32. Contingencies and Commitments

Legal proceedings. From time to time and in the normal course of business, claims against the Group are received. On the basis of its own estimates and internal professional advice, the Management is of the opinion that no material losses will be incurred in respect of claims and accordingly no provision has been made in these consolidated financial statements.

Tax legislation. Russian tax, currency and customs egislation, as currently in effect, is vaguely drafted and is subject to varying interpretations, selective and inconsistent application and changes, which can occur frequently, at short notice and may apply retrospectively. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and federal authorities. It is therefore possible that transactions and activities of the Bank Group that have not been challenged in the past may be challenged. As a result, additional taxes, penalties and interest may be assessed by the relevant authorities.

Fiscal periods remain open and subject to review by the tax authorities for a period of three calendar years immediately preceding the year in which the decision to conduct a tax review is taken. Under certain circumstances tax reviews may cover longer periods. Russian transfer pricing legislation, as currently in effect, allows the tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of all “controlled” transactions (except those conducted at state regulated prices and tariffs), if the transaction price differs upwards or downwards from the market price by more than 20%. Transfer pricing rules were vaguely drafted, generally leaving wide scope for their interpretation by the tax authorities and courts in practice. The Bank determined its tax liabilities arising from intercompany transactions using actual transaction prices. It is possible that prices applied by the Bank under these transactions could potentially be challenged by the tax authorities in the future.

As at 31 December 2011 management believes that its interpretation of the relevant legislation is appropriate and that the Bank’s tax, currency and customs positions will be sustained.

Capital expenditure commitments. At 31 December 2011 the Group has contractual capital expenditure commitments in respect of premises and equipment totalling RR 21 625 mln (2010: RR 12 546 mln) and in respect of computer equipment acquisition of RR 1 874 mln (2010: RR 406 mln). The Group has already allocated the necessary resources in respect of these commitments. The Group believes that future net income and funding will be sufficient to cover these and any similar commitments.

Operating lease commitments. Where the Group is the lessee, the future minimum lease payments under operating leases, both cancellable and non-cancellable, are as follows:

In mln of Russian Roubles 2011 2010
  Lease payments under cancellable operating lease Lease payments under noncancellable operating lease Lease payments under cancellable operating lease Lease payments under noncancellable operating lease
Not later than 1 year 7,165 1,163 6,413 1,069
Later than 1 year and not later than 5 years 12,174 2,879 10,527 3,327
Later than 5 years 11,110 2,395 6,626 1,689
Total operating lease commitments 30,449 6,437 23,566 6,085

Compliance with covenants. The Group is subject to certain covenants related primarily to its borrowings. Non-compliance with such covenants may result in negative consequences for the Group. The Group is in compliance with covenants as at 31 December 2011 and as at 31 December 2010.

Credit related commitments. The primary purpose of credit related commitments instruments is to ensure that funds are available to a customer when required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet the obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate or cash deposits and therefore carry less risk than direct lending. Commitments to extend credit represent unused portions of authorisations to extend credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to a loss equal to the total amount of unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the maturities of credit related commitments because longer-term commitments generally have a greater degree of credit risk than shorterterm commitments. Outstanding credit related commitments are as follows:

(в млн российских руб.) 2011 2010
Обязательства по предоставлению кредитов 741 920 488 029
Экспортные аккредитивы 364 505 353 366
Гарантии выданные 490 639 159 158
Неиспользованные кредитные линии 377 952 182 220
Импортные аккредитивы и аккредитивы по внутренним расчетам 180 530 143 369
Итого обязательств кредитного характера 2155546 1 326 142

At 31 December 2011 included in Due to corporate customers are deposits of RR 95 001 mln (31 December 2010: RR 78 749 mln) held as collateral for irrevocable commitments under import letters of credit. Refer to Note 17.

The total outstanding contractual amount of undrawn credit lines, letters of credit and guarantees does not necessarily represent future cash payments, as these financial instruments may expire or terminate without any payments being made.

Fiduciary assets. These assets are not included in the consolidated statement of financial position as they are not assets of the Group. Nominal values disclosed below are normally different from the fair values of respective securities. The fiduciary assets fall into the following categories:

In mln of Russian Roubles 2011 2010
  Nominal value Nominal value
State savings bonds and OFZ bonds 599,758 315,649
Corporate shares 317,161 196,605
Promissory notes 13,418 17,930
Corporate bonds 8,934 8,281
Foreign government bonds 1,226 -
Debt securities of municipal and subfederal bodies of the Russian Federation 263 636
Eurobonds of the Russian Federation 5 1,406
Bonds of the Bank of Russia - 31,197
State domestic loan bonds (OVGVZ) - 31
Other securities 333 205
Total fiduciary assets 941,098 571,940

Assets under management. As at 31 December 2011 assets under management include investment funds under the management of Troika Dialog Group Ltd. and mutual investment funds under the management of Sberbank Asset Management Company.

In mln of Russian Roubles Value of net assets
Mutual investment funds 17,430
Designated funds 7,588
Hedge funds 5,108
Venture funds 3,389
Private equity 1,465
Total 34,980

As at 31 December 2010 mutual investment funds represented funds under the management of Sberbank Asset Management Company which was established in June 2010 to provide professional asset management services to a broad client base. As at 31 December 2010 the value of net assets of mutual investment funds was RR 140 mln.

Assets pledged and restricted. As at 31 December 2011 the Group has pledged federal loan bonds (OFZ bonds) and Eurobonds of the Russian Federation on the special accounts with the Bank of Russia as collateral against overnight interbank borrowings that the Group attracts on a regular basis from the Bank of Russia. The carrying value of assets pledged is as follows:

In mln of Russian Roubles Notes 2011 2010
Trading securities 8    
– Federal loan bonds (OFZ bonds)   15,746 14,715
Securities designated at fair value through profit or loss 9    
– Federal loan bonds (OFZ bonds)   28,608 31,520
Investment securities available for sale 12    
– Federal loan bonds (OFZ bonds)   203,920 42,498
– Russian Federation Eurobonds   5 5
Investment securities held to maturity      
– Federal loan bonds (OFZ bonds) 13 36,721 37,044
Total   285,000 125,782

Mandatory cash balances with the Bank of Russia in the amount of RR 101 205 mln (2010: RR 51 678 mln) represent mandatory reserve deposits, which are not available to finance the Group’s day-to-day operations.

The Group also had assets pledged as collateral under repurchase agreements with other banks and corporate customers with the following carrying value:

In mln of Russian Roubles Notes 2011 2010
    Asset pledged Related liability Asset pledged Related liability
Securities pledged under repurchase agreements 11 301,001 258,953 81,493 67,323
Investment securities available for sale 12 1,320 1,154 - -
Total   302,321 260,107 81,493 67,323

Refer to Note 11 and Note 12 for more detailed information on securities pledged under repurchase agreements.

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