How We Perform

The risk management function within RosEvroBank is carried out in respect of financial risks (credit, geographical, currency and interest rate risks), operational risks and legal risks. The primary objectives of the financial risk management function are to establish risk limits and then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimize operational and legal risks.

Credit Risk. RosEvroBank takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay all amounts in full when due. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to a quarterly or more frequent review. Limits on the level of credit risk by product and industry sector are approved by the Credit Committee.

Market Risks. RosEvroBank takes on exposure to market risks. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The Asset/Liability Committee sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses beyond these limits in the event of more significant market movements.

Liquidity Risk. Liquidity risk is defined as the risk when the maturity of assets and liabilities does not match. RosEvroBank is exposed to daily calls on its available resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from margin and other calls on cash settled derivatives. The Bank does not maintain cash resources to meet all of these needs. Experience shows, however, that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty and the liquidity risk is managed by the Asset-Liability Committee accordingly.

Legal Risk. From time to time and in the normal course of business, claims against RosEvroBank are received. On the basis of its own estimates and internal professional legal advice the Management is of the opinion that no material losses will be incurred in respect of claims. Accordingly, as at 31 December 2004, and before at year-end 2003, no respective provisions were made.

Operational Risk. Operational risk is associated with the Bank's operation as a company and the management of its business. Operational risk management is provided by using an internal control structure that complies with the Central Bank of Russia's requirements and recommendations published by the Basle Committee on Banking Supervision. The officer in charge is the Bank's compliance officer who also assumes responsibility for internal anti-money laundering control and reports directly to the Chairman of the Managing Board.

AML Procedures. The Bank has the following programmes and procedures in place:

In addition, the Bank has a Compliance (Financial Monitoring) Department headed by the AML Officer. This Department reports directly to the Chairman of the Managing Board and is responsible for sending information on all potentially suspicious transactions to the Financial Monitoring Committee of the Russian Federation and to the Central Bank of the Russian Federation.

Strict AML control measures are established both for corporate and private individual customers as well as for financial institutions.