Saint-Petersburg Commercial Bank “Tavrichesky” (joint-stock) (стр. 7 )

Differences between IFRS and tax legislation of the Russian Federation lead to appearance of certain time differences between the balance value of some assets and liabilities for the purposes of financial statements and calculation of the profit tax. Tax consequences of this time differences are given at the rate of 24% (2005: 24%), excluding profit from state securities taxed at the rate of 15% (2005: 15%).

	2005	Change	2006
Tax effect of time differences diminishing the taxable base
Depreciation reserves	240	182	422
Costs from evaluation of the fair value	4 259	5 402	9 661
Others	43	7	50
Taxable assets	4 542	5 591	10 133
Unadmitted taxable assets	4 259	5 402	9 661
Deferred taxable assets	283	189	472
Tax effect of time differences increasing the taxable base
Inflation of fixed assets	2 939	(69)	2 870
Financial assets available for sale at fair value	-	511	511
Depreciation of fixed assets	1 128	(757)	371
Deferred tax liability	4 067	(315)	3 752
Net deferred tax assets (liability)	(3 784)	504	(3 280)

The profit tax in the Russian Federation is paid in accordance with the Tax Code of the Russian Federation. The management considers that the Bank executes its operations strictly in accordance with the tax legislation which rules respective taxes, although there is a risk that certain bodies may take an opposite stand in interpretation of provisions with unclear meaning.

Note 25 –Management Of Financial Risks

Risks management is crucial in banking activities and is one of integral elements of the Bank’s operations. Major risks related to the activity of the Bank are the credit risk, market risk, geographical risk, liquidity risk, interest risk and currency risk. The main task of the financial risks management is evaluation of risk limits and further provision for observation of the established limits. A description of the Bank’s policy in relation to management of these risks is given below.

Credit risk

The Bank secures the credit risk, i. e. the risk that the counterparty would not be able to pay its liabilities in full within the set terms.

The credit risk is evaluated by the Bank according to the following aspects:

- analysis of financial soundness, assets and liabilities structure, effective operations of a client, risks of the business, long - and short-term perspective of firm financial standing of a client;

- evaluation of quality rate for loan liability provision;

- monitoring of correctness of crediting operations execution, as well as of loan liability classification, completeness of the reserve created for coverage of possible losses on loans, conformity with mandatory norms for the activities.

Decrease of the credit risk level is achieved by means of creation of a sound credit portfolio based on sufficient amount of continuous borrowers. The Bank takes efforts to make the borrowers of the Bank to be the clients who use other banking products besides the credit ones.

The Bank regularly monitors the credit risks – from the moment of considering the matter of setting the credit limit and, subsequently, basing on the existing credit portfolio; changed criteria of evaluation the credit risk (daily); changed financial standing of the Borrower (monthly - banks/ quarterly – legal and physical persons) and quality of debt servicing (daily); changed quality of provision (quarterly). Additionally, the Bank manages the credit risks particularly by means of getting guaranties and warranties from organizations and physical persons. The maximum level of the Bank’s credit risk, as a rule, is presented in the balance value of financial assets in the balance sheet. The possibility to offset assets and liabilities does not essentially influence the reduction of the potential credit risk.

The credit risk on off-balance financial instruments is defined as a probability of losses as a result of inconsistency of the other party in an operation with a specific financial instrument to fulfill its obligations under the contract. Warranties and letters of credit, being irrevocable liabilities of the Bank to make the payment in case if the client appears inconsistent to fulfill its obligations before a third party, have the same risks as credits. Documentary and commercial letters of credit, which are written liabilities issued to the benefit of the client that let the third party get financing from the Bank within the set limits as provided by the agreed terms, are often fully or partially covered by the funds deposited by clients and therefore bear no credit risks.

Market risk

The Bank secures the market risk related to open positions on interest, currency and share instruments which bear the risk of general and specific market fluctuations.

For market risk management, the Bank uses modern methods of investments evaluation. To minimize the losses related to fluctuation of market prices the Bank uses limits to set the boundaries of maximum permissible losses. Particularly, there are limits for a counterparty, group of counterparties and dealers.

For prompt control of observation of the limit of an open currency item and of the risk of setting the financial result from overvaluation of the currency item, a double control system is used by the Bank: the open currency item is calculated and possible losses from negative overvaluation of open currency items are calculated simultaneously.

Geographic risk

A geographic analysis of assets and liabilities of the Bank on the reporting date December 31, 2006 is given below:

	Russia	Other countries	Total
Assets
Monetary funds and their equivalents	2	25 677	2
Mandatory reserves in the Bank of Russia		-
Financial assets calculated at fair value using profit or loss	4 742	-	4 742
Assets in other banks		-
Credits and receivables	6		6
Financial assets available for sale	71 766	-	71 766
Fixed assets	65 650	-	65 650
Currently paid profit tax	9 235	-	9 235
Other assets	8 689	-	8 689
Assets, total	9		9
Liabilities
Assets of other banks		-
Assets of clients	5		6
Issued debt securities	2	-	2
Other borrowed assets		-
Deferred tax liabilities	3 280	-	3 280
Other liabilities	38 369	-	38 369
Liabilities, total	8		8
Net balance item			1

A geographic analysis of assets and liabilities on the reporting date December 31, 2005 is given below:

	Russia	Other countries	Total
Net balance item			1

Currency risks

The bank secures the risk related to influence of fluctuations of the official exchange rate of the Bank of Russia on it financial standings and money flows. The Bank management sets limits in relation to the level of accepted risk for the currencies and, in general, both at the end of each day and within one day and controls commitment to them daily. The table below gives the analysis of the currency risk of the Bank as of December 31, 2006. The assets and liabilities of the Bank are given in the table at their balance value in major currencies. The currency risk on off-balance items is the difference between the contractual amount of currency derivative financial instruments and their fair value. Currency derivative financial instruments are usually used to minimize the risk of the Bank in case of fluctuations of official rates of the Bank of Russia.

As of the reporting date of December 31, 2006 the items of the Bank on the currencies were as follows:

	RUR	USD	Other currencies	Total
Assets
Monetary funds and their equivalents	2	98 414	41 500	2
Mandatory reserves in the Bank of Russia		-	-
Financial assets calculated at fair value using profit or loss	4 742	-	-	4 742
Assets in other banks		1 343	-
Credits and receivables	6			6
Financial assets available for sale	71 766	-	-	71 766
Fixed assets	65 650	-	-	65 650
Currently paid profit tax	9 235	-	-	9 235
Other assets	5 070	3 607	12	8 689
Assets, total	8			9
Liabilities
Assets of other banks		228	-
Assets of clients	5		90 966	6
Issued debt securities	2		58 945	2
Other borrowed assets		-	-
Deferred tax liabilities	3 280	-	-	3 280
Other liabilities	37 276	1 093	-	38 369
Liabilities, total	8			8
Net balance item			29 684	1
Liabilities of credit character	1	65 696	49 303	1
Net contingent item on off-balance liabilities		(	-	779

As of the reporting date of December 31, 2005 the position of the Bank on currencies was as follows: