EUROBANK ERGASIAS S.A.

Transcription

1 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S FOR THE YEAR ENDED 31 DECEMBER Othonos Street, Athens , Greece Tel.: (+30) General Commercial Registry No:

2 Index to the Consolidated Financial Statements... Page Consolidated Balance Sheet... 1 Consolidated Income Statement... 2 Consolidated Statement of Comprehensive Income... 3 Consolidated Statement of Changes in Equity... 4 Consolidated Cash Flow Statement General information Basis of preparation and principal accounting policies Basis of preparation Principal accounting policies IFRS 9 Financial Instruments Impact of adoption Critical accounting estimates and judgments in applying accounting policies Credit exposure to Greek sovereign debt Capital Management Financial risk management and fair value Credit Risk Market risk Liquidity risk Fair value of financial assets and liabilities Net interest income Net banking fee and commission income Income from non banking services Net trading income and gains less losses from investment securities Other income/ (expenses) Operating expenses Staff costs Other impairments, restructuring costs and provisions Income tax Deferred income taxes Discontinued operations Earnings per share Cash and balances with central banks Cash and cash equivalents and other information on cash flow statement Due from credit institutions Securities held for trading Derivative financial instruments and hedge accounting i

3 24. Loans and advances to customers Impairment allowance for loans and advances to customers Investment securities Shares in subsidiaries Investments in associates and joint ventures Structured Entities Property, plant and equipment Investment property Intangible assets Other assets Due to central banks Due to credit institutions Due to customers Debt securities in issue Other liabilities Standard legal staff retirement indemnity obligations Ordinary share capital, share premium and treasury shares Preferred securities Special reserves Dividends Transfers of financial assets Operating leases Contingent liabilities and other commitments Operating segment information Other significant and post balance sheet events Related parties External Auditors Board of Directors APPENDIX Disclosures under Law 4261/ ii

4 Consolidated Balance Sheet 31 December Note million million ASSETS Cash and balances with central banks 19 1,924 1,524 Due from credit institutions 21 2,307 2,123 Securities held for trading Derivative financial instruments 23 1,871 1,878 Loans and advances to customers 24 36,232 37,108 Investment securities 26 7,772 7,605 Investments in associates and joint ventures Property, plant and equipment Investment property Intangible assets Deferred tax assets 16 4,916 4,859 Other assets 33 1,934 1,724 Assets of disposal groups classified as held for sale 17, ,184 Total assets 57,984 60,029 LIABILITIES Due to central banks 34 2,050 9,994 Due to credit institutions 35 6,376 3,997 Derivative financial instruments 23 1,893 1,853 Due to customers 36 39,083 33,843 Debt securities in issue 37 2, Other liabilities Liabilities of disposal groups classified as held for sale 17-1,959 Total liabilities 52,953 52,879 EQUITY Ordinary share capital Share premium 40 8,055 8,055 Reserves and retained earnings (3,721) (2,556) Preference shares Preferred securities Non controlling interests 0 3 Total equity 5,031 7,150 Total equity and liabilities 57,984 60,029 Notes on pages 6 to 159 form an integral part of these consolidated financial statements 1 Page 31 December 2018 Consolidated Financial Statements

5 Consolidated Income Statement Year ended 31 December Note million million Interest income 2,186 2,164 Interest expense (770) (700) Net interest income 7 1,416 1,464 Banking fee and commission income Banking fee and commission expense (124) (114) Net banking fee and commission income Income from non banking services Net trading income Gains less losses from investment securities Other income/(expenses) 11 (2) 10 Operating income 1,845 1,882 Operating expenses 12 (879) (895) Profit from operations before impairments, provisions and restructuring costs Impairment losses relating to loans and advances to customers 25 (680) (750) Other impairment losses and provisions 14 (21) (50) Restructuring costs 14 (62) (13) Share of results of associates and joint ventures Profit before tax Income tax 15 (76) (5) Net profit from continuing operations Net loss from discontinued operations 17 (65) (61) Net profit Net profit attributable to non controlling interests Net profit attributable to shareholders Earnings per share -Basic and diluted earnings per share Earnings per share from continuing operations -Basic and diluted earnings per share Notes on pages 6 to 159 form an integral part of these consolidated financial statements 2 Page 31 December 2018 Consolidated Financial Statements

6 Consolidated Statement of Comprehensive Income Net profit Other comprehensive income: Items that are or may be reclassified subsequently to profit or loss: Year ended 31 December million million Cash flow hedges - changes in fair value, net of tax transfer to net profit, net of tax (19) 3 (8) 19 Debt securities at FVOCI - changes in fair value, net of tax (note 26) (88) - - transfer to net profit, net of tax (note 26) (75) (163) - - Available for sale securities - changes in fair value, net of tax (note 26) transfer to net profit, net of tax (note 26) - - (31) 213 Foreign currency translation - foreign operations' translation differences (10) 2 - transfer to net profit on disposal of foreign operations (note 17) Associates and joint ventures - changes in the share of other comprehensive income, net of tax (note 28) (33) (33) (169) 290 Items that will not be reclassified to profit or loss: - Actuarial gains/(losses) on post employment benefit obligations, net of tax 0 0 (2) (2) Other comprehensive income (169) 288 Total comprehensive income attributable to: Shareholders - from continuing operations (59) from discontinued operations (19) (78) (78) 392 Non controlling interests - from continuing operations from discontinued operations (78) 403 Notes on pages 6 to 159 form an integral part of these consolidated financial statements 3 Page 31 December 2018 Consolidated Financial Statements

7 Consolidated Statement of Changes in Equity Ordinary Non share Share Special Retained Preference Preferred controlling capital premium reserves earnings shares securities interests Total million million million million million million million million Balance at 1 January ,055 7,715 (10,664) ,394 Net profit Other comprehensive income Total comprehensive income for the year ended 31 December Acquisition/changes in participating interests in subsidiary undertakings (note 17) (634) (634) (Purchase)/sale of treasury shares (note 40) (0) (0) Dividends distributed by subsidiaries attributable to non controlling interests (15) (15) Share-based payment: - Value of employee services Transfers between reserves (2) (0) (0) 2 (1) - - (648) (647) Balance at 31 December ,055 8,005 (10,561) ,150 Balance at 1 January ,055 8,005 (10,561) ,150 Impact of adopting IFRS 9 at 1 January 2018 (note 2.3) (1,094) - - (0) (1,085) Balance at 1 January 2018, as restated 655 8,055 8,014 (11,655) ,065 Net profit Other comprehensive income - - (169) (169) Total comprehensive income for the year ended 31 December (169) (78) Redemption of preference shares (950) - - (950) Share capital decrease in subsidiaries with non controlling interests (1) (1) Changes in participating interests in subsidiary undertakings (0) - - (2) (2) (Purchase)/sale of treasury shares (note 40) (0) Preferred securities' dividend paid and buy back, net of tax (2) - (1) - (3) Transfers between reserves - - (48) (48) 46 (950) (1) (3) (956) Balance at 31 December ,055 7,797 (11,518) ,031 Note 40 Note 40 Note 42 Note 37 Note 41 Notes on pages 6 to 159 form an integral part of these consolidated financial statements 4 Page 31 December 2018 Consolidated Financial Statements

8 Consolidated Cash Flow Statement Cash flows from continuing operating activities Year ended 31 December Note million million Profit before income tax from continuing operations Adjustments for : Impairment losses relating to loans and advances to customers Other impairment losses, provisions and restructuring costs Depreciation and amortisation Other (income)/losses οn investment securities 20 (166) (135) Other adjustments 20 (58) (13) Changes in operating assets and liabilities Net (increase)/decrease in cash and balances with central banks (74) (10) Net (increase)/decrease in securities held for trading 3 (29) Net (increase)/decrease in due from credit institutions (99) 499 Net (increase)/decrease in loans and advances to customers (822) (356) Net (increase)/decrease in derivative financial instruments (82) (160) Net (increase)/decrease in other assets 33 (185) 14 Net increase/(decrease) in due to central banks and credit institutions (5,698) (7,867) Net increase/(decrease) in due to customers 5,240 1,743 Net increase/(decrease) in other liabilities (1) (13) (35) (1,730) (6,201) Income tax paid (34) (31) Net cash from/(used in) continuing operating activities (930) (5,326) Cash flows from continuing investing activities Acquisition of fixed and intangible assets (114) (97) Proceeds from sale of fixed and intangible assets (Purchases)/sales and redemptions of investment securities (205) 4,950 Acquisition of subsidiaries, net of cash acquired 27 (7) (0) Acquisition of holdings in associates and joint ventures, participations in capital increases and capital return (8) Disposal of subsidiaries, net of cash disposed 17 (114) 125 Dividends from investment securities, associates and joint ventures Net cash from/(used in) continuing investing activities (362) 5,074 Cash flows from continuing financing activities (Repayments)/proceeds from debt securities in issue 20 1, Capital return and distribution of profits from discontinued operations (1) Purchase of preferred securities (1) - Preferred securities' dividend paid 41 (3) - (Purchase)/sale of treasury shares 0 1 Redemption of preference shares, net of expenses 37 (4) - Net cash from/(used in) continuing financing activities 1, Effect of exchange rate changes on cash and cash equivalents (0) 7 Net increase/(decrease) in cash and cash equivalents from continuing operations (40) 226 Net cash flows from discontinued operating activities (1) (104) 357 Net cash flows from discontinued investing activities 1 (92) Net cash flows from discontinued financing activities (1) 20 (51) (40) Effect of exchange rate changes on cash and cash equivalents 0 (5) Net increase/(decrease) in cash and cash equivalents from discontinued operations (154) 220 Cash and cash equivalents at beginning of year 20 2,143 1,697 Cash and cash equivalents at end of year 20 1,949 2,143 (1) Comparative information has been adjusted to reflect the distribution of profits of 25 million from discontinued to continued operations within cash flows from financing activities (note 17). Notes on pages 6 to 159 form an integral part of these consolidated financial statements 5 Page 31 December 2018 Consolidated Financial Statements

9 1. General information Eurobank Ergasias S.A. (the Bank) and its subsidiaries (the Group) are active in retail, corporate and private banking, asset management, treasury, capital markets and other services. The Bank is incorporated in Greece and its shares are listed on the Athens Stock Exchange. The Group operates mainly in Greece and in Central and Southeastern Europe. These consolidated financial statements, which include the Appendix, were approved by the Board of Directors on 29 March The Independent Auditor s Report of the Financial Statements is included in the section III of the Annual Financial Report. 2. Basis of preparation and principal accounting policies The principal accounting policies applied in the preparation of the consolidated financial statements are set out below: 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the IASB, as endorsed by the European Union (EU), and in particular with those IFRSs and IFRS Interpretation Committee s (IC) interpretations, issued and effective or issued and early adopted as at the time of preparing these statements. The consolidated financial statements are prepared under the historical cost convention except for the revaluation of the availablefor-sale financial assets (policy applicable prior to 1 January 2018), the financial assets measured at fair value through other comprehensive income (policy applicable from 1 January 2018) and financial assets and financial liabilities (including derivative instruments) at fair-value-through-profit-or-loss. The accounting policies for the preparation of the consolidated financial statements have been consistently applied to the years 2018 and 2017, after taking into account the amendments in IFRS described in section New and amended standards and interpretations and the amendments described in section 2.2 Principal accounting policies following the adoption of IFRS 9. Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. The Group s presentation currency is the Euro ( ) being the functional currency of the parent company. Except as indicated, financial information presented in Euro has been rounded to the nearest million. Going concern considerations The annual financial statements have been prepared on a going concern basis, as the Board of the Directors considered as appropriate, taking into consideration the following: Macroeconomic environment Greece s real GDP grew by 1.9% in 2018 from 1.5% in 2017, according to the Hellenic Statistical Authority s (ELSTAT) first estimate, while the real GDP growth consensus forecast for 2019 stands at 1.9% (compared to an official target of 2.5%). The unemployment rate in December 2018 was at 18.0%, based on the Hellenic Statistical Authority s (ELSTAT) data (31 December 2017: 20.8%). On the fiscal front, Greece s primary balance is expected to register a surplus of 4.0% of GDP in 2018 according to 2019 Budget, (2017: 3.9% of GDP, according to ELSTAT data) while the respective forecast for 2019 is expected at 3.6% of GDP. In August 2018, Greece concluded successfully the third economic adjustment program (TEAP) and has entered into the Enhanced Post Program Surveillance (EPPS) under EU Regulation 472/2013, which foresees quarterly reviews by the competent committees of the institutions (EC/ECB/ESM/IMF). The post program surveillance s main purpose is to safeguard financial stability, and continue the process of implementation of structural reforms aiming, among others, to boost domestic growth, jobs creation and to modernize the public sector. The first and second quarterly review under the EPPS were completed at the end of November 2018 and early March 2019 respectively. Delays were observed in the implementation of the structural reforms initially planned for the end of 2018 including, among others, the legal framework of the NPE resolution tools and in particular the household insolvency law. As a result, 6 Page 31 December 2018 Consolidated Financial Statements

10 the European Commission has postponed the release of the first set of policy-contingent debt measures of 970 million for early April 2019 conditional on the progress of the pending reform items. In this context, a new protection scheme on primary residence was voted by the Greek Parliament on 29 March The Greek Government has built up a cash buffer of 26.5 bn until the end of September 2018, out of the European Stability Mechanism (ESM) loan disbursements, GGBs issuances and other sources, in order to facilitate the country s access to the international markets. This buffer suffices for covering the gross financial needs for two years after the end of the program or four years assuming that the current stock of treasury bills will be rolled over. On the back of this environment, Greek sovereign demonstrated market access as evidenced by the successful issuance of a 5-year bond of 2.5 bn at a yield of 3.6% on 29 January 2019 and a 10-year reference bond of 2.5 bn at a yield of 3.9% on 6 March The decisive implementation of the reforms agreed in the context both of the TEAP and the EPPS, the implementation of medium term debt relief measures in accordance with 21 June 2018 Eurogroup decisions, the mobilization of European Union funding to support domestic investment and job creation, the attraction of foreign and domestic capital and the adoption of an extrovert economic development model will improve the confidence in the prospects of the Greek economy and the further stabilization of the domestic economic environment. The main risks and uncertainties stemming from the macroeconomic environment are associated with (a) the adherence to established reforms and the possible delays in the implementation of the reforms agenda in order to meet the EPPS targets and milestones, (b) the impact on the level of economic activity and on the attraction of direct investments from the fiscal and social security-related measures agreed under the reviews of the TEAP, (c) the ability to attract new investments in the country, (d) the timing of a full lift of restrictions in the free movement of capital abroad and the respective impact on the level of economic activity, (e) the possible slow pace of deposits inflows and/ or possible delays in the effective management of non-performing exposures (NPEs) as a result of the macroeconomic conditions in Greece and (f) the geopolitical conditions in the near or in broader region and the external shocks from a slowdown in the regional and/ or global economy. The Group monitors closely the developments in the Greek macroeconomic environment taking into account its direct and indirect exposure to sovereign risk (note 4). Liquidity risk In 2018, the expectations for a further improvement of the macroeconomic environment in Greece has enhanced Greece s credibility towards the international markets, improved the domestic economic sentiment and facilitated the return of deposits. Moreover, the restrictions in the free movement of capital within the country have been lifted, while those applied on the transfer of funds abroad have been further relaxed. The prompt implementation of the post-program period s reforms scheme will help further reinstating depositors confidence, will accelerate the access to the markets for debt issuance and positively influence the financing of the economy. As at 31 December 2018, the Bank s dependency on Eurosystem financing facilities decreased to 2.1 bn (of which 0.5 bn funding from ELA), mainly due to deposits inflows, assets deleveraging, increased market repos on Greek Government securities and two asset backed securities issues sold via a private placement to an international institutional investor (note 37) (31 December 2017: 10 bn, of which 7.9 bn from ELA). As at 28 February 2019, the Group has eliminated the use of ELA funding while the total Eurosystem funding further declined to 1.3 bn. In addition, the increase of deposits by more than 5 bn in 2018 improved the Group s (net) loans to deposits (L/D) ratio to 92.6% end of December 2018 from 109.6% end of Solvency risk On 5 May 2018, the ECB announced the results of the Stress Test (ST) for the four Greek systemic banks, including Eurobank. Based on feedback received by the Single Supervisory Mechanism (SSM), the ST outcome pointed to no capital shortfall and no capital plan needed for the Bank as a result of the exercise. The Group s Common Equity Tier 1 (CET1) ratio stood at 14.2% at 31 December 2018, and the net profit attributable to shareholders amounted to 91 million ( 200 million net profit from continuing operations before 44 million restructuring costs, after tax) for the year ended 31 December As at 31 December 2018, the Bank has reduced the stock of NPEs by 2.8 bn since 31 December 2017 to 15.3 bn which is in line with the revised target submitted to SSM in September 2018 (note 6). Going forward, the prime target is the successful execution of the Bank s transformation plan consisting of a) the completion of the merger with Grivalia by May 2019 that will enhance Eurobank s capital position and its earning capacity (note 48), b) the acceleration of the NPE reduction plan through a large scale securitization of approximately 7 bn, the entry of a strategic investor into the capital of Financial Planning Services S.A. ( FPS ), the licensed 100%-owned loan servicer of Eurobank and other initiatives leading the 7 Page 31 December 2018 Consolidated Financial Statements

11 Group s NPE ratio at 16% in 2019 and a single digit by 2021 and c) the achievement of a substantially lower cost of risk as of 2020, which is expected to drive strong sustainable earnings per share (EPS). Going concern assessment The Board of Directors, taking into consideration the above factors relating to the adequacy of the Group s capital and liquidity position, the gradual reduction of the NPEs stock in line with the Bank s operational targets along with the strategic initiatives related to the transformation plan of the Bank, has been satisfied that the financial statements of the Group can be prepared on a going concern basis New and amended standards and interpretations New and amended standards adopted by the Group The following new standards, amendments to standards and new interpretations as issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee (IC) and endorsed by the European Union (EU), apply from 1 January 2018: IFRIC 22, Foreign Currency Transactions and Advance Consideration IFRIC 22 provides requirements about which exchange rate to use in reporting foreign currency transactions that involve an advance payment or receipt. The interpretation clarifies that in this case, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income is the date of the advance consideration, i.e. when the entity initially recognized the non-monetary asset (prepayment asset) or non-monetary liability (deferred income liability) arising from the advance consideration. If there are multiple payments or receipts in advance, the entity must determine a date of transaction for each payment or receipt. The adoption of the interpretation had no impact on the Group s consolidated financial statements. IFRS 4, Amendment-Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts The amendment addresses the accounting consequences of the different effective dates of IFRS 9 Financial Instruments and the forthcoming new insurance contracts Standard. It introduces two options for entities that issue insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach. The optional temporary exemption from IFRS 9 is available to entities whose activities are predominantly connected with insurance, allowing them to continue to apply IAS 39 Financial Instruments: Recognition and Measurement while they defer the application of IFRS 9 until 1 January 2021 at the latest. The overlay approach is an option for entities that adopt IFRS 9 and issue insurance contracts, to adjust profit or loss for eligible financial assets, effectively resulting in IAS 39 accounting for those designated financial assets. This approach can be used provided that the entity applies IFRS 9 in conjunction with IFRS 4 and classifies financial assets at fair value through profit or loss in accordance with IFRS 9, when those assets were previously classified at amortized cost or as available-for-sale in accordance with IAS 39. The amendment is not relevant to the Group s activities, other than through its associate Eurolife ERB Insurance Group Holdings S.A., which has elected the optional temporary exemption from IFRS 9. IFRS 2, Amendment-Classification and Measurement of Share-based Payment Transactions The amendment addresses (a) the measurement of cash-settled share-based payments, (b) the accounting for modifications of a share-based payment from cash-settled to equity-settled and c) the classification of share-based payments settled net of tax withholdings. Specifically, the amendment clarifies that a cash-settled share-based payment is measured using the same approach as for equitysettled share-based payments. It also clarifies that the liability of cash- settled share-based payment modified to equity-settled one is derecognized and the equity-settled share-based payment is recognized at the modification date fair value of the equity instrument granted and any difference is recognized in profit or loss immediately. Furthermore, a share-based payment net by withholding tax on the employee s behalf (a net settlement feature) is classified as equity settled in its entirety, provided it would have been classified as equity-settled had it not included the net settlement feature. The adoption of the amendment had no impact on the Group s consolidated financial statements. 8 Page 31 December 2018 Consolidated Financial Statements

12 IAS 40, Amendment-Transfers of Investment Property The amendment clarifies that a transfer of property, including property under construction or development, into or out of investment property should be made only when there has been a change in use of the property. Such a change in use occurs when the property meets, or ceases to meet, the definition of investment property and should be supported by evidence. The adoption of the amendment had no impact on the Group s consolidated financial statements. Annual Improvements to IFRSs Cycle The IASB through the annual improvements cycle, provided a clarification for IAS 28 Investments in Associates and Joint Ventures : It is clarified that venture capital organizations, mutual funds, unit trusts and similar entities are allowed to elect measuring their investments in associates or joint ventures at fair value through profit or loss. Such election can be performed on an investmentby-investment basis in associates or joint ventures. The adoption of the amendment had no impact on the Group s consolidated financial statements. IFRS 15, Revenue from Contracts with Customers and IFRS 15 Amendments IFRS 15 establishes a single, comprehensive revenue recognition model for determining when and how much revenue to recognize and replaced existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programs. IFRS 15 applies to all contracts with customers, except those in the scope of other standards such as: Financial instruments and other contractual rights or obligations within the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures ; Lease contracts within the scope of IAS 17 Leases (or IFRS 16 Leases ); and Insurance contracts within the scope of IFRS 4 Insurance Contracts. Therefore, interest and fee income integral to financial instruments will continue to fall outside the scope of IFRS 15. IFRS 15 specifies that revenue should be recognized at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services. It introduces the concept of recognizing revenue for performance obligations as they are satisfied and the control of a good or service (i.e. the ability to direct the use of and obtain the benefits from them), is obtained by the customer. For services provided over time, such as management fee income earned for asset management services provided and variable performance fee income based on the return of the underlying asset at a particular date, consideration is recognized as the service is provided to the customer provided that it is probable that a significant reversal of consideration will not occur. IFRS 15 was amended in April 2016 to provide several clarifications, including that in relation to the identification of the performance obligations within a contract. The adoption of the standard and its amendment had no impact on the Group s consolidated financial statements as net interest income, which is a primary revenue stream of the Group, is not impacted by the adoption of IFRS 15. Furthermore, regarding Group s revenue from contracts with customers, including fee and commission income, there was no change in the accounting treatment of services provided over time, or transactions executed at point in time, as it is consistent with the Group s existing accounting policy. A table disaggregating revenue from contracts with customers per Group s reportable segments is presented in note 8. IFRS 9, Financial Instruments On 1 January 2018, the Group adopted IFRS 9 Financial Instruments, which replaced IAS 39, Financial Instruments: Recognition and Measurement. The adoption of IFRS 9 in 2018 resulted in changes in accounting policy in two principal areas, classification and measurement of financial assets and liabilities and impairment of financial assets. The Group elected, as a policy choice permitted under IFRS 9, to continue to apply hedge accounting in accordance with IAS 39. Differences arising from the adoption of IFRS 9 have been recognized directly in reserves and retained earnings as of 1 January 2018 and are disclosed in note 2.3. The Group has not restated comparative information for 2017 for financial instruments in the scope of IFRS 9. 9 Page 31 December 2018 Consolidated Financial Statements

13 Changes in the classification and measurement IFRS 9 applies a new classification and measurement approach for all types of financial assets that reflects the entity's business model for managing the assets and their contractual cash flow characteristics. To determine their classification and measurement category, IFRS 9 requires all financial assets, except equity instruments and derivatives, to be assessed based on a combination of the entity s business model for managing the assets and the instruments contractual cash flow characteristics. Reclassifications between categories are made only in rare circumstances. For the purpose of the transition to IFRS 9, the Group carried out a business model assessment across various portfolios for its debt instruments to determine any potential changes to the classification and measurement. The assessment has been performed based on the facts and circumstances that exist at the date of initial application i.e. 1 January 2018 (see section 2.3.2). The IAS 39 categories of financial assets (fair value through profit or loss (FVTPL), available for sale (AFS), held-to-maturity (HTM) and Loans and Receivables) have been replaced by: Debt instruments measured at amortized cost Debt instruments measured at fair value through other comprehensive income (FVOCI), with gains or losses recycled to profit or loss on derecognition Equity instruments at FVOCI, with no recycling of gains or losses to profit or loss on derecognition Financial assets measured at FVTPL The Group may at initial recognition, designate a financial asset at FVTPL in order to eliminate or significantly reduce an accounting mismatch. Furthermore, on initial recognition of an equity instrument that is not held for trading, an entity may irrevocably elect to present subsequent changes in fair value in Other Comprehensive Income (OCI). This election is made on an investment-by-investment basis. The IFRS 9 eligibility requirements for applying the fair value option to measure financial liabilities at FVTPL are consistent with those of IAS 39. However, for financial liabilities designated at FVTPL, gains or losses attributable to changes in own credit risk shall be presented in OCI and shall not be subsequently transferred to profit or loss unless such a presentation would create or enlarge an accounting mismatch. Finally, under IFRS 9, embedded derivatives are no longer separated from a host financial asset. Instead, financial assets are classified based on the business model and their contractual terms. The accounting for derivatives embedded in financial liabilities and in nonfinancial host contracts has not changed. The Group s classification of its financial assets and liabilities is explained in Section 2.2 of this note. The quantitative impact of applying IFRS 9 as at 1 January 2018 is disclosed in note Changes to the impairment calculation The adoption of IFRS 9 has changed significantly the Group s accounting for the impairment of financial assets by replacing IAS 39 incurred loss approach with a forward-looking expected credit loss (ECL) approach, which requires the use of complex models and significant judgment about future economic conditions and credit behavior. Credit losses are recognized earlier under IFRS 9 compared to IAS 39. IFRS 9 requires the Group to record an allowance for credit loss for all financial assets not held at FVTPL, together with loan commitments and financial guarantee contracts, which are off-balance sheet items. The allowance is based on the ECL calculation of the related probability of default of the debtor in the next twelve months unless there has been a significant increase in credit risk since origination of the exposure, when lifetime ECL is measured. If the financial asset meets the definition of purchased or originated credit impaired (POCI), the allowance is based on the change in the ECL over the life of the asset. Details of the Group s impairment policy are disclosed in Section 2.2 of this note. The quantitative impact of applying IFRS 9 as at 1 January 2018 is disclosed in note Hedge accounting under IFRS 9 IFRS 9 includes a new general hedge accounting model which aligns hedge accounting more closely with risk management. Under the new model, more hedging strategies may qualify for hedge accounting, new hedge effectiveness requirements apply and discontinuation of hedge accounting will be allowed only under specific circumstances. The IASB currently has a separate project for 10 Page 31 December 2018 Consolidated Financial Statements

14 the accounting of macro hedging activities. Until the above project is completed, entities have an accounting policy choice to continue applying the hedge accounting requirements in IAS 39. The Group has elected to continue applying IAS 39. Consequential changes in disclosures (IFRS 7 Financial Instruments: Disclosures ) Effective from 1 January 2018, due to IFRS 9 transition, these consolidated financial statements include transition disclosures, which provide qualitative and quantitative information about the impact from the revised classification and measurement and ECL principles. In addition, these consolidated financial statements include, the enhanced classification and measurement, impairment and hedge accounting disclosures as required by the related amendments to IFRS 7 Financial Instruments: Disclosures. New standards, amendments to standards and interpretations not yet adopted by the Group A number of new standards, amendments to existing standards and interpretations are effective after 2018, as they have not yet been endorsed by the European Union or have not been early applied by the Group. Those that may be relevant to the Group are set out below: IFRS 9, Amendment Prepayment Features with Negative Compensation (effective 1 January 2019) The amendment changes IFRS 9 requirements in order to allow measurement of a financial asset at amortized cost or at FVOCI, depending on the business model, even in the case of prepayment options which could result in the party that triggers the early termination receiving compensation from the other party (negative compensation). Therefore, measurement of these financial assets will be regardless of the event or circumstance that caused the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination. Applying IFRS 9 before the amendment would probably result in the measurement of these financial assets at FVTPL. The amendment also confirms the modification accounting of financial liabilities under IFRS 9. Specifically, when a financial liability measured at amortized cost is modified without this resulting in derecognition, a gain or loss, calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate, should be recognized in profit or loss. The adoption of the amendment is not expected to impact the Group s consolidated financial statements. IFRIC 23, Uncertainty over Income Tax Treatments (effective 1 January 2019) The interpretation clarifies the application of the recognition and measurement requirements in IAS 12 Income Taxes when there is uncertainty over income tax treatments. In such a circumstance, recognition and measurement of current or deferred tax asset or liability according to IAS 12 is based on taxable profit (tax loss), tax bases, unused tax losses and tax credits and tax rates determined applying IFRIC 23. According to the interpretation, each uncertain tax treatment is considered separately or together as a group, depending on which approach better predicts the resolution of the uncertainty and the entity should assume that a tax authority with the right to examine tax treatments will examine them and will have full knowledge of all relevant information. If an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, it should determine its accounting for income taxes consistently with that tax treatment. If it concludes that it is not probable that the treatment will be accepted, the effect of the uncertainty in its income tax accounting should be reflected in the period in which that determination is made, using the method that best predicts the resolution of the uncertainty (i.e. the most likely amount or the expected value method). Judgments and estimates made for the recognition and measurement of the effect of uncertain tax treatments should be reassessed whenever circumstances change or new information that affects those judgments arise (e.g. actions by the tax authority, evidence that it has taken a particular position in connection with a similar item or the expiry of its right to examine a particular tax treatment). The adoption of the interpretation is not expected to impact the Group s consolidated financial statements. IFRS 16, Leases (effective 1 January 2019) IFRS 16, which supersedes IAS 17 Leases and related interpretations, introduces a single, on-balance sheet lease accounting model for lessees, under which the classification of leases for a lessee, as either operating leases or finance leases, is eliminated and all leases are treated similarly to finance leases under IAS Page 31 December 2018 Consolidated Financial Statements

15 The definition of a lease under IFRS 16 mainly relates to the concept of control. The new standard distinguishes between leases and service contracts on the basis of whether the use of an identified asset is controlled by the customer. Control is considered to exist if the customer has: - The right to obtain substantially all of the economic benefits from the use of an identified asset; and - The right to direct the use of that asset. IFRS 16 provides for the recognition of a right-of-use-asset and a lease liability upon lease commencement in case that there is a contract, or part of a contract, that conveys to the lessee the right to use an asset for a period of time in exchange for a consideration. The right-of-use-asset is, initially, measured at cost, consisting of the amount of the lease liability, plus any lease payments made to the lessor at or before the commencement date less any lease incentives received, the initial estimate of restoration costs and any initial direct costs incurred by the lessee and, subsequently, at cost less accumulated depreciation and impairment. The lease liability is initially recognized at an amount equal to the present value of the lease payments during the lease term that are not yet paid. Consequently, the typical straight line operating lease expense of operating leases under IAS 17 is replaced by the depreciation charge of the right-of-use-asset and the interest expense on the lease liability. The recognition of assets and liabilities by lessees, as described above, is not required for certain short term leases and leases of low value assets. The accounting treatment for lessors is not substantially affected by the requirements of IFRS 16. Transition to IFRS 16 The date of initial application of IFRS 16 for the Group will be 1 January The Group has chosen the modified retrospective application of IFRS 16 and therefore comparative information will not be restated. Upon transition, the Group will make use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, existing contracts previously classified as service contracts such as ATMs, APSs and printing services will not be classified as leases under IFRS 16, while the definition set out in IFRS 16 will be applied to all lease contracts entered into or modified on or after 1 January Lessee Accounting In accordance with IFRS 16, at the commencement date of the lease, the Group as a lessee will recognise right-of-use assets and lease liabilities in the statement of financial position, initially measured at the present value of the future lease payments. The Group intends to apply this initial measurement principle to all leases, except for those with lease term of 12 months or less - making use of the short-term leases and leases of low-value assets exemptions. Accordingly, in estimating the impact from IFRS 16 adoption, the Group expects to recognise right-of-use assets of approximately 360 million and corresponding lease liabilities of 360 million arising from leases of properties and vehicles, while no impact is expected on shareholders equity. The estimated capital impact arising primarily from the increase in risk-weighted assets is a reduction of approximately 13 bps on the Group s common equity Tier I ratio by applying regulatory transitional arrangements (approximately -10 bps on the Group s CET1 ratio, on a fully loaded basis). It is noted that approximately 132 million of the above mentioned right-of-use assets and 132 million of the corresponding lease liabilities relate to properties currently on lease from Grivalia, which will be derecognized upon the completion of the announced merger by absorption of Grivalia by Eurobank (note 48), as the related properties will become own used assets of the combined new group. With regard to subsequent measurement, the Group, acting as a lessee, will apply the cost model for the measurement of right-ofuse asset. Accordingly, the right-of-use asset will be measured at cost less any accumulated depreciation and accumulated impairment losses and adjusted for the remeasurement of the lease liability. On the other hand, interest expense will be recognized on the lease liabilities, while their carrying amount will be reduced to reflect the lease payments made. In case of any reassessments or lease modifications specified, the carrying amount of the lease liabilities will be remeasured to reflect revised lease payments. 12 Page 31 December 2018 Consolidated Financial Statements

16 Lessor Accounting At inception date of the lease, the Group, acting as a lessor, will classify each of its leases as either an operating lease or a finance lease based on certain criteria. These criteria are unchanged compared to current accounting as described below. Finance leases At commencement date, the Group will derecognize the carrying amount of the underlying assets held under finance lease, recognize a receivable at an amount equal to the net investment in the lease and recognize, in profit or loss, any profit or loss from the derecognition of the asset and the recognition of the net investment. The net investment in the lease will be calculated as the present value of the future lease payments in the same way as for the lessee. After commencement date, the Group will recognize finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the lessor s net investment in the lease. The Group shall also recognize income from variable payments that are not included in the net investment in the lease. After lease commencement, the net investment in a lease will not be remeasured unless the lease is modified or the lease term is revised. Operating leases The Group will continue to recognize the underlying asset and will not recognize a net investment in the lease on the balance sheet or initial profit (if any) on the income statement. The Group will recognize lease payments as income on a straight-line basis. Also it will recognize costs, including depreciation, incurred in earning the lease income as an expense. The Group adds initial direct costs incurred in obtaining an operating lease to the carrying amount of the underlying asset and recognizes those costs as an expense over the lease term on the same basis as the lease income. Subleases The Group, acting as a lessee, may enter into arrangements to sublease a leased asset to a third party while the original lease contract is in effect. The Group will act as both the lessee and lessor of the same underlying asset. The sublease will be a separate lease agreement, in which the intermediate lessor will classify the sublease as a finance lease or an operating lease as follows: - if the head lease is a short-term lease, the sublease will be classified as an operating lease; or - otherwise, the sublease will be classified by reference to the right-of-use asset arising from the head lease, rather than by reference to the underlying asset. Operating lease commitments as at 31 December 2018, presented in accordance with the disclosure requirements of IAS 17 for the minimum lease payments under non-cancellable operating leases, are set out in note 45. Amounts disclosed in the aforementioned note reflect the lease payments over the non-cancellable period only, as determined in accordance with the contractual terms of the leases and the applicable legal provisions regarding the minimum lease period. Accordingly, as at 31 December 2018, for lease contracts where the Group is the lessee and have a stated maturity, the noncancellable operating lease rentals payable are 134 million (note 45), whereas the total future contractual lease payments are 340 million. IAS 28, Amendment Long Term Interests in Associates and Joint Ventures (effective 1 January 2019) The amendment clarifies that IFRS 9 Financial Instruments including its impairment requirements, applies to long term interests in associates or joint ventures that form part of the entity s net investment in the associate or joint venture but are not accounted for using equity accounting. According to the amendment, an entity should not take into account any adjustments to the carrying amount of long term interests (net investment in the associate or joint venture), resulting from the application of IAS 28 Investments in Associates and Joint Ventures when applying IFRS 9. The adoption of the amendment is not expected to impact the Group s consolidated financial statements. IAS 19, Amendment Plan Amendment, Curtailment or Settlement (effective 1 January 2019) The amendment clarifies that when a change to a defined benefit plan i.e. an amendment, curtailment or settlement takes place and a remeasurement of the net defined benefit liability or asset is required, the updated actuarial assumptions from the remeasurement should be used to determine current service cost and net interest for the remainder of the reporting period after the change to the 13 Page 31 December 2018 Consolidated Financial Statements