COOPERATIVE CENTRAL BANK LTD

Transcription

1 COOPERATIVE CENTRAL BANK LTD REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

2 REPORT AND CONSOLIDATED FINANCIAL STATEMENTS CONTENTS PAGE Officers and professional advisors 1 Report of the Committee 2 4 Corporate Governance 5 10 Independent Auditors' report Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position 16 Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements

3 OFFICERS AND PROFESSIONAL ADVISORS Committee: Nicolas Hadjiyiannis - Independent Non-Executive Chairman Charalambos Christodoulides - Independent Non-Executive Vice Chairman Demetris Theodotou - Non-Executive Member George Hadjinicola - Non-Executive Member Athanasios Stavrou - Independent Non-Executive Member Georgios Kittos - Independent Non-Executive Member Panicos Pouros - Independent Non-Executive Member George Strovolides - Independent Non-Executive Member Lambros Pieri - Independent Non-Executive Member Marios Klerides - Executive Member Efthymios Pantazis - Executive Member (resigned on 7 November 2014) Panayiotis Philippou - Executive Member (appointed on 19 January 2015 and resigned on 30 March 2015) General Manager: Marios Klerides Senior Management: Achilleas Yiallouros Stavros Iacovou Lambros Papalambrianou Varnavas Kourounas Andreas Trokkos Efthymios Pantazis Marios Demosthenous Marios Xenides - Senior Manager, Banking Operations Division - Senior Manager, Operations and Administrative Services Division - Chief Financial Officer - Chief Shared Services Division (SSD) Officer - Chief Restructuring Officer - Chief Risk Officer - Chief Audit Executive - Chief Compliance Officer Independent Auditors: KPMG Limited Certified Public Accountants and Registered Auditors 14 Esperidon Street 1087 Nicosia Cyprus Legal Advisors: Tassos Papadopoulos & Associates Christos M. Triantafillides George Z. Georgiou & Associates Registered office: 8 Gregori Afxentiou Street, 1096 Nicosia, P.O , 1389 Λευκωσία 1

4 REPORT OF THE COMMITTEE The Committee of Cooperative Central Bank Ltd (the Bank or 'CCB ), presents to the members for approval its Annual Report together with the audited consolidated financial statements of Cooperative Central Bank Ltd that include the Cooperative Credit Institutions and the Companies of Trading Sector which are controlled (the Group ) for the year ended 31 December Incorporation The Bank was founded in Cyprus in 1937 (registration number 88) as a Cooperative Limited liability Company, in accordance with Article 11 of the Cooperative Companies Law of 1923 and Principal activities CCB is the main shareholder of the 18 Cooperative Credit Institutions ( CCIs ) while exercising control over companies with trading activities. The principal activities of the Group, which have not changed from prior year, is the provision of banking and financial services and the carrying out of trading activities. All activities are carried out in Cyprus. Review of development regarding the position and review of the results of the Group The profit from ordinary activities of the Group before the provisions for impairment decreased by 1,6% and amounted to thousands compared to thousands for After the increase in the provision for impairment of loans and other advances of thousands, and the tax credit of thousands, a profit for the year of thousands was generated compared to a loss of thousands for The Company returned to profitability mainly due to the restriction in the provision for impairment of loans and other advances. Deposits and other customer accounts as at 31 December 2014 amounted to thousands showing an annual decrease of thousands or 8%. Loans and other advances to customers after provisions on 31 December 2014 amounted to thousands showing an annual decrease of thousands or 6%. The Group's equity after the successful recapitalization for an amount of 1,5 billions from the financial support programme, amounted to thousands and the Total Capital ratio to 13,56%. RESTRUCTURING PLAN AND STRENGTHENING OF THE CAPITAL BASE OF COOPERATIVE CREDIT SECTOR The Cooperative Central Bank Limited prepared a Restructuring Plan ( The Plan ) for the Cooperative Credit Sector ("CCS") that was approved on 24 February 2014 by the European Commission. The European Commission states that the measures for the recapitalization and restructuring of CCIs, are in accordance with its rules for cases for which government support is granted. The main objectives of the Plan are: Regaining the confidence of depositors Decrease of operating costs and improvement of profitability Introduction of a Non-Performing Loans Division aiming quality improvement of the portfolio of loans and other advances Strengthening of Capital Adequacy Strengthening the operational framework of Corporate Governance Downsizing branch network Strengthening of internal audit function and Risk Management framework Divestment of the Trading activities of the Cooperative Credit Sector As a result of the approval of the Restructuring Plan for the CCS, on 28 February 2014 the European Stability Mechanism signed an agreement (Subscription Agreement) between the Ministry of Finance and the Bank for the disbursement of 1,5 billion for the recapitalization of the CCS and the transfer of 99% of the CCS shares to the Goverment. Total net income The Group's total net income for the year ended 31 December 2014 was thousands (2013: thousands). 2

5 REPORT OF THE COMMITTEE Dividends The Committee does not recommend the payment of a dividend. In accordance with the provisions of the Minister of Finance Decree for the recapitalization of CCB Central Body as well as the List of Commitments signed between the Republic of Cyprus and the Bank during the announcement of the Restructuring Plan to the European Commission, the Bank is not permitted to pay any dividends for the financial years until Future developments As stated in notes 1.2, the Group s Committee, despite of the difficult conditions that exist in the financial sector and the ongoing recession of the economy, assures its members that it will continue its efforts for the smooth operation of the Bank and the CCIs. Particular emphasis is given to the strict compliance of the Restructuring Plan with the aim of retaining and strengthening the capital adequacy ratios, ensuring a healthy liquidity position and an effective credit risk management. Main risks, uncertainties and risk management The most important risks faced by the Cooperative Central Bank and CCIs are credit risk, market risk, liquidity risk and capital management risk. The Group has established a risk management framework, where prime position is held by the reliable measurement of financial risks. The steps taken to manage these risks, are described in more detail in note 46 of the consolidated financial statements. Share capital On 29 January 2014, a decree of the Minister of Finance was published in the Cyprus Gazette according to which after the recapitalization of the Cooperative Sector the participation percentage and voting rights of the Republic of Cyprus in the ownership structure of CCB is ninety nine percent (99%) and of the existing shareholders of CCB is one percent (1%). For this purpose, a Cooperative Holding Company of CCB was incorporated according to article 12E of the Cooperative Companies Law, to which all existing shareholders of CCB are transferred with a participation to its capital proportionally to the participation each shareholder had in the share capital of CCB. On 28 February 2014, the General Meeting of members of the Bank approved the reduction in the nominal value per share from 8,54 to 1,28 as well as the increase in the number of shares of the authorized share capital to On 10 March 2014 the Bank issued shares of 1,28 each to the Republic of Cyprus, for the purpose of the recapitalization of the Cooperative Credit Sector. Committee The members of the Committee during the year and at the date of this report are shown on page 1. Mr. Panayiotis Philippou was appointed on 19 January 2015 and resigned on 30 March Mr. Efthymios Pantazis resigned on 7 November In accordance with the Specific Rules of the Bank, all present members of the Committee continue in office. Events after the reporting period Events after the reporting period that ended 31 December 2014 until the date of approval of the consolidated financial statements are mentioned in note 50 of the consolidated financial statements. Related party transactions Disclosed in note 44 of the consolidated financial statements. 3

6 REPORT OF THE COMMITTEE Independent Auditors The independent auditors of the Bank, KPMG Limited, have expressed their willingness to continue in office. By order of the Committee, Chairman Nicosia, 28 April

7 CORPORATE GOVERNANCE Introduction Corporate Governance is defined as the system of principles, practices and the adjustments governing the operation, the organization, the management and the control of a company, with the objective of increasing its value and protect the legal rights of its shareholders and all stakeholders related to the Bank. The Corporate Governance framework which is implemented by the Cooperative Central Bank has the following main pillars: The compliance with the supervisory and legislative framework governing the operation of the Bank, The transparency, The separation of duties, The determination of responsibilities, The improvement of effectiveness, The increasing of value, The protection of the legal rights of all involved parties. The Bank fully complies with the Decree of the Central Bank of Cyprus ( CBC ) Directive on Governance and Management Arrangements in Credit Institutions of 2014 and with all the provisions of the supervision which is exercised from CBC. Approval Authority The Committee approves the Corporate Governance framework and also has the authority for its revision. Generally the Corporate Governance framework specifies the operation structure, provides guidelines for the governance of the Bank and ensures that the Bank is governed taking into consideration the legal and business interests of the shareholders and all other stakeholders. The Corporate Governance framework further specifies the duties and the responsibilities of the Committee and its sub-committees, of the Executive Committee and of the other committees of the Bank as well as how these committees collaborate, as well as the reporting lines between the different levels. Committee The members of the are recommended and appointed in accordance to the Provisions of the Decree of the Finance Minister for the recapitalization of the Cooperative Credit Sector, the Relationship Framework Agreement ( RFA ) for cooperation with the Ministry of Finance, the Cooperative Companies Laws and Institutions and the Directive on Governance and Management Arrangements in Credit Institutions of 2014 of the CBC. The members of the are approved by the Special General Assembly of the shareholders. The Committe is composed of 11 members, distinguished in executive and non-executive members. The independent non-executive members of the Committee must comply with the fit and proper criteria which are in line with the CBC s Directive on the Assessment of the Fitness and Probity of Members of the Management Body and Managers of Authorized Credit Institutions of

8 CORPORATE GOVERNANCE Committee (continued) The members of the Committee are separated into: Nine (9) non-executive members, seven (7) of which are independent non-executive and are appointed by the Minister of Finance of the Republic of Cyprus with the assent of the Governor of the Central Bank of Cyprus and the Parliament Committee on Financial and Budgetary Affairs. Two (2) executive members which are appointed by the majority of the non-executive members of the Committee of the Bank. One of the executive members is the General Manager of the Bank. The overarching commitment and duty of the Committee is to constantly pursue the improvement of the long-term financial value of the Bank and protection of the Bank s general corporate interest, taking into consideration the interests of all stakeholders. The Committee is responsible for: Defining the business goals of the Bank, Defining and supervising the strategy of the Bank set for achieving its business goals, The implementation and monitoring of the effectiveness of governance measures, The effective supervision of the General Manager and of the Executive Committee (EC) of the Bank, The appointment and succession of the General Manager of the EC, The appointment and succession of the members of the Committees of the CCIs, The appointment and succession of EC of the CCIs, Ensuring the independence of the control units, The effective and prudent management of the Bank, Ensuring the longer-term financial interests of the Bank, As well as the interests of the depositors, the shareholders and all other stakeholders. The Committee meets regularly with the view of conducting its duties. During 2014, the Committee met 55 times. On 31 st December 2014 the Committee was composed of the following members: Chairman Nicolas Hadjiyiannis Independent Non-Executive Chairman Members Charalambos Christodoulides Independent Non-Executive Member George Strovolides Independent Non-Executive Member Georgios Kittos Independent Non-Executive Member Panicos Pouros Independent Non-Executive Member Lambros Pieri Independent Non-Executive Member Athanasios Stavrou Independent Non-Executive Member George Hadjinicola Non-Executive Member Demetris Theodotou Non-Executive Member Marios Clerides Executive Member General Manager For all the members of the Committee of the Bank, the assent of CBC has been obtained in accordance with Directive on the Assessment of the Fitness and Probity of Members of the Management Body and Managers of Authorized Credit Institutions of Mr. George Strovolides has been appointed as the higher ranked independent member of the Committee. 6

9 CORPORATE GOVERNANCE Separation of Powers The Corporate Governance Framework aims to separate the duties of the highest level in the management pyramid i.e. between the Committee and the Executive Management. The clear separation of responsibilities and powers, ensures that all the decisions are taking into consideration the best interests of the Bank. Annual Emoluments According to the letter of the Minister of Finance dated 15 April 2014 the annual emoluments of the members of the Committee of the Bank are: Chairman of the Committee of the Bank irrespective of the number of committee participations Vice-president of the Committee of the Bank irrespective of the number of committee participations Non-Executive Members of the Committee of the Bank plus for each committee participations Chairman The Chairman presides over the Committee and is responsible for determining the daily agenda, for ensuring that smooth conduct of the meetings of the Committee, as well as the effective conduct of the meetings of the Committee. The Chairman is also responsible for ensuring the proper and timely communication to the members of the Committee and the effective communication with all the shareholders. Conflict of interests The members of the Committee are required to act with integrity for the interest of the Bank, not to be in conflict with the Bank and to avoid any activity that creates or will create conflict between their personal or professional interests and that of the Bank. The members of the Committee shall contribute their experience and dedicate the required time for executing their duties and taking decisions. Committees The following are the Committees of the Bank: 1. Audit Committee 2. Risk Committee 3. Remuneration Committee 4. Candidates Nomination Committee 5. Cooperative Sector Restructuring Committee All Committees aim to ease the operations of the Committee by providing advice and preparing and submitting reports which relate to their activities. 7

10 CORPORATE GOVERNANCE Committees (continued) All of the Committees have been established and operate in accordance to the provisions of the relevant Decree of the Central Bank of Cyprus. Audit Committee The main responsibilities of the Audit Committee are: a) The supervision of the adequacy and effectiveness of the internal audit function and especially the operations of the Internal Audit and Compliance Units b) The assessment of findings and recommendations of audits c) The submission of proposals to the Committee in relation to the appointment of independent auditors. During 2014 the Audit Committee met 38 times. As at 31 st December 2014 the composition of the Audit Committee was as follows: AUDIT COMMITTEE George Strovolides Chairman Lambros Pieri Member Georgios Kittos Member George Hadjinicolas Member Charalambos Christodoulides Member The Audit Committee confirms that is has been satisfied for the independence of the internal audit procedures. This conclusion was based on the following: To the administrative structure of the Company and the meetings held with the Internal Auditor To the assessment of the effectiveness of Internal Audit To the assessment of the results of other checks. Risk Committee The main responsibilities of the Risk Committee are: a) Formulating and monitoring the strategy for taking risks of all kinds, within the broader strategy and policies of the Group b) The development of internal system for managing risks c) The determination of principles governing risk management d) The assessment, on an annual basis, of the sufficiency and effectiveness of the policies for managing risks and the suitability of boundaries, the sufficiency of provisions and the sufficiency of equity, as a whole, in relation to the importance and the type of the assumed risks. During 2014 the Risk Committee met 21 times. As at 31 st December 2014 the composition of the Risk Committee was as follows: RISK COMMITTEE Athanasios Stavrou Chairman Demetris Theodotou Member Charalambos Christodoulides Member Georgios Kittos Member Panicos Pouros Member 8

11 CORPORATE GOVERNANCE Committees (continued) Remuneration Committee The main responsibilities of the Remuneration Committee are: a) The determination of guidelines in relation to the remuneration and benefits of the General Manager and the Executive Committee of the Bank b) The assessment of the employment contract of the General Manager of the Bank and of the CCIs as well as their performance c) The assessment of the employment contract of EC of the Bank and of the CCIs During 2014 the Remuneration Committee met 5 times. As at 31 st December 2014 the composition of the Remuneration Committee was as follows: REMUNERATION COMMITTEE Lambros Pieri Chairman Nicolas Hadjiyiannis Member Georgios Kittos Member Demetris Theodotou Member George Hadjinicolas Member Candidates Nomination Committee The main responsibilities of the Candidates Nomination Committee are: a) The implementation of best practices of internal governance of CCB and CCIs b) The assessment of the effectiveness of the Committee from a corporate governance perspective c) The assessment, on an annual basis, of the skills, knowledge and the expertise of the members of the Committee d) The determination of the selection procedure and the appointment of the members of the Committee of the Bank and of the CCIs e) The independent and with objective evidence candidates nomination During 2014 the Candidates Nomination Committee met 8 times. As at 31 st December 2014 the composition of the Candidates Nomination Committee was as follows: CANDIDATES NOMINATION COMMITTEE Panicos Pouros Chairman Nicolas Hadjiyiannis Member Lambros Pieri Member George Strovolides Member George Hadjinicolas Member 9

12 CORPORATE GOVERNANCE Committees (continued) Cooperative Sector Restructuring Committee The main responsibility of the Restructuring Committee is to support the Committee to the fulfillment of its duties in relation to the implementation of the Restructuring Plan, as approved by the European Commission (Directorate- General for Competition). During 2014 the Restructuring Committee met 6 times. As at 31 st December 2014 the composition of the Restructuring Committee was as follows: CANDIDATES NOMINATION COMMITTEE Charalambos Christodoulides Chairman Athanasios Stavrou Member George Strovolides Member Panicos Pouros Member Demetris Theodotou Member 10

13 To the Members of Cooperative Central Bank LTD Independent Auditors Report Report on the consolidated financial statements of the Cooperative Central Bank Ltd We have audited the accompanying consolidated financial statements of Cooperative Central Bank LTD (the ''Bank'') and its subsidiaries (together with the Bank, ''the Group'') on pages 13 to 105 which comprise the consolidated statement of financial position as at 31 December 2014, and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Committee's responsibility for the consolidated financial statements The Committee is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, and the requirements of the Cooperative Companies Law of 1985 as amended from time to time, and for such internal control as the Committee determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' responsibility Our responsibility is to express an opinion on these consolidated 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 about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation of consolidated financial statements that give a true and fair view 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 the committee, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for a qualified opinion for our audit. Basis for qualified opinion regarding the comparability of amounts shown in the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows of the year and the respective amounts of Due to limitations placed on the extent of our work, we were unable to complete the procedures required by the International Auditing Standards ( ISA ) 510 "Initial Audit Engagements Opening Balances" and ISA 710 "Comparative Information - Corresponding Figures and Comparative Financial Statements" so as to have sufficient and appropriate audit evidence as to the total assets and total liabilities of the Group as at 1 January

14 Since the opening balances of assets and liabilities of the Group affect the determination of financial performance and its cash flows for the year, we were unable to determine any adjustments that might be necessary: in relation to the profit / loss, and the information relating to it, for the year ended 31 December 2013 that are presented as the respective figures in the current year in the consolidated statements of profit or loss and other comprehensive income and changes in equity, and, in relation to the net cash flows and the amounts presented in the consolidated statement of cash flows as the respective figures for the current year. Our audit opinion for the year ended 31 December 2013 has been amended accordingly. Our opinion on the financial statements for the current year has also been amended due to the probable effect of this matter on the comparability of amounts for the current year with the respective amounts of the previous year. Qualified opinion regarding the comparability of amounts shown in the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows of the year and the respective amounts of In our opinion, except for the effect on the respective amounts of the previous year of the matters mentioned in the paragraph of the basis for qualified opinion, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year ended 31 December 2014 give a true and fair view of the financial performance and cash flows of the Group for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union, and the requirements of the Cooperative Companies Law of 1985 as amended from time to time. Opinion regarding the consolidated financial position In our opinion, the consolidated statement of financial position gives a true and fair view of the financial position of the Group as at 31 December 2014, in accordance with International Financial Reporting Standards as adopted by the European Union, and the requirements of the Cooperative Companies Law of 1985 as amended from time to time. Report on other legal requirements Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 as amended from time to time, we report the following: We have obtained all the information and explanations we considered necessary for the purposes of our audit, except that the scope of our work was LTD by the matters referred to in the paragraph of the basis for qualified opinion. In our opinion, proper books of account have been kept by the Bank so far as it appears from our examination of these books, except as stated in the basis for qualified opinion paragraph. The consolidated financial statements are in agreement with the books of account. In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give the information required by the Cooperative Companies Law 1985 as amended from time to time, in the required manner except as stated in the basis for qualified opinion paragraph. In our opinion, the information given in the report of the Committee on pages 2 to 4 is consistent with the consolidated financial statements. 12

15 Other matter This report, including the opinion, has been prepared for and only for the Bank s members as a body in accordance with Section 34 of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 as amended from time to time and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to. Michael M. Antoniades, FCA Certified Public Accountant and Registered Auditor for and on behalf of KPMG LTD Certified Public Accountants and Registered Auditors 14 Esperidon Street 1087 Nicosia Cyprus 28 April

16 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Note '000 '000 Interest income Interest expense 8 ( ) ( ) Net interest income Income from fees and commissions Expenses for fees and commissions (8.275) (1.899) Other net losses 9 (30.346) (61.138) Other income Total net income Staff costs 11 ( ) ( ) Depreciation 13 (12.451) (13.785) Other operating expenses 14 (66.375) (64.105) Total expenses ( ) ( ) Operating profit before provisions for impairment Share of results of associates before tax Charge for impairment in value of investments held to maturity 24 - (16.900) Charge for impairment of financial assets available for sale 23 (327) (4.234) Increase in provisions for impairment of loans and other advances 19 ( ) ( ) Profit/(loss) before tax ( ) Tax (3.200) Net profit/(loss) for the year ( ) Other comprehensive income Items that will not be reclassified in subsequent periods to profit or loss: Change in the fair value of land and buildings (844) (22.242) Tax on other comprehensive income (356) (22.598) Items that may be reclassified in subsequent periods to profit or loss: Available for sale financial assets - Fair value gains Other comprehensive income/(expense) for the year (19.238) Total comprehensive income/(expense) for the year ( ) Profit/(loss) attributable to: Equity holders of the Bank ( ) Non-controlling interests Profit/(loss) for the year ( ) The notes on pages 21 to 105 form an integral part of these consolidated financial statements. 14

17 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (continued) '000 '000 Note Total comprehensive income/(expense) attributable to: Equity holders of the Bank ( ) Non-controlling interests Total comprehensive income/(expense) for the year ( ) Basic and Diluted profit/(loss) per share ( cent) 16 4,12 (14.378,71) The notes on pages 21 to 105 form an integral part of these consolidated financial statements. 15

18 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31 December 2014 ASSETS Note '000 '000 Cash Deposits with central banks Deposits with other banking institutions Loans and other advances to customers Inventories Properties held for sale Financial assets at fair value through profit or loss Available for sale financial assets Investments held to maturity Investment properties Property, plant and equipment Intangible assets Investments in associates Deferred tax assets Other assets Total assets LIABILITIES Amounts due to other bank institutions Deposits and other customer accounts Repurchase agreements Other loans Loans for the repayment of refugee deposits Loan capital Deferred tax liabilities Other liabilities Total liabilities EQUITY Share capital Reserves 41 ( ) ( ) Equity attributable to equity holders of the Bank ( ) Non-controlling interests Total equity ( ) Total equity and liabilities Contingent liabilities and commitments On 28 April 2015, the Committee of Cooperative Central Bank Ltd approved these consolidated financial statements for issue Chairman Vice Chairman General Manager Chief Financial Officer The notes on pages 21 to 105 form an integral part of these consolidated financial statements. 16

19 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Capital Fair value reserve-land and buildings Fair value reserve available-forsale financial assets Merger reserve Statutory reserve required by law Dilution of shares nominal value reserve Profit available for distribution Total Noncontrolling interests Total Balance 1 January (3.813) ( ) - - ( ) - ( ) Comprehensive income Net profit the year Other comprehensive income, after tax Change in fair value reserve land and buildings (34) Change in fair value reserve available-for-sale financial assets Transfer from fair value reserve land and buildings to profit available for distribution - (4.567) Other comprehensive income for the year - (3.532) (28) Transactions with owners of the Bank Issue of share capital Decrease in nominal value of shares (85.723) Increase in merger reserve Transfer of profit for the year (45.255) (45.255) Changes in ownership interests in subsidiaries Loss on deemed disposal (27.759) - - (27.759) Balance at 31 December (3.129) ( ) The notes on pages 21 to 105 form an integral part of these consolidated financial statements. 17

20 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Capital Fair value reserveland and buildings Fair value reserve available-forsale financial assets Merger reserve Statutory reserve required by law Dilution of shares nominal value reserve Profit available for distribution Total Non- Controlling interests Balance 1 January (7.173) Comprehensive income Net loss for the year ( ) ( ) - ( ) Other comprehensive income after tax Changes in fair value - (21.886) reserve - land and buildings - (21.886) (21.886) Changes in fair value reserve - available-for-sale financial assets Provison for charity purposes (1.758) - - (1.758) - (1.758) Other comprehensive expense for the year - (21.886) (1.758) - - (20.284) - (20.284) Transactions with owners of the Bank Increase in merger reserve Transfer of loss for the year ( ) ( ) Balance at 31 December (3.813) ( ) - - ( ) - ( ) Total The notes on pages 21 to 105 form an integral part of these consolidated financial statements. 18

21 CONSOLIDATED STATEMENT OF CASH FLOWS Note '000 '000 Cash flows from operating activities Profit/(loss) before tax ( ) Adjustments for: Depreciation of property, plant and equipment Amortization of computer software Amortization of rights for use 27-4 Provision for impairment of loans and other advances to customers Share of profit and write offs from associates 29-4 Loss on disposal of property, plant and equipment Fair value loss on investment properties Loss on disposal of properties held for sale Loss on disposal of investments held to maturity 9, Fair value gains on financial assets at fair value through profit or loss 22 - (49) Impairment charge on investments held to maturity Impairment charge on financial assets available for sale Impairment charge on investment properties Impairment charge on intangible assets Impairment charge on properties available for sale Impairment charge on property, plant and equipment Credit in results for employee retirement plans - (4.077) Income from investments in debt securities 7 (46.164) (58.250) Dividend income (47) (23) Cash flows from operating activities before changes in: Deposits with central banks Deposits with other banking institutions (3.442) Loans and other advances to customers Repurchase agreements ( ) Inventories Properties held for sale 77 (22.791) Financial assets at fair value through profit or loss - (5) Other assets (25.340) Customer deposits ( ) ( ) Amounts due to other bank institutions Deferred income (90) (8) Other liabilities (4.678) Cash flows used in operating activities ( ) ( ) Tax paid (743) (4.955) Payment for employee retirement schemes - (1.210) Dividend income Net cash flows used in operating activities ( ) ( ) The notes on pages 21 to 105 form an integral part of these consolidated financial statements. 19

22 CONSOLIDATED STATEMENT OF CASH FLOWS Cash flows from investing activities Proceeds from disposal of investments held to maturity Proceeds from disposal of financial assets available for sale Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment properties Income from investments in debt securities Payment for acquisition of property, plant and equipment 26 (10.537) (30.477) Payment for acquisition of intangible assets 27 (286) (268) Payment for acquisition of investment properties 25 (248) (4.650) Payment for acquisition of available for sale financial assets 23 (14.974) (12.665) Net cash flows from investing activities Cash flows from financing activities Repayments of loan capital 36 - (20.110) Repayment of other loans 34 (52.906) - Net cash flows used in financing activities (52.906) (20.110) Net decrease in cash and cash equivalents ( ) ( ) Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year The notes on pages 21 to 105 form an integral part of these consolidated financial statements. 20

23 1. General 1.1 Incorporation The Cooperative Central Bank Limited (the Bank or 'CCB ) was founded in Cyprus in 1937 (registration number 88) as a Cooperative Limited liability company in accordance with Article 11 of the Cooperative Companies Law of 1923 and Its registered office is located at 8 Gregori Afxentiou Street, 1096 Nicosia, P.O , 1389 Nicosia Restructuring Plan According to the Memorandum of Understanding which was agreed between the Republic of Cyprus and the European Central Bank, the European Committee and the International Monetary Fund ( Troika ) the number of Cooperative Credit Institutions (CCIs) was reduced to 18, with the General Meetings of the Members approving the mergers in September On 4 October 2013, a decree for the nationalization of the Cooperative Movement was issued along with the increase of the share capital by 1,5 billion. In accordance with the Restructuring Plan, the Memorandum and the two government decrees issued on 4 October 2013 and 29 January 2014, the participation percentage of the voting rights of the Republic of Cyprus in the ownership structure of CCB is 99% and that of the existing shareholders is 1%. At the same time, CCB became a 99% shareholder in the remaining 18 Cooperative Credit Institutions. For this purpose, a Cooperative Holding Company of CCB was incorporated according to article 12E of the Cooperative Companies Law, to which all existing shareholders of CCB are transferred with a participation to its capital proportionally to the participation each shareholder had in the share capital of CCB. The recapitalization of CCB was implemented through granting of a bond issued by the European Stability Mechanism in accordance to an agreement signed on 28 February 2014 whilst the recapitalization of the CCIs was implemented through issuing shares to CCB; the existing shareholders of the CCIs were transferred to holding companies The Group CCB is the main shareholder of the 18 CCIs whilst it is also exercising control over companies with trading activities. 1.2 Public finances adjustment program and operating environment Economic Adjustment Program In March 2013 the negotiations between the Cyprus Government and the Eurogroup were concluded, and an agreement was reached for the provision of financial support towards the Cyprus Government of up to 10 billion and the development of a macroeconomic adjustment program. In accordance with the text of the economic adjustment program the target is to overcome both the short-term and the medium-term economic, financial and structural challenges that Cyprus is facing. The main targets of the program is to restore the robustness of the Cyprus banking sector and the trust of the depositors and the market, to continue the current process of reorganizing public finances and to implement corrective reforms in order to support the competitiveness and a sustainable and balanced growth, allowing the correction of the macroeconomic imbalances. Additonally, it was decided that Bank of Cyprus and Laiki Bank will be set under resolution status and that the assets, secured deposits and the 9 billion drawn by Emergency Liquidity Assistance ( ELA ) will be transferred from Laiki Bank to Bank of Cyprus. The recapitalization procedure of Bank of Cyprus was completed in accordance with the relevant decrees of the Resolution Authority, whilst Bank of Cyprus issued, in August 2014, new shares amounting to 1 billion to private investors Assessments of the implementation of the Economic Adjustment Program The progress of the adjustment program of the Cypriot economy has been assessed four times by Troika. The fifth assessment of the program begun in July 2014, but has not been completed yet due the outstanding foreclosure law relating to the modernization of the disposal process of mortgaged properties, through private auctions. The law constitutes a precondition, and even though it has been voted by the Parliament its implementation was outstanding before the Parliament, in order to be applied simultaneously with the bill relating to the insolvency framework. 21

24 1. General (continued) 1.2 Public finances adjustment program and operating environment (continued) Assessments of the implementation of the Economic Adjustment Program (continued) On 18 April 2015, the Parliament has voted the bills relating to the insolvency framework whilst the suspension for implementing the foreclosure law ended on 16 April These enabled the completion of the fifth assessment of the progress of the adjustment program, the participation of Cyprus into the quantitative easing program of the European Central Bank ( ECB ), the disbursement of the outstanding tranche of the program from IMF and the return of Cyprus to the international markets. The insolvency framework introduces repayment plan mechanisms relating to solvent individuals, a modernized bankruptcy procedure relating to insolvent individuals, which will include the exemption of a bankrupt individual under strict conditions, which will prevent any abuses. It is noted that suspension is allowed, according to specific criteria and conditions, of any measures taken against insolvent borrowers for a period of six months. Additionally, it adopts the possible exemption of insolvent individuals who are without any income and possess very few assets and have a very low unsecured debt through the process of the Decree Discharge Debt under strict conditions, procedures that will enable the effective restructuring of debts and operation of viable companies and a modernized procedure for liquidating companies. All of the bills contribute towards the modernization of practices that affect the operations of the Banks, concerning loans and other advances. The practical effects will develop through the implementation of the bills and the relevant regulations and will systematically be assessed from the Committees of CCB and CCIs Restrictive measures on banking transactions The decisions taken in March 2013 included the issuance of decrees concerning restrictive measures on banking transactions. The scope and duration of the restrictive measures are decided and revised by the Minister of Finance and the Governor of the Central Bank of Cyprus. The temporary restrictions on bank transactions and cash transactions, related to capital included already in the system in March 2013 and included restrictions on withdrawals of cash, clearing of cheques and restrictions on money transfers to other credit institutions in Cyprus and abroad. On 6 April 2015 all of the restrictive measures on the banking transactions were lifted Agreement between CCB and European Investment Bank On 23 May 2014 CCB announced a new Financing Plan for Small and Medium-sized Enterprises, that is offered by the Cooperative Sector in cooperation with the European Investment Bank (EIB). This is the first cooperation between EIB and a Cypriot organization, after the events of the Eurogroup in March This Plan provides support to the small and medium-sized enterprises in Cyprus through a loan agreement amounting to 50 million that has been reached between CCB and EIB, on behalf and for account of the CCIs Amendments to the regulatory framework The supervision of the Group has been taken over by the European Central Bank ( ECB ) and the Central Bank of Cyprus ( CBC ) in the context of the Single Supervisory Mechanism. The supervisory framework is dynamic and therefore its requirements may differentiate with possible effects on capital adequacy for instance. The Central Bank of Cyprus (CBC) having evaluated the current regulatory framework in relation to the provision of advances, the procedure for impairment of assets and provisions and the handling of collateral relating to provided assets, has started to implement regulatory amendments. On 17 February 2014 the Central Bank of Cyprus issued a directive that covers the provisioning policy of loans and the provisioning procedures. 22

25 1. General (continued) 1.2 Public finances adjustment program and operating environment (continued) Interest rates With an announcement on 24 April 2014, CBC stated that there was an agreement with Cypriot credit institutions, which provides that if the interest rate for deposits offered by the credit institutions exceed euribor plus 300 basis points, then the credit institution would be required to maintain additional own funds. On 16 February 2015 the Board of Directors of CBC has resolved to proceed with differentiating the maximum depositary interest rate, as stated in the relevant calculation formula for measuring additional capital requirements for banks, by decreasing it by one 1%. On 13 February 2015 the Committee of CCB resolved to proceed from 1st March 2015 with 1% decrease in interest rates for all performing mortgage loans. On 26 February 2015 the Committee of CCB having assessed the decision by CBC for reducing the depositary interest rates by 1%, has further reduced the borrowing rates on performing loans of all types, aiming for relief of borrowers Decisions of European Central Bank On 2 October 2014 ECB announced the terms of operations for the asset-backed securities program and for the program of buying secured bonds. These terms were approved by the Board of Directors. These programs will last for at least two years and their objective is to enhance the implementation mechanism of the monetary policy and to support the provision of credit facilities towards the economy of the Eurozone. The asset purchase program, which will be governed by suitability criteria that have been enacted in accordance with the Eurosystem framework for the introduction of safety measures, begun in the fourth quarter of 2014, starting with covered bonds. On 22 January 2015 ECB announced the commencement of the Quantitative Easing program. The program begun implementation on 9 March 2015 and will finish by the end of September 2016 and will cost 60 billion per month. Cyprus can benefit from this program with bonds up to the amount of 500 million. The amount of purchases will be equivalent to the participation each country has to the balance sheet of ECB, will relate to securities which belong to an investment grade, while there are additional criteria for countries on reform programs, such as Cyprus and Greece. Especially for the countries which are under such assessments, the program provides that purchases will be suspended during the period that assessments are not progressing and will resume only when the assessment has been successful. There are limits at 33% per debt issuer and 25% per issue, while the program anticipates risk apportionment at 20% for the ECB and at 80% for the National Central Banks which will engage in these purchases. The program relates to combined purchases of both public and private debt, while the centralized coordination will be managed by ECB. The funds that the banks will receive from the bonds will either be used to finance the private sector or to be deposited at ECB, with negative, however, interest rate. Having announced the program, the exchange rate for Euro/US Dollar has weakened while there was a reduction in the yields of bonds across the countries of the Eurozone. Meanwhile, ECB improved the terms of the longer-term refinancing operations (LTRO s) by reducing the interest rate. 1.3 Principal activities The main activities of the Group, which have remained the same as the previous year, is the provision of banking and financial services and the provision of trading services. All activities are carried out in Cyprus. 1.4 Turnover The turnover of the Group consists of revenue from interest, fees and commissions and other income. 23