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CHELINDBANK in the banking system of the Chelyabinsk Region.rtf

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CHELINDBANK in the banking system of the Chelyabinsk Region.rtf Powered By Docstoc
					JOINT-STOCK COMMERCIAL BANK
      CHELINDBANK
 (OPEN JOINT-STOCK COMPANY)




  ANNUAL REPORT 2004
Financial Highlights


                                            RR thus.              US$ thous.

                                     2004              2003    2004        2003

Total assets                       7 976 689      6 291 590   287 448    213 636



Loans to customers                 5 361 470      3 500 734   193 206    118 870



Federal loan bonds (OFZ)           526 406        628 407     18 969      21 338



Due to corporate customers         2 460 203      2 179 441   88 656      74 005



Due to individuals                 3 728 753      2 815 313   134 369     95 596



Equity                             1 047 767      781 854     37 757      26 549



Net interest and similar income    563 389        423 069     20 302      14 366



Net commission income              279 060        244 570     10 056      8 305



                                   240 026        126 752      8 650      4 304
Profit




To Shareholders, Customers and Partners
Dear Shareholders, Customers and Business Partners,
We are pleased to report another successful year of CHELINDBANK performance.

Despite the summer “crisis of confidence” and increasing competitive pressures in financial
services industry, 2004 was a year of dynamic and sustained growth for CHELINDBANK. Once
again we confirmed and enhanced our position of a leading regional bank.

The principal financial indicator – the Bank’s capital – has increased more than a third during the
year, exceeding RR 1 billion, primarily due to the growth in the Bank’s earnings and the increase
of the authorized capital up to RR 300 million. Capital growth allows the Bank to increase business
volumes and further improve its competitive strength and reliability. At January 1, 2005, capital
adequacy ratio N 1 was 15,8%, with the minimum required ratio of 10%. In 2004, the Bank’s
assets increased 27% and exceeded RR 8,4 billion. The Bank’s core business area was lending.
In 2004, the loan portfolio increased 61% to RR 5,6 billion. Loans to small and medium-sized
enterprises as well as consumer lending were the most fast-developing spheres. CHELINDBANK
was among the 50 major Russian banks by volume of loans granted to individuals.

Individuals’ savings, especially time deposits constituting a considerable segment within the
Bank’s resource base, have been growing at a significant pace in 2004. The personal customer
deposits totaled RR 3,7 billion, the number of personal accounts exceeded 625 000.

In 2004, one of the Bank’s strategic priorities was entering the Personal Deposit Insurance
System. CHELINDBANK met all the tough requirements established for the banks-candidates
and was officially included in the Personal Deposit Insurance System on September 21. The
State Corporation “Personal Deposit Insurance Agency” registered CHELINDBANK as a bank-
participant No.1. This was the most significant event of the year.

2004 was the 10-th year of CHELINDBANK’s activity in the plastic card market. In August, 1994,
we performed the first card transaction. Today the Bank processes over 10 000 transactions a
day. The quarterly card account turnover has amounted to RR 2 billion. The total number of
CHELINDBANK plastic cards exceeded 230 000.

Another important direction in the Bank’s activities was corporate banking. In high demand were
loans and services for customers involved in external economic business. In 2004, trade finance
was one of the most rapidly developing sectors. Considerable achievements of CHELINDBANK in
trade finance were remarked by the European Community by awarding it as “Best Developing
Regional Russian Trade Finance Bank under the EBRD Trade Facilitation Programme in Russia
in 2003” during Business Forum-2004 held in April, London.

2004 was a good year for us. CHELINDBANK has retained its strong positions in the financial
services market and has improved business effectiveness and profitability.

On behalf of the Bank Council and Bank Board, I thank our shareholders, clients and business
partners for their continued support and valued cooperation which enabled us to achieve good
results in the past year and help looking to the current year with optimism.

M.I.Bratishkin
General Director
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 Accounting Division
           CHELINDBANK

           Tatyana Petrovna KOSOVSKAYA
           Deputy General Director - Head Shareholders Service Division
           CHELINDBANK

           Zoya Ivanovna KOSHALKO
           Deputy General Director - Head Personnel Division
           CHELINDBANK
Chelyabinsk Region – the region of CHELINDBANK’S presence


Chelyabinsk Region is an industrially advanced region of the Russian Federation. The
development of the Region is determined by such industries and metallurgy, machine-building,
metal-working, fuel and energy as well as construction and factory-farm enterprises. A number of
major unique nuclear centers (in Snezhinsk, Ozjorsk and Trjokhgorny) as well as rocket
production and space-system engineering centers are located on the territory of the Region.
Metallurgy complex is of primary importance for the development of the Region, making 61,7 % of
the total regional industrial output, 27 % of the Russian rolled stock and steel and 13,5 % of steel
pipes.
The development of the ferrous metallurgy in the Chelyabinsk Region is to a great extent
determined by such major enterprises as Magnitogorsk Integrated Iron and Steel Works, "Mechel"
(Chelyabinsk), metallurgical plants (in Asha, Zlatoust, Chebarkul), pipes and hardware plants (in
Chelyabinsk, Magnitogorsk, Minyar), ferroalloy integrated plants (Chelyabinsk), refractory plants
(Satka). Non-ferrous metallurgy enterprises produce zinc, nickel, refined copper, graphitic
electrodes (Chelyabinsk Electrolytic Zinc Plant, Kyshtym Electrolytic Copper Plant, "Ufaleynickel",
Chelyabinsk Electrode Plant). The share of non-ferrous metallurgy in the total regional industrial
output is about 7%.
The Chelyabinsk Region abounds in diverse natural and mineral resources. More than 300
deposits are exploited on the territory of the Region including ferrous and copper-zinc ores, gold,
fire-resistant raw materials, talc, graphite and quartz.
In 2004, the Chelyabinsk Region ranked as number 6 among the regional areas of the Russian
Federation by the aggregate industrial output which increased 4,6% from 2003 and exceeded RR
370 billion. Above 98 thousand enterprises of all patterns of ownership are registered in the
Region, over 150 of which exploit deposits, process mineral raw materials and produce the
products of various reprocess degree. The total profit of the enterprises rose 1,7 times in 2004 to
RR 60 billion. In 2004, the Region attracted RR 50 billion of investments, an increase of 18 % from
the previous year, compared to a 10,9 % average growth in the investment volume in Russia.
The foreign trade turnover in the Chelyabinsk Region grew by 64,5 % to $ 5,7 billion, with export
activities exceeding import more than 2,5 times.
In 2004, the income of the Region’s budget was RR 30,5 billion, of which 48% was represented by
the profit tax revenue.
In order to promote the development of small business, the following programs are adopted and
being performed in the Region: the State Program of Small Business Support, the Program of
Female and Family Business Promotion. The regional small business included 545 thousand
persons by the end of 2004, or 32 % of the total number of those engaged in the regional
economy. The total volume of products and services produced by small business totaled RR 110
billion, a 19% increase from 2003.
The Chelyabinsk Region won the federal competition “The Best Region of Russia” as having “the
most effective legislative base contributing to the development of small business”.
The credit rating of the Chelyabinsk Region is defined by the high level of the industrial
development, the rapid growth of the regional budget income, positive credit history, low
accumulated debt volume and sound finance management.
In 2004, the Interfax Rating Agency together with the Moody's Investors Service gave the
Chelyabinsk Region a long-term national credit rating “А1 (rus)”, a short-term credit rating “RUS-
1”. These ratings mean high (А1 (rus)) and extremely high (RUS - 1) creditworthiness among the
Russian borrowers.
CHELINDBANK in the banking system of the Chelyabinsk Region

Favorable investment conditions and high credit ratings make the Chelyabinsk Region a
perspective banking market.
At January 1, 2005, the banking system of the Chelyabinsk Region comprised 11 regional banks
with 44 local branches, 34 branches of the banks registered in other regions, 317 regional
departments of the Savings Bank of the RF.
Total assets of credit organizations acting on the territory of the Chelyabinsk Region totaled RR
91,6 billion at year-end 2004, a 23% increase against the previous year.
Most of the bank liabilities - 41% - constituted personal customer deposits. The share of industrial
enterprises’ funds in the resource base was 19,3%. Lending remained to be the main direction of
capital investment. Growth rate in the investments to the real sector of the economy was 45,6%.
The share of regional banks in the total volume of granted loans was 26%.
Crediting of personal customers was marked by a continued progress. The total volume of loans
granted to individuals amounted to RR 12,5 billion, their share in the total bank loan portfolio in the
Chelyabinsk Region was 23,4%, more than twice as much compared to the previous year.
Chelindbank is among the top 200 major Russian banks ranked by total assets and ownership
capital. According to the Russian banks rating published by the “Expert” journal, at January 1,
2005, Chelindbank ranked as number 99 by total assets and as number 119 by ownership capital.

Chelindbank is one of the major banks in the Urals Region, being in the top ten. In the “Expert-
Urals” journal’s ratings, Chelindbank is ranked 8-th by total assets, volume of personal customer
deposits and corporate customer balances, 7-th – by ownership capital and loan portfolio, and 9-th
– by securities portfolio.
In the Chelyabinsk Region, Chelindbank is positioned as a major universal bank.


                         Total regional banks’ assets at January 1, 2005




                                                                             20.4%
     79.6%




                                                         CHELINDBANK
                           Regional banks
Among the 11 regional commercial banks of the Chelyabinsk Region, Chelindbank ranks as
numbers one and two holding the leading positions in the following banking activities:
   -   total volume of the attracted funds, both from corporate and personal customers;
   -   credit investments to the economy and volume of loans for personal clients;
   -   total volume and quantity of payments;
   -   total volume of cash flows;
   -   total volume of foreign currency sale and purchase to individuals;
   -   total volume of foreign currency purchased for the account and by order of corporate
       customers;
   -   total number of bank cards issued and volume of payments via cards.


        Attracted funds from corporate and personal customers at January 1, 2005




       67%                                                                   33%




                           Regional banks                CHELINDBANK
                               Loans to clients at January 1, 2005




       71%                                                                     29%




                                                          CHELINDBANK
                              Regional banks




CHELINDBANK: basic results of the year

2004 was another year of growth and expansion for CHELINDBANK as it:
  significantly expanded its activities;
  reported a remarkable growth in financial results;
  developed new products and services.
The principal financial indicator of the Bank’s activities – the total equity – has increased 31% and
exceeded RR 1 billion, primarily due to the growth in the Bank’s earnings and authorized capital
that increased by half.
In accordance with the Basic Guidelines of CHELINDBANK activities for year 2004, the Bank
additionally issued 100 million ordinary shares for the amount of RR 100 million and registered the
authorized capital of RR 300 million.
                          Total equity and authorized capital in dynamics

    RR mln

      1100                                                                               1054.5

      1000

       900
                                                                  804.4
       800

       700                                  660.6

       600
                    527
       500

       400
                                                                                                  300
       300
                                                                             200
       200                                             150.0
                           100
       100

         0
                    2001                        2002                  2003               2004

                                 Total equity                     Authorized capital



The Bank’s profit rose 89% in 2004 to RR 240 million from RR 127 million in 2003. Loan interest
income, commission income and securities income constituted the bulk of the Bank’s earnings.



                                                Earnings structure




                             3.3%                                             Interest and analogous
             19.1
                                                                              income
                                                                              income
             %
                                                                              Commission and other
                                                                              income
                                                               53.1           Securities operations
                                                               %              income
         24.5
         %                                                                    Foreign exchange
                                                                              income
The stable growth of the total equity and our commitment to raise performance standards
supported by the most advanced automated systems and new technologies, resulted in increasing
the volume of operations.


2004 was marked by a considerable growth of personal customer deposits which rose 33% to RR
3,7 billion by the year-end. The balances on the corporate accounts increased 14% to RR 2,5
billion.


                                 Balances on customer accounts



             RR mln
      7
      000
      6
      000
      5
      000
      4
      000
      3
      000
      2
      000
      1
      000
          0
          01.01.0 01.04.0 01.07.0 01.10.0 01.01.0 01.04.0 01.07.0 01.10.0 01.01.0
          3       3       3       3       4       4       4       4       5
             Personal customer
             deposits
                                    Corporate accounts         Total

The growth of the resource base enabled the Bank to increase volumes of assets operations.
In 2004, CHELINDBANK assets increased 27% to RR 8,4 billion.
                                         Assets in dynamics


                    RR mln
       9 000

       8 000

       7 000

       6 000

       5 000

       4 000

       3 000

       2 000

       1 000

          0
               01                  01                    01               01                  01
               .0                  .0                    .0               .0                  .0
               1.                  7.                    1.               7.                  1.
               03                  03                    04               04                  05

Lending remains to be the main direction of assets operations. In 2004, the loan portfolio
increased 61% to RR 5,6 billion. Loans to small and medium-sized enterprises as well as
consumer lending were the most fast-developing spheres. By volume of loans to individual
customers CHELINDBANK was among the 50 major Russian banks.
CHELINDBANK remains committed to daily meeting the economic requirements set out by the
Bank of Russia.
               CHELINDBANK compliance with the basic economic requirements
                               of the Bank of Russia, at January 1, 2005

      % 75

                                                          61,6%


                                            min 50%
         50




                                                                       max 25%
                                                                                    22%
         25
                               15,8%

                     min 10%



          0
               Capital Adequacy Ratio      Current Liquidity       Maximum exposure
                (N1)                        Ratio (N3)            per a borrower or a group
                                                                    of associated
                                                                       borrowers (N6)

                      The Central Bank            CHELINDBANK performance indices
                      of the RF
The continued growth of the total equity has further improved the Bank’s strong positions. At
January 1, 2005, its Capital Adequacy Ratio (N1) was 15,8% (with the 10% minimum required
ratio).




Our clients



From the very moment of establishing our Bank, we remain focused on building, maintaining and
strengthening good client relationships. Today CHELINDBANK offers a wide array of services and
products to all kinds of customers – corporate and personal, large enterprises and small
businesses. A customer-oriented approach and long-term partnership have always been our
strategic priorities.


Corporate Customers

In its activities CHELINDBANK combines a balanced conservatism and innovation. Developing
good client relationships is a focal point of our business strategy. Due to this, our customers
benefit from safety-focused products and high quality services rendered according to their needs
and preferences and conforming to the international standards.

Chelindbank is one of the largest banks of the Chelyabinsk Region in terms of the quantity of
corporate customers as well as the volume and number of commercial payments. At January 1,
2005, the Bank served 18 000 corporate accounts, or 17% of 104 000 accounts held by corporate
clients with the banks in Chelyabinsk Region.

Among our customers there are enterprises of different industrial sectors: nuclear industry –
FGUP “Russian Federal Nuclear Center – VNIITF”; non-ferrous metallurgy – Chelyabinsk
Electrolytic Zinc Plant, Kyshtym Electrolytic Copper Plant, "Ufaleynickel" Company; ferrous
metallurgy – Asha Metallurgical Plant, Chelyabinsk Electrometallurgical Plant; electric power
engineering – “Chelyabenergo”; food industry – "Bread Products Combine n.a. Grigorovich”,
"Zolotoy Ural" Company; communications – “South Ural Cellular Telephone” Company; trade –
chain store system “Pokrovsky Passazh”, “Diksi” and many others. The Bank continued to take
steady positions in the market of servicing accounts of local budget and off-budget funds.

We offer our clients an individual approach and a comprehensive service, aiming at contributing to
the development of their business. In 2004, CHELINDBANK specialists arranged more than 3 000
meetings and negotiations with the clients during which various items of cooperation were
discussed and new banking products and services were offered. The circle of customers getting
the complex service with the Bank (cash and settlement, collection, credits, deposits, salary
projects) has become wider.

In 2004, 3 700 companies of different types became customers of CHELINDBANK, more than 4
200 new accounts were opened with the Bank. Most of the newly-came customers are private
enterprises and entrepreneurs. The total number of corporate clients exceeded 15,7 thousand.
The average annual balances on the corporate accounts were RR 2,5 billion.
As a circle of clients and their industry classification become wider, we face the necessity of
developing various sets of services and products tailored for the certain client groups. In 2004, for
example, we prepared special sets for customers-exporters of non-ferrous metals and those
involved in tourism business. Being committed to assisting our clients to expand their foreign
trade activities, we conducted search for foreign partners in Argentina and Brazil for some of our
customers and carried on a presentation of our clients’ production in Mongolia.

In 2004, the Bank continued to sign agreements with companies and enterprises on accepting
client payments in their favor. The Bank Head office and branches render such services to more
than 220 companies.

Making plans for 2005, Chelindbank aims at forging stronger client relationship, expanding and
diversifying its customer base, developing new products and services. Our clients will be offered
with additional facilities for remote account management. The Bank also will carry on with further
implementation of Customer Relationship Management principles and perfection of the Bank
services unified database.
Retail Banking

Another important direction of CHELINDBANK’s activities is development of retail banking
services and products: personal deposits, consumer loans, services for bank cardholders,
payment services and others.
The Bank’s share on the regional market of personal deposits and loans was about 12 %, as on
January 1, 2005. Thus, CHELINDBANK takes the leading position on this business sector among
the 11 regional banks. In 2004, the market share of CHELINDBANK in the total amount of VISA
cards issued by banks of the Chelyabinsk Region was approximately 40 %.
The individuals’ savings market remains to be one of the most stable and dynamically developing
segments of the Bank resource base.
In 2004, the personal customer deposits increased 33% to RR 3,7 billion, including RR 2,8 billion
of time deposits. At January 1, 2005, the total number of personal customer accounts with the
Bank was 625 000, a growth rate for the year – 122%. Time deposit accounts numbered over 35
000 by the end of 2004.


                                 Personal customer deposits

                RR mln
         4000
         3500
         3000
         2500
         2000
         1500
         1000
          500
            0
           01.01.0 01.04.0 01.07.0 01.10.0 01.01.0 01.04.0 01.07.0 01.10.0 01.01.0
           3        3      3       3       4       4       4       4       5
        Total deposits           Time deposits       Card account balances




In 2004, CHELINDBANK introduced new deposit types: “Capital”, “Universal”, “Alternative”,
“Sufficiency”. In accordance with the Bank’s retail policy aimed at expanding the client base and
further increasing the volume of deposit operations, some promo actions for personal clients were
carried on. Those customers who opened deposits “Summer” and “Rozhdestvensky Lottery” took
part in the raffles and won above 260 prizes (handycams, digital photocameras, telephone sets,
an LCD TV, a voucher for a journey abroad and many others).
The Bank continued to broaden financial services for individuals and increased volumes of
consumer lending. Proving complex servicing via bank cards to employees of the corporate clients
remains for CHELINDBANK to be one of the most efficient ways to expand its presence on the
retail banking market.
In attempting to meet our clients’ demands for time-saving and comfortable service, we are
committed to make banking more convenient. That is why we continue further improving remote
banking services. In 2004, we introduced the “Telephone-Bank for Personal Customers” system.
Our clients – holders of the cards issued by CHELINDBANK have got an opportunity to pay bills
for mobile communication from their mobile phones. The monthly average of mobile phone
payments was about 600. In 2004, CHELINDBANK offered its clients a new service – sending
SMS messages with information on card account operations – which became very popular. Our
clients also can manage their accounts through the “Client – Bank Online” system, including an
access to account statement information and money transfer facility.
Chelindbank made continued progress in improving the settlement system applied to personal
payments in favor of public utilities and other payments of individual customers. In view of a
constantly increasing number of agreements signed with enterprises and companies in favor of
which Chelindbank accepts personal client payments, there was developed a new settlement
technology in 2004. It will be launched in 2005.
In 2005, CHELINDBANK will continue to develop a wide range of services and products for
personal clients, with a focus on a complex service, making banking more convenient, more
personal and more attractive to clients. We will further expand each customer’s access to his/her
account through developing our retail network and infrastructure through introducing new offices,
ATMs, POS terminals as well as Internet and telephone services.
Chelindbank Core Services

CHELINDBANK activities covering a diverse client base are supported by our abundant expertise
and technology improving our ability to deliver a high quality service.


               Lending
Lending remains to be one of the Bank’s key business areas. CHELINDBANK continues to
strengthen its position on credit market by adapting to rapidly developing, changing market
demands, by meeting customer needs and preferences, by applying internationally recognized
technologies.
Making the Basic Guidelines of CHELINDBANK activities for year 2004, the Bank’s Management
planned a 40% growth in the loan portfolio. The actual growth reported by the Bank was above
60%, or RR 2,1 billion. By the end of 2004, the loan portfolio totaled RR 5,6 billion.
                                                    Loan portfolio


              RR mln
                                                                                             5648
     6000
                                                                                5035

     5000                                                           4460
                                                        3976

     4000                                  3501


     3000                     2427
                    1971

     2000


     1000


         0
             01.01.02   01.01.03     01.01.04     01.04.04     01.07.04    01.10.04    01.01.05




The majority of the Bank’s loan portfolio was presented by credit exposures to the real sector of
economy, including 30% - to commerce and public catering, 28% - to industry.
                                     Sectoral structure of loan portfolio




                                            Agriculture
                  Personal clients                        Construction
                       26                      1%             3%          Commerce &
                       %                                                 public catering
                                                                             30
                                                                             %
           Other sectors                                                Budget
                6%                                                        4%
                                                          Transport & communications
                            Industry
                                  28                            2%
                                  %




Today CHELINDBANK offers corporate and retail clients a wide range of credit products, both
standard and individual, which depend on certain clients’ needs and preferences.
In high demand with corporate clients are leasing projects. According to journal “Expert” ranking,
the leasing company “ChelIndLeasing” established in 2003, was number one in Chelyabinsk and
number three in the Chelyabinsk Region by the volume of leasing payments in 2004. During 2004,
“ChelIndLeasing” concluded 62 lease contracts for acquiring freight and automobile transport,
industrial plant equipment, including for printing and food industries, for the total amount of RR
190,1 million.
The auspicious environment in the Chelyabinsk Region favors the development of small and
medium-sized enterprises. Chelindbank, pursuant to its Mission, is an active participant with the
state and regional programs for small business crediting. In November 2004, CHELINDBANK was
awarded by the Government of the Chelyabinsk Region for considerable achievements in small
business development.
Chelindbank continued lending activities under the EBRD program on small business crediting. As
on January 1, 2005, the Bank granted 3 800 loans to small businesses and individual enterprisers
for the total amount of RR 508 million, twice as much compared to 2003.
                           Loans granted under the EBRD program


 4500                                                                                  600

 4000
                                                                                       500
 3500

 3000                                                                                  400

 2500
                                                                                       300
 2000

 1500                                                                                  200

 1000
                                                                                       100
  500

     0                                                                                 0
         01.01.0 01.04.0 01.07.0 01.10.0 01.01.0 01.04.0 01.07.0 01.10.0 01.01.0
         3       3       3       3
                Number of loan agreements4               4       4
                                                 4 Credit volume, in RR 5mln

CHELINDBANK made a good progress at expanding the range of credit products and services
under the EBRD program. In 2004, the Bank began granting good faith loans for maximum RR
150 000 up to 12 months.

Aiming to make banking closer and more convenient to clients and due to CHELINDBANK’s broad
branch network, our credit products under the EBRD program are available “at place” to clients
located in many regional towns and settlements. Now the Bank Head Office, 18 branches and the
Representative Office in Zlatoust are participating in the project. In 2005, the rest of the Bank’s
branches will start granting credits to small business. In December 2004, the EBRD and
CHELINDBANK signed yet another loan agreement for $ 15 million for a period of five years.


Another strategic priority set forth by the Bank Management for 2004 was further increase of
crediting to individuals. The share of consumer loans in the Bank’s loan portfolio rose from 17%,
as on January 1, 2004, to 26%, as on January 1, 2005. Consumer loan portfolio totaled RR 1,5
billion by the year end, having increased by RR 860 million.
                                       Loans to individuals



             RR mln
          1600
                                                                                    1464
          1400
                                                                             1255
          1200
                                                                     977
          1000

           800                                              710
                                                   595
           600
                                           441
           400
                                 264
                 164     195
           200

             0
             01.01.03 01.04.03 01.07.03 01.10.03 01.01.04 01.04.04 01.07.04 01.10.04 01.01.05




In order to satisfy an ever-increasing demand for consumer credits, the Bank specialists worked
out the Plan for development of consumer lending.
Depending on a certain credit product, we prepared a number of consumer-oriented credit
programs: loans for consumer commodities, auto loans, real estate loans, loans provided through
bank cards under salary projects. Each program is developed with due regard for legislative
regulations, potential credit risks and other factors. The Bank continued to improve its lending
techniques through acceleration of approval procedures and optimization of standard lending
procedures.
CHELINDBANK remains focused on meeting its clients’ demands and raising performance
standards. That’s why, when granting consumer loans, CHELINDBANK affords its borrowers an
opportunity to make a choice of a trade outlet on their own. Neither CHELINDBANK requires its
clients to choose this or that insurance company when granting an auto loan. Upon a client’s
request, the Bank can add an insurance sum to a credit amount. By demonstrating such
personalized approach the Bank makes its credit products more attractive for the clients. As on
January 1, 2005, consumer and auto loan outstandings totaled RR 765,9 million.
As the regional real estate market develops, more and more clients apply to the Bank for real
estate loans. In order to anticipate and respond to the needs of our customers, we introduced a
new credit - for real estate acquiring - for a period of five years.
One of the Bank’s traditional and highly demanded services is crediting to personal customers via
plastic cards under the salary projects. As on January 1, 2005, CHELINDBANK provided 15 500
credits under salary projects for the total amount of RR 235 million. During the year, the number of
enterprises serviced by the Bank under salary projects increased from 490 to 652.
CHELINDBANK offers the following credit products via plastic cards: overdraft, available credit,
credit under the warranty of the company-employee.
While increasing the loan portfolio, the Bank puts a greater emphasis on improving its quality. In
2004, past due loans represented 0,6% of the total indebtedness under credits. Provision for
possible loans was 7,4%. In 2004, the Department on Credit Risk Management was set up. The
Bank’s internal program “Loan Portfolio” was further improved. Our specialists developed software
packages “Structure of the loan portfolio for corporate clients” and “Structure of the loan portfolio
for personal customers” containing all credit related data from year 2000 and enabling to monitor
and analyze the loan portfolio quality with regard to the Bank as a whole, or its branches, or a
certain currency, or the client base or other parameters of loan agreements.

In 2005, CHELINDBANK will continue to develop and expand its lending business providing the
clients with a diverse credit product suite including overdraft, credit lines, leasing, factoring, budget
crediting, guarantees, small business crediting under the EBRD programs, real estate loans. In
order to mitigate credit risks, we plan to develop software programs for credit history analysis and
modeling of a client financial position.




International Cooperation. Foreign Currency Operations.


The Bank provides foreign currency services to more than 300 corporate customers among which
there are such large industrial enterprises as: Chelyabinsk Electrolytic Zinc Plant, FGUP PA
“Mayak”, "Chelyabvtortsvetmet", Asha Chemical Plant, "Bread Products Plant named after
Grigorovich” and others.
CHELINDBANK remains focused on offering its clients the high-quality international payment
services using its wide net of correspondent banks and SWIFT as a principle channel of
communication.
In order to improve the Bank’s internal system on processing customer payments in foreign
currency, which significantly increased in number, the Bank’s specialists developed and launched
an electronic program on document processing that allowed us to make the process more
accurate and speedy.
In 2004, the Bank made continued progress in developing trade finance activities aiming at
gaining the leading positions in this sphere in the Urals Region. In the main, the Bank succeeded
in achieving this goal. CHELINDBANK was awarded as “Best Developing Regional Russian Trade
Finance Bank under the EBRD Trade Facilitation Programme in Russia in 2003” during the
Business Forum – 2004 held in April in London.

In December, 2004, the EBRD and CHELINDBANK signed the Revolving Credit Agreement. It will
enable us to provide the sub-borrowers with pre-export loans. As a result of concluding this
agreement, the total trade finance credit limit increased from $ 10 million to $ 20 million.

By expanding the cooperation with international financial organizations, CHELINDBANK can serve
more effectively the ever-growing needs of its clients from different business spheres, including
needs in modernization of industrial processes through the use of foreign technologies.

The Bank continues to develop and improve its international settlement system. Among the 186
correspondent banks of CHELINDBANK, 112 are foreign banks. In the course of 2004, the Bank’s
turnover on correspondent accounts, including accounts in foreign currency, more than doubled.
In 2005, we plan to open correspondent accounts with the banks from Kazakhstan, Ukraine and
Belorussia.

Over the past year, the Bank continued to make efforts aimed at building stronger relationships
with international financial organizations. One of the examples of CHELINDBANK’s good
international reputation is that 6 major European and American banks confirmed their credit lines
for trade finance and FOREX operations for the total amount of $ 34 million (in equivalent), as on
1 January, 2005.

In order to further develop direct correspondent relationships with the first-class foreign banks, in
CHELINDBANK there was developed a special marketing plan. In the course of its fulfillment, in
2004 the Bank signed agreements with ING Belgium SA/NV and Dresdner Bank AG on reducing
service fees and arranged a settlement with one of its foreign correspondent banks on crediting
export contracts through a European insurance agency.

Aiming at expanding our foreign currency services, we worked out the marketing plan on
promotion of trade finance services and products in 2005. This plan envisages industrial
segmentation of the client base and appointment of personal account managers for VIP-clients.




Bank Card Business


In 2004, the regional bank card market grew by 37%. Leading positions among the cards of
various payment systems issued by the banks of the Chelyabinsk Region belong to VISA
International and "Zolotaya Korona", with the shares of 44% и 31%, respectively. Starting with
2003, the share of “Zolotaya Korona” remains unchanged, whereas that of VISA shows a
sustained growth.
CHELINDBANK continues to be one of the major regional card services providers over the last
few years.
       CHELINDBANK share on the market of VISA cards issued by credit institutions
                             of the Chelyabinsk Region




       61%                                                                    39%




                     All banks in the Chelyabinsk Region   CHELINDBANK
The total number of VISA cards issued by the Bank exceeded 168 000 by the end of 2004. An
increase of 60% during 2004 was primarily due to the issue of cards under salary projects.
                       Number of plastic cards issued by CHELINDBANK




       240000


       200000


       160000


       120000


        80000


        40000


            0
                 01.01.01          01.01.02.       01.01.03     01.01.04      01.01.05

                            VISA          Zolotaya Korona     Total


       Number of enterprises having agreements on salary projects with CHELINDBANK




 700


 600


 500


 400


 300


 200


 100
        01.01.03 01.04.03 01.07.03 01.10.03 01.01.04 01.04.04 01.07.04 01.10.04 01.01.05




Card account balances including insurance deposits on VISA cards totaled RR 624 million, as on
January 1, 2005.
                                   Balances on card accounts



             RR mln

      700

      600

      500

      400

      300

      200

      100

        0
              01.01.01        01.01.02.       01.01.03        01.01.04       01.01.05

                      VISA      Zolotaya Korona       Total
CHELINDBANK continues to increase the issue volumes of cards and to expand the card service
infrastructure. In 2004, the Bank installed 26 additional ATMs, which numbered to the total of 75
machines. According to the Regional Acquiring Merchant License obtained from Visa International
in July 2003, CHELINDBANK provides VISA card servicing under merchant agreements. As on
January 1, 2005, the number of merchants was 178 with 195 POS terminals. For merchants, the
efficiency of settlements through plastic cards is absolutely apparent resulting in considerable
saving on collection, economy of servicing time, rise in the turnover.
CHELINDBANK also benefits from non-cash settlements through plastic cards in terms of
commission income on card operations carried out through the infrastructure of the Bank itself and
other banks.
One of the Bank’s objectives for card business development in 2005 is further increase in card
operations volumes. We plan to expand cooperation with merchants and to promote our card
services with the clients. While working with the merchants we set forward our advantages such
as modernization of connection schemes purposed for a faster authorization, a flexible tariff policy,
training of a merchant staff. We also carry out talks with the merchants on the possibility of
introducing trade discounts for card settlements.
In addition to the internal marketing and promotion strategy in the sphere of card business,
CHELINDBANK takes an active part in promo- and advertising actions conducted by VISA
International.
As clients become more demanding to the quality of card servicing, CHELINDBANK continues to
expand its card product suite. In February, 2004, CHELINDBANK began issuing VISA cards in
euro. Besides, we began transition to VISA smart technologies starting with issuing smart cards
for individual clients in March and proceeding with a wide issue of smart cards under salary
projects in October, the total number of which reached 10 000 by the year end.
In 2005, we will proceed with expanding our card business activities including salary-on-smart-
card projects, issue of corporate, co-branding and credit cards.




Securities Business. Operations with Other Assets.


CHELINDBANK is licensed to operate on the securities market as a professional depository,
broker and dealer as well as to carry out trust operations.
CHELINDBANK is the leading securities investor among the banks of the Chelyabinsk Region. In
2004, its share in the total regional banks securities portfolio was 56%, or RR 837 million.
                        CHELINDBANK securities portfolio structure



               2003                                    2004


             6% 2%                                  10%    2%
        4%
      4%
                                             17%


                                                                     63%
                                               8%
                        84%


                               Federal Loan Bonds (OFZ Bonds)
                               Regional and municipal bonds
                               Bonds issued by banks
                               Bonds of other issuers
                               Corporate bond market investments
                               Shares


98% of the securities portfolio is composed of bonds and 2% - of shares. Our bond portfolio is
primarily composed of Federal bonds, bank-issued bonds including those of the Central Bank of
Russia, corporate and regional bonds. 97% of the Bank’s investments are made in rouble
securities. In 2004, the Bank considerably expanded operations with corporate securities which
increased by 45%. The government securities portfolio grew by 29%. The Bank’s total volume of
securities transactions exceeded RR 2,6 billion.
CHELINDBANK conducted securities transactions both as a dealer and a broker on the Moscow
Interbank Currency Exchange from the remote trading unit located on the Bank’s premise.
CHELINDBANK has been delivering services on the securities organized market starting from
1996. It also renders brokerage and depository services on the over-the-counter market. The Bank
Depository services above 22 000 depo-accounts and over 80 issues of the government and
corporate securities. Brokerage and interdepositary operations are conducted via SWIFT and
Client – Bank System.
In 2005, we plan to expand our client base and increase the volume of the Bank’s own securities
transactions. Interbank deposit market declared by the Moscow Interbank Currency Exchange as
a challenging direction will give the Bank new opportunities to manage the liquidity as well as
allow it to expand the circle of counteragents and to reduce risks owing to the exchange
mechanisms. The Bank will continue to deal with corporate bonds giving priority to the choice and
analysis of new issuers and instruments as well as with government securities characterized by
reasonable yield and low transaction risk.
In order to attract new customers the Bank aims at further expanding the array of brokerage and
depository services including Internet trading and crediting on the securities market.
CHELINDBANK continues to expand its bill business. In 2004, many of our clients concluded with
the Bank agreements on purchase and sale of bills.
Our main activities on the bill market remain to be the issue and discount of bills.
In 2004, the volume of house bills was RR 6,2 billion, a 5% increase from 2003. The growth of
time bills volume resulted in increase in the bill account balances.




                                    Balances on bill accounts



                   RR mln
                                                                                345
         350


         300                                                     269


         250
                                                   197

         200
                                    139
                      127
         150


         100


          50


           0
                   2001          2002          2003           2004          2005
In 2004, CHELINDBANK reported an increased volume of discounted bills (issued by banks and
non-banks) for the nominal value of RR 1,9 billion. While expanding the volume of discounted bills,
Chelindbank pays careful attention to risk management and reviews the reliability of each bill
issuer.


In 2004, CHELINDBANK continued to carry out operations with precious metals. Our clients
preferred to invest in precious metals coins as such transactions are not taxed with VAT. The
Bank sold coins for the total amount of RR 8,9 million. Among the 24 coin specifications, the most
popular one with our clients was the “Gold Chervonets”. A high demand for “Gold Chervonets” in
2004 was also due to the introduction of attractive wholesale prices. In the reported year the Bank
started to carry out operations with the exclusive gold coins weighing one kilogramme and
continued to deal with gold and silver bullions.
In 2005, we plan to further develop our precious metals business by broadening our services,
raising performance standards and expanding the client base.




CHELINDBANK Branch Network

Chelindbank has the most ramified branch network among the Chelyabinsk regional banks. 28
branches cover the entire Chelyabinsk Region including six branches in Chelyabinsk. The Bank
has more than 30 subdivisions located outside its branches – additional offices, operating desks,
foreign currency exchange offices as well as the representative offices in Zlatoust and Moscow. In
February 2005, the Bank’s branch in Ekaterinburg (the Sverdlovsk Region) will start operating.
Total assets of the Bank branches increased 40%, profit earned by the branches grew by 11% as
compared to 2003. The total loan portfolio of the branches increased 72,5%.
To give the branches additional incentives to their activities improvement, all branches are ranked
in the Bank’s quarterly rating by their operating ratios.
The Bank’s activities, including all its branches and subdivisions, are based on the Uniform
Servicing Standards. The basic service technology is developed by the Bank Head Office and
brought to the notice of the branches. Besides, the specialists of the Head Office support the
systematic transfer of experience and best practice to the branches’ employees.
In the course of 2004, the branches’ employees attended various seminars: on documentary
business, cash operations, the current foreign currency legislation, trade finance and pre-export
financing.
As a result of the training programs, as on 1 January, 2005:
   all the Bank branches were certificated to effect operations with foreign currency;
   18 branches had the right to provide L/C transactions;
 9 branches were entitled to effect the remote registration of the passports on clients’ export
 and import operations;
 6 branches had the right to perform on their own the functions of a control agent over the
 clients’ foreign exchange activities.
All branches are involved in issuing and servicing VISA cards, 25 are equipped with ATMs. The
Head Office specialists and VISA International representatives arrange special training programs
twice a year for the branches’ employees on different topics connected with plastic card services
and products. In 2004, the training programs included seminars on acquiring and safety features
applied to card operations.
CHELINDBANK continues to widen the list of its branches entitled to provide operations with
precious metals coins. In 2004, three more branches obtained registration certificates of the Urals
Supervision Inspection. Now the services with precious metals coins are delivered by 20
branches.
The Bank branches are active participants in various advertising actions conducted for the Bank’s
clients. Since 2001, all the Bank subdivisions providing services for private depositors take part in
the quarterly competition.
In 2005, the Bank will continue to develop and expand the range of services and products
provided by its branches and to improve the banking service standards.




Risk Management

CHELINDBANK manages several types of financial risks (credit, market, geographical, exchange,
liquidity and interest rate risks), operational risk and legal risk. Fundamental to financial risk
management is the establishment and maintenance of a strong system of risk limits. Management
of operational and legal risks ensures the proper fulfillment of internal procedures in order to
minimize these categories of risks.
Credit risk
Credit risk represents the possibility of loss to the Bank if a borrower or a counterparty fails to
meet its financial obligations. The Bank seeks to manage and control these risks through its loan
policies, including the establishment of credit limits per a borrower or a group of associated
borrowers as well as geographical and sectoral limits. The Bank regularly performs a credit risk
monitoring; the risk limits are reviewed at least yearly. The credit limits relating to certain products,
borrowers and industries are approved by the Bank Board.
Credit risk on the off-balance financial instruments is the possibility of loss incurred as a result of a
counterparty failing to meet its contractual obligations. The credit policy applied by the Bank to the
off-balance-sheet liabilities is identical to that applied to the financial instruments included in the
balance sheet. This credit policy is based on applying of the approval procedures, the risk limit
system and monitoring.
Market risk
The Bank defines its market risk as the risk of loss arising from adverse changes in the Bank’s
open positions on interest, currency and shared instruments in response to market movements.
To manage market risk, the Bank Board establishes risk limits which are monitored on a daily
basis.
Geographical risk
The Bank’s assets, liabilities and loan commitments are usually classified by the country of the
location of a counterparty. Cash, precious metals and fixed assets are classified by the country of
their physical presence.
Exchange risk
The Bank defines its exchange risk as the risk of loss arising from adverse changes in foreign
currency exchange rates. The Bank establishes risk limits for foreign currencies 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 settlemetns 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.
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.


In order to safeguard interests and assets of the Bank, its shareholders and clients, the Bank‘s
internal control system performs internal supervision over the efficiency of the whole activities of
the Bank, its compliance with the legislation in force and internal Bank’s procedures (policies).
The Financial Monitoring Department is responsible for coordination of all measures against
money laundering and terrorism financing taken in the Bank. Proper fulfillment of the internal
procedures ensures the timely identification of operations subject to obligatory control.




CHELINDBANK – Social Responsibility and Philosophy of Business

Being one of the major regional banks, CHELINDBANK strives to meet the expectations of
society. CHELINDBANK sees its social responsibility as ensuring a sustainable business growth
and honoring its commitments to the clients, state, shareholders, business partners, society. In
November 2004, the Bank took part in the regional business forum “Business Today:
Technologies of the XXI Century" held in Chelyabinsk and was presented with the award of the
Chelyabinsk Regional Government for “The Best Trade Mark Reflecting the Corporate
Philosophy”.
We make a sound contribution to the development of the economy of the Chelyabinsk Region. We
give back a part of the profit received as fees for the services rendered for further growth and
development of the regional economy. CHELINDBANK continues to be a conscientious taxpayer.
The taxes paid by the Bank in 2004 totaled RR 53 million.
We remain focused on small business crediting, thus, supporting the regional program on
development of small business.
In 2004, the Bank (including all its branches) introduced a new service for the holders of plastic
cards “VISA – Municipal”. These cards are given free of charge to the employees of the regional
budget organizations. Such cardholders pay no annual service fee and gain advantage from an
overdraft facility for a year period.
Charity is one of the key elements of the Bank’s corporate culture. The Bank provides support
both for individuals and budget and public organizations. Examples of the CHELINDBANK’s
financial support for non-commercial initiatives in 2004 included charitable donations: to the Relief
Fund for the victims of the act of terrorism in Beslan; to the Children’s School of Arts, children’s
library, schools and a children’s home; to the regional charitable fund “Warm House” for homeless
kids feeding; to the Administration of Korkino (a city in the Chelyabinsk Region) for purchase of
New Year presents for children from poor families.

Another channel of the Bank’s community investment is people with disabilities. In 2004, it
included charitable donations to “Equal opportunities” program for disabled kids organized by the
independent noncommercial center "Childhood", to the Association of Disabled Persons “Lilia”.

Science and education investments have been always of significant importance for
CHELINDBANK. In 2004, the Bank provided support for the Ural State Medical Academy of
Additional Education, the Ural Socioeconomic Institute, the Chelyabinsk State University. Some
religious institutes such as the parishes of the St.Simeon’s Cathedral Church and the Church of
the Icon of Christ’s Mother “Utoli moja pechali”, the theological seminary also received
CHELINDBANK support through charitable donations in 2004.


CHELINDBANK has been always focused on honoring its commitments to its shareholders, clients
and employees. In order to strengthen their loyalty, CHELINDBANK is committed to improving
business effectiveness and profitability, raising performance standards. Continuing to build a high-
performance culture, the Bank introduced a Code of Corporate Governance in 2004. The Code
lays down the most important principles and traditions of the CHELINDBANK corporate culture
based on the Russian legislation, ethics and business standards. The introduction of the
Corporate Governance Code contributes to the equal protection of interests of the Bank’s
shareholders and ensures the disclosure of information on the Bank’s activities to the general
public.
BRANCHES AND REPRESENTATIVE OFFICES

BRANCHES IN CHELYABINSK

KALININSKY                                    LENINSKY
99-b Kaslinskaya Str., Chelyabinsk 454084     9a Gagarin Str., Chelyabinsk 454010
(+7 3512) 90-97-51                            (+7 3512) 52-05-43
METALLURGICHESKY                              SOVETSKY
12 Yaroslav Gashek Str., Chelyabinsk 454017   4 Znamenskaya Str., Chelyabinsk 454087
(+7 3512) 24-38-71                            (+7 3512) 62-24-08
TRAKTOROZAVODSKY                              TRANSPORTNY
12 I-Pyatiletki Str., Chelyabinsk 454071      63 Tsvilling Str., Chelyabinsk 454005
(+7 3512) 72-14-22                            (+7 3512) 37-59-95

BRANCHES IN THE CHELYABINSK REGION

ASHINSKY                                       VERKHNE-UFALEYSKY
10-a Sovetskaya Str., Asha 456000              174 Lenin Str., Verkhny Ufaley 456800
(+7 35159) 3-12-06                             (+7 35164) 2-42-32
EMANZHELINSKY                                  KARABASHSKY
20 Gagarin Str., Emanzhelinsk 456580           27 Komsomolskaya Str., Karabash 456540
(+7 35138) 2-12-62                             (+7 35153) 2-48-98
KARTALINSKY                                    KASLINSKY
2 Zavodskaya Str., Kartaly 457300              82 K.Marx Str., Kasli 456830
(+7 35133) 2-25-35                             (+7 35149) 2-21-35
KATAV-IVANOVSKY                                KOPEYSKY
10 D.Tarakanov Str,. Katav-Ivanovsk 456110     16-a Kommunistichesky pr., Kopeysk 456618
(+7 35147) 3-15-33                             (+7 35139) 7-55-59
KORKINSKY                                      KYSHTYMSKY
2 Lenin Str., Korkino 456550                   156 Kalinin Str., Kyshtym 456870
(+7 35152) 2-29-02                             (+7 35151) 3-30-18
MAGNITOGORSKY                                  NYAZEPETROVSKY
70 Lenin Str., Magnitogorsk 455026             7 Sverdlova Str., Nyazepetrovsk 456970
(+7 3519) 49-92-00                             (+7 35156) 2-13-67
SATKINSKY                                      TREKHGORNY
4 Metallurgov Str., Satka 456910               45 K.Marx Str., Trekhgorny 456080
(+7 35161) 4-35-79                             (+7 35111) 6-70-53
TROITSKY                                       UST-KATAVSKY
66 Sovetskaya Str., Troitsk 457100             42 1-mn, Ust-Katav 456043
(+7 35163) 2-01-44                             (+7 35167) 2-51-54
CHEBARKULSKY                                   YUZHNOURALSKY
22 Mira Str., Chebarkul 456400                 Космонавтов,13 Str., Yuzhnouralsk 457040
(+7 35138) 2-25-27                             (+7 35134) 5-25-21
YURIUZANSKY                                    "ZOLOTAYA DOLINA”
9 Zaitseva Str., Yuriuzan 456100               29 Ak.Pavlov Str., Miass 456317
(+7 35147) 2-38-39                             (+7 35135) 6-02-61
"SINEGORJE"                                    "ISTOK"
4-a Komsomolskaya Str., Ozersk 454065          7 Sverdlova Str., Snezhinsk 454070
(+7 35171) 2-58-23                             (+7 35172) 3-24-48
BRANCH IN THE SVERDLOVSK REGION
“CHKALOVSKY”
1 Simskaya Str., Ekaterinburg 620024
(+7 3549) 225-55-12
MOSCOW REPRESENTATIVE OFFICE
83/4-399 Leninsky Pr., Moscow 117261
(+7 095) 133-37-47
ZLATOUST REPRESENTATIVE OFFICE
22 Dvortsovaya Str., Zlatoust 456217
(+7 35136) 3-36-66

				
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