federation
displays certain characteristics of
an emerging market. Its economy is
particularly sensitive to oil and gas
prices. The legal, tax and regulatory
frameworks continue to develop and
are subject to frequent changes and
varying interpretations. During 2014
and into 2015, the Russian economy
was negatively impacted by a decline
in oil prices and ongoing political
tension in the region and international
sanctions against certain Russian
companies and individuals. This over-
arching risk environment could impact
one or more of the Principal Risks.

Management consider that the
Principal Risks are:

Liquidity Risk: There is a risk
that TCS Group will not be able to
meet it obligations as they fall due
or can do so only by securing funds
at an unacceptably high cost. The
deterioration in the commercial
soundness and/or the perceived
soundness of TCS Group's banking
operation or that of other financial
institutions could result in significant
systemic liquidity problems or losses
and defaults by other financial
institions. These might include an
inability to access domestic and
international capital markets or the

TCS Group’s banking operation is also
exposed to a risk that it is unable to
maintain appropriate capital ratios and
regulatory capital.

Credit Risk: TCS Group is exposed to
the risk that counterparties, including
customers and other commercial
organisations, will be unable to pay
amounts in full when they fall due.
The deterioration in the economic
conditions in Russia has resulted in
a significant increase in TCS Group’s
provisions for loan impairment and in
the proportion of non-performing loans.
Ongoing shifts in distribution channel
mix and demographic characteristics
of TCS Group’s customers could result
in the future deterioration of quality
or profitability of TCS Group’s loan
portfolio.

Market Risk: 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.

Operational Risk: TCS Group is
exposed to the risk of losses resulting
from inadequate or failed management
and control procedures, fraud, poor
business decisions, system errors
relating to employee mistakes and
abuse by employees of their positions,

TCS Group Holding PLC Annual report 20141

Risk Management Structure

Liquidity Risk

Tinkoff Bank’s risk management organisation is divided
between policy making bodies (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.

Policy Making Bodies

These are, at the Tinkoff Bank level, the Board of Directors,
the Management Board, the Finance Committee, the
Credit Committee and the Business Development
Committee.

Policy Implementation Bodies

The policy implementation level of Tinkoff Bank’s risk
management consists of the Finance Department,
the Risk Management Department, the Collections
Department and the Internal Control Service.

TCS Group has implemented an online analytical
processing management reporting system based on
a common SAS data warehouse that 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 CBRF requirements, capital adequacy
and liquidity reports, operational liquidity forecast reports
and information on intra-day cash flows.

Liquidity risk is the risk that TCS Group will encounter
difficulty in meeting its obligations associated with financial
liabilities or can do so only by securing funds at unacceptably
high costs. The Group’s banking operation is also exposed to
a risk that it is unable to maintain appropriate capital ratios.

TCS Group is exposed to daily calls on its available cash
resources from unused limits on issued credit cards, other
loan products, term retail deposits and current accounts.
TCS 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 that can be predicted with a high degree of
certainty.

The chief financial officer of Tinkoff Bank (the “CFO”) is
principally responsible for the management of TCS’s liquidity
risk. For the purposes of managing TCS Group’s liquidity risk,
the CFO regularly receives extensive information about the
liquidity profile of the financial assets and liabilities.

TCS Group seeks to maintain a stable funding base primarily
consisting of retail customer deposits and debt securities.
TCS Group keeps all available cash in diversified portfolios
of liquid instruments, to be able to respond quickly to
unforeseen liquidity requirements. TCS Group also believes
that its loan portfolio is responsive to change in inputs (such
as stopping the issuance of new credit cards or other loans
and any increases in credit card limits) so that TCS Group can
go from being cash-negative to being cash positive in a short
period of time (estimated to be two weeks).

Tinkoff Bank calculates liquidity ratios on a daily basis.

Regular liquidity stress testing under a variety of scenarios
covering both normal and more severe market conditions and
credit card portfolio behaviour is carried out and reviewed by
the CFO.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSRisk review
continued

Credit Risk

TCS Group is exposed to the risk that a counterparty, including customers and other commercial organisations, will be unable to
pay amounts in full when they fall due.
The main focus of Credit Risk management is on the customers of TCS Group’s banking operation.

TCS Group structures the levels of its credit risk exposure by placing limits on the amount of risk accepted under different
customer acquisition channels and sub-channels. Such risks are monitored on an ongoing basis and are subject to regular
review. TCS 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.

A factor in credit risk is a trend towards greater consumer activism and an increasingly onerous consumer protection legal and
regulatory framework.

Loan Approval Criteria and Procedures

TCS Group is primarily focused on reducing incoming credit risk at the acquisition stage.

In almost all cases, the decision to issue a credit card or other loan product is made automatically, based on credit bureaus
information, verification of the customer’s identity and credit score calculated using one of TCS Group’s own acquisition
channel-specific scoring models. TCS Group also maintains a flexible initial limit allocation system that allows it to reduce or
increase the average initial limits in order to manage anticipated loan losses and liquidity.

Credit Line Management Procedures

Loan Collection

Credit line management procedures for credit card
products include a flexible initial limit allocation system
and regular updates of credit lines.

TCS Group employs a multi-stage collection process
that seeks to achieve greater efficiency in the recovery
of credit card loans. This enables TCS Group to apply a
variety of collections tools and collections treatments to
different groups of customers.

Superior risk management

Marketing
Quantity vs quality

Underwriting
Risk vs approval

Credit line increase
Volume vs customer base

Collections
Revenue vs cost

• Extensive data mining
at marketing stage
• Data-driven acquisition

• Data verification
• Use of third party data
• Channel specific scoring

• Customer monitoring
• Credit line increases
• Cross-sell

campaigns

• Active pre-collection
• Proactive collection
• Broad use of

social networks

• NPV model factors
in acquisition costs

• Managing

customer funnel

• Risk score and NPV
to set initial limit
• “Challenger” tests of
underwriting criteria

• Predictive models
over lifecycle

• Focus on retention
of good customers

•

Instalment
programme
• Legal collections
• Outsourcing of
collections and
sale of loans

Cost efficiency and enhanced credit quality achieved through superior analytical capabilities

s
l

e
d
o
m
g
n
i
r
o
c
S

e
d
o
M
V
P
N

n
e
v
i
r
d
-
a
t
a
D

n
o
i
s
i
c
e
D
t
i

d
e
r
C

h
c
a
o
r
p
p
a

g
n

i
k
a
M

TCS Group Holding PLC Annual report 2014

Card Fraud Prevention

Provisioning Policy

Write-Off Policy

TCS Group uses a number of fraud-
prevention measures, including
early warning systems and regular
investigations to identify the most
common types of fraud. One of the
most important tools in combatting
unsanctioned card use is the sending
of SMS messages to customers’
mobile phones during the card
lifecycle. Call centres are also an
important source of potential card
fraud alerts.

Provisioning policy falls under the
responsibility of Tinkoff Bank’s
Management Board.

Tinkoff Bank regularly reviews its
loan portfolio to assess impairment.
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.

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 where further
steps to enforce collection are
regarded as not economically viable.
Loans sold to external collection
agencies are also written off from
TCS Group’s balance sheet.

Market Risk

Operational Risk

TCS Group’s exposure to market risk arises from open
interest rate and foreign currency positions, which are
exposed to general and specific market movements.

TCS Group is generally not engaged in significant trading
operations. Any mismatches in its foreign currency positions
that arise are generally due to relatively short-term lending
in Roubles and relatively long-term borrowings in other
currencies.
TCS Group manages the positions through hedging, matching
or controlled mismatching.

The CBRF sets limits on the open currency position that may
be accepted by Tinkoff Bank on a stand-alone level, which is
monitored on a daily basis. These limits prevent Tinkoff Bank
from having an open currency position in any currency
exceeding five per cent. of equity.

Foreign Currency Exchange Risk

TCS Group has implemented a “low foreign exchange
risk tolerance” policy 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.

Interest Rate Risk

TCS Group’s exposure to interest rate risk is due to the
impact of fluctuations in the prevailing levels of market
interest rates on its financial position and cash flows.
TCS Group monitors market interest rates on a regular basis
and takes decisions on interest rate re-pricing that may be
undertaken on its assets.

TCS Group has no significant risk associated with variable
interest rates on loans and advances provided to customers
or loans received.

TCS Group is exposed to operational risk which is the risk of
losses resulting 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, legal risks, including consumer protection or
banking legislation or their interpretation by courts and
regulators, and misuse of TCS’s property.

TCS has established robust internal control systems intended
to comply with Basel guidelines and CBRF requirements
regarding operational risk. Regular monitoring of activities
is intended to detect in a timely manner and correct
deficiencies in policies and procedures designed to manage
operational risk. TCS insures against certain operational risks.

TCS has not experienced any material operational failures
in recent years. To minimise the risk of such failures, TCS’s
IT systems are located in two dedicated data centres each
connected to separate and independent power supply
sources. Both data centres provide round the clock power,
cooling, connectivity and security capabilities to protect
mission-critical operations and preserve business continuity
for IT systems.

Anti-Money Laundering and Terrorist
Financing Procedures

Russia introduced its Anti-Money Laundering Law in
February 2002. Subsequently, the CBRF introduced a
number of anti-money laundering regulations specifically
for the banking sector.

TCS has adopted internal regulations on anti-money
laundering that are based on, and are in full compliance
with, the Russian anti-money laundering regulations,
related instructions of the CBRF and international
standards. Tinkoff Bank has created a specialised unit and
appointed an authorised officer who coordinates activities
aimed at preventing money laundering and terrorism
financing. Employees of TCS Group have to undertake
mandatory training on TCS’s policies and procedures both
as part of their initial training and on an ongoing basis.

Mandatory internal control checks are conducted by
Tinkoff Bank’s Internal Control Service. External control
is provided by the CBRF and, within an annual audit, by a
statutory auditor.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSEmployees
and corporate social
responsibility

TCS Group strives to create
a comfortable working
environment that fosters
creativity and innovation.

to develop new business and launch
new product lines, expanding
further into retail daily banking and
diversifying our business to attract
new higher quality, lower risk clients
from new segments. This business
development effort was reflected in an
increase in our employee base which
at the end of 2014 totalled 6,160
employees1, a 2.2% increase compared
to the end of 2013 (6,025). The
average age of employees is 26.

TCS Group has built a unique
branchless, high-tech retail financial
services platform that provides deep
reach throughout Russia, including

underserved parts of the country. We
serve customers remotely through
award-winning Internet and mobile
banking interfaces and high-volume
call centres. One of the pillars of our
branchless platform is a “smart courier”
network covering almost 600 cities
and towns in Russia which allows
next day delivery to most customers
across the country. Our strong
focus on premium quality customer
service underpins the successes to
date. TCS Group dedicates significant
resources to finding, hiring, training
and retaining its best-in-class team of
professionals.

Employees and CSR

Overview

In parallel with providing our customers
with ever more convenient, innovative
and cutting-edge products and
services matching their needs and
aspirations, TCS Group also sets itself
a challenge – to foster an internal
working culture which inspires and
motivates our personnel to tackle the
most challenging and complex tasks
to create those products and services
ahead of our competitors.

We actively encourage a working
environment where employees are
encouraged and incentivised to take on
more responsibility at all levels. This
approach helps us motivate our staff
to keep on looking for unconventional
solutions to any issue, to improve
existing services and products and
generally to “think outside the box’.
This gives us a significant competitive
advantage as it makes us more
flexible and efficient, and empowers
us to create the best-in-class financial
products to the benefit of our
customers.

Despite the weakening market
environment in Russia and slower loan
portfolio expansion in 2014, TCS Group
did not abandon its expansion plans but
refined them and used its momentum

1
Including part-time employees and employees
receiving compensation in the form of commission.

Tinkoff regularly hosts or sponsors off-site activities.
The picture is of employees ice-skating in Gorky Park, Moscow.

TCS Group Holding PLC Annual report 2014• building efficiency with

minimum bureaucracy; and

• promoting team spirit and a unique

entrepreneurial culture.

One of our key approaches to HR
strategy is not to focus on hiring
people with a conventional banking
background: rather Tinkoff aims to
bring together commercially minded
people with numerical, analytical,
technical and programming skills with
completely different experiences and
skills sets in order to manage and
enhance the business from an NPV
perspective. Tinkoff employs people
with various backgrounds, including
retail, online and IT, and this approach
ensures TCS Group has a working
environment, which takes and moulds
the best aspects and practices of other
businesses, with the aim of stimulating
creativity and the free exchange of
ideas.

Tinkoff senior management are part
of a programme which involves them
leaving HQ and going into the “field’
to see first-hand how things work on
different levels of customer service and
how it can be improved. This exercise
involves members of the management
team, on a coordinated rotating basis,
spending a day or sometimes more as a
smart courier, as a debt collector or as
a credit inspector, which improves their
understanding of the smallest details
of the day to day implementation of
business processes.

Career Development

TCS Group strives to recruit and retain
the best employees who will help to
achieve the Group’s business goals
and provide superior service to its
customers. TCS Group rewards, and
provides ongoing development and
training, to maximise employees’
opportunities to progress and grow.

Tinkoff offices and call centres are equipped with recreational zones.
Here two of the Call centre team play ping-pong.

Diversity and Inclusion

The Group’s innovative business
model based on a 100% remote
customer service provides it with
additional flexibility to hire on their
merits those who are not part of the
conventional workforce, thus widening
and diversifying the Group’s actual and
potential employee base. Our human
resources structure includes Home Call
Centre and the Smart Courier Network
which allow us to recruit from a wider
pool of people compared to businesses
with conventional branch-based
customer service models.

The recruitment process for Home
Call Centre is able to target, among
others, the following groups: those
who have limited scope to work full-
time (candidates with limited physical
capabilities, candidates on maternity
leave, or retired ), those who live in
remoter areas with a correspondingly
limited choice of employment
opportunities, and those who are
short of typical work experience and
are motivated to start a career in a
company providing innovative and
cutting-edge financial services.

The majority of Tinkoff’s personnel
are employed in customer support
functions (collections, underwriting,
smart courier services, the Call Centres,
telemarketing and telesales, and Home
Call Centre). Some 662 employees are
regarded as core personnel and are
employed in management, operations,
IT and administrative functions (2013:
530).

Tinkoff Human Resources
Core Principles

Tinkoff human resources policy
is focused on the following core
principles:

• developing teams of well-educated,

adaptable and open-minded
specialists and managers;

• creating an effective and dynamic
learning system for all employees
in customer services, underwriting
and collection departments;

• creating an intellectually

stimulating working environment;

• embracing open dialogue,
cooperation and creativity;

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSOur employees and corporate social responsibility
continued

Recruitment and training
TCS Group recruits general personnel
to operating departments with the
help of advertising and searches via
job sites, student forums, social media
and other internet channels. IT and
other core business specialists are
hired through a highly selective head
hunting process which targets the
best IT graduates and experienced
professionals.

• group retreats for key staff: cycling
events, skiing and fishing trips;

• since 2010, the Tinkoff Bank
football team has won the
championship among financial
companies in Moscow;

• participation by Tinkoff in
many charity programmes
suggested by its employees.

TCS Group targets the best students
in Russia’s top universities, including
winners of mathematics and coding
competitions, who are offered a
competitive salary combined with a
clear career path in terms of increased
responsibility, promotions and career
prospects.

Remuneration Policy
TCS Group believes that a clear
performance evaluation process and
fair compensation are essential for
retaining and rewarding its employees.
We compensate our staff based on their
performance through a combination of
fixed pay and other incentives.

In terms of compensation, TCS Group
offers above market average
compensation with an attractive
variable component; salary increases
and bonus incentives are based on
annual performance-based reviews;
incentives are partially linked to
achievement of specific productivity
KPIs, partially to the overall financial
performance of the business.

TCS Group has for some years had
in place stock option and long term
incentive plans as retention and
motivational tools for 33 (as of 31
December 2014) of its key and senior
managers, set up before the IPO,
and more recently has been looking
to develop a further equity linked
retention and reward plan.

TCS Group offers targeted career
development training programmes
from entry level to senior management
personnel. For personnel training
purposes, TCS Group runs a number
of courses, including those for
employees in customer service
functions (primarily for the call
centres), underwriting, collections and
IT departments, as well as specialised
courses for the development of
management skills aimed at lower to
mid-level managers. TCS Group also
has access to external courses offered
to key employees and regularly sends
its staff to professional conferences,
trainings and seminars.

Motivation and promotion
TCS Group motivates its staff by
offering a clear far-reaching career
path and all-encompassing team-
building culture. TCS Group pays
special attention to promoting the team
spirit in the company, and offers the
following benefits and team-building
activities to its employees:

•

free gym on its premises
for all to use;

regular group activities and off-sites:
volleyball, bowling, karting, chess, as
well as weekend country retreats;

In terms of performance evaluation,
employees are evaluated on a regular
basis to monitor achievement of KPIs,
determine incentive compensation,
and provide feedback for their career
development.

Tinkoff offers free gym facilities at HQ and Call centres.

TCS Group Holding PLC Annual report 2014Working Environment,
Health and Safety

TCS Group is a hi-tech company which
embraces innovation, cutting-edge
technologies and creativity and which
strives to create a working environment
in which our best-in-class professionals
can comfortably work on their ideas for
the benefit of our customers.

TCS Group is committed to providing
a safe and healthy environment to its
employees in full compliance with the
employment and labour laws of the
Russian Federation. In fact TCS Group
goes well beyond mere compliance.
TCS Group offers regular annual
medical exams, vaccination, voluntary
medical insurance, free membership to
our own fitness gym at Tinkoff Bank’s
HQ and other preventive health care
measures for its employees. TCS Group
encourages its employees to lead
a healthy lifestyle and regularly
organises sport competitions, including
indoor football, volleyball, basketball
and chess, and actively encourages
participation in others.

CSR

TCS Group believes in making a
contribution to the society in which
it operates and its sustainable
development. We encourage and
support employee-led initiatives
aimed at improving the quality of life of
vulnerable groups in Russia. TCS Group
and its employees believe in providing
not just monetary support but hands-
on assistance for a number of causes,
including care homes, and orphanages,
and facilities for homeless people and
individuals in need of critical medical
help. During the year these charity
campaigns targeted underfunded
care homes and orphanages located
in underdeveloped regions of Russia.
TCS Group’s employees raised funds
which were spent on renovating
facilities, buying food, supplies,
medicine and toys for vulnerable
groups.

Tinkoff office at Olympia Park, Moscow.

In 2014, the Group provided assistance
to care homes and orphanages in
several Russian regions: employees
organised works to repair rundown
care facilities buying much-needed
equipment, clothes, medicine and food
for their residents. The Group also
purchased racerunners – a special
custom-built tricycle without pedals
– for a charity foundation assisting
disabled children with impaired balance.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSBoard
of Directors

Oleg
Tinkov

Chairman of the Board
of Directors (47)

Martin
Cocker

Member of the Board
of Directors
Independent Non-Executive
Director
Chairman of the Audit
Committee
Member of the
Remuneration
Committee (55)

Philippe
Delpal

Member of the Board
of Directors
Non-Executive Director
Member of the Audit
Committee
Member of the
Remuneration
Committee (41)

Oleg Tinkov has been the
Chairman of the board of
directors of TCS Group
Holding PLC since October
2013 and has been the
Chairman of the Board of
Directors of Tinkoff Bank
since June 2006. Mr Tinkov
previously owned and
operated a number of
retail businesses, including
“Tinkoff Beer”, “Tinkoff
Restaurants” and “Daria”.

Mr Tinkov studied at the
Leningrad Mining Institute,
Russia and the University of
California, Berkeley, USA.

Martin Cocker has been
a director since October
2013. Mr Cocker serves on
the boards of Etalon Group
and Northumberland Tyne
and Wear National Health
Service Foundation Trust.
Mr Cocker was previously
a partner with Ernst &
Young in Moscow, Russia
from 1996 to 1998 and
with Deloitte & Touche
CIS Limited from 2004 to
2007 in Almaty, Kazakhstan
and St Petersburg, Russia.
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.

Philippe Delpal has been
a non-executive director
of TCS Group Holding
PLC since October 2013.
Mr Delpal is an Operational
Partner for Financial
Services in Baring Vostok
Capital Partners, one of
the largest private equity
businesses in Russia. He
is also currently serving as
a non-executive director
of Orient Express Bank,
Europlan Bank, HMS Group
(Russia) and Komercijalna
Banka AD (Serbia). He has
had a career in banking,
most recently as chief
executive at BNP Paribas in
Moscow.

Mr Delpal holds a degree
in information technology,
telecoms and economics
from the Telecom Paris
University, France.

Jacques Der
Megreditchian

Member of the Board
of Directors
Independent
Non-Executive
Director
Chairman of the
Remuneration
Committee
Member of the Audit
Committee (55)

Jacques Der Megreditchian
has been a director
since October 2013.
Mr Der Megreditchian has
also been Chairman of the
Exchange Council of the
Moscow Exchange and
Chairman of the Board of
Russian brokerage house
IT Invest, and a member
of the board of directors
of the Russian National
Association of Stock Market
Participants since 2006.
Mr Der Megreditchian
has almost 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.

TCS Group Holding PLC Annual report 2014Constantinos
Economides

Alexios
Ioannides

Maria
Trimithiotou

Member of the Board
of Directors (39)

Member of the Board
of Directors (38)

Member of the Board
of Directors (36)

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 as
deputy director in 2009 and
was promoted to director
in 2012. Mrs Trimithiotou
is a Fellow Chartered
Certified Accountant and a
member of the Association
of Chartered Certified
Accountants.

Constantinos Economides
has been a director since
November 2008.

Mr. Economides is also
the Managing Director of
Orangefield Cyprus since
October 2006 and has
held the post of board
member in Global Ports
Investments PLC since
2013. 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.

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 has also
been a director of AXEPT
Limited since June 2008
and a director of Epsilou
Management Services
Limited from May 2013 to
March 2015.

Mr. Ioannides is a qualified
accountant, member of
the Institute of Chartered
Accountants in England
& Wales (ICAEW) and
the Institute of Certified
Public Accountants of
Cyprus (ICPAC) and holds of
bachelor of science degree
in Business Administration
from the University of
Alabama, USA.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSCorporate
governance

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.

Overview

GDRs of TCS Group Holding PLC (a Cyprus
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
class A share, are listed on London Stock
Exchange and the Company is required
to comply with its corporate governance
regime to the extent it applies to foreign
issuers of GDRs. No shares of TCS Group
Holding PLC are listed on any exchange.
As the class A shares themselves are not
listed on the Cyprus Stock Exchange, 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.

The Board of Directors

The role of the Board is to provide
entrepreneurial leadership to the Group
within a framework of prudent and
effective controls which enables 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 authorities of the members of the
Board are specified by the Articles of
Association of the Company and by law.
The seven strong Board of directors is
comprised of four executive directors
including the chairman, and three non-
executive directors two of whom are
independent. There were no changes in
the composition of the Board in 2014.
The names of the people who served on
the Board throughout 2014 are listed at
page 34/35. The Group has established
two committees of the Board. Specific
responsibilities have been delegated to
those committees.

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 carried out in-house in the second
half of 2014 looking at performance
from the time of the IPO in October
2013: it 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.

Committees of the Board of
directors

The Company has established two
committees of the board of directors:
the Audit Committee and the
Remuneration Committee and their
terms of reference are described below.
Both Committees were constituted 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.

Committee composition

The Audit Committee is chaired by an
independent non-executive director
Martin Cocker, and has two other
members both non-executive directors
one of whom is independent.

The Remuneration Committee is
also chaired by an independent
non-executive director Jacques Der
Megreditchian, and has two other
members both non-executive directors
one of whom is independent. Details of
the non-executive and independent non-
executive directors are set out under
page 34.

Audit Committee

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 IFRS 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,
and 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 least twice a year at
appropriate times in the reporting and
audit cycle but in practice meets more
often.

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

TCS Group Holding PLC Annual report 2014to ensure it is operating at maximum
effectiveness and to recommend any
changes it considers necessary for
Board approval. The Audit Committee
met this obligation in two main ways,
through members participating in
the main Board review above in the
second half of 2014 and by arranging
a complementary committee review on
a rolling basis driven by the audit cycle.
As a result of the Audit Committee’s
own review, certain minor changes were
proposed to the committee’s terms of
reference based on practical experience
since formation in October 2013, to
clarify certain procedural matters and
to align them more closely with how
the committee operated in practice and
recommended to the Board. The Board
approved these changes in March 2015.

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
eliminate or mitigate those risks.

Remuneration Committee

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 and shareholders. The
Remuneration Committee is required

to meet at least twice a year but in
practice will meet far more often. The
Remuneration Committee continued work
in 2014 on a review of the Group’s share
incentive plans for senior and middle
management in the post IPO environment.
In addition the Remuneration Committee
was active in reviewing changes to the
ESOP which went into a three year run-
down process under changes to its trust
deed executed in Q3 2014, so that the
ESOP would wind up in 2016.

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 above under
which detailed questionnaires were
completed by directors assessing the
operation of the Board and committees.
As a result of the review, certain
minor changes were proposed to the
Remuneration Committee’s terms of
reference based on practical experience
since formation in October 2013, to
clarify certain procedural matters and
to align them more closely with how
the committee operated in practice and
recommended to the Board. The Board
approved these changes too in March
2015.

Shareholders’ Agreement:
additional rights of Minority
Shareholders

In October 2013 Tasos Invest & Finance
Inc., Tadek Holding & Finance SA,
Maitland Commercial Inc, Norman Legal
S.A. and Vizer Limited (the Majority
Shareholders, controlled by Oleg
Tinkov) and the pre IPO investors ELQ
Investors II Ltd, Vostok Komi (Cyprus)
Limited, Rousse Nominees Limited and

Lorimer Ventures Limited (together the
Minority Shareholders) entered into
a new shareholders’ agreement (the
Shareholders’ Agreement) to govern
aspects of their relationship after the
IPO.

The Shareholders’ Agreement provides
that the Minority Shareholders are
entitled to nominate one director to
the Board of directors of the Company.
Their nomination is Mr Philippe Delpal.
In addition they are entitled to have one
observer, acceptable to the Majority
Shareholders, attend meetings of the
Board of directors of the Company, but
have chosen not to exercise this right
to date.

The Shareholders’ Agreement also
contains provisions that require the
Majority Shareholders to vote against
certain matters unless a majority of
the Minority Shareholders (which
may constitute only 10% of the share
capital of the Company) approve of
such matters. These matters include, in
summary (a) the entry by Tinkoff Bank
into a corporate reconstruction,
merger, amalgamation, acquisition,
sale, transfer or disposition (in one or a
series of transactions) of any assets the
aggregate valuation or consideration of
which exceeds 20% of the Company’s
market capitalisation; (b) delisting of
the GDRs or if applicable shares in the
Company; or (c) any amendments to
the Company’s Articles of Association
that are prejudicial to the rights of the
Minority Shareholders.

These rights of the Minority
Shareholders continue so long as they
hold at least 10% of the issued share
capital of the Company.

Martin Cocker

Philippe Delpal

Independent Non-Executive Director,
Chairman of the Audit Committee,
Member of the Remuneration
Committee.

Non-Executive Director,
Member of the Audit Committee,
Member of the Remuneration
Committee.

Jacques Der
Megreditchian

Independent Non-Executive Director,
Chairman of the Remuneration
Committee, Member of the Audit
Committee.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSManagement
team

Oliver Hughes

Ilya Pisemsky

Sergei Pirogov

Chief Executive Officer, Chairman
of the Management Board of
Tinkoff Bank (44)

Chief Financial Officer, Deputy
Chairman of the Management
Board of Tinkoff Bank (39)

Head of Corporate Finance,
Member of the Board of Directors
of Tinkoff Bank (44)

Oliver Hughes has served as Chairman of
the Management Board and Chairman of the
Credit Committee and Financial Committee
of Tinkoff Bank since 2011 and has been
a member of the Board of Directors of
Tinkoff Bank since June 2013. Previously,
Oliver worked at Visa International for
nine years, most recently as Head of the
Representative Office in Russia. He has a
Bachelor of Arts degree in Russian and
French from the University of Sussex. He also
has a Master of Arts degree in International
Politics from Leeds University and a Master
of Science degree in Information Management
and Technology from City University. He is
also a non-executive director of Elecsnet.

Ilya Pisemsky has been Deputy Chairman
of the Finance Committee of Tinkoff Bank
and a member of the Credit Committee
of Tinkoff Bank since November 2011,
Deputy Chairman of the Management Board
since 2010 and Chief Financial Officer of
Tinkoff Bank since 2008. Mr Pisemsky was
previously head of Internal Audit and deputy
CFO of Bank Soyuz from 2004 to 2008. He
holds a degree in finance and credit from the
Finance Academy under the Government of
the Russian Federation, Russia and an MBA
from the F.W. Olin Business School at Babson
College, USA.

Sergei has been Head of Corporate Finance
at Tinkoff Bank since January 2010 and a
member of Tinkoff Bank’s Board of Directors
since May 2011.

He previously was Director of Corporate
Finance at Citigroup. Sergei graduated from
Moscow State Institute for International
Relations and holds an MBA from Darden
Graduate School of Business, University of
Virginia, USA (2000).

Stanislav Bliznyuk

Evgeny Ivashkevich

Chief Operating Officer, Deputy
Chairman of the Management
Board of Tinkoff Bank (34)

Deputy Chairman of the
Management Board of
Tinkoff Bank (44)

Stanislav Bliznyuk has been Deputy Chairman
of the Management Board since June
2012 and Chief Operation Officer since
December 2011. Mr Bliznyuk was previously
the Head of Technologies at Tinkoff Bank
between December 2006 and June 2012.
Mr Bliznyuk holds a degree in mathematics
and applied mathematics from the Moscow
State University, Russia.

Evgeny Ivashkevich has been Deputy
Chairman of the Management Board since
December 2011, Deputy Chairman of the
Credit Committee of Tinkoff Bank since
November 2011 and Risk Director of
Tinkoff Bank since July 2007. Mr Ivashkevich
holds a degree in physics from the Moscow
Institute of Physics and Technology, Russia
and a PhD in theoretical physics from the
Joint Institute for Nuclear Research (Dubna),
Russia.

TCS Group Holding PLC Annual report 2014Dmitry Kobzar

Anatoly Makeshin

Chief Legal Counsel, Deputy
Chairman of the Management
Board of Tinkoff Bank (35)

Head of Payment Systems,
Member of the Management Board
of Tinkoff Bank (42)

Dmitry Kobzar has been a member of the
Management Board since April 2010 and
has held the position of Chief Legal Counsel
since November 2008. Mr Kobzar was
previously a member of the management
board and head of legal in City Mortgage
Bank (Morgan Stanley Group) from
September 2006 to October 2008 and
head of legal at International Joint-Stock
Bank from September 2003 to September
2006. Mr Kobzar holds a degree in law and
a PhD degree in law from the Moscow State
University, Russia.

Anatoly Makeshin has been a member of the
Management Board since September 2012
and Payment Systems Director and Vice
President of Tinkoff Bank from January 2010.
Mr Makeshin was previously Head of Payment
Systems for Tinkoff Bank from December
2006 to January 2010. Mr Makeshin holds
a science degree from the Moscow Power
Engineering Institute (Technical University),
Russia and a PhD in technical science from the
Russian Academy of State Service, Russia.

Artem Yamanov

Viacheslav Tsyganov

Tatiana Kouznetsova

Business Development
Director (33)

Chief Information Officer (39)

Head of Human Resources (46)

Artem Yamanov has been the Business
Development Director and Senior Vice
President since January 2010 and a member
of the Finance Committee of Tinkoff Bank
since November 2011. Mr Yamanov
was previously the Head of Products at
Tinkoff Bank from December 2006 to
January 2010. Mr Yamanov holds a masters
degree in applied physics & mathematics
from the Moscow Institute of Physics and
Technology, Russia.

Viacheslav Tsyganov has been the Chief
Information Officer at Tinkoff Bank since
February 2009. Mr Tysganov was previously
Head of IT Architecture and Development
at Tinkoff Bank from July 2007 to February
2009. Mr Tsyganov holds masters degree
in computer science from Southwest State
University, Russia.

Tatiana Kuznetsova has been a Vice President
since August 2013 and the Head of HR of
Tinkoff Bank since December 2006. She was
previously head of HR of “MODUL Group” from
2001 to 2006 and in the audit-consulting
group at the Royal Bank of Scotland in 2006.
Mrs Kouznetsova holds a masters degree in
psychology from the Moscow State University,
Russia.

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS
TCS Group Holding PLC

31 December 2014

International Financial Reporting Standards
Consolidated Financial Statements and
Independent Auditor's Report

Contents

Board of Directors and Other Officers . . . . . . . . . . . . . . . . . . . . . . . . F-1

22 Income from insurance operations . . . . . . . . . . . . . . . . . . . . . . .F-33

Report of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

23 Fee and Commission Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . .F-33

Independent auditor’s report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

24 Administrative and Other Operating Expenses . . . . . . . . . . . .F-33

CONSOLIDATED FINANCIAL STATEMENTS

26 Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-34

Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . F-4

27 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-35

25 Other Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-34

28 Segment Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-36

29 Financial Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-38

30 Management of Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-45

31 Contingencies and Commitments . . . . . . . . . . . . . . . . . . . . . . . .F-46

32 Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-47

33 Financial derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-48

34 Fair Value of Financial Instruments . . . . . . . . . . . . . . . . . . . . . . .F-48

35 Presentation of Financial Instruments by Measurement
Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-51

36 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-52

37 Events after the End of the Reporting Period. . . . . . . . . . . . . .F-54

Consolidated Statement of Profit or Loss and Other
Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . F-6

Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . F-7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

2 Operating Environment of the Group. . . . . . . . . . . . . . . . . . . . . . .F-10

3 Summary of Significant Accounting Policies . . . . . . . . . . . . . . . .F-10

4 Critical Accounting Estimates and Judgements in Applying
Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-19

5 Adoption of New or Revised Standards and Interpretations .F-20

6 Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-23

7 Loans and Advances to Customers . . . . . . . . . . . . . . . . . . . . . . . .F-23

8 Investment Securities Available for Sale . . . . . . . . . . . . . . . . . . .F-26

9 Repurchase Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-26

10 Guarantee Deposits with Payment Systems . . . . . . . . . . . . . . . F-27

11 Tangible Fixed and Intangible Assets . . . . . . . . . . . . . . . . . . . . . F-27

12 Other Financial and Non-financial Assets . . . . . . . . . . . . . . . . .F-28

13 Due to banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-28

14 Customer Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-29

15 Debt Securities in Issue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-29

16 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-30

17 Other Financial and Non-financial Liabilities . . . . . . . . . . . . . . .F-30

18 Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31

19 Interest Income and Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32

20 Customer Acquisition Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . F-32

21 Losses less Gains from Operations with Foreign Currencies F-32

TCS Group Holding PLC Annual report 2014Board of Directors and Other Officers

Board of Directors
Oleg Tinkov (appointed 22 October 2013)

Constantinos Economides (appointed 21 November 2008)

Alexios loannides (appointed 21 November 2008)

Mary Trimithiotou (appointed 18 May 2012)

Philippe Delpal (re-appointed 06 June 2014)

Jacques Der Megreditchian (appointed 22 October 2013)

Martin Cocker (re-appointed 06 June 2014)

Company Secretary
Altruco Secretarial Limited
Kanika International Business Center,
6th floor, Profiti Ilia No 4 Germasogeia,
4046 Limassol, Cyprus.
Mail: P.O. Box 50734,
3609, Limassol, Cyprus

Registered office
Kanika International Business Center,
6th floor, Profiti Ilia No 4 Germasogeia,
4046 Limassol, Cyprus.
Mail: P.O.Box 50734,
3609, Limassol, Cyprus

F-1

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSReport of the Board of Directors

The Board of Directors presents its report together with
the audited consolidated financial statements of TCS Group
Holding PLC (the “Company”) and its subsidiaries
(collectively the “Group”) for the year ended 31 December
2014.

Principal activities
The Group's principal activity is on-line retail banking
operations within the Russian Federation through its
subsidiary CJSC “Tinkoff Credit Systems” (the “Bank”)
and insurance operations through the subsidiary OJSC
“Tinkoff Insurance” (the “Insurance Company”).

The Bank in credit cards. The Bank which is fully licensed by
the Central Bank of Russia and launched its operations in
the summer of 2007 is a member of the Russian Deposit
Insurance System. The Insurance Company in providing
non-life insurance coverage such as accident, property,
travelers', financial risks and auto insurance. The founder
and controlling shareholder of the Company is Oleg
Tinkov. In late 2007 Goldman Sachs became a minority
shareholder in the Company (which is the 100% owner
of the Bank). The Swedish Investment Fund, Vostok Nafta,
Baring Vostok Private Equity Fund and Horizon Capital
have also acquired minority stakes in the Company. On
25 October 2013 the Group completed an initial public
offering of its A class ordinary shares in the form of global
depository receipts (GDRs) on the London Stock Exchange
plc.

Review of developments, position and
performance of the Group’s business
The Bank operates a flexible business model. Its virtual
network enables it to increase business or slow customer
acquisition down depending on the availability of funding
and seasonality. The Bank's primary customer acquisition
channel is Internet and Mobile, but it also uses direct
mail (DM), Direct Sales Agents (DSA) and partnerships
(co-brands) to acquire new customers. These customer
acquisition models, combined with the Bank's virtual
network, afford it a geographic reach across all of Russia's
regions resulting in a highly diversified portfolio.

On 12 August 2014 the Group established a collection
agency — LLC Feniks. The subsidiary provides debt
collection services to the Group.

The net profit of the Group for the year ended 31
December 2014 was RR 3,400,613 thousand (2013: RR
5,754,871 thousand). On 31 December 2014 the total
assets of the Group were RR 108,806,274 thousand
(2013: RR 98,993,935 thousand) and the net assets
were RR 20,969,068 thousand (2013: RR 20,551,007
thousand).

Principal risks and uncertainties
The Group conducts its activities in Russia through its
subsidiaries; the Group's business and financial position
during 2014 have been affected by the increased
uncertainties and volatility of the Russian economic
environment.

Other risks and uncertainties, which affect the Group,
are presented in Notes 2, 29 and 31 of the consolidated
financial statements.

Future developments

Subject to the scheduled repayment of debt in 2015 and
the ongoing uncertainty of the Russian economy the
Board of Directors does not plan any significant changes
or developments in the operations, financial position and
performance of the Group in the near future.

Results
The Group's results for the year are set out on page F-5 of
the consolidated financial statements.

Dividends
On 2 December 2014 the Board of Directors declared a
dividend of USD 0.303 per ordinary share amounting to
USD 55,340 thousand. The dividend was fully paid as of
31 December 2014.

Share capital
June 2014 the Company issued 1,449,750 ordinary
shares with a par value of USD 0.04 per share to the
trustee of the “employee share option plan” (Note 18).

Board of Directors
The members of the Board of Directors as of 31 December
2014 and at the date of this report are presented on
page F-1.

Auditors
The Independent Auditors, PricewaterhouseCoopers
Limited, have expressed their willingness to continue
in office. A resolution giving authority to the Board of
Directors to fix their remuneration will be proposed at the
Annual General Meeting.

By Order of the Board

Constantinos Economides
Director
Limassol
3 March 2015

F-2

TCS Group Holding PLC Annual report 2014

Independent auditor’s report
To the Members of TCS Group Holding PLC

Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of TCS Group Holding PLC (the “Company”) and its subsidiaries
(together with the Company, the “Group”), which comprise the consolidated statement of financial position as at 31 December 2014,
and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then
ended, and a summary of significant accounting policies and other explanatory information.

Board of Directors’ responsibility for the consolidated financial statements
The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in
accordance with International Financial Reporting Standards 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
consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit
in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation of consolidated financial statements that give a true and fair view in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the
consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December
2014, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting
Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113.

Report on other legal requirements
Pursuant to the requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 and 2013,
we report the following:

In our opinion, proper books of account have been kept by the Company so far as appears from the examination of those books.

• We have obtained all the information and explanations we considered necessary for the purposes of our audit.
•
• The consolidated financial statements are in agreement with the books of account.
•

In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial
statements give the information required by the Cyprus Companies Law, Cap. 113, in the manner so required.
In our opinion, the information given in the report of the Board of Directors
is consistent with the consolidated financial statements.

•

Other matter
This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 34
of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 and 2013 and for no other purpose. We do
not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report
may come to.

Anna G Loizou
Certified Public Accountant and Registered Auditor for and on behalf of
PricewaterhouseCoopers Limited
Certified Public Accountants and Registered Auditors
Limassol, 3 March 2015

F-3

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSConsolidated Statement
of Financial Position

In thousands of RR

ASSETS

Cash and cash equivalents

Mandatory cash balances with the CBRF

Loans and advances to customers

Financial derivatives

Investment securities available for sale

Repurchase receivables

Current income tax assets

Deferred income tax assets

Guarantee deposits with payment systems

Tangible fixed assets

Intangible assets

Other financial assets

Other non-financial assets

TOTAL ASSETS

LIABILITIES

Due to banks

Customer accounts

Debt securities in issue

Financial derivatives

Current income tax liabilities

Deferred tax liabilities

Subordinated debt

Other financial liabilities

Other non-financial liabilities

TOTAL LIABILITIES

EQUITY

Share capital

Share premium

Treasury shares

Share-based payment reserve

Retained earnings

Revaluation reserve

TOTAL EQUITY

TOTAL LIABILITIES AND EQUITY

Note

31 December
2014

31 December
2013

31 December
2012

10,699,577

18,825,970

685,510

74,579,998

8,879,972

216,535

5,366,280

1,094,088

—

2,967,132

541,348

1,125,307

1,890,667

759,860

931,046

73,961,647

584,265

—

214,081

1,657,533

620,806

514,765

1,160,437

523,385

13,891,926

685,208

47,784,336

25,088

—

345,337

1,020,280

545,250

408,859

1,184,383

123,516

108,806,274

98,993,935

66,014,183

10,331,216

43,366,434

19,414,780

—

12,593

1,039,795

11,250,686

1,822,270

599,432

—

43,206,628

26,188,305

—

52,009

6,523

6,531,955

1,623,879

833,629

514,210

26,671,665

23,156,572

362,255

84,406

—

3,763,086

2,143,401

259,386

87,837,206

78,442,928

56,954,981

188,112

8,622,919

(4,474)

587,200

186,162

8,622,919

(2,524)

477,740

11,800,358

11,266,710

(225,047)

20,969,068

108,806,274

—

20,551,007

98,993,935

170,799

3,253,521

(2,171)

333,803

5,303,250

—

9,059,202

66,014,183

Approved for issue and signed on behalf of the Board of Directors on 3 March 2015.

Constantinos Economides
Director

Mary Trimithiotou
Director

The notes set out on pages F:9 to F:54 form an integral part of these consolidated financial statements.

F-4

TCS Group Holding PLC Annual report 2014Consolidated Statement of Profit or Loss
and Other Comprehensive Income

In thousands of RR

Interest income

Interest expense

Net interest income

Provision for loan impairment

Net interest income after provision for loan impairment

Customer acquisition expense

Losses less gains from operations with foreign currencies

Income from insurance operations

Gain from sale of impaired loans

Gain from sale of investment securities available for sale

Fee and commission income

Fee and commission expense

Administrative and other operating expenses

Other operating income

Profit before tax

Income tax expense

Profit for the year

Other comprehensive loss:
Items that may be reclassified to profit or loss
Investment securities available for sale and repurchase receivables

• Losses less gains arising during the year, net of tax

• Gains less losses reclassified to profit or loss

upon disposal or impairment, net of tax

Other comprehensive loss for the year

Total comprehensive income for the year

Earnings per share for profit attributable to the owners of the
Group, basic (expressed in RR per share)

Earnings per share for profit attributable to the owners of the
Group, diluted (expressed in RR per share)

Note

2014

2013

39,062,011

35,037,577

(8,264,026)

(8,177,133)

30,797,985

26,860,444

(15,839,175)

(9,800,808)

14,958,810

17,059,636

(3,057,962)

(3,683,189)

(1,122,054)

759,483

28,159

13,815

312,145

(991,130)

(366,316)

193,031

296,537

—

71,658

(472,083)

(6,128,897)

(5,937,996)

122,316

359,182

4,894,685

7,520,460

(1,494,072)

(1,765,589)

3,400,613

5,754,871

(213,995)

(11,052)

(225,047)

—

3,175,566

5,754,871

19.00

18.89

34.00

33.36

The notes set out on pages F:9 to F:54 form an integral part of these consolidated financial statements.

F-5

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSConsolidated Statement
of Changes in Equity

Note

Share
capital

Share
premium

Share-
based
payment
reserve

Treasury
shares

Retained
earnings

Reva-
luation
reserve

Total

170,799 3,253,521 333,803

(2,171)

5,303,250

— 9,059,202

In thousands of RR

Balance at
31 December 2012

Profit for the year

Total comprehensive
income for 2013

Share issue

18 15,363

5,529,190

Initial public offering costs

Share-based payment reserve

—

(159,792)

— 143,937

—

(353)

—

5,754,871

—

5,754,871

— 5,754,871

—

208,589

— 5,544,200

—

(159,792)

352,526

Total transactions with
owners

Balance at
31 December 2013

Profit for the year

Other comprehensive income:
Revaluation of investment
securities available for sale
and transfers to profit or loss
upon disposal or impairment

Total comprehensive
income for 2014

Share issue

Share-based payment reserve

Dividend

Total transactions with
owners

Balance at
31 December 2014

15,363

5,369,398

143,937

(353)

208,589

— 5,736,934

186,162

8,622,919

477,740

(2,524)

11,266,710

— 20,551,007

—

3,400,613

— 3,400,613

—

1,950

—

— 109,460

—

(1,950)

—

— (225,047)

(225,047)

3,400,613 (225,047) 3,175,566

—

109,460

(2,866,965)

— (2,866,965)

1,950

— 109,460

(1,950)

(2,866,965)

— (2,757,505)

188,112

8,622,919 587,200

(4,474) 11,800,358 (225,047) 20,969,068

The notes set out on pages F:9 to F:54 form an integral part of these consolidated financial statements.

F-6

TCS Group Holding PLC Annual report 2014Consolidated Statement of Cash Flows

In thousands of RR

Cash flows from operating activities

Interest received

Interest paid

Customers acquisition expenses paid

Cash received/(paid) from trading in foreign currencies

Cash received from insurance operations

Cash received from sale of impaired loans

Fees and commissions paid

Fees and commissions received

Other operating income received

Administrative and other operating expenses paid

Income tax paid

Cash flows from operating activities before changes in
operating assets and liabilities

Changes in operating assets and liabilities

Net decrease/(increase) in CBRF mandatory reserves

Net increase in loans and advances to customers

Net increase in guarantee deposits with payment systems

Net (increase)/decrease in other financial assets

Net increase in other non-financial assets

Net decrease/(increase) in due to banks

Net (decrease)/increase in customer accounts

Net decrease in other financial liabilities

Net increase in other non-financial liabilities

Net cash from/(used in) operating activities

Cash flows used in investing activities

Acquisition of tangible fixed assets

Acquisition of intangible assets

Acquisition of investments available for sale

Proceeds from disposal and redemption of investment securities
available for sale

Consideration paid for insurance company net of cash acquired

Net cash used in investing activities

Cash flows from financing activities

Proceeds from debt securities in issue

Repayment of debt securities in issue

Proceeds from subordinated debt

Proceeds from initial public offering

Initial public offering costs paid

Dividends paid

Net cash from financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

Note

2014

2013

36,394,790

31,994,453

(8,449,325)

(1,942,562)

760,543

984,123

86,613

(996,483)

312,145

240,485

(3,116,721)

(1,323,993)

(7,964,625)

(2,793,263)

(506,807)

210,415

446,668

(355,245)

71,658

231,656

(3,219,928)

(1,646,660)

22,949,615

16,468,322

245,536

(245,838)

(17,988,220)

(34,163,014)

(68,499)

(791,277)

(58,196)

10,329,208

(637,245)

23,937

(358,672)

(514,210)

(2,775,532)

15,976,510

(529,138)

4,978

(519,509)

304,251

11,318,475

(3,665,468)

(126,276)

(567,122)

(7,079,917)

1,245,926

—

(6,527,389)

143,149

(13,723,674)

—

(340,777)

(212,558)

—

(44,172)

(597,507)

8,953,702

(7,400,615)

2,259,578

5,518,212

(132,880)

—

(3,521,808)

(17,102,333)

9,197,997

4,184,854

(8,126,393)

18,825,970

10,699,577

(978)

4,934,044

13,891,926

18,825,970

The notes set out on pages F:9 to F:54 form an integral part of these consolidated financial statements.

F-7

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements
31 December 2014
1 Introduction

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
as adopted by the European Union for the year ended 31 December 2014 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: Oleg
Tinkov, Constantinos Economides, Alexios Ioannides, Mary Trimithiotou, Philippe Delpal, Jacques Der Megreditchian and Martin
Cocker.

The Company Secretary is: Altruco Secretarial Limited, Kanika International Business Center, 6th floor, Profiti, Ilia No 4
Germasogeia, 4046 Limassol, Cyprus. Mail: P.O.Box 50734, 3609, Limassol, Cyprus.

At 31 December 2014 and 31 December 2013 share capital of the Group is comprised “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 2014 the number of
“class A” shares is 90,494,146 and “class B” shares is 92,144,679. As at 31 December 2013 the number of “class A” shares
was 90,494,146 and “class B” shares was 92,144,679.

As at 31 December 2014 and 31 December 2013 holding either Class A or Class B shares of the Company (or global
depository receipts during post initial public offering (Note 18) lock-up period) were:

Tadek Holding & Finance S.A.

31 December
2014

31 December

2013 Country of Incorporation

50.45%*

50.86%*

British Virgin Islands

Guaranty Nominees Limited (JP Morgan Chase Bank NA)

43.91%**

39.42%**

United Kingdom

Rousse Nominees Limited

Lorimer Ventures Limited

Altruco Trustees Limited

Tasos Invest & Finance Inc.

Vizer Limited

Maitland Commercial Inc.

Norman Legal S.A.

Vostok Komi (Cyprus) Limited

Total

2.88%

1.44%

2.25%

1.45%

1.32%***

1.20%***

Guernsey

Cyprus

0.00%****

British Virgin Islands

0.00%*****

British Virgin Islands

0.00%*****

British Virgin Islands

0.00%*****

British Virgin Islands

—

4.82%

Cyprus

100.00%

* The shareholding of Tadek Holding & Finance S.A. consists of Class B shares (31 December 2013: Class B shares and GDRs).
** Guaranty Nominees Limited is a company holding class A shares of the Company for which global depositary receipts were issued under a
deposit agreement made between the Company and JP Morgan Chase Bank NA signed in October 2013 (Note 18). The percentage of class
A shares held by Guaranty Nominees Limited in the total share capital of the Company is equal to 43.91% (31 December 2013: 39.42%).
As 31 December 2013 ELQ II Investors Limited (the global investment firm Goldman Sachs) owned global depositary receipts (4.5% out of
39.42%).
*** The shareholding of Altruco Trustees Limited represents Class A shares vested under the ESOP (Note 36) and GDRs purchased for and on
behalf of members of the ESOP, acting individually.
**** Tasos Invest & Finance Inc. owns 1 Class B share at 31 December 2014 and 31 December 2013.
***** Vizer Limited, Maitland Commercial Inc and Norman Legal S.A. each own 25 Class B shares of the Company at 31 December 2014 and
31 December 2013.

F-8

TCS Group Holding PLC Annual report 20141 Introduction continued

As at 31 December 2014 and 2013 the ultimate controlling party of the Company is Oleg Tinkov.

As at 31 December 2014 and as at 31 December 2013 the beneficial owner of Tadek Holding & Finance S.A., Tasos Invest &
Finance Inc., Vizer Limited, Maitland Commercial Inc and Norman Legal S.A. was Russian entrepreneur Mr. Oleg Tinkov and
the beneficial owner of Rousse Nominees Limited was Baring Vostok Private Equity Fund IV, L.P. As at 31 December 2013 the
beneficial owner of Vostok Komi (Cyprus) Limited was investment fund Vostok Nafta, the beneficial owner of Lorimer Ventures
Limited was Horizon Capital. Mr. Oleg Tinkov controls 91.1% of voting rights associated with the A+B Class shares.

Subsidiaries and special purpose entity included in these consolidated financial statements are listed below:

Name

CJSC Tinkoff Credit
Systems Bank

OJSC Tinkoff Insurance

LLC TCS

LLC T-Finance

TCS Finance Ltd

Goward Group Ltd

LLC Feniks

2014

2013

Nature of
business

Percentage of
ownership

Percentage of
voting rights

Percentage of
ownership

Percentage of
voting rights

Country of
registration

Banking
operations

Insurance
operations

Services

Assets holding

Financing

Investment holding
company

Collection services

100%

Russia

100%

—

100%

—

100%

—

100%

—

100%

—

100%

—

Russia

Ireland

British Virgin
Islands

Russia

CJSC “Tinkoff Credit Systems” Bank (the “Bank”) provides on-line retail banking services in Russia. The Bank specialises in issuing credit
cards.

OJSC Tinkoff Insurance (the “Insurance Company”) provides insurance services mainly to clients of the Group.

LLC TCS and LLC T-Finance bear expenses related to services provided by external counterparties to the Group on issue of credit card
loans. Also these companies bear administrative expenses and own some intangible assets used in the activity of the Group. All such
expenses are compensated by the subsidiary Bank.

TCS Finance Ltd is a structured entity which issued debt securities for the Group. 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. The Group guarantees all obligations of this entity represented by the bonds issued of RR 14,426,424 thousand. On
12 August 2014 the Group established a collection agency – LLC Feniks. The Bank owns 51% and Goward Group Ltd. owns 49% of voting
shares in collection agency. The subsidiary provides debt collection services to the Group.

Principal activity. The Group’s principal business activity is retail banking and insurance operations within the Russian Federation through
the Bank and Insurance Company. The Bank has operated under general banking license № 2673 issued by the Central Bank of the Russian
Federation (“CBRF”) since 8 December 2006. The Insurance Company operates under the insurance license issued by the Central Bank of
the Russian Federation.

The Bank participates in the state deposit insurance scheme, which was introduced by the Federal Law № 177-FZ “Deposits of individuals
insurance in Russian Federation” dated 23 December 2003. The State Deposit Insurance Agency guarantees repayment of 100% of
individual deposits up to RR 1,400 thousand (before 29 December 2014: RR 700 thousand) per individual in case of the withdrawal of
a licence of a bank or a CBRF-imposed moratorium on payments. Registered address and place of business. The Company’s registered
address is Kanika International Business Center, 6th floor, Profiti Ilia 4 Germasogeia, Limassol 4046 Cyprus. The Bank’s registered
address is 1-st Volokolamsky passage, 10, building 1, 123060, Moscow, Russian Federation. The Group’s principal place of business is
the Russian Federation.

Presentation currency. This consolidated financial statements are presented in thousands of Russian Rubles (RR). The Group’s
management decided to present the consolidated financial statements in the functional currency of the Group’s entities from 1 January
2014 to provide the users of the consolidated financial statements with reliable and more relevant information (refer to Note 3).

F-9

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
2 Operating Environment of the Group

Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly
sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and
varying interpretations (Note 31). During 2014 the Russian economy was negatively impacted by a decline in oil prices and ongoing
political tension in the region and international sanctions against certain Russian companies and individuals. As a result during 2014:

•
•

the CBRF exchange rate fluctuated between RR 32.7292 and RR 56.2584 per USD;
the CBRF key refinancing interest rate increased from 5.5% p.a. to 17.0% p.a.
including an increase from 12.0% p.a. to 17.0% p.a. on 16 December 2014;
the RTS stock exchange index ranged between 1,445 and 791;

•
• access to international financial markets to raise funding was limited for certain entities; and
• capital outflows increased compared to prior years.

The financial markets continue to be volatile and are characterised by frequent significant price movements and increased trading
spreads. Subsequent to 31 December 2014:

the CBRF exchange rate fluctuated between RR 56.2584 per USD and RR 69.6640 per USD;

•
• Russia's credit rating was downgraded by Fitch Ratings in January 2015 to BBB-, whilst Standard & Poor’s
cut it to BB+, putting it below investment grade for the first time in a decade. In February 2015 Moody’s
downgraded Russia’s rating to Ba1 from Baa3. Fitch Ratings still have Russia as investment grade. All
these rating agencies indicated a negative outlook, meaning further downgrades are possible;
the RTS stock exchange index ranged between 733 and 908;

•
• bank lending activity decreased as banks are reassessing the business models of their borrowers

and their ability to withstand the increased lending and exchange rates; and
the CBRF key refinancing interest rate decreased from 17.0% p.a. to 15.0% p.a.

•

These events may have a further significant impact on the Group’s future operations and financial position, the effect of which
is difficult to predict. The future economic and regulatory situation and its impact on the Group’s operations may differ from
management’s current expectations.

Management determined loan impairment provisions using the “incurred loss” model required by the applicable accounting standards.
These standards require recognition of impairment losses that arose from past events and prohibit recognition of impairment losses
that could arise from future events, including future changes in the economic environment, no matter how likely those future events
are. Thus final impairment losses from financial assets could differ significantly from the current level of provisions. Refer to Note 4.

3 Summary of Significant Accounting Policies

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 derivatives, investment securities available for sale and repurchase
receivables carried at fair value. 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.

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, and are deconsolidated from the date on which control ceases.

F-10

TCS Group Holding PLC Annual report 20143 Summary of Significant Accounting Policies continued
The acquisition method of accounting is used to account for the acquisition of subsidiaries. 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 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 Bank and all of its subsidiaries use uniform accounting policies consistent
with the Group’s policies.

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.

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 that is most representative of fair value in the circumstances was used to measure fair value,
which management considers is the last trading price on the reporting date. Prior to 1 January 2013, the quoted market price used
for financial assets was the current bid price; the quoted market price for financial liabilities was the current asking price. The quoted
market price used to value financial assets is the current bid price; the quoted market price for financial liabilities is the current asking
price.

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
(ie an asset) for a particular risk exposure or paid to transfer a net short position (ie 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 34.

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.

F-11

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
3 Summary of Significant Accounting Policies continued
Amortised cost 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 write-down for incurred impairment 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 net carrying amount of the financial
instrument. 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.

Initial recognition of financial instruments. Derivatives are initially recorded at fair value. All other financial instruments are initially
recorded at fair value plus transaction costs. 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.

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. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.

The Group uses discounted cash flow valuation techniques to determine the fair value of currency swaps 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 with level 3 inputs. Any such differences are initially recognised
within other financial assets or other financial liabilities and are subsequently amortised on a straight line basis over the term of the
currency swaps. The differences are immediately recognised in profit or loss if the valuation uses only level 1 or 2 inputs.

Derecognition of financial assets. 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.

Cash and cash equivalents. Cash and cash equivalents are items which 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 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.

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.

Loans and advances to customers. Loans and advances to customers are recorded when the Group 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.

F-12

TCS Group Holding PLC Annual report 20143 Summary of Significant Accounting Policies continued
Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss for the year when
incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which
have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be
reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed
financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics, and
collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is
impaired are its overdue status and realisability of related collateral, if any.

The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has
occurred:

• any instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems;
•

the borrower experiences a significant financial difficulty as evidenced by the
borrower’s financial information that the Group obtains;
the borrower considers bankruptcy or a financial reorganisation;
there is an adverse change in the payment status of the borrower as a result of changes
in the national or local economic conditions that impact the borrower;
• concession granted by lender that would not have otherwise been given.

•
•

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics.
Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’
ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment, are estimated on the basis of the
contractual cash flows of the assets and the experience of management in respect of the extent to which amounts will become
overdue as a result of past loss events and the success of recovery of overdue amounts. Past experience is adjusted on the basis of
current observable data to reflect the effects of current conditions that did not affect past periods, and to remove the effects of past
conditions that do not exist currently.

If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial
difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification of terms.
The renegotiated asset is then derecognized and a new asset is recognized at its fair value only if the risks and rewards of the asset
substantially changed. This is normally evidenced by a substantial difference between the present values of the original cash flows and
the new expected cash flows.

Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value
of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate
of the asset.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring
after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss
is reversed by adjusting the allowance account through profit or loss for the year. Uncollectible assets are written off against the related
impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has
been determined. In the course of business the Group sells impaired loans to third parties. Gains or losses on disposal of impaired loans
are recognized in the Statement of Profit or Loss in the period when sale occurred. Subsequent recoveries of amounts previously written
off are credited to impairment loss account in profit or loss for the year.

Investment securities available for sale. This classification includes investment securities which the Group 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.

Investment securities available for sale are carried at fair value. Interest income on available-for-sale debt securities is calculated using the
effective interest method, and recognised in profit or loss for the year.

Dividends on available-for-sale equity instruments are recognised in profit or loss for the year when the Group’s right to receive payment
is established and it is probable that the dividends will be collected. All other elements of changes in the fair value are recognised in other
comprehensive income until the investment is derecognised or impaired, at which time the cumulative gain or loss is reclassified from
other comprehensive income to profit or loss for the year. Impairment losses are recognised in profit or loss for the year when incurred
as a result of one or more events (“loss events”) that occurred after the initial recognition of investment securities available for sale. A
significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired.

F-13

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
3 Summary of Significant Accounting Policies continued
The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that asset previously recognised in profit or loss – is reclassified from other comprehensive income to profit
or loss for the year. Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other
comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the
increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss
is reversed through profit or loss for the year.

Sale and repurchase agreements. 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 condensed interim 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.

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 due on fixed or
determinable dates. Amounts of guarantee deposits with payment systems are carried at amortised cost.

Credit related commitments. The Group issues financial commitments to provide credit cards loans within credit cards limits.
Commitments to provide a loan 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 commitment, except for commitments to originate loans 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; such loan commitment fees are deferred and included in the carrying value of the loan on initial recognition. At each
reporting date, the commitments are measured at the higher of (i) the remaining unamortised balance of the amount at initial
recognition and (ii) the best estimate of expenditure required to settle the commitment at the end of each reporting period.

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:

Equipment

Vehicles

Useful lives in years

3 to 10

Leasehold improvements

Shorter of their useful economic life and the term of the underlying lease

F-14

TCS Group Holding PLC Annual report 20143 Summary of Significant Accounting Policies continued
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. The Group’s intangible assets other than insurance license have definite useful life and include capitalised acquired
computer software and internally developed software.

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. 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 with indefinite useful life are tested annually for impairment.

Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental
to ownership from the lessor to the Group, the total lease payments are charged to profit or loss for the year (rental expense within
administrative and other operating expenses) on a straight-line basis over the period of the lease.

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 in issue include bonds and Euro-Commercial Paper issued by the Group. 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 interest
expense.

Subordinated debt. Recognition and measurement of this category is consistent with the above policy for debt securities in issue.

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 within losses less gains from operations with foreign currencies. 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 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 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 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.

F-15

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
3 Summary of Significant Accounting Policies continued
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.

Trade and other payables. Trade payables 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.

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.

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 subsequent events
note. The statutory 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 is the basis of available reserves for
distribution.

Income and expense recognition. Interest income and expense are recorded for all debt instruments on an accruals 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, for example fees for evaluating creditworthiness, negotiating the terms of the
instrument, for servicing of account, and cash withdrawals. Commitment fees 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 fair value through profit or loss.

When loans and other debt instruments become doubtful of collection, they are written down to present value of expected cash inflows
and interest income is thereafter recorded for the unwinding of the present value discount based on the asset’s original effective
interest rate which was used to measure the impairment loss.

Customer acquisition expenses represented by the costs incurred by the Group on services related to attraction of the credit card
borrowers, mailing of advertising materials, processing of responses etc., are expensed on the basis of the actual services provided.

All other fees, commissions and other income and expense items are generally recorded on an accruals 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.

Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as the
acquisition of loans, shares or other securities or the purchase or sale of businesses, which are earned on execution of the underlying
transaction are recorded on its completion.

F-16

TCS Group Holding PLC Annual report 20143 Summary of Significant Accounting Policies continued
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
and loss and other comprehensive income of these consolidated financial statements are accounted within Income from insurance
operations line in as they are not material for these consolidated financial statements as a whole.

• Premiums written. Premiums (hereafter – “premiums” or “insurance premiums”) under insurance contracts are recorded as

written upon inception of a contract and are earned on a pro-rata basis over the term of the related contract coverage. Reduction
of premium written in subsequent periods (under amendments to the signed original contacts, for example) is accounted by
debiting of premiums written in current period.

• Provision for unearned premiums. Provision for unearned premiums (UEPR) represents the proportion of premiums written
that relate to the unexpired term of policies in force as at the reporting date, calculated on a time apportionment basis. UEPR is
recognised within liabilities on a gross basis.

• Claims. Claims are charged to the consolidated statement of profit and loss and other comprehensive income as compensation
is paid to policyholders (beneficiaries) or third parties. Claims also include claims handling expenses related to experts', valuers',
surveyors' and average agents' fees.

• Loss provisions. Loss provisions represent the accumulation of estimates for ultimate losses and include outstanding claims

provision (“OCP”) and provision for losses incurred but not yet reported (“IBNR”). Loss provisions are recognised within liabilities
on a gross basis. Estimates of claims handling expenses are included in both OCP and IBNR. OCP is provided in respect of claims
reported, but not settled as at the reporting date. The estimation is made on the basis of information received by the Group
during settlement of the insured event, including information received after the reporting date. IBNR is determined by the
Group by line of business using actuarial methods, and includes assumptions based on prior years’ claims and claims handling
experience. IBNR is calculated for each occurrence period as the difference between the projected maximum amount of future
payments resulting from the events that occurred during the period and the amount of future payments resulting from the event
already reported but not settled at the reporting date within the same period.

•

IBNR cannot be less than zero for each period of insured event. The methods of determining such estimates and establishing the
resulting provisions are continually reviewed and updated. Resulting adjustments are reflected in the consolidated statement of
profit and loss and other comprehensive income as they arise. Loss provisions are estimated on an undiscounted basis due to
relatively quick pattern of claims notification and payment.

• Unexpired risk provision. Unexpired risk provision (“URP”) is recorded when unearned premiums are insufficient to meet claims
and expenses, which may be incurred after the end of the financial year. To estimate the unexpired risk provision the Group uses
historical experience and forward looking assumptions of ultimate loss ratios (including claims handling expenses) and the level
of inforce portfolio maintenance expenses. The expected claims are calculated having regard to events that have occurred prior
to the reporting date. For the purposes of final presentation of consolidated financial statements unexpired risk provision is
written off against deferred acquisition costs.

• Liability adequacy testing. As at each reporting date the adequacy of the insurance reserves is tested. Testing of

insurance reserves for non-life insurance is performed to ensure adequacy of contract liabilities. In performing these tests,
current estimates of future contractual cash flows, claims handling and administration expenses are used. As a result of liability
adequacy testing for non-life insurance, the Group sets up its URP.

• Reinsurance. The Group assumes and cedes reinsurance in the normal course of business. Ceded reinsurance contracts do
not relieve the Group from its obligations to the policyholders under insurance contract. Amounts due from reinsurers are
measured consistently with the amounts associated with the direct insurance contracts and in accordance with the terms of each
reinsurance contract. Reinsurance assets arising from outward reinsurance contracts include reinsurers share in paid claims,
including claims handling expenses. Liabilities under outward reinsurance operations are obligations of the Group for payment
of premiums to reinsurers. Reinsurance assets include premiums ceded to the Group under inward reinsurance contracts. The
Group's liabilities under inward reinsurance contracts are obligations to compensate the Group's share in paid claims, including
claims handling expenses to reinsurers.

• The Group assesses its reinsurance assets for impairment on a regular basis. If there is objective evidence that the reinsurance
asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises
that impairment loss in the consolidated statement of profit and loss and other comprehensive income. The Group gathers the
evidence that a reinsurance asset is impaired using the same process adopted for financial assets carried at amortised cost.
The impairment loss is also calculated following the same method used for the financial assets carried at amortised cost.

F-17

• Subrogation income. 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 (subrogation). Reimbursements are recognised as income only if the Group is
confident in receipt of these amounts from these third parties. Under inward reinsurance contracts, amounts of reimbursement
due to the Group as a result of settlement of reinsurer's subrogation claims are treated as the Group's income as at the date of
acceptance of the invoice received from the reinsurer and including calculation of the Group's share in the subrogation claim.

• Deferred acquisition costs. Deferred acquisition costs (“DAC”) are calculated (for non-life insurance contracts) separately for
each insurance product. Acquisition costs include remuneration to agents for concluding agreements with corporate clients and
individuals and brokerage fees for underwriting of assumed reinsurance agreements. They vary with and fully depend on the
premium earned under acquired or renewed insurance policies. These acquisition costs are deferred and amortised over the
period in which the related written premiums are earned. 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.

•

Insurance agency fee. In cases when the Group acts as an agent and attracts clients for the Insurance company not related
to credit protection (loan agreements), the Bank receives commission income, which is recognised within Income from
insurance operations in the consolidated statement of profit and loss and other comprehensive income in full amount.

Foreign currency translation. 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 settlement of transactions and 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 foreign exchange translation gains less losses). Translation at year-end rates does not apply
to non-monetary items that are measured at historical cost.

At 31 December 2014 the principal rate of exchange used for translating foreign currency balances was USD 1 = RR 56.2584 (2013:
USD 1 = RR 32.7292), and the principal average rate of exchange was USD 1= RR 38.3165 (2013: USD 1= RR 31.8480).

Offsetting. Financial assets and liabilities are offset and the net amount is 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.

Earnings per share. Earnings per share are determined by dividing the profit or loss attributable to owners of the Bank by the
weighted average number of participating shares outstanding during the reporting year. 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. The segment is reported in a manner consistent with the internal reporting provided to the Group’s chief
operating decision maker.

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 payment. 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 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.

Modification of cash-settled share-based payment to equity-settled. At the date of modification the full carrying amount of the
liability is transferred to equity as this represents the settlement provided by the employees for the equity instruments granted to
them. Modification only in the manner of settlement with other terms and conditions of the new arrangement remaining unchanged do
not give rise to immediate impact on the profit or loss at the date of change in classification.

F-18

TCS Group Holding PLC Annual report 2014Amendments 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.

Change in presentation currency. On 1 January 2014 the management of the Group made a decision to change the presentation
currency from USD to RR. The Group’s management considers that the change results in the consolidated financial statements
providing reliable and more relevant information about the performance of the Group and its financial position.

The new accounting policy is more in line with market practice. The change has been applied retrospectively in line with IAS 8
“Accounting Policies, changes in Accounting Estimates and Errors”. In accordance with IAS 8 balance sheet as at 31 December 2012
was presented in these consolidated financial statements. These consolidated financial statements are presented in thousands of RR.

4 Critical Accounting Estimates and Judgements in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognised 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 recognised 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:

Impairment losses on loans and advances. The Group regularly reviews its loan portfolio to assess impairment. In determining
whether an impairment loss should be recorded in profit or loss for the period, the Group makes judgments 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. The primary factor that the Group considers as objective evidence of impairment is the overdue status
of the loan. In general, loans where there are no breaches in loan servicing are considered to be unimpaired.

Given the nature of the borrowers and the loans it is the Group’s view and experience that there is a very short time lag between a
possible loss event that could lead to impairment and the non or under payment of a monthly installment. 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. 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.

In accordance with internal methodology for the provision estimation the Group uses its historical retail loan loss statistics for
assessment of probabilities of default. The last twelve months of historical loss data give the most weighting in calculating the
provision for impairment. This framework allows the Group to have better information to estimate losses on loans to individuals as
all latest trends are accounted, and to restrain the implied probabilities volatility. The loan loss provision includes adjustment on the
future expected proceeds from sale of impaired loans which was estimated at 1.6% of the provision of loan impairment and was based
on conservative sampling of historical data and current market trends (Note 7). As at 31 December 2014 the positive effect of the
above adjustment on provision for loan impairment is approximately RR 315,302 thousand (2013: RR 363,390 thousand).

To the extent that the incurred losses as at 31 December 2014 resulting from future cash flows vary by 0.5% (31 December 2013:
0.5%) from the calculated estimate, the profit would be approximately RR 469,537 thousand (31 December 2013: RR 416,835
thousand) higher or lower.

Deferred income tax on post acquisition retained earnings of subsidiaries. Deferred income tax has not been provided on post
acquisition retained earnings and other post acquisition movements in reserves of subsidiaries, as the Group controls the subsidiary’s
dividend policy and it is considered probable that the difference will not reverse through dividends, or otherwise, in the foreseeable
future.

Employee share option plan and equity long term incentive plan (ESOP and Equity LTIP). The fair value as at recognition dates of
the equity-settled share-based payments (30 September 2012 for ESOP and 1 July 2013 for Equity LTIP) is determined on the basis
of independent valuations of the Company.

Due to the nature of the Company and lack of comparable market data, the fair value of the Company as at recognition dates of share-
based payments is estimated based on the future cash flow discounting method, where the value is estimated from the expected
growth of the loan portfolio and discounting rate.

The principal assumptions underlying the estimation of the fair value are those relating to the projected loan portfolio growth and
appropriate discount rate. These valuations were compared as at grant dates of share option plans to actual and projected market data
as well as actual transactions involving Bank’s shares and market pricing of the traded peers. For ESOP the impact on the aggregate
valuations of reasonably possible changes of the main assumptions, with all other variables held constant, is as follows:

F-19

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
4 Critical Accounting Estimates and Judgements in Applying Accounting Policies
continued

• The discount rate was assumed to be in the range of 15.3%-16.3% in the forecast period of

2013-2018. Should this discount rate increase/decrease by 1 percentage point, the carrying value of
the share-based payment would be RR 18,041 thousand lower/RR 21,079 thousand higher.

• Projected loan portfolio growth rate was assumed to be in the range of 3.0% – 51.6% in the forecast period of 2013-2018.

Should this growth rate increase/decrease by 10 percent, the carrying value of the share-based payment would be RR 17,009
thousand higher/RR 16,675 thousand.

For Equity LTIP the impact on the aggregate valuations of reasonably possible changes of the main assumptions, with all other
variables held constant, is as follows:

• The discount rate was assumed to be in the range of 14.7% in the forecast period of 2014-

2018. Should this discount rate increase/decrease by 1 percentage point, the carrying value of
the sharebased payment would be RR 216 thousand lower/RR 256 thousand higher.

• Projected loan portfolio growth rate was assumed to be in the range of 5.1% – 42.0% in the forecast period of 2014-2018.
Should this growth rate increase/decrease by 10 percent, the carrying value of the share-based payment would be RR 182
thousand higher/RR 182 thousand.

Fair value of financial derivatives. The description of valuation techniques and the description of the inputs used in the fair value
measurement of financial derivatives are disclosed in Note 34.

Tax legislation. Russian and Cypriot tax, currency and customs legislation are subject to varying interpretations. Refer to Note 31.

5 Adoption of New or Revised Standards and Interpretations

As of the date of the authorisation of the consolidated financial statements, all International Financial Reporting Standards issued by
the International Accounting Standards Board (IASB) that are effective as of 1 January 2014 have been adopted by the EU through
the endorsement procedure established by the European Commission, with the exception of certain provisions of IAS 39 “Financial
Instruments: Recognition and Measurement” relating to portfolio hedge accounting.

During the year ended 31 December 2014 the Group adopted all the new and revised International Financial Reporting Standards
(IFRS) that are relevant to its operations and are effective for accounting periods beginning on 1 January 2014. This adoption did not
have a material effect on the accounting policies of the Group.

At the date of approval of these consolidated financial statements the following financial reporting standards, amendments and
improvements were issued by the International Accounting Standards Board but were not yet effective:

Adopted by the European Union

IFRIC 21 – Levies (issued on 20 May 2013 and effective for annual periods beginning 17 June 2014). The interpretation clarifies
the accounting for an obligation to pay a levy that is not income tax. The obligating event that gives rise to a liability is the event
identified by the legislation that triggers the obligation to pay the levy. The fact that an entity is economically compelled to continue
operating in a future period, or prepares its consolidated financial statements under the going concern assumption, does not create
an obligation. The same recognition principles apply in interim and annual consolidated financial statements. The application of the
interpretation to liabilities arising from emissions trading schemes is optional. The Group is currently assessing the impact of the
amendments on its consolidated financial statements.

Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July
2014, unless otherwise stated below). The improvements consist of changes to seven standards. IFRS 2 was amended to clarify
the definition of a “vesting condition” and to define separately “performance condition” and “service condition”; The amendment is
effective for sharebased payment transactions for which the grant date is on or after 1 July 2014.

IFRS 3 was amended to clarify that (1) an obligation to pay contingent consideration which meets the definition of a financial
instrument is classified as a financial liability or as equity, on the basis of the definitions in IAS 32, and (2) all non-equity contingent
consideration, both financial and non-financial, is measured at fair value at each reporting date, with changes in fair value recognised in
profit and loss. Amendments to IFRS 3 are effective for business combinations where the acquisition date is on or after 1 July 2014.

F-20

TCS Group Holding PLC Annual report 20145 Adoption of New or Revised Standards and Interpretations continued
IFRS 8 was amended to require (1) disclosure of the judgements made by management in aggregating operating segments, including
a description of the segments which have been aggregated and the economic indicators which have been assessed in determining
that the aggregated segments share similar economic characteristics, and (2) a reconciliation of segment assets to the entity’s assets
when segment assets are reported.

The basis for conclusions on IFRS 13 was amended to clarify that deletion of certain paragraphs in IAS 39 upon publishing of IFRS
13 was not made with an intention to remove the ability to measure short-term receivables and payables at invoice amount where the
impact of discounting is immaterial.

IAS 16 and IAS 38 were amended to clarify how the gross carrying amount and the accumulated depreciation are treated where an
entity uses the revaluation model.

IAS 24 was amended to include, as a related party, an entity that provides key management personnel services to the reporting entity
or to the parent of the reporting entity (“the management entity”), and to require to disclose the amounts charged to the reporting
entity by the management entity for services provided. The Group is currently assessing the impact of the amendments on its
consolidated financial statements.

Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July
2014). The improvements consist of changes to four standards.

The basis for conclusions on IFRS 1 is amended to clarify that, where a new version of a standard is not yet mandatory but is available
for early adoption; a first-time adopter can use either the old or the new version, provided the same standard is applied in all periods
presented.

IFRS 3 was amended to clarify that it does not apply to the accounting for the formation of any joint arrangement under IFRS 11. The
amendment also clarifies that the scope exemption only applies in the consolidated financial statements of the joint arrangement itself.

The amendment of IFRS 13 clarifies that the portfolio exception in IFRS 13, which allows an entity to measure the fair value of a group
of financial assets and financial liabilities on a net basis, applies to all contracts (including contracts to buy or sell non-financial items)
that are within the scope of IAS 39 or IFRS 9.

IAS 40 was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in IAS 40 assists preparers to
distinguish between investment property and owner-occupied property. Preparers also need to refer to the guidance in IFRS 3 to
determine whether the acquisition of an investment property is a business combination. The Group is currently assessing the impact of
the amendments on its consolidated financial statements.

Not adopted by the European Union

New standards

IFRS 9 “Financial Instruments: Classification and Measurement” (issued in July 2014 and effective for annual periods
beginning on or after 1 January 2018).

Key features of the new standard are:

• Financial assets are required to be classified into three measurement categories: those to be measured subsequently at

amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be
measured subsequently at fair value through profit or loss (FVPL).

• Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the

contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be
carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held
in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets
that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no
longer separated from financial assets but will be included in assessing the SPPI condition.

•

Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election
to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity
instrument is held for trading, changes in fair value are presented in profit or loss.

• Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward
unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own
credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.

F-21

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
5 Adoption of New or Revised Standards and Interpretations continued

•

IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a
“three stage” approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the
new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial
assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit
risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for
lease and trade receivables.

• Hedge accounting requirements were amended to align accounting more closely with risk management. The standard
provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and
continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging.

IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning
on or after 1 January 2017). The new standard introduces the core principle that revenue must be recognised when the
goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct
must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate
elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant
risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when
the benefits of the contract are consumed.

Amendments

Accounting for Acquisitions of Interests in Joint Operations – Amendments to IFRS 11 (issued on 6 May 2014 and effective for
the periods beginning on or after 1 January 2016). This amendment adds new guidance on how to account for the acquisition of an
interest in a joint operation that constitutes a business.

Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38 (issued on 12 May
2014 and effective for the periods beginning on or after 1 January 2016). In this amendment, the IASB has clarified that the use
of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that
includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset.

Agriculture: Bearer plants – Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for annual periods
beginning 1 January 2016). The amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and
oil palms, which now should be accounted for in the same way as property, plant and equipment because their operation is similar to
that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead of IAS 41. The produce growing
on bearer plants will remain within the scope of IAS 41.

Equity Method in Separate Financial Statements – Amendments to IAS 27 (issued on 12 August 2014 and effective for annual
periods beginning 1 January 2016). The amendments will allow entities to use the equity method to account for investments in
subsidiaries, joint ventures and associates in their separate financial statements.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS 28
(issued on 11 September 2014 and effective for annual periods beginning on or after 1 January 2016). These amendments
address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of
assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is
recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not
constitute a business, even if these assets are held by a subsidiary.

Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January
2016). The Standard was amended to clarify the concept of materiality and explains that an entity need not provide a specific
disclosure required by an IFRS if the information resulting from that disclosure is not material, even if the IFRS contains a list of specific
requirements or describes them as minimum requirements. The Standard also provides new guidance on subtotals in consolidated
financial statements, in particular, such subtotals (a) should be comprised of line items made up of amounts recognised and measured
in accordance with IFRS; (b) be presented and labelled in a manner that makes the line items that constitute the subtotal clear and
understandable; (c) be consistent from period to period; and (d) not be displayed with more prominence than the subtotals and totals
required by IFRS standards. The Group is currently assessing the impact of the amendments on its consolidated financial statements.

F-22

TCS Group Holding PLC Annual report 20145 Adoption of New or Revised Standards and Interpretations continued

Annual improvements

Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after
1 January 2016). The amendments impact 4 standards. IFRS 5 was amended to clarify that change in the manner of disposal
(reclassification from “held for sale” to “held for distribution” or vice versa) does not constitute a change to a plan of sale or distribution,
and does not have to be accounted for as such. The amendment to IFRS 7 adds guidance to help management determine whether the
terms of an arrangement to service a financial asset which has been transferred constitute continuing involvement, for the purposes
of disclosures required by IFRS 7. The amendment also clarifies that the offsetting disclosures of IFRS 7 are not specifically required
for all interim periods, unless required by IAS 34. The amendment to IAS 19 clarifies that for post-employment benefit obligations, the
decisions regarding discount rate, existence of deep market in high-quality corporate bonds, or which government bonds to use as a
basis, should be based on the currency that the liabilities are denominated in, and not the country where they arise. IAS 34 will require
a cross reference from the interim consolidated financial statements to the location of “information disclosed elsewhere in the interim
financial report”.

The Group is currently assessing the impact of the amendments on its consolidated financial statements.

6 Cash and Cash Equivalents

In thousands of RR

Cash on hand

Cash balances with the CBRF (other than mandatory reserve deposits)

Placements with other banks and organizations with original maturities of
less than three months, including:

- A- to A+ rated

- BBB rated

- BB- to BB+ rated

- B- to B+ rated

Unrated

Total Cash and Cash Equivalents

31 December
2014

25,571

2,295,541

31 December
2013

10,451

3,568,306

3,426,240

2,655,663

33,721

118,936

5,057,741

8,455,654

—

11,553

2,143,905

1,722,265

10,699,577

18,825,970

The Group evaluates the quality of cash and cash equivalents on the basis of Fitch international ratings and in case of their absence
uses Standard & Poor’s or Moody’s ratings adjusting them to Fitch’s categories using a reconciliation table.

Cash and cash equivalents placed with unrated organizations represent the funds which are deposited with a well-established Russian
organization with no credit rating set by Fitch international ratings, Standard & Poor’s or Moody’s ratings. There is no history of default
of this organization.

Cash and cash equivalents are neither impaired nor past due. Refer to Note 34 for the disclosure of the fair value of cash and cash
equivalents. Interest rate, maturity and geographical risk concentration analyses of cash and cash equivalents is disclosed in Note 29.

7 Loans and Advances to Customers

In thousands of RR

Loans to individuals:

Credit card loans

Installment loans

Cash loans

POS loans

Total loans and advances to customers before impairment

Less: Provision for loan impairment

Total loans and advances to customers

31 December
2014

31 December
2013

85,064,092

78,608,684

6,534,975

1,564,940

743,319

93,907,326

(19,327,328)

2,577,774

1,697,847

482,668

83,366,973

(9,405,326)

74,579,998

73,961,647

F-23

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.

The Bank has a restructuring programme for delinquent borrowers who demonstrate a willingness to settle their debt by
switching to fixed monthly repayments of outstanding amounts (“installment loans”).

POS (“Point of sale”) loans represent POS lending through the Bank’s programme “POS loans” (KupiVKredit). This programme
funds online purchases through internet shops for individual borrowers.

Cash loans represent a product for existing borrowers of the Bank who have positive credit history and who do not have 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.

Presented below is an analysis of issued, activated and utilised cards based on their credit card limits as at the end of the
reporting year:

In units

Credit card limits

Up to 10 RR thousand

10–20 RR thousand

20–30 RR thousand

30–40 RR thousand

40–50 RR thousand

50–60 RR thousand

60–80 RR thousand

80–100 RR thousand

More than 100 RR thousand

Total cards

31 December
2014

31 December
2013

657,321

288,254

228,313

186,365

161,874

136,570

254,678

204,724

376,673

402,848

216,685

223,300

197,551

185,982

169,763

283,249

208,944

295,102

2,494,772

2,183,424

Movements in the provision for loan impairment for the year ended 31 December 2014 are as follows:

In thousands of RR

Loans to individuals:

Credit card loans

Installment loans

POS loans

Cash loans

As at
31 December
2013

Sales of
impaired
loans

Amounts
written-off
during the
period

Provision for
impairment
during the
period

As at 31
December
2014

8,372,032

(1,067,868)

(4,220,841)

12,526,131

15,609,454

884,867

116,680

31,747

(294,677)

—

(225,117)

(108,670)

—

2,768,561

3,133,634

118,337

426,146

126,347

457,893

Total provision for loan impairment

9,405,326

(1,362,545)

(4,554,628)

15,839,175

19,327,328

F-24

TCS Group Holding PLC Annual report 20147 Loans and Advances to Customers continued

Movements in the provision for loan impairment for the year ended 31 December 2013 are as follows:

In thousands of RR

Loans to individuals:

Credit card loans

Installment loans

POS loans

Cash loans

As at
31 December
2012

Sales of
impaired
loans

Amounts
written-off
during the
period

Provision for
impairment
during the
period

As at 31
December
2013

4,032,202

(4,234,190)

178,619

28,838

—

(400,951)

—

8,574,020

8,372,032

1,107,199

87,842

31,747

884,867

116,680

31,747

9,800,808

9,405,326

Total provision for loan impairment

4,239,659

(4,635,141)

In 2014 the Group sold impaired loans to third parties (external debt collection agencies) with a gross amount of RR 1,420,999
thousand (2013: RR 4,785,272 thousand), and provision for impairment of RR 1,362,545 thousand (2013: RR 4,635,141
thousand). The difference between the carrying amount of these loans and the consideration received was recognised in profit
or loss as gain from the sale of impaired loans in the amount of RR 28,159 thousand (2013: RR 296,537 thousand). The
criteria for impaired loans to qualify for sale to external debt collection agencies are disclosed in Note 29.

During 2014 the Group wrote off impaired loans with gross amount of RR 4,554,628 thousand and provision for impairment of
RR 4,554,628 thousand (2013: none).

Analysis of loans to individuals by credit quality is as follows:

31 December 2014

31 December 2013

Credit card
loans

Installment
loans

Cash
loans

POS
loans

Credit card
loans

Installment
loans

Cash
loans

POS loans

In thousands of RR

Neither past due
norimpaired:

– new

965,111

—

291,659

1,321,747

—

141,123

Loans collectively
assessed for
impairment
(gross):

– non-overdue

66,142,385 4,083,880 1,080,654

305,023 65,822,383

1,822,099 1,683,774

219,623

–less than 30
days overdue

–30 to 90 days
overdue

–90 to 180
days overdue

–180 to 360
days overdue

–over 360 days
overdue

3,230,355

490,447

68,554

27,136

3,013,717

286,898

11,558

11,983

3,015,618

518,151

79,082

19,892

2,893,876

269,322

2,515

13,997

3,126,610

609,545

107,693

22,388

2,878,909

166,332

4,625,476

832,952

228,957

77,221

409,708

25,003

—

14,611

56,147

25,184

—

–loans in courts

3,958,537

—

41,482

— 2,226,862

8,120

—

Less: Provision for
loan impairment

Total loans to
individuals

(15,609,454)

(3,133,634)

(457,893)

(126,347)

(8,372,032)

(884,867)

(31,747)

(116,680)

69,454,638 3,401,341 1,107,047

616,972 70,236,652 1,692,907 1,666,100

365,988

F-25

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
7 Loans and Advances to Customers continued
Loans in category “new” represent loans provided to borrowers for which the date of the first payment did not occur before the
reporting date.

Loans in courts are loans to delinquent borrowers, against which the Group filed claims to courts in order to recover outstanding
balances.

The Group assesses non-overdue loans for impairment collectively as a homogeneous population with similar credit quality as
disclosed above.

The Group considers overdue loans as impaired.

Refer to Note 34 for the estimated fair value of each class of loans and advances to customers.

Interest rate, maturity and geographical risk concentration analyses of loans and advances to customers is disclosed in Note 29.
Information on related party balances is disclosed in Note 36.

8 Investment Securities Available for Sale

In thousands of RR

Corporate bonds

Total investment securities available for sale

31 December
2014

216,535

31 December
2013

—

Analysis by credit quality of debt securities outstanding at 31 December 2014 is as follows:

In thousands of RR

Neither past due nor impaired
BB- to BB+ rated

Corporate bonds

216,535

Total

216,535

Total neither past due nor impaired investment securities
available for sale

216,535

The movements in investment securities available for sale for the period ended 31 December 2014 are as follows:

In thousands of RR

Carrying amount at 1 January

Purchases

Disposals of investment securities available for sale

Redemption of investment securities available for sale

Interest income accrued on investment securities available for
sale and repurchase receivables (Note 19)

Interest received

Pledged under sale and repurchase agreements (Note 9)

Revaluation through other comprehensive income

Carrying amount at 31 December 2014

9 Repurchase Receivables

31 December
2014

—

7,079,917

(551,788)

(694,138)

319,684

(303,367)

(5,366,280)

(267,493)

216,535

Repurchase receivables represent securities sold under sale and repurchase agreements which the counterparty has the right, by
contract or custom, to sell or repledge. The repurchase agreements are short-term in nature and matured on 14 January 2015.

In thousands of RR

Available-for-sale securities sold under sale and repurchase agreements

Corporate bonds

Russian government bonds

Total repurchase receivables

31 December
2014

31 December
2013

5,098,868

267,412

5,366,280

—

F-26

TCS Group Holding PLC Annual report 20149 Repurchase Receivables continued
Analysis by credit quality of debt securities classified as repurchase receivables outstanding at 31 December 2014 is as follows:

In thousands of RR

Neither past due nor impaired

BBB rated

BB- to BB+ rated

Available-for-sale securities

Russian government
bonds

267,412

—

Corporate
bonds

3,694,426

1,404,442

Total neither past due nor impaired debt securities classified as repurchase
receivables

267,412

5,098,868

10 Guarantee Deposits with Payment Systems

Guarantee deposits with payment systems represent funds put aside by the Group in Barclays Bank Plc London (A rated as at 31
December 2014 and 2013) as a guarantee deposit in favour of MasterCard and Visa. The amount of deposit is calculated as a
percentage of monthly credit cards transactions turnovers. The carrying value of the guarantee deposits with payment systems at 31
December 2014 was RR 2,967,132 thousand (2013: RR 1,657,533 thousand).

The Group evaluates the quality of the guarantee deposits with payment systems on the basis of Fitch international ratings and in case
of their absence uses Standard & Poor’s or Moody’s ratings adjusting them to Fitch’s categories using a reconciliation table.

11 Tangible Fixed and Intangible Assets

In thousands of RR

Cost
At 31 December 2012

Additions

Disposals

Cost
At 31 December 2013

Additions

Disposals

Equipment

Leasehold
improvements

Vehicles

Total tangible
fixed assets

Intangible
assets

510,717

138,661

—

649,378

149,618

—

336,833

191,842

—

528,675

13,744

—

29,522

9,614

(3,822)

35,314

20,986

(16,106)

40,194

877,072

340,117

(3,822)

1,213,367

184,348

(16,106)

679,619

227,438

—

907,057

799,574

—

1,381,609

1,706,631

At 31 December 2014

798,996

542,419

Depreciation and
amortisation

At 31 December 2012

Charge for the period
(Note 24)

Disposals

At 31 December 2013

Charge for the period
(Note 24)

Disposals

(196,299)

(124,498)

(11,025)

(331,822)

(270,760)

(148,274)

(108,992)

—

(6,021)

2,548

(263,287)

(121,532)

2,548

—

(344,573)

(233,490)

(14,498)

(592,561)

(392,292)

(177,627)

(73,644)

—

(6,658)

10,229

(257,929)

(189,032)

10,229

—

At 31 December 2014

(522,200)

(307,134)

(10,927)

(840,261)

(581,324)

Net book value

At 31 December 2013

At 31 December 2014

304,805

276,796

295,185

235,285

20,816

29,267

620,806

514,765

541,348

1,125,307

Intangible assets include the license on insurance operations.

Intangible assets acquired during the years ended 31 December 2014 and 2013 mainly represent accounting software, retail banking
software, licenses and development of software.

F-27

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
12 Other Financial and Non-financial Assets

In thousands of RR

Other Financial Assets

Settlement of operations with plastic cards

Trade and other receivables

Other

Total Other Financial Assets

Other Non-Financial Assets

Prepaid expenses

Other

Total Other Non-Financial Assets

31 December
2014

31 December
2013

1,813,784

76,633

250

1,890,667

691,438

68,422

759,860

1,015,493

131,735

13,209

1,160,437

501,673

21,712

523,385

Settlement of operations with plastic cards represents balances due from payment agents in respect of payments made by borrowers
to reimburse credit card loans and to be settled within 30 days.

As at 31 December 2014 prepaid expenses consist of prepayments for office equipment, cycling team sponsorship, postal services
and office rent (2013: prepaid expenses for postal services, cycling team sponsorship and office rent).

Other financial assets are not impaired and not past due. Refer to Note 34 for the disclosure of the fair value of other financial assets.

The maturity and geographical risk concentration analyses of amounts of other financial assets are disclosed in Note 29.

13 Due to banks

In thousands of RR

Sale and repurchase agreements with CBRF

Loan from OJSC Sberbank of Russia

Short-term loan from CBRF

Due to other banks

Total due to banks

31 December
2014

5,002,399

2,994,061

2,005,548

329,208

10,331,216

31 December
2013

—

On 18 November 2014 the Bank raised a loan from CBRF in the amount of RR 1,000 mln with the contractual interest rate 11.25%
maturing 16 February 2015.

On 10 December 2014 the Bank raised a loan from CBRF in the amount of RR 1,000 mln with the contractual interest rate 11.25%
maturing 10 March 2015.

As at 31 December 2014, in amounts due to banks are included liabilities of RR 5,000 mln from sale and repurchase agreements with
CBRF.

On 14 March 2014 the Bank raised a loan from OJSC Sberbank of Russia in the amount of RR 3,000 mln with the contractual interest
rate 11.2% maturing 13 September 2015.

Refer to Note 34 for the disclosure of the fair value of due to banks.

F-28

TCS Group Holding PLC Annual report 201414 Customer Accounts

In thousands of RR

Legal entities

• Current/settlement accounts of corporate entities

• Term deposits of corporate entities

Individuals

• Current/settlement accounts of individuals

• Term deposits of individuals

Total Customer Accounts

31 December
2014

196,242

1,878,589

11,056,383

30,235,220

43,366,434

31 December
2013

145,192

1,451,454

8,404,652

33,205,330

43,206,628

Refer to Note 34 for the disclosure of the fair value of customer accounts. Interest rate, maturity and geographical risk concentration
analyses of customer accounts amounts are disclosed in Note 29. Information on related party balances is disclosed in Note 36.

15 Debt Securities in Issue

In thousands of RR

USD denominated bonds issued in September 2012

RR denominated bonds issued in July 2012

RR denominated bonds issued in April 2012

RR denominated bonds issued in May 2013

Euro-Commercial Paper issued in February 2014

Euro-Commercial Paper issued in July 2013

Euro-Commercial Paper issued in March 2013

RR denominated bonds issued in February 2011

USD denominated bonds issued in April 2011

Total Debt Securities in Issue

Date of
maturity

31 December
2014

18.09.2015

14,426,424

14.07.2015

2,094,954

16.04.2015

1,538,870

24.05.2016

1,131,498

26.02.2015

223,034

09.07.2014

10.01.2014

26.03.2014

18.02.2014

22.04.2014

—

31 December
2013

8,345,510

2,090,688

1,528,679

3,012,444

—

637,279

2,453,223

1,609,550

677,113

5,833,819

19,414,780

26,188,305

On 18 September 2012 the Group issued USD denominated bonds with a nominal value of USD 250 mln at 10.75% coupon rate
maturing on 18 September 2015.

On 16 July 2012 the Group issued RR denominated bonds with a nominal value of RR 2,000 mln (equivalent of USD 61.2 mln) at
13.9% coupon rate maturing on 14 July 2015.

On 19 April 2012 the Group issued RR denominated bonds with a nominal value of RR 1,500 mln (equivalent of USD 50.6 mln) at
13.25% coupon rate maturing on 16 April 2015.

On 28 May 2013 the Group issued RR denominated bonds with a nominal value of RR 3,000 mln (equivalent of USD 95.8 mln)
at 10.25% coupon rate maturing on 24 May 2016. As a result of offer event as at 25 November 2014 1,880,007 securities were
repurchased by the Group at nominal value of RR 1,880 mln. In November 2014 the Group has set the coupon rate at 14.00% of RR
denominated bonds till the next offer event on 26 May 2015.

On 27 February 2014 the Group issued USD denominated Euro-Commercial Paper (ECP) with a nominal value of USD 4 mln with a
discount of 5.5% maturing on 26 February 2015.

On 9 July 2013 the Group issued USD denominated Euro-Commercial Paper (ECP) with a nominal value of USD 20 mln with a discount
of 5.25% maturing on 9 July 2014. On 9 July 2014 it was fully redeemed at maturity.

On 9 July 2013 the Group issued USD denominated Euro-Commercial Paper (ECP) with a nominal value of USD 75 mln with a discount
of 4.5% maturing on 10 January 2014. On 10 January 2014 it was fully redeemed at maturity.

On 27 March 2013 the Group issued USD denominated Euro-Commercial Paper (ECP) with a nominal value of USD 50 mln with a
discount of 6.25% maturing on 26 March 2014. On 17 March 2014 it was fully redeemed before maturity at a nominal value.

F-29

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
15 Debt Securities in Issue continued
On 22 February 2011 the Group issued RR denominated bonds with a nominal value of RR 1,500 million at 14.0% coupon rate
maturing on 18 February 2014. On 22 of August 2012 the Group redeemed part of these bonds in according with the public offer at
nominal value. On 18 February 2014 the Group fully redeemed RR denominated bonds at maturity at a nominal value.

On 22 April 2011 the Group issued USD denominated bonds with a nominal value of USD 175 mln at 11.5% coupon rate maturing on
22 April 2014. On 21 April 2014 the Group fully redeemed USD denominated bonds at maturity in amount of USD 175 mln at nominal
value.

All bonds issued by the Group are traded on stock exchanges. Refer to Note 34 for the disclosure of the fair value of debt securities in
issue.

16 Subordinated Debt

As at 31 December 2014 the carrying value of the subordinated debt was RR 11,250,686 thousand (31 December 2013: RR
6,531,955 thousand). On 6 December 2012 and 18 February 2013 respectively the Group issued USD denominated subordinated
bonds with a nominal value of USD 125 mln with zero premium and USD 75 mln at a premium of 7.0% at 14.0% coupon rate
(applicable to both tranches) maturing on 6 June 2018. The claims of the 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.

Interest rate, maturity and geographical risk concentration analyses of subordinated debt are disclosed in Note 29. Refer to Note 34
for the disclosure of fair value of subordinated debt.

17 Other Financial and Non-financial Liabilities

In thousands of RR

Other Financial Liabilities

Settlement of operations with plastic cards

Trade payables

Insurance provisions

Other

Total Other Financial Liabilities

Other Non-financial Liabilities

Accrued administrative expenses

Taxes payable other than income tax

Other

Total Other Non-financial Liabilities

31 December
2014

31 December
2013

1,009,440

470,608

248,409

93,813

1,822,270

213,965

355,468

29,999

599,432

1,533,559

25,071

52,454

12,795

1,623,879

529,362

304,260

833,629

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 the accrued staff costs.

Interest rate, maturity and geographical risk concentration analyses of other financial liabilities are disclosed in Note 29. Refer to
Note 34 for disclosure of fair value of other financial liabilities.

F-30

TCS Group Holding PLC Annual report 201418 Share Capital

In thousands of RR except for
number of shares

Number of
authorised
shares

Number of
outstanding
shares

Ordinary
shares

Share
premium

Treasury
shares

Total

At 31 December 2012

7,619,180

6,777,173

170,799

3,253,521

(2,171)

3,422,149

Effect of decrease of
nominal value of shares

Shares issued

Initial public offering costs

182,860,320

162,652,152

—

11,759,750

15,363

5,529,190

(353)

5,544,200

—

(159,792)

—

(159,792)

At 31 December 2013

190,479,500 181,189,075

186,162

8,622,919

(2,524)

8,806,557

Shares issued

—

1,449,750

1,950

—

(1,950)

—

At 31 December 2014

190,479,500 182,638,825

188,112

8,622,919

(4,474)

8,806,557

On 22 October 2013 the nominal value of each share was changed from USD 1 to USD 0.04. The total authorised number of ordinary
shares is 190,479,500 shares (2013: 190,479,500 shares) with a par value of USD 0.04 per share (2013: USD 0.04 per share). All
issued ordinary shares are fully paid.

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) on the London Stock Exchange plc. The Offering included both primary and secondary components. The primary
component represented the issue of 10,000,000 new shares and the secondary component represented the sale of existing shares
owned by shareholders. The total offering comprised USD 1,087 million (RR 34,416 million). The primary component amounted to USD
175 million (RR 5,542 million).

In October 2013 the Group issued 12,400 ordinary shares with a par value of USD 1 per share (which is equal to 310,000 ordinary
shares with a par value of USD 0.04 per share), fully paid, to Altruco Trustees Limited under the Equity long term incentive plan (“Equity
LTIP”). Refer to Note 36.

In June 2013 the Group issued 57,990 ordinary shares with a par value of USD 1 per share (which is equal to 1,449,750 ordinary
shares with a par value of USD 0.04 per share), fully paid, to Altruco Trustees Limited under the employee share option plan (“ESOP”).

In June 2014 the Group issued 1,449,750 ordinary shares with a par value of USD 0.04 per share, fully paid, to Altruco Trustees
Limited under the ESOP. Refer to Note 36.

Treasury shares represent shares issued by the Group under the ESOP and Equity LTIP and all legally owned by a trustee. Refer to
Note 36.

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 effect of shares issued under the ESOP and Equity
LTIP. Refer to Note 36.

Earnings per share are calculated as follows:

In thousands of RR except for number of shares

Profit for the year attributable to ordinary shareholders

Weighted average number of ordinary shares in issue used for basic
earnings per ordinary share calculation (thousands)

Weighted average number of ordinary shares in issue used for diluted
earnings per ordinary share calculation (thousands)

Basic earnings per ordinary share (expressed in RR per share)

Diluted earnings per ordinary share (expressed in RR per share)

2014

3,400,613

179,025

179,991

19.00

18.89

2013

5,754,871

169,265

172,490

34.00

33.36

F-31

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
19 Interest Income and Expense

In thousands of RR

Interest income

Loans and advances to customers, including:

Credit card loans

Cash loans

Installment loans

POS loans

Interest income accrued on investment securities available for sale and repurchase
receivables

Placements with other banks

Total Interest Income

Interest expense

Customer accounts

Eurobonds

Subordinated debt

RR denominated bonds

Due to banks

Euro-Commercial Paper

Total Interest Expense

Net Interest Income

20 Customer Acquisition Expenses

In thousands of RR

Marketing and advertising

Staff costs

Credit bureaux

Telecommunication expenses

Personalisation, printing and distribution

Acquisition and partnerships

Other

Total customer acquisition expenses

2014

2013

37,226,170

707,121

558,832

236,013

319,684

14,191

34,291,665

246,089

259,211

214,178

—

26,434

39,062,011

35,037,577

4,606,577

1,329,731

1,093,672

708,101

469,819

56,126

8,264,026

30,797,985

2014

1,395,675

1,385,296

186,235

68,557

21,793

406

—

3,057,962

4,022,753

1,942,983

847,889

1,143,375

73,314

146,819

8,177,133

26,860,444

2013

1,770,685

1,429,275

181,693

61,498

212,554

8,344

19,140

3,683,189

Customer acquisition expenses represent expenses paid by the Group on services related to origination of credit card customers
(mailing of advertising materials, processing of responses, marketing and advertising etc). The Group uses a variety of different
channels for the acquisition of new customers.

Staff costs represent salary expenses and related costs of employees involved in customer acquisition. Included in staff costs are
statutory social contributions to the pension fund in the amount of RR 222,295 thousand (2013:225,640 thousand).

21 Losses less Gains from Operations with Foreign Currencies

In thousands of RR

Foreign exchange translation losses less gains

Gains less losses from derivative revaluation

Gains less losses from trading in foreign currencies

Losses less gains from operations with foreign currencies

2014

(9,636,327)

7,654,876

859,397

(1,122,054)

2013

(911,458)

321,824

223,318

(366,316)

F-32

TCS Group Holding PLC Annual report 201422 Income from insurance operations

In thousands of RR

Insurance premiums earned

Insurance agency fees

Insurance claims incurred

Total income from insurance operations

23 Fee and Commission Expense

In thousands of RR

Service fees

Payment systems

Banking and other fees

Total fee and commission expense

Service fees represent fees for statement printing, mailing services and sms services.

Payment systems fees represent fees for MasterCard and Visa services.

24 Administrative and Other Operating Expenses

2014

923,363

46,180

(210,060)

759,483

2014

524,575

446,113

20,442

991,130

In thousands of RR

Staff costs

Taxes other than income tax

Rental expenses

Communication services

Depreciation of tangible fixed assets

Amortization of intangible assets

Expenses on deposit insurance

Information services

Professional services

Stationary and office expenses

Transportation

Other administrative expenses

Note

2014

3,481,854

884,052

377,283

295,422

257,929

189,032

166,745

151,199

105,192

56,805

15,705

147,679

2013

132,615

81,722

(21,306)

193,031

2013

293,543

155,355

23,185

472,083

2013

3,360,888

772,059

350,678

425,426

263,287

121,532

120,545

102,105

207,426

87,805

18,281

107,964

Total administrative and other operating expenses

6,128,897

5,937,996

The expenses stated above include fees of RR 5,220 thousand (2013: RR 1,879 thousand) for audit services, RR 3,191 thousand
(2013: RR 127 thousand) for tax consultancy services and RR 2,846 thousand (2013: RR 6,019 thousand) for other non-audit
assurance services charged by the Company’s statutory audit firm.

Included in staff costs are statutory social contributions to the pension fund and share-based remuneration:

In thousands of RR

Statutory social contribution to the pension fund

Share-based remuneration

2014

444,459

109,460

2013

324,780

295,804

F-33

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
25 Other Operating Income

In thousands of RR

Income from marketing services

Other operating income

Gain from stabilisation operations related to IPO

Reimbursement of IPO costs

Total other operating income

2014

95,892

26,424

—

122,316

2013

40,861

18,727

170,610

128,984

359,182

In 2013 the Group incurred costs related to the IPO. All the costs were divided into the following categories: primary and secondary
(related to primary issue of shares and secondary sale of shares held by shareholders of the Group, respectively) and direct and
indirect.

Primary direct expenses were accounted within share premium (see Note 18). All other expenses were accounted within administrative
expenses (professional services line). In accordance with the conditions of the Terms of appointment of the depository dated 11
October 2013 signed by the Group, certain IPO expenses were due to be reimbursed by JPMorgan Chase Bank, N. A., which were
accrued within other operating income.

Gain from stabilisation operations related to IPO represents a share in the profit received by underwriting banks from stabilisation
operations undertaken to limit volatility in the GDR offer price in the period following the start of trading.

26 Income Taxes

Income tax expense comprises the following:

In thousands of RR

Current tax

Deferred tax

Income tax expense for the year

2014

(190,457)

(1,303,615)

(1,494,072)

2013

(1,627,810)

(137,779)

(1,765,589)

The income tax rate applicable to the majority of the Group’s income is 20% (2013: 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% (2013: 12.5%).

A reconciliation between the expected and the actual taxation charge is provided below.

In thousands of RR

Profit before tax

Theoretical tax expense at statutory rate of 20% (2013: 20%)

Tax effect of items, which are not deductible or assessable for taxation purposes:

- Non-deductible expenses

- Dividend tax

- Other

Effects of different tax rates in other countries

- Financial result of parent entity at 12.5% (2013: 12.5%)

- Utilization of parent entity tax losses brought forward not previously
recognized at 12.5% (2013: 12.5%)

Income tax expenses for the year

2014

4,894,685

(978,937)

(370,657)

(150,000)

(79)

1,110

4,491

(1,494,072)

2013

7,520,460

(1,504,092)

(338,187)

—

(21,880)

98,570

—

(1,765,589)

Differences between IFRS and taxation regulations in Russia and other countries give rise to temporary differences between
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% (2013: 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.

F-34

TCS Group Holding PLC Annual report 201426 Income Taxes continued

In thousands of RR

Tax effect of deductible and taxable
temporary differences

Loans and advances to customers

Tangible fixed assets

Intangible assets

Revaluation of investment securities available
for sale and repurchase receivables

Accrued expenses

Customer accounts

Debt securities in issue

Financial derivatives

Due to banks

Insurance provision

Tax loss carried forward

31 December
2013

Charged/(credited) to
profit or loss

Charged/(credited) to
equity

31 December
2014

169,341

(51,483)

(92,558)

—

281,166

(52,858)

6,546

(52,596)

—

(21,282)

795

(72,026)

—

(24,548)

(4,030)

(1,863)

(1,723,398)

(2,108)

(14,480)

559,325

—

56,262

—

148,059

(50,688)

(164,584)

56,262

256,618

(56,888)

4,683

(1,775,994)

(2,108)

(14,480)

559,325

Net deferred tax assets/(liabilities)

207,558

(1,303,615)

56,262

(1,039,795)

31 December
2012

(Charged)/credited
to profit or loss

(Charged)/credited
to equity

31 December
2013

339,202

(63,509)

(81,551)

135,310

(35,293)

(16,249)

67,427

345,337

(169,861)

12,026

(11,007)

145,856

(17,565)

22,795

(120,023)

(137,779)

In thousands of RR

Tax effect of deductible and taxable
temporary differences

Loans and advances to customers

Tangible fixed assets

Intangible assets

Accrued expenses

Customer accounts

Debt securities in issue

Financial derivatives

Net deferred tax assets

27 Dividends

In thousands of RR

Dividends payable at 1 January 2014

Dividends declared during the year

Dividends paid during the year

Foreign exchange loss on dividends payable

Dividends payable at 31 December 2014

Dividends per share declared during the year (in RR)

Dividends per share declared during the year (in USD)

Dividends per share paid during the year (in RR)

Dividends per share paid during the year (in USD)

All dividends are declared and paid in USD.

—

169,341

(51,483)

(92,558)

281,166

(52,858)

6,546

(52,596)

207,558

2014

—

2,866,965

(3,521,808)

654,843

—

15.70

0.303

19.28

0.303

F-35

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
28 Segment Analysis

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 Board of Directors of the Group.

Description of products and services from which each reportable segment derives its revenue

The Group is organised on the basis of 2 main business segments:

• Retail banking – representing private banking services, private customer current accounts, savings, deposits,

investment savings products, custody, credit and debit cards, consumer loans and mortgages;
Insurance operations – representing insurance services provided to individuals

•

Factors that management used to identify the reportable segments

The Group’s segments are strategic business units that focus on different services to the customers of the Group. They are managed
separately because each business unit requires different marketing strategies and represent different types of businesses.

Measurement of operating segment profit or loss, assets and liabilities

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.

Information about reportable segment profit or loss, assets and liabilities

Segment information for the reportable segments for the year ended 31 December 2014 is set out below:

In thousands of RR

Cash and cash equivalents

Mandatory cash balances with the CBRF

Loans and advances to customers

Financial derivatives

Investment securities available for sale

Repurchase receivables

Current income tax assets

Deferred income tax assets

Guarantee deposits with payment systems

Tangible fixed assets

Intangible assets

Other financial assets

Other non-financial assets

Retail
banking

10,692,202

685,51

74,579,998

8,879,972

216,535

5,366,280

1,080,050

—

2,967,132

540,702

864,181

1,890,667

648,062

Insurance
operations

896,304

—

14,038

—

646

261,126

32,581

111,798

Eliminations

Total

(888,929)

10,699,577

—

(32,581)

—

685,51

74,579,998

8,879,972

216,535

5,366,280

1,094,088

—

2,967,132

541,348

1,125,307

1,890,667

759,86

Total reportable segment assets

108,411,291

1,316,493

(921,510)

108,806,274

Due to banks

Customer accounts

Debt securities in issue

Current income tax liabilities

Deferred income tax liability

Subordinated debt

Other financial liabilities

Other non-financial liabilities

Total reportable segment liabilities

10,331,216

44,255,363

19,414,780

12,593

1,013,610

11,250,686

1,553,207

594,158

88,425,613

—

26,185

—

301,644

5,274

333,103

—

10,331,216

(888,929)

43,366,434

—

(32,581)

—

19,414,780

12,593

1,039,795

11,250,686

1,822,270

599,432

(921,510)

87,837,206

F-36

TCS Group Holding PLC Annual report 2014
28 Segment Analysis continued
Prior to 1 January 2014, the insurance business was not reviewed by CODM as a separate operating segment due to its immateriality.

The comparative segment analysis information has therefore not been restated.

In thousands of RR

2014

External revenues:

Interest income

Income from insurance operations

Gain from sale of impaired loans

Fee and commission income

Gain from sale of investment securities
available for sale

Other operating income

Total revenues

Interest expense

Provision for loan impairment

Customer acquisition expenses

Losses less gains from operations with
foreign currencies

Fee and commission expense

Administrative and other operating expenses

Segment result

Retail
banking

Insurance
operations

Eliminations

Total

39,062,011

323,113

28,159

312,145

13,815

124,316

39,863,559

(8,271,353)

(15,839,175)

7,327

713,303

(7,327)

(276,933)

—

(2,000)

39,062,011

759,483

28,159

312,145

13,815

122,316

720,630

(286,260)

40,297,929

—

7,327

—

(2,920,638)

(414,257)

276,933

(1,122,054)

(991,130)

(5,946,696)

4,772,513

—

(184,201)

122,172

—

2,000

—

(8,264,026)

(15,839,175)

(3,057,962)

(1,122,054)

(991,130)

(6,128,897)

4,894,685

Depreciation charge for 2014 included in the administrative and other operating expenses in the amount of RR 257,929 and RR 39
thousand relate to the Bank and to the Insurance Company, correspondingly. Amortisation for 2014 included in the administrative and
other operating expenses in the amount of RR 173,975 thousand and RR 15,057 thousand relate to the Bank and to the Insurance
Company, correspondingly.

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities

In thousands of RR

Total revenues for reportable segments

Intercompany transactions

Total consolidated revenues

2014

40,584,189

(286,260)

40,297,929

Total consolidated revenues comprise interest income, income from insurance operations, gain from sale of impaired loans, fee and

commission income, income from sale of investment securities available for sale and other operating income.

In thousands of RR

Total reportable segment result

Profit or loss before tax

In thousands of RR

Total reportable segment assets

Intercompany balances

Total consolidated assets

Total reportable segment liabilities

Intercompany balances

Total consolidated liabilities

2014

4,894,685

31 December
2014

109,727,784

(921,510)

108,806,274

88,758,716

(921,510)

87,837,206

F-37

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
29 Financial Risk Management
The risk management function within the Group is carried out in respect of financial risks, operational risks and legal risks by the
management of the Bank. Financial risk comprises market risk (including currency risk, interest rate risk and other price risk), credit
risk and liquidity risk. The primary objectives of the financial risk management function are to establish risk limits, and then ensure that
the exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure the proper
functioning of internal policies and procedures to minimise operational and legal risks.

Credit risk. The Group 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 Group’s lending and other
transactions with counterparties giving rise to financial assets. The Group uses a migration matrix approach for calculation of the loan
loss provisions. The Group grants retail loans to customers across all regions of Russia, therefore its credit risk is broadly diversified. The
recent economic crisis resulted in growth of credit risk. 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.

The Group’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the consolidated statement of
financial position and within contingencies and commitments (Note 31). The impact of possible netting of assets and liabilities to reduce
potential credit exposure is not significant.

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:

• Citizenship of the Russian Federation;
• Valid passport of the Russian Federation;
• Age 18 to 70 inclusive;
• Monthly income above RR 7 thousand;
• Availability of a cell-phone;
• Permanent employment;
• Absence of delinquent loans with the Bank.

For cash loans, minimum requirements are listed below:

• Cash loans are provided only to the best existing Bank customers with an active credit card account in the Bank;
• There should be no loans balance in other banks according to credit bureau information;
• Cash loan volumes range within RR 50 thousand and RR 200 thousand.

For POS loans minimum requirements are listed below:

• The requested loan amount should exceed RR 3 thousand;
• The requested loan term is from 3 to 24 months;
• The total current credit exposure to a customer does not exceed RR 200 thousand.

A credit decision process includes:

•

the first step includes validation of the application data. Credit officers check the documents
and validate contact information (addresses and telephone numbers).
the second step includes phone verification of the application information about the potential customer, his/
her employment, social and property status, etc. This step may be omitted for POS loans.
the third step includes requesting of the previous credit history of the applicant from the three largest credit
bureau in Russia – Equifax, UCB (United Credit Bureau) and NBCH (National Bureau of Credit Histories).

• based on all available information, the credit score of the applicant is calculated and a

final decision is made about the approval of the credit product.
finally, the approved loan amount, loan term and tariff plan are calculated depending on the score and declared income.

•

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 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);
b) the debtor cannot be either reached or found for the previous 4 months;
c) the debtor has no assets and there is no expectation he/she will have any in the future;
d) the debtor has died and there is no known estate or guarantor;
e) it is determined that it is not cost effective to continue collection efforts.

Management of the Group manages the credit risk on unused limits on credit cards in the following way:

a) if the credit card loan is overdue for more than 7 days, its account will be blocked till repayment;
b) if the borrower had lost his/her source of income, then borrower account will be blocked till verification of his/her new employment;
c) if borrower’s income is substantially less than at the time of loan origination then the borrower’s limit for credit might be reduced

accordingly.

F-38

TCS Group Holding PLC Annual report 201429 Financial Risk Management continued
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 installment
payment plan with not more than 36 equal monthly payments. For long term customers, who used the Bank’s services for more than
12 months and with current debt above RR 50 thousand, there is no restructuring fee.

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 impaired loans. Defaulted clients that could be subject to the court process are chosen by the Bank’s
Collection Department considering the following criteria:

a) the client’s account balance was fixed, accrual of interest stopped;
b) information about the client is considered to be up to date;
c) the client denied restructuring program;
d) term of limitation of court actions has not expired;
e) court process is economically justified;
f) other minor criteria.

Market risk. The Group 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 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 summarises the Group’s exposure to foreign currency exchange rate risk at the end of the reporting period:

At 31 December 2014

At 31 December 2013

In
housand
s of RR

Monetary
financial
assets

Monetary
financial
liabilities

Derivatives

Net
position

Monetary
financial
assets

Monetary
financial
liabilities

Derivatives

Net
position

USD

Euro

SEK

86,800,421

(49,192,192)

(15,948,808) 21,659,421

81,513,865 (46,403,533)

(15,160,967) 19,949,365

6,821,521

(34,173,757) 24,816,488

(2,535,748)

13,803,147 (29,883,952) 15,742,969

(337,836)

2,783,757

(2,819,437)

12,292

(23,388)

1,219,621

(1,263,282)

18,001

(25,660)

—

(15,738)

Total

96,405,699 (86,185,386) 8,879,972 19,100,285 96,536,633 (77,550,767)

584,265 19,570,131

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:

In housand s of RR

USD strengthening by 30% (2013: by 15%)

USD weakening by 30% (2013: by 15%)

Euro strengthening by 30% (2013: by 15%)

Euro weakening by 30% (2013: by 15%)

At 31 December 2014

At 31 December 2013

Impact on
profit or loss

(760,724)

760,724

(7,016)

7,016

Impact on
equity
(pre-tax)

(760,724)

760,724

(7,016)

7,016

Impact on
profit or loss

(50,675)

50,675

(3,849)

3,849

Impact on
equity
(pre-tax)

(50,675)

50,675

(3,849)

3,849

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.

F-39

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
29 Financial Risk Management continued
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 Group’s exposure to interest rate risks. The table presents the aggregated amounts of the Group’s
financial assets and liabilities at carrying amounts, categorised by the earlier of contractual interest repricing or maturity dates.

In thousands of RR

31 December 2014

Total financial assets

Demand and
less than
1 month

From 1 to
6 months

From 6 to
12 months

From 1 to
3 years

More than
3 years

Total

22,387,295

33,949,670

23,443,642

22,922,238

2,582,826 105,285,671

Total financial liabilities

(22,268,649)

(20,115,194)

(29,317,647)

(3,233,210)

(11,250,686)

(86,185,386)

Net interest sensitivity gap
at 31 December 2014

31 December 2013

Total financial assets

118,646 13,834,476

(5,874,005) 19,689,028

(8,667,860) 19,100,285

29,584,679

31,004,642

19,830,821

15,939,368

761,388

97,120,898

Total financial liabilities

(16,993,475)

(23,303,124)

(16,888,201)

(13,895,110)

(6,470,857)

(77,550,767)

Net interest sensitivity gap
at 31 December 2013

12,591,204

7,701,518

2,942,620

2,044,258

(5,709,469) 19,570,131

The Group has no significant risk associated with variable interest rates on credit and advances provided to customers or loans
received.

At 31 December 2014, if interest rates at that date had been 500 basis points lower (2013: 200 points lower), with all other variables
held constant, profit would have been RR 955,014 thousand (2013: RR 391,403 thousand) lower.

If interest rates had been 500 basis points higher (2013: 200 points higher), with all other variables held constant, profit would have
been RR 955,014 thousand (2013: RR 391,403 thousand) higher.

The Group monitors interest rates for its financial instruments. The table below summarises interest rates for the years 2014 and
2013 based on reports reviewed by key management personnel.

The sign “-” in the table below means that the Group does not have the respective assets or liabilities in the corresponding currency.

In % p.a.

Assets

Cash and cash equivalents

Loans and advances to
customers

Investment Securities available
for sale

Repurchase receivables

Liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

2014

2013

0.3

52.1

9.2

9.3

18.9

11.9

12.2

—

USD

EURO

0.0

—

4.3

—

7.9

11.7

14.8

0.1

—

6.8

—

0.5

56.7

—

12.5

13.0

—

USD

EURO

0.2

—

7.8

10.6

14.8

—

4.5

—

Other price risk. The Group has no exposure to equity price risk as no transactions in equity products are performed.

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 (2013: no material impact).

F-40

TCS Group Holding PLC Annual report 201429 Financial Risk Management continued
Geographical risk concentrations. The geographical concentration of the Group’s financial assets and liabilities at 31 December
2014 is set out below:

In thousands of RR

Financial assets

Cash and cash equivalents

Mandatory cash balances with the CBRF

Loans and advances to customers

Financial derivatives

Investment securities available for sale

Repurchase receivables

Guarantee deposits with payment systems

Other financial assets

Total financial assets

Financial liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

Other financial liabilities

Russia

OECD

Other
Non-OECD

7,239,616

3,459,961

685,510

74,579,998

5,244,630

216,535

5,309,915

—

788,260

—

3,635,342

—

56,365

2,967,132

1,102,407

94,064,464

11,221,207

10,331,216

41,487,846

—

4,765,322

14,649,458

—

11,250,686

979,364

842,906

Total

10,699,577

685,510

74,579,998

8,879,972

216,535

5,366,280

2,967,132

1,890,667

105,285,671

10,331,216

—

1,878,588

43,366,434

—

19,414,780

11,250,686

1,822,270

Total financial liabilities

57,563,748

26,743,050

1,878,588

86,185,386

Unused limits on credit card loans (Note 31)

38,320,923

—

38,320,923

The geographical concentration of the Group’s financial assets and liabilities at 31 December 2013 is set out below:

In thousands of RR

Financial assets

Russia

OECD

Other
Non-OECD

Total

Cash and cash equivalents

9,604,060

9,221,910

Mandatory cash balances with the CBRF

Loans and advances to customers

Financial derivatives

Guarantee deposits with payment systems

Other financial assets

Total financial assets

Financial liabilities

Customer accounts

Debt securities in issue

Subordinated debt

Other financial liabilities

931,046

73,961,647

279,687

—

474,498

—

304,578

1,657,533

685,939

85,250,938

11,869,960

—

18,825,970

931,046

73,961,647

584,265

1,657,533

1,160,437

97,120,898

41,755,186

—

1,451,442

43,206,628

7,308,891

18,879,414

—

142,195

6,531,955

1,481,684

—

26,188,305

6,531,955

1,623,879

Total financial liabilities

49,206,272

26,893,053

1,451,442

77,550,767

Unused limits on credit card loans (Note 31)

34,693,463

—

34,693,463

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.

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 2014 and 2013.

F-41

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
29 Financial Risk Management continued
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 considering 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 balance sheet 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 2014 and 2013.

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, 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. Major
assumptions used in liquidity analysis are based on long-standing statistics that shows that on average, about 55% of issued credit
cards are activated, about 89% of activated credit cards are actually used, utilisation rate for credit cards is stable at 94%. The level of
quarterly transactions is generally within 28-30% of the gross credit card portfolio while the level of quarterly repayments is generally
33-36% of the gross credit card portfolio. 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 2014 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.

In thousands of RR

Liabilities

Due to banks

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

5,411,600

2,077,737

831,699

2,283,140

—

10,604,176

Customer accounts

15,269,009

8,099,825

7,066,577

12,299,714

3,415,079

46,150,204

Debt securities in issue

104,720

981,006

2,780,440

17,003,490

— 20,869,656

Subordinated debt

Other financial liabilities

Financial derivatives

Unused limits on credit card
loans (Note 31)

Total potential future
payments for financial
obligations

—

1,822,270

5,700,492

—

787,618

15,189,768

16,765,004

—

1,822,270

91,329

150,211

3,476,567

9,849,940

19,268,539

38,320,923

—

— 38,320,923

66,629,014

11,249,897

11,616,545 35,850,529 28,454,787 153,800,772

F-42

TCS Group Holding PLC Annual report 201429 Financial Risk Management continued
The maturity analyses of financial liabilities at 31 December 2013 is as follows:

In thousands of RR

Liabilities

Customer accounts

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

13,789,074

8,132,453

7,453,813

13,820,690

2,533,600

45,729,630

Debt securities in issue

2,554,154

2,761,526

6,278,639

4,057,616

13,500,127

29,152,062

Subordinated debt

—

Other financial liabilities

1,623,892

—

457,227

9,747,378

10,661,832

—

1,623,892

Financial derivatives

2,900,638

3,111,877

154,121

305,167

13,628,667

20,100,470

Unused limits on credit card
loans (Note 31)

Total potential future
payments for financial
obligations

34,693,463

—

— 34,693,463

55,561,221 14,005,856 14,343,800 18,640,700 39,409,772 141,961,349

Financial derivatives receivable and payable are disclosed in the Note 33. The tables above present only the gross payables.

Customer accounts are classified in the above analyses 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.

F-43

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
29 Financial Risk Management continued
The expected maturity analysis of financial instruments at carrying amounts as monitored by management at 31 December 2014 is
presented in the table below.

In thousands of RR

Assets

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

Total

Cash and cash equivalents

10,699,577

—

10,699,577

Mandatory cash balances with
the CBRF

Loans and advances to
customers

Financial derivatives

Investment securities available
for sale

Repurchase receivables

Guarantee deposits with
payment systems

237,363

119,996

101,590

175,452

51,109

685,510

9,193,912

15,127,382

16,389,873

18,488,062

15,380,769

74,579,998

—

2,705,553

6,174,419

8,879,972

—

216,535

608,718

348,211

1,339,036

3,070,315

5,366,280

365,776

601,836

652,064

735,539

611,917

2,967,132

Other financial assets

1,890,667

—

1,890,667

Total financial assets

22,387,295

16,457,932

17,491,738 23,443,642 25,505,064 105,285,671

Liabilities

Due to banks

5,331,607

2,005,548

748,515

2,245,546

— 10,331,216

Customer accounts

15,015,964

7,591,138

6,426,760

11,099,362

3,233,210

43,366,434

Debt securities in issue

98,808

672,865

2,670,368

15,972,739

— 19,414,780

Subordinated debt

—

Other financial liabilities

1,822,270

—

11,250,686

—

1,822,270

Total financial liabilities

22,268,649

10,269,551

9,845,643

29,317,647 14,483,896 86,185,386

Net liquidity gap at
31 December 2014

Cumulative liquidity gap at
31 December 2014

118,646

6,188,381

7,646,095

(5,874,005) 11,021,168

19,100,285

118,646

6,307,027

13,953,122

8,079,117 19,100,285

—

F-44

TCS Group Holding PLC Annual report 201429 Financial Risk Management continued
The expected maturity analysis of financial instruments at carrying amounts as monitored by management based on the revised
approach at 31 December 2013 is as follows:

In thousands of RR

Assets

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

Total

Cash and cash equivalents

18,825,970

—

— 18,825,970

Mandatory cash balances with
the CBRF

Loans and advances to
customers

Financial derivatives

Guarantee deposits with
payment systems

276,255

160,925

159,258

284,572

50,036

931,046

9,117,684

12,873,340

16,948,147

19,117,805

15,904,671

73,961,647

—

194,651

—

389,614

584,265

204,333

288,501

379,820

428,444

356,435

1,657,533

Other financial assets

1,160,437

—

1,160,437

Total financial assets

29,584,679

13,517,417 17,487,225

19,830,821 16,700,756

97,120,898

Liabilities

Customer accounts

12,820,021

7,467,952

7,390,646

13,206,003

2,322,006

43,206,628

Debt securities in issue

2,549,575

2,546,921

5,897,605

3,621,100

11,573,104

26,188,305

Subordinated debt

—

Other financial liabilities

1,623,879

—

61,098

6,470,857

6,531,955

—

1,623,879

Total financial liabilities

16,993,475

10,014,873 13,288,251 16,888,201 20,365,967

77,550,767

Net liquidity gap at
31 December 2013

Cumulative liquidity gap at
31 December 2013

12,591,204

3,502,544

4,198,974

2,942,620

(3,665,211) 19,570,131

12,591,204

16,093,748 20,292,722 23,235,342

19,570,131

—

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.

30 Management of Capital

The Group’s objectives when managing capital are (i) for the Bank to comply with the capital requirements set by the CBRF, (ii) for the
Group to comply with the financial covenants set by the terms of RR and USD denominated securities issued; (iii) to safeguard the
Group’s ability to continue as a going concern.

The Group considers total capital under management to be equity as shown in the consolidated statement of financial position. The
amount of capital that the Group managed as of 31 December 2014 was RR 20,969,068 thousand (2013: RR 20,551,007 thousand).
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.

Under the current capital requirements set by the CBRF banks have to maintain a ratio of regulatory capital to risk weighted assets
(“statutory capital ratio”) above a prescribed minimum level of 10%.

Under the current capital requirements set by financial covenants on USD denominated securities issued, the Group has to maintain
Russian statutory capital adequacy ratio (N1) above a prescribed minimum level of 13%.

The Group also monitors capital requirements including capital adequacy levels calculated in accordance with the methodology set
by Basel Committee with capital adjustments as set out in Basel III. The amount of total capital calculated in accordance with the
methodology set by Basel Committee with capital adjustments as set out in Basel III as at 31 December 2014 was RR 27,156,707
thousand (2013: RR 25,261,805 thousand), the amount of Tier 1 capital as at 31 December 2014 was RR 19,843,761 thousand
(2013: RR 20,036,241 thousand). Total capital adequacy ratio and Tier 1 capital adequacy ratio were 21.81% and 15.94%
respectively (2013: 25.03% and 19.85% respectively). The Group and the Bank have complied with all externally imposed capital
requirements throughout 2014 and 2013.

F-45

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
31 Contingencies and Commitments

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 losses will be incurred in respect of
claims and accordingly no provision has been made in these consolidated financial statements.

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 to a large extent aligned with the international transfer pricing principles developed by the
Organisation for Economic Cooperation and Development. This legislation provides the possibility for tax authorities to make transfer
pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and
some types of transactions with unrelated parties), provided that the transaction price is not on an arm's length basis.

Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the
evolution of the interpretation of the 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. 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. In 2014, the Controlled Foreign
Company (CFC) legislation introduced Russian taxation of profits of foreign companies and noncorporate structures (including trusts)
controlled by Russian tax residents (controlling parties). Starting from 2015, CFC income will be 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 deferred taxes for temporary differences that arose from the expected taxable manner of recovery of the
relevant Group’s operations to which the CFC legislation will apply to.

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 2014 no material tax risks were identified (2013: same).

Operating lease commitments. Where the Group is the lessee, the future minimum lease payments under non-cancellable operating
leases are as follows:

In thousands of RR

Not later than 1 year

Total operating lease commitments

2014

541,735

2013

373,997

Other commitments. Other commitments include the fixed sponsorship fee under contract with the Tinkoff-Saxo Cycling Team.
The future sponsorship payments are as follows:

In thousands of RR

Not later than 1 year

Later than 1 year and not later than 5 years

Total other commitments

31 December
2014

512,570

1,025,141

1,537,711

31 December
2013

337,274

1,349,097

1,686,371

Compliance with covenants. The Group is subject to certain covenants related primarily to its debt securities in issue and
subordinated debt. Non-compliance with such covenants may result in negative consequences for the Group. Management believes
that the Group was in compliance with covenants as at 31 December 2014 and 2013.

F-46

TCS Group Holding PLC Annual report 201431 Contingencies and Commitments continued
Credit related commitments. 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 authorisations to extend credit in the form of credit card loans.
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. The 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.

Outstanding credit related commitments are as follows:

In thousands of RR

Unused limits on credit card loans

Total unused limits on credit card loans

2014

38,320,923

2013

34,693,463

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. Also the Group has a right to increase or decrease a
credit card limit at any time without prior notice. Credit related commitments are denominated in RR. Therefore, the fair value of the
contractual amount of revocable unused limits on contingencies and commitments is close to zero.

32 Transfers of Financial Assets

Transfers that did not qualify for derecognition of the financial asset in its entirety.

The Group transferred financial assets in transactions that did not qualify for derecognition in the current and prior periods.

Sale and repurchase transactions. At 31 December 2014, the Group has available for sale securities represented by Russian
government bonds of RR 267,412 thousand and corporate bonds of RR 5,098,868 thousand that are subject to obligation to
repurchase the securities for a fixed pre-determined price. Refer to Note 13 for the carrying value of obligations from this sale and
repurchase transactions.

The following schedule summarises transfers where the entity continues to recognise all of the transferred financial assets. The
analysis is provided by class of financial assets.

In thousands of Russian Roubles

Investment securities available for sale

Total

Note

31 December 2014

Carrying amount
of the assets at year end

Carrying amount of the
associated liabilities

5,366,280

5,002,399

F-47

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
33 Financial derivatives

The table below sets out fair values, at the end of the reporting period, of currencies receivable or payable under foreign exchange
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.

In thousands of RR

Foreign exchange forwards and swaps:
fair values, at the end of the reporting
period, of

2014

2013

Contracts with
positive fair value

Contracts with
negative fair value

Contracts with
positive fair value

Contracts with
negative fair value

- USD receivable on settlement (+)

24,816,488

- USD payable on settlement (-)

- RR payable on settlement (-)

- SEK receivable on settlement (+)

- SEK payable on settlement (-)

- EUR receivable on settlement (+)

Net fair value of foreign exchange
forwards and swaps

—

15,450,670

(252,755)

545,054

—

(15,936,516)

(12,292)

(14,866,405)

(294,562)

—

12,292

252,755

—

(268,493)

18,001

8,879,972

—

584,265

—

Included in financial derivatives held by the Group as at 31 December 2014 is one outstanding swap contract with positive fair value
of RR 929,788 thousand, which includes reference to the default of JSC VTB Bank, JSC Gazprom or the Russian Federation. There
are also four other outstanding swap contracts with total positive fair value of RR 7,950,184 thousand which include reference to the
default of the Bank. Where there is a reference in the swap contract to default of the entity or the country the swap contract would be
cancelled and all of the rights and obligations are terminated in the event of an actual default of this entity or the country.

Foreign exchange derivative financial instruments entered into by the Group are generally gross settled derivatives traded in an
over-the-counter market with professional market counterparties on standardised contractual terms and conditions. Derivatives
have potentially favourable (assets) or unfavourable (liabilities) conditions as a result of fluctuations in market interest rates, foreign
exchange rates or other variables relative to their terms. The aggregate fair values of derivative financial assets and liabilities can
fluctuate significantly from time to time.

34 Fair Value of Financial Instruments

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). Management applies its
judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that
require significant adjustment, that measurement is a level 3 measurement. The significance of a valuation input is assessed against
the fair value measurement in its entirety.

(a) Recurring fair value measurements

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:

In thousands of RR

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

31 December 2014

31 December 2013

ASSETS AT FAIR VALUE

Financial derivatives

Investment securities
available for sale

— 8,879,972

— 584,265

Repurchase receivables

5,366,280

216,535

—

216,535

— 5,366,280

—

Total assets recurring
fair value measurements 5,582,815 8,879,972

— 14,462,787

— 584,265

F-48

—

584,265

TCS Group Holding PLC Annual report 201434 Fair Value of Financial Instruments continued
The description of valuation techniques and the description of the inputs used in the fair value measurement for level 2 measurements
at 31 December 2014 are as follows:

In thousands of RR

ASSETS AT FAIR VALUE

Fair value Valuation technique

Inputs used

Foreign exchange swaps

8,879,972

Discounted cash flows adjusted
for embedded options and
counterparty credit risk.

Russian rouble curve. USD
Dollar Swaps Curve. CDS quotes
assessment of embedded options
and counterparty credit risk.

Foreign exchange forwards

Total recurring fair value
measurements at level 2

Application of forward market
quotes as of the date of valuation.

—

Bloomberg forward quotes.

8,879,972

There were no changes in the valuation techniques for level 2 recurring fair value measurements during the year ended 31 December
2014 (2013: none) except for the refining of the method of the counterparty’s’ credit risk applying.

Level 2 trading and hedging 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.

(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:

In thousands of RR
FINANCIAL Assets
CARRIED AT
AMORTISED COST
Cash and cash
equivalents

- Cash on hand
- Cash balances with
the CBRF (other
than mandatory
reserve deposits)
- Placements with
other banks with
original maturities
of less than three
months
Mandatory cash
balances with the
CBRF
Loans and advances to
customers
Guarantee deposits
with payment systems
Other financial assets
Settlement of operations
with plastic cards
receivable
Trade and other
receivables

Other financial assets
Total financial assets
carried at amortised
cost

31 December 2014

31 December 2013

Carrying

Level 1

Level 2

Level 3

value Level 1

Level 2

Level 3

Carrying
value

25,571

—

25,571 10,451

—

10,451

—

2,295,541

—

2,295,541

— 3,568,306

— 8,378,465

—

8,378,465

— 15,247,213

15,247,213

—

685,510

—

685,510

— 74,579,998

74,579,998

—

2,967,132

1,813,784

—

1,813,784

—

76,633

250

76,633

250

—

—
—

—

931,046

—

931,046

— 73,961,647 73,961,647

—

1,657,533

1,015,493

—

1,015,493

—

131,735

13,209

131,735

13,209

25,571 13,173,300 77,624,013 90,822,884 10,451 20,762,058 75,764,124 96,536,633

F-49

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
34 Fair Value of Financial Instruments continued

31 December 2014

31 December 2013

In thousands 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

Customer accounts

Legal entities

-Current/settlement
accounts of
corporate entities

-Term deposits of
corporate entities

Individuals

-Current/settlement
accounts of
individuals

-Term deposits of
individuals

—

10,167,498

— 10,331,216

—

196,242

1,878,589

—

196,242

1,878,589

—

145,192

—

145,192

1,451,118

— 1,451,454

— 11,056,383

— 8,404,652

—

27,797,931

— 30,235,220

— 33,697,383

— 33,205,330

Debt securities in issue

USD denominated bonds

13,912,820

4,590,139

215,094

8,079,644

—

— 14,426,424 14,629,803

—

4,765,322

7,309,342

223,034

4,701,223

— 11,250,686

7,089,690

—

— 14,179,329

— 7,308,924

— 4,700,052

— 6,531,955

RR Bonds issued on
domestic market

ECP

Subordinated debt

Other financial
liabilities

Settlement of operations
with plastic cards

Trade payables

Insurance provisions

Other financial liabilities

Total financial
liabilities carried at
amortised cost

—

1,009,440

— 1,009,440

— 470,608

470,608

— 248,409

248,409

—

93,813

—

1,533,572

— 1,533,559

— 25,071

— 52,454

— 12,795

25,071

52,454

12,795

26,797,697 52,106,083 812,830 86,185,386 33,730,058 45,231,917 90,320 77,550,767

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.

The fair value of the debt securities in issue and subordinated debt has been calculated based on quoted prices from OJSC Moscow
Exchange MICEX-RTS, Berlin Stock Exchange, Frankfurt Stock Exchange and Irish Stock Exchange, where the Group's debt securities
are listed and traded (2013: OJSC Moscow Exchange MICEX-RTS, Berlin Stock Exchange, Frankfurt Stock Exchange and Irish Stock
Exchange).

F-50

TCS Group Holding PLC Annual report 201434 Fair Value of Financial Instruments continued
Weighted average discount rates used depend on currency, maturity of the instrument and credit risk of the counterparty and were as
follows:

In % p.a.

Assets

Cash and cash equivalents

Loans and advances to customers

Investment securities available for sale

Repurchase receivables

Liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

2014

2013

0.2

52.1

9.3

9.1

18.9

18.2

18.4

27.7

0.3

56.7

—

11.1

8.7

11.8

35 Presentation of Financial Instruments by Measurement Category

For the purposes of measurement, IAS 39, Financial Instruments: Recognition and Measurement, classifies financial assets into
the following categories: (a) loans and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and
(d) financial assets at fair value through profit or loss (“FVTPL”). Financial assets at fair value through profit or loss have two
subcategories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading.

The following table provides a reconciliation of classes of financial assets with these measurement categories as of
31 December 2014:

In thousands of RR

Cash and cash equivalents

-Cash on hand

-Cash balances with the CBRF (other than
mandatory reserve deposits)

-Placements with other banks with
original maturities of less than three
months

Mandatory cash balances with the CBRF

Loans and advances to customers

Financial derivatives

Guarantee deposits with payment
systems

Investment securities available for sale

Repurchase receivables

Other financial assets

-Settlement of operations with plastic
cards receivable

-Trade and other receivables

-Other financial assets

Loans and
receivables

25,571

2,295,541

8,378,465

685,510

74,579,998

Available-for-еsale
assets

FVTPL

—

216,535

5,366,280

Total

25,571

2,295,541

8,378,465

685,510

74,579,998

8,879,972

2,967,132

216,535

5,366,280

—

1,813,784

76,633

250

—

8,879,972

2,967,132

—

1,813,784

76,633

250

—

TOTAL FINANCIAL ASSETS

90,822,884

8,879,972

5,582,815

105,285,671

F-51

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
35 Presentation of Financial Instruments by Measurement Category continued
The following table provides a reconciliation of classes of financial assets with the measurement categories as of 31 December 2013:

FVTPL

Available-for-sale
assets

In thousands of RR

Cash and cash equivalents

-Cash on hand

-Cash balances with the CBRF (other than
mandatory reserve deposits)

-Placements with other banks with
original maturities of less than three
months

Mandatory cash balances with the CBRF

Loans and advances to customers

Financial derivatives

Guarantee deposits with payment
systems

Other financial assets

-Settlement of operations with plastic
cards receivable

-Trade and other receivables

-Other financial assets

Loans and
receivables

10,451

3,568,306

15,247,213

931,046

73,961,647

—

584,265

1,657,533

1,015,493

131,735

13,209

—

Total

10,451

3,568,306

15,247,213

931,046

73,961,647

584,265

1,657,533

1,015,493

131,735

13,209

97,120,898

—

TOTAL FINANCIAL ASSETS

96,536,633

584,265

As of 31 December 2014 and 2013 all of the Group’s financial liabilities except derivatives were carried at amortised cost.

36 Related Party Transactions

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.

The outstanding balances with related parties were as follows:

In thousands of RR

ASSETS

Gross amounts of loans and advances to
customers (contractual interest rate: 24%
(2013: 24%))

Other non-financial assets

LIABILITIES

Customer accounts (contractual interest rate:
11-21% p.a. (2013: 11-15% p.a.))

Other non-financial liabilities

2014

2013

Key management
personnel

Other related
parties

Key management
personnel

Other related
parties

2,663

—

423,194

2,586

—

112,420

485,181

1,878,589

—

761,994

131,013

1,451,454

—

Other related parties in the tables above are represented by entities which are under control of the Group's ultimate controlling
party Oleg Tinkov.

F-52

TCS Group Holding PLC Annual report 201436 Related Party Transactions continued

Other non-financial assets represent a prepayment made under the sponsorship contract with the Tinkoff- Saxo Cycling Team
(“Team”), the related expense is included in customer acquisition expense. In November 2014 the Group paid a bonus fee to
the Team in amount of RR 27,939 thousand (equivalent of EUR 500 thousand) for winning Vuelta a Espana in accordance with
the sponsorship contract. The Team is owned by the Company’s ultimate controlling party. Commitments in relation to this
sponsorship agreement are disclosed in Note 31.

The interest income and interest expense items with related parties were as follows:

In thousands of RR

Interest income

Interest expense

Customer acquisition expense

Unrealised foreign exchange translation
losses less gains

2014

2013

Key management
personnel

Other related
parties

Key management
personnel

Other related
parties

910

(46,140)

—

(62,027)

(494,596)

(773,636)

1,123

(24,655)

—

(122,965)

(16,369)

(31,147)

Key management compensation is presented below:

In thousands of RR

Short-term benefits:

-Salaries

-Short-term bonuses

Long-term benefits:

- Employee share option plan

- Equity long term incentive plan

Total

2014

2013

Expense

261,654

90,532

95,976

13,484

461,646

Share based
payment

—

526,444

60,756

587,200

Expense

262,428

341,860

261,689

34,117

900,094

Share based
payment

—

430,468

47,272

477,740

Employee share option plan. In May 2011 the Group introduced a share-based payment plan (ESOP) as a long-term incentive and
retention tool for the key management of the Bank. The maximum share capital attributable to the plan was 2.98% of issued share
capital at 20 May 2011 (i.e. 2.65% of issued share capital at 31 December 2014 and 31 December 2013).

The plan vests gradually in three tranches and expenses are recognised in accordance with the graded vesting schedule. 40% vested
on 30 June 2012; 30% vested on 30 June 2013 and 30% vested on 30 June 2014. The shares do not give the employees any voting
power. The employees cannot own or exercise their shareholder rights directly, except for the dividends, if any.

Due to the change in the nominal value of shares of the Group from USD 1 to USD 0.04 (Note 18) in October 2013 the number of
shares in issue for ESOP purposes increased to 3,383 thousand from 135 thousand.

The liquidity event when vested shares could be sold by the key management is the earliest of the IPO, change of control or 1 January
2016 (unless shareholders extend this date to 30 September 2016 if change of control is seen as likely in the first half of 2016).

In October 2013 1,214 thousand of the vested shares were sold for the benefit of ESOP participants in the IPO.

In November 2013 one of ESOP participants forfeited his rights on vested and unvested shares of ESOP. On 25 September 2014
these shares were reallocated among one new and two existing participants of the plan. The number of reallocated shares comprised
756,571 and their fair value as at 25 September 2014 comprised RR 134,946 thousand.

On 27 October 2014 the amendments to the ESOP were signed. According to them the shares of the plan may be sold by participants
in three tranches of approximately 33% each between 25 October 2014 and 30 November 2014; between 1 June 2015 and 30
November 2015 and between 1 June 2016 and 30 November 2016, respectively. These amendments resulted in accelerated
recognition of the expenses.

F-53

TCS Group Holding PLC Annual report 2014STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSNotes to the Consolidated Financial
Statements continued
31 December 2014
36 Related Party Transactions continued
Equity long term incentive plan. In 2011 the Group also introduced a long term incentive plan (Equity LTIP) for the management
of the Bank. The senior and middle management, not participating in the ESOP, was entitled to cash payment calculated under their
individual packages defined as a percentage of shares in 2011. The liquidity event was the earliest of the IPO or change of control.

In July 2013, management of the Bank and the shareholders agreed to settle the existing cash-settled share-based compensation plan
for USD 1 and to introduce a new equity-settled share-based compensation plan. Except for the manner of settlement and maturity
of the plan which is expected to continue for at least five years from July 2013, other financial terms and conditions of the new
arrangement remained unchanged, including the amount of instruments granted. At the date of modification the full carrying amount
of the liability was transferred to equity as this represents settlement provided by the employees for the equity instruments granted to
them.

In October 2013 310 thousand of the shares were vested in Altruco Trustees Limited as trustee of Equity LTIP and sold for the benefit
of plan participants in the IPO.

In 2014 the total remuneration of Directors listed in the Report of the Board of Directors (included in key management personnel
compensation above) amounted to RR 77,542 thousand (2013: RR 127,583 thousand).

37 Events after the End of the Reporting Period

On 16 January 2015 the sole shareholder of the Bank made a decision to change the name of TCS Bank to Joint Stock Company
“Tinkoff Bank”.

In January 2015 Tinkoff Online Insurance was renamed as Joint Stock Company “Tinkoff Insurance”.

On 26 February 2015 the Group redeemed Euro-Commercial Paper at maturity at amount of USD 4,000 thousand (equivalent of RR
254,033 thousand) at nominal value.

F-54

TCS Group Holding PLC Annual report 2014Glossary

Average cost of funding

Average interest rate on loans

Capital adequacy ratio

CBRF

Charge-off rate

Charge-offs

Class A share

Class B share

Cost of risk

Cost to income ratio

n/a

CAR

CBRF

n/a

C/I

Interest expense / Average IEL

Core revenue on loans / Average net loan portfolio

Capital/RWA

Central Bank of the Russian Federation

Loan charge-off / Average gross loans

Loans written off the balance

One share in TCSGH PLC having one vote

One share in TCSGH PLC having ten votes

Loan loss provision / Average gross loans

Operating and acquisition expense / Core revenue

Cost to income ratio (excl. acquisition costs)

n/a

Operating expense / Core revenue

Corporate social responsibility

Days past due

Global depositary receipt

Gross portfolio yield

CSR

dpd

GDR

n/a

One TCS Group Holding PLC GDR represents an interest in
one class A share

Core revenue on loans /Average gross loan portfolio

International financial reporting standards

IFRS

n/a

Interest-earning assets

Interest-earning liabilities

IEA

IEL

Gross loans + interbank loans and accounts + securities +
interest earning cash equivalents

Deposits + interbank + debt securities + subordinated loans
+ syndicated loan

KASKO

Voluntary car insurance programme

Key performance indicators

Loan loss provision

Net charge-offs

Net interest margin

Non-performing loans

NPV

KPI

LLP

n/a

NIM

NPLs

NPV

Compalsory car insurance programme

OSAGO

Russian accounting standards

Return on average assets

Return on average equity

Return on equity

RAS

ROAA

ROAE

ROE

n/a

Allowance for bad loans

Russian statutory capital adequacy ratio

Loan charge-offs less recoveries

Net interest income / Average 1 EA

Loans 90+ days overdue

Net present value

n/a

Net income / Average assets

Net income / Average equity

n/a

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

G-1

TCS Group Holding PLC Annual report 2014Investors’ information

Detailed below are contacts and various addresses
investors may find useful.
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 website at
www.tcsbank.ru/eng.

TCS Group Holding PLC
(registered number HE107963)

Telephone: +357 2572 2727
Fax: +357 2572 2728

Registered office address: 4 Profiti Ilia Kanika, International
Business Centre, 6th Floor, 4046 Germasogeia, Limassol,
Cyprus.

Enquiries from investors, shareholders, security
analysts and investment professionals:

Larisa Chernysheva, Investor Relations
Email: ir@tcsbank.ru

Media enquiries:
Darya Ermolina, Head of PR
Email: media@tcsbank.ru

Company Secretary
Altruco Secretarial Limited
At the registered office of the Company shown above

Depositary
JPMorgan Chase Bank N.A.
P.O. Box 64504
St. Paul, MN 55164-0854, US
jpmorgan.adr@wellsfargo.com

General (800) 990-1135
From outside the US +1 (651) 453-2128

Custodian
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

Auditors
PricewaterhouseCoopers Limited
City House, 6 Karaiskakis Street
CY-3032 Limassol
Cyprus

G-2

TCS Group Holding PLC Annual report 2014Creating Value
in Challenging
Times