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JSC Kazkommertsbank (JSCD)

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Monday 15 March, 2004

JSC Kazkommertsbank

Final Results

JSC Kazkommertsbank
15 March 2004

                             JOINT STOCK COMPANY 
                             KAZKOMMERTSBANK

                             Independent Auditors' Report  

                             Consolidated Financial Statements 
                             For the years ended 31 December 2003 
                             and 2002


JOINT STOCK COMPANY KAZKOMMERTSBANK

TABLE OF CONTENTS

                                                               Page

INDEPENDENT AUDITORS' REPORT                                   1

Consolidated FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 2003, 2002 and 2001:

Consolidated profit and loss accounts for the years
ended 31 December 2003, 2002 and 2001                          2

Consolidated balance sheets as of 31 December 2003 and 2002    3

Consolidated statements of changes in equity for the years
ended 31 December 2003, 2002 and 2001                          4

Consolidated statements of cash flows for the years
ended 31 December 2003, 2002 and 2001                        5-6

Notes to the consolidated financial statements              7-45



JOINT STOCK COMPANY KAZKOMMERTSBANK

CONSOLIDATED PROFIT AND LOSS ACCOUNTS
FOR THE YEARS ENDED 31 DECEMBER 2003, 2002 AND 2001
(in Kazakhstani tenge and in thousands, except per share earning amounts)


                              Notes           2003          2002          2001

Interest income               4, 34     35,106,301    24,500,940    17,870,462
Interest expenses             4, 34     (18,623,916)  (11,257,899)   (7,887,765)
                                         ---------     ---------     ---------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES          4     16,482,385    13,243,041     9,982,697
                                   
                                         ---------     ---------     ---------
Provision for loan losses          5     (5,887,610)   (7,341,589)   (4,572,275)
                                         ---------     ---------     ---------

NET INTEREST INCOME                      10,594,775     5,901,452     5,410,422
                                         ---------     ---------     ---------

Net (loss)/gain on trading         6      (316,992)      935,993     1,500,266
securities
Net gain on foreign exchange       7     1,600,977     1,207,409     1,385,827
operations
Fee and commission income          8     8,399,779     5,791,790     3,850,309
Fee and commission expense         8    (1,334,332)   (1,126,385)     (588,970)
Net (loss)/gain on investment      9       (47,397)    3,916,126       (55,486)
securities
Dividends received                         382,449       446,719        38,327
Other income                      10      1,239,355       433,141       282,910
                                         ---------     ---------     ---------
NET NON-INTEREST INCOME                   9,923,839    11,604,793     6,413,183
                                         ---------     ---------     ---------

OPERATING INCOME                        20,518,614    17,506,245    11,823,605

OPERATING EXPENSES                11     (8,969,071)   (7,955,983)   (6,119,370)
                                         ---------     ---------     ---------

OPERATING PROFIT                        11,549,543     9,550,262     5,704,235

Provision for losses on other      5      (270,312)   (1,327,071)     (525,862)
transactions

(Expenses)/income from            22        (20,249)       33,869       389,083
associates
                                         ---------     ---------     ---------

PROFIT BEFORE TAXATION AND
MINORITY INTEREST                       11,258,982     8,257,060     5,567,456
                                        

Income tax expense                12     (2,091,667)     (276,067)     (278,555)
                                         ---------     ---------     ---------

NET PROFIT BEFORE MINORITY               9,167,315     7,980,993     5,288,901
INTEREST

Minority interest                 13       (406,554)       (2,230)           -
                                         ---------     ---------     ---------

NET PROFIT                                8,760,761     7,978,763     5,288,901
                                         =========     =========     =========
Earnings per share
Basic and diluted (in tenge)      14          25.89         25.94         18.37
                                         =========     =========     =========



On behalf of the Board:

------------------                   ------------------
Zhusupova N.A.                       Cheusov P.A.
Chairperson                          Chief Accountant


27 February 2004                     27 February 2004
Almaty                              Almaty


The notes on pages 7-45 form an integral part of these consolidated financial
statements. The Independent Auditors' Report is on page 1.

JOINT STOCK COMPANY KAZKOMMERTSBANK

CONSOLIDATED BALANCE SHEETS
AS OF 31 DECEMBER 2003 AND 2002
(in Kazakhstani Tenge and in thousands)


                                           Notes           2003           2002
ASSETS:
Cash and balances with national               15     28,484,613     19,394,771
(central) banks
Precious metals                                         300,158              -
Loans and advances to banks, less             16     38,582,824     43,451,143
allowance for loan losses
Trading securities                        17, 34     71,200,859     21,279,111
Securities purchased under agreement to       18      2,608,318      2,266,775
resell, less allowance for losses
Derivative financial instruments              19         15,399          7,000
Loans to customers, net                  20, 34     283,062,443    175,248,585
Investment securities:
- securities available for sale               21         32,372         17,276
- securities held-to-maturity                 21        137,554      5,539,019
Investments into associates              22, 34         146,206        285,917
Fixed assets, less accumulated                23      5,867,947      3,447,613
depreciation
Intangible assets, less accumulated           24        436,051        608,577
amortization
Other assets, less allowance for              25       3,366,413      3,215,511
losses
                                                      ---------      ---------

TOTAL ASSETS                                         434,241,157    274,761,298
                                                      =========      =========

LIABILITIES AND SHAREHOLDER EQUITY

LIABILITIES:
Loans and advances from banks                 26     76,221,919     54,662,867
Securities sold under agreements to                  37,250,675              -
repurchase
Derivative financial instruments              19            801          2,203
Customer accounts                         27, 34    151,589,416    141,371,975
Debt securities issued                        28     98,233,366     30,316,786
Other borrowed funds                          29      3,525,473      4,651,066
Dividends payable                                           404            406
Other liabilities                         30, 34      8,402,672      5,548,558
                                                      ---------      ---------

                                                    375,224,726    236,553,861
Subordinated debt                             31      8,732,914      6,060,409
                                                      ---------      ---------

Total liabilities                                   383,957,640    242,614,270
                                                      ---------      ---------

Minority interest                             13      4,704,625         81,240

FINANCIAL COMMITMENTS AND                33, 34               -              -
CONTINGENCIES

SHAREHOLDERS' EQUITY:
Share capital                                 32      4,018,930      3,499,688
Share premium                                         9,453,411      5,473,313
Fixed assets revaluation reserve                        569,783          6,872
                                                      ---------      ---------
Retained earnings                                    31,536,768     23,085,915
                                                      ---------      ---------

Total shareholders' equity                           45,578,892     32,065,788
                                                      =========      =========
                                                    
TOTAL LIABILITIES AND SHAREHOLDER                   434,241,157    274,761,298  
EQUITY
                                                      =========      =========

On behalf of the Board:

------------------                   ------------------
Zhusupova N.A.                       Cheusov P.A.
Chairperson                          Chief Accountant


27 February 2004                     27 February 2004
Almaty                               Almaty


The notes on pages 7-45 form an integral part of these consolidated financial
statements. The Independent Auditors' Report is presented on page 1.


JOINT STOCK COMPANY KAZKOMMERTSBANK

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED 31 DECEMBER 2003, 2002 AND 2001
(in Kazakhstani Tenge and in thousands)


                Share       Share        Fixed assets revaluation reserve    Retained earnings         Total
               capital     premium

31 December   2,931,906    2,793,930                              10,351           11,615,900    17,352,087
2000

Depreciation          -            -                              (2,226)               2,226             -
of fixed
assets
revaluation
reserve

Share
capital
increase of:

- ordinary            1            -                                    -                  -               1
shares
- preference    555,901    2,632,594                                    -                  -       3,188,495
shares
Sale of           9,883       38,163                                    -                  -          48,046
repurchased
shares
Dividends             -            -                                    -         (1,454,502)     (1,454,502)
declared
Net profit            -            -                                    -          5,288,901       5,288,901
for the year    --------     --------                               --------        --------       --------
31 December   3,497,691    5,464,687                                8,125         15,452,525      24,423,028
2001

Share             1,731        8,273                                    -                  -          10,004
capital
increase of:
- preference                                                                                        
shares
Sale of             266          353                                    -                  -           619
repurchased
shares
Depreciation          -            -                               (1,253)               1,253           -              
of fixed
assets
revaluation
reserve
                                                                 
Dividends
declared
preference           -             -                                    -             (346,626)     (346,626)
shares
Net profit           -             -                                    -            7,978,763     7,978,763
for the year     --------     --------                            --------           --------      --------
31 December   3,499,688    5,473,313                                6,872           23,085,915    32,065,788
2002

Depreciation          -             -                             (14,233)              14,233            -
of fixed
assets
revaluation
reserve
                                                                 
Fixed assets          -             -                             577,144                    -       577,144
revaluation
(less
deferred
income tax
of
KZT 228,917
thousand)

Share
capital
increase of:
- ordinary      519,212    3,979,934                                   -                    -      4,499,146
shares

Sale of              30          164                                   -                    -            194
repurchased
shares

Dividends             -            -                                   -              (324,141)     (324,141)
declared on
preference
shares
                                                                                     
Net profit            -            -                                   -             8,760,761     8,760,761
for the     
year            --------     --------                           --------             --------      --------

31 December    4,018,930    9,453,411                             569,783           31,536,768    45,578,892
2003
               ========     ========                            ========             ========      ========



On behalf of the Board:


                                                 

------------------                   ------------------
Zhusupova N.A.                       Cheusov P.A.
Chairperson                          Chief Accountant


27 February 2004                               27 February 2004

Almaty                              Almaty


The notes on pages 7-45 form an integral part of these consolidated financial
statements. The Independent Auditors' Report is presented on page 1.

JOINT STOCK COMPANY KAZKOMMERTSBANK

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED 31 DECEMBER 2003, 2002 AND 2001
(in Kazakhstani Tenge and in thousands)






                          Notes             2003           2002           2001
CASH FLOWS FROM OPERATING
ACTIVITIES:
Profit before income tax              11,258,982      8,257,060      5,567,456
and minority interest
Adjustments for:
Provision for loan                     5,887,610      7,341,589      4,572,275
losses
Provision for losses on                  270,312      1,327,071        525,862
other transactions
Unrealised gain and
amortisation of discounts
on trading securities and
securities
available-for-sale

                                        (171,831)    (4,317,810)      (955,650)
Amortization of discount/
premium on issued
securities
                                      (1,467,824)       185,746              -
Depreciation and                         978,832        625,058        516,347
amortisation
Decrease/(increase) in                   377,057      1,465,157     (2,958,124)
net interest accruals
Expenses/(income) from                     20,249        (33,869)      (389,083)
associates
                                        --------       --------       --------
Net change in recovery
value of derivative
financial instruments
(net)
                                           (9,801)       249,036       (230,316)
                                        --------       --------       --------
Cash flows from operating
activities before changes
in operating assets and
liabilities
                                       17,143,586     15,099,038      6,648,767
                                        --------       --------       --------

Changes in operating
assets and liabilities
(Increase)/decrease in
operating assets:
Minimum reserve deposit
with the Central Bank of
the Russian Federation
                                        (121,865)             -              -
Loans and advances to                (12,151,488)     5,409,000     (9,164,838)
banks
Precious metals                         (300,158)             -              -
Trading securities                   (49,174,659)    (6,764,553)    13,863,820
Securities                             9,857,668       (744,352)       996,556
available-for-sale
Securities                               (15,305)       125,726        (93,536)
held-to-maturity
Securities purchased
under repurchase
agreements
                                        (228,935)    (2,313,035)             -
Loans to clients                    (112,945,369)   (35,627,095)   (74,617,909)
Dividends received                       382,449        380,121        541,498
Other assets                            (487,380)    (2,879,510)    (1,130,365)
Increase/(decrease) in
operating liabilities
Loans and advances from
banks and repurchase
agreements
                                      58,144,477     10,065,523     21,099,758
Customer accounts                      9,438,227     29,436,987     54,836,729
Other borrowed funds                  (1,025,302)      (674,626)       819,954
Other liabilities                        958,337       (714,835)    (1,790,940)
Cash (outflow)/inflow
from operating activities
before taxation
                                     (80,525,717)    10,798,389     12,009,494

Income tax paid                          (471,059)      (722,962)       (20,702)
                                        --------       --------       --------

Net cash (outflow)/inflow             (80,996,776)    10,075,427     11,988,792
from operating
activities                              --------       --------       --------

CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of fixed assets              (2,612,818)    (1,587,635)      (743,816)
(net)
Sale-purchase of                          81,839       (196,711)      (146,177)
intangible assets (net)
Sale/(acquisition) of                    119,462        (55,800)       (74,560)
investments into
associates
Acquisition of                                 -       (249,840)             -
investments into
subsidiaries
Consolidation effect of                   434,042             -              -
Moskommertsbank                                        --------       --------
                                        --------

Net cash outflow from                  (1,977,475)    (2,089,986)      (964,553)
investing activities
                                        --------       --------       --------



JOINT STOCK COMPANY KAZKOMMERTSBANK

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED 31 DECEMBER 2003, 2002 AND 2001 (CONTINUED)
(in Kazakhstani Tenge and in thousands)


                             Notes           2003          2002           2001
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issue of ordinary share                   519,212             -              1
capital
Issue of preference share                       -         1,731        555,901
capital
Proceeds from/(repayment of)
debt securities issued
                                       68,226,334    29,614,150    (14,899,527)
Subordinated debt                       2,667,928     1,773,864              -
Sale of repurchased shares                     30           266          9,883
Share premium                           3,980,098         8,626      2,670,757
Dividends paid                            (324,141)     (347,473)            -
                                         --------      --------    --------
                                         

Net cash inflow/(outflow)
from financing activities
                                        75,069,461    31,051,164    (11,662,985)
                                         --------      --------       --------

NET (DECREASE)/INCREASE IN
CASH AND CASH EQUIVALENTS
                                       (7,904,790)   39,036,605       (638,746)
                                         --------      --------       --------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD
                                 15     55,226,912    16,190,307     16,829,053
                                         --------      --------       --------
                                         ========      ========       ========
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD
                                 15     47,322,122    55,226,912     16,190,307
                                         ========      ========       ========


Interest paid and received by the Bank in cash during the year ended 31 December
2003 amounted to KZT 17,185,965 thousand and KZT 34,110,598 thousand,
respectively.


Interest paid and received by the Bank in cash during the year ended 31 December
2002 amounted to KZT 9,822,159 thousand and KZT 21,985,172 thousand,
respectively.


Interest paid and received by the Bank in cash during the year ended 31 December
2001 amounted to KZT 6,597,635 thousand and KZT 12,953,470 thousand,
respectively.

On behalf of the Board:




------------------                   ------------------
Zhusupova N.A.                       Cheusov P.A.
Chairperson                          Chief Accountant


27 February 2004                               27 February 2004

Almaty                              Almaty


The notes on pages 7-45 form an integral part of these consolidated financial
statements. The Independent Auditors' Report is presented on page 1.


JOINT STOCK COMPANY KAZKOMMERTSBANK

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                          
FOR THE YEARS ENDED 31 DECEMBER 2003, 2002 AND 2001                                   
(in Kazakhstani tenge and in thousands, except per share amounts)


1.    ORGANISATION


JSC Kazkommertsbank (the 'Kazkommertsbank') was incorporated on 12 July 1990 as
an open joint stock company, in accordance with the laws of the Soviet Socialist
Republic of Kazakhstan under the name of Medeu-Bank, to engage in various
activities in the banking sector. Following the independence of Kazakhstan,
Medeu-Bank was re-registered under the name of JSC Kazkommertsbank and obtained
a banking license from the National Bank of the Republic of Kazakhstan (the
'NBRK') on 21 October 1991. In 1994, JSC Kazkommertsbank merged with Astana
Holding Bank and continued under the name of JSC Kazkommertsbank. Astana Holding
Bank, a joint stock company, was incorporated in May 1993. Kazkommertsbank is
registered in the Ministry of Justice under # 4466-1910-AO.


The registered address of the Kazkommertsbank is 135 'Zh', Gagarin Ave., Almaty.


Kazkommertsbank has 22 branches in the Republic of Kazakhstan and a
representative office in London (Great Britain). In December 2002
Kazkommertsbank obtained a license for branch opening in the Republic of Cyprus.


The number of employees of the Bank at 31 December 2003 and 2002 was 3,044 and
2,850, respectively.


Kazkommertsbank is a parent company of the Banking Group (the 'Bank') which
consists of the following enterprises consolidated in the financial statements:

                                        Kazkommerstbank ownership interest
    Name        Country of operation                2003               2002   Type of operation

OJSC            Republic of                          100%               100%  Securities market
Kazkommerts     Kazakhstan                                                    transactions
Securities

JSC Kazkommerts Republic of                          100%                 -   Finance services to
Invest          Kazakhstan                                                    large corporate and
                                                                              private clients

OJSC IC         Republic of                           65%               100%  Insurance
Kazkommerts     Kazakhstan
Policy

Kazkommerts     Netherlands                          100%               100%  Capital borrowings
International                                                                 on large
B.V.                                                                          international
                                                                              monetary markets

OJSC            Kyrgyz Republic                    73.97%             73.84%  Commercial bank
Kazkommertsbank
Kyrgyzstan


Kazkommert Capital 2 B.V. (100%) and Kazkommerts Finance 2 B.V. (100%),
subsidiaries, are not consolidated into the consolidated financial statements
due to the immateriality of their financial statements.


In February 2003 53,846 ordinary shares of OJSC IC Kazkommerts-Policy of KZT
212,590 thousand were purchased by other shareholders which led to decrease of
the Kazkommertsbank's ownership interest in the share capital of OJSC IC
Kazkommerts Policy to 65%.




In June 2002 the Bank acquired 72.35% of outstanding common stock of
Kyrgyzavtobank, a commercial bank operating in the Republic of Kyrgyzstan, and
in December 2002 its investment was increased to 73.84%. On 5 December 2002
Kyrgyzavtobank was re-registered as OJSC Kazkommertsbank Kyrgyzstan. OJSC
Kazkommertsbank Kyrgyzstan was consolidated into the consolidated financial
statements of the Bank from 30 June 2002. The Bank paid KZT 249,840 thousand for
the shares of JSC Kyrgyzautobank. On 30 May 2003 the Bank acquired 250 shares in
amount of KZT 461 thousand, which increased its share holding up to 73.97%.


Notwithstanding Kazkommertsbank has no ownership in the share capital of
Moskommertsbank (the 'MKB'), a commercial bank in the Russian Federation, the
MKB was included into the consolidated financial statements of the Bank since
the Bank has ability and has exercised effective control over its operations.
There is an agreement between the shareholders of the MKB and the Bank on
purchase of no less than 51% of MKB shares by the Bank. Transaction completion
is subject to approval of the NBRK and the Central Bank of the Russian
Federation.


These consolidated financial statements were authorized for issue by the Bank's
Board of Directors on 27 February 2004.



2.     BASIS OF PRESENTATION


Accounting basis - These consolidated financial statements of the Bank have been
prepared in accordance with International Financial Reporting Standards
('IFRS'). These financial statements are presented in thousands of Kazakhstani
tenge ('KZT'), except for per share earning amounts and unless otherwise
indicated. These financial statements are prepared on an accrual basis under the
historical cost convention, except for the buildings and constructions
revaluation which was performed in 2003 to record their fair value and amounted
to KZT 577,144 thousand and cost of financial assets and liabilities modified
for the measurement at fair value of available-for-sale investment securities,
financial assets and financial liabilities held for trading, derivative
financial instruments.


The Bank maintains its accounting records in accordance with IFRS, its foreign
subsidiaries maintain accounting records in accordance with the requirements of
their countries of residence where subsidiaries operate. These consolidated
financial statements have been prepared based on accounting records of
Kazkommertsbank and its foreign subsidiaries, and have been adjusted to conform
to IFRS.


Measurement currency - The measurement currency of these consolidated financial
statements is KZT.



3.    SIGNIFICANT ACCOUNTING POLICIES


Principles of consolidation - The consolidated financial statements include the
accounts of majority-owned subsidiaries, and MKB, operations of which are
controlled by Kazkommertsbank.


All significant inter-company transactions and balances have been eliminated
from the consolidated financial statements. The ownership interest of
Kazkommertsbank and the proportion of voting power of the Bank in the
significant subsidiaries as of 31 December 2003 and 2002 is presented in Note 1.


Enterprises acquired or disposed of during the year are included in the
consolidated financial statements from the date of acquisition or to the date of
disposal. The equity and net income attributable to minority interests are shown
separately in the balance sheets and profit and loss accounts, respectively.



In translating the financial statements of a foreign subsidiary into the
measurement currency for incorporation in the financial statements, the Bank
follows a translation policy in accordance with International Accounting
Standard 21 'The Effects of Changes in Foreign Interest Rates' ('IAS 21').


Equity accounting - The share of Kazkommertsbank in net assets and net income of
entities, where Kazkommertsbank holds 20 to 50% of share capital and/or has the
ability to exercise significant influence over their operating and financial
policies ('associates') is included in the consolidated net assets and operating
results using the equity method of accounting from the date of acquisition (Note
22). Equity accounting is discontinued when the carrying amount of the
investment in an associated undertaking reaches zero. Where necessary, the
accounting policies used by the associates have been changed to ensure
consistency with the policies adopted by the Bank.


Recognition and measurement of financial instruments - The Bank recognizes
financial assets and liabilities on its balance sheet when it becomes a party to
the contractual obligation of the instrument. Regular way purchase and sale of
the financial assets and liabilities are recognized using trade date accounting.


Financial assets and liabilities are initially recognized at cost, which is the
fair value of consideration given or received, respectively, net of any
transaction costs incurred, respectively. The accounting policies for subsequent
re-measurement of these items are disclosed in the respective accounting
policies set out below.


Cash and cash equivalents - Cash and cash equivalents include cash on hand,
unrestricted balances on correspondent accounts with the National Bank of the
Republic of Kazakhstan, Central Bank of the Russian Federation and National Bank
of the Kyrgyz Republic and advances to banks in countries included in the
Organization for Economic Co-operation and Development ('OECD').


Precious metals - Assets and liabilities denominated in precious metals are
translated at the current rate computed based on the second fixing of the London
Bullion Market rates using the KZT/USD exchange rate effective at the date.
Changes in the bid prices are recorded in net gain/(loss) on operations with
precious metals in other income.

Loans and advances to banks - In the normal course of business, the Bank
maintains advances or deposits for various periods of time with other banks.
Loans and advances to banks with a fixed maturity term are subsequently measured
at amortized cost using the effective interest method. Those that do not have
fixed maturities are carried at cost. Amounts due from credit institutions are
carried net of any allowance for losses.


Trading securities - Trading securities represent debt and equity securities
held for trading that are acquired principally for the purpose of generating a
profit from short-term fluctuations in price or dealer's margin. Trading
securities are initially recorded at cost which approximates fair value of the
consideration given and subsequently measured at fair value. The Bank uses
quoted market prices to determine fair value for the Bank's trading securities.
When reliable market prices are not available or if liquidating the Bank's
position would reasonably be expected to impact market prices, fair value is
determined by reference to price quotations for similar instruments traded in
different markets or management's estimates of the amounts that can be realized
from an orderly disposition over a period of time, assuming current market
conditions. Fair value adjustment on trading securities is recognized in profit
and loss for the period.


Repurchase and reverse repurchase agreements - The Bank enters into sale and
purchase back agreements ('repos') and purchase and sale back agreements
('reverse repos') in the normal course of its business. repos and reverse repos
are utilized by the Bank as an element of its treasury management and trading
business.



A repo is an agreement to transfer a financial asset to another party in
exchange for cash or other consideration and a concurrent obligation to
reacquire the financial assets at a future date for an amount equal to the cash
or other consideration exchanged plus interest. These agreements are accounted
for as financing transactions. Financial assets sold under repo are retained in
financial statements and consideration received under these agreements are
recorded as collaterized deposit received.


Assets purchased under reverse repos are recorded in the financial statements as
cash placed on deposit which is collaterized by securities and other assets.


In case when assets purchased under reverse repo are sold to third parties, the
results are recorded with the gain or loss included in net gains/(losses) on
securities. Any related income or expense arising from the pricing difference
between purchase and sale of the underlying securities is recognized as interest
income or expense.


Derivative financial instruments - The Bank enters into derivative financial
instruments to manage currency and liquidity risks and such financial
instruments are held primarily for trading purposes. Derivatives entered into by
the Bank include forwards, swaps, foreign currency options.


Derivative financial instruments are initially recorded at cost which
approximates the fair value of the consideration given, with their subsequent
re-measurement to fair value. Fair values are obtained from the interest rates
model. Most of derivatives the Bank enters into are of short-term and
speculative nature. The results of the valuation of derivatives are reported in
assets (aggregate of positive market values) or liabilities (aggregate of
negative market values), respectively. Both positive and negative valuation
results are recognized in the profit and loss for the year in which they arise
under net gain on foreign exchange operations for foreign currency derivatives.


Originated loans - Loans originated by the Bank are financial assets that are
created by the Bank by providing money directly to a borrower or by
participating in a loan facility.


Loans granted by the Bank are initially recognized in accordance with the policy
stated below. The difference between nominal amount of consideration given and
the amortized cost of loans issued at other than market terms is recognized in
the period the loan is issued as initial recognition adjustment discounting
using market rates at inception and included in the profit and loss account.


Loans to customers with fixed maturities are subsequently measured at amortized
cost using the effective interest method. Those that do not have fixed
maturities are carried at cost. Loans to customers are carried net of any
allowance for loan losses.


Write off of loans - Loans are written off against allowance for loan losses in
case of uncollectibility of loans and advances, including through repossession
of collateral. Loans are written off after management has exercised all
possibilities available to collect amounts due to the Bank and after the Bank
has received all available collateral.


Non-accrual loans - Loans are placed on non-accrual status when interest or
principal is delinquent for a period in excess of 30 days, except when all
amounts due are fully secured by cash or marketable securities and collection
proceedings are in process. Interest income is not recognized if recovery is
doubtful. Subsequent payments by borrowers are applied to either principal or
delinquent interest based on individual arrangements with the borrower. A
non-accrual loan is restored to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within a
reasonable period.



Allowance for losses - The Bank establishes an allowance for losses of financial
assets when it is probable that the Bank will not be able to collect the
principal and interest according to the contractual terms of financial assets,
which are carried at cost or amortized cost. The allowance for losses is defined
as the difference between carrying amounts and the present value of expected
future cash flows, including amounts recoverable from guarantees and collateral.


The determination of the allowance for loan losses is based on an analysis of
the loan portfolio and reflects the amount which, in the judgment of management,
is adequate to provide for losses inherent in the loan portfolio. Specific
provisions are made as a result of a detailed appraisal of risk assets. In
addition, provisions are carried to cover potential risks, which although not
specifically identified, are present in the loan portfolio judging by the
previous experience.


The change in the allowance for loan losses is charged to profit and the total
of the allowance for loan losses is deducted in arriving at loans to customers
and banks. Management's evaluation of the allowance is based on the Bank's past
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current economic conditions.


It should be understood that estimates of loan losses involve an exercise of
judgment. While it is possible that in particular periods the Bank may sustain
losses, which are substantial relative to the allowance for loan losses, it is
the judgment of management that the allowance for loan losses is adequate to
absorb losses inherent in the loan portfolio.


Securities held-to-maturity - Securities held-to-maturity are debt securities
with determinable or fixed payments. The Bank has the positive intent and
ability to hold them to maturity. Such securities are carried at amortized cost,
less any allowance for impairment plus accrued coupon income. Amortized
discounts are recognized in the interest income over the period to maturity.


Securities available-for-sale - Securities available-for-sale represent debt and
equity investments that are intended to be held for an indefinite period of
time. Such securities are initially recorded at cost which approximates the fair
value of the consideration given. Subsequently the securities are measured at
fair value, with such re-measurement included in the profit and loss account,
plus accrued coupon income. The Bank uses quoted market prices to determine the
fair value for the Bank's securities available-for-sale. If such quotes do not
exist, management estimation is used.


Fixed and intangible assets - Fixed and intangible assets are carried at
historical cost less accumulated depreciation. Buildings and constructions are
accounted for at market value. The appraisal of building and constructions is
performed by the independent appraiser. The basis for the determination of the
fair market value is the real estate market. Depreciation on assets under
construction and those not placed in service commences from the date the assets
are ready for their intended use.


Depreciation of fixed and intangible assets is designed to write off assets over
their useful economic lives and is calculated on a straight line basis at the
following annual prescribed rates:

Buildings                                                                2.5%
Furniture and equipment                                              10 - 30%
Intangible assets                                                  15 - 33.3%


Leasehold improvements are amortized over the life of the related leased asset.
Expenses related to repairs and renewals are charged when incurred and included
in operating expenses unless they qualify for capitalization.



Taxation - Taxes on income are computed in accordance with the laws of the
countries where the Bank and its subsidiaries operate. Deferred taxes, if any,
are provided on items recognized in different periods for financial reporting
purposes and income tax purposes, using the balance sheet liability method at
the tax rates that are expected to apply to the period when the asset is
realized or the liability is settled. Deferred tax liabilities, if any, which
result from temporary differences, are provided for in full. Deferred tax assets
are recorded to the extent that there is a reasonable expectation that these
assets will be realized.


Deferred income tax assets and liabilities are offset when:


-        the Bank has a legally enforceable right to set off the recognized
amounts of current tax assets and current tax liabilities;

-        the Bank has an intention to settle on a net basis, or to realize the
asset and settle the liability simultaneously;

-        the deferred tax assets and the deferred tax liabilities relate to
income taxes levied by the same taxation authority in each future period in
which significant amounts of deferred tax liabilities and assets are expected to
be settled or recovered.


Countries where the Bank operates also have various other taxes, which are
assessed on the Bank's activities. These taxes are included as a component of
operating expenses in the profit and loss account.


Deposits from banks and customers - Customer and bank deposits are initially
recognized at cost, which amounts to the issue proceeds less transaction costs
incurred. Subsequently amounts due are stated at amortized cost and any
difference between net proceeds and the redemption value is recognized in the
profit and loss account over the period of the borrowings using the effective
interest method.


Debt securities issued - Debt securities issued represent promissory notes
issued by the Bank to customers. They are accounted for according to the same
principles used for customer and bank deposits.


Provisions - Provisions are recognized when the Bank has a present legal or
constructive obligation as a result of past events, and it is probable that an
outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate of the obligation can be made.


Share capital and share premium - Share capital is recognized at historic cost.
Gains and losses on sales of treasury stock are credited to share premium.


Dividends on ordinary shares are recognized in shareholders' equity as a
reduction thereof in the period in which they are declared.


Retirement and other benefit obligations - The Bank does not have any pension
arrangements separate from the state pension system of the Republic of
Kazakhstan and other countries where its subsidiaries domicile, which requires
current contributions by employer calculated as a percentage of current gross
salary payments; such expense is charged in the period the related salaries are
earned.


Recognition of income and expense - Interest income and expense are recognized
on an accrual basis. The recognition of interest income is suspended when loans
become overdue by more then 30 days. Interest income also includes interest
income earned on investment and trading securities. Other income are credited to
income when the related transactions are completed. Loan origination fees, if
significant, are deferred (together with related direct costs) and recognized as
an adjustment to the loans effective yield. Commission income/expenses are
recognized on an accrual basis.



Foreign currency translation - Monetary assets and liabilities denominated in
foreign currencies are translated into KZT at the appropriate spot rates of
exchange ruling at the balance sheet date. Foreign currency transactions are
accounted for at the exchange rates prevailing at the date of transaction.
Profits and losses arising from these translations are included in net gain on
foreign exchange transactions.


Rates of exchange - The exchange rates at year-end used by the Bank in the
preparation of the financial statements are as follows:



                                   31 December 2003           31 December 2002

KZT/US Dollar                               144.22                     155.85
KZT/Euro                                    180.23                     162.46
KZT/Gold (1ounce)                        60,031.58                  53,417.88


Offset of financial assets and liabilities - Financial assets and liabilities
are offset and reported net on the balance sheet when the Bank has a legally
enforceable right to set off the recognized amounts and the Bank intends either
to settle on a net basis or to realize the asset and settle the liability
simultaneously.


Fiduciary activities - The Bank provides trustee services to its customers. Also
the Bank provides depositary services to its customers that include transactions
with securities on their deposit accounts. Assets accepted and liabilities
incurred under the trustee activities are not included in the Bank's financial
statements. The Bank accepts the operational risk on these activities, but the
Bank's customers bear the credit and market risks associated with such
operations.


Reclassifications - Certain reclassifications have been made to the financial
statements as of 31 December 2002 and 2001 to conform to the presentation as of
31 December 2003.



4.     NET INTEREST INCOME

                                              2003          2002          2001
Interest income

Interest on loans to customers          29,749,318    23,044,439    15,842,523
Interest on debt securities              3,774,899     1,110,697     1,316,069
Interest on loans and advances to        1,526,766       345,804       711,870
banks
Interest on reverse repurchase               55,318            -             -
transactions                                           ---------     ---------
                                         ---------
Total interest income                    35,106,301    24,500,940    17,870,462
                                         =========     =========     =========

Interest expense

Interest on debt securities issued       8,577,577     2,083,414       762,717
Interest on customer accounts            7,773,268     6,880,159     4,521,120
Interest on loans and advances from      1,911,084     1,939,714     2,266,854
banks
Other interest expenses                     361,987       354,612       337,074
                                         ---------     ---------     ---------
Total interest expense                   18,623,916    11,257,899     7,887,765
                                         =========     =========     =========
Net interest income before provision
for loan losses
                                         16,482,385    13,243,041     9,982,697
                                         =========     =========     =========





5.    ALLOWANCE FOR LOSSES AND IMPAIRMENT, OTHER PROVISIONS


The movements in allowance for losses on interest earning assets, were as
follows:

              Loans and advances      Loans      Securities under repurchase agreements          Total
                  to banks       to customers

31 December             93,122       8,399,789                                         -     8,492,911
2000
Provision              202,038       4,370,237                                         -     4,572,275
Write-off of                 -      (2,485,805)                                        -    (2,485,805)
assets
Recoveries of                -        1,387,882                                        -      1,387,882
assets               ---------                                                 ---------
previously                           ---------                                               ---------
written off
31 December            295,160      11,672,103                                         -    11,967,263
2001

Acquisition                  -          29,047                                         -        29,047
of subsidiary
bank
(Recovery)/           (125,002)      7,420,331                                    46,260     7,341,589
Provision
Write-off of                 -      (6,319,964)                                        -    (6,319,964)
assets
Recoveries of                -        1,214,865                                        -      1,214,865
assets               ---------                                                 ---------
previously                           ---------                                               ---------
written off
31 December            170,158      14,016,382                                    46,260    14,232,800
2002

Consolidation            5,043           4,644                                         -         9,687
effect of
MKB
Provision/             239,385       5,694,485                                   (46,260)    5,887,610
(Recovery)
Write-off of                        (2,233,398)                                             (2,233,398)
assets
Recoveries of                -        1,586,965                                        -      1,586,965
assets               ---------                                                 ---------
previously                           ---------                                               ---------
written off
31 December             414,586      19,069,078                                        -     19,483,664
2003                                                                           =========
                     =========       =========                                               =========


The movements in allowances for losses on other transactions were as follows:

              Insurance reserves    Accounts receivable          Guarantees              Total
                                                           and other commitments

31 December                     -                  3,017                  287,156      290,173
2000
Acquisition               138,849                      -                        -      138,849
of the
subsidiary
Provision                 130,855                 15,387                  379,620      525,862
Write-offs                      -                 (5,495)                       -       (5,495)
Recoveries                      -                    400                        -          400
                        ---------                ---------              ---------      ---------

31 December               269,704                 13,309                  666,776      949,789
2001

Provision                 150,800                 52,840                1,123,431    1,327,071
Write-offs                      -                (16,364)                       -      (16,364)
Recoveries                      -                   3,300                       -         3,300
                        ---------                                       ---------
                                               ---------                             ---------
31 December               420,504                 53,085                1,790,207    2,263,796
2002

Consolidation                   -                    227                        -          227
effect of
MKB
Provision/                636,240                 (2,011)                (363,917)     270,312
(Recovery)
Write-offs                      -                (89,595)                       -      (89,595)
Recoveries                      -                  68,814                       -        68,814
                        ---------                                       ---------
                                               ---------                             ---------
31 December              1,056,744                 30,520                1,426,290    2,513,554
2003
                        =========              =========                =========    =========




6.     NET (LOSS)/GAIN ON TRADING SECURITIES


Net (loss)/gain on trading securities comprise:

                                                2003         2002         2001

Debt securities                              (26,814)     885,357    1,371,559
Equity securities                           (290,178)      50,636      128,707
                                           ---------    ---------    ---------
Total net (loss)/gain on trading             (316,992)     935,993    1,500,266
securities
                                           =========    =========    =========



7.     NET GAIN ON FOREIGN EXCHANGE OPERATIONS


Net gain on foreign exchange operations comprise:

                                                2003         2002         2001

Dealing, net                               1,419,322      640,405      530,264
Translation differences, net                 181,655      567,004      655,563
                                           ---------    ---------    ---------
Total net gain on foreign exchange          1,600,977    1,207,409    1,385,827
operations
                                           =========    =========    =========



8.     FEE AND COMMISSION INCOME AND EXPENSE


Fee and commission income and expense comprise:

                                                2003         2002         2001
Fee and commission income:
Cash operations                            2,094,290    1,634,263    1,327,706
Settlements                                1,614,231    1,269,487      639,440
Documentary operations                     1,614,916    1,215,418      480,819
Foreign exchange and securities            1,149,461      732,067      662,383
operations
Credit cards operations                      627,323      407,121      236,645
Commission for the loan issuance             605,881      110,428      158,622
Insurance operations                         123,532      127,382            -
Encashment operations                        112,115       79,431       86,179
Commission for consulting                     10,930        2,923       13,051
Other                                         447,100      213,270      245,464
                                           ---------    ---------    ---------
Total fee and commission income             8,399,779    5,791,790    3,850,309
                                           =========    =========    =========

Fee and commission expense:
Commission from loans                        395,761      489,254      141,050
Bank cards services                          303,630      228,832      127,596
Letters of credit and guarantees             290,217      167,130       43,787
Insurance operations                         132,652       55,626       15,292
Correspondent bank services                   65,565       56,870       38,950
Foreign currency and securities               62,214       46,375       50,831
operations
Services of processing centre of the          39,830       49,801       75,080
NBRK
Other                                          44,463       32,497       96,384
                                           ---------    ---------    ---------
Total fee and commission expense            1,334,332    1,126,385      588,970
                                           =========    =========    =========





9.     NET (LOSS)/GAIN ON INVESTMENT SECURITIES


Net (loss)/gain on investment securities include results from operations with
available-for-sale securities and comprise:

                                                2003         2002         2001

Unrealized gain/ (loss) from revaluation      40,784    3,916,126    (54,071)
of securities available-for-sale
                                                        
Net loss on derecognition of securities      (88,181)           -       (1,415)
available-for-sale
                                                               
                                           ---------    ---------    ---------
Total net (loss)/gain on investment           (47,397)   3,916,126      (55,486)
securities
                                           =========    =========    =========


On 29 January 2003 the shares of CJSC Air Kazakhstan were sold by the Bank to
the Government of Kazakhstan for the amount of KZT 2,390,700 thousand.


On 24 June 2003 the Bank sold 29% of shares of CJSC ABN AMRO Bank Kazakhstan to
the existing shareholders of ABN AMRO Bank Kazakhstan for KZT 2,949,051
thousand.


The value of CJSC ABN AMRO Bank Kazakhstan investments in 2002 was determined
using the generally accepted methodology of equity evaluation, where a growing
factor of 7% p.a. and a discount of 13.7% were used. Application of this method
has led to the double proportion of the market value to the carrying amount and
amounted to KZT 3,120,172 thousand. Actual value of the transaction turned out
to be less for KZT 171,121 thousand, at the same time the Bank received
dividends for 2002 in amount of KZT 369,947 thousand less withholding tax.


Unrealized income from securities available-for-sale in 2002 included a
revaluation gain on the cost of investments in CJSC ABN AMRO Bank Kazakhstan and
CJSC Air Kazakhstan for the amount of KZT 1,560,086 thousand KZT 2,390,700
thousand, respectively.



10.    OTHER INCOME

                                                2003         2002         2001

Insurance premiums of Kazkommerts          1,048,665      335,214      205,851
Policy
Income from recovery of expenses paid         74,358          609        1,819
Proceeds from sale of fixed assets and
fixed assets received free of charge
                                              22,281       12,192          345
Fines and penalties received                   4,565          649          433
Sale of low-value inventory and blanks         1,234        7,180        9,082
Other income                                  88,252       77,297       65,380
                                           ---------    ---------    ---------
                                            1,239,355      433,141      282,910
                                           =========    =========    =========


11.    OPERATING EXPENSES

                                                2003         2002         2001

Staff costs                                4,129,235    4,178,014    2,914,122
Depreciation and amortization                978,832      625,058      516,347
Fixed assets maintenance (buildings,         442,558      242,499      132,128
intangibles, etc.)
Advertising costs                            379,117      311,911      289,198
Insurance of individual deposits             310,419      352,755      141,154
Business trip expenses                       269,753      252,806      203,718
Communications                               261,981      220,203      223,479
Value added tax                              253,133      233,676      256,004
Lease                                        206,609      159,584      121,792
Membership fee                               203,357       12,904          808
Taxes, other than income tax                 181,897      139,282      164,744
Security                                     145,681      102,290      113,149
Vehicles maintenance                         140,502      109,885       89,777
Charity and sponsorship expenses             136,755      157,740      182,931
Professional services                         97,431       96,221      126,925
Training                                      85,055       68,093       20,375
Unused vacation and sick leave                72,251       31,679       41,329
reimbursements
Cash collection expenses                      70,589       65,921       69,536
Stationery                                    60,116       52,411       32,639
Representative expenses                       47,475       35,054       21,567
Mail and courier expenses                     32,764       30,157       21,333
Legal services                                27,821       25,888       40,648
Custom duties for import of foreign           20,433       89,420      195,443
currency
Other expenses                               415,307      362,532      200,224
                                           ---------    ---------    ---------
                                            8,969,071    7,955,983    6,119,370
                                           =========    =========    =========



12.    INCOME TAXES


The Bank provides for taxes based on the tax accounts maintained and prepared in
accordance with the tax regulations of countries where the Bank and its
subsidiaries operate and which may differ from International Financial Reporting
Standards.


The Bank is subject to certain permanent tax differences due to non-tax
deductibility of certain expenses and tax free regime for certain income.


Deferred taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for tax purposes. Temporary differences as of 31 December 2003
and 2002 relate mostly to different methods of income and expense recognition as
well as to recorded values of certain assets.


Temporary differences as of 31 December 2003 and 2002 comprise:

                                                            2003          2002
Deferred assets:
Provisions under guarantees and letters of credit              -        252,581
Other assets                                              398,466       219,278
                                                       ---------     ---------
Total deferred assets                                     398,466       471,859
                                                       ---------     ---------




Deferred liabilities:
Loans to banks and customers                           3,005,134       341,910
Provisions under guarantees and letters of credit         92,916             -
Investments in associates                                     71     1,100,795
Fixed and intangible assets                               245,292       243,562
                                                       ---------     ---------
Total deferred liabilities                              3,343,413     1,686,267
                                                       ---------     ---------

Net deferred liabilities                                2,944,947     1,214,408
                                                       =========     =========


Relationships between tax expenses and accounting profit for the years ended 31
December 2003, 2002 and 2001 are explained as follows:

                                                2003         2002         2001

Profit before income tax and minority      11,258,982    8,257,060    5,567,456
interest
                                           =========    =========    =========

Tax at the statutory tax rate              3,357,404    2,477,118    1,670,237
Tax effect of permanent differences       (1,265,737)  (2,201,051)  (1,391,682)
                                           ---------    ---------    ---------
Income tax expense                         2,091,667      276,067      278,555
                                           =========    =========    =========

Current income tax expense                   590,045      477,990       23,646
Reversal of prior year tax                         -            -     (153,085)
Deferred tax expense/(recovery)            1,501,622     (201,923)     407,994
                                           ---------    ---------     ---------
Income tax expense                         2,091,667      276,067      278,555
                                          =========     =========     =========

Deferred income tax liabilities                 2003         2002         2001

At beginning of the period                 1,214,408    1,416,331    1,008,337
Decrease of fixed assets revaluation         228,917            -            -
reserve                                    ---------    ---------    ---------
                                          
Increase/(decrease) in the deferred        1,501,622     (201,923)    407,994
income tax for the period
                                           ---------    ---------    ---------
At end of the period                       2,944,947    1,214,408    1,416,331
                                           =========    =========    =========



13.    MINORITY INTEREST


The movement in minority interest during 2003 and 2002 comprises:

31 December 2001                                                             -
Minority interest in the subsidiary purchased by the Bank               79,010
Minority interest in the net profit of the Bank for the year             2,230
                                                                     ---------
31 December 2002                                                        81,240
                                                                     ---------

Consolidation effect of MKB                                          4,220,116
Minority interest in the net profit of the Bank for the year           406,554
Foreign exchange effect                                                 (3,285)
                                                                     ---------
31 December 2003                                                     4,704,625
                                                                     =========





14.     EARNINGS PER SHARE

                                                2003         2002         2001
Income:
Net income for the year                    8,760,761    7,978,763    5,288,901
                                           ---------    ---------    ---------
Less:
Dividends on preference stock                (324,141)    (346,626)          -
                                           ---------    ---------  ---------
                                           

Income less dividends on preference         8,436,620    7,632,137    5,288,901
shares
                                           ---------    ---------    ---------
Weighted average number of common stock  325,817,299   294,182,278  287,982,090
for basic and diluted earnings per
share (pieces)
                                           =========     =========    =========

Earnings per share - basic and diluted          25.89        25.94        18.37
(KZT)
                                           =========    =========    =========



15.    CASH AND BALANCES WITH NATIONAL (CENTRAL) BANKS


The balance with the Central Bank of the Russian Federation as of 31 December
2003 included amounts of KZT 121,865 thousand represented by the balances with
the Central Bank of the Russian Federation. The Bank is required to maintain the
reserve balances at all times.


Cash and cash equivalents for the purposes of the statement of cash flows
comprise:

                                              2003          2002          2001

Cash on hand                            10,352,004    10,135,899     5,822,268
Balances with national (central)        18,132,609      9,258,872    5,656,147
banks
                                                        
Loans and advances to banks in OECD
countries (Note 16)
                                         18,963,568    35,832,141     4,711,892
                                         ---------     ---------     ---------

                                        47,448,181    55,226,912    16,190,307
Less minimum reserve deposit with the
Central Bank of the Russian
Federation
                                          (121,865)            -             -
Less accrued interest income on
balances with NBRK
                                            (4,194)            -             -
                                         ---------     ---------     ---------
Total cash and cash equivalents          47,322,122    55,226,912    16,190,307
                                         =========     =========     =========


16         LOANS AND ADVANCES TO BANKS

                                                            2003          2002

Loans and advances to banks                           35,385,911    32,554,375
Correspondent accounts with other banks                3,477,327    11,020,905
Accrued interest income on loans and advances to          134,172        46,021
banks
                                                       ---------     ---------
                                                      38,997,410    43,621,301
Less allowance for loan losses                           (414,586)     (170,158)
                                                       ---------     ---------
Total loans and advances to banks                      38,582,824    43,451,143
                                                       =========     =========


Movements in allowances for loan losses and advances to banks for the years
ended 31 December 2003 and 2002 are disclosed in Note 5.


On 31 December 2003 the Bank entered into short-term deposit transactions with
two counter-parties totaling to KZT 12,979,800 thousand, which individually
exceeded 10% of the Bank's equity. These transactions were closed on 5 January
2004.





17.    TRADING SECURITIES

Debt securities:
Short-term NBRK           1.96-5.11%    22,700,525     5.35-5.89%    5,879,159
notes
State bonds of the        4.5%-5.25%     7,731,347                           -
Federal Republic of
Germany
Eurobonds of the       11.125-13.625%
Ministry of Finance
of the Republic of
Kazakhstan
                                         6,399,117     5.36-9.26%    5,446,171
Government treasury        5.8-9.99%     6,061,421     6.17-14.4%    2,410,209
bills
Freddie MAC bonds        9.28-15.29%     3,909,001                           -
The Netherlands state           3.75%    3,676,560                           -
bonds
Fannie MAE bonds                 2.0%    3,605,301                           -
Federal Home Loan               2.18%    3,579,163                           -
Bank bonds
Kaztransoil bonds             8.5-9%     2,649,512    9.72-10.12%      586,425
Eurobonds of             7.875-11.5%     1,951,242    8.52-11.30%    2,041,722
TuranAlem Finance
B.V.
Bonds of                        10.0%    1,744,830          11.22%      15,700
PetroKazakhstan Oil
Products
US Treasury bills               3.63%    1,392,056                           -
Bonds of Development    7.125-7.375%     1,017,559                           -
Bank of Kazakhstan
Bonds of Kazakhstani          8-8.6%       767,742                           -
Mortgage Company
Atyrau region's             8.5-8.6%       468,790      6.39-8.6%        6,466
administration
bonds
Kazakhtelecom bonds             10.0%      428,638    7.11-10.25%       55,094
Eurobonds of the
Ministry of Finance
of the
Russian Federation             12.75%      360,521          12.75%     571,093
Astana municipality           8-8.5%       352,098                           -
bonds
Dalsvyaz bonds                  14.5%      317,536                           -
Nidan Foods bonds,              17.0%      248,911                           -
1st issue.
Debt securities of             13.76%      168,345                           -
Yaroslav Region
KAZTRANSCOM bonds                8.0%      157,996                           -
Avtovaz bonds                  15.25%      151,400                           -
East Kazakhstan            5.97-6.3%       149,307     7.83-8.96%      138,711
regional
administration
bonds
KAZATOMPROM bonds                8.5%       95,544                           -
Nevinnomisski Azot              18.0%       69,351                           -
bonds
VITA bonds                   8.6-14%        66,863                           -
Kaztransoil bonds                8.5%       20,094    7.76-13.36%    2,229,652
Almaty Kus bonds                10.0%        9,886    12.0-12.22%       15,312
Caspian Bank bonds               9.5%        3,008                           -
Karazhanbasmunai                   -             -      11-11.42%      989,814
bonds
Eurobonds of                       -             -           12.0%      157,470
Hurricane                                 --------
Hydrocarbons Ltd                                                      --------

                                         70,253,664                  20,542,998
                                          --------                    --------

                  Ownership share          2003   Ownership share         2002
Shares:
Gazprom                       0.82%     543,508                  -           -
Kazakhtelecom                 0.54%     219,209               1.62%    247,904
GDR
Kazakhmys                     0.11%      83,649               0.11%    348,008
Ust-Kamenogorsk
Titanium and
Magnesium Plant
                                 0%      56,474               0.96%    140,201
Mosenergo                     0.03%       44,355                 -           -
                                                                      --------
                                      ---------

                                         947,195                        736,113
                                      ---------                       --------
Total trading                         71,200,859                     21,279,111
securities
                                      =========                       ========


As of 31 December 2003 and 2002 included in trading securities is accrued
interest income on debt securities amounting to KZT 773,634 thousand and KZT
245,773 thousand, respectively.



As of 31 December 2003 trading securities included Bonds of the Ministry of
Finance of the Republic of Kazakhstan, Notes of the National Bank of the
Republic of Kazakhstan, securities of the Government of the USA, Germany, the
Netherlands, and corporate bonds pledged under repurchase agreements with other
banks amounting to KZT 37,250,675 thousand. All the agreements have maturity
within 3 months.



18.    SECURITIES PURCHASED UNDER AGREEMENT TO RESELL


As of 31 December 2003 and 2002 the Bank purchased securities amounting to KZT
2,608,318 thousand and KZT 2,313,035 thousand under agreements to resell them
within 3 months. A coupon of 4-7% p.a. of the nominal value is payable on above
mentioned securities.

                                                             2003         2002

Bonds of the Russian Federation institutions            1,043,008            -
Shares of the Russian Federation institutions             945,128            -
State mid-term obligations of the Ministry of Finance     487,548      309,693
of the Republic of Kazakhstan
Notes of the National Bank of the Republic of             100,000    2,000,822
Kazakhstan
Government treasury bills of the Ministry of Finance       32,634            -
of the Kyrgyz Republic
Eurobonds of the Ministry of Finance of the Republic            -         2,520
of Kazakhstan                                           ---------
                                                                     ---------
                                                        2,608,318    2,313,035
Less allowance for losses of repurchase agreements              -       (46,260)
                                                        ---------
                                                                     ---------
Total securities purchased under agreement to resell,    2,608,318    2,266,775
net
                                                        =========    =========


Movements in allowances for loan losses under repurchase agreements for the
years ended 31 December 2003 and 2002 are disclosed in Note 5.



19.    DERIVATIVE FINANCIAL INSTRUMENTS

                                                      2003                                                2002
            Amount payable           Net fair value          Amount payable              Net fair value
                               Asset            Liability                          Asset            Liability
Foreign
currency
contracts

Forwards          4,407,171     15,399                   -         3,117,000         7,000                   -

Swaps               216,330          -                (801)          487,380             -              (2,203)

Securities
contracts

Forwards         12,569,911          -                   -                 -             -                   -
                               -------    ---      -------                         -------    ---      -------
                                 15,399   ===         (801)                          7,000    ===        (2,203)
                               =======              =======                          =======              ======= 
                                                                                                


20     LOANS TO CUSTOMERS

                                                          2003           2002

Originated loans                                   291,512,002    179,018,399
Accrued interest income on loans to customers        10,619,519     10,246,568
                                                     ---------      ---------
                                                   302,131,521    189,264,967
Less allowance for loan losses                      (19,069,078)   (14,016,382)
                                                     ---------      ---------
Total loans to customers, net                       283,062,443    175,248,585
                                                     =========      =========

                                                           2003           2002

Loans collateralized by combined collateral         125,477,075     69,031,306
Loans collateralized by real estate                  59,298,681     45,256,405
Loans collateralized by guarantees of                40,758,423     18,211,792
enterprises
Loans collateralized by inventories                  27,035,014     15,717,804
Loans collateralized by shares of other              13,444,865     10,650,747
companies
Loans collateralized by equipment                    10,959,952     12,086,239
Loans collateralized by cash or Kazakhstani           8,536,912      9,334,649
Government guarantees
Loans collateralized by guarantees of financial       4,341,365         50,975
institutions
Unsecured loans                                       12,279,234      8,925,050
                                                      ---------      ---------
                                                    302,131,521    189,264,967
Less allowance for loan losses                       (19,069,078)   (14,016,382)
                                                      ---------      ---------
Total loans to customers, net                        283,062,443    175,248,585
                                                      =========      =========


Movements in allowances for loan losses for the years ended 31 December 2003 and
2002 are disclosed in Note 5.

                                                      2003                2002
Analysis by industry:
Trade                                           55,661,465          33,288,670
Energy                                          47,506,445          46,189,634
Construction                                    34,566,516          13,755,620
Agriculture                                     34,468,555          28,845,739
Individuals                                     31,790,749          12,234,452
Food                                            24,187,221          15,496,591
Transport and communication                     14,764,673           7,701,327
Hotel business                                  14,128,249           4,789,925
Mining and metallurgy                           10,261,097           6,133,103
Real estate                                      5,981,736           6,536,943
Machinery construction                           4,940,297           2,350,152
Finance sector                                   2,640,527             357,184
Culture and art                                  2,335,968           2,110,036
Other                                            18,898,023           9,475,591
                                                 ---------           ---------
                                               302,131,521         189,264,967
Less allowance for loan losses                  (19,069,078)        (14,016,382)
                                                 ---------           ---------
Total loans to customers, net                   283,062,443         175,248,585
                                                 =========           =========


As of 31 December 2003 and 2002 included in loans to customers are non-accrual
loans which amounted to KZT 2,452,768 thousand and KZT 2,312,351 thousand,
respectively. As of 31 December 2003 and 2002 the total amount of interest on
these loans non-recognized as income amounted to KZT 145,822 thousand and KZT
107,540 thousand, respectively.


As of 31 December 2003 and 2002 the Bank's loans to the clients, which
individually exceeded 10% of the Bank's equity, are represented by the following
enterprises and institutions:



                                                         2003             2002

Djeilan Holding                                    10,330,813                -
Food Contract Corporation                           9,127,803        4,844,632
CNPC Aktobemunaigaz Holding                         8,292,792                -
Alibi Holding                                       7,852,305        3,745,787
BIPEK Auto Holding                                  6,771,643                -
Tolkynneftegas Holding                              6,206,352        6,104,713
GOLDEN GRAIN GROUP Holding                                  -        5,103,966
Kazpolmunai Holding                                         -        4,580,200
Ai-Dan Holding                                              -        4,312,389
Assets Ltd                                                  -        4,210,855
Almaty International Airport Holding                        -        4,330,923
Ordabasy Corporation Holding                                -        3,956,540
Seymar Holding                                              -        3,935,332
Zangar Kazakhstan Trade House                               -        3,472,223
                                                    ---------        ---------
                                                    48,581,708       48,597,560
                                                    =========        =========


Significant amount of loans is granted to companies operating in the Republic of
Kazakhstan, which represents significant geographical concentration in one
region.



21.    INVESTMENT SECURITIES


Securities available-for-sale

                     Interest to nominal         2003   Interest to nominal          2002

Debt securities
JSC Almaty Merchant                   8.6%       2,860                     -            -
Bank                                           --------                          --------
                                                 2,860                                  -
                                              ---------                          --------

                                   Share, %                           Share, %

Equity securities
Bank CenterCredit                     1.9%     86,000                      -            -
Aktubinsk chrome                     3.07%     22,805                   3.07%       4,613
plant
Kazakhtelecom,
including:
- ordinary shares                    0.04%     15,164                   0.04%      12,779
- preference                         0.01%      2,149                   0.01%       2,657
shares
ABN AMRO Bank                           -           -                   29.0%   3,120,172
Kazakhstan
Air Kazakhstan                          -           -                   50.0%   2,390,700
Other                                16.7%       8,576                  16.7%        8,098
                                             --------                            --------

                                               134,694                           5,539,019
                                             ========                            ========

Total securities                               137,554                           5,539,019
available-for-sale
                                             ========                            ========


In September 2002 the Bank entered into an agreement with the Government of
Kazakhstan related to the sale of the Bank's shares of Air Kazakhstan. On 29
January 2003 the shares of CJSC Air Kazakhstan were sold by the Bank at the
value determined in the agreement between the Bank and the Government of the
Republic of Kazakhstan in the amount of KZT 2,390,700 thousand.



On 24 June 2003 the Bank sold its holding of 29% of the shares of CJSC ABN AMRO
Bank Kazakhstan to the existing shareholders of ABN AMRO Bank Group for KZT
2,949,051 thousand.


Securities held-to-maturity


Securities held-to-maturity are represented as follows:

                   Interest to nominal         2003   Interest to nominal         2002

Bonds of the                          0%     32,372                      0%         35
Ministry of
Finance of the
Kyrgyz Republic
Kyrgyztelecom                         -           -                    9.0%      17,241
bonds                                      --------                           ----------
 
Total securities                              32,372                             17,276
held-to-maturity
                                              ========                           ========

22.    INVESTMENTS INTO ASSOCIATES


The following enterprises were recorded in the financial statements using the
equity method:

                                                    2003                  2002

                                    % Held     Amount         % Held     Amount

UlarUmit Pension fund               33.18%       146,206      29.0%    147,375
ABN AMRO Asset Management               -              -     48.88%     82,742
Sinooil                                 -              -     33.33%     55,800
                                                --------               --------
                                                 146,206               285,917
                                                ========              ========


In 2003 Kazkommertsbank purchased shares of Ular Umit Pension Fund and as of 31
December 2003 the Bank's share in the equity of the Ular Umit Pension Fund
increased by 4.18%.


The percentage held of the above associates represents both direct and indirect
ownership of the Bank.


The movement of investments are accounted for in the financial statements using
the equity method:

31 December 2000                                                     1,947,368
Purchase cost                                                           74,557
Share of net income                                                    389,083
Dividends from associates                                              (637,054)
                                                                      --------
31 December 2001                                                     1,773,954

Purchase cost                                                           72,841
Reclassification of securities                                      (1,150,756)
Share of net income                                                     33,869
Dividends from associates                                              (443,991)
                                                                      --------
31 December 2002                                                       285,917

Purchase cost                                                           19,080
Investments sale                                                      (138,542)
Share of net loss                                                       (20,249)
                                                                      --------
31 December 2003                                                        146,206
                                                                      ========



In 2003 the Bank sold its shares of CJSC ABN AMRO Asset Management and OJSC
Sinooil to third parties for KZT 173,759 thousand and KZT 62,951 thousand,
respectively. Income from the sale of these investments amounted to KZT 98,168
thousand.



23.    PROPERTY, PLANT AND EQUIPMENT

               Buildings    Furniture and equipment      Other              Total
At cost
31 December     1,194,330           3,747,453             134,974       5,076,757
2002
Additions         448,757           1,974,804             166,781       2,590,342
Revaluation       876,195                   -                   -         876,195
Consolidation           -              47,282              45,511          92,793
effect of
MKB
Transfers           8,119               4,123             (12,242)              -
Disposals         (124,781)           (108,637)            (10,656)       (244,074)
                ---------            --------           ---------       ---------
31 December      2,402,620           5,665,025             324,368       8,392,013
2003
                ---------            --------           ---------       ---------

Accumulated
depreciation
31 December        88,356           1,510,855              29,933       1,629,144
2002
Depreciation       39,814             808,306              40,025         888,145
expense
Consolidation           -              12,424               3,328          15,752
effect of
MKB
Revaluation        70,134                   -                   -          70,134
Transfers              44               3,079              (3,123)              -
Disposals           (2,099)            (73,281)             (3,729)        (79,109)
                ---------            --------           ---------       ---------
31 December        196,249           2,261,383              66,434       2,524,066
2003
                ---------            --------           ---------       ---------

Net book
value
31 December      2,206,371           3,403,642             257,934       5,867,947
2003
                =========            ========           =========       =========

31 December      1,105,974           2,236,598             105,041       3,447,613
2002
                =========            ========           =========       =========


The Bank's office building in Almaty was appraised based on an independent
expertise.



24.    INTANGIBLE ASSETS

                                                          2003            2002
At cost
1 January                                              879,734         689,477
Additions                                              118,710         201,489
Additions from acquired subsidiary bank                      -           2,776
Consolidation effect of MKB                                842               -
Disposals                                              (201,552)        (14,008)
                                                     ---------       ---------
31 December                                             797,734         879,734
                                                     ---------       ---------

Accumulated amortization
1 January                                              271,157         161,420
Amortisation charge                                     90,687         118,306
Additions from acquired subsidiary bank                      -           1,194
Consolidation effect of MKB                                250               -
Disposals                                                  (411)         (9,763)
                                                     ---------       ---------
31 December                                             361,683         271,157
                                                     ---------       ---------

Net book value
31 December                                             436,051         608,577
                                                     =========       =========


Intangible assets include software, patents and licenses.



25.    OTHER ASSETS

                                                          2003            2002

Prepayments and other debtors                        1,856,938       1,459,044
Insurance debtors                                      792,492         647,565
Prepaid expenses                                       686,972         750,933
Tax settlements, other than income tax                  60,531         411,054
                                                     ---------       ---------
                                                     3,396,933       3,268,596
Less allowance for losses on other assets               (30,520)        (53,085)
                                                     ---------       ---------
Total other assets, net                               3,366,413       3,215,511
                                                     =========       =========



26.   LOANS AND ADVANCES FROM BANKS

                                                            2003          2002

Correspondent accounts of other banks                  6,087,644       449,085
Loans from banks and financial institutions,
including:
Syndicated loan from a group of banks (Deutsche Bank
AG London)
Tranche A due on 19.12.2004, coupon rate 2.22%        27,401,800             -
Tranche B due on 19.12.2005, coupon rate 2.61%        15,864,200             -
Syndicated loans from banks (ING Amsterdam) 4.02%      6,489,900             -
Syndicated loan from banks (due in December 2003,              -    23,377,500
coupon rate 4.18% p.a.)
EBRD loan (due in 2003, coupon rate 1.5%-4.5% p.a.)            -    10,557,278

EBRD loan (due in 2006, coupon rate 2.72%-5.26%        7,757,044
p.a.)
Loans from NBRK                                          358,098       724,895
Loans from other banks and financial institutions     12,047,117    12,960,479
Deposits of banks                                          1,875     6,459,019
Accrued interest expenses                                214,241       134,611
                                                       ---------     ---------
Total loans and advances from banks                    76,221,919    54,662,867
                                                       =========     =========


As of 31 December 2003 and 2002 loans from NBRK include advances received under
the program of gold mining enterprises support and development in the amount of
KZT 300,410 thousand and KZT 502,030 thousand, respectively, as well as advances
from the European Bank for Reconstruction and Development under the program of
industry development and construction in the amount of KZT 57,688 thousand and
KZT 222,866 thousand as of 31 December 2003 and 2002, respectively.



27.    CUSTOMER ACCOUNTS


Customer accounts comprise:

                                                          2003            2002

Time deposits                                       99,227,367      99,757,812
Repayable on demand                                 49,163,891      38,654,476
Accrued interest expense on customer accounts        3,198,158       2,959,687
                                                     ---------       ---------
Total customer accounts                             151,589,416     141,371,975
                                                     =========       =========





28.    DEBT SECURITIES ISSUED

                                                            2003          2002
Eurobonds of Kazkommerts International B.V. due
in April 2013 coupon rate 8.625%):
Tranche A issued in April 2003 at price of            50,477,000             -
97.548%
Tranche B issued in April 2003 and placed in May      21,633,000             -
2003 at price 99.00%
In May 2007 (coupon rate 10.125%):
Tranche A issued in May 2002 at price of 99.043%       21,633,000    23,377,500
                                                       ---------     ---------
Tranche B issued in November 2002 and allocated in
December 2002 at price of 107.00%
                                                        7,211,000     7,792,500
                                                       ---------     ---------
                                                     100,954,000    31,170,000
Including/(less):
(Discount)/premium on debt securities issued          (1,282,078)      185,746
Amounts of accrued interest on debt securities         1,631,951       516,890
issued
Eurobonds repurchased by the Bank                      (4,787,527)   (1,555,850)
                                                       ---------     ---------
Total issued Eurobonds of Kazkommerts International   96,516,346    30,316,786
B.V.

Issued promissory notes                                1,717,020             -
                                                       ---------     ---------
Total debt securities issued                           98,233,366    30,316,786
                                                       =========     =========


Eurobonds were issued by the Kazkommerts International B.V., a subsidiary of
Kazkommertsbank, and guaranteed by the Kazkommertsbank. For Eurobonds with a
maturity of May 2007 interest is paid semi-annually on 8 May and 8 November,
while for those having a maturity of April 2013, interest is paid on 16 April
and 16 October.


MKB issued promissory notes with a maturity of 6 months for the amount of KZT
1,048,359 thousand and with a maturity of 1 year for the amount of KZT 668,661
thousand.



29.    OTHER BORROWED FUNDS

                        Interest rate        2003   Interest rate          2002

Funding by the Small           8.34%   2,546,170             8.49%   2,952,022
Business Support
Fund
Funding by the                 4.92%     909,395             5.41%   1,594,937
Ministry of Finance
of the Republic of
Kazakhstan
Accrued interest                           69,908                       104,107
expenses
                                       ---------                     ---------

Total other borrowed                    3,525,473                     4,651,066
funds
                                       =========                     =========


Financing by the Small Business Support Fund is made from funds of EBRD and ADB
and is represented as follows:

                                          2003                            2002

EBRD                                 2,321,942                       2,587,110
ABD                                    224,228                         364,912
                                     ---------                       ---------
                                     2,546,1700                       2,952,022
                                     =========                       =========





Funding from the Ministry of Finance of the Republic of Kazakhstan is provided
under the Agriculture Industry Development Programme by funds of the Asian
Development Bank, International Bank for Reconstruction and Development (IBRD),
and Kreditanstalt fur Wideraufbau ('KFW') and regional departments, and
represented as follows:

                                                    2003                  2002

ABD, IBRD and KFW                                764,330             1,464,393
Regional departments                             145,065               130,544
                                               ---------             ---------
                                                  909,395             1,594,937
                                               =========             =========



30.    OTHER LIABILITIES

                                                             2003         2002

Deferred tax liabilities                                2,944,947    1,214,408
Other creditors                                         2,182,226    1,205,959
Allowance for losses on guarantees and letters of       1,426,290    1,790,207
credit
Insurance reserves                                      1,056,744      420,504
Accounts payable on re-insurers                           478,632      580,661
Taxes payable, other than income tax                      313,833      336,819
                                                        ---------    ---------
                                                         8,402,672    5,548,558
                                                        =========    =========


31.    SUBORDINATED DEBT

                             Maturity    Interest            2003         2002
                               date      rate (%)
Indexed subordinated bonds        2009          8.00%   4,007,097            -

Subordinated notes                2007         11.00%   2,798,453    3,062,997

Subordinated debt of              2008      9.31-9.94%    1,820,323    1,624,600
Deutsche
Investitions und                        
Entwicklungsgesellschaft
                                  
International subordinated        2007          5.50%      54,377    1,324,725
bonds
Accrued interest expenses                                   52,664       48,087
                                                         ---------    ---------

                                                         8,732,914    6,060,409
                                                        =========    =========


Indexed subordinated bonds were issued in January 2003 in accordance with the
decision of the General Shareholders Meeting and the Board of Directors Meeting
for the total amount of KZT 7.5 billion and allocated for the amount of KZT
4,007,097 thousand as of 31 December 2003.


Subordinated bonds were issued in 2002 in US dollars and represent an equivalent
of US dollars 20,000 thousand as of December 2003 and 2002.


Subordinated debt of Deutsche Investitions und Entwicklungsgesellschaft was
received in 2002 in Euro and represents the KZT equivalent of 10,000 thousand
Euro as of 31 December 2003 and 2002.


The international subordinated bonds were issued in April 2002 in accordance
with a Decision of the Shareholders' Meeting. These bonds were issued in US
dollars and represent the KZT equivalent of USD 376 thousand and US dollars
8,500 thousand at 31 December 2003 and 2002, respectively.





32.    SHAREHOLDERS' EQUITY


As of 31 December 2003 the Kazkommertsbank's share capital comprised the
following:

           Authorized share capital    Unissued and unpaid share capital    Repurchased share capital    Total share 
                                                                                                           capital

Ordinary                   3,750,000                             (288,587)                      (115)      3,461,298
shares
Preference                 1,250,000                             (692,368)                          -        557,632
shares                     ---------                             ---------                  ---------      ---------
                            5,000,000                             (980,955)                      (115)     4,018,930
                           =========                            =========                    =========     ==========

As of 31 December 2002 the Kazkommertsbank's share capital comprised the
following:

           Authorized share capital    Unissued and unpaid share capital    Repurchased share capital    Total share 
                                                                                                         capital

Ordinary                   3,750,000                             (807,799)                        (145)    2,942,056
shares
Preference                  1,250,000                             (692,368)                          -       557,632
shares                     ---------                           ---------                     ---------     ---------

                            5,000,000                           (1,500,167)                        (145)   3,499,688
                           =========                            =========                    =========    ==========    
      

Ordinary shares: 375,000,000 shares were authorized, 346,129,915 and 294,220,100
shares were issued and partially paid, 115 and 145 shares were repurchased with
par value of KZT 10 at 31 December 2003 and 2002, respectively.


Preference shares: 125,000,000 shares were authorized and registered, 55,763,155
shares were partially paid with par value of KZT 10 each with dividend of up to
USD 0.04 per share at 31 December 2003 and 2002, respectively.


JSC Kazkommertsbank and EBRD agreed on EBRD having a share holding in the share
capital of Kazkommertsbank and the Board of Directors of EBRD approved on 5
March 2003 the purchase of 15% ordinary shares of JSC Kazkommertsbank in 2003.



33.    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, involving varying degrees of credit risk, are not reflected in the
balance sheet.


Accrued allowance for losses on letters of credit and guarantees amounted to KZT
1,426,290 thousand and KZT 1,790,207 thousand as of 31 December 2003 and 2002,
respectively.



As of 31 December 2003 and 2002, the nominal or contract amounts and
risk-weighted amounts were:

                           31 December 2003                                31 December 2002
              Nominal Amount       Risk Weighted Amount       Nominal Amount       Risk Weighted Amount
                 ---------               ---------                                       ---------

Contingent
liabilities
and credit
commitments
Guarantees
issued and
similar
commitments
                   22,769,317                 22,769,317           18,951,094                 18,951,094
Letters of
credit and
other
transaction
related
contingent
obligations

                    23,408,923                  4,681,785           18,465,695                  1,103,856
                    ---------                  ---------            ---------                  ---------
Commitments
on credits
and unused
credit
lines
                    15,866,353                         -            20,065,094                         -
                                               =========                                       =========
                    =========                                       =========
Total
contingent
liabilities
and credit
commitments
                    62,044,593                 27,451,102           57,481,883                 20,054,950
                    =========                  =========            =========                  =========


              Amount Payable       Risk Weighted Amount       Amount Payable       Risk Weighted Amount

Derivative
financial
instruments
Foreign             4,407,171                     14,204            3,117,000                     31,170
currency
forwards
Foreign               216,330                          -              487,380                          -
currency
swaps
Forwards with       12,569,911                         -                    -                          -
securities                                     =========                                       =========
                    =========
Total
derivative
financial
instruments
                    17,193,412                     14,204           3,604,380                      31,170
                    =========                  =========                                       =========


Capital commitments - The Bank had no material commitments for capital
expenditures outstanding as of 31 December 2003 and 2002.


Rental commitments - No material rental commitments were outstanding as of
31 December 2003 and 2002.

.

Fiduciary activities - The Bank renders depositary services. As of 31 December
2003 the Bank had the following securities of clients at nominal account of the
securities holder:

Brokerage:


-   dealing operations of 956,334,557 securities,

-    custodian operations of 54,000,125 securities.


Legal proceedings - From time to time and in the normal course of business,
claims against the Bank are received from customers and counterparties.
Management is of the opinion that no material unaccrued losses will be incurred
and accordingly no provision has been made in these financial statements.


Taxes - Due to the presence in commercial legislation, and tax legislation in
particular, of provisions allowing more than one interpretation, and also due to
the practice developed in a generally unstable environment by the tax
authorities of making arbitrary judgment of business activities, if a particular
treatment based on Management's judgment of the Bank's business activities was
to be challenged by the tax authorities, the Bank may be assessed additional
taxes, penalties and interest. The Bank believes that it has already made all
tax payments, and therefore no allowance were made in the financial statements.
Tax years remain open to review by the tax authorities for five years.



Pensions and retirement plans - Employees receive pension benefits in accordance
with the laws and regulations of the respective countries. As of 31 December
2003 and 2002, the Bank was not liable for any supplementary pensions,
post-retirement health care, insurance benefits, or retirement indemnities to
its current or former employees.


Operating environment - The Bank's principal business activities are within the
Republic of Kazakhstan. Laws and regulations affecting business environment in
the Republic of Kazakhstan 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.



34    TRANSACTIONS WITH RELATED PARTIES


Related parties, as defined by IAS 24, 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 relationship, attention is directed
to the substance of the relationship, and not merely the legal form. The Bank
had the following transactions outstanding with related parties:

                                                                                                                
                                                         2002                              2003   

                           Related party     Total category as per          Related party       Total category as       
                            transactions     financial statements            transactions          per financial        
                                                    caption                                     statements  caption

Loans to                        2,619,017             291,512,002               1,625,607               179,018,399
customers
Accrued                           150,067              10,619,519                  83,010                10,246,568
interest on
loans to
customers                         
Allowance for                     (70,647)            (19,069,078)               (100,875)              (14,016,382)
loans

Customer                        2,395,219             148,391,258                 953,229               138,412,288
accounts
Accrued                            60,678               3,198,158                  64,614                 2,959,687
deposit
interest
Allowance for                         632               1,426,290                     670                 1,790,207
guarantees
and letters
of credit

Unused loan                        27,057              15,866,353                  32,729                20,065,094
commitments
Letters of                              -              23,408,923                   5,455                18,465,695
credit
Guarantees                         27,057              22,769,317                  27,274                18,951,094
given


The increase of loans to related parties and deposits from related parties
occurred in 2003 in comparison with 2002 was mainly due to Bank's management and
Ular Umit Pension Fund.


Transactions turnover on trading securities of the Bank with related parties in
2003 and 2002 amounted to KZT 391,909 thousand and KZT 67,573 thousand,
respectively.


The Bank's investments into equity of related parties as of 31 December 2003 and
2002 amounted to KZT 146,206 thousand and KZT 285,917 thousand, respectively.
The decrease was due to the sale of CJSC ABN AMRO Asset Management and CJSC
Sinooil shares.


As of 31 December 2002 Central Asian Industrial Investments N.V. placed a
deposit in Kazkommerts International B.V., a subsidiary of Kazkommertsbank, of
KZT 5,143,050 thousand (equal to US dollars 33,000 thousand) recognized as
customers accounts (see Note 27). This deposit later was pledged to secure a
loan issued to Karakudukmunai Company.


Included in the profit and loss account for the years ended 31 December 2003,
2002 and 2001 are the following amounts which arose due to transactions with
related parties:

                                                                                       
                             2003                                                                    2002              
                Related party     Total category    Related party     Total category    Related party       Total     
                transactions          as per        transactions          as per        transactions     category as  
                                    financial                           financial                       per financial 
                                    statements                          statements                        statements  
                                     caption                             caption                           caption    

  Interest           178,210          35,106,301          275,541         24,500,940          215,720      17,870,462   
  income                                                                                                              

  Interest          (145,829)        (18,623,916)         (99,341)       (11,257,899)         (46,384)     (7,887,765)  
  expense                                                                                                             


In 2003 and 2002, dividends on preference shares were accrued and paid in the
amount of KZT 324,141 thousand and KZT 346,626 thousand, respectively. Dividends
for 2001 amounted to KZT 1,454,502 thousand.



35.       FAIR VALUE OF FINANCIAL INSTRUMENTS


Estimated fair value disclosures of financial instruments is 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 amount at which the instrument could be exchanged
in a current transaction between knowledgeable willing 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 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 of 31 December 2003 and 2002 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 balances with national (central) banks - For these short-term
instruments the carrying amount is a reasonable estimate of fair value.


Loans and advances to banks - As of 31 December 2003 and 2002, the carrying
amount of deposits and advances given is a reasonable estimate of their fair
value.


Trading securities - As of 31 December 2003 and 2002 trading securities are
stated at fair value amounting to KZT 70,427,225 thousand and KZT 21,033,338
thousand, respectively, plus accrued interest income totalling KZT 773,634
thousand and KZT 245,773 thousand, respectively. The fair value of trading
securities was determined with reference to an active market.


Derivative financial instruments - As of 31 December 2003 and 2002 derivative
financial instruments are stated at fair value. Fair values of derivative
financial instruments are determined based on quoted market prices.


Securities purchased under repurchase agreements - As of 31 December 2003 and
2002, the carrying amount of securities purchased under repurchase agreements is
a reasonable estimate of the fair value.


Loans to customers - The fair value of the loan portfolio is based on the credit
and interest rate characteristics of the individual loans within each sector of
the portfolio. The estimation of the provision for loan losses includes
consideration of risk premiums applicable to various types of loans based on
factors such as the current situation of the economic sector in which each
borrower operates, the economic situation of each borrower and guarantees
obtained. Accordingly, the provision for loan losses is considered a reasonable
estimate of the discount required to reflect the impact of credit risk.


Securities available-for-sale - As of 31 December 2003 and 2002 securities
available-for-sale are stated at fair value amounting to KZT 137,431 thousand
and KZT 5,539,019 thousand, respectively, plus accrued coupon income totalling
KZT 123 thousand as of 31 December 2003. The fair value of securities
available-for-sale was determined with reference to an active market for those
securities quoted publicly or at over-the-counter market. For unquoted
securities the fair value was determined by reference to market prices of
securities with a similar credit risk and/or maturity, in other cases - by
reference to the share in estimated equity capital of the investee. If such
quotes do not exist, management estimation is used (see Note 9).



Securities held-to-maturity - Securities held-to-maturity are stated at cost and
adjusted for accretion and amortization of premiums and discounts, respectively.
The fair value of securities held-to-maturity as of 31 December 2003 and 2002
was KZT 32,372 thousand and KZT 17,067 thousand, respectively, plus accrued
interest income totalling KZT 209 thousand as of 31 December 2002. The fair
value of securities held-to-maturity was determined with reference to an active
market for those securities quoted publicly or at over-the-counter market. For
unquoted securities the fair value was determined by reference to market prices
of securities with similar credit risk and/or maturity.


Deposits from banks - As of 31 December 2003 and 2002 the carrying amount is a
reasonable estimate of their fair value.


Customer accounts - As of 31 December 2003 and 2002 the carrying amount of
deposits and current accounts of the Bank's customers is a reasonable estimate
of their fair value.


Securities sold under repurchase agreements - As of 31 December 2003 the
carrying value of securities sold under agreement to repurchase amounting to KZT
37,250,675 thousand is a reasonable estimate of their fair value.


Debt securities issued - Debt securities issued are stated at cost, adjusted for
amortization of premium and discounts, which approximates their fair value.


Other borrowed funds - As of 31 December 2003 and 2002 the carrying amount of
other borrowed funds is a reasonable estimate of the fair value.


Subordinated debt - As of 31 December 2003 and 2002 the carrying amount of
subordinated debt is a reasonable estimate of its fair value.



36    REGULATORY MATTERS


Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (as set forth in the
table below) of total and tier 1 capital to risk weighted assets.


The capital is calculated as the amount of restricted and free components of the
shareholders' capital plus the Bank's provisions for the principal risks on
condition that the general provision for losses does not exceed 1.25% of the
risk weighted assets.


The ratio was calculated according to the principles employed by the Basle
Committee by applying the following risk estimates to the assets and off-balance
sheet commitments net of allowances for losses:

Estimate   Description of position

0%         Cash and balances with the National Bank of the Republic of
           Kazakhstan
0%         State debt securities in Tenge
20%        Loans and advances to banks for up to 1 year
100%       Loans to customers
100%       Guarantees
100%       Obligations and commitments on unused loans with the initial maturity
           of over 1 year
100%       Other assets





The Bank's actual capital amounts and ratios are presented in the following
table:

                                                                                                                      
   Capital amounts and    Actual Amount in KZT     For Capital Adequacy      Ratio For Capital     Minimum Required   
         ratios                 thousand              purposes in KZT        Adequacy purposes           Ratio        
                                                         thousand                                                     
  As of 31 December                                                                                                   
  2003                                                                                                                
  Total capital                     45,578,892               60,642,904                 16.43%                   8%
  Tier 1 capital                    49,713,734               49,713,734                 13.47%                   4%
                                                                                                                      
  As of 31 December                                                                                                   
  2002                                                                                                                
  Total capital                     32,065,788               37,484,463                 16.37%                   8%
  Tier 1 capital                    32,059,916               32,059,916                 14.00%                   4%


As of 31 December 2003 the Bank included in the computation of Total capital for
Capital adequacy purposes the subordinated loan received, limited to 50% of Tier
1 capital. In the event of bankruptcy or liquidation of the Bank, repayment of
this loan is subordinate to the repayments of the Bank's liabilities to all
other creditors.



37     RISK MANAGEMENT POLICIES


        Management of risk is fundamental to the banking business and is an
essential element of the Bank's operations. The main risks inherent to the
Bank's operations are those related to credit exposures, liquidity and market
movements in interest rates and foreign exchange rates. A description of the
Bank's risk management policies in relation to those risks follows.


The Bank manages the following risks:


Liquidity risk

Liquidity risk refers to the availability of sufficient funds to meet deposit
withdrawals and other financial commitments associated with financial
instruments as they actually fall due.


The Assets and Liabilities Management Committee ('ALMC') controls these types of
risks by means of maturity analysis, determining the Bank's strategy for the
next financial period. Current liquidity is managed by the Treasury Department,
which deals on the money markets for current liquidity support and cash flow
optimisation.


In order to manage liquidity risk, the Bank performs daily monitoring of future
expected cash flows on clients' and banking operations, which is a part of
assets/liabilities management process. The Management Board sets limits on the
minimum proportion of maturing funds available to meet deposit withdrawals and
on the minimum level on interbank and other borrowing facilities that should be
in place to cover withdrawals at unexpected levels of demand.


Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates
will affect the value of the financial instruments.


The ALMC also manages interest rate and market risks by matching the Bank's
interest rate position, which provides the Bank with the positive interest
margin. The Department of Financial Control conducts monitoring of the current
Bank's financial performance, estimates the Bank's sensitivity to changes in
interest rates and its influence on the Bank's profitability.



The majority of the Bank's loan contracts and other financial assets and
liabilities that bear interest are either variable or contain clauses enabling
the interest rate to be changed at the option of the lender. The Bank monitors
its interest rate margin and consequently does not consider itself exposed to
significant interest rate risk or consequential cash flow risk.


Interest rates on financial assets and liabilities are disclosed in the
corresponding Notes.


The analysis of interest rate and liquidity risk on balance sheet transaction is
presented in the following table:

                    Up to       1 month to    3 month to    1 year to         Over         Allowance         2003     
                  1 month       3 months       1 year        5 years        5 years       for losses        Total     
  ASSETS                                                                                                              
  Loans and     23,064,504      11,609,691     4,189,043            -             -         (414,586)     38,448,652   
  advances to                                                                                                         
  banks, net                                                                                                          
  Trading       31,091,764      11,976,770    14,783,571    9,153,225     3,421,895                -      70,427,225   
  securities                                                                                                          
  Securities     2,512,145          60,200        32,600            -             -                -       2,604,945    
  purchased     
  under                                                                                                               
  agreement                                                                                                           
  to resell                                                                                                           
  Investment             -          27,286       139,780        2,737             -                -         169,803    
  securities                                                                                                          
  Loans to      23,672,832      18,849,182    86,946,870  122,369,177    39,673,941      (19,069,078)    272,442,924  
  customers                                                                                                           
  Total         80,341,245      42,523,129   106,091,864  131,525,139    43,095,836      (19,483,664)    384,093,549  
  interest                                                                                                            
  bearing                                                                                                             
  assets                                                                                                              

  Cash and      28,480,419               -             -            -             -                -      28,480,419    
  balances      
  with                                                                                                                
  national                                                                                                            
  (central)                                                                                                           
  banks                                                                                                               
  Precious         300,158               -             -            -             -                -         300,158    
  metals                                                                                                              
  Derivative        15,399               -             -            -             -                -          15,399    
  financial                                                                                                           
  instruments                                                                                                         
  Investments            -               -             -            -       146,206                -         146,206    
  into                                                                                                                
  associates                                                                                                          
  Fixed                  -               -             -            -     5,867,947                -       5,867,947    
  assets, net                                                                                                         
  Intangible             -               -             -            -       436,051                -         436,051    
  assets, net                                                                                                         
  Interest       4,680,285       1,571,893     3,088,830     1,911,285      282,722                -      11,535,792    
  accrued on     
  interest                                                                                                            
  bearing                                                                                                             
  assets                                                                                                              
  Other            541,237         318,948     2,022,971       504,162        9,615          (30,520)      3,366,413    
  assets                                                                                                              

  TOTAL        114,358,743     44,413,970    111,203,665   133,940,586   49,838,377      (19,514,184)    434,241,157  
  ASSETS                                                                                                              

  LIABILITIES                                                                                                         
  Loans and      9,648,980        310,540     39,911,806    26,136,352            -                -      76,007,678   
  advances                                                                                                            
  from banks                                                                                                          
  Securities    37,216,263              -              -             -            -                -      37,216,263    
  sold under    
  agreements                                                                                                          
  to                                                                                                                  
  repurchase                                                                                                          
  Customer      64,183,505     19,433,587     51,903,435    12,726,511      144,220                -     148,391,258  
  accounts                                                                                                            
  Debt             137,365      1,039,145        540,510    25,838,315   69,046,080                -      96,601,415   
  securities                                                                                                          
  issued                                                                                                              
  Other                  -        216,330        982,450     1,623,628      633,157                -       3,455,565    
  borrowed                                                                                                            
  funds                                                                                                               
  Subordinated           -              -              -     4,702,161    3,978,089                -       8,680,250    
  debt                                                                                                                
  Total         111,186,113    20,999,602     93,338,201    71,026,967   73,801,546                -     370,352,429  
  interest                                                                                                            
  bearing                                                                                                             
  liabilities                                                                                                         

  Derivative            801             -              -             -            -                -             801    
  financial                                                                                                           
  instruments                                                                                                         
  Other           1,707,447       145,476       1,122,703     2,944,012           -       (2,483,034)      8,402,672    
  financial                                                                                                           
  liabilities                                                                                                         
  Interest          250,893       821,695       3,385,874       742,872           -                -       5,201,334    
  accrued on        
  interest                                                                                                            
  bearing                                                                                                             
  liabilities                                                                                                         
  Dividends              30           374               -             -           -                -             404    
  payable                                                                                                             

  TOTAL         113,145,284    21,967,147      97,846,778    74,713,851  73,801,546       (2,483,034)    383,957,640  
  LIABILITIES                                                                                                         

  Interest      (30,844,868)   21,523,527      12,753,663    60,498,172 (30,705,710)                                 
  sensitivity                                                                                                         
  gap                                                                                                                 
  Cumulative    (30,844,868)   (9,321,341)      3,432,322    63,930,494  33,224,784                                   
  interest                                                                                                            
  sensitivity                                                                                                         
  gap                                                                                                                 
  Cumulative         (7.10%)       (2.15%)          0.79%        14.72%      7.65%                                      
  interest             
  sensitivity                                                                                                         
  gap as a                                                                                                            
  percentage                                                                                                          
  of total                                                                                                            
  assets                                                                                                              



Liquidity risk of derivative financial instruments

Net fair values of derivative financial instrument are included in the liquidity
analysis above and further analysis by types of derivatives' contracts as of
31 December 2003 is presented in the table below.

  OFF-BALANCE SHEET       Up to        1 month to    3 month to    1 year to     Over      Allowance       Total      
     LIABILITIES         1 month       3 months       1 year       5 years     5 years    for losses                  

  Accounts payable                                                                                                   
  on forwards        (17,193,412)          -             -            -           -            -        (17,193,412)  
  Accounts                                                                                                       
  receivable on      
  forwards           17,208,010            -             -            -           -            -         17,208,010     
                                                                                            
                                                                                                                      
  Liquidity gap          14,598            -             -            -           -                                     
                                                                                                                    
  Cumulative             14,598          14,598        14,598       14,598      14,598                                 
  liquidity gap                                                                                                       



                   Up to      1 month to 3    3 month to      1 year to        Over        Allowance           2002     
                  1 month        months         1 year        5 years        5 years      for losses          Total     
  ASSETS                                                                                                              
  Loans and    43,575,280                -             -              -            -        (170,158)    43,405,122   
  advances to                                                                                                         
  banks, net                                                                                                          
  Trading       4,486,828        1,361,260     8,960,062      6,219,521        5,667               -     21,033,338   
  securities                                                                                                          
  Securities    2,311,517                -             -              -            -         (46,260)     2,265,257    
  purchased                                                                                                           
  under                                                                                                               
  agreement                                                                                                           
  to resell                                                                                                           
  Loans to      9,175,553       13,923,107    46,547,690     97,214,900   12,157,149     (14,016,382)   165,002,017  
  customers,                                                                                                          
  net                                                                                                                 
  Investment            -                -     5,556,086              -            -               -      5,556,086    
  securities                                                                                                          
  Total        59,549,178       15,284,367    61,063,838    103,434,421   12,162,816     (14,232,800)   237,261,820  
  interest                                                                                                            
  bearing                                                                                                             
  assets                                                                                                              

  Cash and     19,394,771                -             -              -            -               -     19,394,771   
  balances                                                                                                            
  with                                                                                                                
  national                                                                                                            
  (central)                                                                                                           
  banks                                                                                                               
  Derivative        7,000                -             -              -            -               -          7,000     
  financial                                                                                                           
  instruments                                                                                                         
  Investments           -                -             -              -      285,917               -        285,917     
  into                                                                                                                
  associates                                                                                                          
  Fixed                 -                -             -              -    3,447,613               -      3,447,613    
  assets, net                                                                                                         
  Intangible            -                -             -              -      608,577               -        608,577     
  assets, net                                                                                                         
  Interest      2,849,254        2,455,656     1,975,563      2,968,701      290,915               -     10,540,089  
  accrued on                                                                                                 
  interest                                                                                                            
  bearing                                                                                                             
  assets                                                                                                              
  Other           960,123          123,746     1,744,218        436,607        3,902         (53,085)     3,215,511    
  assets                                                                                                              

  TOTAL        82,760,326       17,863,769    64,783,619    106,839,729   16,799,740     (14,285,885)   274,761,298  
  ASSETS                                                                                                              

  LIABILITIES                                                                                                         
  Loans and     9,968,303          284,785    38,261,304      5,504,772      509,091               -     54,528,255   
  advances                                                                                                            
  from banks                                                                                                          
  Customer     54,531,114       23,753,871    40,408,715     19,718,545           43               -    138,412,288  
  accounts                                                                                                            
  Debt                  -                -       185,746     29,614,150            -               -     29,799,896   
  securities                                                                                                          
  issued                                                                                                              
  Other               399              467       325,858      3,537,525      682,710               -      4,546,959    
  borrowed                                                                                                            
  funds                                                                                                               
  Subordinated          -                -             -      1,272,265    4,740,057               -      6,012,322    
  loan                                                                                                                
  Total        64,499,816       24,039,123    79,181,623     59,647,257    5,931,901               -    233,299,720  
  interest                                                                                                            
  bearing                                                                                                             
  liabilities                                                                                                         
  Derivative        2,203                -             -              -            -               -          2,203     
  financial                                                                                                           
  instruments                                                                                                         
  Other         1,194,695          233,946       356,924        337,874    1,214,408       2,210,711      5,548,558    
  liabilities                                                                                                         
  Interest        361,027          726,412     2,349,431        326,513            -               -      3,763,383    
  accrued on                                                                                                   
  interest                                                                                                            
  bearing                                                                                                             
  liabilities                                                                                                         
  Dividends         406                  -             -              -            -               -            406     
  payable                                                                                                             

  TOTAL      66,058,147         24,999,481    81,887,978     60,311,644    7,146,309       2,210,711    242,614,270  
  LIABILITIES                                                                                                         

  Interest   (4,950,638)        (8,754,756)  (18,117,785)    43,787,164    6,230,915                                  
  sensitivity                                                                                                         
  gap                                                                                                                 
  Cumulative (4,950,638)       (13,705,394)  (31,823,179)    11,963,985   18,194,900                                 
  interest                                                                                                            
  sensitivity                                                                                                         
  gap                                                                                                                 
  Cumulative     (1.80%)            (4.99%)      (11.58%)         4.35%       6.62%                                     
  interest                                                                                                            
  sensitivity                                                                                                         
  gap as a                                                                                                            
  percentage                                                                                                          
  of total                                                                                                            
  assets                                                                                                              



Liquidity risk of derivative financial instruments

Net fair values of derivative financial instrument are included in the liquidity
analysis above and further analysis by types of derivatives' contracts as of
31 December 2002 is presented in the table below.

     OFF BALANCE         Up to        1 month to 3      3 month    1 year to     Over      Allowance        2002      
        SHEET          1 month           months            to       5 years    5 years    for losses    KZT thousand  
    LIABILITIES                                         1 year                                                        

    Accounts payable (2,045,880)      (1,558,500)          -           -          -            -         (3,604,380)  
    on forwards                                                                                                       
    Accounts          2,044,177        1,565,000           -           -          -            -          3,609,177   
    receivable on                                                                                                     
    forwards                                                                                                        
                                                                                                 
    Liquidity gap        (1,703)           6,500           -           -          -      
                                                                                    
    Cumulative           (1,703)           4,797       4,797       4,797      4,797  
    liquidity    
    gap                                                                   



Currency risk

Currency risk is defined as the risk that the value of a financial instrument
will fluctuate due to changes in foreign exchange rates. The Bank is exposed to
the effects of fluctuations in the prevailing foreign currency exchange rates on
its financial position and cash flows.


The ALMC controls currency risk by management of the open currency position on
the estimated basis of KZT devaluation and other macroeconomic indicators, which
gives the Bank an opportunity to minimize losses from significant currency rates
fluctuations toward its national currency. The Treasury Department performs
daily monitoring of the Bank's open currency position with the aim to match the
requirements of national (central) banks.



The Bank's exposure to foreign currency exchange rate risk is presented in the
table below:

                   KZT            USD           EUR       Other currency    Allowance for losses            2003
                              USD1= KZT      USD1= KZT                                                     Total
                                144.22         180.23
ASSETS
Cash and       22,310,905      4,533,995       800,584           834,935                       -     28,480,419
balances with
national
(central)
banks
Precious                -              -             -           300,158                       -        300,158
metals
Loans and       1,786,062     34,219,406     1,963,138           894,632                (414,586)    38,448,652
advances to
banks, net
Trading        29,020,756     28,698,320    11,179,126         1,529,023                       -     70,427,225
securities
Securities        585,200              -             -         2,019,745                       -      2,604,945
purchased
under
agreement to
resell
Investment        134,694          2,737             -            32,372                       -        169,803
securities
Loans to       58,616,965    223,933,230     6,492,375         2,469,432             (19,069,078)   272,442,924
customers,
net
Derivative         15,399              -             -                 -                       -         15,399
financial
instruments
Investments       146,206              -             -                 -                       -        146,206
into
associates
Fixed assets,   5,718,297              -             -           149,650                       -      5,867,947
net
Intangible        419,320              -             -            16,731                       -        436,051
assets, net
Interest        5,067,997      5,981,428       442,368            43,222                       -     11,535,015
accrued on
interest
bearing
assets
Other            1,506,612      1,846,310        18,959            25,052                 (30,520)     3,366,413
assets
                  -------        -------       -------           -------                 -------        -------
                  -------        -------       -------           -------                 -------        -------

TOTAL          125,328,413    299,215,426    20,896,550         8,314,952             (19,514,184)   434,241,157
ASSETS
                  =======        =======       =======           =======                 =======        =======
                  =======        =======       =======           =======                 =======        =======

LIABILITIES
Loans and        1,711,996     72,331,640     1,913,930            50,112                       -     76,007,678
advances from
banks
Securities     6, 827, 000     19,634,063    10,755,200                 -                       -     37,216,263
sold under
agreements to
repurchase
Customer        49,212,509     93,237,189     4,647,984         1,293,576                       -    148,391,258
accounts
Debt                     -     95,831,580             -           769,835                       -     96,601,415
securities
issued
Subordinated             -      6,877,950     1,802,300                 -                       -      8,680,250
debt
Other              145,065      2,680,657       629,843                 -                       -      3,455,565
borrowed
funds
Derivative             801              -             -                 -                       -            801
financial
instruments
Dividends              374              -             -                30                       -            404
payable
Interest           361,032      4,742,751        96,575               976                       -      5,201,334
accrued on
interest
bearing
liabilities
Other            4,745,183      1,143,509        19,720            11,226              (2,483,034)     8,402,672
liabilities         -------        -------       -------           -------                 -------        -------

TOTAL           63,003,960   296, 479,339    19,865,552         2,125,755              (2,483,034)   383,957,640
LIABILITIES         =======        =======       =======           =======                 =======        =======

OPEN BALANCE    62,324,453      2,736,087     1,030,998         6,189,197
SHEET               =======        =======       =======           =======
POSITION





Derivative financial instruments

Fair value of the derivatives are included in the currency analysis presented
above and the following table presents further analysis of currency risk to
types of derivative contracts as of 31 December 2003:

      DERIVATIVE          KZT            USD           EUR       Other currency       Allowance for         2003      
      FINANCIAL                      USD1= KZT      USD1= KZT                            losses             Total     
     INSTRUMENTS                       144.22         180.23                                                          

   Accounts payable    (143,780)    (14,037,219)            -       (3,012,413)                   -   (17,193,412)    
   on forwards                                                                                                        
   Accounts             388,595      10,886,734     2,072,645        3,860,036                    -    17,208,010   
   receivable on                                                                                                     
   forwards                                                                                                        
   NET DERIVATIVE       244,814      (3,150,485)    2,072,645          847,623                    -                     
   FINANCIAL                                                                                                       
   INSTRUMENTS        
   POSITION                                                                                                        
   TOTAL OPEN        62,569,268        (414,398)    3,103,643        7,036,820                    -
   POSITION        

                          KZT            USD           EUR       Other currency       Allowance for         2002      
                                     USD1= KZT      USD1= KZT                            losses             Total     
                                       155.85         162.46                                                          
   ASSETS                                                                                                         
   Cash and balances  8,613,309       9,734,538      666,027          380,897                    -     19,394,771   
   with national                                                                                                     
   (central) banks                                                                                                    
   Loans and            121,773      41,043,691      470,545        1,939,271             (170,158)    43,405,122   
   advances to                                                                                                      
   banks, net                                                                                                       
   Trading            8,733,946      12,297,544        1,848                -                    -     21,033,338   
   securities                                                                                                       
   Loans to          41,681,084     131,649,095    5,595,330           92,890          (14,016,382)   165,002,017  
   customers, net                                                                                                     
   Investment         5,539,019          17,031            -               36                    -      5,556,086   
   securities                                                                                                       
   Securities         2,311,517               -            -                -              (46,260)     2,265,257   
   purchased under                                                                                                    
   agreement to                                                                                                     
   resell                                                                                                         
   Derivative             7,000               -            -                -                    -          7,000     
   financial                                                                                                       
   instruments                                                                                                      
   Investments in       285,917               -            -                -                    -        285,917    
   associates                                                                                                       
   Fixed assets, net  3,428,847               -            -           18,766                    -      3,447,613   
   Intangible           592,880               -            -           15,697                    -        608,577    
   assets, net                                                                                                      
   Interest accrued   4,578,959       5,757,876      202,733              521                    -     10,540,089   
   on interest                                                                                                      
   bearing assets                                                                                                     
   Other assets       2,415,591         758,515       85,716            8,774              (53,085)     3,215,511   

   TOTAL ASSETS      78,309,842     201,258,290    7,022,199        2,456,852          (14,285,885)   274,761,298  

   LIABILITIES                                                                                                      
   Loans and          1,191,548      48,712,442    3,055,794        1,568,471                    -     54,528,255   
   advances from                                                                                                     
   banks                                                                                                         
   Customer accounts 35,859,377     100,395,367    1,318,849          838,695                    -    138,412,288  
   Debt securities            -      29,799,896            -                -                    -     29,799,896   
   issued                                                                                                         
   Other borrowed       130,544       3,733,705      682,710                -                    -      4,546,959   
   funds                                                                                                         
   Derivative             2,203               -            -                -                    -          2,203     
   financial                                                                                                       
   instruments                                                                                                      
   Dividends payable       374               -             -              32                     -            406      
   Interest accrued    792,656       2,914,725        52,724           3,278                     -      3,763,383   
   on interest                                                                                                      
   bearing                                                                                                        
   liabilities                                                                                                      
   Other liabilities 2,391,300         934,572           552          11,423             2,210,711      5,548,558   
   Subordinated debt         -       4,387,722     1,624,600               -                     -      6,012,322   

   TOTAL LIABILITIES 40,368,002    190,878,429     6,735,229       2,421,899             2,210,711    242,614,270  

   OPEN BALANCE      37,941,840     10,379,861       286,970          34,953                                           
   SHEET POSITION                                                                                                     



Derivative financial instruments

The fair value of the derivatives are included in the currency analysis
presented above and the following table presents further analysis of currency
risk to types of derivative contracts as of 31 December 2002:

      DERIVATIVE           KZT             USD            EUR       Other currency     Allowance for        2002     
       FINANCIAL                      USD1=KZT155.85     USD1=KZT                          losses           Total     
      INSTRUMENTS                                         162.46                                                      

  Accounts payable on        -          (3,117,000)     (487,380)           -                 -          (3,604,380)  
  forwards                                                                                                       
  Accounts receivable   3,124,000          485,177           -              -                 -           3,609,177   
  on forwards                                                                                                      
  NET DERIVATIVE        3,124,000       (2,631,823)     (487,380)           -                                         
  FINANCIAL                                                                                                      
  INSTRUMENTS                                                                                                     
  POSITION                                                                                                       
  
  TOTAL OPEN POSITION  41,065,840        7,748,038      (200,410)        34,953                                       



Market Risk

Market risk is the risk that the value of a financial instrument will fluctuate
as a result of changes in market prices whether those changes are caused by
factors specific to the individual security or its issuer or factors affecting
all securities traded in the market. The Bank is exposed to market risks of its
products which are subject to general and specific market fluctuations.


The Bank manages market risk through periodic estimation of potential losses
that could arise from adverse changes in market conditions and establishing and
maintaining appropriate stop-loss limits and margin and collateral requirements.
With respect to undrawn loan commitments the Bank is potentially exposed to a
loss of an amount equal to the total amount of such commitments. However, the
likely amount of a loss is less than that, since most commitments are contingent
upon certain conditions set out in the loan agreements.


Credit risk

The Bank is exposed to credit risk which is the risk that one party to a
financial instrument will fail to discharge an obligation and cause the other
party to incur a financial loss.


Risk management and monitoring is performed within set limits of authority, by
the Credit Committees and the Bank's Commercial Directorate. Before any
application is made by the Credit Committee, all recommendations on credit
processes (borrower's limits approved, or amendments made to loan agreements,
etc.) are reviewed and approved by the branch risk-manager or the Risk
Management Department. Daily risk management is performed by the Head of Credit
Departments and Branch Credit Divisions.


The Bank structures the level of credit risk it undertakes by placing limits on
the amount of risk accepted in relation to one borrower, or groups of borrowers,
and to industry (and geographical) segments. Limits on the level of credit risk
by a borrower and a product (by industry sector, by region) are approved monthly
(quarterly) by the Management Board. The exposure to any one borrower including
banks and brokers is further restricted by sub-limits covering on and
off-balance sheet exposures which are set by the Credit Committee. Actual
exposures against limits are monitored daily.



Where appropriate, and in the case of most loans, the Bank obtains collateral
and corporate and personal guarantees but a significant portion is personal
lending, where no such facilities can be obtained. Such risks are monitored on a
continuous basis and subject to annual or more frequent reviews.


Commitments to extend credit represent unused portions of credit in the form of
loans, guarantees or letters of credit. The credit risk on off-balance sheet
financial instruments is defined as a probability of losses due to the inability
of a counterparty to comply with the contractual terms and conditions. With
respect to credit risk on commitments to extend credit, the Bank is potentially
exposed to a loss in an amount equal to the total unused commitments. However,
the likely amount of the loss is less than the total unused commitments since
most commitments to extend credit are contingent upon customers maintaining
specific credit standards. The Bank applies the same credit policy to the
contingent liabilities as it does to the balance sheet financial instruments,
i.e. the one based on the procedures for approving the grant of loans, using
limits to mitigate the risk, and current monitoring. The Bank monitors the term
to maturity of credit commitments because longer term commitments generally have
a greater degree of credit risk than short-term commitments.



Geographical concentration

The ALMC exercises control over the risk in the legislation and regulatory arena
and assesses its influence on the Bank's activity. This approach allows the Bank
to minimize potential losses from the investment climate fluctuations in the
Republic of Kazakhstan. The Bank's Commercial Directorate sets up country
limits, which mainly applies to banks of the Commonwealth of Independent States
and Baltic countries.


The geographical concentration of assets and liabilities is set out below:

                    OECD      Other non-OECD countries         Allowance              2003
                 countries                                    for losses             Total

ASSETS
Cash and                 -                  28,484,613                 -        28,484,613
balances with
national
(central)
banks
Precious           300,158                           -                 -           300,158
metals
Loans and       18,975,185                  20,022,225          (414,586)       38,582,824
advances to
banks, net
Trading         25,748,751                  45,452,108                 -        71,200,859
securities
Investment               -                     169,926                 -           169,926
securities
Securities             538                   2,607,780                 -         2,608,318
purchased
under
agreement to
resell
Loans to         9,057,608                 293,073,913       (19,069,078)      283,062,443
customers,
net
Derivative               -                      15,399                 -            15,399
financial
instruments
Investments              -                     146,206                 -           146,206
in
associates
Fixed assets,            -                   5,867,947                 -         5,867,947
net
Intangible               -                     436,051                 -           436,051
assets, net
Other              996,797                   2,400,136           (30,520)        3,366,413
assets             ---------                   ---------         ---------          --------

TOTAL           55,079,037                 398,676,304       (19,514,184)      434,241,157
ASSETS             =========                   =========         =========          ========

LIABILITIES
Loans and       47,533,427                  28,688,492                 -        76,221,919
advances from
banks
Securities      30,417,589                   6,833,086                 -        37,250,675
sold under
agreements to
repurchase
Debt            96,516,346                   1,717,020                 -        98,233,366
securities
issued
Subordinated     4,683,221                   4,049,693                 -         8,732,914
debt
Customer         7,970,186                 143,619,230                 -       151,589,416
accounts
Other                    -                   3,525,473                 -         3,525,473
borrowed
funds
Derivative               -                         801                 -               801
financial
instruments
Other              100,815                   5,818,823         2,483,034         8,402,672
liabilities
Dividends                -                         404                 -               404
payable            ---------                   ---------         ---------          --------

TOTAL          187,221,584                 194,253,022         2,483,034       383,957,640
LIABILITIES        =========                   =========         =========          ========

NET BALANCE   (132,142,547)                204,423,282
SHEET              =========                   =========
POSITION





                  OECD       Other non-OECD countries         Allowance              2002
                countries                                    for losses             Total

ASSETS
Cash and        5,727,509                  13,667,262                 -        19,394,771
balances with
national
(central)
banks
Loans and      35,877,084                   7,744,217          (170,158)       43,451,143
advances to
banks, net
Trading         2,425,106                  18,854,005                 -        21,279,111
securities
Investment              -                   5,556,295                 -         5,556,295
securities
Securities              -                   2,313,035           (46,260)        2,266,775
purchased
under
agreement to
resell
Loans to          206,583                 189,058,384       (14,016,382)      175,248,585
customers,
net
Derivative              -                       7,000                 -             7,000
financial
instruments
Investments             -                     285,917                 -           285,917
into
associates
Fixed assets,           -                   3,447,613                 -         3,447,613
net
Intangible              -                     608,577                 -           608,577
assets, net
Other           2,592,837                     675,759           (53,085)        3,215,511
assets             --------                    --------          --------          --------

TOTAL          46,829,119                 242,218,064       (14,285,885)      274,761,298
ASSETS             ========                    ========          ========          ========

LIABILITIES
Loans and      41,146,350                  13,516,517                 -        54,662,867
advances from
banks
Debt           30,316,786                           -                 -        30,316,786
securities
issued
Subordinated    4,729,429                   1,330,980                 -         6,060,409
debt
Customer        6,118,270                 135,253,705                 -       141,371,975
accounts
Other                   -                   4,651,066                 -         4,651,066
borrowed
funds
Derivative              -                       2,203                 -             2,203
financial
instruments
Other              95,855                   3,241,992         2,210,711         5,548,558
liabilities
Dividends               -                         406                 -               406
payable            --------                    --------          --------          --------

TOTAL          82,406,690                 157,996,869         2,210,711       242,614,270
LIABILITIES        ========                    ========          ========          ========

NET BALANCE   (35,577,571)                 84,221,195
SHEET              ========                    ========
POSITION









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