10. Loans and Advances to Customers

The tables below show credit quality of the Group’s loan portfolio by loan classes as at 31 December 2011 and 31 December 2010.

For the purposes of these consolidated financial statements a loan is considered past due when the borrower fails to make any payment due under the loan agreement at the reporting date. In this case the aggregate amount of all amounts due from the borrower under the respective loan agreement including accrued interest and commissions is recognised as past due.

31 December 2011:

In mln of Russian Roubles Not past due loans Past due loans Total
Commercial loans to legal entities 3,828,772 184,113 4,012,885
Specialised loans to legal entities 2,347,859 215,836 2,563,695
Сonsumer and other loans to individuals 898,662 45,302 943,964
Mortgage loans to individuals 741,567 35,790 777,357
Car loans to individuals 80,714 3,492 84,206
Total loans and advances to customers before provision for loan impairment 7,897,574 484,533 8,382,107
Less: Provision for loan impairment (281,523) (380,884) (662,407)
Total loans and advances to customers net of provision for loan impairment 7,616,051 103,649 7,719,700

31 December 2010:

In mln of Russian Roubles Not past due loans Past due loans Total
Commercial loans to legal entities 2,519,062 189,630 2,708,692
Specialised loans to legal entities 1,900,813 262,673 2,163,486
Сonsumer and other loans to individuals 598,304 37,385 635,689
Mortgage loans to individuals 572,339 31,439 603,778
Car loans to individuals 76,792 3,473 80,265
Total loans and advances to customers before provision for loan impairment 5,667,310 524,600 6,191,910
Less: Provision for loan impairment (276,906) (425,617) (702,523)
Total loans and advances to customers net of provision for loan impairment 5,390,404 98,983 5,489,387

Commercial lending to legal entities comprises corporate loans, loans to individual entrepreneurs, federal bodies and municipal authorities of the Russian Federation. Loans are granted for current needs (working capital, financing, acquisition of movable and immovable property, portfolio investments, expansion and consolidation of business, etc). The majority of commercial loans are provided for periods up to 5 years depending on the borrowers’ risk assessment. Commercial lending also includes overdraft lending and lending for export-import transactions. The repayment source is cash flow from current production and financial activities of the borrower.

Specialised lending to legal entities includes investment and construction project financing and also developers’ financing. As a rule, loan terms are linked to payback periods of investment and construction projects, contract execution periods and exceed the terms of commercial loans to legal entities. The principal and interest may be repaid from cash flows generated by the investment project at the stage of its commercial operation. Consumer and other individual loans comprise loans to individuals other than for housing acquisition, construction, real estate repairs and car loans. These loans include loans for current needs and overdrafts.

Mortgage loans to individuals include loans for the acquisition, construction and reconstruction of real estate. These loans are mostly long-term and are collateralised by real estate.

Car loans to individuals include loans for purchasing a car or other vehicle. Car loans are provided for periods of up to 5 years.

The table below shows the analysis of loans and provisions for loan impairment as at 31 December 2011:

In mln of Russian Roubles Gross loans Provision for impairment Net loans Provision for impairment to gross loans
Commercial loans to legal entities  
Collectively assessed        
Not past due 3,795,522 (117,384) 3,678,138 3.1%
Loans up to 30 days overdue 11,319 (3,072) 8,247 27.1%
Loans 31 to 60 days overdue 4,741 (2,160) 2,581 45.6%
Loans 61 to 90 days overdue 3,416 (1,779) 1,637 52.1%
Loans 91 to 180 days overdue 7,389 (4,787) 2,602 64.8%
Loans over 180 days overdue 115,586 (111,787) 3,799 96.7%
Total collectively assessed loans 3,937,973 (240,969) 3,697,004 6.1%
Individually impaired        
Not past due 33,250 (22,251) 10,999 66.9%
Loans up to 30 days overdue 7,005 (6,951) 54 99.2%
Loans 31 to 60 days overdue 497 (236) 261 47.5%
Loans 61 to 90 days overdue 4,138 (321) 3,817 7.8%
Loans 91 to 180 days overdue 67 (6) 61 9.0%
Loans over 180 days overdue 29,955 (28,667) 1,288 95.7%
Total individually impaired loans 74,912 (58,432) 16,480 78.0%
Total commercial loans to legal entities 4,012,885 (299,401) 3,713,484 7.5%
Specialised loans to legal entities
Collectively assessed        
Not past due 2,276,063 (86,675) 2,189,388 3.8%
Loans up to 30 days overdue 5,239 (806) 4,433 15.4%
Loans 31 to 60 days overdue 3,279 (1,236) 2,043 37.7%
Loans 61 to 90 days overdue 1,630 (711) 919 43.6%
Loans 91 to 180 days overdue 2,123 (1,315) 808 61.9%
Loans over 180 days overdue 59,315 (52,776) 6,539 89.0%
Total collectively assessed loans 2,347,649 (143,519) 2,204,130 6.1%
Not past due 71,796 (38,721) 33,075 53.9%
Loans up to 30 days overdue 3,997 (2,794) 1,203 69.9%
Loans 31 to 60 days overdue 2,193 (1,586) 607 72.3%
Loans 61 to 90 days overdue _ _ _ _
Loans 91 to 180 days overdue 427 (347) 80 81.3%
Loans over 180 days overdue 137,633 (106,806) 30,827 77.6%
Total individually impaired loans 216,046 (150,254) 65,792 69.5%
Total specialised loans to legal entities 2,563,695 (293,773) 2,269,922 11.5%
Total loans to legal entities 6,576,580 (593,174) 5,983,406 9.0%
Consumer and other loans to individuals  
Collectively assessed        
Not past due 898,662 (10,929) 887,733 1.2%
Loans up to 30 days overdue 12,585 (212) 12,373 1.7%
Loans 31 to 60 days overdue 3,108 (183) 2,925 5.9%
Loans 61 to 90 days overdue 1,652 (195) 1,457 11.8%
Loans 91 to 180 days overdue 2,753 (586) 2,167 21.3%
Loans over 180 days overdue 25,204 (25,204) - 100.0%
Total consumer and other loans to individuals 943,964 (37,309) 906,655 4.0%
Mortgage loans to individuals    
Collectively assessed        
Not past due 741,567 (4,602) 736,965 0.6%
Loans up to 30 days overdue 8,176 (240) 7,936 2.9%
Loans 31 to 60 days overdue 1,962 (169) 1,793 8.6%
Loans 61 to 90 days overdue 940 (99) 841 10.5%
Loans 91 to 180 days overdue 1,280 (309) 971 24.1%
Loans over 180 days overdue 23,432 (23,432) - 100.0%
Total mortgage loans to individuals 777,357 (28,851) 748,506 3.7%
Car loans to individuals    
Collectively assessed        
Not past due 80,714 (961) 79,753 1.2%
Loans up to 30 days overdue 969 (7) 962 0.7%
Loans 31 to 60 days overdue 181 (5) 176 2.8%
Loans 61 to 90 days overdue 107 (4) 103 3.7%
Loans 91 to 180 days overdue 150 (11) 139 7.3%
Loans over 180 days overdue 2,085 (2,085) - 100.0%
Total car loans to individuals 84,206 (3,073) 81,133 3.6%
Total loans to individuals 1,805,527 (69,233) 1,736,294 3.8%
Total loans and advances to customers as at 31 December 2011 8,382,107 (662,407) 7,719,700 7.9%

The table below shows the analysis of loans and provisions for loan impairment as at 31 December 2010:

In mln of Russian Roubles Gross loans Provision for impairment Net loans Provision for impairment to gross loans
Commercial loans to legal entities  
Collectively assessed        
Not past due 2,457,676 (106,849) 2,350,827 4.3%
Loans up to 30 days overdue 6,895 (2,234) 4,661 32.4%
Loans 31 to 60 days overdue 4,480 (2,261) 2,219 50.5%
Loans 61 to 90 days overdue 7,058 (4,552) 2,506 64.5%
Loans 91 to 180 days overdue 10,398 (6,910) 3,488 66.5%
Loans over 180 days overdue 124,081 (117,807) 6,274 94.9%
Total collectively assessed loans 2,610,588 (240,613) 2,369,975 9.2%
Individually impaired        
Not past due 61,386 (39,929) 21,457 65.0%
Loans up to 30 days overdue 1,616 (1,378) 238 85.3%
Loans 31 to 60 days overdue - - - -
Loans 61 to 90 days overdue 3,896 (2,688) 1,208 69.0%
Loans 91 to 180 days overdue 2,861 (2,423) 438 84.7%
Loans over 180 days overdue 28,345 (25,898) 2,447 91.4%
Total individually impaired loans 98,104 (72,316) 25,788 73.7%
Total commercial loans to legal entities 2,708,692 (312,929) 2,395,763 11.6%
Specialised loans to legal entities
Collectively assessed        
Not past due 1,835,754 (77,060) 1,758,694 4.2%
Loans up to 30 days overdue 16,715 (3,805) 12,910 22.8%
Loans 31 to 60 days overdue 2,043 (897) 1,146 43.9%
Loans 61 to 90 days overdue 5,827 (3,330) 2,497 57.1%
Loans 91 to 180 days overdue 3,927 (2,867) 1,060 73.0%
Loans over 180 days overdue 63,018 (57,148) 5,870 90.7%
Total collectively assessed loans 1,927,284 (145,107) 1,782,177 7.5%
Individually impaired        
Not past due 65,059 (36,916) 28,143 56.7%
Loans up to 30 days overdue 5,086 (5,072) 14 99.7%
Loans 31 to 60 days overdue 208 (200) 8 96.2%
Loans 61 to 90 days overdue 689 (689) - 100.0%
Loans 91 to 180 days overdue 1,575 (1,453) 122 92.3%
Loans over 180 days overdue 163,585 (131,345) 32,240 80.3%
Total individually impaired loans 236,202 (175,675) 60,527 74.4%
Total specialised loans to legal entities 2,163,486 (320,782) 1,842,704 14.8%
Total loans to legal entities 4,872,178 (633,711) 4,238,467 13.0%
Consumer and other loans to individuals  
Collectively assessed        
Not past due 598,304 (9,776) 588,528 1.6%
Loans up to 30 days overdue 6,521 (159) 6,362 2.4%
Loans 31 to 60 days overdue 2,014 (141) 1,873 7.0%
Loans 61 to 90 days overdue 1,324 (170) 1,154 12.8%
Loans 91 to 180 days overdue 2,177 (490) 1,687 22.5%
Loans over 180 days overdue 25,349 (25,349) - 100.0%
Total consumer and other loans to individuals 635,689 (36,085) 599,604 5.7%
Mortgage loans to individuals    
Collectively assessed        
Not past due 572,339 (5,139) 567,200 0.9%
Loans up to 30 days overdue 3,979 (242) 3,737 6.1%
Loans 31 to 60 days overdue 1,669 (236) 1,433 14.1%
Loans 61 to 90 days overdue 1,206 (246) 960 20.4%
Loans 91 to 180 days overdue 2,060 (891) 1,169 43.3%
Loans over 180 days overdue 22,525 (22,525) - 100.0%
Total mortgage loans to individuals 603,778 (29,279) 574,499 4.8%
Car loans to individuals    
Collectively assessed        
Not past due 76,792 (1,237) 75,555 1.6%
Loans up to 30 days overdue 682 (20) 662 2.9%
Loans 31 to 60 days overdue 248 (17) 231 6.9%
Loans 61 to 90 days overdue 152 (18) 134 11.8%
Loans 91 to 180 days overdue 300 (65) 235 21.7%
Loans over 180 days overdue 2,091 (2,091) - 100.0%
Total car loans to individuals 80,265 (3,448) 76,817 4.3%
Total loans to individuals 1,319,732 (68,812) 1,250,920 5.2%
Total loans and advances to customers as at 31 December 2010 6,191,910 (702,523) 5,489,387 11.3%

The table below shows the credit quality analysis of the Group’s not past due collectively assessed loans before provision for loan impairment as at 31 December 2011:

In mln of Russian Roubles 1 group 2 group 3 group Total
Commercial loans to legal entities 159,123 2,125,219 1,511,180 3,795,522
Specialised loans to legal entities 98,620 1,141,737 1,035,706 2,276,063
Сonsumer and other loans to individuals 5,556 892,604 502 898,662
Mortgage loans to individuals 4,997 735,408 1,162 741,567
Car loans to individuals 455 80,179 80 80,714
Total 268,751 4,975,147 2,548,630 7,792,528

The table below shows the credit quality analysis of the Group’s not past due collectively assessed loans before provision for loan impairment as at 31 December 2010:

In mln of Russian Roubles 1 group 2 group 3 group Total
Commercial loans to legal entities 161,500 1,273,414 1,022,762 2,457,676
Specialised loans to legal entities 80,026 793,995 961,733 1,835,754
Сonsumer and other loans to individuals 5,685 590,441 2,178 598,304
Mortgage loans to individuals 7,214 563,935 1,190 572,339
Car loans to individuals 425 76,258 109 76,792
Total 254,850 3,298,043 1,987,972 5,540,865

For the purpose of these consolidated financial statements, all not past due collectively assessed loans to legal entities are classified in three quality groups presented in the tables above with group 1 loans being of the highest quality. The 1st group includes borrowers with sound level of liquidity and profitability as well as high capital adequacy ratio. The probability of breach of loan agreement terms is assessed as low. The 2nd group includes borrowers with average level of liquidity and profitability as well as average capital adequacy ratio. The probability of breach of loan agreement terms is assessed as moderate. The 3rd group includes borrowers with satisfactory levels of liquidity and profitability as well as moderate capital adequacy ratio. The probability of breach of loan agreement terms is assessed as above moderate.

For the purpose of these consolidated financial statements, all not past due loans to individuals are combined into three groups presented in the tables above. The 1st group of these loans to individuals is represented by loans with good debt servicing and excellent financial position of a borrower. The 2nd group is represented by loans with good/average debt servicing and excellent/moderate financial position of a borrower. The 3rd group is represented by loans with average debt servicing and moderate financial position of a borrower.

As defined by the Group, for the purposes of internal credit risk assessment, loans fall into the “non-performing” category when a principal and/or interest payment becomes more than 90 days overdue.

As at 31 December 2011 the outstanding non-performing loans were as follows:

In mln of Russian Roubles Gross loans Provision for impairment Net loans Provision for impairment to gross loans
Commercial loans to legal entities 152,997 (145,247) 7,750 94.9%
Specialised loans to legal entities 199,498 (161,244) 38,254 80.8%
Сonsumer and other loans to individuals 27,957 (25,790) 2,167 92.2%
Mortgage loans to individuals 24,712 (23,741) 971 96.1%
Car loans to individuals 2,235 (2,096) 139 93.8%
Total non-performing loans and advances to customers as at 31 December 2011 407,399 (358,118) 49,281 87.9%

As at 31 December 2010 the outstanding non-performing loans were as follows:

In mln of Russian Roubles Gross loans Provision for impairment Net loans Provision for impairment to gross loans
Commercial loans to legal entities 165,685 (153,038) 12,647 92.4%
Specialised loans to legal entities 232,105 (192,813) 39,292 83.1%
Сonsumer and other loans to individuals 27,526 (25,839) 1,687 93.9%
Mortgage loans to individuals 24,585 (23,416) 1,169 95.2%
Car loans to individuals 2,391 (2,156) 235 90.2%
Total non-performing loans and advances to customers as at 31 December 2010 452,292 (397,262) 55,030 87.8%

Provisions for Loan Impairment. The analysis of changes in provisions for loan impairment for the year ended 31 December 2011 is presented in the table below:

In mln of Russian Roubles Commercial loans to legal entities Specialised loans to legal Сonsumer and other loans to individua Mortgage loans to individuals Car loans to individuals Total
Provision for loan impairment as at 1 January 2011 312,929 320,782 36,085 29,279 3,448 702,523
Net provision charge / (net recovery of provision) for loan impairment during the reporting period 10,665 (15,780) 3,001 1,163 (242) (1,193)
Foreign currencies translation (680) (933) (126) 7 (9) (1,741)
Loans and advances written off during the reporting period (23,513) (10,296) (1,651) (1,598) (124) (37,182)
Provision for loan impairment as at 31 December 2011 299,401 293,773 37,309 28,851 3,073 662,407

The analysis of changes in provisions for loan impairment for the year ended 31 December 2010 is presented in the table below:

In mln of Russian Roubles Commercial loans to legal entities Specialised loans to legal entities Сonsumer and other loans to individuals Mortgage loans to individuals Car loans to individuals Total
Provision for loan impairment as at 1 January 2010 221,488 287,059 38,238 28,775 4,254 579,814
Net provision charge / (net recovery of provision) for loan impairment during the reporting period 118,880 35,863 (1,041) 832 (725) 153,809
Loans and advances written off during the reporting period (27,439) (2,140) (1,112) (328) (81) (31,100)
Provision for loan impairment as at 31 December 2010 312,929 320,782 36,085 29,279 3,448 702,523

Renegotiated loans. Information on loans whose terms have been renegotiated as at 31 December 2011 and 31 December 2010 is presented in the table below. It shows the amount for renegotiated loans before provision for loan impairment by class.

In mln of Russian Roubles Commercial loans to legal entities Specialised loans to legal entities and other loans to individuals Mortgage loans to individuals Car loans to individuals Total
31 December 2011:            
Not past due collectively assessed loans 551,959 329,492 7,010 5,393 456 894,310
Other renegotiated loans 85,129 42,067 3,332 6,032 708 137268
Total renegotiated loans before provision for loan impairment 637,088 371,559 10,342 11,425 1,164 1,031,578
31 December 2010:            
Not past due collectively assessed loans 402,606 171,884 6,824 1,958 38 583,310
Other renegotiated loans 96,571 54,160 3,299 10,197 184 164,411
Total renegotiated loans before provision for loan impairment 499,177 226,044 10,123 12,155 222 747,721

Investments in finance lease. Included in specialised loans to legal entities are net investments in finance lease. The analysis of net investments in finance lease as at 31 December 2011 and as at 31 December 2010 is as follows:

In mln of Russian Roubles 2011 2010
Gross investment in finance lease 134,866 72,717
Unearned future finance income on finance lease (46,593) (21,274)
Net investment in finance lease before provision for impairment 88,273 51,443
Less provision for impairment (2,275) (1,033)
Net investment in finance lease after provision for impairment 85,998 50,410

The contractual maturity analysis of net investments in finance lease as at 31 December 2011 is as follows:

In mln of Russian Roubles Net investment in finance lease before provision for impairment Provision for impairment Net investment in finance lease after provision for impairment
Not later than 1 year 26,561 (694) 25,867
Later than 1 year but not later than 5 years 48,864 (1,254) 47,610
Later than 5 years 12,848 (327) 12,521
Total as at 31 December 2011 88,273 (2,275) 85,998

The contractual maturity analysis of net investments in finance lease as at 31 December 2010 is as follows:

In mln of Russian Roubles Net investment in finance lease before provision for impairment Provision for impairment Net investment in finance lease after provision for impairment
Not later than 1 year 18,567 (325) 18,242
Later than 1 year but not later than 5 years 29,303 (657) 28,646
Later than 5 years 3,573 (51) 3,522
Total as at 31 December 2011 51,443 (1,033) 50,410

The analysis of minimal finance lease receivables as at 31 December 2011 and as at 31 December 2010 per contractual maturity is as follows:

In mln of Russian Roubles   31 December 2011 31 December 2010
Not later than 1 year   28,422 19,662
Later than 1 year but not later than 5 years   71,999 41,593
Later than 5 years   34,445 11,462
Total 134,866 72,717

Economic sector concentration risk. Economic sector concentration risk within the customer loan portfolio as at 31 December 2011 and as at 31 December 2010 are as follows:

In mln of Russian Roubles 2011 2010
  Amount % Amount %
Individuals 1,805,527 21.5 1,319,732 21.3
Services 1,658,527 19.8 1,001,330 16.2
Trade 1,134,763 13.5 1,008,025 16.3
Food and agriculture 703,863 8.4 585,394 9.5
Construction 451,261 5.4 404,601 6.5
Energy 379,891 4.5 208,797 3.4
Machine building 355,574 4.2 317,588 5.1
Chemical industry 340,211 4.1 216,833 3.5
Telecommunications 331,954 4.0 168,042 2.7
Metallurgy 299,424 3.6 300,806 4.9
Transport, aviation, space industry 285,364 3.4 147,540 2.4
Government and municipal bodies 268,087 3.2 153,280 2.5
Oil and gas 164,663 2.0 177,495 2.9
Timber industry 50,388 0.6 49,609 0.8
Other 152,610 1.8 132,838 2.0
Total loans and advances to customers before provision for loan impairment 8,382,107 100.0 6,191,910 100.0

“Services” category includes financial, insurance and other service companies, as well as loans granted to holding and multi-industry companies.

As at 31 December 2011 the Group had its 20 largest corporate borrowers with aggregated loan amounts due from each of these borrowers exceeding RR 47 900 mln (31 December 2010 and its 20 largest borrowers with loan amounts due from each of these borrowers exceeding RR 29 300 mln). The total aggregate amount of these loans was RR 1 956 233 mln or 23.3% of the total gross loan portfolio of the Group (31 December 2010: RR 1 401 637 mln or 22.6%).

As at 31 December 2011 several commercial loans are collateralised by highly liquid securities with fair value of RR 295 143 mln which the Group has the right to dispose of (2010: RR 83 042 mln).

Interest income accrued on loans, for which individual impairment has been recognised, for the year ended 31 December 2011 comprised RR 8 946 mln (31 December 2010: RR 8 322 mln).

In income on loans and advances to customers in the consolidated income statement are included in fines and penalties received from borrowers in the amount of RR 8 741 mln (31 December 2010: RR 10 759 mln).

The estimated fair value of loans and advances to customers is disclosed in Note 34.

Currency and maturity analyses of loans and advances to customers are disclosed in Note 31. The information on related party balances is disclosed in Note 35 and 36.

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