annual report - EximB · 2013-09-23 · 2012 ANNUAL REPORT ... portfolio, liabilities and net income. ... in the reporting year facilitated growth of cliental, number and volumes

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JSC UKREXIMBANK 2012 ANNUAL REPORT

Message from the Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . 2

Message from the Head of the Supervisory Council . . . . . . . . . . . . . . 5

Bank Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Market Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Financial Overview of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Corporate Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Small and Medium-Sized Enterprise Business . . . . . . . . . . . . . . . . . . . 39

Retail Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Financial Institutions and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Information Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Bank Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Branch Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Prospects and Plans of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

2012 Consolidated Financial Statements of JSC Ukreximbank . . . 63

JSC Ukreximbank Financial Statements are prepared under the International Financial Reporting Standards

»

2

LADIES AND GENTLEMEN,

I have the honor to present the Annual Report on activity and financial results of Joint Stock Company The State Export-Import Bank of Ukraine in 2012.

In 2012, JSC Ukreximbank marked its 20th anniversary. Over that period by examples of successful implementation of important financial projects and everyday persevering efforts the financial institution proved its reliability and significance for the banking system and the economy of the state. At present the Bank employs both experienced staff that laid foundation of the Bank development and made major input in its growth and young professionals. Together they form a highly professional team, which is able to meet challenges and carry out efficient and profitable activity of the Bank.

In accordance with the 2012 results JSC Ukreximbank improved its financial condition and enhanced its position in the banking market by increasing its assets, loan and investment portfolio, liabilities and net income. The Bank was the top second in the Ukrainian banking system in terms of net assets, liabilities, amounts due to customers. The Bank was among

In 2012, JSC Ukreximbank marked its 20th anniversary . Over that period

by examples of successful implementation of important financial projects

and everyday persevering efforts the financial institution proved

its reliability and significance for the banking system and

the economy of the state

«

3

the top three Ukrainian banks in terms of loan portfolio and equity capital. The sufficient level of the Bank capitalization is an import factor that contributed to its successful performance.

Within the period under review the Bank furthered cooperation with the international financial organizations and lending institutions: the World Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the International Financial Corporation under programs for export development and international trade, energy saving and energy efficiency, financing sectors of the economy of high importance for the state. The year was marked by entering into new agreements, expansion of the existing projects, increase of the amounts of limits opened for and guarantees issued to JSC Ukreximbank, growth of its ability to support the Ukrainian companies.

The financial support provided by the Bank was used by reputed enterprises of industrial, construction, transport and agricultural sectors. In order to successfully conduct the final tournament of the 14th UEFA European Football Championship (EURO 2012) the Bank provided financing for infrastructural projects of the national importance.

4

JSC Ukreximbank is traditionally a top player in the Ukrainian corporate banking market and, simultaneously, it provides high quality banking services and offers modern banking products for small and medium-sized enterprises, entrepreneurs and individuals. The impeccable reputation, status of a state-owned financial institution and optimal pricing policy in the reporting year facilitated growth of cliental, number and volumes of transactions as well as the amount of funds attracted from business entities and households.

Our competitive advantages, among other things, are customer-friendly and streamlined services and ongoing introduction by the Bank of innovative solutions. In 2012, JSC Ukreximbank was the first bank in Ukraine that started issuing Visa contactless payment cards that provide customers the ease of use thereof and security of settlements thereunder. We shall further continue to expand e-channels for sales of products and services, because these technologies are the future of the banking business. Besides, we as a state-owned bank are interested in growth of non-cash payments that has positive influence on the financial system of the country.

The strategy of the Bank remains unchanged. We shall consistently pursue the previously defined strategic goals of the Bank development: efficient fulfillment of the Government Financial Agent functions, active involvement in export development programs that are of high priority for the state, financing real sector of the economy, primarily, energy efficiency programs for the Ukrainian business and sectors with high added value.

In its plans of future activity JSC Ukreximbank is committed to retain leading positions in lending and borrowing markets, expand the range of banking products and efficiently enhance assets quality.

I thank the Supervisory Board, the Board and the entire team of the Bank for their professionalism and commitment. I assure all customers and partners that the Bank will continue to do its utmost in order to timely fulfill the undertaken obligations and ensure creation of conditions for mutually beneficial cooperation.

Sincerely yours,

Vitalii Bilous Chairman of the Board

MESSAGE FROM THE CHAIRMAN OF THE BOARD

5

LADIES AND GENTLEMEN,

On behalf of the Supervisory Council of Joint Stock Company The State Export-Import Bank of Ukraine I have the honor to present to your attention the 2012 Annual Report of the Bank and intimate that the Bank performance is considered satisfactory.

Against the backdrop of a global double-dip recession and consequent decrease of import demand in many countries that had adverse impact on exports, including, in particular, the exports of our country and, respectively, on the financial situation in Ukraine, the Bank’s activity was smooth and well-coordinated: it efficiently carried out high-profile assignments, actively pursued its strategy in the market.

The efforts of the Bank’s staff were focused on implementing the top-priority projects associated primarily with the interests of the state and aimed at supporting key sectors of the economy, small and medium-sized enterprises, introducing energy saving technologies, decreasing dependence of the country’s economy on imports.

In close cooperation with the National Bank of Ukraine JSC Ukreximbank strongly supported efforts focused on curbing potential crisis developments, maintaining the national currency stability, inflationary developments control, mitigating banking system risks, enhancing its transparency, borrowing funds from foreign and domestic investors in order to meet needs of the Ukrainian producers.

Activity of JSC Ukreximbank is governed exclusively by principles of economic expediency and on ongoing basis the Bank maintains highly efficient standards of management,

6

MESSAGE FROM THE HEAD OF THE SUPERVISORY COUNCIL

updates systems of risks assessment, analysis and control, resource management, income generation and costs distribution and optimization, continuously increases funding base, skillfully makes use of accumulated experience of financial servicing of international agreements and governmental programs.

Impeccable reputation, positive image, wide range of services, reliability and high quality of services are a guarantee of great confidence placed in the Bank by investors and partners that makes the Bank one of the top players among the domestic financial institutions, and provides the Bank with great international prestige.

On behalf of the Supervisory Council I would like to express my sincere gratitude to the Board, employees, customers and partners of JSC Ukreximbank for fruitful work and cooperation.

I would like to assure you that the Supervisory Council of JSC Ukreximbank, within its competence, will further provide support and control required for sound and successful performance of the Bank.

Sincerely yours,

Anatolii Miarkovskyi Head of the Supervisory Council

7

»BANK PROFILE

100%

of sharesof Ukreximbank are owned by the state

The State Export-Import Bank of Ukraine was established as a state-owned company pursuant to Decree of the President of Ukraine No.29 on January 3, 1992.

In 2009, the Bank was transformed into a public joint stock company with retaining 100% of its shares by the State. Since its establishment the Bank has always been in the group of the largest systemically important banks of Ukraine and its correspondent network has always been the largest one in Ukraine.

Due to its status of a state-owned institution, considerable experience in the domestic and international financial markets, impeccable reputation, infrastructural potential, wide customer base, human resources and established international relations JSC Ukreximbank plays a significant role in development of the national banking system and economy of Ukraine.

JSC Ukreximbank is mainly focused on services provided to large- and medium-sized enterprises in various sectors of the economy that have high growth potential as well as on services provided to individual customers.

» THE MISSION OF THE BANK IS FINANCING OF INVESTMENT PROJECTS (BOTH PUBLIC AND PRIVATE) focused on development of sectors generating high added value, enterprises producing export-oriented and import-substituting products, attracting foreign loans in order to improve performance of the Ukrainian economy (including, among other things, introduction of energy saving technologies), servicing foreign economic transactions of its customers and acting as a financial agent of the Government of Ukraine for international borrowings .

8

BANK PROFILE

The customers are offered high quality banking services that meet international standards and opportunities for efficient cooperation with business partners in Ukraine and abroad.

As a full-service financial institution Ukreximbank offers a wide range of high quality, urgent and comprehensive, standard or customized banking transactions that can be performed at every branch of its network. The branch network of Ukreximbank includes the Head Office, 29 branches, 96 sub-branches and 2 representative offices abroad (in London and New York City).

THE MANAGEMENTIn accordance with the Law of Ukraine On Banks and Banking the management bodies of JSC Ukreximbank are the Supervisory Council and the Board.

THE SUPERVISORY COUNCIL

In accordance with the effective law the Members of the Supervisory Council of JSC Ukreximbank are appointed by the Verkhovna Rada of Ukraine, the President of Ukraine and the Cabinet of Ministers of Ukraine.

Members appointed by the Cabinet of Ministers of Ukraine:

Mr. Anatolii MIARKOVSKYI – Head of the Supervisory CouncilMr. Oleksandr KUSHNIRENKOMr. Kostiantyn LIUBCHENKOMr. Sergii RYBAKMr. Sergii KHARCHENKO

Members appointed by the President of Ukraine:

Ms. Iryna AKIMOVAMr. Pavlo GAIDUTSKYIMr. Andrii PORTNOVMr. Viktor FEDOSOVMs. Iryna NOSACHOVA

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BANK PROFILE

Born on April 21, 1971. Higher education.

She has over 19 years of professional experience in the banking system.

She is responsible for the Bank’s compliance with the main provisions of the Development Concept of the Bank, implementation of the current policy of the Bank, treasury and securities transactions.

THE BOARD

The Board of the Bank consists of 11 members employed by the Bank:

Born on June 21, 1971. Higher education.

His professional experience in the banking system is over 15 years.

He supervises operation of the Bank, manages and coordinates activity of the Board of the Bank, guides the fulfillment by the Board of the Development Concept of the Bank and implementation of the current policy of the Bank, supervises the development and implementation of the Bank’s policy in domestic and international financial markets.

Vitalii BILOUS

Chairman of the Board

Viktoriia KONONYKHINA

Member of the Board – First Deputy Chairman of the Board

10

BANK PROFILE

Born on November 20, 1953. Higher education.

Her professional experience in banking is over 41 years.

She is responsible for the Bank’s compliance with accounting and tax policies, day-to-day operation activity and interaction with the external auditors.

Olga ALIEKSIEIEVA

Member of the Board

Born on December 9, 1979. Higher education.

Her professional experience in the banking system is over 11 years.

She is responsible for the development and implementation of the Development Strategy of the Bank in respect of retail and SME business, and electronic distribution channels. She supervises relations with the subsidiaries.

Svitlana MONASTYRSKA

Member of the Board – Deputy Chairman of the Board

Born on October 8, 1970. Higher education.


He is responsible for legal support of banking and on-going commercial activity of the Bank.

Sergii MYSKIV

Member of the Board – Deputy Chairman of the Board

11

BANK PROFILE



She is responsible for the development and implementation of the Bank’s Branch Network Development Strategy, Human Resources Strategy, HR policy, labour management and social development system, unified corporate external and internal communication policy.

Oksana RESHETNIAK

Member of the Board



He is responsible for procurement of equipment for the premises of the Bank and maintenance thereof, logistics, fire protection and labour safety.

Volodymyr MARIUKHIN

Member of the Board



He is responsible for security of the Bank (physical security, maintaining banking and commercial secrecy), problem loan workout, pledged property disposal and management of non-core assets.

Andrii MANANNIKOV

Member of the Board

12

BANK PROFILE

Born on December 6, 1965. Higher education.

His professional experience in banking is over 17 years.

He is responsible for internal financial monitoring of the Bank, development and implementation of the tariff management system as well as development of the non-state corporate pension fund of JSC Ukreximbank.



He coordinates cooperation of the Bank with financial and banking institutions, foreign and Ukrainian correspondent banks, he is in charge of implementation of international loan agreements.

Born on August 20, 1973. Higher education.


She is responsible for the development and implementation of the Development Strategy of the Bank in respect of corporate business.

Viktoriia RUDA

Member of the Board

Oleksandr SOKOLOV

Member of the Board

Oleksandr SHCHUR

Member of the Board

13

BANK PROFILE

LICENSES

JSC Ukreximbank conducts its business on the basis of:

Banking License No.2 dated October 05, 2011;

General License of the National Bank of Ukraine (NBU) No.2 dated October 05, 2011.

SUBSIDIARIES

The Bank has two subsidiaries.

The Leasing Company Ukreximleasing was established in 1997 as a subsidiary fully owned by the Bank. The statutory capital of the subsidiary is UAH 7.5 million.

Eximleasing LLC was established in 2006 by Subsidiary Company Leasing Company Ukreximleasing (51% of the statutory capital) and JSC Ukreximbank (49% of the statutory capital). Therefore the Bank controls 100% votes in Eximleasing LLC that has statutory capital of UAH 100 thousand.

Both subsidiary companies were established in order to include leasing services in the Bank’s business and perform trade transactions.

RATINGS ASSIGNED TO THE BANK BY INTERNATIONAL RATING AGENCIES

The international rating agencies that assigned ratings to JSC Ukreximbank were: Moody’s Investors Service and Fitch Ratings.

Long-term foreign currency deposit rating assigned to JSC Ukreximbank by Moody’s and long-term foreign currency issuer default rating assigned by Fitch Ratings were at the highest possible level for a Ukrainian bank limited only by the sovereign ceiling of Ukraine.

14

BANK PROFILE

International credit ratings of the Bank as at December 31, 2012:

Moody’s Investors Service

Long-term local currency deposit rating В3

Long-term local currency senior unsecured debt rating В3

Long-term foreign currency senior unsecured debt rating В3

Bank financial strength rating Е+

Long-term foreign currency deposit rating Саа1

Fitch Ratings

Long-term foreign currency issuer default rating В

Short-term foreign currency issuer default rating В

Viability rating b

Support rating 4

National long-term rating AA-(ukr)

Foreign currency senior unsecured debt rating В

15

BANK PROFILE

ACHIEVEMENTS OF THE BANK

INTERNATIONAL COOPERATION

Ukreximbank and Caixa Geral de Depósitos, Portugal, signed a framework agreement in order to promote cooperation between Portugal and Ukraine in commerce and finance, and in-depth study of markets of both countries. The parties took a decision on cooperation under international trade transactions between the countries, particularly under projects in the field of documentary business, medium- and long-term financing, attracting foreign direct investment, co-financing of joint ventures established by the Portuguese and Ukrainian companies. Also the agreement provides for expansion of the range of fields of cooperation in the money market and forex transactions in the interbank market.

Ukreximbank and the European Bank for Reconstruction and Development (EBRD) signed a loan agreement on further development of joint support of sustainable energy projects of Ukrainian private companies. Under the terms and conditions of the loan agreement the EBRD will extend to Ukreximbank a credit line of USD 50 million in order to invest in industrial energy efficiency and renewable energy projects. The new program that combines promotion of sustainable energy projects and support to small and medium-sized enterprises (SME) is essential for the development of the Ukrainian economy in terms of fostering competitiveness of the SME sector.

» UKREXIMBANK AND THE GLOBAL CLIMATE PARTNERSHIP FUND SIGNED A USD 30 MILLION LOAN AGREEMENT . Proceeds from the long-term credit line will be channeled for financing of energy efficiency and renewable energy projects of Ukrainian enterprises, including small and medium-sized enterprises . Projects of thermal insulation of buildings, upgrade of lighting, ventilation and heating systems will be financed under the program . Loans will also be extended to large enterprises for improvement of power generation facilities and modernization of production facilities .

16

100

million euros

is the amount of credit

agreement for SME support

signed with the European

Investment Bank

BANK PROFILE

The International Finance Corporation (IFC) commended Ukreximbank’s achievements in export support and increased the limit for guarantees under the Global Trade Finance Program to USD 100 million in order to improve access of the Ukrainian exporters to financing, thereby facilitating recovery of the Ukrainian economy and creating new jobs.

The EBRD increased the limit of the facility to JSC Ukreximbank under the Trade Facilitation Programme to USD 170 million, thus considerably strengthening the position of the Bank in international trade finance. In particular, the higher limit allowed the Bank to increase the volume of trade finance transactions and expand the range of instruments used for financing of international contracts of partners in different countries and regions.

JSC Ukreximbank entered into a EUR 100 million loan agreement with the European Investment Bank (EIB). The agreement envisaged financing of projects implemented by small and medium-sized enterprises as well as energy-efficient and environmental projects. The EIB loan funds will be channeled for the development of the local private sector, social and economic infrastructure, including transportation, energy and environmental infrastructure, IT and communication infrastructure, as well as climate change mitigation and adaptation.

» THE EBRD INCREASED THE LIMIT OF THE FACTORING FACILITY TO USD 15 MILLION that was opened for JSC Ukreximbank under the Trade Facilitation Programme . Another increase of the limit was based on the EBRD’s positive opinion on efficient operation of the state-owned bank in the factoring market .

17

BANK PROFILE

AWARDS AND RECOGNITIONS

Deutsche Bank AG, Germany, one of the oldest partners of JSC Ukreximbank in correspondent banking, awarded the Bank with the STP Award 2011 for high level and high quality of straight-though processing (STP).

Commerzbank, a leading German bank, awarded Ukreximbank with STP Award 2011 for achievements in international settlements.

Under the project Guards of Corporate Brands 2012 the Publishing House Galytski Kontrakty recognized the brand of Ukreximbank as the most expensive one in the Ukrainian financial market.

The IFC’s Fifth Annual Bank Partners Meeting in Dubai recognized JSC Ukreximbank the best issuing bank in Europe and Central Asia in pre-export financing in 2012 under the Global Trade Finance Program.

Based on 2012 performance a major correspondent bank J.P. Morgan, the USA, honored JSC Ukreximbank for high quality of automatic processing of customer and interbank payments with Elite Quality Recognition Award, a prestigious award of this leading global bank given to financial institutions that achieved best-in-class straight-through processing rates.

» ON JANUARY 3, 2012, JSC UKREXIMBANK CELEBRATED ITS 20TH ANNIVERSARY . On the occasion of the anniversary of the Bank the Banknote Printing and Minting Works of the NBU issued a souvenir silver banknote imitating a UAH 100 banknote of 2005 design . On the occasion of the anniversary USEP Ukrposhta issued a post stamp . A number of employees of the Bank were granted awards and honors of the Cabinet of Ministers of Ukraine and the National Bank of Ukraine . Also, more than 400 employees were awarded with corporate awards and valuable gifts for many years of diligent service, professionalism and commitment to banking .

18

EBRD commended

Ukreximbank for considerable

energy saving potential of

the projects financed by

the institution

BANK PROFILE

The important role of Ukreximbank in promoting energy efficiency credit products and high efficiency of investment activity of the state-owned financial institution were highly appreciated by the annual conference of the European Bank for Reconstruction and Development on sustainable energy funding programs. The conference examined and analyzed the progress of the Energy Efficiency Program in Ukraine and, in particular, noted that projects financed by JSC Ukreximbank had considerable energy-saving potential.

The building of JSC Ukreximbank Branch in Lviv for the second consecutive time won the Crystal Brick, an award of a prestigious international architectural contest held annually in Lublin, Poland. The contest is a large event that evaluates the best construction investments made on both sides of the eastern EU border. The building of the Branch of the Bank is an architectural monument of the XIX century located in the central part of Lviv and included in the UNESCO World Heritage List. The building was renovated in compliance with all modern requirements to bank premises and with due regard to historical features in order to preserve the original exterior of the building.

On the occasion of the Constitution Day of Ukraine Mr. Mykola Udovychenko, Chairman of the Board of JSC Ukreximbank was awarded with Order For Merit, Third Degree by Decree of the President of Ukraine. The Head of Ukreximbank was awarded for his significant personal contribution to development of the nation, social and economic, scientific and technical, cultural and educational development of Ukraine as well as considerable achievements and professionalism. In early 2013, Mr. Mykola Udovychenko was appointed to a high public office of Deputy Governor of the National Bank of Ukraine.

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BANK PROFILE

MEMBERSHIP IN ORGANIZATIONS, ASSOCIATIONS

Visa International;

MasterCard Worldwide;

Society for Worldwide Interbank Financial Telecommunications (SWIFT);

Ukrswift Association;

Ukrainian Interbank Payment Systems Member Association (EMA);

International Factors Group (IFG);

International Union of Credit and Investment Insurers – Prague Club (Bern Union);

Global Network of Export-Import Banks and Development Finance Institutions (G-NEXID);

Credit History Bureau;

Ukrainian National Mortgage Association;

All-Ukrainian Social Organization Association of Taxpayers of Ukraine;

Independent Association of Ukrainian Banks;

Stock Partnership Association under the PFTS Stock Exchange;

Ukrainian Stock Traders Association under the Perspektiva Stock Exchange;

The Crimean Banking Union;

The Professional Association of Registrars and Depositories.

In 2012, the authorized capital of the banking system

increased by 1 .9% to UAH 175 .2 billion and

equity capital increased by 8 .9% to UAH 169 .3 billion .

In the reporting year the banking system

reported profit of UAH 4 .9 billion

«

22

»MARKET OVERVIEW1

In 2012, the Ukrainian economy slowed down the growth rates substantially. According to the financial performance the real GDP grew by 0.2% (5.2% in 2011), at the same time the industrial output declined by 1.8% (in 2011 its growth was 7.6%), and for the first time since 2002 the drop of consumer prices (deflation) by 0.2% was recorded (in 2011 the inflation was 4.6%).

Pursuant to the NBU data, export of goods and services grew by 1.0% up to USD 89.8 billion, while import grew by 5.6% up to USD 104.5 billion, mainly due to increase of imports of engineering, industrial, food and chemical products.

Prudent monetary policy with inflation targeting elements pursued by the National Bank of Ukraine provided the moderate growth rate of monetary base in 2012 at the level of 6.4% (8.2% in 2011) and money supply at the level of 12.5% (14.7% in 2011).

Thanks to well-coordinated efforts of the National Bank of Ukraine and Ministry of Finance of Ukraine the stability of the currency exchange rate was maintained in the reporting year. The international reserves of the NBU decreased by USD 7.2 billion or by 22.8% and amounted to USD 24.5 billion as at December 31, 2012.

The banking sector was influenced by many factors, in particular, limited access of commercial banks to funds in international capital markets, restrictive monetary policy pursued by the National Bank of Ukraine aimed at maintaining price stability and Hryvnia exchange rate, as well as building grounds for accelerating of the country economic development in the medium-term perspective.

1 According to the NBU and in accordance with the Ukrainian Accounting Standarts

23

MARKET OVERVIEW

In 2012, the total net assets of the banking system increased by 6.9% and amounted to UAH 1,127.2 billion as at December 31, 2012. Over the reporting year, the amounts due to households grew by UAH 57.8 billion and amounts due to business entities grew by UAH 16.3 billion.

In 2012, the authorized capital of the banking system increased by 1.9% to UAH 175.2 billion and equity capital increased by 8.9% to UAH 169.3 billion.

In the reporting year the banking system reported profit of UAH 4.9 billion.

» IN 2012, THE FURTHER INCREASE IN COMMERCIAL BANKS LOANS TO THE ECONOMY WAS OBSERVED . Thus, customer loan portfolio increased by UAH 15 .4 billion to UAH 771 billion over the reporting year . This growth was mainly due to increase of the corporate loan portfolio by UAH 28 .3 billion, while the retail loan portfolio fell by UAH 12 .9 billion . At the same time commercial banks managed to some extent to improve the loan portfolio quality – the amount of overdue loans decreased by 8 .5% .

6.9% is asset growth of the Ukrainian banking system in 2012

24

»FINANCIAL OVERVIEW OF THE BANK

In 2012, Ukreximbank confirmed its reputation as one of the most stable and efficient banks that provided growth of key performance indicators and retained the top position in the Ukrainian banking market.

Over the year, the Bank was in compliance with all economic standards established by the National Bank of Ukraine. JSC Ukreximbank liquidity ratio was one of the highest in the banking system and that ensured prompt and reliable processing of customer settlements and timely fulfillment by the Bank of its obligations to the full extent.

* calculated pursuant to financial statements of the banks of Ukraine published by the National Bank of Ukraine on the official web-site www.bank.gov.ua

As at

31.12.2011, UAH, million

As at 31.12.2012,

UAH, million

Growth rate, %

Market share as at

31.12.2012*, %

Market position

as at 31.12.2012*

Total assets 74,525 87,206 17 7.8 2

Loan and investment portfolio (loans to customers and investment securities)

56,304 59,303 5 7.7 3

Total liabilities 57,267 69,826 22 7.3 2

Amounts due to customers

29,678 42,834 44 7.5 2

Total equity 17,258 17,380 1 10.5 3

Profit for the year 131 137 5 3.3 12

» MAIN PERFORMANCE INDICATOR DYNAMICS

25

FINANCIAL OVERVIEW OF THE BANK

ANALYSIS OF CHANGES IN THE BALANCE SHEET OF THE BANK

In the volatile macroeconomic environment and unfavorable international market conditions Ukreximbank strategy envisaged generating the reliable liquidity cushion and improving the balance sheet structure in order to resist the potential adverse impact of the external factors.

For this purpose in 2012, the Bank substantially increased the volume of high liquid and low-risk financial instruments, i.e. corresponding account balances, government securities and highly reliable corporate securities. On the other hand, in the above business environment JSC Ukreximbank pursued the prudent policy in its lending activity with the focus on improvement of the loan portfolio quality through repayment and writing off of bad debts.

» MAJOR CHANGES IN ASSET STRUCTURE

The high level of confidence in the Bank by its customers allowed the Bank to enjoy the wide range of the funding sources and to apply the variety of fund raising instruments broken down by price and maturity.

In the unexpected international market conditions the Bank chose the stable funding out of the internal sources increasing the funding base

Cash and cash equivalents Loan and investment portfolio

26

137.3million

hryvniasis net income

of Ukreximbank in 2012


at the expense of the amounts due to customers. Consequently, the volume and share of the amounts due to customers in the liabilities structure tended to grow.

In October 2012, JSC Ukreximbank repaid the earlier issued Eurobonds in the amount of USD 235 million timely and to the full extent.

» MAJOR CHANGES IN LIABILITIES STRUCTURE

FINANCIAL PERFORMANCE OF THE BANK. CHANGES IN INCOME, EXPENSES AND PROFIT

In 2012, Ukreximbank ensured growth of all key income items (net interest income, net fee income, non-interest income) compared to the previous year and increased the net profit.

Improvement of asset quality and structure alongside with increase in interest-bearing performance allowed to increase the net interest income. Customer base growth and the further extension of service range were the main factors for increasing net fee income. Profitable transactions with investment securities affected positively the non-interest income growth.

Amounts due to customers Amounts due to banks and international financial institutions

27


» MAIN CHANGES IN INCOME

In 2012, Ukreximbank cost-to-income ratio was 27% being the best indicator among the largest Ukrainian banks.

In 2012, Ukreximbank profit amounted to UAH 137.3 million.

Net interest income

Non-interest income

Net fee income

Over 2012, the Bank lending activity

was focused on the managed corporate loan portfolio growth in

compliance with weighted «riskiness – income – allowance»

proportion and on the basis of the customer-tailored approach

and rendering the full range of banking products

«

30

»CORPORATE BANKING

AMOUNTS DUE TO CUSTOMERS

For many consecutive years the Bank has consistently been demonstrating the high pace of growth of its customer base. In 2012, despite the intense competition in the banking service market, the corporate customer base of JSC Ukreximbank grew by over 1.3 thousand, and as at December 31, 2012 amounted to 53.8 thousand customers. Along with the quantitative indicators the qualitative ones of the Bank’s customer base grew at the same rapid pace. The Bank succeeded in improvement of the previous year result, when it ranked second in the Ukrainian banking market in terms of deposits attracted from businesses and reached the top position in this rating. It became possible due to the significant increase in legal entities term deposits that grew more than 2.5 times yoy and amounted to UAH 18.7 billion, therefore, the total amounts due to corporate customers grew up to UAH 27.2 billion.

» AMOUNTS DUE TO CORPORATE CUSTOMERS

31

48.5billion hryvnias is the credit portfolio of Ukreximbank as at the end of 2012

CORPORATE BANKING

LENDING

Over 2012, the Bank lending activity was focused on the managed corporate loan portfolio growth in compliance with weighted «riskiness – income – allowance» proportion and on the basis of the customer-tailored approach and rendering the full range of banking products.

In order to provide high-quality services to the Bank customers and increase the profitability of the customers for the Bank the customer-related party managed relationship principles are determined with due regard to their business profiles, including sector characteristics, amount of proceeds and other indicators.

In the corporate lending the Bank gives precedence to investment projects aimed at development of high added-value sectors, export-oriented and import-substituting producers implemented under the IFIs programs and ECA-covered projects.

As at December 31, 2012, the loan portfolio amounted to the equivalent of UAH 48.5 billion.

According to the results of 2012, the largest shares of the loan portfolio in terms of industries were agriculture – 18.7%, trade – 14.4%, mining – 8.8%, construction – 8.7%, engineering – 8.4%, chemical and petrochemical industry – 5.7% and real estate – 4.9%.

INVESTMENT LENDING

Over 2012, JSC Ukreximbank continued to provide investment project financing to Ukrainian enterprises. The total volume of loans into investment activity of borrowers as at the end of 2012 amounted to UAH 13.4 billion, which is over than 29% of the Bank’s corporate loan portfolio.

The Bank financed investment projects, including projects intended to implement the governmental programs, including the state special-purpose program for preparation for the final tournament of the 14th UEFA European Football Championship (EURO 2012), modernization and reconstruction of production based on the state-of-the-art energy saving industrial engineering technologies.

32

CORPORATE BANKING

The Bank is involved in implementation of the investment project related to production of trichlorosilane, monosilicon and construction of the first polysilicon production line with capacity of 2500 tpy, which is a part of the global project on creation of the full cycle for manufacturing products required for solar energy generation to be implemented till 2015.

Also, the Bank is engaged in financing the Boryspil International Airport development project that envisages construction and commissioning of Terminal D.

The investment projects implemented in agricultural sector include rehabilitation of Dnipro and Pivdennyi Buh rivers as navigable transport corridors of Ukraine, construction of the riverside transshipment terminals and the borrower’s own fleet of vessels. JSC Ukreximbank provided loans for construction of barges and purchase of equipment for grain elevators. Under the investment project 11 grain elevator complexes and transshipment terminals have already been built in various regions of Ukraine.

STRUCTURED FINANCE

Due to impeccable reputation in the international capital markets and extensive track records in export finance the Bank attained recognition as a direct borrower/guarantor by 35 world’s prominent Export Credit Agencies, such as CESCE (Spain), COFACE (France), ECICS Limited (Singapore), EDC (Canada), EGAP (the Czech Republic), EKF (Denmark), EKN (Sweden), Euler Hermes (Germany), Eximbanka SR (the Slovak Republic), Eximbank of China (PRC), GIEK (Norway), HBOR (Croatia), JBIC (Japan), KEXIM (Korea), MEHIB (Hungary), NEXI (Japan), OeKB (Austria), ONDD (Belgium), SACE (Italy), SID Bank (Slovenia), SERV (Switzerland), Ex-Im Bank (the USA).

As at December 31, 2012, 131 loan agreements have been executed in the total amount of USD 415.51 million (in equivalent) for financing equipment, machinery and technologies for chemical, construction, printing, food, metal processing, mining and other industries of the economy.

33

12.6billion hryvnias is the documentary business portfolio of the Bank

CORPORATE BANKING

TRADE FINANCE AND DOCUMENTARY BUSINESS

In 2012, as one of the leaders in the trade finance market of Ukraine JSC Ukreximbank continued to finance foreign trade contracts of its customers by attracting short and medium-term funds from international financial institutions and foreign financial partners.

High reputation of JSC Ukreximbank among the foreign partners, long-lasting fruitful cooperation with reputable foreign partner banks and such prominent international financial institutions as the European Bank for Reconstruction and Development and the International Finance Corporation enabled it to render the full range of documentary business services to the customers and to keep its leading position in trade finance business in Ukraine.

JSC Ukreximbank as the top-player in the trade finance market in 2012 contributed to the fast growth of export and import financing transaction volume. In particular, as compared with 2011 the volume of pre-export financing grew tenfold, the volume of letter of credit confirmation grew twofold and the volume of trade financing based on the import letter of credit grew 2.5 times. The total significant volume of trade finance portfolio remained unchanged and equaled to UAH 12.6 billion by the end of the year under review.

» EXPORT FINANCE CREDIT AGREEMENTS AS AT 31 .12 .2012

131 agreements

415 .5 million US dollars

34

CORPORATE BANKING

SPECIAL-PURPOSE PROGRAMS

SECOND EXPORT DEVELOPMENT PROJECT (EDP-2)

International Bank for Reconstruction and Development

In 2012, JSC Ukreximbank and the International Bank for Reconstruction and Development (IBRD, member of the World Bank Group) successfully implemented the Second Export Development Project (EDP-2) in the amount of USD 154.5 million. The project followed the IBRD Export Development Project implemented jointly with JSC Ukreximbank in 1997–2004. Under the EDP-2 implementation JSC Ukreximbank extended loans to the exporting enterprises and on-lent to the Ukrainian banks to facilitate the development of Ukrainian export sector and further enhance the capabilities of the banking sector to provide funds to businesses through financial intermediaries by expanding the range of loan products of private financial institutions in Ukraine.

In 2012, the Additional Financing for the Second Export Development Project was allocated in the amount of USD 150 million. Additional financing will increase the existing credit line under the EDP-2 and facilitate the development of business within the existing project.

The additional financing should contribute to supporting positive trends of previous export development projects, strengthening the impact of the existing credit line on the Ukrainian exporters business.

45 export development sub-projects in the total amount of USD 175 million were approved for financing under the Projects.

» SUBPROJECTS APPROVED UNDER THE EXPORT DEVELOPMENT PROJECTS (EDP AND EDP-2)

45 subprojects

175 million US dollars

35

50million US dollarsis the amount of a new EBRD credit line for support of sustainable energy and SMEs

CORPORATE BANKING

ENERGY EFFICIENCY PROJECT

International Bank for Reconstruction and Development

Pursuant to the Loan Agreement dated June 10, 2011, JSC Ukreximbank jointly with the IBRD implements the Energy Efficiency Project.

The purpose of the Project is to improve the energy efficiency of industrial and commercial enterprises, municipalities and municipal enterprises and Energy Service Companies by providing sustainable financial intermediation in energy efficiency investment.

The single sub-borrower exposure limit is up to the equivalent of USD 30 million.

The Project is implemented in two directions: direct lending by Ukreximbank to the participating enterprises and financing the Ukrainian enterprises through on-lending to the participating commercial banks of Ukraine. The amount of the IBRD loan is USD 200 million. The Project is targeted at financing of investment that improves energy efficiency of industrial enterprises and municipal sector.

UKRAINE ENERGY EFFICIENCY PROGRAMME

European Bank for Reconstruction and Development

Since 2007, JSC Ukreximbank and the European Bank for Reconstruction and Development have jointly continued to implement the Ukraine Energy Efficiency Programme.

In February 2012, the Loan Agreement was entered into between Ukreximbank and the EBRD in the amount of USD 50 million, on the basis of which the Programme implementation continued.

Over 40 investment energy saving projects were financed in the framework of the Programme. The energy efficiency projects are implemented by Ukrainian companies in Dnipropetrovsk, Donetsk, Ivano-Frankivsk, Zaporizhia, Kyiv, Kirovograd, Lugansk, Lviv, Mykolaiv, Odesa, Poltava, Ternopil, Kharkiv, Kherson and Chernigiv oblasts. The enterprises of agro-industrial, construction materials, metallurgy, engineering, food and services sectors as well as other industries are involved in implementation of the investment projects. Special attention is paid to projects on optimization of heat and energy supply, energy consumption, use of renewable power sources, in particular, biomass.

36

CORPORATE BANKING

THE PROGRAM FOR MODERNIZATION OF INDUSTRY

WITH POSITIVE ENVIRONMENTAL IMPACT

Nordic Investment Bank

JSC Ukreximbank jointly with the Nordic Investment Bank continues to implement the Program aimed at financing the reconstruction and modernization of domestic industry projects to improve production performance, reduce energy consumption and waste emissions by Ukrainian enterprises. The loan facility is USD 50 million.

ENERGY EFFICIENCY PROGRAM FOR THE SME SEGMENT

Global Climate Partnership Fund

Pursuant to the Loan Agreement with the Global Climate Partnership Fund entered into on February 16, 2012, Ukreximbank raised USD 30 million in order to finance energy efficiency and renewable energy projects of eligible Ukrainian companies.

SME AND ENERGY EFFICIENCY/ENVIRONMENTAL PROGRAM

European Investment Bank

On 28 December, 2012, Ukreximbank and the European Investment Bank entered into the Loan Agreement in the amount of EUR 100 million. The Agreement stipulates financing of projects implemented by SME and Mid-Caps as well as energy efficiency and environmental investment projects.

The Loan funds will be channeled for development of local private sector and socio-economic infrastructure, including transportation and energy facilities, as well as for mitigation of and adaptation to climate change.

37

CORPORATE BANKING

TRADE FINANCE PROGRAM

European Bank for Reconstruction and Development International Finance Corporation

Over 2012, the cooperation between JSC Ukreximbank and the European Bank for Reconstruction and Development under the Trade Facilitation Programme and the International Finance Corporation under the Global Trade Finance Program continued. To the extent of the established limits Ukreximbank is in position to meet the customer needs in pre-export, pre-import financing, guarantee operations in order to fulfill the foreign economic contracts with the partners worldwide.

Increase of JSC Ukreximbank limits to USD 170 million and USD 100 million under the respective Programs over 2012 is an evidence of the fruitful and beneficial cooperation with the EBRD and the IFC, which will enable JSC Ukreximbank to increase the volume of trade finance transactions and expand the range of financial instruments used for fulfillment of international contracts with counterparties from different countries and regions.

Cooperation with the IFC in 2012 was also recognized by the prestigious award – at the meeting of the IFC partner banks in Dubai JSC Ukreximbank was named the best issuing bank in Europe and Central Asia in the pre-export financing under the Global Trade Finance Program.

» CREDIT LIMITS OF UKREXIMBANK UNDER TRADE FINANCE PROGRAMS

EBRD

170million US dollars

IFC

100million US dollars

38

CORPORATE BANKING

FACTORING

For many consecutive years the Bank has been a top-player in the domestic factoring market in terms of investments in factoring operations in the national currency. The factoring portfolio amounted to UAH 571.7 million as at December 31, 2012.

The total amount of receivables equal to UAH 3.0 billion hit record high of factoring over the entire JSC Ukreximbank history. It should be noted that against a backdrop of the general receivables volume growth the average amount of one accepted supply also increased.

In 2012, the Bank successfully operated in the international factoring market. The limits for the partner banks were established in the amount of UAH 80 million as at December 31, 2012.

» MAJOR CHANGES IN FACTORING PERFORMANCE

39

»SMALL AND MEDIUM-SIZED ENTERPRISE BUSINESS

In 2012, small and medium-sized enterprise business was defined as a separate area of JSC Ukreximbank activity. In this segment the Bank focused its efforts on increasing customer base and weighted growth of the loan portfolio in compliance with the acceptable level of its quality.

Loans to financially reliable SME customers were provided with consideration for the peculiarities of business and its inherent risks, both out of the Bank’s own funds and under programs of foreign and international financial institutions.

Years of experience and standards for loan transactions, in 2012, allowed the Bank to simplify lending procedure and broaden the authorities of regional branches in taking credit decisions for small and medium-sized enterprises.

» WITH VIEW THAT SME CUSTOMERS ARE CONSIDERABLE POTENTIAL FOR THE DEVELOPMENT, the Bank elaborated and implemented new banking products that take into account the needs, activities of customers and market conditions, and improved and adapted for this business segment the entire range of the bank products and services .

40

»RETAIL BANKING

JSC Ukreximbank continued to provide services to individuals and focused its efforts on attracting new customers and retaining existing customers, improvement of quality of services, enhancement and expansion of the range of banking products and services, implementation of innovative technologies.

AMOUNTS DUE TO CUSTOMERS

In 2011, due to reliability, high quality of services, ability to establish long-term relationships with customers as well as wide range of deposit products and their attractive terms and conditions the Bank increased amounts due to individuals by 16.6%, including term amounts due to individuals by 17.6%, the result, which enabled it to retain the third place among banking institutions of Ukraine in terms of such parameters. The leading position of Ukreximbank in terms of amounts due to individuals is an evidence of exemplary business reputation of the Bank, public confidence and interest of customers to use its deposit products.

» AMOUNTS DUE TO CUSTOMERS

41

RETAIL BANKING

LENDING TO INDIVIDUALS

In 2012, Ukreximbank in the retail banking market implemented measures to improve service quality and to satisfy priority needs especially of those individuals who are employees of corporate customers of the Bank.

The Bank participated in the implementation of the state program aimed to reduce the cost of mortgage credits for affordable housing for people who need better housing facilities.

PAYMENT CARDS

The Bank is a principal member of MasterCard Worldwide and Visa International payment systems and this membership allows it to provide a full range of card services to its customers. In 2012, JSC Ukreximbank continued to act as a settlement bank in Ukraine for MasterCard (the respective agreement was entered into in 1998).

Since 2010, JSC Ukreximbank was authorized as a single bank in Ukraine to service American Express cards in the merchant network.

The Bank card business is supported by an in-house processing centre connected directly to MasterCard Worldwide and Visa International payment systems.

As at December 31, 2012, the number of MasterCard and Visa payment cards issued by JSC Ukreximbank reached 740 thousand cards. In the reporting year the turnover of funds under payment cards issued by the Bank increased by 16% and reached almost UAH 14.5 billion.

» UTILIZATION OF PAYMENT CARDS OF THE BANK IN 2012

card turnover

14 .5 billion hryvnias

share of cashless payments

24 .4per cent

42

RETAIL BANKING

11.4 thousand

is the number of POS terminals

of the Bank

In 2012, quantitative indicator of non-cash payments in the merchant network effected by holders of cards issued by JSC Ukreximbank increased significantly. Its share in the total volume of card transactions increased from 18.2% to 24.4% compared to 2011. Card account balances increased by 8.2% and amounted to UAH 1.3 billion as at December 31, 2012. ATM network of the Bank includes 774 machines.

In 2012, JSC Ukreximbank continued implementation of the strategic program of actions aimed at increase of share of non-cash settlements at Ukrainian merchants. For that purpose the Bank installed POS terminals for the customers working in retail trade and services area. As at December 31, 2012, the network of JSC Ukreximbank POS-terminals comprised 11,437 units (25% growth in 2012).

In October 2012, JSC Ukreximbank was the first among Ukrainian banks who successfully completed certification of Visa payment system for issue and acquiring of contactless cards and started issuance of Visa payWave cards. Certification for emission and acquiring of contactless cards of MasterCard payment system is in the process.

In autumn 2012, Ukreximbank launched a large issue of MasterCard Debit cards. Features of this product allow the Bank to be flexible in setting fees for maintenance of payroll projects, particularly for cash withdrawal from ATMs in Ukraine, thus optimizing its own ATM network.

JSC Ukreximbank provides advisory services to other banks on joining MasterCard Worldwide and Visa Int. and acts as a representative and guarantor for seventeen banks in the international payment systems.

MONEY TRANSFERS

The Bank successfully cooperates with international money transfer systems, acting as an agent of such leading companies as MoneyGram and UNIStream, efficiently increases the network of subagent banks under MoneyGram money transfers.

Ukreximbank is a subagent bank of Western Union, which is a world leader in the money transfer market (operates under agency agreement with JSC Raiffeisen Bank Aval).

In 2012, the Bank continued to expand actively the range of remittance services.

43

RETAIL BANKING

180 thousandis the number of subscribers of the Enter EXIM® internet banking system

BANK GOLD AND BULLION COINS

In 2012, JSC Ukreximbank introduced innovative service – sale of bullion coins of Ukraine, which have a high collection value and attract customers as a reliable investment of surplus funds. Archangel Michael bullion coins are stamped out in gold and fine silver (999.9). In the second half of 2012, more than 150 Ukrainian investment coins of different denominations and almost 130 kg of bank gold were sold.

INDIVIDUAL SAFE BOXES

JSC Ukreximbank offers the most safety keeping – individual safe boxes. In 2012, to meet growing customer demand for individual safe boxes, a state-of-the-art depositary was put into operation in the Central sub-branch of Ukreximbank, Kyiv, with over 1260 individual safe boxes of various sizes, which is in compliance with all safety requirements and standards and equipped with sophisticated electronic control system.

E-BANKING SERVICES

One of JSC Ukreximbank priority activities is to minimize the number of customers’ inquiries to the Bank branches and sub-branches in order to perform the plain vanilla standard transactions and maximize use of the electronic communication channels between the Bank and the customer. To this end JSC Ukreximbank offers to its customers the remote banking service systems like Client-Bank and Enter EXIM® Internet-banking.

Due to information and functional capability of remote banking service systems the number of their users increases. In 2012, the number of customers connected to Enter EXIM® Internet banking increased by 43%, from 125 thousand to almost 180 thousand users.

The share of payments made by business entities through Client-Bank and Enter EXIM® remote banking service systems, that have been implemented by means of remote banking increased from 87.7% to 92.2% in the year under review.

Service of searching ATMs, branches and sub-branches of the Bank on Google and Yandex maps was introduced on Ukreximbank web-site. The Bank also introduced Skype connection with its Call-center.

JSC Ukreximbank pays much attention to

the development and deepening of relations with international

financial institutions and institutional investors . Thanks to the diligent

performance of its obligations the corporate brand of the Bank is well known

in the international capital markets

»

46

»FINANCIAL INSTITUTIONS AND INVESTMENTS

FINANCIAL AGENT OF THE CABINET OF MINISTERS OF UKRAINE

Since its foundation JSC Ukreximbank has been the only acting agent of the Cabinet of Ministers of Ukraine for execution and servicing of international loans covered by the state guarantees. During this period the Bank, acting as the Financial Agent of the Cabinet of Ministers of Ukraine, served more than 150 loans under 13 credit lines (Germany, the USA, France, Italy, Japan, Switzerland, Spain, etc.) and 2 lending programs for the equivalent of USD 2.9 billion, which were used to meet the needs of the Ukrainian economy for financing of import of crucial goods, to achieve primary objectives of stabilization and restructuring of economy.

» FOREIGN LOANS ARRANGED BY JSC UKREXIMBANK AS A FINANCIAL AGENT OF THE CABINET OF MINISTERS OF UKRAINE BY SECTORS

Among the Bank’s partners under international agreements are: Consortium of Banks AKA, Germany; Kreditanstalt fur Wiederaufbau (KfW), Germany; Ex-Im Bank, the USA; Japanese Bank for International Cooperation; French

47

FINANCIAL INSTITUTIONS AND INVESTMENTS

Banks Association; the group of Italian credit institutions headed by Efibanka; Banco Sabadell, Spain; UBS, Switzerland; UniCredit Bank Austria AG that provided financing under insurance cover of leading Export Credit Agencies such as Euler Hermes, Germany; COFACE, France; Ex-Im Bank, the USA; SACE, Italy and others.

» FOREIGN LOANS ARRANGED BY JSC UKREXIMBANK AS A FINANCIAL AGENT OF THE CABINET OF MINISTERS OF UKRAINE BY LENDER COUNTRIES

In 2012, under the governmental arrangements JSC Ukreximbank as an authorized Ukrainian bank maintained the project of construction of international passenger terminal and related infrastructure of the Boryspil State International Airport. This project is funded out of the loan funds provided by the Japan Bank for International Cooperation for a total of JPY 19.092 billion maturing in 2035.

INTERNATIONAL BORROWINGS

JSC Ukreximbank pays much attention to the development and deepening of relations with international financial institutions and institutional investors. Thanks to the diligent performance of its obligations the corporate brand of the Bank is well known in the international capital markets.

Ukreximbank constantly improves existing instruments and develops new ones to attract funds and optimize the balance sheet, including debt. Through operations in the international debt capital markets the Bank also promotes the development of the banking sector and financial infrastructure of Ukraine in a whole.

48


FOREIGN EXCHANGE AND MONEY MARKET TRANSACTIONS

Transactions in foreign exchange and money markets are one of the largest and most important segments of Ukreximbank, as many of its customers are import-oriented and export-oriented enterprises. Thus, in 2012 the volume of the Bank transactions in the interbank forex market of Ukraine amounted to UAH 153.8 billion, which is over 5% of total transactions in this market. Transaction of the Bank in the foreign exchange market amounted to UAH 35.0 billion.

To ensure an optimum level of liquidity, the Bank is active in the domestic and international money markets. In 2012, the Bank carried out transactions in the domestic money market in the amount of UAH 83.6 billion and in the international money market in the amount of UAH 27.4 billion.

Much attention is paid to comprehensive customer service. One of the important elements of such service is to provide cash desks of the Bank with sufficient amounts of cash, including foreign currency. In 2012, foreign banknotes and precious metals operations were carried out for over UAH 1.0 billion in the domestic and international markets.

The JSC Ukreximbank strict adherence to international standards and its reputation of a reliable partner facilitate the opening of a great number of FX lines to the Bank by international counterparts. The Bank is active in making transactions in the international forex market with all major world currencies both by instruction of its customers and on its own behalf.

In 2012, more than 150 banks in Ukraine and the CIS and 40 foreign banks were counterparts of JSC Ukreximbank.

» MONEY MARKET TRANSACTIONS OF THE BANK IN 2012

domestic money market


international money market


49

The Bank arranged three bond issues: one bond issue of Boryspil International Airport and two bond issues of the city of Kyiv


SECURITIES

The Bank offers the full range of services in securities market under the licenses for conducting professional activity received by JSC Ukreximbank allowing it to trade securities (underwriting, dealing and brokerage) and provide custodian services.

In the year under review the trend of the securities portfolio growth continued, its amount increased by UAH 5.5 billion from UAH 14.4 billion to UAH 19.9 billion. Moreover, the portfolio growth by UAH 6.3 billion from UAH 4.9 billion to UAH 11.1 billion at par value was mainly due to increase of the portfolio of corporate bonds and bonds issued by the Bank under local loans. At the same time, the portfolio of government securities decreased by UAH 1.8 billion, from UAH 10.4 billion to UAH 8.6 billion.

The Bank securities portfolio is diversified both in terms of currency and issuer risk.

In 2012, JSC Ukreximbank arranged and fully completed 3 issues of corporate bonds (underwriting) for the Boryspil State International Airport in the amount of UAH 1 billion and 2 issues of bonds for the city of Kyiv in the amount of UAH 3.5 billion and UAH 1.9 billion, respectively.

INVESTMENT BANKING

In 2012, the Bank offered various investment banking products to corporate customers as well as attracted new customers.

JSC Ukreximbank renders within the investment banking product range the following services:

advisor services on attraction of strategic and portfolio investors (investment evaluation of companies, development of business strategies, arrangement and monitoring of merger and acquisition processes, etc.);

services to the Bank customers in terms of entering the debt capital markets with bonds issues;

services to the Bank customers in terms of entering the global capital markets with IPO and private placements.

50

»RISK MANAGEMENT

The risk management process is a key factor for maintaining the smooth activity of the Bank.

The Bank adheres to the following risk management principles:

centralized management by the Head Office of liquidity risk, interest rate risk and currency risk;

unification of credit projects analysis and monitoring procedures, credit surveillance of each borrower or class of issuer, assignment of credit rating and establishment of rules for creation of provisions for impairment;

precise definition of each participant role in the risk management process as well as relationships among these participants;

establishment of exposure limits concerning transaction amounts either by the joint bodies, the Bank’s officer or the Branch’s employee;

establishment of exposure limits (target and threshold levels) on a counterparty, group of related counterparties, credit portfolio concentration or volumes limit (by sectors, groups of counterparties, separate transactions/balance items, etc.);

continuous risk monitoring and control as well as compliance with all established limits;

conflict of interest avoidance;

internal control over the policy and regulations compliance.

The Supervisory Council bears common responsibility for determination and approval of targets in the area of risk and capital management. However, the Bank has separate independent departments responsible for risk management and control. The Board of the Bank, Asset and Liability Committee (ALCO), Credit Committee, Retail Business Committee, Treasury, Risk Management Division are responsible for risk management within the Bank. Each year the Board of the Bank approves the Risk Management Policy.

51

RISK MANAGEMENT

CREDIT RISK

The credit risk management is effected through:

establishing target, ultimate and threshold levels for key credit risk indicators;

extending loans/assuming liabilities only in accordance with the approved Credit Policy and the Bank’s regulatory documents adopted in execution thereof;

creation and maintenance of provisions intended to cover expected loan losses in the amount not less than the estimated amount of such losses;

maintenance of equity (regulatory) capital at the level not less than the estimated level of unexpected loan losses;

continuous monitoring of actual key credit risk indicators at the level of individual loans/liabilities, separate loan portfolios and total loan portfolio;

prompt response should the actual key credit risk indicators come near to ultimate and/or threshold risk.

MARKET RISK

The market risk management is effected through:

establishing target, ultimate and threshold levels for key market (interest rate and currency) risk indicators;

continuous monitoring of the actual key market (interest rate and currency) risk indicators;

prompt response should the actual key market (interest rate risk and/or currency) risk indicators come near to ultimate and/or threshold level.

CURRENCY RISK

The currency risk management is effected through:

establishing target, ultimate and threshold levels for the key currency risk indicators;

continuous monitoring of the actual key currency risk indicators;

prompt response should the actual key currency risk indicators come near to ultimate and/or threshold level.

52

RISK MANAGEMENT

INTEREST RATE RISK

The interest rate risk management is effected through:

establishing target, ultimate and threshold levels for the key interest rate risk indicators;

continuous monitoring of the actual key interest rate risk indicators;

prompt response should the actual key interest rate risk indicators come near to ultimate and/or threshold level.

LIQUIDITY RISK

The liquidity risk management is intended to determine acceptable for the Bank gap between assets and liabilities in terms of maturity and amounts due (with a breakdown by currencies), main rules, procedures and instruments for management of such gaps. Its management is effected through:

establishing target, ultimate and threshold levels for the key liquidity risk indicators;

continuous monitoring of the actual key liquidity risk indicators;

prompt response should the actual key liquidity risk indicators come near to ultimate and/or threshold level.

STRATEGIC RISK

Strategic risk management is intended to provide adequate communication and prompt response system for urgent detection on the system level, analysis, evaluation and control of strategic risks, which the Bank faces in the course of its activity and creation of background for providing adequacy of structure and processes of making and implementing business decisions. Its management is effected through:

continuous monitoring of making and implementing business decisions, actual key risk indicators, analysis and forecasting of their dynamics;

due advising the respective (in accordance with the lines of activity) collective bodies and divisions of the Bank regarding the progress of business decision implementation and their impact on actual and forecasted key risk indicators;

prompt response should the business decisions are incorrectly made or inadequately implemented or the actual key risk indicators come near to ultimate and/or threshold level.

53

»INFORMATION TECHNOLOGIES

In view of the impact of the IT on the financial services industry and growing competitiveness, the Bank is paying significant attention to developing and improving the IT infrastructure based on modern technical and architectural solutions. The utilization of the in-house software in combination with the software and hardware produced by the brand-names (Oracle, HP, Cisco, SAP, EMC, Microsoft, VMware, Riverbed, Nortel, Dell, RedHat, Novell) as well as a state-of-the-art open source software allows the Bank to build the Bank’s IT system for the business needs in the flexible and effective way.

The remote customer service systems – the Enter EXIM® (an Internet-Banking system), the Client-Bank System, the Corporate Client-Bank System, ATM network, information kiosks, SMS notification, official web-site of the Bank – provide the customer-friendly access to the information resources and services of JSC Ukreximbank.

The Bank improves information back-up and IT infrastructure management systems on the permanent basis. In the framework of the implementation of ITSM methodologies and standards

» THE CORE OF THE PAYMENT INFRASTRUCTURE OF JSC UKREXIMBANK IS IN-HOUSE PAYMENT SYSTEM whose prime objective is creation of a basis for centralized operative management of temporarily surplus funds of the Bank for the efficient use thereof . The Bank in-house payment system ensures the interaction of the Bank with external payment systems (national and international electronic payment systems) via a single point of entry – the Clearing Division of the Bank .

54

INFORMATION TECHNOLOGIES

18 banks

are customers of the processing

centre of Ukreximbank

the Bank has operating IT infrastructure monitoring and management system.

The corporate network of the Bank is based on the modern technology using IP/MPLS speed channels as the main aboveground communication channels.

JSC Ukreximbank has the in-house processing center for servicing payment cards issued by Visa International, MasterCard Worldwide, American Express International payment systems and it became the first among the largest banks in Ukraine, which completed successfully the certification of compliance with the demands of informational and physical security pursuant to PCI DSS International Standard (Payment Card Industry Data Security Standard). 18 affiliated banks successfully use services provided by JSC Ukreximbank processing center.

The Bank set up the hi-tech data processing center that meets all up-to-date requirements and standards and put into place state-of-the-art powerful data storage system.

55

»BANK STAFF

The Human Resources Policy of the Bank is focused on formation and support of efficient, highly professional, united and responsible staff able to give flexible response to changes in the in-house and external environment and to ensure leading positions in the financial market.

In 2012, the main task of the Human Resources Policy of the Bank was to ensure:

headcount optimization;

optimization of organizational structure and optimal amount of work to be done by the staff;

ongoing development and training of the staff;

high level of corporate culture.

Efficient implementation of the Human Resources Policy resulted in staff turnover reduction and decline in staff number.

On top of that, the staff training and development system, designed pursuant to the Quality System Standard ISO 9001:2008, allowed the cutting of expenditures in this area without reduction of volume, rate and quality of training.

» THE STAFF IS A CORE CAPITAL OF JSC UKREXIMBANK .

Achievements of the Bank are results of individual work of each employee . In order to unlock potential of a team of professionals the Bank in its staff policy follows the principles of introduction of innovations and sustainable improvements . The staff costs are considered by the Bank as investments in its development .

56

BANK STAFF

In 2012, the optimization of expenditures on staff training and development was achieved due to the following steps:

minimization of outsourcing for staff training;

active use and development of the remote training system;

increase in trainings without outsourcing;

active implementation of supervisory control program in the branches.

57

»SOCIAL RESPONSIBILITY

Corporate social responsibility is one of the key aspects of the business philosophy of JSC Ukreximbank. Through its charity work the Bank supports the revival of the best national traditions of bank patronage and charity, and makes a considerable contribution to the cause of protecting human lives, health and dignity.

The charity work of JSC Ukreximbank is focused on:

support for health care institutions aimed at treatment of children with oncological diseases;

financial support for treatment of children with oncological diseases;

support of development of science and education, implementation of scientific and educational programs, support for teachers, scholars, students, pupils, support for education of orphans and disabled children, etc.;

support of protection of architectural monuments and culture, development of national culture and art, support for talented and creative youth, etc.;

support of implementation of state, regional, local and international programs aimed at improvement of the social and economic situation in Ukraine;

» THE MAIN PRINCIPLE OF THE BANK ACTIVITY IN THE FIELD OF SOCIAL RESPONSIBILITY is financial and charitable assistance in solving the particular challenges of individuals, organizations or institutions on a free-of-charge, non-commercial basis only .

58

4.6million

hryvnias was donated

by participants of the Working

Together to Save Lives

charity program

SOCIAL RESPONSIBILITY

support of development of ecology and environment protection, health care, mass physical education, sports and tourism, healthy lifestyle promotion, etc.

One of the largest and the most efficient JSC Ukreximbank projects in the field of corporate social responsibility is Working Together to Save Lives («Разом за життя»®) charity program intended to support seriously ill children. From the beginning of the program its participants have donated over UAH 4.6 million. Cash funds collected under the above program are accumulated and transferred by JSC Ukreximbank directly to the accounts of health care institutions for purchase of special-purpose medical equipment, surgeon armamentarium, medicines, etc. Due to the Bank control the program participants can be confident that the funds are used according to the intended purpose as the detailed report on the proper use thereof by health care institutions is published on the official web-site of the project razom.eximb.com.

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»BRANCH NETWORK

According to its mission and strategic aims JSC Ukreximbank fosters development of its branch network adequate for its customers needs. The Bank’s network in Ukraine that consists of 126 points of sale maintains the Bank’s presence in all regions of the country: capital, regional and republican centers, cities of oblast subordination.

The branch network of the Bank in Ukraine is vertically integrated by three levels of institutions: Head Office, 29 branches and 96 sub-branches.

In order to ensure high level of service the sub-branches of the Bank were divided into three groups based on the types of the clients:

full-service branches that provide a full range of standard banking and financial services to SMEs and corporate businesses as well as individuals;

corporate business branches that provide services to the strategically important customers of the Bank;

retail branches that provide services to households at locations with sustainable demand for banking services.

» BRANCH NETWORK BY TYPE OF BRANCHES

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BRANCH NETWORK

The Bank’s network is built on the principles of weighted development strategy, uniform corporate style, transparency, high level of service.

The issue concerning the quality of service provided by the institutions of the Bank’s network is an important and fundamental commitment to our customers. To this effect, the Bank constantly improves the customer service procedures, maintains consistent high security and confidentiality standards and ensures effective communication with the customers in order to provide them top quality services.

The further expansion of the Bank presence and enhancement of its network will be carried out through opening of new branches with due consideration of the prevailing market conditions, optimization of branches location and improvement of their business efficiency.

Outside Ukraine the Bank has two representative offices that operate: in London, United Kingdom of Great Britain and Northern Ireland, and in New York City, NY, the United States of America.

» IN 2012, THE BANK HAS INTRODUCED A PROCEDURE FOR AN EFFECTIVE CUSTOMER FLOW MANAGEMENT in the institutions of the Bank during rush hours . Moreover, the Bank is working on the Branch Network Improvement project aimed at optimization of the network organizational structure, improvement of the Bank staff skills and quality of the customer service .

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»PROSPECTS AND PLANS OF THE BANK

Prospects and plans of the development of the Bank are established by the mission and the tasks concerning development thereof including, in particular:

promotion of the state policy aimed at development of Ukrainian economy through support of investment projects mainly in the export-oriented and import-substituting sectors of economy as well as SME infrastructure financing, energy saving facilities and creation of the alternative energy sources;

retaining the top position among Ukrainian banks in terms of volumes of raised funds and favourable terms and conditions of borrowings in the international capital markets that will be used inter alia as the loan funds to support creation of the positive investment climate of the national economy;

financial back-up of national exporters through diversified financial programs (investments, guarantees, insurance of transactions for sale of goods and services of Ukrainian origin) aimed at introduction of Ukrainian goods into international sales markets;

development of projects of restructuring of manufacturing facilities of the national enterprises financed out of funds provided by international financial institutions (Export Development Projects, Energy Efficiency and Energy Saving Projects, SME Financing Projects);

support of domestic manufacturers in all regions of Ukraine through rendering a full range of banking services;

creating of stable, diversified funding base though attraction of deposits in the domestic market, strengthening of the market positions and improving competitiveness of the Bank;

improving the bad debt recovery efficiency, maintaining the adequate quality of the loan portfolio, ensuring the sufficient level of provisions for existing risks and prevention of potential risks;

conducting profitable and efficient activity.

annual report - EximB · 2013-09-23 · 2012 ANNUAL REPORT ... portfolio, liabilities and net income. ... in the reporting year facilitated growth of cliental, number and volumes

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