#1SBERBANK By your side Go to HTML version $12 /ANNUAL BILLION MOST EXPENSIVE BRAND IN RUSSIA IN 2011 REPORT 2011 >19 000 OPERATING BRANCHES ACROSS RUSSIA Nº19 BANK IN THE WORLD BY MARKET CAPITALISATION 28% RETURN ON EQUITY FOR 2011 26,8% OF BANKING ASSETS IN RUSSIA 5,3 MILLION active users 50% of all salaries and pensions paid in ON BANK ACCOUNTS IN RUSSIA 170 years. It's just the beginning We instill confidence and sense of reliability, we make people's lives better, helping them to fulfill their dreams and aspirations. We are building one of the best financial services companies in the world, and our success will be based on the professionalism as well as the feeling of harmony and happiness of our staff. - Sberbank's Mission* *Sberbank's Development Strategy up to 2014, 2008#2SBERBANK CONTENTS Message from Sergey Ignatiev, Chairman 170 YEARS. BY YOUR SIDE Λ 50 02 of the Supervisory Board Message from Herman Gref, CEO and Chairman of the Management Board management report 05 55 ANNUAL REPORT Statement of Comprehensive Income 87 Structure of Sberbank Group's Assets under IFRS 90 Structure of Sberbank Group's Liabilities and Equity under IFRS 96 Capital Adequacy 100 Risk Management 104 2011 07 03 Bank Profile 10 Corporate Social Responsibility 121 Λ Management Report 19 Contributing to the Economic Development of the Country 122 Improving Product and Service Quality 148 Retail Business 20 Ensuring Accessibility of Banking Services 174 Corporate Business 30 Investing in Human Capital 198 management report Operations of Financial Markets 36 Charity and Sponsorship 226 Governance Structure 44 Reducing our Environmental Footprint 238 Bank Development 56 Improving Corporate Governance 248 Growth Prospects 60 Background Information Financial Results 65 about this Report 261 Dynamics of Sberbank Group's Key Figures GRI Content Index 264 over the Past Five Years in Accordance with IFRS Group IFRS Income Statement 66 74 Contacts and payment details 274 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#3MESSAGE Sergey Ignatiev Chairman of the Supervisory Board >> Dear Shareholders, Despite turbulence in the global financial markets, 2011 was marked by a rapid expansion of loan portfolios and significant profit in Russia's banking sector, with Sberbank setting the pace. Sberbank fully recognises its responsibility to clients, shareholders and investors. Guided by responsible business ethics, the Bank successfully expanded into new markets, launched new products and implemented the latest technologies. I am certain that important milestones for Sberbank such as the in- tegration of Troika Dialog and expansion into markets in Central and Eastern Europe will serve as a powerful stimulus to drive Sberbank's successful development in 2012. Sergey Ignati Chairman of the Supervisory Board WWW.SBERBANK.RU ANNUAL REPORT 05 Λ Message from Sergey Ignatiev, Chairman of the Supervisory Board 2011#4MESSAGE Herman Gref CEO and Chairman of the Management Board ANNUAL REPORT 10 07 Λ Message from Herman Gref, CEO and Chairman of the Management Board >> Dear Shareholders, Clients and Partners, Throughout 2011, in the face of great uncertainty in the financial mar- kets, Sberbank continued to successfully implement its development strategy. This sent a clear signal to the Bank's shareholders, clients, employees and partners that we are very serious in our intention of be- coming one of the world's leading financial institutions. Last year we focused heavily on boosting the quality of customer ser- vice, improving internal processes and introducing new technologies. The Bank took a number of important decisions regarding the Group's development and expanding the geography and structure of our op- erations. We also continued with ongoing initiatives to develop our employee motivation and training system. 2011 was a very special year for Sberbank as we celebrated our 170th anniversary. It provided an occasion for us to once again recognise the importance of continuity from generation to generation as a crucial factor in our successful development and continued ability to compete. It was symbolic that the Bank closed 2011 with record financial re- sults. I would like to highlight what I see as Sberbank's most important achievements in the last year. WWW.SBERBANK.RU 2011#5Message from Herman Gref, CEO and Chairman of the Management Board SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 08 PROFIT/FINANCIAL RESULTS - Record profit -Increased dividends for 2010 ENTERING NEW MARKETS -Tapping the global capital markets (GDR programme) -Creating a strong Russian corporate and investment bank following the acquisition of Troika Dialog - Entering the Central and Eastern European markets (agreeing on the main conditions for the acquisition of Volksbank International with its shareholders) PRODUCTS AND SERVICES - Launching a comprehensive offering for young people - Rolling out a client loyalty programme -Issuing our 60-millionth card and taking our place as the leader in the Russian credit card market -Further developing and refining our risk management system INVESTING IN HUMAN CAPITAL Opening our corporate university Rolling out our corporate pension scheme Hosting an international financial conference in honour of Sber- bank's 170th anniversary DEVELOPING INFRASTRUCTURE -Launching a large-scale programme to reformat our network of service outlets Opening the largest data processing centre in Europe -Creating a unique archive and logistics centre in Tomilino in the Moscow Region. These new facilities will allow the Bank to make considerable savings and transfer its operations to a radically different technological plat- form. The launch of the Tomilino centre alone will save RUB 1.7 billion over the next three and a half years. Sberbank adopted a corporate social responsibility policy in 2011 that defined the Bank's principles, aims and objectives in this field. Sepa- rately I would also like to highlight improvements made in the Bank's relations with minority shareholders and in the work of the Minority Shareholders' Committee. As part of a conference held in celebration of Sberbank's 170th anni- versary, we tried crowdsourcing for the first time in a discussion of the Bank's growth prospects. The aim of crowdsourcing is to involve "the collective brains" of our employees, clients and anyone with an interest in the Bank's activities to accomplish challenging and complex tasks. This first attempt was a success. It also proved that crowdsourcing really does allow us to combine the intellectual capacity and energy of a huge number of people to resolve pressing development issues. The Bank believes this technique has enormous potential and I am certain that the future lies in crowdsourcing. Sberbank's key objectives in 2012 include developing new ways for the Bank to interact with clients that go beyond the traditional idea of banking services (such as through the Internet, social networks and mobile banking) and promoting services for small- and medium- sized businesses. We will also continue to develop through ongoing improvements to the Bank's long-standing competitive advantages, driven by our philosophy of continuous development and drawing on the Bank's ability to invest significant resources in advanced technologies and processes. ہے Herman Gref CEO and Chairman Deeeey of the Management Board 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU ^ 09 Message from Herman Gref, CEO and Chairman of the Management Board#6SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 11 A bank profile 10 Our mission 11 Our values 11 Credit ratings 13 Sberbank's Position in the Financial Market 13 F ull name: Sberbank of Russia. Abbreviated name: Sberbank. BANK PROFILE The principal shareholder: Central Bank of the Russian Federation (Bank of Russia). Head office: 19 Vavilova St., 117997, Moscow, Russia. Our mission We instill confidence and sense of reliability, we make people's lives better, helping them to fulfill their dreams and aspirations. We are building one of the best financial services companies in the world, and our success will be based on the professionalism as well as the feeling of harmony and happiness of our staff. Our values Openness and goodwill. A drive for perfection. Respect for traditions. - Integrity. Prudence and professionalism. Trust and responsibility. Initiative and creativity. Teamwork and effectiveness. A healthy lifestyle (mind, body and soul) Herman Gref Named Businessman of the Year 20 June 2011, Moscow - Herman Gref, CEO and Chairman of the Man- agement Board at Sberbank, was named Businessman of the Year in the Kommersant-Renaissance nomination. The Head of Sberbank was presented with the award for effective crisis management and restoring asset quality. Sberbank Ranked as Europe's Third Largest Bank by Market Capitalisation 15 November 2011, Moscow-On 14 November 2011, Sberbank became the third largest bank in Europe by market capitalisation. With a market cap of almost USD 60 billion, Sberbank outranks such global leaders as France's BNP Paribas, Switzerland's UBS, German's Deutsche Bank and Britain's Barclays and Royal Bank of Scotland. Sberbank Recognised as Best Russian Company in India 3 October 2011, Moscow- At the 3rd Russia-India Business Dialogue Forum, Sberbank received an award as the Best Russian Company in India. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU Λ bank profile#7bank profile A 12 SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 Sberbank Employees Honoured with State Awards 15 November 2011, Moscow-In accordance with Order No. 1388 of the President of the Russian Federation, dated 19 October 2011, a number of Sberbank employees were honoured with Russian Federation state awards. Bella Zlatkis and Stanislav Kuznetsov, both Deputy Chair- men of the Management Board, were awarded the Order of Merit for the Motherland of the IV degree for their outstanding contribution to the development of the national banking system and many years of committed service. Fitch Ratings Revises Individual Rating of Sberbank from C/D to C 11 April 2011, Moscow - On 8 April 2011, the rating agency Fitch Ratings revised Individual Rating of Sberbank (RTS: SBER; MICEX: SBER03) from C/D to C. According to the agency, the upgrade of the Individual Rating reflects the stabilisation of Russia's operating en- vironment and of the Bank's own asset quality and performance. Sberbank Recognised as Most Valuable Russian Brand 24 March 2011, Moscow - Brand Finance, a consulting company, pub- lished its annual rating of the 500 Most Valuable Brands. With a brand value of over USD 12 billion, Sberbank was recognised as the most valuable Russian Brand. Sberbank, 65th in the global rating, was the only Russian company in the top 100. Brand Finance rated Sberbank as the world's 19th most valuable banking brand. Sberbank Ranked as One of the Largest Global Corporations in 2010 28 July 2011, Moscow - Sberbank was the only Russian bank included in the 2010 list of the largest global corporations published by the US magazine Fortune. The Bank ranked 298th in the overall Fortune Global 500 rating. Sberbank Leads the Way as the Most Recognisable and Popular Russian Banking Brand 25 April 2011, Moscow-Research published by the Russian National Agency for Financial Studies found that Sberbank is the most recog- nisable and popular Russian banking brand. Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 CREDIT RATINGS SBERBANK'S LONG-TERM RATINGS Fitch Moody's BB+ Bal BBB- Bal BBB Baa2 BBB+ Baa2 BBB+ Baa2 BBB+ Baal BBB Baal BBB Baal BBB Baal RATINGS ASSIGNED FOR SBERBANK'S INTERNATIONAL BORROWINGS, 2011 Obligations of Sberbank of Russia Borrowings under MTN Programme Russian Federation Eurobonds SBERBANK'S POSITION IN THE FINANCIAL MARKET 33 Fitch Moody's BBB A3 BBB Baal Russia's economy grew in 2011 against a backdrop of slow or negative growth in developed markets characterised by a high level of external and domestic debt. Amid ongoing escalation of the European sovereign debt crisis, the economic recovery in the United States was sluggish. While volatility in the domestic stock and money markets markedly increased, in 2011 the Russian economy continued its steady growth, with GDP rising 4.3%. This growth was driven by strong consumer and investment demand on the domestic market. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 13 A bank profile#8bank profile SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 14 Retail sales rose 7.2%, fuelled by deferred demand and lower savings levels. These factors had certain implications for Russian banks' retail businesses: Customer deposits slowed from 31% in 2010 to 21% in 2011. With Sberbank's customer deposit growth rate being below the market average (18%), its share in this segment reduced from 47.9% to 46.6%. Banks actively increased retail lending. Retail loans grew almost one third over the year (36%). Sberbank maintained a market share of 32% in this segment thanks to a growth rate comparable to the market average. Russian banks worked keenly with domestic companies and enterprises whose deposits and loans grew 26% and 27% respectively. Sberbank also continued to work closely with its corporate customers, especially in the corporate lending segment where its market share increased from 31.3% to 32.9%. One of the hallmarks of the development of the Russian banking sector in 2011 was that lending grew at a faster pace than customer depos- its, putting more pressure on the liquidity of the domestic banking sector in the second half of the year. 2011 saw a steady improvement in the quality of loan portfolios in the domestic banking sector. Non- performing loans to corporate customers and individuals dropped markedly over the year. Sberbank also placed a special focus on the quality of its loan portfolio and continued its effort to collect non- performing loans. At the same time, Sberbank actively expanded its term loan portfolio. Together these efforts helped to reduce the share of non-performing loans from 7.3% to 4.9%. % Assets Equity Corporate lending Retail lending Corporate accounts Retail deposits Income before tax In 2011, Sberbank recovered provisions for certain loan as part of on- going measures to deal with non-performing assets. While the Bank continued to make provisions on new loans, overall provision charges reduced substantially over the year. This reduction had a positive effect on the level of income, which reached a record high and accounted for 46.5% of total income earned by the national banking sector*. SBERBANK'S SHARE IN VARIOUS SEGMENTS OF THE FINANCIAL SERVICES MARKET 2011 2010 26.8 27.3 29.1 26.4 32.9 31.3 32.0 31.9 14.5 15.9** 15 46.6 47.9 A 46.5 39.2 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU * Quoted before tax and without taking into account events after the balance sheet date. Source: Overview of the Russian Banking Sector (Internet version), No. 113, March 2012 ** The 2010 data was restated to reflect a change made in 2011: balances in precious metals were excluded. bank profile#9SBERBANK 170 YEARS. BY YOUR SIDE 1841 The Anichkov Bridge with horse sculptures designed by Peter Karlovich Klodt was reopened in St. Petersburg after its reconstruction. A 16 The first savings bank was opened on March 1, 1842 in St. Petersburg, in the building of the Board of Trustees on Kazanskaya Street where it remained until 1917. Members of all classes including the poorest could use the savings bank 1840- 1850 1842 The first savings book carried the logo of foundling homes-a pelican feeding its nestlings. 1840 The Ministry of Finance arranged the development of the Charter for savings banks, which was approved by the Council of State in autumn 1840 and signed by Emperor Nikolay lon October 30 (November 12). 1842 The first government savings bank opened on March 1 (13) in St. Petersburg on Kazanskaya Street, 7. 1842 There were sent 600 printed notices about the launch of savings operations in Moscow. Another 400 advertisements were distributed to the factories and plants. 170 YEARS. IT'S JUST THE BEGINNING OPENNESS AND GOODWILL A DRIVE FOR PERFECTION TRUST AND RESPONSIBILITY INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) € 1841 ANNUAL REPORT 2011 The first and exclusive "Wedding rouble" in Russian numismatics was coined to celebrate the marriage of Alexander II and Marie Hessen- Darmstadtskaya. The initial issue was 100 coins. 1843 During that year 2,400 savings books with a value of 38,000 roubles were opened in St. Petersburg and 848 savings books with a value of more than 15,000 roubles were opened in Moscow. 1846 The savings bank in St. Petersburg started to work three days a week; in Moscow, two days a week. Earlier, they had worked only on Sundays serving up to 70 people per day. 1846 WWW.SBERBANK RU ПОЭМА ↑ 1842 "The Adventures of Chichikov or the Dead Souls" by Nikolay Vasilievich Gogol was published in Moscow. TO ROADTALK PUSARM 2842 1842 5 rouble coin. Metal: gold. 1849 The Committee of Ministers considered a proposal to develop savings banks in all towns. A savings bank was opened in Odessa as one of the first institutions in the system of savings banks at public charity departments. 17#10We instill confidence and sense of reliability, we make people's lives better, helping them to fulfill their dreams and aspirations. We are building one of the best financial services companies in the world, and our success will be based on the professionalism as well as the feeling of harmony and happiness of our staff. MANAGEMENT REPORT#11management report << 20 SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT RETAIL BUSINESS 2011 21 Retail lending 20 Retail deposit operations 23 retail banking services 24 Other RETAIL BUSINESS n December 2011, Sberbank won three nominations at the Retail Finance Awards, which are held by the Retail Finance magazine to recognise notable achievements in developing retail finance in Rus- sia. Sberbank received awards for the Best Advertising Campaign and Breakthrough of the Year. The Bank was also ranked third in the Best Retail Bank nomination. RETAIL LENDING Loan portfolio changes In 2011, the Bank provided more than 4.3 million retail loans for a total value of RUB 1,230 billion, or 1.7 times the figure for 2010. This resulted in a 36.8% increase in our retail loan portfolio, which is now worth RUB 1,806 billion. Developing our product range In the first quarter of 2011, the Bank launched a new retail product range that envisages individual lending terms for different borrower groups: employees of the Bank and its subsidiaries, employees of cor- porate customers that participate in salary programmes, etc. Discounts to interest rate are available for borrowers with good credit histories. In 2011, Sberbank increased its market share in the mortgage lending segment from 45.8% to 46.9%, thereby strengthening its leading posi- tion in this market segment. This was largely driven by special offers re- sulting in more than 60,000 new loans issued for RUB 65 billion. These offers included V Desyatku! (All Tens: interest rate 10% p.a., initial deposit 10%, maturity 10 years) and Vozmi za 8 (Take it for 8: interest rate 8% p.a., maturity up to 8 years, decision made within 8 days). The Bank has been, and is still, actively involved in programmes such as Government-Backed Mortgages, Building Societies, Military Mortgages, Mortgages Plus Child Benefit and Mortgage Refinancing. Car lending is another important line in the Bank's retail business. In 2011, the Bank simplified and expedited its lending process. Bor- rowers may now apply for a car loan directly at dealerships through Sberbank's automated systems, which significantly reduces the ap- plication processing time. Furthermore, written consent is no longer required from a borrower's spouse to collateralise vehicles purchased under the loan. To get a car loan, applicants now have to provide only two documents. High Speed, Low Cost is a special offer we launched in 2011 to offer car loans at affordable rates. It helped buck the trend of our declining car loan portfolio. During the promotion campaign, Sberbank issued about 73,000 car loans for RUB 29 billion. In the consumer lending business, according to the Bank's principles a borrower's creditworthiness and ability to repay the debt affects the cost of lending. In 2011, the Bank introduced two new borrower categories. The first is young people aged between 18 and 20. Loans to these borrowers are guaranteed by their parents. Loan conditions stipulate a required length of current employment of 4 months. The second is pensioners whose pensions are paid into a Sberbank account. Sberbank continued to improve its value propositions for consumer loans: the maximum limit for uncollateralised loans and loans guar- anteed by individuals was doubled. Additionally the upper age limit to qualify for an uncollateralised loan was increased to 65 years and a pilot project to relax the requirements for a borrower's residence registration was launched. The Bank continued its involvement in the Experimental Government- Backed Student Loan Programme. Considering past experience, Sber- bank simplified the type of university certificate to be submitted by the 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU management report#12SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT RETAIL BUSINESS 2011 A 23 22 22 << management report borrower to confirm academic performance, improved relationships with universities and revised the criteria for selecting educational institutions and assessing students' performance. Over the year, our student loan portfolio grew 20% to almost RUB 380 million. With a market share of 32.0%, Sberbank is the largest retail lender in Russia The Bank continued its involvement in the state programme to develop agriculture. More than 57,000 smallholder loans for over RUB 10 bil- lion were granted in 2011. Smallholders were permitted to borrow up to RUB 1 million per year, whereas previously this limit had applied to total debt. In addition, the timeframe in which a report on intended use of the loan must be submitted was extended from 45 to 90 days. Improving the lending process In 2011, consumer loans, car loans and major mortgage lending pro- grammes were provided through our Loan Factory platform, which was designed to increase the efficiency of lending process and enhance service quality without impairing the quality of loan portfolio. Loan Factory technology was successfully rolled out at all territorial banks. In 2011, 6.4 million loan applications were submitted (3 million in 2010) and over 4 million loans for RUB 690 billion were extended through the Loan Factory platform (2 million loans for around RUB 290 billion in 2010). The Banker magazine ranked our Loan Factory project as "highly rated" in the Innovation in Risk Management Technology category of its 2011 Banking Technology Awards. The project was also recog- nised as the largest project presented in the contest. Retail lending in the regions With a market share of 32.0%*, Sberbank is the largest retail lender in Russia. We offer our retail lending products in all regions of Russia. Our market share varies by region depending on different economic factors. As of 31 December 2011, Sberbank accounted for 19.2% of the Moscow market** and 45.2% of the market in the area served by Zapad- no-Uralsky Bank***, which represent, respectively, our minimum and This data is calculated as of 31 December 2011 for Sberbank as a whole. This data includes the aggregate share of Sberbank's territorial banks and the Central Office in the Moscow market. *** Zapadno-Uralsky Bank operates in the Perm Territory, Komi Republic and the Republic of Udmurtia. This data includes the ag- gregate operations of Sberbank's territorial banks and the Central Office in the territory. maximum shares in the retail lending segment. As of 31 December 2010, the smallest and largest market share was recorded in the same territories (16.9% in Moscow and 46.4% in the area served by Zapadno-Uralsky Bank). RETAIL DEPOSIT OPERATIONS While retail deposits remained a key source of funding for the Bank's operations, their level grew more slowly than that of lending volumes, reflecting an overall trend in the banking sector. Furthermore, ag- gressive policies adopted by our competitors contributed to a decline in Sberbank's share of the deposit market. With all these factors in mind, the Bank shifted its focus in 2011 towards stimulating the inflow of retail deposits through improved value propositions. Our new offers - Save Online, Top-Up Online and Manage Online with higher interest rates are only available through Sberbank Online, our online banking platform. To attract more customers, we also launched International, a new savings account that can be opened in British Pounds Sterling, Swiss Francs or Japanese Yen. Aside from a guaranteed interest rate, account holders can also benefit from foreign exchange rate change. Retail deposit operations in regions The Bank's retail deposit balance rose 18.4% year-on-year to RUB 5,726 billion, with the influx primarily driven by term de- posits. Over the year, the number of retail deposits increased by 23 million to more than 364 million. With a market share of 46.6%*, Sberbank has the largest portfolio of personal savings deposits in Russia. The Bank offers its deposit products in all regions of Russia. Our market share varies by region depending on different economic factors, including the competitive landscape in each particular region. As of 31 December 2011, Sberbank occupied 33.7% of the Moscow market** and 71.5%*** of the market in the area served by Srednerussky Bank, which represent, respec- tively, our minimum and a maximum shares in the retail deposit markets of our territorial banks. As of 31 December 2010, the smallest and largest market shares were recorded in the same regions (34.9% in Moscow and 72.1% in the area served by Srednerussky Bank). a whole. ** This data is calculated as of 31 December 2011 for Sberbank as This data includes the aggregate share of Moskovsky Bank and Sberbank's Central Office in the Moscow market. *** Srednerussky Bank operates in the Bryansk Region, Kaluga Region, Moscow Region, Ryazan Region, Smolensk Region, Tver Region and Tula Region. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU management report#13SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT RETAIL BUSINESS 2011 A management report 24 OTHER RETAIL BANKING SERVICES Cash and settlement services Cash and settlement services remain the most significant service line in terms of transaction volume and income from fees and com- mission. In 2011, commission income on retail cash and settlement services amounted to RUB 41.5 billion or 27.3% of total income from fees and commission. Processing payments from individuals is the service that accounts for the bulk of the Bank's business. The aggregate volume of pay- ments processed in 2011 was more than RUB 1.8 trillion, with the total number of payments approaching 1 billion. Payment's volume growth was driven by improvements in billing technologies and the expansion of self-service and online banking channels. Payments made using billing technologies accounted for more than 74% of total payments processed by the Bank. In 2011 the Bank launched its Auto-Payment service, which allows customers to automatically top up their mobile phone accounts di- rectly from their bank card accounts. By the end of the year, a total of 1.1 million people were taking advantage of this service. Sberbank continued to grow its share in the highly competitive money transfer market. The number of transfer orders amounted to around 25 million and the total volume of such orders was more than RUB 750 billion. BLITZ express international money transfers between Sberbank divi- sions in Russia and subsidiary branches in Kazakhstan, Ukraine and Belarus are gaining popularity, with the number of transfers exceed- ing 340,000 in 2011. Additionally, more than 8,200 Sberbank outlets provide express money transfer services through the international MoneyGram system. In 2011, the Bank processed a total of 150,000 transfer orders for USD 119 million. Sberbank successfully competed with other banks in payroll and pension-related bank account transfers. The Bank maintains payroll accounts for over 50% of Russia's workforce. 95% of people who re- ceive pensions from national security, defence and law enforcement agencies do so through a Sberbank account. 46% of social pensioners receive their pensions through Sberbank. Throughout 2011, the num- ber of people receiving their salaries and pensions through Sberbank rose from 43 million to 48 million. In thousands Bank cards Bank cards are the second largest business generating fee and com- mission income of RUB 35.1 billion or 23.1% of total fee and com- mission income earned in 2011. The rapid growth of this business helped extend Sberbank's lead over its competitors. Number of active cards Including credit cards Number of ATMs Number of active retailers and service providers using the Bank's acquiring service 2011 2010 Change, % 68,626 51,390 33.5 4,327 1,927 124.5 34.5 27.9 23.7 137.0 100.2 36.7 In terms of the number of cards issued, Sberbank remains the absolute leader not just in Russia but in the whole of Europe. The Bank also became Russia's largest credit card lender in 2011. In 2011, Sberbank successfully completed a number of major initiatives in this area, including issuing the first ever 3D card in Russia, virtual cards for secure online banking, individually designed cards based on an image created by our customers or selected from our existing image gallery, cards that can be issued instantly and cards that can be used as metro passes. In celebration of the Bank's 170th anni- versary, we launched Thank You from Sberbank, a customer loyalty programme that allowed cardholders to earn bonus points on each purchase they make using their Sberbank card. These bonus points could then be used to pay for goods and services in participating stores. Insurance products Sale of insurance programmes played a prominent role in boosting income from fees and commission in 2011. The Bank earned RUB 14 billion from insurance programmes in 2011, which represented 9.2% of total fee and commission income. 2011 saw continued growth in our insurance business, propelled by the expansion of existing programmes and the launch of new products. Corporate Insurance, a programme focused on individual entrepreneurs and corporate customers, was introduced across the Bank's branch network. The Bank rolled out its voluntary life insur- ance and health insurance programmes to cover mortgage borrowers. Clients can now buy travel insurance, accident and illness insurance and card fraud insurance policies at each retail branch. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 25 Λ management report#14SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT RETAIL BUSINESS 2011 A 26 P management report As a result, by the end of the year, the Bank, in collaboration with its partner insurance companies, was in a position to offer an extensive range of insurance programmes, including: life and health insur- ance; accident and illness insurance; pledged property insurance; domestic and international travel insurance; card fraud insurance; and cumulative and unit-linked life insurance. More than 2.7 million clients, including over 10,000 corporate cli- ents, benefited from our insurance programmes in 2011. With about 2.1 million clients, voluntary life insurance proved to be the most popular insurance product. All the insurance programmes we offer are voluntary. Clients can turn down any of the policies we offer without the risk of being denied access to any banking services. In 2011, the Bank introduced a re- fund scheme for clients withdrawing from voluntary life and health insurance programmes. The Bank also offers assistance to clients in difficult insurance-related cases. Sberbank has acquired a life insurance company, which will be used as a base to further expand our insurance product offerings. The division will focus on cumulative and unit-linked life insurance. In addition to traditional life insurance products, the Bank offers mandatory pension insurance to its private and corporate clients. Over 250,000 policies were sold in 2011. Other banking services Sberbank also offered other services to retail clients in 2011: - Foreign exchange transactions - foreign exchange transactions were performed at over 9,000 Bank outlets and amounted to the equivalent of USD 15.6 billion. Selling coins of precious metals-within "Worldwide Coins - though Sberbank of Russia" programme more than 1.2 million coins were realised. Leasing individual safety deposit boxes-241,000 safety deposit boxes are available at over 1,000 outlets. - Paying grants and copyright royalties under agreements with charity foundations - the aggregate volume of payments amount- ed to around USD 600,000 in 2011. - Selling lottery tickets under agreement with Sportloto LLC to sup- port the Sochi 2014 Winter Olympic and Paralympic Games. Retail sales and services The Bank continued to develop its full service telephone contact cen- tre to provide round-the-clock customer support via telephone and through other multimedia channels across Russia. A new platform in Volgograd was added in 2011 to the existing four platforms operat- ing in Moscow, Voronezh, Ekaterinburg and St. Petersburg. The total number of employees in the centres increased from 833 to 1,760. The growing number of calls handled each day (which increased from 57,000 in 2010 to 132,000 in 2011) serves as proof of the high level of demand for call centre services. Despite the rapidly expanding workload, the contact centre remains a high performing business unit: two thirds of all calls are answered within 40 seconds. We are actively developing our remote sales channels to ease the workload on service outlets and simplify operations for customers. Over the reporting year, the percentage of transactions processed through remote channels grew from 57% to 71%. The number of cash machines and payment terminals increased 1.3 times in 2011 to reach 56 thousand. The number of active users of our Mobile Bank service soared to 5.3 million or 3.8 times the figure from 2010, while the number of customers using Sberbank Online rose to 2.4 million or 3.4 times what it was in 2010. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 27 ^ management report#15management report A 28 1850 Savings banks were opened in Pskov and Novgorod SBERBANK 170 YEARS. BY YOUR SIDE €1856 During the coronation festivities in Moscow, Russian engineer A.I. Shpakovsky created an illumination in front of the Lefortovskiy Palace using his own system of ten arc lights. 1850-1860 1850 Russian physicist Boris Semyonovich Jakobi created the world's first teleprinter. 1850 The number of savings banks at public charity departments in Russia reached 42. 1853 Savings banks operation activity expended: in St. Petersburg they started to work five days a week, in Moscow three days a week. 1852 The total amount of deposits in all savings banks was 490,000.00 roubles, including 231,000.00 roubles kept by provincial officials. 170 YEARS. IT'S JUST THE BEGINNING OPENNESS AND GOODWILL A DRIVE FOR PERFECTION INITIATIVE AND CREATIVITY TEAMWORK AND EFFECTIVENESS RESPECT FOR TRADITIONS TRUST AND RESPONSIBILITY INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) 1856 ANNUAL REPORT 2011 24 year old Pavel Mikhailovich Tretyakov acquired the first works of contemporary Russian painters and founded the Tretyakovskaya Gallery. A massive reorganisation was the outcome of the inter-departmental committee, established in 1858. The savings banks received state status and became an integral part of the Russian banking system 20 Николай Иванович ПИРОГОВ 1855 1833-3883 During the Crimean War, Russian surgeon Nikolai Pirogov was the first person in the history of world medicine who applied a plaster bandage for the expedited treatment of fractures and sprains. 1851 A double track railway between St. Petersburg and Moscow was constructed. 1855 515 savings banks and 1,178 auxiliary offices operated in the villages. 1857 More than 87,000 people were registered as savings banks' clients. The total amount of deposits exceeded 4 million roubles. WWW.SBERBANK RU 1859 Russian chemist Nikolay Nikolaevich Beketov discovered the restoration of metals from their oxides using aluminum and gave birth to the process of aluminothermy in metallurgy. 1858 A commission on the reorganization of the savings business was created to determine the nature of business and departmental subordination of savings banks. 29 management report#16management report Λ 30 SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CORPORATE BUSINESS 2011 S Corporate Lending 30 Corporate deposit operations 32 Corporate banking services 32 CORPORATE LENDING CORPORATE BUSINESS berbank accounts for one third of the total loan portfolio of Russian banks, which marks the Bank out as a key investor in the Russian economy. The Bank extended over RUB 5.5 trillion in loans to corporate borrowers in 2011, up 28% on the previous year. Our corporate loan portfolio expanded 35.0% year-on-year to RUB 6.6 trillion. Territorial banks across the country account for more than half of our corporate loan portfolio. We offer our corporate loan products in all of Russia's regions. Our market share varies by region depending on economic factors. As of 31 December 2011, Sberbank accounted for 24.9% of the Moscow market and 47.6% of the market in the area served by Tsentralno- Chernozemny Bank*, which represented our minimum and maximum * Tsentralno-Chernozemny Bank operates in the Belgorod Region, Voronezh Region, Kursk Region, Lipetsk Region, Orel Region and Tambov Region. This data includes the aggregate operations of Sberbank's territorial banks and the Central Office in the territory. market shares respectively in the corporate lending segment. As of 31 December 2010, the smallest and largest market shares were recorded respectively in Moscow (22.8%) and in the area served by Zapadno-Uralsky Bank* (55.4%). The Bank works closely with large borrowers and small- and medium- sized businesses. Preference is given to borrowers with a good credit history that conduct a substantial part of their business through Sberbank. CORPORATE LOAN PORTFOLIO BY CUSTOMER SEGMENT AS OF 31 DECEMBER 2011 Large corporate customers Medium-sized businesses Small business customers Government bodies Total Portfolio share, % 58.1 27.4 10.3 31 4.2 Λ 100.0 To better serve our large- and medium-sized corporate customers, the Bank set up a system of client managers, improved its product and service offerings and introduced a renewed range of overdrafts, revolving credits, trade and export finance and cash and settlement services. Small business lending is one of the Bank's priorities. The cumulative volume of small business loans extended in 2011 was more than RUB 650 billion, while the number of customers rose above 100,000. For details, please see the Contributing to the Economic Development of the Country section of this report. CRM Corporate, our automated customer relationship management sys- tem, has been designed to promote mutually beneficial relationships with corporate customers. Significant emphasis is placed on developing the system. This high-tech system currently operates a lending process for large- and medium-sized businesses, while in the future its func- tions will be expanded to cover small and micro loans and distressed assets. The CRM Corporate project has been recognised internation- ally, winning bronze prize for Project Excellence in Big-Sized Projects at the 2011 IPMA Awards International Congress. Sberbank was the only bank that made it to the finals of this prestigious international award. The project also won the Banking Technology Award in the Best Use of IT in Wholesale/Transaction Banking category. Zapadno-Uralsky Bank operates in the Perm Territory, Komi Republic and Republic of Udmurtia. This data includes the aggre- gate operations of Sberbank's regional banks and the Central Office in the territory. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU management report#17SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CORPORATE BUSINESS 2011 A 33 Λ management report 32 CORPORATE DEPOSIT OPERATIONS The focus in 2011 was on generating customer loyalty by improving service quality. A substantial liquidity buffer maintained for the most part of the year allowed the Bank to adopt a more conservative approach to pricing in contrast to its competitors. Consequently, Sberbank's market share in the corporate deposit segment declined from 15.9% to 14.5%. The number of corporate deposits held by the Bank rose from 1.79 mil- lion to 1.84 million over the year. The average daily balance in cor- porate deposits totalled RUB 1,871 billion, up 5.7% on the previous year. Corporate customers kept 62% and 38% of their deposits in cur- rent and savings accounts respectively. In 2011 the Bank introduced fixed public deposit rates for funds invested by corporate clients in fixed term instruments. Corporate customers can enter into a de- posit agreement, including deposits with a fixed minimum balance, on the Bank's website. The number of corporate deposits held by the Bank rose to 1.84 million over the year The Bank offers its corporate deposit products in all regions of Russia. Our market share varies by region depending on economic factors. As of 31 December 2011, Sberbank accounted for 10.6% of the Moscow market and 57.3% of the market in the area served by Baikalsky Bank*, which represented minimum and maximum market shares respectively in the corporate deposit segment among Sberbank's regional banks. As of 31 December 2010, the smallest and largest market shares were recorded in the area served by Severo-Zapadny Bank (11.0%) and in the area served by Baikalsky Bank (44.5%) respectively. CORPORATE BANKING SERVICES Cash and settlement services In 2011 Sberbank launched a Unified Banking Service Agreement, a new product that provides access to banking service packages (currently 10) without the need to execute additional agreements. The terms and conditions are available on Sberbank's website (www.sbrf.ru, www.sberbank.ru, hereinafter, the Bank's website) and are applied uniformly by all branches. * Baikalsky Bank operates in the Zabaikalsky Territory, Irkutsk Region and the Republic of Buryatia. Two new product offerings for holdings and companies with multiple branches are Single Account Balance and our Groupwide Overdraft Facility. One of the individual service proposals we offer is integration into the holding company's accounting system through a common payment gateway to help the holding company centralise cash and settlement services for its subsidiaries and affiliates. We also launched Sberbank Corporation, a centralised IT platform designed to expand the Bank's product offerings for holding companies. The rollout of Sberbank Business Online, a centralised remote service system, was continued in 2011, with over 260,000 customers using the system by the end of the year Intensive efforts to unify service fees for corporate customers resulted in the creation of a unified list of fees for 90 services. The list is uni- formly applied by all of the Bank's branches in each constituent entity of Russia (though in some areas separate fees are established for large cities). This effort helped us considerably improve tariff performance across the Bank and had a positive impact on customer loyalty. The rollout of Sberbank Business Online, a centralised remote service system, was continued in 2011, with over 260,000 customers using the system by the end of the year. Bank of New York Mellon gave Sberbank a Quality Recognition Award for providing high quality payment processing services in US Dollars. Sberbank also received a 2010 STP Award from Commerzbank AG (Germany) in recognition of the excellent quality of payment orders routed through Sberbank's euro correspondent account with Com- merzbank AG in Frankfurt am Main. Two other awards, the 2010 USD STP Excellence Award and the 2010 EUR STP Excellence Award, were given to Sberbank by Deutsche Bank AG for excellence in straight through processing of payments in US Dollars and euros. International economic activities and currency control The total volume of transactions served by Sberbank in 2011 under contracts for the export and import of goods, performance of work, provision of services and transfer of intellectual property between residents and non-residents, and under commission agreements in foreign trade deals between residents, totalled USD 153.7 billion, up 9.2% on the previous year. The Bank opened deal passports for 99,000 foreign trade deals, which were added to its service portfolio. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU management report#18management report 34 Λ SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CORPORATE BUSINESS 2011 Trade finance and documentary transactions The volume of the Bank's trade finance and documentary business in 2011 exceeded RUB 1 trillion, making us the undisputed leader in the Russian banking sector. The volume of the Bank's trade finance and documentary business in 2011 exceeded RUB 1 trillion The volume of our documentary business, which covers import, export and domestic letters of credit, documentary collections, international guarantees and guarantees against counter guarantees, exceeded the equivalent of RUB 900 billion. The volume of domestic letters of credit was more than RUB 37.4 billion or 1.5 times the figure for 2010. In 2011, the Bank executed over 950 trade finance transactions us- ing various instruments for RUB 176 billion (or 1.5 times the figure for 2010), of which more than RUB 114 billion was raised through 46 transactions under bilateral agreements with foreign banks. The major lenders under trade finance transactions were Bank of America Merrill Lynch, Bank of New York Mellon, Citibank, Commerzbank, Mizuho Corporate Bank and the Royal Bank of Scotland. Sberbank de- veloped the following types of trade finance transactions: post-import financing, ECA-backed financing, target financing, LOC transactions and issuing reimbursement undertakings and guarantees on the instruction of Russian and CIS banks, etc. FCTAR 1840s The Board of Trustees on Solyanka Street The first Moscow Savings Bank was opened on 5 April, 1842 in the building of the Foster Home Board of Trustees on Solyanka Street 1840s Russian peasants The primary distinction and advantage of savings banks was that they were "the bank for all the population, for masses, but not for certain groups or classes". Results of the first year of operation turned out to be rather encouraging. During the year 1842, 38.6 thousands of roubles were deposited to 2,400 savings books in the Saint-Petersburg savings bank, and 15.6 thousands of roubles were deposited to 848 books in the Moscow one 1840s Silver rouble of Nikolay I period In 1840, as the result of monetary reform, the silver rouble became the main monetary unit. It helped to stabilize the country's financial system and to clear the way to savings banks establishing 1850s Alexander II 1855, Alexander Il acceded to the Russian throne. The period of his reign was marked with the epoch of Great Reforms. One of the first reformations was the reorganisation of the country's credit and banking system 1850s Nikolaevsk-on-Amur. Photo of the late 19th century Nikolaevsk-on-Amur was founded in 1850. But in about 15 years the first Far East savings bank was opened there within the course of active extension of the savings banks network 1860s The Charter of the City Savings Banks. 1862 In 1862 a new savings banks' charter was approved by Alexander II. The capital savings banks were now working at the State Bank offices. Savings banks appeared "in all towns, suburbs and neighborhoods under a town's supervision" 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU Λ 35 management report#19management report Λ 36 SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT OPERATIONS ONFINANCIAL MARKETS 2011 Money market operations, foreign currency and precious metals trading 37 Securities transactions 38 FINANCIAL MARKETS OPERATIONS ON uring the first six months of 2011, foreign currency liquidity remained stable. With the goal of increasing the share of long-term liabilities in our overall foreign currency liability portfolio, Sber- bank issued Eurobonds for the total value of USD 1 billion and raised a syndicated loan in the amount of USD 1.2 billion in the second half of the year. These efforts, along with foreign currency deposits from customers, allowed us to reduce the volume of foreign currency repo transactions by almost USD 1.4 billion. The surplus liquidity in foreign currency was deposited with leading Western banks and then used in swap transactions to maintain Ruble liquidity. Surplus Ruble liquidity with a downward trend prevailed for the better part of the year. Sberbank invested surplus Ruble liquidity by participating actively in interdealer reverse repo transactions and interbank lending activities. In the fourth quarter, Ruble liquidity shrank sizably, mostly due to lending transactions. To restore liquid- ity, Sberbank raised capital on the interbank money market, entered into swap deals and raised funds from the Bank of Russia through repo transactions. MONEY MARKET OPERATIONS, FOREIGN CURRENCY AND PRECIOUS METALS TRADING Throughout 2011, Sberbank maintained its position as a key player on the interbank lending market and domestic foreign currency mar- ket. The total volume of foreign exchange transactions on the inter- bank and stock exchange markets reached RUB 33.3 trillion, while deposit transactions (interbank lending and redistribution of funds among banks) totalled RUB 72.7 trillion. The value of foreign exchange and deposit transactions with the currencies of CIS states and other former Soviet Republics was more than RUB 20 billion. On the derivatives front, much attention was given to developing our customer base and trading infrastructure and to promoting deriva- tive products for corporate customers. For transactions with corpo- rate customers, the Bank drafted a template agreement governed by English law and a framework agreement governed by Russian law, and developed guarantee mechanisms (a share pledge and collateral agreements) for derivative transactions. The Bank also actively pro- moted a new product range incorporating interest rate derivatives and structured deposits. Derivative transactions with customers totalled USD 7 billion in 2011. According to expert estimates, Sberbank's share in the derivatives market increased from 1-2% to 10%. Sberbank maintained its position as a key player on the interbank lending market and domestic foreign currency market There was a lot of activity on the foreign currency trading market in 2011 due to highly volatile exchange rates. As a result, Sberbank increased the volume of bank note transactions to USD 18 billion or 1.5 times the figure for 2010, while its share of import and export trading of foreign currency grew from 22.4% to 36.7%. The total volume of precious metals trading transactions outside Russia, excluding swap deals, rose by a factor of 1.2 to USD 7.6 billion, while swap deals dropped from USD 4.9 billion to USD 2.6 billion, mainly because there was no need to use the swap mechanism as a source of US Dollar funding throughout most of the year. ^ 37 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU management report#20SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT OPERATIONS ONFINANCIAL MARKETS 2011 Λ management report 38 SECURITIES TRANSACTIONS Trading in securities Sberbank's securities portfolio decreased 10.8% to RUB 1,626 bil- lion at year-end. Repayment of the bonds by the Bank of Russia for RUB 430 billion provided Sberbank with additional Ruble liquidity (these securities were acquired for liquidity management purposes). The Bank acquired other securities throughout the year, predominantly those included in the Bank of Russia's Lombard List, which ease an access to additional liquidity should the need arise. The most notice- able increase was observed in corporate bonds. To achieve a wider diversification of our securities portfolio, we con- tinued to expand into new segments of the debt market, such as Eurobonds issued by sovereign borrowers in the CIS (including Ruble- denominated bonds issued by the Republic of Belarus), Eurobonds issued by CIS-based corporate issuers and sovereign bonds issued by emerging market countries (Turkey and Brazil). Citigroup Fund- ing Inc. and Barclays Bank PLC's Ruble-denominated bonds were added to the Bank's securities portfolio. At the end of 2011, Sberbank was the undisputed leader on the domestic bond market by the size of securities portfolio and one of the market leaders in terms of the volume of deals. Sberbank received the 2011 REPO Market Dealer Award from the Na- tional Stock Exchange Association, the leading professional organisa- tion of members of the Russian securities market, for its significant contribution to the development of the Russian stock market. Brokerage services Sberbank is successfully expanding its brokerage business. Starting in the first quarter of 2011, the Bank began providing brokerage ser- vices on the OTC market: eurobonds, depositary receipts, participatory interests in foreign mutual funds and other foreign securities are offered for trading to clients. In the second quarter of 2011, the Bank launched brokerage services on FORTS, the RTS futures market. Futures contracts for shares, foreign currency rates, MosPrime rates and the RTS index are now available for clients. In October-November, Sberbank was ranked the best FORTS broker by number of new clients. The third quarter saw the launch of the Unsecured Transaction Service on MICEX (margin trading), the major brokerage project of the year. In September, the service was expanded across Russia, with more than 670 points of sale where brokerage contracts are signed using an Internet trading service. Based on investment bank ratings published by Cbonds, Sberbank and Troika Dialog together were the top bond issue arranger on the Russian bond market in 2011 Thanks to the extensive product range that Sberbank was offering by the end of the year, the Bank is now well placed to compete with major brokers. The Bank's client base grew 12% year-on-year, with the number of new internet-banking clients increasing 2.4 times to 28,300. The average monthly volume of brokerage deals, excluding repo transactions, was around RUB 55 billion, up 1.5 times year-on- year. The share of Internet client transactions increased from 52% to 81%. In December 2011, Sberbank was awarded the Breakthrough of the Year Award for Outstanding Achievements in the Development of a Civilised Market of Qualified Investors in Russia. The award is bestowed for promoting and providing real substance to the concept of qualified investors. The award was founded by IMAC, a Russian consulting company that specialises in providing legal, financial and investment advice to domestic and foreign participants on the Russian financial markets. Underwriting services In 2011, the Bank provided underwriting services following the in- tegration of Troika Dialog, a Russian investment company. In 2011, Sberbank and Troika Dialog placed or assisted in placing 65 third-party bond issues worth close to RUB 200 billion at par. The share of Sber- bank and Troika Dialog in total Ruble-denominated bond placements was 20%. Based on investment bank ratings published by Cbonds, Sberbank and Troika Dialog together were the top bond issue arranger on the Russian bond market in 2011. A 39 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU management report#21SBERBANK 170 YEARS. BY YOUR SIDE OPERATIONS ONFINANCIAL MARKETS ANNUAL REPORT 2011 A management report 40 Depository services The Sberbank Depository continues to be one of Russia's largest. The number of custody accounts increased 3.5% to 250,000. The market value of customer assets in custody grew 24% to exceed RUB 2 trillion. In 2011, the Depository served as the underlying asset sub-custodian for the issue and clearance of depository receipts issued by JP Morgan Chase Bank N.A. for shares in major Russian companies. The Deposi- tory introduced an ADR programme for Rostelecom shares. A programme of depository receipts issued by Bank of New York Mellon for Sberbank ordinary shares was introduced in 2011. The Depository supported programmes for Russian depository receipts for UC RUSAL shares, including issuing and clearing depositary re- ceipts and managing votes for the Russian market in connection with UC RUSAL shareholders' meetings. Jointly with JP Morgan, the Sberbank Depository transferred a pro- gramme to issue and clear depositary receipts for shares in Rosneft from JP Morgan Chase Bank N.A. to JP Morgan AG (Germany). Based on client feedback on service quality, Global Custodian ranked the Sberbank Depository Domestic Commended as the domestic de- pository of choice. Mutual funds In 2011, the total volume of requests to purchase shares in mutual funds that we processed amounted to RUB 2.3 billion, up 7 times year on year. Such a rapid growth in the volume of mutual fund operations is attributable to the fact that we created the Sberbank Management Company at the end of 2010 which is now accounts for 80% of over- all mutual fund investments raised by the Bank. Additionally, the number of agency desks that process requests more than doubled. 1880s The Factory Building. Engraving. 1871 In 1889 the State Bank was allowed to open savings banks branches at the factories and plants. By 1 January, 1895, 14 plant banks operated, with 79,954 roubles deposited on the 929 savings books. The majority of these banks were situated in St. Petersburg 1880s Post and telegraph office building In 1889 a law on establishment of Russian post and telegraph offices was passed. It allowed many rural people to join the ranks of savings institutions' depositors. Peasants in a relatively short period occupied a leading position among the depositors and retained this position until 1917 1890s State Bank Employees. The beginning of the XX century In 1895 under the State Bank Council the Savings Banks Directorate was established with the intention of being the central control authority. The main difference of the new Charter was changing the savings banks establishing order. Since than the Minister of Finance could issue an order to establish banks in all financial institutions departments, in any state, public or private institution 1890s Railway bridge over the Ob River. 1897 From the very first years of development of the savings system, long-term deposits of the population became the sphere of State interest. Thanks to the funds received from the savings banks, during the three fourths of the century there were built over 12,000 km of railways and almost 15,000 railway bridges, established new ports and reconstructed the old ones, organized the Volunteer Navy 1890s Zolotoy Rog Bay. Vladivostok. Early 20th century In May 1896 Emperor Nikolay Il established the Regulation on the Port construction in Vladivostok: "The commercial port to be built in Zolotoy Rog bay... to the south, nearer to the Egersheld cape". In many ways the project was realised using governmental loans that meant the funds were partly sourced from savings banks' accounts which deposits exceeded one thousand roubles 1900s The station Arhipovka on the Trans-Siberian railway. Colorized photograph. The end of the XIX century In the 1900-1902s savings banks were opened at the stations of state-owned and private railways. It was a whole new type of institution that wasn't similar to neither European nor the American one. Since then the customer just needed to reach the nearest railway station to put money on his savings book, instead of going to the district center 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU A 41 management report#22SBERBANK 7 1861 The Moscow Public Museum was founded in Moscow. Later the library of the museum was the basis for the organisation of the Russian State Library, the largest Russian public library nowadays. 170 YEARS. BY YOUR SIDE 1860 → The Emperor signed a decree establishing the State Bank of the Russian Empire on the basis of the State Commercial Bank. 1866-1867 Russian inventor Peter Pavlovich Knyagininsky created the world's first typesetter. It was a lettersetting machine with a program control by paper tape. A management report 42 The new Charter of Savings Banks was approved by Emperor Alexander II in 1862 allowing banks to be opened in all cities and towns of Russia. Banks were no longer limited by the two capitals and the age of its wide regional presence had started 1861 Serfdom was abolished. Emperor Alexander II is reading the manifesto on the liberation of the serfs to his people. < 1861 The first Russian chemistry textbook "Organic Chemistry" was published. The author was Dmitriy Mendeleev who would discover in 1869 the famous periodic law which became one of the most outstanding achievements of mankind. 1860 By the order of Emperor Alexander II the savings banks were passed from the Board of Trustees and the Ministry of Interior to the Ministry of Finance. Beginning of the 1860s The result of two years work 1860 of interdepartmental commission was transferring the savings banks under State Bank authority, where a special control department was set up. Savings banks were established at all offices and departments of the State Bank. The interest paid in state banking institutions was decreased to 2 percent, but the savings banks continued to accept deposits at 3 percent per annum. 170 YEARS IT'S JUST THE BEGINNING TRUST AND RESPONSIBILITY OPENNESS AND GOODWILL A DRIVE FOR PERFECTION INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) 1860 The Moscow savings bank served more than 500 people a day. WWW.SBERBANK RU 1864 ANNUAL REPORT 2011 A gunnery Officer Nicholay Teleshov developed an airjet pulse engine which was the prototype of all modern jet engines. 1860-1870 1867- A group of prominent composers known as the "Mighty Handful" were joined by the music critic Vladimir Vasilevich Stasov. 1862 Under the new Charter of the savings banks, approved by Alexander II, full control of the savings banks was delegated to the State Bank. 1860s Within a decade, savings banks were opened in Kazan, Astrakhan, Tsaritsyn, Tomsk (the first in Siberia), Rostov-on-Don, Simbirsk (province of Twer), Nikolaevsk-on-Amur (the first in the Far East), Krasnoyarsk and many other cities. 43 management report#23SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT GOVERNANCE STRUCTURE 2011 management report 44 T Organisational Structure 44 Remuneration of Members of the Bank's Governing Bodies 50 Share Capital 51 Report on Payment of Declared and Accrued Dividends 52 ORGANISATIONAL STRUCTURE General Shareholders' Meeting GOVERNANCE STRUCTURE he General Shareholders' Meeting is the highest management body that makes decisions on the Bank's key business issues. The annual General Shareholders' Meeting was convened on 3 June 2011. The Meeting approved the 2010 annual report prepared according to the requirements of the Federal Securities Commission and the annual report based on the requirements of the Bank of Russia. The Meeting also resolved to distribute profits and pay dividends for 2010, approved the independent auditor for 2011, elected members of the Supervisory Board, the Statutory Audit Commission, the CEO and Chairman of the Management Board. In addition, the Meeting approved a new version of the Bank's Charter and decided on the payment of compensation to members of the Supervisory Board and the Statutory Audit Commission. The Bank's Charter contains a list of matters under the authority of the General Shareholders' Meeting. General Shareholders' Meeting Statutory Audit Comission Supervisory Board Supervisory Board Committees Management Board, CEO, Chairman of the Management Board Management Board Committees Subdivisions of the Central Office, Regonal Head Office and foreign branches Bank Collegium 45 Supervisory Board According to the Charter, the Supervisory Board is responsible for general management matters. The Supervisory Board is authorised to determine the Bank's business agenda, set up of the collegial ex- ecutive body- the Management Board, convene and prepare general shareholders' meetings, recommend the amount of dividends to be dis- tributed and the distribution procedure, and listen, on a regular basis, to the reports of the CEO and Chairman of the Management Board on the Bank's financial results and progress towards achieving top priority objectives, and other matters. The Bank's Charter contains a full list of matters under the authority of the Supervisory Board. In 2011 the Supervisory Board held 8 meetings to discuss various matters such as convening and preparing the annual General Share- holders' Meeting, the Bank's annual report for 2010, the distribution of profits and recommendations on dividend amounts, the Bank's auditor for 2011, the approval of a new version of the dividend policy, the activities of subsidiary banks and the creation of branches and representative offices abroad, progress on the implementation of the Strategy and Development Programme through 2014, integration with Troika Dialog, improving risk management, progress on the implementation of projects aimed at developing the Bank's corporate business and small business lending, the Bank's interim operating results, the results of audits by the Internal Control Function and the approval of related party transactions, and other issues. management report 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#24SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT GOVERNANCE STRUCTURE 2011 47 MEMBERS OF THE SUPERVISORY BOARD ELECTED ON 3 JUNE 2011 1 Sergey Ignatiev 2 Georgy Luntovsky 3 Alexei Ulyukaev 4 Nadezhda Ivanova 5 Anna Popova 6 Alexei Savatyugin 7 Valery Tkachenko 8 Sergey Shvetsov Sberbank management 9 Herman Gref 46 10 Bella Zlatkis A management report Independent and external directors 11 Sergei Guriev 12 Mikhail Dmitriev 13 Mikhail Matovnikov 14 Vladimir Mau 15 Rair Simonyan 16 Sergey Sinelnikov-Murylev 17 Alessandro Profumo Chairman of the Bank of Russia First Deputy Chairman of the Bank of Russia First Deputy Chairman of the Bank of Russia Director of the Consolidated Economic Department of the Bank of Russia Deputy Chief of Staff of the Government of the Russian Federation Deputy Minister of Finance of the Russian Federation Chief Auditor of the Bank of Russia Deputy Chairman of the Bank of Russia. CEO, Chairman of the Management Board of Sberbank Deputy Chairman of the Management Board of Sberbank Rector of the New Economic School, a privately funded graduate school President of the Centre for Strategic Research CEO of the Interfax Centre for Economic Analysis Rector of the Russian Presidential Academy of National Economy and Public Administration Chairman of the Board of Directors / Regional Coordinator of Morgan Stanley Bank Russia Rector of the Russian Foreign Trade Academy of the Ministry of Economic Development of the Russian Federation The Supervisory Board was elected by the General Shareholders' Meeting. It consists of 17 members who meet the qualification and reputation requirements defined by federal legislation and the regu- lations of the Bank of Russia. The procedure for electing members of the Supervisory Board is provided in the Charter. The Supervisory Board elected on 3 June 2011 includes members from the Bank of Russia, Russian Government and Sberbank, as well as independent and external directors. For more information on members of the Supervisory Board, please refer to the 2011 Annual Report, prepared according to Russian se- curities legislation and the Bank's website. Supervisory Board Committees The Supervisory Board committees are special-purpose bodies es- tablished to conduct a preliminary review of important matters fall- ing within the responsibility of the Supervisory Board, and to make relevant recommendations. The committees are formed annually from Supervisory Board members, with independent and external directors being included in each committee. The committees facilitate communications with the Bank's governance bodies. The committees' decisions are advisory in nature. The Audit Committee is responsible for the preliminary assessment of candidates for the role of the Bank's auditor, reviewing the auditor's and Statutory Audit Commission's reports, assessing the efficiency of the Bank's internal controls and preliminary review of the Bank's annual financial statements. As of 31 December 2011, the committee was chaired by Vladimir Mau, and the other members were Nadezhda Iva- nova, Valery Tkachenko, Rair Simonyan and Sergey Sinelnikov-Murylev. The Staff and Remuneration Committee aims to attract highly quali- fied experts for management roles within the Bank and to create incentives for them. As of 31 December 2011, the committee was chaired by Georgy Luntovsky, and the other members were Sergey Guriev, Vladimir Mau and Sergey Sinelnikov-Murylev. The Strategic Planning Committee is responsible for the preliminary review of matters pertaining to strategic management of the Bank's operations with a view to improving the Bank's long-term efficiency. As of 31 December 2011, the committee was chaired by Alexei Ulyukaev and the other members were Herman Gref, Mikhail Dmitriev, Anna Popova, Alessandro Profumo, Alexei Savatyugin and Mikhail Matovnikov. Management Board The CEO and Chairman of the Management Board and the collegial executive body- the Management Board - direct the Bank's current operations. The procedure for electing the CEO and Chairman of the Man- agement Board and the Management Board is provided in the Charter. In 2011, the Management Board considered the following matters: the feasibility of entering the investment banking market and acquiring Troika Dialog; the acquisition of a controlling stake in Volksbank International AG; changes in the compensation plan; re-formatting divisions; participating in charity events; a management concept for subsidiaries and associates; a depositary receipt programme; a pro- gramme to improve the efficiency of back office divisions; tapping the international capital markets; and establishing an integrated risk management system in line the principles of the Basel Accord and other matters. As of 31 December 2011, the Board was composed of 13 managers. In the course of 2011, Andrey Golikov and Evgeny Korolev resigned from the Board. Igor Artamonov joined the Board in June 2011. The Bank's Charter contains a list of matters under the authority of the CEO and Chairman of the Management Board and the Manage- ment Board. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU management report#25SBERBANK 170 YEARS. BY YOUR SIDE GOVERNANCE STRUCTURE ANNUAL REPORT 2011 49 ^ A management report 1 Herman Gref 2 Igor Artamonov 3 Sergey Gorkov 4 Andrey Donskih 5 Bella Zlatkis 6 Anton Karamzin 7 Stanislav Kuznetsov 8 Alexander Torbakhov 48 9 Denis Bugrov 10 10 Olga Kanovich 11 Victor Orlovsky 12 Alexander Bazarov Senior Vice President Senior Vice President Vice President, Director of the Corporate Clients Department Vice President, Director of the Finance Department For more information on the CEO and Chairman of the Management Board and Board members, please refer to the 2011 Annual Report pre- pared according to Russian securities legislation and the Bank's website. MEMBERS OF SBERBANK'S MANAGEMENT BOARD AS OF 31 DECEMBER 2011 CEO, Chairman of the Management Board Deputy Chairman of the Management Board Deputy Chairman of the Management Board Deputy Chairman of the Management Board Deputy Chairman of the Management Board Deputy Chairman of the Management Board Deputy Chairman of the Management Board Deputy Chairman of the Management Board Senior Vice President Staff Management Committee Subsidiaries and Associated companies Management Committee Committee for Addressing Conflicts of Interest Adopts decisions on human resource management, considers Central Office organisational structures and staff schedules Adopts decisions on key issues related to the implementation of the Strategy as regards subsidiaries and associates Adopts decisions on key issues related to the resolution and management of conflicts of interest arising at Bank level Bank Collegium The Collegium, a permanent collegial working body, has been op- erating at Sberbank since 2008. It comprises members of the Man- agement Board and heads of territorial and subsidiary banks. The body is a platform for discussion of strategic development issues and determining the best solutions with regard to the specific regional features of the Bank's activity. The Collegium met three times in 2011 in order to discuss and decide on such key matters as the management of work to re-format divisions across the Bank's branch network, launching a new retail business model, managing productivity and headcount and transforming the Bank's corporate culture. Statutory Audit Commission To supervise the Bank's business, the annual General Shareholders' Meeting elects the Statutory Audit Commission. The Statutory Audit Commission oversees the Bank's compliance with legal and other acts governing the Bank's activity, the exercise of internal control in the Bank and the legitimacy of its operations. The Statutory Audit Commission assesses the accuracy of information included in the Bank's Annual Reports and presented in its Financial Statements. MEMBERS OF THE STATUTORY AUDIT COMMISSION ELECTED ON 3 JUNE 2011 Deputy Director of the Accounting and Reporting Department, Head of the Division for Methodology, Implementation of Accounting Standards, Development and Updating of the Methodological Framework for Financial Reporting under International Standards, Bank of Russia Deputy Head of the Audit Department of the Moscow Branch, Bank of Russia Director of the Internal Audit Department, Bank of Russia Deputy Director of the Internal Control, Revisions and Audit Department, Sberbank Deputy Director of the Risk Department, Sberbank Deputy Chief Accountant, Deputy Director of the Accounting Department, Sberbank Head of the Financial Control Division of the Finance Department, Sberbank 13 Alexander Morozov Management Board Committees A number of collegial bodies (committees) were established under the Management Board to enhance the efficiency of management and the development of the Bank's business. Their main task is to resolve issues and establish a unified, coordinated policy across different lines of the Bank's operations. Corporate Business Committee Loans and Investments Committee Committee for Distressed Assets Retail Business Committee Retail Lending Committee Asset and Liability Management Committee Committee on Implementation of the Development Strategy Processes and Technologies Committee Adopts decisions on key issues related to the corporate business Adopts decisions on the most significant loans and related issues Adopts decisions on the key issues with respect to recovering loans and writing off bad debts Adopts decisions on key issues related to the retail business Adopts decisions on lending to individuals Adopts decisions on the management of the Bank's assets and liabilities, liquidity risk management and market risks 1 Vladimir Volkov 2 Lyudmila Zinina 3 Olga Polyakova 4 Maxim Dolzhnikov 5 Dmitry Kondratenko 6 Alexei Minenko Adopts decisions on technological development, manages the IT project portfolio, approves business process models 7 Yulia Isakhanova Adopts decisions on key issues related to implementation of the Development Strategy 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU management report#26SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT GOVERNANCE STRUCTURE 2011 Λ management report 50 REMUNERATION OF MEMBERS OF THE BANK'S GOVERNING BODIES The Staff and Remuneration Committee of Sberbank's Supervisory Board is authorised to establish the principles and criteria for deter- mining the remuneration of members of the Supervisory Board and the CEO and Chairman of the Management Board, as well as members of Sberbank's Management Board. The decision to pay remuneration to members of the Supervisory Board is made at the annual General Shareholders' Meeting. Management Board remuneration Salaries and bonuses are paid to members of the Management Board in accordance with contracts signed with the Chairman and Chief Executive Officer of the Bank and each Board member. The Bank does not pay any commission, nor use any stock options for the remunera- tion of Board members. In 2011, as well as in 2010, no stock options or interest-free or pref- erential loans were issued to Bank employees, nor were any other indirect incentive schemes offered (such as insurance or credit-deposit programmes). To control expenses with respect to Board members' remuneration, the following limits were set by the Bank's Supervisory Board: -Limits on regular salary. ― Limits on the bonus paid during the year subject to Sberbank's net profit and the performance and KPIs of a given Board member. ― Limits on the annual bonus paid as a percentage of the Bank's net profit. These limits are stipulated in each Board member's employment contract. Information on the value of payments to Management Board members is published on the Sberbank website as part of the Bank's quarterly reports. Payments made to Management Board members for 2011, excluding payments for business trips, amounted to RUB 1.96 billion, up 32% on 2010 (RUB 1.48 billion). Such growth is attributable to a 78.5% increase in the Bank's net profit from RUB 174.0 billion to RUB 310.5 billion. Total compensation to Board members accounted for 0.6% of net profit in 2011 (0.9% in 2010). This is the lowest percentage among major Russian banks. Bank of Russia Foreign legal entities Remuneration of members of the Supervisory Board and the Statutory Audit Commission Based on the decision of the General Shareholders' Meeting of 3 June 2011, remuneration of members of the Supervisory Board and the Statutory Audit Commission is as follows: Remuneration of Supervisory Board members - RUB 11.9 million (RUB 24 million in 2010); Remuneration of Statutory Audit Commission members for contrib- uting to the work of the controlling body - RUB 3 million (RUB 1.5 million in 2010 for 2009). SHARE CAPITAL As of 31 December 2011, the Bank's share capital totalled RUB 67.76 billion and consisted of 21,586,948,000 ordinary shares and 1,000,000,000 preferred shares with a par value of RUB 3. Sberbank's principal shareholder is the Bank of Russia, which owns the majority of the Bank's voting shares (60.25%). SHARE CAPITAL STRUCTURE Russian legal entities Foreign private investors Russian private investors 2009 2010 2011 57.58 57.58 57.58 24.26 32.12 33.43 9.49 4.21 4.16 0.01 0.01 0.01 8.66 6.08 4.82 Sberbank is a public company. Its shares are in free float on the Rus- sian stock market. In 2011 Sberbank shares continued to be the most liquid instruments on the Russian stock market; the average daily trading volume of Sberbank ordinary shares accounted for 34% of total trading on MICEX. An ADR programme was launched for Sberbank ordinary shares in June 2011. To facilitate access for foreign investors, the Bank arranged for ADRs to be traded in London and Frankfurt. In 2011, Russian share prices were affected by deteriorating finan- cial markets globally. Additionally, the eurozone debt crisis further pushed down share prices for both European and Russian banks. In 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 51 ^ management report#27SBERBANK 170 YEARS. BY YOUR SIDE 2011 the MICEX and RTS indices dropped 17% and 22% respectively, while the price of Sberbank ordinary shares declined 24%. Despite the lower share price, Sberbank was ranked as the 19th largest major global bank by market capitalisation in the FT Global 500. SBERBANK'S SHARE PRICE AND MARKET CAPITALISATION Ordinary shares (MICEX), RUB per share Preferred shares (MICEX), RUB per share MICEX index RTS index ANNUAL REPORT GOVERNANCE STRUCTURE 2011 Year for which dividends are paid Percentage of RAS net profit distributed as dividends accrued per ordinary share*, RUB In the reporting year, the Bank increased the amount to be distributed as dividends on Sberbank shares to 12.1% of 2010 net profit based on Russian accounting standards (RAS). Dividend declared/ Dividend declared/ accrued per preferred share*, RUB Total dividends declared/accrued on all ordinary and preferred shares, RUB thousand Total dividends paid** on all ordinary and preferred shares, RUB thousand Date of General Shareholders' Meeting that decided to pay/ declare dividends 2006 10.0% 0.3855 0.4650 8,786,757.3 8,786,757.3 29.06.2007 2010 2011 2007 10.0% 0.5100 0.6500 11,659,269.8 11,659,269.8 27.06.2008 104.4 79.4 2008 10.0% 0.4800 0.6300 10,991,636.6 10,966,205.4 26.06.2009 75.1 59.2 2009 10.0% 0.0800 0.4500 2,176,955.8 1,688 1,402 2010 12.1% 0.9200 1.1500 21,009,992.2 2,169,414.9 20,942,903.3 04.06.2010 03.06.2011 1,770 1,382 Source: Bloomberg Λ management report 52 In February 2012, the Economist ranked Sberbank shares as the second best performing stock in the past decade. According to the magazine, USD 100 invested in Sberbank stock ten years ago would today give an income of USD 3,772. Sberbank was topped only by Apple Inc. (USD 3,919). There was only one other bank in the top ten - Banco do Brasil, which ranked 8th, yielding USD 1,150. Market capitalisation, USD billion Rank among global banks by market capitalisation 2009 2010 2011 61.8 76.1 54.8 18 15 19 The Supervisory Board adopted a new Dividend Policy in August 2011. As part of its plans to improve capital structure and build long-term shareholder engagement, the Bank will gradually, over a three-year period, increase dividends to 20% of net profit attributable to the Bank's shareholders based on the Bank's annual consolidated finan- cial statements under International Financial Reporting Standards (IFRS). However, dividends will still be paid out of net profit based on Russian legislation, i.e. RAS. The table below shows the amount of dividends on Sberbank shares for 2011 that the Supervisory Board recommended for approval by the General Shareholders' Meeting. Source: FT Global 500 Percentage of IFRS net profit Percentage of RAS net profit distributed as dividends Dividend declared/ accrued per ordinary Dividend declared/ accrued per preferred Total dividends declared/ share*, RUB share*, RUB accrued on all ordinary and preferred shares, RUB thousand REPORT ON PAYMENT OF DECLARED AND ACCRUED DIVIDENDS The right to dividends and dividend payment procedure are stipu- lated by Sberbank's Charter and Dividend Policy. Both documents can be found on Sberbank's corporate website. Holders of ordinary and preferred shares are entitled to dividends. The minimum dividend on preferred shares is 15% of the nominal value of a preferred share. Pursuant to the Bank's Charter, dividends are payable once a year in cash by transfer to the shareholder's bank account. The decision to pay dividends and their amount is made at the annual General Shareholders' Meeting, based on the Supervisory Board's recommendations. These recommendations are made tak- ing into consideration the interests of the shareholders and further development of the Bank's business. 15% 15.3% 2.08 2.59 47,490,581.8 The decision to pay dividends for 2011 will be made and their amount will be determined at the annual General Shareholders' Meeting on 1 June 2012. This information will be available on Sberbank's website. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU * Dividends per share for 2006 are restated based on the current face value of stock of RUB 3 per share. ** In some cases declared dividends could not actually be paid because of incorrect shareholder bank details. 53 A management report#28SBERBANK < 1874 The premier of the opera "Boris Godunov" by Modest Musorskiy was held in the Mariinsky Theatre. A management report 54 A levy of donations was started in Russia in 1878 at the call of Emperor Alexander III for the creation of the "Volunteer Navy." The savings banks were actively involved in this process, they attracted the population to help with solving national problems 1870 Alexander Nevsky Cathedral's board of patrons arranges the establishment of a loan-and- savings partnership of the freelancers, factory headmasters and workers in Izhevsk. 1873 Russian inventor A.N. Lodygin used electricity for lighting the streets in St. Petersburg for the first time. 1872 170 YEARS. BY YOUR SIDE 1875 Due to the global economic crisis, the first bankruptcy of a Commercial Loan Bank happens in Russia. Savings banks, however, continue to operate as normal. Renowned bibliophile Peter Alexandrovich Yefremov who made a great contribution to the development of the national savings industry was appointed as a director of the St. Petersburg Savings Bank. 170 YEARS. IT'S JUST THE BEGINNING < 1870 The first open-hearth furnace in Russia was built in the Sormovskiy factory. OPENNESS AND GOODWILL A DRIVE FOR PERFECTION TRUST AND RESPONSIBILITY INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) €1879 ANNUAL REPORT 2011 Russian self-taught inventor Fedor Abramovich Blinov received a patent for "a special unit train with endless rails" or, simply, a caterpillar tractor. 1870-1880 1878 → The building of the first Russian oil pipeline Balakhani-Black City, the project of Vladimir Grigorevich Shukhov, was finished. 1878 The first loan-and-savings bank in the Yekaterinburg region was established by the Irbit loan-savings partnership. End of 1870s 76 savings banks operated of 9 million roubles. in Russia with deposits WWW.SBERBANK.RU HOATHEA 1874 K 1874 Fifty-kopeck pieces. Metal: silver. Weight 10.37 g. 55 A management report#29SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT BANK DEVELOPMENT 2011 57 Λ management report 56 T Improvement of operational functions 56 Development of IT systems 57 IMPROVEMENT OF OPERATIONAL FUNCTIONS BANK DEVELOPMENT he Bank has continued its large-scale effort to improve opera- tional efficiency. As part of the effort, the Bank opened another five Customer Operations Support Centres (COSC) in 2011, meaning that the centralisation programme has successfully passed its midpoint. All fifteen COSCs are currently operational and centralisation ef- forts have been 100% completed at nine of them. The Bank has also launched pilot projects to create cross-regional COSCs. In 2011, operational units continued to provide ongoing support to our growing business - in most of the supported COSCs, operations increased by between 30% and 60%, while the number of employees grew by between 10% and 27%. This means that against a backdrop of greater business activity, productivity also increased. Growth in lending operations was particularly strong in 2011, including both retail lending and at our corporate and investment block. The new COSCs helped expand support for such operations by 6 to 10 times. In the near future, the focus of our operational units will shift to bet- ter management and quality assurance. As a result, operational units will prepare to enter a new phase, as we gradually migrate to a cross- regional and cross-functional service centre model. The opening in 2011 of the Bank's Mega Datacentre, Europe's largest DEVELOPMENT OF IT SYSTEM We continued to implement customer-oriented upgrades and improve- ments across our automated systems and to industrialise processes, develop remote channels and expand the range of services we provide. Key IT accomplishments in 2011 include: The opening of the Bank's Mega Datacentre, Europe's largest. The first batch of equipment has already been installed at the datacen- tre and is fully operational. As part of a programme to centralise IT systems, we implemented an integrated platform across four regional offices based on the IBSO automated system. The programme is designed to acceler- ate the introduction of new products and reduce IT infrastructure maintenance costs. - A new three-level version of the xBank automated system was rolled out at the Severo-Zapadny Bank and will enable us to cen- tralise retail operations across eight regional offices on a single platform. As part of our drive to develop remote banking channels, we rolled out a Sberbank Online app for Apple's iPad. The Moskovsky Bank also launched a service through which customers can top up their Yandex.Money e-wallets with bank cards. As part of Sberbank Online, we launched a service through which taxes can be paid using the Russian Federal Tax Service's web portal www.nalog.ru. Individual taxpayers who have Universal Banking Service Agreements now can pay taxes through Sberbank Online. We implemented a pilot project to issue Visa Virtual and Master- Card Virtual cards. The virtual cards are not real cards but a set of details that can be used to make purchases online. We implemented a tool to detect and prevent fraudulent card transactions using the SmartVista Fraud Prevention platform. We successfully introduced our new offering of basic deposit prod- ucts across our regional network. This standardised range of de- 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU Λ management report#30SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT BANK DEVELOPMENT 2011 Λ management report 58 posit products helps serve customers faster and cut costs when preparing deposit documents. As part of a project known as Single MDM System Customer Pro- file, the Bank implemented a customer data cleansing and stan- dardisation solution. The solution helps significantly improve the quality of customer information across automated systems and enhance the effectiveness of marketing campaigns. - We completed the creation of Sberbank Technologies, a subsidiary responsible for IT within the Bank. The goal behind transforming the IT function into a standalone company is achieving a radi- cal improvement in the speed and effectiveness of projects and to benefit from in-house expertise in key platforms and technolo- gies. We developed and approved consistent IT architecture standards for all subsidiary banks and companies as part of efforts to inte- grate subsidiary businesses. These standards will ensure closer integration of banks and companies within the Bank and help reduce automation costs thanks to a consistent licensing policy and standards for circulating solutions and sharing knowledge. At a conference held in celebration of our 170th anniversary, we launched our crowdsourcing project. Through this project, we plan to seek out the best ideas and suggestions for product and service developments by involving as wide an audience as pos- sible. In April 2011, Sberbank was awarded the national IT Leader Award as the best state-owned bank. The award has been held annually since 2002. The committee includes the Russian Association of Managers, CROC and the Itogy, Intelligent Enterprise and CIO magazines. 1900s In 1902 savings banks employed women for the first time. By 1917, woman in the savings institutions ceased to be an extraordinary phenomenon. Today, women constitute the majority of the Savings Bank employees 1910 Postal savings book. 1911 By 1914 the savings institutions network consisted of more than a thousand central banks with a few more branches (in the institutions of the State Bank, Treasury, Department of Railways), almost 6,000 postal and telegraph offices, more than 100 factory and plant and more than 150 rural municipality banks 1910s Interest bearing securities pay books. 1916 The First World War required huge material costs. The government was forced to abandon the free exchange of paper money for gold. But that didn't shatter the ordinary people's confidence in paper money. As the result it helped not only to contain inflation, but also to promote the growth of consumers' deposits 1910s Postcard. 1914 Military expenditures were covered by internal loans, due to which the government received the necessary funds and at the same time reduces the negative impact of issuing paper money. During this critical period savings banks worthily fulfill the task of preserving financial stability and funding the military government spending 1920s Propaganda film demonstration. in the reading house. The 1920s In order to attract depositors the movie "A Wonderful Book" was created. The film company "Red Star" produced for State Labour Savings Bank 40 cartoons. In rural reading houses slides were shown with "magic lanterns", accompanied by reading the text on the savings business 1920s Savings money box. 1924 In 1924 savings money boxes entered into the daily life. They were sold by savings banks, which left the keys in their possession. To count the coins the box holder went to the savings bank or invited the savings bank officer to his home. The money collected in the box was entered on the savings book 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU Λ 59 management report#31management report Λ 60 SBERBANK 170 YEARS. BY YOUR SIDE f we are to implement our Development Strategy through 2014, we need to achieve results in 2012 that will allow us to finance a number of different strategic initiatives. To this end, we will need to address the following critical objectives and achieve key perfor- mance indicators. In terms of finance, we plan to become the Russian banking market leader in financial effectiveness. This means improving the quality of our loan portfolio, ensuring the recoverability of non-performing loans, maintaining interest margins on all key products and monitor- ing our operating expenses. GROWTH PROSPECTS 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU ANNUAL REPORT GROWTH PROSPECTS 2011 Our customer service agenda includes: ― Significantly improving perceptions of the Bank and increasing retail and corporate customer satisfaction. To achieve this, we will continue working to eliminate queues and introduce innovative services and products. - Increasing our footprint in key segments of the financial market to achieve an overall increase in our Russian banking market share by assets. In order to advance processes and technologies in 2012, we plan to en- sure strong growth, increase productivity and implement a number of strategic initiatives and solutions, including: - Completing implementation of our process- and function-based model Ensuring centralised, standardised and efficient processes across operating and support functions - Continuing to centralise our IT infrastructure Continuing to reformat our branch network to successfully achieve our growth objectives. Governance and HR are important drivers of the Bank's success. The following points are on our agenda for 2012: - Developing the Sberbank group as a holding structure and intro- ducing consistent risk management and IT policies across the group. Fostering a unified corporate culture across the Group to facilitate ongoing improvements and encourage change and innovation. - Implementing a comprehensive HR development system. -Increasing the transparency and effectiveness of performance management by developing a balanced assessment scorecard. 61 management report#32management report A SBERBANK 62 71 1887 Russian mathematician Ivan Alexeevich Vyshnegradsky occupied the position of Minister of Finance. During the first two years he managed to reduce the budget deficit and increased gold reserves of Russia and the rouble's stability as well. 170 YEARS. BY YOUR SIDE 1881 Russian mathematician Pafnuty Lvovich Chebyshev invented the computation automaton. In contrast to the other computation machines, Chebyshev's invention operates with a speed exceeding 500 computations per hour. 71888 After numerous experiments, Russian physicist Alexander Grigorievich Stoletov discovered the first law of photoelectric effect and created the prototype of the first photocell. 1880-1890 1880s The foundation of the first savings banks under the Khabarovsk, Vladivostok and Yakutsk treasury houses, in the province of Yenisei, and in the capital of Cuban Yekaterinodar (now Krasnodar). 1880s The range of services offered by the savings banks became wider. The conditional deposits i.e. deposits with special purposes appeared. 1880s Commencement of transfer transactions. The funds are transferred in favour of a depositor or other private person by post or telegraph. 170 YEARS. IT'S JUST THE BEGINNING OPENNESS AND GOODWILL A DRIVE FOR PERFECTION INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS TRUST AND RESPONSIBILITY INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) 1884 Sofia Vasilievna Kovalevskaya- the first woman in the world who became a professor of mathematics. ANNUAL REPORT 2011 During this decade Savings Banks actively developed their branch network. In 1889, the Bank opened its branches at plants, factories, postal and telegraph services institutions. The Bank's services became easily available for the ordinary citizens ↑ 1881 Alexander III came to the throne. He was known as the Peacemaker as there were no wars in Russia during his reign. 1880 The first issue of "Birzhevye Vedomosti"- "newspaper of finance, trade, politics and social life" was published and soon became one of the most powerful and popular newspapers in the country. 1881 Construction of The Historical Museum building in Moscow, under the supervision of architect V.O. Shervud, was completed. 1883 The charter of rural savings-and-loan banks was approved. 1884 The Ministery of Finance became entitled to open savings banks at provincial and district treasuries and open branches in major cities and locations. Forty-two treasury banks were launched into operation. WWW.SBERBANK RU 1889 The State Bank obtained the permition to open savings bank offices at factories and plants. 1888 The 4% bonds of the Western Railroads Society first time appeared in securities portfolio of the savings banks. That was the beginning of savings banks' participation in railroad network development in Russia. 63 management report#33We instill confidence and sense of reliability, we make people's lives better, helping them to fulfill their dreams and aspirations. We are building one of the best financial services companies in the world, and our success will be based on the professionalism as well as the feeling of harmony and happiness of our staff. FINANCIAL RESULTS#34financial results 66 A SBERBANK 170 YEARS. BY YOUR SIDE DYNAMICS OF SBERBANK GROUP'S KEY FIGURES OVER THE PAST FIVE YEARS IN ACCORDANCE WITH IFRS* ANNUAL REPORT DYNAMICS OF SBERBANK GROUP'S KEY FIGURES OVER THE PAST FIVE YEARS IN ACCORDANCE WITH IFRS 2011 2010 Change 2009 2008 2007 Per share*, RUB per share Basic and diluted earnings 14.6 8.4 73.8% 1.1 4.5 5.1 Dividends per ordinary share declared during the year 0.9 0.1 800.0% 0.5 0.5 0.4 Net assets per ordinary share 58.8 45.7 28.6% 36.1 34.8 29.5 Financial ratios, % Profitability ratios 2011 Return on assets (ROA) Return on equity (ROE) 3.2 2.3 0.9 p.p. 0.4 1.7 2.5 28.0 20.6 7.4 p.p. 3.2 14.1 22.5 Spread (return on assets less cost of funds) 53 6.1 5.9 0.2 p.p. 7.1 6.5 5.8 Net interest margin (net interest income to average assets) 6.4 6.4 0.0 p.p. 7.6 6.9 6.2 Net fee and commission income 18.9 19.0 -0.1 p.p. 15.9 19.8 19.4 67 2011 2010 Change 2009 2008 2007 to operating income before provisions For the year, RUB billion Operating income before provisions Provision charge for loan impairment Operating income Operating expenses Profit before tax Net profit As of 31 December, RUB billion 635.1 435.6 340.3 (388.9) (97.9) (17.6) 744.0 496.0 50.0% 246.2 337.7 322.7 Operating expenses to operating income before provisions 46.9 40.9 6.0 p.p. 34.1 47.7 53.8 742.8 649.8 14.3% 1.2 (153.8) Loans and advances to customers after provision for loan impairment to amounts due to individuals 97.3 82.5 14.8 p.p. 89.4 105.9 101.1 and corporate customers financial results Capital adequacy ratios (348.3) (265.9) 31.0% (216.3) 395.7 230.1 (207.8) (183.0) Core capital ratio (Tier I) 11.6 11.9 -0.3 p.p. 11.5 12.1 13.9 72.0% 29.9 129.9 139.7 Total capital ratio (Tier I and Tier II) 15.2 16.8 -1.6 p.p. 18.1 18.9 14.5 315.9 181.6 74.0% 24.4 97.7 106.5 Equity to total assets 11.7 11.4 0.3 p.p. 11.0 11.1 12.9 Asset quality Loans and advances to customers, net 7,720 5,489 40.6% Loans and advances to customers before provision for loan impairment 8,382 6,192 4,864 5,078 3,922 35.4% 5,444 5,280 4,033 Non-performing loans to total loans outstanding 4.9 7.3 -2.4 p.p. 18 8.4 1.8 1.5 Provision for loan impairment to non-performing loans (times) 1.6 1.6 0.0 p.p. 1.3 21 2.1 1.8 Total assets Due to individuals and corporate customers Total liabilities Total equity 10,835 8,629 25.6% 7,105 6,736 4,929 7,932 6,651 19.3% 5,439 4,795 3,878 9,567 7,641 25.2% 6,326 5,986 4,292 1,268.0 987.2 28.4% 778.9 750.2 637.2 Provision for loan impairment to total gross loans to customers 7.9 11.3 -3.4 p.p. 10.7 3.8 2.8 2008-2011: Consolidated data. 2007: Non-consolidated data. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU * Ratio is calculated taking into account share split of ordinary shares in 2007.#35<< financial results SBERBANK ASSETS RUB billion 10,000 170 YEARS. BY YOUR SIDE 7,500 6,736- 7,105 5,000 4,929 2,500 0 68 EQUITY RUB billion 1,200 900 8,629 ANNUAL REPORT DYNAMICS OF SBERBANK GROUP'S KEY FIGURES OVER THE PAST FIVE YEARS IN ACCORDANCE WITH IFRS LOANS AND ADVANCES TO CUSTOMERS (before provision for loan impairment) RUB billion 10,835 8,382 8,000 6,192 6,000 5,280 5,444 4,033 4,000 2,000 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 750 -779- 637 600 300 987 1,268 2011 DUE TO INDIVIDUALS AND CORPORATE CUSTOMERS RUB billion 69 Λ 7,932 8,000 6,651 6,000 5,439 financial results 4,795 3,878 4,000 2,000 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 LOANS AND ADVANCES TO CUSTOMERS, NET RUB billion 6,000 5,489 5,078 4,864 4,000 3,922 2,000 TOTAL CAPITAL ADEQUACY RATIO (Basel I) % 7,720 18.0 14.5 12.0 6.0 18.9 18.1 16.8 15.2 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#36Λ 70 financial results SBERBANK 170 YEARS. BY YOUR SIDE OPERATING INCOME BEFORE PROVISIONS RUB billion 600 436 400 340 200 NET PROFIT ANNUAL REPORT DYNAMICS OF SBERBANK GROUP'S KEY FIGURES OVER THE PAST FIVE YEARS IN ACCORDANCE WITH IFRS RUB billion 743 635 650 300 200 107 98 100 24 182 316 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 CHARGE / REVERSAL OF PROVISIONS FOR LOAN IMPAIRMENT RUB billion 0 (17.6) 100 (97.9) 200 (153.8) 300 400 (388.9)- OPERATING EXPENSES TO OPERATING INCOME BEFORE PROVISIONS % 1.2 -53.8 50 47.7 40 30 20 20 10 10 46.9 40.9 34.11 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 OPERATING EXPENSES RUB billion 300 266 208 216 200 183 100 RETURN ON EQUITY % 348 25 22.5 20 20 15 10 5 14.1 3.2 20.6 28.0 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 2011 71 A financial results#37financial results A 72 1890s SBERBANK 1892 170 YEARS. BY YOUR SIDE Sergey Yulievich Witte became the Minister of Finance. Monetary reform in 1897, when Russia obtained the stable gold-backed currency as a result, was Vitte's greatest achievement during his ministerial post. res ГОСУДАРСТВЕННЫЯ СБЕРЕГАТЕЛЬНЫЯ Кассы 10 14.5 20 » 29.2 G 30 » 44.07 0 50 » 73.46 100 147.3 1890-1900 The number of savings institutions in Russia grown to 3,875, with 368 million roubles in deposits. Over 50% of them were deposits in excess of 500 roubles. 1891 Near Vladivostok (Kuperovskaya fold) construction of the Trans-Siberian Railway began. 1892 Savings kept in savings banks exceeded the total amount of investment capital held in private banks. 170 YEARS IT'S JUST THE BEGINNING OPENNESS AND GOODWILL A DRIVE FOR PERFECTION TRUST AND RESPONSIBILITY INITIATIVE AND CREATIVITY TEAMWORK AND EFFECTIVENESS RESPECT FOR TRADITIONS INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL 1896 The first Russian mass production car by E.A. Yakovlev was introduced to the public at the Nizhny Novgorod Exhibition. ANNUAL REPORT In 1896, a new method of the depositors accounting came into force, in accordance with which the savings banks divide their depositors by occupation rather than by estate. After two decades the most significant category of clients became the persons involved in "agriculture and rural business" i.e. peasants ТОЛКОВЫЙ ТАРИФЪ ← 1892 In his work "Reasonable Tariff, or Studies on Russian Industrial Development in connection with its General Customs Tariff 1891" D.I. Mendeleev formulated the Russian industrialisation project. 1895 Savings Banks Directorate under the State Bank Council was established. WWW.SBERBANK RU 1895 Interest-bearing government securities deposited with banks for free custody and management grown to almost 30 million roubles. ← 1892 One rouble coin. Metal: silver. A 73 financial results 2011#38SBERBANK 170 YEARS. BY YOUR SIDE Λ financial results 74 Interest income and expense 75 Net fee and commission income 83 Financial result from operations with securities 84 Gains from foreign currency transactions 84 Operating expenses 85 Charge/recovery of provisions for loan impairment 86 GROUP IFRS INCOME STATEMENT ANNUAL REPORT GROUP IFRS INCOME STATEMENT 2011 Net interest income in 2011 grew 17.1% to RUB 561.0 billion (RUB 479.1 billion in 2010), while the Group's net fee and commis- sion income grew 13.8% to RUB 140.6 billion. Administrative and operating expenses are RUB 348.3 billion (RUB 265.9 billion in 2010). RUB million INTEREST INCOME AND EXPENSE Interest income The Group's interest income amounted to RUB 850.6 billion in 2011, up 6.9% from 2010. The increase in interest income was primarily due to the growing amount of interest-earning assets and the rising share of assets, primarily loans, that generate the highest returns. The table below presents the average annual balances of the Group's assets by class of asset and related interest income, and average annual return. 2011 2010 75 Λ Average for the year Interest income Average Average for the return, % ,% year Interest income Average return, % Assets Loans and advances 6,911,213 741,796 10.7 5,622,371 682,010 12.1 to customers Debt securities available for sale 998,108 67,424 6.8 1,226,722 83,219 6.8 Due from other 371,638 6,982 1.9 1979 336,960 8,073 2.4 banks, including correspondent accounts and overnight deposits with other banks Debt investment 400,746 26,799 6.7 167,404 9,101 5.4 securities held to maturity Other debt securities 59,579 3,588 6.0 91,692 5,740 6.3 designated at fair value through profit or loss et profit under IFRS earned by Sberbank Group in 2011 increased to RUB 315.9 billion, up 74% on 2010 (RUB 181.6 billion). Profit before tax is RUB 395.7 billion and RUB 230.1 billion for 2011 and 2010 respectively. The Group's net profit increased in 2011 on the back of higher ope- rating income before provisions for loan impairment (RUB 742.8 billion in 2011 and RUB 649.8 billion in 2010) and the recovery of provision for loan impairment in the amount of RUB 1.2 billion in 2011 against provision charge in the amount of RUB 153.8 billion in 2010. Debt trading securities 65,494 4,035 6.2 87,299 7,503 8.6 Total Provision for loan impairment 8,806,778 (669,842) 850,624 9.7 7,532,447 795,646 (666,048) 10.6 Non-interest-earning 1,126,194 827,401 assets. Total assets 9,263,130 7,693,800 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU financial results#39SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT GROUP IFRS INCOME STATEMENT 2011 Interest income on loan portfolio Interest income on loans to customers amounted to RUB 741.8 bil- lion, up 8.8% year-on-year. The growth in interest income was driven by a 35% expansion of the Group's loan portfolio before provisions. INTEREST INCOME ON LOAN PORTFOLIO RUB billion 498.3 500 400 300 200 76 100 Λ financial results % +4.0% 518.2 +21.7% 223.6 183.7 Corporate lending Retail lending 2010 2011 LOAN PORTFOLIO YIELDS 15.2 15.2 14.9 15.0 15.1 14.8 14.7 14.6 13.4 RUB million Interest income on securities Interest income on securities in 2011 was RUB 101.8 billion, down 3.6% from 2010 (RUB 105.6 billion). This change is primarily due to a 10.8% decline in the Group's securities portfolio in 2011. An analysis of changes in the securities portfolio is presented in the Analysis of the Statement of Financial Position. Interest income on amounts due from other banks Interest income on amounts due from other banks (including inter- bank loans, nostro accounts and overnight placements) was RUB 7.0 billion in 2011, down 13.6% year-on-year. Interest and similar expenses The Group reduced its interest and similar expenses (hereinafter re- ferred to as interest expenses) by 8.5% to RUB 289.6 billion in 2011. The cost of borrowed funds gradually fell in 2011, from 4.1% in the fourth quarter of 2010 to 3.5% in the fourth quarter of 2011. Interest expenses on retail deposits are the main component of the Group's interest expenses. The cost of retail deposits fell steadily throughout 2010 and 2011 as a result of the repayment of long-term deposits with high interest rates, which had been raised during the financial crisis. The average annual amount of interest-bearing liabilities grew by 18.9% mainly because of continued growth in retail deposits. The table below presents the average annual balances of the Group's liabilities by class of liabilities and related interest expenses and the average annual cost of funds. 2011 2010 13.0 Average for the year Interest expenses Average cost, % Average for the year Interest expenses Average cost, % 11.9 11.6 11.7 LIABILITIES 10.6 10.8 10.8 10.6 10.7 Due to individuals 5,129,059 210,993 4.1 11.0 10.9 9.7 .9.6 9.6 9.4 Due to corporate 1,906,598 36,580 1.9 4,181,715 1,710,205 232,730 38,836 5.6 2.3 customers Subordinated debt 310,755 19,512 6.3 390,753 28,219 7.2 Q1 2010 Q2 2010 Q3 Q4 Q1 Q2 Q3 Q4 2010 2010 2011 2011 2011 2011 Other borrowed funds 195,458 4,226 2.2 92,504 1,640 1.8 O Interest income on retail loans Debt securities in issue 267,772 12,746 4.8 221,988 13,344 6.0 O Interest income on all loans O Interest income on corporate loans Due to other banks 158,607 5,541 3.5 Total 7,968,249 289,598 105,067 3.6 6,702,232 1,774 1.7 316,543 4.7 Non-interest-bearing liabilities 165,350 112,606 170 YEARS. IT'S JUST THE BEGINNING TOTAL LIABILITIES 8,133,599 WWW.SBERBANK.RU 6,814,838 77 financial results#40SBERBANK 170 YEARS. BY YOUR SIDE Interest expenses on amounts due to customers Interest expenses on amounts due to individuals and corporate custo- mers fell 8.8% to RUB 247.6 billion in 2011. The cost of retail deposits fell steadily throughout 2010 and 2011 as a result of the repayment of long-term deposits with high interest rates, which had been raised during the financial crisis. MOVEMENTS IN THE COST OF CUSTOMER DEPOSITS IN 2011 AND 2010 ARE PRESENTED IN THE TABLE BELOW COST OF FUNDS ANNUAL REPORT GROUP IFRS INCOME STATEMENT 2011 % 6.9 6.6 6.3 5.8 5.5 5.4 5.2 4.9 4.7 4.5 4.7 4.2 4.2 4.0 4.0 3.5 RUB million 2011 2010 0.8 0.7 0.7 0.9 0.6 0.6 0.7 0.8 Average amount of liabilities Interest expenses Average cost of funds, % Average amount of liabilities Interest expenses Average cost of funds, % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Due to corporate customers 2010 2010 2010 2010 2011 2011 2011 2011 78 Deposits 658,378 26,040 4.0 597,700 29,747 5.0 Λ Current accounts 1,248,220 10,540 0.8 1,112,505 9,089 0.8 O Retail term deposits O Corporate term deposits O Current/settlement accounts financial results Total 1,906,598 36,580 1.9 1,710,205 38,836 2.3 Due to individuals Deposits 4,288,764 206,291 4.8 Current 840,295 4,702 0.6 3,605,050 576,665 230,102 6.4 2,628 0.5 accounts Total TOTAL 5,129,059 7,035,657 210,993 247,573 4.1 4,181,715 3.5 5,891,920 232,730 271,566 5.6 4.6 Interest expenses on subordinated debt Interest expenses on subordinated debt and the average cost of such debt were less in 2011 because part of a subordinated loan (RUB 200 billion) received from the Bank of Russia was repaid in May 2010 and the interest rate on this subordinated loan was lowered from 8% to 6.5% in July 2010. Interest expenses on amounts due to other banks Interest expenses on amounts due to other banks rose more than 3 times, which is primarily due to an increase in the amount of funds raised from the Bank of Russia in the fourth quarter of 2011. These funds were borrowed by the Group to meet growing demand for loans. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 79 financial results#41SBERBANK 170 YEARS. BY YOUR SIDE Net interest income The Group's net interest income was RUB 561.0 billion in 2011, up 17.1% from 2010. Return on assets, cost of liabilities and interest spread and margin for 2010 and 2011 are presented in the table below. SPREAD DYNAMICS ANNUAL REPORT GROUP IFRS INCOME STATEMENT 2011 % 11.8 10.5 10.2 9.9 9.9 9.5 9.6 9.7 RUB million 2011 2010 Average for the year Interest income/ (interest Average return/ cost, % Average for the year Interest Average income/ return/ (interest cost, % expense) expense) 6.8 Total interest-earning assets 8,806,778 850,624 9.7 7,532,447 795,646 10.6 5.7 6.1 6.2 6.4 5.9 5.6 5.0 5.1 Total interest-bearing liabilities 7,968,249 289,598 3.6 6,702,232 316,543 4.7 4.1 3.9 3.7 4.8 4.8 3.5 3.5 Net interest income Net interest spread Net interest margin 561,026 6.1 6.4 479,103 Q1 5.9 2010 Q2 2010 Q3 Q4 Q1 Q2 Q3 Q4 2010 2010 2011 2011 2011 2011 6.4 80 O Spread A Factors that affected margin in 2011 and 2010 are presented below. financial results % 2011 2010 Prior year margin 6.37 7.61 Return on corporate loans -1.08 -1.28 Return on retail loans -0.02 0.03 Return on amounts due from other banks -0.02 0.01 Return on securities 0.00 -0.44 Structure of interest-earning assets 0.22 -0.42 O Return on interest-earing assets O Cost on interest-bearing assets Interest spread* grew 20 b.p. to 6.1% in 2011, which is due to increased amounts of interest-earning assets and the reduced cost of interest- bearing liabilities.The table below presents an analysis of changes in interest income and expense for 2011 versus 2010 by looking at the following factors: Changes in average annual balances of items recorded in the Statement of Financial Position; Changes in average interest rates. Cost of amounts due to corporate customers 0.08 0.32 RUB million Volume factor Interest rate factor Change in interest income/expense Cost of amounts due to individuals Cost of amounts due to other banks Cost of securities in issue and subordinated debt 0.83 0.25 ASSETS -0.03 0.07 Loans and advances to customers 138,334 0.11 0.07 Debt securities available for sale (15,443) (78,548) (352) 59,786 (15,795) Structure of interest-bearing liabilities Interest-earning assets to interest-bearing liabilities* Reporting year margin Interest margin remained stable at 6.4% in 2011. -0.03 0.01 -0.06 0.14 Due from other banks, including correspondent accounts and overnight deposits with other banks 651 (1,742) (1,091) 6.37 6.37 Debt investment securities held to maturity 15,604 2,094 17,698 Other debt securities designated at fair value through profit or loss (1,934) (218) (2,152) Debt trading securities (1,343) (2,125) (3,468) Change in interest income 135,869 (80,891) 54,978 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU * Interest spread is the difference between the return on interest- earning assets and the cost of interest-bearing liabilities. 81 Λ financial results#42SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT GROUP IFRS INCOME STATEMENT 2011 NET FEE AND COMMISSION INCOME Agency agreements RUB million Volume factor Interest rate factor Change in interest income/expense RUB million 2011 2010 Change, % LIABILITIES Fee and commission income 151,876 130,949 16.0 Due to individuals (38,971) 60,708 21,737 Cash and settlement transactions with legal entities 42,500 40,623 4.6 Due to corporate customers (3,768) 6,024 2,256 Cash and settlement transactions with individuals 41,476 41,845 (0.9) Subordinated debt 5,023 3,684 8,707 Operations with bank cards 35,084 23,639 48.4 Other borrowed funds (2,226) (360) (2,586) 13,973 9,448 47.9 Debt securities in issue Due to other banks Change in interest expense (2,179) 2,777 598 6,551 5,858 11.8 (1,870) (1,897) (3,767) 4,733 4,445 6.5 (43,991) 70,936 26,945 4,364 2,717 60.6 CHANGE IN NET INTEREST INCOME 82 Λ 91,878 (9,955) 81,923 1,120 1,116 0.4 2,075 1,258 64.9 83 (11,242) (7,375) 52.4 A 140,634 123,574 13.8 financial results As evident from the table above, the dynamics of net interest income was driven by four major factors: Higher lending volumes, the impact of which was partially offset by lower returns on loan portfolio in 2011 as compared with 2010. - The steadily decreasing cost of retail deposits throughout 2010 and 2011 as a result of the repayment of long-term deposits with high interest rates, which had been raised during the financial crisis. Significantly increased interest income on securities held to ma- turity due to growing portfolio of the securities. - A reduction in the portfolio of debt investment securities available for sale, primarily due to the repayment of the Bank of Russia bonds in the first half of 2011. Operations with foreign currency Cash collection Guarantees issued Operations with securities Other Fee and commission expenses NET FEE AND COMMISSION INCOME The Group's fee and commission income increased to RUB 151.9 bil- lion in 2011, up 16% on 2010. This growth was fuelled by increased volumes of transactions generating fee and commission income, especially operations with bank cards, with cash and settlement transactions with legal entities and individuals traditionally gen- erating the bulk of this income. Cash services to legal entities and money transfer services to individuals represent the largest items of fee and commission income. To diversify the structure of its fee and commission income, the Group is actively looking for increase proceeds from other sources: commissions on agency agreements to sell insurance policies, plastic card operations, foreign currency and securities transactions. Fee and commission expenses primarily relate to settlement trans- actions. financial results 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#43financial results SBERBANK 170 YEARS. BY YOUR SIDE GROUP IFRS INCOME STATEMENT ANNUAL REPORT 2011 FINANCIAL RESULT FROM OPERATIONS WITH SECURITIES RUB million 2011 2010 Result recorded in the income statement operations with foreign currency derivatives is primarily due to the Group using derivatives to manage liquidity, being mainly the result of transacting in foreign currency swaps. The above transactions are treated collectively with foreign exchange translation gains. In the reporting period, the Group also increased the volume of derivative transactions as part of customer business expansion. Trading portfolio (1,397) 4,770 Other securities designated at fair value through profit or loss (2,810) 9,642 Securities available for sale 12,109 9,597 OPERATING EXPENSES Impairment of securities available for sale (1,095) (39) RUB million 2011 2010 Change, % Total 6,807 23,970 Staff costs 203,802 161,180 26.4 Result recorded in the consolidated statement of comprehensive income Securities available for sale Depreciation of premises and equipment and other costs related to premises and equipment 78,849 60,792 29.7 (39,830) 31,265 Administrative and information services expenses Total (33,023) 55,235 Taxes other than on income 84 Λ 33,271 22,414 48.4 11,712 12,586 -6.9 85 20,709 8,929 131.9 Λ 348,343 265,901 31.0 RUB million Total losses from securities transactions were RUB 33.0 billion in 2011 (including the negative financial result on securities available for sale recorded in the consolidated statement of comprehensive income in the amount of RUB 39.8 billion). The result of 2010 is an income of RUB 55.2 billion (RUB 31.3 is the positive financial result on securi- ties available for sale recorded in the consolidated statement of com- prehensive income). Income from trading and revaluation of securities dropped due to the high volatility of the Russian securities market amid economic instability in Europe and the United States in 2011. GAINS FROM FOREIGN CURRENCY TRANSACTIONS 2011 2010 Change, % Net gains from trading in foreign currencies 5,503 8,081 (31.9) Net gains/(net losses) from operations with foreign currency derivatives 2,612 (9,175) (128.5) Net foreign exchange translation gains Total 1,411 15,166 (90.7) 9,526 14,072 (32.3) Other Total operating expenses The Group's operating expenses grew 31.0% to RUB 348.3 billion in 2011. Staff costs, which account for 58.5% of operating expenses in 2011, represent the main item of operating expenses. Staff costs increased 26.4% to RUB 203.8 billion, driven by the planned imple- mentation of a programme to bring salaries into conformity with the current market level, as well as by increased investments in staff professional development and skills training and higher bonuses resulting from the Group's strong performance in 2011. Detailed information on investments in the Group's personnel can be found in chapter 17 of this report - Investing in Human Capital. The combined increase in other items of operating expenses was 38%. Depreciation and maintenance charges on premises and equipment and administrative and information services expenses showed the strongest growth due to investments in IT infrastructure and the reformatting of network of outlets in accordance with the Group's development strategy. Detailed information on the development of our IT infrastructure and the Group's branch network can be found in chapters 5 and 16 of this report - Bank Development and Ensuring Accessibility of Banking Services. Total gains from foreign currency transactions amounted to RUB 9.5 billion in 2011 (RUB 14.1 billion in 2010). The financial result from 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU financial results#44financial results 86 A SBERBANK CHARGE / RECOVERY OF PROVISIONS FOR LOAN IMPAIRMENT 170 YEARS. BY YOUR SIDE ANNUAL REPORT STATEMENT OF COMPREHENSIVE INCOME 87 RUB million 2011 2010 Change, % Provision for loan impairment at 1 January 702,523 579,814 21.2 (Recovery)/charge for the year (1,193) 153,809 (100.8) Currency translation effect (1,741) Loans to customers written off during the year as uncollectible Provision for loan impairment as of 31 December (37,182) (31,100) 19.6 662,407 702,523 (5.7) Net gains from recovery of provision for loan impairment amount- ed to RUB 1.2 billion in 2011, while in 2010 net provision charges equalled RUB 153.8 billion. This shows that general quality of the loan portfolio improved on the back of positive developments in the Russian economy. Efforts to optimise overdue and non-performing loans management system also had a positive effect on the Group's figures. As a result of these efforts, a number of non-performing loans were sold or repaid. The amount of loans written off as uncollectible increased 19.6% in 2011. A significant part of write-offs results from the sale of non-performing loans by the Group. T OF COMPREHENSIVE STATEMENT INCOME he Group's comprehensive income reached RUB 309.0 billion in 2011, up 50% year-on-year. A gain from revaluation of the Group's office premises in the amount of RUB 36.9 billion was recorded in comprehensive income in 2011. In accordance with the current accounting policy, the Group revalued its office premises as of 31 December 2011 (previous revaluation was performed as of 31 December 2009). The loss from this revaluation in the amount by which the fair value of office premises is lower than its net carrying amount, net of previously accumulated positive revaluation in the amount of RUB 11.3 billion, is also recorded in the income statement for 2011. The negative revaluation of securities available for sale in the amount of RUB 28.8 billion is recorded in comprehensive income for 2011. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU financial results 2011#45financial results 88 A SBERBANK 1908 → Russia introduced mandatory free basic education. Over 10 thousand additional public schools were opened each year, and by 1913 they numbered 130 thousand. For a long time only men worked in the savings banks. Women obtained the right to be employed only in 1902 Medal for the fight of the "Varyag" and the "Koreyets". 1904 КОРЕЙЦА ← 1901 Legendary "Varyag" cruiser became a part of the Russian Navy. -1904 A cup for charitable donations appeared in each savings bank. The donations from 1904 to 1913 amounted to over 173 thousand Toubles. SHE 199 1902 Foundation of savings banks on navy vessels for the crew members. 1902 Savings banks invested in securities of the Chinese Eastern Railroad Society, wich opening was contributed to the economic development of the country. 1902 Savings banks were opened for township boards in Siberia. They were often the only institutions to offer deposit-taking services to rural residents across a vast territory. 170 YEARS. IT'S JUST THE BEGINNING 170 YEARS. BY YOUR SIDE INITIATIVE AND CREATIVITY TEAMWORK AND EFFECTIVENESS OPENNESS AND GOODWILL A DRIVE FOR PERFECTION RESPECT FOR TRADITIONS TRUST AND RESPONSIBILITY INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL 1909 The first model of the "Russo-Balt 5-24" car. During its 9 years of existence, the plant produced 347 cars of this model. ANNUAL REPORT 2011 1900-1910 -СБЕРКАССА- Anton Pavlovich Chekhov. In 1903 Anton Pavlovich's last play- "The Cherry Orchard"-was written. It's premiere was on January 17th 1904 at the Moscow Art Theatre. 1904 The sphere of activities of the savings banks included the collection of contributions in support of the founded Committee on the Navy strengthening. WWW.SBERBANK RU 1905 In accordance with the adopted law, the savings banks became involved in the insurance of low income population. 1903 N 1906 Deposits from "Russian immigrants in America" were contributed to the accounts of Russian savings banks. 89 financial results#46financial results 90 Λ SBERBANK 170 YEARS. BY YOUR SIDE Loans and advances to customers 92 Investments in securities 93 OF SBERBANK GROUP'S ASSETS UNDER IFRS STRUCTURE STRUCTURE OF SBERBANK GROUP'S ASSETS UNDER IFRS ANNUAL REPORT 2011 RUB million As of 31 December 2011 As of 31 December 2010 Change, % Amount % of amount Amount % of amount Loans and advances to customers before provision for impairment 8,382,107 6,191,910 35.4 Provision for impairment of loans (662,407) (702,523) (5.7) and advances to customers Loans and advances to customers, 7,719,700 71.3 5,489,387 63.6 40.6 net Securities Cash and cash equivalents 1,625,850 625,565 15.0 1,823,648 21.1 (10.8) 5.8 719,601 8.3 (13.1) Premises and equipment 359,903 3.3 283,756 3.3 26.8 Mandatory cash balances with the 101,205 0.9 50,532 0.6 100.3 Bank of Russia Due from other banks Other assets Total assets 35,097 0.3 13,035 0.2 169.3 367,779 3.4 248,568 2.9 48.0 91 10,835,099 100.0 8,628,527 100.0 25.6 A 40 % STRUCTURE OF THE GROUP'S ASSETS AT YEAR-END 2.8 3.7 4.6 100 3.5 3.3 3.3. 10.2 8.3 5.8 15.0 80 15.0 21.1 60 68.5 63.6 71.3 he Group's assets in accordance with IFRS increased by 25.6% to RUB 10,835.1 billion as of 31 December 2011. The key asset item-loans and advances to customers, net-increased by 40.6%. The continuing recovery of the Russian economy and the Group's active position on the lending market allowed the Group to expand its loan portfolio. The share of loans to customers in the Group's asset structure rose to 71.3% at the end of 2011 from 63.6% at the end of 2010. The Group's securities portfolio shrank by 10.8% to RUB 1,625.8 billion (including securities pledged under repurchase agreements) and the share of securities in the Group's assets reached 15.0% at the end of 2011. The decrease was mainly due to the repayment of Bank of Russia bonds in the first half of 2011. 20 2009 2010 2011 Loans and advances to customers Securities Premises and equipment Other Cash and cash equivalents In accordance with the current accounting policy, the Group revalued its office premises as of 31 December 2011. As a result, the value of premises and equipment increased by RUB 25.6 billion. Other Group's assets increased to RUB 367.8 billion in 2011 (up 48.0% from 2010). The growth was driven by a significant increase in derivatives (450.5% up from RUB 9.3 billion at the end of 2010 to RUB 51.2 billion at the end of 2011) and an 89.7% increase in the amount of precious metals. Outstanding settlements on credit cards 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU financial results#47SBERBANK 170 YEARS. BY YOUR SIDE totalling RUB 78.8 billion as of 31 December 2011 (RUB 91.2 billion as of 31 December 2010) were the major item of other assets and represented liquid risk-free assets. The table below shows the breakdown of the Group's assets by reportable segment. ANNUAL REPORT STRUCTURE OF SBERBANK GROUP'S ASSETS UNDER IFRS 2011 THE GROUP'S LOAN PORTFOLIO STRUCTURE AT YEAR-END % 1.9 1.3 1.0 100 9.4 9.8 9.3 10.4 10.3 11.2 37.8 60 80 RUB million As of 31 December 2011 As of 31 December 2010 Change, % Amount % of amount Amount % of amount Moscow 4,848,994 44.8 4,318,256 49.9 12.3 40 Central and northern regions of the European part of Russia 1,877,776 17.4 1,445,164 16.7 29.9 20 Volga region and the south of the European part of Russia 1,530,792 14.2 1,163,282 13.4 31.6 Urals, Siberia and the Far East of Russia 2,110,444 19.5 1,548,746 17.9 36.3 Other countries 445,511 4.1 92 Total assets 10,813,517 185,817 100.0 8,661,265 2.1 139.8 100.0 24.8 Λ financial results Moscow and the European part of Russia account for 76.4% of the Group's assets as of 31 December 2011 (80.0% in 2010). LOANS AND ADVANCES TO CUSTOMERS RUB million As of 31 December 2011 As of 31 December 2010 Change, % Amount % of amount Amount % of amount Commercial loans to legal entities Specialised loans to legal entities 4,012,885 2,563,695 47.9 2,708,692 43.7 48.1 30.6 2,163,486 34.9 18.5 Corporate loans 6,576,580 78.5 4,872,178 78.6 35.0 Consumer and other loans 943,964 11.2 635,689 10.3 48.5 to individuals Mortgage loans to individuals 777,357 9.3 603,778 9.8 28.7 Car loans to individuals 84,206 1.0 80,265 1.3 4.9 Loans to individuals 1,805,527 Total 8,382,107 21.5 1,319,732 100.0 6,191,910 21.4 36.8 100.0 35.4 170 YEARS. IT'S JUST THE BEGINNING 34.9 30.6 47.9 43.7 40.5 2009 2010 Commercial loans to legal entities 2011 Specialised loans to legal entities Consumer and other loans to individuals Mortgage loans to individuals Car loans to individuals The Group's total loan portfolio increased 35.4% in 2011 to RUB 8,382.1 billion as of the end of the year. The corporate loan portfolio grew 35.0% over this period to reach RUB 6,576.6 billion. This growth was driven primarily by commer- cial loans, most of which were issued to Russia's largest companies in the machine building, power engineering, food processing and agriculture sectors. The retail loan book also significantly increased in 2011 (by 36.8% to RUB 1,805.5 billion) on the back of stronger demand for consumer and mortgage loans. INVESTMENTS IN SECURITIES Investment breakdown by instrument type (debt and equity) The Group's securities portfolio totalled RUB 1,625.8 billion as of 31 December 2011 (including securities pledged under repurchase agreements). As follows from the table below, debt instruments make up 89.6% of the Group's securities portfolio as of 31 December 2011. This is slightly less than in 2010 when the Group's investments in debt instruments amounted to 93.7% of its securities portfolio. This decrease was the result of an increase in the volume of equity securities coming from Troika Dialog Group Ltd's portfolio. Equity securities comprise shares and investment fund units. The Group's investments in equity securities are primarily represented by shares in major Russian companies. WWW.SBERBANK.RU 93 A financial results#48financial results SBERBANK 170 YEARS. BY YOUR SIDE STRUCTURE OF SBERBANK GROUP'S ASSETS UNDER IFRS ANNUAL REPORT 2011 94 RUB million As of 31 December 2011 As of 31 December 2010 Change, % Amount % of amount Amount % of amount Debt securities 1,456,499 89.6 1,708,345 93.7 (14.7) Equity securities 169,351 10.4 115,303 6.3 46.9 Total securities 1,625,850 100.0 1,823,648 100.0 (10.8) Structure of investments in debt securities The Group's investments in debt securities mostly consist of Russian government bonds, which make up 53.5% of the Group's investments in debt securities as of 31 December 2011. The share of corporate bonds and other securities increased from 21.9% as of the beginning of the year to 37.3% as of 31 December 2011. The portfolio of corporate bonds and other securities in absolute terms amounted to RUB 543.1 billion as of 31 December 2011, with the increase primarily driven by purchase of corporate bonds issued by Russian companies. The portfolio of investment securities held to maturity includes debt securities with maturities from 1 year to 11 years. As of 31 December 2011, the Group's investments in this portfolio amounted to RUB 423.7 billion or 26.1% of the Group's securities portfolio. OFZ bonds account for the largest share of the portfolio of investment securities held to maturity (RUB 211.1 billion or 49.8%). Corporate bonds make up another substantial share of 30.9%. The Group's investments in securities designated at fair value through profit or loss amount to RUB 61.3 billion or 3.8% of the Group's invest- ments in securities. OFZ bonds account for more than half (62.8%) of this portfolio. Their share decreased by 8.9 p.p. from 2010. Invest- ments in corporate shares amounted to RUB 22.5 billion as of 31 De- cember 2011, with their proportion rising by 14.2 p.p. year-on-year. Shares are mainly represented by “blue chip” equity securities. The Group's trading portfolio includes investments that are essentially short-term. Investments in this portfolio account for 9.2% of the Group's securities portfolio. INVESTMENTS IN DEBT SECURITIES AT YEAR-END RUB billion 1 500 149.4 67.1 1 000 1,023.2 443.6 -227.7- 105.7 79.4 221.1 500 339.3 RUB million 95 A As of 31 December 2011 As of 31 December 2010 Change, % Amount % of amount Amount % of amount 990,638 60.9 1,280,264 70.2 (22.6) 1,708.3 Investment securities available for sale 373.9 1,456.5 Investment securities held to maturity 423,694 26.1 358,191 19.6 18.3 543.1 Securities designated at fair value through profit or loss 61,335 3.8 106,875 5.9 (42.6) -134.5 66.3 Trading securities 150,183 9.2 78,318 4.3 91.8 712.6 684.4 Total 1,625,850 100.0 1,823,648 100.0 (10.8) 2009 OFZ Board 2010 Central Bank of Russia bonds 2011 Russian Federation Eurobonds and state domestic loan bonds (OVGVZ) Subfederal bonds Corporate and other debt securities Breakdown of investments in securities by portfolio Investment securities available for sale make up 60.9% of the Group's investments in securities as of 31 December 2011. The portfolio de- creased by 22.6% over the year, which is primarily due to the repay- ment of Bank of Russia bonds. The portfolio of investment securities available for sale comprises the following major components: OFZ bonds 44.1%, and corporate bonds - 35.4%. Fair value of securities All securities held by the Group, except investment securities held to maturity, are measured at fair (market) value. In most cases, fair value is based on their market quotes effective as of the reporting date. Where the market quotes were unavailable, the Group applied appropriate valuation models using both observable market data and judgment-based parameters. Securities whose fair value was determined using valuation models and professional judgment account for 4.3% of the portfolio as of 31 De- cember 2011 (RUB 69.7 billion). These securities include unquoted equity instruments issued by companies operating in the oil and gas, transportation, telecommunications and construction industries. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU financial results#49financial results SBERBANK 170 YEARS. BY YOUR SIDE Λ 96 International borrowings 97 Amounts due to customers 98 Equity 99 STRUCTURE OF SBERBANK AND EQUITY UNDER IFRS GROUP'S LIABILITIES ANNUAL REPORT STRUCTURE OF SBERBANK GROUP'S LIABILITIES AND EQUITY UNDER IFRS 2011 RUB million As of 31 December 2011 As of 31 December 2010 Change, % Amount % of amount Amount % of amount Debt securities in issue 268,707 2.8 272,699 3.6 (1.5) Due to other banks Other liabilities 532,385 5.5 134,668 1.8 295.3 286,365 2.9 108,094 1.4 164.9 Total liabilities 9,567,128 100.0 7,641,360 100.0 25.2 The table below shows the breakdown of the Group's liabilities by reportable segments. RUB million As of 31 December 2011 As of 31 December 2010 Change, % Amount % of amount Amount % of amount Moscow 3,825,699 40.1 2,885,376 37.8 32.6 Central and northern regions of the European part of Russia 2,045,324 21.5 1,776,676 23.3 15.1 Volga region and the south of the European part of Russia 1,433,959 15.0 1,270,092 16.7 12.9 97 A Urals, Siberia and the Far East 1,876,422 19.7 1,549,502 20.3 21.1 of Russia Other countries Total liabilities 349,521 3.7 146,145 1.9 139.2 9,530,925 100.0 7,627,791 100.0 25.0 financial results Moscow and the European part of Russia account for 76.6% of the Group's liabilities as of 31 December 2011 (77.8% in 2010). he Group's liabilities increased 25.2% in 2011 to RUB 9,567.1 billion as of the end of the year. The increase was primarily driven by a 18.4% growth in amounts due to individuals to RUB 5,726.3 billion and a 21.4% growth in amounts due to corporate customers to RUB 2,205.8 billion. Other borrowed funds grew 42.5% in 2011 as a result of the Group raising a syndicated loan from a consortium of foreign banks. There was also growth of amounts due to other banks (295.3%) and other liabilities (164.9%) in 2011. Change, % RUB million As of 31 December 2011 As of 31 December 2010 Amount % of amount Amount % of amount Due to individuals 5,726,319 59.9 4,834,459 63.2 18.4 Due to corporate customers 2,205,814 23.1 1,816,672 23.8 21.4 Subordinated debt 303,518 3.2 303,513 4.0 Other borrowed funds 244,020 2.6 171,255 2.2 42.5 INTERNATIONAL BORROWINGS In June 2011, the Group placed the seventh issue of its medium-term borrowing (MTN) programme on the international financial markets. In November, Sberbank raised a multi-currency syndicated loan from a consortium of foreign banks. The loan was received in two tranches in two different currencies: USD 1.06 billion and EUR 0.1 billion. In October 2011, the Group repaid a syndicated loan of USD 1.2 billion from a consortium of foreign banks. In November 2011, the Group repaid the second issue of loan participation notes issued under the MTN programme in the amount of USD 0.75 billion. The nominal amount of Sberbank's international borrowings as of the end of the reporting year was CHF 0.4 billion, EUR 0.1 billion and USD 7.8 billion, with USD 4.75 billon and CHF 0.4 billion raised under the MTN programme. The share of international borrowings in the Group's funds continues to be insignificant at about 4.3% of total liabilities The main parameters of the Group's international borrowings as of 31 December 2011 are shown below. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#50financial results SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT STRUCTURE OF SBERBANK GROUP'S LIABILITIES AND EQUITY UNDER IFRS 2011 Instrument Currency Original amount Origination date Maturity Interest rate, % Medium-term borrowing programme (MTN programme) Tranche 1 USD 0.5 billion May 2006 7 years 6.5 Tranche 3 USD 0.5 billion July 2008 5 years 6.5 Tranche 4 (principal issue) USD 1 billion Tranche 4 (additional issue) USD 0.5 billion Tranche 5 (principal issue) USD 1 billion July 2010 August 2010 September 2010 5 years 5.5 5 years 5.5 6.5 years 5.4 up 69.1% of amounts due to customers and the share of current ac- counts increased by 1.1 p.p. to 30.9%. The Russian Ruble (RUB) is the Group's major funding currency with 81.7% of amounts due to individuals and corporate customers de- nominated in Russian Rubles. At year-end, the share of amounts due to customers denominated in Russian Rubles decreased by 0.7 p.p. CURRENCY STRUCTURE OF AMOUNTS DUE TO CUSTOMERS AT YEAR-END Tranche 5 (additional issue) USD 0.250 billion October 2010 6.5 years 5.4 % Tranche 6 CHF 0.4 billion November 2010 Tranche 7 USD 1 billion June 2011 4 years 10 years 3.5 2.3 100 5.7 0.7 14.3 2.3 1.6 17.4 1.3 2.0 17.9 Syndicated loans 80 Syndicated loan USD 2 billion 98 Syndicated loan (tranche 1) USD 1.06 billion Λ Syndicated loan (tranche 2) EUR 0.1 billion December 2010 November 2011 November 2011 3 years 3 years 3 years 6m LIBOR + 1.5 60 3m LIBOR + 1.5 82.7 78.7 78.8 99 40 3m EURIBOR + 1.1 A RUB million AMOUNTS DUE TO CUSTOMERS Breakdown of amounts due to customers is presented in the table below. As of 31 December 2011 As of 31 December 2010 Change, % Amount % of amount Amount % of amount 20 2009 Russian Ruble US Dollar Euro Other foreign currencies 2010 2011 Due to individuals EQUITY Current accounts 1,077,039 13.6 785,750 11.8 37.1 RUB million Amount Deposits 4,649,280 58.6 4,048,709 60.9 14.8 2011 2010 Total 5,726,319 72.2 4,834,459 72.7 18.4 Share capital 87,742 87,742 Due to corporate customers Treasury shares (6,962) Current accounts 1,372,356 17.3 1,199,581 18.0 14.4 Share premium 232,553 232,553 Deposits 833,458 10.5 617,091 9.3 35.1 Revaluation reserve for office premises 81,527 53,648 Total TOTAL 2,205,814 7,932,133 27.8 100.0 1,816,672 6,651,131 27.3 21.4 Fair value reserve for investment securities available for sale (7,459) 24,431 100.0 19.3 Foreign currency translation reserve Retained earnings (5,692) (1,136) 882,766 585,819 As of 31 December 2011, amounts due to individuals and corporate customers increased by 19.3% to RUB 7,932.1 billion. The share of amounts due to corporate customers in the total amount due to cus- tomers increased by 0.5 p.p. to 27.8%, while the share of amounts due to individuals in the total amount due to customers fell to 72.2%. In 2011, the structure of amounts due to individuals and corporate customers changed in slightly compared to 2010. Term deposits make Total shareholders' equity 1,264,475 983,057 Non-controlling interest Total equity 3,496 4,110 1,267,971 987,167 The Group's shareholders' equity grew 28.6% to RUB 1,264.5 billion as of 31 December 2011. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU financial results#51financial results 100 Λ SBERBANK 170 YEARS. BY YOUR SIDE CAPITAL ADEQUACY apital adequacy in accordance with the Basel Capital Accord is presented in the table below. In 2011, the Group's core capital adequacy ratio decreased by 0.3 p.p. to 11.6%. In 2011, the Group's total capital adequacy ratio decreased by 1.6 p.p. to 15.2%. However, the total capital adequacy ratio is no- tably higher than the minimum 8% ratio set by the Basel Committee. RUB million Core capital adequacy ratio Total capital adequacy ratio CAPITAL COMPONENTS Core capital Share capital Share premium Retained earnings Treasury shares Less goodwill ANNUAL REPORT CAPITAL ADEQUACY 2011 2011 2010 11.6% 11.9% 15.2% 16.8% 87,742 87,742 232,553 232,553 882,766 585,819 (6,962) (15,050) (8,251) 1,181,049 897,863 Total core capital Supplementary capital Revaluation reserve for premises 81,527 53,648 101 Fair value reserve for investment securities available for sale Foreign currency translation reserve (3,357) 13,437 Λ (5,692) (1,136) Subordinated capital 303,518 303,513 Less investments in associates (4,677) (2,479) financial results Total supplementary capital Total capital Risk-weighted assets 371,319 366,983 1,552,368 1,264,846 10,216,842 7,526,973 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#52financial results 102 A SBERBANK 170 YEARS. BY YOUR SIDE 1917 ↑ In the result of February, and later October Revolutions in Russia a new political and public order was established. The country entered the new historical stage of its development. 1918 ↑ 5 roubles "Armavir. The second issue" Подписывайтесь на ВОЕННЫЙ ЗАЕМЪ KnoчTA CCCP 1988 10 now +1918 Russian and soviet radio engineer Mikhail Alexandrovich Bonch-Bruevich was the first who described triggers named "cathodic relay". Triggers are the main elements of modern computer now. CONCER PUNITE SHIEL МАБОНЧ БРУЕВИЧЕ 1910 During Stolypin's land reform small loan institutions provided loans for movement and housing arrangement for the peasants. 1913 Peasants became the largest customer segment (1/3 of all private deposits). 1914-1917 During the First World War, savings banks served as a pillar of the financial stability in Russia, by placing a military goverment loans 170 YEARS. IT'S JUST THE BEGINNING OPENNESS AND GOODWILL A DRIVE FOR PERFECTION TRUST AND RESPONSIBILITY INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) ANNUAL REPORT ← 1914 Foundation of the Commission on Raw and Chemical Materials under the Committee of Military and Technical Aid. The period of active geological study of Russian lands had began. IQI0- 1920 During the First World War savings banks were founded at the field treasury houses, which facilitated the access to the bank' services for soldiers and officers. In addition, savings banks floated govermental loans for the needs of the front ↑1910 Vladimir Ivanovich Vernadsky forecasted prospects of the atomic energy use, he initiated the first searches of radioactive minerals. ↑ 1919 Issue of the Decree "On Liquidation of Illiteracy among the Population of the RSFSR". For the first three years of the soviet government 7 million of illiterate people were taught. ↑ 1919 GOELRO plan (Russian electrification plan) was adopted. It engaged over 150 scientists. 1915 Savings banks obtained the opportunity to accept government securities for custody and administer them. 1917 www.SBERBANK RU 1918 Despite the war, the savings business developed in accelerated tempo: number of banks increased by 65%, and the number of depositors by 35%. Soviet Government's decrees destroyed the fundamentals of pre- revolution saving system: payouts on government loan coupons were stopped, the banking secrecy rule was broken, limits for deposits were determined, excess amounts were confiscating, etc. 103 financial results 2011#53SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT RISK MANAGEMENT 2011 104 Λ financial results T Credit risk 105 Liquidity risk 113 Market risk 114 Operational risk 116 RISK MANAGEMENT he Group's risk management function works with major risk types, namely credit, market, liquidity and operational risks. Market risks include interest rate risk, equity risk and currency risk. The Group's risk management policies are designed to identify risk-bearing operations and assign key functions within the Group's risk manage- ment system. In 2011, the Group launched a project to implement an integrated risk management system comprising the following key components: - Managing the Group's aggregated risks using the economic capital concept and scenario planning, including stress scenarios; - Defining risk appetite through a set of parameters for the level of risk the Group is capable and/or willing to accept to provide a target return to shareholders in line with strategic plans, as well as maintaining Group risk at the level approved; - Developing and employing risk models compliant with Basel Com- mittee requirements and using departments independent from the developers to validate these models; A risk identification system to ensure timely identification and proper measurement of all Group risks. The Group plans to fully implement this system by 2014. CREDIT RISK The Group is exposed to credit risk, which is defined as the risk that a counterparty may be unable to meet its credit obligations in whole or in part when due. The Group's risk management policy aims to improve the Group's competitive position by expanding the list of counterpar- ties and the range of loan products on offer, implementing a systemic approach to credit risk to maintain or bring down the level of credit risk losses and through optimisation of the Group's credit portfolio structure by industry, region and product. The Group's credit risk level control and monitoring system is based on principles set down in its internal regulatory documents. These principles provide for initial, ongoing and follow-up control of trans- actions creating exposure to credit risk, as well as seeing that risks remain within the established limits and updating them on a timely basis. Credit risk management - corporate The Group has an internal rating system in place based on economic and mathematical models used to assess the likelihood of borrower or transaction default. The credit rating system ensures a differentiated approach to evaluating the likelihood that borrowers may default or not fulfill their obligations based on an analysis of quantitative (financial) and qualitative credit risk factors and their impact on a borrower's ability to repay interest and principal. The Group has developed a multi-level limit system in order to limit credit risk involved in lending operations and transactions on the financial markets. Additionally, the Group has a multi-dimensional system of authority limits, which is used to determine a decision- making level for each loan request. In 2011, the Bank also carried out obligatory independent reviews of credit risk before making lending decisions for medium-sized and large businesses and major corpo- rate customers. Although the existing limit systems ensure proper management of credit risk, the Group is working to further improve its limit methodology. 105 ^ financial results 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#54SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT RISK MANAGEMENT 2011 107 106 << financial results The Group has launched a project to implement a comprehensive automated risk management system for corporate credit risks that will make it possible to evaluate the current status of movements in and the outlook for credit risks, also based on the requirements of the Basel Committee on Banking Supervision. In 2011, the Bank completed implementation of the Loan Factory, a new individual lending process, for mortgage lending, the most recent in our key offerings for individuals Based on macroeconomic scenarios, the Group performs credit risk sensitivity analyses for individual corporate borrowers and the whole corporate loan portfolio. As a result of such analyses, it identifies macro factors that to a maximum extent correlate with the likelihood of borrower default. In order to conduct stress testing, statistical information on sharp movements in macro factors is used to model credit ratings in stress scenarios. Credit risk management-small and micro businesses In 2011, the Group continued to improve risk management in small business lending. In order to identify risk types and assign ratings, customers are classified as either micro businesses, for which retail risk measurement tools are used, or small businesses, for which the Bank has developed risk measurement tools that are fully integrated with risk management for medium-sized and large corporate custom- ers. The Group uses two consistent centralised processes in small business lending: - The Loan Factory. The Loan Factory applies a product approach to measuring risk. This means that the loan applicant's credit score and risk level are calculated at the time the loan is requested and the loan price and lending limit are also determined. The transaction is assigned a credit rating. The Loan Conveyor. The Loan Conveyor is a technology whereby a long-term rating is assigned to a customer or group of related persons using the corporate risk measurement model applicable to the corresponding customer category. The conveyor also in- cludes limit management and decision-making authority systems. In 2011, the first phase of implementation of the Loan Conveyor was completed at two regional offices. When testing the process, the Bank implemented a consistent approach to evaluating col- lateral and measuring legal risks, improved the loan process, reduced request processing time and conducted a centralised independent risk review, including verification of customer data and an assessment of the customer's credit history and business reputation. Phased automation and widespread rollout of the Loan Conveyor are planned for 2012. Credit risk management-retail In 2011, the Bank completed implementation of the Loan Factory, a new individual lending process, for mortgage lending, the most recent in our key offerings for individuals. The process involves a com- prehensive analysis of information on transaction parties from various sources, centralisation of the analysis and decision-making roles, and a high degree of pre-lending workflow automation. Having this risk management system in place across regional offices helps the Bank to control risks at each lending stage, maintain the quality of its loan portfolio and gradually reduce customer service time. Distressed loans The Group exercises ongoing control over the collection of distressed loans at each collection stage. The Group optimises lending and debt collection processes in incidents where any distressed areas or stages are identified in debt collection, or in cases when collection efficiency declines or distressed loan portfolios grow in particular regions or customer and product segments. To this end, the Bank completed implementation of Tallyman in 2011. Tallyman is an automated system for early collection of overdue re- tail loans. Industry analysis, currency analysis and concentration The Group's loan portfolio is well diversified across sectors. Trade and services account for the largest parts of loan portfolio - 19.8% and 13.5% respectively. Retail loans accounted for 21.5% of loan portfolio as of 31 December 2011, 0.2 p.p. up from 2010. Lending to telecom- munications, transport and energy companies grew most significantly in 2011, while lending to oil and gas and metals companies declined. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU financial results#55SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT RISK MANAGEMENT 2011 RUB million Loan portfolio structure by industry 2011 The list of the Group's largest borrowers (groups of related borrowers) provided below demonstrates the high level of industry diversification. 2010 Change, % RUB million Amount % of loan portfolio Amount % of loan portfolio Customer 1 Machine building, trade, construction, metals Individuals 1,805,527 21.5 1,319,732 21.3 36.8 Customer 2 Services Services 1,658,527 19.8 1,001,330 16.2 65.6 Customer 3 Oil and gas Trade 1,134,763 13.5 1,008,025 16.3 12.6 Customer 4 Food and agriculture 703,863 8.4 585,394 9.5 20.2 Customer 5 Construction 451,261 5.4 404,601 6.5 11.5 Customer 6 Telecommunications Telecommunications Construction Energy 379,891 4.5 208,797 3.4 81.9 Machine building 355,574 4.2 317,588 5.1 Customer 7 12.0 Oil and gas Chemical industry 340,211 4.1 216,833 3.5 56.9 Customer 8 Telecommunications Telecommunications 331,954 4.0 168,042 2.7 97.5 Customer 9 Metals 299,424 3.6 300,806 4.9 (0.5) Energy Customer 10 Energy 1« 108 Transport, aviation and space 285,364 3.4 147,540 2.4 93.4 Total Amount % of total loans 255,545 3.1 216,548 2.6 170,261 2.0 143,966 1.7 123,122 1.5 104,718 1.3 97,955 1.2 93,401 1.1 87,415 1.0 79,252 1.0 109 1,372,185 16.5 Λ industries State and municipal entities 268,087 3.2 153,280 2.5 74.9 financial results Oil and gas 164,663 2.0 177,495 2.9 (7.2) 50,388 152,610 8,382,107 Timber industry Other Total loans to customers The Group closely monitors major credit risk concentrations. Major exposures to our largest borrower and ten largest borrowers shown below indicate that concentration risk did not change significantly over the last three years and remains at an acceptable level. Credit risk concentration 0.6 49,609 0.8 1.6 1.8 132,838 2.0 14.9 100.0 6,191,910 100.0 35.4 A currency analysis of the structure of the Group's loan portfolio indicates that the bulk of loans (78.8%) are denominated in Russian Rubles. The percentage of loans denominated in foreign currency (US Dollars, Euros) remained almost unchanged compared with 2010. The graph below shows that such loans accounted for 19.7% of the loan portfolio at the end of 2010 and grew to 19.9% in 2011. CURRENCY STRUCTURE OF LOAN PORTFOLIO AT YEAR-END financial results % 100 2.3 0.7 2.3 1.6 1.3 2.0 14.3 17.4 17.9 80 % 2011 2010 2009 Concentration of loans in the gross loan portfolio due from the largest borrower before provision for loan impairment 3.1% 3.7% 4.4% 60 82.7 Concentration of loans in the gross loan portfolio due from the ten largest borrowers before provision for loan impairment 16.5% 16.0% 16.9% 78.7 78.8 40 20 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 2009 2010 2011 Russian Ruble US Dollar Euro Other foreign currencies#56SBERBANK 170 YEARS. BY YOUR SIDE RISK MANAGEMENT ANNUAL REPORT RUB million Loan portfolio quality The existing policies and procedures applied by the Group helped to avoid an uncontrolled deterioration in loan portfolio quality during the financial crisis. The table below contains an analysis of overdue loans to borrowers by period overdue and details the share of over- due loans in the loan portfolio. As evident from the table below, the volume of overdue loans declined in 2011, both in relative and ab- solute terms. The decline in overdue loans was driven by the Group's ongoing efforts to ensure repayment of overdue and distressed loans, the disposal of certain portion of distressed loans and writing off of uncollectable loans. 31 December 2011 31 December 2010 Amount % of loan portfolio Amount % of loan portfolio. RUB million Loans collectively assessed for impairment 31 December 2011 31 December 2010 Change, % Amount % of amount Amount % of amount 7,792,528 93.0 5,540,865 89.5 40.6 Overdue loans collectively assessed for impairment 298,621 3.6 316,739 5.1 (5.7) Individually impaired corporate loans 290,958 3.4 334,306 5.4 (13.0) 8,382,107 35.4 Total loans to customers, gross Provisions for impairment: Provisioning ratio, % Total loans to customers, net Including: Non-performing loans 6,191,910 (662,407) (702,523) 7.9 11.3 7,719,700 5,489,387 40.6 Loans to customers with overdue principal or interest 110 Loans up to 1 month overdue 49,290 0.6 41,494 0.7 A Loans 1 to 3 months overdue 27,844 0.3 30,814 0.5 Provisions for impairment of non- performing loan 407,399 (358,118) financial results Loans over 3 months overdue 407,399 4.9 452,292 7.3 Share of non-performing loans, % Total 484,533 5.8 524,600 8.5 4.9 452,292 (397,262) 7.3 Non-performing loans and loan impairment provisions Loan portfolio quality, loan impairment provision and non-performing loans (where payments of principal or interest are overdue by more than 90 days) are analysed below. (9.9) 111 (9.9) E While the Group has maintained a sustainable loan portfolio structure in terms of the share of overdue and distressed loans, a fact resulted in lower provisioning rates, it still continues to pursue a conserva- tive approach towards credit risk. Our provisioning policy involves a careful analysis of borrowers, their current liquidity position and debt burden, with consideration given to the availability of reliable repayment sources, and the quality and liquidity of collateral. The change in the volume of non-performing loans at 2011 year-end was insignificant compared with the previous year, while the share of non- performing loans declined against overall loan portfolio growth. As of 31 December 2011, the Bank's provisioning ratio (loan impair- ment provision to total gross loan portfolio) was 7.9%. In the total portfolio, loans overdue by more than 30 days accounted for 5.2%, with the share of loans overdue by more than 90 days (non-performing loans) comprising 4.9%. The Bank's impairment provisions exceeded non-performing loans by 1.6 times. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU financial results 2011#57financial results 112 Λ SBERBANK % 10 8 6 4 170 YEARS. BY YOUR SIDE The graph below shows movements in overdue loans. 3.8 2.8 1.8 1.7 2 1.5 3.1 RUB million 2007 2008 2009 11.3 10.7 9.4 8.4 7.9 7.8 7.3. 5.2 4.9 Loans over 30 days overdue Loans over 90 days overdue Provisioning ratio Restructured loans Loans to corporate customers 2010 2011 31 December 2011 31 December 2010 Change, % Amount Structure, % Amount Structure, % Non-overdue loans collectively 881,451 85.4 574,490 76.9 53.4 assessed for impairment Non-overdue loans individually 32,678 3.2 43,636 5.8 (25.1) assessed for impairment Loans 1 to 90 days overdue 25,545 2.5 28,689 3.8 (11.0) Loans over 90 days overdue 68,973 6.7 78,406 10.5 (12.0) Total restructured loans to corporate customers Loans to individuals 1,008,647 97.8 725,221 97.0 39.1 Non-overdue loans collectively assessed for impairment ANNUAL REPORT RISK MANAGEMENT 2011 Presented above are loans that have been restructured. Restructuring involves the renegotiation of the original loan agreement to make its terms and conditions more favourable for the borrower. In 2011, restructured loans grew by 38.0%, totalling RUB 1,031.6 billion at year-end. The share of restructured loans in the overall loan portfolio did not change significantly in 2011-12.3% compared to 12.1% as of the end of 2010. As of 31 December 2011, non-overdue loans collectively assessed for impairment accounted for 86.6% of re- structured loans (78.1% in 2010). Most restructurings in 2011 were the result of an ongoing decline in market interest rates and changes in lending periods requested by customers. It is the Group's policy to renegotiate distressed loans only when there is objective evidence that loan restructuring will help to improve the borrower's economic position and ensure that the borrower is able to meet its debt service obligations in full when due. LIQUIDITY RISK Liquidity risk is defined as the risk that maturities of assets and liabilities may not match. The Group is exposed to liquidity risk as it has to use available cash on a daily basis to make payments, extend loans and repay liabilities. Gap analysis for different time horizons is the main tool for managing liquidity risk. The Group manages two types of liquidity risk - statu- tory liquidity risk and physical liquidity risk. Statutory liquidity risk is the risk of possible failure to meet statutory liquidity ratios. The Bank prepares weekly liquidity ratio forecasts, which are monitored for compliance with both regulatory restrictions and the more conservative internal limits set by the Bank. Throughout 2011, the Bank's liquidity ratios were significantly better than the statutory requirements. Compliance with liquidity ratios 113 ^ financial results 12,859 1.2 8,820 1.2 45.8 Liquidity ratios Threshold set by the Bank Sberbank's internal limits of Russia Liquidity ratio values at the reporting date, % Loans 1 to 90 days overdue 2,913 0.3 252 0.0 1,056.0 2011 2010 Loans over 90 days overdue 7,158 0.7 13,428 1.8 (46.7) N2 More than 15% 15% 50.8 80.6 Total restructured loans 22,931 2.2 22,500 3.0 1.9 to individuals N3 More than 50% 55% 72.9 103.0 Total 1,031,578 100.0 747,721 100.0 38.0 N4 Less than 120% 110% 87.3 78.0 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#58SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT RISK MANAGEMENT 2011 114 Λ financial results Physical liquidity risk is the risk that any amount expressed in any currency may fall short of obligations imposed upon the Bank. The key processes involved in managing physical liquidity risk include the following: Forecasting cash flows by type of currency in order to define the amount of capital required to cover the liquidity gap; Forecasting the structure of assets and liabilities based on sce- nario analysis in order to ensure the required level of liquid assets in the medium and long term; Monitoring liquidity sources in order to evaluate the maximum amount of capital the Group can raise from various sources de- nominated in various currencies; - Diversifying sources in terms of currency (based on maximum amounts, costs and borrowing periods); Conducting stress testing and developing action plans to recover required liquidity in the event of adverse market conditions or in a crisis. Short-term physical liquidity risk management involves cash flow forecasting and monitoring available liquidity sources. The Bank's immediate liquidity needs are primarily ensured through direct re- purchase agreements with foreign banks and the Bank of Russia. Mid- to long-term liquidity is managed across Sberbank based on quarterly funding plans. Trade finance, bond issuance and syndicated loans are the main source for covering mid- to long-term funding requirements. MARKET RISK Market risk is defined as the risk that the Group may incur financial losses as a result of adverse changes in foreign currency rates, equity instrument prices, interest rates and precious metals prices. The key objectives of market risk management include achieving the best bal- ance of risk and return, minimising losses in adverse scenarios and reducing the deviation of actual financial results from those projected. The Bank classifies market risk as follows: Interest rate risk relating to assets and liabilities exposed to interest rate volatility - the risk of a decrease/increase in interest income/ expenses occurring because of yield curve changes resulting from a mismatch of investment and borrowing maturities (interest rate repricing). -Market risk for trading positions, including: 1. Interest rate risk for the Group's debt securities portfolio. This is the risk arising from an adverse change in the market value of securities. 2. Equity risk. This is the risk arising from an adverse change in the market value of equity instruments. 3. Currency risk. This is the risk arising from an adverse change in foreign exchange rates and precious metals prices. The Group uses the following techniques to assess its market risk exposure: Interest rate risk for non-trading positions is assessed using gap analysis. Assets and liabilities with fixed interest rates are ar- ranged according to their remaining contractual maturities; those with flexible interest rates are arranged by time remaining to re-pricing. Russian Ruble and foreign currency gaps are ana- lysed separately. This involves analysing net profit sensitivity to a 100 basis points increase/decrease. Market risk for trading positions (interest rate risk for the debt securities portfolio, equity and currency risk) is assessed based on Value at Risk (VaR) methodology. The VaR that the Bank mea- sures is an estimate, using a specified confidence level, of the potential financial loss that it does not expect to exceed over a certain time period. The Group measures VaR using the histori- cal simulation method with a 99% confidence level for a 10-day horizon. To monitor the level of market risk arising from trading positions, the Bank also analyses its daily risk positions and their sensitivity to changes in market indices. To mitigate market risk, the following limits and restrictions are set for transactions involving assets and liabilities: ― Interest rate risk for non-trading positions is mitigated using mar- ginal interest rates on borrowed and invested corporate funds and by setting limits on long-term lending amounts (the investment instrument which entails the greatest risk). ― Market risk for trading positions: limits on investment amounts and open positions, duration limits, sensitivity limits, stop-loss, etc. 115 financial results 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#59SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT RISK MANAGEMENT 2011 116 Λ financial results OPERATIONAL RISK Operational risk and related losses arise as a result of deficiencies in operational management, technologies and IT systems in use, unauthorised actions or errors by staff, or external events. The Group manages operational risk by segregating roles, ensuring that business processes are properly documented and that limit dis- cipline is maintained and through staff development, amongst other measures. In order to increase divisional responsibility for managing operational risks, the Bank has placed a particular emphasis on the role of risk coordinators, who act as a communications link between risk divisions and business units on operational risk management matters. In the reporting year, the Bank selected a software platform for op- erational risk management through a public tender. The selected platform is SAS OpRisk Management, a platform used by major fi- nancial institutions globally. The Bank launched a strategic project to automate operational risk management and began to implement the automated system. In 2011, an ongoing risk audit process was in place to audit key pro- cesses. Following such audits, the Bank implemented new solutions aimed at mitigating operational risk, including solutions to: Prevent external fraud and fraud by employees when accessing customer accounts. - Delimit the possibilities for performing transactions in automated systems. As a result, the risk of unauthorised transactions by a single individual was reduced. Centralise access rights to automated systems. Processes involving high operational risk, such as corporate cash and settlement operations, impersonal metal account operations, brokerage services, clearing and bank card operations and the signing and maintenance of universal banking service agreements, amongst others, are top of the Bank's improvement agenda for 2012. As of 1 January 2012, the ratio of expenses incurred as a result of op- erational risk to profit was 1.2%, which is significantly lower than other major Russian banks. The average ratio based on the income statements of ten major banks by size of working assets was 4.2% as of 1 January 2012. Sberbank Tops List of Most Reliable Banks 23 May 2011, Moscow - In the first quarter of 2011, Sberbank was ranked first on the list of the most reliable banks published by Finans Magazine. Sberbank Ranked World's 20th Strongest Bank 20 June 2011, Moscow - Sberbank was ranked 20th on the list of the World's Strongest Banks published by Bloomberg Markets in June. Sberbank was the only Russian bank included on the list. Singapore's OCBC Bank was ranked first. There were five Canadian banks, three Singaporean banks, two Brazilian banks and two banks based in Hong Kong among the top 20 banks. The list included banks whose assets exceeded USD 100 billion in 2010. Sberbank Included in Ranking of Top Ten Most Reliable Banks In Central And Eastern Europe 26 August 2011, Moscow - Sberbank was ranked ninth on the list of the most reliable banks in Central and Eastern Europe published by Global Finance. The most reliable banks were selected based on their long-term credit ratings and aggregate assets. Ratings by Moody's, Standard & Poor's and Fitch were used. In 2011, The Banker magazine ranked Sberbank 40th among the world's major banks by tier 1 capital. Sberbank was also rated the 23rd most profitable bank in the world. 117 E Λ financial results 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#60financial results 118 A SBERBANK 1920-1930 1922 By a 26 December decree, the Soviet Government established a new format of savings institutions, the State Labour Savings Banks, which immediately became involved in building of a new state. 1926 Savings banks began to give personal pensions and salary to workers and corporate personnel 1921 Savings banks distributed lotteries for funds collection to provide aid for people suffering from famine and for fighting with the child homelessness. 1924- 1925 In order to attract people into savings banks, advertising and agitation were widely used. During this period 12 million copies of 31 publications were printed in total. 170 YEARS IT'S JUST THE BEGINNING 170 YEARS. BY YOUR SIDE 1921 A course on New Economic Policy (NEP) was taken, its purpose was the recovery of the national economy by market relations with a further transition to the socialism. INITIATIVE AND CREATIVITY TEAMWORK AND EFFECTIVENESS OPENNESS AND GOODWILL A DRIVE FOR PERFECTION RESPECT FOR TRADITIONS TRUST AND RESPONSIBILITY 1927 Savings banks began to accept taxes and charges from the population. WWW.SBERBANK RU INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) ↑ 1928 1925 The 14th VKP(b) (All- Union Communist Party) declared a course for the country industrialisation. Two years later, the construction of the Turksib (Turkestan-Siberian ↑1921 Railways) started and metallurgic works in Kuznetsk, Magnitogorsk and Krivoy Rog were erected. ANNUAL REPORT Russian Soviet Federative Socialist Republic 50 kopeck coin. From the outset, the Soviet Government actively promoted the savings business among the population. All possible resources were used: printed and cinematic advertising materials, arrangement of the campaign trains, the variety theatre groups were involved In October the realisation the First Five-year plan of national economic development had started. 71 1925 Launch of the first GOELRO power plants- the Kizelovskaya, Balakhninskaya and Shaturskaya. 1929 Regulations for State Labour Savings Banks, were approved with a considerable extension of their operations. The Regulations treated them as a single credit institution. late 1920th 1929 Abaci are gradually replaced with the arithmometer, which could be mechanical or automatic depending on their construction. Implementation of cashless payment transactions (giro) commences. 119 A financial results 2011#61We instill confidence and sense of reliability, we make people's lives better, helping them to fulfill their dreams and aspirations. We are building one of the best financial services companies in the world, and our success will be based on the professionalism as well as the feeling of harmony and happiness of our staff. CORPORATE SOCIAL RESPONSIBILITY#62SBERBANK 170 YEARS. BY YOUR SIDE 122 Λ corporate social responsibility >> W Interview Donskih 124 Contributing to the Sustainable Development of Russian Regions 128 Supporting Small- and Medium- Sized Businesses 130 Interview Bazarov 136 Improving the Legal Framework 138 Contributing to Housing and Utility Sector Reform 139 Carbon Finance and Financing Energy Efficiency and Energy Saving Projects 140 Working with the Government 142 Ensuring Procurement Transparency 143 ECONOMIC DEVELOPMENT CONTRIBUTING TO THE OF THE COUNTRY e see contributing to Russia's economic development as a key priority in corporate social responsibility. The extent of our responsibility is determined by the scale of the Bank's operations and the depth of our social and economic integration. In everything we do, be it participating in nationwide projects, helping achieve government policy objectives or contributing to the development of Russia's legal framework, we are guided by the belief that a prosper- ous national economy coupled with effective government and market institutions are essential to the Bank's long-term and sustainable development and imperative in creating value for our shareholders. In 2011, we paid special attention to two priority CSR areas. These were facilitating economic development in the Russian regions and supporting small- and medium-sized businesses. Both objectives 170 YEARS. IT'S JUST THE BEGINNING ANNUAL REPORT CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY 2011 bear enormous socio-economic significance, while at the same time offering excellent business potential. These challenges are in line with the scale of the Bank's operations and provide opportunities to build long-term partnership relationships with all stakeholders. The development of regional economies is crucial to the Bank given that over 60% of our assets are in Russia's regions. For a region to develop and grow successfully, all of the relevant measures and in- struments need to be integrated together effectively. Today we work in every region of Russia and have a good understanding of regional specifics. This helps the Bank participate in the preparation and implementation of regional development strategies in partnership with regional authorities. The development of small- and medium-sized businesses is a corner- stone in the sustainable development of the entire Russian economy. We see the small- and medium-sized business segment as having great potential as a growth area for our business, but at the same time, by providing financial and non-financial services to entre- preneurs, we contribute to the creation of a favourable business environment, improve the standard of living for Russian citizens, support the creation of new jobs and facilitate the development of competitive markets. In 2011, the Bank also continued its activities across a number of areas important both for the business and as corporate social respon- sibility priorities. These included supporting projects to reform the housing and utility sector, carbon financing and ensuring transpar- ent and efficient procurement. 123 A corporate social responsibility WWW.SBERBANK.RU#63124 Λ corporate social responsibility >> INTERVIEW SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY 2011 Andrey Donskih Member and Deputy Chairman of Management Board >> Social responsibility is a multifaceted concept, which includes, amongst other aspects, supporting economic development by extending loans to regional governments, financing federal and regional targeted programmes and providing funding to different economic sectors and customer segments Social responsibility undoubtedly also involves servicing retail custom- ers and providing them with access to an extensive range of modern financial products and services. We see the implementation of pro- grammes facilitating socio-economic development in the country as a cornerstone of the Bank's mission. 2011 was a special year for us. We succeeded in implementing a broad range of projects important both to the Bank and to the economy at large. The Bank paid special attention to standardising approaches and activities across all areas of our operations. We developed a Cor- porate Business Development Plan and Programme for each region of the Russian Federation. Today Sberbank offers a standardised and comprehensible set of corporate banking services across the entire country. We have more than 3,500 offices providing services to corpo- rate customers, which is equivalent to around one third of our network in urban areas. We launched a remote banking system, which has become very popular among our corporate customers. In fact, interest in the system was triple what we had expected. At present the Bank is working to produce a Nationwide Integrated Regional Development Plan. We have developed a new software prod- uct that will serve as a "one-stop-shop" to help track progress in the implementation of federal targeted programmes in areas such as the housing and utility sector, agriculture and the development of utility and road infrastructure. The Bank has signed agreements with a number of regional governments as part of this drive to promote regional devel- opment. I would like to highlight our partnership with the Republic of Udmurtia, which involves a broad scope of projects and programmes ranging from the development of infrastructure through to financing individual industrial enterprises and creating industrial clusters. We also signed an agreement with the Belgorod Region, a long-time part- ner of Sberbank. We maintain close contacts with the administration ^ of the North Caucasian Federal District, as well as the governments of 125 all republics in the North Caucasus and Stavropol Territory. Our objec- tive is to create an integrated programme spanning the entire country. For this purpose the Bank has created a special division to work with government projects and programmes. We launched a remote banking system, which has become very popular among our corporate customers. In fact, interest in the system was triple what we had expected Supporting the development of small business is one of the Bank's top priorities. In 2011, we developed a Small Business Services Concept, which helped us bring a number of innovative products and offerings to the market for small businesses. The Concept comprises three main components, which we at Sberbank call, probably somewhat ambi- tiously, Evolution, Revolution and Transformation. As part of the Evolution component, we offer our customers a set of specialised products, which help small businesses better understand Sberbank's offerings and identify the product best suited to their cur- rent needs. The Revolution component includes two types of banking products intended to improve the availability of loan financing for micro busi- nesses, a customer sector that previously went unnoticed by the bank- ing industry. One of the products, the Loan Factory, provides access to loans of up to RUB 3 million without guarantors or collateral with a turnaround time of no more than two days. In 2011, we reached our corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#64SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY 2011 126 Λ corporate social responsibility >> planned capacity, which allows us to extend one loan per minute across the entire country. We issued 48,000 loans to small business custom- ers worth a total of RUB 32.3 billion. The Loan Factory has made loan financing truly accessible to micro businesses, and we are going to further expand this segment of our business. There is very high demand for loan financing among small and micro businesses, and we have the capacity to increase financing available to this customer segment many times over. The second product that forms a part of the Revolution segment is the Business Start loan, intended to support small businesses being set up from scratch. We offer our customers around 100 ready-packaged business projects that include both franchise opportunities and proj- ects developed jointly with our medium- and large-sized business customers. We are currently exploring opportunities in collaboration with the Ministry of Defence to create a special loan programme for start-ups launched by retired military personnel. There is very high demand for loan financing among small and micro businesses, and we have the capacity to increase financing available to this customer segment many times over Today the Bank is not only a financial institution but also a service or- ganisation providing a platform for a range of specialised non-financial services. In 2011, as part of another element of our small business ser- vices Transformation-we launched some 50 business development centres in a number of Russian regions. We offer additional services to help our customers register companies, maintain accounting records, prepare tax reports, work with the Pension Fund of the Russian Federa- tion and receive training at Sberbank's business schools. Eventually all these projects will be integrated within a single social network. We expect to complete the first phase of the programme in autumn 2012. The programme will help us create a radically new service platform supporting the creation of at least 25,000 new small businesses per year across the country. The competitiveness and success of small businesses across the coun- try depends on their mobility, which is particularly important in small towns and rural areas. Jointly with Opora Russia, a small- and medium- sized business association, we developed a concept to finance "busi- nesses on wheels". These companies can be any kind of business that can be attached to a vehicle as a trailer to roam the boundless expanses of Russia, such as small bakeries, dental practices, counselling centres or shoe repair shops. We sponsor the Best Mobile Business awards, held annually at the Sochi International Investment Forum. Sberbank plans to further develop this business area jointly with Opora Russia, which plays an essential role providing us with vital information on what small Russian businesses really need. We offer additional services to help our customers register companies, maintain accounting records, prepare tax reports, work with the Pension Fund of the Russian Federation and receive training at Sberbank's business schools Social responsibility is one of the key factors that sets the direction for the Bank's business strategy. To Sberbank, our business strategy and social strategy are inseparable. By actively implementing social programmes, we boost the loyalty of existing customers, thereby shap- ing society's attitude towards the Bank. This in turn helps build our future. For us this is of the upmost importance-a cloudless, bright and interesting future. Λ 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 127 corporate social responsibility#65128 corporate social responsibility >> SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY CONTRIBUTING TO THE SUSTAINABLE DEVELOPMENT OF RUSSIAN REGIONS We offer various kinds of investment and banking services taking into account the needs and circumstances of specific regions. These services include, among others: Loan financing for budget expenditures — Financing public-private partnerships - Financing businesses. The Bank provides services to virtually every sector related to socio- economic development, including the social sphere, infrastructure and transport, the housing and utility sector, energy, small business development and priority economic sectors (agriculture, innovation, mechanical engineering, etc.) OUTSTANDING LOANS TO SUBFEDERAL AND MUNICIPAL AUTHORITIES* Sberbank's presence across the entire Russian Federation and the scale of its operations create favourable conditions to further strengthen the Bank's position in regional markets. As a result of spirited efforts by our regional banks, the regions account for a ma- jor portion of our business: presently loans to businesses and retail customers based in the Russian regions comprise over 68% of the Bank's loan portfolio. In 2011, the Bank's key regional development results were: -The creation and approval of Sberbank's Regional Development Strategy; -Sberbank's contribution to a review of Russia's competitiveness and the preparation of the Russia Competitiveness Report 2011 jointly with Strategy Partners Group, the World Economic Forum and the Eurasia Competitiveness Institute; - The preparation of regional development plans; ―The publication of a report on the Entrepreneurial Climate of Rus- sian Regions. RUB billion 250 200 150 100 50 50 58 0 2008 92 98 -75 153 267 141 141 128. 2009 2010 2011 Outstanding loans to subfederal and municipal authorities Investment in subfederal bonds * From RAS Financial Report of OJSC Sberbank Of Russia for 2011 170 YEARS. IT'S JUST THE BEGINNING Working with the Government of the Republic of Udmurtia Sberbank signed a Cooperation Agreement with the Government of the Republic of Udmurtia in 2011. The agreement provides for regional bonds to be issued to the value of RUB 2-2.5 billion. It is planned that Sberbank, amongst other activities, will man- age payroll projects for public institutions and state enterprises based in the republic. Sberbank will support a number of regional infrastructure development projects, in- cluding: a regional targeted programme to Develop the Motorway System in the Repub- lic of Udmurtia; the construction of gas distribution networks; improving access for households, businesses and institutions to natural gas supplies; and the modernisation of municipal water supply and sewer networks in Izhevsk and Votkinsk. Another area of cooperation is agriculture, where Sberbank is supporting operations and development in the Republic. It is planned that the Bank will provide financial support for the creation of a fish farming facility in the region. In 2011, the Bank launched the Mobile Trust project, under which Sberbank representa- tives visited municipalities in the republic and collected loan applications from small business customers. A total of 112 applications worth RUB 66.7 million were approved. WWW.SBERBANK.RU 129 A corporate social responsibility 2011#66130 Λ corporate social responsibility >>> SBERBANK 170 YEARS. BY YOUR SIDE Sberbank supports the initiative to create a Regional Development Corporation for the Republic of Udmurtia, which will help address development objectives at a higher, systemic level. ANNUAL REPORT CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY 2011 OUTSTANDING LOANS TO SMALL BUSINESSES RUB billion 656. SUPPORTING SMALL-AND MEDIUM- SIZED BUSINESSES In 2011, we continued to step up our efforts to support small- and medium-sized business customers. We strive not only to offer qual- ity banking products and services to small- and medium-sized en- terprises but also to ensure a high level of customer service, thus building loyalty to the Bank. We continuously work to improve access for small- and medium-sized businesses to financing. Taking into account the needs of our custom- ers, we have been improving our range of loan products. Currently Sberbank's line of loan products contains 12 offerings for small- and medium-sized businesses, including the Trust, Business Start and Business Project loans. We continuously work to improve access for small- and medium-sized businesses to financing In 2011, based on lessons learned from the implementation of Sber- bank's Small- and Medium-Sized Business Support Programme, we developed and approved a Small and Micro Business Development Concept through 2014. The main priorities of the Concept include: -Providing a set of financial and non-financial products and ser- vices targeting small business customers. - Gaining leading positions in the small business segment of the market. Expanding our network of business development centres. - Partnering with governmental and non-governmental small- and medium-sized business support institutions, including entrepre- neur associations. 600 553. "529 500 479 400 300 200 100 0 2008 2009 2010 2011 Launching a Poultry Facility at Inzhavinskaya Farm 2011 saw the launch of a poultry facility in the Tambov Region town of Inzhavino. The facility is operated by CJSC Inzhavinskaya Poultry Farm, a subsidiary of Prioskolye Group- the largest producer of poultry meat in Russia. This investment project not only helped expand poultry meat production but also provided a foundation for the development of a number of associated businesses and sectors in the Tambov Regions, creating 250 new jobs. The Prioskolye Group-a Russian poultry meat market leader and a strategic customer of Sberbank is top of the Agro 300 Club, a list of the 300 most effective and success- ful Russian agricultural businesses. The Group works with two of our regional banks: Tsentralno-Chernozemny Bank and Sibirsky Bank. As a part of efforts to expand mutually beneficial cooperation, in 2011 the Bank promoted dialogue with small- and medium-sized businesses within the framework of various business events. Jointly with the Russian Chamber of Commerce and Industry, Opora Russia, the Association of Young Entrepreneurs, the Russian Microfinance Centre and Delovaya Rossiya, we held a number of major events at- tended by more than 40,000 entrepreneurs. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 131 ^ corporate social responsibility#67SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY 2011 132 Λ Partner MAJOR EVENTS FOR SMALL BUSINESSES Association of Young Entrepreneurs Chamber of Commerce and Industry Russian Microfinance Centre Event Entrepreneurship: Strategies and Prospects-Youth Innovation Forum 11th National Conference for Small- and Medium-Sized Enterprises 10th National Microfinance Conference In 2011, Opora Russia, a national non-governmental small- and medium-sized business association, became our strategic partner, with its president, Sergey Borisov, being appointed Vice President of Sberbank. Having retained the position of Head of Opora Russia, he is able to support small businesses while considering the interests of both entrepreneurs and the Bank. In order to step up activities in this area and support the implementa- tion of our Small Business Development Concept, the Bank created a dedicated department for liaising with entrepreneur associations and monitoring conditions for small business development. Managers responsible for this have been assigned in regional banks. Area of collaboration MAIN AREAS OF THE BANK'S COOPERATION WITH OPORA RUSSIA IN 2011 Development of mobile solutions for small businesses (Opora Russia) Entrepreneurial Climate in Russia: the Opora Index 2010-2011 a global research project The Russian Business Success Awards (Opora Credit) Result Minimised the Bank's credit risks, simplified the process for inexperienced entrepreneurs starting up a new business Obtained a better understanding of the business climate in different regions and selected lower-risk regions to pilot the Business Start project Promoted the Bank's new small business support strategy and built relationships with regional governments in this field The award ceremony was held at the 2011 Sochi International Invest- ment Forum. One of the Bank's priorities is participating in government pro- grammes to provide financial support for small- and medium-sized businesses. We do this through partnering with a network of guaran- tee funds that includes 78 regional funds created under government programmes. In 2011, the Bank extended over RUB 8 billion of loans guaranteed by the funds. corporate social responsibility >>> 1929 1920s The winners get prizes. 1926 The State Labour Savings Bank Headquaters was the initiator of the All-Union competition held throughout the year and it became traditional for a long time. The local savings banks employees' activity in attracting depositors was evaluated. The winners received cash bonuses 1920s Thrift memo. 1929 In Moscow and Leningrad savings banks a universal savings book was issued. It functioned on the territory of a certian region, an autonomous republic, etc. Within the first year 4,383 people got the universal savings book 1920s State bond of the internal winning loan for farms strengthening. 1928 The main peculiarity of state labour savings banks in the 1930s was the active State attraction of individual investor funds for solving economic problems through the system of savings banks 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 133 corporate social responsibility#68corporate social responsibility 1930 134 A 34 SBERBANK 170 YEARS. BY YOUR SIDE 71 1936 On July 20th, a record-setting Chkalov flight from the USSR to the United States over the North Pole started. It ended after 56 hours on the island of Udd. The total length of the route was 9375 km. 1930-1940 ↑ 1937 INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) ACKSPE ← 1932 For the first time in history the Soviet Icebreaker "Sibiryakov" traversed the Northern Sea Route from Arkhangelsk to Vladivostok. On June 6th, near the North Pole, the Soviet Union opened the world's first polar research drifting station "North Pole-1". In a context of overall deficit and rationing, savings banks accepted special-purpose deposits for sewing machines, cameras, bicycles, tableware, etc. The depositor who had saved up the required amount could get the item from a government-run store State Labour Savings Banks became an important source of economy financing. During the First Five-year plan alone, more than 9 billion roubles were taken as loans. 1930 Savings banks resumed the delivery of individual and collective life insurance services, which was started in 1918 but soon interrupted. 1932 The best savings bank All-Union competition was held 170 YEARS. IT'S JUST THE BEGINNING OPENNESS AND GOODWILL A DRIVE FOR PERFECTION RESPECT FOR TRADITIONS TRUST AND RESPONSIBILITY INITIATIVE AND CREATIVITY TEAMWORK AND EFFECTIVENESS ANNUAL REPORT 2011 ↑1935 Electrification plan was generaly completed. Electricity production increased fourteen times compared to the pre-war 1913. ↑ Early 1930s Industrial raw material exploration was forced. Geological survey expeditions to the Kola Peninsula, Pechora Basin and Pamir-Tadjik expedition were organised. 71933-1937 During the Second Five-year plan, 4500 major plants were put into operation. Among them were Uralmash, Chelyabinsk Tractor Works, metallurgical complexes in Ural-Kuznetsk, Krivoy Rog, Lipetsk and Tula, mining and processing enterprises in Tyrnyauz and Norilsk. 1935 All-Union survey among the savings book holders was completed. Famous artists, heroes of labor and award winners told why they decided to have a savings book. WWW SBERBANK.RU 1936 Special-purpose savings - for the purchase of sewing machines, bicycles, photo cameras, home furnishings - became popular. 1939 Savings banks started to accept fixed- term deposits from individuals for the period not less than 6 months at 5% rate per annum. This novelty's high interest rate made it popular. 135 A corporate social responsibility#69corporate social responsibility >> 136 INTERVIEW SBERBANK 170 YEARS. BY YOUR SIDE CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY ANNUAL REPORT 2011 Alexander Bazarov Member of the Management Board, Vice President, Director of the Corporate Clients Department >> Sberbank's social responsibility means doing everything that is described in detail in our Strategy and consistent with our mission and values, and doing it well. What we do is very simple: we say what we think, do what we say and believe in what we do. Good ends cannot be achieved through unethical means For Sberbank, 2011 was not only an anniversary year; it was a year of records for the Bank as a whole, for its corporate business and for the Corporate Clients Department, which provides financial services to the Bank's largest customers. We broke almost all the records that could be broken and set all the records that could be set. The total value of the Department's loan portfolio exceeded RUB 3 trillion. In 2011 alone, we extended RUB 1 trillion worth of loans to our customers. We will certainly continue to expand our operations. The Bank finances all sectors of the Russian economy. The structure of our loan portfolio virtually mirrors the structure of Russia's national GDP, and we have recorded major achievements in each sector. One highlight is the extremely complex project finance deal we did for Rus- Vinyl, which was recognised by a number of international experts as the best European deal in the petrochemical sector in 2011, an achievement of which we are very proud. One of our priorities is helping develop Russian infrastructure. This is a very complex sector that requires long-term financing, specific expertise and an understanding of prospects for economic develop- ment. We believe infrastructure is a key sector that will help create numerous jobs and improve the standard of living in all of Russia's regions. In 2011, we began work on a number of new projects and plan to close several major deals in 2012. One of them will be join- ing a joint venture to develop Russia's airports with Changi Airports International, a Singapore-based company recognised as a leader in the global airport business. We believe infrastructure is a key sector that will help create numerous jobs and improve the standard of living in all of Russia's regions We also finance about half of all agriculture projects in Russia: there is not a single region in the country that is not home to a project financed by Sberbank. Russia's agriculture sector is one of our priorities. Today Sberbank's agriculture loan portfolio totals some RUB 655 billion. In 2011, the Bank extended over 18,000 loans worth a total of more than RUB 455 billion to agriculture companies. However, it is worth remem- bering that it is not us that feeds the country but our clients. NEW LOANS TO AGRICULTURE BUSINESSES RUB billion 400 300 200 100 455 389 362 0 2009 2010 2011 We are optimists and so we believe that in business there is enough room for growth in all sectors of the economy and for our clients, em- ployees and investors. Business is infinite and an understanding of long-term growth trends is of great use to us all. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 137 Λ corporate social responsibility#70SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY 138 Λ corporate social responsibility >>> We realise that by supporting economic activity on a regional level, we make our contribution to economic growth and the development of infrastructure, boosting household incomes and ultimately improv- ing the attractiveness of Russia as an investment destination. This is what drives our involvement in initiatives that aim to improve institutional foundations, the legal framework and economic condi- tions for business. We also contribute to the implementation of federal projects that aim to build strong social and economic ties within the Russian Federation. Helping Develop Strategy 2020 Sberbank is actively involved in and contributes to discussions around the draft of Strategy 2020. Herman Gref, Sberbank CEO and Chairman of the Management Board, is co-chair of an expert group responsible for drafting the Development of the Financial and Banking Industry section of the Strategy for the Socio-Economic Development of Russia through 2020 (Strategy 2020). A meeting of the expert group was held at Sberbank in April 2011. Participants dis- cussed the current state of the banking industry and opportunities and priorities for reform. The discussion identified the key issues and challenges faced by the financial industry and resulted in an analysis of possible sector development scenarios through 2020. The discussion also led to the development of measures and recommendations to support a sustainable growth scenario. One of the measures suggested is to improve financial literacy in Russia through a dedicated government programme. -Federal Law dated 8 November 2011 No. 308-FZ On Amending the Federal Law On Combating the Legalisation (Laundering) of Proceeds of Crime and the Financing of Terrorism; -The Administrative Offences Code of the Russian Federation; ― Federal Law dated 25 July 2011 No. 261-FZ On Amending the Fed- eral Law On Personal Data; ―Federal Law dated 6 December 2011 No. 405-FZ On Amending Certain Legal Acts of the Russian Federation with regard to the Enhancement of the Procedure of Foreclosure on Collateral. Moreover, Sberbank developed draft Federal Law No. 492506-5 FZ On Repealing Article 15.2 of the Administrative Offences Code of the Russian Federation. The draft law envisages a reduction in the administrative burden on financial institutions associated with the discharge of public functions to oversee customer compliance with cash handling procedures. The draft was supported by members of 139 the State Duma and the Russian Government, and was officially in- troduced into the State Duma of the Federal Assembly of the Russian Federation. In March 2012, the draft was adopted by the State Duma and approved by the Federation Council. A major result from this initiative of significance to all financial institutions in Russia was the issuing of Instruction No. 2750-U by the Bank of Russia. Effective from 1 January 2012, the document repeals the requirement for banks to oversee customer compliance with established cash transaction and handling procedures. corporate social responsibility IMPROVING THE LEGAL FRAMEWORK One of the Bank's core competencies is having a good understanding of different segments of the financial services market and the specif- ics of servicing various corporate and retail customers. We can draw on our expertise in this field to contribute to discussions of draft laws and regulations relating to all aspects of financial services. We can also help develop a legal framework that balances the interests of the Bank and its customers with those of industry regulators. Examples of this in 2011 include the preparation by Sberbank of substantial proposals on how to improve draft federal laws, which ultimately made their way into the final versions of the respective legal acts, including, amongst others: - Federal Law dated 27 June 2011 No. 161-FZ On the National Pay- ment System and the Federal Law dated 27 June 2011 No. 162- FZ On Amending Certain Legal Acts of the Russian Federation in Connection with the Adoption of the Federal Law On the National Payment System; CONTRIBUTING TO HOUSING AND UTILITY SECTOR REFORM We also participate in projects aimed at reforming and modernising the housing and utility sector. Housing and utility sector reform is a matter of interest for a significant part of the Russian population. It also bears considerable significance to the country's socio-economic development. In 2011, the Bank approved a Concept for the Involve- ment of OJSC Sberbank of Russia in a Project to Modernise and Reform the Housing and Utility Sector. The Concept defines investment priori- ties for the Bank in this sector for the period 2011-2020. One of the first steps in implementing the Concept was to sign Coop- eration Agreements with the Housing and Utility Sector Reform Foun- dation a state corporation- and the governments of the Republic of Bashkortostan, the Krasnoyarsk Territory and the Murmansk and Yaroslavl Regions on the creation of regional systems to carry out major repairs on apartment buildings. The agreements provide for cooperation with the Bank to finance projects aimed at reforming the sector, reducing the number of apartment buildings requiring major 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#7140 140 Λ corporate social responsibility >>> SBERBANK Number of projects 170 YEARS. BY YOUR SIDE ANNUAL REPORT CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY 2011 repair work, ensuring comfortable living conditions for residents and implementing advanced IT solutions to handle utility payments and provide access to relevant sources of information. As of the end of 2011, Sberbank was involved in 30 major projects in the housing and utility sector worth a total of RUB 111.6 billion, of which RUB 38.3 billion is financed by the Bank's loans. CARBON FINANCE AND FINANCING ENERGY EFFICIENCY AND ENERGY SAVING PROJECTS According to Russian Government Decree dated 15 September 2011 No. 780 On Measures for the Implementation of Article 6 of the Kyoto Protocol to the UN Framework Convention on Climate Change, Sber- bank performs the functions of a carbon units operator and ensures the financing of activities associated with their transfer and acquisi- tion. The Bank reviews applications from Russian investors to gauge eligibility for classification as joint implementation projects (projects implemented in accordance with Article 6 of the Kyoto Protocol) and for registration as such. In 2011, the Bank reviewed 20 applications involving the modernisa- tion of equipment in various sectors of the economy with total reduc- tions amounting to 56 million tonnes of CO2 equivalent. NUMBER OF JOINT IMPLEMENTATION PROJECTS BY SECTOR, 2010-2011 SECTORAL STRUCTURE OF CARBON EMISSION REDUCTIONS FROM PROJECTS SUBMITTED FOR APPROVAL IN 2011 % 1.8 0.9 17.6 40.6 40.6 Metals 39.1 Oil and gas industry 17.6 Energy 1.8 Timber industry 0.9 39.1 Cement industry In 2011, transactions involving some 20 million emission reduc- tion units were initiated by Russian investors, with their revenues exceeding EUR 150 million. EMISSION REDUCTIONS FROM JOINT IMPLEMENTATION PROJECTS APPROVED / SUBMITTED FOR APPROVAL IN 2010-2011, BY SECTOR Cement industry Waste processing Coal industry Hydropower 2 Chemical industry 2 Housing and utilities 3 Timber industry 5 Energy 9 Metals 14 Oil and gas industry 15 0 2 4 6 8 10 12 14 16 million tonnes of CO, equivalent Cement industry 0.5 Waste processing 1.0 Coal industry 1.1 Hydropower 4.7 Chemical industry Housing and utilities 1.0 Timber industry 3.8 Energy 12.3 Metals Oil and gas industry 41.3 40.9 42.2 0 5 10 15 20 25 30 35 40 45 Overall emission reductions from joint implementation projects ap- proved or submitted for approval in 2010-2011 amounted to 149 million tonnes of CO2 equivalent; of this amount, 28 million tonnes of CO2 equivalent was issued as emission reduction units (with some 24 million tonnes transferred to foreign customers). 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 141 Λ corporate social responsibility#72142 corporate social responsibility >> Λ SBERBANK million tonnes 170 YEARS. BY YOUR SIDE CARBON CREDITS ISSUED IN 2010-2011, BY SECTOR Chemical industry Metals 4.2 Oil and gas industry 1.8 Timber industry 1.0 Housing and utilities 0.5 Energy 0.06 0 5 10 15 20 21.0 ANNUAL REPORT CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY 2011 ENSURING PROCUREMENT TRANSPARENCY Building on our previous successes, we continued throughout 2011 to improve approaches towards procurement through our specialised subsidiary, CJSC Sberbank-AST. The Bank works to ensure the utmost transparency of its procurement activities and reduce corruption risks. The main results of the Bank's efforts to improve procurement transparency included: - Conducting 1,877 electronic auctions to procure goods and ser- vices for the Bank, which led to savings worth RUB 2,659 million. NUMBER OF ELECTRONIC AUCTIONS FOR THE PROCUREMENT OF GOODS AND SERVICES FOR THE BANK number of auctions 1,877 WORKING WITH THE GOVERNMENT Sberbank continued to successfully coordinate with government agencies and services and state companies throughout 2011. The Bank's dialogue with government bodies helped address numerous issues of ongoing concern and led to the signing of agreements and memoranda, defining approaches and principles of cooperation be- tween the Bank and its counterparties. RESULTS OF ENGAGEMENT WITH GOVERNMENT AGENCIES, SERVICES AND INSTITUTIONS Government body, state company Pension Fund of Russia Russian Motorways (a state company) Federal Tax Service Federal Notary Chamber NIS GLONASS (a national navigation services provider) Results of dialogue Determined a procedure for cooperating to develop a unified approach towards pension delivery through Sberbank offices. Signed a Memorandum of Understanding and Cooperation that provides for cooperation in financing projects under the Long-Term Action Programme, including concession projects. The Memorandum also outlines possible options for Sberbank's participation in the development of other investment schemes as public-private partnerships. Signed an agreement on interoperability between the Taxpayer's Personal Area, a web service operated by the Federal Tax Service, and Sberbank Online for the collection of taxes, duties and other fees administered by the FTS. Signed an agreement on electronic document exchange that provides for paperless data exchange between notaries and Bank offices in dealing with inheritance, offering services such as locating the accounts of the deceased and checking account and deposit balance. Signed a Memorandum of Cooperation to implement a system to administer federal highway tolls for vehicles with a maximum permitted weight of over 12 tonnes. 1,500 1,000 500 23 0 2009 642 2010 2011 BANK PROCUREMENT VOLUME THROUGH ELECTRONIC AUCTIONS RUB million 16,000 12,000 8,000 2,802 16,036 4,000 67 0 2009 2010 2011 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 143 A corporate social responsibility#73SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CONTRIBUTING TO THE ECONOMIC DEVELOPMENT OF THE COUNTRY Sberbank-AST also provides procurement services to customers re- ceiving funds from the federal and regional budgets. We are currently increasing our efforts to expand the company's customer base. Sberbank-AST, a subsidiary of Sberbank, is the largest electronic gov- ernment procurement services provider in Russia. In 2011 its share in the total volume of government procurement through electronic auctions increased from 56% to 61.4%. Sberbank-AST was named Company of the Year 2011 in the IT (eTrad- ing) category of the National Business Awards. ACTIVITIES OF CJSC SBERBANK-AST AS A GOVERNMENT PROCUREMENT SERVICES PROVIDER Furthermore, the Regulation on Procurement by OJSC Sberbank of Russia dated 5 December 2011 was developed and approved by Sberbank's Supervisory Board. The document was adopted to ac- commodate the requirements of the Federal Law dated 18 July 2011 No. 223-FZ On the Procurement of Goods and Services by Certain Categories of Legal Entities, improve the transparency and fairness of procurement procedures, prevent discrimination and unreasonable restriction of competition, ensure proper and efficient use of funds in the procurement of goods and services and reduce the Bank's procurement costs. In 2011, Sberbank-AST again renewed its permit to conduct bankrupt- cy sales, confirming its compliance with the respective requirements. RESULTS OF SBERBANK-AST'S BANKRUPTCY SALE ACTIVITIES Indicator Number of auctions announced 2010 2011 78,053 523,211 144 Total worth of announced auctions (RUB million) 410,434 2,068,004 Λ Number of suppliers accredited for participation in electronic auctions 34,378 93,224 Sberbank-AST's share of total government procurement volume through electronic auctions 56% 61% corporate social responsibility >> At the beginning of 2011, Sberbank-AST was competitively selected to operate the Official Government Procurement Portal of the Russian Federation (zakupki.gov.ru) used to publish tender notifications. The company provided information and technical support for the portal during the complicated period while it was launched and began ini- tial operations. RESULTS OF ACTIVITIES OF CJSC SBERBANK-AST AS OPERATOR OF THE GOVERNMENT PROCUREMENT PORTAL Indicator Number of customers in the RF Number of users from customer organisations Number of consultations provided 2011 197,500 453,200 More than 511,000 Indicator Number of sales Total starting price (RUB million) Number of participants Number of sales organisers 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 2010 2011 145 414 7,389 A 10,315 72,208 154 1,800 135 826 corporate social responsibility 2011#74corporate social responsibility 146 A SBERBANK 1940 170 YEARS. BY YOUR SIDE Start of mass production of the legendary T-34-known as "the Thirtyfour," the most famous Soviet tank, which had a massive impact on the world's tank development. ← 1942 During the first half of the year, 1200 industrial enterprises were put into operation east of the Urals. INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) ВОБИКО МОРСКОЙ В ANNUAL REPORT 2011 ← 1946 December 25 Laboratory N2 of the USSR Academy of Sciences carried out a controlled chain reaction in the first Soviet nuclear reactor. 71943 The Decree of the USSR Supreme Soviet Presidium instituted the Order "Victory"- the highest Soviet military medal which was awarded only to very distinguished military leaders. During the war, savings banks helped to cement the unity of the front and the rear, attracting the population to participate in military loans. The overal contributions amounted almost 90 billion roubles. This let to cover about one sixth of the country's military expenses ЖЕНЫ. МАТЕРИ. ОТЦЫ И ДЕДЫ! ПОДПИШИТЕСЬ НА ЗДЕМ НАШЕЙ ПОБЕДЫ! 1940- 1950 1941 On June, 23 the People's Commissariat of Finance imposes temporary limits on monthly deposit withdrawals: 200 roubles maximum. 1941 CCCP 15 KOW 1943 1943 15 kopeck coin. Metal: nickel. 1942 On August, 22 the Special Administration of the Field Offices of The State Bank was created. On the first days of the Great Patriotic War the field banks on Southwestern, Western and the Leningrad fronts started their operations. Instead of vacations the workers and employees received monetary compensation at 3% per annum on their savings accounts. 170 YEARS. IT'S JUST THE BEGINNING OPENNESS AND GOODWILL A DRIVE FOR PERFECTION INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS TRUST AND RESPONSIBILITY ↑ 1945-1950 The national economic recovery after the war. By 1950, prewar levels of production were exceeded. ↑ 1946 The first Soviet trunk gas pipeline was built. Gas from the Saratov region deposits came to Moscow. 1943 The number of savings banks in the early years of the war halved, but by 1943 this trend had reversed. 1945 By the end of the year total deposits amounted to 9 billion roubles more than in pre-war 1940. 1948 Approval of the State Savings Banks Charter, whereby they started to operate on a self-supporting basis. WWW.SBERBANK RU A 147 corporate social responsibility#75SBERBANK 170 YEARS. BY YOUR SIDE 148 Λ corporate social responsibility >> Interview Bugrov 150 Sberbank Production System. Version 2.0. 154 The Ideas Exchange and Crowdsourcing 155 Interview Torbakhov 157 No Queues! 158 Measuring Customer Satisfaction and Service Quality 159 Interview Kanovich 164 Handling Customer Complaints 167 Improving Loan Service Quality 167 Financial Literacy 168 Counteracting Fraud and Illegal Business Practices 169 SERVICE QUALITY PRODUCT AND IMPROVING nsuring that the quality of the Bank's products and services remains high is a key objective that forms the foundation of sustainable relationships with customers. We want the quality of service to be the key reason our customers keep coming back to Sberbank. Our efforts to improve product and service quality cover two inter- related areas: internal changes and in-depth analysis of feedback from our customers. Feedback helps us better understand customer needs and adjust our services accordingly so that we can ensure the highest level of quality. The most important quality boosting initiatives in 2011 included SPS 2.0, a new stage in the development of the Sberbank Production System (SPS 2.0), significant progress in the implementation of the 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY 2011 No Queues! programme, improving service quality for sales of loan products and a number of initiatives to improve financial literacy. Guided by ethical business principles, we pay great attention to pro- viding customers with complete information about the terms and conditions associated with our products and services and implement a system of measures to counteract illegal practices. With regard to customer feedback, we continued to develop our cus- tomer complaint handling system, achieved a new level of quality in our approaches towards assessing customer satisfaction and actively promoted a range of channels for feedback through social networks. The Ideas Exchange project deserves a special mention. Today this project is both an instrument of internal transformation within the Bank and a customer feedback channel. In fact, this technology is unique in Russian business and helps us mobilise the creative poten- tial of both the Bank's employees and customers. In 2011, we piloted crowdsourcing a new technology to us - and we plan to use it to further develop the Ideas Exchange. 149 A corporate social responsibility#76150 Λ corporate social responsibility >>> INTERVIEW SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY Denis Bugrov Member of the Management Board, Senior Vice President >> Sberbank is a unique financial institution in the Russian market. Our actions have an immediate impact on Russia's economic development and on development in the regions in which we operate. The effectiveness and customer focus of our operations affects the well being of an enormous number of people It is our fundamental position not to separate our business interests from our social responsibility programmes, since these two areas are integrated and interrelated. It is important for us that there be no con- flict between growing our business and acting as a socially responsible corporate citizen. Our 170-year history is an enormous source of confidence. Social re- sponsibility has today become not only a fashionable topic but also an integral element of our work. Let me give an example. One priority area of our business activities is improving the financial literacy of our cus- tomers to help them make better use of the Bank's advanced financial products and services. At the same time, there is also an element of our role as a socially responsible company in this: we want our customers to make informed and balanced financial decisions. This convergence between social responsibility and business interests is characteristic of a modern financial institution. This new stage in the development of the financial services market is a vital element of our work. 2011 saw several important events. First of all, we adopted a Corporate Social Responsibility Policy, thus providing a formal foundation for Sberbank's extensive activities in this area. This is a major milestone for us, since historically Sberbank has always been a socially oriented institution. By adopting the policy we sent a signal-first and foremost, to ourselves, but also to all our stakeholders-that we take corporate social responsibility seriously, defining its principles, goals and ob- jectives, and that we are going to expand activities in this area to the maximum extent possible. First of all, we adopted a Corporate Social Responsibility Policy, thus providing a formal foundation for Sberbank's extensive activities in this area In addition to the adoption of the policy, we implemented a broad range of stakeholder engagement activities. In our customer relations, we developed and expanded Customer Voice, a large-scale customer feed- back programme, improved the quality of service and expanded our product and service range. We increased the transparency and open- ness of the Bank's operations, using, among others, suggestions from our minority shareholders. In employee relations we used a variety of feedback channels ranging from the CEO's hotline to large-scale crowd- sourcing projects. We maintained an effective and constructive dialogue on a broad range of issues with the government-our key counterparty. In 2011, we not only used our traditional stakeholder engagement meth- ods but also piloted new mechanisms. We are particularly proud of our crowdsourcing initiative. To celebrate the Bank's 170th anniversary, we implemented Sberbank 21, a large-scale project that united tens of thousands of participants who told us how we can make Sberbank and the country better, more dynamic and efficient. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 151 corporate social responsibility 2011#77SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY 2011 15 winning projects 24 finalists 450 experts on Witology 1,548 co-authors on WikiVote! 152 120,000 participiants on Professionali.ru 787,753 people who took an active interest in the project corporate social responsibility >> 19,000,000 people who expressed interest in the project PARTICIPATION IN THE CROWDSOURCING PROJECT We will continue to develop crowdsourcing mechanisms, working on integrating them into the Bank's day-to-day activities. For example, most of the decisions proposed about Sberbank's new products and processes, as well as updates to procedures and policies, will undergo a crowdsourcing-based assessment by the Bank's employees. These mechanisms will also play a key role in identifying new solutions to optimise systems and processes. In 2011, transformation processes initiated earlier at the Bank came to fruition. The year saw many important events; we expanded the geogra- phy of our operations through the acquisition of Volksbank International and entered the investment banking market through the integration of Troika Dialog. We also developed our banking insurance business and decided to enter the long-term life insurance market. The Bank launched Thanks from Sberbank, a unique loyalty programme, and developed a special offering targeting the young-the most interest- ing but at the same time the most under-served customer segment. In our view, quality is composed of four elements. It is our ability to give customers what they want, when they want it, at a good price for both the customer and us and with acceptable risks for both parties. This concept of quality is incorporated into all of the instruments we use to assess internal and external customer satisfaction, the most important of which being mystery shopping, customer surveys and analysing customer feedback. We work to integrate these three instruments so as to use them in planning further improvements to the Bank's business. In 2011, we continued to work to improve the efficiency of our operations and made serious modifications to the Sberbank Production System In 2011, we continued working improve the efficiency of our operations 153 and made serious modifications to the Sberbank Production System (SPS). SPS is an important instrument that "industrialises" our systems and processes and transforms the mindset and values of an enormous number of our employees. SPS helps the bank maintain a steady in- crease in staff productivity. In 2011, SPS rollout led to good results in several divisions at the Bank, including IT and various support func- tions. Optimisation of accounting functions reached an efficiency level of over 25%. We were able not only to optimise costs but also improve the quality of work, thereby reducing the number of errors in the course of preparing accounting documents many times over. Assessments of the impact of SPS on the quality of customer service show that we were able to improve customer satisfaction and attitudes towards the Bank. Each day Sberbank offices are visited by over six million customers, and the effectiveness and quality of our work affects their financial well being, mood and, as we would like to believe, their success in life. We strive to assist our customers in making the right financial decisions that will help them fulfil their dreams and aspirations. This balanced and well-thought-out business approach, combined with an understanding of our influence on the national economy, is our way of integrating Sberbank's business interests and its social responsibility as a corporate citizen. corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#78SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY 2011 SBERBANK PRODUCTION SYSTEM. VERSION 2.0. In 2009, the Bank embarked on a new major project - the Sberbank Production System (SPS). The project focused primarily on orienting the Bank's business towards customer needs and ensuring a continu- ous improvement in the quality of customer service by, among other means, enhancing internal business processes. In 2011, the Bank optimised 127 business processes, achieving an 11.5% increase in workforce productivity. SPS ROLLOUT INDICATORS Indicator 2011 Total Number of Sberbank organisational units where SPS has been implemented (including regional banks) 1,692 6,240 154 Staff size of Sberbank organisational units where SPS has been implemented (including regional banks) 27,460 101,272 Number of employees who received training under SPS programmes Λ Overall financial benefit from SPS implementation, RUB billion 30,469 88,889 2.9 30.0 % THE IDEAS EXCHANGE AND CROWDSOURCING We believe that innovation and the adoption of state-of-the-art solu- tions are the main factors ensuring steady growth for any financial services business. The introduction and active use of advanced tech- nologies and management methods helps us continuously maintain a competitive edge in the financial services market. But no less important is broad staff engagement in this process of continuous improvement. The Ideas Exchange, a system implemented at the Bank, facilitates this engagement. In 2011, the overall number of users of the Ideas Exchanges exceeded 190,000. Our employees and customers submitted over 80,000 ideas and suggestions. Over that period, more than 8,500 suggestions were implemented, with the overall financial benefit exceeding RUB 7 billion. KEY SUGGESTION TOPICS ON THE IDEAS EXCHANGE corporate social responsibility >>> In 2011, we held our 3rd SPS Conference. Over 400 staff members from the Central Head Office and regional banks attended. Participants represented all functions of the Bank, which was a reflection of the scope and depth of the transformation and the involvement of all Sberbank's divisions in the process. The conference agenda included discussions around various aspects of SPS rollout at regional banks and service outlets and an analysis of future development prospects for SPS. One of the key events of 2011 was the approval and initial rollout of a new improved version of the system SPS 2.0 which focuses on optimising the Bank's internal processes through better organisation of the work of supporting divisions providing services to internal clients within Sberbank. Broker services 1.1 2.4 Advertising 3.4 2.9 Mobile Bank 3.8 4.0 Website 4.0 4.7 Payments, deposits 10.0 4.8 Servicing corporate customers 3.0 7.0 Sberbank Online 7.0 Bank cards 15.0 8.6 ATMs and terminals 9.0 9.8 Lending 10.0 14.6 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU Customers Employees 35.0 155 Λ corporate social responsibility#79corporate social responsibility >> 156 SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 IMPROVING PRODUCT AND SERVICE QUALITY In 2011, building on approaches from the Ideas Exchange system, we implemented a project unique to Russia that used crowdsourcing to identify future development paths for the Bank. Over 120,000 peo- ple from Russia and 78 other countries took part in the Sberbank 21 project. Jointly with our partners Professionali.ru, WikiVote! and Witology we received a huge number of ideas and suggestions. The best sugges- tions were selected by project participants themselves. 15 winning projects were selected and 3 reports were prepared. These reports were: - Sberbank 21: Future - Russia 21: Progress - Innovation 21: Crowdsourcing. The projects and reports were presented by the winners at an inter- national finance conference held in honour of the Bank's 170th an- niversary. Project materials will be used in the preparation of a new Sberbank development strategy. 170 YEARS. IT'S JUST THE BEGINNING INTERVIEW Alexander Torbakhov Member and Deputy Chairman of the Management Board >> We pay particular attention to service quality indicators. One such indicator is the amount of time customers spent waiting in queues in Bank outlets. Sberbank has invested a significant sum in a system of measures aimed at reducing waiting time Special equipment has been installed at many of our outlets to mea- sure, and by the end of 2011, to manage queue waiting time. According to our data, the percentage of customers queuing for over 15 minutes decreased to 13%. By the end of 2012, we plan to substantially improve this indicator: for 90% of our customers, waiting time will not exceed 10 minutes. In order to address the issue of queues in the most effective and ef- ficient manner, we are changing traditional service models. We ac- tively encourage customers who have traditionally been using paper bankbooks to switch to card-based services as part of the Social Card project. Customers lose nothing by switching to the new service and in fact they gain access to a broad range of retail banking services in addition to traditional cash deposits and withdrawals. Our concerns that elderly customers may find it inconvenient to use plastic cards proved wrong only 2% of customers within this age group refuse to use a card. In 2012, we plan to continue expanding the age range of customers serviced through the Social Card project. WWW.SBERBANK.RU 157 Λ corporate social responsibility#80158 Λ corporate social responsibility >>> SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY 2011 NO QUEUES! We designed an integrated programme to reduce queues at our outlets that will help significantly reduce service costs. Our objective for 2012 is to reduce customer waiting time at outlets equipped with electronic queue systems to 10 minutes. QUEUE REDUCTION PROGRAMME RESULTS IN 2011 Queue reduction programme results Number of Bank outlets equipped with electronic queue systems Percentage of customers waiting in line for over 15 minutes Percentage of pensioners receiving pensions in a card account 2010 2011 900 2,250 41% 13% 25% 38% In our drive to reduce waiting time, we had to make serious changes to the logic of our work and the Bank's internal processes. In par- ticular, in 2011 we: Changed the principles behind how we organise the working pro- cess and determine employee working schedules; Developed performance standards for the Bank's organisational units and regional and outlet managers; - Undertook a major programme to train employees in queue reduc- tion techniques; -Took steps to ensure continuous monitoring and effective han- dling of customer complaints about queues at Bank outlets; -Appointed experts to provide assistance at outlets with these big- gest queue waiting times at all regional banks; -Introduced new key performance indicators for queue reduction that affect remuneration for employees and managers at all or- ganisational levels of the Bank. MEASURING CUSTOMER SATISFACTION AND SERVICE QUALITY We must improve the quality of customer service in order to continue to grow and develop the Bank's business and to maintain a competi- tive edge. We rely on a thorough analysis of customer feedback on our products and services to help manage service quality. Based on the strengths and weaknesses we identify through this method, we then define our service quality improvement objectives and develop action plans to meet these objectives. We rely on a thorough analysis of customer feedback on our products and services to help manage service quality The main instruments for measuring service quality include: Customer Voice. A system of studies that includes: Customer satisfaction and loyalty surveys; - Evaluation of the quality of customer service at Bank outlets (using "mystery shoppers"); -Evaluation of the quality of call centre service (using "mystery shoppers"); ―Internal inspections to gauge the quality of service at customer service outlets; -A range of customer feedback channels. The launch of the Customer Voice system of studies was an impor- tant event in 2011. The system allows us to evaluate the quality of Sberbank's customer interactions in key sales channels at different stages of the decision-making processes. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 159 Λ corporate social responsibility#81160 Λ corporate social responsibility >> Largest corporate customers Medium-sized businesses SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY 2011 KEY TOPICS OF INTEREST TO RETAIL AND CORPORATE CUSTOMERS Work of account managers Remote banking services Tailored approach to clients Pricing policy Call centre services Service conditions at Bank offices Corporate governance standards Account managers Credit analysts Communications with the Bank's top management Banking products Tailored approach to clients Remote service channels Pricing policy Cash and settlement office specialists Quality of service at outlets Pricing policy Tailored approach to clients Remote banking services Call centre services Work of personnel Organisation of work at outlets Service time Cash machines and terminals Outlet opening hours Call centre Functioning of the website Remote banking services Small and micro businesses Retail customers According to the results of a series of customer satisfaction and ser- vice quality surveys carried out since 2009, the overall level of cus- tomer satisfaction in the retail business increased 4% over two years, reaching 80% in 2011. Most key customer satisfaction indicators have also increased significantly. Service quality at Bank outlets increased 8% compared to 2010. In 2012, we plan to introduce more rigorous approaches towards evaluation of the quality of service, focusing on employee compliance with service standards and sales techniques. % 4Q 2010 78 QUALITY OF SERVICE INDICATORS IN 2011 86 85 82 82 81 78 76 74 72 1Q 2011 2Q 2011 O Quality index* O Service standards index** 3Q 2011 4Q 2011 161 In order to improve the quality of service, in 2011 we implemented a number of activities including, amongst others: -Training client-facing employees in service standards and com- plaint handling procedures; -Training all service outlet managers and their deputies in day- to-day monitoring of the quality of service at customer service outlets; ―Including quality of service indicators in the motivation system for various employee categories. << corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU * Quality index-an integral indicator reflecting the quality of employee work, the external and internal appearance of customer service outlets and time spent being served. **Service standards index-an indicator reflecting the level of compliance with the Bank's service standards.#82corporate social responsibility 162 TA SBERBANK 170 YEARS. BY YOUR SIDE 1957 → October 4th, Sputnik-1- the world's first artificial satellite was launched into the Earth's orbit from the range of Tyura-Tam (later Baykonur). 1950-1960 1951 ← 1954 In Obninsk (Kaluga Region) the first nuclear power plant in the world was set up. Atomic energy started to be used peacefully. Savings banks gradually installed computing machines, such as SDU-138s, electronic machines and punch-card machines. 1951 The first issue of national economy development loans. 170 YEARS. IT'S JUST THE BEGINNING 1857- TRUST AND RESPONSIBILITY OPENNESS AND GOODWILL A DRIVE FOR PERFECTION INITIATIVE AND CREATIVITY TEAMWORK AND EFFECTIVENESS RESPECT FOR TRADITIONS INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) 1954-1960 Mass development of virgin lands in Kazakhstan, Volga regions, Siberia, on the Urals and the Far East. ↑1957 Launch of "Lenin" nuclear icebreaker, the first nuclear powered surface ship. ANNUAL REPORT N 1957 In the USSR mass construction of panel or brick-built two and five floor apartment blocks, so called "khrushchovkas" had started. This allowed to settle apart millions of people. 1959 Construction of the city of Bratsk and Bratsk Hydro Power Plant being part of the Siberian HPP system. Savings banks played an important role in the postwar reconstruction of the country, placing loans for national economic reconstruction and development thus unifying people all over the country in their heroic tasks 1953 The amount of the stable balance of deposits in savings banks exceeded 26 billion roubles. WWW.SBERBANK RU by 1958 Seven national economy development loan issues placed, helping to raise 200.5 billion roubles. 163 A corporate social responsibility 2011#83164 Λ corporate social responsibility >>> INTERVIEW SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY Olga Kanovich Member of the Management Board, Senior Vice President >> Sberbank is one of the country's oldest organisations, which has seen changing generations, political and economic systems. The Bank's social responsibility is our 170-year history I am very proud to say that in 2011 we were able to achieve all the objec- tives we set for the year. We substantially improved the management of back office processes, met all targets with regard to transforming the quality of the back office function and improved workforce productivity by over 30%. And all of this was achieved without a single disruption in the Bank's operations. Handling customer complaints is a live feedback channel, which helps us understand what should be improved, how we can quickly rectify deviations unavoidable in the Bank's work, and how we can prevent such deviations in the future. Through spirited efforts, we were able to build a complete complaint and claim management process virtually from scratch in a much shorter time than many other organisations need to achieve comparable results. Today the process of handling customer complaints and claims at Sberbank is as follows: first, a customer encounters a problem. If the problem cannot be resolved immediately, the Bank files a claim or a complaint. The next stage is a back office investigation. Depending on the problem, the investigation can be a very long process requiring an expert examination, or a very simple one, requiring minutes or seconds to make a decision. The third stage is making a decision on the com- plaint or claim, and the last step is the execution of the decision. If the claim is recognised as legitimate by the Bank, this execution involves transferring money to the customer's account. For complaints, the Bank sends a substantive response to the customer. We believe that at Sberbank, there should be no customer complaints at all; therefore we use our motivation system and other mechanisms to ensure that handling customer requests immediately becomes second nature to our employees. We believe that at Sberbank, there Should be no customer complaints at all; therefore we use our motivation system and other mechanisms to ensure that handling customer requests immediately becomes second nature to our employees To us, the main development in 2011 was the creation of an integrated bank-wide system for filing and handling customer complaints, which allowed us to centralise this process and make it more transparent. Now we are able to analyse the volume and structure of customer complaints and their handling time. A significant portion of our work deals with the most transaction-intensive business areas: card trans- actions and other transactions by our retail customers. Unquestionably the main objective here is improving the Bank's response time. We are working to create conditions that support instant decision-making on most customer complaints. This is not as simple as it may seem: numerous technology and infrastructure solutions are required to support this. Centralisation of our complaint handling process benefits the quality of customer service by improving the Bank's response time to both immediate problems and their causes. Leading global experts have said our back office transformation pro- cess has been implemented in an unprecedentedly short time, given the geography of Sberbank's operations and the volume of transactions. Our current back office transformation objectives encompass three main areas: maximising process automation and reducing dependence on the human factor, improving employee engagement and skills, and, finally, improving employee motivation and creating as comfortable working conditions as possible. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 165 A corporate social responsibility 2011#84SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY 2011 166 Λ Over the last four years working conditions in Sberbank's back offices have undergone substantial changes in almost all regions. Alongside the transformation of the back office function, we launched a large- scale process to move back offices to new premises specially designed and built for them. These sites have been built and equipped in line with global best practice. We believe that employees can best focus on their work when they have access to all the social facilities they may require. Facilities available to employees include cafeterias, gyms and medical services. I can confidently say employee perceptions of back office jobs have changed dramatically over the last four years: previously there was little interest in working in such a position, but now this is one of the most attractive places to work within the Bank. Given the geography and scale of Sberbank's operations, our corpo- rate service standards affect the quality of life of our customers. Our Mission states that the Bank is committed to making people's lives better. If this is true, if the Bank's products and services do make our customers even a little bit happier, then customers will come back to us because I can't think of a single person who would not return for more happiness. HANDLING CUSTOMER COMPLAINTS Handling customer complaints and claims is one of the key instru- ments in improving service quality and customer loyalty. In 2011, we received over one million individual communications from our customers, including both positive feedback and complaints. The main topics of the complaints included: -The quality of service: waiting time, improper employee behav- iour and difficulties in obtaining necessary information; - Problems in obtaining and using plastic cards; ― Problems in using remote banking services. In order to streamline and improve complaint handling processes and reduce handling time, in 2011 the Sberbank Management Board approved Policy No. 2081 for Handling Communications from Cus- tomers, Shareholders and Employees of OJSC Sberbank of Russia dated 16 February 2011. COMMUNICATIONS FROM RETAIL CUSTOMERS BY CATEGORY IN 2011 167 << corporate social responsibility >> 170 YEARS. IT'S JUST THE BEGINNING % Claims 69.2 Complaints 19.1 Acknowledgements 5.2 Consultations 5.1 Finding/reversal/confirmation of payments 1.0 Suggestions 0.4 0 20 40 60 80 IMPROVING LOAN SERVICE QUALITY Service quality depends on many factors, including the transparency and openness of the Bank's approaches. We disclose information about the full costs of our retail loan products to customers on Sber- bank's website, at our outlets and before signing a loan agreement. This information takes into account the tentative loan repayment schedule, the terms and conditions of the loan agreement and other borrower costs. WWW.SBERBANK.RU corporate social responsibility#85corporate social responsibility > 168 SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY 2011 We ensure the quality of our loan products by promptly reviewing loan applications, respecting our customers' time and recognising that processing time is an important component in overall service quality that contributes to the Bank's competitiveness. In order to reduce turn- around time for retail loans and improve the quality of loan products, the Bank introduced the Loan Factory, a state-of-the-art technology to process loan applications. This helped us centralise, streamline and standardise application assessment processes, thus achieving a significant reduction in turnaround time for all retail loans. As a result, the average turnaround time decreased from 1.5 days in 2010 to 1.2 days in 2011. MAIN TOPICS OF INTEREST TO BORROWERS AND THE BANK'S RESPONSE Main topics of interest to borrowers Partial and full early repayment procedures Loans for young people Special lending terms for pensioners Using Sberbank deposits as proof of repayment ability Residence registration requirements for borrowers Bank's response Removed limitations on early repayment amounts and abolished the moratorium period during which early repayment was not permitted Introduced special loan offerings for customers aged between 18 and 21 Introduced lower interest rates for pensioners Introduced, as part of the Bank's mortgage programmes, a special procedure through which borrowers with current accounts at the Bank can prove their ability to repay loans Residence registration requirements for borrowers relaxed when applying for loans in the Central Federal District In 2012, we plan to continue simplifying early repayment procedures and replicating our pilot project to loosen residence registration re- quirements for borrowers. We are also exploring the possibility of submitting loan applications through remote service channels, since customers also raised this topic in their dialogue with the Bank. In 2011, we conducted a dedicated campaign to improve financial literacy among the young, making use of special communication channels best suited to the target audience. A special promotion called Sberbank Respect for Every Dream was carried out in the form of a game at 40 universities across the country. The overall number of contacts within the promotion reached 3.857 million. In 2011, we conducted a dedicated campaign to improve financial literacy among the young, making use of special communication channels best suited to the target audience A strategic area of Sberbank's efforts to improve financial literacy is building effective feedback channels and maintaining customer dialogue. Reaching customers through the Internet and especially through social media is essential to achieving these objectives. Sber- bank's Bank of Friends groups on various social networks, as well as a range of training applications and game-based projects, including the Financial Navigator project, help customers receive timely profes- sional advice on financial matters from the Bank's experts. At the end of 2011, the overall number of subscribers to Bank of Friends groups exceeded 850,000, making Sberbank's community the largest banking community on the Russian-language web. In 2012, improving the financial literacy of Russian citizens will remain a priority for Sberbank. Activities will include federal media campaigns, special web-based projects using social networks and other specialised activities targeting various audiences. 169 Λ corporate social responsibility FINANCIAL LITERACY In 2011, Sberbank paid special attention to an important aspect of its social mission-improving financial literacy among the population. Throughout the year, the Bank implemented a system of measures including special projects and media campaigns aimed at improv- ing financial literacy. Communications focused on educating cur- rent and potential customers about the features of modern banking products, their benefits and use. The main communication channels included the federal print media, popular web resources and radio programmes. This helped us reach the broadest audience possible to deliver the message about banking products. A total of ten infor- mation campaigns were implemented with each campaign reaching between 1 and 7.5 million people. COUNTERACTING FRAUD AND ILLEGAL BUSINESS PRACTICES We strive not only to provide high-quality services but also to counter- act fraud and illegal business practices that are potentially harmful to customer interests and the Bank's reputation. In 2011, the Bank prevented fraudulent acts that would have led to the theft of a total of some RUB 1.8 billion from customer accounts. In addition, in 2011 several infringements by the Bank's employees were identified with appropriate actions taken against the infringers. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#86SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT IMPROVING PRODUCT AND SERVICE QUALITY 170 corporate social responsibility >> Infringements Bank insider BANK EMPLOYEE INFRINGEMENTS UNCOVERED IN 2011 schemes providing unrecoverable loans using false documents Two incidents of customer privacy violation and loss of customer data due to the fault of employees Area Response Criminal charges filed against five employees identified as the result of an inspection The Prosecutor's Citation and the order of the respective federal supervisory service (Roskomnadzor) regarding the incidents were executed; to prevent similar incidents in the future, preventative steps were taken at all regional banks KEY MEASURES TO MINIMISE FRAUD RISKS Ensuring customer security on the Sberbank Online service Preventing illegitimate appropriation of customer. money Measures implemented Implemented a new Sberbank Online security concept Introduced a system of cumulative daily transaction limits Introduced measures to reduce the visibility of financial products in customers' personal areas Ran a large-scale campaign (text messaging, press releases, web publications) to educate customers about measures to prevent fraud Resolved to install passport verification equipment for customers. Prepared guidelines on how to identify forged personal identification documents Approved the Action Plan on Preventing Fraud in Remote Banking Systems We track all attempts at cash machine and card fraud and take timely measures to counteract them. In 2011, we detected more than 700 incidents of skimming or similar equipment being installed at the Bank's cash machines and criminal charges were filed. The Bank uses the most advanced information security solutions to minimise fraud risks. This was confirmed by the following: An annual audit of the Bank's IT services management system, including information security management, which confirmed compliance with the requirements of the ISO/IEC 20000 interna- tional standard; Confirmation of the Bank's compliance with MasterCard's Logical Security Requirements and Physical Security Standards; -A successful audit of the Bank's compliance with mandatory per- sonal data security legal requirements. The Bank is currently implementing a system of measures necessary for PCI-DSS certification. The key developments in the field of anti-money laundering and counter-terrorism financing (AML/CTF) in the reporting year were: ―The launch of a project to deploy an AML-class system, allowing for extended analysis of customer transactions and timely iden- tification of hidden connections between participants in money laundering, illegal capital export or large-scale money transfer schemes; Enhancement of AC Back-Office three-tier architecture so as to en- able effective analysis of retail customers' transactions for AML/ CTF purposes; - Development of a unified distance learning course for managers at customer service outlets and bank tellers; A series of videoconferences with representatives from state fi- nancial monitoring bodies in order to develop a common approach towards identifying suspicious operations and transactions sub- ject to mandatory control. The Bank is currently implementing a system of measures necessary for PCI-DSS certification In 2011, incidents of corruption were identified among both the Bank's employees and its business partners. Given that combatting corruption is one of the key elements of our corporate responsibility, we carry out thorough investigations into such incidents and the circumstances leading up to them, and take appropriate action based on the results of investigations. INCIDENTS OF CORRUPTION IN THE BANK'S OPERATIONS IN 2011 Total number of employees dismissed or reprimanded for corruption Number of contracts with business partners not prolonged due to corruption-related infringements 8 1 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 171 ^ corporate social responsibility 2011#87SBERBANK 172 A corporate social responsibility 1960 The first cosmonaut corps of the USSR was formed. One year later, on April 12, 1961 Yuriy Alexeevich Gagarin carried out the first flight into space in the whole history of mankind. 170 YEARS. BY YOUR SIDE Savings banks started to accept utility, tax, insurance and other mass payments, which helped to considerably increase the number of depositors and to make utility payments an indispensable part of the bank's brand identity ↑ 1961 January 1st, by the Order of the Government of the USSR a monetary reform started. Money from prior to 1947 was wholly replaced to new bank notes and coins in the ratio of 10:1. 1961 The Government implemented a monetary reform. Savings banks became the main money exchange points. ↑1969 Soviet cosmonauts Vladimir Shatalov, Alexey Eliseev, Evgeny Khryunov and Boris Volynov were the first in the world, who performed a spacelink of two piloted ships-"Soyuz-4" and "Soyuz-5". 1960 Operating accounting machines "Natsional" appeared in major savings banks in Moscow and Leningrad. By the middle 1960s they processed about 90% of all personnel accounts of the depositors. 1963 The Main Directorate of State Labour Savings Banks was made the part of the USSR State Bank system. The funds raised by savings banks could be used as loans to the national economy. 170 YEARS. IT'S JUST THE BEGINNING E INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) TRUST AND RESPONSIBILITY OPENNESS AND GOODWILL A DRIVE FOR PERFECTION INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS 9 DE 1963 Savings banks started to accept utility, tax and other payments from the population and pay workers' and corporate personnel's salaries. ANNUAL REPORT 2011 ← 1967 The first mass market colour TV-set "Rubin-401" was produced in the USSR. 1960- 1979 ← 1961 A.S. Pushkin State Museum, one of the major literary museums in Russia and Europe, was opened on Prechistenka Street, Moscow. 1965 A project for a universal savings book valid within some certain area was launched. Deposits and withdrawns could be made at any bank within that area. WWW.SBERBANK.RU 1966 Savings banks participated in selling a free-circulating loan. Loans were issued at 3% per annum for 20 years. Every third loan carried a premium. 173 A corporate social responsibility#88SBERBANK 170 YEARS. BY YOUR SIDE corporate social responsibility >> 174 A Branch Network 176 Developing our Branch and Subsidiary Network Abroad 178 Interview Artamonov 182 Launching the Customer Service Outlet Reformatting Programme 184 Interview Torbakhov 188 Improving Remote Service Channels and Self-Service Units 191 Socially Oriented Products 192 Service Accessibility for Customers with Disabilities 194 BANKING SERVICES ACCESSIBILITY OF ENSURING focus on ensuring banking services are accessible has been a distinguishing feature of Sberbank throughout its entire 170-year history. Since its very establishment, the Bank has strived to ensure its operations encompass a broad geography and that its services are accessible to all social groups. Today we maintain and advance this focus in several areas of activity at once. The bank continues to develop its branch network, which remains its main service channel. We work to create the most advanced and customer-friendly offices, design special office formats for different customer groups and dramatically change the very philosophy of retail banking services. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU ENSURING ACCESSIBILITY OF BANKING SERVICES ANNUAL REPORT 2011 The development of remote service channels and our network of self-service terminals is one of the Bank's key approaches towards expanding the accessibility of our services. By improving the func- tionality of these channels and introducing additional features, we make the Bank's services available on a 24/7 basis. Through offering a line of socially oriented products and services, we strive to make banking services accessible to customer groups of varying economic status. Providing home loans and mortgages is one of the most popular banking services. It carries considerable social significance in Rus- sia. Our objective is to make mortgage services accessible to most of Russia's citizens, a goal we keep in mind when making decisions on how to develop these products. Sberbank pays special attention to making its services accessible to those with disabilities. We take into account the special needs and requirements of this group and work to make their interaction with the Bank as comfortable and convenient as possible. 175 Λ corporate social responsibility#89SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 ENSURING ACCESSIBILITY OF BANKING SERVICES BRANCH NETWORK IN RUSSIA BY LOCATION TYPE BRANCH NETWORK One of our competitive advantages is the Bank's extensive branch network, which spans across the entire Russian Federation and also includes foreign assets (subsidiary banks and a branch office). Branch Network in the Russian Federation Sberbank's regional network in the Russian Federation includes over 19,200 customer service outlets in all of Russia's regions. EVOLUTION OF SBERBANK'S BRANCH NETWORK 7.5 Organisational units Sberbank units in the Russian Federation, incl.: Regional banks Branches 176 Customer service outlets, incl.: Λ corporate social responsibility Additional offices, incl.: Offices serving retail customers Universal offices Offices serving corporate customers Operations offices Cash transaction desks on third-party premises Mobile cash transaction desks % 17.6 6.8 20.7 Russian regional capitals 47.4 / 7.5 2010 2011 2012 19,723 19,420 19,249 20.7/ 18 17 77 17 602 521 505 19,103 18,882 18,727 10,082 10,069 10,494 7,397 7,429 7,997 2,559 2,515 2,373 126 125 124 8 236 588 8,931 8,492 7,547 82 85 98 Sberbank recognises its responsibility to society in providing Rus- sians with accessible high-quality banking services, particularly in remote and economically underdeveloped areas. It is this recognition of our social role that to a significant extent dic- tates the geography of our branch network: over half of our customer service outlets (54%) are based in rural areas and urban-type com- munities, i.e. in areas where demand for retail banking services is low. Today we are exploring several approaches towards improving access to our services in rural areas. One of the key ideas is to use quick build modular offices and service centres. We also plan to organise transportation services to bring customers from remote communities to our existing offices on a regular basis. We have already begun this effort and the first pilot projects have proven suitably successful. Cities with more than 100,000 inhabitants 17.6 Other cities and towns 6.8 Urban-type communities 47.4 Rural areas In remote areas with underdeveloped transport infrastructure, Sber- bank uses mobile service outlets, each of which provides banking services to several communities. Currently the Bank has some 100 mobile offices with their number gradually growing. Mobile offices provide services most popular among rural customers, primarily deposit transactions. Where technical conditions in rural areas allow, the Bank installs self-service units (cash machines and payment terminals), which allow customers to perform the transactions they need. AVAILABILITY OF SBERBANK SERVICES IN ECONOMICALLY UNDERDEVELOPED AND SPARSELY POPULATED REGIONS Availability of services (thousand residents per Sberbank service outlet) Sberbank share in the total number of banking service outlets in the region, % 2010 2011 2010 2011 National average 7.5 7.6 50 |g 48.1 Economically underdeveloped regions 6.8 6.8 57 57 Sparsely populated regions 8.6 8.6 50 44 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 177 ^ corporate social responsibility#90SBERBANK 170 YEARS. BY YOUR SIDE ENSURING ACCESSIBILITY OF BANKING SERVICES ANNUAL REPORT 2011 178 Λ corporate social responsibility >>> DEVELOPING OUR BRANCH AND SUBSIDIARY NETWORK ABROAD As of 31 December 2011, Sberbank had a branch office in India and two representative offices in Germany and China. The Sberbank Group included three subsidiary banks based in Kazakhstan, Ukraine and Belarus. In February 2012, Sberbank closed a deal to acquire a 100% stake in Volksbank International AG - an Eastern European subsidiary of Austria's Oesterreichische Volksbanken AG banking group. The deal will give Sberbank access to the markets of Austria, the Czech Republic, Slovakia, Hungary, Croatia, Serbia, Slovenia and Bosnia and Herzegovina. Sberbank also acquired a 99.145% stake in the Swiss bank SLB Com- mercial Bank AG. Sberbank intends to use the new asset as a base to develop its European syndicated lending and trade finance business, alongside other financial services for major customers. Sberbank's branch office in India Sberbank's branch office in India (New Delhi) was established as a strategic platform for the development of Sberbank's business, pri- marily for handling foreign trade settlement flows between India and Russia and other CIS states in which Sberbank conducts its business. At the 3rd Russia-India Business Dialogue Forum in October 2011, Sberbank received an award as the Best Russian Company in India. Representative office in Germany This representative office's key objectives are to build and maintain Sberbank's reputation in Germany and other EU countries as one of the largest and most reliable banks, and to assist the Bank's various business units in their interactions with German partners. In 2011, the representative office provided comprehensive support to Sberbank during the acquisition of Volksbank International AG. It also helped organise a meeting of the Economic Elders Club at which top German political and business officials were present, and supported participation by Sberbank's management in Euro Finance Week - a leading venue for meetings between European political and business leaders. Representative office in China The main objective of Sberbank's representative office in China is to develop relationships with local banking, commercial and govern- ment entities in order to promote the business of the Bank and its clients in the region. In 2011, the representative office worked with Chinese financial institutions to actively expand cooperation in areas such as correspondent banking and trade finance. SBERBANK OF RUSSIA AND ITS FOREIGN SUBSIDIARY BANKS, BRANCHES AND REPRESENTATIVE OFFICES Central head Office Subsidiary banks Branch in India Representative offices Regional banks (17) OJSC BPS- Sberbank (Belarus) Customer service outlets (195) Germany Branches (505) Customer service outlets (18,727) 179 SB JSC Sberbank (Kazakhstan) Customer service outlets (95) China Λ JSC Sberbank Customer service outlets (130) of Russia (Ukraine) Volksbank International AG (Austria, Czech Republic, Slovakia, Hungary, Croatia, Serbia, Slovenia, Bosnia- Herzegovina, Ukraine) SLB Commercial Bank AG (Switzerland) Customer service outlets (295) corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#91SBERBANK 170 YEARS. BY YOUR SIDE ENSURING ACCESSIBILITY OF BANKING SERVICES ANNUAL REPORT 2011 180 Λ corporate social responsibility >>> Subsidiary banks In 2011, an important focus in the activities of our subsidiary banks was integrating their businesses into Sberbank's unified systems. In April, we launched the Common Card Tariff Space project, which allows holders of international cards issued by any of the Group's banks to be serviced at any other Group bank at preferential rates. We also launched a programme to implement our Loan Factory credit risk management technology at subsidiary banks. Siebel CRM soft- ware was deployed at all subsidiary banks. Additionally, we began implementation of a new Oliver Wyman credit process. Subsidiary banks were included in the Group's integrated risk management programme. A number of key decisions relating to the integration of subsidiary bank IT infrastructure were taken in 2011, including approval of a list of shared IT platforms. JSC Sberbank of Russia (Ukraine) This subsidiary is one of the fastest growing banks in Ukraine. Throughout 2011, its assets grew 70% to reach RUB 69.4 billion, while its loan portfolio increased twofold, reaching RUB 53 billion. The bank's branch network has grown to include 130 offices. At the end of 2011, the National Bank of Ukraine included JSC Sberbank of Russia in the list of Ukraine's largest banks by asset size. Throughout the year, the subsidiary bank was able to improve its posi- tion in many national market rankings. In terms of net assets it rose from 22nd to 17th place, for loans to corporate customers - from 19th to 11th position, for amounts due to corporate customers - from 22nd to 15th place, and for amounts due to individuals - from 24th to 17th position. SB JSC Sberbank (Kazakhstan) The subsidiary bank, which has been operating in Kazakhstan for 5 years, has 95 outlets across the country and its head office in Almaty. The bank's customer base includes over 15,000 legal entities and 222,000 individuals. The bank operates 1,600 cash machines and self-service terminals. The Kazakhstan subsidiary is the biggest in Sberbank's international network by asset size. In a ranking of second-tier banks in Kazakh- stan, the bank was ranked 4th by profit, 7th by asset size and 8th by net worth. OJSC BPS-Sberbank (Belarus) The subsidiary bank's customer base includes over 29,000 legal entities and 1.5 million individuals. The branch network includes 195 offices. The bank occupies a strong position as the third largest Regional bank in Belarus by asset size, loan portfolio and amounts due to custom- ers. Over the year, the bank's share in the country's banking sector increased: in terms of asset size from 7.7% to 9.8%, in terms of loans to corporate customers from 8.2% to 10.3% and in terms of retail customer deposits from 9.3% to 10.7%. A rebranding programme was launched in 2011, under which the bank's name was changed from OJSC BPS-Bank to OJSC BPS-Sberbank. REGIONAL BANKS AS OF 1 JANUARY 2012 Areas served Branches Customer service outlets Baikalsky Bank Volgo-Viatsky Bank Zabaikalsky Territory, Irkutsk Region, Republic of Buryatia Nizhniy Novgorod Region, Vladimir Region, Kirov Region, Republic of Mordovia, Republic of Mariy-El, Republic of Chuvashia, Republic of Tatarstan 10 529 57 2,148 Vostochno-Sibirsky Bank Krasnoyarsk Territory, Republic of Tyva, Republic of Khakassia 12 422 181 Dalnevostochny Bank Khabarovsk Territory, Primorski Territory, Amur Region, Sakhalin Region, Jewish Autonomous Region 7 444 Λ << Zapadno-Sibirsky Bank Tyumen Region, Omsk Region, Khanty-Mansiysk Autonomous District Yugra, Yamalo-Nenetsky Autonomous District 21 802 Zapadno-Uralsky Perm Territory, Komi Republic, Republic of Udmurtia Bank Moskovsky Bank Moscow 0 753 Povolzhsky Bank Samara Region, Ulyanovsk Region, Orenburg Region, Saratov Region, Volgograd Region, Astrakhan Region, Penza Region 62 2,707 corporate social responsibility Severny Bank Severo-Vostochny Bank Severo-Zapadny Bank Sibirsky Bank Yaroslavl Region, Kostroma Region, Ivanovo Region, Vologda Region, Arkhangelsk Region, Nenetsky Autonomous District Magadan Region, Kamchatka Territory, Chukchi Autonomous District, Republic of Sakha (Yakutia) St. Petersburg, Leningrad Region, Murmansk Region, Kaliningrad Region, Pskov Region, Novgorod Region, Republic of Karelia 32 823 32 16 721 16 15 251 22 5 1,076 27 513 Severo-Kavkazsky Bank Stavropol Territory, Republic of Ingushetia, Republic of North Ossetia Alania, Kabardino-Balkarian Republic, Republic of Dagestan, Karachai-Circassian Republic, Republic of Kalmykia, Chechen Republic Novosibirsk Region, Tomsk Region, Kemerovo Region, Altai Territory, Republic of Altai 38 1,394 Srednerussky Bank Moscow Region, Tver Region, Kaluga Region, Bryansk Region, Smolensk Region, Tula Region, Ryazan Region 59 1,644 Sverdlovsk Region, Chelyabinsk Region, Kurgan Region, Republic of Bashkortostan Tsentralno- Chernozemny Bank Yugo-Zapadny Bank Voronezh Region, Orel Region, Lipetsk Region, Kursk Region, Belgorod Region, Tambov Region 39 1,432 Rostov Region, Krasnodar Territory, Republic of Adygeya Uralsky Bank 58 58 1,645 47 1,422 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#92182 Λ corporate social responsibility >>> INTERVIEW SBERBANK 170 YEARS. BY YOUR SIDE ENSURING ACCESSIBILITY OF BANKING SERVICES ANNUAL REPORT 2011 Igor Artamonov Member and Deputy Chairman of the Management Board >> Sberbank is Russia's largest financial institution, with customers and employees in every region of the country The Bank recognises its responsibility to the state and to society, which is determined by the geography of its operations and the scale of its business. Ensuring banking services are accessible is our priority. All Russians should have access to a full range of high-quality financial services. It is our social mission that shapes the geography of the Bank's branch network. We have customer service outlets in every region of Russia, with over half of them based in rural areas where demand for banking services is much lower. Sberbank actively contributes to the economic and social development of every Russian region. The Bank's social role is particularly impor- tant at the regional level. First of all, this implies active participation in regional economic development projects, charity programmes and initiatives. The second important aspect is channelling regional social expenditures through our office. Our branch network is our main point of contact with customers; in a sense, it is the "face" of Sberbank. This is why the programme we launched in 2011 to reformat our customer service outlets is of utmost importance to us. We embarked on a complex, integrated programme that at once encompassed the whole country, which, in itself, is a sig- nificant result given how important it is that we allow all our customers to benefit from changes in Sberbank's approaches as soon as possible, regardless of where they live. In 2011, we opened 872 new-format outlets, and this is only the begin- ning. Our branch network is our main point of contact with customers; in a sense, it is the "face" of Sberbank. This is why the programme we launched in 2011 to reformat our customer service outlets is of utmost importance to us It took considerable effort to prepare for this process. We designed new standard outlet formats and tested them, first and foremost, with our customers. And finally, having made the necessary adjustments, we approved optimised formats to be rolled out countrywide, thereby giving the green light to modernise our branch network on an unprec- edented scale. We see this outlet reformatting programme as a key element in the integrated modernisation process that will transform Sberbank into a first-class service company. The new outlet formats are based on a new customer-centric phi- losophy for the Bank's operations. Each standard outlet format- and we have eight of them-supports one or several sales and service models targeting different customer groups. Right from the start we designed the new outlet formats tailoring them to the specific needs of particular customer categories. This is a prerequisite for improving the effectiveness of customer services and achieving the ambitious business objectives Sberbank has set. We have received positive feedback from our customers, which un- equivocally goes to show we are on the right track. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 183 Λ corporate social responsibility#93SBERBANK 170 YEARS. BY YOUR SIDE ENSURING ACCESSIBILITY OF BANKING SERVICES ANNUAL REPORT 2011 184 Λ corporate social responsibility >>> LAUNCHING THE CUSTOMER SERVICE OUTLET REFORMATTING PROGRAMME Sberbank's Strategy through 2014 envisages rapidly developing all sales and customer service channels. In 2009-2010, we made serious efforts to design new models for our customer service outlets (three general formats and five special formats). The new formats support a range of new service models and meet the needs and expectations of different customer groups. The new formats support a range of new service models and meet the needs and expectations of different customer groups Most reformatted outlets are so-called basic format offices (60%) and extended or flagship format offices (30%). The remaining outlets are special format offices-business development centres, self-service offices and VIP service outlets. Some 76% of the reformatted outlets were launched in priority business development areas, such as cities with populations of over 100,000, including Russia's "million cities". The main features of the new customer service outlets include: -Convenient open space layout; -Two main service areas - a transactions area and a consultation and sales areas; Intuitive navigation, including electronic queue systems; A "one-stop-shop" offering access to a broad range of the most popular products and services; Expanded self-service areas and Internet kiosks; Modern design aligned with Sberbank's new corporate identity; - Comfortable waiting areas with sofas, water coolers, coffee ma- chines and children's play areas. Our customers have noted recent improvements in the convenience and comfort of the Bank's outlets. They greatly appreciate the intui- tive navigation, convenient waiting areas, confidentiality of transac- tions and other features essential to a modern banking office. 185 ^ The outlet reformatting programme involves modernising existing customer service outlets and optimising outlet locations in order to make it more convenient for customers to use the Bank's services. This makes the Bank's products and services more accessible to all customer groups. corporate social responsibility EBBORACLE 1930s Non-interest lottery deposit. 1932 It was possible to open only one deposit of this kind. It's owner didn't get any interest income, but he got an opportunity to take part in a lottery, which was held four times a year. Besides the deposit of not less than 10 roubles had to be on the account for at least 10 months 1930s Advertising poster of the 1930s Big money was also spent on outdoor advertising- installation of signboards and billboards. During that period, citizens could see the poster with the words by V.I. Lebedev- Kumach «One goes various ways, but I go to the savings bank!» everywhere 1930s Town of Pushkin. Postcard. 1939 Until 1917 the Town of Pushkin was called Tsarskoe Selo. There, in Tsarskoe Selo, on 30 October, 1841 Emperor Nikolay I signed the Charter of the savings banks 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#94SBERBANK ALOHGACC GAM 186 A 1974 Baikal-Amur mainline (BAM) was declared the All- Union top priority Komsomol project. corporate social responsibility 170 YEARS. BY YOUR SIDE € 1977 The mass production of "Niva" - the first soviet off-road car was started. 1978-"Niva" recognised to be the best automobile of its class at the international exhibition in Brno. 1970-1980 ↑1977 December 14th, Mi-26, the largest serial transport helicopter in the world got off the ground. 1970s All savings banks were provided with cash registers; some of them received operation machines and accounting machines. Punch-card equipment became obsolescent, giving the way to automated management systems. 1970s In large cities, savings banks started to accept cash from trade and servicing enterprises whose average daily receipts didn't exceed 500 roubles. 1970s Savings banks obtained an opportunity to deal with lending activities. 170 YEARS. IT'S JUST THE BEGINNING TRUST AND RESPONSIBILITY OPENNESS AND GOODWILL A DRIVE FOR PERFECTION INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) 1970s Set-up of the unified system of saving business HR training. 1970 → November 17th-Soviet space station Luna-17 delivered "Lunohod-1" - the first space rover in the world to the surface of the Moon. WWW.SBERBANK RU 1972 ANNUAL REPORT 2011 Automation of the savings banks operations required the training and education of new qualified personnel. Professional development of employees acquired the form of coaching when more experienced employees assume tutelage over young specialists 187 corporate social responsibility Savings banks introduced payment cheques to pay for expensive goods, issuing cheques for about 3 billion roubles by 1975. 1970 VAZ-2101 model acquired the "Zhiguli" trade name. "Zhigulies" were in the top 10 of most sold automobiles in the world. 1977 New Charter of the savings banks approved. Savings banks gained a monopoly for the organisation of savings business in the country.#95188 Λ INTERVIEW corporate social responsibility >> → SBERBANK 170 YEARS. BY YOUR SIDE ENSURING ACCESSIBILITY OF BANKING SERVICES ANNUAL REPORT 2011 Alexander Torbakhov Member and Deputy Chairman of the Management Board >> Being socially responsible comes naturally for Sberbank. Unlike most other organisations, for us social responsibility is a requirement determined by the national scale of our operations. If we imagine for a moment that Sberbank were to cease to exist, then the country's financial life would cease to exist as well 2011 was a very successful year for the Bank as retail customer de- posits exceeded RUB 5 trillion. This means that virtually every Russian citizen trusts us and this is not a trust we can allow ourselves to betray. Each year we set ourselves objectives in terms of the volume of loans, transactions and deposits. Only a year ago processing 25,000 loan ap- plications per day seemed like a big achievement, but now we process over 50,000 applications each day. The development of remote service channels is an important aspect of our social responsibility: we ensure accessibility to the most advanced financial services in every corner of the country, thereby improving the financial literacy of our customers. Moreover, the use of remote banking helps us reduce service costs for customers. This allows the Bank to offer its customers more affordable products and services. We encourage our customers to switch to remote banking services, using demo stands, information materials and SMS campaigns to in- form and educate. Many customer service outlets now have so-called promoters, whose function is to assist customers in performing trans- actions (such as paying utility bills) through our self-service terminals. There is nothing difficult about using a terminal, so a typical customer, having been assisted two or three times, is then able to complete transactions on his or her own in future. We are convinced that our customers should be able to use remote and self- service channels to fulfil their financial service needs. With this in mind, in 2012, we plan to accelerate regional expansion of the Bank's remote services, expand our network of cash machines and terminals and extend their functionality We are convinced that our customers should be able to use remote and self-service channels to fulfil their financial service needs. With this in mind, in 2012, we plan to accelerate regional expansion of the Bank's remote services, expand our network of cash machines and terminals and extend their functionality. As part of the development of remote service channels, we are continu- ously making improvements to Sberbank Online, our online banking system for retail customers. At the end of 2011, the Bank launched the seventh version of the service. Among many other new features, it al- lows customers to make deposits without leaving their homes. Overall, I believe that Sberbank has managed to create an Internet bank that is unique in Russia. We have already developed iPhone and iPad apps and are now developing apps for other mobile platforms, including Android and Windows Mobile. Our Mobile Bank is a world-class service, and we are continuously improving it. We are currently implementing a broad range of initiatives intended to strengthen the customer focus of our operations. In 2011, Sberbank began cross-selling for the first time. Until recently, our work with our customer base had not been sufficient. Rather than generating cus- tomer flow, we simply dealt with those who came to us. We now reach customers through regular and electronic mail, text messaging and telephone calls to share our new offerings. The first steps have been 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 189 Λ corporate social responsibility#96SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT ENSURING ACCESSIBILITY OF BANKING SERVICES 2011 190 corporate social responsibility >> taken and the Bank's technological capacity is growing and developing to address these complex objectives. Instead of serving as a simple service organisation used to pay utility bills, we have become a fully- fledged financial institution. Recognising the importance of equal access to banking services for all customer groups, we took into account accessibility issues when designing new formats for our outlets Our product line includes socially oriented offerings specifically tar- geting lower-solvency customer groups. These products include: the Young Family loan, a mortgage programme for military servants, a mortgage programme allowing the use of child benefit as down pay- ment and special accounts and cards for pensioners. In 2011, we ex- panded eligible age ranges for our loan products: now they are available to pensioners and young people. Recognising the importance of equal access to banking services for all customer groups, we took into account accessibility issues when designing new formats for our outlets. As part of the outlet reformat- ting programme, all our outlets are being equipped with ramps and wheelchair lifts. This has become the standard in our work: we are a civilised company operating in a civilised country. The Bank also offers special job opportunities. We actively employ people with limited mobility to work as call centre operators, as modern technology makes it possible for them to work remotely. Sberbank is often called "a state bank", the implication being that we enjoy some special preferences, but in reality we are a market institu- tion. We want to raise the quality of our customer service to interna- tional standards and make sure that our customers are satisfied with our product offerings and service standards. Sberbank simply has no option not to be a socially responsible business. The days of "wild capitalism" in Russia are long gone. If we want to stay in business, we need to offer easy-to-understand, transparent and convenient services, and these are the objectives we have been addressing. IMPROVING REMOTE SERVICE CHANNELS AND SELF-SERVICE UNITS Transferring our customers to remote service and self-service models is a key element of Sberbank's queue reduction programme. Remote service channels save our customers time and allow those with lim- ited mobility to access the Bank's services. Our main results in this area in 2011 include the following: A new section - Personal Finance - was added to Sberbank Online providing a convenient overview of customer income, expenses and assets; - The Bank introduced an Auto-Payment service allowing custom- ers to make automatic pre-scheduled payments to various service providers; ―The number of active users of Sberbank Online reached 2.4 million, while this figure for our Mobile Bank service totalled 5.3 million; Sberbank Business Online, our Internet-based solution providing access to a full range of corporate banking services, is used by over 260,000 small-, medium- and large-sized businesses; Some 71% of all retail transactions - payments, transfers, loan repayments and cash withdrawals - are made using remote ser- vice channels and self-service units; ―The Bank's cash machines and payment terminals allow custom- ers to make payments to over 15,000 service providers. NUMBER OF SELF-SERVICE UNITS (cash machines and terminals) in thousands 30 28.0 22.9 20 17.5 34.5 21.6 16.4 10.6 10 5.5 191 Λ corporate social responsibility 0 2008 Cash machines 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 2009 2010 2011 Information and payment terminals#97SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT ENSURING ACCESSIBILITY OF BANKING SERVICES 2011 Training and Consultation Centre for Public Electronic Services In 2011, specialists from Sberbank's Severny Bank designed a training course on the use of modern banking technologies and services: plastic cards, remote banking services, the Transport Card, the Universal Electronic Card for Russian citizens, etc. The training premises are equipped with the Bank's cash machines and payment ter- minals, so that trainees can try out their new skills in practice. Course participants, mainly pensioners, are also trained in using computers and the Internet. Between May 2010 and January 2012, over 700 people received training at the social training and consultation centre and some 3,000 people received consultations outside training courses. Moreover, text and video materials prepared by specialists from Severny Bank were made available on the centre's website and accessed more than 10,000 times. OFFERINGS FOR CIVIL AND MILITARY PENSIONERS, PERSONS RECEIVING UNEMPLOY- MENT BENEFIT AND MOTHERS RECEIVING CHILD BENEFIT Sberbank Social Maestro Card A card with minimum commission fees. Effective since 1 March 2012, customers do not pay cash withdrawal charges and service charges. OFFERINGS FOR SMALLHOLDERS Smallholder loan A loan available at a much lower rate than consumer loans for individuals with smallholdings. There is the opportunity for partial subsidising of interest payments by the government. OUTSTANDING LOANS FOR CERTAIN SOCIALLY ORIENTED PRODUCTS Year Outstanding loans for certain socially oriented products, RUB million 192 Λ corporate social responsibility >> SOCIALLY ORIENTED PRODUCTS We actively develop socially oriented products and services target- ing different customer groups. Special targeted programmes help us expand the Bank's customer base. In 2011, we both continued to use our existing socially oriented products and introduced new offerings. BRIEF INFORMATION ABOUT THE BANK'S SOCIALLY ORIENTED PRODUCTS OFFERINGS FOR YOUNG PEOPLE Consumer loan Educational loan State-subsidised educational loan Young person's credit card Young person's debit card A loan for young people aged between 18 and 20 guaranteed by their parents. Loan conditions stipulate a reduced required length of current employment of 4 months. There are no requirements on the overall length of employment. A loan to cover the cost of education at an educational institution registered in the Russian Federation. For young people aged 14 or above and their representatives. A loan for people aged 14 or above entering into higher education for the first time in certain subjects at universities selected for the pilot programme. The government partially subsidises interest payments on educational loans and also partially compensates unpaid loans to the lender. A card for customers aged between 18 and 30, with simplified requirements regarding proof of income and length of employment. The card has a youth oriented design. A card for customers aged between 14 and 25 with lower service rates. The card can be ordered on the Bank's young person website. Card design can be customised. OFFERINGS FOR PENSIONERS Consumer loans, car loans Pension Plus deposit Save/Save Online deposits Special reduced interest rates and a simplified application procedure for retail customers receiving their pensions in Sberbank accounts. A fixed-term deposit account into which pensions are paid. Customers are allowed to add and withdraw money from the deposit (maintaining a minimum balance of RUB 1). Since 2011, the Bank has been implementing a project to transfer pensioners to card-based services. Customers who receive their pensions on their Sberbank Social Maestro Card earn interest on their account balance at an annual rate of 3.5% (in Rubles). Regardless of deposit size, customers eligible to receive a pension earn interest at the maximum possible rate. There is no limitation on the maximum deposit size. 2008 2009 2010 2011 Young Family loan, RUB million Educational and State- Subsidised Educational Smallholder loans, RUB million loans, RUB million 81,542 140 12,584 193 Λ 96,465 227 12,232 128,127 316 12,873 157,221 378 15,982 In 2012, over 4,000 retail trade and service outlets targeting pen- sioners as a customer group agreed to provide discounts to holders of Sberbank Social Maestro Cards. Providing home loans and mortgages to retail customers is an impor- tant objective for the Bank's business, the larger national economy and the social well being of Russian citizens. At the end of the year, outstanding loans in this category accounted for 43% of the Bank's overall retail loan portfolio, while their total worth reached RUB 777.4 billion. Sberbank contributes to the implementation of gov- ernment initiatives and programmes aimed at providing socially oriented financial services in the field of home loans and mortgages. SBERBANK'S HOME LOAN AND MORTGAGE PRODUCTS AND SERVICES SBERBANK PARTICIPATION IN FEDERAL PROJECTS AND PROGRAMMES 2011-2015 Federal Targeted Housing Programme Vnesheconombank's investment programme for the construction of affordable housing and mortgages in 2010-2012 Federal Law dated 12 January 1995 No. 5-FZ On Veterans Entering into agreements with regional authorities on tailored conditions for home loans, reduced interest rates and accepting State Housing Certificates as down payment Our Government-Supported Mortgage product is provided to finance the acquisition of complete or partially constructed housing from a legal entity. It uses the property being acquired or another property as collateral. The annual interest rate is no more than 11% (after mortgage registration). Mortgage loans to acquire property to improve housing conditions for veterans and disabled veterans of the Second World War eligible for corresponding social benefits. corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#98SBERBANK 170 YEARS. BY YOUR SIDE ENSURING ACCESSIBILITY OF BANKING SERVICES ANNUAL REPORT 2011 SBERBANK PARTICIPATION IN FEDERAL PROJECTS AND PROGRAMMES Federal Law dated 20 August 2004 No. 117-FZ On the Accumulative Mortgage System for Providing Military Personnel with Housing Military Mortgage product launched using the Bank's loan funds and government-subsidised loans provided within the Targeted Home Loan programme. Currently the product is offered by several regional banks, including the Severo- Zapadny, Zapadno-Uralsky, Uralsky, Sibirsky, Zapadno- Sibirsky and Yugo-Zapadny Banks. By September 2012, all Sberbank's regional banks will offer this product. PROVIDING HOME LOANS TO CERTAIN CUSTOMER CATEGORIES Young families Families with two or more children Residents of the Krasnodar Territory Special terms and conditions on home loans for families in which at least one partner is under 35 and single-parent families with a child. Home loan with the opportunity to use child benefit or a part thereof as down payment. Joint pilot project with the regional government to create Building and Loan Associations aimed at improving housing conditions for low-income groups that have no funds to use as a down payment. ― Toilets adapted for customers with disabilities (at relatively large outlets); - Steps marked with yellow stripes and yellow stickers placed on doors for the convenience of visually impaired visitors. NUMBER OF CUSTOMER SERVICE OUTLETS WITH ACCESSIBILITY FEATURES FOR CUSTOMERS WITH DISABILITIES 2,500 2,461 2,099 2,000 1,821 1,500 194 corporate social responsibility >> Helping Young Teachers The Severo-Vostochny Regional Bank and the municipal government of Magadan con- cluded an agreement on cooperation in the implementation of a home loan programme for young teachers living in Magadan. The aim of the agreement is to support young teachers as part of efforts to address the deficit of teachers in the city's schools. According to the agreement, the Bank will provide home loans under specially tailored conditions to young teachers enrolled in the programme, while the municipal govern- ment will provide a down payment as a non-repayable subsidy. If a participant continues to work in the school throughout the entire loan period, the municipal government will also subsidise half of his or her interest payments. 1,000 500 0 2010 2011 2012 NUMBER OF CUSTOMER SERVICE OUTLETS WITH ACCESSIBILITY FEATURES FOR CUSTOMERS WITH DISABILITIES, BY DIVISION SERVICE ACCESSIBILITY FOR CUSTOMERS WITH DISABILITIES In 2011, we continued our initiatives to improve the accessibility of financial services to customers with disabilities. The new office formats include features ensuring better accessibility of services to customers with limited mobility and other disabilities. These features include, among others: - Office entrances equipped with ramps or wheelchair lifts; -Introducing service models that allow customers to sit during interactions; -Widespread use of cash machines that feature a lower customer console suitable for wheelchair users; -Installing cash machines equipped with headphones; number of customer service outlets Moskovsky Yugo-Zapadny Tsentralno-Chernozemny Uralsky Srednerussky Severo-Kavkazsky Severo-Zapadny Severo-Vostochny 78 6 Severny 82 Povolzhsky Zapadno-Uralsky Zapadno-Sibirsky 34 Dalnevostochny 47 Vostochno-Sibirsky 181 101 158 208 165 221 168 95 243 258 Volgo-Viatsky Baikalsky Sibirsky 58 260 0 50 100 150 200 250 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 279 195 A corporate social responsibility#99corporate social responsibility 196 A SBERBANK 170 YEARS. BY YOUR SIDE 1985 Mikhail Gorbachev occupied the post of General Secretary of the Central Committee of the Soviet Union Communist Party (SUCP). Begining of Perestroika - new policy of soviet party management aimed at political and economic changes. 1980-1990- 1980 → The 22nd Olympic Games took place in Moscow. These were the first Games held in a socialist country. By the early 1980th Over 3,000 savings banks processed deposit account operations automatically. 37,000 banks were provided by cash registers to process cash payments. 1980th 1987 Commencement of banking reform in the USSR. Within the reform the State Labour Saving Banks was reorganised into the Savings Bank of the USSR. The start of the PC era. Savings banks started to use Iskra-555, a domestic micro-PC for accounting purposes. 170 YEARS. IT'S JUST THE BEGINNING OPENNESS AND GOODWILL TRUST AND RESPONSIBILITY A DRIVE FOR PERFECTION INITIATIVE AND CREATIVITY TEAMWORK AND EFFECTIVENESS RESPECT FOR TRADITIONS INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL ↓1986 1 rouble coin "International Year of Peace". Pan PERN ANNUAL REPORT ← 1989 Record-setting number of apartment houses built in the USSR-152 mln sq.m per year. Growing housing putting into operation was supported by the faster development of engineering networks and service lines, as well as the whole community facilities sector. 1987 Legalization of private entrepreneurship in the form of cooperatives. Joint enterprises with foreign companies were actively established. Retail lending as a new business for the bank became one of the priorities. The bank started to cover the entire range of operations - raising funds, use of funds and settlement of payments. 1984 → Urengoy-Pomary-Uzhgorod gas pipe-line was put into operation and is the world's longest pipe ensuring gas transportation to West Europe. 1988 Commencement of transactions with foreign currency. The first buyers were citizens of the USSR went abroad to the others socialist countries on invintations. 1989 WWW.SBERBANK RU 1989 1989 Sberbank became a member of the World Savings Bank Institute A Council of Ministers decree transfered state banks into self-financing mode. By the time when the decree came out, all Sberbank offices were already working under specially developed self- financing programmes. One of the major events was the issue of Visa International cards by Sberbank and the foundation of ATM systems for their service. 197 corporate social responsibility 2011#100SBERBANK 170 YEARS. BY YOUR SIDE 198 Λ corporate social responsibility >>> Bank Personnel Profile 200 Interview Gorkov 206 Employee Training 209 Employee Motivation 212 Internal Communication 216 Interview Kuznetsov 220 Employee Health 222 Occupational Health and Safety 223 Healthy Lifestyle 224 Corporate Events 225 IN HUMAN CAPITAL INVESTING berbank is one of Russia's top five employers. As of 31 December 2011 its workforce amounted to 241,000 people. The Bank views its investment in human capital as an essential factor in achiev- ing its strategic goals. Employee training is one of the key factors that help boost staff per- formance. We want our employees to possess the most advanced skills and knowledge. To achieve this, we continuously improve our train- ing programmes, many of them being unique in terms of their scale. With regard to employee motivation, it is very important for us to ensure the right balance between tangible and intangible rewards. We view the latter in the context of our corporate culture, as a means of encouraging our employees to be proud of their achievements and supporting their thirst for self-development. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU INVESTING IN HUMAN CAPITAL ANNUAL REPORT 2011 A significant aspect of our employee relations activities is the iden- tification of key topics of interest to our staff. The Bank regularly conducts employee satisfaction surveys, using the results to define development priorities. Protecting the health of our employees is a priority in the Bank's internal social policy and an important element of our social respon- sibility as a good corporate citizen. We offer a social package to our employees that includes healthcare in the workplace, various medical programmes and an occupational pension scheme. Sberbank pays serious attention to occupational health and safety and promotes a healthy lifestyle for its employees. 199 Λ corporate social responsibility#101SBERBANK 170 YEARS. BY YOUR SIDE 200 corporate social responsibility >N BANK PERSONNEL PROFILE Our employees are our key asset and main competitive advantage; hiring and retaining the best talents is one the Bank's top priorities. We are convinced that every member of our many-thousand-strong team should possess the highest level of skills and knowledge - this is the only way for us to become a world-class financial institution. Sberbank is interested in employing people with the best skills and training Sberbank is interested in employing people with the best skills and training. Most of our employees have completed higher profession- al education and the number of employees with degrees has been growing continuously. At the end of 2011 it was more than 178,000, a 3% increase on the previous year. In 2011, the average employee resignation and dismissal rate at the Bank was 14.2% and the employee turnover rate was 17.7%. Moskovsky Bank Povolzhsky Bank 1940s Cash and prize lottery ticket. 1942 It was extremely important to the State that the funds accumulated in the savings books of investors were not withdrawn from circulation. Along with the main sources of government revenues they played an important role in the military programmes financing. To attract customers, savings banks added new types of deposits, such as a lottery 1940s Savings book. 1943 During the war the volume of consumer deposits didn't decrease, but raised significantly. In 1941 depositors brought in a little more than 244 million roubles and in 1943-nearly two billion roubles 1940s Central Savings Bank. Village Kozhevnikovo, Tomsk region. 1950 In the postwar years, a priority was to restore the number of savings institutions. At the beginning of 1946 the savings banks number amounted a little more than 30,000, and in 5 years, in 1951, their quantity raised up to 40,000 170 YEARS. IT'S JUST THE BEGINNING AVERAGE HEADCOUNT ANNUAL REPORT INVESTING IN HUMAN CAPITAL 2011 2008 2009 2010 2011 Sberbank 259,999 252,398 237,253 231,304 Regional banks 234,244 246,865 228,912 221,926 Baikalsky Bank 7,826 7,490 6,882 6,718 Volgo-Viatsky Bank 25,258 24,201 22,749 21,595 Vostochno-Sibirsky Bank 6,654 6,465 6,068 5,769 Dalnevostochny Bank 9,369 9,155 8,232 8,040 Zapadno-Sibirsky Bank 9,500 8,993 8,465 7,933 Zapadno-Uralsky Bank 10,966 10,838 10,297 9,921 20,519 17,283 16,710 27,870 26,235 24,771 23,441 Severny Bank 9,595 9,342 8,911 8,680 201 Severo-Vostochny Bank 4,041 3,993 3,714 3,594 Severo-Zapadny Bank 20,454 20,376 18,808 18,247 Severo-Kavkazsky Bank 8,942 8,826 7,932 7,835 Sibirsky Bank 16,780* 16,120* 14,981* 14,460 Srednerussky Bank 23,399 22,162 20,290 19,733 Uralsky Bank 21,524 21,073 19,822 19,966 Tsentralno-Chernozemny Bank 15,970 15,241 15,246 15,397 corporate social responsibility Yugo-Zapadny Bank 16,096 15,836 14,461 13,887 Central Head Office 25,755** 5,533 8,341*** 9,378*** In the management of its human resources, Sberbank provides equal development and career growth opportunities for all its employees, avoiding any form of discrimination based on gender, age or any other grounds. WWW.SBERBANK.RU * Including former Altaisky Bank ** Including staff in branches based in Moscow *** Including staff in Customer Operations Support Centres#102SBERBANK 170 YEARS. BY YOUR SIDE BANK STAFF BY EMPLOYMENT TYPE, GENDER AND AGE Total* By age By gender Under 30 30-50 Over 50 Women Men 2008 269,098 85,230 146,879 36,989 206,381 62,717 2009 249,829 75,985 141,029 32,815 192,052 57,777 2010 241,327 74,869 136,163 30,295 186,154 55,173 2011 241,037 81,091 131,355 28,591 183,851 57,186 BANK STAFF BY EDUCATION LEVEL AND EMPLOYEE CATEGORY By education level By category 202 Higher professional education Secondary professional education Other education Managers and administrative staff Front-line employees Other employee categories corporate social responsibility >> 2008 174,537 60,118 34,443 134,684 105,207 29,207 2009 172,712 52,079 25,038 126,098 99,184 24,547 2010 173,115 46,003 22,209 125,752 93,734 21,841 2011 178,550 42,596 19,891 135,266 84,562 21,209 In forming governance and management bodies for Sberbank and its regional banks, we strive to adhere to the principle of equal op- portunities, evaluating candidates on the basis of their professional skills and abilities. * All Bank staff are permanent employees INVESTING IN HUMAN CAPITAL ANNUAL REPORT 2011 BREAKDOWN OF SBERBANK MANAGEMENT BOARD BY AGE AS OF 31 DECEMBER 2011 people 12 12 31-50 1 51 or older BREAKDOWN OF SBERBANK SUPERVISORY BOARD BY AGE AS OF 31 DECEMBER 2011 people 10 7 31-50 10 51 or older BREAKDOWN OF SBERBANK MANAGEMENT BOARD BY GENDER AS OF 31 DECEMBER 2011 people 2 11 11 Men 2 Women 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 203 Λ corporate social responsibility#103204 Λ corporate social responsibility >>> SBERBANK 170 YEARS. BY YOUR SIDE BREAKDOWN OF SBERBANK SUPERVISORY BOARD BY GENDER AS OF 31 DECEMBER 2011 people 3 ހ 14 14 Men 3 Women Regional banks COMPOSITION OF MANAGEMENT BOARDS AT REGIONAL BANKS By gender By age Women Men Under 30 30-50 Over 50 Baikalsky Bank 3 7 0 7 3 Volgo-Viatsky Bank 2 9 0 9 2 Vostochno-Sibirsky Bank 4 7 0 9 2 Dalnevostochny Bank 5 7 0 6 6 Zapadno-Sibirsky Bank 3 9 0 11 1 Zapadno-Uralsky Bank 2 7 0 8 1 Moskovsky Bank 0 7 0 6 1 Povolzhsky Bank 0 9 0 7 2 Severny Bank 4 7 0 7 4 Severo-Vostochny Bank 5 3 0 5 3 Severo-Zapadny Bank 2 10 0 8 4 Severo-Kavkazsky Bank 1 11 0 11 1 Sibirsky Bank 6 7 0 11 2 Srednerussky Bank 1 9 0 6 4 Uralsky Bank 5 8 0 7 6 Tsentralno-Chernozemny Bank 8 8 0 10 6 Yugo-Zapadny Bank 5 کا 5 0 8 2 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 2 4 ANNUAL REPORT INVESTING IN HUMAN CAPITAL 2011 EMPLOYEE TURNOVER BY GENDER AND AGE % 6.0 6.1 6 | | 1.4. 0 under 30 30-50 1.4. 2.3 over 50 0.5 205 corporate social responsibility#104corporate social responsibility >> 206 INTERVIEW SBERBANK 170 YEARS. BY YOUR SIDE INVESTING IN HUMAN CAPITAL ANNUAL REPORT 2011 Sergey Gorkov Member and Deputy Chairman of the Management Board >> Providing high quality financial services across the entire Russian Federation is the staple of Sberbank's social responsibility. In the banking industry, people are at the centre of all products and processes If your investment in human capital is insufficient, then the resulting quality of services will be low. Sberbank's Strategy through 2014 pro- vides for investments in our people in terms of both ideas and tech- nology. In 2011, we launched joint executive education programmes with sev- eral leading business schools-the European Institute of Business Administration (INSEAD) and the New Economic School (NES), and the London Business School. The INSEAD-NES programme, which includes significant distance learning components, is unparalleled around the world; it is intended to train 500 managers at once, which is comparable to the number of students that enrol at the Harvard and Stanford Business Schools. The programme primarily targets executives from Sberbank's regional banks, who comprise over 90% of students. I believe that such programmes are the future of busi- ness education in Russia. Most importantly, we started to combine experience from both foreign and Russian business schools in our programmes, which opens up many new opportunities. Overall, we have made significant achievements in employee training and devel- opment. We launched a system of programmes and projects, which eventually will influence not only Sberbank's business but also the well being of the entire country. We continue to expand Sberbank's Corporate Library. The books in the library contain a range of knowledge that, in our view, is necessary for our employees and managers. The series is a valuable source of busi- ness expertise, and we would like to make it recognisable both within and outside the Bank. In 2011, we launched joint executive education programmes with several leading business schools- the European Institute of Business Administration (INSEAD) and the New Economic School (NES), and the London Business School In 2011, we worked hard to create a modern employee motivation sys- tem, based on both the realities of Russian business and international best practices. Over the reporting year we completed 70% of our grad- ing programme. Implementing such a programme in just two years is an unprecedented achievement for a company of our size. Professional competitions are a distinct feature of Sberbank's life. Hav- ing been conducted for many years, they are an important element of our corporate culture and an intangible tool for motivation. In 2011, the Best in Profession competition was held in nine categories; we plan to further advance our activities in this area. We also continued to build an employee evaluation system that fol- lows best practice and in some cases sets new levels. The system will become largely operational in 2012. Finally, in 2011 we started imple- menting Sberbank's pension programme, another important element of our employee motivation system. We demonstrate our attitude towards customers not only through our financial activities. When people feel that Sberbank not only handles banking transactions but also engages in various social activities, this attracts customers to us and helps us better understand them. Here I would like to highlight two areas of Sberbank's social activities in 2011. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 207 Λ corporate social responsibility#105SBERBANK 170 YEARS. BY YOUR SIDE INVESTING IN HUMAN CAPITAL ANNUAL REPORT 2011 First, we continue our university partnership programme: jointly with the Russian Presidential Academy of National Economy and Public Administration we provide a master's programme for graduates of the Moscow Institute of Physics and Technology. We also continue to deliver a two-year master's programme in economics based at the Higher School of Economics for graduates of various science and technology universities. All of these students are recruited by the bank on gradu- ation. We actively partner with some 50 Russian universities. The children's home sponsorship programme was launched in early 2010, during the global financial crisis, when we decided that supporting children's homes in that difficult time is 208 part of our social responsibility Λ corporate social responsibility >>> Second, the Bank continued to actively support children's homes un- der its patronage. The children's home sponsorship programme was launched in early 2010, during the global financial crisis, when we decided that supporting children's homes in that difficult time is part of our social responsibility. Initially, 100 children's homes in below average condition were selected for the programme. We wanted to not only provide financial support but also to establish a full-fledged relationship with the children who faced many challenges in their lives. And we have succeeded in building real partnerships; on average we conduct 10 events a year at each institution. Now the number of chil- dren's homes participating in the initiative has reached almost 240, and at Sberbank we have an entire movement of volunteers participating in these activities on their own initiative-over 5,000 people. As a result, over 100 children were adopted, which means that we effectively "dis- banded" two entire children's homes. The programme, unique to Russia, continues to grow. And interestingly, it is growing by itself, without any administrative push from the side of Sberbank's management. I believe this is very important. EMPLOYEE TRAINING We recognise that continuously developing the skill sets of our em- ployees is essential if the Bank is to retain its competitive edge and to ensure sustainable growth of our business. In 2011, the Bank spent RUB 771,846,500 on employee training, also making substantial investments in developing its own educational and research base and corporate training infrastructure. It is important for us that every Sberbank employee receives some form of training each year. In 2011, over 260,000 employees re- ceived corporate training, the average training time per employee being 114 hours. In 2011, the Bank spent RUB 771,846,500 on employee training, also making substantial investments in developing its own educational and research base and corporate training infrastructure TRAINING HOURS PER YEAR PER EMPLOYEE, BY EMPLOYEE CATEGORY hour/year 160 120 80 40 40 190.2 118.1 92.2 0 Managers and administrative staff Client-facing employees Other employee categories 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 209 Λ corporate social responsibility#106SBERBANK 170 YEARS. BY YOUR SIDE INVESTING IN HUMAN CAPITAL ANNUAL REPORT 2011 210 Λ corporate social responsibility >>N BREAKDOWN OF EMPLOYEES WHO RECEIVED CORPORATE TRANING IN 2011 BY CATEGORY % 13 36 51 51 Managers and administrative staff 36 Client-facing employees Other employee categories 13 With the goal of supporting the modernisation and development of our corporate training system, the Bank decided to establish a Corporate University based on the principles and experience of the world's lead- ing business schools. In creating the Corporate University, the Bank employs the most advanced technologies and training standards. In February 2011, we launched the University's training centre in Od- intsovo and a regional centre in Novosibirsk in September. The latter delivers training courses to employees of five regional banks - the Sibirsky, Baikalsky, Dalnevostochny, Vostochno-Sibirsky and Severo- Vostochny Banks-and of Sberbank's Kazakhstan subsidiary. The Bank plans to launch the University's campus in the Moscow Region in 2012 and fully finish creating the Corporate University by 2014. Sberbank is working intensely to develop distance learning infra- structure based on state-of-the-art technology; our video conferencing system covers the entire country and is an essential instrument in every major corporate training project. The Bank has in place well- tested technologies to rapidly share knowledge across the entire branch network by means of video lectures, business games, master classes for trainers, e-learning courses and tests. Speaker Ichak Adizes We pay special attention to developing and training our management. All senior and mid-level managers are evaluated against our corpo- rate managerial skill set model, and the evaluation results are used as input in preparing personalised development plans. Sberbank partners with the best personnel development and training companies and organisations, including leading Russian universities and foreign business schools. Our employees, customers and partners, as well as students and teachers from Moscow's leading universities, are offered unique opportunities to attend lectures by international economic, man- agement and leadership gurus invited by Sberbank and engage in discussions with them. LECTURES BY INTERNATIONAL ECONOMIC, MANAGEMENT AND LEADERSHIP GURUS ORGANISED BY SBERBANK IN 2011 Lecture 211 Number of participants Leadership Development 550 Organisation Life Cycle. A Second Heyday 150 Successful Team Management in a Changing Environment 30 World Competitiveness Prospects 1,190 Global Finance. New Challenges 1,200 Ricardo Semler Democratic Workplace, or Holidays All Week Long 650 corporate social responsibility Stéphane Garelli Nouriel Roubini Author Daniel Goleman B. Joseph Pine II and James H. Gilmore Michael L. George Lise Bourbeau The Sberbank Corporate Library, a publishing project launched two years ago, now includes 18 international economic, management and leadership bestsellers, 11 of them published in 2011. PUBLICATIONS IN SBERBANK CORPORATE LIBRARY IN 2011 Title Emotional Intelligence The Experience Economy Lean Six Sigma for Service Love, love, love Mintzberg on Management: Inside Our Strange World of Organizations 170 YEARS. IT'S JUST THE BEGINNING Henry Mintzberg George Kohlrieser Hostage at the Table Y. Akin Ongor Keep Going When I'm Gone WWW.SBERBANK.RU#107SBERBANK 170 YEARS. BY YOUR SIDE INVESTING IN HUMAN CAPITAL ANNUAL REPORT 2011 212 Λ corporate social responsibility >>N Author Don Tapscott and Anthony D. Williams Michael Armstrong and Angela Baron Lee G. Bolman and Terrence E. Deal Eliyahu M. Goldratt and Jeff Cox Title Wikinomics: How Mass Collaboration Changes Everything Managing Performance: Performance Management in Action Reframing Organizations: Artistry, Choice and Leadership The Goal: A Process of Ongoing Improvement EMPLOYEE MOTIVATION We set ourselves ambitious goals and achieving them depends di- rectly on the loyalty and focus of everyone working at the Bank. Therefore employee motivation is an important aspect of the Bank's strategy. We strive to reward our employees' efforts and provide them with a decent income. In 2011, the average monthly salary for Sberbank employees increased 17% compared to the previous year, reaching RUB 51,849. Now we can state that the remuneration of our employees has reached market level. Moreover, when the Bank records good financial figures (a factor affecting employee bonuses), our high-achieving employees enjoy considerably higher remunera- tion than their peers at other banks and companies in their regions. Our annual employee survey-which in 2011 covered over 100,000 employees demonstrated a significant increase in satisfaction with the Bank's remuneration and motivation system. This was mainly the result of the introduction of new employee mo- tivation principles at the Bank, which include: -The fairness of our remuneration system within the Bank is sup- ported by a job grading system based on an analysis and assess- ment of job positions using an internationally recognised meth- odology; ―The market competitiveness of salaries offered by the Bank is supported by a thorough analysis of remuneration offered on the labour markets of respective regions for comparable jobs; -―The ability of employees to influence their income is supported by a performance management system, which ensures a direct connection between employee remuneration and performance. As a means of motivating our younger employees, in 2011 the Bank held the Super Final of our Corporate Bank Management Champi- onship, with 3,550 young employees from the Central Head Office, regional banks and foreign subsidiaries participating in the event. In 2011, the Bank developed and adopted a comprehensive Benefits and Privileges Policy applicable to all Sberbank employees. The policy defines the main principles and elements of our corporate benefits and privileges system. The system includes targeted corporate pro- grammes, socially oriented programmes and status-based benefits. We are interested in creating conditions that encourage our employees to link their future to the future of the Bank The targeted corporate programmes involve employee benefits stan- 213 dardised across the Bank's divisions. They do not involve direct pay- ments to employees but instead aim to support fundamental values (health, development, stability and security). They include: the cor- porate pension programme; voluntary medical insurance; injury and serious illness insurance; healthy lifestyle and sports programmes; employee loans at special rates; and corporate discounts provided to employees by Sberbank's external partners. Under our socially oriented programmes, the Bank provides employ- ees with financial assistance in difficult circumstances, in connection with the birth of a child or the funeral of a close relative, as well as for big birthdays and retirement. Certain categories of employees are allocated a relocation allowance when moving from one Sberbank regional bank to another. Specific benefit types and sizes, as well as eligible employee categories, are defined at the level of regional banks with local conditions taken into account. We are interested in creating conditions that encourage our employ- ees to link their future to the future of the Bank. In 2011, pursuant to the decision of the Management Board, we began implementation of Sberbank's corporate pension programme. Over 150,000 employees across the entire country are enrolled in the programme. This is an unprecedented project for the Russian banking sector in terms of both the number of participants and the geographical reach. The programme is intended to maintain our employees' standard of liv- ing after retirement. corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#108corporate social responsibility 214 Λ SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT INVESTING IN HUMAN CAPITAL 2011 Participants Conditions Number of participants The programme defines universal principles for pension contribu- tions and the conditions under which corporate pensions are paid. It applies to employees with at least three years of service with the Bank (pension contributions for them are put aside on an annual basis). After seven years of service with the Bank, the funds saved are transferred to the employee's personal pension account in Sber- bank's pension fund. The main corporate pension scheme is avail- able to employees with more than five years to go before they reach pension age. Employees less than five years away from pension age are covered by a "set benefit" pension scheme, under which they will receive a corporate pension in the amount of 2.5-5% of their base salary in addition to their state pension. The programme is being jointly implemented with the Sberbank Non- State Pension Fund, which was established in 1995. The fund is one of the top ten pension funds in the Russian Federation; it has the high- est reliability rating (A++) from the Expert RA rating agency and the maximum reliability rating (AAA) from the National Rating Agency. CORPORATE PENSION PROGRAMME Set benefit pension plan* All Bank employees (including retirees) receiving a pension and employees with five years or less to go before pension age (as of the beginning of 2011) The size of benefits depends on the employee's length of service with the Bank at the moment of retirement As of the end of 2011: 93,058 As of the end of 2010: 296,315 Pension liabilities In 2011: RUB 4,650 million In 2010: RUB 7,842 million Pension expenditures In 2011: RUB 685 million*** In 2010: RUB 1,898 million *** Set contribution pension plan** All employees with three years of continuous service with the Bank, except for members of the Management Board and employees with five years or less to go before pension age or those already eligible to receive a pension Personal pension plans are made available to employees after seven year of continuous service with the Bank; pension contributions are defined as a percentage of base salary As of the end of 2011: 169,982 ** Award Golden Badge Silver Badge CORPORATE AWARDS GRANTED IN 2011 Medal for Faithful Service Medal for Merit Certificate of Merit Sberbank Excellence Badge Letter of appreciation Best in Profession Number of awards granted 5 28 114 106 579 1,137 493 The annual Best in Profession competition has become a corporate tradition; in 2011 it was conducted for the third time. The competition is intended to motivate employees to improve their professional skills and knowledge and to foster creativity. It also provides an opportunity for the best employees to share their work methods. The competition is held across a number of categories (nine in 2011) and includes two stages at regional and national levels. The regional stage identifies the best special- ists at regional banks, while the national stage recognises the Bank's Best Specialists. - In 2011, winners and runners-up in the nationwide contest represented 12 regional banks. This demonstrates the geographical breadth of the contest and the widespread interest among employees in participating in development processes. Competition winners and runners-up receive awards from Sberbank's CEO in a special ceremony. The winners are provided plentiful opportunities for creative development and career growth. Sberbank has a long tradition of holding professional competitions and granting awards to its best employees. In 2011, Sberbank in- troduced three new corporate awards in addition to existing ones: the Medal for Merit, the Sberbank Excellence Badge and the letter of appreciation. * There are 18 separate set benefit pension programmes for each regional bank and the Central Head Office ** Introduced in 2011 *** Included in staff costs within operating expenses 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 215 corporate social responsibility#109SBERBANK 170 YEARS. BY YOUR SIDE WINNERS OF THE BEST IN PROFESSION COMPETITION Best Customer Service Outlet Head Natalya Skirda Yugo-Zapadny Bank Best Retail Sales Specialist Lilia Iralina Best Retail Customer Service Specialist Yulia Zakharova Best Corporate Customer Service Specialist Tatyana Zhidkova Best Corporate Lending Specialist (Major, Large- and Medium-Sized Corporate Customers) Alexandra Gladyuk Best Account Manager (Micro and Small Businesses) Alesya Kudinkina ANNUAL REPORT INVESTING IN HUMAN CAPITAL 2011 Zapadno-Sibirsky Bank Sibirsky Bank Severo-Kavkazsky Bank I Ask for the Floor: A Conversation with the CEO A hotline session with Herman Gref, Sberbank CEO and Chairman of the Management Board, titled "I Ask for the Floor: A Conversation with the CEO", was held on 2 December 2011. Over 22,000 employees watched the live broadcast of the event - 7,000 more than in 2010. During the event, which lasted for three hours, Sberbank's CEO answered almost 60 questions both in an extended form and in the form of a brief Q&A. Participants used video conferences, email and text messages to ask questions about the Bank's development prospects, ongoing activities and personal time management practices. In his closing remarks, the CEO emphasised the importance of the event, particularly highlighting its significance as a forum for sharing information and defining future development priorities. Tsentralno- Chernozemny Bank 216 Srednerussky Bank Λ Best Debt Recovery Specialist (Corporate Business) Anton Kiselev Severny Bank corporate social responsibility Best Cash Collection Specialist Ivan Voronin Best Underwriter (Processing of Retail Loan Applications) Natalya Krasheninina Central Head Office Uralsky Bank EMPLOYEE SURVEY RESULTS The introduction of the new motivation system, remuneration and HR policy The main topics of interest for Sberbank employees in 2011 Innovation by employees and customers, the Ideas Exchange and crowdsourcing Employee training Benefits and social security New technologies and IT INTERNAL COMMUNICATION Sberbank strives to build a highly productive team, whose effec- tiveness is supported by a shared corporate culture and a common information space. The key communication instruments in this space include the corporate Intranet portal, the Good Morning Sberbank and Sberbank Day by Day newsletters, the monthly address from the CEO and Chairman of the Management Board and the corporate newspa- per My Sberbank. An important employee communication event in 2011 was a hotline session with Sberbank's CEO and Chairman of the Management Board, held for the second year in a row. Photos with the Sberbank Flag As one initiative aimed at strengthening the Bank's corporate culture, it was suggested that employees take photographs of themselves in front of a Sberbank flag during the summer months and long holidays. The initiative proved very popular, with thousands of people submitting pictures. We saw photographs at border posts, the North Pole and even underwater. Pictures of employees skydiving with the Sberbank flag, at dawn at Lake Baikal and of many other interesting moments in the lives of our team in 2011 were put on display in the lobby of the Bank's headquarters in Moscow. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 217 corporate social responsibility#110corporate social responsibility 1991 218 2< SBERBANK 1991 December 25th, by a special law the Russian Soviet Federative Socialistic Republic (RSFSR) was renamed into the Russian Federation (Russia). 170 YEARS. BY YOUR SIDE КОНСТИТУЦИЯ РОССИЙСКОЙ ФЕДЕРАЦИИ INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL ANNUAL REPORT 2011 WICKS 1992 Establishment of Moscow Interbank Currency Exchange - one of the largest universal exchanges in all of Russia, CIS and Eastern European countries. 71 1993 December 12th, nation-wide voting adopted the new Constitution of the Russian Federation. 1991 November 6th, start of the Gaydar's reforms that initiated the transfer of Russia to a market economy. СБЕРЕГАТЕЛЬНЫЙ БАНК СССР 1990 2000 АКЦИИ 71 1991 June 12th, the first President of Russia, B.N. Yeltsin, was elected. 219 A 1995 In Moscow The Golden Mask All-Russian Theatre Festival and National Theatre Award took place for the first time. Since 2002, Sberbank of Russia being the General Partner of the event, has given active support to the festival. Transformation of Sberbank into a joint-stock commercial bank laid down the groundwork for its development as a universal commercial bank on a national scale and for the shaping of its modern image The Annual General Meeting established the Joint-Stock Commercial Savings Bank of the Russian Federation. 1991 Sberbank developed its logo. A new brand featuring a laconic image of a purse was selected in an open contest. 1993 The AGM decided to increase Sberbank's authorized capital to 100 billion roubles. Sberbank floated two additional share issues worth of 45 billion roubles. Sberbank's shareholders included 14,000 corporates and 300,000 individuals. 170 YEARS. IT'S JUST THE BEGINNING OPENNESS AND GOODWILL A DRIVE FOR PERFECTION TRUST AND RESPONSIBILITY INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS 1994 Sberbank of Russia became a full member of the international Visa and Europay systems. 1998 1991 May 20th the Supreme Council of the USSR adopted the Law "Procedure of the Departure from the Union of Soviet Socialist Republic and Entry into the Union of Soviet Socialist Republic by the USSR citizens" that permitted free departure for the USSR citizens abroad (entered into force on January 1993). Under conditions of the economic crisis that hit the Russian economy, Sberbank of Russia remained one of the few Russian banks that continued to meet their obligations to depositors, clients and foreign counteragents. 1997 WWW.SBERBANK RU International rating agencies Fitch IBCA and Thomson Bank Watch assigned Sberbank the highest credit rating BB+, equal to the rating of the country as a whole. corporate social responsibility#111220 Λ INTERVIEW corporate social responsibility >> SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT INVESTING IN HUMAN CAPITAL 2011 Stanislav Kuznetsov Member and Deputy Chairman of the Management Board >> Corporate social responsibility at Sberbank is a system of guiding principles. In my view, one of the most important principles is customer focus. Our customers and their satisfaction with the Bank's services is our main priority Our proactive position with regard to corporate social responsibility creates ample opportunity for Sberbank's team. In 2011, we took sev- eral important steps in customer relations. Among other initiatives, we launched an occupational pension programme, providing an op- portunity for the Bank's employees to increase their pension savings. We pay special attention to the health of our staff. I would like to highlight the Bank's injury insurance programme, medical insurance scheme and the system of medical check-ups. We also take care to provide our staff with quality cooked meals. Employees at the Bank are offered not only lunch but also breakfast and dinner. Moreover, we organise special events to promote a healthy lifestyle and encourage people to give up smoking. The Bank's employees are very involved in sport. In 2011, the Sber- bank Winter Olympics were held in Ufa. We have proved that we love sport and are able to achieve outstanding results. The sports events organised by the Bank are greatly appreciated and supported by our employees. I would like to mention that Sberbank has an active labour union. 2011 was the first year of a new collective agreement. Today our engagement with the union is a regular, well-organised process. Twice a year the Bank's management meets union leaders from all over the country. Such meetings help us hear "the union voice" and understand what we are doing wrong. All regional banks have in place labour dispute committees. We also support a number of the union's initiatives, in- cluding the creation of a summer holiday village for employees and the organisation of summer recreation for employee's children. I would like to mention that Sberbank has an active labour union. 2011 was the first year of a new collective agreement We have not forgotten about our pensioners and veterans, to whom we provide support. In 2011, we substantially improved our work in this area, which was acknowledged by the federal authorities. We organise special events for our veterans; identify those in particular need of care, support and medical treatment; and subsidise their treatment. at health resorts. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 221 A corporate social responsibility#112SBERBANK 170 YEARS. BY YOUR SIDE INVESTING IN HUMAN CAPITAL ANNUAL REPORT 2011 222 corporate social responsibility >N EMPLOYEE HEALTH The Bank employs a series of measures to protect the health of its employees. These include in-depth medical check-ups for timely di- agnosis of diseases and physicians working at Bank offices. We also run voluntary medical insurance (VMI) schemes to provide quality medical aid in case of illness and the necessary financial support in case of serious illness or injury (under our accident and serious illness insurance programme). Over 85% of employees underwent medical check-ups between 1 July 2010 and 31 July 2011. The high participation rate reflects the convenience of the process, as employees undergo check-ups during working hours in accordance with a pre-defined schedule. The programme helped identify serious illnesses, including cancer and cardiovascular diseases, at their early stages, in some cases saving our employees' lives. Physicians working at the Bank's large offices provide emergency medical aid and first aid, as well as consultations regarding available health services and medical insurance programmes. Voluntary medical insurance (with 50% of the cost paid by the Bank) provides employees with access to a full range of high-quality health services (outpatient services, ambulance service and inpatient care). An injury and serious illness insurance programme financed by the Bank allows employees to pay for costly medical interventions if required. SPENDING ON EMPLOYEE HEALTH PROGRAMMES Policy Level Functions GENERAL EMPLOYEE HEALTH SERVICE MODEL AT SBERBANK Prevention and initial diagnosis In-depth diagnosis and treatment Convalescent care and rehabilitation Universal Voluntary Voluntary and mandatory Healthy lifestyle (nutrition, fitness, giving up unhealthy habits) Sport Office physician Training in self- diagnosis and self-help Medical check-ups Vaccination Outpatient services Inpatient care Rehabilitation regime after illness Convalescent care after serious illness or injury 540 BY TYPE RUB million 42 760 452 760 Injury insurance 540 In-depth check-ups 452 Voluntary medical insurance 42 Office physicians 170 YEARS. IT'S JUST THE BEGINNING Sources of financing Bank VMI (50%/50%) Injury and serious illness insurance Injury and serious illness insurance Employees' own funds OCCUPATIONAL HEALTH AND SAFETY Creating and maintaining safe working conditions for our employees is a priority for us. The Bank carries out regular measurements of lighting conditions, microclimate parameters and electromagnetic fields in the workplace. The position of Occupational Health and Safety engineer has been introduced at all regional banks and at the Central Head Office. WWW.SBERBANK.RU 223 corporate social responsibility#113224 corporate social responsibility >> SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT INVESTING IN HUMAN CAPITAL 2011 Division Sberbank maintain statistics on occupational injuries, analyses them and takes preventative measures. There were no fatalities at the Bank in 2011. Baikalsky Bank Volgo-Viatsky Bank NUMBER OF OCCUPATIONAL INJURIES IN 2011 Vostochno-Sibirsky Bank Dalnevostochny Bank Zapadno-Sibirsky Bank Zapadno-Uralsky Bank Moskovsky Bank Povolzhsky Bank Severny Bank Severo-Vostochny Bank Severo-Zapadny Bank Severo-Kavkazsky Bank Sibirsky Bank Srednerussky Bank Uralsky Bank Tsentralno-Chernozemny Bank Yugo-Zapadny Bank Central Head Office Total Total number of occupational injuries 13 19 2 14 7 9 12 28 10 3 24 4 16 11 10 23 21 16 7 238 Sberbank Winter Olympics in Ufa One of the most prominent events in Sberbank's corporate life in 2011 was the 4th All- Russia Sberbank Winter Olympics organised by the Bank's Central Head Office with the involvement of the Uralsky Bank. A total of 641 Bank employees competed in the games. The competitions were held over three days in six disciplines: ice hockey, bi- athlon, cross-country and alpine skiing, speed skating and snowboarding. Athletes battled it out for 27 sets of medals. The Uralsky Bank, whose athletes took home 12 medals, were the undisputed champions for the first time in the history of the competition in 2011. Srednerussky Bank was second, followed by Povolzhsky Bank. The event was held in a warm, friendly atmosphere and even temperatures occasion- ally dropping to below -30°C were unable to disrupt the games. Such events help strengthen our corporate culture and demonstrate our employees' commitment and ability to achieve great things. Sberbank's new construction projects provide for the creation of the Bank's own health and fitness centres: in 2011, such centres were launched at the Srednerussky, Baikalsky, Dalnevostochny and Severny regional banks, and at the Central Head Office. All-Russia Special Combined Events Competitions In 2011, the Severny Bank supported the hosting of professional competitions between employees from the cash collection and security divisions of the Bank's Central Head Office and regional and subsidiary banks. Participants tested their skills in shooting Makarov pistols and Kalashnikov rifles, driving on a specially designed obstacle course and in a special relay. The contestants also put their medical skills to the test and engaged in hand-to-hand combat. The event also saw the demonstration of new armoured cash-in-transit vehicles, as well as technical innovations, new equipment and training gear. 225 Λ corporate social responsibility HEALTHY LIFESTYLE We care about the health of our employees and work to promote a healthy lifestyle. In 2011, over 1,200 large-scale sports events with more than 70,000 participants were organised in order to engage employees in sport and fitness on a regular basis. 170 YEARS. IT'S JUST THE BEGINNING CORPORATE EVENTS Various corporate events aimed at fostering Sberbank's corporate cul- ture and upholding traditions are held on a regular basis. Festivities include celebrating International Women's Day, New Year, Sberbank Worker's Day and Victory Day. These all help create an atmosphere of trust and mutual understanding within the Bank and instil a sense of common purpose. Moreover, the Bank holds special events for employees' children and runs children's drawing competitions, as well as subsidising summer holiday activities and active recreation programmes. WWW.SBERBANK.RU#114SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CHARITY AND SPONSORSHIP 2011 226 Λ corporate social responsibility Interview Kuznetsov 227 Areas of Charity and Sponsorship Activities 229 Children's Home Support Programme 229 Partnering with the Gift of Life Foundation 230 Supporting Sport and the 2014 Winter Olympics 230 Supporting Culture and the Arts 233 Supporting Education and Science 233 Supporting Veterans and People with Disabilities 235 Business Sponsorship- Investing in Economic Development 235 CHARITY AND SPONSORSHIP INTERVIEW Stanislav Kuznetsov Member and Deputy Chairman of the Management Board harity and sponsorship are an important element of Sber- bank's corporate culture and a traditional area in which we contribute to society. By participating in charity and sponsorship projects, the Bank demonstrates its values and commitment to the principles of partnership. Many of our employees participate in charity and volunteer initiatives, and we view this as an important factor in the human development of our staff. Corporate charity and sponsorship priorities are identified on a col- legial basis by special commissions established at the Central Head Office and in each regional bank. >> For many years Sberbank has supported different initiatives and projects in socially significant areas such as culture and the arts, education, health care, sport and business-areas that form the foundation for the development of our society. We have also not forgotten those who need help more often than others - children, the disabled and veterans We launched a programme to sponsor children's homes. In 2011, this programme involved a number of different events and projects. Let me give an example. All of the members of the Management Board bought sports equipment for a children's home in Klin with our own money and travelled to the town to build a sports facility ourselves. We then spent the day playing with the children and gave them our gifts. At first the children seemed a little ill at ease but the sheer joy in their eyes inspired us all. For us it was an unforgettable day. And Sberbank carries out such projects across the entire country; today we support almost 240 children's homes. There are many examples of our employees adopt- ing children from those children's homes, something that has almost become a new corporate tradition. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 227 A corporate social responsibility#115SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CHARITY AND SPONSORSHIP 2011 228 In the year of Sberbank's 170th anniversary, we presented a real gift to the children's homes we sponsor in various regions of Russia. The world-renowned Sergey Obraztsov Puppet Theatre gave a series of special performances in a tour that was a true delight for these children that so desperately need support from adults. In the year of Sberbank's 170th anniversary, we presented a real gift to the children's homes we sponsor in various regions of Russia Another prominent project involved a series of educational events for the general public. We invited the world's best managers and authors of business literature to give lectures in Russia and we made these lectures public, inviting students to them. The response was huge. The series of events was closed with an international conference held at the Gostiny Dvor exhibition centre in Moscow under the banner New Management Technologies. What Will Change the World? AREAS OF CHARITY AND SPONSORSHIP ACTIVITIES Sberbank's overall charity and sponsorship expenditures in 2011 amounted to over RUB 1.8 billion. SBERBANK'S CHARITABLE ACTIVITIES BY AREA % 33 11 25 25 Culture 17 Education 11 Health and sport 11 3 33 Other Chidren's institutions Supporting veterans and the disabled corporate social responsibility >> CHILDREN'S HOME SUPPORT PROGRAMME Sberbank identified helping children as one of the priority areas in its corporate charity programme for 2011. The Bank supports children's homes with donations and also provides mentorship and legal and psychological counselling, as well as assistance in training and em- ployment. In 2011, as part of the corporate sponsorship programme, the Bank supported 239 children's homes and organised some 1,500 events in which some 5,000 Sberbank employees took part. SOS Children's Village One of Sberbank's important initiatives to support children is the SOS Children's Village project, which began in 2010. The overall cost of the project is RUB 24.4 million. The idea of children's villages was conceived in Austria in 1949 when the war left an enor- mous number of children without parental care. It was then that they started to build villages containing a number of separate houses, on average 15, instead of traditional orphanages. A family living in such a house cares for five to ten children. Six such vil- lages have already been built in Russia - one of them, in Pskov, with Sberbank's help. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 229 Λ corporate social responsibility#116SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT CHARITY AND SPONSORSHIP 2011 230 corporate social responsibility >N PARTNERING WITH THE GIFT OF LIFE FOUNDATION Our partnership with Gift of Life, a charity foundation that helps children with cancer and other serious illnesses, has a special place among the Bank's charitable initiatives. The Bank offers customers special Gift of Life products-a co-branded card and the Gift of Life deposit that allow both customers and the Bank to make donations to the Foundation. In 2011, the Bank continued its partnership with the Gift of Life Foun- dation. As of 31 December 2011, 729,700 charity deposits have been opened, while the number of Gift of Life Visa cards issued reached 219,700. This helped the Foundation obtain RUB 229 million from the Bank and its customers over the year. As part of its support for the Foundation, the Bank acquired state-of- the-art OR1™ NEO operation room equipment for the newly created Federal Research and Clinical Centre for Children's Haematology, Oncology and Immunology. This equipment means extremely com- plex surgeries can be carried out at the centre. The Bank sponsored a festive show for the centre's medical personnel and future patients to celebrate its inauguration. Moreover, Sberbank employees partici- pated in a blood donation campaign in 2011 for the centre to offset the decrease in the number of donors during the summer. SUPPORTING SPORT AND THE 2014 WINTER OLYMPICS Sberbank's sport sponsorship is driven by a desire to support the development of Russian sport and to improve its prestige internation- ally, as well as to promote a healthy lifestyle for Russian citizens. One of our key sport projects is sponsorship of the XXII Olympic Winter Games, which will be held in 2014 in the Russian city of Sochi. The Olympics Games are probably the world's most significant in- ternational sporting event and competition for the privilege to host them is fierce. Russia has only hosted the Olympics once, when the Summer Olympics were held in Moscow in 1980. But that all changed when the decision was taken to again return the Olympics to Russia at the 119th session of the International Olympic Committee in 2007, when the city of Sochi was selected to host the XXII Olympic Winter Games and the XI Paralympics Winter Games in 2014. In April 2009, the Bank signed a cooperation agreement with the Sochi 2014 Organising Committee, bestowing the status of General Olympic Partner on Sberbank in the Banks category. Since then the Bank has actively contributed to preparations for the Olympics, working to modernise its branch network, training staff and developing new products and services. In April 2009, the Bank signed a cooperation agreement with the Sochi 2014 Organising Committee, bestowing the status of General Olympic Partner on Sberbank in the Banks category To bring the Olympics close to each and every Russian citizen, Sber- bank launched a number of products in collaboration with existing and potential customers. One such example is the launch of two special Visa cards. The first, launched in 2010, was based on a design chosen through a national creative competition. The second, issued in 2011, uses unique 3D ProMotion technology to create a 3D image effect and features the Polar Bear, one of the Sochi Olympic mascots. An important instrument in promoting Olympic values in Russia and all over the world is the Sochi 2014 coin programme. Sberbank is the only distributor of precious-metal commemorative coins in this series. Moreover, the Bank is the main shareholder in Sportloto, the official state lottery operator. Sportloto is running various lottery programmes in support of the Sochi Olympics (Cheery Starts, Sports Festival, Sports Season, Sports without Borders, Russian Games, For- ward to Victory, and Faster, Higher, Stronger!). The lotteries help collect significant funding to finance Olympic projects. Sberbank is investing in the Olympics. We are financing the construc- tion of several elements of infrastructure for the Olympics, including a ski jump facility and media village. An important goal of prepara- tions for the Olympics is the creation of a lasting legacy that will continue to benefit the community long after the Games are gone. One of our projects that fits this bill is Gorky Gorod, a year-round resort being built using Sberbank financing. During the Games, the resort will host the media centre for the Mountain Cluster, which will play host to sports such as alpine and cross-country skiing, biath- lon, bobsleigh, freestyle and ski jumping, amongst others. After the Games, it will be converted into an Olympic Hall of Fame as part of Gorky Gorod, a resort unparalleled in Russia in terms of the scale and quality of its sport and recreational infrastructure. Gorky Gorod will remain as a lasting legacy of the Olympics, welcoming thousands of tourists and athletes from Russia and other countries. 231 Λ corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#117232 Λ corporate social responsibility >>> SBERBANK 170 YEARS. BY YOUR SIDE CHARITY AND SPONSORSHIP ANNUAL REPORT 2011 Sberbank is investing in the Olympics. We are financing the construction of several elements of infrastructure for the Olympics, including a ski jump facility and media village Sberbank also partners with the Red Rocks Music Festival, which is held at the site of the future Gorky Gorod resort. Following the success of the first festival in 2011, the event was included in the programme of the Sochi 2014 Cultural Olympics. We are certain it will become one of the most significant cultural projects around the Olympics in Russia. Supporting the Red Rocks project is important in terms of engaging with young people, one of our strategic target audiences. Moreover, this cultural event helps attract additional attention from the Russian and international public to Sochi as an Olympic capital and the projects being implemented there. Universiade Flag Relay Sberbank is a General Partner of the International University Sports Federation (FISU) flag relay as part of the XXVII Summer Universiade to be held in Kazan in 2013. Our partnership is aimed at supporting sport and promoting a healthy lifestyle and intends to draw the public's attention to this significant international student tourna- ment. The FISU flag relay began on Kazan's City Day, 30 August 2011, on the city's Market Square. Representatives from six of Sberbank's regional banks took part in the relay, which passed through 11 of Russia's university cities. At the end of the relay, the FISU flag- the symbol of the World Student Games-was given pride of place in Sberbank's central office in Kazan, where it will remain until the official opening of the 2013 Universiade. In 2011, in addition to supporting various Olympic projects, Sberbank sponsored the 6th International Battle of Champions Martial Arts Tournament, the SKA St. Petersburg Ice Hockey Club, the Leonid Tyagachev Alpine Skiing Club and the Russian Canoe Racing Federa- tion, as well as promoting the development of badminton in Russia. SUPPORTING CULTURE AND THE ARTS In order to support national culture and the arts and to help preserve and develop Russia's cultural heritage, Sberbank continued its part- nership with a number of cultural institutions. Activities include: ― Making donations to support concerts by Valery Gergiev and the Mariinsky Theatre Orchestra at the Moscow Easter Festival, the International Tchaikovsky Competition, Igor Butman's anniver- sary concert, master classes for young talented musicians, the renovation of gilding on the Samson set of sculptures at Peterhof, and other projects and events; - Sponsoring the Golden Mask National Theatre Festival and Awards (Sberbank has been the project's general partner since 2002), pro- ductions by leading Russian theatres (Lenkom and the Chekhov Moscow Art Theatre) and other cultural events. SUPPORTING EDUCATION AND SCIENCE Ensuring accessible, high quality education is an aim of national importance, to which Sberbank continues to make its contribution. We sponsor educational institutions of all levels, from nurseries through to universities, as well as running training programmes for talented students and sponsorship projects to help young people realise their potential. All of these efforts also help create a highly skilled workforce, which benefits the Russian national economy. The Bank has implemented a number of special programmes to sup- port the education of talented students at Russia's leading universi- ties, including the Moscow Institute of Physics and Technology, the Bauman Moscow State Technical University, the Faculty of Mechanics and Mathematics at the Lomonosov Moscow State University and the Faculty of Mathematics and Mechanics at the St. Petersburg State University. We also run grant programmes for the brightest students. The number of students receiving such grants has continued to grow each year. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 233 Λ corporate social responsibility#118234 corporate social responsibility >> SBERBANK Year 2009 2010 2011 GRANTS TO STUDENTS 170 YEARS. BY YOUR SIDE Scholarship students Total value of grants, RUB thousand 26 5,720 45 11,240 83 15,541 CHARITY AND SPONSORSHIP ANNUAL REPORT 2011 SUPPORTING VETERANS AND PEOPLE WITH DISABILITIES The Bank made financial donations to a number of organisations that support veterans and the disabled and run programmes to help with social rehabilitation and integration. Each year, all of our regional banks hold events to honour veterans of the Second World War, known in Russia as the Great Patriotic War. The Bank also has a targeted support programme to finance purchases of medicine, wheelchairs and other goods for the elderly. Virtual School In 2011, to commemorate Sberbank's 170th anniversary and support gifted young students, we: — Launched an annual project to provide scholarships to the win- ners of the National Academic Competition in Economics and Mathematics for school students; - Provided four grants to cover the full cost of education for the most active participants of the Russian Presidential Academy of National Economy and Public Administration's Young Business Brains programme. In 2011, we continued to donate modern equipment to schools as part of our Virtual School charity project. A number of schools based in Izhevsk, Irkutsk, Voronezh, Vol- gograd, Makhachkala and Gagra participated in the project. We donated multimedia equipment and helped set up modern classrooms equipped with interactive whiteboards, which can be connected to a computer and used to display images, diagrams and tasks. The system also allows pupils to undergo testing using wireless controls. By integrat- ing teachers' and students' computers into a single network, the project helps better organise group learning sessions and monitor the work of individual pupils. BUSINESS SPONSORSHIP- INVESTING IN ECONOMIC DEVELOPMENT We participate in the largest and most important business events in Russia through our business sponsorship programme. Our support 235 of major national and international business forums, such as the St. Petersburg International Economic Forum, the Sochi International Investment Forum and regional business forums, helps expand and develop interregional and international business cooperation. It also helps improve the attractiveness of Russia's regions as investment destinations, while also achieving other economic development ob- jectives. corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#119corporate social responsibility 236 A SBERBANK 170 YEARS. BY YOUR SIDE €2009 December 17th, the high-speed train "Sapsan" commenced regular services between Moscow and Saint-Petersburg. 2000- 2010 2004 Russia ratified the Kyoto Protocol-an international treaty intended to reduce emission of greenhouse gases. 2002 Sberbank became the market leader in Russian banking, with a 67% share of the deposit market, a 46% share of the consumer loan market and a 31% share of the commercial loan market. 2008 Launch of the first card with a charity programme in Russia as a joint project of Sberbank and the "Gift of Life Foundation. Early 2000s Sberbank total share of plastic cards on the Russian market amounted to approximately 30%. 2004 Based on the ATM network development, Sberbank of Russia, with 4816 ATM units, was among the 50 major financial institutions in the world, and in 2008 Sberbank took the first place in Europe in the volume of cards issued. 170 YEARS. IT'S JUST THE BEGINNING OPENNESS AND GOODWILL A DRIVE FOR PERFECTION INITIATIVE AND CREATIVITY RESPECT FOR TRADITIONS TEAMWORK AND EFFECTIVENESS TRUST AND RESPONSIBILITY 2008 On October, 21 Sberbank's Supervisory Board approved the Development Strategy until 2014. WWW.SBERBANK RU INTEGRITY PRUDENCE AND PROFESSIONALISM A HEALTHY LIFESTYLE (MIND, BODY AND SOUL) sochi.ru® +2007 ANNUAL REPORT 2011 2014 GENERAL PARTNER July 4th, during the 119th session of the IOC in Guatemala, Russia was elected the host country of the Winter Olympic Games 2014. These will be the first Winter Olympic Games held in Russia. In 2008 Sberbank adopted the Development Strategy to 2014, the main purpose of which was to transform the bank into a world's top financial institution. This meant that even more people all over the world would be able to realize their aspirations and dreams! 2009 ↑ On May 12-16, for the first time ever, Russia hosted guests and participants of the "Eurovision" song contest. RUSSIA 1 ПАВИЛЬОН -CAHKT- ПЕТЕРБУРГ G8 SAINT PETERSBURG PAVILION +2006 2005 Commencement of construction of the Nord Stream Pipeline System-a gas transmission pipeline between Russia and Germany passing through the Baltic Sea. Russia hosted "Big Eight" summit for the first time. The meeting was held in St. Petersburg on July 15-17. 2009 April 3rd, Sberbank became the General Partner of the XXII Olympic Games 2014 in Sochi. 2009 On December, 14 Sberbank opened its first new format office. This marked the onset of Sberbank's programme for branch network reformatting to streamline banking processes and technologies in the light of a new customer-focused philosophy. 237 A corporate social responsibility#120SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT REDUCING OUR ENVIRONMENTAL FOOTPRINT 2011 238 Λ corporate social responsibility >>> Interview Kuznetsov 239 Our Construction Projects 241 Improving Energy Efficiency 241 Reducing Paper Consumption 243 Managing our Environmental Impact 244 REDUCING OUR ENVIRONMENTAL FOOTPRINT INTERVIEW Stanislav Kuznetsov Member and Deputy Chairman of the Management Board ven though Sberbank's operation have no major en- vironmental impact, the scale and pace at which our business is developing dictate that we must pay particular attention to energy and resource efficiency. We strive to use the most advanced resource- efficient technologies and we see programmes aimed at improving energy efficiency as one of our priorities. We operate considerable office infrastructure, a fact that makes us one of Russia's largest developers. In all of our development work, be it constructing new facilities or reformatting our existing outlets, we employ the latest and most advanced methods to minimise any environmental impact. We recognise that reducing environmental impact is not only impor- tant for the environment itself, but that it also helps reduce costs, making our business more competitive. We understand the impor- tance of monitoring and analysing our environmental impact, which is why we pay particular attention to our industrial environmental monitoring system. >> One of our most significant achievements in 2011 was that we were able to bid farewell to a huge legacy of unfinished construction projects that had been delayed by reasons out of our control Sberbank has always been involved in several major, long-term con- struction projects spanning periods of five to eight years, or sometimes even fifteen, as was the case in Vladivostok. Over the past year, we worked together with our regional banks to implement a programme aimed at tackling the issue of unfinished construction projects. I can now proudly say all our projects are running smoothly as planned in a controlled fashion. This is very important in the context of our plans to reformat our customer service outlets and transform the back of- fice function. In 2011, we completed the construction of several major infrastructure facilities. In designing our new infrastructure, we think not of tomor- row's world, but further into the future, I could perhaps call it "the day after tomorrow". Once construction is complete and Sberbank employees show up for their first day of work at our new facilities, we want them to have access to tomorrow's technologies and solutions. This is what drives us to incorporate the most advanced technologies, including energy efficiency solutions, into our projects. Last year we implemented several projects of note in this area. The most important 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 239 Λ corporate social responsibility#121240 Λ corporate social responsibility >>> SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT REDUCING OUR ENVIRONMENTAL FOOTPRINT was our South Port data processing centre, which will play a key role in consolidating the Bank's IT systems and processes. The centre will also help substantially reduce the time-to-market of new banking products by enabling more effective support of corresponding organ- isational units. One priority objective is introducing a comprehensive electronic document management system. Such systems have already been deployed at our Central Head Office and at six regional banks Another significant result from the reporting year was the construction of a unique archive and logistics centre in Tomilino. Construction of this centre helped us address the problem of managing our extensive archives in a radical way. The centre will support the operations of our Central Head Office, as well as the Moskovsky, Srednerussky and Severny Banks. When designing and building the centre, we integrated advanced warehousing and archive management technologies, cre- ating a large-scale solution for automated storage and retrieval of archive materials. Currently the Centre is in the testing stage. We also embarked on a programme to modernise our unique 43,000 sq.m. cash management centre on Moscow's Volgogradsky Prospekt. This facility, which uses state-of-the-art technology, is currently the only one of its kind in Russia. Finally, in 2011, we dedicated considerable effort to construct a campus for our Corporate University on the banks of the Istra River. The campus is designed to create a comfortable environ- ment for living and learning. We plan to complete the project in 2012. We are making determined efforts to expand the use of energy saving technologies and have outlined some conceptual approaches in this area. We only install energy-efficient lighting systems at all of our new or modernised facilities. Another example is the use of cold air from outside to cool server rooms during the winter at our data processing centre instead of relying on traditional cooling equipment that uses a lot of energy. We also plan to implement a major federal energy saving programme. One priority objective is introducing a comprehensive electronic docu- ment management system. Such systems have already been deployed at our Central Head Office and at six regional banks. The systems helped substantially reduce paper consumption and the labour intensity of document management within the Bank. All documents are now scanned and circulated in electronic form and paper documents have almost been phased out completely. It is now difficult to imagine our work without such a system; paperless document management has become the norm for us. OUR CONSTRUCTION PROJECTS The Banks strives to use the most environmentally friendly technolo- gies and solutions in the construction of new buildings and when modernising existing facilities. One example of the use of modern energy efficient solutions is Sberbank's South Port data processing centre. The building features an innovative PAHU adiabatic cool- ing system (cooling through water evaporation), an LED lighting system, a state-of-the-art building automation system (providing smart control of the lighting and access systems and of workstation power supply, amongst others). As the next step in improving our IT infrastructure, we plan to build a second data processing centre as part of the government's Skolkovo project. In constructing our Customer Operations Support Centres, we also rely on green construction principles. This involves: - Building facilities in suburban areas -Achieving maximum utility autonomy - Installing large windows that let in as much natural light as pos- sible for workplaces - Employing innovative heat and power supply systems - Standardising office layouts - Meeting the latest international requirements for efficient and comfortable office buildings. Environmental aspects are also taken into account in designing and constructing the campus for our Corporate University. Features wor- thy of special mention include a precision air conditioning system to optimise indoor airflows, energy-efficient LED lighting, a "green roof" (moss and lichen are planted on the roof), improved insulation, low emission glazing, modern gas-fired generators and a highly effective wastewater treatment system. IMPROVING ENERGY EFFICIENCY Improving energy efficiency is an important priority in the Bank's drive to reduce its environmental footprint. The Bank uses a Corpo- rate Energy Saving Methodology based on green technologies to evalu- ate its premises in terms of energy efficiency and water efficiency, the quality of materials used and the environment both inside the building and in surrounding areas, taking into account the specifics of the facility's location. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 241 A corporate social responsibility 2011#122SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT REDUCING OUR ENVIRONMENTAL FOOTPRINT 2011 242 corporate social responsibility >> Energy source Electricity, kWh/GJ Heat, Gcal/GJ ENERGY CONSUMPTION BY THE BANK 2011 Amount Cost, RUB thousand 3,183,687 829,754,538/ 2,987,116 1,191,541/ 1,233,107 5,004,472 Natural gas, m³ 18,619,647 79,368 Coal, tonnes 1,161 3,464 1,082 708 4,520 102 48 116 Wood fuel, m³ Kerosene, Fuel oil, tonnes Measures to Improve Energy Efficiency In 2011, the Uralsky Bank installed energy efficient lighting systems and systems to control resource consumption and minimise heat losses at its premises. The regional bank installed automated metering systems and heat recovery and free cooling systems. Modern insulation materials, as well as insulated glazing filled with inert gases, were used in new construction projects. The use of these energy saving technologies is expected to result in annual savings of RUB 17.8 million at the regional bank's new building, the Customer Operations Support Centre and the United Cash and Settlement Centre thanks to more efficient energy use. Over the last three years, the Bank has extended loans for 50 energy saving and energy efficiency improvement projects with total invest- ments worth some RUB 315 billion. Of this amount, RUB 250 billion was invested in the energy sector to finance the modernisation of existing power generating facilities and the construction of new plants and for measures to reduce power transmission losses. Together with industrial companies in the energy and metals sectors, Sberbank has been preparing over 20 major projects worth some RUB 1.8 trillion to modernise core production facilities with the goal of achieving improvements in energy efficiency. REDUCING PAPER CONSUMPTION We recognise the importance of preserving forest resources and are working to reduce our paper consumption. Sberbank, like every major financial organisation, consumes large amounts of paper: one docu- ment can be circulated to dozens of employees, each of whom would receive a separate copy, and trigger several hundred different actions. Electronic document management removes the need to make multiple copies of documents. It also helps optimise customer service processes and eliminate certain procedures Λ The Bank has been reducing its paper consumption by deploying 243 electronic document management systems at the Central Head Of- fice and regional banks. Over 9,000 employees have already been connected to the systems. In 2011, the Bank embarked on a project to implement an integrated process management platform for the back office function, which included elements of electronic document management. As a pilot project, all customer service outlets in Moscow, or almost 10,000 employees, were connected to the system. Electronic document management removes the need to make mul- tiple copies of documents. It also helps optimise customer service processes and eliminate certain procedures. Significant savings are achieved in preparing documents that require multiple approvals and authorisations. As part of its separated waste collection programmes, the Central Head Office and several regional banks send waste paper for recycling. At present, the Central Head Office alone sends up to 35 tonnes of waste paper for recycling each month. corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#123244 corporate social responsibility >> SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT REDUCING OUR ENVIRONMENTAL FOOTPRINT Making Cities Greener In 2011, Sberbank took a number of steps to make Russia's cities greener. The Yugo- Zapadny, Srednerussky, Vostochno-Sibirsky and Dalnevostochny Banks all participated in programmes to plant hundreds of trees (maple, apple, birch, willow, fir, aspen and other types of tree), arranged mini-parks in public places and paved roads with stone blocks. Small monuments and plaques commemorating Sberbank's 170th anniversary were installed in many parks. Local young people, NGOs and municipal officials joined Sberbank employees in their green efforts. Our initiative was greatly appreciated by local residents, many of whom are our customers, and the local authorities. Consumption In 2011, as a part of the Bank's environmental management system, we adopted a Regulation on Operational Environmental Monitoring. All regional banks have prepared Action Plans for Environmental Protection and Rational Resource Use for 2012. We are currently developing an integrated database to collect and consolidate data about the Bank's environmental performance. FUEL AND WATER CONSUMPTION BY THE BANK 2011 MANAGING OUR ENVIRONMENTAL IMPACT Even though we have less of an effect on the environment than in- dustrial companies, we still pay significant attention to minimizing our own environmental impact. So as to develop and implement an effective set of measures in this field, we need to manage our impact on the environment through monitoring and analysis. For its corporate stationary, the Bank uses paper produced without the use of environmentally harmful bleaching agents. The Bank consumes about 400 tonnes of stationary produced using such paper each year. We produce waste in the process of our operations like any other major business. At our premises we run a separated waste collection system, which at our Central Head Office alone has helped save at least RUB 8 million. Petrol fuel, Diesel fuel, Water, m³ New Communications Technologies Amount Cost, RUB thousand 34,375,819 9,833,126 793,017 221,374 5,169,243 253,602 Given the scale and geography of the Bank's operations, car, rail and air travel by our employees is a significant source of greenhouse gas emissions. Seeking to reduce both emissions and costs, we, wherever possible, replace business travel with video conferencing, IP conference calls and other solutions based on the latest information and communications technology. Moreover, by developing remote service channels, we reduce the need for our customers to travel to our outlets. 1960s New savings book. 1963 Personal incomes grew 1.5 times. Almost all citizens of the country became customers of savings banks. By the end of 1963 the country had more than 73 thousand savings banks 1970s Harvesting. 1973 In 1973, the savings banks started giving loans credits to the rural population. The beginning of this experience was in Voronezh region. The Departments of the State Bank passed the loan debts documentation to the local savings banks, and they started to process loans issuing and paying off operations 1980s The savings bank operating area. Moscow. Mid-1980s By early 1980s, savings banks had received more than 7,000 new premises, extended working hours. But the number of transactions at the banks continued to be limited. In the early 1980's banks took only two types of deposits: on-demand and fixed-term deposits. By 1990 there were 11 types of deposits in the bank 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 245 corporate social responsibility 2011#124corporate social responsibility 246 << SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 For us progress is a result of our yesterday efforts. Sberbank. 170 years. It's just the beginning! Today is a new day and it will bring new achievements. Every day we implement the ideas of future, because the future becomes our life today. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 247 A corporate social responsibility#125248 Λ corporate social responsibility >> SBERBANK 170 YEARS. BY YOUR SIDE MPROVING CORPORATE GOVERNANCE ANNUAL REPORT 2011 Interview Zlatkis 250 Openness and Transparency 253 Related Party Transactions 253 Compliance with Standards, Rules and Procedures 255 Interview Karamzin 256 Shareholder and Investor Engagement 259 G IMPROVING GOVERNANCE CORPORATE ood corporate governance is an indicator of the quality of relationships with stakeholders. Mutually beneficial relationships with shareholders and investors, based on sharing experience and exchanging suggestions, help us maintain a sustainable competi- tive edge and develop our business systematically in line with our Strategy. We remain consistently transparent in our day-to-day activities, which helps our stakeholders assess any potential impact from our actions and decisions on their interests. Compliance with all Russian and international requirements not only helps us build trust-based relationships with shareholders, investors, customers and govern- ment, but also reduces our risks.. Sberbank Named Most Transparent Company of the Year 22 November 2011, Moscow - Interfax and AK&M, two Russian news agencies authorised to disclose corporate information for the stock market, named Sberbank the winner of their annual award For Active Corporate Policy on Information Disclosure. Sberbank Annual Report Wins Three Competitions 22 November 2011, Moscow - Sberbank's 2010 annual report won three competitions. In a competition organised by the Expert RA rating agency, Sberbank was declared the winner in the Best Interactive Annual Report category and a runner-up in the Design and Graphic Art category In the Federal Annual Report Competition organised by the RTS and MICEX stock exchanges, Sberbank was named winner in the Best Interactive Annual Report category. The Bank also ranked 2nd in the Best Report Design and Graphic Art category and 3rd in the Best Information Disclosure by Companies with Capitalisation of more than RUB 100 Billion category. In a competition organised by the Expert RA rating agency, Sberbank was declared the winner in the Best Interactive Annual Report cat- egory and a runner-up in the Design and Graphic Art category. In a competition organised by RCB, a magazine for the securities market, and the social network Investor.ru with support from the Russian Federal Financial Markets Service, Sberbank topped the Best Annual Report in the Financial Services Industry category and was ranked 3rd in the Best Integrated Presentation of a Company category. Sberbank Receives Award for Outstanding Achievements in the Development of a Civilised Market of Qualified Investors in Russia 8 December 2011, Moscow - Sberbank was awarded the Breakthrough of the Year Award for Outstanding Achievements in the Development of a Civilised Market of Qualified Investors in Russia. The award is bestowed for promoting and providing real substance to the concept of qualified investors. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 249 Λ corporate social responsibility#126250 Λ corporate social responsibility >>> INTERVIEW SBERBANK 170 YEARS. BY YOUR SIDE MPROVING CORPORATE GOVERNANCE ANNUAL REPORT 2011 Bella Zlatkis Member and Deputy Chairman of the Management Board >> Sberbank's corporate social responsibility is an extensive system of measures, which involve, amongst others, improving the transparency of the Bank's commercial transactions, keeping all stakeholders informed about the Bank's performance and creating mechanisms that ensure fair and honest conduct by Sberbank employees, while going as far as possible to prevent any potential manipulations Any socially responsible financial institution is interested in making information about its performance available to all stakeholders-this is what transparency means. Anyone has the right to access informa- tion that is declared public at the international level and by Russian legislation. The more information we disclose how we achieve our profit, how many transactions we handle per second the more accurately our investors will be able to assess our business and make their own con- clusions without resorting to guesswork. I firmly believe the more open a company is, the more competitive it is and the more chances it has of trading at a fair price on the equities markets and attracting investors. We pay enormous attention to ensuring that our operations comply with all applicable legal and regulatory requirements and our own corporate policies. Formal compliance procedures are essential in ensuring that the Bank's investors and partners know that any transaction performed or action taken at the Bank is in full compliance with all applicable rules and requirements. This is particularly important for foreign investors who demand that information be disclosed about the sufficiency and reliability of compliance procedures. We pay enormous attention to ensuring that our operations comply with all applicable legal and regulatory requirements and our own corporate policies On 1 January 2011, the Russian law On Counteracting the Illegitimate Use of Insider Information and Market Manipulation came into force. In the second half of the year, provisions within this law regarding oversight of information disclosure came into effect. These procedures are particularly important in terms of ensuring deal transparency and honest transactions on the financial markets at fair prices. Today our Insider List includes over 1,500 individuals and 20 legal entities. The list includes all employees of the Bank, its subsidiaries and business partners who are related or have access to information that could affect the price of Sberbank shares. One of the requirements of the new law is the creation of a separate organisational unit to oversee the handling of insider information. In 2011, Sberbank created such a unit and adopted a number of internal policies in this area, including the Definition of Insider Information and the Regulation on Accessing Insider Information. The Bank also defined specific procedures for accessing insider information. Moreover, Sberbank became the first Russian bank to introduce a new practice; the Supervisory Board and the Management Board prohibited insiders from carrying out any transactions involving Sberbank shares in the 30 calendar days running up to the publication of annual and quarterly financial statements of Sberbank and its subsidiaries and dependent companies and during the two business days after disclosure. The integration of the investment company Troika Dialog in 2011 in- creased the significance of the Bank's Code of Conduct on the Financial Markets, a document adopted by the Bank in 2010 to define ethical standards for our traders. To accommodate a broader range of trading operations, we plan to amend the Code, including, in particular, provi- sions about conflicts of interest on the financial markets. 251 Λ corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#127SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 MPROVING CORPORATE GOVERNANCE 252 corporate social responsibility >> The Bank's plans for 2012 include training each employee in compliance procedures. We will continue to amend our employment contracts in order to limit any possibility that our employees could engage in deal- ings on the financial markets or disclose sensitive information. The integration of the investment company Troika Dialog in 2011 increased the significance of the Bank's Code of Conduct on the Financial Markets, a document adopted by the Bank in 2010 to define ethical Standards for our traders A socially responsible financial institution is a potential partner for any other socially responsible major business or institution, or any conscientious citizen. We firmly believe that by paying greater atten- tion to social responsibility, we will earn the loyalty of our investors, partners, the general public, customers, regional governments and the monetary authorities. OPENNESS AND TRANSPARENCY We strongly believe that a transparent governance system serves as the foundation for sustainable development and demonstrates our commitment to active and inclusive stakeholder dialogue. In 2011, we increased the number of independent and external mem- bers of the Supervisory Board in order to ensure better consideration of shareholder interests. Over the last three years, their number increased more than one and a half times. NUMBER OF INDEPENDENT AND EXTERNAL MEMBERS OF THE SUPERVISORY BOARD people 6 4 2 253 ^ 3 0 2008 2009 2010 2011 corporate social responsibility The Bank was awarded a National Banking Award in the Information Transparency category in recognition of its integrated policy aimed at improving corporate governance. RELATED PARTY TRANSACTIONS In accordance with Federal Law No. 208-FZ On Joint Stock Companies, the following persons shall be deemed to be related to a company (i.e. to have interest in the conclusion of a transaction by the company): - Members of the company's board of directors (supervisory board); - Members of the company's collective executive body; -A shareholder of the company who holds, together with affiliates, 20% or more of the voting rights in the company; A person who performs the functions of a sole executive body of the company, including an organisation or an individual charged with management functions; 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#128SBERBANK 170 YEARS. BY YOUR SIDE MPROVING CORPORATE GOVERNANCE ANNUAL REPORT 2011 254 Λ - Other persons who have the right to give binding instructions to the company. Throughout the reporting year, the Supervisory Board approved a number of related party transactions. Such transactions involved the issuance of loans and credit lines, borrowing, pledges and guar- antees, direct debit agreements, involvement in participatory con- struction schemes, agreements with a stock exchange and a clearing chamber, the acquisition of additional shares issued by Sberbank's subsidiaries, bilateral operating and services agreements with sub- sidiary banks and companies and agency agreements. Sberbank entered into all related party transactions in the normal course of business in compliance with its Licence and Charter. A complete list of all related party transactions entered into in 2011 is provided in the report prepared in accordance with Russian securi- ties legislation and is available on the Bank's website. COMPLIANCE WITH STANDARDS, RULES AND PROCEDURES In 2011, the Bank paid special attention to bringing its activities into compliance with Federal Law No. 224-FZ On Counteracting the Illegitimate Use of Insider Information and Market Manipulation and on Amending Certain Legal Acts of the Russian Federation. Notable advancements in this field include: - Creating a separate organisational unit to oversee the handling of insider information, reporting directly to the CEO and Chairman of the Management Board; -Approving and publishing a List of Insider Information on the Bank's website; Sberbank's CEO and Chairman of the Management Board ap- proving the Regulation on Accessing Insider Information of OJSC Sberbank of Russia, Rules for Protecting Its Confidentiality and Oversight of Compliance with Federal Law No. 224-FZ (dated 27 January 2011, No. 2106); - Setting down responsibilities for organisational units and indi- vidual employees. corporate social responsibility 錄 1980s Savings Bank Checkbook. 1987 Checkbook was issued both to Savings Bank depositors and borrowers. An extensive advertising campaign was launched for its promotion. In a short time, the scope of the checkbooks turned out to be wider in comparison with the traditional checks. In 1988, more than a million checkbooks were issued 1990s Consumer loan disbursement in the department of Savings Bank (Sberbank) From April 1992 the Savings Bank used 30 percent of the attracted funds for consumer loan disbursement. Loans were given at the rate of 20 percent per annum, 12 percent of which was reimbursed to the Savings Bank from the Federal budget. Unlike other commercial banks, Sberbank continued to keep a moderate rate of interest, despite the rise of inflation, which made its lending policy socially oriented 2000s Savings Bank Employees with diplomas of professional improvement. 2000 During the year, 5,000 employees had graduated from higher education establishments on-the-job. 78,243 employees of the Russian Savings Bank improved their skills with the operating activities breakdown. 3,331 employees had an individual training. In the bank's overall staff structure the share of workers under the age of 30 exceeded 30 percent 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 255 corporate social responsibility#129corporate social responsibility >> 256 INTERVIEW SBERBANK 170 YEARS. BY YOUR SIDE MPROVING CORPORATE GOVERNANCE ANNUAL REPORT 2011 Anton Karamzin Member and Deputy Chairman of the Management Board >> Shareholders and investors often ask about the Bank's corporate social responsibility. The topics most interesting to them include corporate governance, the accessibility of the Bank's services in Russia's regions, their quality, convenience and speed Given the level of interest from Russian and international investors in transparency, we pay serious attention to this topic. Over the last few years we soared from ranking somewhere in the 70s to break into the top twenty in the transparency rating compiled by Standard & Poor's. Sberbank seeks to maintain an active dialogue with its shareholders and investors. We view regular meetings with an extended team of the Bank's senior executives as a promising way of developing our engage- ment with this stakeholder group. Such meetings help shareholders and investors immerse themselves deeper into our business and re- alise the scale of our contribution to Russia's economic development. The first such meeting was held at the Russia Forum 2012. An animated discussion driven by numerous questions from participants lasted for half a day. Our next step in this direction is to start organising such events on a regular basis. In 2012, we plan to organise at least one major Investor Day with the participation of the Bank's senior execu- tives in London, one of the world's most significant financial centres. Over the last few years Sberbank has made a breakthrough in its rela- tions with minority shareholders. We were the first Russian company to come up with the idea of a Minority Shareholders' Committee and to actually create it. The Committee members are a very active group of investors who have joined forces to closely engage with us. Their recommendations help us make the Bank more transparent and under- standable for investors and shareholders. The Committee formulated a number of recommendations on how to improve corporate gover- nance at the Bank, and we have already implemented over half of these recommendations. Committee members have participated in many of our meetings with international investors. The topics discussed at Committee meetings include Sberbank's Strategy, development of our investment business, the acquisition of Troika Dialog and other significant aspects of Sberbank's activities. We organised visits to our innovative sites-the Office of the Future, the Loan Factory and the Customer Operations Support Centre-for minority shareholders. Two Committee meetings were attended by Herman Gref, Sberbank's CEO and Chairman of the Management Board. Over the last few years Sberbank has made a breakthrough in its relations with minority shareholders. We were the first Russian company to come up with the idea of a Minority Shareholders' Committee and to actually create it One idea suggested by Committee members and already implemented by the Bank is site visits to regional banks. The Committee visits re- gional banks at least six times a year, where a video conference with the Bank's senior executives is organised. All branches based in the respective regions also join the video conference. This allows people from the remotest corners of the country to have their questions an- swered in a clear and specific manner. One of the most important shareholder communication channels is our website. We have one of the best Russian corporate websites and importantly it has a voice interface making it more accessible for users with disabilities. Another important communication instrument is our dedicated call centre for minority shareholders, which received over 1,600 calls in 2011. In 2012, we plan to transfer the centre to a toll-free number. Finally, we were the first public company to broadcast a live video of its Annual Shareholders' Meeting on the Internet. The audience of the broadcast was over 50,000 people. 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 257 Λ corporate social responsibility#130SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 MPROVING CORPORATE GOVERNANCE I would also like to highlight the launch of our ADR programme as an important event in 2011. At present, depositary receipts representing Sberbank shares are traded on most international financial markets: on the London and Frankfurt stock exchanges, on the Xetra global electronic trading system and on the US over-the-counter market. Bank of New York Mellon, one of the programme's depositary banks, held an international conference call to discuss the upcoming start of the ADR programme. At present, depositary receipts representing Sberbank shares are traded on most international financial markets: on the London and Frankfurt stock exchanges, on the Xetra global 258 electronic trading system and on the US over-the-counter market Λ corporate social responsibility >>> Another important topic worth mentioning is the forthcoming priva- tisation of the Bank. We believe that this issue is very important from a historical perspective. The plans for privatisation demonstrate that Sberbank itself, its customers and the Bank's majority shareholder are convinced that such a large state interest in the Bank is not required to ensure the Bank remains competitive and grows sustainably. Sberbank has already proved it is a robust and competitive institution, particularly by withstanding the recent global financial crisis. Customer loyalty is certainly helped by improvements and progress in the Bank's corporate social responsibility. When customers, be they companies or individuals, learn that the Bank is not only a financially stable provider of banking services but also a socially active corporate citizen, their relationship with the Bank is escalated to a new level of trust. This helps both customers and the Bank's employees get more satisfaction when interacting with each other and ultimately leads to better performance. SHAREHOLDER AND INVESTOR ENGAGEMENT The Bank's active dialogue with its shareholders helps implement mutually beneficial solutions and accomplish strategic objectives. Current and potential investors are a source of growth in Sberbank's capitalisation, and so it is essential that we help them understand the Bank's business and its current and strategic objectives, thereby enabling them to make balanced and informed decisions. In order to maintain effective shareholder relations and improve corporate governance, a Minority Shareholders' Committee has func- tioned at the Bank since 2008. The Committee holds regular meetings to discuss topics of significant interest to minority shareholders both in Moscow and at regional banks. The regional meetings are supported by video conferencing technology. This is a unique approach to minority shareholder rela- tions, which helps us reach the broadest possible regional share- 259 holder audience and connect this audience with Sberbank's senior executives. In 2011, regional meetings of the Committee were held in Krasnoyarsk, Rostov-on-Don, Khabarovsk, Yaroslavl, Voronezh and Stavropol. In 2011, we began streaming live broadcasts of these meetings through the websites of respective regional banks in order to reach an even broader audience. Since its creation, the Committee has visited almost all regional banks of Sberbank. In order to maintain effective Shareholder relations and improve corporate governance, a Miñority Shareholders' Committee has functioned at the Bank since 2008 corporate social responsibility 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU#131260 Λ corporate social responsibility >>> SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 In 2011, members of the Minority Shareholders' Committee were: Maxim Lubomudrov, Deputy Managing Partner, Deloitte CIS Alexey Navalny, Lawyer and Public Activist Mikhail Nedelsky, Director General, CJSC STATUS (a registrar) Vladimir Statyin, Director, OPIAK (a non-profit partnership to protect shareholder interests) Dmitry Udalov, Financial Markets Specialist (brokerage). The Committee is chaired by Anton Danilov-Danilyan. All Committee members are minority shareholders of OJSC Sberbank of Russia. MINORITY SHAREHOLDER MEETINGS Overall audience of regional minority shareholder meetings Total number of video conferencing connections Average duration of a video conferencing connection 700 2,354 1.5 hours Minority shareholders show a keen interest in all aspects of the Bank's activities. The topics most often raised by them include: - Dividend policy - Loan and deposit interest rates - Expansion of our range of online services - Options programme ― Depositary receipts - Privatisation of the state's interest in Sberbank - Conversion of privileged shares into ordinary shares Macro-economic situation, risks for the Bank Brokerage services, rates and mutual investment funds -Acquisition of the investment company Troika Dialog and Sber- bank's international expansion. BACKGROUND INFORMATION ABOUT THIS REPORT This Annual Report (hereinafter - the Report) is Sberbank's first integrated report. In addition to core business performance, it dis- closes Sberbank's business approaches with a view to corporate social responsibility. The reporting period is the year ending 31 December 2011. To ensure comprehensive coverage of certain material issues, some sections of this Report contain information from previous periods. This Report does not constitute or form part or all of, and should not be construed as, any offer of, or any invitation to sell or issue, or any solicitation of any offer to purchase, subscribe for, underwrite of otherwise acquire, or a recommendation regarding, any shares or other securities representing shares in, or any other securities of the Bank, or any member of the Bank's group, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or any commitment whatsoever or any investment decision. The information in this Report may include forward-looking state- ments. Forward-looking statements include all matters that are not historical facts, statements regarding the Bank's intentions, beliefs or current expectations concerning, among other things, the Bank's results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which the Bank operates. By their nature, forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that may or may not occur in the future. The Bank cautions you that forward-looking statements are not guar- antees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which the Bank operates may differ materially from those made in or suggested by the forward-looking statements contained in this 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 261 background information about this report#132SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 263 ^ 262 background information about this report >>N Report. In addition, even if the Bank's results of operations, financial condition and liquidity and the development of the industry in which the Bank operates are consistent with forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in future periods. The information and opinions contained in this Report are provided as at the date of this report and are subject to change without notice. REPORT BOUNDARY AND CONTENT This Report covers the Bank's performance with regard to priority as- pects identified by the Bank's Corporate Social Responsibility Policy: - Contributing to economic development - Supporting local communities - Offering socially oriented products and services Responsible business conduct Minimising adverse environmental impacts - Charity and sponsorship - Ensuring accessibility of financial services -Ensuring the quality of products and services -Improving financial literacy -Responsible finance -Investing in human capital. The following processes were used to define Report content: -Interviews with Bank executives An analysis of the content of non-financial reports released by comparable banks -An analysis of the Russian business media. This report is intended to meet the information needs of the Bank's stakeholders, which are defined by its Mission, the Sberbank Develop- ment Strategy and the Corporate Social Responsibility Policy. Those stakeholders include: Corporate and retail customers -Employees Society and local communities ― Majority and minority shareholders and investors -The state represented by federal, regional and municipal authorities. The information and data contained in this Report applies mainly to the Bank's operations within the Russian Federation (the Central Head Office and all regional banks), since it is there that most of its customers and employees are located, and are based on 2011 IFRS Consolidated Financial Statements of OJSC Sberbank of Russia. USE OF INTERNATIONAL STANDARDS This Report has been prepared using the Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI) and the GRI Fi- nancial Services Sector Supplement. The Report corresponds to GRI Application Level B (see the GRI Content Index on page 264). 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU background information about this report 2011#133SBERBANK 170 YEARS. BY YOUR SIDE GRI CONTENT INDEX 2.5 ANNUAL REPORT 2011 GRI disclosure/indicator (as defined by the GRI Guidelines) Number of countries where the organisation operates, and names of countries with either major operations or that are specifically relevant to the sustainability issues covered in the report Report page/comment/reference Branch Network 264 GRI content index >> 1.1 1.2 GRI disclosure/indicator (as defined by the GRI Guidelines) Statement from the most senior decision-maker of the organisation about the relevance of sustainability to the organisation and its strategy Description of key impacts, risks, and opportunities 2.6 Nature of ownership and legal form 2.7 Markets served by the organisation 2.8 Scale of the organisation Significant changes during the reporting period regarding Report page/comment/reference Message from Herman Gref, CEO and Chairman of the Management Board 2.9 size, structure or ownership 2.10 Awards received in the reporting period About this Report Risk Management Interview with Andrey Donskih Reporting period (e.g., fiscal/calendar year) for information provided 3.3 Reporting cycle Bank Profile Sberbank's Position in the Financial Market Developing our Branch and subsidiary network abroad Bank Profile Sberbank's Position in the Financial Market Dynamics of Sberbank Group's Key Figures over the Past Five Years in Accordance with IFRS Group IFRS Income Statement Structure of Sberbank Group's Assets under IFRS Structure of Sberbank Group's Liabilities and Equity under IFRS Governance Structure Bank Profile Retail Business Corporate Business Financial Market Operations Bank Development Improving Corporate Governance About this Report About this Report This is Sberbank's first integrated report. About this Report This is Sberbank's first integrated report. Prior to 2011, the Bank produced a separate Annual Report and Social Report each year. Interview with Alexander Bazarov Interview with Denis Bugrov Interview with Alexander Torbakhov 3.1 Interview with Olga Kanovich Interview with Igor Artamonov 3.2 Date of most recent previous report (if any) Interview with Sergey Gorkov Interview with Stanislav Kuznetsov Interview with Bella Zlatkis Interview with Anton Karamzin See the Corporate Social Responsibility Policy of Sberbank http://www.sbrf.ru/common/img/ 3.4 uploaded/files/pdf/POLICY_for_ Contact point for questions regarding the report or its contents About this Report Corporate Social Responsibility.pdf See the Development Strategy of Sberbank of Russia 3.5 Process for defining report content About this Report 3.6 http://www.sbrf.ru/moscow/ru/about/ Boundary of the report About this Report 2.1 Name of the organisation 2.2 Primary brands, products and/or services today/strategy/ Bank Profile 3.7 3.8 Sberbank's Position in the Financial Market 2.3 Operational structure of the organisation Governance Structure 3.9 2.4 Location of organisation's headquarters Bank Profile Limitations on the scope or boundary of the report Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/ or between organisations Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the Indicators and other information in the report About this Report About this Report About this Report 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 265 GRI content index#134266 GRI content index >> SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT Report page/comment/reference 3.10 GRI disclosure/indicator (as defined by the GRI Guidelines) Explanation of the effect of any re-statements of information provided in earlier reports, and the reasons for such re-statement About this Report 4.11 No re-statements have been made. 3.11 Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report About this Report 3.12 3.13 Table identifying the location of the Standard Disclosures in the report Policy and current practice with regard to seeking external assurance for the report There have been no significant changes from previous reporting periods. Page 264 4.12 Externally developed economic, environmental, and social charters, principles, or other initiatives to which the organisation subscribes or endorses. GRI disclosure/indicator (as defined by the GRI Guidelines) Explanation of whether and how the precautionary approach or principle is addressed by the organisation Report page/comment/reference Risk Management The Bank does not apply the precautionary principle to its activities directly. Ensuring Accessibility of Banking Services 4.13 About this Report Memberships in associations (such as industry associations) and/or national/international advocacy organisations The Report corresponds to GRI Application Level B and has not 4.14 4.1 undergone external assurance. Governance Structure List of stakeholder groups engaged by the organisation 4.15 Basis for identification and selection of stakeholders with whom to engage Approaches to stakeholder engagement, including frequency of engagement by type and by stakeholder group. Sberbank's Position in the Financial Market Contributing to the Economic Development of the Country About this Report About this Report Improving Product and Service Quality Investing in Human Capital Improving Corporate Governance 42 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 Governance structure of the organisation, including committees under the highest governance body responsible for specific tasks, such as setting strategy or organisational oversight Indicate whether the Chair of the highest governance body is also an executive officer For organisations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or non-executive members Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body Linkage between compensation for members of the highest governance body, senior managers, and executives (including departure arrangements), and the organisation's performance (including social and environmental performance). Processes in place for the highest governance body to ensure conflicts of interest are avoided. Process for determining the qualifications and expertise of the members of the highest governance body for guiding the organisation's strategy on economic, environmental, and social topics Internally developed statements of mission or values, codes of conduct, and principles relevant to economic, environmental, and social performance and the status of their implementation Procedures of the highest governance body for overseeing the organisation's identification and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles Processes for evaluating the highest governance body's own performance, particularly with respect to economic, environmental, and social performance. Governance Structure Improving Corporate Governance Improving Corporate Governance I Ask for the Floor: A Conversation with the CEO Remuneration of Members of the Bank's Governing Bodies Improving Corporate Governance Organisational Structure Supervisory Board Committees Members of the Management Board hold academic degrees and possess professional experience which demonstrate their expertise and high qualifications, particularly with regards to economic, environmental, and social topics. Improving Product and Service Quality 4.16 4.17 Key topics and concerns that have been raised through stakeholder engagement, and how the organisation has responded to those key topics and concerns, including through its reporting Economic Performance Indicators EC1 EC2 EC3 EC4 Improving Product and Service Quality Risk Management EC5 Improving Corporate Governance Governance Structure Management approach Contributing to the Economic Development of the Country Improving Product and Service Quality Investing in Human Capital Improving Corporate Governance Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments Financial implications and other risks and opportunities for the organisation's activities due to climate change Coverage of the organisation's defined benefit plan obligations Significant financial assistance received from government Range of ratios of standard entry level wage compared to local minimum wage at significant locations of operation Retail Business Corporate Business Financial Market Operations Dynamics of Sberbank Group's Key Figures over the Past Five Years in Accordance with IFRS (partially) Carbon Finance and Financing Energy Efficiency and Energy Saving Projects Investing in Human Capital The Group applies IAS 19 Employee Benefits for accounting for its pension liabilities. Actuarial Report for 2010: http://www.npfsberbanka.ru/netcat_ files/File/actuarial2010.pdf Financial Performance EC6 Policy, practices, and proportion of spending on locally- based suppliers at significant locations of operation EC7 Procedures for local hiring and proportion of senior management hired from the local community at locations of significant operation 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 267 A GRI content index 2011#135268 GRI content index >> SBERBANK EC8 EC9 170 YEARS. BY YOUR SIDE GRI disclosure/indicator (as defined by the GRI Guidelines) Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement Report page/comment/reference Contributing to the Sustainable Development of Russian Regions EN12 Supporting Small- and Medium-Sized Businesses EN13 EN14 Contributing to Housing and Utility Sector Reform Charity and Sponsorship EN15 Contributing to the Economic Development of the Country Understanding and describing significant indirect economic impacts, including the extent of impacts Branch Network Environmental Performance indicators Management approach. EN16 ANNUAL REPORT 2011 GRI disclosure/indicator (as defined by the GRI Guidelines) Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas Habitats protected or restored Strategies, current actions, and future plans for managing impacts on biodiversity Number of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of extinction risk Total direct and indirect greenhouse gas emissions by weight (the Financial Services Sector Supplement includes a commentary on this indicator) Report page/comment/reference Managing our Environmental Impact Direct greenhouse gas emissions were 39,595.3 tonnes of CO2 equivalent. Indirect greenhouse gas emissions associated with electricity and heat consumption were 517,766.8 and 292,183 tonnes of CO2 equivalent respectively. The amount of other greenhouse gases emitted by the Bank is insignificant. Financial Literacy Interview with Andrey Donskih Interview with Alexander Bazarov Interview with Denis Bugrov Interview with Alexander Torbakhov Interview with Olga Kanovich EN17 Interview with Igor Artamonov Other relevant indirect greenhouse gas emissions by weight Interview with Sergey Gorkov EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved Interview with Stanislav Kuznetsov Interview with Bella Zlatkis EN19 Emissions of ozone-depleting substances by weight Interview with Anton Karamzin EN20 NOX, SOX, and other significant air emissions by type and weight Reducing our Environmental Footprint EN21 Total water discharge by quality and destination The Bank's operations do not involve water consumption. Total water discharge is equal to total water withdrawal. EN1 Materials used by weight or volume EN2 Percentage of materials used that are recycled input materials EN22 EN23 Total weight of waste by type and disposal method Total number and volume of significant spills Not applicable EN3 Direct energy consumption by primary energy source Not applicable. EN24 EN4 Indirect energy consumption by primary source Improving Energy Efficiency EN5 Energy saved due to conservation and efficiency improvements Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally Not applicable EN6 Initiatives to provide energy-efficient or renewable energy based products and services, and reductions in energy requirements as a result of these initiatives EN25 EN26 EN7 Initiatives to reduce indirect energy consumption and reductions achieved Improving Energy Efficiency EN27 EN8 Total water withdrawal by source Managing our Environmental Impact The Bank only withdraws water from municipal water supply systems. EN28 EN9 Water sources significantly affected by withdrawal of water EN10 EN11 Percentage and total volume of water recycled and reused Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas The Bank's water withdrawal has no serious impact on water sources because the Bank's operations do not involve water consumption. The Bank does not recycle or reuse water. 170 YEARS. IT'S JUST THE BEGINNING EN29 Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly affected by the reporting organisation's discharges of water and runoff Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation Percentage of products sold and their packaging materials that are reclaimed by category Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations Significant environmental impacts of transporting products and other goods and materials used for the organisation's operations, and transporting members of the workforce Not applicable Our Construction Projects A fine of RUB 20,000 was imposed on Dalnevostochny Bank for an administrative offence-cutting down trees without the necessary permit during reconstruction of a facility. No other fines for environmental non- compliance were imposed on Sberbank's entities. Managing our Environmental Impact Greenhouse gas emissions associated with fuel consumption in transportation in 2011 amounted to 104,726.3 tonnes of CO2 equivalent. WWW.SBERBANK.RU 269 GRI content index#136SBERBANK 170 YEARS. BY YOUR SIDE GRI disclosure/indicator (as defined by the GRI Guidelines) Report page/comment/reference EN30 Total environmental protection expenditures and investments by type Human Rights Performance Indicators LA6 GRI disclosure/indicator (as defined by the GRI Guidelines) Percentage of total workforce represented in formal joint management-worker health and safety committees that help monitor and advise on occupational health and safety programs ANNUAL REPORT 2011 Report page/comment/reference 270 GRI content index >> HR1 HR2 HR3 HR4 HR5 HR6 HR7 HR8 HR9 Management Approach Percentage and total number of significant investment agreements that include human rights clauses or that have undergone human rights screening Percentage of significant suppliers and contractors that have undergone screening on human rights and actions taken Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained Total number of incidents of discrimination and actions taken Operations identified in which the right to exercise freedom of association and collective bargaining may be at significant risk, and actions taken to support these rights Operations identified as having significant risk for incidents of child labour, and measures taken to contribute to the elimination of child labour Operations identified as having significant risk for incidents of forced or compulsory labour, and measures to contribute to the elimination of forced or compulsory labour Percentage of security personnel trained in the organisation's policies or procedures concerning aspects of human rights that are relevant to operations. Total number of incidents of violations involving rights of indigenous people and actions taken Labour Practices and Decent Work Performance Indicators LA1 LA2 Management Approach Total workforce by employment type, employment contract and region Total number and rate of employee turnover by age group, gender, and region Investing in Human Capital LA7 Rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities by region LA8 Education, training, counselling, prevention, and risk- control programs in place to assist workforce members, their families, or community members regarding serious diseases Available on Sberbank's Intranet portal. LA9 LA10 In 2011, no incidents of discrimination at the Bank were reported. LA11 The Bank does not perform any operations in which the right to exercise freedom of association and collective bargaining may be restricted. LA12 Health and safety topics covered in formal agreements with trade unions Average hours of training per year per employee by employee category Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings. Percentage of employees receiving regular performance and career development reviews Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity Investing in Human Capital-Employee Training Employee Motivation The Bank has in place a 5+ evaluation system that covers all employees. Bank Personnel Profile The Bank does not perform any operations associated with a significant risk for incidents of child labour. LA13 The Bank does not perform any operations associated with a significant risk for incidents of forced or compulsory labour. LA14 Ratio of basic salary of men to women by employee category In 2010, no incidents of violations Product Responsibility Performance Indicators involving rights of indigenous people at the Bank were reported. PR1 Investing in Human Capital Bank Personnel Profile Bank Personnel Profile (Partially disclosed) PR2 PR3 LA3 Benefits provided to fulltime employees that are not provided to temporary or parttime employees, by major operations Employee Motivation All employees at the Bank are permanent employees. PR4 LA4 All employees are covered by a collective agreement. LA5 Percentage of employees covered by collective bargaining agreements Minimum notice period(s) regarding operational changes, including whether it is specified in collective agreements In 2011, 77.93% of employees were union members. The existing collective agreement does not provide for a minimum notice period regarding significant operational changes. Employees are notified of significant changes in the Bank's operations in accordance with the Labour Code of the Russian Federation. PR5 PR6 Management Approach Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes Type of product and service information required by procedures, and percentage of significant products and services subject to such information requirements Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labeling, by type of outcomes Practices related to customer satisfaction, including results of surveys measuring customer satisfaction Programs for adherence to laws, standards, and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship Improving Product and Service Quality In 2011, no incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services were reported at the Bank. Improving Product and Service Quality In 2011, a fine of RUB 20,000 was imposed on Severny Bank for failure to pay a fine on time that was imposed by a justice of the peace for the presence of clauses infringing on consumer rights in bank contracts. Improving Product and Service Quality Improving Loan Service Quality 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU 271 Λ GRI content index#137SBERBANK GRI disclosure/indicator (as defined by the GRI Guidelines) PR7 PR8 PR9 170 YEARS. BY YOUR SIDE Report page/comment/reference Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship by type of outcomes. Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data Monetary value of significant fines for non-compliance with laws and regulations concerning the provision and use of products and services. Counteracting Fraud and Illegal Business Practices A fine of RUB 26,082.24 was imposed on the Bank's Central Head Office for non- compliance with the Consumer Rights Protection Law. According to rulings on administrative offences, a fine of RUB 1,100,000 was imposed for failure to comply with a Federal Financial Markets Service order. Society Performance Indicators Management Approach ANNUAL REPORT 2011 GRI disclosure/indicator (as defined by the GRI Guidelines) Report page/comment/reference FS4 Process(es) for improving staff competency to implement the environmental and social policies and procedures as applied to business lines FS5 Interactions with clients/investees/business partners regarding environmental and social risks and opportunities FS6 Percentage of the portfolio for business lines by specific region, size (e.g. micro/SME/large) and by sector FS7 FS8 FS9 FS11 Monetary value of products and services designed to deliver a specific social benefit for each business line broken down by purpose Monetary value of products and services designed to deliver a specific environmental benefit for each business line broken down by purpose Coverage and frequency of audits to assess implementation of environmental and social policies and risk assessment procedures Percentage and number of companies held in the institution's portfolio with which the reporting organisation has interacted on environmental or social issues. Percentage of assets subject to positive and negative environmental or social screening Sberbank's Position in the Financial Market Developing our Product Range Socially Oriented Products Charity and Sponsorship Improving Product and Service Quality FS10 Ensuring Accessibility of Services FS12 Voting polic(ies) applied to environmental or social issues for shares over which the reporting organisation holds the right to vote shares or advises on voting FS13 Access points in low-populated or economically disadvantaged areas by type Branch Network Counteracting Fraud and Illegal Business Practices FS14 Initiatives to improve access to financial services for disadvantaged people Contributing to the Economic Development of the Country FS15 Policies for the fair design and sale of financial products and services Service Accessibility for Customers with Disabilities 272 GRI content index >> S01 S02 S03 Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities, including entering, operating, and exiting Percentage and total number of business units analysed for risks related to corruption Percentage of employees trained in organisation's anti- corruption policies and procedures S04 Actions taken in response to incidents of corruption S05 S06 S07 S08 Public policy positions and participation in public policy development and lobbying Total value of financial and in-kind contributions to political parties, politicians, and related institutions by country Total number of legal actions for anti-competitive behaviour, anti-trust, and monopoly practices and their outcomes Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with laws and regulations One such incident took place in relation to Zapadno-Uralsky Bank (see below). In 2011, a fine of RUB 9,166,859.90 was imposed on Zapadno-Uralsky Bank for non-compliance with anti-monopoly legislation in regards to competition on the goods' market. Financial Services Sector Supplement FS1 FS2 FS3 Management Approach Policies with specific environmental and social components applied to business lines Procedures for assessing and screening environmental and social risks in business lines Processes for monitoring clients' implementation of and compliance with environmental and social requirements included in agreements or transactions Retail Business Corporate Business Financial Market Operations FS16 Initiatives to enhance financial literacy by type of beneficiary 170 YEARS. IT'S JUST THE BEGINNING WWW.SBERBANK.RU Financial Literacy 273 A GRI content index#138SBERBANK 170 YEARS. BY YOUR SIDE ANNUAL REPORT 2011 CONTACTS AND PAYMENT DETAILS Payment details of Sberbank Account No: 30301810500001000001 Correspondent account No: 30101810400000000225 with Operations Department of Moscow Main Territorial Branch of the Bank of Russia, Moscow BIK: 044525225 KPP: 775001001 INN: 7707083893 Banking supervisory authority Moscow Main Territorial Branch of the Central Bank of the Russian Federation Address: 2 Balchug St., 115035 Moscow 274 contacts and payment details >> License General banking license No. 1481 dated 30 August 2010 Full Commercial Name: Open Joint Stock Company «Sberbank of Russia>> Short Commercial Name: OJSC «Sberbank of Russia>> Legal and Mailing Address: 19 Vavilova St., 117997, Moscow, Russia Mailing address: 19 Vavilova St., 117997, Moscow, Russia Telegraphic Address: Rossberbank, V-312, Moscow Phone: +7 (495) 500-55-50, 8 (800) 555-55-50 (toll free in Russia) Telefax: +7 (495) 957-57-31, +7 (495) 747-37-31 Teletype: 114569 SBRF RU Phone: Telefax: +7 (495) 950-09-40, +7 (495) 950-21-90 +7 (495) 230-34-12 E-mail: http://www.cbr.ru/regions/UsersMessage General inquiries Phone: +7 (495) 500-55-50, 8 (800) 555-55-50 (toll free in Russia) Public relations [email protected] E-mail: Phone: +7 (495) 957-57-21 +7 (495) 747-37-58 Fax: Investor relations E-mail: [email protected] Phone: +7 (495) 957-59-40 Telex: 414733 SBRF RU SWIFT-Code: SABRRUMM Reuters Dealing Codes: SBRF, SBRR, SBRO E-mail: [email protected] Web: www.sberbank.ru 170 YEARS. IT'S JUST THE BEGINNING +7 (495) 957-59-60 Fax: +7 (495) 747-37-58 Shareholder relations E-mail: [email protected] Phone: +7 (495) 505-88-85 Fax: +7 (495) 505-88-84 WWW.SBERBANK.RU 275 contacts and payment details#139276 contacts and payment details >> SBERBANK Financial institutions E-mail: [email protected] Phone: +7 (495) 957-57-89 Fax: +7 (495) 957-57-47 Corporate Social Responsibility E-mail: [email protected] Phone: +7 (495) 747-34-10 170 YEARS. BY YOUR SIDE 170 YEARS. IT'S JUST THE BEGINNING