Summary
Consolidated
Financial
Statements
2019
3985
2018
3733
2017
3384
2016
3175
2015
3198
Loans provided to corporate customers
before loan loss provisions, RUB billion
3
ANNUAL REPORT
2019
Independent Auditors’ Report on the Summary Consolidated Financial Statements

To the Shareholders and Board of Directors of Gazprombank (Joint Stock Company)

 

Audited entity:

Gazprombank (Joint Stock Company).
Registration number in the Unified State Register of Legal Entities 1027700167110.

Moscow, Russian Federation.

Independent auditor:

JSC “KPMG”, a company incorporated under the Laws of the Russian Federation, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Registration number in the Unified State Register of Legal Entities 1027700125628.

Member of the Self-regulatory Organization of Auditors Association “Sodruzhestvo” (SRO AAS). The Principal Registration Number of the Entry in the Register of Auditors and Audit Organisations: No. 12006020351.

Opinion

The summary consolidated financial statements, which comprise the summary consolidated statement of financial position as at 31 December 2019, the summary consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and related notes, are derived from the audited consolidated financial statements of Gazprombank (Joint Stock Company) (the “Bank“) and its subsidiaries (the “Group“) for the year ended 31 December 2019.

In our opinion, the accompanying summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements, in accordance with the basis described in Note 2.

Summary Consolidated Financial Statements

The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards. Reading the summary consolidated financial statements and our report thereon, therefore, is not a substitute for reading the audited consolidated financial statements and our report thereon. The summary consolidated financial statements and the audited consolidated financial statements do not reflect the effects of events that occurred subsequent to that date of our report on the audited consolidated financial statements.

The Audited Consolidated Financial Statements and Our Report Thereon

We expressed an unmodified audit opinion on the audited consolidated financial statements in our report dated 24 March 2020. That report also includes the communication of key audit matters. Key audit matters are those matters that in our professional judgement, were of most significance in our audit of the consolidated financial statements for the current period.

Management’s Responsibility for the Summary Consolidated Financial Statements

Management is responsible for the preparation of the summary consolidated financial statements in accordance with the basis described in Note 2.

Auditors’ Responsibility

Our responsibility is to express an opinion on whether the summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 (Revised), “Engagements to Report on Summary Financial Statements”.

Kolosov A.E. JSC “KPMG”

Moscow, Russian Federation 14 May 2020

Gazprombank Group
Summary Consolidated Statement of Profit or Loss and Other Comprehensive Income for 2019

(in millions of Russian rubles unless otherwise stated)

  2019 2018 Change, %
Interest income calculated using the effective interest rate method 377 982 348 358  
Other interest income 31 477 25 124  
Interest expense (266 705) (234 801)  
Net interest income 142 754 138 681 3%
Provision charge for credit losses on interest earning assets (10 478) (6 758)  
Net interest income after provision charge for credit losses on interest earning assets 132 276 131 923 0%
Fee and commission income 50 728 31 774  
Fee and commission expense (16 489) (13 366)  
Net fee and commission income 34 239 18 408 86%
Net gain (loss) from trading operations 7 202 (17 521)  
Net gain (loss) from loans and other financial instruments at fair value 28 800 (3 846)
Income from equity method investments in associates 7 817 7 712
Net (loss) gain from trading in foreign currencies, operations with foreign currency derivatives and foreign exchange translation (23 496) 2 088
Income from sale of subsidiaries 7 750 1 197
Net other operating income 7 918 8 992
Other non-interest income (loss) 35 991 (1 378)
Non-banking operating revenues 270 566 287 415
Non-banking operating expenses (283 608) (289 073)
Non-banking operating loss (13 042) (1 658)
Banking salaries and employment benefits (61 810) (50 719)
Banking administrative expenses (58 987) (47 611)
(Provision charge for) recovery of credit losses on non-interest earning financial instruments (2 334) 584
(Charge for) recovery of impairment on non-financial assets and provision for other risks (6 319) 4 107
Impairment of goodwill - (596)
Non-interest expense (129 450) (94 235) 37%
Profit before profit tax 60 014 53 060 13%
Profit tax expense (15 429) (13 521)
Profit for the year 44 585 39 539 13%
  2019 2018 Change, %
Other comprehensive (loss) income, net of tax      
Items that are or may be reclassified to profit or loss in subsequent periods:      
Exchange differences on translation of foreign operations (6 088) 3 315  
Movements in other comprehensive income of associates 474 181
Total other comprehensive (loss) income, net of tax (5 614) 3 496  
Total comprehensive income for the year 38 971 43 035 -9%
Profit (loss) for the year attributable to:      
Bank’s shareholders 45 359 41 086 10%
Non-controlling interests (774) (1 547) -50%
  44 585 39 539 13%
Total comprehensive income (loss) for the year attributable to:
Bank’s shareholders 39 745 44 582 -11%
Non-controlling interests (774) (1 547) -50%
38 971 43 035 -9%
  31 December
2019
31 December
2018*
Change, %
Assets      
Cash and cash equivalents 739 024 1 049 343 -30%
Obligatory reserve with the Central Bank of the Russian Federation 51 709 47 972 8%
Due from financial institutions 214 699 97 192 121%
Financial assets held for trading 161 076 134 755 20%
of which pledged under repo agreements 5 759 2 207 161%
Loans to customers 4 394 994 4 035 079 9%
Investment financial assets 474 999 561 997 -15%
of which pledged under repo agreements 9 007 53 707 -83%
Investments in associates 43 688 81 787 -47%
Receivables and prepayments 116 993 158 361 -26%
Inventories 47 459 58 852 -19%
Rights for audio-visual products 40 151 41 730 -4%
Profit tax assets 39 433 43 949 -10%
Property, plant and equipment and right-of-use assets 148 513 125 622 18%
Intangibles 24 470 22 934 7%
Assets held for sale 37 880 16 986 123%
Goodwill 25 873 25 873 -
Other assets 21 237 29 659 -28%
Total assets
 
6 582 198 6 532 091 1%
Liabilities
Financial liabilities held for trading 39 675 42 897 -8%
Financial liabilities designated as at FVTPL 48 154 49 593 -3%
Amounts owed to financial institutions 319 402 405 919 -21%
Amounts owed to customers 4 968 481 4 813 464 3%
Bonds issued 267 617 326 596 -18%
Profit tax liabilities 8 975 5 902 52%
Subordinated debts 74 555 136 519 -45%
Other liabilities 133 167 134 453 -1%
Total liabilities 5 860 026 5 915 343 -1%

* The presentation of comparative information was changed (Note 2 (g).

  31 December
2019
31 December
2018*
Change, %
Equity      
Share capital 206 834 206 834 -
Additional paid-in capital 166 037 166 037 -
Treasury shares (9 756) (9 756) -
Perpetual debts issued 206 906 124 469 66%
Foreign currency translation reserve 5 797 11 885 -51%
Retained earnings 144 708 127 143 14%
Equity attributable to the Bank’s shareholders 720 526 626 612 15%
Non-controlling interests 1 646 (9 864) -117%
Total equity 722 172 616 748 17%
Total liabilities and equity 6 582 198 6 532 091 1%
  Share capital Additional
paid-in capital
Treasury shares
31 December 2017 206 834 166 037 (9 756)
Impact of adopting IFRS 9 - - -
Impact of adopting IFRS 15 - - -
1 January 2018 206 834 166 037 (9 756)
Profit (loss) for the year -
Items that are or may be reclassified to profit or loss in subsequent periods: - - -
Exchange differences on translation of foreign operations - - -
Movements in other comprehensive income of associates - - -
Total items that are or may be reclassified to profit or loss in subsequent periods - - -
Total comprehensive income (loss) for the year - - -
Perpetual debts issued - - -
Accruals of interest on perpetual debts issued - - -
Foreign exchange translation on perpetual debts issued - - -
Tax effect on perpetual debts issued - - -
Acquisition and disposal of non-controlling interests in subsidiaries - - -
Disposal of subsidiaries - - -
Dividends declared - - -
Other movements - - -
31 December 2018 206 834 166 037 (9 756)
Perpetual debts issued Foreign currency translation reserve Fair value reserve Retained earnings Equity attributable to Bank’s shareholders Non-controlling interests Total equity
67 057 8 570 572 144 230 583 544 (6 735) 576 809
- - (572) (23 588) (24 160) - (24 160)
- - - 40 40 - 40
67 057 8 570 - 120 682 559 424 (6 735) 552 689
- - - 41 086 41 086 (1 547) 39 539
- 3 315 - - 3 315 - 3 315
- - - 181 181 - 181
- 3 315 - 181 3 496 - 3 496
- 3 315 - 41 267 44 582 (1 547) 43 035
45 542 - - - 45 542 - 45 542
- - - (5 450) (5 450) - (5 450)
11 870 - - 11 870 - - -
- - - 3 464 3 464 - 3 464
- - - (473) (473) 251 (222)
- - - - - (759) (759)
- - - (21 008) (21 008) (1 040) (22 048)
- - - 531 531 (34) 497
124 469 11 885 - 127 143 626 612 (9 864) 616 748
  Share capital Additional
paid-in capital
Treasury shares
31 December 2018 206 834 166 037 (9 756)
Profit (loss) for the year - - -
Items that are or may be reclassified to profit or loss in subsequent periods: - - -
Exchange differences on translation of foreign operations - - -
Movements in other comprehensive income of associates - - -
Total items that are or may be reclassified to profit or loss in subsequent periods - - -
Total comprehensive (loss) income for the year - - -
Perpetual debts issued - - -
Accruals of interest on perpetual debts issued - - -
Foreign exchange translation on perpetual debts issued - - -
Tax effect on perpetual debts issued - - -
Acquisition and disposal of non-controlling interests in subsidiaries - - -
Disposal of subsidiaries - - -
Dividends declared - - -
Other distributions to shareholders - - -
Other movements - - -
31 December 2019 206 834 166 037 (9 756)
Perpetual debts issued Foreign currency translation reserve Fair value reserve Retained earnings Equity attributable to Bank’s shareholders Non-controlling interests Total equity
124 469 11 885 - 127 143 626 612 (9 864) 616 748
- - - 45 359 45 359 (774) 44 585
- (6 088) - - (6 088) - (6 088)
- - - 474 474 - 474
- (6 088) - 474 (5 614) - (5 614)
- (6 088) - 45 833 39 745 (774) 38 971
90 000 - - - 90 000 - 90 000
- - - (8 028) (8 028) - (8 028)
(7 563) - - 7 563 - - -
- - - 93 93 - 93
- - - - - 63 63
- - - - - 12 343 12 343
- - - (18 106) (18 106) (122) (18 106)
- - - (10 397) (10 397) - (10 397)
- - - 607 607 - 607
206 906 5 797 - 144 708 720 526 1 646 722 172
2019 2018
Cash flows from operating activities
Interest received 402 896 344 021
Fee and commission received 50 068 32 827
Interest paid (266 924) (227 141)
Fee and commission paid (16 243) (13 376)
Non-interest receipts from financial assets and liabilities held for trading 6 725 2 717
(Payments on) receipts from derivative contracts with foreign currency and from foreign exchange operations (48 099) 60 074
Media business operating receipts 100 396 96 818
Media business operating payments (59 978) (66 335)
Machinery business operating receipts 81 493 75 506
Machinery business operating payments (73 112) (85 791)
Other segment operating receipts 100 899
Other segment operating payments (95 951) (96 043)
Other operating receipts 5 633 6 404
Banking salaries and employment benefit payments (59 580) (48 283)
Banking administrative expenses and other operating payments (51 871) (41 622)
Cash flows from operating activities before changes in operating assets and liabilities 76 352 131 993
(Increase) decrease in operating assets
Obligatory reserve with the Central Bank of the Russian Federation (3 737) (9 523)
Due from financial institutions (124 408) (2 614)
Financial assets held for trading (19 734) 32 742
Loans to customers (447 918) (271 444)
Other operating assets 5 932 (15 664)
Increase (decrease) in operating liabilities
Financial liabilities held for trading 4 547 (8 699)
Financial liabilities designated as at FVTPL (5 263) 9 019
Amounts owed to financial institutions (49 295) 55 452
Amounts owed to customers 359 309 640 133
Other operating liabilities (5 012) 13 908
Net cash flows (used in) from operating activities before profit tax (209 227) 575 303
Profit tax paid (4 576) (23 878)
Net cash flows (used in) from operating activities (213 803) 551 425
2019 2018
Cash flows from investing activities
Property, plant and equipment, intangibles and rights for audio-visual products purchased (80 265) (70 647)
Property, plant and equipment, intangibles and rights for audio-visual products sold 8 600 2 648
Disposal of subsidiaries, net of cash disposed 3 275 1 537
Investment financial assets purchased (78 135) (123 215)
Investment financial assets sold and redeemed 147 818 56 451
Acquisition and contribution to share capital of associates (2 770) (14 286)
Disposal of associates 11 698 2 204
Dividends received from associates 10 126 5 530
Dividends received 2 140 2 506
Net cash flows from (used in) investing activities 22 487 (137 272)
Cash flows from financing activities
Bonds issued and sold from earlier repurchased 95 245 57 406
Bonds redeemed or repurchased (149 962) (99 120)
Perpetual debts issued 90 000 45 542
Interest on perpetual debts paid (7 870) (5 644)
Subordinated debts redeemed or repurchased (63 061) (54 039)
Acquisition of non-controlling interests in subsidiaries - (222)
Financing of non-banking activities received 5 177 5 032
Financing of non-banking activities redeemed (7 631) (4 965)
Dividends paid (18 208) (22 045)
Other distributions to shareholders (10 397) -
Lease liabilities redeemed (6 965) -
Net cash used in financing activities (73 672) (78 055)
Effect of changes in exchange rates on cash and cash equivalents (45 429) 64 123
Change in cash and cash equivalents (310 417) 400 221
Effect of changes in allowance for credit losses on cash and cash equivalents 98 (306)
Cash and cash equivalents, beginning of the year 1 049 343 649 428
Cash and cash equivalents, end of the year 739 024 1 049 343
Notes
to the Summary
Consolidated
Financial Statements
for 2019
 

Note 1. Principal activities and organization

The Gazprombank Group (the Group) primarily consists of:

  • Gazprombank (Joint Stock Company), which is the parent company
  • subsidiary banks and financial companies, including Gazprombank (Switzerland) Ltd., Bank GPB International S.A., Gazprombank Leasing JSC, and a number of other financial companies, that support the banking business
  • several large non-banking companies

Gazprombank (Joint Stock Company) (the Bank) was established in 1990. The Bank has a general banking license and a license for operations with precious metals from the Central Bank of the Russian Federation (the CBR), and licenses for securities operations and custody services from the Federal Financial Markets Service of the Russian Federation, which in 2013 became a part of the CBR. Its subsidiary banks and companies also have general banking licenses for operations in Switzerland and Luxembourg and investment, brokerage and asset management licenses for operations in Cyprus, Luxembourg and Hong Kong

The Bank is the third largest bank in the Russian Federation in terms of assets and equity, and it provides a broad range of commercial and investment banking services to many of Russia’s leading corporations, including, among others, PJSC Gazprom and its related parties (the Gazprom Group). The principal corporate banking services include: commercial lending, project and acquisition finance, trade finance, financial and operating leasing, deposit taking, settlements and cash management, capital markets transactions, asset management, brokerage, corporate finance and mergers and acquisitions advisory, and depositary and custodian services. The Bank is also involved in private equity transactions, foreign exchange and securities trading, and operations with precious metals.

The Bank provides a range of services to private individuals, including employees of its corporate clients. Retail services include: lending, deposit taking, debit and credit card services, brokerage, asset management and a range of other services. The Bank has controlling stakes in several nonbanking entities, which are consolidated in these summary consolidated financial statements and are presented as separate segments, including:

  • JSC Gazprom-Media Holding and its subsidiaries (the Media segment) is a Russian media group of companies, which principal activities are TV and radio broadcasting, advertising, publishing, film production and distribution primarily undertaken in the Russian Federation.
  • PJSC OMZ and its subsidiaries (the OMZ Group) and a number of other industrial assets (together - the Machinery segment). OMZ Group produces nuclear power plant equipment, specialty steels, machinery equipment, manufacturing and mining equipment. The OMZ Group manufacturing facilities are based in the Russian Federation and the Czech Republic.

The legal address of the Bank is: Bld.1, 16 Nametkina St., Moscow, 117420, Russian Federation. The consolidated financial statements are published at the Bank’s website www.gazprombank.ru. These summary consolidated financial statements are authorised for issue by the Management Board of the Bank on 14 May 2020.

Note 2. Basis of preparation

(a) Overview

These summary consolidated financial statements, which comprise the summary consolidated statement of financial position as at 31 December 2019, the summary consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for 2019, and related notes are derived from the audited consolidated financial statements of the Group, except that substantially all note disclosures are omitted.

The consolidated financial statements were authorised for issue by the Management Board of the Bank on 24 March 2020. The summary consolidated financial statements do not reflect the effects of events that occurred subsequent to the issue date of the consolidated financial statements

Consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). This is the first set of the Group’s annual financial statements in which IFRS 16 «Leases» has been applied.

Management is responsible for the preparation of the summary consolidated financial statements in accordance with IFRS.

The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosed contingent assets and liabilities at the reporting date in the consolidated financial statements and the reported amounts of income and expense for the reporting period. Actual results could differ from those estimates. Key areas of judgements and key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that may lead to material adjustments to the carrying amounts of assets and liabilities within the next financial year, include:

  • classification of financial assets. Classification of financial assets and their basis for measurement depend on business model within which the assets are held and assessment of whether the contractual terms of the financial asset are solely payments of principal and interest on the principal amount outstanding
  • estimation of allowance for credit losses on financial instruments. The amount of allowance for credit losses on financial instruments equals to either 12-month expected credit losses (ECL) or the lifetime ECLs depending on whether the significant increase in credit risk (SICR) occurred since initial recognition. Models for measurement of ECL imply incorporation of forward looking information
  • valuation of complex and illiquid financial instruments. This involves professional judgement, including use of valuation models. In the absence of an active market, management uses assumptions for certain valuation models’ inputs, which may not be based on an observable market data
  • estimation of fair values of identifiable assets and liabilities acquired in business combinations. This involves professional judgement, including use of valuation models, which, among others, comprise assumptions about future business performance and cash flows and appropriate discount rates
  • estimation of allowance for impairment on non-financial assets (including goodwill). This involves professional judgement, including use of valuation models, which, among others, comprise assumptions about future business performance and cash flows of assets, being tested for impairment, and appropriate discount rates
  • assessment of whether the Group has control or significant influence over investments where control or significant influence is determined by contractual arrangements or other factors other than voting rights held by the Group
  • estimation of the recoverable amount of deferred tax assets. This involves the assessment of future taxable profits available to utilise tax losses carryforward.

(b) Russian economic environment

The Group’s operations are primarily located in the Russian Federation. The Russian Federation displays certain characteristics of emerging markets. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations. Management of the Group believes that it is taking all necessary efforts to support the economic stability of the Group in the current environment.

Since 2014, the Group operates under coordinated sectoral sanctions against some of the Russian banks and corporations, including the Bank, and some of the Russian officials and businessmen. The sanctions prohibit the U.S. and EU citizens or entities operating on the territory of the U.S. and EU transacting in, providing financing for, or otherwise dealing in the debt instruments of the Group with a maturity of longer than 14 days (for U.S. sanctions) and 30 days (for EU sanctions). In addition, since 2017, the U.S. introduced restrictions on financing of certain Russian oil projects and the defense industry

In 2018, the U.S. Congress issued a Report regarding senior political figures and oligarchs in the Russian Federation and Russian parastatal entities. The report does not impose any additional risks for the Group as it does not prohibit any relationships of American and foreign figures with the figures from the Report, assets of the figures mentioned in the Report are not blocked and the U.S. sanctions are not implemented against them.

In addition, 26 Russian citizens and 15 Russian companies were included in the sanctions list, their assets on the U.S. territory are subject to immediate blocking, US companies and their partners are prohibited from any relationships with these persons or companies.

In 2019, economic conditions remains stable, despite a number of short-term shocks in commodity markets. Slowing growth of the global economy and rising oil supply in the world market led to a decrease in the price of Urals crude oil from 70 US dollars per barrel in 2018 to 63.6 US dollars per barrel in 2019. The average ruble exchange rate in 2019 (64.7 rubles for 1 US dollar) was strong due to the influx of non-residents’ funds into federal loan bonds, the preservation of the trade surplus and a local liquidity deficit in the banking system at the end of 2019. The GDP for 2019 increased by 1.3%. The inflation slowdown and a decrease in inflationary expectations led the CBR to switch to easing its monetary policy by lowering its key rate in 2019 from 7.75% to 6.25%.

However, the first months of 2020 have seen significant global market turmoil triggered by the outbreak of the coronavirus. Together with other factors, this has resulted in a sharp decrease in the oil price and the stock market indices, as well as a depreciation of the Russian Rouble. These developments are further increasing the level of uncertainty in the Russian business environment. It is not possible to evaluate the economic effect of the ongoing situation at the moment of the issue of the summary consolidated financial report. Deterioration in credit quality of corporate borrowers in particular industries and creditworthiness of population will be observed.

The CBR takes measures to support the banking system which will additionally help to meet all regulatory requirements.

The consolidated financial statements reflect management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from the management’s assessment.

(c) Basis of measurement

The consolidated financial statements are prepared on the historical cost basis except for financial instruments at FVTPL and at FVOCI.

(d) Functional and presentation currency

The functional currency of the Bank and the majority of its subsidiaries is the Russian ruble (the RUB) as, being the national currency of the Russian Federation, it reflects the economic conditions of the majority of underlying events and circumstances relevant to them.

Some of the Group’s principal subsidiaries have functional currency different from the Russian ruble:

Name Functional currency
Gazprombank (Switzerland) Ltd. Swiss franc
Bank GPB International S.A. Euro
ŠKODA JS a.s. Czech crown
Centrex Europe Energy & Gas AG Euro

The summary consolidated financial statements are presented in millions of RUB, unless otherwise stated.

(e) Changes in accounting policies

The Group has initially adopted IFRS 16 “Leases” from 1 January 2019. A number of other new standards are also effective from 1 January 2019 and do not have a material effect on the Group’s summary consolidated financial statements.

IFRS 16 “Leases”

The Group applied IFRS 16 using the modified retrospective approach. This approach implies recognition of the cumulative effect of adopting IFRS 16 as an adjustment to the opening balance of retained earnings as at 1 January 2019, with no restatement of comparative information.

IFRS 16 replaces existing leases guidance, including IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, SIC-15 “Operating Leases — Incentives” and SIC-27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease”

(i) Description and accounting for the Group’s leasing activities

The Group leases various office premises, production premises, cars and other assets. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be pledged under borrowings.

Until 1 January 2019, the Group classified lease agreements, where it acted as a lessee, as either operating or finance leases. The Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.

From 1 January 2019 a single, on-balance sheet lease accounting model for lessees is introduced. Based on this model the Group recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Besides, the type of expenses associated with the lease agreements has changed: in accordance with IFRS 16 the Group recognises depreciation charge for right-of-use assets and interest expense on lease liabilities instead of rent expenses, evenly recognised during the term of the agreement.

On initial recognition lease liability is measured at the present value of the future lease payments at the date discounted for a lease term using the interest rate implicit in the lease, if that rate can be readily determined, or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate. Subsequently the lease liability is measured at amortised cost using the effective interest rate method.

On initial recognition right-of-use asset is measured at cost, which comprises the amount of the initial measurement of the lease liability adjusted by any lease payments made at or before the commencement date, less any lease incentives received, by any initial direct costs incurred and by an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of lease. Subsequently the right-of-use asset is depreciated on a straight-line basis. The right-of-use asset is depreciated from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term

The Group does not recognise the right-of-use asset and the lease liability for short-term leases and for leases for which the underlying asset is of low value. Lease expenses are recongised on a straight-line basis over the term of the lease for such agreements.

(ii) Practical expedients applied

The Group applied the practical expedient to grandfather the definition of a lease on transition. This means that the Group applied IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4

Moreover, the Group has used the following practical expedients on transition:

  • the use of a single discount rate to a portfolio of leases with reasonably similar characteristics
  • reliance on previous assessments on whether leases are onerous in accordance with IAS 37 «Provisions, Contingent Liabilities and Contingent Assets»
  • the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases
  • the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and
  • the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

(f) Transition to IFRS 16

On adoption of IFRS 16 as at 1 January 2019 the Group recognised lease liabilities in the amount of RUB 24 337 million within “Other liabilities” and right-of-use assets in the amount of RUB 24 103 million within “Property, plant and equipment and right-of-use assets”. The Group measured the right-of-use assets at the amount equal to the lease liability (adjusted by the amount of any prepaid lease payments as at 1 January 2019 and other balance adjustments), so there is no adjustment to the retained earnings opening balance.

Financial expenses are reported as “Interest expenses” in the statement of profit or loss and other comprehensive income. Depreciation of right-of-use assets is reported as “Banking administrative expenses” and “Non-banking operating expenses” in the statement of profit or loss and other comprehensive income. The total cash outflow from finance lease obligations is reported as “Lease liabilities redeemed” in the statement of cash flows. The weighted average discount rate applied by the Group when measuring the lease liabilities as at 1 January 2019 equals to 7.7%.

1 January 2019
Operating lease commitment as at 31 December 2018 as disclosed in the consolidated financial statements 35 528
Recognition practical exemption for:
– short-term leases (1 439)
– leases of low-value assets (670)
– other operating lease commitments (3 051)
Operating lease commitment as at 31 December 2018 as disclosed in the consolidated financial statements excluding those for which recognition exemption is applied 30 368
Discounted lease liabilities recognised as at 1 January 2019 24 337
 

(g) Change in presentation of comparative information

The table below shows the reclassifications made in the summary consolidated statement of financial position as at 31 December 2018 to conform with the changes in presentation in the summary consolidated financial statement as at 31 December 2019.

Summary consolidated statement of financial position before reclassification Summary consolidated statement of financial position after reclassification Amount
Intangibles Rights for audio-visual products 41 730
Intangibles Intangibles 22 934
Total intangibles 64 664
Other assets Other assets 29 659
Other assets Assets held for sale 16 986
Total other assets 46 645
 

In 2019, the Group changed the presentation of rights for audio-visual products and presented them separately in the summary consolidated statement of financial position, since, unlike other types of intangible assets, rights for audio-visual products are production assets that can generate income for the Group and are relatively liquid, since they have a market for sale.

Assets held for sale are presented as separate caption in the summary consolidated statement of financial position due to their growth in 2019.

Signed on behalf of the Management Board

Andrey I. Akimov
Chairman of the Management Board

Alexander I. Sobol
Deputy Chairman of the Management Board

14 May 2020

Reference Information