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.


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.
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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

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.
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.




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.





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





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.









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.
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.