Joint-Stock Commercial Bank “BANKank OFof INVESTMENTS AND SAVINGSIinvestments and Ssavings “Investsberbank” (Open Joint Stock Company ОAO) (стр. 7 )

254. FINANCIAL COMMITMENTS AND CONTINGENCIES

In the normal course of business the Bank is a party to financial instruments with off-balance sheet risk in order to meet the needs of its customers. These instruments involve varying degrees of credit risk that are not reflected in the balance sheet.

The Bank’s maximum exposure to credit loss under contingent liabilities and commitments to extend credit, in the event of non-performance by the other party where all counterclaims, collateral or security prove valueless, is represented by the contractual amounts of those instruments.

The Bank’s uses the same credit control and management policies in undertaking off-balance sheet commitments as it does for on-balance sheet lending.

The risk-weighted amount is obtained by applying credit conversion factors and counterparty risk weightings according to the principles employed by the Basle Committee on Banking Supervision.

As at 31 December 2004 and 2003 the nominal or contract amounts and the risk weighted credit equivalents of financial instruments with off-balance sheet risks were as follows:

	31 December 2004		31 December 2003
	Nominal amount		Risk Weighted Amount		Nominal amount		Risk Weighted Amount
Contingent liabilities and credit commitments
Guarantees and other similar commitments	62,748		62,748		6,741		6,741
Letters of credit and other transactions related to contingent obligations	909		455		-		-
Commitments on credits and unused credit lines	703,516		348,924		113,605		34,409
Total contingent liabilities and credit commitments	7667,264173		4112,672127		120,346		41,150

Capital commitments - The Bank had no material commitments for capital expenditures outstanding as at 31 December 2004.

Operating Leases - The Bank’s future minimum rental payments under non-cancelable operating leases of buildings in effect at 31 December 2004 amount to:

	2004		2003
Less than 1 year	27,639		40,197
Over 1 year and less than 5 years	54,798		23,472
Over 5 years	2,007		2,829
Total Operating Lease Liability	84,444		4366,605498

Fiduciary activities - The Bank provides depositary services to its customers. As at 31 December 2004 and 2003 the Bank held as the nominee holder the customers' securities in the amount of 45,522,106 securities and 47,640,336 securities, respectively.

Legal proceedings - From time to time and in the normal course of business, claims against the Bank are received from customers. Management is of the opinion that Bank may suffer significant losses as a result of one proceedingclaim. So asTherefore at 31 December 2004 Bank created provision for possible losses amounting to RUR 12,315 thousand. (Note 212)

Taxes - Tax years remain open to review by the tax authorities for three years. If a transaction is challenged by the tax authorities, the Bank may be subject to payment of additional taxes, penalties and interest. The Bank’s Management considers the probability of such payments as remote. DThe tax authoritiesue have a right to perform a tax review for the period of three years. to the presence in Russian commercial legislation, and tax legislation in particular, of provisions allowing more than one interpretation, and also due to the practice developed by the tax authorities of making arbitrary judgment of taxpayer activities, if a particular treatment based on Management’s judgment of the Bank’s business activities was to be challenged by the tax authorities, tThe Bank may be assessed for additional taxes, penalties and interest. in the case of any claims from tax authorities. The Bank’s management believes now that it has already complied with them, and therefore has not provided for in the financial statements. Tax years remain open to review by the tax authorities for three years.

Pension and retirement plans – Employees receive pension benefits from the Russian Federation in accordance with the laws and regulations of the country. All Bank’s employees are entitled to receive state pension benefits in accordance with the laws and regulations of the Russian Federation. In addition the Bank entered into agreements for non-state pension benefits for the Bank’s employees providing life-long payment of non-state pensions. The pension fund bears a risk for creation of adequate provisions for payments of pensions.

Operating environment - The Bank's principal business activities are within the Russian Federation. Laws and regulations affecting business environment in the Russian Federation are subject to rapid changes and the Bank's assets and operations could be at risk due to negative changes in the political and business environment.

265. RELATED-PARTY TRANSACTIONS

Related parties, as defined by IAS 24 “Related Party Disclosures”, are those counter parties that represent:

(a)  Enterprises that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the Bank. (This includes holding companies, subsidiaries and fellow subsidiaries);

(b)  Associates – enterprises in which the Bank has significant influence and which is neither a subsidiary nor a joint venture of the investor;

(c)  Individuals owning, directly or indirectly, an interest in the voting power of the Bank that gives them significant influence over the Bank;

(d)  Key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling the activities of the Bank, including directors and officers of the Bank and close members of the families of such individuals; and

(e)  Enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence. This includes enterprises owned by directors or major shareholders of the Bank
and enterprises that have a member of key management in common with the Bank.

In considering each possible related party, attention is directed to the substance of the relationship, and not merely the legal form. Disclosures on the Bank’s operations with the related parties as at 31 December 2004 and 2003 are presented below:

	31 December 2004		31 December 2003
	Related party transactions	Total category as per financial statements caption		Related party transactions	Total category as per financial statements caption
Cash and cash equivalents	270,438	1,114,042		265,868	722,501
Loans and advances to customers, gross, gross	33,993	4,50714,41062508		6,437	2,090,593
Allowance for losses on loans and advances to customers	(877923)	(2179,59483209)		(3352)	(114,376)
Deposits from banks	3,415	9,326		14,755	28,659
Deposits from customers	110,673	4,170,136		125,502	2,971,948

During the years ended 31 December 2004 and 2003 the Bank originated loans and advances to banks and customers - related parties amounting to RUR 181,88320,489,047 thousand and RUR 7,183159,199 thousand, respectively, and received loans and advances repaid of RUR 154,32720,456,921 thousand and RUR 6,886,917769 thousand, respectively.

During the years ended 31 December 2004 and 2003 the Bank received deposits and advances from banks and customers - related parties of RUR 4,624977,8255981,365,673 thousand and RUR 1,561,7862,799,215 thousand, respectively, and repaid deposits and advances totaling RUR 1,380,50245,650003,994767 thousand and RUR 1,601,0892,823,763 thousand, respectively.

Included in the profit and loss account for the years ended 31 December 2004 and 2003 are the following amounts which arose due to transactions with related parties:

	2004		2003
	Related party transactions	Total category as per financial statements caption		Related party transactions	Total category as per financial statements caption
Interest income	217,908599	65144,112710		6,3079,177	344,169
Operating expenses	12,675	4753,185460		2,177	258,7172
-related companies	12,675			2,177
- directors	18,952			7,420
Interest expense	112,669280571	289,378		1,1369,979	177,776
Fees and commissions income	2093	22216,735333		108	53,935
Other income	7,945	36,444286		224	9,91424

Transactions with related parties entered by the Bank during the years ended 31 December 2004 and 2003 and outstanding as at 31 December 2004 and 2003 were made in the normal course of business and mostly on arm-length conditions., except for subordinated loans received.

267. FAIR VALUES OF FINANCIAL INSTRUMENTS

Estimated fair value disclosures of financial instruments below are made in accordance with the requirements of IAS 32 “Financial Instruments”: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement”. Fair value is defined as the price at which the financial instrument could be purchased in a current transaction between knowledgeable willing independent parties in an arm’s length transaction other than in forced or liquidation sale. As no readily available market exists for a large part of the Bank’s financial instruments, judgment is necessary in arriving at fair value, based on current economic conditions and specific risks attributable to the specific instrument. The estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a market exchange from the sale of its full holdings of a particular instrument.

As at 31 December 2004 and 2004 the following methods and assumptions were used by the Bank to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Cash and cash equivalentsbalances with the Central Bank of the Russian Federation - For these short-term instruments the carrying amount is a reasonable estimate of fair value.

Loans and advances to banks - As of 31 December 2004 and 2003, the carrying amount of short-term deposits and advances given is a reasonable estimate of their fair value.