Tinkoff Annual Report 2018

FY2018 Annual Report · Tinkoff

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№1

BEST IN MOBILE BANKING
IN CENTRAL AND EASTERN
EUROPE

* by Global Finance 2018

CONTENTS

TCS GROUP IS AN INNOVATIVE PROVIDER OF ONLINE RETAIL
FINANCIAL SERVICES IN RUSSIA OPERATING THROUGH A
HIGH-TECH BRANCHLESS PLATFORM.

STRATEGIC REVIEW

DIRECTORS’ REVIEW

About us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Board of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

2018 Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Our history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Management team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

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-119

Our recent awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

CFO financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

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

Asset, liability and risk management . . . . . . . . . . . . . . . . . . . . 28

Corporate social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . 38

INVESTOR INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-3

Employees and corporate social responsibility . . . . . . . . . . . 40

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
2018 included in this document. A detailed description of the
presentation of financial and other information is set out
after page 63 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.

One-stop shop for all your
daily financial needs

Real Estate

Mobile

Auto

Insurance

Entertainment

• Mortgage

•

Insurance

• Valuation

• Legal support

• Utility bills, taxes

• Rent payments

• Own number

• Fines

• Own mobile
network code

• Own SIM cards

• Cars

• Travel

•

Insurance

• Auto loans

• Property

• Health

• Life

• Ticketing

• Restaurant
reservations

• Stories

• Travel

ONE
CLICK

Daily
banking

Small
business

Savings
& Investments

• Debit cards

• Business account

• Deposits

• Credit products

• Salary projects

• Securities

• Payments

• Overdraft

• Pensions

• P2P transfers

• Business loans

•

Investment strategy

• Public services

• Accounting

LIFESTYLE BANKING
WITH YOUR MOBILE PHONE

12mn

downloads

1.1mn

daily active
users

#2 Top

Internet Project in
Russia*

62mn

sessions
per month

3.7mn

monthly active
users

4.0min

session length

*Source: Yandex Radar/Banks category/unique visitors

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018PROVEN TRACK RECORD OF DRIVING SUSTAINABLE GROWTH

HIGHLIGHTS

Growth

Profitability

• Gross loans up 41% to RUB234 .7bn in 2018

• FY2018 net income, a Group record at RUB27bn, with 3

• More than 1 .1 mn new credit customers acquired in 2018

consecutive years of record net income

and over 1 .7mn new debit cards issued

• ROAE of 74 .7% for FY2018

• SME business developing rapidly, with over 422,000 SME

customers acquired

• Customer accounts up 57% at RUB280 .9bn

Key events

Liquidity and capitalisation

• Total assets up by 44 .8% over 2018 at RUB375 .5bn, with

cash and treasury portfolio up at RUB135 .1bn

• Total equity up by 31 .5% to RUB42 .3bn at YE2018

• Ongoing focus on credit quality

• 31 December 2018 CBRF N1 statutory capital ratio of

• NPLs (90d+) dropped from 13 .4% to 9 .4% at YE2018

• Robust loan loss provision of 1 .64x at YE2018

13 .9% and Tier 1 at 14 .9%

• Treasury portfolio of RUB100 .1bn of highly liquid CBRF

repoable bonds

Credit quality

• Ongoing focus on credit quality

• NPLs (90d+) dropped to 9 .4% at YE2018

Net profit

ROE 2018

RUBbn

Total assets

Customer accounts

74.7

280.9

375.5

2018

13.9

27.1

+1.1

N1.0 at the end of 2018

New credit customers

RUBbn

OUR HISTORY

Highlights of TCS Group’s innovative development

• Acquisition of a stake in Kassir .ru to enrich our lifestyle offering

• A multi-currency platform launched accommodating up to 30 currencies

• Full brokerage and depositary services license obtained

• Launch of Tinkoff Junior app, a service for children and teenagers

• Launched Cyprus-based home call centre

• Home equity loans pilot started

• Launch of a virtual development hub, eleventh IT-hub of Tinkoff

• 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

8
1
0
2
–
7
1
0
2

6
1
0
2
–
4
1
0
2

3
1
0
2
–
0
1
0
2

• Minority stakes sold to Goldman Sachs and Vostok Nafta

• First debit card issued

9 • Launch of the retail deposit programme
0
0
2
–
6
0
0
2

• Launch of internet bank

• First credit card issued

• Tinkoff Credit Systems Bank was created by Oleg Tinkov

Net profit
(RUBbn)

46.1

16.3

11.8

-0.6

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018
ALL KEY
PERFORMANCE
METRICS ACROSS
THE ECOSYSTEM
WERE UP IN FY2018,
ROAE OF 74.7%,
A RECORD NET
INCOME OF RUB27.1
BLN FOR FY2018
AND AROUND 50%
OF THAT PROFIT
HAS ALREADY BEEN
DISTRIBUTED TO
OUR INVESTORS.

Oleg Tinkov
Founder and
Controlling Shareholder

FOUNDER’S
STATEMENT

Dear Stakeholders

Equity RUBbln

It has become almost a ritual, and
a most enjoyable one, to be writing
to you at a time when the Group has
just reported record high net income
results . And so it is again for FY2018
(long may this continue); all key perfor-
mance metrics across the Ecosystem
up, ROAE of 74 .7%, record 2018 net
income of RUB27 .1 bn and around
50% of that profit has already been
distributed to our investors . 2019,
though still in its early days, is shaping
up nicely too, but one thing you can
confidently expect in the Russian
financial markets is the unexpected . For
myself, I am very positive about Tinkoff
in 2019 .

It is fascinating to see each year how
the Group’s various business lines
thrive at different times, at different
stages of their development and in an
ever-changing business environment,
but consistently capturing an increas-
ing share of customer spend . 2018
saw the number of Tinkoff customers
grow significantly to top 8 .5 million
and we believe we see a pathway to our
medium-term ambition of over 20 mil-
lion customers in our digital financial
Ecosystem .

There are many highlights from
Tinkoff’s 2018 . Some grab headlines
like customer service and innovation
awards won, exceeding our guidance
to the markets, the highly successful
launch of our new brokerage platform,
and the extension our digital financial
Ecosystem further into lifestyle choic-
es, quasi-financial needs that are as-
sociated with transactions from a cus-
tomer’s card . Buying tickets, travelling,
restaurants-all built around satisfying
customer needs . But there are others
with a lower external profile, worked on
by the management team day after day
after day- projecting the Tinkoff brand,
motivating and incentivising staff, nur-
turing the Tinkoff entrepreneurial and
innovative spirit and the Tinkoff culture,
recruiting the ablest and most talented
staff at every level against fierce hiring
pressures in the fintech space and run-

42.3

32.1

29,5

22,9

20,6

21.0

9,1

3,8

1,3

2010

2011

2012

2013

2014

2015

2016

2017

2018

2008–2018
CAGR: 56.4%

0.8

2007

0.5

2008

1,1

2009

This is impressive growth . And we can
never onboard too many young, smart,
aggressive, creative, dynamic people,
to win, and provide the very best
service to, the 20 million customers we
aspire to have . We have a very Ameri-
can approach-we are about results . We
expect full commitment and focus . For
an intelligent, enterprising, responsible
person wanting to make a career today,
we are the best company in Russia . No
question about it .

To close I would like to express my per-
sonal thanks to those who have made
2018 such a success, my manage-
ment team for their ideas and brilliant
execution of them, our partners and
stakeholders all of whom have made
vital contributions again in 2018, and
most of all, to all our customers .

ning unrivalled training and education
programmes-equally vital all of them,
top, top priority and we never lose
sight of these .

It is this last point I want to say some-
thing more about, our people - Team
Tinkoff and my philosophy .

At the end of 2013 the year of our
IPO we had a total staff of 4,166 . This
had risen to over 11,600 by the end
of 2016, to over 20,800 by the end
of 2017, to over 24,500 by the end of
2018 (with an average age of 28) and
now we project the total will be around,
probably over, 29,500 by the end of
this year .

Net income & dividend
per share/GDR

42.6%

27.1

0.24

0.32

8.1

0.28

7.3

19.0

6.2

6.0

5.7

Oleg Tinkov

Founder and Controlling Shareholder

2017

2018

4Q’17

1Q’18

2Q’18

3Q’18

4Q’18

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018BUSINESS MODEL

TCS GROUP’S
RAPIDLY
EVOLVING CLOUD
BUSINESS MODEL
IS SCALABLE
WELL BEYOND
FINANCIAL
SERVICES.
COMBINED WITH A
SMART BALANCE
SHEET AND A BEST
IN CLASS BROKER
PLATFORM
SOLUTION IT GIVES
THE BIGGEST
COMPETITIVE
ADVANTAGE
IN A RAPIDLY
DEVELOPING
FINTECH MARKET

OPERATING FLEXIBILITY

TCS Group has built an advanced platform that is highly suited for the
Russian market and operating environment . The Bank’s platform is entirely
branchless, with a low fixed cost base and high degree of operating flexibility .
Cost efficiencies are enhanced by its best-in-class centralised IT system . The
low level of retail financial services penetration in Russia, the rapid growth
of online and mobile payments, and high margins and barriers to entry make
our business model attractive in terms of sustainable profitability, growth
potential and competitive edge .

ROBUST DATA AND RISK MANAGEMENT

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

POWERFUL DISTRIBUTION

Tinkoff offers remote access customer service through its award-winning Internet
banking as well as through mobile banking and high-volume call centres . Our use
of direct marketing channels has revolutionised the way customers are acquired in
Russia . Distribution channels, which include online (the Internet, mobile services
and telesales), direct mail and direct sales agents, allow TCS Group to attract
new customers right across the country . Supporting the branchless platform is a
“smart courier” network which allows next day delivery .

DIVERSIFIED PROVIDER OF RETAIL FINANCIAL,
INSURANCE AND QUASI-FINANCIAL SERVICES

Originally the first purpose-built credit card focused lender in Russia, Tinkoff 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, securities dealing, mobile
solutions as well as non-Tinkoff products through the full-cycle brokerage model
where we started with mortgages and have more to come soon . Tinkoff continues
to operate in the mass market segment, and focuses on expanding the mass afflu-
ent segment by way of offering an ever expanding range of financial services and
targeted lifestyle recommendations, advice and entertainment features .

HIGH LIQUIDITY AND DIVERSIFIED
FUNDING BASE

Tinkoff has established a robust liquidity risk management framework that ensures
it maintains sufficient liquidity, including a significant cushion of liquid assets . TCS
Group’s funding strategy provides effective diversification in the sources and tenor
of funding . The Group maintains strong relationships with market participants to
promote effective diversification of funding sources .

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 custom-
ers . Our customers enjoy convenient 24 hours a day, 7 days a week access to
their accounts and financial transaction services through the combination of
Tinkoff Bank’s free Internet, mobile and call centre service platforms .

Tinkoff is an online financial supermar-
ket offering customers the full range of
financial, insurance and quasi-financial
services . Through the platform
Tinkoff .ru we offer Tinkoff-branded
products – credit products, cur-
rent accounts, deposits, cash loans,
securities dealing, insurance and
mobile solutions, as well as non-Tinkoff
products through our full-cycle bro-
kerage model starting with mortgages,
non-Tinkoff insurance and a pipeline of
other products coming soon . For small
businesses, we offer current accounts,
transactional services, salary projects
and online merchant acquiring . We de-
liver premium services to mass market
and mass affluent customers in Russia
through a unique online, branchless
platform .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

MARKET
CONTEXT

Retail lending

In 2018 the unsecured lending market continued to demon-
strate high growth rates . At the same time, the pattern of
growth was significantly different to what we observed in 2017 .
While the operating environment in Russia remained positive,
the early signs of customer leveraging re-appeared on the mar-
ket . The competition intensified and some players in attempts
to meet pent-up customer demand demonstrated a kind of
irrational behavior pouring into the market longer duration cash
loans . This in turn caused an immediate reaction from the CBRF
who introduced a series of risk-weight increases in May and
September 2018 and in December announced another increase
coming into force from 1 April 2019 .

Despite the increased competition throughout 2018, it was
still represented by just a few banks who managed to grow
their loan books and increase their market share by the year
end . Largely the growth came from the usual players - state
banks and a few private players . Tinkoff was one of them .
In 2018 alongside credit cards, Tinkoff Bank successfully
launched cash loans and POS loans for its customers as well
as announcing it started to test home equity loans and car
loans . Even taking into account the CBRF’s increasing efforts
to regulate the market, expectations are this sector has
strong potential as in Russia it is still underpenetrated rela-
tive to the most developed economies as well as to certain
high growth emerging economies .

Credit card market in Russia (RUBbn)

Market dynamics in 2018 (RUBbn)

1313

1122

58.4

-21.1

In 2018 the credit card
lending sector in
Russia grew by

17.0%

Source: CBRF

51.5

24.2

78.0

212.1

191.0

2017

2018

Sberbank Tinkoff

Bank

Alfa Bank Other
banks

Total
growth

Market

Total
contrac-
tion

MARKET
POSITION

Credit business

In 2018 Tinkoff Bank further cemented its position as the number 2 credit
card player in Russia after Sberbank . As a result of credit portfolio diversi-
fication into cash and POS loans as well as home equity and car loans Tink-
off Bank managed to grab a share in retail loans up to 3 years and finished
the year as the number 4 player after Sberbank, Alfa Bank and VTB .

Russian credit card market

1,198

21.1%

26.3%

7.2%
6.8%
6.4%

1,087

19.5%

19.9%

8.6%
6.7%
7.9%

32.0%

37.4%

1,122

11.1%

15.2%

8.3%
8.3%

11.6%

45.5%

999

12.7%

17.3%

9.6%
7.3%
10.3%

42.8%

1,313

9.6%

15.5%

7.2%

11.1%

11.8%

1,355

9.6%

15.4%

7.0%

11.1%

12.0%

44.8%

2014

2015

2016

2017

2018

1-Feb-19

1,015

22.5%

33.0%

6.8%
5.6%
7.3%

24.9%

2013

671

22.0%

36.8%

7.2%
7.2%

22.2%

2012

Other banks

Alfa Bank

Other consumer banks

Tinkoff Bank

VTB 24

Sberbank

Tinkoff Black debt card

In 2018 the number of accounts opened grew to
over 4 .5mn . Our Tinkoff Black product remains
the main feeder for Tinkoff ecosystem growth
and feeds cross-sell potential . At the end of
2018 the number of customers with more than
one Tinkoff product reached 1 .3 million . The
average age of Tinkoff Black customers is 32 . It
is the product of choice for well-educated young
professionals in its financial power sophisti-
cated in financials and technology and offering
the swift and easy access to either financial or
lifestyle services .

Tinkoff Black is a major sale channel for
other products

80%

32%

31%

30%

Investments

All Airlines

Cash loans

Insurance

SME

Co-brands

Platinum

Household debt continued to grow in 2018 while NPLs were improving

A leader in the mobile financial and lifestyle solutions in Russia

60%

40%

20%

-20%

The share of mobile internet users in Russia is growing year-on-year . Tinkoff Bank being a leader in the mobile space from its
very first day continues to pay a close attention to not only interfaces and seamlessness of processes in its mobile application
but also hugely invests into customer satisfaction and retention . Over the last couple of years a number of different entertain-
ment and lifestyle services have been launched such as Stories – a targeted AI based tips based on customer’s transaction
activity, restaurant reservations, shopping experience, cinema, theatre and concert tickets and travel .

Stories
2017

Restaurants
2017

Shopping experience
2018

Tickets
2018

Tinkoff Junior
2018

20%

150%

10%

2010

2011

2012

2013

2014

2015

2016

2017

2018

Total household
loans

Housing loans
(incl . mortgages)

Consumer and other
household loans

Counsumer 90d+
NPLs (rhs)

#2 Top Internet Project in Russia*

* Source: YandexRadar/Banks category/unique visitors.

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

05.

DEVELOP AND DEPLOY TRANSACTIONAL AND PAYMENT PRODUCTS TO
ACQUIRE NEW CUSTOMERS AND INCREASE RETENTION RATES FOR EXISTING
CUSTOMERS

The technology and experience acquired by Tinkoff 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 prod-
ucts 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, helping
to boost retention rates .

STRATEGY

TINKOFF’S STRATEGY IS TO EXPAND ITS CORE CREDIT OFFERING AND MOVE
BEYOND ROUTINE TRANSACTIONAL AND SERVICING INTO LIFESTYLE AND
ENTERTAINMENT

02.

03.

01.

SELL OR CROSS-SELL ANY
FINANCIAL, INSURANCE
AND QUASI-FINANCIAL
PRODUCTS

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

Tinkoff Insurance

Tinkoff Insurance has
developed a proprietary
and advanced IT platform
and leveraged the vast
expertise of Tinkoff Bank to
build a customised choice
of insurance products, as
well as a convenient claims
settlement and sales pro-
cess, 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 current-
ly offering personal accident
insurance, property, travel
and car insurance - KASKO
and OSAGO . Tinkoff Insur-
ance is rated as “ruBBB-” (a
high rate of reliability) by
Expert-RA rating agency .

MAINTAIN LEADERSHIP
IN CUSTOMER SERVICE

SUPPORT BUSINESS EXPANSION USING ADVANCED IT
SYSTEMS

Tinkoff E-commerce products

High quality customer ser-
vice has been a key driver of
Tinkoff Bank’s rapid growth .
Tinkoff invests to maintain
and improve key compo-
nents, 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 Tink-
off Bank is now able to serve
not only its existing cus-
tomers but also non-clients
when they are allowed to
make transactions without
full identification within
the legislatively approved
limit of 15,000 Roubles .
This is a strategic step for
Tinkoff Bank to increase its
exposure throughout the
financial market .

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, including software used in its online
customer acquisition and service platform . This enables Tink-
off to regularly and quickly roll-out new products and services
to customers or new versions with enhancements .

Tinkoff Bank continues to expand 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 . By the end
of 2018 the number of IT hubs grew to 11 including the virtu-
al development center opened in November . In 2018 Tinkoff
Bank: 1) launched nationwide biometric data collection and
became an official vendor for the Unified Biometrics System
supplying voice recognition technology; 2) joined forces with
Russia’s leading IT companies to set up the Big Data Associ-
ation to set the stage for promoting big data technology and
products in Russia, and 3) launched a joint project with NSPK
(National Payment Card System) that enables Tinkoff cus-
tomers to view card receipts details in their user accounts .

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 .

Being a pure online player since its very first day, Tinkoff Bank specifically focuses
on the e-commerce market . Our existing electronic online and mobile platforms
together with a rapidly developing e-com sector give us significant advantages on
the market . Besides our core mobile banking application Tinkoff Bank offers a wide
range of mobile mono applications (traffic fines payments, card-to-card transfers,
MoneyTalk, GoAbroad, Tinkoff SME, Tinkoff Investments, Tinkoff Junior) (and there
are plans for more to follow) .

A wide range of insurance products, including car insurance, is also available
online for customers . In 2018 after a series of product tests and market analysis,
we launched a full cycle POS loans and car loans programmes available for our
customers purely online . Sophisticated interfaces and advanced risk scoring allows
us to not only efficiently scale these new business lines but also reach out to new
customers from different social-demographic groups .

06.

07.

EFFECTIVELY MANAGE CREDIT
RISK USING SOPHISTICATED DATA
ANALYSIS AND MODELLING

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 operations
and constantly seeking new ways to
achieve further reductions in operating
and customer acquisition costs .

As a data-driven organisation, the
Group uses a wide range of databases
in its loan approval processes and
portfolio management and is constant-
ly in search of new sources of relevant
data . We take loan approval decisions
based on a range of available informa-
tion, including credit bureau data and
scores, proprietary scoring models, a
proprietary application verification
process and sophisticated NPV models .

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

08.

DEVELOP THE HIGH-GROWTH
CONCEPT OF THE FINANCIAL
SUPERMARKET, A PLATFORM
OFFERING A CHOICE OF
CONSUMER LENDING, INSURANCE
AND TRANSACTIONAL AND
PAYMENT SERVICES OF TINKOFF
BANK AS WELL AS LIFESTYLE,
ENTERTAINMENT AND PARTNER
PRODUCTS

Retail lending remains Tinkoff Bank’s
core business . In 2018 we significantly
broadened the range of our credit
products . Alongside credit cards we of-
fer cash loans and POS loans . We also
announced the launch of our collateral-
ized loan programme where a loan can
be secured with either an apartment
or a car .

The contribution from non-credit
related business lines further improved
in 2018 . Tinkoff Investments, the
final business line, was successfully
launched in April . Since our non-credit
business lines are up and running our
focus now is on scaling, monetization
and cross-sell potential within our
ecosystem .

In 2018 we significantly improved our
lifestyle and entertainment offering to
the customers . In additional to Stories
(AI*-based recommendations and user
tips based on transactional activity)
and restaurant reservations, we have
enriched our banking mobile app with
such new features as purchase of cine-
ma, theatre and concert tickets and our
guided shopping experience . Moreover,
in October we launched the Tinkoff
Junior app, offering banking services to
children and teenagers, while providing
their parents with all the requisite con-
trols for their children’s accounts .

In 2018 our Partners’ family welcomed
a new member . In July, Tinkoff acquired
a stake in Kassir .ru, Russia’s top online
ticketing provider in a move to further
develop the Tinkoff ecosystem and
offer customers a wider choice of
lifestyle services through the Tinkoff .ru
platform .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018WHAT MAKES US DIFFERENT

TINKOFF IS THE CLOUD ECOSYSTEM PROVIDING
A FULL SCOPE OF HIGH-UTILITY DAY-TO-DAY RETAIL
FINANCIAL AND INSURANCE SERVICES ALONGSIDE
LIFESTYLE AND ENTERTAINMENT

SINGLE POINT OF DESTINATION FOR DAILY BANKING

HIGH-TECH VIRTUAL PLATFORM

Tinkoff Bank is a top-2 credit card lender and top-4 in retail loans up to 3 years in Russia, offering a variety of retail unsecured
loans as well as secured home equity and car loans . In addition to our market-leading credit offering, Tinkoff Bank successfully
manages online retail deposits programme, retail and car and other insurance, financial products in the fast emerging mobile
payments and retail brokerage . Leveraging its innovative approach, existing infrastructure and customer base, Tinkoff Bank
has been expanding to bring additional partners’ products and services through its full-cycle brokerage platform so now we
make available to Russian consumers mortgage programmes and further expanding our lifestyle and entertainment offering
with travel, ticketing and shopping experience .

Tinkoff has built an advanced high-tech retail financial services platform that is highly suited for the Russian market and oper-
ating environment, particularly in underserved parts of the country . This platform is entirely branchless, with a low fixed cost
base and high degree of operating flexibility . This high-tech platform includes the internet bank, mobile bank, a real-time voice
authentication system which creates voice prints during the traditional Q&A verification process for each new caller and highly
efficient chat-bots and call-bots . We successfully implemented robotisation through the use of Machine Learning, Artificial In-
telligence and Computer Vision of a number of processes on an operational level that helps to significantly improve operating
efficiency and cost control .

2.3mn

applications per
month on average
during 2018

8mn

customer issues
solved via chat

11.8%

Market
Share*

* As of 31 December 2018

based on CBRF data.

>11.7mn

Credit cards
issued

over 372RUBbn

of customer credit card
transactions in 2018

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

WHAT MAKES US DIFFERENT

TCS GROUP IS TRANSFORMING THE RUSSIAN FINANCIAL
SERVICES MARKET AND DRIVING A DIFFERENTIATED
CUSTOMER PROPOSITION.

POWERFUL DISTRIBUTION

CREATING VALUE IN CHALLENGING MARKETS

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 .

47.3%

Net loan portfolio
CAGR 2008-2018

15mn

over 3mn inbound calls/around 15mn
outbound calls per month on average in
2018

Our entrepreneurial approach to products, premium-quality customer service and effective credit risk management, based on
sophisticated data analysis and modelling, enable us to achieve a combination of sustainable growth and good returns even
in a market downturn . The strong trend to adoption of online and mobile consumer technology in Russia, together with the
low penetration and growth potential in the country’s retail financial services, represent a tremendous opportunity for Tink-
off Bank to continue its success .

87x

Equity grew by 87x
in 10 years (from
2008 to 2018)

74.7%

ROAE

№1

Best mobile banking
app in Central and
Eastern Europe*

* by Global Finance

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

OUR EXCELLENT
2018 RESULTS
GO TO SHOW THAT
IF YOU HAVE THE
RIGHT BUSINESS
MODEL, THE RIGHT
BRAND, THE
RIGHT TEAM AND
CAN EXECUTE,
RUSSIA IS A GREAT
MARKET TO BE IN
DESPITE HOW IT
MAY SOMETIMES
LOOK FROM THE
OUTSIDE.

Oliver Hughes
Chief Executive Officer

CEO STRATEGIC
REVIEW

Dear Investors

2018 was a truly excellent year for Tinkoff . Not only did we start to see last year
tangible results of the Tinkoff Ecosystem strategy coming through, the Group also
had another set of record-breaking results .

ROAE IS 74.7% AND TOTAL EQUITY
CLIMBED TO RUB42.3BN

I was pleased to announce a few weeks ago, alongside members of our manage-
ment team, another outstanding set of results, by some margin surpassing the
two preceding excellent years . While continuing investing into new business lines
now well beyond financial services, even with our usual seasonally slower start to
the year, the Group still managed to outperform expectations for 2018 . This again
goes to show that if you have the right business model, the right brand, the right
team and can execute, Russia is a great market to be in despite how it may some-
times look from the outside .

Later on I will bring you my take on some other significant developments for Tinkoff
in the year as well as update you on some themes I have raised in recent strategic
reviews, themes such as our fantastic customer satisfaction awards, daily and
monthly active user scores and Net Promoter (NPS) scoring, the Group’s M+A
policy and some possible regulatory developments out ahead . First though to our
financial performance in FY2018 .

ROAE

74.7%

Overview of 2018 financial performance-financial highlights

Last year the Group’s revenue grew by 42% from RUB79bn
to nearly RUB113bn . This revenue growth came from many
sources, which we at Tinkoff split out in two main streams:

–

our consumer credit business lines; and

our transactional and servicing business lines .Transac-
tional and servicing business lines, with strong growth,
made a meaningful contribution to Group operating
income for the first time .

As a result, Net Income for 2018 grew by 43% year-on-year
and reached a record RUB27 .1bn . This gave the Group an
impressive ROAE of almost 75% .

Other headline numbers for 2018 worth highlighting include:

– Net loans grew by almost 53%, well ahead of expecta-

tion;

–

Fee and Commission income was up 77% year-on-year
to RUB27 .4bn and non-credit business lines produced
32% of total revenue in 2018;

– Our Cost-to-Income ratio declined to 42 .2% from 43 .2%
a year ago and this is a trend we see continuing . Manage-
ment have devoted considerable time and resources to
develop momentum behind this trend and plan yet more,
with a view to stabilising it at around the 40% level, or
lower, over the coming quarters even as we continue to
invest in growth and brand-building;

–

Cost of Borrowing dropped to 6 .1% and Cost of Risk
stood at 6 .0% .

Behind these numbers lies the story of the Tinkoff Ecosystem . The management team has put a huge amount of work into
expanding the Tinkoff credit products range, scaling up non-credit business lines, building and integrating lifestyle services,
enhancing our interfaces, continually improving the customer experience, and renewing our focus on efficiency . To unlock the
potential in our Ecosystem, we have had to develop new cross-selling, data management, loyalty and infrastructural capabili-
ties while ramping up our various customer acquisition channels to bring large numbers of customers into our sphere . We have
also put a lot of effort and resources into building out our customer lifestyle platform to cement our position as the natural
choice for the young, urban professional in Russia . These are ongoing processes-they did not start in 2018 and they most
definitely did not stop at the end of 2018 .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018
CONTINUED

CEO STRATEGIC
REVIEW

A look at the business lines’ contributions
So, what drove the strong bottom line result in 2018?

1/ Consumer
Credit business lines

2/ Transactional and servicing
business lines

We reached 5 million borrowers by the end of 2018 . While
credit cards continued to perform steadily with on average
200k cards issued per month, the share of other credit prod-
ucts - personal loans, POS loans, car loans and home equity
loans - grew to 26 .9% of the net loan book by Q42018 from
8 .4% a year earlier . To give you some more colour on the credit
business lines:

–

By the end of 2018, the personal loan portfolio stood at
RUB32 .9bn . It grew 5x during the year . These loans are
mainly cross-sold to our existing customer base .

The POS loan book grew by 3 .3x and stood at
RUB14 .8bn . This business line is mildly P&L negative and
is basically the cost of acquiring customers for further
cross-selling of credit cards and other loans . We aim to
scale it up further .

By year end 2018, the home equity book was RUB2 .6bn .
This business line is still in pilot – we will only have mean-
ingful vintage data in late 2019 .

By the end of 2018, car loans accounted for RUB2 .8bn
with 5 .5k loans issued . The Group is active in both the
new and second-hand car segments . Most of our distri-
bution is offline but we also launched online acquisition
with a couple of major partners such as Auto .ru .

Fee and commission income (RUBbn)

Here our hard work is producing significant payback . Our
non-credit business lines income doubled, driven mainly by
Tinkoff Business, Tinkoff Black and Tinkoff Insurance . A look at
these in turn:

Tinkoff Business (SME services): Tinkoff Business remains one
of the main locomotives of fee and commission fee generation .
It showed steady growth in newly opened accounts, balances
and revenues and the Group successfully navigated through
the market turbulence caused by the CBRF’s crack-down on the
small business sector in H22018 . The Group took fifth place by
market share in the individual entrepreneur segment by year
end 2018 and we see huge potential for growth as we move up
through the small and medium business segments .

Tinkoff Black: Tinkoff Black is going from strength to strength .
We attracted half a million new customers in Q4 and at year-end
we hit 4 .5 million accounts opened . Spend on Tinkoff Black grew
from RUB 570bn in 2017 to RUB1 .04tn in 2018, a growth of
83% . We plan to continue this major customer acquisition effort
into 2019 – this is the main acquisition channel of mass-affluent
and affluent customer segments and is one of the major feeders
for cross-selling .

Tinkoff Insurance: Tinkoff Insurance has demonstrated a
steady improvement over the last two years . It is a stable con-
tributor to the Group’s bottom line .
Its premiums grew by 2 .4x y-o-y to RUB6 .7bn at the end of
2018 . Car insurance remains our priority and we plan to further
scale it by opening new channels in 2019 and beyond .

+77%

27.4
1.6

4.2

6.4

7.6

15.5

2.4

3.6

3.2

5.5

+54%

7.0
0.4

1.0

1.7

6.3
0.3

1.0

1.4

1.8

2.1

5.8
0.2
0.8

1.3

1.4

2.1

5.4
0.4

0.9

1.3

1.4

1.5

1.9

1.8

1.9

8.3
0.6

1.4

2.1

2.4

Other

Merchant acquiring

Debit cards

SME

Credit-related

2017

2018

4Q’17

1Q’18

2Q’18

3Q’18

4Q’18

* Bank's analytics based on CBRF 101 form

Other business lines
too are deserving of mention.

Tinkoff Investments (retail bro-
kerage): Our award-winning Tinkoff
Investments app took first place on the
Moscow Stock Exchange by number
of newly-opened brokerage accounts,
widening the gap between us and Sber-
bank and BCS . We saw a quantum leap
to over 300k accounts opened by the
end of 2018 with half of this number
opened in Q42018 alone . We signif-
icantly expanded our product range,
introducing solutions for the mass af-
fluent customer segment, wealth man-
agement and high-frequency traders .
Tinkoff Investments Premium offers
access to over 10k global securities
as well as providing personal manager
services directly in the Investments

app . We also optimised tariff plans and
customer service approaches to cater
to the needs of the different investor
categories . We will continue to promote
this business line heavily as we not only
disrupt the existing market but create
a brand new one . We expect Tinkoff
Investments to break even before the
end of 2019 .

Online Merchant Acquiring: Online
Merchant Acquiring had a very good
year in 2018 with growth of 72% from
RUB 2 .4bn to RUB4 .2bn giving us a
market share of around 15% . This busi-
ness line makes a healthy contribution
to the bottom line and we know how to
grow it further .

Tinkoff Mortgage platform (mort-
gage broker): The Tinkoff Mortgage
platform grew its origination volume
to RUB25bn in 2018 and operates
at around break-even . We have been
unable to scale this business line up
profitably due to the structure of the
market and the dominance of the Rus-
sian state banks in mortgage lending .
Even so, the Tinkoff Mortgage platform
continues to be an important Ecosys-
tem service for our customers .

My review I believe gives you a sense
of the great successes of Tinkoff in
2018 as well as a feel for its awesome
potential going forward .

2018 highlights

I will pick a few of my favourites out of the many- these are just a part of the picture . Others you will find in our CFO Ilya Pisem-
sky’s Financial Review and elsewhere (‘Our Awards’) in this Report:

• the Group’s acquisition of a stake in
Kassir .ru to enrich our mobile app
functionality and customer engage-
ment-Kassir is the largest online
ticket operator in Russia;

• Tinkoff Investments came Number

1 on the Moscow Stock Exchange by
number of newly opened brokerage
accounts in 2018;

• The launch of the Tinkoff Junior

app; and

• We scooped a number of awards
from Banki .ru . By far the most im-
portant one is that we topped ‘The
People’s Rating’ of Russian banks .
This reflects the ratings of quality
and service that consumers them-
selves post on this internet forum .

These all contributed to making 2018
a memorable year in the history of
Tinkoff .

Gross loans

166.7
37.0

176.4
36.7

40.8%

205.4
36.8

189.5
37.3

129.7

139.8

152.2

168.7

234.7
36.2

198.5

4Q’17

1Q’18

2Q’18

3Q’18

4Q’18

Net loans

LLP

What do we see ahead-more of the same?

There are some other themes I touched
on last year in my strategic review and
where I can offer now some more up
to the moment insights . These include
increased regulation of our industry,
increasing the Tinkoff customer base,
our transition to different measures
of customer satisfaction and our M+A
policy .

In December 2018, the CBRF an-
nounced yet another potentially
significant increase in risk-weights
for unsecured consumer loans; these
will take effect from 1 April 2019 and
increase banks’ capital needs . After
detailed evaluation of the Group’s
capital needs, our Board of Directors
took swift action and announced late
last year a new dividend policy effective

1st April 2019 under which we would
reduce the dividend ratio to target up
to 30% of net income of the previous
quarter . Our robust financial position
allowed us to maintain the 50% net
income target for Q42018 (our first
2019 dividend) while giving investors
time to adjust to the new policy .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

CEO STRATEGIC
REVIEW

OUR RECENT
AWARDS

We have invested recently in ramping
up our corporate finance capability .
One of the aims of this, alongside build-
ing content, is to accelerate a signifi-
cant increase in our active customer
base in the near term . We have now
completed two significant, but small
scale, share acquisitions- CloudPay-
ments in 2017 and Kassir .ru in 2018-
in different spheres of the Ecosystem
markets to enhance our payment
systems and lifestyle offerings, and are
committed to integrating them further
and maximizing their potential . In both
cases the talented team of co-found-
ers and managers are incentivized
to develop the businesses they are
committed to, within or alongside the
Tinkoff Ecosystem . Both bring a lot
to the Tinkoff Ecosystem, with much
more to come . And we envisage that
in building out our Ecosystem further,
many more such M+A opportunities will
be identified and pursued . There is no
shortage of opportunities and I believe
Tinkoff has the team to take most
advantage of them .

Finally, it is my pleasure to thank all
those who made 2018 such a truly
excellent year for Tinkoff . It is difficult
to imagine a better starting point going
into 2019 .

Oliver Hughes

Chief Executive Officer

1 .3 million . We continue to use NPS too
as a customer servicing and satisfac-
tion metric, with NPS for Tinkoff Busi-
ness at nearly 55% and many others
at or around the 50% level . We now
have close to 1 .1 mn daily users of our
app . These customer satisfaction levels
are reflected in the Banki .ru awards I
mentioned before, but are driven by the
innovations we make and our best-in-
class customer servicing and satisfac-
tion skills we are constantly upgrading .
Our customers mean everything to us .

In this context I should mention some
of the very many innovations we have
made in our app over the course of
2018 .

– We launched one-click purchase
of cinema tickets in November
2018 . The service took off and in
February 2019 alone we sold over
230k tickets;

– We integrated Kassir, the largest
online ticket operator in Russia,
a company in which we have now
made two minority investments .
Tinkoff sold around 20k concert
and theatre tickets in February
2019; we have huge plans for this
service;

– Our customers made close to

8k restaurant and taxi bookings
through the Tinkoff app in February
2019 . They also on average bought
around 50k airline tickets and
made around 15k hotel bookings
in both January and February
2019 through Tinkoff Travel;

– We launched the first version of our
voice assistant in the mobile app
in December 2018 – the working
name is ‘Oleg’ !

Watch this space as we add more and
more interesting lifestyle services to
our app .

We have always said that if we have
an opportunity to capture stronger
loan growth whilst maintaining good
credit quality, then we would reduce
dividends to maintain capital levels .
The move by the CBRF was not unex-
pected – their instrument of choice
to combat ‘overheating’ is change to
asset risk weightings and they have
not hesitated to use it . They may well
use it again . You should expect more
regulation-we do and it is factored into
our plans . Tinkoff though is focused on
building a sustainable business based
on long-term relationships with our
customers; we grow our loan book by
growing our customer base and by
diversifying our product range, not by
issuing larger and longer loans to the
same customers . It is that malpractice
which worries the CBRF: it worries us
too . We hope that the markets will help
the CBRF find a mechanism that will
protect consumers and the banking
sector as a whole from a repeat of the
over-leveraging issues that we saw in
the last cycle . So we see opportunity
here, not threat . The PTI regulation
(intended to tackle over-indebtedness
among Russian consumers by linking
risk weights for retail loans to a bor-
rower’s debt service to income ratio)
that comes into force in October 2019
should also help make the market safer .
We would welcome that .

As a result of the many initiatives and
growth efforts I have described in this
and previous strategic reviews, Tink-
off’s customer base grew significantly
last year to well over 8 .5 million cus-
tomers, and we believe we know how
to achieve our medium term ambition
of a base of 20m customers . To retain
customers and increase their activity
with Tinkoff, we are driving customer
engagement through new services,
new content and cross-selling . The
main measurements of our progress in
this area are DAU (daily active users)
which in March 2019 stood at 1 .1
million and MAU (monthly active users)
which stood at 3 .7 million . The number
of Tinkoff customers with more than
one account at Tinkoff has at the time
of writing this strategic review reached

• Best Consumer Digital Bank in Russia

• Best Mobile Bank

• The World’s Best Investment Service among Digital

• Best Internet Bank

Banks

• Best in Terms of the Number of Loyalty Programs among

• Best Bill Payment & Presentment in Central and Eastern

Russian Banks

Europe

• Best in Mobile Banking in Central and Eastern Europe

• Best Mobile Banking App in Central and Eastern Europe

• Best Digital Mortgage Service in Central and Eastern

Europe

• Best Information Security and Fraud Management in

Central and Eastern Europe

• Best Mobile Bank

• Tinkoff Bank – Best Bank in the People's Rating

• Best Internet Bank for Individuals

• Tinkoff Mobile – Best Mobile Operator in the People's

Rating

• Tinkoff Mortgage – Best Digital Mortgage Solution

• Tinkoff Investment – Best Investment Company

• Best Line of Co-branding Cards

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018LAST YEAR I ENDED
MY FINANCIAL
REVIEW, COVERING
A YEAR IN WHICH
WE POSTED THE
STRONGEST SET
OF RESULTS IN
TINKOFF GROUP’S
HISTORY, WITH THE
COMMENT THAT WE
GO INTO 2018 WITH
A LOT OF FORWARD
MOMENTUM.

ONE YEAR ON,
THE GROUP HAS
AGAIN POSTED THE
STRONGEST SET
OF RESULTS IN ITS
HISTORY.

Ilya Pisemsky
Chief Financial Officer

FINANCIAL
REVIEW

Dear Investors

Last year I ended my financial review,
covering a year in which we posted
the strongest set of results in Tinkoff
Group’s history, with the comment
that we go into 2018 with a lot of
forward momentum .

One year on, the Group has again
posted the strongest set of results in
its history . These results secure the
Group’s place in the Russian credit
card market, with a market share of
11 .8% at the close of 2018 . Of course
it is a pleasure to present such a set
of results . We are not complacent
though by any means . Such results
are the culmination of hard work and
commitment, of many contributions,
of many investment decisions made,
opportunities identified in some
cases long ago, and the Group’s suc-
cessful navigation of the many, varied
and unpredictable challenges which

are such a part of operating in the
Russian markets .

As in the past I would like to pick out
some particular highlights of 2018
from the financial perspective before
turning to the 2018 results:

• Successful transition to IFRS9, from

late 2017;

• Dividend payments of USD1 .07

from FY2018 profits;

•

In June 2018 Tinkoff piloted home
equity loans;

In July, Tinkoff and Sber-
bank launched joint P2P mon-
ey transfers using just a mo-
bile phone number;

•

In October, the Bank expanded its
banking platform for children and
teenagers with the launch of Tinkoff
Junior, a mobile app that gives
young customers an easy-to-use
and robust tool to manage their
personal finances;

In October Fitch Ratings affirmed
our ‘BB-‘ local currency credit
rating, revising the outlook from
stable to positive (in February 2019
Moody’s upgraded the Bank’s long-
term deposit ratings and senior
unsecured local currency debt from
B1 to Ba3) .

• We launched a multi-currency

platform for customers, accommo-
dating up to 30 currencies .

Assets growth RUBmn

One development to watch out for is Russia’s FPS . In March 2018 Tinkoff was one
of a few banks invited by the CBR to participate in the pilot phase of Russia’s Faster
Payments System (FPS) . Tinkoff believes the introduction of FPS (SBP (Faster Pay-
ments System in Russia)) will cause seismic changes in the payments landscape
in the long run and perhaps sooner than widely anticipated . Tinkoff is one of the
pioneers of the SBP and very well placed to gain most from these changes .

So turning to the results, first the balance sheet, then profit and loss statement .
I will also describe some of the main trends and patterns that can be observed in
our business throughout 2018 . I also form time to time refer to the performance
in Q4: this might be regarded as the most up to date indicator of trends going into
this year .

The Group’s balance sheet

+44.8%

16.6%

375.5

33.8

100.1

322.0
24.0

95.3

198.5

168.7

287.2
19.0

85.9

259.3
23.9

71.8

265.8
12.4

83.7

129.7

139.8

152.2

i will start with the Balance Sheet
composition .

Total Assets of the Group grew by
44 .8% year-on-year and by 16 .6% in
Q4 . It is the highest quarterly growth
we have observed since Q2 2017 . This
strong growth shows every sign of
continuing into Q1 growth this year .

Substantial growth in cash balances
and the investment portfolio during
2018 was a result of the rapid develop-
ment of our SME and current account
business lines . This growth was in line
with the credit business and allowed
us to keep the balance sheet propor-
tions constant through the year with
net loans slightly above 50% of total
assets .

33.9

4Q’17

30.0

1Q’18

30.0

2Q’18

34.0

3Q’18

43.1

4Q’18

Cash and cash equivalents

Investment securities and REPO

Net loans

Other

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

FINANCIAL
REVIEW

Our loan portfolio showed an impres-
sive 40 .8% growth for the year on a
gross basis and 53 .0% growth for the
year on the net basis which exceeded
our expectations . This growth was
driven not only by the credit cards
part of the portfolio, but by cash
loans, POS loans and collateralized
loans . In Q4 the growth in these sub
segments was very strong indeed from
19 .6% to 26 .9% of total net loans . We
are very pleased with the profitable
performance of the cash loan business,
and the POS loan business which has
enormous cross sell potential . As for
car loans and home equity loans, these
are still pilots which we should be able
to discuss in detail later in 2019 .

The quality of loans continued to im-
prove . Our non-performing loans (NPL)
ratio dropped to below 10% at year-
end 2018 showing a decline of 400
basis points through the year . Our NPL
coverage ratio is stable above 160% .

Our funding base is growing strongly,
mirroring the growth in assets . The to-
tal funding balance of the Group grew
by 47 .7% year-on-year and by 18 .5%
in Q4 alone . Current account funds
from retail and SME customers grew by
80% and 70% respectively during the
year while term deposits of individuals
grew, though at a slower pace . Most of
the current account money funds the
Group’s treasury portfolio or is held in
cash, while term deposits together with
bonds and most of the equity fund the
loan portfolio . There is an increasing

overlap in this fund distribution as we
use current account money to fund
shorter duration loans such as POS
loans and credit cards in the grace
period . At year end 2018 this overlap
constituted 20% of the gross loan
portfolio compared to 7% at the end
of 2017 .

Equity of the Group grew by 31 .5%
year-on-year (by 12 .4% in Q42018),
which allowed the Group to maintain its
dividend policy until 1 April 2019 .

The Basel total and Tier I capital
adequacy ratios went down to 14 .9% .
Our statutory capital adequacy ratios
are lower than Basel ratios due to the
heavy risk weights assigned to retail
lending by the CBRF .

Profit and loss statement

Now I will turn to the Income Statement
and the distribution of our revenue by
major types and the growth dynamic .
Compared to 2017 our revenue grew
by 42% to RUB112 .6 bln, while the
share of income from the loan portfolio
went down in the revenue composition
from 77% in 2017 to 68% in 2018 .
This trajectory we expect will continue
in 2019 .

We have also started to track the
coverage of administrative costs by
net fee and commission income as an
indicator of the robustness of Tinkoff’s
business model in a potential down-

BY THE END OF 2018
TINKOFF BANK HAD ISSUED OVER
11.7MN CREDIT CARDS

CREDIT CARDS

11,7mn

turn scenario . Net fee and commission
income to administrative expense grew
from 38% to 46% year-on-year .

In 2018 year the Group showed a 27%
growth in interest income . Our head-
line gross interest yield on the credit
portfolio decreased from 39 .6% to
35 .4%, mostly due to the more rapidly
growing part of non-credit card loan
portfolio . I am confident that during
2019 the gross yield will continue to
gradually move down to the 30-32%
area as a result of the changing client
and product mix .

Interest expense demonstrated a
growth of 18% year-on-year compared
to 47% growth of the average funding
base . The cost of borrowing went down
from 7 .6% to 6 .1% on a blended basis
as our cheaper funding from retail and
SME grew faster .

Net interest income increased by 29%
in 2018, which is slightly higher than
the gross interest income growth rate,
because interest expense is growing
much slower than the top line .

Interest margin went down from 25 .3%
to 23 .2% due to the reduction of the
blended gross yield . Risk-adjusted
margin also went down from 21 .1% to
18 .6% due to the introduction of IFRS9 .

Our cost of risk edged up 50bp from
5 .5% to 6 .0% including a seasonal
decrease in Q42018 to 4 .2% . Taking
into account that we are comparing IAS
39 percentages and IFRS 9 percent-
ages that means that in reality risks
have improved . The average write-off
rate for the year went up from 6 .9%
to 9 .1% which is again the result of the
introduction of IFRS9 last year .

Now some comments on our fee and
commission business . In 2018 our fee
and commission income demonstrat-
ed significant growth of 77% . Credit
related fees are not growing especially
and their impact on our business will
reduce in the next few years . Insurance
premiums earned more than doubled
in 2018, showing steady growth in the
auto segment .

With around 4 .5 million customers our
current accounts business contributed
RUB6 .4bn in fee and commission in-
come in the previous year . We continue
to develop our product seeing it as a
potential for subsequent cross-sell
opportunities . I would like to reiterate
that we are deliberately keeping our
bottom-line result for this business line
at break-even . We see more value in
growing the customer base and in the
potential synergetic effects with other
business lines than as a source of pure
net income .

Our SME business line is now a solid
contributor to the bottom line . As at
2018 year end we are serving over
400k customers . The SME business
line contributed RUB7 .6bn in 2018
fee and commission income and over
RUB2 .6bn in net segment income .

Our investment business is gearing up .
Over 300k customers use our Tinkoff
Investments platform for buying or
selling securities . In Q42018 the vol-
ume of deals exceeded RUB77bn with
the total balances held on accounts
growing to over RUB17bn . In 2018
we developed and launched our own
brokerage solution which pushed the
total business line into a small minus
for the year .

The volume of loans originated
through our mortgage broker platform
exceeded RUB25bn in 2018 compared

Net interest income RUBbn

+28.5%

59.2

46.1

+23.6%

14.0

14.2

14.9

13.0

Cost of Borrowing

6.9%

6.4%

6.3%

6.1%

5.9%

7.6%

4Q’17

1Q’18

2Q’18

3Q’18

4Q’18

2017

6.1%

2018

So to wrap up, as I mentioned at the
start of my financial review, 2018 was
an excellent year, a year in which we
could see tangible and very positive re-
sults flowing through from the Tinkoff
Ecosystem . 2018 ended on a high note
giving us forward momentum going
into 2019- a year which we at Tinkoff
believe has the potential to be even
better than 2018 .

Ilya Pisemsky

Chief Financial Officer

to RUB10bn in 2017 . After a difficult
1H2018, this business line became
break-even in Q42018 . Currently, we
have 11 partners and continue to opti-
mize business processes for customers .

Now some comments regarding oper-
ating expenses .

In Q42018 operating costs might be
considered a little elevated in compar-
ison to Q32018, due to high-season
advertising activity and an annual
salary increase in November of approx-
imately 6% . Overall, there is a positive
declining trend year on year with
cost-to-income ratio going down from
43 .2% to 42 .2% on an overall basis
coming mostly from our core credit
business where the cost to income
ratio improved from 27 .0% to 23 .7% .

Now to profits . The Group achieved a
quarterly record profit of RUB8 .1bn in
Q42018 and RUB27 .1bn for 2018 as
a whole which is 43% higher than for
FY 2017 . Return on equity stayed at
over 80% for two quarters in a row and
74 .7% for the full year . This allowed us
to distribute around half of our Q4 prof-
its according to the Group’s dividend
policy adopted in 2017, although we
announced late last year a new dividend
policy effective from 1 April 2019 .

16.1

TINKOFF BANK ISSUED OVER
4.5MN DEBIT CARDS AT YE2018

DEBIT CARDS

>4.5mn

2017

2018

4Q’17

1Q’18

2Q’18

3Q’18

4Q’18

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018ASSET, LIABILITY AND
RISK MANAGEMENT

THE GROUP’S RISK MANAGEMENT STRATEGY PROVIDES A STRUCTURED AND
COHERENT APPROACH TO IDENTIFYING, ASSESSING AND MANAGING RISK.
IT BUILDS IN PROCESSES FOR REGULARLY UPDATING AND REVIEWING THE
ASSESSMENT BASED ON NEW DEVELOPMENTS OR ACTIONS TAKEN.

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 .

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, and
makes its decision by a simple majority vote of all the
members present provided that a quorum of at least half
of the members of the Committee is present .

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 Manage-
ment Board . It meets on a weekly basis and makes its
decisions by a simple majority provided that a quorum
consisting of at least half of the appointed members of
the Business Development Committee is present .

Risk Management Organisational Structure

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 .

Policy Implementation Bodies

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:

Board of Directors

Finance Committee

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
management structure . The Chairman of the Manage-
ment Board appoints members of the Finance Committee
and Credit 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
medium term and long term liquidity risk management
policy and sets interest rate policy and charges with re-
spect to individual loan products . The Finance Committee
must consist of at least five members (currently there are
seven members) and the Chairman of the Management
Board acts as the Chairman of the Finance Committee .
The Finance Committee meets on a weekly basis and
makes its decisions by simple majority provided that a
quorum of at least half of the members of the Finance
Committee is present .

Finance Department

Risk Management Department

The Finance Department is responsible for managing corre-
spondent accounts, daily currency liquidity, money transfer
control and daily money transfer modelling to support the
required currency liquidity level for correspondent accounts
and compliance with the CBR’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 compliance with the CBR’s regulations, as well as for
short term placements, currency hedging and interest rate
hedging .

The Risk Management Department is responsible for the
development and implementation of the Group’s consumer
lending policy after the final approval of such policy by the
Credit Committee . The Risk Management 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 prod-
ucts applications and for subsequent account management
programmes .

Collections Department

Internal Control Service

The Collections Department is responsible for collection of
amounts due but unpaid by delinquent Group customers . The
Management Board approves the Group’s collections policy,
which is then implemented by the Collections Department .

The Internal Control Service assesses the adequacy of
internal procedures and professional standards, as well as
their compliance with CBR regulations . The Internal Control
Service is controlled by, and reports to, the Bank’s Board of
Directors .

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 CBR’s requirements, capital
adequacy and liquidity reports, operational liquidity forecast reports and information on intraday cash flows .

Some reports are submitted for the review of the Board of Directors on a monthly basis . These include selected financial
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 .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

ASSET, LIABILITY AND
RISK MANAGEMENT

Overview of principal risks

The Group is subject to a number of principal risks which might adversely impact
its performance .

All of the Group’s assets and customers are located in or have businesses related
to Russia . Consequently the Group is affected by the state of the Russian economy
which is itself to a significant degree dependent on exports of key commodities
such as oil, gas, iron ore and other raw materials, on imports of material amounts
of consumer and other goods and on access to international sources of financing .
During recent years the Russian economy has been significantly and negatively
impacted by a combination of macroeconomic and geopolitical factors such as a
significant decline in the price of oil, ongoing political tension in the region, eco-
nomic sanctions imposed against Russian individuals and companies, economic
restrictions imposed by Russia on other countries, capital outflows as well as
depreciation of the Rouble and a decrease in Russia’s international reserves . In
addition emerging markets such as Russia are subject to greater risks than more
mature markets, including significant political, economic and legal risks . This
over-arching risk environment could impact one or more of the principal risks .

Credit Risk

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 .

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 Direc-
tors . 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 applications 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 .

The Group uses automated systems to
evaluate an applicant’s creditworthi-
ness (“scoring”) . The system is regularly
modified to incorporate past experience
and new data acquired on an iterative
basis . The Group performs close credit
risk monitoring 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 cus-
tomers . According to these principles,
the minimum requirements for poten-
tial customers are as follows:

•

Citizenship of the Russian Federa-
tion;

•

Aged from 18 to 70 inclusive;

•

Possession of a mobile phone;

•

Permanent current employment;

•

Monthly income above five thou-
sand Roubles; and

• Permanent or temporary place of

residence .

In almost all cases, the decision to
issue a credit card or other loan prod-
uct 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 circumstances is
immaterial .

The decision to issue a credit card or
loan to a customer is made after com-
pletion of the following steps:

Solicitation – The initial step in the un-
derwriting 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 officers check available informa-
tion on prospective customers and
remove potential non creditworthy
customers, thereby reducing the cost
of customer acquisition .

Validation – The purpose of this stage is
to ensure the validity, 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 addi-
tional information or documentation .

Verification – At this stage, the Group’s
loan officers verify information provid-
ed by the applicant in their application
form . This includes confirming the ap-
plicant’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
employment details (including verifica-
tion 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 regis-
trars and, wherever possible, verifica-
tion 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 pos-
sible (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 applicants, the Group
sends incoming applications to the
largest credit bureaus in Russia in-
cluding 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 auto-
matically rejected and can be accepted
on the basis of information provided in
their application forms and other sourc-
es of information described below .

Credit
risk

Market
risk

Operational
risk

RISK
MANAGEMENT

Foreign
currency
exchange
risk

Liquidity
risk

Interest
rate risk

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 applicant’s pass-
port is invalid according to the Federal
Migration 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) .

Scoring Models for the Application
– the Group has internally developed a
set of acquisition channel-specific sta-
tistical models that rank all applicants
according to their probability of default
during the next 12 months . These
models use, among other things, (i)
demographic data from the application
form (for example, age, gender, educa-
tion and marital status), (ii) payment his-
tory, 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 applica-
tion 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 devel-
oped acquisition channel-specific mod-
els that, among other things, estimate
a potential customer’s net present val-
ue from one used credit card . The key
components 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
customers’ estimated behaviour char-
acteristics, 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-positive 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 in-
itial limit allocation system that allows
it to reduce or increase the average
initial limits in order to manage antici-
pated loan losses and liquidity .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

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 col-
lection process that seeks to achieve
greater efficiency in the recovery of
overdue credit card loans . Collec-
tions on loans that are overdue by
0 to 90 days are performed by the
Group’s internal Collections Depart-
ment . After 90 days of delinquen-
cy, 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 cus-
tomers 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 collec-
tions treatments to different
groups of delinquent cus-
tomers .

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 accel-
erated 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-per-
forming 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 to

collections used for non-performing loans . In rare circumstances, the Group pro-
vides 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) collections through courts with the enforcement 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. Conversion 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 consultations 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 .

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
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-

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 .

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 .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

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 Credit loss allowance

CBRF Provisioning

From 2018 credit loss allowance is measured in accordance with expected loss
(ECL) model under IFRS 9 . The Group has adopted IFRS 9 with a date of transition
of 1 January 2018, which resulted in changes in accounting policies for recogni-
tion, classification and measurement of financial assets and liabilities and impair-
ment of financial assets .

Calculation and measurement of ECLs is an area of significant judgement and
involves methodology, models and data inputs . The following components of ECL
calculation have a major impact on credit loss allowance: probability of default (“PD”)
(impacted by definition of default, SICR) and loss given default (“LGD”) . he Group
regularly reviews and validates models and inputs to the models to reduce any differ-
ences between expected credit loss estimates and actual credit loss experience .

Adoption of IFRS 9 resulted in an increase of gross carrying amounts of the finan-
cial assets as of 1 January 2018 because the gross carrying amounts according to
the standard are calculated by discounting the contractual cash flows in relation to
principal and all contractually due interest at the effective interest rate while previ-
ously under IAS 39 the gross carrying amounts were calculated by discounting the
contractual cash flows in relation to principal and expected cash flows in relation to
interest at the effective interest rate .

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 esti-
mates and actual loss experience . In accordance with internal methodology for the pro-
vision 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 calculating the provision for impairment as
these statistics provide better information to estimate and project loan losses .

For CBR regulatory purposes, the
Group currently applies a methodology
based on RAS to calculate loan provi-
sioning and determine expected losses .
Under CBR regulations, provisions
for loan impairment are established
following the borrower’s default under
the loan or where there is an objective
evidence of potential inability of the
borrower to repay the loan . In the case
of consumer lending, the Group creates
provisions by reference to homoge-
nous loan portfolios including 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 . Provi-
sions with respect to individual loan
products are calculated based on the
borrower’s financial condition and debt
service quality .

CBR 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

The Management Board makes deci-
sions on loans to be written off based
on information provided by the Risk
Management Department . Generally,
loans recommended to be written off

Standard loans, without credit risk

Non-standard loans, moderate credit risk

Doubtful loans, considerable credit risk

Problem loans, high credit risk

Bad loans

are those in respect of which further
steps to enforce collection are regard-
ed as not economically viable . Loans
sold to external collection agencies
are also written off from the Group’s
balance sheet .

1-20

21-50

51-100

100

Market Risk

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

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 manages
the positions through hedging, matching or controlled mismatching .

The CBR sets limits on the open curren-
cy 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
exceeding 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 aiming
to minimise exposure to foreign currency exchange risks . The policy imposes
neutral hedging that matches assets and liabilities by currency, foreign exchange
hedging of funding received in foreign currency and prohibits foreign exchange
trading for speculative purposes .

Non-monetary assets are not con-
sidered 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 de-
crease 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 .

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 instruments .

Liquidity Risk

Liquidity risk is the risk that an entity
will encounter difficulty in meeting obli-
gations associated with financial liabili-
ties . 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 Com-
mittee 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 . Debt securities in
issue consist of Rouble-denominated
domestic bonds with maturities of up
to five years, in particular RUB 3 billion
11 .7 per cent . domestic bonds due
2021 with 18 months put option and
RUB 5 billion 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 CBR 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
repayments due within a month and
accrued interest for one month ahead
and (ii) a deposit liquidity cushion cal-
culated 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 obli-
gations 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 .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

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 CBR is 15 per cent .

Current liquidity ratio (N3),
which is calculated as the ratio
of liquid assets to liabilities ma-
turing within 30 calendar days .
The minimum statutory ratio
permitted by the CBR 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 li-
abilities maturing after one year .
The maximum statutory ratio
permitted by the CBR 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, repayments and
deposits with data for the day updated each evening;

Close deposit monitoring through daily reports and
periodic deposit portfolio/behavioural analysis;

Daily monitoring of credit card, deposits and cash
balances with a one-day lag for all balances;

Daily monitoring of movements on CBR and Nostro
correspondent 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
CBR 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 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 statis-
tics of autoprolongations and top-ups of longer deposits with
the funds from shorter deposits after their expiration in case
when the customers have more than one active deposit . The

matching and/or controlled mismatch-
ing of the maturities and interest rates
of assets and liabilities is fundamental
to the management of the Group . It is
unusual for banks ever to be completely
matched since business transacted

is often of an uncertain term and of
different types . An unmatched position
potentially enhances profitability, but
can also increase the risk of losses . The
maturities of assets and liabilities and
the ability to replace, at an acceptable

cost, interest-bearing liabilities as
they mature, are important factors in
assessing the liquidity of the Group and
its exposure to changes in interest and
exchange rates .

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 CBR’s require-
ments regarding operational risk . The
Board of Directors adopts general risk
management policy, assesses the effi-
ciency of risk management, approves the
Group’s management structure, adopts
measures designed to ensure continuous
business activities of the Group including
measures designed for extraordinary
and emergency situations and super-
vises other executive bodies in respect
of operational risk management . The
Management Board generally oversees
the implementation of risk manage-
ment processes at the Group including
relevant internal policies, adopts internal
regulations on the Group’s risk manage-
ment, 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 Terrorist Financing Procedures

Mandatory internal control checks are
conducted by the Group’s Internal Control
Service . External control is provided by
the CBR 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 .

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 CBR promulgated a
number of anti-money laundering regulations specifically for the banking sector .

The Group has adopted internal regulations on anti-money laundering that are based on,
and are in full compliance with, the requirements of the Russian anti-money laundering
regulations, related instructions of the CBR and international standards . The supervision
of the Russian anti-money laundering regime is shared by the CBR and the FSFMT .

The Group has created a specialised unit and appointed an authorised officer who coor-
dinates activities aimed at preventing money laundering and terrorism financing . The
Group conducts identification and review of its customers, customer’s representatives,
beneficiaries and beneficiary owners, money laundering and terrorism financing risk
management, personnel training as well as daily analysis of banking operations, verifies
information on operations that are subject to monitoring and sends all required informa-
tion to the relevant state authorities . Employees of the Group have to take mandatory
training on the Group’s policies and procedures 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 .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CORPORATE SOCIAL
RESPONSIBILITY

Corporate and Social Responsibility (CSR)

Overview

2018 was another year of strong per-
formance for TCS Group . We continued
developing our Tinkoff .ru ecosystem,
implementing a lifestyle banking
strategy and integrating innovative
technologies into our operational
processes with the aim of continuous
enhancement of operating efficiency .

We are always looking for ways to
make our offering more inclusive .

In October 2018, we launched Tinkoff
Junior, a mobile app enabling children
and teenagers to use banking services
while giving parents control of their
children’s accounts . Tens of thousands
of children and teenagers have already
downloaded the app . Tinkoff Junior’s
audience growth has been very fast

and organic, without any promotion on
our part . For now, thirteen-year-olds
constitute the core of the teenager’s
mobile app audience .

As part of the efforts to enhance our
Tinkoff Investments brokerage plat-
form, we launched Tinkoff Investments
Premium offering access to a global
catalogue of over 10,000 securities .

In 2018, we released an iOS and An-
droid enabled Tinkoff Mortgage mobile
app, an easy-to-use way for our cus-
tomers to apply for a mortgage right
from their smartphones and for Tinkoff
Mortgage partners (real estate agents,
brokers and developers) to submit a
mortgage application on behalf of their
customers and choose the best mort-

gage offer with the help of a mortgage
calculator .

Tinkoff is always looking to innovate:
these innovations save time, enhance
the customer experience and in most
cases reduce the environmental impact
of the business .

In October 2018, Tinkoff Bank
launched a nationwide biometric data
collection initiative and became an
official vendor for the Unified Biometric
System (UBS) offering voice recogni-
tion technology . The voice biometrics
algorithm used in the UBS is Tinkoff’s
proprietary technological solution . We
have been using our voice biometric
data in our call centre since 2017 and
achieved a 4-fold reduction in the

By the end of 2018, TCS Group's headcount totalled more than 24,000 people

customer identification time, from 60
to just 15 seconds . To achieve integra-
tion with the UBS, we re-trained the
biometric algorithm and improved its
performance .

In February 2019, Tinkoff Bank was
among the first Russian banks to
connect its customers to the Faster
Payment System (FPS) . The system
was developed with support from
the Central Bank of Russia to enable
instant transfers between individuals
across Russia using only a mobile
phone number . Just a month after the
FPS was launched, Tinkoff Bank’s share
in FPS transfers reached 70% .

In 2018, Tinkoff Bank and the National
Payment Card System (NSPK) devel-
oped a unique solution unmatched in
the Russian payment services market .
It allows Tinkoff customers to view
cash receipts in their user accounts at
Tinkoff .ru and in the Tinkoff mobile app .
The joint project of Tinkoff Bank and
NSPK has improved user experience .
To access the receipt information in the
user account, card holders no longer
need to give the merchant their phone
number, e-mail, or make a photo of the
receipt as it is processed automatically .

TCS Group is also making great strides
in machine learning development and
artificial intelligence . Starting from
March 2018, we have been steadily
reducing the number of outgoing op-
erator calls and launched our own call
bot which makes automatic calls and
talks with customers using pre-record-
ed phrases . During the testing of the
technology, not a single person noticed
they were speaking with a bot .

Two photos: during the FinTech Youth Day, Tinkoff Bank conducted master classes and
workshops for attendees of Finopolis 2018

Tinkoff Bank uses chat bots in all of its
customer communications . No opera-
tor is involved in 30% of all dialogues,
and only one question is answered by
humans in 35% of dialogues . These
responses are personalized as we do
not use scripts and respond based
on the customer data we have . In the
remaining cases, bots forward the call
to an operator .

In December 2018, Tinkoff Bank
announced the beta-testing of its voice
assistant Oleg in the Tinkoff mobile app .
The voice assistant will help customers
in everyday finance and lifestyle bank-
ing tasks . As of today, communication
scenarios available to customers
include cash transfers (between Tinkoff
customer accounts), booking a table at
a restaurant, making an appointment
with a beauty salon, buying a cinema
ticket, booking a taxi, as well as small
talk . The voice assistant accomplishes
90% of user tasks automatically using
a dialogue system technology . The
remaining 10% of calls are forwarded
by the assistant to Tinkoff’s remote
call centre . The voice assistant is not
just another customer communication
channel within Tinkoff’s ecosystem,
but also an effective tool to streamline
business processes . It will improve our
capabilities in this field and minimise
the time needed to accomplish user
tasks, while offering even more person-
alised solutions .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

EMPLOYEES AND CORPORATE
SOCIAL RESPONSIBILITY
Tinkoff Team

All these enhancements of the ecosys-
tem were made possible only through
the efforts of our talented team .
Throughout 2018, we were hiring the
best professionals on the market to
support our new lines of business . By
the end of 2018, the Group’s head-
count totalled more than 24,500
people, with 12,320 being permanent
office-based employees and 12,200

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 three 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,
62% 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 27 years .

Human resources: key principles

TCS Group has adopted an unconven-
tional recruitment approach . Lack of
finance or banking background is often
viewed as an advantage . We hire peo-
ple with no stereotypes who are eager
to reshape the financial services land-
scape . People with an analytical mind
and the ability to handle huge amounts
of data are our first choice .

The Group’s recruitment policy focuses
on:

• 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;

• bringing together smart people with

• an environment where employees

analytical experience;

• a transparent structure with zero
tolerance of bureaucracy or hier-
archy;

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 creating an environ-
ment that grants talented people with
far-reaching authority . Greater rights
and opportunities for our people is a
crucial element of our success To de-
liver on the Group’s objectives, we use
various channels to facilitate commu-
nication between employees, including
email, online chats, meetings and other
forms . Any employee can address
anyone in the Company regardless of
their position .

The average age of employees TCS Group -
wide stands at 27 years

Recruitment and
training

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 adver-
tising and job sites, student forums,
social networks and other online
channels . We actively look for the best
students at the top national and global
universities, including winners of con-
tests in mathematics, physics and pro-
gramming . We offer career growth and
training opportunities for professionals
at every level .

Compensation and
incentives

Compensation and incentives

TCS Group offers its employees a
unique working environment and a
transparent system of career growth .
We provide fixed-rate salaries and
bonuses, regularly assess the employ-
ees’ performance against their KPIs,
determine the amount of compen-
sation and give feedback for future
career development . TCS Group has a
market-based salary structure, with
KPI-related pay rises and bonuses .

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 re-
cruiting pool and recruit people based

During the FinTech Youth Day Tinkoff Bank conducted master classes and workshops for
attendees of Finopolis 2018

In January 2019, the Board of
Directors approved an expansion of
the Group’s long-term management
incentive plan . In particular, the number
of participating employees was in-
creased from 83 to 91 people (starting
31 January 2019) with relevant awards
granted to newly added participants .

The target equity pool for the pro-
gramme participants amounts to 5 .6%
of the Group’s issued share capital .

Each MLTIP wave is awarded over six
years and is subject to meeting annual
KPIs . All programme participants are
the Group’s permanent employees
based in Russia . As the Group contin-
ues to grow and diversify, the aim of
the expanded long-term management
incentive plan is to better align the
interests of the management with
those of the shareholders in order to
increase the Group’s value .

on professional skills and merits .

In 2018, 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 transportation as well as
for those who can only work remotely
(for example, for women on maternity
leave) . Such employees are trained
online, and all the necessary corporate
tools and materials are stored in a spe-
cial cloud environment . 12,200 people
throughout the country worked at our
home call centre as at the end of 2018 .
They also include individuals with
disabilities who are free to work at any
hours and locations they find suitable .
Such employees are trained online, and
all the necessary corporate tools and
materials are stored in a special cloud
environment .

TCS Group actively looks for the best
students at the top national and global
universities including winners of contests in
mathematics and programming

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

EMPLOYEES AND CORPORATE
SOCIAL RESPONSIBILITY

Health and safety

TCS Group creates a safe and comfort-
able work environment for its employ-
ees in full compliance with Russia’s
labour laws . We offer annual medical
check-ups, vaccinations, voluntary
health insurance, free membership
in our in-house fitness gym located

Environmental protection

In March 2018, Tinkoff Bank launched
a joint payroll programme with the
Russian branch of the World Wildlife
Fund (WWF) which provides an oppor-
tunity for the Russian business com-
munity to show greater commitment to
corporate social responsibility and help
the environment .

TCS Group offers for its employees free
membership in our in-house fitness gym
located at Tinkoff Bank's headquarters

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 .

Employees joining the Tinkoff Bank –
WWF payroll project will enjoy a num-
ber of financial benefits, while making a
meaningful contribution to saving the
environment by simply using the card
in daily shopping .

Each participating employee can
choose one of two products – a Tink-
off Black or a Tinkoff WWF card . 1% of

each transaction carried out with these
cards will be automatically transferred
to support the WWF’s conservation
programmes, while the cost of pur-
chased items will remain unchanged .
In addition, the Tinkoff WWF card
is manufactured from a corn-based
biodegradable material which can be
easily processed and does not pollute
the environment .

CSR

We are committed to supporting sus-
tainable social development, and en-
courage our employees and customers
to contribute to improving the quality
of life of vulnerable groups in Russia .

These values underpin the develop-
ment of our products and services .
According to the DisQuestion inclusiv-
ity research conducted by Everland in
the summer of 2018, Tinkoff Bank was
named the most convenient Russian
bank for the disabled . The research

team (27 people representing various
foundations, including individuals
with various forms of disabilities)
assessed the availability of remote and
specialised services, the maturity and
consistency of the approach applied to
servicing this category of clients, the
availability of special and customised
tariffs and offers, corporate policies
and personnel training .

We seek to promote various charitable
foundations among our customers,

who can donate money to 168 char-
ities via Tinkoff .ru or our mobile app,
both as regular payments effected
throughout the year or a one-time
fixed contribution . In 2018, Tinkoff
Bank’s customers made more than
34,000 cash transfers to charitable
foundations .

TCS Group and its employees pro-
vide not only financial support but
also practical assistance to several
non-profit entities, including assist-
ed-care facilities and orphanages, as
well as projects for homeless people
and those in need of medical care .
Acting as volunteers, our employees
raised funds that were spent on repair
and maintenance of facilities and pur-
chase of food, essentials and medica-
tions: one such project was a charity
fair arranged in partnership with the
Connection Foundation to assist deaf-
blind people .

TCS Group also supports a number of
other foundations . Among them are
the Zhuravlik Foundation that protects
children from abuse and violence in
orphanages and families, and helps
promote equal educational opportuni-
ties for children with special needs; the
Joy of Old Age that helps the elderly,
supervises over 150 assisted-care
facilities and arranges the work of
services that help the elderly at home;
the Mercy Foundation that specialises
in rehabilitation and adaptation of
children with neuromuscular diseases
and provides palliative aid to terminally
ill children at home; and the Curative
Education Centre that helps children
with various developmental challenges,

Educational projects

Tinkoff employees have access to a free cafe with a healthy meal

including autism spectrum disorders,
epilepsy, genetic syndromes, mental
disabilities, learning difficulties and
other problems .

In 2018, TCS Group donated over
7 million roubles to charitable founda-
tions .

Tinkoff Generation – an educational project for teenagers

In August 2018, Tinkoff Bank expand-
ed its educational programme by
launching a special Tinkoff Generation
project intended for pupils of the 8th
to 11th grades, who can receive free
training in three areas: Algorithms and
Data Structures, Machine and Deep
Learning, and Olympiad Mathematics .
Schoolchildren may study multiple
areas simultaneously .

The Tinkoff Generation courses are free
of charge . The lectures are delivered
by Tinkoff Bank experts, students of the
Moscow Institute of Physics and Technol-
ogy and the Higher School of Economics .
The 3–5 hour sessions are conducted
1–2 times per week at the Tinkoff Bank
headquarters in Moscow and in devel-
opment hubs in Nizhny Novgorod and
Ryazan . As of April 2019, there are more
than 400 schoolchildren participating in
the Tinkoff Generation project .

In 2018, over 400 schoolchildren joined Tinkoff Generation.

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

EMPLOYEES AND CORPORATE
SOCIAL RESPONSIBILITY
Tinkoff Fintech School

Three times a year we recruit stu-
dents and graduates of top-ranking
universities for our Tinkoff Fintech
School (since 2016), 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 cryptocurrencies .

Education at the Tinkof Fintech
School is provided free of charge . All
applicants take online exams . The
educational course including practical
sessions is 2–3 months long . In 2018,
the Tinkof Fintech School launched
some completely new programmes,
such as Product Design, Java to Scala,
Infrastructure Development and Build-
ing Analytics Platforms .

As of April 2019, 1,200 people had
completed the training . Currently the
Fintech School is training 656 students
across Russia (Moscow, Saint Peters-
burg, Nizhny Novgorod, Novosibirsk,
Ryazan, Izhevsk, Yekaterinburg, and
Rostov-on-Don) . The most promising
graduates are invited for a job inter-
view at Tinkoff Bank . Since the opening
of the Fintech School, over 120 gradu-
ates have joined Tinkoff Bank’s team .

Lectures at the Tinkoff Fintech School are delivered by the Bank’s VPs and leading experts.
Pictured here is Oliver Hughes, Tinkoff CEO and Chairman of the Management Board.

Financial Technology Laboratory in MIPT

In September 2018, Tinkoff Bank
launched a FinTech Lab at the Moscow
Institute of Physics and Technolo-
gy (MIPT) . The laboratory focuses on
artificial intelligence, including behav-
ioural analysis, guidelines, chatbots
and scoring models, training algo-
rithms, and other applications .

Earlier, Tinkoff had opened a basic
Financial Technologies Department at
MIPT . Tinkoff Bank founder Oleg Tinkov
and the Bank’s top management do-
nated RUB 100 million to the MIPT En-
dowment Fund . The fund supports AI

and machine learning research and
has become MIPT’s largest specialised
endowment .

with MIPT admission exams, should be
passed .

The MIPT Master’s programme is run
through the basic Financial Technol-
ogies Department in the Phystech
School of Applied Mathematics and
Informatics at the Moscow Institute of
Physics and Technology (MIPT) . Key
Tinkoff Bank employees hold profes-
sorial positions at the department . To
be admitted to the Master’s pro-
gramme, an internal examination and
an interview at Tinkoff Bank, together

The department provides 2 years of
education free of charge . Department
graduates earn a state-recognized
degree from MIPT . The course schedule
allows students to combine work and
studies . The lectures are delivered at
Tinkoff Bank offices . In 2018, the sec-
ond round of admission took place . At
the end of the last year the department
had a total of 36 students .

Specialised courses at the Moscow State University’s Department of
Mechanics and Mathematics (MSU Mech-Maths)

In December 2017, Tinkoff Bank began
collaborating with the MSU Mech-
Maths corporate Department of
Mathematical and Computer Methods
of Analysis . Tinkoff Bank’s senior
executives and analysts developed
specialised courses for the university’s

curriculum incorporating real-life busi-
ness cases from Tinkoff Bank .

The course curriculum allows students
to receive advanced training in pro-
gramming, machine learning, business
analytics, big data fundamentals, and

other related areas . In 2018, the first
specialised course on Big Data Han-
dling and hands-on training in Python
basics were delivered . Currently, Tink-
off lecturers are leading a dedicated
course on Data Operation in the Indus-
try, which is attended by 120 people .

Career opportunities for students and graduates

Analysts, developers and other IT
experts, first to fifth–year students
and recent graduates, are welcome
to enrol in the paid Tinkoff Summer
Internship and work on real-life pro-
jects . The duration of the programme
is 1–2 months . During this period, the
students get familiarised with the

industry and choose their future career
path . In summer 2018, the programme
was attended by 110 students in the
Moscow office and more than 80 stu-
dents in the regional development hubs
in Saint Petersburg, Yekaterinburg,
Novosibirsk, Nizhny Novgorod, Izhevsk,
Ryazan and Innopolis .

190 students from across Russia joined
Tinkoff Summer Internship in 2018.

120 graduates have been hired by
Tinkoff Bank.

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

EMPLOYEES AND CORPORATE
SOCIAL RESPONSIBILITY
FinTech Youth Day at Finopolis Forum 2018

In October 2018, Tinkoff became an
official partner of Finopolis 2018, a fo-
rum of financial innovations, one of the
nation’s major platforms for discussing
the use of modern digital technologies
in the financial sector and analysing
trends and opportunities of their
application . This year, the event again

gathered more than 1,500 attendees,
including representatives of major Rus-
sian and foreign companies, IT experts
and government officials .

During the FinTech Youth Day, Tinkoff
Bank conducted master classes and
workshops for attendees of Finopo-

lis 2018 . Tinkoff employees discussed
the skills a modern business analyst
needs, described popular design pat-
terns, delved into arrangement of data
storage on mobile devices, designed
an application interface and explained
how to exchange messages in an offline
mobile chat .

Tinkoff Bank development hubs

In autumn 2018, Tinkoff became the
first Russian bank to open a virtual
Tinkoff Development Hub, a cloud office
bringing together employees from
different locations for banking product
development . To date, Tinkoff Bank has
11 operating Tinkoff development hubs
(new TDH offices opened in Ryazan,
Sochi, Kazan and Novosibirsk in 2018) .
The virtual Tinkoff Development Hub
is the 12th . All cloud office employees
have been integrated in mixed teams
working with developers from the Mos-
cow and regional development hubs .

The virtual Tinkoff Development Hub
has helped the Bank significantly
expand the geography of personnel
and reduce the time needed to find
developers with relevant competen-
cies . A special candidate interviewing

procedure was created to address the
specifics of remote working . At the first
stage, candidates undergo prelimi-
nary technical screening followed by
a designated soft skills test to assess
their ability to work remotely, commu-
nicate, take initiative, and so forth . If
this stage is successfully completed,
the candidate is then invited for an
interview on professional skills .

through corporate meetings and joint
events at its Moscow headquarters and
Sirius-based Development Hub in Sochi
as well as the Bank’s other regional
hubs . Employees from the virtual de-
velopment hub enjoy all social benefits
of a regular developer at the Bank,
including English language courses,
free business trips to dedicated forums
and conferences, and more .

The Tinkoff Development Hub operates
as a standalone business unit of the
Bank with a dedicated head, HR team
and other components integral to
functional centres . Tinkoff sees cloud
office developers as full-fledged team
members, planning for long-term
collaboration and is committed to inte-
grating the virtual Tinkoff Development
Hub employees into its in-house team

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 .

Sports, musical and other events

TCS Group encourages a healthy life-
style and supports the cultural devel-
opment of its employees and society
as a whole . Tinkoff Bank regularly takes
part in the largest and most culturally
important national events related to
music, sports, science and education
in Russia .

Thousands of guests from across the globe
receive best deals and prizes from Tinkoff
Bank at Quiksilver New Star Camp, the
nation's prime winter festival.

Quiksilver New Star Camp

Tinkoff Bank was a general
partner of the Quiksilver
New Star Camp held in
March 2018, a sports and
music festival held at the
Rosa Khutor alpine resort
in Sochi . This year, Tinkoff
surprised participants
with a modern high-tech
lounge area at an altitude of
1,600 metres overlooking
the largest snowpark in
Russia and an impressive
airplane-shaped jibbing
zone . As part of the Quik-
silver New Star Invitational
by Tinkoff, viewers could
witness stunts performed by
the best Russian and inter-
national professional riders
on a jump over 20 metres
long .

At the festival, which
annually brings together
thousands of guests from
all over the world, partici-
pants received special deals
and offers from Tinkoff
Bank at all stages of the
sports camp . In addition to
snowboarding competitions,
the festival hosted multiple
workshops with reputable
speakers from the action
sport industry, performanc-
es by famous Russian and
international musicians,
yoga classes, film shows and
parties .

Tinkoff RosaFest

In January 2018, Tinkoff
Bank held Tinkoff RosaFest
2018 The Game, the first
winter festival arranged as

a game, which drew more
than 5,000 people . The
mountain quest took place
at the Rosa Khutor resort in
Sochi . A dedicated web app
with 125 ingenious tasks
was developed for the festi-
val . Upon arrival at the hotel,
each guest received a card
with a secret code to enter
the game and compete for
points . The entire territo-
ry of the festival was the
gaming zone, with points to
be collected on the slope,
in hotels at the mountain
village, in a noisy après-ski
zone and even at night in
the midst of a party . The
special hint codes were hid-
den throughout the resort,
e .g . in a cabin of the cable
car, on a headliner’s busi-
ness card and on a famous
athlete’s jacket . Holders of
Tinkoff All Airlines credit
cards received additional
bonuses, while the main
prizes were airline miles,
snowboards, and money
certificates .

Cycling parades and bas-
ketball tournaments

Tinkoff continues to actively
support and promote the
cycling culture across Rus-
sia . In 2018, Tinkoff became
a title partner of cycling
parades in 25 Russian cities
that welcomed more than
90,000 participants . On top
of that, Tinkoff Bank was a
title sponsor of the Tinkoff
Moscow Open, a basketball
tournament attended by
global elite players from
the 3x3 League, as well as

In 2018, the Nashestvie festival drew a record-breaking
200,000 attendees.

16 best Russian and interna-
tional teams . The event also
saw the first female basket-
ball tournament staged by
Tinkoff .

and “spin up” a cashback
reward on a cycling machine .
The total amount of cash-
back distributed exceeded
several million roubles .

Afisha Picnic, Dikaya
Myata, Nashestvie, Stere-
oleto and Present Perfect
Festival

In July 2018, Tinkoff be-
came the general sponsor
of Afisha Picnic, a major
summer open-air festival in
Moscow . Thanks to Tinkoff,
the main stage featured
larger screens to enable
even more people to see the
performances in detail . In
the run-up to the festi-
val, Tinkoff Bank launched
a ticket raffle based on
the Find the Cat interac-
tive online game which
attracted 60,000 people .
At the Afisha Picnic site,
Tinkoff Bank set up its own
entertainment venue — the
Stories Park with plenty of
ideal photo spots . There, the
guests could enjoy refresh-
ments and cool lemonade

Among other headline
national music events sup-
ported by Tinkoff were the
2018 Dikaya Myata (Wild
Mint) indie festival and the
Nashestvie rock festival .
The latter brought together
some 200,000 people who
could enjoy a hot-air balloon
flight and jumping on a
giant trampoline, exercise
at the Tinkoff climbing wall,
and, on top of that, issue a
dedicated Tinkoff Nashestv-
ie co-branded card right on
the spot .

Summer 2018 saw more
than 11,000 people visit the
Tinkoff Stereoleto festival
hosted by Saint Peters-
burg . The Bank also built a
colourful garden on the Gulf
of Finland quayside for the
Present Perfect Festival
dedicated to electronic
music and contemporary
art . Importantly, this was a
completely cash-free event:
Tinkoff technology allowed
the visitors to make on-
line-only cashless purchas-
es using the special branded
Tinkoff cards .

5,000 people took part in the
quest at Tinkoff RosaFest in
2018

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018Jacques Der
Megreditchian

(59)

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

Maria
Trimithiotou

(41)

Member of the Board
of Directors

Jacques Der Megreditchian has been a non-executive
director since October 2013 .

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

Mr . Der Megreditchian previously served as Chairman of
the Exchange Council of the Moscow Exchange . Mr . Der
Megreditchian has over 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
since 2016 .

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 (from October
2015) .

BOARD
OF DIRECTORS

Constantinos
Economides

(43)

Chairman of the Board
of Directors

Alexios
Ioannides

(42)

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
qualified as a Chartered Accountant in 2004 . Mr . Ioannides
is also 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
Delpal
(45)

Martin
Cocker

(59)

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

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 .

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 and Renaissance Insurance Group
(Russia) . 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,
Beverley Building Society, Nostrum Oil and Gas PLC and Head-
hunter 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 .

Directors of the Company gathered at the offices of the Company in Limassol. Left to right: Martin Cocker, Philippe Delpal, Constantinos
Economides (Chairman), Jacques Der Megreditchian, Alexios Ioannides and Maria Trimithiotou.

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CORPORATE
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.

Copies of the Articles of Association of
the Company adopted on 21 October
2013, the terms of reference of the
Committees, and other corporate
governance related as well as investor
relations related materials can also be
found on that website, at www .tcsgh .
com .cy, on the Company’s page on
the London Stock Exchange website
(www .londonstockexchange .com/ex-
change/prices-and-markets/stocks/
summary) and at the official site of the
Department of Registrar of Companies,
Cyprus (http://www .mcit .gov .cy/) .

GDRs of TCS Group Holding PLC (a Cy-
prus incorporated company), with each
GDR issued under a deposit agreement
dated on or about 24th October 2013
with JPMorganChase Bank N .A . as
depositary representing one Class
A share, are listed on London Stock
Exchange and the Company is required
to comply with its corporate govern-
ance 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 corpo-
rate governance measures of the same
standard in all respects as those adopt-
ed by UK incorporated companies or
companies with a premium listing on
the London Stock Exchange .

The Company’s Home State is Cyprus .

As the Class A shares themselves are
not listed on the Cyprus Stock Ex-
change (or elsewhere), the Cypriot cor-
porate governance regime, which only
relates to companies that are listed on
the Cyprus Stock Exchange, does not
apply to the Company and accordingly
the Company does not monitor its
compliance with that regime .

A description of the terms and con-
ditions of the GDRs can be found at
‘Terms and Conditions of the Global
Depositary Receipts’, ‘Summary of the
Provisions relating to the GDRs whilst
still in Master Form’ and ‘Description of
Arrangements to Safeguard the Rights
of the Holders of the GDRs’ in the Pro-
spectus issued by the Company dated
22 October 2013 and on the website at
www .tinkoff .ru/eng .

The Board of Directors

The role of the Board is to
provide entrepreneurial lead-
ership to the Group within a
framework of prudent and
effective controls which ena-
bles risk to be assessed and
managed . The Board sets the
Group’s strategic objectives,
ensures that the neces-
sary 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 .

reserved to the Board for its
decision, approved by share-
holders 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 executive
directors including the chair-
man, and three non-executive
directors two of whom are
independent . There was no
change in the composition of
the Board or status of the di-
rectors in 2018 . The Board of
directors currently contains
no Directors B .

The Board operates under a
formal schedule of matters

The longest serving director
Mr Constantinos Economides

took over the role of Chair-
man of the Board of directors
in June 2015 . The names
of the people who served on
the Board during 2018 are
listed at pages 48-49 . The
Group has established two
Committees of the Board .
Specific responsibilities have
been delegated to those com-
mittees as described below .

The Board is required to un-
dertake a formal and rigorous
review annually of its own
performance, that of its com-
mittees and of its individual
directors . That review was
recently carried out, in-house,
in relation to 2018, looking
at overall performance . All
directors completed detailed
questionnaires on the

Board’s, the committees’ and
individual director’s perfor-
mance . Analysis of the re-
sultant feedback, which was
discussed at a meeting of the
Board of Directors in early
2019 did not show up any de-
ficiencies in the performance
of the Board, its committees
or individual directors of a
nature that required changes
to be made .

The Board has not appointed
a senior independent director .
There are only two inde-
pendent directors of whom
at least one will retire each
year . The role of appraising
the Chairman of the Board
for FY2018 was performed
by the Chairman of the Audit
Committee .

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 in issue . Thereaf-
ter 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 May 2018 the two directors who retired
by rotation were Mr Jacques Der Megreditchian and Mr
Martin Cocker . Both were duly reappointed by vote of the
shareholders .

Director’s powers

The business of the Company is managed by the directors,
who are empowered to exercise all such powers of the
Company as are not, by the Cyprus Companies Law or by
the Articles of Association, required to be exercised by the
shareholders in general meeting, subject nevertheless to any
provisions of the Articles of Association, of the Companies

Law and of any directions given by the general meeting by
ordinary resolution; but no alteration of the Articles of As-
sociation and no direction made by the Company in general
meeting shall invalidate any prior act of the directors which
would have been valid had that alteration or direction not
been made or given .

Proceedings of the Board of Directors

The quorum necessary for
the transaction of the busi-
ness of the directors shall
be at least four directors .

Questions arising at any
meeting of the Board of
directors shall be decided
by a majority of votes . In
the case of equality of votes,
the chairman shall have a
second or casting vote . A
director may, and the sec-
retary on the requisition of
a director shall, at any time,

summon a meeting of the
directors . A resolution in
writing signed or approved
by letter, telex, facsimile
or telegram by all directors
or their alternates or in
relation to a committee
by all its directors, shall
be as valid and effectual
as if it had been passed at
a meeting of the Board of
directors or (as the case
may be) at a committee
meeting duly convened and
held . Any such resolution in

writing signed may consist
of several documents each
signed by one or more of
the persons described .

Any notice shall include an
agenda identifying in rea-
sonable detail the matters
to be discussed at the meet-
ing together with copies of
any relevant documents .

The directors may delegate
any of their powers to a
committee or committees

Attendance table for board of director
and committee meetings FY2018

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

Director

Board Attendance FY2018

AC Attendance FY2018

RC attendance FY2018

Constantinos Economides
(Chairman)

Maria Trimithiotou

Alexios Ioannides

Martin Cocker

Philippe Delpal

Jacques Der Megreditchian

4/4

3/4

n/a

6/6

5/6

n/a

1/1

Dear stakeholders

I am delighted to report to you that FY2018 has been another highly suc-
cessful year in the life of the Group as the financial supermarket branches
out and investments made in it deliver results, partnering the hugely suc-
cessful core credit card business . As I have mentioned before, outstand-
ing financial performance such as the Group delivered in FY2016 and in
FY2017 and again in FY2018 is the result of many years of very hard
work, professionalism at all levels right across the Tinkoff Group, com-
bined with a great passion for the business and helping our customers .

Tinkoff Bank (our main investment) CFO, Ilya Pisemsky’s commentary on
the Group’s FY2018 operating and financial results is included earlier in
this Report in his ‘Financial review’ as is Oliver Hughes our CEO’s ‘Stra-
tegic review’ of 2018 . Both share insights into key trends in the Russian
market and how these might play out in the future . I urge you to read
them; I believe they are worth investing your time on .

It is widely acknowledged that the Russian operating environment is not
the easiest, but as Oliver Hughes points out earlier, the reality is our ex-
cellent 2018 results do go to show that if you have the right business
model, the right brand, the right team and can execute, Russia is a great
market to be in despite how it may sometimes look from the outside . The
Group has been able to thrive whatever the challenges, whatever the en-
vironment, for the benefit of our customers .

Inside the Company, the work of the Board of Directors which I have had
the privilege to chair since 2015, continues . Work on enhancing our cor-
porate governance mechanisms and compliance processes is never-end-
ing, accommodating increasing regulatory interventions in and supervi-
sion of the banking sector, trends for greater consumer protection and
all the while preserving the essence of our entrepreneurial culture, what
makes Tinkoff unique .

Our annual appraisal of the Board, both its committees and all our indi-
vidual directors, their individual and collective strengths and weakness-
es, performance and effectiveness, was conducted in-house . The recent
appraisal in Q12019 for FY2018 I believe shows us heading firmly in the
right direction- but we are not complacent nor standing still . It generated
some interesting ideas; we will be looking at how to develop these in the
near future as the business grows and evolves .

Finally, my thanks to our founder and controlling shareholder Oleg Tinkov
for his ongoing inspiration to all of us and my congratulations to him and
the rest of the Tinkoff Group management teams for an excellent 2018 .

I am confident 2019 will bring more of the same!

Constantinos Economides

Chairman of the
Board of Directors

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Committees of the Board of directors

The Company has established two Committees of the Board
of directors: the Audit Committee and the Remuneration
Committee . Their terms of reference are summarized below .
Both Committees were formed 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 Com-
mittee is also chaired by an
independent non executive
director Mr Jacques Der
Megreditchian, and has two
other members both non
executive directors, one

of whom is independent .
Details of the non execu-
tive and independent non
executive directors are set
out below .

The current terms of refer-
ence of both Committees
are available to the public
and can be found on the
Group’s websites . 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 responsibilities . In ex-
ecuting this role the Audit Committee monitors the integrity
of the financial statements of the Group prepared under IFRS
and any formal announcements relating to the Group’s and
the Company’s financial performance, reviewing significant
financial reporting judgments contained in them, oversees
the financial reporting controls and procedures implemented
by the Group and monitors and assesses the effectiveness of
the Company’s internal financial controls, risk management
systems, internal audit function, the independence and qual-
ifications of the independent auditor and the effectiveness of
the external audit process . The Audit Committee is required
to meet at appropriate times in the reporting and audit cycle
but in practice meets more often as required .

After consideration of the review, no changes were proposed
to the committee’s terms of reference . The Audit Committee
operates a structured framework around the extensive work
it does on non-FS matters holding at least two additional
meetings annually, at least one of which would be held at the
Bank’s head office in Moscow, to consider specific non-finan-
cial statement related areas within its terms of reference .
Two such meetings were held in 2018 with further planned
for 2019 .

The Audit Committee has developed a risk matrix which
constantly evolves to reflect new risks, the perceived im-
pact 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 .

A new post of chief information security officer was created
in late 2017 and filled, with additional personnel expert in cy-
ber-security recruited, in a very competitive market, through
2018 to support the Group’s ever-increasing efforts to stay
ahead of trends and threats in this sphere .

“

Our 2018 tender for external auditor

We indicated our intention last year to tender the external auditor role in Summer 2018 and have now conducted a
robust, fair and transparent process which has resulted in the Audit Committee’s recommendation to retain PwC. I am
pleased this recommendation has been accepted by the Board and I would like to thank all the firms who took part in
the tender. We look forward to continuing to work with PwC.

Making a recommendation to the
Board of Directors on the first and
second choice of candidates for the
Company’s external auditor, and giving
reasons for our choices and preference
for first choice, was one of the key
responsibilities of the AC last year .

The AC initiated scoping the process
back in April 2017 and announced
the Company’s intentions soon after,
recognizing that because the Company
was an EU PIE, the EU Audit Reforms
had introduced legally binding require-
ments for audit tendering and rotation
and the ten year deadline to hold a
tender would be upon us in FY2018 .

Whilst there are legal parameters to
the process, to ensure the process was
open to more candidates than just the
Big 4 firms, with non-discriminatory
pre-determined evaluation criteria, we
gave candidates a proper understand-
ing of our business and above all was
not just fair but demonstrably fair, we
saw it as an opportunity to hear from
the candidates, some of whom knew us
well some less so, their ideas on among
other things:

–

improving audit quality

hearing the views of various stake-
holders on potential candidates

practical issues of rotation off,
transition/shadowing and handover

coordinating auditor inputs across
multiple jurisdictions

the role of automation (sampling)
and IT in auditing

the developing tax, reporting and
regulatory environment of the
Group

professional service firms’ liability
limits

strengths and weaknesses in
non-audit work

the proposed audit fee and charg-
ing structure .

Martin Cocker

Chair of the Company’s Audit Committee
16 July 2018

The Company early on settled the composition of the tender/selection Panel .

It had seven members:

• Martin Cocker, Chair of the
Audit Committee INED and
Chair of the Tender Panel

• Constantinos Economides,

Chair of the Board of
Directors

• Philippe Delpal, member
of the Audit Committee
NED

• Jacques Der Megreditchi-
an, member of the Audit
Committee, INED

•

Ilya Pisemsky, CFO Tinkoff
Bank

• Pavel Tokarev, Deputy CFO

Tinkoff Bank

• Anna Kuzina, Head of IFRS

Tinkoff Bank .

Following request for submissions of interest in April 2018 to check independence
and objectivity, the formal invitations to tender were issued on 1 June, a Q+A ses-
sion was held with participating applicants on 15 June, short written submissions
from all candidates received by 27 June and on 3 July all candidates made their
cases face to face to the Panel . It was a specific requirement of ours that the audit
managers who day to day would be handling our case attended and met the Panel .

The candidates were scored, after closing off any open issues from 3 July 2018, by
13 July, two preferences were decided on by 13 July and put to a Board vote, all
candidates were notified and debriefed in the w/c 16 July and the result announced
on 26 July .

The Tender Panel rigorously tested all the candidates, and was able to make informed
judgments on their organizational and cultural fit, their approach and resources, their
commitment to us, and last but not least whether the CFO and key finance staff could
have an enduring and positive working relationship with the external audit team .

As a result of this intensive 16 month process, we did end up retaining our then
current external auditor PwC . True . But members of the Panel are unanimous in
agreeing that the exercise was highly beneficial to the Company and they gained
useful insights into the world of the elite group of external auditors .

I would like to stress my thanks to all the firms who took part, as well as pay tribute
to the professionalism of fellow Panel members .

Martin Cocker

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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
far more often .

The Remuneration Committee con-
tinued with its work into 2018 on an
ongoing review of the operation of the
Group’s equity based incentive and re-
tention plan for key, senior and middle
management (MLTIP) which launched
in 2016 and in considering additional
awards to both existing and new par-
ticipants for this and subsequent years .
The Remuneration Committee recom-
mended 10 members of management
be invited to join MLTIP in Q12019 .

naires were completed by all directors
assessing the operation of the Board
and both committees as well as individ-
ual directors . Although earlier reviews
had resulted in certain minor changes
to the Remuneration Committee’s
terms of reference, no further changes
were felt required based on the most
recent review .

The Committee continues to meet as
required .

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 .

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

One third of the directors (or if their
number is not a multiple of three,
the number nearest to three but not
exceeding one-third) shall retire by 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-
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 .

Martin
Cocker

Philippe
Delpal

Jacques Der
Megreditchian

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 .

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

The office of director shall be vacated if
the director:

• becomes, or may be, of unsound

mind; or

• 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

• 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 2018, the
Company’s issued share capital is
US$7,305,553 divided in to 182, 638,
825 shares, each of nominal value of
US$0 .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 US$0 .04 per
share and fully paid . As of 31 Decem-
ber 2018, the Company’s authorized
share capital was USD7,670,830 .64
(with in addition to the stated Class A
and Class B shares, 9,131,941 undesig-
nated shares of nominal value US$0 .04
each) .

All of the Class B shares are held
directly or indirectly by Mr Oleg Tinkov,
the controlling shareholder .

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 .

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Articles of Association

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

The Company’s current Articles of Association were adopted on 21 October 2013 and, except as to share capital, have not
changed since . The following is a brief summary of certain material provisions of the Articles of Association, in force as at 31
December 2018 . Holders of GDRs are not direct shareholders in the Company but instead derive their rights through holding
a GDR . A description of the terms and conditions of the GDRs can be found at ‘Terms and Conditions of the Global Depositary
Receipts’, ‘Summary of the Provisions relating to the GDRs whilst still in Master Form’ and ‘Description of Arrangements to
Safeguard the 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 .

Rights of shareholders

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

Meeting of shareholders

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

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

(a)

extraordinary general meetings of
the Company on the requisition of:

(b)

(i)

a shareholder or share-
holders 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;

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 major-
ity together holding not less than
95 per cent . in nominal value of the
shares giving the right to attend
and vote at the meeting .

Shareholders’ rights at meetings

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

shareholders specifying the number
of the shares and/or other securities
giving rights to purchase shares in
the Company, or which are convertible
into shares in the Company, which the
shareholder is entitled to acquire and
the time periods (which shall not be
less than 14 days from the date of no-
tification 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 peri-
od, 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 .

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Voting rights

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 .

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 .

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

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

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 .

(Qualified Person, for the purpose of
these paragraphs means a Class B
shareholder or a person connected
with such Class B shareholder or a per-
son, 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 sharehold-
er .)

(b)

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

• on a Hands Vote, to one vote per

• (a) on a Hands Vote, to 10 votes per

Class A shareholder; and

Class B shareholder; and

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

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

Conversion rights

Class A Shares are generally not con-
vertible into Class B Shares .

(a)

Each Class B Share confers on its holder
the right to convert each Class B Share
into one Class A Share at any time at
the absolute discretion of a relevant
Class B shareholder by serving a written
notice to the Company setting out the
number of Class B Shares the relevant
holder is willing to convert . The conver-
sion referred to above shall take place
automatically at the expiration of one
Business Day from the date that the rel-
evant 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 auto-
matically converted into Class A Shares,
on a one-to-one basis, in the following
circumstances:

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:

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 .

provided that:

Variation of rights

(i)

(ii)

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

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

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

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 .

(a)

(b)

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

of the general meeting of the
shareholders of the Shares of that
class with the sanction of a major-
ity 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 aggre-
gate not less than 50 per cent . in
nominal capital value of the entire
issued share capital of the Compa-
ny; 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 “ma-
jority resolution” has been given .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

MANAGEMENT
TEAM

Oliver
Hughes

(48)

Ilya
Pisemsky

(43)

Sergei
Pirogov

(48)

Artem
Yamanov

(37)

Stanislav
Bliznyuk

(38)

Valeria
Pavlyukova

(35)

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

SVP,
Business Development Director

Chief Operating Officer,
Deputy Chairman of the Manage-
ment Board of Tinkoff Bank

Chief Legal Officer,
Deputy Chairman of the Manage-
ment Board of Tinkoff Bank

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 .

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 .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018CONTINUED

MANAGEMENT
TEAM

Anatoly
Makeshin

(46)

Head of Payment Systems,
Deputy Chairman of the Manage-
ment Board of Tinkoff Bank

Viacheslav
Tsyganov

(43)

Chief Information Officer

Evgeny
Ivashkevich

(48)

Risk Director,
Deputy Chairman of the Manage-
ment Board of Tinkoff Bank

George
Chesakov

(46)

Head of Tinkoff Mobile

Natalia
Izyumova

(56)

Chief Accountant,
Member of the Management Board of
Tinkoff Bank

Darya
Ermolina

(31)

Communications Director

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 .

Natalia graduated from Moscow State
University with a degree in Economics
and holds a PhD in Economics from the
Research Institute of Economy .

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 .

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 .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018Board 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 2018 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 2019 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 2018

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

17 Customer Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-71

Consolidated Management Report . . . . . . . . . . . . . . . . . . . . . . F-3

18 Debt Securities in Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-71

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . F-10

19 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-72

20 Insurance Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-72

CONSOLIDATED FINANCIAL STATEMENTS

21 Other Financial and Non-financial Liabilities . . . . . . . . F-73

Consolidated Statement of Financial Position . . . . . . . . . . F-19

22 Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-75

Consolidated Statement of Profit or Loss and Other
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20

23 Net margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-76

24 Fee and Commission Income and Expense . . . . . . . . . . . F-77

Consolidated Statement of Changes in Equity . . . . . . . . . . . F-21

Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . F-22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23

2 Operating Environment of the Group . . . . . . . . . . . . . . . F-25

3 Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . F-25

Critical Accounting Estimates and Judgements in
Applying Accounting Policies . . . . . . . . . . . . . . . . . . . . . . F-42

Adoption of New or Revised Standards
and Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43

6 New Accounting Pronouncements . . . . . . . . . . . . . . . . . . F-48

7 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . F-50

8 Due from Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-51

9 Loans and Advances to Customers . . . . . . . . . . . . . . . . . . F-51

10 Investments in Debt Securities . . . . . . . . . . . . . . . . . . . . . F-62

11 Investment Securities Available for Sale . . . . . . . . . . . . F-65

12 Repurchase Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . F-66

13 Guarantee Deposits with Payment Systems . . . . . . . . . F-68

14 Tangible Fixed and Intangible Assets . . . . . . . . . . . . . . . F-69

15 Other Financial and Non-financial Assets . . . . . . . . . . . F-70

25 Customer Acquisition Expense . . . . . . . . . . . . . . . . . . . . . F-78

26 Net Gains from Operations with Foreign Currencies . F-78

27 Insurance Claims Incurred . . . . . . . . . . . . . . . . . . . . . . . . . F-78

28 Administrative and Other Operating Expenses . . . . . . F-79

29 Other Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . F-79

30 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-80

31 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-82

32 Reconciliation of liabilities arising from

financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-83

33 Segment Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-83

34 Financial Risk Management . . . . . . . . . . . . . . . . . . . . . . . . F-88

35 Management of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . F-104

36 Contingencies and Commitments . . . . . . . . . . . . . . . . . F-104

37 Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . F-107

38 Financial Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-107

39 Fair Value of Financial Instruments . . . . . . . . . . . . . . . . F-108

40 Presentation of Financial Instruments

by Measurement Category . . . . . . . . . . . . . . . . . . . . . . . F-113

41 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . F-114

42 Events after the End of the Reporting Period . . . . . . . F-116

43 Accounting Policies Applicable before 1

16 Due to Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-70

January 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-116

F-1

F-2

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

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 2018 .

Principal activities and nature of
operations of the Group

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”) .

3 . The Bank specialises in retail banking for individuals and
small and medium-sized enterprises (SME) and broker-
age 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 2018 the Group acquired a minority stake in

Kassir .ru, one of Russia's biggest ticket sales companies
by the number of tickets sold . The acquisition is in line
with the Group’s strategy of developing its ecosystem to
offer customers a greater choice of financial and related
services through the Tinkoff .ru platform .

5 . During 2018 the Bank founded the non-commercial or-

ganization ANO “Tinkoff Education” with no share capital .
This entity is in the process of receiving an educational
license and did not perform any activity during 2018 .

Review of developments, position
and performance of the Group’s
business

6 . The Bank operates a flexible business model . Its virtual

the Bank’s virtual network, afford it a geographic reach
across all of Russia’s regions resulting in a highly diversi-
fied portfolio .

7 . During 2018 the Company was actively developing its
operations in Cyprus connected with provision of call-
center and software development services .

8 . During 2018 the Bank started providing new types of

loans: i) car loans, ii) secured loans which represent
loans secured by cars or real estate, and iii) loans pro-
vided to individual entrepreneurs and small and medium
businesses for the purpose of working capital manage-
ment .

9 . 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 .

10 . In terms of financial performance the profit of the Group

for the year ended 31 December 2018 was RR 27,122
million (2017: RR 19,023 million) . This result is driven by
two major continuing trends: an ongoing quality growth
of the Group’s consumer finance business, a growing
contribution from the non-credit fees-and-commission
business lines . Net margin increased by 28 .5% to RR
59,217 million (2017: by 37 .3% to RR 46,076 million)
on the back of credit and investment portfolio growth .
The growth of the credit portfolio was driven not only
by the credit cards part but also by other types of loans,
such as, Cash and POS loans . Starting from the middle
of 2018 the Bank introduced car and secured loans
for its customers which accounted for about 3% of net
Loans and advances to customers as at the year-end .
The quality of loans continued to improve . The 90 days
plus overdue loans ratio (NPL) reduced to 9 .4% as at 31
December 2018 compared to 13 .4% as at 1 January
2018 under IFRS 9 (2017: 8 .8% under IAS 39) . The NPL
coverage ratio increased to 164% as at 31 December
2018 and to 166% as at 1 January 2018 under IFRS
9 (2017: 126% under IAS 39) . The Investment in debt
securities portfolio (according to IFRS 9) increased by
39 .7% to RR 100,140 million (2017: the Investment Se-
curities Available for Sale (according to IAS 39) portfolio
increased by 115 .3% to RR 71,676 million) . The reason
for these dynamics is the development of the debit cards
and SME business lines . The Group continues to main-
tain a good quality and diversification of its securities
portfolio . During the year the Bank launched its Tinkoff
Investments product giving its customers a platform to
buy and sell market securities . The Group’s Insurance
business continues to develop at a good pace . This year
Insurance premiums earned increased by 144 .0% to RR
6,674 million (2017: by 102 .9% to RR 2,735 million) .
The reason behind the growth of insurance premiums

is a continuous development of auto (including KASKO
and OSAGO) and travel insurance, as well as the growth
of personal accident insurance along with the credit
portfolio .

11 . The Group has adopted IFRS 9 with a date of transition of
1 January 2018, which resulted in changes in accounting
policies for recognition, classification and measurement
of financial assets and liabilities and impairment of
financial assets . The equity attributable to shareholders’
of the Company decreased at 1 January 2018 by RR
9 .8 billion as a result of adoption of IFRS 9 . This impact
primarily arises from an increase in credit loss allowance
for loans and advances to customers less the related
deferred tax credit . Other impacts of IFRS 9 adoption
on the Group are disclosed in Note 5 of consolidated
financial statements .

Environmental matters

12 . As the Group is an online only financial institution, the
management of the Group believe none of the Group’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 Com-
pany’s own activities as well as its business relationships
including its supply and subcontracting chains . This be-
lief is based on continuous scrutiny of the business . The
Group is continuously reviewing its processes to identify
opportunities to reduce their environmental impact .

Human resources

13 . The Group has a flat organizational culture . The Group prac-
tices delegation of decision making to the levels deep below
the management team and actively promotes discussion and
idea generation and exchange . The Group believes in creating
an environment where highly talented people are empow-
ered . Empowerment is an important ingredient in the success
of our organization . It’s also about the workplace environ-
ment – having an open leadership style where information
can move freely – where ideas are constantly channeled up,
down and sideways around the Group . The Group does not
have ‘a rule by committee’ approach . The Group utilizes all
types of forums to promote continual dialogue – using email,
various online chat rooms, flash meetings, as well as for-
malized meeting structures . Anyone can talk to anyone and
transparency is promoted . The Group offers a clear far-reach-
ing career path for its employees, unique work environment
and a fair and transparent compensation .

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

15 . Prior to its IPO in 2013, the Group set up share based long
term incentive plans as retention and motivational tools
for key and senior managers . In March 2016, the Group
announced a consolidated long-term management incentive
and retention plan, covering around 50 key, senior and mid-
dle managers . In 2017 and 2018, the Group announced the
expansion of the plan . The number of participants increased
to over 80 . Total target size of the MLTIP pool is 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 over the sub-
sequent three years . The Group 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, in-
ternal promotions as some employees were promoted to key
managerial positions, and secondly, as part of its expansion
and transformation into a financial marketplace, the Group
has hired a significant number of new managers to develop
and manage new business lines .

Non-Financial Information and
Diversity Statement

16 . The Group’s policies and information for an understand-
ing of the development, performance, position and
impact of the activity of the Group in the spheres of
environmental, social and employee matters, respect for
human rights, anti-corruption and bribery matters can
be found in the Group’s most recently published Non-Fi-
nancial Information and Diversity Statement . The Group
will publish its Non-Financial Information and Diversity
Statement for the year ended 2018, on the Company’s
website, www .tcsgh .com .cy (and www .tinkoff .ru/eng) by
30 June 2019, within six months of the reporting date .

Principal risks and uncertainties

17 . The Group’s business and financial results are impact-

ed by the uncertainties and volatility of the Russian
economic environment . For example in April 2018 the
Russian Rouble decreased by about 10% against the US
Dollar and Euro in the space of a few days and interna-
tional sanctions continue to impact Russia . With respect

F-3

F-4

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Consolidated
Management Report (Continued)

of Rouble interest rates, during 2018 the CBRF “key rate”
fluctuated between 7 .25% and 7 .75% . It was at the top
end of the range at both the beginning and the end of
2018 .

18 . The Group is subject to a number of principal risks which
might adversely impact its performance . The princi-
pal activities of the Group 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 (including currency
risk, interest rate risk and other price risk), credit risk
and liquidity risk .

19 . The Board has adopted a formal process to identify,

evaluate and manage principal risks and uncertainties
faced by the Group . The Group has an established risk
management program that focuses on the unpredictabil-
ity of financial markets and seeks to minimize potential
adverse effects on the Group’s financial performance .
This is overseen by a dedicated Risk Management func-
tion, 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 func-
tions 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 34 and
36 of the consolidated financial statements .

Contingencies

20 . The Group’s contingencies are disclosed in Note 36 to

the consolidated financial statements .

Future developments

21 . 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 .

Results

22 . The Group’s results for the year are set out on page 2 of
the consolidated financial statements . Information on
distribution of profits is presented in Note 31 .

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

23 . Important events for the Group that have occurred after
the end of the financial year are presented in Note 42 .

Share capital

24 . During 2018 the Company’s shareholders approved a
resolution to increase authorised share capital to USD
7,670,830 .64 by the creation of 1,291,266 new undes-
ignated ordinary shares of nominal value USD 0 .04 each .
As at 31 December 2018 the total number of authorised
shares is 191,770,766 shares (31 December 2017:
190,479,500 shares) with a par value of USD 0 .04 per
share (31 December 2017: USD 0 .04 per share) .

25 . As at 31 December 2018 the issued share capital of the
Company which remains unchanged from the prior year,
comprised 96,239,291 “class A” ordinary shares and
86,399,534 “class B” ordinary shares with a par value of
USD 0 .04 per share .

Research and development activities

26 . During the year ended 31 December 2018 the Group has
undertaken research and development activities related
to software including greater use of biometrics .

Treasury shares

27 . At 31 December 2018 the Group held 6,604,353 (2017:
6,315,121) of its own GDRs that is equivalent of approxi-
mately RR 3,670 million (2017: RR 1,587 million) repre-
senting 3 .6% (2017: 3 .5%) of the issued share capital .

28 . Treasury shares are GDRs of TCS Group Holding Plc that
are held by the special purpose trust which has been spe-
cifically created for the long-term incentive programme
for Management of the Group (MLTIP) (see Note 41 for
further information) .

29 . In 2018 the Group repurchased 2,094,126 GDRs (2017:
602,148 GDRs) at market price for RR 2,455 million
(2017: RR 397 million) representing 1 .1% (2017: 0 .3%)
of the issued share capital .

30 . During 2018 the Group transferred 1,804,894 GDRs
(2017: 1,326,464 GDRs) out of treasury shares upon
vesting under the MLTIP to retained earnings that is
equivalent of RR 372 million (2017: RR 283 million) rep-
resenting 1 .0% (2017: 0 .7%) of the issued share capital .

Board of Directors

31 . The members of the Board of Directors as of 31 Decem-
ber 2018 and at the date of this report are presented
above .

32 . There were no significant changes in the assignment
of responsibilities and remuneration of the Board of
Directors .

Branches

33 . The Group did not operate through any branches during

the year .

Independent auditor

34 . The Board of Directors in accordance with the require-
ments of the EU introduced into Cypriot legislation un-
dertook a mandatory audit tender in respect of the 2019
audit . Following this the Independent Auditor, Pricewa-
terhouseCoopers Limited, has expressed their willing-
ness 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 .

Going concern

35 . The Directors have access to all information necessary

to exercise their duties . The Directors continue to adopt
the going concern basis in preparing the consolidated
financial statements based on the fact that, after making
enquiries and following a review of the Group’s budget
for 2019, including cash flows and funding facilities, the
Directors consider that the Group has adequate resourc-
es to continue in operation for the foreseeable future .

Corporate Governance Statement

Overview

GDRs of TCS Group Holding PLC (a Cyprus company), issued
under a deposit agreement dated on or about 24th October
2013 with JPMorgan 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 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 concise description of these is set out in the
Company’s most recent annual report: a detailed descrip-
tion of the Articles of Association, including the rights of

shareholders, and the Terms and Conditions of the GDRs can
be found in the Company’s October 2013 Prospectus on the
website at www .tinkoff .ru/eng .

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 per-
formance . The Board also sets the Group’s values and stand-
ards and ensures that its obligations towards the sharehold-
ers and other stakeholders are understood and met .

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Consolidated
Management Report (Continued)

was no change in the composition of
the Board in 2018 . The board of direc-
tors currently contains no B Directors .

The longest serving director is Mr
Constantinos Economides who became
a director in 2008, and later took over
the role of Chairman of the Board of Di-
rectors in June 2015 . The names of the
people who served on the Board during
2018 are listed above . 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 2018, looking at overall
performance but focused mainly on
late 2017 and 2018 . All directors
completed detailed questionnaires on
the Board’s performance . Analysis of
the resultant feedback did not show up
any deficiencies in the performance of
the Board, its committees or individual
directors of a nature that required
changes to be made, which was dis-
cussed at a meeting of the Board of
Directors on 11 March 2019 .

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 consolidated financial statements
of the Group prepared under IFRS and
any formal announcements relating
to the Group’s and the Company’s
financial performance, reviewing
significant financial reporting judg-
ments contained in them, oversees
the financial reporting controls and
procedures implemented by the
Group and monitors and assesses the
effectiveness of the Company’s internal
financial controls, risk management
systems internal audit function, the
independence and qualifications of the
independent auditor and the effective-
ness of the external audit process . The
Audit Committee is required to meet at
appropriate times in the reporting and
audit cycle but in practice meets more
often as required .

Under its terms of reference the Audit
Committee is required at least once
a year to review its own performance,
constitution and terms of reference
to ensure it is operating at maximum
effectiveness and to recommend any
changes it considers necessary for
Board approval . The Audit Committee
met this obligation in two main ways,
through members participating in the
main Board review described above

in the second half of 2017 and by
arranging a complementary commit-
tee review on a rolling basis driven by
the audit cycle March to March . After
consideration of the Audit Committee’s
own review, no further changes to
those adopted in the preceding year
were proposed to the committee’s
terms of reference . During the second
half of 2017 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 consolidated
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-fi-
nancial 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 secu-
rity measures put in place by the Group .
Two such meetings were held in 2018
with a further two at least planned for
2019 .

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 .

Remuneration
Committee

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 2018 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
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
2018 and 2019 .

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 consolidated financial state-
ments .

Internal control and
risk management
systems in relation to
the financial reporting
process

Policies, procedures and controls exist
around financial reporting . Manage-
ment 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 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 consolidated financial
statements to ensure that they are
in compliance with the applicable
framework and legislation and for
recommending these to the Board
for approval . The Audit Committee is
responsible for overseeing the Group’s
financial reporting process .

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 .

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

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Consolidated
Management Report (Continued)

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, management and supervisory bodies, including the Board of Direc-
tors of the Company .

The composition and diversity information of the Board of Directors of the Group for the year ended and as at 31 December
2018 is set out below:

Name

Age

Male/Female

Educational/professional background

Constantinos Economides

Male

Alexios Ioannides

Mary Trimithiotou

Martin Robert Cocker

Philippe Delpal

Male

Female

Male

Jacques Der Megreditchian

Male

ICAEW, MSc in Management Sciences, experience in ‘Big Four’
professional services firms

ICAEW, ICPAC, BSc in Business Administration, experience in
‘Big Four’ professional services firms

ICPAC, FCCA, Licensed insolvency practitioner, experience in
‘Big Four’ professional services firms

ICAEW, BSc in Mathematics and Economics, experience in ‘Big
Four’ professional services firms

BSc in IT, Telecoms and Economics, senior executive experience
in banking industry

BSc in Business Administration and in Financial Analysis, bank-
ing and finance experience

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

11 March 2019

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Consolidated Statement
of Financial Position

Consolidated Statement of Profit or
Loss and Other Comprehensive Income

Note

31 December 2018

31 December 2017

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

Investments in debt securities

Investment securities available for sale

Repurchase receivables

Guarantee deposits with payment systems

Current income tax assets

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 for investments in debt securities

Equity attributable to shareholders of the Company

Non-controlling interest

TOTAL EQUITY

TOTAL LIABILITIES AND EQUITY

33,802

2,435

776

198,489

1,710

100,140

1,182

4,603

1,104

8,369

4,223

15,642

3,024

375,499

2,708

280,916

9,605

1,821

20,644

2,859

11,201

3,441

23,850

1,675

777

140,245

2,424

71,676

798

3,660

301

6,140

3,056

10,969

3,257

268,828

595

179,045

10,819

240

1,479

22,001

1,840

8,043

2,796

333,249

226,883

188

8,623

(3,670)

1,232

36,785

(1,144)

42,014

236

42,250

375,499

188

8,623

(1,587)

1,286

31,797

1,436

41,743

202

41,945

268,828

Approved for issue and signed on behalf of the Board of Directors on 11 March 2019 .

Constantinos Economides

Mary Trimithiotou

Director

Interest income calculated using the effective interest rate method

Other similar income

Interest expense calculated using the effective interest rate method

Expenses on deposit insurance

Net margin

Credit loss allowance for loans and advances to customers

Credit loss allowance for debt securities at FVOCI

Total credit loss allowance for debt financial instruments

Net margin after сredit loss allowance

Fee and commission income

Fee and commission expense

Customer acquisition expense

Net gains/(losses) from operations with foreign currencies

Net gains from disposals of debt securities at FVOCI

Net gains from disposals of investment securities available for sale

Net losses from debt instruments at FVTPL

Insurance premiums earned

Insurance claims incurred

Administrative and other operating expenses

Net gains/(losses) from repurchase of subordinated debt

Other operating income

Profit before tax

Income tax expense

Profit for the year

Note
23

Other comprehensive (loss)/income:

Items that may be reclassified subsequently to profit or loss

Debt securities at FVOCI and Repurchase receivables:

- Net losses arising during the year, net of tax

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

Investment securities available for sale and Repurchase receivables:

- Net gains arising during the year, net of tax

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

Other comprehensive (loss)/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

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

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

2018
75,041

456

(15,106)

(1,174)

59,217

(11,607)

(192)

(11,799)

47,418

27,423

(10,751)

(13,100)

378

(808)

6,674

(1,968)

(23,023)

2,970

35,224

(8,102)

27,122

(2,608)

(303)

(2,911)

24,211

2017
59,317

224

(12,824)

(641)

46,076

(7,614)

38,462

15,531

(5,618)

(9,719)

(256)

270

2,735

(815)

(16,206)

(619)

1,220

24,985

(5,962)

19,023

1,061

(216)

845

19,868

27,088

19,019

24,177

19,864

153.54

107.88

149.14

104.42

The notes № 1-43 are an integral part of these Consolidated Financial Statements .

F-19

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Consolidated Statement
of Changes in Equity

Attributable to shareholders of the Company

e
v
r
e
s
e
r
n
o

i
t
a
u

a
v
e
R

n
i

s
t
n
e
m

t
s
e
v
n
i

r
o
f

s
e
i
t
i
r
u
c
e
s

t
b
e
d

-
y
a
p
d
e
s
a
b
-
e
r
a
h
S

e
v
r
e
s
e
r

t
n
e
m

m
u
i
m
e
r
p
e
r
a
h
S

s
e
r
a
h
s

y
r
u
s
a
e
r
T

s
g
n
i
n
r
a
e
d
e
n
i
a
t
e
R

a
t
i

p
a
c
e
r
a
h
S

e
t
o
N

g
n
i
l
-
l

o
r
t
n
o
c
-
n
o
N

t
s
e
r
e
t
n
I

a
t
o
T

y
t
i
u
q
e

a
t
o
T

In millions of RR

Balance at 1 January 2017

188 8,623

704

591 (1,473) 20,885

29,518

- 29,518

Profit for the year

- 19,019 19,019

4 19,023

Other comprehensive income:

Investment securities avail-
able for sale and Repurchase
receivables

Total comprehensive income
for the year

GDRs buy-back

Business combinations

Share-based payment reserve

22,41

Dividends declared

582

845

- 19,019 19,864

4 19,868

(397)

198

283

172

1,037

(8,279)

- (8,279)

Balance at 31 December 2017

188 8,623 1,286 1,436 (1,587)

31,797 41,743

202 41,945

Effect of initial application of
IFRS 9 – ECL remeasurement,
net of tax

Effect of initial application of
IFRS 9 – other, net of tax

Restated balance at 1 Janu-
ary 2018

292

- (10,108)

(9,816)

(39)

(9,816)

188 8,623 1,286 1,767 (1,587) 21,650

31,927

202 32,129

Profit for the year

- 27,088 27,088

27,122

Other comprehensive loss:

Investments in debt securi-
ties at FVOCI and Repurchase
receivables

Total comprehensive income/
(loss) for the year

GDRs buy-back

Share-based payment reserve

22,41

Dividends declared

Balance at 31 December
2018

- (2,911)

(2,911)

- (2,911)

- 27,088

24,177

24,211

- (2,455)

(2,455)

- (2,455)

(54)

372

312

630

- (12,265)

(12,265)

- (12,265)

188 8,623 1,232 (1,144) (3,670)

36,785

42,014

236 42,250

Consolidated Statement
of Cash Flows

In millions of RR
Cash flows from operating activities
Interest income calculated using the effective interest rate method received
Other similar income received
Interest expense calculated using the effective interest rate method paid
Recoveries from written-off loans
Expenses on deposits insurance paid
Fees and commissions received
Fees and commissions paid
Customer acquisition expense paid
Cash received/(paid) from trading in foreign currencies and operations with financial deriva-
tives
Cash received from insurance operations
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 decrease/(increase) in due from banks
Net increase in loans and advances to customers
Net decrease in debt securities measured at FVTPL
Net increase in guarantee deposits with payment systems
Net increase in other financial assets
Net increase in other non-financial assets
Net increase 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 debt securities at FVOCI and repurchase receivables
Proceeds from sale and redemption of debt securities at FVOCI
Acquisition of investments available for sale
Proceeds from sale and redemption of investments available for sale
Net cash used in investing activities
Cash flows (used in)/from financing activities
Proceeds from debt securities in issue
Repayment of debt securities in issue
Repayment of subordinated debt
Repayment of perpetual loan participation notes
Dividends paid
GDR’s buy-back
Proceeds from perpetual loan participation notes
Perpetual loan participation notes issue costs
Net cash (used in)/from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year

Note

2018

2017

72,169
300
(14,240)
4,083
(1,001)
27,143
(10,569)
(14,419)

2,962
5,152
1,597
(22,451)
(5,416)
45,310

(760)
1
(78,453)
469
(132)
(2,512)
(436)
2,113
97,263
177
(141)
62,899

58,431
214
(12,159)
1,991
(593)
15,521
(6,099)
(8,162)

(267)
2,603
940
(9,986)
(5,077)
37,357

(457)
(176)
(44,256)
-
(815)
(3,909)
(2,226)
106
50,307
3,488
(29)
39,390

(2,835)
(1,859)
10,12 (102,204)
74,401
-
-
(32,497)

10
11
11

(1,702)
(1,744)
-
-
(67,814)
29,610
(41,650)

32
32
32
32
31
22
32
32

7
7

3,622
(5,425)
(5,209)
(49)
(11,946)
(2,455)
-
-
(21,462)
1,012
9,952
23,850
33,802

7,819
-
(6,623)
-
(7,970)
(397)
17,109
(256)
9,682
231
7,653
16,197
23,850

The notes № 1-43 are an integral part of these Consolidated Financial Statements .

F-21

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements

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 2018 for TCS Group Holding PLC (the “Company”) and
its subsidiaries (together referred to as the “Group”), and in accordance with the requirements of the Cyprus Companies Law,
Cap .113 .

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

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

The Company Secretary is Caelion Secretarial Limited, 25 Spyrou Araouzou, 25 Berengaria, 5th floor, Limassol 3036, Cyprus .

At 31 December 2018 and 2017 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 2018 the number of issued
“class A” shares is 96,239,291 and issued “class B” shares is 86,399,534 (31 December 2017: the same) .

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 2018 and 2017 the entities and the individuals holding either Class A or Class B shares of the Company
were:

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 .

On 24 January 2018 Tadek Holding & Finance SA transferred its entire holding of B class shares (86,399,534 B class shares)
to Altoville Holdings Limited . On 18 December 2018 Altoville Holdings Limited transferred 50% of its holding of B class
shares (43,199,767 B class shares) to Nemorenti Limited . As at 31 December 2018 the beneficial owner of Altoville Holdings
Limited and Nemorenti Limited was Russian entrepreneur Mr . Oleg Tinkov .

In September 2018, 6 A class shares were transferred to the individuals listed above . The individuals hold them as nominees
of Altoville Holdings Limited .

As at 31 December 2017 the beneficial owner of Tadek Holding & Finance S .A ., Tasos Invest & Finance Inc ., Vizer Limited,
Maitland Commercial Inc and Norman Legal S .A . was Mr . Oleg Tinkov and the beneficial owner of Rousse Nominees Limited was
Baring Vostok Private Equity Fund IV, L .P .

As at 31 December 2018 and 2017 the ultimate controlling party of the Company is Mr . Oleg Tinkov . Mr . Oleg Tinkov controls
approximately 89 .98% of the aggregated voting rights attaching to the Class A and B shares as at 31 December 2018 (2017:
89 .98%) excluding voting rights attaching to TCS Group Holding PLC GDRs he holds, if any .

The subsidiaries of the Group are set out below . Except where stated the Group owns 100% of shares and has 100% of voting
rights of each of these subsidiaries as at 31 December 2018 and 2017 .

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 such as accident, property, travelers’, financial
risks and auto insurance .

Guaranty Nominees Limited
(JP Morgan Chase Bank NA)

Altoville Holdings Limited

Nemorenti Limited

Ioanna Georgiou

Panagiota Charalambous

Maria Vyra

Marios Panayides

Chloi Panagiotou

Leonora Chagianni

Tadek Holding & Finance S .A .

Vostok Emerging Finance Limited

Rousse Nominees Limited

Tasos Invest & Finance Inc .

Vizer Limited

Maitland Commercial Inc .

Norman Legal S .A .

Total

Class of
shares

31 December
2018

31 December
2017

Country of
Incorporation

LLC “Microfinance company “Т-Finans” provides micro-finance services .

Class A

Class B

Class A

Class B

Class A

Class B

52 .70%

23 .65%

0 .00%

50 .06%

United Kingdom

Cyprus

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 . Since February 2018 Goward
Group Ltd is in liquidation process .

LLC “Phoenix” is a debt collection agency .

Tinkoff Software DC provides software development services to the Group .

47 .31% British Virgin Islands

LLC “Tinkoff Mobile” is a mobile virtual network operator set up in 2017 to provide mobile services .

1 .64%

0 .99%

Cyprus

Guernsey

0 .00% British Virgin Islands

LLC “CloudPayments” is a developer of online payment solutions whose core business is online merchant acquiring in Russia .
The Group owns a 55% shareholding in LLC CloudPayments .

ANO “Tinkoff Education” is a non-commercial organization set up by the Bank with no share capital . This entity is in the pro-
cess of receiving of educational license .

EBT is a special purpose trust which has been specifically created for the long-term incentive programme for Management of
the Group (MLTIP) . The Group neither owns shares nor has voting rights in EBT .

100.00%

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F-24

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

Introduction (Continued)

Principal activity. The Group’s principal business activities are retail banking to private individuals, SME accounts and banking
services, brokerage 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-im-
posed moratorium on payments .

Registered address and place of business. The Company’s registered address is 25 Spyrou Araouzou, Berengaria 25, 5th
floor, Limassol, Cyprus, and place of business is Office 403, Lophitis Business Centre, Corner of 28th October/Emiliou Chour-
mouziou Streets, Limassol 3035 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) .

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 36) .

In recent year, the Russian economy has been negatively impacted by ongoing political tension in the region and international
sanctions against certain Russian companies and individuals .

The financial markets continue to be volatile . For example in April 2018 the Russian Rouble decreased by about 10% against
the US Dollar and Euro in the space of a few days . This operating environment has a significant impact on the Group’s op-
erations and financial position . Management regularly takes 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 .

With respect of Rouble interest rates, since 1 January 2017 the CBRF “key rate” has decreased by 2 .25% to 7 .75% per an-
num as at 31 December 2018 .

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 discussion of legislation development in the banking sphere and supports the
intention of the CBRF to make the finance market more transparent and disciplined .

For the purpose of measurement of expected credit losses (“ECL”) the Group uses supportable forward-looking information,
including forecasts of macroeconomic variables . As with any economic forecast, however, the projections and likelihoods of
their occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly
different from those projected . Note 34 provides more information of how the Group incorporated forward-looking informa-
tion in the ECL models .

3 Significant Accounting Policies

Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law
Cap .113 .

The consolidated financial statements have been prepared under the historical cost convention, as modified by the initial
recognition of financial instruments based on fair value, and by revaluation of financial instruments categorised at fair value
through profit or loss (“FVTPL”) and at fair value through other comprehensive income (“FVOCI”) (2017: the historical cost
convention, as modified by the initial recognition of financial instruments based on fair value, and by revaluation of derivatives,
investment securities available for sale, securities at fair value through profit or loss, and repurchase receivables carried at
fair value) . The principal accounting policies applied in the preparation of these consolidated financial statements are set out
below . Apart from the accounting policy changes resulting from the adoption of IFRS 9 and IFRS 15 effective from 1 January
2018, these policies have been consistently applied to all the periods presented, unless otherwise stated . Refer to Notes 5 and
43 . Management prepared these consolidated financial statements on a going concern basis .

Consolidated financial statements. Subsidiaries are those investees, including structured entities, that the Group controls
because the Group (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has
exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over
the investees to affect the amount of investor’s returns . The existence and effect of substantive rights, including substantive
potential voting rights, are considered when assessing whether the Group has power over another entity . For a right to be
substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant
activities of the investee need to be made . The Group may have power over an investee even when it holds less than majority
of voting power in an investee .

In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote
holders to determine if it has de-facto power over the investee . Protective rights of other investors, such as those that relate
to fundamental changes of investee’s activities or apply only in exceptional circumstances, do not prevent the Group from
controlling an investee . Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition
date), and are deconsolidated from the date on which control ceases .

The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those acquired from
parties under common control . Identifiable assets acquired and liabilities and contingent liabilities assumed in a business com-
bination 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 .

Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the
acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately
before the acquisition date . Any negative amount (“negative goodwill”) is recognised in profit or loss, after management reas-
sesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed, and reviews appropri-
ateness of their measurement .

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; unre-
alised losses are also eliminated unless the cost cannot be recovered . The Company and all of its subsidiaries use uniform
accounting 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 .

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 .

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F-26

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

Purchases and sales of non-controlling interests. The Group applies the economic entity model to account for transactions
with owners of non-controlling interest . Any difference between the purchase consideration and the carrying amount of
non-controlling interest acquired is recorded as a capital transaction directly in equity . The Group recognises the difference
between sales consideration and carrying amount of non-controlling interest sold as a capital transaction in the consolidated
statement of changes in equity .

Associates. Associates are entities over which the Group has significant influence (directly or indirectly), but not control,
generally accompanying a shareholding of between 20 and 50 percent of the voting rights . Investments in associates are
accounted for using the equity method of accounting, and are initially recognised at cost . The carrying amount of associates
includes goodwill identified on acquisition less accumulated credit losses, if any . Dividends received from associates reduce
the carrying value of the investment in associates . Other post-acquisition changes in Group’s share of net assets of an asso-
ciate are recognised as follows: (i) the Group’s share of profits or losses of associates is recorded in the consolidated profit
or loss for the year as share of result of associates, (ii) the Group’s share of other comprehensive income is recognised in
other comprehensive income and presented separately, (iii); all other changes in the Group’s share of the carrying value of net
assets of associates are recognised in profit or loss within the share of result of associates .

However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other
unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on
behalf of the associate .

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in
the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred .

Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence, any
retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss .
The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associ-
ate, joint venture or financial asset . In addition, any amounts previously recognised in other comprehensive income in respect
of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities . This may mean that
amounts previously recognised in other comprehensive income are recycled to profit or loss .

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the
amounts previously recognised in other comprehensive income are reclassified to profit or loss, where appropriate .

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 infor-
mation on an ongoing basis . Fair value of financial instruments traded in an active market is measured as the product of the
quoted price for the individual asset or liability and the quantity held by the entity . This is the case even if a market’s normal
daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction
might affect the quoted price .

The price within the bid-ask spread which management considers to be the most representative of fair value for quoted finan-
cial assets and liabilities is the last bid price of 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 the fair value of a group of financial assets and financial
liabilities on the basis of the price that would be received to sell a net long position (an asset) for a particular risk exposure or
paid to transfer a net short position (a liability) for a particular risk exposure in an orderly transaction between market partici-
pants at the measurement date .

This is applicable for assets carried at fair value on a recurring basis if the Group: (a) manages the group of financial assets

and financial liabilities on the basis of the entity’s net exposure to a particular market risk (or risks) or to the credit risk of a
particular counterparty in accordance with the entity’s documented risk management or investment strategy; (b) it provides
information on that basis about the group of assets and liabilities to the entity’s key management personnel; and (c) the 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 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 39 .

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 (“AC”) is the amount at which the financial instrument was recognised at initial recognition less any principal
repayments, plus accrued interest, and for financial assets less any allowance for expected credit 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 gross carrying amount of a financial asset or to the
amortised cost of a financial liability .

The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees and
points paid or secured that are integral to the effective interest rate such as origination fees .

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 . For assets that are purchased or originated credit impaired (“POCI”) at initial recognition, the effective
interest rate is adjusted for credit risk, i .e . it is calculated based on the expected cash flows on initial recognition instead of
contractual payments .

Financial instruments – initial recognition. Financial instruments at FVTPL are initially recorded at fair value . All other finan-
cial instruments are initially recorded at fair value adjusted for transaction costs that are incremental and directly attributable
to the acquisition or the issue of the financial asset or financial liability such as fee and commission . Fair value at initial recog-
nition 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 . After the initial recognition,
an ECL allowance is recognised for financial assets measured at AC and investments in debt instruments measured at FVOCI,
resulting in an immediate accounting loss .

F-27

F-28

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
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 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, foreign exchange
forwards 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 . The
differences are immediately recognised in profit or loss if the valuation uses only level 1 or level 2 inputs .

Financial assets – classification and subsequent measurement – measurement categories. The Group classifies financial
assets in the following measurement categories: FVTPL, FVOCI and AC . The classification and subsequent measurement of
debt financial assets depends on:

• the Group’s business model for managing the related assets portfolio and

• the cash flow characteristics of the asset .

Financial assets – classification and subsequent measurement – business model. The business model reflects how the Group
manages the assets in order to generate cash flows – whether the Group’s objective is:

• solely to collect the contractual cash flows from the assets (“hold to collect contractual cash flows”); or

• to collect both the contractual cash flows and the cash flows arising from the sale of assets (“hold to collect contractual

cash flows and sell”);

•

if neither of i) and ii) is applicable, the financial assets are classified as part of “other” business model and measured at
FVTPL .

Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities
that the Group undertakes to achieve the objective set out for the portfolio available at the date of the assessment . Factors
considered by the Group in determining the business model include the purpose and composition of a portfolio, past expe-
rience on how the cash flows for the respective assets were collected, how risks are assessed and managed, how the assets’
performance is assessed and how managers are compensated .

Based on the analysis performed the Group included the following financial instruments in the business model “hold to collect
contractual cash flows” since the Group manages these financial instruments solely to collect contractual cash flows: cash and
cash equivalents, mandatory cash balances with the CBRF, due from other banks, loans and advances to customers, guarantee
deposits with payment systems and other financial assets . The Group included debt securities at FVOCI in the business model
“hold to collect contractual cash flows and sell” since the Group manages these financial instruments to collect both the con-
tractual cash flows and the cash flows arising from the sale of assets . The Group included debt securities measured at FVTPL
and financial derivatives in the business model “other” .

Financial assets – classification and subsequent measurement – cash flow characteristics. Where the business model is to
hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses whether the cash
flows represent solely payments of principal and interest (the SPPI test) . Financial assets with embedded derivatives are con-
sidered in their entirety when determining whether their cash flows are consistent with the SPPI feature .

In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending
arrangement, i .e . interest includes only consideration for credit risk, time value of money, other basic lending risks and profit
margin .

Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement,
the financial asset is classified and measured at FVTPL . The SPPI assessment is performed on initial recognition of an asset
and it is not subsequently reassessed . However, if the contractual terms of the asset are modified, the Group considers if the
contractual cash flows continue to be consistent with a basic lending arrangement in assessing whether the modification is
substantial . See below for “Financial assets – modification” .

Financial assets – reclassification. Financial instruments are reclassified only when the business model for managing the
portfolio as a whole changes . The reclassification has a prospective effect and takes place from the beginning of the first
reporting period that follows after the change in the business model . The Group did not change its business model during the
current and comparative period and did not make any reclassifications .

Financial assets – impairment – credit loss allowance for ECL. The Group assesses on a forward-looking basis the ECL for
debt instruments (including loans) measured at AC and FVOCI and for the exposure arising from loan commitments and finan-
cial guarantee contracts . The Group measures ECL and recognises credit loss allowance at each reporting date .

The measurement of ECL reflects:

an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes;

the time value of money; and

all reasonable and supportable information that is available without undue cost and effort at the end of each reporting
period about past events, current conditions and forecasts of future conditions .

Debt instruments measured at AC are presented in the consolidated statement of financial position net of the allowance for
ECL .

For loan commitments (where those components can be separated from the loan) and financial guarantees, a separate
provision for ECL is recognised as a financial liability in the consolidated statement of financial position . For debt instruments
at FVOCI, changes in amortised cost, net of allowance for ECL, are recognised in profit or loss and other changes in carrying
value are recognised in OCI as gains less losses on debt instruments at FVOCI .

The Group applies a “three stage” model for impairment in accordance with IFRS 9, based on changes in credit quality since
initial recognition:

A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1 . Financial assets in Stage 1
have their ECL measured at an amount equal to the portion of lifetime ECL that results from default events possible within
the next 12 months or until contractual maturity, if shorter (“12 months ECL”) .

If the Group identifies a significant increase in credit risk (“SICR”) since initial recognition, the asset is transferred to
Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until contractual maturity but considering ex-
pected prepayments, if any (“lifetime ECL”) . Refer to Note 34 for a description of how the Group determines when a SICR
has occurred .

If the Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is meas-
ured as a lifetime ECL . Refer to Note 34 for a description of how the Group defines credit-impaired assets and default .

For financial assets that are purchased or originated credit-impaired (“POCI Assets”), the ECL is always measured at a lifetime
ECL . Note 34 provides information about inputs, assumptions and estimation techniques used in measuring ECL, including an
explanation of how the Group incorporates forward-looking information in the ECL models .

As an exception, for certain financial instruments, such as credit cards, that may include both a loan and an undrawn commit-
ment component, the Group measures expected credit losses over the period that the Group is exposed to credit risk, that is,
until the expected credit losses would be mitigated by credit risk management actions, even if that period extends beyond the
maximum contractual period . This is because contractual ability to demand repayment and cancel the undrawn commitment
does not limit the exposure to credit losses to such contractual notice period .

Refer to Note 4 for critical judgements applied by the Group in determining the period for measuring ECL .

F-29

F-30

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

Financial assets – write-off. Uncollectible assets are partly written-off against the related сredit loss allowance usually after
one year since they become overdue . The amount of uncollectible part of loan is estimated on a loan portfolio basis taking into
account defaulted loans recovery statistics . Gains or losses on disposal of credit-impaired loans are recognized directly to the
credit loss allowance line in the consolidated statement of profit or loss and other comprehensive income in the period when
sale occurred . The Group writes-off financial assets that are mostly still subject to enforcement activity, however, there is no
reasonable expectation of recovery .

Repayments of written-off loans. Recovery of amounts previously written-off as uncollectible are credited directly to the
credit loss allowance line in the consolidated statement of profit or loss and other comprehensive income . Cash flows related
to repayments of written-off loans are separately presented within recoveries from written-off loan in the consolidated state-
ment of cash flows .

Financial assets – derecognition. 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 .

Financial assets – modification. The Group sometimes renegotiates or otherwise modifies the contractual terms of the finan-
cial assets . The Group assesses whether the modification of contractual cash flows is substantial considering, among other, the
following factors: any new contractual terms that substantially affect the risk profile of the asset, significant change in interest
rate, change in the currency denomination, new collateral or credit enhancement that significantly affects the credit risk asso-
ciated with the asset, or a significant extension of a loan when the borrower is not in financial difficulties .

If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Group derecog-
nises the original financial asset and recognises a new asset at its fair value . The date of renegotiation is considered to be the
date of initial recognition for subsequent impairment calculation purposes, including determining whether a SICR has occurred .

The Group also assesses whether the new loan or debt instrument meets the SPPI criterion . Any difference between the carry-
ing amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or
loss, unless the substance of the difference is attributed to a capital transaction with owners .

In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally
agreed payments, the Group compares the original and revised expected cash flows to assets whether the risks and rewards
of the asset are substantially different as a result of the contractual modification . If the risks and rewards do not change, the
modified asset is not substantially different from the original asset and the modification does not result in derecognition . The
Group recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective
interest rate (or credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss in
profit or loss . Usually modifications of stage 3 loans do not result in derecognition since they do not change the expected cash
flows substantially and represent the way of collection of past due balances . If the terms of the modified asset are not substan-
tially different, the modification does not result in derecognition .

Financial liabilities – measurement categories. Financial liabilities are classified as subsequently measured at AC, except for
(i) financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e .g . short posi-
tions in securities), contingent consideration recognised by an acquirer in a business combination and other financial liabilities
designated as such at initial recognition and (ii) financial guarantee contracts and loan commitments .

Financial liabilities – derecognition. Financial liabilities are derecognised when they are extinguished (i .e . when the obligation
specified in the contract is discharged, cancelled or expires) .

An exchange between the Group and its original lenders of debt instruments with substantially different terms, as well as sub-
stantial modifications of the terms and conditions of existing financial liabilities, are accounted for as an extinguishment of the
original financial liability and the recognition of a new financial liability . The terms are substantially different if the discounted
present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the
original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the
original financial liability .

In addition, other qualitative factors, such as the currency that the instrument is denominated in, changes in the type of inter-
est rate, new conversion features attached to the instrument and change in loan covenants are also considered . If an exchange
of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised
as part of the gain or loss on the extinguishment . If the exchange or modification is not accounted for as an extinguishment,
any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modi-
fied liability .

Modifications of liabilities that do not result in extinguishment are accounted for as a change in estimate using a cumulative
catch up method, with any gain or loss recognised in profit or loss, unless the economic substance of the difference in carrying
values is attributed to a capital transaction with owners .

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 and
reverse sale and repurchase agreements with other banks 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 as: (i) they are held for collection of contractual cash flows and those cash flows represent SPPI,
and (ii) they are not designated at FVTPL .

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 custom-
er’s perspective .

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 as: (i) they are held for collection of contractual cash flows and those cash
flows represent SPPI, and (ii) they are not designated at FVTPL .

Certain bank deposits are subject to the “bail-in” legislation that permits or requires a national resolving authority to impose
losses on holders in particular circumstances . Where the bail-in clauses are included in the contractual terms of the instru-
ment and would apply even if legislation subsequently changes, the SPPI test is not met and such instruments are mandatorily
measured at FVTPL . The Group did not identify such balances due from other banks . Where such clauses in the contract mere-
ly acknowledge the existence of the legislation and do not create any additional rights or obligation for the Group, the SPPI
criterion is met and the respective instruments are carried at AC .

Investments in debt securities. Based on the business model and the cash flow characteristics, the Group classifies invest-
ments in debt securities as carried at AC, FVOCI or FVTPL .

Debt securities are carried at AC if they are held for collection of contractual cash flows and where those cash flows represent
SPPI, and if they are not voluntarily designated at FVTPL in order to significantly reduce an accounting mismatch .

F-31

F-32

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

Debt securities are carried at FVOCI if they are held for collection of contractual cash flows and for selling, where those cash
flows represent SPPI, and if they are not designated at FVTPL . Interest income from these assets is calculated using the effec-
tive interest method and recognised in profit or loss . An impairment allowance estimated using the expected credit loss model
is recognised in profit or loss for the year . All other changes in the carrying value are recognised in OCI except for foreign
exchange translation gains/(losses) and interest income calculated using the effective interest rate method . When the debt
security is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from OCI to profit or loss .

Investments in debt securities are carried at FVTPL if they do not meet the criteria for AC or FVOCI . The Group may also irrev-
ocably designate investments in debt securities at FVTPL on initial recognition if applying this option significantly reduces an
accounting mismatch between financial assets and liabilities being recognised or measured on different accounting bases .

Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to pur-
chase or originate a loan due from a customer .

Based on the business model and the cash flow characteristics, the Group classifies loans and advances to customers into one
of the following measurement categories:

AC: loans that are held for collection of contractual cash flows and those cash flows represent SPPI and loans that are not
voluntarily designated at FVTPL;

2) FVTPL: loans that do not meet the criteria for AC are measured at FVTPL (mandatory FVTPL) .

Impairment allowances of the loans measured at AC are determined based on the forward-looking ECL model . Note 34 pro-
vides information about inputs, assumptions and estimation techniques used in measuring ECL, including an explanation of
how the Group incorporates forward-looking information in the ECL models .

Credit related commitments. The Group issues commitments to provide loans . Commitments to provide loans are initially
recognised at their fair value, which is normally evidenced by the amount of fees received . Such loan commitment fees are
deferred and included in the carrying value of the loan on initial recognition . At the end of each reporting period, the commit-
ments are measured at the amount of the loss allowance determined based on the expected credit loss model . For loan com-
mitments (where those components can be separated from the loan), a separate provision for ECL is recognised as a liability in
the consolidated statement of financial position .

Sale and repurchase agreements and lending of securities. Sale and repurchase agreements (“repo agreements”), which
effectively provide a lender’s return to the counterparty, are treated as secured financing transactions . Securities sold under
such sale and repurchase agreements are not derecognised . The securities are not reclassified in the consolidated statement
of financial position unless the transferee has the right by contract or custom to sell or repledge the securities, in which case
they are reclassified as repurchase receivables . The corresponding liability is presented within amounts due to other banks or
other borrowed funds .

Securities purchased under agreements to resell (“reverse repo agreements”), which effectively provide a lender’s return to
the Group, are recorded as due from other banks or loans and advances to customers, as appropriate . The difference between
the sale and repurchase price, adjusted by interest and dividend income collected by the counterparty, is treated as interest
income and accrued over the life of reverse repo agreements using the effective interest method .

Securities lent to counterparties for a fixed fee are retained in the consolidated financial statements in their original 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 .

Based on classification of securities sold under the sale and repurchase agreements, the Group classifies repurchase receiva-
bles into one of the following measurement categories: AC, FVOCI, FVTPL .

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 .
Amounts of guarantee deposits with payment systems are carried at amortised cost .

Tangible fixed assets. Tangible fixed assets are stated at cost less accumulated depreciation and provision for impairment,
where required .

Costs of minor repairs and day-to-day maintenance are expensed when incurred . Costs of replacing major parts or 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

3 to 10

Leasehold improvements

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

The residual value of an asset is an estimated amount that the Group would currently obtain from disposal of the asset less the
estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life . The
assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period .

Intangible assets. The Group’s intangible assets other than insurance license have definite useful life and include capitalised
acquired computer software and internally developed software .

Computer software licenses acquired are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software . All other costs associated with computer software, e .g . its maintenance, are expensed when incurred . Capitalised
computer software is amortised on a straight line basis over expected useful lives of 1 to 10 years .

At each reporting date management assesses whether there is any indication of impairment of intangible assets with an 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 .

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 .

F-33

F-34

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

Leases embedded in other agreements are separated if (a) fulfilment of the arrangement is dependent on the use of a specific
asset or assets and (b) the arrangement conveys a right to use the asset .

When assets are leased out under an operating lease, the lease payments receivable are recognised as rental income on a
straight-line basis over the lease term .

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 .

Customer accounts. Customer accounts are non-derivative liabilities to corporate entities and individuals and are carried at
amortised cost .

Debt securities in issue. Debt securities are stated at amortised cost . If the Group purchases its own debt securities in issue,
they are removed from the consolidated statement of financial position and the difference between the carrying amount of the
liability and the consideration paid is included in 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. Subordinated debt can only be paid in the event of a liquidation after the claims of other higher priority
creditors have been met . Subordinated debt is carried at AC .

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 accord-
ance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition
of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects
neither accounting nor taxable profit . Deferred tax balances are measured at tax rates enacted or substantively enacted at the
end of reporting period which are expected to apply to the period when the temporary differences will reverse or the tax loss
carry forwards will be utilised . Deferred tax assets and liabilities are netted only within the individual companies of the Group .
Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is
probable that future taxable profit will be available against which the deductions can be utilised .

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

Uncertain tax positions. The Group’s uncertain tax positions are assessed by management at the end of each reporting
period . Liabilities are recorded for income tax positions that are determined by management as more likely than not to result
in additional taxes being levied if the positions were to be challenged by the tax authorities . The assessment is based on the
interpretation of tax laws that have been enacted or substantively enacted at the end of reporting period and any known court
or other rulings on such issues . Liabilities for penalties, interest and taxes other than on income are recognised based on man-
agement’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 proba-
ble 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 .

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 .

Other liabilities. Other liabilities are accrued when the counterparty has performed its obligations under the contract and are
carried at amortised cost .

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

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 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 . Dividend distribution
to the Company’s shareholders is recognised as a liability in the Company’s consolidated financial statements in the year in
which the dividends are appropriately authorised and are no longer at the discretion of the Company . More specifically, interim
dividends are recognised as a liability in the period in which these are authorised by the Board of Directors and in the case of
final dividends, these are recognised in the period in which these are approved by the Company’s shareholders .

Income and expense recognition. Interest income and expense calculated using effective interest method are recorded for all
debt instruments, other than those at FVTPL, 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 . 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 com-
mitments as financial liabilities at FVTPL .

F-35

F-36

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

For financial assets that are originated or purchased credit-impaired, the effective interest rate is the rate that discounts the
expected cash flows (including the initial expected credit losses) to the fair value on initial recognition (normally represented
by the purchase price) . As a result, the effective interest is credit-adjusted .

Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for:

ii)

financial assets that have become credit-impaired (Stage 3), for which interest revenue is calculated by applying the effec-
tive interest rate to their AC (net of the ECL provision); and

financial assets that are purchased or originated credit-impaired, for which the original credit-adjusted effective interest
rate is applied to the AC .

Customer acquisition expenses are 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 attrib-
uted 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 income and other expenses 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 .

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, and which are earned on execution of
the underlying transaction, are recorded on its completion .

Other similar income. Other similar income represents interest income recorded for debt instruments measured at fair value
through profit or loss (“FVTPL”) and is recognised on an accrual basis using nominal interest rate .

Fee and commission income and expense. Fee and commission income is recognised over time as the services are rendered,
when the customer simultaneously receives and consumes the benefits provided by the Group’s performance . Such income
includes SMS fee and part of SME current accounts commission which represents fixed monthly payments . Variable fees are
recognised only to the extent that management determines that it is highly probable that a significant reversal will not occur .

Other fee and commission income is recognised at a point in time when the Group satisfies its performance obligation, usu-
ally upon execution of the underlying transaction . The amount of fee or commission received or receivable represents the
transaction price for the services identified as distinct performance obligations . Such income includes credit protection fee,
merchant acquiring commission, part of SME current accounts commission which represents payments for each transaction,
interchange fee, cash withdrawal fee, foreign currency exchange transactions fee, card to card commission, mortgage agency
fee and other .

All fee and commission expenses are generally recorded on an accrual basis by reference to completion of the specific transac-
tion assessed on the basis of the actual service provided as a proportion of the total services to be provided .

Customer loyalty program. The group operates loyalty programs where retail clients accumulate points, which entitle them to
reimbursement of purchases made with credit and debit cards . A financial liability is recognised for the amount of fair value of
points expected to be redeemed until they are actually redeemed or expire with the corresponding entries to interest income
calculated using the effective interest rate method or commission expenses depending on whether the points were accumulat-
ed by credit card clients or debit card clients respectively .

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 .

• 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 companies,
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 .

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F-38

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

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 liabilities on a gross basis . Estimates of claims handling expenses are included in both OCP and IBNR . OCP is provid-
ed 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 report-
ing date within the same period .

The methods of determining such estimates and establishing the resulting provisions are continually reviewed and updated .
Resulting adjustments are reflected in the consolidated statement of profit 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 state-
ments unexpired risk provision is written off against deferred acquisition costs .

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

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, except for clients’ foreign currency exchange transactions
fee, which is recognised in profit or loss as fee and commission income) .

Translation at year-end rates does not apply to non-monetary items that are measured at historical cost .

At 31 December 2018 the rate of exchange used for translating foreign currency balances was USD 1 = RR 69 .4706 (31
December 2017: USD 1 = RR 57 .6002), and the average rate of exchange was USD 1 = RR 62 .7078 (2017: USD 1 = RR
58 .3529) .

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 .

Segment reporting. Segments are reported in a manner consistent with the internal reporting provided to the Group’s chief
operating decision maker . Segments whose revenue, result or assets are ten percent or more of all the segments are reported
separately .

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 .

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. Starting from 1 January 2018 the Group changed presentation of interest income and expense
following the application of IFRS 9 and the consequential amendment of IAS 1 . In these consolidated financial statements
the Group changed presentation of the consolidated statement of profit or loss and other comprehensive income for the year
ended 31 December 2017 . These changes were implemented to increase comparability of the financial information for 2017
with the respective information for 2018 .

The effect of changes on the consolidated statement of profit or loss and other comprehensive income for the year ended 31
December 2017 is as follows:

In millions of RR

Interest income

Interest expense

Interest income calculated using the effective inter-
est rate method

Other similar income

Interest expense calculated using the effective interest
rate method

As originally pre-
sented

59,541

(12,824)

Reclassification

As reclassified

(59,541)

12,824

59,317

224

59,317

224

(12,824)

F-39

F-40

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

The effect of changes on the consolidated statement of cash flows for the year ended 31 December 2017 is as follows:

In millions of RR

Interest received

Interest paid

Interest income calculated using the effective inter-
est rate method received

Other similar income received

Interest expense calculated using the effective inter-
est rate method paid

As originally pre-
sented

60,636

(12,159)

Reclassification

As reclassified

(60,636)

12,159

60,422

214

60,422

214

(12,159)

From 1 January 2018 the management of the Group refined the approach to the presentation of cash flows related to the
salaries and other contributions paid to employees of the Group in the consolidated statement of cash flows . The management
concluded it was appropriate to reclassify these cash flows from Net increase in customer accounts to Administrative and oth-
er operating expenses paid and Customers acquisition expenses paid in the consolidated statement of cash flows . The effect of
reclassifications was as follows on amounts in the consolidated statement of cash flows for the year ended 31 December 2017:

In millions of RR

Administrative and other operating expenses paid

Customer acquisition expense paid

Net increase in customer accounts

As originally pre-
sented

(6,230)

(5,860)

44,249

Reclassification

As reclassified

(3,756)

(2,302)

6,058

(9,986)

(8,162)

50,307

From 1 January 2018 the management of the Group refined the approach to the presentation of cash flows related to the
recovery of amounts of loans previously written-off as uncollectible in the consolidated statement of cash flows . The manage-
ment concluded it was appropriate to reclassify these cash flows from Interest income calculated using the effective interest
rate method received to the separate line Recoveries from written-off loans in the consolidated statement of cash flows .

The effect of reclassifications was as follows on amounts in the consolidated statement of cash flows for the year ended 31
December 2017:

In millions of RR

Interest income calculated using the effective inter-
est rate method received

Recoveries from written-off loans

As originally pre-
sented

Reclassification

As reclassified

60,422

(1,991)

1,991

58,431

1,991

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:

ECL measurement. Calculation and measurement of ECLs is an area of significant judgement and involves methodology,
models and data inputs . The following components of ECL calculation have a major impact on credit loss allowance: probability
of default (“PD”) (impacted by definition of default, SICR) and loss given default (“LGD”) . Refer to Note 34 for explanation of
terms . The Group regularly reviews and validates models and inputs to the models to reduce any differences between expected
credit loss estimates and actual credit loss experience . Refer to Note 34 for further information on ECL measurement .

An increase or decrease in PDs by 1% compared to PDs used in the ECL estimates calculated at 31 December 2018 would
result in an increase or decrease in credit loss allowances of RR 1,598 million .

An increase or decrease in LGDs by 1% compared to LGDs used in the ECL estimates calculated at 31 December 2018 would
result in an increase or decrease in credit loss allowances of RR 372 million .

Credit exposure on revolving credit facilities. For credit card loans, the Group’s exposure to credit losses extends beyond
the maximum contractual period of the facility . For such facilities the Group measures ECLs over the period that the Group is
exposed to credit risk and ECLs are not mitigated by credit risk management actions . Application of this approach requires
judgement: determining a period for measuring ECLs – the Group considers historical information and experience about: (a)
the length of time for related defaults to occur on similar financial instruments following a SICR and (b) the credit risk manage-
ment actions that the Group expects to take once the credit risk has increased (e .g . the reduction or removal of undrawn limits) .

For details of the period over which the Group is exposed to credit risk on revolving facilities and which is used as an approxi-
mation of lifetime period for ECL calculation for stage 2 and stage 3 loans and advances to customers, refer to Note 34 .

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 the accrued interest is paid, the payment decreases the balance of the liability . A cancellation of accrued interest
for a given period results in its conversion, at the Group’s option, into equity and therefore the respective amount of the lia-
bility is reclassifed to equity . 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 instrument 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 treated as a distribution from equity rather than an expense in profit or loss .

The Group has also 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 perpetu-
al 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 these instruments are classified as debt investment securities measured at FVTPL since the analysis of the con-
tractual cash flow characteristics resulted in acquired perpetual bonds not passing SPPI test . If the Group had recognized this instru-
ment as equity instrument, then it could have been measured at FVTPL or FVOCI as the Group does not hold it for trading purposes .

* Denotes standards, interpretations and amendments which have not yet been endorsed by the European Union .

F-41

F-42

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

Critical Accounting Estimates and Judgements in Applying
Accounting Policies(Continued)

Interest income recognition. The effective interest method incorporates significant assumptions around expected loan lives
as well as judgements of type of fees and costs that are included in interest income . Refer to Note 3 .

Tax legislation. Russian and Cypriot tax, currency and customs legislation are subject to varying interpretations . Refer to Note
36 .

5 Adoption of New or Revised Standards and Interpretations

Adoption of IFRS 9 – Financial Instruments (IFRS 9) (issued on 24 July 2014 and effective for annual periods beginning on
or after 1 January 2018). The Group has adopted IFRS 9 with a date of transition of 1 January 2018, which resulted in chang-
es in accounting policies for recognition, classification and measurement of financial assets and liabilities and impairment of
financial assets .

The Group elected not to restate comparative figures and recognised any adjustments to the carrying amounts of financial
assets and liabilities at the date of initial application in the opening retained earnings and other reserves of the current period .
The comparative period disclosures repeat those disclosures made in the prior period . Consequently, for notes disclosures, the
consequential amendments to IFRS 7 – Financial Instruments: Disclosures (IFRS 7) disclosures have also only been applied to
the current period .

Details of the specific IFRS 9 accounting policies applied in the current period are described in Note 3 . Accounting policies ap-
plied prior to 1 January 2018 and applicable to the comparative information are disclosed in Note 43 . The impact of the IFRS
9 adoption on the Group is disclosed below .

The following table reconciles the carrying amounts of financial assets, from their previous measurement categories in accord-
ance with IAS 39 into their new measurement categories upon transition to IFRS 9 on 1 January 2018:

Carrying
value per IAS
39 (closing
balance at
31 December
2017)

Effect

Remeasurement

Reclassification

ECL

Other

Manda-
tory

Volun-
tary

Carrying value
per IFRS 9
(opening bal-
ance at
1 January
2018)

Measurement cat-
egory

In millions of RR

IAS 39

IFRS 9

Cash and cash equivalents

Mandatory cash balances
with the Central Bank of
Russian Federation

Due from other banks

Loans and advances to
customers

L&R (loans
and receiv-
ables)

L&R

23,850

1,675

777

140,245 (10,546)

Financial derivatives

FVTPL

2,424

Investments in debt securi-
ties

AFS (avail-
able for
sale)

Investments in debt securi-
ties

AFS

Total Investment in debt
securities

Repurchase receivables

AFS

FVOCI

FVTPL
(manda-
tory)

FVTPL
(man-
da-tory)

Guarantee deposits with
payment systems

Other Financial Assets

L&R

L&R,
FVTPL

66,606

(292)

292

5,070

71,676

(292)

292

798

3,660

10,969

23,850

1,675

777

129,699

2,424

166

66,772

5,070

166

71,842

798

3,660

(166)

10,803

All classes of cash and cash equivalents disclosed in Note 7 were reclassified from L&R measurement category under IAS 39
to AC measurement category under IFRS 9 at adoption of the standard . The ECL for cash and cash equivalents balances was
immaterial .

Due from other banks and mandatory reserves with the Central Bank were reclassified from L&R measurement category under
IAS 39 to AC measurement category under IFRS 9 at adoption of the standard . The ECL for due from other banks balances was
immaterial .

At 31 December 2017, all of the Group’s financial liabilities except for derivatives were carried at AC . The derivatives belonged
to the FVTPL measurement category under IAS 39 . Starting from 1 January 2018 the Group’s financial liabilities except for
derivatives continued to be classified at AC . The derivatives were reclassified from FVTPL measurement category under IAS
39 to FVTPL (mandatory) measurement category under IFRS 9 .

The below disclosure provides reconciliation of the carrying amounts of financial instruments by classes from their previous
measurement category in accordance with IAS 39 to their new measurement categories upon transition to IFRS 9 on 1 Janu-
ary 2018 as well as describes the reasons for such reclassifications for loans and advances to customers and other assets:

F-43

F-44

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

Adoption of New or Revised Standards and
Interpretations (Continued)

a. Loans and advances to customers

New classification requirements of IFRS 9 led to changes in classification of loans and advances to customers as follows:

Measurement
category

In millions of RR

IAS 39 IFRS 9

Credit card loans

Instalments

Cash loans

POS loans

L&R

Total Loans and advanc-
es to customers

Carrying
value per IAS
39 (closing
balance at
31 December
2017)

Effect

Remeasurement

Reclassification

ECL

Other

tory Voluntary

Manda-

Carrying val-
ueper IFRS 9
(opening
balance at
1 January
2018)

125,818

(8,638)

3,235

(1,667)

6,663

4,529

(161)

(80)

140,245 (10,546)

1,568

118,748

(1,568)

6,502

4,449

129,699

The main reason for reclassification of instalments to credit card loans is that such reclassification results in more relevant
presentation of classes of loans and advances to customers as instalments represent restructured, stage 3, credit cards loans
to delinquent borrowers .

The effect of reclassification was as follows in the analysis of loans by credit quality:

31 December 2017
(as originally presented)

31 December 2017
(as reclassified)

Credit card
loans

Instalment
loans

Cash
loans

POS
loans

Credit card
loans

Cash
loans

POS
loans

In millions of RR

Neither past due nor
impaired:

- new

3,824

1,595

1,234

3,824

1,595

1,234

Loans collectively as-
sessed for impairment
(gross):

- non-overdue

118,193

4,016

5,051

3,304

122,209

5,051

3,304

- less than 30 days
overdue

- 30 to 90 days overdue

- 90 to 180 days over-
due

- 180 to 360 days
overdue

- over 360 days overdue

- loans in courts

Less: Provision for loan
impairment

3,097

2,682

2,340

941

1,189

7,924

360

302

239

543

447

3,457

2,984

2,579

1,484

1,636

7,924

(14,372)

(2,672)

(337)

(155)

(17,044)

(337)

(155)

Total loans

125,818

3,235

6,663

4,529

129,053

6,663

4,529

Investments in debt securities

New classification requirements of IFRS 9 led to changes in classification of investments in debt securities as follows:

Measurement
category

In millions of RR

IAS 39

IFRS 9

Carrying value
per IAS 39
(closing balance
at 31 December
2017)

Effect

Remeasurement

Reclassification

ECL

Other

tory Voluntary

Manda-

Carrying value
per IFRS 9

(opening
balance at 1
January
2018)

Corporate bonds

AFS

FVOCI

48,328

(233)

233

Russian govern-
ment bonds

AFS

FVOCI

Municipal bonds

AFS

FVOCI

13,904

4,374

(36)

(23)

Perpetual corpo-
rate bonds

Total Investments
in debt securities

AFS

FVTPL

5,070

71,676

(292)

292

166

48,494

13,904

4,374

5,070

166

71,842

Since the Investments in debt securities are measured at fair value under IFRS 9 and were measured at fair value under IAS 39,
the effect of remeasurement and ECL does not impact the carrying value of Investments in debt securities . The effect of ECL
impacts the revaluation gains/losses of debt securities measured at FVOCI (the ECL amount was reclassified from the revalua-
tion gains/losses to retained earnings) .

Having performed the business model assessment, the Group classified some of the other financial assets previously meas-
ured at FVTPL to FVOCI measurement category, business model “hold to collect and sell” .

c. Repurchase receivables

Measurement
category

In millions of RR

IAS 39

IFRS 9

Perpetual corpo-
rate bonds

Total Repurchase
receivables

AFS

FVTPL

Carrying value
per IAS 39 (clos-
ing balance at
31 December
2017)

Effect

Remeasurement

Reclassification

ECL

Other

tory Voluntary

Manda-

Carrying value
per IFRS 9
(opening bal-
ance at
1 January
2018)

798

The main reasons for reclassifications of investments in debt securities and repurchase receivables were as follows:

• Perpetual corporate bonds with interest payments that are not mandatory. The Group has invested in perpetual corporate bonds
where the interest payments can be cancelled at the option of the issuer . Interest payments are not cumulative . The Group
has concluded that its contractual cash flows are not consistent with the basic lending arrangement . Hence the investments
in perpetual debt securities are measured at FVTPL . Refer to Note 4 .

F-45

F-46

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018
31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

Adoption of New or Revised Standards and
Interpretations (Continued)

Reclassification from retired categories with no change in measurement. In addition to the above, the debt instruments previously
classified as AFS have been reclassified as measured at FVOCI under IFRS 9, as their previous category under IAS 39 was
‘retired’, with no changes to their measurement basis (except for perpetual corporate bonds as described above) . The business
model for these debt financial instruments (except for perpetual corporate bonds) was determined to be hold to collect con-
tractual cash flows and sell since the Group holds these assets to collect both the contractual cash flows and the cash flows
arising from the sale of assets .

d. Other financial assets

Measurement
category

In millions of RR

IAS 39

IFRS 9

Other financial as-
sets at AC

- Settlement of op-
erations with plastic
cards

- Other receivables

Other financial as-
sets at FVTPL

L&R

FVTPL

Carrying value
per IAS 39
(opening balance
at 31 December
2017)

Effect

Remeasurement

Reclassification

ECL

Other

Manda-
tory

Volun-
tary

Carrying value per
IFRS 9 (closing
balance at 1 Jan-
uary 2018)

10,280

523

166

10,280

523

(166)

e. Reconciliation of provision for impairment at 31 December 2017 and credit loss allowance at 1 January 2018

The following table reconciles the prior period’s closing provision for impairment measured in accordance with incurred loss
model under IAS 39 to the new credit loss allowance measured in accordance with expected loss model under IFRS 9 at 1
January 2018:

Measurement
category

In millions of RR

IAS 39 IFRS 9

Provision for
impairment
under IAS 39
or IAS 37 at
31 December
2017

Remeasure-
ment

Effect

Reclas-
sifica-
tion

Gross up
of ECL and
gross carry-
ing amount

Credit loss
allowance
under IFRS 9
at 1 January
2018

Loans and advances to customers
- Credit card loans

- Instalments

- Cash loans

- POS loans

Credit related commitments:
- Unused limits on credit card loans

Total
Investments in debt securities

L&R

14,372

2,672

337

155

8,638

4,339

1,667 (4,339)

161

-
17,536

1,723

12,269

8,723

36,072

575

304

-
8,869

1,723

38,674

- Corporate bonds

- Russian government bonds

- Municipal bonds

Total

AFS

FVOCI

233

292

233

292

Adoption of IFRS 9 resulted in an increase of gross carrying amounts of the financial assets as of 1 January 2018 because the
gross carrying amounts according to the standard are calculated by discounting the contractual cash flows in relation to prin-
cipal and all contractually due interest at the effective interest rate while previously under IAS 39 the gross carrying amounts
were calculated by discounting the contractual cash flows in relation to principal and expected cash flows in relation to interest
at the effective interest rate .

Further information on the measurement of the credit loss allowance under IFRS 9 is disclosed in respective notes .

Adoption of IFRS 15 (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018). The
Group has adopted IFRS 15, Revenue from Contracts with Customers, with the date of initial application of 1 January 2018,
which resulted in recognition of fee and commission income related to the loans and advances to customers but which does
not form a part of effective interest rate, on an accrual basis (not taking into account expected credit losses) over the period in
which the services are rendered as the customer simultaneously receives and consumes the benefits provided by the Group’s
performance, usually on a straight- line basis or at a point in time when the Group satisfies its performance obligation . In prior
periods some commission income was only recognised at its recoverable amount . The new standard was applied using the
modified retrospective method, with cumulative effect recognised in retained earnings on 1 January 2018 . The standard did
not have a material impact on the Group .

The following amended standards became effective for the Group from 1 January 2018, but did not have a material impact on
the Group:

• 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, depending on the approach, for annual periods beginning on or after 1 January 2018 for entities that
choose to apply temporary exemption option, or when the entity first applies IFRS 9 for entities that choose to apply the
overlay approach) .

• Annual Improvements to IFRSs 2014-2016 cycle – Amendments to IFRS 1 and IAS 28 (issued on 8 December 2016 and

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

•

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) .

• 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) .

• 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) .

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 2019 or later, and which the Group has not early adopted .

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 ob-
taining 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) deprecia-
tion 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 decided that it will apply the standard using
the modified retrospective method, without restatement of comparatives . The Group recognised a right of use asset of RR
1,684 million against a corresponding lease liability on 1 January 2019 . A reconciliation of the operating lease commitments
disclosed in Note 36 to this liability is as follows:

F-47

F-48

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018
31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
6 New Accounting Pronouncements (Continued)

In millions of RR

Total future minimum lease payments for non-cancellable operating leases (Note 36)

- Future lease payments that are due in periods after the end of non-cancellable operating lease period

- Effect of discounting to present value

Total lease liabilities

1 January 2019

829

1,072

(217)

1,684

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 estimate 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 treat-
ment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgments
and estimates required by the Interpretation .

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

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-making,
an entity will recognise the loss immediately .

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

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

(a) 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)* .

(b) 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)* .

periods beginning on or after 1 January 2019)* .

(d) 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) .

(e) Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29 March 2018 and effective for

annual periods beginning on or after 1 January 2020)* .

(f) Amendments to IAS 1 and IAS 8: Definition of Material (issued on 31 October 2018 and effective for annual periods begin-

ning on or after 1 January 2020)* .

(g) Amendment to IFRS 3 Business Combinations (issued on 22 October 2018 and effective for annual periods beginning on or

after 1 January 2020)* .

* Denotes standards, interpretations and amendments which have not yet been endorsed by the European Union .

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 with original maturities of less than three months:

- AA- to AA+ rated

- A- to A+ rated

- BBB- to BBB+ rated

- BB- to BB+ rated

- B- to B+ rated

Non-bank credit organizations

Total Cash and Cash Equivalents

31 December
2018

31 December
2017

5,839

11,158

1,130

761

13,454

360

114

986

2,941

11,201

856

377

7,051

867

351

206

33,802

23,850

Cash on hand includes cash balances in ATMs and cash balances in transit . Placements with other banks with original ma-
turities of less than three months include placements under reverse sale and repurchase agreements in the amount of RR
11,147 million as at 31 December 2018 (31 December 2017: RR 6,607 million) . The Group has a right to sell or repledge secu-
rities received under reverse sale and repurchase agreements .

The table below discloses the credit quality of cash and cash equivalents balances based on credit risk grades at 31 December
2018 . Refer to Note 34 for the description of the Group’s credit risk grading system . The carrying amount of cash and cash
equivalents at 31 December 2018 below also represents the Group’s maximum exposure to credit risk on these assets:

In millions of RR

Current

Monitor

Sub-standard

Placements with
other banks and non-
bank credit organi-
zations

Cash balances
with the CBRF

11,158

16,664

107

Total

27,822

107

Total cash and cash equivalents, excluding cash on hand

11,158

16,805

27,963

For the purpose of ECL measurement cash and cash equivalents balances are included in Stage 1 . The ECL for these balances repre-
sents an immaterial amount, therefore the Group did not recognise any credit loss allowance for cash and cash equivalents . Except for
reverse sale and repurchase agreements, amounts of cash and cash equivalents are not collateralised . As at 31 December 2018 the fair
value of collateral under reverse sale and repurchase agreements was RR 12,389 (31 December 2017: RR 7,304) . There is no material
impact of collateral on credit loss allowance for cash and cash equivalents . Refer to Note 34 for the ECL measurement approach .

F-49

F-50

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018
31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
7 Cash and Cash Equivalents (Continued)

Cash and cash equivalents are neither impaired nor past due as at 31 December 2017 . Refer to Note 39 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 34 .

8 Due from Banks

In millions of RR

Placements with other banks with original maturities of more than three
months:

- BBB- rated

- BB- to BB+ rated

- B- to B+ rated

Total due from other banks

31 December
2018

31 December
2017

210

128

438

776

255

121

401

777

The table below discloses the credit quality of due from banks balances based on credit risk grades at 31 December 2018 .
Refer to Note 34 for the description of credit risk grading system used by the Group . The carrying amount of due from banks
at 31 December 2018 below also represents the Group’s maximum exposure to credit risk on these assets:

In millions of RR

Current

Monitor

Total due from other banks

31 December 2018

338

438

776

For the purpose of ECL measurement due from banks balances are included in Stage 1 . The ECL for these balances represents
an immaterial amount, therefore the Group did not create any credit loss allowance for due from banks . Refer to Note 34 for
the ECL measurement approach .

Due from banks are neither impaired nor past due as at 31 December 2017 . Refer to Note 39 for the disclosure of the fair
value of due from banks . Interest rate, maturity and geographical risk concentration analysis are disclosed in Note 34 .

9 Loans and Advances to Customers

31 December 2018

31 December 2017

In millions of RR

Gross carry-
ing amount

Credit loss
allowance

Carrying
amount

Gross carry-
ing amount

Provision for
loan impair-
ment

Carrying
amount

Credit card loans

178,396

(33,296)

145,100

146,097

(17,044)

129,053

Cash loans

POS loans

Car loans

Secured loans

Loans to SME

35,194

(2,331)

32,863

15,275

(460)

14,815

7,000

4,684

(337)

(155)

6,663

4,529

2,838

2,644

363

(85)

(16)

(33)

2,753

2,628

330

Total loans and advances
to customers at AC

234,710

(36,221)

198,489

157,781

(17,536)

140,245

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 .

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 and offline purchases through internet and offline shops for individual borrowers .

Car loans represent loans for the purchase of a vehicle which is used as collateral under the loan .

Secured loans represent loans secured with a car or real estate .

Loans to SME represent loans provided by Bank to individual entrepreneurs and small and medium businesses for the purpose
of working capital management .

The credit loss allowance for loans and advances to customers recognised in the period is impacted by a variety of factors,
details of ECL measurement are provided in Note 34 . The main movements in the tables presented below are described as
follows:

• new originated or purchased category represents the gross carrying amounts of purchased loans and loans to new borrow-
ers (for this particular product) before their first repayment became due . The related ECL represents the day one ECL on
the purchase or origination of these loans;

• transfers between Stage 1, 2 and 3 due to balances experiencing significant increases (or decreases) of credit risk or be-

coming credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month and Lifetime ECL .
Transfers present the amount of credit loss allowance charged or recovered at the moment of transfer of a loan among the
respective stages;

• movements other than transfers and new originated or purchased loans category represents all other movements of ECL in
particular related to changes in gross carrying amounts (including drawdowns, repayments, and accrued interest), as well
as changes in ECL model assumptions including those arising from update of inputs to ECL model in the period;

• write-offs of allowances are related to assets that were written-off during the period;

• unwinding of discount (for Stage 3) category represents adjustment to credit loss allowance and gross carrying amount for
Stage 3 loans to increase it to discounted amount of the expected cash shortfalls to the reporting date using the effective
interest rate .

F-51

F-52

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)

The following tables disclose the changes in the credit loss allowance and gross carrying amount for loans and advances to
customers for the year ended 31 December 2018:

Credit loss allowance

Gross carrying amount

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit im-
paired)

Stage 1
(12-months
ECL)

Stage 2

Stage 1
(12-months
ECL)

(lifetime
ECL for
SICR)

Total

Stage 3
(lifetime
ECL for
credit im-
paired)

Total

In millions of RR

Credit card loans

At 1 January 2018

9,064

5,319

21,689

36,072

121,988

6,958

25,874

154,820

Movements with impact
on credit loss allowance
charge for the year

New originated or pur-
chased

Transfers:

- to lifetime (from Stage 1
to Stage 2)

- to credit-impaired (from
Stage 1 and Stage 2 to
Stage 3)

- recovered (from Stage
3 to Stage 2 and from
Stage 2 to Stage 1)

Movements other than
transfers and new origi-
nated or purchased loans

Total movements with
impact on credit loss
allowance charge for
the year

Movements without
impact on credit loss
allowance charge for the
year

Unwinding of discount
(for Stage 3)

Write-offs

Sales

Modification of origi-
nal cash flows without
derecognition

2,884

34,791

(1,647)

4,319

2,672

(6,465)

6,465

(3,063)

(4,636)

16,804

9,105

(13,933)

(5,569)

19,502

295

(930)

(29)

(664)

1,216

(1,184)

(32)

1,733

636

(3,502)

(1,133)

8,135

(16)

(3,665)

4,454

202

(611)

13,273

12,864

23,744

(304)

15,805

39,245

3,098

(16,899)

(395)

(1,444)

3,098

(16,899)

(424)

(1,444)

At 31 December 2018

9,266

4,708

19,322

33,296

145,732

6,654

26,010 178,396

Credit loss allowance

Gross carrying amount

Stage 2

(lifetime
ECL for
SICR)

Stage 3

(lifetime
ECL for
credit im-
paired)

Stage 1

(12-months
ECL)

Stage 1

(12-months
ECL)

Total

Stage 2

(lifetime
ECL for
SICR)

Stage 3

(lifetime
ECL for
credit im-
paired)

Total

In millions of RR

Cash loans

At 1 January 2018

268

151

156

575

6,478

438

161

7,077

Movements with impact
on credit loss allowance
charge for the year

New originated or pur-
chased loans

Transfers:

- to lifetime (from Stage 1
to Stage 2)

- to credit-impaired (from
Stage 1 and Stage 2 to
Stage 3)

- recovered (from Stage
3 to Stage 2 and from
Stage 2 to Stage 1)

Movements other than
transfers and new origi-
nated or purchased loans

Total movements with
impact on credit loss
allowance charge for
the year

Movements without
impact on credit loss
allowance charge for the
year

Unwinding of discount
(for Stage 3)

Write-offs

Sales

Modification of origi-
nal cash flows without
derecognition

1,255

32,010

(162)

968

806

(1,953)

1,953

(147)

(129)

673

397

(549)

(156)

705

(23)

(19)

(96)

(102)

(422)

154

(370)

(3,431)

(363)

214

(3,580)

848

394

827

2,069

26,173

1,338

919

28,430

(256)

(19)

(81)

(256)

(19)

(81)

At 31 December 2018

1,116

545

670

2,331

32,651

1,776

767

35,194

F-53

F-54

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)

Credit loss allowance

Gross carrying amount

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit im-
paired)

Stage 1
(12-months
ECL)

Total

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit im-
paired)

Total

In millions of RR

POS loans

At 1 January 2018

133

125

304

4,462

162

129

4,753

217

14,620

(30)

236

206

(710)

710

(31)

(41)

196

124

(151)

(56)

207

(4)

(3)

(28)

Movements with impact
on credit loss allowance
charge for the year

New originated or pur-
chased

Transfers:

- to lifetime (from Stage 1
to Stage 2)

- to credit-impaired (from
Stage 1 and Stage 2 to
Stage 3)

- recovered (from Stage 3
to Stage 2 and from Stage
2 to Stage 1)

Movements other than
transfers and new origi-
nated or purchased loans

Total movements with
impact on credit loss
allowance charge for the
year

Movements without
impact on credit loss
allowance charge for the
year

Unwinding of discount (for
Stage 3)

Write-offs

Sales

Modification of origi-
nal cash flows without
derecognition

(151)

(11)

(151)

(11)

(8)

(151)

(11)

(151)

(11)

(8)

At 31 December 2018

190

189

460

14,560

505

210

15,275

Credit loss allowance

Gross carrying amount

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit im-
paired)

Stage 1
(12-months
ECL)

Total

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit im-
paired)

Total

In millions of RR

Car loans

At 1 January 2018

Movements with impact
on credit loss allowance
charge for the year

New originated or pur-
chased

Transfers:

- to lifetime (from Stage 1
to Stage 2)

- to credit-impaired (from
Stage 1 and Stage 2 to
Stage 3)

Movements other than
transfers and new origi-
nated or purchased loans

Total movements with
impact on credit loss
allowance charge for
the year

2,839

(7)

(80)

(1)

(6)

(2)

(1)

2,754

2,838

Movements with impact
on credit loss allowance
charge for the year

New originated or pur-
chased

Transfers:

- to lifetime (from Stage 1
to Stage 2)

Total movements with
impact on credit loss
allowance charge for
the year

At 31 December 2018

2,644

(3)

2,641

2,644

(100)

(156)

(239)

(3,689)

(283)

(3,949)

At 31 December 2018

2,754

2,838

213

305

10,098

343

230

10,671

At 1 January 2018

Secured loans

F-55

F-56

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)

Credit loss allowance

Gross carrying amount

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit im-
paired)

Stage 1
(12-months
ECL)

Total

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit im-
paired)

Total

In millions of RR

Loans to SME

At 1 January 2018

Movements with impact
on credit loss allowance
charge for the year

New originated or pur-
chased

Transfers:

- to lifetime (from Stage 1
to Stage 2)

- to credit-impaired (from
Stage 1 and Stage 2 to
Stage 3)

Movements other than
transfers and new origi-
nated or purchased loans

Total movements with
impact on credit loss
allowance charge for
the year

(3)

155

(25)

(10)

(1)

212

(4)

208

332

363

At 31 December 2018

332

363

The credit loss allowance charge during the year ended 31 December 2018 presented in the tables above differs from the
amount presented in the consolidated statement of profit or loss and other comprehensive income for the year due to RR
4,083 million recovery of amounts previously written-off as uncollectible, and due to RR 318 million charge of ECL for credit
related commitments .

The amount of the recovery received during the year was credited directly to the credit loss allowance line in the consolidated
statement of profit or loss and other comprehensive income .

The amount of the ECL for credit related commitments is accounted separately from ECL for credit cards loans and is included
in other financial liabilities in the consolidated statement of financial position .

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

Cash loans

POS loans

Total provision
for loan impairment

As at
31 December
2016

Sales of impaired
loans

Amounts writ-
ten-off during the
year

Provision for im-
pairment during
the year

As at
31 December
2017

16,976

429

118

17,523

(431)

(7)

(25)

(463)

(8,966)

9,465

17,044

(108)

(55)

117

337

155

(9,129)

9,605

17,536

The provision for impairment during the year ended 31 December 2017 presented in the tables 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 .

During the year ended 31 December 2018 the Group sold credit-impaired loans to third parties (external debt collection
agencies) with a gross amount of RR 454 million (2017: RR 500 million) and credit loss allowance of RR 425 million (2017:
provision for impairment RR 463 million) . The difference between the carrying amount of these loans and the consideration
received was recognised as losses in the amount of RR 7 million within credit loss allowance for loans and advances to custom-
ers for the year ended 31 December 2018 (2017: as a gain in the amount of RR 26 million) .

Presented below is an analysis of issued, activated and utilised cards based on their credit card limits as at the end of the 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
2018

31 December
2017

651,290

443,659

423,030

427,986

361,803

285,574

341,017

402,002

109,482

631,207

458,058

394,543

361,117

293,372

252,135

377,207

155,902

61,761

3,445,843

2,985,302

F-57

F-58

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)

Table above only includes credit cards less than 180 days overdue .

Description of collateral held for loans to individuals carried at amortised cost is as follows at 31 December 2018:

In millions of RR

Loans collateralised by:

- residential real estate

- cars

Total

Unsecured exposures

Secured loans

Car loans

Total

2,449

189

2,638

2,095

743

2,449

2,284

4,733

749

5,482

Total gross carrying amount (representing exposure to credit
risk for each class of loans at AC)

2,644

2,838

The disclosure above represents the lower of the carrying value of the loan or collateral taken; the remaining part is disclosed
within the unsecured exposures which arise mainly due to application of a discount in determining the carrying value of collat-
eral . The carrying value of loans was allocated based on liquidity of the assets taken as collateral .

The extent to which collateral and other credit enhancements mitigate credit risk for financial assets carried at amortised cost
that are credit impaired, is presented by disclosing collateral values separately for (i) those assets where collateral and other
credit enhancements are equal to or exceed carrying value of the asset (“over-collateralised assets”) and (ii) those assets
where collateral and other credit enhancements are less than the carrying value of the asset (“under-collateralised assets”) .
The effect of collateral on credit impaired assets at 31 December 2018 is as follows .

In millions of RR

Credit impaired assets:

Secured loans

Car loans

Over-collateralised assets

Under-collateralised assets

Carrying value of

the assets Value of collateral

The values of collateral considered in this disclosure are after a valuation haircut of 20% for residential real estate and 30%
for cars applied to consider liquidity and quality of the pledged assets .

The following table contains an analysis of the credit risk exposure of loans and advances to customers measured at AC and
for which an ECL allowance is recognised . The carrying amount of loans and advances to customers below also represents the
Group’s maximum exposure to credit risk on these loans .

Loans to individuals at 31 December 2018 are disclosed as follows:

Stage 1
(12-months ECL)

Stage 2
(lifetime ECL for
SICR)

Stage 3
(lifetime ECL for
credit im-paired)

In millions of RR

Credit card loans

- Current

- Monitor

- Sub-standard

- NPL

Gross carrying amount

Credit loss allowance

Carrying amount

Cash loans

- Current

- Monitor

- Sub-standard

- NPL

Gross carrying amount

Credit loss allowance

Carrying amount

POS loans

- Current

- Monitor

- Sub-standard

- NPL

Gross carrying amount

Credit loss allowance

Carrying amount

Car loans

- Current

- Monitor

- Sub-standard

- NPL

Gross carrying amount

Credit loss allowance

Carrying amount

138,466

7,266

145,732

(9,266)

136,466

974

2,212

3,468

6,654

(4,708)

1,946

32,504

1,274

147

32,651

(1,116)

31,535

14,499

14,560

(190)

14,370

2,742

2,754

(56)

2,698

207

295

1,776

(545)

1,231

385

505

(81)

424

(25)

Total

139,440

9,478

8,242

21,236

4,774

21,236

26,010

178,396

(19,322)

(33,296)

6,688

145,100

695

767

(670)

204

210

(189)

(4)

33,778

354

367

695

35,194

(2,331)

32,863

14,884

121

204

15,275

(460)

14,815

2,784

2,838

(85)

2,753

F-59

F-60

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)

In millions of RR

Secured loans

- Current

- Monitor

Gross carrying amount

Credit loss allowance

Carrying amount

Loans to SME

- Current

- Monitor

- Sub-standard

- NPL

Gross carrying amount

Credit loss allowance

Carrying amount

Stage 1
(12-months ECL)

Stage 2
(lifetime ECL for
SICR)

Stage 3
(lifetime ECL for
credit im-paired)

2,638

2,641

(15)

2,626

327

332

(13)

319

(1)

(10)

Total

2,639

2,644

(16)

2,628

333

363

(33)

330

Stage 3 includes restructured loans that are less than 90 days overdue which are not considered as NPL according to the
Group’s credit risk grading master scale . Refer to Note 34 for the description of credit risk grading system used by the Group .

Analysis of loans by credit quality at 31 December 2017 is disclosed as follows (refer to Note 5):

In millions of RR

Neither past due nor impaired:

- new

31 December 2017

Credit card
loans

Cash
loans

POS
loans

3,824

1,595

1,234

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

Loans in courts are loans to delinquent borrowers, against which the Group has filed claims to courts in order to recover
outstanding balances . As at 31 December 2018 the gross carrying amount of the loans in courts was RR 15,390 million (1
January 2018 in accordance with IFRS 9: RR 14,059 million) .

Information about modifications of loans that have not resulted in derecognition is as follows:

In millions of RR

Year ended 31 December 2018

Loans and advances
to customers

Amortised cost of loans with lifetime ECL immediately before contractual modification that was not a
derecognition event

Gains less losses recognised in profit or loss on modifications of loans with lifetime ECL that did not
lead to derecognition

2,607

665

Refer to Note 39 for the disclosure of the fair value of loans and advances to customers . Interest rate, maturity and geographi-
cal risk concentration analysis are disclosed in Note 34 . Information on related party balances is disclosed in Note 41 .

10 Investments in Debt Securities

The table below discloses investments in debt securities at 31 December 2018 by measurement categories and classes:

In millions of RR

Corporate bonds

Russian government bonds

Municipal bonds

Perpetual corporate bonds

Debt securities at
FVOCI

Debt securities meas-
ured at FVTPL

65,140

23,560

5,774

5,666

Total

65,140

23,560

5,774

5,666

Total investments in debt securities
at 31 December 2018 (fair value/carrying value)

94,474

5,666

100,140

Including Credit loss allowance

481

Loans collectively assessed for impairment (gross):

Investments in debt securities at FVTPL

- non-overdue

- 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

122,209

5,051

3,304

3,457

2,984

2,579

1,484

1,636

7,924

Less: Provision for loan impairment

Total loans

(17,044)

129,053

(337)

6,663

(155)

4,529

Debt securities mandatorily classified as at FVTPL by the Group represent perpetual corporate bonds . Debt securities at FVTPL
are carried at fair value, which also reflects any credit risk related write-downs and best represents Group’s maximum expo-
sure to credit risk . The debt securities at FVTPL are not collateralised .

The table below contains an analysis of the credit risk grades of debt securities measured at FVTPL at 31 December 2018
estimated by external international rating agencies:

In millions of RR

- Current

- Sub-standard

Carrying value (fair value)

Corporate bonds

4,169

1,497

5,666

F-61

F-62

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018
31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
10 Investments in Debt Securities (Continued)

Investments in debt securities at FVOCI

The table below contains an analysis of the credit risk exposure of debt securities measured at FVOCI at 31 December 2018,
for which an ECL allowance is recognised, based on credit risk grades . Refer to Note 34 for the description of credit risk grad-
ing system used by the Group and the approach to ECL measurement, including the definition of default and SICR as applicable
to debt securities at FVOCI:

In millions of RR

Corporate bonds

- Current

- Monitor

- Sub-standard

- Doubtful

Total AC gross carrying amount

Less credit loss allowance

Less fair value adjustment from AC to FV

Carrying value (fair value)

Russian government bonds

- Current

Total AC gross carrying amount

Less credit loss allowance

Less fair value adjustment from AC to FV

Carrying value (fair value)

Municipal bonds

- Current

- Monitor

Total AC gross carrying amount

Less credit loss allowance

Less fair value adjustment from AC to FV

Carrying value (fair value)

Stage 1
(12-months ECL)

Stage 2
(lifetime ECL for
SICR)

Stage 3
(lifetime ECL for
credit im-paired)

54,560

10,304

64,878

(255)

(511)

64,112

24,021

(63)

(398)

23,560

4,325

1,508

5,833

(35)

(24)

5,774

1,413

194

1,607

(128)

(451)

1,028

The debt securities at FVOCI are not collateralised .

Total

54,560

11,717

194

66,485

(383)

(962)

65,140

24,021

(63)

(398)

23,560

4,325

1,508

5,833

(35)

(24)

5,774

The following table explains the changes in the credit loss allowance and gross carrying amount for debt securities at FVOCI for
the year ended 31 December 2018:

Credit loss allowance

Gross carrying amount

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit
impaired)

Stage 1
(12-months
ECL)

Total

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit
impaired)

Total

In millions of RR

Corporate bonds

At 1 January 2018

216

233

46,663

270

46,933

Movements with impact on
credit loss allowance charge:

New originated or purchased

184

(10)

174

27,174

Transfers:

- to lifetime (from Stage 1 to
Stage 2)

Foreign exchange gains

Redemption during the year

Disposal during the year

Interest income accrued

Interest received

Other movements

Total movements with
impact on credit loss allow-
ance charge

(71)

(6)

(41)

(16)

(38)

(7)

(1,082)

1,082

3,027

228

(6)

(41)

(1,040)

(9,856)

3,890

(3,898)

(23)

(7)

(53)

3,255

(1,040)

(9,856)

3,970

(3,951)

111

150

18,215

1,337

19,552

At 31 December 2018

255

128

383

64,878

1,607

66,485

Russian government bonds

At 1 January 2018

Movements with impact on
credit loss allowance charge:

New originated or purchased

Foreign exchange gains

Redemption during the year

Disposal during the year

Interest income accrued

Interest received

Total movements with
impact on credit loss allow-
ance charge

At 31 December 2018

186

(128)

(33)

(5)

13,686

186

72,235

918

- (128)

(49,829)

(33)

(12,649)

(5)

1,352

(1,692)

10,335

24,021

13,686

72,235

918

- (49,829)

- (12,649)

1,352

(1,692)

10,335

24,021

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F-64

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
10 Investments in Debt Securities (Continued)

Credit loss allowance

Gross carrying amount

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit
impaired)

Stage 1
(12-months
ECL)

Total

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit
impaired)

Total

(1)

(2)

(3)

4,308

(1)

(2)

(3)

1,752

(240)

382

(369)

1,525

5,833

4,308

1,752

(240)

382

(369)

1,525

5,833

In millions of RR

Municipal bonds

At 1 January 2018

Movements with impact on
credit loss allowance charge:

New originated or purchased

Disposal during the year

Interest income accrued

Interest received

Other movements

Total movements with
impact on credit loss allow-
ance charge

At 31 December 2018

Interest rate, maturity and geographical risk concentration analysis of investment in debt securities are disclosed in Note 34 .

Investment Securities Available for Sale

In millions of RR

Corporate bonds

Russian government bonds

Perpetual corporate bonds

Municipal bonds

Total investment securities available for sale

31 December
2017

48,328

13,904

5,070

4,374

71,676

Analysis by credit quality of debt securities outstanding at 31 December 2017 is as follows:

In millions of RR

Neither past due nor impaired

BBB- to BBB+ rated

BB- to BB+ rated

B- to B+ rated

Corporate
bonds

Russian
government
bonds

Perpetual
corporate
bonds

Municipal
bonds

Total

22,158

13,904

1,862

37,924

25,955

215

3,959

1,111

2,512

32,426

1,326

Total neither past due nor impaired in-
vestment securities available for sale

48,328

13,904

5,070

4,374

71,676

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

Interest income accrued on investment securities available for sale (Note 23)

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

33,286

67,814

(12,882)

(16,728)

3,491

(3,434)

(798)

(399)

1,326

71,676

Interest rate, maturity and geographical risk concentration analysis of investment securities available for sale are disclosed in
Note 34 .

12 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 . As at 31 December 2018 the sale and repurchase agreements are short-term and
mature in January 2019 (2017: January 2018) .

In millions of RR

Securities at FVOCI sold under sale and repurchase agreements

AFS securities sold under sale and repurchase agreements

Total repurchase receivables

31 December 2018

31 December
2017

1,182

798

Securities sold under sale and repurchase agreements at 31 December 2018:

Securities at FVOCI sold under sale and repurchase agreements

In millions of RR

Corporate bonds

Russian government bonds

Total debt securities (fair value/carrying value)

Including Credit loss allowance

Securities sold under sale and repurchase agreements at 31 December 2017:

In millions of RR

Perpetual corporate bonds

Total securities classified as repurchase receivables

1,110

1,182

Investment securities
available for sale

798

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F-66

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
12 Repurchase Receivables (Continued)

The following table contains an analysis of debt securities measured at FVOCI classified as repurchase receivables, for which
an ECL allowance is recognised, by the credit quality at 31 December 2018 based on credit risk grades and discloses balances
by three stages for the purpose of ECL measurement .

Refer to Note 34 for the description of credit risk grading system used by the Group and the approach to ECL measurement,
including the definition of default and SICR as applicable to the debt securities:

In millions of RR

Corporate bonds

- Current

Total AC gross carrying amount

Less credit loss allowance

Less fair value adjustment from AC to FV

Carrying value (fair value)

Russian government bonds

- Current

Total AC gross carrying amount

Less credit loss allowance

Less fair value adjustment from AC to FV

Carrying value (fair value)

Stage 1 (12-months ECL)

(1)

1,169

(3)

(56)

1,110

The credit quality of repurchase receivables balances 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 repur-
chase receivables

Perpetual corporate bonds

798

The following table explains the changes in the credit loss allowance and gross carrying amount for securities at FVOCI classi-
fied as repurchase receivables for the year ended 31 December 2018:

Credit loss allowance

Gross carrying amount

Stage 1
(12-months
ECL)

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit im-
pairred)

Stage 1
(12-months
ECL)

Total

Stage 2
(lifetime
ECL for
SICR)

Stage 3
(lifetime
ECL for
credit im-
pairred)

Total

1,043

202

(52)

1,242

- 1,043

202

(52)

- 1,242

In millions of RR

At 1 January 2018

Movements with impact on credit loss
allowance charge:

New originated or purchased

Foreign exchange gains

Interest income accrued

Interest received

Total movements with impact on
credit loss allowance charge

At 31 December 2018

Refer to Note 16 for the related liabilities . Interest rate, maturity and geographical risk concentration analysis of repurchase
receivables is disclosed in Note 34 .

Refer to Note 39 for the disclosure of the fair value of each class of repurchase receivables . Securities at FVTPL and securities
at FVOCI reclassified to repurchase receivables continue to be carried at fair value in accordance with accounting policies for
these categories of assets .

13 Guarantee Deposits with Payment Systems

Guarantee deposits with payment systems represent funds put aside by the Group . As at 31 December 2018 and 2017 a guar-
antee deposit in favour of MasterCard was placed with Barclays Bank Plc London (A rated) and in favour of Visa was placed
with United Overseas Bank Ltd . Singapore (AA - rated) . As at 31 December 2018 the carrying value of guarantee deposits
with payment systems was RR 4,603 million (2017: RR 3,660 million) .

For the purpose of credit risk measurement guarantee deposits with payment systems balances are included in current based
on credit risk grades as at 31 December 2018 . Refer to Note 34 for the description of the Group’s credit risk grading system .

For the purpose of ECL measurement guarantee deposits with payment systems balances are included in Stage 1 . Guarantee
deposits with payment systems are unsecured financial assets . The ECL for these balances represents an immaterial amount,
therefore the Group did not create any credit loss allowance for guarantee deposits with payment systems . Refer to Note 34
for the ECL measurement approach . Interest rate, maturity and geographical risk concentration analysis are disclosed in Note
34 .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

14 Tangible Fixed and Intangible Assets

15 Other Financial and Non-financial Assets

Building

Equipment

Leasehold
improve-
ments

Vehicles

Total tan-
gible fixed
assets

Intangible
assets,
including
goodwill

In millions of RR

Cost

At 31 December 2016

4,016

1,285

Additions

Disposals

473

(5)

1,151

(16)

At 31 December 2017

4,484

2,420

Additions

Disposals

At 31 December 2018

Depreciation and amortisation

At 31 December 2016

Charge for the year (Note 28)

Disposals

At 31 December 2017

Charge for the year (Note 28)

Disposals

131

4,615

(10)

(38)

(48)

(42)

2,131

(210)

4,341

(741)

(311)

(1,042)

(695)

210

458

289

747

789

5,798

2,848

1,915

1,720

(21)

7,692

3,052

(210)

(9)

4,559

2,066

1,536

10,534

6,625

(368)

(66)

(23)

(5)

(1,142)

(1,028)

(420)

(476)

(434)

(81)

(28)

(5)

(1,552)

(1,503)

(823)

210

(899)

At 31 December 2018

(90)

(1,527)

(515)

(33)

(2,165)

(2,402)

Net book value

At 31 December 2017

4,436

1,378

313

At 31 December 2018

4,525

2,814

1,021

6,140

3,056

8,369

4,223

Intangible assets in the amount of RR 774 million related to the software developments made by Tinkoff Software DC during
the year ended 31 December 2018 (2017: RR 333 million) .

Other intangible assets acquired during the year ended 31 December 2018 and 2017 mainly represent accounting software,
retail banking software, insurance software, licenses and development of software including the license for insurance opera-
tions .

In millions of RR

Other Financial Assets

Settlement of operations with plastic cards

Other receivables

Total Other Financial Assets

Other Non-Financial Assets

Prepaid expenses

Other

Total Other Non-Financial Assets

31 December
2018

31 December
2017

12,694

2,948

15,642

2,360

664

3,024

10,280

689

10,969

3,089

168

3,257

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, therefore the Group did not recognise any credit
loss allowance for settlement of operations with plastic cards . This amount includes prepayment to the payment systems for
operations during Holiday period . Settlement of operations with plastic cards balances and other receivables are included in
current risk grade as at 31 December 2018 . Refer to Note 34 for the description of the Group’s credit risk grading system .

For the purpose of ECL measurement settlement of operations with plastic cards balances and other receivables are included
in Stage 1 . The ECL for these balances represents an immaterial amount, therefore the Group did not recognise any credit loss
allowance . Refer to Note 34 for the ECL measurement approach .

As at 31 December 2018 prepaid expenses consist of prepayments for marketing, IT support, security, TV advertising and
ATM-service (2017: TV advertising, IT support, office rent) . Other financial assets are not impaired and not past due as at 31
December 2017 . Refer to Note 39 for the disclosure of the fair value of other financial assets . The maturity and geographical
risk concentration analysis of amounts of other financial assets is disclosed in Note 34 .

16 Due to Banks

In millions of RR

Correspondent accounts and overnight placements of other banks

Sale and repurchase agreements with other banks

Total due to banks

Note

31 December
2018

31 December
2017

1,597

1,111

2,708

591

595

During 2018 the Group acquired more office building space for its own use for RR 131 million (2017: RR 473 million), VAT
included .

Refer to Note 39 for the disclosure of the fair value of amounts due to banks . Interest rate, maturity and geographical risk
concentration analysis of due to banks is disclosed in Note 34 .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

17 Customer Accounts

19 Subordinated Debt

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
2018

31 December
2017

137,637

100,227

76,318

77,377

41,702

23,705

552

798

533

1,112

280,916

179,045

Refer to Note 39 for the disclosure of the fair value of customer accounts . Interest rate, maturity and geographical risk con-
centration analysis of customer accounts amounts is disclosed in Note 34 . Information on related party balances is disclosed
in Note 41 .

18 Debt Securities in Issue

In millions of RR

RR denominated bonds issued in April 2017

EUR denominated ECP issued in December 2018

USD denominated ECP issued in December 2018

RR denominated bonds issued in June 2016

RR denominated ECP issued in December 2018

USD denominated ECP issued in December 2017

Total Debt Securities in Issue

Date of maturity

22 April 2022

19 December 2019

24 June 2021

19 December 2019

19 December 2018

31 December
2018

31 December
2017

5,067

2,392

1,266

784

9,605

5,061

2,989

2,769

10,819

On 20 December 2018 the Group issued three tranches of Euro-Commercial Paper (ECP) denominated in USD, EUR and RR
maturing on 19 December 2019 . USD denominated ECP has a nominal value of USD 19 million at 4 .25% coupon rate . EUR
denominated ECP has a nominal value of USD 30 .5 million at 1 .25% coupon rate . RR denominated ECP has a nominal value of
RR 105 million at 9 .5% coupon rate .

On 20 December 2017 the Group issued USD denominated ECP with a nominal value of USD 50 million with a discount of 4%
maturing on 19 December 2018 . The Group redeemed all outstanding ECP of this issue at maturity .

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 .

In January and December 2018 the Bank repurchased RR 2,214 million of outstanding RR denominated bonds issued in June
2016 at nominal value as part of the buy-back offers .

All RR denominated bonds issued by the Bank are traded on OJSC Moscow Exchange . Refer to Note 39 for the disclosure of
the fair value of debt securities in issue . Interest rate, maturity and geographical risk concentration analysis of debt securities
in issue are disclosed in Note 34 .

As at 31 December 2018 the carrying value of the subordinated debt was RR 20,644 million (31 December 2017: RR 22,001
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 . The Group redeemed all outstanding bonds of these issues at maturity .

During the year ended 31 December 2018 and before the maturity date the Bank repurchased USD 1 .3 million outstanding
principal amount at an average purchase price 101 .63% of the bonds nominal value .

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 gains from repurchase of subordinated bonds for the year ended 31 December 2018 in the amount of RR 1 million are
recognised in the consolidated statement of profit or loss and other comprehensive income (2017: losses in the amount of RR
619 million) .

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 . Inter-
est rate, maturity and geographical risk concentration analysis of subordinated debt is disclosed in Note 34 . Refer to Note 39
for the disclosure of the fair value of financial instruments .

20 Insurance Provisions

In millions of RR

Insurance Provisions

Provision for unearned premiums

Loss provisions

Total Insurance Provisions

31 December
2018

31 December
2017

1,760

1,099

2,859

1,117

723

1,840

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F-72

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
20 Insurance Provisions (Continued)

Movements in provision for unearned premiums for the year ended 31 December 2018 and 2017 are as follows:

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 represent-
ed by accrued staff costs .

2018

2017

Movements in the credit loss allowance for credit related commitments were as follows:

In millions of RR

Provision for unearned pre-
miums as at 1 January

Change in provision, gross

Change in reinsurers’ share
of provision

Provision for unearned pre-
miums as at 31 December

Gross provi-
sion

Reinsurer’s
share of pro-
vision

Provision net
of reinsur-
ance

Gross provi-
sion

Reinsurer’s
share of pro-
vision

Provision net
of reinsur-
ance

1,117

643

1,760

(1)

(2)

(3)

1,116

643

300

817

(2)

1,757

1,117

(1)

300

817

(1)

1,116

Movements in loss provisions for the year ended 31 December 2018 and 2017 are as follows:

In millions of RR

OCP and IBNR

Loss provisions as at 1 January 2017

Change in provision

Netting with deferred acquisition costs

Loss provisions as at 31 December 2017

Change in provision

Netting with deferred acquisition costs

Loss provisions as at 31 December 2018

368

150

518

447

965

Provision for
claims handling
expenses

Total loss provi-
sions

122

467

328

(72)

723

385

(9)

125

1,099

URP

115

(72)

(65)

(9)

21 Other Financial and Non-financial Liabilities

In millions of RR

Other Financial Liabilities

Settlement of operations with plastic cards

Trade payables

Credit related commitments

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
2018

31 December
2017

4,904

3,189

2,041

1,067

5,271

2,538

234

11,201

8,043

1,438

1,212

791

3,441

1,283

1,008

505

2,796

Stage 1
(12-months ECL)

Stage 2
(lifetime ECL for
SICR)

Stage 3
(lifetime ECL for
credit im-paired)

1,701

In millions of RR

At 1 January 2018

Movements with impact on credit loss allow-
ance for credit related commitments charge
for the year:

New originated or purchased

893

Transfers:

- to lifetime (from Stage 1 to Stage 2)

- to credit-impaired (from Stage 1 and Stage
2 to Stage 3)

- recovered (from Stage 3 to Stage 2 and
from Stage 2 to Stage 1)

Movements other than transfers and new
originated or purchased loans

Total movements with impact on credit
loss allowance for credit related commit-
ments charge for the year

(23)

(53)

(499)

323

At 31 December 2018

2,024

The main movements in the table presented above are described as follows:

(7)

(16)

(5)

Total

1,723

893

(5)

(60)

(11)

(499)

318

2,041

• new originated or purchased category represents the day one ECL for the undrawn part of the purchased loans and loans to

new borrowers (for this particular product) before the first payment became due;

• transfers between Stage 1, 2 and 3 due to undrawn limits experiencing significant increases (or decreases) of credit risk

or becoming credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month and Lifetime
ECL . Transfers present the amount of credit loss allowance for loan commitments charged or recovered at the moment of
transfer of a loan commitment among the respective stages;

• movements other than transfers and new originated or purchased loans category represents all other movements of ECL
for loan commitments in particular related to changes in gross carrying amounts of associated loans, ECL model assump-
tions and other .

Interest rate, maturity and geographical risk concentration analysis of other financial liabilities is disclosed in Note 34 . Refer
to Note 39 for disclosure of fair value of other financial liabilities . Refer to Note 36 for analysis of loan commitments by credit
risk grades .

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F-74

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

22 Share Capital

In millions of RR except for the
number of shares

Number of
authorised
shares

Number of
outstanding
shares

Ordinary
shares

Share premi-
um

Treasury
shares

At 1 January 2017

190,479,500 182,638,825

188

8,623

(1,473)

GDRs buy-back

GDRs and shares transferred
under MLTIP

(397)

283

At 31 December 2017

190,479,500 182,638,825

188

8,623

(1,587)

Total

7,338

(397)

283

7,224

Increase of number of au-
thorised shares

1,291,266

GDRs buy-back

GDRs and shares transferred
under MLTIP

At 31 December 2018

191,770,766 182,638,825

188

8,623

(3,670)

372

5,141

In May 2018 the Company’s shareholders approved a resolution to increase authorised share capital to USD 7,670,830 .64 by
the creation of 1,291,266 new undesignated ordinary shares of nominal value USD 0 .04 each . As at 31 December 2018 the
total number of authorised shares is 191,770,766 shares (31 December 2017: 190,479,500 shares) with a par value of USD
0 .04 per share (31 December 2017: USD 0 .04 per share) .

As at 31 December 2018 and 2017 treasury shares represent GDRs of the Group repurchased from the market for the purpos-
es permitted by Cyprus law including contribution to MLTIP .

During the year ended 31 December 2018 the Group purchased 2,094,126 GDRs at market price for RR 2,455 million (2017:
602,148 GDRs at market price for RR 397 million) . Refer to Note 41 .

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 dilutive effect of share options granted under MLTIP . Refer to Note 41 .

Earnings per share are calculated as follows:

In millions of RR

Profit for the year attributable to ordinary shareholders of the Company

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

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

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

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

Information on dividends is disclosed in Note 31 .

2018

27,088

2017

19,019

176,425

176,303

181,631

153.54

149.14

182,140

107.88

104.42

(2,455)

Debt securities and repurchase receivables at FVOCI

10, 12

5,753

23 Net margin

In millions of RR

Note

2018

2017

Interest income calculated using the effective interest rate method

Loans and advances to customers, including:

Credit card loans

Cash loans

POS loans

Loans to SME

Secured loans

Car loans

63,218

53,596

4,029

1,454

1,083

793

Placements with other banks and non-bank credit organizations with original
maturities of less than three months

Other interest income

Investment securities available for sale and repurchase receivables

440

510

3,267

Total Interest income calculated using the effective interest rate method

75,041

59,317

Other similar income

Debt securities and repurchase receivables at FVTPL

Total Interest Income

Interest expense calculated using the effective interest rate method

Customer accounts, including:

Individuals

- Current/demand accounts

- Term deposits

SME

Other legal entities

Subordinated debt

RR denominated bonds

Euro-Commercial Papers

Due to banks

Total Interest expense calculated using the effective interest rate meth-
od

Expenses on deposit insurance

Net margin

456

224

75,497

59,541

5,922

5,283

800

4,165

5,453

421

2,089

2,022

706

124

682

15,106

12,824

1,174

641

59,217

46,076

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

24 Fee and Commission Income and Expense
In millions of RR

2018

2017

25 Customer Acquisition Expense
In millions of RR

Fee and commission income

SME current accounts commission

Credit protection fee

Merchant acquiring commission

Interchange fee

SMS fee

Foreign currency exchange transactions fee

Card to card commission

Cash withdrawal fee

Mortgage agency fee

Brokerage operations

Income from MVNO services

Placement fee

Marketing services fee

Other fees receivable

6,943

5,601

4,162

3,046

2,256

1,785

1,279

885

419

210

186

167

108

376

3,003

4,211

2,416

1,683

1,341

992

555

606

100

167

370

Total fee and commission income

27,423

15,531

SME current accounts commission represents commission for services to individual entrepreneurs and small to medium busi-
nesses . Credit protection fee income represents agency fee for providing voluntary credit insurance to borrowers of the Group .
Merchant acquiring commission represents commission for processing card payments from online and offline points of sale .

In millions of RR

Fee and commission expense

Payment systems

Service fees

Banking and other fees

Costs of MVNO services

Partnership fees

2018

2017

8,430

1,429

456

246

190

4,766

726

126

Total fee and commission expense

10,751

5,618

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

Costs of MVNO services represent expenses for the traffic, telecommunications service and roaming .

Refer to Note 3 that describes the types of revenues recognized on a point in time basis and on the over time basis .

Marketing and advertising

Staff costs

Credit bureaux

Telecommunication expenses

Other acquisition

Total customer acquisition expenses

2018

6,685

5,509

535

285

13,100

2017

5,096

3,968

358

244

9,719

Customer acquisition expenses represent expenses paid by the Group on services related to origination of customers which
are not directly attributable to the recognised assets and are not incremental . 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 state non-budgetary funds and statutory pension contributions in the
amount of RR 1,341 million for the year ended 31 December 2018 (2017: RR 949 million) .

26 Net Gains from Operations with Foreign Currencies
In millions of RR

2018

Net gains/(losses) from derivative revaluation

Foreign exchange translation (losses)/gains

Net gains/(losses) from trading in foreign currencies

Net gains/(losses) from operations with foreign currencies

27 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 28 .

1,784

(2,155)

381

2018

1,409

416

143

1,968

2017

(652)

501

(105)

(256)

2017

516

256

815

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

28 Administrative and Other Operating Expenses
In millions of RR

Note

2018

Staff costs

Taxes other than income tax and levies

Amortization of intangible assets

Depreciation of fixed assets

Operating lease expense for premises and equipment

Information services

Communication services

Professional services

Stationery

Security expenses

Collection expenses

Other provisions

Other administrative expenses

15,602

2,514

899

823

651

570

402

333

263

171

168

158

469

2017

11,430

1,779

476

420

441

324

212

187

134

299

Total administrative and other operating expenses

23,023

16,206

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 2018 amounted to RR 2 .7 million (2017: RR 2 .1 mln) .
The total fees charged by the Company’s statutory auditor for the year ended 31 December 2018 for other assurance services
amounted to RR 4 .7 million (2017: RR 3 .8 million), for tax advisory services amounted to RR 5 .7 million (2017: RR 1 .1 million)
and for other non-assurance services amounted to nil (2017: RR 1 .7 million) .

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

In millions of RR

Statutory social contribution to the non-budget funds and statutory pension contri-
butions

Share-based remuneration

2018

2,582

630

2017

1,721

1,037

The average number of employees employed by the Group during the reporting year, including those who are working under
civil contracts, was 21,577 (2017: 15,391) .

29 Other Operating Income
In millions of RR

Income from marketing services

Subrogation fee

Other

2018

2,060

122

788

2017

956

223

Total other operating income

2,970

1,220

30 Income Taxes

Income tax expense comprises the following:

In millions of RR

Current tax

Deferred tax

Total income tax expense

2018

4,639

3,463

8,102

2017

5,479

483

5,962

The income tax rate applicable to the majority of the Group’s income is 20% (2017: 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% (2017: 12 .5%) .

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

In millions of RR

Profit before tax

Theoretical tax expense at statutory rate of 20% (2017: 20%)

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

- Non-deductible expenses

- Other including dividend tax

Unrecognised tax losses

Effects of different tax rates:

- Income on government securities taxed at different rates

- Results of companies of the Group taxed at different statutory rates

Income tax expenses for the year

2018

35,224

7,045

311

740

177

(165)

(6)

8,102

2017

24,985

4,997

370

549

5,962

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% (2017: 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 .

Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity and the same taxation
authority .

F-79

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
30 Income Taxes (Continued)

In millions of RR

Tax effect of deductible and taxable tem-
porary differences

31 December
2017

(Charged)/
credited to
profit or loss

Credited
directly to
equity

Credited to
OCI

31 December
2018

Loans and advances to customers

223

(1,636)

2,109

Tangible fixed assets

Intangible assets

Revaluation of debt investment at FVOCI

Revaluation of debt investment at FVTPL

Accrued expenses and other temporary
differences

Customer accounts

Debt securities in issue

Financial derivatives

Insurance provisions

(344)

(312)

(327)

(199)

(30)

(55)

(435)

(257)

(827)

(919)

345

111

667

696

(601)

(285)

(487)

(773)

(21)

(40)

(324)

Net deferred tax liabilities

(1,479)

(3,463)

2,454

667

(1,821)

In millions of RR

Tax effect of deductible and taxable temporary differenc-
es

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

31 December
2016

(Charged)/
credited to
profit or loss

Charged
to OCI

31 December
2017

318

(246)

(353)

(140)

(1)

226

(39)

(11)

(544)

(95)

(98)

(425)

(44)

109

(5)

223

(344)

(312)

(211)

(327)

(199)

(30)

(55)

(435)

Net deferred tax liabilities

(785)

(483)

(211)

(1,479)

31 Dividends

The movements in dividends during the year are as follows:

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

Foreign exchange loss 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)

2018

377

12,265

(11,946)

(144)

208

760

1.07

2017

167

8,279

(7,970)

(29)

(70)

377

0.77

Dividends declared during the year for the year ended 31 December 2018 in the table above represent dividends declared by
the Board of Directors during the year ended 31 December 2018 decreased by RR 11 million of dividends on GDRs acquired by
the Company from the market not for the purposes of existing MLTIP .

On 25 November 2018 the Board of Directors declared an interim dividend of RR 18 .39 (USD 0 .28) per share/per GDR
amounting to RR 3,358 million (USD 51 .1 million) . Declared dividends were paid in USD in December 2018 .

On 27 August 2018 the Board of Directors declared an interim dividend of RR 16 .27 (USD 0 .24) per share/per GDR amount-
ing to RR 2,972 million (USD 43 .9 million) . Declared dividends were paid in USD in September 2018 .

On 29 May 2018 the Board of Directors declared an interim dividend of RR 14 .95 (USD 0 .24) per share/per GDR amounting to
RR 2,730 million (USD 43 .8 million) . Declared dividends were paid in USD in June 2018 .

On 9 March 2018 the Board of Directors declared an interim dividend of RR 17 .61 (USD 0 .31) per share/per GDR amounting to
RR 3,216 million (USD 56 .6 million) . Declared dividends were paid in USD in April 2018 .

On 19 November 2017 the Board of Directors of the Group declared an interim 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 . Declared dividends were paid in USD in
December 2017 .

On 28 August 2017 the Board of Directors of the Group declared an interim dividend of RR 11 .83 (USD 0 .20) per share/per
GDR amounting to RR 2,161 million (USD 36 .5 million) . Declared dividends were paid in USD in 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) . Declared dividends were paid in USD in June 2017 .

Dividends were declared and paid in USD throughout the years ended 31 December 2018 and 2017 .

Dividends payable at 31 December 2018 related to treasury shares acquired under MLTIP amounting to RR 760 million are
included in other non-financial liabilities (2017: RR 377 million) .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

32 Reconciliation of liabilities arising from financing activities

Measurement of operating segment profit or loss, assets and liabilities

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 consolidated statement of cash flows .

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 .

Liabilities from financing activities

Information about reportable segment profit or loss, assets and liabilities

In millions of RR

Net debt at 1 January 2017

Cash flows

Issue costs

Foreign exchange adjustments

Other non-cash movements

Net debt at 31 December 2017

Cash flows

Foreign exchange adjustments

Other non-cash movements

Debt securities in
issue

Perpetual subor-
dinated bonds

Other subordinat-
ed debt

2,986

7,819

10,819

(1,803)

580

17,109

(256)

262

17,115

(49)

3,553

11,514

(6,623)

(106)

101

4,886

(5,209)

382

(59)

Total

14,500

18,305

(256)

156

115

32,820

(7,061)

4,515

(25)

30,249

Net debt at 31 December 2018

9,605

20,644

33 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

The Group is organised on the basis of 4 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 .

• MVNO services - providing mobile services for both current Group’s customers and others .

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 .

Segment reporting of the Group’s assets and liabilities as at 31 December 2018 is set out below:

In millions of RR

Retail
banking

SME
accounts
services

Insurance
operations

MVNO ser-
vices

Elimi-
na-tions

Total

Cash and cash equivalents

19,621

13,110

3,537

(2,481)

33,802

Mandatory cash balances with the CBRF

2,435

Due from other banks

Loans and advances to customers

199,513

330

Financial derivatives

1,710

776

386

Investments in debt securities

68,375

30,394

1,371

Repurchase receivables

Guarantee deposits with payment
systems

Current income tax assets

Tangible fixed assets

Intangible assets

Other financial assets

Other non-financial assets

1,182

4,603

1,104

8,280

3,214

15,316

2,344

547

173

264

542

618

Total reportable segment assets

327,697

44,554

7,494

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

2,708

242,092

41,702

9,605

1,821

20,644

9,746

3,367

2,859

1,711

198

150

498

2,435

776

(1,740)

198,489

1,710

100,140

1,182

4,603

1,104

8,369

4,223

(435)

15,642

(88)

3,024

(4,744)

375,499

2,708

1,344

(4,222)

280,916

9,605

1,821

20,644

2,859

213

(469)

11,201

(53)

3,441

Total reportable segment liabilities

290,037

41,702

4,633

1,621

(4,744)

333,249

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F-84

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
33 Segment Analysis (Continued)

Segment reporting of the Group’s income and expenses for the year ended 31 December 2018 is set out below:

In millions of RR

Revenues

Interest income calculated using the
effective interest rate method

Other similar income

Fee and commission income:

Retail
banking

SME
accounts
services

Insurance
operations

MVNO ser-
vices

Elimi-
na-tions

Total

73,105

1,807

250

(121)

75,041

456

- SME current accounts commission

6,943

- Credit protection fee

- Merchant acquiring commission

- Interchange fee

- SMS fee

- Foreign currency exchange transactions fee

- Card to card commission

- Cash withdrawal fee

- Mortgage agency fee

- Brokerage operations

- Income from MVNO services

- Placement fee

- Marketing services fee

- Other fees receivable

5,601

4,202

2,595

2,256

1,576

1,279

885

419

210

167

108

393

451

209

Timing of fee and commission income
recognition:

- At point in time

- Over time

17,435

2,256

7,385

218

Total fee and commission income

19,691

7,603

Net gains/(losses) from operations with
foreign currencies

Net gains from disposals of debt securities
at FVOCI

Insurance premiums earned

Net gain from repurchase of subordinated
debt

Other operating income

Total revenues

(6)

457

320

2,784

(40)

239

(53)

(17)

456

6,943

5,601

4,162

3,046

2,256

1,785

1,279

885

419

210

186

167

108

376

239

(110)

24,949

2,474

239

(110)

27,423

6,665

202

(79)

(311)

378

6,674

(59)

2,970

96,808

9,449

7,135

241

(680)

112,953

Interest expense calculated using the effec-
tive interest rate method

Expenses on deposit insurance

(14,377)

(1,090)

(800)

(84)

Credit loss allowance for loans and advances
to customers

(11,574)

(33)

(50)

121

(15,106)

(1,174)

(11,607)

Retail
banking

SME
accounts
services

Insurance
operations

MVNO ser-
vices

Elimi-
na-tions

Total

In millions of RR

Credit loss allowance for debt securities at
FVOCI

Fee and commission expense

(192)

(9,434)

(1,125)

Customer acquisition expense

(10,012)

(2,429)

(772)

Net losses from debt instruments at FVTPL

(808)

Insurance claims incurred

(1,968)

(192)

(246)

(254)

(10,751)

367

(13,100)

(808)

(1,968)

Administrative and other operating expenses

(18,896)

(2,370)

(1,002)

(814)

(23,023)

Segment result

30,425

2,608

3,393

(1,123)

(79)

35,224

Segment reporting of the Group’s assets and liabilities as at 31 December 2017 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

Retail
banking

SME
accounts
services

Insurance
operations

Elimi-
na-tions

Total

16,741

6,067

1,850

(808)

23,850

1,675

256

140,245

2,424

521

Investment securities available for sale

53,974

17,500

202

Repurchase receivables

Current income tax assets

Guarantee deposits with payment systems

Tangible fixed assets

Intangible assets

Other financial assets

Other non-financial assets

798

301

3,660

6,138

2,391

10,514

3,084

370

295

604

208

1,675

777

140,245

2,424

71,676

798

301

3,660

6,140

3,056

(162)

10,969

(35)

3,257

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

1,429

22,001

8,103

2,808

1,840

102

595

(808)

179,045

(162)

(35)

10,819

240

1,479

22,001

1,840

8,043

2,796

Total reportable segment liabilities

202,168

23,705

2,015

(1,005)

226,883

(2)

Total reportable segment assets

242,201

23,950

3,682

(1,005)

268,828

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F-86

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
33 Segment Analysis (Continued)

Segment reporting of the Group’s income and expenses for the year ended 31 December 2017 is set out below:

In millions of RR

Interest income calculated using the effective interest
rate method

Other similar income

Fee and commission income:

- SME current accounts commission

- Credit protection fee

- Merchant acquiring commission

- Interchange fee

- SMS fee

- Foreign currency exchange transactions fee

- Card to card commission

- Cash withdrawal fee

- Mortgage agency fee

- Brokerage operations

- Placement fee

- Other fees receivable

Timing of fee and commission income recognition:

- At point in time

- Over time

Total fee and commission income

Net gains from investment securities available for sale

Insurance premiums earned

Other operating income

Total revenues

Interest expense calculated using the effective interest
rate method

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 subordinated loan

Insurance claims incurred

Administrative and other operating expenses

Segment result

Retail
banking

58,294

224

SME
accounts
services

945

3,003

4,211

2,686

1,540

1,341

911

555

606

100

167

397

143

11,260

3,166

1,341

12,601

3,227

270

1,140

Insurance
operations

Elimi-
na-tions

Total

116

(38)

59,317

2,742

(270)

(27)

224

3,003

4,211

2,416

1,683

1,341

992

555

606

100

167

370

(297)

14,129

1,402

(297)

15,531

(7)

(4)

270

2,735

1,220

72,529

4,181

2,933

(346)

79,297

(12,824)

(12,441)

(612)

(7,614)

(5,192)

(421)

(29)

(426)

(7,770)

(1,588)

(665)

304

(251)

(619)

(14,718)

23,312

(879)

838

(5)

(815)

(613)

835

Depreciation charges for the year ended 2018 included in administrative and other operating expenses in the amount of
RR 801 million and RR 1 million (2017: RR 415 million and RR 2 million) relate to the Bank and to the Insurance Company,
correspondingly . Amortisation for 2018 included in the administrative and other operating expenses in the amount of RR 761
million and RR 64 million (2017: RR 403 million and RR 62 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

2018

113,633

(680)

112,953

2017

79,643

(346)

79,297

Total consolidated revenues comprise interest income calculated using the effective interest rate method, other similar income,
fee and commission income, net gains from operations with foreign currencies, net gains from disposals of debt securities at
FVOCI, insurance premiums earned and other operating income .

In millions of RR

Total reportable segment result

Profit before tax

In millions of RR

Total reportable segment assets

Intercompany balances

Total consolidated assets

In millions of RR

Total reportable segment liabilities

Intercompany balances

Total consolidated liabilities

2018

35,224

2017

24,985

31 December
2018

31 December
2017

380,243

(4,744)

269,833

(1,005)

375,499

268,828

31 December
2018

31 December
2017

337,993

227,888

(4,744)

(1,005)

333,249

226,883

(641)

(7,614)

(5,618)

(9,719)

(256)

(619)

(815)

(16,206)

24,985

34 Financial Risk Management

The risk management function within the Group is carried out with respect to 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 function of financial risk management is to establish
risk limits and to ensure that any exposure to risk stays within these limits . The operational and legal risk management func-
tions are intended to ensure the proper functioning of internal policies and procedures in order to minimize operational and
legal risks .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
34 Financial Risk Management (Continued)

Credit risk. The Group exposes itself to credit risk, which is the risk that one party to a financial instrument will cause a finan-
cial loss for the other party by failing to meet 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 grants retail loans and SME to customers
across all regions of Russia, therefore its credit risk is broadly diversified . The management of the Group takes special meas-
ures 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 ., giving rise to financial assets and off-balance sheet
credit-related commitments . The Group grants retail loans to customers across all regions of Russia, therefore its credit risk is
broadly diversified . 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 in the consolidated state-
ment of financial position . For financial guarantees issued, commitments to extend credit, undrawn credit lines, the maximum
exposure to credit risk is the amount of the commitment (Note 36) .

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:

For loans to SME minimum requirements are listed below:

• The requested loan term is from 6 to 36 months;

• Car loan volumes range between RR 50 thousand and RR 2,000 thousand;

A credit decision process 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);

• Phone verification of the application information about the potential customer, his/her employment, social and property

status, etc . This step may be omitted for POS loans;

• 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;

• The approved loan amount, loan term and tariff plan are calculated depending on the score and declared income .

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

• Citizenship of the Russian Federation;

a) if the credit card loan is overdue for more than 7 days, its account will be blocked till repayment;

• Age from 18 to 70, but not older than 70 y .o . at the time of loan repayment;

b) if the borrower had lost his/her source of income, then borrower account might be blocked till verification of his/her new

• Availability of a cell-phone;

• Permanent employment;

• Permanent income .

For cash loans, minimum requirements are listed below:

• The requested loan term is from 3 to 36 months;

• Cash loan volumes range between RR 50 thousand and RR 2,000 thousand .

For POS loans minimum requirements are listed below:

• The requested loan amount should exceed RR 3 thousand;

• The requested loan term is from 3 to 36 months;

• The amount of one POS loan does not exceed RR 100 thousand .

For secured loans minimum requirements are listed below:

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 restructur-
ing . 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 credit-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 .

• The requested loan secured with a car amount should be between RR 100 thousand and RR 3,000 thousand, loan term is
from 3 months to 5 years . The requirement for the car is in good condition of driving with an age not more than 15 years;

• The requested loan secured with a real estate amount should be between RR 200 thousand and RR 15,000 thousand, loan
term is from 3 months to 15 years . The requirement for the real estate is an apartment in the apartment building within the
Russian Federation, and is free from any encumbrances .

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 cred-
itimpaired 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);

For car loans minimum requirements are listed below:

• The requested loan term is from 1 to 5 years;

• Car loan volumes range between RR 100 thousand and RR 1,000 thousand;

• The requirement for the car is with an age not more than 18 years .

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 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
34 Financial Risk Management (Continued)

Credit risk grading system . For measuring credit risk and grading financial instruments except for loans and advances to
customers by the level of credit risk, the Group applies risk grades estimated by external international rating agencies in case
these financial instruments have risk grades estimated by external international rating agencies (using Fitch ratings and in
case of their absence - Moody’s or Standard & Poor’s ratings adjusting them to Fitch’s categories using a reconciliation table):

Master scale credit risk grade

Corresponding ratings of external international rating agency (Fitch)

Current

Monitor

Sub-standard

Doubtful

Default

AAA to BB+

BB to B+

B, B-

CCC+ to CC-

C, D-I, D-II

Each master scale credit risk grade is assigned a specific degree of creditworthiness:

• Current – strong credit quality with low expected credit risk;

• Monitor – adequate credit quality with a moderate credit risk;

• Sub-standard – moderate credit quality with a satisfactory credit risk;

• Doubtful – facilities that require closer monitoring and remedial management; and

• Default – facilities in which a default has occurred .

For measuring credit risk and grading loans and advances to customers, credit related commitments and those financial
instruments which do not have risk grades estimated by external international rating agencies, the Group applies risk grades
and the corresponding range of probabilities of default (PD):

Expected credit loss (ECL) measurement – definitions and description of estimation techniques.
ECL is a probability-weighted estimate of the present value of future cash shortfalls (i .e ., the weighted average of credit losses,
with the respective risks of default occurring in a given time period used as weights) . ECL measurement is based on the follow-
ing components used by the Group:

Default occurs when a financial asset is 90 days past due or less than 90 days overdue but with the final statement issued, i .e .
the limit is closed, the balance is fixed, interest and commissions are no longer accrued .

Probability of Default (PD) – an estimate of the likelihood of default to occur over a given time period .

Exposure at Default (EAD) – an estimate of exposure at a future default date, taking into account expected changes in exposure
after the reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities .

Loss Given Default (LGD) – an estimate of the loss arising on default as a percentage of the EAD . It is based on the difference
between the contractual cash flows due and those that the Group would expect to receive .

Discount Rate – a rate to discount an expected loss to its present value at the reporting date . The discount rate represents the
effective interest rate (EIR) for the financial instrument or an approximation thereof .

Lifetime period – the maximum period over which ECL should be measured . For loans with fixed maturity, the lifetime period
is equal to 20 months . For revolving facilities it is based on statistics of the average period between the moment of the loan
falling into the Stage 2 until the write-off or attrition . Currently the Group estimates that this period equals to 4 years, though
it is subject to periodical reassessment .

Lifetime ECL – losses that result from all possible default events over the remaining lifetime period of the financial instrument .

12-month ECL – the portion of lifetime ECLs that represent the ECLs resulting from default events on a financial instrument
that are possible within 12 months after the reporting date that are limited by the remaining contractual life of the financial
instrument .

Corresponding interval

Non-overdue

Forward looking information – the information that includes the key macroeconomic variables impacting credit risk and expect-
ed credit losses for each portfolio segment . A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should
consider forward-looking information .

Master scale credit risk grade

Current

Monitor

Sub-standard

NPL

1-30 days overdue for all types of loans or without first due date for
credit card loans

31-90 days overdue or restructured loans 0-90 days overdue

90+ days overdue

Each master scale credit risk grade is assigned a specific degree of creditworthiness:

• Current – strong credit quality with low expected credit risk;

• Monitor – adequate credit quality with a moderate credit risk and credit cards loans before the first due date;

• Sub-standard – low credit quality with a substantial credit risk, includes restructured loans that are less than 90 days

overdue;

• NPL – non-performing loans, credit-impaired loans more than 90 days overdue .

The rating models are regularly reviewed by the Credit Risk Department, backtested on actual default data and updated if nec-
essary . Despite the method used, the Group regularly validates the accuracy of ratings estimates and appraises the predictive
power of the models .

Credit Conversion Factor (CCF) – a coefficient that shows that the probability of conversion of an off-balance sheet amount to
exposure on the consolidated statement of financial position within a defined period . It can be calculated for a 12-month or
lifetime period . Based on the analysis performed, the Group considers that 12-month and lifetime CCFs are the same .

Purchased or originated credit-impaired (POCI) financial assets – financial assets that are credit-impaired upon initial recognition .

Default and credit-impaired assets – assets for which a default event has occurred .

The default definition stated above should be applied to all types of financial assets of the Group .

An instrument is considered to no longer be in default (i .e . to have “cured”) when it no longer meets any of the default criteria .

Significant increase in credit risk (SICR) – the SICR assessment is performed on an individual basis for all financial assets by
monitoring the triggers stated below . The criteria used to identify SICR are monitored and reviewed periodically for appropri-
ateness by the Group’s Risk Management Department .

The Group considers a financial instrument to have experienced a SICR when one or more of the following quantitative, qualita-
tive or backstop criteria have been met .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
34 Financial Risk Management (Continued)

For interbank operations, bonds issued by banks and bonds issued by corporates and sovereigns:

• 30 days past due;

• award of risk grade “Doubtful”;

• decrease of assigned external rating by 2 notches, which corresponds to an approximate increase of PD by 2 .5 times .

For credit card loans:

• 30 days past due; or

• threshold defined on an individual basis using existing scoring models: increase of the 12-month PD compared to 12-month
PD estimated 18 months ago or as of the date of initial recognition (if it occurred less than 18 months ago) by 3 times or
PD reaching 50% and above .

For all other loans:

• 30 days past due; or

•

if the loans were past due for more than 30 days during the last 6 months or if the loans fell past due during the last 4
months more than once .

If the SICR criteria are no longer met, the instrument will be transferred back to Stage 1 .

General principle of techniques applied

Examples of shared characteristics include: type of customer, product type, credit risk rating, date of initial recognition, over-
due level and repayment statistics .

The different segments reflect differences in PD . The appropriateness of groupings is monitored and reviewed on a periodic
basis by the Risk Management Department .

In general, ECL is the multiplication of the following credit risk parameters: EAD, PD and LGD (definitions of the parameters are
provided above) . The general approach used for ECL calculation is stated below .

where:

– probability of default in moment

(can’t be higher than 100%);

– exposure at default in moment

;

For non-POCI financial assets, ECLs are generally measured based on the risk of default over one of two different time periods,
depending on whether or not the credit risk of the borrower has increased significantly since initial recognition .

– loss given default in moment

;

This approach can be summarised in a three-stage model for ECL measurement:

• Stage 1 – a financial instrument that is not credit-impaired on initial recognition and its credit risk has not increased signifi-

– number of months in the loan’s lifetime;

cantly since initial recognition, the loss allowance is based on 12-month ECLs;

• Stage 2 – if since the date, which was assumed to be the date of initial recognition is identified a SICR, the financial instru-

ment is moved to Stage 2 but is not yet deemed to be credit-impaired, the loss allowance is based on lifetime ECLs;

• Stage 3 – if the financial instrument is credit-impaired or restructured, the financial instrument is then moved to Stage 3

and the loss allowance is based on lifetime ECLs .

ECL for POCI financial assets is always measured on a lifetime basis (Stage 3), so at the reporting date, the Group only recog-
nises the cumulative changes in lifetime expected credit losses .

The Group carries out two separate approaches for ECL measurement:

• for loans and advances to customers: assessment on a portfolio basis: internal ratings are estimated on an individual basis
but the same credit risk parameters (e .g . PD, LGD) are applied during the process of ECL calculations for the same credit
risk ratings and homogeneous segments of the loan portfolio;

• for all other financial assets except FVTPL: assessment based on external ratings .

The Group performs an assessment on a portfolio basis for the retail loans . This approach incorporates aggregating the port-
folio into homogeneous segments based on borrower-specific information, such as delinquency, the historical data on losses
and other .

Principles of assessment on portfolio basis – to assess the staging of exposure and to measure a loss allowance on a collective ba-
sis, the Group combines its exposures into segments on the basis of shared credit risk characteristics, such as that exposures
to risk within a group are homogeneous .

– effective interest rate;

– remaining amount of payments .

The ECL is determined by predicting credit risk parameters (EAD, PD and LGD) for each future month during the lifetime period
for each exposure or segment . These three components are multiplied together . This effectively calculates an ECL for each fu-
ture month, which is then discounted back to the reporting date and summed up . The discount rate used in the ECL calculation
is the effective interest rate or an approximation thereof .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
34 Financial Risk Management (Continued)

The EADs are determined based on the expected payment profile, on an individual basis . For revolving products, the EAD is
predicted by taking the current withdrawn balance and adding a “credit conversion factor” that accounts for the expected
drawdown of the remaining limit of utilised loans by the time of default . These assumptions vary by product type, current limit
utilisation and other borrower-specific behavioral characteristics . For other products EAD is equal to current exposure as
there is no credit limit to utilize .

Two types of PDs are used for calculating ECLs: 12-month and lifetime PD:

• 12-month PDs – the estimated probability of a default occurring within the next 12 months . This parameter is used to
calculate 12-month ECLs . An assessment of a 12-month PD is based on the latest available historic default data using
borrower-specific behavioural characteristics and adjusted for forward-looking information when appropriate . Based on
borrower-specific PDs the exposures are allocated to segments to which average PD for the segment is applied .

• Lifetime PDs – the estimated probability of a default occurring over the remaining life of the financial instrument . This

parameter is used to calculate lifetime ECLs for Stage 2 and Stage 3 exposures . An assessment of a lifetime PD is based on
the latest available historic default data using product specific lifetime periods defined above . To calculate Lifetime PD, the
Group developed lifetime PD curves based on the 12-month PD data .

LGD represents the Group’s expectation of the extent of loss on a defaulted exposure . For credit card loans, cash loans and
POS loans LGDs are calculated on portfolio basis based on recovery statistics of defaulted loans over the period of 24 or 36
months . For secured loans, car loans and loans to SME LGDs are calculated using current market data in relation to the expect-
ed recoveries .

ECL measurement for loan commitments. The ECL measurement for these instruments includes the same steps as described
above for on-balance sheet exposures and differs with respect to EAD calculation . The EAD is a product of credit conversion
factor (“CCF”) and amount of the commitment . CCF for undrawn credit limits of credit cards and overdrafts is defined based on
statistical analysis of exposures at default .

Principles of assessment based on external ratings – the principles of ECL calculations based on external ratings are the same as
for their assessment on a portfolio basis . Credit risk parameters (PD and LGD) are taken from the default and recovery statis-
tics published by international rating agencies (Fitch and in case of their absence - Moody’s or Standard & Poor’s) .

Forward-looking information incorporated in the ECL models. The calculation of ECLs incorporates forward-looking information .
The Group has performed historical analysis and identified the key economic variables impacting credit risk and ECLs for each
portfolio . The list of variables:

• Russian stock market index MOEX;

• Debt load of Russian population based on statistics from bureaus of credit history .

The impact of these economic variables on the ECL has been determined by performing statistical regression analysis in order
to understand the way how changes in these variables historically impacted default rates . Three different scenarios are used:
base, optimistic and pessimistic . The scenarios are weighted accordingly with base scenario having the highest weight and
with optimistic and pessimistic scenarios having approximately equal weights . If a 100% weight is applied to any of the sce-
narios the effect on the ECL shall not be material .

Backtesting – the Group regularly reviews its methodology and assumptions to reduce any difference between the estimates
and the actual loss of credit . Such backtesting is performed on a quarterly basis .

The results of backtesting the ECL measurement methodology are communicated to Group Management and further steps for
refining models and assumptions are defined after discussions between authorised persons .

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 year:

At 31 December 2018

At 31 December 2017

Nonde-
rivative
monetary
financial
assets

Nonde-
rivative
monetary
financial
liabilities Derivatives

Nonde-
rivative
monetary
financial
assets

Nonde-
rivative
monetary
financial
liabilities Derivatives

Net posi-
tion

307,617

(264,073)

(5,283)

38,261

220,246

(174,842)

(10,200)

35,204

37,550

(47,539)

7,245

(2,744)

26,082

(40,046)

13,565

11,318

(13,773)

(233)

(2,688)

6,837

(5,851)

(1,186)

571

(586)

(202)

(22)

(37)

(189)

485

(487)

(399)

(200)

357,069

(326,173)

1,707

32,603

253,650

(221,226)

2,184

34,608

In millions of RR

USD

Euro

GBP

Others

Total

Derivatives presented above are monetary financial assets or monetary financial liabilities, but are presented separately in
order to show the Group’s gross exposure . Amounts disclosed in respect of derivatives represent the fair value, at the end
of the reporting period, of the respective currency that the Group agreed to buy (positive amount) or sell (negative amount)
before netting of positions and payments with the counterparty . The amounts by currency are presented gross as stated in
Note 38 . 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% (2017: by 20%)

USD weakening by 20% (2017: by 20%)

Euro strengthening by 20% (2017: by 20%)

Euro weakening by 20% (2017: by 20%)

GBP strengthening by 20% (2017: by 20%)

GBP weakening by 20% (2017: by 20%)

At 31 December 2018

At 31 December 2017

Impact on profit
or loss

Impact on equity
(pre-tax)

Impact on profit
or loss

Impact on equity
(pre-tax)

(549)

549

(538)

538

(7)

(549)

549

(538)

538

(7)

(80)

(40)

(1)

(80)

(40)

(1)

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 .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
34 Financial Risk Management (Continued)

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:

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

In millions of RR

31 December 2018

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 (2017: no material impact) .

Geographical risk concentrations. The geographical concentration of the Group’s financial assets and liabilities at 31 Decem-
ber 2018 is set out below:

Total financial assets

103,449

124,541

35,930

31,883

62,976

358,779

Total financial liabilities

(200,101)

(56,301)

(40,080)

(3,743)

(25,951)

(326,176)

In millions of RR

Financial assets

(96,652)

68,240

(4,150)

28,140

37,025

32,603

Cash and cash equivalents

Net interest sensitivity gap
at 31 December 2018

31 December 2017

Russia

OECD

Other
Non-OECD

Listed

Total

31,911

2,435

776

198,489

1,710

100,126

1,182

168

8,212

1,891

4,435

7,430

33,802

2,435

776

198,489

1,710

100,140

1,182

4,603

15,642

345,009

13,756

358,779

2,708

280,118

3,754

1,099

11,018

298,700

183

798

2,708

280,916

5,851

9,605

20,644

1,099

11,201

798

26,495

326,176

Mandatory cash balances with the CBRF

Due from other banks

Loans and advances to customers

Financial derivatives

Investment in debt securities

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

Total financial liabilities

Unused limits on credit card loans
(Note 36)

110,478

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

(43,038)

44,649

(3,546)

13,330

23,213

34,608

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

At 31 December 2018, if interest rates at that date had been 200 basis points lower/higher (2017: 200 points lower), with all
other variables held constant, profit for the year would have been RR 652 million (2017: RR 692 million) lower/higher, equity
would have been RR 652 million (2017: RR 692 million) lower/higher .

The Group monitors interest rates for its financial instruments . The table below summarizes interest rates for the years 2018
and 2017 based on reports reviewed by key management personnel . For securities, the interest rates represent yields to
maturity based on market quotations at the reporting date:

In % p.a.

Assets

Cash and cash equivalents

Loans and advances to customers

Due from banks

Investment in debt securities

Investment Securities available for sale

Repurchase receivables

Liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

2018

2017

USD

EURO

GPB

USD

EURO

GPB

0 .0

42 .7

5 .9

8 .5

7 .4

7 .0

5 .2

9 .9

4 .5

3 .2

4 .3

2 .4

0 .9

4 .4

0 .4

1 .4

10 .0

0 .0

45 .5

6 .1

8 .3

1 .3

4 .7

10 .9

0 .0

6 .6

10 .8

2 .5

1 .8

4 .2

11 .1

0 .3

3 .4

1 .8

4 .5

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
34 Financial Risk Management (Continued)

The geographical concentration of the Group’s financial assets and liabilities at 31 December 2017 is set out below:

In millions of RR

Financial assets

Russia

OECD

Other
Non-OECD

Listed

Total

243,917

11,347

810

256,074

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

5,695

177,933

2,769

240

723

7,827

798

23,850

1,675

777

140,245

2,424

71,676

798

3,660

10,969

3,623

5,274

216

591

1,112

595

179,045

8,050

10,819

240

22,001

723

8,043

1,703

30,051

221,466

Total financial liabilities

189,496

Unused limits on credit card loans
(Note 36)

78,602

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 2018 and 2017 .

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 .

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 2018 and 2017 . The CFO receives information about the liquidity profile
of the financial assets and liabilities . This includes daily, weekly, monthly and quarterly updates on the level of credit card
transactions and repayments, statistics on credit card issuance and credit card limit utilisation, inflow and outflow of retail
deposits, changes in the investment securities portfolio, level of expected outflows such as operating costs and financing
activities . The CFO then ensures the availability of an adequate portfolio of short-term liquid assets, made up of an amount on
the correspondent account with the CBRF and overnight deposits with banks, to ensure that sufficient liquidity is maintained
within the Group as a whole . Regular liquidity stress testing under a variety of scenarios covering both normal and more se-
vere market conditions and credit card portfolio behavior is reviewed by the CFO .

The table below shows liabilities at 31 December 2018 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

2,708

Customer accounts

191,308

24,257

32,600

34,571

1,719

284,455

Debt securities in issue

Subordinated debt

Insurance provisions

167

213

Other financial liabilities

11,201

Financial derivatives

Unused limits on credit card
loans (Note 36)

110,478

106

320

422

162

493

217

4,175

5,906

10,404

998

156

20,865

22,843

1,099

11,201

185

9,706

10,075

110,478

Total potential future
payments for financial
obligations

316,130

25,197

33,564

40,085

38,287

453,263

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F-100

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018Demand 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 2018

Notes to the Consolidated
Financial Statements (Continued)
34 Financial Risk Management (Continued)

The maturity analysis of financial liabilities at 31 December 2017 is as follows:

In millions of RR

Liabilities

Due to banks

595

Customer accounts

110,655

19,400

21,635

27,445

3,250

182,385

Debt securities in issue

Subordinated debt

Insurance provisions

197

Other financial liabilities

8,043

139

377

124

214

3,211

8,060

11,696

5,594

197

827

228

17,156

24,151

111

723

8,043

Financial derivatives

104

3,433

185

10,075

13,816

Unused limits on credit
card loans (Note 36)

Total potential future
payments for financial
obligations

78,602

198,246

20,144

31,073

31,896

38,652

320,011

Financial derivatives receivable and payable are disclosed in the Note 38 . 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
2018 is presented in the table below .

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

33,802

Mandatory cash balances
with the CBRF

Due from other banks

Loans and advances to
customers

1,602

206

106

298

431

363

126

2,435

776

46,765

63,071

49,057

31,697

7,899

198,489

Financial derivatives

Investment in debt securities

100,140

Repurchase receivables

1,182

1,710

100,140

1,182

Guarantee deposits with
payment systems

1,084

1,463

1,138

Other financial assets

15,542

735

183

4,603

15,642

Total financial assets

200,130

64,869

50,322

33,172

10,286

358,779

Liabilities

Due to banks

2,708

Customer accounts

184,795

7,659

12,245

34,392

41,825

280,916

Debt securities in issue

Financial derivatives

Subordinated debt

Insurance provisions

Other financial liabilities

213

11,201

114

422

274

4,027

5,304

9,605

217

156

20,530

20,644

1,099

11,201

Total financial liabilities

198,917

8,195

12,736

38,575

67,753

326,176

Net liquidity gap at
31 December 2018

Cumulative liquidity gap at
31 December 2018

1,213

56,674

37,586

(5,403)

(57,467)

32,603

1,213

57,887

95,473

90,070

32,603

Provision for unearned premiums in the amount of RR 1,760 million is not included in the insurance provisions stated above .
Refer to Note 20 .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
34 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 2017 is as follows:

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

In millions of RR

Assets

Cash and cash equivalents

23,041

809

978

23,850

204

401

350

376

1,675

777

33,420

44,846

34,588

22,041

5,350

140,245

Mandatory cash balances
with the CBRF

Due from other banks

Loans and advances to
customers

Investment securities availa-
ble for sale

Repurchase receivables

Guarantee deposits with
payment systems

Financial derivatives

71,676

798

Other financial assets

10,938

872

1,170

2,424

903

2,424

71,676

798

575

140

3,660

10,969

Total financial assets

141,723

46,893

38,004

23,233

6,221

256,074

Liabilities

Due to banks

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

8,043

124

4,942

197

2,769

7,962

10,819

228

240

17,059

22,001

111

723

8,043

Total financial liabilities

113,263

6,829

13,824

24,777

62,773

221,466

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 . 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 ma-
ture, 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 .

35 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 legisla-
tion 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 2018 was
RR 42,014 million (2017: RR 41,743 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 December 2018 was RR 74,375 million, and the equity capital adequacy ratio (N1 .0)
was 13 .92% (31 December 2017: RR 59,640 million and 16 .27%) . Minimum required statutory equity capital adequacy ratio
(N1 .0) was 8% as at 31 December 2018 (2017: 8%) .

The Group also monitors capital requirements including capital adequacy ratio under the Basel III methodology of the Basel
Committee on Banking Supervision: global regulatory framework for more resilient banks and banking systems (hereinafter
“Basel III”) . The amounts of total capital and Tier 1 capital calculated in accordance with the methodology set by Basel Commit-
tee with capital adjustments as set out in Basel III as at 31 December 2018 were RR 58,435 million (2017: RR 56,046 million
and RR 55,802 million respectively) . Total capital adequacy ratio and Tier 1 capital adequacy ratio were 14 .86% (2017:
21 .10% and 21 .00% respectively) . The Group and the Bank have complied with all externally imposed capital requirements
throughout the year ended 31 December 2018 and 2017 .

The Insurance Company has complied with all capital requirements set by the Central Bank of Russian Federation throughout
the year ended 31 December 2018 and 2017 .

Net liquidity gap at
31 December 2017

Cumulative liquidity gap at
31 December 2017

28,460

40,064

24,180

(1,544)

(56,552)

34,608

36 Contingencies and Commitments

28,460

68,524

92,704

91,160

34,608

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 .

Provision for unearned premiums in the amount of RR 1,117 million is not included in the insurance provisions stated above .
Refer to Note 20 .

As at the 31 December 2018 all the investment in debt securities (2017: 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
(2017: the same) .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
36 Contingencies and Commitments (Continued)

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 . The Russian transfer pricing legislation is generally aligned with the interna-
tional 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 .

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 2018 and 2017 no material tax risks were identified .

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

31 December
2018

31 December
2017

829

305

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 2018 and 2017 .

Credit related commitments. The primary purpose of these instruments is to ensure that funds are available to a customer
as required . Commitments to extend credit represent unused portions of authorizations to extend credit in the form of credit
card loans . With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount
equal to the total unused commitments, if the unused amounts were to be drawn down . Most commitments to extend credit
are contingent upon customers maintaining specific credit standards .

The Group monitors the term to maturity of credit related commitments because longer-term commitments generally have a
greater degree of credit risk than shorter-term commitments .

Outstanding credit limits and related commitments are as follows:

In millions of RR

Unused limits on credit card loans

Credit loss allowance

31 December
2018

31 December
2017

110,478

(2,041)

78,602

Total credit related commitments, net of сredit loss allowance

108,437

78,602

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 .

The following table contains an analysis of credit related commitments by credit quality at 31 December 2018 based on credit
risk grades . Refer to Note 21 for the movements in the credit loss allowance for credit related commitments . Refer to Note
34 for the description of credit risk grading system used by the Group and the approach to ECL measurement, including the
definition of default and SICR as applicable to credit related commitments .

In millions of RR

Credit related commitments

- Current

- Monitor

Unrecognised gross amount

Credit loss allowance

Unrecognised net amount

Stage 1
(12-months ECL)

Stage 2
(lifetime ECL for
SICR)

Stage 3
(lifetime ECL for
credit impairred)

101,418

8,827

110,245

(2,024)

108,221

162

233

(17)

216

Total

101,489

8,989

110,478

(2,041)

108,437

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 2,435 million (31 December 2017: RR 1,675 million) represent mandatory
reserve deposits which are not available to finance the Bank’s day to day operations .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

37 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 2018, the Group has investments in debt securities represented by debt
securities at FVOCI of RR 1,182 million (2017: RR 798 million) that are subject to obligation to repurchase the securities for a
fixed pre-determined price . Refer to Note 12 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

12, 16

31 December 2018

31 December 2017

Carrying amount
of the assets

Carrying amount
of the associated
liabilities

Carrying amount
of the assets

Carrying amount
of the associated
liabilities

1,182

1,111

798

591

38 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 .

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 (+)

- GBP payable on settlement (-)

Net fair value of foreign exchange for-
wards and swaps

31 December 2018

31 December 2017

Contracts with
positive fair value

Contracts with
negative fair
value

Contracts with
positive fair value

Contracts with
negative fair
value

9,373

(1,146)

(7,666)

1,619

(459)

(11)

1,710

(982)

(596)

1,360

596

(370)

(11)

(3)

5,871

(25)

(3,285)

1,063

(1,203)

7,720

(1)

(7,979)

2,424

(240)

Included in financial derivatives held by the Group as at 31 December 2018 are three outstanding swap contracts with total
positive fair value of RR 1,706 million which include reference to the default of the Bank (2017: one outstanding swap contract
with positive fair value RR 1,207 million and two outstanding swaps contracts with total negative fair value of RR 240 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 .

39 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) .

(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 2018

31 December 2017

Assets AT FAIR VALUE

Financial derivatives

1,710

Investments in debt secu-
rities

100,140

Investment securities availa-
ble for sale

Repurchase receivables

1,182

- 100,140

71,676

1,182

798

2,424

Total assets recurring fair
value measurements

LiabilitIes AT FAIR VALUE

Financial derivatives

Total liabilities recurring
fair value measurements

101,322

1,710

- 103,032

72,474

2,424

240

2,424

71,676

798

74,898

240

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
39 Fair Value of Financial Instruments (Continued)

The description of valuation techniques and the description of the inputs used in the fair value measurement for level 2 meas-
urements at 31 December 2018 are as follows:

In millions of RR

Fair value

Valuation technique

Inputs used

Assets AT FAIR VALUE

(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 2018

31 December 2017

Discounted cash flows
adjusted for counterparty
credit risk

Russian rouble curve .
USD Dollar Swaps Curve .
CDS quotes assessment of counterparty credit
risk or reference entities .

FINANCIAL ASSETS CARRIED AT AM-
ORTISED COST

Cash and cash equivalents

- Cash on hand

5,839

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

- 11,158

5,839

2,941

11,158

11,201

2,941

11,201

9,708

1,675

777

- 16,805

2,435

776

2,435

776

- 198,489 198,489

4,603

9,708

1,675

777

- 140,245 140,245

3,660

- Placements with other banks and non-
bank credit organizations 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

Other receivables

2,948

689

Total financial assets carried at amor-
tised cost

5,839 46,816 203,092 255,747

2,941 34,330 143,905 181,176

- 12,694

- 10,280

Foreign exchange swaps and forwards

1,710

Total recurring fair value measure-
ments at level 2

1,710

Liabilities AT FAIR VALUE

Foreign exchange swaps and forwards

Total recurring fair value measure-
ments at level 2

Discounted cash flows
adjusted for counterparty
credit risk

Russian rouble curve .
USD Dollar Swaps Curve .
CDS quotes assessment of counterparty credit
risk or reference entities .

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

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

Total recurring fair value measure-
ments at level 2

240

Discounted cash flows
adjusted for counterparty
credit risk

Russian rouble curve .
USD Dollar Swaps Curve .
CDS quotes assessment of counterparty credit
risk or reference entities .

Discounted cash flows
adjusted for counterparty
credit risk

Russian rouble curve .
USD Dollar Swaps Curve .
CDS quotes assessment of counterparty credit
risk or reference entities .

There were no changes in the valuation techniques for level 2 recurring fair value measurements during the years ended 31
December 2018 and 2017 . 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 immaterial for level 2 derivatives .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
39 Fair Value of Financial Instruments (Continued)

Fair values analysed by level in the fair value hierarchy and carrying value of liabilities not measured at fair value are as fol-
lows:

In millions of RR

Level 1 Level 2 Level 3

Carrying
value

Level 1 Level 2 Level 3

Carrying
value

31 December 2018

31 December 2017

FINANCIAL LIABILITIES CARRIED AT
AMORTISED COST

Due to banks

Customer accounts

Individuals

2,708

595

-Current/demand accounts

- 137,637

- 76,318

-Term deposits

SME

- 102,829

- 100,227

- 79,694

- 77,377

-Current/demand accounts

- 41,702

- 23,705

Other legal entities

-Current/demand accounts

-Term deposits

Debt securities in issue

552

847

RR Bonds issued on domestic market

5,919

Euro-Commercial Paper

3,754

552

798

533

1,223

5,851

8,213

3,754

2,769

Subordinated debt

Perpetual subordinated bonds

20,505

Subordinated bonds

Other financial liabilities

Settlement of operations with plastic
cards

Trade payables

Credit related commitments

Other financial liabilities

Total financial liabilities carried at
amortised cost

4,904

3,189

1,067

- 20,644 18,389

5,115

4,904

3,189

2,041

1,067

5,271

2,538

234

533

1,112

8,050

2,769

17,115

4,886

5,271

2,538

234

26,424 299,189

- 325,074

31,717 192,880

- 220,503

As at 31 December 2018 and 31 December 2017 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 Global Exchange Market, where the Group’s
debt securities are listed and traded .

Weighted average discount rates used in determining fair value as of 31 December 2018 and 31 December 2017 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

Investments in debt securities

Repurchase receivables

Liabilities

Due to banks

Customer accounts

Debt securities in issue

Subordinated debt

31 December
2018

31 December
2017

0 .0

5 .9

42 .7

5 .5

4 .3

6 .0

4 .4

7 .6

9 .8

0 .0

5 .6

45 .5

5 .8

10 .9

2 .5

5 .3

8 .0

6 .7

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 . Fair value of credit related commitments is estimated to be ap-
proximately equal to zero since they are at market rates .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)

40 Presentation of Financial Instruments by Measurement

Category

For the purposes of measurement, IFRS 9 “Financial Instruments” classifies financial assets into the following categories:
(a) financial assets at FVTPL; (b) financial assets at FVOCI and (c) financial assets at AC . Financial assets at FVTPL have two
sub-categories: (i) assets measured at FVTPL mandatorily, and (ii) assets designated as such upon initial recognition . In addi-
tion, finance lease receivables form a separate category .

The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 Decem-
ber 2018:

FVTPL
(mandatory)

FVOCI

Total

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 and non-bank
credit organizations with original maturities
of less than three months

Mandatory cash balances with the CBRF

Due from other banks

Loans and advances to customers

5,839

11,158

16,805

2,435

776

198,489

Financial derivatives

1,710

Guarantee deposits with payment systems

4,603

Investment in debt securities

Repurchase receivables

Other financial assets

- Settlement of operations with plastic cards
receivable

- Other receivables

TOTAL FINANCIAL ASSETS

12,694

2,948

255,747

5,839

11,158

16,805

2,435

776

198,489

1,710

4,603

For the purposes of measurement at 31 December 2017, IAS 39 “Financial Instruments” classifies financial assets into the
following categories: (a) loans and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and
(d) financial assets at fair value through profit or loss (“FVTPL”) . Financial assets at fair value through profit or loss have two
subcategories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading .

7,376

95,656

358,779

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 des-
ignated at
FVTPL

Availa-
ble-for-sale
assets

In millions of RR

Cash and cash equivalents

- Cash on hand

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

- Placements with other banks and non-bank
credit organizations 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

2,424

Guarantee deposits with payment sys-
tems

Investment securities available for sale

Repurchase receivables

Other financial assets

- Settlement of operations with plastic cards
receivable

3,660

10,280

523

Total

2,941

11,201

9,708

1,675

777

140,245

2,424

3,660

71,676

798

10,280

689

72,474

256,074

166

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:

In millions of RR

ASSETS

Gross amounts of loans and advances to
customers (contractual interest rate: 27 .8%
(31 December 2017: 32 .1%))

TOTAL ASSETS

31 December 2018

31 December 2017

Key management
personnel

Other related
parties

Key management
personnel

Other related
parties

5,666

94,474

100,140

- Other receivables

1,182

TOTAL FINANCIAL ASSETS

181,010

2,424

12,694

2,948

41 Related Party Transactions

As of 31 December 2018 and 2017 all of the Group’s financial liabilities except derivatives were carried at amortised cost .

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F-114

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
41 Related Party Transactions (Continued)

31 December 2018

31 December 2017

Key management
personnel

Other related
parties

Key management
personnel

Other related
parties

1,349

888

798

3,754

2,237

4,552

1,387

705

2,092

1,145

2,769

3,914

In millions of RR

LIABILITIES

Customer accounts (contractual interest rate:
4 .2% p .a . (31 December 2017: 3 .1% p .a .))

Debt securities in issue (discount: 4%)

Other non-financial liabilities

TOTAL LIABILITIES

EQUITY

Share-based payment reserve

- Management long-term incentive pro-
gramme

TOTAL EQUITY

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 .6% of issued share capital of the
Group . For the purpose of the financial reporting the grant date for newly added rewards is considered to be 8 February 2017,
implementation date is 31 March 2017 .

On 22 February 2018 the Group granted shares to new participants in MLTIP which resulted in an increase in total shares
granted under MLTIP to 5 .68% of issued share capital of the Group . For the purpose of the financial reporting the grant date
for newly added rewards is considered to be 22 February 2018, implementation date is 31 March 2018 .

The total number of GDRs attributable to the Management according to MLTIP is 9,781 thousand as at 31 December 2018
(2017: 9,628 thousand) .

Participants cannot own or exercise their shareholder rights over GDRs within MLTIP directly . Participants are entitled to the
dividends, if any .

1,102

1,143

The fair value as at recognition dates of the equity-settled share-based payments (31 March 2016, 8 February 2017 and
22 February 2018) is determined on the basis of a market quote .

Other related parties in the tables above are represented by entities which are under the control of the Group’s ultimate con-
trolling party Oleg Tinkov .

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

In millions of RR

Interest income calculated using the effective
interest rate method

Interest expense calculated using effective
interest rate method

Unrealised foreign exchange translation losses
less gains

2018

2017

Key management
personnel

Other related
parties

Key management
personnel

Other related
parties

(46)

(165)

(69)

(77)

(41)

(13)

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

Total

2018

2017

792

917

564

2,273

555

1,147

922

2,624

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, then until 2023 for participants joining in
2017, and until 2024 for participants joining in 2018 .

42 Events after the End of the Reporting Period

On 19 February 2019 the Group issued EUR denominated ECP with a nominal value of EUR 12 million with a discount of 1 .25%
maturing on 18 February 2020 .

In March 2019 the Group acquired an additional stake in Kassir .ru .

On 11 March 2019 the Board of Directors declared an interim dividend in line with the current dividend policy of USD 0 .32 per
share/per GDR with a total amount allocated for dividend payment of around USD 58 .4 million .

43 Accounting Policies Applicable before 1 January 2018

Accounting policies applicable to the comparative period ended 31 December 2017 that were amended by IFRS 9, are as
follows .

Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair
value or amortised cost as described below . Refer to Note 3 for the definition of fair value and AC as well as for description of
valuation techniques .

Other securities at FVTPL. Other securities at FVTPL are financial assets designated irrevocably, at initial recognition, into
this category . Management 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 .

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F-116

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Consolidated
Financial Statements (Continued)
43 Accounting Policies Applicable before 1 January 2018

(Continued)

Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to
purchase or originate an unquoted non-derivative receivable from a customer due on fixed or determinable dates and has no
intention of trading the receivable . Loans and advances to customers are carried at amortised cost .

Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss for the year
when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset
and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated . If the Group determines that no objective evidence exists that impairment was incurred
for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with
similar credit risk characteristics, and collectively assesses them for impairment .

The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and
realisability of related collateral, if any .

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

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

• the borrower experiences a significant financial difficulty as evidenced by the borrower’s financial information that the

Group obtains;

• the borrower considers bankruptcy or a financial reorganisation;

• there is an adverse change in the payment status of the borrower as a result of 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 .

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 calcu-
lated using the effective interest method, and recognised in profit or loss for the year .

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

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 .

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 .

All other fees, commissions and other income and expense items are generally recorded on an accruals basis by reference to
completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services
to be provided .

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

F-117

F-118

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018Board 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 2018 and through to the date of these separate financial statements .

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 2018

TCS Group Holding PLC

International Financial Reporting Standards
Separate Financial Statements and
Independent Auditor’s Report

Contents

Board of Directors and other officers . . . . . . . . . . . . . . . . . F-120

17 Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-163

Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-121

18 Interest income and expense . . . . . . . . . . . . . . . . . . . . . F-164

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . F-128

19 Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-164

SEPARATE FINANCIAL STATEMENTS

Separate Statement of Financial Position . . . . . . . . . . . . . F-135

Separate Statement of Profit or Loss and Other
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-136

20 Net Gains less Losses from Operations with Foreign

Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-164

21 Administrative and Other Operating Expenses . . . . . F-165

22 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-165

23 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-166

Separate Statement of Changes in Equity . . . . . . . . . . . . . F-137

24 Reconciliation of Liabilities Arising from Financing

Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-168

25 Financial Risk Management . . . . . . . . . . . . . . . . . . . . . . . F-168

26 Contingencies and Commitments . . . . . . . . . . . . . . . . . F-175

27 Financial Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-176

28 Fair Value of Financial Instruments . . . . . . . . . . . . . . . . F-176

29 Presentation of Financial Instruments by Measurement

Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-180

30 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . F-182

31 Events after the End of the Reporting Period . . . . . . . F-184

32 Accounting Policies Applicable before

1 January 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-184

Separate Statement of Cash Flows . . . . . . . . . . . . . . . . . . .F-138

NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-139

2 Operating Environment of the Company . . . . . . . . . . . . F-141

3 Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . F-141

Critical Accounting Estimates and Judgements in
Applying Accounting Policies . . . . . . . . . . . . . . . . . . . . . . F-151

Adoption of New or Revised Standards and
Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-152

6 New Accounting Pronouncements . . . . . . . . . . . . . . . . . F-155

7 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . F-156

8 Loans and Deposit Placements with Related Parties F-157

Investments in Debt Securities . . . . . . . . . . . . . . . . . . . . F-157

10 Investment Securities Available for Sale . . . . . . . . . . . F-158

11 Investments in Equity Securities . . . . . . . . . . . . . . . . . . F-159

12 Repurchase Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . F-160

13 Other Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-161

14 Loans Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-161

15 Debt Securities in Issue . . . . . . . . . . . . . . . . . . . . . . . . . . F-162

16 Other Financial and Non-financial Liabilities . . . . . . . F-162

F-119

F-120

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

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 2018 .

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”),
JSC “Tinkoff Insurance” (the “Insurance company”), LLC
“Phoenix”, LLC “CloudPayments”, LLC “Тinkoff Mobile”
and Tinkoff Software DC (the Company and its subsidiar-
ies 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 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, travellers’, financial risks and auto insurance .
LLC “Phoenix” is a debt collection agency . LLC “Cloud-
Payments” is a developer of online payment solutions
whose core business is online merchant acquiring in
Russia . LLC “Tinkoff Mobile” is a mobile virtual network
operator set up in 2017 to provide mobile services . Tink-
off Software DC provides software development services
to the Group . The founder and controlling shareholder of
the Company is Oleg Tinkov .

4 . During 2018 the Company acquired a minority stake in

Kassir .ru, one of Russia’s biggest ticket sales companies
by the number of tickets sold . The acquisition is in line
with the Group’s strategy of developing its ecosystem to
offer customers a greater choice of financial and related
services through the Tinkoff .ru platform .

Review of developments, position
and performance of the Company’s
business

5 .

In 2017 the Company initiated its own home call-centre
in 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 . During 2018 the Company

was actively developing its business in Cyprus connected
with providing of call-center and software development
services . The Company is hiring a call centre work force,
training it and these employees provide services to Tink-
off Bank and indirectly Bank’s customers .

6 . The Bank operates a flexible business model . Its virtual

network enables it to quickly and easily increase busi-
ness or slow down customer acquisition depending on
the availability of funding and market conditions . The
Bank’s primary customer acquisition channels are
Internet and Mobile, but it also uses Direct Sales Agents
and partnerships (co-brands) to acquire new custom-
ers . These customer acquisition models, combined with
the Bank’s virtual network, afford it a geographic reach
across all of Russia’s regions resulting in a highly diver-
sified portfolio . During 2018 the Bank started providing
new types of loans: i) car loans; ii) secured loans which
represent loans secured by cars or real estate; and iii)
loans provided to individual entrepreneurs and small and
medium businesses for the purpose of working capital
management .

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 .

8 . The loss of the Company for the year ended 31 Decem-
ber 2018 was RR 23 million (2017: RR 310 million) . On
31 December 2018 the total assets of the Company
were RR 222,216 million (2017: RR 209,667 million)
and the net assets were RR 193,046 million (2017:
RR 197,634 million) . In 2017 the Company began
investing in corporate bonds . The fair value of the bonds
amounted to RR 425 million as at 31 December 2018
(2017: RR 65 million) . On 20 December 2018 the Com-
pany issued three tranches of Euro-Commercial Paper
(ECP) denominated in USD, EUR and RR maturing on 19
December 2019 . USD denominated ECP has a nominal
value of RR 1,320 million, EUR denominated ECP has a
nominal value of RR 2,424 million, RR denominated ECP
has a nominal value of RR 105 million . Loans received
grew to RR 23,243 million (2017: RR 7,833 million) in
order to fund the Company’s operations . During 2018
the Company distributed dividends in accordance with
its dividend policy in amount of RR 12,265 million (2017:
RR 8,279 million) .

9 . The Company has adopted IFRS 9 with a date of tran-
sition of 1 January 2018, which resulted in changes
in accounting policies for recognition, classification
and measurement of financial assets and liabilities and
impairment of financial assets . Impacts of IFRS 9 adop-
tion on the Company are disclosed in Note 5 separate
financial statements .

Environmental matters

10 . As the Group and by extension the Company is an online
only financial institution, the management of the Com-
pany believes 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 . Management, 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 relationships including its supply and
subcontracting chains . This belief is based on continuous
scrutiny of the business . The Company is continuously
reviewing its processes to identify opportunities to
reduce their environmental impact .

Human resources

11 . The Company and the Group whose the Company is

the holding entity has a flat organizational culture . The
Company practices delegation of decision making to the
levels deep below the management team and actively
promotes discussion and idea generation and exchange .
The Company believes in creating an environment where
highly talented people are empowered . Empowerment is
an important ingredient in the success of our organiza-
tion . It’s also about the workplace environment – having
an open leadership style where information can move
freely – where ideas are constantly channelled up, down
and sideways around the Company . The Company does
not have ‘a rule by committee’ approach . The Company
utilizes all types of forums to promote continual dialogue
– using email, various online chat rooms, flash meet-
ings, 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 a fair and
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

the expansion of the plan . The number of participants
increased to over 80 . Total target size of the MLTIP pool
is 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 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 .

Non-Financial Information and
Diversity Statement

14 . The Company’s policies and information for an under-

standing of the development, performance, position and
impact of the activity of the Company in the spheres of
environmental, social and employee matters, respect
for human rights, anti-corruption and bribery matters
can be found in the Company’s most recently published
Non-Financial Information and Diversity Statement .
The Company will publish its Non-Financial Information
and Diversity Statement for the year ended 2018, on
the Company’s website, www .tcsgh .com .cy (and www .
tinkoff .ru/eng) by 30 June 2019, within six months of the
reporting date .

Principal risks and uncertainties

15 . The Company’s business and financial results are im-

pacted by the uncertainties and volatility of the Russian
economic environment . For example in April 2018 the
Russian Rouble decreased by about 10% against the US
Dollar and Euro in the space of a few days and interna-
tional sanctions continue to impact Russia . With respect
of Rouble interest rates, during 2018 the CBRF “key rate”
fluctuated between 7 .25% and 7 .75% . It was at the top
end of the range at both the beginning and the end of
2018 .

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 2017 and 2018, the Company announced

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

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Management
Report (Continued)

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 .

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

17 . The Board has adopted a formal process to identify,

evaluate and manage principal risks and uncertainties
faced by the Company and the Company’s subsidiaries .
The Company has established risk management program
that focuses on the unpredictability 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 pol-
icies 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 sub-
sidiaries’ activities . These risks as well as other risks and
uncertainties, which affect the Company and how these
are managed, are presented in Notes 25 and 26 of the
separate financial statements .

Contingencies

18 . The Company’s contingencies are disclosed in Note 26 to

the separate financial statements .

Future developments

19 . 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 .

Results

20 . The Company’s results for the year are set out on page
2 of the separate financial statements . Information on
distribution of profits is presented in Note 23 .

21 . Important events for the Company that have occurred af-
ter the end of the financial year are presented in Note 31 .

Share capital

22 . During 2018 the Company’s shareholders approved a
resolution to increase authorised share capital to USD
7,670,830 .64 by the creation of 1,291,266 new undes-
ignated ordinary shares of nominal value USD 0 .04 each .
As at 31 December 2018 the total number of authorised
shares is 191,770,766 shares (31 December 2017:
190,479,500 shares) with a par value of USD 0 .04 per
share (31 December 2017: USD 0 .04 per share) .

23 . As at 31 December 2018 the issued share capital of the
Company which remains unchanged from the prior year,
comprised of 96,239,291 “class A” ordinary shares and
86,399,534 “class B” ordinary shares with a par value of
USD 0 .04 per share .

Research and development activities

24 . The Company has not undertaken any research and

development activities during the year ended 31 Decem-
ber 2018 .

Treasury shares

25 . At 31 December 2018 the Company held 6,604,353

(2017: 6,315,121) of its own GDRs that is equivalent of
approximately RR 3,670 million (2017: RR 1,587 million)
representing 3 .6% (2017: 3 .5%) of the issued share
capital .

26 . Treasury shares are GDRs of TCS Group Holding Plc that
are held by the special purpose trust which has been spe-
cifically created for the long-term incentive programme
for Management of the Company’s subsidiaries (MLTIP)
(see Note 30 for further information) .

27 . In 2018 the Company repurchased 2,094,126 GDRs
(2017: 602,148 GDRs) at market price for RR 2,455
million (2017: RR 397 million) representing 1 .1% (2017:
0 .3%) of the issued share capital .

28 . During 2018 the Company transferred 1,804,894 GDRs
(2017: 1,326,464 GDRs) out of treasury shares upon
vesting under the MLTIP to retained earnings that is
equivalent of RR 372 million (2017: RR 283 million) rep-
resenting 1 .0% (2017: 0 .7%) of the issued share capital .

Board of Directors

Going concern

29 . The members of the Board of Directors as of 31 Decem-
ber 2018 and at the date of this report are presented
above .

30 . There were no significant changes in the assignment
of responsibilities and remuneration of the Board of
Directors .

33 . Directors have access to all information necessary to

exercise their duties . The Directors continue to adopt the
going concern basis in preparing the separate financial
statements based on the fact that, after making enquiries
and following a review of the Company’s budget for 2019,
including cash flows and funding facilities, the Directors
consider that the Company has adequate resources to
continue in operation for the foreseeable future .

Branches

31 . The Company did not operate through any branches

during the year .

Independent auditor

32 . The Board of Directors in accordance with the require-
ments of the EU introduced into Cypriot legislation un-
dertook a mandatory audit tender in respect of the 2019
audit . Following this the Independent Auditor, Pricewa-
terhouseCoopers Limited, has expressed their willing-
ness 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 .

Corporate Governance Statement

Overview

the Company’s most recent annual report: a detailed descrip-
tion of the Articles of Association, including the rights of
shareholders, and the Terms and Conditions of the GDRs can
be found in the Company’s October 2013 Prospectus on the
website at www .tinkoff .ru/eng .

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 .

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Management
Report (Continued)

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 2018 . The
board of directors currently contains no B Directors .

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 2018
are listed above . The Company has established two Com-
mittees 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 2018, looking at overall
performance but focused mainly on late 2017 and 2018 . All
directors completed detailed questionnaires on the Board’s
performance . Analysis of the resultant feedback did not
show up any deficiencies in the performance of the Board, its
committees or individual directors of a nature that required
changes to be made, which was discussed at a meeting of the
Board of Directors on 11 March 2019 .

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 .

Audit Committee

Remuneration Committee

The Audit Committee’s primary purpose and responsibility is
to assist the Board in its oversight responsibilities . In execut-
ing this role the Audit Committee monitors the integrity of
the separate financial statements of the Company prepared
under IFRS and any formal announcements relating to the
Group’s and the Company’s financial performance, reviewing
significant financial reporting judgments contained in them,
oversees the financial reporting controls and procedures
implemented by the 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 2017 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 2017 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 Group . Two such meetings were held in 2018
with a further two at least planned for 2019 .

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 .

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 2018 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 2018 and 2019 .

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 .

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 re-
sponsibility for reviewing the separate 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 analyti-
cal 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, ap-
plication processing reports, reports on the risk characteris-

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Management
Report (Continued)

tics 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 .

Diversity policy

The Company 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 promo-
tion 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 responsibility . 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 .

The composition and diversity information of the Board of Directors of the Company for the year ended and as at 31 December
2018 is set out below:

Male/Female

Educational/professional background

Name

Constantinos Economides

Alexios Ioannides

Mary Trimithiotou

Martin Robert Cocker

Philippe Delpal

Age

Male

Female

Male

Jacques Der Megreditchian

Male

ICAEW, MSc in Management Sciences, experience in ‘Big Four’
professional services firms

ICAEW, ICPAC, BSc in Business Administration,
experience in ‘Big Four’ professional services firms

ICPAC, FCCA, Licensed insolvency practitioner, experience in
‘Big Four’ professional services firms

ICAEW, BSc in Mathematics and Economics,
experience in ‘Big Four’ professional services firms

BSc in IT, Telecoms and Economics, senior executive experi-
ence in banking industry

BSc in Business Administration and in Financial Analysis, bank-
ing and finance experience

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

11 April 2019

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Separate Statement
of Financial Position

In millions of RR

ASSETS

Cash and cash equivalents

Loans and deposit placement with related parties

Financial derivatives

Tangible fixed assets

Investments in debt securities

Investment securities available for sale

Investments in equity securities

Repurchase receivables

Other financial assets

Other non-financial assets

TOTAL ASSETS

LIABILITIES

Loans received

Debt securities in issue

Financial derivatives

Current income tax liability

Deferred income tax liabilities

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

Note

31 December
2018

31 December
2017

761

379

425

219,249

1,300

385

581

207,899

798

222,216

209,667

23,243

3,754

1,187

222

763

7,833

2,769

565

395

470

29,170

12,033

188

8,623

(3,670)

1,232

(20,861)

207,534

193,046

222,216

188

8,623

(1,587)

1,286

(8,593)

197,717

197,634

209,667

Approved for issue and signed on behalf of the Board of Directors on 11 April 2019 .

Separate Statement of Profit or Loss
and Other Comprehensive Income

In millions of RR

Note

2018

2017

Interest income calculated using the effective interest rate
method

Other similar income

Interest expense calculated using the effective interest rate
method

Net interest expense

Credit loss allowance for debt financial instruments

Net interest expense after сredit loss allowance

Dividend income

Net gains less losses from operations with foreign currencies

Net losses from debt instruments at FVTPL

Net gains from disposals of debt securities at FVOCI

Administrative and other operating expenses

Gain on initial recognition of liabilities at rates below market

Other operating income

Profit/(Loss) before tax

Income tax expense

Loss for the year

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss

Debt securities at FVOCI:

- Net gains arising during the year, net of tax

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

Investment securities available for sale and Repurchase receiv-
ables:

107

(1,404)

(1,213)

(19)

(1,232)

1,351

173

(112)

(347)

140

(86)

(23)

(79)

120

(277)

(136)

(52)

(188)

106

(500)

275

(307)

(3)

(310)

- Net gains arising during the year, net of tax

89,329

Items that will not be reclassified subsequently to profit or loss:

Net gains arising during the year on investments in equity securi-
ties at fair value through other comprehensive income

Income tax charge recorded directly in other comprehensive
income

Other comprehensive income for the year, net of tax

Total comprehensive income for the year

10,148

(622)

9,525

9,502

(565)

88,764

88,454

Constantinos Economides

Mary Trimithiotou

Director

The notes № 1-32 are an integral part of these Separate Financial Statements .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018(310)

88,454

Changes in operating assets and liabilities

(397)

283

1,037

Net decrease in loans and deposit placement with related parties

Net decrease in investments in debt securities at FVTPL

31 DECEMBER 2018

Separate Statement
of Changes in Equity

In millions of RR

Note

Share
capital

Share
premium

Reval-
uation
reserve

Share-
based
payment

Accu-
mulated
losses

Treasury
shares

Total

Balance at 1 January 2017

188

8,623

108,781

704

(4)

(1,473)

116,819

(310)

89,329

(565)

Loss for the year

Other comprehensive income:

Investment securities avail-
able for sale and Repurchase
receivables

Income tax charge recorded
directly in other comprehensive
income

Total comprehensive income/
(loss) for 2017

GDRs buy-back

Share-based payment reserve

17, 30

Dividends

Total transactions with
owners

89,329

(565)

88,764

172

582

(8,279)

172

582

(8,279)

(114)

(7,639)

Balance at 31 December 2017

188

8,623

197,717

1,286

(8,593)

(1,587) 197,634

Effect of initial application of
IFRS 9 – ECL remeasurement,
net of tax

Effect of initial application of
IFRS 9 – other

Restated balance at 1 Janu-
ary 2018

Loss for the year

Other comprehensive income:

Investments in equity securities
at FVOCI

Investments in debt securities
at FVOCI

Income tax charge recorded
directly in other comprehensive
income

Total comprehensive income
for the year

GDRs buy-back

Share-based payment reserve

17, 30

Dividends

Balance at 31 December
2018

(21)

(1)

188

8,623

197,697

1,286

(8,573)

(1,587) 197,634

10,148

(1)

(622)

9,525

312

(54)

(23)

10,148

(1)

(622)

9,502

(2,455)

372

630

188

8,623 207,534

1,232

(20,861)

(3,670) 193,046

Separate Statement
of Cash Flows

In millions of RR

Cash flows from operating activities

Interest income calculated using the effective interest rate method received

Other similar income received

Interest expense calculated using the effective interest rate method paid

Administrative and other operating expenses paid

Income tax paid

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

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

Net decrease in other non-financial liabilities

Net cash used in operating activities

Cash flows used in investing activities

Acquisition of shareholding in subsidiaries

Acquisition of debt securities at FVOCI

Proceeds from sale and redemption of debt securities at FVOCI

Acquisition of investments in equity securities at FVOCI

Acquisition of investments available for sale

Proceeds from sale and redemption of investments available for sale

Acquisition of tangible fixed assets

Net cash used in investing activities

Cash flows (used in)/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 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

Note

2018

2017

(998)

(532)

(20)

(225)

(337)

(2)

537

(864)

(448)

199

466

(144)

(343)

102

(29)

(375)

(290)

(12,545)

12,667

(606)

(2)

(11,641)

10,800

(486)

(1,131)

(2,455)

(3,204)

3,622

14,955

(397)

2,819

7,301

(11,946)

(7,970)

972

233

376

385

761

1,753

(30)

217

168

385

(12,265)

Cash and cash equivalents at the end of the year

The notes № 1-32 are an integral part of these Separate Financial Statements .

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Notes to the Separate
Financial Statements

Introduction

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 2018 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 2018 .

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 this of these separate financial statements consists
of: Constantinos Economides, Alexios Ioannides, Mary Trimithiotou, Philippe Delpal, Jacques Der Megreditchian and Martin
Cocker .

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

At 31 December 2018 and 2017 the issued 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 2018 the number of
issued “class A” shares is 96,239,291 and issued “class B” shares is 86,399,534 (31 December 2017: the same) .

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

As at 31 December 2018 and 2017 the entities and the individuals holding either Class A or Class B shares of the Company
were:

Class of
shares

31 December
2018

31 December
2017

Country
of Incorporation

Guaranty Nominees Limited
(JP Morgan Chase Bank NA)

Altoville Holdings Limited

Nemorenti Limited

Ioanna Georgiou

Panagiota Charalambous

Maria Vyra

Marios Panayides

Chloi Panagiotou

Leonora Chagianni

Tadek Holding & Finance S .A .

Vostok Emerging Finance Limited

Rousse Nominees Limited

Tasos Invest & Finance Inc .

Vizer Limited

Maitland Commercial Inc .

Norman Legal S .A .

Total

Class A

Class B

Class A

Class B

Class A

Class B

52 .70%

23 .65%

0 .00%

50 .06%

United Kingdom

Cyprus

1 .64%

0 .99%

Cyprus

Guernsey

0 .00%

British Virgin Islands

0 .00%

British Virgin Islands

0 .00%

British Virgin Islands

0 .00%

British Virgin Islands

100.00%

On 24 January 2018 Tadek Holding & Finance SA transferred its entire holding of B class shares (86,399,458 B class shares)
to Altoville Holdings Limited . On 18 December 2018 Altoville Holdings Limited transferred 50% of its holding of B class
shares (43,199,767 B class shares) to Nemorenti Limited . As at 31 December 2018 the beneficial owner of Altoville Holdings
Limited and Nemorenti Limited was Russian entrepreneur Mr . Oleg Tinkov .

In September 2018, 6 A class shares were transferred to the individuals listed above . The individuals hold them as nominees
of Altoville Holdings Limited .

The Company owns 100% of the shares and has 100% of the voting rights (directly or indirectly) of the following subsidiaries
at 31 December 2018 and 2017: JSC “Tinkoff Bank” (“the Bank”), JSC “Tinkoff Insurance” (“the Insurance Company”), LLC
“Microfinance company “Т-Finans”, LLC TCS, LLC “Phoenix”, Tinkoff Software DC, LLC “Тinkoff Mobile”, Goward Group Limited
(since February 2018 Goward Group Ltd is in liquidation process) .

The Company owns 55% of shares of LLC “CloudPayments” at 31 December 2018 and 2017 .

Principal activity. The Company’s principal business activities are holding investments in Russian subsidiary companies and
starting from December 2017 offering Cyprus based home call centre services to customers and potential customers outside
of Russia . The Bank operates under general banking license No . 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 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 licence of a bank or
a CBRF-imposed moratorium on payments .

JSC “Tinkoff Insurance” (the “Insurance Company”) provides insurance services such as accident, property, travellers’, financial
risks and auto insurance .

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 LLC “Tinkoff Mobile” is a mobile virtual network operator set up in 2017 to provide mobile services .

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 . The Company plans to develop soft-
ware development business line to provide services to Tinkoff and other companies .

47 .31%

British Virgin Islands

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

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)

Introduction (Continued)

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) .

2 Operating Environment of the Company

In recent years, the Russian economy has been negatively impacted by ongoing political tension in the region and international
sanctions against certain Russian companies and individuals .

The financial markets continue to be volatile . For example in April 2018 the Russian Rouble decreased by about 10% against
the US Dollar and Euro in the space of a few days . This operating environment has a significant impact on the Group’s opera-
tions and financial position . Management regularly takes necessary measures to maximize the stability of the Group’s opera-
tions . However, the future effects of the economic situation are difficult to predict and management’s current expectations and
estimates could differ from actual results .

With respect of Rouble interest rates, during 2017 and 2018 the CBRF “key rate” decreased by 2 .5% to 7 .75% per annum as
at 31 December 2018 .

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 .

The Company has prepared these separate financial statements for compliance with the requirements of the Cyprus lncome
Тах Law and the Disclosure Rule as issued by the Financial Security Authority of the United Kingdom . The Соmраnу has also
prepared consolidated financial statements in accordance with lnternational Financial Reporting 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 initial recogni-
tion of financial instruments based on fair value, and by revaluation of financial instruments categorised at fair value through
profit or loss (“FVTPL”) and at fair value through other comprehensive income (“FVOCI”) (2017: the historical cost convention,
as modified by the initial recognition of financial instruments based on fair value, and by revaluation of derivatives, investment
securities available for sale, securities at fair value through profit or loss, and repurchase receivables carried at fair value) . The

principal accounting policies applied in the preparation of these separate financial statements are set out below . Apart from
the accounting policy changes resulting from the adoption of IFRS 9 and IFRS 15 effective from 1 January 2018, these poli-
cies have been consistently applied to all the periods presented, unless otherwise stated . Refer to Notes 5 and 32 .

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 .

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 .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

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, foreign exchange
forwards 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 . The
differences are immediately recognised in profit or loss if the valuation uses only level 1 or level 2 inputs .

Financial assets – classification and subsequent measurement – measurement categories. The Company classifies financial
assets in the following measurement categories: FVTPL, FVOCI and AC . The classification and subsequent measurement of
debt financial assets depends on:

• the Company’s business model for managing the related assets portfolio; and

• the cash flow characteristics of the asset .

Financial assets – classification and subsequent measurement – business model. The business model reflects how the Com-
pany manages the assets in order to generate cash flows – whether the Company’s objective is:

• solely to collect the contractual cash flows from the assets (“hold to collect contractual cash flows”); or

• to collect both the contractual cash flows and the cash flows arising from the sale of assets (“hold to collect contractual

cash flows and sell”);

•

if neither of i) and ii) is applicable, the financial assets are classified as part of “other” business model and measured at
FVTPL .

Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities
that the Company undertakes to achieve the objective set out for the portfolio available at the date of the assessment . Factors
considered by the Company in determining the business model include the purpose and composition of a portfolio, past experi-
ence on how the cash flows for the respective assets were collected, how risks are assessed and managed, how the assets’
performance is assessed and how managers are compensated .

Based on the analysis performed the Company included the following financial instruments in the business model “hold to
collect contractual cash flows” since the Company manages these financial instruments solely to collect contractual cash flows:
cash and cash equivalents, loans and deposit placements with related parties and other financial assets . The Company includ-
ed debt securities at FVOCI in the business model “hold to collect contractual cash flows and sell” since the Company manages
these financial instruments to collect both the contractual cash flows and the cash flows arising from the sale of assets . The
Company included debt securities measured at FVTPL and financial derivatives in the business model “other” .

Financial assets – classification and subsequent measurement – cash flow characteristics. Where the business model is
to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Company assesses whether the
cash flows represent solely payments of principal and interest (the SPPI test) . Financial assets with embedded derivatives are
considered in their entirety when determining whether their cash flows are consistent with the SPPI feature .

In making this assessment, the Company considers whether the contractual cash flows are consistent with a basic lending
arrangement, i .e . interest includes only consideration for credit risk, time value of money, other basic lending risks and profit
margin .

Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the
financial asset is classified and measured at FVTPL . The SPPI assessment is performed on initial recognition of an asset and
it is not subsequently reassessed . However, if the contractual terms of the asset are modified, the Company considers if the
contractual cash flows continue to be consistent with a basic lending arrangement in assessing whether the modification is
substantial . See below for “Financial assets – modification” .

Financial assets – reclassification. Financial instruments are reclassified only when the business model for managing the
portfolio as a whole changes . The reclassification has a prospective effect and takes place from the beginning of the first re-
porting period that follows after the change in the business model . The Company did not change its business model during the
current and comparative period and did not make any reclassifications .

Financial assets – impairment – credit loss allowance for ECL. The Company assesses on a forward-looking basis the ECL for
debt instruments (including loans) measured at AC and FVOCI and for the exposure arising from loan commitments and finan-
cial guarantee contracts . The Company measures ECL and recognises credit loss allowance at each reporting date .

The measurement of ECL reflects:

an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes;

the time value of money; and

Debt instruments measured at AC are presented in the separate statement of financial position net of the allowance for ECL .

For financial guarantees a separate provision for ECL is recognised as a financial liability in the separate statement of financial
position . For debt instruments at FVOCI, changes in amortised cost, net of allowance for ECL, are recognised in profit or loss
and other changes in carrying value are recognised in OCI as gains less losses on debt instruments at FVOCI .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

The Company applies a “three stage” model for impairment in accordance with IFRS 9, based on changes in credit quality since
initial recognition:

If the Company identifies a significant increase in credit risk (“SICR”) since initial recognition, the asset is transferred to
Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until contractual maturity but considering
expected prepayments, if any (“lifetime ECL”) . Refer to Note 25 for a description of how the Company determines when a
SICR has occurred .

If the Company determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is
measured as a lifetime ECL . Refer to Note 25 for a description of how the Company defines credit-impaired assets and
default .

Note 25 provides information about inputs, assumptions and estimation techniques used in measuring ECL .

Financial assets – write-off. Financial assets are written-off, in whole or in part, when the Company exhausted all practical
recovery efforts and has concluded that there is no reasonable expectation of recovery . The write-off represents a derecogni-
tion event . The Company may write-off financial assets that are still subject to enforcement activity when the Company seeks
to recover amounts that are contractually due, however, there is no reasonable expectation of recovery .

Financial assets – derecognition. 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 .

Financial assets – modification. The Company sometimes renegotiates or otherwise modifies the contractual terms of the
financial assets . The Company assesses whether the modification of contractual cash flows is substantial considering, among
other, the following factors: any new contractual terms that substantially affect the risk profile of the asset, significant change
in interest rate, change in the currency denomination, new collateral or credit enhancement that significantly affects the credit
risk associated with the asset, or a significant extension of a loan when the borrower is not in financial difficulties .

If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Company
derecognises the original financial asset and recognises a new asset at its fair value . The date of renegotiation is considered
to be the date of initial recognition for subsequent impairment calculation purposes, including determining whether a SICR has
occurred .

The Company also assesses whether the new loan or debt instrument meets the SPPI criterion . Any difference between the
carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit
or loss, unless the substance of the difference is attributed to a capital transaction with owners .

In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally
agreed payments, the Company compares the original and revised expected cash flows to assets whether the risks and re-
wards of the asset are substantially different as a result of the contractual modification . If the risks and rewards do not change,
the modified asset is not substantially different from the original asset and the modification does not result in derecognition .
The Company recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effec-
tive interest rate, and recognises a modification gain or loss in profit or loss .

Financial liabilities – derecognition. Financial liabilities are derecognised when they are extinguished (i .e . when the obligation
specified in the contract is discharged, cancelled or expires) .

An exchange between the Company and its original lenders of debt instruments with substantially different terms, as well as
substantial modifications of the terms and conditions of existing financial liabilities, are accounted for as an extinguishment of
the original financial liability and the recognition of a new financial liability . The terms are substantially different if the discount-
ed present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using
the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of
the original financial liability .

Cash and cash equivalents. Cash and cash equivalents include deposits held at call with banks, and other short-term highly
liquid investments with original maturities of three months or less . Cash and cash equivalents are carried at AC because: (i)
they are held for collection of contractual cash flows and those cash flows represent SPPI, and (ii) they are not designated at
FVTPL .

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
classified within held to collect business model, pass SPPI and are carried at amortised cost using effective interest rate . Refer
to note 8 for details of ECL measurement for loans and deposit placements with related parties .

Financial derivatives. Financial derivatives represented by foreign exchange swaps and forwards 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 Company does
not apply hedge accounting .

Tangible fixed assets. Tangible fixed assets are stated at cost less accumulated depreciation and provision for impairment,
where required .

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F-146

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit or loss for the
year (within other operating income or expenses) .

Depreciation. Depreciation of each item of tangible fixed assets is calculated using the straight-line method to allocate its cost
to its residual value over its estimated useful life as follows:

Equipment

Useful lives in years

3 to 10

The residual value of an asset is an estimated amount that the Company 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 .

Investments in debt securities. Based on the business model and the cash flow characteristics, the Company classifies invest-
ments in debt securities as carried at AC, FVOCI or FVTPL .

Debt securities are carried at FVOCI if they are held for collection of contractual cash flows and for selling, where those cash
flows represent SPPI, and if they are not designated at FVTPL . Interest income from these assets is calculated using the effec-
tive interest method and recognised in profit or loss . An impairment allowance estimated using the expected credit loss model
is recognised in profit or loss for the year . All other changes in the carrying value are recognised in OCI except for net results
from operations with foreign currencies and interest income calculated using the effective interest rate method . When the debt
security is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from OCI to profit or loss .

Investments in debt securities are carried at FVTPL if they do not meet the criteria for AC or FVOCI . The Company may also
irrevocably designate investments in debt securities at FVTPL on initial recognition if applying this option significantly reduces
an accounting mismatch between financial assets and liabilities being recognised or measured on different accounting bases .

Sale and repurchase agreements and lending of securities. 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 purchased under agreements to resell (“reverse repo agreements”), which effectively provide a lender’s return to
the Company, are recorded as loans received . 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 agree-
ments using the effective interest method .

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 .

Securities borrowed for a fixed fee are not recorded in the separate financial statements, unless these are sold to third parties,
in which case the purchase and sale are recorded in profit or loss for the year within gains less losses arising from trading
securities . The obligation to return the securities is recorded at fair value in other borrowed funds .

Based on classification of securities sold under the sale and repurchase agreements, the Company classifies repurchase re-
ceivables into one of the following measurement categories: AC, FVOCI, FVTPL .

Investments in equity securities. Financial assets that meet the definition of equity from the issuer’s perspective, i .e . instru-
ments that do not contain a contractual obligation to pay cash and that evidence a residual interest in the issuer’s net assets,
are considered as investments in equity securities by the Company . Investments in equity securities are measured at FVTPL,
except where the Company elects at initial recognition to irrevocably designate an equity investments at FVOCI . The Compa-
ny’s policy is to designate equity investments (including Invesments in subsidiaries) as FVOCI when those investments are held
for strategic purposes other than solely to generate investment returns . When the FVOCI election is used, fair value gains and
losses are recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal . Impairment losses
and their reversals, if any, are not measured separately from other changes in fair value . Dividends continue to be recognised
in profit or loss when the Company’s right to receive payments is established except when they represent a recovery of an
investment rather than a return on such investment .

Investments in equity securities include investments in subsidiaries . Subsidiaries are all entities (including structured en-
tities) over which the Company has control . The Company controls an entity when the Company is exposed to, or has rights
to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity . In cases of acquisitions of subsidiaries from entities under common control or subsidiaries of the Company, the cost of
acquisition is determined to be the fair value of the investment acquired as opposed to the transaction price . Any differences
between the transaction price and the fair value of the investment acquired reflect notional contributions/distributions from
entities under common control or subsidiaries and are recognised as such, i .e . directly in equity in cases of transactions with
common control entities and as an additional contribution to or distribution from the subsidiary transferring the investment to
the Company .

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 a separate line of separate statement of profit or loss and other compre-
hensive income as gains/losses from repurchase of debt securities in issue .

Loans received. Loans received are non-derivative financial liabilities to corporate entities and are carried at amortised cost
using effective interest rate . In case a loan is received at a rate below market the corresponding deferred income on recog-
nition of the loan at a rate below market is included in loans received balance and is amortised over the lifetime of the loan
received on the straight-line basis .

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 .

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 accord-
ance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition
of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects
neither accounting nor taxable profit . Deferred tax balances are measured at tax rates enacted or substantively enacted at the
end of 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 available against which the deductions can be
utilised .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

Deferred income tax is not recognised on post-acquisition retained earnings and other post acquisition movements in reserves
of subsidiaries where the 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 man-
agement’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 esti-
mate of the amount of the obligation can be made .

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 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 .

The Company’s equity instruments acquired by employee share trust entity are treated as treasury shares when the Company
retains the majority of the risks and rewards relating to the funding arrangement for the trust entity .

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 reclassi-
fies 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 Note “Events
after the End of the Reporting Period” . 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 . Manage-
ment considers the Revaluation Reserve to be a distributable reserve . Dividend distribution to the Company’s shareholders
is recognised as a liability in the Company’s separate financial statements in the year in which the dividends are appropriately
authorised and are no longer at the discretion of the Company . More specifically, interim dividends are recognised as a liability
in the period in which these are authorised by the Board of Directors and in the case of final dividends, these are recognised in
the period in which these are approved by the Company’s shareholders .

Interest income and expense recognition. Interest income and expense are recorded for all debt instruments, other than
those at FVTPL, 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 . 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 . The Company does not designate
loan commitments as financial liabilities at FVTPL .

Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for:

financial assets that have become credit-impaired (Stage 3), for which interest revenue is calculated by applying the effec-

i)
tive interest rate to their AC (net of the ECL provision); and

ii)

financial assets that are purchased or originated credit-impaired, for which the original credit-adjusted effective interest
rate is applied to the AC .

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 Rouble is also the presentation currency of the Company .

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

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 .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)

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

Changes in presentation. Starting from 1 January 2018 the Company changed presentation of interest income and expense
following the application of IFRS 9 . In these separate financial statements the Company changed presentation of the separate
statement of profit or loss and other comprehensive income for the year ended 31 December 2017 . These changes were im-
plemented to increase comparability of the financial information for 2017 with the respective information for 2018 . The effect
of changes on the separate statement of profit or loss and other comprehensive income for the year ended 31 December 2017
is as follows:

In millions of RR

Interest income

Interest expense

Interest income calculated using
the effective interest rate method

Other similar income

Interest expense calculated using
the effective interest rate method

As originally
presented

141

(277)

Reclassification

As reclassified

(141)

277

120

(277)

120

(277)

The effect of changes on the separate statement of cash flows for the year ended 31 December 2017 is as follows:

In millions of RR

Interest received

Interest paid

Interest income received calculated using
the effective interest rate method

Other similar income received

Interest expense paid calculated using
the effective interest rate method received

As originally
presented

116

(225)

Reclassification

As reclassified

(116)

225

(225)

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 28 .

Perpetual subordinated bonds. The Company has invested in perpetual subordinated bonds issued by third parties . The
Company 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 these instruments are classified as debt investment securities measured at FVTPL since the analysis of the
contractual cash flow characteristics resulted in acquired perpetual bonds not passing SPPI test . If the Company had recog-
nized this instrument as equity instrument, then it could have been measured at FVTPL or FVOCI as the Company does not
hold it for trading purposes .

Initial recognition of related party transactions. In the normal course of business the Company enters into transactions with
its related parties . IFRS 9 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 30 .

Determination of functional currency. The Company follows the guidance of IAS 21 “The Effects of Changes in Foreign Ex-
change 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
26 .

5 Adoption of New or Revised Standards and Interpretations

Adoption of IFRS 9 – Financial Instruments (IFRS 9) (issued on 24 July 2014 and effective for annual periods beginning
on or after 1 January 2018). The Company has adopted IFRS 9 with a date of transition of 1 January 2018, which resulted in
changes in accounting policies for recognition, classification and measurement of financial assets and liabilities and impair-
ment of financial assets .

The Company elected not to restate comparative figures and recognised any adjustments to the carrying amounts of financial
assets and liabilities at the date of initial application in the opening retained earnings of the current period . The comparative
period disclosures repeat those disclosures made in the prior period . Consequently, for notes disclosures, the consequential
amendments to IFRS 7 – Financial Instruments: Disclosures (IFRS 7) disclosures have also only been applied to the current
period .

Details of the specific IFRS 9 accounting policies applied in the current period are described in Note 3 . Accounting policies ap-
plied prior to 1 January 2018 and applicable to the comparative information are disclosed in Note 32 . The impact of the IFRS
9 adoption on the Company is disclosed below .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)

Adoption of New or Revised Standards and Interpretations
(Continued)

Measurement category

Effect

Carrying
value per IAS
39 (closing
balance at
31 December
2017)

Remeasurement

Reclassification

ECL

Other

Manda-
tory

Vol-
un-tary

In millions of RR

IAS 39

IFRS 9

Cash and cash
equivalents

Loans and deposit
placement with
related parties

Financial deriva-
tives

L&R (loans
and receiva-
bles)

L&R

FVTPL

Investments in debt
securities

AFS (availa-
ble for sale)

FVOCI

Investments in debt
securities

Total Investment in
debt securities

FVTPL (man-
datory)

AFS

Investments in equi-
ty securities

AFS (availa-
ble for sale)

FVOCI

207,834

Repurchase receiv-
ables

AFS

FVTPL (man-
datory)

798

385

581

(1)

Carrying
value per
IFRS 9
(opening
balance at
1 January
2018)

385

581

207,834

798

At 31 December 2017, all of the Company’s financial liabilities except for derivatives were carried at AC . The derivatives
belonged to the FVTPL measurement category under IAS 39 . Starting from 1 January 2018 the Company’s financial liabilities
except for derivatives continued to be classified at AC . The derivatives were reclassified from FVTPL measurement category
under IAS 39 to FVTPL (mandatory) measurement category under IFRS 9 .

Having performed the business model assessment, the Company classified some of the other financial assets previously meas-
ured at FVTPL to FVOCI measurement category, business model “hold to collect and sell” .

The main reasons for reclassifications of investments in debt securities and repurchase receivables were as follows:

• Perpetual corporate bonds with interest payments that are not mandatory. The Company has invested in perpetual corporate

bonds where the interest payments can be cancelled at the option of the issuer . Interest payments are not cumulative . The
Company has concluded that its contractual cash flows are not consistent with the basic lending arrangement . Hence the
investments in perpetual debt securities are measured at FVTPL . Refer to Note 4 .

• Reclassification from retired categories with no change in measurement. In addition to the above, the debt instruments previ-

ously classified as AFS have been reclassified as measured at FVOCI under IFRS 9, as their previous category under IAS 39
was ‘retired’, with no changes to their measurement basis (except for perpetual corporate bonds as described above) . The
business model for these debt financial instruments (except for perpetual corporate bonds) was determined to be hold to
collect contractual cash flows and sell since the Company holds these assets to collect both the contractual cash flows and
the cash flows arising from the sale of assets .

Reconciliation of provision for impairment at 31 December 2017 and credit loss allowance at 1 January 2018

Measurement cate-
gory

Effect

Provision for
impairment under
IAS 39 or IAS 37 at
31 December 2017

Remeas-
urement

Reclassifi-
cation

In millions of RR

IAS 39

IFRS 9

Loans and deposit
placement with related
parties

Gross up
of ECL
and gross
carrying
amount

Credit loss
allowance
under IFRS 9
at 1 January

2018

Loans to subsidiary

L&R

(72)

Investments in debt
securities

- Corporate bonds

AFS

FVOCI

Total

(72)

(1)

(73)

Further information on the measurement of the credit loss allowance under IFRS 9 is disclosed in respective notes .

The following amended standards became effective for the Company from 1 January 2018, but did not have a material impact
on the Company:

• Amendments to IFRS 2, Share-based Payment (issued on 20 June 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 2018
31 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)

Adoption of New or Revised Standards and Interpretations
(Continued)

• Annual Improvements to IFRSs 2014-2016 cycle – Amendments to IFRS 1 and IAS 28 (issued on 8 December 2016 and

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

•

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) .

(e) Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29 March 2018 and effective for

annual periods beginning on or after 1 January 2020)* .

(f) Amendments to IAS 1 and IAS 8: Definition of materiality (issued on 31 October 2018 and effective for annual periods

beginning on or after 1 January 2020)* .

(g) Amendment to IFRS 3 Business Combinations (issued on 22 October 2018 and effective for annual periods beginning on or

after 1 January 2020)* .

(h) IFRS 16, Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019) .

• Transfers of Investment Property – Amendments to IAS 40 (issued on 8 December 2016 and effective for annual periods

(i) IFRS 17 “Insurance Contracts” (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January

beginning on or after 1 January 2018) .

2022)* .

• 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) .

• Adoption of IFRS 15 (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018) .

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 2019 or later, and which the Company has not early adopted .

The Company is currently assessing the impact of the interpretation on its separate 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:

(a) 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)* .

(b) 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)* .

periods beginning on or after 1 January 2019)* .

(d) 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) .

7 Cash and Cash Equivalents

In millions of RR

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

- placements with UK Bank (A rated)

- placements with European bank (B rated)

- placements with subsidiary Bank (B+ rated)

Total Cash and Cash Equivalents

31 December
2018

31 December
2017

760

761

377

385

The table below discloses the credit quality of cash and cash equivalents balances based on credit risk grades at 31 December
2018 . Refer to Note 25 for the description of the Company’s credit risk grading system . The carrying amount of cash and cash
equivalents at 31 December 2018 below also represents the Company’s maximum exposure to credit risk on these assets:

In millions of RR

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

Current

Total cash and cash equivalents

Total

761

Cash and cash equivalents are not impaired and not past due as at 31 December 2017 . For the purpose of ECL measurement
cash and cash equivalents balances are included in Stage 1 . The ECL for these balances represents an immaterial amount,
therefore the Company did not recognise any credit loss allowance for cash and cash equivalents .

Amounts of cash and cash equivalents are not collateralised . Refer to Note 25 for the ECL measurement approach . Interest
rate, maturity and geographical risk concentration analysis of cash and cash equivalents is disclosed in Note 25 . Information
on related party balances is disclosed in Note 30 . Refer to Note 28 for the disclosure of the fair value of cash and cash equiva-
lents .

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* Denotes standards, interpretations and amendments which have not yet been endorsed by the European Union .

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)

8 Loans and Deposit Placements with Related Parties

Investments in debt securities at FVTPL

In millions of RR

Deposit placements with subsidiary Bank (B+ rated)

Subordinated loans to subsidiary Bank (B+ rated)

Loans to subsidiary

Total gross carrying amount of loans and deposit placements
with related parties

Less: Provision for loan impairment

Total loans and deposit placements with related parties

31 December
2018

31 December
2017

379

131

450

653

(72)

581

At 31 December 2018 the deposit placements with subsidiary Bank are represented by a deposit with a nominal value of
RR 379 million at 8 .5% per annum maturing on 14 September 2019 .

At 31 December 2017 the deposit placements with subsidiary Bank were represented by a deposit with a nominal value of
RR 131 million at 13% per annum maturing on 14 September 2019 . In 2018 the deposit was closed before maturity .

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 . On 2 July 2018 the Company redeemed subordinated loan before maturity .

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 .
In 2018 loans to subsidiary were written-off as fully impaired .

For the purpose of ECL measurement deposit placements with subsidiary Bank balances are included in Stage 1 . The ECL for
these balances represents an immaterial amount, therefore the Company did not create any credit loss allowance for deposit
placements with subsidiary Bank . Refer to Note 25 for the ECL measurement approach .

As at 31 December 2018 for the purpose of credit risk measurement loans and deposit placements with related parties bal-
ances are included in “Monitor” credit risk grade based on credit risk grademaster scale . Refer to Note 25 for the description
of the credit risk grading system .

Refer to Note 28 for the disclosure of the fair value of loans and deposit placements with related parties . Interest rate, maturi-
ty and geographical risk concentration analysis are disclosed in Note 25 . Information on related party balances is disclosed in
Note 30 .

Investments in Debt Securities

The table below discloses investments in debt securities at 31 December 2018 by measurement categories and classes:

In millions of RR

Corporate bonds

Perpetual corporate bonds

Total investments in debt securities
at 31 December 2018 (fair value/carrying value)

Including Credit loss allowance

Debt securities at
FVOCI

Debt securities meas-
ured at FVTPL

411

Total

411

425

Debt securities mandatorily classified as at FVTPL by the Company represent perpetual corporate bonds . Debt securities at
FVTPL are carried at fair value, which also reflects any credit risk related write-downs and best represents Company’s maxi-
mum exposure to credit risk . The debt securities at FVTPL are not collateralised .

As at 31 December 2018 for the purpose of credit risk measurement debt securities measured at FVTPL balances are included
in “Sub-standard” credit risk grade based on credit risk grademaster scale . Refer to Note 25 for the description of credit risk
grading system .

Investments in debt securities at FVOCI

As at 31 December 2018 for the purpose of credit risk measurement debt securities measured at FVOCI balances are included
in “Sub-standard” credit risk grade based on credit risk grademaster scale . Refer to Note 25 for the description of credit risk
grading system .

For the purpose of ECL measurement debt securities measured at FVOCI balances are included in Stage 1 . Refer to Note 25 for
the ECL measurement approach .

The debt securities at FVOCI are not collateralised .

Interest rate, maturity and geographical risk concentration analysis of investment in debt securities are disclosed in Note 25 .

10 Investment Securities Available for Sale
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

207,834

207,899

As at 31 December 2017 investment securities available for sale were neither past due nor impaired .

The movements in debt investment securities available for sale for the period 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

Interest income accrued on investment securities available for sale and Repurchase receivables (Note 18)

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)

(35)

(798)

(3)

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018
31 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
10 Investment Securities Available for Sale (Continued)

As at 31 December 2017 investments in subsidiaries represent investments in the share capital of the Bank, Insurance Com-
pany, and LLC “CloudPayments” . Refer to Note 11 for the description of the nature of investments in subsidiaries .

Investments in subsidiaries are stated at fair value at the end of each reporting period (Notes 4, 28) .

The movements in investments in subsidiaries for the period ended 31 December 2017 are as follows:

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

Interest rate, maturity and geographical risk concentration analysis of investment securities available for sale are disclosed in
Note 25 . Refer to Note 28 for the disclosure of the fair value of investments securities available for sale .

Investments in Equity Securities

In millions of RR

Investments in subsidiaries, including:

- Investments in financial institutions

- Investments in non-financial institutions

Other investments in equity securities

Total investments in equity securities

31 December
2018

218,818

203,192

15,626

431

219,249

Investments in financial institutions include investments in JSC “Tinkoff Bank”, JSC “Tinkoff Insurance”, LLC “Microfinance
company “Т-Finans” . Investments in non-financial institutions include investments in LLC “CloudPayments”, Goward Group
Limited, LLC “Тinkoff Mobile”, LLC “Phoenix”, Tinkoff Software DC, LLC TCS .

At 1 January 2018, the Company designated investments disclosed in the above table as equity securities at FVOCI . In 2017,
these investments were classified as AFS . Refer to Note 10 . The FVOCI designation was made because the investments are
expected to be held for strategic purposes rather than with a view to profit on a subsequent sale, and there are no plans to
dispose of these investments in the short or medium term .

As at 31 December 2018 investments in equity securities represent investments in the share capital of the Bank, Insurance
company, LLC “CloudPayments” and other investments in equity securities .

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) .
In December 2018 the Company acquired 10% in the Insurance Company for cash consideration of RR 206 mln from the Bank .
As at 31 December 2018 the Company owns 90 .08% of the share capital of the Insurance Company and controls it .

In October 2017 the Company acquired a 55% shareholding in LLC “CloudPayments” . The Company has the right to acquire
the remaining 45% within five years from the date of purchase .

Investments in subsidiaries are stated at fair value at the end of each reporting period (Notes 4, 28) .

The movements in investments in subsidiaries for the period ended 31 December 2018 are as follows:

In millions of RR

Carrying amount at 1 January

Investments in subsidiaries

Revaluation of investment in subsidiaries

Share-based payment

Carrying amount at 31 December

2018

207,834

206

10,148

630

218,818

Interest rate, maturity and geographical risk concentration analysis of investment in equity securities are disclosed in Note 25 .
Refer to Note 28 for the disclosure of the fair value of investments in equity securities .

None of these strategic investments were disposed of during 2018, and there were no transfers of any cumulative gain or loss
within equity relating to these investments .

12 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 2018 .

Available-for-sale securities
Perpetual corporate bonds

798

Refer to Note 14 for the related liabilities . Interest rate, maturity and geographical risk concentration analysis of repurchase
receivables are disclosed in Note 25 .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)

13 Other Financial Assets

15 Debt Securities in Issue

As at 31 December 2018 other financial assets are represented by the dividend income accrued from the Insurance Company .

For the purpose of ECL measurement other financial asset balances are included in Stage 1 . The ECL for these balances rep-
resents an immaterial amount, therefore the Company did not recognise any credit loss allowance for other financial assets .
Refer to Note 25 for the ECL measurement approach . As at 31 December 2018 for the purpose of credit risk measurement
other financial assets balances are included in “Monitor” credit risk grade based on credit risk grademaster scale . Refer to
Note 25 for the description of the credit risk grading system . Refer to Note 25 for the description of the credit risk grading
system . Interest rate, maturity and geographical risk concentration analysis of other financial assets is disclosed in Note 25 .
Information on related party balances is disclosed in Note 30 .

14 Loans Received
In millions of RR

Loans from subsidiary Bank

Loans from the subsidiary company

Loans from other companies

Total loans received

2018

20,655

1,792

796

23,243

2017

6,424

570

839

7,833

As at 31 December 2018 loans from subsidiary Bank had a contractual maturity from 30 October 2019 to 29 October 2021
and nominal interest rate from 5 .5% to 7% (2017: a contractual maturity from 26 April 2018 to 20 November 2020 and
nominal interest rate from 6 .5% to 7%) .

As at 31 December 2018 loans from the subsidiary company have a contractual maturity from 15 March 2020 and 6 June
2021 and nominal interest rate from 5 .5% to 7% (2017: 15 March 2020 and nominal interest rate 7%) .

As at 31 December 2018 loans from other companies represent a loan from related party in the amount of RR 796 million,
which has a contractual maturity 20 December 2019 and nominal interest rate 4% .

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 related party in the amount of RR 248 million, which had a
contractual maturity 20 December 2018 and nominal interest rate 4% .

Refer to Note 28 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 25 . Information on related party balances is disclosed in Note 30 . Reconcil-
iation of liabilities arising from financing activities is disclosed in Note 24 .

Loans received are unsecured (2017: unsecured except for loans from other companies which were secured by the securities
sold under sale and repurchase agreements) .

In millions of RR

EUR denominated ECP issued in December 2018

USD denominated ECP issued in December 2018

RR denominated ECP issued in December 2018

Date of maturity

19 December 2019

Euro-Commercial Paper issued in December 2017

19 December 2018

Total Debt Securities in Issue

31 December
2018

31 December
2017

2,392

1,266

3,754

2,769

On 20 December 2018 the Company issued three tranches of Euro-Commercial Paper (ECP) denominated in USD, EUR and
RR maturing on 19 December 2019 . USD denominated ECP has a nominal value of USD 19 million at 4 .25% coupon rate . EUR
denominated ECP has a nominal value of EUR 30 .5 million at 1 .25% coupon rate . RR denominated ECP has a nominal value of
RR 105 million at 9 .5% coupon rate .

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 . The Company redeemed all outstanding ECP of this
issue at maturity .

Refer to Note 28 for the disclosure of the fair value of debt securities in issue . Maturity analysis of debt securities in issue are
disclosed in Note 25 . Reconciliation of liabilities arising from financing activities is disclosed in Note 24 .

16 Other Financial and Non-financial Liabilities

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

31 December
2018

31 December
2017

208

222

760

763

380

395

377

470

The enhanced exclusivity agreement payable represents amounts due to the beneficiary shareholder under a Relationship
Agreement dated 22 October 2013 .

Interest rate, maturity and geographical risk concentration analysis of other financial liabilities are disclosed in Note 25 . Refer
to Note 28 for disclosure of fair value of other financial liabilities .

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)

17 Share Capital

In millions of RR except for the
number of shares

Number of
authorized
shares

Number of
outstanding
shares

Ordinary
shares

Share premi-
um

Treasury
shares

At 1 January 2017

190,479,500 182,638,825

188

8,623

(1,473)

GDRs buy-back

GDRs and shares transferred
under MLTIP

(397)

283

At 31 December 2017

190,479,500 182,638,825

188

8,623

(1,587)

Total

7,338

(397)

283

7,224

Increase of number of au-
thorized shares

1,291,266

GDRs buy-back

GDRs and shares transferred
under MLTIP

(2,455)

(2 455)

372

At 31 December 2018

191,770,766 182,638,825

188

8,623

(3,670)

5,141

In May 2018 the Company’s shareholders approved a resolution to increase authorized share capital to USD 7,670,830 .64 by
the creation of 1,291,266 new undesignated ordinary shares of nominal value USD 0 .04 each . As at 31 December 2018 the
total number of authorized shares is 191,770,766 shares (31 December 2017: 190,479,500 shares) with a par value of USD
0 .04 per share (31 December 2017: USD 0 .04 per share) .

As at 31 December 2018 and 2017 treasury shares represent GDRs of the Group repurchased from the market for the
purposes permitted by Cyprus law including contribution to MLTIP . During the year ended 31 December 2018 the Company
purchased 2,094,126 GDRs at market price for RR 2,455 million (2017: 602,148 GDRs at market price for RR 397 million) .
Refer to Note 30 . Information on dividends is disclosed in Note 23 .

18 Interest income and expense
In millions of RR

Interest income calculated using the effective interest rate method

Loans and deposit placement with related parties, including:

Deposit placement with subsidiary Bank

Subordinated loans to subsidiary Bank

Loan to subsidiary

Loan to other related party

Debt securities and repurchase receivables at FVOCI

Investment securities available for sale and repurchase receivables

Total Interest income calculated using the effective interest rate method

Other similar income

Debt securities and repurchase receivables at FVTPL

Total Interest Income

Interest expense calculated using the effective interest rate method

Loans from subsidiary Bank

Euro-Commercial Papers

Loans from subsidiary company

Other loans received

Total Interest expense calculated using the effective interest rate method

Net interest expense

19 Dividend income

Note

2018

2017

107

191

1,161

124

104

1,404

(1,213)

120

141

243

277

(136)

On 27 December 2018 the Company accrued dividend income declared by the Insurance Company in the amount of RR 1,351
million .

20 Net Gains less Losses from Operations with Foreign

Currencies

In millions of RR

Net gains less losses from derivative revaluation

Realised foreign exchange translation gains less losses from trading in foreign currencies

Foreign exchange translation (losses less gains)/gains less losses

Net gains less losses from operations with foreign currencies

2018

538

195

(560)

173

2017

106

F-163

F-164

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018

31 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)

21 Administrative and Other Operating Expenses

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

Enhanced exclusivity agreement expense

Legal and consulting fees

Audit and accountancy fees

Staff costs

Taxes other than income tax

Other administrative expenses

Note

2018

208

2017

380

Total administrative and other operating expenses

347

500

The total fees charged by the Company’s statutory auditor for the statutory audit of the annual separate and separate financial
statements of the Company for the year ended 31 December 2018 amounted to RR 2 .7 million (2017: RR 2 .1 mln) . The total
fees charged by the Company’s statutory auditor for the year ended 31 December 2018 for other assurance services amount-
ed to RR 4 .7 million (2017: RR 3 .8 million), for tax advisory services amounted to RR 5 .7 million (2017: RR 1 .1 million) and for
other non-assurance services amounted to nil (2017: RR 1 .7 million) .

Included in staff costs are statutory social contributions to the non-budget funds and share-based remuneration:

In millions of RR

Statutory social contribution to the non-budget funds

2018

2017

At 31 December 2018 there are 29 employees employed by the Company (31 December 2017: 1) . The average number of
employees employed by the Company during the reporting year was 23 (2017: 1) .

22 Income Taxes

Income tax expense comprises the following:

In millions of RR

Corporation tax

Overseas tax withheld at source

Total income tax expense

2018

2017

In millions of RR

Profit/(Loss) before income tax

Theoretical tax charge/(credit) at statutory rate of 12 .5% (2017: 12 .5%)

Tax effect of expenses not deductible for tax purposes

Tax effect of allowances and income not subject to tax

Overseas tax withheld at source

Under provision of tax for prior year

Income tax expenses for the year

2018

217

(214)

2017

(307)

(38)

Gains on disposal of qualifying titles (including shares, bonds, debentures, rights thereon etc .) are exempt from Cyprus income
tax . At 31 December 2018 and 2017 the Company had no tax losses carried forward .

Differences between IFRS and statutory taxation regulations in Cyprus give rise to temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and their tax bases . The tax effect of the movements in these
temporary differences is detailed below .

In millions of RR

Investments in subsidiaries

Net deferred tax liabilities

In millions of RR

Investments in subsidiaries

Net deferred tax liabilities

23 Dividends

The movements in dividends during the year are as follows:

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

Foreign exchange gain/(loss) 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)

31 December
2017

Charged to OCI

31 December
2018

(565)

(622)

(1,187)

31 December
2016

Charged to OCI

31 December
2017

(565)

2018

377

12,265

(11,946)

(144)

208

760

1.07

2017

167

8,279

(7,970)

(29)

(70)

377

0.77

F-165

F-166

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018
31 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
23 Dividends (Continued)

24 Reconciliation of Liabilities Arising from Financing

Activities

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 separate statement of cash flows .

Liabilities from financing activities

In millions of RR

Net debt at 1 January 2017

Cash flows

Foreign exchange adjustments

Other non-cash movements

Net debt at 31 December 2017

Cash flows

Realised foreign exchange adjustments

Unrealised foreign exchange adjustments

Other non-cash movements

Net debt at 31 December 2018

Debt securities in
issue

Loans received

2,819

(50)

2,769

418

435

132

3,754

772

7,301

(9)

(231)

7,833

14,955

455

23,243

Total

772

10,120

(59)

(231)

10,602

15,373

435

132

455

26,997

25 Financial Risk Management

Dividends were declared and paid in USD throughout the years ended 31 December 2018 and 2017 .

Dividends payable at 31 December 2018 related to treasury shares acquired under MLTIP amounting to RR 760 million are
included in other non-financial liabilities (2017: RR 377 million) .

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 debt
financial instruments, 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 .

F-167

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
25 Financial Risk Management (Continued)

Credit risk grading system. For measuring credit risk and grading financial instruments by the level of credit risk, the Compa-
ny applies risk grades estimated by external international rating agencies in case these financial instruments have risk grades
estimated by external international rating agencies (Fitch and in case of their absence - Moody’s or Standard & Poor’s ratings
adjusting them to Fitch’s categories using a reconciliation table):

Default occurs when a financial asset is 90 days past due .

Probability of Default (PD) – an estimate of the likelihood of default to occur over a given time period .

Master scale credit risk grade

Corresponding ratings of external
international rating agency (Fitch)

Current

Monitor

Sub-standard

Doubtful

NPL

AAA to BB+

BB to B+

B, B-

CCC+ to CC-

C, D-I, D-II

Each master scale credit risk grade is assigned a specific degree of creditworthiness:

• Current – strong credit quality with low expected credit risk;

• Monitor – adequate credit quality with a moderate credit risk;

• Sub-standard – moderate credit quality with a satisfactory credit risk;

• Doubtful – facilities that require closer monitoring and remedial management; and

• Default – facilities in which a default has occurred .

For measuring credit risk and grading those financial instruments which do not have risk grades estimated by external interna-
tional rating agencies, the Company applies risk grades and the corresponding range of probabilities of default (PD):

Lifetime period – the maximum period over which ECL should be measured . For financial instruments held by the Company the
lifetime period is equal to contractual maturity of the respective financial instruments .

Lifetime ECL – losses that result from all possible default events over the remaining lifetime period of the financial instrument .

Credit Conversion Factor (CCF) – a coefficient that shows that the probability of conversion of an off-balance sheet amount to
exposure on the consolidated statement of financial position within a defined period . It can be calculated for a 12-month or
lifetime period . Based on the analysis performed, the Company considers that 12-month and lifetime CCFs are the same .

Default and credit-impaired assets – assets for which a default event has occurred .

The default definition stated above should be applied to all types of financial assets of the Company .

Master scale credit risk grade

Corresponding interval

An instrument is considered to no longer be in default (i .e . to have “cured”) when it no longer meets any of the default criteria .

Current

Monitor

Sub-standard

NPL

Non-overdue

1-30 days overdue

31-90 days overdue

90+ days overdue

Each master scale credit risk grade is assigned a specific degree of creditworthiness:

• Current – strong credit quality with low expected credit risk;

• Monitor – adequate credit quality with a moderate credit risk;

• Sub-standard – low credit quality with a substantial credit risk;

• NPL – financial instruments for which a default has occured .

The rating models are regularly reviewed by the Credit Risk Department, backtested on actual default data and updated if
necessary .

Expected credit loss (ECL) measurement – definitions and description of estimation techniques. ECL is a probability-weight-
ed estimate of the present value of future cash shortfalls (i .e ., the weighted average of credit losses, with the respective risks
of default occurring in a given time period used as weights) . ECL measurement is based on the following components used by
the Company:

The Company considers a financial instrument to have experienced a SICR when one or more of the following quantitative,
qualitative or backstop criteria have been met:

• 30 days past due;

• award of risk grade “Doubtful”;

• decrease of assigned external rating by 2 notches, which corresponds to an approximate increase of PD by 2 .5 times .

If the SICR criteria are no longer met, the instrument will be transferred back to Stage 1 .

General principle of techniques applied

For financial assets, ECLs are generally measured based on the risk of default over one of two different time periods, depend-
ing on whether or not the credit risk of the borrower has increased significantly since initial recognition .

F-169

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018• Stage 1 – a financial instrument that is not credit-impaired on initial recognition and its credit risk has not increased signifi-

cantly since initial recognition, the loss allowance is based on 12-month ECLs;

• Stage 2 – if since the date, which was assumed to be the date of initial recognition is identified a SICR, the financial instru-

ment is moved to Stage 2 but is not yet deemed to be credit-impaired, the loss allowance is based on lifetime ECLs;

In millions of RR

USD strengthening by 20% (2017: by 20%)

• Stage 3 – if the financial instrument is credit-impaired or restructured, the financial instrument is then moved to Stage 3

USD weakening by 20% (2017: by 20%)

31 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
25 Financial Risk Management (Continued)

This approach can be summarised in a three-stage model for ECL measurement:

and the loss allowance is based on lifetime ECLs .

The Group carries out the following approach for ECL measurement:

• For financial instruments which have external ratings – assessment based on external ratings;

• For financial instruments which do not have external ratings – assessment based on discounted cash flow technique .

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 .

At 31 December 2018

At 31 December 2017

Pre-tax im-
pact on profit
or loss

Impact on
equity

Pre-tax im-
pact on profit
or loss

Impact on
equity

212

(212)

(38)

212

(212)

(38)

(82)

(79)

(82)

(79)

EUR strengthening by 20% (2017: by 20%)

EUR weakening by 20% (2017: by 20%)

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 .

On demand
and less than
1 month

From
1 to 6
months

From
6 to 12
months

More than
1 year

Non-inter-
est bearing
financial
instruments

Total

In millions of RR

31 December 2018

Total financial assets

2,147

379

425

219,249

222,200

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

Total financial liabilities

(15)

(208)

(4,643)

(22,354)

(27,220)

At 31 December 2018

At 31 December 2017

Non-de-
rivative
monetary
financial
assets

Non-de-
rivative
monetary
financial
liabilities Derivatives

Net balance
sheet posi-
tion

Non-de-
rivative
monetary
financial
assets

Non-de-
rivative
monetary
financial
liabilities Derivatives

Net balance
sheet posi-
tion

1,679

(22,557)

(4,258)

(25,136)

587

(6,994)

(2,772)

(9,179)

In millions
of RR

US Dollars

1,185

(2,062)

1,935

1,058

1,241

(3,608)

2,776

EUR

Total

(2,600)

2,408

(191)

(395)

2,865

(27,219)

(24,269)

1,829

(10,997)

409

(394)

(9,164)

The above analysis includes only monetary assets and liabilities . Non-monetary assets are not considered to give rise to any
material currency risk .

Net interest sensitivity gap at
31 December 2018

31 December 2017

Total financial assets

Total financial liabilities

Net interest sensitivity gap at
31 December 2017

2,132

(208)

(4,264)

(21,929)

219,249

194,980

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

At 31 December 2018 if interest rates at that date had been 200 basis points higher/lower (2017: 200 basis points higher/
lower), with all other variables held constant, profit and equity would have been RR 455 million higher/lower (2017: RR 179
million higher/lower) .

F-171

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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
25 Financial Risk Management (Continued)

The Company monitors interest rates for its financial instruments . The table below summarises effective interest rates set as
at 31 December 2018 and 2017 based on reports reviewed by key management personnel:

In % p.a.

Assets

Cash and cash equivalents

Loans and deposit placement with related parties

- Deposit placements with subsidiary Bank

- Subordinated loan to subsidiary Bank

- Loan to subsidiaries

Investments in debt securities

Investment securities available for sale

Repurchase receivables

Liabilities

Loans received

Debt securities in issue

2018

2017

USD

EUR

USD

EUR

0 .0

8 .5

8 .0

9 .8

10 .3

4 .4

13 .0

15 .4

9 .3

1 .4

9 .4

10 .2

10 .9

4 .2

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

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 28 .

Geographical risk concentrations. The geographical concentration of the Company’s financial assets and liabilities at 31 De-
cember 2018 is set out below:

In millions of RR

Financial assets

Cash and cash equivalents

Loans and advances to related parties

Financial derivatives

Investments in debt securities

Investments in equity securities

Other financial assets

Total financial assets

Financial liabilities

Loans received

Debt securities in issue

Financial derivatives

Other financial liabilities

Total financial liabilities

Net separate statement of financial position

Russian Fed-
eration

OECD

Other Non-
OECD

760

Total

761

379

425

219,249

1,300

846

222,200

845

796

208

1,004

(990)

23,243

3,754

222

27,220

194,980

379

411

219,249

1,300

221,340

22,447

3,754

26,215

195,125

The geographical concentration of the Company’s financial assets and liabilities at 31 December 2017 is set out below:

In millions of RR

Financial assets

Cash and cash equivalents

Loans and advances to related parties

Financial derivatives

Russian Feder-
ation

581

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

OECD

377

208,478

377

6,994

2,769

380

10,143

Other Non-

OECD

798

812

839

854

(42)

Total

385

581

207,899

798

209,667

7,833

2,769

395

10,997

198,670

Net separate statement of financial posi-
tion

198,335

377

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 2018 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 . When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions exist-
ing 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

Loans received

Debt securities in issue

Financial derivatives

Other financial liabilities

Total potential future
payments for financial
obligations

On Demand
and less than
1 month

From
1 to 6
months

133

4,258

618

222

From
6 to 12
months

881

3,895

More than
1 year

Total

24,324

25,956

3,943

4,258

236

4,413

880

4,776

24,324

34,393

F-173

F-174

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
25 Financial Risk Management (Continued)

The maturity analysis of financial liabilities at 31 December 2017 is as follows:

In millions of RR

Liabilities

Loans received

Debt securities in issue

Financial derivatives

Other financial liabilities

Total potential future
payments for financial
obligations

On Demand
and less than
1 month

626

2,772

From
1 to 6
months

1,123

395

From
6 to 12
months

489

2,825

More than
1 year

6,771

Total

9,009

2,882

2,772

395

3,408

1,565

3,314

6,771

15,058

26 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 .

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

In millions of RR

Repurchase receivables

Total

Notes

12, 14

27 Financial Derivatives

31 December 2017

Carrying amount of
the assets

Carrying amount of the associated
liabilities

798

591

The table below sets out fair values, at the end of the reporting period, of currencies receivable or payable under foreign
exchange forwards entered into by the Company . The table reflects gross positions before the netting of any counterparty
positions (and payments) and covers the contracts with settlement dates after the end of the respective reporting period .

In millions of RR

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

- USD receivable on settlement (+)

- RR payable on settlement (-)

- EUR receivable on settlement (+)

- RR payable on settlement (-)

Net fair value of foreign exchange for-
wards

31 December 2018

31 December 2017

Contracts with
positive fair value

Contracts with
negative fair
value

Contracts with
positive fair value

Contracts with
negative fair
value

1,449

(1,415)

2,408

(2,356)

486

(487)

2,776

(2,772)

(1)

28 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) .

The Company transferred financial assets in transactions that did not qualify for derecognition in the current periods as set out
below .

(a) Recurring fair value measurements

Sale and repurchase transactions.

At 31 December 2017, the Company has investments in debt securities represented by perpetual corporate bonds of RR 798
million 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 .

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 levels in the fair value hierarchy into which the recurring fair value
measurements are categorised are as follows:

F-175

F-176

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 201831 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
28 Fair Value of Financial Instruments (Continued)

The description of valuation techniques and the description of the inputs used in the fair value measurement for level 2 meas-
urements at 31 December 2017 are as follows:

In millions of RR

Fair value

Valuation technique

Inputs used

In millions of RR

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

31 December 2018

31 December 2017

ASSETS AT FAIR VALUE

Assets AT FAIR VALUE

Financial derivatives

Investments in debt securities

Investments in equity securities

425

Investments in subsidiaries

- 218,818

Other investments in equity
securities

Investment securities available
for sale

Repurchase receivables

Total assets recurring fair
value measurements

431

65 207,834

- 207,899

798

425 218,904

431 219,760

863 207,838

- 208,701

Investments in subsidiaries

207,834

The estimated fair value of investments in subsid-
iaries recognises that the majority of the value
of TCS Group holding plc resides in its main operat-
ing 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 .

CDS quotes
for assessment
of counterparty
credit risk or credit
risk of reference
entities

Investments in subsidiaries are stated at fair value based on market valuation (2017: same) .

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 2018 are as follows:

In millions of RR

Fair value

Valuation technique

Inputs used

ASSETS AT FAIR VALUE

Foreign exchange forwards

Total recurring fair value
measurements at level 2

207,838

Discounted cash flows adjusted
for counterparty credit risk

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 15 .56
for 1 share at
31 December
2018;
Market
interest rates

EUR curve .

Discounted cash flows adjusted for counterparty credit
risk

USD Dollar Swaps
Curve

Discounted cash flows adjusted
for counterparty credit risk

EUR curve .

USD Dollar Swaps
Curve

Investments in subsidiaries

218,818

Foreign exchange swaps

Total recurring fair value
measurements at level 2

218,904

LIABILITIES AT FAIR VALUE

Foreign exchange swaps

Total recurring fair value
measurements at level 2

At 31 December 2018 if market quote of GDR of the Company at that date had been 39% higher/lower (2017: 54% higher/
lower), with all other variables held constant, the fair value of the investment in subsidiaries would have been RR 74,212 mil-
lion higher/lower (2017: RR 107,083 million higher/lower) .

The description of valuation techniques and the description of the inputs used in the fair value measurement for level 3 meas-
urements at 31 December 2018 are as follows:

In millions of RR

Fair value

Valuation technique

Inputs used

ASSETS AT FAIR VALUE

Other investments in equity
securities

Total recurring fair value
measurements at level 3

431

Cost approach

Cost of acquisition .
Share in post-acqui-
sition profit

F-177

F-178

STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS TCS GROUP HOLDING PLC | ANNUAL REPORT 2018
31 DECEMBER 2018

Notes to the Separate
Financial Statements (Continued)
28 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 and liabilities not measured at fair value
are as follows:

31 December 2018

31 December 2017

In millions of RR

Level 1

Level 2

Level 3

Carrying
value

Level 1

Level 2

Level 3

Carrying
value

FINANCIAL ASSETS CARRIED AT
AMORTISED COST

Cash and cash equivalents

Placement with Russian and UK
banks

Placements with European banks

Placement with subsidiary bank

Loans and deposit placement with
related parties

Deposit placement with subsidiary
Bank

Subordinated loan to subsidiary
Bank

Loan to subsidiary

Other financial assets

Total financial assets
carried at amortised cost

FINANCIAL LIABILITIES CARRIED
AT AMORTISED COST

Loans received

Debt securities in issue

Other financial liabilities

Total financial liabilities carried
at amortised cost

760

1,300

760

411

379

1,300

2,061

411

2,440

22,362

23,243

3,754

222

3,754

222

3,976

22,362

27,219

377

162

131

573

450

385

735

966

7,317

7,833

2,769

395

2,769

395

3,164

7,317

10,997

Weighted average discount rates used in determining fair value as of 31 December 2018 and 31 December 2017 depend on
currency:

In % p.a.

Assets

Cash and cash equivalents

Loans and advances to customers

- Deposit placement with subsidiary Bank

- Subordinated loan to subsidiary Bank

- Loan to subsidiaries

Investments in debt securities

Investment securities available for sale

Repurchase receivables

Liabilities

Loans received

Debt securities in issue

31 December
2018

31 December
2017

6 .0

10 .3

7 .0

2 .6

7 .6

10 .2

10 .9

8 .0

4 .2

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 .

29 Presentation of Financial Instruments by Measurement