TIDM78JE

RNS Number : 7053O

Uzbek Ind & Construction Bank

11 October 2021

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Joint Stock Commercial Bank " UZBEK INDUSTRIAL

AND CONSTRUCTION BANK "

Condensed Consolidated Interim Financial Information prepared in accordance with IAS 34, Interim Financial Reporting

30 June 2021

JOINT STOCK COMMERCIAL BANK

"UZBEK INDUSTRIAL AND CONSTRUCTION BANK" TABLE OF CONTENTS

CONTENTS

REVIEW REPORT

CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

Condensed Consolidated Interim Statement of Financial Position 1

Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

2

Condensed Consolidated Interim Statement of Changes in Equity 3

Condensed Consolidated Interim Statement of Cash Flows 4

Notes to the Condensed Consolidated Interim Financial Information

1. INTRODUCTION.................................................................................................................................................................. 5

   2.         OPERATING ENVIRONMENT OF THE GROUP............................................................................................................ 6 
   3.         BASIS OF PRESENTATION.............................................................................................................................................. 6 
   4.         ADOPTION OF NEW AND REVISED STANDARDS..................................................................................................... 7 

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY.................. 7

   6.         SEGMENT REPORTING.................................................................................................................................................... 8 
   7.         CASH AND CASH EQUIVALENTS............................................................................................................................... 10 
   8.         DUE FROM OTHER BANKS........................................................................................................................................... 11 
   9.         LOANS AND ADVANCES TO CUSTOMERS.............................................................................................................. 13 
   10.       INVESTMENT SECURITIES MEASURED AT AMORTISED COST......................................................................... 21 
   11.       PREMISES, EQUIPMENT AND INTANGIBLE ASSETS............................................................................................. 21 
   12.       DUE TO OTHER BANKS................................................................................................................................................. 21 
   13.       CUSTOMER ACCOUNTS............................................................................................................................................... 22 
   14.       OTHER BORROWED FUNDS......................................................................................................................................... 23 
   15.       SUBORDINATED DEBT...................................................................................................................................................  24 
   16.       INTEREST INCOME AND EXPENSE............................................................................................................................ 25 
   17.       ADMINISTRATIVE AND OTHER OPERATING EXPENSES...................................................................................... 25 
   18.       INCOME TAXES................................................................................................................................................................ 26 
   19.       EARNINGS PER SHARE................................................................................................................................................. 27 
   20.       COMMITMENTS AND CONTINGENCIES.................................................................................................................... 27 
   21.       CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES.................................................................. 28 
   22.       FAIR VALUE....................................................................................................................................................................... 28 
   23.       CAPITAL RISK MANAGEMENT..................................................................................................................................... 31 
   24.       RISK MANAGEMENT POLICIES.................................................................................................................................... 32 
   25.       RELATED PARTY TRANSACTIONS.............................................................................................................................. 38 
   26.       EVENTS AFTER THE OF THE REPORTING PERIOD...................................................................................... 40 

JOINT STOCK COMMERCIAL BANK

"UZBEK INDUSTRIAL AND CONSTRUCTION BANK"

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

(in millions of Uzbek Soums)

 
                                              Notes  30 June 2021  31 December 
                                                      (unaudited)   2020 
ASSETS 
Cash and cash equivalents                     7      5,784,508     5,601,186 
Due from other banks                          8      2,111,517     1,859,192 
Loans and advances to customers               9      39,954,029    38,959,958 
Investment securities measured at amortised 
 cost                                         10     1,236,614     540,222 
Financial assets at fair value through 
 other comprehensive income                          41,709        38,024 
Investment in associates                             12,026        993 
Premises, equipment and intangible assets     11     1,015,789     747,232 
Deferred tax asset                                   103,508       167,619 
Insurance assets                                     10,847        5,544 
Other assets                                         330,559       376,520 
Non-current assets held for sale                     20,936        27,355 
TOTAL ASSETS                                         50,622,042    48,323,845 
LIABILITIES 
Due to other banks                            12     942,515       1,496,004 
Customer accounts                             13     12,318,541    11,616,958 
Debt securities in issue                             3,264,282     3,273,048 
Other borrowed funds                          14     26,835,778    25,683,457 
Insurance liabilities                                70,725        44,887 
Other liabilities                                    202,868       128,627 
Subordinated debt                             15     101,383       - 
TOTAL LIABILITIES                                    43,736,092    42,242,981 
EQUITY 
Share capital                                        4,640,011     4,640,011 
Retained earnings                                    2,229,361     1,427,469 
Revaluation reserve of financial assets 
 at fair value through other comprehensive 
 income                                                16,578        13,384 
Net assets attributable to the Bank's 
 owners                                              6,885,950     6,080,864 
TOTAL EQUITY                                         6,885,950     6,080,864 
TOTAL LIABILITIES AND EQUITY                         50,622,042    48,323,845 
 

Approved for issue and signed on behalf of the Management Board on 30 September 2021.

 
Annaklichev Sakhi              Vokhidov Oybek 
 Chairman of the Management     Chief Accountant 
 Board 
 

The notes set out on pages 6 to 40 form an integral part of this condensed consolidated interim financial information 1

JOINT STOCK COMMERCIAL BANK

"UZBEK INDUSTRIAL AND CONSTRUCTION BANK"

CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

(in millions of Uzbek Soums, except for earnings per share which are in Soums)

 
                                                          Six months   Six months 
                                                          ended 30     ended 
                                                                        30 
                                                          June 2021    June 2020 
                                                   Notes  (unaudited)  (unaudited) 
Continuing operations 
Interest income calculated using effective 
 interest rate method                              16     1,945,310    1,495,954 
Interest expense                                   16     (983,027)    (769,346) 
Net interest income before provision on loans 
 and advances to customers                                962,283      726,608 
Recovery of / (provision) for credit losses 
 on loans and advances to customers                       314,451      (434,197) 
Net interest income                                       1,276,734    292,411 
Fee and commission income                                 194,399      157,965 
Fee and commission expense                                (44,552)     (42,330) 
Gain / (loss) on initial recognition on interest 
 bearing assets                                           3,159        (8,551) 
Net gain on foreign exchange translation                  (8,136)      38,173 
Net gain from trading in foreign currencies               74,248       26,774 
Insurance operations income                               40,654       15,970 
Insurance operations expense                              (16,598)     (16,604) 
Change in insurance reserves, net                         (20,263)     - 
Dividend income                                           4,891        681 
Other operating income                                    23,399       1,840 
Provision for impairment of other assets                  (52,077)     (11,212) 
Impairment of assets held for sale                        (3,974)      (11,309) 
Administrative and other operating expenses        17     (452,216)    (277,014) 
Share of result from associates                           (595)        - 
Profit before tax                                         1,019,073    166,794 
Income tax expense                                 18     (212,145)    (31,904) 
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS          806,928      134,89 
Discontinued operations 
Loss for the period from discontinued operations          -            (174) 
PROFIT FOR THE PERIOD                                     806,928      134,716 
Attributable to: 
- Owners of the Bank                                      806,928      136,709 
- Non-controlling interest                                -            (1,993) 
PROFIT FOR THE PERIOD                                     806,928      134,716 
Total basic and diluted EPS per ordinary 
 share (expressed in UZS per share)                19     3,31         0.55 
PROFIT FOR THE PERIOD                                     806,928      134,716 
Other comprehensive income: 
Items that will not be subsequently reclassified 
 to profit or loss: 
Fair value gain on equity securities at fair 
 value through other comprehensive income                 3,993        9,419 
Tax effect                                                (799)        (1,884) 
Other comprehensive income                                3,194        7,535 
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD                 810,122      142,251 
Attributable to: 
- Owners of the Bank                                      810,122      144,244 
- Non-controlling interest                                -            (1,993) 
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD                 810,122      142,251 
 

The notes set out on pages 6 to 40 form an integral part of condensed consolidated interim financial information

2

JOINT STOCK COMMERCIAL BANK

"UZBEK INDUSTRIAL AND CONSTRUCTION BANK"

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

(in millions of Uzbek Soums)

 
                                  Share capital  Revaluation reserve     Retained    Non-controlling    Total equity 
                                                  of financial assets     earnings    interest 
                                                  at fair value through 
                                                  other 
                                                  comprehensive income 
1 January 2021                    4,640,011      13,384                  1,427,469   -                  6,080,864 
Profit for the period             -              -                       806,928     -                  806,928 
Other comprehensive income for 
 the period                       -              3,194                   -           -                  3,194 
Total comprehensive income for 
 the period                       -              3,194                   806,928     -                  810,122 
Dividends paid                    -              -                       (5,036)     -                  (5,036) 
30 June 2021 (unaudited)          4,640,011      16,578                  2,229,361   -                  6,885,950 
 
                                    Share          Revaluation reserve     Retained    Non-controlling    Total equity 
                                                   of financial 
                                  capital        assets at fair value    earnings    interest 
                                                  through other 
                                                 comprehensive income 
1 January 2020                    4,640,011      6,404                   1,669,225   4,928              6,320,568 
Profit for the period             -              -                       136,709     (1,993)            134,716 
Other comprehensive income for 
 the period                       -              7,535                   -           -                  7,535 
Total comprehensive income for 
 the period                       -              7,535                   136,709     (1,993)            142,251 
Dividends paid                    -              -                       (13,500)    -                  (13,500) 
Non-controlling interest arising 
 on 
 acquisition of subsidiary        -              -                       -           32                 32 
30 June 2020 (unaudited)          4,640,011      13,939                  1,792,434   2,967              6,449,351 
 

The notes set out on pages 6 to 40 form an integral part of condensed consolidated interim financial information 3

 
                                                      Six months    Six months 
                                                       ended         ended 
                                                      30 June 2021  30 June 2020 
                                               Notes  (unaudited)   (unaudited) 
Cash flows from operating activities 
Interest received                                     1,728,078     1,040,584 
Interest paid                                         (940,764)     (647,628) 
Fee and commission received                           193,332       149,435 
Fee and commission paid                               (44,552)      (42,330) 
Insurance operations income received                  40,654        15,970 
Insurance operations expense paid                     (16,598)      (8,349) 
Net gain from trading in foreign currencies           74,248        26,774 
Other operating income received                       23,399        1,793 
Staff costs paid                                      (281,271)     (173,280) 
Administrative and other operating expenses 
 paid                                                 (107,171)     (67,641) 
Income tax paid                                       (82,235)      (130,689) 
Cash flows from operating activities 
 before changes in operating                          587,120       164,639 
Net (increase)/decrease in: 
Due from other banks                                  (264,643)     139,414 
Loans and advances to customers                       (285,268)     (4,110,600) 
Investments securities measured at amortised 
 costs                                                (703,350)     (985,777) 
Other assets                                          (17,860)      (10,968) 
Net increase/(decrease) in 
 Due to other banks                                     (428,775)     1,274,388 
Customer accounts                                     610,410       979,834 
Other liabilities                                     (4,735)       (2,845) 
Net cash used in operating activities                 (507,100)     (2,551,915) 
Cash flows from investing activities 
Acquisition of financial assets at fair 
 value through other comprehensive income               (33)          (2,081) 
Proceeds from disposal of financial assets 
 at fair value through other comprehensive              341           - 
 income 
Acquisition of premises, equipment and 
 intangible assets Proceeds from disposal             (287,558)     (253,360) 
 of premises, equipment 
 and intangible assets                                 762           5,819 
Proceeds from disposal of repossessed 
 assets                                               2,531         - 
Acquisition of subsidiary, net of disposed 
 cash                                                 -             (32,364) 
Acquisition of investment in associates               (11,681)      - 
Dividend income received                              4,891         681 
Net cash used in investing activities                 (290,747)     (281,305) 
Cash flows from financing activities 
Proceeds from borrowings due to other 
 banks                                                13,950        - 
Repayment of borrowings due to other 
 banks                                                (142,951)     (47,346) 
Proceeds from other borrowed funds                    15,159,640    7,121,033 
Repayment of other borrowed funds                     (14,036,145)  (2,121,843) 
Proceeds from debt securities in issue                15,200        38,326 
Repayment of debt securities in issue                 (65,510)      (33,050) 
Proceeds from other subordinated debt                 100,000       - 
Dividends paid                                        (5,288)       (13,583) 
Net cash from financing activities                    1,038,896     4,943,537 
Effect of exchange rate changes on cash 
 and cash equivalents                                 (57,727)      120,841 
Net increase in cash and cash equivalents             183,322       2,231,158 
Cash and cash equivalents at the beginning 
 of the period                                 7      5,601,186     2,862,574 
Cash and cash equivalents at the end 
 of the period                                 7      5,784,508     5,093,732 
 

The notes set out on pages 6 to 40 form an integral part of condensed consolidated interim financial information

   1.                INTRODUCTION 

This condensed consolidated interim financial information has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" for the six months period ended 30 June 2021 for Joint Stock Commercial Bank "Uzbek Industrial and Construction Bank "(the "Bank") and its subsidiaries (together referred to as the "Group").

The Bank was incorporated in 1991 and is domiciled in the Republic of Uzbekistan. It is registered in Uzbekistan to carry out banking and foreign exchange activities and has operated under the banking license #17 issued by the Central Bank of Uzbekistan ("CBU") on 21 October 2017 (succeeded the licenses #17 issued on 25 January 2003 and #25 issued on 29 January 2005 by the CBU for banking operations and general license for foreign currency operations, respectively).

Principal activity . The Bank's principal activity is commercial banking, retail banking, operations with securities, foreign currencies and origination of loans and guarantees. The Bank accepts deposits from legal entities and individuals, extended loans, and transfer payments. The Bank conducts its banking operations from its head office in Tashkent and 44 branches within Uzbekistan as of 30 June 2021 (31 December 2020: 45 branches).

The Bank participates in the state deposit insurance scheme, which was introduced by the Uzbek Law #360-II "Insurance of Individual Bank Deposit" on 5 April 2002. On 28 November 2008, the President of Uzbekistan issued the Decree

#PD- 4057 stating that in case of the withdrawal of a license of a bank, the State Deposit Insurance Fund guarantees repayment of 100% of individual deposits regardless of the deposit amount.

As at 30 June 2021 (unaudited), the number of Bank's employees was 3,885 (31 December 2020: 4,052).

Registered address and place of business. 3, Shakhrisabz Street, Tashkent, 100000, Uzbekistan

At 30 June 2021 (unaudited) and 31 December 2020, the Group consolidated the following companies in these consolidated financial statements:

The Group's ownership

30 June 2021 31 December

                                                              Country of                (unaudited)              2020       Type of 
 
Name                          incorporation   %    %    operation 
SQB Capital, LLC              Uzbekistan      100  100  Asset management 
SQB Insurance, LLC            Uzbekistan      100  100  Insurance 
SQB Securities, LLC           Uzbekistan      100  100  Asset management 
SQB Construction, LLC         Uzbekistan      100  100  Construction 
PSB Industrial Investments,   Uzbekistan      -    100  Asset management 
 LLC 
 

During six months of 2021, the Group liquidated PSB Industrial Investments LLC. There was no impact on the Group's financial results in 2021 since PSB Industrial Investments LLC did not operate since second half of 2020 and there were no balances at the date of its liquidation.

The table below represents the Group's investment in associates at 30 June 2021 (unaudited) and 31 December 2020.

 
                                                                                     Group's ownership 
                                                                                     30 June 
                                                                                      2021        31 D ecember 
Name                                              Type of operation    Country       (unaudited)  2021 
 
LLC "SQB Consult"                                 Consulting           Uzbekistan    40%          40% 
 
LLC "Khorezm Invest Project"                      Asset management     Uzbekistan    34%          34% 
 
The table below represents the interest of the shareholders in the 
 Bank's share capital as at 30 June 2021(unaudited) and 31 December 
 2020: 
                                                                                     30 June 
                                                                                      2021        31 December 
Shareholders                                                                         (unaudited)  2020 
The Fund of Reconstruction and Development of 
 the Republic of Uzbekistan                                                          82.09%       82.09% 
The Ministry of Finance of the Republic 
 of Uzbekistan                                                                       12.81%       12.77% 
Other legal entities and individuals (individually 
 hold less than 5%)                                                                  5.10%        5.14% 
Total                                                                                100%         100% 
 
 
   2.             OPERATING ENVIRONMENT OF THE GROUP 

Republic of Uzbekistan. The Uzbekistan economy displays characteristics of an emerging market, including but not limited to, a currency that is not freely convertible outside of the country and a low level of liquidity in debt and equity markets. Also, the banking sector in Uzbekistan is particularly impacted by local political, legislative, fiscal and regulatory developments. The largest Uzbek banks are state-controlled and act as an arm of the Government to develop the country's economy. The Government distributes funds from the country's budget, which flow through the banks to various government agencies, and other state- and privately-owned entities.

Uzbekistan experienced the following key economic indicators in 2021:

   --      Inflation: 11.1% (2020: 11.1%) 
   --      GDP growth 4.8% (2020: 1.6%). 

-- Official exchange rates: 30 June 2021: USD 1 = UZS 10,605.30 (31 December 2020: USD 1 = UZS 10,476.92).

   --      Central Bank refinancing rate: 14% (2020: 14%). 

In June 2021 Standard & Poor's international rating agency affirmed the Republic of Uzbekistan's long-term foreign and short-term sovereign credit rating for foreign and local currency liabilities at the BB- level. The outlook was updated to Stable. The agency forecasts Uzbekistan's economy to grow by 4.8% in 2021, with the service sector becoming the main driver of the growth.

On 12 March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. In response to the pandemic, in 2020 (in 2021, some restrictions were held, where remained), the Uzbekistan authorities implemented numerous measures attempting to contain the spreading and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place orders and limitations on business activity, including closures. These measures have, among other things, severely restricted economic activity in Uzbekistan and have negatively impacted, and could continue to negatively impact businesses, market participants, clients of the Group, as well as the Uzbekistan and global economy for an unknown period of time. From the beginning of 2021 Uzbekistan actively supported health care systems related to vaccination and as a result at 20 September 2021 28% of the whole population got vaccinated.

The regulator pursues the inflation targeting policy aimed to reaching 5% by the end of 2023 and averaging around that level for an extended period. This is achieved in large part by imposing tighter requirements on liquidity, which should narrow down monetary base and loan portfolios of banks.

So far, the growth of loan portfolio stock was in line with the expectations of the Central Bank. Currently, it slowed to 8.5% from 15.8% in 2020 on a year-to-date basis. This is despite the fact that loans issued in the first half of this year grew 140% from the same period a year earlier, which is explained by the significantly elevated level of returning loans.

In the first half 2021 inflation rate declined year-on-year to 10.9% against 14.2% over the same period last year.

The rate of depreciation of national currency against US dollar also decreased from 7% to 1.2% in the first half of 2020 and 2021. This is coupled with de-dollarization policy of the government which aims to decrease the foreign currency part of the banks' loan portfolio below 50% by the end of the year.

In 2021 business environment has gradually recovering after pandemic crisis and began actively developing its activities as it was before pandemic.

The future effects of the current economic situation and the above measures are difficult to predict, and management's current expectations and estimates could differ from actual results.

Management is taking necessary measures to ensure sustainability of the Group's operations and support its employees.

   3.             BASIS OF PRESENTATION 

The condensed consolidated interim financial information of the Group has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and should be read in conjunction with the annual financial statements of the Group for the year ended 31 December 2020, which have been prepared in accordance with International Financial Reporting Standards (IFRS).

Except as described below, the same accounting policies and methods of computation were followed in the preparation of this condensed consolidated interim financial information as compared with the annual consolidated financial statements of the Group for the year ended 31 December 2020.

Interim period tax measurement. Interim period income tax expense is accrued using the effective tax rate that would be applicable to expected total annual earnings, that is, the estimated weighted average annual effective income tax rate applied to the pre-tax income of the interim period.

This condensed consolidated interim financial information is presented in millions of Uzbek Soums ("UZS"), except for earnings per share amounts and unless otherwise indicated.

   4.             ADOPTION OF NEW AND REVISED STANDARDS 

Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2021 or later, and which the Group has not early adopted.

-- IFRS 17 "Insurance Contracts" (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2023).

-- Amendments to IFRS 17 and an amendment to IFRS 4 (issued on 25 June 2020 and effective for annual periods beginning on or after 1 January 2023).

-- Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB).

-- Classification of liabilities as current or non-current - Amendments to IAS 1 (issued on 23 January 2020 and effective for annual periods beginning on or after 1 January 2022).

-- Classification of liabilities as current or non-current, deferral of effective date - Amendments to IAS 1 (issued on 15 July 2020 and effective for annual periods beginning on or after 1 January 2023).

-- Proceeds before intended use, Onerous contracts - cost of fulfilling a contract, Reference to the Conceptual Framework - narrow scope amendments to IAS 16, IAS 37 and IFRS 3, and Annual Improvements to IFRSs 2018- 2020 - amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 (issued on 14 May 2020 and effective for annual periods beginning on or after 1 January 2022).

-- Interest rate benchmark (IBOR) reform - phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (issued on 27 August 2020 and effective for annual periods beginning on or after 1 January 2021).

The requirements of the amended standards have not been taken into account in the preparation of this condensed consolidated interim financial information. The Group is currently assessing the effect of this amendment on its financial position and results of operations.

   5.             CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY 

In preparing this condensed consolidated interim financial information, the significant judgments made by the management in applying the Group's accounting policies and the key sources of estimation uncertainty were consistent with those that applied to the Group's annual consolidated financial statements for the year ended 31 December 2020 prepared in accordance with IFRS. There have been no changes to the basis upon which the significant accounting estimates have been determined compared with 31 December 2020, except for additional modification that the Group applied for measuring ECL as of 31 December 2020 in response to the COVID-19 pandemic:

-- During 2020 the Group offered forbearance solutions to customers in the form of reductions to contractual payments including freezes to interest payments for up to six months. The forbearance was provided to all customers notwithstanding their financial difficulties before the COVID-19 pandemic. These measures have not been treated as a trigger for credit impairment or SICR for the restructured loans that had no overdue prior and during the pandemic period and subsequently had no overdue in scheduled payments, since measures were based on legislative moratoria on loan repayments applied in light of the COVID-19 crisis.

-- During 2020 the Group has also adjusted the calculation of loss given default rates (LGD) by excluding the loan recovery results of the second and third quarters of 2020, assuming the recovery pattern during the lockdown period does not accurately reflect the financial performance of the borrowers. Cash flows and turnover of customer accounts observed during pre and post quarantine periods suggest that significant slow- down in the recovery of loans were mainly attributable to factors other than the financial standing of the borrowers. This adjustment to LGD has been applied across all portfolios of the Group.

Due to improvement of economic situation, absence of COVID-19 related moratoria on loan repayments in the first half of 2021 and observed curing of borrowers from COVID-19 pandemic the above adjustments and overlays to the risk parameters were not applied to the ECL as of 30 June 2021.

The Group incorporates forward-looking information into a measurement of ECL when there is a statistically proven correlation between the macro-economic variables and defaults. As at the reporting date the Group has obtained quarterly values for macroeconomic variables: export, import, GDP, CPI, current account balances, unemployment rates, aligned them with quarterly default rates across all loan portfolios and performed statistical tests for correlation considering different time lags. The Management analysed forward-looking information and assessed that effect of macro is not significant. The Management updates its statistical tests for correlation as at each reporting date.

If probability of default (PD) increased by 10% for the whole loan portfolio then ECL would have increased by 4% and amounted UZS 1,664,986 million as of 30 June 2021. If LGD increased by 10% for the whole loan portfolio then ECL would have increased by 7% and amounted UZS 1,719,132 million.

   6.             SEGMENT REPORTING 

Operating segments are components of the Group that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision makers (CODM) and for which discrete financial information is available. The CODM of the group is the Management Board. The Management Board regularly uses financial information based on IFRS for operational decision-making and resource allocation.

   (a)    Description of products and services from which each reportable segment derives its revenue 

The Group is organized on the basis of two main business segments - corporate banking which represents direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products and retail banking which represents private banking services, private customer current accounts, savings, deposits and debit cards, consumer loans.

   (b)    Information about reportable segment profit or loss, assets, and liabilities 

Segment information for the reportable segments for the period ended 30 June 2021 (unaudited) is set out below:

30 June 2021 (unaudited)

 
                                       Corporate   Individuals  Total 
Assets 
Cash and cash equivalents              5,784,508   -            5,784,508 
Loans and advances to customers        36,024,503  3,929,526    39,954,029 
Due from other banks                   2,111,517   -            2,111,517 
Investment securities measured at 
 amortised cost                        1,236,614   -            1,236,614 
Total reportable segment assets        45,157,142  3,929,526    49,086,668 
Liabilities 
Due to other banks                     942,515     -            942,515 
Customer accounts                      9,560,217   2,758,324    12,318,541 
Other borrowed funds                   26,825,591  10,187       26,835,778 
Debt securities in issue               3,264,282   -            3,264,282 
Total reportable segment liabilities   40,592,605  2,768,511    43,361,116 
Capital expenditure                    -           -            816,264 
 

Segment information for the reportable segments for the year ended 31 December 2020 is set out below:

31 December 2020

 
                                       Corporate   Individuals  Total 
Assets 
Cash and cash equivalents              5,601,186   -            5,601,186 
Loans and advances to customers        34,821,532  4,138,426    38,959,958 
Due from other banks                   1,859,192   -            1,859,192 
Investment securities measured at 
 amortised cost                        540,222     -            540,222 
Total reportable segment assets        42,822,132  4,138,426    46,960,558 
Liabilities 
Due to other banks                     1,496,004   -            1,496,004 
Customer accounts                      9,475,904   2,141,054    11,616,958 
Other borrowed funds                   25,673,513  9,944        25,683,457 
Debt securities in issue               3,273,048   -            3,273,048 
Total reportable segment liabilities   39,918,469  2,150,998    42,069,467 
Capital expenditure                    -           -            1,033,849 
 

The cash management is performed by Treasury Department to support liquidity of the Bank as a whole.

   6.             SEGMENT REPORTING (Continued) 
 
                                       Six months ended 
                                       30 June 2021 (unaudited) 
                                       Corporate    Individuals    Total 
Interest on loans and advances to 
 customers                             1,508,127    303,522        1,811,649 
Interest on investment securities 
 measured at amortised cost            68,533       -              68,533 
Interest on balances due from other 
 banks                                 65,128       -              65,128 
Interest on other borrowed funds       (607,659)    -              (607,659) 
Interest on customer accounts          (118,832)    (113,017)      (231,849) 
Interest on debt securities in issue   (104,164)    -              (104,164) 
Interest on balances due to other 
 banks                                 (36,706)     -              (36,706) 
Interest on subordinated debt          (2,649)      -              (2,649) 
Segment results                        771,778      190,505        962,283 
 
 
                                              Six months ended 
                                              30 June 2020 (unaudited) 
                                              Corporate    Individuals    Total 
Interest on loans and advances to customers   1,132,429    286,973        1,419,402 
Interest on balances due from other 
 banks                                        67,925       -              67,925 
Interest on investment securities measured 
 at amortised cost                            8,627        -              8,627 
Interest on other borrowed funds              (343,972)    -              (343,972) 
Interest on customer accounts                 (142,831)    (63,745)       (206,576) 
Interest on balances due to other banks       (111,370)    -              (111,370) 
Interest on debt securities in issue          (100,094)    -              (100,094) 
Interest on subordinated debt                 (7,334)      -              (7,334) 
Segment results                               503,380      223,228        726,608 
(c) Reconciliation of income and expenses, assets, and liabilities 
 for reportable segments: 
                                              30 June 2021                31 December 
                                              (unaudited)                 2020 
Total reportable segment assets               49,086,668                  46,960,558 
Financial assets at fair value through 
 other comprehensive income                   41,709                      38,024 
Investment in associates                      12,026                      993 
Premises, equipment and intangible assets     1,015,789                   747,232 
Deferred tax asset                            103,508                     167,619 
Insurance assets                              10,847                      5,544 
Other assets                                  330,559                     376,520 
Non-current assets held for sale              20,936                      27,355 
Total assets                                  50,622,042                  48,323,845 
 
  Total reportable segment liabilities          43,361,116                  42,069,467 
Insurance liabilities                         70,725                      44,887 
Other liabilities                             202,868                     128,627 
Subordinated debt                             101,383                     - 
Total liabilities                             43,736,092                  42,242,981 
 

Due to significant increase of retail transactions and business activities in comparison with the previous year, the management of the Group is currently in the process of development and enhancement of segmentation reporting.

   6.             SEGMENT REPORTING (Continued) 
 
                                              Six months ended  Six months 
                                                                 ended 
                                              30 June 2021      30 June 2020 
                                              (unaudited)       (unaudited) 
Segment results                               962,283           726,608 
Recovery of / (provision) for credit losses 
 on loans and advances to customers             314,451           (434,197) 
Gain / (loss) on initial recognition on 
 interest bearing assets                      3,159             (8,551) 
Fee and commission income                     194,399           157,965 
Fee and commission expense                    (44,552)          (42,330) 
Net gain on foreign exchange translation      (8,136)           38,173 
Net gain from trading in foreign currencies   74,248            26,774 
Insurance operations income                   40,654            15,970 
Insurance operations expense                  (16,598)          (16,604) 
Change in insurance reserves, net             (20,263)          - 
Dividend income                               4,891             681 
Other operating income                        23,399            1,840 
Provision for impairment of other assets      (52,077)          (11,212) 
Impairment of assets held for sale            (3,974)           (11,309) 
Administrative and other operating expenses   (452,216)         (277,014) 
Share of result from associates               (595)             - 
Profit before tax                             1,019,073         166,794 
Income tax expense                            (212,145)         (31,904) 
PROFIT FOR THE PERIOD FROM CONTINUING 
 OPERATIONS                                   806,928           134,890 
Discontinued operations 
Loss for the period from discontinued 
 operations                                   -                 (174) 
PROFIT FOR THE PERIOD                         806,928           134,716 
 
  7. CASH AND CASH EQUIVALENTS 
                                              30 June 2021      31 December 
                                              (unaudited)       2020 
Cash on hand                                  872,820           1,022,474 
Cash balances with the CBU (other than 
 mandatory reserve deposits)                  219,743           2,624,648 
Correspondent accounts and placements 
 with other banks with original maturities 
 of less than three months                      4,692,284         1,954,225 
Less: Allowance for expected credit losses    (339)             (161) 
Total cash and cash equivalents               5,784,508         5,601,186 
 

The increase in allowance for expected credit losses was triggered by the increase in correspondent accounts and placements with other banks.

As at 30 June 2021 (unaudited) and 31 December 2020 for the purpose of ECL measurement cash and cash equivalents balances are included in Stage 1.

   7.             CASH AND CASH EQUIVALENTS (Continued) 

The credit quality of cash and cash equivalents at 30 June 2021 (unaudited) is as follows:

 
                                   Cash balances       Correspondent accounts      Total 
                                    with the CBU        and placements with 
                                    (other than         other banks with original 
                                    mandatory reserve   maturities of less 
                                    deposits)           than three months 
Neither past due nor impaired 
 - Central Bank of Uzbekistan        219,743             -                           219,743 
- Rated AA- to A+                  -                   1,321,985                   1,321,985 
- Rated Baa                        -                   596,835                     596,835 
- Rated Ba                         -                   2,673,464                   2,673,464 
- Rated B                          -                   100,000                     100,000 
Less: Allowance for expected 
 credit losses                     (4)                 (335)                       (339) 
Total cash and cash equivalents, 
excluding cash on hand             219,739             4,691,949                   4,911,688 
 
  The credit quality of cash and cash equivalents at 31 December 
  2020 is as follows: 
                                   Cash balances       Correspondent accounts      Total 
                                    with                and 
                                   the CBU (other      placements with other 
                                    than                banks 
                                   mandatory reserve   with original maturities 
                                                        of less 
                                   deposits)           than three months 
Neither past due nor impaired 
- Central bank of Uzbekistan       2,624,648           -                           2,624,648 
- Rated AA to A-                   -                   1,666,788                   1,666,788 
- Rated Baa                        -                   50,901                      50,901 
- Rated Ba                         -                   228,007                     228,007 
- Rated B                          -                   8,529                       8,529 
Less: Allowance for expected 
 credit losses                     (69)                (92)                        (161) 
Total cash and cash equivalents, 
excluding cash on hand             2,624,579           1,954,133                   4,578,712 
 

The credit rating is based on the rating agency Moody's (if available) or the rating agencies Standard & Poor's and Fitch, which are converted to the nearest equivalent value on the Moody's rating scale.

Information on related party balances is disclosed in Note 25. Information on fair value of cash and cash equivalents is disclosed in Note 22.

 
8. DUE FROM OTHER BANKS                            30 June 
                                                    2021        31 December 
                                                   (unaudited)  2020 
Madatory cash balances with 
 CBU                                               207,557      141,437 
Placements with other banks with original 
 maturities of more than 
 three months                                      1,712,593    1,458,096 
Restricted cash                                    225,658      278,088 
Less: Allowance for expected 
 credit losses                                     (34,291)     (18,429) 
Total due from other banks                         2,111,517    1,859,192 
 

Mandatory deposits with the CBU include non-interest-bearing reserves against client deposits. The Group does not have the right to use these deposits for the purposes of funding its own activities.

Restricted cash represents balances on correspondent accounts with foreign banks placed by the Group on behalf of its customers. The Group does not have the right to use these funds for the purpose of funding its own activities.

The increase in credit loss allowance was triggered by the increase in the Placements with other banks with original maturities of more than three months balances.

   8.             DUE FROM OTHER BANKS (Continued) 

At 30 June 2021 (unaudited) the Group had balances with fourteen counterparty banks (31 December 2020: 6 counterparty banks) with aggregated amounts above UZS 10,000,000 thousand. The total aggregate amount of these deposits was UZS 1,961,543 million (2020: UZS 1,726,208 million) or 91% of the total amount due from other banks (31 December 2020: 91%).

As at 30 June 2021 (unaudited) and 31 December 2020 for the purpose of ECL measurement due from other bank balances are included in Stage 1.

Analysis by credit quality of due from other banks outstanding at 30 June 2021 (unaudited) is as follows:

 
                                Mandatory       Placements with       Restricted  Total 
                                 cash balances   other banks with      cash 
                                 with CBU        original maturities 
                                                 of more than 
                                                 three months 
Neither past due nor impaired 
 - Central Bank of Uzbekistan     207,557         120,605               -           328,162 
- Rated A- to A+                -               -                     98,501      98,501 
- Rated Baa                     -                                     122,332     122,332 
- Rated Ba2                     -               3,386                 -           3,386 
- Rated BB-                     -               370,436               -           370,436 
- Rated B+                      -               159,080               -           159,080 
- Rated B1                      -               768,942               -           768,942 
- Rated B2                      -               6,801                 -           6,801 
- Rated B                       -               246,227               -           246,227 
- Rated CCC+                    -               31,816                -           31,816 
- Unrated                       -               5,300                 4,825       10,125 
Less: Allowance for expected 
 credit losses                  -               (33,648)              (643)       (34,291) 
Total due from other banks      207,557         1,678,945             225,015     2,111,517 
 

Analysis by credit quality of due from other banks outstanding at 31 December 2020 is as follows:

 
                                Mandatory       Placements with       Restricted  Total 
                                 cash balances   other banks with      cash 
                                 with CBU        original maturities 
                                                 of more than 
                                                 three months 
Neither past due nor impaired 
- Central bank of Uzbekistan    141,437         -                     -           141,437 
- Rated AA to A-                -               -                     5,268       5,268 
- Rated Baa                     -               3,101                 272,820     275,921 
- Rated Ba2                     -               339,281               -           339,281 
- Rated BB-                     -               145,701               -           145,701 
- Rated B+                      -               704,271               -           704,271 
- Rated B1                      -               6,229                 -           6,229 
- Rated B2                      -               225,518               -           225,518 
- Rated B                       -               29,140                -           29,140 
- Rated CCC+                    -               4,854                 -           4,854 
Less: Allowance for expected 
 credit losses                  -               (18,155)              (274)       (18,429) 
Total due from other banks      141,437         1,439,941             277,814     1,859,192 
 

The credit rating is based on the rating agency Moody's (if available) or the rating agencies Standard & Poor's and Fitch.

Information on related party balances is disclosed in Note 25. Information on fair value of due from other banks is disclosed in Note 22.

   9.             LOANS AND ADVANCES TO CUSTOMERS 

The Bank uses the following classification of loans:

-- Loans to state and municipal organisations - loans issued to clients wholly owned by the Government of the Republic of Uzbekistan and budget organisations;

-- Corporate loans - loans issued to clients other than government entities and private entrepreneurs;

-- Loans to individuals - loans issued to individuals for consumption purposes, for the purchase of residential houses and flats and loans issued to private entrepreneurs without forming legal entity.

 
Loans and advances to customers comprise: 
                                              30 June 2021    31 December 
                                            (unaudited)     2020 
Corporate loans                             23,496,965      21,938,171 
State and municipal organisations           13,873,581      14,562,532 
Loans to individuals                        4,184,377       4,361,970 
Total loans and advances to customers, 
 gross                                      41,554,923      40,862,673 
Less: Allowance for expected credit 
 losses                                     (1,600,894)     (1,902,715) 
Total loans and advances to customers       39,954,029      38,959,958 
 

The loan allowance reduction is explained by the improvement in the quality of the loan portfolio due to decreased COVID 19 effects on the Group borrowers. During 2020, the Group provided forbearances to customers via restructuring of interest payments by accruing of interest to the loan outstanding principal with final maturities predominantly extended by six months. Such restructuring increased the number of loans being classified in Stage 3 as a result significantly increasing the allowance for expected credit losses. During 2021 no additional major restructuring was made by the Group and prior year restructured amounts were mostly repaid influencing the loan and advances to customers balance staging.

The other major reason of allowance for expected credit losses reduction is improvement of individually significant loans performance on which the ECL is calculated on an individual basis and constituted in current year UZS 351,092 million and UZS 758,997 million as at 31 December 2020

The table below represents loans and advances to customer's classification by stages as at 30 June 2021 (unaudited) and 31 December 2020:

 
                                         30 June 2021  31 December 
                                          (unaudited)   2020 
 
  Originated loans to customers            41,109,472    40,423,399 
Overdrafts                               445,451       439,274 
Total loans and advances to customers, 
 gross                                   41,554,923    40,862,673 
Stage 1                                  34,788,085    26,201,628 
Stage 2                                  4,199,510     11,970,209 
Stage 3                                  2,567,328     2,690,836 
Total loans and advances to customers, 
 gross                                   41,554,923    40,862,673 
Less: Allowance for expected credit 
 losses                                  (1,600,894)   (1,902,715) 
Total loans and advances to customers    39,954,029    38,959,958 
 
   9.             LOANS AND ADVANCES TO CUSTOMERS (Continued) 

The following tables discloses the changes in the credit loss allowance and gross carrying amount for loans and advances to corporate customers between the beginning and the end of the reporting period:

 
Credit Loss Allowance Gross Carrying Amount 
                     Stage 1     Stage      Stage      TOTAL      Stage          Stage        Stage        TOTAL 
                                  2          3                     1              2            3 
                     12-month    Lifetime   Lifetime              12-month       Lifetime     Lifetime 
State and municipal  ECL         ECL        ECL                   ECL            ECL          ECL 
organisations 
As at 1 January 
 2021                59,932      59,313     9,713      128,958    8,143,995      6,381,126    37,411       14,562,532 
Changes in the 
 gross carrying 
 amount 
 - Transfer from 
 stage 1               (924)       920        4          -          (139,137)      136,275      2,862        - 
- Transfer from 
 stage 2             52,801      (52,801)   -          -          5,369,641      (5,369,641)  -            - 
- Transfer from 
 stage 3             1,309       1,931      (3,240)    -          1,674          3,745        (5,419)      - 
- Changes in EAD 
 and risk 
 parameters*         (24,866)    2,193      (1,000)    (23,673)   (541,548)      (3,408)      (7,360)      (552,316) 
New assets issued 
 or acquired         3,904       -          -          3,904      1,650,566      -            -            1,650,566 
Matured or 
 derecognized 
 assets 
 (except for write 
 off)                (4,211)     (5,728)    (3,182)    (13,121)   (991,824)      (887,386)    (26,722)     (1,905,932) 
Foreign exchange 
 differences         572         547        -          1,119      101,672        11,883       5,176        118,731 
Loss allowance for 
ECL and Gross 
Carrying as at 
30 June 2021 
 (unaudited)         88,517      6,375      2,295      97,187     13,595,039     272,594      5,948        13,873,581 
Credit Loss Allowance Gross Carrying Amount 
                     Stage 1     Stage      Stage      TOTAL      Stage          Stage        Stage        TOTAL 
                                  2          3                     1              2            3 
                     12-month    Lifetime   Lifetime              12-month       Lifetime     Lifetime 
Corporate loans      ECL         ECL        ECL                   ECL            ECL          ECL 
As at 1 January 
 2021                113,094     134,583    1,302,537  1,550,214  14,751,901     4,950,505    2,235,765    21,938,171 
Changes in the 
 gross carrying 
 amount 
 - Transfer from 
 stage 1               (13,830)    7,783      6,047      -          (1,925,569)    1,043,532    882,037      - 
- Transfer from 
 stage 2             54,732      (75,307)   20,575     -          2,411,856      (3,218,276)  806,420      - 
- Transfer from 
 stage 3             114,942     843,899    (958,841)  -          258,352        1,274,670    (1,533,022)  - 
- Changes in EAD 
 and risk 
 parameters*         (110,416)   (579,382)  428,648    (261,150)  (1,311,814)    118,594      31,100       (1,162,120) 
New assets issued 
 or acquired         59,223      -          -          59,223     4,390,162      -            -            4,390,162 
Matured or 
 derecognized 
 assets 
 (except for write 
 off)                (6,821)     (4,353)    (78,200)   (89,374)   (1,066,456)    (447,432)    (190,755)    (1,704,643) 
Recovery of assets 
 previously 
 written off         -           -          11,656     11,656     -              -            11,656       11,656 
Written off assets   -           -          (27,880)   (27,880)   -              -            (27,880)     (27,880) 
Foreign exchange 
 differences         465         4,085      1,616      6,166      44,203         5,166        2,250        51,619 
Loss allowance for 
ECL and Gross 
Carrying as at 
30 June 2021 
 (unaudited)         211,389     331,308    706,158    1,248,855  17,552,635     3,726,759    2,217,571    23,496,965 
 
                9.   LOANS AND ADVANCES TO CUSTOMERS (Continued) 

The following tables discloses the changes in the credit loss allowance and gross carrying amount for loans and advances to

   corporate customers between the beginning and the end of     the reporting period: 
 
                               Credit Loss Allowance                      Gross Carrying Amount 
                               Stage 1    Stage      Stage      TOTAL     Stage 1      Stage      Stage      TOTAL 
                                           2          3                                 2          3 
                                12-month   Lifetime   Lifetime             12-month     Lifetime   Lifetime 
Loans to individuals           ECL        ECL        ECL                  ECL          ECL        ECL 
As at 1 January 2021           21,253     19,047     183,244    223,544   3,582,749    361,561    417,660    4,361,970 
Changes in the gross carrying 
 amount 
 - Transfer from stage 1         (1,263)    622        641        -         (211,958)    104,430    107,528    - 
- Transfer from stage 2        12,175     (16,070)   3,895      -         231,152      (299,749)  68,597     - 
- Transfer from stage 3        56,606     19,966     (76,572)   -         133,321      48,105     (181,426)  - 
- Changes in EAD and risk 
 parameters*                   (51,755)   (1,091)    95,681     42,835    (426,196)    3,569      (16,273)   (438,900) 
New assets issued or acquired  13,692     -          -          13,692    634,861      -          -          634,861 
Matured or derecognized 
 assets 
 (except for write off)        (1,810)    (623)      (22,787)   (25,220)  (303,518)    (17,760)   (52,276)   (373,554) 
Loss allowance for ECL and 
Gross 
Carrying as at 
30 June 2021 (unaudited)       48,898     21,851     184,102    254,851   3,640,411    200,156    343,810    4,184,377 
 

*The line "Changes in EAD and risk parameters" under columns related to Gross Carrying Amount represents changes in the gross carrying amount of loans issued in prior periods which have not been fully repaid during 2021 and transfers of new issued loans between stages.

*The line "Changes in EAD and risk parameters" under columns related to Credit Loss Allowance represents changes in risk parameters (PD, LGD), changes in EAD and adjustment of ECL due to transfer to new stages, as well as transfers of ECL on new loans originated during the reporting period from Stage 1 to other stages. The information on transfers above reflects the migration of loans from their initial stage (or the stage as at the beginning of the reporting date) to the stage they were in as at the reporting date. This information does not reflect the intermediate stage that the loans could be assigned to throughout the reporting period.

   9.             LOANS AND ADVANCES TO CUSTOMERS (Continued) 

The following table discloses the changes in the credit loss allowance and gross carrying amount for loans and advances to corporate customers between the 1 January 2020 and 30 June 2020:

 
                           Credit Loss Allowance                      Gross Carrying Amount 
                           Stage 1    Stage     Stage      TOTAL      Stage        Stage 2      Stage      TOTAL 
                                       2         3                     1                         3 
                           12-month   Lifetime  Lifetime              12-month     Lifetime     Lifetime 
State and municipal        ECL        ECL       ECL                   ECL          ECL          ECL 
organisations 
As at 1 January 2020       50,850     90,841    7,568      149,259    7,316,072    5,499,817    57,264     12,873,153 
Changes in the gross 
carrying 
amount 
- Transfer from stage 1    (3,914)    3,914     -          -          (1,808,840)  1,808,840    -          - 
- Transfer from stage 2    52,929     (52,929)  -          -          2,603,994    (2,603,994)  -          - 
- Transfer from stage 3    -          443       (443)      -          -            1,801        (1,801)    - 
- Changes in EAD and risk 
 parameters*               (95,805)   30,736    14,300     (50,769)   (235,089)    37,281       12,464     (108,055) 
New assets issued or 
 acquired                  17,330     -         -          17,330     1,406,907    -            -          1,406,907 
Matured or derecognized 
 assets 
 (except for write off)    (4,821)    (1,305)   (7,130)    (13,256)   (434,951)    (43,777)     (55,468)   (534,196) 
Foreign exchange 
 differences               2,526      5,624     -          8,150      505,559      159,213      33,809     621,292 
Loss allowance for ECL 
and Gross 
Carrying as at 
30 June 2020 (unaudited)   19,095     77,324    14,295     110,714    9,353,652    4,859,181    46,268     14,259,101 
                           Credit Loss Allowance                      Gross Carrying Amount 
                           Stage 1    Stage     Stage      TOTAL      Stage        Stage 2      Stage      TOTAL 
                                       2         3                     1                         3 
                           12-month   Lifetime  Lifetime              12-month     Lifetime     Lifetime 
Corporate loans            ECL        ECL       ECL                   ECL          ECL          ECL 
As at 1 January 2020       83,109     85,813    297,872    466,794    11,182,892   2,740,116    765,282    14,688,290 
Changes in the gross 
 carrying 
 amount 
 - Transfer from stage 1     (1,561)    842       719        -          (231,377)    135,839      95,538     - 
- Transfer from stage 2    31,010     (51,319)  20,309     -          780,471      (1,611,650)  831,179    - 
- Transfer from stage 3    4,546      67,082    (71,628)   -          37,648       98,162       (135,810)  - 
- Changes in EAD and risk 
 parameters*               (643,886)  (47,047)  740,583    49,650     (1,051,527)  118,148      925,851    (7,528) 
New assets issued or 
 acquired                  610,270    -         -          610,270    5,181,786    -            -          5,181,786 
Matured or derecognized 
 assets 
 (except for write off)    (9,302)    (6,050)   (173,712)  (189,064)  (1,496,139)  (202,025)    (433,868)  (2,132,032) 
Recovery of assets 
 previously 
 written off               -          -         35,109     35,109     -            -            35,109     35,109 
Foreign exchange 
 differences               4,885      4,366     4,955      14,206     662,332      208,585      44,294     915,211 
Loss allowance for ECL 
and Gross 
Carrying as at 
30 June 2020 (unaudited)   79,071     53,687    854,207    986,965    15,066,086   1,487,175    2,127,575  18,680,836 
 
   9.             LOANS AND ADVANCES TO CUSTOMERS (Continued) 

The following table discloses the changes in the credit loss allowance and gross carrying amount for loans and advances to corporate customers between the 1 January 2020 and 30 June 2020:

 
                                Credit Loss Allowance                     Gross Carrying Amount 
                                Stage 1    Stage      Stage      TOTAL    Stage 1      Stage 2    Stage      TOTAL 
                                            2          3                                           3 
                                 12-month   Lifetime   Lifetime            12-month     Lifetime   Lifetime 
Loans to individuals            ECL        ECL        ECL                 ECL          ECL        ECL 
As at 1 January 2020            3,171      18,246     8,947      30,364   2,675,382    404,965    44,411     3,124,758 
Changes in the gross carrying 
 amount 
 - Transfer from stage 1          (261)      251        10         -        (199,411)    193,967    5,444      - 
- Transfer from stage 2         8,298      (14,679)   6,381      -        177,375      (321,384)  144,009    - 
- Transfer from stage 3         1,082      711        (1,793)    -        5,500        3,564      (9,064)    - 
- Changes in EAD and risk 
 parameters*                    (19,488)   5,954      14,948     1,414    (469,585)    189,451    61,735     (218,399) 
New assets issued or acquired   13,656     -          -          13,656   1,916,637    -          -          1,916,637 
Matured or derecognized assets 
 (except for write off)         (690)      (1,134)    (3,211)    (5,035)  (688,656)    (26,911)   (9,702)    (725,269) 
Loss allowance for ECL and 
Gross 
Carrying as at 
30 June 2020 (unaudited)        5,768      9,349      25,282     40,399   3,417,242    443,652    236,833    4,097,727 
 
   9.             LOANS AND ADVANCES TO CUSTOMERS (Continued) 

Economic sector risk concentrations within the loans and advances to customer are as follows:

 
                               30 June 2021       31 December 
                               (unaudited)        2020 
                               Amount       %     Amount       % 
Manufacturing                  12,776,443   31%   12,165,253   30% 
Oil and gas & chemicals        10,711,913   26%   9,999,561    25% 
Trade and Services             4,464,948    11%   4,338,733    11% 
Individuals                    4,184,377    10%   4,361,970    11% 
Agriculture                    3,780,218    9%    3,616,095    9% 
Energy                         2,631,063    6%    3,396,794    8% 
Transport and communication    2,217,205    5%    2,198,157    5% 
Construction                   788,756      2%    786,11       2% 
Total loans and advances to 
 customers, gross              41,554,923   100%  40,862,673   100% 
Less: Allowance for expected 
 credit losses                 (1,600,894)        (1,902,715) 
Total loans and advances to 
 customers                     39,954,029         38,959,958 
 

As at 30 June 2021(unaudited), the Group granted loans to 13 (31 December 2020: 12) borrowers in the amount of UZS 14,759,440 million (31 December 2020: UZS 12,563,610 million), which individually exceeded 10% of the Group's equity.

Information about loans and advances to individuals as at 30 June 2021 (unaudited) and 31 December 2020 are as follows:

 
                                           30 June 2021                             31 December 
                                            (unaudited)                              2020 
Mortgage                                   3,037,262                                2,867,127 
Microloan                                  528,643                                  628,107 
Car Loan                                   394,952                                  536,708 
Consumer Loans                             167,580                                  256,592 
Other                                      55,940                                   73,436 
Total loans and advances to individuals, 
 gross                                     4,184,377                                4,361,970 
Less: Allowance for expected 
 credit losses                             (254,851)                                (223,544) 
Total loans and advances to individuals    3,929,526                                4,138,426 
 
  Information about collateral and other credit enhancement as at 
  30 June 2021 (unaudited) are as follows: 
                                           State and      Corporate    Loans to     30 June 
                                                                                     2021 
                                           municipal      loans        individuals  (unaudited) 
                                           organisations 
Loans collateralised by: Letter 
 of surety                                   2,386,592      7,547,780    566,830      10,501,202 
Real estate                                118,553        7,425,505    2,720,418    10,264,476 
State guarantee                            7,503,654      259,348      -            7,763,002 
Equipment                                  646,971        4,528,726    -            5,175,697 
Insurance policy                           11,489         2,482,773    691,823      3,186,085 
Inventory and receivables                  1,868,972      839,810      1,145        2,709,927 
Cash deposits                              1,084,973      23,163       3,246        1,111,382 
Vehicles                                   91,727         387,307      178,440      657,474 
Equity securities                          156,939        -            -            156,939 
Not collateralised                         3,711          2,553        22,475       28,739 
Total loans and advances to customers, 
 gross                                     13,873,581     23,496,965   4,184,377    41,554,923 
Less: Allowance for expected 
 credit losses                             (97,187)       (1,248,856)  (254,851)    (1,600,894) 
Total loans and advances to customers      13,776,394     22,248,109   3,929,526    39,954,029 
 
   9.             LOANS AND ADVANCES TO CUSTOMERS (Continued) 

Information about collateral and other credit enhancement as at 31 December 2020 are as follows:

 
                                         State and                 Corporate    Loans to      31 December 
                                          municipal organisations   loans        individuals   2020 
Loans collateralised by: Letter 
 of surety                                 2,230,264                 7,748,268    804,776       10,783,308 
Real estate                              137,576                   6,980,088    2,544,451     9,662,115 
State guarantee                          7,871,577                 2,179        -             7,873,756 
Equipment                                957,259                   4,231,746    -             5,189,005 
Inventory and receivables                2,055,641                 717,007      1,151         2,773,799 
Insurance policy                         15,016                    1,912,279    348,154       2,275,449 
Cash deposits                            1,054,919                 52,955       4,623         1,112,497 
Vehicles                                 73,101                    290,185      236,322       599,608 
Equity securities                        164,181                   -            -             164,181 
Not collateralised                       2,998                     3,464        422,493       428,955 
Total loans and advances to customers, 
 gross                                   14,562,532                21,938,171   4,361,970     40,862,673 
Less: Allowance for expected 
 credit losses                           (128,957)                 (1,550,214)  (223,544)     (1,902,715) 
Total loans and advances to customers    14,433,575                20,387,957   4,138,426     38,959,958 
 

Analysis by credit quality of loans and advances to customers that are collectively and individually assessed for impairment as at 30 June 2021 (unaudited) is as follows:

 
                                                                    Loans 
                                        State and      Corporate     to          Total 
                                        municipal      loans        individuals 
                                        organisations 
Not past due loans                      13,862,472     20,097,491   3,317,338    37,277,301 
Past due loans 
- less than 30 days overdue             5,160          1,172,749    385,262      1,563,171 
- 31 to 90 days overdue                 655            638,357      168,381      807,393 
- 91 to 180 days overdue                5,294          611,860      188,799      805,953 
- 181 to 360 days overdue               -              181,800      111,884      293,684 
- over 360 days overdue                 -              28,801       12,713       41,514 
Total loans assessed for 
impairment on a collective basis, 
gross                                   13,873,581     22,731,058   4,184,377    40,789,016 
Loans individually determined to 
 be impaired (gross): 
Restructured loans                      -              765,907      -            765,907 
Not past due loans                      -              356,435      -            356,435 
Past due loans                          -              -            - 
1-30 days                               -              30,700       -            30,700 
31-90 days                              -              27,992       -            27,992 
91-180 days                             -              257,953      -            257,953 
- 181 to 360 days overdue               -              92,827       -            92,827 
Total loans individually 
determined to be impaired, gross        -              765,907      -            765,907 
- Impairment provisions for 
individually impaired loans             -              (212,818)    -            (212,818) 
- Impairment provisions 
assessed on a collective basis          (97,187)       (1,036,038)  (254,851)    (1,388,076) 
Less: Allowance for expected credit 
losses                                  (97,187)       (1,248,856)  (254,851)    (1,600,894) 
Total loans and advances to customers   13,776,394     22,248,109   3,929,526    39,954,029 
 
   9.             LOANS AND ADVANCES TO CUSTOMERS (Continued) 

Analysis by credit quality of loans and advances to customers that are collectively and individually assessed for impairment as at 31 December 2020 is as follows:

 
                                                                    Loans 
                                        State and      Corporate     to          Total 
                                        municipal      loans        individuals 
                                        organisations 
Loans assessed for impairment on a collective 
 basis (gross) 
Not past due loans                      14,228,723     17,897,823   3,826,146    35,952,692 
Past due loans 
less than 30 days overdue               -              593,668      279,244      872,912 
31 to 90 days overdue                   59,829         1,927,487    193,959      2,181,275 
91 to 180 days overdue                  -              81,407       33,325       114,732 
181 to 360 days overdue                 -              93,052       27,906       120,958 
over 360 days overdue                   -              31,439       1,39         32,829 
Total loans assessed for 
impairment on a collective basis, 
gross                                   14,288,552     20,624,876   4,361,970    39,275,398 
Loans individually determined 
 to be impaired (gross): 
Restructured loans                      273,980        1,313,295    -            1,587,275 
Not past due loans                      273,980        1,230,685    -            1,504,665 
Past due loans 
31-90 days                              -              82,610       -            82,610 
Total loans individually 
determined to be impaired, gross        273,980        1,313,295    -            1,587,275 
- Impairment provisions for 
individually impaired loans             -              (758,997)    -            (758,997) 
Impairment provisions 
assessed on a collective basis          (128,957)      (791,217)    (223,544)    (1,143,718) 
Less: Allowance for expected credit 
losses                                  (128,957)      (1,550,214)  (223,544)    (1,902,715) 
Total loans and advances to customers   14,433,575     20,387,957   4,138,426    38,959,958 
 
   10.           INVESTMENT SECURITIES MEASURED AT AMORTISED COST 
 
                    Currency   Annual coupon/  EIR        Maturity date  30 June       31 December 
                                                %                         2021 
                                interest                   month/year     (unaudited)   2020 
                                 rate % 
                                               13 -       July 21 - 
CBU Bonds           UZS        13 - 14          14         Dec 21        955,352       174,089 
                                               13 -       Oct 21 - Mar 
Government Bonds    UZS        13 - 16          16         24            282,229       365,319 
Corporate bonds     UZS        18              18         29-Jul-26      2,609         2,503 
Less: Allowance for expected credit 
 losses                                        (3,576)                                 (1,689) 
Total investment securities measured 
 at amortised cost                             1,236,614                               540,222 
Analysis by credit quality of investment securities measured at 
 amortised costs at 30 June 2021 (unaudited) is as follows: 
                                               CBU        Government     Corporate     Total 
                                               Bonds      Bonds          Bonds 
Neither past due nor impaired 
 - Rated BB-                                     955,352    282,229        -             1,237,581 
- Rated B2                                     -          -              2,609         2,609 
Less: Allowance for expected credit 
 losses                                        (2,755)    (814)          (8)           (3,576) 
Total investment securities measured 
 at amortised cost                             952,597    281,415        2,601         1,236,614 
 
 

Analysis by credit quality of investment securities measured at amortised costs at and 30 December 2020 is as follows:

 
                                       CBU        Government  Corporate  Total 
                                        Bonds      Bonds       Bonds 
Neither past due nor impaired 
 - Rated BB-                             174,089    365,319     -          539,408 
- Rated B2                             -          -           2,503      2,503 
Less: Allowance for expected credit 
 losses                                (543)      (1,139)     (8)        (1,689) 
Total investment securities measured 
 at amortised cost                     173,546    364,180     2,495      540,222 
 

During 6 months of 2021, the Group invested UZS 868,166 million into CBU bonds. Overall increase was offset by maturity of previously purchased CBU bonds.

During 6 months of 2021, the Group invested UZS 238,670 million into new bonds of the Ministry of Finance. Overall increase was offset be maturity previously purchased bonds of the Ministry of Finance.

Refer to Note 22 for the disclosure of the fair value of investment securities measured at amortised cost. Information on related party balances is disclosed in Note 25.

   11.           PREMISES, EQUIPMENT AND INTANGIBLE ASSETS 

In 2019, the Group has arranged a contract with construction company Shanghai Construction Group Co. Ltd on design and construction of the Headquarters for Group in the amount of USD 136.5 million. As at 30 June 2021 (unaudited), in accordance with the contract, the Group invested USD 54.048 million (equivalent to UZS 589 387 million) of which UZS 458,302 million was recorded in CIP.

As at 30 June 2021 (unaudited) and 31 December 2020, premises and equipment of the Group were not pledged.

   12.           DUE TO OTHER BANKS 
 
                                                  30 June 2021  31 December 
                                                   (unaudited)   2020 
Long term placements of other banks               455,783       584,783 
Short term placements of other banks              281,113       279,438 
Correspondent accounts and overnight placements 
 of other banks                                   205,619       372,618 
Payable to the CBU under repo agreement           -             259,165 
Total due to other banks                          942,515       1,496,004 
 
   12.           DUE TO OTHER BANKS (Continued) 

Significant change in long term placements of other banks is due to the repayments made by the Group during 6 months of 2021.

Significant change in payable to the CBU under repo agreement is associated with the maturity of a three-month repo agreement with CBU.

Refer to Note 22 for the disclosure of the fair value of due to other banks. Information on related party balances is disclosed in Note 25.

   13.           CUSTOMER ACCOUNTS 
 
                                 30 June 2021  31 December 
                                  (unaudited)   2020 
State and public organisations 
- Term deposits                  2,758,020     2,705,206 
- Current/settlement accounts    2,586,605     3,171,211 
                                 5,344,625     5,876,417 
Other legal entities 
- Current/settlement accounts    3,144,545     3,360,112 
- Term deposits                  1,071,047     239,375 
                                 4,215,592     3,599,487 
Individuals 
- Term deposits                  2,054,982     1,215,455 
- Current/demand accounts        703,342       925,599 
                                 2,758,324     2,141,054 
Total customer accounts          12,318,541    11,616,958 
 

Economic sector concentrations within customer accounts are as follows:

   30 June 2021 (unaudited)                    31 December 2020 
 
                          Amount      %     Amount      % 
Public administration     2,879,206   23%   2,744,161   24% 
Individuals               2,758,324   22%   2,141,054   18% 
Oil and gas               1,701,104   14%   2,348,720   20% 
Manufacturing             1,575,441   13%   1,363,581   12% 
Energy                    1,412,594   11%   1,324,434   11% 
Finance                   473,060     4%    181,740     2% 
Communication             420,577     3%    260,275     2% 
Services                  311,498     3%    347,780     3% 
Trade                     294,539     2%    318,599     3% 
Construction              217,913     2%    246,051     2% 
Engineering               124,347     2%    155,739     2% 
Mining                    41,629      1%    17,414      0% 
Agriculture               39,158      0%    57,036      0% 
Transportation            38,185      0%    87,060      1% 
Medicine                  24,510      0%    16,015      0% 
Other                     6,456       0%    7,299       0% 
Total customer accounts   12,318,541  100%  11,616,958  100% 
 

As at 30 June 2021 (unaudited), the Group had three (31 December 2010: two) customers with a total balance UZS 4,568,145 million (31 December 2020: UZS 4,291,575 million), which individually exceeded 10% of the Group's equity.

Significant change in balances of State and public organizations is associated with payments made by two large state- owned enterprises operating in Oil and gas sector to their counterparties.

Significant change in Other legal entities is associated with increase in balances of the Group's clients operating in Oil an gas sector within their normal course of the business activities.

Significant change in balances of Individuals is associated with implementation of new mobile application "Joyida", which allows the Group's clients to place or withdraw their funds online. Such mobile application is getting popular and the Group's number of clients is significantly increasing.

Refer to Note 22 for the disclosure of the fair value of customer accounts. Information on related party balances is disclosed in Note 25.

   14.           OTHER BORROWED FUNDS 
 
                                             30 June 2021  31 December 
                                              (unaudited)   2020 
International financial institutions 
China EXIMBANK                               5,100,090     5,167,808 
CREDIT Suisse                                2,114,039     2,122,431 
Commerzbank AG                               1,525,238     1,632,046 
International Bank of Reconstruction 
 and Development                             1,345,008     1,298,161 
Russia EXIMBANK                              995,699       995,354 
Daryo Finance B.V.                           973,906       770,900 
ICBC (London) plc                            937,924       671,172 
Landesbank Baden -- Wuerttemberg             879,409       967,246 
European Bank for Reconstruction and 
 Development                                 868,272       517,297 
China Development Bank                       804,831       886,739 
VTB BANK EUROPE                              698,280       436,654 
Raiffeisen Bank International AG             616,150       819,035 
International Development Association 
 of World Bank                               597,577       602,590 
Asian Development Bank                       577,306       584,938 
Gazprombank                                  565,870       789,796 
Credit Bank of Moscow                        457,377       263,233 
Citibank N.A. ADGM                           425,530       - 
Japan International Cooperation Agency 
 (JICA)                                      327,813       323,180 
Turk EXIMBANK                                236,775       216,946 
AKA Ausfuhrkredit-Gesellschaft mbH           201,516       13,811 
OJSB Transcapitalbank                        188,228       187,908 
UniCredit                                    186,531       - 
OPEC Fund for International Development      170,631       208,719 
Halyk Savings Bank of Kazakhstan JSC         158,770       179,788 
Promsvyazbank PJSC                           125,533       540,737 
Korea EXIMBANK                               121,068       141,464 
Baobab Securities Limited                    107,333       162,180 
KfW IPEX-Bank                                51,630        57,417 
Others                                       209,089       358,902 
Total international financial institutions   21,567,423    20,916,452 
Financial institutions of Uzbekistan 
Long term borrowings from Ministry of 
 Finance                                     3,213,735     3,233,042 
Fund for Reconstruction and Development 
 of Uzbekistan                               1,579,880     1,384,626 
Export Promotion Agency under MIFT           265,575       - 
Uzbekistan Mortgage Refinancing Company 
 (UzMRC)                                     98,592        61,213 
Long term borrowings from CBU                64,560        68,358 
KDB Bank Uzbekistan                          24,463        - 
Preference Shares                            10,187        9,944 
Khokimiyat of Tashkent Region                6,060         5,927 
Other                                        5,303         3,895 
Total financial institutions of Uzbekistan   5,268,355     4,767,005 
Total other borrowed funds                   26,835,778    25,683,457 
 

On 17 March 2021 the Group and the European Bank for Reconstruction and Development signed an Agreement on attracting a synthetic credit line in the amount of USD 25 million. These loan funds are denominated in the national currency equivalent and are aimed at financing projects and supporting business initiatives implemented by small and medium-sized businesses (SMEs) of the country, thereby providing access to financing and stimulating sustainable growth in the development of the SME segment, in particular, modernizing the business infrastructure, especially during a pandemic caused by the spread of coronavirus infection.

   14.           OTHER BORROWED FUNDS (Continued) 

On 19 March 2021 the Group and JSC "KDB Bank Uzbekistan" signed a General Agreement for provision of long-term credit lines to the Group" for the subsequent financing of projects of small and medium-sized businesses in Uzbekistan.

On 24 March 2021 the Group and AKA Ausfuhrkredit-Gesellschaft mbH signed an Agreement in the amount of EUR 15 million to finance investment projects of small and medium-sized businesses (SME) of Uzbekistan.

On 19 March 2021 the Group and Citibank N.A. ADGM signed an Agreement in the amount of USD 40 million to finance purchase of busses from China, equipment for textile manufacturing.

On 18 May 2021 the Group and UniCredit signed an Agreement in the amount of EUR 14 million to finance purchase of equipment from Italy for package manufacturing.

On 3 December 2020 the Group and Export Promotion Agency under MIFT signed an Agreement in the amount of USD 25 million to support export-oriented entities in Uzbekistan.

The Group has to comply with specific financial and non-financial covenants on obtained funds. As of 31 December 2020, the Group was not in compliance with the following covenants:

- In 2017 and 2018, the ADB advanced two loans to the Republic of Uzbekistan (the "Republic") in connection with the financing of horticulture projects in Uzbekistan (the "Project"). The Republic on-lent a portion of these loans to the Bank under tripartite subsidiary loan agreements No. 3471-UZB dated April 2017 and No. 3673- UZB dated November 2018 between the Republic, the Rural Restructuring Agency and the Bank (the "Subsidiary Loan Agreements"). In November 2019, the ADB advanced another Subsidiary Loan Agreement to the Republic of Uzbekistan in connection with the financing of livestock value chain development projects in Uzbekistan (the "Project"). The Republic on-lent a portion of this loan to the Bank under subsidiary loan agreements No. L3823 (COL)-UZB dated 10 February 2020 between the Republic, the Agro Industries and Food Security Agency and the Bank. As at 31 December 2020, the Bank was not in compliance with return on average assets ratio stipulated in the Subsidiary Loan Agreements. The Management has received a letter from the Ministry of Finance dated 31 December 2020 confirming that this breach of the covenant is not considered to be an event of default.

- As at 31 December 2020, the Bank was not in compliance with following covenants stipulated in Master Trade Finance Loan Agreement (the 'Master Agreement') dated 15 October 2019 between the Bank and VTB Bank Europe: the percentage of problem loans (Stage 3 loans) in relation to loans and advances to customers (gross), loan loss reserves to problem loans (Stage 3 loans). On 24 March 2021, the Bank received a letter form VTB Bank Europe giving their consent to waive above mentioned financial covenant as of the end of the financial year 2020 with the decision to grant the waiver reached during December 2020. Hence, liquidity has not been adjusted.

As of 30 June 2021 (unaudited) the Group was in compliance with all covenants.

The maturity analysis is disclosed in Note 24. Refer to Note 22 for disclosure of the fair value of other borrowed funds and Note 25 for information on related party balances.

   15.           SUBORDINATED DEBT 

Subordinated debt issued by Fund for Reconstruction and Development of Uzbekistan of UZS 100,000 million on 9 April 2021 carries a fixed interest rate of 9.22 % and matures on 15 April 2041. The debt ranks after all other creditors' claims are fully settled in the case of liquidation.

Refer to Note 22 for the disclosure of the fair value of subordinated debt and Note 25 for information on related party balances.

   16.           INTEREST INCOME AND EXPENSE 
 
                                                 Six months    Six months 
                                                  ended         ended 
                                                 30 June 2021  30 June 2020 
                                                 (unaudited)   (unaudited) 
Interest income calculated using the effective 
 interest method 
Interest on loans and advances to customers      1,811,649     1,419,402 
Interest on investment securities measured 
 at amortised cost                               68,533        8,627 
Interest on balances due from other banks        65,128        67,925 
Total Interest income calculated using 
 the effective interest method                   1,945,310     1,495,954 
Interest expense 
Interest on other borrowed funds                 (607,659)     (343,972) 
Interest on customer accounts                    (231,849)     (206,576) 
Interest on debt securities in issue             (104,164)     (100,094) 
Interest on balances due to other banks          (36,706)      (111,370) 
Interest on subordinated debt                    (2,649)       (7,334) 
Total interest expense                           (983,027)     (769,346) 
Net interest income before provision on 
 loans and advances 
to customers                                     962,283       726,608 
 

Significant change in interest income on loan and advances to customers is associated with the increase in the Group's loan portfolio during 6 months of 2021, which in its turn is associated with the gradual improvements of the economic situation and business activity in Uzbekistan caused by COVID-19.

Significant change in interest income on investment securities measured at amortised cost is associated with the significant investments made by the Group in bonds of CBU and Ministry of Finance during 6 months of 2021.

Significant change in interest income on other borrowed funds is associated with the attraction of additional funds from local and international financial institutions.

Significant change in interest income on balances due to other banks is associated with repayments made by the Group to local banks towards borrowings received.

   17.           ADMINISTRATIVE AND OTHER OPERATING EXPENSES 
 
                                           Six months ended  Six months 
                                                              ended 
                                           30 June 2021      30 June 2020 
                                           (unaudited)       (unaudited) 
Staff costs                                282,526           171,296 
Depreciation and amortisation              34,012            25,500 
Charity expenses                           27,150            2,783 
Taxes other than income tax                18,698            10,737 
Security services                          17,593            14,368 
Stationery and other low value items       11,585            7,569 
Membership fees                            8,542             10,463 
Communication expenses                     5,410             2,870 
Rent expenses                              5,195             1,733 
Repair and maintenance of buildings        3,986             2,847 
Legal and audit fees                       3,854             1,972 
Consultancy fee                            3,202             6,942 
Travel expenses                            3,012             1,416 
Utilities expenses                         3,000             2,519 
Advertising expenses                       2,992             2,641 
Fuel                                       968               804 
Representation and entertainment           558               910 
Medical, Dental and Hospitalization        230               - 
Other operating expenses                   19,703            9,644 
Total administrative and other operating 
 expenses                                  452,216           277,014 
 

Significant change in staff costs is associated with the overall increase of salary rates as well as due to increase in bonuses and other stimulation payments.

   18.           INCOME TAXES 
 
                                          Six months ended  Six months ended 
                                          30 June 2021      30 June 2020 
                                          (unaudited)       (unaudited) 
Current income tax expense                148,834           98,993 
Deferred tax (benefit)/expense: 
 - Deferred tax (benefit)/expense           63,311            (67,089) 
- Deferred tax expense relating to 
 the components of 
 other comprehensive income                 799               1,884 
- Deferred tax benefit relating to 
 discontinued operation                   -                 (165) 
Total income tax expense through profit 
 or loss and 
other comprehensive income                212,944           33,623 
 

Interim period income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate applied for the six months ended 30 June 2021(unaudited) is 20.0 % (the estimated tax rate for the six months ended 30 June 2021 (unaudited) was 20%)).

Significant change in the balance of deferred tax asset is associated with the recovery of credit losses on loans and advances to customers

   19.           EARNINGS PER SHARE 

Basic earnings per share are calculated by dividing the net profit attributable to ordinary shares by the weighted average number of ordinary shares.

The Group has no dilutive potential ordinary shares; therefore, the diluted earnings per share equal basic earnings per share.

According to the charter of the Group, dividend payments per ordinary share cannot exceed the dividends per share on preferred shares for the same period and the minimum dividends payable to the owners of preference shares comprise not less than 20%. Therefore, net profit for the period is allocated to the ordinary shares and the preferred shares in accordance with their legal and contractual dividend rights to participate in undistributed earnings.

 
                                                 Six months ended                 Six months 
                                                                                   ended 
                                                 30 June 2021                     30 June 2020 
                                                  (unaudited                       (unaudited) 
Profit for the year attributable to ordinary 
 shareholders                                    806,928                          134,716 
Weighted average number of ordinary shares 
 for the purpose of basic and diluted earnings 
 per share (in million of shares)                  243,922                          243,922 
Total basic and diluted earnings per ordinary 
 share (expressed in UZS per share)                                         3.31                   0.55 
 
   20.           COMMITMENTS AND CONTINGENCIES 

Operating lease commitments. As at 30 June 2021 (unaudited) and 31 December 2020, the Group had no material operating lease commitments outstanding

Legal proceedings . From time to time and in the normal course of business, claims against the Group are received. On the basis of its own estimates and both internal and external professional advice the Management is of the opinion that no material losses will be incurred in respect of claims and accordingly no provision has been made in these consolidated financial statements.

Tax legislation . Uzbek tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. The Management's interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and state authorities. Recent events within Uzbekistan suggest that the tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past, may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for five calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

The Management believes that its interpretation of the relevant legislation is appropriate and the Bank's tax, currency legislation and customs positions will be sustained. Accordingly, as at 30 June 2021 (unaudited), no provision for potential tax liabilities had been recorded (2020: Nil). The Group estimates that it has no potential obligations from exposure to other than remote tax risks.

Capital expenditure commitments. As at 30 June 2021 (unaudited) and 31 December 2020, the Group had contractual capital expenditure commitments for the total amount of UZS 816,264 million and UZS 1,033,849 million in respect of premises and equipment, respectively.

Credit related commitments . The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate or cash deposits and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit related commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

   20.        COMMITMENTS AND CONTINGENCIES (Continued) 
 
The credit related commitments are comprised 
 of the following: 
                                                              30 June 
                                                               2021        31 December 
                                                              (unaudited)              2020 
Guarantees 
 issued                                                       2,430,619    2,424,042 
Letters of credits, post-financing with commencement 
 after reporting period end                                   852,329      457,743 
Letters of credit, non post-financing                         518,015      336,446 
Undrawn credit 
lines                                                         461,177      518,506 
Total gross credit related 
 commitments                                                  4,262,140    3,736,737 
Less - Cash held as security against 
 letters of credit and guarantees                             (224,444)    (155,267) 
Less - Provision for expected 
 credit losses                                                (59,630)     (22,845) 
Total credit related commitments                              3,978,066    3,558,625 
 

The total outstanding contractual amount of letters of credit, guarantees issued and undrawn credit lines does not necessarily represent future cash requirements as these financial instruments may expire or terminate without being funded.

   21.           CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES 

The table below sets out movement in the Group's liabilities from financing activities for each of periods presented. The items of these liabilities are those that are reported as financing activities in the condensed consolidated interim statement of cash flows.

Liabilities from financing activities

 
                               Other borrowed  Debt securities  Subordinated 
                                funds           in issue         debt           Total 
Net debt at 1 January 2020     16,803,214      2,920,894        83,332        19,807,440 
Proceeds from the issue        13,094,718      168,310          -             13,263,028 
Redemtion                      (6,488,852)     (94,400)         (80,000)      (6,663,252) 
Foreign currency translation   2,199,354       278,819          -             2,478,173 
Other non-cash movements       75,023          (575)            (3,332)       71,116 
Net debt at 31 December 
 2020                          25,683,457      3,273,048        -             28,956,505 
Proceeds from the issue        15,159,640      15,200           100,000       15,274,840 
Redemtion                      (14,036,145)    (65,510)         -             (14,101,655) 
Foreign currency translation   21,752          41,556           -             63,308 
Other non-cash movements       7,074           (12)             1,383         8,445 
Net debt at 30 June 2021 
 (unaudited)                   26,835,778      3,264,282        101,383       30,201,443 
 
   22.           FAIR VALUE 

IFRS defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on observable market data (that is, unobservable inputs).

The Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety.

Some of the Group's financial assets and financial liabilities are measured at fair value at the end of each reporting year. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used). Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Management's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

   22.          FAIR VALUE (Continued) 

The Group considers that the accounting estimate related to the valuation of financial instruments where quoted markets prices are not available is a key source of estimation uncertainty because: (i) it is highly susceptible to changes from year to year, as it requires the Management to make assumptions about interest rates, volatility, exchange rates, the credit rating of the counterparty, valuation adjustments and specific features of transactions and (ii) the impact that recognising a change in the valuations would have on the assets reported on the consolidated statement of financial position, as well as, the related profit or loss reported on the consolidated statement of profit or loss, could be material .

Some of the Group's financial assets and financial liabilities are measured at fair value at the end of each reporting year. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).

 
              Fair value as at 
Financial     30 June                               Valuation model(s)                Relatioship 
 assets        2021        31 December  Fair value   and key input(s)   Significant    of 
              (unaudited)  2020         hierarchy                       unobservable  unobservable 
                                                                                      inputs to fair 
                                                                        input(s)       value 
Equity 
 securities 
 at 
FVTOCI 
                                                    Quoted bid prices 
- Visa                                  Level        in an active 
 Inc.         14,454       13,203        1           market             N/A           N/A 
                                                    Discounted cash                   The greater 
                                                     flows. Discount                   discount-the 
                                        Level        rate estimated     Discount       smaller fair 
- Other       27,255       24,821        3           based on WACC.      rate          value 
 

The fair value of the equity instruments at fair value through other comprehensive income were determined as the present value of future dividends by assuming dividend growth rate of zero per annum. The Management built its expectation based on previous experience of dividends received on financial assets at fair value through other comprehensive income over multiple years, and accordingly calculated the value of using the average rate of return on investments. A significant unobservable input used in determining the fair value of equity securities at FVTOCI is the Group's WACC. The higher the WACC the lower the fair value of the equity securities at FVTOCI. The Management believes that this approach accurately reflects the fair value of these securities, given they are not traded. Such financial instruments were categorised as

Level 3.

Investments to which the dividends valuation approach is not applicable, i.e. dividends were not paid during the period, Management may use the Assets based valuation approach focused on the investment company's net assets value (NAV), or fair market value of its total assets minus its total liabilities, to determine what would cost to recreate the business. The Management believes that such approach accurately reflects the fair value of these securities.

   22.          FAIR VALUE (Continued) 

Below is presented the fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis (but fair value disclosures are required). Except as detailed in the following table, the Management considers that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values.

 
                                     30 June 2021 (unaudited)    31 December 2021 
                                     Carrying                    Carrying 
                                      value        Fair value     value      Fair value 
Loans and advances to customers      39,954,029    39,773,366    38,959,958  34,401,244 
Due from other banks                 2,111,517     2,085,983     1,859,192   1,739,931 
Due securities in 
 issue 
Eurobonds                            3,160,498     3,367,713     3,118,189   3,312,173 
Other borrowed funds                 26,835,778    31,751,605    25,683,457  26,703,457 
 
                                     30 June 2021 (unaudited) 
                                     Level 1       Level 2       Level 3     Total 
Loans and advances to customers      -             39,773,366    -           39,773,366 
Due from other banks                 -             1,014,023     1,071,960   2,085,983 
Due securities in 
 issue 
Eurobonds                            3,367,713     -             -           3,367,713 
Other borrowed funds                 -             -             31,751,605  31,751,605 
 
                                     31 June 2020 
                                     Level 1       Level 2       Level 3     Total 
Loans and advances to customers      -             34,401,244    -           34,401,244 
Due from other banks                 -             -             1,739,931   1,739,931 
Due securities in 
 issue 
Eurobonds                            3,312,173     -             -           3,312,173 
Other borrowed funds                 -             -             26,703,457  26,703,457 
 

23. CAPITAL RISK MANAGEMENT

The Group manages regulatory capital as Group's capital. The Group's objectives when managing capital are to comply with the capital requirements set by the CBU, and to safeguard the Group's ability to continue as a going concern. Compliance with capital adequacy ratios set by the CBU is monitored monthly with reports outlining their calculation reviewed and signed by the Chairman and Chief Accountant.

Under the current capital requirements set by the CBU, banks have to maintain ratios of (actual ratios given below are unaudited):

-- Ratio of regulatory capital to risk weighted assets ("Regulatory capital ratio") above a prescribed minimum level of 13% (31 December 2020: 13%). Actual ratio as at 30 June 2021: 17% (31 December 2020: 17%);

-- Ratio of Group's tier 1 capital to risk weighted assets ("Capital adequacy ratio") above a prescribed minimum level of 10% (31 December 2020: 10%). Actual ratio as at 30 June 2021: 13.8% (31 December 2020: 13%); and

-- Ratio of Group's tier 1 capital to total assets less intangibles ("Leverage ratio") above a prescribed minimum level of 6% (31 December 2020: 6%). Actual ratio as at 30 June 2021: 11.4% (31 December 2020: 10.3%).

Total capital is based on the Group's reports prepared under Uzbekistan Accounting Legislation and related instructions and comprises:

 
                                               31 December 
                                 30 June 2021   2020 
                                (unaudited)    (unaudited) 
Tier 1 capital                  6,342,662      5,543,925 
Less: Deduction from 
 capital                        (74,725)       (46,485) 
Tier 1 capital adjusted         6,267,937      5,497,440 
Tier 2 capital                  1,470,733      1,619,786 
Total Regulatory Capital        7,738,670      7,117,226 
 

Regulatory capital consists of Tier 1 capital, which comprises share capital, share premium, preference shares, retained earnings excluding current year profit and less intangible assets. The other component of regulatory capital is Tier 2 capital, which includes current year profit.

24. RISK MANAGEMENT POLICIES

The Group manages the following risk: credit risk, off-balance sheet risk, market risk, currency risk, interest rate risk, liquidity risk, operational risk, compliance risk and other type of risks.

Risk management system is the part of the overall management system of the Group which aims to provide sustainable development of the Bank and the Group members in line with the approved Development Strategy.

The Group's risk management policies and procedures are consistent with those disclosed in the annual consolidate financial statements of the Group for the year ended 31 December 2020.

Currency risk . The Group takes on exposure to the effect of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. In respect of currency risk, the Council sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The Group's Treasury Department measures its currency risk by matching financial assets and liabilities denominated in same currency and analyses effect of actual annual appreciation/depreciation of that currency against Uzbekistan Soum to the profit and loss of the Group. The table below summarises the Group's exposure to foreign currency exchange rate risk at the end of reporting period:

 
                              USD         EUR        Other        UZS          Total 
  30 June 2021 (unaudited)                            currencies 
Cash and cash equivalents     3,284,659   372,535    146,889      1,980,425    5,784,508 
Due from other banks          960,681     7,217      78,113       1,065,506    2,111,517 
Loans and advances to 
 customers                    21,055,134  6,206,371  -            12,692,524   39,954,029 
Investment securities 
 measured at amortised 
 cost                           -           -          -            1,236,614    1,236,614 
Other financial assets        16,076      4,575      146          6,306        27,103 
Total monetary assets         25,316,550  6,590,698  225,148      16,981,375   49,113,771 
Due to other banks            601,256     38,177     -            303,082      942,515 
Customer accounts             6,152,564   610,708    133,480      5,421,789    12,318,541 
Debt securities in issue      3,160,498   -          -            103,784      3,264,282 
Other borrowed funds          15,095,163  6,029,972  3,294        5,707,349    26,835,778 
Other financial liabilities   47,390                 28           75,225       122,643 
Subordinated debt             -           -          -            101,383      101,383 
Total monetary liabilities    25,056,871  6,678,857  136,802      11,712,612   43,585,142 
Net Balance sheet position    259,679     (88,159)   88,346       5,268,763    5,528,629 
                              USD         EUR        Other        UZS          Total 
31 December 2020                                     currencies 
Cash and cash equivalents     3,768,254   138,176    138,499      1,556,257    5,601,186 
Due from other banks          944,034     61,634     149,885      703,639      1,859,192 
Loans and advances to 
 customers                    20,391,586  6,290,620  -            12,277,752   38,959,958 
Investment securities 
 measured at amortised 
 cost                           -           -          -            540,222      540,222 
Other financial assets        646         5,058                   10,504       16,208 
Total monetary assets         25,104,520  6,495,488  288,384      15,088,374   46,976,766 
Due to other banks            857,428     180        -            638,396      1,496,004 
Customer accounts             6,991,777   237,180    198,854      4,189,147    11,616,958 
Debt securities in issue      3,118,189   -          -            154,859      3,273,048 
Other borrowed funds          14,643,855  6,147,006  -            4,892,596    25,683,457 
Other financial liabilities   21,430      -          29           39,527       60,986 
Total monetary liabilities    25,632,679  6,384,366  198,883      9,914,525    42,130,453 
Net Balance sheet position    (528,159)   111,122    89,501       5,173,849    4,846,313 
 

JOINT STOCK COMMERCIAL BANK

"UZBEK INDUSTRIAL AND CONSTRUCTION BANK" AND ITS SUBSIDIARIES

SELECTED EXPLANATORY NOTES TO THE I CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE SIX MONTHSED 30 JUNE 2021 (UNAUDITED)

(In millions of Uzbek Soums, unless otherwise indicated)

   24.          RISK MANAGEMENT POLICIES (Continued) 

Geographical risk concentration . The geographical concentration of the Group's financial assets and liabilities at

 
30 June 2021 (unaudited) is set 
 out below: 
                                         Uzbekistan   OECD          Non-OECD     Total 
Assets 
 Cash and cash equivalents                 3,116,114    2,630,993     37,401       5,784,508 
Due from other banks                     1,890,585    220,764       168          2,111,517 
Loans and advances to customers          39,954,029   -             -            39,954,029 
Investment securities measured at 
 amortised cost                          1,236,614    -             -            1,236,614 
Financial assets at fair value through 
 other comprehensive 
 income                                    27,255       14,454        -            41,709 
Other financial assets                   12,437       14,666        -            27,103 
Total financial assets                   46,237,034   2,880,877     37,569       49,155,480 
Liabilities 
 Due to other banks                        628,239      265,809       48,467       942,515 
Customer accounts                        12,318,541   -                          12,318,541 
Debt securities in issue                 103,784      3,160,498     -            3,264,282 
Other borrowed funds                     5,268,356    12,110,053    9,457,369    26,835,778 
Other financial liabilities              75,253       -             47,390       122,643 
Subordinated debt                        101,383      -             -            101,383 
Total financial liabilities              18,495,556   15,536,360    9,553,226    43,585,142 
Net balance sheet position               27,741,478   (12,655,483)  (9,515,657)  5,570,338 
Credit related commitments               3,978,066    -             -            3,978,066 
The geographical concentration of the Group's financial assets and 
 liabilities at 31 December 2020 is set out below: 
                                         Uzbekistan   OECD          Non-OECD     Total 
Assets 
 Cash and cash equivalents                 3,658,933    1,875,324     66,929       5,601,186 
Due from other banks                     1,581,319    272,594       5,279        1,859,192 
Loans and advances to customers          38,959,958   -             -            38,959,958 
Investment securities measured at 
 amortised cost                          540,222      -             -            540,222 
Financial assets at fair value through 
 other comprehensive income                24,821       13,203        -            38,024 
Other financial assets                   16,130       -             78           16,208 
Total financial assets                   44,781,383   2,161,121     72,286       47,014,790 
Liabilities 
 Due to other banks                        1,221,829    262,437       11,738       1,496,004 
Customer accounts                        11,616,958   -             -            11,616,958 
Debt securities in issue                 154,859      3,118,189     -            3,273,048 
Other borrowed funds                     4,767,006    11,146,580    9,769,871    25,683,457 
Other financial liabilities              39,556       -             21,430       60,986 
Total financial liabilities              17,800,208   14,527,206    9,803,039    42,130,453 
Net balance sheet position               26,981,175   (12,366,085)  (9,730,753)  4,884,337 
Credit related commitments               3,558,625    -             -            3,558,625 
 
   24.             RISK MANAGEMENT POLICIES (Continued) 

Liquidity risk . Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from margin and other calls on cash settled derivative instruments. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. Liquidity risk is managed by the Resources Management Committee of the Group.

The Group seeks to maintain a stable funding base comprising primarily amounts due to other banks, corporate and retail customer deposits and invest the funds in inter-bank placements of liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements.

The liquidity management of the Group requires considering the level of liquid assets necessary to settle obligations as they fall due; maintaining access to a range of funding sources; maintaining funding contingency plans and monitoring balance sheet liquidity ratios against regulatory requirements. The Group calculates liquidity ratios on a monthly basis in accordance with the requirement of the Central Bank of Uzbekistan. These ratios are calculated using figures based on National Accounting Standards.

The Treasury Department receives information about the liquidity profile of the financial assets and liabilities. The Treasury Department then provides for an adequate portfolio of short-term liquid assets, largely made up of short-term liquid trading securities, deposits with banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole.

The daily liquidity position is monitored and regular liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions is performed by the Treasury Department.

When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at the statement of financial position date.

The undiscounted maturity analysis of financial instruments at 30 June 2021 (unaudited) is as follows:

 
                    Demand     From 1     From 6     From 1      From 3     Over 5     Total 
                     and        to         to         to 3        to 5       years 
                    less than  6 months   12 months  years       years 
                    1 month 
Liabilities 
Due to other 
 banks              226,945    289,776    31,057     140,546     432,324    25,807     1,146,455 
Customer accounts   6,732,128  821,210    2,186,417  1,477,059   1,375,370  920,404    13,512,588 
Debt securities 
 in 
 issue              24,839     124,778    109,938    463,409     3,225,340  -          3,948,304 
Other borrowed 
 funds              220,346    3,510,292  5,275,421  12,780,947  3,742,323  7,435,148  32,964,477 
Other financial 
 liabilities        122,643    -          -          -           -          -          122,643 
Subordinated 
 debt               -          -          -          18,025      21,472     164,089    203,586 
Undrawn credit 
 lines              103        20,025     35,867     271,072     91,444     42,667     461,177 
Guarantees 
 issued             32,884     666,517    92,640     106,000     46,140     1,299,189  2,243,370 
Letters of 
 credit             70,105     534,154    669,260    -           -          -          1,273,519 
Total potential 
future payments 
for financial 
obligations         7,429,993  5,966,753  8,400,600  15,257,057  8,934,413  9,887,303  55,876,119 
 

JOINT STOCK COMMERCIAL BANK

"UZBEK INDUSTRIAL AND CONSTRUCTION BANK" AND ITS SUBSIDIARIES

SELECTED EXPLANATORY NOTES TO THE I CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION FOR THE SIX MONTHSED 30 JUNE 2021 (UNAUDITED)

(In millions of Uzbek Soums, unless otherwise indicated)

   24.          RISK MANAGEMENT POLICIES (Continued) 

The undiscounted maturity analysis of financial instruments at 31 December 2020 is as follows:

 
                  Demand     From       From 6     From 1      From 3     Over 5     Total 
                   and        1 to       to         to 3        to 5       years 
                  less than  6 months   12 months  years       years 
                  1 month 
Liabilities 
Due to other 
 banks            653,958    397,187    27,093     124,181     524,047    10,924     1,737,390 
Customer 
 accounts         5,925,986  689,463    418,200    2,727,185   1,933,544  819,946    12,514,324 
Debt securities 
 in 
 issue            48,120     149,083    116,301    463,862     3,272,377  -          4,049,743 
Other borrowed 
 funds            1,153,167  4,202,521  4,788,640  10,750,559  2,490,447  5,607,441  28,992,775 
Other financial 
 liabilities      60,986     -          -          -           -          -          60,986 
Undrawn credit 
 lines            48,534     108,872    51,981     164,553     136,384    8,182      518,506 
Guarantees 
 issued           48,230     729,985    55,229     -           246,24     1,319,511  2,399,195 
Letters of 
 credit           9,946      619,743    11,235     -           -          -          640,924 
Total potential 
future payments 
for financial 
obligations       7,948,927  6,896,854  5,468,679  14,230,340  8,603,039  7,766,004  50,913,843 
 

Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment disclosed in the above maturity analysis, because the Group does not generally expect the third party to draw funds under the agreement.

The total outstanding contractual amount of commitments to extend credit as included in the above maturity table does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.

The table below shows the maturity analysis of non-derivative financial assets at their carrying amounts and based on their contractual maturities, except for assets that are readily saleable if it should be necessary to meet cash outflows on financial liabilities. Such financial assets are included in the maturity analysis based on their expected date of disposal. Impaired loans are included at their carrying amounts net of impairment provisions, and based on the expected timing of cash inflows.

   24.          RISK MANAGEMENT POLICIES (Continued) 

The Group does not use the above undiscounted maturity analysis to manage liquidity. Instead, the Group monitors expected maturities which may be summarised as follows at 30 June 2021 (unaudited) is set out below.

 
                              Demand     From 1     From 6       From 1      From 3     Over 5     Total 
                               and less   to         to           to          to         years 
                               than       6 months   12 months    3 years     5 years 
                               1 month 
Assets 
Cash and cash equivalents     5,784,508  -          -            -           -          -          5,784,508 
Due from other banks          520,434    449,434    39,281       720,648     283,383    98,337     2,111,517 
Loans and advances 
 to customers                 2,142,692  6,611,672  4,968,169    10,998,235  7,460,234  7,773,027  39,954,029 
Investment securities 
 measured at 
 amortised cost                 172,761    801,157    139,095      121,163     -          2,438      1,236,614 
Financial assets at 
 fair value through 
 other comprehensive 
 income                         -          -          -            41,709      -          -          41,709 
Other financial assets        27,103     -          -            -           -          -          27,103 
Total financial assets        8,647,498  7,862,263  5,146,545    11,881,755  7,743,617  7,873,802  49,155,480 
Liabilities 
 Due to other banks             221,629    265,133    5,964        44,714      381,591    23,484     942,515 
Customer accounts             6,682,774  602,559    1,965,473    1,194,038   1,227,538  646,159    12,318,541 
Debt securities in 
 issue                        7,052      39,460     5,600        70,000      3,142,170  -          3,264,282 
Other borrowed funds          112,044    2,969,121  4,720,768    10,527,037  2,893,915  5,612,893  26,835,778 
Other financial liabilities   122,643    -          -            -           -          -          122,643 
Subordinated debt             -          1,383      -            -           3,226      96,774     101,383 
Undrawn credit lines          103        20,025     35,867       271,072     91,444     42,667     461,178 
Guarantees issued             32,884     666,517    92,640       106,000     46,140     1,299,189  2,243,370 
Letters of credit             70,105     534,154    669,260      -           -          -          1,273,519 
Total financial liabilities   7,249,234  5,098,352  7,495,572    12,212,861  7,786,024  7,721,166  47,563,209 
Net liquidity gap             1,398,264  2,763,911  (2,349,027)  (331,106)   (42,407)   152,636    1,592,271 
Cumulative liquidity 
 gap                          1,398,264  4,162,175  1,813,148    1,482,042   1,439,635  1,592,271 
 
   24.           RISK MANAGEMENT POLICIES (Continued) 

The analysis of liquidity of the Group's assets and liabilities as at 31 December 2020 is set out below.

 
                              Demand       From 1     From 6      From 1       From 3     Over 5     Total 
                               and less     to         to          to           to         years 
                               than         6 months   12 months   3 years      5 years 
                               1 month 
Assets 
 Cash and cash equivalents      5,601,186    -          -           -            -          -          5,601,186 
Due from other banks          148,127      324,311    372,726     621,215      -          392,813    1,859,192 
Loans and advances 
 to customers                 2,147,523    6,647,182  4,350,766   9,953,937    7,766,068  8,094,482  38,959,958 
Investment securities 
 measured at 
 amortised cost                 14,897       405,524    69,561      47,800       -          2,440      540,222 
Financial assets at 
 fair value through 
 other comprehensive 
 income                         -            -          -           38,024       -          -          38,024 
Other financial assets        16,208       -          -           -            -          -          16,208 
Total financial assets        7,927,941    7,377,017  4,793,053   10,660,976   7,766,068  8,489,735  47,014,790 
Liabilities 
Due to other banks            646,684      370,728    14          19,898       449,146    9,534      1,496,004 
Customer accounts             5,900,846    585,060    299,983     2,443,524    1,787,025  600,520    11,616,958 
Debt securities in 
 issue                        30,095       63,471     13,500      70,600       3,095,382  -          3,273,048 
Other borrowed funds          1,066,290    3,798,602  4,386,007   9,392,454    2,164,228  4,875,876  25,683,457 
Other financial liabilities   60,986       -          -           -            -          -          60,986 
Undrawn credit lines          48,534       108,872    51,981      164,553      136,384    8,182      518,506 
Guarantees issued             48,230       754,832    55,229      -            246,240    1,319,511  2,424,042 
Letters of credit             9,946        594,896    11,235      -            -          -          616,077 
Total financial liabilities   7,811,611    6,276,461  4,817,949   12,091,029   7,878,405  6,813,623  45,689,078 
Net liquidity gap             116,330      1,100,556  (24,896)    (1,430,053)  (112,337)  1,676,112  1,325,712 
Cumulative liquidity 
 gap                          116,330      1,216,886  1,191,990   (238,063)    (350,400)  1,325,712 
 

The above analysis is based on remaining contractual maturities.

Although the Group does not have the right to use the mandatory deposits held in Central bank of Uzbekistan for the purposes of funding its operating activities, the Management classifies them as demand deposits in the liquidity gap analysis on the basis that their nature is inherently to fund sudden withdrawal of customer accounts.

The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the Management of the Group. It is unusual for banks ever to be completely matched since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Group and its exposure to changes in interest and exchange rates.

The Management believes that in spite of a substantial portion of customer accounts being on demand, the fact that significant portion of these customer accounts are of large state-controlled entities which are either the Group's shareholders or its entities under common control and the past experience of the Group, indicate that these customer accounts provide a long-term and stable source of funding for the Group.

   25.           RELATED PARTY TRANSACTIONS 

Parties are generally considered to be related if the parties are under common control or one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The Group applies a disclosure exemption regarding Government-related entities, where the same Government has control or joint control of, or significant influence over, both the Group and the other entities, disclosed as "entities under common control".

-- "Significant shareholders" - legal entities-shareholders which have a significant influence to the Group through Government;

   --        "Key management personnel" - members of the Management Board and the Council of the Bank; 

-- "Entities under common control" - entities that are controlled, jointly controlled or significantly influenced by the Government.

Details of transactions between the Group and related parties are disclosed below:

   30 June 2021 (unaudited)                                   31 December 2020 
 
                                     Related    Total category     Related    Total category 
                                      party      as per financial   party      as per financial 
                                      balances   statements         balances   statements 
                                                 caption                       caption 
Cash and cash equivalents 
- entities under common 
 control                             1,477,030  26%                2,636,460  47% 
Due from other banks 
- entities under common 
 control                             1,316,921  62%                1,327,746  71% 
Loans and advances to 
 customers 
 - key management personnel            115        0%                 269        0% 
- significant shareholders           4,991,019  12%                6,011,991  15% 
- entities under common 
 control                             4,798,381  12%                8,550,541  22% 
Investment securities 
 measured at amortised 
 cost 
- significant shareholders           280,590    23%                364,378    67% 
- entities under common 
 control                             -          0%                 173,401    32% 
Financial assets at fair 
 value through other comprehensive 
 income 
- entities under common 
 control                             -          0.00%              10,788     28% 
Other Assets 
- significant shareholders           13,347     4%                 9,814      3% 
Due to other banks 
- entities under common 
 control                             549,974    58%                1,194,253  80% 
Customer accounts 
 - key management personnel            372        0%                 1,204      0% 
- significant shareholders           4,308,779  35%                4,698,047  40% 
- entities under common 
 control                             746,014    6%                 1,178,370  10% 
Debt securities in issue 
- entities under common 
 control                             12,588     0%                 21,180     1% 
- significant shareholders           -          0%                 -          0% 
Other borrowed funds 
- significant shareholders           4,793,615  18%                4,617,668  18% 
- entities under common 
 control                             6,060      0%                 145,443    1% 
Other liabilities 
- significant shareholders           163        0%                 71         0% 
- entities under common 
 control                             -          0%                 22,128     17% 
Subordinated debt 
- entities under common 
 control                             101,383    100%               -          0% 
 
   25.           RELATED PARTY TRANSACTIONS (Continued) 
 
                                     30         June 2021 (unaudited)             31 December 
                                                                                   2020 
                                     Related    Total category         Related    Total category 
                                      party      as per                 party      as per 
                                     balances   financial statements   balances   financial statements 
                                                 caption                           caption 
 
Interest income 
 - key management personnel            26         0%                     9          0% 
- significant shareholders           156,882    8%                     125,212    8% 
- entities under common control      73,991     4%                     208,791    14% 
Interest expense 
 - key management personnel           (10)        0%                     (24)       0% 
- significant shareholders           (178,251)  18%                    (128,251)  17% 
- entities under common control 
 Provision for/(recovery of) 
 credit losses on loans and 
 advances to customers               (113)      0%                     (135,667)  18% 
- significant shareholders           (37,486)   -12%                   (14,116)   3% 
Fee and commission income 
- significant shareholders           4,343      2%                     17,083     11% 
- entities under common control 
 Net gain from trading in foreign 
 currencies                                     3%                     24,430     15% 
- significant shareholders           -          0%                     17         0% 
- entities under common control                 0%                     2,035      8% 
Other operating income 
- significant shareholders           202        1%                     -          0% 
- entities under common control      36         0%                     75         4% 
Administrative and other operating 
 expenses 
 - key management personnel           (2,603)     1%                     (1,540)    1% 
- entities under common control      (30,240)   7%                     (38,142)   14% 
 
 
Key management compensation is presented 
 below:                                      Six months ended    Six months 
                                                                 ended 
                                           30 June 2021        30 June 2020 
                                            (unaudited)         (unaudited) 
Salaries and other benefits                1,706               1,222 
Social security contributions              534                 317 
Bonuses                                    362                 - 
Total                                      2,603               1,539 
 

26. EVENTS AFTER THE OF THE REPORTING PERIOD

In accordance with the Decree of the President of 2 August 2018 No. PP-3895 "On measures to create modern business centers" Business city "in the territories of the republic", the head office of Uzpromstroybank is being built on the territory of the Tashkent City International Business Center. To finance this project, in June 2021, Group signed a loan agreement with a consortium of foreign banks including Credit Suisse, Citibank, Eximbank of China and Raiffeisenbank for a total amount of 122.3 million US dollars. The deal was facilitated by Credit Suisse, which acted as a structuring bank, arranger and agent, Citibank, China Eximbank and Raiffeisenbank were involved as arrangers, and an insurance guarantee was provided by China Export Credit Insurance Corporation Sinosure.

On 14 September of this year, the signing ceremony of the Agreement on the allocation of a loan to Group in the amount of 75 million US dollars by the International Finance Corporation (IFC) took place. An IFC loan aimed at climate finance and increased lending to small and medium-sized enterprises (SMEs) in Uzbekistan

will support the bank's further privatization process. IFC financing, denominated in Uzbek soums, will provide the bank with access to long-term financing in local currency, limited in the market due to the COVID-19 pandemic, and will help transform the bank with the possibility of further converting the IFC loan into bank shares.

On September 14 this year, an additional agreement was signed with the investment company "Frontera Capital" (Great Britain) to raise funds in national currency to finance projects of small and medium-sized businesses in the amount of equivalent to USD 10 million.

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