
Management Report



LETTER FROM THE MANAGEMENT
Dear customers, investors and partners,
2016 was a year of diverse trends. On the one hand, it was
marked by the continuation of economic stagnation which made lending growth viable
only with the acceptance of substantial risks, causing a major slowdown across the
banking sector and intensifying the competition for high-quality borrowers. At the
same time, the decline in assets, loans and deposits in the Russian banking sector
during 2016 was largely due to currency revaluation. Strengthening rouble and
lowering interest rates create opportunities for economic recovery and normalization
in the financial sector.
In this challenging environment the Bank posted strong results. The revenues reached
a record RUB 31 bn, boosted by net interest margin recovery. Compared with the
previous year, net interest income gained 27% reaching RUB 22 bn, while net fee and
commission income grew by 16% to RUB 4.7 bn. The Bank’s 2016 net profit amounted to
RUB 4.3 bn, demonstrating an 18% growth year on year.

Selective Business Growth
We are making a shift to building comprehensive relationships with our
corporate customers, focused on overall customer profitability rather than individual
transactions. We are also launching new products for small and medium enterprises with the
intent to boost cross sales and increase our non-interest income in St. Petersburg and
Kaliningrad.
We work selectively with major borrowers, attracting new customers in the regions where we
operate. For instance, the Novosibirsk Representative Office which the Bank opened in August
2016, targets large and medium-sized corporate customers in the Siberian and Far Eastern
Federal Districts boasting at the year’s end a portfolio of 12 loan transactions with a
total value of RUB 3 bn.
Retail lending, especially mortgage and unsecured loans, still demonstrate a great growth
potential. By the end of 2016, Bank Saint Petersburg was ranked 5th in Russia within the
State Mortgage Subsidy Program and 10th in terms of new mortgages issued. In December 2016,
the Bank completed the debut RUB 3.7 bn mortgage loan portfolio securitization.
Innovations Leadership
Being one of the national digital banking leaders, the Bank
continues to develop and introduce innovative solutions for online financial
services, creating a unique cutting edge customer experience. Among the most
important innovations of 2016, are the new BSPB Mobile app for individual users and
the Traffic Lights solution for corporate users enhancing the security of their
payments.
The high-tech services developed by the Bank became a convenient payment environment
to the fullest extent possible. The number of our Internet Bank users already
reached 770 000 individuals, representing 1/4 of the economically active population
of St. Petersburg. Online deposits accounted for 62% of retail term deposits placed
in 2016. Online consumer loans accounted for 85% of all consumer loans granted in
2016. Every year, 96% of retail payments and 99% of all corporate transactions are
made through digital channels.

Loan Book Quality Management
Our principal goal for today is to retain our loan portfolio, adjusting its structure to improve quality. We refrain from taking greater risks in high-risk segments and pay particular attention to the collateral pledged. Throughout 2016, we gradually reduced loan loss provisions given the steady macroeconomic recovery.
Opportunities for Investors
Although the Bank’s share price grew in 2016 by 54% to RUB 67, the
Bank still remains the most undervalued bank in the market (with P/BV remaining at 0.5),
with a significant upside for the growth of shares. Since October 2016, the Bank’s ordinary
shares have been traded with a level 1 listing. It proves that Bank Saint Petersburg
conforms to the highest corporate governance standards and aims to achieve the maximum level
of openness in dealing with its current and potential investors.
The Bank has been increasing book value per share for its shareholders: at the beginning of
2016, to support share price and to overcome the current undervaluation, the Bank bought
back 2.7% of the share capital. In 2Q 2016, the Bank sold all of its acquired treasury
shares. As at January 1, 2017, book value per share has reached RUB 138.
We deliver on our commitments, and, in line with our Dividend Policy, have once again paid
dividend of 20% of our net profit under Russian Accounting Standards.
Following the updates made by the Supervisory Board in
September 2016, the key priority of the Bank’s Strategy is efficiency. During
2017–2018 we intend to significantly improve our internal processes and employee
competencies, thus making the Bank substantially more efficient with the capacity
for rapid growth in case of future economy acceleration.
The key financial target is still to achieve long-term sustained growth of the
Bank's shareholder value and bring return on equity back to 15%. This is to be
effected through increasing the percentage of retail loans in the loan portfolio to
20%, supporting selective growth of the corporate business coupled with enhanced
profitability, and tightening our grip on the cost of risk.
We will continue to introduce innovative high tech solutions and develop our
countless online banking know-how. We invest in innovations to stay on the cutting
edge of technology both today and on a mid-term horizon.

We will continue to optimize our branch network to ensure full coverage of our home region.
In 2017, we are completing a large-scale project with the aim of fully transforming our
retail offices. 18 offices of the new format have already been opened in St. Petersburg,
featuring comprehensive organizational and technological innovations and convenient
locations. At the same time, we are starting to close down/relocate our old format
offices.
We are justly proud of our market share, long-term customer relations, strong team of
professionals, and impeccable reputation. We would like to express our most sincere
gratitude to all customers, investors and partners for our mutually beneficial cooperation.
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Elena Ivannikova | Alexander Savelyev | Maris Mancinskis |
Chairperson of the Supervisory Board |
Chairman of the Management Board |
First Deputy Chairman of the Management Board, CEO |

THE BANK AND ECONOMIC TRENDS
Bank Saint Petersburg is the largest privately-owned universal bank in Northwest Russia and plays an important and constructive role in the development of the Russian banking system, established in the same year as the Bank. As of January 1, 2017, Bank Saint Petersburg was the 16th largest bank by assets and the 14th largest by retail deposits among Russian banks.
Bank Saint Petersburg is the largest Russian regional bank
with a strong and positive brand that has won the trust and support of its
customers: today, the Bank provides services to 1 770 000 individuals and 52 000
corporates, including major companies located in St. Petersburg. As of January 1,
2017, the Bank’s customer service network comprises 61 outlets (52 in St.
Petersburg), 8 mortgage lending centres, 3 car lending centres and 781 ATMs.
The Bank’s business remains primarily focused on St. Petersburg, which has a
market comparable in capacity and size to Paris or a medium-sized European country,
such as Denmark or Finland. Bank Saint Petersburg maintains a stable position across
all major banking service markets. As of the end of 2016, the Bank held the
following market shares in St. Petersburg: 16.9% of the SME lending market, 8.6% of
the corporate deposits market, 7.8% of the retail lending market, and 8.6% of the
retail deposits market.
St. Petersburg accounts for 74% of loans and 91% of deposits of the Bank.
Bank Saint Petersburg has expert knowledge of the region, responding promptly to
customer needs and market changes. The Moscow branch accounts for 24% of loans and
6% of deposits and the Evropeisky Branch in Kaliningrad accounts for 2% and 3%
respectively. Business is also diversified by industry and lending volumes.
Bank Saint Petersburg is the first bank in the last 100 years that has
designed and built its own headquarters in St. Petersburg. The ultramodern Head
Office was opened in 2011 and became an embodiment of the most advanced technologies
in the fields of engineering solutions and customer service.
The Bank is one of the national leaders in the application of
high technology solutions. When opening new offices, the Bank is introducing its
"office of the future" concept and, at the same time, is actively developing its
business in a digital environment. The number of individuals who signed up for
Internet Bank showed a growth of more than 20% in 2016: from 600 000 to 770 000,
representing 1/4 of the economically active population of St. Petersburg, and every
eighth person in this population group uses the mobile banking application, with the
number of downloads exceeding 200 000.
Bank Saint Petersburg became the first privately-owned Russian bank to
complete an IPO at the end of 2007, as this guaranteed not only new equity, but also
a new level of reliability and reputation. Today, Bank Saint Petersburg is listed on
the Moscow Exchange. To this day, the IPO of Bank Saint Petersburg maintains its
status as one of the most successful IPOs among Russian banks.
First and foremost, Bank Saint Petersburg is a city bank whose task is to
contribute to St. Petersburg’s future by providing high quality banking services to
the residents of the city and its local companies. The Bank pays special attention
to the financing programs related to the city life of St. Petersburg by providing
loans to all spheres of industry and production facilities, as well as actively
developing credit programs focused on small and medium enterprises (SMEs). The Bank
follows the principles of corporate social responsibility and supports city programs
aimed at improving the social and economic climate of St. Petersburg.






STATEMENT OF COMPREHENSIVE INCOME ANALYSIS
The principal factors that influenced the Bank’s 2016 financial results included:
- FY 2016 Net Income increased by 18.2% and amounted to RUB 4.3 bn;
- FY 2016 Revenues increased by 11.0% and amounted to RUB 31.1 bn;
- FY 2016 Net fee and commission income increased by 16.3% to RUB 4.7 bn;
- The retail loan portfolio during FY 2016 increased by 11.7% to RUB 54.4 bn.
* One-off incomes are excluded from Revenues and Net Trading Income. Provisions for FY 2012 have been reduced by gains from the disposal of investment property.





LOAN PORTFOLIO QUALITY
Since lending constitutes the majority of the Bank’s assets, the Bank focuses on maintaining the high quality of its loan portfolio.
In 2016, the volume of loans to customers (gross loans) decreased by 4.3% and stood at RUB 354.3 bn. The provision charge for FY 2016 remained at the previous year’s level and amounted to RUB 12.5 bn. As of January 1, 2017, the allowance for loan impairment amounted to 11.2% of the loan portfolio (compared to 9.4% as of January 1, 2016).
Loan portfolio quality

* Overdue loans include the entire principle of the loan at least one day overdue.
As of January 1, 2017, the share of problem loans in the Bank’s portfolio (the total
share of overdue loans and impaired loans that are not past due) amounted to 15.2%
(compared to 12.4% as of January 1, 2016). The share of overdue loans in the Bank’s
portfolio amounted to 6.0% of the total volume of loans. The share of corporate overdue
loans amounted to 6.0% of the total corporate loans; the share of retail overdue loans
amounted to 6.0% of the total retail loans. As of January 1, 2017, impaired loans that
are not past due constituted 9.2% of the total volume of loans.
Provisions for the coverage of overdue loans were 185%. In 2016, the volume of loans
written off amounted to RUB 7.9 bn.
Provision charge and Cost-of-Risk

As of January 1, 2017, corporate loans comprised 83.0% of the loan portfolio, the volume
of which decreased by 7.1% in 2016 to RUB 294.2 bn.
In 2016, the retail loan portfolio (mortgage, car and consumer loans) increased by 11.7%
and amounted to RUB 54.4 bn. As of January 1, 2017, loans to individuals amounted to RUB
60.1 bn (up 12.4% compared to January 1, 2016). The share of loans to individuals in the
loan portfolio amounted to 17.0% as of January 1, 2017 (compared to 14.4% in the
previous year).
Retail loan portfolio dynamics, RUB bn

One of the highlights of 2016 for the Bank was mortgage lending. At the year’s end in 2016, Bank Saint Petersburg was ranked 5th in Russia within the State Mortgage Subsidy Program and 10th in terms of new mortgages issued. In St. Petersburg, the Bank’s share in new mortgage lending amounted to 18% in 2016.
Strong performance in the Russian mortgage lending market

BALANCE SHEET STRUCTURE
The Bank’s assets increased by 3.2% in 2016, reaching RUB 580.3 bn, compared to RUB 562.5 bn as of January 1, 2016.
Gross loans decreased by 4.3% in 2016 and stood at RUB 354.3 bn, compared to RUB
370.3 bn as of January 1, 2016. The share of loans and advances to customers
comprised 54.2% of total assets.
Securities portfolio decreased by 5.3% in 2016 and amounted to RUB 105.4 bn,
compared to RUB 111.4 bn as of January 1, 2016. The share of the securities
portfolio comprised 18.2% of total assets.
Amounts under reverse repo increased in 2016 from RUB 15.2 bn to RUB 58.5 bn.
The share of the amounts under reverse repo comprised 10.1% of total assets.
The volume of customer deposits (customer accounts and promissory notes and
deposit certificates issued) increased in 2016 by 4.3% to RUB 357.8 bn, compared
to RUB 343.0 bn as of January 1, 2016. The share of customer deposits comprised
61.7% of the liabilities and equity total.
The volume of due to banks decreased in 2016 by 2.7% to RUB 131.7 bn, compared
to RUB 135.3 bn as of January 1, 2016. The share of due to banks comprised 22.7%
of the liabilities and equity total.
As of January 1, 2017, the share of funds attracted from capital markets was
3.2% of the liabilities and equity total, compared to 3.9% as of January 1,
2016.
Assets and liabilities structure, January 1, 2017, RUB bn

CUSTOMER DEPOSITS
The volume of customer deposits (customer accounts and promissory notes and deposit
certificates issued) increased in 2016 by 4.3%, reaching RUB 357.8 bn (RUB 343.0 bn as
of January 1, 2016). As of January 1, 2017, 52.4% of customer accounts belonged to
individuals and 47.6% belonged to corporate customers.
Retail customer deposits remained at the previous year’s level, amounting RUB 187.4 bn,
whereas corporate customer deposits increased by 10.0% to RUB 170.4 bn.
During 2016, corporate term deposits went up by 10.1% to RUB 87.5 bn. Retail term
deposits declined by 3.1% and stood at RUB 141.8 bn.
Customer deposits, RUB bn

SHAREHOLDERS EQUITY AND CAPITAL
As of January 1, 2017, the Bank’s shareholders’ equity stood at RUB 60.9 bn (up 7.2% compared to January 1, 2016). The Bank’s total capital amounted to RUB 81.6 bn (up 0.7% compared to January 1, 2016). In compliance with Basel Committee requirements, as of January 1, 2017, the Bank’s total capital adequacy stood at 16.2% and Tier 1 capital adequacy stood at 11.0%.
Capital Adequacy Ratio

INVESTOR RELATIONS
The Bank makes every effort to increase transparency, in addition to improving the quality and quantity of information available to its investors and shareholders. The Bank is focused on providing equal access to public information to all of its stakeholders.
Recognising that quality analytical coverage is a key aspect in
the formation of an investor’s perception of an issuer, the Bank held an Analyst Day
event in Moscow in April 2016. Among the Bank's guests were analysts from investment
banks who prepared periodical reports about the Bank for stock market participants,
analysts from rating agencies as well as journalists from leading federal mass
media.
Making every effort to maintain a two-way dialogue with the investment community, the
Bank’s representatives pay significant attention to interacting with its current and
potential investors. Throughout 2016, the Bank's management participated in
international investment conferences and road shows, while various one-on-one meetings
were also held on a regular basis at the Bank's headquarters. In 2016, 4 webcasts
dedicated to financial results were held for investors and analysts.
In September 2016, for the first time ever, Bank Saint Petersburg held an Investor Day
event in Moscow. The Bank’s current and potential investors were given the opportunity
to speak directly to representatives of the Bank's various businesses. The guests also
received an overview of the Bank’s innovative online banking services, which are
unparalleled in the market. Investor Day opened a new page in the Bank’s history of
relations with its investors. The event’s guests mentioned that face-to-face
communication with the Bank’s top-management was a significant step towards increasing
transparency and investment attractiveness. Bank Saint Petersburg will retain the
practice of regular meetings in the same format.
TRADING IN THE BANK’S ORDINARY SHARES
The Bank's ordinary registered shares (state registration number 10300436В, ISIN: RU0009100945) are listed on the stock market of the Moscow Exchange. Since October 28, 2016, the Bank’s ordinary registered shares have been traded with a level 1 listing (stock ticker BSPB). The Bank's shares are included into the following Moscow Exchange indices: the Moscow Exchange Indices (MICEX Second tier Index – MICEXSC – and RTS Second tier Index – RTS2); the Broad Market Index (MICEX BMI/RUBMI); and the Sectoral Financials Index (MICEX FNL/RTSFN). Information on the price can be found on the Moscow Exchange website at www.moex.com, stock ticker BSPB.
2016 The Bank’s ordinary shares performance vs. MICEX and MICEX Finance Indices

OPPORTUNITIES FOR INVESTORS
In 2016, although the Bank’s share price grew by 54% to RUB 67, the Bank still remains the most undervalued bank in the market (with P/BV remaining at 0.5), with a significant upside for the growth of shares.
The cheapest bank in the market

* Peers – other publicly-traded Russian banks.
The Bank has been increasing its book value per share for its shareholders: at the beginning of the year, in order to support share price and to overcome the current undervaluation, the Bank bought back 2.7% of the share capital. As of January 1, 2017, its book value per share has reached RUB 138.
The Bank is increasing book value per share for its shareholders

DIVIDEND POLICY
In accordance with the Russian legislation, dividends are based on
net profit according to RAS. The dividend amount is approved by the General
Shareholders’ Meeting, as recommended by the Supervisory Board.
In 2016, the Bank also paid dividends of 20% of RAS net profit, which corresponds to 13%
of IFRS net profit.
2016 dividend payout ratio vs. 2015 IFRS net income

* Peers – other publicly-traded Russian banks. Unless otherwise indicated, capital adequacy ratio and ROAE are for 2015.
In February 2016, the Supervisory Board approved the Bank’s Dividend Policy. This document establishes the Bank's intention to maintain a dividend payout ratio of 20%+ of the Bank's RAS net profit (RUB 2.3 bn for FY 2016).
Business
Divisions


RETAIL BANKING
As one of the key players in St. Petersburg’s retail banking services, Bank Saint Petersburg aims to become the first bank of choice for the city's residents. The Bank currently has 1 770 000 retail customers, forming a solid base for the future successful growth of its retail business.
Throughout 2016, the retail loan portfolio increased by 11.7% to RUB 54.4 bn. While mortgage
loans gained 20.0%, consumer and car loans showed a 4.3% and 35.3% decline respectively. The
share of loans to individuals reached 17.0% of the total loan portfolio.
In 2016, the total amount of retail deposits decreased by 0.3%, totalling RUB 187.4 bn. The
share of retail deposits amounted to 52.4% of total customer deposits.
The Bank was ranked among the top 5 retail banks in terms of customer service quality,
according to the Retail Finance Awards 2016.






PRIVATE BANKING
Since 2007, the Bank has successfully been developing a modern Private Banking business, providing personal banking services to the wealthiest private clients.
The Bank's VIP customers are served at a specially designated, centrally located office,
which features the highest standards of comfort, safety and confidentiality, including a
separate parking area and a convenient vault room.
As of January 1, 2017, the total number of VIP-segment clients stood at 2 109, of whom 1 348
were members of the VIP-Club Private Banking BSPb, a private club for wealthy private
clients. In the uneasy economic climate of 2016, the volume of deposits from the VIP-segment
increased by more than 5%, reaching more than RUB 46.8 bn.
Private Banking allows customers to receive the full range of banking products and services,
including deposits, lending and cash management services, as well as brokerage, dealing and
consulting services that are tailored to address the individual client’s needs. The large
number of investment, real estate and insurance partners allows the settlement of customer
issues in varying levels of complexity. The Bank's Concierge Service efficiently deals with
customer requests related to travel, private aviation, real estate, art purchases,
etc.
Private Banking is continuously updating and refining its own line of products and services
offered to its customers. The following projects were launched in 2016:
- Streamlined deposit and loan product lines;
- Improved tariff plans for VIP customers;
- A wider range of services related to the comprehensive support of real estate transactions;
- The start of portfolio sales of Eurobonds issued by Bank Saint Petersburg and other issuers.
The Bank’s Private Banking business is committed to consistently enhancing its service quality, broadening its customer base, and improving the range of its products and services.
Digital
Banking








Relationships and Responsibility

CUSTOMERS
Bank Saint Petersburg is the largest private bank in Northwest Russia. The financial services provided by the Bank support the local development of the region and its sustainable economic growth, as well as helping individual customers to reach their financial targets.
Services for customers still constitute the core of the Bank’s business. The Bank has 1 770 000 individual customers and 52 000 corporate customers. Its proximity to customers, high processing speed, and flexibility of decisions remain the traditional advantages of Bank Saint Petersburg in the Northwest region. Combined with the introduction of new quality standards for all operations, settlements and services, these factors determine the Bank’s contribution to the social and economic growth of the Russian Northwest.

COLLEAGUES
Bank Saint Petersburg inspires its employees to grow and gives them every opportunity to unlock their potential and progress professionally. The human resources management strategy is set in the HR Policy and remains unchanged. However, the Bank applies unique and innovative HR management approaches and practices according to its business goals, from recruitment and competency training to employee engagement management.
Bank Saint Petersburg is one of the largest employers in the region, with a head count of 3 981 employees as of January 1, 2017. Currently, 40% of the Bank’s staff work in the branch network and 26% work in the Head Office business departments.
Staff composition by business line, January 1, 2017

Staff composition by age, January 1, 2017





COMMUNITY
Bank Saint Petersburg attaches great importance to the successful development of the regions of its presence, strictly adhering to social responsibility principles in its business operations. As the largest private bank in the Russian Northwest, Bank Saint Petersburg never distances itself from socially significant projects in the region, but rather takes an active part in them.
The Bank pays particular attention to the following three groups of social responsibility initiatives: support for underprivileged children, developing the urban environment, and encouraging financial awareness.




Corporate Governance

Corporate Governance Structure, January 1, 2017


RISK MANAGEMENT
The strategic objective of risk management is to ensure the Bank’s financial stability. The existing risk management framework comprises a set of measures and solutions designed to identify, monitor and assess all material risk types, to determine their acceptable level, and to mitigate/limit each type of risk.
Pursuant to current legislation and the Bank’s Articles of Association, the Supervisory Board approves the Risk and Capital Management Policy, which covers the coordination of actions taken to enhance the risk management framework, to consistently improve methodology, to standardize and automate risk management processes. The Supervisory Board has a dedicated Risk Management Committee that assists the Supervisory Board in overseeing the Bank’s risk management system, and the efficient identification, quantification and control of risk.
The risk management system addresses the following types of banking risks:
- Credit risk;
- Liquidity risk;
- Market risk, including:
- Stock market risk;
- Currency risk;
- Commodity risk;
- Interest rate risk; - Operational risk;
- Strategic risk.
The Bank measures its assumed risks against its equity, supporting the capital
adequacy level required by the Bank of Russia, which allows the bank to meet its
obligations (including contractor covenants), and to maintain its efficient
utilization of capital.
The Bank is consistently enhancing its risk management system and taking measures to
identify foreign taxpayers among its customers. It is also developing procedures
that are used to prevent money laundering and the financing of terrorism.








SHAREHOLDERS EQUITY STRUCTURE
As of January 1, 2017, the Bank’s charter capital was RUB 459 654 000 and consisted of 439 554 000 ordinary shares with a nominal value of 1 ruble per share and 20 100 000 preferred shares with a nominal value of 1 ruble per share. All issued shares have been paid in full.
Shareholders equity structure (ordinary shares), January 1, 2017

According to the resolution of the Supervisory Board, in March 2016 the Bank acquired 12 613 082 of its own outstanding ordinary shares. In 2Q 2016, the Bank sold all of its acquired treasury shares.
