Fresh Ideas. Mature Decisions.

Contents:
08
The Bank's Activities in 2006: Macroeconomic Environment

1
04
05 06

3
2006 Financial Results. The Bank's Funding Policy
The Bank's Corporate Business Services to Individuals Operations in Securities Market Interbank Cooperation Regional Business

Introduction
Chairman's statement General Information about the Bank

12
16 22 23 26 27

32
34 39

The Bank's Financial Statements and Independent Auditors' Report

Independent Auditor's Report on Financial Statements (Russian Accounting Standards) Independent Auditor's Report on Financial Statements (IFRS)

4
28
29 30 31 31

Factors of Success
Risk Management Information Technologies Personnel Policy Working with the Community

Fresh Ideas. Mature Decisions.

1 CHAIRMAN'S STATEMENT

Dear friends and colleagues, the year of 2006 became strategically important for Sudostroitelny Bank that reached a new milestone in its development marked by the Bank's internal and external renewal. In the past year Sudostroitelny Bank and Deloitte&Touche, an international consulting company, made a joint effort to complete developing the Bank's medium term strategic prospect and took into account the current banking trends and global successful business achievements in the financial market. We will follow this strategy and continue our evolution as a dynamic, highly profitable bank primarily oriented towards servicing small and medium businesses, their owners and employees. To effectively compete in banking markets and maintain fast pace of development the Bank needed its own strong and instantly recognisable brand which led to the Bank's re-branding campaign. We strove to emphasise the Bank's being up-to-date, dynamic and emotionally open and its experience in state-of-the-art information technologies. The very first stage of the re-branding campaign proved our happy choice: the brand awareness grew considerably. Generally, in 2006 we managed to reach high business growth rates: the Bank's assets increased by more than 30% exceeding RUR 33.7bn, the equity capital grew up to RUR 3.3bn, the loans to corporate customers and individuals reached RUR 11.7bn.

Loans in the open market were one of the major resources of raised funds in 2006. We succeeded in placing our first bond loan to the amount of RUR 1.5bn and started the practice of raising funds in international markets issuing Loan Participation Notes. The increased market loans encouraged further diversification of the Bank's liabilities and growth of the long-term resources necessary for implementing projects in the business sector. In the near future we set out to keep the high growth rates. We will continue to expand our presence in Moscow region and other Russian cities with particular attention to maintaining the Bank's position as one of the market leaders in mortgage and small and medium business lending. In conclusion, I would like to express my gratitude to Sudostroitelny Bank's shareholders and customers for their trust and readiness to search and move forward. My special thanks go to all the Bank's go-ahead and responsible employees for their persistence, dedicated care and creativity in achieving objectives that are not always simple. I hope that we will successfully implement our most ambitious plans. Alexey Golubkov Chairman of the Management Board

ANNUAL REPORT 2006

1 GENERAL INFORMATION ABOUT THE BANK

General Information about the Bank

Sudostroitelny Bank (LTD) Established General license of the Central Bank of the Russian Federation Full-service bank for small and medium businesses RATINGS: Moody's Investors Service Long-term foreign currency deposit rating National scale rating Ratings outlook Top-50 among Russian banks by assets and equity B3 Baa2.ru Stable 40th by Tier I capital The Banker, November 2006 48th by assets The Finans magazine, February 2007 Top-10 in FOREX market in Russia (RUR/USD trades at MICEX) Top-15 by business activity The Expert magazine, March 2006 Top-15 by LORO account balances of other Russian banks MEMBERSHIP AND PARTICIPATION IN PROFESSIONAL ORGANISATIONS: Deposit Insurance System, Moscow Interbank Currency Exchange, Moscow International Currency Association, Russian Regional Banks' Association, SWIFT, VISA International, Sublicense of Diners Club International, Member of a payment system Customs Card, the authorized bank of the Federal Customs Service of Russia. BRANCHES : the head office and three additional offices in Moscow (including 1 office in Zelenograd) the branch in Saint Petersburg the credit and cash office in Nizhny Novgorod the representative office in Ekaterinburg NUMBER OF EMPLOYEES: more than 350 Russian private commercial bank July, 1994 2999

1 GENERAL INFORMATION ABOUT THE BANK

CUSTOMERS: Corporate customers consumer goods manufacturers, wholesale and retail companies, transport companies, construction companies, investment and financial institutions, insurance companies, development companies, telecommunications companies, consulting companies. business owners, senior managers of the Bank's corporate customers, upper middle-class population. employees of the Bank's corporate customers, customers by the Bank's mortgage programs.

Private customers Individual customers THE BANK'S OWNERS:

5 companies each holding a 20% stake. The beneficiaries of the companies are 12 private persons. The maximum share of each owner does not exceed 17%; over 64% is controlled by the Bank management. THE BOARD OF DIRECTORS: Chairman of the Board of Directors Leonid Tyukhtyaev There are 2 independent directors (citizens of Cyprus and Switzerland) THE MANAGEMENT BOARD: Chairman of the Management Board Members of the Management Board: First Deputy Chairman Deputy Chairman Deputy Chairman Deputy Chairman Deputy Chairman Deputy Chairman Deputy Chairman, Head of Internal Control Chief Accountant The Bank's top management has not changed since 2001. Alexey Golubkov Dmitry Kunda Andrey Egorov Andrey Vovchenko Vasily Melnikov Sergey Panteleev Yaroslav Steshko Alexander Titovets Elena Zubova

ANNUAL REPORT 2006

Fresh Ideas. Mature Decisions.

The Bank's Activities in 2006: Macroeconomic Environment

2006 was a year of success for Russian economy in general and banking sector in particular. The stability of the core financial market segments, high level of business activity in various sectors of the country's economy, favourable global economic conditions contributed to the positive macroeconomic trends. The further inflation slowdown was one of the most important results of the past year. Thus, the consumer price growth rate in the reporting year was 9% compared to 10.9% in the preceding year. It is worthy of note, that inflation was decreasing against a background of the significant rise in the monetary aggregates (M2 increased by 48.8%) and that was mostly attributed to the high economic growth and increasing demand for the national currency from all economic participants. GDP growth continued to stay at high levels 6.7%, and the index of industrial production remained almost unchanged at 103.9%. According to experts' opinions, the GDP growth was mainly due to rising domestic demand for local goods and favourable conditions in the global commodity markets. For instance, prices of Urals oil went up by 21% on average, oil products by 19%, natural gas in Europe by 34%, non-ferrous metals 50%. The steadily high inflow of export revenues and, therefore, of foreign currency in the domestic market encouraged strengthening the Russian ruble exchange rate against the dollareuro currency basket and increased Russia's gold and foreign currency reserves. In the course of 2006 Russian international reserves increased by 67% and reached USD 303.7bn as at

10

2 THE BANK'S ACTIVITIES IN 2006: MACROECONOMIC ENVIRONMENT

1 January 2007. The sharp strengthening of Russian ruble, resulted from the external trade surplus (the 2006 annual export volume equalled USD 304.5bn compared to the import volume of USD 163.6bn), was prevented by the Central Bank of the Russian Federation. The Central Bank that was the major foreign currency buyer levelling up currency exchange rate fluctuations. For the reporting period the nominal ruble exchange rate against US dollar grew by 9.6%, against euro fell by 1.7%; the real ruble exchange rate against US dollar grew by 16.7%, against euro 5.6%. Investment climate in Russia improved and investment (both foreign and domestic) to the production sectors of economy increased due to macroeconomic stability. By comparison with the previous year, equity investments grew 13.7%. In addition, 2006 brought portfolio investors' strong interest in shares of Russian companies which caused their considerable price increase. As at the end of 2006 the Russian Trading System Index reached its historical maximum and exceeded 1900 points; thus, for the reporting year the RTS Index rose by more than 60%. The economic growth in the production sector, services and trade was accompanied by rising demand for various financial institutions' products and banking development in general. Thus, the reporting year saw the substantial capitalisation growth of the Russian banking system. As at the end of 2006 the total equity capital of domestic banks grew by 36.3% to RUR 1.69 trillion (correspondingly, from 5.7% to 6.4% of GDP). The increase in their assets was even more impressive totalling 44% of GDP from RUR 9.75 trillion up to RUR 14.05 trillion. Maintaining stability in the financial sector of the economy and increasing the population's

disposable income contributed to the attractiveness of bank deposits. For the reporting period the volume of funds placed on time deposit accounts for a period of 31 days 1 year rose by 19.5%, over 1 year 41%. At the same time it should be noted that raised funds from individuals were mainly in the national currency. As at the end of 2006 the volume of RUR funds placed on time deposit accounts for a period of 31 days1 year grew by 37.3%, when the volume of currency deposits fell by 22.5%; RUR deposits for over 1 year rose by 53.5% when the volume of currency deposits dropped by 0.7%. The increased long-term liabilities in the structure of bank funding encouraged bank loans. In the reporting year the loans granted by financial institutions to companies and individuals grew by 47.3% and exceeded RUR 8 trillion. Thus, share of loans given to non-financial sector relative to GDP reached 30.2%, and relative to total bank assets 57.2% (in the previous year 25.2% and 55.9%, three years ago 20.3% and 47.9%). In spite of the growth in the number of bank loans, the quality of bank loan portfolios remained quite high. As at the end of 2006 the amount of overdue loans to companies was 0.7% of the total loan portfolio of the banking sector (in the previous year 0.8%); at the same time the consumer lending rose from 0.3% up to 0.6%. During the reporting period the smooth decrease in the number of credit institutions continued: reduced by 64, by the end of December 2006 there were 1189 institutions. Meanwhile, it led neither to any negative consequences for people nor to the destabilisation in the banking sector. The stable financial market and high bank liquidity facilitated activity in the interbank market and mutual credit lines. The total amount of

2 THE BANK'S ACTIVITIES IN 2006: MACROECONOMIC ENVIRONMENT

11

funds granted to banks by other credit institutions increased by 59.2% to RUR 1.73 trillion as at the reporting date. The positive economic trends, stable macroeconomic environment in the country encour-

aged Sudostroitelny Bank's long-term business progressive development programme, raising considerable resources in the open market to finance companies, introduction of new promising products for its customers and partners.

ANNUAL REPORT 2006

12

Fresh Ideas. Mature Decisions.

13

2006 Financial Results. The Bank's Funding Policy

The Sudostroitelny Bank's financial highlights illustrate its active development. The Bank's assets grew 35.9%, exceeding RUR 33bn, which demonstrated maximum growth in the past three years. The equity also grew and reached RUR 3.28bn as at 1 January 2007. The Bank's high efficiency is proved by the profit growth as well: for the reporting period it increased by 21.1% and exceeded RUR 404m; the net profit amounted to RUR 358.3m. 2006 saw the Bank's further improvement of operating efficiency and profitability: the income-cost ratio was one of the lowest indicators in the Russian market and amounted to 33.7%. Last year the major part of the Bank's liabilities consisted of customer (37.8% of the total liabilities as at the end of the year) and correspondent banks' (27.6% of the total liabilities as at the end of the year) balances. The increasing popularity of time deposits became a positive trend: for the reporting period the volume of individual time deposits for a period from 6 months to 1 year grew 2.5 times and reached RUR 628.3m, for a period from 1 year to 3 years by 22.4% to RUR 52m; the total time deposits of different customer groups increased 4.4 times to RUR 2.14bn. The total amount on the current and deposit accounts of the Bank's corporate and private customers reached RUR 10.9bn as compared to RUR 6.8bn in the previous year. Loans in the open market were one of the major resources of raised funds in 2006. In order to increase its long-term funding necessary to implement its loan programs, the Bank utilised various borrowing instruments: the issue of a domestic ruble-denominated bond, issue of

14

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

a Eurobond in the international markets, its own promissory note programe. As at 1 January 2007, the volume of the notes issued by the Bank amounted to RUR 6.5bn (with the rate decreased from 11.5% to 9.75% p.a.). In the third quarter of 2006 the first issue of Sudostroitelny Bank's bonds with nominal value of RUR 1.5bn was placed successfully among 50 investors; the first and the second coupon rates were set up 10.5%. In December 2006 the Bank started to raise funds in international markets, establishing a USD 200m Loan Participation Note (LPN) program. The program was arranged by BCP Securities, LLC.; the first issue amounted to USD 11m. Thus, the total amount of the Bank's own securities in circulation grew almost 1.5 times and exceeded RUR 8 trillion. For the whole reporting period the Bank's long-term liabilities rose by over 37.2%. The considerable part of the Bank's funds is placed as loans to corporate customers and individuals. As at the end of the reporting year the Bank's loan portfolio grew

by 75.3% and exceeded RUR 16.3bn; the share of loans in the Bank's total assets reached almost 50%. The loans were also responsible for the major part of the Bank's revenues 69.4%. The Bank's investments in the stock market instruments made up a sizable part in the structure of its assets. As at the end of the year the securities purchased by the Bank equalled 14.4% of its assets, and the total income from the Bank's activities in the stock market totalled 19.1% of the net operating income. As at 1 January 2007 the Bank's investment portfolio exceeded RUR 4.7bn. The liquidity management has been traditionally important for the Bank's funding policy. Having highly liquid securities of reliable issuers in its investment portfolio and maintaining considerable balances on accounts with the Central Bank of the Russian Federation (as at 1 January 2007 RUR 5.6bn) provided for the Bank's high liquidity.

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

15

Assets (RUR bn)

2006 2005 2004 2003 2002

Equity Capital (RUR bn) 33.8 24.9 19.1 14.3 8.8

2006 2005 2004 2003 2002

3.3 3.2 3.0 2.7 1.7

Profit (RUR m)
2006 2005 2004 2003 2002

Net Profit (RUR m) 405 333 282 110

2006 2005 2004 2003 2002

358 321 278 106 21

24

Loans (RUR bn)

2006 2005 2004 2003 2002

Dynamics of Amounts on Customers Accounts (RUR bn) 16.3 9.3 6.5 3.4 2.1
2006 2005 2004 2003 2002

11.0 6.8 4.7 3.2 1.8

Source (here and further): Financial Statements of the Bank in accordance with RAS, audited

ANNUAL REPORT 2006

16

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

Dynamics of Securities Issued by the Bank (RUR bn)

2006 2005 2004 2003 2002

8.0 5.4 2.6 1.4 0.5

The Bank's Corporate Business

Delivering a full array of high quality financial products to companies has been one of the Bank's key tasks for the years of its operations. In the past year the Bank particularly focused on its customer service enhancement, introduction of state-of-the-art banking technologies, development of new products and services. 2006 saw the continued increase in the number of the Bank's customers. As at the end of the reporting period the Bank opened over 7500 accounts of corporate customers; the balances on their accounts grew more than 1.5 times over the past year from RUR 6.3bn to RUR 9.6bn. Besides, the Bank continued to diversify its customer base, each sector having no more than 7% in it. Among our customers there are consumer goods manufacturers, wholesale and retail companies, construction and transport companies. 20% of the Bank's customers fall at wholesale and retail companies, including such wellknown Russian chain stores as Wild Orchid, Econika, Baltman, Caligula, Nezhny Vozrast, Magnolia, and dealerships for Bentley, Ferrari, Harley-Davidson, etc.

The Bank has long been servicing transport companies, including such long-term customers as Airport Ramenskoye, the Air Cargo Carriers Association, Tesis cargo airline, Dobrolyot airline, Russian Sky Airlines, F.E. Trans, MTC UniTrans. The Bank's cooperation with production companies has always been strategically important: Temp Moscow radio manufacturing plant, Lytkarino Optical Glass Factory, Dmitrov Experimental Engineering Plant, Zavod Izmeritel, Zavod Komponent, Electroshield, Zavod Micropribor. Providing services for companies engaged in investment, finance, insurance, development, telecommunications, consulting has always been essential for the Bank's operations: the Expert magazine, Eksmo publishing house, CityXXI construction company, UNICOMM, Universal Financial Systems, Kimberly Land fitness centre, Eurasian Pipeline Consortium ZAO, Proffessional Hockey League, Zurab Tsereteli's Studio, quite a few insurance companies (Ingosstrakh, Rostra, ESCO, TNP-Garant, Pomosch, Priroda, UNISO, Sotsium, etc.). The Bank's further improvement of its product range, introduction of new and innovative prod-

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

17

ucts and services to meet needs of various companies, invariably high quality contributed to the increase in the number of the Bank's customers. The Bank's distinguishing features have always been its special attention to the individual customer's demands, maintaining close and trusting partner relationships. Over the reporting year the Bank's experts undertook research into the corpo-

rate customers' requirements and their business characteristics in order to offer them the very selection of the Bank's services to highly promote their business development and financial stability. Thus, in 2006 the Bank's competitive rates (particularly attractive terms for payroll solutions), its flexibility and mobility in granting loans provided an inflow of new customers.

Dynamics of Balances on Corporate Customers Accounts (RUR bn)

2006 2005 2004 2003 2002

9.6 6.3 4.4 3.1 1.7

ANNUAL REPORT 2006

18

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

Insurance

4.9% 8.1% 3.4% 4.2%

7.8% 3.5% 6.5% 5.1%

Wholesale Trade

Financial

Services

Telecommunications

Industry

Leasing

Construction

Industrial Construction

4.9% 4.7%
Real Estate

Transport

8.4% 8.2%
Retail Trade

FMCG Manufacturing

7.8% 13.3%
Individuals

Other

6.6% 2.4%
Consulting

Structure of Balances by Sectors as at the end of 2006

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

19

Payment Services
The invariably high quality of its payment and cash services is one of the Bank's competitive advantages. In the past year the Bank settled its customers' accounts through both the Central Bank payment system (the payment processing centre) and its own wide correspondent network. The high-grade and rapid settlements in foreign currency were attributable to the Bank's successful work in SWIFT and its correspondent accounts with the best foreign clearing banks. The customers' demand for services to manage their accounts without visiting the Bank's offices personally grew substantially in 2006. 24/7 on-line access to account information and financial transactions SBANK.RU allows the customers in a real-time mode to see their account activity (including crediting) and send payment documents to the Bank for their processing within the operation day. Foreign exchange operations performed by the Bank according to its customers' requests were substantial in the reporting year. Over the past year the Bank was one of the most active trading participants at the Moscow Interbank Currency Exchange (MICEX). The Bank's turnover in international currency markets also increased. The total volume of the Bank's currency purchase and sale operations increased by 2.2 times compared to the previous year and equalled USD 1.24bn. Due to the cooperation with retail and services companies, the Bank continued to develop its acquiring services. In 2006 the number of such contractors increased by 5% and exceeded 450. The acquiring turnover increased by 38% and reached RUR 1.37bn.

An increasing emphasis was placed on payroll programmes in the reporting period. Sudostroitelny Bank issued about 2000 VISA payroll cards.

Corporate Lending
In the past year Sudostroitelny Bank continued to provide various lending solutions to its corporate customers. As at the end of the reporting period the overall volume of loans granted to companies reached RUR 10.7bn the bulk of which went to production, trading and construction companies. At the same time the structure of the loan portfolio remained diversified, each sector having no more than 15%. Strong demand for the Bank's loan products was attributable to their attractive terms and the Bank's flexible approach to each customer. The Bank's employees not only checked potential borrowers' credit rating but also assisted them in choosing the best loan product in accordance with their business characteristics and further development prospects. The Bank worked out special loan terms for each company individually. The most popular loans were classical commercial loans, overdrafts on current accounts, and credit lines. When granting loans, the Bank paid special attention to the borrower's repayment abilities, credit history and business reputation, exercised extreme caution when managing loan-specific risks and required guarantees and different forms of collateral. All through the crediting period the Bank monitored borrowers' financial position in order to timely identify problems and solve them as appropriate. The improved loan portfolio quality resulted from the Bank's well-considered policy. In 2006

ANNUAL REPORT 2006

20

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

bad debts in the Bank's loan portfolio decreased by 5 times down to 0.14% of the overall granted loans. Small and medium business remained strategically important for the Bank's activities in 2006. The Bank paid special attention to its product line renewal and standardisation of loan products and service conditions for such customers.

Customer International Economic Activity Servicing. Trade Finance

Sudostroitelny Bank's customer international operation servicing is one of the Bank's promising activity. The Bank's considerable international prestige, correspondent relations with the largest international banks, ability to effect high quality and rapid foreign currency exchange settlements makes it possible to offer advantageous terms for export and import payments and build a strong demand for such services from companies of different sectors. In the past year the Bank effected all kinds of documentary operations, including import letters of credit with financing and confirming letters of credit and guarantees by first-rate western banks. The Bank's customers were especially interested in payments by letters of credit stipulating for short-term finance of trade contracts (documentary letters of credit, letters of credit with post-financing, standby letters of credit) and

guarantee operations (guarantees of payment, performance guarantees, advance repayment guarantees, tender guarantees, customs guarantees, etc.) The total volume of credit lines for documentary operations opened to Sudostroitelny Bank exceeded EUR 40m. The overall volume of the Bank's operations relating to these products equalled more than EUR 30m. The major part of export contracts serviced by the Bank went to the food industry and publishing; the imported products included equipment, food, home appliances, cars, consumer goods, construction materials. Remaining a leading operator in the foreign currency exchange market (the Bank's daily turnover in the ruble-dollar market is about USD 300-500m), Sudostroitelny Bank provided its customers with the most favourable terms for foreign exchange transactions to complete their external trade contracts in dollars, euros, the CIS currencies. While purchasing and selling foreign currency for its customers both in the domestic currency market and in the FOREX market, the Bank offered the best exchange rates. The past year also saw the significantly increased demand for Customs Card services. The card allowed the Bank's customers to pay fees, excise payments, customs duties, fines directly in the course of customs clearance which substantially facilitated their export and import operations.

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

21

5%
Industrial Construction

Construction

4% 5%
Pipelining

Individuals

5% 7%
Entertaining

Financial

5% 8%
Leasing

Wholesale Trade

7% 9%
Consumer goods

Industry

9% 15%
Retail Trade

Rent

12% 1%
Publishing

Other

4% 2%
Transport

Insurance

1% 2%

Advertising

Structure of Loan Portfolio by Sectors as at the end of 2006

ANNUAL REPORT 2006

22

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

Services to Individuals

Sudostroitelny Bank's services to individuals continued their dynamic development in the reporting year. By the end of the reporting period the balances on the individuals' accounts increased by 2.4 times; as at 1 January 2007 the Bank had 18,600 accounts opened by individuals. The total volume of the raised funds in rubles and foreign currency from individuals reached RUR 1.24bn, about 80% of which went to ruble deposits. Thus, the volume of individuals' funds in the Bank's total liabilities amounted to 5.9% The increase in the raised funds was mainly due to growing time deposit accounts. In the reporting year the Bank offered a number of diverse deposit programs for individuals. Sudostroitelny Bank's attractive terms, high quality service, participation in the Deposit insurance System encouraged individual customers' loyalty to the Bank. Over 2006 the volume of the individual time deposits increased by 3.1 times up to RUR 1.06bn. As at the latest reporting date 59.4%, or RUR 628.3m, went to the deposits for a period from 6 months to 1 year;

the volume of deposits for a period of more than a year reached RUR 55.9m. The growing number of card holders promoted the increase in demand accounts. In 2006 the Bank doubled its issue of Visa International and Diners Club cards; the balances of the card accounts grew more than 3.5 times. The volume of operations via SBANK.RU PRIVATE on-line access system substantially increased in the past year. Its further upgrading and popularisation facilitated increasing demand for a number of the Bank's services and optimised individuals' service expenses. In 2006 Sudostroitelny Bank went on with its active development of lending programmes for individuals. As at the end of the year the volume of loans granted to individuals more than tripled and reached RUR 991.4m, making it 8.5% of the Bank's loan portfolio compared to 4.8% in the previous year. The mortgage programs launched in 2006 were of great significance to the Bank that granted 46 mortgage loans totalling USD 8.1m.

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

23

Private Banking
Being part of the private banking program and including a wide range of financial, advisory and other products, the Bank's full and integrated service to its well off customers was of great importance in 2006. This made it possible for the Bank's VIP customers to entrust their current financial issues to their personal managers, thus substantially saving their time and effort and optimising their financial flows. Sudostroitelny Bank's private banking services were in strong demand from numerous top

managers, owners of companies that were the Bank's corporate customers, representatives of the higher level of the Russian middle class. By the beginning of 2007 the Bank served more than 1200 VIP customers. The Bank's private banking program included both its standard banking services enhanced according to the well off customers' needs and innovative products. The past year saw the massive increase in Visa Gold and Diners Club cards issued by the Bank. In the near future the Bank is planning to enlarge an array of financial consulting and asset management services to these customers.

Dynamics of Individuals Accounts Balances (RUR m)

2006 2005 2004 2003 2002

1 239.1 418.0 213.6 52.8 73.9

Operations in Securities Market

In 2006 Sudostroitelny Bank remained a major participant in the securities market. Compared to the previous year the total volume of its securities trading grew by 15% up to RUR 46.2bn. The Bank's increasing presence in international stock markets was one of its major objectives in the past year. Thus, it gained direct access to European stock exchanges via UBS Investment Bank (London) the largest investment bank that set the limit of EUR 100m on

Sudostroitelny Bank. At present the Bank is able to operate with assets at all European stock exchanges: Eronext, LSE, Xetra, Virt-x (in Spain, Germany, Switzerland, Italy). In 2006 the Bank started to increase fee income in the total income from stock market operations in accordance with the Board of Directors' decision and paid special attention to its brokerage services and development of new integrated products to completely meet its

ANNUAL REPORT 2006

24

2 2006 3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

corporate and individual customers' needs. In December 2006 the Bank put into operation QUIK Internet trading system and started providing its customers with access to GL Trade platform. This made Sudostroitelny Bank a major broker in Russia according to the KommersantBUSINESS GUIDE rating. By using its financial instruments, the Bank participated in netting schemes on behalf of its customers (repayment of amounts due to budgets of different levels, repayment of amounts payable, etc.). Its considerable experience in the promissory note market provided the Bank's customers with a wide breadth of the relevant services (purchase and sale, REPO operations). The Bank also performed as an arranger of loans for its customers including loans secured by the customers' promissory notes or bonds.

The efficient management of its investment portfolio was still one of the main issues for the bank. As at the end of the reporting period the portfolio increased by 34% and exceeded RUR 2.9bn. The Bank pursued the well-balanced policy in placing its resources and giving preference to highly liquid securities of reliable issuers. As at the end of the year the substantial part of the portfolio included promissory notes of top banks (36%), corporate bonds (24%) and the US Treasury notes (28%). The volume of securities issued grew by 28.9% making it 61.7% of the total investment in securities. In 2006 Sudostroitelny Bank substantially increased its presence in the REPO market. As at the end of the reporting period its turnover equalled RUR 9.75bn.

Dynamics of Portfolio of Other Issuers Securities (RUR m)

2006 2005 2004 2003 2002

Dynamics of Corporate Bonds Portfolio (RUR m)

2006 2005 2004 2003 2002

2 929 2 185 923 698 250

1 392 622 538 448 92

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

25

US Treasury notes

28% 5% 2% 3% 2% 24% 36%

Securities purchased under repo

Bonds issued by banks

Bonds issued by companies

Shares of companies

Promissory notes of companies

Promissory notes of banks

Structure of Securities Portfolio as at the end of 2006

ANNUAL REPORT 2006

26

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

Interbank Cooperation

Over the reporting year the Bank continued its active cooperation with financial institutions, paying special attention to long-term partner relationships with the largest banks worldwide, including the CIS and Baltic States, and development of correspondent network according to its business requirements and customers' needs. In 2006 the Bank established correspondent relations with three credit institutions and opened eight NOSTRO accounts. Thus, as at 1 January 2007 the Bank had 72 NOSTRO accounts with 38 correspondent banks. The overall balance on NOSTRO accounts more than doubled and reached RUR 6.3bn. Being one of the main settlement banks for Russian medium-scale financial institutions and providing a significant number of international settlements for the domestic credit institutions, the Bank had maintained LORO accounts for 200 banks. Over the reporting period the Bank opened 90 LORO accounts; as at the end of the reporting year the Bank had 455 LORO accounts opened for the domestic and foreign banks. Many reliable credit institutions, both Russian and overseas, including Gazprombank, International Moscow Bank, TransCreditBank, Absolut Bank, Promsvyazbank, Bank Petrocommerce, NOMOS-BANK (Moscow), Tatfondbank (Kazan), Rossiya Bank (Saint Petersburg), Khaanty-Mansi Bank (Khanty-Mansiysk), Siboilbank (Tyumen), Bank Forshtadt (Orenburg), Omsk-Bank (Omsk),

Ursa-Bank (Novosibirsk), Koltso Urala Bank (Ekaterinburg), First United Bank (Togliatti), Center-invest Bank (Rostov-on-Don), Alliance Bank (Kazakhstan), Eurasian Bank (Kazakhstan), PrivatBank (Ukraine), Donghorbank (Ukraine), Deutsche Bank, Dresdner Bank, Commerzbank (Germany), American Express Bank, National City Bank (USA), Banque de Commerce et Placements (Switzerland) are among our partners. The Bank was also establishing and developing relations with other financial institutions of the USA, Japan, Europe, South East Asia and Latin America. The expansion of the correspondent network helped the Bank to fully and completely meet the needs of its customers and partners that use international settlement products, cut costs and increase efficiency of settlements for customers engaged in international economic activity. Thus, the Bank considered it extremely important to have the agreements on trade finance, money markets and foreign exchange operations with a number of foreign correspondent banks. In 2006 by obtaining loans from large and medium-scale Russian banks and placing significant funds with reliable Russian and foreign financial institutions, Sudostroitelny Bank remained one of the most active players in the interbank lending market; its annual turnover in this market was about RUR 4.5 trillion. The Bank signed 51 General Interbank Cooperation Agreements making the total number 436.

3 2006 FINANCIAL RESULTS. THE BANK'S FUNDING POLICY

27

Dynamics of Nostro accounts balances (RUR bn)

2006 2005 2004 2003 2002

Dynamics of Interbank Loans Granted (RUR bn) 6.3

2006 2005

4.5 5.0 4.1 4.0 1.0

3.1 4.0 3.3 4.1

2004 2003 2002

Regional Business

Sudostroitelny Bank further expanded its regional presence in 2006. Its active marketing strategy and impeccable services facilitated an inflow of new customers, a growing demand for a variety of the Bank's services. The Bank's main customers in regions are companies engaged in production, transportation, trade and commerce, telecommunications, construction, finance. As at the end of the reporting year the balances on the accounts of the corporate customers of the Bank's branch in Saint Petersburg rose by 84% up to RUR 497.8m, that of the credit and cash office in Nizhny Novgorod up to RUR 21.5m. The turnover on the corporate customers accounts equalled RUR 2.89bn and RUR 0.45bn respectively. The balances on the accounts of the Bank's private customers reached RUR 49.8m in Saint Petersburg and RUR 6.6m in Nizhny Novgorod. In the past year the Bank's office network continued to grow. In March 2006 the Bank's opened its representative office in Ekaterinburg, in May 2006 it opened its additional office in the

dealership for Bentley in Barvikha Luxury Village retail centre, in October 2006 it set up its payment office in the dealership for HarleyDavidson. The increased turnovers of the Bank's regional network were boosted by the dynamic promotion of the Internet banking products and services. Being a leader and having advanced multifunctional Internet banking technologies Sudostroitelny Bank put an emphasis on the online sales channels that allowed to unload the offices and reduce service expenses compared to standard services. The past year saw the continued expansion of the Bank's presence in regions with high investment potential. Within the next two years the Bank is planning to set up its offices in Moscow region, Sverdlovsk region, Perm region and in the city of Sochi. The developed office network will enable the Bank to actively participate in interregional business projects, enlarge its customer base, expand its product line in regions.

ANNUAL REPORT 2006

28

Fresh Ideas. Mature Decisions.

29

4
Risk Management

Factors of Success

The Bank's well-designed risk management system is essential for its successful development. On a regular basis the Bank monitors, assesses, and promptly minimizes various risks. Due to the high loan portfolio growth the Bank's credit risk management was especially important in 2006. It comprised risk assessment and control for both standalone borrowers and groups of related borrowers. The Bank's credit analysts developed specific recommendations on lending limits for each customer/counterparty; borrowers' repayment abilities, their current financial position and business reputation influenced the Bank's decision whether to grant a loan. The credit risk related to banks was controlled by the system of credit lines set by the Bank's Financial Committee and based on the Bank's own methodology.

Minimising market risks was of paramount importance to Sudostroitelny Bank in the past year. The Bank's market risk management system allowed to timely identify and estimate risks and to make prompt and relevant decisions on the portfolio structure optimisation. The methodology was developed by the Risk Analysis Department which is a dedicated and independent unit of the Bank. The main techniques for minimising market risks in 2006 were the Bank's open positions (foreign exchange, interest, investments in securities) within the set limits; besides, the Bank hedged market risks. Striking the right balance between risks of operations and their profitability was one of the Bank's special concerns. The Bank's liquidity management is an important part of its risk management system. The

30

4 FACTORS OF SUCCESS

layered system of the triple control (the Management Board, the Financial Committee, the Treasury) ensures the integrated approach to managing long-term, medium-term and short-term liquidity. To estimate risks relating to the liquidity the Bank's employees applied the scenario analysis that simulated fluctuations of different groups of assets and liabilities by changing (including unfavourable) a series of market and/or bank parameters. The Bank's well-balanced approach to managing its liquidity leads to all the Bank's commitments met at all times.

In the reporting year the Bank further improved its operational risk management system. These risks are connected with possible drawbacks of systems and procedures of management and control of the banking processes, the wrong decisions of the Bank's employees of different ranks, and the system errors. To minimise the risks the Bank's employees optimised the organisational structure to make its technological units and departments react to all kinds of changes both out and in the Bank as soon as possible.

Information Technologies

In 2006 the Bank continued to enhance its information technologies in accordance with the business needs. The customer inflow, increase in the Bank's operations were accompanied by development of the Bank's automated systems and introduction of new ones that optimally ensured its top quality and fast services and cost minimisation. The Bank put particular emphasis on upgrading SBANK.RU and SBANK.RU PRIVATE on-line access systems that allow the corporate and private customers to operate their accounts, do transfers, get account statements, make foreign exchange transactions in the real-time. Their comfortable user interface, wide range of functions and reliable and stable operations encouraged further demand for the Internet-banking services. Thus, 90% of the corporate customers and about 50% of the private customers made their payments via SBANK.RU in 2006. The Bank paid special attention to providing its Internet-banking services in the regions. The IT specialists worked to install remote modules in the Bank's regional offices and integrate them into the corporate system. Over the year the

modules were customised for each office, its business operations, services, etc. Upgrading the technological base to support the Bank's increased activity in financial markets remained among the most important priorities of the IT department. UBS Equity Trader and GL Trade trading platforms optimised the Bank's operations in international stock exchanges. The Bank's access to the Bloomberg terminals allowed for the increased financial markets information and technology support of the customers and the Bank itself. In 2007 the Bank is planning to further enhance its IT infrastructure to accelerate the development of the most promising and popular activities. In the near future a dedicated team of business technologists will be created within the Bank's IT Department. Another strategic goal for 2007 is a creation of an efficient Management Information System (MIS). It will encourage the Bank's management system transparency, allow to set more precise goals for the Bank's departments and employees and assess profitability of the Bank's business lines.

4 FACTORS OF SUCCESS

31

Personnel Policy

All through the years of its activities Sudostroitelny Bank has sought to implement a deliberate and sound personnel policy to form an efficient and highly competitive team. In the past year the major priorities of the Bank's personnel policy were increasing professionalism in accordance with the market requirements, maintaining a high level of employees' motivation and preserving a climate of friendliness and trust. The high level of its personnel training influences greatly the Bank's competitive position and further development. In 2006 the Bank carried on with its employees' professional development plan financed as a dedicated on-budget expense item. The employees attended specialized courses and were given training in innovative technologies in new customers attraction and service (specifically, at the Institute for Professional Development and Training of Financial Professionals).

At Sudostroitelny Bank's staff selection criteria traditionally receive special attention. In the past year the Bank developed a series of tests to check potential employees' special knowledge and determine their general level of competence; besides, they underwent psychological testing. The priority was given to those having essential experience in financial institutions and skills in using modern banking technologies. Social partnership and keeping the employees interested in final results are strategically important for the Bank's personnel policy. In the reporting period the Bank's employee incentive plan included both financial (salary, bonuses, various kinds of remuneration) and non-financial (awards, employee benefits, medical examinations, retirement insurance, employees' children summer healthcare, etc.) components, the latter being especially emphasised.

Working with the Community

Community and charity programmes aimed at supporting cultural values, sports and fitness activities, as well as sponsoring talented young people and disadvantaged social groups, have been an essential part of Sudostroitelny Bank's activities since its foundation. The Bank traditionally considers it important to preserve the fundamentals of Orthodox culture and contributes to spiritual growth. In 2006 the Bank made a charitable contribution to the Cathedral of Christ the Saviour. As a constant guardian of Suzdal Orthodox School, the Bank supported the school's students. Sudostroitelny Bank's financial assistance in holding one of the major cultural event a concert of the great Russian cellist and coductor Mstislav Rostropovich devoted to the centenary of D. Shostakovich's birth on

23 September 2006 was of great significance for the Bank. The Bank's cooperation with organizations that promote sports and fitness activities plays an important role in its working with the community. The Bank continued to support the Russian Federation of the Close Fight and Karate that is engaged in physical training and realising one's inner potential. The Bank also was a sponsor to the All stars 2005/2006 hockey game. At the 2005/2006 closing ceremony the Bank awarded Alexey Morozov (forward of Ak Bars, Kazan) as the Best Play-Off Player. Considering it our honor and civic duty to support veterans of the World War II and the Great Patriotic War, the Bank organized the Victory day celebrations and congratulated defenders of our country.

ANNUAL REPORT 2006

32

Fresh Ideas. Mature Decisions.

33

The Bank's Financial Statements and Independent Auditors' Report

34

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)

Balance Sheet

(for publication purposes) as at 01 January 2007 Credit institution Commercial bank "Sudostroitelny bank" (LTD) (Limited Liability Company)

Sudostroitelny bank (LTD) Main state registration number 2999 BIC 044579918 Postal address: 5 Sadovnicheskaya Street, Moscow, Russia, 115035 thousand rubles As at the reporting date 3

No.

Name of line

As at the corresponding reporting date last year 4

1 I. 1. 2. 2.1. 3. 4. 5. 6. 7. 8. 9. 10. 11.

2 ASSETS Cash Placements with the Central Bank of the Russian Federation Required reserves Placements with credit institutions Net investment in trading securities Net loans to customers Net investment in investment held-to-maturity securities Net investment in available-for-sale securities Fixed assets, intangible assets and inventories Interest receivables Other assets Total assets

176 757 5 898 955 247 883 892 934 80 779 19 835 263 1 396 933 1 448 249 77 650 8 445 296 142 30 112 107

116 866 2 913 727 113 040 281 411 0 16 888 685 544 250 1 640 368 27 924 4 212 50 050 22 467 493

No.

Name of line

As at the As at the corresponreporting date ding reporting date last (thousand rubles) year (thousand rubles) 3 4

1 II. 12. 13. 14. 14.1. 15. 16. 17. 18. 19. III. 20. 20.1. 20.2. 20.3. 21. 22. 23. 24. 25. 26. 27. 28. IV. 29. 30.

2 LIABILITIES Loans from the Central Bank of the Russian Federation Amounts due to credit institutions Customer accounts (non- credit institutions) Deposits from individuals Debt securities issued Interest payables Other liabilities Provision for possible losses on off-balance sheet credit related commitments, other possible losses and settlements with off-shore residents Total liabilities EQUITY Funds of shareholders (participants) Registered ordinary shares Registered preference shares Unregistered authorized capital of non-incorporated credit institutions Treasury shares bought out from shareholders Share premium Revaluation of fixed assets Expenses of future periods and pending payments effecting equity (capital) Funds and retained earnings available to credit institution (prior year losses) Profit (loss) for the reporting period Total equity Total liabilities OFF-BALANCE LIABILITIES Irrevocable commitments of credit institution Guarantees issued by credit institution ment, 3. precious metals, 4. loans granted, 5. funds used for other purposes, 6. trust management settlements, 7. Accrued interest (coupon) income on bonds paid, 8. current accounts, 9. trust management expenses , 10. trust Chairman of the Management Board Chief Accountant

0 7 016 453 11 090 149 1 239 093 8 044 570 422 745 60 583 308 733 26 943 233

0 6 810 658 6 795 927 418 045 5 428 829 161 115 14 788 60 553 19 271 870

2 660 000 2 660 000 0 0 0 0 0 587 933 736 770 360 037 3 168 874 30 112 107

2 660 000 2 660 000 0 0 0 0 0 201 396 417 810 319 209 3 195 623 22 467 493

11 427 753 774 241

5 377 676 359 297

The following operations of Section V Trust management accounts do not appear on the Balance Sheet as they were not business lines of the bank in the reporting period: 1. Cash on hand, 2. Securities in trust manage-

management loss, 11. Capital in trust management, 12. trust management settlements, 13. accrued interest (coupon) income on bonds received, 14. trust management revenues, 15. trust management profit. Golubkov A.K. Zubova E. K.

36

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)

Profit and loss Statement

No. Name of line

(for publication purposes) for the year 2006 Credit institution Commercial bank "Sudostroitelny bank" (LTD) (Limited Liability Company)

Sudostroitelny bank (LTD) Main state registration number 2999 BIC 044579918 Postal address: 5 Sadovnicheskaya Street, Moscow, Russia, 115035 As at the As at the corresponreporting date ding reporting date last (thousand rubles) year (thousand rubles) 3 4

2 Interest received and similar income from:

1 2 3 4 5 6

Placements with credit institutions Loans to customers (non-credit institutions) Financial leasing services Fixed income securities Other sources Total interest received and similar income Interest paid and similar expenses:

483 656 1 893 906 0 178 248 1 240 2 557 050

391 298 1 368 319 0 123 939 1 423 1 884 979

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Funds borrowed from credit institutions Funds borrowed from customers (non-credit institutions) Debt securities issued Total interest paid and similar expenses Net interest and similar income Net income from securities transactions Net income from FX transactions Net income from transactions with precious metals and other financial instruments Net foreign currency revaluation gain Fee income Fee expenses Net income from extraordinary transactions Other net operating income General and administrative expenses Possible loss provisions Pre-tax profit Taxes accrued (including profit tax) Profit (loss) for the reporting period Chairman of the Management Board Chief Accountant

300 278 55 781 417 431 773 490 1 783 560 -31 229 -1 536 0 138 104 129 949 46 833 4 511 -18 771 318 533 -1 209 304 429 918 69 881 360 037

188 339 19 304 277 802 485 445 1 399 534 -105 869 -17 389 0 -176 385 96 083 30 253 1 510 -5 535 199 178 -614 845 347 673 28 464 319 209 Golubkov A.K. Zubova E. K.

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)

37

Report on capital adequacy and provisions for doubtful loans and other assets

(for publication purposes) as at 01 January 2007 Credit institution Commercial bank "Sudostroitelny bank" (LTD) (Limited Liability Company)

Sudostroitelny bank (LTD) Main state registration number 2999 BIC 044579918 Postal address: 5 Sadovnicheskaya Street, Moscow, Russia, 115035

No.

Name of line

thousand rubles As at the reporting date 3 3 278 549 16.6 10,0 2 794 668 2 794 668 358 251 358 251

As at the corresponding reporting date last year 4 3 219 899.0 21.9 10.0 1 882 835.0 1 882 835.0 60 785.0 60 785.0

1 1 2 3 4 5 6 7

2 Equity (capital), thousand rubles Actual value of equity (capital) adequacy, % Standard value of equity (capital) adequacy, % Estimated possible loan loss provisions, thousand rubles Actual possible loan loss provisions, thousand rubles Estimated possible loss provisions, thousand rubles Actual possible loss provisions, thousand rubles

Chairman of the Management Board Chief Accountant

Golubkov A.K. Zubova E. K.

ANNUAL REPORT 2006

38

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (RUSSIAN ACCOUNTING STANDARDS)

Independent Auditors' Report

AUDIT DATE: Audit firm: State registration number and date:

In our opinion, the financial statements of Commercial bank "Sudostroitelny bank" (LTD) present fairly in all material aspects its financial position as at 31 December 2006 and the results of its

performance for the period from 01 January 2006 to 31 December 2006 inclusively in compliance with the legislation of the Russian Federation.

04 April 2007 "FinExpertiza" Ltd. State Registration Certificate 937.341, issued by Moscow Registration Chamber 05 May 1997 E 002588, issued 06 November 2002 06 November 2002 05 November 2007 Ministry of Finance of the Russian Federation yes Trubnikova Yelena Aleksandrovna Data on person who

Number and date of license issue: License is valid from License is valid until License is issued by Membership in accredited audit association: Last name, first name, patronymic of audit firm CEO: HAS AUDITED (HEAD OF AUDIT): Last name, first name, patronymic: Position: Number and date of qualification certificate issue: Qualification certificate is valid until Document that authorizes person who has audited (type, number, date):

Borzova Natalya Evgenyevna Deputy General Director 002167 as of 20 December 2002 Unlimited validity Order 1/1 as of 09 January 2007

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

39

Independent Auditors' Report

To the Members and the Board of Directors of Commercial Bank Sudostroitelny Bank (Limited Liability Company): We have audited the accompanying financial statements of Commercial Bank Sudostroitelny Bank (Limited Liability Company) (the Bank), which comprise the balance sheet as of 31 December 2006, and the income statement and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. ate accounting policies; and making accounting estimates that are reasonable in the circumstances.

ZAO Deloitte & Touche CIS Business Center "Mokhovaya" 4/7 Vozdvizhenka St., bldg. 2 125009 Moscow Russian Federation Phone Number: 7 (495) 787 0600 Fax Number: 7 (495) 787 0601 www.deloitte.ru

Auditor's responsibility
Our responsibility is to express an opinion on these 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 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 auditor's 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 prepara-

Management's responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these 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 financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropri-

tion 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 financial statements present fairly, in all material respects the financial position of the Bank as of 31 December 2006, its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. 20 February 2007, Moscow

ANNUAL REPORT 2006

40

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

Statement of Management's Responsibilities for the Preparation and Approval of the Financial Statements for the year ended 31 December 2006

The following statement, which should be read in conjunction with the independent auditors' responsibilities stated in the independent auditors' report set out on pages 2-3, is made with a view to distinguishing the respective responsibilities of management and those of the independent auditors in relation to the financial statements of Commercial Bank Sudostroitelny Bank (Limited Liability Company) (the Bank). Management is responsible for the preparation of the financial statements that present fairly the financial position of the Bank as of 31 December 2006, the results of its operations and cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRS). In preparing the financial statements, management is responsible for: Selecting suitable accounting principles and applying them consistently; Making judgements and estimates that are reasonable and prudent; Stating whether IFRS have been followed, subject to any material departures disclosed and explained in the financial statements; and Preparing the financial statements on

a going concern basis, unless it is inappropriate to presume that the Bank will continue in business for the foreseeable future. Management is also responsible for: Designing, implementing and maintaining an effective and sound system of internal controls for the Bank; Maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial position of the Bank, and which enable them to ensure that the financial statements of the Bank comply with IFRS; Maintaining statutory accounting records in compliance with legislation and accounting standards of the Russian Federation; Taking such steps as are reasonably available to them to safeguard the assets of the Bank; and Detecting and preventing fraud and other irregularities.

These financial statements for the year ended 31 December 2006 were approved on 19 February 2007 by the Bank's Board of Directors.

On behalf of the Board of Directors: __________________________________ Chairman of the Management Board 19 February 2007 Moscow __________________________________ Chief Accountant 19 February 2007 Moscow

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

41

Income Statement for the Year Ended 31 December 2006

Notes Year ended 31 December 2006 (RUR'000) 1,736,477 (911,095) 825,382 5 (44,945) 780,437 6 7 8 8 9 (92,217) 238,087 155,548 (58,995) 47,520 289,943 1,070,380 10, 24 (360,682) 709,698 5 (21,693) 688,005 11 (186,544) 501,461 Year ended 31 December 2005 (RUR'000) 1,559,522 (672,307) 887,215 (9,111) 878,104 (13,617) 34,551 96,188 (52,867) 9,963 74,218 952,322 (225,189) 727,133 3,524 730,657 (250,328) 480,329

Interest income Interest expense NET INTEREST INCOME BEFORE PROVISION FOR IMPAIRMENT LOSSES ON INTEREST BEARING ASSETS Provision for impairment losses on interest bearing assets NET INTEREST INCOME Net loss on assets at fair value through profit or loss Net gain on foreign exchange operations Fee and commission income Fee and commission expense Other income NET NON-INTEREST INCOME OPERATING INCOME OPERATING EXPENSES OPERATING PROFIT (Other provision)/recovery of other provision PROFIT BEFORE INCOME TAX Income tax expense CHANGE OF NET ASSETS ATTRIBUTABLE TO THE MEMBERS OF THE BANK

4, 24 4, 24

On behalf of the Board of Directors: __________________________________ Chairman of the Management Board 19 February 2007 Moscow __________________________________ Chief Accountant 19 February 2007 Moscow

ANNUAL REPORT 2006

42

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

Balance Sheet as of 31 December 2006

Notes Year ended 31 December 2006 (RUR'000) Year ended 31December 2005 (RUR'000)

ASSETS: Cash and balances with the Central Bank of the Russian Federation Assets at fair value through profit or loss Loans and advances to banks Loans to customers Fixed assets Other assets TOTAL ASSETS LIABILITIES: Deposits from banks Customer accounts Debt securities issued Other provisions Current income tax liabilities Deferred income tax liabilities Other liabilities TOTAL LIABILITIES Net assets attributable to the members of the Bank 22 18 19, 24 20 5, 23, 24 11 11 21 7,922,287 10,843,082 5,046,930 23,884 29,271 504,409 81,956 24,451,819 4,251,960 7,006,531 6,836,774 3,772,891 2,191 1,509 364,086 16,217 18,000,199 3,750,749 12 13 14 15, 24 16 17 6,051,986 5,458,709 5,693,345 11,129,802 77,749 292,188 28,703,779 3,029,499 7,309,073 5,038,052 6,337,227 32,429 4,668 21,750,948

On behalf of the Board of Directors: __________________________________ Chairman of the Management Board 19 February 2007 Moscow __________________________________ Chief Accountant 19 February 2007 Moscow

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

43

Statement of Cash Flows for the Year Ended 31 December 2006

Notes Year ended 31 December 2006 (RUR'000) Year ended 31 December 2005 (RUR'000)

CASH FLOWS FROM OPERATING ACTIVITIES: Income before income tax Adjustments for: Provision for impairment losses on interest bearing assets Other provision/(recovery of other provision) Amortization of discount on debt securities issued Adjustment of fair value of financial instruments at fair value through profit or loss Net change in replacement value of derivative financial instruments and spot deals Accrued expenses Depreciation of fixed assets Loss on disposal of fixed assets Net change in interest accruals Loss/(gain) from foreign currency revaluation Cash flows from operating activities before changes in operating assets and liabilities Changes in operating assets and liabilities (Increase)/decrease in operating assets: Minimum reserve deposit with the Central Bank of the Russian Federation Assets at fair value through profit or loss Loans and advances to banks Loans to customers Other assets Increase/(decrease) in operating liabilities: Deposits from banks Customer accounts Other liabilities Cash inflow/(outflow) from operating activities before income tax Income tax paid Net cash inflow/(outflow) from operating activities 688,005 44,945 21,693 40,665 (87,149) (17,039) 4,333 10,634 173 119,412 209,428 1,035,100 730,657 9,111 (3,524) (11,647) (1,857) 14,359 4,709 7,527 142 (28,513) (76,790) 644,174

(133,288) 1,794,518 (504,289) (4,988,435) (272,742) 1,063,658 4,020,403 68,446 2,083,371 (18,459) 2,064,912

(49,368) (3,505,401) 858,911 (740,313) 5,925 (74,316) 2,150,290 (17,873) (727,971) (11,585) (739,556)

ANNUAL REPORT 2006

44

5 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS (IFRS)

Notes

Year ended 31 December 2006 (RUR'000)

Year ended 31 December 2005 (RUR'000)

CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets Proceeds from disposal of fixed assets Acquisition of investments available-for-sale Net cash outflows from investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt securities issued Payments from net assets attributable to the members of the Bank Net cash inflows from financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS Effects of exchange rate changes on cash and cash equivalents NET INCREASE IN CASH AND CASH EQUIVALENTS AFTER EFFECT OF EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS, beginning of the period CASH AND CASH EQUIVALENTS, end of the period 12 12 1,154,443 (250) 1,154,193 3,161,363 (21,189) 3,140,174 3,142,045 6,282,219 1,133,872 (2,100) 1,131,772 375,753 15,145 390,898 2,751,147 3,142,045 (58,000) 1,873 (1,615) (57,742) (16,730) 267 (16,463)

Interest paid and received by the Bank during the year ended 31 December 2006 amounted to RUR 696.590 thousand and RUR 1.682.049 thousand, respectively. On behalf of the Board of Directors: __________________________________ Chairman of the Management Board 19 February 2007 Moscow

Interest paid and received by the Bank during the year ended 31 December 2005 amounted to RUR 712.994 thousand and RUR 1.571.696 thousand, respectively.

__________________________________ Chief Accountant 19 February 2007 Moscow

Address: Tel.: Fax:

Moscow Head Office 5, Sadovnicheskaya st., Moscow, 115035, Russia +7 (495) 777 1121, 745 9890, 745 7990 +7 (495) 959 0888 www.sbank.ru Office "Volokolamka, 14" 14, Volokolamskoe shosse, Moscow, 125080, Russia +7 (495) 411 7883, 411 8087 Office "Yakimanka, 21" 21, Bolshaya Yakimanka st., Moscow 109180, Russia +7 (495) 230 7461 +7 (495) 230 7516 "Bentley" office 114/2 "Bentley Moscow", Barvikha Luxury Village, Moscow region, Russia +7 (495) 980 6813 Office "Zelenograd" 1, str. 2, 4th Zapadnyi pr., Zelenograd, Moscow, 143083, Russia +7 (495) 535 1373, 535 0933 St-Petersburg Office 18-H, bld. 12 lit.A, Ryuchina st., St.-Petersburg, 191186, Russia +7 (812) 234 0333, 234 0066 +7 (812) 234 0333 Nizhny Novgorod 3, Novaya st., Nizhny Novgorod, 603000, Russia +7 (8312) 78 0518, 78 0519 Ekaterinburg 3, Chernyshevskogo st., Ekaterinburg, 620014, Russia +7 (343) 376 6390

Address: Tel.:

Address: Tel.: Fax.:

Address: Tel.:

Address: Tel.:

Address: Tel.: Fax:

Address: Tel./Fax:

Address: Tel./Fax: