BANCA TRANSILVANIA S.A.

Transcription

1 BANCA TRANSILVANIA S.A. FINANCIAL STATEMENTS for the financial exercise as at 31 December 2010 Prepared in accordance with Ordinance No. 13/2008 of the NBR Chaiman of the Board, with subsequent amendments and additions.

2 BANCA TRANSILVANIA S.A. Situatii Financiare 31 decembrie 2010 CONTENTS Declaration about responsibilty in the preparation of financial statements Report of independent auditors Balance sheet Profit and loss account Treasury flows Shareholders equity Notes to financial statements Information about capital adequacy

3 Balance sheet as at 31 December 2010 Code 10 LEI ASSETS Code Financial exercise Note previous closed A B 1 2 Cash and balances at central banks ,141,131,011 3,640,949,028 Public instruments and other securities accepted for refinancing at central banks ,410,831,750 3,436,263,694 - public instruments and assimilated values ,410,831,750 3,436,263,694 - other securities accepted for refinancing at central banks Receivables over credit institutions ,485,272,784 1,075,749,312 - sight ,741, ,877,048 - other receivables ,089,531, ,872,264 Receivables over clients ,507,766,997 12,184,132,507 Bonds and other securities with flat income ,863, ,072,523 - issued by public bodies ,189, ,480,984 - by other issuers, of which : ,673, ,591,539 - own bonds Shares and other securities with variable income ,697, ,781,219 Participations, of which : participations in credit institutions Interests in associate undertakinkgs, of which: ,128, ,284,048 - shares in credit institutions Intangible assets,of which : ,198,407 47,362,862 - start up expenses goodwill Tangible assets, of which : ,624, ,513,366 - lands and buildings used in own activity ,941, ,732,168 Unpaid subscribed capital Other assets ,234,649 29,624,305 Prepayments and acrrued income ,520, ,356,974 Total assets ,472,269,784 21,589,089,838 CHAIRMAN HORIA CIORCILA FINANCIAL MANAGER MARIA MOLDOVAN 1

4 JUDETUL: Cluj FORMA DE PROPRIETATE: 34 PERSOANA JURIDICA: Banca Transilvania S.A. ACTIVITATEA PREPONDERENTA (denumire grupa CAEN): ADRESA: Cluj Napoca, Str. G. Baritiu, nr. 8 Alte activitati de intermedieri monetare TELEFONUL: +(40.264) FAXUL: +(40.264) COD GRUPA CAEN: 6419 NUMARUL DIN REGISTRUL COMERTULUI: J12/4155/1993 CODUL FISCAL: RO Balance sheet (continued) as of 31 December 2010 Code 10 LEI LIABILITIES Code Financial exercise Note previous closed A B C 1 2 Debts to credit institutions ,900,613,682 1,532,176,264 - sight ,618, ,558,625 - time ,828,995,628 1,325,617,639 Due to clients ,243,687,322 17,474,246,374 - Deposits, of which: ,808,645,861 14,431,571,280 -sight ,568, ,256,889 -time ,496,077,606 14,257,314,391 - Other debts, of which : ,435,041,461 3,042,675,094 - sight ,153,370,740 2,803,466,371 - time ,670, ,208,723 Debts relating to securities securities on the interbank market, bonds, negotiable debt securities other securities Other liabilities ,102,232 68,186,264 Accruals and deferred income ,386, ,552,774 Provisions, of which : provisions for pensions and similar obligations provisions for taxes other provisions Subordinated liabilities ,044, ,088,000 Called up share capital ,086,337,883 1,470,600,998 Share premium account ,683,960 - Reserves ,719, ,382,806 - legal reserves ,899, ,650,144 - statutory or contractual reserves reserves for banking risks ,892,714 77,892,714 - mutual help reserve mutual guarantee reserve other reserves ,927, ,839,948 Revaluation reserves ,378,216 31,080,101 Own shares (-) Retained earnings - Profit 423 1,682,481 2,034,244 - Loss Result of the financial exercise - - Profit ,935,038 97,493,089 - Loss Profit distribution 440 4,301,052 6,751,076 Total liabilities ,472,269,784 21,589,089,838 CHAIRMAN HORIA CIORCILA FINANCIAL MANAGER MARIA MOLDOVAN Notele de la paginile 10 la 64 sunt parte integranta a acestor situatii financiare. 2

5 JUDETUL: Cluj FORMA DE PROPRIETATE: 34 PERSOANA JURIDICA: Banca Transilvania S.A. ACTIVITATEA PREPONDERENTA (denumire grupa CAEN): ADRESA: Cluj Napoca, Str. G. Baritiu, nr. 8 Alte activitati de intermedieri monetare TELEFONUL: +(40.264) FAXUL: +(40.264) COD GRUPA CAEN: 6419 NUMARUL DIN REGISTRUL COMERTULUI: J12/4155/1993 CODUL FISCAL: RO Balance sheet (continued) as of 31 December 2010 Code 10 LEI OFF BALANCE ITEMS Code Financial exercise Note Previous Closed A B 1 2 Contingent liablilities, of which : ,066,963,513 1,263,459,144 - acceptances and endorsements ,800, ,614,918 - guarantees and pledged assets ,163, ,844,226 Commitments, of which: ,936,044,017 1,908,354,080 - commitments arising of sale transactions with possible repurchase CHAIRMAN HORIA CIORCILA FINANCIAL MANAGER MARIA MOLDOVAN Notele de la paginile 10 la 64 sunt parte integranta a acestor situatii financiare. 3

6 JUDETUL: Cluj FORMA DE PROPRIETATE: 34 PERSOANA JURIDICA: Banca Transilvania S.A. ACTIVITATEA PREPONDERENTA (denumire grupa CAEN): ADRESA: Cluj Napoca, Str. G. Baritiu, nr. 8 Alte activitati de intermedieri monetare TELEFONUL: +(40.264) FAXUL: +(40.264) COD GRUPA CAEN: 6419 NUMARUL DIN REGISTRUL COMERTULUI: J12/4155/1993 CODUL FISCAL: RO Code 20 PROFIT AND LOSS as at 31 December 2010 Item Code Financial exercise Note Previous Closed Interests to be received and assimilated incomes, of which: ,077,290,759 1,863,650,088 - relating to bonds and other securities with flat income ,388, ,870,257 Interests to be paid and assimilated expenses ,334,903, ,873,982 Income from securities ,107,560 4,120,105 - income from shares and other securities with variable income , ,491 - income from participations income from shares in related companies ,366,016 3,379,614 Income from commissions ,608, ,037,329 Expenses with commissions ,552,013 44,068,748 Net profit or loss from financial operations ,334, ,158,878 Other operational incomes ,430,581 18,024,588 General administrative expenses ,710, ,936,142 - Expenses with staff, of which : ,052, ,864,828 - Salaries ,309, ,623,050 - Expenses with social insurance, of which : ,734,042 74,408,487 - Pension related expenses ,390,660 54,410,336 - Other administrative expenses ,657, ,071,314 Corections of intangible and tangible values ,152,209 54,212,639 Other operational expenses ,262,041 40,830,548 Expenses with receivables and provisions for contingent debts and commitments ,000,839,779 1,202,463,848 Income from receivables and provisions for contingent debts and commitments ,135, ,286,538 Expenses with transferable securities in the nature of long-term financial assets, participations and shares in related companies 130 5,260,000 39,870,108 Income from transferable securities in the nature of longterm financial assets, participations and shares in related companies ,793,000 - Rezult of current activity - Profit ,021, ,021,511 -Loss Extraordinary revenues Extraordinary expenses Net result of the financial exercise - Profit Loss LEI Notele de la paginile 10 la 64 sunt parte integranta a acestor situatii financiare. 4

7 JUDETUL: Cluj FORMA DE PROPRIETATE: 34 PERSOANA JURIDICA: Banca Transilvania S.A. ACTIVITATEA PREPONDERENTA (denumire grupa CAEN): ADRESA: Cluj Napoca, Str. G. Baritiu, nr. 8 Alte activitati de intermedieri monetare TELEFONUL: +(40.264) FAXUL: +(40.264) COD GRUPA CAEN: 6419 NUMARUL DIN REGISTRUL COMERTULUI: J12/4155/1993 CODUL FISCAL: RO Code 20 PROFIT AND LOSS (continued)) LEI Item Code Financial exercise Note Previous Closed Total revenues 190 4,890,938,924 5,359,736,527 Total expenses 200 4,804,917,893 5,224,715,016 Gross result - Profit ,021, ,021,511 - Loss Tax on profit ,085,993 37,528,422 Other taxex Net result - Profit ,935,038 97,493,089 - Loss CHAIRMAN HORIA CIORCILA FINANCIAL MANAGER MARIA MOLDOVAN Notele de la paginile 10 la 64 sunt parte integranta a acestor situatii financiare. 5

8 JUDETUL: Cluj FORMA DE PROPRIETATE: 34 PERSOANA JURIDICA: Banca Transilvania S.A. ACTIVITATEA PREPONDERENTA (denumire grupa CAEN): ADRESA: Cluj Napoca, Str. G. Baritiu, nr. 8 Alte activitati de intermedieri monetare TELEFONUL: +(40.264) FAXUL: +(40.264) COD GRUPA CAEN: 6419 NUMARUL DIN REGISTRUL COMERTULUI: J12/4155/1993 CODUL FISCAL: RO TREASURY FLOWS AS AT 31 DECEMBER 2010 LEI Item Code Financial exercise Previous Closed Net result 1 61,935,038 97,493,089 Components of the net result not generating cash flows in operational activities ± constitution of provivisions 2 484,273, ,152,309 + expenses with depreciation 3 61,152,209 54,212,639 ± other adjustments of elements not generating cash flows 4 13,866,026 5,753,964 ± adjustments of elements included in investment or financing 5 activities 87,250,871 21,076,687 ± other adjustments 6 14,161,164 16,022,355 Sub-total (rd.01 la 06) 7 722,638, ,711,043 Modifications of assets and liabilities in the operational activity after adjustments of elements not generating cash flows in the operational activity ± securities not in the nature of long term financial assets 8 (1,729,694,959) (1,310,269,703) ± receivables over credit institutions 9 ( 80,161,900) (10,258,457) ± receivables over clients 10 (980,107,005) (1,220,292,772) ± attached receivables 11 (135,061,193) (146,428,665) ± other assets related to operational activity 12 ( 65,229,043) 31,838,561 ± credit institutions debts ,378,653 (324,705,833) ± clients debts 14 2,905,474,432 2,273,021,051 ± attached debts 15 (22,273,365) (13,064,622) ± other liabilities relating to operational activity ,643,529 23,559,445 - payments in cash representing tax on profit 17 ( 82,097,962) 14,978,189 Cash flows in operational activity 18 1,216,509, ,088,237 Cash flows in investment activity - payments in cash for purchase of subsidiaries or other sub-units collections in cash from sale of subsidiaries or other sub-units 20 44,693, collections in cash representing dividends 21 1,476, ,491 - payments in cash for purchase of securities in the nature of long 22 term financial assets (1,574,023) (37,118,628) + collections in cash from sale of securities in the nature of long 23 term financial assets - 10,300,000 + collections in cash from interests payments in cash for purchase of lands and fixed assets, 25 intangible assets and other long term assets (16,868,027) (47,462,947) + collections in cash from sale of lands and fixed assets, 26 intangible assets and other long term financial assets 117, ,993 - other payments in cash relating to investments other collections in cash relating to investments Cash flows in the investment activity 29 27,844,753 (73,386,091) Notele de la paginile 10 la 64 sunt parte integranta a acestor situatii financiare. 6

9 JUDETUL: Cluj FORMA DE PROPRIETATE: 34 PERSOANA JURIDICA: Banca Transilvania S.A. ACTIVITATEA PREPONDERENTA (denumire grupa CAEN): ADRESA: Cluj Napoca, Str. G. Baritiu, nr. 8 Alte activitati de intermedieri monetare TELEFONUL: +(40.264) FAXUL: +(40.264) COD GRUPA CAEN: 6419 NUMARUL DIN REGISTRUL COMERTULUI: J12/4155/1993 CODUL FISCAL: RO TREASURY FLOWS (continued) LEI Item Code Financial exercise Previous Closed Cash flows in the financing activity + collections in cash from debts relating to securities and subordinated debts payments in cash for debts relating to securities and subordinated debts collections in cash from share issue ,678,645 - payments in cash for purchase of shares 33 (12,165,928) - + collections in cash from sale of shares payments in cash representing dividends 35 (48,792,546) - - other payments in cash relating to financing activities 36 (1,115,643,507) (107,344,703) + other collections in cash relating to financing activities Cash flows in the financing activity 38 (1,176,601,981) 5,333,942 (row30 to 37) Cash at start of period 39 4,445,361,986 4,513,114,470 ± Cash flows in operational activities (row.18) 40 1,216,509, ,088,237 ± Cash flows in investment activities (row.29) 41 27,844,753 (73,386,091) ± Cash flows in financing activities (row.38) 42 (1,176,601,981) 5,333,942 ± Effect of modifications in exchange rates Cash at end of period 44 4,513,114,470 4,593,150,558 CHAIRMAN HORIA CIORCILA FINANCIAL MANAGER MARIA MOLDOVAN Notele de la paginile 10 la 64 sunt parte integranta a acestor situatii financiare. 7

10 JUDETUL: Cluj FORMA DE PROPRIETATE: 34 PERSOANA JURIDICA: Banca Transilvania S.A. ACTIVITATEA PREPONDERENTA (denumire grupa CAEN): ADRESA: Cluj Napoca, Str. G. Baritiu, nr. 8 Alte activitati de intermedieri monetare TELEFONUL: +(40.264) FAXUL: +(40.264) COD GRUPA CAEN: 6419 NUMARUL DIN REGISTRUL COMERTULUI: J12/4155/1993 CODUL FISCAL: RO SHAREHOLDERS EQUITY as at 31 DECEMBER 2010 LEI Increase Decrease Elements of shareholders' Balance as at Balance as at Note equity 1 January Total, by Total, by 31 December of which transfer of which transfer Subscribed capital 1,086,337, ,263, ,584, ,470,600,998 Capital premiums 97,683, ,683,960 97,683,960 - Legal reserves 100,899,068 6,751, ,650,144 Statutory or contractual reserves General reserve for credit risk 17,216, ,216,890 Reserve representing fund for general banking risks 60,675, ,675,824 Revaluation reserves 25,378,216 6,069, , ,699 31,080,101 Own shares (-) Mutual help reserve Mutual guarantee reserve Other reserves 328,927,707 59,833,986 57,633, ,921, ,921, ,839,948 Retained earnings not distributed profit (157,190) 59,322,666 57,633,986 59,285,495 57,633,986 (194,361) uncovered loss Retained earnings generated by first time adoption of IAS, less IAS 29 Creditor balance Debtor balance Retained earnings from correction of fundamental errors Creditor balance Debtor balance Retained earnings representing surplus from revaluation reserves 1,839, , , ,228,605 Reatined earnings generated by the application of uniform accounting rules under European directives Creditor balance Debtor balance Result of the financial exercise Creditor balance 61,935,038 5,359,736,527-5,324,178,476 61,935,038 97,493,089 Debtor balance CHAIRMAN HORIA CIORCILA FINANCIAL MANAGER MARIA MOLDOVAN Notele de la paginile 10 la 64 sunt parte integranta a acestor situatii financiare. 8

11 Notes to financial statements 31 December 2010 SHAREHOLDERS EQUITY as at 31 DECEMBER 2009 LEI Increase Decrease Elements of shareholders' Balance as at 1 Balance as at Note equity January Total, by Total, by 31 December of which transfer of which transfer Called up capital 1,059,696,183 26,641, ,086,337,883 Capital premiums 76,565,608 21,118, ,683,960 Legal reserve 96,598,016 4,301, ,899,068 Statutory or contractual reserves General reserve for credit risk 17,216, ,216,890 Reserve representing general bank risks fund 60,675, ,675,824 Revaluation reserve 26,687, ,308,940 1,308,940 25,378,216 Own shares (-) - 15,185,130-15,185,130 3,019,202 - Mutual help reserve Guarantee reserve Other reserves 2,490, ,707, ,707, , , ,927,707 Retained earnings Not distributed profit (50,997) 375,511, ,687, ,405, ,687,894 (157,190) Uncovered loss Retained earnings generated by IAS adoption, less IAS 29 Credit balance Debit balance Retained earnings after corrections of accounting errors Credit balance Debit balance Retained earning representing surplus from revaluation reserve 260,413 1,579,258 1,579, ,839,671 Reatined earnings generated by the application of uniform accounting rules under European directives Credit balance Debit balance Rezult of financial year Credit balance 396,853,115 4,890,938,924-5,225,857, ,853,115 61,935,038 Debit balance CHAIRMAN HORIA CIORCILA FINANCIAL MANAGER MARIA MOLDOVAN 9

12 1. Policies and accounting methods Notes to financial statements 31 December 2010 (a) Basis of presentation These financial statements (FS) have been prepared in accordance with: a) NBR Order no. 13/2008 regarding the accounting Standards complying with the European Standards applicable to the credit institutions completed and adjusted with the NBR Order no. 16/2009; b) Accounting law no. 82/1991; c) Chart of accounts for banking institutions and related standards approved by the NBR Order no. 13/2008. The FS include the bank s individual financial statements. BT Group including Banca Transilvania S.A. and its subsidiaries is preparing as well separate FS according to the IFRS. FS herein are the statutory accounts. (b) Basis of measurement The financial statements are presented in Romanian lei RON according to the accounting standards issued by NBR and Ministry of Finance. Accounting policies were consistent throughout the year. For comparability purpose, several items as of 31. Dec have been introduced, modified or reclassified in order to comply with the current FS, based on the NBR Order no. 13/2008. These FS are not prepared in order to reflect the financial position and treasury flows according to standards and accounting policies accepted in other countries. Therefore, the FS attached are not prepared for the use of persons that are not familiar with the accounting and legal framework in Romania, including the NBR Order no. 13/2008 with its further adjustments. c) Functional and presentation currency According to the NBR Order no. 13/2008, the financial statements are presented in Romanian lei RON, which is the Bank s functional and presentation currency, rounded to the nearest thousand. (d) Use of estimates and judgments The preparation of financial statements in accordance with NBR Order no. 13/2008 implies that the management uses estimation and judgments that affect the application of accounting policies, as well as the reported value of assets, liabilities, income and expenses. The estimates and judgments are reviewed on an ongoing basis. The review of the accounting estimates are recognized in the period in which the estimate is reviewed if the review affects only that period or in the period of the review and future periods if the review affects both current and future periods. (e) Translation of fcy amounts Transactions in foreign currencies are booked in RON at the official exchange rate at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies at the date of the consolidated statement of financial position are retranslated to the functional currency at the exchange rate at that date. Monetary assets and liabilities denominated in fcy are translated into RON at the exchange rate at that date, except for the fcy assets registered as financial assets which are translated at the exchange rate in force at their purchase date. Speculative term transactions are translated at the term rate for the remaining period from the balance sheet date. 10

13 Notes to financial statements 31 December Policies and accounting methods (continuing) Foreign currency differences arising on retranslation are recognized in profit or loss for the current year. The exchange rates of major foreign currencies were: Ccy 31 decembrie decembrie 2010 Dollar (USD) 1: LEU : LEU Euro (EUR) 1: LEU : LEU (f) Interest income and expenses Interest income and expenses related to financial investments are recognized in the income statement according to the accounting policies. Interest income and expense include the linear amortized value of any discount, premium or other differences between the initial value of a financial instrument and its value at maturity. Fee income arising from loans are deferred and recognized as recognized as an adjustment of income from interests related to loans granted, using the linear method. Fees that are included in the effective interest rate for a financial instrument include investment and management fees, which can represent a compensation for activities such as: evaluation of the financial situation of the debtor, collaterals assessment, negotiation fees, documents processing, commitment fees for loans granting, etc. Fees collected which are included into the effective interest rate for loans granted are booked into the account deferred income and are recognized into the interest income accounts class 7 for the entire life of the loan. (g) Fees and commissions Fee and commissions are recognized in the income statement according to the accounting policies. Fee income includes commitment fees, cash management services, project and structured finance transactions, trade finance related fees, and card related services fees. Commission expense includes the commissions paid by the bank for similar services delivered to the bank. The Bank amortizes the direct expense associated with the loans granting transactions, L/G and LC issuance and insurance policies for financial risks related to loans granted to individuals. (h) Financial Instruments i) Classifications Financial instruments at fair value through profit and loss include financial assets or financial liabilities held for trading, and those designated at fair value through profit or loss at inception. A financial instrument is classified in this category if acquired principally for the purpose of short term profit-taking. Financial instruments held for trading are those purchased or issued in order to be sold in the near future and those held into a portfolio that is managed for short term profit. Derivatives are also categorized as held for trading unless the derivative is a designated and effective hedging instrument. All trading derivatives with a net asset position (positive market value) are reported as assets and those with a net liability position (negative market value) are accepted as debts. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that the Bank intends to sell immediately or in the near term, those that the Bank, upon initial recognition, designates at fair value through profit and loss, those that the Bank, upon initial recognition, designates as available for sale or those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration. Loans and receivables comprise loans and advances to banks and customers and net lease investments. 11

14 Notes to financial statements 31 December Policies and accounting methods (continuing) (h) Financial Instruments(continuing) i) Classifications(continuing) Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank s management has the positive intention and ability to hold to maturity. This category includes the treasury bills. In case the banks sells or reclassifies treasury bills during the current financial year or two previous financial years, it will not be able to classify any financial asset as investment security (contamination rule). This interdiction will not be applicable in case the respective selling or classification: Is so close to the maturity of the financial asset (ex. less than 3 months before the maturity) so that the changes of the interest rate cannot affect significantly its fair value; It is taking place after the value of the principal / a significant part of it has been recovered, in tranches or early repayments, or It is due to a non-recurring event which cannot be reasonably estimated. In case the respective sale or reclassification does not represent any of the above situations, all the securities will be reclassified as held to maturity. Held to maturity, other than those which are fixed assets, which cannot be classified as held for trading or investment securities. ii) Recognition The bank recognizes the financial assets and financial liabilities on the date that they are transferred to the Bank. iii) Evaluation Financial instruments are evaluated at initial cost. After the initial recognition, financial assets held for trading are evaluated at fair value. Held to maturity are evaluated on the balance sheet date at the value which is the lower between the purchasing value and the market value. For the negative difference between the two values, adjustments are to be made. Held to maturity, loans granted and borrowings from banks and other FI are recognized at amortized cost. The amortized cost is calculated using the linear method. The bank amortizes the commissions from loans granted, paid commissions for borrowings and the direct expenses related to loans granted (such as insurance policies). Liabilities are recognized at the net accounting value. All gains and losses from fair value change for the financial instruments held for trading and the losses from value adjustments for the treasury bills are recognized in the profit and loss account. iv) Fair value measurement The fair value of an instrument is based on a quoted price in an active market for that instrument on the balance sheet date, without deducting the trading costs. In case there is no price quotation, the fair value is estimated using option pricing methods or discounted cash flow analyses. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s length transaction on the measurement date. 12

15 Notes to financial statements 31 December Policies and accounting methods (continuing) (h) Financial Instruments (continuing) iv) Fair value measurement (continuing) Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate is a market related rate for an instrument with similar terms and conditions. When option pricing are used, the inputs are based on a market price on a balance date. v) Derecognition Financial assets are derecognized when the Bank is no longer having the control over those assets. The bank is losing the control in case its contractual rights expire or the bank waives these rights. Financial assets which are sold are derecognized at the settlement date. Financial liabilities are derecognized when the specific liability mentioned in the contract was charged off, was cancelled or expired. The gain or loss after the derecognition is determined based on the specific applicable method. vi) Transfers between categories: Financial instruments designated at initial recognition as Held for Trading cannot be transferred to other categories (such as financial instruments available for sale (AFS) or financial instruments held to maturity (HTM)). Subsequent the initial recognition of a financial asset in one of these categories (AFS, HTM) transfers to Held for Trading category is not permitted. Transfers of financial assets / instruments designated at initial recognition as Available for Sale (AFS) to category of financial assets Held to Maturity (HTM) is allowed as follows: - there is a change in intention or ability of the credit institution to carry the respective financial instrument at fair value and it becomes more appropriate to carry it at amortized cost; - the two preceding financial years have passed as stated by the accounting principles; When financial assets AFS are transferred to HTM category, the fair value carrying amount of the financial asset on that date becomes the new cost or amortized cost, as applicable. vii) Specific instruments Cash and equivalents Cash and equivalents include the effective cash (including cash in ATMs or FXMs) and in current accounts with the NBR. T-bills and other securities accepted for refinancing at central banks T-bills and other securities accepted for refinancing by the Central Bank are classified as investment securities. These include treasury certificates and debt instruments over public bodies issued in Romania, as well as the same type of instruments issued abroad, in situations in which they are accepted for the refinancing of the Central Bank of the country or countries where the credit institution is rooted. These also include other securities accepted for refinancing at Central Banks, namely portfolio securities, which were purchased from credit institutions or from customers, in case they are accepted, according to the national legislation, for refinancing by the Central Bank of the country or countries where the credit institution is rooted. 13

16 Policies and accounting methods (continuing) Notes to financial statements 31 December 2010 vii) Specific instruments (continuing) T-bills and other securities accepted for refinancing at central banks(continuing) T-bills and other securities accepted for refinancing by the Central Bank which are classified as investment securities are registered in accounting at acquisition value minus value adjustments for the negative difference between the market value and acquisition value. Receivables attached to the interest calculated for the period passed from their issuance and until the time of acquisition can be recorded in the accounts for securities or in the corresponding attached receivables accounts. In the latter case, the difference between the acquisition value and elapsed time value is recorded in the corresponding securities accounts. The Bank indicated that the actual transaction prices would be in the range between the received informative BID-ASK quotations, which represent rather an interval within which the Bank could realistically negotiate quotations for each series and volume from its securities portfolio, which is why they calculated and used to estimate an average price for each series. Receivables on credit institutions Receivables on credit institutions are classified as loans and receivables. Receivables on credit institutions that include nostro accounts and investments with other banks are recorded at nominal value, less the specific credit risk provision in case of registration of possible losses from the depreciation of theses receivables (see accounting policy 1n). Bonds and other fixed income securities Bonds and other fixed income securities include titles which are not accepted for refinancing by the Central Bank. Bonds and other fixed income securities which do not have the character of financial non-current assets are classified as investment titles. These are registered at acquisition value according to the FIFO method minus value adjustments for the negative difference between the market value and acquisition value. Investment securities include bonds issued by banks, municipal bonds and bonds issued by financial institutions. The Bank indicated that the actual transaction prices would be in the range between the obtained informative BID-ASK quotations, which represent rather an interval within which the Bank could realistically negotiate quotations for each series and volume from its securities portfolio, which is why they calculated and used to estimate an average price for each series. Shares and other variable income securities Shares and other variable income securities, such as investments in listed units, are owned for trading and are recorded at market value. Investments in fund units are classified as investment securities and are recorded in accounting at acquisition book value minus value adjustments for the negative difference between market value and acquisition value. 14

17 (h) Financial instruments (continued) Notes to financial statements 31 December 2010 Shares and other variable income securities which are classified as financial non-current assets are presented in the balance at the acquisition price. Derivatives Financial derivatives are classified as assets or liabilities held for trading and are initially recognized at fair value. Following initial recognition, these are measured at market value with no deduction related to the costs of the sale. Financial derivatives include forward exchange rate contracts or swaps exchange rate contracts closed by the Bank with its clients or other banks. The best proof of the market value of a derivative financial instrument upon initial recognition is the transaction price (e.g.: the fair value of the sum paid or received), only if the market value of that instrument does not stand out by comparison with other similar transactions on the market with the same type of instrument (e.g.: without modifications or reformulations) or based on an assessment technique whose variables include only information from the markets of reference. Loans and advances to customers and provisions for depreciation of such loans and advances Loans and advances to customers are classified as loans and receivables. Loans to customers are recognized when the money reaches the possession of the debtor. Loans and advances to customers are presented in the balance at the level of the existing outstanding amounts, less the specific credit risk provision determined as the difference between the book value and the estimated recoverable value of the loan. (see accounting policy 1n). (i) Cash and cash equivalents For the elaboration of the cash flow statement, cash and cash equivalent include balances that have the initial due date below 90 days, comprising: cash in hand, in ATMs and currency exchange machines, current account balances at the National Bank of Romania and from other banks, as well as deposits at banks, T-bills and equivalents. (j) Participations in subsidiaries Subsidiaries are entities under the Bank s control. It is considered control when the Bank has the authority to run the financial policies and operations of an entity in order to obtain benefits from its activity. For a description of the participations held by the bank as at December 31, 2010, please see note 14. The Bank classified the participation in subsidiaries as parts held in related companies and evaluated them at cost value at the trial balance issuing date. (k) Associated entities Associated entities are those where the Bank holds a significant influence without them being branches or in the absence of an agreement of association in participation signed by the investor. As at December 31, 2010, the Bank does not hold any participation in associated entities. 15

18 Notes to financial statements 31 December Significant policies and accounting methods (continued) (l) Tangible non-current assets Tangible non-current assets are recorded at acquisition value, less accumulated depreciation and impairment losses (see accounting policy 1n). Tangible non-current assets were adjusted according to the revaluations carried out by the Bank. Revaluation of tangible non-current assets is made in accordance with the statutory regulations issued for this purpose by authorized independent evaluators, members of a professional body in the field. The most recent revaluation was performed on December 31, 2010, by EUROEVAL SRLassessment firm. The following were subjected to revaluation: land, buildings, computers, equipment, apparatus and measuring and control equipments and means of transport. The following revaluation methods were used: For the evaluation of land and buildings, the market comparison method was used; For other equipment, the cost replacement method was used. All tangible non-current assets, with the exception of land, are amortized based on the linear method of life spans according to the terms stipulated by law with subsequent changes and they coincide with the Bank's estimates concerning useful life spans. The Bank's estimates concerning useful life spans were modified prospectively in 2005, in accordance with GO no.2139/2004, as follows: Type of assets New span (years) Old span (years) Buildings Computers 3 3 Equipment and furniture Refurbishments (medium term) 7 6 Means of transport In 2006, the useful life spans were established by the Technical Commission based on spans present in Code Catalog No. 2139/30 November 2004, and in 2010 they were updated. Refurbished branches are amortized over the lease contract period for the branch space, which varies between 1 and 52 years. Non-current assets in progress are not amortized prior to the moment when they are placed into operation. The cost of acquisition includes the purchase price, unrecoverable taxes, transport costs and other expenses necessary for making the asset work properly or entering it into accounting management. Maintenance & repairs of non-current assets are considered costs when they emerge, and any improvements are capitalized. The improvements are capitalized if they extend the life of the asset or if they significantly increase its capacity to generate economic benefits. Revenues and losses from the decommission of tangible non-current assets is determined by reporting them at net accounting value and are taken into consideration for determining operational profit. 16

19 1. Significant policies and accounting methods (continued Notes to financial statements 31 December 2010 (m) Intangible non-current assets Intangible non-current assets are registered at cost value minus accumulated amortization and depreciation losses (see accounting policy 1n). Intangible non-current assets comprise software and licenses. Subsequent expenses associated with computer applications development are capitalized only if these charges have as result the improvement and diversification of such services for the respective non-current assets beyond the initial specifications and life spans. Other costs associated with the development of computer applications are reflected in the expense category as they are incurred. Depreciation is recognized in the profit and loss account by means of the linear method during the estimated life span for each item in the category of intangible assets. The estimated life spans for intangible non-current assets are 3 years. (n) Provisions for depreciation of assets Assets are reviewed at each balance sheet date if there is any objective indication, according to which an asset can be depreciated. If any such indication exists, the Bank has to estimate the value of the recoverable value of the asset. A provision for depreciation is recorded in case the book value of the asset exceeds the recoverable value. The provision for depreciation is recorded in the profit and loss account. The provision for depreciation can be restated if there was a change in the existing conditions at the moment of determining the recoverable value. Restatement of a provision for depreciation can be performed only so that the value of net assets does not exceed the value of its net historic bookkeeping services, taking into account depreciation and without taking into account the provision. Loans and advances to customers, created by the Bank Starting with September 30, 2009, the Bank uses NBR Regulation no. 3/ on classification of loans and investments, as well as the establishment, restatement and the use of specific provisions for credit risk and modified by order no. 5 / April 23, 2009, Regulation No. 7 of April 23, 2009 and regulation no. 13 of July 23, Starting with June 30, 2010, the Bank shall apply the provisions of NBR Regulation no. 18/ September 17, 2009 on the management of credit institutions, the process of internal assessment of capital adequacy to risks and conditions for outsourcing their activities with regard to the treatment of rescheduling and/or refinancing operations. 17

20 Notes to financial statements 31 December Significant accounting policies and methods (continued) (n) Provisions for assets depreciation (continued) Loans and advances to customers, granted by the Bank (continued) According to these rules and norms, loans are classified and provisioned as follows: Categories Provision ratios for loans (other than those granted to individuals in fcy or adjusted based on another exchange rate, exposed to currency risk) Provision ratios for loans granted to individuals in fcy or adjusted based on another exchange rate, exposed to currency risk Standard Watch Substandard Doubtful Loss 1 1 The provision is calculated by applying the a/m percentages over the loan balance and related receivables, after subtracting the fair value of the guarantee obtained by the Bank from the borrowers. The guarantees for the exposures representing the principal of loans/placements classified as loss (with debt service over 90 days sand with respect to which legal procedures were initiated regarding an operation or the debtor) are adjusted by applying the ratios established by the lender, for each category/case. The value of such ratios is of max. 0,25. The guarantees associated with the exposures representing current/overdue interest regarding the a/m loans/placements, are not taken into consideration, the ratio applied on the value of such guarantees being equal to zero. The Bank records a specific credit risk provision when there is information indicating potential losses. The necessary provision for the depreciation of loans granted to clients is calculated by applying the a/m percentages over the loan balance and related interest after substracting the fair value of the guarantee obtained by the Bank from the borrowers. The provision for the depreciation of customer receivables is deducted from the specific category of assets in the balance sheet. The amounts related to off-balance loans and placements until 30 June 2007 are still recorded off-balance until their full recovery, until all legal methods for their recovery are exhausted or until the prescription term elapses. Bank placements are provisioned according to the same regulations based on the following debt service categories: Standard Loss 18

21 1. Significant accounting policies and methods (continued) Notes to financial statements 31 December 2010 (n) Provisions for assets depreciation (continued) Tangible and intangible assets The adjustment for the depreciation of tangible and intangible assets depends on the Bank s intention to maintain such assets for use or non-use during the operational activity or based on the market price evolution. If the Bank intends to use the asset in the operational activity, the adjustment for the depreciation of assets value is calculated by comparing the value recoverable by use with the net book value. If the reasons to establish such depreciation provision ceased to exist to a certain extent, such provision will be appropriately restated to income. In case the depreciation exceeds the allocated provision, an additional provision will be allocated. (o) Subordinated debt Subordinated debts represent loans obtained based on the issuance of securities or subordinated borrowings which are not security-based, at term or for an undetermined period. Their repayment in case of default is possible only after the compensation of the other lenders. Term subordinated debts include subordinated loans at term obtained based on the issuance of securities, as well as subordinated borrowings at term which are not security-based. Subordinated debts for an undetermined period include subordinated loans for an undetermined period obtained based on the issuance of securities, as well as subordinated borrowings for an undetermined period which are not security-based. (p) Other loan commitments During the normal course of activity, the Bank involved in other credit commitments, including loans, letters of credit and guarantees which are recorded under off-balance items. According to the NBR Regulation no. 18 / 2009, the assets classification and provisioning must also consider off-balance exposures which cannot be unilaterally cancelled by credit institutions. The bank holds off-balance exposures which can be cancelled unilaterally. Therefore, no provisions are allocated for off-balance items. (q) Retirement allowances and post-retirement benefits During the normal course of activity, the Bank makes payments to the retirement fund for its employees in Romania, health and unemployment social insurance payments. All employees are included in the public pension fund. The Bank does not run any other pension plan and therefore has no other obligation related to pensions. (r) Provisions The Bank allocates provisions for litigations based on the legal department s appraisal regarding the necessity to create such provisions and the required level of such provisions to cover potential losses arising from the Bank s involvement in court trials as defendant/ liable party. 19

22 Notes to financial statements 31 December Significant accounting policies and methods (continued) (s) Income tax The income tax for the year includes the current tax. The Bank records the income tax established according to the accounting and reporting regulations of the NBR and the Min. of Finance. The current tax is the tax payable for the profit of the period, determined based on the percentages applied as at the date of the balance sheet and all the adjustments operated for the previous periods. The income tax rate used for the calculation of current tax as at 31 Dec is 16% (2009: 16%), applicable on the profits achieved on the Romanian territory. (t) Dividends Dividends are recognized only after their approval by the General Shareholders Meeting. (u) Statutory reserves According to the Romanian legislation on banking institutions and operations, the Bank must distribute the profit as reserves or dividends based on the financial statements prepared in accordance with the accounting and reporting regulations of the NBR and the Min. of Finance. The amounts transferred to reserve accounts must be used for the purposes defined at the moment of transfer. In accordance with the Romanian legislation, the bank created the following reserves from profit: a) Reserve representing the fund for general banking risks: created starting from the financial year 2004 until the end of financial year 2006, from the accounting profit determined prior to the deduction of income tax gross profit (if the distributed amounts are included in the net profit), within the legal ratios and limits. The reserve representing the fund for general banking risks also includes the general reserve for credit risk, created until the end of financial year 2003, depending on the balance of granted loans outstanding as of this date; b) Legal reserve 5% of gross profit until reaching maximum 20% of share capital. In 2010 the amount of LEI representing 5% of gross profit was distributed to the legal reserve. (31 Dec. 2009: LEI). (v) Earning per share The earning per share presented in the income statement is determined as a ratio between net profit and the weighted average of the equiv. number of shares in the respective year. In Romania, companies may increase their share capital by pro-rata distribution of shares (free shares) to existent shareholders, without contribution for the amounts to be transferred under share capital. In order to calculate the earnings per share, such issue of free shares is considered as dividend allocation. In Sept respectively Nov. 2010, the share capital was increased by issuing a number of 384,263,115 shares resulting from: 271,584,470 shares from the incorporation of reserves created from net profit and issue premiums and 112,678,645 shares from cash subscription. Therefore the bank adjusted the earning per share for 2009 so as to reflect the modification of the number of shares. 20

23 Notes to financial statements 31 December Significant accounting policies and methods (continued) (w) Segmental reporting A segment is a distinct component of the entity engaged in the supply of certain products and services (activity segments), or in the supply of products and services in a particular economic environment (geographic segment) and which is affected by risks and benefits different from other segments. The bank identified the following activity segments: corporate, individuals, SMEs etc. Off-shore branches In the financial year ended 31 Dec. 2010, the bank carried out banking activities both on the Romanian and the Cypriot market. The Cyprus branch started its activity on 1 Oct Cyprus branch assets structure as at 31 Dec. 2010: - total assets: 162,624,309 LEI; - total liabilities: 164,588,573 LEI; - capital: 1,545,282 LEI; - loss: - 695,552 LEI; - carried forward result: - 2,813,994 LEI. Cyprus branch assets structure as at 31 Dec. 2009: - total assets: 8,445,672 LEI; - total liabilities: 9,708,707 LEI; - capital: 1,513,788 LEI; - loss: (929,070) LEI; - carried forward result: (1,847,753) LEI. (x) Contingent assets and liabilities Contingent assets Contingent assets are potential assets resulting from events preceding the balance sheet date. Their existence is confirmed only by the occurrence or non-occurrence of one or several future uncertain events which are not under the bank s total control. Contingent assets are not recognized in financial statements because they are not certain and their recognition could imply the recognition of income which may never be achieved. In case the income achievement is certain, the related asset is not contingent and must be recorded in the balance sheet. Contingent assets are permanently assessed in order to ensure the proper presentation of occurred modifications in the financial statements. If the benefit input is certain, the asset and related income will be recognized in the financial statements for the period in which such modifications occurred. 21