In 2017, Bank Saint Petersburg celebrated the 10th anniversary of IPO
which was one of the most important events for the Bank
and had a significant effect on all its subsequent history.
Bank Saint Petersburg achieved the all-time best profit of RUB 7.5 bn
in 2017 during arguably the most challenging time for the Russian banking sector.
Expert knowledge of the customer base and proximity to customers
ensure the Bank's flexibility and responsiveness in addressing the needs and
interests of each of the 2 000 000 customers.
Due to the effective and forward-looking risk management which tries to
transform each risk into an opportunity, Bank Saint Petersburg is always
profitable and resilient to external shocks.
The Bank's entire business is built on ethical principles and the responsible approach
for creating wealth and retaining the trust of employees, customers,
shareholders, and society as a whole.

Strategic
Report

In 2017, Bank Saint Petersburg celebrated the 10th anniversary of IPO which was one of the most important events for the Bank and had a significant effect on all its subsequent history.

One of the largest banks in Russia’s Northwest Region, Bank Saint Petersburg was founded in 1990, at the very beginning of Russia’s modern banking system. Since then, the Bank has become an integral part of Northwest Russia’s financial and economic system.

Bank Saint Petersburg is a leader in the city’s financial services market, ranking 16th among Russia’s largest banks (as of January 1, 2015).

The Bank provides services through its 48 branches and offices to more than 1 400 000 private clients and 55 000 corporate clients, including major companies located in St. Petersburg. The Bank is proud of its market share and the long-term relationships it has with clients.

First and foremost, Bank Saint Petersburg is a city bank whose task is to contribute to St. Petersburg’s future by providing high quality banking services to the residents of the city and local companies. The Bank pays special attention to financing programs related to the city life of St. Petersburg by providing loans to all industries and production facilities and proactively developing credit programs focused on small- and medium-sized businesses (SMEs).

In late 2007, the Bank became the first privately-owned Russian bank to successfully complete an IPO. Today, the Bank’s shares are listed on the stock market of the Moscow Exchange.

The Bank follows the principles of corporate social responsibility and supports city programs aimed at improving the social and economic climate of St. Petersburg.

In 2017, Bank Saint Petersburg celebrated the 10th anniversary of IPO which was one of the most important events for the Bank and had a significant effect on all its subsequent history.

LETTER FROM THE MANAGEMENT

Dear customers, investors and partners,

We are pleased to present the annual results of Bank Saint Petersburg and development trends. The year 2017 saw a certain improvement in the Russian economy: the minimal GDP growth was accompanied by increased consumer demand and lowering interest and inflation rates. We witnessed the revival in corporate lending and a considerable growth in retail loans.

The previous year was marked by the bailout of several major private banks and withdrawal of a great number of banking licences, which could not but influence the public trust in the banking system. This situation makes it crucial for the banks to guarantee transparency and reliability of operations. It opened up new opportunities for those who have already proved their stability during challenging times and this fully applies to Bank Saint Petersburg.

Our achievements

We closed 2017 in a good shape, earning a record high net profit of RUB 7.5 bn, which is 75% more than in 2016. Although during the period of financial market volatility we refrained from active growth; this demonstrates our balanced approach towards risk management. We made a significant improvement in our loan portfolio quality: our loan impairment provision was RUB 3 bn less than in 2016, we noticeably reduced the cost of risk. The Bank’s revenues hit an all-time high of RUB 33.2 bn.

The Bank practices reasonable conservatism. It is this vital quality that allowed us to strengthen our presence in St. Petersburg in spite of the challenging situation in the Russian banking sector and achieve higher customer loyalty. We are confidently moving towards our goal to become the number one transaction bank for St. Petersburg enterprises and the bank of choice for the city’s residents. We have already crossed the mark of 50 000 corporate clients and are close to 2 000 000 for individuals, which speaks of unquestionable trust in us.

We pay particular attention to building a high-quality and well-balanced loan book, while customer deposits remain one of the Bank’s principal sources of funding. The previous year has proved that we enjoy a wide public confidence: retail deposits have grown by 10%, reaching RUB 206 bn and accounting for more than 57% of the entire customer deposits.

2017 strengthened our standing with mortgages: with total mortgage loan portfolio increased by 27%, we entered the Top 3 fastest growing Russian banks. Furthermore, we enjoyed a 46% growth of our consumer lending business. In 2017, we launched the refinancing plan allowing our customers to consolidate all outstanding loans under a single loan agreement, reduce the monthly payment amount and receive additional funds.

Our Internet Bank, which allows our customers to make most transactions, remains one of the best in Russia. Our cards support all the cutting-edge mobile payment technologies offered by Apple Pay, Samsung Pay and Android Pay.

New challenges and opportunities

We are satisfied with our 2017 performance, but the rapidly changing environment and our own ambitions prevent us from being complacent. The toughening competition, intensified activity of state-owned banks, non-bank fintech players entering the market, shrinking of profit margins in the banking sector, more pronounced cyber threats along with the geopolitical and macroeconomic uncertainty – all these require our immediate response and efficient solutions.

In February 2018, the Bank’s Strategy 2018–2010 was approved, which sees us for the first time aiming at such an ambitious strategic goal as tripled market cap. In addition, our main strategic goals are to achieve a sustained ROAE of 15%+, while remaining among the Top 20 Russian banks in terms of total assets and to increase transaction revenues by 50%. In order to achieve these goals, we have to significantly expand the transaction business and boost corporate lending.

One of the most important tasks in implementing the Bank's Strategy 2018–2010 is to completely transform the corporate business by introducing industry specialization and segment approach. Enhanced industry expertise should allow us to be more efficient in lending and learn to accept greater risks while attaining greater profit margins. The segment approach will give us an opportunity to provide each customer with high quality services by utilizing sales channels and offering products matching such customer’s needs to the greatest extent possible.

In addition, we will continue to expand retail business through improving the customer experience and broadening the available product range.

Responsibility

10 years ago, in 2007, we made the decision to go public and became the first Russian privately-owned bank to make an IPO. Being public implied additional commitments: an enhanced quality of governance and greater transparency of the Bank. Over the 10 years, we have successfully built a corporate governance system, independent directors make up at least 1/3 of the Supervisory Board, our management regularly reports to the market. Moreover, we have seriously intensified our external communications, having held 1 700 meetings within 10 years and flew around the globe about 8 times with the presentations and roadshows.

Looking back, we realize that the obligations of a public bank assumed by us 10 years ago along with the higher responsibility for our decisions to a large extent allowed us to avoid the problems faced by many of our market counterparts.

We are proud of our achievements, the growing confidence of our customers and our impeccable reputation. We would like to express our most sincere gratitude to all customers, investors and partners for our mutually beneficial cooperation.


Elena Ivannikova	Alexander Savelyev
Chairperson of the Supervisory Board	Chairman of the Management Board

In 2017, Bank Saint Petersburg celebrated the 10th anniversary of IPO which was one of the most important events for the Bank and had a significant effect on all its subsequent history.

THE FIRST RUSSIAN PRIVATELY-OWNED BANK TO CARRY OUT AN IPO

Exactly 10 years ago, in November 2007, Bank Saint Petersburg successfully carried out an initial public offering (IPO). The innovative deal involved a mixed offering of shares and depositary receipts convertible into shares, which was unprecedented in the Russian market.

The management went on an extensive roadshow, ultimately building an order book of USD 2 bn. The book was oversubscribed on the very first day of the roadshow. After the pricing, with 7 times oversubscription, the Bank raised USD 270 mln from 130 investors.

The Bank's ordinary shares (stock ticker: BSPB, ISIN: RU0009100945) are listed on the stock market of the Moscow Exchange and since 2016 have been traded with a level 1 listing (top level). The Bank's shares are included into the following Moscow Exchange indices: the Broad Market Index (MICEX BMI/RUBMI) and the Sectoral Financials Index (MICEX FNL/RTSFN).

Information on the price can be found on the Moscow Exchange website at www.moex.com (stock ticker: BSPB).

In 2017, Bank Saint Petersburg celebrated the 10th anniversary of IPO which was one of the most important events for the Bank and had a significant effect on all its subsequent history.

STRATEGY 2018–2020

On February 1, the Supervisory Board of Bank Saint Petersburg approved the Bank’s Strategy for 2018–2020. The newly adopted strategy sets out the following main strategic goals: to achieve sustainable ROAE of 15%+ while remaining among the Top 20 Russian banks in terms of assets, triple the Bank’s market capitalization and increase revenues from transactions by 50%.

KEY STRATEGIC TARGETS 2020

The key drivers to achieve these goals will be transaction banking development and mass business expansion in the corporate segment.The development strategy also defines the key objectives in the areas of activity:

building an effective corporate segment of large and medium-sized businesses,
active selling environment of a corporate small business unit,
maximizing the business model of retail business,
increasing the share of flow income from operations in financial markets,
improving the cost efficiency,
effective staff management and the destruction of barriers in internal processes,
maintaining a moderate risk appetite and effective use of capital.

KEY STRATEGIC ISSUES 2020

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Financial
Performance

Bank Saint Petersburg achieved the all-time best profit of RUB 7.5 bn in 2017 during arguably the most challenging time for the Russian banking sector.

FINANCIAL HIGHLIGHTS

The principal factors that influenced the Bank’s 2017 financial results included:

Net income increased by 75% and reached the all-time best RUB 7.5 bn for FY 2017, including RUB 1.8 bn for 4Q 2017;
ROAE amounted to 11.4% for FY 2017;
Сost of risk decreased to 2.7% for FY 2017, the lowest level in 3 years;
Retail loan portfolio increased by 30.8% during FY 2017 to RUB 71.2 bn.

Income structure*, RUB mln

Income and expenses data*, RUB mln

* One-off incomes are excluded from Revenues and Net Trading Income.

Net income increased by 75% and reached the all-time best RUB 7.5 billion for FY 2017. The Bank’s return on equity (ROAE) amounted to 11.4% for FY 2017 (7.3% for FY 2016).

Net income dynamics

Bank Saint Petersburg achieved the all-time best profit of RUB 7.5 bn in 2017 during arguably the most challenging time for the Russian banking sector.

BALANCE STRUCTURE

The Bank’s assets increased by 4.6% in 2017, reaching RUB 606.9 bn, compared to RUB 580.3 bn as of January 1, 2017.

Gross loans increased by 1.0% in 2017 and stood at RUB 357.7 bn, compared to RUB 354.3 bn as of January 1, 2017. The share of loans and advances to customers comprised 52.4% of total assets.

Securities portfolio increased by 7.6% in 2017 and amounted to RUB 113.4 bn, compared to RUB 105.4 bn as of January 1, 2017. The share of the securities portfolio comprised 18.7% of total assets.

Amounts under reverse repo increased in 2017 by 15.9% to RUB 67.8 bn, compared to RUB 58.5 bn as of January 1, 2017. The share of the amounts under reverse repo comprised 11.2% of total assets.

The volume of customer deposits (customer accounts and promissory notes and deposit certificates issued) increased in 2017 by 0.7% to RUB 360.2 bn, compared to RUB 357.8 bn as of January 1, 2017. The share of customer deposits comprised 59.4% of the liabilities and equity total.

The volume of due to banks increased in 2017 by 13.1% to RUB 148.9 bn, compared to RUB 131.7 bn as of January 1, 2017. The share of due to banks comprised 24.5% of the liabilities and equity total.

As of January 1, 2018, the share of funds attracted from capital markets was 1.5% of the liabilities and equity total, compared to 3.2% as of January 1, 2017.

Assets and liabilities structure, January 1, 2018, RUB bn

Bank Saint Petersburg achieved the all-time best profit of RUB 7.5 bn in 2017 during arguably the most challenging time for the Russian banking sector.

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Business
Divisions

Expert knowledge of the customer base and proximity to customers ensure the Bank's flexibility and responsiveness in addressing the needs and interests of each of the 2 000 000 customers.

CORPORATE BANKING

The Bank continues to improve its performance by offering a wide range of cutting-edge banking services to small, medium and large-sized enterprises, taking into account each client group’s particular requirements and interests.

To date, Bank Saint Petersburg has 50 000 corporate customers. The Bank’s corporate banking business remains primarily focused on the regional market of St. Petersburg. In addition, the Bank strengthened its positions in Kaliningrad in 2015 through the creation of its Evropeisky Branch, which currently has over 4 000 corporate customers (Bank Saint Petersburg completed the integration of Bank Evropeisky in Kaliningrad, reorganizing it together with the Bank's Kaliningrad Branch into the new Evropeisky Branch). In 2016, Bank Saint Petersburg also strengthened its presence outside the home Northwest Region: the Bank opened a representative office in Novosibirsk, focused on working with corporate clients.

Loans to legal entities represent 78.8% of the total loan portfolio. The breakdown of the Bank’s corporate portfolio by sector reflects St. Petersburg’s economic structure, which has a high proportion of construction, real estate, trade and production, allowing the Bank to benefit from all the advantages of the region’s economic structure, as well as to contribute to its development.

Expert knowledge of the customer base and proximity to customers ensure the Bank's flexibility and responsiveness in addressing the needs and interests of each of the 2 000 000 customers.

RETAIL BANKING

As one of the key players in St. Petersburg’s retail banking services, Bank Saint Petersburg aims to become the first bank of choice for the city's residents. The Bank currently has 1 930 000 retail customers, forming a solid base for the future successful growth of its retail business.

Throughout 2017, the retail loan portfolio increased by 30.8% to RUB 71.2 bn, mortgage loans grew by 27.4%, consumer loans grew by 46.1%, and car loans grew by 23.3%. The share of loans to individuals reached 21.2% of the total loan portfolio.

In 2017, the total amount of retail deposits increased by 9.7%, totalling RUB 205.6 bn. The share of retail deposits amounted to 57.1% of total customer deposits.

Expert knowledge of the customer base and proximity to customers ensure the Bank's flexibility and responsiveness in addressing the needs and interests of each of the 2 000 000 customers.

PRIVATE BANKING

The Private Banking business line (personal banking services to the wealthiest private clients) has existed in the Bank since 2007 and develops taking into account the best market practices.

As of January 1, 2018, the total number of customers of the program stood at 1 465 people. In 2017, the volume of deposits from the VIP-segment increased by 20% and amounted to RUB 58.3 bn.

The main advantages of the Private Banking program are: access to the maximum set of product offers with the best price conditions; careful handling of the requests and needs of customers; development of individual solutions; full confidentiality of personal and financial data and customer transactions; family service.

The Bank's Concierge Service efficiently deals with customer requests related to travel, private aviation, real estate, art purchases, etc.

2017 became a jubilee year for Private Banking – the program has been successfully operating for 10 years. In 2017, significant changes were made to the Private Banking program. New conditions for entering the Private Banking program have been introduced (the entrance threshold for service under the program has been increased to RUB 15 mln), and a line of preferential tariffs for the program customers has been optimized. The product content of the program is strengthened by a line of investment proposals based on BSPB Capital, including the possibility of developing individual investment strategies.

The purpose of Private Banking is to constantly improve the service quality and maintain long-term relationships with customers.

Expert knowledge of the customer base and proximity to customers ensure the Bank's flexibility and responsiveness in addressing the needs and interests of each of the 2 000 000 customers.

DIGITAL BANKING

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From Risk to Opportunity

Due to the effective and forward-looking risk management which tries to transform each risk into an opportunity, Bank Saint Petersburg is always profitable and resilient to external shocks.

RISK MANAGEMENT SYSTEM

The strategic objective of risk management is to ensure the Bank’s financial stability. The existing risk management framework comprises a set of measures and solutions designed to identify, monitor and assess all material risk types, to determine their acceptable level, and to mitigate/limit each type of risk.

Pursuant to current legislation and the Bank’s Articles of Association, the Supervisory Board approves the Risk and Capital Management Policy, which covers the coordination of actions taken to enhance the risk management framework, to consistently improve methodology, to standardize and automate risk management processes. The Supervisory Board has a dedicated Risk Management Committee that assists the Supervisory Board in overseeing the Bank’s risk management system, and the efficient identification, quantification, and control of risk.

For each type of banking risk, a management system has been established that ensures an adequate risk assessment and includes measures to mitigate and limit it. The Bank measures its assumed risks against its equity, supporting the capital adequacy level required by the Bank of Russia, which allows the bank to meet its obligations (including contractor covenants), and to maintain its efficient utilization of capital.

Credit Risk

Key Mitigating Actions

The risk of losses if a borrower or counterparty fails to meet its contractual obligations.

To maintain credit risks at an appropriate level the Bank assesses the borrowers’ financial positions, forms loan impairment allowance in the amount of possible losses from the transaction, evaluates the market value of the collateral and control over its integrity, evaluates creditworthiness of guarantors, etc. For the loan portfolio in general, the Bank establishes authorities for bodies and officials as well as credit risk limits.

Below are notable changes in the credit risk management system made throughout 2017:

Further gradual increase in the share of automatically made decisions based on the Bank's statistics on the loan portfolio and data received from external client reliability assessment services;
More active participation of the risk management department in making credit decisions on legal entities.

Liquidity Risk

Key Mitigating Actions

The risk of losses if the maturities of assets and liabilities do not match.

The approach to managing liquidity is based on ensuring a level of liquidity provisions that will allow the Bank to sustain a certain period of sudden outflow of customer deposits and a reduction in the Bank’s ability to attract resources from the financial market caused by macroeconomic events or any occurrences directly related to the Bank.

The Bank has established a multi-level liquidity management system that provides a comprehensive approach to monitoring, forecasting and decision-making in this sphere, and uses a scenario approach to determine current and projected liquidity.

Throughout 2017, the Bank’s total cash and liquidity reserves were adequate enough not only to support its day-to-day operations and cover unplanned liability outflow, but also to support growth in active banking operations where necessary.

Interest Rate Risk

Key Mitigating Actions

The risk of losses due to adverse fluctuations of market interest rates.

Analysis of the Bank's exposure to interest rate risk is based on the forecast of unfavourable changes in the current value of the Bank's assets and liabilities. The key criterion for measuring this risk is the sensitivity of capital to the general interest rate level. Another criterion is the sensitivity of annual net interest income to changes in the general level of interest rates. Given the available forecast, if interest rate movements appear unfavorable to the Bank's interest rate risk exposure, the decision is made to regulate the level of risk by undertaking any of the following:

Modifying transfer prices, base interest rates and banking product rates aimed at changing the structure of the incoming customer operations flow to manage the asset/liability ratio;
Operations in the financial market to change the Bank’s interest rate risk position, including the adjustment of the debt securities portfolio duration, medium- and long-term fixed-rate interbank borrowing and lending, interest rate swaps, etc.

The Bank’s RUB interest rates were declining throughout 2017 due to decelerating inflation and the reduced key rate of the Bank of Russia. For this reason, the Bank adjusted its rates in managing its RUB interest rate risk to promote higher asset duration and lower liability duration within the acceptable range of risk.

The Bank’s USD interest rate risk management efforts are determined by relevant exposure in Russia and the base interest rate level on global markets. With regard to the Russia-related risk margin, interest rates were in decline throughout 2017 and reached the minimum figures by the end of the year. The Bank retains the difference between the duration of such assets and liabilities at minimum levels. During 2017, the Bank maintained a significant portion of FX loans with floating interest rates, which, against the background of rising interest rates on the global market, positively contributed to the financial result.

Stock Market Risk

Key Mitigating Actions

The risk of losses due to adverse changes in the market quotations of trading securities and derivatives.

To manage stock market risk, the Bank uses:

Open and total position limits for investments in the securities of various issuers, and on groups of securities;
Limits on maximum daily transaction valuations;
Option position limits;
Stop-Loss limits for groups of securities;
VaR limits;
Daily monitoring of stock market risk and compliance with the fixed limits.

In building its securities portfolio, the Bank continues to maintain a conservative approach. The volume of limits on equity securities remains small relative to the total limits on securities. REPO transactions represent a significant proportion of securities transactions. As of January 1, 2018, the share of bonds amounts to 98% of the Bank’s security portfolio (total volume of trading and investment securities). In forming its bond portfolio, the Bank gives preference to first-class credit quality securities: 98% of the debt securities are ranked on a par or higher than the Bank.

Currency Risk

Key Mitigating Actions

The risk of losses due to adverse exchange rate fluctuations.

Currently, the management of currency risk is carried out on a daily basis – the Bank monitors compliance with open currency position limits, as regulated by the Central Bank of Russia, and calculates the value of currency risk in accordance with procedures established by the Central Bank of Russia.

To manage currency risk, the Bank uses:

Open foreign exchange position limits;
Forward foreign exchange position limits;
Option position limits;
VaR limits;
Stop-Loss limits.

The principal volume of limits is set on hard currencies. Limits on other currencies are negligible.

Commodity Risk

Key Mitigating Actions

The risk of losses due to adverse fluctuations of commodity market instruments prices.

The following measures are applied to limit this risk:

Open and aggregate position limits on investments in certain types of underlying assets and on investments in underlying assets with certain specifications;
Option position limits;
Stop-Loss limits on commodity market instruments;
VaR limits;
Daily commodity risk and limit compliance monitoring.

The majority of the limits were established for oil-related instruments.

Operational Risk

Key Mitigating Actions

The risk of losses due to inadequate or erroneous internal processes, actions of employees and systems or external events.

The Bank’s approach to operational risk management is aimed at reducing risk an acceptable level by carrying out measures to prevent situations that could be a source of risk, as well as by insuring against operational risks that are beyond its control.

Efforts to continuously monitor the operational risk level include the coordination of risk management and a database of operational incidents. Based on collected and processed data, the Bank’s management and relevant mid-level management receive suggestions on measures to eliminate sources of heightened operational risks.

In order to minimize operational risk, a set of measures was devised to reduce the likelihood of events and circumstances leading to any operating loss, as well as to reduce (limit) any potential operating loss. For the purposes of implementing the above measures, the Bank has selected backup sites where backup workstations were set up and equipped the critical business processes.

Strategic Risk

Key Mitigating Actions

The risk of losses due to errors in strategic decision-making.

In order to mitigate the strategic risk, the Bank has adopted a system of strategic planning and analysis which comprises drafting and approval of the development strategy, ongoing implementation monitoring and, if applicable, adjustment/revision of the strategy.

The Bank’s strategy is drafted in accordance with its strategic development priorities in general and by particular business area, defining specific efforts required to successfully attain the strategic goals. In accordance with the Bank’s Charter, the strategy and business priorities must be approved by the Supervisory Board. To ensure greater efficiency and transparency of strategic decisions, the Supervisory Board has established the Strategy Committee.

Continuous monitoring of the strategy implementation progress employs various feedback tools designed to adjust and revise the strategic goals and priorities, as well as macroeconomic and competitive analysis. With the aim of successfully implementing its strategy the Bank has introduced a key performance indicator (KPI) management system designed to support the link between the strategic and operative levels of planning, as well as a strategic projects system channelling major qualitative changes.

Due to the effective and forward-looking risk management which tries to transform each risk into an opportunity, Bank Saint Petersburg is always profitable and resilient to external shocks.

DEVELOPMENT OF CREDIT RISK EVALUATION APPROACH

For ten years after IPO, the Bank's risk management system has undergone significant changes addressing new challenges.

The period from the early 2000s until 2008 was marked by absence of any considerable defaults in the market and the resulting lack of the required statistics for development of efficient risk management models, that is why there was no regular risk management in Russia in those years. The Bank created major part of its provisions on the growth of the loan portfolio, which doubled every year until 2008. High net interest margin excessively covered any risks, for this reason the provisions did not put pressure on the Bank's financial results.

The crisis of 2008-2009 demonstrated existing problems and the necessity of changes to be introduced into the risk management approach. Problem loans provisions started to contribute a major part of created provisions.

Starting from 2009, a significant work has been carried out for building a new risk management culture, including implementation of the corporate customers ratings model. Within a few years, the best practice was implemented in the daily risk management procedure of Bank Saint Petersburg and started to be used for evaluation of each loan project.

After implementation of the advanced risk management practice based on the accumulated expertise and loss record, since 2013 a “new” quality of the loan portfolio has been established with an integrated risk assessment system.

Source of CoR data by loan categories and vintages: management accounts.

Due to the effective and forward-looking risk management which tries to transform each risk into an opportunity, Bank Saint Petersburg is always profitable and resilient to external shocks.

NEW HORIZONS

Due to consistent building of the new risk management culture, starting from 2013 the Bank has obtained a “new” quality of the loan portfolio, which accounted for 80% of the loan portfolio as of January 1, 2018. "Old" problem loans granted before 2013 continued to contribute a major share to the total cost of risk for the last 5 years and kept providing a significant negative impact on the Bank's financial results.

COST-OF-RISK BEFORE AND AFTER 2013

In 2017, the problem loans granted before 2013 contributed 160 b.p. out of 269 b.p. to the cost of risk. The share of problem loans granted after 2013 in the cost of risk became much lower and did not exceed 0.8%. It means that the new practice, the new risk management culture are effective, and the "new" loan portfolio of Bank Saint Petersburg does not have those extensive problems which could be faced in the previous portfolio.

The Bank is well on the way to considerable reduction of the cost of risk and respective growth of ROAE, taking into account the fact that due to both repayment and writing off of problem loans granted before 2013, their share in the total loan portfolio is decreasing every year (accounted for less than 10% as of January 1, 2018), and the remaining problem loans were covered by provisions to a great extent.

LOAN PORTFOLIO, JANUARY 1, 2018

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Creating Wealth Responsibly

The Bank's entire business is built on ethical principles and the responsible approach for creating wealth and retaining the trust of employees, customers, shareholders, and society as a whole.

CUSTOMERS

Bank Saint Petersburg is the largest private bank in Northwest Russia. The financial services provided by the Bank support the local development of the region and its sustainable economic growth, as well as helping individual customers to reach their financial targets.

Services for customers still constitute the core of the Bank’s business. The Bank has 1 930 000 individual customers and 50 000 corporate customers. Its proximity to customers, high processing speed, and flexibility of decisions remain the traditional advantages of Bank Saint Petersburg in the Northwest Region. Combined with the introduction of new quality standards for all operations, settlements and services, these factors determine the Bank’s contribution to the social and economic growth of the Russian Northwest.

The Bank's entire business is built on ethical principles and the responsible approach for creating wealth and retaining the trust of employees, customers, shareholders, and society as a whole.

COLLEAGUES

Bank Saint Petersburg is one of the largest employers in the region, with a head count of 4 133 employees as of January 1, 2018.

Currently, 38% of the Bank’s staff work in the branch network and 29% work in the Head Office business departments. Total headcount grew by 3.8% due to the new outlets opened in St. Petersburg, as well as overall restructuring of the retail and corporate businesses.

Staff composition by business line,
January 1, 2018

Staff composition by age,
January 1, 2018

The Bank's entire business is built on ethical principles and the responsible approach for creating wealth and retaining the trust of employees, customers, shareholders, and society as a whole.

COMMUNITY

Bank Saint Petersburg attaches great importance to the successful development of the regions of its presence, strictly adhering to social responsibility principles in its business operations. As the largest private bank in the Russian Northwest, Bank Saint Petersburg never distances itself from socially significant projects in the region, but rather takes an active part in them.

The Bank pays particular attention to the following three groups of social responsibility initiatives: support for underprivileged children, developing the urban environment, and encouraging financial awareness.

The Bank's entire business is built on ethical principles and the responsible approach for creating wealth and retaining the trust of employees, customers, shareholders, and society as a whole.

Corporate Governance Structure, January 1, 2018

CORPORATE GOVERNANCE

Upgrading corporate governance in line with best practice is one of the Bank’s key tasks. Strictly observing the rights of shareholders, internal control and auditing procedures, a high level of transparency and information disclosure, as well as the maintenance of efficient management bodies, ensure customer confidence and the maximum efficiency of shareholders’ investments.

The following internal Bank documents regulate corporate governance:

The Charter, as approved by a resolution of the General Shareholders Meeting held on May 18, 2017;
The Policy on the Supervisory Board, as approved by a resolution of the General Shareholders Meeting held on May 18, 2017;
The Policy on the Management Board, as approved by a resolution of the General Shareholders Meeting on May 18, 2017;
The Policy on the Strategy Committee of the Supervisory Board, as approved by a resolution of the Supervisory Board on July 23, 2015;
The Policy on the Appointments and Remuneration Committee of the Supervisory Board, as approved by a resolution of the Supervisory Board on August 12, 2016;
The Policy on the Audit Committee of the Supervisory Board, as approved by a resolution of the Supervisory Board on August 12, 2016;
The Policy on the Risk Management Committee of the Supervisory Board, as approved by a resolution of the Supervisory Board on July 31, 2014;
The Policy on the Corporate Secretary, as approved by a resolution of the Supervisory Board on August 12, 2016;
The Policy on the Revision Committee, as approved by a resolution of the General Shareholders Meeting held on April 28, 2011.

Corporate Governance Structure, January 1, 2018

THE SUPERVISORY BOARD

The Supervisory Board is responsible for the general management of the Bank’s activities, except for issues that fall under the competency of the General Shareholders’ Meeting. The Supervisory Board determines the strategic priorities for the Bank’s activity and controls the functioning of executive management bodies. According to a resolution from the 2017 General Shareholders’ Meeting, the Supervisory Board is made up of 10 members.

Elena V. Ivannikova

Elena V. Ivannikova has been the Chairperson of the Supervisory Board since July 2016 and has worked for the Bank since 2001. Previously, she worked as the Chief Accountant at the Petrovsky Commercial Bank and Baltoneximbank. Mrs. Ivannikova was born in 1965. She is a graduate of the Kiev Institute of the People’s Economy.

Mrs. Ivannikova owns 0.58% of the Bank’s ordinary shares. Her holding in the Bank’s charter capital is 0.55%.

Vladislav S. Guz

Vladislav S. Guz has been Deputy Chairman of the Supervisory Board since July 2016. Previously, Mr. Guz has acted as Chairman of the Management Board since August 2014 till July 2016, the First Deputy Chairman of the Management Board since 2009 and the Deputy Chairman of the Management Board since 2004. His previous experience includes working at the St. Petersburg branch of Alfa-Bank as the First Deputy Director of the branch and its Executive Director (from 1996 until 2003). Mr. Guz was born in 1967. He is a graduate of Leningrad State University. Mr. Guz holds a PhD in Economics.

Mr. Guz owns no shares in the Bank.

Susan Gail Buyske

Susan Gail Buyske joined the Bank's Supervisory Board in April 2012. Mrs. Buyske has served as a non-executive director and chair of the risk and audit committee for a number of banks, as well as consulted on financial sector development issues for the World Bank, IFC, and others. She has also served as Vice President at JPMorgan Chase. Mrs. Buyske was born in 1954. She is a graduate of Middlebury College, Princeton University and Columbia University, and holds a PhD in Political Science.

Mrs. Buyske owns no shares in the Bank.

Andrey P. Bychkov

Andrey P. Bychkov has been a member of the Supervisory Board since April 2010. At present, Mr. Bychkov is the Managing Director of the Financial Institutions Department at the Bank of Development and Foreign Trade (Vneshekonombank) State Corporation. Mr. Bychkov was born in 1961. He is a graduate of Moscow State University and the Russian Academy of Economics.

Mr. Bychkov owns no shares in the Bank.

Alexey A. Germanovich

Alexey A. Germanovich has been a member of the Supervisory Board since June 2014. He currently acts as a member of the Management Board of the St. Petersburg State University Development Endowment Fund and the Board of Directors of Unipro PJSC, PJSC Aeroflot, Ameriabank CJSC. Mr. Germanovich was born in 1977. He is a graduate of Moscow State University and Cranfield University (UK).

Mr. Germanovich owns no shares in the Bank.

Andrey T. Ibragimov

Andrey T. Ibragimov has been a member of the Bank’s Supervisory Board since December 2005. From July 2002 to April 2004, Mr. Ibragimov worked in the capacity of the Bank’s Deputy Management Board Chairman and was the Director of the Legal Department. Currently, Mr. Ibragimov is the General Director of the Musin, Ibragimov, Lyskov and Partners LLC law firm and a member of the Board of Directors of JSC Vnukovo International Airport. Mr. Ibragimov was born in 1954. He is a graduate of the KGB Higher School.

Mr. Ibragimov’s holding in the Bank’s charter capital is 0.0000019%.

Alexander I. Polukeyev

Alexander I. Polukeyev was a member of the Bank’s Supervisory Board from December 2005 to April 2008. He has held this position again since June 2014. From May 2006 to February 2009, he held the position of Vice Governor of Saint Petersburg. Mr. Polukeyev was born in 1948. He is a graduate of Riga Civil Aviation Engineering Institute and North-West Academy of Public Administration. Mr. Polukeyev holds a PhD in Economics.

Mr. Polukeyev’s holding in the Bank’s charter capital is 0.0000019%.

Alexander V. Pustovalov

Alexander V. Pustovalov joined the Bank's Supervisory Board in April 2012. From 1992 to 2005, Mr. Pustovalov worked for the Industry and Construction Bank (which later became VTB North-West), successively serving as Head of Department, Director, and the Chairman of Management Board. Starting in 2005, he has held the position of Vice President at OJSC Bank of Moscow. Between 2008 and 2012, Mr. Pustovalov was the Deputy Chairman of the Management Board at the Northwest Bank of the Savings Bank of the Russian Federation (Sberbank). His current positions include: CEO of Evolyutsiya Investment Group LLC and the Chairman of the Board of Directors of Malaya Okhta Management Company LLC. Mr. Pustovalov was born in 1967. He is a graduate of St. Petersburg State University.

Mr. Pustovalov owns no shares in the Bank.

Alexander V. Savelyev

Alexander V. Savelyev is the Chairman of the Management Board (from January 2001 to August 2014, and has again held this position since July 2016). Mr. Savelyev has been a member of the Supervisory Board since 2001; from August 2014 to July 2016, he also acted as Chairman of the Bank's Supervisory Board. His previous experience includes Deputy Chairman of the Management Boards of Petrovsky Commercial Bank and Baltoneximbank. Mr. Savelyev was born in 1954. He is a graduate of the Kazan Aviation Institute.

Mr. Savelyev owns 24.95% of the Bank’s ordinary shares. His holding in the Bank’s charter capital is 24.13%.

Andrey M. Zvyozdochkin

Andrey M. Zvyozdochkin has been a member of the Supervisory Board since May 2017. Mr. Zvyozdochkin is a partner, member of the Board of Directors and CEO of ATON LLC. His background spans 20 years in investment banking and general banking operations. He heads the Exchange Council of the Moscow Stock Exchange PJSC and is a member of the Board of Directors of NAUFOR. Mr. Zvyozdochkin was born in 1973. He is a graduate of Moscow State Aviation Technology University, Financial University under the Government of the Russian Federation and IMD Business School (Switzerland).

Mr. Zvyozdochkin owns no shares in the Bank.

In 2017, members of the Supervisory Board made the following transactions with the Bank's shares:

Alexander V. Savelyev acquired 20.5 million shares during the 17th additional share issue.

In accordance with corporate governance best practices, the Board includes three independent directors: Andrey P. Bychkov, Alexey A. Germanovich, and Alexander I. Polukeyev. These directors positively contribute to the Board’s functioning with their experience and professionalism.

THE MANAGEMENT BOARD

The Bank's ongoing operations are managed by the Chairman of the Management Board as its sole executive body, and by the Management Board as its collegial executive body. As of January 1, 2018, the Bank’s Management Board is made up of 9 members.

Alexander V. Savelyev

Konstantin Y. Balandin

Konstantin Y. Balandin has been the Deputy Chairman of the Management Board since January 2008. Mr. Balandin has worked for the Bank since 2000. From 1996 to 2000, he worked in the Treasury Department of the Industry and Construction Bank. Mr. Balandin was born in 1976. He is a graduate of the Economics Department of St. Petersburg State University. Mr. Balandin holds a PhD in Economics and a Qualification Certificate issued by the Federal Commission for the Securities Market.

Mr. Balandin owns 0.04% of the Bank’s ordinary shares. His holding in the Bank’s charter capital is 0.04%.

Tatiana Y. Bogdanovich

Tatiana Y. Bogdanovich has been a member of the Management Board since March 2016; at the same time, she is the Senior Vice-President and Director of the Bank’s Moscow Branch. Ms. Bogdanovich has worked for the Bank since 2007. From 2000 to 2007, she worked for CB Russian International Bank as the Deputy Chairman of the Management Board and Chairman of the Management Board. From 1995 to 2000, she worked for CB Loko-Bank, including the holding the post of Deputy Chairman of the Management Board. Ms. Bogdanovich was born in 1972. She is a graduate of the Tver State University and the Russian Academy of State Service. Candidate of Sciences in Sociology.

Mrs. Bogdanovich owns 0.01% of the Bank’s ordinary shares. Her holding in the Bank’s charter capital is 0.01%.

Vyacheslav Y. Ermolin

Vyacheslav Y. Ermolin has been a member of the Management Board since December 2017; at the same time, he is the Vice-President, supervising the Bank’s corporate business. Mr. Ermolin joined the Bank in August 2017. From 1999 to 2017, he worked for Sberbank as Head of the Largest Corporates, Deputy Head of the Credit Department and Head of Sales Department for the Large and Middle Corporates of the Head Office in St. Petersburg. Mr. Ermolin was born in 1981. He is graduate of the Arkhangelsk State Technical University.

Mr. Ermolin owns no shares in the Bank.

Pavel V. Filimonenok

Pavel V. Filimonenok has been Deputy Chairman of the Management Board since 2003. Mr. Filimonenok joined the Bank in 2001 and worked as the Director of the Retail Business Department from August 2003 until June 2007. In May 2009, he was appointed Chairman of the Board of Directors of JSC Kompyuterniye Sistemy Dlya Biznesa. His previous positions include Deputy Director of the Plastic Cards Department at the Petrovsky Commercial Bank. Mr. Filimonenok was born in 1971. He is a graduate of the St. Petersburg Institute of Precision Mechanics and Optics.

Mr. Filimonenok owns 0.02% of the Bank’s ordinary shares. His holding in the Bank’s charter capital is 0.02%. Mr. Filimonenok also holds a 100% interest in Lazoria Limited, which in turn owns 100% of Zerilod Holdings Limited. Zerilod Holdings Limited owns 26.576% of the charter capital of Verniye Druzya Management Company LLC. Verniye Druzya Management Company LLC owns 25.53% of the Bank's ordinary shares and holds a 24.72% interest in the Bank's share capital.

Vladimir K. Likhodievsky

Vladimir K. Likhodievsky has been Deputy Chairman of the Management Board since April 2015. He has been Advisor of the Chairman of the Management Board of the Bank since February 2015. Mr. Likhodievsky worked in the Minsk department of Belvnesheconombank from 1995 to 2008. He was Deputy Chairman of the Management Board of CJSC VTB Bank (Belarus) from 2008 to 2015. Mr. Likhodievsky was born in 1968. He graduated from Minsk Radio-Technical Institute and Belarus State Economic University.

Mr. Likhodievsky owns 0.02% of the Bank’s ordinary shares. His holding in the Bank’s charter capital is 0.02%.

Kristina B. Mironova

Kristina B. Mironova has been Deputy Chairperson of the Management Board since September 2013, having joined Bank Saint Petersburg in 2002. Her previous positions include: Deputy Director of the Moscow Branch, Director of Investor Relations, and the Director of the Customer Monitoring Department. Ms. Mironova was born in 1980 and graduated from St. Petersburg University for Economics and Finance.

Mrs. Mironova owns 0.02% of the Bank’s ordinary shares. Her holding in the Bank’s charter capital is 0.02%. Mrs. Mironova also holds a 100% interest in Zugradia Enterprises Limited, which in turn owns 100% of Noroyia Assets Limited. Noroyia Assets Limited owns 26.578% of the charter capital of Verniye Druzya Management Company LLC. Verniye Druzya Management Company LLC owns 25.53% of the Bank's ordinary shares and holds a 24.72% interest in the Bank's share capital.

Vladimir G. Reutov

Vladimir G. Reutov has been Deputy Chairman of the Management Board since 2006, having joined Bank Saint Petersburg in 2001. Mr. Reutov has been a member of the Exchange Committee of the St. Petersburg Currency Exchange since May 2006. He is a member of NSMA’s Board. In 2008-2011, he served as a member of the Board of Directors of CJSC Moscow Interbank Currency Exchange. From 2009 to 2011, he was a Board member at CJSC MICEX Stock Exchange. Mr. Reutov was born in 1963. He is a graduate of the Leningrad Ship Building Institute, the International Banking Institute and St. Petersburg State University.

Mr. Reutov owns 0.003% of the Bank’s ordinary shares. His holding in the Bank’s charter capital is 0.003%. Mr. Reutov also holds a 100% interest in Magnonia Ventures Limited, which in turn owns 100% of Caristas Limited. Caristas Limited owns 26.576% of the charter capital of Verniye Druzya Management Company LLC. Verniye Druzya Management Company LLC owns 25.53% of the Bank's ordinary shares and holds a 24.72% interest in the Bank's share capital.

Vladimir P. Skatin

Vladimir P. Skatin is Deputy Chairman of the Management Board, has been a member of the Management Board since 2008. His career at the JSC Industry and Construction Bank (which later became VTB North-West) was launched in 1995 as Deputy Chairman of the Management Board. In 2001, he was appointed First Deputy Chairman of the Management Board and during 2006-2007, he served as the Chairman of the Management Board. Mr. Skatin was born in 1956. He is a graduate of Leningrad Polytechnic Institute and St. Petersburg State University for Economics and Finance. Mr. Skatin holds a PhD in Economics.

Mr. Skatin owns no shares in the Bank.

In 2017, members of the Supervisory Board made the following transactions with the Bank's shares:

Alexander V. Savelyev acquired 20.5 million shares during the 17th additional share issue.
Konstantin Y. Balandin increased his holding in the Bank’s charter capital through the acquisition of 90.8 thousand shares in the secondary market.
Tatiana Y. Bogdanovich increased her holding in the Bank’s charter capital through the acquisition of 54.5 thousand shares in the secondary market.
Pavel V. Filimonenok increased his holding in the Bank’s charter capital through the acquisition of 90.8 thousand shares in the secondary market.
Vladimir K. Likhodievsky increased his holding in the Bank’s charter capital through the acquisition of 90.8 thousand shares in the secondary market.
Kristina B. Mironova increased her holding in the Bank’s charter capital through the acquisition of 90.8 thousand shares in the secondary market.

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10th Anniversary of IPO

Strategic Report

One of the largest banks in Russia’s Northwest Region, Bank Saint Petersburg was founded in 1990, at the very beginning of Russia’s modern banking system. Since then, the Bank has become an integral part of Northwest Russia’s financial and economic system.

LETTER FROM THE MANAGEMENT

THE FIRST RUSSIAN PRIVATELY-OWNED BANK TO CARRY OUT AN IPO

STRATEGY 2018–2020

KEY STRATEGIC TARGETS 2020

Financial Performance

FINANCIAL HIGHLIGHTS

BALANCE STRUCTURE

Business Divisions

CORPORATE BANKING

RETAIL BANKING

PRIVATE BANKING

DIGITAL BANKING

From Risk to Opportunity

RISK MANAGEMENT SYSTEM

DEVELOPMENT OF CREDIT RISK EVALUATION APPROACH

NEW HORIZONS

Creating Wealth Responsibly

CUSTOMERS

COLLEAGUES

COMMUNITY

Corporate Governance Structure, January 1, 2018

CORPORATE GOVERNANCE

Corporate Governance Structure, January 1, 2018

THE SUPERVISORY BOARD

Elena V. Ivannikova

Vladislav S. Guz

Susan Gail Buyske

Andrey P. Bychkov

Alexey A. Germanovich

Andrey T. Ibragimov

Alexander I. Polukeyev

Alexander V. Pustovalov

Alexander V. Savelyev

Andrey M. Zvyozdochkin

THE MANAGEMENT BOARD

Alexander V. Savelyev

Konstantin Y. Balandin

Tatiana Y. Bogdanovich

Vyacheslav Y. Ermolin

Pavel V. Filimonenok

Vladimir K. Likhodievsky

Kristina B. Mironova

Vladimir G. Reutov

Vladimir P. Skatin

My Annual Report

10^th Anniversary of IPO

Strategic
Report

Financial
Performance

Business
Divisions