Annual Report

Closed Joint Stock Company “International Joint-Stock Bank”

2010

General information and position of the Bank in the banking

systemInternational Joint Stock Bank (hereinafter – the Bank or CJSC “IJSB”) was

incorporated in the form of a closed joint stock company. The Memorandum of Incorporation was signed on May 12, 1992. The recent version of the Charter of the Company was approved by the General Meeting of the Shareholders on February 27, 2003, Minutes No. 1; the recent amendments in the Charter were made by the General Meeting of the Shareholders on July 04, 2008, Minutes No. 2. The record on state registration of a credit institution was made in the Single State Register of Legal Entities on August 21, 2002, OGRN 1027739097165, INN 7703025925, KPP 774401001. The Bank has been a member of the deposit insurance system since November 18, 2004.

The Bank operates on the basis of:

1. General License No. 1987 of September 09, 2003 to performance of the following transactions with the finance in Rubles and foreign currency:

- Attraction of funds of physical and legal persons to deposits;- Deposition of the attracted funds of physical and legal persons by its own means and at its own expense;- Opening and management of bank accounts of legal and physical persons;- Performance of settlements on instructions from legal and physical persons, including authorized correspondent banks and foreign banks, on their bank accounts;- Collection of funds and cashier servicing of physical and legal persons;- sale-purchase of foreign currency in cash and cashless forms;- Issuance of bank guarantees;- Transfer of funds on instructions from physical persons without opening bank accounts.

2. License No. 1987 of September 09, 2003 to conduct of the following bank transactions:

- Attraction on deposits and placement of precious metals;- Other transactions with precious metals.

3. Licenses of a professional participant of the securities market:

- No. 077-04147-000100 of December 20, 2000 to conduct of depository activities;- No. 077-04006-100000 of December 21, 2000 to conduct of broker activities;- No. 077-04054-010000 of December 21, 2000 to conduct of dealer activities;- No. 077-04096-001000 of December 21, 2000 to conduct of activities in securities management.

4. Licenses of a stock exchange broker No. 1442 of September 22, 2009 to make futures and option deals in the stock exchange trading without term limitation.

5. Licenses to conduct coding activities issued by FSS of Russia for a new term (till 30.12.2015):

-No. 9881 Х of 30.12.2010 to conduct technical servicing of coding cryptographic) equipment;-No. 9882 Р of 30.12.2010 to distribution of coding (cryptographic) equipment;-No. 9883 У of 30.12.2010 to provision of services in information codification.

The authorized capital of the Bank is formed in the amount of 300 mln rubles and is divided into 30 million shares with a par value of 10 rubles each, including, 29,980,000 ordinary shares, 20,000 preference shares. CJSC “IJSBANK” reveals steady development pace.

The results of CJSC IJSBANK activities in 2010 prove a steady tendency of dynamic development.

As of December 31, 2010 the owned assets of the Bank made 1,546.7 mln rubles or 33.42% more than of December 31, 2009.

By the results of 2010 the Bank as before demonstrated a commendable financial result – profit before taxation made 244.9 mln rubles, profit after taxation - 169.2 mln rubles.

The key indicators of efficacy of the Bank activities are Return On Assets and Return On Equity:

Methods for estimating the indicators:Return On Assets (ROA) is estimated as a ratio of the net profit to the period-average assets.Return On Equity (ROE) is estimated as a ratio of the net profit to the period-average capital.(* At profit estimation before taxation)

CJSC IJSBANK demonstrates steadily the positive dynamics of key financial indicators which was reflected in the Ratings of major banks published by the National Rating Agency and RosBusinessConsulting.

In the BRA rating “Major banks by the size of their capitals as of December 01, 2010” IJSBANK took the 165th line(http://ra-national.ru/?page=p-4d47f3c4).

In the NRA rating “Major banks by the net profit as of December 01, 2010” IJSBANK took the 101th line (http://ra-national.ru/?page=p-4d47f526).

In the RBC rating “Top500 banks by net assets as of January 01, 2011” IJSBANK took the 239th line (http://rating.rbc.ru/articles/2011/02/24/33178170_tbl.shtml?2011/02/24/33177839).

In the RBC rating “Top500 banks by the credit portfolio as of January 01, 2011” IJSBANK took the 208th line (http://rating.rbc.ru/articles/2011/02/24/33178170_tbl.shtml?2011/02/24/33178275).

In the rating of banks “Capital” as of January 01, 2011 prepared by BANKIR.RU, IJSBANK took the 202th line (http://bankir.ru/rating/1/2011/20).

In the rating of banks “Assets” as of January 01, 2011 prepared by BANKIR.RU, IJSBANK took the 240th line

(http://bankir.ru/rating/1/2011/19).

Priority Directions of Bank Activities. Development Strategy

The strategy of the Bank is based on the following principles – ensuring steady growth rates, improvement of quality indicators of activities, harmonious development of business. Accomplishing its strategy CJSC IJSBANK is oriented to steady increase of its assets and growing volumes of transactions. In this way the Bank consolidates its position on the market, ensures steady profit and capital growth which creates conditions for further development.

Within the framework of its development strategy CJSC IJSBANK identifies targets and addresses problems of business diversification, increasing the client and resource base, development of new segments of activities, introduction of advanced banking technologies and extension of the banking product line. CJSC IJSBANK is a reliable business partner for its clients, capable to offer wide financial support and to provide the deserved level of service to each regardless of the scales of its activities.

Among the main tasks in 2010 there were maintaining the available clients base and improvement of service quality. Developing its clients policy in the post-crisis conditions the Bank focused on maintenance at the appropriate level of

its own liquidity and financial stability.

The efficiency of the chosen course is confirmed by the stable clients base. In 2009-2010 when the economic situation was not simple and when the banking sector was going out of the crisis the redistribution of the market participants was observed in favor of stable and reliable credit institutions. The quantity of clients – legal persons increased (as was planned) by 5%, thus, one of the key strategic objectives concerning post-crisis maintenance and gradual extension of the clients base was accomplished.

The attracted funds on settlement accounts of clients – legal persons and respondent banks, on accounts of clients for settlements on securities and foreign currency as of 01.01.2011 have grown by 15% compared to 01.01.2010.

Traditionally CJSC IJSBANK services both physical and corporate clients providing a wide range of banking products and services: opening and management of accounts, money transfers, deposits in rubles and foreign currency, bank cards, rent of individual safe-deposit boxes, quality settlement and cash services, crediting, conversion operations, transactions with securities and previous metals. Among the clients of the Band there are enterprises from various industries and services as well as individual entrepreneurs and physical persons. In the past year the greater fraction of the clients base of the Bank was taken by state and private enterprises from most important economic sectors, such as:

- machine-building enterprises- prospector’s teams- enterprises engaged in wholesale trade with precious stones and metals- construction enterprises- enterprises engaged in metal reworking- development and realtor companies- financial and investment companies- publishing and printing companies- recruiting agencies- law firms- leasing companies- trade firms

For private persons CJSC IJSBANK offers the classical range of products and services: opening and management of accounts, deposits in rubles and foreign currency, money transfers over Russia and abroad, bank cards of international payment system MasterCard, depository services, broker services.

The financial services to private clients include instruments for capital accumulation, storage and accrual. The Bank offers its clients the classical banking and investment products, services of bank-managed mutual fund.

In 2010 new types of deposits were offered, the average fund placement period for 360 days. The mentioned conditions demonstrated their competitiveness which was proved by 34% growth of funds placed by physical persons on deposits.

The Bank developed the competitive tariffs, flexible terms of conduct of various banking operations.

The Bank offers its clients the whole complex of services in international

settlements. Being the participant of the real-time rubble settlement system and international system S.W.I.F.T. and having a wide correspondent network the Bank ensures quick and reliable settlements. Clients of the Bank can make settlements both in traditional currencies USD, EUR and also in JPY, GBP, CHF, SEK and AUD.

In 2010 for convenience of the clients and correspondent banks the Bank opened NOSTRO accounts in Australian dollars with Westpac Banking Corporation, Australia, and in Chinese yuans with OJSC Bank VTB and JSCB “Trade-Industrial Bank of China” (Moscow) (CJSC).

The efficiency of the settlement and cash services in CJSC IJSBANK is confirmed by the quality of provided services, high automation of processes, wide possibilities for distant servicing. CJSC IJSBANK uses the Internet Backing system – the full-functional, convenient and safe system of electronic document management permitting the clients to manage their bank accounts. By the end of 2010 the number of clients using this Internet Backing system has grown by 15%.

As in the past years, the Bank always keeps in focus the issues of information security. The growing risks from external and internal sources in this area require permanent control and attention. In the past year practically all clients working with the Bank via the Client-Bank and Internet-Bank systems were changed over to a new software supporting the application of physical devices for secret passkey storage (USB-tokens and smart cards). Today these devices certified with FSS of Russia are the mandatory condition for remote operation with the Bank. In the same period the Bank received new certificates from FSS of Russia to operation, dissemination and servicing of cryptographic devices for information protection after fulfilling all required procedures and rules. The program filters developed in the Bank for check of payments received via the clients remote service system counteract effectively the attempts of unauthorized access to the clients’ accounts.

In 2010 the Bank continued increasing its credit portfolio which volume

reached 64,22% of all assets, 22,5% are investments into securities. In 2010 the Bank’s portfolio of securities was formed on the principles of high liquidity and profitability.

Like in the past years, the Bank credited the real sector of economics – the gold-mining, machine-building, printing and other enterprises. The share of such credits in 2010 reached 10.35%, or 5.63% more than in 2009.

The share of the credits issued to trade enterprises has increased considerably to 67.63% having grown in 2010 by 36.15%. Among our clients there are companies trading with building materials, alcohol products, jewelry, etc.

As of January 01, 2011, the total security for the Bank credit portfolio covered completely the loan indebtedness limiting significantly the possibility of financial losses on credit operations.

The credit portfolio as of 01.01.2011 has shown 14.2% growth (credits to legal and physical persons) compared to 01.01.2010. The reserve for likely losses reached 14% as of 01.01.2011 compared to 13% as of 01.01.2010 due to tougher approach to assessment of the quality of provided loans in accordance with the requirements submitted by CB to the reserve level.

In 2010 the Bank continued operations on the securities market. The investments at the purchase price into the securities portfolio has increased by 13% as of 01.01.2011. At the same time the portfolio was diversified – greater investments were made into debt financial instruments with the fixed interest of the Russian Federation, legal persons – residents denominated in rubles and legal persons – nonresidents denominated in foreign currency and circulating on the European trading sites. The portfolio of debt securities increased by 54%. The diversification was conducted, including at the expense of funds received from sale of a part of the shares of the portfolio for resale which market prices exceeded the purchase cost.

In 2010 the situation on the domestic money market was rather stable and characterized by a high liquidity level of crediting institutions. Lowering of the refining rate of RF CB was accompanied by gradual lowering of the short-term rates on the money market to the level close to the lower limit of the corridor of interest rates of the Bank of Russia determined by the fixed rates on overnight deposit operations.

For many years CJSC IJSBANK has been an active participant of the interbank market. Availability of general cooperation agreements on the MBC market and also a considerable volume of unsecured limits, including from foreign partners, facilitate more effective management of the current liquidity. Gradual restoration of trust in the Russian banking sector from clients and financial institutions, including foreign ones, resulted in the increased volumes of mutual limits and, accordingly, turnovers of interbank operations.

During 2010 CJSC IJSBANK pursued further on the conservative strategy of management of short-term resources on the money and currency markets.

Permanent monitoring of changes in the economic situation on the domestic and international financial markets made it possible for the Bank to control its financial flows by increasing or decreasing its presence in due time in various segments of the market.

The main income items in 2010 were interest revenues from loaned funds and also revenues from operations with securities. The net interest margin of the Bank estimated in accordance with Instruction of the Bank of Russia No. 2005-У of 30.04.2008 “On Evaluation of Economic Position of Banks” is equal to 5.85% per annum.

The structure of Bank expenditures in 2010 did not alter much. As before, the greatest expenses were connected with payment for clients’ funds. Expenses on creation of reserves were equal to 17.4%. The total reserves created by the Bank by late 2010 corresponded to the actual quality of the assets and made 808.9 mln rubles.

Report of the Bank Supervisory Boardon Results of the Bank Development

along Priority Directions of Its Activities

In 2010 the Supervisory Board of the Bank convened five meetings that discussed various issues related to general management of the Bank activities.

Performing as the participant of the internal control system of the Bank the Supervisory Board controlled the functioning of this system by approval of plans of actions of the Internal Bank Control Department (annual, current, quarter) and regular consideration of the actions reports .

The reports on the actiivity of the Internal Control Department provided information to the Supervisory Board on the conducted checks, revealed defects, rectification measures; basic financial indicators of the Bank, including indicators of obligatory norms of the Bank and their components – size of credit risk, market risk, operations risk.

In 2010 within the framework of internal control of the activities of the Bank as a professional participant of the securities market, the Supervisory Board regularly discussed at its meetings the reports of the controller of a professional participant of the securities market.

For management of bank risks the meeting held on 04.02.2010 approved the aggregate risk of the Bank (credit risk on balance assets, contingent credit-related liabilities, time transactions, market risk, operations risk) for 2010. In that year no excess of the adopted risk was detected.

In addition, the Supervisory Board assessed the condition of the corporate management of the Bank concerning activities of the management bodies and assignment of duties among them, management of bank risks, regulation of the conflict of interests and relationships with affiliated persons, compliance with the principles of professional ethics, coordination of information disclosure on the Bank, monitoring of the internal control system. It was acknowledged that the corporate management conforms to the organizational structure and scale of activities of the Bank. It was decided to continue improvement of the corporate management with regard to the established bank practice, recommendations of the Bank of Russia, experience of the Bank and its organizational structure.

In 2010 the Internal Bank Control Department conducted activities along the following directions:

1. Performance of checks on the basis of the Plan (approved by Supervisory Board on 12.11.2009, Minutes No. 7), including control of bank risk management; assignment of duties in execution of transactions/deals and elimination of a conflict of interests; observance of the adopted limits on execution of transactions/deals; adequacy of the created reserves to the risk level; authenticity, completeness and objectiveness of the prepared reporting; complete and timely accounting of transactions/deals of the Bank and also ensuring property safety; conduct of anti-legalization actions by directions of activities.

2. Rendering methodological support in execution of actions on improvement of

some bank risk management and also in development/revision of the local regulatory acts.

The Financial Monitoring Service of CJSC IJSBANK being the element of the internal control system of the Bank takes on a regular basis actions on counteraction legalization (laundering) of criminal incomes and terrorism financing. The Financial Monitoring Service takes efforts on counteraction of the unfair business practices, on revealing the potential and current risks that may incur financial and image damage to the Bank and, accordingly, its shareholders and clients.

In 2010 with regard to the present-day international tendencies and growing significance of counteraction of legalization (laundering) of criminal incomes and terrorism financing the Bank while analyzing the activities of its potential and existing partners went on with their careful study using new opportunities for receiving additional information about would-be clients. In particular, regular meetings were held with financial institutions under the Program “Know Your Client Better”, regular questioning and analysis of financial reporting were conducted, directions of business development were studied, additional databases were acquired for study of Russian and foreign partners and also active interaction among all Bank divisions was organized that included methodical support envisaging study and identification of a credit institution.

The Financial Monitoring Service focuses attention on qualification requirements to personnel training. Throughout a year the specialists of this service and heads of structural divisions more than once passed training at external seminars organized by educational centers with methodical support of the Bank of Russia and the Federal Service on Financial Markets and took part in forums of foreign banks. Qualification advancement of the personnel of structural divisions is organized by the Financial Monitoring Service on a permanent basis in the form of on-bank seminars with the yearly check of knowledge applying the regularly updated program “Great Bank Tests”.

In 2010 much efforts were taken for accomplishment of the requirements of Federal Law No. 152-FZ “On Personal Data” regulating protection of personal data, including full investigation of the Bank with regard to compliance with the requirements of this law. Full implementation of the joint project of the Bank and its partners on bringing the Bank activities in compliance with the norms and requirements of this law is planned for 2011.

For greater flexibility, reliability and efficiency of operation of the Bank information infrastructure, active introduction of virtualization devices continued in 2010. Transfer of some computer systems into the “virtual” environment influenced positively their accessibility and reliability of performance. This vector of development of the Bank information system will be continued in 2011.

The “Information Security Concept” is operating in the Bank. It is targeted to protection of information resources from various threats, external and internal, willful and unintentional, ensuring business continuity and minimization of damage that may be incurred as a result of impairment of information security. The indirect economic effect here may be the essential reduction of risks of material, moral, image and other kinds of damage. The “Information Security Concept” is being improved with regard to the requirements, provisions and recommendations of basic legislative acts of the Russian Federation and regulatory-methodological documents of the Federal Service for Technical and Export Control of Russia (FSTEC of Russia) on information security, basic international standards on safety of information technologies and also requirements and orders of the RF Central Bank.

Report on Payment of the Dividends on the Bank Shares

According to resolution of the Annual General Meeting of the Shareholders, the dividends were not paid; the profit of CJSC IJSBANK by the results of 2009 in the amount of 92.4 mln rubles was divided as follows: to the accumulation fund – 90.6 mln rubles, to charity purposes – 1.8 mln rubles.

In 2010 out of the funds appropriated to charity purposes the Bank continued rendering assistance to some charity institutions, in particular, to the Regional Charity Public Fund “Illustrated Books for Small Blind Children”. This fund was created for implementation of the like-named UN/UNESCO Project of the World Decade of Cultural Development. In 2010 within the framework of the Fund programs the books were published for visually impaired children living in Moscow, Kolomna, Pskov and Sergiev-Posad; finance was allotted to the Orthodox Children Social and Rehabilitation Center “Pokrov” at the Intercession of the Holy Virgin Church in the village of Yakovlevo of the Moscow Region for children without parental support.

Description of Main Risk Factors Related to Bank Activities.Risk Management System in CJSC IJSBANK

The risk management system in the Bank is developed with regard to the regulatory documents of the Bank of Russia, recommendations of the Basel Committee on Banking Supervision and also the world practice for identification of risks, their analysis and management.

The financial analysis of the Bank activities is conducted on a monthly basis and includes comparative analysis of principal financial indicators of the Bank with the similar indicators for the banking system in general and also evaluation of own financial stability in accordance with Instruction of the Bank of Russia No. 2005-У of April 30, 2008 “On Evaluation of the Economic Situation of the Bank”.

Management of financial risks, including credit and market ones, is conducted applying the limit system. Works are in progress on improvement of the methods for evaluation of a financial position of borrowers, counteragents, bill drawers, issuers of securities.

The system for liquidity management operating in the Bank is helpful for taking weighted and validated decisions on placement of funds in long-term assets with the minimum risk of loss of liquidity. Apart from daily estimation of obligatory liquidity norms (according to the method of RF CB), the Bank undertakes to analyze permanently the perspective liquidity with a view to ensure solvency of the Bank at all time horizons in combination with the most efficient use of resources.

The values of the liquidity norms of the Bank in 2010 were far from the maximum admissible investments and by the end of the year they were as follows:

Н2 instant liquidity indicator of the Bank - 109.9 % (at the norm no less than 15 %),

Н3 current liquidity indicator of the Bank– 142.3 % (at the norm no less 50 %),Н4 long-term liquidity indicator – 82.6 % (at the norm no more than 120 %).The capital sufficiency norm by the end of the year was 22.8 % (at the norm of

10 %).

In the past year the focus of attention was on improving the system of operations risk management in the Bank which is connected with likely defects, failures in the systems and procedures of management and control of bank processes as well as systems mistakes.

Operation of the internal control system included control of compliance of the Bank personnel with the internal provisions, order and procedures as well as principles of sharing the authorities, procedure of approval of executed operations and transactions. The capabilities of the applied information, technological and other systems were assessed regularly; if necessary, they were updated or substituted. Special attention was drawn to observance by all Bank divisions of the code of business practices and principles of professional ethics.

Information about Bank Compliance with the Corporate Behavior Code

The Bank pursues its statutory activities guided by the provisions of the Corporate Behavior Code approved at the meeting of the Government of the Russian Federation No. 49 of November 28, 2001 with regard to the specifics of internal documents and the established practice.

Apart from those contained in other sections of the report, the Bank observes the following provisions of the Corporate Behavior Code.

The Shareholders of the Bank have the right:to get acquainted with a list of persons entitled to participation in the General

Meeting of the Shareholders beginning from the date of notice on holding of the General Meeting of the Shareholders and till closing of the attended General Meeting of the Shareholders and in case of distant General Meeting – till the last date of receiving voting ballots;

to suggest items for putting on the agenda of the General Meeting of the Shareholders or to demand convening of the General Meeting of the Shareholders without provision of an extract from the register of shareholders.

A notice on holding of the General Meeting of the Shareholders is directed to the persons included into the list of persons entitled to participation in the General Meeting of the Shareholders of the Bank by a registered letter, telegram, delivered against a signature or in any other written form.

The information (materials) to be submitted to the persons entitled to participation in the General Meeting of the Shareholders is provided in the Bank office.

The shareholders have the right to participate in managing the Bank affairs by taking decisions on the most important issues of the Bank activities referred to the powers of the General Meeting of the Shareholders .

The information about the Bank activities is regularly presented on the web-site in Internet (www.mab.ru) and, according to recommendations of the Bank of Russia (Letter of the Bank of Russia No. 165-T of 21.12.2006 “On Information Disclosure to Credit Institutions” and Letter No. 72-T of 25.05.2010 “On Information Disclosure to Credit Institutions by Forms 0409134 и 0409135), on the respective web-site in Internet (www.cbr.ru ). In places of clients servicing the Bank provides the information subject to Instruction of the Bank of Russia No. 2172-У of 20.01.2009 “On Publication and Presentation of Information about Activities of Credit Institutions and Bank (Consolidated) Groups’”

For confirmation of the financial situation of the Bank the annual General Meeting of the Shareholders approves every year the auditing organization. In 2010 the auditor of the Bank was Limited Liability Company “JUKIS CONSULTING” that audited the accounting statements of CJSC IJSBANK and also the financial statements of the Bank prepared in accordance with the international standards. No affiliation and property interests (except payment of auditing services) exist between the auditor’s organization and the Bank.

In 2010 the Supervisory Board of the Bank assessed the corporate management of the Bank, including such issues as organization of activities of the management bodies and assignment of duties among them, management of bank risks, regulation of the conflict of interests and relationships with affiliated persons, compliance with the principles of professional ethics, coordination of information disclosure on the Bank, monitoring of the internal control system. It was acknowledged that the corporate management was satisfactory and conforms to the organizational structure and scale of activities of the Bank.