RUSSIA’S BANK OF
THE YEAR 2017
According to The Banker, a monthly international financial magazine owned by The Financial Times Group. In
choosing Russia's Bank of the Year 2017, The Banker’s editorial team looked for strong financial performance
and evidence of banks setting new standards for their local industries, whether it was by using new technology or
coming up with innovative, cost-efficient ways of expanding their businesses.
CONTENTS
TCS Group is an innovative provider of online retail financial
services in Russia operating through a high-tech branchless
platform.
Contents
STRATEGIC REVIEW
DIRECTORS’ REVIEW
About us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2017 Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Our history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Founder’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Business model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIALS
Market context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Market position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
International Financial Reporting Standards
Consolidated Financial Statements and Independent
Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
What makes us different? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
CEO strategic review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
International Financial Reporting Standards
Separate Financial Statements and Independent
Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-89
Our recent awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .G-1
Asset, liability and risk management . . . . . . . . . . . . . . . . . . . . . . . 30
Corporate and Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . 40
INVESTOR INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-3
Employees and corporate social responsibility . . . . . . . . . . . . . 42
TCS Group or Tinkoff (or the Group) are the names used in this Report
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 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
2017 included in this document. A detailed description of the
presentation of financial and other information is set out
after page 59 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.
1
1
1
1
1
1
ENTERTAINMENT
• Ticketing
• Restaurant
reservations
• Stories
• Travel
INSURANCE
• Cars
• Travel
• Property
• Health
• Life
3
1
1
1
MOBILE
• Own number
• Own mobile network
code
• Own SIM cards
AUTO
• Fines
•
Insurance
• Auto loans
REAL
ESTATE
• Mortgage
•
Insurance
• Valuation
• Legal support
• Utility bills, taxes
• Rent payments
LIFE-STYLE BANKING
IN YOUR MOBILE PHONE
1mn
ACTIVE
DAILY USERS
ONE-STOP SHOP FOR ALL YOUR DAILY FINANCIAL NEEDS
& INVESTMENTS
SAVINGS
ONE
CLICK
DAILY
BANKING
• Debit cards
• Credit cards
• Payments
• P2P transfers
• Public services
2
SMALL
BUSINESS
• Deposits
• Securities
• Pensions
• Business account
•
Investment strategy
• Salary project
• Overdraft
• Business loans
• Accounting
DOWNLOADS OF
TINKOFF MOBILE APP
6mn
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 PROVEN TRACK RECORD OF DRIVING SUSTAINABLE GROWTH
HIGHLIGHTS
Growth
Profitability
• Gross loans up 31% to RUB157.8bn since YE2016
• FY2017 net income, a Group record at RUB19bn, with 3
• More than 1.8 mn new credit card customers acquired in
consecutive quarters of record net income
2017 and over 1mn new debit cards issued
• ROAE of 52.8% for FY2017
• SME business developing rapidly, over 234,000 SME
• Growing contribution from non-credit business
customers acquired
income streams
• Customer accounts up 44% at RUB179.0bn
Key events
Credit quality
• Ongoing focus on credit quality
•
Introduced a new dividend policy in March 2017
• NPLs (90d+) dropped to 8.8% at YE2017
•
•
•
•
•
In March 2017 the Group expanded and deepened its
management long term incentive plan
• Loan loss provision decreased to 1.26x at YE2017
in June the Group issued a USD300mn perpetual bond
9.25% coupon with a 2022 call option
Liquidity and capitalisation
In August the Group started rolling out its own ATM net-
work, with over 200 now installed across Russia
• Total assets up by 53.3% over 2017 at RUB268.8bn,
with cash and treasury portfolio up at RUB95.5bn
In October the Group acquired a 55% stake in CloudPay-
ments, an innovative online payments solutions provider
• Total equity up by 42.1% to RUB41.9bn at YE2017
• 31 December 2017 CBRF N1 statutory capital ratio of
In December the Group successfully launched its own
mobile virtual network operator Tinkoff Mobile
16.3% and Tier 1 up at 21.0%
• Treasury portfolio of RUB71.7bn
• Moody’s upgraded long-term debt and deposit ratings of
Tinkoff Bank to B1 from B2; outlook stable
of highly liquid CBRF
repoable bonds
CUSTOMER
ACCOUNTS
TOTAL
ASSETS
NET
PROFIT
179RUBbn
268.8RUBbn
19.0RUBbn
4
ROE
2017
CREDIT CARDS
ISSUED IN 2017
52.8%
2.4mn
16.3%
N1.0 AT THE
END OF 2017
2017
OUR HISTORY
Highlights of TCS Group’s innovative development
2017
• Launch of Tinkoff Mobile
• Roll-out of own ATM’s across Russia
• Acquisition of a 55% stake in CloudPayments
• Launch of Stories for mobile app
• Launch of Tinkoff Property
• A partnership with Skolkovo Innovation Center announced
• Tinkoff Bank was admitted to membership in the FinTech Association
• Launched a network of software development hubs countrywide, the first in St Petersburg
• Joined the Russian blockchain consortium
•
Introduced a face recognition system for scoring
• Launched a new management long term incentive plan
• One of the first launching Apple Pay and Samsung Pay in Russia
• 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
• 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 acquisi-
tion 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
Tinkoff Credit Systems Bank was created by Oleg Tinkov
'16
'15
'14
'13
'12
'11
'10
'09
'08
'07
'06
Net loan portfolio
growth (RUBmn)
140,245
102,912
82,067
74,580
73,962
47,784
21,359
9,643
5,254
4,117
1,593
5
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 LAST YEAR I
WROTE IT WAS
GOOD TO REPORT A
RECORD NET HIGH
INCOME RESULT
FOR TINKOFF
GROUP, AND I AM
DELIGHTED TO BE
ABLE TO DO SO
AGAIN FOR 2017-
NET INCOME OF
RUB19BN, ROAE
52.8%, MUCH MORE
BESIDES
Oleg Tinkov
Founder and
Controlling Shareholder
Net income & dividend
per share/GDR
72.8%
19.0
$
0.31
6.4
$
0.17
$
0.22
+
0.18
5.0
$
0.20
4.2
11.0
3.7
3.4
2016
2017
4Q’16
1Q’17
2Q’17
3Q’17
4Q’17
Finally, I want to record my thanks to
all those who made a telling contribu-
tion to the successes of Tinkoff in 2017;
they know who they are (and so do I).
Oleg Tinkov
Founder and Controlling Shareholder
FOUNDER’S
STATEMENT
Dear Stakeholders
Last year I wrote that it was good to
report a record high net income result
for Tinkoff Group, and I am delighted to
be able to do so again for 2017 - net
income of RUB19bn, ROAE 52.8%,
much more besides.
But beyond the headline numbers,
great progress was made on further
rolling out our financial supermarket,
an advanced high-tech financial eco-
system where our customers get our
premium quality service in buying the
full range of financial, transactional and
insurance services - not only Tinkoff
branded products but those of our
chosen partners too. While diversifying
our business adds in new sources of
non-credit revenue, it also enables us
to capture an ever increasing share of
customers’ wallets. And I am confident
this process will continue, with new
lines added going forward.
We have proved we can build and scale
non-credit lines profitably. Tinkoff
Business, Tinkoff Black and Tinkoff
Mortgage all broke even in 2017, and
good contributions all round, and I
am confident we are well set for 2018
and beyond. And while there are so
many highlights, positive contributions,
impressive performances I could pick
out and it is invidious to pick just one,
nonetheless I am going do just that.
Last year I wrote about my long-term
support for share based compensation
and how we introduced it at Tinkoff
from the early days. It has always been
a key part of building an entrepreneur-
ial spirit within the Company; now I feel
we are making a contribution by help-
ing the entrepreneurial spirit develop
in Russia through Tinkoff Business.
We launched Tinkoff Business in Q4
2016; it grew impressively from the
outset, broke even in June 2017.
At the end of 2016 we had around
50,000 customers, but this grew
five-fold in 2017 to over 240,000 SME
customers at year end. Whether it is
help with cash management and pay-
ments, payroll, accounting, tax returns,
recruitment, customs and logistics
or recruitment, or dealing with the
State authorities, for the full range of
issues confronting start-up businesses,
Tinkoff is there at the coalface too with
innovative, digital, customer-friendly
solutions.
Of course I treasure all our custom-
ers, but I have a special regard for the
entrepreneurs, those whose instinct
is see an opportunity and pursue
it, those who want to establish their
own business and not remain where
they are, those who believe they can
make a difference. Doers, risk-takers,
optimists - there can never be enough
of them. I wish them all the determina-
tion, self-belief, persistence, powers of
persuasion and maybe even luck they
deserve. One day they should get the
wider recognition, the appreciation
they truly deserve. And maybe some
of them will join me in my ambition to
launch a University of Entrepreneur-
ship here in Russia.
Equity RUBmn
41.9
29,5
2 0 0 7–2 0 1 7 CA GR: 4 9.2 %
22,9
20,6
21.0
9,1
3,8
0.8
0.5
1,1
1,3
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 2017
6
7
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 BUSINESS
TCS GROUP IS EVOLVING RAPIDLY INTO A UNIQUE LIFE-STYLE BANKING
SOLUTION AND WILL CONTINUE TO EXPAND THE RANGE OF PRODUCTS
MODEL
AND IMPROVE THE QUALITY OF ITS CUSTOMER SERVICE
ROBUST DATA AND
RISK
MANAGEMENT
TCS Group employs a highly scientific,
data-driven and conservative risk man-
agement 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 evaluat-
ed. We make loan approval decisions
based on a range of available informa-
tion, including credit bureau data, a rig-
orous 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 operate in
the mass market segment, and focus
on expanding the mass affluent seg-
ment by way of offering a wide range of
financial services and targeted recom-
mendations, advice and entertainment
features.
OPERATING
FLEXIBILITY
TCS Group has built an advanced
platform that is highly suited for the
Russian market and operating environ-
ment. 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.
1
1
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 combina-
tion of Tinkoff Bank’s free Internet, mobile
and call centre service platforms.
POWERFUL
DISTRIBUTION
1
Tinkoff Bank offers remote access cus-
tomer service through its award-win-
ning Internet banking as well as
through mobile banking and high-vol-
ume call centres. Our use of direct
marketing channels has revolutionised
the way customers are acquired in
Russia. Distribution channels, which
include online (the Internet, mobile
services and telesales), direct mail and
direct sales agents, allow TCS Group
to attract new customers right across
the country. Supporting the branchless
platform is a “smart courier” network
which allows next day delivery.
HIGH LIQUIDITY AND
WELL-BALANCED
FUNDING BASE
1
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 diversi-
fication in the sources and tenor of
funding. The Group maintains strong
relationships with market participants
to promote effective diversification of
funding sources.
1
1
Tinkoff Bank is an online financial supermarket offering customers the full range of financial, insurance and quasi-financial ser-
vices. 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 and mass affluent customers in Russia through a unique online, branchless platform.
8
9
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
MARKET
CONTEXT
Credit card lending
2017 was the first year of market growth after two con-
secutive years of sharp falls. The operating environment
in Russia significantly improved and the consumer lending
market showed first signs of 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. 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.
Despite the fact that the credit card market showed positive
dynamics in 2017 (RUB1.1trn versus RUB999bn a year
before (based on CBRF 101 form)), only a few participants
managed to grow their loan books and increase their market
share by the year end. Tinkoff Bank is one of them. Even tak-
ing into account 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 to cer-
tain high growth emerging economies.
Credit card market in Russia (RUBbn)
Market dynamics in 2017 (RUBbn)
999
23
23
58
19
1122
49.0
-36.5
27.8
82.9
159.6
123.1
In 2017 the credit card
lending sector in
Russia grew by
12.3%
Source: CBRF
MARKET
POSITION
A leading credit
card lender in
Russia
In 2017 Tinkoff Bank man-
aged 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 11.6% (the sec-
ond 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
YE2017)
11.6
10.3
8.3
7.5
7.1
6.7
5.4
4.2
3.1
Tinkoff Black debit card
is flying
Average
NPS
Sector
In 2017 we brought our current accounts product to a new
level of customer servicing and satisfaction with a Net
Promoter Score (NPS) of 57, which is much higher than
smartphones which came next with a NPS of 40. As a result
the current accounts portfolio demonstrated x1.5 growth
and allowed us to attract a very different customer base from
our typical credit card customers. These customers spend
more money and use internet, mobile bank and other servic-
es more frequently. They are the key target audience for the
Tinkoff.ru platform.
Tinkoff Black: retail portfolio growing by 70-80% a year
Saving accounts
Debit cards
57
40
39
39
37
35
34
32
31
30
24
23
21
21
19
3
-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
80
70
60
50
40
30
20
10
0
2016
Q1
Q2
Q3
Q4
2017
Sberbank
Tinkoff
Bank
Other
banks
Total
growth
Total
Contraction
Market
2009
2010
2011 2012
2013
2014
2015 2016 2017
1Q’15
2Q’15
3Q’15
4Q’15
1Q’16
2Q’16
3Q’16
4Q’16
1Q’17
2Q’17
3Q’17
4Q’17
Household debt returned to growth in 2017
Household debt/ annual income (left axis)
Retail lending growth, yoy (right axis)
27%
25%
23%
21%
19%
17%
15%
50%
40%
30%
20%
10%
0%
-10%
1
1
-
c
e
D
2
1
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7
1
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7
1
-
c
e
D
• The capacity of households to service their debt has
• Banks’ underwriting standards remain tight, new vintages
stabilized as adjusted money income started to recover in
the second half of 2017
perform well
Adjusted Money Income (adj MI; Dec 2011=100)
Unemployment (right axis)
adj MI Trend
115
110
105
100
95
90
85
80
7%
6%
5%
4%
3%
2%
1%
0%
1
1
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D
2
1
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p
A
2
1
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A
7
1
-
c
e
D
Note: Money income (MI) covers all sources of household revenue including salaries and
pensions. MI adjusted for inflation (CPI) and seasonality.
Sources: CBRF, Rosstat
A leader in the internet and mobile
financial solutions in Russia
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.
Tinkoff Mobile Bank provides a full scope of services from
finance to entertainment to not only its existing customers
but also to 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.
In 2017 Tinkoff Bank launched Android Pay and made avail-
able the full spectrum of OS along with Apple Pay, Samsung
Pay and Windows 10 - all are fully integrated into the Tinkoff
mobile banking App – a touch free wireless payment solution
for mobile devices. In 2017 Tinkoff Bank became the first
bank anywhere in the world to introduce a Stories feature to
its mobile app for iOS and Android, bringing new content to
the almost 1 million people who use the Bank’s award-win-
ning app on a daily basis.
Daily active users
of mobile app
almost reached
1mn at the end
of 2017
>6 MILLION DOWNLOADS OF TINKOFF
MOBILE BANK SINCE INCEPTION
>6mn
10
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
STRATEGY
TINKOFF’S STRATEGY IS TO BE A FULL SERVICE, ONLINE FINANCIAL
SUPERMARKET THAT OFFERS PREMIUM QUALITY SERVICE AND CONVENIENCE.
03.
Support business expansion using advanced
IT systems
Tinkoff Bank operates a low-cost, branchless model and
seeks to outsource wherever feasible while retaining core
functions in-house. This complementary outsourcing strat-
egy allows us to retain focus on and develop core compe-
tencies 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 advan-
tages 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. To further
strengthen its IT capabilities and position as a leading IT
company, in 2017 Tinkoff Bank set up partnerships with
Skolkovo Innovation Center as well as became a member of
the Association for Financial Technologies Development.
04.
High liquidity and well-balanced
funding base
The Group has established a robust liquidity risk man-
agement framework that ensures it maintains sufficient
liquidity, including a significant cushion of liquid assets. Tink-
off Group’s funding strategy provides effective diversification
in the sources and tenor of funding. The Group aims to main-
tain 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.
01.
Sell or cross-sell other new financial, insur-
ance and quasi-financial products
By developing and cross-selling new products to existing
customers, Tinkoff Bank expects to diversify its revenue
streams, increase its revenue per customer and increase its
customer retention rates.
Tinkoff Insurance
Tinkoff Insurance has developed a proprietary and ad-
vanced IT platform and leveraged the vast expertise of Tink-
off 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.
02.
Maintain leadership
in customer service
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 with-
out 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.
05.
Develop and deploy transactional and pay-
ment 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.
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 trans-
fers, MoneyTalk, GoAbroad, Tinkoff SME, Tinkoff Investments)
(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 2017 and these initiatives have already been
recognised and received awards from international leaders in
this sector.
07.
Further improve cost-efficiency of Tinkoff’s
operations
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 op-
erations and constantly seeking new ways to achieve further
reductions in operating and customer acquisition costs.
08.
Develop the high-growth concept of the finan-
cial supermarket, a platform offering a choice
of consumer lending, insurance and transac-
tional 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 retail-
ers and cash loans to Tinkoff Bank’s existing customers.
In addition, Tinkoff Bank introduced a new concept of a
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 first introduced in 2016
06.
Effectively manage credit risk using sophisti-
cated data analysis and modelling
• Represents Tinkoff Bank’s investment into the rapid
growth of Russian e-commerce
As a data-driven organisation, the Group uses a wide range
of databases in its loan approval processes and portfolio
management and is constantly in search of new sources of
relevant data. We take loan approval decisions based on a
range of available information, including credit bureau data
and scores, proprietary scoring models, a proprietary appli-
cation verification process and sophisticated NPV models.
• Allows customers to purchase Tinkoff partner products
offered through the high-tech and well-known
Tinkoff.ru platform at one click
• Full-cycle “door-to-door” service provided by the Tinkoff
smart courier team
Products launched through the Brokerage Platform
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 man-
agement remains one of the core strengths of Tinkoff and will
remain critical to sustaining its competitive advantage.
• Mortgages
• Retail securities trading
• Travel
• Non-Tinkoff insurance
…and other products coming soon
• Car loans
• Cash loans
12
13
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
WHAT MAKES
US DIFFERENT?
OVER RUB274BN OF
CUSTOMER CREDIT CARD
TRANSACTIONS IN 2017
OVER 2MN INBOUND CALLS/
AROUND 10MN OUTBOUND
CALLS PER MONTH ON AVERAGE
IN 2017
>274bn
10.0mn
Tinkoff Bank is the Online
Financial Supermarket in the
Cloud providing high-utility
day-to-day retail financial
services in Russia.
OVER 9.3MN CREDIT
CARDS ISSUED SINCE
INCEPTION
#2 PLAYER IN THE RUSSIAN
CREDIT CARD MARKET WITH
11.6% MARKET SHARE1
1
As of 31 December 2017
based on CBRF data.
>9.3mn
11.6%
RUSSIA’S BANK OF THE YEAR
20172 AND BEST MOBILE
BANK APP3
2,000,000 APPLICATIONS
RECEIVED OVER
PER MONTH ON AVERAGE
DURING 2017
>2mn
5213 2400 0000 0123
5213 2400 0000 0123
Point of destination for daily
banking
Tinkoff Bank is a top-2 credit card lender in Russia. In addi-
tion 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. Lev-
eraging its innovative approach, existing infrastructure and
customer base, Tinkoff Bank has been expanding to bring ad-
ditional partners’ products and services through its full-cycle
brokerage platform so now we make available 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 flexi-
bility. This high-tech platform includes the internet bank, mo-
bile 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.
2 According to The Banker
3 According to Markswebb Rank & Report
14
15
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 WHAT MAKES
US DIFFERENT?
5213 2400 0000 0123
AND TOWNS
DIVERSIFIED PRESENCE IN ALL REGIONS OF
RUSSIA, INCLUDING UNDERBANKED SMALL CITIES
52.8%
ROAE
2017
NETWORK OF PARTNERS (ON-
LINE, PAYMENT TERMINALS,
RETAIL AND OTHER)
56.5% NET LOAN PORTFOLIO
CAGR IN 2007–2017
56.5%
Powerful distribution
Tinkoff Bank offers remote access customer service through
its award-winning Internet banking as well as through mobile
banking and high-volume call centres. Our use of direct
marketing channels has 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 2,100 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-qual-
ity 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 adop-
tion 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.
5213 2400 0000 0123
ALMOST 2,500 SMART COURIERS
AND SALES AGENTS COVERING
AROUND 2,100 CITIES AND TOWNS
ALMOST 55X INCREASE
IN EQUITY SINCE 2007
2,500
55x
TCS group is transforming the
Russian financial services market
and driving a differentiated
customer proposition.
16
17
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 I WAS PLEASED TO
REPORT IN MARCH
AN EXCELLENT
SET OF RESULTS
FOR 2017. WE
OUTPERFORMED
IN ALL OUR KEY
METRICS. 2017
HAS BEEN THE
BEST YEAR
TINKOFF EVER HAD
Oliver Hughes
Chief Executive Officer
ROAE IS 52.8% AND TOTAL EQUITY
CLIMBED TO RUB41.9BN
ROAE
52.8%
CEO STRATEGIC
REVIEW
Dear Investors
One year ago, I presented my fifth stra-
tegic review, for FY2016. At that time I
reported to you that, as we celebrated
our tenth year, 2016 had been the
best year Tinkoff had ever had. The five
main ‘big picture’ themes I identified -
credit fundamentals, growth machine,
payments business, brand awareness
and diversification of business lines,
were the major drivers of remarkable
financial results in 2016 and I felt con-
fident they would propel us into 2017
and beyond.
Profitable growth
And so it has turned out. I was pleased
to report in March an excellent set of
results for 2017. We outperformed in
all our key metrics. 2017 has been the
best year Tinkoff ever had.
In 2017, we saw the resumption of cau-
tious growth in the Russian consumer
lending market – for the first time in
four years. This growth accelerated
in the second half of 2017, on into
2018. The macro-economic picture in
2017 was good, with unemployment
and credit risks low; we believed then,
and still believe now, there is room
for quality growth for players with the
right business model, commitment and
brand like Tinkoff.
Delivering our revenue diversification plan
2017 for Tinkoff was a year when
everything seemed to go in the right
direction, when the non-credit business
lines moved more centre stage, a trend
we confidently expect will continue, and
the investments made in earlier years all
came good, exceeding their targets.
As of 1 February 2018 Tinkoff was the
second largest credit card player in Rus-
sia with a market share of 11.7%*, acquir-
ing 1.8 million new credit card customers
last year. It is for this that we are perhaps
best known. There is though much more
to Tinkoff than that - over several years,
we have invested in the launch and roll
out of the online supermarket, with the
consequent diversification of our reve-
nue streams to non-credit lines.
* Bank's analytics based on CBRF 101 form
In 2017 our strong revenue growth of
36%, from RUB58bn to RUB79bn, came
from two main sources:
Behind this headline lies a back-story
of judgment, commitment, expertise,
professionalism and hard work. Intensive,
focused work on:
• the dynamic performance of our
consumer credit businesses; and
• building our brand,
• even stronger growth in our trans-
• expanding our product range,
actional and servicing business lines
(including Tinkoff Business (for SMEs),
Tinkoff Black, Tinkoff Mortgage, Tink-
off Investment, Merchant Acquiring
and Tinkoff Insurance). As a result,
our non-credit business lines made a
positive and meaningful contribution
to Net Income, the bottom line.
Our Net Income for 2017 grew by over
70% year-on-year and reached a record
RUB19bn, and a very impressive ROAE.
• enhancing customer experience,
• retaining laser-like focus on efficiency,
tight control of risk
all the time coupled with extensive
scaling up of the newer business lines we
have built out and enhanced over the last
3-4 years.
To track our progress in building the
Tinkoff.ru financial ecosystem, we have
started prioritizing new retention metrics
such as DAU/MAU in our mobile apps
and Net Promoter Score (NPS) which is
central to the ‘recommendation effect’
that drives customer acquisition. We now
18
19
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CONTINUED
CEO STRATEGIC
REVIEW
have around 7 million customers. NPS
for each of the Tinkoff Black and Tinkoff
Business lines is close to 60 – this is a
Tinkoff record high level for customer
servicing and satisfaction.
We have close to 1 million daily users of
the mobile banking app and this number
has doubled over the last year. As well as
frequency of use of the app, our custom-
ers are spending more and more time in
our interfaces to check balances, make
transfers, pay bills, apply for products,
book restaurant tables, buy travel servic-
es, read ‘Tinkoff Stories’ and for a wide
range of other purposes. ‘Tinkoff Stories’
is a key block as we significantly step up
our efforts to build content. Along with
the emphasis on content and product,
we are investing in our corporate finance
capability (a subject I will come back to
later on), with a view to achieving a sharp
increase in our active customer base in
the next few years.
A look at the business lines’ contributions
So, what drove the bottom line in 2017?
Here is an overview of the main
non-credit business lines:
I will address this under two headings:
1. our transactional and servicing
business lines; and
2. our credit business lines.
1 Transactional and
servicing business
lines
Our non-credit business lines grew at
an impressive pace making a 21.2%
contribution to the 2017 top line. As we
scale these businesses up, our acquisi-
tion effort becomes more efficient and
unit economics continue to improve as
a result.
Fee and commission income (RUBbn)
84.9%
15.5
0.7
3.2
2.4
3.6
5.5
8.4
0.7
1.3
1.8
4.5
2.1x
4.0
0.2
1.0
0.6
1.0
3.4
0.5
0.5
0.8
1.4
1.3
2.6
0.3
0.3
0.6
1.4
2.7
0.4
0.6
1.3
5.4
0.4
1.4
0.9
1.3
1.5
• Tinkoff Business,
• Tinkoff Black,
• Tinkoff Mortgage,
• Tinkoff Investment, and
• Merchant Acquiring.
Tinkoff Business (SME services) is the
largest driver of our fee-and-commis-
sions revenue. It broke-even in June
2017 well ahead of targeted break even
in H2 2017 and brought RUB830mn as
seen in segment reporting in our 2017
IFRS accounts. We opened 240,000 new
accounts by year-end representing an
almost five-fold growth year-on-year.
Other
SME
Merchant acquiring
Debit cards
Credit-related
We are now number two in Russia by
number of accounts opened per month,
averaging 20,000. We currently focus on
the underpenetrated segment of micro
and small business (up to 20 employees)
and in 2017 we became the sixth largest
player in terms of our market share of
Individual Entrepreneurs*. We plan to ex-
pand the product range further, building
new value-added services and adding
lending products through our SME
market place. An example of this is our
proprietary cloud accounting solution for
small businesses which is now used by
365,000 customers. SME is emerging as
a growing bottom line contributor.
Tinkoff Black (individual current
accounts) ramped up with almost 1.2
million cards issued in 2017 taking us
to a total of over 2.8 million personal
current accounts opened. We continue
to see strong self-generated demand for
Tinkoff Black which is important as this
product is the locomotive through which
we attract mass affluent customers into
our ecosystem. The spend on Tinkoff
Black debit cards doubled last year
and as a result we are now number 4 in
Mastercard Russia by total spend. Tinkoff
Black became a break-even business
(before acquisition cost) in FY 2016.
Tinkoff Mortgage (mortgage broker)
now has increasing momentum, having
broken-even on target in December. In
2017 we exceeded our targets and orig-
inated over RUB10bn of mortgage loans
for our partner-banks of whom there are
now eleven.
2016
2017
4Q’16
1Q’17
2Q’17
3Q’17
4Q’17
* Bank's analytics based on CBRF 101 form
Tinkoff Investment (retail securi-
ties trading platform-broker) also
exceeded expectations with over 70,000
brokerage accounts opened by year-end
2017. We see growing demand for our
product and interface, fuelled by the
steady decline in deposit rates across
the market. In Q42017, every fourth new
brokerage/MOEX account in Russia was
opened through us. From May 2018 we
will be rolling out our own platform and
offering brokerage accounts directly to
customers – we received from the CBRF
in March 2018 a professional securities
market license to offer brokerage and de-
positary services. This business line will
grow significantly throughout the year
as we enrich and expand our product and
service offering.
Merchant Acquiring revenues have
been growing nicely and Merchant
Acquiring made a healthy contribution
in 2017. Our newly-acquired subsidiary
CloudPayments, an innovative Internet
payments provider, will make a growing
contribution to our bottom-line in this
business line over time.
As a result, the overall contribution to
total gross revenue from all non-cred-
it-related business lines (including Tinkoff
Insurance) doubled in 2017. Our publicly
stated target for the end of FY2019 is to
have 30% of net income from non-credit
lines. By the end of FY2015, the revenue
from non-credit lines was 10%, rising to
15% by the end of the following year, and
up to 23% by the end of 2017. A definite
trend that underlines my belief our 30%
target is achievable. I am pleased that
we are ahead of our own projections,
but I believe that is just the start of this
journey as we continue to invest in new
non-credit business lines and build out
our ecosystem.
2 The credit business-
lines
Whilst we are excited by the results and
potential of our non-credit business
lines, we continue to treasure our core
business.
Overall, we beat our internal target,
exceeding 36% net loan growth for
the year. The credit card business had
another great year as we added almost
1.8 million new customers. Credit quality
is good, the risk profile of incoming
customers is stable and as a result, an-
nualised cost-of-risk was down to 5.5%
versus 7.6% in 2016. The cost-of-bor-
rowing further decreased to 7.6% in
2017 from 11% in 2016. Along with a
stable cost-of-acquisition, this ensured
good credit card economics for the year.
Gross loans
120.4
17.5
102.9
129.4
17.9
111.5
31.0%
139.5
18.3
121.2
153.4
19.3
157.8
17.5
134.1
140.2
4Q’16
1Q’17
2Q’17
3Q’17
4Q’17
Net loans
LLP
In addition to credit card portfolio
growth, we grew our personal cash loan
business by 3.2 times from RUB2.2bn to
RUB7bn in 2017. Most of this business
comes through cross-selling to mass af-
fluent borrowers in our existing customer
base. This business line gave us a strong
positive contribution to Net Income. We
also made strides in POS lending as we
grew the book by 3.7 times and took this
business line to break-even. We see good
prospects to ramp this business up in the
still uncrowded ‘long-tail’.
This year we plan to launch new tests of
car loans by leveraging the Tinkoff Bro-
ker platform that we have built for POS
lending. We will also carry out other care-
ful tests in the secured lending space.
Our goal is to become a full spectrum
retail financial player using a combina-
tion of smart balance-sheet and broker
origination for partners.
2017 highlights
Other noteworthy events in 2017, to pick out only a few, were:
–
–
the successful launch of Tinkoff
Mobile, a mobile virtual network
operator (MVNO) in partnership
with Tele2, last December;
the launch of Tinkoff’s own ATM
network in August, giving us over
200 ATMs to date with more to
come;
–
a large number of awards received
throughout the year from reputable
international and local institutions
-including ‘best consumer bank’,
‘best mobile app solution’ and ‘best
customer experience and servic-
ing’-these are featured under “Our
recent awards” elsewhere in this
Report;
–
the acquisition of a controlling
interest in CloudPayments, an in-
novative online payment solutions
provider, in October.
20
21
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CONTINUED
CEO STRATEGIC
REVIEW
The next stage of our journey
We see no shortage of opportunities,
quite the opposite. I have alluded to just
a few of them already. With our strong
revenue and capital generating capacity,
we are very well placed to take maxi-
mum advantage. Our highly professional
management team have demonstrated
an ability to react swiftly to change, to
spot opportunities before others do and
to exploit them.
In 2018 so far we have opened a devel-
opment hub at Skolkovo innovation
centre focusing on business solutions
based on blockchain as well as voice
and face recognition technologies.
Tinkoff is playing a leading role in piloting
various CBRF Fintech initiatives such as
the beta version of the Unified Biome-
trics System (‘UBS’), developed by the
Ministry of Communication and the
CBRF as a digital identity authentifica-
tion platform. We are also gearing up to
participate in the rapid retail payments
system pilot in the coming months.
What else then do I see coming, further
out in 2018? I’d like to touch on two
more factors that should have a bearing
on Tinkoff in the rest of 2018. The first is
additional regulation, the second M+A.
1 Regulation of our
industry
The financial sector in Russia is now
fairly heavily regulated, and we expect
there will be more consumer regulation
to come. An interventionist CBRF has
had considerable success in avoiding
system-wide problems in the wake of
the failures of some of Russia’s largest
privately- owned banks. It is also actively
working to prevent the appearance of
new consumer bubbles both in secured
and unsecured consumer lending.
The next piece of regulation in the pipe-
line relates to payment-to-income ratios
(PTIs) for unsecured lending. We are ac-
tively engaged in the consultations with
the CBRF and expect that this initiative
will be announced in Spring of this year;
that it will at first be a recommendation
and that, after a period of monitoring and
analysis, it will become mandatory. As
with all new regulatory measures, this
will require some adjustment for Tinkoff,
but given the nature of our business and
the small loan sizes we offer, we expect to
navigate this with only minimal impact.
In reality we see opportunity rather than
threat here.
Tinkoff welcomes these additional con-
sumer protections and new regulatory
initiatives such as possible payment
to income ratio caps. This initiative is
intended to have the effect of avoiding
future consumer lending bubbles caused
by irrational competition in the unse-
cured (and possibly in the future secured)
lending space. Conceptually we support
such measures and as a responsible
lender that issues low credit limits to
customers, we believe this should make
the market safer for Tinkoff to operate in
as Russia goes into the next market-wide
growth phase and should work to the
advantage of those lenders like Tinkoff
who are focused on building long-term
relationships with their customers and a
sustainable lending business.
2 M+A
Tinkoff has traditionally grown organ-
ically. We have done very little M&A
in the past, although we have made
targeted small-scale asset acquisitions
and we acquired a number of tranches
of high quality credit card portfolios
from Svyaznoy Bank in 2015. We are
also continuously involved in evaluating
acquisition proposals, some identified
by us, others brought to us, at different
stages to determine their fit into the
Tinkoff ecosystem.
However, as we build our financial
ecosystem we are entering a new phase
and we may make moves to buy Fintech
companies and content providers that
are complementary to our existing
business lines.
The deal with CloudPayments was the
first of these. We believe that the tem-
plate of the CloudPayments deal -where
Tinkoff takes a controlling stake (with the
right to buy out the balance) leaving a
significant minority stake with the talent-
ed team of co-founders and managers to
incentivize them to develop further the
business they are firmly committed to,
within the Tinkoff ecosystem- is one we
should repeat.
To close I should like to thank those-our
controlling shareholder, our manage-
ment team, our business partners, our
employees- who have made a contri-
bution to our successes in 2017 and to
welcome on board all those who joined
us in 2017. A special mention too for all
our customers; we truly value you and
appreciate your ideas, your feedback and
your loyalty.
Oliver Hughes
Chief Executive Officer
OUR RECENT
AWARDS
• Russia’s 2017 Bank of the Year
• Best Mobile Application for iPhone, Android and Win-
• Most Profitable CEE Bank in Central and Eastern Europe
dows and iPad tablets
• Most effective solution for small businesses for Android
(Tinkoff Business)
• Best Online Deposit, Credit and Investment Product
• Best Mobile Application on the iOS for convenience and
Offerings and Best inSocial Media
functionality
• Grand prix for best overall investor relations, small cap
22
23
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 IN 2017 THE
GROUP POSTED
THE STRONGEST
SET OF RESULTS
IN ITS HISTORY.
THESE RESULTS
HAVE FURTHER
CEMENTED TINKOFF
GROUP’S PLACE
AS THE SECOND
LARGEST PLAYER IN
THE RUSSIAN CREDIT
CARD MARKET
Ilya Pisemsky
Chief Financial Officer
FINANCIAL
REVIEW
Dear Investors
Just a year ago now, I wrote this: ‘in
2016 the Group posted the strongest
set of results in its history. These re-
sults 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.’
One year on, in 2017 the Group
posted the strongest set of results in
its history. These results have further
cemented Tinkoff Group’s place as
the second largest player in the Rus-
sian credit card market with a market
share of 11.6% at the close of 2017.
The Group showed a quarterly all-
time record profit of RUB6.4bn in
the fourth quarter and RUB19bn for
the year which is 72.8% higher than
in 2016. Return on average equity
reached 63.1% in the fourth quarter
and 52.8% for the year.
Tinkoff Group is buzzing.
In my review I will share with you
my observations on FY2017 and our
financial highlights and look ahead a
little to 2018 which as I write is near-
ly three months old. Before doing so
I would like to raise some business
highlights from FY2017 which show
the range of business and capital
markets initiatives the Group execut-
ed which underpin not just last year’s
results but we firmly believe success
in this and following years:
•
•
in February Moody’s upgraded
Tinkoff long-term local- and for -
eign-currency deposit ratings
and local-currency senior unse-
cured debt ratings to B1 from B2,
outlook — stable.
in March the Group adopted a
new dividend policy, with a target
quarterly dividend payout ratio of
50% of the net income from the
preceding quarter (this resulted
in a total of USD1.08 per GDR de-
clared in dividends based on 2017
earnings);
•
•
in April, Tinkoff successfully
placed a 5 year RUB5bn bond with
a 9.65% coupon;
in May ACRA assigned Tinkoff
Bank an A(RU) rating, outlook
stable;
• the Group introduced Android Pay
for our customers, in May;
• also in May the Group launched
a successful tender offer to
buy back its USD200mn 14%
eurobond due in 2018, resulting
in nearly USD63mn of notes being
accepted for purchase;
•
•
•
in June the Group successfully
launched its USD300mn perpet-
ual callable bond with a 9.25%
coupon (a Basel III compliant
instrument approved by the CBRF
for inclusion into the N1.2 statuto-
ry CAR calculation);
in October the Group acquired a
55% controlling stake in Cloud-
Payments, an innovative developer
of online payment solutions;
in December the Group relaunched
its Euro-Commercial Paper Pro-
gramme (ECP), with an issue of
USD50mn at a competitive one
year USD rate.
Cash and cash equivalents
Investment securities and
REPO
Net loans
Other
These are just my personal choices
but there are others described else-
where in this Report and many others
in the pipeline, at a stage now where
it would be premature to mention
them.
Let me now turn to the 2017 financial
statements and describe some of
the dynamics and patterns that can
be observed in our business through
2017. I will also discuss some of the
implications of our move to IFRS9
from IAS39 this year.
Assets growth RUBmn
+53.3% 13.9%
268.8
23.9
72.5
140.2
236.0
19.0
57.9
215.3
27.0
46.0
175.4
16.2
33.3
176.8
13.0
32.5
134.1
121.2
102.9
111.5
23.0
19.9
21.2
25.0
32.3
4Q’16
1Q’17
2Q’17
3Q’17
4Q’17
24
25
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
CONTINUED
FINANCIAL
REVIEW
Balance sheet
I will start from the balance sheet, a
very healthy balance sheet I would add,
as our balance-driven business re-
mained the major driver of our profits
in 2017.
Total Assets of the Group grew by
53.3% year-on-year with 13.9% of
that growth coming in the fourth
quarter. Our net loan portfolio showed
an impressive 36.3% growth for the
year, slightly ahead of our guidance.
This growth was driven not only by the
credit card part of the portfolio, but by
Cash and POS loans as well. Besides
the credit portfolio we saw substantial
growth in the investment portfolio
which grew by a factor of 2.2. The rea-
son for this dynamic is the strong pos-
itive development of the Tinkoff Black
and SME business lines. We continue
to maintain good quality and well-man-
aged diversification of the bonds within
the investment portfolio.
Our gross loan book grew by a solid
31.0% in 2017 which can be attributed
to our average monthly credit card
issuance rate of 200,000 as well as to
the development of cash and POS loans
business lines. In December the gross
loan portfolio remained effectively flat
because of significant increase in the
repayment ratio but resumed its strong
growth path in January 2018.
The quality of loans continued to
improve. The Non-Performing Loans
(NPL) ratio dropped to 8.8% at the
year-end showing a decline of 140
basis points through the year. The
NPL coverage ratio also declined to
126% under IAS39. The reason behind
this reduction was the decrease in
the share of restructured loans to
delinquent customers in the total loan
portfolio. Our funding base is growing
strongly mirroring the assets growth.
Customer accounts remain the primary
source of funding with the 84% share
from current accounts growing faster
than term deposit balances. Most of
the current account money funds our
Conservative credit risk policy, % of gross loan portfolio
142
144
140
134
10.2
5.0
3.3
9.6
5.3
2.4
2.0
1.9
126
8.8
LLP/NPL
Courts
9.4
9.4
5.5
1.9
1.9
5.9
5.0
2.1
1.7
1.8
1.7
-4.3
180+ dpd (w/o courts)
90-180 dpd
Write-offs (annualised)
-0.5
-8.8
Sale of bad debts (annualised)
-6.6
-6.2
-0.1
-0.8
-7.4
-0.1
-0.1
4Q’16
1Q’17
2Q’17
3Q’17
4Q’17
treasury portfolio while term deposits
fund the loan portfolio. There is a small
overlap in this fund distribution hence
we have small short-term portion of
loans which is POS loans and credit
cards in grace period. At year-end this
overlap constituted only 4% of the
gross loan portfolio.
We saw rapid development in the
SME business with customer account
balances showing 4.3 times growth
in 2017. It is now a visible balance of
RUB23.7bn and is shaping up to be
the fastest growing source of funding
in 2018. Just as with retail current
account money, we keep these funds in
very liquid form – either cash or debt
securities.
On the wholesale side the Group placed
a RUB5bn bond in April and issued a
USD300mn perpetual callable subor-
dinated loan at mid-year (a Basel III
compliant instrument approved by the
CBRF for inclusion into the N1.2 statu-
tory CAR calculation) at much the same
time as making a significant buyback
of our existing Tier II subordinated
loan notes which will mature in June
2018. Just before year end we also
placed a USD50mn ECP tranche. The
majority of our FX funding is converted
to RUB through a number of long term
cross-currency swaps with the rates
ranging from 3.8% to 4.6%.
Our Equity showed a stable quarterly
growth through the year adding 42.1%
in 2017 which ensures healthy margins
above regulatory capital requirements.
The Basel total and Tier I capital
adequacy ratios almost coincide at the
year-end following the Tier II subordi-
nated debt buyback and its approach-
ing maturity. Our statutory capital
adequacy ratios are well above their
respective regulatory minimum levels,
with the N1.2 ratio boosted by the per-
petual bond placed in June 2017.
In summary a healthy balance sheet; so
now I will turn to the Income Statement.
this category which led to RUB550mn
pre-tax P/L effect. This is not a one-
off adjustment but rather an effect
that otherwise should be spread out
through the whole of 2017. There are
two reasons for this revision in our
view – better market conditions and
improved collection effectiveness
through court procedures. Finally, this
revision placed us closer to IFRS 9
requirements for loss-given default es-
timation that have been in place since
the beginning of 2018.
Net interest income RUBbn
+37.3%
46.1
33.6
+39.0%
12.2
13.0
11.1
9.4
9.8
2016
2017
4Q’16
1Q’17
2Q’17
3Q’17
4Q’17
Profit and loss statement
The Group’s revenue showed a 36.1%
increase in 2017 driven by growth of
our core credit business as well as the
development of the Group’s transac-
tional and servicing businesses. Now
The share of non-credit related revenue
makes a bigger share in the total de-
spite the solid growth in the core credit
business, increasing from 15% in 2016
to 23% in 2017.
In 2017 the Group showed a 25%
growth in interest income. Our headline
gross interest yield on the credit port-
folio slightly decreased from 40.3%
to 39.6%, which is a slower decline
of gross margin than we anticipated,
and the reason for that is higher-than-
planned portfolio growth. New loans
with smaller-than-average balances
give a higher yield than seasoned
vintages. Also due to the introduction
this year of IFRS 9 gross yield should
slightly increase in Q1 2018 ( in the
region of 1-1.5%), but the general long
term reduction of gross yield into the
35% area should continue.
Interest expense showed a decline
through 2017 of 6.0% on the back of
continued decreases in deposit and
market rates. We reduced our top line
rate on RUB retail deposits from 8% to
7% during the course of the year and
we reduced our top line rate on Tinkoff
Black current account from 7% to 6%
during 2017. Funding that we receive
on SME accounts is also relatively
cheap in the area of 2-3% and this also
had an impact on total cost of funds re-
duction. The aggregate cost of borrow-
ing dropped over the last financial year
by 340 basis points to 7.6% as a result
of declining retail deposit rates and
the gradual growth of the weight of the
individual and SME current accounts in
the liability structure.
Net interest income increased by
37.3% in 2017, which is higher than the
top line growth rate, since the interest
income grows while interest expense
is decreasing. The net interest margin
showed an insignificant decline from
25.8% to 25.3% while the risk-adjust-
ed margin grew by 140 basis points to
21.1%.
The reason for the growth of the risk
adjusted net interest margin is the
decrease of cost of risk during the
year. Our cost of risk showed an annual
decrease of 2.1% from 7.6% to 5.5%
including a seasonal decrease in the
fourth quarter to 2.7%. These are IAS
39 percentages; IFRS9 percentages
would be 1-2% higher. The average
write-off rate for FY2017 was 6.9%.
The Group continues to maximize
recoveries in-house by collecting
on delinquent loans through courts,
installment processes and field collec-
tions.
In Q4 2017 we revised our loss-given
default expectations on non-perform-
ing loans in our portfolio, including
loans in court. This resulted in 5.5%
reduction in provisioning levels for
26
27
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CONTINUED
FINANCIAL
REVIEW
In 2017 the Group’s fee and commission income demon-
strated rapid growth of 84.9% and by 2.6 times if cred-
it-related fees are excluded-this is due to the development
of non-credit business lines primarily debit cards, online
acquiring and SME services. Credit related fees are not
growing especially and their impact on our business will we
expect reduce in the next few years. Insurance premiums
earned also doubled in 2017 to RUB2.7bn, showing an even
higher growth in the auto segment, though we continue to
view a more aggressive growth in the insurance business as
premature.
With 2.8 million customers, the Group’s current accounts
business contributed RUB3.6bn in fee and commission
income in 2017. We successfully introduced family banking
and multi-currency debit cards. We continue to develop our
product which we see as the cornerstone of our customer
relationship, believing it as having the potential for subse-
quent cross-sell opportunities. We are intentionally keeping
our bottom-line result on this business at break-even, seeing
more value in customer base growth and potential syner-
getic effects with other business lines rather than a source
of pure net income growth. Our award-winning mobile and
internet banking applications ensure best-in-class customer
experience.
Launched about two years ago our SME business line
came to break-even in June 2017, emerging as a growing
bottom line contributor. As at year-end we are serving about
250,000 customers; in 2017 that number grew five-fold. The
SME business line contributed RUB3.2bn in 2017 fee and
commission income and over RUB800mn in net segment
income. We continue to expand the range of services for SME
customers to support the growth and improve the economics
of this business line.
Our mortgage broker business is looking to scale up without
excessive pressure on operating profit. The volume of mort-
gage loans originated through our mortgage broker platform
exceeded RUB10bn in 2017 compared to RUB3bn in 2016.
This business line became break-even in the last quarter of
2017. Currently, we have 11 partners-two more banks have
joined the partners’ group- and we continue to optimize
business processes for customers.
More than 60,000 accounts were opened in 2017. About
80,000 customers now use our Tinkoff Investments plat-
form for buying or selling securities. In the fourth quarter the
volume of deals exceeded RUB12bn with an average ticket of
RUB60,000. This business has shown steady growth and is
at break-even in partnership with BCS Broker, Russia’s lead-
ing retail brokerage. Now though we are also developing our
own brokerage solution which should push the total business
line into small minus for 2018.
Now some comments regarding operating expenses. Operat-
ing expenses were up by 44.4% in 2017. In the fourth quar-
ter we saw a seasonal growth which was attributed primarily
to the salary review process and advertising campaign
expenses. This influenced the cost-to-income ratio which
ticked up to 45.5%. Overall, we showed a slight decline in
cost-to-income ratio for the year from 43.9% to 43.2%.
TINKOFF BANK HAD ISSUED OVER 9.3MN CREDIT
BY THE END OF 2017
CREDIT CARDS
CARDS
9.3mn
DEBIT
CARDS
TINKOFF BANK ISSUED OVER
2.8MN DEBIT CARDS AT YE2016
>2.8mn
The Group is required to transition for this year from ac-
counting standard IAS39 to IFRS9. I will summarize what I
see as its main impacts. The one-time downward effect on
Equity is around RUB9.7bn, which is higher than we predict-
ed earlier, mostly for the reason of the higher growth of the
gross loan portfolio.
IFRS9 also requires us to introduce provisioning for custom-
ers’ unused credit limits. Instalment loans will be recognized
as stage 3 loans. NPL calculated as 126% under IAS 39
would increase under IFRS9 to around 157.6%. NPL cover-
age calculated as 8.8% under IAS 39 would increase under
IFRS9 to around 11.9%.
IFRS9 also impacts cost of risk as I discussed above.
It is important to remember that our capital adequacy re-
quirements are measured on the basis of Russian accounting
standards that are not affected by this change in standards.
We have been preparing for this transition for a long time.
We continue polishing our IFRS9 accounting model for our
loan portfolios.
Cost of Borrowing
11%
7.6%
10.0%
8.5%
7.7%
7.7%
6.9%
2016
2017
4Q’16
1Q’17
2Q’17
3Q’17
4Q’17
In summary FY2017 was a year of dynamic growth in the
credit business, robust credit portfolio performance allied to
a strong contribution from our transactional and servicing
business lines. We sustained strong positive cost of borrow-
ing and capital adequacy ratio trends, and our profitability
was impressive.
Overall we go on into 2018 with a lot of forward momentum.
Ilya Pisemsky
Chief Financial Officer
28
29
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 ASSET, LIABILITY AND
RISK MANAGEMENT
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 purpose of the Group’s asset, liability and risk management (“risk management”) strategy is to evaluate, monitor and man-
age the risks arising from the Group’s activities. The main types of risk inherent in the Group’s business are credit risk, market
risk, which includes foreign currency exchange risk, interest rate risk and liquidity risk. The Group designs its risk management
policy to manage these risks by establishing procedures and setting limits that are monitored by the relevant departments.
Risk Management Organisational Structure
The Group’s risk management organisation is divided between policy making bodies that are responsible for establishing risk
management policies and procedures (including the establishment of limits) and policy implementation bodies whose function
is to implement those policies and procedures, including monitoring and controlling risks and limits.
Policy Making Bodies
The policy making level of the Group’s risk management organisation consists of the Board of Directors, and at the Tinkoff
Bank level its Board of Directors, the Management Board, the Finance Committee, the Credit Committee and the Business
Development Committee.
These bodies perform the following functions within the Bank:
Board of Directors
Finance Committee
The purpose of the Finance Committee is to ensure the
long term economic effectiveness and stability of the
Group’s operations. The Finance Committee establish-
es the Group’s policy with respect to capital adequacy
and market risks, including market limits, manages the
Group’s assets and liabilities, establishes the Group’s me-
dium term and long term liquidity risk management policy
and sets interest rate policy and charges with respect to
individual loan products. The Finance Committee must
have at least five members (currently there are seven
members) and the Chairman of the Management Board
acts as the Chairman of the Finance Committee. It meets
on a weekly basis.
The Board of Directors is responsible for the creation and
supervision of the operations of the internal control sys-
tem of the Group and approves the Group’s credit policy
(“Credit Policy”) and approves certain decisions that fall
outside the scope of the Credit Committee’s authority.
Management Board
The Bank’s Management Board, which, in addition to its
Chairman, also includes the Group’s Risk Director, Chief
Financial Officer, Chief Accountant, Chief Legal Counsel,
Chief Operational Officer and Head of Payment Systems,
has overall responsibility for the Group’s asset, liability
and risk management operations, policies and proce-
dures. The Management Board delegates individual risk
management functions to each of the various decision
making and execution bodies within the Group’s risk man-
agement structure. Chairman of the Management Board
appoints members of the Finance Committee and Credit
Committee. It meets on a weekly basis.
Credit Committee
Business Development Committee
The Credit Committee supervises and manages the
Group’s credit risks. With respect to credit cards, the
Credit Committee approves the consumer lending policy,
the underwriting methodologies and the scoring models
used for assessment of the probability of default, the
initial credit limit assignment and subsequent account
management strategies, provisioning rates and decisions
to write off non-performing loans. This Committee must
consist of at least five members (currently there are six
members) and the Chairman of the Management Board
acts as the Chairman of the Credit Committee. It meets
when necessary, but at least once each month.
The Business Development Committee is responsible for
the development, design and marketing of the Group’s
financial products and provides recommendations to the
Group’s risk management bodies with respect to changes
to the Group’s lending policies and procedures and the
pricing of the Group’s loan products. This Committee
consists of 12 members appointed by the Management
Board. It meets on a weekly basis.
Policy Implementation Bodies
The policy implementation level of the Group’s risk management organisation consists of the Finance Department, the Risk
Management Department, the Collections Department and the Internal Control Service.
Collections Department
Internal Control Service
The Collections Department
is responsible for collection
of amounts due but unpaid
by delinquent the Group
customers. The Manage-
ment Board approves the
Group’s collections policy,
which is then implemented
by the Collections Depart-
ment.
The Internal Control Service
assesses the adequacy of
internal procedures and
professional standards, as
well as their compliance
with CBRF regulations. The
Internal Control Service is
controlled by, and reports
to, the Board of Directors of
the Bank.
Risk Management Depart-
ment
The Risk Management
Department is responsible
for the development and im-
plementation of the Group’s
consumer lending policy
after the final approval of
such policy by the Credit
Committee. The Risk Man-
agement Department is also
responsible for credit risk
assessment of all proposed
new products and related
marketing communications,
for approval of credit card
applications and other loan
products applications and
for subsequent account
management programmes.
Finance Department
The Finance Department is
responsible for managing
correspondent accounts,
daily currency liquidity,
money transfer control and
daily money transfer model-
ling to support the required
currency liquidity level for
correspondent accounts
and compliance with the
CBRF’s liquidity ratios.
The Finance Department is
also responsible for closing
international and local
transactions in accordance
with the Group’s limits as
approved by the Finance
Committee and in compli-
ance with the CBRF’s regu-
lations, as well as for short
term placements, currency
hedging and interest rate
hedging.
Management Reporting Systems
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 (but is not limited to) sales reports, application
processing reports, reports on the risk characteristics of the credit card portfolio, vintage reports, transition matrix (roll rates)
reports, reports on pre, early and late collections activities, reports on compliance with the CBRF’s requirements, capital ade-
quacy and liquidity reports, operational liquidity forecast reports and information on intraday cash flows.
Some reports are submitted for the review of the Bank’s Board of Directors on a monthly basis. These include selected finan-
cial information based on IFRS and adjusted to meet the requirements of internal reporting, analytical reports on credit risk
and lending, reports on the status of the Group’s credit card business accompanied by management commentary and analysis
and reports on the Group’s performance versus budget and operational risk reports.
30
31
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CONTINUED
ASSET, LIABILITY AND
RISK MANAGEMENT
Overview of principal risks
cant decline in the price of oil, ongoing
political tension in the region, econom-
ic 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 great-
er 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:
Credit risk;
Market risk;
Foreign currency exchange risk;
Interest rate risk;
Liquidity risk; and
Operational risk.
These are discussed in the following
pages.
The Group uses automated systems to evaluate an applicant’s creditworthiness
(“scoring”). The system is regularly modified to incorporate past experience and
new data acquired on an iterative basis. The Group performs close credit risk moni-
toring throughout the life of a loan.
Loan Approval Criteria and Procedures
The Group is primarily focused on reducing incoming credit risk at the acquisition
stage. The Group’s Credit Committee has established general principles for lending
to individual customers. According to these principles, the minimum requirements
for potential customers are as follows:
Citizenship of the Russian Federation;
Aged from 18 to 70 inclusive;
Possession of a mobile phone;
Longterm current employment;
Monthly income above five thousand roubles; and
Permanent or temporary place of residence.
The Group is subject to a number of
principal risks which might adversely
impact its performance.
The majority of the Group’s assets
and all its 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 commod-
ities 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 signifi-
cantly and negatively impacted by a
combination of macroeconomic and
geopolitical factors such as a signifi-
Credit Risk
The Group is exposed to credit risk,
which is the risk that a customer will be
unable to pay amounts in full when due.
Credit risk arises mainly in the context
of the Group’s consumer lending
activities.
The general principles of the Group’s
credit policy are outlined in the Credit
Policy approved by the Board of Di-
rectors of the Bank. This document
also outlines credit risk controls and
monitoring procedures and the Group’s
credit risk management systems. Credit
limits with respect to credit card appli-
cations are established by the Credit
Committee and by officers of the Risk
Management Department.
The Group structures the levels of its
credit risk exposure by placing limits on
the amount of risk accepted in relation
to different online (Internet, mobile and
telesales) and offline (sales through
retailers) customer acquisition channels
and sub-channels. Such risks are
monitored on an ongoing basis and are
subject to quarterly or more frequent
review with the approval of the Manage-
ment Board.
In almost all cases, the decision to issue a credit card or other loan product to a potential customer is made automatically, based
on the credit bureaus information, verification of the customer’s identity and credit score of the applicant calculated using one
of the acquisition channel-specific scoring models. In very rare cases, decisions to issue credit cards to high income or high net
worth customers are taken manually by members of the Credit Committee, but the number of loans granted under such circum-
stances is immaterial.
The decision to issue a credit card or loan to a customer is made after completion of the following steps:
Solicitation – The initial step in the underwriting process
that applies to one-to-one marketing channels (e-mails,
phone calls, SMS messages and direct mail) is pre-screening
of prospective customers. At this stage, the Group’s loan of-
ficers check available information on prospective customers
and remove potential non creditworthy customers, thereby
reducing the cost of customer acquisition.
Service records, whether the applicant’s name appears in
any of the Group’s proprietary databases or whether any
application details (for example, telephone numbers or
addresses) are identified as fraudulent in databases of other
banks available through antifraud services provided by credit
bureaus – Fraud Prevention Service (Equifax) and National
Hunter (UCB).
Validation – The purpose of this stage is to ensure the validi-
ty, completeness and quality of application data. The Group’s
system checks the integrity of the data and, if necessary, call
centre staff call applicants to ask them to provide additional
information or documentation.
Verification – At this stage, the Group’s loan officers verify
information provided by the applicant in their application
form. This includes confirming the applicant’s identity, for
example through the telephone numbers from the credit
bureau report; investigation of the applicant’s financial
situation during a phone interview; and verification of em-
ployment details (including verification that an applicant’s
employer is an officially registered legal entity, review of
the employer’s website to make sure that this entity exists
and continues to operate, confirmation of the applicant’s
employment using telephone numbers of the legal entities
from their registrars and, wherever possible, verification of
the applicant’s declared income with his or her employer). As
part of the verification process, the Group’s loan officers also
gather as many phone numbers linked to the applicant as
possible (land-line and mobile, personal and that of a friend
and/or a relative) to facilitate future collection efforts.
Credit Bureaus – Subject to the prior consent of the appli-
cants, the Group sends incoming applications to the largest
credit bureaus in Russia including Equifax, Unified Credit
Bureau (Sberbank, Experian, Interfax) and National Bureaus
of Credit Histories, and requests applicants’ credit histories.
Typically, approximately 18 per cent. of applicants have no
credit history in the credit bureaus but they are not automat-
ically rejected and can be accepted on the basis of informa-
tion provided in their application forms and other sources of
information described below.
Scoring Model to Identify Fraud – At this stage, the Group
investigates whether the applicant is currently in default
according to credit bureaus reports, whether the appli-
cant’s passport is invalid according to the Federal Migration
Scoring Models for the Application – the Group has internal-
ly developed a set of acquisition channel-specific statistical
models that rank all applicants according to their proba-
bility of default during the next 12 months. These models
use, among other things, (i) demographic data from the
application form (for example, age, gender, education and
marital status), (ii) payment history, when available – both
positive and negative – from the three largest credit bureaus
in Russia, (iii) channel-specific marketing and behavioural
information (for example, device used to fill in the application
form, time between application and first call and the amount
of time a web visitor spends on a website).
Application of the NPV Model and Final Decision – the
Group has developed acquisition channel-specific models
that, amongst other things, estimate a potential customer’s
net present value from one used credit card. The key compo-
nents of every NPV model are the customer’s probability of
default, tendency to use a grace period, and other behaviour
characteristics which are calculated using internal scoring
models. For potential customers incoming from a particular
acquisition channel, and taking into account such custom-
ers’ estimated behaviour characteristics, initial credit limit
and tariff plan, the models estimate the Group’s future cash
flows from each customer by modelling his or her behaviour
in respect of, among others, credit limit utilisation levels,
transactional activity, share of cash withdrawals in total card
activity and repayment rates. The Group takes a NPV-pos-
itive approach to approval of all applications, which means
that an application is approved only when the potential
customer’s net present value from the use of his or her credit
card is positive. For all NPV calculations a discount rate of 30
per cent. is used.
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.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CONTINUED
ASSET, LIABILITY AND
RISK MANAGEMENT
Credit Line Management Procedures
Credit line management procedures for credit card products include the following:
Initial Credit Line Calculation
Regular Update of Credit Line
Loan Collection
The customer’s initial credit limit de-
pends primarily on such customer’s
probability of default and his or her
income. Lower probability of default
and higher income have a positive
impact on the initial credit limit. The
initial limit cannot exceed three
monthly salaries of the customer or
RUB 120,000, whichever is lower.
Once the Group has received at least
three minimum payments from a
new customer and each six months
thereafter, the Group reviews the
customer’s credit limit. As part of the
process, the Group updates credit
bureaus reports with respect to the
customer and re-calculates such
customer’s probability of default
with the help of internal behavioural
scoring model. Based on the updated
probability of default, the credit
limit may be increased. For premium
customers the credit limit may be
increased further.
The Group employs a multi stage
collection process that seeks to
achieve greater efficiency in the re-
covery of overdue credit card loans.
Collections on loans that are overdue
by 0 to 90 days are performed by
the Group’s internal Collections
Department. After 90 days of delin-
quency, when it is clear that the early
collection efforts are unlikely to be
effective, customer’s debt may be
restructured into instalment loans
(which is the option preferred by the
Group), transferred to collections
through courts or sold to its internal
collection agency (Feniks) or exter-
nal collection agencies.
The Group’s collections methodology is based on customer
behaviour and corresponding collection scores. Under this
approach, at initial stage of collections (pre collections and
early collections), delinquent customers are allocated to one
of three groups depending on their risk profile (high risk of
default, medium risk of default and low risk of default). This
enables the Group to apply a variety of collections tools
and collections treatments to different groups of delinquent
customers.
All of the stages described below may be accelerated in
cases where the Group has grounds to believe that the
delinquent customer will not repay the debt voluntarily or
that fraud has taken place. In such circumstances, the time
periods between each collections stage are shortened or
omitted (the respective loans are accelerated into collections
used for non-performing loans) in order to increase the
chances of recovery.
The Group’s management uses monthly second payment
default rate (percentage of accounts on which payment has
not been received within 30 days of the first due date) as
an important measure of asset quality that provides early
indication of how non-performing loans levels and provisions
might change in the future.
Pre Collections (Four Days Prior to Due Date). The Group
sends to all customers a reminder about forthcoming pay-
ments and the amount due two to four days prior to the due
date. The customer receives a SMS and/or an e-mail. High-
risk customers also receive a call. Pre collections calling has
proved to be an important way to combat delinquency.
Early Collections (0 – 30 Days). If payment is more than
one day overdue, the customer receives reminders via SMS
and email, as well as calls from the collections team. The
level of contact is determined by behavioural scoring (their
probability of default based on the customer’s previous
history with the Group and external credit bureaus scores) to
ensure efficient use of collections resources.
“Soft” Collections (30 – 90 Days). Once a credit card loan
becomes more than 30 days overdue (after the second
payment default), the customer is switched to “soft” collec-
tions. On the 31st day of delinquency, the customer is sent a
written notification of the missed payment and receives SMS
and e-mail reminders at regular intervals, as well as follow up
calls by members of the “soft” collections team. The Group’s
objective at the “soft” collection stage is to identify and as-
sess the reasons why the customer has missed payments, to
assist the customer in making payments, to collect payments
and to identify early customers who should be transferred
enhance security, given the prevalent
risk of personal data in the age of
social engineering.
Payment operations are generally
secured via one-time SMS codes. Any
operations with cash and movements
on customer accounts are only carried
out upon confirmation using a code
sent via SMS and push notifications.
IMSI system is used to check to authen-
ticate a sim card.
Unauthorised operations are prevent-
ed by fraud monitoring system, which
is based on IBM Safer Payments solu-
tion. The system allows to effectively
prevent fraud at various stages of a
payment process using a cross-chan-
nel monitoring. This secures online
banking, emission, acquiring, deposit
withdrawals, sms-banking, operations
on accounts of legal entities.
The monitoring system may, inter alia,
automatically reject or suspend a pay-
ment, block an account or send an alert
report of a suspicious operation. Once
a suspicious transaction is identified a
customer may confirm such operation
by phone, sms-bank or mobile appli-
cation
When suspicious transactions are
identified, the Bank gives the customer
a choice - to confirm transactions by
phone or for cases with the presence of
a card through the sms-bank or mobile
application. In more than 90 per cent.
of cases, the customer does not have
to contact the bank by phone, which
is especially important for customers
abroad.
to collections used for non-performing
loans. In rare circumstances, the Group
provides temporary relief from credit
card repayments for a period that
usually does not exceed three months
to borrowers with temporary financial
difficulties but with a positive credit
history. Monthly minimal payments are
reduced to an amount that a borrower
is able to repay during the relief period.
Non-Performing Loans Management.
When loans are overdue by more than
90 days, the Group collection efforts
consists of (i) the restructuring of
credit card debt to personal instalment
loans, which is the preferred option of
the Group to handle such delinquency,
or, if customers do not agree to such
restructuring, then either (ii) collec-
tions through courts with the enforce-
ment of judgments with the help of
the Federal Service of Court Bailiffs of
the Russian Federation or (iii) sales of
non-performing loans to its internal
collection agency (Feniks) or external
collection agencies.
Conversion of Credit Card Debt to
Personal Instalment Loans. Conver-
sion of credit card debt to personal
instalment loans was first introduced
by the Group in 2010. This programme
is based on regular instalments paid by
delinquent customers. After consulta-
tions with the delinquent customer, the
Group fixes the outstanding amount of
the debt under the credit card loan and
offers the customer an option to repay
his or her debt in monthly instalments
during a period limited to 36 months.
Recoveries through the Courts. The
Group applies to courts through mail-
ing standardised claims rather than
appearing before a court to enforce
overdue loans. The Group considers
these generally straightforward and
quick court proceedings as a preferred
alternative to collection agency ser-
vices in those locations in which court
decisions can be obtained in approx-
imately three months or faster. Most
courts in Russia are able to resolve
court cases initiated by the Group
within this time framework.
Sales of Non-Performing Loans to
Collection Agencies. Typically, loans
delinquent for more than 150 days
and not converted into instalment
loans or being resolved through claims
submitted to the courts, and loans with
court orders with low collection rate
are sold to in-house Feniks collection
agency. In rare circumstances limited
loan portfolios are sold to external
collection agencies.
Fraud Prevention
The Group maintains a fraud preven-
tion strategy which is based on the
identification and fraud monitoring.
Access to customers’ accounts is se-
cured via smart identification system,
which takes into account various cus-
tomer profile parameters, including in-
formation on a device used and session
data, and sets an identification level.
Depending on such identification level,
the customer needs to acknowledge
the entry into the account by way of a
login and password, four-digit access
code, fingerprint, security question
or a password sent to the customer’s
contact number. In securing access
to customers’ accounts a two-factor
identification is used.
Customer support centres use a unified
identification manager, which allows
to request a customer’s identification
data and passwords without providing
access to such data to the customer
support service. In addition, a real-time
voice authentication system is used
to verify the identity of a caller. The
system is based on the NICE Real-Time
Voice Authentication System by Nice.
The system is synchronised with the
universal authentication manager
processing customer calls to the cen-
tre. This technology enables customer
voice identification during a regular
phone call, reducing verification time
from 40 seconds to 7 seconds. This
dramatically improved customer
experience by saving customer time
and helped to reduce traffic costs and
34
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CONTINUED
ASSET, LIABILITY AND
RISK MANAGEMENT
Provisioning Policy
Provisioning policy falls under the responsibility of Tinkoff Bank’s Management Board that approves internal documents regu-
lating the determination of delinquency groups and creation of allowances for potential losses in connection with the Group’s
loan portfolio.
IFRS provisioning
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 year, the Group’s
management makes judgments as to whether there is any
observable data indicating that there is a measurable de-
crease 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’s management
considers as objective evidence of impairment is the overdue
status of the loan.
The methodology and assumptions used for estimating both
the amount and timing of future cash flows are reviewed reg-
ularly to reduce any differences between loss estimates and
actual loss experience. In accordance with internal methodol-
ogy for the provision estimation, the Group uses all available
loss statistics for the whole period of its operations. Starting
from 2010, the Group’s management uses a seven month
horizon for assessment of probabilities of default in calculat-
ing the provision for impairment as these statistics provide
better information to estimate and project loan losses.
CBRF Provisioning
For CBRF regulatory purposes, the Group currently applies
a methodology based on RAS to calculate loan provisioning
and determine expected losses. Under CBRF regulations,
provisions for loan impairment are established following the
borrower’s default under the loan or where there is an objec-
tive evidence of potential inability of the borrower to repay
the loan. In the case of consumer lending, the Group creates
provisions by reference to homogenous loan portfolios in-
cluding groups of loans consolidated on the basis of a certain
credit risk criteria (such as type of loan product, region of
residence, debt terms or month of issue) as well as individual
loan products. Provisions with respect to individual loan
products are calculated based on the borrower’s financial
condition and debt service quality.
CBRF requires banks to classify their loans into the following five risk categories and to create provisions in the corresponding
amount at their discretion:
Loan classification
Status of loan and loss potential
Provisioning range (in %)
Category I
Category II
Category III
Category IV
Category V
Write Off Policy
Standard loans, without credit risk
0
Non-standard loans, moderate credit risk
1-20
Doubtful loans, considerable credit risk
Problem loans, high credit risk
Bad loans
21-50
51-100
100
The Management Board makes decisions on loans to be
written off based on information provided by the Risk
Management Department. Generally, loans recommended to
be written off are those in respect of which further steps to
enforce collection are regarded as not economically viable.
Loans sold to external collection agencies are also written off
from the Group’s balance sheet.
Market Risk
The Group’s exposure to market risk arises from open inter-
est rate and foreign currency positions, which are exposed to
general and specific market movements.
manages the positions through hedging, matching or con-
trolled mismatching.
The Group is generally not engaged in trading operations. It
has mismatches in its foreign currency positions that arise
generally due to relatively short term lending in Roubles and
relatively long term borrowings in U.S. dollars. The Group
The CBRF sets limits on the open currency position that may
be accepted by the Group on a stand-alone level, which is
monitored on a daily basis. These limits prevent the Group
from having an open currency position in any currency ex-
ceeding five per cent. of the Group’s equity.
Foreign Currency Exchange Risk
The Group suffered from the rouble devaluation in November
2008 to February 2009 and 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 cur-
rency and prohibits foreign exchange trading for speculative
purposes.
Non-monetary assets are not considered to give rise to any
material currency risk.
Interest Rate Risk
The Group’s exposure to interest rate risks arises due to
the impact 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
also decrease or create losses in the event that unexpected
movements arise. The Group’s management monitors on a
daily basis and sets limits on the level of mismatch of interest
rate repricing that may be undertaken.
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, corpo-
rate and retail customer deposits and debt securities. Debt
securities in issue consist of Rouble-denominated domestic
bonds with maturities of up to five years, in particular
RUB3bn 11.7 per cent. domestic bonds due 2021 with 18
months put option and RUB5bn 9.65 per cent. domestic
bonds due 2022 with a two year put option.
The Group keeps all available cash in diversified portfolios
of liquid instruments, such as a correspondent account with
the CBRF and overnight placements in high rated commercial
banks, in order to be able to respond quickly and smoothly to
unforeseen liquidity requirements. The Group believes that
the available cash at all times is sufficient to cover (i) debt
The Group has no significant risk associated with variable
interest rates on loans and advances provided to customers
or loans received.
The Group monitors interest rates for its financial instru-
ments.
repayments due within a month and accrued interest for one
month ahead and (ii) a deposit liquidity cushion calculated as
at least 15 per cent. of total retail deposits (but in practice
usually maintained at a level between 20 and 25 per cent.).
The Group believes that it has a proven ability to control loan
portfolio cash flows to maintain levels of liquidity reflecting
changing market realities. The Group also believes that its
loan portfolio is responsive to change in inputs (such as
stopping the issuance of any new credit cards or other loans
and any increases in credit card limits) and that the Group
can go from being cash-negative to being cash positive in a
short period of time (estimated to be two weeks), as it was
able to do in November 2008 and in September 2011.
The Group’s liquidity management requires (i) considering
the level of liquid assets necessary to settle obligations as
they fall due; (ii) maintaining access to a range of funding
sources; (iii) maintaining funding contingency plans; and (iv)
monitoring balance sheet liquidity ratios against applicable
regulatory requirements.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CONTINUED
ASSET, LIABILITY AND
RISK MANAGEMENT
Tinkoff Bank calculates liquidity ratios on a daily basis in accordance with the requirements of the CBR, based on stand-
alone RAS information of Tinkoff Bank, which is substantially different from the Group’s IFRS results. These ratios are:
–
–
Instant liquidity ratio (N2), which
is calculated as the ratio of
highly liquid assets to liabilities
payable on demand. The mini-
mum statutory ratio permitted
by the CBRF is 15 per cent.
Current liquidity ratio (N3),
which is calculated as the ratio
of liquid assets to liabilities
maturing within 30 calendar
days. The minimum statutory
ratio permitted by the CBRF is
50 per cent.
–
Long term liquidity ratio (N4),
which is calculated as the ratio of
assets maturing after one year to
regulatory capital and liabilities
maturing after one year. The max-
imum statutory ratio permitted by
the CBRF is 120 per cent.
For purposes of managing the Group’s liquidity risk, the CFO regularly receives extensive information about the liquidi-
ty profile of the financial assets and liabilities. Monitoring of the Group’s liquidity position includes, among other things:
– Monthly credit card loan portfolio trends monitor-
–
ing, which covers transaction and repayment levels,
delinquency levels, first month utilisation levels and
backlog utilisation levels. This information allows the
Group management to exercise control over longer-
term cash flows and portfolio size and to plan for debt
repayments one to two years ahead;
Daily monitoring of
transactions, repay-
ments and deposits
with data for the day
updated each evening;
–
Close deposit moni-
toring through daily
reports and periodic
deposit portfolio/be-
havioural analysis;
–
Daily monitoring of credit card,
deposits and cash balances with
a one-day lag for all balances;
–
Daily monitoring of movements
on CBRF and Nostro correspond-
ent accounts; and
–
Daily monitoring of payments
flows, which consists of tracking
incoming and outgoing payments
including all future payments for
up to three days in advance.
All daily reports also include week-to-day and month-to-day
comparisons.
On the basis of all these reports, the CFO then ensures the
availability of an adequate portfolio of short term liquid assets,
made up of an amount in the correspondent account with the
CBRF and overnight deposits with banks, to ensure that suffi-
cient liquidity is maintained within the Group as a whole.
The Group’s assets and liabilities management and liquidity
policy takes into account certain relatively stable character-
istics of the credit card loan portfolio, such as, among others,
(i) regular monthly repayments of 12 to 14 per cent. of out-
standing receivables, (ii) average utilisation of approximately
80 per cent. of the total portfolio limit, (iii) average utilisation
of approximately 45 per cent. of the added amount within
three months after regular credit limit upgrades; (iv) positive
NPV on a credit card after 12 to 18 months; (v) risk profile of
the portfolio, with decreasing delinquency rates resulting in
increases in both repayments and transactions and (vi) sea-
sonality, with a spike in usage in December of each year and a
slowdown in usage in January and August.
Regular liquidity stress testing under a variety of scenarios
covering both normal and more severe market conditions and
credit card portfolio behaviour is reviewed by the CFO.
All the investment securities available for sale are classified
within demand and less than one month as they are easy
repoable in the CBRF or on the open market securities and
can provide immediate liquidity to the
Group. All current accounts of individu-
als are classified within demand and less
than one month.
The allocation of deposits of individuals
considers the statistics of autoprolon-
gations 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 profita-
bility, but can also increase the risk of
losses. The maturities of assets and
liabilities and the ability to replace, at
an acceptable cost, interest-bearing
liabilities as they mature, are important
factors in assessing the liquidity of the
Group and its exposure to changes in
interest and exchange rates.
Operational Risk
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 em-
ployee mistakes and abuse by employees
of their positions, technical failures,
settlement errors, natural disasters and
misuse of the Group’s property.
The Group has established internal
control systems intended to comply
with Basel guidelines and the CBRF’s
requirements regarding operational
risk. The Board of Directors of the Bank
adopts general risk management policy,
assesses the efficiency of risk manage-
ment, approves the Group’s management
structure, adopts measures designed to
ensure continuous business activities of
the Group including measures designed
for extraordinary and emergency situ-
ations and supervises other executive
bodies in respect of operational risk
management. The Management Board
generally oversees the implementation
of risk management processes at the
Group including relevant internal policies,
adopts internal regulations on the
Group’s risk management, determines
limits for monitoring operational risks
and allocates duties among various
bodies responsible for operational risk
management.
Regular monitoring of activities is
intended to detect in a timely manner
and correct deficiencies in policies
and procedures designed to manage
operational risk, which can reduce the
potential frequency and/or severity
of a loss event. Dedicated the Group
personnel track all problems the Group
encounters in its operations and record
all operation errors/issues and remedial
measures taken on a special help-desk
system. Reports on such errors or issues
are sent to key managers and all such
errors are issues are recorded in incident
log. In order to minimise operational risk,
the Group strives to regularly improve its
business processes and its organisation-
al structure as well as incentivise its staff.
The Group insures against operational
risks through several insurance policies
that cover, among other things, property
risks in respect of the Group’s offices, IT
infrastructure and certain third-party
liabilities.
The Group has not experienced any
material operational failures in recent
years. In order to minimise potential
losses from such failures, ensure
business continuity in case of disruption
to IT systems and provide reliable and
continuous access to business data and
services, the Group’s IT systems are lo-
cated in two dedicated data centres each
connected to separate and independent
power supply sources. Critical IT systems
are operated in the most accessible,
primary data centre with primary Tier-III
facilities, while secondary systems and
back up facilities are located in a phys-
ically separate data centre. Both data
centres provide 24 hours a day, seven
day a week, year round power, cooling,
connectivity and security capabilities
to protect mission-critical operations
and preserve business continuity for IT
systems. Moreover, the Group keeps
additional hardware on its premises
for back-up purposes and has stand-by
servers for each key system, including
active standby for critical systems such
as processing and transaction author-
isation. Data connections to the data
centres are 100 per cent. reserved via
separate physical lines.
Anti-Money Laundering
and Anti-Terrorist
Financing Procedures
As a member country of the FATF, Russia
adopted the Anti-Money Laundering
Law. Subsequent to the adoption of the
Anti-Money Laundering Law, the CBRF
promulgated a number of anti-money
laundering regulations specifically for the
banking sector.
The Group has adopted internal regu-
lations on anti-money laundering that
are based on, and are in full compliance
with, the requirements of the Russian an-
ti-money laundering regulations, related
instructions of the CBRF and international
standards. The supervision of the Russian
anti-money laundering regime is shared
by the CBRF and the FSFMT.
The Group has created a specialised unit
and appointed an authorised officer who
coordinates activities aimed at preventing
money laundering and terrorism financing.
The Group conducts identification and
review of its customers, customer’s rep-
resentatives, beneficiaries and beneficiary
owners, money laundering and terrorism
financing risk management, personnel
training as well as daily analysis of bank-
ing operations, verifies information on
operations that are subject to monitoring
and sends all required information to the
relevant state authorities. Employees
of the Group have to take mandatory
training on the Group’s policies and pro-
cedures for preventing money laundering
and terrorism financing both as part of the
initial training after being hired and as part
of the subsequent training activities.
Mandatory internal control checks are
conducted by the Group’s Internal Control
Service. External control is provided by
the CBRF and, within an annual audit, by a
statutory auditor.
The Group cooperates with the FSFMT by
timely addressing their requests regard-
ing certain entities or operations.
38
39
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CORPORATE AND SOCIAL
RESPONSIBILITY
Corporate and Social Responsibility (CSR)
Overview
2017 was a year of important achieve-
ments and marked a watershed in the
history of TCS Group. We continued
developing the Tinkoff.ru ecosystem
and integrating innovative technolo-
gies into our operational processes,
with the aim of ongoing enhancement
of operating efficiency.
Aside from strong financial perfor-
mance, the Group continued to apply
innovative technologies in product
development and customer service in
2017. For example, chat bots that an-
swer 20% of all the incoming queries
without connecting customers and
employees helped us to reduce the cost
of service.
All this was made possible only through
the efforts of our talented team.
Throughout 2017, we were hiring the
best professionals on the market to
support our new lines of business.
By the end of 2017, the Group’s
headcount totalled more than 18,000
people, with 9,143 being permanent
office-based employees and 8,300
employees working remotely. Mathe-
maticians and IT specialists account
for 60% of the total headcount at the
Company’s headquarters.
TCS Group average employment term
is more than four years, with 15% of
employees working at the Company for
over five years. The share of vacancies
filled internally is 15%, and the average
period of reviewing new candidate ap-
plications ranges from three to seven
days. According to a study by banki.
ru, Russia’s leading financial portal,
55.2% of the Company’s employees
post positive employee feedback.
Our team is still among the youngest
on the market: the average age of em-
ployees Group-wide stands at 26.
Human resources: key
principles
TCS Group adopts an unconventional
recruitment approach. Lack of finance
or banking background is often viewed
as an advantage. We hire people with
no stereotypes who are eager to re-
shape the financial services landscape.
People with an analytical mind and the
ability to handle huge amounts of data
are our first choice.
Tinkoff Bank is a general partner of the Quiksilver New Star Camp 2017 held at the Rosa Khutor alpine resort in Sochi.
The Group’s recruitment policy focus-
es on:
Recruitment and
training
• bringing together smart people with
analytical experience;
• a transparent structure with zero
tolerance of bureaucracy or hier-
archy;
• a smart working environment;
• an effective learning environment;
• encouraging initiative and taking on
responsibility;
• creativity and open dialogue be-
tween employees;
• promotion of team spirit and entre-
preneurial culture;
• broad employee capabilities and
delegation of responsibility;
• an environment where employees
can experiment, make mistakes and
learn lessons;
• promotion of the Test and Learn
framework.
In line with our Test and Learn ap-
proach we test many concepts and
implement the most successful. Our
employees are not afraid of making
mistakes and failures: in our quest for
the most successful models we support
any experiments and promote open
communication between colleagues.
We welcome innovative ideas to
solve challenges in many different
ways and we believe in the idea of an
environment granting talented people
far-reaching authority. Greater rights
and opportunities for our people is
a crucial element of our success. To
deliver on the Group’s objectives, we
use various channels to establish
communication between employees:
email, online chats, meetings, etc. Any
employee can address anyone in the
Company regardless of their position.
We seek to recruit the best talent
on the market using various tools
to motivate and retain people. TCS
Group recruits new team members
via advertising and job sites, student
forums, social networks and other on-
line channels. We actively look for the
best students at the top national and
global universities, including winners
of contests in mathematics, physics
and programming. We offer career
growth and training opportunities for
professionals at every level.
Education projects
Tinkoff Fintech School
Twice a year we recruit students and
graduates of top-ranking universities
for our Tinkoff Fintech School, where
lectures and hands-on seminars
are delivered by the Bank’s VPs and
leading experts. They explain modern
technology in the banking industry,
mobile banking, social media, artificial
intelligence, blockchain and cryptocur-
rencies.
Education at the Fintech School is
provided free of charge. All applicants
pass an online exam. The educational
course including practical sessions
lasts three months. To date, 500
people have completed the train-
ing. Currently, the Fintech School is
training 250 students across Russia
(in Moscow, St Petersburg, Nizhny
Novgorod, and Novosibirsk).
The most promising graduates are in-
vited to a job interview at Tinkoff. Since
the opening of the Fintech School, 79
graduates have joined Tinkoff Bank’s
team.
Tinkoff Bank is an official sponsor of Red
Bull Flug Tag 2017. A challenge for the most
courageous and creative pilots who dare to
design and pilot self-made flying machines.
MIPT Master’s programme
In April 2017, we launched the Master’s
programme and a department at
the Moscow Institute of Physics and
Technology (MIPT). The first admission
round took place last summer and
saw 22 students enrolled. The MIPT
Master’s programme is a basic Finan-
cial Technologies Department in the
Phystech School of Applied Mathemat-
ics and Informatics at the Moscow In-
stitute of Physics and Technology. Key
Tinkoff Bank employees hold professo-
rial positions at the department. To be
admitted to the Master’s programme,
candidates need to pass an internal
examination and interview at Tink-
off, as well as MIPT admission exams.
The department provides two-year
education free of charge. Graduates
receive diplomas from the Department
of Control and Applied Mathematics
and the Department of Innovation and
High Technology. The course schedule
enables students to study and work at
the same time.
Specialised courses at the Moscow
State University’s Department of
Mechanics and Mathematics (MSU
Mech-Maths)
In December 2017, Tinkoff Bank
started collaborating with the MSU
Mech-Maths’ corporate Department of
Mathematical and Computer Meth-
ods of Analysis. Tinkoff Bank’s senior
executives and analysts developed
specialised courses for the Universi-
ty’s curriculum incorporating real-life
business cases from Tinkoff Bank.
The course curriculum gives students
advanced training in programming,
machine learning, business analytics,
40
41
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
Tinkoff Bank
development hubs
In June 2017, Tinkoff Bank launched
development hubs in Yekaterinburg,
Novosibirsk, Nizhny Novgorod, Kazan
(Innopolis) and Rostov-on-Don. By
that time the project had already been
launched in St Petersburg.
Hub employees work on developing a
universal financial platform and finan-
cial services such as online banking,
personal investment management,
insurance, etc. The hub is also tasked
with developing mobile apps for indi-
viduals and expanding the ecosystem
of SME applications.
The regional hubs help the Group
source talented software developers
across a wider territory, ensure even
task distribution, enhance the produc-
tion cycle as employees work in differ-
ent time zones, and reduce the time to
bring new products to market.
Sporting and other
events
TCS Group encourages a healthy
lifestyle and supports the cultural
development of its employees and
society as a whole. Tinkoff Bank takes a
regular part in the biggest and cultural-
ly important national events related to
music, sports, science and education.
The GrelkaFest ski festival. Two lively
weekends at Sheregesh, with all alpine skiing
and snowboarding entertainments gathered
in one place.
Tinkoff Bank is the chief sponsor of the Moscow Bike Parade arranged by the Let’s Bike It!
project aimed to promote the cycling culture and by the Moscow Department for Transport
and Road Infrastructure Development.
In May 2017, Tinkoff Bank became the
chief sponsor of the Moscow Cycling
Parade arranged by the Let’s Bike It!
project (aimed to promote cycling
culture) and Moscow Department
for Transport and Road Infrastruc-
ture Development. Oleg Tinkov, the
founder of Tinkoff Bank, attended the
opening ceremony and rode the route
together with other cyclists. The big
Moscow Cycling Parade saw 40,000
participants occupying the entire
Garden Ring Road at the start. In July
2017, there was a Night Cycling Parade
sponsored by Tinkoff Bank. Its goal was
to support the cycling infrastructure
development and road safety. The
Night Cycling Parade, which started at
10 pm on Frunzenskaya Embankment,
was attended by 10,000 participants.
The route length was 14 kilometres.
Group employees are keen to support
the Bank’s corporate values related
to a healthy lifestyle, and are highly
proactive and willing to personally
participate in cycling parades and other
sporting events.
Also in July 2017, 16 top European
and Russian teams gathered at Tinkoff
Moscow Open – a basketball tour-
nament within a FIBA international
challenge. The event was attended by
450 amateur teams from Russia. All
in all, 15,000 people took part in the
tournament. Tinkoff Moscow Open was
part of the Day of Sports programme
hosted by the Luzhniki Stadium. About
100,000 people attended the event
during the two days.
CONTINUED
EMPLOYEES AND CORPORATE
SOCIAL RESPONSIBILITY
big data fundamentals, etc. Admissions
will start in September 2018. The
course is 2-3 years and provided free
of charge.
Tinkoff Bank also actively cooperates
with other leading national universities:
Bank employees deliver specialised
courses at the Bauman Moscow State
Technical University, the Faculty of
Computer Science of the Higher School
of Economics, and MIPT. They also
participate in careers fairs.
ship centre of Tinkoff Development Hub.
Under the agreement, Tinkoff Bank
employees will participate in R&D
conferences and other public events
held by Skolkovo. Such events will give
the Foundation’s resident startups an
opportunity to receive feedback on
their products and mentoring from
Tinkoff Bank’s experts, and to partner
with the Company.
Paid summer internships
Partnership project with the Skolko-
vo Foundation
In 2017, Tinkoff Bank became a partner
of the Skolkovo Foundation. The collab-
oration includes R&D projects run at
the Foundation’s facilities by a partner-
Analysts and developers, first to fifth-
year students and recent graduates,
are welcome to enrol in annual summer
internship at Tinkoff Bank each year
and work on real-life projects. The
duration of the programme is 1–2
months. During this period, students
are familiarised with the banking in-
dustry and choose their further career
path. A total of 50 students in Moscow
and eight in St Petersburg participated
in the summer internship in 2017.
Online contests
We launch online projects on a regular
basis: computer vision contests, math-
ematical games, programmer contests,
analyst days, machine learning com-
petitions, etc. To date, almost 45,000
people across the globe have par-
ticipated. In November 2017, Tinkoff
Bank held an online contest in satellite
imaging recognition. The event was
open to anyone interested in computer
vision and remote sensing. The panel of
judges selected four winners to receive
prizes of RUB150,000, RUB100,000
and two of RUB50,000. The best per-
forming participants were invited to a
job interview at Tinkoff Bank.
FinTech Youth Day at Finopolis
Forum
In the autumn of 2017, Tinkoff Bank
became a general partner of the first
FinTech Youth Day at Finopolis, a forum
of innovative financial technologies.
The event was attended by students of
specialised colleges and universities,
post-graduates and recent graduates
selected within an admission contest
held by the Bank of Russia and the
FinTech Association. George Chesak-
ov, CEO of the Tinkoff Mobile MVNO,
delivered an open lecture for forum
participants titled Three Secrets of
a Successful FinTech (out of 20) and
told them about the lessons learned by
Tinkoff Bank and its team over 12 years
of successful business development.
Free canteen for Tinkoff Bank’s employees
with a daily offer of balanced meals and
fresh fruits including takeaways.
42
43
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
CONTINUED
EMPLOYEES AND CORPORATE
SOCIAL RESPONSIBILITY
Tinkoff Bank is also a general partner of the Quiksilver New
Star Camp 2017 held at the Rosa Khutor alpine resort in
Sochi. Rosa Khutor gained international acclaim during the
Olympic Games and successfully keeps maintain its exclusive
status. Quiksilver New Star Camp is one of the main snow-
board parks in Russia. Attendees enjoy special terms and
offers from Tinkoff Bank at all stages of its operation. In addi-
tion to snowboarding competitions, the festival programme
includes a series of lectures by influential speakers from the
action sports industry, yoga workshops, snow schools for
children, and a high altitude FMX and Snowmobile show.
Compensation and incentives
TCS Group offers its employees a unique working environ-
ment and a transparent system of career growth. We provide
fixed-rate salaries and bonuses, regularly assess the employ-
ees’ performance against their KPIs, determine amount of
compensation and give feedback for future career develop-
ment. TCS Group has a market-based salary structure, with
KPI-related pay-rises and bonuses.
On 1 February 2017, the Group announced an expansion of
its long-term management incentive plan. The number of
eligible employees was increased from 51 to 69 people. New
participants will share in equity-linked compensation. The
target equity pool for all the programme participants will
amount to 5.6% of the Group’s issued share capital.
This plan aims to ensure that managers’ and the sharehold-
ers’ interests are aligned in order to increase the Group’s
value. The plan is designed for four years and is subject to
meeting annual KPIs, with each annual compensation taken
into account during the following three years. The managers’
shareholding in the Group’s equity is an effective tool for
motivating and retaining employees.
Health and safety
TCS Group creates a safe and comfortable work environment
for its employees in full compliance with Russia’s labour laws.
We offer annual medical check-ups, vaccinations, voluntary
health insurance, free membership of our in-house fitness
gym at Tinkoff Bank’s headquarters, and other healthcare
initiatives. TCS Group encourages a healthy lifestyle and
regularly holds corporate competitions in football, volleyball,
basketball, alpine skiing and chess.
Tinkoff Moscow Open 2017. A basketball tournament within a FIBA
international challenge. About 100,000 people attended the event
during the two days.
Quiksilver New Star Camp 2017. The festival programme includes snowboarding competitions, a series of lectures by influential speakers from
the action sports industry, snow schools for children, and a high altitude FMX and Snowmobile show.
At the festival, Tinkoff Bank opened Galabank, a special
children’s branch where children of different ages could make
a bank card with their own hands. All day long, under the
guidance of professional artists and teachers, the children
invented and brought to life their designs, and then used the
cards for real, buying “growing” crayons with the festival’s
virtual currency via a specialised terminal. In just one day,
Galabank issued more than 700 cards.
The Big Moscow Bike Parade 2017. Tinkoff Bank’s employees believe
in and embrace the corporate values related to a healthy lifestyle and
are willing to personally participate in all sporting events.
Diversity and inclusion
Tinkoff Bank’s flexible business model, based on a high-tech
contactless platform, allows individuals with disabilities to
join our team. This helps us expand and diversify the Group’s
staff and recruit people based on professional skills and
merits.
In 2017, we continued developing our home call centre where
people can work for the company at any hours and locations
convenient for them. This working format is suitable for
those residing in remote areas with limited access to trans-
portation as well as for those who can only work remotely
(for example, for women on maternity leave). Such employ-
ees are trained online, and all the necessary corporate tools
and materials are stored in a special cloud environment.
8,300 people throughout the country worked at our home
call centre as at the end of 2017.
CSR
We are committed to supporting sustainable social develop-
ment, and encourage our employees and customers to con-
tribute to improving the quality of life of vulnerable groups
in Russia. We also seek to promote various charitable funds
among our customers, who can donate money via the Bank’s
website or mobile app. TCS Group and its employees provide
not only financial support but also practical assistance to
several non-profit entities, including assisted-care facilities
and orphanages, as well as projects for homeless people and
those in need of medical care. Our employees have raised
funds to be spent on repair and maintenance of facilities and
purchase of food, essentials and medications.
TCS Group supports the charitable Galchonok Foundation,
which helps children with organic central lesions. In Septem-
ber 2017, Tinkoff Bank took part in Galafest 2017, an annual
inclusive festival attended by more than 7,000 guests. The
festival is a family event, where children with special needs
play and study with their peers on an equal footing to them.
44
45
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 BOARD
OF DIRECTORS
Constantinos
Economides
(42)
Chairman of the Board
of Directors
Alexios
Ioannides
(41)
Member of the Board
of Directors
Constantinos Economides has been a director of TCS
Group Holding PLC since November 2008 and Chairman
since June 2015.
Mr. Economides is also the Managing Director of Royal Pine
& Associates Ltd since January 2016. He was previously
the Managing Director of Orangefield Cyprus from October
2006 to December 2015. Prior to 2006, he worked with
Deloitte Ltd in Cyprus from 2003 to 2006 and Ernst &
Young in the United Kingdom from 1999 to 2002.
Mr. Economides is a Fellow Member of the Institute of
Chartered Accountants in England & Wales (ICAEW) and
holds an MSc in Management Sciences from Warwick Busi-
ness School, United Kingdom. In addition, he is a Licensed
Insolvency Practitioner of the Institute of Certified Public
Accountants of Cyprus (ICPAC) since October 2015.
Alexios Ioannides has been a director of TCS Group Holding
PLC since November 2008. Mr. Ioannides previously worked
for Deloitte from 2001 to 2008 where he trained and quali-
fied 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.
Philippe
(44)
Delpal
Martin
Cocker
(58)
Member of the Board of Directors
Non-Executive Director
Member of the Audit Committee
Member of the Remuneration Committee
Member of the Board of Directors
Independent Non-Executive Director
Chairman of the Audit Committee
Member of the Remuneration Committee
Directors of the Company gathered at the offices of the Company in Limassol after the Company’s board meeting in March 2018.
Left to right: Alexios Ioannides, Philippe Delpal, Martin Cocker, Constantinos Economides (Chairman) and Maria Trimithiotou.
Jacques Der
Megreditchian
(58)
Member of the Board of Directors
Independent Non-Executive Director
Chairman of the Remuneration Committee
Member of the Audit Committee
Maria
Trimithiotou
(40)
Member of the Board
of Directors
Philippe Delpal has been a non-executive director of
TCS Group Holding PLC since October 2013.
Martin Cocker has been a non-executive director since Octo-
ber 2013.
Jacques Der Megreditchian has been a non-executive
director since October 2013.
Maria (Mary) Trimithiotou has been a director since May
2012.
Mr. Delpal is an Operational Partner for Financial Servic-
es 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), Renaissance
Insurance Group (Russia) and Komercijalna Banka AD (Ser-
bia). 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, tel-
ecoms and economics from the Telecom Paris University,
France.
Mr Cocker also serves on the boards of Etalon Group plc,
Northumberland Tyne and Wear National Health Service
Foundation Trust, Beverley Building Society, Nostrum Oil and
Gas PLC and Headhunter Group plc. Mr. Cocker previously held
positions at Ernst & Young, Amerada Hess, Deloitte & Touche
and KPMG in the United Kingdom, Russia and Kazakhstan.
Mr. Cocker is a member of the ICAEW and holds a bachelor of
science (joint honours) degree in mathematics and economics
from the University of Keele, United Kingdom.
Mr. Der Megreditchian previously served as Chairman of
the Exchange Council of the Moscow Exchange. Mr. Der Me-
greditchian has almost 30 years of experience in finance
from CCF, Societe Generale and Troika Dialog where he
held the position of Chief Business Officer.
Mr. Der Megreditchian holds a degree in business adminis-
tration from the European Business Institute, France and
in financial analysis from the French Center for Financial
Analysis, France.
Mrs. Trimithiotou previously worked for Deloitte Ltd hold-
ing 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 Account-
ant 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.
Dear stakeholders
2017 has been another remarkable, transformational year in the life
of the Company as the financial supermarket branches out, augment-
ing the hugely successful core credit card business. As I have men-
tioned in the past, stellar financial performance such as the Group de-
livered in FY2016 and again in FY2017 is the result of many years of
groundwork, of informed and astute decisions taken and well target-
ed investments, allied to complete professionalism, passion for the
Tinkoff business and devotion to serving our customers. And above
all, true entrepreneurial instinct.
The Group’s CFO Ilya Pisemsky’s detailed commentary on the oper-
ating and financial results is included in this Report in his ‘Financial
review’ as is Oliver Hughes our CEO’s ‘Strategic review’ of 2017 and
insights into what 2017 brought and what might lie ahead. I won’t at-
tempt to precis them. These two talented managers have a high pro-
file, not least in this Report but they are very ably supported by a wider
team of core managers numbering about 50.
Everyone appreciates that the Russian operating environment is not
the easiest, throws out more than its fair share of challenges at man-
agers and business lines and recent months have been no exception.
Let us not forget the international dimension either. Yet the Group
has been able to thrive whatever the challenges, whatever the envi-
ronment.
Inside the Company; the work of the Board of Directors which I chair,
continues. We have sound corporate governance mechanisms in
place, but we are always looking to upgrade them, looking at how our
peers operate and adapting their better ideas for our entrepreneurial
culture. This past year has seen a number of positive developments
within the Group’s internal audit and information security divisions,
to mention just two. More are under active consideration. Our annual
appraisal of the Board, its committees and individual directors, their
individual and collective strengths and weaknesses, his, her and their
performance and effectiveness, was conducted in-house as has been
our practice to date, though external assessors may be introduced in
the future. The recent appraisal in Q12018 for FY2017 found us in
good shape- but we do not take success as a given. It threw up some
interesting ideas; we will be looking to develop these in the near future.
I would like to express my particular thanks and gratitude to our
founder and controlling shareholder Oleg Tinkov for his vision and
offer my congratulations to him and all the Tinkoff management team
for their outstanding success.
May 2018 bring more of the same!
Constantinos Economides
Chairman of the
Board of Directors
46
47
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 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.
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
(with a standard listing) 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.
The Company has not
adopted corporate govern-
ance measures of the same
standard as those adopted by
UK incorporated companies
or companies with a Premium
listing of equity shares
regardless of whether they
are incorporated in the UK or
elsewhere. The Company’s
Home State is Cyprus.
As the Class A shares them-
selves are not listed on the
Cyprus Stock Exchange, the
Cypriot corporate govern-
ance regime does not apply
to the Company and accord-
ingly the Company does not
monitor its compliance with
that regime.
A description of the terms and
conditions of the GDRs can be
found at ‘Terms and Condi-
tions of the Global Depositary
Receipts’, ‘Summary of the
Provisions relating to the
GDRs whilst still in Master
Form’ and ‘Description of
Arrangements to Safeguard
the Rights of the Holders of
the GDRs’ in the Prospectus
issued by the Company dated
22 October 2013 and on the
website at www.tinkoff.ru/eng.
Copies of the Articles of
Association of the Company
adopted on 21 October 2013,
the terms of reference of the
committees, and other cor-
porate governance-related as
well as investor relations-re-
lated materials can also be
found on that website, on the
Company’s page on the Lon-
don Stock Exchange website
and at the official site of the
Department of Registrar of
Companies, Cyprus
(http://www.mcit.gov.cy/).
The Board of Directors
The role of the Board is to provide entrepreneurial leadership to
the Group within a framework of prudent and effective controls
which enables risk to be assessed and managed. The Board sets
the Group’s strategic objectives, ensures that the necessary
financial and human resources are in place for the Group to
meet its objectives and reviews management’s performance.
The Board also sets the Group’s values and standards and
ensures that its obligations towards the shareholders and other
stakeholders are understood and met.
The Board operates under a formal schedule of matters re-
served to the Board for its decision, approved by shareholders
in 2013.
The authorities of the members of the Board are specified by
the Articles of Association of the Company and by law. The
current six strong Board of directors is comprised of three exec-
utive 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 2017. 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
2017 are listed at F-2. The Group has established two Commit-
tees of the Board. Specific responsibilities have been delegated
to those committees as described below.
The Board is required to undertake a formal and rigorous eval-
uation annually of its own performance, that of its committees
and of its individual directors. That review was carried out in
early 2018, in-house, in relation to 2017, looking at overall
performance in late 2016 and 2017. All directors completed
detailed questionnaires on the Board’s performance. Analysis of
the resultant feedback, which was discussed at a meeting of the
Board of Directors in early 2018 did not show up any deficien-
cies in the performance of the Board, its committees or individ-
ual directors of a nature that required changes to be made.
The Board has not appointed a senior independent director.
There are only two independent directors of whom at least one
will retire each year. The role of assessing the performance of
the Chairman for FY2017 was performed by the Chairman of
the Audit Committee.
48
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 whom two must be
non-executive, and shall not exceed
seven, so long as Class B Shares are
Director’s powers
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 2017 the
two directors who retired by rotation
were Mr Philippe Delpal and Mr Martin
Cocker. Both were duly reappointed by
vote of the shareholders.
The business of the Company is
managed by the directors, who are em-
powered 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 ordi-
nary resolution; but no alteration of the
Articles of Association and no direction
made by the Company in general meet-
ing 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 trans-
action 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 equal-
ity 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 direc-
tors 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 docu-
ments 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 ex-
ercise 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.
Attendance table for Board of Director and Committee meetings, FY2017
Director
Constantinos Economides
(Chairman)
Maria Trimithiotou
Alexios Ioannides
Martin Cocker
Philippe Delpal
Jacques Der Megreditchian
Board attendance
FY2017
AC attendance
FY2017
RC attendance
FY2017
4/4
4/4
4/4
4/4
3/4
4/4
n/a
n/a
n/a
6/6
6/6
6/6
n/a
n/a
n/a
4/4
4/4
4/4
49
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CONTINUED
CORPORATE
GOVERNANCE
Committees of the Board of directors
The Company has established two
Committees of the Board of directors:
the Audit Committee and the Remu-
neration 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 refer-
ence and arranges a periodic review of
each Committee’s role and activities
and considers the appropriateness of
additional committees.
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 execu-
tive director Mr Jacques Der Megre-
ditchian, 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 to the public
and can be found on the Company’s
website. A short summary of both is
set out below.
Role of the 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 implemented
by the Group and monitors and assess-
es the effectiveness of the Company’s
internal financial controls, risk manage-
ment systems internal audit function,
the independence and qualifications of
the independent auditor and the effec-
tiveness of the external audit process.
The Audit Committee is required to
meet at appropriate times in the re-
porting 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 early 2018 and by arranging a
complementary committee review on
a rolling basis driven by the audit cycle
Martin
Cocker
Philippe
Delpal
Independent Non-Executive
Director, Chairman of the Audit
Committee, Member of the
Remuneration Committee.
Non-Executive Director,
Member of the Audit Committee,
Member of the Remuneration
Committee.
Jacques Der
Megreditchian
Independent Non-Executive
Director, Chairman of the
Remuneration Committee,
Member of the Audit
Committee.
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. Two such meetings were
held in 2017 with a further two at least
in 2018 planned.
In 2017 the Group reorganised its
internal audit function, to clarify the
demarcation between its internal audit
and internal control (CBRF compliance
and regulatory) functions while mate-
rially increasing the resources overall
within the internal audit team.
The Audit Committee has developed a
risk matrix which constantly evolves to
reflect new risks, the perceived impact
of, and the Group’s appetite for, any
given risk and the measures taken to
mitigate those risks. This matrix is run
in conjunction with the internal audit
function.
In addition a new post of chief infor-
mation security officer was created in
2017 and filled, with additional person-
nel expert in cyber-security recruited
to support the Group’s ever-increasing
efforts to stay ahead of trends and
threats in this sphere. The Committee
met 6 times in FY2017.
Role of the Remuneration Committee
The Remuneration Committee is
responsible for determining and
reviewing among other things the
framework of remuneration of the ex-
ecutive directors, senior management
and its overall cost and the Group’s
remuneration policies. The objective is
to ensure that the executive manage-
ment 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 Remunera-
tion Committee’s Terms of Reference
include reviewing the design and de-
termining targets for any performance
related pay schemes and reviewing the
design of all share incentive plans for
approval by the Board. The Remunera-
tion Committee is required to meet at
least twice a year but in practice meets
more often.
The Remuneration Committee contin-
ued work into 2017 on its ongoing re-
view of the operation of the Group’s eq-
uity based incentive and retention plan
for key, senior and middle management
(MLTIP) which launched in 2016 and in
considering additional awards to both
existing and new participants for this
and subsequent years.
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 ob-
ligation through members participating
in the main Board review (described
above) under which detailed question-
naires were completed by all direc-
tors assessing the operation of the
Board and both committees. Although
earlier reviews 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, no
further changes were felt required in
2017 or 2018.
The Committee continues to meet as
required. It did not identify a need to
schedule additional regular meetings,
but in 2017 it convened 4 times.
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 appoint-
ment 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 aggre-
gate 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.
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GOVERNANCE
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.
ject 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 rep-
resenting Class B shares which consti-
tute or represent over 50% in nominal
capital paid up on the Class B Shares
upon giving notice to the Company.
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 ro-
tation 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 share-
holders at a general meeting with the
sanction of an ordinary resolution, sub-
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 regis-
tered 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 December 2017, the
Company’s issued share capital
is USD7,305,553 divided in to
182,638,825 shares, each of nominal
value of USD0.04 per share and fully
paid. Of these 96,239,291 are Class
A Shares and 86,399,534 Class B
Shares, each with a nominal value of
USD0.04 per share and fully paid. As
of 31 December 2017, the Compa-
ny’s authorized share capital was
USD7,619,180.
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 47.3%
economic interest in the Company and
a voting interest of 89.98%.
Neither the Company nor any of its
subsidiaries has any outstanding
convertible securities, exchangeable
securities or securities with warrants
or any relevant acquisition rights or
obligations over the Company’s or any
of the subsidiaries’ authorised but
unissued capital or undertakings to
increase its issued share capital.
Certain rights of pre-emption are
conferred, by the Cyprus Companies
Law and the Articles of Association of
the Company, on existing shareholders
for issue of new shares to the Company
in cash. Please refer to the section
below on pre-emption rights for further
information.
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 As-
sociation were adopted on 21 October
2013. The following is a brief summary
of certain material provisions of the
Articles of Association, in force as at 31
December 2017.
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 an-
nual 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)
(i)
extraordinary general meetings
of the Company on the requisition
of:
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 Shares and Class B Shares; or
(ii) a Class B shareholder;
(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
(c)
a separate meeting of the Class B
shareholders on the requisition of
any Class B shareholder,
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 meet-
ing 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 share-
holders 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 represent-
ed 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 represent-
ative 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 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 oth-
er 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 consti-
tute 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.
Pre-emption 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 share-
holder. There are no pre-emption rights
with respect to shares issued for non-
cash consideration.
Specifically, all new shares and/or other
securities giving rights to purchase
shares in the Company, or which are
convertible into shares in the Company
that are to be issued for cash, shall be
offered to the existing shareholders on
a pro-rata basis to the participation of
each shareholder in the capital of the
Company, on a specific date fixed by the
directors. Any such offer shall be made
upon written notice to all the sharehold-
ers specifying the number of the shares
and/or other securities giving rights
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CONTINUED
CORPORATE
GOVERNANCE
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 dis-
applied 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 writ-
ten report which explains the reasons
for the proposed disapplication of the
pre-emption rights and justifies the
proposed issue price of the shares. A
dis-application of pre-emption rights
as aforesaid is regarded as a variation
of class rights carried by or conferred
on the Class A holders (including the
depositary) and Class B holders. Sepa-
rate prior consent is therefore required
from both Class A holders and Class B
holders.
Voting rights
Conversion rights
provided that:
Subject to any special rights or restric-
tions 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 rep-
resentative, 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.
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 share-
holder,
but no Class A Share carries or confers
any right to vote, on a resolution or pro-
posed 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.
Class A Shares are generally not con-
vertible 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 rel-
evant 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 expira-
tion 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.
Without prejudice to the rights of
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:
The Class B Shares carry the right to 10
votes per Class B Share and confer on
the Class B shareholders the right:
(a)
(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 de-
manded 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.
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 Dis-
qualified 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:
(i)
(ii)
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, un-
less or until such shareholder shall be made aware
of this by notice in writing from the Company.
The Company may at any time require any Class B
shareholder to furnish the Company with any in-
formation, 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.
(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 Conver-
sion 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.
(Qualified Person, for the purpose of 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 share-
holders under section 70 of the Cyprus Companies Law, be
varied or abrogated with the consent:
(a)
(b)
in writing of the sole shareholder of, or the sharehold-
ers holding in aggregate at least two thirds in nominal
capital value of, the Shares of that class; or
of the general meeting of the shareholders of the Shares
of that class with the sanction of a majority resolution,
being a resolution sanctioned:
(i)
(ii)
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
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 may apply to the Courts of
Cyprus to have the variation set aside.
October 2013 Shareholders’
Agreement: automatic termination in
2017
A shareholders’ agreement was made in October 2013 be-
tween Tadek Holding & Finance SA and four other companies
controlled by Mr Oleg Tinkov, and four additional pre IPO
investors, (1) ELQ Investors II Limited (ELQ), an entity wholly
owned by The Goldman Sachs Group, Inc., (2) Vostok Emerg-
ing Finance (Cyprus) Limited (VEF) (following a reorganiza-
tion from the original party Vostok Komi (Cyprus) Limited),
(3) Rousse Nominees Limited (BV) a nominee company
holding interests for limited partnerships comprising Bar-
ing Vostok Private Equity Fund IV, and (4) Lorimer Ventures
Limited (Lorimer), an entity wholly owned by Emerging
Europe Growth Fund II LLP, managed by its general partner
Horizon Capital GP II LLC.
Lorimer had already ceased to be a party to the Sharehold-
ers’ Agreement on disposing of its entire interest in the
Group. While ELQ, VEF and BV remained significant share-
holders and/or GDR holders in the Group, the Shareholders’
Agreement automatically terminated last year (2017) when
their aggregate holdings fell below 10%.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 MANAGEMENT
TEAM
Oliver
Hughes
(47)
Ilya
Pisemsky
(42)
Sergei
Pirogov
(47)
CEO,
Chairman of the Management Board
of Tinkoff Bank
Chief Financial Officer,
Deputy Chairman of the Manage-
ment Board of Tinkoff Bank
Head of Corporate Finance,
Member of the Board of Directors
of Tinkoff Bank
Artem
Yamanov
(36)
Stanislav
Bliznyuk
(37)
SVP,
Business Development Director
Chief Operating Officer,
Deputy Chairman of the Manage-
ment Board of Tinkoff Bank
Darya
Ermolina
(30)
Communications Director
Oliver oversees the strategic direction
of Tinkoff Bank.
He joined Tinkoff as CEO in 2007
and has been at the helm every step
of the way, helping Tinkoff grow
into the world’s largest independent
digital bank by customer base. Before
joining Tinkoff, Oliver worked for Visa
International for a decade, including as
Head of Visa in Russia from 2005 until
2007. Prior to Visa, he held various
positions including at Reebok, Shell UK
and the British Library.
Oliver holds a Master of Arts degree
in International Politics from Leeds
University and a Master’s degree
in Information Management and
Technology from City University in
London. He also has a Bachelor’s (First
Class) degree in Russian and French
from the University of Sussex.
Ilya is responsible for financial
management, corporate strategy and
planning. He has been Chief Financial
Officer at Tinkoff since July 2008 and
Deputy Chairman of the Management
Board since April 2010. Prior to
joining Tinkoff, he was Deputy Chief
Financial Officer at Bank Soyuz and
held a managerial position at Ernst &
Young CIS.
Ilya graduated from the Finance
Academy under the Government of
the Russian Federation in Moscow
and holds an MBA from the F.W. Olin
Graduate School of Business at Babson
College in Wellesley, Massachusetts.
Sergey has been responsible for
capital raising and debt portfolio
management at Tinkoff as Head of
Corporate Finance since January
2010. Since July 2016, he has
served on Tinkoff Bank’s Board
of Directors. Previously Sergey
worked at Citigroup, where he was
Director of Corporate Finance for
Russia and the CIS from 2002
to 2008. Prior to that, he was
Programme Coordinator and Head
of Investment Projects at IBS
Intertraining.
Sergey graduated from the
Moscow State Institute for
International Relations. He also
holds an MBA from the Darden
Graduate School of Business at the
University of Virginia, USA.
Artem is in charge of business
development at Tinkoff. He has been
with the company every step of the
way, starting his career as head of
products at Tinkoff and growing with
the company into his current role of
senior vice president. Before joining
Tinkoff, he held various positions at
Russian Standard Bank and Raiffeisen
Bank, including overseeing credit card
operations in Russia.
Artem holds a Master’s degree in
Applied Physics and Mathematics from
the Moscow Institute of Physics and
Technology.
Stanislav oversees operations at
Tinkoff. Before being appointed Chief
Operating Officer in June 2012, he
was Head of Technologies at the bank
from 2006. Prior to this, Stanislav
worked in the banking sector, including
as Process & Project Director at
Raiffeisen Bank Russia.
Stanislav graduated from Moscow
State University with a Master’s degree
in Mathematics and Economics.
As head of communications for
Tinkoff, Darya oversees strategic
communications and media relations
for the Tinkoff group of companies.
Before joining the Tinkoff team in
January 2014, Darya worked as a
senior manager for international media
relations for Rosneft Oil Company.
Prior to Rosneft Darya worked as a
media analyst for PBN Hill+Knowlton
Strategies (part of WPP).
Darya graduated from the Moscow
State University of International
Relations (MGIMO) with a bachelor
and a masters degree in international
relations.
56
57
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 CONTINUED
MANAGEMENT
TEAM
Anatoly
Makeshin
(45)
Head of Payment Systems,
Deputy Chairman of the Manage-
ment Board of Tinkoff Bank
Viacheslav
Tsyganov
(42)
Chief Information Officer
Evgeny
Ivashkevich
(47)
Risk Director,
Deputy Chairman of the Manage-
ment Board of Tinkoff Bank
George
Chesakov
(45)
Head of Tinkoff Mobile
Natalia
Izyumova
(55)
Valeria
Pavlyukova
(34)
Chief Accountant,
Member of the Management Board of
Tinkoff Bank
Chief Legal Officer,
Deputy Chairman of the Management
Board of Tinkoff Bank
Anatoly has been responsible for Tink-
off’s payments systems since 2006.
He has also been a member of Tinkoff’s
Management Board since September
2012.
Anatoly graduated from Moscow Power
Engineering Institute and holds a PhD
in Technical Science from the Russian
Academy of State Service.
Viacheslav has been with Tinkoff Bank
from the beginning of its story. He is
in charge of information technology
and computer systems at Tinkoff.
Viacheslav has been Chief Information
Officer since 2009 after transitioning
from his role as Head of IT Architec-
ture and Development at the bank.
Viacheslav holds a Master’s degree
in Computer Science from Southwest
State University.
Evgeny is in charge of risk manage-
ment at Tinkoff. He has been in his
current role since 2007, having also
joined Tinkoff Bank’s Management
Board as Deputy Chairman in 2011.
Before joining Tinkoff, he was a port-
folio manager at Renaissance Capital
Bank and Head of Product Develop-
ment at Russian Standard Bank.
Evgeny graduated from the Moscow In-
stitute of Physics and Technology and
obtained a PhD in Theoretical Physics
from the Joint Institute for Nuclear
Research.
Natalia oversees Tinkoff’s accounting.
She stepped into her current role and
became a member of Tinkoff Bank’s
Management Board when she joined
the bank in February 2011. Natalia has
also been a member of the Financial
Committee of Tinkoff Bank since No-
vember 2011. Prior to joining Tinkoff,
Natalia held a number of senior-level
positions, including that of CFO and
Deputy Chairwoman of Dvizheniye
Bank’s Management Committee.
Valeria has overseen all legal matters
at Tinkoff as Chief Legal Officer and
Deputy Chairman of the Board since
January 2017. Before joining the bank,
she was Head of Legal for Sberbank’s
international division and a Legal
Director for InBev for/in Russia.
Valeria graduated from the Internation-
al University in Moscow and studied
finance at Hult International Business
School.
Natalia graduated from Moscow State
University with a degree in Economics
and holds a PhD in Economics from the
Research Institute of Economy.
George Chesakov is responsible for
Tinkoff’s mobile virtual network oper-
ator (MVNO Tinkoff Mobile) and has
been in this role since January 2017.
He also served as Chief Operating
Officer and Chairman of the Manage-
ment Board from 2006 until 2011.
Prior to his returning to Tinkoff in
February 2016, George was President
of OTP Bank and co-founder of Revo
Technology.
Prior to Tinkoff, George worked at
McKinsey & Company, Russian Stand-
ard Bank and launched a consumer
finance business at Investsberbank
(now OTP Bank).
George holds a Master’s degree in
Computer Science from Princeton
University and a Master’s degree with
honors in Mathematics from Moscow
State University.
58
59
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Board of Directors
and other officers
Board of Directors
Constantinos Economides, Chairman
Alexios Ioannides
Mary Trimithiotou
Philippe Delpal
Jacques Der Megreditchian
Martin Robert Cocker
All served throughout the year ended 2017 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 2018 on the basis of the composition of the Board at the relevant date.
Company Secretary
Caelion Secretarial Limited
25 Spyrou Araouzou
Berengaria 25, 5th floor,
3036, Limassol, Cyprus
Registered office
25 Spyrou Araouzou
Berengaria 25, 5th floor,
3036, Limassol, Cyprus
31 DECEMBER 2017
TCS Group Holding PLC
International Financial Reporting Standards
Consolidated Financial Statements and
Independent Auditor’s Report
Contents
Board of Directors and other officers . . . . . . . . . . . . . . . . . . . . . .F-2
16 Debt Securities in Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-50
Consolidated Management Report . . . . . . . . . . . . . . . . . . . . . . . . .F-3
17 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-50
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
18 Insurance Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-51
19 Other Financial and Non-financial Liabilities . . . . . . . . . . F-52
CONSOLIDATED FINANCIAL STATEMENTS
20 Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-52
Consolidated Statement of Financial Position . . . . . . . . . . . . . F-19
21 Net margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-53
Consolidated Statement of Profit or Loss and Other
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20
22 Fee and Commission Income and Expense . . . . . . . . . . . . F-54
23 Customer Acquisition Expense . . . . . . . . . . . . . . . . . . . . . . . F-54
Consolidated Statement of Changes in Equity . . . . . . . . . . . . .F-21
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . F-22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
2 Operating Environment of the Group . . . . . . . . . . . . . . . . . . F-25
3 Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . F-25
4
5
Critical Accounting Estimates and Judgements in Applying
Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-37
Adoption of New or Revised Standards
and Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39
24 Net Gains from Operations with Foreign Currencies . . . . F-55
25 Insurance Claims Incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-55
26 Administrative and Other Operating Expenses . . . . . . . . F-55
27 Other Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-56
28 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-56
29 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-59
30 Net Debt Reconciliation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-60
31 Segment Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-60
32 Financial Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . F-65
33 Management of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-76
6 New Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . F-39
34 Contingencies and Commitments . . . . . . . . . . . . . . . . . . . . . F-76
7 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . F-42
35 Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . F-78
8 Loans and Advances to Customers . . . . . . . . . . . . . . . . . . . F-42
36 Financial Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-79
9
Investment Securities Available for Sale . . . . . . . . . . . . . . F-45
37 Fair Value of Financial Instruments . . . . . . . . . . . . . . . . . . . F-79
10 Repurchase Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-47
38 Presentation of Financial Instruments by Measurement
11 Guarantee Deposits with Payment Systems . . . . . . . . . . . F-47
12 Tangible Fixed and Intangible Assets . . . . . . . . . . . . . . . . . . F-47
13 Other Financial and Non-financial Assets . . . . . . . . . . . . . F-48
14 Due to Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-49
15 Customer Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-49
Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-83
39 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . F-85
40 Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-87
41 Events after the End of the Reporting Period . . . . . . . . . . F-87
F-1
F-2
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Consolidated
Management Report
1. The Board of Directors presents its report together with
the audited consolidated financial statements of TCS
Group Holding PLC (the “Company”) and its subsidiaries
(collectively the “Group”) for the year ended 31 Decem-
ber 2017.
it also uses Direct Sales Agents (DSA) and partnerships
(co-brands) to acquire new customers. These customer
acquisition models, combined with the Bank’s virtual net-
work, afford it a geographic reach across all of Russia’s
regions resulting in a highly diversified portfolio.
Principal activities and nature of
operations of the Group
7. The key offerings of JSC “Tinkoff Insurance” are accident
insurance, travel insurance, property insurance and
voluntary insurance of vehicles (KASKO) and Obligatory
Motor Third Party Liability (OMTPL). The Insurance Com-
pany focuses on online sales.
2. The Group’s principal activities are undertaken within
the Russian Federation being on-line retail banking op-
erations through its subsidiary JSC “Tinkoff Bank” (the
“Bank”) and insurance operations through its subsidiary
JSC “Tinkoff Insurance” (the “Insurance Company”).
8.
3. The Bank specialises in retail banking for individuals and
small and medium-sized enterprises (SME) accounts and
brokerage services. 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, travelers', financial risks and auto insurance.
The founder and controlling shareholder of the Company
is Oleg Tinkov.
Changes in group structure
4. During 2017 the Group established LLC “Tinkoff Mobile”,
a mobile virtual network operator (“MVNO”), to provide
mobile services for both current Group’s customers and
others. The MVNO will have its own network code, num-
ber range and SIM cards which will be delivered across
Russia via Group’s courier network.
5. During 2017 the Group acquired a shareholding in LLC
“CloudPayments” (“CloudPayments”), an innovative
developer of online payment solutions. Together with the
rest of the Group, CloudPayments will further develop its
leading technology and servicing platforms. The acqui-
sition will enable the Group to enhance its merchant ac-
quiring business line as part of its growing SME offering.
Review of developments, position
and performance of the Group’s
business
6. 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 cus-
tomer acquisition channels are Internet and Mobile, but
In terms of financial performance the net profit of the
Group for the year ended 31 December 2017 was RR
19,023 million (2016: RR 11,011 million). This result is
driven by two major continuing trends: an ongoing qual-
ity growth of the Group’s consumer finance business, a
growing contribution from the non-credit fees-and-com-
mission business lines. Net interest income increased by
37.3% to RR 46,076 million (2016: RR 33,556 million).
Interest expense demonstrated a decline of 6.0% on
the back of continued decrease in deposit and market
rates. On 31 December 2017 total assets of the Group
amounted to RR 268,815 million (2016: RR 175,371
million). This growth was driven not only by the credit
cards part of the portfolio but also by Cash and POS
loans. The Investment Securities Available for Sale port-
folio grew by a factor of 2.2 and amounted to RR 71,676
million (2016: RR 33,286 million). The reason for these
dynamics is the development of debit cards and SME
business lines. The Group continues to maintain a good
quality and diversification of the securities portfolio.
Gross loans and advances to customers increased by
31.0% to RR 157,781 million (2016: RR 120,435 million)
and the net loans and advances to customers increased
by 36.3% to RR 140,245 million (2016: RR 102,912
million). The quality of loans continued to improve. The
90 days plus overdue loans ratio (NPL) reduced to 8.8%
(2016: 10.2%). The NPL coverage ratio declined to
126% (2016: 142%). The reason behind this reduction
was the decrease of the share of instalment loans in the
total loan portfolio which have the highest provision
coverage. Customer accounts increased by 43.7% to
RR 179,045 million (2016: RR 124,556 million). Cus-
tomer accounts remain the primary source of funding
with an 84% share. There was a rapid development of
SME business with customer balances showing a 4.8
times growth during the reporting year. Net assets were
RR 41,945 million (2016: RR 29,518 million).
Environmental matters
9. As the Group is an online only financial institution, the
management of the Group believe none of Company’s
business relationships, products or services are likely
to have any significant actual or potential significant
environmental impacts and do not believe its operations
are exposed to any material environmental risks. Man-
agement, in reaching this view, have taken into account
the risk of adverse impacts that may stem from the
Company’s own activities as well as its business relation-
ships including its supply and subcontracting chains. This
belief is based on continuous scrutiny of the business.
Human resources
10. The Group has a flat organizational culture. We practice
delegation of decision making to the levels deep below
the management team and we actively promote discus-
sion and idea generation and exchange. We believe in
creating an environment where highly talented people
are empowered. Empowerment is an important ingre-
dient in the success of our organization. It’s also about
the workplace environment – having an open leader-
ship style where information can move freely – where
ideas are constantly channeled up, down and sideways
around the Company. We don’t have ‘a rule by committee’
approach. We utilize all types of forums to promote con-
tinual dialogue – using email, various online chat rooms,
flash meetings, as well as formalized meeting structures.
Anyone can talk to anyone and transparency is promot-
ed. The Group offers a clear far-reaching career path for
its employees, unique work environment and fair and a
transparent compensation.
11. Clear performance evaluation process and fair compen-
sation 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.
12. 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 manage-
ment 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 increased to over 80. Total size of the
MLTIP pool amounts to 5.6% of the Group’s current
share capital. 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
with each such annual award vesting linearly over the
subsequent three years. The Group believes that partic-
ipation in its share capital is an effective motivation and
retention tool. The new management incentive and re-
tention plan now embraces more managers, for two main
reasons: firstly, internal promotions as some employees
were promoted to key managerial positions, and sec-
ondly, 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.
Non-Financial Information and
Diversity Statement
13. The Group will be publishing its first Non-Financial
Information and Diversity Statement on the company’s
website, www.tinkoff.ru/eng within six months after the
balance sheet date.
Principal risks and uncertainties
14. 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 2016-2017.
15. The Group is subject to a number of principal risks which
might adversely impact its performance. The principal activ-
ities of the Group are banking and insurance operations and
so it is within this area that the principal risks occur. Manage-
ment considers that those principal risks are: financial risks,
operational risks and legal risks. Financial risk comprises
market risks (including currency risk, interest rate risk and
other price risk), credit risk and liquidity risk.
16. The Board has adopted a formal process to identify, evaluate
and manage principal risks and uncertainties faced by the
Group. The Group has established risk management program
that focuses on the unpredictability of financial markets and
seeks to minimize potential adverse effects on the Group's
financial performance. This is overseen by a dedicated Risk
Management function, which works directly with the Board of
Directors in this area. 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 lim-
its. The operational and legal risk management functions are
intended to ensure the proper functioning of internal policies
and procedures to minimize operational and legal risks. Risk
management strategy is established so as to identify, assess,
monitor and manage the risks arising from Group's activities.
These risks as well as other risks and uncertainties, which
affect the Group and how these are managed, are presented
in Notes 32 and 33 of the consolidated financial statements.
F-3
F-4
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Consolidated
Management Report (Continued)
Future developments
17. The Group's strategic objective is to be a full service, on-
line financial supermarket with a broad range of financial,
insurance and quasi-financial products, serving custom-
ers through a high-tech online and mobile platform that
offers premium quality service and convenience. While
maintaining high growth rates, profitability and effective
data-driven risk management.
18. On 31 January 2018 the Agency for Housing Mort-
gage Lending (“AHML”) and Tinkoff Bank have signed
an agreement to set up a joint venture to offer mortgage
lending on a special electronic platform. The platform
was designed to enable online acquisition of mortgage
customers using Tinkoff Bank’s technology platform.
It will support automated mortgage approvals based
on AHML standards, execute loan documentation and
issue mortgage loans, enable online registration of prop-
erty transactions with the Federal Service for State Reg-
istration, Cadastre and Cartography, and can be integrat-
ed with the systems of other Russian mortgage lenders.
Results
specifically created for the long-term incentive pro-
gramme for Management of the Group (MLTIP) (see Note
39 for further information).
24. In 2017 the Group repurchased 602,148 GDRs (2016:
5,659,853 GDRs) at market price for RR 397 million
(2016: RR 1,246 million) representing 0.3% (2016:
3.1%) of the issued share capital for the purpose of the
MLTIP.
25. During 2017 the Group transferred 1,351,406 GDRs
(2016: 3,626,664 GDRs) out of treasury shares upon
vesting under the MLTIP (2016 :MLTIP and employee
share option plan) to retained earnings that is equivalent
of RR 283 million (2016: RR 101 million) representing
0.7% (2016: 2.0%) of the issued share capital.
Board of Directors
26. The members of the Board of Directors as of 31 Decem-
ber 2017 and at the date of this report are presented
above.
27. There were no significant changes in the assignment
of responsibilities and remuneration of the Board of
Directors.
19. The Group’s results for the year are set out on page F-20
of the consolidated financial statements. Information on
distribution of profits is presented in Note 29.
Branches
28. The Group did not operate through any branches during
the period.
Independent auditor
29. The Independent Auditor, PricewaterhouseCoopers Lim-
ited, has 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.
Any important events for the Group
that have occurred after the end of
the financial year
20. Important events for the Group that have occurred after
the end of the financial year are presented in Note 41.
Share capital
21. There were no changes in issued share capital in 2017,
except on 22 November 2017 5,745,145 class B shares
were converted to class A shares.
Treasury shares
22. At 31 December 2017 the Group held 6,290,179 (2016:
7,039,437) of its own GDRs that is equivalent of approxi-
mately RR 1,587 million (2016: RR 1,473 million) repre-
senting 3.4% (2016: 3.9%) of the issued share capital.
23. Treasury shares are GDRs of TCS Group Holding Plc that
are held by the EBT, special purpose trust which has been
Corporate Governance Statement
Overview
GDRs of TCS Group Holding PLC (a Cy-
prus company), with each GDR issued
under a deposit agreement dated on or
about 24th October 2013 with JPMor-
gan Chase Bank N.A. as depositary rep-
resenting one class A share, are listed
on the London Stock Exchange (LSE)
and the Company is required to comply
with its corporate governance regime
to the extent it applies to foreign issu-
ers of GDRs. No shares of TCS Group
Holding PLC are listed on any exchange.
As the class A shares themselves or
the GDRs are not listed on the Cyprus
Stock Exchange, the Cypriot corporate
governance regime is not applicable
for 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
of ordinary shares, Class B shares
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 description of the
Articles of Association, including the
rights of shareholders, and the Terms
and Conditions of the GDRs can be
found in the Company’s October 2013
Prospectus on the website at www.
tinkoff.ru/eng.
The Board of Directors
The role of the Board is to provide en-
trepreneurial leadership to the Group
within a framework of prudent and
effective controls which enables risk to
be assessed and managed. The Board
sets the Group’s strategic objectives,
ensures that the necessary financial
and human resources are in place for
the Group to meet its objectives and
reviews management’s performance.
The Board also sets the Group’s values
and standards and ensures that its
obligations towards the shareholders
and other stakeholders are understood
and met.
The authorities of the members of the
Board are specified by the Articles of
Association of the Company and by
law. The current six strong Board of
directors is comprised of three execu-
tive 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 2017. The board of directors
currently contains no Directors B.
The longest serving director Mr Con-
stantinos Economides who became a
director in 2008, and later took over
the role of Chairman of the Board of
directors in June 2015. The names of
the people who served on the Board
during 2017 are listed in the Introduc-
tion Note. 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 com-
mittees and of its individual directors.
That review was carried out, in-house,
in relation to 2017, looking at overall
performance but focused mainly on
late 2016 and 2017. All directors
completed detailed questionnaires
on the Board’s performance. Analysis
of the resultant feedback, which was
discussed at a meeting of the Board of
Directors in early 2018 did not show
up any deficiencies in the performance
of the Board, its committees or individ-
ual directors of a nature that required
changes to be made.
Committees of the
Board of directors
The Company has established two
Committees of the Board of directors:
the Audit Committee and the Remu-
neration 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 refer-
ence and arranges a periodic review of
each Committee’s role and activities
and considers the appropriateness of
additional committees.
Committee 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-execu-
tive 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 implemented
by the Group and monitors and assess-
es the effectiveness of the Company’s
F-5
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Consolidated
Management Report (Continued)
internal financial controls, risk manage-
ment systems internal audit function,
the independence and qualifications of
the independent auditor and the effec-
tiveness of the external audit process.
The Audit Committee is required to
meet at appropriate times in the re-
porting 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 arrang-
ing a complementary committee review
on a rolling basis driven by the audit
cycle March to March. After consider-
ation 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. Two such meetings were
held in 2017 with a further two at least
in 2018 planned.
The Audit Committee has developed a
risk matrix which constantly evolves to
reflect new risks, the perceived impact
of, and the Group’s appetite for, any
given risk and the measures taken to
mitigate those risks. This matrix is run
in conjunction with the internal audit
function.
existing and new participants for this
and subsequent years.
In 2017 the Group reorganised its
internal audit function, to clarify the
demarcation between its internal audit
and internal control (CBRF compliance
and regulatory) functions while mate-
rially increasing the resources overall
within the internal audit team.
In addition a new post of chief infor-
mation security officer was created in
2017 and filled, with additional person-
nel expert in cyber-security recruited
to support the Group’s ever-increasing
efforts to stay ahead of trends and
threats in this sphere.
Remuneration
Committee
The Remuneration Committee is
responsible for determining and
reviewing among other things the
framework of remuneration of the ex-
ecutive directors, senior management
and its overall cost and the Group’s
remuneration policies. The objective is
to ensure that the executive manage-
ment 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 Remunera-
tion Committee’s Terms of Reference
include reviewing the design and de-
termining targets for any performance
related pay schemes and reviewing the
design of all share incentive plans for
approval by the Board. The Remunera-
tion Committee is required to meet at
least twice a year but in practice meets
far more often.
The Remuneration Committee con-
tinued work into 2017 on its ongoing
review of the operation of the Group’s
equity based incentive and retention
plan for key, senior and middle man-
agement (MLTIP) which launched and in
considering additional awards to both
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 ob-
ligation through members participating
in the main Board review (described
above) under which detailed question-
naires were completed by all direc-
tors assessing the operation of the
Board and both committees. Although
earlier reviews 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, no
further changes were felt required in
2017 and 2018.
Significant direct/
indirect holdings
For the significant direct and indirect
shareholdings held in the share capital
of the Company, please refer to Note 1
of the financial statements.
Shareholders’
Agreement: additional
rights of Minority
Shareholders
In October 2013 Tasos Invest & Fi-
nance Inc., Tadek Holding & Finance SA,
Maitland Commercial Inc, Norman Le-
gal 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
Diversity policy
The Group is committed to offering
equal opportunity to all current and
prospective employees, such that no
applicant or employee is discriminated
in favour of or against on the grounds
of sex, racial or ethnic origin, religion
or belief, disability, age or sexual
orientation in recruitment, training,
promotion or any other aspect of
employment.
Recruitment, training and promotion
are exclusively based on merit. All
the Group employees involved in the
recruitment and management of staff
are responsible for ensuring the policy
is fairly applied within their areas of
responsibility. The Group applies this
approach throughout, at all levels. This
includes its administrative, manage-
ment and supervisory bodies, including
the Board of Directors of the Company.
shareholders’ agreement (the Share-
holders’ Agreement) to govern aspects
of their relationship after the IPO. The
Shareholders’ Agreement provided
that the Minority Shareholders were
entitled to nominate one director to
the Board of directors of the Company.
The Shareholders’ Agreement also
contained provisions that required the
Majority Shareholders to vote against
certain matters unless a majority of
the Minority Shareholders approve of
such matters. These rights of the Mi-
nority Shareholders continue so long
as they hold at least 10% of the issued
share capital of the Company. The
Shareholders' Agreement was auto-
matically terminated when the minority
shareholders’ aggregate holdings fell
below 10%.
Internal control and
risk management
systems in relation to
the financial reporting
process
Policies, procedures and controls exist
around financial reporting. Management
is responsible for executing and assess-
ing the effectiveness of these controls.
Financial reporting
process
The Board of Directors is responsible
for the preparation of the consolidated
financial statements 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 consoli-
dated financial statements that are free
from material misstatement, whether
due to fraud or error. In preparing
the consolidated financial statements,
the Board of Directors is responsible
for assessing the Group’s ability to
continue as a going concern, disclosing,
as applicable, matters related to going
concern and using the going concern
basis of accounting unless the Board of
Directors either intends to liquidate the
Group or to cease operations, or has
no realistic alternative but to do so.
The Board has delegated to the Audit
Committee the responsibility for
reviewing the financial statements to
ensure that they are in compliance with
the applicable framework and legisla-
tion and for recommending these to
the Board for approval. The Audit Com-
mittee is responsible for overseeing
the Group’s financial reporting process.
Internal Controls and
Risk Management
Management is responsible for set-
ting the principles in relation to risk
management. The risk management
organisation is divided between Policy
Making Bodies and Policy Implemen-
tation Bodies. Policy Making Bodies
are responsible for establishing risk
management policies and procedures,
including the establishment of limits.
The main Policy Making Bodies are the
Board of Directors, the Management
Board, the Finance Committee, the
Credit Committee and the Business
Development Committee.
In addition the Group has implemented
an online analytical processing man-
agement system based on a common
SAS data warehouse that is updat-
ed on a daily basis. The set of daily
reports includes but is not limited to
sales reports, application processing
reports, reports on the risk character-
istics of the card portfolios, vintage
reports, transition matrix (roll rates)
reports, reports on the pre-, early and
late collections activities, reports on
compliance with CBR requirements,
capital adequacy and liquidity reports,
operational liquidity forecast reports
and information on intra-day cash
flows.
F-7
F-8
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Consolidated
Management Report (Continued)
The composition and diversity information of the Board of Directors of the Group for the year ended and as at 31 December
2017 is set out below:
Name
Age
Male/Female
Educational/professional background
Constantinos Economides
Alexios Ioannides
Mary Trimithiotou
Philippe Delpal
Jacques Der Megreditchian
Martin Robert Cocker
42
41
39
44
58
58
Male
Male
FCA, MSc Management Sciences, experienced in Big 4
FCA, BsC Business Administration, experienced in Big 4
Female
FCA, Licensed Insolvency practitioner
Male
Male
Male
BSc in IT, banking executive experience in banking
Business Administration, stock exchange and finance experience
BSc in Maths and Economics, ACA, experience in Big 4
Further details of the corporate governance regime of the Company can be found on the website:
https://www.tinkoff.ru/eng/investor-relations/corporate-governance/.
By Order of the Board
Constantinos Economides
Chairman of the Board
Limassol
9 March 2018
F-9
F-10
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Consolidated Statement
of Financial Position
Consolidated Statement of Profit or
Loss and Other Comprehensive Income
In millions of RR
ASSETS
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 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
Equity attributable to shareholders of the Company
Non-controlling interest
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Note
31 December 2017
31 December 2016
7
8
36
9
10
11
12
12
13
13
14
15
16
36
28
17
18
19
19
20
20
20
39
40
23,850
1,675
777
140,245
2,424
71,676
798
301
3,660
6,140
3,056
10,969
3,257
16,197
1,218
347
102,912
2,718
33,286
-
702
2,924
4,656
1,820
7,343
1,248
268,828
175,371
595
179,045
10,819
240
25
1,479
22,001
1,840
8,043
2,796
489
124,556
2,986
-
24
785
11,514
767
3,112
1,620
226,883
145,853
188
8,623
(1,587)
1,286
31,797
1,436
41,743
202
41,945
268,828
188
8,623
(1,473)
704
20,885
591
29,518
-
29,518
175,371
Approved for issue and signed on behalf of the Board of Directors on 9 March 2018.
Note
21
21
8
22
22
23
24
8
25
26
27
28
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
Fee and commission income
Fee and commission expense
Customer acquisition expense
Net (losses)/gains from operations with foreign currencies
Net losses from repurchase of subordinated loan
Net gains from investment securities available for sale
Gain from sale of impaired loans
Insurance premiums earned
Insurance claims incurred
Administrative and other operating expenses
Other operating income
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income:
Items that may be reclassified to profit or loss
Investment securities available for sale and Repurchase receiv-
ables
- Net gains arising during the year, net of tax
- Net gains reclassified to profit or loss upon disposal or impair-
ment, net of tax
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit is attributable to:
- Shareholders of the Company
- Non-controlling interest
Total comprehensive income is attributable to:
- Shareholders of the Company
- Non-controlling interest
Constantinos Economides
Mary Trimithiotou
Director
Director
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)
20
20
The notes set out on pages F-23 to F-87 form an integral part of these Consolidated Financial Statements.
The notes set out on pages F-23 to F-87 form an integral part of these Consolidated Financial Statements.
2017
59,541
(12,824)
(641)
46,076
(7,640)
38,436
15,531
(5,618)
(9,719)
(256)
(619)
270
26
2,735
(815)
(16,206)
1,220
24,985
(5,962)
19,023
1,061
(216)
845
19,868
19,019
4
19,864
4
107.88
104.42
2016
47,644
(13,638)
(450)
33,556
(8,386)
25,170
8,401
(3,042)
(6,661)
239
-
214
48
1,348
(490)
(11,321)
658
14,564
(3,553)
11,011
629
(171)
458
11,469
11,011
-
11,469
-
63.10
61.54
F-19
F-20
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
Attributable to shareholders of the Company
l
a
t
i
p
a
c
e
r
a
h
S
e
t
o
N
m
u
i
m
-
e
r
p
e
r
a
h
S
e
v
r
e
s
e
r
t
n
e
m
y
a
p
d
e
s
a
b
-
e
r
a
h
S
n
o
i
t
a
u
l
-
a
v
e
R
e
v
r
e
s
e
r
s
e
r
a
h
s
y
r
-
u
s
a
e
r
T
-
r
a
e
d
e
n
-
i
a
t
e
R
s
g
n
i
n
g
n
i
l
l
o
r
t
n
o
c
n
o
N
t
s
e
r
e
t
n
I
l
a
t
o
T
y
t
i
u
q
e
l
a
t
o
T
188
8,623
614
133
(328)
13,716 22,946
- 22,946
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
90
-
90
-
-
11,011
11,011
-
11,011
458
458
-
-
-
-
-
-
-
458
-
458
11,011 11,469
- 11,469
(1,246)
-
(1,246)
101
664
855
-
(4,506)
(4,506)
(1,145)
(3,842)
(4,897)
-
-
-
-
(1,246)
855
(4,506)
(4,897)
188
8,623
704
591
(1,473) 20,885 29,518
- 29,518
-
-
-
-
- 19,019
19,019
4
19,023
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
582
-
582
-
845
-
-
845
-
845
-
-
-
-
-
(397)
-
-
-
(397)
-
(397)
-
198
198
283
172
1,037
-
(8,279)
(8,279)
-
-
1,037
(8,279)
(114)
(8,107)
(7,639)
198
(7,441)
188 8,623 1,286 1,436
(1,587)
31,797 41,743
202 41,945
In millions of RR
Balance at
1 January 2016
Profit for the year
Other comprehensive
income:
Revaluation of in-
vestment securities
available for sale and
Repurchase receivables
Total comprehensive
income for 2016
GDRs buy-back
Share-based payment
reserve
20
20, 39
Dividends declared
29
Total transactions
with owners
Balance at
31 December 2016
Profit for the year
Other comprehensive
income:
Revaluation of in-
vestment securities
available for sale and
Repurchase receivables
Total comprehensive
income for 2017
GDRs buy-back
Business combinations
20
40
Share-based payment
reserve
20, 39
Dividends declared
29
Total transactions
with owners
Balance at
31 December 2017
Note
2017
2016
In millions of RR
Cash flows from operating activities
Interest received
Interest paid
Expenses on deposits insurance paid
Customers acquisition expenses paid
Cash (paid)/ 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 received
Fees and commissions paid
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 in CBRF mandatory reserves
Net (increase)/ decrease in due from banks
Net increase in loans and advances to customers
Net increase in guarantee deposits with payment systems
Net increase in other financial assets
Net increase in other non-financial assets
Net increase/(decrease) in due to banks
Net increase in customer accounts
Net increase in other financial liabilities
Net decrease in other non-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
8
9
9
Net cash used in investing activities
Cash flows from financing activities
Proceeds from perpetual loan participation notes
17,30
Perpetual loan participation notes issued costs
Proceeds from debt securities in issue
Repayment of debt securities in issue
Repayment of subordinated debt
GDR’s buy-back
Dividends paid
Net cash from/(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
17
30
30
30
29
7
7
60,636
(12,159)
(593)
(5,860)
(267)
2,603
38
15,521
(6,099)
902
(6,230)
(5,077)
43,415
(457)
(176)
46,784
(13,565)
(392)
(4,237)
6,713
1,075
68
8,169
(3,076)
515
(5,346)
(4,639)
32,069
(542)
285
(44,256)
(27,668)
(815)
(3,909)
(2,226)
106
44,249
3,488
(29)
39,390
(1,702)
(1,744)
(67,814)
29,610
(41,650)
17,109
(256)
7,819
-
(6,623)
(397)
(7,970)
9,682
231
7,653
16,197
23,850
(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
845
- 19,019 19,864
4 19,868
Proceeds from sale and redemption of investments available for sale
The notes set out on pages F-23 to F-87 form an integral part of these Consolidated Financial Statements.
The notes set out on pages F-23 to F-87 form an integral part of these Consolidated Financial Statements.
F-21
F-22
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements
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 2017 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: Con-
stantinos 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, 5th floor, Limassol, Cyprus.
At 31 December 2017 and 2016 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 ordi-
nary share with a nominal value of USD 0.04 per share and carrying 10 votes. As at 31 December 2017 the number of “class
A” shares is 96,239,291 and “class B” shares is 86,399,534 (2016: “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 depos-
itory receipts (GDRs) listed on the London Stock Exchange plc.
As at 31 December 2017 and 2016 the entities holding either Class A or Class B shares of the Company were:
Class of shares
31 December
2017
31 December
2016
Country of
Incorporation
Tadek Holding & Finance S.A.
Guaranty Nominees Limited
(JP Morgan Chase Bank NA)
Rousse Nominees Limited
Vostok Emerging Finance Ltd
Tasos Invest & Finance Inc.
Vizer Limited
Maitland Commercial Inc.
Norman Legal S.A.
Altruco Trustees Limited
Total
Class B
Class A
Class A
Class A
Class A
Class B
Class B
Class B
Class B
Class A
47.31%
0.00%
50.45%
-
British Virgin Islands
50.06%
41.45%
United Kingdom
0.99%
1.64%
0.00%
0.00%
0.00%
0.00%
2.88%
3.49%
Guernsey
Bermuda
0.00%
British Virgin Islands
0.00%
British Virgin Islands
0.00%
British Virgin Islands
0.00%
British Virgin Islands
-
1.73%
Cyprus
100.00%
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.
As at 31 December 2017 and 2016 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.
1
Introduction (Continued)
On 24 January 2018 Tadek Holding & Finance SA has transferred its entire holding of B class shares (86,399,458 B class
shares) to Altoville Holdings Limited, another legal entity 100% beneficially owned by Mr Tinkov. As at 31 December 2017 and
2016 the ultimate controlling party of the Company is Mr. Oleg Tinkov. Mr. Oleg Tinkov controls 89.98% of the aggregated
voting rights attaching to the Class A and B shares as at 31 December 2017 (31 December 2016: 91.1%).
The Group owns 100% of shares and has 100% of voting rights of each of these subsidiaries as at 31 December 2017 and
2016 except for TCS Finance D.A.C., Tinkoff Long-Term Incentive Plan Employee Benefit Trust (“EBT”), and LLC “CloudPay-
ments” (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.
TCS Finance D.A.C. is a structured entity which issued debt securities including subordinated perpetual bonds for the Group.
The Group neither owns shares nor has voting rights in this company. However, this entity was consolidated as it was specifi-
cally set up for the purposes of the Group, and the Group has exposure to substantially all risks and rewards through outstand-
ing guarantees of the entity’s obligations.
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 “Phoenix” is a debt collection agency.
Tinkoff Software DC provides software development services to the Group.
LLC “Tinkoff Mobile” is a mobile virtual network operator set up in 2017 to provide mobile services.
LLC “CloudPayments” is a developer of online payment solutions which core business is online merchant acquiring in Russia.
The Group owns 55% shareholding in LLC CloudPayments.
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 activities are retail banking to private individuals, SME accounts services
and insurance operations within the Russian Federation through the Bank and the Insurance Company. The Bank operates
under general banking license No. 2673 issued by the Central Bank of the Russian Federation (“CBRF”) on 8 December 2006.
The Insurance Company operates under an insurance license issued by the CBRF.
The Bank participates in the state deposit insurance scheme, which was introduced by Federal Law No. 177-FZ “Deposits 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, Berengaria 25, 5th
floor, Limassol, Cyprus. The Bank’s registered address is 1-st Volokolamsky proezd, 10, building 1, 123060, Moscow, Russian
Federation. The Insurance Company’s registered address is 2-nd Khutorskaya street, building 38A, 127287, Moscow, Russian
Federation. The Group’s principal place of business is the Russian Federation.
Presentation currency. These consolidated financial statements are presented in millions of Russian Rubles (RR).
F-23
F-24
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
2 Operating Environment of the Group
Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particu-
larly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent
changes and varying interpretations (Note 34). The Russian economy was growing in 2017 after the economic recession of
2015, 2016 and the significant correction in the value of Russian Rouble against other major currencies at the end of 2014.
The economy is also impacted by relatively ongoing political tension in the region and international sanctions against various
major Russian companies and individuals.
The financial markets continue to be volatile. This operating environment has a significant impact on the Group’s operations
and financial position. Management is taking necessary measures to maximize the stability 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.
The Group actively monitors the situation in the Russian banking sector, and the activity of CBRF in response to current and
newly developed requirements and any sanctions against the participants who breach them. Management of the Group be-
lieves it is highly important to participate in the development of legislation in the banking sphere and supports the intention of
the CBRF to make the finance market more transparent and disciplined.
Through to the end of 2017 management determined loan impairment provisions using the “incurred loss” model required by
the applicable accounting standards. These standards require recognition of impairment losses that arose from past events
and prohibit recognition of impairment losses that could arise from future events, including future changes in the economic
environment, no matter how likely those future events are. Thus, final impairment losses from financial assets could differ sig-
nificantly from the current level of provisions. Refer to Note 4 with respect to the introduction of IFRS 9 from 2018.
3 Significant Accounting Policies
3 Significant Accounting Policies (Continued)
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 inves-
tors, 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 Group measures non-controlling interest that represents present ownership interest and entitles the holder to a propor-
tionate share of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the
non-controlling interest's proportionate share of net assets of the acquiree. Non-controlling interests that are not present
ownership interests are measured at fair value.
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; unreal-
ised losses are also eliminated unless the cost cannot be recovered. The Bank and all of its subsidiaries use uniform account-
ing policies consistent with the Group’s policies.
Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not
owned, directly or indirectly, by the Group. Non-controlling interest forms a separate component of the Group’s equity.
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.
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.
As of the date of the authorisation of the financial statements, all International Financial Reporting Standards issued by the In-
ternational Accounting Standards Board (IASB) that are effective as of 1 January 2017 have been adopted by the EU through
the endorsement procedure established by the European Commission, with the exception of certain provisions of IAS 39 “Fi-
nancial Instruments: Recognition and Measurement” relating to portfolio hedge accounting and IFRS14, “Regulatory Deferral
Accounts first time adopters”.
The consolidated financial statements have been prepared under the historical cost convention, as modified by the initial rec-
ognition 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 ac-
tivities of the investee need to be made. The Group may have power over an investee even when it holds less than majority of
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 informa-
tion 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 suffi-
cient 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;
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
and (c) the market risks, including duration of the entity’s exposure to a particular market risk (or risks) arising from the finan-
cial 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 considera-
tion 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 meas-
urement requires significant unobservable inputs). Transfers between levels of the fair value hierarchy are deemed to have
occurred at the end of the reporting period. Refer to Note 37.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instru-
ment. 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 repay-
ments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest
includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount
using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and
amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in
the carrying values of related items in the consolidated statement of financial position.
The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to
achieve a constant periodic rate of interest (effective interest rate) on the carrying amount.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit
losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of
the financial instrument.
The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for
the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables
that are not reset to market rates.
Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation
includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.
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
3 Significant Accounting Policies (Continued)
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 instru-
ment 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.
De-recognition 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 equiv-
alents 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 cus-
tomer’s perspective. The Group evaluates the quality of cash and cash equivalents 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.
Mandatory cash balances with the CBRF. Mandatory cash balances with the CBRF are carried at amortised cost and repre-
sent 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. The Group evaluates the quality of due from other banks 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.
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.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss for the year
when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset
and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred
for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with
similar credit risk characteristics, and collectively assesses them for impairment.
The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and
realisability of related collateral, if any.
3 Significant Accounting Policies (Continued)
Repayments of written-off loans. Recovery of amounts previously written off as uncollectible are credited directly to the pro-
visions line in the consolidated statement of profit or loss and other comprehensive income. Cash flows related to repayments
of written-off loans are presented within interest received in the consolidated statement of cash flows since they are mainly
represented by repayment of interest accrued.
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.
The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss
has occurred:
Dividends on available-for-sale equity instruments are recognised in profit or loss for the year when the Group’s right to re-
ceive payment is established and it is probable that the dividends will be collected.
• 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 changes in national or local economic con-
ditions 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 re-
negotiated 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 ex-
pected 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) discount-
ed 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. The amount of uncollectible loan balance is estimated
on a loan portfolio basis taking into account defaulted loans recovery statistics. In 2017 the Group refined the approach to
determination of uncollectible loan balance as sufficient and appropriate loans recovery statistics has now been accumulated.
Gains or losses on disposal of impaired loans are recognized in the consolidated statement of profit or loss and other compre-
hensive income in the period when sale occurred.
All other elements of changes in the fair value are recognised in other comprehensive income until the investment is derecog-
nised 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.
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.
The Group evaluates the quality of debt investment securities available for sale 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.
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 corre-
sponding 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 catego-
ry 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 par-
ties, 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.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
3 Significant Accounting Policies (Continued)
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.
At each reporting date management assesses whether there is any indication of impairment of intangible assets with an indefi-
nite 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.
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.
The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in profit or loss. An impair-
ment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine
the asset’s value in use or fair value less costs to sell. Intangible assets including goodwill with indefinite useful life are tested
annually for impairment.
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 counter-
party banks. Non-derivative liability is carried at amortised cost.
Tangible fixed assets. Tangible fixed assets are stated at cost less accumulated depreciation and provision for impairment,
where required.
Customer accounts. Customer accounts are non-derivative liabilities to corporate entities and individuals and are carried at
amortised cost.
Costs of minor repairs and day-to-day maintenance are expensed when incurred. Costs of replacing major parts or compo-
nents 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 im-
pairment 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
99
3 to 10
5
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.
Debt securities in issue. Debt securities are stated at amortised cost. If the Group purchases its own debt securities in issue,
they are removed from the consolidated statement of financial position and the difference between the carrying amount of the
liability and the consideration paid is included in a separate line of consolidated statement of profit or loss and other compre-
hensive income as gains/losses from repurchase of debt securities in issue.
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 com-
prehensive 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 state-
ments 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 account-
ing 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 taxa-
ble profit will be available against which the deductions can be utilised. Deferred income tax is not recognised on post acquisition
retained earnings and other post acquisition movements in reserves of subsidiaries, where the Group controls the subsidiary’s
dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
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 addition-
al 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 con-
tract 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 subse-
quently 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 and in accordance with Cyprus Companies Law 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 us-
ing 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.
3 Significant Accounting Policies (Continued)
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. Those costs, which can be directly attributed
to the acquisition of a particular client, are included in the effective interest rate of the originated financial instruments; the
remaining costs are expensed on the basis of the actual services provided.
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 related contract coverage.
Reduction of premium written in subsequent periods (under amendments to the signed original contacts, for example) is
accounted by debiting of premiums written in current period.
• Claims. Claims are charged to the consolidated statement of profit or loss and other comprehensive income as compensa-
tion is paid to policyholders (beneficiaries) or third parties.
• Claims handling expenses. Claims handling expenses are recognised in profit or loss for the period as incurred and include
direct expenses related to negotiations and subsequent claims handling, as well as indirect expenses, including expenses 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 consistently with the amounts associated with the direct insurance contracts and
in accordance with the terms of each reinsurance contract. Reinsurance assets arising from outward reinsurance contracts
include reinsurers share in paid claims, including claims handling expenses. Liabilities under outward reinsurance operations
are obligations of the Group for payment of premiums to reinsurers. Reinsurance assets include premiums ceded to the Group
under inward reinsurance contracts.
The Group's liabilities under inward reinsurance contracts are obligations to compensate the Group's share in paid claims,
including claims handling expenses to reinsurers.
The Group assesses its reinsurance assets for impairment on a regular basis. If there is objective evidence that the reinsur-
ance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recog-
nises 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.
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F-34
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
• Subrogation income. The Group has a right to pursue third parties responsible for loss for payment of some or all costs
related to the claims settlement process of the Group (subrogation). Reimbursements are recognised as income only if the
Group is confident in receipt of these amounts from these third parties. Under inward reinsurance contracts, amounts of re-
imbursement due to the Group as a result of settlement of reinsurer's subrogation claims are treated as the Group's income
as at the date of acceptance of the invoice received from the reinsurer and including calculation of the Group's share in the
subrogation claim.
• Deferred acquisition costs. Deferred acquisition costs (“DAC”) are calculated (for non-life insurance contracts) separately
for each insurance product. Acquisition costs include remuneration to agents for concluding agreements with corporate
clients and individuals and brokerage fees for underwriting of assumed reinsurance agreements. They vary with and fully
depend on the premium earned under acquired or renewed insurance policies. These acquisition costs are deferred and
amortised over the period in which the related written premiums are earned. They are reviewed by line of business at the
time of the policy issue and at the end of each accounting period to ensure they are recoverable based on future estimates.
For the insurance contracts with duration of less than one month and with automatic prolongation condition amortisation
of one-off acquisition costs occurs over the period determined based on statistical assessment of duration of the insurance
contract taking into account all of the expected future prolongations.
• Insurance agency fee. In cases when the Group acts as an agent and attracts clients for the third-party insurance com-
panies, the Bank receives commission income, which is recognised within Fee and commission income 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 proportion of premiums writ-
ten that relate to the unexpired term of policies in force as at the reporting date, calculated on a time apportionment basis.
UEPR is recognised within liabilities on a gross basis.
• Loss provisions. Loss provisions represent the accumulation of estimates for ultimate losses and include outstanding claims
provision (“OCP”) and provision for losses incurred but not yet reported (“IBNR”). Loss provisions are recognised within liabil-
ities on a gross basis. Estimates of claims handling expenses are included in both OCP and IBNR. OCP is provided in respect of
claims reported, but not settled as at the reporting date.
The estimation is made on the basis of information received by the Group during settlement of the insured event, including
information received after the reporting date. IBNR is determined by the Group by line of business using actuarial methods,
and includes assumptions based on prior years’ claims and claims handling experience. IBNR is calculated for each occurrence
period as the difference between the projected maximum amount of future payments resulting from the events that occurred
during the period and the amount of future payments resulting from the event already reported but not settled at the reporting
date within the same period.
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.
• Unexpired risk provision. Unexpired risk provision (“URP”) is recorded when unearned premiums are insufficient to meet
claims and expenses, which may be incurred after the end of the financial year. To estimate the unexpired risk provision the
Group uses historical experience and forward looking assumptions of ultimate loss ratios (including claims handling expenses)
and the level of in-force portfolio maintenance expenses. The expected claims are calculated having regard to events that
have occurred prior to the reporting date. For the purposes of final presentation of consolidated financial statements unex-
pired risk provision is written off against deferred acquisition costs.
• Liability adequacy testing. As at each reporting date the adequacy of the insurance reserves is tested. Testing of insurance
reserves for non-life insurance is performed to ensure adequacy of contract liabilities. In performing these tests, current esti-
mates of future contractual cash flows, claims handling and administration expenses are used. As a result of liability adequacy
testing for non-life insurance, the Group sets up its URP.
3 Significant Accounting Policies (Continued)
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 2017 the rate of exchange used for translating foreign currency balances was USD 1 = RR 57.6002 (2016:
USD 1 = RR 60.6569), and the average rate of exchange was USD 1 = RR 58.3529 (2016: USD 1 = RR 67.0508).
Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial po-
sition only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle
on a net basis, or to realise the asset and settle the liability simultaneously.
Such a right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following
circumstances: (i) in the normal course of business, (ii) the event of default and (iii) the event of insolvency or bankruptcy.
Earnings per share. Earnings per share are determined by dividing the profit or loss attributable to owners of the Company by
the weighted average number of participating shares outstanding during the reporting year, excluding treasury shares. For the
purpose of diluted earnings per share calculation the Group considers dilutive effects of shares granted under employee share
option plans.
Staff costs and related contributions. Wages, salaries, contributions to the Russian Federation state pension and social
insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the
associated services are rendered by the employees of the Group. The Group has no legal or constructive obligation to make
pension or similar benefit payments beyond the payments to the statutory defined contribution scheme. Cash flows related to
the salaries and other contributions paid to employees of the Group are presented within net increase/(decrease) in customer
accounts since salaries and other contributions are paid directly to the current accounts of employees with the Bank and do
not represent cash outflow for the Group.
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. Div-
idends 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.
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F-36
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
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 re-
maining 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. During the year ended 31 December 2017 the management of the Group made a detailed review of
the components that make up commission expense and using improved technical reports identified the part of payment sys-
tems commission expense which has more characteristics of being an effective interest rate rather than commission expense.
As a result the reclassification was made in the consolidated statement of profit or loss and other comprehensive income
between Fee and commission income, Fee and commission expense, Interest expense and Interest income as detailed in the
table below:
In millions of RR
Interest income
Interest expense
Fee and commission expense
As originally presented
Reclassification
47,824
(13,348)
(3,512)
(180)
(290)
470
The effect of reclassifications on amounts in the consolidated statement of cash flows was as follows:
In millions of RR
Interest received
Interest paid
Fee and commission paid
As originally presented
Reclassification
46,964
(13,275)
(3,546)
(180)
(290)
470
As reclassified at
31 Decmber 2016
47,644
(13,638)
(3,042)
As reclassified at
31 Decmber 2016
46,784
(13,565)
(3,076)
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 evaluat-
ed 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 recog-
nized 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 determin-
ing 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
4
Critical Accounting Estimates and Judgements in Applying
Accounting Policies (Continued)
economic conditions that correlate with defaults on assets in the group. The primary factor that the Group considers as objec-
tive 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 calculat-
ing the provision for impairment. This allows the Group to apply its most recent data to estimate losses on loans to individuals
as the latest trends are accounted for. The loan loss provision is calculated after adjustment for the expected future recovery
of impaired loans based on conservative sampling of historical data.
As at 31 December 2017 the positive effect of the above adjustment for expected recoveries from impaired loans on the total
provision for loan impairment is approximately RR 1,115 million (2016: RR 492 million). Such increase in the adjustment is
explained by the higher recoveries expected by the Group. To the extent that the incurred losses as at 31 December 2017
resulting from future cash flows vary by 1.0% (2016: 1.0%) from the calculated estimate, the profit would be approximately
RR 1,578 million (2016: RR 1,204 million) higher or lower.
Perpetual subordinated bonds. A perpetual subordinated bond issue in June 2017 was initially recognised in the amount
of USD 295.8 million (RR 16.9 billion) represented by the funds received from investors less issuance costs. Subsequent
measurement of this instrument is consistent with the accounting policy for debt securities in issue. Interest expense on the
instrument is calculated using the effective interest rate method and recognised in profit or loss for the year.
In the event that an interest payment on the instrument is cancelled, the reversal of accrued interest payable is made through
equity, as any cancelled interest payments are not liable to be paid in the future. Foreign exchange translation gains and losses
on the bond are recognised in profit or loss for the period. The Group has taken into consideration that there are genuine
contingent settlement provisions that could arise and as such has classified the perpetual subordinated bond instrument in its
entirety as a liability, rather than equity, on the basis of terms of issue which stipulate the possible redemption of the instru-
ment in several cases other than liquidation of the issuer. If the Group had recognized this instrument as equity, then interest
expense would only have been recognized when it was paid and not accrued as for a debt instrument.
The Group has invested in perpetual subordinated bonds issued by third parties. The Group has taken into consideration that
there are genuine contingent settlement provisions that could arise and as such has classified the investments in perpetual
subordinated bonds as investments in debt securities on the basis of terms of issue which stipulate the possible redemption
of the instrument in several cases other than liquidation of the issuer. The investments in the instruments were classified as
investments in securities available-for-sale. Investments in these instruments are carried at fair value. Interest income is
accrued using the effective interest method and recognised in profit or loss for the year.
Interest income recognition. Interest income is recognised using the effective interest method which incorporates significant
assumptions around loan expected lives as well as judgements of type of fees and costs that are included in interest income as
part of the effective interest method. Refer to Note 3.
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 36.
Tax legislation. Russian and Cypriot tax, currency and customs legislation are subject to varying interpretations. Refer to Note 34.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
5
Adoption of New or Revised Standards and Interpretations
6 New Accounting Pronouncements (Continued)
The following amended standards became effective for the Group from 1 January 2017, but did not have any material impact on
the Group:
The finally calculated impact upon adoption will be reported in the Group's consolidated condensed interim financial informa-
tion for the three months ended 31 March 2018.
• Recognition of Deferred Tax Assets for Unrealised Losses – Amendment to IAS 12 (issued on 19 January 2016 and effec-
tive for annual periods beginning on or after 1 January 2017).
• Amendments to IFRS 12 included in Annual Improvements to IFRSs 2014-2016 Cycle (issued on 8 December 2016 and
effective for annual periods beginning on or after 1 January 2017).
In accordance with the amendments to IAS 7 which became effective for the Group from 1 January 2017 the new disclosures are
presented in Note 30.
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 2018 or later, and which the Group has not early adopted.
IFRS 9 “Financial Instruments” (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 subsequently at
amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those
to be measured subsequently at fair value through profit or loss (FVPL).
• Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether
the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect,
it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement
that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as
FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives).
Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.
•
Investments in equity instruments are always measured at fair value. However, management can make an irrevocable elec-
tion 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 credit 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 in-
crease in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational
simplifications for lease and trade receivables.
• Hedge accounting requirements were amended to align accounting more closely with risk management. The standard
provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and
continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging.
Based on the available information and current implementation status the Management currently estimates that the impact on
1 January 2018 of adopting IFRS 9 will result in a decrease in equity attributable to shareholders' of the Company by approxi-
mately RR 9.7 billion.This impact primarily arises from an increase in provision for loan impairment on adoption of IFRS 9 less
the related deferred tax credit. The Group continues to refine and re-calibrate its models for the latest data as well as review
the implementation process which may change the actual impact upon adoption.
The analysis of the contractual cash flow characteristics is expected to result in acquired perpetual bonds previously classified
as investment securities available for sale (including those which were sold under sale and repurchase agreements) being
reclassified as FVTPL. There will be no impact on carrying value of these bonds as at 1 January 2018 from this reclassification.
The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to
change the nature and extent of the Group’s disclosures about its financial instruments particularly in the year of the adoption
of the new standard.
Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on 12 October 2017 and effective for
annual periods beginning on or after 1 January 2019)*. The amendments enable measurement at amortised cost of certain
loans and debt securities that can be prepaid at an amount below amortised cost, for example at fair value or at an amount
that includes a reasonable compensation payable to the borrower equal to present value of an effect of increase in market
interest rate over the remaining life of the instrument. In addition, the text added to the standard's basis for conclusion recon-
firms existing guidance in IFRS 9 that modifications or exchanges of certain financial liabilities measured at amortised cost that
do not result in the derecognition will result in an gain or loss in profit or loss. Reporting entities will thus in most cases not be
able to revise effective interest rate for the remaining life of the loan in order to avoid an impact on profit or loss upon a loan
modification. The Group is currently assessing the impact of the amendments on its financial statements and the impact is not
yet known.
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. The Group is currently assessing the impact of the
new standard on its financial statements and the impact is not yet known.
IFRS 17 "Insurance Contracts" (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January
2021). IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts
using existing practices. As a consequence, it was difficult for investors to compare and contrast the financial performance of
otherwise similar insurance companies. IFRS 17 is a single principle-based standard to account for all types of insurance con-
tracts, including reinsurance contracts that an insurer holds. The standard requires recognition and measurement of groups
of insurance contracts at: (i) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates
all of the available information about the fulfilment cash flows in a way that is consistent with observable market information;
plus (if this value is a liability) or minus (if this value is an asset) (ii) an amount representing the unearned profit in the group of
contracts (the contractual service margin). Insurers will be recognising the profit from a group of insurance contracts over the
period they provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss-mak-
ing, an entity will be recognising the loss immediately. The Group is currently assessing the impact of the new standard on its
financial statements and the impact is not yet known.
IFRIC 23 “Uncertainty over Income Tax Treatments” (issued on 7 June 2017 and effective for annual periods beginning on
or after 1 January 2019). IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects of
uncertainty. The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is
uncertainty over income tax treatments. An entity should determine whether to consider each uncertain tax treatment sepa-
rately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of
the uncertainty. An entity should assume that a taxation authority will examine amounts it has a right to examine and have full
knowledge of all related information when making those examinations.
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F-40
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
6 New Accounting Pronouncements (Continued)
If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the effect of uncer-
tainty will be reflected in determining the related taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax
rates, by using either the most likely amount or the expected value, depending on which method the entity expects to better
predict the resolution of the uncertainty. An entity will reflect the effect of a change in facts and circumstances or of new infor-
mation that affects the judgments or estimates required by the interpretation as a change in accounting estimate.
Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgment or esti-
mate include, but are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation
authority or the expiry of a taxation authority's right to examine or re-examine a tax treatment. The absence of agreement or
disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and circum-
stances or new information that affects the judgments and estimates required by the Interpretation. The Group is currently
assessing the impact of the new standard on its financial statements and the impact is not yet known.
The following other new pronouncements are not expected to have any material impact on the Group when adopted:
•
•
IFRS 14, Regulatory Deferral Accounts first time adopters (issued on 30 January 2014 and effective for annual periods
beginning on or after 1 January 2016)*.
IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or
after 1 January 2018).
• Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016 and effective for annual peri-
ods beginning on or after 1 January 2018).
• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS
28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the
IASB) *.
• Amendments to IFRS 2, Share-based Payment (issued on 20 June 2016 and effective for annual periods beginning on or
after 1 January 2018) *.
• Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4 (issued on 12 September
2016 and effective for annual periods beginning on or after 1 January 2018).
• Transfers of Investment Property – Amendments to IAS 40 (issued on 8 December 2016 and effective for annual periods
beginning on or after 1 January 2018) *.
• Annual Improvements to IFRSs 2014-2016 cycle — Amendments to IFRS 1 an IAS 28 (issued on 8 December 2016 and
effective for annual periods beginning on or after 1 January 2018).
• Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28 (issued on 12 October 2017 and effective
for annual periods beginnig on or after 1 January 2019)*.
•
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) *.
• Annual Improvements to IFRSs 2015-2017 cycle - amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 De-
cember 2017 and effective for annual periods beginning on or after 1 January 2019)*.
• Plan Amendment, Curtailment or Settlement - Amendments to IAS 19 (issued on 7 February 2018 and effective for annual
periods beginning on or after 1 January 2019)*.
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
31 December
2017
31 December
2016
2,941
11,201
856
377
7,051
867
256
301
26
6,178
986
-
8,164
328
2
513
Total Cash and Cash Equivalents
23,850
16,197
Cash on hand includes cash balances with ATMs and cash balances in transit.
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 6,607 million as at 31 December 2017 (31 December 2016:
RR 6,187 million).
Cash and cash equivalents are neither impaired nor past due. Refer to Note 37 for the disclosure of the fair value of cash
and cash equivalents. Interest rate, maturity and geographical risk concentration analysis of cash and cash equivalents are
disclosed in Note 32.
8 Loans and Advances to Customers
In millions of RR
Loans to individuals:
Credit card loans
Cash loans
Instalment loans
POS loans
Total loans and advances to customers before impairment
Less: Provision for loan impairment
Total loans and advances to customers
31 December
2017
31 December
2016
140,190
110,440
7,000
5,907
4,684
157,781
(17,536)
140,245
2,160
6,554
1,281
120,435
(17,523)
102,912
* Denotes standards, interpretations and amendments which have not yet been endorsed by the European Union.
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F-42
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
8 Loans and Advances to Customers (Continued)
Credit cards are issued to customers for cash withdrawals or payment for goods or services, within the range of limits estab-
lished 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
140-200 RR thousand
More than 200 RR thousand
Total cards
31 December
2017
31 December
2016
631,207
458,058
394,543
361,117
293,372
252,135
377,207
155,902
61,761
454,610
351,823
291,083
273,350
210,229
185,614
311,466
97,218
40,042
8 Loans and Advances to Customers (Continued)
The provision for impairment during the year ended 31 December 2017 presented in the table above differs from the amount
presented in the consolidated statement of profit or loss and other comprehensive income for the year due to RR 1,991 million,
recovery of amounts previously written off as uncollectible. The amount of the recovery received during the year was credited
directly to the provisions line in the consolidated statement of profit or loss and other comprehensive income.
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
Total provision for loan
impairment
As at 31
December 2015
Sales of
impaired loans
Amounts written-
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)
7,349
1,586
318
94
13,558
3,418
429
118
19,014
(1,037)
(9,801)
9,347
17,523
The provision for impairment during the year ended 31 December 2016 presented in the table above differs from the amount
presented in the consolidated statement of profit or loss and other comprehensive income for the year due to RR 961 million,
recovery of amounts previously written off as uncollectible. The amount of the recovery received during the year was credited
directly to the provisions line in the consolidated statement of profit or loss and other comprehensive income.
In 2017 the Group sold impaired loans to third parties (external debt collection agencies) with a gross amount of RR 500
million (2016: RR 1,057 million), and provision for impairment of RR 489 million (2016: RR 1,037 million). The difference be-
tween 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 26 million (2016: RR 48 million).
2,985,302
2,215,435
Analysis of loans by credit quality is as follows:
Table above only includes credit cards less than 180 days overdue.
Movements in the provision for loan impairment for the year ended 31 December 2017 are as follows:
In millions of RR
Loans to individuals:
Credit card loans
Instalment loans
Cash loans
POS loans
Total provision for
loan impairment
As at 31
December 2016
Sales of impaired
loans
Amounts written-off
during the period
Provision for
impairment during
the period
As at
31 December
2017
13,558
3,418
429
118
(418)
(39)
(7)
(25)
(7,108)
(1,858)
(108)
(55)
8,340
14,372
1,151
2,672
23
117
337
155
17,523
(489)
(9,129)
9,631
17,536
In millions of RR
Neither past due nor impaired:
31 December 2017
31 December 2016
Credit
card loans
Instalment
loans
Cash
loans
POS
loans
Credit
cardloans
Instalment
loans
Cash
loans
POS
loans
- new
3,824
- 1,595
1,234
3,370
-
1,144
191
Loans collectively assessed for impairment (gross):
- non-overdue
118,193
4,016
5,051 3,304
91,519
4,423
794
963
- 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
3,097
2,682
2,340
941
1,189
7,924
360
302
239
543
73
70
66
64
447
81
37
25
24
42
18
2,517
2,255
1,901
2,367
469
453
373
395
868
42
-
-
-
6,042
-
27
25
30
84
56
-
23
22
25
52
5
-
Less: Provision for loan impairment
(14,372)
(2,672)
(337)
(155)
(13,558)
(3,418)
(429)
(118)
Total loans
125,818
3,235 6,663 4,529
96,882
3,136
1,731
1,163
F-43
F-44
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
8 Loans and Advances to Customers (Continued)
Loans in category “new” represent loans provided to borrowers for which the date of the first payment did not occur before
the reporting date 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 out-
standing 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.
9
Investment Securities Available for Sale (Continued)
The movements in investment securities available for sale for the year ended 31 December 2017 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
Refer to Note 37 for the estimated fair value of loans and advances to customers.
Interest income accrued on investment securities available for sale (Note 21)
Interest rate, maturity and geographical risk concentration analysis of loans and advances to customers are disclosed in
Note 32. Information on related party balances is disclosed in Note 39.
9
Investment Securities Available for Sale
In millions of RR
Corporate bonds
Russian government bonds
Perpetual corporate bonds
Municipal bonds
31 December
2017
31 December
2016
48,328
13,904
5,070
4,374
31,333
1,252
-
701
Interest received
Reclassification from investment securities available for sale to Repurchase receivables
Foreign exchange loss on investment securities available for sale in foreign currency
Revaluation through other comprehensive income
Carrying amount at 31 December
The movements in investment securities available for sale for the year ended 31 December 2016 are as follows:
In millions of RR
Carrying amount at 1 January
Purchases
Total investment securities available for sale
71,676
33,286
Redemption of investment securities available for sale
Analysis by credit quality of debt securities outstanding at 31 December 2017 is as follows:
Corporate
bonds
Russian
government
bonds
Perpetual
corporate
bonds
Municipal
bonds
Total
In millions of RR
Neither past due nor impaired
BBB- to BBB+ rated
BB- to BB+ rated
B- to B+ rated
22,158
13,904
-
1,862
37,924
Revaluation through other comprehensive income
25,955
215
-
-
3,959
2,512
32,426
1,111
-
1,326
Carrying amount at 31 December
Disposal of investment securities available for sale
Interest income accrued on investment securities available for sale (Note 21)
Interest received
Reclassification from Repurchase receivables to investment securities available for sale
Foreign exchange loss on investment securities available for sale in foreign currency
2017
33,286
67,814
(12,882)
(16,728)
3,491
(3,434)
(798)
(399)
1,326
71,676
2016
15,936
62,644
(38,335)
(8,492)
2,379
(2,074)
2,344
(1,902)
786
33,286
Total neither past due nor impaired invest-
ment securities available for sale
48,328
13,904
5,070
4,374
71,676
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 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
Perpetual
corporate bonds
Municipal
bonds
Total
14,210
16,607
516
31,333
1,252
-
-
1,252
-
-
-
-
231
15,693
470
17,077
-
516
701
33,286
Interest rate, maturity and geographical risk concentration analysis of investment securities available for sale are disclosed in
Note 32.
F-45
F-46
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
10 Repurchase Receivables
Repurchase receivables represent securities sold under sale and repurchase agreements which the counterparty has the right,
by contract or custom, to sell or repledge. The sale and repurchase agreements are short-term and mature by 10 January
2018.
Analysis by credit quality of debt securities classified as repurchase receivables outstanding at 31 December 2017 is as
follows:
In millions of RR
Neither past due nor impaired
B- rated
Total neither past due nor impaired debt securities classified as repurchase receivables
No debt securities were sold under sale and repurchase agreements as at 31 December 2016.
Available-for-sale securities
Perpetual corporate bonds
798
798
Refer to Note 14 for the related liabilities. Interest rate, maturity and geographical risk concentration analysis of repurchase
receivables are disclosed in Note 32.
11 Guarantee Deposits with Payment Systems
Guarantee deposits with payment systems represent funds put aside by the Group. As at 31 December 2017 and 2016 a guar-
antee deposit in favour of MasterCard was put in Barclays Bank Plc London (A rated). As at 31 December 2017 a guarantee
deposit in favour of Visa was put in United Overseas Bank Ltd. Singapore (AA - rated). As at 31 December 2016 a guarantee
deposit in favour of Visa was put in Barclays Bank Plc London (A rated).
12 Tangible Fixed and Intangible Assets
In millions of RR
Building
Equipment
Leasehold
improvements
Vehicles
Total tangible
fixed assets
Intangible
assets,
including
goodwill
Cost
At 31 December 2015
Additions
Disposals
1,564
2,452
-
898
397
(10)
At 31 December 2016
4,016
1,285
Additions
Disposals
473
(5)
1,151
(16)
At 31 December 2017
4,484
2,420
543
7
(92)
458
289
-
747
39
-
-
39
2
-
41
3,044
2,856
(102)
2,184
664
-
5,798
2,848
1,915
1,720
(21)
(9)
7,692
4,559
Depreciation and amortisation
At 31 December 2015
Charge for the period
(Note 26)
Disposals
-
(594)
(381)
(17)
(992)
(765)
(10)
-
(157)
10
(79)
92
(6)
-
(252)
102
(263)
-
12 Tangible Fixed and Intangible Assets (Continued)
In millions of RR
Building
Equipment
Leasehold
improvements
Vehicles
Total tangible
fixed assets
Intangible
assets,
including
goodwill
At 31 December 2016
(10)
(741)
(368)
(23)
(1,142)
(1,028)
Charge for the period
(Note 26)
Disposals
(38)
-
(311)
10
(66)
-
(5)
-
(420)
(476)
10
1
At 31 December 2017
(48)
(1,042)
(434)
(28)
(1,552)
(1,503)
Net book value
At 31 December 2016
4,006
544
At 31 December 2017
4,436
1,378
90
313
16
13
4,656
6,140
1,820
3,056
Intangible assets in the amount of RR 395 million acquired during the year ended 31 December 2017 represent intangible
assets related to the acquisition of LLC “CloudPayments”, including technological platform for online payments processing,
online merchant portfolio, online cashbox platform and goodwill arising on acquisition. Refer to note 40.
Intangible assets in the amount of RR 333 million related to the software developments made by Tinkoff Software DC during
the year ended 31 December 2017.
Other intangible acquired during the year ended 31 December 2017 and 2016 mainly represent accounting software, retail
banking software, insurance software, licenses and development of software. Intangible assets also include the license for
insurance operations.
During 2017 the Group acquired more office building space for its own use for RR 473 million (2016: RR 1,932 million), VAT included.
13 Other Financial and Non-financial Assets
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
31 December
2017
31 December
2016
10,280
235
454
10,969
3,089
168
3,257
6,679
350
314
7,343
1,112
136
1,248
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.
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F-48
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
13 Other Financial and Non-financial Assets (Continued)
Prepaid expenses consist of prepayments for TV advertising, IT support, office rent and card issuing. Other financial assets are
not impaired and not past due. Refer to Note 37 for the disclosure of the fair value of other financial assets. The maturity and
geographical risk concentration analysis of amounts of other financial assets are disclosed in Note 32.
14 Due to Banks
In millions of RR
Sale and repurchase agreements with other banks
Note
10
Due to other banks
Total due to banks
31 December
2017
31 December
2016
591
4
595
-
489
489
Refer to Note 37 for the disclosure of the fair value of amounts due to banks.
15 Customer Accounts
In millions of RR
Individuals
- Current/demand accounts
- Term deposits
SME
- Current/demand accounts
Other legal entities
- Current/demand accounts
- Term deposits
Total Customer Accounts
Note
31 December
2017
31 December
2016
76,318
77,377
46,729
72,018
31
23,705
4,890
533
1,112
551
368
179,045
124,556
Refer to Note 37 for the disclosure of the fair value of customer accounts. Interest rate, maturity and geographical risk con-
centration analysis of customer accounts amounts are disclosed in Note 32. Information on related party balances is disclosed
in Note 39.
16 Debt Securities in Issue
In millions of RR
RR denominated bonds issued in April 2017
RR denominated bonds issued in June 2016
Date of maturity
22 April 2022
24 June 2021
Euro-Commercial Paper issued in December 2017
19 December 2018
Total Debt Securities in Issue
31 December
2017
31 December
2016
5,061
2,989
2,769
10,819
-
2,986
-
2,986
On 28 April 2017 the Bank issued RR denominated bonds with a nominal value of RR 5,000 million at 9.65% coupon rate
maturing on 22 April 2022.
On 30 June 2016 the Group issued RR denominated bonds with a nominal value of RR 3,000 million at 11.7% coupon rate
maturing on 24 June 2021.
On 20 December 2017 the Group issued USD denominated Euro-Commercial Paper (ECP) with a nominal value of USD 50 mil-
lion with a discount of 4% maturing on 19 December 2018.
All RR denominated bonds issued by the Bank are traded on OJSC Moscow Exchange. Refer to Note 37 for the disclosure of
the fair value of debt securities in issue. Interest rate analysis of debt securities in issue are disclosed in Note 32.
17 Subordinated Debt
As at 31 December 2017 the carrying value of the subordinated debt was RR 22,001 million (31 December 2016: RR 11,514
million).
On 15 June 2017 the Group issued perpetual subordinated loan participation notes with a nominal value of USD 300 million
with zero premium. The notes have no stated maturity. The Group has a right to repay the notes at its discretion starting from
15 September 2022 and they are repayable in case of certain events other than liquidation. The notes bear a fixed interest rate
of 9.25% p.a. payable quarterly starting from 15 September 2017. Interest payments may be cancelled by the Group at any
time.
On 6 December 2012 and 18 February 2013 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.
During the year ended 31 December 2017 the Bank repurchased USD 105 million outstanding principal amount at an average
purchase price 110.32% of the bonds nominal value. As at 31 December 2017 USD 84 million outstanding principal amount
remains in issue.
The net losses from repurchase of subordinated bonds in 2017 in the amount of RR 619 million are recognised in the consoli-
dated statement of profit or loss and other comprehensive income.
The claims of lenders against the Group in respect of the principal and interest on these bonds are subordinated to the claims
of other creditors in accordance with the legislation of the Russian Federation.
The perpetual subordinated loan participation notes and subordinated bonds are traded on the Global Exchange Market and
Main Securities Market of the Irish Stock Exchange, respectively. Interest rate, maturity and geographical risk concentration
analysis of subordinated debt are disclosed in Note 32. Refer to Note 37 for the disclosure of the fair value of financial instru-
ments.
F-49
F-50
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
18 Insurance Provisions
19 Other Financial and Non-financial Liabilities
In millions of RR
Insurance Provisions
Provision for unearned premiums
Loss provisions
Total Insurance Provisions
31 December
2017
31 December
2016
1,117
723
1,840
300
467
767
Movements in provision for unearned premiums for the year ended 31 December 2017 and 2016 are as follows:
In millions of RR
Provision for unearned premi-
ums as at 1 January
Change in provision, gross
Change in reinsurers’ share of
provision
Provision for unearned premi-
ums as at 31 December
2017
2016
Gross
provision
Reinsurer’s
share of
provision
Provision
net of
reinsurance
Gross
provision
Reinsurer’s
share of
provision
Provision
net of
reinsurance
300
817
-
1,117
-
-
(1)
(1)
300
817
169
131
(1)
-
1,116
300
-
-
-
-
169
131
-
300
Movements in loss provisions for the year ended 31 December 2017 and 2016 are as follows:
In millions of RR
Loss provisions as at 1 January 2016
Change in provision
Netting with deferred acquisition costs
Loss provisions as at 31 December 2016
Change in provision
Netting with deferred acquisition costs
Loss provisions as at 31 December 2017
OCP and
IBNR
285
83
-
368
150
-
518
URP
28
72
(60)
40
115
(72)
83
Provision for claims
handling expenses
Total loss
provisions
34
25
-
59
63
-
122
347
180
(60)
467
328
(72)
723
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
31 December
2017
31 December
2016
5,271
2,538
234
8,043
1,283
1,008
505
2,796
2,031
1,052
29
3,112
682
646
292
1,620
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 analysis of other financial liabilities are disclosed in Note 32. Refer
to Note 37 for disclosure of fair value of other financial liabilities.
20 Share Capital
In millions of RR except for the
number of shares
Number of
authorised
shares
Number of
outstanding
shares
Ordinary
shares
Share
premium
Treasury
shares
Total
At 1 January 2016
190,479,500 182,638,825
188
8,623
(328)
8,483
GDRs buy-back
GDRs and shares transferred
under MLTIP
-
-
-
-
-
-
-
-
(1,246)
(1,246)
101
101
At 31 December 2016
190,479,500 182,638,825
188
8,623
(1,473)
GDRs buy-back
GDRs and shares transferred
under MLTIP
-
-
-
-
-
-
-
-
(397)
7,338
(397)
283
283
F-51
F-52
At 31 December 2017
190,479,500 182,638,825 188
8,623
(1,587)
7,224
As at 31 December 2017 treasury shares represent GDRs of the Group repurchased from the market for the purposes of ML-
TIP (2016: for the purposes of MLTIP and ESOP). During the year ended 31 December 2017 the Group repurchased 602,148
GDRs at market price for RR 397 million (2016: 5,659,853 GDRs at amount of RR 1,246 million at market prices). Refer to
Note 39.
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 repurchased under MLTIP. Refer to Note 39.
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
20 Share Capital (Continued)
Earnings per share are calculated as follows:
In millions of RR
Profit for the year attributable to ordinary shareholders of the Company
2017
19,019
2016
11,011
Weighted average number of ordinary shares in issue used for basic earnings per
ordinary share calculation (thousands)
176,303
174,508
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)
182,140
107.88
104.42
178,937
63.10
61.54
2017
2016
52,885
1,083
793
711
3,491
510
68
42,677
559
514
896
2,379
577
42
59,541
47,644
Information on dividends is disclosed in Note 29.
21 Net margin
In millions of RR
Interest income
Loans and advances to customers, including:
Credit card loans
Cash loans
POS loans
Instalment loans
Investment securities available for sale and repurchase receivables
Placements with other banks
Other interest income
Total Interest Income
Interest expense
Customer accounts, including:
Individuals
SME
Other legal entities
Subordinated debt
RR denominated bonds
Due to banks
Euro-Commercial Paper
Total Interest Expense
Expenses on deposit insurance
Net margin
22 Fee and Commission Income and Expense
In millions of RR
2017
2016
Fee and commission income
Credit protection fee
SME current accounts commission
Merchant acquiring commission
Interchange fee
SMS fee
Foreign currency exchange transactions fee
Cash withdrawal fee
Card to card commission
Placement fee
Brokerage operations
Court fees reimbursement
Other fees receivable
4,211
3,003
2,416
1,683
1,341
992
606
555
167
87
-
470
3,603
150
1,256
898
898
483
225
269
112
-
232
275
Total fee and commission income
15,531
8,401
Credit protection fee income represents fee for providing credit insurance to borrowers of the Group. SME current accounts
commission represents commission for services to individual entrepreneurs and small to medium businesses. SMS fee income
includes fee for sms notification to borrowers of the Group which amounted to RR 1,027 million (2016: RR 730 million).
In millions of RR
Fee and commission expense
Payment systems
Service fees
Banking and other fees
Total fee and commission expense
2017
2016
4,766
726
126
5,618
2,537
450
55
3,042
9,618
10,784
Payment systems fees represent fees for MasterCard and Visa services. Service fees represent fees for statement printing,
mailing services and sms services.
421
65
2,022
682
13
3
12,824
641
46,076
48
64
1,952
180
487
123
13,638
450
33,556
23 Customer Acquisition Expense
In millions of RR
Marketing and advertising
Staff costs
Credit bureaux
Telecommunication expenses
Other acquisition
Total customer acquisition expenses
2017
5,096
3,968
358
244
53
9,719
2016
3,607
2,631
269
144
10
6,661
F-53
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
23 Customer Acquisition Expense (Continued)
Customer acquisition expenses represent expenses paid by the Group on services related to origination of 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 directly involved in customer acquisition. Included in staff costs are statutory social contributions
to the off-budget funds in the amount of RR 949 million (2016: RR 565 million).
24 Net Gains from Operations with Foreign Currencies
In millions of RR
2017
Net gains less losses from derivative revaluation
Foreign exchange translation losses less gains
Net (losses)/gains from trading in foreign currencies
Net (losses)/gains from operations with foreign currencies
25 Insurance Claims Incurred
In millions of RR
Claims paid
Change in loss provision
Claims handling expenses
Total insurance claims incurred
Staff and administrative expenses for insurance operations are included in Note 26.
(652)
501
(105)
(256)
2017
516
256
43
815
26 Administrative and Other Operating Expenses
In millions of RR
Note
2017
Staff costs
Taxes other than income tax
Amortization of intangible assets
Operating lease expense for premises and equipment
Information services
Depreciation of fixed assets
Communication services
Professional services
Stationery
Security expenses
Collection expenses
Other administrative expenses
12
12
11,430
1,779
476
441
441
420
324
212
187
134
63
299
2016
(2,347)
2,145
441
239
2016
347
120
23
490
2016
7,511
1,221
263
541
411
252
320
154
139
129
40
340
26 Administrative and Other Operating Expenses (Continued)
The total fees charged by the Company’s statutory auditor for the statutory audit of the annual consolidated and separate
financial statements of the Company for the year ended 31 December 2017 amounted to RR 2.1 million (2016: RR 2.2 mln).
The total fees charged by the Company’s statutory auditor for the year ended 31 December 2017 for other assurance services
amounted to RR 3.8 million (2016: RR 4.0 million), for tax advisory services amounted to RR 1.1 million (2016: RR 4.3 million)
and for other non-assurance services amounted to RR 1.7 million (2016: nil).
Included in staff costs are statutory social contributions to the off-budget funds and share-based remuneration:
In millions of RR
Statutory social contribution to the off-budget funds
Share-based remuneration
2017
1,721
1,037
The average number of employees employed by the Group during the reporting year was 15,391 (2016: 10,217).
27 Other Operating Income
In millions of RR
Income from marketing services
Subrogation fee
Income from online acquiring services
Other
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
2017
956
41
32
191
1,220
2017
5,479
483
5,962
2016
1,076
855
2016
503
47
-
108
658
2016
4,666
(1,113)
3,553
The income tax rate applicable to the majority of the Group’s income is 20% (2016: 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% (2016: 12.5%).
Total administrative and other operating expenses
16,206
11,321
F-55
F-56
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
28 Income Taxes (Continued)
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% (2016: 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:
- Differences between 20% and income tax rate adopted in jurisdiction of the
Company
Income tax expenses for the year
2017
24,985
4,997
370
549
-
46
5,962
2016
14,564
2,913
350
299
(49)
40
3,553
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 tem-
porary 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% (2016: 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.
28 Income Taxes (Continued)
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 and other temporary differences
Customer accounts
Debt securities in issue
Financial derivatives
Insurance provisions
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
Securities at fair value through profit or loss
Accrued expenses and other temporary differences
Customer accounts
Debt securities in issue
Financial derivatives
Insurance provisions
Tax loss carried forward
Net deferred tax liabilities
31 December
2016
(Charged)/credited to
profit or loss
Charged
to OCI
31 December
2017
318
(246)
(353)
(140)
(1)
226
(39)
(11)
(544)
5
(785)
(95)
(98)
41
24
1
(425)
9
(44)
109
(5)
-
-
-
223
(344)
(312)
(211)
(327)
-
-
-
-
-
-
-
(199)
(30)
(55)
(435)
-
(483)
(211)
(1,479)
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
-
-
-
318
(246)
(353)
(114)
(140)
-
-
-
-
-
-
-
(1)
226
(39)
(11)
(544)
5
-
(114)
(785)
F-57
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
29 Dividends
In millions of RR
Dividends payable at 1 January
Dividends declared during the year
Dividends paid during the year
Dividends paid under MLTIP after vesting date (31 March 2017)
Foreign exchange gain on dividends payable
Dividends payable at 31 December
Dividends per share declared during the year (in USD)
Dividends per share paid during the year (in USD)
2017
167
8,279
(7,970)
(29)
(70)
377
0.77
0.77
2016
-
4,506
(4,227)
-
(112)
167
0.38
0.38
On 19 November 2017 the Board of Directors of the Group declared a dividend of RR 13.12 (USD 0.22) per share/per GDR
amounting to RR 2,396 million (USD 40.2 million). At the same date a special interim dividend of of RR 10.73 (USD 0.18) per
share/per GDR amounting to RR 1,960 million (USD 32.9) million was declared.
On 28 August 2017 the Board of Directors of the Group declared a dividend of RR 11.83 (USD 0.20) per share/per GDR
amounting to RR 2,161 million (USD 36.5 million) paid during the three months ended 30 September 2017.
On 29 May 2017 the Board of Directors of the Group declared a dividend of RR 9.65 (USD 0.17) per share/per GDR amounting
to RR 1,762 million (USD 31.05 million) paid during the three months ended 30 June 2017.
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.
Dividends were declared and paid in USD throughout the years ended 2016 and 2017.
30 Net Debt Reconciliation
The table below sets out an analysis of the Group’s debt and the movements in the Group’s debt for each of the periods pre-
sented. The debt items are those that are reported as financing in the statement of cash flows.
In millions of RR
Net debt at 1 January 2016
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt at 31 December 2016
Cash flows
Foreign exchange adjustments
Other non-cash movements
Liabilities from financing activities
Other borrowed
funds
Perpetual
subordinated
bonds
Other
subordinated
debt
1,905
1,115
-
(34)
2,986
7,819
-
14
-
-
-
-
-
16,853
262
-
14,609
(742)
(2,353)
-
11,514
(6,623)
(106)
101
4,886
Total
16,514
373
(2,353)
(34)
14,500
18,049
156
115
32,820
Net debt at 31 December 2017
10,819
17,115
31 Segment Analysis
Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose op-
erating results are regularly reviewed by the chief operating decision maker (CODM) and for which discrete financial informa-
tion 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
Dividends payable at 31 December 2017 in the amount of RR 377 million are related to treasury shares acquired under MLTIP
and included in other non-financial liabilities (2016: RR 167 million).
The Group is organised on the basis of 3 main business segments:
• Retail banking – representing customer current accounts, savings, deposits, investment savings products, custody, credit
and debit cards, consumer loans and brokerage services to individuals.
• SME accounts services – representing customer current accounts, savings, deposits services to individual entrepreneurs
and small to medium businesses.
•
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.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
31 Segment Analysis (Continued)
31 Segment Analysis (Continued)
Information about reportable segment profit or loss, assets and liabilities
Segment reporting of the Group’s income and expenses for the year ended 31 December 2017 is set out below:
Segment reporting of the Group’s assets and liabilities as at 31 December 2017 is set out below:
In millions of RR
Retail
banking
SME accounts
services
Insurance
operations
Eliminations
Total
Cash and cash equivalents
16,741
6,067
1,850
(808)
23,850
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
1,675
256
140,245
2,424
53,974
798
301
Guarantee deposits with payment systems
3,660
Tangible fixed assets
Intangible assets
Other financial assets
Other non-financial assets
6,138
2,391
10,514
3,084
-
-
-
-
-
521
-
-
17,500
202
-
-
-
-
370
13
-
-
-
-
2
295
604
208
-
-
-
-
-
-
-
-
-
-
(162)
(35)
1,675
777
140,245
2,424
71,676
798
301
3,660
6,140
3,056
10,969
3,257
Total reportable segment assets
242,201
23,950
3,682
(1,005)
268,828
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
595
-
156,148
23,705
10,819
240
25
1,429
22,001
-
8,103
2,808
-
-
-
-
-
-
-
-
-
-
-
-
-
50
-
1,840
102
23
-
595
(808)
179,045
-
-
-
-
-
-
(162)
(35)
10,819
240
25
1,479
22,001
1,840
8,043
2,796
Total reportable segment liabilities
202,168
23,705
2,015
(1,005)
226,883
In millions of RR
2017
External revenues
Interest income
Fee and commission income
Net gains from investment securities
available for sale
Gain from sale of impaired loans
Insurance premiums earned
Other operating income
Total revenues
Interest expense
Expenses on deposit insurance
Provision for loan impairment
Fee and commission expense
Customer acquisition expense
Net losses from operations with foreign
currencies
Net losses from repurchase of subordinat-
ed loan
Insurance claims incurred
Administrative and other operating
expenses
Segment result
Retail
banking
SME accounts
services
Insurance
operations
Eliminations
Total
58,518
12,601
945
3,227
270
26
-
1,140
72,555
(12,441)
(612)
(7,640)
(5,192)
(7,770)
(251)
(619)
-
-
-
-
9
4,181
(421)
(29)
-
(426)
(1,588)
-
-
-
(14,718)
23,312
(879)
838
116
(38)
59,541
-
-
-
2,742
75
2,933
-
-
-
-
(297)
15,531
-
-
(7)
(4)
270
26
2,735
1,220
(346)
79,323
38
(12,824)
-
-
-
(641)
(7,640)
(5,618)
(665)
304
(9,719)
(5)
-
(815)
(613)
835
-
-
-
(256)
(619)
(815)
4
(16,206)
-
24,985
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
31 Segment Analysis (Continued)
31 Segment Analysis (Continued)
Segment reporting of the Group’s assets and liabilities as at 31 December 2016 is set out below:
Segment reporting of the Group’s income and expenses 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
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
Retail
banking
SME accounts
services
Insurance
operations
14,932
1,218
-
102,912
2,718
30,068
681
2,924
4,653
1,402
7,163
1,094
971
-
-
-
-
3,218
-
-
-
108
-
-
777
-
347
-
-
-
21
-
3
310
180
229
Eliminations
Total
(483)
16,197
-
-
-
-
1,218
347
102,912
2,718
-
33,286
-
-
-
-
-
702
2,924
4,656
1,820
7,343
(75)
1,248
Total reportable segment assets
169,765
4,297
1,867
(558)
175,371
In millions of RR
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
SME accounts
services
Insurance
operations
489
-
120,149
4,890
2,986
24
765
11,514
-
3,047
1,671
-
-
-
-
-
-
-
Eliminations
-
Total
489
(483)
124,556
-
-
-
-
-
-
2,986
24
785
11,514
767
3,112
(75)
1,620
(558) 145,853
-
-
-
-
20
-
767
65
24
876
Total reportable segment liabilities
140,645
4,890
In millions of RR
2016
External revenues
Interest income
Fee and commission income
Net gains from operations with foreign
currencies
Net gains from investment securities avail-
able for sale
Gain from sale of impaired loans
Insurance premiums earned
Other operating income
Total revenues
Interest expense
Expenses on deposit insurance
Provision for loan impairment
Fee and commission expense
Customer acquisition expense
Insurance claims incurred
Administrative and other operating
expenses
Segment result
Retail
banking
SME accounts
services
Insurance
operations
Eliminations
Total
47,439
8,494
110
160
239
214
48
-
658
57,092
(13,590)
(447)
(8,386)
(3,017)
(5,904)
-
(10,471)
15,277
-
-
-
-
-
270
(48)
(3)
-
(25)
(487)
-
(300)
(593)
95
-
47,644
-
-
-
-
1,348
-
(253)
8,401
-
-
-
-
-
239
214
48
1,348
658
1,443
(253)
58,552
-
-
-
-
(523)
(490)
(550)
(120)
-
-
-
-
(13,638)
(450)
(8,386)
(3,042)
253
(6,661)
-
-
-
(490)
(11,321)
14,564
Depreciation charges for the year ended 2017 included in administrative and other operating expenses in the amount of
RR 415 million and RR 2 million (2016: RR 247 million and RR 1 million) relate to the Bank and to the Insurance Company,
correspondingly. Amortisation for 2017 included in the administrative and other operating expenses in the amount of RR 403
million and RR 62 million (2016: RR 219 million and RR 44 million) relate to the Bank and to the Insurance Company, corre-
spondingly.
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
2017
79,669
(346)
2016
58,805
(253)
79,323
58,552
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
31 Segment Analysis (Continued)
Total consolidated revenues comprise interest income, fee and commission income, net gains from operations with foreign
currencies, net gains from investment securities available for sale, gain from sale of impaired loans, income from insurance
operations and other operating income.
32 Financial Risk Management (Continued)
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:
2017
24,985
24,985
2016
14,564
14,564
• Citizenship of the Russian Federation;
• Age 18 to 70 inclusive;
• Availability of a cell-phone;
• Permanent employment;
• Permanent income;
31 December 2017
31 December 2016
• Permanent or temporary place of residence.
269,833
(1,005)
268,828
175,929
(558)
175,371
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.
31 December 2017
31 December 2016
For POS loans minimum requirements are listed below:
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
227,888
(1,005)
226,883
146,411
(558)
145,853
32 Financial Risk Management
The risk management function within the Group is carried out in respect of financial risks, operational risks and legal risks by
the management of the Bank 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 opera-
tional 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 state-
ment of financial position and within contingencies and commitments (Note 34). The impact of possible netting of assets and
liabilities to reduce potential credit exposure is not significant.
• 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 provided (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 customer, his/her employ-
ment, social and property status, etc. This step may be omitted for POS loans.
• the third step includes requesting of the previous credit history of the applicant from the three largest credit bureau in
Russia – Equifax, UCB (United Credit Bureau) and NBCH (National Bureau of Credit Histories).
• based on all available information, the credit score of the applicant is calculated and a final decision is made about the
approval of the credit product.
• finally, the approved loan amount, loan term and tariff plan are calculated depending on the score and declared income.
When loans become unrecoverable or not economically viable to pursue further collection efforts, the Collection Department
may decide to sell these loans to a debt collection agency. The Collection Department considers the following criteria for im-
paired loans qualifying for sale to external debt collection agencies:
a) loans remain unpaid after all collection procedures were performed (no payment during last 4-6 months);
b) the debtor cannot be either reached or found for the previous 4 months;
c) the debtor has no assets and there is no expectation he/she will have any in the future;
d) the debtor has died and there is no known estate or guarantor;
e) it is determined that it is not cost effective to continue collection efforts.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
32 Financial Risk Management (Continued)
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 credit 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.
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 val-
ue 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 2017
At 31 December 2016
Non-
derivative
monetary
financial
assets
Non-
derivative
monetary
financial
liabilities Derivatives
Non-
derivative
monetary
financial
assets
Non-
derivative
monetary
financial
liabilities Derivatives
Net
position
Net
position
220,246
(174,842)
(10,200)
35,204
140,219
(113,892)
(2,766)
23,561
26,082
(40,046)
13,565
(399)
18,182
(23,081)
5,966
1,067
6,837
(5,851)
(1,186)
(200)
5,588
(5,264)
(484)
485
(487)
5
3
238
(887)
2
(160)
(647)
253,650
(221,226)
2,184
34,608
164,227
(143,124)
2,718
23,821
In millions
of RR
RR
USD
Euro
GBP
Total
32 Financial Risk Management (Continued)
Amounts disclosed in respect of derivatives represent the fair value, at the end of the reporting period, of the respective cur-
rency 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 36. 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% (2016: by 20%)
USD weakening by 20% (2016: by 20%)
Euro strengthening by 20% (2016: by 20%)
Euro weakening by 20% (2016: by 20%)
GBP strengthening by 20% (2016: by 20%)
GBP weakening by 20% (2016: by 20%)
At 31 December 2017
At 31 December 2016
Impact on profit
or loss
Impact on equity
(pre-tax)
Impact on profit
or loss
Impact on equity
(pre-tax)
(80)
80
(40)
40
1
(1)
(80)
80
(40)
40
1
(1)
213
(213)
(32)
32
(129)
129
213
(213)
(32)
32
(129)
129
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 2017
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
Total financial assets
72,944
89,477
24,809
20,370
48,474
256,074
Total financial liabilities
(115,982)
(44,828)
(28,355)
(7,040)
(25,261)
(221,466)
Net interest sensitivity gap at
31 December 2017
31 December 2016
(43,038)
44,649
(3,546)
13,330
23,213
34,608
Total financial assets
44,524
58,434
22,410
23,356
18,221
166,945
Total financial liabilities
(69,581)
(41,240)
(15,969)
(13,348)
(2,986)
(143,124)
Net interest sensitivity gap at
31 December 2016
(25,057)
17,194
6,441
10,008
15,235
23,821
Derivatives presented above are monetary financial assets or monetary financial liabilities, but are presented separately in
order to show the Group’s gross exposure.
The Group has no significant risk associated with variable interest rates on credit and advances provided to customers or loans
received.
F-67
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
32 Financial Risk Management (Continued)
At 31 December 2017, if interest rates at that date had been 200 basis points lower (2016: 200 points lower), with all other
variables held constant, profit for the year would have been RR 692 million (2016: RR 476 million) higher, mainly as a result of
lower interest expense on variable interest liabilities. Other components of equity would have been RR 692 million (2016: RR
476 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 (2016: 200 points higher), with all other variables held constant, profit
would have been RR 692 million (2016: RR 476 million) lower, mainly as a result of higher interest expense on variable interest
liabilities. Other components of equity would have been RR 692 million (2016: RR 476 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 2017
and 2016 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
2017
2016
RR
USD
EURO
GPB
RR
USD
EURO
GPB
0.0
0.0
0.0
Cash and cash equivalents
Loans and advances to customers
Due from banks
Investment Securities available for sale
0.0
45.5
6.1
8.3
-
1.3
4.7
Repurchase receivables
-
10.9
Liabilities
Due to banks
Customer accounts
Debt securities in issue
Subordinated debt
0.0
6.6
10.8
2.5
1.8
4.2
-
11.1
0.0
48.3
9.3
12.4
-
-
10.9
12.2
-
-
3.4
-
-
-
-
-
-
-
1.8
4.5
-
-
-
-
0.0
0.0
0.0
-
-
5.0
-
-
-
-
-
-
-
-
-
-
-
-
3.4
3.2
3.3
-
-
14.8
-
-
-
-
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 (2016: no material impact).
32 Financial Risk Management (Continued)
Geographical risk concentrations. The geographical concentration of the Group’s financial assets and liabilities at 31 Decem-
ber 2017 is set out below:
In millions of RR
Financial assets
Russia
OECD
Other
Non-OECD
Listed
Total
Cash and cash equivalents
22,617
1,233
Mandatory cash balances with the CBRF
Due from other banks
1,675
777
Loans and advances to customers
140,245
-
-
-
Financial derivatives
1,207
1,217
Investment securities available for sale
71,664
Repurchase receivables
Guarantee deposits with payment systems
Other financial assets
Total financial assets
Financial liabilities
Due to banks
Customer accounts
Debt securities in issue
Financial derivatives
Subordinated debt
Insurance provisions
Other financial liabilities
-
37
5,695
4
177,933
2,769
240
-
723
7,827
-
-
3,623
5,274
-
-
-
-
-
-
216
216
-
-
-
-
-
12
798
-
-
591
1,112
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,850
1,675
777
140,245
2,424
71,676
798
3,660
10,969
256,074
595
179,045
8,050
10,819
-
240
22,001
22,001
-
-
723
8,043
Total financial liabilities
189,496
1,703
30,051
221,466
Unused limits on credit card loans
(Note 34)
78,602
-
-
-
78,602
243,917
11,347
810
F-69
F-70
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
32 Financial Risk Management (Continued)
The geographical concentration of the Group’s financial assets and liabilities at 31 December 2016 is set out below:
Guarantee deposits with payment systems
-
2,924
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
Other financial assets
Total financial assets
Financial liabilities
Due to banks
Customer accounts
Debt securities in issue
Subordinated debt
Insurance provisions
Other financial liabilities
Total financial liabilities
Russia
OECD
Other
Non-OECD
Listed
Total
15,211
1,218
102,912
347
1,353
33,286
986
-
-
-
1,365
-
3,846
3,497
158,173
8,772
489
124,095
-
-
467
2,782
127,833
-
-
-
-
-
330
330
-
-
-
-
-
-
-
-
-
-
-
461
-
-
-
-
-
-
16,197
1,218
-
102,912
-
-
-
-
-
-
-
-
2,986
11,514
-
-
347
2,718
33,286
2,924
7,343
166,945
489
124,556
2,986
11,514
467
3,112
461
14,500
143,124
-
-
54,498
Unused limits on credit card loans (Note 34)
54,498
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 actu-
ally 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 signifi-
cant risk concentrations at 31 December 2017 and 2016.
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 over-
night 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.
32 Financial Risk Management (Continued)
The liquidity management of the Group requires consideration of the level of liquid assets necessary to settle obligations as
they fall due; maintaining access to a range of funding sources; maintaining funding contingency plans; and monitoring 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 2017 and 2016.
The CFO receives information about the liquidity profile of the financial assets and liabilities. This includes daily, weekly, month-
ly and quarterly updates on the level of credit card transactions and repayments, statistics on credit card issuance and credit
card limit utilisation, inflow and outflow of retail deposits, changes in the investment securities portfolio, level of expected out-
flows such as operating costs and financing activities. The CFO then ensures the availability of an adequate portfolio of short-
term liquid assets, made up of an amount on the correspondent account with the CBRF and overnight deposits with banks, to
ensure that sufficient liquidity is maintained within the Group as a whole. Regular liquidity stress testing under a variety of
scenarios covering both normal and more severe market conditions and credit card portfolio behavior is reviewed by the CFO.
The table below shows liabilities at 31 December 2017 by their remaining contractual maturity. The amounts of liabilities dis-
closed 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
Demand and
less than
1 month
From 1 to
3 months
From 3 to
6 months
From 6 to
12 months
More than
1 year
Total
595
-
-
-
-
595
Customer accounts
110,655
19,400
21,635
27,445
3,250
182,385
Debt securities in issue
Subordinated debt
Other financial liabilities
72
197
8,043
139
377
-
214
3,211
8,060
11,696
5,594
827
17,156
24,151
-
-
-
8,043
Financial derivatives
19
104
3,433
185
10,075
13,816
Unused limits on credit
card loans (Note 34)
Total potential future pay-
ments for financial obliga-
tions
78,602
-
-
-
-
78,602
198,183
20,020
30,876
31,668
38,541
319,288
F-71
F-72
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Demand and
less than
1 month
From 1 to
3 months
From 3 to
6 months
From 6 to
12 months
More than
1 year
Total
In millions of RR
Assets
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
32 Financial Risk Management (Continued)
The maturity analysis of financial liabilities at 31 December 2016 is as follows:
In millions of RR
Liabilities
Due to banks
489
-
-
-
-
489
Customer accounts
66,592
25,034
17,309
16,621
1,864
127,420
Debt securities in issue
Subordinated debt
Other financial liabilities
Financial derivatives
Unused limits on credit card
loans (Note 34)
Total potential future pay-
ments for financial obliga-
tions
29
-
3,112
19
54,498
57
-
-
17
-
175
802
-
34
-
175
802
-
70
3,175
3,611
12,259
13,863
-
3,112
3,378
3,518
-
-
54,498
124,739
25,108
18,320
17,668
20,676
206,511
Financial derivatives receivable and payable are disclosed in the Note 36. The tables above present only the gross payables.
Customer accounts are classified in the above analysis based on contractual maturities. However, in accordance with the Rus-
sian 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 manage-
ment 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
2017 is presented in the table below.
32 Financial Risk Management (Continued)
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
23,041
Mandatory cash balances with the CBRF
978
Due from other banks
-
809
63
-
-
80
-
-
204
401
-
23,850
350
376
1,675
777
Loans and advances to customers
33,420
44,846
34,588
22,041
5,350
140,245
Financial derivatives
-
Investment securities available for sale
71,676
Repurchase receivables
798
-
-
-
Guarantee deposits with payment
systems
872
1,170
Other financial assets
10,938
5
2,424
-
-
903
9
-
-
-
-
-
-
2,424
71,676
798
575
12
140
3,660
5
10,969
Total financial assets
141,723
46,893
38,004
23,233
6,221
256,074
Liabilities
Due to banks
595
-
-
-
-
595
Customer accounts
104,562
6,705
8,597
21,780
37,401
179,045
Debt securities in issue
Financial derivatives
Subordinated debt
Insurance provisions
Other financial liabilities
-
-
-
63
8,043
-
-
-
124
-
88
-
4,942
197
-
2,769
7,962
10,819
-
-
228
-
240
240
17,059
22,001
111
723
-
8,043
Total financial liabilities
113,263
6,829
13,824
24,777
62,773
221,466
Net liquidity gap at
31 December 2017
Cumulative liquidity gap at 31 De-
cember 2017
28,460
40,064
24,180
(1,544)
(56,552)
34,608
28,460
68,524
92,704
91,160
34,608
-
Provision for unearned premiums in the amount of RR 1,117 milllion is not included in the insurance provisions stated above.
Refer to Note 18.
F-73
F-74
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
32 Financial Risk Management (Continued)
The expected maturity analysis of financial instruments at carrying amounts as monitored by management based on the re-
vised approach at 31 December 2016 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
Cash and cash equivalents
Mandatory cash balances with the CBRF
Due from other banks
16,086
561
244
111
88
3
-
78
100
-
123
-
-
16,197
368
1,218
-
347
Loans and advances to customers
19,697
28,805
25,643
20,726
8,041
102,912
Financial derivatives
5
Investment securities available for sale
33,286
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
-
-
819
-
-
-
729
-
-
-
2,713
2,718
-
33,286
589
228
2,924
-
-
7,343
559
7,343
77,781
29,826
26,550
21,438
11,350
166,945
489
-
-
-
-
489
57,438
8,957
8,009
12,568
37,584
124,556
-
-
64
3,112
-
-
126
-
-
113
128
-
-
-
107
-
2,986
2,986
11,401
11,514
42
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 De-
cember 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.
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 match-
ing and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the manage-
ment of the Group.
32 Financial Risk Management (Continued)
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.
33 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 Insurance Company to comply with the capital requirements set by the the legis-
lation of the Russian Federation, (iii) for the Group to comply with the financial covenants set by the terms of securities issued;
(iv) to safeguard the Group’s ability to continue as a going concern.
The Group considers total capital under management to be equity attributable to shareholders of the Company as shown in
the consolidated statement of financial position. The amount of capital that the Group managed as of 31 December 2017 was
RR 41,743 million (2016: RR 29,518 million). Compliance with capital adequacy ratios set by the CBRF is monitored daily and
submitted to the CBRF monthly with reports outlining their calculation reviewed and signed by the Bank’s Chief Executive
Officer and Chief Accountant. Other objectives of capital management are evaluated annually.
The amount of regulatory capital of Tinkoff Bank calculated in accordance with the methodology set by CBRF as at 31 Decem-
ber 2017 was RR 59,640 million, and the equity capital adequacy ratio (N1.0) was 16.27% (2016: RR 27,639 million and
11.13%). Minimum required statutory equity capital adequacy ratio (N1.0) was 8% as at 31 December 2017 (2016: 8%).
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 (herein-
after “Basel III”). The amount of total capital calculated in accordance with the methodology set by Basel Committee with cap-
ital adjustments as set out in Basel III as at 31 December 2017 was RR 56,046 million (2016: RR 30,577 million), the amount
of Tier 1 capital as at 31 December 2017 was RR 55,802 million (2016: RR 27,698 million). Total capital adequacy ratio and
Tier 1 capital adequacy ratio were 21.10% and 21.00% respectively (2016: 16.34% and 14.81% respectively). The Group and
the Bank have complied with all externally imposed capital requirements throughout 2017 and 2016.
The Insurance Company has complied with all capital requirements set by the legislation of the Russian Federation throughout
2017 and 2016.
34 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 author-
ities 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.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
34 Contingencies and Commitments (Continued)
The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the
Organisation for Economic Cooperation and Development (OECD), although it has specific features. This legislation provides
for the possibility of additional tax assessment for controlled transactions (transactions between related parties and certain
transactions between unrelated parties), if such transactions are not on an arm's length.
Tax liabilities arising from controlled transactions are determined based on their actual transaction prices. It is possible, with
the evolution of the interpretation of transfer pricing rules, that such transfer prices could be challenged. The impact of any
such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall opera-
tions of the Group.
The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the as-
sumption 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 29.
As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpre-
tations 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 2017 no material tax risks were identified (2016: 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
2017
305
305
2016
374
374
Compliance with covenants. The Group is subject to certain covenants related primarily to its subordinated debt. Non-com-
pliance 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 2017 and 31 December 2016.
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 con-
tingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit related com-
mitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
34 Contingencies and Commitments (Continued)
Outstanding credit limits and related commitments are as follows:
In millions of RR
Unused limits on credit card loans
2017
78,602
2016
54,498
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 accord-
ance 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 may
decide to increase or decrease a credit card limit using a scoring model, which is based on the client's behavior model. 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 1,675 million (2016: RR 1,218 million) represent mandatory reserve deposits
which are not available to finance the Bank's day to day operations as disclosed in Note 3.
35 Transfers of Financial Assets
Transfers that did not qualify for derecognition of the financial asset in its entirety.
The Group transferred financial assets in transactions that did not qualify for derecognition in the current periods.
Sale and repurchase transactions. At 31 December 2017, the Group has available for sale securities represented by per-
petual corporate bonds of RR 798 million (2016: none) that are subject to obligation to repurchase the securities for a fixed
pre-determined price. Refer to Note 14 for the carrying value of obligations from these sale and repurchase transactions.
The following schedule summarises transfers where the entity continues to recognise all of the transferred financial assets.
The analysis is provided by class of financial assets.
In millions of RR
Repurchase receivables
Total
Notes
10,14
31 December 2017
Carrying amount
of the assets
Carrying amount of the
associated liabilities
798
798
591
591
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
36 Financial Derivatives
The table below sets out fair values, at the end of the reporting period, of currencies receivable or payable under foreign
exchange forwards and swap contracts entered into by the Group. The table reflects gross positions before the netting of any
counterparty positions (and payments) and covers the contracts with settlement dates after the end of the respective report-
ing period.
2017
2016
Contracts with
positive fair
value
Contracts with
negative fair
value
Contracts with
positive fair
value
Contracts with
negative fair
value
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 (+)
5,871
(25)
(3,285)
1,063
3
(1,203)
-
7,720
(1)
(7,979)
1
14
-
5
6,049
(118)
(3,116)
406
-
(503)
-
35
-
(56)
-
19
-
2
-
Investment securities available
for sale
Repurchase receivables
Total assets recurring fair
value measurements
LiabilitIes AT FAIR VALUE
Financial derivatives
Total liabilities recurring
fair value measurements
37 Fair Value of Financial Instruments (Continued)
(a) Recurring fair value measurements
Recurring fair value measurements are those that the accounting standards require or permit in the consolidated statement
of financial position at the end of each reporting period. The levels in the fair value hierarchy into which the recurring fair value
measurements are categorised are as follows:
In millions of RR
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31 December 2017
31 December 2016
Assets AT FAIR VALUE
Financial derivatives
-
2,424
-
2,424
-
2,718
-
-
-
2,718
33,286
-
71,676
798
-
-
-
-
71,676
33,286
798
-
-
-
72,474
2,424
- 74,898 33,286
2,718
- 36,004
-
-
240
240
-
-
240
240
-
-
-
-
-
-
-
-
Net fair value of foreign exchange forwards
and swaps
2,424
(240)
2,718
Included in financial derivatives held by the Group as at 31 December 2017 is one outstanding swap contract with positive fair
value of RR 1,217 million, which includes reference to the default of JSC VTB Bank, JSC Gazprom or the Russian Federation
(31 December 2016: RR 1,365 million). There are also one outstanding swap contract with total positive fair value of RR 1,207
million and two outstanding swaps contracts with total negative fair value of RR 240 million which include reference to the
default of the Bank (31 December 2016: one outstanding swap contract with positive fair value RR 1,348 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.
37 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 measure-
ment 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.
The description of valuation techniques and the description of the inputs used in the fair value measurement for level 2 meas-
urements at 31 December 2017 are as follows:
In millions of RR
Fair value
Valuation technique
Inputs used
Assets AT FAIR VALUE
Russian rouble curve.
USD Dollar Swaps Curve.
Discounted cash flows adjusted
for counterparty credit risk.
CDS quotes assessment of coun-
terparty credit risk or reference
entities.
Russian rouble curve.
USD Dollar Swaps Curve.
Discounted cash flows adjusted
for counterparty credit risk.
CDS quotes assessment of coun-
terparty credit risk or reference
entities.
Foreign exchange swaps and forwards 2,424
Total recurring fair value measure-
ments at level 2
2,424
Liabilities AT FAIR VALUE
Foreign exchange swaps and forwards 240
Total recurring fair value measure-
ments at level 2
240
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
37 Fair Value of Financial Instruments (Continued)
There were no changes in the valuation techniques for level 2 recurring fair value measurements during the year ended 31
December 2017 (2016: none). Level 2 derivatives comprise foreign exchange forwards and swaps.
The foreign exchange forwards have been fair valued using forward exchange rates that are quoted in an active market.
Foreign exchange swaps are fair valued using forward interest rates extracted from observable yield curves. The effects of
discounting are generally insignificant for level 2 derivatives.
37 Fair Value of Financial Instruments (Continued)
In millions of RR
-Term deposits
SME
31 December 2017
31 December 2016
Level 1
Level 2
Level 3
Carrying
value
Level 1 Level 2 Level 3
Carrying
value
-
79,694
-
77,377
-
74,904
-
72,018
(b) Assets and liabilities not measured at fair value but for which fair value is disclosed
-Current/demand accounts
-
23,705
-
23,705
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 2017
31 December 2016
FINANCIAL ASSETS CARRIED AT
AMORTISED COST
Cash and cash equivalents
- Cash on hand
2,941
-
-
2,941
26
-
-
11,201
-
11,201
-
9,708
-
9,708
-
-
-
-
-
-
-
1,675
777
-
-
1,675
777
- 140,245
140,245
-
3,660
3,660
10,280
235
454
-
-
-
10,280
235
454
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26
6,178
9,993
1,218
347
6,178
9,993
1,218
347
- 102,912
102,912
-
2,924
2,924
6,679
350
314
-
-
-
6,679
350
314
2,941
34,330 143,905
181,176
26 25,079 105,836
130,941
-
595
-
595
-
489
-
489
- 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
Individuals
Other legal entities
-Current/demand accounts
-Term deposits
Debt securities in issue
RR Bonds issued on domestic
market
-
533
1,223
8,213
-
Euro-Commercial Paper
-
2,769
Subordinated debt
Perpetual subordinated bonds
18,389
Subordinated bonds
5,115
-
-
Other financial liabilities
Settlement of operations with plastic
cards
Trade payables
Other financial liabilities
Total financial liabilities carried at
amortised cost
-
-
-
5,271
2,538
234
-
-
4,890
551
368
533
1,112
8,050
3,052
2,769
17,115
-
-
4,886
13,695
-
-
-
-
5,271
2,538
234
-
-
-
2,031
1,052
29
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,890
551
368
2,986
-
-
11,514
2,031
1,052
29
142,657
31,717 192,880
- 220,503
16,747 131,043
-
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 (2016: OJSC Moscow
Exchange MICEX-RTS and Irish Stock Exchange)
-Current/demand accounts
-
76,318
-
76,318
- 46,729
-
46,729
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
37 Fair Value of Financial Instruments (Continued)
Weighted average discount rates used in determining fair value as of 31 December 2017 and 2016 depend on currency:
In % p.a.
Assets
Cash and cash equivalents
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
2017
2016
0.0
5.6
45.5
5.8
10.9
2.5
5.3
8.0
6.7
0.0
9.3
48.3
10.3
-
0.0
7.7
10.1
5.2
38 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 ma-
turity 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 Decem-
ber 2017:
Loans and
receivables
Held for
trading
Assets
designated
at FVTPL
Available-
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
2,941
11,201
9,708
1,675
777
Loans and advances to customers
140,245
Financial derivatives
Guarantee deposits with payment systems
Investment securities available for sale
-
2,424
3,660
-
-
-
-
-
-
-
-
-
Total
2,941
11,201
9,708
1,675
777
140,245
2,424
3,660
-
-
-
-
-
-
-
-
71,676
71,676
-
-
-
-
-
-
-
-
-
38 Presentation of Financial Instruments by Measurement
Category (Continued)
In millions of RR
Repurchase receivables
Other financial assets
- Settlement of operations with plastic cards receivable
10,280
- Trade and other receivables
- Other financial assets
235
288
Loans and
receivables
Held for
trading
Assets
designated
at FVTPL
Available-
for-sale
assets
-
-
-
-
-
-
-
-
166
Total
798
798
-
-
-
10,280
235
454
TOTAL FINANCIAL ASSETS
181,010
2,424
166
72,474
256,074
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 Decem-
ber 2016:
Loans and
receivables
Held for
trading
Assets
designated
at FVTPL
Available-
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
26
6,178
9,993
1,218
347
Loans and advances to customers
102,912
Financial derivatives
-
2,718
Guarantee deposits with payment systems
2,924
Investment securities available for sale
Repurchase receivables
Other financial assets
-
-
- Settlement of operations with plastic cards receivable
6,679
- Trade and other receivables
- Other financial assets
350
150
-
-
-
-
-
-
TOTAL FINANCIAL ASSETS
130,777
2,718
Total
26
6,178
9,993
1,218
347
102,912
2,718
2,924
-
-
-
-
-
-
-
-
33,286
33,286
-
-
-
-
-
6,679
350
314
33,286
166,945
-
-
-
-
-
-
-
-
-
-
-
-
164
164
As of 31 December 2017 and 2016 all of the Group’s financial liabilities except derivatives were carried at amortised cost.
F-83
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
39 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 consid-
ering 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:
2017
2016
Key management
personnel
Other related
parties
Key management
personnel
Other related
parties
In millions of RR
ASSETS
Gross amounts of loans and advances to
customers (contractual interest rate: 32.07%
(2016: 24.7%))
Other financial assets
TOTAL ASSETS
LIABILITIES
21
-
21
-
-
-
20
-
20
938
-
367
-
132
132
459
-
-
Customer accounts (contractual interest rate:
3.1% p.a. (2016: 8.01% p.a.))
Debt securities in issue (discount: 4%)
Other non-financial liabilities
1,387
1,145
-
705
2,769
-
TOTAL LIABILITIES
EQUTY
Share-based payment reserve
2,092
3,914
1,305
459
- Management long-term incentive programme
TOTAL EQUITY
1,143
1,143
-
-
636
636
-
-
39 Related Party Transactions(Continued)
Customer acquisition expense represents a payment made under the sponsorship contract with the Tinkoff Cycling Team
(“Team”). The Team was owned by the Group’s ultimate controlling party. As at 31 December 2016 the sponsorship contract
expired.
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
Total
2017
2016
555
1,147
922
-
2,624
467
652
735
41
1,895
Management long-term incentive program. On 31 March 2016 the Group introduced a MLTIP as both a long-term incentive
and a retention tool for the management of the Group. The maximum share capital attributable to the plan on launch was 4.1%
of issued share capital at 31 March 2016.
On 8 February 2017 the Group granted shares to new participants in MLTIP and also granted additional shares to certain
existing participants which resulted in an increase in total shares granted under MLTIP to 5.27% of issued share capital of
the Group. For the purpose of the financial statements the grant date for newly added rewards is considered to be 8 February
2017, implementation date is by 31 March 2017.
The total number of GDRs attributable to the Management according to MLTIP is 9,628 thousand as at 31 December 2017 (31
December 2016: 7,504 thousand).
Participants cannot own or exercise their shareholder rights over GDRs within MLTIP directly. Participants are entitled to the
dividends, if any.
Other related parties in the tables above are represented by entities which are under control of the Group's ultimate con-
trolling party Oleg Tinkov.
The fair value as at recognition date of the equity-settled share-based payments (31 March 2016 and 8 February 2017) is
determined on the basis of a market quote.
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
2017
2016
Key management
personnel
Other related
parties
Key management
personnel
Other related
parties
4
(77)
-
-
-
(41)
-
(13)
3
(65)
-
-
33
(36)
(1,236)
120
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 until 2022 for participants joining in 2016 and 2023 for participants joining in 2017.
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. 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 was then 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 not participating in ESOP. 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 was then
transferred to Retained earnings.
In 2017 the total remuneration of Directors listed in the Management Report (included in key management personnel compen-
sation above) amounted to RR 16 million (2016: RR 18 million).
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Consolidated
Financial Statements (Continued)
40 Business Combinations
On 11 October 2017 the Group acquired a 46% shareholding in LLC “CloudPayments”, an innovative developer of online
payment solutions. Shortly after the Group also invested directly in the share capital of this company bringing its investment
to 55% of the share capital, and obtained control through its ability to cast a majority of votes in the general meeting of share-
holders. The acquired subsidiary will enable the Group to enhance its merchant acquiring business. The Group paid RR 290
million to acquire its 55% shareholding. The Group has the right to acquire the remaining 45% within two years from the date
of purchase.The consideration paid by the Group was based on results of the appraisal of the acquiree’s business taken as a
whole. In accordance with IFRS 3 “Business Combinations”, the Group must account for acquisitions based on fair values of the
identifiable tangible and intangible assets acquired, and liabilities and contingent liabilities assumed.
Details of a 100% share of the assets and liabilities acquired including goodwill arising on acquisition are as follows:
In millions of RR
Cash and cash equivalents
Intangible assets
Net current liabilities
Note
Attributed fair value
12
99
395
(6)
The acquired subsidiary contributed revenue of RR 32 million and profit of RR 4 million to the Group for the period from the
date of acquisition to 31 December 2017. If the acquisition had occurred on 1 January 2017, Group revenue for 2017 would
have been RR 96 million higher, and profit for 2017 would have been RR 12 million higher.
41 Events after the End of the Reporting Period
On 9 March 2018 the Board of Directors declared a regular interim dividend in line with the dividend policy of USD 0.31 per
share/per GDR with a total amount allocated for dividend payment of around USD 56.6 million.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Board of Directors
and other officers
Board of Directors
Constantinos Economides, Chairman
Alexios Ioannides
Mary Trimithiotou
Philippe Delpal
Jacques Der Megreditchian
Martin Robert Cocker
All served throughout the year ended 2017 and through to the date of these separate financial statements.
The Company’s Articles of Association include regulations for the retirement by rotation of Directors at each annual general
meeting. These regulations will operate in 2018 on the basis of the composition of the Board at the relevant date.
Company Secretary
Caelion Secretarial Limited
25 Spyrou Araouzou,
25 Berengaria, 5th floor,
3036, Limassol, Cyprus
Registered office
25 Spyrou Araouzou,
25 Berengaria, 5th floor,
3036, Limassol, Cyprus
31 DECEMBER 2017
TCS Group Holding PLC
International Financial Reporting Standards
Separate Financial Statements and
Independent Auditor’s Report
Contents
Board of Directors and other officers . . . . . . . . . . . . . . . . . . . . . . 90
16 Net Gains from Operations with Foreign Currencies . . . . . 127
Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
17 Administrative and Other Operating Expenses . . . . . . . . . 127
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
18 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
SEPARATE FINANCIAL STATEMENTS
20 Net Debt Reconciliation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129
Separate Statement of Financial Position . . . . . . . . . . . . . . . . . .105
21 Financial Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .129
19 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128
Separate Statement of Profit or Loss and
Other Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
Separate Statement of Changes in Equity . . . . . . . . . . . . . . . . . 107
Separate Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . .108
22 Contingencies and Commitments . . . . . . . . . . . . . . . . . . . . . . 133
23 Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . .134
24 Financial Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134
25 Fair Value of Financial Instruments . . . . . . . . . . . . . . . . . . . . 135
26 Presentation of Financial Instruments by Measurement
NOTES TO THE SEPARATE FINANCIAL STATEMENTS
Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140
1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
27 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
2 Operating Environment of the Company . . . . . . . . . . . . . . . . .111
28 Events after the End of the Reporting Period . . . . . . . . . . . 142
3 Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . .111
4
5
Critical Accounting Estimates and Judgements in Applying
Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Adoption of New or Revised Standards and Interpretations
and New Accounting Pronouncements . . . . . . . . . . . . . . . . . 118
6 New Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . 119
7 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
8 Loans and Deposit Placement with Related Parties . . . . . 121
9
Investment Securities Available for Sale . . . . . . . . . . . . . . . 122
10 Repurchase Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
11 Loans Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
12 Debt Securities in Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
13 Other Financial and Non-financial Liabilities . . . . . . . . . . . . 125
14 Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
15 Interest Income and Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 126
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Management
Report
1. The Board of Directors presents its report together with
the audited separate financial statements of TCS Group
Holding PLC (the “Company”) for the year ended 31 De-
cember 2017.
Principal activities and nature of
operations of the Company
2. The principal activities of the Company are holding of
investments in Russian Federation subsidiary compa-
nies and offering call centre services to customers and
potential customers in Russian Federation subsequent
to the launch of Cyprus based home call centre. The main
subsidiaries are JSC “Tinkoff Bank” (the “Bank”), and
JSC “Tinkoff Insurance” (the “Insurance company”) (the
Company and its subsidiaries collectively the “Group”).
3. The Bank specialises in retail banking for individuals and
small and medium-sized enterprises (SME) accounts
and brokerage services. The Bank which is fully licensed
by the CBRF 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,
travelers’, financial risks and auto insurance. The founder
and controlling shareholder of the Company is Oleg
Tinkov.
4. During 2017 the Company acquired a shareholding in
LLC “CloudPayments” (“CloudPayments”), an innovative
developer of online payment solutions. Together with the
Company’s subsidiaries, CloudPayments will further de-
velop its leading technology and servicing platforms. The
acquisition will enable the Company and its subsidiaries
to enhance its merchant acquiring business line as part
of its growing SME offering.
7. 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 cus-
tomer acquisition channels are Internet and Mobile, but
it also uses Direct Sales Agents (DSA) and partnerships
(co-brands) to acquire new customers. These customer
acquisition models, combined with the Bank’s virtual net-
work, afford it a geographic reach across all of Russia’s
regions resulting in a highly diversified portfolio.
8. The key offerings of JSC “Tinkoff Insurance” are accident
insurance, travel insurance, property insurance and
voluntary insurance of vehicles (KASKO) and Obligatory
Motor Third Party Liability (OMTPL). The Insurance Com-
pany focuses on online sales.
9. The loss of the Company for the year ended 31 Decem-
ber 2017 was RR 310 million (profit for the year ended
31 December 2016: RR 5,130 million). On 31 December
2017 the total assets of the Company were RR 209,667
million (2016: RR 118,083 million) and the net assets
were RR 197,634 million (2016: RR 116,819 million). In
2017 the Company began investing in corporate bonds.
The fair value of the bonds amounted to RR 65 million
as at 31 December 2017 (2016: RR nil). Loans received
grew to RR 7,833 million (2016: RR 772 million) in order
to fund the Company’s operations. On 20 December
2017 the Company issued USD denominated Euro-Com-
mercial Paper (ECP) with a nominal value of USD 50 mil-
lion with a discount of 4% maturing on 19 December
2018. During 2017 the Company distributed dividends
in accordance with its dividend policy in amount of RR
8,279 million (2016: RR 4,506 million).
Environmental matters
5. During 2017 the Group established LLC “Tinkoff Mobile”,
10. As the Group and by extension the Company are
a mobile virtual network operator (“MVNO”), to provide
mobile services for both current Group’s customers and
others. The MVNO will have its own network code, num-
ber range and SIM cards which will be delivered across
Russia via Group’s courier network.
Review of developments, position
and performance of the Company’s
business and its subsidiaries
6.
In 2017 the Company initiated its own home call-centre
on Cyprus and plans to develop this business activity in
the future both in and outside the Russian Federation.
The Company was registered as an employer in Cyprus
with the ‘Employers’ Register of the Social Insurance
Services’ in Cyprus in 2017.
primarily online financial institutions, the management
of the Company believes none of Company’s business
relationships, products or services are likely to have any
significant actual or potential significant environmental
impacts and does not believe its operations are exposed
to any material environmental risks. The management,
in reaching this view, has taken into account the risk of
adverse impacts that may stem from the Group’s and
Company’s own activities as well as its business relation-
ships including its supply and subcontracting chains. This
belief is based on continuous scrutiny of the business.
Human resources
11. The Company and the Group whose the Company is
Non-Financial Information and
Diversity Statement
the holding entity has 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 ingre-
dient in the success of our organization. It’s also about
the workplace environment – having an open leader-
ship style where information can move freely – where
ideas are constantly channeled up, down and sideways
around the Company. We don’t have ‘a rule by committee’
approach. We utilize all types of forums to promote con-
tinual dialogue – using email, various online chat rooms,
flash meetings, as well as formalized meeting structures.
Anyone can talk to anyone and transparency is promoted.
The Company offers a clear far-reaching career path for
its employees, unique work environment and fair and a
transparent compensation.
12. Clear performance evaluation process and fair compen-
sation 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.
13. Prior to its IPO in 2013, the Company set up share based
long term incentive plans as retention and motivational
tools for key and senior managers of the Company’s
subsidiaries. In March 2016, the Company announced a
consolidated long-term management incentive and re-
tention plan, covering around 50 key, senior and middle
managers. In February 2017, the Company announced
the expansion of the plan. The number of participants in-
creased to over 80. Total size of the MLTIP pool amounts
to 5.6% of the Company’s current share capital. The plan
is designed to align more closely managers’ interests
with those of shareholders to grow the Company’s value.
The plan is awarded over four years with each such
annual award vesting linearly over the subsequent three
years. The Company believes that participation in its
share capital is an effective motivation and retention tool.
The new management 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 market-
place, the Bank and other companies of the Group have
hired a significant number of new managers to develop
and manage new business lines.
14. The Company will be publishing its first Non-Financial
Information and Diversity Statement of the Group includ-
ing the Company on the Group’s website, www.tinkoff.ru/
eng within six months after the balance sheet date.
Principal risks and uncertainties
15. The Company conducts its activities in Russia through
its subsidiaries; the Company’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
2016-2017.
16. The Company’s subsidiaries and the Company on its own
are subject to a number of principal risks which might ad-
versely impact its performance. The principal activities
of the Company through its subsidiaries are banking and
insurance operations and so it is within this area that the
principal risks occur. Management considers that those
principal risks are: financial risks, operational risks and
legal risks. Financial risk comprises market risks (includ-
ing currency risk, interest rate risk and other price risk),
credit risk and liquidity risk.
17. The Board has adopted a formal process to identify,
evaluate and manage principal risks and uncertainties
faced by the Company. The Company has established risk
management programmed that focuses on the unpre-
dictability of financial markets and seeks to minimize
potential adverse effects on the Company’s financial
performance. This is overseen by a dedicated Risk
Management function, which works directly with the
Board of Directors in this area. 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
minimize operational and legal risks of the Group and the
Company. Risk management strategy is established so as
to identify, assess, monitor and manage the risks arising
from Company’s and subsidiaries’ activities. These risks
as well as other risks and uncertainties, which affect the
Company and how these are managed, are presented in
Note 21 of the separate financial statements.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 24. Treasury shares are GDRs of TCS Group Holding Plc that
are held by the EBT, special purpose trust which has been
specifically created for the long-term incentive pro-
gramme for Management of the Company’s subsidiaries
(MLTIP) (see Note 27 for further information).
25. In 2017 the Company repurchased 602,148 GDRs
(2016: 5,659,853 GDRs) at market price for RR 397
million (2016: RR 1,246 million) representing 0.3%
(2016: 3.1%) of the issued share capital for the purpose
of the MLTIP.
26. During 2017 the Company transferred 1,351,406 GDRs
(2016: 3,626,664 GDRs) out of treasury shares upon
vesting under the MLTIP (2016: MLTIP and employee
share option plan) to revaluation reserve that is equiva-
lent of RR 283 million (2016: RR 101 million) represent-
ing 0.7% (2016: 2.0%) of the issued share capital.
Board of Directors
27. The members of the Board of Directors as of 31 Decem-
ber 2017 and at the date of this report are presented
above.
28. There were no significant changes in the assignment
of responsibilities and remuneration of the Board of
Directors.
Branches
29. The Company did not operate through any branches
during the period.
Independent auditor
30. The Independent Auditor, PricewaterhouseCoopers Lim-
ited, has 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.
Management
Report (Continued)
Future developments
18. Strategic objective for the Group and by extension to the
Company is to be a full service, online financial super-
market with a broad range of financial, insurance and
quasi-financial products, serving customers through a
high-tech online and mobile platform that offers premi-
um quality service and convenience. While maintaining
high growth rates, profitability and effective data-driven
risk management.
19. On 31 January 2018 the Agency for Housing Mort-
gage Lending (“AHML”) and Tinkoff Bank have signed
an agreement to set up a joint venture to offer mortgage
lending on a special electronic platform. The platform
was designed to enable online acquisition of mortgage
customers using Tinkoff Bank’s technology platform.
It will support automated mortgage approvals based
on AHML standards, execute loan documentation and
issue mortgage loans, enable online registration of prop-
erty transactions with the Federal Service for State Reg-
istration, Cadastre and Cartography, and can be integrat-
ed with the systems of other Russian mortgage lenders.
Results
20. The Company’s results for the year are set out on page
F-106 of the separate financial statements. Information
on distribution of profits is presented in Note 19 of the
separate financial statements.
Any important events for the
Company that have occurred after
the end of the financial year
21. Important events for the Company that have occurred
after the end of the financial year are presented in Note
28 of the separate financial statements.
Share capital
22. There were no changes in issued share capital in 2017,
except for on 22 November 2017 5,745,145 class B
shares were converted to class A shares.
Treasury shares
23. At 31 December 2017 the Company held 6,290,179
(2016: 7,039,437) of its own GDRs that is equivalent of
approximately RR 1,587 million (2016: RR 1,473 million)
representing 3.4% (2016: 3.9%) of the issued share
capital.
The longest serving director Mr Constantinos Economides
who became a director in 2008, and later took over the role
of Chairman of the Board of directors in June 2015. The
names of the people who served on the Board during 2017
are listed in the Introduction Note. The Company has estab-
lished 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 re-
view annually of its own performance, that of its committees
and of its individual directors. That review was carried out,
in-house, in relation to 2017, looking at overall performance
but focused mainly on late 2016 and 2017. All directors com-
pleted detailed questionnaires on the Board’s performance.
Analysis of the resultant feedback, which was discussed at
a meeting of the Board of Directors in early 2018 did not
show up any deficiencies in the performance of the Board, its
committees or individual directors of a nature that required
changes to be made.
Committees of the Board of directors
The Company has established two Committees of the Board
of directors: the Audit Committee and the Remuneration
Committee and their terms of reference are summarized be-
low. 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 and considers the appropriateness of addition-
al committees.
Committee composition
The Audit Committee is chaired by an independent non-exec-
utive 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 independ-
ent non-executive director Mr Jacques Der Megreditchian,
and has two other members both non-executive directors
one of whom is independent.
Corporate Governance
Statement
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 JPMorgan Chase Bank N.A.
as depositary representing one class A share, are listed
on the London Stock Exchange (LSE) 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 or the GDRs are not listed on the
Cyprus Stock Exchange, the Cypriot corporate governance
regime is not applicable for the Company and accordingly the
Company does not monitor its compliance 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 of ordinary shares,
Class B shares 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 description of the Articles of
Association, including the rights of shareholders, and the
Terms and Conditions of the GDRs can be found in the Com-
pany’s October 2013 Prospectus on the website at
www.tinkoff.ru/eng.
The Board of Directors
The role of the Board is to provide entrepreneurial leadership
to the Company within a framework of prudent and effective
controls which enables risk to be assessed and managed. The
Board sets the Company’s strategic objectives, ensures that
the necessary financial and human resources are in place for
the Company to meet its objectives and reviews manage-
ment’s performance. The Board also sets the Company’s val-
ues and standards and ensures that its obligations towards
the shareholders and other stakeholders are understood and
met.
The 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 2017. The
board of directors currently contains no Directors B.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Management
Report (Continued)
Audit Committee
The Audit Committee’s primary purpose and responsibility
is to assist the Board in its oversight responsibilities. In ex-
ecuting this role the Audit Committee monitors the integrity
of the financial statements of the Company prepared under
IFRS and any formal announcements relating to the Com-
pany’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 Company and monitors and assesses
the effectiveness of the Company’s internal financial con-
trols, 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, consti-
tution and terms of reference to ensure it is operating at
maximum effectiveness and to recommend any changes it
considers necessary for Board approval. The Audit Commit-
tee 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 Commit-
tee’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 Commit-
tee 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 Company. Two such meetings were held in
2017 with a further two at least in 2018 planned.
The Audit Committee has developed a risk matrix which
constantly evolves to reflect new risks, the perceived impact
of, and the Company’s appetite for, any given risk and the
measures taken to mitigate those risks. This matrix is run in
conjunction with the internal audit function.
In 2017 the Company’s subsidiaries reorganised its internal
audit function, to clarify the demarcation between its
internal audit and internal control (CBRF compliance and reg-
ulatory) functions while materially increasing the resources
overall within the internal audit team.
In addition a new post of chief information security officer
was created in 2017 and filled, with additional personnel
expert in cyber-security recruited to support the Company’s
ever-increasing efforts to stay ahead of trends and threats in
this sphere.
Remuneration Committee
The Remuneration Committee is responsible for determin-
ing and reviewing among other things the framework of
remuneration of the executive directors, senior management
and its overall cost and the Company’s remuneration policies.
The objective is to ensure that the executive management
of the Company are provided with appropriate incentives
to encourage enhanced performance and are in a fair and
responsible manner rewarded for their individual contri-
butions to the success of the Company. 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 Commit-
tee is required to meet at least twice a year but in practice
meets far more often.
The Remuneration Committee continued work into 2017 on
its ongoing review of the operation of the Company’s equity
based incentive and retention plan for key, senior and middle
management (MLTIP) which launched and in considering
additional awards to both existing and new participants 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 participat-
ing 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 earlier reviews had resulted in certain minor chang-
es 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, no
further changes were felt required in 2017 and 2018.
Significant direct/indirect holdings
For the significant direct and indirect shareholdings held in
the share capital of the Company, please refer to Note 1 of
the separate financial statements.
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 Share-
holders) entered into a shareholders’ agreement (the Share-
holders’ Agreement) to govern aspects of their relationship
after the IPO. The Shareholders’ Agreement provided that
the Minority Shareholders were entitled to nominate one di-
rector to the Board of directors of the Company. The Share-
holders’ Agreement also contained provisions that required
the Majority Shareholders to vote against certain matters
unless a majority of the Minority Shareholders approve of
such matters. These rights of the Minority Shareholders con-
tinue so long as they hold at least 10% of the issued share
capital of the Company. The Shareholders’ Agreement was
automatically terminated when the minority shareholders’
aggregate holdings fell below 10%.
Internal control and risk management
systems in relation to the financial
reporting process
Policies, procedures and controls exist around financial
reporting. Management is responsible for executing and
assessing the effectiveness of these controls.
Financial reporting process
The Board of Directors is responsible for the preparation of
the separate financial statements in accordance with Interna-
tional Financial Reporting Standards as adopted by the Euro-
pean Union and the requirements of the Cyprus Companies
Law, Cap.113, and for such internal control as the Board of
Directors determines is necessary to enable the preparation
of separate financial statements that are free from material
misstatement, whether due to fraud or error. In preparing
the separate financial statements, the Board of Directors is
responsible for assessing the Company’s ability to contin-
ue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis
of accounting unless the Board of Directors either intends
to liquidate the Company or to cease operations, or has no
realistic alternative but to do so.
The Board has delegated to the Audit Committee the respon-
sibility 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 Company’s financial reporting process.
Internal Controls and Risk
Management
Management is responsible for setting the principles in
relation to risk management. The risk management organ-
isation is divided between Policy Making Bodies and Policy
Implementation Bodies. Policy Making Bodies are responsi-
ble for establishing risk management policies and proce-
dures, including the establishment of limits. The main Policy
Making Bodies are the Board of Directors, the Management
Board, the Finance Committee, the Credit Committee and the
Business Development Committee.
In addition the Company has implemented an online analyt-
ical processing management system based on a common
SAS data warehouse that is updated on a daily basis. The set
of daily reports includes but is not limited to sales reports,
application processing reports, reports on the risk charac-
teristics 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, opera-
tional liquidity forecast reports and information on intra-day
cash flows.
Diversity policy
The Company is committed to offering equal opportunity to
all current and prospective employees, such that no appli-
cant or employee is discriminated in favour of or against on
the grounds of sex, racial or ethnic origin, religion or belief,
disability, age or sexual orientation in recruitment, training,
promotion or any other aspect of employment. Recruitment,
training and promotion are exclusively based on merit. All
the Company’s and the Group’s employees involved in the
recruitment and management of staff are responsible for
ensuring the policy is fairly applied within their areas of re-
sponsibility. The Company applies this approach throughout,
at all levels. This includes its administrative, management
and supervisory bodies, including the Board of Directors of
the Company.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Management
Report (Continued)
The composition and diversity information of the Board of Directors of the Company for the year ended and as at 31 December
2017 is set out below:
Name
Age
Male/Female
Educational/professional background
Constantinos Economides
Alexios Ioannides
Mary Trimithiotou
Philippe Delpal
Jacques Der Megreditchian
Martin Robert Cocker
42
41
39
44
58
58
Male
Male
Female
Male
Male
Male
FCA, MSc Management Sciences, experienced in Big 4
FCA, BsC Business Administration, experienced in Big 4
FCA, Licensed Insolvency practitioner
BSc in IT, banking executive experience in banking
Business Administration, stock exchange and finance
experience
BSc in Maths and Economics, ACA, experience in Big 4
Further details of the corporate governance regime of the Company can be found on the website:
https://www.tinkoff.ru/eng/investor-relations/corporate-governance/.
By Order of the Board
Constantinos Economides
Chairman of the Board
Limassol
21 March 2018
F-97
F-98
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 Separate Statement of Profit or Loss
and Other Comprehensive Income
In millions of RR
Interest income
Interest expense
Net interest expense
(Provision for)/release of loan impairment
Net interest (expense)/income after provision for loan impairment
Dividend income
Net gains from operations with foreign currencies
Administrative and other operating expenses
Gain on initial recognition of liabilities at rates below market
(Loss)/Profit before tax
Income tax expense
(Loss)/Profit for the year
Other comprehensive income/(loss):
Items that may be reclassified to profit or loss
Net gains from investment securities available for sale
Income tax (charge)/ recovery recorded directly in other comprehensive
income
Other comprehensive income for the year
Total comprehensive income for the year
Note
2017
2016
15
15
8
16
17
141
202
(277)
(263)
(136)
(52)
(188)
(61)
116
55
-
5,668
106
130
(500)
(438)
275
52
(307)
5,467
18
(3)
(337)
(310)
5,130
89,329 75,953
(565)
100
88,764 76,053
88,454 81,183
Separate Statement
of Financial Position
In millions of RR
Note
31 December 2017
31 December 2016
ASSETS
Cash and cash equivalents
Loans and deposit placement with related parties
Financial derivatives
Investment securities available for sale
Repurchase receivables
TOTAL ASSETS
LIABILITIES
Loans received
Debt securities in issue
Current income tax liability
Deferred income tax liability
Other financial liabilities
Other non-financial liabilities
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Treasury shares
Share-based payment reserve
Accumulated losses
Revaluation reserve
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
7
8
24
9
10
11
12
13
13
14
14
14
27
Approved for issue and signed on behalf of the Board of Directors on 21 March 2018.
385
581
4
207,899
798
209,667
7,833
2,769
1
565
395
470
12,033
188
8,623
(1,587)
1,286
(8,593)
197,717
197,634
209,667
168
713
-
117,202
-
118,083
772
-
-
-
233
259
1,264
188
8,623
(1,473)
704
(4)
108,781
116,819
118,083
Constantinos Economides
Mary Trimithiotou
Director
Director
The notes set out on pages F-109 to F-142 form an integral part of these separate financial statements.
The notes set out on pages F-109 to F-142 form an integral part of these separate financial statements.
F-105
F-106
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
Separate Statement
of Changes in Equity
In millions of RR
Note
Share
capital
Share pre-
mium
Reva-
luation
reserve
Share-
based
pay-ment
Accu-
mulated
Treasu-ry
shares
losses
Total
Balance at 1 January 2016
188
8,623
32,060
614
(628)
(324)
40,533
Profit for the year
Other comprehensive income:
Income tax charge recorded directly
in other comprehensive income
Revaluation of Investment securi-
ties available for sale
Total comprehensive income for
2016
GDRs buy-back
Share-based payment reserve
Dividends
Total transactions with owners
14
27
19
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
75,953
76,053
-
-
-
-
-
-
668
90
5,130
-
-
5,130
-
-
-
-
5,130
100
75,953
81,183
-
-
(1,246)
(1,246)
97
855
-
-
(4,506)
-
(4,506)
668
90
(4,506)
(1,149)
(4,897)
Balance at 31 December 2016
188
8,623 108,781
704
(4)
(1,473) 116,819
Loss for the year
Other comprehensive income:
Revaluation of Investment securi-
ties available for sale and Repur-
chase receivables
Income tax charge recorded directly
in other comprehensive income
Total comprehensive income/
(loss) for 2017
GDRs buy-back
Share-based payment reserve
Dividends
Total transactions with owners
9
14
27
19
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
89,329
(565)
88,764
-
-
-
-
-
-
172
582
(310)
-
-
-
-
-
(310)
89,329
(565)
(310)
-
88,454
-
-
(397)
(397)
283
1,037
Separate Statement
of Cash Flows
In millions of RR
Cash flows from operating activities
Interest received
Interest paid
Administrative and other operating expenses paid
Income tax paid
Cash flows used in operating activities before changes in operating
assets and liabilities
Changes in operating assets and liabilities
Net decrease in loans and deposit placement with related parties
Net decrease in other non-financial liabilities
Net cash (used in)/from operating activities
Cash flows from investing activities
Acquisition of investments available for sale
Proceeds from sale and redemption of investments available for sale
Acquisition of shareholding in subsidiaries
Dividends received net of withholding taxes
Net cash (used in)/from investing activities
Cash flows from financing activities
GDR buy back
Repayment of debt securities in issue
Proceeds from debt securities in issue
Loans received
Dividends paid
Net cash from/(used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Note
2017
2016
116
(225)
(337)
(2)
209
(240)
(132)
(58)
(448)
(221)
102
(29)
1,670
-
(375)
2,081
(11,641)
10,800
(290)
-
(1,131)
(397)
-
2,819
7,301
(7,970)
1,753
(30)
217
168
385
-
-
-
5,385
5,385
(1,246)
(1,857)
-
632
(4,227)
(7,330)
28
164
4
168
9
9
9
14
12
12
20
19
7
7
Balance at 31 December 2017
188
8,623
197,717
1,286
(8,593)
(1,587) 197,634
Cash and cash equivalents at the end of the year
-
-
(8,279)
-
(8,279)
Net increase in cash and cash equivalents
172
582
(8,279)
(114)
(7,639)
Cash and cash equivalents at the beginning of the year
The notes set out on pages F-109 to F-142 form an integral part of these separate financial statements.
The notes set out on pages F-109 to F-142 form an integral part of these separate financial statements.
F-107
F-108
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements
1
Introduction
1
Introduction (Continued)
These separate financial statements have been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union for the year ended 31 December 2017 for TCS Group Holding PLC (the “Company”), and in
accordance with the requirements of the Cyprus Companies Law, Cap.113. The Company has also prepared and issued consoli-
dated financial statements for the year ended 31 December 2017.
The Company owns 100% of the shares and has 100% of the voting rights of its subsidiary JSC “Tinkoff Bank” (“the Bank”) at
31 December 2017 and 2016.
The Company owns 80.08% of shares of JSC “Tinkoff Insurance” (“the Insurance Company”) at 31 December 2017 and 2016.
The Company was incorporated, and is domiciled, in Cyprus in accordance with the provisions of the Companies Law, Cap.113.
The Company owns 100% of shares of LLC “Microfinance company “Т-Finans” at 31 December 2017 and 2016.
The Board of Directors of the Company at the date of authorisation of these separate financial statements consists of: Con-
stantinos 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, 5th floor, Limassol, Cyprus.
At 31 December 2017 and 2016 the share capital of the Company is comprised of “class A” shares and “class B” shares. A
“class A” share is an ordinary share with a nominal value of USD 0.04 per share and carrying one vote. A “class B” share is an
ordinary share with a nominal value of USD 0.04 per share and carrying 10 votes As at 31 December 2017 the number of
“class A” shares is 96,239,291 and “class B” shares is 86,399,534 (2016: “class A” shares is 90,494,146 and “class B” shares
is 92,144,679).
As at 31 December 2017 and 2016 the entities holding either Class A or Class B shares of the Company were:
Class of shares
31 December
2017
31 December
2016
Country of
Incorporation
Tadek Holding & Finance S.A.
Guaranty Nominees Limited
(JP Morgan Chase Bank NA)
Rousse Nominees Limited
Vostok Emerging Finance Ltd
Tasos Invest & Finance Inc.
Vizer Limited
Maitland Commercial Inc.
Norman Legal S.A.
Altruco Trustees Limited
Total
Class B
Class A
Class A
Class A
Class A
Class B
Class B
Class B
Class B
Class A
47.31%
0.00%
50.45%
-
British Virgin Islands
50.06%
41.45%
United Kingdom
0.99%
1.64%
0.00%
0.00%
0.00%
0.00%
2.88%
3.49%
Guernsey
Bermuda
0.00%
British Virgin Islands
0.00%
British Virgin Islands
0.00%
British Virgin Islands
0.00%
British Virgin Islands
100.00%
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.
As at 31 December 2017 and 2016 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. On 24 January 2018 Tadek Holding & Finance SA
has transferred its entire holding of B class shares (86,399,458 B class shares) to Altoville Holdings Limited, another legal en-
tity 100% beneficially owned by Mr Tinkov. As at 31 December 2017 and 2016 the ultimate controlling party of the Company
is Mr. Oleg Tinkov. Mr. Oleg Tinkov controls 89.98% of the aggregated voting rights attaching to the Class A and B shares as at
31 December 2017 (31 December 2016: 91.1%).
The Company owns 99% of shares of Goward Group Limited at 31 December 2017 and 2016.
The Company owns 100% of shares of LLC TCS via subsidiary Goward Group Limited at 31 December 2017 and 2016.
The Company owns 51% of shares of LLC “Phoenix” and 100% of shares of Tinkoff Software DC via the Bank at 31 December
2017 and 2016.
The Company owns 99% of shares of LLC “Тinkoff Mobile” via the Bank at 31 December 2017.
In October 2017 the Company acquired shareholding in LLC “CloudPayments”. At 31 December 2017 the Company owns 55%
of shares of LLC “CloudPayments”.
Principal activity. The Company’s principal business activities are holding investments in Russian subsidiary companies and
from launch in December 2017 offering Cyprus based home call center services to customers and potential customers outside
of Russia. The Bank has operated under general banking license № 2673 issued by the Central Bank of the Russian Federation
(“CBRF”) since 8 December 2006. The Insurance Company operates under 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 licence of a bank or
a CBRF-imposed moratorium on payments.
The subsidiary JSC “Tinkoff Insurance” provides insurance services.
The subsidiary LLC “Microfinance company “Т-Finans” provides micro-finance services to clients.
The subsidiary LLC “TCS” provides printing and distribution services to the Bank.
The subsidiary Goward Group Limited is an investment holding company which manages part of the Group’s assets.
The subsidiary LLC “CloudPayments” is a developer of online payment solutions which core business is online merchant ac-
quiring in Russia.
The subsidiary LLC “Phoenix” is a debt collection agency.
The subsidiary 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).
Registered address and place of business. The Company’s registered address is 25 Spyrou Araouzou, 25 Berengaria, 5th
floor, Limassol, Cyprus.
Presentation currency. These separate financial statements are presented in millions of Russian Rubles (RR).
-
1.73%
Cyprus
The subsidiary LLC “Tinkoff Mobile” is a mobile virtual network operator set up in 2017 to provide mobile services.
F-109
F-110
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
2 Operating Environment of the Company
Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particu-
larly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent
changes and varying interpretations (Note 22). The Russian economy was growing in 2017 after the economic recession of
2015, 2016 and the significant correction in the value of Russian Rouble against other major currencies at the end of 2014.
The economy is also impacted by relatively ongoing political tension in the region and international sanctions against various
major Russian companies and individuals. The financial markets continue to be volatile. This operating environment has a
significant impact on the Group’s operations and financial position. Management is taking necessary measures to maximize
the stability 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.
3 Significant Accounting Policies
Basis of preparation. These separate financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law
Cap.113.
As of the date of the authorisation of the separate financial statements, all International Financial Reporting Standards issued
by the International Accounting Standards Board (IASB) that are effective as of 1 January 2017 have been adopted by the EU
through the endorsement procedure established by the European Commission, with the exception of certain provisions of IAS
39 “Financial Instruments: Recognition and Measurement” relating to portfolio hedge accounting and IFRS14, “Regulatory
Deferral Accounts first time adopters”.
The Company has prepared these separate financial statements for compliance with the requirements of the Cyprus lncome
Тах Law. The Соmраnу has also prepared consolidated financial statements in accordance with lnternational Financial Report-
ing Standards as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law Cap. 113 for the
Company and its subsidiaries (“the Group”).
The consolidated financial statements саn bе obtained from 25 Spyrou Araouzou, 25 Berengaria, 5th floor, Limassol, Cyprus
and the website of the Company www.tinkoff.ru.
The separate financial statements have been prepared under the historical cost convention, as modified by the revaluation of
investments in subsidiaries carried at fair value. The principal accounting policies applied in the preparation of these sepa-
rate financial statements are set out below. These policies have been consistently applied to all the periods presented, unless
otherwise stated.
Management prepared these separate financial statements on a going concern basis.
Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair
value or amortised cost as described below.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The best evidence of fair value is 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 informa-
tion 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 suffi-
cient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price.
The price within the bid-ask spread that is most representative of fair value in the circumstances was used to measure fair
value, which management considers is the last trading price on the reporting date. The quoted market price used to value
financial assets is the current bid price; the quoted market price for financial liabilities is the current asking price.
3 Significant Accounting Policies (Continued)
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 Company: (a) manages the group of financial assets
and financial liabilities on the basis of the entity’s net exposure to a particular market risk (or risks) or to the credit risk of a
particular counterparty in accordance with the entity’s documented risk management or investment strategy; (b) it provides
information on that basis about the group of assets and liabilities to the entity’s key management personnel; and (c) the mar-
ket 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 considera-
tion 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 observ-
able market data (that is, the measurement requires significant unobservable inputs). Transfers between levels of the fair value
hierarchy are deemed to have occurred at the end of the reporting period. Refer to Note 25.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instru-
ment. 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 repay-
ments, 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 separate statement of financial position.
The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to
achieve a constant periodic rate of interest (effective interest rate) on the carrying amount.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit
losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of
the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next inter-
est repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the
instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole
expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract
that are an integral part of the effective interest rate.
Initial recognition of financial instruments. Derivatives are initially recorded at fair value. All other financial instruments are
initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price.
A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can
be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose
inputs include only data from observable markets.
F-111
F-112
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
All purchases and sales of financial assets that require delivery within the time frame established by regulation or market
convention (“regular way” purchases and sales) are recorded at trade date, which is the date on which the Company commits
to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions
of the instrument.
The Company uses discounted cash flow valuation techniques to determine the fair value of currency swaps 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 subse-
quently 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 Company derecognises financial assets when (a) the assets are redeemed or the rights
to cash flows from the assets otherwise expired or (b) the Company has transferred the rights to the cash flows from the finan-
cial 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 Company evaluates the quality of cash and cash equivalents in the separate 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.
Loans and deposit placement with related parties. Loans and deposit placement with related parties are recorded when the
Company advances money to purchase or originate an unquoted non-derivative receivable from related party due on fixed
or determinable dates and has no intention of trading the receivable. Loans and deposit placement with related parties are
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 Company determines that no objective evidence exists that impairment was in-
curred 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 Company
considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if
any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment
loss has occurred:
• any instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems;
• the borrower experiences a significant financial difficulty as evidenced by the borrower’s financial information that the
Company obtains;
• the borrower considers bankruptcy or a financial reorganisation;
• there is an adverse change in the payment status of the borrower as a result of changes in the national or local economic
conditions that impact the borrower;
• concession granted by the lender that would not have otherwise been given.
3 Significant Accounting Policies (Continued)
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 renego-
tiated asset is then derecognised and a new asset is recognised 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 expect-
ed 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 im-
pairment 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 Company sells impaired loans to third parties. Gains or losses on disposal of impaired loans are
recognised in the Statement of Profit or Loss in the period when sale occurred. Subsequent recoveries of amounts previously written off
are credited to the impairment loss account in profit or loss for the year.
Financial derivatives. Financial derivatives represented by forwards and foreign currency swaps are carried at their fair value. Deriv-
atives 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 Company does not apply hedge accounting.
Investment securities available for sale. This classification includes investment securities which the Company 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 Company’s right to receive pay-
ment 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 im-
paired, 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.
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.
F-113
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
The Company evaluates the quality of debt investment securities available for sale in the separate 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.
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 separate statement of financial position unless the transferee has the right by contract or custom
to sell or repledge the securities, in which case they are reclassified as repurchase receivables. The corresponding liability is presented
within amounts loans received.
Securities lent to counterparties for a fixed fee are retained in the separate financial statements in their original category in the separate
statement of financial position unless the counterparty has the right by contract or custom to sell or repledge the securities, in which case
they are reclassified and presented separately.
The Company evaluates the quality of repo agreements in the separate 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.
Investment in subsidiaries. Investments in subsidiaries are carried in accordance with IAS 39 as assets available for sale and are
carried at fair value. Dividends on these equity instruments are recognised in profit or loss for the year when the Company’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 oc-
curred after the initial recognition of investment. A significant or prolonged decline in the fair value of an equity security below its cost is
an indicator that it is impaired.
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.
Debt securities in issue. Debt securities are stated at amortised cost. If the Company purchases its own debt securities in issue, they
are removed from the separate statement of financial position and the difference between the carrying amount of the liability and the
consideration paid is included in interest expense.
Loans received. Loans received are non-derivative financial liabilities to corporate entities and are carried at amortised cost.
Other liabilities. Other liabilities are obligations to pay for goods or services that have been acquired in the ordinary course of business
from suppliers. Other liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
Income taxes. Income taxes have been provided for in the separate financial statements in accordance with Cyprus legislation enacted
or substantively enacted as of the end of reporting period. The income tax (charge)/credit comprises current tax and deferred tax and is
recognised in profit or loss for the year except if it is recognised in other comprehensive income or directly in equity because it relates to
transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the
current and prior periods. Taxes other than on income are recorded within administrative and other operating expenses.
3 Significant Accounting Policies (Continued)
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 trans-
action other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred
tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period which are expected to apply
to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets for deductible
temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be avail-
able against which the deductions can be utilised.
Deferred income tax is not recognised on post acquisition retained earnings and other post acquisition movements in reserves of subsidi-
aries where the Company controls the subsidiary’s dividend policy, and it is probable that the difference will not reverse through dividends
or otherwise in the foreseeable future. Provision for deferred tax on the undistributed profits of the Company’s subsidiaries is made when
the dividend payment is probable to be made out of economic resources of the subsidiaries at the balance sheet date and is recognised in
other comprehensive income. Withholding taxes incurred on actual dividend distributions by subsidiaries are recognised in profit or loss
once the right of dividend income is established.
Uncertain tax positions. The Company’s uncertain tax positions are assessed by management at the end of each reporting period.
Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes
being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that
have been enacted or substantively enacted at the end of reporting period and any known court or other rulings on such issues. Liabilities
for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required
to settle the obligations at the end of the reporting period.
Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount.
They are accrued when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation
can be made.
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.
Treasury shares. Where the Company purchases the Company’s equity instruments, the consideration paid, including any directly
attributable incremental external costs, net of income taxes, is deducted from equity attributable to the owners of the Company until the
equity instruments are reissued, disposed of or cancelled. Where such shares are subsequently disposed of or reissued, any considera-
tion received is included in equity. The value of GDRs transferred out of treasury shares for the purposes of the long-term incentive pro-
gramme for management of the Group are determined based on the weighted average cost. The Company’s equity instruments acquired
by employee share trust entity are treated as a treasury shares when the Company retains the majority of the risks and rewards relating
to the funding arrangement for the trust entity.
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. 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.
Share-based payments. The Company grants equity settled share based payments to employees of its subsidiary. No share-based
payment charge is recognised as no employees are providing services to the Company. The Company records a debit to the investment
in the subsidiaries as a capital contribution from the parent to the subsidiary and a credit to share-based payment reserve within equity.
When the rewards granted under share-based payment programs vest the Company reclassifies accumulated share based payment
reserve to revaluation reserve.
Dividends. Dividends are recorded in equity in the period in which they are declared. Any dividends declared after the end of the
reporting period and before the separate financial statements are authorised for issue, are disclosed in the subsequent events note. The
separate financial statements of the Company prepared in accordance with IFRS as adopted by the EU and in accordance with Cyprus
Companies Law are the basis of available reserves for distribution. Management considers the Revaluation Reserve to be a distributable
reserve.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
Income and expense recognition. Interest income and expense are recorded in the separate statement of profit or loss and
other comprehensive income for all debt instruments on an accrual basis using the effective interest method. This method
defers, as part of interest income or expense, all fees paid or received between the parties to the contract that are an integral
part of the effective interest rate, transaction costs and all other premiums or discounts.
Fees integral to the effective interest rate include origination fees received or paid by the entity relating to the creation or
acquisition of a financial asset or issuance of a financial liability, for example fees for evaluating creditworthiness, evaluating
and recording guarantees or collateral, negotiating the terms of the instrument and for processing transaction documents.
Commitment fees received by the Company to originate loans at market interest rates are integral to the effective interest rate
if it is probable that the Company will enter into a specific lending arrangement and does not expect to sell the resulting loan
shortly after origination.
All other fees, commissions and other income and expense items are generally recorded on an accrual basis by reference to
completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services
to be provided.
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.
Gain on initial recognition of liabilities at rates below market. Gain on initial recognition of liabilities at rates below market
represents the difference between transaction price of instrument received from subsidiary Bank at non market terms and its
fair value that is determined as present value of estimated future cash flows discounted at rates which are observable.
Foreign currency translation. The functional currency of the Company is the national currency of the Russian Federation,
Russian Rouble (“RR”), as, based on the principles of the International Accounting Standards IAS 21 “The Effects of Changes
in Foreign Exchange Rates”, this currency reflects the economic substance of the underlying events and circumstances of the
Company. The Russian Ruble is also the presentation currency of the Company.
At 31 December 2017 the rate of exchange used for translating foreign currency balances was USD 1 = RR 57.6002 (2016:
USD 1 = RR 60.6569), and the average rate of exchange was USD 1 = RR 58.3529 (2016: USD 1 = RR 67.0508).
Offsetting. Financial assets and liabilities are offset and the net amount is reported in the separate statement of financial posi-
tion 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.
Financial guarantees. Financial guarantees represent irrevocable assurances to make payments in the event that a customer
cannot meet its obligations to third parties, and carry the same credit risk as loans. Financial guarantees are initially recog-
nised 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 guarantee. At the end of each reporting period, the guarantees 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 guarantee at the end of each reporting period.
Amendments of the separate financial statements after issue. Any further changes to these separate financial statements
require approval of the Company’s Board of Directors who authorised these separate financial statements for issue.
4
Critical Accounting Estimates and Judgements in Applying
Accounting Policies
The Company makes estimates and assumptions that affect the amounts recognised in the separate financial statements and
the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluat-
ed 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 recog-
nised in the separate financial statements and estimates that can cause a significant adjustment to the carrying amount of
assets and liabilities within the next financial year include:
Investments in subsidiaries. The estimated fair value of investments in subsidiaries recognises that the majority of the value
of TCS Group Holding PLC resides in its main operating subsidiaries namely the Bank and the Insurance company. Thus in esti-
mating the fair value of the subsidiaries the primary input is the market quote of the Company’s GDRs which are traded on the
London Stock Exchange. Other inputs include the estimated fair value of the assets and liabilities held by the Company other
than its investment in the subsidiaries. Refer to Note 25.
Initial recognition of related party transactions. In the normal course of business the Company enters into transactions with
its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied
in determining if transactions are priced at market or non-market interest rates, where there is no active market for such
transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest
rate analysis. Terms and conditions of related party balances are disclosed in Note 27.
Determination of functional currency. The Company follows the guidance of IAS 21 “The Effects and Changes in Foreign
Exchange Rates” for the determination of the functional currency of the Company. The Company’s functional currency is RR.
Tax legislation. Cypriot and Russian tax, currency and customs legislation are subject to varying interpretations. Refer to
Note 22.
5
Adoption of New or Revised Standards and Interpretations
and New Accounting Pronouncements
The following amended standards became effective for the Company from 1 January 2017, but did not have any material
impact on the Company:
• Recognition of Deferred Tax Assets for Unrealised Losses – Amendment to IAS 12 (issued on 19 January 2016 and effec-
tive for annual periods beginning on or after 1 January 2017).
• Amendments to IFRS 12 included in Annual Improvements to IFRSs 2014-2016 Cycle (issued on 8 December 2016 and
effective for annual periods beginning on or after 1 January 2017).
In accordance with the amendments to IAS 7 which became effective for the Company from 1 January 2017 the new disclo-
sures are presented in Note 20.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
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 2018 or later, and which the Company has not early adopted.
IFRS 9 “Financial Instruments” (issued on 24 July 2014 and effective for annual periods beginning on or after 1 January
2018). Key features of the new standard are:
• Financial assets are required to be classified into three measurement categories: those to be measured subsequently at
amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those
to be measured subsequently at fair value through profit or loss (FVPL).
• Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether
the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect,
it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement
that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as
FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives).
Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.
•
Investments in equity instruments are always measured at fair value. However, management can make an irrevocable elec-
tion 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 credit 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 in-
crease in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational
simplifications for lease and trade receivables.
• Hedge accounting requirements were amended to align accounting more closely with risk management. The standard
provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and
continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging.
Based on an analysis of the Company’s financial assets and financial liabilities as at 31 December 2017 and on the basis of
the facts and circumstances that exist at that date, the Management of the Company does not expect significant impact from
implementation of this standard on equity of the Company.
The analysis of the contractual cash flow characteristics is expected to result in acquired perpetual bonds previously classified
as investment securities available for sale (including those which were sold under sale and repurchase agreements) being
reclassified as FVTPL. There will be no impact on carrying value of these bonds as at 1 January 2018 from this reclassification.
The Company used the option to classify investments in subsidiaries as FVOCI under IFRS 9.The new standard also introduces
expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the
Company’s disclosures about its financial instruments particularly in the year of the adoption of the new standard.
Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on 12 October 2017 and effective for
annual periods beginning on or after 1 January 2019)*. The amendments enable measurement at amortised cost of certain
loans and debt securities that can be prepaid at an amount below amortised cost, for example at fair value or at an amount
that includes a reasonable compensation payable to the borrower equal to present value of an effect of increase in market
interest rate over the remaining life of the instrument.
6 New Accounting Pronouncements (Continued)
In addition, the text added to the standard’s basis for conclusion reconfirms existing guidance in IFRS 9 that modifications or
exchanges of certain financial liabilities measured at amortised cost that do not result in the derecognition will result in an gain
or loss in profit or loss. Reporting entities will thus in most cases not be able to revise effective interest rate for the remaining
life of the loan in order to avoid an impact on profit or loss upon a loan modification. The Company is currently assessing the
impact of the amendments on its financial statements and the impact is not yet known.
IFRIC 23 “Uncertainty over Income Tax Treatments” (issued on 7 June 2017 and effective for annual periods beginning
on or after 1 January 2019). IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects
of uncertainty. The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there
is uncertainty over income tax treatments. An entity should determine whether to consider each uncertain tax treatment sep-
arately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution
of the uncertainty. An entity should assume that a taxation authority will examine amounts it has a right to examine and have
full knowledge of all related information when making those examinations. If an entity concludes it is not probable that the
taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related
taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or
the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. An entity
will reflect the effect of a change in facts and circumstances or of new information that affects the judgments or estimates
required by the interpretation as a change in accounting estimate.
Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgment or esti-
mate include, but are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation
authority or the expiry of a taxation authority’s right to examine or re-examine a tax treatment. The absence of agreement or
disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and circum-
stances or new information that affects the judgments and estimates required by the Interpretation. The Company is currently
assessing the impact of the new standard on its financial statements and the impact is not yet known.
The following other new pronouncements are not expected to have any material impact on the Company when adopted:
•
•
IFRS 14, Regulatory Deferral Accounts first time adopters (issued on 30 January 2014 and effective for annual periods
beginning on or after 1 January 2016)*.
IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or
after 1 January 2018).
•
IFRS 16 “Leases” (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019).
•
IFRS 17 “Insurance Contracts” (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January
2021).
• Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016 and effective for annual peri-
ods beginning on or after 1 January 2018).
• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS
28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the
IASB) *.
• Amendments to IFRS 2, Share-based Payment (issued on 20 June 2016 and effective for annual periods beginning on or
after 1 January 2018) *.
• Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts – Amendments to IFRS 4 (issued on 12 September
2016 and effective for annual periods beginning on or after 1 January 2018).
• Transfers of Investment Property – Amendments to IAS 40 (issued on 8 December 2016 and effective for annual periods
beginning on or after 1 January 2018) *.
• Annual Improvements to IFRSs 2014-2016 cycle – Amendments to IFRS 1 an IAS 28 (issued on 8 December 2016 and
effective for annual periods beginning on or after 1 January 2018).
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
6 New Accounting Pronouncements (Continued)
8 Loans and Deposit Placement with Related Parties (Continued)
• Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28 (issued on 12 October 2017 and effective
for annual periods beginning on or after 1 January 2019)*.
At 31 December 2017 the deposit placements with subsidiary Bank with a nominal value of RR 131 million at 13% per annum
maturing on 14 September 2019.
•
IFRIC 22 – Foreign Currency Transactions and Advance Consideration (issued on 8 December 2016 and effective for annu-
al periods beginning on or after 1 January 2018) *.
As at 31 December 2017 loans to subsidiary had a contractual maturity on 27 May 2018 and nominal interest rate of 0.1% p.a.
• Annual Improvements to IFRSs 2015-2017 cycle – amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 De-
Movements in the provision for loan impairment for the year ended 31 December 2017 are as follows:
cember 2017 and effective for annual periods beginning on or after 1 January 2019)*.
• Plan Amendment, Curtailment or Settlement – Amendments to IAS 19 (issued on 7 February 2018 and effective for annual
periods beginning on or after 1 January 2019)*.
Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Compa-
ny’s separate financial statements.
* Denotes standards, interpretations and amendments which have not yet been endorsed by the European Union.
7 Cash and Cash Equivalents
In millions of RR
2017
2016
Placements with other banks with original maturities of less than three months
- placements with UK Bank (A rated)
- placements with subsidiary Bank (B+ rated)
- placements with European bank (B rated)
- placements with Russian banks (B rated)
Total cash and cash equivalents
377
6
2
-
167
-
-
1
In millions of RR
Loans to subsidiary
Total provision for loan impairment
As at 31 December
2016
Provision for impairment
during the period
As at 31 December
2017
20
20
52
52
72
72
Movements in the provision for loan impairment for the year ended 31 December 2016 are as follows:
In millions of RR
Loans to subsidiary
Total provision for loan impairment
As at 31 December
2015
Recovery of impairment
during the period
As at 31 December
2016
136
136
(116)
(116)
20
20
Refer to Note 25 for the estimated fair value of each class of loans and deposit placement with related party. Interest rate
analysis of loans and deposit placements with related party is disclosed in Note 21. The information on related party balances
is disclosed in Note 27.
385
168
9
Investment Securities Available for Sale
Cash and cash equivalents are not impaired and not past due. Refer to Note 25 for the disclosure of the fair value of cash and
cash equivalents.
Interest rate, maturity and geographical risk concentration analysis of cash and cash equivalents is disclosed in Note 21. Infor-
mation on related party balances is disclosed in Note 27.
8 Loans and Deposit Placement with Related Parties
In millions of RR
Subordinated loans to subsidiary Bank (B+ rated)
Deposit placements with subsidiary Bank (B+ rated)
Loans to subsidiary
Total loans and deposit placement with related parties before impairment
Less: Provision for loan impairment
Total loans and deposit placement with related parties
2017
450
131
72
653
(72)
581
2016
452
9
272
733
(20)
713
On 29 May 2012 the Company issued RR denominated subordinated loan with a nominal value of RR 450 million at 14.4% per
annum maturing on 29 May 2022.
In millions of RR
Corporate bonds (B- to B+ rated)
Perpetual corporate bonds (B- to B+ rated)
Total debt securities
Investments in subsidiaries
Total investment securities available for sale
2017
2016
12
53
65
-
-
-
207,834
207,899
117,202
117,202
As at 31 December 2017 investment securities available for sale were neither past due nor impaired.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
9
Investment Securities Available for Sale (Continued)
9
Investment Securities Available for Sale (Continued)
The movements in debt investment securities available for sale for the period ended 31 December 2017 are as follows:
The movements in investments in subsidiaries 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 and Repurchase receivables (Note
15)
Interest received
Reclassification from investment securities available for sale to Repurchase receivables
Foreign exchange loss on investment securities available for sale in foreign currency
Revaluation through other comprehensive income
Carrying amount at 31 December
2017
-
11,641
(6,399)
(4,401)
36
(35)
(798)
(3)
24
65
In millions of RR
Carrying amount at 1 January
Revaluation of investment in subsidiaries
Share-based payment
Carrying amount at 31 December
2016
40,394
75,953
855
117,202
Interest rate, maturity and geographical risk concentration analysis of investment securities available for sale are disclosed in
Note 21. Refer to Note 25 for the disclosure of the fair value of investments securities available for sale.
10 Repurchase Receivables
Repurchase receivables represent securities sold under sale and repurchase agreements which the counterparty has the right,
by contract or custom, to sell or repledge. The sale and repurchase agreements are short-term and mature by 10 January
2018.
Investments in subsidiaries represent investments in the share capital of the Bank, Insurance company, and LLC “CloudPay-
ments”.
Analysis by credit quality of debt securities classified as repurchase receivables outstanding at 31 December 2017 is as
follows:
The Bank is registered in the Russian Federation and was purchased by the Company in November 2006 (Note 1). The Bank is
100% owned and controlled by the Company.
The Insurance Company is registered in the Russian Federation and was purchased by the Company in August 2013 (Note 1).
The Company owns 80.08% of share capital of the Insurance Company and controls it.
In October 2017 the Company acquired a 55% shareholding in LLC “CloudPayments” with cash consideration paid of RR 290
million (Note 1). The Company has the right to acquire the remaining 45% within two years from the date of purchase.
Investments in subsidiaries are stated at fair value at the end of each reporting period (Notes 4, 25).
Investments of the Company in LLC “TCS”, Goward Group Limited have zero fair value.
The movements in investments in subsidiaries for the period ended 31 December 2017 are as follows:
In millions of RR
Neither past due nor impaired
B- rated
Total neither past due nor impaired debt securities classified as repurchase
receivables
No debt securities were sold under sale and repurchase agreements as at 31 December 2016.
Available-for-sale securities
Perpetual corporate bonds
798
798
Refer to Note 11 for the related liabilities. Interest rate, maturity and geographical risk concentration analysis of repurchase
receivables are disclosed in Note 21.
In millions of RR
Carrying amount at 1 January
Acquisition of subsidiary
Revaluation of investment in subsidiaries
Share-based payment
Carrying amount at 31 December
2017
117,202
290
89,305
1,037
207,834
11 Loans Received
In millions of RR
Loans from subsidiary Bank
Loans from other companies
Loan from the subsidiary company
Total loans received
2017
6,424
839
570
7,833
2016
772
-
-
772
As at 31 December 2017 loans from subsidiary Bank had a contractual maturity from 26 April 2018 to 20 November 2020
and nominal interest rate from 6.5% to 7% (2016: a contractual maturity 26 April 2018 and nominal interest rate 7%).
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
11 Loans Received (Continued)
As at 31 December 2017 loans from other companies represent liabilities of RR 591 million from sale and repurchase agree-
ments with Renaissance Securities (Cyprus) Limited and loan from a corporate in the amount of RR 248 million, which has a
contractual maturity 20 December 2018 and nominal interest rate 4% (2016: none).
As at 31 December 2017 loan from the subsidiary company has a contractual maturity 15 March 2020 and nominal interest
rate 7% (2016: none).
Refer to Note 25 for the disclosure of the fair value of loans received. Interest rate, maturity and geographical risk concentra-
tion analyses of loans received is disclosed in Note 21. Information on related party balances is disclosed in Note 27.
12 Debt Securities in Issue
In millions of RR
Euro-Commercial Paper
Total debt securities in issue
2017
2,769
2,769
2016
-
-
On 20 December 2017 the Company issued USD denominated Euro-Commercial Paper (ECP) with a nominal value of
USD 50 million with a discount of 4% maturing on 19 December 2018.
13 Other Financial and Non-financial Liabilities
14 Share Capital
In millions of RR except for num-
ber of shares
Number of
authorised
shares
Number of
issued shares
Ordinary
shares
Share
premium
Treasury
shares
At 1 January 2016
190,479,500 182,638,825
188
8,623
(324)
Total
8,487
GDRs buy-back
GDRs and shares transferred
under MLTIP
-
-
-
-
-
-
-
-
At 31 December 2016
190,479,500 182,638,825
188
8,623
(1,473)
GDRs buy-back
GDRs and shares transferred
under MLTIP
-
-
-
-
-
-
-
-
(1,246)
(1,246)
97
(397)
97
7,338
(397)
283
283
At 31 December 2017
190,479,500 182,638,825
188
8,623
(1,587)
7,224
As at 31 December 2017 treasury shares represent GDRs of the Group repurchased from the market for the purposes of ML-
TIP (2016: for the purposes of MLTIP and ESOP).
During the year ended 31 December 2017 the Group repurchased 602,148 GDRs at market price for RR 397 million (2016:
5,659,853 GDRs at amount of RR 1,246 million at market prices). Refer to Note 27. Information on dividends is disclosed in
Note 19.
2017
2016
15 Interest Income and Expense
In millions of RR
Other Financial Liabilities
Enhanced exclusivity agreement payable
Accrued audit and accountancy fees
Total Other Financial Liabilities
Other Non-financial Liabilities
Dividends payable under GDRs repurchased for MLTIP purposes
Other provision
Total Other Non-financial Liabilities
380
15
395
377
93
470
220
13
233
167
92
259
The enhanced exclusivity agreement payable represents amounts due to the beneficiary shareholder under a Relationship
Agreement dated 22 October 2013.
In millions of RR
Interest income
Loans and deposit placement with related parties, including:
Subordinated loans to subsidiary Bank
Loan to subsidiary
Deposit placement with subsidiary Bank
Loan to other related party
Investment securities available for sale and Repurchase receivables
Total interest income
Interest expense
Loans from subsidiary Bank
Loans from subsidiary company
Euro-Commercial Papers
Other loans received
Total interest expense
Net interest expense
2017
2016
65
24
9
7
36
141
243
30
3
1
277
(136)
65
14
123
-
-
202
140
-
123
-
263
(61)
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
16 Net Gains from Operations with Foreign Currencies
18 Income Taxes (Continued)
In millions of RR
Foreign exchange revaluation gains less losses
Net gains from trading in foreign currencies
Net gains less losses from derivative revaluation
Total gains from operations with foreign currencies
17 Administrative and Other Operating Expenses
In millions of RR
Enhanced exclusivity agreement expense
Note
13
Legal and consulting fees
Audit and accountancy fees
Taxes other than income tax
Other provision
Other administrative expenses
2017
56
46
4
106
2017
380
77
25
15
-
3
2016
36
94
-
130
2016
257
72
23
3
81
2
Total administrative and other operating expenses
500
438
The total fees charged by the Company’s statutory auditor for the statutory audit of the annual consolidated and separate
financial statements of the Company for the year ended 31 December 2017 amounted to RR 2.1 million (2016: RR 2.2 million).
The total fees charged by the Company’s statutory auditor for the year ended 31 December 2017 for other assurance services
amounted to RR 3.8 million (2016: RR 4.0 million), for tax advisory services amounted to RR 1.1 million (2016: RR 4.3 million)
and for other non-assurance services amounted to RR 1.7 million (2016: nil).
18 Income Taxes
Income tax expense comprises the following:
In millions of RR
Corporation tax
Overseas tax withheld at source
Income tax expense for the year
2017
3
-
3
2016
54
283
337
The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the applicable tax rates
as follows:
In millions of RR
(Loss)/ Profit before income tax
Theoretical tax credit/(charge) at statutory rate of 12.5% (2016: 12.5%)
Tax effect of expenses not deductible for tax purposes
Underprovision of tax for prior year
Tax effect of allowances and income not subject to tax
Overseas tax withheld at source
Income tax expense for the year
2017
(307)
38
(41)
-
-
-
(3)
2016
5,467
(683)
(32)
(48)
709
(283)
(337)
Gains on disposal of qualifying titles (including shares, bonds, debentures, rights thereon etc.) are exempt from Cyprus income
tax. At 31 December 2017 and 2016 the Company had no tax losses carried forward.
19 Dividends
In millions of RR
Dividends payable at 1 January
Dividends declared during the year
Dividends paid during the year
Dividends paid under MLTIP after vesting date (31 March 2017)
Foreign exchange gain on dividends payable
Dividends payable at 31 December
Dividends per share declared during the year (in USD)
Dividends per share paid during the year (in USD)
2017
167
8,279
(7,970)
(29)
(70)
377
0.77
0.77
2016
-
4,506
(4,227)
-
(112)
167
0.38
0.38
On 19 November 2017 the Board of Directors declared a dividend of RR 13.12 (USD 0.22) per share/per GDR amounting to
RR 2,396 million (USD 40.2 million). At the same date a special interim dividend of RR 10.73 (USD 0.18) per share/per GDR
amounting to RR 1,960 million (USD 32.9) million was declared.
On 28 August 2017 the Board of Directors declared a dividend of RR 11.83 (USD 0.20) per share/per GDR amounting to RR
2,161 million (USD 36.5 million) paid during the three months ended 30 September 2017.
On 29 May 2017 the Board of Directors declared a dividend of RR 9.65 (USD 0.17) per share/per GDR amounting to RR 1,762
million (USD 31.05 million) paid during the three months ended 30 June 2017.
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.
Dividends were declared and paid in USD throughout the years ended 2016 and 2017. Dividends payable at 31 December
2017 in the amount of RR 377 million are related to treasury shares acquired under MLTIP and included in other non-financial
liabilities (2016: RR 167 million).
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
20 Net Debt Reconciliation
The table below sets out an analysis of the Company’s debt and the movements in the Company’s debt for each of the periods
presented. The debt items are those that are reported as financing in the statement of cash flows.
Liabilities from financing activities
In millions of RR
Debt securities in issue
Loans received
Net debt at 1 January 2016
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt at 31 December 2016
1,877
(1,857)
(20)
-
-
195
632
-
(55)
772
Total
2,072
-
(1,225)
(20)
(55)
772
In millions of RR
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt at 31 December 2017
Debt securities in issue
Loans received
2,819
(50)
-
2,769
7,301
(9)
(231)
7,833
Total
10,120
(59)
(231)
10,602
Liabilities from financing activities
21 Financial Risk Management
The risk management function within the Company is carried out in respect of financial risks (credit, market, currency, liquidity
and interest rate), operational risks and legal risks. The primary objectives of the financial risk management function are to es-
tablish risk limits, and then ensure that exposure to risks stays within these limits. The operational and legal risk management
functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.
Credit risk. The Company takes on exposure to credit risk which is the risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the repur-
chase receivables, cash and cash equivalents and Company’s lending and other transactions with counterparties giving rise to
financial assets.
The Company’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the separate
statement of financial position. The impact of possible netting of assets and liabilities to reduce potential credit exposure is
not significant. The credit risk is controlled by management of the Company, by approving limits on the level of credit risk by
borrowers.
Market risk. The Company takes on exposure to market risks. Market risks arise from open positions in (a) currency, (b) inter-
est rate and (c) equity products, all of which are exposed to general and specific market movements. Management sets limits
on the value of risk that may be accepted, which are monitored on a daily basis. However, the use of this approach does not
prevent losses outside of these limits in the event of more significant market movements.
Currency risk. In respect of currency risk, the management sets limits on the level of exposure by currency and in total for
both overnight and intra-day positions, which are monitored daily.
21 Financial Risk Management (Continued)
The table below summarises the Company’s exposure to foreign currency exchange rate risk at the end of the reporting period:
At 31 December 2017
At 31 December 2016
Non-
derivative
monetary
financial
assets
Non-
derivative
monetary
financial
liabilities
Net balance
sheet
position
Deriva-
tives
587
(6,994)
(2,772)
(9,179)
In millions
of RR
RR
US Dollars
1,241
(3,608)
2,776
EUR
Total
1
(395)
1,829
(10,997)
-
4
409
(394)
Non-
derivative
monetary
financial
assets
714
167
-
Non-
derivative
monetary
financial
liabilities
(1,003)
-
(2)
(9,164)
881
(1,005)
Net balance
sheet
position
Deriva-
tives
-
-
-
-
(289)
167
(2)
(124)
The above analysis includes only monetary assets and liabilities. Non-monetary assets are not considered to give rise to any
material currency risk.
The following table presents sensitivities of profit or loss and equity to reasonably possible changes in exchange rates applied
at the end of the reporting period, with all other variables held constant:
In millions of RR
USD strengthening by 20% (2016: by 20%)
USD weakening by 20% (2016: by 20%)
EUR strengthening by 20% (2016: by 20%)
EUR weakening by 20% (2016: by 20%)
At 31 December 2017
At 31 December 2016
Pre-tax impact
on profit or loss Impact on equity
Pre-tax impact
on profit or loss Impact on equity
82
(82)
(79)
79
82
(82)
79
(79)
33
(33)
(0)
0
33
(33)
0
(0)
Interest rate risk. The Company takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates
on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create
losses in the event of unexpected movements. Management monitors on a daily basis and sets limits on the level of mismatch
of interest rate repricing that may be undertaken. The table below summarises the Company’s exposure to interest rate risk.
The table presents the aggregated amounts of the Company’s financial assets and liabilities at carrying amounts, categorised
by the earlier of contractual interest repricing or maturity dates.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
21 Financial Risk Management (Continued)
In millions of RR
31 December 2017
Total financial assets
Total financial liabilities
Net interest sensitivity gap at
31 December 2017
31 December 2016
Total financial assets
Total financial liabilities
Net interest sensitivity gap at
31 December 2016
On demand
and less than
1 month
From
1 to 6
months
From
6 to 12
months
More than
1 year
Non-interest
bearing
financial
instruments
Total
389
(591)
-
-
1,444
207,834
209,667
(1,301)
(3,017)
(6,088)
-
(10,997)
(202)
(1,301)
(3,017)
(4,644)
207,834
198,670
168
-
168
-
(233)
(233)
-
-
-
713
(772)
117,202
118,083
-
(1,005)
(59)
117,202
117,078
At 31 December 2017 if interest rates at that date had been 200 basis points higher/lower (2016: 200 basis points higher/
lower), with all other variables held constant, profit and equity would have been RR 179 million higher/lower (2016: RR 2
million higher/lower).
The Company monitors interest rates for its financial instruments. The table below summarises effective interest rates set as
at 31 December 2017 and 2016 based on reports reviewed by key management personnel:
In % p.a.
Assets
Cash and cash equivalents
Loans and deposit placement with related parties
- Subordinated loan to subsidiary Bank
- Deposit placements with subsidiary Bank
- Loan to subsidiaries
Investment securities available for sale
Repurchase receivables
Liabilities
Loans received
Debt securities in issue
2017
RR
0.0
15.4
13.0
9.3
-
-
9.4
-
USD
0.0
-
-
-
10.2
10.9
4.2
4.2
2016
RR
0.0
15.4
13.0
9.3
-
-
13.6
-
USD
0.0
-
-
-
-
-
-
-
The sign “-” in the table above means that the Company does not have the respective assets or liabilities in the corresponding
currency.
21 Financial Risk Management (Continued)
Other price risk. The Company has exposure to equity price risk mainly as a result of a decrease in the fair value of invest-
ments in subsidiaries. Sensitivity analysis of investments in subsidiaries is disclosed in Note 25.
Geographical risk concentrations. The geographical concentration of the Company’s financial assets and liabilities at 31 De-
cember 2017 is set out below:
OECD Other Non-OECD
Total
In millions of RR
Financial assets
Cash and cash equivalents
Loans and advances to related parties
Financial derivatives
Russian
Federation
6
581
4
Investment securities available for sale
207,887
Repurchase receivables
Total financial assets
Financial liabilities
Loans received
Debt securities in issue
Other financial liabilities
Total financial liabilities
-
208,478
377
6,994
2,769
380
10,143
-
-
-
-
In millions of RR
Financial assets
Cash and cash equivalents
Loans and deposit placement with related
parties
Investment in subsidiaries
Total financial assets
Financial liabilities
Loans received
Debt securities in issue
Other liabilities
Total financial liabilities
Russian
Federation
1
713
117,202
117,916
772
-
231
1,003
Net separate statement of financial
position
116,913
167
377
-
-
-
-
167
-
-
167
-
-
-
-
2
-
-
12
798
812
839
-
15
854
385
581
4
207,899
798
209,667
7,833
2,769
395
10,997
-
-
-
-
-
-
2
2
(2)
168
713
117,202
118,083
772
-
233
1,005
117,078
Net separate statement of financial
position
198,335
377
(42)
198,670
The geographical concentration of the Company’s financial assets and liabilities at 31 December 2016 is set out below:
OECD Other Non-OECD
Total
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
21 Financial Risk Management (Continued)
Assets and liabilities have been based on the country in which the counterparty is located. Cash on hand has been allocated
based on the country in which it is physically held.
Other risk concentrations. Most financial assets are due from the subsidiary Bank.
Liquidity risk. Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with
financial liabilities.
The table below shows liabilities at 31 December 2017 by their remaining contractual maturity. The amounts disclosed in the
maturity table are the contractual undiscounted cash flows. Such undiscounted cash flows differ from the amount included in
the separate statement of financial position because the separate statement of financial position amount is based on discount-
ed cash flows.
In millions of RR
Liabilities
Loans received
Debt securities in issue
Financial derivatives
Other financial liabilities
Total potential future pay-
ments for financial obliga-
tions
On Demand
and less than
1 month
From
1 to 6
months
From
6 to 12 months
More than
1 year
626
10
2,772
-
1,123
47
-
395
489
2,825
-
-
6,771
-
-
-
Total
9,009
2,882
2,772
395
3,408
1,565
3,314
6,771
15,058
The maturity analysis of financial liabilities at 31 December 2016 is as follows:
In millions of RR
Liabilities
Loans received
Other financial liabilities
Total potential future pay-
ments for financial obliga-
tions
On Demand
and less than
1 month
From
1 to 6
months
From
6 to 12 months
More than
1 year
1
-
1
22
233
255
27
-
27
789
-
789
1,072
Total
839
233
22 Contingencies and Commitments
Legal proceedings. From time to time and in the normal course of business, claims against the Company may be received. On
the basis of its own estimates and internal professional advice management is of the opinion that no material losses will be
incurred in respect of any current or potential claims and accordingly no provision has been made in these separate financial
statements.
Taxation. Cypriot tax legislation is subject to varying interpretations. There are transactions and calculations for which the
ultimate tax determination is uncertain. The Company recognises liabilities for anticipated tax audit issues based on estimates
of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were
initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which
such determination is made. The Company is incorporated outside Russia. Tax liabilities of the Company are determined on
the assumption that it is not subject to Russian profits tax because it does not have a permanent establishment in Russia. The
Company is a tax resident of Cyprus only and full beneficial owner of the Bank and Insurance Company. This interpretation of
relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it
may be significant to the financial position and/or the overall operations of the Company.
23 Transfers of Financial Assets
Transfers that did not qualify for derecognition of the financial asset in its entirety.
The Group transferred financial assets in transactions that did not qualify for derecognition in the current periods.
Sale and repurchase transactions. At 31 December 2017, the Group has available for sale securities represented by per-
petual corporate bonds of RR 798 million (2016: none) that are subject to obligation to repurchase the securities for a fixed
pre-determined price. Refer to Note 11 for the carrying value of obligations from these sale and repurchase transactions.
The following schedule summarises transfers where the entity continues to recognise all of the transferred financial assets.
The analysis is provided by class of financial assets.
In millions of RR
Repurchase receivables
Total
24 Financial Derivatives
Notes
10,11
31 December 2017
Carrying amount of the
assets
Carrying amount of the
associated liabilities
798
798
591
591
The table below sets out fair values, at the end of the reporting period, of currencies receivable or payable under foreign ex-
change forwards contracts entered into by the Company. The table reflects gross positions before the netting of any counter-
party positions (and payments) and covers the contracts with settlement dates after the end of the respective reporting period.
In millions of RR
Foreign exchange forwards: fair values, at the
end of the reporting period, of
- USD receivable on settlement (+)
- RR payable on settlement (-)
Net fair value of foreign exchange forwards
2017
2016
Contracts with
positive fair
value
Contracts with
negative fair
value
Contracts with
positive fair
value
Contracts with
negative fair
value
2,776
(2,772)
4
-
-
-
-
-
-
-
-
-
F-133
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
25 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 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 observable market data (that is, unobservable inputs).
Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measure-
ment uses observable inputs that require significant adjustment, that measurement is a level 3 measurement. The significance
of a valuation input is assessed against the fair value measurement in its entirety.
(a) Recurring fair value measurements
Recurring fair value measurements are those that the accounting standards require or permit in the separate statement of
financial position at the end of each reporting period.
The level in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows:
In millions of RR
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31 December 2017
31 December 2016
ASSETS AT FAIR VALUE
Financial derivatives
-
4
-
4
Investment securities
available for sale
65
207,834
- 207,899
Repurchase receivables
798
-
-
798
-
-
-
-
-
-
117,202
- 117,202
-
-
-
Total assets recurring
fair value measurements
863
207,838
- 208,701
- 117,202
- 117,202
Investments in subsidiary Bank and Insurance company are stated at fair value based on market valuation (2016: same).
25 Fair Value of Financial Instruments(Continued)
The valuation technique and inputs used in the fair value measurement for level 2 measurements are as follows as at 31 De-
cember 2017
In millions of RR
Fair value
Valuation technique
Inputs used
Assets AT FAIR VALUE
The estimated fair value of
investments in subsidiaries
recognises that the majority of
the value of TCS Group holding
plc resides in its main operating
subsidiaries namely the Bank and
the Insurance company. Thus in
estimating the fair value of the
subsidiaries the primary input is the
market quote of the Company’s GDRs
which are traded on the London
Stock Exchange. Other inputs include
the estimated fair value of the assets
and liabilities held by the Company
other than its investment in the
subsidiaries.
Market quote of USD 18.85 for 1
share at 31 December 2017;
Market interest rates.
EUR curve.
USD Dollar Swaps Curve.
Investments in subsidi-
aries
207,834
Foreign exchange forwards
Total recurring fair value
measurements at level 2
Discounted cash flows adjusted for
counterparty credit risk.
4
CDS quotes for assessment of
counterparty credit risk or credit
risk of reference entities.
207,838
F-135
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
25 Fair Value of Financial Instruments(Continued)
The valuation technique and inputs used in the fair value measurement for level 2 measurements are as follows as at 31 De-
cember 2016:
In millions of RR
Fair value
Valuation technique
Inputs used
The estimated fair value of investments
in subsidiaries recognises that the
majority of the value of TCS Group
holding plc resides in its main
operating subsidiaries namely the
Bank and the Insurance company. Thus
in estimating the fair value of the
subsidiaries the primary input is the
market quote of the Company’s GDRs
which are traded on the London Stock
Exchange. Other inputs include the
estimated fair value of the assets and
liabilities held by the Company other
than its investment in the subsidiaries.
Market quote of USD 10.55 for 1
share at 31 December 2016;
Market interest rates.
Assets AT FAIR VALUE
Investments in subsidiaries
117,202
Total recurring fair value
measurements at level 2
117,202
There were no changes in valuation technique for level 2 recurring fair value measurements during the year ended 31 Decem-
ber 2017 (2016: none).
At 31 December 2017 if market quote of GDR of the Company at that date had been 54% higher/lower (2016: 80% higher/
lower), with all other variables held constant, the fair value of the investment in subsidiaries would have been RR 107,083
million higher/lower (2016: RR 93,826 million higher/lower).
25 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 2017
31 December 2016
FINANCIAL ASSETS CARRIED
AT AMORTISED COST
Cash and cash equivalents
Placement with Russian and UK
banks
Placement with subsidiary bank
Placements with European banks
Loans and deposit placement
with related parties
Subordinated loan to subsidiary
Bank
Deposit placement with subsidi-
ary Bank
Loan to subsidiary
Total financial assets carried at
amortised cost
FINANCIAL LIABILITIES CAR-
RIED AT AMORTISED COST
Loans received
Debt securities in issue
Other financial liabilities
Total financial liabilities carried
at amortised cost
-
-
-
-
-
-
-
-
-
-
-
377
6
2
-
-
-
377
6
2
-
-
-
573
450
162
-
131
-
385
735
966
-
7,317
7,833
2,769
395
-
-
2,769
395
3,164
7,317
10,997
-
-
-
-
-
-
-
-
-
-
-
168
-
-
-
-
-
-
-
-
168
-
-
543
452
9
250
9
252
168
802
881
-
-
-
-
794
772
-
-
233
233
1,027
1,005
F-137
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
25 Fair Value of Financial Instruments(Continued)
Average discount rates used depend on the currency and maturity of the instrument and the credit risk of the counterparty
and were as follows:
In % p.a.
Assets
Cash and cash equivalents
Loans and advances to customers
- Subordinated loan to subsidiary Bank
- Deposit placement with subsidiary Bank
- Loan to subsidiaries
Investment securities available for sale
Repurchase receivables
Liabilities
Loans received
Debt securities in issue
2017
2016
-
-
7.6
7.6
7.6
10.2
10.9
8.0
4.2
10.1
13.0
10.1
-
-
10.8
-
The fair values in level 2 and level 3 of fair value hierarchy were estimated using the discounted cash flows valuation technique.
The fair value of floating rate instruments that are not quoted in an active market was estimated to be equal to their carrying
amount. The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expect-
ed to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.
26 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 (“AFS”); (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 Decem-
ber 2017:
Loans and
receivables
Held
for trading
Available-for-
sale assets
In millions of RR
Cash and cash equivalents
Loans and deposit placement with related parties:
Subordinated loan to subsidiary Bank
Deposit placement with subsidiary Bank
Loan to subsidiary
FINANCIAL ASSETS CARRIED AT FAIR VALUE
Financial derivatives
Investment securities available for sale
Repurchase receivables
Total financial assets
In millions of RR
Cash and cash equivalents
Loans and deposit placement with related parties:
Subordinated loan to subsidiary Bank
Deposit placement with subsidiary Bank
Loan to subsidiaries
FINANCIAL ASSETS CARRIED AT FAIR VALUE
Investment in subsidiaries
Total financial assets
385
450
131
-
-
-
-
966
-
-
-
-
4
-
-
4
168
452
9
252
-
881
-
-
-
-
-
-
207,899
207,899
798
798
208,697
209,667
-
-
-
-
-
-
-
-
-
Total
385
450
131
-
4
Total
168
452
9
252
117,202
117,202
117,202
118,083
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 Decem-
ber 2016:
Loans and
receivables Held for trading
Available-for-
sale assets
F-139
F-140
As of 31 December 2017 and 31 December 2016 all of the Company’s financial liabilities were carried at amortised cost.
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
31 DECEMBER 2017
Notes to the Separate
Financial Statements (Continued)
27 Related Party Transactions
Parties are generally considered to be related if they are under common control or one party has the ability to control the oth-
er 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:
31 December 2017
31 December 2016
Subsidiaries
Other related
parties
Subsidiaries
Other related
parties
In millions of RR
ASSETS
Cash and cash equivalents
Loans and deposit placement with related parties
(contractual interest rate 2017: from 0.1% to
14.4%, 2016: from 0.1% to 14.4%)
Financial derivatives
6
581
4
Investments in subsidiaries
207,834
LIABILITIES
Loans from related parties (contractual interest
rate 2017: from 4% to 7%, 2016: 7% p.a.)
Debt securities in issue (discount: 4%)
Other financial liabilities
6,994
-
-
248
2,769
380
-
-
-
-
-
713
-
117,202
772
-
-
-
-
-
-
-
-
220
Other related parties in the tables above are represented by entities which are under control of the Company’s ultimate benefi-
ciary Oleg Tinkov or by himself.
Income, expenses and other comprehensive income with related parties for 2017 and 2016 are as follows:
2017
2016
Subsidiaries Other related parties
Subsidiaries
7
(4)
202
(140)
Other related
parties
-
-
In millions of RR
Interest income
Interest expense
Enhanced exclusivity agreement
expense
(Provision for)/release of loan
impairment
Dividend income
Gain on initial recognition of lia-
bilities at rates below market
Net gains from operations with
foreign currencies
Other comprehensive income:
Revaluation of investments in
subsidiaries
98
(273)
-
(52)
-
275
106
89,305
(380)
-
(257)
-
-
-
-
-
116
5,668
52
75
75,953
-
-
-
-
-
27 Related Party Transactions(Continued)
In 2017 the total remuneration of Directors listed in the Management Report amounted to RR 16 million (2016: RR 18 million).
Management long-term incentive program. On 31 March 2016 the Company introduced a MLTIP as both a long-term incen-
tive and a retention tool for the management of the Company. The maximum share capital attributable to the plan on launch
was 4.1% of issued share capital at 31 March 2016.
On 8 February 2017 the Company granted shares to new participants in MLTIP and also granted additional shares to certain
existing participants which resulted in an increase in total shares granted under MLTIP to 5.27% of issued share capital of the
Company. For the purpose of the financial statements the grant date for newly added rewards is considered to be 8 February
2017, implementation date is by 31 March 2017.
The total number of GDRs attributable to the Management according to MLTIP is 9,628 thousand as at 31 December 2017 (31
December 2016: 7,504 thousand).
Participants cannot own or exercise their shareholder rights over GDRs within MLTIP directly. Participants are entitled to the
dividends, if any.
The fair value as at recognition date of the equity-settled share-based payments (31 March 2016 and 8 February 2017) 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 until 2022 for participants joining in 2016 and 2023 for participants joining in 2017.
Employee share option plan. In May 2011 the Company introduced ESOP as a long-term incentive and retention tool for the
key management of the Bank. 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 was then transferred to Retained
earnings.
Equity long-term incentive plan. In January 2011 the Company also introduced a long-term incentive plan (Equity LTIP) for
the management of the Bank not participating in ESOP. 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 was then
transferred to Retained earnings.
28 Events after the End of the Reporting Period
On 9 March 2018 the Board of Directors declared a regular interim dividend in line with the dividend policy of USD 0.31 per
share/per GDR with a total amount allocated for dividend payment of around USD 56.6 million.
F-141
F-142
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2017 GLOSSARY
Anti-money laundering
Average cost of funding
Average interest rate on loans
Capital adequacy ratio
CBRF
Charge-off rate
Charge-offs
Class A share
Class B share
AML
n/a
n/a
CAR
CBRF
n/a
n/a
n/a
n/a
Compound Annnual Growth Rate
CAGR
Compulsory car insurance programme
OSAGO
Corporate social responsibility
Cost of borrowing
Cost of risk
Cost to income ratio
Cost to income ratio (excl. acquisition
costs)
Country by Country Reporting
CRM
Cyprus Securities and Exchange
Commission
Days past due
Financial Conduct Authority
GIBDD
Global depositary receipt
Gross portfolio yield
Interest-earning assets
Interest-earning liabilities
International financial reporting
standards
IPO
KASKO
CSR
n/a
n/a
C/I
n/a
CbCR
n/a
CySec
dpd
FCA
GIBDD
GDR
n/a
IEA
IEL
IFRS
n/a
Laws regulating money laundering and terrorist financing
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
n/a
n/a
n/a
Interest expense/interest bearing liabilities
Loan loss provision / Average gross loans
Operating and acquisition expense / Core revenue
Operating expense / Core revenue
Management report/consolidated
management report
MR/CMR
Mobile virtual network operator
MVNO
n/a
n/a
N1.0
Net charge-offs
Net interest margin
Net Promoter Score
NFC
N1.0
n/a
NIM
NPS
NFC
Russian statutory capital adequacy ratio
Loan charge-offs less recoveries
Net interest income / Average IEA
n/a
Near Field Communication
Non-financial statement/consolidated
non-financial statement
NFS/CFNS
n/a
Non-performing loans
NPV
Person discharging managerial
responsibilities
NPLs
NPV
PDMR
PIE
Revenue
Return on average assets
Return on average equity
Public interest
entity
n/a
ROAA
ROAE
Loans 90+ days overdue
Net present value
n/a
n/a
Operating income
Net income / Average assets
Net income / Average equity
Online customer relationship management system
Risk-adjusted net interest margin
Risk-adjusted NIM (Net interest income - PL provisions) / Average IEA
Cyprus regulator of financial markets
n/a
UK regulator of financial markets
Risk-weighted assets
Russian accounting standards
Smart Couriers
Law enforcement agency responsible for traffic
SMEs
One TCS Group Holding PLC GDR represents an interest in one
class A share
The Group’s management long term
incentive plan
RWA
RAS
n/a
n/a
MLTIP
Assets weighted by risk as per the CBRF methodology
n/a
The Group’s courier network, completing KYC and delivering
cards to customers
Small and medium enterprises
n/a
Core revenue on loans /Average gross loan portfolio
Treasury portfolio
n/a
Investment securities and repos
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
KASKO
Voluntary car insurance programme
Key performance indicators
Loan loss provision
London Stock Exchange
KPI
LLP
LSE
n/a
Allowance for bad loans
n/a
G-1
G-2
TCS GROUP HOLDING PLC | ANNUAL REPORT 2017
INVESTOR
INFORMATION
Detailed below are contacts and various addresses inves-
tors 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
Email: administration@tcsgh.com.cy
Registered office address: 5th floor
Berengaria 25
Spyrou Araouzou 25
Limassol 3036
Cyprus
Mail to: PO Box 56356, 3306 Limassol.
Principal business premises
Berengaria 25
Spyrou Araouzou 25
Limassol 3030
Cyprus
Enquiries from investors, shareholders, security analysts
and investment professionals:
Larisa Chernysheva, Investor Relations
Email: ir@tcsgh.com.cy
Media enquiries:
Darya Ermolina, Head of PR
Email: pr@tcsgh.com.cy
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
G-3
TCS GROUP HOLDING PLC | ANNUAL REPORT 2017