TIDM78JE
RNS Number : 9239A
Uzbek Ind & Construction Bank
04 June 2021
JSCB "UZBEK INDUSTRIAL
AND CONSTRUCTION BANK"
AND ITS SUBSIDIARIES
Consolidated Financial Statements
and Independent Auditor's Report
For the Year Ended 31 December
2020
JOINT STOCK COMMERCIAL BANK
"UZBEK INDUSTRIAL AND CONSTRUCTION BANK" AND ITS
SUBSIDIARIES
TABLE OF CONTENTS
STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION
AND APPROVAL OF THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEARED 31 DECEMBER 2020 1
INDEPENT AUDITOR'S REPORT 2-4
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER
2020
Consolidated statement of financial position 5
Consolidated statement of profit or loss and other comprehensive
income
6
Consolidated statement of changes in equity 7
Consolidated statement of cash flows 8
Notes to the consolidated financial statements
9-81
JOINT STOCK COMMERCIAL BANK
"UZBEK INDUSTRIAL AND CONSTRUCTION BANK" AND ITS
SUBSIDIARIES
STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE
PREPARATION
AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
Management of Joint Stock Commercial Bank "Uzbek Industrial and
Construction Bank" ("the Bank") and its subsidiaries ("the Group")
is responsible for the preparation of the consolidated financial
statements that present fairly the financial position of the Group
as at 31 December 2020, and the related consolidated statement of
profit or loss and other comprehensive income, changes in equity
and cash flows for the year then ended, and of significant
accounting policies and notes to the consolidated financial
statements (the "consolidated financial statements") in compliance
with International Financial Reporting Standards ("IFRS").
In preparing the consolidated financial statements, management
is responsible for:
-- Properly selecting and applying accounting policies;
-- Presenting information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- Providing additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group's consolidated financial position and
financial performance; and
-- Making an assessment of the Group's ability to continue as a going concern.
Management is also responsible for:
-- Designing, implementing and maintaining an effective and
sound system of internal controls, throughout the Group;
-- Maintaining adequate accounting records that are sufficient
to show and explain the Group's transactions and disclose with
reasonable accuracy at any time the financial position of the
Group, and which enable them to ensure that the consolidated
financial statements of the Group comply with IFRS;
-- Maintaining accounting records in compliance with legislation of the Republic of Uzbekistan;
-- Taking such steps as are reasonably available to them to
safeguard the assets of the Group; and
-- Preventing and detecting fraud and other irregularities.
The consolidated financial statements of the Group for the year
ended 31 December 2020 were approved by the
Management on 3 June 2021.
On behalf of the Management Board:
Annaklichev Sakhi Vokhidov Oybek
Chairman of the Management Chief Accountant
Board
3 June 2021 3 June 2021
Tashkent, Uzbekistan Tashkent, Uzbekistan
INDEPENT AUDITOR'S REPORT
To the Shareholders of Joint Stock Commercial Bank "Uzbek
Industrial and Construction Bank"
Opinion
We have audited the consolidated financial statements of Joint
Stock Commercial Bank "Uzbek Industrial and Construction Bank" and
its subsidiaries ("the Group"), which comprise the consolidated
statement of financial position as at 31 December 2020, and the
consolidated statement of profit or loss and other comprehensive
income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, and
notes to the consolidated financial statements, including a summary
of significant accounting policies.
In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Group as at 31 December 2020
and its consolidated financial performance and its consolidated
cash flows for the year then ended in accordance with International
Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's Responsibilities
for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Group in accordance with the
International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants (the "IESBA Code") together
with the ethical requirements that are relevant to our audit of the
consolidated financial statements in the Republic of Uzbekistan,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the IESBA Code. We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Why the matter was determined How the matter was addressed in
to be a key audit matter the audit
------------------------------------------- ----------------------------------------------
Assessment of expected credit
losses on loans and advances to
customers
We updated our understanding of
As at 31 December 2020, loans the credit risk management processes
and advances to customers represent and ECL assessment and measurement,
UZS 38,959,958 million or 81% including identification of events
of total assets, net of allowance leading to significant increase
for expected credit losses ("ECL") in credit risk ("SICR") and events
of UZS 1,143,718 million assessed of default.
on a collective basis and UZS
758,997 million on an individual
basis. We assessed reasonableness of
the Group's assumptions in respect
The collective assessment of ECL of loans' staging, probabilities
on loans and advances to customers of default and cash flows from
is associated with the risk of defaulted loans, with the reference
inadequately collected historical to the historical information
data of the Group and its inconsistent and market forecasts. We also
application in the ECL models. analysed the assumption related
Specifically, data on loans' maturity to allocation of borrowers in
dates, outstanding balances, and stages after completion of the
status of arrears could be incomplete forbearance program period provided
and/or inaccurate, which, as a to borrowers and performed the
consequence, could lead to inappropriate subsequent to year end analysis
assumptions and inputs used in ("back testing") of the repayment
determining the risk factors such of the loans.
as probability of default (PD),
loss given default (LGD), and We tested, on a sample basis,
exposure at default (EAD). the accuracy and completeness
of input data and other information
In response to the COVID-19 pandemic, used in the models, including
the Group has allowed borrowers principle balances, allocation
to postpone monthly repayments of loans by days in arrears, and
of interest and/or principal on checked other parameters, such
loans to later periods (the "forbearance as delinquency of interest or
program"). The implementation principle, restructuring events,
of this forbearance program and existence of litigation processes
the unprecedented uncertainty and statistics for recoveries
over the economic implications of loans.
created by the pandemic increased
the subjectivity in assessment For collectively assessed loans,
of ECL on loans and advances to we challenged appropriateness
customers. of identification of significant
increase in credit risk and classification
While assessing the ECL on an of exposures into stages. For
individual basis, significant a sample of loans classified as
assumptions are used in determining stage 1 and stage 2, we challenged
whether a significant increase the Group's identification of
in credit risk or credit impairing SICR. For a sample of loans classified
events have occurred on loans as stage 3 we challenged the Group's
since their initial recognition assessment of credit-impaired
(migration between stage 1, 2 classification and whether relevant
and 3). Additionally, the assessment impairment events had been identified
of ECL requires an analysis of on a timely manner and whether
financial and non-financial data the loans have been appropriately
for estimating the future cash classified to the respective stage.
flows under different scenarios We also analysed the determination
weighted for their probabilities. of the loss given default used
Information used for such analysis by the Group, including information
includes current financial performance on sale of collateral, statistics
of the borrower, forecasts of for recoveries of loans and the
the industry trends, collateral resultant arithmetical calculations.
value and costs and time required
to sell the collateral. For individually significant borrowers,
we have challenged the Group's
Due to the significance of the staging results and whether relevant
loans and advances to customers' impairment events had been identified
balance , and significant judgements on a timely basis, including overdue
in determining the key assumptions of interest or principal, restructuring
use in the assessment of expected events and certain financial performance
credit losses, we identified this indicators, in order to evaluate
matter as a key audit matter. whether the loans have been appropriately
classified to the respective stage.
Refer to Notes 3, 4 and 9 to the
consolidated financial statements To check appropriateness of ECL
for the Group's accounting policy, for individually significant loans
critical accounting judgements in stage 3, we reviewed the Group's
and key sources of estimation documentation in relation to credit
uncertainty and disclosures of assessment of the borrowers, challenged
expected credit loss allowances. assumptions underlying ECL calculation,
such as future cash flow projections,
the valuation of collateral held
and key assumptions applied.
We evaluated the adequacy and
completeness of disclosures in
the consolidated financial statements
relating to the loans in accordance
with IFRS requirements.
------------------------------------------- ----------------------------------------------
Other Information - Annual Report
Management is responsible for the other information. The other
information comprises the information included in the Annual
report, but does not include the consolidated financial statements
and our auditor's report thereon.
The Annual report is expected to be made available to us after
the date of this auditor's report.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of Management and Those Charged with Governance
for the Consolidated Financial Statements
Management is responsible for the preparation and fair
presentation of the consolidated financial statements in accordance
with IFRS, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, management
is responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
management either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Group's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by management.
-- Conclude on the appropriateness of management's use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine that matter that was of most significance
in the audit of the consolidated financial statements of the
current period, and are therefore the key audit matter. We describe
this matter in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
"Deloitte & Touche" Audit Organisation Erkin Ayupov
LLC Qualified Auditor/Engagement Partner
License authorizing audit of companies Auditor qualification certificate
registered by the Ministry of authorizing audit of companies,
Finance of the Republic of Uzbekistan #04830 dated 22 May 2010 issued
under #00776 dated 5 April 2019 by the Ministry of Finance of
the Republic of Uzbekistan
Certificate authorizing audit Auditor qualification certificate
of banks registered by the Central authorizing audit of banks, #6/8
bank of the Republic of Uzbekistan dated 25 January 2021 issued by
under #3 dated 14 October 2013 the Central bank of the Republic
of Uzbekistan
3 June 2021
Tashkent, Uzbekistan Director
"Deloitte & Touche" Audit Organisation
LLC
JOINT STOCK COMMERCIAL BANK
"UZBEK INDUSTRIAL AND CONSTRUCTION BANK" AND ITS
SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
(in millions of Uzbek Soums)
Notes 31 December 2020 31 December 2019
------------------------------------------------------------------------ ------ ----------------- -----------------
ASSETS
Cash and cash equivalents 7,37 5,601,186 2,862,574
Due from other banks 8,37 1,859,192 2,037,090
Loans and advances to customers 9,37 38,959,958 30,039,785
Investment securities measured at amortised cost 10,37 540,222 84,648
Financial assets at fair value through other comprehensive
income 11 38,024 88,714
Investment in associates 12 993 -
Premises, equipment and intangible assets 13 747,232 435,280
Deferred tax asset 20 167,619 -
Insurance assets 27 5,544 2,391
Other assets 14,37 376,520 276,693
------------------------------------------------------------------------ ------ ----------------- -----------------
Total assets before non-current assets held for sale 48,296,490 35,827,175
------------------------------------------------------------------------ ------ ----------------- -----------------
Non-current assets held for sale 15 27,355 18,943
,
------------------------------------------------------------------------ ------ ----------------- -----------------
TOTAL ASSETS 48,323,845 35,846,118
LIABILITIES
Due to other banks 16,37 1,496,004 465,109
Customer accounts 17,37 11,616,958 9,123,970
Debt securities in issue 18,37 3,273,048 2,920,894
Other borrowed funds 19,37 25,683,457 16,803,214
Deferred tax liability 30 - 13,880
Insurance liabilities 27 44,887 15,631
Other liabilities 20,37 128,627 99,520
Subordinated debt 21,37 - 83,332
, ,
------------------------------------------------------------------------ ------ ----------------- -----------------
,
TOTAL LIABILITIES 42,242,981 29,525,550
, ,
------------------------------------------------------------------------ ------ ----------------- -----------------
,
EQUITY
Equity attributable to owners of the Bank:
Share capital 22 4,640,011 4,640,011
Retained earnings 1,427,469 1,669,225
Revaluation reserve on equity securities at fair value through other
comprehensive income 13,384 6,404
, ,
------------------------------------------------------------------------ ------ ----------------- -----------------
Total equity attributable to owners of the Bank 6,080,864 6,315,640
Non-controlling interest - 4,928
, ,
------------------------------------------------------------------------ ------ ----------------- -----------------
,
TOTAL EQUITY 6,080,864 6,320,568
, ,
------------------------------------------------------------------------ ------ ----------------- -----------------
,
TOTAL LIABILITIES AND EQUITY 48,323,845 35,846,118
Approved for issue and signed on behalf of the Management Board
on 3 June 2021.
Annaklichev Sakhi Vokhidov Oybek
Chairman of the Management Chief Accountant
Board
JOINT STOCK COMMERCIAL BANK
"UZBEK INDUSTRIAL AND CONSTRUCTION BANK" AND ITS
SUBSIDIARIES
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE YEARED 31 DECEMBER 2020
(in millions of Uzbek Soums, except for earnings per share which
are in Soums)
Notes 2020 2019
---------------------------------------------------------------------------------- ------ ------------ ------------
Continuing operations
Interest income 24,37 3,289,632 2,290,730
Interest expense 24,37 (1,667,555) (1,133,409)
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Net interest income before allowance for expected credit
losses on loans and advances to customers 1,622,077 1,157,321
Allowance for expected credit losses on loans and advances to customers 9,37 (1,200,998) (95,454)
Initial recognition adjustment on interest bearing assets (19,285) (12,995)
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Net interest income 401,794 1,048,872
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Fee and commission income 25,37 401,784 334,039
Fee and commission expense 25 (81,461) (76,880)
Net gain on foreign exchange translation 100,467 44,750
Net gain from trading in foreign currencies 37 72,569 21,475
Insurance operations income 26 43,444 18,754
Insurance operations expense 26 (17,713) (5,600)
Change in insurance reserves, net 27 (26,103) (13,240)
Dividend income 5,477 12,041
Other operating income 28,37 29,773 16,695
Provision for impairment of other assets 31 (12,323) (17,479)
Recovery/(Provision) for Impairment of assets held for sale 15 7,233 (12,488)
Administrative and other operating expenses 29,37 (790,447) (659,403)
Share of profits of associates (12) -
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Profit before tax 134,482 711,536
Income tax expense 30 (22,358) (107,056)
,
---------------------------------------------------------------------------------- ------ ------------ ------------
,
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 112,124 604,480
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Discontinued operations
Profit/(Loss) for the year from discontinued operations 889 (14)
,
---------------------------------------------------------------------------------- ------ ------------ ------------
,
PROFIT FOR THE YEAR 113,013 604,466
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Attributable to:
- Owners of the Bank 113,013 604,587
- Non-controlling interest - (121)
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
PROFIT FOR THE YEAR 113,013 604,466
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Total basic and diluted EPS per ordinary share
(expressed in UZS per share) 32 0 .46 4.46
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
PROFIT FOR THE YEAR 113,013 604,466
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Other comprehensive income:
Items that will not be subsequently reclassified to profit or loss:
Fair value gain on equity securities at fair value through other comprehensive
income 11 8,725 5,179
Income tax relating to items that will not be reclassified subsequently to profit
or loss 30 (1,745) (1,036)
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Other comprehensive income 6,980 4,143
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 119,993 608,609
, ,
---------------------------------------------------------------------------------- ------ ------------ ------------
, ,
Attributable to:
- Owners of the Bank 119,993 608,730
- Non-controlling interest - (121)
, ,
, ,
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 119,993 608,609
Approved for issue and signed on behalf of the Management Board
on 3 June 2021.
Annaklichev Sakhi Vokhidov Oybek
Chairman of the Management Chief Accountant
Board
JOINT STOCK COMMERCIAL BANK "UZBEK INDUSTRIAL AND CONSTRUCTION
BANK" AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARED 31
DECEMBER 2020
(in millions of Uzbek Soums)
Notes Share Share Treasury Retained Revaluation Non-controlling Total
capital premium shares earnings reserve on interest equity
equity
securities at
fair value
through other
comprehensive
income
31 December 2018 1, 884,186 696 (1,330 ) 1, 312,607 2, 261 5, 049 3, 203,469
- , , , , , ,
, , , , , , ,
Profit for the
year - - - 604, 587 - (121) 604, 466
Other
comprehensive
income for the
year - - - - 4, 143 - 4, 143
, , , , , , ,
, , , , , , ,
Total
comprehensive
income for the
year - - - 604, 587 4, 143 (121) 608, 609
, , , , , , ,
, , , , , , ,
Shares issued 2 2 292, 467 - - - - - 292, 467
Conversion of
debt into
equity by the
shareholder,
net of tax 2 2 2, 465,358 (696) - (176,619 ) - - 2, 288,043
Recognition of
liability
component of
preference
shares 2 2 (2,000 ) - - - - - (2,000 )
Disposal of
treasury shares 2 2 - - 1, 330 - - - 1, 330
Dividends paid 23 - - - (71,350 ) - - (71,350 )
, , , , , , ,
, , , , , , ,
31 December 2019 4, 640,011 - - 1, 669,225 6, 404 4, 928 6, 320,568
, , , , , , ,
----------------- ------ ----------- -------- --------- ------------ -------------- ---------------- ------------
,
Profit for the
year - - - 113,013 - - 113,013
Other
comprehensive
income for the
year - - - - 6,980 - 6,980
, , , , , , ,
----------------- ------ ----------- -------- --------- ------------ -------------- ---------------- ------------
,
Total
comprehensive
income for the
year - - - 113,013 6,980 - 119,993
, , , , , , ,
----------------- ------ ----------- -------- --------- ------------ -------------- ---------------- ------------
Dividends paid 23 - - - (354,76 9 ) - - (354,76 9 )
Decrease in
non-controlling
interest from
disposal of
interest in
subsidiaries - - - - - (4,92 8 ) (4,92 8 )
, , , , , , ,
----------------- ------ ----------- -------- --------- ------------ -------------- ---------------- ------------
31 December 2020 4,640,011 - - 1,427,469 13,384 - 6,080,864
Approved for issue and signed on behalf of the Management Board
on 3 June 2021.
Annaklichev Sakhi Vokhidov Oybek
Chairman of the Management Chief Accountant
Board
JOINT STOCK COMMERCIAL BANK
"UZBEK INDUSTRIAL AND CONSTRUCTION BANK" AND ITS
SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARED 31 DECEMBER
2020
(in millions of Uzbek Soums)
Notes 2020 2019
------------------------------------------------------------------------------- ------ ------------ -------------
Cash flows from operating activities
Interest received 2,763,220 2,888,001
Interest paid (1,560,240) (1,767,974)
Fee and commission received 397,228 331,724
Fee and commission paid (81,461) (76,880)
Insurance operations income received 43,444 18,754
Insurance operations expense paid (17,713) (5,600)
Net gain from trading in foreign currencies 72,569 21,475
Other operating income received 24,845 7,593
Staff costs paid (498,746) (516,670)
Administrative and other operating expenses paid (208,624) (167,238)
Income tax paid (266,102) (140,309)
Cash flows from operating activities before changes in operating assets and
liabilities 668,420 592,876
Net decrease/(increase) in due from other banks 302,728 (1,047,465)
Net increase in loans and advances to customers (6,747,581) (10,292,410)
Net increase in investment securities measured at amortised cost (442,595) (84,422)
Net (increase)/decrease in other assets (72,844) 32,167
Net increase/(decrease) in due to other banks 817,814 (189,679)
Net increase in customer accounts 1,918,644 3,513,345
Net decrease in other liabilities (7,790) (2,745)
,
------------------------------------------------------------------------------- ------ ------------ -------------
,
Net cash used in operating activities (3,563,204) (7,478,333)
,
------------------------------------------------------------------------------- ------ ------------ -------------
,
Cash flows from investing activities
Acquisition of equity securities at fair value through other
comprehensive income (12,857) (44,998)
Proceeds from disposal of equity securities at fair value through
other comprehensive income 72,272 3,267
Acquisition of premises, equipment and intangible assets (421,255) (448,700)
Proceeds from disposal of premises, equipment and intangible
assets 19,729 14,737
Proceeds from disposal of subsidiary, net of disposed cash 889 (7)
(Acquisition)/disposal of investment in associates (1,005) 2,907
Dividend income received 5,477 12,041
,
,
Net cash used in investing activities (336,750) (460,753)
,
------------------------------------------------------------------------------- ------ ------------ -------------
,
Cash flows from financing activities
Proceeds from borrowings due to other banks 23 222,218 929
Repayment of borrowings due to other banks 23 (46,122) (77,068)
Proceeds from other borrowed funds 23 13,094,718 14,811,572
Repayment of other borrowed funds 23 (6,488,852) (9,094,144)
Proceeds from debt securities in issue 23 168,310 2,992,944
Repayment of debt securities in issue 23 (94,400) (144,157)
Proceeds from other subordinated debt 23 - 80,000
Repayment of other subordinated debt 23 (80,000) -
Issue of ordinary shares - 292,467
Dividends paid 23 (353,788) (71,145)
------------------------------------------------------------------------------- ------ ------------ -------------
,
Net cash from financing activities 6,422,084 8,791,398
,
------------------------------------------------------------------------------- ------ ------------ -------------
,
Effect of exchange rate changes on cash and cash equivalents 216,482 113,129
,
------------------------------------------------------------------------------- ------ ------------ -------------
,
Net increase in cash and cash equivalents 2,738,612 965,441
Cash and cash equivalents at the beginning of the year 7 2,862,574 1,897,133
,
------------------------------------------------------------------------------- ------ ------------ -------------
,
Cash and cash equivalents at the end of the year 7 5,601,186 2,862,574
,
------------------------------------------------------------------------------- ------ ------------ -------------
,
Non-cash transactions
------------------------------------------------------------------------------- ------ ------------ -------------
,
Transfer of loans funded by UFRD 9, 19 - 11,575,708
Conversion of debt into equity by the shareholder 9, 22 - 2,288,043
Approved for issue and signed on behalf of the Management Board
on 3 June 2021.
Annaklichev Sakhi Vokhidov Oybek
Chairman of the Management Chief Accountant
Board
1. INTRODUCTION
JSCB "Uzbek Industrial and Construction Bank" ("the Bank") was
incorporated in 1991 and is domiciled in the Republic of
Uzbekistan. It is registered in Uzbekistan to carry out banking and
foreign exchange activities and has operated under the banking
license #17 issued by the Central bank of Uzbekistan ("the CBU") on
21 October 2017 (succeeded the licenses #17 issued on 25 January
2003 and #25 issued on 29 January 2005 by the CBU for banking
operations and general license for foreign currency operations,
respectively).
Principal activity . The Bank's principal activity is commercial
banking, retail banking, operations with securities, foreign
currencies and origination of loans and guarantees. The Bank
accepts deposits from legal entities and individuals, extended
loans, and transfer payments. The Bank conducts its banking
operations from its head office in Tashkent and 45 branches within
Uzbekistan as of 31 December 2020 (31 December 2019: 45
branches).
The Bank participates in the state deposit insurance scheme,
which was introduced by the Uzbek Law #360-II "Insurance of
Individual Bank Deposit" on 5 April 2002. On 28 November 2008, the
President of Uzbekistan issued the Decree #PD -4057 stating that i
n case of the withdrawal of a license of a bank, the State Deposit
Insurance Fund guarantees repayment of 100% of individual deposits
regardless of the deposit amount.
As at 31 December 2020, the number of Bank's employees was 4,052
(31 December 2019: 3,902).
Registered address and place of business. 3, Shakhrisabzskaya
Street, Tashkent, 100000, Uzbekistan
At 31 December 2020 and 2019, the Group consolidated the
following companies in these consolidated financial statements
:
The Bank's ownership
Country of 31 December 2020 31 December 2019 Type of
Name incorporation % % operation
SQB Capital, LLC Uzbekistan 100 100 Asset management
PSB Industrial Investments,
LLC Uzbekistan 100 100 Asset management
SQB Insurance, LLC Uzbekistan 100 100 Insurance
SQB Securities, LLC Uzbekistan 100 - Securities brokerage
SQB Construction, LLC Uzbekistan 100 - Construction
Xorazm Nas s li Parranda, Uzbekistan - 57 Poultry farming
LLC
The Group started insurance business from 20 March 2019 by
obtaining a license for insurance activities through its newly
established subsidiary SQB Insurance, LLC.
During 2020, the Group established new subsidiaries SQB
Securities and SQB Construction while Xorazm Nassli Parranda LLC
has bought back its share from the Group at par.
The table below represents the interest of the shareholders in
the Bank's share capital as at 31 December 2020 and 2019:
Shareholders 31 December 2020 31 December 2019
-------------------------------------------------------------------------- ----------------- -----------------
The Fund of Reconstruction and Development of the Republic of Uzbekistan 82.09% 82.09%
The Ministry of Finance of the Republic of Uzbekistan 12.77% 0.00%
The State Assets Management Agency of the Republic of Uzbekistan 0.00% 12.77%
Other legal entities and individuals (individually hold less than 5%) 5.14% 5.14%
Total 100% 100%
According to the Presidential Decree #4487 dated 9 October 2019,
shares of the State Assets Management Agency of the Republic of
Uzbekistan in the Bank were transferred to the Ministry of Finance
of the Republic of Uzbekistan. The Ministry of Finance is now
responsible for effective transformation of the Bank's business
model and introduction of modern corporate governance methods. The
Ministry of Finance will retain the strategic control at least
until 2022 as planned in the "Strategy for reforming of the banking
system of the Republic of Uzbekistan from 2020 to 2025". This
strategy envisages the plan to make State's shares in the Bank
available for sale to strategic private investors. Please refer to
Note 9 for further details.
2. OPERATING ENVIRONMENT OF THE GROUP
Operating Environment. The Uzbekistan economy displays
characteristics of an emerging market, including but not limited
to, a currency that is not freely convertible outside of the
country and a low level of liquidity in debt and equity markets.
Also, the banking sector in Uzbekistan is particularly impacted by
local political, legislative, fiscal and regulatory developments.
The largest Uzbek banks are state-controlled and act as an arm of
Government to develop the country's economy. The Government
distributes funds from the country's budget, which flow through the
banks to various government agencies, and other state and privately
owned entities.
Economic stability in Uzbekistan is largely dependent upon the
effectiveness of economic measures undertaken by the Government,
together with other legal, regulatory and political developments,
all of which are beyond the Bank's control.
The Bank's financial position and operating results will
continue to be affected by future political and economic
developments in Uzbekistan including the application and
interpretation of existing and future legislation and tax
regulations which greatly impact Uzbek financial markets and the
economy overall.
In addition to that, starting from early 2020 a new coronavirus
disease (COVID-19) has begun rapidly spreading all over the world
resulting in announcement of the pandemic status by the World
Health Organization in March 2020. Responses put in place by many
countries to contain the spread of COVID-19 are resulting in
significant operational disruption for many companies and have
significant impact on global financial markets. As the situation is
rapidly evolving it has a significant effect on business of many
companies across a wide range of sectors, including, but not
limited to such impacts as disruption of business operations as a
result of interruption of production or closure of facilities,
supply chain disruptions, quarantines of personnel, reduced demand
and difficulties in raising financing. In addition, the Group has
faced the increasingly broad effects of COVID-19 as a result of its
negative impact on the global economy and major financial
markets.
In December 2020, S&P Global Ratings affirmed its long- and
short-term foreign and local currency ratings on Uzbekistan at
'BB-/B' with the outlook to remain negative. The decision to remain
the outlook as negative was made due to rapid rise in the country's
external and fiscal debt, partly due to USD 1 billion (UZS
10,476,920 million at the exchange rate prevailing as at the
reporting date) in additional government spending in response to
the coronavirus pandemic. Also, in April and September 2020, the
CBU reduced the refinancing rate from 16% to 15% and from 15% to
14%, respectively.
As at 31 December 2020, these changes in the economic
environment have significantly impacted the operations of the Group
through increased charges for ECL and further effects of COVID-19
on the Group's business largely depends on the duration and the
incidence of the pandemic effects on the world and Uzbekistan
economy. The Group continues to monitor the situation and intends
to adapt strategies as needed to continue to drive the business and
meet obligations.
Management of the Group is monitoring developments in the
current environment and taking the following measures, it considers
necessary in order to support the sustainability and development of
the Group's business in the foreseeable future:
- In response to the COVID-19 pandemic, the Group introduced
repayment holidays of up to six months to enable customers to take
a temporary break from making loan repayments where they are
experiencing, or are reasonably expected to experience, payment
difficulties caused by COVID-19. During 2020, the Group provided
forbearances to customers and as of year-end total outstanding
balance of forbearing loans is equaled to UZS 12,932,292 million or
approximately 31.7% of the gross loan portfolio. The forbearance
solutions offered relief in the form of reductions to contractual
payments including freezes to interest payments for a minimum
period of six months, and for customers who have longer term
financial difficulties. The aggregation of the above activities are
defined as "Curing procedures" provided by the Management.
- As at 31 December 2020 the allowance for expected credit
losses increased by UZS 1,200,998 million compared to allowance as
at 31 December 2019.
- The Group has taken a number of steps to mitigate the effect
on its portfolios and risk profile, performing stress-testing of
various COVID-19 related scenarios, and it remains vigilant in the
light of the developing situation:
o During the pandemic the Group expanded offering of banking
products through digital and distance channels, which were
previously provided exclusively at the Bank's branches.
o Towards the end of Q1 2020, the Group has also implemented
remote work arrangements and restricted business travel effective
mid-March 2020 and reinstated the business as usual state from
September 2020.
In addition, the CBU introduced a set of regulatory changes
aimed at providing relief to the Banking sector, which was
negatively affected by the global economic slowdown and COVID-19
pandemic. The main directions of the changes were as follows:
o The commercial banks were provided with additional liquid
resources as a result of easing the requirements for mandatory
reserves with the CBU. This measure has allowed the Bank to enjoy
additional liquidity;
o The CBU made available for the commercial banks a credit line
collateralized with mortgage loans and/or loans classified as
"standard";
o For regulatory and statutory purposes, the commercial banks
were allowed not to reduce the quality classification of the loans
restructured as a result of pandemic, which in turn allowed the
banks not to increase their impairment allowances;
o The CBU postponed the introduction of more stringent liquidity
requirements (in particular, liquidity coverage ratio - LCR) from
mid-2020 to 2021;
o Quarterly contributions to the State Deposit Insurance Fund
have been reduced from 0.25% to 0.05% starting from 1 July
2020.
The Group's management monitors current changes in the economic
situation and takes measures that it considers necessary to
maintain the stability and development of the Group in the near
future. However, the significance of the effect of COVID-19 on the
Group's business largely depends on the duration and the incidence
of the pandemic effects on the world and Uzbekistan economy. The
impact of changes in the economic environment on the future results
of operations and the financial position of the Group's is
currently difficult to determine.
3. SIGNIFICANT ACCOUNTING POLICIES
Going concern
These consolidated financial statements have been prepared on
the assumption that the Group is as a going concern and will
continue in operation for the foreseeable future.
The Group's activities continue to be affected by the
uncertainty and instability of the current economic environment.
The financial position and the results of the Bank continue to be
significantly impacted by the reforms of the new government,
including those directed at increasing living standards, incomes,
and job opportunities in rural regions.
For the year ended 31 December 2020, the Group had a cash
outflow from operating activities mainly as a result of on-lending
the funds received from international financial institutions and
the State to finance the government and investment projects
increasing the loans and advances to customers by 33%.
In 2019, the Bank was in breach of certain covenants stipulated
in the tripartite Subsidiary loan agreements between the Republic
of Uzbekistan, the Rural Restructuring Agency and the Bank
#3471-UZB from April 2017 and #3673-UZB from November 2018, as
discussed in detail in Note 19.
As at 31 December 2020, the Bank was in a breach of return on
average assets ratio stipulated in the tripartite Subsidiary loan
agreements between the Republic of Uzbekistan, the Rural
Restructuring Agency and the Bank #3471-UZB from April 2017,
#3673-UZB from November 2018 and #L3823 (COL)-UZB dated 10 February
2020 , as discussed in detail in Note 19. On 5 November 2019, the
Republic of Uzbekistan confirmed to the Bank in writing that it
would not take any action to demand prepayment of the loans
advanced to the Bank under the Subsidiary Loan Agreements as a
consequence of past and/or on-going non-compliance with this
covenant. In addition, the agreement between the Bank and Ministry
of Finance does not provide a definition of an event of default.
Therefore the Management considers the breach of the covenant not
to be an event of default and has received a letter from the
Ministry of Finance dated 31 December 2020 confirming that this
breach of the covenant is not considered to be an event of
default.
As at 31 December 2020, the Group classified UZS 548,938 million
as "demand and less than 1 month" as a result of the non-compliance
with the covenant mentioned above.
As at 31 December 2020, the Bank was not in compliance with
certain covenants, stipulated in Master Trade Finance Loan
Agreement (the 'Master Agreement') dated 15 October 2019 between
the Bank and VTB Bank Europe, as discussed in detail in Note 19. On
24 March 2021, the Bank received a letter form VTB Bank Europe
giving their consent to waive above mentioned financial covenants
as of the end of the financial year 2020 with the decision to grant
the waiver reached during December 2020. Hence, liquidity has not
been adjusted.
The Management believes that the Group will be able to continue
as a going concern for the foreseeable future based on the
following:
-- Continued ongoing support by the Government of the Republic
of Uzbekistan ("the State"). The Group is a state owned bank with
the Ministry of Finance and UFRD as key shareholders, jointly
holding 94.86% interest in the share capital of the Bank. The Group
is a strategic financial institution of the Republic of Uzbekistan,
responsible for the development of strategic industries.
-- The Bank plays a vital role as a government arm/vehicle to
channel the State funds to the strategic sectors of the economy of
Uzbekistan. The Management believes that in spite of a substantial
portion of customer accounts being on demand, the fact that
significant portion of these customer accounts are of large State
controlled entities which are either the Group's shareholders or
its entities under common control and the past experience of the
Group, indicate that these customer accounts provide a long-term
and stable source of funding for the Group.
-- On the basis of the Presidential Decree #5978 dated 4 March
2020 "On additional measures to support the population, sectors of
the economy and business entities during the coronavirus pandemic"
commercial banks were provided with additional liquid resources in
the amount of UZS 2,600,000 million by means of easing the
requirements for mandatory reserves and implementation of special
mechanism on the part of the CBU for providing liquidity to
commercial banks up to UZS 2,000,000 million with a term of up to 3
years.
-- During 2020, the Group has attracted additional long term
financing from International financial institutions for the total
amount of USD 360 million as described in Note 19.
-- Subsequent to the reporting date on 1 February 2021 the Group
has attracted further long term financing from International
financial institutions for the total amount of USD 170 million as
described in Note 38.
-- The Management regularly assesses the stability of its
customer accounts funding base, in particular with respect to that
of non-state entities, based on past performance and analysis of
the events subsequent to the reporting date. More specifically, the
balance of customer accounts as at 31 December 2020 and 2019
amounted to UZS 3,599,487 million and UZS 3,057,519 million,
respectively. The Management believes that the customers intend to
hold their term deposits with the Group, and that this source of
funding will remain at a similar level for the foreseeable
future.
The Group's management believes that, based on current forecasts
and measures taken to manage liquidity, taking into account the
financial support of the shareholder, and also taking into account
the economic situation in the country in connection with the
COVID-19 pandemic, the Group has enough funds to continue its
activities in the foreseeable future, within 12 months after the
reporting date and for the next 12 months from the date of issue of
financial statements.
Basis of preparation . These consolidated financial statements
have been prepared in accordance with International Financial
Reporting Standards ("IFRS") under the historical cost convention
except for certain financial instruments. The principal accounting
policies applied in the preparation of these consolidated financial
statements are set out below.
The Group is required to maintain its records and prepare its
financial statements for regulatory purposes in accordance with
Uzbekistan Accounting Legislation and related instructions ("UAL").
These consolidated financial statements are based on the Group's
UAL books and records, adjusted and reclassified in order to comply
with IFRS.
These consolidated financial statements are presented in
millions of Uzbek Soums ("UZS"), unless otherwise indicated.
Basis of consolidation . The consolidated financial statements
incorporate the financial statements of the Bank and entities
controlled by the Bank (its subsidiaries) made up to 31 December
each year. Control is achieved when the Bank:
-- has the power over the investee;
-- is exposed, or has rights, to variable return from its involvement with the investee; and
-- has the ability to use its power to affect its returns.
When the Bank has less than a majority of the voting rights of
an investee, it considers that it has power over the investee when
the voting rights are sufficient to give it the practical ability
to direct the relevant activities of the investee unilaterally. The
Bank considers all relevant facts and circumstances in assessing
whether or not the Bank's voting rights in an investee are
sufficient to give it power, including:
-- the size of the Bank's holding of voting rights relative to
the size and dispersion of holdings of the other vote holders;
-- potential voting rights held by the Bank, other vote holders or other parties;
-- rights arising from other contractual arrangements; and
-- any additional facts and circumstances that indicate that the
Bank has, or does not have, the current ability to direct the
relevant activities at the time that decisions need to be made,
including voting patterns at previous shareholders' meetings.
Consolidation of a subsidiary begins when the Bank obtains
control over the subsidiary and ceases when the Bank loses control
of the subsidiary. Specifically, the results of subsidiaries
acquired or disposed of during the year are included in the
consolidated profit or loss account from the date the Bank gains
control until the date when the Bank ceases to control the
subsidiary.
Profit or loss and each component of OCI are attributed to the
owners of the Bank and to the non-controlling interests (NCI).
Total comprehensive income of the subsidiaries is attributed to the
owners of the Bank and to the NCI even if this results in the NCI
having a deficit balance.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with the Group's accounting policies.
All intragroup assets and liabilities, equity, income, expenses
and cash flows relating to transactions between the members of the
Group are eliminated on consolidation, with the exception of
foreign currency gains and losses on intragroup monetary items
denominated in a foreign currency of at least one of the
parties.
NCI in subsidiaries are identified separately from the Group's
equity therein. Those interests of non-controlling shareholders
that are present ownership interests entitling their holders to a
proportionate share of net assets upon liquidation may initially be
measured at fair value or at the NCI's proportionate share of the
fair value of the acquiree's identifiable net assets. The choice of
measurement is made on an acquisition-by-acquisition basis. Other
NCI are initially measured at fair value. Subsequent to
acquisition, the carrying amount of NCI is the amount of those
interests at initial recognition plus the NCI's share of subsequent
changes in equity.
Changes in the Group's interests in subsidiaries that do not
result in a loss of control are accounted for as equity
transactions. The carrying amount of the Group's interests and the
NCI are adjusted to reflect the changes in their relative interests
in the subsidiaries. Any difference between the amount by which the
NCI are adjusted and the fair value of the consideration paid or
received is recognised directly in equity and attributed to the
owners of the Bank.
When the Group loses control of a subsidiary, the gain/loss on
disposal recognised in profit or loss is calculated as the
difference between (i) the aggregate of the fair value of the
consideration received and the fair value of any retained interest
and (ii) the previous carrying amount of the assets (including
goodwill), less liabilities of the subsidiary and any NCI. All
amounts previously recognised in OCI in relation to that subsidiary
are accounted for as if the Group had directly disposed of the
related assets or liabilities of the subsidiary (i.e. reclassified
to profit or loss or transferred to another category of equity as
specified/permitted by applicable IFRSs). The fair value of any
investment retained in the former subsidiary at the date when
control is lost is regarded as the fair value on initial
recognition for subsequent accounting under IFRS 9 when applicable,
the cost on initial recognition of an investment in an associate or
a joint venture.
Accounting for the effects of hyperinflation. The Republic of
Uzbekistan has previously experienced relatively high levels of
inflation and was considered to be hyperinflationary as defined by
IAS 29 "Financial Reporting in Hyperinflationary Economies" ("IAS
29"). IAS 29 requires that the financial statements prepared in the
currency of a hyperinflationary economy be stated in terms of the
measuring unit current at the statement of financial position date.
It states that reporting operating results and financial position
in the local currency without restatement is not useful because
money loses purchasing power at such a rate that the comparison of
amounts from transactions and other events that have occurred at
different times, even within the same accounting period, is
misleading.
The characteristics of the economic environment of Uzbekistan
indicated that hyperinflation had ceased effective from 1 January
2007. Restatement procedures of IAS 29 are therefore only applied
to assets acquired or revalued and liabilities incurred or assumed
prior to that date. For these balances, which are effectively share
capital and premises and equipment, the amounts expressed in the
measuring unit current as at 31 December 2006 are the basis for the
carrying amounts in these consolidated financial statements. The
restatement was calculated using the conversion factors derived
from the Uzbekistan Consumer Price Index ("CPI"), provided by the
State Committee on Statistics of the Republic of Uzbekistan, and
from indices obtained from other sources for years prior to
1994.
Associates or joint ventures. Associates are entities over which
the Group has significant influence (directly or indirectly), but
not control, generally accompanying a shareholding of between 20
and 50 percent of the voting rights.
A joint venture is a type of joint arrangement whereby the
parties that have joint control of the arrangement have rights to
the net assets of the joint venture. Joint control is the
contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require
the unanimous consent of the parties sharing control.
Investments in associates or joint ventures are accounted for
using the equity method of accounting, and are initially recognised
at cost. The carrying amount of associates or joint ventures
includes goodwill identified on acquisition less accumulated
impairment losses, if any. Dividends received from associates or
joint ventures reduce the carrying value of the investment in
associates or joint ventures. Other post-acquisition changes in
Group's share of net assets of an associate or a joint venture are
recognised as follows: (i) the Group's share of profits or losses
of associates or joint ventures is recorded in the consolidated
profit or loss for the year as share of result of associates or
joint ventures, (ii) the Group's share of other comprehensive
income is recognised in other comprehensive income and presented
separately, (iii); all other changes in the Group's share of the
carrying value of net assets of associates or joint ventures are
recognised in profit or loss within the share of result of
associates or joint ventures. However, when the Group's share of
losses in an associate or a joint venture equals or exceeds its
interest in the associate or joint venture, including any other
unsecured receivables, the Group does not recognise further losses,
unless it has incurred obligations or made payments on behalf of
the associate or joint venture.
Unrealised gains on transactions between the Group and its
associates or joint ventures are eliminated to the extent of the
Group's interest in the associates or joint ventures; unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred.
When the Group ceases to have control or significant influence,
any retained interest in the entity is remeasured to its fair
value, with the change in carrying amount recognised in profit or
loss. The fair value is the initial carrying amount for the
purposes of subsequently accounting for the retained interest as an
associate, joint venture or financial asset.
In addition, any amounts previously recognised in other
comprehensive income in respect of that entity, are accounted for
as if the Group had directly disposed of the related assets or
liabilities. This may mean that amounts previously recognised in
other comprehensive income are recycled to profit or loss.
If the ownership interest in an associate is reduced but
significant influence is retained, only a proportionate share of
the amounts previously recognised in other comprehensive income are
reclassified to profit or loss, where appropriate.
Fair value of financial instruments. Depending on their
classification financial instruments are carried at fair value,
cost, or amortised cost as described below.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The best evidence of
fair value is price in an active market. An active market is one in
which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on
an ongoing basis.
Fair value measurements are analysed by level in the fair value
hierarchy as follows:
- level one are measurements at quoted prices (unadjusted) in
active markets for identical assets or liabilities,
- level two measurements are valuations techniques with all
material inputs observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices), and
- level three measurements are valuations not based on solely
observable market data (that is, the measurement requires
significant unobservable inputs).
Transfers between levels of the fair value hierarchy are deemed
to have occurred at the end of the reporting period. Refer to Note
34.
Fair value of financial instruments traded in an active market
is measured as the product of the quoted price for the individual
asset or liability and the quantity held by the entity. This is the
case even if a market's normal daily trading volume is not
sufficient to absorb the quantity held and placing orders to sell
the position in a single transaction might affect the quoted
price.
A portfolio of other financial assets and liabilities that are
not traded in an active market is measured at the fair value of a
group of financial assets and financial liabilities on the basis of
the price that would be received to sell a net long position (i.e.
an asset) for a particular risk exposure or paid to transfer a net
short position (i.e. a liability) for a particular risk exposure in
an orderly transaction between market participants at the
measurement date. This is applicable for assets carried at fair
value on a recurring basis if the Group: (a) manages the group of
financial assets and financial liabilities on the basis of the
entity's net exposure to a particular market risk (or risks) or to
the credit risk of a particular counterparty in accordance with the
entity's documented risk management or investment strategy; (b) it
provides information on that basis about the group of assets and
liabilities to the entity's key management personnel; and (c) the
market risks, including duration of the entity's exposure to a
particular market risk (or risks) arising from the financial assets
and financial liabilities is substantially the same.
Valuation techniques such as discounted cash flow models or
models based on recent arm's length transactions or consideration
of financial data of the investees, are used to measure fair value
of certain financial instruments for which external market pricing
information is not available.
Cost is the amount of cash or cash equivalents paid or the fair
value of the other consideration given to acquire an asset at the
time of its acquisition and includes transaction costs. All
investments in equity instruments and contracts on those
instruments are measured at fair value. However, in limited
circumstances, cost may be an appropriate estimate of fair value.
That may be the case if insufficient more recent information is
available to measure fair value, or if there is a wide range of
possible fair value measurements and cost represents the best
estimate of fair value within that range.
Transaction costs are incremental costs that are directly
attributable to the acquisition, issue or disposal of a financial
instrument. An incremental cost is one that would not have been
incurred if the transaction had not taken place. Transaction costs
include fees and commissions paid to agents (including employees
acting as selling agents), advisors, brokers and dealers, levies by
regulatory agencies and securities exchanges, and transfer taxes
and duties. Transaction costs do not include debt premiums or
discounts, financing costs or internal administrative or holding
costs.
Amortised cost is the amount at which the financial instrument
was recognised at initial recognition less any principal
repayments, plus accrued interest, and for financial assets less
any write-down for incurred impairment losses. Accrued interest
includes amortisation of transaction costs deferred at initial
recognition and of any premium or discount to maturity amount using
the effective interest method. Accrued interest income and accrued
interest expense, including both accrued coupon and amortised
discount or premium (including fees deferred at origination, if
any), are not presented separately and are included in the carrying
values of related items in the statement of financial position.
The effective interest method is a method of allocating interest
income or interest expense over the relevant period, so as to
achieve a constant periodic rate of interest (effective interest
rate) on the carrying amount.
The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts (excluding future credit
losses) through the expected life of the financial instrument or a
shorter period, if appropriate, to the net carrying amount of the
financial instrument. The effective interest rate discounts cash
flows of variable interest instruments to the next interest
repricing date, except for the premium or discount which reflects
the credit spread over the floating rate specified in the
instrument, or other variables that are not reset to market rates.
Such premiums or discounts are amortised over the whole expected
life of the instrument. The present value calculation includes all
fees paid or received between parties to the contract that are an
integral part of the effective interest rate.
Initial recognition of financial instruments . All other
financial instruments are initially recorded at fair value plus
transaction costs. Fair value at initial recognition is best
evidenced by the transaction price. A gain or loss on initial
recognition is only recorded if there is a difference between fair
value and transaction price which can be evidenced by other
observable current market transactions in the same instrument or by
a valuation technique whose inputs include only data from
observable markets.
All purchases and sales of financial assets that require
delivery within the time frame established by regulation or market
convention ("regular way" purchases and sales) are recorded at
trade date, which is the date on which the Group commits to deliver
a financial asset. All other purchases are recognised when the
entity becomes a party to the contractual provisions of the
instrument.
Derecognition of financial assets. The Group derecognises
financial assets when (a) the assets are redeemed or the rights to
cash flows from the assets otherwise expired or (b) the Group has
transferred the rights to the cash flows from the financial assets
or entered into a qualifying pass-through arrangement while (i)
also transferring substantially all risks and rewards of ownership
of the assets or (ii) neither transferring nor retaining
substantially all risks and rewards of ownership, but not retaining
control. Control is retained if the counterparty does not have the
practical ability to sell the asset in its entirety to an unrelated
third party without needing to impose restrictions on the sale.
Recognition and measurement of financial instruments. The Group
recognises financial assets and liabilities on its consolidated
statement of financial position when it becomes a party to the
contractual obligations of the instrument. Regular way purchases
and sales of financial assets and liabilities are recognised using
settlement date accounting. Where regular way purchases of
financial instruments will be subsequently measured at fair value,
the Group accounts for any change in the fair value of the asset
between trade date and settlement date in the same way it accounts
for acquired instruments.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction
costs directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit or loss are
recognised immediately in profit or loss. The accounting policies
for subsequent re-measurement of these items are disclosed in the
respective accounting policies set out below.
All financial assets are recognized and derecognized on a trade
date where the purchase or sale of a financial asset is under a
contract whose terms require delivery of the financial asset within
the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs, except
for those financial assets classified as at FVTPL. Transaction
costs directly attributable to the acquisition of financial assets
classified as at FVTPL are recognized immediately in profit or
loss.
All recognized financial assets that are within the scope of
IFRS 9 Financial Instruments ("IFRS 9") are required to be
subsequently measured at amortised cost or fair value on the basis
of the entity's business model for managing the financial assets
and the contractual cash flow characteristics of the financial
assets.
Specifically:
-- Retention of an asset to obtain the cash flows stipulated by
the contract. This business model suggests financial asset
management aims to realize cash flows by receiving principal and
interest payments over the life of the financial instrument. Within
the framework of this business model, holding a financial asset to
maturity is a priority, but early disposal is not prohibited.
-- Retention of an asset with a view for obtaining contractual
cash flows and sale of financial assets. This business model
assumes that the management of financial assets is aimed at both
obtaining contractual cash flows and sale of financial assets.
Within the framework of this business model, the receipt of cash
from the sale of a financial asset is a priority, which is
characterized by a greater frequency and volume of sales compared
to "holding an asset to receive contractual cash flows" business
model.
-- Retention of an asset for other purposes. Within the
framework of this business model, financial assets can be managed
with the following purposes:
- management with a view to selling cash flows through the sale of financial assets;
- liquidity management to meet daily funding needs;
- a portfolio, which management and performance is measured on a fair value basis;
- a portfolio, which matches the definition of held for trading.
Financial assets are deemed to be held for trading if they were
acquired mainly with a view to subsequent disposal in the near
future (up to 180 days), gaining short-term profit, or represent
derivative financial instruments (except for a financial guarantee
or derivative financial instrument that was designated as a hedging
instrument).
In accordance with IFRS 9, financial assets are classified as
follows:
Measurement
Financial assets Business Model SPPI Category
---------------------------- ---------------------------- --------------------------- -----------------------------
Cash flows are
Hold to collect solely payments
Cash and cash contractual cash of principal and
equivalents flows interest Amortised cost
---------------------------- ---------------------------- --------------------------- -----------------------------
Cash flows are
Restricted cash Hold to collect solely payments
/Obligatory contractual cash of principal and
reserves flows interest Amortised cost
---------------------------- ---------------------------- --------------------------- -----------------------------
Cash flows are
Hold to collect solely payments
Loans and advances contractual cash of principal and
to customers flows interest Amortised cost
Balances on
correspondent
accounts, Cash flows are
interbank Hold to collect solely payments
loans/deposits, contractual cash of principal and
repo transactions flows interest Amortised cost
---------------------------- ---------------------------- --------------------------- -----------------------------
Hold to collect
contractual cash Cash flows are
flows and to sell solely payments Fair value through
the equity of principal and other comprehensive
Equity securities instruments interest income
---------------------------- ---------------------------- --------------------------- -----------------------------
Cash flows are
Hold to collect solely payments
contractual cash of principal and
Debt securities flows interest Amortised cost
---------------------------- ---------------------------- --------------------------- -----------------------------
Financial assets or financial liabilities at fair value through
profit or loss
Financial assets at FVTPL are:
-- Assets with contractual cash flows that are not SPPI; or/and
-- Assets that are held in a business model other than held to
collect contractual cash flows or held to collect and sell; or
-- Assets designated at FVTPL using the fair value option.
Financial liabilities are classified as at fair value through
profit or loss where the financial liability is either held for
trading or it is designated as at fair value through profit or
loss.
-- A financial liability is classified as held for trading if:
-- it has been acquired principally for the purpose of selling in the near term; or
-- it is a part of an identified portfolio of financial
instruments that the Group manages together and has a recent actual
pattern of short-term profit-taking; or
-- it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for
trading, may be designated as at fair value through profit or loss
upon initial recognition if:
-- such designation eliminates or significantly reduces a
measurement or recognition inconsistency that would otherwise
arise; or
-- the financial liability forms part of a group of financial
liabilities, which is managed and its performance is evaluated on a
fair value basis, in accordance with the Group's documented risk
management or investment strategy, and information about the
grouping is provided internally on that basis; or
-- it forms part of a contract containing one or more embedded
derivatives, and IFRS 9 permits the entire combined contract (asset
or liability) to be designated as at fair value through profit or
loss.
Financial assets and financial liabilities at fair value through
profit or loss are recorded in the consolidated statement of
financial position at fair value. Changes in fair value are
recorded in net (loss)/gain on financial assets and liabilities at
fair value through profit or loss. Interest earned or incurred is
accrued in interest income or expense, respectively, according to
the terms of the contract, while dividend income is recorded in
"Other income" when the right to receive the payment has been
established.
Equity instruments at fair value through other comprehensive
income
The fair value of the equity instruments at fair value through
other comprehensive income were determined as the present value of
future dividends by assuming dividend growth rate of zero per
annum. The Management built its expectation based on previous
experience of dividends received on financial assets at fair value
through other comprehensive income over multiple years, and
accordingly calculated the value of using the average rate of
return on investments. The Management believes that this approach
accurately reflects the fair value of these securities, given they
are not traded.
Debt and equity instruments at amortised cost or at fair value
through other comprehensive income ("FVTOCI").
The Group assesses the classification and measurement of a
financial asset based on the contractual cash flow characteristics
of the asset and the Group's business model for managing the asset.
For an asset to be classified and measured at amortised cost or at
FVTOCI, its contractual terms should give rise to cash flows that
are solely payments of principal and interest on the principal
outstanding.
For the purpose of SPPI test, principal is the fair value of the
financial asset at initial recognition. That principal amount may
change over the life of the financial asset (e.g. if there are
repayments of principal). Interest consists of consideration for
the time value of money, for the credit risk associated with the
principal amount outstanding during a particular period of time and
for other basic lending risks and costs, as well as a profit
margin. The SPPI assessment is made in the currency in which the
financial asset is denominated.
Contractual cash flows that are SPPI are consistent with a basic
lending arrangement. Contractual terms that introduce exposure to
risks or volatility in the contractual cash flows that are
unrelated to a basic lending arrangement, such as exposure to
changes in equity prices or commodity prices, do not give rise to
contractual cash flows that are SPPI. An originated or an acquired
financial asset can be a basic lending arrangement irrespective of
whether it is a loan in its legal form.
An assessment of business models for managing financial assets
is performed at the date of initial application of IFRS 9 to
determine the classification of a financial asset. The business
model is applied retrospectively to all financial assets existing
at the date of initial application of IFRS 9. The Group determines
the business models at a level that reflects how groups of
financial assets are managed together to achieve a particular
business objective. The Group's business model does not depend on
management's intentions for an individual instrument; therefore,
the business model assessment is performed at a higher level of
aggregation rather than on an instrument-by-instrument basis.
The Group has more than one business model for managing its
financial instruments that reflect how the Group manages its
financial assets in order to generate cash flows. The Group's
business models determine whether cash flows will result from
collecting contractual cash flows, selling financial assets or
both.
The Group considers all relevant information available when
making the business model assessment. However, this assessment is
not performed based on scenarios that the Group does not reasonably
expect to occur, such as so-called 'worst case' or 'stress case'
scenarios. The Group takes into account all relevant evidence
available such as:
-- How the performance of the business model and the financial
assets held within that business model are evaluated and reported
to the entity's key management personnel;
-- The risks that affect the performance of the business model
(and the financial assets held within that business model) and, in
particular, the way in which those risks are managed; and
-- How managers of the business are compensated (e.g. whether
the compensation is based on the fair value of the assets managed
or on the contractual cash flows collected).
At initial recognition of a financial asset, the Group
determines whether newly recognized financial assets are part of an
existing business model or whether they reflect the commencement of
a new business model. The Group reassess its business models each
reporting period to determine whether the business models have
changed since the preceding period. For the current reporting
period, the Group has not identified a change in its business
models.
When a debt instrument measured at FVTOCI is derecognized, the
cumulative gain/loss previously recognized in OCI is reclassified
from equity to profit or loss. In contrast, for an equity
investment designated as measured at FVTOCI, the cumulative
gain/loss previously recognized in OCI is not subsequently
reclassified to profit or loss but transferred within equity. Debt
instruments that are subsequently measured at amortised cost or at
FVTOCI are subject to impairment.
Business model assessment
The Bank makes an assessment of the objective of the business
model in which a financial asset is held at a portfolio level
because this best reflects the way the business is managed and
information is provided to
management. The information considered includes:
-- What activities/products/services are performed within the business model;
-- How the performance of the portfolio is evaluated and reported to the Bank's management;
-- What risks affect the business model and how they are managed;
-- What plans for an asset (group of assets) are reflected in
the Bank's development strategy; and
-- The frequency, volume and timing of sales in prior periods,
the reasons for such sales. However, information about sales
activity is not considered in isolation, but as part of an overall
assessment of how the Group's stated objective for managing the
financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading or managed and whose
performance is evaluated on a fair value basis are measured at
FVTPL because they are neither held to collect contractual cash
flows nor held both to collect contractual cash flows and to sell
financial assets.
Assessment of whether contractual cash flows are solely payments
of principal and interest
For the purposes of this assessment, "principal" is defined as
the fair value of the financial asset on initial recognition.
"Interest" is defined as consideration for the time value of money
and for the credit risk associated with the principal amount
outstanding during a particular period of time and for other basic
lending risks and costs (e.g., liquidity risk and administrative
costs), as well as profit margin.
In assessing whether the contractual cash flows are SPPI, the
Group considers the contractual terms of the instrument. This
includes assessing whether the financial asset contains a
contractual term that could change the timing or amount of
contractual cash flows such that it would not meet this condition.
In making the assessment, the Group considers:
-- Contingent events that would change the amount and timing of cash flows;
-- Leverage features;
-- Prepayment and extension terms;
-- Terms that limit the Group's claim to cash flows from
specified assets (e.g., non-recourse loans); and
-- Features that modify consideration of the time value of money
(e.g., periodical reset of interest rates).
Reclassification
Financial assets are not reclassified subsequent to their
initial recognition, except in the period after the Group changes
its business model for managing financial assets. If the business
model under which the Group holds financial assets changes, the
financial assets affected are reclassified. The classification and
measurement requirements related to the new category apply
prospectively from the first day of the first reporting period
following the change in business model that results in
reclassifying the Group's financial assets. During the current
financial year and previous accounting period there was no change
in the business model under which the Group holds financial assets
and therefore no reclassifications were made. Changes in
contractual cash flows are considered under the accounting policy
on modification and derecognition of financial assets described
below.
Impairment of financial assets
Expected credit loss measurement - definitions
ECL is a probability-weighted measurement of the present value
of future cash shortfalls (i.e., the weighted average of credit
losses, with the respective risks of default occurring in a given
time period used as weights). An ECL measurement is unbiased and
should be determined by evaluating a range of possible
outcomes.
An ECL measurement is based on four components used by the
Group:
-- Exposure at Default (EAD) - an estimate of exposure at a
future default date, taking into account expected changes in
exposure after the reporting date, including repayments of
principal and interest, and expected drawdowns on committed
facilities.
-- Probability of Default (PD) - an estimate of the likelihood
of default to occur over a given time period.
-- Loss Given Default (LGD) - an estimate of a loss arising on
default. It is based on the difference between contractual cash
flows due and those that the lender would expect to receive,
including from any collateral. It usually expressed as a percentage
of EAD.
-- Discount Rate - a tool to discount an expected loss from the
present value at the reporting date. The discount rate represents
the effective interest rate (EIR) for the financial instrument or
an approximation thereof.
Calculation of financial assets impairment was made taking into
account the following factors:
-- In order to calculate the expected credit losses, the Group
performs loan assessment on an individual basis and on a group
basis depending on general credit risk features.
-- Expected credit losses represent estimates of expected credit
losses weighted at probability of a default and calculated as
present value of all expected losses in amounts due. Calculations
are based on justified and verified information, which may be
received without any significant costs or efforts. Calculation of
the present value of the expected future cash flows of the secured
financial asset reflects the cash flow that may result from
foreclosure, less the cost of obtaining and selling collateral,
regardless of whether the recovery is probable or not. The
allowance is based on the Group's own experience in assessing
losses and the Management assumptions about the level of losses
likely to be recognised on assets in each category of a credit
risk, based on debt servicing capabilities and borrower's credit
track record.
-- Impairment for treasury operations (investments in debt
securities, reverse repurchase transactions, interbank loans and
deposits, correspondent account transactions, accounts receivable
under treasury transactions) is calculated taking into account the
counterparty's rating, probability of default, duration of a
transaction and the extent of loss in case of a default.
-- Assets classified at fair value through profit or loss are
not subject to impairment under IFRS 9.
The estimated credit losses for treasury operations are
estimated on an individual basis (except for individual claims in
the form of receivables).
ECL for collective assessment of credit losses
For collective assessment of credit losses, loans and advances
to customers are segmented by criteria for determining the
transition between Stages 1, 2 and 3. The presence of at least one
criterion is sufficient to lead to the change of transaction
classifications, reflecting the increase in credit risk.
Stage 1: Loans without significant increase in credit risk
(SICR)
-- All loans at initial recognition are classified into Stage 1
and remain in Stage 1 until the identification of factors that
indicate a significant increase in credit risk, except for acquired
or created loan-impaired loans.
Stage 2: Loans with significant increase in credit risk
(SICR)
-- Loans in which the maximum number of days overdue on
principal or interest ranges from 31 days to 90 days;
-- Loans in the category of "substandard" according to the
Regulation on the classification procedure of the CBU;
-- Loans that were credit-impaired (Stage 3) as at the end of
the previous quarter due to one or more transition criteria of
Stage 3, and which as at the end of the current quarter have signs
of Stage 1 or 2;
-- Loans that were restructured and repaid 25% of principal from the date of restructuring.
-- In the absence of historical information about the number of
overdue days for accrued interest, loans for which there is an
amount of overdue interest at the end of the current quarter.
Stage 3: Financial asset is in defaul t
-- Loans for which the maximum number of overdue days on
principal or interest is more than 90 days;
-- Loans in the category of "unsatisfactory", "doubtful" and
"bad" in accordance with the Regulation on the classification
procedure of the CBU;
-- Loans that have been revised since initial recognition (loans
with the status "Restructured in the loan portfolio, including
loans for which the repayment was less than 25% of the principal
debt since the date of the last restructuring or the last revision
(except in cases of restructuring of loans, when the financial
condition of the borrower is stable and allows the borrower to
repay the debt to the Group and when restructuring occurs at the
decision of higher authorities);
-- Loans for which there is a court decision or a trial is in
progress (loans for which there are court decision dates in the
loan portfolio);
-- Presence of debt on off-balance sheet accounts for the
principal debt and accrued interest in accordance with the
Regulation on the Classification Procedure of the CBU and the
Regulation on Non-Accrual of Interest of the CBU;
-- Loans for which the contract has expired, but the borrower
has not fully repaid the debt according to the payment
schedule;
-- Purchased or created credit impaired financial asset (POCI).
An asset is assessed for impairment on an individual basis if
the total debt of the borrower at the reporting date exceeds the
materiality level. The level of materiality is determined as 1% of
arithmetic average of the Group's total regulatory capital per
National accounting standards for the last two years. If the
materiality of the Group for determining an individually
significant asset increases by more than 2 times in the calculation
for the next period (fiscal year), then the materiality level for
this next period (fiscal year) shall not exceed the Group's
materiality level for the previous period (fiscal year) more than 2
times, and it will be equal to the level of materiality multiplied
by 2 (in the case of facts or circumstances that may significantly
affect the Group's estimated materiality level, which, due to these
facts or circumstances, may be at an unexpected or atypical level
for the corresponding period, for example, large profits or losses
of the Group may occur due to one-time general economic conditions
/ changes or other external conditions or non-typical operations
for the Group, in this case it is possible to normalize the
calculated amount of capital for the relevant period by excluding
from the calculation the amount of such gains / losses).
ECL for individually significant borrowers
For each individually significant borrower based on the results
of the assessment at each reporting date, questionnaire with the
necessary explanations and comments is filled out to identify signs
of a significant increase in credit risk and credit impairment. The
questionnaire is completed on the basis of the loan portfolio and
the information contained in the monitoring reports, and other
information in the credit folder.
After determining whether there is evidence of a significant
increase in credit risk, as well as impairment, depending on the
results of such analysis, the Group classifies the asset in
question in one of the following stages:
Stage 1: "Loans with low credit risk"
-- All loans at initial recognition are classified in Stage 1
and remain in Stage 1 if no significant increase in the level of
credit risk has been identified or until the factors indicating an
increase in credit risk have been identified, except for loans
acquired or created credit impaired;
Stage 2: "Loans with increased credit risk"
-- Breach of contract terms, such as a delay of payment from 31 to 90 calendar days;
-- The Group has information about overdue debts in other credit
institutions (if information is available for the Group) on the
principal debt and / or the borrower's remuneration from 31 to 90
calendar days;
-- Loans in the category of "substandard" according to the
Regulation on the classification procedure of the CBU;
-- Actual or expected significant change in the operating
results of the borrower. Examples include actual or expected
decrease in revenues or margins, increased operational risks,
working capital inefficiencies, management problems, or changes in
the scale of business or organizational structure (for example,
termination of a business segment), which lead to a significant
change in the borrower's ability to repay debt liabilities. The
criteria is reduction of the financial condition of the borrower by
one class. Class of the financial condition of the borrower score
based on the calculations of economic indicators (ratios of
coverage, liquidity, autonomy, asset turnover and net sales
profitability
-- Actual or expected (based on reasonable and corroborated
information) reduction of the borrower's external credit rating by
2 or more notches;
-- Reduction of financial support from the state, the parent
organization or another affiliated organization;
-- Significant deterioration in the quality or condition of the
collateral according to the data of the last monitoring report,
which is expected to reduce the economic incentive for the borrower
to make the scheduled payments stipulated by the contract or
otherwise affect the probability of a default. When the security is
a guarantee of third parties, significant financial difficulties of
the guarantor or surety;
-- Existing or projected adverse changes in commercial,
financial or economic conditions (actual or expected increase in
interest rates or actual or expected increase in unemployment) or
actual or expected adverse change in regulatory, economic or
technological conditions of the borrower's activity (for example,
decrease in demand for the borrower of the product due to changes
in technology);
-- Borrower who has no evidence of impairment or evidence of a
significant increase in credit risk at the reporting date, but who
has been classified as credit impaired (in Stage 3) based on the
calculation of expected credit loss at the previous reporting
date.
-- Expected breach of contract that could lead to the provision
of exemptions for covenants or amendments to covenants, provision
of temporary exemption from interest payments, increase in interest
rates, introduction of requirements for additional security or
guarantees or other changes to the contractual base of the
instrument;
-- Reasonable and corroborated information about one or more of the following factors:
o the presence of uncertainty in respect of continuous
operations in the auditor's report of the financial statements of
the borrower;
o involvement in legal proceedings of the borrower
(co-borrower), which may worsen its financial condition;
o violation of covenants 1 or more times within three months
before the reporting date;
Stage 3: " Credit-impaired loans"
-- Breach of contract terms, such as default or delay of payments for 90 days and more;
-- Cross-default, the Group has information about overdue debts
in other credit institutions (if the Group has information) on the
principal debt and / or interest for 90 calendar days or more;
-- Loans in the category of "unsatisfactory", "doubtful" and
"bad" in accordance with the Regulation on the classification
procedure of the CBU.
-- Presence of significant financial difficulties of the
borrower. The criteria is reduction of financial condition of the
borrower by two or more classes. The class of the financial
condition of the borrower is based on calculations of economic
indicators (ratios of coverage, liquidity, autonomy, asset turnover
and net sales margin);
-- Loans that have been revised since initial recognition (loans
with the status "Restructured in the loan portfolio, including
loans for which the repayment was less than 25% of the principal
debt since the date of the last restructuring or the last revision
(except in cases of restructuring of loans, when the financial
condition of the borrower is stable and allows the borrower to
repay the debt to the Group and when restructuring occurs at the
decision of higher authorities);
-- Lack of communication with the borrower (co-borrower), as
well as the lack of information to determine the financial
condition of the borrower (co-borrower) for the last 12 months;
-- Decrease in the external credit rating of the borrower to the
"CC" rating and below, assigned by the rating agencies Standard
& Poor's, Moody's Investors Service and Fitch;
-- Write-off of part and / or the entire amount of debt on the
principal debt and / or remuneration of the borrower during the
previous 2 years;
-- Suspension of the accrual of interest on the loan due to the
deteriorating financial condition of the borrower (non-accrual
status);
-- Availability of information about the death of the borrower (co-borrower) of an individual;
-- Purchase or creation of a financial instrument with a large
discount, which reflects the incurred credit losses;
-- The borrower's appeal to the court with a statement of
recognition of its bankruptcy or the filing of a claim by a third
party to declare the borrower bankrupt in accordance with the
legislation of the Republic of Uzbekistan and loans that have a
court decision or are in court proceedings (loans that have court
decision dates in the loan portfolio);
-- Revocation of a license or other title document for the implementation of activities;
-- Disappearance of an active market for a given financial asset.
The amount of expected credit losses for loans that are
classified in Stage 1 and in Stage 2 is determined on a collective
basis.
For each individually significant borrower in Stage 3, one of
the following repayment strategies is determined:
-- "Restructuring" strategy: restructuring the loan, revising
credit conditions and developing an action plan that can allow the
borrower to repay the loan;
-- Strategy "Realization of collateral": liquidation of a loan by selling collateral.
The choice of the most appropriate strategy is determined based
on the individual situation of the borrower, its availability and
consent to cooperation, the availability of opportunities to
restore activity, production or the possibility of eliminating the
causes that caused losses and the inability to service the debt,
the availability of funds from other business lines of the
borrower, value, condition of pledges regarding debt and other
factors.
In the event that the borrower incurs losses and the Group has
no evidence of other sources of income and funds to service the
debt, the strategy for selling collateral for the borrower is
chosen.
Modification and derecognition of financial assets
A modification of a financial asset occurs when the contractual
terms governing the cash flows of a financial asset are
renegotiated or otherwise modified between initial recognition and
maturity of the financial asset. A modification affects the amount
and/or timing of the contractual cash flows either immediately or
at a future date. In addition, the introduction or adjustment of
existing covenants of an existing loan would constitute a
modification even if these new or adjusted covenants do not yet
affect the cash flows immediately but may affect the cash flows
depending on whether the covenant is or is not met (e.g. a change
to the increase in the interest rate that arises when covenants are
breached).
The Group renegotiates loans to customers in financial
difficulty to maximize collection and minimize the risk of default.
A loan forbearance is granted in cases where although the borrower
made all reasonable efforts to pay under the original contractual
terms, there is a high risk of default or default has already
happened and the borrower is expected to be able to meet the
revised terms. The revised terms in most of the cases include an
extension of the maturity of the loan, changes to the timing of the
cash flows of the loan (principal and interest repayment),
reduction in the amount of cash flows due (principal and interest
forgiveness) and amendments to covenants.
When a financial asset is modified the Group assesses whether
this modification results in derecognition. In accordance with the
Group's policy a modification results in derecognition when it
gives rise to substantially different terms. To determine if the
modified terms are substantially different from the original
contractual terms the Group considers the following:
-- Qualitative factors, such as contractual cash flows after
modification are no longer SPPI, change in currency or change of
counterparty, the extent of change in interest rates, maturity,
covenants.
If these do not clearly indicate a substantial modification,
then:
-- A quantitative assessment is performed to compare the present
value of the remaining contractual cash flows under the original
terms with the contractual cash flows under the revised terms, both
amounts discounted at the original effective interest.
If the difference in present value is greater than 10% the Group
deems the arrangement is substantially different leading to
derecognition.
In the case where the financial asset is derecognized the loss
allowance for ECL is remeasured at the date of derecognition to
determine the net carrying amount of the asset at that date. The
difference between this revised carrying amount and the fair value
of the new financial asset with the new terms will lead to a gain
or loss on derecognition. The new financial asset will have a loss
allowance measured based on 12-month ECL except in the rare
occasions where the new loan is considered to be originated
credit-impaired asset. This applies only in the case where the fair
value of the new loan is recognized at a significant discount to
its revised par amount because there remains a high risk of
default, which has not been reduced by the modification.
The Group monitors credit risk of modified financial assets by
evaluating qualitative and quantitative information, such as if the
borrower is in past due status under the new terms.
When the contractual terms of a financial asset are modified and
the modification does not result in derecognition, the Group
determines if the financial asset's credit risk has increased
significantly since initial recognition by comparing:
-- The remaining lifetime PD estimated based on data at initial
recognition and the original contractual terms; with
-- The remaining lifetime PD at the reporting date based on the modified terms.
For financial assets modified as part of the Group's forbearance
policy, where modification did not result in derecognition, the
estimate of PD reflects the Group's ability to collect the modified
cash flows taking into account the Group's previous experience of
similar forbearance action, as well as various behavioral
indicators, including the borrower's payment performance against
the modified contractual terms. If the credit risk remains
significantly higher than what was expected at initial recognition
the loss allowance will continue to be measured at an amount equal
to lifetime ECL.
The loss allowance on forborne loans will generally only be
measured based on 12-month ECL when there is evidence of the
borrower's improved repayment behavior following modification
leading to a reversal of the previous significant increase in
credit risk.
Where a modification does not lead to derecognition the Group
calculates the modification gain/loss comparing the gross carrying
amount before and after the modification (excluding the ECL
allowance). Then the Group measures ECL for the modified asset,
where the expected cash flows arising from the modified financial
asset are included in calculating the expected cash shortfalls from
the original asset.
The Group derecognizes a financial asset only when the
contractual rights to the asset's cash flows expire (including
expiry arising from a modification with substantially different
terms), or when the financial asset and substantially all the risks
and rewards of ownership of the asset are transferred to another
entity. If the Group neither transfers nor retains substantially
all the risks and rewards of ownership and continues to control the
transferred asset, the Group recognizes its retained interest in
the asset and an associated liability for amounts it may have to
pay. If the Group retains substantially all the risks and rewards
of ownership of a transferred financial asset, the Group continues
to recognize the financial asset and also recognizes a
collateralized borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the
difference between the asset's carrying amount and the sum of the
consideration received and receivable and the cumulative gain/loss
that had been recognized in OCI and accumulated in equity is
recognized in profit or loss, with the exception of equity
investment designated as measured at FVTOCI, where the cumulative
gain/loss previously recognized in OCI is not subsequently
reclassified to profit or loss.
On derecognition of a financial asset other than in its entirety
(e.g. when the Group retains an option to repurchase part of a
transferred asset), the Group allocates the previous carrying
amount of the financial asset between the part it continues to
recognize under continuing involvement, and the part it no longer
recognizes on the basis of the relative fair values of those parts
on the date of the transfer. The difference between the carrying
amount allocated to the part that is no longer recognized and the
sum of the consideration received for the part no longer recognized
and any cumulative gain/loss allocated to it that had been
recognized in OCI is recognized in profit or loss. A cumulative
gain/loss that had been recognized in OCI is allocated between the
part that continues to be recognized and the part that is no longer
recognized based on the relative fair values of those parts. This
does not apply for equity investments designated as measured at
FVTOCI, as the cumulative gain/loss previously recognized in OCI is
not subsequently reclassified to profit or loss.
Write-off
Loans and debt securities are written off when the Group has no
reasonable expectations of recovering the financial asset (either
in its entirety or in a portion of it). This is the case when the
Group determines that the borrower does not have assets or sources
of income that could generate sufficient cash flows to repay the
amounts subject to the write-off. A write-off constitutes a
derecognition event. The Group may apply enforcement activities to
financial assets written off. Recoveries resulting from the Group's
enforcement activities will result in impairment gains.
Presentation of allowance for ECL in the statement of financial
position. Loss allowances for ECL are presented in the statement of
financial position as follows:
-- For financial assets measured at amortized cost: as a
deduction from the gross carrying amount of the assets;
-- For debt instruments measured at FVTOCI: no loss allowance is
recognized in the statement of financial position as the carrying
amount is at fair value. However, the loss allowance is included as
part of the revaluation amount in the investments revaluation
reserve;
-- For loan commitments and financial guarantee contracts: as a provision; and
-- Where a financial instrument includes both a drawn and an
undrawn component, and the Group cannot identify the ECL on the
loan commitment component separately from those on the drawn
component: the Group presents a combined loss allowance for both
components. The combined amount is presented as a deduction from
the gross carrying amount of the drawn component. Any excess of the
loss allowance over the gross amount of the drawn component is
presented as a provision.
Collateral. The Group obtains collateral in respect of customer
liabilities where this is considered appropriate. The collateral
normally takes the form of a lien over the customer's assets and
gives the Group a claim on these assets for both existing and
future customer liabilities.
Cash and cash equivalents. Cash and cash equivalents are items
which are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value. Cash and
cash equivalents include deposits with the CBU except mandatory
reserve deposits held with CBU and all interbank placements with
original maturities of less than three months. Funds restricted for
a period of more than three months on origination are excluded from
cash and cash equivalents. Cash and cash equivalents are carried at
amortised cost.
The payments or receipts presented in the statement of cash
flows represent transfers of cash and cash equivalents by the
Group, including amounts charged or credited to current accounts of
the Group's counterparties held with the Group, such as loan
interest income or principal collected by charging the customer's
current account or interest payments or disbursement of loans
credited to the customer's current account, which represents cash
or cash equivalent from the customer's perspective.
Due from other banks . Amounts due from other banks are recorded
when the Group advances money to counterparty banks with no
intention of trading the resulting unquoted non-derivative
receivable due on fixed or determinable dates. Amounts due from
other banks are carried at amortised cost.
Loans and advances to customers. Loans and advances to customers
are recorded when the Group advances money to purchase or originate
an unquoted non-derivative receivable from a customer due on fixed
or determinable dates and has no intention of trading the
receivable. Loans and advances to customers are carried at
amortised cost.
Investment securities measured at amortized cost. The Group has
designated some investment securities measured at amortised cost
using the effective interest method, with interest income
recognised on an effective yield basis. The Group plans to hold
these investments until maturity.
Premises and equipment . Premises and equipment are stated at
cost, restated to the equivalent purchasing power of the Uzbekistan
Soum at 31 December 2006 for assets acquired prior to 1 January
2007, less accumulated depreciation and provision for impairment,
where required.
Costs of minor repairs and maintenance are expensed when
incurred. Cost of replacing major parts or components of premises
and equipment items are capitalised and the replaced part is
retired.
At the end of each reporting period the Management assesses
whether there is any indication of impairment of premises and
equipment. If any such indication exists, the Management estimates
the recoverable amount, which is determined as the higher of an
asset's fair value less costs to sell and its value in use. The
carrying amount is reduced to the recoverable amount and the
impairment loss is recognised in profit or loss for the year. An
impairment loss recognised for an asset in prior years is reversed
if there has been a change in the estimates used to determine the
asset's value in use or fair value less costs to sell.
An item of property and equipment is derecognised upon disposal
or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on the
disposal or retirement of an item of property and equipment is
determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in profit or
loss.
Construction in progress is carried at cost, less any recognised
impairment loss. Cost includes professional fees. Such construction
in progress is classified to the appropriate categories of property
and equipment when completed and ready for intended use.
Depreciation of these assets, on the same basis as other property
assets, commences when the assets are ready for their intended
use.
Depreciation . Land and construction in progress are not
depreciated. Depreciation of premises and equipment is calculated
using the straight-line method to allocate their cost to their
residual values over their estimated useful lives:
Useful lives in years
Building and leasehold improvements 20
Office and computer equipment 5-10
The residual value of an asset is the estimated amount that the
Group would currently obtain from disposal of the asset less the
estimated costs of disposal, if the asset were already of the age
and in the condition expected at the end of its useful life. The
residual value of an asset is nil if the Group expects to use the
asset until the end of its physical life. The assets' residual
values and useful lives are reviewed, and adjusted if appropriate,
at each end of the reporting period.
Intangible assets . Intangible assets with finite useful lives
carried at cost less accumulated amortization and accumulated
impairment losses. Amortization is recognised on a straight-line
basis over their estimated useful lives. The estimated useful life
and amortization method are reviewed at the end of each reporting
period, with the effect of any changes in estimate being accounted
for on a prospective basis.
The Group's intangible assets primarily comprise capitalised
computer software. Acquired computer software licenses are
capitalised on the basis of the costs incurred to acquire and bring
them to use. All other costs associated with computer software,
e.g. its maintenance, are expensed when incurred. Capitalised
computer software is amortised on a straight line basis over
expected useful lives of five years.
Finance lease receivables. Where the Group is a lessor in a
lease which transfers substantially all the risks and rewards
incidental to ownership to the lessee, the assets leased out are
presented as finance lease receivable and carried at the present
value of the future lease payments. Finance lease receivables are
initially recognised at commencement (when the lease term begins)
using a discount rate determined at inception (the earlier of the
date of the lease agreement and the date of commitment by the
parties to the principal provisions of the lease).
The difference between the gross receivable and the present
value represents unearned finance income. This income is recognised
over the term of the lease using the net investment method (before
tax), which reflects a constant periodic rate of return.
Incremental costs directly attributable to negotiating and
arranging the lease are included in the initial measurement of the
finance lease receivable and reduce the amount of income recognised
over the lease term. Finance income from leases is recorded within
interest income in profit or loss for the year.
Impairment losses are recognised in profit or loss for the year
when incurred as a result of one or more events ("loss events")
that occurred after the initial recognition of finance lease
receivables. The Group uses the same principal criteria to
determine whether there is objective evidence that an impairment
loss has occurred, as for loans carried at amortised cost.
Impairment losses are recognised through an allowance account to
write down the receivables' net carrying amount to the present
value of expected cash flows (which exclude future credit losses
that have not been incurred), discounted at the interest rates
implicit in the finance leases. The estimated future cash flows
reflect the cash flows that may result from obtaining and selling
the assets subject to the lease.
Repossessed collateral . Repossessed collateral represents
financial and non-financial assets acquired by the Group in
settlement of overdue loans. The assets are initially recognised at
fair value when acquired and included in other financial assets,
investment properties or inventories within other assets depending
on their nature and the Group's intention in respect of recovery of
these assets, and are subsequently remeasured and accounted for in
accordance with the accounting policies for these categories of
assets.
Non-current assets held for sale. Non-current assets and
disposal groups, which may include both non-current and current
assets, are classified in the statement of financial position as
'non-current assets held for sale' if their carrying amount will be
recovered principally through a sale transaction, including loss of
control of a subsidiary holding the assets, within twelve months
after the end of the reporting period. Assets are reclassified when
all of the following conditions are met: (a) the assets are
available for immediate sale in their present condition; (b) the
Group's Management approved and initiated an active programme to
locate a buyer; (c) the assets are actively marketed for sale at a
reasonable price; (d) the sale is expected within one year and (e)
it is unlikely that significant changes to the plan to sell will be
made or that the plan will be withdrawn. Non-current assets or
disposal groups classified as held for sale in the current period's
statement of financial position are not reclassified or
re-presented in the comparative statement of financial position to
reflect the classification at the end of the current period.
A disposal group is a group of assets (current or non-current)
to be disposed of, by sale or otherwise, together as a group in a
single transaction, and liabilities directly associated with those
assets that will be transferred in the transaction. Goodwill is
included if the disposal group includes an operation within a
cash-generating unit to which goodwill has been allocated on
acquisition.
Non-current assets are assets that include amounts expected to
be recovered or collected more than twelve months after the end of
the reporting period. If reclassification is required, both the
current and non-current portions of an asset are reclassified.
Held for sale disposal groups as a whole are measured at the
lower of their carrying amount and fair value less costs to sell.
Held for sale premises and equipment are not depreciated or
amortised. Reclassified non-current financial instruments and
deferred taxes are not subject to write down to the lower of their
carrying amount and fair value less costs to sell.
Liabilities directly associated with disposal groups that will
be transferred in the disposal transaction are reclassified and
presented separately in the statement of financial position.
Discontinued operations. A discontinued operation is a component
of the Group that either has been disposed of, or that is
classified as held for sale, and: (a) represents a separate major
line of business or geographical area of operations; (b) is part of
a single co-ordinated plan to dispose of a separate major line of
business or geographical area of operations; or (c) is a subsidiary
acquired exclusively with a view to resale. Earnings and cash flows
of discontinued operations, if any, are disclosed separately from
continuing operations with comparatives being re-presented.
Due to other banks . Due to banks are initially recognised at
fair value. Subsequently, amounts due are stated at amortised cost
and any difference between net proceeds and the redemption value is
recognised in the statement of profit or loss over the period of
the borrowings, using the effective interest method as interest
expense.
Customer accounts . Customer accounts are non-derivative
liabilities to individuals, state or corporate customers and are
carried at amortised cost.
Debt securities in issue. Debt securities in issue include bonds
and certificates of deposit issued by the Group. Debt securities
are stated at amortised cost.
Other borrowed funds . Other borrowed funds include borrowings
from government and non-government funds and financial
institutions. Other borrowed funds are carried at amortised
cost.
Income taxes. Income taxes have been provided for in the
consolidated financial statements in accordance with legislation
enacted or substantively enacted by the end of the reporting
period. The income tax charge comprises current tax and deferred
tax and is recognised in profit or loss for the year, except if it
is recognised in other comprehensive income or directly in equity
because it relates to transactions that are also recognised, in the
same or a different period, in other comprehensive income or
directly in equity.
Current tax is the amount expected to be paid to, or recovered
from, the taxation authorities in respect of taxable profits or
losses for the current and prior periods. Taxable profits or losses
are based on estimates if the consolidated financial statements are
authorised prior to filing relevant tax returns. Taxes other than
on income are recorded within administrative and other operating
expenses.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible
temporary differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition (other than in a business combination)
of assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit. In addition, deferred tax
liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries and
associates, and interests in joint ventures, except where the Group
is able to control the reversal of the temporary difference and it
is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and
interests are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the
end of each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates
that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the end of the
reporting period.
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or
settle the carrying amount of its assets and liabilities.
Uncertain tax positions. The Group's uncertain tax positions are
reassessed by the Management at the end of each reporting period.
Liabilities are recorded for income tax positions that are
determined by the Management as more likely than not to result in
additional taxes being levied if the positions were to be
challenged by the tax authorities. The assessment is based on the
interpretation of tax laws that have been enacted or substantively
enacted by the end of the reporting period, and any known court or
other rulings on such issues. Liabilities for penalties, interest
and taxes other than on income are recognised based on the
Management's best estimate of the expenditure required to settle
the obligations at the end of the reporting period.
Large-scale tax system transformations are taking place in the
Republic of Uzbekistan associated with the adoption of the Concept
for Improving the Tax Policy of the Republic of Uzbekistan. Its
main reforms are implemented in the Tax Code, other regulatory
acts, including the annual "budgetary" resolution and entered into
force on 1 January 2019.
There were significant changes introduced in tax law of the
Republic of Uzbekistan in accordance with the Presidential decree
#PD-4086 on "Forecasting the main macroeconomic budget indicators
and parameters for 2019 and budget guidelines for 2020-2021" dated
26 December 2018. Corporate income tax for credit organisations has
been set at of 20%.
Provisions for liabilities and charges. Provisions are
recognised when the Group has a present legal or constructive
obligation as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required
to settle the obligation and a reliable estimate of the obligation
can be made.
When the Group expects some or all of a provision to be
reimbursed, for example, under an insurance contract, the
reimbursement is recognised as a separate asset, but only when the
reimbursement is virtually certain. The expense relating to any
provision is presented in the statement of profit or loss and other
comprehensive income net of any reimbursement.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and
uncertainties surrounding the obligation. When a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows (where the effect of the time value of money is
material).
If the effect of the time value of money is material, provisions
are discounted using a current pre-tax rate that reflects, when
appropriate, the risks specific to the liability. When discounting
is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
Credit related commitments. The Group issues financial
guarantees and loan commitments. Financial guarantees represent
irrevocable assurances to make payments in the event that a
customer cannot meet its obligations to third parties, and carry
the same credit risk as loans. Financial guarantees and loan
commitments are initially recognised at their fair value, which is
normally evidenced by the amount of fees received. This amount is
amortised on a straight line basis over the life of the commitment,
except for commitments to originate loans if it is probable that
the Group will enter into a specific lending arrangement and does
not expect to sell the resulting loan shortly after origination;
such loan commitment fees are deferred and included in the carrying
value of the loan on initial recognition.
At the end of each reporting period, the commitments are
measured at the higher of (i) the remaining unamortised balance of
the amount at initial recognition and (ii) the best estimate of
expenditure required to settle the commitment at the end of each
reporting period.
Trade payable and other liabilities . Trade payables and other
liabilities are accrued when the counterparty has performed its
obligations under the contract and are carried at amortised
cost.
Share capital. Ordinary shares and non-redeemable preference
shares with discretionary dividends are both classified as equity.
Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from the proceeds.
Any excess of the fair value of consideration received over the par
value of shares issued is recorded as share premium in equity.
Preference shares which carry a mandatory coupon or are
redeemable on a specific date or at the option of the shareholder
are classified as financial liabilities and are presented in other
borrowed funds. The dividends on these preference shares are
recognised as interest expense on an amortised cost basis, using
the effective interest method.
Treasury shares. Where the Group or its subsidiaries purchase
the Group's equity instruments, the consideration paid, including
any directly attributable incremental external costs, net of income
taxes, is deducted from equity attributable to the owners of the
Group until the equity instruments are reissued, disposed of or
cancelled. Where such shares are subsequently disposed of or
reissued, any consideration received is included in equity.
Dividends . Dividends are recorded in equity in the period in
which they are declared. Any dividends declared after the end of
the reporting period and before the consolidated financial
statements are authorised for issue are disclosed in the subsequent
events note. The statutory accounting reports of the Group are the
basis for profit distribution and other appropriations. Uzbek
legislation identifies retained earnings as the basis for profit
distribution.
Income and expense recognition. Interest income and expense are
recorded for all debt instruments on an accrual basis using the
effective interest method. This method defers, as part of interest
income or expense, all fees paid or received between the parties to
the contract that are an integral part of the effective interest
rate, transaction costs and all other premiums or discounts.
Fees integral to the effective interest rate include o
rigination fees received or paid by the entity relating to the
creation or acquisition of a financial asset or issuance of a
financial liability, for example fees for evaluating
creditworthiness, evaluating and recording guarantees or
collateral, negotiating the terms of the instrument and for
processing transaction documents. Commitment fees received by the
Group to originate loans at market interest rates are integral to
the effective interest rate if it is probable that the Group will
enter into a specific lending arrangement and does not expect to
sell the resulting loan shortly after origination. The Group does
not designate loan commitments as financial liabilities at fair
value through profit or loss.
When collection of loans and other debt instruments become
doubtful of collection, they are written down to the present value
of expected cash inflows and interest income is thereafter recorded
for the unwinding of the present value discount based on the
asset's effective interest rate which was used to measure the
impairment loss.
All other fees, commissions and other income and expense items
are generally recorded on an accrual basis by reference to
completion of the specific transaction assessed on the basis of the
actual service provided as a proportion of the total services to be
provided. Loan syndication fees are recognised as income when the
syndication has been completed and the Group retains no part of the
loan package for itself, or retains a part at the same effective
interest rate as for the other participants.
Commissions and fees arising from negotiating, or participating
in the negotiation of a transaction for a third party, such as the
acquisition of loans, shares or other securities or the purchase or
sale of businesses, and which are earned on execution of the
underlying transaction, are recorded on its completion.
For credit-impaired financial assets, the interest income is
calculated by applying the EIR to the amortised cost of the
credit-impaired financial assets (i.e. the gross carrying amount
less the allowance for expected credit losses).
Basis of accounting for insurance activities
Insurance operations income primarily comprises of premiums
written less provision for unearned premiums.
Premiums written. Premiums are recognized within insurance
operations income upon inception of a contract for the full
amount.
Provision for unearned premiums. The Group calculated Unearned
Premium Reserve (UPR) according to legislation requirements, where
insurance lines of business are divided into four accounting
groups. For the first accounting group, the unearned premium is
calculated separately for each insurance contract using the "pro
rata temporis" method, which is in line with IFRS. The "pro rata
temporis" method includes calculation of unearned premium in
proportion to the remaining useful life of insurance contract at
the balance sheet date. For the other accounting groups, UPR
calculated differently, not in accordance with IFRS.
Claims. Claims and claims handling expenses are charged to the
consolidated statement of profit or loss and other comprehensive
income as incurred based on the evaluated liability for
compensation payable to policyholders or third parties, net of
subrogation. Subrogation is a right to pursue third parties for
payment of some or all costs related to the claims settlement
process.
Loss provision. Loss provision represents the accumulation of
estimates for ultimate losses and includes provision for losses
reported but not settled ("RBNS") and incurred but not yet reported
("IBNR"). Estimates of claims handling expenses are included in
both RBNS and IBNR. RBNS is provided in respect of claims reported,
but not settled as at the reporting date. The IBNR is determined by
summing the IBNR estimated for each line of business. The Group
calculates IBNR of at least 10 percent of the base insurance
premium under insurance contracts for the period twelve months
prior to the reporting date, which is in accordance with the
insurance legislation (Regulation on insurance reserves of insurers
in accordance with Order of the Minister of Finance of 20 November
2008 N 107, registered by the Ministry of Justice on 15 December
2008 N 1882). Reserves for insurance contracts primarily comprises
of provision for unearned premiums and insurance loss
provisions.
Preventive measures reserve. The Group is restricted in its use
of a portion of premiums received by the Group on certain types of
insurance under terms established by insurance legislation
(Regulation on insurance reserves of insurers in accordance with
Order of the Minister of Finance of 20 November 2008 N 107,
registered by the Ministry of Justice on 15 December 2008 N 1882).
The reserve is calculated as a percentage of insurance premiums
earned in reporting period. The purpose of the Preventive Measures
Reserve ("PMR") is to provide funds for the cost of financing
measures that prevent accidents, promote general safety, and
prevent the loss of or damage to insured property, as well as to
finance other measures aimed at preventing the occurrence of
insurance events.
Stabilization reserve An additional reserve that a Group is
required by regulation to establish (Regulation on insurance
reserves of insurers in accordance with Order of the Minister of
Finance of Republic of Uzbekistan dated 20 November 2008 N 107,
registered by the Ministry of Justice on December 15 2008 N 1882)
and is necessary for the Group to hold, over and above its
insurance reserves and preventive measure reserve, to ensure that,
under a prescribed change in financial conditions, the Group still
has enough assets to cover its liabilities.
Liability adequacy test. At each reporting date, liability
adequacy tests are performed to ensure the adequacy of the contract
liabilities. In performing these tests, the current best estimates
of the future contractual cash flows and claims handling and
administration expenses are used. Any deficiency is immediately
charged to the consolidated statement of comprehensive income by
subsequently establishing a provision for losses arising from the
liability adequacy tests.
Reinsurance. The Group assumes and cedes reinsurance in the
normal course of business. Ceded reinsurance contracts do not
relieve the Group from its obligations to policyholders. Amounts
recoverable from or due to reinsurers are measured consistently
with the amounts associated with the reinsured insurance contracts
and in accordance with the term of each reinsurance contract.
Reinsurance assets include balances due from reinsurance companies
for paid claims, including claims handling expenses, reinsurers'
share of loss provision and premiums ceded to the Group.
Reinsurance payables are obligations of the Group for the transfer
of reinsurance premiums to reinsurers.
The Group assesses its reinsurance assets for impairment on a
regular basis. If there is objective evidence that the reinsurance
asset is impaired, the Group reduces the carrying amount of the
reinsurance asset to its recoverable amount and recognises that
impairment loss in the consolidated statement of comprehensive
income.
Foreign currency translation . The functional currency of the
Group, which is the currency of the primary economic environment in
which the Group operates and the presentation currency is the
national currency of the Republic of Uzbekistan, Uzbek Soum
("UZS").
Monetary assets and liabilities are translated into Group's
functional currency at the official exchange rate of the CBU at the
end of respective reporting period. Foreign exchange gains and
losses resulting from the settlement of the transactions and from
the translation of monetary assets and liabilities into Group's
functional currency at year-end official exchange rates of the CBU
are recognised in profit or loss. Non-monetary items measured at
fair value in a foreign currency, including equity investments, are
translated using the exchange rates at the date when the fair value
was determined.
Effects of exchange rate changes on non-monetary items measured
at fair value in a foreign currency are recorded as part of the
fair value gain or loss.
As at 31 December 2020, the rate of exchange used for
translating foreign currency balances was USD 1 =10,476.92 (2019:
USD 1 = UZS 9,507.56 ) and EUR 1 = UZS 12,786.03 (2019: EUR 1 = UZS
10,624.70 ).
Offsetting. Financial assets and liabilities are offset and the
net amount reported in the consolidated statement of financial
position only when there is a legally enforceable right to offset
the recognised amounts, and there is an intention to either settle
on a net basis, or to realise the asset and settle the liability
simultaneously.
Earnings per share. Preference shares are not redeemable, and
are considered to be participating shares. Earnings per share are
determined by dividing the profit or loss attributable to owners of
the Group by the weighted average number of participating shares
outstanding during the reporting year.
Staff costs and related contributions. Wages, salaries,
contributions to the state pension and social insurance funds, paid
annual leave and sick leave, bonuses, and non-monetary benefits are
accrued in the year in which the associated services are rendered
by the employees of the Group. The Group has no legal or
constructive obligation to make pension or similar benefit payments
beyond the payments to the statutory defined contribution
scheme.
Segment reporting . Operating segments are reported in a manner
consistent with the internal reporting provided to the Group 's
chief operating decision maker. Segments whose revenue, result or
assets are ten percent or more of all the segments are reported
separately.
Presentation of statement of financial position in order of
liquidity. The Group does not have a clearly identifiable operating
cycle and therefore does not present current and non-current assets
and liabilities separately in the statement of financial position.
Instead, assets and liabilities are presented in order of their
liquidity.
In the application of the Group's accounting policies the Group
Management is required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The preparation of the Group's consolidated financial statements
requires the Management to make estimates and judgments that affect
the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of income and expenses
during the reporting year. The Management evaluates its estimates
and judgements on an ongoing basis. The Management bases its
estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under
different assumptions or conditions. The following estimates and
judgments are considered important to the portrayal of the Group's
financial condition.
Critical accounting judgements
Business model assessment. Classification and measurement of
financial assets depends on the results of the SPPI and the
business model test. The Group determines the business model at a
level that reflects how groups of financial assets are managed
together to achieve a particular business objective. This
assessment includes judgement reflecting all relevant evidence
including how the performance of the assets is evaluated and their
performance measured, the risks that affect the performance of the
assets and how these are managed and how the managers of the assets
are compensated.
The Group monitors financial assets measured at amortised cost
or fair value through other comprehensive income that are
derecognized prior to their maturity to understand the reason for
their disposal and whether the reasons are consistent with the
objective of the business for which the asset was held. Monitoring
is part of the Group's continuous assessment of whether the
business model for which the remaining financial assets are held
continues to be appropriate and if it is not appropriate whether
there has been a change in business model and so a prospective
change to the classification of those assets.
Significant increase of credit risk. As explained in Note 3, ECL
are measured as an allowance equal to 12-month ECL for Stage 1
assets, or lifetime ECL assets for Stage 2 or Stage 3 assets. An
asset moves to Stage 2 when its credit risk has increased
significantly since initial recognition. In assessing whether the
credit risk of an asset has significantly increased the Group takes
into account qualitative and quantitative reasonable and
supportable forward-looking information.
For treasury operations, the Group calculates ECL on a financial
asset based not only on the current estimates of the credit quality
of the counterparty/issuer at the reporting date, but also taking
into account possible deterioration of the financial condition due
to the adverse macroeconomic factors of the counterparty's/issuer's
environment in the future. In particular, the level of ECL for
treasury operations is affected by the rating outlook (positive,
stable, negative) assigned by international rating agencies, which
affects the probability of default ("PD").
For bank loans, the calculation of ECL takes into account the
possible estimated effects of changes in macroeconomic parameters
on forecasted cash flows, migration of collective loans and
collateral coverage.
Establishing groups of assets with similar credit risk
characteristics . When ECLs are measured on a collective basis, the
financial instruments are grouped on the basis of shared risk
characteristics. The Group monitors the appropriateness of the
credit risk characteristics on an ongoing basis to assess whether
they continue to be similar. This is required in order to ensure
that should credit risk characteristics change there is appropriate
re-segmentation of the assets.
The Group measures ECL on an individual basis, or on a
collective basis for portfolios of loans that share similar risk
characteristics. The measurement of the loss allowance is based on
the present value of the asset's expected cash flows using the
asset's original EIR, regardless of whether it is measured on an
individual basis or a collective basis.
Models and assumptions used. The Group uses various models and
assumptions in measuring fair value of financial assets as well as
in estimating ECL. Judgement is applied in identifying the most
appropriate model for each type of asset, as well as for
determining the assumptions used in these models, including
assumptions that relate to key drivers of credit risk.
Recoverability of deferred tax assets. The Management of the
Group is confident that no adjustment against deferred tax assets
at the reporting date is considered necessary, because it is more
than likely that the deferred tax asset will be fully realized.
Other borrowed funds. The Group obtains long term financing from
government, state and international financial institutions at
interest rates at which such institutions ordinarily lend in
emerging markets and which may be lower than rates at which the
Group could source the funds from local lenders. As a result of
this financing, the Group is able to advance funds to specific
customers at advantageous rates. The Management has considered
whether gains or losses should arise on initial recognition of
these instruments and its judgment is that these funds and the
related lending are at the market rates and no initial recognition
gains or losses should arise. In making this judgment the
Management also considered that these instruments are a separate
market sector.
Measurement of allowances for expected credit losses ("ECL").
Almost all sectors of the economy of Uzbekistan, both in terms of
individuals and legal entities, have been adversely affected by the
unprecedented economic and social disruption resulting from
Covid-19 which has led to significant government interventions and
support. This has caused an increased level of uncertainty and
volatility in the economic activity of Uzbekistan during year
2020.
In addition, currently limited observable data available to
inform a supportable, fully-modelled view on how the economic
impacts of this pandemic might affect customers has further
exacerbated the ability of the banking sector of Uzbekistan to
assess the levels of ECL. The Group incorporates forward-looking
information into a measurement of ECL when there is a statistically
proven correlation between the macro-economic variables and the
NPL. As at the reporting date, statistical tests have failed and
ECL across all loan portfolios has not been adjusted for
forward-looking information and macroeconomic scenarios. The
Management updates its statistical tests for correlation as at each
reporting date.
Therefore, due to the increased risk and uncertainties at this
time to incorporate the specific effects of the pandemic and the
related government support measures, the Management of the Group
considered to apply additional overlay in measuring the ECL by
introducing the additional scenarios to the existing ECL model that
are discussed in the paragraph below.
In response to the COVID-19 pandemic, in the beginning of Q2
2020 the Group has introduced repayment holidays of up to six
months to enable customers to take a temporary break from making
loan repayments where they are experiencing, or are reasonably
expected to experience, payment difficulties caused by COVID-19.
During 2020, the Group provided forbearances to customers and as of
year-end total outstanding balance of forbearing loans is equaled
to UZS 12,932,292 million or approximately 31.7% of the gross loan
portfolio. The forbearance solutions offered relief in the form of
reductions to contractual payments including freezes to interest
payments for up to six months. The forbearance was provided to all
customers notwithstanding their financial difficulties before the
COVID-19 pandemic. These measures have not been treated as a
trigger for credit impairment as those were based on legislative
moratoria on loan repayments applied in light of the COVID-19
crisis.
The Group defines whether the COVID-19 pandemic is having an
impact on a significant increase in the credit risk of borrowers.
The Group has temporarily redefined the forbearance status by
applying Curing procedure and "significant increase in credit risk"
(SICR), thus adjusting the probability of default given the
pandemic effect.
Curing procedure applied only to the restructured loans that had
no overdue prior and during the pandemic period and subsequently
had no overdue in scheduled payments.
The Management has also adjusted the calculation of loss given
default rates (LGD) by excluding the loan recovery results of the
second and third quarters of 2020, assuming the recovery pattern
during the lockdown period does not accurately reflect the
financial performance of the borrowers. Cash flows and turnover of
customer accounts observed during pre and post quarantine periods
suggest that significant slow-down in the recovery of loans were
mainly attributable to factors other than the financial standing of
the borrowers. This adjustment to LGD has been applied across all
portfolios of the Group.
The Management is closely monitoring the servicing of the loan
portfolio to assess the adequacy of the overlay starting from 1
October 2020, and updating the ECL measurement as more information
becomes available to support an update, incorporating alternative
economic scenarios.
Changes in judgements and assumptions could result in a material
adjustment to those estimates in the next reporting periods.
Key sources of estimation uncertainty
The key inputs used for measuring ECL are:
-- Probability of default (PD);
-- Loss given default (LGD); and
-- Exposure at default (EAD).
Probability of default. PD constitutes a key input in measuring
ECL. PD is an estimate of the likelihood of default over a given
time horizon, the calculation of which includes historical data,
assumptions and expectations of future conditions.
PD for treasury operations is determined according to the
Default Study from international rating agencies (S&P, Fitch,
Moody's), which publish tabular data with the values of the
probabilities of default.
The probabilities of default are maintained up to date and are
updated on a periodic basis as the default statistics are
updated.
Loss Given Default. LGD is an estimate of the loss arising on
default. It is based on the difference between the contractual cash
flows due and those that the lender would expect to receive, taking
into account cash flows from collateral. LGD is an estimate of the
loss arising on default. It is based on the difference between the
contractual cash flows due and those that the lender would expect
to receive, taking into account cash flows from collateral and
integral credit enhancements.
LGD for treasury operations is determined according to the
Default Study data from international rating agencies (S&P,
Fitch, Moody's) and depends on the type of debt on the financial
asset: senior secured/unsecured, subordinated, sovereign. In
addition, LGD may be adjusted if collateral is provided for the
asset, as well as if there are indications of impairment for the
financial asset (Stage 2 or Stage 3).
LGD for collectively assessed loans is calculated based on an
estimate of the recoverability of debt in case of the pledged
collateral sale with a discount period that corresponds to the
pledged collateral implementation terms.
Exposure at Default. EAD is an estimate of the exposure at a
future default date, taking into account expected changes in the
exposure after the reporting date, including repayments of
principal and interest, and expected drawdowns on committed
facilities. The Group's modelling approach for EAD reflects
expected changes in the balance outstanding over the lifetime of
the loan exposure that are permitted by the current contractual
terms, such as amortization profiles, early repayment or
overpayment, changes in utilization of undrawn commitments and
credit mitigation actions taken before default. The Group uses EAD
models that reflect the characteristics of the portfolios.
Fair value measurement and valuation process. In estimating the
fair value of a financial asset or a liability, the Group uses
market-observable data to the extent it is available. Where such
Level 1 inputs are not available, the Group uses valuation models
to determine the fair value of its financial instruments. Refer to
notes 11 and 34 for more details on fair value measurement.
5. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
New and amended IFRS Standards that are effective for the
current year
The following amendments and interpretations are effective for
the Group effective 1 January 2020:
Amendments to IFRS 9, IAS 39 and Basic interest rate reform
IFRS 7
Amendments to IFRS 3 Definition of a Business
-----------------------------------------
Amendments to IAS 1 and IAS 8 Definition of Materiality
-----------------------------------------
Conceptual Framework Amendments to References to the
Conceptual Framework in IFRS Standards
-----------------------------------------
The above standards and interpretations were reviewed by the
Group's management, but did not have a significant effect on the
consolidated financial statements of the Group.
Amendments to IFRS 3 Definition of a business
The amendments clarify that while businesses usually have
outputs, outputs are not required for an integrated set of
activities and assets to qualify as a business. To be considered a
business an acquired set of activities and assets must include, at
a minimum, an input and a substantive process that together
significantly contribute to the ability to create outputs.
The amendments remove the assessment of whether market
participants are capable of replacing any missing inputs or
processes and continuing to produce outputs. The amendments also
introduce additional guidance that helps to determine whether a
substantive process has been acquired.
The amendments introduce an optional concentration test that
permits a simplified assessment of whether an acquired set of
activities and assets is not a business. Under the optional
concentration test, the acquired set of activities and assets is
not a business if substantially all of the fair value of the gross
assets acquired is concentrated in a single identifiable asset or
group of similar assets.
The amendments are applied prospectively to all business
combinations and asset acquisitions for which the acquisition date
is on or after the first annual reporting period beginning on or
after 1 January 2020. The management of the Group considers that
the application of these amendments did not have any significant
impact on the consolidated financial statements of the Group.
Impact of the initial application of COVID-19-Related Rent
Concessions Amendment to IFRS 16
In May 2020, the IASB issued COVID-19-Related Rent Concessions
(Amendment to IFRS 16) that provides practical relief to lessees in
accounting for rent concessions occurring as a direct consequence
of COVID-19, by introducing a practical expedient to IFRS 16. The
practical expedient permits a lessee to elect not to assess whether
a COVID-19-related rent concession is a lease modification. A
lessee that makes this election shall account for any change in
lease payments resulting from the COVID-19-related rent concession
the same way it would account for the change applying IFRS 16 if
the change were not a lease modification.
The practical expedient applies only to rent concessions
occurring as a direct consequence of COVID-19 and only if all of
the following conditions are met:
1) The change in lease payments results in revised consideration
for the lease that is substantially the same as, or less than, the
consideration for the lease immediately preceding the change;
2) Any reduction in lease payments affects only payments
originally due on or before 30 June 2021 (a rent concession meets
this condition if it results in reduced lease payments on or before
30 June 2021 and increased lease payments that extend beyond 30
June 2021); and
3) There is no substantive change to other terms and conditions of the lease.
In the current financial year, the Group has not applied the
amendment to IFRS 16 (as issued by the IASB in May 2020) in advance
of its effective date.
Judgements related to the application of IFRS 16
Although, for majority of its lease agreements there is an
option to extend short term lease agreements at maturity with new
terms with the consent of both parties, the Management of the Group
considers that these agreements fall under IFRS16 exemption
available for short-term leases due to the fact that agreements are
not enforceable after the initial lease term due to insignificant
economic penalties to be incurred by both parties in case the lease
is not extended. As such, the Group applies the exemption for
short-term leases consistently on transition and subsequently.
Under IFRS 16, right -- of -- use assets were assessed for
impairment in accordance with IAS 36 Impairment of Assets. This
replaced the previous requirement to recognise a provision for
onerous lease contracts.
The implementation of IFRS 16 has no material impact on the
amounts or disclosures in these consolidated financial
information.
New and revised IFRS Standards in issue but not yet
effective
At the date of authorisation of these financial statements, the
Group has not applied the following new and revised IFRS Standards
that have been issued but are not yet effective:
IFRS 17 Insurance Contracts
Amendments to IAS 1 (as part Classification of Liabilities as Short-Term
of the project to formulate or Long-Term
Annual Improvements to IFRS
2010-2012 cycles)
--------------------------------------------
Amendments to IFRS 9, IAS Interest Rate Benchmark Reform - Phase
39, IFRS 7, IFRS 4 and IFRS 2
16
--------------------------------------------
Amendments to IFRS 3 Business combinations - Reference to
the Conceptual Framework
--------------------------------------------
Amendments to IAS 16 Property and equipment - Proceeds before
Intended Use
--------------------------------------------
Amendments to IAS 37 Provisions, contingent liabilities and
contingent assets - Onerous Contracts
- Cost of Fulfilling a Contract
--------------------------------------------
Amendments to IFRS 10 and Sale or Contribution of Assets between
IAS 28 an Investor and its Associate or Joint
Venture
--------------------------------------------
Amendments to IFRS 1, IFRS Annual Improvements to IFRS 2018-2020
9, IAS 41; and illustrative cycles
examples accompanying IFRS
16.
--------------------------------------------
IFRS 17 Insurance Contracts. IFRS 17 establishes the principles
for the recognition, measurement, presentation and disclosure of
insurance contracts and supersedes IFRS 4 Insurance Contracts.
IFRS 17 outlines a general model, which is modified for
insurance contracts with direct participation features, described
as the variable fee approach. The general model is simplified if
certain criteria are met by measuring the liability for remaining
coverage using the premium allocation approach.
The general model uses current assumptions to estimate the
amount, timing and uncertainty of future cash flows and it
explicitly measures the cost of that uncertainty. It takes into
account market interest rates and the impact of policyholders'
options and guarantees.
The Standard is effective for annual reporting periods beginning
on or after 1 January 2023, with early application permitted. It is
applied retrospectively unless impracticable, in which case the
modified retrospective approach or the fair value approach is
applied. An exposure draft Amendments to IFRS 17 addresses concerns
and implementation challenges that were identified after IFRS 17
was published. One of the main changes proposed is the deferral of
the date of initial application of IFRS 17 by one year to annual
periods beginning on or after 1 January 2023 (previously - on or
after 1 January 2021).
For the purpose of the transition requirements, the date of
initial application is the start if the annual reporting period in
which the entity first applies the Standard, and the transition
date is the beginning of the period immediately preceding the date
of initial application.
The management of the Group expects that the application of this
standard may have potential impact on the consolidated financial
statements of the Group in the future.
Amendments to IAS 1 Classification of Liabilities as Short-Term
or Long-Term (as part of the project to formulate Annual
Improvements to IFRS 2010-2012 cycles) . The amendments are
intended to facilitate the understanding that a liability is
classified as long-term if the organization expects and has the
authority to refinance the liability or postpone its maturity by at
least 12 months after the reporting period under the existing
credit line with the previous lender, on equal or similar
terms.
The amendments only amend the presentation of liabilities in the
statement of financial position, i.e. not regarding the amount, the
moment of recognition or disclosure of information.
The amendments clarify that the classification should be based
on the existence at the end of the reporting period of the right to
defer repayment of a liability for at least 12 months. Thus, the
amendments explicitly indicate that only those rights that exist
"at the end of the reporting period" should affect the
classification of the liability. Moreover, the classification does
not depend on expectations as to whether the organization will use
the right to defer repayment of the liability, which means
transferring funds, equity instruments, or other assets or services
to a counterparty.
The amendments apply retrospectively to the periods beginning on
or after 1 January 2023. Early application is acceptable.
The management of the Group expects that the application of this
standard may have potential impact on the consolidated financial
statements of the Group in the future.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Interest Rate Benchmark Reform - Phase 2. The changes in Interest
Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS
7, IFRS 4 and IFRS 16) relate to the impact of the interest rate
benchmark reform on the modification of financial assets, financial
liabilities and lease liabilities, hedge accounting requirements,
and disclosure requirements applying IFRS 7 to accompany the
amendments regarding modifications and hedge accounting.
Modification of financial assets, financial liabilities and
lease liabilities. The IASB introduces a practical expedient for
changes in contractual cash flows as a direct consequence of the
interest rate benchmark reform provided that the new cash flow
basis is economically equivalent to the original basis According to
the practical exception these modifications are accounted
prospectively for by updating the effective interest rate. All
other modifications are accounted for using the current IFRS
requirements. A similar practical expedient is proposed for lessee
accounting applying IFRS 16.
Disclosures. The amendments require that an entity discloses
additional information in order to allow users to understand the
nature and extent of risks arising from the IBOR and how the entity
manages those risks as well as the entity's progress in
transitioning from IBORs to alternative benchmark rates, and how
the entity is managing this transition.
The amendments are effective for annual periods beginning on or
after 1 January 2021 and are to be applied retrospectively. Early
application is permitted. Restatement of prior periods is not
required, however, an entity may restate prior periods if, and only
if, it is possible without the use of hindsight.
The management of the Group is assessing the impact of the
changes in Interest Rate Benchmark Reform - Phase 2 to its
consolidated financial statements in future periods. If the impact
is significant the Group will include additional disclosures in
order to allow users to understand the nature and extent of risks
arising from the IBOR and how the entity will manage the
transition.
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture.
The amendments to IFRS 10 and IAS 28 deal with situations where
there is a sale or contribution of assets between an investor and
its associate or joint venture. Specifically, the amendments state
that gains or losses resulting from the loss of control of a
subsidiary that does not contain a business in a transaction with
an associate or a joint venture that is accounted for using the
equity method, are recognised in the parent's profit or loss only
to the extent of the unrelated investors' interests in that
associate or joint venture. Similarly, gains and losses resulting
from the remeasurement of investments retained in any former
subsidiary (that has become an associate or a joint venture that is
accounted for using the equity method) to fair value are recognised
in the former parent's profit or loss only to the extent of the
unrelated investors' interests in the new associate or joint
venture.
The effective date of the amendments has yet to be set by the
board; however, earlier application of the amendments is permitted.
The management of the Company anticipates that the application of
these amendments may have an impact on the Group's consolidated
financial statements in future periods should such transactions
occur.
Annual Improvements to IFRS 2018-2020 Cycles. The list of
amendments includes amendments to the three standards, as well as
annual improvements to the Board, which are changes that clarify
the wording or eliminate minor inconsistencies, omissions or
contradictions between the requirements in the standards.
-- The amendments to IFRS 3 Business Combinations update the
reference in IFRS 3 to the Conceptual Framework for Financial
Statements without changing the accounting requirements for a
business combination.
-- Amendments to IAS 16 Property, Plant and Equipment prohibit
deducting from the value of property, plant and equipment the
amounts received from the sale of manufactured goods while
preparing the asset for its intended use. Instead, these sales
revenue and related costs are recognized in profit or loss.
-- Amendments to IAS 37 "Provisions, Contingent Liabilities and
Contingent Assets" determine the costs to be included in assessing
whether the contract is unprofitable.
-- Annual improvements introduce minor amendments to IFRS 1
"First-time Adoption of International Financial Reporting
Standards", IFRS 9 "Financial Instruments", IAS 41 "Agriculture"
and illustrative examples accompanying IFRS 16 "Leases".
All amendments are effective on 1 January 2022, early
application is permitted.
The management of the Group does not expect that the application
of these amendments could have a significant impact on the Group's
financial statements in future periods.
6. SEGMENT REPORTING
The Group's operations are a single reportable segment.
The Group provides mainly banking services in the Republic of
Uzbekistan. The Group identifies the segment in accordance with the
criteria set in IFRS 8 "Operating Segments" and based on the way
the operations of the Group are regularly reviewed by the chief
operating decision maker to analyse performance and allocate
resources among business units of the Group.
The chief operating decision-maker ("CODM") has been determined
as the Group's Chairman of the Management Board . The CODM reviews
the Group's internal reporting in order to assess performance and
allocate resources. The Management has determined a single
operating segment being banking services based on these internal
reports.
7. CASH AND CASH EQUIVALENTS
31 December 31 December
2020 2019
-------------------------------------------------------------------- ------------ ------------
Cash on hand 1,022,474 662,864
Cash balances with the CBU (other than mandatory reserve deposits) 2,624,648 1,014,834
Correspondent accounts and placements with other banks
with original maturities of less than three months 1,954,225 1,184,977
, -
-------------------------------------------------------------------- ------------ ------------
-
Less: allowance for expected credit losses (161) (101)
, ,
-------------------------------------------------------------------- ------------ ------------
,
Total cash and cash equivalents 5,601,186 2,862,574
Cash balances with the CBU are maintained at a level to ensure
compliance with the CBU liquidity ratio.
The credit quality of cash and cash equivalents at 31 December
2020 is as follows:
Cash balances with the CBU (other Correspondent accounts and Total
than mandatory reserve deposits) placements with other banks with
original maturities of less than
three months
----------------------------------- ---------------------------------- --------------------------------- ----------
Neither past due nor impaired
- The CBU 2,624,648 - 2,624,648
- Rated AA+ to A+ - 1,666,788 1,666,788
- Rated below A- - 287,437 287,437
, , ,
----------------------------------- ---------------------------------- --------------------------------- ----------
Less: allowance for expected
credit losses (69) (92) (161)
, , ,
----------------------------------- ---------------------------------- --------------------------------- ----------
Total cash and cash equivalents,
excluding cash on hand 2,624,579 1,954,133 4,578,712
The credit quality of cash and cash equivalents at 31 December
2019 is as follows:
Cash balances Correspondent Total
with the CBU accounts and placements
(other than with other banks
mandatory reserve with original
deposits) maturities of
less than three
months
---------------------------------- ------------------- ------------------------- ----------
Neither past due nor impaired
- The CBU 1,014,834 - 1,014,834
- Rated AA to A- - 812,749 812,749
- Rated below A- - 372,228 372,228
- -
---------------------------------- ------------------- ------------------------- ----------
- -
Less: allowance for expected
credit losses (53) (48) (101)
Total cash and cash equivalents,
excluding cash on hand 1,014,781 1,184,929 2,199,710
8. DUE FROM OTHER BANKS
31 December 2020 31 December 2019
------------------------------------------------------------------- ----------------- -----------------
Mandatory cash balances with the CBU 141,437 373,156
Placements with other banks with original maturities of more than
three months 1,458,096 1,350,298
Restricted cash 278,088 329,802
- -
------------------------------------------------------------------- ----------------- -----------------
- -
Less: allowance for expected credit losses (18,429) (16,166)
, ,
------------------------------------------------------------------- ----------------- -----------------
, ,
Total due from other banks 1,859,192 2,037,090
In order to provide relief to the banking sector, which was
negatively affected by the global economic slowdown and COVID-19
pandemic, the CBU has eased the requirements for mandatory reserves
to support banking sector liquidity. Hence, the man datory cash
balances with the CBU has decreased in 2020.
Restricted cash represents balances on correspondent accounts
with foreign banks placed by the Group on behalf of its customers.
The Group does not have the right to use these funds for the
purpose of funding its own activities.
Analysis by credit quality of due from other banks outstanding
at 31 December 2020 is as follows:
Mandatory Placements Restricted Total
cash balances with other cash
with the banks with
CBU original
maturities
of more than
three months
---------------------- --------------- -------------- ----------- ----------
Neither past due nor
impaired
- The CBU 141,437 - - 141,437
- Rated A+ to A- - - 5,268 5,268
- Rated below A- - 1,458,096 272,820 1,730,916
Unrated - - - -
Less: allowance for
expected credit
losses - (18,155) (274) (18,429)
Total due from other
banks 141,437 1,439,941 277,814 1,859,192
Analysis by credit quality of due from other banks outstanding
at 31 December 2019 is as follows:
Mandatory Placements Restricted Total
cash balances with other cash
with the banks with
CBU original
maturities
of more than
three months
---------------------- --------------- -------------- ----------- ----------
Neither past due nor
impaired
- The CBU 373,156 - - 373,156
- Rated AA to A- - 3,803 260,232 264,035
- Rated below A- - 1,342,045 69,570 1,411,615
Unrated - 4,450 - 4,450
Less: allowance for
expected credit
losses (13) (15,987) (166) (16,166)
Total due from other
banks 373,143 1,334,311 329,636 2,037,090
Mandatory deposits with the CBU include non-interest bearing
reserves against client deposits. The Group does not have the right
to use these deposits for the purposes of funding its own
activities.
9. LOANS AND ADVANCES TO CUSTOMERS
The Bank uses the following classification of loans:
-- Loans to state and municipal organisations - loans issued to
clients wholly owned by the Government of the Republic of
Uzbekistan and budget organisations;
-- Corporate loans - loans issued to clients other than
government entities and private entrepreneurs;
-- Loans to individuals - loans issued to individuals for
consumption purposes, for the purchase of residential houses and
flats and loans issued to private entrepreneurs without forming
legal entity.
Loans and advances to customers comprise:
31 December 2020 31 December 2019
---------------------------------------------- ----------------- -----------------
Corporate loans 21,938,171 14,532,135
State and municipal organisations 14,562,532 13,030,368
Loans to individuals 4,361,970 3,123,699
,
---------------------------------------------- ----------------- -----------------
,
Total loans and advances to customers, gross 40,862,673 30,686,202
,
---------------------------------------------- ----------------- -----------------
Less: allowance for expected credit losses (1, 902 , 715 ) (646,417)
,
---------------------------------------------- ----------------- -----------------
Total loans and advances to customers 38,959,958 30,039,785
In response to the COVID-19 pandemic, the Group introduced
repayment holidays of up to six months to enable customers to take
a temporary break from making loan repayments where they are
experiencing, or are reasonably expected to experience, payment
difficulties caused by COVID-19. During 2020, the Group provided
forbearances to customers and as of year-end total outstanding
balance of forbearing loans is equaled to UZS 12,932,292 million or
approximately 31.7% of the gross loan portfolio.
In relation to restructured loans above, interest continued to
accrue on the outstanding principal of the loans and was
distributed over the remaining period of the loans with final
maturities predominantly extended by six months.
The table below represents loans and advances to customer's
classification by stages:
31 December 2020 31 December 2019
---------------------------------------------- ----------------- -----------------
Originated loans to customers 40,423,399 30,654,925
Overdrafts 439,274 31,277
,
---------------------------------------------- ----------------- -----------------
Total loans and advances to customers, gross 40,862,673 30,686,202
,
---------------------------------------------- ----------------- -----------------
Stage 1 (12 month ECL) 26,201,628 21,174,347
Stage 2 (Lifetime ECL) 11,970,209 8,644,898
Stage 3 (Lifetime ECL) 2,690,836 866,957
,
---------------------------------------------- ----------------- -----------------
Total loans and advances to customers, gross 40,862,673 30,686,202
,
---------------------------------------------- ----------------- -----------------
Less: Allowance for expected
credit losses (1, 902 , 715 ) (646,417)
,
---------------------------------------------- ----------------- -----------------
Total loans and advances to customers 38,959,958 30,039,785
On 9 October 2019, a Presidential Decree #PD-4487 ("the Decree")
was issued outlining priority measures to strengthen the financial
standing of the banking sector which, among other plans for action,
stipulated a withdrawal of government directed low-margin and
subsidized assets out from the State owned banks, including the
Group, to improve their return on assets and performance.
Specifically, the Decree required the Group to execute the
following transactions by the end of the year ending 31 December
2019:
-- Reduce the share of low-margin loans funded by the Government
in the loan portfolio of the Group. The Group executed the
transaction by transferring from its loan portfolio 22 loans
specified in the Decree ("the Non-core loans") to the UFRD. To
compensate for the reduction of assets, the Group simultaneously
discharged from its liabilities by decreasing the 'Other borrowed
funds' from the UFRD for the same amount. In accordance with the
Decree, these loans, denominated predominantly in USD and lesser in
EUR, were provided to twelve large State owned companies to fund
national projects in the energy, oil & gas, chemicals and
transportation sectors of the economy and amounted to an equivalent
of UZS 11,575,708 million on the date of transaction as described
in Note 19.
-- In accordance with the Decree, increase the Share capital of
the Group and the UFRD's stake in it, respectively, by capitalizing
7 loans ("the Capitalized loans") funded by the UFRD. The
transaction occurred by converting the Group's borrowings, obtained
from the UFRD to fund these loans, into the Group's share capital.
These loans were provided to three large State owned companies to
fund the national projects in oil & gas, chemicals and
transportation sectors of economy and amounted to USD 258.5 million
(UZS 2,465,358 million) as at the date of actual transaction which
has been executed as at 31 October 2019, as described in Note
22.
-- Also, the Government, in its capacity as a shareholder of the
Group, has instructed to substantially modify initial terms of the
capitalized loans by changing their currency profile, interest
rates and maturity. These modifications resulted in derecognition
of old assets with the carrying value of UZS 2,465,358 million and
recognition of new assets with the fair value on initial
recognition of UZS 2,243,000 million. As a result, loss on initial
recognition of the asset in the amount of UZS 222,357 million was
recognized directly in shareholder's equity by utilizing the
available share premium and reducing the retained earnings for the
remaining amount net of tax for UZS 45,044 million, as described in
Note 22.
The tables below analyze information about significant changes
in the gross carrying amount of loans and advances to customers
during the year:
Stage 1 Stage 2 Stage 3 TOTAL
12-month Lifetime Lifetime
ECL ECL ECL
Gross carrying amount as at 31 December 2019 21,174,347 8,644,898 866,957 30,686,202
Changes in the gross carrying amount
- Transfer from stage 1 (7,204,019) 6,821,162 382,857 -
- Transfer from stage 2 4,949,799 (5,570,150) 620,351 -
- Transfer from stage 3 58,699 85,348 (144,047) -
- Changes in EAD* (4,155,234) 2,111,460 951,661 (1,092,113)
New loans and advances to customers
issued or acquired 13,627,344 - - 13,627,344
Matured or derecognized loans and
advances to customers
(except for write off) (4,180,128) (962,683) (139,582) (5,282,393)
Recovery of written off loans and
advances to customers - - 7,640 7,640
Written off loans and advances to
customers - - - -
Foreign exchange differences 1,930,820 840,174 144,999 2,915,993
Gross carrying amount
as at 31 December 2020 26,201,628 11,970,209 2,690,836 40,862,673
Loss allowance for ECL
as at 31 December 2020 (191,757) (215,464) (1,495,494) (1, 902 , 715 )
Total loans and advances
to customers 26,009,871 11,754,745 1,195,342 38,959,958
Stage 1 Stage 2 Stage 3 TOTAL
12-month Lifetime Lifetime
ECL ECL ECL
Gross carrying amount as at 31 December 2018 24,580,970 3,341,788 559,203 28,481,961
Changes in the gross
carrying amount
- Transfer from stage 1 (2,907,052) 2,510,568 396,484 -
- Transfer from stage 2 315,431 (493,493) 178,062 -
- Transfer from stage 3 18,705 107,734 (126,439) -
- Changes in EAD* (3,541,080) 2,139,075 34,754 (1,367,251)
New loans and advances to
customers issued or acquired 21,544,064 - - 21,544,064
Matured or derecognized loans
and advances to customers
(except for write off) (20,801,314) (371,392) (231,594) (21,404,300)
Recovery of written off loans and
advances to customers - - 25,838 25,838
Written off loans and advances to
customers - - (4,382) (4,382)
Foreign exchange differences 1,964,623 1,410,618 35,031 3,410,272
Gross carrying amount
as at 31 December 2019 21,174,347 8,644,898 866,957 30,686,202
Loss allowance for ECL
as at 31 December 2019 (136,991) (193,828) (315,598) (646,417)
Total loans and advances
to customers 21,037,356 8,451,070 551,359 30,039,785
* The line "Changes in EAD" represents changes in the gross
carrying amount of loans issued in prior periods which have not
been fully repaid during 2020 and transfers of new issued loans
between stages.
The tables below analyze information about significant changes
in the expected credit loss of loans and advances to customers
during the year:
Stage 1 Stage 2 Stage 3 TOTAL
Lifetime Lifetime
12-month ECL ECL ECL
Loss allowance for ECL as at 31 December 2019 136,991 193,828 315,598 646,417
Changes in the gross carrying amount
- Transfer from stage 1 (41,864) 39,322 2,542 -
- Transfer from stage 2 94,899 (117,172) 22,273 -
- Transfer from stage 3 7,671 71,960 (79,631) -
- Changes in EAD* (175,652) 35,329 1,231,688 1,091,365
New loans and advances to customers
issued or acquired 180,088 - - 180,088
Matured or derecognized loans and
advances to customers
(except for write off) (22,609) (23,130) (24,716) (70,455)
Recovery of loans and advances to
customers previously written off - - 7,640 7,640
Written off loans and advances to customers - - - -
Foreign exchange differences 12,233 15,327 20,100 47,660
Loss allowance for ECL as at 31 December 2020 191,757 215,464 1,495,494 1, 902 , 715
Stage 1 Stage 2 Stage 3 TOTAL
Lifetime Lifetime
12-month ECL ECL ECL
Loss allowance for ECL as at 31 December 2018 175,253 70,747 215,332 461,332
Changes in the gross
carrying amount
- Transfer from stage 1 (26,203) 20,967 5,236 -
- Transfer from stage 2 17,966 (24,399) 6,433 -
- Transfer from stage 3 1,992 86,316 (88,308) -
- Changes in EAD* (207,675) 5,780 189,704 (12,191)
New loans and advances to customers
issued or acquired 293,830 - - 293,830
Matured or derecognized loans and
advances to customers
(except for write off) (124,657) (13,046) (48,482) (186,185)
Recovery of loans and advances to
customers previously written off - - 25,838 25,838
Written off loans and advances to customers - - (4,382) (4,382)
Foreign exchange differences 6,485 47,463 14,227 68,175
Loss allowance for ECL as at 31 December 2019 136,991 193,828 315,598 646,417
*" Changes in EAD " are attributable to changes in parameters
(PD, LGD), changes in EAD and adjustment of ECL due to transfer to
new stages, as well as transfers of ECL on new loans originated
during the reporting period from Stage 1 to other stages. The
information on transfers above reflects the migration of loans from
their initial stage (or the stage as at the beginning of the
reporting date) to the stage they were in as at the reporting date.
This information does not reflect the intermediate stage that the
loans could be assigned to throughout the reporting period.
Economic sector risk concentrations within the loans and
advances to customer are as follows:
31 December 2020 31 December 2019
------------------------ ------------------------
Amount % Amount %
---------------------------------------------- ----------------- ----- ----------------- -----
Manufacturing 12,165,253 30% 9,201,743 30%
Oil and gas & chemicals 9,999,561 24% 6,762,641 22%
Individuals 4,361,970 11% 3,123,699 10%
Trade and Services 4,338,733 11% 3,650,471 12%
Agriculture 3,616,095 9% 1,642,841 5%
Energy 3,396,794 8% 3,621,465 12%
Transport and communication 2,198,157 5% 1,867,812 6%
Construction 786,110 2% 815,530 3%
Total loans and advances to customers, gross 40,862,673 100% 30,686,202 100%
Less: Allowance for expected credit losses (1, 902 , 715 ) (646,417)
Total loans and advances to customers 38,959,958 30,039,785
As at 31 December 2020, the Group granted loans to 12 (31
December 2019: 10) borrowers in the amount of UZS 12,563,610
million (31 December 2019: UZS 10,434,535 million), which
individually exceeded 10% of the Group's equity.
Information about loans and advances to individuals as at 31
December 2020 and 2019 are as follows:
31 December 2020 31 December 2019
Mortgage loans 2,867,127 1,792,916
Microloans 628,107 357,977
Car loans 536,708 525,977
Consumer loans 256,592 300,598
Other 73,436 146,231
Total loans and advances to individuals, gross 4,361,970 3,123,699
Less: allowance for expected credit losses (223,544) (30,355)
Total loans and advances to individuals 4,138,426 3,093,344
Information about collateral as at 31 December 2020 are as
follows:
Corporate State and Loans to 31 December 2020
loans municipal individuals
organisations
Loans collateralised by:
Letter of surety 7,748,268 2,230,264 804,776 10,783,308
Real estate 6,980,088 137,576 2,544,451 9,662,115
State guarantee 2,179 7,871,577 - 7,873,756
Equipment 4,231,746 957,259 - 5,189,005
Inventory and receivables 717,007 2,055,641 1,151 2,773,799
Insurance policy 1,912,279 15,016 348,154 2,275,449
Cash deposits 52,955 1,054,919 4,623 1,112,497
Vehicles 290,185 73,101 236,322 599,608
Not collateralized 3,464 2,998 422,493 428,955
Equity securities - 164,181 - 164,181
, , , ,
Total loans and advances
to customers, gross 21,938,171 14,562,532 4,361,970 40,862,673
, , , ,
------------------------------ ------------ --------------- ------------- -----------------
Less: allowance for expected
credit losses (1,550,214) (128,957) (223,544) (1, 902 , 715 )
, , , ,
------------------------------ ------------ --------------- ------------- -----------------
Total loans and advances
to customers 20,387,957 14,433,575 4,138,426 38,959,958
Information about collateral as at 31 December 2019 are as
follows:
Corporate State and Loans to 31 December
loans municipal individuals 2019
organisations
Loans collateralised
by:
Letter of surety 4,998,533 1,975,298 1,079,732 8,053,563
State guarantee - 7,344,937 - 7,344,937
Real estate 4,150,752 171,715 1,146,855 5,469,322
Equipment 2,592,782 1,060,371 34 3,653,187
Inventory and receivables 827,384 1,037,299 349,464 2,214,147
Insurance policy 1,127,543 504 230,588 1,358,635
Cash deposits 56,596 964,025 379 1,021,000
Vehicles 335,232 161,702 201,279 698,213
Equity securities 209,504 314,517 - 524,021
Not collateralised 233,809 - 115,368 349,177
Total loans and advances
to customers, gross 14,532,135 13,030,368 3,123,699 30,686,202
Less: Allowance for
expected
credit losses (468,394) (147,668) (30,355) (646,417)
Total loans and advances
to customers 14,063,741 12,882,700 3,093,344 30,039,785
Analysis by credit quality of loans to State and municipal
organisations, Corporate and Individual customers that are
collectively and individually assessed for impairment as at 31
December 2020 are as follows :
31 December 2020 State and municipal Corporate loans Loans to individuals Total
organisations
Loans assessed for
impairment
on a collective basis
(gross)
Not past due loans 14,228,723 17,897,823 3,826,146 35,952,692
Past due loans
- less than 30 days
overdue - 593,668 279,244 872,912
- 31 to 90 days overdue 59,829 1,927,487 193,959 2,181,275
- 91 to 180 days overdue - 81,407 33,325 114,732
- 181 to 360 days overdue - 93,052 27,906 120,958
- over 360 days overdue - 31,439 1,390 32,829
Total loans assessed for
impairment on a
collective basis, gross 14,288,552 20,624,876 4,361,970 39,275,398
Loans individually
determined
to be impaired (gross):
Restructured loans 273 , 980 1,313,295 - 1,587,275
Total loans individually
determined to be
impaired, gross 273,980 1,313,295 - 1,587,275
- Impairment provisions
for
individually impaired
loans - (758,997) - (758,997)
- Impairment provisions
assessed on a collective
basis (128,957) (791,217) (223,544) (1,143,718)
Less: Allowance for
expected credit losses (128,957) (1,550,214) (223,544) (1, 902 , 715 )
Total loans and advances
to customers 14,433,575 20,387,957 4,138,426 38,959,958
The Group's allowance for expected credit losses on loans
individually determined to be impaired increased significantly due
to charge of UZS 715,025 million of allowance on only one borrower
with gross carrying amount of UZS 1,397,213 million , the
operations of which were significantly impacted by Covid-19. The
main activities of the borrower include exploration, production and
transportation of hydrocarbons, construction of industrial and
infrastructural objects.
The loans to this one borrower were issued and restructured in
line with the Government's instructions. Currently, the Group is
working closely with the Government on different solutions to
support the operations of the borrower to recover the outstanding
loan balances and reverse the allowance.
Analysis by credit quality of loans to State and municipal
organisations, Corporate and Individual customers that are
collectively and individually assessed for impairment as at 31
December 2019 are as follows:
State and Corporate Loans to Total
municipal loans individuals
31 December 2019 organisations
Loans assessed for impairment
on a collective basis (gross)
Not past due loans 13,017,467 13,627,010 3,065,257 29,709,734
Past due loans
- less than 30 days overdue 10,622 258,313 31,722 300,657
- 31 to 90 days overdue 1,911 421,577 14,019 437,507
- 91 to 180 days overdue 368 58,840 10,130 69,338
- 181 to 360 days overdue - 37,801 2,402 40,203
- over 360 days overdue - 215 169 384
Total loans assessed for
impairment on a collective
basis, gross 13,030,368 14,403,756 3,123,699 30,557,823
Loans individually determined
to be impaired (gross):
Restructured loans - 128,379 - 128,379
Total loans individually
determined to be impaired,
gross - 128,379 - 128,379
- Impairment provisions for
individually impaired loans - (113,604) - (113,604)
- Impairment provisions
assessed on a collective
basis (147,668) (354,790) (30,355) (532,813)
Less: Allowance for expected
credit losses (147,668) (468,394) (30,355) (646,417)
Total loans and advances to
customers 12,882,700 14,063,741 3,093,344 30,039,785
The components of net investment in finance lease as at 31
December 2020 and 2019 are as follows:
31 December 2020 31 December 2019
-------------------------------------------- ----------------- -----------------
Not later than one year 79,270 71,317
From one year to five years 111,817 150,078
More than five years - -
Minimum lease payments 191,087 221,395
-------------------------------------------- ----------------- -----------------
Less: unearned finance income (36,713) (53,800)
154,374 167,595
-------------------------------------------- ----------------- -----------------
Less: allowance for expected credit losses (1,406) (846)
Net investment in finance lease 152,968 166,749
-------------------------------------------- ----------------- -----------------
Current portion 56,146 45,596
Long-term portion 96,822 121,153
Net investment in finance lease 152,968 166,749
-------------------------------------------- ----------------- -----------------
As at 31 December 2020, finance lease receivables include four
lease agreements for the total amount of UZS 172,320 million (31
December 2019: UZS 174,040 million) with one-year grace period for
repayment of principal amounts.
10. INVESTMENT SECURITIES MEASURED AT AMORTISED COST
Currency Annual coupon/ EIR % Maturity date 31 December 31 December
interest rate % month/year 2020 2019
---------------------- ---------- --------------------- -------- --------------------- ------------ ------------
Government Bonds UZS 13 - 16 14 - 18 Apr.21 - Jan. 22 365 , 319 83 , 095
The CBU Bonds UZS 14 14 May.21 - Oct. 21 174 , 089 -
Corporate bonds UZS 18 18 Jul. 2026 2 , 503 2 , 503
Less: allowance for expected
credit losses (1 , 689) (950)
Total investment securities
measured at amortised cost 540 , 222 84 , 648
As at 31 December 2020, the Group holds government bonds of the
Ministry of Finance of the Republic of Uzbekistan in the quantity
of 370,000 (31 December 2019: 79,009) with nominal value of UZS
1,000,000 and coupon rate of 13-16% p.a. (31 December 2019: 15%
p.a.). As at 31 December 2020, 250,000 of the above 370,000
government bonds were placed with the CBU under a repurchase
agreement with a maturity of 3 months and an interest rate of
15.93%.
As at 31 December 2020, the Group holds bonds of the CBU in the
amount of UZS 170,000 million at 14% p.a. coupon rate.
As at 31 December 2020, the subsidiary PSB Insurance LLC holds
corporate bonds of JSCB "Asia Alliance Bank" in quantity 2,500 with
nominal value of UZS 1,000,000 and coupon rate of CBU refinancing
rate (14%) + 4% p.a.
11. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE
INCOME
Ownership 31 December 31 December
2020 2019
---------------------------------------- ---------- ------------ ------------
Visa Inc. 0.0% 13,203 10,338
JSC "Uzbekistan Mortgage Refinancing
Company" 8.0% 8,000 -
JSC "Qurilishmashlizing" 6.5% 5,577 1,821
JSC "Republican Currency Exchange" 11.1% 4,734 4,528
LLC "Yagona Umumrespublika Protsessing
Markazi" 6% 2,530 -
LLC "Credit Information Services
CRIF" 3.2% 2,081 -
JSC "Tashkent" Stock Exchange 6.8% 478 554
JSC "UzMed-Leasing" 16.7% 357 356
LLC "Xojayli Agrosanoat markazi" 0.0% - 116
LLC "Steel Property Construction" 0.0% - 41,662
LLC "Binokor" 0.0% - 28,736
Other 3-8% 1,064 603
, ,
---------------------------------------- ---------- ------------ ------------
Total financial assets at fair
value through other
comprehensive income 38,024 88,714
Financial assets at FVTOCI as at 31 December 2020, other than
Visa Inc., include equity securities registered in Uzbekistan and
not actively traded. Due to the nature of the local financial
markets, it is not possible to obtain current market value for
these investments.
As at 31 December 2020 and 2019, Visa Inc. is measured using
level 1 hierarchy and investment securities other than Visa Inc.
are measured using level 3 hierarchy of fair value measurement.
Starting from 1 January 2018, the fair value of the financial
assets at fair value through other comprehensive income were
determined as the present value of future dividends by assuming
dividend growth rate of zero per annum. The Management built its
expectation based on previous experience of dividends received on
financial assets at fair value through other comprehensive income
over multiple years, and accordingly calculated the value using the
average rate of return on investments. The Management believes that
this approach accurately reflects the fair value of these
securities. A significant unobservable input used in determining
the fair value of financial assets at FVTOCI is WACC. The higher
the WACC the lower the fair value of the financial assets at
FVTOCI.
Investments to which the dividends valuation approach is not
applicable, i.e. dividends were not paid during the period,
Management may use the Assets based valuation approach focused on
the investment company's net assets value (NAV), or fair market
value of its total assets minus its total labilities, to determine
what would cost to recreate the business. The Management believes
that such approach accurately reflects the fair value of these
securities.
In accordance with the Presidential Decree "On the development
of the innovative business in Tashkent regions" dated 21 December
2018, the Group made an investment in share capital of LLC "Steel
Property Construction" in the amount of UZS 41,662 million during
the year ended 31 December 2019.
In accordance with the Presidential Decree "On additional
measures for acceleration of development of the construction
materials industry" dated 23 May 2019, the Group made an additional
investment in share capital of LLC "Binokor" in the amount of USD 3
million, equivalent to UZS 31,431 million (UZS 28,736 million in
2019).
In 2020, the investments in LLC "Steel Property Construction"
and LLC "Binokor" have been sold.
As at 31 December 2020 and 2019, none of the financial assets at
FVTOCI were pledged.
The table below represents the movement of financial instruments
at FVTOCI for the year ended 31 December 2020:
31 December 2019 Additions Disposal FV Adjustments 31 December 2020
Financial assets at FVTOCI 88,714 12,857 (72,27 2 ) 8 , 725 3 8 , 024
---------------------------- ----------------- ---------- ----------- --------------- ------------------
31 December 2018 Additions Disposal FV Adjustments 31 December 2019
Financial assets at FVTOCI 41,804 44,998 (3,267) 5,179 88,714
---------------------------- ----------------- ---------- --------- --------------- -----------------
12. INVESTMENT IN ASSOCIATES
Name Principal Country Ownership interest and carrying amount of investment
activity 31 December 2020 31 December 2019
----------------- ------------------ ------------ ----------------------------------- --------------------
LLC "SQB
Consult" Consulting Uzbekistan 40.00% 14 0.00% -
- .
LLC "Khorezm
Invest Project" Asset management Uzbekistan 34.00% 978 0.00% -
Total investment in
associates 993 -
13. PREMISES, EQUIPMENT AND INTANGIBLE ASSETS
Buildings and Office and Construction Total Intangible Total
Premises computer in premises and assets
equipment progress equipment
--------------------------- -------------- ------------ ------------- -------------- -------------- ------------
Carrying amount as at
1 January 2019 99 , 444 64 , 869 34 , 947 199 , 260 1 , 147 200 , 407
Additions 2,737 111,841 151,167 265,745 2,228 267 , 973
Disposals (net of
depreciation) (4 , 300) (837) (293) (5 , 430) (205) (5 , 635)
Transfers 38 , 997 9 , 020 (48 , 065) (48) 48 -
Depreciation/amortization
charge (Note 29) (5 , 254) (21 , 672) - (26 , 926) (539) (27 , 465)
Carrying amount as at
31 December 2019 131 , 624 163 , 221 137 , 756 432 , 601 2 , 679 435 , 280
Cost as at 31 December
2019 168 , 637 257 , 579 137 , 756 563 , 972 12 , 057 576 , 029
Accumulated
depreciation/amortisation (37 , 013) (94 , 358) - (131 , 371) (9 , 378) (140 , 749)
Carrying amount as at
31 December 2019 131 , 624 163 , 221 137 , 756 432 , 601 2 , 679 435 , 280
Additions 306 89 , 005 269 , 065 358 , 376 25 , 632 384 , 008
Disposals (net of
depreciation) (13,156) (1 , 204) (5 , 091) (19,451) (278) (19,729)
Transfers 87 , 706 48 , 544 (135 , 964) 286 (286) -
Depreciation/amortization
charge (Note 29) (6 , 472) (45 , 355) - (51 , 827) (500) (52 , 327)
Carrying amount as at
31 December 2020 200,008 254 , 211 265 , 766 719,985 27 , 247 747,232
Cost as at 31 December
2020 243,493 393 , 924 265 , 766 903 , 183 37 , 125 940,308
Accumulated
depreciation/amortisation (43 , 485) (139 , 713) - (183 , 198) (9 , 878) (193 , 076)
Carrying amount as at
31 December 2020 200,008 254 , 211 265 , 766 719,985 27 , 247 747,232
In 2019, the Group has signed a contract with construction
company Shanghai Construction Group Co.Ltd on design and
construction of the Headquarters for Group in the amount of USD
136.5 million. As at 31 December 2020, in accordance with the
contract, the Group invested USD 37.8 million (equivalent to UZS
377,888 million) of which UZS 200,661 million was recorded in
CIP.
During 2020, the Group invested UZS 54,819 million (2019: UZS
151,167 million) on renovation of its branches which was recorded
in CIP:
- UZS 18,845 million on renovation of the Head office;
- UZS 9,698 million on renovation of Shargun branch;
- UZS 6,307 million on renovation of Kashkadarya regional
branch;
- UZS 3,378 million on renovation of Namangan regional
branch;
- Others UZS 16,581 million.
During the financial year ending 31 December 2020, the Group
purchased banking software to update its accounting system and
recorded within Intangible Assets for the amount UZS 22,469
million.
As at 31 December 2020 and 2019, included in premises and
equipment were fully depreciated assets totaling UZS 51,714 million
and UZS 45,495 million, respectively.
As at 31 December 2020 and 2019, premises and equipment of the
Group were not pledged.
14. OTHER ASSETS
31 December 2020 31 December 2019
---------------------------------------------- ----------------- -----------------
Other financial assets
Commission income receivable 11,024 6,468
Security deposit on money transfer systems 213 -
Receivable from Republican Currency Exchange 64 137
Other receivables 6,316 836
, ,
---------------------------------------------- ----------------- -----------------
, ,
Less: Allowance for expected credit losses (1,409) (2,279)
, ,
---------------------------------------------- ----------------- -----------------
, ,
Total other financial assets 16,208 5,162
, ,
---------------------------------------------- ----------------- -----------------
, ,
Other non-financial assets
Prepayment for construction of building 245,903 209,997
Prepaid income tax 58,379 26,536
Prepaid expenses and advances 30,144 20,819
Tax settlements, other than income tax 17,907 6,291
Inventory 5,716 3,378
Prepayments for equipment and property 2,026 685
Repossessed collateral 617 212
Other 1,259 3,742
- -
---------------------------------------------- ----------------- -----------------
- -
Less: allowance for impairment (1,639) (129)
, ,
---------------------------------------------- ----------------- -----------------
, ,
Total other non-financial assets 360,312 271,531
, ,
---------------------------------------------- ----------------- -----------------
, ,
Total other assets 376,520 276,693
As at 31 December 2020, the prepayment for construction of
building comprises prepayment to Shanghai Construction company in
the amount of UZS 171,227 million (equivalent USD 17.4 million) (31
December 2019: UZS 194,848 million (equivalent USD 20.48 million)
for construction of building in Tashkent city in accordance with
the Decree of Cabinet of Ministers #961 dated 27 November 2018. The
construction works have started on 20 June 2019 and expected to be
completed by the end of 2021.
15. NON-CURRENT ASSETS HELD FOR SALE
31 December 2020 31 December 2019
------------------------------------------------------------- ----------------- -----------------
Repossessed assets:
- Buildings held for sale 27,355 17,706
- Others assets held for sale - 1,237
, ,
------------------------------------------------------------- ----------------- -----------------
, ,
Total repossessed assets 27,355 18,943
, ,
------------------------------------------------------------- ----------------- -----------------
, ,
Total non-current assets (or disposal groups) held for sale 27,355 18,943
As of 31 December 2020, buildings held for sale include the
repossessed property of "Toshbozorsavdo" LLC (UZS 8,086 million)
and "Beltepa Master Story" LLC (UZS 19,277 million). In December
2019 and 2020, the Group's management approved and initiated active
customer search programs within one year. The assets received were
measured at the lower of their carrying amount and fair value less
costs to sell. As of 31 December 2020, an impairment of reacquired
assets classified as held for sale was recognized in the amount of
UZS 5,255 million (31 December 2019: UZS 12,488 million).
16. DUE TO OTHER BANKS
31 December 31 December
2020 2019
----------------------------------------- ------------ ------------
Long term placements of other banks 584,783 358,687
Short term placements of other banks 279,438 68,427
Payable to the CBU under repo agreement 259,165 -
Correspondent accounts and overnight
placements of other banks 372,618 37,995
, ,
----------------------------------------- ------------ ------------
Total due to other banks 1,496,004 465,109
As at 31 December 2020 and 2019, "Long term placements of other
banks" comprised borrowings from National Bank of Uzbekistan and
Halk Bank for the amount of UZS 472,264 million and borrowings from
Halk Bank for the amount of UZS 358,259 million, respectively,
obtained to finance strategic government infrastructural
projects.
As at 31 December 2020, 250,000 government bonds were placed
with the CBU under a repurchase agreement with a maturity of 3
months and an interest rate of 15.93%.
17. CUSTOMER ACCOUNTS
31 December 2020 31 December 2019
-------------------------------- ----------------- ------------------
State and public organisations
Current/demand accounts 3,171,211 1,283,604
- Term deposits 2,705,206 3,149,784
Other legal entities
Current/settlement accounts 3,360,112 2,666,070
- Term deposits 239,375 391,449
Individuals
Current/demand accounts 925,599 760,410
- Term deposits 1,215,455 872,653
, ,
-------------------------------- ----------------- ------------------
, ,
Total customer accounts 11,616,958 9,123,970
Economic sector concentrations within customer accounts are as
follows:
31 December 2020 31 December 2019 (Restated)
------------------------ -----------------------------------
Amount % Amount %
------------------------- ----------------- ----- ---------------------------- -----
Public administration 2,744,161 24% 2,907,265 32%
Oil and gas 2,348,720 20% 777,904 9%
Individuals 2,141,054 19% 1,633,063 18%
Manufacturing 1,363,581 12% 1,276,139 14%
Energy 1,324,435 11% 354,517 4%
Services 347,780 3% 366,095 4%
Trade 318,599 3% 270,093 3%
Communication 260,275 2% 201,206 2%
Construction 246,051 2% 224,443 2%
Finance 181,740 2% 161,873 2%
Engineering 155,739 1% 126,877 1%
Transportation 87,060 1% 92,788 1%
Agriculture 57,036 0% 30,654 0%
Mining 17,414 0% 679,486 8%
Medicine 16,015 0% 7,029 0%
Other 7,298 0% 14,538 0%
, , ,
------------------------- ----------------- ----- ---------------------------- -----
,
Total customer accounts 11,616,958 100% 9,123,970 100%
During 2020, the Group has revisited the approach of
classification of customer accounts balances by economic sector and
has identified errors in the note. As a result of the retrospective
correction of the classification error the customer account
balances by sector were adjusted within the Note 17.
As at 31 December 2020, the Group had two (31 December 2019:
two) customers, the Ministry of Finance of the Republic of
Uzbekistan and NHC "Uzbekneftegaz", with a total balance UZS
4,291,575 million (31 December 2019: UZS 3,188,457), which
individually exceeded 10% (31 December 2019: 10%) of the Group's
equity.
18. DEBT SECURITIES IN ISSUE
31 December 2020 31 December 2019
------------------------------------------- --------------------------------------------
Nominal Nominal
Amount interest, % Maturity, year Amount interest, % Maturity, year
--------------- ---------- -------------- --------------- ---------- --------------- ---------------
Eurobonds 3,118,189 5.75 2024 2,808,987 5.75 2024
Certificates
of deposit 78,566 14-16 2021-2022 79,627 5-18 2022
Bonds 76,293 14-16 2021-2024 32,280 7.5-18 2024
, , , ,
--------------- ---------- -------------- --------------- ---------- --------------- ---------------
, , , ,
Total debt
securities in
issue 3,273,048 2,920,894
In December 2019, the Group has issued Eurobonds in London Stock
Exchange with nominal value of USD 300,000 thousand with a discount
of USD 3,198 thousand and five years maturity. Amortised cost of
Eurobonds equivalent to UZS 3,118,189 million represent the present
value of future cash payments discounted using effective interest
rate of 6.193%. The present value calculation includes all costs
directly associated with the issuance and form an integral part of
the effective interest rate.
The debt securities issued do not stipulate financial covenants
except for Eurobonds, which stipulate the Group is required to
comply with certain financial covenants, non-compliance of which
may give the lender a right to demand repayment.
19. OTHER BORROWED FUNDS
31 December 2020 31 December 2019
------------------------------------------------------- ----------------- -----------------
International financial institutions
The Export-Import Bank of China 5,167,808 4,959,868
Credit Suisse 2,122,431 530,136
Commerzbank AG 1,632,046 1,480,537
International Bank of Reconstruction and Development 1,298,161 1,000,829
The Export-Import Bank of Russia 995,354 588,330
Landesbank Baden--Wuerttemberg 967,246 761,952
China Development Bank 886,739 859,232
Daryo Finance B.V. 770,900 -
Raiffeisen Bank International AG 819,035 594,624
Gazprombank 789,796 268,974
ICBC (London) plc 671,172 -
International Development Association of World Bank 602,590 570,406
Asian Development Bank 584,938 416,656
Promsvyazbank PJSC 540,737 -
European Bank for Reconstruction and Development 517,297 -
VTB Bank Europe 436,654 203,333
Japan International Cooperation Agency (JICA) 323,180 -
Credit Bank of Moscow 263,233 -
OPEC Fund for International Development 208,719 -
OJSB Transcapitalbank 187,908 130,332
Halyk Savings Bank of Kazakhstan JSC 179,788 -
Turk Eximbank 216,946 -
AK BARS Bank 162,298 -
Baobab Securities Limited 162,180 232,573
The Export-Import Bank of Korea 141,464 100,959
KfW IPEX-Bank 57,417 36,317
Aktif Yatirim Bankasi Anonim Sirketi 54,298 -
Citibank Europe PLC 46,110 115,094
John Deere 42,822 -
ODDO Bank 21,442 77,111
Sberbank Europe AG 18,342 6,661
AKA Ausfuhrkredit-Gesellschaft mbH 13,811 118,302
Sberbank Kazakhstan 5,942 12,816
Jusan Bank JSC 2,682 -
The Taipei EXIMBANK 2,647 -
International Fund for Agricultural Development 2,320 2,495
Amsterdam Trade Bank N.V - 323,041
UniCredit - 19,427
Financial institutions of Uzbekistan - ,
Long term borrowings from the Ministry of Finance 3,233,042 1,998,012
Fund for Reconstruction and Development of Uzbekistan 1,384,626 1,299,791
Long term borrowings from the CBU 68,358 73,889
Uzbekistan Mortgage Refinancing Company (UzMRC) 61,213 -
Preference shares 9,944 8,647
Khokimiyat of Tashkent Region 5,927 5,953
Children's Sports Development Fund of Uzbekistan - 1,478
Ipak Yuli Bank - 687
Other 3,894 4,752
, ,
, ,
Total other borrowed funds 25,683,457 16,803,214
On 9 October 2019, a Presidential Decree #PD-4487 ("the Decree")
was issued outlining priority measures to strengthen the financial
standing of the banking sector which, among other plans for action,
stipulated a withdrawal of government directed low-margin and
subsidized assets out from the State owned banks, including the
Group, to improve their return on assets and performance.
Specifically, the Decree required the Group to execute the
following transactions by the end of the year ending 31 December
2019:
-- Reduce the share of low-margin loans funded by the Government
in the loan portfolio of the Group. As at 31 October 2019, the
Group executed the transaction by transferring from its loan
portfolio 22 loans in the amount of equivalent of UZS 11,575,708
million specified in the Decree ("the Non-core loans") to the UFRD.
To compensate for the reduction of assets, the Group simultaneously
discharged from its liabilities by decreasing the 'Other borrowed
funds' from the UFRD for the same amount. In accordance with the
Decree, these loans, denominated predominantly in USD and lesser in
EUR, were provided to twelve large State owned companies to fund
national projects in the energy, oil & gas, chemicals and
transportation sectors of the economy.
In 2017 and 2018, the ADB advanced two loans to the Republic of
Uzbekistan (the "Republic") in connection with the financing of
horticulture projects in Uzbekistan (the "Project"). The Republic
on-lent a portion of these loans to the Bank under tripartite
subsidiary loan agreements No. 3471-UZB dated April 2017 and No.
3673-UZB dated November 2018 between the Republic, the Rural
Restructuring Agency and the Bank (the "Subsidiary Loan
Agreements").
In November 2019, the ADB advanced another Subsidiary Loan
Agreement to the Republic of Uzbekistan in connection with the
financing of livestock value chain development projects in
Uzbekistan (the "Project"). The Republic on-lent a portion of this
loan to the Bank under subsidiary loan agreements No. L3823
(COL)-UZB dated 10 February 2020 between the Republic, the Agro
Industries and Food Security Agency and the Bank.
The loan agreements between ADB and the Republic require the
Republic to cause the Bank to ensure the maintenance of certain
financial covenants throughout the implementation period of the
Project. The same financial covenants are included in the
Subsidiary Loan Agreements.
As at 31 December 2020, the Bank was not in compliance with
return on average assets ratio stipulated in the Subsidiary Loan
Agreements.
Under the terms of the Subsidiary Loan Agreements, any
non-compliance with covenants gives the Republic the right to
demand prepayment of the loans advanced to the Bank. Hence, as at
31 December 2020, the Group classified UZS 548,938 million as
"demand and less than 1 month" as a result of the non-compliance
with the covenant mentioned above.
The Bank proactively communicated with both ADB and the Republic
and established a strategic action plan in relation to financial
years 2019-2024 with a view of ensuring compliance with the
covenant in the future. On 5 November 2019, ADB issued a letter to
the Bank confirming ADB's agreement with the action plan and the
fact that ADB remains committed to the Project and to continuing
relationships with the Republic under the Project. On 5 November
2019, the Republic confirmed to the Bank that it would not take any
action to demand a prepayment of the loans advanced to the Bank
under the Subsidiary Loan Agreements as a consequence of past
and/or on-going non-compliance with this covenant. The agreement
between the Bank and Ministry of Finance does not provide a
definition of an event of default. Therefore the Management
considers the breach of the covenant not to be an event of default
and has received a letter from the Ministry of Finance dated 31
December 2020 confirming that this breach of the covenant is not
considered to be an event of default.
As at 31 December 2020, the Bank was not in compliance with
following covenants stipulated in Master Trade Finance Loan
Agreement (the 'Master Agreement') dated 15 October 2019 between
the Bank and VTB Bank Europe:
-- the percentage of problem loans (Stage 3 loans) in relation
to loans and advances to customers (gross);
-- loan loss reserves to problem loans (Stage 3 loans).
On 24 March 2021, the Bank received a letter form VTB Bank
Europe giving their consent to waive above mentioned financial
covenant as of the end of the financial year 2020 with the decision
to grant the waiver reached during December 2020. Hence, liquidity
has not been adjusted.
20. OTHER LIABILITIES
As at 31 December 2020 and 2019, trade payables comprise
payables for terminals for "Humo" cards in accordance with contract
with CBU dated 25 March 2019. Payment will be made upon receipt of
the full number of terminals required by the CBU.
31 December 31 December
2020 2019
------------------------------------------------------- ------------ ------------
Trade payables 29,152 18,956
Provision for Bank's guarantees and letters of credit 22,845 12,077
Payable to other creditors 6,231 3,292
Dividends payable 2,758 1,777
, ,
------------------------------------------------------- ------------ ------------
, ,
Total other financial liabilities 60,986 36,102
, ,
------------------------------------------------------- ------------ ------------
, ,
Other non-financial liabilities
Payable to employees 35,485 2,022
Taxes payable other than income tax 15,852 10,759
Unearned income from guarantees and letters of credit 3,412 17,575
Income tax payable - 28,657
Other 12,892 4,405
, ,
------------------------------------------------------- ------------ ------------
, ,
Total other non-financial liabilities 67,641 63,418
, ,
------------------------------------------------------- ------------ ------------
, ,
Total other liabilities 128,627 99,520
On 1 January 2020 preferential income tax rates for branches
with long-term investment financing in the structure of the loan
portfolio which considered taxable ranges from 14% till 20% for
each branch as a separate tax payer, has expired and in accordance
with the new tax legislation, the Bank pays income tax on a
consolidated basis as a single tax payer at a single rate of 20%.
Thus income tax payable and prepayment for income tax are presented
on a net basis as at 31 December 2020.
21. SUBORDINATED DEBT
Subordinated debt amounting to UZS 80,000 million was repaid to
JSCB Asaka Bank on 31 December 2020 based on the decision by the
CBU dated 28 December 2020 #19-20/78.
22. SHARE CAPITAL
Number of Ordinary and preference Share premium Treasury shares Total
outstanding shares shares
------------------------ -------------------- ------------------------ -------------- ---------------- ----------
1 January 2019 98,773 1,884,186 696 (1,330) 1,883,552
Issue of new shares 15,393 292,467 - - 292,467
Conversion of debt into
equity by the
shareholder 129,756 2,465,358 (696) 2,464,662
Disposal of treasury
shares - - - 1,330 1,330
Recognition of
liability component of
preference shares - (2,000) (2,000)
31 December 2019 243,922 4,640,011 - - 4,640,011
31 December 2020 243,922 4,640,011 - - 4,640,011
As at 31 December 2020 and 2019, the nominal registered amount
of the Bank's issued share capital was UZS 4,634,514 million, prior
to restatement of capital contributions to the purchasing power of
the UZS in the amount of UZS 12,527 million (effects of
hyperinflation in accordance with IAS 29) and adjustment for
liability component of preference shares.
The share capital was increased in 2019 by total amount of UZS
2,757,825 million through two emissions executed:
- The first emission was executed in accordance with
Presidential Decree #PD-4015 dated 13 November 2018 and the
Shareholders' resolution #27 dated 25 December 2018 on the issuance
of 21,963,818,421 pieces of ordinary shares (19 UZS each) in the
total amount of UZS 417,313 million of which UZS 124,846 million
and UZS 292,467 were paid in 2018 and 2019, respectively.
- The second emission was executed in accordance with the
Shareholders' resolution #28 dated 18 October 2019 on the issuance
of 133,000,000,000 pieces of ordinary shares (19 UZS each) with 40
days expire period of payment in the total amount of UZS 2,527,000
of which UZS 2,465,358 million was exchanged with the Group's
liability to the UFRD in accordance with the Presidential Decree
#PD-4487 ("the Decree") dated 9 October 2019 and remaining pieces
of ordinary shares were cancelled due to the expiration maturity.
In accordance with the Decree, increase the Share capital of the
Group and the UFRD's stake in it, respectively, by capitalizing 7
loans ("the Capitalized loans") funded by the UFRD. The transaction
occurred by converting the Group's borrowings, obtained from the
UFRD to fund these loans, into the Group's share capital. These
loans were provided to three large State owned companies to fund
the national projects in oil & gas, chemicals and
transportation sectors of economy and amounted to USD 258.5 million
(UZS 2,465,358 million) as at the date of actual transaction which
has been executed as at 31 October 2019.
- Also, the Government, in its capacity as a shareholder of the
Group, has instructed to substantially modify initial terms of the
discussed above capitalized 7 loans by changing their currency
profile, interest rates and maturity. These modifications resulted
in derecognition of old assets with the carrying value of UZS
2,465,358 million and recognition of new assets with the fair value
on initial recognition of UZS 2,243,000 million. As a result, loss
on initial recognition of the asset in the amount of UZS 222,357
million was recognized directly in shareholder's equity by
utilizing the available share premium and reducing the retained
earnings for the remaining amount net of tax in the amount of UZS
45,044 million. (Note 30).
As at 31 December 2020 and 2019, the total authorised number of
ordinary shares is 243,552 million with a par value of UZS 19 per
share. Each share carries one vote. Dividends on preference shares
will not be less than dividends on ordinary shares.
The number of ordinary shares issued but not fully paid in was
Nil (31 December 2019: Nil).
As at 31 December 2020 and 2019, the total authorised number of
preference shares is 370 million, with a par value of UZS 19 per
share in the amount of UZS 7,030 million .
The preference shares are not redeemable and rank ahead of the
ordinary shares in the event of the Group's liquidation. The
preference shares give the holders the right to participate in
general shareholders' meetings without voting rights, except in
instances where decisions are made in relation to reorganisation
and liquidation of the Group, and where changes and amendments to
the Group's charter which restrict the rights of preference
shareholders are proposed. Preference share rank above ordinary
shares and if preference dividends are not declared by ordinary
shareholders, the preference shareholders obtain the right to vote
as ordinary shareholders until such time that the dividend is
paid.
In 2019 and 2020, the minimum rate of return of 20% on
preference shares remains unchanged.
23. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING
ACTIVITIES
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's consolidated statement of cash flows as cash flows
from financing activities.
Non-cash changes
---------------------------------------------------------------------------------
31 Financing Interest Effect of Dividends Interest Transfer Conversion Other 31 December
December cash inflows/ paid exchange declared accrued of loans of debt changes 2020
2019 (outflow) rate funded into equity
changes by UFRD by the
shareholder
-------------- ----------- -------------------- ---------- ---------- ---------- --------- --------- ------------ --------- -------------
Debt
securities
in issue 2,920,894 73,910 (197,807) 278,819 - 220,716 - - (23,484) 3,273,048
Other
borrowed
funds 16,803,214 6,605,866 (838,473) 2,199,354 - 913,496 - - - 25,683,457
Due to other
banks (long
term
placements
of
other banks)
(Note 16) 358,687 176,096 (130,267) - - 130,267 - - 50,000 584,783
Subordinated
debt 83,332 (80,000) (16,438) - - 13,106 - - - -
Dividends
payable 1,777 (353,788) - - 354,769 - - - - 2,758
Non-cash changes
-------------------------------------------------------------------------
31 Financing Interest Effect Dividends Interest Transfer Conversion Other 31
December cash paid of declared accrued of loans of debt changes December
2018 inflows/ exchange funded into equity 2019
(outflow) rate by UFRD by the
changes shareholder
-------------- ----------- ---------- ------------ ---------- ---------- --------- ------------- ------------ --------- -----------
Debt
securities
in issue 67,741 2,848,787 (12,159) 3,800 - 12,725 - - - 2,920,894
Other
borrowed
funds 21,756,155 5,717,428 (1,379,791) 3,075,350 - 708,391 (11,575,708) (2,465,358) 966,747 16,803,214
Due to other
banks (long
term
placements
of
other banks)
(Note 16) 434,827 (76,139) (123,952) - - 123,951 - - - 358,687
Subordinated
debt - 80,000 - - - 3,332 - - - 83,332
Dividends
payable 1,572 (71,145) - 71,350 - - - - 1,777
24. INTEREST INCOME AND EXPENSE
2020 2019
----------------------------------------------------------------------- ------------ ------------
Interest income
Interest income on assets recorded at amortised cost comprises:
Interest on loans and advances to customers 3,049,625 2,193,553
Interest on balances due from other banks 137,503 88,186
Interest on investment securities measured at amortised cost 102,504 8,991
, ,
----------------------------------------------------------------------- ------------ ------------
, ,
Total interest income 3,289,632 2,290,730
, ,
----------------------------------------------------------------------- ------------ ------------
, ,
Interest expense
Interest expense on liabilities recorded at amortised cost comprises:
Interest on other borrowed funds (913,496) (708,391)
Interest on customer accounts (389,970) (285,010)
Interest on balances due to other banks (130,267) (123,951)
Interest on debt securities in issue (220,716) (12,725)
Interest on subordinated debt (13,106) (3,332)
, ,
----------------------------------------------------------------------- ------------ ------------
, ,
Total interest expense (1,667,555) (1,133,409)
, ,
----------------------------------------------------------------------- ------------ ------------
, ,
Net interest income before allowance for expected credit
losses on loans and advances to customers 1,622,077 1,157,321
The total interest income calculated using the EIR method for
financial assets measured at amortized cost is UZS 3,289,632
million during the year 2020 (year 2019: UZS 2,290,730 million).
The total interest expense calculated using the EIR method for
financial liabilities measured at amortized cost is UZS 1,667,555
million during the year 2020 (year 2019: UZS 1,133,409
million).
During 2020 and 2019, the Group had accrued interest income from
loans individually determined to be impaired for the amount of UZS
26,117 million and UZS 2,438 million, respectively.
25. FEE AND COMMISSION INCOME AND EXPENSE
2020 2019
----------------------------------------------------------- --------- ---------
Fee and commission income
Settlement transactions 240,987 219,272
Foreign currency exchange 62,945 55,060
International money transfers 41,055 34,206
Guarantees issued 36,746 9,076
Letters of credit 10,879 6,937
Services of engineers for conducting control measurements 8,146 8,076
Other 1,026 1,412
, ,
----------------------------------------------------------- --------- ---------
Total fee and commission income 401,784 334,039
, ,
----------------------------------------------------------- --------- ---------
Fee and commission expense
Settlement transactions (53,232) (35,994)
Foreign currency exchange (13,919) (5,647)
Cash collection (8,195) (26,566)
Other (6,115) (8,673)
, ,
----------------------------------------------------------- --------- ---------
Total fee and commission expense (81,461) (76,880)
, ,
----------------------------------------------------------- --------- ---------
, ,
Net fee and commission income 320,323 257,159
26. INSURANCE OPERATIONS INCOME AND EXPENSE
2020 2019
------------------------------------------------------------------------------- --------- --------
Insurance operations income
Loan insurance 19,254 6,470
Property insurance 21,662 11,869
Civil liability insurance 1,212 320
Accident insurance 597 13
Obligatory insurance of third party liability of motor vehicle owners (OMTPL) 463 18
Insurance from other financial risks 256 64
, ,
------------------------------------------------------------------------------- --------- --------
Total insurance operations income 43,444 18,754
, ,
------------------------------------------------------------------------------- --------- --------
Insurance operations expense
Loan insurance (7,529) (4,610)
Civil liability insurance (4,340) -
Property insurance (5,290) (990)
Obligatory insurance of third party liability of motor vehicle owners (OMTPL) (544) -
Accident insurance (10) -
, ,
------------------------------------------------------------------------------- --------- --------
Total insurance operations expense (17,713) (5,600)
, ,
------------------------------------------------------------------------------- --------- --------
, ,
Net insurance operations income 25,731 13,154
27. CHANGE IN INSURANCE RESERVES, NET
Insurance assets Insurance liabilities Change in insurance reserves, net
----------------------------------- ----------------- ---------------------- ----------------------------------
1 January 2019 - - -
----------------------------------- ----------------- ---------------------- ----------------------------------
Unearned premium reserve 2,154 13,855 (11,701)
Reserves for incurred but not
reported losses 237 1,776 (1,539)
31 December 2019 2,391 15,631 (13,240)
, , ,
----------------------------------- ----------------- ---------------------- ----------------------------------
, , ,
Unearned premium reserve 2,903 26,885 (23,982)
Reserves for incurred but not
reported losses 250 2,371 (2,121)
, , ,
----------------------------------- ----------------- ---------------------- ----------------------------------
, , ,
31 December 2020 5,544 44,887 (26,103)
28. OTHER OPERATING INCOME
2020 2019
---------------------------------------------------------------- ------- -------
Gain on disposal of subsidiaries mandatorily measured at FVTPL 25,741 -
Gain on disposal of premises and equipment 1,036 9,102
Income from rent of POS terminals 776 651
Other 2,220 6,942
, ,
---------------------------------------------------------------- ------- -------
Total other operating income 29,773 16,695
During 2020, one of the assets management companies (investment
entity) of the Group has acquired Zomin Non SQB, Zarbdor Non SQB
and established six Urganch Texnopark companies exclusively for
resale and measured them at fair value through profit or loss. As
of 31 December 2020, all of these entities were disposed and
resulted in the gain on disposal of subsidiaries mandatorily
measured at FVTPL.
29. ADMINISTRATIVE AND OTHER OPERATING EXPENSES
2020 2019
--------------------------------------------------- -------- --------
Staff costs 532,209 479,322
Depreciation and amortisation 52,327 27,465
Taxes other than income tax 40,219 8,085
Security services 30,304 28,587
Consultancy fee 18,689 13,064
Stationery and other low value items 18,080 16,083
Charity expenses 15,914 3,435
Membership fees 14,784 11,106
Advertising expenses 8,056 7,603
Repair and maintenance of buildings 7,273 4,086
Communication expenses 6,894 5,683
Legal and audit fees 6,282 13,707
Medical, Dental and Hospitalization 6,244 -
Utilities expenses 4,998 3,974
Rent expenses 4,506 4,268
Travel expenses 3,265 5,909
Fuel 1,594 1,587
Representation and entertainment 941 5,907
Other operating expenses 17,868 19,532
, ,
--------------------------------------------------- -------- --------
Total administrative and other operating expenses 790,447 659,403
New 12% rate (2019: 25%) for statutory social security
contributions has become effective from 2020 in accordance with the
"On amendments and additions, as well as invalidation of some
legislative acts of the Republic of Uzbekistan in connection with
the adoption of the tax code of the Republic of Uzbekistan" adopted
by the Legislative Chamber on 9 December 2019 and approved by the
Senate on 14 December 2019.
Taxes other than income tax include VAT on imported construction
services and banking software.
30. INCOME TAXES
2020 2019
-------------------------------------------------------------------- ---------- ---------
Current income tax expense 205,602 136,033
Deferred tax (benefit)/expense:
- Deferred tax benefit (183,244) (28,977)
- Deferred tax expense relating to the components of
other comprehensive income 1,745 1,036
Total income tax expense through profit or loss and
other comprehensive income 24,103 108,092
-------------------------------------------------------------------- ---------- ---------
- Deferred tax relating to conversion of debt into equity by the
shareholder - (45,044)
-------------------------------------------------------------------- ---------- ---------
Reconciliation between the expected and the actual taxation
charge is provided below:
2020 2019
--------------------------------------------------------------- --------- ---------
IFRS profit before tax 134,482 711,53 6
Theoretical tax charge at the applicable statutory rate - 20%
(2019: 20%) 26,896 142,307
- Non deductible expenses (employee compensation,
representation and other non-deductible expenses) 24,451 7,401
- Tax rate difference - (39,715)
- Tax exempt income (23,185) (2,432)
- Other (5,804) (505)
Income tax expense 22,358 107,056
Net income tax expense relating to the components of other
comprehensive income 1,745 1,036
Total income tax expense through profit or loss and other
comprehensive income 24,103 108,092
"Tax rate differences" comprises of tax effects from reduction
of standard income tax rate to encourage the banks to increase the
share of long-term loans to customers in the total loan
portfolio.
On 1 January 2020 preferential income tax rates for branches
with long-term investment financing in the structure of the loan
portfolio which considered taxable ranges from 14% till 20% for
each branch as a separate tax payer, has expired and in accordance
with the new tax legislation, the bank pays income tax on a
consolidated basis as a single tax payer at a single rate of
20%.
Tax exempt income includes interest income on government bonds
and the CBU bonds.
Differences between IFRS and Uzbekistan statutory taxation
regulations give rise to certain temporary differences between the
carrying amount of certain assets and liabilities for financial
reporting purposes and for their tax bases. The tax effect of the
movements on these temporary differences is detailed below, and is
recorded at the rate of 20% (2019: 20%).
31 (Debited)/ Charged to 31 (Debited)/ Charged to Tax credit 31
December credited other December credited other in equity December
2020 to comprehensive 2019 to comprehensive on 2018
profit or income profit or income conversion
loss loss of debt
into
equity by
the
shareholder
---------------------- --------- ----------- -------------- --------- ----------- -------------- ------------ ---------
Tax effect of
deductible/(taxable)
temporary differences
Cash and cash
equivalents (4) (123) - 119 108 - - 11
Due from other
banks 3,686 265 - 3,421 2,641 - - 780
Loans and advances
to
customers 164,659 181,967 - (17,308) 18,980 - 45,044 (81,332)
Financial assets
at fair
value through
other comprehensive
income (2,961) - (1,745) (1,216) (996) (1,036) - 816
Property, equipment
and
intangible assets 5,484 5,130 - 354 119 - - 235
Investments in
associates and
subsidiaries (1,424) 4,981 - (6,405) 2,945 - - (9,350)
Investment securities
measured at
amortised
cost 3,055 2,865 - 190 190 - - -
Other assets 3,874 2,104 - 1,770 956 - - 814
Non-current assets
held
for sale 858 (1,640) - 2,498 2,498 - - -
Customer accounts - 458 - (458) (458) - - -
Debt securities
in issue (2,538) 738 - (3,276) (3,276) - - -
Other borrowed
funds (11,643) (12,704) - 1,061 1,061 - - -
Other liabilities 4,573 (131) - 4,704 3,543 - - 1,161
Subordinated
debt - (666) - 666 666 - - -
Net deferred
tax
asset/(liability) 167,619 183,244 (1,745) (13,880) 28,977 (1,036) 45,044 (86,865)
Recognised deferred
tax
asset 186,185 182,048 - 14,783 33,707 - 45,044 3,817
Recognised deferred
tax
liability (18,566) 1,196 (1,745) (28,663) (4,730) (1,036) - (90,682)
Net deferred
tax
asset/(liability) 167,619 183,244 (1,745) (13,880) 28,977 (1,036) 45,044 (86,865)
31. ALLOWANCES FOR IMPAIRMENT LOSSES
1.
The tables below analyse information about the changes in the
ECL amount of financial assets, commitments and other non-financial
assets during 2020 and 2019:
Other financial Cash and Due from Investment Letters of Credit and Other
assets (Note cash other securities Guarantees non-financial
14) equivalents Banks at (Note 33) assets
(Note 7) (Note amortised (Note 14)
8) cost (Note
10)
Stage Stage Stage 1 Stage Stage 1 Stage Stage Stage TOTAL
2 3 1 1 2 3
Lifetime Lifetime 12-month 12-month 12-month 12-month Lifetime Lifetime
ECL ECL ECL ECL ECL ECL ECL ECL
--------- --------- ------------ --------- ----------- --------- --------- ---------
Loss allowance
for
ECL
as at 1 1 , 1 , 16 , 12 , 31
January 2020 236 043 101 166 950 077 - - , 573 129
--------------- --------- --------- ------------ --------- ----------- --------- --------- --------- -------- --------------
- Transfer
from stage
2 (369) 369 - - - (126) 126 - - -
- Transfer
from stage
3 65 (65) - - - - - - - -
- Changes due
to
modifications
that
did not
result in (2 ,
derecognition (169) 30 9 002) 30 (4,755) 3,347 - (3,510) 1,510
New assets
issued
or acquired 296 141 92 6 , 808 1,629 9,607 3,341 - 21,914 -
Matured or
derecognized
assets
(except for (3 ,
write off) (764) (457) (48) 728) (920) (1,674) - - (7,591) -
Foreign
exchange
differences 11 42 7 1 , 185 - 522 380 - 2,147 -
Loss allowance
for
ECL
as at 31
December 18 ,
2020 306 1,103 161 429 1 , 689 15,651 7,194 - 44,533 1,639
--------------- --------- --------- ------------ --------- ----------- --------- --------- --------- -------- --------------
Other financial Cash and Due from Investment Letters of Credit and Other
assets (Note cash other securities Guarantees non-financial
14) equivalents Banks at (Note 33) assets
(Note 7) (Note amortised (Note 14)
8) cost (Note
10)
Stage Stage Stage 1 Stage Stage 1 Stage Stage Stage TOTAL
2 3 1 1 2 3
Lifetime Lifetime 12-month 12-month 12-month 12-month Lifetime Lifetime
ECL ECL ECL ECL ECL ECL ECL ECL
--------- --------- ------------ --------- ----------- --------- --------- ---------
Loss allowance
for
ECL
as at 1
January 2019 175 310 54 4,811 - 5,922 361 247 11,880 309
--------------- --------- --------- ------------ --------- ----------- --------- --------- --------- -------- --------------
- Transfer
from stage
2 (3) 3 - - - - - - - -
- Transfer
from stage
3 13 (13) - - - - - - - -
- Changes due
to
modifications
that
did not
result in
derecognition 319 117 47 (1,161) - (1,007) - - (1,685) (180)
New assets
issued
or acquired 706 695 9 12,323 950 6,539 - - 21,222 -
Matured or
derecognized
assets
(except for
write off) (30) (117) (21) (346) - (756) (361) (247) (1,878) -
Foreign
exchange
differences 56 48 12 539 - 1,379 - - 2,034 -
Loss allowance
for
ECL
as at 31
December
2019 1,236 1,043 101 16,166 950 12,077 - - 31,573 129
--------------- --------- --------- ------------ --------- ----------- --------- --------- --------- -------- --------------
32. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the net
profit attributable to ordinary shares by the weighted average
number of ordinary shares.
The Group has no dilutive potential ordinary shares; therefore,
the diluted earnings per share equal basic earnings per share.
According to the charter of the Group, and as described in Note
22, dividend payments per ordinary share cannot exceed the
dividends per share on preferred shares for the same period and the
minimum dividends payable to the owners of preference shares
comprise not less than 20%. Therefore, net profit for the period is
allocated to the ordinary shares and the preferred shares in
accordance with their legal and contractual dividend rights to
participate in undistributed earnings.
2020 2019
------------------------------------------------------------------------------------ --------------- ---------------
Profit for the year attributable to ordinary shareholders 111,396 602,815
Profit for the year attributable to preference shareholders 1,617 1,651
Profit/(Loss) for the year from discontinued operations attributable to ordinary
shareholders 889 (14)
Profit/(Loss) for the year from discontinued operations attributable to preference - -
shareholders
Earnings used in calculation of earnings per ordinary share from
continuing operations 110,507 602,829
Earnings used in calculation of earnings per preference share from
continuing operations 1,617 1,651
Weighted average number of ordinary shares for the purpose of earnings per share 243,922,000,000 135,077,691,812
From continuing operations
Basic EPS per ordinary share in UZS 0 .46 4.46
Total basic earnings per ordinary share (expressed in UZS per share) 0 .46 4.46
33. COMMITMENTS AND CONTINGENCIES
Legal proceedings . From time to time and in the normal course
of business, claims against the Group are received. On the basis of
its own estimates and both internal and external professional
advice the Management is of the opinion that no material losses
will be incurred in respect of claims and accordingly no provision
has been made in these consolidated financial statements.
Tax legislation . Uzbek tax, currency and customs legislation is
subject to varying interpretations, and changes, which can occur
frequently. The Management's interpretation of such legislation as
applied to the transactions and activity of the Group may be
challenged by the relevant regional and state authorities. Recent
events within Uzbekistan suggest that the tax authorities may be
taking a more assertive position in their interpretation of the
legislation and assessments, and it is possible that transactions
and activities that have not been challenged in the past, may be
challenged. As a result, significant additional taxes, penalties
and interest may be assessed. Fiscal periods remain open to review
by the authorities in respect of taxes for five calendar years
preceding the year of review. Under certain circumstances reviews
may cover longer periods.
The Management believes that its interpretation of the relevant
legislation is appropriate and the Bank's tax, currency legislation
and customs positions will be sustained. Accordingly, as at 31
December 2020, no provision for potential tax liabilities had been
recorded (2019: Nil). The Group estimates that it has no potential
obligations from exposure to other than remote tax risks.
Capital expenditure commitments. As at 31 December 2020 and 31
December 2019, the Group had contractual capital expenditure
commitments for the total amount of UZS 1,033,849 million and UZS
1,114,823 million in respect of premises and equipment,
respectively.
Credit related commitments . The primary purpose of these
instruments is to ensure that funds are available to a customer as
required. Guarantees and standby letters of credit, which represent
irrevocable assurances that the Group will make payments in the
event that a customer cannot meet its obligations to third parties,
carry the same credit risk as loans. Documentary and commercial
letters of credit, which are written undertakings by the Group on
behalf of a customer authorising a third party to draw drafts on
the Group up to a stipulated amount under specific terms and
conditions, are collateralised by the underlying shipments of goods
to which they relate or cash deposits and therefore carry less risk
than a direct borrowing. Commitments to extend credit represent
unused portions of authorisations to extend credit in the form of
loans, guarantees or letters of credit. With respect to credit risk
on commitments to extend credit, the Group is potentially exposed
to loss in an amount equal to the total unused commitments.
However, the likely amount of loss is less than the total unused
commitments since most commitments to extend credit are contingent
upon customers maintaining specific credit standards. The Group
monitors the term to maturity of credit related commitments because
longer-term commitments generally have a greater degree of credit
risk than shorter-term commitments.
31 December 31 December
2020 2019
Guarantees issued 2 , 424 , 042 1 , 599 , 403
Letters of credit, non post-financing 336 , 446 390 , 788
Letters of credits, post-financing with commencement after reporting period end 457 , 743 260 , 499
Undrawn credit lines 518 , 506 297 , 764
Total gross credit related commitments 3 , 736 , 737 2 , 548 , 454
Less - Cash held as security against letters of credit and guarantees (155 , 267) (270 , 951)
Less - Provision for expected credit losses (22 , 845) (12 , 077)
Total credit related commitments 3 , 558 , 625 2 , 265 , 426
The total outstanding contractual amount of letters of credit,
guarantees issued and undrawn credit lines does not necessarily
represent future cash requirements as these financial instruments
may expire or terminate without being funded.
34. FAIR VALUE OF FINANCIAL INSTRUMENTS
IFRS defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at a measurement date.
Fair value measurements are analysed by level in the fair value
hierarchy as follows:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
The Management applies judgement in categorising financial
instruments using the fair value hierarchy. If a fair value
measurement uses observable inputs that require significant
adjustment, that measurement is a Level 3 measurement. The
significance of a valuation input is assessed against the fair
value measurement in its entirety.
Financial assets and financial liabilities are classified in
their entirety based on the lowest level of input that is
significant to the fair value measurements. The Management's
assessment of the significance of a particular input to the fair
value measurement requires judgment, and may affect the valuation
of the assets and liabilities being measured and their placement
within the fair value hierarchy.
The Group considers that the accounting estimate related to the
valuation of financial instruments where quoted markets prices are
not available is a key source of estimation uncertainty because:
(i) it is highly susceptible to changes from year to year, as it
requires the Management to make assumptions about interest rates,
volatility, exchange rates, the credit rating of the counterparty,
valuation adjustments and specific features of transactions and
(ii) the impact that recognising a change in the valuations would
have on the assets reported on the consolidated statement of
financial position, as well as, the related profit or loss reported
on the consolidated statement of profit or loss, could be material
.
Some of the Group's financial assets and financial liabilities
are measured at fair value at the end of each reporting year. The
following table gives information about how the fair values of
these financial assets and financial liabilities are determined (in
particular, the valuation technique(s) and inputs used).
Fair value as at
Financial 31 December 31 December Fair value Valuation Significant Relationship of
assets/ 2020 2019 hierarchy model(s) and unobservable unobservable
financial key input(s) input(s) inputs to fair
liabilities value
Equity
securities at
FVTOCI
Quoted bid
prices in an
- Visa Inc. 13,203 10,338 Level 1 active market. N/A N/A
Discounted cash The greater
flows. Discount discount- the
rate estimated smaller fair
- Other 24,821 78,376 Level 3 based on WACC Discount rate value
The fair value of the equity instruments at fair value through
other comprehensive income disclosed in Note 11 were determined as
the present value of future dividends by assuming dividend growth
rate of zero per annum. The Management built its expectation based
on previous experience of dividends received on financial assets at
fair value through other comprehensive income over multiple years,
and accordingly calculated the value of using the average rate of
return on investments. A significant unobservable input used in
determining the fair value of equity securities at FVTOCI is the
Group's WACC. The higher the WACC the lower the fair value of the
equity securities at FVTOCI. The Management believes that this
approach accurately reflects the fair value of these securities,
given they are not traded. Such financial instruments were
categorised as Level 3.
Investments to which the dividends valuation approach is not
applicable, i.e. dividends were not paid during the period,
Management may use the Assets based valuation approach focused on
the investment company's net assets value (NAV), or fair market
value of its total assets minus its total liabilities, to determine
what would cost to recreate the business. The Management believes
that such approach accurately reflects the fair value of these
securities.
Below is presented the fair value of financial assets and
financial liabilities that are not measured at fair value on a
recurring basis (but fair value disclosures are required). Except
as detailed in the following table, the Management considers that
the carrying amounts of financial assets and financial liabilities
recognised in the consolidated financial statements approximate
their fair values.
31 December 2020 31 December 2019
Carrying value Fair value Carrying value Fair value
Loans and advances to customers 38,959,958 34,401,244 30,039,785 26,681,120
Due from other banks 1,859,192 1,739,931 2,037,090 1,883,309
Debt securities in issue
- Eurobonds (Note 18) 3,118,189 3,312,173 2,808,987 2,987,751
Other borrowed funds 25,683,457 26,703,457 16,803,214 16,963,385
31 December 2020
Level 1 Level 2 Level 3 Total
Loans and advances to customers - 34,401,244 - 34,401,244
Due from other banks - - 1,739,931 1,739,931
Debt securities in issue
- Eurobonds (Note 18) 3,312,173 - - 3,312,173
Other borrowed funds - - 26,703,457 26,703,457
31 December 2019
Level 1 Level 2 Level 3 Total
Loans and advances to customers - 26,681,120 - 26,681,120
Due from other banks - - 1,883,309 1,883,309
Debt securities in issue
- Eurobonds (Note 18) 2,987,751 - - 2,987,751
Other borrowed funds - - 16,963,385 16,963,385
The fair values of the financial assets and financial
liabilities included in the level 2 and level 3 categories above
have been determined in accordance with generally accepted pricing
models based on a discounted cash flow analysis, with the most
significant inputs being the discount rate that reflects the credit
risk of counterparties.
As at 31 December 2020 and 2019, the Group determined fair value
for some of its financial assets and liabilities using the
discounted cash flow model by applying CBU statistical bulletin,
which became open to public starting 2019. Such financial
instruments were categorised as Level 2.
For those financial instruments where interest rates were not
directly available in the CBU's Statistical bulletin, the
Management uses discounted cash flow model by applying market
interest rates based on the rates of the deals concluded towards
the end of the reporting period. Due to the absence of an active
market or observable inputs for instruments with characteristics
similar to the Bank's financial instruments , the Management
considered the latest rates as the most appropriate input from all
available data for calculation of the fair value of financial
assets and financial liabilities . Therefore, these long-term
financial instruments that are not measured at fair value on a
recurring basis but where fair value disclosures are required, are
categorised within Level 3.
35. CAPITAL RISK MANAGEMENT
The Group manages regulatory capital as Group's capital. The
Group's objectives when managing capital are to comply with the
capital requirements set by the CBU, and to safeguard the Group's
ability to continue as a going concern. Compliance with capital
adequacy ratios set by the CBU is monitored monthly with reports
outlining their calculation reviewed and signed by the Chairman and
Chief Accountant.
Under the current capital requirements set by the CBU, banks
have to maintain ratios of (actual ratios given below are
unaudited):
-- Ratio of regulatory capital to risk weighted assets
("Regulatory capital ratio") above a prescribed minimum level of
13% (31 December 2019: 13%). Actual ratio as at 31 December 2020:
17% (31 December 2019: 23%);
-- Ratio of Group's tier 1 capital to risk weighted assets
("Capital adequacy ratio") above a prescribed minimum level of 10%
(31 December 2019: 10%). Actual ratio as at 31 December 2020: 13%
(31 December 2019: 18%); and
-- Ratio of Group's tier 1 capital to total assets less
intangibles ("Leverage ratio") above a prescribed minimum level of
6% (31 December 2019: 6%). Actual ratio as at 31 December 2020:
10.3% (31 December 2019: 13.4%).
Total capital is based on the Group's reports prepared under
Uzbekistan Accounting Legislation and related instructions and
comprises:
31 December 2020 (unaudited) 31 December 2019 (unaudited)
Tier 1 capital 5,543,925 5,335,685
Less: Deductions from capital (46,485) (100,001)
Tier 1 capital (adjusted) 5,497,440 5,235,684
Tier 2 capital 1,619,786 1,463,606
,
,
Total regulatory Capital 7,117,226 6,699,290
Regulatory capital consists of Tier 1 capital, which comprises
share capital, share premium, preference shares, retained earnings
excluding current year profit and less intangible assets. The other
component of regulatory capital is Tier 2 capital, which includes
current year profit.
36. RISK MANAGEMENT POLICIES
The risk management function within the Group is carried out in
respect of financial risks, operational risks and legal risks.
Financial risk comprises market risk (including currency risk,
interest rate risk and other price risk), credit risk and liquidity
risk. The primary objectives of the financial risk management
function are to establish risk limits, and then ensure that
exposure to risks stays within these limits. The operational and
legal risk management functions are intended to ensure proper
functioning of internal policies and procedures, in order to
minimise operational and legal risks.
Credit risk . The Group takes on exposure to credit risk which
is the risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an
obligation. Exposure to credit risk arises as a result of the
Group's lending and other transactions with counterparties giving
rise to financial assets.
Clients of the Group are segmented into five rating classes. The
Group's rating scale, which is shown below, reflects the range of
default probabilities defined for each rating class. This means
that, in principle, exposures migrate between classes as the
assessment of their probability of default changes.
Group's internal ratings scale :
Timely repayment of these loans is not in doubt. The borrower is
a financially stable company, which has an adequate capital level,
high level profitability and sufficient cash flow to meet its all
existing obligations, including present debt. When estimating the
reputation of the borrower such factors as the history of previous
repayments, marketability of collateral (movable and immovable
property guarantee) are taken into consideration.
"Sub-standard" loans are loans, secured with a reliable source
of secondary repayment (guarantee or collateral). On the whole, the
financial situation of borrower is stable, but some unfavourable
circumstances or tendencies are in the present, which raise doubts
on the ability of the borrower to repay on time. "Standard" loans
with insufficient information in the credit file or missed
information on collateral could be also classified as
"sub-standard" loans.
Unsatisfactory loans have obvious deficiencies, which make for
doubtful repayment of the loan on the conditions, envisaged by the
initial agreement. As for "unsatisfactory" loans, the primary
source of repayment is not sufficient and the Group has to seek
additional loan repayment sources, which in case of non-repayment
is a sale of collateral.
Doubtful loans are those loans, which have all the weaknesses
inherent in those classified as "unsatisfactory" with the added
characteristic that the weakness makes collection or liquidation in
full, on the basis of currently existing facts, conditions and
values, highly questionable.
Loans classified as "loss" are considered uncollectible and have
such little value that their continuance as bankable assets of the
Group is not warranted. This classification does not mean that the
loans have absolutely no likelihood of recovery, but rather means
that it is not practical or desirable to defer writing off these
essentially worthless assets even though partial recovery may be
effected in the future and the Group should make efforts on
liquidation such debts through selling collateral or should apply
all forces for its repayment.
Risk limits control and mitigation policies . The Group manages,
limits and controls concentrations of credit risk wherever they are
identified - in particular, to individual counterparties and
groups, and to industries.
The Group structures the levels of credit risk it undertakes by
placing limits on the amount of risk accepted in relation to one
borrower, or groups of borrowers, and to geographical and industry
segments. Such risks are monitored on a revolving basis and subject
to an annual or more frequent review, when considered necessary.
Limits on the level of credit risk by product, industry sector and
by country are approved quarterly by the Group's Council.
Where appropriate, and in the case of most loans, the Group
obtains collateral and corporate and personal guarantee. However, a
significant portion of loans is personal lending, where no such
facilities can be obtained. Such risks are monitored on a
continuous basis and subject to annual or more frequent
reviews.
Exposure to credit risk is managed through regular analysis of
the ability of borrowers and potential borrowers to meet interest
and capital repayment obligations and by changing these lending
limits where appropriate. Some other specific control and
mitigation measures are outlined below.
(a) Limits . The Group manages and controls credit risk by
setting limits on the amount of risk it is willing to accept for
individual counterparties and for geographical and industry
concentrations, and by monitoring exposures in relation to such
limits.
Loan applications, along with financial analysis of loan
applicant which includes liquidity, profitability, interest
coverage and debt service coverage ratios, originated by the
relevant client relationship managers are passed on to the relevant
credit committee or Bank Council for approval of credit limit.
(b) Collateral . The Group employs a range of policies and
practices to mitigate credit risk. The most traditional of these is
the taking of security for funds advances, which is common
practice. The Group implements guidelines on the acceptability of
specific classes of collateral or credit risk mitigation.
Collateral before being accepted by the Group is thoroughly
analysed and physically verified, where applicable. Debt
securities, treasury and other eligible bills are generally
unsecured.
The principal collateral types for loans and advances as well as
finance lease receivables are:
- State guarantees
- Cash deposits;
- Motor vehicle;
- Inventory;
- Letter of surety;
- Residential house;
- Equipment;
- Building; and
- Other assets
(c) Concentration of risks of financial assets with credit risk
exposure . The Group's Management focuses on concentration
risk:
- The maximum risk to single borrower or group of affiliated
borrowers shall not exceed 25 percent of the Group's tier 1
capital;
- Total amount of unsecured credits to single borrower or group
of affiliated borrowers shall not exceed 5 percent of Group's tier
1 capital;
- Total amount of all large credits shall not exceed Group's
tier 1 capital by more than 8 times; and
- Total loan amount to related party shall not exceed Group's tier 1 capital.
The Bank is required to prepare and submit stand-alone financial
information of the Bank to the Central Bank of Uzbekistan on a
monthly basis. The consolidated financial statements are prepared
under IFRS only once in a year.
In order to monitor credit risk exposures, weekly reports are
produced by the credit department's officers based on a structured
analysis focusing on the customer's business and financial
performance, which includes overdue balances, disbursements and
repayments, outstanding balances and maturity of loan and as well
as grade of loan and collateral. Any significant exposures against
customers with deteriorating creditworthiness are reported to and
reviewed by the Management daily. The Management monitors and
follows up past due balances.
Impairment and provisioning policies . The internal and external
rating systems described above focus on credit-quality mapping from
the inception of the lending and investment activities. In
contrast, impairment provisions are recognised for financial
reporting purposes only for losses incurred at the balance sheet
date based on objective evidence of impairment. Due to the
different methodologies applied, the amount of incurred credit
losses provided for in the financial statements are usually lower
than the amount determined from the expected loss model that is
used for internal operational management and banking regulation
purposes.
The Group's policy requires the review of individual financial
assets that are above certain materiality thresholds at least
annually or more regularly when individual circumstances require.
Impairment allowances on individually assessed accounts are
determined by an evaluation of the incurred loss at balance-sheet
date on a case-by-case basis, and are applied to all individually
significant accounts. The assessment normally encompasses
collateral held (including re-confirmation of its enforceability)
and the anticipated receipts for that individual account.
Collectively assessed impairment allowances are provided for:
(i) portfolios of homogenous assets that are individually below
materiality thresholds; and (ii) individual financial assets in
stage 1 and 2 that are above certain materiality thresholds, by
using the available empirical data, experienced judgment and
statistical techniques.
The Group monitors the term to maturity of off balance sheet
contingencies because longer term commitments generally have a
greater degree of credit risk than short-term commitments.
Commitments to extend credit represent unused portions of credit
in the form of loans, guarantees or letters of credit. The credit
risk on off-balance sheet financial instruments is defined as a
probability of losses due to the inability of counterparty to
comply with the contractual terms and conditions. With respect to
credit risk on commitments to extend credit, the Group is
potentially exposed to a loss in an amount equal to the total
unused commitments.
However, the likely amount of the loss is less than the total
unused commitments since most commitments to extend credit are
contingent upon customers maintaining specific credit standards.
The Group applies the same credit policy to the contingent
liabilities as it does to the balance sheet financial instruments,
i.e. the one based on the procedures for approving the grant of
loans, using limits to mitigate the risk, and current
monitoring.
Maximum exposure of credit risk. The Group 's maximum exposure
to credit risk varies significantly and is dependent on both
individual risks and general market economy risks.
The following table presents the maximum exposure to credit risk
of balance sheet and off balance sheet financial assets. For
financial assets in the balance sheet, the maximum exposure is
equal to the carrying amount of those assets prior to any offset or
collateral. The Group 's maximum exposure to credit risk under
contingent liabilities and commitments to extend credit, in the
event of non-performance by the other party where all
counterclaims, collateral or security prove valueless, is
represented by the contractual amounts of those instruments.
Related amounts not
set off in the statement of financial position
Gross amounts
of recognised Net amounts of
financial financial
liabilities assets
Gross amounts set off in the presented in
of recognised statement of the statement Net exposure
financial financial of financial Collateral after offset
31 December 2020 assets position position Cash collateral pledged and collateral
Cash and cash
equivalents 5,674,754 (73,568) 5,601,186 (1,022,474) - 4,578,712
Due from other
banks 1,859,192 - 1,859,192 - - 1,859,192
Loans and
advances to
customers 38,959,958 - 38,959,958 (1,112,497) (37,418,506) 428,955
Financial assets
at fair
value through
other
comprehensive
income 38,024 - 38,024 - - 38,024
Investment
securities
measured at
amortised
cost 540,222 - 540,222 - - 540,222
Other financial
assets 107,087 (90,879) 16,208 - - 16,208
Off-balance
sheet items:
Letters of
credit and
guarantees
issued 3,195,386 - 3,195,386 (155,267) (755,526) 2,284,593
Related amounts not
set off in the statement of financial position
Gross amounts
of recognised Net amounts of
financial financial
liabilities assets
Gross amounts set off in the presented in
of recognised statement of the statement Net exposure
financial financial of financial Collateral after offset
31 December 2019 assets position position Cash collateral pledged and collateral
Cash and cash
equivalents 2,877,386 (14,812) 2,862,574 (662,864) - 2,199,710
Due from other
banks 2,037,090 - 2,037,090 - - 2,037,090
Loans and
advances to
customers 30,074,232 (34,447) 30,039,785 (1,021,000) (28,669,608) 349,177
Financial assets
at fair
value through
other
comprehensive
income 88,714 - 88,714 - - 88,714
Investment
securities
measured at
amortised
cost 84,648 - 84,648 - - 84,648
Other financial
assets 64,069 (58,907) 5,162 - - 5,162
Off-balance
sheet items:
Letters of
credit and
guarantees
issued 2,238,613 - 2,238,613 (270 , 951) (66,150) 1,901,512
Off-balance sheet risk. The Group applies fundamentally the same
risk management policies for off-balance sheet risks as it does for
its on-balance sheet risks. In the case of commitments to lend,
customers and counterparties will be subject to the same credit
management policies as for loans and advances. Collateral may be
sought depending on the strength of the counterparty and the nature
of the transaction.
Market risk . The Group takes on exposure to market risks.
Market risks arise from open positions in interest rate, currency
and equity products, all of which are exposed to general and
specific market movements. The Group manages its market risk
through risk-based limits established by the Bank Supervisory Board
on the value of risk that may be accepted. The risk-based limits
are subject to review by the Bank Council on a quarterly basis.
Overall Group's position is split between Corporate and Retail
banking positions. The exposure of Corporate and Retail banking
operations to market risk is managed through the system of limits
monitored by the Treasury Department on a daily basis. However, the
use of this approach does not prevent losses outside of these
limits in the event of more significant market movements.
Currency risk . The Group takes on exposure to the effect of
fluctuations in the prevailing foreign currency exchange rates on
its financial position and cash flows. In respect of currency risk,
the Council sets limits on the level of exposure by currency and in
total for both overnight and intra-day positions, which are
monitored daily. The Group's Treasury Department measures its
currency risk by matching financial assets and liabilities
denominated in same currency and analyses effect of actual annual
appreciation/depreciation of that currency against Uzbekistan Soum
to the profit and loss of the Group.
The Group measures its currency risk by:
- Net position on each currency should not exceed 10% of Group's total equity;
- Total net position on all currencies should not exceed 15% of Group's total equity.
The table below summarises the Group's exposure to foreign
currency exchange rate risk at the end of reporting period:
Non-derivative monetary assets and liabilities:
31 December 2020 USD EUR Other currencies UZS Total
Cash and cash equivalents 3 , 768 , 254 138 , 176 138 , 499 1,556,257 5,601,186
Due from other banks 944 , 034 61 , 634 149 , 885 703,639 1,859,192
Loans and advances to
customers 20,391,586 6,290,620 - 12,277,752 38,959,958
Investment securities measured
at
amortised cost - - - 540 , 222 540 , 222
Other financial assets 646 5,058 - 10,504 16,208
Total monetary assets 25,104,520 6,495,488 288,384 15,088,374 46,976,766
Due to other banks 857,428 180 - 638,396 1,496,004
Customer accounts 6 , 991 , 777 237 , 180 198 , 854 4,189,147 11,616,958
Debt securities in issue 3,118,189 - - 154 , 859 3,273,048
Other borrowed funds 14 , 643 , 855 6 , 147 , 006 - 4 , 892 , 596 25 , 683 , 457
Other financial liabilities 21 , 430 29 39,527 60,986
Total monetary liabilities 25,632,679 6,384,366 198 883 9,914,525 42,130,453
Net balance sheet position (528,159) 111,122 89,501 5,173,849 4,846,313
31 December 2019 USD EUR Other currencies UZS Total
Cash and cash equivalents 1,640,812 94,358 106,364 1,021,040 2,862,574
Due from other banks 1,081,143 11,827 34,638 909,482 2,037,090
Loans and advances
to customers 16,846,573 3,595,623 - 9,597,589 30,039,785
Investment securities
measured at
amortised cost - - - 84,648 84,648
Other financial assets 823 2,812 - 1,527 5,162
Total monetary assets 19,569,351 3,704,620 141,002 11,614,286 35,029,259
Due to other banks 42,738 32 - 422,339 465,109
Customer accounts 4,777,978 274,280 111,267 3,960,445 9,123,970
Debt securities in
issue 2,808,987 - - 111,907 2,920,894
Other borrowed funds 10,644,036 3,506,863 - 2,652,315 16,803,214
Other financial liabilities 812 - - 35,290 36,102
Subordinated debt - - - 83,332 83,332
Total monetary liabilities 18,274,551 3,781,175 111,267 7,265,628 29,432,621
Net balance sheet position 1,294,800 (76,555) 29,735 4,348,658 5,596,638
The CBU sets a number of requirements for foreign currency
position. As at 31 December 2019, the Bank has a long position in
respect of USD currency above statutory requirements. As part of
these reforms, the Presidential Decree #4487 was issued on 9
October 2019, which, among other initiatives, stipulated a
withdrawal of government directed low-margin and subsidized assets
out from the State owned banks, including the Group, to improve
their return on assets. As part of this Decree, the Group reduced
its other borrowed funds from the Government (UFRD) by transferring
low margin and subsidized loans and advances to customers. As a
result, the Group had foreign currency surplus in USD currency in
monetary financial assets as at 31 December 2019.
The CBU may take measures to regulate the foreign currency
position in accordance with the established order on the foreign
currency position. According to Order # 19-33/110-1 of the CBU
dated 28 October 2019, to meet the regulatory requirement the Bank
was provided with the exception to disregard the amount of USD 150
million as at 31 December 2019, which related to loans issued to
JSC "Uzbekneftegaz" that was valid up until 31 March 2020. The
Group was in compliance with the CBU regulatory requirement for
foreign currency position after the stipulated date and as at 31
December 2020.
Changes of the possible movement of the currency rates from 2019
to 2020 were associated with the increase in the volatility of the
exchange rate. The following table presents sensitivities of profit
and loss to reasonably possible changes in exchange rates applied
at the end of reporting period, with all other variables held
constant:
As at 31 December 2020 As at 31 December 2019
Impact on profit or loss Impact on profit or loss
US Dollars strengthening by 20%
(31 December 2019: 20%) (105,632) 275 890
US Dollars weakening by 20% (31
December 2019: 20%) 105,632 (275 890)
EUR strengthening by 20% (31 December
2019: 20%) 22,224 (15 311)
EUR weakening by 20% (31 December
2019: 20%) (22,224) 15 311
The above sensitivity analysis include limitations in terms of
the use of hypothetical market movements to demonstrate potential
risk that only represent the Group's view of possible near-term
market changes, based on historical change in foreign currency
rates, and which cannot be predicted with any certainty.
The exposure was calculated only for monetary balances
denominated in currencies other than the functional currency of the
Group. Impact on equity would be the same as impact on statement of
profit or loss and other comprehensive income.
Interest rate risk . The Group takes on exposure to the effects
of fluctuations in the prevailing levels of market interest rates
on its financial position and cash flows. Interest margins may
increase as a result of such changes but may reduce or create
losses in the event that unexpected movements arise.
The Management monitors on a daily basis and sets limits on the
level of mismatch of interest rate repricing that may be
undertaken.
The table below summarises the Group's exposure to interest rate
risks. The table presents the aggregated amounts of the Group's
financial assets and liabilities at carrying amounts, categorised
by the earlier of contractual interest repricing or maturity
dates.
Demand and From 1 to 6 From 6 to 12 From 1 to 3 From 3 to 5 Over 5 years Total
less than 1 months months years years
31 December 2020 month
Assets
Cash and cash
equivalents 897,254 - - - - - 897,254
Due from
other banks 4 , 895 117 , 251 303 , 659 621 , 215 - 392 , 812 1 , 439 , 832
Loans and
advances
to customers 2,140,336 6,622,391 4,328,945 9,866,727 7,611,236 7,964,099 38,533,734
Investment
securities
measured
at amortised
cost - 405,524 69 , 561 47 , 800 - 2 , 440 525 , 325
Total % bearing
financial
assets 3,042,485 7,145,166 4,702,165 10,535,742 7,611,236 8,359,351 41,396,145
Liabilities
Due to other
banks 259 , 165 315 , 200 - 19 , 898 449 , 146 9 , 534 1 , 052 , 943
Customer
accounts 151,475 436,199 237,271 574,422 1,787,025 600,521 3,786,91 3
Debt securities
in issue 30 , 063 38 , 750 13 , 500 70 , 599 3,095,382 - 3,248,294
Other borrowed
funds 1,029,301 3,618,683 4,257,476 9,103,108 2,139,086 4,783,069 24 , 930 , 723
Total financial
%
bearing
liabilities 1,470,004 4,408,832 4,508,247 9,768,027 7,470,639 5,393,124 33,018,873
Net interest
sensitivity gap 1,572,481 2,736,334 193,918 767,715 140,597 2,966,227 8,377,272
Demand From From 6 From From Over Total
and less 1 to to 12 1 to 3 to 5 years
31 December than 6 months months 3 years 5 years
2019 1 month
Assets
Cash and cash
equivalents 256,933 - - - - - 256,933
Due from
other banks 3,496 71,218 114,857 698,730 3,572 445,999 1,337,872
Loans and
advances
to customers 1,056,345 4,000,702 3,156,815 8,496,128 6,125,037 6,704,737 29,539,764
Investment
securities
measured
at amortised
cost - - 74,923 - - 2,504 77,427
Total % bearing
financial assets 1,316,774 4,071,920 3,346,595 9,194,858 6,128,609 7,153,240 31,211,996
Liabilities
Due to other
banks - 57,372 9,146 27,298 80,107 242,965 416,888
Customer accounts 228,361 789,256 563,816 516,982 1,635,942 504,538 4,238,895
Debt securities
in issue 9,903 29,850 38,750 31,560 2,808,987 - 2,919,050
Other borrowed
funds 1,020,611 1,203,960 1,791,775 3,066,109 2,574,204 6,505,692 16,162,351
Subordinated
debt - - - - - 80,000 80,000
Total financial
%
bearing liabilities 1,258,875 2,080,438 2,403,487 3,641,949 7,099,240 7,253,195 23,817,184
Net interest
sensitivity
gap 57,899 1,991,482 943,108 5,552,909 (970,631) (99,955) 7,394,812
As at 31 December 2020, if interest rates at that date had been
165 basis points lower (2019: 140 basis points lower) with all
other variables held constant, profit for the year would have been
UZS 114,093 million higher (2019: UZS 9,435 million higher).
If interest rates had been 165 basis points higher (2019: 140
basis points higher), with all other variables held constant,
profit would have been UZS 114,093 million lower (2019: UZS 9,435
million lower).
The Group monitors interest rates for its financial instruments.
The table below summarises interest rates based on reports reviewed
by key management personnel:
31 December 2020
In % p.a. UZS USD EUR Other
Assets
Cash and cash equivalents 0-0 0-1.6 0-0 0-0.5
Due from other banks 0-20 0-7.3 0-0 0-0
Loans and advances to customers 1 - 36 0.25 - 15 2 - 15 -
Investment securities measured at amortised cost 13 - 18 - - -
Liabilities
Due to other banks 0-15.93 0-6.5 0-0 0-0
Customer accounts:
-term deposits 0-25 4-7 5 5
Debt securities in issue 14-16 5,75 - -
Other borrowed funds:
-International Financial Institutions 4.5 - 19.25 0.82 - 7 0.23 - 5.05 -
-Local Financial Institutions 0 - 15 0 - 7 - -
31 December 2019
In % p.a. UZS USD EUR Other
Assets
Cash and cash equivalents - 0-7.3 - -
Due from other banks 0-19 0-7.3 - -
Loans and advances to customers 2-47.9 2-15 2.95-12 -
Investment securities measured
at amortised cost 15-20 - - -
Liabilities
Due to other banks 0-18 - - -
Customer accounts:
-term deposits 1-35 4-17 5-6 5
Debt securities in issue 5-18 6 - -
Other borrowed funds:
-International Financial Institutions 13-19.26 1-7 0.23-8 -
-Local Financial Institutions 0-16 0-7 - -
Subordinated debt 16 - - -
Other price risk . The Group is exposed to prepayment risk
through providing loans, including mortgages, which give the
borrower the right to early repay the loans. The Group's current
year profit or loss and equity at the current reporting date would
not have been significantly impacted by changes in prepayment rates
because such loans are carried at amortised cost and the prepayment
right is at or close to the amortised cost of the loans and
advances to customers. The Group has no significant exposure to
equity price risk.
Geographical risk concentration . The geographical concentration
of the Group's financial assets and liabilities at 31 December 2020
is set out below:
Uzbekistan OECD Non-OECD Total
Assets
Cash and cash equivalents 3,658,933 1 , 875 , 324 66 , 929 5,601,186
Due from other banks 1,581,319 272 , 594 5 , 279 1,859,192
Loans and advances to customers 38,959,958 - - 38,959,958
Investment securities measured at amortised cost 540 , 222 - - 540 , 222
Financial assets at fair value through other
comprehensive income 24,821 13,203 - 38 , 024
Other financial assets 16,130 - 78 16,208
Total financial assets 44,781,383 2,161,121 72,286 47,014,790
Liabilities
Due to other banks 1,221,829 262,437 11,738 1,496,004
Customer accounts 11 , 616 , 958 - - 11 , 616 , 958
Debt securities in issue 154 , 859 3,118,189 - 3,273,048
Other borrowed funds 4 , 767 , 006 11 , 146 , 580 9 , 769 , 871 25 , 683 , 457
Other financial liabilities 39,556 - 21 , 430 60,986
Total financial liabilities 17,800,208 14,527,206 9,803,039 42,130,453
Net balance sheet position 26,981,175 (12,366,085) (9,730,753) 4,884,337
Credit related commitments (Note 32) 3 , 558 , 625 - - 3 , 558 , 625
The geographical concentration of the Group's financial assets
and liabilities at 31 December 2019 is set out below:
Uzbekistan OECD Non-OECD Total
Assets
Cash and cash equivalents 1,954,937 900,972 6,665 2,862,574
Due from other banks 1,661,265 301,531 74,294 2,037,090
Loans and advances to customers 30,039,785 - - 30,039,785
Financial assets at fair value
through other comprehensive
income 78,376 10,338 - 88,714
Investment securities measured
at amortised cost 84,648 - - 84,648
Other financial assets 4,429 240 493 5,162
Total financial assets 33,823,440 1,213,081 81,452 35,117,973
Liabilities
Due to other banks 456,822 1,100 7,187 465,109
Customer accounts 9,123,970 - - 9,123,970
Debt securities in issue 111,907 2,808,987 - 2,920,894
Other borrowed funds 3,393,210 6,297,467 7,112,537 16,803,214
Other financial liabilities 36,102 - - 36,102
Subordinated debt 83,332 - - 83,332
Total financial liabilities 13,205,343 9,107,554 7,119,724 29,432,621
Net balance sheet position 20,618,097 (7,894,473) (7,038,272) 5,685,352
Credit related
commitments (Note 32) 2,265,426 - - 2,265,426
Liquidity risk . Liquidity risk is defined as the risk that an
entity will encounter difficulty in meeting obligations associated
with financial liabilities. The Group is exposed to daily calls on
its available cash resources from overnight deposits, current
accounts, maturing deposits, loan draw downs, guarantees. The Group
does not maintain cash resources to meet all of these needs as
experience shows that a minimum level of reinvestment of maturing
funds can be predicted with a high level of certainty. Liquidity
risk is managed by the Resources Management Committee of the
Group.
The Group seeks to maintain a stable funding base comprising
primarily amounts due to other banks, corporate and retail customer
deposits and invest the funds in inter-bank placements of liquid
assets, in order to be able to respond quickly and smoothly to
unforeseen liquidity requirements.
The liquidity management of the Group requires considering the
level of liquid assets necessary to settle obligations as they fall
due; maintaining access to a range of funding sources; maintaining
funding contingency plans and monitoring balance sheet liquidity
ratios against regulatory requirements. The Group calculates
liquidity ratios on a monthly basis in accordance with the
requirement of the CBU. These ratios are calculated using figures
based on National Accounting Standards.
The Treasury Department receives information about the liquidity
profile of the financial assets and liabilities. The Treasury
Department then provides for an adequate portfolio of short-term
liquid assets, largely made up of short-term liquid trading
securities, deposits with banks and other inter-bank facilities, to
ensure that sufficient liquidity is maintained within the Group as
a whole.
The daily liquidity position is monitored and regular liquidity
stress testing under a variety of scenarios covering both normal
and more severe market conditions is performed by the Treasury
Department.
When the amount payable is not fixed, the amount disclosed is
determined by reference to the conditions existing at the reporting
date. Foreign currency payments are translated using the spot
exchange rate at the statement of financial position date.
The undiscounted maturity analysis of financial instruments at
31 December 2020 is as follows:
Demand and From 1 to 6 From 6 to From 1 to 3 From 3 to 5 Over 5 years Total
less than 1 months 12 months years years
month
Liabilities
Due to other
banks 653 , 958 397 , 187 27 , 093 124 , 181 524 , 047 10 , 924 1,737,390
ustomer
accounts 5,925,986 689,463 418,200 2,727,185 1,933,544 819,946 12,514,324
Debt
securities
in
issue 48,120 149,083 116,301 463,862 3,272,377 - 4,049,743
Other
borrowed
funds 1,153,167 4,202,521 4,788,640 10,750,559 2,490,447 5,607,441 28,992,775
Other
financial
liabilities 60,986 - - - - - 60,986
Undrawn
credit
lines 48,534 108,872 51,981 164,553 136,384 8,182 518,506
Guarantees
issued 48,230 729,985 55,229 - 246,240 1,319,511 2,399,195
Letters of
credit 9,946 619,743 11,235 - - - 640,924
Total
potential
future
payments
for
financial
obligations 7,948,927 6,896,854 5,468,680 14,230,340 8,603,039 7,766,004 50,913,843
The undiscounted maturity analysis of financial instruments at
31 December 2019 is as follows:
Demand From 1 From 6 From 1 From 3 Over 5 Total
and less to 6 months to 12 to 3 years to 5 years years
than 1 months
month
Liabilities
Due to other
banks 53,788 81,476 36,490 133,361 173,742 267,468 746,325
ustomer accounts 4,740,001 537,498 745,800 1,355,343 1,011,853 1,579,526 9,970,021
Debt securities
in
issue 25,410 103,327 123,698 194,725 3,282,366 - 3,729,526
Other borrowed
funds 1,075,611 1,559,551 2,028,916 4,143,930 3,099,972 7,473,794 19,381,774
Other financial
liabilities 36,102 - - - - - 36,102
Subordinated
debt 3,332 5,331 6,418 25,600 25,635 97,061 163,377
Undrawn credit
lines 5,364 110,495 69,517 59,854 36,597 15,937 297,764
Guarantees
issued 136,010 21,109 50,481 - 67,361 1,283,724 1,558,685
Letters of
credit 32,734 279,741 94,552 1,950 - - 408,977
Total potential
future payments
for financial
obligations 6,075,618 2,698,528 3,155,872 5,914,763 7,697,526 10,717,510 35,883,574
Liquidity requirements to support calls under guarantees and
standby letters of credit are considerably less than the amount of
the commitment disclosed in the above maturity analysis, because
the Group does not generally expect the third party to draw funds
under the agreement.
The total outstanding contractual amount of commitments to
extend credit as included in the above maturity table does not
necessarily represent future cash requirements, since many of these
commitments will expire or terminate without being funded.
The table below shows the maturity analysis of non-derivative
financial assets at their carrying amounts and based on their
contractual maturities, except for assets that are readily saleable
if it should be necessary to meet cash outflows on financial
liabilities. Such financial assets are included in the maturity
analysis based on their expected date of disposal. Impaired loans
are included at their carrying amounts net of impairment
provisions, and based on the expected timing of cash inflows.
The Group does not use the above undiscounted maturity analysis
to manage liquidity. Instead, the Group monitors expected
maturities which may be summarised as follows at 31 December
2020:
Demand and From 1 to 6 From 6 to From 1 to 3 From 3 to 5 Over 5 years Total
31 December less than 1 months 12 months years years
2020 month
Assets
Cash and cash
equivalents 5,601,186 - - - - - 5,601,186
Due from other
banks 148,127 324,311 372,726 621,215 - 392,813 1,859,192
Loans and
advances to
customers 2,147,523 6,647,182 4,350,766 9,953,937 7,766,068 8,094,482 38,959,958
Investment
securities
measured at
amortised
cost 14,897 405,524 69,561 47,800 - 2,440 540,222
Financial
assets
at fair value
through other
comprehensive
income - - - 38,024 - - 38,024
Other
financial
assets 16,208 - - - - - 16,208
Total
financial
assets 7,927,941 7,377,017 4,793,053 10,660,976 7,766,068 8,489,735 47,014,790
Liabilities
Due to other
banks 646,684 370,728 14 19,898 449,146 9,534 1,496,004
Customer
accounts 5,900,846 585,060 299,983 2,443,524 1,787,025 600,520 11,616,958
Debt
securities
in issue 30,095 63,471 13,500 70,600 3,095,382 - 3,273,048
Other borrowed
funds 1,066,290 3,798,602 4,386,007 9,392,454 2,164,228 4,875,876 25,683,457
Other
financial
liabilities 60,986 - - - - - 60,986
Undrawn credit
lines 48,534 108,872 51,981 164,553 136,384 8,182 518,506
Guarantees
issued 48,230 729,985 55,229 - 246,240 1,319,511 2,399,195
Letters of
credit 9,946 619,743 11,235 - - - 640,924
Total
financial
liabilities 7,811,611 6,276,461 4,817,949 12,091,029 7,878,405 6,813,623 45,689,078
Net liquidity
gap 116,330 1,100,556 (24,896) (1,430,053) (112,337) 1,676,112 1,325,712
Cumulative
liquidity gap 116,330 1,216,886 1,191,990 (238,063) (350,400) 1,325,712
The analysis by remaining contractual maturities may be
summarised as follows at 31 December 2019:
Demand From From 6 From From Over 5 Total
and less 1 to to 12 1 to 3 to years
31 December than 1 6 months months 3 years 5 years
2019 month
Assets
Cash and cash
equivalents 2,862,574 - - - - - 2,862,574
Due from other
banks 412,400 305,773 170,616 698,730 3,572 445,999 2,037,090
Loans and
advances to
customers 1,556,366 4,000,702 3,156,815 8,496,128 6,125,037 6,704,737 30,039,785
Financial assets
at fair value
through other
comprehensive
income - - - 88,714 - - 88,714
Investment
securities
measured at
amortised
cost - - 82,144 - - 2,504 84,648
Other financial
assets 5,162 - - - - - 5,162
Total financial
assets 4,836,502 4,306,475 3,409,575 9,283,572 6,128,609 7,153,240 35,117,973
Liabilities
Due to other
banks 48,221 57,372 9,146 27,298 80,107 242,965 465,109
Customer accounts 4,710,833 430,187 629,544 1,202,836 694,959 1,455,611 9,123,970
Debt securities
in issue 10,311 31,286 38,750 31,560 2,808,987 - 2,920,894
Other borrowed
funds 1,029,026 1,339,792 1,801,274 3,414,962 2,599,136 6,619,024 16,803,214
Other financial
liabilities 36,102 - - - - - 36,102
Subordinated
debt 3,332 - - - - 80,000 83,332
Undrawn credit
lines 5,364 110,495 69,517 59,854 36,597 15,937 297,764
Guarantees
issued 136,010 21,109 50,481 - 67,361 1,283,724 1,558,685
Letters of
credit 32,734 279,741 94,552 1,950 - - 408,977
Total financial
liabilities 6,011,933 2,269,982 2,693,264 4,738,460 6,287,147 9,697,261 31,698,047
Net liquidity
gap (1,175,431) 2,036,493 716,311 4,545,112 (158,538) (2,544,021) 3,419,926
Cumulative
liquidity
gap (1,175,431) 861,062 1,577,373 6,122,485 5,963,947 3,419,926
Demand From From 6 From From Over 5 Total
and less 1 to to 12 1 to 3 to years
31 December than 1 6 months months 3 years 5 years
2019 month
Assets
Cash and cash
equivalents 2,862,574 - - - - - 2,862,574
Due from other
banks 412,400 305,773 170,616 698,730 3,572 445,999 2,037,090
Loans and
advances to
customers 1,556,366 4,000,702 3,156,815 8,496,128 6,125,037 6,704,737 30,039,785
Financial assets
at fair value
through other
comprehensive
income - - - 88,714 - - 88,714
Investment
securities
measured at
amortised
cost - - 82,144 - - 2,504 84,648
Other financial
assets 5,162 - - - - - 5,162
Total financial
assets 4,836,502 4,306,475 3,409,575 9,283,572 6,128,609 7,153,240 35,117,973
Liabilities
Due to other
banks 48,221 57,372 9,146 27,298 80,107 242,965 465,109
Customer accounts 4,710,833 430,187 629,544 1,202,836 694,959 1,455,611 9,123,970
Debt securities
in issue 10,311 31,286 38,750 31,560 2,808,987 - 2,920,894
Other borrowed
funds 1,029,026 1,339,792 1,801,274 3,414,962 2,599,136 6,619,024 16,803,214
Other financial
liabilities 36,102 - - - - - 36,102
Subordinated
debt 3,332 - - - - 80,000 83,332
Undrawn credit
lines 5,364 110,495 69,517 59,854 36,597 15,937 297,764
Guarantees
issued 136,010 21,109 50,481 - 67,361 1,283,724 1,558,685
Letters of
credit 32,734 279,741 94,552 1,950 - - 408,977
Total financial
liabilities 6,011,933 2,269,982 2,693,264 4,738,460 6,287,147 9,697,261 31,698,047
Net liquidity
gap (1,175,431) 2,036,493 716,311 4,545,112 (158,538) (2,544,021) 3,419,926
Cumulative
liquidity
gap (1,175,431) 861,062 1,577,373 6,122,485 5,963,947 3,419,926
The above analysis is based on remaining contractual
maturities.
In 2019, the Bank was in breach of certain covenants stipulated
in the tripartite Subsidiary loan agreements between the Republic
of Uzbekistan, the Rural Restructuring Agency and the Bank
#3471-UZB from April 2017 and #3673-UZB from November 2018, as
discussed in detail in Note 19.
As at 31 December 2020, the Bank was in a breach return on
average assets ratios stipulated in the tripartite Subsidiary loan
agreements between the Republic of Uzbekistan, the Rural
Restructuring Agency and the Bank #3471-UZB from April 2017,
#3673-UZB from November 2018 and #L3823 (COL)-UZB dated 10 February
2020 , as discussed in detail in Note 19. On 5 November 2019, the
Republic of Uzbekistan confirmed to the Bank in writing that it
would not take any action to demand prepayment of the loans
advanced to the Bank under the Subsidiary Loan Agreements as a
consequence of past and/or on-going non-compliance with this
covenant. In addition, the agreement between the Bank and Ministry
of Finance does not provide a definition of an event of default.
Therefore the Management considers the breach of the covenant not
to be an event of default and has received a letter from the
Ministry of Finance dated 31 December 2020 confirming that this
breach of the covenant is not considered to be an event of
default.
As at 31 December 2020, the Group classified UZS 548,938 million
as "demand and less than 1 month" as a result of the non-compliance
with the covenant mentioned above.
As at 31 December 2020, the Bank was not in compliance with
certain covenants, stipulated in Master Trade Finance Loan
Agreement (the 'Master Agreement') dated 15 October 2019 between
the Bank and VTB Bank Europe, as discussed in detail in Note 19. On
24 March 2021, the Bank received a letter form VTB Bank Europe
giving their consent to waive above mentioned financial covenant as
of the end of the financial year 2020 with the decision to grant
the waiver reached during December 2020. Hence, liquidity has not
been adjusted.
Although the Group does not have the right to use the mandatory
deposits held in the CBU for the purposes of funding its operating
activities, the Management classifies them as demand deposits in
the liquidity gap analysis on the basis that their nature is
inherently to fund sudden withdrawal of customer accounts.
The matching and/or controlled mismatching of the maturities and
interest rates of assets and liabilities is fundamental to the
Management of the Group. It is unusual for banks ever to be
completely matched since business transacted is often of an
uncertain term and of different types. An unmatched position
potentially enhances profitability, but can also increase the risk
of losses. The maturities of assets and liabilities and the ability
to replace, at an acceptable cost, interest-bearing liabilities as
they mature, are important factors in assessing the liquidity of
the Group and its exposure to changes in interest and exchange
rates.
The Management believes that in spite of a substantial portion
of customer accounts being on demand, the fact that significant
portion of these customer accounts are of large state controlled
entities which are either the Group's shareholders or its entities
under common control and the past experience of the Group, indicate
that these customer accounts provide a long-term and stable source
of funding for the Group.
As part of liquidity risk management, the Group maintains a
contingency plan, periodically reviewed and adjusted, to be able to
withstand any unexpected outflow of customers and to respond to
financial stress. The contingency plan is developed primarily on
the basis of the Group's ability to access the State resources due
to its state ownership and strategic importance to the national
banking system of the Republic of Uzbekistan.
As at 31 December 2020, the contingency plan of the Group
consisted of the following:
- Attraction of long-term deposits of State funds under the
Ministry of Finance - Pension Fund, State Deposit Insurance Fund
and others;
- Attraction of budgetary funds up to one year through weekly
electronic bidding platform run by the State Treasury under the
Ministry of Finance;
- Utilization of the CBU's short-term liquidity loans;
- Attraction of deposits from inter-bank money markets within
the limits set by the local commercial banks.
Due to the effects of the pandemic on the Uzbek economy and
banking sector, the State has announced and adopted various
measures to combat its negative impact. Among the measures taken by
the CBU, the following had direct and indirect impact on the Bank's
liquidity:
- The commercial banks were provided with additional liquid
resources as a result of easing the requirements for mandatory
reserves with the CBU. This measure has allowed the Bank to enjoy
additional liquidity;
- The CBU made available for the commercial banks a credit line
collateralized with mortgage loans and/or loans classified as
"standard";
- For regulatory and statutory purposes, the commercial banks
were allowed not to reduce the quality classification of the loans
restructured as a result of pandemic, which in turn allowed the
banks not to increase their impairment allowances;
- The CBU postponed the introduction of more stringent liquidity
requirements (in particular, liquidity coverage ratio - LCR) from
mid-2020 to 2021;
- Quarterly contributions to the State Deposit Insurance Fund
have been reduced from 0.25% to 0.05% starting from 1 July
2020.
The Management of the Group is of the view that through their
contingency plans the Group will be able to attract resources
sufficient to cover any potential negative liquidity gap as at 31
December 2020.
37. RELATED PARTY TRANSACTIONS
Parties are generally considered to be related if the parties
are under common control or one party has the ability to control
the other party or can exercise significant influence over the
other party in making financial or operational decisions. In
considering each possible related party relationship, attention is
directed to the substance of the relationship, not merely the legal
form.
-- "Significant shareholders" - legal entities-shareholders
which have a significant influence to the Group through Government
;
-- "Key management personnel" - members of the Management Board and the Council of the Bank;
-- "Entities under common control" - entities that are
controlled, jointly controlled or significantly influenced by the
Government.
Details of transactions between the Group and related parties
are disclosed below:
31 December 2020 31 December 2019
Related party balances Total category as per Related party balances Total category as per
financial statements financial statements
caption caption
Cash and cash
equivalents
- entities under
common control 2,636,460 47% 1,291,956 45%
Due from other banks
- entities under
common control 1,327,746 71% 1,444,897 71%
Loans and advances to
customers
- key management
personnel 269 0% 166 0%
- significant
shareholders 6,011,991 15% 3,767,645 13%
- entities under
common control 8,550,541 21% 9,262,723 31%
Investment securities
measured at
amortised cost
- significant
shareholders 364,378 67% - -
- entities under
common control 173,401 32% 84,648 100%
Financial assets at
fair value
through other
comprehensive
income
- entities under
common control 10,788 28% 6,903 8%
Other Assets
- significant
shareholders 9,814 3% - 0%
Due to other banks
- entities under
common control 1,192,679 80% 435,690 94%
Customer accounts
- key management
personnel 1,204 0% 1,265 0%
- significant
shareholders 4,698,047 40% 363,226 4%
- entities under
common control 1,136,610 10% 4,310,188 47%
Debt securities in
issue
- entities under
common control 21,180 0% 32,320 1%
Other borrowed funds
- significant
shareholders 4,617,668 18% 1,299,160 8%
- entities under
common control 145,442 1% 2,088,610 12%
Other liabilities
- significant
shareholders 71 0% 76 0%
- entities under
common control 22,128 17% 42,683 92%
Subordinated debt
- entities under
common control - 0% 83,332 100%
2020 2019
Related party balances Total category as per Related party balances Total category as per
financial statements financial statements
caption caption
Interest income
- key management
personnel 77 0% 51 0%
- significant
shareholders 180,207 5% 36,645 2%
- entities under
common control 251,762 8% 93,110 4%
Interest expense
- key management
personnel (62) 0% (66) 0%
- significant
shareholders (153,893) 10% (17,343) 2%
- entities under
common control (159,712) 10% (71,313) 6%
(Provision for)/ recovery of credit losses
on loans and advances to customers
- significant
shareholders (13,162) 1% 62,479 65%
Fee and commission
income
- significant
shareholders 14,798 4% 12,234 4%
- entities under
common control 25,995 6% 23,802 7%
Net gain from trading
in foreign currencies
- significant
shareholders 23 0% 347 4%
- entities under
common control 1,695 2% 632 8%
Other operating income
- significant
shareholders 1,118 4% 271 2%
- entities under
common control 56 0% 73 0%
Administrative and
other operating
expenses
- key management
personnel (6,647) 1% (4,296) 1%
- entities under
common control (60,001) 8% (23,165) 4%
The Group enters into transaction with other government related
entities in the normal course of business.
Key management compensation is presented below:
2020 2019
Salaries and other benefits 2,240 2,061
Bonuses 3,054 1,323
Social security contributions 1,353 912
Total 6,647 4,296
38. EVENTS AFTER THE END OF THE REPORTING PERIOD
On 1 February 2021, the Group and the Islamic Corporation for
the Development of the Private Sector ("ICD") signed the Financing
Agreement on the amount of USD 25 million. In accordance with the
Agreement, ICD will support the Group in financing investment
projects of small and medium-sized businesses of Uzbekistan via
usage of Islamic financing methods.
In March 2021, the Group attracted a loan from AKA Ausfuhrkredit
GmbH in the amount of EUR 15 million for financing of business
enterprises in expansion of production and rendering services.
On 17 March 2021, the European Bank for Reconstruction and
Development and the Group signed the agreement to attract a
synthetic credit line totaling USD 25 million. The funds will be
used to finance projects and support business initiatives
implemented by small and medium-sized businesses (SMEs) of
Uzbekistan, thereby providing access to financing and stimulating
sustainable growth in the development of the SME segment,
especially during a pandemic caused by COVID 19.
In accordance with the Decree of the President of the Republic
of Uzbekistan dated 23 March 2021 No.5033 "On measures to
accelerate the development and support of pottery", the Group
signed an Agreement on 9 April 2021 on subordinated debt in the
amount of UZS 100 billion with the Fund for Reconstruction and
Development of the Republic of Uzbekistan. Financial resources
under this agreement will be used to finance the creation of
pottery centers under in the Rishtan district of the Fergana
region, the allocation of mortgage loans to potters for the
purchase of finished housing in the centers of pottery, as well as
the allocation of consumer loans to the population for the purchase
of pottery produced in the domestic market of the country.
In April of 2021, the Group attracted further financing in the
amount equivalent to USD 20 million through a private placement of
unsecured credit notes in national currency among international
investors. The transaction itself was structured as a private
placement of credit notes by a Dutch financial institution that
provided debt financing to the Group. To avoid the currency risks
exposure the loan was denominated in UZS and to be used to finance
the projects in SME sector.
In April 2021 PSB Industrial Investments, LLC was subsequently
liquidated on the basis of the decision of Management Board.
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END
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