Banking Sector of Russia and Chelyabinsk Region by pengxuebo

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									JOINT-STOCK COMMERCIAL BANK
        “CHELINDBANK”
   (Open Joint-Stock Company)




     Annual report 2005
                                    MAIN FINANCIAL HIGHLIGHTS

                                                      RR thous.                       US$ thous.

                                               2005            2004                2005        2004

Total balance sheet*                         12,185,372       7 976 689        423 360        287 448



Net principal receivables*                   7 412 771        5 361 470        257 544        193 206



Net securities investments*                  1 220 100         836 468             42 390      30 144



Due to corporate customers*                  4 201 243        2 460 203        145 965         88 656



Due to individuals*                          4 377 835        3 728 751        256 331        134 376



Equity*                                      2 328 989        1 047 767            80 917      37 757




Net interest and similar income*              884 501          563 389             30 731      20 302



Net commission income*                        341 370          279 060             11 860      10 056



Balance sheet profit                          259 584          240 026             9 019       8 650




       * According to the published report
       01/01/2005 US dollar rate is 27.7487 rubles, 01/01/2006 – 28.7825 rubles.




                                                                                                   2
CONTENTS


TO SHAREHOLDERS, CUSTOMERS AND PARTNERS ................ ERROR! BOOKMARK NOT DEFINED.4
THE BANK MISSION ........................................................................... ERROR! BOOKMARK NOT DEFINED.6
THE BANK COUNCIL .......................................................................... ERROR! BOOKMARK NOT DEFINED.7
THE BANK BOARD .............................................................................. ERROR! BOOKMARK NOT DEFINED.9
15 YEARS – 15 LANDMARKS! ............................................................................................................................ 8
     REGION OF PRESENCE. BANKING SECTOR. ..................... ERROR! BOOKMARK NOT DEFINED.14
            MACROECONOMICS . CHELYABINSK REGION – REGION OF PRESENCE. .......................... 12
            BANKING SECTOR OF RUSSIA AND CHELYABINK REGION ................................................... 12
            RESULTS OF PERFORMANCE AND AN OVERVIEW OF FINANCIAL STANDING OF
            CHELINDBANK IN 2005 ..................................................................................................................... 17
            PROSPECTS FOR DEVELOPMENT IN 2006 ................................................................................... 18
     CUSTOMERS .............................................................................. ERROR! BOOKMARK NOT DEFINED.22
            CORPORATE CUSTOMERS ............................................... ERROR! BOOKMARK NOT DEFINED.22
            INDIVIDUAL CUSTOMERS .............................................. ERROR! BOOKMARK NOT DEFINED.26
            PEOPLE ................................................................................. ERROR! BOOKMARK NOT DEFINED.28
BRANCHES AND REPRESENTATIVE OFFICES ......................... ERROR! BOOKMARK NOT DEFINED.36
CORRESPONDENT BANKING ......................................................... ERROR! BOOKMARK NOT DEFINED.38
RISK MANAGEMENT ........................................................................ ERROR! BOOKMARK NOT DEFINED.39
THE BANK AND SOCIETY ............................................................................................................................... 38
REPORTS UNDER RSFR .................................................................. ERROR! BOOKMARK NOT DEFINED.43
REPORTS UNDER ISFR .................................................................................................................................... 47




                                                                                                                                                        3
TO SHAREHOLDERS, CUSTOMERS AND PARTNERS
Dear shareholders, customers and partners!
We are pleased to present you the Annual Report on CHELINDBANK performance in 2005.
The last year was the year of the Bank anniversary. CHELINDBANK celebrated 15 years of
its performance in the financial and credit market on October, 16.
During these 15 years CHELINDBANK became a large regional bank that is proved by its
daily activity. CHELINDBANK was one of the leading banks in Russia in many segments of
the banking system. The Bank achievements are acknowledged and confirmed by a number
of analytical agencies including foreign companies.
It was for the first time ever when in April 2006 an overview of the banking market of Russia
and a group portrait of 100 top banks as of January 1, 2006 were published by The Forbes
Magazine. CHELINDBANK is included in the list and is ranked as 100th by assets, as 46th by
individual deposits, as 87th by profit and as 117th by equity.
2005 became another year of the Bank’s dynamic and intensive development.
The Bank’s assets increased by 40% and amounted to RR 11.7 billion. The customers’
equity exceeded RR 8.5 billion including individual equity that grew by 42% and was equal to
5.3 by the end of the year. It should be mentioned that individual deposits structure was
characterized by considerable increase of deposits with the term of more than 1 year which
growth rate comprised more than 70%.
The expansion of resource base and improvement of its quality led to increase of credit
investment volumes. The Bank loan portfolio totaled about RR 7.8 billion by the end of 2005
that was a result of a 40% increase. According to RosBusinessConsulting’s rating as of
January 1, 2006 CHELINDBANK holds the 77th position among the top banks of Russia by
the loan portfolio volumes, and the 43rd position by consumer loans.
A shortage of equity is the main problem of the rapidly developing loan market. That is why
the Bank considers increasing of its own capital to be the matter of primary importance.
CHELINDBANK made an additional emission of shares and registered its share capital in
amount of RR 400 million. The Bank reevaluated its main funds as of January 1, 2006 that
led to a 1 million growth of the ownership capital. Thus, the Bank equity exceeded RR 2.3
billion that gives the Bank an opportunity to expand the volumes of operations and increase
its competitive abilities.
“Tested by time, confident in future!” This motto became the key note in celebrating the 15th
anniversary since the start of the Bank operation. CHELINDBANK has all reasons to face the
future with optimism – there is a good customer base, a wide range of competitive products,
modern technologies for their presentation, and professional employees.
It is obvious that the results achieved by the Bank would be impossible without functional and
creative relations with our Customers. It often happens so that human factor plays a more
important role than technical and financial aspects. And finally, this very factor leads to
success.
On behalf of the Bank Council and the Board,

General Director
Chelindbank                                                       Mikhail Bratishkin
                                                                                            4
THE BANK MISSION

We are the major universal bank of the Urals Region.
We create and maintain the customer base and establish mutually beneficial relations with
the customers.
We feel committed to participate in spheres of the activities of our customers providing them
with the wide range of banking services meeting their requirements and complying with the
international banking practice and standards.
We ensure absolute fulfillment of all obligations undertaken to our partners gaining profit to
our shareholders.
We conduct our business open for customers and shareholders and in strict compliance with
the Russian laws based on corporate management standards, fair competition, updated IT
solutions and high professional level of the Bank executives and staff.
We reward our employees according to the contribution of each to the Bank results achieved.
We regard social demands with attention and aim at participating together with the local
authorities in promotion of social projects for the benefit of the society, growth and
improvement of the economy of the Chelyabinsk Region.




                                                                                             5
THE BANK COUNCIL

    CHAIRMAN
    Alexander Vasilievich Dolinin
    Principal Specialist, Center for Support of Entrepreneurship and Development of
    Competition, Trekhgorny


    COUNCIL MEMBERS:

          Mikhail Ivanovich Bratishkin
          General Director
          Chelindbank


          Luiza Nikolaevna Bail
          First Deputy General Director
          Chelindbank

          Viktor Yakovlevich Boos
          General Director
          JSC “Chelyabinsk Metal Structures Plant”

          Valery Petrovich Ilyin
          Manager, IT Division
          Chelindbank

          Tatyana Petrovna Kosovskaya
          Deputy General Director – Head of Shareholders Service Division
          Chelindbank

          Vadim Georgievich Kuzmin
          Director
          OOO “NPP – Incom”,
          Chairman of the Board of Directors
          JSC “Kyshtym Mineral Refinery Plant”

          Ljubov Nikolaevna Litvinenko
          Deputy General Director
          Chelindbank

          Vera Mikhailovna Mikhailenko
          Head of Cash Flow Department
          Chelindbank




                                                                                  6
Oleg Nikolaevich Mishin
Head of Organizational and Analytical Division
Chelindbank

Igor Vladimirovich Prutian
Head of Financial Division
Chelindbank

Andrey Yurievich Tarasov
Head of Credit Division
Chelindbank

Tatyana Vasilievna Khrabrykh
Head of Internal Control Service
Chelindbank

Yaroslav Ivanovich Chaban
Chairman of the Board of Directors JSC “Kopeysky Machine Building Plant”

Valentina Sergeevna Shevaldina
Head of Personnel Department of Personnel Division
Chelindbank




                                                                           7
The Bank Board

Chairman
            Mikhail Ivanovich Bratishkin
            General Director
            Chelindbank

Board Members:
            Vladimir Mikhailovich Andriuschenko
            Deputy General Director
            Chelindbank

            Luiza Nikolaevna Bail
            First Deputy General Director
            Chelindbank

            Liubov Nikolaevna Litvinenko
            Deputy General Director
            Chelindbank

            Vera Vitaljevna Klepikova
            Chief Accountant – Head of Accounting Division
            Chelindbank

            Tatyana Petrovna Kosovskaya
            Deputy General Director - Head of Shareholders Service Division
            Chelindbank

            Zoya Ivanovna Koshalko
            Deputy General Director - Head of Personnel Division
            Chelindbank




                                                                              8
15 years – 15 landmarks

Main events in the Bank performance

1990
September 10      The meeting of shareholders of commercial Industrial Bank of the Chelyabinsk
                  Region made a decision to found the Bank
                  The Bank Council chaired by Y.S. Kryuchkov, Deputy Head of Yuzhuralstroy
                  concern elected M.I. Bratishkin as the Chairman of the Bank Board


October 16        The Statute of the Bank was registered at the State Bank of the Russian
                  Federation under No. 485

1991
January 2         The Bank started operating as a commercial bank
October           The meeting of shareholders made a decision to transform the Bank into a
                  joint-stock company and approved the Statute of the Bank

1992
July 10           CHELINDBANK obtained the first General Banking License
July              CHELINDBANK founded the Urals Regional Currency Exchange and started
                  performing forex operations through the Urals Regional Currency Exchange
1993              During this year the Bank equity increased 12 times, the share capital – 7
                  times
1994
April             Connection and start of implementation of REUTERS informational dealing
                  system
May               CHELINDBANK was authorized by the Ministry of the Foreign Economic
                  Affairs to render banking services to special exporters
May 31            CHELINDBANK entered “Zolotaya Korona” (“Golden Crown”) payment card
                  system
June              CHELINDBANK started effecting payments through international financial
                  SWIFT system
September 6       CHELINDBANK acquired the License on Precious Metals Operations (gold,
                  silver)
September         The first foreign currency credit line was opened by a foreign bank – Credit
                  Suisse, Zurich, Switzerland, for 1 million Swiss francs
November          The Bank commenced cooperating with the international auditing company
                  Price Waterhouse and prepared for financial reporting in accordance with
                  international standards

1995
May 29            The first financial report for 1994 was audited according to international
                  standards by Price Waterhouse
June              Linking up to REUTERS-DEALING system
August 25         The Settlement Center was established in the Bank
1996
                                                                                        9
May              CHELINDBANK became an official dealer at the governmental securities
                 market and started effecting operations at the Moscow Interbank Currency
                 Exchange (MICEX)
June 4           CHELINDBANK acquired the status of the principal member of VIAS
                 International Association

1997
May              CHELINDBANK started issuing international VISA Classic cards
August 5         CHELINDBANK was accredited to the projects of the World Bank and EBRD:
                 “Financial Institutions Improvement” and “Business Support Project”
November 3       The Bank obtained the license on Banking Operations with Precious Metals
November         CHELINDBANK began granting loans to individuals receiving salaries to
                 “Zolotaya Korona” (“Golden Crown”) payment cards
December         CHELINDBANK acquired the License issued by the Head Office of the Central
                 Bank of the Chelyabinsk Region to operate as a professional depositary,
                 broker and dealer on the securities market and to carry out trust operations
                 with validity for 3 years

1998
August-October   CHELINDBANK overcame the severe financial and economic crisis with honor
                 and without losses
1999
September 30     General Director Mikhail Bratishkin became a member of Interregional Banking
                 Council by the Chairman of the Federation Council of the Federal Assembly of
                 the Russian Federation
December         CHELINDBANK started issuing VISA Gold cards

2000
October 16       The 10th anniversary of CHELINDBANK
October          CHELINDBANK was accredited to EximBank (USA) programs
                 The Bank became a member of the Siberian Interbank Currency Exchange
November         CHELINDBANK obtained the License issued by the Federal Commission for
                 Securities Market entitling the Bank to operate as a professional depositary,
                 broker and dealer in the securities market and to carry out trust operations with
                 unlimited validity

2001
January          The Bank was entitled to act as a guarantor with the customs authorities




                 CHELINDBANK was authorized by the Administration of the Chelyabinsk
June             Region to provide financial support for improving regional and interregional
                 cooperation (the Instruction of the Chelyabinsk Region Governor No. 495)
August           The Bank started settlements through international Western Union system
November         The Bank began issuing international VISA Electron cards

                                                                                         10
2002

January        CHELINDBANK acquired the FAPSI (Federal            Agency of Government
               Communication and Information) License entitling   the Bank to spread and
               technically maintain ciphering means intended to   protect information while
               processing, keeping and transmitting thereof to     the users of the Bank
               electronic document circulation

August         General Director Mikhail Bratishkin was awarded to the Order of Honor for
               labor achievements and a long-standing honest work

September      CHELINDBANK and EBRD signed the Loan Agreement on Micro Loans under
               Small Business Program and Agreements on financing foreign trade
               operations
2003
July           CHELINDBANK obtained the VISA International Regional Acquiring Merchant
               License
November       The arrangement of VISA Euro settlements was certified
December       VISA VSDC standard card issue and service was certified
2004
March          The Bank started issuing VISA cards in Euro
April          During the Business Forum 2004 that took place in London on April, 18-19 as
               a part of the annual EBRD meeting, CHELINDBANK was awarded to the
               Diploma for outstanding successful results in the field of trade financing
September 21   The Bank was among 26 Russian credit organizations to become first
               members of Deposit Insurance System. Agency for Deposit Insurance (State
               Corporation) registered the JOINT-STOCK COMMERCIAL BANK
               “CHELINDBANK” (open joint-stock company) as No. 1 member of the System
               of obligatory insurance of deposits
December       Under Small Business Program CHELINDBANK and EBRD signed the next
               Loan Agreement on small and micro loans of the second tranche

               Under the Trade Support Program CHELINDBANK and EBRD entered into the
               Loan Agreement on pre-export lending of sub-borrowers
2005
January        The Bank obtained the Federal Security Service license for activity connected
               with information protection
April          The Bank was included in the Register of banks and other credit institutes
               entitled to act as a guarantor with customs authorities
October        The 15th anniversary of CHELINDBANK




                                                                                    11
Region of Presence. Banking sector.


Macroeconomics. Chelyabinsk Region – Region of Presence.


2005 was another year of economic growth in Russia. According to the Russian Statistics
Committee’s information the gross domestic product (GDP) increased by 6.4% in 2005. The
economic situation was characterized by the growth of goods and services production, real
personal incomes, investments into the main capital and inflation decrease. The growth of oil
and energy prices contributed to the growth of Federal budget income. The Federal budget
surplus was equal to 7.4% of GDP. Gold and foreign currency reserves were enlarged
almost 1.5 times and reached the amount of $182.2 billion. Positive trade balance increased
up to $120.1 billion. The value of stabilization fund exceeded RR 1.4 trillion. Russia early
repaid its debt to the International Monetary Fund and a considerable part of the debt to the
Paris Club.
The Chelyabinsk region is a region of stable development. It plays a leading part in the
Russian economic environment. 2005 was also rather successful for the Chelyabinsk region.
The gross regional product (GRP) increased by 7.7% and amounted to RR 370 billion. The
industrial production index totaled 104% by 2004. Foreign trade turnover increased by 8%
and passed $6 billion. The own incomes revenue to the regional consolidated budget grew
by 9.4% and amounted to RR 41.6 billion.
Development of the Chelyabinsk region is defined by such industrial complexes as
metallurgy, machine-building, metal-working, fuel and energy, building and agribusiness
industry. There are unique nuclear, rocket and space centers in the region.
Metallurgy complex is the leading one in the Chelyabinsk region economy. It produces more
than 61% of the regional industrial volumes, 27% of all-Russian roll ad steel output, and
13.5% of steel pipes. The share of non-ferrous metals industry in the industrial production
volumes comprises 7.1%.
The region holds its status of the region with the largest investment capacity. Investments
grew 1.5 times for the 5 years. Last year their volume totaled RR 72.6 billion. The corporate
equities are still the main sources of investments. High credit ratings also influenced the
growth of investments. The Chelyabinsk region credit rating is defined by high level of
industrial development, fast growth of regional budget incomes, positive credit history, low
volumes of accumulated debt and increasing quality of financial management.
The Chelyabinsk region is assigned with a long-term credit rating of Aa2 ru category that
shows very high creditability, and by a short-term credit rating RUS-1 that means exclusively
high creditability in comparison to other Russian borrowers.
The Conception for social and economic development of the Chelyabinsk region was created
for the purpose of ensuring constant economic growth and increasing life standards. This
Conception will be implemented till 2010, and its main trends have been already approved.
The program for governmental support of small businesses is in action, the program for
support of women and family business has been accepted. The small business support was
done in the way of preparing and teaching personnel, compensating a part of commercial
banks credit rates and leasing payments, and paying back the expenses for participation in
                                                                                          12
the trade-economic missions, exhibitions and expositions. There are special grants for
implementation of projects in the field of women and family business.
The number of people working for small business companies reached 530 thousand by the
end of 2005 that comprises the third part of all employees in the economic sector. The
volume of goods and services in this segment has exceeded RR 40 billion and the small
business share in GRP increased from 12.2% in 2002 to 16.5% - in 2005. During the same
period the small business share in tax revenue volumes grew from 3.8 to 10%
Dynamic and well-balanced development of the region gives the possibilities for leading
socially oriented policy in financing and budgeting improving the leaving standards of people
who live in the South Urals. The personal money incomes increased by 33.7%. One million
square meters of housing was built in 2005 – the growth since 2004 amounted to 24.2%
whereas in Russia in general this figure was equal to 6.5%.




                                                                                          13
Banking Sector of Russia and Chelyabinsk Region
The banking sector was developing in 2005 more dynamically than in 2004. The joint assets
of the banking sector increased in nominal terms by 67% in 2005 (last year – 27%). The
capital grew by 31% in 2005 (in 2004 – by 16% only). During the same period individual
deposits grew by 39%, consumer loans increased 1.9 times. Due to the high growth rate an
importance of the banking sector in recent years considerably increased. The balance of
banking assets and GDP increased more than by 9% during last 5 complete financial years
and amounted to 45% as of January 1, 2006. The banking equity interest in GDP reached
5.7% at the same period.

            Assets (liabilities) and capital of the Russian banking sector in dynamics

in bln

         10000
                                                                                             9750,3

          9000


          8000

                                                                           7136,9
          7000


          6000
                                                          5600,7
          5000
                                       4145,3
          4000
                    3159,7
          3000


          2000

                                                                                           1241,8
                                                      814,9                     946,6
          1000
                      453,9                 581,3

             0
                   01.01.02             01.01.03     01.01.04                01.01.05   01.01.06

                              Assets (liabilities)      Equity (capital)

The increasing trust of creditors and people to banks was one of the main developing factors
for the banking sector during the last years.
The funds raised from corporate customers increased from RR 903 bln in 2001 to RR 2 953
bln in 2005. Personal deposits increased more than by 400% and reached RR 2 755 bln for
the same period. Borrowings from international financial institutes and foreign banks play
more and more important role in the enlargement of the long-term resource base. However
the problem of limited sources for this long-term resource base is still very urgent.
The tendency for the credit investment growth remains on the stable level. Volumes of non-
financial and personal lending increased by 412% since 2001 and amounted to RR 5 454 bln
as of January 1, 2006, including personal lending – RR 1 179 bln. Despite the considerable
growth of consumer lending, this market obtains good prospects for further development.


                                                                                                      14
Financial activities of credit institutes are also increasing. The profit of the banking sector in
2005 comprised RR 262.1 bln, in 2004 and 2003 – RR 177.9 and 128.4 bln correspondingly.
There is a growing competition in the banking sector not only among Russian credit
companies, but also between foreign banks.
The banking developing Strategy till 2008 was accepted in April, 2005. The role of banking in
the Russian economy, the growth of financial stability and transparency will be the key trends
in banking development. They suppose that the real growth rate of the main banking
activities (assets, capital, loans and deposits) will be still ahead of the GDP growth, though
the difference will be shortening. Banks will keep and improve their role as the leading
financial mediators. Taking into account the expected increase of real personal incomes, and
creating conditions necessary for economic and banking growth, the small business lending
volumes will be significantly expanded. The implementation of actions aimed at
reconstructing segments of financial sectors including pension and medical insurance
reformations will contribute much to increase in activity of credit companies’ performance.
There are 12 regional commercial banks in the Chelyabinsk region at present moment. All
banks became the members of Deposit Insurance System. The regional banking system also
includes 108 branches: 41 of which are regional banks branches, 35 branches of credit
companies from other regions, mostly from Moscow, and 32 branches represent the Bank of
Savings.
CHELINDBANK is a leading credit company of the Chelyabinsk region judging by the main
areas of banking performance. The Bank’s share in the market of raising personal funds is
growing constantly and comprises 12% already, in the entrepreneurs lending market – 20%.
The Bank holds a stable position in the market of corporate funds and in the corporate lending
market – more than 10%.
According to the forecasts made by the Bank of Russia for 2006 the banking sector will
continue its gradual developing. The growth of demand for banking products and services
combined with strengthening banking competition will lead to acceleration of processes in the
banking sector of Russia:

1. major universal banks that have already taken significant market positions will continue
   faster growing and developing branch networks;
2. many of stable medium and small banks will stick to the strategy of voluntary
   specialization in particular customer segments and banking products;
3. credit institutions with stable capitals, proper customer base, good risk management
   systems, internal service, financial and strategic planning will improve their positions in
   the market, and unfair lending companies will be withdrawn from the banking market;
4. faster (comparing to economy growth rates) growth of lending volumes will lead to loan
   risks accumulation in the banking sector that will require a special attention to improving
   risk management;
5. participation of foreign banks in the capital of credit companies will be increasing.




                                                                                               15
Vladimir Dyatlov

Vice-Governor of the Chelyabinsk Region

I rather often contact with CHELINDBANK, both as a member of the regional
administration and as a customer. It is one of the first commercial banks in the
Chelyabinsk region. During 15 years the bank’s performance is stable and it
contributes much to the development of the regional economical environment. People
who work for CHELINDBANK deserve the highest appreciation and appraisal.




                                                                                16
The Results of Performance and an Overview of CHELINDBANK Financial Standing in
2005


Results achieved in 2005 indicate progressive and dynamic development of the Bank
performance. The Bank assets increased by 40% and amounted to RR 11.7 billion. The
Customer funds exceeded RR 8.5 billion including a 42% growth of personal funds that
totaled RR 5.3 billion. The main gain of funds on personal accounts is achieved by increasing
time deposit volumes. Growth of the capital, expansion and improvement of the resource
base allowed to increase volumes of loans granted to the customers up to RR 7.8 billion
including individual loans – RR 2.3 billion. The securities investments of the Bank has grown
dramatically and exceeded RR 1.2 billion as of the end of the year.


                               Assets in dynamics, RR mln


        RR mln
                                                                                11 717
        12 000



        10 000
                                                                 8 444


         8 000
                                                   6 659



         6 000
                                     4 637


                      3 319
         4 000



         2 000



             0
                   2002           2003          2004          2005           2006


The received balance sheet profit totaled RR 260 mln including RR 221 mln of the net profit.
The profitability activities of assets and capital comprised 2.8% and 24% correspondingly.
The amount of dividends paid at the end of the year exceeded 10% of the net yearly profit.
The total equity grew by 26.4% and amounted to RR 1.3 billion by the end of the year. In
accordance with the Basic trends of the Bank performance for 2005 and for the purpose of
increasing share capital an additional emission of the ordinary shares in amount of RR 100
mln was done and the Share capital totaled RR 400 mln.




                   The Total Equity and the Share Capital in dynamics

                                                                                          17
RR mln



                                                                                                           1332,3
  1400



  1200
                                                                               1054,5


  1000
                                                        804,4

   800
                                      660,6


   600        527

                                                                                                                    400

   400                                                                                     300
                                                                 200
                                               150,0
   200                100



     0
              2001                    2002              2003                    2004                       2005

                       Total Equity, RR mln.                    Share Capital, RR mln


In accordance with the existing laws CHELINDBANK fulfilled asset reevaluation as of
January, 2006. Basing on the aggregate financial statements (including asset reevaluation)
the Bank total equity comprised RR 2.3 billion. This reevaluation allowed the Bank to
increase its total equity by RR 1 billion since April 1, 2006.
   CHELINDBANK compliance with the basic economic requirements of the Bank of
                         Russia, as on April 1, 2006



   140%


                                                                                                   120%
   120%



   100%



    80%
                                                                                                               74,5%

                                                                   60,6%
    60%
                                                        50%


    40%


                              20,8%
    20%
                     10%


     0%
      Capital of development inCurrent liquidity normative (Н3) min
Prospects Adequacy Ratio (H1) min 2006                                                  Long-term liquidity normative
                                                                                                       (Н4) max
Important ways of the Bank performance in 2006:
                                      CB requirements              CHELINDBANK highlights




                                                                                                                          18
   To keep and improve the positions of one of the major universal banks in the Urals
    region.

   To ensure high growth rates for the Bank’s assets and equities, secure performance
    profitability with available level of risks.

   To implement modern methods of Customer relations management, improve Customer
    service technologies; strengthen a Customer-oriented approach in the Bank operating
    process via development of corresponding business subdivisions.

   To develop all kinds of lending services including corporate lending, leasing, small
    business and individual Customers lending.

   To develop an express resource base by attracting individual and corporate deposits,
    resources of international financial organizations, and by issuing debenture bonds.

   To develop modern banking services including non-cash payments, emission and
    acquiring VISA international plastic cards, foreign economic affairs services, and
    investment banking for integrating Customer service and increasing non-interest
    incomes.

   To develop banking technologies and IT systems.

   To improve organizational structure of the Bank, to develop a service network

   To improve management systems including corporate management, strategic planning
    and budgeting, risk management and internal control systems.

   To improve professional skills and efficiency of the employees, to perfect personnel
    motivating methods.

   To develop cooperation with the Bank’s partners

   To develop CHELINDBANK’s brand as the major and reliable Bank with modern
    Customer service technologies.




                                                                                      19
 Customers
CHELINDBANK is a universal bank and grant financial services to major enterprises, small
and medium business representatives, and individuals. The main trends of Customer service
set by the Bank in 2005 were efficiency and complexity of services.


Corporate Customers


The corporate business is one of the main lines of the Bank activity. The Bank corporate
customers are enterprises and companies of different range and from different branches of
economy. These are atomic enterprises – FGUP PO Mayak, FGUP “Russian Federal
Nuclear Center”, non-ferrous metallurgical companies – Chelyabinsk Zinc Plant, Kyshtym
Copper Electrolytic Plant, Ufaleynickel, ferrous metallurgical companies – Asha Metallurgical
Plant, Chelyabinsk Electrometallurgical Plant, energy enterprises – Chelyabenergo; food
industry – Bread-baking plant named after Grigorovich, telecommunication companies -
Uralsvyazinform (Utel), trade companies – Pokrovsky Passage, small and medium
businesses, and many others.
CHELINDBANK corporate Customer service is customer-oriented; its main goal consists in
matching services with the needs of the Clients.
The result of this approach is that the Bank keeps its market positions. Despite increasing
competition in the banking market caused by performance of both regional banks, non-
resident banks and foreign banks CHELINDBANK remains to be one of the leaders of the
region by the number of corporate Customers. As of January 1, 2006 the total number of
corporate deposits in the Chelyabinsk region amounted to 109 thousand, and more than 20
thousand deposits was opened at CHELINDBANK.


Tatyana Skurlatova, Director of Treasury
“We want to be a reliable partner and source of information. The more customers ask
us to assist them in those financial aspects they are interested in, the more
opportunities we have to offer them the optimal solution. That is why relations but not
transactions are the starting point in the Treasury. Relations are our main product in
many ways”.


According to the number of corporate accounts opened in 2005 the Bank’s share among the
credit companies (and their branches) totaled 18% that was 1% higher than the similar figure
of the last year.
Today the Bank offers to its Customers a high-quality service and a variety of products:
beginning from the standard and traditional banking services and finishing with individual
kinds of service developed for some particular enterprises or groups of Customers. Most of
the Customers of the Bank chose the complex service including cash and settlement
services, encashment services, salary projects, lending, depositing and currency operations.
The Bank fulfills cash and settlement servicing for corporate Customers both in Russian and
foreign currency. The high quality of settlement operations is secured by the presence of the
Bank’s Settlement Center that sufficiently increases the speed of Customers’ payments and
                                                                                          20
transactions by implementation of distant service systems and by existence of the Bank’s
own encashment service.
In 2005, the funds on corporate accounts totaled RR 3.3 bln, and its growth comprised 33%
whereas the same growth in the whole banking sector of the Chelyabinsk region amounted
to 31.5%.
Lending is still the most popular service in the variety of the Bank’s services. The corporate
loan portfolio grew more than by 32% in 2005 and was equal to RR 5.6 bln by the end of the
year.


                                       Corporate Loans



            RR mln
    6 000
                                                                               5456

    5 000

                                                               4 154
    4 000


                                               2 887
    3 000
                               2 261
                     1 882
    2 000


    1 000


        0
                     2001       2002           2003            2004            2005


Andrey Tarasov, Head of Credit Division
“Life proves that business is successful when partners understand and appreciate
each other. This is the most efficient way. Only being in permanent contact with the
customer the Bank can expect long-term and creative relations. We always try to
understand our clients, show them how we treat the situation and find some mutual
solution. If we manage to do this than very interesting projects usually appear. The
bank and the customers have a common credit history. We make it together.
CHELINDBANK provides corporate loans in rubles and foreign currency. The Bank grants
short-term, medium-term and long-term loans for a single contract, fulfills lending in the form
of overdraft, in the form of “debt limited” credit line, and in the form of “drawdown limited”
credit.
CHELINDBANK offers a wide range of lending types including leasing. ChelIndLeasing
Company was established in 2003 to make agreements for a purchase of trucks and cars,
industrial equipment, entertainment equipment, office appliances and others. In 2005, the
Expert-Urals magazine ranked ChelIndLeasing as 24th by the amounts of leasing payments
among 44 leasing companies of the Urals Region. Besides, ChelIndLeasing was ranked as
                                                                                            21
number 1 among the most dynamically developing leasing companies of the region and was
in top 5 leaders in “the Industrial Complexes” sector.
The main currency customers of the Bank are defense enterprises, non-ferrous and ferrous
metallurgical companies, chemical plants, machine building factories, food industry, travel
and trade agencies, and educational institutes. An individual approach is the basis for
currency service of the Bank.
The Bank offers such types of services as cash and settlement service, currency control,
transfers and documentary operations.
A growing correspondent network allows the Bank to transfer Customers’ money to different
countries. At present the Bank correspondent network consists of 202 correspondent banks
from more than 30 countries. In 2005, a special attention was paid to developing relations
with such countries as Italy, Kazakhstan and Turkey. Basing on the Customers’ demand the
Bank was given credit lines by such banks as: Nationale Del Lavoro (Italy), Turan Alem
(Kazakhstan) and Yapi Kredi Bank Moscow (the Turkish bank’s subsidiary). Development of
foreign correspondent network is done according to the annual approved “Marketing Plan for
Working with Correspondent Banks” that is based on the data received from monitoring
currency transactions made by Customers.
The Bank started operating 500 transaction passports in 2005. To bring this kind of service
closer to Customers six leading branches of the Bank got the right to act as currency control
agents. “Procedures for Signing Transaction Passports through “Client+Bank” System” were
implemented in 2005.
The Bank offers a wide range of trade financing services to its Customers:
   Direct lending with export/import contracts;
   Confirmed letter of credit with delay of payment;
   Documentary letter of credit with post-financing.
These financial instruments help our Customers to reduce foreign trade expenses by 30-40%
in comparison with classic loans. The volumes of trade financing credit lines set to
CHELINDBANK by foreign banks and financial institutes comprise $33 mln as of January 1,
2006. This illustrates the growth of trust from foreign banks and international recognition of
the Bank’s performance, and gives opportunities for improving Customer service possibilities
by using efficient methods of international settlement.
Consultancy and workshops are very important parts of Customer service, and they deal with
peculiarities of definite services, technologies, economic and legal problems.
CHELINDBANK started several workshops in 2005. Specifically, the meetings with the Bank
Customers – managers of different enterprises and companies were held last year. Their
topics were – “Practical Solutions for International Currency Transactions within Existing
Currency Legislation of the Russian Federation”, and “Additional Services of CHELINDBANK
Contributing to Promotion and Development of Customers’ Business”.
Taking into account diversity of the Customer base and growing competition in this sector,
modification of classic bank services regarding to the requests of different groups of
corporate Customers became the main goal of corporate business development. The Bank
specialists improve existing and create new technologies of services, develop individual
packages of services that consider, inter alia, Customer’s industry classification.


                                                                                           22
Small business

CHELINDBANK is treated by many local small business representatives not only as a
service Bank, but as a real business partner. The banking system plays a leading role in the
investment-lacking environment of small enterprises. That is why CHELINDBANK evaluated
market tendencies and defined small business as a leading trend of its activity.
Alexander Yaschenko, Manager of Korkinsky Branch of CHELINDBANK
“The branch has achieved a considerable profit growth and increase of local financial
share in the beginning of 2005. But we consider improvement of our relations with
customers to be our main achievement. It can be demonstrated by mutually beneficial
cooperation with local businessmen as far as the loan portfolio of the branch is
constantly increasing due to the dynamic development of our Customers’ business.
Thus, the Bank and its Clients develop together and become strategic partners for
many years.”
Small business lending is realized by the Bank for several years. The $5 mln agreement with
the European Bank for Reconstruction and Development was signed in September, 2002
within “the Program of Small Business Lending”, and enforced the development of this
segment. This program obtained a great demand since the first days of its operation. 140
loans were granted during the first 3 months, and by the end of 2005 small business loans
amounted to 12% of the Bank credit portfolio. In December 2004, the Bank signed the next
agreement with the EBRD under this program. The total amount of new agreement
comprised $15 mln.
The small business loan portfolio increased by RR 417 mln or by 82% and totaled more than
RR 924 mln at the beginning of 2006. The total number of loans exceeded 6.5 thousand.


                              Small Business Lending, EBRD Program



 7000                                                                                         1000
                                                                                     6555

                                                                                      924     900
 6000
                                                                                              800
                                                                              5209
 5000                                                                                         700
                                                                               669
                                                                                              600
 4000                                                       3845

                                                                                              500
                                                              508
 3000                                          2665                                           400

                                       2056      355
 2000                                                                                         300

                                        241                                                   200
                        952
 1000
All branches of the Bank started operating under the small business lending program100
            252           104                                                                   since
2005. Thus, 33
     0         now it is possible to get a loan in any part of the region if there is a subsidiary of
                                                                                              0
CHELINDBANK. 01.07.2003
        01.01.2003                01.01.2004  01.07.2004  01.01.2005  01.07.2005   01.01.2006

                   Number of loan agreements           Loans volume, RR mln                          23
Not only geographical covering, but also varieties of credit products are competitive
advantages of the Bank. Small business loans granted by the Bank have the following
advantages: long terms, fast decision-making, convenient repayment schedule with respect
to the Customer’s business, the existence of settlement account in CHELINDBANK is not
obligatory.
Besides collateral loans with the maximum term of three years, CHELINDBANK has been
dealing with non-collateral loans since August, 2004. The loan is disbursed the next day after
application, and the Customers do not have to prove their incomes or pledges. Also, the loan
can be repaid in advance and the next loan can be granted simultaneously,
The amount of non-collateral loans doubled in 2005 from RR 150 to 200 thousand, the term
of repayment increased from 12 to 18 months.
The bank is looking forward to a long-term prospective cooperation with entrepreneurs and
creates favorable conditions for the Customers. If a person is dealing with several business
activities than the EBRD lending procedure suggests consolidated revising of the whole
business of the borrower. It helps the expert to get a more thorough impression about the
Customer’s performance and provide him with the amount comparable to the real profits of
the business. The careful financial analysis of the businessman’s performance during last
three months will serve as the main guarantee for the loan repayment.
Taking into account needs of small business the Bank started to develop special mortgage
programs for individual entrepreneurs. These programs will be implemented in 2006.




Alexander Aristov

Deputy, State Duma of the Russian Federation

I have stable and time-tested relations with CHELINDBANK. Fifteen years has passed
since we became friends and started our developing together. CHELINDBANK was the
first bank that trusted me and my partner Yuri Antipov in the period of our business
formation. The bank has overcome all defaults and failures that it had been facing
during 15 years and managed to prove its reliability. I wish good luck, happiness and
further growth to CHELINDBANK staff,




                                                                                           24
People
Developing retail services is still one of the main trends of the Bank performance. A new
Retail Market Division was established for working out efficient tools that will give an
opportunity to implement retail development policy. Development and implementation of new
retail products, marketing researches, search for new retail service approaches are the
priorities of this division. The bank was actively perfecting all trends of retail business paying
great attention to expanding the service range, improving quality and optimizing conditions of
services.
T.A. Halis, Head of Retail Market Division
“As far as the bank is a company that deals with different kinds of audience with
different values and goals, and as far as the bank directly depends on its
representatives, it is very important to win trust and respect from all of them. We try to
make our performance in accordance with the requirements of different categories of
people. By developing new products and services, arranging various promo actions,
we want our customers to feel that they are parts of the bank’s life. The title of “The
People’s Bank” that we got for 15 years of work in the Chelyabinsk region lays great
obligations on us.
Deposits
Depositing is a traditional type of services for private customers. The growth rate of funds on
individual accounts of CHELINDBANK was equal to 42.2% in 2005 that exceeded the similar
total Russian rate that totaled 38.9, according to the information announced by the Bank of
Russia. The volume of individual deposits amounted to RR 5.3 bln as of January 1, 2006.


                                                  Individual Deposits


            RR mln
    6 000

                                                                                                     5 300

    5 000



                                                                                                             3 984
    4 000
                                                                                     3 729



    3 000
                                                           2815                              2 755


                                                                  2 078
    2 000
                                      1 665

              1 247
                                              1 135
    1 000
                      584



        0
                  2001                    2002                2003                       2004            2005

                            Total personal deposits                  Time deposits
The main gain of funds on individual accounts was achieved by increase of time deposit
volumes, especially volumes of deposits with a term of 1 year and more. The share of

                                                                                                                     25
deposits with a term of 1 year and more comprises almost 49% of all time deposits, whereas
this kind of deposits totaled 40% in 2004. This change of individual deposit structure is an
evidence for high level of Customers’ trust and loyalty, and efficient marketing strategy of the
bank in this retail segment.
The Bank is constantly perfecting its deposit line. On the one hand, the Bank makes it
understandable for different categories of Customers, and on the other hand, the Bank
diversifies it paying attention to the interests of all groups of Customers. The deposit
products are presented in three main currencies – Russian ruble, US dollar and Euro. The
Bank provides deposits on demand, multi-term deposits, deposits with different types of
interest calculation and conditions for holding funds, and pension deposits. The Bank
specialists monitor deposit market, makes Customers’ questionnaires which serve as a basis
for further development and offer of competitive conditions for deposits.
To increase deposit attractiveness the Bank made several promo actions in 2005 dedicated
to memorable days and start of holidays. These are “Front-line” deposit with a bigger interest
rate for veterans of the Great Patriotic War and pensioners, “Summer”, “15-years” and “New
Year 5 billion” deposits with special prizes. Besides, the Bank depositors took part in a
variety of all-prize lotteries and creative contests.
The Bank informs its Customers about goals and principles of Deposit Insurance System.
There are informational booklets made especially for it. The Bank specialists consult
Customers in accordance with the rules of the Deposit Insurance Agency.
In 2006, the Bank will continue working out new types of deposits, arranging new promo
actions and prize drawings, implementing discount programs, and improving its performance
technologies.
Lending
Consumer lending have been rapidly developing in recent years. Individual principal
receivables of CHELINDBANK increased by 55% last year and amounted to RR 2.3 bln as of
January 1, 2006. The number of existing loan agreements grew by more than 13 000 and
comprised 56 500 agreements.
The growth of individual lending volumes and various needs of the Bank Customers led to
necessity for developing different lending programs. At the moment individual lending is
being developed in the following ways: consumer lending, car lending, salary projects,
lending for buying residential property and improving residential conditions, credit cards.
The volumes of car loans sharply increased 2.9 times. The main principle of car lending
program in CHELINDBANK is that conditions of the loan are defined by the Customer. The
interest rate is calculated depending on the security, amount of the first payment and type of
insurance. To increase a number of potential clients the Bank works with any car dealers and
provides loans for any car models. Besides, there are no restrictions in the choice of an
insurance company, and the Bank can include the amount of insurance to the total amount of
the loan. All these conditions, individual payment schedule and possibility for advance
repayment make this CHELINDBANK service competitive and attractive for the Clients.
CHELINDBANK provides consumer loans to individuals for urgent needs: purchase of
consumer goods, tuition fees, holidays, repair works and many others. The total amount of
consumer loans granted by CHELINDBANK in 2005 was equal to RR 2.3 bln that one and a
half time exceeded the similar figure of 2004.


                                                                                             26
The total number of loans granted under salary projects in 2005 increased by more than 11
thousand and comprised 26.8 thousand with a total amount of RR 298.9 mln as of January 1,
2006. The annual growth amounted to RR 64 mln. The plastic card lending under salary
projects is represented by the following types: overdraft, credit line “with a debt limit”. The
issue of VISA credit cards was also started in 2005.
There is still high demand for loans for improving residential conditions and purchasing
residential property. The loans provided for purchasing residential property not only in the
secondary market, but also in the houses under construction became a completely new kind
of service. Mortgage Lending Department was established in the Bank for developing and
promoting different kinds of mortgage and residential loans.
CHELINDBANK has been taking part in regional mortgage programs since 2000. There are
local mortgage programs in such cities of the region as Snezhinsk, Yuzhnouralsk and
Troitsk. Federal “Agency for Mortgage Lending” (Moscow) and regional “South Urals Agency
for Mortgage Lending” (Chelyabinsk) became external investors of this project. The Bank
entered into agreements with regional agency and municipal authorities within the Regional
Residential Program for 2002-2010 that includes subprogram – “Implementation of Mortgage
Lending System in the Chelyabinsk Region”. The Bank branches grant mortgage loans in
Snezhinsk, Yuzhnouralsk and Troitsk within these programs.
Valentina Kuzmina, Manager of “Istok” Branch
Our branch works in Snezhinsk since the foundation of CHELINDBANK. During all
these years our branch takes an active part in the life of the city. We are especially
proud that our branch was the beginner of the mortgage lending history in the
Chelyabinsk region. In December 2000 two first mortgage loans in the history of the
region were provided by “Istok”. These mortgage certificates were the first in Russia
and were registered in the South Urals Registration Office.


In 2006, the Bank is planning to develop and offer to its Customers a variety of credit
programs, increase emission of credit cards, make agreements with car dealers for the
purpose of improving car lending sector.
Payments
Payment for goods and services is one of the most widely spread kind of banking products
for private customers. This kind of service has been developed by the Bank since 2001.
During this period a number of companies who made agreements with the Bank for payment
reception increased greatly.
For the purpose of simplifying technologies of this service and improving transaction system
for community and other charges a new kind of system was implemented in 2005 – “System
of Personal Payment Reception” (SPPR). This system is created on the basis of program
module and works in all branches of the Bank.
The technologies of informational exchange between the Bank and the companies in
accordance with the requirements of Customers were developed within this program, and the
united database was created and is renewed and perfected up-to-date. To make this system
closer to the Customers the technology of payment reception through ATMs, on-line and cell
phones was introduced. At present moment Clients can pay to companies situated both in


                                                                                            27
Chelyabinsk and in the region where the Bank branches work for more than 200 kinds of
goods and services.
The Bank is going to continue entering into agreements with companies and enterprises in
2006, and mainly with community suppliers and telecommunication providers, as far as these
services are mostly demanded by people. The bank will actively work for increasing the
number of payment reception points and attract other companies (banks, markets, etc.) to be
the agents of this system. It is foreseen to make SPPR available for CHELINDBANK loan
repayments.
Plastic cards
Technological effectiveness and universality remain to be the main criteria for
CHELINDBANK services.
Plastic card services play the key role in CHELINDBANK performance. CHELINDBANK is a
principal member of the VISA International payment system. The Bank has issued more than
239 thousand cards of this system as of the beginning of 2006. The emission of
microprocessor VISA cards was started in 2004. Since that time the Bank has been issuing
cards of this type only. Besides, when the term of old magnetic cards expires the Bank
replaces them with microprocessor ones.


                                   Emission of VISA Plastic Cards in dynamics

 300                                                                                                                    1000

                                                                                                                  911   900

 250
                                                                                                                        800
                                                                                                                239
                                                                                                                        700
 200

                                                                                     567                                600

                                                                                      169
 150                                                                                                                    500


                                                          377                                                           400

 100
                                                           104                                                          300
                                          232
                                                                                                                        200
  50                                       57
             115
                                                                                                                        100

               3
   0                                                                                                                    0
           01.01.02.                  01.01.2003       01.01.2004                 01.01.2005               01.01.2006

        VISA plastic cards emission in dynamics, th.                VISA Account balances in dynamics, RR mln


Cash transactions made through ATMs or cash offices of the Bank dominate non-cash
plastic card transactions. This tendency is typical for Russian market of plastic cards in
general. The Bank is constantly expanding infrastructure of plastic cards. In 2005, the
number of ATMs settled by the Bank increased by 16 and totaled 91 at the end of the year.
Cash funds can be also withdrawn at 139 cash offices.
Non-cash transactions with plastic cards are the tasks of higher priority for the Bank. In this
respect terminals are installed in the market points, discounts for the cardholders are


                                                                                                                            28
negotiated, terminal and cash machines functions have been expanded, and additional
services for plastic cards are being developed.
The number of companies accepting CHELINDBANK VISA card payments for goods and
services increased by 137 in 2005 and amounted to 315 as of January 1, 2006. The volume
of operations in trade and service segment increased by 35.8% in 2005, the quality of service
also increased. The wireless GSM terminals were implemented in 2005 and helped to
increase the number of enterprises entering into acquiring agreements with the Bank.
In 2005, CHELINDBANK launched an SMS-service to inform the Customers about plastic
card transactions. The Customer receives all information about receipts, transactions and
account balance on his mobile phone. Mobile payments made directly from mobile phones
are very popular among the cardholders. The Bank also started accepting community and
other payments through ATM and terminal network in 2005.
Besides internal strategy of developing non-cash transactions, the Bank takes an active part
in different promotional actions arranged by VISA International aimed at stimulating usage of
plastic cards as payment means. In 2005, the Bank participated in such promo actions as
“VISA – New Year Carnival”, “Celebrating New Year with VISA card”, “VISA opens a holiday
season”, “Buy and win”. The winners of these actions got expensive prizes.
The Bank is going to implement several new plastic card products in 2006. These are co-
branding cards, instant issue cards, prepaid cards, loyalty applications on chip-cards, VISA
business services development and many other perspective directions.
Other Services
The bank is increasing volumes of such operations as money transfers, currency exchange,
and depositing of Customers’ valuables in individual safety boxes. These types of services
have already become traditional both for the Bank and the Customers, though the Bank
continues to develop their technologies, offers new possibilities within these services and
arrange promo actions.
CHELINDBANK provides money transfer both through its own correspondent network and
Western Union, an international money transfer system. During 2005, the Bank opened 16
new Western Union points in the city and regional branches. In cooperation with the Western
Union representative office in Chelyabinsk the Bank arranged the promo action “Transfer
with surprise”. Those Customers who transferred or received money through Western Union
during this period were given Western Union souvenirs. The Bank also took part in the
Western Union promo action for discount transfers to China, Mongolia, Hong-Kong and
Macao.
Under the deposit safety box program a new product was developed – deposit box renting
within a trilateral rent agreement for individual deals that suppose simultaneous or separate
(after fulfillment of some conditions) access to the deposits. This service is demanded mainly
by car and real estate sellers and buyers.
The Bank pays great attention to improving quality of individual Customer service. The Bank
specialists regularly control conditions of individual Customer service in different branches
and subsidiaries of the Bank. They make questionnaires to learn public opinion about the
quality of service and demand for new products. The results of control and questionnaires
lead to modifications and changes in service technologies, time-table of branches and
subsidiaries, development of new kinds of services and products.

                                                                                           29
Vsevolod Geikhman

General Director, Chelyabinsk Zink Plant

CHELINDBANK is like a big white bird flying high in the sky. The eastern people and
Japanese in particular believe that a crane is a symbol of honesty, purity and
helpfulness. I want to wish CHELINDBANK that the flight of this big white bird will be
high, long and happy.




Branches
CHELINDBANK has the most extended branch network among the regional banks. There
are 28 branches of the Bank working in the Chelyabinsk region. The total number of
structural subsidiaries opened by the Bank including subsidiary offices, operating desks,
exchange offices and representative offices in Zlatoust and Moscow exceeds 60. In 2005,
CHELINDBANK went out of the borders of the Chelyabinsk region and opened “Chkalovsky”
branch in Ekaterinburg.
CHELINDBANK continues to develop Customer service infrastructure. In 2005, the Bank
opened six subsidiary offices in 5 cities of the region and in Chelyabinsk. CHELINDBANK

                                                                                       30
subsidiary offices are mini-banks that make corporate and personal banking service. Cash
and settlement services, deposits, money transfer, plastic card transactions and currency
exchange are available for the Customers in subsidiary offices.
The Bank branches achieved considerable results in 2005. The organization of performance
of the branches as independent business units contributes to growing sales of products and
services, developing range of products, increasing profitability. In 2005, the total balance of
the branches increased by more than 42% in comparison to 2004. The balance profit earned
by the branches grew by 48% during 2005. The growth of loan receivables for the same
period was equal to 44%. The Head office makes quarterly ratings of the branches on the
basis of their balance highlights and financial activities. These ratings are sent to all
branches, and this fact stimulates improving financial results.
Albina Ryabtseva, Manager, Magnitogorsky Branch
“Banking is a system that provides no time for relax. It is very important to observe
the balance in developing different trends: continuous personnel education, constant
consumer demand analysis, studying competitors’ activity and planning our own
performance. During 15 years of operating the Magnitogorsky Branch has turned into
a tried and tested instrument possessing high potential for further growth. It is
obvious that the results we achieved would have been impossible without functional
relations with our customers, because our clients represent that very power that does
not allow us to stay at one place and makes us developing and perfecting our work”.
Last year the Bank paid significant attention to improving service facilities of the Branches.
The Bank purchased the buildings for Transportny, Chkalovsky, Trekhgorny, Chebarkulsky,
Korkinsky branches and subsidiary offices in Magnitogorsk, Kasli, Plast and Katav-Ivanovsk.
The Bank sticks to the common standards of quality and technology of Customer service. For
that purpose the Head Office specialists train the staff of the Branches that take part in
different practical courses, seminars and workshops.
In 2005, specialists from the Head Office arranged seminars devoted to plastic card service,
currency service, work of System of Personal Payment Reception, Western Union transfers,
Customer service including promo actions, cash operations, questions of accounting and
automatization of banking processes and some others.
The product line of the branches is constantly expanding. At the moment the Customers can
get almost the same range of services in the branches as they do in the Head Office.
Increasing level of competitiveness in the field of currency service was paid significant
attention in 2004-2005. In 2005, the work for increasing the number of branches authorized
for currency operations was done. At the moment all 29 branches have the right for
independent work with individual and corporate customers, documentary operations, six of
the branches were entitled to act as currency control agents.
As of January 1, 2006, all 29 branches can issue VISA Electron cards, 22 branches can
grant “overdraft” loans, 19 branches provide acquiring services. During 2005, there was a
positive dynamic growth of trade and service turnover. The volumes of turnovers in 2005
amounted to RR 21.7 mln, 2004 – RR 6.2 mln. The considerable growth of turnover is shown
by the Head Office Operational Department – 14.5 times, Magnitogorsky branch - 2.6 times,
“Synegorye” – 34.3 times.


                                                                                            31
In spite of standardized service technologies the Bank takes into account economic, social
and competitive peculiarities in the region of presence of the Bank. Thus, taking into
consideration requests made by some Customers of the branches, the Bank developed
several special plastic card products. These are “VISA Electron – Mayak”, “VISA Electron –
Snezhinsk”, “VISA Electron – “interest-free”.
All Bank branches are connected to SPPR and actively participate in promoting payment
receipt services.
The branches also played a significant role in arranging promo actions for depositors and
cardholders in accordance with the technologies developed by the Bank. Participation in
such actions gave the branches an opportunity to increase their Customer base, attract
additional resources and implement new technologies. Since 2001, the Bank branches and
subsidiaries have been taking part in the contest for attraction of individual deposits. The
results and winners are defined quarterly.
In 2006, the Bank is going to hold tendencies for expanding range of services granted by the
branches and increasing quality standards of banking service.




                                                                                          32
Correspondent Banking

                   MAIN CORRESPONDENT BANKS OF CHELINDBANK
                with NOSTRO correspondent accounts as of January 1, 2006

Raiffaisen Zentralbank Ősterreich AG (RZB-Austria)                         Vienna, Austria
ING Belgium SA/ NV                                                    Brussels, Belgium
Commerzbank AG                                              Frankfurt-am-Main, Germany
Dresdner Bank AG                                            Frankfurt-am-Main, Germany
Ost-West Handelsbank AG                                     Frankfurt-am-Main, Germany
Banca Nazionale del Lavoro SPA                                                Rome, Italy
HSBC BANK USA                                                              New-York, USA
The Bank of New York                                                       New-York, USA
Wachovia Bank                                                         Philadelphia, USA
Credit Suisse (First Boston)                                         Zurich, Switzerland
The Bank of Tokyo-Mitsubishi ltd                                            Tokyo, Japan
Bank Turanalem                                                      Almaty, Kazakhstan
Yapi Kredi Bank Moscow                                                    Moscow, Russia
URALSIB                                                                   Moscow, Russia

CITIBANK                                                                  Moscow, Russia

Promyshlenno-Stroitelniy Bank                                   Saint-Petersburg, Russia

Sberbank, Chelyabinsk Office No. 8597                               Chelyabinsk, Russia

                   MAIN CORRESPONDENT BANKS OF CHELINDBANK
                 With LORO correspondent accounts as of January 1, 2006

Uralvneshtorgbank                                                  Ekaterinburg, Russia

Urlatransbank                                                      Ekaterinburg, Russia

Severnaja Kazna Bank                                               Ekaterinburg, Russia

Urals Bank for Reconstruction and Development                      Ekaterinburg, Russia

Chelyabinvestbank                                                   Chelyabinsk, Russia

Mechelbank                                                          Chelyabinsk, Russia

Uralprombank                                                        Chelyabinsk, Russia

Uralliga                                                            Chelyabinsk, Russia

Svyaz-Bank, Chelyabinsk Regional Branch                             Chelyabinsk, Russia


                   MAIN CORRESPONDENT BANKS OF CHELINDBANK
                                                                                      33
           with NOSTRO correspondent accounts as of January 1, 2006

DONAU-BANK AG ERTEKFORGALMI                                           Vienna, Austria
BANKHAUS KATHREIN UND CO                                              Vienna, Austria
ZVEZA BANK R.Z.Z.O.J.                                           Klagenfurt, Austria
EUROPEAN BANK FOR RECONSTRUCTION AND
                                                             London, Great Britain
DEVELOPMENT
STANDARD CHARTERED BANK                                      London, Great Britain
NATIONAL WESMINSTER BANK PLC                                 London, Great Britain

DEUTSCHE BANK AG                                       Frankfurt-am-main, Germany
BAYERISCHE HYPO-UND VEREINSBANK                                  Munich, Germany
LANDESBANK BERLIN GIROZENTRALE                                    Berlin, Germany
DEN DANSKE BANK                                             Copenhagen, Denmark
UNICREDITO ITALIANO S.P.A.                                                Milan, Italy
BANCA POPOLARE FRIULADRIA                                             Pordenon, Italy
BANCA AGRICOLA MANTOVANA                                               Mantova, Italy
ABN-AMRO BANK                                             Amsterdam, Netherlands

HOLLANDSCHE BANK-UNIE N.V                                  Rotterdam, Netherlands
LEONIA BANK PLC                                                   Helsinki, Finland
NORDEA BANK FINLAND PLC                                           Helsinki, Finland

CREDIT LYONNAIS                                                        Paris, France
NORDBANKEN AB                                                  Stockholm, Sweden
DEUTSCHE BANK TRUST COMPANY AMERICAS                              New-York, USA
FIRST UNION NATIONAL BANK                                         New-York, USA

UMB BANK N.A.                                                          Kansas, USA
POSTABANK ES TAKAREKPENZTAR RT                                 Budapest, Hungary

ALTALANOS BANK RT                                              Budapest, Hungary
NATIONAL SAVINGS AND COMMERCIAL BANK LTD                       Budapest, Hungary
KREDYT BANK PBI S.A.                                              Warsaw, Poland
CITIBANK N.A.                                                     Warsaw, Poland
CESKOSLOVENSKA OBCHODNI BANKA A.S.                         Prague, Czech Republic
VSEOBECNA UVEROVA BANKA A.S.                                   Bratislava, Slovakia
KOMERCNI BANKA A.S.                                            Bratislava, Slovakia
BANKA CELJE D.D.                                                      Celje, Slovenia
NEDBANK                                                       Johannesburg, SAR

                                                                                 34
MULTIBANKA JOINT STOCK BANK               Riga, Latvia
EESTI UHISPANK                         Tallinn, Estonia
ESTONIAN FOREXBANK                     Tallinn, Estonia
BANKTURANALEM                     Almaty, Kazakhstan
KAZKOMMERZBANK                    Almaty, Kazakhstan
NURBANK                            Atyrau, Kazakhstan
YUGBANK                             Krasnodar, Russia
CREDITURALBANK                   Magnitogorsk, Russia
VNESHTORGBANK OF RUSSIA               Moscow, Russia
VNESHECONOMBANK OF USSR               Moscow, Russia
BANK OF MOSCOW                        Moscow, Russia
GAZPROMBANK                           Moscow, Russia
PROMSVYAZBANK                         Moscow, Russia
ZENIT BANK                            Moscow, Russia
NOVOSIBIRSKVNESHTORGBANK           Novosibirsk, Russia
SIBACADEMBANK                      Novosibirsk, Russia
SNEZHINSKY                          Snezhinsk, Russia
KHANTY-MANSIYSKY BANK         Khanty-Mansiysk, Russia




                                                  35
Risk Management
Risk management is done in respect of financial (credit, market, geographical, foreign
exchange, liquidity and interest rate), operational and legal risks. The main goal of the
financial risk management is a limit definition and assurance of its further observing. The
operational and legal risk management shall ensure proper fulfillment of internal rules and
procedures for the purpose of minimizing these kinds of risks.


Credit Risk. The Bank takes a risk and particularly the risk that counteragent will fail to pay
the debt in time. The Bank controls the credit risk setting the limits per one borrower or a
group of related borrowers, and also setting limits in accordance with geographical and
industrial segments. The Bank regularly monitors such risks and reviews the limits at least
once a year. The credit risk limit by products, borrowers and industries is approved by the
Board of the Bank.
Credit risk for non-balance financial instruments is defined as the possibility for losses
caused by another user’s failure while fulfilling contractual obligations. The Bank follows the
same policy in respect to conditional obligations that is done in respect of balance financial
instruments based on deal approving procedures, risk limiting quotes and monitoring.



Market Risk. The Bank takes the market risk connected with the open positions in the field
of pricing, foreign exchange and share instruments that is explained that they are influenced
by the market changes. The Board settles the risk limits and follows its observance on a daily
basis.



Geographical risk. The Bank’s assets, liabilities and loan commitments are usually
classified by the country of the location of counterparty. Cash, precious metals and fixed
assets are classified by the country of their physical presence.
Currency risk. The Bank defines its currency risk as the risk of loss arising from adverse
changes in foreign currency exchange rates. The Bank Board establishes risk limits for
foreign currencies in general, by the end of a day, during a day and ensures their day-to-day
fulfillment.
Liquidity risk. Liquidity risk is the risk that the Bank will not be able to have sufficient funds
readily available to repay liabilities as they mature. The Bank established a sound liquidity
management in order to satisfy liquidity needs for daily settlements on the clients’ accounts,
repayment of deposits, allowance of credits, settlements on guarantees and derivative
instruments. Liquidity risk is managed by the Asset and Liability Management Committee.
Interest rate risk. The Bank defines its interest rate risk as the risk of loss arising from
adverse changes in market interest rates. The Bank assumes this risk primarily through its
lending activities relating to fixed-rate loans for amounts and periods different from those
applied to fixed-rate attraction of funds.



                                                                                               36
The Bank Management establishes limits for a possible difference in interest rates which are
monitored daily. For lack of hedging instruments, the Bank seeks to manage this risk through
matching of the interest rates positions.


Legal risks. Changes in currency regulations, tax legislation, requirements to bank licenses
and modifications in judicial practice in respect of banking performance can influence the
amount of net profit received by a credit company
In spite of liberalization of currency laws the risk for changing to less number and lower
volumes of obligatory currency transactions is estimated as moderate. The risk for changing
tax legislation to increase of tax volumes for banking sector is insufficient – last years were
marked by decreasing profit tax rate, VAT rate, tax for operations with securities and the
Consolidated social tax. The risk connected with changes in banking licensing is also
evaluated as not significant, All licenses obtained by the Bank are termless: General license,
license for attraction of deposits and distribution of precious metals, license of professional
market maker.

To protect the Bank interests, shareholders and Customers the Internal Control System was
created in CHELINDBANK. Internal Control System is a complex control for quality of
financial and economic activity, reliability of financial and managerial information, observance
of legal norms and internal rules (policy) of the Bank.

To make the Bank resistant to economic and banking crises the Council and the Board of the
Bank are gradually increasing the Risk Management System. The risks taken by the Bank
are reasonable, controlled and correspond to the Bank’s financial ability and competence.
The Risk Management System is aimed at complex risk evaluation affecting achievement of
goals, and at measures ensuring proper reaction to changing circumstances and conditions.
The Risk Management Division was established in the Bank.


The Risk Management System is based on the following principles::
   full correspondence of working technologies and internal banking instructions to
    requirements of the Bank of Russia;
   collective decision-making;
   permanent revelation and evaluation of risk level by divisions providing operations
    (transactions) with risks of losses
   existence of divisions responsible for revelation and evaluation of risk level and
    independent from divisions providing operations (transactions) with risks of losses;
   regular monitoring and control of risks;
   existence of specifically developed normative base for systematization, evaluation,
    measurement and control of risks;
   existence of reliable automated informational systems securing risks evaluation,
    measurement, control and informing;

   existence of action plans in case of emergency;




                                                                                             37
Department for Financial Monitoring is responsible for counteracting legalization of proceeds
from crime and terrorism financing. Measures taken in accordance with internal control
procedures provide efficient daily control for revelation and delivery of corresponding
information to the Financial Monitoring Committee of the Russian Federation.




                                                                                          38
The Bank and Society
Nothing and nobody can exist in isolation. The stable business development is impossible
without integrating into society and social environment.


CHELINDBANK expresses its attitude to the society in accordance with its mission: “We pay
careful attention to the social demands and in cooperation with local authorities participate in
promoting social programs for the sake of society, economic development and growth of the
Chelyabinsk region”
During 15 years of its performance CHELINDBANK contributes to keeping social values and
increasing life quality by transferring part of its profit to charity and development of social
environment in which the Bank is functioning. The charity activity of the Bank is mainly aimed
at supporting those in need: children, disabled people and veterans.
In 2005, the Bank continued to help such organizations as independent noncommercial
organization “Detstvo” (“Childhood”), regional charity fund “Tepliy Dom” (“Warm Home”);
financed children’s homes No. 2 and 7 in Chelyabinsk, Chelyabinsk noncommercial
association of disabled people “Jupiter”; Chelyabinsk city noncommercial organization of
people disabled in the Great Patriotic War “Zaschita” (“Protection”); Miass city
noncommercial association of disabled people “Diabetic Society”; Chelyabinsk regional
association of veterans of war, labor, Armed Forces and security authorities; the Bank took
part in financing the “Stella” monument dedicated to labor veterans of Chelyabinsk.
The Bank provided a sponsorship for horse racing competitions in Troitsk, Chelyabinsk
region, and for traditional Russian Militiamen Memorial named after Maslennikov..
In 2005, our employees initiated collection of clothes, toys and other things for orphans from
children’s home No. 13 in Chelyabinsk. When the action was over and collected things were
given to kids, people working for CHELINDBANK were still bringing clothes, books, toys, and
everybody suggested announcing this action termless. And that was the decision, because
there is no such notion as “grief of others”.
Boris Vidgof
General Director, BOVID
CHELINDBANK is a reliable partner that is always with you and ready for support.
Being a businessman I appreciate CHELINDBANK’s stability, expertise and
professionalism. Mainly thanks to CHELINDBANK, BOVID is developing rather
successfully. I am happy that we are the clients of this very bank. I want to wish
health, luck and all the best to the Bank Board and to the staff.




                                                                                             39
RFRS Reporting
                                         BALANCE SHEET
                                        (published form)
                                       As of January 01, 2006

 Credit institution
JOINT-STOCK COMMERCIAL BANK CHELINDBANK (open joint-stock company)
 Post address:
Russia, 454091, Chelyabinsk, Karl Marx str., 80
                                                                       thous. rubles
+------+---------------------------------------------------------+------------------------+------------------------+
|No    |            Item                                        |Review Date              | Last year, Review Date |
|      |                                                         |                         |                        |
|      |                                                         |                         |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
| 1    |                          2                              |           3             |          4             |
+------+---------------------------------------------------------+------------------------+------------------------+
|I     |   ASSETS                                                |                         |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|1.    |Cash funds                                               |                   627863|                  530723|
+------+---------------------------------------------------------+------------------------+------------------------+
|2.    |Due from credit institutions with the Central Bank       |                   377436|                  224935|
|      |of the Russian Federation                                |                         |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|2.1. | Obligatory reserves                                      |                   188037|                  137878|
+------+---------------------------------------------------------+------------------------+------------------------+
|3.    | Due from credit institutions                            |                   963053|                  600475|
+------+---------------------------------------------------------+------------------------+------------------------+
|4.    | Net dealing securities investments                      |                 1202141|                   819971|
+------+---------------------------------------------------------+------------------------+------------------------+
|5.    | Net loan receivables                                    |                 7412771|                  5361470|
+------+---------------------------------------------------------+------------------------+------------------------+
|6.    |Net investments in securities held to maturity           |                    17003|                   16392|
|      |                                                         |                         |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|7.    | Net investments to securities available for sale        |                     956|                     105|
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|8.    | Fixed assets, intangibles and tangible reserves         |                 1525919|                  384180|
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|9.    | Interest claims                                         |                   10569|                   10347|
+------+---------------------------------------------------------+------------------------+------------------------+
|10.   | Other assets                                            |                   47661|                   28091|
+------+---------------------------------------------------------+------------------------+------------------------+
|11.   | Total assets                                            |                12185372|                 7976689|
+------+---------------------------------------------------------+------------------------+------------------------+
|II.   | LIABILITIES                                             |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|12.   | Due to the Central Bank of the Russian Federation       |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|13.   | Due to credit institutions                              |                  410589|                  234777|
+------+---------------------------------------------------------+------------------------+------------------------+
|14.   | Due to customers (non-credit institutions)              |                 8579078|                 6188953|
+------+---------------------------------------------------------+------------------------+------------------------+
|14.1. | Due to individual savings                               |                 4377835|                 3728751|
+------+---------------------------------------------------------+------------------------+------------------------+
|15.   | Debt instruments issued                                 |                  622700|                  345895|
+------+---------------------------------------------------------+------------------------+------------------------+
|16.   | Interest liabilities                                    |                   86803|                   43567|
+------+---------------------------------------------------------+------------------------+------------------------+
|17.   | Other liabilities                                       |                   40342|                   16557|
+------+---------------------------------------------------------+------------------------+------------------------+
|18.   | Provisions for possible losses on indirect credit       |                  116871|                   99173|
|      | liabilities and other possible losses on settlements    |                        |                        |
|      | with debtors on transactions with off-shore residents   |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|19.   | Total liabilities                                       |                 9856383|                 6928922|
+------+---------------------------------------------------------+------------------------+------------------------+
|III. | EQUITY                                                   |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|20.   | Share Capital                                           |                  400000|                  300000|
+------+---------------------------------------------------------+------------------------+------------------------+
|20.1. | Registered ordinary shares and parts                    |                  397030|                  297030|
+------+---------------------------------------------------------+------------------------+------------------------+


                                                                                                                       41
|20.2. | Registered preference shares                            |                    2970|                    2970|
+------+---------------------------------------------------------+------------------------+------------------------+
|20.3. | Non-registered share capital of non-stock credit instit-|                       0|                       0|
|      | utions                                                  |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|21.   | Shares redeemed from shareholders                       |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|22.   | Share premium                                           |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|23.   | Revaluation of fixed assets                             |                 1061138|                   25665|
+------+---------------------------------------------------------+------------------------+------------------------+
|24.   | Future expenses and disbursements that influence equity |                   86999|                   43450|
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|25.   | Funds and earnings retained by the credit institution   |                  734102|                  548493|
|      |                                                         |                        |                        |
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|26.   | Profit (loss) for the period under review               |                  220748|                  217059|
+------+---------------------------------------------------------+------------------------+------------------------+
|27.   | Total equities                                          |                 2328989|                 1047767|
+------+---------------------------------------------------------+------------------------+------------------------+
|28.   | Total liabilities                                       |                12185372|                 7976689|
+------+---------------------------------------------------------+------------------------+------------------------+
|IV.   | OFF-BALANCE SHEET LIABILITIES                           |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|29.   | Irrevocable commitments of the credit institution       |                 1048621|                  616834|
+------+---------------------------------------------------------+------------------------+------------------------+
|30.   | Guarantees issued by the credit institution             |                  219373|                  228558|
+------+---------------------------------------------------------+------------------------+------------------------+
|V.    | TRUST OPERATIONS                                        |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|      | ASSETS ACCOUNTS                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|1.    | Cash                                                    |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|2.    | Securities                                              |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|3.    | Precious metals                                         |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+


                                                                                                                       42
|4.    | Loans granted                                           |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|5.    | Funds used for other purposes                           |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|6.    | Trust operations settlements                            |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|7.    | Accumulated interest income for interest liabilities    |                       0|                       0|
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|8.    | Current accounts                                        |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|9.    | Trust operation expenses                                |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|10.   | Trust operation losses                                  |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|      | LIABILITIES ACCOUNTS                                    |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|11.   | Capital                                                 |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|12.   | Trust operation settlements                             |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|13.   | Accumulated interest income for interest liabilities    |                       0|                       0|
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|14.   | Trust operation income                                  |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|15.   | Trust operation profit                                  |                       0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+

GENERAL DIRECTOR                                                            M.I. BRATISHKIN

CHIEF ACCOUNTANT                                                            V.V. KLEPIKOVA




                                                                                                                       43
                                         PROFITS AND LOSSES STATEMENT
                                          As of January 01, 2006

 Credit institution
JOINT-STOCK COMMERCIAL BANK CHELINDBANK (open joint-stock company)
 Post address:
Russia, 454091, Chelyabinsk, Karl Marx str., 80

                                                                       thous. rubles
+------+---------------------------------------------------------+------------------------+------------------------+
|No.   |            Item                                         | Review Date             | Last year, Review Date |
|      |                                                         |                         |                        |
|      |                                                         |                         |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
| 1    |                          2                              |           3             |          4             |
+------+---------------------------------------------------------+------------------------+------------------------+
|      | Interest earned and similar income from:                |                         |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|1     | Granted to credit institutions                          |                    28209|                   16595|
+------+---------------------------------------------------------+------------------------+------------------------+
|2     |Loans to customers (non-credit institutions)             |                 1102787|                   742750|
+------+---------------------------------------------------------+------------------------+------------------------+
|3     | Leasing                                                 |                        0|                       0|
+------+---------------------------------------------------------+------------------------+------------------------+
|4     | Fixed interest-bearing securities                       |                    86252|                   79937|
+------+---------------------------------------------------------+------------------------+------------------------+
|5     | Other sources                                           |                     6653|                    5373|
+------+---------------------------------------------------------+------------------------+------------------------+
|6     | Total interest income and similar earnings              |                 1223901|                   844655|
+------+---------------------------------------------------------+------------------------+------------------------+
|      | Interest paid and similar expense on:                   |                         |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|7     | Borrowed from credit institutions                       |                    18236|                    7136|
+------+---------------------------------------------------------+------------------------+------------------------+
|8     |Borrowed form Customers (non-credit institutions)        |                   314689|                  271675|
+------+---------------------------------------------------------+------------------------+------------------------+
|9     | Issued debt securities                                  |                     6475|                    2455|
+------+---------------------------------------------------------+------------------------+------------------------+
|10    | Total interest paid and similar expense                 |                   339400|                  281266|
+------+---------------------------------------------------------+------------------------+------------------------+


                                                                                                                        44
|11    | Net interest and similar income                         |                  884501|                  563389|
+------+---------------------------------------------------------+------------------------+------------------------+
|12    | Net securities income                                   |                   45973|                  164399|
+------+---------------------------------------------------------+------------------------+------------------------+
|13    | Net foreign currency income                             |                   44314|                   51397|
+------+---------------------------------------------------------+------------------------+------------------------+
|14    |Net incomes from operations with precious metals and oth-|                    7756|                     -83|
|      |er financial instruments                                 |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
|15    | Net income from foreign currency revaluation            |                    3655|                   -2535|
+------+---------------------------------------------------------+------------------------+------------------------+
|16    | Commission income                                       |                  356495|                  297462|
+------+---------------------------------------------------------+------------------------+------------------------+
|17    | Commission expense                                      |                   15125|                   18402|
+------+---------------------------------------------------------+------------------------+------------------------+
|18    | Net income from single operations                       |                    7343|                     687|
+------+---------------------------------------------------------+------------------------+------------------------+
|19    | Other net operational income                            |                  -66262|                  -19238|
+------+---------------------------------------------------------+------------------------+------------------------+
|20    | Administrative expenses                                 |                  824466|                  669194|
+------+---------------------------------------------------------+------------------------+------------------------+
|21    | Provisions for possible losses                          |                 -140117|                  -97632|
+------+---------------------------------------------------------+------------------------+------------------------+
|22    | Profit before taxation                                  |                  304067|                  270250|
+------+---------------------------------------------------------+------------------------+------------------------+
|23    | Taxes (including profit tax)                            |                   83319|                   53191|
+------+---------------------------------------------------------+------------------------+------------------------+
|24    | Profit (loss) for the period under review               |                  220748|                  217059|
+------+---------------------------------------------------------+------------------------+------------------------+

GENERAL DIRECTOR                                                            M.I. BRATISHKIN

CHIEF ACCOUNTANT                                                            V.V. KLEPIKOVA




                                                                                                                       45
                                         CAPITAL ADEQUACY RATIO AND PROVISION FOR LOAN LOSSES
                                                           STATEMENT
                                                      as of January 01, 2006

 Credit institution
JOINT-STOCK COMMERCIAL BANK CHELINDBANK (open joint-stock company)
 Post address:
Russia, 454091, Chelyabinsk, Karl Marx str., 80


+------+---------------------------------------------------------+------------------------+------------------------+
|No.   |            Item                                         |Review date             |Last year, Review Date |
|      |                                                         |                        |                        |
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
| 1    |                          2                              |            3           |          4             |
+------+---------------------------------------------------------+------------------------+------------------------+
| 1    |Equity (capital) th. rubles                              |               2328328.0|               1054527.0|
+------+---------------------------------------------------------+------------------------+------------------------+
| 2    |Actual capital adequacy ratio, %                         |                    22.0|                    15.8|
|      |                                                        |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
| 3    |Normative capital adequacy ratio, %                      |                    10.0|                    10.0|
|      |                                                        |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
| 4    |Required provision for loan losses, th. rubles           |                538262.0|                421307.0|
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
| 5    |Actual amount of provision for loan losses, th. rubles   |                538262.0|                421307.0|
|      |                                                         |                        |                        |
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+
| 6    |Required provision for possible losses, th. rubles       |                122209.0|                104612.0|
+------+---------------------------------------------------------+------------------------+------------------------+
| 7    |Actual amount of provisions for loan losses, th. rubles |                 122209.0|                104516.0|
|      |                                                         |                        |                        |
+------+---------------------------------------------------------+------------------------+------------------------+



                                                                                                                       46
GENERAL DIRECTOR                                                            M.I. BRATISHKIN

CHIEF ACCOUNTANT                                                            V.V. KLEPIKOVA

In opinion of “Limited liability company “Peterburgskiy bankovsky audit” financial (balance) statement and published
forms of statement (balance sheet, profit and loss statement, statement on capital adequacy ratio and provisions for lоan
losses and other assets) made by credit institution “JOINT-STOCK COMMERCIAL BANK “CHELINDBANK” (open joint-stock company)
present fairly in all material aspects its financial position as of January 1, 2006 and results of financial and economic
activity for the period since January 1 through December 31, 2006 in accordance with the legislation of the Russian
Federations and normative acts regulating the procedures for preparation of financial (balance) and published statement
in the Russian Federation.
-     name of the audit company – Limited liability company “Peterburgskiy bankovsky audit”;
-     license No Е 004585;
-     date of issue of the license – June 27, 2003;
-     license validity – 5 years;
-     license is issued on the basis of order made by Ministry of Finance of the Russian Federation;
-     name of the head of the audit company – Alexey Ivanovich Mikhailov                     .



General Director                                                                        A.I. MIKHAILOV
According to the Statute and Minutes No 4 dated 24.12.2004г.
of "Peterburgbankaudit" participants meeting




                                                                                                                       47
                                                                                          ZAO PricewaterhouseCoopers Audit
                                                                                          Kosmodamianskaya nab. 52/5
                                                                                          115054 Moscow
                                                                                          Russian Federation
                                                                                          Telephone +7 (495) 967 6000
                                                                                          Facsimile +7 (495) 967 6001
AUDITORS’ REPORT


To the Board of Directors of OAO Commercial Bank “Chelindbank”:

We have audited the accompanying consolidated balance sheet of OAO Commercial Bank
“Chelindbank” and its subsidiary (the “Group”) as at 31 December 2005, and the related
consolidated statements of income, cash flows and changes in equity for the year then ended.
These consolidated financial statements are the responsibility of the Group’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as of 31 December 2005 and the
consolidated results of its operations and its cash flows for the year then ended in accordance with
International Financial Reporting Standards.




Moscow, Russian Federation
28 June 2006




The firm is an authorized licensee of the tradename and logo of PricewaterhouseCoopers.
Chelindbank Group
Consolidated Balance Sheet

                                                                    Note         31 December           31 December
In thousands of Russian Roubles                                                         2005                  2004

ASSETS
Cash and cash equivalents                                             7               1 807 632            1 236 312
Mandatory cash balances with the Central Bank of the
  Russian Federation                                                                    188 037              137 878
Trading securities                                                    8               1 254 466              866 671
Due from other banks                                                  9                  52 434               80 752
Loans and advances to customers                                      10               7 110 996            5 099 765
Current income tax prepayment                                                             1 984               12 275
Finance lease receivables                                            11                 158 256              138 727
Premises and equipment                                               12                 789 512              676 346
Intangible assets                                                    12                   9 197               10 601
Other assets                                                         13                 142 147               97 808


TOTAL ASSETS                                                                         11 514 661            8 357 135


LIABILITIES
Due to other banks                                                   14                  50 810              96 035
Customer accounts                                                    15               8 676 346           6 232 024
Promissory notes issued                                              16                 618 670             342 131
Other borrowed funds                                                 17                 362 884             139 498
Current income tax liability                                                             15 292               6 420
Deferred tax liability                                               23                  48 981              68 702
Other liabilities                                                    18                  47 564              46 363


TOTAL LIABILITIES                                                                     9 820 547           6 931 173


EQUITY
Share capital                                                        19               1 928 174           1 828 174
Accumulated deficit                                                                    (234 060)          (402 212)


TOTAL EQUITY                                                                          1 694 114           1 425 962


TOTAL LIABILITIES AND EQUITY                                                         11 514 661           8 357 135


Approved for issue and signed on behalf of the Board of Directors on 28 June 2006.




______________________________                                      ______________________________
M.I. Bratishkin                                                     V.V. Klepikova
President                                                           Chief Accountant




The notes set out on pages 5 to 39 form an integral part of these consolidated financial statements.                 1
Chelindbank Group
Consolidated Income Statement

In thousands of Russian Roubles                                     Note                   2005           2004

Interest income                                                      20                1 312 589         925 594
Interest expense                                                     20                (381 020)       (292 747)

Net interest income                                                                      931 569         632 847
Provision for loan impairment                                        10                (200 657)        (98 077)

Net interest income after provision for loan impairment                                  730 912        534 770

Gains less losses/(losses less gains) from trading securities                             40 916         (7 704)
Gains less losses from trading in foreign currencies                                      21 630          35 951
Gains less losses from investment securities available for sale                               -           86 882
Gains less losses/(losses less gains) from dealing in precious
 metals                                                                                    8 062           (111)
Foreign exchange translation gains less losses/(losses less
 gains)                                                                                    3 669          (2 279)
Fee and commission income                                            21                  388 101         338 998
Fee and commission expense                                           21                 (34 135)        (52 079)
(Provision)/recovery of provision for losses on credit related
 commitments                                                         18                    (700)           2 856
Provision for uncollectible finance lease receivables                11                 (26 407)         (2 392)
Other operating income                                                                    22 208          12 064

Operating income                                                                       1 154 256         946 956
Administrative and other operating expenses                          22                (943 235)       (787 824)


Profit before tax                                                                        211 021        159 132
Income tax (expense)/credit                                          23                 (20 146)         18 011

Profit for the year                                                                      190 875        177 143




The notes set out on pages 5 to 39 form an integral part of these consolidated financial statements.          2
01.01.2003




                                                                                                       ZAO PricewaterhouseCoopers Audit
                                                                                                       Kosmodamianskaya nab. 52/5
                                                                                                       115054 Moscow
                                                                                                       Russian Federation
                                                                                                       Telephone +7 (495) 967 6000
                                                                                                       Facsimile +7 (495) 967 6001




             The firm is an authorized licensee of the tradename and logo of PricewaterhouseCoopers.

								
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