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Annual report 2008

CJSC VTB Bank (Belarus)

Contents

Address of the Chairman of the Board 2Major Achievements in 2008 5Equity Capital 6Key Indices and Financial Results 6Indicators of Efficiency 7Credit Policy 8Corporate Block 10Foreign Economic Policies, International Settlements and Correspondent Relations 12Major Correspondent Banks 13Exchequer Operations 16Activities in the Interbank Market 16Securities Trading 16Forex Transactions 17Retail Products and Services 19Small Business 20Deposits of the Population 20Card Products 21Lending Money to the Population 21Regional Network 23IT Development 25Internal Control and Risk Management 26Organization of Internal Control 26Risk Management 27Personnel Management Policies 30Charity and Sponsorship 32Development Directions for 2009 33Shareholders of the Bank 34The Board of Directors 35The Board of the Bank 35General Information on the Bank 36Address Block 36CJSC VTB Bank (Belarus)Consolidated Financial Statements 38Independent Auditors’ Report 39Consolidated Balance Sheetas of 31 December 2008 40Consolidated Income Statement for the year ended 31 December 2008 41Consolidated Statement of Changes in Equity for the year ended 31 December 2008 42Consolidated Cash Flow Statement for the year ended 31 December 2008 43

4


44

From Right Decisions To Successful Results

5

Major Achievements in 2008

Major Achievements

in 2008

During the last months of 2008 the economy of Belarus had to function under the influence of the world economic crisis. Despite this, the growth of the GDP for the accounting year stood at 110%, the increase in the volume of investments reached 123,1%, the real wages of the population increased by 12,3%.

The world financial crisis dictated the necessity to make adjustments not only to the functioning of the national economy, but also to that of its banking sector, the activity of which best reflects the level of business activity in other fields. The development of the banking sector and the dynamics of the quantitative parameters are largely affected by the pace of development of the national economy, which is characterized by such crucial features as the volume of the gross domestic product, the dynamics of the balances of trade and payments, the inflation level, the exchange rate, the market interest rates, the ratio of cash to clearing settlements.

In accordance with the results of 2008, one may state that the key parameters of the Bank’s development specified by the Major Guidelines of the Monetary

Policy of the Banking Sector were achieved. Thus, the volume of bank credits issued in the accounting year increased by more than 1,5 times, the resources of the national banks grew by 42%, the payment system functioned smoothly. The inflow of foreign investments to the banking sector of the country was on a noticeable rise, the authorized funds of the Belarusian banks increased by more than 2 times (or by BYR 4 billion).

CJSC VTB Bank (Belarus) made a considerable contribution to the strengthening of the Belarusian banking system, displaying a speedy and dynamic developmental pace, being geared, first and foremost, towards satisfying the national economy‘s real needs. Generally speaking, the indices achieved by CJSC VTB Bank (Belarus) in 2008 proved the high level of its performance efficiency. In 2008 CJSC VTB Bank (Belarus) achieved all the development parameters established by the National Bank of the Republic of Belarus. The safety standards introduced by it were monthly implemented and CJSC VTB Bank (Belarus) persistently racked up resources, increased its assets and profits.

6


Key Indices and Financial ResultsThe resources attracted by CJSC VTB Bank (Belarus), in fact, increased by more than 2 times over the report year and totaled, in money terms, BYR 1,2 billion. The assets rose by 1,9 times and amounted to BYR 1,3 billion as of January 1, 2009.

Among our best achievements, undoubtedly, are the following: the increase of the volume of the resources attracted from corporate clients by 1,5 times (up to BYR 546 milliard), the growth of the credit portfolio of corporate clients by 1,9 times (almost up to BYR 700 milliard), the increase by 1,8 times in the volume of the resources attracted from the population (up to BYR 143,1 milliard), the growth by 4 times (up to BYR 206 milliard) n the volume of credits advanced to natural persons. The policy professionally conducted by CJSC VTB Bank (Belarus) enabled it to make a profit in the amount of BYR 19,7 milliard in the accounting period, and this is 27,1% more as against 2007

Indices 2007 2008 Accretion for 2008 (%)

CJSC VTB Bank’s liabilities 578,1 1152,6 99,3

Clients resources 445,5 689,2 54,7

Assets 698,1 1339,9 91,9

Credits advanced to clients 420,2 892,2 112,3

Profit 15,5 19,7 27,1

Equity Capital In March 2008 a subordinated credit in the amount of USD 30 million was advanced by JSC op. VTB Bank. Due to an additional emission the authorized fund of CJSC VTB Bank (Belarus) was more than doubled, and reached the figure of approximately BYR 84,3 milliard. The Government’s share, nevertheless, remained intact, constituting 25,9%. The stake of the chief shareholder, JSC op. VTB Bank (Russia) grew up to 69,7%. All this made it possible for CJSC VTB Bank (Belarus) to increase its equity capital up to BYR 187,3 milliard.

Authorized Fund Behaviour (in BYR milliard)

01.01.2009

01.01.2008

40,0

84,3

01.01.2008

01.01.2009

120,1

187,3

Equity Capital Behaviour (in BYR milliard)

7

Major Achievements in 2008

Indicators of EfficiencyIn 2008 CJSC VTB Bank (Belarus) made a good showing which resulted in its achievement of the annual parameters of development specified by the Major Guidelines of the Monetary Policy of the Republic of Belarus for 2008. The profitability of its equity capital reached 11,4%, and that of its assets amounted to 1,9 %.

The increase in the Bank’s major financial indices was inevitably accompanied by the Bank’s strict observance of the reliability standards adopted in the banking system.

As of January 1, 2009 the norms of CJSC VTB Bank (Belarus) were as follows:

The successful development of CJSC VTB Bank (Belarus) in 2008 entailed an increase in its share in the financial market of the Republic of Belarus by some indices (such as the Bank’s resources, inclusive of its clients’ resources and its credit portfolio). CJSC VTB Bank (Belarus) persistently ranks eighth among other Belarusian banks.

That CJSC VTB Bank (Belarus) performed steadily and efficiently in 2008 might be proved by another important factor. At the end of the said year Fitch Ratings confirmed the ratings of CJSC VTB Bank (Belarus) in accordance with which the long-term rating of the emitter's default (the “RED”) was “V”, the short-term RED was “V”, the individual rating was “E”, and the rating of support was “4”. The long-term RED is likely to be assessed as “Stable”. The rating indicators in question are considered to be the highest in the banking system of the Republic of Belarus.

• sufficiency of its normative capital made 22,9% (not less than 8% at the established standard);

• sufficiency of its fixed capital made 13,0% (not less than 4% at the established standard);

• instant liquidity made 146,4% (not less than 20% at the established standard);

• current liquidity made 124,0% (not less than 70% at the established standard);

• short-term liquidity made 1,7 (not less than 1,0 at the established standard);

• the ratio of its liquid liquids to its total assets made 32,0% (not less than 20,0% at the established standard).

8


Credit Policy

The availability of highly-qualified personnel, the extension of the service network, a flexible and operational cooperation with its clients enabled CJSC VTB Bank (Belarus) to enlarge its clientele considerably. All the above allowed it also to build up very noticeably its credit portfolio. As against 2007 the credit portfolio of CJSC VTB Bank (Belarus) increased by more than 1,6 times and made BYR 693,6 milliard.

Day-to-day operation of the clients of CJSC VTB Bank (Belarus) was financed by way of short-term and long-term crediting. Large credit lines were opened for such enterprises as JSC op. Mozyr-based OPP, FE Unis OIL, FE Univest-M, FE Slavneftechim, JSC op. Mostodrev, JSC op. Gomel-based Chemical Plant, JSC op. Grodno Azot, JSC op. Grodno Chimvolokno as well as for the enterprises subordinated to RUE Belorusneft, RUE Minskenergo, RUE Brestenergo, and RUE Grodnoenergo.

Long-term credits still constitute a considerable share in the credit portfolio, amounting to 45,3%.

Long-term credits were used to finance the purchase of technological equipment and basic production assets, the construction of office premises, the reconstruction of the existing production facilities and the creation of the new ones.

In 2008 credits continued to be extended to leasing companies, with the volume of the relative credit facilities increased by almost 2 times.

In 2008 CJSC VTB Bank (Belarus) kept paying considerable attention to the diversification of the credit portfolio gained through taking into consideration the sectors its borrowers be-longed to. The above approach insured sustain-ability and decreased possible risks.

Crediting of the real sector of the national economy remained one of the priority strategic directions in the activities of CJSC VTB Bank (Belarus) in 2008.

Among the borrowers of CJSC VTB Bank (Belarus) one can find enterprises of the petrochemical, fuel and energy, and machine-building complexes, those of the agricultural sector, as well as building companies and sales organizations. задолженности в млрд. руб.) на 01.01.09г.

9

Address of the Chairman of the Board

5,8

36,3

205,8

281,6

158,7

Other kinds of activity

Trade and public catering

Industry

Construction

Agriculture

Address of the Chairman of the Board

9

The structure of the credit portfolio by the types of currency (in %) as of January 1, 2009.

Credits in foreign currency

Credits in BYR

59,4

40,6

The structure of the credit portfolio by the kinds of activity (residual debt in milliard roubles) as of Janu-ary 1, 2009

The report year witnessed changes in distributing the credit portfolio by the types of currency. Thus, the share of credits denominated in the national currency decreased, while that denominated in foreign currency increased in comparison with the data as of January 1, 2008. 01.01.09г.

In 2008 CJSC VTB Bank (Belarus) continued its policy of aggressively handling such type of transactions as giving credit guarantees. For example, It granted its clients tender, performance and customs guarantees, and provided cargo carriers with the “AIRC” guarantees.

As of January 1, 2009 the total sum of the furnished guarantees exceeded BYR 20 milliard, and that was actually 7 times more than the analogous indicator as of the beginning of 2008.

Due to a considerable increase in the demand of the enterprises of the real sector of the national economy for financial backup, CJSC VTB Bank (Belarus) activated its effort aimed at attracting foreign resources, in particular the resources of JSC op. VTB Bank. The above resources were intended mainly for the petrochemical and power industries. Besides, CJSC VTB Bank (Belarus) assisted the enterprises belonging to the above industries in obtaining credits directly from foreign banks – members of VTB Group.

In 2008 CJSC VTB Bank (Belarus) was also concentrated on the issues related to risk management, which enabled it to minimize risks that might arise from the borrowers defaulting on their obligations, and to reduce the share of the Bank’s doubtful assets in the total quantity of assets liable to credit risk up to 0,75%, with this indicator being far lower than the relative standard parameter established by the National Bank of the Republic of Belarus.

10


Corporate Block

The stable growth of the clientele recorded over the recent years indicates that CJSC VTB Bank (Belarus) enjoys a well-established reputation of a reliable partner.

A permanent growth in the number of clients serviced by CJSC VTB Bank (Belarus) and an increase in the resources on their accounts with the Bank is convincing evidence that the Bank pursues a flexible and effective policy towards its clientele. Thus, in the report year the number of the Bank’s clients went up by 39% and totaled 3 887 persons.

In the year under review CJSC VTB Bank (Belarus) changed very considerably its client policy in accordance with which the process of segmentation was undertaken and a universal information database of corporate clients sorted out on the basis of their sectoral and regional belonging and the volumes of their business was elaborated.

Again, in 2008 CJSC VTB Bank (Belarus) was persistently enhancing its system of client servicing by offering its clients bank products and services adjusted to their specific needs and by insuring a high level of safety of handled transactions. Being well aware of the market situation we never fail to effectively manage the financial resources of our clients.

All the activities carried out by CJSC VTB Bank (Belarus) are strategically oriented at client. Our clients are sure to enjoy efficient, technologically advanced and successively operating decision-making machinery, lack of bureaucratic barriers, and a flexible tariff policy. Let us add to this our

caring, respectful attitude and an individualized approach towards all our clients. In the report year the Bank initiated the establishment of an institute of highly qualified client managers responsible for a client individual servicing and the development of business relations with corporate clients.

A client manager is a number one person with whom a client gets in touch when necessary and who is to help the client settle all the problems he may be faced up with. It is in this way that our bank builds up relations with its clients instilling trust in them by doing so

Traditionally CJSC VTB Bank (Belarus) is known to have developed very strong ties with its clients belonging to the petrochemical industry of the national economy. During 2008 the Bank allocated considerable resources for crediting JSC op. Mozyr-based OPP, JSC op. Polimir, JSC op. Grodno Azot, JSC op. Grodno Chimvolokno of the concern Belneftechim.

The largest operators of cellular communication FE Velcom and JLLC Mobile TeleSystems are well established clients of CJSC VTB Bank (Belarus).

In this respect what makes the report year particularly remarkable is that the Bank established very promising business ties with CJSC Belarusian Oil Company, and RUE Belarusian Metallurgical Plant.

11

Corporate Block

Besides, in the accounting period CJSC VTB Bank (Belarus) supplied Belarusian transport companies with an all-round support. In May 2008 CJSC VTB Bank (Belarus) and the Association of International Road Carriers “AIRC” signed an agreement on cooperation in the sphere of financing and servicing investment projects.

The Bank’s clientele is represented by enterprises and holdings belonging to the following sectors of the national economy (as of January 1, 2009)

Trade and commerce 47.15%

Other kinds of production 8.77%

Leasing companies and other financial institutions 7.89%

Construction, accompanying operations, and production of building materials 6.8%

Other services 5.7%

Food-processing industry and agriculture 4.17%

Chemical industry 2.85%

Property management, including hotel business 2.63%

Light industry 2.41%

Insurance 2.41%

Forest, woodwork and timber, and paper industries 2.19%

Transport services 2.19%

Oil industry (including the oil pipeline) 1.75%

Other types of activity 1.32%

Machine building 1.1%

Telecommunications services 0,66%

CJSC VTB Bank (Belarus) works for perspective, and is strongly convinced that the clients established and developing with its help speak loudest in its favour.

12


Foreign Economic Policies, International

Settlements and Correspondent Relations

In 2008 CJSC VTB Bank (Belarus) activated its correspondent relations.

In the report period CJSC VTB Bank (Belarus) employed a systematized approach towards establishing business contacts with banks of the European Union, Russia, China, India and other countries. The Bank has established and has been holding correspondent relations with 260 banks in 35 countries of the world by now. In the report year, for the purpose of handling the Bank’s projects, correspondent relations were established with 100 banks. To improve the Bank’s activity in the sphere of correspondent relations the volume of the quotas set for the Bank in 2008 was raised considerably totalling USD 400 million as of the end of the said year. CJSC VTB Bank (Belarus) has set quotas for 46 banks-counterparts.

In 2008 CJSC VTB Bank (Belarus) by using its developed correspon-dent network optimized the schemes of international settlements to the effect that payment orders of the Bank’s clients were to be fulfilled without delay and the Bank’s related expenses were to be reduced.

The accounting year was also successful for the CJSC VTB Bank (Belarus) from the angle of international financing.

The total volume of credit lines on trade financing opened by foreign banks for CJSC VTB Bank (Belarus) in 2008 reached USD 141,5 million in equivalent in comparison with USD 72,4 million in 2007.

In 2008 CJSC VTB Bank (Belarus) still used documentary credit operations for financing international contracts of its clients. The volume of settlements on documentary credit operations (Letters of Credit and/or guarantees) effected by the Bank in the report year amounted to USD 319,15 million in equivalent.

Due to the reputation of CJSC VTB Bank (Belarus) as a reliable partner in the sphere of international and intrarepublican settlements the number of exchange payments done via the Bank is constantly growing.

Thus, the volume of outgoing payments in USD made through American correspondent banks in 2008 increased by 12 % as against 2007, and totaled USD 6,1 milliard.

International settlements are reported to have expanded geographically, and in 2008 European banks were also involved in effecting payments in USD.

With regard to settlements in EUR the volume of payments made in this currency through German banks in 2008 raised by 4 times in comparison with that of 2007 and totaled approximately EUR 1 milliard.

CJSC VTB Bank (Belarus) and its Russian partners normally effect settlements in RUB. The volume of settlements through Russian banks

13

Foreign Economic Policies, International Settlements and Correspondent Relations

Major Correspondent Banks

CJSC VTB Bank (Belarus) and its Russian partners normally effect settlements in RUB. The volume of settlements through Russian banks. in 2008 went up by 3 times as against 2007, making RUB 15,7 milliard.

Within the accounting period besides such widely used currency as EUR and USD other currencies were used while effecting settlements. Thus, in 2008 payments were repeatedly made in GBP, PLZ, CHF, JPY, and UKH.

• Citibank NA, New York, the USA

• Deutsche Bank Trust Company Americas, New York, the USA

• Deutsche Bank AG, Frankfurt-on-Maine, Germany

• Deutsche Bank AG, London, Great Britain

• Commerzbank AG, Frankfurt-on-Maine, Germany

• VTB Bank (Deutschland), Frankfurt-on-Maine, Germany

• CJSC VTB Bank, Moscow, the Russian Federation

• Savings Bank of the Russian Federation, Moscow, the Russian Federation

• JSC op. Gazprombank, Moscow, the Russian Federation

• Bank Handlowy w Warszawie SA, Warsaw, Poland

• JSC op. VTB Bank, Kiev, Ukraine

• SEB Bankas, Vilnius, Lithuania

• JCB Rietumu Banka, Riga, Latvia

• JSC op. JSSB Belarusbank, Minsk, the Republic of Belarus

• JSC op. Belvnesheconombank, Minsk, the Republic of Belarus

• JSC op. Priorbank, Minsk, the Republic of Belarus

• JSC op. BPS-Bank, Minsk, the Republic of Belarus

14

From Stability To Prosperity

16


Activities in the Interbank MarketCJSC VTB Bank (Belarus) is a key player both in the domestic and international money markets. In 2008 the Bank took active measures designed to raise funds in the interbank market and necessitated by a considerable growth of the Bank’s credit portfolio. While conducting operations in interbank markets the Bank is guided by a weighted limit policy and high requirements to the reliability of banks-counterparts.

In 2008 year up to 400 purchase and sale transactions, exchange conversion deals and about 1500 transactions on placing (raising) funds in foreign currency through the system REUTERS were concluded, both at the request of the Bank’s clients and at the expense of their own resources.

The said transactions were concluded with banks – residents and nonresidents of the Republic of Belarus. Thus, the share of conversion deals with nonresident banks constituted about 60% of the total volume of the Bank’s transactions.

All the year round the Bank executed successfully the operational regulation of its intraday liquidity, creating favourable conditions for an uninterrupted execution of payments both in foreign currency and in BYR.

It is intended to further improve and extend the range of exchequer operations

handled in the financial markets, to search for new forms of cooperation in the interbank market taking

Exchequer

Operations

01.01.2008

01.01.2009

47,5

37,3

Securities Portfolio (in BYR milliard)

into account individual peculiarities of banks-counterparts and the specific nature of the laws of the countries where nonresident banks are registered. All the above mentioned will enable the Bank to integrate still deeper into the international market of bank services.

Securities Trading

The major strategy pursued by CJSC VTB Bank (Belarus) in the securities market in the accounting year consisted in investing its own resources and those of its clients in the most profitable and risk-free financial instruments. The said strategy resulted in the increase of the Bank’s portfolio of the state securities possessed by the Bank and the securities of the National Bank of the Republic of Belarus. In comparison with 2007 its volume in cost terms

increased by 1.3 times and made BYR 47,5 milliard as of January 1, 2009.

The number of transactions handled by the Bank in the securities market in the accounting year amounted to BYR 1 238, 7 milliard. Receipts from investments in securities exceeded BYR 3,5 milliard.

In 2008 the Bank marketed 29 deposits of certificate of its own for the total sum of BYR 43,3 milliard. In the report year the Bank still served in the capacity of an agent for the placement of bonds of the National Lottery Currency Loan of the Republic of Belarus. During the accounting period the ninth-issue bonds were placed.

17

Exchequer Operations

Forex TransactionsIn 2008 the volume of forex transactions of CJSC VTB Bank (Belarus) with legal entities made in the local exchange market at the expense and on behalf of the Bank’s clients was steadily increasing.

The volume of deals with purchase and sale of financial instruments closed on the trading floor of JSC op. Belarusian Monetary-Stock Exchange grew as considerably as anything and stood at 60% as against 2007. In the overall volume of such transactions the volume of tenders for the purchase

of foreign currency held at JSC op. Belarusian Monetary-Stock Exchange with the participation of the Bank’s clients went up very noticeably (actually, by 2,5 times).

While handling transactions in the secondary market CJSC VTB Bank (Belarus) is set on pursuing the policy of qualitatively and timely satisfying its clients’ demands for forex transactions.

18


1818

From Challenging Startups To leadership in Business

19

Retail Products and Services

Retail Products and

Services

One of the priority lines in the development of CJSC VTB Bank (Belarus) is retail business.

Applying the technologies of CJSC VTB Bank (Russia), the Bank’s major shareholder, and the best experience accumulated by it, enjoying a high level of professionalism of its own personnel, and rendering an optimum range of services enables CJSC VTB Bank (Belarus) to meet its clients’ requirements to the fullest extent possible.

In 2008 the Bank was gradually achieving high levels of growth in all aspects of retail business development, introducing innovative approaches in some spheres, offering the market its exclusive products and a higher degree of servicing.

The establishment at the end of 2008 of the Centre of Client Support allowed the Bank to make its services highly accessible to the population and to respond efficiently and promptly to its inquiries and expectations.

20


Small BusinessSince June 2008 CJSC VTB (Belarus) has been furnishing credits under a specifically-designed programme of crediting small business.

The said programme is aimed at enhancing the quality of services rendered to small businesses through the fullest provision possible of target client-oriented products, with the above approach being based on the principles of simplicity, accessibility, and efficiency.

Within the framework of the programme a range of standardized credit products has been developed; unique methods of cooperation with small businesses proven to be effective when employed by the other members of VTB Group have been established.

Credits of CJSC VTB Bank (Belarus) intended for small business are highly demanded by private enterprises and individual entrepreneurs of the Republic of Belarus. For the first half of the report year alone about 200 credits were advanced, which in money terms amounted to more than BYR 14 milliard.

Deposits of the Population In the accounting period the volume of the resources of the population placed with CSJC VTB Bank (Belarus) raised by almost 80%, exceeding BYR 143 milliard. At the same time, the Bank’s share in the market of deposits of natural persons increased by more than 1,4 times.

The above data testify to the fact that under unstable conditions people place a high degree of trust in CJSC VTB Bank (Belarus). Another evidence of the growing trust of the population in the Bank is that the number of clients willing to redeposit their funds for a new term is constantly increasing as well as the number

of those clients who have addressed the Bank more than once.

Among other factors influencing the level of efficiency of the Bank’s performance in 2008 in the market of deposits of natural persons were as follows: an increase in the population’s real income; a strengthening stability of the banking sector of the Republic of Belarus; formation of the legal basis for protecting depositors’ interests; availability of a wide range of bank deposits.

CJSC VTB Bank (Belarus) has elaborated a flexible and a convenient deposit range which makes it possible for a depositor to monitor his deposits himself. In 2008 the Bank serviced deposits denominated in BYR, RUB, USD, and EUR, the deposit period ranging from 31 days to 5 years. With a view to meeting the population’s requirements to a fuller degree the Bank periodically upgraded deposit conditions, raised rates of interest on the current deposits, and introduced new types of deposits.

In 2008 the following types of deposits enjoyed the highest popularity among the population: the “Skarbonka”, the “Exact Calculation”, and the “Convenient”. The share of foreign currency deposits in the volume of natural persons’ deposits is the largest.

01.01.09

01.01.08

BYR Foreign currency0

30

60

90

120

150

15,621,6

65,1

121,5

The dynamics of the resources belonging to natural persons in respect of foreign currency, in BYR milliard

21

Retail Products and Services

Quickly responding to the changes in the market situation, constantly upgrading its deposit terms, and offering clients its best conditions for the placement of their resources enabled CJSC VTB Bank (Belarus) from month to month to dynamically build up its deposit portfolio, with the speed of the buildup exceeding that of the market itself.

0

5

10

15

20

25

30

The speed of the Bank accretion

The speed of the market accretion

quarter 4quarter 3quarter 2 quarter 1

12,75

9,3 8,8

5,9

– 0,4

14,7

10,9

25

Quarterly speed of the accretion of the popu-lation’s resources in 2008 (in %)

Further development of the Bank’s network and a remarkable service quality enhancement considerably raised depositors’ interest in the Bank. The Bank’s outlets function without dinner breaks, and their working hours on week days are from 9 a.m. to 7 p.m., and on Saturdays – from 10 a.m. to 4 p.m.

Card ProductsIn 2008 CJSC VTB Bank (Belarus) joined the international payment system VISA International in the capacity of a Principal Member.

At the current time the Bank is undergoing the period of certification of conformance with VISA, intending to back up clearing settlements through using international plastic cards in the future.

As of January 1, 2009 the Oilcard network included:

In parallel, CJSC VTB Bank (Belarus) was elaborating measures to support its electronic payment system requiring the application of bank microprocessor Oilcard plastic cards.

• 13 automatic teller machines • 23 infokiosks• 14 outlets delivering cash • 40 bank stations to effect clearing settlements • 181 payment terminals at trade and services

enterprises.

Recently an annual rate of growth of the number of card-accounts has been more than 108%. In 2008 more than 830 thousand transactions were handled via bank cards.

Lending Money to the Population In 2008 CJSC VTB Bank (Belarus) considerably built up its portfolio of retail credits. The Bank lent money to the population to purchase motor transport, provided for mortgage credit lending, advanced overdraft credits by credit cards.

The speed with which the Bank’s retail credit portfolio accrued several times exceeded the speed with which the market itself developed.

22


Behaviour of indebtedness under credits of natural persons in 2008 (in %)

0

25

50

75

100

125

150

The speed of the Bank accretion

The speed of the market accretion

8,214,9 15,2

10,4

32,2

63,3 62,9

15,1

quarter 4quarter 3quarter 2 quarter 1

In 2008 the Bank’s special attention was drawn to the optimization of its retail credit portfolio in respect of both products and foreign currency. The structure of the retail credit portfolio in respect of foreign currency somewhat changed in the accounting year. Thus, if at the beginning of 2008 the BYR credits to foreign currency ratio was 49,6% to 50,4%, at the end of the year the analogous index was 30,7% to 69,3%. In the report year the speed of growth of BYR credits furnished to natural persons made 248%, that of foreign currency credits stood at 553%.

Most often credits advanced to the population were used for purchasing cars and financing real property.

In particular, the Bank’s credit portfolio in respect of crediting car purchase in 2008 grew by more than 5 times and as of January 1, 2009 amounted to BYR 110,1 milliard.

Besides, CJSC VTB Bank (Belarus) was one of the first Belarusian banks to start advancing credits for the purchase of motor transport in RUB.

In February 2008 CJSC VTB Bank (Belarus) launched a new product – crediting the purchase of apartments in the secondary housing market. That the Bank advanced credits without requiring official income confirmation, and charging accompanying commission, with the initial contributions being low, made the Bank one of the leaders in the market of mortgage credit lending.

Efficient cooperation with motorcar showrooms, insurance companies, and real property agents in the report year enabled the Bank to meet its clients’ requirements to the fullest extent possible, and as a result, to increase its share in the market of crediting natural persons by more than 2,5 times.

In the report year the overall quantity of credits given to natural persons increased by 4 times.

In 2009 the Bank plans to strengthen its retail segment and to hold on to its share of presence in the market.

0 25 50 75 100 125 150

BYR

Foreign currency

01.01.2009

01.01.2008

25,4

63,0

25,8

142,6

Behaviour of the retail credit portfolio in respect of foreign currency, in BYR milliard

23

Regional Network

Regional Network

Another direction that the Bank prioritized on in 2008 was the establishment of a developed regional network. In the accounting period CJSC VTB Bank (Belarus) opened new points of sale and additional offices. The developed regional network does not only speak in favour of the Bank’s high potential, it also displays the Bank’s desire to be closer to its clients.

A tendency that marked the report year was optimization of bank regional networks. When the number of points of sale grow, their status changes. For example, bank branches acquire the status of bank service centres, cash departments, additional offices, etc. CJSC VTB Bank (Belarus) carefully studied every tendency displayed in the market and that enabled it to offer its clients the most convenient service formats in the newly opened points of sale.

In 2008 CJSC VTB Bank Belarus) opened 7 new branches in different regions of the country. As of January 1, 2009 it had 6 branches and 9 additional offices (in Minsk, Mogilev, Grodno, Brest, Bereza, and in the settlement of Kolodischi of the Minsk region), a central bank department (CBD) and cash departments (CDs) in Novopolotsk and Brest), 16 operational cash departments outside the cash departments centre throughout the length of the country.

The branches service about 75% of the total number of the clientele of CJSC VTB Bank (Belarus).

The increase of the Bank client base by 40% which actually makes up to 3000 persons enabled the Bank to improve considerably its activity indices.

Thus, 49,8% of the Bank resources are constituted by the resources of its branches, with the branch assets comprising 31,6% of the overall assets as of January 1, 2009.

In 2009 CJSC VTB Bank (Belarus) is inclined to be choosy while establishing new regional branches. Thus, it plans to open additional offices in Minsk, in district (Vitebsk and Brest) and in large regional centres (Svetlogorsk and Soligorsk).

24


From High Technologies To Dynamic Development

25

IT Development

IT Development

In 2008 bank business was developing very rapidly. In the conditions of the booming market CJSC VTB Bank (Belarus) responded to the altering business processes without delay and in a manner these alterations could best contribute to the fulfillment of the tasks set by the Bank. In the report year the development of information technologies was aimed at enhancing the quality of the Bank’s services and widening their range. The Bank was invariably keen on insuring the reliability of the transactions handled.

As the Bank has always been prioritizing on providing legal and natural persons with its first-class services, further development of electronic technologies, and safe effect of settlement procedures, together with modification of software products will ever hold in the focus of the Bank’s very special attention.

The report year is characterized by further development and extension of the system of electronic payments “Client – Bank”. Measures to ensure its clients’ access to the above system via the Internet were underway. As of the end of the accounting period this system was used by more than 580 clients of the Bank (in comparison with 300 clients as of the end of 2007). The system makes it possible to optimize management of clients’ financial resources, to speed up their turnover, and to reduce the cost of data processing. In its practical work the Bank has long been applying the system “Client – Bank” and the Internet banking which application has already acquired a traditional tint, enabling the Bank’s clients to employ simpler patterns in their cooperation with the Bank. A consulting research into the Bank’s business processes carried out at the beginning of 2008 entailed their further

optimization. As a result, new functional operations were elaborated and a JSS-type bank migrated onto the integrated Огасlе platform-based banking system SC-Bank NT.

The accounting year saw a successive extension of IT application, embracing practically all the Bank’s activities, to say nothing of IT further upgrading. Thus, in 2008 a studio of videoconference facilities was set up and zealously employed by the Bank’s branches to expand their cooperative effort with VTB Bank (Moscow) on joint projects. Works to increase the throughput of the communication channels between the central bank and its branches and to arrange their reservation were held. A singled out protected channel of communication with VTB 24 (Moscow) was constructed. A great deal of effort and thought was given to IT improvement in accordance with modern requirements and the Bank’s development plans.

It should be stressed that IT may be referred to as a powerful tool in competitive struggles. With regard to retail services development the launch of brand new IT projects becomes a challengingly important task.

26


Internal Control

and Risk Management

Organization of Internal ControlTo ensure safe and sound functioning of CJSC VTB Bank (Belarus), to protect the interests of its shareholders and clients, and to monitor permanently the system of its internal control the Internal Auditor Service has been set up.

During 2008 the Internal Auditor Service monitored regularly the way the Bank’s system of internal control functioned, among other things carrying out the following: checking the degree of volume and efficiency of methodological approaches towards managing risks and risk management procedures; identifying the Bank’s transactions; analyzing the outcomes of the handled transactions and those of the other types of the Bank’s activity; confirming the truth, completeness, objectivity and timeliness of the documentation and other data submitted in line with the laws of the Republic of Belarus. On the basis of the received results the financial status of the Bank as well as that of its subdivisions was appreciated, and the taken risks were graded. The Internal Auditor Service informs regularly the Bank’s collegial bodies whether the information on the handled transactions presented in the bookkeeping documentation corresponds to the true nature of them arisen from their economic expediency. It also furnishes a general analysis of the financial and economic activities implemented by the Bank’s subdivisions.

Internal Control Goals

• The Bank’s system of internal control is aimed at providing for efficiency and high economic and financial results while carrying out bank operations and/or risk managing deals, supervising assets and liabilities, maintaining assets; ensuring the truth, completeness, objectivity, and timeliness of bookkeeping, financial, statistical and other documents drawn up and submitted for internal and external users; insuring financial security;

• assuring the observance of the laws of the Republic of Belarus, the Bank’s normative-legal acts, regulations and orders of the Bank’s authorities and its top manager by the Bank ‘s employees;

• preventing the Bank from being involved in illegal financial operations; hindering the Bank’s participation in operations attempted at legalizing fraudulent gains and financing terrorist activity.

Internal Control Lines

• The system of the Bank’s internal control embraces: • risk management control; • control over the distribution of functions among

the Bank’s subdivisions and over that of duties and responsibilities among the Bank’s personnel;

• control over information flows management (information receipt and transmission);

• control over the operation of the automated information systems and technical means;

• monitoring of the Bank’s internal control system.

27

Internal Control and Risk Management

Risk Management In order to insure a stable and effective performance a complex system of major risks management (credit, market, liquidity and operational risks) is created in CJSC VTB Bank (Belarus). The purpose of the system is to identify, assess and limit carried risks and to exert control over their volume and structure.

Among the key principles of risk management adhered to by CJSC VTB Bank (Belarus) the following ones are to be mentioned:

• a clear distribution of duties among the Bank’s authorized managerial bodies and its executive officers in the process of decision-making;

• a complex approach to the analysis of different types of carried risks;

• independence of subdivisions responsible for risk assessment and control of structural units initiating the execution of the above;

• use of the most advanced methods to assess risks; • availability of a developed system of reporting at

every managerial level.

Organizationally, the system of risk management comprises different collegial bodies (such as the Credit Committee, the Small Credit Committee, the branch credit committees, and the Committee on Assets and Liabilities Management) and subdivision formations. The Department of Control over Bank Operations and Risk Management was set up in CJSC VTB Bank (Belarus) in the report year.

Taking into consideration the influence the risks carried by CJSC VTB Bank (Belarus) produce on the overall performance of VTB Group and the efficiency results scored by it, in the accounting period considerable effort was undertaken to elaborate and put into practice valid measures allowing to control risks on a consolidated basis, including as follows:

• the development of key principles and guidelines of the Credit Policy of VTB Group;

• the establishment of functional interaction with the parent company in respect of risk management, including that within the framework of the performance of the collegial bodies at the Management Department of VTB Group (the Committee on Assets and Liabilities Management and the Committee on Risk Management of VTB Group are the first to be mentioned);

• the development of data collection methodology for the purpose of carrying out a consolidated risk analysis in VTB Group;

• the completion of the first stage of introducing regular consolidated reporting on risks.

Credit Risk

Within the framework of implementing the Credit Policy of CJSC VTB Bank (Belarus), which determines the fundamental principles of its risk management policies, in 2008 the Bank undertook further effort with a view to improving the applied risk management methodology.

One of the major currently utilized tools of credit risk assessment is ranging clients on the basis of risk grade and risk limit attached to bank operations handled by them, with the ranging process being dependent on the evaluation of their financial indices, financial discipline, market positioning and other risk-related factors. In 2008 the above method was further improved. The analysis of the current situation, the accumulated statistical data on ratings and losses, and the considered international experience resulted in better specified methods of ranging applicable to certain categories of borrowers.

The determination and monitoring of the credit portfolio structure was another important direction of credit risk management. In the accounting period the Bank regularly monitored the structure

кредитного портфеля в отраслевом, страновом аспектах, в разрезе видов кредитных продуктов, структуры предоставленного обеспечения.

28


of the credit portfolio in respect of industries and countries, types of credit products, and the structural elements of provided coverage. Simultaneously, within the framework of sectoral risk management measures were taken to quickly counteract certain negative tendencies traced down in some segments of the market, and to detalize additional requirements towards the financial status of borrowers representing different industries.

In 2008 CJSC VTB Bank (Belarus) persistently worked on the issue of raising effectiveness of its credit facilities by standardizing, among other things, its different elements (for the purpose of optimizing risk assessment procedures, raising the productivity of labour, minimizing operational risks). A system of standard basic conditions for crediting clients (applicable to different types of clients and valid for different types of coverage, etc.) was set up; a package of standard forms of credit and coverage agreements for all types of transactions was approved; credit decision formats were perfected.

In 2008 the Bank continued to upgrade its decision-making machinery operational with regard to credit transactions, including those transactions which were handled by the Bank’s branches within the limits of independently carried risks.

Market Risk

Market risk comprises interest rate, exchange, and commodity risks.

While managing the above risks the following methods of risk measurement, monitoring and control may be used: calculation of prudential value based on the Bank’s trade portfolio; establishment of risk size, monitoring of market rates of interest

(exchange indices, prices for commodities) and factors related to the issuers of financial instruments (funds) purposed to control carried risk grades.

Currency risk management is aimed at maintaining the actual size of the opened currency position within

its optimum levels by managing anticipated currency flows.

The quantitative assessment and market risk management are both implemented on the basis of the Value-at-Risk concept, by analyzing the level of responsiveness of the Bank’s balance to the changing market parameters, by establishing and maintaining the limits, preventing the Bank from carrying market risks.

Liquidity Risk

The current practice of CJSC VTB Bank (Belarus) in identifying liquidity risks is based on the analysis of its liquidity in respect of currency and the determination of the major liquidity characteristics. The evaluation of liquidity risk is implemented on the basis of the analysis of money flows and discrepancies arising in the dates of netting. A sufficient reserve of liquid assts is maintained capable of covering potential liquidity gaps in case negative scenarios are to be implemented.

By exerting current control over liquidity risks aimed at maintaining its day-to-day liquid payment positions the Bank tends to timely carry out its current liabilities before its clients, counterparts, depositors, etc. The major goal pursued while controlling short-term liquidity is to alter the structure of the Bank’s exigent assets and liabilities for the purpose of carrying out current requirements and obligations. The execution of the above becomes possible due to the prompt determination by the Bank’s Exchequer

of the Bank’s current position as regards short-term liquidity risk through identifying the current meanings of liquidity gaps.

Operational Risk

The backbone of operational risk management as perceived by the CJSC VTB Bank (Belarus) is constituted by a qualitative comprehensive analysis of all the Bank’s inner processes, procedures and

29

Internal Control and Risk Management

operations from the angle of their being liable to identifiable risks and assessment of these risks. The Bank’s system of operational risk management comprises such elements as identification, assessment, monitoring, restriction/reduction of risks and control over them. The system is subject to a regular reconsideration and updating in conformity with the Bank’s supervision requirements.

While managing its operational risks CJSC VTB Bank (Belarus) is guided by the standards promoted by the Basel Committee on Bank Supervision and the requirements of the National Bank of the Republic of Belarus.

The Bank uses updated methods of identifying and evaluating operational risks based on the collection and systematization of information related to losses arisen from operational risks.

The process of monitoring of operational risks is carried out by way of a regular maintenance of the Bank’s database of operational losses and through studying and analyzing the indices of the Bank’s activity. For the above purpose a system of operational risks indicators has been introduced which is capable of grading risks and revealing potential operational risks sources. The system of collecting data on operational losses conforms to the standards of the Basel Committee on Bank Supervision and may be applicable in all the Bank’s subdivisions.

In order to minimize operational risks CJSC VTB Bank worked out its own rules and procedures which it sticks to while handling bank operations. The said rules and procedures prove to fully eliminate factors

which may cause operational risks to occur. The Bank is very particular about the following: the principle of duties/responsibilities distribution, the order of approval (coordination) and accountability as regards bank operations and other deals. On the way of managing operational risks, the Bank carries out arrangements to restrict operational risks.

Major Goals to Be Achieved in 2009 with Regard to Risk Management

These include further increase of transparency and improvement of control over risks in CJSC VTB Bank (Belarus) as well as in VTB Group.

To this effect procedures controlling credit risks and applicable both to bank operations with corporate clients, retail clients and banks-counterparts are to be improved; standardization of assessment and monitoring indicators of the degree of concentration of country and sectoral risks at the consolidated level of VTB Group is to be implemented. Besides, the system of information exchange and analysis in respect of risk management both in CJSC VTB Bank (Belarus) and in VTB Group is supposed to be fulfilled, the said system being a key element of the informational-analytical backup of decisions made at the top managerial level.

In 2009 the Bank will continue to develop its methods of ranging borrowers and to improve its procedures of lending money to clients belonging to different market segments. Measures will be taken to improve delegation in the process of lending money to clients; the system of risk management with regard to decision-making is planned to be updated. All the above will undoubtedly raise the efficiency of crediting and will better the overall quality of client servicing.

30


Personnel Management

Policies

The level of personnel education, qualification and motivation immediately affect the quality of any business process. In CJSC VTB Bank (Belarus) they clearly understand that in order for a company to be successful its personnel should work and develop on the lines which are really of interest to them. This is exactly what makes the essence of the Bank’s personnel policy.

Thus, the personnel policy of CJSC VTB Bank (Belarus) is aimed at the creation of such a system of personnel management which will allow the Bank to enjoy the status of a “preferable employer” in the labour market and will be directed at lending every employee a chance to display his/her skills, talents and flairs in the Bank’s interests, thus insuring the Bank’s integrity and stability as a financial structure.

Today the personnel of CJSC VTB Bank (Belarus) are a united team of managers who are ready to respond competently to internal and external challenges, and who are capable of making unprecedented decisions and setting ambitious goals.

The new challenging tasks that the Bank faced in 2008 required a considerable increase in the number of the Bank’s personnel. In the accounting period the number of the people employed, in fact, almost doubled and as of January 1, 2009 exceeded 800 people.

Сотрудники дополнительных офисов

Сотрудники головного банка

Сотрудники филиалов

359

358

144

It is a well-known fact that competent and highly-qualified specialists constitute a major factor adding a lot to competitive advantages enjoyed by a player in the bank market.

For the purpose of meeting high professional requirements towards its personnel a system of continuous training has been developed and is now exercised in CJSC VTB Bank (Belarus).

The matrix of training of the Bank’s staff has been developed on the basis of an individualized and differentiated approach taking care of every member of it.

One of the key aspects of personnel management is to ensure personnel continuity. The Bank’s top management, therefore, persistently follows the policy of promoting the most coming employees. There has been put into practice and is currently functioning the system of personnel performance evaluation, which has never been ignored while forming a personnel reserve. The ablest employees

The efficiency of any business directly depends on the availability of the right development strategies. But not only. The major asset of any company is people.

31

Personnel Management Policies

have a wonderful opportunity to receive an additional education in the corporate university of VTB Group.

In 2008 a new system of motivation and pay was initiated which involved practically every employee of the Bank. In accordance with the said system unified requirements towards determining and changing the size of salaries were introduced. Being competitive by nature and based on external, market-related factors, as well as on internal ones, such as the logics of bank business, the system of pay established a close link between the functional performance of the Bank’s employees, the volume of their duties and responsibilities and the level of their remuneration.

Alongside, a project to construct a КРI system was launched, in accordance with which quarterly work incentives parameters were set (quantitative indices of the performance efficiency of each Bank’s subdivision as well as those of the Bank as a structural whole; qualitative indices of the performance of the Bank’s employees included).

The professional potential of all the Bank’s employees is considered to add considerably

to the overall business success of the Bank in 2009. In connection with the above it is planned to introduce an employee performance evaluation system known as “Target Management”. The year of 2009 will also see further development of one of the most essential programmes of the Bank – a flexible socially targeted package “The Social Card of an Employee of VTB Bank (Belarus)”. Under the said programme the methodology and the order of personnel quantity rating will be developed; the programme of personnel rotation will be put into practice; the conception of integrative effort involving higher educational establishments with a view to attracting university graduates and senior students to occupy the Bank’s starting positions will become operative. Within the framework of the programme of instructorship the project “The Functional Instructor” will be introduced among the participants of which will be the Bank’s employees who have achieved a high professional level and are recognized experts in their field. They will assist other employees in becoming profession-smart through internal training programmes.

32


The major principle of providing charity is choosing the address of charity support. Then goes the goal of charity. The priority directions for the Bank here are children’s health, sports, and educational programmes.

In 2008 CJSC VTB Bank (Belarus) rendered charitable support to the Ulukovskaya auxiliary boarding school (in the Gomel region), and to the Gomel State University named after F. Scoryna.

To support establishments providing medical treatment to children the Bank has launched its own programme “World without Tears”. The essence of the programme is that the Bank allocates charitable resources for a medical children care institution to purchase necessary medical equipment, and simultaneously arranges for a festivity for the children who are under medical treatment in this institution. The Central VTB Bank (Russia) has been employing this programme since 2003 on a regular basis. VTB Bank (Belarus) was one of the first affiliates of VTB

Group to join it. In 2008, within the framework of the programme, CJSC VTB Bank (Belarus) remitted to the Second Children Clinical Hospital BYR 55 million for the purchase of medical equipment. Besides, the Bank held a festivity for the children treated there. The children’s choir of the Belteleradiocompany “The Songs of Childhood” and the actors and actresses of the Belstatecircus took part in the festive concert. The charitable programme “World without Tears” being a permanent event, CJSC VTB Bank (Belarus) will continue its charitable activity in the Republic of Belarus in 2009.

In 2008 CJSC VTB Bank (Belarus) became the General Sponsor of the Belarusian Federation of Table Tennis. In its decision to become such the Bank was guided by the aim to develop and publicize table tennis in the Republic of Belarus. We consider that the Bank’s sponsorship will help Belarusian sportsmen to achieve considerable sporting results and to represent honourably the country in the international arena.

CJSC VTB Bank (Belarus) is well aware of the social responsibility any business bears and to emphasize this understanding the Bank has developed its own charity policy.

Charity

and Sponsorship

33


Development Directions

for 2009

ПThe priority goals of CJSC VTB Bank (Belarus) for the year 2009 will be raising its development stability and avoiding situations endangering its depositors and other creditors by way of achieving the parameters specified by the Basic Guidelines of the Social and Economic Development of the Republic of Belarus for 2009 and by strictly following the safety performance standards and providing for the smooth operation of the system of internal control.

Special attention will be allotted to maintaining the quality of assets on a desirable level, and preventing the growth of bad debts of the Bank‘s clients on credit operations. New impetuses for development will be given to retail operations and deals involving small enterprises, to the extension of the territorial

The strategical goal to be pursued by CJSC VTB Bank (Belarus) in 2009 will be retaining the position and the market share gained by it in the market of bank services

network of the Bank. New products launched by CJSC VTB Bank and VTB 24 (CJSC) and proved to be successful will continue to be introduced, adjusted to the national economy. Advanced technologies, the use of which may be crucial for the competing ability of entities operating in the banking sphere, will be used with a view to increasing the level of client servicing.

For the purpose of ensuring the profitability of the Bank’s capital and its assets the Bank’s expenses, including administrative-managerial costs, will be optimized.

34


Shareholders

of the Bank

The major shareholder of CJSC VTB Bank (Belarus) is JSC op. VTB Bank (Russia) holding 69,7% of the Bank’s shares. The stake of state organizations in the Bank’s authorized capital constitutes 25,9%.

The Bank’s shareholders also are:

• The Belarusian State Oil-Chemical Concern

• The Republican Unitary Enterprise Gomeltransneft Druzhba

• The Republican Unitary Enterprise Industrial Association Belorusneft

• The Open Joint-Stock Company Mozyr-Based Oil Processing Plant

• The Novopolotsk Republican Unitary Enterprise on Oil Transport Druzhba

• The Open Joint-Stock Company Slavneft-Megionneftegaz

• The State Property Committee of the Republic of Belarus

• The Closed Joint-Stock Insurance Company Belneftestrax

• The Open Joint-Stock Company Oil-Gas Enterprise Slavneft

• The Republican Subsidiary Unitary Enterprise Belorusneft-Grodnooblnefteproduct

• The Republican Subsidiary Unitary Enterprise on Provision of Oil Products Belorusneft-Brestoblnefteproduct

• The Republican Subsidiary Unitary Enterprise on Provision of Oil Products Belorusneft-Minskavtozapravka

• The Republican Subsidiary Unitary Enterprise on Provision of Oil Products Belorusneft-Gomeloblnefteproduct

• The Republican Subsidiary Unitary Enterprise on Provision of Oil Products Belorusneft-Mogilevoblnefteproduct

• The Republican Subsidiary Unitary Enterprise on Provision of Oil Products Belorusneft-Minskoblnefteproduct

• The Republican Subsidiary Unitary Enterprise on Provision of Oil Products Belorusneft-Vitebckoblnefteproduct

• The Open Joint-Stock Company Lidanefteproduct

35


The Board of

Directors

Nikolai Anatolievich Kuznetsov Chairman of the Board of Directors, CJSC VTB Bank (Belarus),

Senior Vice-President, JSC op. VTB Bank Valery Vladimirovich Kazakevich

Chairman of the concern Belneftechim Ekaterina Vladimirovna Petelina

Senior Vice-President, Head of the Department of Corporate Development and Strategy, JSC op. VTB Bank

Vladimir Lvovich Solntsev Senior Vice-President, JSC op. VTB Bank

Evgeny Aleksandrovich Nemerinsky Vice-President, Head of the Department of Coordination of Banks of the CIS, JSC op. VTB Bank

Aleksander Valerievich Yashnick Vice-President, Head of the Department of Development and Coordination of Corporate Business of Subsidiary Banks, JSC op. VTB Bank

Svetlana Grigorievna Tourina Assistant Manager of the Main Department of Economy and Finance of the concern Belneftechim

The Board

of the Bank

Vladimir Vladimirovich Ivanov Chairman of the Board

Yuri Vitalievich Tsedrick Deputy Chairman

Dmitry Leonidovich Frolov Deputy Chairman

Vladimir Konstantinovich Lichodievsky Deputy Chairman

Boris Leonidovich Voronovich Director of the Financial Department

36


The Closed Joint-Stock Company VTB Bank (Belarus) The Legal address: 220004, The city of Minsk, K. Tsetkin Street, 51 Tel no: (017) 306 26 36 Fax no: (017) 306 26 37

The Client Support: Centre (017) 306 26 62, (029) 610 04 33, (029) 500 56 56

Telex: 252 670 SNB BY S.W.I.F.T.: SLAN BY 22 E-Mail: [email protected] WWW. VTB-BANK.BY

The Payment Requisites:

Correspondent account no 3200001080015 with the National Bank of the Republic of Belarus, code 042 BIC 153001108 TPIN 101165625 RCEO 37422144

Licence no 23 of the National Bank of the Republic of Belarus for carrying out banking activity of November 27, 2007

General Information

on the Bank

Address Block

Minsk Additional office no 1, 220007, the city of Minsk, Fabritsius Street, 8, the Republic of Belarus Tel no: (017) 222-88-05, (017) 226-37-72

Additional office no 2, 220071, the city of Minsk, Gikalo Street, 3, the Republic of Belarus Tel no: (017) 284-74-97, (017) 284-89-86

Additional office no 3, 220004, the city of Minsk, K. Tsetkin Street, 51, the Republic of Belarus Tel no: (017) 306-26-44

Additional office no 5, 223051, the settlement of Kolodischi, Minskaya Street, 5, the Republic of Belarus Tel/fax no: (017) 508-14-30

Mozyr Branch no 1 247760, the town of Mozyr, Internatsionalnaya Street, 48, the Gomel region, the Republic of Belarus Tel no: (02351) 4-36-08, Tel/fax no: (02351) 4-34-07

Mogilev Branch no 2 212030, the town of Mogilev, Lenin Street, 54, the Republic of Belarus Tel/fax no: (0222) 22-54-56

37


Additional office no 201 212002, the town of Mogilev, Pushkin Avenue, 20, the Republic of Belarus Tel/Fax no: (0222) 48-95-52

PolotskBranch no 3 211413, the town of Polotsk, Efrosinya Polotskaya Street, 27, the Vitebsk region, the Republic of Belarus, tel/fax no: (0214) 46-26-64

Novopolotsk The Centre of Bank Services 211440, the town of Novopolotsk, Blochin Street, 29, the Republic of Belarus Tel no: (0214) 51-11-39

Grodno Branch no 4 230019, the town of Grodno, Antonov Street, 21, the Republic of Belarus Tel no: (0152) 75-07-46, Tel/fax no: (0152) 75-60-88

Additional office 402 230010, the town of Grodno, Yakub Kolas Street, 69, the Republic of Belarus Tel/fax no: (0152) 54-19-32

Additional office 403 230020, the town of Grodno, Kabyak Street, 8, the Republic of Belarus Tel/fax no: (0152) 56-21-59

Brest Branch no 5 224016, the town of Brest, Pushkin Street, 59, the Republic of Belarus Tel/fax no: (0162) 23-93-63

Additional office no 501 224023, the town of Brest, Vasnetsov Street, 50, the Republic of Belarus, Tel no: (0162) 41-03-99

GomelBranch no 6 246050, the city of Gomel, Sovetskaya Street, 32a, the Republic of Belarus, Tel/fax no: (0232) 77-67-68

БерезаAdditional office 502 225210, the town of Bereza, Lenin Street, 85a, the Republic of Belarus, Tel/fax no: (01643) 2-28-71

SvetlogorskAdditional office 101 247434, the town of Svetlogorsk, the Pervomaysky Residential Area, 12 the Republic of Belarus, Tel no: (02342) 3-45-98, 3-42-66

38


CJSC VTB Bank (Belarus)Consolidated

Financial Statements

39

2008 Consolidated Financial Statements

Ernst & Young LLCKorol Street, 51, 2nd floor, office 30Minsk, 220004, Republic of BelarusTel: +375 (17) 209 4535Fax: +375 (17) 209 4534www.ey.com/belarus

ИООО «Эрнст энд Янг»Республика Беларусь, 220004, Минск, ул. Короля, 51, 2 этаж, офис 30Тел.: +375 (17) 209 4535Факс: +375 (17) 209 4534

Independent Auditors’ Report

to the Shareholders and Board of Directors of CJSC VTB Bank (Belarus)

We have audited the consolidated financial statements of CJSC VTB Bank (Belarus) and its subsidiary (“the Bank”), which comprise the consolidated balance sheet as of 31 December 2008, and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management's responsibility for the financial statements

ОManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements

and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Bank as of 31 December 2008, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

10 April 2009

40


Consolidated Balance Sheet

as of 31 December 2008

(Millions of Belarusian roubles)

Notes 2008 2007

Assets

Cash and cash equivalents 5 269,211 174,558

Trading securities 6 47,862 37,287

Amounts due from credit institutions 7 44,057 34,277

Loans to customers 8 854,749 401,742

Property and equipment 9 42,851 22,642

Intangible assets 10 1,859 355

Other assets 13 8,705 5,505

Total assets 1,269,294 676,366

Liabilities

Amounts due to credit institutions 14 293,477 115,187

Amounts due to customers 15 710,437 445,991

Debt securities issued 16 20,692 -

Subordinated debt 17 69,801 -

Provisions 12 1,750 16

Other liabilities 13 4,726 2,997

Total liabilities 1,100,883 564,191

Equity

Share capital 18 107,864 63,605

Additional paid-in capital 34,320 34,320

Treasury shares (167) (167)

Retained earnings 26,394 14,417

Total equity 168,411 112,175

Total equity and liabilities 1,269,294 676,366

Signed and authorised for release on behalf of the Managment

Dmitriy L. Frolov

Maria V. Dudko

08 April 2009

Signed and authorised for release on behalf of the ManagmentSigned and authorised for release on behalf of the Managment

41


Consolidated Income Statement

for the year ended 31 December 2008


Notes 2008 2007

Interest incomeLoans to customers 79,974 28,575

Amounts due from credit institutions 7,155 8,297

Held-to-maturity securities 146 904

Other 34 12

87,309 37,788

Trading Securities 4,186 3,257

91,495 41,045

Interest expense

Amounts due to customers (28,052) (12,473)

Amounts due to credit institutions (18,106) (2,923)

Subordinated debt (3,801) -

Debt securities issued (101) -

(50,060) (15,396)

Net interest income 41,435 25,649

Allowance for loan impairment 8 (13,613) (2,243)

Net interest income after allowance for loan impairmen 27,822 23,406

Net fee and commission income 20 18,776 11,515

Net gains/(losses) from trading securities 446 (41)

Net gains/(losses) from foreign currencies:

- dealing 17,779 8,544

- translation differences (1,560) (1,293)

Other income 21 4,736 2,776

Non-interest income 40,177 21,501

Change in fair value of financial instruments (664) (884)

Personnel expenses 22 (27,043) (13,559)

Depreciation and amortisation 9,10 (2,239) (1,934)

Other operating expenses 22 (17,542) (8,893)

Other impairment and provisions 12 (1,719) 194

Taxes other than income tax (2,416) (2,439)

Non-interest expense (51,623) (27,515)

Profit before income tax expense 16,376 17,392

Income tax expense 11 (3,396) (5,189)

Profit for the year 12,980 12,203

42


Consolidated Statement of Changes in Equity



Share capital

Additional paid-in capital

Treasury shares

Retained earnings Total

31 December 2006 43,519 - - 11,628 55,147

Share capital increase 20,086 34,320 (167) 54,239


Dividends (9,414) (9,414)

31 December 2007 63,605 34,320 (167) 14,417 112,175

Share capital increase 44,259 44,259


Dividends (1,003) (1,003)

31 December 2008 107,864 34,320 (167) 26,394 168,411

43


Notes 2008 2007

Cash flows from operating activities

Interest received 86,426 39,315

Interest paid (44,051) (14,538)

Gains on trading securities - (41)

Realised gains less losses from dealing in foreign currencies 17,963 8,544

Fees and commissions received 20,916 13,047

Fees and commissions paid (2,283) (1,506)

Other income received 4,186 2,536

Personnel and other operating expenses (47,082) (24,532)

Income tax paid (3,612) (5,189)

Cash flows from operating activities before changes in operating assets and liabilities 32,463 17,636

Net (increase)/decrease in operating assets

Trading securities (8,773) (13,547)

Amounts due from credit institutions (691) 15,026

Loans to customers (467,453) (249,344)

Other assets (7,089) 690

Net increase /(decrease) in operating liabilities

Amounts due to credit institutions 173,747 114,054

Amounts due to customers 252,542 83,495

Debt securities issued 20,670

Other liabilities 5,255 (199)

Net cash from/(used in) operating activities 671 (32,189)

Cash flows from investing activities

Proceeds from sale of property and equipment 2,680 329

Purchase of property and equipment (24,248) (4,954)

Purchase of intangible assets (1,834) (174)

Redemption of held-to-maturity securities 72,272 425,858

Purchase of held-to-maturity securities (72,272) (425,858)

Net cash used in investing activities (23,402) (4,799)

Cash flows from financing activities

Dividends paid (1,003) (9,414)

Proceeds from subordinated debt 64,350 -

Capital contribution 44,259 54,406

Treasury shares purchased - (167)

Net cash from financing activities 107,606 44,825

Effect of exchange rates changes on cash and cash equivalents 9,778 2,386

Net increase in cash and cash equivalents 94,653 10,223

Cash and cash equivalents, 1 January 174,558 164,335

Cash and cash equivalents, 31 December 5 269,211 174,558

Consolidated Cash Flow Statement



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