ANNUAL REPORT FOR 2009

Transcription

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2 K O M E R C I J A L N A B A N K A A D B U D VA ANNUAL REPORT 2009 Budva, April 2010

3 Budva, 30 April 2010 ANNUAL REPORT FOR 2009 In accordance with the Law on Banks, the Statute, the Bank s business policies, as well as International Accounting Standards, we hereby adopt the Annual Report on Operations for 2009, together with the Audit Report on the Financial Statements for 2009, with the expressed external auditor s opinion and consideration of the key operating indicators for The Bank s operations during 2009 can be characterized as very difficult and complex, operating under financial crisis conditions. The effects of the global economic crisis which is gripping the entire world economy were felt in Montenegro in the last quarter of Increased credit growth during 2007 and the first half of 2008, coupled with unparalleled growth in stock exchange operations, multiplied the effects of the financial crisis in the country. There is a marked reduction in foreign direct investments and an increase in the price of funding sources. This led to a slowdown in economic activity, low liquidity of entities and delays in settling liabilities. The psychological effects of the financial crisis resulted in increased withdrawal of deposits, particularly retail deposits. This impacted the Bank s liquidity and operation of the banking system as a whole, impacting our Bank s operations. The effects of the world economic crisis spilled over into 2009 to the real sector, so that the recession, whose effects are felt in the economies of many countries, is also being reflected in the macroeconomic business conditions in Montenegro. According to the Montenegrin Government s Ministry of Finance and based on IMF estimates, the gross national product registered a drop of 7% in 2009, while the GDP dropped by 5.3%, which is significantly above the forecasted drop of 2%. Also, a significant decrease in industrial production was registered, with a decrease in economic activities, construction, forestry, transport and trade. In its report the IMF estimated the GDP drop in Montenegro to be 7 percent. Where the Montenegrin economy is concerned, the banking and industrial sectors were hardest hit. Although the banking sector maintained its stability, credit activities registered a negative trend that contributed to stagnation of the economy. For this reason renewal of this segment will largely be determined by tendencies in the real sector, as well as by room for realising economic policy objectives for 2010, through adoption of new finance legislation and new models for jumpstarting credit activity, the economy, but above all, through strengthening of aggregate demand and investment spending. On a global level, the epicentre of the global financial and economic crisis is the banking sector. Governments and central banks reacted to the grave challenges facing the banking sector through determined actions with a view to renewing stability of the banking sector and of the economy. Unfavourable business trends at macroeconomic level caused by the global financial crisis impacted the operation of the banking sector as a whole. The first half of the year was marked by negative trends in the principal operating indicators of banks, which continued into the third quarter of 2009, but with a slight drop in particular balance sheet items, with a halt in the drop and increase in particular balance sheet items in the fourth quarter. The negative effects on the banking sector were reflected in the operating indicators of our Bank during Due to withdrawals of deposits and a drop in foreign direct investments, the lack of liquid assets 1

4 at the end of 2008 and 2009 impacted the increase in the price of funding sources. This led to a slowdown in economic activity, worsening liquidity and delays in settling liabilities by corporate and retail clients. Significant worsening in client classifications led to an increase in risk placements, matured liabilities and costs of credit losses. This impacted the increase in costs and the Bank s operating result, so that during the year the Bank reported a loss for the first time since its opening, but disclosed a profit by the end of the year. In accordance with business policy and the founder s policies, in response to significant events caused by the effects of the financial crisis at macroeconomic level and at the level of the banking market in Montenegro, the Bank initiated the drafting of a Business Plan for the Period , and adjusted forecasts of the Bank s operations up to 2011 as indicated in its Business Strategy. The basic characteristics of the current and future operations of the finance sector in Montenegro significantly determine the Bank s strategy and future operations, and are closely linked to: - Programs and measures of the Montenegrin Government; - Effective statutory regulations; - Effective policies of the Central Bank of Montenegro and its decisions; - Business environment and activities of competitors; - Expected future activities of competitors; - Business activities of companies and their liquidity; - The majority shareholder s business policy and strategy. The Bank s business plan in the upcoming period will be directed at operating under market conditions, with observance of fundamental principles of banking. The strategic decision is for the Bank to operate as a stable and profitable institution that will contribute to the stability of the Montenegrin banking system. Market and macroeconomic conditions in Montenegro largely determine the Bank s development policy, which inevitably leads to the need for improving operations and overcoming the negative effects of the financial crisis. The Bank s basic objective in the upcoming period, in view of the conditions on the banking market, stiff competition and operating in the midst of the global financial crisis, is to maintain its current market position in 2009, with a tendency of increasing credit activity, and therefore slight increase in balance sheet assets and market share, as set out in the Bank s Business Plan up to Achieving the targeted market share through growth in balance sheet assets requires funding sources to be secured in 2010 though increase in deposits, securing additional funding through long-term loans and through capital increase of the Bank, with extending loan funds to profitable projects of medium and small sized companies, and to attractive, large projects through joint ventures with the founders. Key measures to be undertaken for realising the Bank s objectives in the coming period for maintaining stability of market position and profitability of operation will comprise: Satisfying client needs and requirements with higher level of quality; Introducing new and modernised products and services; Developing business networks; Maintaining competitive interest rates. In terms of objectives that impact the income statement, it is crucial for the Bank to maintain its competitiveness in terms of interest rates on assets and liabilities, with a tendency toward reducing net interest margins, but with a significant increase in business volume, with a similar trend being projected 2

5 for commission income. On the other hand, increase in the Bank s profits primarily depends on provision expenses for loan losses that are directly dependant on statutory regulations and the client s creditworthiness. The Bank s basic objective is to achieve positive financial results by the end of the projection period and to realise satisfactory indicators of return on assets and equity within limits set by statutory regulations and the Bank s and founder s business policy, with increase in overall business volume, efficiency and profitability. With a view to achieving set financial targets in terms of asset quality and deposit potentials, the Bank increased interest on term deposits as of September 2008 in order to balance maturities of its assets and liabilities. This trend was attended by a reduction in the loan period of newly approved loans, as well as by interest rates, depending on sources of assets and creditworthiness of the loan applicant. In order to ensure matching maturities between assets and liabilities based on the new Decision on Liquidity Risk Management, at the end of 2008 the founder s short-term deposits were transformed into long-term loans in the amount of 17 million EUR. During 2009, owing to a stable liquidity position, liabilities related to the founder s loan were reduced by 6 million EUR, with resultant decrease in interest expense. On the other hand, worsening liquidity of the Bank s clients created problems in respect of collection and led to a deterioration in their credit rating. This was reflected in the increase in provisions expenses for loan losses, with resultant decrease in profits. With a view to overcoming the negative effects related to the effects of the economic crisis, the Bank undertook the following measures during the previous year: maintaining the liquidity position, through a policy of retaining deposits and attracting new ones, restrictive policy of short-term loan approval that reflects maturities of funding sources and the loan beneficiary s credit worthiness, intensifying collection measures for matured and unsettled liabilities through warnings, activating guarantees and initiating court procedures, activating collaterals: bills of exchange, payment orders, fiduciary powers, matching interest rates on assets with their cost per funding source and client creditworthiness, rationalisation of operating costs, etc. By activating client collaterals due to delays in settling liabilities, realising fiduciary rights to property, the Bank acquired real-estate property, resulting in a reduction in the credit portfolio and change in assets structure. However, in view of the reduction in the inflow if foreign direct investments and negative effects of the financial crisis, a drop in the volume of the capital market and the real estate market occurred, with resultant decrease in the sale of real-estate acquired through collection of receivables. Due to difficulties in client servicing of loan liabilities because of the effects of the financial crisis, the Bank started reprogramming loans of clients who meet loan reprogramming criteria, based on new regulations. The positive effects of loan reprogramming allowed for extension of maturities of liabilities, improvement in their liquidity positions and possibility for regular servicing of liabilities in the future, which implies a reduction in matured receivables for the Bank, with improvements in classifications or halting in further deterioration and additional provisioning expenses for loan losses, with maintaining of liquidity within statutory limits and matching in maturities of assets and their sources. By applying the new measures prescribed by the Central Bank of Montenegro, an improvement in classification and cancellation of provisions for loan loss expenses occurred. The measures undertaken by the Montenegrin Government and the Central Bank certainly contributed to a lessening of the effects of the financial crisis, to protection of the banking system, with incentives for economic activity and relaxation of individual entities. 3

6 The Bank responded successfully to all financial crisis challenges and with the assistance of its founder secured maintenance of a stable liquidity position and market share, making funds available to clients without any limitations. It settled its liabilities in 2009 regularly, did not draw on its obligatory reserves or liquidity loans from the Central Bank, with liquidity and solvency indicators being satisfactory and above prescribed limits at all times. As at 31 December 2009 the daily liquidity ratio amounted to 2.03, while the 10 day ratio amounted to 2.07 for the last ten days of the month (limit from 0.9 to 1.0). Movements in liquid assets and maturities of liabilities for loans and borrowings in the period from 1 January 2009 to 31 December 2009 in thousands of EUR are presented in the chart below: 20,000 15,000 10,000 5, Liquid assets/receivables Matured loans and borrowings liabilities Movements in the liquidity ratio in 2009 are presented in the chart below: 3,00 2,00 1,00 0,00 1,28 1,22 1,30 1,35 1,47 1,76 1,71 1,88 2,08 1,99 2,00 2,03 Liquidity Ratio The Bank s operations in 2009 were characterised by a decrease in assets, decrease in loans, decrease in liabilities on borrowings, increase in deposits, cash increase, increase in acquired assets, increase in loan loss expenses and by a positive financial result. Transaction volume at the end of 2009 amounted to thousand EUR and compared to 2008 registered an increase of 274 thousand EUR or 0.34%, as indicated in the chart below: 4

7 KOMERCIJALNA BANKA A D Budva BALANCE SHEET OBRAZAC BS (000 ) Red. br. ASSETS 31/12/ Cash and Depostis with Depository Institutions a. Cash and Non Interest Bearing Deposits b. Interest Bearing Deposits c. Client Custody Assets 0 2. Trade Assets and Assets Available for Sale, Not Stock 0 3. Securities Purchased Under Agreement to Resell 0 4. Loans and Lease Operations a. Less: Reserves for Loan Losses b. Net Loans and Lease Operations Securities Held to Maturity Factoring and Forfeiting 0 7. Receivable from Custody Operations 0 8. Business Premises and Other Fixed Assets Acquired Assets Equity Investments Other Assets Less: Reserves for Loan Losses on Other Assets (exclude 4a) TOTAL ASSETS LIABILITIES 14. Deposits a. Non Interest Bearing Deposits b. Interest Bearing Deposits Securities Sold Under Repurchase Agreement Liabilities for Custody Operations Liabilities Based on Loans and Borrowings a. Short Term Borrowings - up to one year 17.b. Long Term Borrowings - over one year Liabilities to Government Other Borrowings - Matured Liabilities Derivative financial liabilities held for trading (at fair value) Derivative financial liabilities as Security Instruments (at fair value) Other Liabilities Reserves for Loan Losses on Off Balance Sheet Exposures Subordinated Debt and Hybrid Instruments TOTAL LIABILITIES Minority Shareholder Interest 0 CAPITAL 27. Preffered Shares Common Shares Issue Shares Undistributed Profit/Loans Other Capital TOTAL CAPITAL: (27 through 31)

8 33. TOTAL LIABILITIES AND CAPITAL ( ) The Bank s balance sheet assets as at 31 December 2009 amounted to 71.8 million EUR and was reduced by 5.2 million EUR or 6.7% compared to 31 December Loans at the end of 31 December 2009 amounted to 47.9 mil. EUR and dropped by 13.0 million EUR or 21.4% compared to 31 December Deposits at the end of 31 December 2009 amounted to 37.6 mil. EUR and increased by 1.3 mil. EUR or 3.6 mil. compared to 31 December The loan from the founder as at 31 December 2009 amounted to 11 mil. EUR and decreased by 6 mil. EUR or by 35.3% compared to previous year. Provisions for loan losses at the end of 2009 amounted to 2.6 mil. EUR and were reduced by 1.0 mil. EUR or 28.6%, compared to previous year, with derecognition of provisions through transfer to acquired assets, as well as more favourable classification in line with Central Bank classification, contributing to the Bank s positive result. Profit from current operations at the end of 2009 amounted to 1.2 mil. EUR and is lower by 451 thou. EUR or 28% compared to previous year. Total balance sheet assets at the end of 2009 amounted to 71,798 thousand EUR and compared to 2008 decreased by 5,166 thousand EUR or 6.71%. Mov t in B/S assets in 000 EUR No capital increase of the Bank occurred in The Bank s share capital amounts to 17,370 thousand EUR, which when increased for reserves and previous year s retained earnings amounts to 21,157 thousand EUR, exceeding the 5 mil. EUR limit prescribed by the Central Bank of Montenegro. Deposits at the end of 2009 amounted to 37,561 thousand EUR and compared to 2008 increased by 1,289 thousand EUR or 3.56%. Deposits increased as a result of increase in retail deposits of 2,573 thousand EUR or 9.66%, while corporate deposits as at 31 December 2009 amounted to 8,342 thousand EUR, registering a loss of 1,284 thousand EUR or 2.95%. 6

9 Total deposits in 000 EUR Retail deposits at the end of 2009 amounted to 29,219 thousand EUR and compared to the end of 2008 when they amounted to 26,646 thousand EUR, they registered an increase of 2,573 thousand EUR or 9.66%, as presented in the chart below: Total retail deposits in 000 EUR Retail demand deposits which at the end of 2009 amounted to 16,689 thousand EUR and compared to 2008 when they amounted to 18,506 thousand EUR, registered a decrease of 1,817 thousand EUR or 9.82%, which can be seen in the chart below: Retail demand deposits in 000 EUR Retail term deposits which at the end of 2009 amounted to 12,531 thousand EUR and compared to 2008 when they amounted to 8,368 thousand EUR, registered a decrease of 4,163 thousand EUR or 49.75%, which can be seen in the chart below: 7

10 Retail term deposits in 000 EUR Corporate deposits as at 31 December 2009 amounted to 8,342 EUR and compared to 2008 when they amounted to 9,398 thousand EUR, they registered a decrease of 1,056 thousand EUR or 11.24%. Placements at the end of 2009 amounted to 47,918 thousand EUR and compared to 2008 when they amounted to 60,954 thousand EUR, they registered a decrease of 13,036 thousand EUR or 21.43%, as presented in the chart below: Structure of placements as at 31 December 2009 by maturities and commercial activities is presented below: With a view to gaining a fuller picture of the Bank s operations in the previous year, we provide an overview of income statement items with graphic presentations on the following pages. 8

11 KOMERCIJALNA BANKA A D Budva INCOME STATEMENT SCHEDULE BU POSITION (000 ) 31/12/2009 IN 1. Interest Income ) Deposits 4 2) Securities Purchased Under Agreement to Resell 0 3) Loans and Financial Lease ) Securities Held to Maturity 20 5) Other Interest Income 43 EX 1. Interest Expenses ) Deposits 819 2) Securities Purchased Under Agreement to Resell 0 3) Borrowings - Claims Payable 4) Loans and Other Borrowings ) Subordinated Debts 0 6) Other Interest Expenses 0 I. NET INTEREST INCOME/EXPENSE (IN.1.-EX.1.) II. Provision Expenses for Losses III. NET INCOME/EXPENSE (I-II) IN 2. Fee Income ) Fees from Loans 361 2) Fees from Off Balance Sheet Activities 73 3) Fees from Services Rendered 987 4) Other Fees 441 EX 2. Fee Expenses 296 1) Fees for Loans 0 2) Fees for Off Balance Sheet Activities 0 3) Fees for Services Rendered 296 4) Other Fees 0 IV. NET FEE INCOME/EXPENSES (IN 2. - EX 2.) V. NET INTEREST AND FEE INCOME/EXPENSES (III + IV) IN 3. Other Income ) Income from FX Deslings (Net) 61 2) FX Revaulation of Gains/Losses -4 3) Income from Securities Trading (net) and Gains/Losses on Securities 0 4) Income from trading (net) with Derivates futures-forward, 0 5) Net Losses/Gains from Custody operations 0 6) Other Income EX 3. Overhead and Other Expenses ) Salaries and Contribution Expense ) Business Premise and Fixed Assets Expenses 865 3) Other Expensses VI. NET INCOME/EXPENSE BEFORE EXTRAORIDINARY ITEMS IN 4. Extraoridinary Income 0 EX 4. Extraoridinary Expenses 0 VII. NET OTHER EXTRAORIDINARY INCOME/EXPENSES (IN 4. - EX 4.) 0 VIII. NET INCOME/EXPENSES AFTER EXTRAORIDINARY ITEMS (VI - VII) EX 5. Income Taxes and Contributions 183 IX. NET PROFIT/LOSS (VIII - EX 5)

12 Total revenues realised for the period January-December 2009 amount to 10,612 thousand EUR, which is 17% higher than previous year, as presented in the chart below: Total revenues in 000 EUR Expenses amounted to 9,471 thousand EUR and are higher by 27% compared to previous year, as indicated in the following graphic presentation: Total expenses in 000 EUR Realised profit in the amount of 1,342 thousand EUR was reduced at the end of the year for income tax in the amount of 183 thousand EUR, so that after tax profit amounted to 1,159 thousand EUR and decreased compared to previous year s profits by 451 thousand EUR or by 38.9%. Net profits in 000 EUR The Bank s operations in 2009 on the whole were successful, liquidity and solvency parameters are favourable, return on assets and equity parameters are positive and are within statutory limits, and are satisfactory during an exceptionally difficult year of crisis. Liquidity is satisfactory, there are no operating risks in any respect. The Bank operates in compliance with criteria prescribed by the Law on Banks and other regulations of the Central Bank of Montenegro, as well as the Bank s and the Founder s regulations, and regulations of Komercijalna banka Group. This can be seen from the following operating indicators: liquidity ratio daily 2.03 ( minimum 0.9), liquidity ratio ten day period 2.07 ( minimum 1.0) solvency indicator 32.60% ( minimum 10%), 10

13 share of approved loans in deposits and borrowings 96.86% (optimal up to 100%), share of operating expenses in total expenses (maximum up to 75%),1 Operating expenses / total expenses in % 100,00 90,00 80,00 70,00 60,00 50,00 40,00 30,00 20,00 10,00 0,00 interest rate risk indicator 1.24% (Bank limit ), currency risk indicator 7.37% of Bank s own funds (maximum 30%), country risk indicator 1.39% of the limit or 0.42% of Bank s own funds (limit 0% -10%), rate of return on assets 1.60% ( optimum 1.00% -1.35% ), Rate of return on assets in % 2,50 2,00 1,50 1,00 0,50 0,00-0,50-1,00-1,50-2,00-2,50 11 rate of return on equity 9.06% (optimum 16.00% %), Rate of return on share capital in % 12,00 10,00 8,00 6,00 4,00 2,00 0,00-2,00-4,00-6,00-8,00-10,00-12,00 rate of return on total revenues 10.93% (optimum 10.00%), interest and commission rate of return on interest bearing assets 6.29% (optimum 4.2%), Net interest & commission income / interest bearing assets in % 10,00 8,00 6,00 4,00 2,00 0,00-2,00 11

14 Besides the listed financial indicators, we also draw attention to other facts about our operations. The independent external auditor KPMG doo performed an audit of the financial statements for 2009 and confirmed the operating results indicated in this Report. At the start of 2010 the Central Bank of Montenegro performed diagnostic supervision through stress tests of credit risk and liquidity risk as at 30 June 2009 and confirmed adequacy of capital and liquid assets that is in line with the Bank s risk profile. Komercijalna banka ad Budva is operating on the Montenegrin market since 1993, initially as a local branch, then as a branch office of Komercijalna banka ad Beograde since 1996, and since 2003, after receiving its operating license from the Central Bank of Montenegro, as Komercijalna banka ad Budva. Beside its headquarters in Budva, the Bank operates through 15 organisational units (7 branch offices and 8 local branches). In 2009, although the opening of a branch office in Pljevlja was planned, due to the effects of the financial crisis, the Bank did not expand its network. Through IT investments, both in software and in hardware, the Bank is fully set up for independent banking operations and successful performance of payment operations in the country and abroad, e- banking, payment card operations, banking machines and POS terminals. Along with the purchase of the latest equipment, concurrently we invested in the training of existing staff and in hiring of new employees. In the middle of 2009 a transfer to the new CORE banking system from the former PEXIM was carried out, with continuing development and improvement in line with the Bank s requirements for IT system improvements and its support for better quality and fuller reporting in compliance with statutory and internal requirements. Total number of employees at the end of 2009 amounted to 109, with an additional 15 employees hired on service contracts. The educational background of employees is as follows: M.A. degree and MASTER (Bologna) % College degree % Vocational school degree % High school degree % TOTAL EMPLOYEES % The listed number of employees and their educational backgrounds permit unhindered operation, with maximum satisfaction of client needs, with the observation that our development program requires further strengthening of what we consider to be a significant factor of the Bank s success. The founder of Komercijalna banka Budva is Komercijalna banka ad Beograd, which is also the sole shareholder of the Bank with 100% ownership of its capital. During 2009 managing bodies met regularly, considered and made decisions on significant issues related to the Bank s operations, as follows: The Bank s Shareholders Assembly met once and in compliance with its competencies made decisions according to the Bank s Statute and the Law on Banks; The Board of Directors met 23 times during 2009 and in compliance with its competencies made decisions according to the Bank s Statute and the Law on Banks; The Auditing Committee met 14 times in 2009 and gave recommendations, opinions and observations on all issues within its competencies, for consideration by the Board of Directors, in accordance with its authorisations as defined by the Law on Banks and the Bank s Statute. 12

15 In the capacity of permanent bodies they made decisions in compliance with statutory regulations and the Bank s business policies. Besides the permanent bodies, the Assets and Liabilities Committee met regularly and analysed operating reports, matching of assets and liabilities, operating risks, as well as other issues that are relevant to the Bank s operations. The Bank s operations comprise all activities specified by current statutory regulations. The Bank conducts its operations through its headquarters in Budva, its branch offices in Podgorica, Nikšić, Petrovac, Cetinje, Tivat, Bijelo Polje and Berane, and local branches in Bar, Podgorica, Kotor, Herceg Novi, Ulcinj and Budva. The Bank s conducts all of its activities with high quality and efficiency owing to its technological, financial and staff potentials. The timing and development of the Bank is primarily conditioned by the needs of its clients. We are aware of the fact that it is very difficult to make comparative analyses of results, with respect to other financial institutions in Montenegro, but we will merely express our conviction that under the given macroeconomic conditions and operating under the effects of the financial crisis, our operating results are worthy of note. The negative financial result of banking operations in Montenegro amounts to 33.8 million EUR, while the positive result amounts to 12.2 million EUR, so that net losses realised at banking sector level amount to 21.6 million EUR. We are one of seven banks that registered a profit in Our share in overall profits realised at banking sector level amounts to 9.5%. Development of market and macroeconomic conditions in Montenegro largely determines the Bank s development policy, which inevitably leads to the need for improving operations and adjusting business to market principles. Of course, the economic development policy of the Bank in 2010 is dependant on the support of the founder, Komercijalna banka ad Beograd. In 2010 Komercijalna banka will focus its strategic business policy on: stable and profitable operation, retaining the Bank s current market share, adapting to reforms of the industrial and banking sectors, improving competitiveness and strengthening the Komercijalna banka brand, incentives, initiating and developing business, particularly private initiatives, intensifying investment activities of clients, support for export oriented projects, increasing foreign investments in profitable, primarily tourism oriented projects that are supported by Komercijalna banka ad Budva, expanding the business network as part of increased accessibility for clients and the market at large, increase in savings and deposits, introduction of new products, marketing and PR development, continuing profitability of operation, improved risk management, HR management process improvements, internal control and internal audit improvements. 13

16 The Bank adopted the Operating Plan for the Period , with projected operating results up to 2011 that define the Bank s objectives and direction of activity, precisely during the period of the effects of the financial crisis. The Bank s business strategy in the upcoming period will be directed at operating under market conditions, with observance of fundamental principles of banking. The strategic decision is for the Bank to operate as a stable and profitable institution that will contribute to the stability of its clients and the Montenegrin banking system at large. We will secure the target market share through increase in deposits by offering attractive interest rates on term deposits, as well as by securing additional funding from long-term loans by withdrawing EIB credit line funds, from the Directorate for the Development of Small and Medium-sized Companies and Development Fund, as well as through credit support of development projects for small and medium sized companies, and large and profitable projects through joint investments with their founders. The Bank s priority in 2010 will be stable operation with full compliance with the new statutory requirements relating to liquidity ratios. This is directly related to the matching of maturities of deposits and placements. In order to achieve the target market share through increase in balance sheet assets, it is necessary to secure sources of funds in the upcoming year through increased deposits or by securing additional funds through long-term borrowing, partly through long-term loans and partly through capital increase of the Bank from profits realised in the previous year, as well as through crediting particular, large and profitable projects through joint investments with their founders. Additional capital increase in 2010 will be very significant for establishing the Bank s stable market position, with increase in long-term funds for crediting corporate investment projects and retail clients in the long term, including improved matching in the Bank s maturities of assets and sources of assets. Financial objectives and development forecasts are conditioned by the global financial crisis whose effects are reflected in the economy and the banking sector on the whole, and therefore on our Bank as well. In line with the above stated, as well as the current position on the banking market in Montenegro, in its Operating Plan for the Period the Bank projected moderate growth in 2010 compared to 2009, precisely because of the decrease in balance sheet items and operating indicators due to the effects of the financial crisis, with gradual growth of operating parameters and market share up to In order to achieve the target market share it is necessary, under conditions of slower operation due to the effects of the financial crisis, to secure moderate growth of balance sheet assets by securing sources of assets in the ensuing period, through increase in deposits or long-term loans, with profitable operation and realisation of satisfactory liquidity indicators prescribed by statutory regulations. Also, at the beginning of 2010 we will carry out an additional capital increase of the Bank by the founder in the amount of 10 million EUR, with the funds secured through the capital increase allowing repayment of the loan owed to the founder, with resultant decrease in interest expense. Particular attention in the ensuing period will be devoted to reducing cash funds and increasing earning assets through loans and investments, with minimum risk. This will ensure an increase in interest income. Besides this, a priority task in 2010 and in the ensuring period is the sale of acquired assets and freeing up of related funds for the purpose of increasing earning assets. The Bank is fully compliant with limits for investment in real-estate and fixed assets, where these limits will increase after the planned capital increase, such that acquired assets of the Bank after holding for over two years since acquisition in the ensuing period will not have a negative effect on reducing own assets, but the basic objective is to dispose of the acquired assets and to transfer them to earning assets. 14

17 With the founder s support, strengthening of corporate governance, technical capacities and HR potentials, it is realistic to expect in the future progress of the Bank, in spite of the effects of the global financial crisis, that the principal challenge in 2010 will be to maintain stability and profitability of operation, strengthening deposit potentials by attracting new clients through improved offering and operating efficiency, simply put the Bank s security. In closing I would like to point out that without the exceptional support of the Chairman and the Deputy Chairman of the Executive Board of our founder, Komercijalna banka ad Beograd, the Bank s Shareholders Assembly, the Board of Directors, the Audit Committee and staff efforts, we would not have been able to realise the results we achieved in OPERATING OFFICER Ljiljana Mićunović CHIEF OPERATING OFFICER Milijana Gregović 15