SOCIETE GENERALE YUGOSLAV BANK a.d. Belgrade FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2006

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1 SOCIETE GENERALE YUGOSLAV BANK a.d. Belgrade FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2006 <,

2 CONTENTS Page Independent Auditor s Report 1-2 Income Statement 3 Balance Sheet 4-5 Statement of Changes in Equity 6 Cash Flow Statement 7-8 Statistical Annex 9-10 Notes to the Financial Statemnts 11-41

3 CONTENTS INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF SOCIETE GENERALE YUGOSLAV BANK A.D., BEOGRAD We have audited the accompanying financial statements of Societe Generale Yugoslav Bank a.d., Beograd (here in after the Bank ), which comprise the balance sheet as at December 31, 2006, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Law on Accounting and Auditing, Law on Banks and other respective regulations and decisions of the National Bank of Serbia which regulate banks operations and financial reporting. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. 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. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 CONTENTS Opinion As explained in Note 14, the Bank understated its customer deposits and placements to banks in the amount of RSD 281,392 thousand as of 31 December In our opinion, except for the effect on the financial statements of the matter referred to in the preceding paragraph, the financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2006, and of its financial performance and its cash flows for the year then ended in accordance with the Law on Accounting and Auditing, Law on Banks and other respective regulations and decisions of the National Bank of Serbia. Belgrade, April 30 th 2007

5 S o ci et e Gen erale Yu go sl a v B a n k a. d. Be l g r a d e INCOME STATEMENT ITEM No. note OPERATING INCOME AND EXPENSES Interest income ,267,885 Interest expenses ,549 Gains from interest [Dobitak po osnovu kamata] ( ) ,772,336 Loss from interest [Gubitak po osnovu kamata] ( ) - - Fees and commissions income ,041,931 Fees and commissions expenses ,301 Gains from fees and commissions ( ) ,630 Losses from fees and commissions ( ) - - Net gain from securities sale - - Net loss from securities sale - - Foreign exchange net gain ,878 Foreign exchange net loss (effect of indexation is included) Dividend income and other income from investments Other operating income ,840 Expenses for indirect write-off of placements and provisions ,924,102 Other operating expenses ,593,175 Gain of revaluation assets and liabilities Loss of revaluation assets and liabilities GAINS FROM REGULAR OPERATIONS ( ) LOSSES FROM REGULAR OPERATIONS ( ) 558,593 CURRENT YEAR PROFIT BEFORE TAX (225= ) CURRENT YEAR LOSS BEFORE TAX (226= ) 558,593 Income tax Profit from deffered tax assets ,378 PROFIT AFTER TAX ( ) LOSS AFTER TAX ( ili )

6 S o ci et e Gen erale Yu go sl a v B a n k a. d. Be l g r a d e BALANCE SHEET No Note Gross Accumulated Depreciation Net Year ASSETS Cash and cash equivalents ,274,354 Deposits at the central bank and securities refinanced with the central bank ,412,170 Receivables for interests and fees ,871 Due from banks ,300,535 Due from clients ,797,737 Marketeable Securities and other placements Investment in securities for sale ,165 Investment in shares and other available securites for sale Intangible assets ,178 Property and equipment ,395,833 Other assets and accruals ,208 Deferred tax assets ,518 Loss beyond capital amount Total assets ( between 001 and 013) ,815,002 4

7 S o ci et e Gen erale Yu go sl a v B a n k a. d. Be l g r a d e BALANCE SHEET (Continued) ITEMS No Note LIABILITIES Due to banks ,621 Due to customers ,385,213 Accrued interests and fee Securities payable Liabilities from profit Current income tax Other operating liabilities ,633 Provisions Other liabilities and accruals ,866,834 Deferred tax liabilities LIABILITIES (Between 101 and 110) ,941,179 EQUITY Sharehoder s and other equity ,092,579 Reserves ,074 Accumuated profit Loss up to equity amount 538,830 TOTAL EQUITY ( ) ,873,823 TOTAL LIABILITIES ( ) ,815,002 OFF-BALANCE ITEMS (Between 119 and 121) ,947,030 Operations in the name and for the account of third parties 256,667 Commitments and contingencies 27 22,447,041 7,128,944 Other off-balance items 28 17,080,672 5,818,086 5

8 STATEMENT ON CHANGES OF EQUITY S o ci et e G en e r al e Yu g o sl a v B a n k a. d. Be l g r a d e F i n an ci a l s t at e m en t s as o f a nd for the year en d ed 3 1 D e c e m ber Share capital Issuance premium Retained earning Revaluation reserves Profit Loss TOTAL Opening balance of the previous year Fundamental erros and change of accountancy policies - Adjusted opening balance Total increase in Total decrease in Closing balance previous yaer (2005) Fundamental erros and change of accountancy policies Adjusted opening balance Total increase in Total decrease in Closing balance current year (2006)

9 S o ci et e Gen erale Yu go sl a v B a n k a. d. Be l g r a d e CASH FLOW STATEMENT ITEM Designation AMOUNT for AOP CASH FLOW FROM OPERATING ACTIVITIES I.Cash inflow from operating activities (between 302 and 306) ,473, Interest income ,249, Fees and commissions receipt ,041, Other operating income received , Income from dividends and share in profit ,251 II Cash used in operating activities (between 308 and 313) ,067, Interest payments , Fee and commission payments , Payments to employees , Paid taxes and contributions , Other payments ,504 III Cash flow from operating activities before changes in operating assets and liabilities, net (301 minus 307) ,405,164 IV Cash used in operating activities before changes in operating assets and liabilities, net (307 minus 301) V Decrease of operating assets and increase in operating liabilities (Between 317 and 321) ,397, Decrease of loans and assets to banks and other financial organizations ,239, Decrease of loans and operating assets to clients Decrease of securities and other operating assets traded and short-term securities kept until due date Increase of operating liabilities from banks and other financial organizations Increase of operating liabilities from clients ,158,261 VI Increase of operating assets and decrease of operating liabilities (Between 323 and 327) ,340, Incease of loans and operating assets to banks and other financial organizations ,139, Increase of loans and operating assets to clients ,643, Increase of securities and other operating assets traded and short-term securities kept until due date Decrease of operating liabilities of banks and other financial organizations , Decrease of operating liabilities of clients 327 VII Cash flow from operating activities before income tax, net (314 plus 316 minus 322 > 0) VIII Cash used in oerating activities before cash, net (314 minus 315 plus 316 minus 322 < 0) , Income tax paid 330 3, Dividends paid 331 7

10 S o ci et e Gen erale Yu go sl a v B a n k a. d. Be l g r a d e CASH FLOW STATEMENT (Continued) ITEM Designation AMOUNT for AOP IX Cash flow from operating activities (328 minus 330 minus331 > 0) X Cash used in operating activities (328 minus 329 minus 330 minus 331 < 0) ,619 A. CASH FLOWS FROM INVESTMENT ACTIVITIES I Cash flow from investment activities (Between 335 and 337) Long-lerm investments into securities Sale of stakes and shares Sale of intangible assets and property and equipement 337 II Cash outflow from investing activities (Between 339 and 341) , Investment into long-term securities Purchase of stakes and shares Purchase of intangible assets and property and equipment ,888 III Cash flow from investing activities, net (334 minus 338) IV Cash used in investment activities, net (338 minus 334) ,888 C. CASH FLOWS FOR INVESTING ACTIVITIES I Cash inflown from investing activities (Between 345 and 348) ,616, Increase of capital ,612, Long-term capital and subordinated commitments ,003, Drawn short term loans, net Securities, net II Cash outflow from financing activities (Between 350 and 353) , Own shares buy-out Repayment of long-term loans and subordinated commitments Drawn Short-term loans, net , Securities, net III Cash inflow from financing activities, net (344 minus 349) ,342,467 IV Cash outflow from financing activities, net (349 minus 344) D. TOTALCASH INFLOW NET (301 plus 316 plus 334 plus 344) ,486,875 E. TOTAL CASH OUTFLOWS, NET (307 plus 322 plus 330 plus 331 plus 338 plus 349) ,524,915 F. TOTAL CASH INCREASE, NET(356 minus 357) ,960 G. TOTAL CASH DECREASE, NET (357 minus 356) H. CASH AT THE BEGINNING OF YEAR (Note: 10 ) ,249,647 I. FOREIGN EXCHANGE GAINS ,747 J. FOREIGN EXCHANGE LOSSES K. CASH AT THE END OF THE YEAR (Note: 10) (358 minus 359 plus 360 plus 361 minus 362) ,274,354 8

11 S o ci et e Gen erale Yu go sl a v B a n k a. d. Be l g r a d e F i n an ci a l st at e m e nt s a s of a n d f or t h e y e ar en d ed 31 D e cember STATISTICAL ANNEX Accounts Group Account ITEM do 002 i Cash and cash equivalents in RSD (Account balance at the end 008 of the period) ,134, do 13 i 20 do 24 Loans and operating assets to banks and clients in RSD (Liabilities with initial balance) ,675, do 13 i 20 do 24 Loans and operating assets to banks and clients in RSD (assets with initial balance) ,822,540 10,11,13, 15,16 i 18 Short-term loans and operating assets to banks and clients (Account balance at the end of the period) ,304,726 10,15,20, 21,25 i 26 Revocation and short-term loans and operating assets to banks and clients (Account balance at the end of the period) ,395,686 12,17,23 i 28 Long-term loans and operating assets to banks and clients (Account balance at the end of the period) ,134,640 deo 375 Value added taxes 400 do 403 At sight deposits in RSD from Banks (Account balance at the end of the period) , do 413 Short-term deposits in RSD from Banks (Account balance at the end of the period) , do 432 Long-term deposits in RSD from Banks (Account balance at the end of the period) 430 do 436 Long-term deposits and loans in RSD from banks (Account balance at the end of the period) 450 do 453 At sight deposits in foreign currency from banks (Account balance at the end of the period) , do 463 Short-term deposits in foreign currency from banks (Account balance at the end of the period) , do 482 Long-term deposits in foreign currency from banks (Account balance at the end of the period) 480 do 486 Long-term deposits and loans in foreign currency from banks (Account balance at the end of the period) 50 At sight deposits in RSD from clients (Account balance at the end of the period) ,103, Short-term deposits in RSD from clients (Account balance at the end of the period) , do 534 Long-term deposits in RSD from clients (Account balance at the end of the period) do 538 Long-term deposits and loans in RSD from clients (Account balance at the end of the period) At sight deposits in foreign currency from clients (Account balance at the end of the period) ,560, Short-term deposits in foreign currency from clients (Account balance at the end of the period) ,990, do 574 Long-term deposits in foreign currency from clients (Account balance at the end of the period) , do 578 Long-term deposits and loans in foreign currency from clients (Account balance at the end of the period) , i 584 Commitments for net wages and wage compensation (Credits) ,576 9

12 S o ci et e Gen erale Yu go sl a v B a n k a. d. Be l g r a d e STATISTICAL ANNEX (Continued) Accounts Group Account ITEM deo 585 Commitments for income and wage taxes payable by the employee (debits) ,997 deo 585 Commitments for value added taxes ,413 deo 585 deo 585 Commitments for turnover taxes and excise Commitments on contributions for wages and wage compensation payable by the employee (credits) ,090 deo 585 Commitments for taxes and custom duties , Accruals and deferred income (Account balance at the end of the year) , Interest expenses , Interest expenses from dependant and related banks , do 607 Interest expenses from relation with other legal and physical entities , i 611 Payment operation expenses , i 633 Expenses related with tax and contribution to wages payable by employee ,025 deo 640 Expenses for the material ,860 deo 640 Expenses for energy and fuel , Production services expenses , Depreciation expenses ,589 deo 643 Non-production services expenses ,298 deo 643 Representation expenses ,731 deo 643 Insurance premium expenses ,364 deo 643 Membership fee expenses , Tax expenses , Contribution expenses , Other intangible expenses 70 Interest income ,267, Interest income from dependant and related banks , do 707 Interest income from relations with other legal and physical entities ,206,056 deo 735 Income from premiums, subsidies etc. 813 Revalorization of reserves (Account balance at the end of the period) Average number of employees based on situation at the end of the month (full number) Number of ordinary shares ,680 Number of priority shares Nominal value of ordinary shares Nominal value of priority shares 10

13 S o ci et e Gen erale Yu go sl a v B a n k a. d. Be l g r a d e NOTES TO THE FINANCIAL STATEMENTS 1. BASIC INFORMATION Societe Generale Yugoslav Bank A.D. Belgrade (hereinafter: The Bank) was established on and registered in the Commercial Court Registry in Belgrade - registration certificate no. Fi-95/91 from the majority founder is Societe Generale Bank, Paris. The Bank has completed the harmonization with the Law on Banks and Other Financial Organizations, which was entered in the Registry at the Commercial Court in Belgrade through Certificate no. Fi-20525/96 from In addition to conducting credit and deposit activities, the Bank has also been registered to conduct international payment and credit operations, on the basis of a Decision issued by the National Bank of Yugoslavia, no. 65 from The Bank s headquarters is located in Belgrade, Bulevar AVNOJa 50 a/b. on , the Bank employs 866 employees (710 in 2005). The Bank has 60 branch offices (52 in 2005). The basic activities of the company include: conducting international and inland payment operations, credit operations, deposit and foreign currency operations. Other activities include operations related with issuing guarantees, opening letters of credit and other banking and brokerage operations. In 2005, the Bank registered to conduct custody activities. 2. OVERVIEW OF BASIC ACCOUNTANCY POLICIES a) Basis for drafting financial statements The financial statements for 2006 have been drafted in accordance with the Law on Accountancy and Auditing (Official Gazette of the Republic of Serbia, 46/2006) and regulation issued by the National Bank of Serbia on the basis of the said Law. In the drafting of the financial statements, the Bank has adopted and applied accountancy policies in accordance with the Law on Accountancy and Auditing stipulating that banks, as of 2003, must draft financial statements in accordance with International Accounting Standards and International Financial Reporting Standards The financial statements of the Bank have been expressed in thousand RSD. b) Accountancy convention The financial statements for years 2006 and 2005 have been drafted on the basis of the historic cost method. c) Interest income and expenses Income and expenses are recorded in the profit and loss account in the related period, in accordance with the casuality principle of profit and expenses and the terms of contracts and torts relations, defined in the agreement between the Bank and the Client. 11

14 S o ci et e Gen erale Yu go sl a v B a n k a. d. Be l g r a d e 2. OVERVIEW OF BASIC ACCOUNTANCY POLICIES (Continued) d) Fees and commissions income and expenses Fees income and expenses have incurred through the provision and use of banking services and are recorded in the profit and loss account according to the invoiced transaction principle upon provision of the service. Income from fees on the base of granted loans, guarantees and letters of credit approved to corporate clients are deferred and appropriated as income in proportion with the period of use of the loans or guarantees and letter of credits. Also, the deffering of income from fees is also conducted in the granting of housing loans. In 2005, the Bank conducted an analysis revealing that the deferral of income from fee as per granted retail loans, with the exception of housing loans, did not meet the criteria for the deferred appropriation of income defined by the rules of Societe Generale Group. e) Foreign currency conversion Assets and liabilities expressed in a foreign currency on the date of the balance sheet have been converted into dinars according to the median exchange rate of the National Bank of Serbia, applicable on the date of the balance sheet. Gains and losses incurring in relation with the convertion of receivables and liabilities have been debited or credited to the balance sheet, as gains or losses. Transactions in foreign currency have been converted into dinars, according to the official exchange rate on the date of transaction. The net positive or negative exchange margin incurring in the business transaction in foreign currency has been credited to the balance sheet, as exchange gains or losses. f) Loans Loans granted by the Bank have been recorded in the business books at the moment of transfer of assets to the loan beneficiary. On the date of the balance sheet, the loans have been expressed in their nominal value in the amount of granted placements, decreased with the repaid capital amount and provisions for potential losses in accordance with internal policies. The Bank contracts a currency clause with the beneficiaries of loans financed in foreign currency. Profit on the base of change of the value of placements have been entered in the profit and loss account as positive revaluated, and expenses resulting from decrease of value of placements - as negative revaluated margin. g) Provisions for potential losses Pursuant to the Decision of the National Bank of Serbia on the criteria for the classification of balance assets and off-balance items and for the purpose of efficient management of risks to which the bank is exposed in its activities, provisions for estimated losses, which may incur on the basis 12

15 2. OVERVIEW OF BASIC ACCOUNTANCY POLICIES (Continued) g) Provisions for potential losses (Continued) of balance assets and off-balance items of the Bank and which designate special reserves for estimated losses, shall be formed. The special reserve for estimated losses shall be computed as the sum of: - 1% of receivables classified in category A - 5% of receivables classified in category B - 20% of receivables classified in category C - 40% of receivables classified in category D - 100% of receivables classified in category E The computed special reserves for estimated losses shall be decreased for the provisions amount of balance assets and loss provisions under off-balance items, which, in accordance with the Bank's internal acts, have been computed and expressed to the charge of expenses, therewith, the established margin shall be recorded on a special account as part of reserves from gains. The Bank applied SG Group criteria for classification both and corporate and retail clients. Corporate clients were provisioning case-by-case basis and appropriate provisions has been computed. For retail clients criteria based on which the provisions has been computed is number of days delay: Nber of days in delay % Prov > % % % h) Intangible assets and property and equipment Property and equipment shall be expressed in their purchase value, decreased with the accumulated depreciation. The depreciation of property and equipment shall be computed by proportionate method, by which the purchase price is written off during the planned useful life of the assets. The applied annual depreciation rates are as follows: Intangible assets: 20% Computers: 20% Furniture and equipment: Between 10% and 16% Engine vehicles: 15.5% 13

16 2. OVERVIEW OF BASIC ACCOUNTANCY POLICIES (Continued) i) Income tax Current taxes The income tax shall be computed in the amount of 10% of the taxable profit established in the Tax return. The taxable income shall be established through the harmonization of income expressed in the profit and loss account, for certain incomes and expenses, in a manner regulated by tax laws. Deferred taxes Deferred taxes have been computed and recorded on temporary differences between the tax bases of assets and liabilities and their amounts expressed in the financial statements of the Bank. Deferred income tax liabilities have been computed and recorded for all taxable temporary differences on the date of the balance sheet, between the tax base of assets and liabilities, and their amounts expressed for the purpose of financial reporting, which will result in taxable amounts in future periods. Deferred taxes are appropriated for all deductible temporary differences, unused taxes and tax losses, to the amount for which it is probably that future taxable profit would be sufficient to enable the use of deductible temporary differences, unused tax and unused tax losses. The expressed amount of deferred taxes is established on the date of the balance sheet and is decreased to the amount for which the available taxable deductibles would be sufficient, in order to allow parts or all of the deferred taxes to be utilized. j) Derivatives The bank uses financial instruments including the currency forward contracts, swap and spot contracts for the purpose of protection from the exchange risk of the foreign currency exchange rates. The stated derivatives contracts are expressed in their market value. The stated derivatives do not fulfill the criteria for being recorded in accordance with the request of the special accountancy hedging and the effects of the change of the market value of these derivatives are, therefore, recorded on the profit and loss account. Of all financial derivates, in 2006, the Bank has exlusively used currency swaps, for the purpose of short-term balancing its foreign currency position and securing the necessary currency structures on accounts abroad. In addition to currency swaps relating to the transactions from one foreign currency intot another, the Bank also conducted forward operations with clients, mostly as sale of foreign currency for dinars for the period of 3 months. The Bank has simultaneously closed forward transactions with adequate spot transactions. 14

17 3. INTEREST INCOME AND EXPENSES (in 000 of RSD) Interest income Connected banks ,041 Local banks ,418 Foreign banks National Bank or Serbia ,933 Public sector 0 6,151 Companies ,457 Other clients 38 9 Foreign entities Retail ,654,473 Securities ,788 Totall interest income ,267,885 Total interest expenses Connected banks ,854 Foreign banks ,928 Other banks ,627 National Bank of Serbia Public sector ,676 Companies ,998 Other clients ,102 Foreign persons ,826 Retail ,535 Total interest expenses ,549 Net interest income ,772,336 15

18 4. FEES AND COMMISSIONS EXPENSES Interest income Commission from exchange operations ,834 Commission in retail operations ,383 Commission from international payment operations ,107 Commission for Visa, Master,Dina i Western Union operations ,823 Commissons from loans ,666 Commissions from guarantees and letters of credit Naknade po garancijama i akreditivima ,292 Commissions from payment operations inland ,385 Income from brokerage and custody services ,958 Other ,483 Total fee and commission income ,041,931 Fee and commission expenses International payment operations expenses ,819 Visa operations expenses ,982 Inland payment operations expenses ,065 Guarantee expenses Other ,091 Total commissions expenses ,301 Net commissions income , NET EXPENSES FROM EXCHANGE RATE DIFFERENCES AND FX INDEXATION Positive exchange differences Unrealized exchange margins ,640,735 Income from changes in the value of the placements (2006)/revalorization of placements by currency clause (2005) ,011,162 Total positive difference ,651,897 Negative exchange differences Unrealized exchange margins ,484,983 Expenses from changes in the value of the placements (2006)/ revalorization of placements by currency clause (2005) ,036 Total negative difference ,535,019 Net difference ,878 16

19 6. INCOME FROM SHARES Income from shares TOTAL OTHER OPERATING INCOME Income from suspension of provisions Loans (Note 14) ,415 Interests and fees (Note 12) Other Off-balance positions (Note 23) ,561 Other income ,995 Total other operating income , EXPENSES FROM INDIRECT WRITE-OFFS OF PLACEMENTS AND PROVISIONS Provision expenses Loans (Note 14) ,672,849 Interests and fees (Note 12) ,110 Other Off-balance positions (Note 23) ,279 Expenses related with indirect write-off of other receivables (2005) 5,864 Total expenses of indirect write-offs of placements and provisions ,924,102 17

20 9. OTHER OPERATINIG INCOME (In 000 RSD) Employees expenses ,505 Office space rental ,958 Depreciation (Note 17 and 18) ,332 Office supplies ,708 Telecommunication and PTT expenses ,453 Technical support SG bank Paris ,860 Advertisement and propaganda ,133 Representation expenses ,264 Professional services ,986 Repairs and maintenance ,884 Visa, MasterCard and Dina expenses ,297 Security services ,283 VAT ,530 Other taxes and fees ,186 Expenses related with insurance ,364 Office cleaning services ,670 Construction land fee ,085 Subscription to magazines ,868 IT expenses ,596 Transportation services ,643 Energy, fuel and utilities services ,891 Expenses related with indirect write-off of other receivables (2006) Other expenses ,679 Total operating expenses ,593,175 Overview of employees-related expenses are listed in the charts below: Net wages ,611 Taxes and contributions ,564 Other personal expenses ,330 Total employees-related expenses ,505 18

21 10. INCOME TAX Serial no FISCAL BALANCE (Amount in RSD without paras) P O S I T I O N RSD A. OPERATING GAINS AND LOSSES I Financial result in the profit and loss account 1. Financial year gains Gains from concession income 3. Financial year losses II Capital gains and losses 4. Capital gains 5. Capital losses III Harmonization of profit and loss account expenses not recogniezed in the tax balance according to law 6. Undocumented expenses 43, Accumulated depreciation of individual receivables from persons owing and claiming at the same time 8. Gifts and contributions to political organizations 9. Advertisment and propaganda expenses 10. Expenses for propaganda with undocumented receiver or receiver Linked entity Interest due to untimely payments of taxes, contributions and other public duties Penalties and fines Expenses unrelated to operating activities 14. Expenses for the material and purchase value of sold items above the amount computed according to the Average price or FIFO method 15. Computed and unpaid severance payments and pecuniary allowances related to termination of employmen 16. Total depreciation amount computed in financial statements Total depreciation amount computed for tax purposes Expenses for medical, educational, scientific, humanitarian, religious, sport and environmental purposes Expenses related with cultural investments 20. Membership fees to Chambers of commerce, federations and associations 21. Accumulated depreciation of individual claims which have not previsouly been included in the income, have not been written-off as irrecoverable and where no proff of unsuccessful collection has been provided. 22. General accumulated depreciation above the amount established by NBS regulations 23. Long-term provisions not appropriated in the tax balance 24. Expenses related with devaluation of property IV Correction of expenses resulting from transfer prices 25. Computed expenses resulting from the transfer prices 19

22 10. INCOME TAX (Continued) Serial no FISCAL BALANCE (Amount in RSD without paras) P O S I T I O N RSD Computed expenses between connected entities at market prices 27. Margin between computed costs (serial number 25-26>0) V Adjustment of expenses resulting from interest out of reach and prevention of capitalization weakening 28. Interest and related expenses above the level equaling a product of a quadruple value (i.e., ten times the value) of own capital and interest rate (serial number 12 of the OK form) 29. Interest and related expenses transferred from the previous year VI Harmonizatioin of income 30. Company income tax paid by non-resident subsidiary of the taxpayer resident of the Republic 31. Tax upon deduction of the dividends and share in gains paid by non-resident subsidiary of the taxpayer resident in the Republic 32. Income resulting from interest between connected entitied below market interest rate VII Transfer price income adjustment 33. Transfer price calculated income 34. Calculated income between between connected entities at market prices 35. Margin between calculated incomes (serial number 34-33>0) VIII Taxable income 36. Taxable income (ser. No do do )>0 or negative amount from serial number 37) Loss (ser.no do do )>0 (or negative amount from serial number 36) 38. Loss amount from tax balance from the previous year up to the amount of taxable gains Remaining taxable income (serial number 36>38)> B. CAPITAL GAINS AND LOSSES 40. Total capital gains in the current year (serial no. 4) 41. Total capital gains in the current year (serial no. 5) 42. Capital gains (serial no )>0 43. Capital losses (serial no )>0 44. Transferred capital losses from previous years up to the amount under s.n Remaining capital gains (Serial no ) V. COMPUTED TAXES AND TAX DECREASE 46. Tax base (serial no ) Incoming from dividends and share in gains from another resident taxpayer 48. Decreased tax base (serial no )>

23 10. INCOME TAX (Continued) Upon establishing the results for year 2006, a gain before taxes has been expressed in the amount of k RSD. The established gain has been corrected for the amount of expenses, appropriated in accordance with the Law on corporate income tax, so that gain under the tax balance sheet amount to k RSD. This amount of gain is decreased for the fiscal losses from 2005 in amount of so taxable profits are k RSD. The tax credit based on investments into property and equipment ( k RSD) in the course of year 2006, amounts of k RSD, which is 20% of all investments. The remaining tax loan (investments into property and equipment in 2006 and the precedent year), which may be transferred onto the account of future account periods amounts to k RSD. The recording of deferred taxes has been executed as a difference between the computed depreciation for accountancy purpose and computed deprecation for tax purposes, in the total amount of k RSD. 11. CASH AND CASH EQUIVALENTS In RSD Cash in hand ,013 Gyro account ,708 Total in RSD ,134,721 In foreign currency Cash in hand ,397 Foreign currency account ,236 Total in foreign currency ,139,633 Total cash and cash equivalent ,274, DEPOSITS AT THE NATIONAL BANK OF SERBIA In RSD Taxable deposits at NBS ,000 NBS Repo operations (2006) Total in RSD ,000 In foreign currency Mandatory reserves at the NBS set aside ,912,170 Total in foreign currency ,912,170 Total deposits at National Bank of Serbia ,412,170 21

24 12. DEPOSITS AT THE NATIONAL BANK OF SERBIA (Continued) The Mandatory reserves have been set aside in accordance with the Decision of the National Bank of Serbia on the mandatory reserves of banks at the National Bank of Serbia, prescribing that banks have to set aside mandatory provisions on a regular account in the amount of 10% of the average monthly RSD deposits balance (2005:18%), 45% of the average monthly RSD deposits given from abroad and RSD deposits with currency clause and 45% of the average monthly foreign currency deposit balance (2005: 38%), 40% of the average monthly foreign currency savings, 20% of the average monthly subordinated debts and 100% of the average monthly leasing s special account amounts. The mandatory reserves set aside have been included in the main gyro account balance. Banks are required to reflect in the accounting period the average daily balance of RSD and foreign currency mandatory reserves, and the daily balance of mandatory reserves set aside may not drop below 80% of the amount of the computed mandatory RSD and foreign currency reserves. Also, banks are obliged to maintain the daily balance of foreign currency reserves set aside at the level of these reserves computed to the amount of liabilities related with the foreign currency savings deposited at the bank after The National Bank of Serbia pays an interest in the amount of 35% of the discount rate onto the amount of the achieved average daily balance of RSD reserves, which do not exceed the amount of computed mandatory reserves, and the National Bank has suspended the accounting and payment of interest onto the amount of achieved average daily balance of mandatory foreign currency reserves. The National Bank of Serbia charges an interest at an interest rate equaling 400% of the discount rate onto the amount of the margin between the computed amount and achieved average daily balance of the RSD, i.e., foreign currency mandatory reseeves, as well as onto the amount of the margin between the prescribed and computed amount of dinars and foreign currency mandatory reserves during the accounting period. 22

25 13. INTEREST AND FEES RECEIVABLES Receivables for interest and fees from banks In RSD NBS Other banks DFO In foreign currency Other banks Connected banks Receivables for interests and fees from clients In RSD Coporate ,487 Retail Other 46 2 In foreign currency Corporate ,161 Other ,956 Total interests and fees Provisions for losses (1.563) (8,277) Net interests and fees Changes on provisions for interest during the year have been the following: Initial balance on ,036 New provisions (Note 7) ,110 Suspension of provisions (Note 6) (17.354) (869) Balance on ,277 23

26 14. PLACEMENTS TO BANKS In RSD Short-term loans and placements Other banks ,000 Other financial placements Interim and transitory account of gyro account (7.726) (93) NBS Repo operations In foreign currency Other financial placements Short-term term assets with connected banks ,629,066 Other banks ,500 Suspense account ( ) NBS ,420 Total placements to banks PLACEMENTS TO CLIENTS a) In RSD Short-term loans and placements (decreased with direct provisions Iin 2005) ,969,174 Corporate ,507,914 Retail ,026,265 Other clients Current maturities of long-term loans and placements ,434,745 Long-term loans and placements (decreased with direct appreciation) ,731,516 Corporate ,722,244 Retail ,009,272 Other clients Current maturities of long-term loans and placements ( ) In foreign currency Short-term loans and placements ,083,524 Corporate ,015 Current maturities of long-term loans and placements ,509 Long-term loans and placements ,693 Corporate ,719 Other clients Current maturities of long-term loans and placements ( ) Other financial placements ,283 Other placements in the account ,058 Corporate 37,225 Total placements to clients ,328,190 Provisons for losses ( ) (1,530,453) Net placements to clients ,797,737 24

27 15. PLACEMENTS TO CLIENTS (Continued) b) Placements on short-term and lon-term loans: Short-term loans Long-term loans Total In foreign In foreign (in 000 RSD) In RSD currency In RSD currency Balance ,768, ,475 5,330, ,814 13,403,997 New placements 15,554,618 2,675,509 16,838, ,879 35,903,694 Repayments -17,299,513-2,510,402-9,331, ,041-29,970,610 Current maturities 5,434, ,509-5,434, ,509 0 Revalorization/exchange difference* 563,763 60, ,363 49, Balance ,021,640 1,083,524 7,800, ,693 20,408,190 New placements Repayments Current maturities Revalorization/exchange differences* Balance c) Changes on the provisions: Initial balance New provisons Reversals of provisions ( ) ( ) Balance on Total provisions for all types of receivables according to risk policy of the Bank, as at was K RSD. Total amount of provisions including NBS criteria was K RSD. 16. SECURITIES AND OTHER PLACEMENTS TRADED In RSD Public sector Total

28 17. INVESTMENT IN SECURITIES FOR SALE In 000 RSD In RSD Other legal entities nominal value Other legal entities interest computed in securities (11.617) - TOTAL SHARE IN CAPITAL AND OTHER SECURITIES AVAILABLE FOR SALE In 000 RSD In RSD Related parties Other legal entities In foreign currency Other legal entities Provisions for losses (132) - Share in capital INTANGIBLE ASSETS (in RSD 000) Adaptation of rented fixed assets ,807 Software ,816 Patents, licenses and similar rights ,494 Appreciation ( ) (110,708) Intangible investments, net ,409 26

29 19. INTANGIBLE ASSETS (Continued) Changes in intangible assets: (in 000 RSD) License Software Adaptation Total Purchase value Balance on ,107 48, , New acquisitions 106, Transfer from advance payments 9,387 9,054-18,441 TRANSFERS - (774) (774) Alienation and write-offs - - Transfer to prepayment and deferred expenditures Balance on ,494 57, , New acquisitions Transfer from property and equipment in preparation TRANSFERS Alienation and write-off - - Transfer onto prepayment and deferred expenditures (13.670) (13.670) Balance on Appreciation Balance on ,765 11,642 48, Depreciation 3,335 10,151 35, Transfer to prepayments and deferred expendirtures Balance on ,100 21,793 83, Depreciation Transfer to prepayments and deferred expenditures - (4.723) (4.723) Balance on Net present value Net present value ,394 36, , PROPERTY AND EQUIPMENT Buidlings ,108 Equipment ,245 Property and equipment in preparation ,590 Advance payments Appreciation ( ) (234,110) Property and equipment, net ,395,833 27

30 20. PROPERTY AND EQUIPMENT (Continued) Changes on property and equipment: Advance payments Property and equipment in preparation (in 000 RSD) Buidlings Equipment Total Purcahse value Balance on , , ,990 New acquisitions 272, , ,173 Transfers (1,639) 196,958 - (212,246) (16,927) Transfer to advance payments on intangible investments - Booking depreciated property and equipment - Alienation and write-offs (292) - (292) Balance on , , ,590 1,629,944 New acquisitions Transfers ( ) 222 Alienation and write-off (17.677) (71.049) (88.726) Balance on Appreciations Balance on , ,089 Depreciation 85, ,130 Transfer to prepayment and deferred expenditures Alienation and write-off (108) (108) Balance on , ,111 Depreciation Transfer to prepayment and deferred expenditures (491) (491) Alienataion and write-offs (9.325) (9.325) Balance on Net present value Net present value

31 21. OTHER ASSETS AND ACCRUALS Other assets Receivables from employees 87 Other liabilities from business relations - VISA, ATM, POS ,353 Changes in the market value of derivate contracts 552 1,181 Advance payments ,168 Receivables from overpaid income taxes 1,496 Receivables from overpaid taxes and contributions 10 3 Other ,808 Total other assets ,009 Prepayments and deferred exenditures In RSD Accrued other expenses ,726 Accrued receivables for computed income ,997 In foreign currency Accrued other expenses ,646 Total accruals ,369 Total other assets and accruals Apreciation of other receivables (2.245) (7,170) Total other assets and accruals, net , DUE TO BANKS In RSD ,430 At sight deposits Banks and OFO ,211 Short-term deposits Banks and OFO ,028 NBS In foreign currency ,191 At sight deposits Banks and OFO ,710 At sight deposits Banks and OFO ,883 Other financial obligations NBS 598 Total due to banks ,621 29

32 23. DUE TO CLIENTS In RSD ,601,697 At sight deposits ,103,450 Corporate ,969,408 Public sector ,443 Retail ,709 Foreign persons ,410 Other ,480 Short-term deposits ,247 Corporate ,627 Public sector ,087 Retail Other Long-term deposits Public sector Retail 201 In foreign currency ,784,036 At sight deposits ,560,257 Corporate ,300,588 Public sector ,267 Retail ,329,875 Foreign person ,741,614 Other ,913 Short-term deposits ,229,866 Corporate ,566,115 Public sector - 31,994 Retail ,193,965 Foreign persons ,425,999 Other ,793 Long-term deposits ,789 Retail ,901 Foreign persons ,888 Other financial liabilites ,124 Liabilities for non-allocated transfers from abroad ,604 Liabiltieis for issued cheques Other liabilities Total liabilities to clients ,385,733 As part of the long-term deposits in foreign currency from foreign persons, account 5760 contains the sum of 2 million EUR worth of EBRD long-term loans for financing mortgaged housing loans and 60 million EUR long-term loans received by SG Paris. Account 5620 also contains the amount of 48 million EUR, which represents a short-term loan from SG Paris. 30

33 23. DUE TO CLIENTS (Continued) As part of the total deposit balance, the deposits with limited disposal amount to: Collateral for granted loans ,440,875 Coverage for remittance and cards ,578 Coverage for letters of credit ,986 Collateral for issued guarantees ,748 Total ,856, OTHER OPERATING LIABILTIES (In 000 RSD) Due to suppliers ,566 Due for taxes, contributions ,225 Liabilties for net salaries ,216 Other liabilities ,626 Total other operating liabilities poslovanja ,633 Changes on provisions based on off-balance positions of the Bank during the year have been the following: 25. OTHER LIABILITIES AND ACCRUED COSTS Accrued costs In RSD ,153 Accrued income from fees ,120 Accrued liabilities for computed interest ,646 Other accrued costs ,387 In foreign currency ,931 Accrued income from fees - 88 Accrued income from interest ,513 Other accrued costs ,330 Total accrued costs ,084 Other liabilities Subordinated and other financial liabilities ,581,750 Total other liabilities ,581,750 Total other liabilities and accrued costs ,866,834 31