DEVELOPMENT BANK OF KAZAKHSTAN JSC RISK MANAGEMENT SYSTEM

RISK MAMAGEMENT SYSTEM. RISK MANAGEMENT SYSTEM Relevant structural departments ensure continuous improvement of the risk management system, independent assessment and monitoring of risks. The Internal Audit Service assesses the adequacy and effectiveness of risk management and internal control systems and provides recommendations for improvement of activities of the Development Bank. RISK MAMAGEMENT SYSTEM. Risk management in the Development Bank is an integral part of the corporate culture of the Development Bank and plays an important role in making strategic decisions. Risk management is carried out at all levels in accordance with the recommendations of Basel II agreement and requirements of the national regulator. Risk management structure When building a corporate risk management system, the Development Bank is guided by the following principles: The Board of Directors of the Development Bank approves the main policies and regulations that govern the risk assessment and management process in the Development Bank, and the Risk Management Committee established under the Board of Directors assists the Board of Directors in exercising its supervisory functions over the operation of an adequate and effective risk management system in the Development Bank. • creation and protection of the equity value – effective risk management allows the Bank to create and protect the equity value in order to achieve strategic and current goals; • inherence in all organizational processes – risk management is an integral part of all organizational processes and is the responsibility of each structural department or employee of the Development Bank; The following three main executive committees are engaged in management of risks, assets and liabilities in the Development Bank: • inherence in a decision-making process – risk management assists in making informed decisions and prioritizing actions; • work with uncertainty – risk management process is used to reduce the level of uncertainty, determine the nature of such uncertainty and take measures to reduce the level of uncertainty; • Assets and Liabilities Management Committee (ALMC); • Credit Committee; • Investment Committee.

Board of Directors and collegial bodies of the Board of Directors 3 RISK MANAGEMENT SYSTEM Board of Directors and collegial bodies of the Board of Directors Management Board and collegial bodies of the Management Board Risk management divisions of the Bank Internal Audit Service Other structural divisions of the Bank • systematic, structured and timely manner – a systematic, structured and timely risk management approach contributes to enhancement of efficiency and forms reasonable confidence in the results; • awareness – input data for the risk management process is based on the best available sources of information. Participants of the corporate risk management system shall understand and consider the limitations and disadvantages of the input data quality; • adaptability – risk management approaches shall correspond to the level of risk of the external and internal environment; • transparency and complexity – risk management approaches shall be open, transparent and accessible to all participants of the corporate risk management system. Risk management approaches shall be comprehensive and integrated; • responsiveness and iterativeness – risk management is a continuous and iterative process tracking changes and responding quickly to changes; • continuous improvement – risk management shall be used to improve all the processes of business activity. The Development Bank is constantly improving its corporate risk management system. For the purposes of its activities, the Development Bank groups risks as follows. The activities of the Development Bank are exposed to major risks associated with the lending process, unfavorable fluctuations in the exchange rate and interest rates, etc. page

Standard & Poor’s international rating agency. RISK MANAGEMENT SYSTEM The Memorandum on the Credit Policy of the Development Bank provides for a multi-stage system of making decisions by collegial authorized bodies (the Credit Committee, the Management Board, the Board of Directors) to grant credit instruments depending on the size of a credit instrument. The Development Bank is exposed to market risks associated with open positions in interest rates and currencies, mismatch of maturity of assets and liabilities that are exposed to a risk of change in market conditions. Market risk management is carried out in the Development Bank through periodic evaluation of potential losses resulted from adverse changes in the market conditions as well as establishment and The Development Bank carries out constant monitoring of each loan status and regular analysis of the financial condition and solvency of its borrowers. Credit risk revaluation procedures are based on the analysis of borrower’s financial statements, the progress of implementation of investment projects, export operations, leasing transactions and other project information. maintenance of adequate restrictions on the amount of permissible losses and requirements for the rate of profit. The Management Board and the ALMC are a collegial body of the Development Bank responsible for the market risk management. A credit risk is a risk of financial losses arising as a result of failure of a borrower or counterparty to fulfill its obligations to the Development Bank. The Development Bank has developed a set of internal regulations and established procedures for credit risk management, including requirements for establishment and observance of the loan portfolio concentration limits. In order to measure a credit risk, the Development Bank has implemented and uses a model for calculating the internal rating of borrowers based on the methodology adopted by Besides the analysis of individual borrowers, responsible structural departments carries out an overall assessment of the loan portfolio in terms of the loan concentration. The Development Bank pays special attention on an ongoing basis to the analysis and control of all of its risks that could affect the achievement of long-term strategic goals and key performance indicators of the Development Plan approved by the Board of Directors. Standard & Poor’s international rating agency. page 4

RISK MANAGEMENT SYSTEM A risk mitigation plan is developed and approved as part of the risk management system with the aim to eliminate the causes of risk occurrence and mitigate the consequences in case of occurrence of risk events. A register and matrix of risks and controls of the Development Bank’s business processes are subject to a mandatory review and updating procedure on an annual basis. A risk ap is developed on the basis of the risk matrix. page 5

Key changes in the risk methodology in 2016 RISK MANAGEMENT SYSTEM Key changes in the risk methodology in 2016 • A project was implemented jointly with the consultants for the analysis of discrepancies (GAP analysis), impact analysis and planning of the implementation of transition to IFRS 9. • 31.10.2016 – approval of amendments to the Resolution of the Government of the Republic of Kazakhstan No. 250. Pursuant to the amendments, the following threshold values of the Bank’s financial stability parameters were approved: Taking into account the dynamics of changes in the assets structure of the Bank and plans for the development of its lending activities, the Development Bank carries put works on a constant basis to optimize and improve the risk management system. In particular, taking into account the increase in a share of the interbank lending portfolio in 2016, the Development Bank expects that an expanded competence on the analysis of second-tier banks and an early warning system for interbank lending will be introduced in 2017. – CAR 1:8 %; – CAR 2:10 %; – Level of debt burden: 7 to 1. • Pursuant to the decision of the Board of Directors of the Bank No. 189-2016-13 dated December 21, 2016, amendments were introduced in the Financial Risk Management Rules of the Bank with regard to the conceptual framework, terms of approval of individual risk indicators and risk reporting templates. More detailed information on the Development Bank’s risk management is reflected in the Note to the consolidated financial statements of the Bank. • Pursuant to the resolution of the Management Board of the Bank No. 33/16 dated June 28, 2016, the Development Bank approved the groups of similar financial assets of its loan portfolio in accordance with the Methodology for calculation of provisions (reserves) as required by the International Financial Reporting Standards. РИСКИ БАНКА ВНЕШНЯЯ СРЕДА ВНУТРЕННЯЯ СРЕДА ФИНАНСОВЫЕ НЕФИНАНСОВЫЕ Кредитный риск Риск потери ликвидности Операционные риски Риск концентрации Валютный риск Риск кривой доходности Отраслевой риск Процентный риск Фондовый риск Бизнес риск Правовые риски Риск на группу контрагентов Стратегические риски page 6