"Best Bank in Macedonia 2004", awarded by Global Finance. Bank of the Year 2004, awarded by "The Banker"

Transcription

1 KOMERCIJALNA BANKA A.D. SKOPJE ANNUAL REPORT 2004

2 "Best Bank in Macedonia 2004", awarded by Global Finance Bank of the Year 2004, awarded by "The Banker"

3 CONTENTS Financial highlights Letter of the Managing Body Bank's Profile Bank's objectives in Economic conditions in 2004 and projections for Review of the Bank's Operation Financial performance Risk management Corporate banking International banking Liquidity management Trading with securities Retail banking Cards operations Domestic payment operations Information technology Marketing activities Human resources Auditors Report Board of Directors Management Organizational chart Bank's network of branches and city-branches

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5 FINANCIAL HIGHLIGHTS (in thousand MKD) Data on the profit realized (for the year) Profit before taxes 742, ,107 Net profit 700, ,332 Data from the Balance Sheet (as at the end of the year) Total assets 33,294,554 30,058,001 Loans and advances approved to other clients 11,853,237 10,010,684 Placements with and borrowings to other banks 14,556,464 12,128,128 Financial investments 847,291 1,764,291 Deposits from banks and other financial institutions 254, ,867 Deposits from other clients 27,569,727 24,409,771 Capital and reserves 3,892,347 3,340,625 Profitability ratios Return on assets (ROA) - before taxation 2.2% 0.7% - after taxation 2.1% 0.6% Return on equity (ROE) - before taxation 19.1% 6.3% - after taxation 18.0% 5.9% Expenses ratio 30.3% 24.3% Capital and reserves to total assets 11.7% 11.1% Capital adequacy 15.0% 15.8% Mid exchange rate as per the exchange rate list of the Central Bank MKD 1 EUR USD

6 LETTER OF THE MANAGING BODY Dear Shareholders, business partners and clients, It is our pleasure to present you the Annual Report of Komercijalna Banka A.D. Skopje for 2004 and the results we have achieved in a macroeconomic ambient characterized by a modest actual growth of the gross domestic product, high level of trade deficit, extremely low inflation, which, in the second part of the year transformed into deflation and a high unemployment rate. Fully engaging in all segments of operation, the Bank succeeded to realize the priority aims and objectives of the Business Policy Measures and Activities of the Bank for 2004, set for the purpose of strengthening the place and rating reached in the country and abroad. The Bank has improved the quality of the credit portfolio by proper application of the supervision standards at assessment of the credit risk and lowered the percent of bad loans. The concept of corporative management was properly implemented. The Brokerage Company "KB Broker" merged with the Bank as a separate organizational unit performing the activities in the domain of trading with securities at the Macedonian Stock Exchange. The Bank continued to expand its business network in order to make the services closer to its clients. Dear Madams/Sirs, Komercijalna Banka A.D. Skopje ended the year with a positive financial result. The gross profit realized in 2004 is million denars and it is for 3.5 times higher than the profit realized in The profit so realized is considerably affected by the returned funds regarding the dispute with the Public Revenue Administration Department under the judgment of the Supreme Court of the Republic of Macedonia in the amount of million denars, the released provisioning after sale of RZ Valavnica AD Skopje to 6

7 L.N.M Holdings N.V in the amount of million denars etc. The net profit of the Bank for 2004 is million denars, which is also for 3.5 times higher than the profit realized in The capital adequacy is 15.0%. The Return on Assets (ROA) ratio is 2.1%, and the Return on Equity (ROE) ratio is 18.0% and they are much higher compared to The total potential of the Bank is 33.3 billion denars and it is increased for 11% compared to the end of The deposit base covering 77.8% of the total resources is increased for 12% compared to the previous year, whereas the deposits of citizens are increased for 15%, and the deposits of legal entities are increased for 8%. The short-term placements take 78.1% of the total assets and they are increased for 10% in respect to 2003, while the long-term placements, which realized an increase of 16%, take 21.9% of the total placement of the Bank. We got international recognition for the results achieved. Namely, the Bank is for the third time the winner of the reward "Bank of the Year 2004" awarded by the renowned bank magazine "The Banker", as well as the reward for the best bank in Macedonia for 2004, awarded by the New York magazine Global Finance. We achieved these results with exclusively professional and qualitative engagement of the members of the Board of Directors, the management and all employees of the Bank, to whom we would like to express our gratitude. We would also like to express our gratitude to you, dear shareholders, business partners and clients, for the trust and support you gave us in the course of the year is a new challenge to us. The team we have and your support give us the right to believe that this year shall also be one of the many successful years, a year in which we shall achieve the goals set. Yours truly, MANAGING BODY GENERAL MANAGER Lazar Cvetkovski, MA FIRST GENERAL MANAGER Hari Kostov 7

8 BANK'S PROFILE Komercijalna Banka A.D. Skopje is one of the leading banks in the Republic of Macedonia, whose results were internationally recognized in several occasions. It is a triple winner of the prestigious reward "Bank of the Year 2001", "Bank of the Year 2002" and "Bank of the Year 2004" awarded by renowned banking magazine "The Banker", as well as winner of the reward for the best bank in Macedonia for 2004, awarded by the New York magazine Global Finance. The Bank was established in 1955 under the name of Komunalna Banka of the city of Skopje, specialized for citizens' savings, housing loans to citizens and enterprises and financial support to construction of municipalities. As the time was passing by, the Bank was undergoing several transformations characteristic for the banking system in the region. In 1990, the Bank was transformed into a joint stock company under the name of Komercijalna Banka A.D. Skopje and is constantly engaged in extension of its operations. Today, Komercijalna Banka A.D. Skopje is a universal bank with wide range of activities, such as taking deposits, lending to legal entities and individuals, services in the domestic and international payment operations, intermediating activities in purchase and sale of foreign currency, securities, forfeiting etc. Through the wide network of 7 city-branches and 40 branches, out of which 29 located in the city of Skopje and others throughout the country, as well as correspondent relations established with over 600 banks throughout the world, the Bank provides fast and efficient services to its clients. At the end of 2004, the equity capital of the Bank was comprised of 365,283 ordinary shares with nominal value of MKD 5, per share and 187,652 preferred shares with nominal value of MKD 1, per shares. 90.9% of the total equity capital of the Bank is dominantly private capital owned by 4,223 shareholders, out of which 566 legal entities own 76.1% of the equity capital, and the rest of 23.9% is ownership of 3,657 individuals. The largest shareholders holding over 2% of the equity capital of the Bank are total ten companies, which, altogether participate with around 35% in the equity capital. The Bank's shares are listed on the official market of the Macedonian Stock Exchange and are included in the calculation of the Macedonian Stock Exchange index. 8

9 OBJECTIVES OF THE BANK IN 2005 The objectives Komercijalna Banka A.D. Skopje will endeavor to achieve in 2005 mainly derive from the priority aims and objectives of the Bank's Business Policy defined in its five-year development plan, such as: 1. Maintenance of the capital value and its increase; 2. Maximizing profitability from operation by undertaking acceptable risks; 3. Increase of the Bank's share at the banking market in the Republic of Macedonia; 4. Continuous improvement of the organization of operation and adjustment of its strategic aims and objectives with the law regulations; 5. Human resources management that will provide higher quality level of its services; 6. As a bearer of the domestic payment operations, the Bank shall be actively engaged in implementation of solutions that will provide fast and qualitative services to the clients; 7. Development of its marketing activities; 8. Development and improvement of its IT; and 9. Successful and timely compliance with the law regulation on reforming the financial - banking system of the Republic of Macedonia. The priority aims and objectives in 2005 shall be based on the Macroeconomic Policy of the Government of the Republic of Macedonia, the aims and objectives of the Central Bank's Monetary Policy for 2005 and other law regulations and Bank's by-laws, adhering to the principles of modern banking (liquidity, safety and profitability), compliance with the regulations in the sphere of economy and the local and international events, flexible adjustment of the Bank with the clients' needs and complete adherence to the financial and monetary-credit discipline in execution of the undertaken obligations towards its business partners. 9

10 ECONOMIC CONDITIONS IN 2004 AND PROJECTIONS FOR The activities of Komercijalna Banka A.D. Skopje were carried out in accordance with its Business Policy Measures and Activities for 2004 and within the frames of the aims and objectives of the Central Bank's Monetary Policy as well as the macroeconomic conditions characteristic for the Republic of Macedonia. The process of applying new provisions for liberalization of the trade arising from the obligations undertaken with the admission of the Republic of Macedonia in the World Trade Organization was commenced at the beginning of the year, in accordance with the executed Temporary Agreement with the European Union. The project for issuance of the first governmental bills was realised in this period, arising from the need of enlarging the sources for financing the budget deficit, encouraging development of the financial markets in the Republic of Macedonia and diversification of securities portfolio as well. Preparation of adjustment of the Macedonian legislation with the legislation of the European Union commenced upon submission of the application for membership in the European Union, in March Successful realization of the latest Stand-by Arrangement provided further cooperation of the Republic of Macedonia with IMF and the World Bank. The possibility for concluding a new long-term arrangement was considered during the official negotiations between the Government of the Republic of Macedonia and the IMF mission in October, regarding the realization of deeper structural reforms for achievement of satisfactory and sustainable economic growth and decrease of unemployment, first of all in the domain of legislation, health care and labour market. Last year, the Republic of Macedonia got the first international credit rating BB+/B from the internationally ranked company for credit rating determination and monitoring, Standard & Poor's. The credit rating is supported by the macroeconomic stability, moderate level of external debt, the process towards political stability and possibility for membership in the European Union. Macroeconomic movements in 2004 were expressed through extremely low inflation which in the second half of the year turned into deflation and, when 10

11 measured by the index of living costs I-XII2004/XII2003, it is -1.5%; the high fall of the industrial production at the beginning of the year and the expressed monthly oscillations, being a strong negative shock to the Macedonian economy, made the growth rate of the industrial production -12.7% in December 2004; the real growth of the gross domestic product is prospected to be from modest 2% to 2.5% compared to the projections of 4.0%; the trade deficit continued to grow and reached the record-breaking 1.2 billion American dollars in spite of the higher growth of the export which is 22.4%. The average salary paid out shows an increase of 4.8%, and actually the net salary shows an increase of 6.8%. The monetary policy was run in an ambient of restrained budget expenditure and large decrease of the public investments in conditions when the private investment are still absent. Despite the great shocks at the oil market characterizing the year 2004, there were favourable movements on the foreign exchange market, followed by active intervention of the Central Bank, which in combination with the setting of the monetary instruments resulted in stability of the nominal foreign exchange rate of the denar in terms of the euro currency. Gross foreign currency reserves show increase, whereas in conditions of netsale of the foreign currency funds by the Central Bank on the foreign exchange market and net-outflow from the foreign currency account of the state in terms of maintaining the level of the gross foreign currency reserves, the high foreign exchange gains and the inflows under interest on the foreign currency funds had influence. The unemployment rate in 2004 was still very high and reached 37.0%. In the course of 2004, the Central Bank made amendments to the interest rate policy which resulted in: decrease of the interest rate for the collateral loans from 14.0% to 11.0%, organizing auctions of treasury bills under the principle of "tender with amounts" and fixed interest rate with maturity of 28 days (after several increases the interest rate is 10%). At the same there were treasury bills introduced with maturity of 7 days and the interest rate, which after several increases is 7%. It caused favourable changes in the interest rate policy of banks and decrease of the average weighted interest rates. 2. In 2004, Komercijalna Banka A.D. Skopje, alike the other banks in the country, performed its activities in certain conditions characteristic for the banking sector. Within the frames of the financial sector there were certain amendments and supplements made to the existing regulations, for the purpose of creating a healthy, stable and safe banking system. In accordance with the recommendations of IMF the funds of the public funds in the business banks were transferred to the treasury account with the Central Bank. 11

12 The decisions made by the Central Bank in the domain of the monetary policy in 2004 referred to: loan collateral conditions and instruments for the loans used by the banks from the Central Bank, approving a short-term loan in final instance, increasing the rate of allocation of obligatory reserve which is allocated from denar and foreign currency deposits from 7.5% to 10%, as well as increasing the allowed daily utilization of the obligatory reserve by banks from 60% to 80%, creation of a credit register of all loans of banks approved to legal entities and individuals, provision of electronic systems for performing international payment operations and other regulations. Being fully engaged in all segments of its operation, Komercijalna Banka A.D. Skopje managed to realize the priority aims and objectives stipulated by the Business Policy Measures and Activities for 2004 and to achieve positive results. 12

13 REVIEW OF THE BANK'S OPERATION FINANCIAL PERFORMANCE Income Statement In 2004, the Bank had successfully carried out its function and achieved positive financial results. The gross profit realized was MKD 742,818 thousand, where the total income was MKD 4,256,435 thousand and the total expenses were MKD 3,513,617 thousand. Such a high volume of realised gross profit is a result of intensive activities of the Bank's management in realisation of the strategic determination for qualitative credit portfolio with acceptable risk, workout of problem claims, as well as collection of claims from Ladna Valavnica at initiative of its strategic investor and the funds refunded by the Ministry of Finance - Public Revenue Administration Department upon judgment of the Supreme Court of the Republic of Macedonia. The interest income under loans and other placements with clients participates with 42.4% in the total income structure. The net interest income showed a decrease of 6.0%, due to the new methodology applied in the interest rate policy with lowered and differentiated interest rates depending on the financial standing of companies. The net interest margin is 3.3%. The structure of the interest income is comprised of 54.3% interest under loans to and other placements with enterprises, 28.3% interest under lending to banks and financial institutions, 16.0% interest under loans approved to citizens and 1.4% interest under loans approved to governmental authorities. The income under collected interest previously written-off in 2004, showed a decrease of 9.1%. The net FX gains noted an increase of 61.3%. The structure of the total income is comprised of other operation income with 4.3% and they show a significant increase of 3.5 times as a result of recorded income under judgement made by the Supreme Court of the Republic of Macedonia. 13

14 The structure of the total expenses is mainly comprised of 41.6% FX losses, 41.3% other operation expenses and 15.4% interest expenses. The expenses for bad and doubtful claims show positive amount as a result of releasing of the special reserve, while the other operation expenses were are higher for 18.0%. The other operative expenses include the expenses for materials and services, administrative and marketing expenses, gross salaries of the employees and amortisation, which compared to the previous year, increased as a result of new procurements, reconstructions, adaptation and extension of the Bank's premises. Bank's Resources As at 31 December 2004, the total Bank's resources reached the amount of MKD 33,294,554 thousand, which, compared to the end of 2003, is an increase of 11% or MKD 3,236,553 thousand. The growth of the resources is mainly the result of increase of the citizens' deposits, demand FX deposits from legal entities, other short-term denar liabilities and liabilities under long-term FX loans. The dynamics of the total Bank's resources in 2004 was influenced by the participation of the resources of Prilep Branch with 6.9%, Ohrid Branch with 2.3%, Kumanovo Branch with 1.7%, Veles Branch with 1.4%, Stip Branch with 1.3%, Strumica Branch with 1.3% and Kocani Branch with 1.2% participation. 78.3% of the total resources structure belongs to short-term resources, showing an increase of 16%, compared to 75.3% participation at the end of Within the short-term resources, the denar ones show an increase of 10%, thus increasing their participation from 34.4% to 43.3%. An increase of 21% is also shown with the short-term foreign currency resources and in 2004 their participation in the total resources is 56.7%. The total short-term resources of the Bank are comprised of the short-term resources of branches, as follows: Prilep - 7.0%, Ohrid - 2.4%, Kumanovo - 2.2%, Veles - 1.8%, Stip - 1.7%, Strumica - 1.6% and Kocani - 1.5%. The long-term resources show a decrease of 3% and their participation in the total Bank's resources is 21.7%, compared to the participation of 24.7% in Within the long-term resources, long-term denar assets show a decrease of 5%, while the long-term foreign currency assets show a decrease of 10%. The decrease of the long-term denar assets was mainly due to the re-entering of the long-term foreign currency deposits of up to 1-year maturity on the accounts of short-term foreign currency deposits according to the Central Bank's Decision on adequate appliance of the accounts from the chart of accounts for the purpose of adjusting the data with all banks. 14

15 Total Bank's long-term assets also included the long-term resources of the branches as follows: of Prilep Branch with participation of 6.7%, Ohrid Branch - 1.6%, Veles Branch - 0.2%, Strumica Branch and Kocani Branch - 0.1% each and Stip Branch and Kumanovo Branch % participation each. The currency structure of the Bank's resources, as in the previous year, shows higher participation of the denar resources than the FX ones. Actually, the denar resources participate with 51.9% in the total resources, while the FX resources participate with 48.1%. 78.3% % The denar resources showed 4% increase compared to the ones at the end of the previous year as a result of the increase mainly of the short-term citizens' denar deposits. The dynamics of increase of the total Bank's denar assets was also influenced by the denar assets of the branches and their respective participation therein, as follows: 8.0% of Prilep Branch, 1.5% of Ohrid Branch, 1,4% of Stip Branch, 1.1% of Veles Branch, 0.9% of Kocani Branch, 0.7% of Kumanovo Branch and 0.6% participation of Strumica Branch. The foreign currency resources also showed increase of 20%, which is mainly a result of the increase of the short-term and long-term foreign currency deposits of citizens and increase of the short-term foreign currency deposits of legal entities. The participation of the foreign currency assets of the branches in the total Bank's foreign currency assets is as follows: Prilep - 5.7%, Ohrid 3.0%, Kumanovo - 2.8%, Strumica - 2.0%, Veles - 1.8%, Kocani 1.5% and Stip 1.3%. Bank's Assets The total Bank's assets in 2004 realized volume and dynamics adequate to the resources and reached the total amount of MKD 33,294,554 thousand. The total Bank's assets include the assets of branches in Prilep, Ohrid, Veles, Strumica, Kocani, Stip and Kumanovo. In the structure of the total assets, 78.1% belong to short-term placements showing an increase of 10%, as a result of the increase of the short-term foreign currency placements for 20%, while the short-term denar placements are decreased for 4%. The long-term placements realized growth of 16%, which increased their participation in the total placements of the Bank from 20.9% to 21.9% in Participation of the short-term placements of branches in the total placements of the Bank is as follows: Prilep Branch - 5.3%, Ohrid Branch - 2.3%, Kumanovo Branch - 2.2%, Veles Branch - 1.6% and the branches in Strumica, Kocani and Stip - 1.4% each. The currency structure of the total Bank's placements shows changes in terms of 2003, whereas the FX placements have higher participation than the denar % 24.7% Short-term Long-term % 48.1% % 44.6% Denar Foreign currency 15

16 78.1% % placements. Both denar and foreign currency placements show increase - the denar for 4% and the FX ones for 19%, compared to the end of As for the currency structure of the branches' placements, it can be noted that denar placements are predominant, while the foreign currency ones take minimal part. So, the denar placements of Prilep Branch participate with 13.9%, Ohrid Branch - 4.4%, Kumanovo - 3.5%, Veles - 2.9%, Stip - 2.7%, Strumica - 2.6% and Kocani - 2.3%. 79.1% % Short-term Long-term % 49.2% 47.5% % Denar Foreign currency 16

17 RISK MANAGEMENT The banking risk management is an essential element of the contemporary banking getting more actual in conditions of market-oriented economy. Successful risk management by their timely identification, adequate quantification and monitoring, proper limitation, timely and independent control is crucial for successful operation of each bank. In the course of 2004, Komercijalna Banka A.D. Skopje continued its determination for continuous risk monitoring and risk management. The Risk Management Committee is a separate body having primary duty and responsibility to establish policy and procedures for identification, measuring, control and monitoring of risks the Bank is faced to in its operation, as well as undertaking certain measures and activities for the purpose of managing thereof. Liquidity Risk In the course of 2004, the Bank continually followed and managed the liquidity as one of the basic banking principles, in accordance with the law and internal regulations. The liquidity risk was monitored on monthly basis, through information prepared and delivered to the Risk Management Committee. The liquidity risk is exercised through the denar and FX liquidity. In 2004, the Bank continually fulfilled the legal obligation for allocation of denar mandatory reserve, in accordance with the methodology and rate of allocation, defined by the Central Bank. The daily monitoring of the average statement of the Bank's account and the average statement of the total deposit money enables regular insight of the stability of these two categories, for the purpose of stable daily denar liquidity, which was provided by the Bank continuously. In the course of 2004, the Bank participated in the money market. The Bank was also active in subscribing treasury and governmental bills on its behalf and on behalf of its clients. The analysis of concentration of the deposit base of clients taking over 1% part in the demand deposit base and over 5% in the total time deposits, indicates that in 2004, the Bank did not have expressed concentration of the deposit base, which is an additional precondition for successful liquidity maintenance and management. Continuous monitoring of adjustment of inflows and outflows on the Bank's account, their oscillation and correlative dependence, indicates regular adjustment thereof and the ratios of correlation conditionality within normal values. 17

18 FX liquidity of the Bank is followed through fulfilment of the legal obligation for allocation of mandatory FX reserve, which was continually fully met by the Bank in 2004, in accordance with the methodology and allocation rate prescribed by the Central Bank. Monthly monitoring of the residual and prospected maturity structure of assets and liabilities of the Bank in denar and in foreign currency, is a base for maintenance and management of the Bank's liquidity. In 2004, the maturity of assets and liabilities provided stable current liquidity of the Bank. Solvency Risk The solvency defined as permanent ability of the Bank to service the liabilities is subject to continuous monitoring by making calculation of the guarantee capital according to the methodology prescribed by the Central Bank and the same was in accordance with the positive law regulations. Capital Adequacy The capital adequacy ratio showing the riskiness level of placements is monitored on three-month basis and it was in accordance with the limit prescribed by the law. Interest Risk The Decision on interest rates and the effects from its implementation to the Bank's Income Statement is a base for interest rate risk management. Continuously, the information on the interest risk was prepared on monthly basis, containing analysis of the interest bearing assets and liabilities, level of sensitivity on change of the interest rates, size of the interest bearing assets and liabilities with internal and external determination of interest rates, as well as other relevant indicators, on which basis the interest risk is being monitored and managed. Taking into account the principles of safety, profitability and competitiveness, in 2004 the Bank continued to implement the concept of differentiated interest rates in accordance with previously set criteria, as well as introducing new products in accordance with the needs and abilities of the existing and potential clients. Credit Risk In accordance with the Supervision Standards arising from the Banking Law and other by-laws, and based on the Credit Policy and Procedures of the Bank, the Credit Committee of the Bank is a body in charge of credit risk management. In the course of 2004, the Bank regularly, on quarterly basis, prepared classification of balance sheet and off-balance sheet items according to riskiness of placements. In 2004, the Bank maintained high quality credit portfolio asserted by the percent of 88.9% of placements classified in "A" and "B" categories. 18

19 The adequate sector and geographic dispersion of the credit risk being provided in the course of 2004 is an additional precondition for successful management thereof. Within the frames of the credit risk, the bank successfully managed the country risk as well, which refers to the credit exposure to foreign legal entities and individuals, arising from their residence country. The Bank managed to provide it through continuous monitoring, control and revision of the limits for credit exposure. In accordance with the Supervision Standards as at , the credit exposure to related parties (Managing Body, members of the Board of Directors and other bodies of the Bank and persons with special rights and responsibilities) was kept within the limits set by the law (up to 3% of the guarantee capital). FX Risk The Bank successfully managed the FX risk, which means regular monitoring and maintenance of open FX position within the legal frames of 50% for aggregate FX position, 30% for open FX position in EUR and 20% for other currencies. Despite the instable exchange rate of the American dollar, which in the course of 2004 was continually declining in terms of the euro currency and of the denar accordingly, the Bank ended the year with net FX gains of MKD 104,362 thousand, increased the total FX resources and maintained stable aggregate open FX position. Operative Risk In the course of 2004, the Bank continuously watched the operative risk and took appropriate measures to minimize it. The Bank continually watched the compliance of its operation with the law regulations and made respective adjustments accordingly. The compliance with the supervision standards was followed on quarterly basis. In the course of 2004, the Bank was continually complied with the supervision standards and informed the Risk Management Committee thereof. In 2004, the Bank continually implemented the Law on Money Laundering Prevention in all the segments of its operation and made some adjustments in accordance with the amendments. The compliance officers submitted prescribed reports to the Ministry of Finance Department for Money Laundering Prevention on regular basis. During the year, the Bank continually watched the operative risk in the credit card operation, compliance with and implementation of policies and procedures, information technology risk and other risks and took respective measures for removing or minimizing the effects therefrom. 19

20 CORPORATE BANKING In the course of 2004, Komercijalna Banka A.D. Skopje continued its activities in the domain of lending to customers - legal entities supporting their shortterm liquidity needs and financing profitable investment projects with longterm credit facilities. Corporate lending is the main activity of the Bank. The lending is conducted in accordance with the Bank's business policy, aims and objectives of the monetary and credit policy and other law regulations, strictly adhering to the principles of profitability, efficiency and safety of placements. The only aim in engaging the Bank's credit potential is profit maximization with acceptable risk level. The analyses for the credit risk and assessment of the creditworthiness of the applicant are bases of the credit approving process. Placements are secured with market instruments mostly used in the developed countries. As from January 1, 2004, the Bank has decreased the interest rates on loans approved from own resources. Keeping the concept of selective criteria for their use favouring the clients that settle the obligations towards the Bank on time, the interest rates go from 9% to 15% per annum. Komercijalna Banka A.D. Skopje is permanently striving to raise the quality and the number of types of services offered to its existing clients and making efforts to attract new clients by observing and meeting their needs. In 2004, 4 branches of the Bank performed lending activities to legal entities. Through its network throughout the country the Bank makes efforts to meet the needs of its clients on timely and efficient manner. In the course of the year, the Bank continually adjusted its acts regulating the lending operation with the amendments in the law regulations and passed several internal acts and criteria applied in the credit risk assessment procedure for the purpose of maximal protection of the funds deposited by the Bank's clients. At the end of 2004, the total placements of the Bank with legal entities were MKD 10,799,825 thousand. Maturity and currency structure of the Bank's credit portfolio for the past 2004 and 2003 are as follows: 20

21 Maturity and currency structure of the credit portfolio in 000 MKD Short-term loans 7,313,404 6,593,088 In denars 6,801,054 6,558,944 In foreign currency 512,350 34,144 Long-term loans 3,486,421 2,933,374 In denars 2,623,280 2,061,608 In foreign currency 863, ,766 Total 10,799,825 9,526,462 In 2004, out of the total approved loans to legal entities 67.7% are short-term, and 32.3% are long-term placements. As for the currency structure of the total credit portfolio, 87.3% are denar, and 12.7% are placements in foreign currency. In 2004, the growth of the credit portfolio of legal entities, compared to the previous 2003, is approximately 13%. This growth comes out from the growth of the long-term loans for 19% and increase of the short-term placements for 10.9%, having the highest percentage in the total placements with legal entities. Within the frames of the credit line for small enterprises - realised through the Macedonian Bank for Development Promotion in the course of 2004, 11 loans for fixed assets and for working capital were approved in the total amount of MKD 16,232 thousand. A project in the total amount of EUR 250 thousand was approved in 2004 for support of export activities of the Macedonian enterprises. In accordance with the Frame Agreement for participation in the Program for development of small and medium enterprises, the Bank approved 5 projects in the total amount of EUR 429 thousand. 6 loans in the amount of EUR 166 thousand were approved from the funds of the International Fund for Agriculture Development (IFAD 2) in the Republic of Macedonia. In the course of 2004, the Bank approved long-term FX loans from the credit lines of the following financial institutions: from the European Investment Bank - Luxembourg, three sub-loans approved in the total amount of EUR 2,551 thousand; 21

22 from the German credit line KfW through the Macedonian Bank for Development Promotion, approved and completely disbursed two sub-loans in the amount of EUR 400 thousand; from the Italian credit line through the Macedonian Bank for Development Promotion, approved and completely disbursed two sub-loans in the amount of EUR 2,200 thousand; The sector structure of the Bank's credit portfolio in 2004 was in accordance with the proportion set for risk diversification by sectors, in accordance with the Credit Policy. The larger participation is kept on by the manufacturing sector in the total amount of MKD 3,720,059 thousand, followed by trade and finance sector with MKD 2,622,802 thousand and the construction sector with MKD 1,707,218 thousand. Percentage of sectors in the total credit portfolio is as follows: 32.6% 23% % 15% 9.7% 6% 1.2 Sector structure of the credit portfolio Manufacturing Trade and finance Agriculture, forestry and fishing Construction Transport Catering and tourism Other 22

23 INTERNATIONAL BANKING Komercijalna Banka A.D. Skopje continues its strategy for participation at the international banking market initiated in the previous years, by focusing the attention towards its rating abroad and, at the same time, servicing the three business lines: the citizens, enterprises and the institutional investors, as well as the banking and financial institutions. As part of its permanent strive for efficiency, the Bank has strengthened its position at the international banking market by using new credit lines from renown international banks, improving the conditions in the international trade by prompt and qualitative execution of its operations, introducing new innovative financial products, improving the knowledge, as well as unification of the information system in accordance with the international banking market and the local law regulations. Komercijalna Banka has developed a network of correspondent relations with more than 600 banks throughout the world or in more than 70 countries. It is a leading bank in the Republic of Macedonia in the domain of international banking as a result of the permanent improvement and adequate organization of its personnel, the daily contacts and smooth communication in its domain of operation, placements with good performance as first-class offer of financial products and services. International payment operations The international payment operations are among the key activities of the Bank and, when considered by individual payment instruments, it shows an increase in terms of value, compared to 2003, as follows: Payment Orders increase in % 21% 13% Collection Payments 23

24 Letters of Credit increase in % 18% 95% Import Export Documents for collection 9% increase in % 50% Import Export Export-trade financing In the course of 2004, the Bank issued a significant number of Letters of Guarantee whose increase in value, compared to 2003, is as presented bellow: Letters of Guarantee increase in % 140% 19% 128% Payment L/G-s Performance bonds Export L/G-s

25 In 2004, Komercijalna Banka A.D. Skopje continued approving short-term foreign currency loans from its own resources. These loans are approved to Bank's clients that realize foreign currency inflows from their export-oriented production. Thus, in 2004, the Bank had placements in the total amount of EUR 4.58 million, which is 58% more than in 2003 when the placements were in the total amount of EUR 2.9 million. Within its range of attractive financial products, the Bank also offers forfeiting or discounted purchase of claims under financial instruments. The offered ways of financing means Bank's contribution to the support of the export of the Macedonian products. In 2004, the Bank provided financial support to the long-term investment projects with funds from credit lines approved by foreign banks and international financial organizations. The projects realized by this type of financing were in the total amount of EUR 5.15 million, which is a significant increase in regards to In this sense, Komercijalna Banka was given the award "the best bank in the development and financing of the trade in the Republic of Macedonia" for the performance use of its arrangement with EBRD. 25

26 LIQUIDITY MANAGEMENT In the course of 2004, Komercijalna Banka A.D. Skopje achieved optimal level of its denar and foreign currency liquidity, which enabled smooth realization of the legal obligations and the obligations towards its customers. The open foreign currency position for both the aggregate OFXP and OFXP by certain currencies was within the frames of the prescribed limits. The obligatory reserve in denars was continuously fulfilled by the Bank in a volume larger than the prescribed one, and the excess of liquid assets was placed in Central Bank's treasury bills, government bonds of the Ministry of Finance and borrowings to and deposits with other banks. The obligatory reserve in foreign currency was fulfilled by the Bank within the prescribed limits. Treasury bills with the Central Bank In accordance with the conditions for carrying out the Central Bank's treasury bills auctions and the Bank's policy for liquidity management, in 2004, the Bank was buying treasury bills on its behalf and for its account in the total amount of MKD 10,464,000 thousand, which is for 0.8% less than in 2003 when it realized the amount of MKD 10,552,584 thousand. The average daily statement of the subscribed treasury bills in 2004 was MKD 754,201 thousand, which is for 0.8% less, compared to 2003 when it was MKD 760,286 thousand. Interest income was MKD 59,167 thousand, which compared to the one of MKD 9,272 thousand in 2003, means realized increase of 18.6%. This growth of the interest income is as a result of the increase of the treasury bills interest rates realized in the course of In the course of the reported year the Bank was buying treasury bills on its behalf and for the account of the clients (legal entities and individuals) in the total amount of MKD 686,200 thousand and realized income of MKD 861 thousand under fees for the services provided. This type of transactions (for the account of the clients) were carried out until the end of April 2004 when by the Decision made by the Central Bank the right of the legal entities and individuals for participation in buying treasury bills was terminated. Government bills of the Ministry of Finance In the course of 2004, the Ministry of Finance and the Central Bank of the Republic of Macedonia started carrying out government bills auctions. Komercijalna Banka participated at these auctions on its behalf and for its account and realized a turnover of MKD 749,280 thousand. The interest income realized was MKD 13,941 thousand. 26

27 The average daily statement of government bills is MKD 163,050 thousand. At the same time the Bank was purchasing government bills on its behalf and for the account of clients (legal entities and individuals) and realized a turnover of MKD 992,950 thousand. The income realized under the fees for services provided was MKD 1,175 thousand. in 000 MKD 760, , ,050 0 treasury bills government bills Placements with other domestic and foreign banks In 2004, Komercijalna Banka took active participation at the Money Market in the Republic of Macedonia both as buyer and seller of free denar assets. The total turnover realized by the Bank in 2004 was MKD 3,366,000 thousand, or 34.2% of the total turnover realized at the Money Market, which, compared to 2003 when the Bank's share at the Money Market was 7.7%, means an increase of 26.5 percentage points. As it was the case in the previous years, in 2004, Komercijalna Banka also had continuous participation at the international Money Market. The average statement of the foreign currency assets placed with foreign banks in 2004 was EUR million. Compared to the average statement of these assets in 2003 when it was EUR million, these assets realized an increase of 1.3%. The interest income realized in 2004 was MKD 289,981 thousand and was for 7.0% higher than the one realized in

28 In the course of the reported period there was a significant increase of the interest rates of certain foreign currencies (CHF, USD), which had direct impact on the results achieved. Time foreign currencies with foreign banks in million EUR Furthermore, the Bank was an active and significant participant at different financial markets in the Republic of Macedonia Internal FX market The total turnover realized at the internal FX market of Komercijalna Banka A.D. Skopje was EUR million, which is for 20.3% more than the turnover realized in 2003 in the amount of EUR million. The income realized from the operation of the FX market amounted in MKD 99,599 thousand, which was an increase by 13.1%, compared to 2003 when the income was in the amount of MKD 88,063 thousand. There were 36,105 transactions realized, or 2.9% more than in Internal FX market of KB in million EUR % % KB's share in the total turnover of RM other banks The total turnover realized at the FX market of the Republic of Macedonia amounted in EUR 2, million (without the Central Bank's turnover). The share of Komercijalna Banka A.D. Skopje in the total turnover realized at the FX market in the country was 30.9%. 28

29 Purchase/sale of foreign currencies with international and domestic banks (FX transactions) Apart from the local financial markets, the Bank was an active participant at the international financial markets, as well. The turnover realized under FX transactions in 2004 was in the amount of EUR 1,858 million or 30.5% less than the turnover realized in 2003 when it was in the amount of EUR 2,672 million. The income gained from the trade with foreign currencies was in the amount of MKD 11,944 thousand, which, compared to the negative results realized in 2003, shows that 2004 is the year with significantly better results achieved from the trade with foreign currencies with foreign banks. FX in million EUR , ,858 29

30 TRADING WITH SECURITIES In the domain of the investments in securities and in accordance with its Policy for Investments in Securities, the Bank made capital investments and purchase of equity and debt securities. The Bank's investment portfolio is comprised of: shares issued by financial and non-financial legal entities, treasury bills issued by the Central Bank and government bills and bonds issued by the Republic of Macedonia. Capital investments The total capital investments of the Bank in 2004 showed a decrease of MKD 26,538 thousand, compared to the investments in Capital investments were decreased for the amount of the Bank's deposit in the Brokerage Company KB Broker Skopje (MKD 31,192 thousand) as a result of the termination of the Brokerage Company and transfer of its operations within the competencies of the Liquidity and Financial Market Division, as well as on the basis of the sale of Bank's investments in two loss-making companies and withdrawal of the deposit with the Yugoslav Money Market Belgrade. At the same time, the capital investments were increased for the deposits that KB Broker had in the Macedonian Stock Exchange (MKD 2,329 thousand) and in the Central Securities Depository (MKD 2,189 thousand), which were taken over by the Bank, as well as for the paid script dividend in the amount of MKD 137 thousand. From the sale of the investments in the loss-making companies the Bank realized income in the total amount of MKD 1,803 thousand. In 2004, the income realized by the Bank under dividend from capital investments was in the amount of MKD 11,112 thousand. Government bonds The Bank is owner of bonds issued by the Republic of Macedonia under the citizens' "frozen" foreign currency savings deposits in the total amount of MKD 366,854 thousand. In the course of 2004, the Government made payment of two instalments under the bonds, which matured in 2004, in the total amount of MKD 52,408 thousand and interest in the amount of MKD 8,191 thousand. Custodian accounts Pursuant to the provisions of the Law on FX Operations the Bank keeps custodian accounts for portfolio investments, purchasing securities in the Republic of Macedonia by non-resident legal entities and individuals. Through these accounts non-resident clients made payments under transactions concluded at the Macedonian Stock Exchange in the total amount of MKD 191,541 thousand, which is significantly higher amount compared to At the same time, the FX inflow at the foreign currency custodian accounts in 30

31 2004 was EUR 4,584 thousand, being a significant increase of the realized inflow, compared to The income realized by the Bank under the services for keeping custodian accounts was MKD 1,313 thousand and was quite higher than the one realized in Trading with securities The stock exchange operations in 2004 were characterized by successful completion of the institutional and market infrastructure, the ownership consolidation, as well as successful completion of the process of primary and secondary privatisation through the Stock Exchange. In 2004, Komercijalna Banka A.D. Skopje realized a total turnover of MKD 8,634,911 thousand (EUR million), or almost two times more than the total turnover in 2003 which was MKD 4,666,537 thousand (EUR million), and market share of 51.9% of the total turnover realized at the Stock Exchange. These results achieved by Komercijalna Banka A.D. Skopje show that it has increased its participation in the trading with securities market for 21.0 percentage points, or from 30.9% to 51.9% participation. Considered by segments of trading at the Macedonian Stock Exchange, the largest participation of Komercijalna Banka was realized with the block transactions (70%), classical trading (25.3%) and trading with shares and government's stakes (1%). The number of transactions of Komercijalna Banka A.D. Skopje in 2004 showed an increase for 3.2%, compared to Participation in the total turnover realized at the Macedonian Stock Exchange in % 48.1% % Komercijalna Banka A.D. Skopje Other banks Participation in the total number of transactions realized at the Macedonian Stock Exchange in % 71% 29% 2004 Komercijalna Banka A.D. Skopje Other banks 31

32 RETAIL BANKING OPERATIONS Citizens' deposits As at , the total citizens' deposits with Komercijalna Banka A.D. Skopje were MKD 18,457,569 thousand, and compared to the statement as at when they were MKD 16,263,622 thousand, showed an increase of 13.5%. Total citizens' deposits participate with 67% in the deposit base of the Bank's clients and they represent basis for realization of the deposit function of the Bank Currency structure of the citizens' deposits % 46.8% 50.9% 49.1% Demand deposits Time deposits As at , the maturity structure of the citizens' deposits is characterized by participation of the demand deposits of 50.9% and participation of the time deposits of 49.1%. The comparison with 2003 shows decrease of participation of the demand deposits in the total citizens' deposits in terms of participation of the time deposits. Within the frames of time deposits, the short-term deposits in the amount of MKD 8,344,755 thousand show an increase of 22.2%, unlike the long-term deposits in the amount of MKD 290,402 thousand, which show a decrease for 62.8%, compared to Lending to citizens As at , the total credit exposure towards citizens amount to MKD 2,668,740 thousand. If compared to the figure for 2003, when it amounted to MKD 2,085,686 thousand, the total credit exposure to citizens notes an increase of 28%. The number of newly approved loans in the course of 2004 is 4,

33 The fact for qualitative enrichment of the offer of credit products for individuals is worth mentioning, by introducing the loans with no purpose identified based on mortgage on real estate and draft and the tourist loans. The table below illustrates the lending activities of the Bank in relation to citizens, volume, amount and types: Types of loans approved to citizens (in thousand MKD) Index PURPOSE No. Amount No. Amount 2004/2003 Housing loans , , Loans for business premises and equipment 1 4, , Loans for cars , , Scholarship , Cash loans with no purpose identified with guarantors 3, ,749 5, , Loans upon pledge of deposit , , Loans upon pledge of bonds 5 1, , Loans with own participation from sold FX funds ,364 / Loans under mortgage on real estate and draft , / Loans with 30% or 50% deposit and mortgage on real estate 2 3, / Short-term loans 73 2, / Total 4,919 1,007,519 6, ,

34 CARDS OPERATIONS Cards operation in the Republic of Macedonia is an activity in continuous increase. The analyses show that payment with cards at retail sale is increasing every day. Following the progress in the more economically developed societies, Komercijalna Banka A.D. Skopje is making great efforts and resources in this type of payment. As a result, in the course of 2004, the volume of cards operation shows an increase both in the area of issuing and acquiring cards. As at , the Bank has issued over sixteen thousand cards to individuals and legal entities. In the course of 2004, 381,360 transactions were executed in the total amount of MKD 1,785,171 thousand. The number of transactions shows an increase of 32%, while their value is increased for 18% in terms of the last year. Cards issuing The number of the newly issued cards shows continuous increase from year to year for all types of cards. In 2004, the Bank issued about one thousand and five hundred cards. In terms of the previous year, the number of the cards issued is increased for 11%. Number of cards ,061 9,755 4,741 4, International business cards Domestic business cards International cards for individuals Domestic cards for individuals 34

35 Cards acquiring Regarding acquiring of cards, in the course of 2004 the number of the newly opened points of sale is increased for about 71%. There were seventeen new ATMs installed. By , the Bank has installed devices for withdrawal of cash from bank counters in nineteen city-branches and branches. There were total 307,498 transactions executed through the Bank's network in the amount of MKD 1,344,747 thousand, showing an increase of 36% for the number of transactions and 19% for their amount in terms of the last year. Number of transactions 130, , ,484 89,501 6,242 8,137 Trade (goods and services) ATMs Bank counters 35

36 DOMESTIC PAYMENT OPERATIONS Participating with 28% in the total opened accounts in the banking system, in 2004, like in 2003, the Bank kept the leading place in the Republic. As at , the Bank's account holder register, compared to , is increased for 17.7% or for 4,667 accounts and its number now is 31,066 accounts. The interest in opening accounts to individuals is also increased and they participate with 36% in the total newly opened accounts in In 2004, the Bank effected 5,019,923 transactions, out of which 3,756,076 were non-cash and 1,263,847 cash transactions. According to the way of execution, the largest number of transactions or 50.6% were processed through the internal clearing, and 49.4% through the external payment systems. Out of the total number of externally processed transactions 96.8% were executed through CIBS (Clearing Inter-Banking Systems) and 3.2% though MIPS (Macedonian Inter-Banking Payment Systems). In 2004, the Bank effected 11.2% more transactions than in 2003, or precisely, the cash transactions show an increase of 23.9%, and non-cash transactions of 7.5%. The value of the cash paid in is increased for 5.2%, and the cash paid out for 13.6%. In this period the Bank processed in average over 410,000 transactions on monthly basis or over 17,500 transactions on daily basis. The largest number of average daily transactions was processed in the Head Office of the Bank. In the period , total 19,549,760 transactions were processed in the Republic of Macedonia, and the Bank's participation of 33.5% is proportional to the participation of the total opened accounts. In the total realized turnover Komercijalna Banka A.D. Skopje participates with 30.0% in the exchange of transactions in the banking system. In 2004, the Bank received 6,657 court decisions, out of which 5,481 decisions or 83% were received at the Bank's Head Office. 42% of the received decisions are fully collected, and 1988 were returned to the court since they did not contain the necessary elements for collection. A part of the decisions were partly executed due to lack of funds on the accounts of debtors. 844 accounts were closed under received decisions on opened and closed liquidation procedure in the analysing period. In this segment of operation, in the course of 2004, the Bank made some organizational changes that provided optimal use of the available personnel potential, which along with introduction of new working hours for certain citybranches made the efficiency from the operation increase. As a result of the Service Agreement concluded with A.D. Makedonski Telekomunikacii, since , the Bank has started to accept payment of telephone bills in cash at its counters, as well as standing orders. 36

37 INFORMATION TECHNOLOGY In the domain of information technology the Bank completely follows the latest developments and implements them regularly according to the needs of the banking business and the legal requirements. In this sphere, the following major activities were realized during 2004: Implementation of a unified solution for objective classification of corporate entities at the Bank, update of their founders and capitally related parties, update of the securities by entity and their influence upon the definition and modification of the interest rates for the Bank's clients. Acquiring, installation and configuration of the new hardware and software platform supporting the working with MasterCard cards. Development of interfaces providing bi-directional connection between the unified information system of the Bank and the new applicative solution supporting the working with MasterCard cards. Installation of 20 new ATMs throughout Macedonia, their inclusion in the existing WAN computer network and video surveillance system of the Bank. Development and implementation of applicative solutions for: - Enlistment and tracking of government bonds issued by the Central Bank; - Automatic accounting to the General Ledger, including accounting of the internal bookkeeping relations with the Bank's branches, as well as automatic accounting distribution of the deposits coming from the domestic currency payment operations; - Salary calculation for the Bank's employees; - Execution of non-cash financial transactions through the Internet for the corporate entities in the domestic payment operations, with digital signing of the transactions and encrypted data transfer; - Registration office for issuing internal digital certificates for the needs of the internet banking; - Issuing transaction statement and current statement on the MasterCard cards and on the foreign currency accounts of the corporate and individual clients. Taking over the system support of the video surveillance system and performing its technical upgrade to provide long-term archiving of the recorded video footage. Performing upgrade of the swift software to SwiftAlliance 5.5 and replacing the existing X25 network connection with VPN. Providing centralized access to the credit registry and to other applications of the Central Bank through FrameRelay. 37

38 Equipping a class-room with 10 computers, for education of the Bank's employees. Activities for provision of constant high level of protection and security of the Bank's data: - Installation and configuration of a complete hardware/software platform for the needs of the backup computer center, and starting the use of this center. (Installation, testing and setup of the Wireless communication equipment, and a server with IPSec traffic encryption); - Installation and configuration of a new infrastructure for perimeter security; - Implementation of special security policies for the users of the IS accessing the resources (access control and monitoring); - Executing a project to open and register all the users of the Bank's information system using own user names; - Performing Upgrade of the BackupExec software for data backup; - Development of an application for monitoring alerting and management of the ATMs and the central disk system containing the unified database of the Bank. 38

39 MARKETING ACTIVITIES In the sphere of banking products and services, Komercijalna Banka A.D. Skopje is continually researching the desires, requirements and needs of clients, for the purpose of developing new products and services. Apart from that, the offer of the competitive banks in the country and in the region is regularly researched and, based on that, new products and services are proposed. In the course of 2004, the Bank launched the following new products and services: tourist loan; open savings; and children's savings - Squirrel. The new products were followed by adequate promoting campaigns. In 2004, the following marketing campaigns were held for promotion of the new products and services of the Bank: Campaign for a mortgage loan with no purpose identified - It's easier than it seems; Campaign for bigger use of safe-boxes - Go for safety! Rent a safe-box!; Campaign for infokiosks - Touch me. And I will tell you everything.; Campaign for infocenter - Call me. And I will tell you everything.; Campaign for a tourist loan - Have a nice holiday:; Campaign for open savings - Open savings deposit; Campaign for children's savings - Save more, jump further; Campaign for the best bank - The Banker; Campaign for design of the new payment cards. In 2004, Komercijalna Banka A.D. Skopje, in cooperation with the marketing agency Idea Plus DDB, promoted the new corporative campaign of the Bank with the slogan "Komercijalna Banka - 24 hours bank". In the course of 2004, the Bank introduced new distribution channels - infokiosks and infocenter of the Bank. The first ten infokiosks of the Bank were installed in: the head Office of Komercijalna banka A.D. Skopje - counter hall for checking accounts, city-branches in the City Shopping Center, Bunjakovec, Avtokomanda, Karpos III and Jane Sandanski 1 and in the Bank's branches in Strumica, Ohrid, Stip and Prilep. They are installed in the halls of the citybranches and branches of the bank, and work on the principle of touching the computer screen. Thus, potential users of the Bank's services may be informed on the products and services offered by Komercijalna Banka, to check the statement on their accounts and to print the statement. The clients of Komercijalna Banka A.D. Skopje may get information on the Bank and its range of products and services from the voice messenger of the Bank's infocenter, 24 hours a day or seven days a week and to receive answers to all the responses in connection with the operation of the Bank. 39

40 40 Komercijalna Banka A.D. Skopje shall continue to develop and design new and attractive bank products and services and shall strive to be the first to promote them on the Macedonian banking market. The Bank shall also continue to research the desires and needs of the potential clients where its takes the ideas for development of new products and services.

41 HUMAN RESOURCES Komercijalna Banka A.D. Skopje is a highly developed banking institution aiming to the attribute - leading bank in the Republic of Macedonia, for which the human resources of the Bank led by the management of the Bank has the greatest merit. Taking into consideration the importance of the human resources, Komercijalna Banka A.D. Skopje pays great attention to conceiting and implementing the Personnel Policy. The main principle the Personnel Policy is based on is: "right person at right place and at right time". Having in mind that strengthening of the competition ability of each institution and company is mainly realized through strengthening of the human potentials, the efforts of the management of Komercijalna Banka A.D. Skopje to run proper human resources management, which includes activities of planning, managing and providing motivation for the personnel, are understandable. The number of Bank's staff at the end of 2004 was 1,243, which, compared to 2003 when it was 1,207, is an increase of 3%. The increase of the number of employees is due to the extension of the Bank's network, and opening new city-branches of the Bank throughout the Republic as well as increased volume of the banking activities. Significant part of the Personnel Policy is the continuous professional improvement and training of employees through financial support for the postgraduate studies of the employees, providing professional training through seminars, courses and consulting sessions, foreign languages and computer courses, etc. The Bank's tendencies are focused on further improvement of the qualification structure of employees and increase of participation of young and university graduate staff. Hence, in the course of 2004, apart from the existing, the Bank approved funds for support of postgraduate studies to 3 employees. In the course of the last year the Bank provided professional training for 55 employees in the country and 62 employees abroad, attending seminars, courses, advisory services from the domain of banking for the purpose of getting information on and adapting to the new changes in the banking. 9 employees were sent to learn English language. In order to keep pace with the permanent changes in the banking and finance area, the Bank, on regular basis, purchases professional books by domestic and foreign authors, as well as articles by domestic consulting companies, which are available to all employees of the Bank. 41

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43 AUDITORS REPORT KOMERCIJALNA BANKA A.D. SKOPJE FINANCIAL STATEMENTS for the year ended 31 December

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92 BOARD OF DIRECTORS Cvetanka Simonovska, Member "Alkaloid" A.D. Skopje, Finance Manager Trajko Davitkovski, Chairman "Skopski pazar" A.D. Skopje, General Manager Mihail Petkovski Ph.D., Member Faculty of Economics Skopje, Professor Risto Guskov, Vice-Chairman A.D. Cementarnica "Usje", Chairman of the Board of Directors Lazar Cvetkovski MA, Member "Komercijalna Banka" A.D. Skopje, General Manager Claudio Viezzoli, Member European Bank for Reconstruction and Development, London, Banker Specialist Simon Naumoski, Member PI "Vitaminka" A.D. Prilep, General Manager Sava Dimitrova, Member A.D. "Evropa" Skopje, General Manager Aleko Angelovski, Member Factory "Karpos" A.D. Skopje, Chairman of the Board of Directors 92

93 MANAGEMENT Hari Kostov First General Manager Tel.: (+389 2) Lazar Cvetkovski, MA General Manager Tel.: (+389 2) Mirjana Pavlovska Risk Management and Planning Division Manager Tel.: (+389 2) Greta Ilic Retail Banking Division Manager Tel.: (+389 2) Vera Bibanovska Corporate Lending Division Manager Tel.: (+389 2) Margarita Zdravkovska International Division Manager Tel.: (+389 2) Slavko Razmilic Human Resources and General Affairs Division Manager Tel.: (+389 2) Snezana Przeska Legal Affairs, Problem Loan Workout and Managing Division Manager Tel.: (+389 2) Jadranka Mrsic, MA Liquidity and Financial Market Division Manager Tel.: (+389 2) Zorica Cerepnalkovska IT Division Manager Tel.: (+389 2) Violeta Markovska Valjak Finance Department Manager Tel.: (+389 2) Biljana Mitevska Domestic Payment Operations Department Manager Tel.: (+389 2) Vesna Kiprijanovska Credit Review Department Manager Tel.: (+389 2) Aneta Velevska, MA Vault Operations Department Manager Tel.: (+389 2) Jasmina Bucevska, Ph.D. Marketing Department Manager Tel.: (+389 2) Vesna Maslinko Chief Auditor Tel.: (+389 2)

94 94 ORGANIZATIONAL CHART

95 BANK'S NETWORK OF BRANCHES AND CITY-BRANCHES 29 city branches in Skopje 7 branches 1 city branch I 10 city branches throughout the Country 1 planned city branch 95