Tinkoff Annual Report 2016

FY2016 Annual Report · Tinkoff

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TCS Group Holding PLC
Annual Report 2016

Contents

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

STRATEGIC REVIEW

DIRECTORS’ REVIEW

About us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02

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

2016 highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04

Corporate governance and Chairman's statement . . . . . . . . . . . . 36

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

Management team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Founder’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07

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

FINANCIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

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

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

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

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

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

INVESTOR INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .G-2

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

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

Chief Financial Officer's financial review . . . . . . . . . . . . . . . . . . . . . . 23

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

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

THE

LARGEST

INDEPENDENT GLOBAL
DIRECT BANK

* According to a report by Frost & Sullivan (October, 2016), an international consulting firm. Frost & Sullivan analysed online
and direct banks across the globe and compiled a comprehensive study and global ranking by number of customers. Tinkoff,
as an unaffiliated and totally branchless bank, came out on top of this ranking in terms of number of customers.

TCS Group (or the 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.

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 2016 included in this document. A detailed description of
the presentation of financial and other information is set out
after page 45 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.

Day-to-Day
Banking

Debit Cards

Full Cycle
Brokerage
Platform

SME

...

Point-of-Sale
online lending

Internet
Acquiring

Cash Loans

Mortgages

Retail
Securities
Trading

Mobile and
Internet banking

Personal
manager

Deposits

Insurance

Pre-Paid Cards

Travel

Car Loans

Quick
payments

Built-in CRM

Credit Cards
• Tinkoff Platinum
• ALL Airlines
• All Games

Co-branded
cards
• OneTwoTrip
• Google Play
• WWF
• Planetacard
• Ulmart

Mobile Applications
• Gibdd traffic fines
• Card-to-card
• MoneyTalk mobile

messenger

• Tinkoff mobile bank

debit
cards

1.8mn

credit
cards

6.9mn

The ecosystem built around customer needs
through a unique online, branchless platform

Payroll projects

Built-in
accounting

POS-and
e-acquiring

Built-in
government
relations

Marketplace
banking and
non-banking
services

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW04

2016Proven track record of driving sustainable growth

Highlights

Profitability

Growth

• Gross loans up 19% to RUB120.4bn since YE2015

• More than one million new active customers acquired
in 2016 and over 1.3mn new credit cards issued

• SME business developing rapidly, over
50,000 SME customers acquired

• Customer accounts up at RUB124.6bn

Credit quality

• Ongoing focus on credit quality

• FY2016 net income, a Group record at RUB11bn,
with 4 consecutive quarters of record net income

• ROAE of 42.5% for FY2016

• Growing contribution from non-credit-

card business income streams

Key events

• Launched a network of software development
hubs countrywide, the first in St Petersburg

• NPLs (90d+) dropped to 10.2% at YE2016

• Joined the Russian blockchain consortium

• Loan loss provision coverage stayed at 1.4x at YE2016

•

Introduced a face recognition system for scoring

Liquidity and capitalisation

• Total assets up by 25.6% over 2016 at RUB175.4bn,
with cash and treasury portfolio up at RUB49.5bn

• Total equity up by 28.6% to RUB29.5bn at YE2016

• 31 December 2016 CBRF N1 statutory capital

ratio of 11.1% and Tier 1 up at 14.8%

• Treasury portfolio of RUB33.3bn of
highly liquid CBRF repoable bonds

• Launched a new management long term incentive plan

• Launched Tinkoff Investments, now accounting

for around 25% of all new accounts
opened on the Moscow Exchange

• One of the first launching Apple Pay

and Samsung Pay in Russia

• Credit rating agency upgrades

Credit cards
issued in 2016

1.3 mn

Total
assets

>175

RUBbn

Customer
accounts

125

RUBbn

Net
profit

11.0

RUBbn

ROAE
for 2016

Strong N1.0 capital ratio
at the end of 2016 of

42.5

11.1

Our history

Highlights of TCS Group’s innovative development

2016

• Launched a network of software development hubs

countrywide, the first in St Petersburg
• Joined the Russian blockchain consortium
•
• Launched a new management long term incentive plan
• One of the first launching Apple Pay and Samsung Pay in Russia

Introduced a face recognition system for scoring

Net loan portfolio
growth (RUBmn)

102,912

'15

• Acquired parts of Svyaznoy Bank’s credit card portfolios
• Became Russia’s second largest credit card provider
• Launched a range of new business lines, transitioning

to online financial marketplace Tinkoff.ru
Issued new co-branded cards

•

'14

'13

'12

'11

'10

'09

'08

'07

• New brand - Tinkoff Bank
• Launch of a series of co-branded cards
• Launch of a number of mono mobile applications

• TCS Group IPO on the London Stock Exchange Main Market
• Launch of Tinkoff Insurance
• Launch of cash loans

• Minority stakes sold to Baring Vostok and Horizon
• Launch of online POS loan programme

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

• Launch of online acquisition channel for credit cards
• Launch of “smart courier” service

• Launch of the retail deposit programme
• First debit card issued

• Minority stakes sold to Goldman Sachs and Vostok Nafta
• Launch of internet bank

• First credit card issued

'06 Tinkoff Credit Systems Bank was created by Oleg Tinkov

82,067

74,580

73,962

47,784

21,359

9,643

5,254

4,117

1,593

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWIt was good to see
2016 produce
record results for
the Group; not
just the full year
but every single
quarter produced
a Tinkoff-high
net income result.
So a stunning
conclusion to our
first decade (which
we celebrated with
Russian brio), and
a great launch-pad
for our second
decade

Oleg Tinkov
Founder and Controlling Shareholder

Founder’s statement

Dear Stakeholders,

It is my privilege to be writing to you to
share with you my take on the year just
gone, a year in which after navigating the
crisis we continued rolling out Tinkoff.ru,
our online financial supermarket. I wrote
a year ago that I felt it would be a huge
success, that the timing felt instinctively
right. It was good to see 2016 produce
record results for the Group; not just
the full year but every single quarter
produced a Tinkoff-high net income
result. So a stunning conclusion to our
first decade (which we celebrated with
Russian brio), and a great launch-pad
for our second decade; and it is to that I
would like to turn next.

Last year, then, in my statement I
predicted a promising future for our
online financial supermarket, explaining
how it helps us exploit current market
conditions but more importantly tap
into longer-term trends in retail financial
services, Fintech and especially mobile.
In October 2016 I was pleased to
participate along with management in a
multi-venue ‘Strategy Day’, engaging with
many of our international stakeholders.
In a variety of formats, we developed
these themes, setting out where we
thought the Group could reach by
YE2019.

I believe passionately there are huge
opportunities in retail finance in Russia,
for us especially. Upheavals in the
Russian economic environment, the
fallout from the crisis, the interventions
of the regulator and the impact of new
technology are the catalysts of great
change and these changes present us
with a huge market opportunity to:

• diversify and smoothe the cyclicality
of our core credit card business;

• add new sources of non-

credit revenue;

• create a ‘financial ecosystem’

which captures an ever increasing
share of customers’ wallets.

Net income RUBmn

ROAE%

n/a

8.6

42.5

11,0

5,8

3,8

3,4

1,9

0.6

2,0

0.3

-0.01

-1,1

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

business lines as part of Tinkoff.ru
exceeded expectations with increasingly
positive contributions from all lines. My
conclusion: no longer can we sensibly be
viewed as a single product bank.

So how do we achieve this? Naturally,
we leverage Tinkoff’s core capabilities-
product design, offline fulfilment, online
marketing, user interface, analytics and
data, funnel (debt) management and
customer service. Of course we have built
and update our online platform around
ever-evolving customer needs. But the
final, vital component I want to mention is
talent management.

We recruit through advertisements
and job websites, through student
forums, and social media. We headhunt,
we target top IT graduates, winners
of mathematics, physics and coding
competitions, we scour all manner of
online channels, unconventional media
too. But the point I want to make here is
that melding these talented individuals
into a team, the Tinkoff team and part of
the unique Tinkoff culture, and retaining,
incentivising and motivating them is not
by chance. My management team I view
as my partners and I want them to share
in the Group’s success. From the launch
of Tinkoff Credit Systems over ten years
ago I have been a supporter of share
based compensation and well placed to
introduce it.

The investments made into the
Tinkoff.ru brand and associated new
business lines were made cautiously,
and in any case minor compared to
our total cost base, but have been
transformational. We already have
good visibility on many of these new
business lines; the growth of non-credit

The Group set up way back two long-
term employee incentive plans; and
leading up to our IPO (October 2013)
some 36 top managers participated
in a share based pool of 2.71% (with
a further portion unawarded) of the
Group’s share capital. Following the
IPO, the Group’s success, and growth

story, continued. We consolidated the
existing plans and expanded them to
embrace a wider band of management.
We launched their successor MLTIP
(Management Long Term Incentive Plan)
in March 2016 which at that time had
51 senior management participating
in a pool of 4.1% of share capital. With
the continuing dynamic growth of the
Group and the remarkable continuity
and cohesion of the management team
over this period confirming the merits
of share ownership plans generally and
of MLTIP as an incentive and retention
(and increasingly a recruitment) tool, we
recently announced plans to increase
the number of MLTIP participants to 69
in 2017 and to over 80 going into 2018,
and to increase the size of the MLTIP pool
to 5.6%.

Equity RUBmn

29,5

22,9

20,5

20,9

2 0 0 7–2 0 1 6 CA GR: 5 3.0 %

9,1

3,8

0.8

0.5

1,1

1,3

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

So without downplaying the contributions
of many, many others in this and
previous years, I would like to end by
expressing my particular thanks to the
core management team of Tinkoff Group
who have joined me, many from the very
beginning of this remarkable story. I
applaud their professionalism, dedication,
loyalty, creativity and skill.

Oleg Tinkov
Founder and Controlling Shareholder

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW
08

Business model

Operating
flexibility

TCS Group has built an advanced
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

TCS Group employs a highly scientific,
data-driven and conservative risk
management approach, which
underpins the success of the business
model. All aspects of the client life
cycle – from acquisition to services and
collections – are carefully monitored
and evaluated. We make loan approval
decisions based on a range of available
information, including credit bureau
data, a rigorous application verification
process and proprietary scoring
models.

Diversified provider
of retail financial,
insurance and
quasi-financial
services

Originally the first purpose built
credit card focused lender in Russia,
Tinkoff Bank has evolved into a focused
online financial supermarket living in
the cloud, providing a full range of its
own retail financial services such as
retail lending, transactional, savings
products, insurance, SME, internet
acquiring, mobile solutions as well
as non-Tinkoff products through the
full-cycle brokerage model where we
started with mortgages and retail
securities and have more to come
soon. Tinkoff Bank continues to focus
on the mass market segment, but
also successfully works with the mass
affluent segment offering a wide
range of co-branded and premium
credit cards.

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. TCS Group’s
funding strategy provides effective
diversification in the sources and tenor
of funding. The Group maintains strong
relationships with market participants
to promote effective diversification of
funding sources.

Powerful
distribution

Premium-level
service and brand

TCS Group is unusual among Russian
retail financial services providers
in offering a premium-level service
to mass market and mass affluent
customers. Our customers enjoy
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 centre service
platforms.

TCS Group is evolving rapidly into a unique online financial
supermarket and will continue to expand the range of products
and improve the quality of its customer service.

Tinkoff Bank is an online financial supermarket offering customers the full range of
financial, insurance and quasi-financial services. Through the platform www.tinkoff.ru we
offer Tinkoff-branded products – credit cards, current accounts, deposits, cash loans,
insurance and mobile solutions, as well as non-Tinkoff products through our full-cycle
brokerage model starting with mortgages, retail securities trading, non-Tinkoff insurance
and other products coming soon. For small businesses, we offer current accounts,
transactional services, salary projects and online merchant acquiring. We deliver premium
services to mass market customers in Russia through a unique online, branchless platform.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

Market context

Market position

Credit card lending

In 2016 the operating environment in Russia significantly
improved and the consumer lending market continues its
recovery, supported by stronger oil prices, a rebounding
Rouble and continued consumer deleveraging as the
macroeconomic environment further improved and by
the ongoing clean-up of the market. At the same time, the
unsecured consumer lending market remained largely flat,
with some loan categories still shrinking. The competitive
environment has been and still remains slow with many lenders
struggling to find the right distribution model and customer
value proposition in a market that has changed radically over
the last three years.

At the same time despite the fact that credit card market
volumes hit a three-year low (RUB999bn based on CBRF 101
form) in 2016, just a few participants managed to further grow
their loan books and even increase their market share by the
year end and Tinkoff Bank is one of them. Together with the
CBRF’s increasing efforts to regulate the market, expectations
are this sector should revive strongly as in Russia it is still
underdeveloped and underpenetrated relative to the most
developed economies as well as certain high growth emerging
economies.

Credit card market in Russia (RUBbn)

Market dynamics in 2016 (RUBbn)

1032

-4

-12

-1

-17

999

21.4

16.8

59.1

20.8

-92.9

-33.8

In 2016 the credit card
lending sector in
Russia contracted by

3.3%

Source: CBRF

A leading credit card
lender in Russia

Tinkoff Black
debit card is flying

Average
NPS

Sector

In 2016 Tinkoff Bank
managed to further improve
its position on the market
and cemented its position
as the number 2 credit card
player in Russia with its share
of the Russian credit card
market at 10.3% (the second
largest non-delinquent credit
card loan portfolio in Russia),
thanks to tighter risk controls
implemented in good time.

Tinkoff Bank credit card
market share (%) (as of
YE2016)

10.3

8.3

7.2

7.5

6.7

5.8

4.2

2.5

In 2016 we brought our current accounts product to a
new level of customer servicing and satisfaction with a Net
Promoter Score (NPS) approaching 60, which is much higher
than smartphones which came next with a NPS of 40. As a
result the current accounts portfolio doubled in 2016 and
allowed us to attract very different customer base from our
traditional typical credit card customer. These customers
spend more money and use internet, mobile bank and other
services more frequently. They are the key target audience
for the Tinkoff.ru platform.

Tinkoff Black: retail portfolio growing by 70-80% a year

-3

Tinkoff Black

Smartphones

Auto Insurance

OnlineShopping

Laptop

Banking

Credit Cards

Supermarkets

Hotels

Online Games

Airlines

Travelwebsites

Pharmacies

Cellular Phone
Service

Software & Apps

Cable/SatelliteTV
Service

Internet Service

2015

2016

Sberbank

Tinkoff
Bank

Other
banks

Total
growth

Contraction
Total

Market

2009

2010

2011

2012

2013

2014

2015

4Q'12

1Q'13

2Q'13

3Q'13

4Q'13

1Q'14

2Q'14

3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 4Q'16 1Q'17

Based on CBRF 101 form

Debit cards

Saving accounts

The Credit Environment: Consumer Deleveraging

A leader in the internet and mobile financial solutions in Russia

Slowdown of Retail NPL formation since
the middle of 2015*

Retail (90d+) average
Trend retail (90d+)

Retail (90d+)

* The NPL origination ratio is calculated as increase
in loan loss reserves + loans written off over 12
previous months / average net loan book over this
period of time. Source: Central Bank of Russia

20%

15%

10%

Dec-12

Mar-12

Jun-13

Sep-13 Dec-13

Mar-14

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

Households’ leverage decline driven by
contraction of individual loans since YE2015**

Household debt/annual income
Trend Household debt/annual income
Individual loans’ real growth, yoy (right axis)

** Source: Moody’s estimates, Rosstat,

Central Bank of Russia

29%

27%

25%

23%

21%

19%

17%

15%
Dec-12

40%

30%

20%

10%

-10%

-20%

-30%

Mar-12

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

Tinkoff Bank is a widely-acknowledged leading provider of
internet and mobile financial solutions for customers and
continues to enhance and streamline its online platform.
In 2016 Tinkoff Mobile Bank became a part of Tinkoff.ru
platform with its full scope of services now available not only
for existing customers but also for non-Tinkoff clients by way
of easy authorization through their mobile phone number
or even without it where the level of identification is directly
linked to the scope of services the client may access at each
stage.

2mn

6.5mn

downloads of Tinkoff
mobile applications
since inception

2mn

800k

2 million downloads of Tinkoff Mobile Bank since inception/
More than 800,000 active users of Tinkoff Mobile Bank per month

In 2016 Tinkoff Bank launched Apple Pay and Samsung
Pay fully integrated into the Tinkoff mobile banking App – a
touch free wireless payment solution for mobile devices. In
December 2016 the mobile bank for Windows 10 was fully
upgraded and became the very first banking application on
that platform in Russia available at one time on smartphones,
tablet computers and desktops (UWP-application). In 2016
we added one more mobile application to our apps-box
called Going Abroad («За Границу») which helps customers
to keep track of and settle their tax debts, and also acquired
In-The-Pocket («ВКармане») application aimed at storage of
documents, cards, etc.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

Strategy

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

05. 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
its transactional and payment products such as current
accounts, SME solutions, online acquiring, and mobile
mono-applications. We intend to support the growth of
these products that constitute an important channel for
acquiring new customers and for cross-selling other products,
particularly credit cards. These transactional and payment
products are also being offered to existing customers of
Tinkoff Bank, helping to boost retention rates.

01. Sell or cross-sell other new financial,

By developing and cross-selling
new products to existing customers,

insurance and
quasi-financial products

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 accessed online from anywhere in Russia. The new
online insurance products are delivered to the Group’s
traditionally high customer service standards.

Tinkoff Insurance is currently offering personal accident
insurance, property, travel and car insurance - KASKO and
OSAGO. Tinkoff Insurance is rated as “A” (a high rate of
reliability) by Expert-RA rating agency.

in customer service

02. Maintain leadership

High-quality customer service has been
a key driver of Tinkoff Bank’s rapid
growth. Tinkoff Bank invests to maintain
and improve key components, such as our simple application
processes, convenient and 24/7 access to accounts, the
reach of our “smart courier” service, free loan repayments
and straightforward complaints resolution process. Through
the launch of a new financial supermarket portal Tinkoff Bank
is now able to serve not only its existing customers but also
non-clients when they are allowed to make transactions
without full identification within the legislatively approved
limit of 15,000 Roubles. This is a strategic step for
Tinkoff Bank to increase its exposure throughout the financial
market.

advanced IT systems

03. Support business expansion using

Tinkoff Bank operates a low-cost,
branchless model and seeks to
outsource wherever feasible while
retaining core functions in-house. This complementary
outsourcing strategy allows us to retain focus on and develop
core competencies to economise on capital expenditures, to
manage workflow and to maintain a flexible cost base with
low fixed expenses.

The Group’s in-house IT team develops a significant part of
the software used by Tinkoff 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 2016 Tinkoff Bank
announced its IT expertise expansion through a number of IT
development centers in big cities across Russia. The hubs will
help to source software developers locally across the whole
country, rapidly build up capacities to match our growing
ambitions, leverage time zones to intensify production cycle,
and reduce time to market for new products. The hub’s staff
will focus both on products for Tinkoff.ru, and on R&D beyond
the Group’s core business.

funding base

04. High liquidity and well-balanced

The Group 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
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.

Tinkoff E-commerce products

Since the end of 2013 Tinkoff has focused on the high growth
e-commerce market. Our existing electronic online and mobile
platforms together with attractive growth opportunities in this
sector give us significant advantages on the market. Since
December 2013 TCS Group has released a number of mobile
mono applications (traffic fines payments, card-to-card
transfers, MoneyTalk, GoAbroad, Tinkoff SME) (and there are
plans for more to follow) and established a network of partners
available to provide loans to internet shoppers.

A wide range of insurance products, including car insurance,
is also available online for customers. We have launched
upgrades to our internet and mobile bank with additional
features in 2016 and these initiatives have already been
recognised and received awards from international leaders in
this sector.

06. Effectively manage credit risk using

As a data-driven organisation, the
Group uses a wide range of databases

sophisticated data analysis and
modelling

in its loan approval processes and portfolio management
and is constantly in search of new sources of relevant
data. We take loan approval decisions based on a range
of available information, including credit bureau data and
scores, proprietary scoring models, a proprietary application
verification process and sophisticated NPV models.

The Group will continue to develop credit risk management
capabilities and to use increasingly more sophisticated
data analysis and modelling to achieve this goal. Credit
risk management remains one of the core strengths of
Tinkoff and will remain critical to sustaining its competitive
advantage in the future.

Tinkoff’s operations

07. Further improve cost-efficiency of

The group intends to further increase
the cost-efficiency of its operations by
placing an even greater emphasis on
its Internet banking, mobile banking and Home Call Centre
operations and constantly seeking new ways to achieve
further reductions in operating and customer acquisition
costs.

08. Develop the high-growth concept of

the financial supermarket, a platform
offering a choice of the consumer
lending, insurance and transactional
and payment services of Tinkoff Bank
as well as non-Tinkoff branded
products

Credit card lending will remain Tinkoff Bank’s core business.
We intend to continue to extend the range of our 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
co-brand and payroll programmes, insurance, and mono
applications. Tinkoff Bank will also continue to develop
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.

In addition, Tinkoff Bank introduced a new concept of the
financial space where it will act as a full-cycle broker offering
a variety of partners’ products in addition to its own branded
products. This will increase convenience for both existing and
new customers by providing them with a one-stop financial
shop, help in the retention of the customer base and increase
Tinkoff Bank’s revenue per customer.

Brokerage Platform

• New product introduced in 2016
• Represents Tinkoff Bank’s investment into
the rapid growth of Russian e-commerce

• Allows customers to purchase Tinkoff partner products

offered through the high-tech and well-known
Tinkoff.ru platform at the push of a button
• Full-cycle “door-to-door” service provided

by the Tinkoff smart courier team

Products launched through the Brokerage Platform

• Mortgages
• Retail securities trading
• Travel

…and other products coming soon

• Non-Tinkoff insurance
• Car loans
• Cash loans

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

What makes us different?

Tinkoff Bank is the Online Financial Supermarket in the Cloud
providing high-utility day-to-day retail financial services
in Russia.

5213 2400 0000 0123

Point of destination for daily banking

Tinkoff Bank is a top-2 credit card lender in Russia. In addition to our market-
leading credit card offering, Tinkoff Bank has developed a successful online retail
deposits programme, retail and car and other 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 partners’ products and services through its full-cycle
brokerage platform so now we offer to Russian consumers mortgage programmes,
retail securities trading, and expected soon travel services, car loans and more.

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 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
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.

And we rolled out in December 2016 a face recognition platform, VisionLabs LUNA,
to score potential clients. The VisionLabs LUNA face recognition system detects
the face on an image and generates its digital template – to be used primarily for
client verification.

Over 6.9mn credit cards
issued since inception

>6.9mn

Over RUB176bn of customer
credit card transactions
in 2016

>RUB176bn

#2 player in the Russian
credit card market with
10.3% market share1

10.3%

As of 31 December 2016 based
on CBRF data.

Received over 1,000,000
applications per month on
average during 2016

>1.0mn

Over 2mn inbound calls /
approximately 10mn outbound
calls per month on average

10.0mn

Most Efficient Retail
Internet Bank 2016
and Best Mobile
Bank App1

1 According to Markswebb Rand & Report.

TCS GROUP HOLDING PLC | ANNUAL REPORT 201616

What makes us different?

TCS group is transforming the Russian financial services market
and driving a differentiated customer proposition operating
through wholly-owned Tinkoff Bank and Tinkoff Insurance.

5213 2400 0000 0123

Powerful distribution

5213 2400 0000 0123

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 transformed the way customers are acquired in Russia. Distribution
channels, which include online (the Internet, mobile services and telesales), direct mail and
direct sales agents, allow Tinkoff Bank to attract new customers anywhere in the country.
Supporting the branchless platform is a “smart courier” network covering around 1,000
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
clear advantages over competitors in terms of underwriting.

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 sustainable growth and good
returns even in a market downturn. The strong trend to adoption of online and
mobile consumer technology in Russia, together with the low penetration and
growth potential in the country’s retail financial services, represent a tremendous
opportunity for Tinkoff Bank to continue its success.

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

Almost 1,500 smart couriers
and sales agents covering
around 1,000 cities and towns

1,500

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

50% net loan portfolio
CAGR in 2007–2016

50%

ROAE 2016

42.5%

Almost 39x increase in equity
since 2007

39x

TCS GROUP HOLDING PLC | ANNUAL REPORT 20162016 is the best
year that Tinkoff
has ever had,
without doubt:
and there have
been many, many
highlights in the
ten years since
Tinkoff issued its
first credit card in
2007

Oliver Hughes
Chief Executive Officer

Chief Executive's
strategic review

Dear Investor,

Last Spring, though it does not seem
so long ago, I wrote in my strategic
review that in the second half of 2015
we moved back to ‘business as usual’ in
an improving operating environment,
more stable business conditions in
Russia, allowing us to look forward with
greater confidence. Except of course
as readers of this my fourth strategic
review may appreciate, business as
usual covers a broad spectrum when
looking at Tinkoff’s activities in the
Russian banking market. Every year
brings its fair share of challenges, of
the unexpected, and 2017 is unlikely to
be different, a point I will return to later.

The cautiously optimistic steps we
initiated back then, a long term TV
advertising campaign designed to
promote existing and new products, to
establish Tinkoff.ru as a brand and as a
destination site, stepping up our hiring
programme bringing in new skills and
experience at all levels, taking on new
premises for our HQ to list just a few,
were exactly the steps to catapult us to
new levels.

2016 is the best year that Tinkoff has
ever had, without doubt: and there
have been many, many highlights in the
ten years since Tinkoff issued its first
credit card in 2007.

We won the prestigious 'Bank of the
year' award from Banki.ru for 2016
and our credit ratings were recently
upgraded by Fitch and Moody's.

So to set the scene, I would like at this
point to develop my characterization
of 2016 for you and to do this I have
five main themes which I will expand on
in turn.

These are:

1. Credit fundamentals,

2. Growth machine,

3. Payments business,

4. Brand awareness, and

5. Diversification of business lines.

These five main ‘big picture’ themes
are the major drivers of our remarkable
financial results in 2016 and I feel
confident they will propel us on into
2017 and beyond.

1. Credit fundamentals:

2016 saw overall macro-stabilisation
and the medium-term effects of
the 2014-2015 crisis washed out
of Tinkoff's credit card and deposit
portfolios. On the asset quality side,
our cost-of-risk decreased dramatically
from 15.3% in 2015 to 7.6% in 2016.
And on the funding side, our cost-of-
funding decreased from 13.4% in 2015
to 10.7% in 2016. As a result ROAE
was 42.5% for the year. The overall
economic situation in Russia continues
to improve, if gradually, and we are
operating in a market that is much less
competitive than before the crisis.

2. Growth machine:

The unsecured consumer lending
market in Russia is largely flat, with
some loan categories still shrinking in
2016 and into 2017. The competitive
environment has been and still remains
slow with many retail banks struggling
to find the right distribution model and
customer value proposition in a market

By the end of 2016
Tinkoff Bank had issued
over 6.9mn credit cards

6.9mn

ROAE is 42.5% and
total equity climbed to
RUB29.5bn

42.5%

that has changed radically over the last
three years.

Tinkoff by contrast has brand, capital,
funding, talent and a business model
that works. We took a conscious
decision in 2014/15 to retain our
growth machine intact, to be prepared
for the next growth phase whenever it
might come. We were therefore able to
resume strong growth, starting from
Autumn 2015. We grew our net loan
book by 25.4% in 2016, bringing in a
million new, good quality customers
and driving top-line growth. Our market
share at the end of 2016 stood at
10.3% of total non-delinquent credit
card receivables in Russia.

3. Payments business:

As those who have been following the
Tinkoff story will be aware, we have
been trying to make a foray into the
payments and transaction business for
a few years and have experimented with
several approaches. This area of our
business is now coming together and we
have become one of the major players
in payments through our current
account product 'Tinkoff Black'. We now
have over 1.8mn debit cards issued and
2016 saw a staggering 100% growth
in our transaction volumes. We are now
Number Two after Sberbank in terms
of all e-com transactions in Russia
and in the top handful of Mastercard
players by purchase volume. We lead
the way in new tech payment services
such as ApplePay and SamsungPay. We
have become the provider of choice for
young, mobile professionals. Tinkoff
Black has become our locomotive
product for growth as we build out the
Tinkoff.ru ecosystem.

Net interest income RUBbn

+38.3%

34.0

24.6

+38.8%

8.3

8.8

9.5

6.9

7.4

2015

2016

4Q’15

1Q’16

2Q’16

3Q’16

4Q’16

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW20

Chief Executive's strategic review
continued

Diversification of fee income

Our recent awards

s
t
c
u
d
o
r
p
f
f
o
k
n
i

T
e
r
o
c

:
k
n
a
B

Daily banking

SME

Real Estate

Car

CUSTOMER

Savings and Investments

Insurance

Investments

Travel

s
t
c
u
d
o
r
p
r
e
n
t
r
a
p
y
t
r
a
p
d
r

:
r
e
k
o
r
B

4. Brand awareness:

We have been investing heavily in our
brand over the last year-and-a-half
primarily through a high-GRP, federal
TV advertising campaign, often
featuring our inspirational founder and
controlling shareholder Oleg Tinkov.
This investment into promoting the
Tinkoff.ru platform as a destination for
consumers' financial needs will continue.
We are now in third place ahead of Alfa
but behind Sberbank and VTB by brand
interest growth. This drives our new
customer acquisition in all categories as
well as positioning Tinkoff as a leading
financial services provider amongst
broad sections of the population. Our
Net Promoter Score for Tinkoff Black of
55 is one of the highest in the financial
sector.

5. Diversification of
business lines:

We have been investing into building
new business lines to diversify our
sources of revenue and to increase the
share of non-cyclical income. By the
end of the FY2019, our target is to have
30% of Net Income from non-credit
business lines. The 2016 results show
a clear trend that I believe makes this
achievable - in 2016, 13% of our total
revenue was from non-credit products,
up from 8% in 2015. The biggest new

business lines are 'Tinkoff Business'
(for SME), 'Tinkoff Black' (individual
current accounts) and Tinkoff.ru (our
broker platform). Tinkoff Business is
already visible in our top line and we
are confident it will break-even in the
second half of 2017. Tinkoff Black is
now a break-even business line before
acquisition cost, but we plan to continue
to grow the customer base actively
into 2017. Tinkoff Mortgage (through
Tinkoff.ru) is being ramped up and
targeting break-even by the end of this
year. These are all real positives. In
addition, we have other business lines
which are exceeding expectations:
loyalty and cobrands are making a
noticeable contribution to our bottom
line. We have launched some high
profile programmes including Ulmart
and AllAirlines debit with others in
the pipeline. We also launched Tinkoff
investments in conjunction with BCS
Broker in November 2016 and this
product has taken off with every fourth
new brokerage account in Russia being
opened through our mobile app since
last December.

Everything then is going in the right
direction. So where do I see things
heading through 2017 and beyond?

Already this year, and fresh as I write,
the CBR has introduced new risk
weights for certain categories of higher
yielding loans from 1 March 2017. We

Tinkoff Bank issued over
1.8mn debit cards at YE2016

>1.8mn

#2 credit card lender
in Russia, at YE2016, with
a market share of

10.3%

have already adopted a series of steps
to largely respond to these changes but
in truth we see opportunities too. We
believe that this regulatory measure
will disproportionately impact our
capital-strapped competitors, who work
predominantly in POS lending and cash
loans, thereby raising the barriers to
their re-entry into the market. With
our high ROAEs and attendant strong
capital generation capacity, we at
Tinkoff feel we are very well placed to
navigate this situation with a minimal
impact on capital and longer-term
earnings.

I appreciate I may have said it before,
but our traditional strengths - strong
capital and liquidity positions,
innovative technologies, tight control
of risk, speed and sureness of reaction
to change and a focused, a talented and
totally professional management team
working within a unique business model,
coupled with the increasing benefits
we see from the five main drivers I
described before - really do put us in
an enviable position as we move on
through the year.

To close, it is my great pleasure to
record my continuing thanks to all
those whose contributions make these
results possible: our CUSTOMERS, our
founder Oleg Tinkov, the core team
of Tinkoff Group management, our
stakeholders, investors, business
partners, employees and others who
I hope will forgive me for not naming
them. Thank you.

Oliver Hughes
Chief Executive Officer

• Best digital bank in Central and Eastern Europe

• Bank of the Year

Euromoney

Banki.ru

• Best Consumer Digital Bank in Russia

• Best Mobile Bank App for iOS and Android

• Best Website Design in Central and Eastern Europe

Global Finance

• Best Mobile Bank App for Small and
Medium Enterprises for Android

Markswebb Rank & report

• Best Mobile Bank App in Russia for iOS

• 1st place in the category “Most Innovative Bank of Russia”

Deloitte

Bank Review Magazine

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

As I mentioned
in my 2015
financial review
looking ahead to
2016, I felt some
good decisions
made early in the
2014/15 crisis
had set the Group
up well

Ilya Pisemsky
Chief Financial Officer

Financial review

Dear Investors,

In 2016 the Group posted the strongest set of results in its history. These results
have cemented Tinkoff Group’s place as the second largest player in the Russian
credit card market with a market share of 10.3% at the close of 2016.

This is my fourth review for our Annual Report and it is a pleasure to share with
you my observations. As I mentioned in my 2015 financial review looking ahead
to 2016, I felt some good decisions made early in the 2014/15 crisis had set the
Group up well.

Before moving on to the financial highlights, there are a number of key business
highlights for 2016 I would like to mention. My choice of the many-some are
mentioned elsewhere in this report- would be these:

Assets growth RUBmn

+25.6%

6.8%

175.4

16.2

164.2

13.1

33.3

33.6

152.7

14.2

146.8

15.4

27.8

21.5

139.7

13.7

18.3

•

in July 2016, Tinkoff Bank joined the Russian blockchain consortium;

in Autumn 2016, Tinkoff Bank was among the first in
Russia to launch Apple Pay and Samsung Pay;

in November 2016, Fitch upgraded Tinkoff Bank’s rating to BB-/Stable (and
more recently Moody’s upgraded Tinkoff Bank’s rating to B1/Stable); and

82.1

87.0

98.9

93.1

102.9

in November 2016, Tinkoff Bank became the first
Russian bank to service customers via Viber.

And there are many others in the pipeline; the Group will be rolling these out into
2017 and beyond.

Let us move then to a closer look at some of the financial developments over
FY2016, starting with the balance sheet.

25.6

22.8

17.5

18.6

23.0

4Q’15

1Q’16

2Q’16

3Q’16

4Q’16

Cash and cash equivalents

Investment securities and REPO

Net loans

Other

Balance sheet

In 2016 the Group continued to
maintain a healthy balance sheet-
the Group’s total assets increased
by 25.6% and finished the year at
RUB175.4bn.

Our net retail loan book increased from
RUB82.1bn at the previous year end to
RUB102.9bn at 31 December 2016, up
25.4% over the year and stood at 59%
of total assets by year-end 2016.

Cash and cash equivalents grew
byRUB3bn reflecting the inflow to
retail customer accounts in December
and at year end together with treasury
portfolio stood at RUB49.5 bn, up
54.8% over the year. Our treasury
portfolio remained at over RUB33bn
consisting primarily of highly-liquid
CBRF-repoable bonds.

The Group’s gross retail loan book
expanded to RUB120.4bn, up 19.1% for
the full year. This growth is the result
of organic customer acquisition which
gave us 290,000 new customers
who activated their credit card in the
fourth quarter and 1mn new active
customers for the year. Our net loan
portfolio increased to RUB102.9bn
(YE2015, RUB82.1bn), up 25.4% for
the year. The quality of our portfolio
also improved from quarter to quarter
with the NPL ratio dropping to 10.2%
at the end of the year (YE2015, 12.4%)
and, more importantly, loans 90 to
180 days overdue went down to as low
as 2% of the gross portfolio. Our loan
loss provision coverage stayed at 1.4x
non-performing loans.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW24

Financial review
continued

Conservative credit risk policy,
% of gross loan portfolio

152

151

147

148

142

12.3

12.1

12.2

4.5

3.2

5.2

6.0

4.4

3.9

2.5

2.4

8.1

8.3

8.8

12.5

4.3

11.8

4.1

4.7

3.9

3.5

3.8

14.7

15.7

As to the Group’s funding structure,
customer accounts grew by 12.6%
quarter-on-quarter and by YE2016 had
increased by 39.4% to RUB124.6bn
(YE2015 89.3bn) demonstrating
strong performance, despite the fact
that the Group gradually reduced
deposit rates in line with market trends.

The Group’s wholesale funding consists
of two bond issues: a RUB3bn bond
and a USD200mn subordinated
Eurobond maturing in 2Q 2018. In the
future I expect to see funding from
legal entities coming mostly from the
Group’s SME programme. As at year-
end 2016, funding from legal entities
amounted to almost RUB6bn.

Shareholder’s equity increased
by 4.9% in the fourth quarter to
RUB29.5bn, up from RUB22.9bn at
year end 2015, an increase of 28.6%.
On 1st January 2017 our N1.0 ratio
stood at 11.1% and N1.2 ratio at 8.6%.

1.5

2.0

0.1

Profit and loss statement

Gross interest income grew in 2016
by 27.3% to RUB47.8bn. This growth
corresponded to the growth in the loan
book and securities portfolio. Gross
interest yield increased to over 40%
by YE2016 due to lower cost of risk
(YE2015, 37.9%).

Interest expense has stayed flat in
absolute terms for the last five quarters
at RUB3.3bn and the cost of borrowing
reduced to 9.7% in the fourth quarter
of FY2016 from 10.5% in Q32016. It
is expected to move down further in
2017 as the Group’s current rates on
deposits, current accounts for retail
and SME customers are significantly
lower.

0.6

0.8

4Q’15

1Q’16

2Q’16

3Q’16

4Q’16

LLP/NPL

Courts

180+ dpd (w/o courts)

90-180 dpd

Write-offs (annualised)

Sale of bad debts (annualised)

Net interest income grew by almost
39% year-on-year to RUB9.5bn in the
fourth quarter. At year end 2016 net
interest margin stood at 26.2% and,
due to lower cost of risk, the Group’s
risk-adjusted net interest margin
increased to 19.7%.

The Group’s annualised cost of risk
decreased in FY2016, to below
8% compared to just over 15% for
2015. The decrease in cost of risk
is due to improved macro, customer
deleveraging and the inflow of new
better vintages into the portfolio.
About 10% of gross loans in
annualised terms were sold or written-
off during the year as they became
360 days past due.

The Group’s fee and commission
income amounted to RUB8.4bn for the
year 2016 (FY2015, RUB4.8bn). We
observed a 76% increase in fee and
commission income compared with
the previous year. Tinkoff insurance
also contributed about RUB1.3bn in
premiums earned in 2016.

Our current accounts business is
evolving at a pace as we acquire
more and more customers. As at the
end of 2016 the Group had 1.8mn
current account customers with almost
RUB47bn of balances. The continuing
growth of customer numbers and
balances allowed the Group to build-up
fee income which amounted to almost
RUB600mn in the fourth quarter and
RUB1.8bn over FY2016.

Cost to income (incl. acquisitions)

Cost to income (excl. acquisitions)

Looking ahead, with the robustness and flexibility of our tried
and tested business model, our conservative underwriting
approach and rigorous risk management processes, I
am confident that the Group is well placed to build on
the successes of 2016, to take advantage of whatever
opportunities present themselves in the near term.

Ilya Pisemsky
Chief Financial Officer

Operating efficiency1

43.7%

42.7%

43.3%

44.1%

40.2%

38.0%

46.9%

29.4%

27.5%

25.3%

26.9%

27.0%

27.4%

26.0%

2015

2016

4Q’15

1Q’16

2Q’16

3Q’16

4Q’16

Our SME business is developing rapidly. As of the end of
FY2016 the Group had 50, 000 customers, with new SME
accounts opening at an average monthly rate of 10,000,
with RUB4.9bn in balances on current accounts. In the
absence of a credit component in the SME business, all the
cash is profitably deployed into treasury operations. The
Group earned RUB109mn in fees in the fourth quarter alone
(RUB150mn for FY2016) in addition to treasury income. We
also expect the SME business to be well positioned to break-
even in H1 2017.

The Group continues to develop its mortgage broker platform.
By Q4 2016 the Group had achieved a material pick up in
mortgage loans issued. As at the end of 2016, the Group had
seven partner-banks and in 2016 originated nearly RUB3bn
of mortgage loans through the Tinkoff.ru financial platform.

The Group launched a new service, Tinkoff Investments, in
partnership with BCS Broker. We rolled it out in October and
by December every fourth brokerage account on the market
was opened with our service.

On operating expenses, the Group’s OPEX increased in
the fourth quarter due to salary indexation in November,
an annual bonus and due to the resumption of intensive
advertising activity. For 2016 as a whole, the Group’s
operating expenses remained elevated due to investment in
the Tinkoff.ru financial platform. The Group’s cost-to-income
ratio ended the year at 43.7% (FY2015, 38%).

Overall, as a result of four consecutive quarters of record
net income, total profit for 2016 exceeded RUB11.0bn with
an annualised ROAE of 42.5%. ROAA was 7.1% for the year.
These are impressive figures.

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

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW26

Risk review

The purpose of TCS Group’s asset, liability and risk management
strategy is to identify, assess, monitor and manage the risks arising
from its activities.

The Group is subject to a number of Principal Risks which
might adversely impact its performance.

All of the Group’s assets and customers are located in or
have businesses related to Russia. Consequently the Group
is affected by the state of the Russian economy which
is itself to a significant degree dependent on exports of
key commodities such as oil, gas, iron ore and other raw
materials, on imports of material amounts of consumer
and other goods and on access to international sources
of financing. During recent years the Russian economy
has been significantly and negatively impacted by a
combination of macroeconomic and geopolitical factors such
as a significant decline in the price of oil, ongoing political

tension in the region, economic sanctions imposed against
Russian individuals and companies, economic restrictions
imposed by Russia on other countries, capital outflows as
well as depreciation of the Rouble and a decrease in Russia’s
international reserves. In addition emerging markets such as
Russia are subject to greater risks than more mature markets,
including significant political, economic and legal risks. This
over-arching risk environment could impact one or more of
the Principal Risks.

The principal activity of the Group is banking operations
and so it is within this area that the Principal Risks occur.
Management considers that those Principal Risks are:

Liquidity Risk:

Credit Risk:

Interest Rate Risk:

There is a risk that the Group will
not be able to meet its obligations
as they fall due or can do so only by
securing funds at an unacceptably
high cost. Sanctions against the
Russian Federation have significantly
interrupted international business
relationships and seriously weakened
the ability of Russian companies
to access the international capital
markets. The deterioration in the
commercial soundness and/or the
perceived soundness of the Group‘s
banking operation or that of other
financial institutions could result in
significant systemic liquidity problems
or losses and defaults by other
financial institutions. These might
include an inability to access domestic
markets or the Russian interbank loan
market, to receive sufficient funding
from retail deposits or the withdrawal
of a large proportion of such deposits.

The 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
continuing economic uncertainties
in Russia together with ongoing
shifts in distribution channel mix and
demographic characteristics of the
Group’s customers could result in
the future deterioration of quality
or profitability of the Group’s loan
portfolio.

Market Risk:

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

The Group’s is exposed to risk from
fluctuating interest rates.

Operational Risk:

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

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

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

The 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 within the Group.

Liquidity Risk

Liquidity risk is the risk that the 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.

The 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. 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 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 the liquidity
risk. For these purposes, the CFO regularly receives extensive
information about the liquidity profile of the financial assets
and liabilities.

Credit Risk

The Group seeks to maintain a stable funding base primarily
consisting of retail customer deposits and debt securities.
The Group keeps all available cash in diversified portfolios
of liquid instruments, to be able to respond quickly to
unforeseen liquidity requirements. The 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 the Group can
transit from cash-negative to cash positive in a short period
of time (estimated to be two weeks).

Liquidity ratios are checked 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.

The 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 the Group’s banking operation.

The 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. The Group uses automated systems to evaluate an applicant’s creditworthiness (scoring). The system is regularly
modified to incorporate past experience and new data acquired on an iterative basis.

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

The 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 the Group’s own
acquisition channel-specific scoring
models. The 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

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

Loan Collection

Provisioning Policy

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

Card Fraud Prevention

The 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
combating 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 the Management
Board.

The loan portfolio is regularly
reviewed 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.

Write-Off Policy

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
the Group’s balance sheet.

In addition, the Group has
established its own collection
business.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW28

Risk review
continued

Market Risk

Interest Rate Risk

Operational Risk

Risk Management Structure

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

Foreign Currency Exchange Risk

The 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.

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. The Group
manages the positions through
hedging, matching or controlled
mismatching.

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

The 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. The Group monitors
market interest rates on a regular basis
and takes decisions on interest rate
re-pricing that may be undertaken on
its assets.

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

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

Trading Risk

The Group invests excess liquidity
in bonds. Trading risk arises from
unfavourable changes in the market
prices of bonds purchased. To
manage this risk, the Group uses a
variety of tools including minimum
rating levels, maturity limits
and limits to investments in the
instruments of specific issuers. In
addition, the majority of bonds are
subject to repurchase agreements
with the Central Bank of Russia.

The Group has established robust
internal control systems intended to
comply with Basel guidelines and CBR
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. The Group insures
against certain operational risks.

The Group has not experienced any
material operational failures in recent
years. To minimise the risk of such
failures, the Group’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.

The risk management organisation is divided between Policy Making Bodies and Policy
Implementation Bodies.

Policy Making
Bodies

Policy Making Bodies are
responsible for establishing
risk management policies
and procedures, including the
establishment of limits.

These are the Board of
Directors, the Management
Board, the Finance Committee,
the Credit Committee and
the Business Development
Committee.

Policy
Implementation
Bodies

Policy Implementation Bodies
exist to implement the policies
and procedures established
by the Policy Making Bodies.
These include monitoring and
controlling risks and limits.

The Policy Implementation
Bodies consist of the Finance
Department, the Risk
Management Department, the
Collections Department and
the Internal Control Service.

The 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
CBR requirements, capital
adequacy and liquidity reports,
operational liquidity forecast
reports and information on
intra-day cash flows.

Anti-Money
Laundering and
Terrorist Financing
Procedures

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

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

Mandatory internal control
checks are conducted by
the Internal Control Service.
External control is provided by
the CBR and other regulators
and, within an annual audit, by
a statutory auditor.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW30

Employees
and corporate social
responsibility

TCS Group strives to attract the very best professionals to create
groundbreaking financial services for our clients

Employees and CSR

Overview

In 2016, Tinkoff Group celebrated its 10th anniversary in a
year that delivered the Group’s best ever performance, both
in terms of financial results and business expansion.

The Group’s strategic priorities are to diversify its operations,
develop new lines of business, and grow its non-credit
revenue. Today, Tinkoff is more than just a bank. It is a full-
fledged financial platform that anyone can access to open
a deposit, invest in securities in just one click, book a travel
package, take out a mortgage loan, buy an insurance policy,
or open a bank account for a small or medium-sized business.

These achievements became possible only thanks to the
dedicated efforts of our talented team that keeps growing
along with our new business lines.

The rapid growth of our business requires more and more
human resource. Throughout 2016, we were hiring the best
talent in the market to support our new lines of business.
As a result, at the end of 2016, headcount stood at 11,605
(including Call-centre >5,000 employees, smart-courier
1,500 employees, etc.), up 40% versus 8,315 at the end of
2015. Our team remains very young, with the average age
currently standing at 26. HR-wise, Tinkoff looks more like
an IT company than a bank: we have around 1000 people in
the head office, of whom around 700 are developers, a small
part of the overall team of developers within the Group. We
have long had more mobile developers in the Bank than web
developers.

The Tinkoff Bank HQ in Moscow

The Tinkoff Bank free gym for employees

Tinkoff development hubs

In Q4 2016, we announced a large-scale project to launch
eight development hubs across Russia in 2017–2018. We
expect them to help us ramp up our capabilities by tapping in
to major regional centres.

The development hubs are slated for opening in
Saint Petersburg (opened December 2016), Nizhny Novgorod,
Yekaterinburg, Novosibirsk, Rostov-on-Don, Saratov,
Vladivostok, and Kazan. Going forward, similar hubs might
appear in other large Russian cities. The hubs’ staff will focus
both on products for Tinkoff.ru and on R&D beyond but
connected with the Company's core business.

The hubs will help:

• source software developers locally

across the whole country,

The Group’s human resources policy is focused on the
following core principles:

• bringing together numerically minded
people with analytical backgrounds;

•

flat structure with no bureaucracy and minimum hierarchy;

• creating an intellectually challenging work environment;

• creating an effective and fast learning environment;

•

fostering a culture of generating ideas
and assuming responsibility;

• embracing open dialogue, cooperation and creativity;

• demonstrating efficiency with minimum bureaucracy;

• promoting team spirit and an entrepreneurial culture;

rapidly build up capabilities to match our growing needs,

• empowering employees and delegating responsibilities;

•

leverage time zones to intensify the production cycle,

reduce time to market for new products.

Human resources – core principles

We follow to an unconventional recruitment approach. Lack of
work experience in banking or finance does not put applicants
at a disadvantage. On the contrary, a lack of such experience
is usually a plus.

We hire people who are willing to change the financial
services landscape, and no experience in this segment
means the applicant does not have any preconceptions about
conventional ways of doing things or how things work.

We prefer people with an analytical mind, those who are
confortable with large amounts of data and figures and
complex tasks. They would be graduates of technical
departments at Russia’s top universities, and we inject the
Tinkoff DNA into them and keep on fostering them within the
Tinkoff culture.

• creating an environment when employees can experiment,

make mistakes and make the right conclusions;

• promoting ‘test and learn’ approach.

We are strong proponents of the ‘test and learn’ approach. It
means we test a multitude of concepts, putting into practice
only the most successful of them. If a model shows good
results in early tests, we keep developing; if it does not, we
either drop the idea or put it off until later. We foster an
environment where our employees are not afraid of mistakes
or failures, and so we can support ongoing experimentation
in search of the most successful models.

Tinkoff promotes a corporate culture of experimentation
and open communication. We encourage our employees
to innovate. To us, experimentation and innovation are not
merely buzzwords. Each team member looks at problems
from different angles and tests a range of possible solutions
to find the best solutions.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW32

Employees and corporate social responsibility
continued

At Tinkoff, we have a flat organizational
culture. We practice delegation of
decision making to the levels deep
below the management team and we
actively promote discussion and idea
generation and exchange.

We believe in creating an environment
where highly talented people are
empowered. Empowerment is an
important ingredient in the success
of our organization. It’s also about
the workplace environment – having
an open leadership style where
information can move freely – where
ideas are constantly channelled
up, down and sideways around the
company. We don’t have ‘a rule by
committee’ approach. We utilize all
types of forums to promote continual
dialogue – using email, various online
chat rooms, flash meetings, as well as
formalized meeting structures. Anyone
can talk to anyone and transparency is
promoted.

Recruitment and training

We aim to attract the best
professionals in the market through a
sophisticated recruitment process, as
well as employing a sophisticated set of
tools for motivation and retention.

We recruit new employees through
advertising and job websites, student
forums, social media and other online
channels. IT specialists and other
core personnel are hired through
a highly selective head hunting
process targeting top IT graduates
and experienced professionals from
various backgrounds. We also target
the best students from top universities,
including winners of mathematics,
physics, and coding competitions.

We offer career development and
training for all levels.

Remuneration, motivation,
and promotion

The Group offers a clear far-reaching
career path for its employees, unique
work environment and fair and an
transparent compensation.

The Group offers above market-
average compensation with an
attractive variable component; salary
increases and bonuses are based on
annual performance reviews; incentives
are linked to KPI achievement and to
the overall financial performance of the
business.

Prior to its IPO in 2013, the Group set
up share based long term incentive
plans as retention and motivational
tools for key and senior managers.

In March 2016, the Group announced
a consolidated long-term management
incentive and retention plan, covering
around 50 key, senior and middle
managers. In February 2017, the
Group announced the expansion of the
plan. The number of participants would
increase to over 80. Total size of the
MLTIP pool amounts to 5.6% of the
Group’s current share capital.

A clear performance evaluation process
and fair compensation are essential.
Compensation is a combination of fixed
rate salary and bonuses and is based
on employee performance. Employees
are evaluated on a regular basis in
order to monitor their achievement
against KPIs, to determine incentive
compensation, and to provide feedback
which can be used for their career
development.

The plan is designed to align more
closely managers’ interests with
those of shareholders to grow the
Group's value. The plan is awarded
over four years, materially subject to
the fulfilment of annual KPIs, with each
such annual award vesting linearly over
the subsequent three years. The Group
believes that participation in its share
capital is an effective motivation and
retention tool. The new management

Tinkoff team celebrating the 10 year anniversary in Venice in November 2016

and workload are flexible. Future employees are trained
online, with all the necessary tools cloud-based. As at the
end of 2016, our Home Call Centre employed almost 4,000
people across the country, which makes it one of the largest
cloud-based call centres in Europe.

The majority of the Group’s employees are engaged in
customer service (Call Centre, telemarketing and telesales,
smart courier services, underwriting, collections, Home Call
Centre, etc.).

CSR

We believe in making a difference for the society where we
operate and for its sustainable development. We encourage
both our employees and clients to contribute to the quality of
life of vulnerable groups in Russia.

The Group supports the Galchonok Foundation which
helps children with organic lesions of the central nervous
system. In 2016, for a second consecutive year, Tinkoff Bank
sponsored ‘Galafest’, a charity event, which was organized by
the Galchonok Foundation for raising funds and increasing
awareness.

We also strive to increase awareness about different charity
foundations amongst our customers who can donate easily
using our online financial services: internet bank or mobile
app.

TCS Group and its employees provide not only financial
support but hands-on assistance for a number of charities,
including care homes and orphanages, as well as facilities
for homeless people and individuals in need of critical
medical help. Over the past year, we held a number of
charity campaigns targeting underfunded care homes and
orphanages located in underdeveloped regions of Russia.
Our employees raised funds which were spent on renovating
facilities, buying food, supplies, medicine and toys for
vulnerable groups.

The view from the top floor of Tinkoff's new HQ in Moscow

Tinkoff's new office space

incentive and retention plan now embraces more managers,
for two main reasons: firstly, internal promotions as some
employees were promoted to key managerial positions, and
secondly, as part of its expansion and transformation into
a financial marketplace, the Group has hired a significant
number of new managers to develop and manage new
business lines.

Working environment, health and safety

TCS Group is a fintech company which embraces innovation,
cutting-edge technologies, empowerment and creativity, and
is committed to creating a working environment where our
best-in-class professionals can comfortably work on their
ideas for the benefit of our customers.

We provide a safe and healthy environment to our employees
in full compliance with the employment and labour laws
of Russia. The Group offers regular annual medical
examinations, vaccinations, voluntary medical insurance, free
membership of our own fitness gym at Tinkoff Bank’s HQ and
other preventive health care measures. We promote a healthy
lifestyle among our employees and regularly organize sports
competitions, including indoor football, volleyball, basketball,
alpine skiing and chess.

Diversity and inclusion

Our fully online business model based on a high-tech
branchless platform gives us additional recruiting flexibility
which means there are no barriers for differently abled
people to join our company. This helps us widen and diversify
the Group’s employee base and hire people purely on their
merits and skills.

In 2016, we continued to develop our Home Call Centre,
which gives employment opportunities to a number of groups
unable to work in standard office jobs: people with different
abilities, residents of remote regions with limited access to
transport and those who can only work part-time (such as
mothers on maternity leave or carers). Our Home Call Centre
allows people to work anytime, anywhere, and the hours

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW34

Board of Directors

Constantinos
Economides

(41)

Jacques Der
Megreditchian

(57)

Philippe
(43)
Delpal

Chairman of the Board
of Directors

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

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

Constantinos Economides has been
a director of TCS Group Holding PLC
since November 2008 and Chairman
since June 2015.

Mr. Economides is also the Managing
Director of Royal Pine & Associates Ltd
since January 2016. He was previously
the Managing Director of Orangefield
Cyprus from October 2006 to
December 2015. Prior to 2006, he
worked with Deloitte Ltd in Cyprus from
2003 to 2006 and Ernst & Young
in the United Kingdom from 1999 to
2002.

Jacques Der Megreditchian has been a
non-executive 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. Economides is a Fellow Member of
the Institute of Chartered Accountants
in England & Wales (ICAEW) and holds
an MSc in Management Sciences from
Warwick Business School, United
Kingdom. In addition, he is a Licensed
Insolvency Practitioner of the Institute
of Certified Public Accountants of
Cyprus (ICPAC) since October 2015.

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.

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, First Collection Bureau,
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.

The Directors convened ahead of a board meeting in November 2016 at the offices of the Company in Limassol. Left to right, Martin Cocker,
Maria Trimithiotou, Philippe Delpal, Alexios Ioannides, Constantinos Economides (Chairman) and Jacques Der Megreditchian.

Martin
Cocker

(57)

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

Alexios
Ioannides

(40)

Member of the Board
of Directors

Maria
Trimithiotou

(38)

Member of the Board
of Directors

Martin Cocker has been a non-
executive director since October 2013.

Mr. Cocker serves also on the boards
of Etalon Group, Northumberland Tyne
and Wear National Health Service
Foundation Trust and Beverley Building
Society. 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.

Alexios Ioannides has been a director of
TCS Group Holding PLC since November
2008. Mr. Ioannides previously worked
for Deloitte from 2001 to 2008 where
he trained and qualified as a Chartered
Accountant in 2004. Mr. Ioannides
is also the director of AXEPT Limited
since 2008 and a member of the Board
of Directors of The Copperlink Partners
Limited since 2015.

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

Maria (Mary) Trimithiotou has been a
director since May 2012.

Mrs. Trimithiotou previously worked
for Deloitte Ltd holding the position
of audit manager from October 2001
to February 2009 and, subsequently,
moved to Orangefield Fidelico Ltd
where she held the position of Director
from 2012 until 2015. Currently, Mrs.
Trimithiotou is a member of the Board
of Directors of Royal Pine & Associates
Ltd.

Mrs. Trimithiotou is a Fellow Chartered
Certified Accountant and a Member
of the Association of Chartered
Certified Accountants, as well as
Member of the Institute of Certified
Public Accountants of Cyprus (ICPAC).
Mrs. Trimithiotou is also a Licensed
Insolvency Practitioner since October
2015.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW36

Corporate 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 incorporated company),
with each GDR issued under a
deposit agreement dated on or
about 24th October 2013 with
JPMorganChase Bank N.A. as
depositary representing one Class
A share, are listed on London Stock
Exchange and the Company is required
to comply with the UK’s 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. The Company's
Home State is Cyprus.

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.

Rights of the Holders of the GDRs’ in
the Prospectus issued by the Company
dated 22 October 2013 and on the
website at Tinkoff.ru/eng.

A copy of an English translation of
Association of the Company can be
found on the website.

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.

A description of the terms and
conditions of the GDRs can be found
at ‘Terms and Conditions of the Global
Depositary Receipts’, ‘Summary of the
Provisions relating to the GDRs whilst
still in Master Form’ and ‘Description
of Arrangements to Safeguard the

The authorities of the members of the
Board are specified by the Articles
of Association of the Company and
by law. The current six strong Board
of directors is comprised of three
executive directors including the
chairman, and three non-executive

directors two of whom are independent.
There was no change in the
composition of the Board in 2016. The
board of directors currently contains
no Directors B. The longest serving
director Mr Constantinos Economides
took over the role of Chairman of the
Board of directors in June 2015. The
names of the people who served on the
Board during 2016 are listed at Board
of directors. The Group has established
two Committees of the Board. Specific
responsibilities have been delegated to
those committees as described below.

The Board is required to undertake a
formal and rigorous review annually
of its own performance, that of its
committees and of its individual
directors. That review was carried
out in-house in the second half of
2016 looking at overall performance
from the time of the IPO in October
2013 but focused mainly on the
second half of 2015 and first half
of 2016. All directors completed
detailed questionnaires on the
Board’s performance. Analysis of the
resultant feedback 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.

Dear Stakeholders

2016 proved another exciting year in the life of the Company, a year when the groundwork done, the decisions taken, the
investments made, the talent hired, in the most testing environment of 2014-15 in anticipation of better market conditions
paid off handsomely. Detailed commentary on the operating and financial results is included in the CEO’s strategic review
and the CFO’s financial review but in summary the Group delivered a stellar set of results for FY2016 -I would like to
express my thanks to our founder and controlling shareholder Oleg Tinkov for his vision and offer my congratulations to him
and the Tinkoff management team for their achievement.

In parallel the work of the Board of Directors which I am delighted to chair continues. We have robust corporate governance
structures in place together with a deep knowledge and appreciation of the Group’s DNA within the group of Directors. As
our own Board policies require, we conduct every year a rigorous annual appraisal of the performance and effectiveness
of the Board, its committees and individual directors which in 2016 found us in good shape. But we are not complacent:
outside the formal process we are always looking to assimilate good practices that come to our attention where these can
fit or be adapted for our model.

Number of directors

Unless and until otherwise determined by the Company in
general meeting, the number of directors shall be no less
than four, of which two must be non-executive, and shall
not exceed seven, so long as Class B Shares are in issue.
Thereafter there shall be no maximum number of directors.

The Articles of Association of the Company provide for the
retirement by rotation of certain directors at each Annual
General Meeting. In 2016 the two directors who retired by
rotation were Mr Philippe Delpal and Mr Martin Cocker. Both
were duly reappointed by vote of the shareholders.

Director's powers

The business of the Company is managed by the directors,
who are empowered to exercise all such powers of the
Company as are not, by the Cyprus Companies Law or by
the Articles of Association, required to be exercised by the
shareholders in general meeting, subject nevertheless to any
provisions of the Articles of Association, of the Companies
Law and of any directions given by the general meeting
by ordinary resolution; but no alteration of the Articles of
Association and no direction made by the Company in general
meeting shall invalidate any prior act of the directors which
would have been valid that alteration or direction not been
made or given.

Proceedings of the Board of Directors

The quorum necessary for the transaction of the business of
the directors shall be at least four directors.

Questions arising at any meeting of the board of directors
shall be decided by a majority of votes. In the case of equality
of votes, the chairman shall have a second or casting vote.
A director may, and the secretary on the requisition of a
director shall, at any time, summon a meeting of the directors.
A resolution in writing signed or approved by letter, telex,
facsimile or telegram by all directors or their alternates or in
relation to a committee by all its directors, shall be as valid
and effectual as if it had been passed at a meeting of the
board of directors or (as the case may be) at a committee

meeting duly convened and held. Any such resolution in
writing signed may consist of several documents each signed
by one or more of the persons described.

Any notice shall include an agenda identifying in reasonable
detail the matters to be discussed at the meeting together
with copies of any relevant documents.

The directors may delegate any of their powers to a
committee or committees consisting of one or more
members of their body as they think fit; any committee so
formed shall, in the exercise of the powers so delegated to
it, comply with the rules which may have been imposed on
it by the directors, in respect of its powers, composition,
proceedings, quorum or any other matter.

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 summarized
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.

Committees-current composition

The Audit Committee is chaired by an independent non
executive director Mr 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 Mr 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 Board of directors.

The current terms of reference of both Committees are
available on the Company’s website. A short summary of both
is set out below.

Closing my statement, I would like to thank each and every one within the Group, on stage or behind the scenes, who
together worked countless hours and brought about these amazing results of which we are all extremely proud. I remain
confident that 2017 will bring new challenges and successes and I am happy merely to be part of this.

Constantinos Economides
Chairman of the Board of Directors

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW38

Corporate governance
continued
Role of the 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, risk management
systems internal audit function, the independence and
qualifications of the independent auditor and the effectiveness
of the external audit process. The Audit Committee is required
to meet at appropriate times in the reporting and audit cycle
but in practice meets more often as required.

Under its terms of reference the Audit Committee is required
at least once 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 Audit Committee met this
obligation in two main ways, through members participating in
the main Board review described above in the second half of
2016 and by arranging a complementary committee review on
a rolling basis driven by the audit cycle March to March. After
consideration of the Audit Committee’s own review, no further
changes to those adopted in the preceding year were proposed
to the committee’s terms of reference. During the second
half of 2016 the Audit Committee determined to set a more
structured framework around the extensive work it had been
doing between its quarterly meetings to review the financial
statements by adding at least two additional meetings to its
annual schedule, at least one of which would be held at the
Bank’s head office in Moscow, to consider specific non-financial
statement related areas within its terms of reference such as
risk management issues including internal audit procedures,
and the financial and reputational dimensions of cyber security
measures put in place by the Group.

The Audit Committee has developed a risk matrix which
constantly evolves to reflect new risks, the perceived impact of,
and the Group’s appetite for, any given risk and the measures
taken to mitigate those risks.

Role of the 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. The Remuneration Committee is required to meet
at least twice a year but in practice meets far more often. The
Remuneration Committee continued work in 2016 and into
2017 on its review of the first year of operation of the Group’s

new (launch was in March 2016) equity based incentive and
retention plan for key, senior and middle management (MLTIP)
and in considering additional awards for this and subsequent
years.

Under its terms of reference the Remuneration Committee is
required at least once a year to review its own performance,
constitution and terms of reference to ensure it is operating
at maximum effectiveness and to recommend any changes it
considers necessary for Board approval. The Remuneration
Committee met this obligation through members participating
in the main Board review (described above) under which
detailed questionnaires were completed by all directors
assessing the operation of the Board and both committees.
Although the review from the previous year had resulted in
certain minor changes to the Remuneration Committee’s
terms of reference to clarify certain procedural matters and
to align them more closely with how the committee operated
in practice, this time no further changes were felt required
in 2016/17. The Committee continues to meet as required
to assess its own performance but did not identify a need to
schedule additional regular meetings.

Appointment, rotation and removal of
directors

The directors of the Company are appointed by the general
meeting of shareholders with the sanction of an ordinary
resolution. Such an appointment may be made to fill a vacancy
or as an additional director. But no director may be appointed
unless nominated by the board of directors or a committee
duly authorized by the board of directors or by a shareholder
or shareholders together holding or representing shares which
in aggregate constitute or represent at least 5% in number of
votes carried or conferred by the shares giving a right to vote
at a general meeting.

Notwithstanding that, one or more Directors B (a special
category of director) may be appointed only by Class B
shareholders, together holding or representing Class B shares
which constitute or represent in aggregate over 50% in
nominal capital paid up on the Class B shares upon serving
notice to the Company.

The board of directors may at any time appoint any person to
the office of director either to fill a vacancy or as an additional
director and every such director shall hold office only until the
next following annual general meeting and shall not be taken
into account in determining the directors who are to retire by
rotation.

One third of the directors (or if their number is not a multiple
of three, the number nearest to three but not exceeding one-
third) shall retire by rotation at every annual general meeting.
Directors holding an executive office and Directors B are
excluded from retirement by rotation.

Directors including Directors B may be removed from office
by the shareholders at a general meeting with the sanction
of an ordinary resolution, subject to giving 28 days’ notice to
that director in accordance with the Articles of Association.
Directors B may at any time be removed from office by Class B
shareholders together holding or representing Class B shares
which constitute or represent over 50% in nominal capital paid

up on the Class B Shares upon giving
notice to the Company.

The office of director shall be vacated if
the director:

• becomes bankrupt or makes any
arrangement or composition
with his creditors generally; or

• becomes prohibited from being

a director by reason of any court
order made under Section 180
(disqualification from holding the
position of director on the basis
of fraudulent or other conduct) of
the Cyprus Companies Law; or

• becomes, or may be, of

unsound mind; or

•

resigns his office by notice in
writing to the Company left
at the registered office; or

is absent from meetings of the
board for six consecutive months
without permission of the board
of directors and his alternative
director (if any) does not attend in
his place and the board of directors
resolves that his office be vacated.

At any time when Class B Shares cease
to exist by virtue of conversion into Class
A Shares, each Director B shall thereby
become (undesignated) a director
and shall remain in office until the
next annual general meeting and such
director will not be taken into account
in determining the directors who are to
retire by rotation at such meeting.

Share capital

As at 31 March 2017, the Company's
issued share capital is US$7,305,553
divided in to 90,494,146 Class A Shares,
each of nominal value of US$0.04 per
share and fully paid, and 92,144, 679
Class B Shares, each of nominal value of
US$0.04 per share and fully paid.

All of the Class B shares are held directly
or indirectly by Mr Oleg Tinkov, the
controlling shareholder. Holding all
Class B Shares equates to a 50.45%
economic interest in the Company and a
voting interest of over 91%.

Neither the Company nor any of its
subsidiaries has any outstanding
convertible securities, exchangeable
securities or securities with warrants
or any relevant acquisition rights or

obligations over the Company's or any of
the subsidiaries' authorised but unissued
capital or undertakings to increase its
issued share capital.

Shares and Class B Shares; or

(ii) a Class B shareholder;

Certain rights of pre-emption are
conferred, by the Cyprus Companies
Law and the Articles of Association of
the Company, on existing shareholders
for issue of new shares to the Company
in cash. Please refer to the section
below on pre-emption rights for further
information.

Articles of Association

In this section Cyprus Companies Law
means the Companies Law, Cap. 113
of Cyprus and any successor statute or
as the same may from time to time be
amended.

The Company's current Articles of
Association were adopted on 21 October
2013. The following is a brief summary
of certain material provisions of the
Articles of Association.

Rights of shareholders

Except for the additional voting rights
attached to Class B Shares, the right
to requisition a general meeting of the
shareholders and the right to appoint a
Director B, none of the shareholders of
the Company has any rights different
from any other holder of shares of the
Company. A summary of the rights
attached to the shares of the Company is
set out below.

Meeting of shareholders

The Company is required to hold an
annual general meeting each year on
such date and at such place as the
directors may determine provided that
not more than 15 months should elapse
between annual general meetings.

The board of directors or any director
may convene general meetings. The
board of directors will also convene:

(a) extraordinary general meetings of
the Company on the requisition of:

(i) a shareholder or shareholders
together, holding or representing in
aggregate, shares (being shares of
either of the Class A Shares and Class B
Shares) which constitute or represent at
least five per cent. of the total number of
votes carried or conferred by the Class A

(b) a separate meeting of the Class
A shareholders on the requisition
of a Class A shareholder or Class A
shareholders together, holding or
representing Class A Shares which in
aggregate constitute or represent at
least five per cent. in nominal capital
paid up on the Class A Shares; and

and any shareholder or shareholders as
aforesaid may add items to the agenda
of a meeting which they are entitled to
attend.

An annual general meeting and a
meeting called at which a special
resolution will be proposed shall be
called by at least twenty-one days'
prior written notice. All other general
meetings may be convened by the
board by issuing at least 14 days’ prior
written notice. General meetings of
the Company may be called by shorter
notice and shall be deemed to have been
duly called if it is so agreed:

•

in the case of a meeting called
as the annual general meeting,
by all the shareholders entitled
to attend and vote; and

in the case of any other meeting,
by a majority in number of the
shareholders having a right to attend
and vote at the meeting, being a
majority together holding not less
than 95 per cent. in nominal value
of the shares giving the right to
attend and vote at the meeting.

Notice to persons

All shareholders are entitled to attend
the general meeting or be represented
by a proxy authorised in writing. Subject
to any rights or restrictions for the time
being attached to any class or classes
of shares, on a show of hands, every
member present (if a natural person) in
person or by proxy or, (if a corporation)
is present by a representative not
himself being a member, shall have one
vote for each Class A Share of which
he is a holder and shall have 10 votes
for each Class B Share of which he is a
holder, and on a poll, every member shall
have one vote for each Class A Share of

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW40

Corporate governance
continued

which he is a holder and shall have 10
votes for each Class B Share for which he
is a holder.

The quorum for a general meeting will
consist of such number of shareholders
holding in aggregate more than 50 per
cent. of the issued capital. If within half
an hour from the time appointed for the
meeting a quorum is not present, the
meeting shall stand adjourned to the
same day in the following week, at the
same time and place or to such other
day and at such other time and place
as the chairman of the general meeting
may determine, and if at the adjourned
meeting a quorum is not present within
half an hour from the time appointed for
the meeting, the shareholders present
shall be a quorum.

The above quorum does not apply
to every separate meeting of the
shareholders of any class, in that any
shareholder (present in person or by
proxy) holding or representing shares of
the class which in aggregate constitute
or represent at least one-third in nominal
capital paid up on the shares of the class,
shall constitute a quorum and a meeting.

A resolution in writing which has been
signed by or on behalf of shareholders
conferring in aggregate at least 75
per cent. of the votes exercisable on
such resolution at general meeting
of the Company is valid and effectual
as if the resolution were sanctioned
by the general meeting, provided that
a notice of the intention to propose
the resolution together with a copy
of the resolution, are given to all the
shareholders conferring the right to
vote on the resolution, at least 30 days
prior to the date of the resolution. Such
a resolution in writing may consist of
several documents in the like form each
signed by, or on behalf of, one or more
shareholders.

convertible into shares in the Company
that are to be issued for cash, shall be
offered to the existing shareholders
on a pro-rata basis to the participation
of each shareholder in the capital of
the Company, on a specific date fixed
by the directors. Any such offer shall
be made upon written notice to all the
shareholders specifying the number
of the shares and/or other securities
giving rights to purchase shares in
the Company, or which are convertible
into shares in the Company, which the
shareholder is entitled to acquire and the
time periods (which shall not be less than
14 days from the date of notification
of the offer (or)/from the date of the
dispatch of the written notice), within
which the offer, if not accepted, shall be
deemed to have been rejected. If, until
the expiry of the said time period, no
notification is received from the person
to whom the offer is addressed or to
whom the rights have been assigned
that such person accepts all or part of
the offered shares or other securities
giving rights to purchase shares in the
Company, or which are convertible into
shares of the Company, the directors
may dispose of them in any manner that
they deem fit.

These pre-emption rights may be
disapplied by a resolution of the general
meeting which is passed by a specified
majority, being a majority in favour of
over one half of all the votes cast if the
attendance represents not less than half
the issued share capital and a majority
in favour of not less than two-thirds of
the votes cast in all other cases ("Special
Majority Resolution"). In connection
with such a waiver, the directors have
an obligation to present to the relevant
general meeting a written report which
explains the reasons for the proposed
disapplication of the pre-emption rights
and justifies the proposed issue price of
the shares.

Pre-emption rights

Voting rights

Under the Cyprus Companies Law, each
existing shareholder has a right of pre-
emption to subscribe for any new shares
to be issued by the Company in cash, in
proportion to the aggregate number
of such shares of the shareholder.
There are no pre-emption rights with
respect to shares issued for non-cash
consideration.

Subject to any special rights or
restrictions as to voting attached to
shares, every holder of shares who is
present (if a natural person) in person or
by proxy or, (if a corporation) is present
by a representative, shall have one vote
for each Class A Share of which he is a
holder and shall have 10 votes for each
Class B Share of which he is a holder.

Specifically, all new shares and/or other
securities giving rights to purchase
shares in the Company, or which are

The Class A Shares carry the right to one
vote per Class A Share and confer on the
Class A shareholders the right:

• on a Hands Vote, to one vote
per Class A shareholder; and

• on a Poll Vote, to one vote
per Class A Share held by
each Class A shareholder,

but no Class A Share carries or confers
any right to vote, on a resolution or
proposed resolution for the removal
from office of a Director B.

"Director B" means a director appointed
or deemed to have been appointed by
Class B shareholders in accordance with
the Articles of Association.

The Class B Shares carry the right to 10
votes per Class B Share and confer on
the Class B shareholders the right:

(a) on a Hands Vote, to 10 votes per
Class B shareholder; and

(b) on a Poll Vote, to 10 votes per Class B
Share held by each Class B shareholder.

Every resolution put to the vote of
a general meeting shall be decided
on a Hands Vote unless a Poll Vote
is demanded in accordance with the
Articles of Association.

No shareholder shall be entitled to vote
(either in person or by proxy) at any
general meeting unless all calls or other
sums presently owed by him in respect
of those shares have been paid or the
Board of Directors otherwise determine.

Conversion rights

Class A Shares are generally not
convertible into Class B Shares.

Each Class B Share confers on its
holder the right to convert each Class
B Share into one Class A Share at any
time at the absolute discretion of a
relevant Class B shareholder by serving
a written notice to the Company setting
out the number of Class B Shares the
relevant holder is willing to convert. The
conversion referred to above shall take
place automatically at the expiration
of one Business Day from the date
that the relevant notice is received by
the Company. Once Class B Shares
are converted into Class A Shares, the
Class A Shares that result from such
conversion shall rank pari passu in all
respects with the existing Class A Shares
in issue.

may apply to the Courts of Cyprus to
have the variation set-aside.

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 Mr 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 capitalization; (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.

the holders of Class B Shares for the
conversion of their shares into Class
A Shares, Class B Shares shall be
automatically converted into Class A
Shares, on a one-to-one basis, in the
following circumstances:

(a) in the event that any Class B Share
has been transferred to, or is held by, a
person other than a Qualified Person
(defined below) or otherwise who has
ceased to be a Qualified Person, and
such person (the "Disqualified Holder")
does not become or is not re-instated as,
a Qualified Person within 45 days of the
service on the Disqualified Holder of a
notice from the Company to that effect
(the "Conversion Event"), each Class B
Share held by the Disqualified Holder
shall, with effect of the Conversion
Event, automatically be re-classified
and re-designated as a “Class A Share"
ranking pari passu in all respects and for
all purposes with all and each of the pre-
existing (outstanding) Class A Shares:

provided that:

(i) If a Class B shareholder has no
knowledge that such holder has
become a Disqualified Holder and it is
unreasonable to expect the Disqualified
Holder to have such knowledge, such
shareholder shall be deemed not to
have become a Disqualified Holder
or otherwise ceased to be a Qualified
Person, unless or until such shareholder
shall be made aware of this by notice in
writing from the Company.

these paragraphs means a Class B
shareholder or a person connected
with such Class B shareholder or a
person, or persons jointly, as the trustee
or trustees of any trust or settlement
(whether or not conferring the trustees
discretionary powers) for the benefit of
such Class B shareholder or a relative, or
relatives, of such Class B shareholder.)

Dividend and distribution rights

The Class A Shares and Class B Shares
have the right to an equal share in any
dividend or other distribution paid by
the Company, and any dividend or other
distribution may only be declared and
paid by the Company to the holders of
the Class A Shares and Class B Shares
together.

Variation of rights

The special rights carried or conferred
by the shares of any class, may,
without prejudice to the rights of the
shareholders under section 70 of the
Cyprus Companies Law, be varied or
abrogated with the consent:

(a) in writing of the sole shareholder of,
or the shareholders holding in aggregate
at least two thirds in nominal capital
value of, the Shares of that class; or

(b) of the general meeting of the
shareholders of the Shares of that class
with the sanction of a majority resolution,
being a resolution sanctioned:

(ii) The Company may at any time require
any Class B shareholder to furnish
the Company with any information,
supported (if the Company so requires)
by statutory declaration which the
Company may consider necessary for
the purpose of determining whether
or not such shareholder is a Qualified
Person.

(i) by a majority of over one-half of the
votes cast by the shareholders present
in person or by proxy and entitled to vote,
in the case where all the shareholders
present in person or by proxy and
entitled to vote, hold or represent in
aggregate not less than 50 per cent. in
nominal capital value of the entire issued
share capital of the Company; or

(b) Notwithstanding Paragraph (a), in the
event that the Class B Shares constitute
or represent in aggregate less than
10 per cent. in nominal capital paid up
only on the Class A Shares and Class B
Shares (the "Total Conversion Event"),
each existing (issued) Class B Share
shall, with effect of the Total Conversion
Event, automatically be re-classified
and re-designated as a "Class A Share"
ranking pari passu in all respects and for
all purposes with all and each of the pre-
existing (outstanding) Class A Shares.

(ii) by a majority of not less than
two-thirds of the votes cast by the
shareholders present in person or by
proxy and entitled to vote in all other
cases,

at a general meeting of which not less
than 14 days’ notice specifying the
intention to propose the resolution as a
"majority resolution" has been given.

Shareholders voting against the
variation of that class who between them
hold or represent not less than 15 per
cent. of the issued shares of that class

Without prejudice to the rights of

(Qualified Person, for the purpose of

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW42

Management team

Oliver
Hughes

(46)

Ilya
Pisemsky

(41)

Sergei
Pirogov

(46)

Chief Executive Officer, Chairman
of the Management Board of
Tinkoff Bank

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

Head of Corporate Finance,
Member of the Board of Directors
of Tinkoff Bank

Artem
Yamanov

(35)

Business Development
Director

Stanislav
Bliznyuk

(36)

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

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
Russia and CIS 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).

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.

Stanislav Bliznyuk has been Deputy
Chairman of the Management
Board since June 2012 and Chief
Operating Officer since December
2011. Mr. Bliznyuk was previously
the Head of Technologies at
Tinkoff Bank between December
2006 and June 2012.

Mr. Yamanov holds a masters degree
in applied physics & mathematics from
the Moscow Institute of Physics and
Technology, Russia.

Mr. Bliznyuk holds a degree
in mathematics and applied
mathematics from the Moscow
State University, Russia.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW44

Management team
continued

Anatoly
Makeshin

(44)

Head of Payment Systems, Member
of the Management Board
of Tinkoff Bank

Viacheslav
(41)
Tsyganov

Chief Information Officer

Evgeny
Ivashkevich

(46)

Chief Risk Officer, Deputy
Chairman of the Management
Board of Tinkoff Bank

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.

Viacheslav Tsyganov has been 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.

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.

George
Chesakov

(44)

Natalia
Izyumova

(54)

Vice President of New Channel
Development

Member of the Management Board,
Chief Accountant, Tinkoff Bank

Member of the Finance Committee and
Credit Committee

George Chesakov has served as VP
New Channel Development since
rejoining Tinkoff Bank in February
2016. Mr. Chesakov first joined
Tinkoff Bank in 2006 as one of the
founding members of the management
team serving as COO and Chairman
of the Management Board until 2011.
From 2013 to 2015 he served as
President of OTP Bank (Russia) and
in 2012 to 2013 co-founded Revo
Technology.

He holds a Master of Arts degree in
Computer Science from Princeton
University and Diploma with Honors
in Mathematics from Moscow State
University.

Natalia Izyumova has been a member
of the Management Board since
February 2011, Member of the Finance
Committee and Credit Committee
of Tinkoff Bank since April 2011 and
Chief Accountant of Tinkoff Bank
since February 2011. Mrs. Izyumova
was previously a member of the bank
management Board, chief accountant
and a member of the finance and credit
committees of CSC Bank Sovetsky from
September 2009 to January 2011 and
chief financial officer, deputy chairman
of the management committee and
a member of the finance and credit
committees at Bank Dvizheniye from
September 2007 to September 2009.

Mrs. Izyumova holds a degree in
economics from the Lomonosov
Moscow State University, Russia and
PhD in economics from the Research
Institute of Economy, Russia.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-1

F-2

TCS Group Holding PLC

31 December 2016

Board of Directors and Other Officers

International Financial Reporting Standards
Consolidated Financial Statements and
Independent Auditor’s Report.

Board of Directors
Constantinos Economides, Chairman
Alexios Ioannides
Mary Trimithiotou
Philippe Delpal
Jacques Der Megreditchian
Martin Cocker

All served throughout the year ended 2016 and through to the date of these consolidated financial statements.

The Company’s Articles of Association include regulations for the retirement by rotation of Directors at each annual general meeting.
These regulations will operate in 2017 on the basis of the composition of the Board at the relevant date.

Company Secretary
Caelion Secretarial Limited
25 Spyrou Araouzou
Berengaria 25, 4th floor
Limassol, Cyprus

Registered office
25 Spyrou Araouzou
Berengaria 25, 5th floor
Limassol, Cyprus

Contents

Board of Directors and Other Officers . . . . . . . . . . . . . . . . . . . . . . . . F-2

22 Customer Acquisition Expense . . . . . . . . . . . . . . . . . . . . . . . . . F-43

Cons olidated Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

23 Net Gains from Operations with Foreign Currencies . . . . . F-43

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

24 Insurance Claims Incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-44

CONSOLIDATED FINANCIAL STATEMENTS

26 Administrative and Other Operating Expenses . . . . . . . . . . F-45

Consolidated Statement of Financial Position . . . . . . . . . . . . . . . .F-16

27 Other Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-45

25 Fee and Commission Income and Expense . . . . . . . . . . . . . . F-44

28 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-45

29 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-47

30 Segment Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-47

31 Financial and Insurance Risk Management . . . . . . . . . . . . . . .F-51

32 Management of Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-59

33 Contingencies and Commitments . . . . . . . . . . . . . . . . . . . . . . . F-59

34 Financial Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-61

35 Fair Value of Financial Instruments . . . . . . . . . . . . . . . . . . . . . .F-61

36 Presentation of Financial Instruments by Measurement
Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-64

37 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-65

38 Events after the End of the Reporting Period . . . . . . . . . . . . .F-67

Consolidated Statement of Profit or Loss and Other
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17

Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . .F-18

Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . .F-19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20

2 Operating Environment of the Group . . . . . . . . . . . . . . . . . . . . . . F-21

3 Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21

4 Critical Accounting Estimates and Judgements in Applying
Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31

5 Adoption of New or Revised Standards and Interpretations and
New Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . F-31

6 New Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . .F-32

7 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-34

8 Securities at fair value through profit or loss . . . . . . . . . . . . . F-34

9 Loans and Advances to Customers . . . . . . . . . . . . . . . . . . . . . . . F-35

10 Investment Securities Available for Sale . . . . . . . . . . . . . . . . . .F-37

11 Guarantee Deposits with Payment Systems . . . . . . . . . . . . . . F-38

12 Tangible Fixed and Intangible Assets . . . . . . . . . . . . . . . . . . . . F-38

13 Other Financial and Non-financial Assets . . . . . . . . . . . . . . . . F-39

14 Due to Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39

15 Customer Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39

16 Debt Securities in Issue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40

17 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40

18 Insurance Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40

19 Other Financial and Non-financial Liabilities . . . . . . . . . . . . . .F-41

20 Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-42

21 Net margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-3

F-4

Cons olidated
Management Report

The Board of Directors presents its report together with
the audited consolidated financial statements of TCS Group
Holding PLC (the “Company”) and its subsidiaries (collec-
tively the “Group”) for the year ended 31 December 2016.

Principal activities and nature of operations
of the Group

The Group’s principal activities are undertaken within the
Russian Federation being on-line retail banking oper-
ations through its subsidiary JSC “Tinkoff Bank” (the
“Bank”) and insurance operations through its subsidiary
JSC “Tinkoff Insurance” (the “Insurance Company”).

The Bank specialises 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 specialises in providing non-life
insurance coverage such as accident, property, travel-
ers', financial risks and auto insurance. The founder and
controlling shareholder of the Company is Oleg Tinkov.

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 down
customer acquisition depending on the availability of
funding and market conditions. The Bank’s primary
customer acquisition channels are Internet and Mobile,
but it also uses Direct Sales Agents (DSA) and part-
nerships (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.

The key offerings of JSC “Tinkoff Insurance” are ac-
cident insurance, travel insurance, property insur-
ance and voluntary insurance of vehicles (KASKO)
and Compulsory Motor Third Party Liability (CMT-
PL). The Company focuses on online sales.

In terms of financial performance the net profit of the
Group for the year ended 31 December 2016 was RR
11,011 million (2015: RR 1,851 million). Net interest
income increased by 38.3% to RR 34,026 million (2015:
RR 24,597 million). On 31 December 2016 the total
assets of the Group were RR 175,371 million (2015:
RR 139,652 million) and the net assets were RR 29,518
million (2015: RR 22,946 million). Gross loans and ad-

vances to customers increased by 19.1% to RR 120,435
million (2015: RR 101,081 million) and customer accounts
increased by 39.4% to RR 124,556 million (2015: RR
89,343 million). The 90 days plus overdue loans ratio
reduced to 10.2% (2015: 12.4%) and the net loans
and advances to customers increased by 25.4% to
RR 102,912 million (2015: RR 82,067 million). The cost
of risk on the gross portfolio fell to 7.6% (2015: 15.3%).

The Group believes in making a difference for the society
where it operates and for its sustainable development,
encouraging both employees and clients to contribute
to the quality of life of vulnerable groups in Russia.

Principal risks and uncertainties

The Group conducts its activities in Russia through its
subsidiaries; the Group’s business and financial results
are impacted by the increased uncertainties and volatility
of the Russian economic environment that have been
evident throughout recent years but more stable in 2016.

Financial risks, including credit risk, market risk
and liquidity risk as well as other risks and uncer-
tainties, which affect the Group and how these are
managed, are presented in Notes 2, 31, 32 and
33 of the consolidated financial statements.

Future developments

Subject to the ongoing uncertainty of the Rus-
sian economy the Board of Directors does not
plan any significant changes or developments in
the operations of the Group in the near future.

Results

The Group’s results for the year are set out on
page F-17 of the consolidated financial statements. Infor-
mation on distribution of profits is presented in Note 29.

Any important events for the
Group that have occurred
after the end of the financial
year

Important events for the Group
that have occurred after the
end of the financial year are
presented in Note 38.

Share capital

There were no changes in
issued share capital in 2016.

Treasury shares

Branches

During the three months end-
ed 31 March 2016 the Group
repurchased 5,659,853 GDRs at
market prices for RR 1,246 million
(Note 20) for the purposes of the
long-term incentive programme
for Management of the Group .

The Company did not op-
erate through any branch-
es during the period.

Independent 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

Board of Directors

The members of the Board of
Directors as of 31 December
2016 and at the date of this
report are presented above in the
Report of the Board of Directors.

There were no significant
changes in the assignment of
responsibilities and remunera-
tion of the Board of Directors.

Corporate Governance

• 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 com-
panies that are listed on the Cyprus
Stock Exchange, does not apply to
the Company and accordingly the
Company does not monitor its com-
pliance with that regime. The rights of
shareholders include the right to vote
on the appointment and removal of
Directors and to amend the Articles

of Association.
TCS Group Holding PLC has two
classes, class B shares which carry
or confer enhanced voting rights
(10 votes per class B share) as
opposed to class A (one vote per
class A share); a detailed descrip-
tion of the Articles of Association,
including the rights of shareholders,
and the Terms and Conditions of the
GDRs can be found in the Compa-
ny’s October 2013 Prospectus on
the website at www.tinkoff.ru/eng.

The Articles of Association of the
Company provide for the retirement
by rotation of certain directors at
each Annual General Meeting. In
2016 the two directors who retired
by rotation were Mr Philippe Delpal
and Mr Martin Cocker. Both were duly
reappointed by vote of the share-
holders.

• Committees of the Board of

• The Board of Directors

directors

The authorities of the members of the
Board are specified by the Articles of
Association of the Company and by
law. The six strong Board of directors
is comprised of three executive
directors including the chairman, and
three non-executive directors two of
whom are independent. The Group
has established two Committees of
the Board. Specific responsibilities
have been delegated to those com-
mittees.

The Group in 2013 established
two Committees of the Board of
directors: the Audit Committee
and the Remuneration Committee.
The Board reserves the right to
amend their terms of reference and
arranges a periodic review of each
Committee’s role and activities.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

F-5

F-6

Cons olidated Management Report Continued

• Committee composition

• Remuneration Committee

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

The Remuneration Committee is also
chaired by an independent non-exec-
utive director Mr Jacques Der Megre-
ditchian, and has two other members
both non-executive directors one of
whom is independent.

• Audit Committee

The Audit Committee’s primary
purpose and responsibility is to assist
the Board in its oversight responsibil-
ities. 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 perfor-
mance, reviewing significant financial
reporting judgments contained in
them, oversees the financial reporting
controls and procedures implement-
ed by the Group and monitors and
assesses the effectiveness of the Com-
pany’s internal financial controls, risk
management systems internal audit
function, the independence and qual-
ifications of the independent auditor
and the effectiveness of the external
audit process. The Audit Committee is
required to meet at appropriate times
in the reporting and audit cycle but in
practice meets more often as required.

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 meas-
ures taken to mitigate those risks.

The Remuneration Committee is
responsible for determining and
reviewing among other things the
framework of remuneration of the
executive directors, senior manage-
ment and its overall cost and the
Group’s remuneration policies.

• Significant direct/indirect hold-

ings

For the significant direct and indirect
shareholdings held, please refer to
Note 1 of the financial statements.

• Shareholders’ Agreement: addi-
tional rights of Minority Share-
holders

In October 2013 Tasos Invest & Fi-
nance Inc., Tadek Holding & Finance
SA, Maitland Commercial Inc, Norman
Legal S.A. and Vizer Limited (the
Majority Shareholders, controlled
by Mr Oleg Tinkov) and the pre IPO
investors ELQ Investors II Ltd, Vostok
Komi (Cyprus) Limited, Rousse Nom-
inees Limited and Lorimer Ventures
Limited (together the Minority Share-
holders) entered into a new share-
holders’ agreement (the Sharehold-
ers’ Agreement) to govern aspects of
their relationship after the IPO.

The Shareholders’ Agreement pro-
vides that the Minority Shareholders
are entitled to nominate one director
to the Board of directors of the Com-
pany. 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 recon-
struction, merger, amalgamation, ac-
quisition, 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 capitaliza-
tion; (b) delisting of the GDRs or if
applicable shares in the Company; or
(c) any amendments to the Compa-
ny’s Articles of Association that are
prejudicial to the rights of the Minori-
ty Shareholders.
These rights of the Minority Share-
holders continue so long as they hold
at least 10% of the issued share
capital of the Company.

Further details of the corporate gov-
ernance regime of the Company can
be found on the website:
www.tinkoff.ru/eng

• Management Reporting Systems
Policies, procedures and controls exist
around financial reporting. Manage-
ment is responsible
for executing and assessing the effec-
tiveness of these controls.

The Board of Directors is responsible
for the preparation of the consolidat-
ed financial statements in accordance
with International Financial Reporting
Standards as adopted by the Europe-
an 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 consol-
idated financial statements that are

of daily reports includes but is not
limited to sales reports, application
processing reports, reports on
the risk characteristics of the card
portfolios, vintage reports, transition
matrix (roll rates) reports, reports
on the pre-, early and late collections
activities, reports on compliance with
CBR requirements, capital adequacy
and liquidity reports, operation-
al liquidity forecast reports and
information on intra-day cash flows.

free from material misstatement,
whether due to fraud or error.
In preparing the consolidated
financial statements, the Board of
Directors is responsible for assessing
the Group’s ability to continue as a
going concern, disclosing, as applica-
ble, matters related to going concern
and using the going concern basis of
accounting unless the Board of Di-
rectors either intends to liquidate the
Group or to cease operations, or has
no realistic alternative but to do so.

The Board has delegated to the Audit
Committee the responsibility for
reviewing the financial statements to
ensure that they are in compliance
with the applicable framework and
legislation and for recommending
these to the Board for approval. The
Audit Committee is responsible for
overseeing the Group’s financial
reporting process.

The role of the Audit Committee is set
out above.

Management is responsible for
setting the principles in relation to
risk management. The risk man-
agement organisation is divided
between Policy Making Bodies and
Policy Implementation Bodies. Policy
Making Bodies are responsible for
establishing risk management
policies and procedures, including
the establishment of limits. The main
Policy Making Bodies are the Board
of Directors, the Management Board,
the Finance Committee, the Credit
Committee and the Business Devel-
opment Committee.

In addition the Group has implement-
ed an online analytical processing
management system based on a
common SAS data warehouse that
is updated on a daily basis. The set

By Order of the Board

Constantinos Economides
Chairman of the Board
Limassol

13 March 2017

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

F-7

F-8

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

Our audit approach
Overview

Report on the audit of the consolidated financial statements

Our opinion
In our opinion, the accompanying consolidated financial statements of TCS Group Holding PLC (the
“Company”) and its subsidiaries (together with the Company hereinafter “the Group”) give a true and fair
view of the consolidated financial position of the Group as at December 31, 2016, and its consolidated
financial performance and its consolidated 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.

What we have audited
We have audited the consolidated financial statements which comprise:

•
•

•
•
•

the consolidated statement of financial position as at December 31, 2016;
the consolidated statement of profit or loss and other comprehensive income for the year then
ended;
the consolidated statement of changes in equity for the year ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include significant accounting policies.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the consolidated financial statements section of our report.

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

Independence
We are independent of the Group in accordance with the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical
requirements that are relevant to our audit of the consolidated financial statements in Cyprus. We have
fulfilled our other ethical responsibilities in accordance with the IESBA Code.

Overall group materiality: RR 745 million.

Materiality

Audit scope

• We planned and conducted our audit to cover the two most significant
business components of the Group being Retail banking and Insurance
operations for which we performed an audit of their complete financial
information. In addition, we performed audits of specific areas at group level.

• Our audit scope addressed approximately 99% of the Group’s revenues, 99% of

the Group’s profit before tax and 99% of the Group's total assets.

Key audit
matters

•

Impairment of Loans and advances to customers;

• Recognition of Interest income on Loans and advances to customers.

We designed our audit by determining materiality and assessing the risks of material misstatement in the
consolidated financial statements. In particular, we considered where the Board of Directors made
subjective judgements; for example, in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits, we
considered the risk of management override of internal controls, including among other matters
consideration of whether there was evidence of bias that represented a risk of material misstatement due
to fraud.

Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance whether the financial statements are free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall group materiality for the consolidated financial statements as a whole as set out in
the table below. These, together with qualitative considerations, helped us to determine the scope of our
audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.

Overall group
materiality

RR 745 million

How we determined it

Approximately 5% of profit before tax

Rationale for the
materiality benchmark
applied

We chose profit before tax as the benchmark because, in our view, it
is the benchmark against which the performance of the Group is
most commonly measured by users, and it is a generally accepted
benchmark. We chose 5%, which in our experience is an acceptable
quantitative materiality threshold for this benchmark.

PricewaterhouseCoopers Ltd, City House, 6 Karaiskakis Street, CY-3032 Limassol, Cyprus
P O Box 53034, CY-3300 Limassol, Cyprus
T: +357 25 - 555 000, F:+357 - 25 555 001, www.pwc.com.cy

PricewaterhouseCoopers Ltd is a private company registered in Cyprus (Reg. No.143594). Its registered office is at 3 Themistocles Dervis Street, CY-1066, Nicosia. A list of the
company’s directors, including for individuals the present and former (if any) name and surname and nationality, if not Cypriot and for legal entities the corporate name, is kept
by the Secretary of the company at its registered office. PwC refers to the Cyprus member firm, PricewaterhouseCoopers Ltd and may sometimes refer to the PwC network.
Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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We agreed with the Audit Committee that we would report to them individual misstatements identified
during our audit above RR 75 million as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.

How we tailored our audit scope
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an
opinion on the consolidated financial statements as a whole, taking into account the management
structure of the Group, the accounting processes, controls and the industry in which the Group operates.

The Group is structured into two significant business components being Retail banking and Insurance
operations both of which operate solely in the Russian Federation. The Retail banking business
component comprises a number of business reporting units being JSC Tinkoff Bank, LLC “Microfinance
organization “Т-Finans” and LLC Feniks. The Insurance operations business unit comprises one business
reporting unit being JSC Tinkoff Insurance. Full scope audit procedures were performed in respect of the
two significant business components.

Other Group business reporting units, such as TCS Group Holding PLC, TCS Finance Ltd, Goward Group
Ltd, LLC TCS, Tinkoff Software DC and Tinkoff Long-Term Incentive Plan Employee Benefit Trust, are
not considered to be significant business components for audit purposes. Where necessary, additional
procedures were carried out across these less significant components at the financial statement item level
in order to achieve the desired level of audit evidence. The consolidated financial statements are a
consolidation of all of the above business reporting units.

Our audit covered approximately 99 % of Group’s revenue, 99% of the Group’s profit before tax and 99%
of the Group’s total assets.

We determined the level of involvement we needed to have in the audit work at the business reporting
units to be able to conclude whether sufficient appropriate audit evidence was obtained as a basis for our
opinion on the consolidated financial statements as a whole. We worked with other PwC network firms in
relation to activity of the Group in the Russian Federation, Cyprus and other jurisdictions.

Overall, we have obtained sufficient and appropriate audit evidence regarding the financial information of
the Group as a whole to provide a basis for our audit opinion on the consolidated financial statements.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

Key audit matter

How our audit addressed the Key audit
matter

Impairment of Loans and advances to
customers

We focused on this area because the
management makes complex and subjective
judgements over both timing of recognition of
impairment and the estimation of the size of
such impairment.

The basis of the provision for loans and
advances to customers impairment is described
in the significant accounting policies. An
assessment of provision for loans and advances
to customers impairment is performed
collectively, with the key assumption being the
probability of an account falling into arrears and
subsequently defaulting. Statistical models are
used for assessment of probability of default.
Models related to certain types of restructured
loans are more complex due to subjectivity
inherent in estimating the recoverability of such
loan balances.

Note 3 Significant Accounting Policies, Note 4
Critical Accounting Estimates and Judgments in
Applying Accounting Policies and Note 9 Loans
and Advances to Customers included in the
consolidated financial statements provide
detailed information on the provision for
impairment of loans and advances to customers.

We assessed and tested on a sample basis the design
and operating effectiveness of the controls over
impairment data and calculations. These controls
included those over allocation of cash received from
customers to respective loans and advances to
customers, identification of the overdue loans and the
data transfer from source systems to impairment
models.

In addition, we tested on a sample basis the
correctness of loan classification by their type of loan
portfolio and performed testing on a sample basis on
the statistical models used to calculate impairment.
This testing varied by portfolio, but typically included
testing of the coding used in the impairment models,
re-performance of the calculation, testing the
extraction of data used in the models including the
‘bucketing’ into overdue bands. With regard to
models of certain types of restructured loans we back
tested the outputs of these models to the ultimate
recoverability on such loans to consider the
appropriateness of the assumptions in the model. We
also assessed the consistency of provisioning models
applied by management with the prior period.

We tested a sample of post model accounting
adjustments where applicable, including considering
the basis for the adjustment, the logic applied, the
source data used and the key assumptions adopted.

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TCS GROUP HOLDING PLC | ANNUAL REPORT 2016

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Key audit matter

How our audit addressed the Key audit
matter

Recognition of interest income on Loans and
advances to customers

We focused on this area mainly because the
calculation of interest income uses, in addition
to relevant nominal interest rates, a number of
different fees and costs, incorporates significant
assumptions around loan expected lives (driven
by estimations of loan repayment profiles) and,
in the case of acquired loans, additional
variables such as the estimated fair value at the
date of purchase and the estimated recoverable
amount. As the Group has about 10 years
history of lending, the Group has a significant
amount of information from which to assess
trends in prepayment, redemption and product
transfers, resulting in lower subjectivity to these
assumptions, as detailed patterns of past
customer behaviour are available to enable an
estimate of future customer behaviour and
performance. The Group has acquired some
loan portfolios from third parties in the last
couple of years but it does not have the same
level of information from which to assess trends
in prepayment and redemption of such acquired
loans which results in a higher degree of
subjectivity to the assumptions in respect of
acquired loans expected lives. In addition to the
above, there is a need to ensure the
appropriateness, consistency and accuracy of
the effective interest rate calculations across all
types of loans in respect of the various fees
received and costs that are included in the
interest income calculation as part of the
effective interest rate.

Note 3 Significant Accounting Policies, Note 21
Net Margin and Note 31 Financial and
Insurance Risk Management included in the
consolidated financial statements provide
detailed information on the interest income and
effective interest rates of loans and advances to
customers.

Our audit procedures in relation to effective interest
rates of loans originated by the Group included the
testing of key controls in relation to the nominal
interest income, fee income and costs incurred, all of
which contribute to interest income. These controls
included those over calculation and accrual of
nominal interest income and fee income parts of
interest income and the data transfer from the source
system to the accounting system.

We analysed the appropriateness and consistency of
methodology and application across each of the loan
portfolios and assessed the reasonableness of the
models’ key assumptions, including the fee income
and costs components of the effective interest income
rate and expected lives of the loans by considering
historic information. We also assessed the
mathematical accuracy of the models through re-
performance of the model calculations, which were
tested substantively.

Our testing of effective interest rates of acquired loan
portfolios included the procedures detailed above,
and further procedures to identify any significant
deviations from the original forecast cash flows. We
also considered whether any ‘catch up’ adjustments
were required on portfolios where actual cash flow
experience has differed significantly from that
originally predicted. For those loan books where
catch up adjustments were recorded, we assessed the
appropriateness of the payment assumptions used in
the future forecast cash flow calculations, by
comparing them to payment rates previously
experienced.

In addition, we performed substantive analytical
procedures to assess the reasonableness of the
interest income recognised by the Group.

Other information
The Board of Directors is responsible for the other information. The other information comprises the
Consolidated Management Report which we obtained prior to the date of this auditor’s report, and the
Company’s complete Annual Report, which is expected to be made available to us after that date. Other
information does not include the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the work we have performed on the other
information that we obtained prior to the date of this auditor’s report, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report in
this regard.

When we read the Company’s complete Annual Report, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to those charged with governance and
if not corrected, we will bring the matter to the attention of the members of the Company at the
Company's Annual General Meeting and we will take such other action as may be required.

Responsibilities of the Board of Directors and those charged with governance 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.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the Board of Directors either intends to liquidate
the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these consolidated financial statements.

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As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.

• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.

From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal requirements
Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated
Accounts Laws of 2009 to 2016, we report the following:

• We have obtained all the information and explanations we considered necessary for the purposes of

our audit.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by the Board of Directors.

•

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

• Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the
Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements,

including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or

business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.

• 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 Consolidated Management Report, whose preparation is the responsibility of the
Board of Directors, has been prepared in accordance with the requirements of the Cyprus Companies
Law, Cap.113, and the information given therein is consistent with the consolidated financial
statements.

In our opinion and in the light of the knowledge and understanding of the Group and its environment
obtained in the course of the audit, we have not identified material misstatements in the consolidated
Management Report.

In our opinion, the information included in the corporate governance statement in accordance with the
requirements of subparagraphs (iv) and (v) of paragraph 2(a) of Article 151 of the Cyprus Companies
Law, Cap. 113, and which is included as a specific section of the Consolidated Management Report, have
been prepared in accordance with the requirements of the Cyprus Companies Law, Cap, 113, and is
consistent with the consolidated financial statements.

In our opinion, and in the light of the knowledge and understanding of the Group and its environment
obtained in the course of the audit, we have not identified material misstatements in the corporate
governance statement in relation to the information disclosed for items (iv) and (v) of subparagraph
2(a) of Article 151 of the Cyprus Companies Law, Cap. 113.

In our opinion, the corporate governance statement includes all information referred to in
subparagraphs (i), (ii), (iii) and (vi) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap.
113.

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F-16

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 to 2016 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.

The engagement partner on the audit resulting in this independent auditor’s report is Anna Loizou.

Anna Loizou
Certified Public Accountant and Registered Auditor
For and on behalf of
PricewaterhouseCoopers Limited
Certified Public Accountants and Registered Auditors

Limassol, 13 March 2017

Consolidated Statement
of Financial Position

In millions of RR

ASSETS
Cash and cash equivalents
Mandatory cash balances with the CBRF
Securities at Fair Value through Profit or Loss
Due from other banks
Loans and advances to customers
Financial derivatives
Investment securities available for sale
Repurchase receivables
Current 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 income tax liabilities
Subordinated debt
Insurance provisions
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

31December
2016

31December
2015

9
34
10

28
11
12
12
13
13

14
15
16
34

28
17
18
19
19

20
20
20
37

16,197
1,218
164
347
102,912
2,718
33,286
-
702
2,924
4,656
1,820
7,179
1,248

13,689
675
-
726
82,067
11,345
15,936
2,344
743
3,377
2,052
1,419
3,499
1,780

175,371

139,652

489
124,556
2,986
-
24
785
11,514
767
3,112
1,620

6,392
89,343
1,905
8
36
1,784
14,609
515
1,296
818

145,853

116,706

188
8,623
(1,473)
704
20,885

591

29,518

175,371

188
8,623
(328)
614
13,716

133

22,946

139,652

Approved for issue and signed on behalf of the Board of Directors on 13 March 2017.

Constantinos
Economides
Director

Mary Trimithiotou
Director

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The notes set out on pages F-20 to F-67 form an integral part of these consolidated financial statements.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016

F-17

F-18

Consolidated Statement of Profit or
Loss and Other Comprehensive Income

Consolidated Statement
of Changes in Equity

In millions of RR

Interest income

Interest expense

Expenses on deposits insurance

Net margin

Provision for loan impairment

Net margin after provision for loan impairment

Customer acquisition expense

Net gains/(losses) from operations with foreign currencies

Gain from sale of impaired loans

Insurance premiums earned

Insurance claims incurred

Fee and commission income

Fee and commission expense

Administrative and other operating expenses

Net gains from investment securities available for sale

Other operating income

Profit before tax

Income tax

Profit for the year

Other comprehensive income:

Items that may be reclassified to profit or loss

Investment securities available for sale and Repurchase receivables

- Net gains arising during the year, net of tax

- Net gains reclassified to profit or loss upon disposal or impairment, net of tax

Other comprehensive income for the year, net of tax

Total comprehensive income for the year

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

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

Note

2016

47,824

(13,348)

(450)

34,026

(8,386)

25,640

(6,661)

239

1,348

(490)

8,401

(3,512)

(11,321)

214

658

14,564

(3,553)

11,011

629

(171)

458

11,469

63.10

61.54

2015

37,562

(12,707)

(258)

24,597

(14,695)

9,902

(3,662)

(236)

1,170

(411)

4,775

(1,961)

(7,281)

209

2,566

(715)

1,851

384

(26)

358

2,209

10.38

10.36

In millions of RR

Note

Share
capital

Share
premium

Share-based
payment
reserve

Treasury
shares

Reval-
uation
reserve

Retained
earnings

Total

Balance at 1 January 2015

188

8,623

587

(5)

(225)

11,800

20,968

Profit for the year

Other comprehensive income:

Revaluation of investment
securities available for sale and
Repurchase receivables

Total comprehensive income
for 2015

GDRs buy-back

Share-based payment reserve

20,37

Shares sold under ESOP

Total transactions with owners

Balance at
31 December 2015

Profit for the year

Other comprehensive income:

Investment securities available for
sale and Repurchase receivables

Total comprehensive income
for 2016

GDRs buy-back

Share-based payment reserve

20,37

Dividends

Total transactions with owners

Balance at
31 December 2016

188

8,623

(66)

614

(324)

(323)

(328)

(1,246)

101

(1,145)

1,851

358

1,851

2,209

(324)

231

133

13,716

22,946

11,011

458

11,011

11,469

(1,246)

664

855

(4,506)

(3,842)

(4,897)

188

8,623

704

(1,473)

591

20,885

29,518

The notes set out on pages F-20 to F-67 form an integral part of these Consolidated Financial Statements.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-19

F-20

Consolidated Statement
of Cash Flows

In millions of RR

Cash flows from operating activities

Interest received

Interest paid

Expenses on deposits insurance paid

Customers acquisition expenses paid

Cash received from trading in foreign currencies and operations with financial
derivatives

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 (increase)/decrease in CBRF mandatory reserves

Net decrease/(increase) in due from banks

Net increase in loans and advances to customers

Net (increase)/decrease in guarantee deposits with payment systems

Net increase in other financial assets

Net increase in other non-financial assets

Net decrease in due to banks

Net increase in customer accounts

Net increase/(decrease) in other financial liabilities

Net cash from 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 sale and redemption of investments available for sale

Net cash used in investing activities

Cash flows from financing activities

Proceeds from debt securities in issue

Repayment of debt securities in issue

Repayment of subordinated debt

GDR’s buy-back

Dividends paid

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net 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

2016

2015

46,964

(13,275)

(392)

(4,237)

6,713

1,075

(3,546)

8,169

515

(5,346)

(4,639)

35,059

(13,065)

(222)

(2,625)

2,511

1,302

(1,847)

4,775

262

(3,170)

(69)

32,069

22,948

(542)

285

(701)

(27,668)

(20,640)

(109)

(4,031)

(164)

(5,683)

32,114

2,017

28,288

(3,022)

(633)

(62,804)

46,827

(19,632)

3,000

(1,885)

(742)

(1,246)

(4,227)

(5,100)

(1,048)

2,508

13,689

16,197

373

(1,385)

(1,010)

(4,414)

38,887

(577)

33,492

(1,726)

(348)

(13,860)

3,047

(12,887)

1,857

(19,977)

(324)

(18,444)

828

2,989

10,700

13,689

The notes set out on pages F-20 to F-67 form an integral part of these consolidated financial statements.

Notes to the Consolidated
Financial Statements
31 December 2016
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 2016 for TCS Group Holding PLC (the “Company”) and its subsidiaries
(together referred to as the “Group”), and in accordance with the requirements of the Cyprus Companies Law, Cap.113.

The Company was incorporated, and is domiciled, in Cyprus in accordance with the provisions of the Companies Law, Cap.113.

The Board of Directors of the Company at the date of authorisation of these consolidated financial statements consists of:
Constantinos Economides, Alexios Ioannides, Mary Trimithiotou, Philippe Delpal, Jacques Der Megreditchian and Martin Cocker.

The Company Secretary is: Caelion Secretarial Limited, 25 Spyrou Araouzou 25, Berengaria 25, 5th floor, Limassol, Cyprus.

At 31 December 2016 and 2015 the share capital of the Group is comprised of “class A” shares and “class B” shares. A “class A” share
is an ordinary share with a nominal value of USD 0.04 per share and carrying one vote. A “class B” share is an ordinary share with a
nominal value of USD 0.04 per share and carrying 10 votes. As at 31 December 2016 and 2015 the number of “class A” shares is
90,494,146 and “class B” shares is 92,144,679.

On 25 October 2013 the Group completed an initial public offering of its “Class A” ordinary shares in the form of global depository
receipts (GDRs) listed on the London Stock Exchange plc.

As at 31 December 2016 and 2015 the entities holding either Class A or Class B shares of the Company were:

Tadek Holding & Finance S.A.

Guaranty Nominees Limited (JP Morgan Chase Bank
NA)

Rousse Nominees Limited

Vostok Emerging Finance Ltd

Altruco Trustees Limited

Tasos Invest & Finance Inc.

Vizer Limited

Maitland Commercial Inc.

Norman Legal S.A.

Total

Class
of shares

Class B

31 December
2016

31 December
2015

Country
of Incorporation

50.45%

British Virgin Islands

Class A

Class B

41.45%

42.52%

United Kingdom

2.88%

3.49%

1.73%

0.00%

2.88%

3.49%

0.66%

0.00%

Guernsey

Bermuda

Cyprus

British Virgin Islands

100.00%

Guaranty Nominees Limited is a company holding class A shares of the Company for which global depositary receipts are issued under
a deposit agreement made between the Company and JP Morgan Chase Bank NA signed in October 2013.

The shareholding of Altruco Trustees Limited represents shares held under the share-based payment plan (ESOP) only (Note 37).

As at 31 December 2016 and 2015 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 2016 and 2015 the ultimate controlling party of the Company is Mr. Oleg Tinkov. Mr. Oleg Tinkov controls 91.1% of
the aggregated voting rights attaching to the Class A and B shares.

The Group owns 100% of shares and has 100% of voting rights of each of these subsidiaries as at 31 December 2016 and 2015
except for TCS Finance Ltd and Tinkoff Long-Term Incentive Plan Employee Benefit Trust (“EBT”) (see below).

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

JSC Tinkoff Insurance (the “Insurance Company”) provides insurance services.

LLC "Microfinance company "Т-Finans" provides micro-finance services to clients of the Group.

TCS Finance Ltd is a structured entity which issued debt securities for the Group. The Group neither owns shares nor has voting rights
of this company. However, this entity was consolidated as it was specifically set up for the purposes of the Group, and the Group has
exposure to substantially all risks and rewards through outstanding guarantees of the entity’s obligations.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-21

F-22

Notes to the Consolidated
Financial Statements Continued
31 December 2016
1 Introduction Continued
LLC TCS provides printing and distribution services to the Group.

Goward Group Ltd is an investment holding company which manages part of the Group’s assets.

LLC Feniks is a debt collection agency.

Tinkoff Software DC provides software development services to the Group.

EBT is a special purpose trust which has been specifically created for the long-term incentive programme for Management of the Group
(MLTIP).

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

The Bank participates in the state deposit insurance scheme, which was introduced by Federal Law № 177-FZ “Deposits of individuals
insurance in the Russian Federation” dated 23 December 2003. The State Deposit Insurance Agency guarantees repayment of 100%
of individual deposits up to RR 1,4 million per individual in case of the withdrawal of a license of a bank or a CBRF-imposed moratorium
on payments.

Registered address and place of business. The Company’s registered address is 25 Spyrou Araouzou 25, Berengaria 25, 5th floor,
Limassol, Cyprus. The Bank’s registered address is 1-st Volokolamsky proezd, 10, building 1, 123060, Moscow, Russian Federation.
The Group’s principal place of business is the Russian Federation.

Presentation currency. These consolidated financial statements are presented in millions of Russian Rubles (RR).

2 Operating Environment of the Group

Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly
sensitive to global oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes
and varying interpretations (Note 33). During 2016 the Russian economy continued to be impacted by low oil prices, ongoing political
tension in the region and international sanctions against certain Russian companies and individuals, all of which contributed to the
country’s economic recession characterised by a decline in gross domestic product.

The financial markets continue to be volatile and are characterised by frequent significant price movements and increased trading
spreads. This operating environment has a significant impact on the Group’s operations and financial position. Management is taking
necessary measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation
are difficult to predict and management’s current expectations and estimates could differ from actual results.

Refer to Note 4 for assumptions on critical accounting estimates.

3 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, securities
at fair value through profit or loss, 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.

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 which management considers to be the most representative of fair value for quoted financial
assets and liabilities is the weighted average price during the business day. A portfolio of financial derivatives or other financial assets
and liabilities that are not traded in an active market is measured at fair value on the basis of the price that would be received to sell
a net long position (i.e. an asset) for a particular risk exposure or paid to transfer a net short position (i.e. 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.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An
incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and
commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies
and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs
or internal administrative or holding costs.

Amortised cost 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.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-23

F-24

Notes to the Consolidated
Financial Statements Continued
31 December 2016
3 Significant Accounting Policies Continued
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.

Financial assets at Fair Value Through Profit or Loss. Financial assets at fair value through profit or loss (FVTPL) have two sub-
categories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading. The Group classifies
securities into assets designated at FVTPL. Management of the Group designates securities into this category only if (a) such
classification eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities
or recognising the gains and losses on them on different bases; or (b) a group of financial assets, financial liabilities or both is managed
and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and
information on that basis is regularly provided to and reviewed by the Group’s key management personnel.

Initial recognition of financial instruments. Derivatives and other financial instruments at FVTPL 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 observable data from active 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 and forward contracts 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.

Due from other banks. Amounts due from other banks are recorded when the Group advances money to counterparty banks with
no intention of trading the resulting unquoted non-derivative receivable due on fixed or determinable dates. Amounts due from other
banks are carried at amortised cost.

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.

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:

• an 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 chang-

es in national or local economic conditions that impact the borrower;

• concession is granted by the Bank 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 consolidated Statement of Profit or Loss and other comprehensive income in the
period when sale occurred.

Repayments of written-off loans. Recovery of amounts previously written off as uncollectible are credited directly to the provisions
line in profit or loss for the period.

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.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-25

F-26

Notes to the Consolidated
Financial Statements Continued
31 December 2016
3 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 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:

Building

Equipment

Vehicles

Useful lives in years

3 to 10

Leasehold improvements

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

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 with an indefinite
useful life. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s
fair value less costs to sell and its value in use.

The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in profit or loss.

An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the
asset’s value in use or fair value less costs to sell.

Intangible assets 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 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.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-27

F-28

Notes to the Consolidated
Financial Statements Continued
31 December 2016
3 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. Levies and charges, such as taxes other than income tax or regulatory fees based on information related
to a period before the obligation to pay arises, are recognised as liabilities when the obligating event that gives rise to pay a levy occurs,
as identified by the legislation that triggers the obligation to pay the levy. If a levy is paid before the obligating event, it is recognised as
a prepayment.

Share capital. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in
equity as a deduction, net of tax, from the proceeds.

Share premium. Share premium is the difference between the fair value of the consideration receivable for the issue of shares and
the nominal value of the shares. The share premium account can only be resorted to for limited purposes, which do not include the
distribution of dividends, and is otherwise subject to the provisions of the Cyprus Companies Law on reduction of share capital.

Treasury shares. Where the Company or its subsidiaries purchase the Company’s equity instruments, the consideration paid,
including any directly attributable incremental external costs, net of income taxes, is deducted from equity attributable to the owners
of the Company until the equity instruments are reissued, disposed of or cancelled. Where such shares are subsequently disposed of or
reissued, any consideration received is included in equity. The value of GDRs transferred out of treasury shares for the purposes of the
long-term incentive programme for management of the Group are determined based on the weighted average cost.

Dividends. Dividends are recorded in equity in the period in which they are declared. Any dividends declared after the end of the
reporting period and before the consolidated financial statements are authorised for issue, are disclosed in the Note “Events after
the End of the Reporting Period”. 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.

Insurance contracts. Insurance contracts are those contracts that transfer significant insurance risk. Insurance risk exists when the
Group has uncertainty in respect of at least one of the following matters at inception of the contract: occurrence of insurance event,
date of occurrence of the insurance event, and the claim value in respect of the occurred insurance event. Such contracts may also
transfer financial risk.

Non-life insurance (short-term insurance). The below items from the consolidated statement of financial position of the Group are
accounted within Other financial assets and Other financial liabilities lines, the below items from the consolidated statement of profit
or loss and other comprehensive income of these consolidated financial statements are accounted within Income from insurance
operations and Insurance claims incurred lines.

• 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 relat-
ed 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.

• Claims. Claims are charged to the consolidated statement of profit or loss and other comprehensive in-

come 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.

• 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 pro-
vision the Group uses historical experience and forward looking assumptions of ultimate loss ratios (including claims
handling expenses) and the level of in-force portfolio maintenance expenses. The expected claims are calculated hav-
ing regard to events that have occurred prior to the reporting date. For the purposes of final presentation of con-
solidated 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. Test-
ing of insurance reserves for non-life insurance is performed to ensure adequacy of contract liabilities. In per-
forming these tests, current estimates of future contractual cash flows, claims handling and administration ex-
penses are used. As a result of liability adequacy testing for non-life insurance, the Group sets up its URP.

• Claims handling expenses. Claims handling expenses are recognised in profit or loss for the period as incurred and in-
clude direct expenses related to negotiations and subsequent claims handling, as well as indirect expenses, including ex-
penses of claims handling department and administrative expenses directly related to activities of this department.

• 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 consist-
ently 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 or 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.

• Subrogation income. The Group has a right to pursue third parties responsible for loss for payment of some or all costs relat-
ed 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) separate-
ly 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 am-
ortised 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.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-29

F-30

Notes to the Consolidated
Financial Statements Continued
31 December 2016
3 Significant Accounting Policies Continued
• Insurance agency fee. In cases when the Group acts as an agent and attracts clients for the third-party in-

surance companies, the Bank receives commission income, which is recognised within Fee and commission in-
come in the consolidated statement of profit or loss and other comprehensive income in full amount.

Insurance provisions

• Provision for unearned premiums. Provision for unearned premiums (UEPR) represents the propor-

tion of premiums written that relate to the unexpired term of policies in force as at the reporting date, cal-
culated on a time apportionment basis. UEPR is recognised within liabilities on a gross basis.

• Loss provisions. Loss provisions represent the accumulation of estimates for ultimate losses and include out-
standing claims provision (“OCP”) and provision for losses incurred but not yet reported (“IBNR”). Loss provi-
sions 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 assump-
tions 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.

• The methods of determining such estimates and establishing the resulting provisions are continually reviewed and updated. Re-
sulting adjustments are reflected in the consolidated statement of profit or 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.

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 2016 the rate of exchange used for translating foreign currency balances was USD 1 = RR 60.6569 (2015:
USD 1 = RR 72.8827), and the average rate of exchange was USD 1 = RR 67.0508 (2015: USD 1 = RR 60.7913 ).

Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position
only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis,
or to realise the asset and settle the liability simultaneously. Such a right of set off (a) must not be contingent on a future event and (b)
must be legally enforceable in all of the following circumstances: (i) in the normal course of business, (ii) the event of default and (iii)
the event of insolvency or bankruptcy.

Earnings per share. Earnings per share are determined by dividing the profit or loss attributable to owners of the Bank by the
weighted average number of participating shares outstanding during the reporting year, excluding treasury shares. For the purpose of
diluted earnings per share calculation the Group considers dilutive effects of shares granted under employee share option plans.

Staff costs and related contributions. Wages, salaries, contributions to the Russian Federation state pension and social insurance
funds, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services
are rendered by the employees of the Group. The Group has no legal or constructive obligation to make pension or similar benefit
payments beyond the payments to the statutory defined contribution scheme.

Segment reporting. 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.

Amendments of the consolidated financial statements after issue. The Board of Directors of the Company has the power to amend
the consolidated financial statements after issue.

Changes in presentation. The management of the Group made a decision to present consolidated financial information for the
year ended 2016 in millions of Russian Roubles (RR). The corresponding figures have been adjusted accordingly. Where necessary,
corresponding figures have been adjusted to conform to the presentation of the current year amounts.

The effect of reclassifications for presentation purposes was as follows on amounts in the consolidated statement of profit or loss and
other comprehensive income for the year ended 31 December 2015:

Expenses on deposit insurance were reallocated from administrative expenses to a separate line within consolidated statement of
profit or loss and other comprehensive income:

In millions of RR

As originally presented Reclassification

As reclassified

Expenses on deposits insurance

Administrative and other operating expenses

(7,539)

(258)

258

(258)

(7,281)

Expenses on deposit insurance were reallocated from administrative expenses to a separate line within consolidated statement
of cash flows:

In millions of RR

As originally presented Reclassification

As reclassified

Expenses on deposits insurance paid

Administrative and other operating expenses
paid

(3,392)

(222)

222

(222)

(3,170)

The management of the Group made a detailed review of the components that make up interest income and identified two types of
commissions (insurance fee and sms fee) which now have more characteristics of being service fees than being part of the effective
interest income of the loans. The management considers that the reclassification of these commissions to Fee and commission income
will result in a more reliable and relevant presentation of the financial information and is more consistent with the market practice of
many other banks. The reclassification does not result in any change to the amount of income recognised in respect of these fees in
any one period. The management also reviewed its approach to the classification of foreign currency exchange transactions fee, which
represents a commission for foreign exchange transactions of the Group's clients. They concluded it was appropriate to reclassify this
from Gains from operations with foreign currencies to Fee and commission income.

The accounting policy for the repayments of written-off loans was changed during the year ended 31 December 2016.

The effect of reclassifications was as follows on amounts in the consolidated statement of profit or loss and other comprehensive
income for the year ended 31 December 2015:

In millions of RR

Interest income

Net gains/(losses) from operations with foreign
currencies

Fee and commission income

Provision for loan impairment

As originally presented

Reclassification

As reclassified

40,773

170

1,371

(14,908)

(3,211)

(406)

3,404

213

37,562

(236)

4,775

(14,695)

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-31

F-32

Notes to the Consolidated
Financial Statements Continued
31 December 2016
3 Significant Accounting Policies Continued
The effect of reclassifications was as follows on amounts in the consolidated statement of cash flows for the year ended
31 December 2015:

In millions of RR

Interest received

Cash received from trading in foreign currencies

Fee and commissions received

As originally presented

Reclassification

As reclassified

38,057

2,917

1,371

(2,998)

(406)

3,404

35,059

2,511

4,775

4 Critical Accounting Estimates and Judgements in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognized in the consolidated financial statements and the
carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are
based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying
the accounting policies. Judgements that have the most significant effect on the amounts recognized in the consolidated financial
statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next
financial year include:

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 instalment. 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 estimating 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 the 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 are given the most weight in calculating the
provision for impairment. This allows the Group to apply most recent data to estimate losses on loans to individuals as the latest trends
are accounted for, and to decrease the default probabilities volatility. The loan loss provision includes adjustment for the expected
future recovery of impaired loans based on conservative sampling of historical data.

As at 31 December 2016 the positive effect of the above adjustment on provision for loan impairment is approximately RR 492
millions (2015: RR 256 million). To the extent that the incurred losses as at 31 December 2016 resulting from future cash flows vary
by 1.0% (2015: 1.0%) from the calculated estimate, the profit would be approximately RR 1,204 million (2015: RR 1,011 million)
higher or lower.

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 33.

5 Adoption of New or Revised Standards and Interpretations and New Accounting
Pronouncements

The following amended standards became effective for the Group from 1 January 2016, but did not have any material impact on the
Group:

• Accounting for Acquisitions of Interests in Joint Operations Amendments to IFRS 11 (issued on 6 May 2014 and effective for the peri-

ods beginning on or after 1 January 2016).

• 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).

• Agriculture: Bearer plants Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for annual periods beginning 1

January 2016).

• Equity Method in Separate Financial Statements Amendments to IAS 27 (issued on 12 August 2014 and effective for annual periods

beginning 1 January 2016).

• Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January

2016).

• Disclosure Initiative Amendments to IAS 1 (issued on 18 December 2014 and effective for annual periods on or after 1 January 2016).

•

Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28 (issued on 18 December 2014
and effective for annual periods on or after 1 January 2016).

• Defined Benefit Plans: Employee Contributions - Amendments to IAS 19 (issued on 21 November 2013 and effective for annual periods

beginning on or after 1 February 2015).

• Annual Improvements to IFRSs 2012 (issued on 12 December 2013 and effective for annual periods beginning on or after 1 February

2015).

6 New Accounting Pronouncements

Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January
2017 or later, and which the Group has not early adopted.

IFRS 9 “Financial Instruments: Classification and Measurement” (amended 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 subse-
quently at amortised cost, those to be measured subsequently at fair value through other comprehensive in-
come (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 un-
changed to IFRS 9. The key change is that an entity will be required to present the effects of changes in own cred-
it risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.

•

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 pro-
vides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and contin-
uing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging.

The Group is working on implementing the standard and the adoption of IFRS 9 is expected to have a significant impact on equity upon
implementation that currently cannot be reliably estimated. The implementation of this standard has no impact on statutory regulatory
capital requirements.

IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after
1 January 2018). 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.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-33

F-34

Notes to the Consolidated
Financial Statements Continued
31 December 2016
6 New Accounting Pronouncements Continued
IFRS 16, Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019). The
new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the
lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing.
Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and,
instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases
with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from
interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.
Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases
differently.

Disclosure Initiative Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or
after 1 January 2017). The amended IAS 7 will require disclosure of a reconciliation of movements in liabilities arising from financing
activities. The Group will present this disclosure in its 2017 financial statements.

Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts Amendments to IFRS 4 (issued on 12 September
2016 and effective, depending on the approach, for annual periods beginning on or after 1 January 2018 for entities that
choose to apply temporary exemption option, or when the entity first applies IFRS 9 for entities that choose to apply the
overlay approach). The amendments address concerns arising from implementing the new financial instruments Standard, IFRS 9,
before implementing the replacement Standard that the IASB is developing for IFRS 4. These concerns include temporary volatility in
reported results. The amendments introduce two approaches: an overlay approach and a deferral approach. The amended Standard
will give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss,
the volatility that could arise when IFRS 9 is applied before the new insurance contracts Standard is issued.

In addition, the amended Standard will give companies whose activities are predominantly connected with insurance an optional
temporary exemption from applying IFRS 9 until 2021. The entities that defer the application of IFRS 9 will continue to apply the
existing financial instruments Standard—IAS 39.

The amendments to IFRS 4 supplement existing options in the Standard that can already be used to address the temporary volatility.

Annual Improvements to IFRSs 2014-2016 cycle (issued on 8 December 2016 and effective for annual periods beginning on
or after 1 January 2017 for amendments to IFRS 12, and on or after 1 January 2018 for amendments to IFRS 1 and IAS 28).
The improvements impact three standards. The amendments clarify the scope of the disclosure requirements in IFRS 12 by specifying
that the disclosure requirements in IFRS 12, other than those relating to summarised financial information for subsidiaries, joint
ventures and associates, apply to an entity's interests in other entities that are classified as held for sale or discontinued operations
in accordance with IFRS 5. IFRS 1 was amended and some of the short-term exemptions from IFRSs in respect of disclosures about
financial instruments, employee benefits and investment entities were removed, after those short-term exemptions have served their
intended purpose. The amendments to IAS 28 clarify that an entity has an investment-by-investment choice for measuring investees
at fair value in accordance with IAS 28 by a venture capital organisation, or a mutual fund, unit trust or similar entities including
investment linked insurance funds. Additionally, an entity that is not an investment entity may have an associate or joint venture that
is an investment entity. IAS 28 permits such an entity to retain the fair value measurements used by that investment entity associate
or joint venture when applying the equity method. The amendments clarify that this choice is also available on an investment-by-
investment basis.

IFRIC 22 Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016 and effective for annual
periods beginning on or after 1 January 2018). The interpretation addresses how to determine the date of the transaction for
the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part thereof)
on the derecognition of a non-monetary asset or non-monetary liability arising from an advance consideration in a foreign currency.
Under IAS 21, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related
asset, expense or income (or part thereof) is the date on which an entity initially recognises the non-monetary asset or non-monetary
liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine
the date of the transaction for each payment or receipt of advance consideration. IFRIC 22 only applies in circumstances in which an
entity recognises a non-monetary asset or non-monetary liability arising from an advance consideration. IFRIC 22 does not provide
application guidance on the definition of monetary and non-monetary items. An advance payment or receipt of consideration generally
gives rise to the recognition of a non-monetary asset or non-monetary liability, however, it may also give rise to a monetary asset or
liability. An entity may need to apply judgment in determining whether an item is monetary or non-monetary.The Group is currently
assessing the impact of these new standards on its financial statements.

The following other new pronouncements are not expected to have any material impact on the Group when adopted:

• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 10 and IAS 28 (is-

sued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB).

• Recognition of Deferred Tax Assets for Unrealised Losses Amendments to IAS 12 (issued on 19 Jan-

uary 2016 and effective for annual periods beginning on or after 1 January 2017).

• Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016

and effective for annual periods beginning on or after 1 January 2018).

• Amendments to IFRS 2, Share-based Payment (issued on 20 June 2016 and effec-

tive for annual periods beginning on or after 1 January 2018).

• Amendments to IFRS 4, Insurance Contracts (issued on 12 September 2016 and ef-

fective for annual periods beginning on or after 1 January 2018).

• Transfers of Investment Property Amendments to IAS 40 (issued on 8 December 2016 and ef-

fective for annual periods beginning on or after 1 January 2018).

Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s
consolidated financial statements.

7 Cash and Cash Equivalents

In millions 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:

- AA- to AA+ rated

- A- to A+ rated

- BBB- rated

- BB- to BB+ rated

- B- to B+ rated

Unrated

Total Cash and Cash Equivalents

31 December 2016

31 December 2015

6,178

986

8,164

328

513

16,197

5,315

1,179

6,807

237

13,689

The Group evaluates the quality of cash and cash equivalents and all other assets with rated organizations in the consolidated
statement of financial position 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 well-established Russian
organizations with no credit rating set by Fitch international ratings, Standard & Poor’s or Moody’s ratings. There is no history of
default of these organizations.

Placements with other banks and organizations with original maturities of less than three months include placements under reverse
sale and repurchase agreements in the amount of RR 6,187 million as at 31 December 2016 (31 December 2015: RR 5,733 million).

Cash and cash equivalents are neither impaired nor past due. Refer to Note 35 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 are disclosed in Note 31.

8 Securities at fair value through profit or loss

In millions of RR

Corporate bonds

Total securities at fair value through profit or loss

31 December 2016

31 December 2015

164

Analysis by credit quality of debt securities outstanding at 31 December 2016 is as follows:

In millions of RR

Neither past due nor impaired

A- rated

BB- to BB+ rated

Total neither past due nor impaired securities at fair
value through profit or loss

Corporate bonds

103

164

Interest rate, maturity and geographical risk concentration analyses of securities at fair value through profit or loss are disclosed
in Note 31.

Total

103

164

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

F-35

F-36

Notes to the Consolidated
Financial Statements Continued
31 December 2016
9 Loans and Advances to Customers

In millions of RR

Loans to individuals:

Credit card loans

Instalment 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 2016

31 December 2015

110,440

6,554

2,160

1,281

120,435

(17,523)

102,912

90,382

8,283

1,724

692

101,081

(19,014)

82,067

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 (“instalment loans”).

Cash loans represent a product for the borrowers who have a positive credit history and who do not have overdue loans in other banks.
Cash loans are loans provided to customers via the Bank’s debit cards. These loans are available for withdrawal without commission.

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.

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 20 RR thousand

20-40 RR thousand

40-60 RR thousand

60-80 RR thousand

80-100 RR thousand

100-120 RR thousand

120-140 RR thousand

More than 140 RR thousand

Total cards

31 December 2016

31 December 2015

454,610

351,823

291,083

273,350

210,229

185,614

311,466

137,260

441,854

334,214

240,459

200,194

171,692

144,918

266,349

71,613

2,215,435

1,871,293

Table above includes credit cards less than 180 days overdue.

Movements in the provision for loan impairment for the year ended 31 December 2016 are as follows:

In millions of RR

Loans to individuals:

Credit card loans

Instalment loans

Cash loans

POS loans

As at 31 De-
cember 2015

Sales of im-
paired loans

Amounts writ-
ten-off during
the period

Provision for
impairment
during the
period

As at
31 December
2016

14,487

4,093

272

162

(950)

(80)

(3)

(4)

(7,328)

(2,181)

(158)

(134)

(9,801)

7,349

1,586

318

9,347

13,558

3,418

429

118

17,523

Total provision for loan impairment

19,014

(1,037)

The provision for impairment during the year ended 31 December 2016 presented in the table above differs from the amount
presented in the profit or loss for the year due to RR 961 million, recovery of amounts previously written off as uncollectible. The
amount of the recovery was credited directly to the provisions line in profit or loss for the period.

Movements in the provision for loan impairment for the year ended 31 December 2015 are as follows:

In millions of RR

Loans to individuals:

Credit card loans

Instalment loans

Cash loans

POS loans

As at 31 De-
cember 2014

Sales of im-
paired loans

Amounts writ-
ten-off during
the period

Provision for
impairment
during the
period

As at
31 December
2015

15,609

3,134

458

127

(371)

(59)

(12,080)

(2,166)

(420)

(126)

11,329

3,184

234

161

14,487

4,093

272

162

Total provision for loan impairment

19,328

(430)

(14,792)

14,908

19,014

The provision for impairment the year ended 31 December 2015 presented in the table above differs from the amount presented in
the profit or loss for the period due to RR 213 million, recovery of amounts previously written off as uncollectible. The amount of the
recovery was credited directly to the provisions line in profit or loss for the period.

In 2016 the Group sold impaired loans to third parties (external debt collection agencies) with a gross amount of RR 1,057 million
(2015: RR 439 million), and provision for impairment of RR 1,037 million (2015: RR 430 million). 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 48 million (2015: RR 28 million).

Analysis of loans by credit quality is as follows:

31 December 2016

31 December 2015

In millions of RR

Neither past due nor impaired:

- new

Loans collectively assessed
for impairment (gross):

Credit
card
loans

3,370

Instal-
ment
loans

- non-overdue

91,519

4,423

- less than 30 days overdue

- 30 to 90 days overdue

- 90 to 180 days overdue

- 180 to 360 days overdue

over 360 days overdue

- loans in courts

Less: Provision for loan
impairment

2,517

2,255

1,901

2,367

469

6,042

453

373

395

868

Cash
loans

POS
loans

Credit
card
loans

Instal-
ment
loans

Cash
loans

POS
loans

1,144

191

2,166

348

130

794

963

72,610

5,460

1,097

2,347

2,622

2,796

3,516

4,325

626

681

583

933

147

392

109

Total loans

96,882

3,136

1,731

1,163

75,895

4,190

(13,558)

(3,418)

(429)

(118)

(14,487)

(4,093)

(272)

1,452

(162)

530

Loans in category “new” represent loans provided to borrowers for which the date of the first payment did not occur before the
reporting date and thus no impairment provision is considered necessary.

Loans in courts are loans to delinquent borrowers, against which the Group has 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 35 for the estimated fair value of loans and advances to customers.

Interest rate, maturity and geographical risk concentration analyses of loans and advances to customers are disclosed in Note 31.
Information on related party balances is disclosed in Note 37.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

F-37

F-38

Notes to the Consolidated
Financial Statements Continued
31 December 2016
10 Investment Securities Available for Sale

In millions of RR

Corporate bonds

Russian government bonds

Total investment securities available for sale

31 December 2016

31 December 2015

31,333

1,953

33,286

Analysis by credit quality of debt securities outstanding at 31 December 2016 is as follows:

In millions of RR

Neither past due nor impaired

BBB- to A- rated

BB- to BB+ rated

B- to B+ rated

Total neither past due nor impaired
investment securities available for sale

Corporate bonds

Russian government
bonds

14,210

16,607

516

31,333

1,483

470

1,953

Analysis by credit quality of debt securities outstanding at 31 December 2015 is as follows:

In millions of RR

Neither past due nor impaired

BBB rated

BB- to BB+ rated

B- to B+ rated

Total neither past due nor impaired
investment securities available for sale

Corporate bonds

Russian government
bonds

7,481

7,687

455

15,623

258

312

The movements in investment securities available for sale for the period ended 31 December 2016 are as follows:

In millions of RR

Carrying amount at 1 January

Purchases

Redemption of investment securities available for sale

Disposal of investment securities available for sale

Interest income accrued on investment securities available for sale (Note 21)

Interest received

Receipt under Sale and Repurchase agreements

Pledged under Sale and Repurchase agreements

Foreign exchange loss on investment securities available for sale in foreign currency

Revaluation through other comprehensive income

Carrying amount at 31 December

15,624

312

15,936

Total

15,693

17,077

516

33,286

Total

7,535

7,946

455

15,936

2016

15,936

62,644

(38,335)

(8,492)

2,379

(2,074)

2,344

(1,902)

786

33,286

The movements in investment securities available for sale for the period ended 31 December 2015 are as follows:

In millions of RR

Carrying amount at 1 January

Purchases

Redemption of investment securities available for sale

Disposal of investment securities available for sale

Interest income accrued on investment securities available for sale and repurchase agreements (Note 21)

Interest received

Receipt under Sale and Repurchase agreements

Pledged under Sale and Repurchase agreements

Foreign exchange gain on investment securities available for sale in currency

Revaluation through other comprehensive income

Carrying amount at 31 December

2015

217

13,860

(2,309)

(738)

1,007

(880)

5,492

(1,877)

702

462

15,936

Interest rate, maturity and geographical risk concentration analyses of investment securities available for sale are disclosed in Note 31.

11 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 2016 and 2015) as a guarantee deposit in favour of MasterCard and Visa. The amount of deposit is calculated as a
percentage of monthly credit card transactions turnovers.

12 Tangible Fixed and Intangible Assets

Building

Equipment

Leasehold im-
prove-ments

Vehicles

Total tangible
fixed assets

Intangible
assets

In millions of RR

Cost

At 31 December 2014

Additions

Disposals

At 31 December 2015

Additions

Disposals

1,564

2,452

800

174

(76)

898

397

(10)

At 31 December 2016

4,016

1,285

Depreciation and
amortisation

At 31 December 2014

Charge for the period
(Note 26)

Disposals

At 31 December 2015

Charge for the period
(Note 26)

Disposals

At 31 December 2016

Net book value

At 31 December 2015

At 31 December 2016

(10)

1,564

4,006

(522)

(147)

(594)

(157)

(741)

304

544

543

(92)

458

(307)

(74)

(381)

(79)

(368)

162

(2)

(11)

(8)

(17)

(6)

(23)

1,384

1,738

(78)

3,044

2,856

(102)

5,798

1,707

477

2,184

664

2,848

(840)

(582)

(229)

(992)

(252)

102

(183)

(765)

(263)

(1,142)

(1,028)

2,052

4,656

1,419

1,820

Intangible assets acquired during the years ended 31 December 2016 and 2015 mainly represent accounting software, retail banking
software, insurance software, licenses and development of software. Intangible assets also include the license for insurance operations.

During 2016 the Group acquired an office building for its own use for RR 1,932 million (VAT included). The building was put into use in
September 2016.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

F-39

F-40

Notes to the Consolidated
Financial Statements Continued
31 December 2016
13 Other Financial and Non-financial Assets

16 Debt Securities in Issue

31 December 2016

31 December 2015

In millions of RR

Date of maturity

31 December 2016

31 December 2015

In millions 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

6,679

350

150

7,179

1,112

136

1,248

3,355

127

3,499

1,701

1,780

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 3 days. This amount includes prepayment to the payment systems for
operations during Holiday period.

Prepaid expenses consist of prepayments for TV advertising, postal services and office rent.

Other financial assets are not impaired and not past due. Refer to Note 35 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 31.

14 Due to Banks

In millions of RR

Due to other banks

Short-term loan from CBRF

Sale and repurchase agreements with CBRF

Total due to banks

31 December 2016

31 December 2015

489

251

4,014

2,127

6,392

On 14 October 2015 the Group raised two loans from CBRF in the total amount of RR 2,000 million with contractual interest rate of
12.75%. The loans were fully repaid on 12 January 2016.

On 5 November 2015 the Group raised two loans from CBRF in the total amount of RR 2,000 million with contractual interest rate of
12.75%. The loans were fully repaid on 3 February 2016.

Refer to Note 35 for the disclosure of the fair value of amounts due to banks.

15 Customer Accounts

In millions 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 2016

31 December 2015

5,441

368

46,729

72,018

124,556

518

375

24,506

63,944

89,343

Refer to Note 35 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 31. Information on related party balances is disclosed in Note 37.

RR denominated bonds issued in June 2016

Euro-Commercial Paper issued in December 2015

RR denominated bonds issued in May 2013

Total Debt Securities in Issue

24 June 2021

20 June 2016

24 May 2016

2,986

1,877

1,905

On 30 June 2016 the Group issued RR denominated bonds with a nominal value of RR 3,000 million at 11.7% coupon rate maturing on
24 June 2021.

On 2 December 2015 the Group issued RR denominated Euro-Commercial Paper (ECP) with a nominal value of RR 2,000 million with a
discount of 7.2% maturing on 20 June 2016. On 20 June 2016 the Group redeemed all outstanding bonds of this issue at maturity.

On 28 May 2013 the Group issued RR denominated bonds with a nominal value of RR 3,000 million at 10.25% coupon rate maturing
on 24 May 2016. On 24 May 2016 the Group redeemed all outstanding bonds of this issue at maturity.

All bonds issued by the Group are traded on OJSC Moscow Exchange. Refer to Note 35 for the disclosure of the fair value of debt
securities in issue. Interest rate analyses of debt securities in issue are disclosed in Note 31.

17 Subordinated Debt

As at 31 December 2016 the carrying value of the subordinated debt was RR 11,514 million (31 December 2015: RR 14,609 million).
On 6 December 2012 and 18 February 2013 respectively the Group issued USD denominated subordinated bonds with a nominal
value of USD 125 million with zero premium and USD 75 million at a premium of 7.0% respectively, 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 31. Refer to Note 35 for
the disclosure of fair value of subordinated debt.

18 Insurance Provisions

In millions of RR

Insurance Provisions

Provision for unearned premiums

Loss provisions

Total Insurance Provisions

31 December 2016 31 December 2015

300

467

767

168

347

515

Movements in provision for unearned premiums for the year ended 31 December 2016 and 2015 are as follows:

In millions of RR

Provision for unearned
premiums as at 1 January

Change in provision, gross

Change in reinsurers’ share of
provision

Provision for unearned
premiums as at
31 December

2016

Reinsurer’s
share of pro-
vision

Gross provi-
sion

Provision net
of reinsurance

Gross provi-
sion

2015

Reinsurer’s
share of pro-
vision

Provision net
of reinsurance

169

131

300

169

131

105

300

168

105

168

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

F-41

F-42

Notes to the Consolidated
Financial Statements Continued
31 December 2016
18 Insurance Provisions Continued
Movements in loss provisions for the year ended 31 December 2016 and 2015 are as follows:

In millions of RR

OCP and IBNR

Loss provisions as at 1 January 2015

Change in provision

Netting with deferred acquisition costs

Loss provisions as at 31 December 2015

Change in provision

Netting with deferred acquisition costs

Loss provisions as at 31 December 2016

178

107

285

368

URP

(46)

(60)

19 Other Financial and Non-financial Liabilities

In millions of RR

Other Financial Liabilities

Settlement of operations with plastic cards

Trade payables

Other

Total Other Financial Liabilities

Other Non-financial Liabilities

Accrued administrative expenses

Taxes payable other than income tax

Other

Total Other Non-financial Liabilities

Provision for claims
handling expenses

Total loss provisions

185

208

(46)

347

180

(60)

467

31 December 2016

31 December 2015

2,031

1,052

3,112

682

646

292

1,620

622

638

1,296

381

406

818

Settlements of operations with plastic cards include funds that were spent by customers of the Bank by usage of plastic cards but have
not yet been compensated to payment systems by the Bank.

Accrued administrative expenses are mainly represented by accrued staff costs.

Interest rate, maturity and geographical risk concentration analyses of other financial liabilities are disclosed in Note 31.
Refer to Note 35 for disclosure of fair value of other financial liabilities.

20 Share Capital

In millions of RR except for the
number of shares

At 1 January 2015
GDRs buy-back
Shares sold under ESOP

At 31 December 2015
GDRs buy-back
GDRs and shares transferred
under MLTIP and ESOP

Number of
authorised
shares

Number of
outstanding
shares

190,479,500 182,638,825
-
-
-
-

190,479,500 182,638,825
-
-

At 31 December 2016

190,479,500 182,638,825

Ordinary
shares

Share premi-
um

Treasury
shares

188
-
-

188
-

188

8,623
-
-

8,623
-

8,623

(5)
(324)
1

(328)
(1,246)

101

(1,473)

Total

8,806
(324)
1

8,483
(1,246)

101

7,338

During the year ended 31 December 2016 the Group repurchased 5,659,853 GDRs at amount of RR 1,246 million at market prices.

As at 31 December 2016 treasury shares represent GDRs of the Group repurchased from the market for the purposes of MLTIP.

As at 31 December 2015 treasury shares represent GDRs of the Group repurchased from the market for the purposes of MLTIP and
shares issued for the purposes of ESOP. Refer to Note 37.

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, Equity LTIP and repurchased under MLTIP. Refer to Note 37.

Earnings per share are calculated as follows:

In millions of RR
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)

2016
11,011

2015
1,851

174,508

178,175

178,937

178,584

63.10
61.54

10.38
10.36

Information on dividends is disclosed in Note 29.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

F-43

F-44

Notes to the Consolidated
Financial Statements Continued
31 December 2016
21 Net margin

In millions of RR
Interest income
Loans and advances to customers, including:
Credit card loans
Instalment loans
POS loans
Cash loans
Interest income accrued on investment securities available for sale and repurchase receivables
Placements with other banks
Other interest income

Total Interest Income
Interest expense
Customer accounts
Subordinated debt
Due to banks
RR denominated bonds
Euro-Commercial Paper
Eurobonds

Total Interest Expense
Expenses on deposit insurance

Net margin

22 Customer Acquisition Expense

In millions of RR

Marketing and advertising

Staff costs

Credit bureaux

Telecommunication expenses

Other acquisition

2016

2015

42,853
896
516
561
2,379
577
42

47,824

10,606
1,952
487
180
123
-

13,348
450

34,026

2016

3,607

2,631

269

144

34,491
922
331
612
1,090
116
-

37,562

9,204
1,744
488
228
22
1,021

12,707
258

24,597

2015

1,828

1,584

175

Total customer acquisition expenses

6,661

3,662

Customer acquisition expenses represent expenses paid by the Group on services related to origination of card customers. 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 state pension fund in the amount of RR 565 million (2015: RR_322 million).

23 Net Gains from Operations with Foreign Currencies

In millions of RR

Net gains less losses from derivative revaluation

Foreign exchange translation losses less gains

Net gains/(losses) from trading in foreign currencies

Net gains/(losses) from operations with foreign currencies

2016

2,145

(2,347)

441

239

2015

1,918

(1,881)

(273)

(236)

24 Insurance Claims Incurred

In millions of RR

Claims paid

Change in loss provision

Claims handling expenses

Total insurance claims incurred

Staff and administrative expense for insurance operations are included in Note 26.

25 Fee and Commission Income and Expense

In millions of RR

Fee and commission income

Credit protection fee

Merchant acquiring commission

SMS fee

Interchange fee

Foreign currency exchange transactions fee

Card to card commission

Court fees reimbursement

Cash withdrawal fee

Legal entities current accounts commission

Placement fee

Other fees receivable

Total fee and commission income

2016

347

120

490

2015

237

162

411

2016

2015

3,603

1,256

898

483

269

232

225

150

112

275

2,593

551

480

405

406

109

106

8,401

4,775

Credit protection fee income represents fee for distributing credit insurance to borrowers of the Group. Sms fee income includes fee
for sms notification of borrowers of the Group which amounted to RR 730 million (2015: RR 405 million).

In millions of RR

Fee and commission expense

Payment systems

Service fees

Banking and other fees

Court fees reimbursement

Total fee and commission expense

2016

2015

3,007

1,314

450

398

193

3,512

1,961

Payment systems fees represent fees for MasterCard and Visa services. Service fees represent fees for statement printing, mailing
services and sms services.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

F-45

F-46

Notes to the Consolidated
Financial Statements Continued
31 December 2016
26 Administrative and Other Operating Expenses

In millions of RR

Staff costs

Taxes other than income tax

Operating lease expense for premises and equipment

Information services

Communication services

Amortization of intangible assets

Depreciation of fixed assets

Professional services

Stationery

Security expenses

Other administrative expenses

Note

2016

7,511

1,221

541

411

320

263

252

154

139

129

380

2015

4,705

722

481

255

242

183

229

134

171

Total administrative and other operating expenses

11,321

7,281

The expenses stated above include fees of RR 6.5 millions (2015: RR 6.5 millions) for audit services, RR 4.3 million (2015: RR 1
million) for tax consultancy services. During 2016 no expenses were incurred for other non-audit assurance services (2015: RR 0.5
million).

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

In millions of RR

Statutory social contribution to the pension fund

Share-based remuneration

2016

1,076

855

2015

817

The average number of employees employed by the Group during the reporting period was 10,217 (2015: 6,604).

27 Other Operating Income

In millions of RR

Income from marketing services

Subrogation fee

Insurance agency fees

Other operating income

Total other operating income

28 Income Taxes

Income tax expense comprises the following:

In millions of RR

Current tax

Deferred tax

Income tax expense for the year

2016

503

104

658

2016

(4,666)

1,113

(3,553)

2015

209

2015

(61)

(654)

(715)

The income tax rate applicable to the majority of the Group’s income is 20% (2015: 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% (2015: 12.5%).

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

In millions of RR

Profit before tax

Theoretical tax expense at statutory rate of 20% (2015: 20%)

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

- Non-deductible expenses

- Other including dividend tax

Utilisation of previously unrecognised tax loss carry forwards

Effects of different tax rates in other countries:

- Financial result of parent entity at 12.5% (2015: 12.5%)

Income tax expenses for the year

2016

14,564

(2,913)

(350)

(299)

(40)

(3,553)

2015

2,566

(513)

(200)

(3)

(715)

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% (2015: 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.

In millions 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
Securities at Fair Value through Profit or Loss
Accrued expenses
Customer accounts
Debt securities in issue
Financial derivatives
Insurance provision
Tax loss carried forward

Net deferred tax liabilities

In millions 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

Net deferred tax liabilities

31 December
2015

(Charged)/credited to
profit or loss

Charged to
OCI

31 December
2016

73
(57)
(219)

(34)
-
229
(85)
12
(2,268)
(16)
581

(1,784)

245
(189)
(134)

8
(1)
(3)
46
(23)
1,724
21
(581)

1,113

-
-
-

(114)
-
-
-
-
-
-
-

(114)

318
(246)
(353)

(140)
(1)
226
(39)
(11)
(544)
5
-

(785)

31 December
2014

(Charged)/credited to
profit or loss

Charged
to OCI

31 December
2015

148
(51)
(165)

56
257
(57)
5
(1,776)
(2)
(14)
559

(1,040)

(75)
(6)
(54)

-
(28)
(28)
7
(492)
2
(2)
22

(654)

-
-
-

(90)
-
-
-
-
-
-
-

(90)

73
(57)
(219)

(34)
229
(85)
12
(2,268)
-
(16)
581

(1,784)

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW

F-47

F-48

Notes to the Consolidated
Financial Statements Continued
31 December 2016
29 Dividends

In millions of RR

Dividends payable at 1 January

Dividends declared during the year

Dividends paid during the year

Foreign exchange loss on dividends payable

Dividends payable at 31 December

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)

2016

4,506

(4,227)

(112)

167

24.67

0.38

23.15

0.38

On 16 May 2016 the Board of Directors declared a dividend of RR 11.04 (USD 0.17) per share/per GDR amounting to RR 2,016 million
(USD 31 million) due for payment on 6 June 2016.

On 29 November 2016 the Board of Directors declared a dividend of RR 13.63 (USD 0.21) per share/per GDR amounting to
RR 2,490 million (USD 38.5 million) due for payment on 19 December 2016.

In 2016 all dividends were declared and paid in USD. No dividends were declared and paid in 2015.

Dividends payable at 31 December 2016 in the amount of RR 167 million are related to treasury shares acquired under MLTIP and
included in other non-financial liabilities.

30 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 Management of the Bank and the Management of the Insurance Company.

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

Total reportable segment liabilities

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

• Retail banking – representing customer current accounts, savings, deposits, investment savings products, cus-

tody, credit and debit cards, consumer loans, legal entities accounts and brokerage services.

•

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 represents 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.

In millions of RR

2016

External revenues

Interest income

Insurance premiums earned

Gain from sale of impaired loans

Fee and commission income

Net gains from operations with foreign currencies

Net gains from investment securities available for sale

Other operating income

Total revenues

Information about reportable segment profit or loss, assets and liabilities

Segment information for the reportable segments for the year ended 31 December 2016 is set out below:

In millions of RR

Cash and cash equivalents

Mandatory cash balances with the CBRF

Securities at Fair Value through Profit or Loss

Due from other banks

Loans and advances to customers

Financial derivatives

Investment securities available for sale

Current income tax assets

Guarantee deposits with payment systems

Tangible fixed assets

Intangible assets

Other financial assets

Other non-financial assets

Total reportable segment assets

Due to banks

Customer accounts

Debt securities in issue

Current income tax liabilities

Deferred income tax liabilities

Subordinated debt

Insurance provisions

Other financial liabilities

Other non-financial liabilities

Retail banking

Insurance
operations

15,720

1,218

347

102,912

2,718

33,286

681

2,924

4,653

1,510

7,074

1,019

960

164

310

180

229

Eliminations

(483)

(75)

Total

16,197

1,218

164

347

102,912

2,718

33,286

702

2,924

4,656

1,820

7,179

1,248

174,062

1,867

(558)

175,371

489

125,039

2,986

765

11,514

3,122

1,596

145,535

767

876

489

(483)

124,556

(75)

2,986

785

11,514

767

3,112

1,620

(558)

145,853

Retail banking

Insurance
operations

Eliminations

Total

47,729

8,654

239

214

658

57,542

1,348

1,443

(253)

47,824

1,348

8,401

239

214

658

(253)

58,732

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW
F-49

F-50

Notes to the Consolidated
Financial Statements Continued
31 December 2016
30 Segment Analysis Continued

In millions of RR

Interest expense

Expenses on deposit insurance

Provision for loan impairment

Customer acquisition expense

Insurance claims incurred

Fee and commission expense

Administrative and other operating expenses

Segment result

Retail banking

Insurance
operations

Eliminations

(13,348)

(450)

(8,386)

(6,391)

(3,512)

(10,771)

14,684

(523)

(490)

(550)

(120)

253

Segment information for the reportable segments for the year ended 31 December 2015 is set out below:

Total

(13,348)

(450)

(8,386)

(6,661)

(490)

(3,512)

(11,321)

14,564

Total

13,689

675

726

82,067

11,345

15,936

2,344

743

3,377

2,052

1,419

3,499

1,780

Retail banking

Insurance
operations

13,666

675

82,067

11,345

15,936

2,344

713

3,377

2,050

1,090

3,455

1,664

386

726

329

116

Eliminations

(363)

(22)

138,382

1,655

(385)

139,652

6,392

89,706

1,905

1,753

14,609

1,246

805

116,460

515

631

(363)

(22)

6,392

89,343

1,905

1,784

14,609

515

1,296

818

(385)

116,706

In millions of RR

Cash and cash equivalents

Mandatory cash balances with the CBRF

Due from other banks

Loans and advances to customers

Financial derivatives

Investment securities available for sale

Repurchase receivables

Current income tax assets

Guarantee deposits with payment systems

Tangible fixed assets

Intangible assets

Other financial assets

Other non-financial assets

Total reportable segment assets

Due to banks

Customer accounts

Debt securities in issue

Current income tax liabilities

Deferred income tax liabilities

Subordinated debt

Financial derivatives

Insurance provisions

Other financial liabilities

Other non-financial liabilities

Total reportable segment liabilities

In millions of RR

2015

External revenues

Interest income

Insurance premiums earned

Gain from sale of impaired loans

Fee and commission income

Net gains from operations with foreign currencies

Other operating income

Total revenues

Interest expense

Expenses on deposit insurance

Provision for loan impairment

Customer acquisition expense

Insurance claims incurred

Fee and commission expense

Net losses from operations with foreign currencies

Administrative and other operating expenses

Segment result

Retail banking

Insurance
operations

Eliminations

Total

37,506

284

4,775

181

42,807

(12,707)

(258)

(14,695)

(3,394)

(1,961)

(236)

(6,996)

2,560

1,170

1,257

(552)

(411)

(288)

(284)

(3)

(287)

284

37,562

1,170

4,775

209

43,777

(12,707)

(258)

(14,695)

(3,662)

(411)

(1,961)

(236)

(7,281)

2,566

Depreciation charges for 2016 included in administrative and other operating expenses in the amount of RR 247 million and RR 1
million (2015: RR 228 million and RR 0.5 million) relate to the Bank and to the Insurance Company, correspondingly. Amortisation for
2016 included in the administrative and other operating expenses in the amount of RR 219 million and RR 44 million (2015: RR 137
million and RR 32 million) relate to the Bank and to the Insurance Company, correspondingly.

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

In millions of RR

Total revenues for reportable segments

Intercompany transactions

Total consolidated revenues

2016

58,985

(253)

58,732

2015

44,064

(287)

43,777

Total consolidated revenues comprise interest income, income from insurance operations, gain from sale of impaired loans, fee and
commission income, net gains from operations with foreign currencies and other operating income.

In millions of RR

Total reportable segment result

Profit before tax

In millions of RR

Total reportable segment assets

Intercompany balances

Total consolidated assets

In millions of RR

Total reportable segment liabilities

Intercompany balances

Total consolidated liabilities

2016

14,564

2015

2,566

31 December
2016

31 December
2015

175,929

140,037

(558)

(385)

175,371

139,652

31 December
2016

31 December
2015

146,411

(558)

117,091

(385)

145,853

116,706

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW
F-51

F-52

Notes to the Consolidated
Financial Statements Continued
31 December 2016
31 Financial and Insurance 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 and Insurance Company. Financial risk comprises market risk (including currency risk, interest rate risk and
other price risk), credit risk and liquidity risk. The primary 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 33). 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;

• Age 18 to 70 inclusive;

• Availability of a cell-phone;

• Permanent employment;

• Permanent income;

• Permanent or temporary place of residence.

For cash loans, minimum requirements are listed below:

• There should be no overdue loans balance in other banks according to credit bureau information;

• Cash loan volumes range within RR 50 thousand and RR 1,000 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 amount of one POS loan does not exceed RR 100 thousand.

A credit decision process includes:

• the first step includes validation of the application data. The system checks the validity of the data provid-
ed (addresses, telephone numbers, age, if the applicant already uses any other products of the Bank).

• the second step includes phone verification of the application information about the potential custom-

er, 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 bu-

reau 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 fi-

nal 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 eff

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 might be blocked till verification of his/her new employment;

c. if borrower’s loan debt burden in other banks is substantially bigger than at the time of loan origination or the cred-
it quality of the borrower decreases significantly then the borrower’s limit for credit might be reduced accordingly.

When a customer experiences serious difficulties with his/her current debt servicing, he/she may be offered loan restructuring. In this
case the Bank stops accrual of interest, commissions and fines and the debt amount is restructured according to a fixed instalment
payment plan with not more than 36 equal monthly payments. 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 of the Group arise from open positions in (a) currency and (b)
interest rate, both of which are exposed to general and specific market movements. Management sets limits on the value of risk that
may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits
in the event of more significant market movements.

Currency risk. In respect of currency risk, the management sets limits on the level of exposure by currency and in total for both
overnight and intra-day positions, which are monitored daily.

The table below summarizes the Group’s exposure to foreign currency exchange rate risk at the end of the reporting period:

At 31 December 2016

At 31 December 2015

In millions of RR

Monetary fi-
nancial assets

Monetary
financial
liabilities

Deriva-

tives Net position

Monetary fi-
nancial assets

Monetary
financial
liabilities

Deriva-
tives

Net posi-
tion

USD

Euro

GBP

Total

140,219

(113,892)

(2,766)

23,561

109,307

(83,612)

(5,230)

20,465

18,182

5,588

238

(23,081)

5,966

(5,264)

(484)

(887)

1,067

(160)

(647)

8,992

4,014

(26,506) 16,798

(716)

(3,775)

(230)

164,227

(143,124)

2,718

23,821

122,313

(113,893) 11,338

19,758

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-53

F-54

Notes to the Consolidated
Financial Statements Continued
31 December 2016
31 Financial and Insurance Risk Management Continued
Derivatives presented above are monetary financial assets or monetary financial liabilities, but are presented separately in order to
show the Group’s gross exposure.

Amounts disclosed in respect of derivatives represent the fair value, at the end of the reporting period, of the respective currency that
the Group agreed to buy (positive amount) or sell (negative amount) before netting of positions and payments with the counterparty.
The amounts by currency are presented gross as stated in Note 31. The net total represents the fair value of the currency derivatives.
The above analysis includes only monetary assets and liabilities.

The following table presents sensitivities of profit or loss and equity to reasonably possible changes in exchange rates applied at the
end of the reporting period, with all other variables held constant:

In millions of RR

USD strengthening by 20% (2015: by 30%)

USD weakening by 20% (2015: by 30%)

Euro strengthening by 20% (2015: by 30%)

Euro weakening by 20% (2015: by 30%)

GBP strengthening by 20% (2015: by 30%)

GBP weakening by 20% (2015: by 30%)

At 31 December 2016

At 31 December 2015

Impact on profit
or loss

Impact on equity
(pre-tax)

Impact on profit
or loss

Impact on equi-
ty(pre-tax)

213

(213)

(32)

(129)

129

213

(213)

(32)

(129)

129

(215)

215

(3)

(215)

215

(3)

The exposure was calculated only for monetary balances denominated in currencies other than the functional currency of the
respective entity of the Group.

Interest rate risk. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its
financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the
event that unexpected movements arise. Management monitors on a daily basis and sets limits on the level of mismatch of interest rate
repricing that may be undertaken.

The table below summarizes the Group’s exposure to interest rate risks. The table presents the aggregated amounts of the Group’s
financial assets and liabilities at carrying amounts, categorized by the earlier of contractual interest repricing or maturity dates:

In millions of RR

31 December 2016

Total financial assets

Total financial liabilities

Net interest sensitivity gap at
31 December 2016

31 December 2015

Total financial assets

Total financial liabilities

Net interest sensitivity gap at
31 December 2015

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

44,524

(69,581)

58,434

(41,240)

22,410

(15,969)

23,356

(13,348)

18,221

(2,986)

166,945

(143,124)

(25,057)

17,194

6,441

10,008

15,235

23,821

30,433

51,923

22,119

26,232

2,951

133,658

(38,436)

(43,823)

(15,587)

(16,054)

(113,900)

(8,003)

8,100

6,532

10,178

2,951

19,758

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

At 31 December 2016, if interest rates at that date had been 200 basis points lower (2015: 500 points lower), with all other variables
held constant, profit for the year would have been RR 476 million (2015: RR 988 million) higher, mainly as a result of lower interest
expense on variable interest liabilities. Other components of equity would have been RR 476 million (2015: RR 395 million) higher,
mainly as a result of an increase in the fair value of fixed rate financial assets classified as available for sale.

If interest rates had been 200 basis points higher (2015: 500 points higher), with all other variables held constant, profit would have
been RR 476 million (2015: RR 395 million) lower, mainly as a result of higher interest expense on variable interest liabilities. Other
components of equity would have been RR 476 million (2015: RR 988 million) lower, mainly as a result of a decrease in the fair value of
fixed rate financial assets classified as available for sale.

The Group monitors interest rates for its financial instruments. The table below summarizes interest rates for the years 2016 and
2015 based on reports reviewed by key management personnel. For securities, the interest rates represent yields to maturity based
on market quotations at the reporting date:

In % p.a.

Assets

Cash and cash equivalents

Securities at Fair Value through Profit or
Loss

Loans and advances to customers

Due from banks

Investment Securities available for sale

Repurchase receivables

Liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

0.0

11.0

48.3

9.3

12.4

10.9

12.2

2016

USD

EURO

GPB

0.0

5.0

3.4

14.8

3.2

3.3

2015

USD

EURO

0.0

47.5

11.4

13.9

8.5

12.6

14.5

2.5

5.6

6.4

2.2

4.9

14.8

5.0

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

Other price risk. 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 (2015: no material impact).

Geographical risk concentrations. The geographical concentration of the Group’s financial assets and liabilities at 31 December
2016 is set out below:

In millions of RR

Financial assets

Cash and cash equivalents

Mandatory cash balances with the CBRF

Securities at Fair Value through Profit or Loss

Loans and advances to customers

Due from other banks

Financial derivatives

Investment securities available for sale

Guarantee deposits with payment systems

Other financial assets

Total financial assets

In millions of RR

Financial liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

Insurance provisions

Other financial liabilities

Total financial liabilities

Unused limits on credit card loans (Note 33)

Russia

OECD

Other
Non-OECD

Listed

Total

15,211

1,218

164

102,912

347

1,353

33,286

3,682

986

1,365

2,924

3,497

158,173

8,772

16,197

1,218

164

102,912

347

2,718

33,286

2,924

7,179

166,945

Russia

OECD

Other
Non-OECD

Listed

Total

489

124,095

467

2,782

127,833

54,498

330

461

489

124,556

2,986

11,514

2,986

11,514

467

3,112

461

14,500

143,124

54,498

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-55

F-56

Notes to the Consolidated
Financial Statements Continued
31 December 2016
31 Financial and Insurance Risk Management Continued
The geographical concentration of the Group’s financial assets and liabilities at 31 December 2015 is set out below:

In millions of RR

Financial assets

Cash and cash equivalents

Mandatory cash balances with the CBRF

Loans and advances to customers

Due from other banks

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

Financial derivatives

Insurance provisions

Other financial liabilities

Total financial liabilities

Unused limits on credit card loans (Note 33)

Russia

OECD

Other
Non-OECD

Listed

Total

12,502

1,187

675

82,067

726

9,488

15,936

2,344

1,439

125,177

6,392

88,845

1,877

347

1,203

98,672

39,661

1,857

3,377

2,060

8,481

498

13,689

675

82,067

726

11,345

15,936

2,344

3,377

3,499

- 133,658

6,392

89,343

1,905

14,609

347

1,296

498

14,637 113,900

39,661

Assets, liabilities and credit related commitments have been based on the country in which the counterparty is located. Cash on hand
has been allocated based on the country in which they are physically held. Balances with Russian counterparties actually outstanding
to/from offshore companies of these Russian counterparties, are allocated to the caption “Russia”.

Other risk concentrations. Management monitors and discloses concentrations of credit risk by obtaining reports listing exposures
to borrowers with aggregated loan balances in excess of 10% of net assets. The Group did not have any such significant risk
concentrations at 31 December 2016 and 2015.

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 2016 and 2015.

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 78% of activated credit cards are actually used, and the utilisation rate for credit cards is about 80%. The

level of quarterly transactions is generally within 30-35% of the gross credit card portfolio while the level of quarterly repayments is
generally 40-45% 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 2016 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 millions of RR

Liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

Other financial liabilities

Financial derivatives

Unused limits on credit
card loans (Note 33)

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

489

66,592

25,034

17,309

16,621

3,112

54,498

175

802

175

802

Total

489

127,420

3,611

13,863

3,112

3,518

1,864

3,175

12,259

3,378

54,498

Total potential future payments
for financial obligations

124,739

25,108

18,320

17,668

20,676

206,511

The maturity analyses of financial liabilities at 31 December 2015 is as follows:

In millions of RR

Liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

Other financial liabilities

Financial derivatives

Unused limits on credit card loans
(Note 33)

Total potential future payments
for financial obligations

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

2,523

34,956

2,024

21,432

1,296

3,649

50,830

1,889

18,706

2,029

1,020

6,145

16,976

1,554

1,020

17,638

3,517

Total

6,436

93,624

2,029

19,678

1,296

13,438

50,830

93,254

23,512

29,789

18,067

22,709

187,331

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-57

F-58

Notes to the Consolidated
Financial Statements Continued
31 December 2016
31 Financial and Insurance Risk Management Continued
Financial derivatives receivable and payable are disclosed in the Note 34. 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.

The expected maturity analysis of financial instruments at carrying amounts as monitored by management at 31 December 2016 is
presented in the table below.

In millions 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

16,086

Mandatory cash balances with the
CBRF

Securities at Fair Value through
Profit or Loss

Due from other banks

561

164

244

111

100

Loans and advances to customers

19,697

28,805

25,643

20,726

16,197

123

368

1,218

Financial derivatives

Investment securities available for
sale

Guarantee deposits with payment
systems

Other financial assets

Total financial assets

Liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

Insurance provisions

Other financial liabilities

164

347

8,041

2,713

102,912

2,718

33,286

228

2,924

7,179

33,286

559

7,179

819

729

589

77,781

29,826

26,550

21,438

11,350

166,945

489

57,438

3,112

489

8,957

8,009

12,568

37,584

124,556

126

113

128

107

2,986

11,401

2,986

11,514

467

3,112

Total financial liabilities

61,103

9,083

8,250

12,675

52,013

143,124

Net liquidity gap at
31 December 2016

Cumulative liquidity gap at
31 December 2016

16,678

20,743

18,300

8,763

(40,663)

23,821

16,678

37,421

55,721

64,484

23,821

Provision for unearned premiums in the amount of RR 300 milllion is not included in the insurance provisions stated above.
Refer to Note 18.

The expected maturity analysis of financial instruments at carrying amounts as monitored by management based on the revised
approach at 31 December 2015 is as follows:

In millions 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

46,612

20,497

30,265

20,203

16,081

133,658

Cash and cash equivalents

13,689

Mandatory cash balances with the
CBRF

Due from other banks

220

207

329

Loans and advances to customers

12,272

19,313

Financial derivatives

Investment securities available for
sale

Repurchase receivables

Guarantee deposits with payment
systems

Other financial assets

Total financial assets

Liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

Insurance provisions

Financial derivatives

15,936

283

506

3,499

795

2,514

29,088

2,000

7,905

190

19,429

7,722

2,061

799

106

19,303

794

13,689

225

11,750

3,623

483

675

726

82,067

11,345

15,936

2,344

3,377

3,499

1,878

8,522

1,905

136

14,057

29,771

14,473

6,392

89,343

1,905

14,609

347

1,296

Other financial liabilities

1,296

Total financial liabilities

32,955

10,002

12,512

14,133

44,298

113,900

Net liquidity gap at
31 December 2015

Cumulative liquidity gap at
31 December 2015

13,657

10,495

17,753

6,070

(28,217)

19,758

13,657

24,152

41,905

47,975

19,758

Provision for unearned premiums in the amount of RR 168 milllion is not included in the insurance provisions stated above.
Refer to Note 18.

All the Investment securities available for sale are classified within demand and less than one month as they are easy repoable in CBR
or on the open market securities and can provide immediate liquidity to the Group. All current accounts of individuals are classified
within demand and less than one month.

The allocation of deposits of individuals considers the statistics of autoprolongations and top-ups of longer deposits with the funds
from shorter deposits after their expiration in case when the customers have more than one active deposit. The matching and/or
controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It
is unusual for banks ever to be completely matched since business transacted is often of an uncertain term and of different types. An
unmatched position potentially enhances profitability, but can also increase the risk of losses. The maturities of assets and liabilities
and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the
liquidity of the Group and its exposure to changes in interest and exchange rates.

Management believes that in spite of a substantial portion of customer accounts being on demand, diversification of these deposits by
number and type of depositors, and the past experience of the Group would indicate that these customer accounts provide a long-term
and stable source of funding for the Group.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEW
F-59

F-60

Notes to the Consolidated
Financial Statements Continued
31 December 2016
32 Management of Capital

The Group’s objectives when managing capital are (i) for the Bank to comply with the capital requirements set by the Central Bank
of Russian Federation (CBRF), (ii) for the Group to comply with the financial covenants set by the terms of 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 2016 was RR 29,518 million (2015: RR 22,946 million). Compliance
with capital adequacy ratios set by the CBRF is monitored daily and submitted to the CBRF monthly with reports outlining their
calculation reviewed and signed by the Bank’s Chief Executive Officer and Chief Accountant. Other objectives of capital management
are evaluated annually.

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 8%. Based on the report submitted to CBRF the Bank's statutory capital
ratio is higher than the prescribed minimum level as of 31 December 2016.

The Group also monitors capital requirements including capital adequacy ratio under the Basel III methodology of the Basel Committee
on Banking Supervision: international regulatory standards for more resilient banks and banking systems (hereinafter “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 2016 was RR 30,577 million (2015: RR 28,102 million), the amount of Tier 1 capital as at 31 December
2016 was RR 27,698 million (2015: RR 21,528 million). Total capital adequacy ratio and Tier 1 capital adequacy ratio were 16.34%
and 14.81% respectively (2015: 18.25% and 13.98% respectively). The Group and the Bank have complied with all externally imposed
capital requirements throughout 2016 and 2015.

The Insurance Company has complied with all capital requirements set by the legislation of the Russian Federation throughout 2016
and 2015.

33 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 unprovided losses will be incurred in
respect of claims

Tax contingencies. Russian tax legislation which was enacted or substantively enacted at the end of the reporting period, is subject
to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by
management and the formal documentation supporting the tax positions may be challenged tax authorities. Russian tax administration
is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose
or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar
years preceding the year when decision about review was made. Under certain circumstances reviews may cover longer periods.The
Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation
for Economic Cooperation and Development (OECD) but has specific characteristics. 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 arm's length.

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. The Company
is a tax resident of Cyprus only and full beneficial owner of the Bank and Insurance Company. This interpretation of relevant legislation
may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be significant to the
financial position and/or the overall operations of the Group. The Controlled Foreign Company (CFC) legislation introduced Russian
taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling
parties). The CFC income is subject to a 20% tax rate if the CFC is controlled by a legal entity and a rate of 13% if it is controlled by an
individual. As a result, management reassessed the Group’s tax positions and recognised current tax expense as well as deferred taxes
that arose from the expected taxable manner of recovery of the relevant Group’s operations to which the CFC legislation applies to and
to the extent that the Group (rather than its owners) is obliged to settle such taxes. Refer to Note 28.

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 2016 no material tax risks were identified (2015: same).

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

In millions of RR

Not later than 1 year

Total operating lease commitments

2016

374

2015

660

Compliance with covenants. The Group is subject to certain covenants related primarily to its subordinated debt. Non-compliance
with such covenants may result in negative consequences for the Group. Management believes that the Group was in compliance with
all such covenants as at 31 December 2016 and 31 December 2015.

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 authorizations 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. 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 limits
probable to be used and related commitments are as follows:

In millions of RR

Unused limits on credit card loans

2016

54,498

2015

39,661

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.

Mandatory cash balances with the CBRF of RR 1,218 million (2015: RR 675 million) represent mandatory reserve deposits which are
not available to finance the Bank's day to day operations as disclosed in Note 3.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-61

F-62

Notes to the Consolidated
Financial Statements Continued
31 December 2016
34 Financial Derivatives

(a) Recurring fair value measurements

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.

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 millions of RR

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

- USD receivable on settlement (+)

- USD payable on settlement (-)

- RR payable on settlement (-)

- RR receivable on settlement (+)

- EUR receivable on settlement (+)

- EUR payable on settlement (-)

- GBP receivable on settlement (+)

Net fair value of foreign exchange forwards and swaps

2016

2015

Contracts
with positive
fair value

Contracts
with negative
fair value

Contracts
with positive
fair value

Contracts
with negative
fair value

6,049

(118)

(3,116)

406

(503)

2,718

(56)

20,084

(8,739)

11,345

(3,314)

(36)

3,545

(239)

(8)

Included in financial derivatives held by the Group as at 31 December 2016 is one outstanding swap contract with positive fair value
of RR 1,365 million, which includes reference to the default of JSC VTB Bank, JSC Gazprom or the Russian Federation (31 December
2015: RR 1,857 million). There is also one other outstanding swap contract with total positive fair value of RR 1,348 million which
include reference to the default of the Bank (31 December 2015: three other outstanding swap contracts with total positive fair value
RR 9,488 million ).

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.

35 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.

In millions of RR

Assets AT FAIR VALUE

Financial derivatives

Investment securities
available for sale

Securities at Fair Value
through Profit or Loss

Repurchase receivables

31 December 2016

31 December 2015

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

2,718

33,286

164

2,718

11,345

33,286

15,936

164

2,344

36,168

18,280

11,345

15,936

2,344

29,625

Total assets recurring fair
value measurements

33,450

2,718

The description of valuation techniques and the description of the inputs used in the fair value measurement for level 2 measurements
at 31 December 2016 are as follows:

In millions of RR

Fair value

Valuation technique

Inputs used

Assets AT FAIR VALUE

Discounted cash flows adjusted for counterpar-
ty credit risk.

Russian rouble curve.
USD Dollar Swaps Curve.
CDS quotes assessment of counter-
party credit risk or reference entities.

Foreign exchange swaps

Total recurring fair value
measurements at level 2

2,718

There were no changes in the valuation techniques for level 2 recurring fair value measurements during the year ended 31 December
2016 (2015: none).

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.

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-63

F-64

Notes to the Consolidated
Financial Statements Continued
31 December 2016
35 Fair Value of Financial Instruments Continued

(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 millions of RR

Level 1

Level 2

Level 3

Carrying
value

Level 1

Level 2

Level 3

Carrying
value

31 December 2016

31 December 2015

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

Due from other banks

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

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

Debt securities in issue

ECP

Subordinated debt

Other financial liabilities

Settlement of operations with plastic
cards

Trade payables

Other financial liabilities

Total financial liabilities carried at
amortised cost

6,178

9,993

1,218

347

102,912

2,924

6,679

350

150

6,178

9,993

1,218

347

6,679

350

150

5,315

8,339

675

726

82,067

3,377

3,355

127

5,315

8,339

675

725

3,355

127

26 24,568 105,836

130,777

18,553

85,444 104,033

489

5,441

473

489

5,441

368

46,729

74,904

46,729

72,018

6,382

518

375

24,506

65,919

13,695

2,031

1,052

2,986

1,894

11,514

15,378

2,031

1,052

622

638

6,392

518

375

24,506

63,944

1,877

14,609

622

638

RR Bonds issued on domestic market

3,052

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 and Irish Stock Exchange, where the Group’s debt securities are listed and traded (2015: OJSC Moscow Exchange
MICEX-RTS and Irish Stock Exchange)

Weighted average discount rates used in determining fair value as of 31 December 2016 and 2015 depend on currency:

In % p.a.

Assets
Cash and cash equivalents
Securities at Fair Value through Profit or Loss
Due from other banks
Loans and advances to customers
Investment securities available for sale
Repurchase receivables

Liabilities
Due to banks
Customer accounts
Debt securities in issue
Subordinated debt

2016

2015

0.0
11.0
9.3
48.3
10.3
-

0.0
7.7
10.1
5.2

0.0
-
10.5
47.5
13.5
6.4

9.4
11.9
10.6
11.8

36 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 2016:

In millions 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
Securities at Fair Value through Profit or Loss
Due from other banks
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

Held for
trading

Assets
designated
at FVTPL

Availa-
ble-for-sale
assets

6,178

9,993
1,218
-
347
102,912
-
2,924
-
-

6,679
350
150

-
-
-
-
-
2,718
-
-
-

-
-
-

-
-
164
-
-
-
-
-
-

-
-
-

-
-
-
-
-
-
-
33,286
-

-
-
-

Total

6,178

9,993
1,218
164
347
102,912
2,718
2,924
33,286
-

6,679
350
150

16,747 131,148

- 142,657 17,300

98,996

- 113,545

TOTAL FINANCIAL ASSETS

130,777

2,718

164

33,286

166,945

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-65

F-66

Notes to the Consolidated
Financial Statements Continued
31 December 2016
36 Presentation of Financial Instruments by Measurement Category Continued
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2015:

Loans and
receivables

Held for
trading

Assets
designated
at FVTPL

Availa-
ble-for-sale
assets

In millions 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
Due from other banks
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

5,315

8,339
675
726
82,067
-
3,377
-
-

3,355
127
17

-
-
-
-
11,345
-
-
-

-
-
-

Total

5,315

8,339
675
726
82,067
11,345
3,377
15,936
2,344

3,355
127
17

-
-
-
-
-
-
15,936
2,344

-
-
-

-
-
-
-
-
-
-
-

-
-
-

TOTAL FINANCIAL ASSETS

104,033

11,345

18,280

133,658

As of 31 December 2016 and 2015 all of the Group’s financial liabilities except derivatives were carried at amortised cost.

37 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 millions of RR

ASSETS

Gross amounts of loans and advances to customers (contractual
interest rate: 24.7% (2015: 24%))

Other financial assets

Other non-financial assets

LIABILITIES

Customer accounts (contractual interest rate: 8.01% p.a. (2015:
8.01% p.a.))

Other non-financial liabilities

EQUTY

Share-based payment reserve

- Employee share option plan

- Equity long term incentive plan

- Management long-term incentive programme

2016

2015

Key man-
agement
personnel

Other related
parties

Key man-
agement
personnel

Other related
parties

938

367

636

132

459

789

537

568

497

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

Other non-financial assets as at 31 December 2015 represent a prepayment made under the sponsorship contract with the
Tinkoff Cycling Team (“Team”), the related expense is included in customer acquisition expense. The Team is owned by the Group’s
ultimate controlling party. As at 31 December 2016 the sponsorship contract has expired.

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

In millions of RR

Interest income

Interest expense

Customer acquisition expense

Unrealised foreign exchange translation losses less gains

Key management compensation is presented below:

In millions of RR
Short-term benefits:
- Salaries
- Short-term bonuses
Long-term benefits:
- Management long-term incentive programme
- Equity long term incentive plan
- Employee share option plan

Total

2016

2015

Key man-
agement
personnel

Other related
parties

Key man-
agement
personnel

Other related
parties

(65)

(36)

(1,236)

120

(56)

(132)

(1,013)

(205)

2016

2015

467
652

735
41
-

1,895

318
293

-
17
77

705

Management long-term incentive programme. On 31 March 2016 the Group introduced MLTIP as both a long-term incentive and
retention tool for the management of the Group. The maximum share capital attributable to the plan was 4.1% of issued share capital
at 31 March 2016.

The employees cannot own or exercise their shareholder rights over GDRs within MLTIP directly. Employees are entitled to the
dividends, if any.

The total number of GDRs attributable to the Management according to MLTIP is 7,504 thousand.

The fair value as at recognition date of the equity-settled share-based payments (31 March 2016) is determined on the basis of a
market quote.

The delivery dates as of which the GDRs are allowed to be sold by the participants correspond to the vesting dates at 14 April 2016
and each subsequent 31 March each year until 2020.

Employee share option plan. In May 2011 the Group introduced ESOP as a long-term incentive and retention tool for the key
management of the Bank. The number of shares in issue for ESOP purposes was 3,383 thousand. The liquidity event when vested
shares could be sold by the key management was the earliest of the IPO, change of control or 1 January 2016.

On 1 June 2016 all conditions to the third and final vesting in ESOP were fully satisfied and ESOP has satisfied its delivery commitment.
Accumulated share based payment reserve has been transferred to Retained earnings.

Equity long-term incentive plan In January 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 as at the date of the plan introduction. 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. 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.

As at 14 April 2016 after first vesting date of MLTIP, Equity LTIP was cancelled and accelerated expenses have been accrued. Full
amount of Share-based payment reserve accumulated has been transferred to Retained earnings.

In 2016 the total remuneration of Directors listed in the Management Report (included in key management personnel compensation
above) amounted to RR 18 million (2015: RR 18 million).

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWF-67

G-1

38 Events after the End of the Reporting Period

In February 2017 the Group granted shares to new participants in MLTIP and also granted addtional shares to the existing participants
which resulted in increase in total shares granted under MLTIP to 5.6% of issued share capital of the Group as at 31 March 2016.

Glossary

Average cost of funding

Average interest rate on loans

Capital adequacy ratio

CBRF

Charge-off rate

Charge-offs

Class A share

Class B share

n/a

CAR

CBRF

n/a

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

Compound Annnual Growth Rate

CAGR

Compulsory car insurance programme

OSAGO

Corporate social responsibility

Cost of borrowing

Cost of risk

Cost to income ratio

CSR

n/a

C/I

n/a

Interest expense/interest bearing liabilities

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

CRM

Days past due

GIBDD

Global depositary receipt

Gross portfolio yield

Interest-earning assets

Interest-earning liabilities

n/a

dpd

GIBDD

GDR

n/a

IEA

IEL

International financial reporting standards

IFRS

IPO

KASKO

Key performance indicators

Loan loss provision

N1.0

Net charge-offs

Net interest margin

NFC

Non-performing loans

NPV

Return on average assets

Return on average equity

n/a

KASKO

KPI

LLP

N1.0

n/a

NIM

NFC

NPLs

NPV

ROAA

ROAE

Online customer relationship management system

n/a

Law enforcement agency responsible for traffic

One TCS Group Holding PLC GDR represents an interest in one
class A share
Core revenue on loans /Average gross loan portfolio

Gross loans + interbank loans and accounts + securities +
interest earning cash equivalents
Deposits + interbank + debt securities + subordinated loans +
syndicated loan
n/a

Initial public offering, in the case of TCSGH plc with listing on the
London Stock Exchange in October 2013
Voluntary car insurance programme

n/a

Allowance for bad loans

Russian statutory capital adequacy ratio

Loan charge-offs less recoveries

Net interest income / Average 1 EA

Near Field Communication

Loans 90+ days overdue

Net present value

Net income / Average assets

Net income / Average equity

Risk-adjusted net interest margin

Risk-adjusted NIM (Net interest income - PL provisions) / Average IEA

Risk-weighted assets

Russian accounting standards

SMEs

Treasury portfolio

RWA

RAS

n/a

Assets weighted by risk as per the CBRF methodology

n/a

Small and medium enterprises

Investment securities and repos

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016STRATEGIC REVIEWFINANCIALSDIRECTORS’ REVIEWG-2

Investor 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.tinkoff.ru/eng

TCS Group Holding PLC
(registered number HE107963)

Telephone: +357 2505 0668

Registered ofiice address: 5th floor
Berengaria 25
Spyrou Araouzou 25
Limassol 3036
Cyprus
Mail to: PO Box 56356, 3306 Limassol.

Enquiries from investors,
shareholders, security analysts and
investment professionals:

Larisa Chernysheva, Investor Relations
Email: ir@tinkoff.ru

Media enquiries:
Darya Ermolina, Head of PR
Email: media@tinkoff.ru

Company Secretary
Caelion Secretarial Limited
(registered number HE351260)
4th floor
Berengaria 25
Spyrou Araouzou 25
Limassol 3036
Cyprus

Telephone: +357 2504 0404
Fax: +357 2504 0415

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

TCS GROUP HOLDING PLC | ANNUAL REPORT 2016ALL SYSTEMS GO
Tinkoff.ru/eng