CONTENTS
TCS GROUP IS RUSSIA’S LEADING PROVIDER OF ONLINE
FINANCIAL AND LIFESTYLE SERVICES VIA ITS TINKOFF
ECOSYSTEM.
STRATEGIC REVIEW
DIRECTORS’ REVIEW
About us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2019 Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Tinkoff group: decision making bodies at a glance . . . . . . . . 48
Our history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Business model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Management team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Market context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Market position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FINANCIALS
Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
What makes us different? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
CEO strategic review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
International Financial Reporting Standards
Consolidated Financial Statements and Independent
Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Our recent awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
CFO financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
International Financial Reporting Standards
Separate Financial Statements and Independent
Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-119
Asset, liability and risk management . . . . . . . . . . . . . . . . . . . . 28
Corporate social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . 38
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
Employees and corporate social responsibility . . . . . . . . . . . 44
INVESTOR INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-3
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
2019 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.
COVID-19
The existence of COVID-19 was confirmed in early 2020 and has
spread across China, to Russia and beyond, causing disruptions to
businesses and economic activity. Governments in affected countries
are imposing travel bans, quarantines and other emergency public
safety and fiscal measures. Those measures, though temporary in
nature, may continue and increase depending on developments in the
virus’ outbreak.
The Group has put contingency plans in place both to protect the
workforce and ensure that we mitigate the impact of COVID 19. For
instance, currently, our employees are mainly working from home due
to travel restrictions imposed by governments. The ultimate severity
of the Covid-19 outbreak is uncertain at this time, and therefore
the Group cannot reasonably estimate the impact it may have on
future operations. However, our technology systems continue to
operate to the high levels we demand and the Group has high levels
of both liquidity and capital reserves. Therefore, the Directors have
concluded that there is currently no material impact on the Group’s
operations and liquidity at the time of publication of this report as a
result of COVID-19.
1
№1
BEST IN MOBILE BANKING
IN CENTRAL AND EASTERN
EUROPE
* by Global Finance 2019
THE LEADING LIFESTYLE AND
FINANCIAL SERVICES ECOSYSTEM
Daily banking
Small business
• Debit cards
• Business account
Savings
& Investments
• Credit products
• Salary projects
• Payments
• Overdraft
• P2P transfers
• Business loans
• Deposits
• Securities
• Pensions
Real Estate
•
Insurance
• Valuation
• Legal support
• Utility bills, taxes
• Utilities payments
• Accounting
•
Investment strategy
• Rent payments
Mobile
• Own number
• Own mobile
network code
• Own SIM cards
Auto
• Fines
•
Insurance
• Auto loans
Insurance
Entertainment
• Cars
• Travel
• Property
• Health
• Life
• E-commerce
• Ticketing
• Restaurant
reservations
• Stories
• Travel
ONE CLICK
LIFESTYLE BANKING
WITH YOUR MOBILE PHONE
№1 Consumer
Digital Bank
in CEE*
19mn
downloads
1.8mn
daily active users
101mn
sessions per month
5.6mn
monthly active users
*Source: Global Finance
2
3
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 PROVEN TRACK RECORD OF DRIVING SUSTAINABLE GROWTH
HIGHLIGHTS
OUR HISTORY
Growth
Profitability
HIGHLIGHTS OF TCS GROUP’S INNOVATIVE DEVELOPMENT
• 3 million acquired customers, reaching 10 .3 million .
• Record high net income of RUB 36 .2 billion, growing 31%
• Loan book growth of 66% in 2019, powered by the suc-
cessful scaling up of new, non-credit card products
• Highest ever engagement growth on our mobile app:
reached DAU of 1 .8m and MAU 5 .6m at YE19 .
• Exponential growth of our retail brokerage platform,
opening >1m accounts in 2019
• Retail current accounts growth of 54% YoY ., amounting
YoY, with industry leading ROAE of 55 .9%
• Tinkoff’s net income CAGR of 49% in 2016-19 exceeded
ambition provided in 2016 of 20-40% annual growth
Capital Markets
• Listed our GDRs on the Moscow Stock Exchange on
October 28 .
4 .8 billion
secured lending portfolio
to BB with Stable Outlook
to a record 51% of total customer accounts .
New business lines
• Raised $300m of equity in an oversubscribed deal
• Raised RUB 20bn in Rub bonds to fund our growing
• Tinkoff Investments reached break even in July 2019
• Moody’s rating upgraded to Ba3 stable from B1 stable .
• Share of non-credit cards in the loan book portfolio at a
• Tinkoff Business recorded record high net income of RUB
• Fitch upgraded our Long-term FX and RUB rating from BB-
historic high of 39%, with secured lending accounting for
15% of the total loan book
2019
• 31 December 2019 CBRF N1 statutory capital ratio of
12 .1% and Basel III Common Equity Tier 1 at 15 .9%
Liquidity and capitalisation
• Treasury portfolio of RUB135bn of highly liquid CBRF
• Total assets up by 55% to RUB 581bn, with cash and
• Launched Russia’s and Europe’s first Super App
• Total equity up by 127% to RUB 96 .1 bn
Insurance revenues doubled in 2019
treasury portfolio up at RUB193bn
repoable bonds
•
Customer accounts
411.6
RUBbn
Total assets
579.5
RUBbn
ROE 2019
55.9
%
Net profit
36.1
RUBbn
N1.0 at the end of 2019
New credit customers
12.1
%
+1.6
mn
NET PROFIT (RUBBN)
36.1
2019
• Launch of the first "Super App" in Russia and Europe
• Raised $300m in equity financing
•
Introduction of Oleg, the world's first voice assistant for
financial and lifestyle tasks
•
Increased equity stake in Cloudpayments from
55% to 95%
• Started offering for sale to third parties the proprietary
Tinkoff VoiceKit
2017–2018
46.1
• Acquisition of a stake in Kassir .ru to enrich our lifestyle
• Launch of a virtual development hub, eleventh IT-hub of
offering
Tinkoff
• 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 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
2014–2016
16.3
• Launched a network of software development hubs coun-
trywide, the first in St Petersburg
Introduced a face recognition system for scoring
• Joined the Russian blockchain consortium
•
• Launched a new management long term incentive plan
• One of the first launching Apple Pay and Samsung Pay in
Russia
• 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
2010–2013
11.8
• 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 Tink-
off Bank online customer acquisition platform
• Launch of online acquisition channel for credit cards
• Launch of “smart courier” service
2006–2009
-0.6
• Launch of the retail deposit programme
• First debit card issued
• Minority stakes sold to Goldman Sachs and Vostok Nafta
• Launch of internet bank
• First credit card issued
• Tinkoff Credit Systems Bank was created by Oleg Tinkov
4
5
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 BUSINESS
MODEL
OPERATING FLEXIBILITY
TCS Group has built an advanced platform that is highly suit-
ed for the Russian market and operating environment . The
Group’s platform is entirely branchless, with a low fixed cost
base and high degree of operating flexibility . Cost efficien-
cies are enhanced by its best-in-class centralised IT system,
with continued investments and advancements in the field
of artificial intelligence and machine learning . The low level
of retail financial services penetration in Russia, the rapid
growth of online and mobile payments, and high margins
and barriers to entry make our business model attractive
in terms of sustainable profitability, growth potential and
competitive edge .
ROBUST DATA AND RISK
MANAGEMENT
TCS Group employs a highly scientific, data-driven and
conservative risk management approach, which underpins
the success of the business model . All aspects of the client
life cycle – from acquisition to services and collections – are
carefully monitored and evaluated . We make loan approval
decisions based on a range of available information, includ-
ing credit bureau data, a rigorous application verification
process and proprietary scoring models .
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 .
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 su-
permarket 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, securi-
ties dealing, mobile solutions as well as non-Tinkoff products
through the full-cycle brokerage model . Tinkoff continues
to operate in the mass market segment, and focuses on ex-
panding the mass affluent segment by way of offering an ever
expanding range of financial services and targeted lifestyle
recommendations, advice and entertainment features .
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
POWERFUL DISTRIBUTION
Tinkoff offers remote access customer service through its
award-winning mobile banking as well as through internet
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 branch-
less platform is a “smart courier” network which allows next
day delivery .
PREMIUM-LEVEL SERVICE
AND BRAND
TCS Group is unusual among Russian retail financial services
providers in offering a premium-level service to mass market
and mass affluent customers . Our customers enjoy conven-
ient 24 hours a day, 7 days a week access to their accounts
and financial transaction services through the combination
of Tinkoff’s free mobile, Internet and call centre service
platforms .
Tinkoff is an online financial supermarket offering customers
the full range of financial, transactional, and lifestyle services .
Through our mobile and internet platforms we offer Tink-
off-branded products – credit products, current accounts,
deposits, cash loans, securities dealing, insurance and mobile
solutions, as well as non-Tinkoff products through our full-cycle
brokerage . For small businesses, we offer current accounts,
transactional services, credit products salary projects and on-
line merchant acquiring . We deliver premium services to mass
market and mass affluent customers in Russia through a unique
online, branchless platform .
6
7
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
MARKET CONTEXT
MARKET POSITION
Retail lending
In 2019, retail lending continued to demonstrate high growth .
This was particularly noticeable in the first half of the year .
Despite macroeconomic stability, early signs of consumer lev-
eraging and regulatory tightening by the Central Bank of Russia
led to a decline in growth rates towards the end of 2019 . In fact,
the CBR not only introduced further risk-weight increases in an
attempt to cool the market down, but also developed a new PTI
(payment-to-income) regulation which required more capital to
be held against loans to more indebted parts of the population .
State banks and a few sizeable private players, including Tinkoff,
continued to take market share in this growing market . In Tink-
off's case, a key contributor to this was the successful scaling up
of Tinkoff secured lending portfolio (home equity and car loans)
which had been in test phase throughout 2018 . This portfolio
is expected to continue growing even taking into account the
CBR's increasing efforts to regulate the market, given that
these products have low penetration and are highly innovative .
Credit business
In 2019 Tinkoff further cemented its position as the number 2 credit card
player in Russia after Sberbank . But most remarkable has been its growth
in the overall retail credit market (loans < 3 years) where now Tinkoff is
the second player in Russia with a 7 .6% market share, overtaking VTB . De-
spite a normalization in risk costs from overly positive dynamics in 2018,
Tinkoff's credit business remains extremly profitable and will continue to
contribute to customer growth in future years .
Credit card market in Russia (RUBbn)
Market dynamics in 2019 (RUBbn)
Tinkoff market share as of 1 January 2020
89
14
1595
95
87
1310
-7.2
95.1
26.6
58.2
292.2
285.0
112.3
2018
Q1
Q2
Q3
Q4
2019
Sberbank Tinkoff Bank Alfa Bank Other banks Total growth
Total
contraction
Market
IN 2019 THE CREDIT CARD
LENDING SECTOR IN
RUSSIA GREW BY
21.8%
Source: CBRF
#2
#6
#6
#7
#15
#11
#21
#21
#2
13.3
7.6
4.9
2.6
2.0
2.0
Credit
cards
Retail
loans up
to 3 years
IE*
current
accounts
Retail
current
accounts
Retail
loans
Car
loans
*IE - individual entrepreneuers
**Legal entities including individual entrepreneuers
Source: RAS reporting from www.cbr.ru
1.1
Retail
customer
accounts
0.4
0.4
Legal
Legal
entities**
entities**
current
current
accounts
accounts
Transactional business
In 2019, Tinkoff opened 2 .6 million debit card
accounts to reach 7 .1 million . Tinkoff Black
remains the main feeder for Tinkoff ecososteym
growth and feeds cross-sell potential . This prod-
uct is key in accessing a younger and more mass
affluent customer base: the average user is 34
years old and predominantly urban . These cus-
tomers have shown higher propensity to utilize
more of the Tinkoff product suite - and Tinkoff
Black is a key feeder for our Tinkoff Invest-
ments, Insurance, Credit Card, SME business
lines . The Tinkoff Black debit card is also the
main tool to access Tinkoff's increasingly com-
prehensive array of lifestyle services - including
ticketing, entertainment, and e-commerce -
services that Tinkoff provides itself and often in
conjunction with partners .
Household debt continued to grow in 2019 while NPLs were improving
A leader in the mobile financial and lifestyle solutions in Russia
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
The share of mobile internet users in Russia is growing year-on-year . Tinkoff 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 . The launch of our Super-App at the end of 2019 is the latest evolution of the Tinkoff
platform - it not only aggregates all of the Tinkoff Group produts under one umbrella, but seamlessly allows customers to satisfy
their daily banking, credit, transactional, and lfiestyle needs . The app is complemented by Stories – targeted AI based tips based on
customer’s transaction activity, restaurant reservations, shopping experience, cinema, theatre and concert tickets and travel .
Cinema
Concerts
Theatre
Restaurants
2012
2013
2014
2015
2016
2017
2018
2019
Retail NPL (%)
Household / GDP
Source: Data from cbr.ru and gks.ru
8
Shopping
Travel
Journal
Stories
9
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
STRATEGY
SELL OR CROSS-SELL ANY FINANCIAL,
INSURANCE AND QUASI-FINANCIAL
PRODUCTS BY DEVELOPING AND CROSS-
SELLING NEW PRODUCTS TO EXISTING
CUSTOMERS, TINKOFF EXPECTS TO DIVERSIFY
ITS REVENUE STREAMS, LOWER CUSTOMER
ACQUISITION COSTS AND MAXIMIZE LIFETIME
VALUE OF OUR CUSTOMERS.
01. Sell or
cross-sell
financial,
insurance and
quasi-financial
products
By developing and cross-selling
new products to existing custom-
ers, Tinkoff 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 conven-
ient claims settlement and sales
process, which can be accessed
online from anywhere in Russia .
The new online insurance prod-
ucts are delivered to the Group’s
traditionally high customer
service standards .
Tinkoff Insurance is currently
offering personal accident in-
surance, property, travel and car
insurance - KASKO and OSAGO .
Tinkoff Insurance is rated as
“ruBBB-” (a high rate of reliabili-
ty) by Expert-RA rating agency .
02. Maintain leadership
in customer service
High quality customer service has been a
key driver of Tinkoff Bank’s rapid growth .
Tinkoff invests to maintain and improve key
components, such as our simple application
processes, convenient and 24/7 access to
accounts, the reach of our “smart courier”
service, free loan repayments and straight-
forward complaints resolution process .
Through the launch of a new financial super-
market portal Tinkoff Bank is now able to
serve not only its existing customers but also
non-clients when they are allowed to make
transactions without full identification within
the legislatively approved limit of 15,000
Roubles . This is a strategic step for Tink-
off Bank to increase its exposure throughout
the financial market .
03. High liquidity
and well-balanced
funding base
The Group has established a robust
liquidity risk management framework
that ensures it maintains sufficient
liquidity, including a significant cush-
ion of liquid assets . Tinkoff Group’s
funding strategy provides effective
diversification in the sources and tenor
of funding . The Group aims to maintain
an on-going presence in a broad range
of capital market segments and strong
relationships with market participants
to promote effective diversification of
funding sources .
04. Support business expansion using
advanced IT systems
Tinkoff Bank operates a low-cost, branchless model and seeks to outsource wherever
feasible while retaining core functions in-house . This complementary outsourcing strat-
egy allows us to retain focus on and develop core competencies to economise on capital
expenditures, to manage workflow and to maintain a flexible cost base with low fixed
expenses .
The Group’s in-house IT team develops a significant part of the software used by Tinkoff,
including software used in its online customer acquisition and service platform . This
enables Tinkoff to regularly and quickly roll-out new products and services to customers
or new versions with enhancements .
Tinkoff Bank continues to expand its technological advantages over traditional Russian
banks . In 2016 Tinkoff Bank announced its IT expertise expansion through a number of
IT development centers in big cities across Russia . By the end of 2018 the number of IT
hubs grew to 11 including the virtual 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 Association 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 customers
to view card receipts details in their user accounts .
07. Further improve cost-
efficiency of Tinkoff’s
operations
The Group intends to further increase the cost-efficiency of
its operations by placing an even greater emphasis on its
Internet banking, mobile banking and Home Call Centre op-
erations and constantly seeking new ways to achieve further
reductions in operating and customer acquisition costs .
08. Develop The High-Growth
Concept Of The Financial
Supermarket, A Platform
Offering A Choice Of
Consumer Lending, Insurance
And Transactional And
Payment Services Of
Tinkoff As Well As Lifestyle,
Entertainment And Partner
Products
Retail lending remains Tinkoff’s core business . In 2019 we
significantly broadened the range of our credit products, with
credit cards accounting for 60% of the loan portfolio and
secured lending reaching a record high 15% . The contribu-
tion 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 2019 we signif-
icantly improved our lifestyle and entertainment offering to
the customers - culminating in the launch of our Super App
- the aggregator of all Tinkoff Group products and a platform
that enables customers to satisfy all their credit, transac-
tional, and lifestyle needs .
The Super App enables seamless integration with partners
and now allows customers to access Stories (AI*-based rec-
ommendations and user tips based on transactional activity)
as well as complete restaurant reservations, purchase cine-
ma, theatre and concert tickets and complete e-commerce
transactions . The introduction of Oleg, the world's first
financial services voice assistant, makes navigation through
the Tinkoff platforms seamless and convenient .
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 ser-
vice platform has helped it to expand its transactional and
payment products such as current accounts, SME solutions,
online acquiring, and mobile mono-applications . We intend
to support the growth of these products that constitute
an important channel for acquiring new customers and for
cross-selling other products, particularly credit cards . These
transactional and payment products are also being offered
to existing customers of Tinkoff, helping to boost retention
rates .
Tinkoff E-commerce products
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 cus-
tomers 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. Effectively manage credit
risk using sophisticated data
analysis and modelling
As a data-driven organisation, the Group uses a wide range
of databases in its loan approval processes and portfolio
management and is constantly in search of new sources of
relevant data . We take loan approval decisions based on a
range of available information, including credit bureau data
and scores, proprietary scoring models, a proprietary appli-
cation verification process and sophisticated NPV models .
The Group will continue to develop credit risk management
capabilities and to use increasingly more sophisticated data
analysis and modelling to achieve this goal . Credit risk man-
agement remains one of the core strengths of Tinkoff and will
remain critical to sustaining its competitive advantage .
10
11
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 WHAT MAKES
US DIFFERENT
TINKOFF IS A CLOUD ECOSYSTEM PROVIDING A FULL SCOPE
OF HIGH UTILITY, DAY-TO-DAY FINANCIAL, INSURANCE,
LIFESTYLE, AND ENTERTAINMENT SERVICES
HIGH-TECH VIRTUAL PLATFORM
SINGLE POINT OF DESTINATION FOR DAILY BANKING
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 mobile app, internet platform, 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 Intelligence and Computer Vision of a number of processes on an operational level that helps to significantly improve
operating efficiency and cost control .
Tinkoff is the second largest credit card and short term retail lender 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 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 has been expand-
ing to bring additional partners’ products and services through its full-cycle brokerage platform and further expanding our
lifestyle and entertainment offering with travel, ticketing and shopping experience .
23mn
call and chat
enquiries solved by
bots or cloud
service agents
3.7mn
applications per month
on average during 2019
>15.2mn
Credit cards issued
13.3%
Credit card market share*
* As of 31 December 2019 based on CBRF data.
over 549RUBbn
of customer credit card transactions
in 2019
12
13
TCS GROUP HOLDING PLCANNUAL REPORT 2019STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS
WHAT MAKES
US DIFFERENT
TCS GROUP IS TRANSFORMING THE RUSSIAN FINANCIAL
SERVICES MARKET AND DRIVING A DIFFERENTIATED
CUSTOMER PROPOSITION.
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 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 to attract new customers anywhere in the country . Supporting the branchless platform is a “smart courier” net-
work covering around 2,100 cities and towns in Russia which allows next day delivery . In addition, Tinkoff ’s online origination
process makes extensive use of online data and behavioural profiles, and gives it clear advantages over competitors in terms
of underwriting .
51.2%
Net loan portfolio CAGR
2008-2019
91x
Equity grew by 91x in
10 years (from 2009
to 2019)
55.9%
ROAE
CREATING VALUE IN CHALLENGING MARKETS
Our entrepreneurial approach to products, premium-quality customer service and effective credit risk management, based on
sophisticated data analysis and modelling, enable us to achieve a combination of sustainable growth and good returns even in
a market downturn . The strong trend to adoption of online and mobile consumer technology in Russia, together with the low
penetration and growth potential in the country’s retail financial services, represent a tremendous opportunity for Tinkoff to
continue its success .
№1
Best mobile banking app
in Central and Eastern Europe*
* by Global Finance
30%
of all customer requests across the
products processed by chat-bots
in 2019
14
15
TCS GROUP HOLDING PLCANNUAL REPORT 2019STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALS
CEO STRATEGIC REVIEW
Dear Investors
It is always a pleasure to announce
excellent results, and we did so again in
mid March this year for FY2019 . 2019
was another record-breaking year for
Tinkoff, with exceptional business devel-
opment and financial achievements . Our
Ecosystem strategy is bearing tangible
fruits, with our products and services
more joined-up than ever, and our
customers more engaged with us than
ever before . We have come such a long
way in the last thirteen years; we have
evolved into a fully-fledged and rapidly
growing lifestyle and financial services
Ecosystem – with a suite of transaction-
al, lending and lifestyle offerings that
are loved by our customers right across
Russia .
The first part of the current year
also reminds us, not that we needed
reminding, that unexpected challenges
are a part of operating in the Russian
markets, though many of the challenges
have their origins outside Russia . I will
say something more about these later
in this strategic review but these should
not divert focus from 2019, from the
Tinkoff success story of 2019 . I am con-
fident in any case that the Group, with
its unique business model, the Tinkoff
brand, its energy and dynamism, a great
strategy, will be able to navigate not just
these challenges successfully but also
others which will likely confront us in
2020 and beyond .
FY2019 was another year of re-
cord-high profits .
I would like to review 2019 by looking
at several themes of the 2019 results,
before briefly looking ahead, sharing
some of our plans:
–
–
–
–
–
Tinkoff’s significant growth in 2019;
high growth did not come at the
cost of profitability;
asset quality maintained;
some highlights of 2019;
some observations on what to look
forward to, our plans .
2019 was a year of
significant growth
for Tinkoff
We added a total of close to three
million customers, more than we have
ever added in a single year, to reach
and pass the milestone figure of 10
million customers . These customers are
increasingly using more of the Tinkoff
suite of products, with almost 25% of
them using two or more products . Not
only are we growing customer numbers,
but we are also engaging more with each
one of them, thanks to our continued
efforts on customer experience, user
interface, cross-sell, data management
and loyalty initiatives . Our DAU, or daily
active users, have reached 1 .8 million up
from 1 .1 million a year ago, and our MAU,
or monthly active users, have reached
5 .6 million from 3 .7 million a year ago .
We see further engagement gains ahead
as we leverage our Super App – the first
of its kind in Russia and Europe . This
Super App contains all our digital ser-
vices under one umbrella and allows our
customers to satisfy their lifestyle and
financial needs at the touch of a screen,
by seamlessly accessing Tinkoff as well
as partner products . This is a highly
technological platform that enables us
to have very quick time to market and to
provide an extremely engaging customer
experience in a capital light and flexible
manner .
Our lifestyle services have raced ahead .
We have over half a million monthly ac-
tive users for these services . Every
month, our customers are buying on
average 350K cinema tickets, 25K
concert tickets, 20K theater tickets,
making 10K restaurant bookings,
50K flight reservations and 50K
hotel reservations . We have a great
pipeline of additional entertainment
and ticketing options that should
continue to drive customer engage-
ment on this platform .
Growth did not
come at the
expense of the
bottom line
and increased
profitability
Despite the investments required for
our fast-paced growth, our 2019 net
income of RUB36 .1 bn represents a
rise of 33% year on year, giving us an
industry-leading return on equity of
55 .9% . You may recall that in 2016 we
disclosed to the market our ambition
that our net income would grow 20%
to 40% per annum until the end of
2019 . I am proud to say that as of the
end of 2019 we delivered 49% annual
growth over the last three years – an
outstanding achievement .
Our net loan book grew 66% year-on-
year in 2019, reaching RUB329bn and
this was powered by both our more
mature credit card product, as well as
our newest credit products – personal
loans and POS loans on the unsecured
side, and home equity and car loans
on the secured side . The secured part
of the portfolio grew from RUB5bn to
RUB48bn, now accounting for 15% of
total loans . These secured products will
we predict continue to be major drivers
of growth in future years . They have
great risk adjusted margins, are geared
to higher quality mass affluent custom-
ers, and are relatively capital light .
ROAE IS 55.9% AND TOTAL EQUITY
CLIMBED TO RUB 96.1BN
55.9%
17
2019 WAS ANOTHER RECORD-BREAKING YEAR FOR TINKOFF,
WITH EXCEPTIONAL BUSINESS DEVELOPMENT AND
FINANCIAL ACHIEVEMENTS.
Oliver Hughes
Chief Executive Officer
16
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CONTINUED
CEO STRATEGIC REVIEW
To capture these credit growth opportunities, in 2019 we
decided to tap the markets for US$300m of fresh equity and
RUB20 bn of debt financing alongside suspending our quarterly
dividend for 2 quarters . This equity fund raising, the first by a
Russian group for many years, was heavily oversubscribed and
delivered with a record low discount to MV . We thank all inves-
tors for their support and continued confidence in our business .
brand proposition led to a 54% year-on-year increase in retail
current accounts, which contributed to our funding costs declin-
ing 50 basis points to 5 .7% .
A word on asset quality
Our 2019 profitability was powered not only by the fast-paced
growth of the credit portfolio, but also by the ongoing scaling up
of our non-credit lines . I will give you a brief update of the main
ones here:
2019 was the first year since the 2014-15 crisis where Tinkoff
experienced a cost of risk increase year-on-year, from 6% to
8 .5% .
Despite some regulatory pressure on small business, our small
and medium sized (SME) business line closed the year with
535K customers and a record operating income of RUB4 .8
bn . Our product suite is increasingly geared to larger and more
profitable accounts, which should help to deliver high quality
growth of the SME business line into the future .
Tinkoff Insurance more than doubled its revenue and was one of
the fastest growing business lines in the Ecosystem, albeit from
a low base . This remains a tricky market but one that is we feel
prime to be disrupted .
Tinkoff Investments went from strength to strength, breaking
even in July 2019 and finishing the year with 1 .1 million indi-
vidual customers . We were the #1 retail broker on the Moscow
Stock exchange both in terms of account openings and active
customers . This is a highly engaging platform, with different
tariffs for different kinds of customers, with a Social Network
called ‘Pulse’ with over 100K users where investment ideas and
discussion forums are held . There is a wide selection of financial
assets on offer, some of which Tinkoff now provides ourselves
through our in-house asset manager Tinkoff Capital . This is a
business line we are particularly excited about as households
should continue to diversify their savings away from cash and
deposits .
Our online merchant acquiring business grew revenues by 57%
from RUB4 .2 bn to RUB6 .6 bn, as we consolidated our position
as the third largest online acquirer in Russia . This business line
is profitable, and we know how to grow it further .
Tinkoff Black, our current account business, has gone viral as
we added 2 .6 million customers . This product remains the key
feeder to our Ecosystem: in fact, more than 40% of our Tinkoff
Black customers use two or more Tinkoff products – and we
believe this is just the start .
Overall, despite the rapid growth, we managed to keep our
operating expenses and funding costs in check . As more of
our newer businesses hit break-even, our cost to income ratio
declined by nearly 5 percentage points in 2019, from 41 .9%
to 37 .1% . On the funding cost side, our attractive product and
There were several factors at play . First, the impact of frontload-
ing of provisioning due to the IFRS9 accounting standard, which
is especially meaningful on a fast growing portfolio . Second,
there was some re-leveraging of the Russian consumer in some
pockets of the population . This led to a softening of roll rates
– meaning that when customers went into delinquency, they
became slightly more difficult to collect and return to current
status . We identified this trend early on, sooner we feel than the
competition, and tightened our approval rates . The results of
these initiatives were seen in the fourth quarter of 2019, with
cost of risk declining to 8 .1% .
Fee and commission income (RUBbn)
+31.4%
36.0
3.5
6.6
8.2
9.6
27.4
1.6
4.2
6.4
7.6
+24.6%
9.4
1.1
1.5
2.3
8.6
0.7
1.6
1.9
8.3
0.6
1.4
2.1
7.8
0.4
1.5
1.7
10.3
1.3
2.0
2.3
2.4
2.0
2.2
2.5
2.8
7.6
8.2
1.9
2.1
2.2
2.0
1.9
2018
2019
4Q’18
1Q’19
2Q’19
3Q’19
4Q’19
Other
SME
Merchant acquiring
Credit-related
Debit cards
Our business has
never been more
sustainable and we
are in an excellent
position to grow it
further
Our business has never been more sus-
tainable . Here I don’t mean statistics like
responsible lending, CO2 emissions and
the profile of our workforce important
though they are . I mean fundamental
business sustainability . Our well targeted
spending on research and development,
our returns on capital expenditure,
renewing and expanding our tangible
and intangible facilities, our recruitment
and promotions of top talent to the key
Management team, building out our
Ecosystem .
Our credit portfolio has never been more
diversified . Our non-credit businesses
are gaining momentum and increas-
ingly contribute to our bottom line . Our
customer base is increasingly composed
of highly transactional, highly engaged,
young, urban customers . Our Super
App is best in class as is our customer
service capability . Our technology and
advancements in artificial intelligence
and machine learning power everything
we do at Tinkoff . We know how to acquire
customers with positive unit economics
and have very clear monetization strate-
gies . At the same time, we are extremely
alert to our responsibilities as a lender .
In 2019 a number of the policies and
practices we already had to prevent our
customers over-extending themselves
were refined and expanded .
So while 2019 was an exceptional year,
everyone at Tinkoff is extremely excited
and motivated for what is ahead as we
work to double our active customer base
to twenty million in the medium term .
My personal choice of business
highlights of 2019
As ever, a year has raced by but a few key moments stand out and I would like to bring
a few to your attention that show the perhaps surprisingly wide range of cutting edge
activities across the Group;
–
–
–
–
In September, Tinkoff launched
Pulse, a free social network for re-
tail investors which has been a
runaway success;
In September, Tink-
off reached a new milestone, is-
suing our 10 millionth Mastercard
card;
In October, Tinkoff held a hack-
athon in partnership with McK-
insey with a prize pool of RUB1 mn;
In October, Tinkoff GDRs were
admitted to trading on the Moscow
Exchange, making the shares more
accessible to Russian investors and
supporting liquidity and market
capitalization growth .
I am sure I have missed many that
deserve a mention: Ilya Pisemsky also
lists his choices elsewhere in this annual
report, in his Financial Review .
–
–
In February, Tinkoff Bank
was in the first wave of Russian
banks to launch the disruptive
Faster Payments System for its
customers . The CBRF introduced
the system to allow nationwide in-
stant P2P payments using mobile
phone numbers;
In July, Tinkoff Group raised
$300 mn gross in additional cap-
ital through a successful SPO that
was highly oversubscribed and saw
significant interest from inves-
tors across a variety of regions,
including strong demand from the
US;
– Also in July, Tinkoff launched
sales of proprietary Tinkoff Voice-
Kit text-to-speech and speech-
to-text technologies to corporate
customers;
–
In September, Tinkoff signed an
exclusive sponsorship contract
with Russian tennis ace Daniil Med-
vedev; and more recently signed
a title partnership agreement
with the Russian Football Premier
League covering the 2019/2020
and two following seasons;
Gross loans
279.7
38.6
234.7
36.2
198.5
241.1
63.6%
333.0
42.8
369.0
49.1
383.9
54.7
LLP
290.3
319.9
329.2
Net loans
4Q’18
1Q’19
2Q’19
3Q’19
4Q’19
18
19
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CONTINUED
CEO STRATEGIC REVIEW
OUR RECENT AWARDS
To close, I would like to thank the very
many people who have made contribu-
tions to the success that was 2019-our
customers, our founder Oleg Tinkov, the
core Management team, employees, in-
vestors, business counterparties and our
wide range of stakeholders, but above all
others our growing pool of customers .
THANK YOU!
Oliver Hughes
Chief Executive Officer
We know though how to handle ourselves
in all situations as we have demonstrated
time and time again for over a decade
and we factor crises into our planning as
a matter of course . But we are not com-
placent and we never let our guard down .
A long term ongoing project to which
we have devoted much time, thought,
expertise and resource is the Group’s
corporate governance and over recent
years we have tried to further enhance
our governance so that it is commen-
surate with the ever-changing size and
scope of the Group . We have always
striven to maintain the highest standards
of corporate governance at Tinkoff, to
go well beyond the legal minimum . In the
coming months we will reach a critical
stage in our evolving roadmap of chang-
es to enhance governance at the holding
company level and in a change perhaps
with past practice share it more widely in
advance . As well as legal input, we have
and will continue to seek investor input
into this process in order to incorporate
as much stakeholder feedback as pos-
sible . We will look for workable, robust
solutions to the more complex issues to
try to balance the interests of all parties,
as well as safeguarding the viability of
the business .
Looking ahead
More recently, we announced a capped,
tranched EUR 25m investment into a Eu-
ropean fintech start up venture that aims
to offer non-credit products to custom-
ers in Europe . It is too early to discuss
the details of this project, but watch this
space as our colleagues put our exper-
tise in building and growing a fintech
business to the test outside the CIS .
As we move into 2020, we believe
that we can continue to disburse high
quality loans with attractive risk adjusted
margins and returns and to grow our
non-credit business-lines further . You will
find a more detailed analysis of our 2019
financial results in the Financial Review
form our CFO, Ilya Pisemsky . I recom-
mend you read it .
I would like to wrap up with a word on the
current situation and some thoughts on
what is ahead more generally .
I referred earlier to the challenges we
face . Tinkoff has been in existence for 13
years and during that time we have been
tested by a number of different stress sit-
uations . These include the 2008-2009
global financial crisis, the 2014-2015
Russian crisis including a sharp RUB de-
valuation and a run on the banks across
the whole system, the collapse of many
Russian private banks, Tinkoff GDR, RUB
and commodities price volatilities, very
significant new regulations on retail
lending, the global spread of coronavirus
and no doubt there will be more . Our
crisis response teams have been acti-
vated more frequently than most of our
peers . Our crisis response teams, which
include many of the sharpest and most
imaginative minds in Tinkoff, of course
prepare for a wide variety of events and
combinations of events .
• Best Information Security and Fraud Management in Central and
• Global Service Quality Performance Awards
Eastern Europe
• Best Online Portal Services in Central and Eastern Europe
• Best Online Cash Management in Central and Eastern Europe
• Best Integrated Consumer Bank Site in Central and Eastern Europe
2018, Highest Authorisation Approval Rate –
Card Not Present (CNP)
• Global Service Quality Performance Awards
2018, Highest Authorisation Approval Rate –
Cross-Border Consumer Point of Sale (POS)
• Best Online Deposit, Credit and Investment Product Offerings in
• Global Service Quality Performance Awards
Central and Eastern Europe
• Best Corporate Digital Bank in Russia
• Best Consumer Digital Bank in Russia
• Best Consumer Digital Bank in Central and Eastern Europe
• World’s Best Corporate Digital Bank in Information Security and Fraud
Management
2018, Emerging Payment Adoption –
Contactless
• 1st place, Daily Banking category, Mobile Bank Rank 2019
• 1st place, Internet Banking Rank 2019 (Russia's best internet banks for
individuals)
• Best Investment Company (for the best
performance in the investment market
in 2019)
• Best Bank, People’s Rating of Banks
• Best Mobile Operator, People’s Rating of
Mobile Operators
• Quality Recognition Award (for the high quality of customer foreign
• Best Bank for Sole Proprietors
currency payments in 2019)
• Best Digital Premium Banking, Premium Banking Russia 2019
• Gold, Banking/Finance/Insurance
(for Investing is Simple, an advertising
campaign for Tinkoff Investments)
20
21
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 FINANCIAL REVIEW
Dear Investors
Last year I ended my Financial Review by saying 2018 had been an excellent
year, a year in which we could see tangible and very positive results 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 believed
had the potential to be even better than 2019 . And so it has proved, that
momentum continued all year-Tinkoff in March 2020 posted record high
profits for Q4 and full year 2019 . These results secure Tinkoff’s place as the
second largest player in the Russian credit card market, with a market share
of 13 .3% at 31 December 2019, though since it has increased further .
Following my previous course, I would like to bring to your attention some
particular highlights of 2019 before turning to the financial results . Al-
though many of these have a financial flavor, they also show up some of the
ground-breaking technological innovations that Tinkoff is involved, as well
as initiatives in educational outreach to retail investors . These we expect
will turn out to be the engines of future profitability .
My highlights must include:
In February 2019 Moody’s upgraded our rating to Ba3 with a stable
outlook; and in April the Russian National Analytical Credit Agen-
cy-ACRA-reaffirmed Tinkoff Bank’s rating at A(RU) with a stable
outlook;
In April we launched a 3-year RUB10bn local bond with a 9 .25%
coupon;
Also in April we launched a co-branded card with Yandex, offer-
ing up to 10% cashback for one of 15 services available through
Yandex .Plus;
at the same time we announced we had built the supercomputer,
the Kolmogorov cluster, the most powerful supercomputer among
financial institutions, reducing the time required for machine learn-
ing and AI-related tasks;
In June we launched Tinkoff Capital, the Group’s in-house asset
management company, to offer a range of proprietary ETFs;
•
•
•
•
•
•
•
•
I would now like to describe some of the main
trends and patterns that we observed in our
business throughout 2019 .
Assets growth RUBmn
+54.3%
14.1%
579.5
57.8
135.2
507.6
42.4
97.0
452.1
23.8
94.2
290.3
319.9
329.2
408.9
31.2
95.2
375.5
33.8
101.3
198.5
241.1
41.9
4Q’18
41.4
1Q’19
43.8
2Q’19
48.4
3Q’19
57.3
4Q’19
In July we closed a successful SPO on the LSE, raising USD300mln
in gross proceeds at a narrow discount;
Cash and cash equivalents
In October Fitch upgraded Tinkoff Bank’s credit rating to BB with a
stable outlook;
In October Tinkoff GDRs were admitted to trading on the Moscow
Exchange;
Investment securities and REPO
Net loans
Other
OUR MOMENTUM FROM 2018 CONTINUED ALL YEAR-TINKOFF
IN MARCH 2020 POSTED RECORD HIGH PROFITS FOR Q4
2019 AND FULL YEAR 2019
Ilya Pisemsky
Chief Financial Officer
22
and
•
In November/December Tinkoff Journal launched a free course
for novice investors, following up its earlier YouTube show ‘Money
Doesn’t Sleep’ .
These developments, aspects of our superior and innovative offer-
ing, are just some of the many which Management believe underpin
Tinkoff’s place as Russia’s leading fintech brand . They are the result of
many good decisions over many years and the stepping stone to future
progress .
23
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 solid growth in other components of the portfolio . That
said, credit cards remain a key core product for us and we
still see huge potential in this market .
The cash loan portfolio did not increase in the second half
of the year despite strong loan disbursement . The reason
for this is the high early repayment rate for cash loans at
the level of approximately 10% per month . Despite this
slowdown, this sub portfolio still grew by 65% year-on-
year . Looking forward into 2020, this part of the lending
business should be an essential middle point between
credit cards and home equity loans, allowing us to capture
all the upsell and downsell credit opportunities in terms of
size, duration and yield .
Home equity lending was a story of success in 2019,
growing profitably eleven-fold from a mere test into a
meaningful business line with over RUB 33bn loans dis-
bursed during the year and RUB 9bn loans repaid . State
of the art onboarding and collateral registration process-
es allowed good conversion rates and high NPS scores
from our applicants, which in turn led to relatively cheap
acquisition cost and positive selection in terms of risk .
Two loans have gone through the full repossession cycle
already, with apartments sold on the auctions by bailiffs
in early 2020 . In both cases, we lost no money despite the
loans going into default – testament to our strict under-
writing standards and low LTV .
CONTINUED
FINANCIAL REVIEW
The Group’s balance sheet
Traditionally I will start with the Balance Sheet compo-
sition . Total Assets of the Group grew by 54 .3% year-
on-year . The substantial growth in cash balances and in
the investment portfolio during the year was a result of
strong inflows from SME and retail current accounts . This
trend was especially pronounced during the fourth quarter,
pushing the balance sheet proportions towards a strong
balance of 33% in cash and securities at the year-end
with net loans at 57% of total assets . The structure of our
securities portfolio changed throughout the year towards
more state and quasi-state bonds, which now represent
more than 80% of the portfolio . Throughout the year we
built a significant positive revaluation on this portfolio -
part of it was realized during 2019 and we plan part of it
will be realized in 2020, positively contributing to our net
income in 2020 .
Our loan portfolio showed an impressive 63 .6% growth
for the year on a gross basis and 65 .8% growth for the
year on a net basis . This growth was driven by several
components of the credit book, including credit cards,
cash loans, POS loans and collateralized loans . SME
lending remains in test mode, but even there the results
are encouraging . The fourth quarter loan book growth was
a moderate 4 .1% as we rebalanced our channel mix and
managed cost of risk .
The credit card portfolio grew 38% year-on-year thanks
to strong customer acquisition efforts: we added 2 .4m
new activated credit cards in 2019 as a whole . The main
channels for distribution during the year were internet
and mobile, cross-sell and telesales . Despite showing
the strongest year-on-year growth in credit cards in our
history, the share of credit cards in the loan portfolio
declined to 61% of the net credit book, as a result of the
BY THE END OF 2019 TINKOFF BANK HAD ISSUED
OVER 15.2MN CREDIT CARDS
15,2mn
Cost of Borrowing
6.2%
6.2%
5.5%
5.8%
5.6%
6.3%
5.7%
4Q’18
1Q’19
2Q’19
3Q’19
4Q’19
2018
2019
Car lending is also developing strong-
ly and already became break-even in
the second half of the year . We target
two key sales channels here – offline
through dealerships in the regions
where we try to bundle our loan
product with car insurance and online
through car sale aggregators . Both
approaches seem to be working well,
so we will continue our efforts there
in 2020 .
The POS business surprised us
greatly in 2019 . Point of sale loans
is an important channel for cross-
sell and we were ready to tolerate
it being a mildly loss-making on a
standalone basis . However, constant
optimization of our product offering,
conversions and mix of partners led
this business to become profitable in
2019, with the portfolio growing 68%
year-on-year . We expect it to remain
profitable on a standalone basis in
2020 .
Cost of risk improved in the 4th quar-
ter after the mild deterioration seen
earlier in the year . This was due to
certain adjustments to our approv-
al and channel mix in the summer,
and a certain degree of seasonality
towards the end of the year . The NPL
ratio went up to 9 .1% which is still
lower than a year ago while loans 90
to 180 days overdue increased to
3 .3% of the gross portfolio .
Our funding base is growing strongly
mirroring asset growth . The total
funding balance of the Group grew
by 45 .5% year-on-year . Growth was
most visible in retail current ac-
counts, term deposits and funds from
SME customers which grew by 54%,
37% and 49% respectively during
the year . Most of the current account
money funds our treasury portfolio or
resides in cash, while term deposits
together with bonds and most of the
equity fund the loan portfolio . There
is an overlap in this fund distribution
as we use current account money to
fund shorter duration loans such as
POS loans and credit cards in grace
period . At year-end this overlap
constituted 20% of the gross loan
portfolio, the same as a year ago . Our
liquidity position therefore remains
exceptionally strong .
I would like to reiterate that the
Group holds a neutral currency
position with all long term liabilities
covered to maturity with FX swaps .
Shareholders’ equity increased
by 15 .2% in the fourth quarter to
RUB96 .1 bn thanks to strong quar-
terly profits and the suspension of
dividends for two quarters .
Our Basel ratios are in the 19% area .
Statutory ratios have increased after
the SPO and THE temporary dividend
suspension - the N1 .0 and N1 .1 ratios
went up to 12 .1% and 9 .5% respec-
tively . Going forward, we will target
N1 .0 above 12 .5% and N1 .1 above
9% . These are targets we believe we
can achieve while resuming our quar-
terly dividend payments this year .
Because of the low share of FX-de-
nominated assets and our USD-de-
nominated AT1 perpetual instru-
ments, the sensitivity of our capital
ratios to changes in RUB exchange
rate in 2019 was negligible .
The Risk Weighted Assets of the
Group are distributed amongst
credit, operational and market risks .
During the year our RWAs grew by
45%, mostly because of the credit
component, which has almost dou-
bled . We expect the retail book RWA
density to grow in 2020 from 168%
at the end of 2019 . This is due to the
gradual implementation of higher
risk weights announced by the CBR,
which will be in part be offset by an
increased proportion of secured
loans with 100% risk weight .
24
25
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 Now some comments on our fee and commission business .
In 2019 fee and commission income increased by 31%,
with impressive growth across all business lines and espe-
cially strong dynamics in the growth of insurance premia
earned .
With over 7 million customers and with almost RUB212bn
of balances, our current account business contributed
RUB8 .2bn in fee and commission income in 2019, net of
the cashback that we return to our customers . We contin-
ue to develop this product as the cornerstone of subse-
quent cross-sell opportunities . Our present intention is to
keep our bottom-line result for this business at break-
even . We see more value in growing the customer base
and in the potential synergetic effect with other business
lines rather than as a source of pure net income .
Our SME business is developing at a good pace, bringing
us new customers, which in turn increases the transaction
volumes . At the end of 2019 we had 535K customers with
over RUB60bn in balances on SME current accounts . We
earned RUB9 .6bn in fees during the year in addition to
treasury income . The SME lending business is still in test
mode with a total loan balance of about RUB1 bn .
CONTINUED
FINANCIAL REVIEW
Profit and loss statement
Now I will turn to the Income Statement and our revenue
dynamics . Compared to 2018 our revenue grew by 45%
to RUB165 bln, with the share of revenue from credit busi-
ness lines declining from 68% in 2018 to 67% in 2019
despite the strong growth of the credit business . This
trajectory we believe should continue into 2020 .
In 2019 interest income grew by 43% . Our headline gross
interest yield on the credit portfolio decreased from
36 .0% to 32 .1%, mostly due to the more rapidly growing
part of non credit card loan portfolio . It is likely that dur-
ing 2020 gross yield will continue to gradually move down
as a result of the changing portfolio mix .
Interest expenses grew by 38% year-on-year compared
to 45+% growth of the average funding base . Our blended
cost of borrowing declined from 6 .3% to 5 .7% thanks to
large inflows of cheaper retail and SME funding sources .
Net interest income increased by 45% in 2019, while net
interest margin went down to 21 .6% and our risk-adjusted
net interest margin decreased to 14 .9% . This was due
to the reduction in the gross yield explained earlier and
growing cost of risk, which went up into the 9% area dur-
ing the summer and went down into the 8% area during
the 4th quarter . Cost of risk for the year increased from
6% to 8 .5%, leading to an 8bn RUB negative pretax effect,
amounting to 17 .5% of our pretax profit . Nonetheless,
even at this level of cost of risk we continue to see many
NPV positive lending opportunities .
Net interest income RUBbn
+44.6%
+46.1%
86.8
21.8
23.3
23.6
60.0
18.1
16.1
2018
2019
4Q’18
1Q’19
2Q’19
3Q’19
4Q’19
TINKOFF BANK ISSUED OVER 7.1MN
DEBIT CARDS AT YE2019
DEBIT CARDS
>7.1mn
So I believe this gives you a fair picture of FY2019, a year
which was in many ways a year of continuity . Further build-
ing out of the Ecosystem and expanding our non-credit
business lines, while achieving a great many important
technological milestones; these combined with hard
work from the entire Management team and insightful
and timely decision-making delivered excellent financial
results . FY2019 as the latest in a string of record breaking
years may prove a hard year to beat, but we in Tinkoff
can assure you every effort will be made to do so . We are
confident that we will deliver in 2020 .
Our investment business is profitable and is growing
remarkably fast . Over a million customers opened
accounts on our Tinkoff Investments platform, with
quarterly transaction volumes exceeding 500bn
Rubles compared to RUB77bn a year ago . The total
balances held on accounts has tripled over a year to
over RUB53bn . Fee income grew almost 5 times if
we compare Q4 2019 with Q4 2018 . While this busi-
ness’s contribution to Group results was still margin-
al in 2019, we are optimistic about its prospects in
2020 and onwards . We will continue to develop our
platform, product proposition and grow our custom-
er base into 2020, as always, trying to find a fine line
between the profitability and growth .
Now some comments regarding operating expenses . In the
recent quarters you can see that our costs were relatively
flat which had a positive effect on our operating efficien-
cy, with the cost to income ratio declining almost 5% for
the year from 41 .9% to 37 .1% . Total administrative costs
grew 28 .9% year-on-year, which is only 60% of our top
line growth and only 53% of asset growth . This is testa-
ment to the business’s ability to keep lean and to show
economies of scale .
Last but by no means least, profits . The Group yet again
achieved a quarterly record profit of RUB11bn in Q4
2019 and RUB36 .1bn for the full year 2019 which is 33%
higher than for 2018 . Return on equity of 55 .9% remains
industry leading despite the significant increase in our
equity base . Return on assets remained at an impressive
8% despite an outstanding liquidity buffer of 33% of total
assets .
Ilya Pisemsky
Chief Financial Officer
26
27
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 ASSET, LIABILITY AND RISK
MANAGEMENT
The purpose of the Group’s asset, liability and risk management (“risk management”) strategy is to evaluate, monitor and man-
age the risks arising from the Group’s activities . The main types of risk inherent in the Group’s business are credit risk, market
risk, which includes foreign currency exchange risk, interest rate risk and liquidity risk . The Group designs its risk management
policy to manage these risks by establishing procedures and setting limits that are monitored by the relevant departments .
Risk Management Organisational Structure
The Group’s risk management organisation is divided between policy making bodies that are responsible for establishing risk
management policies and procedures (including the establishment of limits) and policy implementation bodies whose function
is to implement those policies and procedures, including monitoring and controlling risks and limits .
Policy Making Bodies
The policy making level of the
Group’s risk management organisa-
tion consists of the Board of Direc-
tors, 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
The Board of Directors is responsible
for the creation and supervision of
the operations of the internal control
system of the Group and approves
the Group’s credit policy (“Credit Pol-
icy”) 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 Direc-
tor, Chief Financial Officer, Chief Ac-
countant, Chief Legal Counsel, Chief
Operational Officer and Head of Pay-
ment Systems, has overall responsi-
bility for the Group’s asset, liability
and risk management operations,
policies and procedures . The Man-
agement 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 Management Board
appoints members of the Finance
Committee and Credit Committee .
Finance Committee
The purpose of the Finance Commit-
tee is to ensure the long-term eco-
nomic effectiveness and stability of
the Group’s operations . The Finance
Committee establishes the Group’s
policy with respect to capital ade-
quacy 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 respect to individual loan prod-
ucts . The Finance Committee must
consist of at least five members
(currently there are seven members)
and the Chairman of the Manage-
ment 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 .
Credit Committee
The Credit Committee supervises
and manages the Group’s credit risks .
With respect to credit cards, the
Credit Committee approves the con-
sumer lending policy, the underwrit-
ing methodologies and the scoring
models used for assessment of the
probability of default, the initial cred-
it 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 de-
cision by a simple majority vote of all
the members present provided that
a quorum of at least half of the mem-
bers of the Committee is present .
Business Development Committee
The Business Development Commit-
tee is responsible for the devel-
opment, 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 proce-
dures and the pricing of the Group’s
loan products . This Committee con-
sists of 12 members appointed by
the Management Board . It meets on
a weekly basis and makes its deci-
sions by a simple majority provided
that a quorum consisting of at least
half of the appointed members of
the Business Development Commit-
tee is present .
THE GOAL OF THE GROUP’S RISK MANAGEMENT FUNCTION IS TO IDENTIFY POTENTIAL PROBLEMS
BEFORE THEY MATERIALIZE AND HAVE A PLAN FOR ADDRESSING THEM IF AND WHEN, AND IN
THE FORM, THEY DO. COVERING BOTH INTERNAL AND EXTERNAL RISKS WHICH MIGHT HAVE AN
ADVERSE IMPACT ON THE GROUP, THE GROUP’S APPROACH CAN BE STRIPPED DOWN TO FOUR
ESSENTIALS: DEFINING A RISK MANAGEMENT STRATEGY, IDENTIFYING AND ANALYZING AND RE-
ANALYZING RISKS, PRO-ACTIVELY MANAGING RISKS THROUGH IMPLEMENTING THAT STRATEGY
AND DRAWING UP A CONTINGENCY PLAN AND/OR PREVENTATIVE MEASURES.
Policy Implementation Bodies
Management Reporting Systems
The policy implementation level of the Group’s risk man-
agement organisation consists of the Finance Department,
the Risk Management Department, the Collections Depart-
ment and the Internal Control Service .
Finance Department
The Finance Department is responsible for managing
correspondent accounts, daily currency liquidity, money
transfer control and daily money transfer modelling to sup-
port 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 .
Risk Management Department
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
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 .
Internal Control Service
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 .
The Group has implemented an online analytical process-
ing 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 informa-
tion 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 per-
formance versus budget and operational risk reports .
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 combina-
tion of macroeconomic and geopolitical factors such as
a significant decline in the price of oil, ongoing political
tension in the region, economic sanctions imposed against
Russian individuals and companies, economic restrictions
imposed by Russia on other countries, capital outflows
as well as depreciation of the Rouble and a decrease in
Russia’s international reserves . In addition emerging mar-
kets 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 .
28
29
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CONTINUED
ASSET, LIABILITY AND RISK
MANAGEMENT
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 .
Credit Risk
The Group is exposed to credit risk,
which is the risk that a customer will be
unable to pay amounts in full when due .
Credit risk arises mainly in the context
of the Group’s consumer lending
activities .
The general principles of the Group’s
credit policy are outlined in the Credit
Policy approved by the Board of 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 creditworthiness
(“scoring”) . The system is regularly mod-
ified 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 Feder-
ation;
•
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
product to a potential customer is
made automatically, based on the
credit bureaus information, verification
of the customer’s identity and credit
score of the applicant calculated using
one of the acquisition channel-specific
scoring models . In very rare cases,
decisions to issue credit cards to high
income or high net worth customers
are taken manually by members of the
Credit Committee, but the number of
loans granted under such circumstanc-
es 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
provided by the applicant in their appli-
cation form . This includes confirming
the applicant’s identity, for example
through the telephone numbers from
the credit bureau report; investigation
of the applicant’s financial situation
during a phone interview; and verifica-
tion of employment details (including
verification that an applicant’s employ-
er is an officially registered legal entity,
review of the employer’s website to
make sure that this entity exists and
continues to operate, confirmation
of the applicant’s employment using
telephone numbers of the legal entities
from their registrars and, wherever
possible, verification of the appli-
cant’s declared income with his or her
employer) . As part of the verification
process, the Group’s loan officers also
gather as many phone numbers linked
to the applicant as possible (land-line
and mobile, personal and that of a
friend and/or a relative) to facilitate
future collection efforts .
Credit Bureaus – Subject to the prior
consent of the 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 .
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 passport 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 ex-
ample, 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 statistical
models that rank all applicants accord-
ing 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, education and marital status),
(ii) payment history, when available – both
positive and negative – from the three
largest credit bureaus in Russia, (iii) chan-
nel-specific marketing and behavioural
information (for example, device used to
fill in the application form, time between
application and first call and the amount
of time a web visitor spends on a website) .
Application of the NPV Model and Final
Decision – the Group has developed
acquisition channel-specific models that,
among other things, estimate a potential
customer’s net present value 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 ac-
quisition channel, and taking into account
such customers’ estimated behaviour
characteristics, initial credit limit and tariff
plan, the models estimate the Group’s
future cash flows from each customer by
modelling his or her behaviour in respect
of, among others, credit limit utilisation
levels, transactional activity, share of
cash withdrawals in total card activity
and repayment rates . The Group takes a
NPV-positive approach to approval of all
applications, which means that an appli-
cation is approved only when the potential
customer’s net present value from the use
of his or her credit card is positive . For all
NPV calculations a discount rate of 30 per
cent . is used .
The Group also maintains a flexible initial
limit allocation system that allows it to
reduce or increase the average initial
limits in order to manage anticipated loan
losses and liquidity .
Credit Line Management Procedures
Credit line management procedures for credit card products include the following:
Initial Credit Line Calculation
Loan Collection
The customer’s initial credit limit depends
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 .
Regular Update of Credit Line
Once the Group has received at least
three minimum payments from a new cus-
tomer 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 de-
fault, the credit limit may be increased . For
premium customers the credit limit may
be increased further .
The Group employs a multi stage
collection process that seeks to achieve
greater efficiency in the recovery of
overdue credit card loans . Collections on
loans that are overdue by 0 to 90 days
are performed by the Group’s internal
Collections Department . After 90 days of
delinquency, when it is clear that the early
collection efforts are unlikely to be effec-
tive, 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
external collection agencies .
The Group’s collections methodology is
based on customer behaviour and cor-
responding collection scores . Under this
approach, at initial stage of collections
(pre collections and early collections),
delinquent customers are allocated to
one of three groups depending on their
risk profile (high risk of default, medium
risk of default and low risk of default) . This
enables the Group to apply a variety of
collections tools and collections treat-
ments to different groups of delinquent
customers .
All of the stages described below may be
accelerated in cases where the Group has
grounds to believe that the delinquent
customer will not repay the debt voluntar-
ily 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-per-
forming 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 as-
set quality that provides early indication
of how non-performing loans levels and
provisions might change in the future .
30
31
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CONTINUED
ASSET, LIABILITY AND RISK
MANAGEMENT
Pre Collections (Four Days Prior to
Due Date). The Group sends to all
customers a reminder about forth-
coming payments 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 col-
lections 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” collections . 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” collec-
tion stage is to identify and assess the
reasons why the customer has missed
Fraud Prevention
The Group maintains a fraud prevention
strategy which is based on the identifica-
tion and fraud monitoring .
Access to customers’ accounts is
secured via smart identification sys-
tem, which takes into account various
customer profile parameters, including
information 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
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 provides
temporary relief from credit card re-
payments for a period that usually does
not exceed three months to borrowers
with temporary financial difficulties but
with a positive credit history . Monthly
minimal payments are reduced to
an amount that a borrower is able to
repay during the relief period .
Non-Performing Loans Management.
When loans are overdue by more than
90 days, the Group collection efforts
consists of (i) the restructuring of
credit card debt to personal instalment
loans, which is the preferred option of
the Group to handle such delinquency,
or, if customers do not agree to such
restructuring, then either (ii) collec-
tions through courts with the enforce-
ment of judgments with the help of
the Federal Service of Court Bailiffs of
the Russian Federation or (iii) sales of
non-performing loans to its internal
collection agency (Feniks) or external
collection agencies .
Conversion of Credit Card Debt to
Personal Instalment Loans. Conver-
sion of credit card debt to personal
instalment loans was first introduced
by the Group in 2010 . This programme
is based on regular instalments paid by
delinquent customers . After consulta-
tions with the delinquent customer, the
Group fixes the outstanding amount of
the debt under the credit card loan and
offers the customer an option to repay
his or her debt in monthly instalments
during a period limited to 36 months .
Recoveries through the Courts. The
Group applies to courts through mail-
ing standardised claims rather than
appearing before a court to enforce
overdue loans . The Group considers
these generally straightforward and
quick court proceedings as a preferred
alternative to collection agency ser-
vices in those locations in which court
decisions can be obtained in approx-
imately three months or faster . Most
courts in Russia are able to resolve
court cases initiated by the Group
within this time framework .
Sales of Non-Performing Loans to
Collection Agencies. Typically, loans
delinquent for more than 150 days
and not converted into instalment
loans or being resolved through claims
submitted to the courts, and loans with
court orders with low collection rate
are sold to in-house Feniks collection
agency . In rare circumstances limited
loan portfolios are sold to external
collection agencies .
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 au-
thentication system is used to verify the
identity of a caller . The system is based
on the NICE Real-Time Voice Authentica-
tion System by Nice . The system is syn-
chronised with the universal authentica-
tion manager processing customer calls
to the centre . This technology enables
customer voice identification during a
regular phone call, reducing verification
time from 40 seconds to 7 seconds . This
dramatically improved customer experi-
ence by saving customer time and helped
to reduce traffic costs and enhance secu-
rity, 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 authenticate a sim
card .
Unauthorised operations are prevented
by fraud monitoring system, which is
based on IBM Safer Payments solu-
tion . The system allows to effectively
prevent fraud at various stages of a
payment process using a cross-channel
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 application
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 es-
pecially important for customers abroad .
Estimation of credit loss allowance for expected credit loss
Estimation of credit loss allowance
for expected credit loss (ECL) is
performed in accordance with IFRS 9
from 1 January 2018.
The Group assesses on a forward-look-
ing basis the ECL for debt instruments
(including loans) measured at amor-
tised cost (AC) and Fair value through
other comprehensive income (FVOCI)
and for the exposure arising from loan
commitments and financial guarantee
contracts .
The Group applies a “three stage” model for impairment in accordance with IFRS 9,
based on changes in credit quality since initial recognition:
1) 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”) .
2) If the Group identifies a significant increase in credit risk since initial recogni-
tion, 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 expect-
ed prepayments, if any (“lifetime ECL”) .
3) If the Group determines that a financial asset is credit-impaired, the asset is
The measurement of ECL reflects:
transferred to Stage 3 and its ECL is measured as a lifetime ECL .
As an exception, for certain financial instruments, such as credit cards, that may
include both a loan and an undrawn commitment 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 . peri-
od extends beyond the maximum contractual period .
1) an unbiased and probability weight-
ed amount that is determined by
evaluating a range of possible
outcomes;
2) the time value of money; and
3) 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 .
32
33
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CONTINUED
ASSET, LIABILITY AND RISK
MANAGEMENT
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
Standard loans, without credit risk
Non-standard loans, moderate credit risk
Doubtful loans, considerable credit risk
Problem loans, high credit risk
Bad loans
0
1-20
21-50
51-100
100
Write Off Policy
The Management Board makes decisions on loans to be
written off based on information provided by the Risk
Management Department . Generally, loans recommended to
be written off are those in respect of which further steps to
enforce collection are regarded as not economically viable .
Loans sold to external collection agencies are also written
off from the Group’s balance sheet .
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 fluctu-
ations in the prevailing levels of market
interest rates on its financial position
and cash flows . Interest margins may
increase as a result of such changes,
but may also decrease or create losses
in the event that unexpected move-
ments arise . The Group’s management
monitors on a daily basis and sets lim-
its 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 .
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 con-
trolled 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 .
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 cer-
tainty . 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 . 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 No-
vember 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 .
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 minimum statuto-
ry ratio permitted by the CBR is 15
per cent .
Current liquidity ratio (N3), which
is calculated as the ratio of liquid
assets to liabilities maturing within
30 calendar days . The minimum
statutory ratio permitted by the
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 liabilities
maturing after one year . The max-
imum statutory ratio permitted by
the CBR is 120 per cent .
Credit
risk
Market
risk
Operational
risk
RISK
MANAGEMENT
Foreign
currency
exchange
risk
Liquidity
risk
Interest
rate risk
34
35
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CONTINUED
ASSET, LIABILITY AND RISK
MANAGEMENT
For purposes of managing the Group’s
liquidity risk, the CFO regularly
receives extensive information about
the liquidity profile of the financial
assets and liabilities . Monitoring of
the Group’s liquidity position includes,
among other things:
– Monthly credit card loan portfolio
trends monitoring, 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 sufficient liquidity is main-
tained within the Group as a whole .
The Group’s assets and liabilities
management and liquidity policy takes
into account certain relatively stable
characteristics of the credit card loan
portfolio, such as, among others, (i)
regular monthly repayments of a pre-
dictable % of outstanding receivables,
(ii) average utilization of a predicta-
ble % of the total portfolio limit, (iii)
average utilization of a predictable
% of any 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 decreas-
ing delinquency rates resulting in
increases in both repayments and
transactions and (vi) seasonality, with
a spike in usage in December of each
year and a slowdown in usage in Janu-
ary 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 pro-
vide immediate liquidity to the Group .
All current accounts of individuals are
classified within demand and less than
one month .
The allocation of deposits of individ-
uals considers the statistics of auto-
prolongations and top-ups of longer
deposits with the funds from shorter
deposits after their expiration in case
when the customers have more than
one active deposit . The matching
and/or controlled mismatching of the
maturities and interest rates of assets
and liabilities is fundamental to the
management of the Group .
It is unusual for banks ever to be com-
pletely matched since business trans-
acted is often of an uncertain term
and of different types . An unmatched
position potentially enhances profita-
bility, but can also increase the risk of
losses . The maturities of assets and
liabilities and the ability to replace, at
an acceptable cost, interest-bearing li-
abilities 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
COVID-19
The existence of COVID-19 was con-
firmed in early 2020 and has spread
across China, to Russia and beyond,
causing disruptions to businesses and
economic activity . Governments in
affected countries are imposing travel
bans, quarantines and other emergen-
cy public safety and fiscal measures .
Those measures, though temporary
in nature, may continue and increase
depending on developments in the
virus’ outbreak .
The Group has put contingency plans
in place both to protect the workforce
and ensure that we mitigate the impact
of COVID 19 . For instance, currently,
our employees are mainly working
from home due to travel restrictions
imposed by governments . The ultimate
severity of the Covid-19 outbreak is
uncertain at this time, and therefore
the Group cannot reasonably esti-
mate the impact it may have on future
operations . However, our technolo-
gy systems continue to operate to
the high levels we demand and the
Group has high levels of both liquidity
and capital reserves . Therefore, the
Directors have concluded that there
is currently no material impact on the
Group’s operations and liquidity at the
time of publication of this report as a
result of COVID-19 .
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 ma-
terial operational failures in recent years .
In order to minimise potential losses
from such failures, ensure business con-
tinuity in case of disruption to IT systems
and provide reliable and continuous
access to business data and services, the
Group’s IT systems are located 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 physically
separate data centre . Both data centres
provide 24 hours a day, seven day a
week, year round power, cooling, connec-
tivity 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 stand-
by for critical systems such as process-
ing and transaction authorisation .
Data connections to the data centres
are 100 per cent . reserved via separate
physical lines .
Anti-Money
Laundering and
Terrorist Financing
Procedures
As a member country of the FATF, Russia
adopted the Anti-Money Laundering
Law . Subsequent to the adoption of the
Anti-Money Laundering Law, the CBR
promulgated a number of anti-money
laundering regulations specifically for the
banking sector .
The Group has adopted internal regu-
lations on anti-money laundering that
are based on, and are in full compliance
with, the requirements of the Russian an-
ti-money laundering regulations, related
instructions of the 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
coordinates activities aimed at preventing
money laundering and terrorism financing .
The Group conducts identification and
review of its customers, customer’s rep-
resentatives, beneficiaries and beneficiary
owners, money laundering and terrorism
financing risk management, personnel
training as well as daily analysis of bank-
ing operations, verifies information on
operations that are subject to monitoring
and sends all required information to the
relevant state authorities . Employees
of the Group have to take mandatory
training on the Group’s policies and pro-
cedures for preventing money laundering
and terrorism financing both as part of
the initial training after being hired and as
part of the subsequent training activities .
Mandatory internal control checks are
conducted by the Group’s Internal Control
Service . External control is provided by
the 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 .
36
37
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CORPORATE SOCIAL RESPONSIBILITY
TCS Group contributes to the achievement of the 17 Sustain-
able Development Goals adopted by the United Nations . We
also strive to be an environmentally friendly company and in
2019 launched several environmental initiatives for our em-
ployees . The Company's DNA is particularly closely aligned to
the following goals:
– GOOD HEALTH AND WELL-BEING;
– HIGH QUALITY EDUCATION;
– HEALTHY WORK ENVIRONMENT AND ECONOMIC
GROWTH;
–
INDUSTRY, INNOVATION AND INFRASTRUCTURE.
Tinkoff Moscow open 2019
GOOD HEALTH AND
WELL-BEING
In 2019, we launched T-life, a comprehensive programme
that covers 5 key elements of well-being (physical health,
emotional comfort, professional development,personal
finances and social life) . The initiative is aimed at devel-
oping employees and increasing involvement in corporate
programmes .
Support for sports initiatives
In 2019, Tinkoff continued to actively support sporting
events and promote action sports in Russia .
The three largest and most important events supported by
the Company have been gaining in popularity every year:
1 Tinkoff Rosafest alpine ski festival
Tinkoff Rosafest 2019 key results:
– more than 12,000 attendees;
–
of whom more than 2,000 took part in The Game quest;
– more than 10,000 prizes;
– more than 1,600,000 online viewings of the night free-
style show .
2 Quiksilver NewStarCamp snow festival
More than 5,000 participants
Tinkoff sponsored the construction of Russia’s largest snow
park for athletes and snowboarding enthusiasts featuring
kicker lines of two levels of difficulty, a very large big-air
course, two downhill tracks and 30 various surfaces for jibs .
The professional freestyle competitions which were a part
of Quiksilver New Star Invitational Powered by Tinkoff were
traditionally held on the 20-metre springboard .
3 Tinkoff Moscow Open Basketball Tournament
in Gorky Park:
– 20,000 fans;
–
Professional tournament featuring 16 men's and 6
women's teams;
– Amateur tournament featuring 407 teams
(1,628 people);
– About 200,000 viewings .
In order to maintain the Company’s
path towards well-being, Tinkoff
organises and supports various
environmental initiatives
1) In all Tinkoff offices, we have been collecting plastic caps for
the second year in a row as part of the Dobrye Krishechki
charity project . The project was organised by the“Otkazniki .
Volunteers to Help Orphans” Charitable Foundation . The
caps are handed over to a plastics processing plant, and
wheelchairs and supplies for foster children with disabilities
are purchased with the proceeds . In 2019, we collected more
than 500 kg of plastic caps . The fund directed the proceeds
to purchase a wheelchair for a child from a foster family .
2) At all Tinkoff offices, we have been collecting used batteries .
In 2019, we were able to collect and hand over for recycling
more than 200 kg of batteries .
3) Charity Garage Sale for the Second Wind Charitable Foun-
dation and Charity Shop(Vtoroe Dihanie) . The foundation
implements an environmental programme for the process-
ing of non-waste clothing .
We welcome the personal responsibility and initiatives of em-
ployees and do our best to facilitate them . Tinkoff sometimes
helps by providing additional funds or allowing the use of its
premises, as well as coordination and organizational support .
The following is just a snapshot of the many such events, right
across Russia . For two weeks, Tinkoff employees brought
books, electronics, and various other items which they no
longer needed, and set the expected value for these items .
After the items were sold, donations from Tinkoff’s employees
were reflected on participants’ personal cards . After the sale,
Tinkoff recommended donating at least 50% of the amount
which had been received . Each employee independently
decides what percentage of the proceeds to donate .
Together we managed not only to have a good time, but also
to find new owners for various items and gadgets that were
brought in, as well as to sign New Year's greeting cards for
elderly people with no relatives .
The event was attended by more than 150 employees who
collected and donated more than 100 kg of clothes, shoes,
gadgets and books for low-income families in the regions,
and also collected 116,500 rubles of donations for charities .
One Tinkoff employee, who is also a volunteer environmental
consultant, held a public environmental talk on personal
responsibility for the environment, sustainable consumption
and the cyclical economy .
“Good bottlecaps” ( “Dobrye Krishechki”)
project at Tinkoff Group offices
4) More than 300 employees took part in fundraising efforts
ahead of the New Year . Employees took part in the Be
Useful in 2020 campaign (S polzoy v 2020), during which
they raised over 346,000 rubles in favor of four charitable
foundations .
Children supported by the Find a Family charity founda-
tion (Naydi Semiu), orphans from foster care received
much-needed medicines, medical examinations, special
spectacles frames, therapeutic massage, as well as classes
with a phlebologist and neuropsychologist .
Сhildren with mental illnesses supported by the Masters and
Margarita social workshop received essential materials for
the workshop: utensils and everything for baking, tools for
modeling and drawing .
Children with Down syndrome and mental illnesses support-
ed by the Centre for Clinical Education (Tzentr Lechebnoy
Pedagogiki) received the necessary materials for classes:
developmental and educational books, albums, paint sets
and felt-tip pens for drawing .
38
39
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
CONTINUED
CORPORATE SOCIAL RESPONSIBILITY
Fintech school and internship
graduation ceremony
HIGH QUALITY
EDUCATION
Tinkoff educational
programmes for
schoolchildren and
students
2019 was the fourth year of the
successful implementation of Tinkoff
educational programs for schoolchil-
dren and students . The main goal of
educational programmes is to show
best industry practices to the most
talented and motivated schoolchildren,
university students and graduates from
all over the Russian Federation . All
programmes are free . Tinkoff Educa-
tion has had a government license for
educational activities since July 2019 .
1) Tinkoff Fintech – blended learn-
ing IT and analytics courses for
students . In 2019, we organised 40
courses for students and graduates
in 8 cities (Moscow, Saint Peters-
burg, Izhevsk, Ekaterinburg, Nizhniy
Novgorod, Novosibirsk, Rostov-
on-Don, Ryazan) with more than
1,000 participants . 526 students
successfully completed the courses,
and 116 were hired by Tinkoff . We
offered 18 unique courses such
as Front-end development, iOS &
Android, Python, Kotlin, Scala, Java
to Scala, QA Automation, Site Reli-
ability Engineering (SRE), Product
Design and Project Management in
Fintech and Product Analysis, and
others .
5) About 40 employees went to a home
near Moscow for seniors with no
relatives and disabled people to wish
them a Happy New Year . The em-
ployees together with their children
organised a concert, sang, danced,
and recited poems . Then they all
played board games together and
exchanged warm wishes .
For the Old Age in Joy Foundation
(Starost v radost), New Year's gifts
were purchased for 67 seniors . For
those bedridden, the organisations
purchased much needed hygiene
and medical supplies . All gifts were
bought with donations from our
employees .
6) Colleagues from the regions organ-
ise local social events . For example,
employees from Yekaterinburg
went to a home for seniors wih no
relatives and people with disabilities
together with Old Age in Joy Foun-
dation (Starost v radost) .
Employees from St . Petersburg
organised a fundraiser to purchase
equipment for the Lisa Alert search-
and-rescue volunteer organisation .
In addition, employees raised funds
to buy hygiene products for the Ad-
Vita fund that helps cancer patients .
7) For the first time, in December 2019,
a Charity New Year Fair was held in
all of Tinkoff’s Moscow offices .
More than 500 employees took part
in the event . 11 charitable foun-
dations brought their New Year's
souvenirs and gifts . The foundations
managed to collect donations of
over 350,000 rubles . In this way, we
helped foundations helping orphans,
seniors with no relatives, children
with mental illnesses, hospices for
adults and children, social work-
shops for disabled people and single
mothers .
8) Tinkoff shares the importance of
consumer awareness and environ-
mental responsibility . In the Com-
pany’s offices, the amount of paper
workflow is minimised . In October
2019, we changed the manufactur-
er of office paper . The paper now
used is certified according to two
environmental standards, FSC and
EU Ecolabel .
40
First MIPT-Tinkoff Masters program
graduating class
2) Tinkoff Generation – blended
learning informatics and mathe-
matics classes for schoolchildren .
We have 4 streams for schoolchil-
dren: Mathematics for Olympiads,
Algorithms and data structures,
Machine learning and Deep learning
in 7 cities (Moscow, Saint Peters-
burg, Izhevsk, Ekaterinburg, Nizhniy
Novgorod, Rostov-on-Don, Ryazan) .
We worked with 549 schoolchildren
82 of whom became participants of
the All-Russian Student Olympiad in
mathematics, informatics, econom-
ics, physics and even astronomy .
The All-Russian Student Olympiad is
the most prominent and well-known
competition for schoolchildren in
Russia . Last year 39 school stu-
dents we work with participated in
the All-Russian Student Olympiad,
5 of them won gold medals and 12
won silver medals in informatics,
one student also won the silver
medal in mathematics . Tinkoff
Generation today is the biggest
community of gifted and motivated
schoolchildren under the patronage
of a private business company .
3) Partnership with Educational Centre
Sirius . Sirius is the top govern-
ment-initiatiated project for sup-
porting talended children . Tinkoff
is a partner at the Big Challenges
Programme which is the largest
scale programme for schoolchildren
in Russia aimed at innovation in
priority scientific and technologi-
cal areas . In July 2019, a group of
schoolchildren under the mentor-
ship of our employees produced
a prototype of an optimisational
algorithm and an app for sched-
uling meetings between Tinkoff’s
representatives and clients . This
prototype was implemented and
successfully tested in two small
towns: Tula and Saransk .
4) Additionally, Tinkoff has two annual
programs for students . In 2019,
these programs included Project
management and Analytics in
Fintech and a two-week educational
module held in April and November .
5) Tinkoff Academy – educational
programs for Universities . We have
a master’s degree programme
in partnership with the Moscow
Institute of Physics and Technology .
There are three majors:: Machine
Learning, Analytics and Scala
Development . We also introduced
two new courses at the Department
of Mechanics and Mathematics at
Moscow State University: Applied
data analytics and Industrial data
science .
6) We also support Summer computer
school and other summer and win-
ter schools for schoolchildren in dif-
ferent regions of Russia . We share
both financial aid and organisational
support and expertise with different
locals Olympiads in informatics and
mathematics .
Finopolis youth program hackathon
41
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
CONTINUED
CORPORATE SOCIAL RESPONSIBILITY
HEALTHY WORK
ENVIRONMENT AND
ECONOMIC GROWTH
We create jobs for many thousands
of throughout all parts of Russia
In addition, we gave 1,050 New Year's gifts for our partners
made by regional social enterprises united by the Buy Social
team . The honey that we ordered for the gifts gave work to
seniors in the village of Maly Turysh in the Urals . Chocolate
with honey that we purchased for the gifts was produced by
people with disabilities in the village of Gagarinskaya new
settlement near the city of Pereslavl . Christmas toy lanterns
were made by people with mental illnesses in the Artel of the
blessed workshop . Tinkoff spent nearly 900,000 rubles on
this project , which provided work for these people .
In early February of 2020, 30 work computers and com-
puter parts were donated to a charity in Ryazan . Tinkoff’s
Ryazan office helped the social services center in Ryazan and
the Ryazan region . The center is supervised by the charity
foundation Starost v radost (Old Age in Joy) and provides
assistance to seniors with no relatives in their region .
INDUSTRY, INNOVATION AND
INFRASTRUCTURE
1) We continue to promote various charitable foundations
among our customers . In 2019, the number of chari-
table non-profit organisations customers may provide
donations for increased from 168 to 294 . Customers can
make a donation through Tinkoff .ru or our mobile appli-
cation, both in the form of regular payments throughout
the year and/or a one-time fixed contribution . In 2019, the
number of money transfers to charitable foundations by
our customers increased from 34,000 to 72,000 . Tinkoff
Bank does not charge a commission on these payments .
2) Through our projects, we help a large number of people
recognise and participate in solving social problems . From
5 April to 30 December 2019, Tinkoff was involved in a
joint project with the Gift to Angel Charitable Foundation
“The most important thing is to dream!” is a project aimed
at socialising and motivating children with developmental
disabilities .
Charity New Year Fair for employees
The main objective of the project is to draw people’s
attention to the problems of children with special devel-
opmental needs . As a result people become more socially
responsible, open to charity work, and accepting of these
children . The project aims at making charity work popular,
at changing people’s attitude towards children with
special needs, as well as actively involving and motivating
children with developmental disabilities .
Gift to Angel is a charitable foundation engaged in sys-
temic assistance to single-parent and low-income families
with children with cerebral palsy and other musculoskele-
tal disorders .
3) As part of a marketing campaign
held on the children's channel Car-
ousel, Tinkoff organised work with
children with cerebral palsy . With
the help of Tinkoff, which donated
1,380,000 rubles, the foundation
was able to start producing com-
mercials with the children support-
ed by the foundation who were
featured in a programme sponsored
by the Company . This cooperation
was aimed at raising awareness of
the foundation’s work and attract-
ing further donations . The weekly
broadcasts reached 4 million people
and featured a link to the founda-
tion’s website where people could
make a donation .
4) The Tinkoff team and the World
Wildlife Fund (WWF ), in partnership
with whom we created in 2018
the Tinkoff - WWF credit card,
share common views on creating
resources for nature conservation
and animal welfare, as well as values
associated with a socially responsi-
ble, healthy lifestyle .
Every year the fund reports on the
work it has accomplished, and our
main result is that Tinkoff clients
made great contributions to the
processes of development and con-
servation of Russia's biological and
forest diversity, the principles of a
green economy and climate change
prevention .
5) In 2019, Tinkoff continued to
provide crucial support to 5
non-profit organisations . Altogeth-
er, 7,100,000 rubles were donated .
These funds helped various socially
vulnerable groups and their sup-
porting organisations find system-
atic solutions to the challenges they
face regularly:
–
–
–
–
–
The Conjointment Charitable Foun-
dation (So-Edinenie) helps adult
deaf and blind disabled community;
The Center for Clinical Pedagogy
(Tsentr Lechebnoy Pedagogiki)
is engaged in the training and
rehabilitation of children with
developmental disabilities (Down
syndrome, autism, etc .);
Charity Medical Center (Meditsin-
sky Tsentr Miloserdie) provides
palliative care for dying children;
The Old Age in Joy Charity Foun-
dation (Starost v radost) supports
lonely elderly people and people
with disabilities living in public
institutions;
Zhuravlik Charitable Foundation
is engaged in inclusive education
for children and anti-bullying pro-
grammes in Russian schools .
Tinkoff is very selective in choosing
brand partners for joint banking
products . It is important for us that
the partner not only offers custom-
ers the highest level of service and
impeccable quality of products and
services, but also that they share
the values of the Tinkoff ecosystem .
Tinkoff-WWF cardholders are
socially responsible people who are
concerned about the future of the
planet . Most of them make regular
donations to organisations to
protect nature from climate change,
participate in volunteer projects
and seek to contribute to nature
preservation, including through pur-
chases with the Tinkoff WWF card,
since a portion (1% of total custom-
er purchases) goes to fund support
programmes for rare species of
animals and their habitats .
We also launched a special pro-
motion: when cardholders donate
900 rubles or more, Tinkoff will
reimburse part of the charitable
contribution back to the card (900
rubles for credit card holders and
200 rubles for debit card holders) .
The Tinkoff-WWF Eco-Card is made
from renewable, environmental-
ly friendly materials, is easy to
process and does not pollute the
environment .
In 2019 alone, Tinkoff-WWF
cardholders donated more than
2,000,000 rubles through their
purchases .
42
43
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
EMPLOYEES AND CORPORATE
SOCIAL RESPONSIBILITY
Tinkoff Team
Throughout 2019, we continued to hire
the best professionals on the market to
support our new and existing business
lines . By the end of 2019, the Group’s
headcount totalled more than 24,700
people, with 12,300 being permanent
office-based employees and 12,400
employees working remotely . Mathe-
maticians and IT specialists account for
70% of the total headcount at Tinkoff
headquarters . TCS Group average
employment term is more than three
years, with 12% of employees having
worked at the Company for over five
years . The share of vacancies filled
internally is 15%, and the average
period of reviewing new candidate
applications ranges from three to five
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 employees
Group-wide stands at 28 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:
• bringing together smart people with
analytical experience;
• a transparent structure with zero tol-
erance of bureaucracy or hierarchy;
• a smart working environment;
• an effective learning environment;
• encouraging initiative and taking on
responsibility;
• creativity and open dialogue be-
tween employees;
• promotion of team spirit and entre-
preneurial culture;
• broad employee capabilities and
delegation of responsibility;
• an environment where employees
can experiment, make mistakes and
learn lessons;
• promotion of the Test and Learn
framework .
• In line with our Test and Learn ap-
proach, we test many concepts and
implement the most successful . Our
employees are not afraid of making
mistakes and failures: in our quest
for the most successful models we
support any experiments and promote
open communication between col-
leagues . We welcome innovative ideas
to solve challenges in many different
ways, and we believe in creating an en-
vironment that grants talented people
with far-reaching authority . Greater
rights and opportunities for our team
is a crucial element of our success .
To deliver on the Group’s objectives,
we use various channels to facilitate
communication between employees, in-
cluding email, online chats, meetings and
other forms . Any employee can address
anyone in the Company regardless of their
position .
Recruitment
We seek to recruit the best talent on the
market using various tools to motivate
and retain team members . Tinkoff recruits
via advertising 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 com-
petitions in mathematics, physics and
programming . We offer career growth and
training opportunities for professionals at
every level .
We focus on attracting the best talent
from leading tech companies, and strive
to increase the share of specialists from
the Russian regions among our new
hires . Our recruitment team is actively
expanding the hiring of technical special-
ists throughout the Russian Federation .
In 2019, we hired 361 people across
our regional units, bringingthe number
of developers and testers in the regions
to parity with the number of the same
experts in HQ .
As we aim to make Tinkoff a top employer
of choice, we are already seeing fruits . The
Сareer .habr .com platform, which offers
vacancies in the IT industry, ranks Tinkoff
ahead of Mail .ru, Yandex and Sberbank .
Departure of volunteer employees to an old
people’s home on New Year’s Eve.
Tinkoff Training Center
Tinkoff Training Center achieved the
following results in 2019:
1) We organised and held 2,854
educational events, including 1,337
offline and 1,517 online;
2) 13,007 people were trained, includ-
ing 1,043 managers and 12,034
specialists;
3) Average rating of events by partici-
pants was 4 .7 out of 5;
4) We have carried out 125 electronic
courses on soft and hard skills;
5) Career coaching for high-potential
employees reached 42 people, with
10 meetings organised for each,
while our NPS was 9 out of 10;
6) Life coaching sessions were attend-
ed by 61 team members . NPS was 9
out of 10;
7) Mentors within the company were
selected for more than 100 people;
395 employees attended external
trainings .
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 employees
performance against KPIs, determine
the amount of compensation and give
feedback for future career develop-
ment . TCS Group has a market-based
salary structure, with KPI-related pay
rises and bonuses .
In January 2019, the Board of Direc-
tors approved an expansion of the
Group’s long-term management incen-
tive plan . In particular, the number of
participating employees was increased
from 83 to 91 people (starting 31 Jan-
uary 2019) with relevant awards grant-
ed to newly added participants . The
target equity pool for the programme
participants amounts to 5 .1% of the
Group’s issued share capital . Each
MLTIP wave is awarded over six years
and is subject to meeting annual KPIs .
Tinkoff Training Center specialists conduct training for employees
All programme participants are the
Group’s permanent employees based in
Russia . As the Group continues to grow
and diversify, the aim of the expand-
ed 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 .
Tinkoff took 4th place in the Forbes
Woman ranking of the 25 Best Compa-
nies in Russia for Female Professionals,
published in February 2020 . Among IT
companies and banks, Tinkoff has the
highest ranking . The metrics consid-
ered included gender composition,
remuneration, career opportunities
and corporate programmes .
Diversity and inclusion
Health and safety
Tinkoff Bank’s flexible business model,
based on a high-tech contactless plat-
form, allows individuals with disabilities
to join our team . This helps us expand
and diversify the Group’s recruiting
pool and recruit people based on
professional skills and merits . In 2019,
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) . 12,400
people throughout the country worked
at our home call centre as at the end
of 2019 . They also include individuals
with disabilities who are able to choose
work hours and locations that suit their
circumstances . These employees are
trained online, and all the necessary
corporate tools and materials are
stored on a special cloud platform .
TCS Group creates a safe and com-
fortable work environment for its
employees in full compliance with
Russia’s labour laws . We offer annual
medical check-ups, vaccinations, volun-
tary health insurance, free membership
in our in-house fitness gym located
at Tinkoff Bank’s headquarters, and
other healthcare benefits . TCS Group
encourages a healthy lifestyle and
regularly holds corporate competitions
in football, volleyball, basketball, alpine
skiing and chess .
In 2019, we launched T-life, a com-
prehensive solution that covers 5
key elements of well-being (physical
health, emotional comfort, professional
development, personal finances and
social life) . The programme is aimed at
developing an employee and increasing
involvement in corporate programmes .
44
45
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 BOARD OF DIRECTORS
Constantinos Economides
(44)
Chairman 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 Business School, United Kingdom . In addition, he is a Licensed Insolvency Practitioner of
the Institute of Certified Public Accountants of Cyprus (ICPAC) since October 2015 .
Directors of the Company with the external auditors at the Company’s offices in Limassol.
Left to right: Martin Cocker (Director), Jacques Der Megreditchian (Director), George Kazamias and Tommys Stavrou (PwC), Constantinos
Economides (Chairman of the Board), Alexios Ioannides (Director) and Mary Trimithiotou (Director)
Alexios Ioannides
(43)
Member of the Board of Directors
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 mem-
ber of the Board of Directors of The Copperlink Partners Limited (since 2015) .
Jacques Der Megreditchian
(60)
Member of the Board of Directors
Independent Non-Executive Director
Chairman of the Remuneration Committee
Member of the Audit Committee
Jacques Der Megreditchian has been a non-executive director since October 2013 .
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 .
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 administration from the European Business Institute, France and in financial
analysis from the French Center for Financial Analysis, France .
Martin Cocker
(60)
Member of the Board of Directors
Independent Non-Executive Director
Chairman of the Audit Committee
Member of the Remuneration Committee
Maria Trimithiotou
(42)
Member of the Board of Directors
Martin Cocker has been a non-executive director since October 2013 .
Maria (Mary) Trimithiotou has been a director since May 2012 .
Mr Cocker also serves on the boards of Etalon Group plc, Beverley Building Society, Nostrum Oil and Gas PLC and Headhunter
Group plc . Mr . Cocker previously held positions at Ernst & Young, Amerada Hess, Deloitte & Touche and KPMG in the United
Kingdom, Russia and Kazakhstan .
Mrs . Trimithiotou previously worked for Deloitte Ltd holding the position of audit manager from October 2001 to February
2009 and, subsequently, moved to Orangefield Fidelico Ltd where she held the position of Director from 2012 until 2015 .
Currently, Mrs . Trimithiotou is a member of the Board of Directors of Royal Pine & Associates Ltd since 2016 .
Mr . Cocker is a member of the ICAEW and holds a bachelor of science (joint honours) degree in mathematics and economics
from the University of Keele, United Kingdom .
* Philippe Delpal served last year as a non-executive Director and member of the Audit and Remuneration Committees (from 1 January to 16
August 2019).
Mrs . Trimithiotou is a Fellow Chartered Certified Accountant and a Member of the Association of Chartered Certified Account-
ants, 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) .
46
47
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 TINKOFF GROUP: DECISION MAKING
BODIES AT A GLANCE
Decision
making body
TCS Group
Holding PLC
(Cyprus)
Board of
Directors
Tinkoff Bank
Board of
Directors
Tinkoff Bank
Management
Board
Members (2/4/2020)
Relationship to other key governing bodies
Key powers
Number of
meetings in 2019
Constantinos Economides (Chairman)
Appoints members of the Tinkoff Bank Board of
Directors .
-Provides leadership and oversight to the Group within a framework of prudent and effective
controls which enable risk to be assessed and managed;
10
Mary Trimithiotou
Alexios Ioannides
Martin Cocker (INED)
Jacques Der Megreditchian (INED)
The Company is sole shareholder of Tinkoff
Bank and determines all the matters reserved to
shareholders .
-Sets the Group’s strategic objectives and ensures the necessary financial and human resources
are in place for the Group to meet its objectives;
-Appoints the Group’s external auditors;
-Sets the Group’s values and standards and ensures its obligations to shareholders/investors
and other stakeholders are understood and met;
-Reviews management performance;
-Decides the Group’s remuneration policy;
-Approves the Group’s credit policies:
-Makes the Group’s dividend policy and decides the level of dividends .
A more detailed description can be found on pages 50-53 .
Stanislav Bliznyuk (Chairman)
Appoints and oversees the Tinkoff Bank Manage-
ment Board
-Determines the strategic priorities of the Bank;
24
Oliver Hughes
Sergey Pirogov
Vadim Stasovsky
Svetlana Ustilovskaya (Independent)
Oliver Hughes (Chairman)
Reports to the Tinkoff Bank Board of Directors
Valeriya Pavlyukova
Anatoliy Makeshin
Evgeniy Ivashkevich
Ilya Pisemsky
Natalia Izyumova
-Approves capital markets operations of the Bank, major and related party transactions, risk
and capital management strategy, procedures for managing conflicts of interest, HR policies,
employee and management compensation and bonus policies;
-convenes annual and extraordinary meetings of shareholders, decides on the agenda and the
record date for meetings;
-Recommends dividends;
-Determines the Bank’s asset, liability and risk management operations, policies and proce-
dures;
44
-The Chairman appoints the members of the Finance, Credit, Technology and Business Develop-
ment Committees . The decisions of these Committees frame most of the day to day operations
of Tinkoff Bank .
A more detailed description can be found on page 28 .
48
49
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
CORPORATE GOVERNANCE
Overview
The Board of directors
Global Depositary Receipts (GDRs) of TCS Group Holding
PLC (a Cyprus incorporated company), with each GDR issued
under a deposit agreement dated on or about 24th October
2013 with JPMorganChase Bank N .A . as depositary repre-
senting one Class A share, are listed on London Stock Ex-
change . The Company’s GDRs are also listed on the Moscow
Exchange . No shares of TCS Group Holding PLC are listed on
any exchange .
The Company is required to comply with the UK corporate
governance regime to the extent it applies to foreign issuers
of GDRs listed on London Stock Exchange . The Company has
not adopted corporate governance measures of the same
standard in all respects as those adopted by UK incorporat-
ed companies or companies with a premium listing on the
London Stock Exchange .
As the Class A shares themselves are not listed on the
Cyprus Stock Exchange (or elsewhere), the Cypriot corporate
governance regime, which only relates to companies that are
listed on the Cyprus Stock Exchange, does not apply to the
Company and accordingly the Company does not monitor its
compliance with that regime .
The 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 .
The Board operates under a formal schedule of matters
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 five strong Board of directors is comprised of three
executive directors including the chairman, and two non-ex-
ecutive directors both of whom are independent . Other than
the retirement of Mr Philippe Delpal on 16 August 2019,
there was no change in the composition of the Board or sta-
tus of the directors in 2019 . The Board of directors currently
contains no Directors B .
The Company’s Home State is Cyprus .
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 .
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 the website www .tinkoff .ru/eng, at the Company’s main
website www .tcsgh .com .cy, on the Company’s page on the
London Stock Exchange website (www .londonstockexchange .
com/exchange/prices-and-markets/stocks/summary) and at
the official site of the Department of Registrar of Companies,
Cyprus (http://www .mcit .gov .cy/) .
The longest serving director Mr Constantinos Economides
took over the role of Chairman of the Board of directors
in June 2015 . The names of the people who served on the
Board during 2019 are listed at on the next page .
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 undertake a formal and rigorous
review annually of its own performance, that of its commit-
tees and of its individual directors . That review was recently
carried out, in-house, in relation to 2019, looking at overall
performance . All directors completed detailed question-
naires on the Board’s, the committees’ and individual direc-
tor’s performance . Analysis of the resultant feedback, which
was discussed at a meeting of the Board of Directors in early
2020 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 .
The Board has not appointed a senior independent director .
There are only two independent directors of whom at least
one will retire each year . The role of appraising the Chairman
of the Board for FY2019 was performed by the Chairman of
the Audit Committee .
50
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.
Number of directors
Director's powers
Dear stakeholders
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 . There-
after 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 . At the AGM 2019 the two directors who
retired by rotation were Mr Martin Cocker and Mr Philippe
Delpal . Mr Philippe Delpal did not put himself forward for
consideration for re-appointment at the AGM and conse-
quently retired as a director, on 16 August 2019 . Mr Martin
Cocker was duly reappointed by vote of the shareholders .
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 Cyprus
Companies Law and of any directions given by the general
meeting by ordinary resolution; but no alteration of the Arti-
cles of Association and no direction made by the Company in
general meeting shall invalidate any prior act of the directors
which would have been valid had that alteration or direction
not been made or given .
Proceedings of the Board of Directors
The quorum necessary for the transaction of the business of the directors shall be at least four directors .
Questions arising at any meeting of the Board of directors shall be decided by a majority of votes . In the case of equality of
votes, the chairman shall have a second or casting vote . A director may, and the secretary on the requisition of a director
shall, at any time, summon a meeting of the directors . A resolution in writing signed or approved by letter, telex, facsimile or
telegram by all directors or their alternates or in relation to a committee by all its directors, shall be as valid and effectual as
if it had been passed at a meeting of the Board of directors or (as the case may be) at a committee meeting duly convened
and held . Any such resolution in writing signed may consist of several documents each signed by one or more of the persons
described .
Any notice shall include an agenda identifying in reasonable detail the matters to be discussed at the meeting together with
copies of any relevant documents .
The directors may delegate any of their powers to a committee or committees consisting of one or more members of their
body as they think fit; any committee so formed shall, in the exercise of the powers so delegated to it, comply with the rules
which may have been imposed on it by the directors, in respect of its powers, composition, proceedings, quorum or any other
matter
ATTENDANCE TABLE FOR BOARD OF DIRECTOR
AND COMMITTEE MEETINGS FY2019
Director
Board Attendance FY2019
AC Attendance FY2019 RC attendance FY2019
Constantinos Economides
(Chairman)
Maria Trimithiotou
Alexios Ioannides
Martin Cocker
Philippe Delpal
(retired 16 August 2019)
Jacques Der Megreditchian
10/10
10/10
10/10
9/10
0/9
10/10
n/a
n/a
n/a
5/5
0/4
5/5
n/a
n/a
n/a
5/5
1/4
5/5
51
I am happy to report very strong results for FY2019. This follows outstanding financial performance in 2016, 2017 and 2018.
This accompanied substantial growth in our customer base and net loan portfolio, as we continued to deliver record high quar-
terly and full year profits and secured important technological milestones. Tinkoff has delivered another truly excellent year,
the result of our dedication to product, interface and customer service.
A key focus of 2019 has been further building out the Ecosystem and expanding our non-credit business lines, making the
business more sustainable. I would like to bring to your attention here, if you want to get a fuller understanding of Tinkoff and
our 2019, the illuminating reviews found elsewhere in the Report, from Group CEO Oliver Hughes and Group CFO Ilya Pisemsky.
We have had a run of great years; but the competition are not asleep, Big Tech players are entering the financial arena and
the Russian and international environments become ever more demanding. We have not forgotten though the recession of
2014/15, remember more difficult years when the good news was harder to find. In my report I would like to offer my particular
praise and thanks to the Tinkoff Management team, who have stuck together and delivered outstanding financial performance
in the business for a decade or more, in good times and not so good. This is no ‘fair weather’ team, but a team for all seasons.
As 2020 is shaping up to be a more turbulent, volatile and challenging year, I can’t think of a better qualified or more able
and committed group of managers to steer the Group through to calmer waters. I believe though the Management team will
do more, much more than that-that very turbulence and volatility I mentioned will tend to disrupt the current order of things,
allowing the nimblest and best placed players like Tinkoff to play to our strengths. Such periods are not just a time of cleansing
the market, but a time when we can come up with new solutions, new ideas for growth. History shows that Tinkoff has been
through two very severe crises and emerged stronger each time. That management team has been broadened and deepened
recently with some exceptional lateral hires and internal promotions so is even better placed to deliver for our stakeholders. So
I am convinced we will do so again.
Inside the Group the work of the Board of Directors carries on as ever, though the Group is a much larger and more diverse
business than when I became Chairman in 2015. Still the same fundamental corporate governance principles apply. While
the legal obligations for example on transparency and disclosure increase year on year, it has always been our approach to
go beyond the minimum. This year as part of the process of identifying and interviewing candidates to join the Board, we have
picked up some pointers on how others operate; this together with greater investor feedback generally not only on aspects of
the way we do business as a responsible lender but on the way our decision-making bodies interact has led us to reformulate
some of the disclosures in this Report, in our latest Non-Financial Information and Diversity Statement due for release by June
and on our website, to make them more reader-friendly. We expect to announce further corporate governance enhancements
in the coming months. We welcome feedback from all our stakeholders at any time, whether via our dedicated address stake-
holderengagement@tcsgh.com.cy, or through our IR and PR teams, or direct to senior management –please let us have your
views. Be assured all feedback is considered at the very highest levels of management.
In this first quarter the Board as it always has, conducted its annual self-appraisal process, covering the Board as a whole,
its Committees and individual directors. No significant deficiencies were identified. This time many of the ideas focused on
streamlining internal corporate governance mechanisms and compliance processes reflecting the rapid expansion of the
Group which although important have less external visibility; a programme for their phasing-in is being actively worked on.
Lastly my thanks to all those who have made a contribution to the Tinkoff success story-our Founder Oleg Tinkov, our great
Management team, our partners, investors and other stakeholders as well as our expanding base of customers. I am confident
2020 will bring further great achievements.
I wish you all a safe 2020.
Constantinos Economides
Chairman of the Board of Directors
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 STRATEGIC REVIEW
DIRECTORS’ REVIEW
FINANCIALS
CONTINUED
CORPORATE GOVERNANCE
Committees of the
Board of directors
The Company has established two
Committees of the Board of directors:
the Audit Committee and the Remu-
neration Committee . Their terms of
reference are summarized below . Both
Committees were formed 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 addi-
tional committees .
Committees-
current
composition
The Audit Committee is chaired by an
independent non executive director Mr
Martin Cocker, and had until 16 August
2019 two other members both non
executive directors, one of whom was
independent . From 16 August 2019
the Audit Committee was comprised of
its chairman Mr Martin Cocker and one
independent non executive director .
The Remuneration Committee is also
chaired by an independent non execu-
tive director Mr Jacques Der Megred-
itchian, and had until 16 August 2019
two other members both non executive
directors, one of whom was independ-
ent . Details of the non executive and
independent non executive directors
are set out under Board of Directors
on page 47 . From 16 August 2019 the
Remuneration Committee was com-
prised of its chairman Mr Jacques Der
Megreditchian and one independent
non executive director .
The current terms of reference of
both Committees are available to the
public and can be found on the Group’s
website . A short summary of both is
set out below .
Role of the Audit Committee
The Audit Committee’s primary purpose and responsibility is to assist the Board in
its oversight responsibilities . In executing this role the Audit Committee monitors
the integrity of the financial statements of the Group prepared under IFRS and
any formal announcements relating to the Group’s and the Company’s financial
performance, reviewing significant financial reporting judgments contained in
them, oversees the financial reporting controls and procedures implemented by
the Group and monitors and assesses the effectiveness of the Company’s internal
financial controls, risk management systems, internal audit function, the inde-
pendence and qualifications of the independent auditor and the effectiveness of
the external audit process . The Audit Committee is required to meet at appropriate
times in the reporting and audit cycle but in practice meets more often as required .
Under its terms of reference the Audit Committee is required at least once a year
to review its own performance, constitution and terms of reference to ensure it is
operating at maximum effectiveness and to recommend any changes it considers
necessary for Board approval . The Audit Committee met this obligation through
members participating in the main Board review described above . After consider-
ation of the review, no changes were proposed to the committee’s terms of refer-
ence . 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-financial statement related areas within its terms of reference . One
such meeting was held in 2019 with a further two planned for 2020 .
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 conjunc-
tion 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 cyber-security recruited, in a very competitive
market, through 2018 and 2019 to support the Group’s ever-increasing efforts to
stay ahead of trends and threats in this sphere . The Group has further broadened
its top management team with a new chief investment officer and new chief oper-
ating officer appointed in 2019 and now in place .
Role of the Remuneration Committee
The Remuneration Committee is responsible for determining and reviewing among
other things the framework of remuneration of the executive directors, senior
management and its overall cost and the Group’s remuneration policies . The ob-
jective is to ensure that the executive management of the Group are provided with
appropriate incentives to encourage enhanced performance and are in a fair and
responsible manner rewarded for their individual contributions to the success of
the Group . The Remuneration Committee’s Terms of Reference include reviewing
the design and determining targets for any performance related pay schemes and
reviewing the design of all share incentive plans for approval by the Board . The
Remuneration Committee is required to meet at least twice a year but in practice
meets far more often .
The Remuneration Committee continued with its work into
2019 on an ongoing review of the operation of the Group’s
equity based incentive and retention plan for key, senior and
middle management (MLTIP) which launched in 2016 and in
considering additional awards to both existing and new par-
ticipants for this and subsequent years . The Remuneration
Committee recommended 10 members of management be
invited to join MLTIP in Q12019, but made no such recom-
mendations in Q12020 .
The Committee has also been working on plans for an incen-
tive and compensation plan to supplement MLTIP for when,
in the period 2022 to 2024, existing awards made to MLTIP
joiners in 2016-2017 start to go into run off .
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
as well as individual 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 . In 2019 it
convened 5 times .
Appointment, retirement,
rotation and removal of
directors
The directors of the Company are appointed by the general
meeting of shareholders with the sanction of an ordinary res-
olution . Such an appointment may be made to fill a vacancy or
as an additional director . But no director may be appointed un-
less nominated by the Board of directors or a committee duly
authorized by the Board of directors or by a shareholder or
shareholders together holding or representing shares which
in aggregate constitute or represent at least 5% in number of
votes carried or conferred by the shares giving a right to vote
at a general meeting .
Notwithstanding that, one or more Directors B (a special cate-
gory of director) may be appointed only by Class B sharehold-
ers, 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 . As at 31 December 2019, Class B shares in
aggregate represented under 50% of nominal capital .
The Board of directors may at any time appoint any person to
the office of director either to fill a vacancy or as an additional
director and every such director shall hold office only until the
next following annual general meeting and shall not be taken
into account in determining the directors who are to retire by
rotation .
One third of the directors (or if their number is not a multiple
of three, the number nearest to three but not exceeding one-
third) shall retire by rotation at every annual general meeting .
Directors holding an executive office and Directors B are
excluded from retirement by rotation .
Directors including Directors B may be removed from office
by the shareholders at a general meeting with the sanction
of an ordinary resolution, subject to giving 28 days’ notice
to that director in accordance with the Articles of Associa-
tion . Directors B may at any time be removed from office by
Class B shareholders together holding or representing Class
B shares which constitute or represent over 50% in nominal
capital paid up on the Class B Shares upon giving notice to the
Company .
The office of director shall be vacated if the director:
• becomes bankrupt or makes any arrangement or compo-
sition with his creditors generally; or
• becomes prohibited from being a director by reason of
any court order made under Section 180 (disqualifica-
tion from holding the position of director on the basis of
fraudulent or other conduct) of the Cyprus Companies
Law; or
• becomes, or may be, of unsound mind; or
• resigns his office by notice in writing to the Company left
at the registered office; or
•
is absent from meetings of the board for six consecutive
months without permission of the Board of directors
and his alternative director (if any) does not attend in his
place and the Board of directors resolves that his office
be vacated .
At any time when Class B Shares cease to exist by virtue of
conversion into Class A Shares, each Director B shall thereby
become (undesignated) a director and shall remain in office
until the next annual general meeting and such director will
not be taken into account in determining the directors who
are to retire by rotation at such meeting .
52
TCS GROUP HOLDING PLC
ANNUAL REPORT 2019
53
CONTINUED
CORPORATE GOVERNANCE
Share capital
As at 31 December 2019, the
Company's issued share capital
is US$7,972,219 .68 divided in to
199,305, 492 shares, each of nominal
value of US$0 .04 per share and fully
paid . Of these 119, 291, 268 are Class
A Shares and 80, 014, 224 Class B
Shares, each with a nominal value of
US$0 .04 per share and fully paid . As
of 31 December 2019, the Compa-
ny’s authorized share capital was
USD8,401,385 .92 (with in addition to
the stated Class A and Class B shares,
10,729,156 undesignated shares of
nominal value US$0 .04 each) .
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 .
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 .
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 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 ‘Descrip-
tion 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 .
Meeting of shareholders
The Company is required to hold an annual general meeting
each year on such date and at such place as the directors may
determine provided that not more than 15 months should
elapse between annual general meetings .
The board of directors or any director may convene general
meetings . The board of directors will also convene:
(a)
extraordinary general meetings of the Company on the
requisition of:
(i)
a shareholder or shareholders together, holding or rep-
resenting 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
Rights of shareholders
(ii) a Class B shareholder;
Except for the additional voting rights attached to Class
B Shares, the right to requisition a general meeting of the
shareholders and the right to appoint a Director B, none of
the shareholders of the Company has any rights different
from any other holder of shares of the Company . A summary
of the rights attached to the shares of the Company is set out
below .
(b)
a separate meeting of the Class A shareholders on the
requisition of a Class A shareholder or Class A sharehold-
ers 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 meeting called at which a
special resolution will be proposed shall be called by at least
twenty-one days' prior written notice . All other general meet-
ings 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:
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 sharehold-
ers 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 .
•
•
in the case of a meeting called as the annual general
meeting, by all the shareholders entitled to attend and
vote; and
in the case of any other meeting, by a majority in number
of the shareholders having a right to attend and vote at
the meeting, being a majority together holding not less
than 95 per cent . in nominal value of the shares giving the
right to attend and vote at the meeting .
Shareholders’ rights at meetings
All shareholders are entitled to attend the general meeting
or be represented by a proxy authorised in writing . Subject
to any rights or restrictions for the time being attached to
any class or classes of shares, on a show of hands, every
member present (if a natural person) in person or by proxy or,
(if a corporation) is present by a representative not himself
being a member, shall have one vote for each Class A Share
of which he is a holder and shall have 10 votes for each Class
B Share of which he is a holder, and on a poll, every member
shall have one vote for each Class A Share of 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 ap-
pointed for the meeting a quorum is not present, the meeting
shall stand adjourned to the same day in the following week,
at the same time and place or to such other day and at such
other time and place as the chairman of the general meeting
may determine, and if at the adjourned meeting a quorum is
not present within half an hour from the time appointed for
the meeting, the shareholders present shall be a quorum .
The above quorum does not apply to every separate meeting
of the shareholders of any class, in that any shareholder
(present in person or by proxy) holding or representing
shares of the class which in aggregate constitute or rep-
resent 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 meet-
ing of the Company is valid and effectual as if the resolution
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 shareholder . 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 date
of notification of the offer (or)/from the date of the dispatch
of the written notice), within which the offer, if not accepted,
shall be deemed to have been rejected . If, until the expiry
of the said time period, no notification is received from the
person to whom the offer is addressed or to whom the rights
have been assigned that such person accepts all or part of
the offered shares or other securities giving rights to pur-
chase shares in the Company, or which are convertible into
shares of the Company, the directors may dispose of them in
any manner that they deem fit .
These pre-emption rights may be disapplied by a resolu-
tion 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 gen-
eral meeting a written report which explains the reasons for
the proposed disapplication of the pre-emption rights and
justifies the proposed issue price of the shares .
54
55
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CONTINUED
CORPORATE GOVERNANCE
Voting rights
Conversion rights and weighted voting
Subject to any special rights or restric-
tions as to voting attached to shares,
every holder of shares who is present (if
a natural person) in person or by proxy
or, (if a corporation) is present by a rep-
resentative, shall have one vote for each
Class A Share of which he is a holder
and shall have 10 votes for each Class B
Share of which he is a holder .
The Class A Shares carry the right to
one vote per Class A Share and confer
on the Class A shareholders the right:
• on a Hands Vote, to one vote per
Class A shareholder; and
• on a Poll Vote, to one vote per Class
A Share held by each Class A share-
holder,
but no Class A Share carries or confers
any right to vote, on a resolution or pro-
posed resolution for the removal from
office of a Director B .
"Director B" means a director appointed
or deemed to have been appointed by
Class B shareholders in accordance with
the Articles of Association .
The Class B Shares carry the right to 10
votes per Class B Share and confer on
the Class B shareholders the right:
• (a) on a Hands Vote, to 10 votes per
Class B shareholder; and
• (b) on a Poll Vote, to 10 votes per
Class B Share held by each Class B
shareholder .
Every resolution put to the vote of a
general meeting shall be decided on
a Hands Vote unless a Poll Vote is 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 .
Class A Shares are generally not con-
vertible into Class B Shares .
provided that:
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:
(a)
in the event that any Class B Share
has been transferred to, or is held
by, a person other than a Qual-
ified Person (defined below) or
otherwise who has ceased to be a
Qualified Person, and such person
(the "Disqualified Holder") does not
become or is not re-instated as, a
Qualified Person within 45 days
of the service on the Disqualified
Holder of a notice from the Compa-
ny 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 (outstand-
ing) Class A Shares:
(i)
(ii)
(b)
If a Class B shareholder has no
knowledge that such holder has
become a Disqualified Holder and
it is unreasonable to expect the
Disqualified Holder to have such
knowledge, such shareholder shall
be deemed not to have become a
Disqualified Holder or otherwise
ceased to be a Qualified Person,
unless or until such shareholder
shall be made aware of this by
notice in writing from the Company .
The Company may at any time
require any Class B shareholder
to furnish the Company with any
information, supported (if the
Company so requires) by statutory
declaration which the Company
may consider necessary for the
purpose of determining whether or
not such shareholder is a Qualified
Person .
Notwithstanding Paragraph
(a), in the event that the Class B
Shares constitute or represent in
aggregate less than 10 per cent . in
nominal capital paid up only on the
Class A Shares and Class B Shares
(the "Total Conversion Event"),
each existing (issued) Class B
Share shall, with effect of the Total
Conversion Event, automatically
be re-classified and re-designated
as a "Class A Share" ranking pari
passu in all respects and for all
purposes with all and each of the
pre-existing (outstanding) Class A
Shares .
(Qualified Person, for the purpose of
these paragraphs means a Class B
shareholder or a person connected with
such Class B shareholder or a person, or
persons jointly, as the trustee or trus-
tees of any trust or settlement (whether
or not conferring the trustees discre-
tionary powers) for the benefit of such
Class B shareholder or a relative, or
relatives, of such Class B shareholder .)
Martin Cocker
Jacques Der Megreditchian
Independent Non-Executive Director, Chairman of
the Audit Committee, Member of the Remuneration
Committee .
Independent Non-Executive Director, Chairman of the
Remuneration Committee, Member of the Audit Committee .
Dividend and
distribution
rights
The Class A Shares and
Class B Shares have the
right to an equal share
in any dividend or other
distribution paid by the
Company, and any dividend
or other distribution may
only be declared and paid by
the Company to the holders
of the Class A Shares and
Class B Shares together .
Variation of rights
The special rights carried
or conferred by the shares
of any class, may, without
prejudice to the rights of the
shareholders under section
70 of the Cyprus Companies
Law, be varied or abrogated
with the consent:
in writing of the sole
(a)
shareholder of, or the
shareholders holding in ag-
gregate at least two thirds
in nominal capital value of,
the Shares of that class; or
(b) of the general meeting
of the shareholders of the
Shares of that class with the
sanction of a majority res-
olution, being a resolution
sanctioned:
(ii) by a majority of not
less than two-thirds of the
votes cast by the sharehold-
ers present in person or by
proxy and entitled to vote in
all other cases,
(i) by a majority of over
one-half of the votes cast
by the shareholders present
in person or by proxy and
entitled to vote, in the case
where all the shareholders
present in person or by
proxy and entitled to vote,
hold or represent in aggre-
gate not less than 50 per
cent . in nominal capital val-
ue of the entire issued share
capital of the Company; or
at a general meeting of
which not less than 14
days’ notice specifying the
intention to propose the
resolution as a "majority
resolution" has been given .
Shareholders voting against
the variation of that class
who between them hold
or represent not less than
15 per cent . of the issued
shares of that class may
apply to the courts of
Cyprus to have the variation
set aside .
56
57
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 MANAGEMENT TEAM
Oliver Hughes
(49)
CEO, Chairman of the Management 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 Pisemsky
(44)
Chief Financial Officer, Deputy Chairman of the Management Board
of Tinkoff Bank
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 .
Sergei Pirogov
(49)
Head of Corporate Finance, Member of the Board of Directors of Tinkoff Bank
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 Yamanov
(38)
SVP, Business Development Director
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 Bliznyuk
(39)
Chief Operating Officer, Deputy Chairman of the Management Board of
Tinkoff Bank
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 Pavlyukova
(36)
Chief Legal Officer, Deputy Chairman of the Management Board of Tinkoff
Bank
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 International University in Moscow and studied
finance at Hult International Business School .
Management team positions shown as of 31 December 2019.
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CONTINUED
MANAGEMENT TEAM
George Chesakov
(47)
Head of Tinkoff Mobile
George Chesakov is responsible for Tinkoff’s mobile virtual network operator
(MVNO Tinkoff Mobile) and has been in this role since January 2017 . He also
served as Chief Operating Officer and Chairman of the Management 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 Standard 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 .
Nadezhda Serova
(44)
Human Resources Director
As Head of Tinkoff’s HR department, Nadezhda oversees employee engagement,
talent management, development of motivational programs and the overall well-
being of employees and all processes related to it .
Nadezhda has been working in HR for more than 15 years, including more than 10
years in senior positions . Before joining the Tinkoff team, she was Head of HR for
Yandex Market .
Nadezhda graduated from Novgorod State University . She also holds a bachelor's
degree in business administration from the Russian-Norwegian School .
Anatoly Makeshin
(47)
Head of Payment Systems, Deputy Chairman of the Management Board
of Tinkoff Bank
Anatoly has been responsible for Tinkoff’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 .
Natalia Izyumova
(57)
Chief Accountant, Member of the Management Board of Tinkoff Bank
Natalia oversees Tinkoff’s accounting . She stepped into her current role and be-
came 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 Tink-
off Bank since November 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 .
Evgeny Ivashkevich
(49)
Viacheslav Tsyganov
(44)
Risk Director, Deputy Chairman of the Management Board of Tinkoff Bank
Chief Information Officer
Evgeny is in charge of risk management 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 portfolio manager at Renais-
sance Capital Bank and Head of Product Development at Russian Standard Bank .
Evgeny graduated from the Moscow Institute of Physics and Technology and ob-
tained a PhD in Theoretical Physics from the Joint Institute for Nuclear Research .
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 Architecture and Development at the Bank .
Viacheslav holds a Master’s degree in Computer Science from Southwest State
University .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 CONTINUED
MANAGEMENT TEAM
Darya Ermolina
(32)
Communications Director
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 .
Neri Tollardo
(28)
Head of International Investor Relations and Partnerships
Neri Tollardo joined Tinkoff in 2019 and is responsible for building and
developing relationships with international investors and partners . Prior to
joining Tinkoff, he was a top-ranked sell-side research analyst at Morgan Stanley
for seven years, during which he covered a number of different emerging markets
and sectors .
Neri holds a MSc in Finance and Private Equity from the London School of
Economics and a BSc in International Economics and Management from Bocconi
University .
Аnna Mikhina
(32)
Head of Lifestyle Banking
As Head of Lifestyle Banking for Tinkoff, Anna oversees strategic development of
partner and non-financial services for the Tinkoff group of companies . Prior to joining
the Tinkoff team in November 2012, Anna worked as a mobile product manager for
Yandex, Rambler and Mail .ru .
Anna graduated from the Humanitarian Institute of Television and Radio
Broadcasting with a degree in journalism .
Larisa Chernysheva
(44)
Head of Investor Relations and transaction execution
Larisa oversees two functions in Tinkoff: she leads the IR strategy which covers all
aspects of investor communication and interaction as well as she is responsible
for supervising the fixed income and equity related transactions . Before joining the
Tinkoff team in August 2012, Larisa worked as a relationship manager for financial
institutions for Citigroup Corporate Bank Moscow .
Prior to Citigroup Larisa worked as a legal assistant for Freshfields Bruckhaus
Deringer Moscow office . Larisa holds masters degree in management and media
communications from the Moscow State University of Culture and is certified by
the College of Ministry of Foreign Affairs of the Russian Federation in business
administration .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 Board of Directors
and other officers
Board of Directors
Constantinos Economides, Chairman
Alexios Ioannides
Mary Trimithiotou
Jacques Der Megreditchian
Martin Robert Cocker
The above all served throughout 2019 and through to the date of these consolidated financial statements . Philippe Delpal
retired from the Board on 16 August 2019 .
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 2020 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 2019
TCS Group Holding PLC
International Financial Reporting Standards
Consolidated Financial Statements and
Independent Auditor’s Report
Contents
Board of Directors and other officers . . . . . . . . . . . . . . . . . . . . F-2
16 Debt Securities in Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . F-78
Consolidated Management Report . . . . . . . . . . . . . . . . . . . . . . F-3
17 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-79
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . F-11
18 Insurance Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-79
19 Other Financial and Non-financial Liabilities . . . . . . . . F-80
CONSOLIDATED FINANCIAL STATEMENTS
20 Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-83
Consolidated Statement of Financial Position . . . . . . . . . . . F-21
21 Net Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-85
Consolidated Statement of Profit or Loss and Other
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Consolidated Statement of Changes in Equity . . . . . . . . . . F-23
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . F-24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
2 Operating Environment of the Group . . . . . . . . . . . . . . . F-27
22 Fee and Commission Income and Expense . . . . . . . . . . F-86
23 Customer Acquisition Expense . . . . . . . . . . . . . . . . . . . . . F-87
24 Insurance Premiums Earned and Claims Incurred . . . . F-87
25 Administrative and Other Operating Expenses . . . . . . F-88
26 Other Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . F-89
27 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-89
28 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-91
29 Reconciliation of Liabilities Arising from Financing
3 Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . F-27
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-92
4
Critical Accounting Estimates and Judgements in
30 Segment Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-92
Applying Accounting Policies . . . . . . . . . . . . . . . . . . . . . . F-45
31 Financial and Insurance Risk Management . . . . . . . . . . F-99
5
Adoption of New or Revised Standards and
Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-47
32 Management of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . F-116
33 Contingencies and Commitments . . . . . . . . . . . . . . . . . F-118
6 New Accounting Pronouncements . . . . . . . . . . . . . . . . . . F-48
7 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . F-49
8 Due from Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-50
9 Loans and Advances to Customers . . . . . . . . . . . . . . . . . . F-51
10 Investments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . F-68
11 Guarantee Deposits with Payment Systems . . . . . . . . . F-75
12 Tangible Fixed Assets, Intangible Assets, and Right-of-use
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-75
13 Other Financial and Non-financial Assets . . . . . . . . . . . F-76
14 Due to Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-77
15 Customer Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-77
34 Offsetting Financial Assets and Financial Liabilities .F-121
35 Transfers of Financial Assets . . . . . . . . . . . . . . . . . . . . . . F-122
36 Non-Controlling Interest . . . . . . . . . . . . . . . . . . . . . . . . . F-123
37 Financial Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-123
38 Fair Value of Financial Instruments . . . . . . . . . . . . . . . . F-124
39 Presentation of Financial Instruments by Measurement
Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-128
40 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . F-130
41 Events after the End of the Reporting Period . . . . . . . F-132
1
F-2
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Consolidated
Management Report
The Board of Directors presents its report together with the
audited consolidated financial statements of TCS Group Hold-
ing PLC (the “Company”) and its subsidiaries (collectively the
“Group”) for the year ended 31 December 2019 .
Principal activities and nature of
operations of the Group
1 . The Group’s principal activities are all undertaken within
the Russian Federation and consist on-line retail banking
operations, through its subsidiary JSC “Tinkoff Bank”
(the “Bank”), and other operations through its subsidiar-
ies, such us insurance operations through JSC “Tinkoff
Insurance” (the “Insurance Company”), mobile services
through LLC “Tinkoff Mobile” and asset management
through LLC “Tinkoff Capital” (Note 1) .
6 . During 2019 the Group completed a secondary public of-
fering (“SPO”) of its “class A” shares in the form of Global
Depositary Receipts (GDRs) and raised its capital by USD
300 million . This provided the necessary capital to take
advantage of the current profitable growth opportunities
whilst maintaining sufficient capital buffers in the future
(Note 1 and 20) .
7 . During 2019 the Company actively continued the devel-
opment its call-center and software development services
in Cyprus .
8 . The key offerings of JSC “Tinkoff Insurance” are personal
accident insurance, collective insurance against accidents
and illnesses, travel insurance, motor vehicle insurance
and property insurance, compulsory third party liability
insurance (CTP) and voluntary third party liability insur-
ance (VTP) (Note 24) . The Insurance Company focuses on
online sales .
2 . The Bank specialises in retail banking for individuals,
9 .
individual entrepreneurs (“IE”), small and medium enter-
prises (“SME”) and brokerage services . The Bank which
is fully licensed by the Central Bank of Russia, launched
its operations in the Summer of 2007 and is a member
of the Russian Deposit Insurance System . The Insurance
Company specialises in providing non-life insurance
coverage such as accident, property, travel, credit pro-
tection and auto insurance . The founder and controlling
shareholder of the Company is Oleg Tinkov .
Changes in group structure
3 . During 2019 the Group acquired an additional 40%
shareholding in LLC “CloudPayments”, a developer of
online payment solutions in Russia, and increased its
stake to 95% .
4 . During 2019 the Bank founded an asset management
company LLC “Tinkoff Capital” to manage investment
mutual funds and non-state pension funds .
Review of developments, position
and performance of the Group’s
business
5 . The Bank operates a flexible business model . Its virtual
network enables it to quickly and easily increase business
or slow down customer acquisition depending on the
availability of funding and market conditions . The Bank’s
primary customer acquisition channels are Internet and
Mobile, but it also uses Direct Sales Agents and part-
nerships (co-brands) to acquire new customers . These
customer acquisition models, combined with the Bank’s
virtual network, afford it a geographic reach across all of
Russia’s regions resulting in a highly diversified portfolio .
In terms of financial performance the profit of the Group
for the year ended 31 December 2019 was RR 36,123
million (2018: RR 27,122 million) . This result is driven
by two major continuing trends: the ongoing growth
of the Group’s consumer finance business and a growing
contribution from the non-credit fees-and-commission
business lines . Thus the Group continues to demonstrate
an active growth of income from acquiring services . Net
margin increased by 44 .6% to RR 86,769 million (2018:
increased by 30 .2% to RR 59,992 million) on the back of
credit and investment portfolio growth . The growth of the
credit portfolio was driven not only by the credit cards
loans but also by other types of loans, such as secured,
cash and POS loans . The quality of loans continues to
improve . The Group aims to diversify its credit portfolio
by the extention of collateralised credit products which
represents a business line with lower credit risks . The 90
days plus overdue loans ratio (“NPL”) reduced to 9 .1% as
at 31 December 2019 (2018: 9 .4%) . The NPL coverage
ratio reduced to 156% as at 31 December 2019 (2018:
reduced to 164%) . The Investment in debt securities
portfolio increased by 35% and amounted to RR 135,178
million (2018: increased by 39 .7% to RR 100,140 million) .
This growth has been fuelled by the continued devel-
opment of the debit cards and SME business lines . The
Group continues to maintain a good quality and diversified
securities portfolio . During the year the Bank developed
the Tinkoff Investments product by increasing of the
customer base and providing of new trading instruments
to its clients . The Group’s Insurance business continues
to develop at a good pace . This year insurance premiums
earned increased by 111 .4% to RR 14,110 million (2018:
increase by 144 .0% to RR 6,674 million) . The growth was
as a result of a continuous development of auto (including
CTP and VTP) and travel insurance, as well as the growth
of personal accident insurance along with the credit port-
folio and providing a wider coverage of insured risks .
Environmental matters
10 . 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
11 . Empowerment is an important ingredient in the success of
our organization . To achive this, decision making is delegated
to the levels deep below the management team, discussion,
idea generation and exchange and transparency is actively
promoted and encouraged and an open leadership style
ensures that information can move freely . The Group utilizes
all types of forums to promote continual dialogue – such as
email, online chat rooms, flash meetings, as well as formal-
ized meeting structures . The Group offers a clear far-reach-
ing career path for its employees, a unique work environment
and a fair and transparent compensation .
12 . Clear performance evaluation processes and fair compen-
sation are essential . Compensation is a combination of
fixed rate salary and supplemental bonuses and is based
on employee performance . Employees are evaluated on a
regular basis in order to monitor their achievement against
their Key Performance Indicators to provide feedback which
can be used for their career development and to determine
incentive compensation .
13 . Prior to its IPO in 2013, the Group set up share-based
management long term incentive plans (‘MLTIP’) as retention
and motivational tools for key and senior managers . In
March 2016, the Group announced a consolidated long-term
management incentive and retention plan, covering around
50 key, senior and middle managers . In 2017, 2018 and
2019 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 .4% of the Group’s share capital
as at 31 December 2018 before the SPO (Note 20) . 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 subsequent 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, internal promotions as some employees were promot-
ed 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 and to strengthen
internal controls, including cyber security .
Non-Financial Information and
Diversity Statement
14 . The Group’s policies and other information that provide
an understanding of the development, performance, po-
sition and impact of the Group’s activities in the areas 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 2019, on the Company’s
website, www .tcsgh .com .cy (and www .tinkoff .ru/eng) no
later than 30 June 2020 .
Principal risks and uncertainties
15 . The Group’s business and financial results are impacted
by uncertainties and volatilities in the Russian economic
environment .
16 . 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 .
17 . The Board has put in place arrangements 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 with senior management of the operat-
ing companies in Russia as well as the Board of Directors
in this area . The primary objectives of the financial risk
management function are to establish acceptable risk
limits, and then ensure that the exposures remain within
these limits . The operational and legal risk management
functions are intended to ensure the proper functioning
of internal policies and procedures that minimize oper-
F-3
F-4
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Consolidated
Management Report (Continued)
ational and legal risks . The 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 31 and 33 of the consolidated financial state-
ments .
Contingencies
18 . The Group’s contingencies are disclosed in Note 33 to
the consolidated financial statements .
Future developments
19 . The Group's strategic objective is to be a full service,
online financial and lifestyle ecosystem with a broad
range of financial, insurance and quasi-financial products,
serving customers through a high-tech online and mobile
platform that offers premium quality service and conven-
ience, while maintaining high growth rates, profitability
and effective data-driven risk management .
Results
20 . 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 28 .
Any important events for the Group
that have occurred after the end of
the financial year
21 . Important events for the Group that have occurred after
the end of the financial year are presented in Note 41 .
Share capital
Exchange plc . raising aggregate gross proceeds of USD
300 million (RR 18,916 million) which would ensure the
necessary capital to seize the current profitable growth
opportunities whilst maintaining ample capital buffers in
the future .
24 . As at 31 December 2019 the number of issued “class
A” shares is 119,291,268 and issued “class B” shares is
80,014,224 (31 December 2018: the number of issued
“class A” shares is 96,239,291 and issued “class B”
shares is 86,399,534) .
Research and development activities
25 . During the year ended 31 December 2019 the Group
has undertaken research and development activities
related to software including greater use of biometrics,
voice assistant, social networking, machine learning and
intelligence .
Treasury shares
26 . At 31 December 2019 the Group held 4,185,166 (2018:
6,604,353 ) of its own GDRs, equivalent to approximate-
ly RR 3,164 million (2018: RR 3,670 million) and which
represent 2 .1% (2018: 3 .6%) of the issued share capital .
27 . Treasury shares are GDRs of TCS Group Holding Plc that
are held by a special purpose trust which has been specif-
ically created for the long-term incentive programme for
the MLTIP (see Note 40 for further information) .
28 . The Group repurchased no GDRs in 2019 (2018:
2,094,126 GDRs at market price for RR 2,455 million
representing 1 .1% of the issued share capital) .
29 . During 2019 the Group transferred 2,419,187 GDRs
(2018: 1,804,894 GDRs), representing 1 .21% (2018:
1 .0%) of the issued share capital, upon vesting under
the MLTIP . This resulted in a transfer of RR 506 million
(2018: RR 372 million) out of treasury shares to retained
earnings .
22 . In June 2019 the Company’s shareholders approved a
Board of Directors
resolution to increase the authorised share capital to
USD 8,401,385 .92 by the creation of 18,263,882 new
undesignated ordinary shares of nominal value USD
0 .04 each . At 31 December 2019 the total number of
authorised shares is 210,034,648 shares (31 December
2018: 191,770,766 shares) with a par value of USD 0 .04
per share (31 December 2018: USD 0 .04 per share) .
30 . The members of the Board of Directors as of 31 Decem-
ber 2019 and at the date of this report are presented
above . All served throughout the year ended 2019
and through to the date of these consolidated financial
statements, except for Philippe Delpal, who retired from
16 August 2019 .
23 . On 2 July 2019 the Group announced the successful
completion of the offering of 16,666,667 GDRs repre-
senting interests in its “class A” share on London Stock
31 . There were no significant changes in the assignment
of responsibilities and remuneration of the Board of
Directors .
Branches
32 . The Group did not operate through any branches during
the year .
Independent auditor
33 . The Independent Auditor, PricewaterhouseCoopers Lim-
ited, has expressed their willingness to continue in office .
A resolution giving authority to the Board of Directors
to fix their remuneration will be proposed at the Annual
General Meeting .
Going concern
34 . 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 2020, 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
GDRs of TCS Group Holding PLC (a Cyprus incorporated
company), with each GDR issued under a deposit agreement
dated on or about 24th October 2013 with JPMorganChase
Bank N .A . as depositary representing one Class A share, are
listed on London Stock Exchange . The Company’s GDRs are
also listed on the Moscow Exchange . No shares of TCS Group
Holding PLC are listed on any exchange .
The Company is required to comply with the UK corporate
governance regime to the extent it applies to foreign issuers
of GDRs listed on London Stock Exchange . The Company has
not adopted corporate governance measures of the same
standard in all respects as those adopted by UK incorporat-
ed companies or companies with a premium listing on the
London Stock Exchange .
As the Class A shares themselves are not listed on the
Cyprus Stock Exchange (or elsewhere), the Cypriot corporate
governance regime, which only relates to companies that are
listed on the Cyprus Stock Exchange, does not apply to the
Company and accordingly the Company does not monitor its
compliance with that regime .
The Company’s Home State is Cyprus .
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 .
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 the website www .tinkoff .ru/eng, at the Company’s main
website www .tcsgh .com .cy, on the Company’s page on the
London Stock Exchange website (www .londonstockexchange .
com/exchange/prices-and-markets/stocks/summary) and at
the official site of the Department of Registrar of Companies,
Cyprus (http://www .mcit .gov .cy/) .
F-5
F-6
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Consolidated
Management Report (Continued)
Board of Directors
Committees of the Board of directors
The role of the Board is to provide entrepreneurial leadership
to the Group within a framework of prudent and effective
controls which enables risk to be assessed and managed . The
Board sets the Group’s strategic objectives, ensures that the
necessary financial and human resources are in place for the
Group to meet its objectives and reviews management’s 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 .
The Board operates under a formal schedule of matters
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 five strong Board of directors is comprised of three
executive directors including the chairman, and two non-ex-
ecutive directors both of whom are independent . Other than
the retirement of Mr Philippe Delpal on 16 August 2019,
there was no change in the composition of the Board or sta-
tus of the directors in 2019 . The Board of directors currently
contains no Directors B .
The longest serving director Mr Constantinos Economides
took over the role of Chairman of the Board of directors
in June 2015 . The names of the people who served on the
Board during 2019 are listed at Board of Directors and other
officers .
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 undertake a formal and rigorous
review annually of its own performance, that of its commit-
tees and of its individual directors . That review was recently
carried out, in-house, in relation to 2019, looking at overall
performance . All directors completed detailed question-
naires on the Board’s, the committees’ and individual
director’s performance . Analysis of the resultant feedback
will be discussed at a meeting of the Board of Directors on
10 March 2020 and no changes are expected to be made in
the performance of the Board, its committees or individual
directors .
The Board has not appointed a senior independent director .
There are only two independent directors of whom at least
one will retire each year . The role of appraising the Chairman
of the Board for FY2019 was performed by the Chairman of
the Audit Committee .
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 reference and
arranges a periodic review of each Committee’s role and ac-
tivities 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 had, until 16 August
2019, two other members both non executive directors, one
of whom was independent . From 16 August 2019 the Audit
Committee has comprised of its chairman Mr Martin Cocker
and one independent non executive director .
The Remuneration Committee is also chaired by an independ-
ent non-executive director, Mr Jacques Der Megreditchian,
and had until 16 August 2019 two other members both non
executive directors, one of whom was independent . From 16
August 2019 the Remuneration Committee has comprised
of its chairman Mr Jacques Der Megreditchian and one inde-
pendent non-executive director .
The current terms of reference of both Committees are avail-
able to the public and can be found on the Group’s website . A
short summary of both is set out below .
Role of the Audit Committee
The Audit Committee’s primary purpose and responsibil-
ity is to assist the Board in its oversight responsibilities .
In executing this role the Audit Committee monitors the
integrity of the financial statements of the Group prepared
under International Financial Reporting Standards (“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 .
Under its terms of reference, the Audit Committee is
required, at least once each year, to review its own perfor-
mance, 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 through members
participating in the main Board review described above . 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-financial statement 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 spe-
cific, non-financial statement related areas within its terms of
reference . One such meeting was held in 2019 with a further
two are planned for 2020 .
The Audit Committee has developed a risk matrix which con-
stantly 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 conjunc-
tion 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 and 2019 to support the Group’s ever-increasing
efforts to stay ahead of trends and threats in this sphere . The
Group has further broadened its top management team with
a new chief investment officer and new chief operating officer
appointed in 2020 and now in place .
Role of the Remuneration Committee
The Remuneration Committee is responsible for determining
and reviewing among other things the framework of remu-
neration of the executive directors, senior management and
its overall cost and the Group’s remuneration policies . The
objective is to ensure that the executive management of the
Group are provided with appropriate incentives to encour-
age enhanced performance and are in a fair and responsible
manner rewarded for their individual contributions to the
success of the Group . The Remuneration Committee’s Terms
of Reference include reviewing the design and determining
targets for any performance related pay schemes and re-
viewing the design of all share incentive plans for approval by
the Board . The Remuneration Committee is required to meet
at least twice a year but in practice meets far more often .
The Remuneration Committee continued with its work into
2019 on an ongoing review of the operation of the Group’s
MLTIP which launched in 2016 and in considering additional
awards to both existing and new participants for this and
subsequent years . The Remuneration Committee recom-
mended 10 members of management be invited to join MLTIP
in Q1 2019, but made no such recommendations in Q1 2020 .
The Committee has also been working on plans for an incen-
tive and compensation plan to supplement MLTIP for when,
in the period 2022 to 2024, existing awards made to MLTIP
joiners in 2016-2017 start to enter into run off .
Under its terms of reference the Remuneration Committee is
required at least once each year to review its own perfor-
mance, constitution and terms of reference to ensure it is
operating at maximum effectiveness and to recommend
any changes it considers necessary for Board approval .
The Remuneration Committee met this obligation through
members participating in the main Board review (described
above) under which detailed questionnaires were complet-
ed by all directors assessing the operation of the Board and
both committees as well as individual 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 . In 2019 it
convened 5 times .
Appointment, retirement, rotation
and removal of directors
The directors of the Company are appointed by the general
meeting of shareholders with the sanction of an ordinary
resolution . Such an appointment may be made to fill a
vacancy or as an additional director . But no director may be
appointed unless nominated by the Board of directors or a
committee duly authorized by the Board of directors or by a
shareholder or shareholders together holding or represent-
ing shares which in aggregate constitute or represent at least
5% in number of votes carried or conferred by the shares
giving a right to vote at a general meeting .
Notwithstanding that, one or more Directors B (a special
category of director) may be appointed only by Class B
shareholders, together holding or representing Class B
shares which constitute or represent in aggregate over 50%
in nominal capital paid up on the Class B shares upon serving
notice to the Company . As at 31 December 2019, Class B
shares in aggregate represented under 50% of nominal
capital .
The Board of directors may at any time appoint any person
to the office of director either to fill a vacancy or as an addi-
tional 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-
F-7
F-8
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Consolidated
Management Report (Continued)
third) shall retire by rotation at every annual general meeting .
Directors holding an executive office and Directors B are exclud-
ed from retirement by rotation .
Directors including Directors B may be removed from office by
the shareholders at a general meeting with the sanction of an
ordinary resolution, subject to giving 28 days’ notice to that di-
rector in accordance with the Articles of Association . Directors
B may at any time be removed from office by Class B share-
holders together holding or representing Class B shares which
constitute or represent over 50% in nominal capital paid up on
the Class B Shares upon giving notice to the Company .
The office of director shall be vacated if the director:
• becomes bankrupt or makes any arrangement or composi-
tion with his creditors generally; or
• becomes prohibited from being a director by reason of any
court order made under Section 180 (disqualification from
holding the position of director on the basis of fraudulent or
other conduct) of the Cyprus Companies Law; or
• becomes, or may be, of unsound mind; or
• resigns his office by notice in writing to the Company left at
the registered office; or
•
is absent from meetings of the board for six consecutive
months without permission of the Board of directors and his
alternative director (if any) does not attend in his place and
the Board of directors resolves that his office be vacated .
At any time when Class B Shares cease to exist by virtue of
conversion into Class A Shares, each Director B shall thereby
become (undesignated) a director and shall remain in office until
the next annual general meeting and such director will not be
taken into account in determining the directors who are to retire
by rotation at such meeting .
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 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
Diversity policy
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 consolidated financial statements that are
free from material misstatement, whether due to fraud or
error . In preparing the consolidated financial statements, the
Board of Directors is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as appli-
cable, 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 respon-
sibility 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 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 Group has implemented an online analytical
processing management system based on a common SAS
data warehouse that is updated on a daily basis . The set
of daily reports includes but is not limited to sales reports,
application processing reports, reports on the risk charac-
teristics of the card portfolios, vintage reports, transition
matrix (roll rates) reports, reports on the pre-, early and
late collections activities, reports on compliance with CBR
requirements, capital adequacy and liquidity reports, opera-
tional liquidity forecast reports and information on intra-day
cash flows .
The Group is committed to offering equal opportunity to all current and prospective employees, such that no applicant or em-
ployee is discriminated in favour of or against on the grounds of sex, racial or ethnic origin, religion or belief, disability, age or
sexual orientation in recruitment, training, promotion or any other aspect of employment .
Recruitment, training and promotion are exclusively based on merit . All the Group employees involved in the recruitment and
management of staff are responsible for ensuring the policy is fairly applied within their areas of responsibility . The Group
applies this approach throughout, at all levels . This includes its administrative, management and supervisory bodies, including
the Board of Directors 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
2019 is set out below:
Name
Age
Male/Female
Educational/professional background
Constantinos Economides
44
Male
Alexios Ioannides
Mary Trimithiotou
43
42
Male
Female
Martin Robert Cocker
60
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
Philippe Delpal (resigned on
16 August 2019)
46
Male
BSc in IT, Telecoms and Economics, senior executive experience
in banking industry
Jacques Der Megreditchian 60
Male
BSc in Business Administration and in Financial Analysis, banking
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
10 March 2020
F-9
F-10
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 F-11
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Consolidated Statement
of Financial Position
Consolidated Statement of Profit or Loss and
Other Comprehensive Income
Note 31 December 2019
31 December 2018
In millions of RR
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 securities
Repurchase receivables
Guarantee deposits with payment systems
Current income tax assets
Deferred income tax assets
Tangible fixed assets and right-of-use 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
7
8
9
37
10
11
27
12
12
13
13
14
15
16
37
27
17
18
19
19
20
20
20
20,40
36
57,796
3,448
2,084
329,175
390
135,178
-
8,877
815
1,517
10,560
5,435
21,673
2,510
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
579,458
375,499
663
411,614
26,078
590
-
142
18,487
6,280
14,648
4,874
2,708
280,916
9,605
3
51
1,821
20,644
2,859
11,201
3,441
483,376
333,249
230
26,998
(3,164)
1,039
66,880
3,996
95,979
103
96,082
579,458
188
8,623
(3,670)
1,232
36,785
(1,144)
42,014
236
42,250
375,499
Approved for issue and signed on behalf of the Board of Directors on 10 March 2020 .
Interest income calculated using the effective interest rate method
Other similar income
Interest expense calculated using the effective interest rate method
Other similar expense
Expenses on deposit insurance
Net margin
Credit loss allowance for loans and advances to customers and credit related commit-
ments
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 (losses)/gains from derivatives revaluation
Net gains/(losses) from foreign exchange translation
Net (losses)/gains from operations with foreign currencies
Net gains from disposals of debt securities at FVOCI
Net gains/(losses) from debt instruments at FVTPL
Insurance premiums earned
Insurance claims incurred
Administrative and other operating expenses
Other operating income
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income/(loss)
Items that may be reclassified to profit or loss
Debt securities at FVOCI and Repurchase receivables:
- Net gains/(losses) arising during the period, net of tax
- Net gains reclassified to profit or loss upon disposal, net of tax
Other comprehensive income/(loss) 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
Note
2019
2018
21
21
21
21
21
21
109,972
76,269
118
456
(21,317)
(15,559)
(134)
(1,870)
-
(1,174)
86,769
59,992
9,19
10
(27,244)
(11,607)
139
(192)
(27,105)
(11,799)
59,664
48,193
36,042
27,423
(17,448)
(11,770)
(18,177)
(14,222)
(2,563)
1,784
2,216
(2,155)
(968)
301
389
14,110
(4,891)
381
378
(808)
6,674
(2,126)
(27,852)
(21,499)
4,713
2,971
45,536
35,224
22
22
23
24
24
25
26
27
(9,413)
(8,102)
36,123
27,122
5,381
(2,608)
(241)
(303)
5,140
(2,911)
41,263
24,211
36,122
27,088
1
34
41,262
24,177
1
34
193.62
153.54
190.05
148.78
20
20
Constantinos Economides
Mary Trimithiotou
Director
Director
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)
The notes № 1-41 are an integral part of these Consolidated Financial Statements .
The notes № 1-41 are an integral part of these Consolidated Financial Statements .
F-21
F-22
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Consolidated Statement
of Changes in Equity
Attributable to shareholders of the Company
t
n
e
m
y
a
p
d
e
s
a
b
-
e
r
a
h
S
e
v
r
e
s
e
r
t
b
e
d
n
i
s
t
n
e
m
t
s
e
v
n
i
r
o
f
e
v
r
e
s
e
r
n
o
i
t
a
u
a
v
e
R
l
s
e
i
t
i
r
u
c
e
s
m
u
i
m
e
r
p
e
r
a
h
S
l
a
t
i
p
a
c
e
r
a
h
S
e
t
o
N
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
g
n
i
l
-
l
o
r
t
n
o
c
-
n
o
N
t
s
e
r
e
t
n
I
l
a
t
o
T
y
t
i
u
q
e
l
a
t
o
T
In millions of RR
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 January
2018
-
-
-
-
-
-
292
39
-
-
(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
34
27,122
Other comprehensive loss:
Investments in debt securities at
FVOCI and Repurchase receiv-
ables
Total comprehensive income/
(loss) for the year
GDRs buy-back
20
Share-based payment reserve
20,40
Dividends declared
28
-
-
-
-
-
-
-
-
-
-
-
(2,911)
-
-
(2,911)
-
(2,911)
-
(2,911)
-
27,088
24,177
34
24,211
-
- (2,455)
-
(2,455)
372
312
630
-
-
(2,455)
630
-
(12,265)
(12,265)
- (12,265)
(54)
-
-
-
Balance at 31 December 2018
188
8,623 1,232
(1,144)
(3,670)
36,785
42,014
236
42,250
Profit for the year
-
-
-
-
-
36,122
36,122
1
36,123
Other comprehensive income:
Investments in debt securities at
FVOCI and Repurchase receiv-
ables
Total comprehensive income for
the year
Shares issued
Secondary public offering costs
Acquisition of non-controlling
interest in subsidiaries
Share-based payment reserve
20,40
Dividends declared
28
-
-
-
-
20
20
42
18,874
-
(499)
-
-
-
-
-
-
-
-
(193)
-
-
-
5,140
-
-
5,140
-
5,140
-
5,140
-
36,122
41,262
1
41,263
-
-
-
-
-
-
-
-
-
-
18,916
(499)
-
-
18,916
(499)
(327)
(327)
(134)
(461)
506
156
469
-
(5,856)
(5,856)
-
-
469
(5,856)
Balance at 31 December 2019
230 26,998 1,039
3,996 (3,164)
66,880
95,979
103
96,082
Consolidated Statement
of Cash Flows
In millions of RR
Cash flows from operating activities
Interest income received calculated using the effective interest rate method
Other similar income received
Interest expense paid calculated using the effective interest rate method
Recoveries from written-off loans
Expenses on deposits insurance paid
Fees and commissions received
Fees and commissions paid
Customer acquisition expense paid
Cash (paid)/received from operations with foreign currencies
Cash (paid)/received from operations with derivatives
Premiums received from insurance operations
Claims paid 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 (increase)/decrease 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 decrease/(increase) in other non-financial assets
Net (decrease)/increase in due to banks
Net increase in customer accounts
Net increase in other financial liabilities
Net decrease in non-financial liabilities
Net cash from operating activities
Cash flows from/(used in) investing activities
Acquisition of tangible fixed assets
Acquisition of intangible assets
Acquisition of investments in securities, repurchase receivables and other investments
Proceeds from sale and redemption of investments in securities
Net cash used in investing activities
Cash flows from/(used in) financing activities
Proceeds from secondary public offering
Secondary public offering costs paid
Proceeds from debt securities in issue
Proceeds of perpetual loan participation notes
Dividends paid
Repayment of principal of lease liabilities
Repayment of debt securities in issue
Other financing activities cash flows
Repayment of subordinated loan
Repayment of perpetual loan participation notes
GDR’s buy-back
Net cash from/(used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Note
2019
2018
106,975
175
(21,334)
3,420
(1,673)
35,986
(17,492)
(19,272)
(968)
(647)
16,254
(4,337)
4,024
(26,119)
(13,606)
73,397
300
(14,693)
4,083
(1,001)
27,143
(11,588)
(15,541)
381
2,581
7,044
(2,050)
1,597
(20,927)
(5,416)
61,386
45,310
(1,013)
(1,308)
(151,771)
5,879
(4,848)
(4,046)
19
(2,045)
135,633
1,387
(524)
38,749
(760)
1
(78,453)
469
(132)
(2,512)
(436)
2,113
97,263
177
(141)
62,899
(1,783)
(2,539)
(108,246)
71,000
(41,568)
(2,835)
(1,859)
(102,204)
74,401
(32,497)
18,916
(499)
23,254
46
(5,601)
(1,087)
(6,583)
(461)
-
-
-
27,985
(1,172)
23,994
33,802
57,796
-
-
3,622
-
(11,946)
-
(5,425)
-
(5,209)
(49)
(2,455)
(21,462)
1,012
9,952
23,850
33,802
9
20
20
29
29
28
29
29
29
29
20
7
7
The notes № 1-41 are an integral part of these Consolidated Financial Statements .
The notes № 1-41 are an integral part of these Consolidated Financial Statements .
F-23
F-24
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements
1 Introduction
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
as adopted by the European Union (“IFRS”) for the year ended 31 December 2019 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, Jacques Der Megreditchian and Martin Robert Cocker .
The Company Secretary is Caelion Secretarial Limited, 25 Spyrou Araouzou, 25 Berengaria, 5th floor, Limassol 3036, Cyprus .
At 31 December 2019 and 2018 the share capital of the Group is comprised of “class A” shares and “class B” shares . A
“class A” share is an ordinary share with a nominal value of USD 0 .04 per share and carrying one vote . A “class B” share is an
ordinary share with a nominal value of USD 0 .04 per share and carrying 10 votes . As at 31 December 2019 the number of
issued “class A” shares is 119,291,268 and issued “class B” shares is 80,014,224 (31 December 2018: the number of issued
“class A” shares is 96,239,291 and issued “class B” shares is 86,399,534) . Refer to Note 20 for the information about main
changes in number of “class A” and “class B” shares . On 25 October 2013 the Group completed an initial public offering of its
“Class A” ordinary shares in the form of global depository receipts (GDRs) listed on the London Stock Exchange plc . On 2 July
2019 the Group completed a secondary public offering (SPO) of its “class A” shares in the form of GDRs . Refer to Note 20 for
the information about SPO . On 28 October 2019 the Group’s GDRs started trading also on the Moscow Exchange .
As at 31 December 2019 and 2018 the entities and the individuals holding either Class A or Class B shares of the Company
were:
Class of shares
31 December
2019
31 December
2018
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
Total
Class A
Class B
Class B
Class A
Class A
Class A
Class A
Class A
Class A
59 .85%
18 .47%
21 .68%
0 .00%
0 .00%
0 .00%
0 .00%
0 .00%
0 .00%
52 .70% United Kingdom
23 .65%
23 .65%
0 .00%
0 .00%
0 .00%
0 .00%
0 .00%
0 .00%
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
100.00%
100.00%
Guaranty Nominees Limited is a company holding class A shares of the Company for which global depositary receipts are
issued under a deposit agreement made between the Company and JP Morgan Chase Bank NA signed in October 2013 .
As at 31 December 2019 and 2018 the beneficial owner of Altoville Holdings Limited and Nemorenti Limited was Russian
entrepreneur Mr . Oleg Tinkov . The six individuals listed above each hold one share . The individuals hold them as nominees of
Altoville Holdings Limited .
As at 31 December 2019 and 2018 the ultimate controlling party of the Company is Mr . Oleg Tinkov . Mr . Oleg Tinkov controls
approximately 87 .03% of the aggregated voting rights attaching to the Class A and B shares as at 31 December 2019 (31
December 2018: 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 2019 and 2018 .
JSC “Tinkoff Bank” (the “Bank”) provides on-line retail banking services in Russia . The Bank specialises in issuing credit cards
and other credit products .
JSC “Tinkoff Insurance” (the “Insurance Company”) provides insurance services such as accident, property, travellers’, finan-
cial risks and auto insurance .
LLC “Microfinance company “Т-Finans” provides micro-finance services .
TCS Finance D .A .C . is a structured entity which issued debt securities including subordinated perpetual bonds for the Group .
The Group neither owns shares nor has voting rights in this company . However, this entity was consolidated as it was specifi-
cally set up for the purposes of the Group, and the Group has exposure to substantially all risks and rewards through outstand-
ing guarantees of the entity’s obligations .
LLC “TCS” provides printing, distribution and other services to the Group .
Goward Group Ltd is an investment holding company which managed part of the Group’s assets . Since February 2018 Goward
Group Ltd was in liquidation process, and on 16 April 2019 the company was liquidated .
LLC “Phoenix” is a debt collection agency .
LLC “Tinkoff Software DC” and LLC “Fintech DC” provide software development services .
LLC “Tinkoff Mobile” is a mobile virtual network operator set up in 2017 to provide mobile services .
LLC “CloudPayments” is a developer of online payment solutions whose core business is online merchant acquiring in Russia .
During 2019 the Group acquired an additional 40% shareholding in LLC “CloudPayments” and increased its stake to 95% .
ANO “Tinkoff Education” is a non-commercial organization set up by the Bank as the sole founder .
LLC “Tinkoff Capital” is an asset management company established in June 2019 to manage investment funds, mutual funds
and non-state pension funds .
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 .
Principal activity. The Group’s principal business activities are retail banking to private individuals, individual entrepreneurs’
(“IE”) and small and medium enterprises’ (“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 oper-
ates 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
insurance in banks of the Russian Federation” dated 23 December 2003 . The State Deposit Insurance Agency guarantees re-
payment of insurance compensation up to RR 1 .4 million per individual, individual entrepreneur and small enterprise deposits
in case of the withdrawal of a license of a bank or a CBRF-imposed moratorium on payments .
Registered address and place of business. The Company’s registered address is 25 Spyrou Araouzou, Berengaria 25, 5th
floor, Limassol, Cyprus, and place of business is Office 403, Lophitis Business Centre I, 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) .
F-25
F-26
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
2 Operating Environment of the Group
Russian Federation. The Russian Federation displays certain characteristics of an emerging market . Its economy is particu-
larly sensitive to oil and gas prices . The legal, tax and regulatory frameworks continue to develop and are subject to frequent
changes and varying interpretations (Note 33) .
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 . This operating environment has a significant impact on the Group’s operations
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 to Rouble interest rates, CBRF “key rate” amounted to 6 .25% per annum as at 31 December 2019 (31 December
2018: 7 .75%) .
Since the year end the Russian Rouble has declined by nearly 16% to around USD 1 = RR 72 .02 as at 11 March 2020 includ-
ing an approximately 7% decline during the period from 7 March to 11 March 2020 after global oil prices were significantly
reduced .
The Group actively monitors the situation in the Russian banking sector and the activity of CBRF in response to current
and newly developed requirements, or any sanctions against the participants who breach them . In particular in 2019 CBRF
introduced certain macroprudential adjustments (for example borrowers’ debt burden limit) to manage macroeconomic risks
related to primarily unsecured lending . Management of the Group believes it is highly important to participate in the discus-
sion of legislation development in the banking sphere and supports the intention of the CBRF to make the finance market more
transparent and disciplined .
Late in 2019 news first emerged from China about the COVID-19 (Coronavirus) . At the end of 2019 a limited number of cases
of an unknown virus had been reported to the World Health Organisation . In the first few months of 2020 the virus had spread
globally and its negative impact has gained momentum . Management considers this outbreak to be a non-adjusting post bal-
ance sheet event . While this is still an evolving situation at the time of issuing these consolidated financial statements, to date
there has been no discernible impact on the Group’s business, however the future effects cannot be predicted . As the situation
is rapidly evolving, we do not consider it is practicable at present to determine a quantitative estimate of the potential impact
of this outbreak on the Group . Management will continue to monitor the potential impact and will take steps to mitigate any
effects where possible .
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 31 provides more information of how the Group incorporates forward-looking information
in the ECL models .
3 Significant Accounting Policies
Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Re-
porting 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”) . The principal accounting policies applied in the prepa-
ration of these consolidated financial statements are set out below . Apart from the accounting policy changes resulting from the
adoption of IFRS 16 effective from 1 January 2019, these policies have been consistently applied to all the periods presented, unless
otherwise stated . Refer to Note 5 . 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 con-
trolling 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 .
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 .
F-27
F-28
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
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 associate
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 com-
prehensive 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 . Otherwise the Group continue to recognise further losses if it has commitments to fund the associate’s
operations .
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 .
The Group applies the impairment requirements in IFRS 9 to long-term loans and similar long-term interest that in substance
form part of the investment in associate before reducing the carrying value of the investment by a share of a loss of the inves-
tee that exceeds the amount of the Group’s interest in the ordinary shares .
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 38 .
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 . Fair value at initial recognition is best evidenced by the
transaction price . A gain or loss on initial recognition is only recorded if there is a difference between fair value and transac-
tion price which can be evidenced by other observable current market transactions in the same instrument or by a valuation
technique whose inputs include only data from observable markets .
F-29
F-30
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
After the initial recognition, an ECL allowance is recognised for financial assets measured at AC and investments in debt instru-
ments measured at FVOCI, resulting in an immediate accounting loss .
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 .
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:
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:
1) an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes;
• the Group’s business model for managing the related assets portfolio and
2) the time value of money; 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 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 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 .
3) 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 pro-
vision 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:
1) 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”) .
2) 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 expect-
ed prepayments, if any (“lifetime ECL”) . Refer to Note 31 for a description of how the Group determines when a SICR has
occurred .
3) If the Group 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 31 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 31 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-31
F-32
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
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 . The Group writes-off financial assets that are mostly still subject to enforcement
activity, however, there is no reasonable expectation of recovery . If credit-impaired loans are sold to third parties, the Group
remeasures the amount of ECL prior to sale taking into consideration the expected sales proceeds so that there are no gains
or losses on derecognition upon sale .
Repayments of written-off loans. Recovery of amounts previously written-off as uncollectible is 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 statement
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 derec-
ognises 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 mod-
ified 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 substantially
different, the modification does not result in derecognition .
Financial liabilities – measurement categories. Financial liabilities are classified as subsequently measured at AC, except for
financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e .g . short positions
in securities) .
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 short-term, highly liquid investments that 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 represent
non-interest bearing mandatory reserve deposits which are not available to finance the Group’s day to day operations and
hence are not considered as part of cash and cash equivalents for the purposes of the consolidated statement of cash flows .
Due from other banks . Amounts due from other banks are recorded when the Group advances money to counterparty banks
with no intention of trading the resulting unquoted non-derivative receivable due on fixed or determinable dates . Amounts
due from other banks are carried at amortised cost 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 merely
acknowledge the existence of the legislation and do not create any additional rights or obligation for the Group, the SPPI crite-
rion is met and the respective instruments are carried at AC .
Investments in debt securities. Based on the business model and the contractual cash flow characteristics, the Group classi-
fies investments 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-33
F-34
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
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:
1) 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 or FVOCI are measured at FVTPL (mandatory FVTPL) .
Impairment allowances of the loans measured at AC are determined based on the forward-looking ECL model . Note 31 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
99
3 to 10
5
Leasehold improvements
Shorter of their useful economic life and the term of the underlying lease
The residual value of an asset is an estimated amount that the Group would currently obtain from disposal of the asset less the
estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life . The
assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period .
Intangible assets. The Group’s intangible assets other than insurance license have definite useful life and include capitalised
acquired computer software and internally developed software . Development costs that are directly associated with identi-
fiable and unique software controlled by the Group are recorded as intangible assets if the inflow of incremental economic
benefits exceeding costs is probable . Capitalised costs include staff costs of the software development team and an appropri-
ate portion of relevant overheads .
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 .
F-35
F-36
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
Accounting for leases by the Group as a lessee from 1 January 2019. From 1 January 2019, leases, where the Group is the
lessee, are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for
use by the Group . Each lease payment is allocated between the liability and finance cost . The finance cost is charged to profit or
loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each
period . The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line
basis .
Assets and liabilities arising from a lease are initially measured on a present value basis . Lease liabilities include the net pres-
ent value of the following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable under cancellable and non-can-
cellable operating leases;
• variable lease payments that are based on an index or a rate and that are initially measured using the index or rate as at the
commencement date;
• amounts expected to be payable by the lessee under residual value guarantees;
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option .
The lease term includes any non-cancellable and optional extension periods which have been assessed as reasonably certain
to be exercised . The lease payments are discounted using the interest rate implicit in the lease . If that rate cannot be deter-
mined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds
necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions .
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability,
• any lease payments made at or before the commencement date less any lease incentives received,
• any initial direct costs, and
• dismantling and restoration costs .
As an exception to the above, the Group accounts for short-term leases and leases of low value assets by recognising the lease
payments as an operating expense on a straight line basis . Short-term leases are leases with a lease term of 12 months or less,
and the lease does not provide for the possibility of repurchase of the asset at the end of the contract . Low value assets are
assets with a value of RR 300,000 or less at the date of conclusion of the contract .
Right-of-use assets are included in tangible fixed assets, lease liabilities are included in other non-financial liabilities in the
consolidated statement of financial position . Depreciation of right-of-use assets are recognised in administrative and other op-
erating expenses in the consolidated statement of profit or loss and other comprehensive income . Finance cost is recognised
within other similar expense line of the consolidated statement of profit or loss and other comprehensive income . Repayment
of principal of lease liabilities is disclosed within cash flows from financing activities of the consolidated statement of cash
flows .
Accounting for operating leases by the Group as a lessee prior to 1 January 2019. 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 .
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 val-
ue of financial derivatives are recorded in profit or loss within Net (losses)/gains from derivatives revaluation . 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 management’s best estimate of the
expenditure required to settle the obligations at the end of the reporting period .
F-37
F-38
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
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 .
Interest income and expense recognition. Interest income and expense calculated using effective interest method are record-
ed 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 (e .g . interchange fee on credit card loans) received or paid
by the entity relating to the creation or acquisition of a financial asset or issuance of a financial liability .
Commitment fees (e .g . annual fee on credit card loans) 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 liabili-
ties at FVTPL .
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:
i)
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 expense recognition. 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 attributed to the acquisition of a particular client, are included in the effective interest
rate of the originated financial instruments; the remaining costs are expensed on the basis of the actual services provided .
Other income and expense recognition. All other income is generally recorded on an accrual basis by reference to comple-
tion of the specific performance obligation assessed on the basis of measurement of the Group’s progress towards complete
satisfaction of that performance obligation .
All 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 .
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 .
Other similar expense. Other similar expense represents finance cost related to the discounted lease payments using the
incremental borrowing 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,
usually 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 fees for selling credit
protection, 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, mort-
gage 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 re-
deemed or expire with the corresponding entries to interest income calculated using the effective interest rate method or com-
mission expenses depending on whether the points were accumulated by credit card clients or debit card clients respectively .
F-39
F-40
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
Insurance contracts. Insurance contracts are those contracts that transfer significant insurance risk . Insurance risk exists
when the Group has uncertainty in respect of at least one of the following matters at inception of the contract: occurrence of
insurance event, date of occurrence of the insurance event, and the claim value in respect of the occurred insurance event .
Such contracts may also transfer financial risk .
Non-life insurance (short-term insurance). The below items from the consolidated statement of financial position of the
Group are accounted within Other financial assets and Other financial liabilities lines, the below items from the consolidated
statement of profit 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 reinsurance asset is impaired, the Group reduces the carrying amount
of the reinsurance asset to its recoverable amount and recognises that impairment loss in the consolidated statement of
profit or loss and other comprehensive income . The Group gathers the evidence that a reinsurance asset is impaired using
the same process adopted for financial assets carried at amortised cost . The impairment loss is also calculated following
the same method used for the financial assets carried at amortised cost .
• Subrogation income. The Group has a right to pursue third parties responsible for loss for payment of some or all costs
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 provisions
• Provision for unearned premiums. Provision for unearned premiums (“UEPR”) represents the proportion of premiums
written that relate to the unexpired term of policies in force as at the reporting date, calculated on a time apportionment
basis . UEPR is recognised within liabilities on a gross basis .
• 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 informa-
tion received by the Group during settlement of the insured event, including information received after the reporting date .
IBNR is determined by the Group by line of business using actuarial methods, and includes assumptions based on prior
years’ claims and claims handling experience . IBNR is calculated for each occurrence period as the difference between the
projected maximum amount of future payments resulting from the events that occurred during the period and the amount
of future payments resulting from the event already reported but not settled at the reporting date within the same period .
The methods of determining such estimates and establishing the resulting provisions are continually reviewed and updated .
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 and operations. 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 oper-
ates . 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 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 Net gains/(losses) from
foreign exchange translation .
Foreign exchange gains and losses resulting from the settlement of transactions with foreign currencies are recognised in
profit or loss for the year as net (losses)/gains from operations with foreign currencies (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 2019 the rate of exchange used for translating foreign currency balances was USD 1 = RR 61 .9057 (31
December 2018: USD 1 = RR 69 .4706), and the average rate of exchange was USD 1 = RR 64 .7362 (2018: USD 1 = RR
62 .7078) .
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 .
F-41
F-42
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
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 .
Effective interest rate. During 2019 as a result of futher development of its data and IT systems the Group identified the part
of customer acquisition expenses which can be directly linked to the particular borrower, and which are incremental in nature,
such as partnership call-centre expenses, internet acquisition expenses and related VAT expenses as well as changed the
pattern of recognition of certain types of expenses which were included into the effective interest rate, such as partnership
expenses (external partner channels of customers’ acquisition) and cards issuing expenses . Having obtained sufficient and rep-
resentative statistical information the management of the Group changed the accounting policy in relation to these expenses
and allocated them directly to the originated financial instruments and included them in the effective interest rate . The effect of
this change in accounting policy for prior periods was credited to the consolidated statement of profit or loss and other com-
prehensive income for the year ended 31 December 2019 . Prior periods were not amended due to the change not resulting in
a material impact for any individual prior period .
Changes in presentation. During 2019 the Group identified the part of customer acquisition expenses, which can be directly
linked to the debit product customers and which are incremental in nature, such as partnerships, internet acquisition and
cards issuing expenses, and allocated them directly to the originated financial instruments and included them in the interest
expenses .
In 2019 the management of the Group refined its approach to the presentation of expenses related to the direct settlement of
losses in compulsory third party liability insurance in the consolidated condensed interim statement of profit or loss and other
comprehensive income . The management concluded it was appropriate to reclassify these expenses from Administrative and
other operating expenses to Insurance claims incurred because these expenses in substance represent part of claims incurred
on compulsory third party liability insurance .
In 2019 the management of the Group made a detailed review of the VAT expenses recognised in administrative and other
operating expenses and using improved technical reports identified the part of VAT expenses which is related to customer
acquisition expenses . The management concluded it was appropriate to reclassify these expenses from Administrative and
other operating expenses to Customer acquisition expense because such reclassification makes presentation of VAT expenses
more relevant and precise .
In 2019 the management of the Group made a detailed review of the components that make up interest income and identi-
fied one type of fee (payment channels fee) which now has more characteristics of being a service fee than being part of the
effective interest income of the loans . The management considers that the reclassification of this fee to Fee and commission
expense will result in a more reliable and relevant presentation of the financial information and is more consistent with the
market practice of many other banks . The reclassification does not result in any change to the amount recognised in respect
of these fees in any one period . Prior periods were not amended due to the change not resulting in a material impact for any
individual prior period .
In 2019 the management of the Group made a detailed review of the components that make up fee and commission expense
and identified partnership expenses (external partner channels of customers’ acquisition) which have more characteristics of
being customer acquisition expenses than being of fee and commission expenses . The management considers that the reclas-
sification of these expenses to Customer acquisition expenses will result in a more reliable and relevant presentation of the
financial information . The reclassification does not result in any change to the amount of income recognised in respect of these
expenses in any one period .
In these consolidated financial statements the management of the Group improved the presentation of the results of opera-
tions with foreign currencies, derivatives revaluation and foreign exchange translation and disclosed separately in the consoli-
dated statement of profit or loss and other comprehensive income the following line items: Net (losses)/gains from operations
with foreign currencies, Net (losses)/gains from derivatives revaluation, Net gains/(losses) from foreign exchange translation .
In these consolidated financial statements the management of the Group improved the presentation of the cash flows from the
insurance operations and disclosed separately in the consolidated statement of cash flows the following line items: Premiums
received from insurance operations and Claims paid from insurance operations The management considers that such im-
proved and more detailed disclosure provides users of these consolidated financial statements with more relevant information .
The effect of changes described above on the consolidated statement of profit or loss and other comprehensive income for the
year ended 31 December 2018 is as follows:
In millions of RR
Interest income calculated using the effective interest rate
method
Interest expense calculated using the effective interest rate
method
Customer acquisition expense
Insurance claims incurred
Administrative and other operating expenses
Fee and commission expense
Net (losses)/gains from operations with foreign currencies
Net (losses)/gains from derivatives revaluation
Net gains/(losses) from foreign exchange translation
As originally
presented Reclassification
As reclassified
75,041
1,228
76,269
(15,106)
(13,100)
(1,968)
(23,023)
(10,751)
10
-
-
(453)
(1,122)
(158)
1,524
(1,019)
371
1,784
(2,155)
(15,559)
(14,222)
(2,126)
(21,499)
(11,770)
381
1,784
(2,155)
F-43
F-44
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
3 Significant Accounting Policies (Continued)
The effect of changes described above on the consolidated statement of cash flows for the year ended 31 December 2018 is
as follows:
In millions of RR
Interest income received calculated using the effective interest
rate method
Interest expense paid calculated using the effective interest rate
method
Customer acquisition expense paid
Administrative and other operating expenses paid
Fees and commissions paid
Cash (paid)/received from operations with foreign currencies
Cash (paid)/received from operations with derivatives
Premiums received from insurance operations
Claims paid from insurance operations
Cash received from insurance operations
As originally
presented Reclassification
As reclassified
72,169
1,228
73,397
(14,240)
(14,419)
(22,451)
(10,569)
2,962
-
-
-
5,152
(453)
(1,122)
1,524
(1,019)
(2,581)
2,581
7,044
(2,050)
(5,152)
(14,693)
(15,541)
(20,927)
(11,588)
381
2,581
7,044
(2,050)
-
4 Critical Accounting Estimates and Judgements in Applying
Accounting Policies
The Group makes estimates and assumptions that affect the amounts recognized in the consolidated financial statements and
the carrying amounts of assets and liabilities within the next financial year . Estimates and judgements are continually evaluat-
ed and are based on management’s experience and other factors, including expectations of future events that are believed to
be reasonable under the circumstances . Management also makes certain judgements, apart from those involving estimations,
in the process of applying the accounting policies . Judgements that have the most significant effect on the amounts recog-
nized in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of
assets and liabilities within the next financial year include:
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, forward-looking scenarios and theirs weights) and loss given default
(“LGD”) . Refer to Note 31 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 31 for fur-
ther information on ECL measurement .
If a 100% weight is applied to the optimistic macroeconomic forward-looking scenario the ECL will be RR 2,797 million lower
(2018: RR 821 million lower) . If a 100% weight is applied to the pessimistic macroeconomic forward-looking scenario the ECL
will be RR 3,000 million higher (2018: RR 1,328 million higher) .
An increase or decrease in PDs by 1% compared to PDs used in the ECL estimates calculated at 31 December 2019 would
result in an increase or decrease in credit loss allowances of RR 2,092 million (2018: RR 1,598 million) .
An increase or decrease in LGDs by 1% compared to LGDs used in the ECL estimates calculated at 31 December 2019 would
result in an increase or decrease in credit loss allowances of RR 462 million (2018: RR 372 million) .
During 2019 as a result of the accumulation of further statistics on the recoveries of the defaulted loans in courts the Group
increased the period over which the recoveries are analysed for the purposes of LGD calculation for loans in courts . The Group
recorded this change in 2019 as a decrease in the amount of credit loss allowances of RR 47 million .
During 2019 the Group made changes to the methodology of estimation of the PD of new originated credit cards loans and
introduced application PD model instead of default rate model . The Group recorded this change in 2019 as a decrease in the
amount of credit loss allowances of RR 212 million for credit card loans and of RR 163 million for credit related commitments .
During 2019 the Group improved the way how forward-looking information is incorporated in the ECL models by including an
additional economic variable . The Group recorded this change in 2019 as a decrease in the amount of credit loss allowances of
RR 201 million .
During 2018 as a result of the accumulation of reliable statistics of the recoveries of the defaulted credit card loans, cash
loans, POS loans the Group increased the period over which the recoveries are analysed for the purposes of LGD calculation
for these loans . The Group recorded these changes in 2018 as a decrease in the amount of credit loss allowances of RR 261
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 man-
agement 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 31 .
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 inter-
est for a given period results in its conversion, at the Group's option, into equity and therefore the respective amount of the
liability is reclassified to equity . Foreign exchange translation gains and losses on the bond are recognised in profit or loss for
the period . Application of this approach requires judgement: the Group has taken into consideration that there are genuine
contingent settlement provisions that could arise and as such has classified the perpetual subordinated bond instrument in its
entirety as a liability, rather than equity, on the basis of terms of issue which stipulate the possible redemption of the instru-
ment in several cases other than liquidation of the issuer . If the Group had recognized this instrument as equity, then interest
expense would only have been recognized when it was paid and treated as a distribution from equity rather than an expense in
profit or loss .
The Group also from time to time invests 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 invest-
ments 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 Group had recognized
this instrument as equity instrument, then it could have been measured at FVTPL or FVOCI as the Group does not hold it for
trading purposes .
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 .
F-45
F-46
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
4 Critical Accounting Estimates and Judgements in Applying
Accounting Policies(Continued)
Unbundling of loans and insurance products. Certain loans issued by the Group are forgivable upon events such as the
borrower's death, or the borrower becoming unemployed because the Insurance Company's products cover repayments of the
related loan products issued by the Bank in such cases . The Group is able to measure the loans separately and, as well as being
able to take a loan without insurance at the time of issuance, the borrowers can cancel the insurance products at any time,
separately from the loan . Accordingly, the Group unbundled the loans from the overall arrangement .
The portion of the fee attributable to the insurance component is recognised within Insurance premiums earned line (refer to
Note 24) . The remaining portion of the fee approximates a fee that would have been earned on market terms for selling third
party insurance products and it is recognised as fee for selling credit protection within Fee and commission income line (refer
to Note 22) .
The following amended standards became effective from 1 January 2019, but did not have any material impact on the Group:
• IFRIC 23 "Uncertainty over Income Tax Treatments" (issued on 7 June 2017 and effective for annual periods beginning on
or after 1 January 2019) .
• 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) .
• Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” (issued on 12 October 2017 and effective
for annual periods beginning on or after 1 January 2019) .
• 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) .
• Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” (issued on 7 February 2018 and effective for annual
periods beginning on or after 1 January 2019) .
Tax legislation. Russian and Cypriot tax, currency and customs legislation are subject to varying interpretations . Refer to Note
33 .
6 New Accounting Pronouncements
5 Adoption of New or Revised Standards and Interpretations
Adoption of IFRS 16, Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 Jan-
uary 2019). The Group has adopted IFRS 16 with a date of transition of 1 January 2019 and applied the standard using the
modified retrospective method, without restatement of comparatives (Note 3) . The new standard sets out the principles for the
recognition, measurement, presentation and disclosure of leases . All leases result in the lessee obtaining the right to use an
asset at the start of the lease and, if lease payments are made over time, also obtaining financing .
Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17
and, instead, introduces a single lessee accounting model .
The Group recognised a right of use asset of RR 1,671 million against a corresponding lease liability on 1 January 2019 . Right-
of-use assets are mainly represented by leases of office premises . A reconciliation of the operating lease commitments to this
liability is as follows:
In millions of RR
1 January 2019
Legally non-cancellable minimum operating lease commitments
Additional lease commitments which relate to the inforceable period of lease
Lease payments under operating lease (based on requirements of IFRS 16)*
Recognition exemption: the underlying asset is of low value
Future lease payments under IFRS 16
Effect of discounting (the weighted average incremental borrowing rate used 7 .6%)
Lease liabilities under IFRS 16
Amount of prepayments and irrevocable security payments on agreements
Right-of-use assets under IFRS 16
829
1,288
2,117
(216)
1,901
(236)
1,665
6
1,671
* The amount of lease payments under operating lease as at 1 January 2019 presented above differs from the amount of operating lease
commitments disclosed in the Note 36 to the consolidated financial statements of the Group for the year ended 31 December 2018 because
the amount of operating lease commitments disclosed in the Note 36 to the consolidated financial statements of the Group for the year
ended 31 December 2018 included only legally non-cancellable minimum operating lease commitments (based on termination notice in lease
contracts), while the above table includes those lease commitments which relate to the enforceable period of lease based on the requirements
of IFRS 16 and the IFRIC Agenda decision about the lease term.
Certain new amendments have been issued that are mandatory for the annual periods beginning on or after 1 January 2020:
Interest rate benchmark reform – Amendments to IFRS 9, IAS 39 and IFRS 7 (issued on 26 September 2019 and effective
for annual periods beginning on or after 1 January 2020). The amendments were triggered by replacement of benchmark
interest rates such as LIBOR and other inter-bank offered rates (‘IBORs’) . The amendments provide temporary relief from
applying specific hedge accounting requirements to hedging relationships directly affected by the IBOR reform .
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 contracts, includ-
ing reinsurance contracts that an insurer holds . The standard requires recognition and measurement of groups of insurance con-
tracts 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 contrac-
tual service margin) . Insurers will be recognising the profit from a group of insurance contracts over the period they provide insur-
ance coverage, and as they are released from risk . If a group of contracts is or becomes loss-making, an entity will be recognising
the loss immediately . The Group is currently assessing the impact of IFRS 17 on the insurance contracts issued by the Insurance
Company as well as the impact for credit cards and similar loan products which may include insurance component .
The following other new pronouncements are not expected to have any material impact on the Group when adopted:
(a) Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual periods
beginning on or after 1 January 2020) .The revised Conceptual Framework includes a new chapter on measurement; guidance
on reporting financial performance; improved definitions and guidance - in particular the definition of a liability; and clarifica-
tions in important areas, such as the roles of stewardship, prudence and measurement uncertainty in financial reporting .
(b) Amendments to IFRS 3: Definition of a business (issued on 22 October 2018 and effective for acquisitions from the begin-
ning of annual reporting period that starts on or after 1 January 2020)* .
(c) 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) .
(d) Amendments to IAS 1: Classification of liabilities as current or non-current (issued on 23 January 2020 and effective for
annual periods beginning on or after 1 January 2022)* .
(e) Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an Investor and its associate or joint venture
(issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB)* .
The Group is currently assessing the impact of the above standards on its consolidated financial statements .
* Denotes standards, interpretations and amendments which have not yet been endorsed by the European Union.
F-47
F-48
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
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
- CCC+ rated
Non-bank credit organizations:
- BBB- to BBB+ rated
- Unrated
Total Cash and Cash Equivalents
31 December
2019
31 December
2018
11,118
16,599
5,839
11,158
2,302
599
1,430
503
67
2
21,096
4,080
57,796
1,130
761
1,317
360
114
-
12,137
986
33,802
Cash on hand includes cash balances in ATMs and cash balances in transit . Placements with other banks and organizations
with original maturities of less than three months include placements under reverse sale and repurchase agreements in the
amount of RR 20,681 million as at 31 December 2019 (31 December 2018: RR 11,147 million) . The Group has a right to sell or
repledge securities 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:
In millions of RR
Excellent
Good
Monitor
Sub-standard
Cash balances with
the CBRF
-
11,158
-
-
Placements with
other banks and non-
bank credit organi-
zations
1,891
Total
1,891
13,789
24,947
1,018
107
1,018
107
Total cash and cash equivalents, excluding cash on hand
11,158
16,805
27,963
The carrying amount of cash and cash equivalents at 31 December 2019 and 2018 also represents the Group's maximum
exposure to credit risk on these assets . Refer to Note 31 for the description of the Group’s credit risk grading system .
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 Group did not recognise any credit loss allowance for cash and cash equiv-
alents . Except for reverse sale and repurchase agreements, amounts of cash and cash equivalents are not collateralised . As
at 31 December 2019 the fair value of collateral under reverse sale and repurchase agreements was RR 22,369 million (31
December 2018: RR 12,389 million) . There is no material impact of collateral on credit loss allowance for cash and cash equiv-
alents . Refer to Note 38 for the disclosure of the fair value of cash and cash equivalents . ECL measurement approach, interest
rate, maturity and geographical risk concentration analysis of cash and cash equivalents are disclosed in Note 31 .
8 Due from Other Banks
The table below discloses the credit quality of cash and cash equivalents balances based on credit risk grades at 31 December
2019:
In millions of RR
In millions of RR
Excellent
Good
Monitor
Doubtful
Placements with
other banks and
non-bank credit
organizations
Cash balances
with the CBRF
-
16,599
-
-
2,901
23,031
4,145
2
Total
2,901
39,630
4,145
2
Total cash and cash equivalents, excluding cash on hand
16,599
30,079
46,678
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
2019
31 December
2018
204
1,419
461
2,084
210
128
438
776
The table below discloses the credit quality of due from banks balances based on credit risk grades:
In millions of RR
Good
Monitor
Total due from other banks
31 December
2019
31 December
2018
1,577
507
2,084
338
438
776
The carrying amount of due from other banks at 31 December 2019 and 2018 also represents the Group's maximum exposure
to credit risk on these assets . Refer to Note 31 for the description of credit risk grading system used by the Group . For the
purpose of ECL measurement due from other 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 other banks . Refer to Note 31 for the ECL measurement approach . Refer to Note 38 for the disclosure of the fair
value of due from other banks . Interest rate, maturity and geographical risk concentration analysis are disclosed in Note 31 .
F-49
F-50
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers
In millions of RR
Credit card loans
Cash loans
Secured loans
POS loans
Car loans
Loans to IE and SME
Total loans and advances to
customers at AC
31 December 2019
31 December 2018
Gross carry-
ing amount
Credit loss
allowance
Carrying
amount
Gross carry-
ing amount
Credit loss
allowance
Carrying
amount
244,937
(44,129)
200,808
177,990
(33,296)
144,694
62,265
(8,029)
54,236
35,495
(2,331)
29,601
(496)
29,105
2,644
25,940
(1,057)
24,883
15,380
20,156
1,013
(913)
(113)
19,243
900
2,838
363
(16)
(460)
(85)
(33)
33,164
2,628
14,920
2,753
330
383,912
(54,737)
329,175
234,710
(36,221)
198,489
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” . This programme funds online
and offline purchases through internet and offline shops for individual borrowers .
Secured loans represent loans secured with a car or real estate .
Car loans represent loans for the purchase of a vehicle which is used as collateral under the loan .
Loans to IE and SME represent loans provided by the 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 . The
main movements in the tables presented below are described as follows:
• new originated or purchased category represents the gross carrying amounts and the related ECL of purchased loans
and loans issued during the reporting period (and withdrawals of limits of new credit card borrowers) as at the end of the
reporting period or as at the date of transfer of loan out of stage 1 (whichever date is earlier);
• transfers between Stage 1, 2 and 3 due to balances 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 pres-
ent the amount of credit loss allowance charged or recovered at the moment of transfer of a loan among the respective stages;
• changes to ECL measurement model assumptions and estimates represent movements due to changes in PDs, EADs and
LGDs models during the period;
• movements other than transfers and new originated or purchased loans category represent 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 .
The following tables disclose the changes in the credit loss allowance and gross carrying amount for loans and advances to
customers between the beginning and the end of the reporting and comparative periods:
Credit loss allowance
Gross carrying amount
Stage 1 Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1 Stage 2
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
Stage 3 Purchased/
(lifetime
ECL for
credit
impaired)
originat-
ed credit
impaired
Total
In millions of RR
Credit card loans
At 31 December 2018
9,266
4,708
19,322 33,296
145,732
6,654
25,497
107 177,990
Movements with impact
on credit loss allowance
charge for the year:
New originated or
purchased
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)
Changes to ECL meas-
urement model assump-
tions and estimates
Movements other than
transfers and new
originated or purchased
loans
Total movements with
impact on credit loss
allowance charge for
the year
Movements without
impact on credit loss al-
lowance charge the year
Unwinding of discount
(for Stage 3)
Write-offs
Sales
Modification of original
cash flows without
derecognition
5,356
-
-
5,356
63,177
-
-
241
63,418
(2,478)
6,097
-
3,619
(11,142)
11,142
-
(4,644)
(4,111)
21,348 12,593
(21,206)
(5,322)
26,528
233
(756)
(21)
(544)
1,101
(1,077)
(24)
(387)
-
(26)
(413)
-
-
-
-
-
-
-
-
-
-
-
4,358
915
(4,267)
1,006
20,134
35
(5,771)
(12)
14,386
2,438
2,145
17,034 21,617
52,064
4,778
20,733
229
77,804
-
-
-
-
-
-
-
3,133
3,133
(10,999) (10,999)
(986)
(986)
-
(1,932)
(1,932)
-
-
-
-
-
-
-
3,133
(10,999)
(1,059)
-
-
-
3,133
(10,999)
(1,059)
-
(1,932)
-
(1,932)
At 31 December 2019
11,704
6,853
25,572 44,129
197,796
11,432
35,373
336 244,937
F-51
F-52
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)
Credit loss allowance
Gross carrying amount
Stage 1 Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1 Stage 2
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
Stage 3 Purchased/
(lifetime
ECL for
credit im-
paired)
originated
credit
impaired
Total
In millions of RR
Credit card loans
At 1 January 2018
9,064
5,319
21,689 36,072
121,988
6,958
25,598
42 154,586
Movements with impact
on credit loss allowance
charge for the year
New originated or
purchased
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)
Changes to ECL meas-
urement model assump-
tions and estimates
Movements other than
transfers and new
originated 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 original
cash flows without
derecognition
2,884
-
-
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)
(19)
(9)
(257)
(285)
-
-
-
94
34,885
-
-
-
-
-
-
-
-
1,752
645
(3,245)
(848)
8,135
(16)
(3,902)
(29)
4,188
202
(611)
13,273
12,864
23,744
(304)
15,568
65
39,073
-
-
-
-
-
-
-
3,098
3,098
(16,899)
(16,899)
(395)
(395)
-
(1,444)
(1,444)
-
-
-
-
-
-
-
3,098
(16,899)
(424)
-
-
-
3,098
(16,899)
(424)
-
(1,444)
-
(1,444)
At 31 December 2018
9,266
4,708
19,322
33,296
145,732
6,654
25,497
107
177,990
Credit loss allowance
Gross carrying amount
Stage 1 Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1 Stage 2
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
Stage 3 Purchased/
(lifetime
ECL for
credit im-
paired)
originated
credit im-
paired
Total
In millions of RR
Cash loans
At 31 December 2018
1,116
545
670 2,331
32,651
1,776
767
301 35,495
Movements with impact
on credit loss allowance
charge for the year:
New originated or
purchased
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)
Changes to ECL
measurement model
assumptions and
estimates
Movements other than
transfers and new orig-
inated or purchased
loans
Total movements with
impact on credit loss
allowance charge for
the year
Movements without im-
pact on credit loss allow-
ance charge the year
Unwinding of discount
(for Stage 3)
Write-offs
Sales
Modification of original
cash flows without
derecognition
2,628
-
- 2,628
44,199
-
-
422
44,621
(587)
2,960
- 2,373
(5,663)
5,663
-
(897)
(528)
3,927 2,502
(3,536)
(699)
4,235
14
(78)
-
(64)
408
(408)
(22)
-
(1)
(23)
-
-
-
-
-
-
-
-
-
-
-
-
106
(1,017)
193
(718)
(16,134)
(1,298)
676
(87)
(16,843)
1,242
1,337
4,119 6,698
19,274
3,258
4,911
335
27,778
-
-
-
-
-
-
-
138
138
(524)
(524)
(114)
(114)
-
(500)
(500)
-
-
-
-
-
-
-
138
(524)
(122)
-
-
-
138
(524)
(122)
-
(500)
-
(500)
At 31 December 2019
2,358
1,882
3,789 8,029
51,925
5,034
4,670
636 62,265
F-53
F-54
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)
Credit loss allowance
Gross carrying amount
Stage 1 Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1 Stage 2 Stage 3 Purchased/
(12-months
ECL)
Total
(lifetime
ECL for
credit im-
paired)
(lifetime
ECL for
SICR)
originated
credit im-
paired
Total
In millions of RR
Cash loans
At 1 January 2018
268
151
156
575
6,478
438
161
177
7,254
Credit loss allowance
Gross carrying amount
Stage 1 Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Stage 1
Stage 2
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Total
In millions of RR
Secured Loans
At 31 December 2018
15
1
-
16
2,641
3
-
2,644
Movements with impact on credit
loss allowance charge for the
year:
New originated or purchased
168
-
-
168
27,907
-
-
27,907
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)
Changes to ECL measure-
ment model assumptions
and estimates
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
-
-
1,255
32,010
-
(162)
968
-
806
(1,953)
1,953
-
-
(147)
(129)
673
397
(549)
(156)
705
4
(23)
-
(19)
96
(96)
8
3
(2)
9
-
-
-
-
144
32,154
-
-
-
-
-
-
-
-
Transfers:
- to lifetime (from Stage 1 to
Stage 2)
- to credit-impaired (from
Stage 1 and Stage 2 to Stage 3)
- to 12-months ECL (from
Stage 2 and Stage 3 to Stage 1)
Movements other than trans-
fers and new originated or
purchased loans
Total movements with impact
on credit loss allowance
charge for the year
Movements without impact on
credit loss allowance charge the
year
Unwinding of discount
(for Stage 3)
Modification of original cash
flows
(23)
499
-
476
(2,141)
2,141
-
(6)
-
-
-
81
75
(203)
-
203
-
-
1
(1)
-
-
-
(945)
-
-
(4)
(236)
6
(234)
(839)
(106)
135
263
87
485
24,725
2,034
203
26,962
-
-
-
-
3
(8)
82
3
(8)
-
-
-
-
3
(8)
3
(8)
496
27,366
2,037
198
29,601
(110)
(425)
157
(378)
(3,431)
(363)
214
(20)
(3,600)
At 31 December 2019
150
264
848
394
827
2,069
26,173
1,338
919
124 28,554
-
-
-
-
-
-
-
-
43
43
(256)
(256)
(19)
(19)
(81)
(81)
-
-
-
-
-
-
-
43
(256)
(19)
-
-
-
43
(256)
(19)
-
(81)
-
(81)
Secured loans
At 1 January 2018
Movements with impact on credit
loss allowance charge for the
year
-
-
-
-
-
-
-
-
New originated or purchased
15
-
-
15
2,644
-
-
2,644
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
-
15
15
1
1
1
-
-
-
1
(3)
16
2,641
16
2,641
3
3
3
-
-
-
-
2,644
2,644
At 31 December 2018
1,116
545
670
2,331
32,651
1,776
767
301 35,495
F-55
F-56
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)
Credit loss allowance
Gross carrying amount
Stage 1 Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1 Stage 2
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
Stage 3 Purchased/
(lifetime
ECL for
credit
impaired)
originat-
ed credit
impaired
Total
In millions of RR
POS loans
At 31 December 2018
190
81
189
460
14,560
505
210
105 15,380
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)
Changes to ECL measure-
ment model assumptions
and estimates
Movements other than
transfers and new originat-
ed or purchased loans
Total movements with
impact on credit loss
allowance charge for the
year
Movements without impact
on credit loss allowance
charge the year
Unwinding of discount (for
Stage 3)
Write-offs
Sales
Modification of origi-
nal cash flows without
derecognition
357
-
-
357
23,779
-
-
145
23,924
(61)
479
-
418
(1,673)
1,673
-
(71)
(92)
614
451
(518)
(137)
655
1
(7)
-
(6)
112
(112)
(15)
(7)
(1)
(23)
-
-
-
-
-
-
-
-
-
-
-
-
(103)
(264)
(61)
(428)
(12,229)
(876)
(34)
(52)
(13,191)
108
109
552
769
9,471
548
621
93 10,733
-
-
-
-
-
-
-
-
19
19
(131)
(131)
(23)
(23)
(37)
(37)
-
-
-
-
-
-
-
19
(131)
(24)
-
-
-
19
(131)
(24)
-
(37)
-
(37)
Credit loss allowance
Gross carrying amount
Stage 1 Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1 Stage 2
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
Stage 3 Purchased/
(lifetime
ECL for
credit im-
paired)
originated
credit im-
paired
Total
In millions of RR
POS loans
At 1 January 2018
133
46
125
304
4,462
162
129
57
4,810
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)
Changes to ECL meas-
urement model assump-
tions and estimates
Movements other than
transfers and new
originated 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 original
cash flows without
derecognition
217
-
-
217
14,620
-
(30)
236
-
206
(710)
710
-
-
(31)
(41)
196
124
(151)
(56)
207
1
(4)
-
(3)
28
(28)
4
2
-
6
-
-
-
-
30 14,650
-
-
-
-
-
-
-
-
(104)
(158)
17
(245)
(3,689)
(283)
23
18
(3,931)
57
35
213
305
10,098
343
230
48 10,719
-
-
-
-
-
-
-
-
21
21
(151)
(151)
(11)
(11)
(8)
(8)
-
-
-
-
-
-
-
-
21
(151)
(11)
-
-
-
21
(151)
(11)
(8)
-
(8)
At 31 December 2019
298
190
569
1,057
24,031
1,053
658
198 25,940
At 31 December 2018
190
81
189
460
14,560
505
210
105 15,380
F-57
F-58
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)
Credit loss allowance
Gross carrying amount
Stage 1 Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1 Stage 2
Stage 3
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
(lifetime ECL
for credit
impaired)
Total
In millions of RR
Car Loans
At 31 December 2018
56
25
4
85
2,754
78
6
2,838
Movements with impact on
credit loss allowance charge
for the year:
New originated or purchased
469
-
-
469
18,238
-
-
18,238
Transfers:
- to lifetime (from Stage 1 to
Stage 2)
- to credit-impaired (from
Stage 1 and Stage 2 to
Stage 3)
- to 12-months ECL (from
Stage 2 and Stage 3 to
Stage 1)
Changes to ECL measure-
ment model assumptions and
estimates
Movements other than trans-
fers and new originated or
purchased loans
Total movements with
impact on credit loss allow-
ance charge for the year
Movements without impact on
credit loss allowance charge
the year
Unwinding of discount
(for Stage 3)
Modification of original cash
flows
(98)
466
-
368
(1,087)
1,087
-
(72)
(23)
248
153
(320)
(34)
354
1
(4)
(1)
-
-
-
(3)
24
(24)
(1)
-
-
-
-
-
-
-
-
13
(179)
(1)
(167)
(884)
(47)
2
(929)
312
260
247
819
15,971
982
356
17,309
-
-
-
-
12
12
(3)
(3)
-
-
-
-
12
12
(3)
(3)
At 31 December 2019
368
285
260
913
18,725
1,060
371
20,156
Credit loss allowance
Gross carrying amount
Stage 1
Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1
Stage 2
(12-months
ECL)
Total
(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 purchased
64
-
-
64
2,839
-
-
2,839
Transfers:
- to lifetime (from Stage 1 to
Stage 2)
- to credit-impaired (from
Stage 1 and Stage 2 to
Stage 3)
Movements other than trans-
fers and new originated or
purchased loans
Total movements with
impact on credit loss allow-
ance charge for the year
(7)
31
-
24
(80)
80
-
(1)
-
4
3
(6)
-
6
-
-
-
(6)
56
25
-
4
4
(6)
1
(2)
-
(1)
85
2,754
78
6
2,838
85
2,754
78
6
2,838
At 31 December 2018
56
25
F-59
F-60
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)
Credit loss allowance
Gross carrying amount
Stage 1
Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1
Stage 2
Stage 3
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
(lifetime ECL
for credit
impaired)
Total
13
10
10
33
332
21
10
363
In millions of RR
Loans to IE and SME
At 31 December 2018
Movements with impact on credit
loss allowance charge for the year:
New originated or purchased
13
-
-
13
301
-
-
301
Transfers:
- to lifetime (from Stage 1 to Stage
2)
- to credit-impaired (from Stage 1
and Stage 2 to Stage 3)
- to 12-months ECL (from Stage 2
and Stage 3 to Stage 1)
Movements other than transfers
and new originated or purchased
loans
Total movements with impact on
credit loss allowance charge for
the year
Movements without impact on
credit loss allowance charge the
year
Unwinding of discount
(for Stage 3)
Modification of original cash flows
(4)
(8)
-
26
(7)
-
-
22
44
29
(58)
(39)
-
-
1
58
(8)
(1)
-
47
-
-
-
-
43
(19)
(13)
11
403
(49)
(10)
344
44
-
31
75
608
-
37
645
-
-
-
-
5
-
5
-
-
-
-
-
5
-
5
-
At 31 December 2019
57
10
46
113
940
21
52
1,013
Loans to IE and SME
At 1 January 2018
Movements with impact on credit
loss allowance charge for the year
New originated or purchased
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 originated or purchased
loans
Total movements with impact on
credit loss allowance charge for
the year
At 31 December 2018
-
8
(3)
-
-
-
11
-
-
-
-
-
8
155
-
-
8
(25)
25
-
10
10
(10)
-
-
-
-
155
-
10
-
-
8
(1)
-
7
212
(4)
-
208
13
13
10
10
10
33
332
10
33
332
21
21
10
363
10
363
The credit loss allowance charge during the year ended 31 December 2019 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
3,420 million (2018: RR 4,083 million) recovery of amounts previously written-off as uncollectible, and due to RR 201 million
(2018: RR 318 million) charge of ECL for credit related commitments .
The amount of the recovery from written-off loans 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 contractual amount outstanding of loans and advances to customers which were written off during the reporting period
ended 31 December 2019 and are still subject to enforcement activity is equal to RR 10,095 million (reporting period ended
31 December 2018: RR 16,294 million) .
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 .
During the year ended 31 December 2019 the Group sold credit-impaired loans to third parties (external debt collection
agencies) with a gross amount of RR 1,205 million (2018: RR 454 million) and credit loss allowance of RR 1,123 million (2018:
RR 425 million) . The difference between the carrying amount of these loans and the consideration received was recognised
as losses in the amount of RR 73 million within credit loss allowance for loans and advances to customers and credit related
commitments for the year ended 31 December 2019 (2018: losses in the amount of RR 7 million) .
Presented below is an analysis of issued, activated and utilised cards based on their credit card limits as at the end of the
reporting period:
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 number of cards (in units)
31 December
2019
31 December
2018
781,128
482,343
451,425
455,978
440,139
322,726
365,750
772,992
180,731
651,290
443,659
423,030
427,986
361,803
285,574
341,017
402,002
109,482
4,253,212
3,445,843
Table above only includes credit cards less than 180 days overdue .
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 .
F-61
F-62
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)
Loans and advances to customers at 31 December 2019 are disclosed as follows:
In millions of RR
(12-months ECL)
Stage 1
Stage 2
(lifetime ECL for
SICR)
Stage 3
(lifetime ECL for
credit impaired)
Purchased/
originated credit
impaired
Credit card loans
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying amount
Credit loss allowance
Carrying amount
Cash loans
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying amount
Credit loss allowance
Carrying amount
Secured Loans
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying amount
Credit loss allowance
Carrying amount
87,716
102,020
8,060
-
-
197,796
(11,704)
186,092
34,258
17,321
346
-
-
51,925
(2,358)
49,567
19,941
7,319
106
-
-
27,366
(150)
27,216
-
1,582
3,722
6,128
-
11,432
(6,853)
4,579
-
3,315
585
1,134
-
5,034
(1,882)
3,152
-
1,496
322
219
-
2,037
(264)
1,773
-
-
-
6,661
28,712
35,373
(25,572)
9,801
-
-
-
758
3,912
4,670
(3,789)
881
-
-
-
-
198
198
(82)
116
Total
87,716
103,602
11,782
12,789
-
-
-
-
336
29,048
336
244,937
-
(44,129)
336
200,808
-
-
-
-
636
636
34,258
20,636
931
1,892
4,548
62,265
-
(8,029)
636
54,236
-
-
-
-
-
-
-
-
19,941
8,815
428
219
198
29,601
(496)
29,105
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL for
SICR)
Stage 3
(lifetime ECL for
credit impaired)
Purchased/
originated credit
impaired
In millions of RR
POS loans
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying amount
Credit loss allowance
Carrying amount
Car loans
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying amount
Credit loss allowance
Carrying amount
Loans to IE and SME
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying amount
Credit loss allowance
Carrying amount
19,525
4,406
100
-
-
24,031
(298)
23,733
15,581
3,051
93
-
-
18,725
(368)
18,357
622
314
4
-
-
940
(57)
883
-
763
117
173
-
1,053
(190)
863
-
702
157
201
-
1,060
(285)
775
-
6
6
9
-
21
(10)
11
-
-
-
26
632
658
(569)
89
-
-
-
-
371
371
(260)
111
-
-
-
-
52
52
(46)
6
Total
19,525
5,169
217
199
830
25,940
-
-
-
-
198
198
-
(1,057)
198
24,883
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,581
3,753
250
201
371
20,156
(913)
19,243
622
320
10
9
52
1,013
(113)
900
F-63
F-64
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)
Loans and advances to customers at 31 December 2018 are disclosed as follows:
Stage 1
In millions of RR
(12-months ECL)
Stage 2
(lifetime ECL for
SICR)
Stage 3
(lifetime ECL for
credit impaired)
Purchased/
originated credit
impaired
74,078
64,388
7,266
-
-
-
974
2,212
3,468
-
-
-
-
4,774
20,723
Total
74,078
65,362
9,478
8,242
-
-
-
-
107
20,830
Credit card loans
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying
amount
145,732
6,654
25,497
107
177,990
Credit loss allowance
Carrying amount
(9,266)
136,466
Cash loans
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying
amount
Credit loss allowance
Carrying amount
POS loans
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying
amount
Credit loss allowance
Carrying amount
22,238
10,266
147
-
-
32,651
(1,116)
31,535
10,293
4,206
61
-
-
14,560
(190)
14,370
(4,708)
1,946
-
1,274
207
295
-
1,776
(545)
1,231
-
385
60
60
-
505
(81)
424
(19,322)
6,175
-
(33,296)
107
144,694
-
-
-
72
695
767
(670)
97
-
-
-
6
204
210
(189)
21
-
-
-
-
301
22,238
11,540
354
367
996
301
35,495
-
(2,331)
301
33,164
-
-
-
105
10,293
4,591
121
66
309
105
15,380
-
(460)
105
14,920
Stage 1
In millions of RR
(12-months ECL)
Stage 2
(lifetime ECL for
SICR)
Stage 3
(lifetime ECL for
credit im-paired)
Purchased/
originated credit
impaired
Car loans
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying
amount
Credit loss allowance
Carrying amount
Secured loans
- Excellent
- Good
- Monitor
Gross carrying
amount
Credit loss allowance
Carrying amount
Loans to IE and SME
- Excellent
- Good
- Monitor
- Sub-standard
- NPL
Gross carrying
amount
Credit loss allowance
Carrying amount
1,876
866
12
-
-
2,754
(56)
2,698
1,805
833
3
2,641
(15)
2,626
224
103
5
-
-
332
(13)
319
-
42
16
20
-
78
(25)
53
-
1
2
3
(1)
2
-
6
9
6
-
21
(10)
11
-
-
-
-
6
6
(4)
2
-
-
-
-
-
-
-
-
-
-
10
10
(10)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
1,876
908
28
20
6
2,838
(85)
2,753
1,805
834
5
2,644
(16)
2,628
224
109
14
6
10
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 31 for the description of credit risk grading system used by the Group .
Loans in courts are included in Stage 3 and are loans to delinquent borrowers, against which the Group has filed claims to
courts in order to recover outstanding balances . As at 31 December 2019 the gross carrying amount of the loans in courts
was RR 22,228 million (31 December 2018: RR 15,531 million) .
F-65
F-66
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
9 Loans and Advances to Customers (Continued)
Description of collateral held for loans to individuals carried at amortised cost is as follows at 31 December 2019:
In millions of RR
Loans collateralised by:
- residential real estate
- cars
Total
Unsecured exposures
Total gross carrying amount (representing exposure to
credit risk for each class of loans at AC)
Secured loans
Car loans
Total
27,437
1,904
29,341
260
-
15,256
15,256
4,900
27,437
17,160
44,597
5,160
29,601
20,156
49,757
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
Total gross carrying amount (representing exposure to
credit risk for each class of loans at AC)
Secured loans
Car loans
Total
2,449
189
2,638
6
2,644
-
2,095
2,095
743
2,838
2,449
2,284
4,733
749
5,482
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 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 2019 is as follows .
In millions of RR
Credit impaired assets:
Secured loans
Car loans
Over-collateralised assets
Under-collateralised assets
Gross carrying
amount of the
assets
Value of
collateral
Gross carrying
amount of the
assets
Value of
collateral
194
25
442
31
4
346
2
208
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
Gross carrying
amount of the
assets
Value of
collateral
Gross carrying
amount of the
assets
Value of
collateral
-
-
-
-
-
6
-
4
The values of collateral considered in this disclosure are after a valuation haircut of 20% (2018: 20%) for residential real
estate and 30% (2018: 30%) for cars applied to consider liquidity and quality of the pledged assets .
All contractual modifications of loans with the lifetime ECL that did not lead to derecognition did not have gains less losses on
modification recognised in profit or loss for the year ended 31 December 2019 (2018: same) .
Refer to Note 38 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 31 . Information on related party balances is disclosed in Note 40 .
10 Investments in Securities
In millions of RR
Debt securities measured at fair value through other comprehensive income
Securities measured at fair value through profit or loss
Total investments in securities
1) Debt securities measured at fair value through other comprehensive income
The table below discloses investments in debt securities measured at FVOCI by classes:
In millions of RR
Corporate bonds
Russian government bonds
Municipal bonds
Total debt securities measured at FVOCI
Including credit loss allowance
31 December
2019
31 December
2018
134,765
413
94,474
5,666
135,178
100,140
31 December
2019
31 December
2018
72,032
56,382
6,351
65,140
23,560
5,774
134,765
94,474
345
481
F-67
F-68
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
10 Investments in Securities (Continued)
1) Debt securities measured at fair value through other comprehensive income (Continued)
The table below contains an analysis of the credit risk exposure of debt securities measured at FVOCI at 31 December 2019,
for which an ECL allowance is recognised, based on credit risk grades:
In millions of RR
Corporate bonds
- Excellent
- Good
- Monitor
Total AC gross carrying amount
Credit loss allowance
Fair value adjustment from AC to FV
Carrying value
Russian government bonds
- Good
Total AC gross carrying amount
Credit loss allowance
Fair value adjustment from AC to FV
Carrying value
Municipal bonds
- Good
- Monitor
Total AC gross carrying amount
Credit loss allowance
Fair value adjustment from AC to FV
Carrying value
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL for
SICR)
Stage 3
(lifetime ECL for
credit im-paired)
411
61,042
8,192
69,645
(225)
2,612
72,032
54,471
54,471
(99)
2,010
56,382
5,663
422
6,085
(21)
287
6,351
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
411
61,042
8,192
69,645
(225)
2,612
72,032
54,471
54,471
(99)
2,010
56,382
5,663
422
6,085
(21)
287
6,351
1) Debt securities measured at fair value through other comprehensive income (Continued)
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:
In millions of RR
Corporate bonds
- Excellent
- Good
- Monitor
- Sub-standard
- Doubtful
Total AC gross carrying amount
Credit loss allowance
Fair value adjustment from AC to FV
Carrying value
Russian government bonds
- Good
Total AC gross carrying amount
Credit loss allowance
Fair value adjustment from AC to FV
Carrying value
Municipal bonds
- Good
- Monitor
Total AC gross carrying amount
Credit loss allowance
Fair value adjustment from AC to FV
Carrying value
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL for
SICR)
Stage 3
(lifetime ECL for
credit im-paired)
896
53,664
10,304
14
-
64,878
(255)
(511)
64,112
24,021
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
896
53,664
11,717
14
194
66,485
(383)
(962)
65,140
24,021
24,021
(63)
(398)
23,560
4,325
1,508
5,833
(35)
(24)
5,774
Refer to Note 31 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 debt securities at FVOCI
The debt securities at FVOCI are not collateralised .
F-69
F-70
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
10 Investments in Securities (Continued)
1) Debt securities measured at fair value through other comprehensive income (Continued)
The following table explains the changes in the credit loss allowance (including those pledged under repurchase agreements)
and gross carrying amount for debt securities at FVOCI for the year ended 31 December 2019:
Credit loss allowance
Gross carrying amount
Stage 1
Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1
Stage 2
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Total
In millions of RR
Corporate bonds
At 1 January 2019
255
128
-
383
64,951
1,607
-
66,558
Movements with impact
on credit loss allowance
charge:
New originated or
purchased
Transfers:
- to lifetime (from
Stage 1 to Stage 2)
Foreign exchange
losses
Redemption during the
year
Disposal during the
year
Interest income
accrued
Interest received
Other movements
Total movements
with impact on credit
loss allowance charge
At 31 December
2019
89
-
-
89
25,936
-
-
25,936
24
(26)
-
(2)
1,318
(1,318)
-
-
-
(18)
(2,702)
(96)
-
(2,798)
(12)
(12)
(91)
12
(12)
(28)
(6)
-
(40)
4
(4)
(56)
-
(131)
(16,348)
(193)
-
(16,541)
-
-
-
16
4,074
(16)
(84)
(3,975)
-
43
(43)
-
-
-
-
4,117
(4,018)
-
(30)
(128)
-
(158)
4,694
(1,607)
-
3,087
225
-
-
225
69,645
-
-
69,645
1) Debt securities measured at fair value through other comprehensive income (Continued)
Credit loss allowance
Gross carrying amount
Stage 1
Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1
Stage 2
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Total
In millions of RR
Russian government bonds
At 1 January 2019
66
Movements with impact on
credit loss allowance charge:
New originated or purchased
167
Foreign exchange losses
Redemption during the year
Disposal during the year
Interest income accrued
Interest received
Other movements
Total movements with
impact on credit loss
allowance charge
At 31 December 2019
(2)
(63)
(53)
4
(4)
(16)
33
99
-
-
-
-
-
-
-
-
-
-
-
66
25,190
-
-
-
-
-
-
-
-
-
167
81,179
(2)
(63)
(53)
4
(4)
(16)
(833)
(30,858)
(20,414)
2,119
(1,912)
-
33
29,281
99
54,471
-
-
-
-
-
-
-
-
-
-
-
25,190
-
-
81,179
(833)
- (30,858)
- (20,414)
-
-
-
2,119
(1,912)
-
- 29,281
- 54,471
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
(lifetime
ECL for
SICR)
(lifetime
ECL for
credit im-
paired)
(lifetime
ECL for
SICR)
(lifetime
ECL for
credit im-
paired)
(12-months
ECL)
(12-months
ECL)
In millions of RR
Municipal bonds
At 1 January 2019
35
Movements with impact on
credit loss allowance charge:
New originated or purchased
Redemption during the year
Disposal during the year
Interest income accrued
Interest received
Other movements
Total movements with
impact on credit loss
allowance charge
At 31 December 2019
3
(1)
(4)
2
(3)
(11)
(14)
21
-
-
-
-
-
-
-
-
-
-
35
5,833
-
-
-
-
-
-
3
(1)
(4)
2
(3)
(11)
968
(482)
(216)
469
(487)
-
-
(14)
252
-
21
6,085
-
-
-
-
-
-
-
-
-
-
5,833
-
-
-
-
-
-
968
(482)
(216)
469
(487)
-
-
252
-
6,085
-
(12)
(3,609)
-
-
(3,609)
Credit loss allowance
Gross carrying amount
F-71
F-72
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
10 Investments in Securities (Continued)
1) Debt securities measured at fair value through other comprehensive income (Continued)
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 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
(lifetime
ECL for
SICR)
(lifetime
ECL for
credit
impaired)
(12-months
ECL)
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
(lifetime
ECL for
credit
impaired)
Total
In millions of RR
Corporate bonds
At 1 January 2018
216
17
-
233
46,663
270
-
46,933
Movements with impact on credit
loss allowance charge:
New originated or purchased
184
-
-
184
27,235
-
-
27,235
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
(15)
12
(6)
(41)
15
(16)
(94)
71
17
-
-
9
(7)
21
Total movements with impact
on credit loss allowance
charge
39
111
At 31 December 2018
255
128
Russian government bonds
At 1 January 2018
36
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 allowance
charge
At 31 December 2018
189
3
(128)
(33)
4
(5)
30
66
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
56
29
(6)
(41)
24
(23)
(73)
(1,082)
1,082
3,039
228
(1,040)
(9,856)
3,893
(3,901)
-
-
-
80
(53)
-
-
-
-
-
-
-
-
-
3,267
(1,040)
(9,856)
3,973
(3,954)
-
150
18,288
1,337
-
19,625
383
64,951
1,607
-
66,558
-
36
13,686
-
-
-
-
-
-
-
-
189
73,217
3
1,108
(128)
(49,829)
(33)
(12,649)
4
(5)
1,398
(1,741)
30
11,504
66
25,190
-
-
-
-
-
-
-
-
-
-
13,686
-
-
-
-
-
-
73,217
1,108
(49,829)
(12,649)
1,398
(1,741)
-
11,504
-
25,190
1) Debt securities measured at fair value through other comprehensive income (Continued)
Credit loss allowance
Gross carrying amount
Stage 1 Stage 2
(12-months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Stage 1
Stage 2
(12-months
ECL)
Total
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Total
In millions of RR
Municipal bonds
At 1 January 2018
23
-
-
23
4,308
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 allowance
charge
At 31 December 2018
16
(1)
2
(2)
(3)
12
35
-
-
-
-
-
-
-
-
-
-
-
-
16
1,752
(1)
2
(2)
(3)
(240)
382
(369)
-
-
12
1,525
-
35
5,833
-
-
-
-
-
-
-
-
-
4,308
-
-
-
-
-
1,752
(240)
382
(369)
-
-
1,525
-
5,833
2) Securities measured at fair value through profit or loss
The table below discloses investments in securities measured at FVTPL by classes:
In millions of RR
Perpetual corporate bonds
Other securities
Total securities measured at FVTPL
31 December
2019
31 December
2018
-
413
413
5,666
-
5,666
Other securities are represented by assets of the mutual fund which are controlled by the Group and managed by LLC “Tinkoff
Capital” .
As at 31 December 2019 securities measured at FVTPL are carried at fair value, which also reflects any credit risk related
write-downs and best represents Group’s maximum exposure to credit risk . The securities measured at FVTPL are not collater-
alized (2018: same) .
Interest rate, maturity and geographical risk concentration analysis of investment in securities are disclosed in Note 31 .
F-73
F-74
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
11 Guarantee Deposits with Payment Systems
As at 31 December 2019 and 2018 guarantee deposits were placed in favour of MasterCard with Barclays Bank Plc London (A
rated), in favour of Visa with United Overseas Bank Ltd Singapore (AA-rated), and in favour of Russia payment card Mir with
Russian National payment card system (NSPK) .
As at 31 December 2019 the carrying value of guarantee deposits with payment systems was RR 8,877 million (2018: RR 4,603 million) .
The table below discloses the credit quality of guarantee deposits with payment systems balances based on credit risk grades:
In millions of RR
- Excellent
- Good
Total guarantee deposits with payment systems
31 December
2019
31 December
2018
8,376
501
8,877
4,435
168
4,603
The carrying amount of guarantee deposits with payment systems at 31 December 2019 and 2018 also represents the
Group's maximum exposure to credit risk on these assets . Refer to Note 31 for the description of credit risk grading system
used by the Group . 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 31 for the ECL measurement approach . Interest rate, maturity and
geographical risk concentration analysis are disclosed in Note 31 .
12 Tangible Fixed Assets, Intangible Assets, and Right-of-use
Assets
In millions of RR
Land
Building
Cost
Equip-
ment
Leasehold im-
prove-ments
Vehicles
Total tan-
gible fixed
assets
Intangible
assets
At 31 December 2017
396
4,088
2,420
Additions
Disposals
-
-
131
2,131
-
(210)
747
789
-
At 31 December 2018
396
4,219
4,341
1,536
Additions
Disposals
-
-
-
-
1,788
(59)
86
(2)
At 31 December 2019
396
4,219
6,070
1,620
Depreciation and amortisation
At 31 December 2017
Charge for the year (Note 25)
Disposals
At 31 December 2018
Charge for the year (Note 25)
Disposals
At 31 December 2019
Net book value
-
-
-
-
-
-
-
(48)
(42)
-
(90)
(43)
(1,042)
(695)
210
(1,527)
(1,076)
-
9
(133)
(2,594)
(434)
(81)
-
(515)
(160)
2
(673)
41
1
-
42
46
-
88
7,692
3,052
(210)
4,559
2,066
-
10,534
6,625
1,920
2,564
(61)
(72)
12,393
9,117
(28)
(1,552)
(1,503)
(5)
-
(823)
210
(899)
-
(33)
(2,165)
(2,402)
(8)
-
(1,287)
(1,331)
11
51
(41)
(3,441)
(3,682)
At 31 December 2018
396
4,129
2,814
At 31 December 2019
396
4,086
3,476
1,021
947
9
47
8,369
4,223
8,952
5,435
Intangible assets additions in the amount of RR 1,212 million related to capitalised the software developments by Tinkoff Soft-
ware DC during the year ended 31 December 2019 (2018: RR 774 million) .
Other intangible assets acquired during the year ended 31 December 2019 and 2018 mainly represent accounting software,
retail banking software, insurance software, licenses and development of software .
During 2019 the Group acquired no office building space (2018: RR 131 million, VAT included) .
Right-of-use assets and lease liabilities. Right-of-use-assets represented above relate to the office premises leased by the Group .
Rental contracts are typically for fixed periods from 1 to 5 years .
The group does not have extension or termination options of its lease agreements other than lease agreements of low value
items .
The right of use assets by class of underlying items is analysed as follows:
In millions of RR
Carrying amount at 1 January 2019
Additions
Depreciation charge (Note 25)
Carrying amount at 31 December 2019
Office premises
1,671
1,071
(1,134)
1,608
Prior to 1 January 2019 Group’s leases of premises and equipment were classified as operating leases . From 1 January 2019,
leases are recognised as a right-of-use asset and a corresponding liability from the date when the leased asset becomes avail-
able for use by the Group .
Expenses relating to leases of low-value assets in the amount of RR 390 million are included in administrative and other oper-
ating expenses (Note 25) . Total cash outflow for leases during the year ended 31 December 2019 was RR 1,087 million .
13 Other Financial and Non-financial Assets
In millions of RR
Other Financial Assets
Settlement of operations with plastic cards
Other
Total Other Financial Assets
Other Non-Financial Assets
Prepaid expenses
Other
Total Other Non-Financial Assets
31 December
2019
31 December
2018
16,384
5,289
21,673
1,223
1,287
2,510
12,694
2,948
15,642
2,360
664
3,024
Settlement of operations with plastic cards represents balances due from payment agents in respect of payments made by
borrowers to reimburse credit card loans and to be settled within 3 days . This amount includes prepayment to the payment
systems for operations during holiday period .
At 31 December 2019, included in other financial assets are receivables, investments in associates and subrogation rights
(2018: same) .
F-75
F-76
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
13 Other Financial and Non-financial Assets (Continued)
As at 31 December 2019 and 2018 prepaid expenses consist of prepayments for marketing, IT support, security, TV advertis-
ing and ATM-service .
The table below discloses the credit quality of other financial assets based on credit risk grades:
In millions of RR
- Excellent
- Good
Total other financial assets
31 December 2019 31 December 2018
9,219
12,454
21,673
7,430
8,212
15,642
Refer to Note 31 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 al-
lowance . Refer to Note 31 for the ECL measurement approach . Refer to Note 38 for the disclosure of the fair value of other finan-
cial assets . The maturity and geographical risk concentration analysis of amounts of other financial assets is disclosed in Note 31 .
14 Due to Banks
In millions of RR
Sale and repurchase agreements with other banks
Correspondent accounts and overnight placements of other banks
Total due to banks
31 December 2019 31 December 2018
640
23
663
1,111
1,597
2,708
Refer to Note 38 for the disclosure of the fair value of amounts due to banks . Interest rate, maturity and geographical risk con-
centration analysis of due to banks is disclosed in Note 31 . Refer to Note 34 and 35 for information on the amounts included in
due to banks received under sale and repurchase agreements and fair value of securities pledged .
16 Debt Securities in Issue
In millions of RR
Date of maturity
31 December 2019 31 December 2018
RR denominated bonds issued in April 2019
21 March 2029
RR denominated bonds issued in September 2019
12 September 2029
RR denominated bonds issued in April 2017
22 April 2022
EUR denominated ECP issued in December 2019
20 November 2020
RR denominated bonds issued in June 2016
24 June 2021
EUR denominated ECP issued in February 2019
18 February 2020
USD denominated ECP issued in December 2019
20 November 2020
EUR denominated ECP issued in December 2018
19 December 2019
USD denominated ECP issued in December 2018
19 December 2019
RR denominated ECP issued in December 2018
19 December 2019
Total debt securities in issue
10,158
10,157
2,468
1,030
835
831
599
-
-
-
26,078
-
-
5,067
-
784
-
-
2,392
1,266
96
9,605
On 3 April 2019 the Bank issued RR denominated bonds with a nominal value of RR 10,000 million at 9 .25% coupon rate
maturing on 21 March 2029 .
On 25 September 2019 the Bank issued RR denominated bonds with a nominal value of RR 10,000 million at 8 .25% coupon
rate maturing on 12 September 2029 .
On 28 April 2017 the Bank issued RR denominated bonds with a nominal value of RR 5,000 million at 9 .65% coupon rate
maturing on 22 April 2022 .
On 30 June 2016 the Group issued RR denominated bonds with a nominal value of RR 3,000 million at 11 .7% coupon rate
maturing on 24 June 2021 .
On 20 December 2019 the Group issued two tranches of Euro-Commercial Paper (ECP) denominated in USD and EUR maturing
on 20 November 2020 . USD denominated ECP has a nominal value of USD 10 million with a discount of 3 .6% . EUR denominat-
ed ECP has a nominal value of EUR 15 million with a discount of 1 .0% .
15 Customer Accounts
In millions of RR
Individuals
- Current/demand accounts
- Term deposits
IE and SME
- Current/demand accounts
- Term deposits
Other legal entities
- Current/demand accounts
- Term deposits
Total customer accounts
Note
31 December 2019 31 December 2018
On 19 February 2019 the Group issued Euro-Commercial Paper (ECP) denominated in EUR maturing on 18 February 2020 .
EUR denominated ECP has a nominal value of EUR 12 million with a discount of 1 .25% .
30
30
211,661
137,292
137,637
100,227
60,174
1,880
495
112
41,702
-
552
798
411,614
280,916
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 with a discount of 4 .25% . EUR
denominated ECP has a nominal value of EUR 30 .5 million with a discount of 1 .25% . RR denominated ECP has a nominal value
of RR 105 million with a discount of 9 .5% . The Group redeemed all outstanding ECP of this issue at maturity .
All RR denominated bonds issued by the Bank are traded on the Moscow Exchange . Refer to Note 38 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 31 .
Refer to Note 38 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 31 . Information on related party balances is disclosed
in Note 40 .
F-77
F-78
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
17 Subordinated Debt
As at 31 December 2019 the carrying value of the subordinated debt was RR 18,487 million (31 December 2018: RR 20,644
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 .
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 are traded on the Global Exchange Market . Interest rate, maturity and
geographical risk concentration analysis of subordinated debt is disclosed in Note 31 . Refer to Note 38 for the disclosure of
the fair value of financial instruments .
18 Insurance Provisions
In millions of RR
Insurance Provisions
Provision for unearned premiums
Loss provisions
Total Insurance Provisions
31 December 2019 31 December 2018
3,938
2,342
6,280
1,760
1,099
2,859
Movements in provision for unearned premiums for the year ended 31 December 2019 and 2018 are as follows:
2019
Gross provi-
sion
Reinsurer’s
share of pro-
vision
Provision net
of reinsur-
ance
Gross provi-
sion
2018
Reinsurer’s
share of pro-
vision
Provision net
of reinsurance
1,760
2,178
-
(3)
-
(8)
1,757
2,178
1,117
643
(8)
-
3,938
(11)
3,927
1,760
(1)
-
(2)
(3)
1,116
643
(2)
1,757
In millions of RR
Provision for unearned
premiums as at 1 January
Change in provision, gross
Change in reinsurers’ share
of provision
Provision for unearned
premiums as at 31 De-
cember
Movements in loss provisions for the year ended 31 December 2019 and 2018 are as follows:
In millions of RR
Note OCP and IBNR
Loss provisions as at 1 January 2018
Losses incurred in the current reporting period
Changes in OCP and IBNR provisions related to prior
periods losses
Insurance claims paid
Claims handling expenses accrued
Claims handling expenses paid
Unexpired risk provision charge
Unexpired risk provision written off
Loss provisions as at 31 December 2018
Losses incurred in the current reporting period
Changes in OCP and IBNR provisions related to prior
periods losses
24
24
518
1,921
(61)
(1,413)
-
-
-
-
965
4,026
(138)
Insurance claims paid
24
(2,923)
Claims handling expenses accrued
Claims handling expenses paid
24
Unexpired risk provision charge
Unexpired risk provision written off
-
-
-
-
Loss provisions as at 31 December 2019
1,930
Provision
for claims
handling
expenses
Total loss
provisions
82
-
(28)
-
372
(301)
-
-
125
-
(39)
862
(733)
-
-
683
1,921
(89)
(1,413)
372
(301)
(65)
(9)
1,099
4,026
(177)
(2,923)
862
(733)
253
(65)
215
2,342
URP
83
-
-
-
-
-
(65)
(9)
9
-
-
-
-
-
253
(65)
197
19 Other Financial and Non-financial Liabilities
In millions of RR
31 December 2019
31 December 2018
Other financial liabilities
Settlement of operations with plastic cards
Trade payables
Credit related commitments (Note 33)
Other
Total other financial liabilities
Other non-financial liabilities
Lease liabilities
Taxes payable other than income tax
Accrued administrative expenses
Other
Total other non-financial liabilities
6,427
4,621
2,242
1,358
14,648
1,694
1,321
1,277
582
4,874
4,904
3,189
2,041
1,067
11,201
-
1,212
1,438
791
3,441
F-79
F-80
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
19 Other Financial and Non-financial Liabilities (Continued)
Settlements of operations with plastic cards include funds that were spent by customers of the Bank by usage of plastic cards
but have not yet been compensated to payment systems by the Bank . Accrued administrative expenses are mainly represented
by accrued staff costs .
Interest expense on lease liabilities was RR 134 million during 2019 (Note 21) .
Movements in the credit loss allowance for credit related commitments were as follows for the year ended 31 December 2019:
In millions of RR
(12-months ECL)
(lifetime ECL for
SICR)
(lifetime ECL for
credit im-paired)
Gross committed
amount
Stage 1
Stage 2
Stage 3
At 31 December 2018
2,024
17
Movements with impact on provision for
credit related commitments charge for the
year:
New originated or purchased
Transfers:
- to lifetime (from Stage 1 to Stage 2)
- to credit-impaired (from Stage 1 and
Stage 2 to Stage 3)
- to 12-months ECL (from Stage 2 and
Stage 3 to Stage 1)
Changes to ECL measurement model
assumptions and estimates
Movements other than transfers and new
originated or purchased loans
Total charge to profit or loss for the
year
At 31 December 2019
840
(23)
(45)
5
(163)
(410)
204
2,228
-
9
(7)
(15)
-
10
(3)
14
-
-
-
-
-
-
-
-
-
2,041
840
(14)
(52)
(10)
(163)
(400)
201
2,242
Movements in the credit loss allowance for credit related commitments were as follows for the year ended 31 December 2018:
In millions of RR
At 1 January 2018
Movements with impact on credit loss allowance
for credit related commitments charge for the
year:
New originated or purchased
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 for credit related commitments
charge for the year
At 31 December 2018
Stage 1
Stage 2
Stage 3
(12-months ECL)
(lifetime ECL for
SICR)
(lifetime ECL for
credit im-paired)
1,701
22
893
(23)
(53)
-
18
(7)
5
(16)
(499)
323
2,024
-
(5)
17
-
-
-
-
-
-
-
-
Total
1,723
893
(5)
(60)
(11)
(499)
318
2,041
The main movements in the table presented above are described as follows:
• new originated or purchased category represents the day one 12-month 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 31 . Refer
to Note 38 for disclosure of fair value of other financial liabilities . Refer to Note 33 for analysis of loan commitments by credit
risk grades .
F-81
F-82
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
372
372
Diluted earnings per ordinary share (expressed in RR per share)
-
-
18,916
(499)
Information on dividends is disclosed in Note 28 .
Reconciliation of the number of shares used for basic and diluted EPS:
Earnings per share are calculated as follows:
In millions of RR except for the number of shares
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)
2019
36,122
2018
27,088
186,559
176,425
190,070
182,070
193.62
190.05
153.54
148.78
In thousands
Note
2019
2018
Weighted average number of ordinary shares in issue used for
basic earnings per ordinary share calculation
Number of shares attributable for MLTIP
Number of shares transferred out of treasury shares upon vesting
under the MLTIP to retained earnings or forfeited
Number of shares that would have been issued at fair value
Weighted average number of ordinary shares in issue used for
diluted earnings per ordinary share calculation
40
40
186,559
176,425
9,940
9,849
(6,158)
(271)
(3,671)
(533)
190,070
182,070
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
20 Share Capital
In millions of RR except for the
number of shares
Number of
authorised
shares
Number of
outstanding
shares
Ordinary
shares
Share pre-
mium
Treasury
shares
Total
At 1 January 2018
190,479,500 182,638,825
188
8,623
(1,587)
7,224
Increase of authorized shares
1,291,266
GDRs buy-back
GDRs and shares transferred
under MLTIP
-
-
-
-
-
-
-
-
-
(2,455)
(2,455)
At 31 December 2018
191,770,766 182,638,825
188
8,623
(3,670)
5,141
Shares issued
18,263,882
16,666,667
42
18,874
Secondary public offering costs
GDRs and shares transferred
under MLTIP
-
-
-
-
-
-
(499)
-
506
506
At 31 December 2019
210,034,648 199,305,492
230
26,998
(3,164)
24,064
During three months ended 31 March 2019 Altoville Holdings Limited converted 6,385,310 Class B shares into Class A (on a
one-to-one basis), which was 3 .49% of its share, and then sold them to the market .
On 2 July 2019 the Group completed a SPO on the London Stock Exchange plc . and issued 16,666,667 “Class A” shares of
the Company in the form of GDRs at a price of USD 18 .00 per GDR, raising aggregate gross proceeds of USD 300 million (RR
18,916 million) . All issued ordinary shares are fully paid .
All the incurred SPO costs were primary direct expenses accounted within share premium .
At 31 December 2019 the total number of outstanding shares is 199,305,492 shares (2018: 182,638,825 shares) with a par
value of USD 0 .04 per share (2018: USD 0 .04 per share) .
In June 2019 the Company’s shareholders approved a resolution to increase authorised share capital to USD 8,401,385 .92
by the creation of 18,263,882 new undesignated ordinary shares of nominal value USD 0 .04 each . At 31 December 2019 the
total number of authorised shares is 210,034,648 shares (2018: 191,770,766 shares) with a par value of USD 0 .04 per share
(2018: USD 0 .04 per share) .
As at 31 December 2019 and 2018 treasury shares represent GDRs of the Group repurchased from the market for the purpos-
es permitted by Cyprus law including contribution to MLTIP . Refer to Note 40 .
At 31 December 2019 the total number of treasury shares is 4,185,166 (2018: 6,604,353) .
During the year ended 31 December 2019 no GDRs were repurchased by the Group (2018: 2,094,126 GDRs at market price
for RR 2,455 million) .
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 .
F-83
F-84
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
Note
2019
2018
22 Fee and Commission Income and Expense
In millions of RR
2019
2018
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
21 Net Margin
In millions of RR
Interest income calculated using the effective interest rate method
Loans and advances to customers, including:
Credit card loans
Cash loans
POS loans
Secured loans
Car loans
Loans to IE and SME
Debt securities and repurchase receivables at FVOCI
Placements with other banks and non-bank credit organizations with origi-
nal maturities of less than three months
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
Customer accounts, including:
Individuals
- Current/demand accounts
- Term deposits
IE and SME
Other legal entities
Subordinated debt
RR denominated bonds
Due to banks
Euro-Commercial Paper
83,352
11,878
3,452
2,285
1,512
325
6,705
64,446
4,029
1,454
41
38
68
5,753
463
440
109,972
76,269
118
110,090
456
76,725
30
8,988
7,006
1,421
40
1,846
1,282
634
100
5,963
5,283
1,212
90
2,089
706
92
124
Total Interest expense calculated using the effective interest rate
method
21,317
15,559
Other similar expense
Lease liabilities
Total interest expense
Expenses on deposit insurance
Net margin
134
21,451
1,870
86,769
-
15,559
1,174
59,992
Fee and commission income
IE and SME current accounts commission
Acquiring commission
Fee for selling credit protection
Interchange fee
SMS fee
Foreign currency exchange transactions fee
Card to card commission
Income from MVNO services
Brokerage operations
Cash withdrawal fee
Marketing services fee
Placement fee
Mortgage agency fee
Other fees receivable
8,483
6,616
5,550
3,473
3,244
3,024
1,980
890
819
720
340
141
136
626
6,943
4,162
5,601
3,046
2,256
1,785
1,279
186
210
885
108
167
419
376
Total fee and commission income
36,042
27,423
IE and SME current accounts commission represents commission for services to individual entrepreneurs and small to medium
businesses . Fee for selling credit protection represents fee which the Bank receives for selling voluntary credit insurance to
borrowers of the Group . Acquiring commission represents commission for processing card payments from online and offline
points of sale . Income from MVNO services represents income from providing mobile services such as full coverage across
Russia and international roaming, offering a number of value-added options such as virtual numbers, music and video stream-
ing services, etc .
In millions of RR
Fee and commission expense
Payment systems
Service fees
Payment channels
Costs of MVNO services
Banking and other fees
2019
2018
12,745
2,043
1,327
910
423
8,430
1,429
1,209
246
456
Total fee and commission expense
17,448
11,770
Payment systems fees represent fees for MasterCard, Visa and other payment systems’ services . Service fees represent fees
for statement printing, mailing service, sms services and others . Payment channels represent fees paid to third parties though
whom borrowers make loan repayments . 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 .
F-85
F-86
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
23 Customer Acquisition Expense
In millions of RR
Marketing and advertising
Staff costs
Taxes other than income tax
Partnership expenses
Credit bureaux
Cards issuing expenses
Telecommunication expenses
Other acquisition
2019
8,106
5,916
1,413
979
697
411
326
329
2018
5,672
5,509
1,107
768
535
260
285
86
Total customer acquisition expenses
18,177
14,222
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 in the amount of RR 1,561 million for the year
ended 31 December 2019 (2018: RR 1,341 million) .
24 Insurance Premiums Earned and Claims Incurred
In millions of RR
2019
Insurance premiums earned
Insurance premiums on insurance, co-insurance and reinsurance operations
Change in provision for unearned premiums
Reinsurers' share
Total Insurance premiums earned
Insurance claims incurred
Insurance claims on insurance, co-insurance and reinsurance operations
Changes in loss provisions
Claims handling expenses
Reinsurers' share
16,289
(2,178)
(1)
14,110
(2,923)
(1,243)
(733)
8
2018
7,315
(643)
2
6,674
(1,413)
(416)
(301)
4
Total Insurance claims incurred
(4,891)
(2,126)
The Insurance company provides following types of insurance:
Personal accident insurance and collective insurance against accidents, illnesses or loss of work provides compensation and financial
protection in the event of injuries, disability, death or loss of loss of work of the borrower . It is different from life insurance and med-
ical and health insurance . In accordance with the terms of individual insurance contracts, the policyholder and beneficiary is an indi-
vidual who has entered into an insurance contract . In accordance with the terms of the collective insurance contract, the insurer is
the Bank that has concluded the collective insurance contract with the Insurance Company, the beneficiary is the insured individual .
Motor vehicle insurance and property insurance provides compensation for damage to a client’s vehicle or other property .
Compulsory third party liability insurance (CTP) contracts provide the insured with financial protection from the risk of civil
liability of vehicle owners, which may occur as a result of harm to life, health or property of others when using vehicles .
Voluntary third party (VTP) risk insurance contracts provide the insured with financial protection in case of insufficiency of in-
surance payment for compulsory third party liability insurance of motor vehicle owners (CTP) to compensate for harm caused
to life, health and / or property .
Travel insurance provides compensation in case of medical or other unforeseen expenses of the client while being away from
their place of permanent residence .
Staff and administrative expenses for insurance operations are included in Note 25 .
25 Administrative and Other Operating Expenses
In millions of RR
Note
2019
Staff costs
Taxes other than income tax
Amortization of intangible assets
Depreciation of fixed assets
Depreciation of right-of-use assets
Information services
Professional services
Operating lease expense
Stationery
Communication services
Security expenses
Collection expenses
Other provisions
Other administrative expenses
12
12
12
19,204
1,473
1,331
1,287
1,134
787
773
410
383
280
167
165
60
398
2018
15,602
1,148
899
823
-
570
333
799
263
254
171
168
-
469
Total administrative and other operating expenses
27,852
21,499
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 2019 amounted to RR 2 .8 million (2018: RR 2 .7 million) .
The total fees charged by the Company's statutory auditor for the year ended 31 December 2019 for other assurance services
amounted to RR 3 .8 million (2018: RR 4 .7 million), for tax advisory services amounted to RR 2 .3 million (2018: RR 5 .7 million)
and for other non-assurance services amounted to RR 2 .2 million (2018: nil) .
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
Share-based remuneration
2019
3,398
469
2018
2,582
630
The average number of employees employed by the Group during the reporting year, including those who are working under
civil contracts, was 26,780 (2018: 21,577) .
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F-88
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
26 Other Operating Income
In millions of RR
Income from payment systems under marketing agreement
Subrogation fee
Other
Total other operating income
27 Income Taxes
Income tax expense comprises the following:
In millions of RR
Current tax
Deferred tax
Total income tax expense
2019
3,298
218
1,197
4,713
2019
13,844
(4,431)
9,413
2018
2,060
122
789
2,971
2018
4,639
3,463
8,102
The income tax rate applicable to the majority of the Group’s income is 20% (2018: 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% (2018: 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% (2018: 20%)
Tax effect of items, which are not deductible or assessable for taxation purposes:
- Non-deductible expenses
- Other expenses 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
2019
45,536
9,107
2018
35,224
7,045
272
38
226
(214)
(16)
311
740
177
(165)
(6)
Income tax expenses for the year
9,413
8,102
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% (2018: 20%) .
In the context of the Group’s current structure and Russian tax legislation, tax losses and current tax assets of different group
companies may not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes
may accrue even where there is a consolidated tax loss .
Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity and the same taxation
authority .
The tax effect of the movements in temporary differences for the year ended 31 December 2019 is detailed below .
In millions of RR
Tax effect of deductible and taxable tem-
porary differences
Loans and advances to customers
Tangible fixed assets
Right-of-use assets
Intangible assets
Revaluation of debt investment at FVOCI
Revaluation of debt investment at FVTPL
Accrued expenses and other temporary
differences
Lease liabilities
Customer accounts
Debt securities in issue
Financial derivatives
Insurance provisions
31 December
2018
1 January
2019 (IFRS
16 adoption)
Credited/
(charged)
to profit
or loss
Charged to
OCI
31 December
2019
696
(601)
-
-
-
(334)
(285)
(487)
1
(773)
-
(21)
(40)
(324)
13
-
-
-
-
333
-
-
-
-
2,819
(3)
12
14
-
-
-
-
3,515
(604)
(322)
(271)
702
(1,234)
(1,019)
(1)
586
6
(23)
(22)
364
(23)
-
-
-
-
-
-
-
-
(187)
339
(44)
(62)
40
(10)
Net deferred tax (liabilities)/assets
(1,821)
(1)
4,431
(1,234)
1,375
The tax effect of the movements in temporary differences for the year ended 31 December 2018 is detailed below .
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)
27
(827)
1
-
-
-
-
(919)
345
9
15
111
13
-
-
-
-
-
-
-
667
-
-
-
-
-
-
696
(601)
(285)
(487)
1
(773)
(21)
(40)
(324)
13
Net deferred tax liabilities
(1,479)
(3,463)
2,454
667
(1,821)
F-89
F-90
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
28 Dividends
The movements in dividends during the year ended 31 December 2019 and 2018 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)
2019
760
5,856
(5,601)
(524)
91
582
0.49
0.49
2018
377
12,265
(11,946)
(144)
208
760
1.07
1.07
Dividends declared in the tables above represent dividends declared by the Board of Directors are reduced by RR 25 million
for the year ended 31 December 2019 due to dividends on GDRs acquired by the Company from the market not for the imme-
diate purposes of the existing MLTIP .
On 13 May 2019 the Board of Directors declared an interim dividend of USD 0 .17 (RR 11 .09) per share/per GDR amounting to
USD 31 .05 million (RR 2,026 million) . Declared dividends were paid in USD on 28 and 30 May 2019 .
On 11 March 2019 the Board of Directors declared an interim dividend of USD 0 .32 (RR 21 .11) per share/per GDR amounting
to USD 58 .4 million (RR 3,855 million) . Declared dividends were paid in USD on 25 and 27 March 2019 .
On 27 August 2018 the Board of Directors declared a regular interim dividend of USD 0 .24 (RR 16 .27) per share/per GDR
amounting to USD 43 .9 million (RR 2,972 million) . Declared dividends were paid in USD on 24, 28 and 29 September 2018 .
On 29 May 2018 the Board of Directors declared a regular interim dividend of USD 0 .24 (RR 14 .95) per share/per GDR
amounting to USD 43 .8 million (RR 2,730 million) . Declared dividends were paid in USD on 21 and 27 June 2018 .
On 9 March 2018 the Board of Directors declared a regular interim dividend of USD 0 .31 (RR 17 .61) per share/per GDR
amounting to USD 56 .6 million (RR 3,216 million) . Declared dividends were paid in USD on 4 and 9 April 2018 .
Dividends were declared and paid in USD throughout the years ended 31 December 2019 and 2018 . Dividends payable at 31
December 2019 related to treasury shares acquired under MLTIP amounting to RR 582 million are included in other non-finan-
cial liabilities (31 December 2018: RR 760 million) .
On 11 June 2019 the Group announced suspension of dividend payments for the three months ended 30 June and 30 Sep-
tember 2019 to ensure the Group will have the necessary capital to further support credit portfolio growth .
29 Reconciliation of Liabilities Arising from Financing
Activities
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 .
Liabilities from financing activities
Debt securities
in issue
Perpetual sub-
ordinated bonds
Other subordi-
nated debt Lease liabilities
Total
In millions of RR
At 1 January 2018
Cash flows
Foreign exchange adjustments
Other non-cash movements
10,819
(1,803)
580
9
17,115
(49)
3,553
25
4,886
(5,209)
382
(59)
At 31 December 2018
9,605
20,644
Adoption of IFRS 16
Cash flows
Foreign exchange adjustments
Other non-cash movements
-
16,671
(432)
234
-
46
(2,267)
64
At 31 December 2019
26,078
18,487
-
-
-
-
-
-
-
-
-
-
-
1,665
(1,087)
-
1,116
1,694
32,820
(7,061)
4,515
(25)
30,249
1,665
15,630
(2,699)
1,414
46,259
30 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, car loans, secured loans and brokerage services to individuals .
IE and SME accounts services – representing customer current accounts, savings, deposits services and providing loans to
individual entrepreneurs and small to medium businesses .
Insurance operations – representing insurance services provided to individuals, such as personal accident insurance, personal
property insurance, travel insurance and vehicle insurance (Note 24) .
MVNO services - providing full coverage across Russia and international roaming, offering a number of value-added options
such as virtual numbers, music and video streaming services, etc .
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 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
30 Segment Analysis (Continued)
Measurement of operating segment profit or loss, assets and liabilities
The CODM reviews financial information prepared based on International financial reporting standards adjusted to meet the
requirements of internal reporting . The CODM evaluates performance of each segment based on profit before tax .
Information about reportable segment profit or loss, assets and liabilities
Segment reporting of the Group’s assets and liabilities as at 31 December 2019 is set out below:
In millions of RR
Retail bank-
ing
SME
accounts
services
Insurance
operations
MVNO ser-
vices
Elimina-
tions
Total
Cash and cash equivalents
31,098
25,524
3,851
43
(2,720)
57,796
Mandatory cash balances with
the CBRF
Due from other banks
3,448
250
Loans and advances to customers
330,905
Financial derivatives
390
-
-
900
-
-
1,834
-
-
Investments in securities
90,566
41,950
2,662
Guarantee deposits with payment
systems
Current income tax assets
Deferred income tax assets
Tangible fixed assets and right-of-
use assets
Intangible assets
Other financial assets
Other non-financial assets
Total reportable segment
assets
8,877
807
1,517
10,454
4,105
20,429
2,034
-
-
-
-
823
444
-
-
8
-
-
196
1,768
592
-
-
-
-
-
-
-
-
106
311
87
187
-
-
3,448
2,084
(2,630)
329,175
-
-
-
-
-
-
-
390
135,178
8,877
815
1,517
10,560
5,435
(1,055)
21,673
(303)
2,510
504,880
69,641
10,911
734
(6,708)
579,458
Segment reporting of the Group’s income and expenses for the year ended 31 December 2019 is set out below:
In millions of RR
External revenues:
Retail bank-
ing
SME
accounts
services
Insurance
operations
MVNO ser-
vices
Elimina-
tions
Total
Interest income calculated using the
effective interest rate method
107,021
2,629
322
Other similar income
118
-
Fee and commission income
- IE and SME current accounts commission
-
8,483
- Fee for selling credit protection
- Acquiring commission
- SMS fee
- Interchange fee
- Foreign currency exchange transactions
fee
- Card to card commission
- Cash withdrawal fee
- Income from MVNO services
- Brokerage operations
- Mortgage agency fee
- Marketing services fee
- Placement fee
- Other fees receivable
Timing of fee and commission
income recognition:
- At point in time
- Over time
5,550
6,397
3,244
2,674
2,713
1,980
720
-
819
136
340
141
626
-
219
-
799
311
-
-
-
-
-
-
-
-
22,096
9,726
3,244
86
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,792
-
288
-
-
-
-
-
-
-
-
-
-
890
-
-
-
-
-
890
-
890
-
-
-
-
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
109,972
118
8,483
5,550
6,616
3,244
3,473
3,024
1,980
720
890
819
136
340
141
626
32,712
3,330
36,042
2,216
301
389
14,110
139
4,713
Due to banks
663
-
Customer accounts
352,280
62,054
Debt securities in issue
26,078
Financial derivatives
Deferred income tax liabilities
Subordinated debt
Insurance provisions
Other financial liabilities
Other non-financial liabilities
Total reportable segment
liabilities
590
142
18,487
-
14,091
5,067
-
-
-
-
-
-
6,280
700
52
2,630
(2,630)
663
Total fee and commission income
25,340
9,812
-
-
-
-
-
-
(2,720)
411,614
-
-
-
-
-
26,078
590
142
18,487
6,280
912
58
(1,055)
14,648
(303)
4,874
Net gains from foreign exchange trans-
lation
Net gains from disposals of debt securi-
ties at FVOCI
Net gains from debt instruments at
FVTPL
Insurance premiums earned
Credit loss allowance for debt securities
at FVOCI
Other operating income
2,216
301
389
318
139
4,355
-
-
-
-
-
69
-
-
-
-
-
-
-
417,398
62,054
7,032
3,600
(6,708)
483,376
Total external revenues
140,197
12,510
14,402
891
- 168,000
F-93
F-94
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
30 Segment Analysis (Continued)
In millions of RR
Revenues from other segments:
Interest income calculated using the effec-
tive interest rate method
Fee and commission income:
- Acquiring commission
- Income from MVNO services
- Other fees receivable
Insurance premiums earned
Other operating income
Retail bank-
ing
SME
accounts
services
Insurance
operations
MVNO ser-
vices
Elimina-
tions
Total
146
6
-
83
-
62
-
-
-
-
-
-
-
83
-
-
-
453
-
536
1
-
(230)
(6)
250
(250)
-
-
-
(83)
(453)
(62)
251
(1,084)
-
-
-
-
-
-
-
Total revenues from other segments
297
Total revenues
140,494
12,510
14,938
1,142
(1,084)
168,000
Interest expense calculated using the effec-
tive interest rate method
Other similar expense
(19,979)
(1,421)
(129)
-
Expenses on deposit insurance
(1,659)
(211)
Credit loss allowance for loans and ad-
vances to customers and credit related
commitments
(27,169)
(75)
-
-
-
-
Fee and commission expense
(14,755)
(2,022)
(14)
Customer acquisition expense
(15,361)
(1,272)
(1,091)
Net losses from derivatives revaluation
(2,563)
-
-
-
-
(16)
(4,891)
(952)
-
Net losses from operations with foreign
currencies
Insurance claims incurred
Administrative and other operating ex-
penses
(147)
(5)
-
-
(910)
(986)
-
-
-
230
(21,317)
-
-
(134)
(1,870)
-
(27,244)
253
(17,448)
533
(18,177)
-
-
-
(2,563)
(968)
(4,891)
(23,124)
(2,774)
(1,185)
(837)
68
(27,852)
Segment reporting of the Group’s assets and liabilities as at 31 December 2018 is set out below:
In millions of RR
Retail bank-
ing
SME
accounts
services
Insurance
operations
MVNO ser-
vices
Elimi-
na-tions
Total
Cash and cash equivalents
19,621
13,110
3,537
15
(2,481)
33,802
Mandatory cash balances with the CBRF
Due from other banks
Loans and advances to customers
Financial derivatives
2,435
-
199,513
1,710
-
-
330
-
-
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
-
-
-
-
-
-
-
-
89
198
46
150
-
-
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
Total reportable segment assets
327,697
44,554
7,494
498
(4,744)
375,499
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
3
51
1,821
20,644
-
9,746
3,367
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,859
1,711
63
1,344
(1,344)
2,708
(2,878)
280,916
-
-
-
-
-
-
-
-
-
-
-
-
9,605
3
51
1,821
20,644
2,859
213
64
(469)
11,201
(53)
3,441
Segment result
34,803
4,735
7,741
(1,743)
-
45,536
Total reportable segment liabilities
290,037
41,702
4,633
1,621
(4,744)
333,249
F-95
F-96
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
30 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
External revenues:
Retail bank-
ing
SME
accounts
services
Insurance
operations
MVNO ser-
vices
Elimi-
na-tions
Total
Interest income calculated using the effec-
tive interest rate method
74,283
1,807
179
Other similar income
456
-
Fee and commission income:
- SME current accounts commission
-
6,943
- Fee for selling credit protection
- 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
Timing of fee and commission
income recognition:
- At point in time
- Over time
5,601
4,078
2,595
2,256
1,576
1,279
885
419
210
-
167
108
376
-
84
451
-
209
-
-
-
-
-
-
-
-
17,294
7,469
2,256
218
Total fee and commission income
19,550
7,687
Net gains from derivatives revaluation
1,784
Net gains from operations with foreign
currencies
Net gains from disposals of debt securities
at FVOCI
Insurance premiums earned
363
378
320
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
-
6,354
Other operating income
2,726
39
202
-
-
-
-
-
-
-
-
-
-
-
-
186
-
-
-
186
-
186
-
-
-
-
4
Total external revenues
99,860
9,533
6,753
190
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
76,269
456
6,943
5,601
4,162
3,046
2,256
1,785
1,279
885
419
210
186
167
108
376
24,949
2,474
27,423
1,784
381
378
6,674
2,971
116,336
Retail bank-
ing
SME
accounts
services
Insurance
operations
MVNO ser-
vices
Elimi-
na-tions
Total
In millions of RR
Revenues from other segments:
Interest income calculated using the effec-
tive interest rate method
Fee and commission income
- Acquiring commission
- Income from MVNO services
- Other fees receivable
Net gains from disposals of debt securities
at FVOCI
Insurance premiums earned
Other operating income
50
40
-
17
79
-
59
-
-
-
-
-
-
-
-
71
-
-
-
-
311
382
Total revenues from other segments
245
Total revenues
100,105
9,533
7,135
Interest expense calculated using the effec-
tive interest rate method
(14,418)
(1,212)
Expenses on deposit insurance
(1,090)
(84)
Credit loss allowance for loans and ad-
vances to customers and credit related
commitments
(11,574)
(33)
Credit loss allowance for debt securities at
FVOCI
(192)
-
Fee and commission expense
(10,453)
(1,125)
-
-
-
-
-
Customer acquisition expense
(11,189)
(2,374)
(772)
-
-
53
-
-
-
-
53
243
(121)
(40)
(53)
(17)
(79)
(311)
(59)
(680)
-
-
-
-
-
-
-
-
(680)
116,336
(50)
121
(15,559)
-
-
-
-
-
-
(1,174)
(11,607)
(192)
(246)
(254)
54
(11,770)
367
(14,222)
Net losses from foreign exchange transla-
tion
(2,153)
Net losses from debt instruments at FVTPL
(808)
Insurance claims incurred
-
-
-
-
-
-
(2,126)
(2)
-
-
-
-
-
(2,155)
(808)
(2,126)
Administrative and other operating expens-
es
(17,372)
(2,370)
(1,002)
(814)
59
(21,499)
Segment result
30,856
2,335
3,235
(1,123)
(79)
35,224
F-97
F-98
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
31 Financial and Insurance 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 .
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 IE and SME 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 .,
giving rise to financial assets and off-balance sheet credit-related commitments .
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 33) .
The Bank created a credit committee, which establishes general principles for lending to individual borrowers . According to
these principles, the minimum requirements for potential customers are listed below:
• Citizenship of the Russian Federation;
• Age from 18 to 70 y .o ., but not older than 70 y .o . at the time of loan repayment;
• 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;
For car loans minimum requirements are listed below:
• The requested loan term is from 1 to 5 years;
• Car loan volumes up to RR 2,000 thousand;
• The requirement for the car is with an age not more than 18 years .
For loans to SME minimum requirements are listed below:
• Working capital loan: loan volumes up to RR 10,000 thousand and loan term to 6 months;
• Credit for individual entrepreneurs for any purpose: loan volumes up to RR 2,000 thousand and loan term to 36 months;
• Credit for individual entrepreneurs secured by real estate: loan volumes up to RR 15,000 thousand and loan term to 15
years . The requirement for the real estate is an apartment in the apartment building within the Russian Federation, which is
free from any encumbrances;
• Investment credit line secured by real estate: loan volumes up to RR 15,000 thousand and loan term to 5 years . The
requirement for the real estate is an apartment in the apartment building within the Russian Federation, which is free from
any encumbrances .
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 bureaus 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:
a) if the credit card loan is overdue for more than 7 days, its account will be blocked till repayment;
b) if the borrower had lost his/her source of income, then borrower account might be blocked till verification of his/her new
• Cash loan volumes range between RR 50 thousand and RR 2,000 thousand .
employment;
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 200 thousand .
For secured loans minimum requirements are listed below:
• 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, which is free from any encumbrances .
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 .
F-99
F-100
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
31 Financial and Insurance Risk Management (Continued)
The condition of early repayments is satisfied, as described in the table above, if cumulative amount of early repayments
exceed 5% of the gross carrying amount at the date of recognition of the loan
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-
it-impaired loans qualifying for sale to external debt collection agencies:
Each master scale credit risk grade is assigned a specific degree of creditworthiness:
• Excellent – strong credit quality with minimum expected credit risk;
a) loans remain unpaid after all collection procedures were performed (no payment during last 4-6 months);
• Good – adequate credit quality with low expected credit risk;
b) the debtor cannot be either reached or found for the previous 4 months;
• Monitor – adequate credit quality with a moderate credit risk and credit cards loans before the first due date;
c) the debtor has no assets and there is no expectation he/she will have any in the future;
• Sub-standard – low credit quality with a substantial credit risk, includes restructured loans that are less than 90 days over-
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 .
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)
Excellent
Good
Monitor
Sub-standard
Doubtful
Default
AAA, AA+ to AA-, A+ to A-
BBB+ to BBB-, BB+
BB to B+
B, B-
CCC+ to CC-
C, D
Each master scale credit risk grade is assigned a specific degree of creditworthiness:
• Excellent – high credit quality with lowest or very low expected credit risk;
• Good – good credit quality with currently 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 in-
struments 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):
Master scale credit risk grade
Corresponding interval
For credit cards: non-overdue with PD < 5%;
for other types of loans: non-overdue for the last 12 months with PD < 5% or with early
repayments
1-30 days overdue for all types of loans or without first due date for credit card loans
all other non-overdue loans
31-90 days overdue or restructured loans 0-90 days overdue
90+ days overdue
Excellent
Good
Monitor
Sub-standard
NPL
F-101
due;
• 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 .
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 .
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 .
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 .
F-102
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
31 Financial and Insurance Risk Management (Continued)
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 .
Purchased or originated credit-impaired (POCI) financial assets – financial assets that are credit-impaired upon initial recognition .
The Group carries out two separate approaches for ECL measurement:
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 .
• 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;
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 .
• for all other financial assets except FVTPL: assessment based on external ratings .
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 .
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 . 18-month period was determined as the weighted average period of the most recent date
where the credit limit was revised by at least 25%, which is considered to be a substantial revision .
For all other loans:
• 30 days past due; or
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
basis, the Group combines its exposures into segments on the basis of shared credit risk characteristics, such as that expo-
sures to risk within a group are homogeneous .
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 .
• 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
where:
months more than once .
If the SICR criteria are no longer met, the instrument will be transferred back to Stage 1 .
– probability of default in moment
(can’t be higher than 100%);
General principle of techniques applied
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 .
– exposure at default in moment
;
– loss given default in moment
;
This approach can be summarised in a three-stage model for ECL measurement:
– number of months in the loan’s lifetime;
• Stage 1 – a financial instrument that is not credit-impaired on initial recognition and its credit risk has not increased signifi-
– effective interest rate;
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 .
– remaining amount of payments .
F-103
F-104
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
31 Financial and Insurance Risk Management (Continued)
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 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 .
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 behavioural 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 calcu-
late 12-month ECLs . An assessment of a 12-month PD is based on the latest available historic default data using borrow-
er-specific behavioural characteristics and adjusted for forward-looking information when appropriate . Based on borrow-
er-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;
• Moscow Prime Offered Rate;
• 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 90 .8% weight, opti-
mistic scenario having the 1 .3% weight and pessimistic scenario having the 7 .9% weight .
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 . The priority goal of market risk
management is to maintain the risks assumed by the Group at a level determined by the Group in accordance with its own stra-
tegic objectives . Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis . Howev-
er, 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 2019
At 31 December 2018
Non-de-
rivative
monetary
financial
assets
Non-de-
rivative
monetary
financial
liabilities Derivatives Net position
Non-de-
rivative
monetary
financial
assets
Non-de-
rivative
monetary
financial
liabilities Derivatives Net position
491,635
(390,010)
(12,995)
88,630
307,617
(264,073)
(5,283)
38,261
46,930
(62,098)
13,422
(1,746)
37,550
(47,539)
7,245
(2,744)
18,902
(20,261)
(595)
(1,954)
11,318
(13,773)
(233)
(2,688)
677
87
(675)
(788)
(32)
-
(30)
(701)
571
13
(586)
(202)
(22)
-
(37)
(189)
558,231
(473,832)
(200)
84,199
357,069
(326,173)
1,707
32,603
In millions
of RR
RR
USD
Euro
GBP
Others
Total
Derivatives presented above are monetary financial assets or monetary financial liabilities but are presented separately in or-
der 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 37 .
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% (2018: by 20%)
USD weakening by 20% (2018: by 20%)
Euro strengthening by 20% (2018: by 20%)
Euro weakening by 20% (2018: by 20%)
GBP strengthening by 20% (2018: by 20%)
GBP weakening by 20% (2018: by 20%)
At 31 December 2019
At 31 December 2018
Impact on profit
for the year
Impact on total
equity
Impact on profit
for the year
Impact on total
equity
(277)
277
(310)
310
(5)
5
(277)
277
(310)
310
(5)
5
(417)
417
(408)
408
(6)
6
(417)
417
(408)
408
(6)
6
F-105
F-106
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
31 Financial and Insurance Risk Management (Continued)
The exposure was calculated only for monetary balances denominated in currencies other than the functional currency of the
respective entity of the Group .
Interest rate risk. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on
its financial position and cash flows . Interest margins may increase as a result of such changes but may reduce or create losses
in the event that unexpected movements arise . Management monitors on a daily basis and sets limits on the level of mismatch
of interest rate repricing that may be undertaken .
The 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 signifi-
cantly 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 (2018: no material impact) .
The table below summarizes the Group’s exposure to interest rate risks . The table presents the aggregated amounts of the
Group’s financial assets and liabilities at carrying amounts, categorized by the earlier of contractual interest repricing or
maturity dates:
In millions of RR
31 December 2019
Demand and
less than
1 month
From 1 to
6 months
From 6 to
12 months
From 1 to
3 years
More than 3
years
Total
Total financial assets
136,206
153,392
66,962
121,755
80,306
558,621
Total financial liabilities
(199,880)
(155,323)
(62,923)
(44,109)
(12,187)
(474,422)
Net interest sensitivity gap
at 31 December 2019
31 December 2018
(63,674)
(1,931)
4,039
77,646
68,119
84,199
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)
Net interest sensitivity gap
at 31 December 2018
(96,652)
68,240
(4,150)
28,140
37,025
32,603
The Group has no significant risk associated with variable interest rates on loans and advances provided to customers or loans
received .
The aim of interest rate risk management is to maintain the risks assumed by the Group within the limits determined by the
Group in accordance with its own strategic objectives . The interest rate risk is managed by setting caps and floors in relation to
interest rates on financial assets and liabilities depending on their types and maturities and balancing the assets and liabilities
which are sensitive to changes in interest rates .
The assessment of the magnitude of interest rate risk is carried out by performing a sensitivity analysis which imply assess-
ment of impact on net interest income of a shift in interest rates by 200 basis points . At 31 December 2019, if interest rates at
that date had been 200 basis points lower/higher (2018: 200 basis points), with all other variables held constant, profit for the
year would have been RR 1,684 million (2018: RR 652 million) lower/higher, equity would have been RR 1,684 million (2018:
RR 652 million) lower/higher .
The Group monitors interest rates for its financial instruments . The table below summarizes interest rates for the years 2019
and 2018 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
2019
2018
RR
USD
EURO
GPB
Other
RR
USD
EURO
GPB
0 .0
0 .0
0 .0
0 .0
0 .0
0 .0
0 .0
0 .0
Cash and cash equivalents
Loans and advances to customers
Due from banks
Investment in securities
0 .0
37 .2
5 .3
7 .9
-
1 .6
4 .3
Repurchase receivables
-
-
Liabilities
Due to banks
Customer accounts
Debt securities in issue
Subordinated debt
6 .2
5 .1
9 .0
0 .0
1 .0
3 .8
-
10 .0
-
-
2 .4
-
-
0 .1
1 .2
-
-
-
-
-
-
-
-
-
-
-
0 .1
0 .0
-
-
-
-
42 .7
5 .9
8 .5
7 .4
7 .0
5 .2
9 .9
-
-
4 .5
4 .3
2 .4
0 .9
4 .4
-
10 .0
-
-
3 .2
-
-
0 .4
1 .4
-
-
-
-
-
-
0 .3
-
-
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 has exposure to equity price risk . Transactions with equity instruments are monitored and author-
ised by the Group’s Treasury function . At 31 December 2019, if equity prices at that date had been 20% lower (higher) with all
other variables held constant, profit for the year would have been RR 83 million lower (higher) .
F-107
F-108
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
31 Financial and Insurance Risk Management (Continued)
Geographical risk concentrations. The geographical concentration of the Group’s financial assets and liabilities at 31 Decem-
ber 2019 is set out below:
In millions of RR
Financial assets
Russia
OECD
Other
Non-OECD
Listed
Total
Cash and cash equivalents
54,893
2,903
Mandatory cash balances with the CBRF
Due from other banks
Loans and advances to customers
Financial derivatives
Investments in 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
3,448
2,084
329,175
390
134,765
-
501
-
-
-
413
-
8,376
8,272
13,401
533,528
25,093
663
411,504
2,460
590
-
2,342
14,589
432,148
-
-
-
-
-
59
59
-
Credit related commitments (Note 33)
168,059
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57,796
3,448
2,084
329,175
390
135,178
-
8,877
21,673
558,621
663
110
-
411,614
-
-
-
-
23,618
26,078
-
590
18,487
18,487
2,342
-
14,648
110
42,105
474,422
-
168,059
The geographical concentration of the Group’s financial assets and liabilities at 31 December 2018 is set out below:
Russia
OECD
Other
Non-OECD
Listed
Total
In millions of RR
Financial assets
Cash and cash equivalents
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
31,911
2,435
776
198,489
1,710
100,126
1,182
168
8,212
1,891
-
-
-
-
-
-
4,435
7,430
-
-
-
-
-
14
-
-
-
345,009
13,756
14
2,708
280,118
3,754
3
-
1,099
11,018
298,700
-
-
-
-
-
-
183
183
-
-
798
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33,802
2,435
776
198,489
1,710
100,140
1,182
4,603
15,642
358,779
2,708
280,916
5,851
9,605
-
3
20,644
20,644
-
-
1,099
11,201
798
26,495
326,176
-
-
110,478
Credit related commitments (Note 33)
110,478
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 2019 and 2018 .
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 .
F-109
F-110
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
31 Financial and Insurance Risk Management (Continued)
The maturity analysis of financial liabilities at 31 December 2018 is as follows:
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 2019 and 2018 . 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 severe
market conditions and credit card portfolio behaviour is reviewed by the CFO .
The table below shows liabilities at 31 December 2019 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 .
The maturity analysis of financial liabilities at 31 December 2019 is as follows:
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
663
-
-
-
-
663
Customer accounts
189,176
84,108
70,530
60,627
11,605
416,046
Debt securities in issue
Subordinated debt
Insurance provisions
Other financial liabilities
Financial derivatives
168
149
463
14,648
-
Credit related commitments (Note 33)
168,059
338
291
917
-
199
-
487
440
438
-
203
-
2,082
23,795
26,870
891
296
-
18,541
20,312
228
2,342
-
14,648
399
19,833
20,634
-
-
168,059
Total potential future payments for
financial obligations
373,326
85,853
72,098
64,295
74,002
669,574
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
-
-
-
-
2,708
Customer accounts
191,308
24,257
32,600
34,571
1,719
284,455
Debt securities in issue
Subordinated debt
Insurance provisions
Other financial liabilities
Financial derivatives
55
167
213
11,201
-
Credit related commitments (Note 33)
110,478
106
320
422
-
92
-
162
493
217
-
92
-
4,175
5,906
10,404
998
20,865
22,843
156
-
91
-
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
Financial derivatives receivable and payable are disclosed in the Note 37 . The tables above present only the gross payables .
Insurance provisions are disclosed in the table above based on their expected maturities .
Customer accounts are classified in the above analysis based on contractual maturities . However, in accordance with the
Russian Civil Code, individuals have a right to withdraw their deposits prior to maturity if they forfeit their right to accrued
interest .
The Group takes on exposure to liquidity risk, which is the risk of cash surplus in case of assets-liabilities cash-flow profile
mismatch . Exposure to liquidity risk arises as a result of the Group’s borrowing and operational activities that assume cash
payment obligations . The Group uses daily, short-term and long-term reporting, stress-testing and forecasting practices to
monitor and prevent potential liquidity problems . The Group is actively increasing the number of counterparties for interbank
lending, looks for new wholesale markets, improves and creates additional debit and credit products to have more instruments
over cash-flow management . The recent economic situation has resulted in increased liquidity risk . In response the 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
2019 is presented in the table below .
F-111
F-112
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
Total
57,796
3,448
2,084
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
31 Financial and Insurance Risk Management (Continued)
Demand
and less
than
1 month
From
1 to 3
months
From
3 to 6
months
From
6 to 12
months
From
1 to 5 years
More than
5 years
In millions of RR
Assets
Cash and cash equivalents
57,796
-
510
-
-
346
46
-
513
-
-
571
2,038
-
-
-
1,508
-
Mandatory cash balances
with the CBRF
Due from other banks
Loans and advances to
customers
48,391
63,640
63,466
61,884
79,105
12,689
329,175
Financial derivatives
-
Investments in securities
135,178
-
-
-
-
-
-
390
-
-
-
390
135,178
Guarantee deposits with
payment systems
1,304
1,717
1,712
1,669
2,133
342
8,877
Other financial assets
21,569
63
20
10
11
-
21,673
Total financial assets
265,746
65,930
65,590
64,076
84,248
13,031
558,621
Liabilities
Due to banks
663
-
-
-
-
Customer accounts
180,017
60,879
41,259
61,298
68,161
-
-
663
411,614
Debt securities in issue
Financial derivatives
Subordinated debt
Insurance provisions
Other financial liabilities
-
-
-
463
14,648
411
-
158
917
-
599
1,008
12,463
11,597
26,078
-
-
438
-
-
-
296
-
590
18,329
228
-
-
-
-
-
590
18,487
2,342
14,648
Total financial liabilities
195,791
62,365
42,296
62,602
99,771
11,597
474,422
Net liquidity gap at
31 December 2019
Cumulative liquidity gap at
31 December 2019
69,955
3,565
23,294
1,474
(15,523)
1,434
84,199
69,955
73,520
96,814
98,288
82,765
84,199
-
Provision for unearned premiums in the amount of RR 3,938 million is not included in the insurance provisions stated above .
Refer to Note 18 .
The expected maturity analysis of financial instruments at carrying amounts as monitored by management 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
More than
5 years
Total
In millions of RR
Assets
Cash and cash equivalents
33,802
-
-
-
-
1,602
13
66
206
106
-
298
431
363
126
-
-
-
33,802
2,435
776
Mandatory cash balances with
the CBRF
Due from other banks
Loans and advances to cus-
tomers
33,496
44,272
43,675
40,612
35,292
1,142
198,489
Financial derivatives
-
Investment in debt securities
100,140
Repurchase receivables
1,182
-
-
-
-
-
-
Guarantee deposits with pay-
ment systems
1,084
1,463
1,138
Other financial assets
15,542
63
21
-
-
-
735
11
1,710
-
-
183
5
-
-
-
-
-
1,710
100,140
1,182
4,603
15,642
Total financial assets
186,861
46,070
44,940
42,087
37,679
1,142
358,779
Liabilities
Due to banks
2,708
-
-
-
-
Customer accounts
119,413
42,478
28,554
43,657
46,814
Debt securities in issue
Financial derivatives
Subordinated debt
Insurance provisions
Other financial liabilities
-
-
-
213
11,201
-
-
114
422
-
274
4,027
5,304
-
-
217
-
-
-
156
-
3
20,530
91
-
-
-
-
-
-
-
2,708
280,916
9,605
3
20,644
1,099
11,201
Total financial liabilities
133,535
43,014
29,045
47,840
72,742
-
326,176
Net liquidity gap at
31 December 2018
Cumulative liquidity gap at
31 December 2018
53,326
3,056
15,895
(5,753)
(35,063)
1,142
32,603
53,326
56,382
72,277
66,524
31,461
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 18 .
As at the 31 December 2019 all the investment in debt securities 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 (2018: the same) .
F-113
F-114
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
31 Financial and Insurance Risk Management (Continued)
Effect of changes in the key assumptions as at 31 December 2019:
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 .
Insurance risk. Insurance risk is the risk associated with insurance contracts, consisting in the possibility of the occurrence of
an insurance event and the uncertainty of the amount and time of occurrence of the loss associated with it .
The insurance risk management process covers all stages, from the stage of development of insurance rates to the settlement
of losses .
The main steps in the insurance risk management process include:
• Underwriting and regulation of tariff policy;
• Efficiency of the loss settlement process;
• Diversification of the insurance portfolio .
Tariff policy. The process of underwriting and regulation of the tariff policy includes the formation of tariffs for certain areas of
activity based on the analysis of results for previous periods, existing market conditions and the Insurance Company's strategy .
The insurance tariff is set on the basis of the analysis of the expected loss ratio based on Group’s insurance portfolio and
similar products on the market, the commission ratio based on the analysis of product profitability and commission rates for
similar products on the market, and the analysis of the average market rate . When developing tariffs, factors such as expected
inflation and changes in the legislation of the Russian Federation are also taken into account .
The Insurance Company monitors the correctness of the calculation of the insurance premium under the insurance contract by
analyzing, on a regular basis, the deviations of the actual received premiums from the estimated premiums .
Loss settlement process. In accordance with the insurance contract, the policyholder is obliged to notify the insurance company
of a loss within a certain period of time . Losses are settled by specialized units, other than selling business units . The insurance
claims will be paid only after receiving all the necessary documents confirming the fact of the insured event . Also, if necessary,
economic security department and legal department are involved in checking documents for settlement of losses . If at the
time of payment of the insurance claims the policyholder had outstanding debt of the insurance premium, the unpaid part is
deducted from the amount of compensation .
If there is a third party that caused an insurance loss to the insured client, the Group has a right to pursue third parties respon-
sible for loss for payment of some or all costs related to the claims settlement process of the Group .
Diversification of the insurance portfolio. To reduce insurance risk, the Group also uses the diversification of its insurance
portfolio - it insures a large number of small risks, which, in particular, is achieved through the remote provision of insurance
services almost throughout the Russian Federation . The company does not operate outside the Russian Federation and is
exposed to risks associated with the geographical features of the regions of the Russian Federation .
Sensitivity analysis. The following analyses the possible changes in the key assumptions used in the calculation of insurance
liabilities under contracts other than life insurance, provided that the other assumptions are constant . This analysis reflects
the impact on gross and net liabilities, profit before tax and equity of the Group .
In millions of RR except for the
number of claims
Change in as-
sumptions
Effect on insur-
ance obligations
other than life
insurance
Effect on the re-
insurers' share in
insurance obliga-
tions other than
life insurance
Effect on profit
before tax
Effect on
equity
The average cost of insurance
claims
The average number of claims
– 10%
+ 10%
– 10%
+ 10%
(193)
193
193
(193)
-
-
-
-
193
154
(193)
(193)
(154)
(154)
193
154
Effect of changes in the key assumptions as at 31 December 2018:
In millions of RR except for the
number of claims
Change in as-
sumptions
Effect on insur-
ance obligations
other than life
insurance
Effect on the re-
insurers' share in
insurance obliga-
tions other than
life insurance
Effect on profit
before tax
Effect on
equity
The average cost of insurance
claims
The average number of claims
– 10%
+ 10%
– 10%
+ 10%
(97)
97
(97)
97
-
-
-
-
97
(97)
97
(97)
77
(77)
77
(77)
32 Management of Capital
The Group’s objectives when managing capital are (i) for the Bank to comply with the capital requirements set by the Central
Bank of Russian Federation (CBRF), (ii) for the 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 2019 was RR
95,979 million (31 December 2018: RR 42,014 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 2019 was RR 99,731 million, and the equity capital adequacy ratio (N1 .0)
was 12 .12% (31 December 2018: RR 74,375 million and 13 .92%) . Minimum required statutory equity capital adequacy ratio
(N1 .0) was 8% as at 31 December 2019 (31 December 2018: 8%) .
F-115
F-116
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
32 Management of Capital (Continued)
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 composition of the Group’s capital calculated in accordance with the methodology set by Basel Committee with
capital adjustments as set out in Basel III is as follows:
In millions of RR
Share capital
Share premium
Treasury shares
Share-based payment reserve
Retained earnings
Revaluation reserve for investments in debt securities
Less intangible assets
Non-controlling interest
Common Equity Tier 1 (CET1)
Additional Tier 1
Tier 1 capital
Total capital
Risk weighted assets (RWA)
Credit risk
Operational risk
Market risk
31 December
2019
31 December
2018
230
26,998
(3,164)
1,039
66,880
3,996
(5,435)
103
90,647
18,487
109,134
109,134
412,741
152,881
4,603
188
8,623
(3,670)
1,232
36,785
(1,144)
(4,223)
236
38,027
20,644
58,671
58,671
276,875
109,818
6,626
Total risk weighted assets (RWA)
570,225
393,319
Common equity Tier 1 capital adequancy ratio (CET1/ Total RWA), %
Tier 1 capital adequacy ratio (Tier 1 capital / Total RWA), %
Total capital adequacy ratio (Total capital / Total RWA), %
15.90%
19.14%
19.14%
9.67%
14.92%
14.92%
The Group and the Bank have complied with all externally imposed capital requirements throughout the years ended 31 De-
cember 2019 and 2018 .
The Insurance Company has complied with all capital requirements set by the legislation of the Russian Federation throughout
the years ended 31 December 2019 and 2018 .
33 Contingencies and Commitments
Legal proceedings. From time to time and in the normal course of business, claims against the Group may be received . On the
basis of its own estimates and internal professional advice, management is of the opinion that no material unprovided losses
will be incurred in respect of claims .
Tax contingencies. Russian tax legislation which was enacted or substantively enacted at the end of the reporting period, is
subject to varying interpretations when being applied to the transactions and activities of the Group . Consequently, tax positions
taken by management and the formal documentation supporting the tax positions may be challenged tax authorities . Russian
tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a
clear business purpose or with tax incompliant counterparties . Fiscal periods remain open to review by the authorities in respect
of taxes for three calendar years preceding the year when decision about review was made . Under certain circumstances reviews
may cover longer periods . The Russian transfer pricing legislation is generally aligned with the international transfer pricing
principles developed by the Organisation for Economic Cooperation and Development (OECD), 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 evo-
lution 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 operations of the Group .
The Group includes companies incorporated outside of Russia . The tax liabilities of the Group are determined on the assumption
that these companies are not subject to Russian profits tax, because they do not have a permanent establishment in Russia . The
Company is a tax resident of Cyprus only and full beneficial owner of the Bank and Insurance Company . This interpretation of relevant
legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be signifi-
cant 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, interpretations
of such uncertain areas that reduce the overall tax rate of the Group . While management currently estimates that the tax positions
and interpretations that it has taken can probably be sustained, there is a possible risk that outflow of resources will be required
should such tax positions and interpretations be challenged by the tax authorities . The impact of any such challenge cannot be relia-
bly estimated; however, it may be significant to the financial position and/or the overall operations of the Group . As at 31 December
2019 and 31 December 2018 no material tax risks were identified .
Future lease payments related to leases where leased asset is of low value at 31 December 2019. The future cash outflows to
which the Group is exposed and which are not reflected in the lease liabilities amounted to RR 59 million at 31 December 2019 and
relate primarily to leases of assets which are of low value .
Maturity analysis of lease liabilities. The expected maturity analysis of lease liabilities at carrying amounts at 31 December 2019 is
presented in the table below .
In millions of RR
Lease liabilities
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
11
109
111
209
1,254
Total
1,694
Compliance with covenants. The Group is subject to certain covenants related primarily to its subordinated perpetual debt .
Non-compliance with such covenants may result in negative consequences for the Group . Management believes that the Group
was in compliance with all such covenants as at 31 December 2019 and 31 December 2018 .
F-117
F-118
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
33 Contingencies and Commitments (Continued)
Credit related commitments and performance guarantees issued. 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, guarantees . 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 .
Performance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation .
Such contracts do not transfer credit risk . The risk under performance guarantee contracts is the possibility that the insured
event (i .e . the failure to perform the contractual obligation by another party) occurs . The key risks the Group faces are signif-
icant fluctuations in the frequency and severity of payments incurred on such contracts relative to expectations . The Group
uses a scoring model to predict levels of such payments . Claims must be made before the contract matures and most claims
are settled within short term . This allows the Group to achieve a high degree of certainty about the estimated payments and
therefore future cash flows .
Outstanding credit related commitments and performance guarantees are as follows:
In millions of RR
Unused limits on credit card loans
Credit loss allowance
31 December
2019
31 December
2018
168,059
110,478
(2,242)
(2,041)
Total credit related commitments, net of сredit loss allowance
165,817
108,437
Performance guarantees issued
Provisions
Total performance guarantees issued, net of provisions
660
(3)
657
44
-
44
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 2019 based on credit
risk grades .
In millions of RR
(12-months ECL)
Credit related commitments
Stage 1
Stage 2
(lifetime ECL for
SICR)
Stage 3
(lifetime ECL for
credit impaired)
- Excellent
- Good
- Monitor
Unrecognised gross amount
Credit loss allowance
Unrecognised net amount
145,154
12,285
10,360
167,799
(2,228)
165,571
-
84
176
260
(14)
246
-
-
-
-
-
-
Total
145,154
12,369
10,536
168,059
(2,242)
165,817
The following table contains an analysis of credit related commitments by credit quality at 31 December 2018 based on credit
risk grades .
In millions of RR
(12-months ECL)
Credit related commitments
Stage 1
Stage 2
(lifetime ECL for
SICR)
Stage 3
(lifetime ECL for
credit impaired)
- Excellent
- Good
- Monitor
Unrecognised gross amount
Credit loss allowance
Unrecognised net amount
94,144
7,274
8,827
110,245
(2,024)
108,221
-
71
162
233
(17)
216
-
-
-
-
-
-
Total
94,144
7,345
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
behaviour model . Therefore, the fair value of the contractual amount of revocable unused limits on contingencies and commit-
ments is close to zero . Credit related commitments are denominated in RR .
The following table contains an analysis of performance guarantees issued by credit quality based on credit risk grades .
In millions of RR
Performance guarantees issued
- Excellent
- Good
Unrecognised gross amount
Provisions
Unrecognised net amount
2019
Stage 1
(12-months ECL)
2018
Stage 1
(12-months ECL)
415
245
660
(3)
657
44
-
44
-
44
Mandatory cash balances with the CBRF of RR 3,448 million as at 31 December 2019 (31 December 2018: RR 2,435 million)
represent mandatory reserve deposits which are not available to finance the Bank's day to day operations .
F-119
F-120
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
34 Offsetting Financial Assets and Financial Liabilities
Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 Decem-
ber 2019:
Gross
amounts
before
offsetting
Gross amounts
set off in the
consolidated
statement of fi-
nancial position
Net amount af-
ter offsetting in
the consolidated
statement of fi-
nancial position
Amounts subject to master
netting and similar arrange-
ments not set off in the
consolidated statement of
financial position
Financial in-
struments
Cash collat-
eral
Net
amount
of expo-
sure
In millions of RR
Assets
Reverse repurchase agreements
20,681
Due from banks
Financial derivatives
Total assets subject to offset-
ting, master netting and similar
arrangement
LIABILITIES
Due to banks
Financial derivatives
Total liabilities subject to offset-
ting, master netting and similar
arrangement
204
20
20,905
663
227
890
-
-
-
-
-
-
-
20,681
22,369
204
20
227
-
-
-
23
(1,688)
(23)
(3)
20,905
22,596
23
(1,714)
663
227
890
20
-
-
643
204
23
20
204
666
Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 Decem-
ber 2018:
Gross amounts
set off in the
consolidated
statement of
financial posi-
tion
Net amount af-
ter offsetting in
the consolidated
statement of fi-
nancial position
Gross
amounts
before
offsetting
Amounts subject to master
netting and similar arrange-
ments not set off in the
consolidated statement of
financial position
Financial in-
struments
Cash collat-
eral
Net
amount
of expo-
sure
11,147
1,182
1,706
14,035
1,598
1,111
2,709
-
-
-
-
-
-
-
11,147
1,182
1,706
12,389
-
(1,242)
-
-
1,111
1,598
71
108
14,035
12,389
2,709
(1,063)
1,598
1,111
1,706
1,182
2,709
2,888
-
-
-
(108)
(71)
(179)
In millions of RR
Assets
Reverse repurchase agreements
Repurchase receivables
Financial derivatives
Total assets subject to offset-
ting, master netting and similar
arrangement
LIABILITIES
Correspondent accounts and over-
night placements of other banks
Sale and repurchase agreements
Total liabilities subject to offset-
ting, master netting and similar
arrangement
As at 31 December 2019 the Group has master netting arrangements with counterparty banks, which are enforceable in case
of default . The Group also made margin deposits with clearing house counterparty as collateral for its outstanding derivative
positions . The counterparty may set off the Group’s liabilities with the margin deposit in case of default (2018: same) . The
disclosure does not apply to loans and advances to customers and related customer deposits .
35 Transfers of Financial Assets.
The Group transferred financial assets in transactions that did not qualify for derecognition in the current periods .
The table below shows the amount of operations under sale and repurchase agreements which the Group enters into in the
normal course of business:
In millions of RR
Debt securities at FVOCI pledged under
repurchase agreements
Securities of clients pledged under
repurchase agreements
Notes
14
14
Total
31 December 2019
31 December 2018
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
683
683
640
640
-
-
1,182
1,111
In the normal course of business, the Group makes borrowings on interbank market using different financial instruments as
collateral to support its everyday operations in terms of liquidity .
The Group also enters into reverse sale and repurchase agreements . The summary of such operations is provided in the table
below:
In millions of RR
31 December 2019
31 December 2018
Amounts
granted under
repo agree-
ments
Fair value of
securities
received as
collateral
Amounts
granted under
repo agree-
ments
Fair value of
securities
received as
collateral
Cash and cash equivalents
20,681
22,369
11,147
12,389
Total
20,681
22,369
11,147
12,389
F-121
F-122
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
Included in financial derivatives held by the Group as at 31 December 2019 are three outstanding swap contracts with total
positive fair value of RR 380 million and three outstanding swap contracts with total negative fair value of RR 586 million
(2018: three outstanding swap contracts with total positive fair value of RR 1,706 million) .
38 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 2019
31 December 2018
ASSETS AT FAIR VALUE
Investments in securities
133,239
1,939
-
135,178
94,647
5,493
Repurchase receivables
-
-
-
-
1,182
-
Total assets recurring fair value
measurements
LIABILITIES AT FAIR VALUE
Financial derivatives
Total liabilities recurring fair
value measurements
133,239
2,329
- 135,568
95,829
7,203
- 103,032
-
-
590
590
-
-
590
590
-
-
3
3
-
-
3
3
Investments in securities categorised in level 2 are represented by liquid debt securities classified in “Good” credit risk grade .
-
-
-
1,710
100,140
1,182
Revenue
Profit
income Cash flows
Financial derivatives
-
390
-
390
-
1,710
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
36 Non-Controlling Interest
The following table provides information about each subsidiary that has non-controlling interest:
Place of
business (and
country of
incorpo-ration
if different)
Proportion
of non-con-
trolling
interest
Proportion
of non-con-
trolling inter-
est’s voting
rights held
Profit or loss
attribu-table
to non-con-
trolling
interest
Accumu-lated
non-con-
trolling
interest in the
subsidiary
Dividends paid
to non-con-
trolling inter-
est during the
year
In millions of RR
Year ended 31 Decem-
ber 2019
LLC “Cloudpayments”
Russia
5%
5%
1
103
Year ended 31 Decem-
ber 2018
LLC “Cloudpayments”
Russia
45%
45%
34
236
-
-
The summarised financial information of these subsidiaries was as follows:
Current
assets
Non-cur-
rent
assets
Current
liabilities
Non-cur-
rent liabil-
ities
In millions of RR
Year ended 31 De-
cember 2019
Total com-
pre-hen-
sive
LLC “Cloudpayments”
329
301
136
Year ended 31 De-
cember 2018
LLC “Cloudpayments”
180
376
43
-
-
512
91
91
2
226
30
30
23
37 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 reporting period .
In millions of RR
Foreign exchange forwards and swaps:
discounted notional amounts, at the
end of the reporting period, of
- USD receivable on settlement (+)
- USD payable on settlement (-)
- RR receivable on settlement (+)
- RR payable on settlement (-)
- EUR receivable on settlement (+)
- EUR payable on settlement (-)
- GBP payable on settlement (-)
Fair value of foreign exchange forwards
and swaps
31 December 2019
31 December 2018
Contracts with
positive fair value
Contracts with
negative fair value
Contracts with
positive fair value
Contracts with
negative fair value
8,768
(1,570)
1,896
(8,388)
-
(301)
(15)
390
8,888
(2,664)
2,971
(9,474)
-
(294)
(17)
(590)
9,373
(1,146)
1,619
(7,666)
-
(459)
(11)
1,710
-
(982)
1,360
(596)
596
(370)
(11)
(3)
F-123
F-124
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
38 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 2019 are as follows:
In millions of RR
Fair value
Valuation technique
Inputs used
ASSETS AT FAIR VALUE
Investments in securities
1,939
Observable quotes for comparable
securities adjusted by multiplicator
depending on the degree of the market
activity
Foreign exchange swaps and
forwards
Total recurring fair value
measurements at level 2
LIABILITIES AT FAIR VALUE
390
2,329
Discounted cash flows adjusted for
counterparty credit risk
Quotes from the automated fair value
system for financial instruments of
NSD Price Center*
Russian rouble curve .
USD Dollar Swaps Curve .
EUR Swaps Curve .
CDS quotes assessment of counterpar-
ty credit risk or reference entities .
Discounted cash flows adjusted for
counterparty credit risk
Russian rouble curve .
USD Dollar Swaps Curve .
EUR Swaps Curve .
CDS quotes assessment of counterpar-
ty credit risk or reference entities .
Foreign exchange swaps and
forwards
Total recurring fair value
measurements at level 2
590
590
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
Observable quotes for comparable
securities adjusted by multiplicator
depending on the degree of the market
activity
Discounted cash flows adjusted for
counterparty credit risk
Quotes from the automated fair value
system for financial instruments of
NSD Price Center*
Russian rouble curve .
USD Dollar Swaps Curve .
CDS quotes assessment of counterpar-
ty credit risk or reference entities .
Discounted cash flows adjusted for
counterparty credit risk
Russian rouble curve .
USD Dollar Swaps Curve .
CDS quotes assessment of counterpar-
ty credit risk or reference entities .
Investments in securities
5,493
Foreign exchange swaps and
forwards
Total recurring fair value
measurements at level 2
LIABILITIES AT FAIR VALUE
Foreign exchange swaps and
forwards
Total recurring fair value
measurements at level 2
1,710
7,203
3
3
* NSD Valuation Center is a fair value measurement service for bonds and other financial instruments, accredited by the CBRF .
There were no changes in the valuation techniques for level 2 recurring fair value measurements during the year ended 31
December 2019 . Level 2 derivatives comprise foreign exchange forwards and swaps .
The foreign exchange forwards have been fair valued using forward exchange rates that are quoted in an active market .
Foreign exchange swaps are fair valued using forward interest rates extracted from observable yield curves . The effects of
discounting are generally insignificant for level 2 derivatives .
(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:
31 December 2019
31 December 2018
In millions of RR
Level 1
Level 2
Level 3
FINANCIAL ASSETS CARRIED AT AMORTISED COST
Cash and cash equivalents
Carrying
value
Level 1
Level 2
Level 3
Carrying
value
- Cash on hand
11,118
-
-
11,118
5,839
-
-
16,599
-
16,599
-
11,158
- 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
Guarantee deposits with
payment systems
Other financial assets
Settlement of operations
with plastic cards receivable
Other receivables
Total financial assets car-
ried at amortised cost
-
-
-
-
-
5,839
11,158
16,805
2,435
776
16,805
2,435
776
-
30,079
-
30,079
-
-
-
-
-
-
3,448
2,084
-
-
3,448
2,084
-
329,340
329,175
-
8,877
8,877
16,384
5,289
-
-
16,384
5,289
-
-
-
-
-
-
-
-
-
199,041
198,489
4,603
4,603
12,694
2,948
-
-
12,694
2,948
11,118
73,883
338,217 423,053
5,839
46,816 203,644
255,747
F-125
F-126
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
38 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:
31 December 2019
31 December 2018
In millions of RR
Level 1
Level 2
Level 3
FINANCIAL LIABILITIES CARRIED AT AMORTISED COST
Carrying
value
Level 1
Level 2
Level 3
Carrying
value
2,708
137,637
100,227
41,702
-
552
798
5,851
3,754
20,644
4,904
3,189
2,041
1,067
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Due to banks
Customer accounts
Individuals
-Current/demand accounts
-Term deposits
SME
-Current/demand accounts
-Term deposits
Other legal entities
-Current/demand accounts
-Term deposits
Debt securities in issue
RR Bonds issued on domestic
market
Other financial liabilities
Settlement of operations with
plastic cards
Trade payables
Credit related commitments
Other financial liabilities
Total financial liabilities car-
ried at amortised cost
-
-
-
-
-
-
-
2,708
137,637
102,829
41,702
-
552
847
663
-
663
211,661
139,114
-
211,661
-
137,292
-
-
-
-
-
-
-
60,174
1,879
495
112
60,174
1,880
495
112
-
-
-
-
-
-
-
-
-
-
6,427
4,621
-
1,358
-
-
-
-
6,427
4,621
2,242
1,358
-
-
-
-
4,904
3,189
-
1,067
Euro-Commercial Paper
-
2,460
Subordinated debt
24,442
-
23,618
5,919
-
2,460
-
3,754
Perpetual subordinated bonds
19,604
-
-
18,487
20,505
-
44,046 428,964
- 471,490
26,424 299,189
- 325,074
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 .
As at 31 December 2019 and 31 December 2018 the fair value of the debt securities in issue and subordinated debt has been
calculated based on quoted prices from the 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 30 December 2019 and 2018 are disclosed below:
In % p.a.
Assets
Cash and cash equivalents
Due from other banks
Loans and advances to customers
Investments in securities
Repurchase receivables
Liabilities
Due to banks
Customer accounts
Debt securities in issue
Subordinated debt
31 December
2019
31 December
2018
0 .0
5 .2
37 .2
4 .9
-
0 .2
3 .9
7 .5
6 .8
0 .0
5 .9
42 .7
5 .5
4 .3
6 .0
4 .4
7 .6
9 .8
39 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 .
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 Decem-
ber 2019:
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
Financial derivatives
Guarantee deposits with payment systems
Investment in securities
Other financial assets
AC
FVTPL
FVOCI
Total
11,118
16,599
30,079
3,448
2,084
329,175
-
8,877
-
-
-
-
-
390
-
-
-
-
-
-
-
-
11,118
16,599
30,079
3,448
2,084
329,175
390
8,877
-
413
134,765
135,178
- Settlement of operations with plastic cards receivable
- Other receivables
TOTAL FINANCIAL ASSETS
16,384
5,289
-
-
-
-
16,384
5,289
423,053
803
134,765
558,621
F-127
F-128
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
39 Presentation of Financial Instruments by Measurement
Category (Continued)
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 Decem-
ber 2018:
40 Related Party Transactions
Parties are generally considered to be related if the parties are under common control or one party has the ability to control
the other party or can exercise significant influence over the other party in making financial or operational decisions . In consid-
ering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal
form . The outstanding balances with related parties were as follows:
FVTPL (man-
datory)
AC
FVOCI
Total
In millions of RR
Cash and cash equivalents
- Cash on hand
- Cash balances with the CBRF (other than mandatory re-
serve deposits)
- Placements with other banks and non-bank credit organiza-
tions with original maturities of less than three months
Mandatory cash balances with the CBRF
Due from other banks
Loans and advances to customers
Financial derivatives
5,839
11,158
16,805
2,435
776
198,489
-
-
-
-
-
-
-
1,710
-
-
-
-
-
-
-
-
5,839
11,158
16,805
2,435
776
198,489
1,710
4,603
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
5,666
94,474
100,140
-
-
-
1,182
1,182
-
-
12,694
2,948
255,747
7,376
95,656
358,779
As of 31 December 2019 and 2018 all of the Group’s financial liabilities except derivatives were carried at amortised cost .
In millions of RR
ASSETS
Gross amounts of loans and advances to customers (contrac-
tual interest rate: 11 .7-25 .7% (31 December 2018: 11 .7-
27 .8%))
Other financial assets
TOTAL ASSETS
LIABILITIES
Customer accounts (contractual interest rate: 0 .5-7 .2% (31
December 2018: 3 .8-4 .2% p .a .))
Debt securities in issue (yield: 1 .0-3 .6% (31 December 2018:
1 .3-9 .5%))
Other non-financial liabilities
TOTAL LIABILITIES
EQUITY
Share-based payment reserve
31 December 2019
31 December 2018
Key
management
personnel
Other related
parties
Key
management
personnel
Other related
parties
437
-
437
150
843
993
9
-
9
100
431
531
1,779
227
1,349
905
-
2,460
521
-
-
888
3,754
-
2,300
2,687
2,237
4,659
- Management long-term incentive program
TOTAL EQUITY
930
930
-
-
1,102
1,102
-
-
Other related parties in the tables above are represented by entities which are under control of the Group's ultimate con-
trolling party Oleg Tinkov .
The 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
Net gains/(losses) from foreign exchange translation
Other operating income
2019
2018
Key man-
agement
personnel
Other related
parties
Key man-
agement
personnel
Other related
parties
2
27
3
-
(64)
(101)
(46)
(165)
-
-
31
49
-
-
F-129
Administrative and other operating expenses
(1,913)
(173)
(2,273)
(69)
18
(89)
F-130
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Consolidated
Financial Statements (Continued)
40 Related Party Transactions (Continued)
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
2019
2018
906
586
421
1,913
792
917
564
2,273
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 .
On 15 January 2019 the Group granted GDRs to new participants in MLTIP which resulted the total number of GDRs attributa-
ble to the Management of 9,940 thousand as at 31 December 2019 (31 December 2018: 9,849 thousand) .
Participants of the program receive the vested parts of their grants provided that they are employed by the Group during
the vesting period . Participants are entitled to the dividends, if any . Participants who leave the Group lose their right for the
unvested parts of the grants .
The fair value of the awards as at grant dates (31 March 2016, 8 February 2017, 22 February 2018 and 15 January 2019) is
determined on the basis of market quotes of GDRs as at those dates .
Each grant is divided into 4 equal awards, each award is vested during 4 years in delivered equal tranches . 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 (with exception of 2019 when the vesting date for all participants was 31 January 2019) until 2022 for
participants joining in 2016, until 2023 for participants joining in 2017, then until 2024 for participants joining in 2018, and
until 2025 for participants joining in 2019 .
The following table disclose the changes in the numbers of GDRs attributable to the MLTIP between the beginning of the pro-
gram and the end of the reporting period:
In thousands
Granted during the year
Vested during the year
At 31 December 2016
Granted during the year
Vested during the year
Forfeited during the year
At 31 December 2017
Granted during the year
Vested during the year
Forfeited during the year
At 31 December 2018
Granted during the year
Vested during the year
Forfeited during the year
At 31 December 2019
Number of GDRs attributable
to the MLTIP
7,425
(464)
6,961
2,270
(1,326)
(60)
7,845
154
(1,805)
(16)
6,178
91
(2,419)
(68)
3,782
41 Events after the End of the Reporting Period
In February 2020 the Group announced plans to invest in a new venture project to set up a fintech company providing a range
of services to retail customers in Europe (excluding CIS) . The startup will offer non-credit financial products . The project is due
to launch in 2020, with the Company as its key seed investor . The Company will have a controlling interest in the new venture .
The Company's initial commitment is up to Euro 25 million and will be contributed in tranches as the venture develops .
On 10 March 2020 the Board of Directors declared an interim dividend in line with the current dividend policy of USD 0 .21 per
share/per GDR with a total amount allocated for dividend payment of around USD 41 .9 million .
F-131
F-132
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
Board of Directors
and other officers
Board of Directors
Constantinos Economides, Chairman
Alexios Ioannides
Mary Trimithiotou
Jacques Der Megreditchian
Martin Robert Cocker
The above all served throughout 2019 and through to the date of these separate financial statements . Philippe Delpal retired
from the Board on 16 August 2019 .
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 2020 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 2019
TCS Group Holding PLC
International Financial Reporting Standards
Separate Financial Statements and
Independent Auditor’s Report
Contents
Board of Directors and other officers . . . . . . . . . . . . . . . . . F-134
17 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-179
Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-135
18 Reconciliation of Liabilities Arising from Financing
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . F-143
SEPARATE FINANCIAL STATEMENTS
Separate Statement of Financial Position . . . . . . . . . . . . . . F-151
Separate Statement of Profit or Loss and Other
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-152
Separate Statement of Changes in Equity . . . . . . . . . . . . . F-153
Separate Statement of Cash Flows . . . . . . . . . . . . . . . . . . . F-154
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-180
19 Financial Risk Management . . . . . . . . . . . . . . . . . . . . . . . F-180
20 Contingencies and Commitments . . . . . . . . . . . . . . . . . F-187
21 Fair Value of Financial Instruments . . . . . . . . . . . . . . . . F-187
22 Presentation of Financial Instruments by Measurement
Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-191
23 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . F-192
24 Events after the End of the Reporting Period . . . . . . . F-194
NOTES TO THE SEPARATE FINANCIAL STATEMENTS
1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-155
2 Operating Environment of the Company . . . . . . . . . . . F-157
3 Significant Accounting Policies . . . . . . . . . . . . . . . . . . . F-158
4
5
Critical Accounting Estimates and Judgements in
Applying Accounting Policies . . . . . . . . . . . . . . . . . . . . . F-169
Adoption of New or Revised Standards and
Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-170
6 New Accounting Pronouncements . . . . . . . . . . . . . . . . . . F-171
7 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . F-171
8 Loans and Deposit Placements with Related Parties F-172
9
Investments in Equity Securities . . . . . . . . . . . . . . . . . . F-173
10 Loans Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-174
11 Debt Securities in Issue . . . . . . . . . . . . . . . . . . . . . . . . . . F-175
12 Other Financial and Non-financial Liabilities . . . . . . . F-175
13 Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-176
14 Interest income and expense . . . . . . . . . . . . . . . . . . . . . F-177
15 Administrative and Other Operating Expenses . . . . . F-177
16 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-178
F-133
F-134
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
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 2019 .
Principal activities and nature of
operations of the Company
2 . The principal activities of the Company are holding of
investments in subsidiary companies operating in the
Russian Federation and offering call center services
to customers and potential customers in the Russian
Federation following the launch of Cyprus based home
call center . The main subsidiaries are JSC “Tinkoff Bank”
(the “Bank”), JSC “Tinkoff Insurance” (the “Insurance
company”), LLC “Phoenix”, LLC “CloudPayments”, LLC
“Тinkoff Mobile”, Tinkoff Software DC, LLC “Fintech DC”
and LLC “Tinkoff Capital” (the Company and its subsidiar-
ies collectively the “Group”) . Refer to Note 1 .
3 . The Bank specialises in retail banking for individuals,
individual entrepreneurs (“IE”), small and medium-sized
enterprises (“SME”) and brokerage services . The Bank,
which is fully licensed by the Central Bank of Russia,
launched its operations in the Summer of 2007 and is a
member of the Russian Deposit Insurance System . The
Insurance Company specialises in providing non-life
insurance coverage such as accident, property, travel,
credit protection and auto insurance . LLC “Phoenix” is
a debt collection agency . LLC “CloudPayments” 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 . Tinkoff Software
DC provides software development services to the Group .
The founder and controlling shareholder of the Company
is Oleg Tinkov .
primary customer acquisition channels are Internet and
Mobile, but it also uses Direct Sales Agents and part-
nerships (co-brands) to acquire new customers . These
customer acquisition models, combined with the Bank’s
virtual network, afford it a geographic reach across all of
Russia’s regions resulting in a highly diversified portfolio .
6 . During 2019 the Company completed a secondary public
offering (“SPO”) of its “class A” shares in the form of
Global Depositary Receipts (GDRs) raising by RR 18,916
million (USD 300 million) gross of costs . This provides ad-
ditional necessary capital to take advantage of profitable
growth opportunities whilst maintaining sufficient capital
buffers for the future (Note 1 and 13) .
7 . The key offerings of JSC “Tinkoff Insurance” are personal
accident insurance, collective insurance against accidents
and illnesses, travel insurance, motor vehicle insurance
and property insurance, compulsory third party liability in-
surance (CTP) and voluntary third party liability insurance
(VTP) . The Insurance Company focuses on online sales .
8 . The profit of the Company for the year ended 31 December
2019 was RR 15,816 million (2018: loss of RR 23 million) .
On 31 December 2019 the total assets of the Company were
RR 263,567 million (2018: RR 222,216 million) and the net
assets were RR 260,273 million (2018: RR 193,046 million) .
On 20 December 2019 the Company issued two tranches of
Euro-Commercial Paper (ECP) denominated in USD and EUR
maturing on 20 November 2020 . The USD denominated
ECP has a nominal value of USD 10 million with a discount
of 3 .6% and the EUR denominated ECP has a nominal value
of EUR 15 million with a discount of 1 .0% . On 19 February
2019 the Company issued Euro-Commercial Paper (ECP)
denominated in EUR maturing on 18 February 2020 with a
nominal value of EUR 12 million and at a discount of 1 .25% .
During 2019 the Company distributed dividends in accord-
ance with its dividend policy in the amount of RR 5,856
million (2018: RR 12,265 million) .
Review of developments, position
and performance of the Company’s
business
4 . During 2019 the Company actively continued the de-
velopment of its call center and software development
services in Cyprus . The Company continues to increase
its call center work force, providing training so that these
employees can provide services to Tinkoff Bank and, indi-
rectly, its customers .
5 . The Bank operates a flexible business model . Its virtual
network enables it to quickly and easily increase business
or slow down customer acquisition depending upon the
availability of funding and market conditions . The Bank’s
Environmental matters
9 . As the Group, and, by extension the Company is an
online-only financial institution, the management of the
Company believes that none of the 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 reach-
ing 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 continu-
ous scrutiny of the business . The Company is continuously
reviewing its processes to identify opportunities to reduce
their environmental impact .
Human resources
10 . Empowerment is an important ingredient in the success
of our organization . To achieve this, decision making
is delegated to the levels deep below the management
team; discussion, idea generation and exchange and
transparency is actively promoted and encouraged; and
an open leadership style ensures that information can
move freely . The Company utilizes all types of forums to
promote continual dialogue – such as email, online chat
rooms, flash meetings, as well as formalized meeting
structures . The Company offers a clear far-reaching ca-
reer path for its employees, a unique work environment
and a fair and transparent compensation .
11 . Clear performance evaluation processes and fair com-
pensation are essential . Compensation is a combination
of fixed rate salary and supplemental bonuses and is
based on employee performance . Employees are evaluat-
ed on a regular basis in order to monitor their achieve-
ment against their Key Performance Indicators as well
as to provide feedback which can be used for their career
development and to determine incentive compensation .
12 . Prior to its IPO in 2013, the Company set up share-based
management long term incentive plans (‘MLTIP’) as
retention and motivational tools for key and senior man-
agers of the Company’s subsidiaries . In March 2016, the
Company announced a consolidated long-term manage-
ment incentive and retention plan, covering around 50
key, senior and middle managers . Since then the number
of participants has increased to over 80 . Total size of the
MLTIP pool is 5 .4% of the Company’s share capital as at
31 December 2018 before the SPO (Note 13) . 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 ex-
pansion and transformation into a financial marketplace,
the Bank and other companies of the Group have hired
a significant number of new managers to develop and
manage new business lines and to strengthen internal
controls, including cyber security .
Non-Financial Information and
Diversity Statement
13 . The Company’s policies and other information that pro-
vide an understanding of the development, performance,
position and impact of the Company’s activities in the
areas 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
2019, on the Company’s website, www .tcsgh .com .cy (and
www .tinkoff .ru/eng) no later than 30 June 2020 .
Principal risks and uncertainties
14 . The Company’s business and financial results are impact-
ed by the uncertainties and volatilities in the Russian
economic environment which can be impacted by global
factors and/or by national factors .
15 . The Company’s subsidiaries and the Company on its own
are subject to a number of principal risks which might ad-
versely impact its performance . The principal activities
of the Company through its subsidiaries are banking and
insurance operations and so it is within this area that the
principal risks occur . Management considers that those
principal risks are: financial risks, operational risks and
legal risks . Financial risks comprise market risks (includ-
ing currency risk, interest rate risk and other price risk),
credit risk and liquidity risk .
16 . The Board has put in place arrangements to identify,
evaluate and manage the principal risks and uncer-
tainties faced by the Company . The Company has an
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 with senior
management of the operating companies in Russia as
well as the Board of Directors in this area . The primary
objectives of the financial risk management function are
to establish acceptable risk limits, and then ensure that
the exposures remain within these limits . The operation-
al and legal risk management functions are intended to
ensure the proper functioning of internal policies and
procedures that minimize operational and legal risks .
The risk management strategy is established so as to
identify, assess, monitor and manage the risks arising
from Company's and subsidiaries’ activities . These risks
as well as other risks and uncertainties, which affect the
Company and how these are managed, are presented in
Notes 19 and 20 of the separate financial statements .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Management
Report (Continued)
17 . In addition, late in 2019, news first emerged from China
about the COVID-19 (Coronavirus) . At the end of 2019 a
limited number of cases of an unknown virus had been
reported to the World Health Organisation . In the first few
months of 2020 the virus had spread globally resulting in
an announcement of pandemic status by the World Health
Organization in March 2020 .
Responses put in place by many countries to contain the
spread of COVID-19 are resulting in significant operational
disruption for many companies and have had a significant
impact on global financial markets . As the situation is rap-
idly evolving it may have a significant effect on the busi-
ness of many companies across a wide range of sectors,
including, but not limited to such impacts as disruption
of business operations as a result of interruption of pro-
duction or closure of facilities, supply chain disruptions,
quarantines of personnel, reduced demand and difficulties
in raising financing . In addition, the Company’s subsidiar-
ies may face the increasingly broad effects of COVID-19 as
a result of its negative impact on the global economy and
major financial markets . The significance of the impact of
COVID-19 on the subsidiaries’ business largely depends
on the duration and the incidence of the pandemic effects
on the world and Russian economy . Management consid-
ers this outbreak to be a non-adjusting post balance sheet
event . While this is still an evolving situation at the time of
issuing these separate financial statements, to date there
has been no discernible impact on the Group's business,
however the future effects cannot be predicted . As the
situation is rapidly evolving, we do not consider it is prac-
ticable at present to determine a quantitative estimate of
the potential impact of this outbreak on the Group .
Management will continue to monitor the potential impact
and will take steps to mitigate any effects where required .
Further discussion of the potential impact on the Group of
COVID 19 together with the responses of management are
detailed in Note 2 .
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 17 .
Any important events for the
Company that have occurred after
the end of the financial year
21 . Important events for the Company that have occurred after
the end of the financial year are presented in Note 24 .
Share capital
22 . In June 2019 the Company’s shareholders approved a
resolution to increase the authorised share capital to USD
8,401,385 .92 by the creation of 18,263,882 new undesig-
nated ordinary shares of nominal value USD 0 .04 each . At
31 December 2019 the total number of authorised shares
is 210,034,648 shares (31 December 2018: 191,770,766
shares) with a par value of USD 0 .04 per share (31 Decem-
ber 2018: USD 0 .04 per share) .
23 . On 2 July 2019 the Company completed a SPO on the
London Stock Exchange plc and issued 16,666,667 “Class
A” shares of the Company in the form of GDRs at a price of
USD 18 .00 per GDR (RR 1,135 per GDR), raising aggregate
gross proceeds of USD 300 million (RR 18,916 million)
which would ensure the necessary capital to seize the
current profitable growth opportunities whilst maintaining
ample capital buffers in the future .
24 . As at 31 December 2019 the number of issued “class
A” shares is 119,291,268 and issued “class B” shares is
80,014,224 (31 December 2018: the number of issued
“class A” shares is 96,239,291 and issued “class B” shares
is 86,399,534) .
Contingencies
18 . The Company’s contingencies are disclosed in Note 20 to the
separate financial statements .
Future developments
19 . The strategic objective for the Group and so, by exten-
sion, the Company is to be a full service, online financial
and lifestyle ecosystem 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 .
Research and development activities
25 . The Company has not undertaken any significant
research and development activities during the year
ended 31 December 2019 though it continues to identify
opportunities and ways to further develop its business in
line with its strategic objective as set out above .
Treasury shares
26 . At 31 December 2019 the Group held 4,185,166 (2018:
6,604,353 ) of its own GDRs, equivalent to approximate-
ly RR 3,164 million (2018: RR 3,670 million) and which
represent 2 .1% (2018: 3 .6%) of the issued shares .
27 . Treasury shares are GDRs of TCS Group Holding PLC that
are held by a special purpose trust which has been specif-
ically created for the long-term incentive programme for
the management of the Company’s subsidiaries (MLTIP)
(see Note 23 for further information) .
28 . In 2019, the Company repurchased no GDRs (2018: the
Company repurchased 2,094,126 GDRs at market price
for RR 2,455 million representing 1 .1% of the issued
share capital) .
29 . During 2019 the Company transferred 2,419,187 GDRs
(2018: 1,804,894 GDRs), representing 1 .21% (2018:
1 .0%) of the issued shares, upon vesting under the
MLTIP . This resulted in a transfer of RR 506 million
(2018: RR 372 million) out of treasury shares to retained
earnings .
Board of Directors
30 . The members of the Board of Directors as of 31 Decem-
ber 2019 and at the date of this report are presented
above . All served throughout the year ended 31 De-
cember 2019 and through to the date of these separate
financial statements, except from Philippe Delpal, who
retired from the Board on 16 August 2019 .
31 . There were no significant changes in the assignment
of responsibilities and remuneration of the Board of
Directors .
Branches
32 . The Company did not operate through any branches
during the year .
Independent auditor
33 . The Independent Auditor, PricewaterhouseCoopers Lim-
ited, has expressed its willingness to continue in office .
A resolution giving authority to the Board of Directors
to fix its remuneration will be proposed at the Annual
General Meeting .
Going concern
34 . 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 enquir-
ies and following a review of the Company’s budget for
2020, including cash flows and funding facilities, the
Directors consider that the Company has adequate
resources to continue in operation for the foreseeable
future . This assessment was made with the available
information to the Company as at the date of approving
the financial statements .
Crporate Governance Statement
GDRs of TCS Group Holding PLC, 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 the London Stock Exchange . The Company’s
GDRs are also listed on the Moscow Exchange . No shares of TCS
Group Holding PLC are listed on any exchange .
The Company is required to comply with the UK corporate
governance regime to the extent it applies to foreign issuers of
GDRs listed on the London Stock Exchange . The Company has not
adopted corporate governance measures of the same standard
in all respects as those adopted by UK incorporated companies or
companies with a premium listing on the London Stock Exchange .
As the Class A shares themselves are not listed on the Cyprus
Stock Exchange (or elsewhere), the Cypriot corporate govern-
ance regime, which only relates to companies that are listed on
the Cyprus Stock Exchange, does not apply to the Company and
accordingly the Company does not monitor its compliance with
that regime .
The Company’s Home State is Cyprus .
A description of the terms and conditions of the GDRs can be found
at ‘Terms and Conditions of the Global Depositary Receipts’, ‘Sum-
mary 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 .
Refer to Note 1 for the description of the rights of each class of
shares .
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 the website www .tinkoff .ru/
eng, at the Company’s main website (www .tcsgh .com .cy), on the
Company’s page on the London Stock Exchange website (www .
londonstockexchange .com/exchange/prices-and-markets/stocks/
summary) and at the official site of the Department of Registrar of
Companies, Cyprus (http://www .mcit .gov .cy/) .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Management
Report (Continued)
Board of Directors
Committees of the Board of directors
The role of the Board is to provide entrepreneurial leadership
to the Company within a framework of prudent and effective
controls which enables risk to be assessed and managed . The
Board sets the Company’s strategic objectives, ensures that
the necessary financial and human resources are in place for
the Company to meet its objectives and reviews manage-
ment’s performance . The Board also sets the Company’s val-
ues and standards and ensures that its obligations towards
the shareholders and other stakeholders are understood and
met .
The Board operates under a formal schedule of matters
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 five strong Board of Directors is comprised of three
executive directors including the chairman, and two non-ex-
ecutive directors both of whom are independent . Other than
the retirement of Mr . Philippe Delpal on 16 August 2019,
there was no change in the composition of the Board or sta-
tus of the directors in 2019 . The Board of Directors 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 Directors in June 2015 . The
names of the people who served on the Board during 2019
are listed at Board of Directors and other officers .
The Company has established two Committees of the Board .
Specific responsibilities have been delegated to those com-
mittees as described below .
The Board is required to undertake a formal and rigorous
review annually of its own performance, that of its commit-
tees and of its individual directors . That review was recently
carried out, in-house, in relation to 2019, looking at overall
performance . All directors completed detailed question-
naires on the Board’s, the committees’ and the individual
director’s performance . Analysis of the resultant feedback
was discussed at a meeting of the Board of Directors on 10
March 2020, and there were no changes in the performance
of the Board, its committees or individual directors .
The Board has not appointed a senior independent director .
There are only two independent directors of whom at least
one will retire each year . The role of appraising the Chairman
of the Board for FY2019 was performed by the Chairman of
the Audit Committee .
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 reference and
arranges a periodic review of each Committee’s role and ac-
tivities and considers the appropriateness of additional
committees .
Committees - current composition
The Audit Committee is chaired by an independent non-ex-
ecutive director Mr Martin Cocker, and had, until 16 August
2019, two other members both non-executive directors, one
of whom was independent . From 16 August 2019 the Audit
Committee has comprised of its chairman Mr Martin Cocker
and one independent non-executive director .
The Remuneration Committee is also chaired by an independ-
ent non-executive director, Mr Jacques Der Megreditchian,
and had until 16 August 2019 two other members both
non-executive directors, one of whom was independent .
From 16 August 2019 the Remuneration Committee has
comprised of its chairman Mr Jacques Der Megreditchian
and one independent non-executive director .
The current terms of reference of both Committees are avail-
able to the public and can be found on the Group’s website . A
short summary of both is set out below .
Role of the Audit Committee
The Audit Committee’s primary purpose and responsibility is
to assist the Board in its oversight responsibilities . In execut-
ing this role the Audit Committee monitors the integrity of
the separate financial statements of the Company prepared
under International Financial Reporting Standards (“IFRS”)
and any formal announcements relating to the Group’s and
the Company’s financial performance, reviewing significant fi-
nancial 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 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 .
Under its terms of reference, the Audit Committee is
required, at least once each year, to review its own perfor-
mance, 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 through members
participating in the main Board review described above . 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-financial statement 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 spe-
cific, non-financial statement related areas within its terms of
reference . One such meeting was held in 2019 with a further
two are planned for 2020 .
The Audit Committee has developed a risk matrix which con-
stantly 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 conjunc-
tion 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 and 2019 to support the Group’s ever-increasing
efforts to stay ahead of trends and threats in this sphere . The
Group has further broadened its top management team with
a new chief investment officer and new chief operating officer
appointed in 2020 and now in place .
Role of the Remuneration Committee
The Remuneration Committee is responsible for determin-
ing and reviewing among other things the framework of
remuneration of the executive directors, senior management
and its overall cost and the Group’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 with its work into
2019 on its ongoing review of the operation of the Com-
pany’s MLTIP which launched in 2016 and in considering
additional awards to both existing and new participants for
this and subsequent years . The Remuneration Committee
recommended 10 members of management be invited to join
MLTIP in Q1 2019, but made no such recommendations in
Q1 2020 .
The Committee has also been working on plans for an incen-
tive and compensation plan to supplement MLTIP for when,
in the period 2022 to 2024, existing awards made to MLTIP
joiners in 2016-2017 start to enter into run off .
Under its terms of reference the Remuneration Committee is
required at least once each year to review its own perfor-
mance, constitution and terms of reference to ensure it is
operating at maximum effectiveness and to recommend
any changes it considers necessary for Board approval .
The Remuneration Committee met this obligation through
members participating in the main Board review (described
above) under which detailed questionnaires were complet-
ed by all directors assessing the operation of the Board and
both committees as well as individual 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 . In 2019 it
convened 5 times .
Appointment, retirement, rotation
and removal of directors
The directors of the Company are appointed by the general
meeting of shareholders with the sanction of an ordinary
resolution . Such an appointment may be made to fill a
vacancy or as an additional director . But no director may be
appointed unless nominated by the Board of Directors or by
a committee duly authorized by the Board of Directors or by
a shareholder or shareholders together holding or repre-
senting shares which in aggregate constitute or represent
at least 5% in number of votes carried or conferred by the
shares giving a right to vote at a general meeting .
Notwithstanding that, one or more Directors B (a special
category of director) may be appointed only by Class B
shareholders, together holding or representing Class B
shares which constitute or represent in aggregate over 50%
in nominal capital paid up on the Class B shares upon serving
notice to the Company .
The Board of Directors may at any time appoint any person
to the office of director either to fill a vacancy or as an addi-
tional 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 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Management
Report (Continued)
One third of the directors (or if their number is not a multiple
of three, the number nearest to three but not exceeding one-
third) shall retire by rotation at every annual general meeting .
Directors holding an executive office and Directors B are
excluded from retirement by rotation .
Directors including Directors B may be removed from office
by the shareholders at a general meeting with the sanction
of an ordinary resolution, subject to giving 28 days’ notice to
that director in accordance with the Articles of Association .
Directors B may at any time be removed from office by Class
B shareholders together holding or representing Class B
shares which constitute or represent over 50% in nominal
capital paid up on the Class B Shares upon giving notice to
the Company .
The office of director shall be vacated if the director:
• becomes bankrupt or makes any arrangement or compo-
sition with his creditors generally; or
• becomes prohibited from being a director by reason of
any court order made under Section 180 (disqualifica-
tion from holding the position of director on the basis of
fraudulent or other conduct) of the Cyprus Companies
Law; or
• becomes, or may be, of unsound mind; or
• resigns his office by notice in writing to the Company left
at the registered office; or
•
is absent from meetings of the Board for six consecutive
months without permission of the Board of Directors
and his alternate 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 .
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 IFRS 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 separate financial statements that are free from
material misstatement, whether due to fraud or error . In prepar-
ing the separate financial statements, the Board of Directors is
responsible for assessing the Company’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 Company or
to cease operations, or has no realistic alternative but to do so .
The Board has delegated to the Audit Committee the responsi-
bility 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 Compa-
ny’s financial reporting process .
Internal Controls and Risk
Management
Management is responsible for setting the principles in relation to
risk management . The risk management organisation is divided
between Policy Making Bodies and Policy Implementation Bodies .
Policy Making Bodies are responsible for establishing risk man-
agement 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 Company has implemented an online analytical
processing management system based on a common SAS data
warehouse that is updated on a daily basis . The set of daily reports
includes but is not limited to sales reports, application processing
reports, reports on the risk characteristics of the card portfolios,
vintage reports, transition matrix (roll rates) reports, reports on the
pre-, early and late collections activities, reports on compliance with
CBR requirements, capital adequacy and liquidity reports, operation-
al liquidity forecast reports and information on intra-day cash flows .
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
2019 is set out below:
Name
Age
Male/Female
Educational/professional background
Constantinos Economides
44
Male
Alexios Ioannides
43
Male
Mary Trimithiotou
42
Female
Martin Robert Cocker
60
Male
Philippe Delpal (resigned on 16
August 2019)
Jacques Der Megreditchian
46
60
Male
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,
banking 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
9 April 2020
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 F-143
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Separate Statement of Financial
Position
Separate Statement of Profit or Loss and
Other Comprehensive Income
Note
31 December 2019
31 December 2018
In millions of RR
Note
2019
2018
In millions of RR
ASSETS
Cash and cash equivalents
Loans and deposit placements with related parties
Financial derivatives
Tangible fixed assets and right-of-use assets
Investments in debt securities
Investments in equity securities
Other financial assets
Other non-financial assets
TOTAL ASSETS
LIABILITIES
Loans received
Debt securities in issue
Financial derivatives
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
7
8
9
10
11
12
12
13
13
13
598
5,594
-
4
-
761
379
86
2
425
257,293
219,249
64
14
1,300
14
263,567
222,216
-
2,460
-
168
81
585
23,243
3,754
1
1,187
222
763
3,294
29,170
230
26,998
(3,164)
1,039
(10,901)
246,071
260,273
263,567
188
8,623
(3,670)
1,232
(20,861)
207,534
193,046
222,216
Approved for issue and signed on behalf of the Board of Directors on 9 April 2020 .
Constantinos Economides
Mary Trimithiotou
Director
Director
14
14
14
9
15
16
Interest income calculated using the effective interest rate meth-
od
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 (losses)/gains from derivatives revaluation
Net gains/(losses) from foreign exchange translation
Net gains from operations with foreign currencies
Net gains/(losses) from debt instruments at FVTPL
Net gains from disposals of debt securities at FVOCI
Administrative and other operating expenses
Other operating income
Profit before tax
Income tax expense
Profit/(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
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 credit/(charge) recorded directly in other comprehen-
sive income
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
272
28
(732)
(432)
-
(432)
17,158
(678)
477
111
31
-
(251)
284
16,700
(884)
15,816
-
-
107
84
(1,404)
(1,213)
(19)
(1,232)
1,351
538
(560)
195
(112)
90
(347)
140
63
(86)
(23)
78
(79)
37,362
10,148
1,019
38,381
54,197
(622)
9,525
9,502
The notes № 1-24 are an integral part of these Separate Financial Statements .
The notes № 1-24 are an integral part of these Separate Financial Statements .
F-151
F-152
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Separate Statement of Changes in
Equity
In millions of RR
-
i
m
e
r
p
e
r
a
h
S
m
u
n
o
i
t
a
u
l
a
v
e
R
e
v
r
e
s
e
r
d
e
s
a
b
-
e
r
a
h
S
t
n
e
m
y
a
p
d
e
t
a
l
u
m
u
c
c
A
/
)
s
e
s
s
o
l
(
e
m
o
c
n
i
e
t
o
N
l
a
t
i
p
a
c
e
r
a
h
S
y
r
u
s
a
e
r
T
s
e
r
a
h
s
l
a
t
o
T
Separate Statement of Cash
Flows
In millions of RR
Cash flows used in operating activities
Interest income calculated using the effective interest rate method received
Other similar income received
Balance at 31 December 2017
188
8,623
197,717
1,286
(8,593)
(1,587) 197,634
Interest expense calculated using the effective interest rate method paid
-
-
-
-
1
(21)
-
-
(1)
21
-
-
-
-
Administrative and other operating expenses paid
Income tax paid
Cash (paid)/received from operations with financial derivatives
Cash received from trading in foreign currencies
188
8,623
197,697
1,286
(8,573)
(1,587) 197,634
Other operating income received
Effect of initial application of IFRS
9 – ECL remeasurement, net of tax
Effect of initial application of IFRS
9 – other
Restated balance at 1 January
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
Dividends
-
-
-
-
-
-
-
13
13
17
-
-
-
10,148
(1)
(622)
9,525
-
-
-
-
-
-
312
(54)
-
-
-
-
-
-
(23)
-
-
-
(23)
-
-
-
-
-
-
-
(23)
10,148
(1)
(622)
9,502
(2,455)
(2,455)
372
630
Note
2019
2018
248
-
(741)
(456)
(26)
(651)
111
300
78
71
(998)
(532)
(20)
342
195
-
(5,215)
410
(373)
(6,393)
199
466
(144)
(343)
17,583
-
(21,317)
(12,545)
21,312
(416)
206
-
12,667
(606)
-
(2)
Cash flows used in operating activities before changes in operating assets
and liabilities
(1,215)
(864)
Changes in operating assets and liabilities
Net (increase)/decrease in loans and deposit placement with related parties
Net decrease in investments in debt securities at FVTPL
Net decrease in other non-financial liabilities
Net cash used in operating activities
Cash flows from/(used in) investing activities
Dividend received from subsideries
Acquisition of debt securities at FVOCI
Proceeds from sale and redemption of debt securities at FVOCI
Acquisition of investments in equity securities at FVOCI
Proceeds from investments in equity securities at FVOCI
-
-
(12,265)
-
(12,265)
Acquisition of tangible fixed assets
Balance at 31 December 2018
188
8,623
207,534
1,232
(20,861)
(3,670) 193,046
Net cash generated from/(used in) investing activities
17,368
(486)
Profit for the year
Other comprehensive income:
Investments in equity securities at
FVOCI
Income tax credit recorded direct-
ly in other comprehensive income
Total comprehensive income for
the year
Shares issued
Secondary public offering costs
Share-based payment reserve
Dividends
-
-
-
-
-
-
-
-
13
13
13
17
42
18,874
-
-
-
(499)
-
-
-
-
15,816
-
15,816
Cash flows (used in)/from financing activities
37,362
1,019
38,381
-
-
-
-
-
-
-
156
(193)
-
-
-
37,362
-
1,019
15,816
-
54,197
-
-
-
-
-
18,916
(499)
506
469
-
-
(5,856)
-
(5,856)
Proceeds from secondary public offering
Secondary public offering costs paid
Proceeds from debt securities in issue
Repayment of debt securities in issue
Loans repaid
Loans received
Dividends paid
Repayment of principal of lease liabilities
GDR buy back
Net cash (used in)/generated from financing activities
Effect of exchange rate changes on cash and cash equivalents
Balance at 31 December 2019
230
26,998
246,071
1,039
(10,901)
(3,164) 260,273
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes № 1-24 are an integral part of these Separate Financial Statements .
The notes № 1-24 are an integral part of these Separate Financial Statements .
13
13
18
18
18
10
17
13
7
7
18,916
(499)
2,527
-
-
3,622
(3,418)
(3,204)
(23,092)
-
-
14,955
(5,601)
(11,946)
(3)
-
-
(2,455)
(11,170)
32
(163)
761
598
972
233
376
385
761
F-153
F-154
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Separate Financial Statements
1
Introduction
These separate financial statements have been prepared in accordance with International Financial Reporting Stand-
ards (“IFRS”) as adopted by the European Union (“EU”) for the year ended 31 December 2019 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 consolidated financial statements for the year ended 31 December 2019 .
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 of these separate financial statements consists of:
Constantinos Economides, Alexios Ioannides, Mary Trimithiotou, Jacques Der Megreditchian and Martin Robert Cocker .
The Company Secretary is Caelion Secretarial Limited, 25 Spyrou Araouzou, 25 Berengaria, 5th floor, Limassol, Cyprus .
At 31 December 2019 and 2018 the share capital of the Company is comprised of “class A” shares and “class B” shares . A
“class A” share is an ordinary share with a nominal value of USD 0 .04 per share and carrying one vote . A “class B” share is an
ordinary share with a nominal value of USD 0 .04 per share and carrying 10 votes . As at 31 December 2019 the number of
issued “class A” shares is 119,291,268 and issued “class B” shares is 80,014,224 (31 December 2018: the number of issued
“class A” shares is 96,239,291 and issued “class B” shares is 86,399,534) . Refer to Note 13 for the information about main
changes during the year in the number of “class A” and “class B” shares .
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 . On 2 July 2019 the Company completed a secondary
public offering (SPO) of its “class A” shares in the form of GDRs . Refer to Note 13 for the information about SPO . On 28 Octo-
ber 2019 the Company’s GDRs started trading also on the Moscow Exchange .
As at 31 December 2019 and 2018 the entities and the individuals holding either Class A or Class B shares of the Company
were:
Class of
shares 31 December 2019
31 December
2018 Country of Incorporation
As at 31 December 2019 and 2018 the ultimate controlling party of the Company is Mr . Oleg Tinkov . Mr . Oleg Tinkov controls
approximately 87 .03% of the aggregated voting rights attaching to the Class A and B shares as at 31 December 2019 (31
December 2018: 89 .98%) excluding voting rights attaching to TCS Group Holding PLC GDRs he holds, if any .
The Company owns 100% of the shares and has 100% of the voting rights (directly or indirectly) of the following subsidiar-
ies at 31 December 2019 and 2018: JSC “Tinkoff Bank” (“the Bank”), LLC "Microfinance company “Т-Finans”, LLC TCS, LLC
“Phoenix”, Tinkoff Software DC, LLC “Тinkoff Mobile”, Goward Group Limited (since February 2018 Goward Group Ltd was in liq-
uidation process, and on 16 April 2019 the company was liquidated), LLC “Fintech DC”, LLC “Tinkoff Capital” and ANO “Tinkoff
Education” . As at 31 December 2019 the Company owns 80 .08% and the Bank owns 9 .92% of the shares of the JSC “Tinkoff
Insurance” (“the Insurance Company”) . In June 2019 the Insurance company repurchased 10% of its shares . The Company
and its subsidiaries together referred to as the “Group” .
At 31 December 2019, the Company owns directly 55% of the shares of LLC “CloudPayments” . Additional 40% of the shares
of LLC “CloudPayments” is held indirectly through the shares owned by the Bank (31 December 2018: 55% to the Company) .
Principal activity. The Company’s principal business activities are the holding of investments in Russian subsidiary companies
and starting from December 2017 offering Cyprus based home call center 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 Feder-
ation (“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
insurance in banks of the Russian Federation” dated 23 December 2003 . The State Deposit Insurance Agency guarantees re-
payment of insurance compensation up to RR 1 .4 million per individual, individual entrepreneur and small enterprise deposits
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 .
United Kingdom
The subsidiary Goward Group Limited is an investment holding company which managed part of the Group’s assets . Since
February 2018 Goward Group Ltd was in liquidation process, and on 16 April 2019 the company was liquidated .
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
Total
Class A
Class B
Class B
Class A
Class A
Class A
Class A
Class A
Class A
59 .85%
18 .47%
21 .68%
0 .00%
0 .00%
0 .00%
0 .00%
0 .00%
0 .00%
52 .70%
23 .65%
23 .65%
0 .00%
0 .00%
0 .00%
0 .00%
0 .00%
0 .00%
100.00%
100.00%
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
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 .
As at 31 December 2019 and 2018 the beneficial owner of Altoville Holdings Limited and Nemorenti Limited is Russian
entrepreneur Mr . Oleg Tinkov . The six individuals listed above each hold one share . The individuals hold them as nominees of
Altoville Holdings Limited .
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 whose core business is online merchant
acquiring in Russia .
The subsidiary LLC “Phoenix” is a debt collection agency .
The subsidiary Tinkoff Software DC and LLC “Fintech DC” provides software development services to the Group .
LLC “Tinkoff Capital” is an asset management company established in June 2019 to manage investment funds, mutual funds
and non-state pension funds .
ANO “Tinkoff Education” is a non-commercial organization set up by the Bank as the sole founder .
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) .
F-155
F-156
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019
31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
2 Operating Environment of the Company
Russian Federation. The Company’s main subsidiaries all operate within the Russian Federation, which displays certain char-
acteristics of an emerging market . Its economy is particularly sensitive to the price of oil and gas on the world market .
The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations
(Note 21) .
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 .
In March 2020, oil prices dropped significantly, which resulted in the immediate weakening of Russian Ruble against major
currencies at the date of approval of these separate financial statements as compared to the end of 2019 .
With respect to Rouble interest rates, CBRF “key rate” amounted to 6 .25% per annum as at 31 December 2019 (31 December
2018: 7 .75%) .
The Group actively monitors the situation in the Russian banking sector and the activity of CBRF in response to current
and newly developed requirements, or any sanctions against the participants who breach them . In particular in 2019 CBRF
introduced certain macroprudential adjustments (for example borrowers’ debt burden limit) to manage macroeconomic risks
related to primarily unsecured lending . Management of the Group believes it is highly important to participate in the discus-
sion of legislation development in the banking sphere and supports the intention of the CBRF to make the finance market more
transparent and disciplined .
In addition, late in 2019, news first emerged from China about the COVID-19 (Coronavirus) . At the end of 2019 a limited
number of cases of an unknown virus had been reported to the World Health Organisation . In the first few months of 2020 the
virus had spread globally resulting in an announcement of pandemic status by the World Health Organization in March 2020 .
Responses put in place by many countries to contain the spread of COVID-19 are resulting in significant operational disruption
for many companies and have had a significant impact on global financial markets . As the situation is rapidly evolving it may
have a significant effect on the business of many companies across a wide range of sectors, including, but not limited to such
impacts as disruption of business operations as a result of interruption of production or closure of facilities, supply chain
disruptions, quarantines of personnel, reduced demand and difficulties in raising financing . In addition, the Company’s subsid-
iaries may face the increasingly broad effects of COVID-19 as a result of its negative impact on the global economy and major
financial markets . The significance of the impact of COVID-19 on the subsidiaries’ business largely depends on the duration
and the incidence of the pandemic effects on the world and Russian economy .
Management considers this outbreak to be a non-adjusting post balance sheet event . While this is still an evolving situation at
the time of issuing these separate financial statements, to date there has been no discernible impact on the Group's business,
however the future effects cannot be predicted . As the situation is rapidly evolving, we do not consider it is practicable at
present to determine a quantitative estimate of the potential impact of this outbreak on the Group .
However, the Company has developed a stress scenario of the possible impact on the current operating environment on the
Company’s cash flows and liquidity position . The scenario demonstrated the Company’s ability to continue as a going concern .
Also several pieces of legislation have been adopted, with two particularly relevant provisions affecting the Company and its
subsidiaries:
• Payment holidays for consumer loans of borrowers that have lost more than 30% of their income or have been diagnosed
with COVID-19 . Until the end of September 2020 troubled borrowers will be able to request a payment holiday of up to 6
months when supported by certain official documentation . During this period, interest can be accrued in an amount equat-
ing to 2/3 of the average market interest rate (PSK) for the product . At the end of the payment holiday, the original loan
balance prior to the payment holidays returns to its contractual interest rate, while the additional interest accrued during
the payment holiday is converted into a 720-day instalment loan, with instalments added to the regular payments of the
original loan .
• Caps on interchange and acquiring fees for online purchases of certain goods: interchange and acquiring fees for online
purchases of certain goods were temporarily reduced until the end of September 2020 .
The overall impact on the Company and its subsidiaries will therefore depend on the number of borrowers that ask for payment
holidays . While we are not yet in a position to predict this number, it is likely that the Group will be affected by a partial and
temporary loss of interest income on rescheduled exposures, and an increase in risk costs as these loans would be reclassified
to Stage 2 or 3 under IFRS . The effect of this negative situation will be reflected in impairment losses and expected credit loss-
es in 2020, as a result of updating the expected credit loss model for statistical data and macroeconomic forecasts .
Using flexible business structure the Group swiftly moved some of its employees from acquisition to collection functions . The
Group has been able to offer some of its cloud call center services to government institutions in support of dealing with in-
creased enquiries coming from the Coronavirus outbreak . The Group reiterates its ability to withstand shocks and its positive
long-term outlook . The Group has a highly liquid, FX-hedged, and well-capitalized balance sheet . The Group has the ability to
delivery services digitally, and it intends to use this opportunity to heavily promote its mobile lifestyle app, current accounts,
and brokerage business . Therefore, while management recognizes the near-term challenges, it is confident that the Group’s
business model and response function will lead to come out of the current volatility .
Management will continue to monitor the potential impact and will take steps to mitigate any effects where required .
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 IFRS as adopted by the 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”) . The principal accounting policies ap-
plied in the preparation of these consolidated financial statements are set out below . Apart from the accounting policy changes
resulting from the adoption of IFRS 16 effective from 1 January 2019, these policies have been consistently applied to all the
periods presented, unless otherwise stated . Refer to Note 5 .
Management prepared these separate financial statements on a going concern basis .
Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair
value or amortised cost as described below .
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date . The best evidence of fair value is the quoted price in an active market . An active
market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing
information on an ongoing basis . Fair value of financial instruments traded in an active market is measured as the product of
the quoted price for the individual asset or liability and the quantity held by the entity . This is the case even if a market’s nor-
mal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transac-
tion 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 .
F-157
F-158
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
3 Significant Accounting Policies (Continued)
This is applicable for assets carried at fair value on a recurring basis if the Company: (a) manages the group of financial assets
and financial liabilities on the basis of the entity’s net exposure to a particular market risk (or risks) or to the credit risk of a
particular counterparty in accordance with the entity’s documented risk management or investment strategy; (b) it provides
information on that basis about the group of assets and liabilities to the entity’s key management personnel; and (c) the mar-
ket risks, including duration of the entity’s exposure to a particular market risk (or risks) arising from the financial assets and
financial liabilities is substantially the same .
Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or considera-
tion of financial data of the investees, are used to measure fair value of certain financial instruments for which external market
pricing information is not available .
Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted
prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques
with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from
prices), and (iii) level three measurements are valuations not based on solely 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 21 .
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 separate statement of financial position .
The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to
achieve a constant periodic rate of interest (effective interest rate) on the carrying amount . The effective interest rate is the
rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected
life of the financial instrument or a shorter period, if appropriate, to the 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 . Fair value at initial recognition is best evidenced by the
transaction price . A gain or loss on initial recognition is only recorded if there is a difference between fair value and transac-
tion 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 recog-
nised for financial assets measured at AC and investments in debt instruments measured at FVOCI, resulting in an immediate
accounting loss .
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 (for
2018 only) . 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 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
3 Significant Accounting Policies (Continued)
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:
1) an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes;
2) the time value of money; and
3) 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 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 .
The Company applies a “three stage” model for impairment in accordance with IFRS 9, based on changes in credit quality since
initial recognition:
1) 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”) .
2) 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 19 for a description of how the Company determines when a
SICR has occurred .
3) If the Company 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 19 for a description of how the Company defines credit-impaired assets and default .
Note 19 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 – measurement categories. Financial liabilities are classified as subsequently measured at AC, except for
financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e .g . short positions
in securities) .
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 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 dis-
counted 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 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
3 Significant Accounting Policies (Continued)
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 placements 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 Net (losses)/gains from derivatives revaluation . 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 .
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:
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 .
Accounting for leases by the Company as a lessee from 1 January 2019. From 1 January 2019, leases, where the Compa-
ny is the lessee, are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is
available for use by the Company . Each lease payment is allocated between the liability and finance cost . The finance cost is
charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of
the liability for each period . The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term
on a straight-line basis .
Assets and liabilities arising from a lease are initially measured on a present value basis . Lease liabilities include the net pres-
ent value of the following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable under cancellable and non-can-
cellable operating leases;
• variable lease payments that are based on an index or a rate and that are initially measured using the index or rate as at the
commencement date;
• amounts expected to be payable by the lessee under residual value guarantees;
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option .
The lease term includes any non-cancellable and optional extension periods which have been assessed as reasonably certain
to be exercised . The lease payments are discounted using the interest rate implicit in the lease . If that rate cannot be readily
determined, the Company’s incremental borrowing rate is used, being the rate that the Company would have to pay to borrow
the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms, security and
conditions .
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs; and
• dismantling and restoration costs .
As an exception to the above, the Company accounts for short-term leases and leases of low value assets by recognising the
lease payments as an operating expense in profit or loss on a straight line basis . Short-term leases are leases with a lease term
of 12 months or less, and the lease does not provide for the possibility of repurchase of the asset at the end of the contract .
Low value assets are assets with a value of RR 300,000 or less at the date of conclusion of the contract .
Right-of-use assets are included in tangible fixed assets, lease liabilities are included in other non-financial liabilities in the sep-
arate statement of financial position . Depreciation of right-of-use assets are recognised in administrative and other operating
expenses in the separate statement of profit or loss and other comprehensive income . Finance cost is recognised within other
similar expense line of the separate statement of profit or loss and other comprehensive income . Repayment of principal of
lease liabilities is disclosed within cash flows from financing activities of the separate statement of cash flows .
Right-of-use asset are reviewed for impairment in accordance with the Company’s accounting policy for impairment of non-fi-
nancial assets .
Accounting for operating leases by the Company as a lessee prior to 1 January 2019. Where the Company is a lessee in a
lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Company,
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 . 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 .
Investments in debt securities. Based on the business model and the contractual cash flow characteristics, the Company
classifies investments 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 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate 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 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 investment at FVOCI . The Company’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 entities)
over which the Company has control . The Company controls an entity when the Company is exposed to, or has rights to varia-
ble 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 acquisi-
tion 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 the separate statement of profit or loss and other
comprehensive income .
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 the 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 compre-
hensive 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 .
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 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
3 Significant Accounting Policies (Continued)
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 prob-
able 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 .
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 in-
clude 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 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 reclassifies accumulat-
ed 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 . Management 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 acquisi-
tion 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 arrange-
ment and does not expect to sell the resulting loan shortly after origination . The Company does not designate loan commitments
as financial liabilities at FVTPL .
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:
i)
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
ii)
financial assets that are purchased or originated credit-impaired, for which the original credit-adjusted effective interest
rate is applied to the AC .
Other income and expense recognition. All other income is generally recorded on an accrual basis by reference to completion
of the specific performance obligation assessed on the basis of measurement of the Company’s progress towards complete
satisfaction of that performance obligation .
All 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 .
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 .
Other similar expense. Other similar expense represents finance cost related to the discounted lease payments using the
incremental borrowing rate .
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 Standard 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 .
Foreign exchange gains and losses resulting 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 Net gains/(losses) from
foreign exchange translation .
Foreign exchange gains and losses resulting from the settlement of transactions with foreign currencies are recognised in
profit or loss for the year as Net gains from operations with foreign currencies .
At 31 December 2019 the rate of exchange used for translating foreign currency balances was USD 1 = RR 61 .9057 (31
December 2018: USD 1 = RR 69 .4706), and the average rate of exchange was USD 1 = RR 64 .7362 (2018: USD 1 = RR
62 .7078) .
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 .
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 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
3 Significant Accounting Policies (Continued)
Changes in presentation. In these separate financial statements the management of the Company improved the presentation
of the results of operations with foreign currencies, derivatives revaluation and foreign exchange translation and disclosed
separately in the separate statement of profit or loss and other comprehensive income the following line items: Net gains from
operations with foreign currencies, Net (losses)/gains from derivatives revaluation, Net gains/(losses) from foreign exchange
translation .
The effect of changes described above on the separate statement of profit or loss and other comprehensive income for the
year ended 31 December 2018 is as follows:
In millions of RR
Net (losses)/gains from derivatives revaluation
Net gains/(losses) from foreign exchange translation
Net gains from operations with foreign currencies
As originally
presented
-
-
173
Reclassification
As reclassified
538
(560)
22
538
(560)
195
The effect of changes described above on the separate statement of cash flows for the year ended 31 December 2018 is as
follows:
In millions of RR
Cash (paid)/received from operations with financial
derivatives
Cash received from trading in foreign currencies
Cash received from trading in foreign currencies and
operations with financial derivatives
As originally
presented
Reclassification
As reclassified
-
-
537
342
195
(537)
342
195
-
4
Critical Accounting Estimates and Judgements in Applying
Accounting Policies
The Company makes estimates and assumptions that affect the amounts recognised in the separate financial statements and
the carrying amounts of assets and liabilities within the next financial year . Estimates and judgements are continually evaluat-
ed and are based on management’s experience and other factors, including expectations of future events that are believed to
be reasonable under the circumstances . Management also makes certain judgements, apart from those involving estimations,
in the process of applying the accounting policies . Judgements that have the most significant effect on the amounts recog-
nised in the separate financial statements and estimates that can cause a significant adjustment to the carrying amount of
assets and liabilities within the next financial year include:
Investments in subsidiaries. The estimated fair value of investments in subsidiaries recognises that the majority of the value
of TCS Group Holding PLC resides in its main operating subsidiaries . 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 .
Refer to Note 21 .
Perpetual subordinated bonds. The Company from time to time invests in perpetual subordinated bonds issued by third par-
ties . 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 contrac-
tual cash flow characteristics resulted in acquired perpetual bonds not passing SPPI test . If the Company had recognized 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 23 .
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 20 .
5 Adoption of New or Revised Standards and Interpretations
Certain new standards, interpretations and amendments to the existing standards, as disclosed in the consolidated financial
statements for the year ended 31 December 2018, became effective for the Company from 1 January 2019 .
Adoption of IFRS 16, Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 Janu-
ary 2019). The Company has adopted IFRS 16 with a date of transition of 1 January 2019 and applied the standard using the
modified retrospective method, without restatement of comparatives (Note 3) . The new standard sets out the principles for
the recognition, measurement, presentation and disclosure of leases . All leases result in the lessee obtaining the right to use
an asset at the start of the lease and, if lease payments are made over time, also obtaining financing .
Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17
and, instead, introduces a single lessee accounting model .
On adoption of IFRS 16, the Company recognised a right of use asset of RR 6 million against a corresponding lease liability .
Right-of-use assets are mainly represented by leases of office premises . A reconciliation of the operating lease commitments
as of 31 December 2018 and the lease liability recognized at 1 January 2019 is as follows:
In millions of RR
Lease payments under operating lease
Future lease payments under IFRS 16
Effect of discounting
Lease liabilities under IFRS 16
Right-of-use assets under IFRS 16
1 January 2019
7
7
(1)
6
6
The following amended standards became effective from 1 January 2019, but did not have any material impact on the Company:
•
IFRIC 23 "Uncertainty over Income Tax Treatments" (issued on 7 June 2017 and effective for annual periods beginning on
or after 1 January 2019) .
• 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) .
• Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” (issued on 12 October 2017 and effective
for annual periods beginning on or after 1 January 2019) .
• 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) .
• Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” (issued on 7 February 2018 and effective for annual
periods beginning on or after 1 January 2019) .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
6 New Accounting Pronouncements
Certain new amendments have been issued that are mandatory for the annual periods beginning on or after 1 January 2020:
Interest rate benchmark reform – Amendments to IFRS 9, IAS 39 and IFRS 7 (issued on 26 September 2019 and effective
for annual periods beginning on or after 1 January 2020). The amendments were triggered by replacement of benchmark
interest rates such as LIBOR and other inter-bank offered rates (‘IBORs’) . The amendments provide temporary relief from
applying specific hedge accounting requirements to hedging relationships directly affected by the IBOR reform .
The table below discloses the credit quality of cash and cash equivalents balances based on credit risk grades at 31 December
2018 . The gross 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
Excellent
Sub-standard
Total
760
1
761
The following other new pronouncements are not expected to have any material impact on the Company when adopted:
Total cash and cash equivalents
(a) IFRS 17 "Insurance Contracts"(issued on 18 May 2017 and effective for annual periods beginning on or after 1 January
2021)* .
(b) Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual
periods beginning on or after 1 January 2020) .
(c) Amendments to IFRS 3: Definition of a business (issued on 22 October 2018 and effective for acquisitions from the begin-
ning of annual reporting period that starts on or after 1 January 2020)* .
(d) 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) .
(e) Amendments to IAS 1: Classification of liabilities as current or non-current (issued on 23 January 2020 and effective for
annual periods beginning on or after 1 January 2022)* .
(f) Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an Investor and its associate or joint venture
Refer to Note 19 for the description of the Company’s credit risk grading system .
For the purpose of ECL measurement cash and cash equivalents balances are included in Stage 1 . The ECL for these balanc-
es 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 19 for the ECL measurement approach .
Interest rate, maturity and geographical risk concentration analysis of cash and cash equivalents is disclosed in Note 19 . Infor-
mation on related party balances is disclosed in Note 23 . Refer to Note 21 for the disclosure of the fair value of cash and cash
equivalents .
8 Loans and Deposit Placements with Related Parties
In millions of RR
31 December 2019
31 December 2018
(issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB)* .
Deposit placements with subsidiary Bank
The Company is currently assessing the impact of the above standards on its separate financial statements .
Total loans and deposit placements with related parties
5,594
5,594
379
379
* Denotes standards, interpretations and amendments which have not yet been endorsed by the European Union .
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 (CCC+ rated)
- placements with European bank (B rated)
Total Cash and Cash Equivalents
31 December
2019
31 December
2018
596
2
-
598
760
-
1
761
The table below discloses the credit quality of cash and cash equivalents balances based on credit risk grades at 31 December
2019 . The gross carrying amount of cash and cash equivalents at 31 December 2019 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
Excellent
Doubtful
Total cash and cash equivalents
Total
596
2
598
At 31 December 2019 the deposit placements with subsidiary Bank are represented by three deposits: deposit placement
in USD with a nominal value of RR 2,114 million at 2 .5% per annum maturing on 10 August 2020, deposit placement in EUR
with a nominal value of RR 1,806 million at 0 .35% per annum maturing on 7 February 2020, deposit placement in RR with a
nominal value of RR 1,674 million at 7 .5% per annum maturing on 25 December 2020 .
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 .
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 19 for the ECL measurement approach .
As at 31 December 2019 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 (31 December 2018: same) . Refer to
Note 19 for the description of the credit risk grading system .
Refer to Note 21 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 19 . Information on related party balances is disclosed in
Note 23 .
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* Denotes standards, interpretations and amendments which have not yet been endorsed by the European Union .
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
Investments in Equity Securities
9
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 2019
31 December 2018
256,443
231,459
24,984
850
257,293
218,818
203,192
15,626
431
219,249
As at 31 December 2019 investments in financial institutions include investments in share capital of JSC “Tinkoff Bank”, JSC
“Tinkoff Insurance”, LLC "Microfinance company “Т-Finans” (2018: same) .
As at 31 December 2019 investments in non-financial institutions include investments in share capital of LLC “CloudPay-
ments”, LLC “Тinkoff Mobile”, LLC “Phoenix”, Tinkoff Software DC, LLC “TCS”, LLC “Fintech DC”, LLC “Tinkoff Capital” and ANO
“Tinkoff Education” (2018: LLC LLC “CloudPayments”, LLC “Тinkoff Mobile”, LLC “Phoenix”, Tinkoff Software DC, LLC TCS and
Goward Group Limited) . On 16 April 2019 Goward Group Limited was liquidated .
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 June 2019 the Company sold 10% in the Insurance Company for cash consideration of RR 206 million, there were no
transfers of any cumulative gain or loss within equity relating to these changes . As at 31 December 2019 the Company owns
80 .08% of the shares of the Insurance Company and controls it, the Bank owns 9 .92% of the shares of the Insurance Compa-
ny (2018: the Company owns 90 .08%, the Bank owns 9 .92%) .
In October 2017 the Company acquired a 55% shareholding in LLC “CloudPayments” . During 2019 the Bank acquired a 40%
shareholding in LLC “CloudPayments”, and thus the Company owns directly and indirectly a 95% holding in the shares of LLC
“CloudPayments” .
Investments in subsidiaries are stated at fair value at the end of each reporting period (Notes 3, 4 and 21) .
The movements in investments in subsidiaries for the period ended 31 December 2019 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
2019
218,818
(206)
37,362
469
256,443
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
Dividend income from investments in subsidiaries recognised during the year is as follows:
In millions of RR
Investment in JSC “Tinkoff Bank”
Investment in JSC “Tinkoff Insurance”
Total dividend income
2018
207,834
206
10,148
630
218,818
2019
12,697
4,461
17,158
2018
-
1,351
1,351
Interest rate, maturity and geographical risk concentration analysis of investment in equity securities are disclosed in Note 19 .
Refer to Note 21 for the disclosure of the fair value of investments in equity securities .
10 Loans Received
In millions of RR
Loans from subsidiary Bank
Loans from subsidiary company
Loans from other companies
Total loans received
2019
-
-
-
-
2018
20,655
1,792
796
23,243
As at 31 December 2018 loans from subsidiary Bank had contractual maturities from 30 October 2019 to 29 October 2021
and nominal interest rate from 5 .5% to 7% . In 2019 loans were repaid before maturity .
As at 31 December 2018 loans from a subsidiary company have a contractual maturity from 15 March 2020 and 6 June 2021
and nominal interest rate from 5 .5% to 7% . In 2019 loans were repaid before maturity .
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% . The loan was repaid before maturity .
Loans received were unsecured (2018: unsecured) .
Refer to Note 21 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 19 . Information on related party balances is disclosed in Note 23 . Reconcil-
iation of liabilities arising from financing activities is disclosed in Note 18 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
11 Debt Securities in Issue
13 Share Capital
In millions of RR
Date of maturity
31 December
2019
31 December
2018
EUR denominated ECP issued in December 2019
20 November 2020
1,030
EUR denominated ECP issued in February 2019
18 February 2020
USD denominated ECP issued in December 2019
20 November 2020
EUR denominated ECP issued in December 2018
USD denominated ECP issued in December 2018
RR denominated ECP issued in December 2018
Total Debt Securities in Issue
19 December 2019
19 December 2019
19 December 2019
831
599
-
-
-
2,460
-
-
-
2,392
1,266
96
3,754
On 20 December 2019 the Company issued two tranches of Euro-Commercial Paper (ECP) denominated in USD and EUR
maturing on 20 November 2020 . USD denominated ECP has a nominal value of USD 10 million at 3 .6% coupon rate . EUR
denominated ECP has a nominal value of EUR 15 million at 1 .0% coupon rate .
On 19 February 2019 the Company issued Euro-Commercial Paper (ECP) denominated in EUR maturing on 18 February 2020 .
EUR denominated ECP has a nominal value of EUR 12 million at 1 .25% coupon rate .
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 . The Company redeemed all outstanding ECP of this issue at maturity .
Refer to Note 21 for the disclosure of the fair value of debt securities in issue . Maturity analysis of debt securities in issue are
disclosed in Note 19 . Reconciliation of liabilities arising from financing activities is disclosed in Note 18 .
12 Other Financial and Non-financial Liabilities
In millions of RR
Other Financial Liabilities
Advances payable
Accrued audit and accountancy fees
Enhanced exclusivity agreement payable
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
2019
31 December
2018
63
18
-
81
582
3
585
-
14
208
222
760
3
763
Interest rate, maturity and geographical risk concentration analysis of other financial liabilities are disclosed in Note 19 . Refer
to Note 21 for disclosure of fair value of other financial liabilities .
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 2018
190,479,500 182,638,825
188
8,623
(1,587)
Total
7,224
Increase of number of autho-
rized shares
1,291,266
GDRs buy-back
GDRs and shares transferred
under MLTIP
-
-
-
-
-
At 31 December 2018
191,770,766 182,638,825
Shares issued
18,263,882
16,666,667
Secondary public offering
costs
GDRs and shares transferred
under MLTIP
-
-
-
-
-
-
-
188
42
-
-
-
-
(2,455)
(2 455)
-
-
-
372
8,623
(3,670)
18,874
(499)
-
-
372
5,141
18,916
(499)
-
506
506
At 31 December 2019
210,034,648 199,305,492
230
26,998
(3,164)
24,064
During three months ended 31 March 2019 Altoville Holdings Limited converted 6,385,310 “Class B” shares into “Class A”
(on a one-to-one basis), which was 3 .49% of its share, and then sold them to the market .
On 2 July 2019 the Company completed a SPO on the London Stock Exchange plc . and issued 16,666,667 “Class A” shares
of the Company in the form of GDRs at a price of USD 18 .00 per GDR (RR 1,135 per GDR), raising aggregate gross proceeds of
USD 300 million (RR 18,916 million) . All issued ordinary shares are fully paid .
All the incurred SPO costs were primary direct expenses accounted within share premium .
At 31 December 2019 the total number of outstanding shares is 199,305,492 shares (2018: 182,638,825 shares) with a par
value of USD 0 .04 per share (2018: USD 0 .04 per share) .
In June 2019 the Company’s shareholders approved a resolution to increase authorised share capital to USD 8,401,385 .92
by the creation of 18,263,882 new undesignated ordinary shares of nominal value USD 0 .04 each .
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 .
At 31 December 2019 the total number of authorised shares is 210,034,648 shares (2018: 191,770,766 shares) with a par
value of USD 0 .04 per share (2018: USD 0 .04 per share) .
At 31 December 2019 the total number of treasury shares is 4,185,166 (2018: 6,604,353) .
As at 31 December 2019 and 2018 treasury shares represent GDRs of the Company repurchased from the market for the
purposes permitted by Cyprus law including contribution to MLTIP . Refer to Note 23 .
During the year ended 31 December 2019 no GDRs were repurchased by the Company (2018: 2,094,126 GDRs at market
price for RR 2,455 million) . Refer to Note 23 . Information on dividends is disclosed in Note 17 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
14 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
Debt securities and repurchase receivables at FVOCI
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
2019
2018
228
-
44
272
28
300
536
100
86
10
732
(432)
46
32
29
107
84
191
1,161
124
104
15
1,404
(1,213)
15 Administrative and Other Operating Expenses
In millions of RR
2019
2018
Legal and consulting fees
Staff costs
Audit and accountancy fees
Taxes other than income tax
Depreciation of right-of-use assets
Depreciation of tangible fixed assets
Enhanced exclusivity agreement expense
Other administrative expenses
Total administrative and other operating expenses
110
99
30
5
3
1
-
3
251
92
10
32
-
-
-
208
5
347
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 2019 amounted to RR 2 .8 million (2018: RR 2 .7 million) .
The total fees charged by the Company's statutory auditor for the year ended 31 December 2019 for other assurance services
amounted to RR 3 .8 million (2018: RR 4 .7 million), for tax advisory services amounted to RR 2 .3 million (2018: RR 5 .7 million)
and for other non-assurance services amounted to RR 2 .2 million (2018: nil) .
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
2019
12
2018
2
At 31 December 2019 there are 63 employees employed by the Company (31 December 2018: 29) . The average number of
employees employed by the Company during the reporting year was 53 (2018: 23) .
16 Income Taxes
Income tax expense comprises the following:
In millions of RR
Corporation tax
Overseas tax withheld at source
Total income tax expense
2019
26
858
884
2018
19
67
86
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
Profit/(Loss) before income tax
Theoretical tax charge at statutory rate of 12 .5% (2018: 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
2019
16,700
2,088
111
(2,191)
858
18
884
2018
63
8
217
(214)
67
8
86
Gains on disposal of qualifying titles (including shares, bonds, debentures, rights thereon etc .) are exempt from Cyprus income
tax . At 31 December 2019 and 2018 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
31 December 2018
Credited to OCI
31 December 2019
(1,187)
(1,187)
1,019
1,019
(168)
(168)
31 December 2017
Charged to OCI
31 December 2018
(565)
(565)
(622)
(622)
(1,187)
(1,187)
The Government of the Russian Federation requested Ministry of Finance of the Russian Federation to make review of existing
double tax treaties and submit by 24 April to the Government the draft regulation approving the drafts of double tax treaties
to increase tax rates on dividends to a level of at least 15% from 1 January 2021 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
17 Dividends
The movement 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)
2019
760
5,856
(5,601)
(524)
91
582
0.49
0.49
2018
377
12,265
(11,946)
(144)
208
760
1.07
1.07
Dividends declared in the table above represent dividends declared by the Board of Directors and are reduced by RR 25
million for the year ended 31 December 2019 due to dividends on GDRs acquired by the Company from the market not for the
immediate purposes of the existing MLTIP .
On 13 May 2019 the Board of Directors declared an interim dividend of USD 0 .17 (RR 11 .09) per share/per GDR amounting to
USD 31 .05 million (RR 2,026 million) . Declared dividends were paid in USD on 28 and 30 May 2019 .
On 11 March 2019 the Board of Directors declared an interim dividend of USD 0 .32 (RR 21 .11) per share/per GDR amounting
to USD 58 .4 million (RR 3,855 million) . Declared dividends were paid in USD on 25 and 27 March 2019 .
On 25 November 2018 the Board of Directors declared an interim dividend of USD 0 .28 (RR 18 .39) per share/per GDR
amounting to USD 51 .1 million (RR 3,358 million) . Declared dividends were paid in USD in December 2018 .
On 27 August 2018 the Board of Directors declared a regular interim dividend of USD 0 .24 (RR 16 .27) per share/per GDR
amounting to RR USD 43 .9 million (2,972 million) . Declared dividends were paid in USD on 24, 28 and 29 September 2018 .
On 29 May 2018 the Board of Directors declared a regular interim dividend of USD 0 .24 (RR 14 .95) per share/per GDR
amounting to USD 43 .8 million (RR 2,730 million) . Declared dividends were paid in USD on 21 and 27 June 2018 .
On 9 March 2018 the Board of Directors declared a regular interim dividend of USD 0 .31 (RR 17 .61) per share/per GDR
amounting to USD 56 .6 million (RR 3,216 million) . Declared dividends were paid in USD on 4 and 9 April 2018 .
Dividends were declared and paid in USD throughout the years ended 31 December 2019 and 2018 . Dividends payable at 31
December 2019 related to treasury shares acquired under MLTIP amounting to RR 582 million are included in other non-finan-
cial liabilities (31 December 2018: RR 760 million) .
On 11 June 2019 the Company announced suspension of dividend payments for the three months ended 30 June and 30
September 2019 to ensure the Group will have the necessary capital to further support credit portfolio growth .
18 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 .
In millions of RR
Debt securities in issue
Loans received
Liabilities from financing activities
Net debt at 1 January 2018
Cash flows
Realised foreign exchange adjustments
Unrealised foreign exchange adjustments
Other non-cash movements
Net debt at 31 December 2018
Cash flows
Realised foreign exchange adjustments
Unrealised foreign exchange adjustments
Other non-cash movements
Net debt at 31 December 2019
2,769
418
435
132
-
3,754
(891)
(336)
(67)
-
2,460
7,833
14,955
-
-
455
23,243
(23,092)
-
45
(196)
-
Total
10,602
15,373
435
132
455
26,997
(23,983)
(336)
(22)
(196)
2,460
19 Financial Risk Management
The risk management function within the Company is carried out in respect of financial risks (credit, market, currency, liquidity
and interest rate), operational risks and legal risks . The primary objectives of the financial risk management function are to es-
tablish risk limits, and then ensure that exposure to risks stays within these limits . The operational and legal risk management
functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks .
Credit risk. The Company takes on exposure to credit risk which is the risk that one party to a financial instrument will cause
a financial loss for the other party by failing to discharge an obligation . Exposure to credit risk arises as a result of the 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 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
19 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):
Master scale credit risk grade
Excellent
Good
Monitor
Sub-standard
Doubtful
Default
Corresponding ratings of external
international rating agency (Fitch)
AAA, AA+ to AA-, A+ to A-
BBB+ to BBB-, BB+
BB to B+
B, B-
CCC+ to CC-
C, D
Each master scale credit risk grade is assigned a specific degree of creditworthiness:
• Excellent – high credit quality with lowest or very low expected credit risk;
• Good – good credit quality with currently 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):
Master scale credit risk grade
Corresponding interval
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 following components used by the Company:
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 .
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 Company 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 effec-
tive interest rate (EIR) for the financial instrument or an approximation thereof .
Lifetime period – the maximum period over which ECL should be measured . For financial instruments held by the Company the life-
time 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 .
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 .
Credit Conversion Factor (CCF) – a coefficient that shows that the probability of conversion of an off-balance sheet amount to
exposure on the 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 .
Excellent
Good
Monitor
Sub-standard
NPL
non-overdue for the last 12 months with PD < 5% or with early repayments
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 .
all other non-overdue loans
1-30 days overdue
31-90 days overdue
90+ days overdue
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 Company’s Risk Management Department .
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:
The condition of early repayments is satisfied, as described in the table above, if the cumulative amount of early repayments
exceed 5% of the gross carrying amount at the date of recognition of the loan .
• 30 days past due;
• award of risk grade “Doubtful”;
Each master scale credit risk grade is assigned a specific degree of creditworthiness:
• decrease of assigned external rating by 2 notches, which corresponds to an approximate increase of PD by 2 .5 times .
• Excellent – strong credit quality with minimum expected credit risk;
• Good – adequate 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 .
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 .
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 • 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;
In millions of RR
• Stage 2 – if since the date, which was assumed to be the date of initial recognition has identified a SICR, the financial instru-
USD strengthening by 20% (2018: by 20%)
31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
19 Financial Risk Management (Continued)
This approach can be summarised in a three-stage model for ECL measurement:
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 .
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 .
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) .
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 .
The table below summarises the Company’s exposure to foreign currency exchange rate risk at the end of the reporting period:
At 31 December 2019
At 31 December 2018
Non-deriv-
ative mone-
tary financial
assets
Non-deriv-
ative mone-
tary financial
liabilities
Deriva-
tives
Net balance
sheet posi-
tion
Non-deriv-
ative mone-
tary financial
Non-deriv-
ative mone-
tary financial
assets
liabilities Derivatives
Net balance
sheet posi-
tion
1,738
2,710
-
(677)
1,808
(1,864)
6,256
(2,541)
-
-
-
-
1,738
2,033
(56)
1,679
(22,557)
(4,258)
(25,136)
1,185
(2,062)
1,935
1,058
1
(2,600)
2,408
(191)
3,715
2,865
(27,219)
85
(24,269)
In millions
of RR
RR
US Dollars
EUR
Total
The above analysis includes only monetary assets and liabilities . Non-monetary assets are not considered to give rise to any
material currency risk .
The following table presents sensitivities of profit or loss and equity to reasonably possible changes in exchange rates applied
at the end of the reporting period, with all other variables held constant:
At 31 December 2019
At 31 December 2018
Impact on profit
for the year
Impact on total
equity
Impact on profit
for the year
Impact on total
equity
385
(385)
(11)
11
385
(385)
(11)
11
(77)
77
14
(14)
(77)
77
14
(14)
USD weakening by 20% (2018: by 20%)
EUR strengthening by 20% (2018: by 20%)
EUR weakening by 20% (2018: 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
598
1,870
3,788
Total financial liabilities
-
(912)
(1,629)
Net interest sensitivity gap at
31 December 2019
598
958
2,159
-
-
-
257,293
263,549
-
(2,541)
257,293
261,008
At 31 December 2019 if interest rates at that date had been 200 basis points higher/lower (2018: 200 basis points higher/
lower), with all other variables held constant, profit and equity would have been RR 72 million higher/lower (2018: RR 455
million higher/lower) .
In millions of RR
31 December 2018
Total financial assets
Total financial liabilities
Net interest sensitivity gap at
31 December 2018
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 instru-
ments
Total
2,147
(15)
-
379
425
219,249
222,200
(208)
(4,643)
(22,354)
-
(27,220)
2,132
(208)
(4,264)
(21,929)
219,249
194,980
In millions of RR
31 December 2019
Total financial assets
F-183
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
19 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 2019 and 2018 based on reports reviewed by key management personnel:
In % p.a.
Assets
2019
2018
RR
USD
EUR
RR
USD
EUR
Cash and cash equivalents
-
-
-
-
Loans and deposit placements with related parties
- Deposit placements with subsidiary Bank
7 .5
2 .5
0 .4
8 .5
-
-
Investments in debt securities
Liabilities
Loans received
Debt securities in issue
-
-
-
-
-
-
-
3 .8
1 .2
-
10 .3
8 .0
9 .8
4 .4
4 .4
-
1 .4
-
-
-
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 21 .
Geographical risk concentrations. The geographical concentration of the Company’s financial assets and liabilities at 31 De-
cember 2019 is set out below:
The geographical concentration of the Company’s financial assets and liabilities at 31 December 2018 is set out below:
In millions of RR
Financial assets
Cash and cash equivalents
Loans and deposit placements with 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
1
379
-
411
219,249
1,300
760
-
86
-
-
-
-
-
-
14
-
-
Total
761
379
86
425
219,249
1,300
221,340
846
14
222,200
22,447
3,754
-
14
26,215
195,125
-
-
1
-
1
796
23,243
-
-
208
3,754
1
222
1,004
27,220
845
(990)
194,980
Assets and liabilities have been based on the country in which the counterparty is located . Cash and cash equivalents have
been allocated based on the country in which they are physically held .
Russian
Federation
OECD
Other Non-
OECD
Total
Other risk concentrations. Most financial assets are due from the subsidiary Bank .
Cash and cash equivalents
-
596
In millions of RR
Financial assets
Loans and deposit placements with related parties
Investments in equity securities
Other financial assets
Total financial assets
Financial liabilities
Debt securities in issue
Other financial liabilities
Total financial liabilities
Net separate statement of financial position
260,412
5,594
257,293
-
-
-
-
262,887
596
2,460
15
2,475
-
63
63
533
2
-
-
64
66
-
3
3
598
5,594
257,293
64
263,549
2,460
81
2,541
63
261,008
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 2019 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 .
The maturity analysis of financial liabilities at 31 December 2019 is as follows:
In millions of RR
Liabilities
Debt securities in issue
Other financial liabilities
Total potential future pay-
ments for financial obligations
On Demand
and less than
1 month
From
1 to 6
months
From
6 to 12
months
More than
1 year
4
-
4
846
81
927
1,671
-
1,671
-
-
-
Total
2,521
81
2,602
F-185
F-186
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
19 Financial Risk Management (Continued)
The maturity analysis of financial liabilities at 31 December 2018 is as follows:
In millions of RR
Liabilities
Loans received
Debt securities in issue
Financial derivatives
Other financial liabilities
On Demand
and less than
1 month
From
1 to 6
months
From
6 to 12
months
More than
1 year
Total
133
8
4,258
14
618
40
-
222
881
24,324
25,956
3,895
-
3,943
-
-
-
-
4,258
236
Total potential future payments for finan-
cial obligations
4,413
880
4,776
24,324
34,393
20 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 .
21 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 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:
In millions of RR
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31 December 2019
31 December 2018
ASSETS AT FAIR VALUE
Financial derivatives
Investments in debt secu-
rities
-
-
-
-
-
-
-
-
-
86
425
-
Investments in subsidiaries
- 256,443
- 256,443
- 218,818
-
-
-
86
425
218,818
Other investments in equity
securities
Total assets recurring fair
value measurements
-
-
850
850
-
-
431
431
- 256,443
850 257,293
425 218,904
431 219,760
Investments in subsidiaries are stated at fair value based on market valuation (2018: 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 2019 are as follows:
In millions of RR
Fair value
Valuation technique
Inputs used
ASSETS AT FAIR VALUE
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
operating subsidiaries . 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 in-
puts 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 21 .3
for 1 share at 31
December
2019;
Market
interest rates
Investments in subsidiaries
256,443
Total recurring fair value meas-
urements at level 2
256,443
F-187
F-188
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
21 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 3 meas-
urements at 31 December 2018 are as follows:
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
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
operating subsidiaries . 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 in-
puts 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 De-
cember
2018;
Market
interest rates
EUR curve .
Investments in subsidiaries
218,818
Foreign exchange swaps
Discounted cash flows adjusted for counterparty
credit risk
86
USD Dollar Swaps
Curve
Total recurring fair value meas-
urements at level 2
218,904
LIABILITIES AT FAIR VALUE
Foreign exchange swaps
Total recurring fair value meas-
urements at level 2
1
1
Discounted cash flows adjusted
for counterparty credit risk
EUR curve .
USD Dollar Swaps
Curve
There were no changes in the valuation techniques for level 2 recurring fair value measurements during the years ended 31
December 2019 and 2018 . Level 2 derivatives comprise foreign exchange forwards .
At 31 December 2019 if market quote of GDR of the Company at that date had been 60% higher/lower (2018: 39% high-
er/lower), with all other variables held constant, the fair value of the investments in equity securities would have been RR
154,370 million higher/lower (2018: RR 74,212 million higher/lower) .
In millions of RR
ASSETS AT FAIR VALUE
Fair value Valuation technique
Inputs used
Other investments in equity securities
Total recurring fair value measurements at level 3
431
431
Cost of acquisition .
Share in post-acquisi-
tion profit
Cost approach
(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:
In millions of RR
Level 1
Level 2
Level 3
Carrying
value
Level 1
Level 2
Level 3
Carrying
value
31 December 2019
31 December 2018
FINANCIAL ASSETS CARRIED AT
AMORTISED COST
Cash and cash equivalents
Placements with Russian and UK
banks
Placements with European banks
Loans and deposit placements
with related parties
Deposit placements with subsidiary
Bank
Other financial assets
Total financial assets
carried at amortised cost
FINANCIAL LIABILITIES CARRIED
AT AMORTISED COST
Loans received
Debt securities in issue
-
-
-
-
-
-
-
596
2
-
-
596
2
-
5,774
5,594
64
-
64
662
5,774
6,256
-
2,460
-
-
-
-
2,460
81
-
-
-
-
-
-
-
-
-
760
1
-
-
760
1
-
411
379
1,300
-
1,300
2,061
411
2,440
-
22,362
23,243
3,754
222
-
-
3,754
222
3,976
22,362
27,219
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 2019 are as follows:
Other financial liabilities
-
81
In millions of RR
ASSETS AT FAIR VALUE
Fair value Valuation technique
Inputs used
Total financial liabilities carried
at amortised cost
-
2,541
-
2,541
Other investments in equity securities
Total recurring fair value measurements at level 3
850
850
Cost of acquisition .
Share in post-acquisi-
tion profit
Cost approach
F-189
F-190
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
21 Fair Value of Financial Instruments (Continued)
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 Decem-
ber 2018:
Weighted average discount rates used in determining fair value as of 31 December 2019 and 31 December 2018 depend on
currency:
In % p.a.
Assets
Cash and cash equivalents
Loans and deposit placements with related parties
- Deposit placements with subsidiary Bank
Investments in debt securities
Liabilities
Loans received
Debt securities in issue
31 December 2019
31 December 2018
0 .0
2 .8
-
-
1 .9
-
6 .0
10 .3
7 .0
2 .6
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 .
22 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 .
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 Decem-
ber 2019:
FVTPL (man-
da-tory)
FVTPL (des-
igna-ted)
FVOCI
In millions of RR
Cash and cash equivalents
Loans and deposit placements with related parties:
Deposit placements with subsidiary Bank
Investment in equity securities
Other financial assets
AC
598
5,594
-
64
-
-
-
-
-
-
-
-
257,293
257,293
-
64
TOTAL FINANCIAL ASSETS
6,256
-
-
257,293
263,549
In millions of RR
Cash and cash equivalents
Loans and deposit placements with related parties:
Subordinated loan to subsidiary Bank
Deposit placements with subsidiary Bank
Loan to subsidiary
Financial derivatives
Investment in debt securities
Investment in equity securities
Other financial assets
TOTAL FINANCIAL ASSETS
AC
761
-
379
-
-
-
-
1,300
2,440
FVTPL (man-
da-tory)
FVTPL (des-
igna-ted)
FVOCI
-
-
-
-
86
411
-
-
497
-
-
-
-
-
-
-
-
-
Total
761
-
379
-
86
425
-
-
-
-
-
14
219,249
219,249
-
1,300
219,263
222,200
As of 31 December 2019 and 2018 all of the Company’s financial liabilities were carried at amortised cost .
23 Related Party Transactions
Parties are generally considered to be related if the parties are under common control or one party has the ability to control
the other party or can exercise significant influence over the other party in making financial or operational decisions . In consid-
ering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal
form . The outstanding balances with related parties were as follows:
In millions of RR
ASSETS
31 December 2019
31 December 2018
Subsidiaries
Other related
parties
Subsidiaries
Other related
parties
Other financial assets
TOTAL ASSETS
LIABILITIES
Loans from related parties (contractual interest rate
2018: from 4% to 7% p .a .)
Debt securities in issue (discount: 4%)
Financial derivatives
Other financial liabilities
Other non-financial liabilities
TOTAL LIABILITIES
64
-
1,300
262,101
850
220,583
-
22,447
2,460
-
-
582
-
1
-
-
-
-
-
-
-
-
3,042
22,448
5,438
-
-
431
-
431
796
3,754
-
208
680
Total
598
5,594
Loans and deposit placement with related parties (con-
tractual interest rate 2019: from 0 .35% to 7 .5%, 2018:
from 0 .1% to 14 .4%)
Financial derivatives
5,594
-
-
-
379
86
Investments in equity securities
256,443
850
218,818
-
-
F-191
F-192
STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 31 DECEMBER 2019
Notes to the Separate Financial Statements
(Continued)
23 Related Party Transactions (Continued)
The following table disclose the changes in the numbers of GDRs attributable to the MLTIP between the beginning of the pro-
gram and the end of the reporting period:
Other related parties in the tables above are represented by entities which are under control of the Company'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 the effective interest
rate method
Enhanced exclusivity agreement expense
Credit loss allowance for loans
Dividend income
Net gains/(losses) from foreign exchange translation
Net gains from operations with foreign currencies
Net (losses)/gains from derivatives revaluation
Other comprehensive income:
2019
2018
Subsidiaries
Other related
parties
Subsidiaries
Other related
parties
228
-
78
-
(622)
(110)
(1,265)
-
-
17,158
(94)
111
(678)
-
-
-
403
-
-
-
-
(19)
1,351
68
195
538
10,148
(139)
(208)
-
-
(619)
-
-
-
Revaluation of investments in subsidiaries
37,362
In thousands
Granted during the year
Vested during the year
At 31 December 2016
Granted during the year
Vested during the year
Forfeited during the year
At 31 December 2017
Granted during the year
Vested during the year
Forfeited during the year
At 31 December 2018
Granted during the year
Vested during the year
Forfeited during the year
At 31 December 2019
Number of GDRs
attributable to the MLTIP
7,425
(464)
6,961
2,270
(1,326)
(60)
7,845
154
(1,805)
(16)
6,178
91
(2,419)
(68)
3,782
In 2019 the total remuneration of Directors listed in the Management Report amounted to RR 17,3 million (2018: RR 17,6
million) .
Management long-term incentive program. On 31 March 2016 the Company introduced a MLTIP as both a long-term incen-
tive and a retention tool for the management of the Company .
On 15 January 2019 the Company granted GDRs to new participants in MLTIP which resulted the total number of GDRs attrib-
utable to the Management of 9,940 thousand as at 31 December 2019 (31 December 2018: 9,849 thousand) .
Participants of the program receive the vested parts of their grants provided that they are employed by the Group during
the vesting period . Participants are entitled to the dividends, if any . Participants who leave the Group lose their right for the
unvested parts of the grants .
The fair value of the awards as at grant dates (31 March 2016, 8 February 2017, 22 February 2018 and 15 January 2019) is
determined on the basis of market quotes of GDRs as at those dates .
Each grant is divided into 4 equal awards, each award is vested during 4 years in delivered equal tranches . 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 (with exception of 2019 when the vesting date for all participants was 31 January 2019) until 2022 for
participants joining in 2016, until 2023 for participants joining in 2017, then until 2024 for participants joining in 2018, and
until 2025 for participants joining in 2019 .
24 Events after the End of the Reporting Period
In February 2020 the Company announced plans to invest in a new venture project to set up a fintech company providing a
range of services to retail customers in Europe (excluding CIS) . The startup will offer non-credit financial products . The project
is due to launch in 2020, with the Company as its key seed investor . The Company will have a controlling interest in the new
venture . The Company's initial commitment is up to Euro 25 million and will be contributed in tranches as the venture develops .
On 10 March 2020 the Board of Directors declared an interim dividend in line with the current dividend policy of USD 0 .21 per
share/per GDR with a total amount allocated for dividend payment of around USD 41 .9 million .
On 19 March 2020 Altoville Holdings Limited and Nemorenti Limited (companies under control of Mr . Oleg Tinkov) transferred
all of the Company’s Class B shares owned by them to two Tinkov family trusts . Mr . Oleg Tinkov remains the ultimate bene-
ficiary of his holding, and thus his voting rights are unaffected by this change . This change also has no consequences for or
impact on the operations of the Company and its subsidiaries .
The quoted market price of the Company’s GDRs (Moscow Exchange) has decreased by approximately 41% at the date of ap-
proval of these separate financial statements as compared to the end of 2019 . The market price of the GDRs directly impacts
the carrying value of investments in subsidiaries in the Company’s separate financial statements .
F-193
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STRATEGIC REVIEWDIRECTORS’ REVIEWFINANCIALSTCS GROUP HOLDING PLCANNUAL REPORT 2019 GLOSSARY
Active Users
Artificial Intelligence
Anti-money laundering
Average cost of funding
Average interest rate on loans
Capital adequacy ratio
CBRF
Charge-off rate
Charge-offs
Class A share
Class B share
AU
АI
AML
n/a
n/a
CAR
CBRF
n/a
n/a
n/a
n/a
Compound Annnual Growth Rate
CAGR
Compulsory car insurance programme
OSAGO
Corporate social responsibility
Cost of borrowing
Cost of risk
Cost to income ratio
Cost to income ratio (excl . acquisition
costs)
Country by Country Reporting
CRM
Cyprus Securities and Exchange
Commission
Days past due
Financial Conduct Authority
GIBDD
Global depositary receipt
Gross portfolio yield
Interest-earning assets
Interest-earning liabilities
International financial reporting
standards
IPO
KASKO
CSR
n/a
n/a
C/I
n/a
CbCR
n/a
CySec
dpd
FCA
GIBDD
GDR
n/a
IEA
IEL
IFRS
n/a
A performance metric for the success of an internet product
commonly assessed per month (MAU), per week (WAU), or
per day (DAU)
n/a
Laws regulating money laundering and terrorist financing
Interest expense / Average IEL
Core revenue on loans / Average net loan portfolio
Capital/RWA
Central Bank of the Russian Federation
Loan charge-off / Average gross loans
Loans written off the balance
One share in TCSGH PLC having one vote
One share in TCSGH PLC having ten votes
n/a
n/a
n/a
Interest expense/interest bearing liabilities
Loan loss provision / Average gross loans
Operating and acquisition expense / Core revenue
Operating expense / Core revenue
Online customer relationship management system
Cyprus regulator of financial markets
n/a
UK regulator of financial markets
Law enforcement agency responsible for traffic
One TCS Group Holding PLC GDR represents an interest in
one class A share
Core revenue on loans /Average gross loan portfolio
Gross loans + interbank loans and accounts + securities +
interest earning cash equivalents
Deposits + interbank + debt securities + subordinated loans
+ syndicated loan
n/a
Initial public offering, in the case of TCSGH plc with listing on
the London Stock Exchange in October 2013
Key performance indicators
Loan loss provision
London Stock Exchange
M&A
KPI
LLP
LSE
-
n/a
Allowance for bad loans
n/a
Mergers and acquisitions activity, consolidation of compa-
nies
Management report/consolidated
management report
MR/CMR
Mobile virtual network operator
MVNO
n/a
n/a
N1 .0
Net charge-offs
Net interest margin
Net Promoter Score
NFC
N1 .0
n/a
NIM
NPS
NFC
Russian statutory capital adequacy ratio
Loan charge-offs less recoveries
Net interest income / Average IEA
n/a
Near Field Communication
Non-financial statement/consolidated
non-financial statement
NFS/CFNS
n/a
Non-performing loans
NPV
Person discharging managerial
responsibilities
NPLs
NPV
PDMR
PIE
POS
Revenue
Return on average assets
Return on average equity
Risk-adjusted net interest margin
Risk-weighted assets
Russian accounting standards
Smart Couriers
SMEs
The Group’s management long term
incentive plan
Public interest
entity
Point-of-Sale
loans
n/a
ROAA
ROAE
Risk-adjusted
NIM
RWA
RAS
n/a
n/a
MLTIP
Loans 90+ days overdue
Net present value
n/a
n/a
Credit offering at merchant and retail points of sale
Operating income
Net income / Average assets
Net income / Average equity
(Net interest income - PL provisions) / Average IEA
Assets weighted by risk as per the CBRF methodology
n/a
The Group’s courier network, completing KYC and delivering
cards to customers
Small and medium enterprises
n/a
Treasury portfolio
n/a
Investment securities and repos
KASKO
Voluntary car insurance programme
G-1
G-2
TCS GROUP HOLDING PLCANNUAL REPORT 2019
INVESTOR
INFORMATION
Detailed below are contacts and various addresses
investors may find useful.
More up to date investor information, including the Group’s
current and historic share prices, corporate news, latest
operational and financial results, presentations and other
updates, is available on the TCS Group corporate websites at
www .tinkoff .ru/eng
More up to date information can be found at the TCS Group
Holding corporate
website at www .tcsgh .com .cy
and www .tinkoff .ru/eng
Company Secretary
Caelion Secretarial Limited
(registered number HE351260)
4th floor
Berengaria 25
Spyrou Araouzou 25
Limassol 3036
Cyprus
Telephone: +357 2504 0404
Fax: +357 2504 0415
TCS Group Holding PLC
(registered number HE107963)
Telephone: +357 2505 0668
Email: administration@tcsgh .com .cy
Registered office address: 5th floor
Berengaria 25
Spyrou Araouzou 25
Limassol 3036
Cyprus
Mail to: PO Box 56356, 3306 Limassol .
Principal business premises:
Office 403, Lophitis Business Centre
Corner of 28th October/Emiliou Chourmouziou Streets
Limassol 3035 Cyprus
Telephone: +357 25 35 88 35
administration@tcsgh .com .cy
Larisa Chernysheva, Head of Investor Relations
ir@tcsgh .com .cy
ir@tinkoff .ru
stakeholderengagement@tcsgh .com .cy
Artem Lebedev, Head of PR
pr@tcsgh .com .cy
pr@tinkoff .ru
Depositary
Existing investors are encouraged in the first instance to
speak to their brokers/custodians, and then direct queries
and questions through the Depositary’s contacts page on
adr .com
https://adr .com/contact/jpmorgan
Custodian
HSBC Bank plc
(acting by way of its Athens branch)
HSBC Bank plc (Greece)
via its department
HSBC Securities Services, Greece
109–111, Messoghion Ave .
115 26 Athens
Greece
Auditors
PricewaterhouseCoopers Limited
City House, 6 Karaiskakis Street
CY-3032 Limassol
Cyprus
G-3
TCS GROUP HOLDING PLCANNUAL REPORT 2019