ANNUAL REPORT
2019
Statement
of the Chairman
of the Board of Directors

Dear Shareholders,

Gazprombank turns 30 this year. The Bank celebrates this anniversary proudly, ranking third among the country’s financial institutions on all key indicators — a reliable and efficient partner for its customers and a profitable long-term asset for its shareholders.

Adhering to the strategy approved by its Board of Directors, Gazprombank retains its financial resilience and its ability to respond to global economic events in a prompt and agile manner. In the reporting year, it improved its operating results, in particular, in terms of net profit, capital and income from the core banking business. One of the priority areas of the Bank’s work is collaboration with companies in the real sector of the Russian economy. Among these, Gazprom Group entities occupy a special position. In particular, the Bank provides centralized management of their cash flows and participates in the financing of investment projects and placement of securities on the capital markets.

A landmark event in 2019 was the deal to raise project financing for the Gazprom Group for the construction of the Amur Gas Processing Plant. Gazprombank was actively involved in structuring the deal as financial advisor and became part of a consortium of 22 financial organizations providing a EUR 11.4 billion loan. In terms of the project financing raised, the deal was one of the biggest in Europe in recent years. Supporting socially significant projects implemented on the basis of public-private partnerships is another important area of activity for the Bank, the primary focus being on the development of transport infrastructure in various regions of Russia. In the Yamal-Nenets Autonomous Area, for example, the Bank is providing financing for the construction of a road bridge across the Pur River. Once completed, the bridge will provide all-year-round uninterrupted transportation services for those living in the settlement of Urengoy and several other local communities.

One of the Bank’s long-term development goals is the digital transformation of business processes, including the development of remote customer services. The Bank’s modern and convenient digital services are currently being used by over 40,000 companies every day, and there are plans to provide the Bank’s corporate customers with remote access to all its banking products. At the same time, Gazprombank is continuing to consolidate its position in the retail sector — in 2019, the share of remote sales to individual customers increased by 55%.

The Board of Directors takes a positive view of Gazprombank’s performance in the 2019 reporting year. The Bank’s balanced strategy, its 30-year track record of success and its highly professional team underpin its continued confident development on the Russian market

 

Alexey B. Miller

Chairman of the Board of Directors, Bank GPB (JSC),
Chairman of the Management Committee, Gazprom

Statement
of the Chairman
of the Management Board

Dear shareholders, customers, and partners,

It has become customary for us to finally sum up the preceding year at the General Shareholders Meeting held in late June. This report on the Bank operations in 2019 serves this same purpose. However, the first half of 2020 was extraordinary to the extent that our General Shareholders Meeting has been postponed until September, and that any assessment of the reporting period’s results would hardly be complete without regard to the specific nature of this year’s events. The COVID-19 pandemic that has swept across the globe, brought abrupt and radical changes to virtually every aspect of our everyday lives. It became the black swan, expected by nobody. There was no way one could have got ready for this state of emergency in advance. All Bank employees, the management team and the bespoke Emergency Response Center had to make an enormous effort to curb the blow, radically rethinking the workflows of all units in a time-pressed environment, and making sure that the Bank operates normally under abnormal conditions. Now, hopefully, the biggest hazards have been left behind, we stood up to the crisis and we won! At the same time, this achievement was made possible not only by the deep commitment demonstrated by our team during the spring and summer months this year, but also by the carefully chosen development strategy that our Bank has now pursued for more than two years. It was during this period that we laid a solid foundation for the “bank of the future”, based on state-of-the-art IT technology, that boldly outsteps the boundaries of traditional banking business and, which turned out to be of special importance, is resilient to stresses and risks, even totally new and unexpected ones. The experience of the recent and still continuing crisis is yet to be digested. This will become the theme of our future annual report. Already today, however, we look through the lens of past events to not only get a vision of our future prospects, but to rigorously assess our past year’s performance as well.

According to FY2019 results, the Gazprombank Group generated RUB 44.6 billion of net profit, more than RUB 5 billion above the 2018 indicator (RUB 39.5 billion). Core banking income (net interest income and net fee and commission income) grew Statement of the Chairman of the Management Board by 12.7%, from RUB 157.1 billion to RUB 177.0 billion. The Group’s aggregate net interest margin remained at 2.8% in 2019, same as in 2018.

Traditionally, strategic partnerships with Russia’s largest companies, provision of a full range of state-of-the-art financial services to such largest accounts as well as all other corporate customers, has been a dominating element in Gazprombank’s business. The Bank participates in the implementation of national projects and other government-sponsored initiatives, often pioneering provision of the most advanced services to those players in the key industries of the national economy with whom it collaborates.

The Bank continuously enhances its experience and track record on the project and structured finance market. Participating in the Project Finance Factory, implemented on VEB.RF platform, Gazprombank has led a syndicate for an aggregate loan of USD 1.79 billion, intended for the development of the Udokan copper deposit, ranking the largest in Russia and the third worldwide among undeveloped copper deposits. The Bank acted as the arranger, financial advisor and lender with a commitment of up to USD 650 million. This deal was the largest one closed by the Factory and was named the best deal on Russia’s syndications market in 2019 according to Cbonds. Construction of a mining and metal plant with appropriate infrastructure in the Trans-Baikal Territory will create new jobs, reinforcing the region’s business potential and positively affecting the economic development of the country as a whole.

Gazprombank has reinforced its leading positions in the financing of infrastructure and PPP projects, primarily in the area of creating and rebuilding roads and transport facilities. In the Moscow Region, the Bank participates in the construction of the Central Ring Road (TsKAD) Phases Three and Four. In 2019, financial closure was achieved under the Vinogradovo — Boltino — Tarasovka auto road construction project, with the lending volume in excess of RUB 20 billion. One of the most notable 2019 deals was the Lavna coal transshipment facility construction project at the Murmansk sea port. Once at full capacity, the new terminal will allow for the transshipment of 18 million tons of coal, thereby driving the development of the Northern Sea Route. Jointly with VEB, financial closure was achieved via the Project Finance Factory in the first federal PPP project, development of a digital ecosystem for countering illegal circulation of goods.

Gazprombank’s status of a systemically important bank on the national scale, together with the high reputation and customer confidence allow it, while maintaining a strong foothold in the corporate sector, to be a leader of the retail market as well. The reporting year was one of robust retail business growth for the Bank. In this business line, the Bank’s loan portfolio amounted to RUB 564 billion at the end of 2019 (a growth by RUB 105 billion). Consumer loans were the key product, displaying growth at rates double the market average, which enabled Gazprombank to be the first in terms of portfolio growth, making it into the TOP 5 Russian banks by portfolio volume. Active promotion of bundled products resulted in a triple growth of retail fee and commission income, which amounted to more than a half of the Bank’s aggregate fee and commission income.

The retail bottom line doubled, reaching RUB 8.0 billion, almost one-fifth of the Group’s overall net profit. This spectacular outcome was achieved due to a 30% growth in the active customer base, increased crosssales, and product range development. The 2019 offerings include some truly unique products. One of these is the Smart Card with a principally new cashback mechanism. This card not only became highly popular with customers, it was also rightfully acclaimed by experts as an efficient loyalty program tool. The Smart Card won Frank Banking Reward awards in two nominations.

The Bank’s ability to develop its products and services in accordance with customer needs enables it to thrive in the private banking sector as well. In 2019, the Private Banking investment portfolio exceeded RUB 100 billion, having grown by 80% over two years. For the second consecutive year, Gazprombank Private Banking was named the industry’s best and won the Spear’s Russia Awards as the Best Russian Bank Providing Private Banking and HNWI Capital Management Services.

For the team of professionals who have kept Gazprombank among capital market leaders for many years, the reporting year became yet another one of new victories and landmark deals. On the local debt capital market, the Bank acted as the arranger of 100 bond issuances for the aggregate face value of RUB 1 trillion, representing 50 issuers, which became a record for the Bank over its entire history of operations. Gazprombank’s market share in initial offerings on the Russian local bond market was 47.2%, that on the Eurobond market, 65%. The Bank successfully closed 24 major transactions of RUB 15 billion or more for 16 corporate issuers, such as Gazprom, Rosneft, Russian Railways, Norilsk Nickel and other domestic business giants. Another record of the past year was the aggregate amount of funds borrowed by the Moscow Region, RUB 51.5 billion, in three issues of regional bonds, with Gazprombank acting as the arranger and the general agent. This amount became the largest of all raised by Russian regions over the last five years.

The best (according to Cbonds) foreign bonds offering on the Russian market, Series 03 and 04 of the Republic of Belarus bonds, is worth to be specifically mentioned. This was not the only Gazprombank’s project with a foreign issuer. Other successful deals include bond issuances of the Republic of Uzbekistan, of Eurotorg, Belarussian largest retailer, and of KTZ, the Kazakh National Railways.

The Bank’s success in the accomplishment of a vast range of business objectives is largely underpinned by the technological transformation, kicked off at our Bank a couple of years ago and still ongoing. The continuous improvement of our services, products, and internal business processes on the basis of cutting-edge digital technologies, the search for, development, and consistent implementation of innovations have become an inseparable element of Gazprombank’s life. As part of this technological transformation, we have created a fail-safe and scalable IT infrastructure which, in the tumultuous spring of 2020, allowed our Bank to seamlessly migrate to hassle-free and effective work-from-home arrangements. Every employee required to work from home was provided with a fully functional workplace with access to all necessary Bank systems both from corporate laptops, and from personal devices.

Even before that, remote services became widely popular among Bank customers. Over 2019, 1.5 million customers got registered in our mobile app and the Internet Bank. In the mobile app, we implemented such functions as no-visit lending, money transfers using the rapid payment system, currency conversions. New product and service launches enabled us to achieve a triple growth in the number of monthly active users of our mobile app and Internet Bank, so that we had more than one million active users in December. We have added the remote product application functionality to the Gazprombank website, including consumer and auto loans, debit cards, and courier card delivery service. In 2019, our website audience grew 4 times, almost reaching 3 million visitors in December. Summing up the digitization topic, we may say that, having gone digital well in advance, Gazprombank, even though it did not prepare for the pandemic, still turned out to be rather well prepared to face up to it. As it transitioned to predominantly remote customer service, and migrated most of its staff to work-fromhome arrangements, the Bank was able to fully retain its functionality and effectiveness across all lines of its branchy, systemically important, and socially significant business.

The hardships we’ve been through raise our morale and enrich our experience. This is how we perceive the recent events. Gazprombank turns 30 this year. We have every reason to believe that our Bank has met this anniversary proudly, in good spirits, cognizant of its strength, and confident of its future.

Andrey I. Akimov

Chairman of the Management Board

Key
Performance
Indicators
Assets,
RUB billion
5122
4879
5534
6532
6582
Equity (capital),
RUB billion
530
495
577
617
722
Loans provided to corporate
customers before deducting
loan loss provisions,
RUB billion
3198
3175
3384
3733
3985
Amounts owed to corporate
customers, RUB billion
2623
2653
3073
3823
3748
Retail loans before
deducting loan
loss provisions,
RUB billion
314
329
389
507
608
Amounts owed
to individuals,
RUB billion
659
678
843
991
1220
Net profit/(loss),
RUB billion
15
29
34
40
45
Core banking income
(normalized),
RUB billion
112
137
147
157
177
Tier 1 capital adequacy
(Basel I, II), %
14,2
10,0
10,3
10,5
11,9
Capital adequacy
(Basel I, II), %
10,2
13,5
13,1
12,4
13,1
Ratio of non-performing loans
to loan portfolio, %
2,0
3,0
2,5
2,4
2,2
Ratio of loan loss provisions
to loan portfolio, %
8,9
7,3
5,1
5,0
4,4
Main Results for the Year and Business Development Objectives