Transcription

1

2

3

4

5

6

7

8

9

10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December THE ESTABLISHMENT AND OPERATIONS These financial statements are consolidated financial statements of Credit Agricole banka Srbije a.d. Novi Sad (the Bank) and its subsidiary CA Leasing d.o.o. Beograd (the Group). Credit Agricole Banka Srbija a.d. Novi Sad (the Bank) was established on 15 August 1991 as Yuco Bank a.d. Novi Sad in accordance with the Founding Act and the National Bank of Serbia Decision dated 19 February The Bank was registered with the Commercial Court in Novi Sad on 3 March As of 20 September 2001, the Bank has been operating under the name of Meridian Bank A.D. Novi Sad in accordance with the Commercial Court of Novi Sad Decision no. Fi. 2766/07. As of 13 March 2006 by the Republic of Serbia Business Registers Agency s Decision no , the Bank changed its name into Meridian Bank Credit Agricole Group Akcionarsko društvo, Novi Sad, and its short form into MEBA CA GROUP AD, NOVI SAD. Based on Decision No. BD /2009 issued by the Serbian Business Registers Agency dated , the Bank changed its name from MERIDIAN BANK CREDIT AGRICOLE GROUP into CREDIT AGRICOLE BANKA SRBIJA. The Bank s full business name reads: CREDIT AGRICOLE BANKA SRBIJA AKCIONARSKO DRUŠTVO NOVI SAD, BRAĆE RIBNIKARA 4-6. Through the sale of the eighteenth issue of shares that took place in June 2005, the Bank became part of Credit Agricole S.A. Paris, one of the largest bank groups in Europe. As at 31/12/2015, the Bank s 100% shareholder was Credit Agricole S.A. Paris. CA Leasing d.o.o. Belgrade CA Leasing d.o.o. Beograd (the Company) was founded under the name Meridian Leasing d.o.o. Beograd a.d. pursuant to the Founding Decision of Meridian bank Credit Agricole Group Novi Sad, passed at the Shareholders Assembly of Meridian bank Credit Argicole Group a.d. Novi Sad on 10 May On 12 July 2007, the Company obtained licence No issued by the National Bank of Serbia. The licence provides approval of the Founding Decision passed by the Assembly of Credit Agricole Banka Srbija a.d. Novi Sad. The Company was registered with the Republic of Serbia Business Registers Agency under No. BD 78002/2007 on 20 July The subscribed and paid-in registered capital amounts to Euro 1,000, (equivalent to RSD 78,666,700.00). In 2009, Meridian bank Credit Argicole Group a.d. Novi Sad changed its name into Credit Agricole Banka Srbija a.d. Novi Sad. By Shareholders Assembly Decision dated , the Company changed its name and was registered with the Republic of Serbia Business Registers Agency as CA Leasing Srbija d.o.o. on 23 March Under the Law on Banks, the Bank s Founding Act and its Articles of Association, the Bank is registered to perform the following activities: 1. Deposit activities (accepting and placing deposits); 2. Credit activities (lending and borrowing arrangements); 3. Foreign exchange, foreign exchange-currency transactions and exchange operations; 4. Activities relating to payment operations; 5. Issuing payment cards; 6. Activities relating to securities (issuing securities, custody bank activities etc.); 7. Broker-Dealer operations, 8. Issuing guaranties, sureties and other types of warranties (guarantee operations); 9. Purchase, sale and collection of receivables (factoring, forfeiting, etc.); 10. Insurance agency activities, previously approved by the National Bank of Serbia; 11. Activities for which it is authorised by law; 12. Other activities that are by nature similar or connected to the activities specified in herein items 1 to 11 and are in compliance with the Founding Act and the Articles of Association of the Bank. 2

11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December THE ESTABLISHMENT AND OPERATIONS (Continued) The bodies of the Bank are: the Bank s Assembly, the Board of Directors, the Executive Board and other committees of the Bank. The Bank establishes a Committee for monitoring business activities of the Bank (Audit Committee), the Benefits and Compensation Committee, the Credit Committee, the Committee for Managing Assets and Liabilities, as well as a special unit called Risk Management. The President and the members of the Board of Directors are appointed for a term of four years, having previously obtained approval of the National Bank of Serbia. The Board of Directors appoints and dismisses from duty the President and the members of the Executive Board of the Bank. The Group operates through its Head Office located in Novi Sad at 4-6 Braće Ribnikara street, and a network of 82 branches located in major cities throughout Serbia (31 December branches). The Group performs leasing operations through its Head Office located in Belgrade at 52A Milentija Popovica street and two branches, CA Leasing Novi Sad branch and CA Leasing Čačak branch. As at 31 December 2015, the Group had 940 employees (31 December employees). The Bank s tax identification number is The Bank s identification number is The Group's consolidated financial statement for the year ended 31 December 2015 were approved by the Bank s Managing Board at the meeting held on 28 April

12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation and presentation of financial statements The Group s consolidated financial statements for the year 2015 have been prepared in accordance with the International Financial Reporting Standards (IFRS) and the NBS regulations governing the system of financial reporting for banks. As the Group s Parent, the Bank has also prepared and presented a special set of standalone financial statements. These consolidated financial statements have been prepared under the historical cost convention, except for items measured at fair value such as: securities available-for-sale, derivatives, other financial assets and liabilities held for trading, financial assets and financial liabilities at fair value through profit and loss. The Group s consolidated financial statements are presented in RSD thousand unless otherwise stated. The Serbian dinar (RSD) is the functional currency of the Group. All transactions in currencies other than the functional currency are treated as foreign currency transactions. The consolidated financial statements are prepared in accordance with the going concern concept, which assumes that the Group will continue its operations for the foreseeable future. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4. Basis of consolidation The consolidated financial statements comprise the Bank s financial statements and the financial statements of the company directly controlled by the Bank. Control exists if the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefit from its activities. Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Bank obtains control until the date the Group loses control of the subsidiary. When necessary, adjustments are made to the financial statements of a subsidiary to bring their accounting policies in line with those used by the Bank, as a Parent within the Group. All transactions, balances, income and expenses within the Group are eliminated on consolidation Comparative information Comparative information represents audited financial statements of the Bank for the year ending 31 December

13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS (continued) 2.3. New and amended Standards and Interpretations The new and amended IFRS set out below are effective as of 1 January 2015 : Defined Benefit Plans: Employee Contributions - Amendments to IAS 19 (issued in November 2013 and effective for annual periods beginning 1 July 2014). The amendment allows entities to recognise employee contributions as a reduction in the service cost in the period in which the related employee service is rendered, instead of attributing the contributions to the periods of service, if the amount of the employee contributions is independent of the number of years of service. Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014, unless otherwise stated below). The improvements consist of changes to seven standards. o IFRS 2 was amended to clarify the definition of a vesting condition and to define separately performance condition and service condition ; The amendment is effective for share-based payment transactions for which the grant date is on or after 1 July o IFRS 3 was amended to clarify that (1) an obligation to pay contingent consideration which meets the definition of a financial instrument is classified as a financial liability or as equity, on the basis of the definitions in IAS 32, and (2) all non-equity contingent consideration, both financial and non-financial, is measured at fair value at each reporting date, with changes in fair value recognised in profit and loss. Amendments to IFRS 3 are effective for business combinations where the acquisition date is on or after 1 July o IFRS 8 was amended to require (1) disclosure of the judgements made by management in aggregating operating segments, including a description of the segments which have been aggregated and the economic indicators which have been assessed in determining that the aggregated segments share similar economic characteristics, and (2) a reconciliation of segment assets to the entity s assets when segment assets are reported. o The basis for conclusions on IFRS 13 was amended to clarify that deletion of certain paragraphs in IAS 39 upon publishing of IFRS 13 was not made with an intention to remove the ability to measure short-term receivables and payables at invoice amount where the impact of discounting is immaterial. o IAS 16 and IAS 38 were amended to clarify how the gross carrying amount and the accumulated depreciation are treated where an entity uses the revaluation model. o IAS 24 was amended to include, as a related party, an entity that provides key management personnel services to the reporting entity or to the parent of the reporting entity ( the management entity ), and to require to disclose the amounts charged to the reporting entity by the management entity for services provided. Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014). The improvements consist of changes to four standards. o o o o The basis for conclusions on IFRS 1 is amended to clarify that, where a new version of a standard is not yet mandatory but is available for early adoption; a first-time adopter can use either the old or the new version, provided the same standard is applied in all periods presented. IFRS 3 was amended to clarify that it does not apply to the accounting for the formation of any joint arrangement under IFRS 11. The amendment also clarifies that the scope exemption only applies in the financial statements of the joint arrangement itself. The amendment of IFRS 13 clarifies that the portfolio exception in IFRS 13, which allows an entity to measure the fair value of a group of financial assets and financial liabilities on a net basis, applies to all contracts (including contracts to buy or sell non-financial items) that are within the scope of IAS 39 or IFRS 9. IAS 40 was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in IAS 40 assists preparers to distinguish between investment property and owner-occupied property. Preparers also need to refer to the guidance in IFRS 3 to determine whether the acquisition of an investment property is a business combination. 5

14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS (continued) 2.4. Standards that have been issued but are not yet effective IFRS 9 Financial Instruments (issued in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are: o Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL). o Classification for debt instruments is driven by the entity s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition. o Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss. o Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. o IFRS 9 introduces a new model for the recognition of impairment losses the expected credit losses (ECL) model. There is a three stage approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables. o Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. The Group is currently assessing the impact of the new standard on its financial statements. IFRS 14, Regulatory Deferral Accounts (issued in January 2014 and effective for annual periods beginning on or after 1 January 2016). IFRS 14 permits first-time adopters to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. An entity that already presents IFRS financial statements is not eligible to apply the standard. Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued on 6 May 2014 and effective for the periods beginning on or after 1 January 2016). This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. 6

15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS (continued) 2.4. Standards that have been issued but are not yet effective (continued) Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016). In this amendment, the IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The Group is currently assessing the impact of the amendments on its financial statements. IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. The Group is currently assessing the impact of the new standard on its financial statements. Agriculture: Bearer plants - Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for annual periods beginning 1 January 2016). The amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms, which now should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. The amendments will have no impact on the Group s financial statements. Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014 and effective for annual periods beginning 1 January 2016). The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The Group is currently assessing the impact of the amendments on its separate financial statements. Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after 1 January 2016). These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are held by a subsidiary. The Group is currently assessing the impact of the amendments on its financial statements. 7

16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS (continued) 2.4. Standards that have been issued but are not yet effective (continued) Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016). The amendments impact 4 standards. o IFRS 5 was amended to clarify that change in the manner of disposal (reclassification from "held for sale" to "held for distribution" or vice versa) does not constitute a change to a plan of sale ore distribution, and does not have to be accounted for as such. o The amendment to IFRS 7 adds guidance to help management determine whether the terms of an arrangement to service a financial asset which has been transferred constitute continuing involvement, for the purposes of disclosures required by IFRS 7. The amendment also clarifies that the offsetting disclosures of IFRS 7 are not specifically required for all interim periods, unless required by IAS 34. o The amendment to IAS 19 clarifies that for post-employment benefit obligations, the decisions regarding discount rate, existence of deep market in high-quality corporate bonds, or which government bonds to use as a basis, should be based on the currency that the liabilities are denominated in, and not the country where they arise. o IAS 34 will require a cross reference from the interim financial statements to the location of "information disclosed elsewhere in the interim financial report". The Group is currently assessing the impact of the amendments on its financial statements. Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016). The Standard was amended to clarify the concept of materiality and explains that an entity need not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, even if the IFRS contains a list of specific requirements or describes them as minimum requirements. The Standard also provides new guidance on subtotals in financial statements, in particular, such subtotals (a) should be comprised of line items made up of amounts recognised and measured in accordance with IFRS; (b) be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable; (c) be consistent from period to period; and (d) not be displayed with more prominence than the subtotals and totals required by IFRS standards. The Group is currently assessing the impact of the amendments on its financial statements. Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28 (issued in December 2014 and effective for annual periods on or after 1 January 2016). The Standard was amended to clarify that an investment entity should measure at fair value through profit or loss all of its subsidiaries that are themselves investment entities. In addition, the exemption from preparing consolidated financial statements if the entity s ultimate or any intermediate parent produces consolidated financial statements available for public use was amended to clarify that the exemption applies regardless whether the subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with IFRS 10 in such ultimate or any intermediate parent s financial statements. The Group is currently assessing the impact of the amendments on its financial statements. 8

17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. Functional and reporting currency The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The Group s consolidated financial statements are presented in RSD thousand unless otherwise stated. The Serbian dinar (RSD) is the functional currency of the Group. All transactions in currencies other than the functional currency are treated as foreign currency transactions Foreign currency translation Items included in the consolidated financial statements of the Group are measured using the currency of the primary economic environment in which the Group operates (the 'functional currency'). The financial statements are presented RSD thousand which is the functional currency of the Group. Foreign currency transactions are translated into RSD using the interbank middle exchange rate prevailing at the date of transaction. Foreign exchange gains and losses arising from foreign currency transactions and translations of foreign currency items included in the balance sheet are credited or charged to the Income statement within net foreign exchange gains/losses and currency clause effects. The exchange rates defined at the Foreign Exchange Interbank Market as at 31 December 2015 and 31 December 2014 were as follows: EUR USD CHF

18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.3. Interest income and expense Interest income and expenses further comprise default interest and other income and expenses relating to interest-bearing assets and liabilities. They are calculated on accrual basis and in accordance with the terms and conditions contracted between the Group and the client. For all financial instruments measured at amortized cost and interest bearing financial instruments classified as available for sale, interest income or expense is recorded using the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. 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 Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) 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 and expense Fee and commission income and expense from rendering and using bank services are recognised on accrual basis at the time when the service is provided. Fee and commission mainly comprise fees for payment operations services, issued guarantees and other banking services Dividend income Dividend income is recognised when the right to receive payment is established Financial instruments Initial recognition of financial instruments Financial instruments are initially measured at fair value plus transaction costs (other than financial assets and liabilities, which are measured at fair value through profit and loss), which are directly attributable to the acquisition or issuance of a financial asset or liability. Financial assets and financial liabilities are recognised in the Group's Balance Sheet when the Group contractually commits to purchase or sell the instrument. Regular purchases and sales of financial assets are recognised at the settlement - the date when the asset is delivered to the other contracting party. 10

19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.6. Financial instruments (continued) Subsequent measurement of financial instruments Subsequent measurement of financial instruments depends on their classification (Note 3.7). Derecognition of financial assets and financial liabilities Financial assets A financial asset (or part of a financial asset or group of financial assets) shall be derecognised if: The contractual rights to the cash flows from the financial asset expire; or The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass through arrangement; and Either the Group has transferred substantially all the risks and rewards of the asset, or the bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred their rights to cash flows from the asset or has concluded a transfer agreement but has neither transferred of retained all the risks and rewords of the ownership of the asset and has not transferred control over the asset, the asset is recognised to the extent of the Group s continuing involvement. Where a guarantee causes the Group's continuing involvement, the asset is measured at the lower of the carrying amount of the asset and the maximum amount of the consideration that the Group would be required to pay. Financial liabilities A financial liability is derecognised when the obligation specified in the contract is discharged or cancelled, or expired. When an existing financial liability is replaced by another towards the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the income statement 3.7 Classification of financial instruments The Management of the Group determines the classification of its financial instruments at initial recognition. The classification of financial assets upon initial recognition depends on the purpose for which the financial instrument has been acquired and its characteristics. The Group has classified its financial assets in the following categories: loans and receivables, financial assets available for sale, financial assets held to maturity and financial assets carried at fair value through profit and loss. Subsequent measurement of financial instruments depends on their classification: 11

20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial instruments (continued) a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and advances to banks and customers approved by the Group are recognised in the balance sheet as of the moment the funds have been transferred to the loan beneficiary. All loans and borrowings are initially recognized at fair value. As at the balance sheet date, loans are stated at amortised cost using the effective interest rate, less any impairment allowance. Amortized cost is calculated by taking into account any discount or premium on acquisition and includes fees and costs that are an integral part of the effective interest rate. Amortisation is included in the income statement within Interest income. Impairment losses are recognized in the income statement within Impairment losses on financial assets (net). Loan contracts entered into between the Group and and its clients include a foreign currency clause. RSD loans with a currency clause linked to Euro are revalued in accordance with the provisions of each loan contract. Gains and losses arising on this basis are shown in the income statement as income/expenses arising from foreign exchange translation differences and currency clause effects. b) Financial assets available for sale Securities 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 equity prices, are classified as available for sale. After initial recognition, available for sale securities are carried at fair value. The fair values of quoted available for sale securities are based on current bid prices. Unrealized gains and losses on available for sale securities are recognized as a part of other comprehensive income until the security is sold, collected or otherwise realized, or until the security is impaired. When securities available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in other comprehensive income are transferred to the income statement. Interest income on debt securities is calculated using the effective interest method and recognised in the income statement within Interest income. Equity investments of other legal entities that do not have a quoted market price in an active market and for which other reasonable assessment methods are inadequate, are measured at cost less any allowance for impairment instead of at market value. Dividends on available-for-sale securities are included in other operating income and shares in equity when the right on their payment is established. 12

21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial instruments (continued) b) Financial assets available for sale(continued) For equity investments and other available for sale securities, the Group assesses at the balance sheet date whether there is objective evidence that an investment or a group of investments is impaired. In the event of equity investments of other legal entities classified as available-for-sale, objective evidence shall be considered as significant or prolonged decline in the fair value of an investment below its cost. Where there is objective evidence of impairment, the cumulative gain - measured as the difference between the cost and current fair value, less any impairment losses that have been previously recognised in the income statement - is transferred from equity to the income statement. Provisions for impairment of equity investments are not reversed through profit and loss account; instead, fair value increase is subsequently directly credited to equity. Provisions for impairment of equity investments that are not quoted on an active market and the fair value of which cannot be reliably determined are measured as the difference between their carrying amounts and the present value of estimated future cash flows and charged to the Income statement, and are not reversed until assets are derecognised. c) Financial assets held to maturity Securities held-to-maturity are financial assets with fixed or determinable payments, which the Group has the intention and ability to hold until their maturity date. After initial recognition, securities held to maturity are measured at amortized cost using the effective interest method, less any provision and impairment losses. Amortized cost is calculated by taking into consideration all purchase discount or premium during the period of maturity. The related interest income is calculated using the effective interest method and recognized as Interest income. The Group assesses whether objective evidence of impairment exists individually for investment in securities held-to-maturity. If objective evidence of impairment exists, the amount of loss on impairment of securities held to maturity is calculated as the difference between the net book value of investments and the present value of expected cash flows discounted at original interest rate for investment, and it is presented in the income statement as an expense arising from indirectly written-off investments and impaired financial assets. If, in subsequent years, the estimated impairment loss decreases as a result of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced and the related effects are recognised in the income statement. d) Financial assets at fair value through profit and loss This category comprises: financial assets held for trading and financial assets at fair value through profit and loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term or for which there is a recent pattern of short-term profit taking, or if they are derivatives. These assets are recorded in the balance sheet at fair value. 13

22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial instruments (continued) d) Financial assets at fair value through profit and loss (continued) Gains and losses arising on the measurement and sale of financial assets at fair value through profit or loss are recorded the income statement. In the ordinary course of business, the Group enters into agreements on derivative financial instruments in order to manage currency risk, liquidity risk, and interest rate risk; therefore, these financial instruments are primarily held for trading. The Group classified currency forwards (forward foreign exchange contracts) as financial instruments. These contracts are financial derivatives and they are recorded in the balance sheet at fair value; all changes in the fair values are recorded in the income statement within Income or expensed when incurred. Initially, currency forwards are recognized at cost due to the fact that in Serbia there is no active market for derivatives, however, their value is adjusted to the market value at the end of each month, and the effect of changes in the fair value is recorded in the income statement as unrealized foreign exchange translation differences, in other words as fair value increase/decrease. The increase in the fair value of derivatives is recorded within assets, whereas the decrease in the fair value of derivatives is recorded within liabilities in the balance sheet. The valuation technique applied by the Group to measure the fair value of derivatives is consistent with the generally accepted valuation techniques in the market and it incorporates to the greatest extent possible market factors such as the official middle exchange rate and interest rates. The performance of contractual rights and obligations arising from derivatives execution agreements or the exchange of contractual cash flows shall cease its recognition through the balance sheet and the income statement. The ultimate effect of foreign exchange differences at that moment is recorded within the realised FX differences account, whereas all earlier entries of the fair value and its movements are reversed. As at 31 December 2015 the Group did not have financial derivatives in its portfolio. Impairment of financial investments and provision for risks Under its internal policy, the Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired if, and 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. Evidence of impairment may include indications that a borrower or group of borrowers are experiencing significant financial difficulty, default or delinquency in interest or principal payments, probability that the borrower will enter bankruptcy or other financial reorganization, observable data indicating that there is a measurable decrease in the estimated cash flows, including movements within unsettled liabilities or economic conditions that correlate with defaults on the terms contracted. When assessing impairment of loans and advances to banks and customers measured at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. 14

23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial instruments (continued) d) Financial assets at fair value through profit and loss (continued) Impairment of financial investments and provision for risks (continued) If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is recognized are not included in the collective assessment of impairment. The Group defines the objective evidence of impairment as follows: Significant financial difficulties experienced by the borrower Breach of contract/loan covenants or conditions, default or delinquency in contractual payments of principal or interest The Group granting an otherwise unlikely concession to the borrower for economic or legal reasons relating to the borrower s financial difficulty A growing likelihood that the borrower will enter bankruptcy The elimination of an active market for the asset because of financial difficulties Observable data regarding a measurable decrease in the estimated future cash flow from a group of financial assets since their initial recognition, even if the decrease cannot yet be identified with the individual financial assets in the group, including adverse changes in the payment status of the borrowers in the group or national or local economic indicators that correlate with defaults on the assets in the Group. If objective evidence of impairment exists, the amount of loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding expected credit losses that have not been incurred) discounted at the asset s original effective interest rate. In the event of a floating-rate loan, the effective interest rate is used. The calculation of the present value of the estimated future cash flows of a collateralized financial asset, as well as cash inflow from operating activities, reflects the cash flows that may result from foreclosure. The methodology and assumptions used for estimating future cash flows are monitored and adjusted annually so as to reflect the actual assessment of credit risk and reduce any differences between loss estimates and actual loss experience. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the impairment loss on loans and receivables, as well as other financial assets measured at amortised cost cost and off-balance sheet credit exposures are recognised as Impairment losses on financial assets. Loans together with the related allowance are written off when there is no realistic prospect of future recovery and all collaterals have been realized or transferred to the Group. If, in subsequent years, the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. 15

24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial instruments (continued) d) Financial assets at fair value through profit and loss (continued) Impairment of financial investments and provision for risks (continued) Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the Group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently (as at the balance sheet date) exist. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. For the purpose of the impairment testing at a group level, financial assets are grouped on the basis of the Group s internal classification of credit risk that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors. Restructured loans Whenever possible, the Group chooses to restructure loans rather than to activate a loan collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, the loan is no longer considered past due. The Group continuously reviews restructured loans to ensure that future payments are likely to occur, however, these loans continue to be subject to an individual or collective impairment assessment, calculated using the loan s original effective interest rate Financial liabilities The Group s financial liabilities comprise liabilities for deposits and other liabilities to banks, other financial organizations and clients, as well as other operating liabilities. a) Bank and customer deposits Bank and customer deposits and other interest bearing financial liabilities are initially recognized at fair value less transaction costs incurred, exclusive of the financial liabilities which are measured at fair value through profit and loss. Subsequent to their initial recognition interest bearing deposits and loans are recognized at amortised cost. b) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates. 16

25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 December SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.8. Financial liabilities (continued) c) Operating liabilities Trade payables and other short term liabilities are stated at nominal value Offsetting financial instruments Financial assets and liabilities are offset and the difference between their amounts is reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously Sale and repurchase agreements ( Reverse Repos ) Securities purchased under a contract to be resold at a specific future date are not recorded in the balance sheet. Cash paid under such agreements, inclusive of interest payable, is recognised in the balance sheet. The difference between the sale and the repurchase price is treated as interest income generated during the contract term Leases a) Financial lease - the Group as Lessee A lease is classified as finance lease when it is contractually stipulated that: the power to hold and use the subject matter of the lease is transferred to the Group, as lease beneficiary, during the lease period; the right to asset ownership is transferred to the lease beneficiary under contractually defined terms and conditions; the lease term approximates the asset's useful life; and the value of the lease agreement is a close approximation to the cost of asset. The Group as lessee recognizes financial lease within Property, plant and equipment together with a corresponding liability to lessor included in Other liabilities. Capitalised assets held under lease are depreciated over the lease term. Lease payments are allocated between finance charges and reduced lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the income statement within Finance costs. b) Operating lease - the Group as Lessee and Lessor Leased out assets where the risks and rewards of ownership remain with the lessor are recorded as operating lease. The leases entered into by the Group are primarily operating leases. The total payments made under operating leases are charged to expenses in the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment to be made to the lessor by way of penalty is recognized as an expense in the period in which the termination takes place. 17