Annual Report 2014

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Dear Colleagues and Partners!

For Vnesheconombank, the year 2014 marking its 90th Anniversary was a special year.
It is a matter of great pride for VEB’s team that throughout all these years, the Bank has been the key driver behind the projects crucial for Russia’s economy and the international profile. In fact, the Bank has been invariably acting as a financial development institution working for and evolving together with the country.

We shared the national joy at the success of the Sochi Winter Olympics and applauded the impressive victories of Russian athletes. Admittedly, we feel our personal contribution to the achievements of our Olympians: as they say in Russia, at home even walls help, and a considerable part of the Olympic sports facilities have been erected with a direct commitment of Vnesheconombank.

For us, the VEB’s Anniversary and the resounding triumph of the Sochi Olympics were
not only an occasion to celebrate but still another stimulus to carefully analyse our activities, as well as search for new priorities and development lines.

Vnesheconombank has been always noted for the aspiration to find most efficient ways to accomplish its mission. The past year challenges faced by the Russian economy and its key players including the Bank for Development proper, gave the Bank an extra reason
to fully exploit its analytical potential. The economic turbulence caused by a number
of internal and external factors, in particular, the slump in oil prices, was aggravated
by the sanctions imposed against Russia but in no way substantiated by the international law.

Vnesheconombank together with a number of major national financial institutions has been cut off from the traditionally large and liquid debt capital market for an indefinite term of time. In the increasingly tough external environment, VEB has risen
to the challenges seeking to support pivotal investment operations, promote strategic innovative solutions for import substitution, and credit breakthrough projects and systemically important companies, primarily, in the regions with a stringent economic situation. Practice showed that in adverse external conditions, the role of VEB
as a development bank only increased.

Enterprises and facilities put into operation in 2014 in various industries may well
be viewed as a tangible result of Vnesheconombank’s committed efforts. To illustrate, here are just a few examples.

In the Krasnoyarsk Territory, the Boguchany Hydroelectric Power Plant was put
into operation. The plant will satisfy almost one third of the regional demand for electric power and become a key pillar in the integrated development programme of the Nizhnee Priangarie.

Also in the context of the programme, the Boguchany Region of the Krasnoyarsk Territory saw the completion of Stage I of a timber processing complex. The largest investment project on forest exploitation in Russia, the complex will produce export-quality sawn wood products.

Russia’s first producer of NEOPORM foam glass insulation materials was commissioned
in Vladimir.

In the Ryazan Region, Stage I of an innovative pharmaceutical enterprise became operational to allow for a partial substitution of expensive imported analogues.

The first module commercial data processing centre (DPC) built in compliance
with the international standards was inaugurated in St.-Petersburg. The centre has become the first step to creating a federal network of innovative DPCs in major business hubs of the Russian Federation.

In 2014, Vnesheconombank commenced financing of 11 investment projects,
with the total commitment exceeding RUB 26.2 bn. These are infrastructure projects
on the construction of new and development of existing production facilities in chemical, petrochemical, timber processing and electronic industries, as well as the agro-industrial complex.

Furthermore, the Bank for Development’s loan portfolio was consistently increasing mostly due to projects delivered in priority areas of the economic modernisation
and innovation-based projects. To finance the latter, Vnesheconombank is allocating more than a quarter of its total credit resources. To name a few, these include
the construction of a plant to produce synthetic sapphire for optoelectronics
in Naberezhnye Chelny and an industrial enterprise to produce import-substituting methylchlorsilane in Kazan.

Importantly, we are holding a fundamentally optimistic view of the future despite all
the difficulties encountered in the past year, and have devised our development plan
for a 5-year horizon.

In 2014, VEB’s Supervisory Board approved the Bank’s Development Strategy to 2020 based on the modernisation scenario of building up a loan portfolio. Under this scenario, the Bank will be able to satisfy the real economy’s appetite for long-term financial resources even amid closing global capital markets, exodus of capital from Russia
and a liquidity squeeze in the banking sector.

We expect the Bank’s loan portfolio to increase by one fourth at a minimum from more than RUB 1.99 tn in 2014 to at least RUB 2.5 tn by 2020 approximating to RUB 3 tn.

The Bank’s investment project portfolio is subdivided into the projects of the bank
for development and special projects of national significance. Thus, the loan portfolio
of the bank for development will amount to no less than RUB 1.4 tn or maybe even
RUB 1.7 tn by 2020, whereas the special project portfolio is expected to exceed RUB 1.1
and likely to hit the target of RUB 1.3 tn.

As a result, VEB’s loan portfolio by the end of 2020 will account for up to 5-6%
of the overall bank loans in Russia and up to 11-14% of the long-term bank loans.

Admittedly, we have set challenging and ambitious targets that could only be reached provided that the state funding is procured on a regular basis.

In this context, of particular importance for VEB was a set of measures approved
by the Government in 2014. These included strengthening the Bank’s resource base, increasing its capital, adding liquidity and implementing the state guarantee programme.

The measures enable the Bank to further rely upon the systemic and solid government support, which would ensure the Bank’s dynamic development, compliance
with the financial soundness indicators, unconditional performance of the obligations
to customers and creditors, and efficient participation in the Government’s priority measures aimed at sustainable development of the economy and social stability through lending to the real sector.

In 2014, the VEB Group stepped up its efforts to provide Russian exporters and foreign importers of Russian high-tech products with financial and guarantee support. Vnesheconombank’s portfolio of the loans to support exports (both export loans
and pre-export finance) demonstrated a 2.4-rise in the reporting year and reached
RUB 53.4 bn. The portfolio of the guarantees to support exports increased more than twofold to amount to RUB 206.5 bn (in equivalent) as at 01.01.2015.

In compliance with its new Development Strategy, VEB intends to increase the loan portfolio of exports support up to RUB 500 bn and export guarantees — up
to RUB 250 bn by the end of 2020.

Vnesheconombank has an impressive geographic reach of export projects: CIS countries, Southeast Asia, Latin America, North and Central Africa, Central and Eastern Europe.
The range of industries is equally wide: from a flagship project to support the exports
of the Russian Sukhoi Superjet 100 regional airliner to a variety of major projects
in transport and power engineering, both nuclear and traditional, where Russian companies have a considerable growth potential based on the long-established traditions and ability to compete in the global markets.

In the year under report, the VEB Group initiated work aimed at the institutional
and functional enhancement of the Group-wide system of export support to give
it an integrated dimension.

Acting on the instructions of the Russian President Vladimir Putin, Vnesheconombank together with its subsidiaries Export Insurance Agency of Russia and Roseximbank,
as well as the respective agencies embarked on creation of a single centre for credit
and guarantee support to exports. The Centre will offer national exporters a whole range of financial and non-financial support instruments.

It gives me a great satisfaction to say that we have completed the assignment given
by the Head of State: this year has witnessed the inauguration of the Russian Export Centre, a unique institution and a one-stop-shop aid to exporters. A knowledgeable adviser on export business, the Centre seeks to simplify the export procedures and assist exporters to network with the respective ministries, departments and government agencies.

The year 2014 saw the continuation of a programme of financial support to small
and medium enterprises (SMEs). The Programme is being delivered with VEB’s commitment and operated by Vnesheconombank’s subsidiary, SME Bank (Russian Bank for Support to Small and Medium Enterprises OJSC).

In the reporting period, SMEs received RUB 96.85 bn worth of funds, with the total amount of reasonably priced resources with the required maturities extended throughout the lifetime of the Programme to almost 50 thousand SMEs exceeding RUB 497 bn. Importantly, the average-weighted interest rate on the loans granted by the SME Bank’s partner banks to SMEs has undergone no significant changes on the previous year despite a general trend towards higher rates on bank loans in this sector.

Seeking to promote SMEs, we also gave a sharper focus to SME exporters providing them with a line of services through our subsidiary EXIAR. In particular, a customized product Insurance of Exporter’s Working Capital Loan launched by EXIAR last year in the context of a state programme to support export-oriented SMEs provides Russian banks engaged in export-oriented SME financing with commercial and political risk insurance.

In conformity with its regional priorities, Vnesheconombank increased efforts to stimulate a well-balanced social and economic development of the Russian regions. With this aim in view, the Bank helped create new centres of economic growth and implement joint programmes of integrated territorial development in cooperation with the governments of the Russian constituent entities. The programmes provide for the support
to investment projects of strategic importance, industrial parks and single-industry towns, as well as for non-financial measures.

VEB’s activities in the Russian regions are traditionally based on cooperation agreements. Last year, the list of such agreements was amended to include the documents entered into with the governments of the Moscow and Yaroslavl Regions, as well as the Republic of Khakassia. All in all, as at the end of 2014, the Bank had 58 cooperation agreements signed with constituent entities of the Russian Federation.

The Bank views the promotion of the Russian Far East and the Baikal Region as still another business priority. Addressing the systemic problems faced by the Far Eastern Federal District (FEFD), i.e. primarily the removal of infrastructural constraints
to economic growth of this mega region and unlocking its export potential, Vnesheconombank works in close cooperation with the Russian Ministry for Development of Russia’s Far East and other special purpose agencies designed to boost
the development of Russia’s Far East.

In identifying and selecting projects eligible for financing, Vnesheconombank is greatly assisted by its subsidiaries RDIF Management Company and The Far East and Baikal Region Development Fund.

As for the loans already granted as at the year-end 2014 to deliver investment projects
in FEFD, those approximated to RUB 66.3 bn.

The year under report witnessed an almost one-fourth increase — from RUB 18.9 bn
to RUB 23.2 bn — in the portfolio of loans extended by the Bank to deliver projects
in the North Caucasian Federal District. Designed specifically to bolster economic growth in the North Caucasian regions, Vnesheconombank’s subsidiary North Caucasus Development Corporation extended as at 01.01.2015 over RUB 6 bn to 6 investment projects worth a total of some RUB 30.8 bn.

In 2014, Vnesheconombank created and launched a specialized state institution
to support single-industry municipalities, the Single-Industry Towns Development Fund. The Fund sees its mission in providing financial support to projects delivered in single-industry towns and aimed at enhancing their appeal for investors who can help decrease such municipalities' dependence on physically and morally obsolete backbone enterprises and create new jobs. Furthermore, the Fund performs the function of a project office aiding regional and municipal authorities in the preparation of documents, raising funds for investment projects in single-industry towns, as well as forming and training teams
of competent project managers.

Also in 2014, VEB commenced financing of 3 projects in single-industry towns for the total amount of RUB 41.7 bn, with the Bank’s commitment standing at RUB 22.5 bn. Today, Vnesheconombank is engaged in 19 projects in single-industry towns and its portfolio of the respective loans has increased by more than 80% over the year to reach RUB 176.2 bn.

For all the external challenges posed by the so-called sectoral sanctions against Russia, Vnesheconombank and the VEB Group have been actively operating on a global scale
and expanding their international partnerships. The developments in the geopolitical environment in 2014 have brought the Bank’s east-oriented stream of work into a much stronger focus.

Evidently, Vnesheconombank’s chairmanship of the Interbank Consortium of the Shanghai Cooperation Organization (IBC SCO) in 2014-2015 helped boost the interaction with its Asian partners. Since all the IBC members confront a common problem, i.e. not always properly formulated investment proposals, VEB has come up with an idea welcomed
by many of the partners, namely, the need to establish an international centre for project finance under the auspices of SCO. We believe that the Centre will facilitate
the procurement of investment projects delivered in the SCO countries, in particular,
with the use of co-financing mechanisms. At its meeting in Dushanbe (Tajikistan)
in September 2014, the IBC Council approved an action plan designed to promote financial cooperation and regional development and defining the key areas and forms
of the IBC SCO cooperation on joint investment projects.

Remarkably, the year 2014 opened up new vistas for cooperation in the context
of the BRICS Interbank Cooperation Mechanism (ICM). At the VI BRICS Summit
in Fortaleza, the ICM member banks signed an agreement in the presence of the Heads
of State. The Agreement is designed to support innovations through the BRICS development institutions and encourage investment in infrastructure industries, as well as power efficient and high-tech production.

In July 2014, Rome hosted the second meeting of the heads of the G20 financial institutions with a development or public mandate, unofficially known as D20 established on the initiative of Vnesheconombank, as well as a conference on the role
the G20 development banks play in sustainable growth of national and regional economies.

Obviously, dedicated efforts, consistent and efficient work demonstrated
by Vnesheconombank in the year tough for both the Russian economy and many of its players are indicative of its enormous potential for resilience, strong immunity to adverse external impacts and a remarkable ability to accomplish its mission of the key national financial institution for development.

For the above reasons, I am confident that VEB has well deserved its ranking in the
Top 10 Safest Banks in the Central and Eastern Europe, according to the Global Finance. Let me stress once again that VEB remained one of the safest banking institutions despite all the external attempts to shatter our business stability.

The unique character of VEB’s activities has been proved by the GTF 2014 Awards Aircraft Finance Innovator of the Year and Aircraft Deal of the Year — Latin America. It was
for the first time ever that a Russian bank participated in a consortium of international banks to finance a large delivery of aircraft, namely, Sukhoi Superjet 100 to a third party, the Mexican Interjet Company.

Apparently, there will be more tests of stamina for Vnesheconombank in the foreseeable future. However, I have no doubts that the Bank is well equipped to respond to any challenges. We have laid a robust and solid foundation for a hard but efficient work. Being the centre of an extensive development network, Vnesheconombank will step up its efforts to promote corporate interaction within the VEB Group and maximize
the synergy effect to encourage the rebound in the national economy.

Finally, let me thank our partners and customers, as well as a large team
of Vnesheconombank and the VEB Group for their positive business attitude, confidence, loyalty, unfailing support and high professionalism. I am firmly convinced that despite all the predicaments we will do whatever it takes to ensure Russia’s economic prosperity.

Vladimir Dmitriev
Chairman of Vnesheconombank