30. Segment Analysis

For the purposes of management the Group is divided into operating segments of activity — central head office, 17 regional head offices and subsidiaries — which are defined on the basis of organisational structure of the Group and geographical areas. The principal activity of all operating segments is banking operations. For the purposes of presentation in these consolidated financial statements the operating segments are aggregated in the following reportable segments:

Moscow, including:

— Central head office of the Group,

— Regional head office of Moscow,

— Subsidiaries of the Group located in the region.

Central and Northern regions of European part of Russia, including:
Regional head offices:

— Severny — Yaroslavl,

— Severo-Zapadny — Saint-Petersburg,

— Tsentralno-Chernozemny — Voronezh,

— Srednerussky — Moscow

Subsidiaries of the Group located in the region.

Volga region and South of European part of Russia, including:
Regional head offices:

— Volgo-Vyatsky — Nizhniy Novgorod,

— Povolzhsky — Samara,

— Severo-Kavkazsky — Stavropol,

— Yugo-Zapadny — Rostov-on-Don,

Subsidiaries of the Group located in the region.

Ural, Siberia and Far East of Russia, including:
Regional head offices:

— Zapadno-Uralsky — Perm,

— Uralsky — Ekaterinburg,

— Sibirsky — Novosibirsk,

— Zapadno-Sibirsky — Tumen,

— Severo-Vostochny — Magadan,

— Dalnevostochny — Khabarovsk,

— Vostochno-Sibirsky — Krasnoyarsk,

— Baikalsky — Irkutsk,

Subsidiaries of the Group located in the region.

Other countries , including:

— Subsidiaries located in CIS (Ukraine, Kazakhstan, Belarus),

— Subsidiaries located in Switzerland,

— A branch office in India,

— Companies of Troika Dialog Group Ltd. located in the USA, the United Kingdom, Cyprus and certain other jurisdictions.

The Management of the Group analyses operating results of every segment of activity for the purposes of making decision about allocation of resources and assessment of segments’ business results. The segments’ reporting and operating results which are provided to the Management of the Group for analysis are prepared under Russian accounting standards, except the segments’ reporting of the subsidiaries which are prepared under International Financial Reporting Standards.

Intersegment operations are performed on the basis of internal transfer pricing rates which are established, approved and regularly revised by the Management of the Group. The subsidiaries’ activity is integrally controlled by the Group.

Segment reporting of the Group’s assets and liabilities as at 31 December 2011 is as follows:

In mln of Russian Roubles Moscow Central and
Northern
regions of
European part
of Russia
Volga region
and South of
European part
of Russia
Ural, Siberia
and Far East of
Russia
Other countries Total
Total assets 4,848,994 1,877,776 1,530,792 2,110,444 445,511 10,813,517
Total liabilities 3,825,699 2,045,324 1,433,959 1,876,422 349,521 9,530,925

Segment reporting of the Group’s assets and liabilities as at 31 December 2010 is as follows:

In mln of Russian Roubles Moscow Central and
Northern
regions of
European part
of Russia
Volga region
and South of
European part
of Russia
Ural, Siberia
and Far East of
Russia
Other countries Total
Total assets 4,318,256 1,445,164 1,163,282 1,548,746 185,817 8,661,265
Total liabilities 2,885,376 1,776,676 1,270,092 1,549,502 146,145 7,627,791

Reconciliation of total assets and total liabilities as per the reportable segments with the Group’s total assets and total liabilities under IFRS as of 31 December 2011 and 31 December 2010 is as follows:

In mln of Russian Roubles Total assets Total liabilities
  2011 2010 2011 2010
Total amount per segment information 10,813,517 8,661,265 9,530,925 7,627,791
Adjustment of provisions 72,995 55,642 (17,205) (19,765)
Additional interest accrued on loans 4,152 1,889 453 (924)
Deferred commission income on loans (25,506) (28,753) 650 388
Deferred comission income on guarantees - - 1,342 1,135
Accounting for derivatives at fair value 17,442 4,749 17,224 3,867
Adjustment of depreciation and cost or revalued amount of premises and equipment including effect of deferred tax (51,200) (68,145) 3,377 (952)
Staff expenses accrued related to the reporting period (bonuses, annual leave, pension liabilities) 218 184 13,795 14,831
Adjustment of income tax - - 18,886 7,018
Other adjustments 3,481 1,696 (2,319) 7,971
The Group’s total amount under IFRS 10,835,099 8,628,527 9,567,128 7,641,360

Segment reporting of the Group’s income and expenses for the year ended 31 December 2011 is as follows:

In mln of Russian Roubles Moscow Central and
Northern
regions of
European part
of Russia
Volga region
and South of
European part
of Russia
Ural, Siberia
and Far East of
Russia
Other countries Total
Interest income 323,557 160,164 138,752 186,221 23,262 831,956
Interest expense (113,647) (58,118) (40,252) (48,786) (8,558) (269,361)
Inter-segment (expense)/ income (35,492) 24,510 5,806 5,176 - -
Fee and commission income 29,640 39,427 31,678 45,035 4,501 150,281
Fee and commission expense (2,849) (2,178) (1,984) (3,385) (973) (11,369)
Net gains/(losses) arising from securities 7,450 - - - (134) 7,316
Net gains arising from trading in foreign currencies, operations with foreign currency derivatives and foreign exchange translation 12,619 3,706 2,299 2,800 2,227 23,651
Net gains arising from operations with other derivatives 675 - - - - 675
Net gains/(losses) arising from operations with precious metals 3,122 1,041 916 1,352 (95) 6,336
Other net operating gains/ (losses) 15,770 (1,510) (483) 827 1,432 16,036
Operating income before recovery of provision/ provision charge for loan impairment 240,845 167,042 136,732 189,240 21,662 755,521
Net recovery of provision/ (net provision charge) for loan impairment 25,321 (13,628) (8,486) 7,589 (3,702) 7,094
Operating income 266,166 153,414 128,246 196,829 17,960 762,615
Operating expenses (93,523) (80,599) (70,410) (101,806) (8,820) (355,158)
Profit before tax (Segment result) 172,643 72,815 57,836 95,023 9,140 407,457
Other disclosures
Capital expenditure incurred (additions of premises and equipment) 19,686 18,733 17,073 24,727 2,571 82,790
Depreciation of premises and equipment (6,926) (6,233) (5,631) (7,873) (1,250) (27,913)

Segment reporting of the Group’s income and expenses for the year ended 31 December 2010 is as follows:

In mln of Russian Roubles Moscow Central and
Northern
regions of
European part
of Russia
Volga region
and South of
European part
of Russia
Ural, Siberia
and Far East of
Russia
Other countries Total
Interest income 296,580 153,262 132,496 179,334 14,935 776,607
Interest expense (117,168) (69,627) (48,327) (58,576) (6,706) (300,404)
Inter-segment (expense)/income (46,536) 31,180 9,875 5,481 - -
Fee and commission income 23,975 35,992 27,727 38,840 3,927 130,461
Fee and commission expense (2,584) (1,404) (1,027) (2,160) (680) (7,855)
Net gains arising from securities 21,553 6 - - 84 21,643
Net (losses)/gains arising from trading in foreign currencies, operations with foreign currency derivatives and foreign exchange translation (780) 3,237 1,858 2,464 1,847 8,626
Net (losses)/ gains arising from operations with precious metals (1,767) 624 524 901 (314) (32)
Other net operating (losses)/ gains 6,162 256 (7,551) (1,604) 282 (2,455)
Operating income before provision charge for loan impairment 179,435 153,526 115,575 164,680 13,375 626,591
Net provision charge for loan impairment (36,570) (43,466) (42,907) (32,413) (3,709) (159,065)
Operating income 142,865 110,060 72,668 132,267 9,666 467,526
Operating expenses (63,996) (64,780) (56,640) (78,154) (6,596) (270,166)
Profit before tax (Segment result) 78,869 45,280 16,028 54,113 3,070 197,360
Other disclosures        
Capital expenditure incurred (additions of premises and equipment) 9,884 17,133 11,010 14,970 1,588 54,585
Depreciation of premises and equipment (3,809) (6,384) (4,944) (7,234) (474) (22,845)

Reconciliation of profit before tax, interest income and expense, fee and commission income, gains from operations with securities and gains from operations with foreign currencies for the reportable segments with the Group’s income statement items under IFRS for the year ended 31 December 2011 are as follows:

In mln of Russian Roubles Profit before tax Interest income Interest expense Fee and commission income Net gains/(losses) arising from operations with securities Net gains arising from trading in foreign currencies, operations with foreign currency derivatives and foreign exchange translation gains
Total amount per reportable segment 407,457 831,956 (269,361) 150,281 7,316 23,651
Adjustment of provisions 11,201 (2,797) - - - -
Staff expenses accrued for the year (bonuses, annual leave, pension liabilities) 2,095 - - - - -
Differences arising on reporting of fee and commission income and expense 3,250 18,543 - 1,262 - (6,015)
Differencies arising on securities classification 969 (348) - - 1,430 (113)
Accounting for derivatives at fair value (4,219) - - - - (6,557)
Additional interest accrued on loans 2,265 2,265 - - - -
Adjustment of depreciation and cost or revalued amount of premises and equipment (19,180) - - - - -
Adjustment of amortised cost and partial repurchase of other borrowed funds - (5) (144) - (1,001) 45
Other adjustments (8,157) 1,010 (16) 333 (938) (1,485)
The Group’s total amount under IFRS 395,681 850,624 (269,521) 151,876 6,807 9,526

Reconciliation of profit before tax, interest income and expense, fee and commission income, gains from operations with securities and gains from operations with foreign currencies for the reportable segments with the Group’s income statement items under IFRS for the year ended 31 December 2011 are as follows:

In mln of Russian Roubles Profit before tax Interest income Interest expense Fee and commission income Net gains/(losses) arising from operations with securities Net gains arising from trading in foreign currencies, operations with foreign currency derivatives and foreign exchange translation gains
Total amount per reportable segment 197,360 776,607 (300,404) 130,461 21,643 8,626
Adjustment of provisions 28,789 - - - - -
Staff expenses accrued for the year (bonuses, annual leave, pension liabilities) (3,024) - - - - -
Differences arising on reporting of fee and commission income and expense 1,516 17,589 - 347 - (5,536)
Differences arising on securities classification 3,413 1,202 - - 2,176 35
Accounting for derivatives at fair value 13,549 - - - - 11,224
Additional interest accrued on loans (4,620) 1,094 - - - -
Adjustment of depreciation and cost or revalued amount of premises and equipment (4,434) - - - - -
Adjustment of amortised cost and partial repurchase of other borrowed funds (456) (675) 482 (378) 218 49
Other adjustments (1,958) (171) 97 519 (67) (326)
The Group’s total amount under IFRS 230,135 795,646 (299,825) 130,949 23,970 14,072

The differences shown above arise from classification variances as well as different accounting policies.

Adjustment of provisions is related to the difference between estimation methodology applied in statutory accounting records used as a basis for management reporting and estimation methodology according to IFRS.

Differences arising on securities’ classification relate to gains/(losses) on revaluation of securities designated at fair value through profit or loss in IFRS reporting but classified as available for sale in statutory accounting records used as a basis for management reporting.

For the year ended 31 December 2011 the Group’s revenues from customers in the Russian Federation amounted to RR 1 027 366 mln (for the year ended 31 December 2010: RR 960 441 mln); revenues from customers in all foreign countries from which the Group derives revenues amounted to RR 34 210 mln (for the year ended 31 December 2010: RR 20 954 mln).

As at 31 December 2011 the carrying value of premises and equipment located in the Russian Federation amounted to RR 350 705 mln (2010: RR 276 827 mln). Carrying value of premises and equipment of the Group located in foreign countries amounted to RR 9 198 mln (2010: RR 6 929 mln).

No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group’s total revenue during the year ended 31 December 2011, and during the year ended 31 December 2010.

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