PASHA_BANK_ANNUAL REPORT 2022

23 PASHA Bank 2022 Annual Report General Information Information on Management and Corporate Governance Principles Financial Information and Risk Management Review To reduce the effect of sanctions announced by other countries, Russian government implemented capital controls and Russian Central Bank increased policy interest from 9.5% to 20%. Additionally, limits were applied for foreign individuals and legal entities to sell Russian securities and a decision was taken which makes exporter companies to sell 80% of foreign currency assets to the Central Bank. EU countries agreed to reduce majority of oil imports from Russia until the end of 2022. While activities were conducted to decrease European Union’s dependency on Russian oil, financial assets of Russian oligarchs were frozen. Russia made arrangements to accept natural gas payments in ruble starting on 1 April, as a response to sanctions against itself. Losing approximately 60% in the first week of March, ruble regained its value in the following weeks and completed March at a value which was equal to pre-war period. No net results were achieved from peace discussions between Russia and Ukraine. In 2022, energy and commodity prices which increased by the effect of war between Russia and Ukraine caused a global increase in inflation. Central banks of developed countries realized interest increases at record levels to fight against high inflation. Precautions in accordance with China’s zero-Covid policy continued to put pressure on the economic activity. Growth expectations were revised downward due to both continuing increase in inflation and supply problems because of quarantine measures in China. Global growth is expected to be 3.2% in 2022. Global PMI data at the end of 2022 points out to an evident loss in acceleration of the economic activity. Moreover, moderate improvement of global inflation indicators, in line with easing of prices of commodity, primarily energy, supports expectations on central banks to slow down their tightening steps in their monetary policies in 2023. It is anticipated that the world economy will increase by 2.5% in 2023. US Central Bank (Fed) increased interests at its consecutive 7 meetings, except for its first meeting in January, by 425 base points and increased its policy interest which was at 0%-0.25% to 4.25%-4.50% range which is the highest level since 2007. At its meeting in December, Fed slowed down in policy interest increase speed, parallel with expectations. We anticipate that Fed will continue interest increases in 2023 to achieve the inflation target of 2%. In USA, inflation took a high course in 2022 due to continuing increase in food prices caused by rapid increase in natural gas prices. In June annual consumer price index inflation was 9.1%, the highest level for the last 41 years. At the second half of the year, though keeping its high course, inflation improved and decreased back to 7.1% in November. US economy shrank by 1.6% in the first quarter of 2022 despite growth expectations. Net exports which limits growth has a determinant role in the country economy’s shrinkage. Despite growth expectations in the second quarter, the economy of the country shrank by 0.6% parallel to investment spendings and the fast decline in inventories. After the shrinkage in the first two quarters, US economy completed the third quarter of 2022 with a 3.2% growth beyond expectations and technically came out of recession. Constriction in foreign trade deficit had the greatest contribution to growth performance which exceeded expectations since 1980.