LETTER FROM THE MANAGEMENT

Dear customers, investors and partners,

Year 2019 for the Russian economy was characterized by slowdown of economic growth and the ruble strengthening. For this year the banking sector once again posted record-braking results, with interest rates going down coupled with continued growth of retail lending, despite customers’ weaker income dynamics.

A distinctive feature of the past year was tighter regulation, namely concerning risk-weights on retail loans in capital adequacy calculations, a reaction to fast growth rates in this segment for the past few years. Corporate lending featured a mild growth corresponding with that of the economy as a whole. Implemented federal and regional projects, such as fast payments system, CBR’s Marketplace, Resident ID card proved to be significant milestones of 2019, leading to the banking sector transformation in the near future.

Strategy 2020 amendment

In July of 2019 we have actualized our Strategy, providing an additional focus on corporate customer relations, further digital transformation as well as strengthening positions in EXIM operations.

In accordance with the Strategy amendment, we are transforming the business model in Moscow which was focused on the large corporates, and positioning ourselves as a Bank of two capitals, we set ambitious growth goals for our Moscow business. We are actively developing as a universal bank, providing SMEs and individuals in Moscow with a full range of both classical banking services and unique EXIM solutions, which were previously not provided in the region.

Our achievements

Core banking business growth was our biggest achievement in 2019, namely lending and settlement services to corporate and retail customers. Transaction business, being one of key strategic priorities, provided sizable income, leading to increase in net fees and commissions income by 29%.

Thanks to Strategy amendment and focus on corporate customer relations we are also welcoming the changing trend in corporate lending, as a result of which the Bank increased its loan portfolio by 12% in second half of the year, demonstrating our benchmark competitive potential in quality, flexibility and speed of services provided.

With that said, we denote loan portfolio quality improvement in 2019, resulting in problem loans share dropping to 9%, with cost of risk shrinking to 1.8% in accordance with our guidance. Bank’s stability reflected in notched up ratings by the most prominent rating agencies during 2019.

We continued active involvement in key infrastructural projects. In May 2019, we launched Resident ID card issuance, with application number reaching 100 thousand by the end of the year. Resident ID card is an important social project for us – it’s a unique offer on St. Petersburg banking market, including transport fees discount, e-signature as well as loyalty program for the citizens.

We are proud of our achievements among classical universal Banks in terms of digitalization and remote customer service across all product and service lines. Around 99% of corporates and over 58% of Bank's retail customers are active on Bank's digital platforms. The share of online sales reached 60% of total product sales in the mass segment.

Our another achievement in the field of benchmark digital services was the launch of the Exchange Bridge, allowing our retail customers to trade fourteen currencies at a fixed exchange rate. As of today, the service has no equal counterpart on the retail customers’ market, marked by the award “Innovation time – 2019” in the nomination “Product of the year”.

We realize that on order to grow actively and efficiently on the new markets digital-only presence does not suffice – being there “offline” and being close to the customer is important as well.

We are happy to announce that in December of 2019 a “Nevskiy” branch in Novosibirsk was opened. Until then a representative office operated in the city, focusing on big corporates of Sibir and Far East regions. Opening a full-fledged branch allows us to branch out to other segments and to actively grow as a universal bank.

Our response to global challenges in 2020

In the face of uncertainty on Russian as well as global markets in the first half of 2020, providing long-term prognoses is by any means no easy task.

In these difficult times we will rely upon our conservative approach, which, coupled with extensive management experience allowed the Bank to remain profitable through several crises, keeping our clients and shareholders safe and secure.

We did not strive to participate in an unsecured lending “race” over the last few years, as well as employed conservative risk appetite in corporate lending, which allows us to remain confident in our loan portfolio quality stability. As we have ample liquidity, we expect no issues on that side as well.

The Bank undoubtedly will once again prove to be stable and reliable, as well as highly adaptable to the changes in environment, and post strong result once more. We are grateful to our customers, partners and investors for our mutually beneficial cooperation in the last year and are hopeful for the same in the next year as well!

Elena Ivannikova
Chairperson of the Supervisory Board

Alexander Savelyev
Chairman of the Management Board