SANTANDER INVESTMENT BOLSA, SOCIEDAD DE VALORES, S.A., SOLE-SHAREHOLDER COMPANY

Transcription

1 SANTANDER INVESTMENT BOLSA, SOCIEDAD DE VALORES, S.A., SOLE- Independent auditor s report, financial statements and Directors Report for the year ended 31 December 2016

2 This version of our report is a free translation of the original, which was prepared in Spanish. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation. INDEPENDENT AUDITOR S REPORT ON FINANCIAL STATEMENTS To the Sole-Shareholder of Santander Investment Bolsa, Sociedad de Valores, S.A., Sole-Shareholder Company: Report on financial statements We have audited the accompanying financial statements of the company Santander Investment Bolsa, Sociedad de Valores, S.A., Sole-Shareholder Company, which comprise the balance sheet as at December 31, 2016, the statement of profit or loss, the statement of changes in equity, the statement of cash flows and related notes for the year then ended. Director s Responsibility for the financial statements The company s Directors are responsible for the preparation of these financial statements, so that present fairly the equity, financial position and financial performance of Santander Investment Bolsa, Sociedad de Valores, S.A., Sole-Shareholder Company, in accordance with the financial reporting framework applicable to the entity in Spain, as identified in Note 1 to the accompanying financial statements, and for such internal control that is determined to be necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with legislation governing the audit practice in Spain. This legislation requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the financial statements taken as a whole. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. PricewaterhouseCoopers Auditores, S.L., Torre PwC, Pº de la Castellana 259 B, Madrid, España Tel.: / , Fax: , 1 R. M. Madrid, hoja , folio 75, tomo 9.267, libro 8.054, sección 3ª Inscrita en el R.O.A.C. con el número S CIF: B

3 This version of our report is a free translation of the original, which was prepared in Spanish. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation. Opinion In our opinion, the accompanying financial statements present fairly, in all material respects, the equity and financial position of Santander Investment Bolsa, Sociedad de Valores, S.A., Sole- Shareholder Company, as at December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance with the applicable financial reporting framework and, in particular, with the accounting principles and criteria included therein. Emphasis of matter We draw attention to what is stated in Notes 1 and 19 of the accompanying financial statements, which indicates that significant balances and transactions of Santander Investment Bolsa, Sociedad de Valores, S.A., Sole-Shareholder Company, during the year 2016 have corresponded to transactions with companies in the Santander Group. Our opinion is not modified in respect of this matter. Other Matter The Company s financial statements, corresponding to the year ended December 31, 2015, were audited by other auditor that expressed an unmodified opinion on those financial statements on April 25, Report on other legal and regulatory requirements The accompanying directors report for 2016 contains the explanations which the Directors consider appropriate regarding the company s situation, the development of its business and other matters and does not form an integral part of the financial statements. We have verified that the accounting information contained in the directors report is in agreement with that of the financial statements for Our work as auditors is limited to checking the directors report in accordance with the scope mentioned in this paragraph and does not include a review of information other than that obtained from the company s accounting records. PricewaterhouseCoopers Auditores, S.L. Original in Spanish signed by: Gema Mª Ramos Pascual April 28,

4 SANTANDER INVESTMENT BOLSA, SOCIEDAD DE VALORES, S.A., SOLE- Financial Statements and Director s Report for the year ended 31 December 2016 Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company in Spain. In the event of discrepancy, the Spanish version prevails.

5 SHAREHOLDER COMPANY BALANCE SHEET AT 31 DECEMBER 2016 (Thousand of Euros) Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company in Spain. In the event of discrepancy, the Spanish version prevails. ASSETS Note Cash - - Financial assets held for trading - - Debt instruments - - Equity instruments - - Trading derivatives - - Other financial assets - - Memorandum item: Loaned or advanced as collateral - - Other financial assets at fair value through profit or loss - - Debt instruments - - Equity instruments - - Other financial assets - - Memorandum item: Loaned or advanced as collateral - - Available-for-sale financial assets Debt instruments - - Equity instruments 7 7 Memorandum item: Loaned or advanced as collateral - - Loans and receivables 159, ,574 Loans and advances to financial intermediaries 5 158, ,391 Loans and advances to individuals Other financial assets - - Held-to-maturity investments - - Memorandum item: Loaned or advanced as collateral - - Hedging derivatives - - Non-current assets held for sale - - Debt instruments - - Equity instruments - - Tangible assets - - Other - - Investments - - Group companies - - Jointly controlled entities - - Associates - - Insurance contracts linked to pensions - - Tangible assets Property, plant and equipment Investment property - - Intangible assets Goodwill - - Other intangible assets - - Tax assets 14 2,639 3,070 Current 3 3 Deferred 2,636 3,067 Other assets 10 48,456 3,657 TOTAL ASSETS 210, ,352

6 SHAREHOLDER COMPANY BALANCE SHEET AT 31 DECEMBER 2016 (Thousand of Euros) Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company in Spain. In the event of discrepancy, the Spanish version prevails. LIABILITIES AND EQUITY Note Financial liabilities held for trading - - Other financial liabilities at fair value through profit or loss - - Financial liabilities at amortised cost 11 7,425 13,569 Payable to financial intermediaries 7,425 13,569 Payable to individuals - - Borrowing and subordinated liabilities - - Other financial liabilities - - Hedging derivatives - - Liabilities associated with non-current assets held for sale - - Provisions 12 3,645 3,550 Provisions for pensions and similar obligations 3,645 3,546 Provisions for taxes and other legal contingencies - - Other provisions - 4 Tax liabilities ,711 Current 266 5,639 Deferred Other liabilities 10 6, ,981 TOTAL LIABILITIES 18, ,811 Shareholders equity 192, ,610 Share capital 13 24,882 24,882 Registered 24,882 24,882 Less: Uncalled capital - - Share premium 13 51,196 51,196 Reserves ,532 99,519 Other equity instruments - - Less: Treasury shares - - Profit of the year 3,439 13,013 Less: Dividends and remuneration - - Valuation adjustments (103) (69) Available-for-sale financial assets - - Cash flow hedges - - Hedges of net investments in foreign operations - - Exchange differences - - Other valuation adjustments 12 (103) (69) GRANTS, DONATIONS AND LEGACIES RECEIVED - - TOTAL EQUITY 191, ,541 TOTAL LIABILITIES AND EQUITY 210, ,352

7 SHAREHOLDER COMPANY BALANCE SHEET AT 31 DECEMBER 2016 (Thousand of Euros) Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company in Spain. In the event of discrepancy, the Spanish version prevails. MEMORANDUM ITEMS Note Guarantees and indemnities provided 30,000 7,141 Other contingent liabilities - - Commitments to buy and sell futures - - Securities lent on loan - - Disbursements committed by emission assurance - - Financial derivatives - - Other contingency and commitment accounts 3, TOTAL CONTINGENCY AND COMMITMENT ACCOUNTS 18 33,871 8,021 Not available on demand at credit institutions Client purchase orders for securities pending settlement 101, ,211 Client sell orders for securities pending settlement 56, ,445 Settled suspended assets Other memorandum items - - TOTAL OTHER MEMORANDUM ITEMS , ,555

8 SHAREHOLDER COMPANY INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2016 (Thousand of Euros) Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company in Spain. In the event of discrepancy, the Spanish version prevails. Note Interest and similar income Interest expense and similar charges 22 (290) (219) NET INTEREST INCOME (254) 275 Income from equity instruments 23-5 Fee and commission income 24 55,007 59,052 Fee and commission expense 25 (19,585) (14,132) Gain/ (Losses) on financial assets and liabilities (net) 31 (602) Held for trading (602) Other financial instruments at fair value through profit or loss - - Financial instruments not measured at fair value through profit or loss - - Other - - Exchange differences (net) (113) 4 Other operating income - - Other operating expenses 1 (93) (55) GROSS INCOME 34,993 44,547 Staff costs 27 (11,725) (9,269) General expenses 28 (17,826) (16,488) Depreciation and amortization charge 8 (3) (3) Provisions (net) 12 (472) 47 Impairment losses on financial assets (net) (6) (2) Loans and receivables 7 (6) (2) Other financial instruments not measured at fair value through profit or loss - - PROFIT FROM OPERATIONS 4,961 18,832 Impairment losses on other assets (net) - - Tangible assets - - Intangible assets - - Other - - Gains / (Losses) on disposal of assets not classified as non-current assets held (42) (35) Gains from bargain purchases arising in business combinations - - Gains / (Losses) on non-current assets held for sale not classified as discontinued operations - - PROFIT BEFORE TAX 4,919 18,797 Income tax 14 (1,480) (5,784) PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 3,439 13,013 Profit / Loss from discontinued operations (net) PROFIT FOR THE YEAR 3,439 13,013 EARNINGS PER SHARE Basic Diluted

9 SHAREHOLDER COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 (Thousand of Euros) Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company in Spain. In the event of discrepancy, the Spanish version prevails. a) STATEMENT OF RECOGNISED INCOME AND EXPENSE (Thousand of Euros) PROFIT FOR THE YEAR 3,439 13,013 OTHER RECOGNISED INCOME / EXPENSE (34) (18) Available-for-sale financial assets - - Revaluation gains / (losses) - - Amounts transferred to income statement - - Other reclassifications - - Cash flow hedges - - Revaluation gains / (losses) - - Amounts transferred to income statement - - Amounts transferred to initial carrying amount of hedge items - - Other reclassifications - - Hedges of net investments in foreign operations - - Revaluation gains / (losses) - - Amounts transferred to income statement - - Other reclassifications - - Exchange differences - - Revaluation gains / (losses) - - Amounts transferred to income statement - - Other reclassifications - - Non-current assets held for sale - - Revaluation gains / (losses) - - Amounts transferred to income statement - - Other reclassifications - - Actuarial gains / (losses) on pension plans (49) (26) Other recognised income and expense - - Income tax 15 8 TOTAL RECOGNISED INCOME AND EXPENSE 3,405 12,995

10 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 () reporting framework applicable to the Company in Spain. In the event of discrepancy, the Spanish version prevails. b) STATEMENT OF CHANGES IN TOTAL EQUITY (Thousand of Euros)

11 SHAREHOLDER COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016 (Thousand of Euros) Translation of financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company in Spain. In the event of discrepancy, the Spanish version prevails. CASH FLOWS FROM OPERATING ACTIVITIES (221,600) 14,906 Profit for the year 3,439 13,013 Adjustments made to obtain the cash flows from operating activities 2,061 5,869 Depreciation and amortization charge 3 3 Net impairment losses 6 2 Net additions to provisions for contingencies Gains / (Losses) on disposal of non-financial assets - - Gains / (Losses) on disposal of investments - - Other items 1,480 5,764 Adjusted profit 5,500 18,882 Net increase / decrease in operating assets (70,044) 7,872 Loans and receivables (25,238) (3,941) Financial assets held for trading - - Available-for-sale financial assets - - Other operating assets (44,806) 11,813 Net increase /decrease in operating liabilities (151,398) (11,182) Financial liabilities at amortised cost (6,130) (8,646) Financial liabilities held for trading - - Other operating liabilities (145,268) (2,536) Income tax recovered / paid (5,658) (666) CASH FLOWS FROM INVESTING ACTIVITIES A (1) (3) Payments (1) (3) Tangible assets (1) (3) Intangible assets - - Proceeds (+) - - CASH FLOWS FROM FINANCING ACTIVITIES - - Payments (-) - - Proceeds (+) - - Dividends paid and return on other equity instruments(-) - - Effect on foreign exchange rates changes on cash and equivalents cash - - NET INCREASE / DECREASE IN CASH AND CASH EQUIVALENTS (221,601) 14,903 Cash and cash equivalents at beginning of year (*) 339, ,019 Cash and cash equivalents at end of year (*) 118, ,922 (*) Considered as cash and cash equivalents (Note 5): Demand accounts 118, ,922

12 1. Description of the Company, basis of presentation of the financial statements and other information Santander Investment Bolsa, Sociedad de Valores, S.A., Sole-Shareholder Company ( the Company ) was incorporated on 6 July 1989, under the name of BSN, S.A., Sociedad de Valores y Bolsa. The public deed of the merger by absorption of BCH Bolsa, Sociedad de Valores, S.A. into BSN, S.A., Sociedad de Valores y Bolsa and the change in the name of the post-merger company BSCH Bolsa, Sociedad de Valores, S.A. was registered in the Mercantile Register on 3 September On 12 April 2000, the shareholders at the Annual General Meeting resolved to change the Company s name to Santander Central Hispano Bolsa, Sociedad de Valores, S.A. On 28 January 2005, the shareholders at the Annual General Meeting resolved to change the Company s name to Santander Investment Bolsa, S.A. Lastly, on 26 July 2013 the declaration of the Company s sole-shareholder company status was executed in public deed and the Company s name was changed to its current name. Its business activities are subject to the Royal Legislative Decree 4/2015, 23 October, approving the Restated Text of the Securities Market, to Royal Decree 217/2008, 15 February, about legal regimen of investment services companies and other entities rendering investment services and its successive amendment thereto and the legislation issued by the Spanish National Securities Market Commission (C.N.M.V.). The Company is registered under number 31 in the Register of Securities Brokers and Dealers of the C.N.M.V. Its registered office is located at Avenida de Cantabria, s/n, Boadilla del Monte, Madrid. The Company forms part of the Santander Group (Note 13), the parent of which is Banco Santander, S.A., with registered office at Paseo de Pereda 9-12, Santander, which prepares consolidated financial statements. The consolidated financial statements of the Santander Group are deposited at the Santander Mercantile Registry and are authorised for issue by the legally established deadline. The consolidated financial statements of the Santander, S.A. Group for 2016 were authorised for issue by the director of Banco Santander, S.A. at the Board of Directors Meeting held 21 February As defined in the Company s programme of activities, authorised by the C.N.M.V., a detailed list of the services that the Company may provide is shown below: 1.Provision of the following investment services: a. Receipt and transmittal of customer orders in relation to one or more financial instruments. b. Execution of the aforementioned orders for the account of customers. c. Trading for own account. d. Underwriting of financial instruments or of placements of financial instuments based on a solid commitment. e. Investment advisory services as defined in Article 5.1.g) of Royal Decree 217/2008, 15 February, on the legal regime of investment services companies. 1

13 2. Performance of the following ancillary services: a. Business counselling on capital structure, industrial strategy and related issues and counselling and other services related to corporate mergers and acquisitions. b. Preparation of investment reports and financial analyses or other types of general recommendations relating to financial instrument transactions. The investment services and, where applicable, any supplementary activities will be performed in respect of the financial instruments referred to in the Article 2 of the Restated Text of the Securities Market approved by the Royal Legislative Decree 4/2015 of 23 October and specifically for the following instruments: a. The marketable securities issued by public or private persons or entities and grouped in issues as defined in Article 2.1 of the Restated Text of the Securities Market approved by the Royal Legislative Decree 4/2015, of 23 October. b. Options and futures, swaps, forward rate agreements and other financial derivative agreements related to securities, currencies, interest rates or returns or other financial derivative instruments, financial indices or indicators that may be settled in kind or in cash. The Company s main business activity in 2016 and 2015 was the provision of brokerage service for customer transactions in domestic and international primary and secondary markets, for which it received the related brokerage fees. At 31 December 2016 and 2015, the Company has no operating branch abroad. Basis of presentation of the financial statements a) Regulatory financial reporting framework applicable to the Company The Company s financial statements, which were obtained from its accounting records, were formally prepared in accordance with the regulatory financial reporting framework applicable to the Company, which consists of: a) The Spanish Commercial Code and all other Spanish corporate law. b) Spanish National Securities Market Commission (C.N.M.V.) Circular 7/2008, of 26 November, and other mandatory rules approved by the C.N.M.V. and, for matters not provided for therein, the Spanish National Chart of Accounts approved by Royal Decree 1514/2007, Bank of Spain Circular 4/2004, of 22 December, and the International Financial Reporting Standards adopted as Regulations of the European Commission in force, provided that they do not contravene the previous standards. c) The mandatory rules approved by the Spanish Accounting and Audit Institute in order to implement the Spanish National Chart of Accounts and the relevant secondary legislation. d) All other applicable Spanish accounting legislation. 2

14 b) Fair presentation The accompanying financial statements, which were prepared from the Company s accounting records, are presented in accordance with the regulatory financial reporting framework applicable to the Company and, in particular, with the accounting principles and rules contained therein and, accordingly, present fairly the Company s equity, financial position, results of operations and cash flows for the related exercise. These financial statements, which were formally prepared by the Company s directors (at the Board of Directors Meeting held on 31 March 2017), will be submitted to the sole-shareholder for approval, and are expected to be approved without amendment. In view of the magnitude of the amounts presented in these financial statements, the Directors have prepared them in thousands of euros. c) Accounting principles The financial statements were prepared taking into account all the generally accepted accounting principles and measurement bases described in Note 2. All mandatory accounting principles and measurements bases with a significant effect on the financial statements were applied in preparing them. No non-mandatory accounting principles and measurement bases were applied. d) Key issues in relation to the measurement and estimation of uncertainty The Company s results and the calculation of equity are affected by the accounting principles and policies, measurement bases and estimates used by the Company s Directors in the preparation of the financial statements. The main accounting policies and measurement bases are set forth Note 2. In preparing the accompanying financial statements estimates were occasionally made by the Company s Directors in order to quantify certain of the assets, liabilities, income, expenses and obligations reported herein. These estimates relate basically to the following: The assessment of possible impairment losses on certain assets. The useful life of the tangible and intangible assets. The fair value of certain financial instruments. The calculation of provisions. The recoverability of deferred tax assets. Although these estimates were made on the basis of the best information available at 2016 year-end, events that take place in the future might make it necessary to change these estimates (upwards or downwards) in coming years. Pursuant to C.N.M.V. Circular 3/2016, of 22 October, which modifies Circular 7/2008, of 26 November, changes in accounting estimates would be applied prospectively, and the effects of any changes in estimates that might arise would be recognised in the related income statement. 3

15 e) Changes in accounting policies During 2016 there were no significant changes in accounting policies in relation to those applied in f) Comparative information The information relating to 2015 contained in these notes to the financial statements is presented with the information relating to 2016 for comparison purposes only and, therefore, does not constitute the Company s financial statements for g) Grouping of items Certain items in the balance sheet, income statement, statement of changes in equity and statement of cash flows are grouped together to facilitate their understanding; however, whenever the amounts involved are material, the information is broken down in the related notes to the financial statements. h) Investment Guarantee Fund and Fund for the Orderly Bank Restructuring The Company is a member of the Investment Guarantee Fund. The contributions made to this Fund amounted to EUR 40 thousand in 2016 and 2015 and the related expenses was recognised under Other operating expenses in the income statement. Additionally, the balance recorded under this item in the income statement for 2016 and 2015 include 13 thousand and 15 thousand respectively, which correspond to the contributions made by the Company, during such period, to the Fund for Orderly Bank Restructuring. i) Minimum capital requirements and liquidity ratio Directive 2013/36, of 26 June 2013, of the European Parliament and of the European Council, on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, and Regulation 575/2013, of the European Parliament and of the European Council, of 26 June, on prudential requirements for credit institutions and investment firms, govern the access to the activity, the supervisory framework and the prudential rules for credit institutions and investment firms, as well as the minimum capital to be held by such entities, the method for determining capital and the internal capital adequacy assessment processes and reporting that entities should have in place. In this regard, C.N.M.V. Circular 2/2014, of 23 June, on the exercise of various regulatory options in relation to capital adequacy for investment services firms and their consolidated groups, came into force on 29 June 2014, repealing C.N.M.V. 12/2008, of 30 December, on the capital adequacy of investment services firms and their consolidated groups, the previous applicable regulation on capital (Note 17). At 31 December 2016 and 2015, the Company met the capital requirements provided in this Circular. Also, in accordance, with current legislation, securities broker-dealers must maintain a liquidity ratio equal to 10% of their total eligible liabilities in the form of low-risk, highly liquid assets. At 31 December 2016 and 2015, the Company met this ratio. 4

16 j) Events after the reporting period From the end of the reporting period to the date on which these financial statements were authorised for issue there were no events significantly affecting them additional to those included in these financial statements. k) Environmental impact In view of the business activities carried on by the Company, it does not have any environmental liability, expenses, assets, provisions or contingencies that might be material with respect to its equity, financial positions or results. Therefore, no specific disclosures relating to environmental issues are included in these notes to the financial statements. 2. Accounting policies The principal accounting policies and rules and measurement bases used by the Company in preparing its financial statements, in accordance with C.N.M.V. Circular 7/2008, of 26 November, were as follows: a) Definitions and classification of financial instruments i. Definitions A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. An "equity instrument" is any contract that evidences a residual interest in the assets of the issuing entity after deducting all of its liabilities. A "financial derivative" is a financial instrument whose value changes in response to the change in an observable market variable (such as an interest rate, foreign exchange rate, financial instrument price or market index), whose initial investment is very small compared with other financial instruments with a similar response to changes in market factors, and which is generally settled at a future date. Rights and obligations under employee benefit plans are not treated for accounting purposes as financial instruments. ii. Classification of financial assets for measurement purposes In the balance sheet, financial assets are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as "Non-Current Assets Held for Sale" or they relate to "Cash", "Hedging Derivatives" or "Investments", which are reported separately. 5

17 Financial assets are included for measurement purposes in the following categories: - Financial assets held for trading (at fair value through profit or loss): this category includes the financial assets acquired for the purpose of generating a profit at short term from fluctuations in their prices. - Available-for-sale financial assets: this category includes debt instruments not classified as "Held-to-Maturity Investments", as "Financial Assets Held for Trading" or as "Other Financial Assets at Fair Value Through Profit or Loss", and equity instruments issued by entities other than subsidiaries, associates and jointly controlled entities, provided that such instruments have not been classified as "Held for Trading" or as "Other Financial Assets at Fair Value Through Profit or Loss". - Loans and receivables: this category includes financial assets that are not quoted in an active market, do not have to be measured at fair value, and have fixed or determinable cash flows through which the Company will recover all of its initial investment, other than losses because of credit deterioration. Therefore, this category consists of unquoted debt instruments, financing granted to third parties arising from the Company's ordinary activities, and receivables from the users of its services and investments of the Company's capital held in (demand) deposits and reverse repos. iii. Classification of financial assets for presentation purposes Financial assets are classified by nature into the following items in the balance sheet: - Loans and advances to financial intermediaries: loans and advances of any type to financial intermediaries, excluding those instrumented in such a way that they become marketable. - Loans and advances to individuals: balances receivable relating to all credit and loans granted by the Company, excluding those instrumented as marketable securities and those granted to credit institutions. - Other equity instruments: financial instruments issued by other entities, such as shares and non-voting equity units or shares and units of investment funds and collective investment undertakings, which have the nature of equity instruments for the issuer, other than investments in subsidiaries, jointly controlled entities or associates. iv. Classification of financial liabilities for measurement purposes In the balance sheet, financial liabilities are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as "Liabilities Associated with Non-Current Assets Held for Sale" or they relate to "Hedging Derivatives", which are reported separately. 6

18 Financial liabilities are included for measurement purposes in the following categories: Financial liabilities at amortised cost: this category includes, irrespective of their instrumentation and maturity, the financial liabilities not included under any other item in the balance sheet which arise from financing activities carried on. v. Classification of financial liabilities for presentation purposes Financial liabilities are classified by nature into the following items: - Payable to financial intermediaries: credit balances arising from payment obligations to financial intermediaries, such as loans and credits received, repurchase agreements, advances to execute security purchases, cash deposits received as collateral for transactions, balances payable to clearing houses and settlement agencies, temporary balances arising from securities transactions for the account of customers, payments outstanding on the underwriting of securities and other similar debts, excluding those instrumented in marketable securities. Other financial liabilities: includes the amount of payment obligations having the substance of financial liabilities not included under any other item. b) Measurement of financial assets and liabilities In general, financial assets and liabilities are initially recognised at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. This amount is adjusted by the transaction costs that are directly attributable to the acquisition of the financial asset or to the issue of the financial liability, except for financial instruments included in the "at fair value through profit or loss" category. Financial assets and liabilities are subsequently measured at each year-end as follows: i. Measurement of financial assets Financial assets (except for loans and receivables and equity instruments whose fair value cannot be determined in a sufficiently objective manner) are measured at fair value, without any deduction for transaction costs that may be incurred on their sale or other disposal. The fair value of a financial instrument on a given date is taken to be the amount for which it could be bought or sold on that date by two knowledgeable, willing parties in an arm's length transaction. Fair value is determined without any deduction for transaction costs that may be incurred on disposal. The most objective and common reference for the fair value of a financial instrument is the price that would be paid for it on an organised, transparent and deep market ("quoted price" or "market price"). 7

19 If there is no market price for a given financial instrument, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, of valuation techniques commonly used by the international financial community, taking into account the specific features of the instrument to be measured and, particularly, the various types of risk associated with it. However, the inherent limitations of the valuation techniques used and the possible inaccuracies of the assumptions made under these techniques may result in a fair value of a financial instrument which does not exactly coincide with the price at which the instrument could be bought or sold at the date of measurement. Equity instruments of other entities whose fair value cannot be determined in a sufficiently objective manner are measured at acquisition cost adjusted, where appropriate, by any related impairment loss. "Loans and Receivables" are measured at amortised cost using the effective interest method. Amortised cost is understood to be the acquisition cost of a financial asset or liability plus or minus, as appropriate, the principal repayments and the cumulative amortisation (taken to the income statement) of the difference between the initial cost and the maturity amount. In the case of financial assets, amortised cost furthermore includes any reductions for impairment or uncollectibility. The "effective interest rate" is the discount rate that exactly matches the carrying amount of a financial instrument to all its estimated cash flows of all kinds over its remaining life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees that, because of their nature, can be equated with a rate of interest. In the case of floating rate financial instruments, the effective interest rate, if any, coincides with the rate of return prevailing in all connections until the next benchmark interest reset date. The amounts at which the financial assets are recognised represent, in all material respects, the Company's maximum exposure to credit risk at each reporting date. ii. Measurement of financial liabilities In general, financial liabilities are measured at amortised cost, as defined above, except for those included under "Financial Liabilities Held for Trading", "Other Financial Liabilities at Fair Value through Profit or Loss" and "Financial Liabilities at Fair Value through Equity", which are measured at fair value. iii. Valuation techniques The financial assets available for sale at 31 December 2015 and 2014 (Note 6) have been recognised at acquisition costs, given that fair value could not be determined in a sufficient objective manner. 8

20 iv. Recognition of fair value changes As a general rule, changes in the carrying amount of financial assets and liabilities are recognised in the income statement. A distinction is made between the changes resulting from the accrual of interest and similar items, which are recognised under "interest and Similar Income" or "interest Expense and Similar Charges", as appropriate; the adjustments arising from the impairment of assets, which are recognised under "impairment Losses on Financial Assets"; and those arising for other reasons, which are recognised at their net amount under "Gains/Losses on Financial Assets and Liabilities (Net)". Adjustments due to changes in fair value arising from "Available-for-Sale Financial Assets" are recognised temporarily under "Valuation Adjustments - Available-for-Sale Financial Assets", unless they relate to exchange differences on monetary financial assets, in which case they are recognised under "Exchange Differences" in the income statement. Items charged or credited to "Valuation Adjustments - Available-for-Sale Financial Assets" remain in the Company's equity until the asset giving rise to them is derecognised, at which time they are taken to profit or loss. c) Derecognition of financial assets and liabilities Financial assets are only derecognised when the cash flows they generate have been extinguished or when substantially all the inherent risks and rewards have been transferred to third parties. Similarly, financial liabilities are only derecognised when the obligations they generate have been extinguished or when they are acquired (with the intention either to cancel them or to resell them). d) Offsetting Asset and liability balances are offset, i.e. reported in the balance sheet at their net amount, when, and only when, they arise from transactions in which a contractual or legal right of set-off exists and the Company intends to settle them on a net basis, or to realise the asset and settle the liability simultaneously, and one of the contracting parties is a financial institution. The balances of transactions yet to be settled with a single settlement or clearing house or system in an active market or stock exchange may also be offset, provided that they take place at the same time and are denominated in the same currency. 9

21 e) Impairment of financial assets i. Definitions A financial asset is considered to be impaired -and therefore its carrying amount is adjusted to reflect the effect of impairment- when there is objective evidence that events have occurred which: In the case of debt instruments (loans and debt securities), give rise to an adverse impact on the future cash flows that were estimated at the transaction date. In the case of equity instruments, mean that their carrying amount may not be fully recovered. As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge to the income statement for the period in which the impairment becomes evident, and the reversal, if any, of previously recognised impairment losses is recognised in the income statement for the period in which the impairment is reversed or reduced. Interest accrual will be suspended for all the individually or collectively assessed assets on which impairment losses have been recognised and which have payments more than three months past due. ii. Debt instruments carried at amortised cost The amount of an individually or collectively assessed impairment loss incurred on a debt instrument carried at amortised cost is equal to the negative difference between its carrying amount and the present value of its estimated future cash flows and is presented as a reduction of the balance of the asset adjusted. Impairment losses on these assets are assessed as follows: Individually, for all significant debt instruments. Collectively: the Company classifies transactions on the basis of the nature of the obligors, the conditions of the countries in which they reside, transaction status, type of collateral or guarantee, age of past-due amounts, etc. The impairment loss of an asset group is the difference between the carrying amount of all the financial assets in the group and the present value of their estimated future cash flows. In order to calculate impairment losses, formulas based on default schedules are used which take into account the time value of money, expected cash flows and the age of the balances. 10

22 iii. Available-for-sale financial instruments The amount of the impairment losses on these instruments is the positive difference between their acquisition cost (net of any principal repayment or amortisation, in the case of debt instruments) and their fair value less any impairment loss previously recognised in the income statement. When there is objective evidence that the losses arising on measurement of these assets are due to impairment, they are removed from the equity item "Valuation Adjustments" and are recognised, for their cumulative amount, in the income statement. If all or part of the impairment losses are subsequently reversed, the reversed amount is recognised in the income statement for the period in which the reversal occurs (under "Valuation Adjustments" in the balance sheet in the case of equity instruments). iv. Equity instruments carried at cost The amount of the impairment losses on these instruments is the positive difference between their carrying amount and their recoverable amount, which is deemed to be the higher of fair value less costs to sell and the present value of expected future cash flows. Unless there is better evidence of the recoverable amount, it is based on the value of the equity (consolidated, as the case may be) of the investee, adjusted by the amount of the unrealised gains existing at the date of measurement. Impairment losses are recognised in the income statement for the period in which they arise as a direct reduction of the cost of the instrument. These losses can only be reversed subsequently if the related assets are sold. f) Repurchase agreements and reverse repurchase agreements Purchases (sales) of financial assets under a non-optional resale (repurchase) agreement at a fixed price ("repos") are recognised in the balance sheet as financing granted (received) based on the nature of the debtor (creditor), under "Loans and Advances to Financial Intermediaries" or "Loans and Advances to Individuals" ("Payable to Financial Intermediaries" or "Payable to Individuals"). Differences between the purchase and sale prices are recognised as interest over the contract term. g) Tangible assets "Tangible Assets" includes the amount of furniture, fixtures and computer hardware owned by the Company which, in view of their use, are all classified as "Property, Plant and Equipment for Own Use". Property, plant and equipment for own use (which basically includes tangible assets intended to be held for continuing use), are presented at acquisition cost, less the related accumulated depreciation and any impairment losses (carrying amount higher than recoverable amount). 11

23 Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value. The land on which the buildings and other structures stand has an indefinite life and, therefore, is not depreciated. The period tangible asset depreciation charge is recognised under "Depreciation and Amortisation Charge" in the income statement and is calculated using basically the following depreciation rates (based on the average years of estimated useful life of the various assets): Annual Rate Furniture Computer hardware 10% 25% The Company assesses at the reporting date whether there is any indication that an asset may be impaired (i.e. its carrying amount exceeds its recoverable amount). If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion to the revised carrying amount and to the new remaining useful life (if the useful life has to be re-estimated). Similarly, if there is an indication of a recovery in the value of a tangible asset, the Company recognises the reversal of the impairment loss recognised in prior periods and adjusts the future depreciation charges accordingly. In no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognised in prior years. The Company recognises any impairment loss on the carrying amount of its tangible assets under "impairment Losses on Other Assets - Tangible Assets" in the income statement. The estimated useful lives, residual values and depreciation methods of the items of property, plant and equipment for own use are reviewed at least at the end of the reporting period with a view to detecting significant changes therein. If changes are detected, the related adjustments are made by correcting the depreciation charge to be recognised in the income statement in future years on the basis of the new useful lives. Upkeep and maintenance expenses relating to property, plant and equipment for own use are recognised as an expense in the period in which they are incurred. However, the costs of improvements leading to increased capacity or efficiency or to a lengthening of the useful lives of the assets are capitalised. There were no impairment losses on these assets at 31 December 2016 or At 31 December 2016 and 2015, the Company did not have any assets acquired or leased out under a finance lease or any assets classified as investment property. 12

24 h) Intangible assets Intangible assets are identifiable non-monetary assets (separable from other assets) without physical substance which arise as a result of a legal transaction or which are developed internally by the Company. Only intangible assets whose cost can be estimated reliably and from which the Company considers it probable that future economic benefits will be generated are recognised. Intangible assets are recognised initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortisation and any accumulated impairment losses. i. Other intangible assets Substantially all the "Other Intangible Assets" (all with finite useful lives) held by the Company at 31 December 2016 and 2015 related to computer software acquired for consideration. These intangible assets are amortised over their finite useful life (three years) using methods similar to those used to depreciate tangible assets. The average annual amortisation rate applied for computer software is 33%. The intangible asset amortisation charge is recognised under "Depreciation and Amortisation Charge" in the income statement. The Company recognises any impairment loss on the carrying amount of intangible assets with a charge to "impairment Losses on Other Assets - Intangible Assets" in the income statement. The criteria used to recognise the impairment losses on these assets and, where applicable, the reversal) of impairment losses recognised in prior years are similar to those used for tangible assets. i) Accounting for operating leases The Company acts as the lessee in certain operating leases. In such cases, lease expenses, including any incentives granted by the lessor, are charged to "General Expenses" in the income statement on a straight-line basis (Note 28). j) Tax assets and liabilities "Tax Assets" and "Tax Liabilities" in the balance sheet include the amount of all tax assets and liabilities arising from income tax, which are broken down into "Current" (amounts of tax to be recovered or paid within the next twelve months) and "Deferred" (amounts of tax to be recovered or paid in future years, including any arising from unused tax loss and tax credit carry forwards). 13

25 k) Other assets and liabilities "Other Assets" includes the amount of assets not recorded in other items, including guarantees provided as security for financial transactions, loans and advances to employees and other assets. "Other Liabilities" includes the payment obligations having the substance of financial liabilities not included in any other category. The two line items include the balances relating to prepayments and accrued income, and accrued expenses and deferred income, respectively, excluding accrued interest, which is recognised in the same item as the financial instruments giving rise to it. l) Provisions and contingent liabilities Provisions are present obligations arising from past events which are clearly specified as to theír nature at the reporting date but are uncertain as to their amount or timing, the settlement of which on maturity is expected to result in an outflow from the Company of resources embodying economic benefits. Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the control of the Company. They include present obligations when it is not probable that an outflow of resources embodying economic benefits will be required to settle them or when their amount cannot be quantified in a sufficiently reliable manner. The financial statements include all the material provisions with respect to which it is considered that it is more likely than not that the obligation will have to be settled. Contingent liabilities are not recognised in the financial statements, but rather are disclosed in the notes lo the financial statements. Provisions, which are quantified on the basis of the best information available on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each year, are used to cater for the specific obligations for which they were originally recognised. Provisions are fully or partially reversed when such obligations cease to exist or are reduced. m) Equity instruments An equity instrument is a contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. 14