Vozrozhdenie Bank Reports 2005 IFRS Net Income of RUR544 mln, up 18%

Moscow, 17 April 2006. Vozrozhdenie Bank (VZVR) today reported 2005 IFRS financial results:

• Net income of RUR 544 million, up 18%.
• Return On Equity (ROE) at 19% for second year in a row.
• Earnings per share increased to RUR 28 up from RUR 22 in 2004.
• Equity grew by 26%, assets by 60%.

"The Russian economy continues to develop well, and we are also seeing significant strengthening in our core markets: independent businesses and retail banking. Higher demand for banking services from retail clients and strengthening of small and medium sized businesses in the regions in which we operate help to sustain high growth rates of our business keeping asset quality high", - commented the bank's Chairman Dmitry Orlov

"We are pleased to note that this is the second year in which we can fairly say that unusual items do not distort our results and that our return on equity reflects the underlying strength of the bank’s operations", – said Dmitry Orlov. "Although we are close to our targeted return of a minimum 20% ROE, in 2006 we expect to exceed this target return because of efficiency gains from larger scale of operations and technology improvements".

Financial Results at a Glance

Pre-tax income in 2005 increased 39%, however the tax rate this year under IFRS increased sharply as tax loss deductions from previous years are no longer available. As a result in 2005 taxes tripled to RUR 163 million reducing the increase in after tax profit to 18%.

Net Interest Income grew only 3% as margins decreased somewhat and a stricter application of IFRS standards required loan fees, treated as interest income, to be amortized over the life of the facility. The bank has also carried a higher proportion of lower yielding liquid securities as we rebuilt liquidity which was reduced by the summer 2004 "confidence crisis".

Operating income grew 31% to RUR 3,744 million ($130 million). Share of fee and commission income in operating income increased to 40% up from 38% in 2004, share of Net interest income after provision for loan impairment dropped to 50% from 58%, resulting in increased stability of the bank's future earnings.

Operating expenses grew 34% as volumes increased and the branch network expanded. The bank has 5,100 employees a 13% increase from the previous year, primarily due to the expanded branch network. Staff costs make up 56% of operating expenses, a slight reduction from the previous year’s 61%.

Assets increased by 60% to RUR 49,109 million ($1,706 million). Growth rate of the bank's assets was remarkably higher than for the whole Russian banking system (37%, according to Central Bank of Russia data), and the bank leaped from 30^th to 25^th place by assets in "Interfax-100" Top Russian banks ranking.

Equity was up 26% to RUR 3,273 million ($114 million)due to retention of earnings and extinguishing the contingent liability relating to the convertible preferred shares, which became common shares in 2005. There is no longer any dilution of earnings due to convertible securities.

Loans to customers increased by 40% to RUR 30,774 million ($1,069 million). Retail lending programs, initiated only in 2004, grew very rapidly and at year end comprised 11% of the loan portfolio, up from only 4% the previous year. Vozrozhdenie is a leading bank in working with the Federal Housing Financing Agency (AIGKh). The bank issued 1,279 million rubles ($45 million) in new mortgages of which one-third were refinanced with AIGKh.

Loan portfolio quality continues to be very sound; the portion of past due loans was reduced by half and equals only 1.4% of the total loan portfolio. The provision for possible losses was maintained at a prudent 5% of the portfolio or RUR 1,621 million ($56 million).

In 2005 Vozrozhdeniye added 16 new branches to reach 138 to attract new clients in regions where there is the greatest growth in diverse economic activity. The bank installed almost 100 new ATMs, most with the ability for clients to deposit cash as well as take it out. This has increased the use of ATMs for payments and other transactions. Last year 20 million transactions, including 5.5 million payments were made using ATMs.

Vozrozhdeniye Bank serves more than 40,000 corporate clients, and provides payroll services to 2,500 of them processing direct payment of monthly salaries to over 700,000 individuals, employees of the bank's commercial customers. The bank is the 10^th largest Russian bank by the volume of deposits from individuals and the 9^th largest issuer of new mortgages for purchasing residences.

The bank's full IFSR report is available at: http://www.vbank.ru/en/reports/audit/2005/

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