Eurostandard Banka AD, Skopje

Transcription

1 Financial Statements and Independent Auditors Report Eurostandard Banka AD, Skopje 31 December 2011 This is an English translation of the original Report issued in Macedonian, in case of any discrepancies between the English and Macedonian version the Macedonian text shall prevail.

2 Contents Page Independent Auditors Report 1 Income Statement 3 Statement of comprehensive income 4 Balance Sheet 5 Statement of Changes in Equity and Reserves 8 Statement of Cash Flows 12 Notes to the financial statements 14

3 Independent Auditors Report Grant Thornton DOO M.H.Jasmin 52 v-1/ Skopje Macedonia To the Management and Shareholders of Eurostandard Banka AD, Skopje T +389 (2) F +389 (2) We have audited the accompanying financial statements of Eurostandard Banka AD, Skopje (the Bank ) which comprise of the Balance sheet as of 31 December 2011, and the Income statement, Statement of comprehensive income, Statement of changes in equity and reserves and Statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, included on pages 3 to 123. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Decision on the Methodology of recording and evaluating accounting items and the preparation of financial statements issued by the National Bank of the Republic of Macedonia, and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

4 Chartered Accountants Member firm of Grant Thornton International Ltd 2

5 3 Financial statements 31 December 2011 Income Statement In Denar thousand Note Interest income 252, ,276 Interest expenses (137,564) (66,568) Net interest income / (expenses) 6 114, ,708 Fee and commission income 48,709 35,509 Fee and commission expenses (13,435) (10,433) Net fee and commission income/(expenses) 7 35,274 25,076 Net trading income Net income from other financial instruments recorded at fair value Foreign exchange gains / (losses), net 10 9,055 7,434 Other operating income 11 4,714 4,582 Participation in income of associates Impairment losses of financial assets, net 12 25,999 17,409 Impairment losses of non financial assets, net 13 (706) (504) Personnel expenses 14 (60,651) (58,031) Depreciation and amortization 15 (16,977) (17,938) Other operating expenses 16 (107,251) (85,582) Participation in losses of associates Profit/(Loss) before taxation 4,115 2,154 Income tax 17 (1,221) (583) Profit/ (loss) for the year from continuing operations 2,894 1,571 Profit / (loss) from group of assets and liabilities held for sale* - - Profit / (loss) for the year 2,894 1,571 Profit / (loss) for the year, attributable to:* Shareholders of the Bank - - non-controlling interest - - Earnings per share 41 basic earnings / (losses) per share (in Denar) diluted earnings / (losses) per share (in Denar) - - * Only for consolidated financial statements See accompanying Notes to the financial statements

6 4 Financial statements 31 December 2011 Statement of comprehensive income In Denar thousand Note Profit/ (loss) for the year 2,894 1,571 Other gains/ (losses) in the period not presented in the Income Statement (before taxation) Revaluation reserve for assets available-for-sale - unrealized net-changes in fair value of assets availablefor-sale realized net-gains/ (losses) from assets available-forsale, reclassified in the Income Statement - - Reserve for instruments for risk protection of cash flows unrealized net-changes in fair value of instruments for risk protection of cash flows realized net-gains/(losses) from instruments for risk protection of cash flows, reclassified in the Income Statement - - Reserve for instruments for risk protection from netinvestments in foreign operations - - Reserve of foreign exchange differences from investment in foreign operations - - Participation in other gains/ (losses) in associates not presented in the Income Statement Other gains.(losses) not presented in the Income Statement - - Income tax from other gains/(losses) not presented in the Income Statement Total other gains/ (losses) in the period not presented in the Income Statement - - Comprehensive income/ (loss) for the year 2,894 1,571 Comprehensive income/ (loss) for the year, attributable to:* Shareholders of the Bank - - Non-controlling interest - - * Only for consolidated financial statements See accompanying Notes to the financial statements

7 5 Financial statements 31 December 2011 Balance Sheet In Denar thousand Notes Assets Cash and cash equivalents 18 1,283, ,841 Assets for trading Financial assets at fair value through profit and loss upon initial recognition Derivative assets held for risk management Loans and advances to banks ,662 70,004 Loans and advances to customers ,292,718 1,506,557 Investments in securities 23 19,990 4,338 Investments in associates (recorded according to equity method ) Income tax receivables (Current) ,758 2,979 Other receivables 25 7,006 6,438 Pledged assets Foreclosed assets ,448 46,035 Intangible assets 28 8,427 13,208 Property and equipment 29 21,971 27,472 Deferred tax assets Non-current assets held for sale and disposal group , ,606 Total assets 4,339,315 2,592,478 Liabilities Trading liabilities Financial liabilities at fair value through profit and loss upon initial recognition Derivative liabilities held for risk management Due to banks ,135 11,872 Due to customers ,392,983 1,741,783 Debt instruments issued Borrowings 36 85,155 1,155 Subordinated liabilities , ,259 Special reserve and provisions 38 1, Income tax liabilities (Current) Deferred tax liabilities Other liabilities 39 6,648 6,337 Liabilities directly associated with disposal group Total liabilities 3,622,186 1,878,243 See accompanying Notes to the financial statements

8 6 Financial statements 31 December 2011 See accompanying Notes to the financial statements

9 7 Financial statements 31 December 2011 See accompanying Notes to the financial statements

10 8 Financial statements 31 December 2011 Statement of Changes in Equity and Reserves In Denar thousand Total equity and reserves attributabl Non- e to thecontro Subscribed capital Equity Share premium (Treas. shares) Other equity instrum ents Reval. reserve Revaluation reserves Risk Reserv e Forex reserve Other reser. Statutory reserve Other reserves Capital com. of hyb. fin. Instrum Other reserves Retained earnings Attribut. to sharehol. (Accum. losses) Total shareho. lling equity of the intere and Bank st reserves At 1 January ,100, , (412,841) 712, ,664 Opening balance adjustments At 1 January 2010, adjusted 1,100, , (412,841) 712, ,664 Comprehensive income/(loss) for the year Profit / (loss) for the year , ,571-1,571 Other gains/ (losses) for the period not presented in the Income Statement Changes in fair value of assets available for sale Changes in fair value of risk protection of cash flows Changes in fair value of risk protection of net investments in foreign operations Limited for distrib. to shareh ol See accompanying Notes to the financial statements

11 9 Financial statements 31 December 2011 Statement of Changes in Equity and Reserves (continued) Subscribed capital Equity Share premium (Treas. shares) Other equity instrum ents Reval. reserve Revaluation reserves Risk Reserve Other reserves In Denar thousand Foreign exchange differences from investments in foreign operations Deferred tax (assets) / liabilities recognized in equity Other Total unrealized profit / (loss) recognized in equity and reserves Total comprehensive income/ (loss) for the year , ,571-1,571 Transactions with shareholders, recognized in equity and reserves: Shares issued during the period Distribution to statutory reserve Distribution to other reserves Dividends Purchase of treasury shares Sale of treasury shares Other changes in equity and reserves Transactions with shareholders, recognized in equity and reserves: At 31 December 2010 / 1 January ,100, , ,571 - (412,841) 714, ,235 Forex reserve Other reser. Statutory reserve Capital com. of hyb. fin. Instrum Other reserv es Retained earnings Attribut. to shareh ol. Limite d for distrib. to shareh ol (Accum. losses) Total equity and reserve s attribut able to the shareho. of the Bank Noncontr olling inter est Total equity and reserve s See accompanying Notes to the financial statements

12 10 Financial statements 31 December 2011 Statement of Changes in Equity and Reserves (continued) Equity Revaluation reserves Other reserves Retained earnings Subscribed capital Share premium (Treas. shares) Other equity instrument s Reval. reserve Risk Reserve Forex reserve In Denar thousand Comprehensive income/(loss) for the year Profit / (loss) for the year , ,894-2,894 Other gains/(losses) for the period not presented in the Income Statement Changes in fair value of assets available for sale Changes in fair value of risk protection of cash flows Changes in fair value of risk protection of net investments in foreign operations Foreign exchange differences from investments in foreign operations Deferred tax (assets) / liabilities recognized in equity Other Total unrealized profit / (loss) recognized in equity and reserves Total comprehensive income/ (loss) for the year , ,894-2,894 Other reser. Statutory reserve Capital com. of hyb. fin. Instrum Other reserves Attribut. to shareho l. Limited for distrib. to sharehol (Accum. losses) Total equity and reserve s attribut able to the shareho. of the Bank Noncontro lling intere st Total equity and reserv es See accompanying Notes to the financial statements

13 11 Financial statements 31 December 2011 Statement of Changes in Equity and Reserves (continued) Subscribed capital Equity Share premium (Treas. shares ) Other equity instrument s Reval. reserve Revaluation reserves Risk Reserve Forex reserve Other Statutory reser. reserve Other reserves Retained earnings (Accum. losses) Total equity and reserves attributa ble to the shareho. of the Bank In Denar thousand Transactions with shareholders, recognized in equity and reserves: Shares issued during the period Distribution to statutory reserve (236) Distribution to other reserves Dividends Purchase of treasury shares Sale of treasury shares Covering losses from previous years (1,335) - 1, Transactions with shareholders, recognized in equity and reserves (1,571) - 1, At 31 December ,100, , ,894 - (411,506) 717, ,129 Capital com. of hyb. fin. Instrum Other reserves Attribut. to sharehol. Limite d for distrib. to shareh ol Noncontro lling intere st Total equity and reserve s * Only for consolidated financial statements See accompanying Notes to the financial statements

14 12 Statement of Cash Flows In Denar thousand Note Operating activities Profit / (Loss) before taxation 4,115 2,154 Adjustment for: Non-controlling interest, included in consolidated income statement * - - Amortization and depreciation of: Intangible assets 5,041 5,340 Property and equipment 11,936 12,598 Capital gain from: Sale of intangible assets - - Sale of property and equipment - - Sale of foreclosed assets - - Capital loss from: Sale of intangible assets - - Sale of property, plant and equipment - - Sale of foreclosed assets - - Interest, fee and commission income (252,222) (176,276) Interest, fee and commission expense 137,564 66,568 Net trading (income)/ expenses - - Impairment losses of financial assets, net additional impairment losses 195, ,529 release of impairment losses (221,565) (210,938) Impairment losses of non financial assets, net additional impairment losses release of impairment losses - - Special reserve additional provisions 3,122 5,291 release of provisions (2,963) (7,478) Dividend income (717) (494) Participation of profit / (loss) of associates - - Other adjustments - - Received interest 245, ,817 Paid interest (126,182) (58,804) Profit from operations before changes in operating assets (454) 1,811 (Increase) / decrease of operating assets: Trading assets - - Derivatives held for risk management - - Loans and advances to banks (185,453) (42,301) Loans and advances to customers (951,327) (734,895) Assets pledged as collateral - - Foreclosed assets 3,375 - Obligatory deposit in foreign currency (22,932) (14,731)

15 13 In Denar thousand Year ended Statement of Cash Flows (continued) 31 December Obligatory deposit held with NBRM according to special regulations - - Other receivables (3,429) 1,602 Deferred tax assets - - Non current assets held for sale and disposal group - - Increase / (decrease) in operating liabilities: - - Trading liabilities - - Derivative liabilities held for risk management - - Due from banks 8,256 11,022 Due form customers 1,640, ,344 Other liabilities Liabilities related to group or assets for disposal - - Net cash flow from operating activities before taxation 488,703 (29,127) (Paid) / received income tax - - Net cash flow from operating activities 488,703 (29,127) Cash flow from investment activity (Investments in securities) (15,052) - Inflows from sale of investment in securities - - (Outflows from investment in subsidiaries and associates) - - Inflows from disposal of investment in subsidiaries and associates - - (Purchase of intangible assets) (260) (5,383) Inflows from sale of intangible assets - - (Purchase of property and equipment) (4,051) (6,790) Inflows from sale of property and equipment - - (Outflows from non - current assets held for sale) - - Inflows from non - current assets held for sale - - (Other outflows from investing activity) - - Other inflows from investing activity Net cash flow from investing activity (19,246) (12,039) Cash flow from financing activity - - (Repayment of debt securities issued) - - Issued debt securities - - (Repayment of borrowings) - (1,243) Increase of borrowings 81,085 - (Repayment of issued subordinary debts) - - Issued subordinated debts - 116,259 Inflows from issued shares / equity instruments during the period - - (Purchase of treasury shares) - - Selling of treasury shares - - (Dividends paid) - - (Other outflows from financing) - - Other inflows from financing - - Net cash flow from financing activity 81, ,016 Effect from allowance for impairment of cash and cash equivalents - - Effect from foreign exchange differences of cash and cash equivalents - - Net increase / (decrease) of cash and cash equivalents 550,542 73,850 Cash and cash equivalents as of 1 January 598, ,524 Cash and cash equivalents as of 31 December 18 1,148, ,374 * Only for consolidated financial statements

16 14 Notes to the financial statements 1 General Eurostandard Banka AD, Skopje ( the Bank ) is a Shareholding Company incorporated in the Republic of Macedonia. The Bank s registered head office is located at 27 Mart no. 2, Skopje, Republic of Macedonia. The Bank is licensed by the National Bank of the Republic of Macedonia for conducting payment transfers, and deposit services in the country and abroad and credit services in the country. The Bank owns 66.66% of the shares of Postenska Banka A.D. Skopje, with voting right acquired by realization of pledge recorded as non-current assets held for sale. As of 31 December 2011 and 2010, the Bank performed its business activities with 99 and 91 employees, respectively. 1.1 Basis of preparation of financial statements Financial statements of Eurostandard Banka AD Skopje are prepared in accordance with the Law on Banks and bylaws prescribed by the National Bank of the Republic of Macedonia effective as of 31 December 2011, the Law on Trade Companies (Official Gazette of RM No. 28/04; 84/05; 25/07; 87/08; 42/10; 48/10 and 24/11) and Rulebook on Accounting (Official Gazette of RM No.159/09; 164/10). According this Rulebook the accounting standards adopted in the Republic of Macedonia are the International Financial Reporting Standards (IFRS). Financial statements of the Bank are presented in accordance with the format and content of balance schemes published in the Decision on the types and content of financial statements of banks, published in the Official Gazette of RM No.169/2010 and 152/2011, which is based on the Methodology for recording and valuation of accounting items and preparation of financial statements, published in Official Gazette of RM No. 169/2010.

17 15 Basis of preparation of financial statements (continued) The preparation of financial statements in accordance with accounting standards applicable in the Republic of Macedonia and requires use of estimates and assumptions that affect the presented assets and liabilities, potential assets and liabilities at the date of financial statements and the presented amounts of revenues and expenses during the reporting period. These estimates are based on Management's best knowledge of the current events and activities and are disclosed in Note 1.3. Additional information is presented in accounting policies and appropriate notes to the financial statements. The financial statements have been prepared as of and for the years ended 31 December 2011 and 2010 and represent individual unconsolidated financial statements. Current and comparative data stated in these financial statements are expressed in Denar thousand. Where necessary, the presentation of comparative data is adjusted according to changes in presentation in the current year. 1.2 Significant accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. The determination of the Bank s accounting policies is based on acknowledged, familiar and practical experiences of the provisions of the Decision on the Methodology for recording and valuating of accounting items and for the preparation of financial statements, Rulebook on accounting and the Manual on the types and content of financial statements of banks, Decision on the types and content of financial statements of banks and other legal regulations. These policies have been consistently applied to all the years presented, unless otherwise stated Foreign currency transactions Transactions denominated in foreign currencies have been translated into Denar at rates set by the National Bank of the Republic of Macedonia at the dates of the transactions. Foreign currency translation is transaction which follows a foreign currency or may be converted into foreign currency. Assets and liabilities denominated in foreign currencies are translated at the balance sheet date using official rates of exchange prevailing on that date, and any foreign exchange gains or losses, resulting from foreign currency translation, are included in the income statement in the period in which they arose. The middle exchange rates used for conversion of the balance sheet items denominated in foreign currencies are as follows: 31 December December EUR Denars Denars 1 USD Denars Denars 1 CHF Denars Denars

18 16 Significant accounting policies (continued) Offsetting Financial assets and liabilities are offset and reported in the Balance sheet on net basis when there is a legally enforceable right to offset the recognized amounts Interest income and expenses Interest income and expense are recognized in the Income statement for all interest bearing financial assets and liabilities using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts Fee and commission income Fee and commission income, excluding the commission for loans approval, is recognized on an accrual basis when the service has been provided. The commission for loan approval is limited and amortised during the period of the loan, by applying the effective interest rate method Foreign exchange income and expenses Net foreign exchange income and expenses include realized and unrealized foreign exchange differences that are derived from the reconciliation of transactions made in foreign currency, as well as from asset and liability valuation, which are included in the Income statement in the period when they occur. Commitments and contingencies denominated in foreign currency are translated in Denar, by applying the official exchange rates that are valid on the Balance sheet date Dividend income Dividends are recognized in the Income statement when the entity s right to receive payment is established Financial assets Financial assets are classified in the following categories: loans and receivables, financial assets at fair value through profit and loss, financial assets available-for-sale and financial assets held to maturity. Management classifies its investments at initial recognition.

19 17 Significant accounting policies (continued) Financial assets (continued) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Bank provides money or services directly to a debtor with no intention of trading the receivable. They are recognized when the cash is advanced. Financial assets at fair value through profits and losses This category of financial assets consists of securities held for trading and securities at fair value through profits and losses classified as it at initial recognition. A financial asset is classified as asset held for trading of it is acquired or incurred principally for the purpose of generating profit through short-term fluctuations in the price or if it is included in the portfolio for which a shortterm actual form of profit gain exists. As of 31 December the bank has no assets classified under this category. Financial assets available-for-sale Financial assets available-for-sale are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. Financial assets available-for-sale are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or share prices. Financial assets held to maturity Financial assets held to maturity 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. If the Bank sells a significant amount of the financial assets held to maturity before they reach the maturity date, then the entire category of these assets will be reclassified in financial assets available-for-sale. As of 31 December 2011 the Bank has no assets classified under this category. Initial recognition and derecognition Purchases and sales of financial assets available for sale and held to maturity financial assets are recognized on trade date the date on which the Bank commits to purchase or sell the asset. Loans are recognized when cash is advanced to the borrowers. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets cease to be recognized after the rights to receive cash flows from the funds ends or after their transfer, and the Bank transferred substantially all risks and benefits of ownership.

20 18 Significant accounting policies (continued) Financial assets (continued) Subsequent measurement After initial recognition, the Bank measures financial assets carried at fair value through profit or loss, or as available-for-sale, at fair values without any deduction for transaction costs it may incur on their sale. The fair value of quoted financial assets is their bid prices at the Balance sheet date. If the market on which the financial asset is quoted is not active, the Bank establishes fair values by using a valuation technique. Valuation techniques include the use of recent arm s length market transactions, references to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If the value of equity instruments cannot be reliably measured, they are measured at cost. Investments held to maturity and loans and receivables are measured at amortised cost using the effective interest method, less impairment losses. Realised gains and losses, and unrealised gains and losses arising from changes in the fair value of financial assets at fair value through profit or loss, are included in the profit or loss in the period in which they arise. Net changes in the fair value of financial assets classified as of fair value through profit and loss includes interest income. Unrealised gains and losses arising from changes in the fair value of financial assets available-forsale are recognised directly in equity, except for impairment losses and foreign exchange gains and losses on monetary items such as debt securities, which are recognised in profit or loss. When financial assets available-for-sale are sold or impaired, the cumulative gains or losses previously recognised in equity are recognised in the profit or loss. Where financial assets availablefor-sale are interest bearing, interest calculated using the effective interest method is recognised in profit or loss.

21 19 Significant accounting policies (continued) Impairment of financial assets Assets carried at amortized cost The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: Delinquency in contractual payments of principal or interest; Days in arrears for payment of principal or interest; Cash flow difficulties experienced by the borrower; Breach of loan covenants or conditions; Deterioration of the borrower s competitive position; Deterioration in the value of collateral; Initiation of bankruptcy proceedings; Activating the collateral. The Bank assesses the existence of objective evidence for impairment on individual basis for individually significant financial assets. The amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses based on the loan) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance for impairment and the amount of the impairment loss is recognized in the current Income statement. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment and are recognized as income in the current period. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the profit or loss.

22 20 Significant accounting policies (continued) Impairment of financial assets (continued) Assets recognized at fair value The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. Significant or prolonged decline in the fair value of the security below its cost is considered as objective evidence in determining whether the assets are impaired. If any such evidence exists for financial assets available-for-sale, the cumulative loss measured as the difference between the acquisition cost and the current fair value is recognized in the Income statement. If, in a subsequent period, the fair value of a debt instrument classified as available-forsale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the Income statement Foreclosed assets Foreclosed assets consist of buildings and equipment acquired in settlement of liabilities with an intention for its further sale. They are not used by the Bank for its core operations. These assets are measured at the lower of carrying amount and fair value less costs to sell. The Bank plans to dispose the collected collateral within five years of forced acquisition. For the purposes of subsequent measurement of foreclosed assets in cases where the estimated value of foreclosed asset is less than cost or carrying value, the Bank in the amount of their difference recognizes an impairment loss in the Income statement Intangible assets Computer software Costs associated with development or maintaining computer software programs are recognized as an expense as incurred. Costs directly associated with identifiable and unique software products controlled by the Bank that will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Computer software development costs recognized as assets are amortized using the straight-line method over a period of four years. Other intangible assets Costs to acquire rights and licenses are capitalized and amortized using the straight-line method over a period of four years.

23 21 Significant accounting policies (continued) Property and equipment Property, plant and equipment are carried at cost less accumulated depreciation. Cost includes all expenses directly attributable to purchase of assets. Depreciation is charged on a straight - line basis at prescribed rates in order to allocate the acquisition cost of property, building, plant and equipment over their useful lives. The following are approximations of estimated useful life applied to significant items of property, plant and equipment: Transportation assets Furniture and office equipment Other equipment 4 years 5 years 4, 5 and 10 years Subsequent purchases are included in the asset s carrying value or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Income Statement Non-current assets held for sale and disposal group Non current assets that are expected to be recovered through sale rather than through continuous use are classified as held for sale. Before this classification as held for sale, they are evaluated by the lower of their book value and fair value, less sales expenses. Loss for impairment at their initial recognition as held for sale and losses and profit from subsequent assessment are recognized in the Income statement. Gains are not recognized in excess of any cumulative impairment loss Impairment of non-financial assets Assets that are subject to amortization and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of an asset s net selling price and value in use Cash and cash equivalents Cash and cash equivalents comprise cash, accounts that represent deposits on demand in banks, accounts in NBRM and term deposits in banks less than three months maturity from the date of acquisition.

24 22 Significant accounting policies (continued) Provision A provision is recognized when there is a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. When the effect of the time value of money is material, the amount of provision represents the present value of the expenditures expected to be required to settle the obligation Employees benefits The Bank contributes to its employees as prescribed by the local social security legislation. Contributions, based on salaries, are made to the national Pension Fund and the obligatory private pension funds. There is no additional liability regarding these pension schemes. In addition, all employers in the Republic of Macedonia are obligated to pay to the employees a separate minimum amount regulated by law. The Bank has not made provisions for the employees minimum amount on retirement, as this amount would not have a material effect on the financial statements. The Bank does not operate any pension scheme or retirement benefit plans and consequentially, has no liability for pensions. The Bank is not obliged to provide additional benefits for its current or previous employees Current and deferred income tax Income tax at 10% rate is paid to non deductible items for tax purposes adjusted for tax credit, and as well as on the distributed profit for dividends to legal entities non residents and to individuals. Undistributed profit (retained earnings) is exempt of taxation. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. The tax rates that are currently valid are used in determination of deferred income tax. Deferred income tax is charged or credited in the profits and losses except when it relates to items charged or credited directly to the equity, in which case the deferred tax is also dealt within the equity. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. The Bank has not recognized any deferred tax liability or asset as of 31 December 2011 and 31 December 2010, as there are no temporary differences existing at those dates Financial liabilities Financial liabilities are classified in accordance with the substance of the contractual arrangement. Financial liabilities consist of loans and other liabilities. Borrowings and subordinated liabilities Borrowings and subordinated liabilities are initially recognized at fair value, being their issue proceeds (fair value of consideration received) less transaction costs incurred. Borrowings are subsequently carried at amortized cost. Borrowings are derecognized at the moment of their settlement, cancellation or expiration.

25 23 Significant accounting policies (continued) Deposits Deposits mainly present: current accounts, demand deposits and time deposits to banks, legal entities and individuals. The Bank recognizes deposits in the Balance sheet when the Bank becomes a party of contractual provisions of the instrument. The deposits are measured at their objective value, plus transaction costs, which are directly related to the undertaking or issuing of the financial liability. Deposits consequently are measured according to their amortized cost, by using the method of effective interest rate. Deposits are derecognized at the moment of their settlement, cancellation or expiration. Other liabilities Other liabilities are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. There are subsequently stated at amortised cost. Other liabilities are derecognized at the moment of their settlement, cancellation or expiration Equity, reserves and dividend payments (a) Shareholders capital Share capital represents the nominal value of shares that have been issued. (b) Share issue costs Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds. (c) Treasury shares Where the Bank purchases equity share capital, the consideration paid is deducted from total shareholders equity as treasury shares until they are cancelled. Where such shares are subsequently sold, any consideration received is included in shareholders equity. (d) Reserves Reserves, which comprise of revaluation and statutory reserves, are generated throughout the period, based on distribution of profit in accordance with legal regulation and the Decisions made by the Bank s Assembly. (e) Retained earnings/ accumulated (losses) Retained earnings/ accumulated (losses) comprise the retained earnings and accumulated losses from current and previous periods. (f) Dividends on ordinary shares Dividends on ordinary shares are recognized in equity in the period in which they are approved by the Bank s shareholders.

26 24 Significant accounting policies (continued) Lease The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. Bank as a lessee Finance leases, which transfers to the Bank substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased vehicles and equipment or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term, if there is no reasonable certainty that the Bank will obtain ownership by the end of the lease term. Payments of the operating leasing are recognized as an expense on a straight-line basis over the lease term. Bank as a lessor Leases where the Bank retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are presented as deferred expenses in the balance sheet and recognised in profit or loss over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned. Prepaid rents are recognized as deferred income. The Bank has not classified any assets under this category Segment reporting Segment reporting is presented by business activities according operating segments. Operating segments of the Bank are: operations with individuals- loans and deposits, operations with financial institutions- loans and term deposits and other operating segments. Concentration of business activities to significant customers is reported if the Bank earns 10% or more from the total income and expenses of the Bank from certain customer Commitments and contingencies The Bank undertakes liabilities in its operating activities arising from loan placements accounted for in the off balance accounts, which primarily include guarantees and letter of credits and unused credit lines. These financial liabilities are accounted for in the balance sheet when become recoverable. Provision for impairment related to off balance commitments and contingencies are recognized as a liability within the Balance sheet Fiduciary activities The Bank usually acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals and other institutions. These assets and income arising there on are excluded from these financial statements, as they are not assets of the Bank Events after the reporting date Events after the reporting date that provide additional information about the Bank s position at the balance sheet date (adjusting events) are reflected in the financial statements. Events after the reporting date that are not adjusting events are disclosed in the notes when material.

27 Critical estimates and judgments The Bank makes estimates and assumptions which affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Impairment of loans and advances to customers The Bank on quarterly basis reviews its loan portfolio to assess impairment. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Impairment of investments in available-for-sale securities The Bank determines that available for sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investor, industry and sector performance, changes in technology, and operational and financing cash flows. 1.4 Change in accounting policies, accounting estimates and correction of errors During 2011 and 2010, the Bank has made no change in accounting policies, accounting estimates and correction of errors. 1.5 Compliance with the regulations As of 31 December 2011, the Bank is in full compliance with the law and bylaws in respect of all exposure limits arising from the Law on Banks and bylaws adopted by the Council of NBRM.

28 26 2 Risk management The Bank establishes an integrated system for management of all tangible and intangible risks, on which is exposed by the nature, size and complexity of the financial activities that are carried out. Bank in its operations is exposed to the following types of risks: Credit risk, including country risk. Liquidity risk. Currency risk. Risk of change in interest rates in the portfolio of banking activities. Risk of concentration of the bank exposure. Operational risk. Strategic risk. Legal risk. Reputation risk. Based on the Strategy of managing risks the Bank establishes special policies and procedures for managing all risks to which is exposed in its operations. Policies to manage risks include: Evaluation of the Bank capacity to take certain risks, and to evaluate its risk profile. Organizational structure in managing risks. Basic elements of risk management. Acceptable instruments to prevent or reduce risks. Internal control and main elements of the process of internal assessment and evaluation of the required adequacy of the bank capital. Also, according the risk management policies Bank to pursue and establish procedures for measurement or assessment, monitoring, controlling or reducing risks that should: Provide timely and comprehensive identification of risks (risk mapping) facing the Bank. Be based on quantitative and / or qualitative estimates and measurable and non-measurable risks. Include rules, procedures and ways to reduce diversification, transfer and avoiding risks that are identified, measured and assessed by the Bank. Define the frequency and the methods for risk monitoring. The Bank establishes an organizational structure with clearly defined powers and responsibilities in managing risks, which corresponds to the size, type and complexity of the Bank ant the financial activities carried out.

29 27 Risk management (continued) The organization of the system of managing risks is established by the following hierarchy levels: Strategic level risk management function is accomplished by members of the Supervisory Board and Managing Board. Macro level risk management function at the level of business unit or business line is executed by persons with special rights and responsibilities that perform governmental functions and/ or special organizational part responsible for monitoring the management of all or certain risks and takes place at level of the Risk Management Directorate. Micro level risk management activities are carried out by people who take risks in everyday work, in accordance with the work procedures and the internal control systems and takes place at the level of Risk Management Directorate and at the level of business units sectors. 2.1 Credit risk Credit risk is a risk of financial loss for the Bank if the client or the contracting party of the financial instrument fails to meet their obligation and it is generally derived from loans and advances to clients and other banks, issued guarantees and securities investment. In order to manage the risk, the Bank collectively takes into consideration all the elements of credit risk exposure (as individual risk of the failure to meet the liabilities of the debtor, country risk and industrial sector risk). The Bank defines the acceptable credit exposure, with which it is expected: Credit risk dispersion; Increasing the scope of the credit portfolio; Improvement of the portfolio quality; Increasing the bank s profitability. The management and control of credit risk is centralised in the Centre for risk management, which in turn regularly informs the Risk Management Board and the Board of Directors, and through them, the Supervisory Board and the Auditing Board. The Bank manages limits and controls the concentration of credit risk at the time when they are identified - particularly in terms of individual contractual parties or groups, as well as in term of industrial sectors and countries. The Bank structures the levels of undertaken credit risk by means of setting limits of acceptable risk related to one lender or a group of lenders, to geographical and industrial segments. Moreover, the exposure to credit risk is managed by regular analysis of the lenders capability to meet their obligations of interest and principal, as well as through the change of these credit limits, if at all possible.

30 28 Risk management (continued) Credit risk (continued) Collateral represents one of the most traditional and frequent ways to mitigate the credit risk. The Bank applies instructions related to the acceptability of certain classes of collaterals. The basic types of collateral for credit and advances are the following: Housing and business property mortgages; Pledge on business assets, such as equipment, inventory and receivables; Pledge on financial instruments, such as shares; Cash deposit; Bills of exchange. In order to mitigate the credit risk and if the banks assesses, it can ask for additional collateral from its customers. Policies and procedures After the individual classification of exposure to credit risk has been made, the Bank makes an allowance for impairment of the active balance and off balance sheet receivables, by determining the net present value of future cash flows that would arise based on those receivables. The amount of the allowance for impairment for active balance sheet receivables, individually, is determined as the difference between the carrying value of balance sheet receivables and the current value of the assessed recoverable amounts (excluding future losses based on the credit). The net present value of the active balances receivables is calculated by discounting expected future cash flows for those receivables with the use of the effective interest rate based on the contract. The effective interest rate is the interest rate which equals, the net present value of all future cash flows to the net present value of all future cash outflows. When calculating the effective interest rate, the Bank: Takes into consideration all future cash flows (inflows and outflows) which are expected to arise in accordance with the agreed conditions; Takes into consideration all paid and/or collected commissions and fees which represent an integral part of the effective interest rate of the receivable; Does not take into consideration the fees and commissions for investment of deposit, as a collateral for the receivable; Does not take into consideration future losses due to credit risk of the receivable. For the purposes of discounting the expected future cash flows, the effective interest rate on annual basis is used. If due to the financial difficulties of the client, the Bank approves a change of crediting conditions in terms of the interest rate and the period of repayment of the client s receivables, the effective interest rate used for discounting the expected future cash flows, is the one that was valid before the changes of the crediting conditions.

31 29 Risk management (continued) Credit risk (continued) For discounting the expected future cash flows of the receivables with a variable interest rate, the Bank applies the effective interest rate, in accordance with the contract, valid on the day on which the net present value of expected cash is determined. In situations such as these, the effective interest rate is calculated for the entire period of the contract s validity (not just the remaining maturity period), by applying the interest rate, valid on the day on which the net present value of expected cash flows is determined. If the interest rate on the date on which the net present value is determined, is changed by less than 10% in terms of the last interest rate used to execute the discounting of future cash flows, the Bank can apply the previous interest rate that was used to determine the net present value of expected future cash flows. The Bank allows calculates impairment, and makes a special reserve within the following limits: From 0% to 10% of the credit risk exposure classified in risk category A. Over 10% to 25% of the credit risk exposure classified in risk category B. Over 25% to 50% of the exposure of credit risk classified in risk category C. Over 50% to 75% of the exposure of credit risk classified in risk category D. Over 75% to 100% of the exposure of credit risk classified in risk category E. Maximum credit risk exposure before received collateral The maximum exposure of credit risk is displayed through carrying values of the financial assets in the balance sheet, shown in the table below:

32 30 Risk management (continued) Credit risk (continued) A. Analysis of total credit risk exposure Loans and Loans and advances to advances to banks customers Investment in financial assets available for sale Investment in financial assets held to maturity Cash and cash equivalent Fee and commission receivables Other receivables Off-balance sheet exposure In Denar thousand Total Carrying value of exposure with an allowance for impairment/special reserve on individual basis Carrying value of individually significant exposures, before the allowance for impairment and the special reserve, on individual basis risk category A - - 2,140,136 1,384, ,509 2,845 1,771 79,010 64,538 2,222,622 1,452,647 risk category B ,305 65, ,685 1,944 95,073 67,414 risk category C ,799 49, ,900 49,167 risk category D ,349 16, ,417 16,777 risk category E , , , , , ,535,931 1,788, ,560 5,320 2,221 81,722 66,589 2,623,604 1,858,624 (Allowance for impairment and special reserve, on individual basis) - - (243,213) (281,697) (34) (1,216) (3,250) (409) (1,006) (837) (247,503) (284,159) Carrying value of individually significant exposures, less the allowance for impairment and the special reserve, on individual basis - - 2,292,718 1,506, ,070 1,812 80,716 65,752 2,376,101 1,574,465

33 31 Risk management (continued) Credit risk (continued) Analysis of total credit risk exposure (continued) Loans and advances to banks Loans and advances to customers Investment in financial assets available for sale Investment in financial assets held to maturity Cash and cash equivalent Fee and commission receivables Other receivables Off-balance sheet exposure Total In Denar thousand Carrying value of exposures that are assessed on group basis, before allowance for impairment and the special reserve on group basis Individually insignificant exposures (portfolio of small loans) Individually significant exposures that are not impaired on individual basis (Allowance for impairment and special reserve, group basis) Carrying value of exposures that are assessed on group basis, less the allowance for impairment and the special reserve, group basis Carrying value of exposure for which no allowance for impairment/special reserve is allocated Matured receivables Aging structure of matured receivables for which no allowance for impairment is allocated up to 30 days Carrying value of matured receivables for which there is no allowance for impairment

34 32 Risk management (continued) Credit risk (continued) Analysis of total credit risk exposure (continued) Loans and advances to banks Loans and advances to customers Investment in financial assets available for sale Investment in financial assets held to maturity Cash and cash equivalent Fee and commission receivables Other Off-balance sheet receivables exposure Total In Denar thousand Non matured receivables Restructured receivables Other receivables 209,662 70, ,990 4, , , , ,460 1,361, ,574 Carrying value of nonmatured receivables for which there no allowance for impairment /special reserve is allocated Total carrying value of the credit risk receivables before the allowance for impairment and special reserve 209,662 70,004 2,535,931 1,788,254 19,990 4, , , ,560 5,320 2, , ,049 3,984,794 2,533,198 (Total allowance for impairment and special reserve) - - (243,213) (281,697) (34) (1,216) (3,250) (409) (1,006) (837) (247,503) (284,159) Total carrying value of the credit risk receivables less the allowance for impairment and special reserve 209,662 70,004 2,292,718 1,506,557 19,990 4, , , ,070 1, , ,212 3,737,291 2,249,039

35 33 Risk management (continued) Credit risk (continued) B. Value of collateral (fair value) for mitigating of credit risk Loans and advances Loans and advances to to banks customers Investment in financial assets available for sale Investment in financial assets held to maturity Cash and cash Fee and commission equivalent receivables Other receivables Off-balance sheet exposure In Denar thousand Value of collateral of the credit exposure which is assessed for impairment on individual basis First class collateral instruments: cash deposits (in depot and/or limited on bank accounts) ,395 81, ,580 10, ,975 92,257 Government securities Government unconditional guarantees Bank guarantees Guarantees from insurance companies and insurance policies , ,660 Corporative guarantees (except for banks and insurance companies) Guarantees from individuals Property pledge Property for own use (flats, houses) - - 1,068, , ,576 51,686 1,098, ,877 Business property - - 2,434,220 1,317, ,086 8,072 2,576,306 1,325,735 Moveable property pledge - - 1,599,373 1,053, ,406 24,529 1,645,779 1,078,410 Other types of guarantees , , ,575 22, ,677 Total value of collateral of credit exposure which is assessed for allowance for impairment on individual basis - - 5,218,854 3,662, , ,730 5,453,502 3,867,598

36 34 Risk management (continued) Credit risk (continued) Value of collateral (fair value) for mitigating of credit risk (continued) Investment in financial assets available for sale Investment in financial assets held to maturity Loans and advances Loans and advances Cash and cash Fee and commission Off-balance sheet to banks to customers equivalent receivables Other receivables exposure In Denar thousand Value of collateral of the credit exposure which is assessed for impairment on group basis First class collateral instruments: cash deposits (in depot and/or limited on bank accounts) Government securities Government unconditional guarantees Bank guarantees Guarantees from insurance companies and insurance policies Corporative guarantees (except for banks and insurance companies) Guarantees from individuals Property pledge Property for own use (flats, houses) Business property Moveable property pledge Other types of guarantees Total value of collateral of credit exposure which is assessed for allowance for impairment on individual basis

37 35 Risk management (continued) Credit risk (continued) C. Concentration of credit risk by geographical location and industrial sectors The following table present a review of the Bank s exposure to credit risk according to the carrying amounts, categorized according to the industrial sectors as of 31 December 2011 and 2010: In Denar thousand Loans and advances to banks Loans and advances to customers Investment in financial assets available for sale Investment in financial assets held to maturity Cash and cash equivalent Fee and commission receivables Other receivables Off-balance sheet exposure Total Non residents , , , ,029 Agriculture, forestry and fishery ,761 15, ,764 15,564 Mining Food industry , , ,114 - Textile industry and production of clothing and footwear , , ,589 - Chemical industry, production of construction materials production and processing of fuels, pharmaceutical industry , ,392 - Production of metals, machinery, tools and equipment , , ,479 - Other manufacturing , , ,238 25,123 56, ,350 Electricity, gas, steam and air conditioning - - 5,055 18, ,230-28,293 18,808 Water, removing waste water, waste management and remediation activities on the environment Construction , , ,551 1, , ,918

38 36 Risk management (continued) Credit risk (continued) Concentration of credit risk by geographical location and industrial sectors (continued) In Denar thousand Loans and advances to banks Loans and advances to customers Investment in financial assets available for sale Investment in financial assets held to maturity Cash and cash equivalent Fee and commission Off-balance sheet receivables Other receivables exposure Wholesale and retail trade, repair of motor vehicles and motorcycles; , , , , , , ,797 Transport and storage , , , Accommodation and food service activities , ,670 5,781 47,173 5,781 Information and Communications , , ,950 40, ,392 Financial activities and insurance activities 209,662 70,004 2,423-19,990 4, , , , , ,910 Activities related to real estate , ,973-33, Activities related to real estate , , ,569 - Administrative and support service activities , ,108-52,222 - Public administration and defence, compulsory social security Education - - 1, ,172-7, Activities of health and social care ,534 6, ,817 6,271 Arts, entertainment and recreation - - 4, ,923-21,023 - Other service activities - - 2, ,368 - Activities of households as employers of household activities that produce diverse goods and perform various services for own needs , ,519 35,094 4, ,136 Total

39 37 Risk management (continued) Credit risk (continued) Concentration of credit risk by geographical location and industrial sectors (continued) In Denar thousand Loans and advances to banks Loans and advances to customers Investment in financial assets available for sale Investment in financial assets held to maturity Cash and cash equivalent Fee and commission receivables Other Off-balance sheet receivables exposure Total Activities of territorial organizations and bodies Individuals , , ,141 28, , ,074 Sole proprietors and individuals who are not considered as traders - - 2, , Total 209,662 70,004 2,292,718 1,506,557 19,990 4, , , ,070 1, , ,212 3,737,291 2,249,039

40 38 Notes to teh financial statements (continued) Risk management (continued) Credit risk (continued) D. Credit risk concentration by geographic location The following table gives review on the Bank s exposure to credit risk according the carrying values categorized under geographic regions as of 31 December 2011 and 2010: In Denar thousand Loans and advances to banks Loans and advances to customers Investment in financial assets available for sale Investment in financial assets held to maturity Cash and cash equivalent Fee and commission Off-balance sheet receivables Other receivables exposure Total Geographical location Republic of Macedonia 209,662 70,004 2,292,718 1,506,493 19,990 4, , , ,070 1, , ,122 3,483,709 2,133,920 EU member countries , , , ,055 Europe (other) OECD member countries (without the European member-countries of OECD) Other Total 209,662 70,004 2,292,718 1,506,557 19,990 4, , , ,070 1, , ,212 3,737,291 2,249,039

41 39 Risk management (continued) 2.2 Liquidity risk Liquidity risk represents the risk for the Bank of becoming incapable to provide sufficient funds for settlement of its short-term liabilities when such liabilities fall due, or to provide such funds at much higher costs. Liquidity risk management The management of liquidity risk includes assets and liabilities management that ensures timely and regular settlement of liabilities of the bank in regular operations or emergency. The Bank has established Policy for managing liquidity risk, which was adopted by the Supervisory Board and is regularly revised. The policy defines the manner of the Bank s liquidity management through the establishment of basic goals, the basic components of a system for managing liquidity risk (organizational structure, steps and procedures for internal control and audit, information systems, stress testing and liquidity contingencies plan), the basic elements of maintaining an adequate level of liquidity. The Bank has established procedures for identifying, measuring and monitoring liquidity risk, which were adopted by the Board of Directors of the Bank and are regularly reviewed. Within the procedures detailed are developed procedures for managing liquidity risk, including: identifying and measuring liquidity risk, liquidity stress testing, monitoring and control of the liquidity risk. Planning and monitoring of cash inflows and outflows, establish and maintain adequate maturity structure, monitoring the sources of funds and their concentration ratios of liquidity, internal liquidity indicators, fulfilling the legal obligation for required reserve in Denars and foreign currency, analysis of Denar and foreign currency operational liquidity, stress testing and other methods used to measure the liquidity risk. Reports of liquidity on a regular basis are submitted to the Board for monitor and control of liquidity risk, the Risk Management Board and NBRM on a monthly basis. As of 31 December 2011, the maturity analysis of financial assets and liabilities of the Bank shows maturity gap in the periods from one to twelve months and from one to two years. Cash flows that the Bank expected to occur differ from the agreed. The maturity gap in the blocks of 3 months to 12 months cumulated in positive, taking into account the positive amount of the first maturity block. The maturity gap in 1 to 2 years is due to time deposits of individuals. The total remaining maturity of Bank s assets and liabilities is positive.

42 40 Risk management (continued) Liquidity risk (continued) Maturity analysis of financial assets and liabilities (remaining maturity) The following tables analyse Bank s assets and liabilities, grouped according their maturity based on the remaining period from the reporting date to the agreed maturity date 31 December 2011 and Further, the amounts as of 31 December 2011 are presented on a gross basis, i.e. not taking into account the amounts of accumulated amortisation, impairment provision and allocated special reserve, and the amounts as of 31 December 2010 are presented on a net basis, according to the applicable regulation at the date of preparation of those statements. 31 December 2011 Financial assets in Denar thousand Up to 1 month From 1 to 3 months From 3 to 12 month From 1 to 2 years From 2 to 5 years Over 5 years Total Cash and cash equivalents 1,207, , ,283,729 Trading assets Financial assets at fair value through profit and loss at its/ their initial recognition Derivative assets held for risk management Loans and advances to banks 209, ,662 Loans and advances to customers 429, , , , , ,782 2,547,303 Investment in securities , ,990 Investment in associates Current income tax receivables , ,758 Other receivables 7, ,422-10,290 Assets pledged as collateral Deferred tax assets Total financial assets 1,854, , , , , ,782 4,072,732 Financial liabilities Liabilities for trading Financial liabilities designated at fair value through profit and loss at initial recognition Derivative liabilities held for risk management Deposits to banks 15,125 5, ,135 Deposits to customers 751, , ,148 1,320,483 88,553 3,813 3,392,983 Issued debt securities Borrowings ,554 39,382 34,352 85,155 Subordinated liabilities ,000 92, ,259 Current income tax liabilities Deferred tax liabilities Other liabilities 6, ,648 Total financial liabilities 772, , ,762 1,331, , ,423 3,621,180 Off-balance items Off-balance assets 22, ,353 Off-balance liabilities 212,752 50,259 90,691 49, ,638 Net gap position 891,103 (73,437) (19,980) (1,023,080) 285,302 10,359 70,267

43 41 Risk management (continued) Liquidity risk (continued) Analysis according maturity of financial assets and liabilities (remaining maturity) (continued) in Denar thousand 31 December 2010 Financial assets Up to 1 month From 1 to 3 months From 3 to 12 month From 1 to 2 years From 2 to 5 years Over 5 years Total Cash and cash equivalents 610, , ,841 Trading assets Financial assets at fair value through profit and loss at its/ their initial recognition Derivative assets held for risk management Loans and advances to banks 70, ,004 Loans and advances to customers 154, , , , ,574 49,520 1,506,557 Investment in securities , ,338 Investment in associates Current income tax receivables , ,979 Other receivables 6, ,438 Assets pledged as collateral Deferred tax assets Total financial assets 841, , , , ,574 49,520 2,254,157 Financial liabilities Liabilities for trading Financial liabilities designated at fair value through profit and loss at initial recognition Derivative liabilities held for risk management Deposits to banks 6,872 5, ,872 Deposits to customers 609, , , ,398 40,546 21,798 1,741,783 Issued debt securities Borrowings ,155 Subordinated liabilities , ,259 Current income tax liabilities Deferred tax liabilities Other liabilities 6, ,337 Total financial liabilities 622, , , ,398 40, ,057 1,877,406 Off-balance items Off-balance assets Off-balance liabilities 118,491 26, ,388 29, ,658 Net gap position 100,830 (257,664) (19,090) 82, ,684 (88,537) 54,093

44 42 Risk management (continued) 2.3 Market risk Market risk is the risk that changes in market prices, such as changes in interest rates, changes in equity prices, exchange rates and / or market prices of securities will affect the Bank s profit or the value of own financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable limits by optimizing the yield. Risk of changes in interest rates in the banking book Risk of changes in interest rates in the banking book presents a risk of loss arising from adverse changes in interest rates, affecting the positions in the banking book of the Bank. The Bank has established Policy for managing risk from changes in interest rates in the banking book, which was adopted by the Supervisory Board and is regularly revised. The policy for managing the risk of changes in interest rates defines how the position and / or implementation of the following components: assessment, monitoring and controlling the risk of changes in interest rates in the banking book, limits on risk exposure, organizational structure risk management of change in interest rates, procedures for internal control and audit, information system and stress testing. The Bank has established procedures for managing risk from changes in interest rates in the banking book, which was adopted by the Board of Directors and is regularly revised. The procedures for managing the risk of changes in interest rates defines: assessment, monitoring and controlling the risk of changes in interest rates in the banking book, limits on risk exposure, organizational structure risk management of change in interest rates, procedures for internal control and audit, information system and stress testing. When assessing exposure to risk from changes in interest rates in the banking book, the Bank takes into account all positions of the banking book that are sensitive to changes in interest rates, which may affect the profits and own assets of the Bank. The Bank determines the change in the economic value of the banking book as a result of the exposure to the interest rate risk, by applying the standardised interest rate shock.

45 43 Risk management (continued) Market risk (continued) Analysis of sensitivity to changes in market risk of assets and liabilities A. Analysis of sensitivity to changes in market risk on assets and liabilities Gains/(losses) Assets Risk-weighted assets Capital adequacy rate In Denar thousand In Denar thousand In Denar thousand in % 2011 Balance before analysis of sensitivity/stress tests ( ) 2, ,658 3,000, % Effects of different scenarios Risk of changes in exchange rates - Scenario 1: Denar depreciates by 30% compared to all other currencies 34, ,122 3,347, % - Scenario 2: Denar appreciates by 30% compared to all other currencies (34,464) 536,194 2,633, % Risk of changes in interest rates - Scenario 1: Change in interest rates for 600 basic points (20,885) 549,773 3,000, % - Scenario 2: Change in interest rate gap arising from non-performing loans for 40% (15,757) 554,901 3,000, % 2010 Balance before analysis of sensitivity/stress tests ( ) 1, ,640 1,835, % Effects of different scenarios Risk of changes in exchange rates - Scenario 1: Denar depreciates by 30% compared to all other currencies 21, ,314 2,055, % - Scenario 2: Denar appreciates by 30% compared to all other currencies (21,674) 550,966 1,552, % Risk of changes in interest rates - Scenario 1: Change in interest rates for 600 basic points (91,175) 481,465 1,835, % - Scenario 2: Change in interest rate gap arising from non-performing loans for 40% (29,830) 542,810 1,835, %

46 44 Risk management (continued) Market risk (continued) Analysis of sensitivity to changes in market risk on assets and liabilities (continued) C. Analysis of value exposed to market risk for trading portfolio Balance at 31 December Highest value (maximum) Lowest value (minimum) Balance at 31 December Highest value (maximum) Lowest value (minimum) In Denar thousand Average value Average value Value exposed to risk at interest bearing instruments Value exposed to risk at instruments in foreign currency Value exposed to risk at equity instruments Variance (offsetting effect) Total

47 45 Risk management (continued) Market risks (continued) Analysis of risk from changes in interest rates of financial assets and liabilities (without assets for trading) A. Analysis of sensitivity from changes in interest rates Changes of economic values of the portfolio from bank activities at 31 December 2011 Position Currency Amount 1.1 Net position of currencies EUR (FIR + VIR + AIR) EUR (21,706) 1.2 Net position of currencies MKD (FIR + VIR + AIR) MKD 8, Net weighted position for MKD cl. EUR currency (FIR + VIR + AIR) MKD cl. EUR 9, Net weighted position for other currencies (FIR + VIR + AIR) other (3,595) 2 Total weighted value changes in the economic value of the portfolio of banking activities 7,792 3 Assets 570,658 4 Total weighted value/assets (2/3*100) 1.37% Changes of economic values of the portfolio from bank activities at 31 December 2010 Position Currency Amount 1.1 Net position of currencies EUR (FIR + VIR + AIR) EUR (18,386) 1.2 Net position of currencies MKD (FIR + VIR + AIR) MKD (11,655) 1.3 Net weighted position for MKD cl. EUR currency (FIR + VIR + AIR) MKD cl. EUR (1,394) 1.4 Net weighted position for other currencies (FIR + VIR + AIR) other Total weighted value changes in the economic value of the portfolio of banking activities 30,929 3 Assets 572,640 4 Total weighted value/assets (2/3*100) 5.40%

48 46 Risk management (continued) Market risks (continued) Analysis of the risk of change in interest rates on financial assets and liabilities (excluding trading assets) (continued) B. Analysis of compliance of interest rates From 1 to 3 months From 3 to 12 month Total interest bearing assets/ liabilities In Denar thousand Up to 1 month From 1 to 2 years From 2 to 5 years Over 5 years 31 December 2011 Financial assets Cash and cash equivalents 1,204, ,204,307 Financial assets at fair value through profits and losses at initial recognition Loans to and advances to banks 209, ,039 Loans to and advances to customers 636,883 1,139 1,126, , ,427-2,200,417 Investments in securities Other not mentioned interest sensitive assets Total interest sensitive financial assets 2,050,229 1,139 1,126, , ,427-3,613,763 Financial liabilities Financial liabilities at fair value through profits and losses at initial recognition Deposits to banks , ,260 Deposits to customers 2,609,749 44, ,585 92, , ,253,416 Issued debt securities Borrowings ,876-38,748-84,624 Subordinated liabilities and hybrid instruments ,000 92, ,258 Other not mentioned interest sensitive liabilities Total interest sensitive financial liabilities 2,610,604 62, ,461 92, ,761 92,264 3,473,558 Net-balance position (560,375) (61,638) 910, ,525 (195,334) (92,264) 140,205 Off-balance interest sensitive assets positions Off-balance interest sensitive liabilities positions Net off-balance position Total net position (560,375) (61,638) 910, ,525 (195,334) (92,264) 140,205

49 47 Risk management (continued) Market risks (continued) Analysis of the risk of change in interest rates on financial assets and liabilities (excluding trading assets) (continued) B. Analysis of compliance of interest rates From 1 to 3 months From 3 to 12 month Total interest bearing assets/ liabilities In Denar thousand Up to 1 month From 1 to 2 years From 2 to 5 years Over 5 years 31 December 2010 Financial assets Cash and cash equivalents 578,806 12, ,107 Financial assets at fair value through profits and losses at initial recognition - Loans to and advances to banks 70, ,000 Loans to and advances to customers 1,405, ,938 5,792 2,072-1,431,035 Investments in securities Other not mentioned interest sensitive assets Total 2,054,346 12,994 16,938 5,792 2,072-2,092,142 Financial liabilities Financial liabilities at fair value through profits and losses at initial recognition Deposits to banks 6,000 5, ,000 Deposits to customers 724, , , , , ,632,280 Issued debt securities Borrowings - - 1, ,155 Subordinated liabilities and hybrid instruments , ,258 Other not mentioned interest sensitive liabilities Total interest sensitive financial liabilities 730, , , , , ,263 1,760,693 Net-balance position 1,324,015 (145,301) (331,321) (168,802) (230,879) (116,263) 331,449 Off-balance interest sensitive assets positions Off-balance interest sensitive liabilities positions Net off-balance position Total net position 1,324,015 (145,301) (331,321) (168,802) (230,879) (116,263) 331,449 -

50 48 Risk management (continued) Market risk (continued) Currency risk The currency risk is the risk of loss due to change in inter-currency courses and / or change of value of Denar against the value of other foreign currencies. The Bank s estimation is that the net exposure is maintained to satisfactory level. Denar is bound to Euro and monetary projection is that the exchange rate against the Euro will be stable. The Bank has established Policy for managing currency risk, which was adopted by the Supervisory Board and is regularly revised. The policy defines the elements of an effective process of managing currency risk (organizational structure, information system etc.) and the identification and measurement of currency risk, sources of currency risk, indicators of exposure, exposure limits, mechanisms of control and monitoring currency risk. The Bank has established procedures for managing currency risk, which are adopted by the Board of Directors of the Bank and are regularly reviewed. The procedures define the managing currency risk, including: organizational structure for managing currency risk, procedures for managing currency risk, procedures for internal control and audit, information system and stress testing.

51 Risk management (continued) Market risks (continued) Foreign exchange risk (continued) 31 December 2011 in Denar thousand MKD EUR USD Other currencies 49 Total Monetary assets Cash and cash equivalents 963, ,578 44,719 29,740 1,283,729 Trading assets Financial assets at fair value through profit and loss at its/ their initial recognition Derivative assets held for risk management Loans and advances to banks 100,012 62,050 47, ,662 Loans and advances to customers 1,652, ,190 32,950-2,292,718 Investments in securities 19, ,990 Investments in associates Current income tax receivables 1, ,758 Other receivables 5,584 1, ,006 Assets pledged as collateral Deferred tax assets Total monetary assets 2,743, , ,396 29,740 3,814,863 Monetary liabilities Trading liabilities Financial liabilities at fair value through profit and loss at its/ their initial recognition Derivative liabilities held for risk management Due from banks 5, ,270-20,135 Due from customers 2,633, , ,992 25,536 3,392,983 Debt instruments issued Borrowings - 85, ,155 Subordinated liabilities 24,001 92, ,259 Current income tax liabilities Deferred tax liabilities Other liabilities 1,386 5, ,648 Total monetary liabilities 2,663, , ,346 25,630 3,621,180 Net foreign currency position 80, ,337 6,050 4, ,683

52 50 Risk management (continued) Market risks (continued) Foreign exchange risk (continued) 31 December 2010 Monetary assets in Denar thousand MKD EUR USD Other currencies Total Cash and cash equivalents 462, ,209 45,705 8, ,841 Assets for trading Financial assets designated at fair value through profit and loss at initial recognition Derivative assets held for risk management Loans and advances to banks 51,607 9,088 9,309-70,004 Loans and advances to customers 960, , ,506,557 Investments in securities 4, ,338 Investments in associates Current income tax receivables 2, ,979 Other receivables 5, ,438 Assets pledged as collateral Deferred tax assets Total monetary assets 1,487, ,298 55,084 8,076 2,254,157 Monetary liabilities Liabilities for trading Financial liabilities designated at fair value through profit and loss at initial recognition Derivative liabilities held for risk management Deposits to banks 11, ,872 Deposits to customers 1,142, ,826 83,007 7,132 1,741,783 Issued debt securities Borrowings - 1, ,155 Subordinated liabilities 24,002 92, ,259 Current income tax liabilities Deferred tax liabilities Other liabilities 5, ,337 Total monetary liabilities 1,183, ,574 83,506 7,132 1,877,406 Net position 304,505 99,724 (28,422) ,751

53 51 3 Capital management The Bank s objectives regarding capital management are: To comply with the capital requirements by the National Bank of the Republic of Macedonia; To safeguard the Bank s ability to provide dividends to shareholders; To maintain a strong capital base to support the development of its business. Capital adequacy and the use of regulatory capital are regularly monitored by the Bank s management, using techniques prescribed by national regulatory authority (National Bank of Republic of Macedonia) and it is submitted to regulatory authority on a quarterly basis. The National Bank of the Republic of Macedonia requires that each bank has to maintain capital adequacy ratio at least 8%. The Bank s regulatory capital is divided in two groups: Tier 1 capital that includes: ordinary and non-cumulative priority shares and share premium, statutory reserves and retained earnings or loss, items are result of consolidation, less: intangible assets. Tier 2 capital that includes: cumulative preferred shares and share premium, hybrid capital instruments and subordinated instruments. Investment in other banks or financial institution over 10% and investments in insurance and reinsurance companies and pension fund management companies are deducted from Tier 1 and Tier 2 capital to arrive at the regulatory capital. According to national regulations, the risk weighted assets (on-balance and off-balance) are measured by means of a hierarchy of five risk weights classified according to nature of assets, taking into consideration the collateral or guarantees. Calculation of capital adequacy ratio includes regulatory capital and total of credit risk-weighted assets and foreign exchange risk-weighted assets. The table below summarizes the compositions of regulatory capital and the capital adequacy ratio of the Bank for the years ended 31 December 2011 and 2010 regarding the regulatory requirements of the National Bank of the Republic of Macedonia.

54 52 Capital management (continued) Ref. No. Description 31 December December 2010 I CREDIT RISK WEIGHTED ASSETS 1 On-balance sheet credit risk weighted assets 2,611,377 1,579,654 2 Off-balance sheet credit risk weighted assets 264, ,026 3 Credit risk weighted assets (1+2) 2,875,852 1,731,680 4 Capital necessary to cover credit risk 230, ,534 II FOREX RISK WEIGHTED ASSETS - 5 Aggregate foreign currency position 125, ,892 6 Net-position of gold Capital necessary to cover currency risk 10,009 8,331 8 Foreign exchange risk weighted assets 125, ,892 III OTHER RISK WEIGHTED ASSETS Capital necessary to cover the risk from price changes of goods Capital necessary to cover market risks ( ) Capital necessary to cover the specific risk from investment in debt instruments Capital necessary to cover the general risk from investment in debt instruments Capital necessary to cover the specific risk from investment in equity securities Capital necessary to cover the general risk from investment in equity securities Capital necessary to cover the settlement risk Capital necessary to cover counterpart risk Capital necessary to cover overdraft of exposure limits Capital necessary to cover market risks from options Capital necessary to cover the other risks (9+10) Other risk weighted assets - - IV RISK WEIGHTED ASSETS (3+8+12) 3,000,967 1,835, Capital necessary to cover the risks 240, ,846 V REGULATORY CAPITAL 570, ,640 VI ADEQUACY OF CAPITAL (V/IV)

55 53 Capital management (continued) Adequacy capital (continued) Report on own funds (continued) Ref. No. Description 31 December December 2010 Paid-in and subscribed ordinary and non- cumulative preference shares 1,100,668 1,100, Nominal value 1,100,668 1,100, Nominal value of ordinary shares 1,100,668 1,100, Nominal value of non-cumulative preference shares Premium Premium of ordinary shares Premium of non- cumulative preference shares Reserves and retained earnings and loss (386,433) (388,004) 2.1 Reserve fund 25,073 24, Retained earnings Accumulated loss from previous years (411,506) (412,841) 2.4 Current profit Unrealized loss of securities available for sale Positions arising from consolidation Minority interest Reserves from exchange rate differences Other differences Deduction 3,429 4, Loss at the year-end or current loss Treasury shares Intangible assets, including the revalorization surplus realized for these assets 3,429 4, Net-negative revaluation reserves Differences between amounts of the required and recognized impairment/special reserve Amount of unallocated impairment and special reserve as a result of accounting time lag Ordinary shares, reserves and retained earnings and accumulated loss and deductions 710, ,988 Amount of other positions that may be included in the core 6 capital - - I CORE CAPITAL 710, ,988

56 54 Capital management (continued) Adequacy capital (continued) Report on own funds (continued) Additional capital I Paid-in and subscribed cumulative preference shares and 7 premium on such share Nominal value Premium Revaluation reserves Hybrid capital instruments Subordinated instruments 111, , Amount of subordinated instruments that may be included in the additional capital I 111, ,258 II ADDITIONAL CAPITAL I 111, ,258 Deduction from core capital and additional capital I Capital investments in other banks and financial institutions with more than 10% share participation in such institutions (exc. institutions under No.15) 251, , Investments in subordinated and hybrid capital investments and other instruments of institutions referred to in Aggregate amount of investments in capital, subordinated and hybrid instruments and other instruments exceeding 10% of (I+II) Direct capital investments in insurance and reinsurance companies and pension fund management undertakings Investments in financial instruments issued by the insurance and reinsurance companies and pension fund management undertakings Amounts representing excess of limits of investments in non financial institutions Positions arising from consolidations (negative amounts) - - III DEDUCTIONS 251, ,606 IV Core capital after deductions 570, ,640 V Additional capital I after deduction - - Additional capital II 19 Subordinated instruments of additional capital II Additional capital I and II Allowed amount of additional capital I and II Additional capital I Additional capital II Excess core capital 330, , Excess core capital (150%) 495, , Excess core capital (250%) 826,452 1,064,486 VI Allowed amount of additional capital II - - Own funds VII Core capital 570, ,640 VIII Additional capital I - - IX Additional capital II - - X OWN FUNDS 570, ,640

57 55 Bele[ki kon finansiskite izve[tai (prodol`uva) 4 Segment reporting Segment reporting is performed under Bank s operating segments, as prescribed by the regulations of the National Bank of the Republic of Macedonia. Operating segment is a component of the Bank s activities for which the following conditions are met: perform activities as a result of which income is derived income and expenses incurred; Bank s Supervisory Board reviews the operating results in the separate operating segment on a regular basis (at least semi-annually) in order to assess performance and to make decision on future business activities in this segment; Certain financial information related to segment is available. Bank discloses information separately for each major operating segment. An operating segment is considered significant if any of the following quantitative criteria are met: Segment income (includes income from transfers between segments) participate with 10% or more in total income of the bank; absolute amount of profit or loss of the segment represents 10% or more of the higher absolute amount between: a) the total profit of all operating segments of the Bank which showed profits, or b) the total loss of all operating segments of the Bank that showed loss; Funds segment participate with 10% or more in total assets of the Bank. The Bank should show information about the concentration of its business activities towards certain significant customers. Significant client is the one from which the bank achieves 10% or more of total income or total expenditure of the Bank. As of 31 December 2011 and 2010 the Bank has no significant customers. The Bank should present an analysis of its business activities according to geographical areas where they are executed, for the following geographic areas: Member States of the European Union; other European countries outside the European Union; countries outside Europe, members of the Organization for Economic Cooperation and Development (OECD); other countries.

58 56 Notes to the financial statememts (continued) Segment reporting (continued) A. Operating segments Retail Corporat Investme Other customer s e banking nt banking Banks Governme nt Nonresidents Unallocat ed Total 2011 Net interest income /(expense) (65,944) 165,929-18,729 (2,165) (1,891) - 114,658 Net income /(expenses) from fees and commission 4,293 39,880 - (3,156) 168 (5,911) - 35,274 Net income from trading Net income from other financial instruments carried at their fair value Other operating income ,769 13,769 Income realized between segments Total income per segment (61,651) 205,809-15,573 (1,997) (7,802) 13, ,701 Allowance for impairment of financial assets, net (6,062) 34, (2,393) 25,999 Impairment loss of non-financial assets, net (706) (706) Amortisation (16,977) (16,977) Restructuring costs Costs for investment in property and equipment Other expenses (167,902) (167,902) Total expenses per segment (6,062) 34, (187,978) (159,586) Financial performance per segment (67,713) 240,263-15,573 (1,997) (7,802) (174,209) 4,115 Income tax (1,221) Profit/(loss) for the financial year 2,894 Total assets per segment 262,689 2,027,606-1,417,976-2,423-3,710,694 Unallocated assets per segment , ,621 Total assets 262,689 2,027,606-1,417,976-2, ,621 4,339,315 Total liabilities per segment 2,187,656 1,165, ,997 30, ,523-3,615,538 Unallocated liabilities per segment ,648 6,648 Total liabilities 2,187,656 1,165, ,997 30, ,523 6,648 3,622,186

59 57 Segment reporting (continued) A. Operating segments (continued) Retail Corporat Investme Other customer s e banking nt banking Banks Governme nt Nonresidents Unalloca ted Total 2010 Net interest income /(expense) (5,897) 101,444-17,743 (1,578) (2,004) - 109,708 Net income /(expenses) from fees and commission 2,607 28,805 - (2,098) 1 (4,239) - 25,076 Net income from trading Net income from other financial instruments carried at their fair value Other operating income ,016 12,016 Income realized between segments Total income per segment (3,290) 130,249-15,645 (1,577) (6,243) 12, ,800 Allowance for impairment of financial assets, net (7,394) 24, ,409 Impairment loss of non-financial assets, net (504) (504) Amortisation (17,938) (17,938) Restructuring costs Costs for investment in property and equipment Other expenses (143,613) (143,613) Total expenses per segment (7,394) 24, (162,048) (144,646) Financial performance per segment (10,684) 155,045-15,645 (1,577) (6,243) (150,032) 2,154 Income tax (583) Profit/(loss) for the financial year 1,571 Total assets per segment 197,522 1,306, ,553-2,361-2,169,110 Unallocated assets per segment , ,368 Total assets 197,522 1,306, ,553-2, ,368 2,592,478 Total liabilities per segment 780, ,412-11,872 90, ,154-1,871,907 Unallocated liabilities per segment ,336 6,336 Total liabilities 780, ,412-11,872 90, ,154 6,336 1,878,243

60 58 Segment reporting (continued) B. Concentration of total revenues and expenses by significant customers Operating segments in Denar thousand 2011 (The Bank separately to show the total revenues and expenses derived from a All other insign ificant opera ting segm ents Nonallocat ed Total signific ant custom ers significant customer) Customer Revenues (expenses) Customer Revenues (expenses) Customer Revenues (expenses) Total per segment (The Bank separately to show the total revenues and expenses derived from a significant customer) Customer Revenues (expenses) Customer Revenues (expenses) Customer Revenues (expenses) Total per segment

61 59 Segment reporting (continued) C. Geographic segments The Republic of Macedonia EU member s countrie s OECD members countries Other Other insignificant geographic segments In Denar thousand Europe (other) Nonallocated Total 2011 Total revenues 163, ,701 Total assets 4,085, ,438 50, ,339, Total revenues 146, ,800 Total assets 2,492,176 74,545 25, ,592,478

62 60 5 Fair value of financial assets and financial liabilities Fair value represents the amount at which an asset could be replaced or a liability settled on an arm s length basis. Fair values have been based on management assumptions according to the profile of the asset and liability base. Cash and cash equivalents The carrying value of cash and cash equivalents approximates their fair value, considering that they include cash, bank accounts and bank deposits with short - terms maturity. Loans and advances to banks and customers Loans and advances are carried at amortized cost less the provisions for impairment. Loans and advances to customers mostly are with variable interest rate and their estimated fair value is determined by discounting the estimated future cash flows using the effective interest rate. Other receivables The fair value of other receivables approximates their carrying value, considering their short maturity period. Deposits and borrowings The estimated fair value of deposits with no stated maturity is the amount repayable on demand. The fair value of the term deposits at variable interest rates approximates their carrying values as of the Balance sheet. The fair value approximates their carrying value. Other liabilities The fair value of other liabilities approximates their carrying value, considering their short maturity period.

63 61 Fair value of financial assets and liabilities (continued) A. Fair value of financial assets and liabilities In Denar thousand Carrying value Fair value Carrying value Fair value Financial assets Cash and cash equivalents 1,283,729 1,283, , ,841 Trading assets Financial assets at fair value through profit and loss at its/ their initial recognition Derivative assets held for risk management Loans and advances to banks 209, ,662 70,004 70,004 Loans and advances to other customers 2,292,718 2,292,718 1,506,557 1,506,557 Investment in securities 19,990 19,990 4,338 4,338 Investment in associates Current income tax receivables 1,758 1,758 2,979 2,979 Other receivables 7,006 7,006 6,438 6,438 Assets pledged as collateral Deferred tax assets Financial liabilities Trading liabilities Financial liabilities at fair value through profit and loss at its/ their initial recognition Derivative liabilities held for risk management Due from banks 20,135 20,135 11,872 11,872 Due from other customers 3,392,983 3,392,983 1,741,783 1,741,783 Issued debt securities Borrowings 85,155 85,155 1,155 1,155 Subordinated liabilities 116, , , ,259 Current income tax liabilities Deferred tax liabilities Other liabilities 6,648 6,648 6,337 6,337

64 62 Fair value of financial assets and liabilities (continued) B. Levels of fair value of financial assets and liabilities at fair value B1. Level of fair value of financial assets and liabilities at fair value 2011 In Denar thousand Note Level 1 Level 2 Level 3 Total Financial assets at fair value Trading assets Financial assets at fair value through profit and loss at its/ their initial recognition Derivative assets held for risk management Investment in securities available-for-sale ,990-19,990 Total - 19,990-19,990 Financial liabilities at fair value Trading assets Financial liabilities at fair value through profit and loss at its/ their initial recognition Derivative liabilities held for risk management Total

65 63 Fair value of financial assets and liabilities (continued) B. Levels of fair value of financial assets and liabilities at fair value (continued) B1. Level of fair value of financial assets and liabilities at fair value (continued) In Denar thousand Note Level 1 Level 2 Level 3 Total 2010 Financial assets at fair value Trading assets Financial assets at fair value through profit and loss at its/ 20 their initial recognition Derivative assets held for risk management Investment in securities 23.1 available-for-sale - 4,338-4,338 Total - 4,338-4,338 Financial liabilities at fair value Trading assets Financial liabilities at fair value through profit and loss 33 at its/ their initial recognition Derivative liabilities held for 21 risk management Total

66 64 Fair value of financial assets and liabilities (continued) B. Levels of fair value of financial assets and liabilities at fair value (continued) B2. Transfers between Level 1 and 2 of fair value in Denar thousand Financial assets at fair value Transfers from Level 1 to Level 2 Transfers from Transfers from Level 2 to Level 1 Level 1 to Level 2 Transfers from Level 2 to Level 1 Trading assets Financial assets at fair value through profit and loss at its/ their initial recognition Derivative assets held for risk management Investment in securities available-for-sale Total Financial liabilities at fair value Trading assets Financial liabilities at fair value through profit and loss at its/ their initial recognition Derivative liabilities held for risk management Total

67 65 Fair value of financial assets and liabilities (continued) B. Levels of fair value of financial assets and liabilities at fair value (continued) B3.Reconciliation of movements during the year at fair values measured in Level 3 In Denar thousand At 1 January 2010 Profit/(loss) recognized in: Tradin g assets Financial assets at fair value through profit and loss at its/ their initial recognition. Investment in securities available-forsale Total assets Trading assets Financial assets at fair value through profit and loss at its/ their initial recognition. Total liabilities Income statement Other profit/(loss) in the period not presented in the Income Statement Purchase of financial instruments in the period Sold financial instruments in the period Issued financial instruments in the period Paid financial instruments in the period Reclassified financial instruments in the period /(from) Level Reclassified in loans and advances At 31 December Total as of 31 December

68 66 Fair value of financial assets and liabilities (continued) B. Levels of fair value of financial assets and liabilities at fair value (continued) B3.Reconciliation of movements during the year at fair values measured in Level 3 (continued) In Denar thousand At 1 January 2011 Profit/(loss) recognized in: Trading assets Financial assets at fair value through profit and loss at its/ their initial recognition. Investment in securities available-forsale Total assets Trading assets Financial assets at fair value through profit and loss at its/ their initial recognition. Total liabilities Income statement Other profit/(loss) in the period not presented in the Income Statement Purchase of financial instruments in the period Sold financial instruments in the period Issued financial instruments in the period Paid financial instruments in the period Reclassified financial instruments in the period /(from) Level Reclassified in loans and advances At 31 December Total as of 31 December

69 67 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 6 Interest income and expense A. Structure of interest income and expense according to the type of financial instruments in Denar thousand Interest income Cash and cash equivalents 18,118 17,879 Financial assets at fair value through profit and loss at its/ their initial recognition - - Derivative assets held for risk management - - Loans and advances to banks 2, Loans and advances to other customers 191, ,222 Investment in securities - - Other receivables - - (Allowance for impairment of interest income, net) 39,974 36,677 Collected interest previously written off - - Total interest income 252, ,276 Interest expense Financial liabilities at fair value through profit and loss at its/ their initial recognition - - Derivative liabilities held for risk management - - Due to banks (371) (583) Due to customers (135,051) (65,514) Issued debt securities - - Loan liabilities (1,560) (250) Subordinated liabilities (582) (221) Other liabilities - - Total interest expenses (137,564) (66,568) Net interest income/ (expense) 114, ,708 B. Sector analysis of interest income and expenses according to sector in Denar thousand Interest income Non-financial companies 166, ,801 Government - - Non-profit institutions that serve households Banks 20,403 18,377 Other financial institutions (non-banking) 885 2,021 Households 24,317 18,400 Non-residents - - (Allowance for impairment of interest income, net) 39,974 36,677 Collected interest previously written off - - Total interest income 252, ,276 Interest expense Non-financial companies (12,766) (10,497) Government (2,165) (1,578) Non-profit institutions that serve households (4,664) (4,053) Banks (1,673) (634) Other financial companies (non-banking) (22,662) (19,168) Households (91,743) (28,634) Non-residents (1,891) (2,004) Total income expense (137,564) (66,568) Net interest income/(expense) 114, ,708

70 68 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 7 Fee and commission income and expense A. Structure of fee and commission income and expense according to the type of financial instruments in Denar thousand Fee and commission income Loans 19,106 10,595 Payment s operations - in the country 11,800 8,214 - abroad 9,466 9,206 Letter of credit and guarantees 7,743 6,987 Brokerage operations - Asset management - Fiduciary activities Issuing securities - Other Total fee and commission income 48,709 35,509 Fee and commission expense Loans - - Payment operations - - in the country (6,758) (5,162) - abroad (6,677) (5,271) Letter of credit and guarantees - - Brokerage operations - Asset management - - Fiduciary activities - - Issuing securities - - Other - Total fee and commission expense (13,435) (10,433) Net fee and commission income/(expense) 35,274 25,076 B. Sector analysis of fees and commission income and revenue per sector in Denar thousand Fee and commission income Non-financial companies 40,685 29,210 Government Non-profit institutions that serve households Banks Other financial companies (non-banking) 2,033 1,990 Households 4,293 2,607 Non-residents 766 1,032 Total fee and commission income 48,709 35,509 Fee and commission expense - Non-financial companies - - Government - - Non-profit institutions that serve households - - Banks (3,528) (2,394) Other financial institutions (non-banking) (3,230) (2,768) Households - - Non-residents (6,677) (5,271) Total fee and commission expense (13,435) (10,433) Net fee and commission income/(expense) 35,274 25,076

71 69 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 8 Net income from trading Assets for trading in Denar thousand Profit/(loss) from fair value changes of debt securities, net - realised unrealised - - Profit/(loss) from fair value changes of equity instruments, net - realised unrealised - - Income from dividends from trading assets - - Income from interest of trading assets - - Liabilities for trading Profit/(loss) from fair value changes of debt securities, net - realised unrealised - - Profit/(loss) from fair value changes of trading deposits, net - realised unrealised - - Profit/(loss) from fair value changes of remaining financial liabilities for trading, net - realised unrealised - - Interest expense of financial liabilities held for trade - - Profit/(loss) from fair value change of derivatives held for trading, net - realised unrealised - - Net income from trading - -

72 70 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 9 Net income from other financial instruments carried at fair value in Denar thousand Financial assets carried at fair value through profit and loss at their initial recognition Profit/(loss) from fair value changes of debt securities, net - realised unrealised - - Profit/(loss) from fair value changes of equity instruments, net - realised unrealised - - Income from dividends from financial assets at fair value through profit and loss - - Profit/(loss) from the changes in fair value of loans and receivables at fair value through profit and loss, net - realised unrealised - - Financial liabilities carried at fair value through profit and loss at their initial recognition Profit/(loss) from fair value changes of debt securities, net - realised unrealised - - Profit/(loss) from the changes in fair value of deposits at fair value through profit and loss, net - realised unrealised - - Profit/(loss) from the changes in fair value of borrowings at fair value through profit and loss, net - realised unrealised - - Profit/(loss) from the changes in fair value of other financial liabilities at fair value through profit and loss, net - realised unrealised - - Profit /(loss) from fair value changes of derivatives held for risk management at fair value through profit and loss, net - realised unrealised - - Net income from other financial instruments carried at fair value Net foreign exchange gains/ (losses) in Denar thousand Realized foreign exchange gains / (losses), net 8,495 5,820 Unrealized foreign exchange gains / (losses), net - foreign exchange differences of allowance for impairment of financial assets, net foreign exchange differences of special reserves of off-balance exposure, net other foreign exchange differences, net 510 1,614 Net foreign exchange gains/(losses) 9,055 7,434

73 71 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 11 Other operating income in Denar thousand Profit from the sale of assets available for sale - - Dividends from equity instruments available for sale Net income from investment in subsidiaries and associates - - Capital gain from the sale of: - - property and equipment intangible assets foreclosed assets non current assets held for sale and group for disposal - - Income from rent 2, Income from litigations - - Collected receivables previously written off - - Release of special reserve and provisions for: - - off balance sheet credit exposure - 2,187 - contingent commitments based on litigations pensions and other employee benefits restructuring adverse contracts other provisions - - Income from over accrued expenses from previous years 1, Income based on court litigations, taxes and other administrative taxes Other Total other operating income 4,714 4,582

74 72 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 12 Impairment loss of financial assets, net in Denar thousand 2011 Allowance for impairment, on individual basis Loans and advances to banks Loans and advances to other customers Investment in financial assets available-forsale Investment in financial assets held to maturity Cash and cash equivalents Fees and commission receivables Other receivables Total Additional allowance for impairment - 190,156 1,228 4, ,566 (Release of allowance for impairment) - (219,016) (1,208) (1,341) (221,565) - (28,860) ,841 (25,999) Allowance for impairment, on group basis Additional allowance for impairment (Release of allowance for impairment) Total allowance for impairment of financial assets, net - (28,860) ,841 (25,999) 2010 Allowance for impairment, on individual basis Additional allowance for impairment - 191, , ,529 (Release of allowance for impairment) - (210,184) (266) (488) (210,938) - (18,849) , (17,409) Allowance for impairment, on group basis Additional allowance for impairment (Release of allowance for impairment) Total allowance for impairment of financial assets, net - (18,849) , (17,409)

75 73 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 13 Impairment loss of non-financial assets, net Property and equipment Intangible assets Non - current assets held for sale and group for disposal Other nonfinancial assets Non controlled interest in Denar thousand Foreclosed assets Total 2011 Additional impairment loss (Release of impairment loss) Total impairment loss of non-financial assets, net Additional impairment loss (Release of impairment loss) Total impairment loss of non-financial assets, net

76 74 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 14 Employee benefits in Denar thousand Short - term employee benefits - Salaries 43,931 42,403 - Mandatory contribution for social and health insurance 15,155 14,527 - Short - term paid leave of absence Expenses for temporary employment 1, Interest in profit and rewards Non-monetary benefits ,651 57,891 Benefits after termination of employment - Contribution to pension plans for defined contributions Benefits at retirement Increasing the obligation for pension plans and defined benefits Increasing the obligation for other long-term benefits Other benefits after the termination of employment Benefits due to termination of employment Employee payments based on shares, settled with equity instruments - - Employee share-based payments, settled in cash - - Other Total employee expenses 60,651 58, Amortisation and depreciation in Denar thousand Amortisation of intangible assets Internally developed software - - Software purchased from external suppliers 3,794 4,094 Other internally developed intangible assets - - Other non-material assets 1,247 1,246 Investment in intangible assets under lease - - 5,041 5,340 Depreciation of property and equipment Construction objects - - Transport vehicles 2,757 2,218 Furniture and office equipment 1,877 1,655 Other equipment 7,302 8,725 Other items of property and equipment - - Investment in property and equipment under lease ,936 12,598 Total amortisation and depreciation 16,977 17,938

77 75 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 16 Other operating expenses in Denar thousand Loss due to the sale of assets available for sale - - Expenses for software licensing - - Insurance premiums on deposits 9,045 3,850 Insurance premiums on property and employees 1,340 1,538 Materials and services 47,709 44,124 Administrative and marketing expenses 15,048 7,987 Other taxes and contributions Expenses for rent 28,989 27,633 Expenses for litigation 4,380 - Special reserve for off-balance exposure, net Provisions for pensions and other employee benefits, net - - Provisions for contingent commitments based on litigations, net - - Other provisions, net - - Loss from the sale of: property and equipment non-material assets foreclosed assets non - current assets held for sale and group for disposal - - Other Total other operating expenses 107,251 85, Income tax A. Expenses/income for current and deferred income tax in Denar thousand Current income tax Expenses / (income) for current income tax for the year 1, Adjustments for previous years - - Benefits for previously unrecognized tax losses, tax balance or temporary differences from previous years - - Changes in accounting policies and errors - - Other - - 1, Deferred income tax Deferred income tax that arises from temporary differences for the year - - Recognition of previously unrecognized tax losses - - Changes in the tax rate - - Introducing new taxes - - Benefits from previously unrecognized tax losses, balance or temporary differences from previous years - - Other Total income tax expenses / (return) 1, Current income tax Recognized in the Income statement 1, Recognized in equity and reserves - - 1, Deferred income tax Recognized in the Income statement - - Recognized in equity and reserves Total income tax expenses / (return) 1,

78 76 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) Income tax (continued) B. Reconciliation of the effective average tax rate with the variable tax rate in Denar in % thousand in % in Denar thousand Profit/(loss) before taxation - 4,115-2,154 Income tax in accordance with the applicable tax rate Effect from various tax rates in other countries Adjustment for previous years and changes in the tax rate Taxed income abroad Expenses unrecognized for tax purposes - 1, Tax exempted income Tax exemptions unrecognized in the Income statement Recognition of previously unrecognized tax losses Benefits from previously unrecognized tax losses, tax balance or temporary differences from previous years Changes of deferred tax Other Total expenses/(return) of income tax - 1, Average effective tax rate 29.7% 27.07% C. Income tax from other profit/ (loss) in the period not presented in the Income Statement in Denar thousand Before taxation Less income tax (expenses)/inc ome tax return Before taxation Revaluation reserve for assets available-for-sale Reserve for instruments for risk protection of cash flows Reserve for instruments for risk protection from net- investments in foreign operations Reserve of foreign exchange differences from investment in foreign operations Participation in other gains/ (losses) in associates not presented in the Income Statement Other gains.(losses) not presented in the Income Statement Total other gains/ (losses) in the period not presented in the Income Statement

79 77 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 18 Cash and cash equivalents in Denar thousand Cash in hand 75,415 71,291 Current account and deposits with the NBRM, except for obligatory foreign currency reserves 239,693 77,477 Current accounts and deposits with foreign banks 144, ,303 Current accounts and deposits with domestic banks 9,552 2,718 Treasury bills traded on the secondary market 677, ,963 Government bills traded on the secondary market - - Term deposits with a maturity period less than, or equal to three months - 6,947 Other short - term highly liquid assets Interest receivables 1, (allowance for impairment loss) - - Included in cash and cash equivalents for the purpose of the Statement of cash flows 1,148, ,374 Obligatory foreign currency reserves 76,098 53,166 Restricted deposits 58,715 12,301 (allowance for impairment loss) - - Total 1,283, ,841 in Denar thousand Movement of allowance for impairment As of 01 January - - Allowance for impairment for the year - additional allowance for impairment (release from allowance for impairment) - - Effect of exchange rate difference - - (Written-off receivables) - - As of 31 December - - Based on the Decision on obligatory reserve brought by the National Bank of the Republic of Macedonia, Bank s reserve requirement ratio equals to 10.0% for liabilities in domestic currency, 20.0% for liabilities in domestic currency with foreign exchange clause and 13.0% for liabilities in foreign currency. The basis for the reserve requirement is determined as an average of the Bank s liabilities for each calendar day of the preceding month. The period for obligatory reserve is from 11th in the current month until 10th in the following month. The Bank fulfils the obligatory reserve in Denar on average basis. The Bank is required to keep an obligatory reserve in foreign currency in separate accounts with the National Bank of the Republic of Macedonia denominated in Euro at a fixed level. The interest rate for the obligatory reserve in Denar, as of 2011 and 2010 is 2% p.a. During 2011 and 2010, the interest rate for the obligatory reserve in foreign currency is 0.1% p.a. Treasury bills issued by NBRM, as of 31 December 2011 and 2010 are with a maturity of 28 days and interest rates of 4.00% p.a. Restricted deposits in amount of Denar 58,715 thousand (2010: Denar 12,301 thousand) represent deposits as collateral for issued letters of guarantees.

80 78 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 19 Trading assets A. Structure of trading assets by type of financial instrument in Denar thousand Trading Securities Debt securities for trading - Treasury bills for trading Government bills for trading Other instruments on the money market Bonds issued by the Government Corporative bonds Other debt instruments Quoted - - Unquoted - - Owned instruments for trading - Owned instruments issued by banks Other owned instruments Quoted - - Unquoted - - Derivatives for trading - Contracts dependent on the change of interest rate Contracts dependent on the change of exchange rate Contracts dependent on the change of price of securities Other contracts that meet the criteria of IAS Total assets for trading - -

81 79 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) Trading assets (continued) B. Reclassified trading assets B1. Balance of reclassified trading assets in Denar thousand Trading assets reclassified in 2011 in: - financial assets available-for-sale - loans and advances to banks - loans and advances to customers Reclassified amount (at date of reclassification) Accounting value at Fair value at Accounting value at Fair value at Trading assets reclassified in 2010 in: - financial assets available-for-sale - loans and advances to banks - loans and advances to customers

82 80 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) Trading assets (continued) B. Reclassified trading assets (continued) B2. Income and losses from reclassification of trading assets Reclassified during 2011 Reclassified during 2010 Income statement Other income/ Income statement Other income/ Income statement Other income/ in Denar thousand 2011 (losses) (losses) (losses) 2010 Period before reclassification Trading assets reclassified in financial assets available-for-sale net - income from trading Trading assets reclassified in loans and advances to banks net - income from trading Trading assets reclassified in loans and advances to customers Period after reclassification Trading assets reclassified in financial assets available-for-sale interest income impairment provision of financial assets, net changes in fair value, net Trading assets reclassified in loans and advances to banks interest income impairment provision of financial assets, net Trading assets reclassified in loans and advances to customers interest income impairment provision of financial assets, net

83 81 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) Trading assets (continued) B. Reclassified trading assets (continued) B3. Income or losses recognised in income statement if the assets we not reclassified Reclassified during 2011 Reclassified during 2010 in Denar thousand Income statement 2011 Income statement 2011 Income statement 2010 Trading assets reclassified in financial assets available-for-sale net - income from trading Trading assets reclassified in loans and advances to banks net - income from trading Trading assets reclassified in loans and advances to customers net - income from trading - - -

84 82 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 20 Financial assets at fair value through profit and loss at initial recognition in Denar thousand Debt securities - Treasury bills Government bills Other instruments on the money market Bonds issued by the government Corporative bonds Other debt instruments Quoted - - Unquoted - - Equity instruments - Equity instruments issued by banks Other equity instruments Quoted - - Unquoted - - Loans and advances to banks - - Loans and advances to other customers - - Total financial assets at fair value through profit and loss, at initial recognition - -

85 83 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 21 Derivative assets and liabilities held for risk management in Denar thousand Derivative assets (Derivative Derivative (Derivative liabilities) assets liabilities) A. Derivatives for risk protection /Derivatives held for risk management A.1 According to type of variability Derivatives held for risk management Contracts dependent on the change of interest rate Contracts dependent on the change of exchange rate Contracts dependent on the change of price of securities Other contracts that meet the criteria of IAS Total derivatives held for risk management A.2 According to risk protection Fair value risk protection Cash flow risk protection Risk protection of net investment in foreign operations Total derivatives held for risk management B. Embedded derivatives Contracts dependent on the change of interest rate Contracts dependent on the change of exchange rate Contracts dependent on the change of price of securities Other contracts that meet the criteria of IAS Total embedded derivatives Total derivatives held for risk management

86 84 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 22 Loans and advances 22.1 Loans and advances to banks in Denar thousand Short term Long term Short term Long term Loans to banks - domestic banks 100,000-70, foreign banks Term deposits, maturity over three months - - domestic banks 61, foreign banks 47, Repo - domestic banks foreign banks Other receivables - domestic banks foreign banks Interest receivables Current maturity Total loans and advances to banks before allowance for impairment 209,662-70,004 - (Allowance for impairment) Total loans and receivable to banks less allowance for impairment 209,662-70,004 - in Denar thousand Movements of allowance for impairment As of 01 January - - Allowance for impairment for the year additional allowance for impairment (release of allowance for impairment) - - Effect of exchange rate differences - - (Written off receivables) - - As of 31 December - -

87 85 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Loans and advances (continued) 22.2 Loans and advances to customers A. Structure of loans and advances to customers by type of debtor in Denar thousand Short term Long term Short term Long term Non-financial companies - receivables per principal 1,374, , , ,233 - interest receivables 16,182-9,609 - Government - receivables per principal interest receivables Non-profit institutions that serve households - receivables per principal - 1, interest receivables Financial companies, apart from banks - receivables per principal , interest receivables Households - receivables per principal housing loans , ,417 consumer loans 35, ,116 36, ,004 car loans mortgages credit cards 7,014 48,691 7,812 33,312 other loans 18,581 6,656 12,862 1,061 interest receivables 1,509-1,124 - Non residents, apart from banks receivables per principal - 2,423-2,361 interest receivables Current maturity 257,698 (257,698) 209,747 (209,747) Total loans and advances to other customers before allowance for impairment 1,711, ,918 1,278, ,641 (Allowance for impairment) (228,346) (14,867) (274,393) (7,304) Total loans and advances to other customers less allowance for impairment 1,482, ,051 1,004, ,337 As of 31 December 2011 the non-performing loans included in loans and advances to customers are in the amount of Denar 303,486 thousand (2010: Denar 337,963 thousand). Unrecognised interest related to these loans is in the amount of Denar 125,306 thousand (2010: Denar 111,730 thousand).

88 86 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Loans and advances (continued) Loans and advances to customers (continued) A. Structure of loans and advances to customers by type of debtor in Denar thousand Movements of allowance for impairment, individual basis As of 01 January 281, ,558 Allowance for impairment for the year - additional allowance for impairment 190, ,335 - (release of allowance for impairment) (219,016) (210,184) Effect of exchange rate differences 40 - (Written off receivables) (9,664) (118,012) As of 31 December 243, ,697 Movements of allowance for impairment, group basis As of 01 January - - allowance for impairment for the year - additional allowance for impairment (release of allowance for impairment) - - Effect of exchange rate differences - - (Written off receivables) - - As of 31 December - - Total allowance for impairment of loans and advances to customers 243, ,697 B. Structure of loans and advances to customers per type of collateral in Denar thousand (net carrying amount of loans and advances) First class instruments for guarantee - Cash deposits (in depot and/or limited bank accounts) 76, ,573 - Government securities Government unconditional guarantees Bank guarantees - - Guarantees from insurance companies and insurance policies - - Corporate guarantees (apart from banking and insurance companies) - - Guarantees from individuals - - Property pledge - Property for own use 670, ,130 - Property for operating activities 477, ,329 Property pledge 423, ,423 Other types of guarantees 645, ,102 Unsecured - - Total loans and advances to customers less allowance for impairment 2,292,718 1,506,557

89 87 As of and for year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) 23 Investments in securities 23.1 Investments in financial assets available-for-sale A. Structure of investments in financial assets available for sale according to the type of financial instrument in Denar thousand Debt securities Treasury bills - - Government bills - - Other instruments on the money market - - Government issued bonds - - Corporative bonds - - Other debt instruments Quoted - - Unquoted - - Owned instruments Owned instruments issued by banks - - Other owned instruments 19,990 4,338 19,990 4,338 Quoted - - Unquoted 19,990 4,338 Total investment in financial instruments available for sale before allowance for impairment 19,990 4,338 (Allowance for impairment) - - Total investment in financial instruments available for sale less allowance for impairment 19,990 4,338 in Denar thousand Movements of allowance for impairment As of 01 January - - Allowance for impairment for the year - additional allowance for impairment (release of allowance for impairment) - - Foreign exchange differences - - (Written off receivables) - - As of 31 December - - As of 31 December 2011 and 2010, the investments in other unquoted equity instruments in amount of Denar 19,990 thousand (2010: Denar 4,338 thousand) are investment in local financial companies.

90 88 As of and for year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) Investment in financial assets available for sale (continued) B. Reclassified financial assets available - for - sale B1. Balance of reclassified assets available-for-sale Reclassified amount (at the date of reclassification) Accounting value at Fair value at Accounting value at Fair value at In Denar thousand Assets available - for - sale reclassified in 2011in: - Loans and advances to banks Loans and advances to customers Assets available - for - sale reclassified in 2010 in: - Loans and advances to banks Loans and advances to customers

91 89 As of and for year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) Investment in financial assets available-for-sale (continued) B. Reclassified financial assets available - for - sale B2. Profit and loss from reclassified assets available-for-sale Period before reclassification In Denar thousand Income statement (current) Other profit /(loss) (current) Income statement (previous) Other profit /(loss) (previous) Assets available - for - sale reclassified in loans and advances to banks - interest net based impairment provision of financial assets net based changes in fair value Assets available - for - sale reclassified in loans and advances to customers interest net based impairment provision of financial assets net based changes in fair value Period after reclassification Assets available - for - sale reclassified in loans and advances to banks interest net based impairment provision of financial assets amount of revaluation reserves Assets available - for - sale reclassified in loans and advances to customers interest net based impairment provision of financial assets amount of revaluation reserves

92 90 As of and for year ended 31 December 2011 (All amounts are expressed in Denar thousand unless otherwise stated) Investment in financial assets available-for-sale (continued) B3.Income or losses recognised if the assets are not reclassified In Denar thousand Income statement (current) Other profit /(loss) (current) Income statement (previous) Other profit /(loss) (previous) Assets available - for - sale reclassified in loans and advances to banks interest net based impairment provision of financial assets Assets available - for - sale reclassified in loans and advances to customers interest net based impairment provision of financial assets net based changes in fair value

93 91 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Investments in securities (continued) 23.2 Investments in financial assets held to maturity In Denar thousand Debt securities Treasury bills - - Government bills - - Other instruments on the money market - - Government issued bonds - - Corporative bonds - - Other debt instruments Quoted - - Unquoted - - Total investments in financial instruments held-to-maturity before allowance for impairment - - (Allowance for impairment) - - Total investment in financial instruments held-to-maturity less allowance for impairment - - In Denar thousand Movements of allowance for impairment As of 01 January - - Allowance for impairment for the year - additional allowance for impairment (release of allowance for impairment) - - Foreign exchange differences - - (Written-off receivables) - - As of 31 December Investments in subsidiaries and associates A. Percentage of the Bank s interest in subsidiaries and associates Name of subsidiaries and associates Country in % Percentage of interest in ownership Percentage of right to vote B. Financial information of associates 100% Name of associates Total assets Total liabilities 2011 In Denar thousand Total equity and reserves Income Profit/ (loss) for the financial year

94 92 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 25 Other liabilities In Denar thousand Trade receivables 2, Prepaid expenses 1,916 1,612 Calculated deferred income - - Fees and commission receivables 631 1,560 Receivables from the employees - 3 Advances for intangible assets - - Advances for property and equipment - - Small inventory 2,242 2,622 Receivables in calculation of business combinations in foreign currency - Western Union 1, Other 1,978 1,395 Total other receivables before allowance for impairment 10,290 8,063 (allowance for impairment) (3,284) (1,625) Total other receivables less allowance for impairment 7,006 6,438 In Denar thousand Movement of allowance for impairment As of 1 January 1, Allowance for impairment for the year - additional allowance for impairment 5,410 2,194 - (release of allowance for impairment) (2,549) (754) Effect of exchange rate differences - - (Written-off receivables) (1,202) - As of 31 December 3,284 1, Pledged assets Debt securities - - Owned instruments - - Total pledged assets - -

95 93 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 27 Foreclosed assets Land Buildings Equipment Residential facilities and apartments Other Total Cost At 1 January ,400 18,080 3,377 38,857 Foreclosed during the year 2,771-2,120 22,203-27,094 (Sold during the year) (Transfer to own assets) At 31 December ,771-19,520 40,283 3,377 65,951 At 1 January ,771-19,520 40,283 3,377 65,951 Foreclosed during the year 7,527 99,364 93, ,494 (Sold during the year) (3,375) - (3,375) (Transfer to own assets) At 31 December ,298 99,364 19, ,511 3, ,070 Impairment At 1 January ,035-3,377 19,412 Impairment loss during the year (sold during the year) (Transfer to own assets) At 31 December , ,377 19,916 At 1 January , ,377 19,916 Impairment loss during the year (Transfer to own assets) At 31 December , ,377 20,622 Current carrying value At 01 January ,365 18,080-19,445 At 31 December ,771-3,417 39,847-46,035 At 31 December ,298 99,329 3, , ,448 During 2011, the Bank performed internal property transfer from the accounts for residential buildings and apartments, to accounts for construction buildings in the amount of Denar 15,151 thousand. The transfer is shown in the table above within "foreclosed during the year". As of 31 December 2011 and 2010, the fair value of foreclosed assets is Denar 244,229 thousand (2010: Denar 46,035 thousand).

96 94 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 28 Intangible assets As of 31 December 2011, intangible assets consist of acquired software from external suppliers and other internally developed intangible assets. Movements of carrying values for the reviewed periods are as follows: A. Reconciliation of net carrying value Internally developed software Acquired software from external suppliers Other internally developed intangible assets Other intangible assets Investments in intangible assets under lease Non controlled interest Total Cost At 1 January ,504 6, ,738 Increase through new acquisitions - 5, ,383 Increase through internal development Increase through business combinations (Disposal and write off) (Disposal through business combinations) (Transfer to non current assets held for - sale) transfer from non current assets held for - sale At 31 December ,887 6, ,121 At 1 January ,887 6, ,121 Increase through new acquisitions Increase through internal development Increase through business combinations (Disposal and write off) (Disposal through business combinations) (Transfer to non current assets held for - sale) transfer from non current assets held for - sale At 31 December ,147 6, ,381

97 95 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Intangible assets (continued) A. Reconciliation of net carrying value (continued) Internally developed software Acquired software from external suppliers Other internally developed intangible assets Other intangible assets Intangible assets in preparation Investments in intangible assets under lease Total Amortization and impairment At 1 January , ,573 Amortization for the year - 4,094 1, ,340 Impairment loss during the year (Release of impairment loss during the year) (Disposal and write off) At 31 December ,355 1, ,913 - At 1 January ,355 1, ,913 Amortization for the year - 3,794 1, ,041 Impairment loss during the year (Release of impairment loss during the year) (Disposal and write off) At 31 December ,149 2, ,954 Current carrying amount At 1 January ,243 5, ,165 At 31 December ,532 4, ,208 At 31 December ,998 3, ,427 B. Carrying value of intangible assets where there is limitation of ownership and/ or are pledge as collateral for Bank s liabilities Internally developed software Acquired software from external suppliers Other internally developed intangible assets Other intangible assets Intangible assets in preparation Investments in intangible assets under lease Total Current carrying amount At 31 December At 31 December

98 96 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 29 Property and equipment A. Reconciliation of the net carrying amount Furniture and office equipment Other equipment Other items of property and equipment Property and equipment in preparation Investments in intangible assets under lease Land Buildings Transport Total Cost At 1 January ,441 14,136 52,452-1,183-80,212 Increase ,498-3,134-6,790 Increase through business combinations (Disposal and write off) (412) (1,144) (1,556) (Disposal through business combinations) (transfer to non current assets held for sale) Transfer from non current assets held for sale Other transfers ,134 - (3,134) - - At 31 December ,441 13,882 57,940-1,183-85,446 At 1 January ,441 13,882 57,940-1,183-85,446 Increase - - 3, , ,435 Increase through business combinations (Disposal and write off) (Disposal through business combinations) (transfer to non current assets held for sale) Transfer from non current assets held for sale Other transfers-adjustments (883) 191 At 31 December ,898 14,365 59,626-1,183-92,072

99 97 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Property and equipment (continued) A. Reconciliation of the net carrying amount (continued) Furniture and office equipment Other equipment Other items of property and equipment Property and equipment in preparation Investments in intangible assets under lease Land Buildings Transport Total Depreciation and impairment At 1 January ,232 7,828 31, ,932 Depreciation for the year - - 2,218 1,655 8, ,598 Impairment loss during the year (Release of impairment loss during the year) (Disposal and write off) (412) (1,144) (1,556) (Transfer to non current assets held for sale) Transfer from non current assets held for sale Other transfers At 31 December ,450 9,071 39, ,974 At 1January ,450 9,071 39, ,974 Depreciation for the year - - 2,757 1,877 7, ,936 Impairment loss during the year (Release of impairment loss during the year) (Disposal and write off) (Transfer to non current assets held for sale) Transfer from non current assets held for sale Other transfers At 31 December ,207 11,139 46, ,101 Net carrying amount At 1January ,209 6,308 20,580-1,183-33,280 At 31 December ,991 4,811 18,487-1,183-27,472 At 31 December ,691 3,226 12,871-1,183-21,971

100 98 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Property and equipment (continued) As of 31 December 2011 and 2010 the Bank has no mortgages or other encumbrances over its property and equipment. B. Carrying amount of the items of property, plant and equipment where there are limitations of the ownership and/or are pledged as collateral/pledge for bank liabilities Land Buildings Transport Furniture and office equipment Other equipment Other items of property and equipment Property and equipment in preparation Investments in intangible assets under lease Total Current carrying amount : At 31 December At 31 December

101 99 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 30 Current and deferred tax assets and liabilities 30.1 Current tax assets and current tax liabilities income tax receivables (current) 1,758 2,979 income tax liabilities (current) - - 1,758 2, Deferred tax assets and deferred tax liabilities A. Recognized deferred tax assets and deferred tax liabilities Deferred tax assets (Deferred tax liabilities) (Deferred Deferred tax Net basis tax assets liabilities) Net basis Derivative liabilities held for risk management Loans and advances to banks Loans and advances to customers Investments in securities Intangible assets Property, plant and equipment Other receivables Derivative liabilities held for risk management Other liabilities Unused tax losses and unused tax credits Other Deferred tax assets/liabilities recognized in the Statement of Income Investments in financial assets available for sale Cash flow risk protection Deferred tax assets/liabilities recognized in equity Total recognized deferred tax assets/liabilities B. Unrecognized deferred tax assets Tax losses - - Tax credits - - Total unrecognized deferred tax assets - -

102 100 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Current and deferred tax assets and liabilities (continued) Deferred tax assets and deferred tax liabilities (continued) C. Reconciliation of the movement of deferred tax assets and tax liabilities during the year Recognized during the year in: 2010 As of 1 January Income statement Equity As of 31 December Derivative liabilities held for risk management Loans and advances to banks Loans and advances to customers Investments in securities Intangible assets Property, plant and equipment Other receivables Derivative liabilities held for risk management Other liabilities Unused tax losses and unused tax credits Other Investments in financial assets available for sale Cash flow risk protection Total recognized deferred tax assets/ liabilities Derivative liabilities held for risk management Loans and advances to banks Loans and advances to customers Investments in securities Intangible assets Property, plant and equipment Other receivables Derivative liabilities held for risk management Other liabilities Unused tax losses and unused tax credits Other Investments in financial assets available for sale Cash flow risk protection Total recognized deferred tax assets/ liabilities

103 101 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 31 Non-current assets held for sale and disposal group A. Non current assets held for sale Intangible assets - - Property and equipment - - Total non current assets held for sale - - B. Disposal group Disposal group of assets Financial assets - - Intangible assets - - Property and equipment - - Investment in associates 251, ,606 Income tax receivables - - Other assets - - Total disposal group of assets 251, ,606 Liabilities directly related to disposal group Financial liabilities - - Special reserve - - Income tax liabilities - - Other liabilities - - Total liabilities directly related to the disposal group - - C. Profit / (loss) recognized from the sale of assets held for sale and disposal group Profit / (loss) recognized from the sale of assets held for sale and disposal group Assets held for represent non - current investments acquired exclusively for sale. Namely, in 2005 the Bank acquired 66.66% of the shares of Postenska Banka A.D Skopje with voting right ( Postenska Banka ), by realization of pledge. The Bank has implemented procedures for sale of shares in Postenska Banka, for which has signed and written contracts with potential buyers where has realized higher sale value than cost. Transactions for the sale of shares were not realized due to reasons out of Bank s control. Bank leads active negotiations for the sale of shares and the sale price at which the contract package of shares in Postenska Banka negotiated is higher than the purchase cost. Considering that the Bank has a real offer, the price for the shares of Postenska Banka higher than the purchase cost, is confirmed that as of 31 December 2011 there are no indications of impairment of assets. Transactions with subsidiary held for sale are presented in Note 44 Related party transactions.

104 102 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 32 Trading liabilities Due to banks - Current accounts, demand deposits and overnight deposits Term deposits Other deposits Due to customer - Current accounts, demand deposits and overnight deposits Term deposits Other deposits Issued debt securities - Money market instruments Deposit certificates Issued bonds Other Other financial liabilities - - Trade derivatives Contracts dependent on the interest rate change - - Contracts dependent on the exchange rate change - - Contracts dependent on the price of securities - - Other contracts that meet the criteria of IAS Total trading liabilities - -

105 103 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 33 Financial liabilities designated at fair value through profit and loss, at its/ their initial recognition Current carrying amount Contractual Contractual value, paid at Current carrying value, paid at maturity amount maturity Due to banks Current accounts, demand deposits and overnight deposits Term deposits Other deposits Due to customer Current accounts, demand deposits and overnight deposits Term deposits Other deposits Issued debt securities Money market instruments Deposit certificates Issued bonds Other Subordinary debts Other financial liabilities Total financial liabilities through profit and loss at its/ their initial recognition

106 104 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 34 Deposits 34.1 Due to banks Short term Long term Short term Long term Current accounts - Domestic banks Foreign banks Demand deposits - Domestic banks Foreign banks Term deposits - Domestic banks 19,260-11, Foreign banks Limited deposits - Domestic banks Foreign banks Other deposits - Domestic banks Foreign banks Interest - Domestic banks Foreign banks Current maturity Total due to banks 20,135-11,872 -

107 105 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 34.2 Due to customers Short - term Long-term Short - term Long-term Non-financial companies - Current accounts 398, , Demand deposits 9, Term deposits 199,644 11, , Limited deposits 22,749 7,797 19,382 7,301 - Other deposits 3,168-5, Interest ,334 19, ,876 7,301 Government - Current accounts Demand deposits Term deposits 30,000-90, Limited deposits Other deposits Interest ,058-90,413 - Non-profit organizations that serve households - Current accounts 20,378-20, Demand deposits Term deposits 71,898 31,758 90,750 9,226 - Limited deposits Other deposits Interest ,358 31, ,029 9,226 Financial companies, apart from banks - Current accounts 6,006-6, Demand deposits Term deposits 242, , ,095 20,000 - Limited deposits - 4,020 4, Other deposits Interest 2,288-1, , , ,695 20,000 Households - Current accounts 57,563-38, Demand deposits 36,688-60, Term deposits 718,626 1,306, , ,955 - Limited deposits 18,112 26,262 20,893 21,330 - Other deposits 1, Interest 21,394-11, ,239 1,332, , ,285 Non-residents, apart from banks - Current accounts 11,523-9, Demand deposits Term deposits 5,482-2, Limited deposits 1,653 18, ,796 - Other deposits Interest ,875 18,390 13,100 21,796 Current maturity 98,476 (98,476) 14,866 (14,866) Total due to other customers 1,980,134 1,412,849 1,558, ,742

108 106 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 35 Issued debt securities Money market instruments - - Deposit certificates - - Issued bonds - - Other - - Interest on issued securities - - Total issued debt securities - -

109 107 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 36 Borrowings A. The structure of borrowings according to the type of liabilities and the donor s sector Short - term Long-term Short - term Long-term Banks - Residential Borrowings - 82, Repo-transactions Interest Non-residential - - Borrowings Repo-transactions Interest , Non-financial companies Borrowings Repo-transactions Interest Non-financial companies Borrowings Repo-transactions Interest Non-profit institutions that serve to households Borrowings Interest Financial companies, apart from banks Borrowings - 2,293-1,155 Repo-transactions Interest ,293-1,155 Non-residents, apart from banks - Non-financial companies Borrowings Repo-transactions Interest Government Borrowings Repo-transactions Interest Non-profit institutions that serve to households Borrowings Repo-transactions Interest Financial companies, apart from banks Borrowings Repo-transactions Interest Households Borrowings Interest Current maturity 336 (336) 1,155 (1,155) Total borrowings ,288 1,155 -

110 108 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Borrowings (continued) B. Borrowings liabilities according to donor Short - term Long-term Short - term Long-term Domestic sources: MBDP ,331-1,155 Lease company - 2, ,624-1,155 Foreign sources: Current maturity 336 (336) 1,155 (1,155) Total borrowings ,288 1,155 - On 17 October 2008, the Bank signed Contract with domestic lease company for vehicle purchase. Total amount of lease according the Contract is EUR 70,978, of which the principal is in the amount of EUR 60,385 and interest EUR 10,593. In accordance with the Contract provision, the repayment will be made in 36 equal instalments, each in the amount of EUR 1,972, starting from 17 November 2008 to 17 October The residual value of the transportation asset with the repayment of the last instalment is equal to zero (Note 30). At 18 October 2011 the lease liability is entirely settled. On 16 June 2011 the Bank signed Contract with domestic lease company for vehicle purchase. Total amount of lease according the Contract is EUR 52,009, of which the principal is in the amount of EUR 42,710 and interest - EUR 9,300. In accordance with the Contract provision, the repayment will be made in 36 equal instalments, each in the amount of EUR 1,445, starting from 16 July 2011 to 16 June The residual value of the transportation asset with the repayment of the last instalment is equal to zero (Note 30). During 2011, the Bank signed Contracts with the Macedonian Bank for Development Promotion AD Skopje for placement of funds from the credit line for small and medium enterprises and the Italian credit line with repayment period from 2013 to 2019 and with interest rates 3% to 5% p.a. The Bank has given bond as collateral for these borrowings. 37 Subordinated liabilities Subordinated deposit liabilities Liabilities based on interest Subordinated credit liabilities Publishing house Kultura AD Skopje 24,000 24,000 Gofi Group of finance and investment 92,258 92,258 Liabilities based on interest , ,259 Subordinated liabilities on issued debt securities Liabilities based on interest Preference shares - - Total subordinated liabilities - -

111 109 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Subordinated liabilities (continued) At 18 June 2010 the Bank signed a subordinated loan contract with Gofi Group of Finance and Investment SA, Switzerland, with which the Bank has on disposal available financial assets as cash yield in amount of Denar 400,000 thousand with an interest rate of 0.5% p.a. There is no collateral for this loan. The repayment date is five years after the date of incurred yield of cash. At 25 August 2010 was concluded Annex no. 1 to the subordinated loan contract with which that the repayment date is changed to six years from the date of incurred yield of cash. At 23 June 2010 the Bank signed a subordinated loan contract with Gofi Group of Finance and Investment SA, Switzerland, with which the Bank has on disposal available financial assets as cash yield in amount of Denar 500,000 thousand with an interest rate of 0.5% p.a. There is no collateral for this loan. The repayment date is five years after the date of incurred yield of cash. At 25 August 2010 was concluded Annex no. 1 to the subordinated loan contract with which that the repayment date is changed to six years from the date of incurred yield of cash. At 23 July 2010 the Bank signed a subordinated loan contract with the Publishing House Kultura AD Skopje, with which the Bank has on disposal available financial assets as cash yield in amount of Denar 24,000 thousand with an interest rate of 0.5% p.a. There is no collateral for this loan. The repayment date is six years after the date of incurred yield of cash. At 21 October 2010 the Bank signed a subordinated loan contract with Gofi Group of Finance and Investment SA, Switzerland, with which the Bank has on disposal available financial assets as cash yield in amount of Denar 600,000 thousand with an interest rate of 0.5% p.a. There is no collateral for this loan. The repayment date is six years after the date of incurred yield of cash.

112 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 38 Special reserve and provisions Special reserve and off-balance credit exposure Provisions for potential liabilities based on litigations Pension provisions and other employee benefits Restructuring provision 110 Provisions for adverse contracts Other provisions Total At 1 January , ,024 Additional provisions during the year 5, ,291 (used provisions during the year) (release of provisions during the year) (7,478) (7,478) At 31 December At 1 January Additional provisions during the year 3, ,122 (used provisions during the year) (release of provisions during the year) (2,963) (2,963) Effect of exchange rate differences At 31 December , ,006

113 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 39 Other liabilities 111 Trade payables 2,942 1,911 Received advances Fee and commission liabilities Accrued expenses - - Deferred income from the previous year - - Short term liabilities to employees - - Short term liabilities for employee benefits - - VAT liabilities Prepayments MIPS liabilities Other 1,108 2,348 Total other liabilities 6,648 6,337

114 112 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 40 Share capital A. Share capital In Denars Number of issued shares preference shares not ordinary shares for sale Total subscribed capital preference shares not for sale Nominal value per share ordinary shares At 1 January fully paid 61, ,000 18, ,100,668 1,100,668 Recorded shares during the year Realization of share option Division / increase of nominal value per share Other changes during the year (list them in detail): At 31 December fully paid 61, ,000 18, ,100,668 1,100,668

115 113 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Share capital (continued) B. Dividends B1. Issued dividends and paid dividends by the Bank Issued dividends and paid dividends for the year - - Ordinary share dividend - - Preference share dividend - - B.2 Issued dividends after the balance sheet date (the dividends liabilities are not shown in the Balance sheet) Issued dividends after 31 December - - Ordinary share dividend - - Preference share dividend - - C. Shareholders with more than 5% voting share Subscribed capital (Nominal value) In MKD thousand in % Subscribed capital (Nominal value) Voting right Voting right Shareholder s name Gofi Group of Finance and Investment SA-Switzerland 550, , E.H.H. Eastern Hemisphere Holding SA-Switzerland 550, , Total 1,100,668 1,100,

116 114 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 41 Earnings per share A. Basic earnings per share Net - profit attributable to holders of ordinary shares Net - profit for the year 2,894 1,571 Dividends for preference shares not for sale - - Changes of Net - Profit attributable to holders of ordinary shares - - Net profit / (loss) attributable to holders of ordinary shares 2,894 1,571 Number of shares Weighted average number of ordinary shares Issued ordinary shares as of 1 January 18,000 18,000 Effects of issuing potential ordinary shares - - Weighted average number of ordinary shares (diluted) as of 31 December 18,000 18,000 Basic earnings per share (in MKD) B. Diluted earnings per share Net - profit attributable to holders of ordinary shares (diluted) Net profit attributable to holders of ordinary shares - - Changes of net profit attributable to holders of ordinary shares for the effects of all issued potential ordinary shares - - Net profit attributable to holders of ordinary shares (diluted) - - Number of shares Weighted average number of ordinary shares (diluted) Issued ordinary shares as of 1 January - - Effects of issuing potential ordinary shares - - Weighted average number of ordinary shares (diluted) as of 31 December - - Diluted earnings per share (in MKD) - -

117 115 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 42 Commitments and contingencies 42.1 Commitments Payment guarantees - in Denar 132,392 64,460 - in foreign currency 75,880 44,093 - in Denar with foreign clause 10,504 - Performance guarantees - in Denar 32,508 25,025 - in foreign currency in Denar with foreign clause - 19,097 Uncovered letter of credit - in Denar - - in foreign currency 2, in Denar with foreign clause - - Unused overdraft for current accounts - - Unused credit card limits 58,149 47,642 Contingent liabilities for crediting and unused credit limits 78, ,572 Other commitments and contingencies - - Issued covered collateral 12,860 18,817 Covered letter of credit - 2,214 Other commitments and contingencies - - Total commitments before the special reserve 403, ,495 (Special reserve) (1,006) (837) Total commitments less potential reserve 402, ,658 Part of contingent liabilities for crediting and unused credit limits in the amount of Denar 69,827 thousand (2010: Denar 97,415 thousand) relates to revocable approved framework agreements for use of funds from loans, credit letters and guarantees which use is subject to re-approval according the Bank s procedures. Litigations At 31 December 2011, proceedings against the Bank amount in total Denar 1,150 thousand. The provision as of the balance sheet date has not been recorded because the professional legal advice indicates that there is no possibility of significant losses. In addition, various legal actions and claims may be asserted in the future against the Bank from litigations and claims incident to the ordinary course of business. Related risks have been analysed as to likelihood of occurrence. Although the outcome of these matters cannot always be ascertained with precision, the management of the Bank believes that no material liabilities are likely to occur. Taxation The tax authorities may at any time inspect the books and records up to 5 years subsequent to the reported tax year, and may impose additional tax assessments and penalties. The Bank's management is not aware of any circumstances, which may give rise to a potential material liability in this respect. Capital commitments As of the reporting date, there are no capital commitments that have been recognized in the financial statements Contingencies Total contingencies - -

118 116 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 43 Activities on behalf of third parties Assets Liabilities Netposition Assets Liabilities Net-position Asset administration on behalf and at the expense of third parties Deposits in Denar Deposits in foreign currencies Loans in Denar 7,592 (7,592) - 7,592 (7,592) - Loans in foreign currencies Other receivables in Denar 65,853 (65,853) (853) - Other receivables in foreign currencies Asset management on behalf and at the expense of third parties Deposits in Denar Deposits in foreign currencies Loans in Denar Loans in foreign currencies Other receivables in Denar Other receivables in foreign currencies Bank accounts Other Total 73,445 (73,445) - 8,445 (8,445) - The Bank manages the assets on behalf of third parties intended for purchasing government bills and bonds or approving loans for customers. These assets are not owned by the Bank and are not recognized in the Balance sheet. The Bank is not exposed to credit risk that arises from these placements.

119 117 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 44 Related party transactions According to the Law on Banks, related parties are considered: persons with special rights and responsibilities in the Bank and persons related to them; shareholders with a qualified contribution to the Bank (direct or indirect ownership of at least 5% of the total number of shares, or voting right shares or that enable a significant influence on the Bank s managing), affiliates and entities, as well as the responsible persons of these shareholders - legal entities, Bank s subsidiaries and other persons related to the Bank. The Bank grants loans, performs payment transfers and deposits funds of related enterprises and financial institutions. It is the opinion of the Bank s management that these transactions are carried out on normal market terms and conditions and during the regular course of business activities. As of 31 December 2011 and 2010 the balances and volume of transactions with companies related to companies that have common control over the Bank, and key management personnel of the Bank and its related parties, are as follows: A. Balance sheet Parent Company Subsidiarie s Associates Managemen t of the Bank Other related parties Total At 31 December 2011 Assets Current accounts - 7, ,102 Trading assets Loans and advances - Mortgages 2, ,846-6,168 - Consumer loans 10, ,531-13,062 - Financial leasing receivables Factoring and forfeiting receivables Other loans and advances 22,094 5,171 4,880-32,145 Investments in securities (Allowance for impairment) (500) (38) - (73) - (611) Other assets Total 35,068 12,236-11,186-58,490 Liabilities Trading liabilities Deposits 228, , ,720 Issued securities Borrowings 2, ,293 Subordinated liabilities 116, ,259 Other liabilities 13, ,136-22,167 Total 360,301 1,491-29, ,439 Commitments Issued guarantees 2, ,811 Issued letter of credit Other commitments 2, ,457-5,460 (Special reserves) (40) - - (47) - (87) Total 5, ,410-8,184 Potential assets Received guarantees Other potential assets Total

120 118 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Related party transactions (continued) A. Balance sheet (continued) Parent Company Subsidiarie s Associates Managemen t of the Bank Other related parties Total At 31 December 2010 Assets Current accounts Trading assets Loans and advances - Mortgages 7, ,737-12,667 - Consumer loans ,360-6,659 - Financial leasing receivables Factoring and forfeiting receivables Other loans and advances 27,702 3, ,626 Investments in securities (Allowance for impairment) (94) - - (56) - (150) Other assets Total 35,804 4,259-11,091-51,154 Liabilities Trading liabilities Deposits 138, , ,001 Issued securities Borrowings 1, ,155 Subordinated liabilities 116, ,259 Other liabilities Total 256, , ,655 Commitments Issued guarantees 6, ,476 Issued letter of credit Other commitments 25, ,709-27,321 (Special reserves) (9) - - (8) - (17) Total 32, ,701-33,780 Potential assets Received guarantees Other potential assets Total

121 119 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Related party transactions (continued) B. Income and expenses from other related party transactions Parent Company Subsidiarie s Associates Managemen t of the Bank Other related parties Total 2011 Income Interest income 3, ,080-5,059 Fee and commission income Net income from trading Dividend income Capital gain from the sale of non - current assets Other income ,072 Transfers between subjects Total 4, ,829-6,764 Expenses Interest expense 8, ,591 Fee and commission expense Net losses from trading Expenses from purchase of non - current assets Allowance for impairment of financial assets, net Other expenses 24, ,170 Transfers between subjects Total 33, ,761 Parent Company Subsidiarie s Associates Managemen t of the Bank Other related parties Total 2010 Income Interest income 3, ,591 Fee and commission income Net income from trading Dividend income Capital gain from the sale of non - current assets Other income ,098 Transfers between subjects Total 3, ,675-6,113 Expenses Interest expense 7, ,211 Fee and commission expense Net losses from trading Expenses from purchase of non - current assets Allowance for impairment of financial assets, net Other expenses Transfers between subjects Total 7, ,439

122 120 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Related party transaction (continued) B. Key management compensation Short - term employee benefits 20,071 19,958 Benefits after employment - - Benefits due to termination of employment - - Employee payment based on shares, settled with owned instruments - - Employee payment based on shares, settled in cash - - Other - - Total 20,071 19,958

123 121 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) 45 Leases A. Lessor A.1 Financial leases receivables Total financial Maturity period of financial lease receivables lease receivables up to 1 year From 1 to 5 years Over 5 years At 31 December Current value of minimum lease payments Total At 31 December Current value of minimum lease payments Total A.2 Irreversible operative lease receivables Total irrevocable operative leases liabilities Maturity period of irrevocable operative leases liabilities up to 1 year From 1 to 5 years Over 5 years At 31 December Current value of minimum lease payments Total At 31 December Current value of minimum lease payments Total Furniture and office equipment Other equipment Other items of property and equipment Land Buildings Vehicles Total Value of property under operational lease: At 31 December At 31 December Total B. Lessee B.1 Financial lease liabilities Maturity period of financial lease liabilities Total financial leases receivables up to 1 year From 1 to 5 years Over 5 years At 31 December ,293 1,101 1,192 - Current value of minimum lease payments Total 2,293 1,101 1,192 - At 31 December ,155 1, Current value of minimum lease payments Total 1,155 1,

124 122 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Leases (continued) B. Lessee (continued) B1. Financial lease liabilities (continued) Transportation vehicles Furniture and office equipment Other equipment Other items of property and equipment Land Buildings Total Value of property under financial lease: Cost At 1 January , ,708 - additions (disposal and write off) other At 31 December , ,708 At 1 January , ,708 - additions - - 3, ,574 - (disposal and write offs) - - (3,708) (3,708) - other At 31 December , ,574 Accumulated depreciation and impairment At 1 January , ,082 - depreciation for the year impairment loss during the year (release of impairment loss during the year) (disposal and write offs) other At 31 December , ,009 At 1 January , ,009 - depreciation for the year impairment loss during the year (release of impairment loss during the year) (disposal and write offs) - - (2,009) (2,009) - other At 31 December

125 123 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar thousand, unless otherwise stated) Leases (continued) B. Lessee (continued) B1. Financial lease liabilities (continued) Transportation vehicles Furniture and office equipment Other equipment Other items of property and equipment Land Buildings Total Current carrying value At 1 January , ,626 At 31 December , ,699 At 31 December , ,127 B.2 Irrevocable operative leases liabilities Total irrevocable operative leases liabilities Maturity period of irrevocable operative leases liabilities up to 1 year From 1 to 5 years Over 5 years At 31 December Current value of minimum lease payments Total At 31 December Current value of minimum lease payments Total

126 124 As of and for the year ended 31 December 2011 (All amounts are expressed in Denar unless otherwise stated) 46 Share based payments Date of giving option - - Date of option expiry - - Price of option realization - - Share price on the date the option is given - - Variance - - Expected dividend return - - Interest rate - - Fair value on the date the option is given - - Number of share options Weighted average price of share options Number of share options Weighted average price of share options At 1 January Changes during the year: - options given to Supervisory Board members options given to Board of Directors members Other given options Forfeited options Realized options Options with expired deadline At 31 December Pension plans The Bank does not operate any defined contribution pension plans or share based remuneration options as of 31 December 2011 and The Management believes that the present value of the future obligations to employees with respect to retirement and other benefits and awards are not material to these financial statements as of 31 December 2011 and Events after the reporting date After 31 December the reporting date until the approval of these financial reports, there are no adjusting events reflected in the financial statements or events that are materially significant for disclosure in these financial statements.

127