DISCLOSURES UNDER ART. 335 OF ORDINANCE No 8 ON THE CAPITAL ADEQUACY OF CREDIT INSTITUTIONS (Individual) As of 31 December 2013

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1 DISCLOSURES UNDER ART. 335 OF ORDINANCE No 8 ON THE CAPITAL ADEQUACY OF CREDIT INSTITUTIONS () As of 31 December 2013

2 CONTENTS: І. Scope and Methods of Consolidation Corporate Bank Details Consolidation Base... 4 ІІ. Risk Management Policies and Rules...4 ІІІ. Structure and Elements of the Capital Base...6 ІV. Capital Requirements Internal Analysis of Capital Credit Risk Capital Requirements according to Exposure Classes...7 V. Exposure to Counterparty Credit Risk...8 VІ. Exposure to Credit Risk and Dilution Risk...8 VІІ. Information on the Nominated ECAIs and ECAs in Applying the Standardised Approach for Credit Risk...11 VІІІ. Internal models for market risk...12 ІХ. Capital Requirements for Foreign Exchange and Position Risk...12 Х. Exposure to Operational Risk...12 ХІ Equity Instruments in the Banking Book...13 ХІІ. Interest Rate Risk in the Banking Book...13 ХІІІ. Securitisation...14 ХІV. Credit Risk Mitigation Techniques...14 ХV. Remuneration Policy and Practice

3 I. SCOPE AND METHODS OF CONSOLIDATION 1. Corporate Bank Details Société Générale Expressbank AD (the Bank) is a joint stock company, established in Bulgaria in June 1993 as result of the merger of twelve commercial banks and is registered in the Register of Commercial Companies kept by Varna District Court with Decision No 4024 of 26 June Since November , a major shareholder in the Bank is Société Générale Paris, holding % of the capital, which is the ultimate parent company of the bank. In accordance with the full license issued by the Bulgarian National bank, Société Générale Expressbank AD operates as a universal bank and offers a full range of banking services and products on the banking market. In 2005 the name of the Bank was changed from SG Expressbank AD to Société Générale Expressbank AD. The bank s headquarters and registered office is located in 92 Vladislav Varnenchik Blvd, Varna. The Bank operates in Bulgaria through Headquarters, 4 regional groups and 149 offices as the total staff by December is 1,542 employees. In 2005 the Bank has established a subsidiary called Sogelease Bulgaria EOOD, which is 100% owned by it. Sogelease Bulgaria EOOD is a company specialized in the field of financial and operational leasing, offering its services to all sectors of economy and industry, except, for the time being, of the real estate sector. The bank presents its investment in the subsidiary in its individual report at prime cost totaling to BGN 4,100 thousand. In 2008, the Bank has decreased in participation in the capital of the insurance company Sogelife Bulgaria AD from 49 % to %. The company s subject of activity is the following insurances: Life and Annuity insurance, Life insurance, connected to investment fund, additional insurance and Accident insurance. By 31 December 2013 the Bank investment totals to BGN 3,462 thousand after depreciation. In 2008 the Bank has established the subsidiary Société Générale Factoring EOOD, which is 100% owned by it. The company s subject of activity is client obligation factoring. The bank presents its investment in the subsidiary in its individual report at prime cost totaling to BGN 1,100 thousand. In 2011 the Bank has established the subsidiary Regional Urban Development Funds AD, which is 52 % owned by it. The company s subject of activity is repayable funding of urban projects, included in integrated plans for sustainable urban development, public-private partnership. The bank presents its investment in the subsidiary in its individual report at prime cost totaling to BGN 130 thousand. The Bank s structure of management is two-tier Management and Supervisory Board. Five of the members of the Management Board are Executive Directors of the Bank. FitchRatings, a global rating agency, confirm the long-term credit rating 'ВВВ+' (IDR) with a stable outlook on Societe Generale s Bulgarian branch Société Générale Expressbank AD. Currently, it is the highest rating that can ever be assigned to Bulgarian financial institution by Fitch.

4 2. Consolidation Base The individual financial report is prepared, in every aspect, in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and the interpretations for its application, issued by the IFRS Interpretations Committee (IFRSIC) as adopted by the European Union (EU) and applicable in the Republic of Bulgaria. In its balance sheet the Bank presents its assets and liabilities according to degree of liquidity. Financial assets and liabilities are offset and the net amount is presented in the Balance Sheet only when there is an intention for settlement on net basis or simultaneous realization of assets and settlement of liabilities. Revenues and expenses are not offset on the Income Statement, except it is permitted or allowed by the appropriate accounting standard or interpretation, as specifically set forth in the Bank s accounting policy. In addition, the Bank prepares and presents a consolidated financial report for the Group, its subsidiaries Sogelease Bulgaria EOOD, Société Générale Factoring EOOD and the Regional Urban Development Fund AD. The subsidiaries are consolidated under the method of full consolidation. Since the Bank has a significant influence on Sogelife, it includes the subsidiary in the preparation of the consolidated financial report as an associated company, where the Bank evaluates its participation in the associated company according to the equity method. II.RISK MANAGEMENT POLICIES AND RULES The bank s risk management policy has been created to identify, measure and analyze the inherent risk of its activities and to fix the appropriate risk limits and to observe they to be complied with. Société Générale Expressbank AD has fully or partially identified and managed the following risks: Credit risk Credit risk, defined as the risk that a borrower will be unable to pay the total loan amount and interest due when due, is managed by the Bank s Risk Management department. In the process of lending, the Bank follows the internal rules for lending activity management which regulates the Bank s requirement for lending, the related processes and authorities. The functioning credit committee reviews once a month the borrowers financial position, the situation of the loan repayment, the situation of the collateral, and takes decisions on the degree of risk and the amount of impairment. A similar monitoring approach is applied to the Bank s contingent commitments as well. The risk concentration by economic sectors and by borrowers is analyzed on a monthly basis. In 2013 internal rules for lending activities management have continued to be strictly applied and in 2005 they have been updated in accordance to the amendments in the Grouping legislation and in relation to the requirements of the Grouping Supervision Department at BNB. In 2010 is adopted new software for assessment and classification of the risk exposures and forming of allowances for impairment loss which was further developed in 2013 with the opportunity to classify and form allowance for impairment of exposures that have been classified as sensitive and the contingent liabilities of the Bank (Bank guarantees and letter of credits). 4

5 Operational Risk Besides credit risk resulting from the bank s traditional activity, in our daily operation we are exposed to some other types of risk, grouped under the general term Operational Risks. These operational risks may result in loss or potential loss to Société Générale Expressbank and should therefore be identified and reported in time. Identifying, monitoring and analysis of internal events related to operational risk, are essential to proper management of the Bank and Société Générale Group exposure to operational risk. Collecting complete and reliable information allows tracing the costs of these operational risks related to internal and external events. Reasons for losses have been analyzed to identify the corrective measures necessary. The bank has created a specialized internal committee Operational Risk and Permanent Control Committee. Market Risk The Bank manages its market risk by analyzing the change in foreign exchange rates and interest levels, discrepancy between maturity structure of assets and liabilities and by analyzing profitability indicators. Current limits of open currency positions are fixed and their compliance is monitored on a centralized level. SGEB manages its foreign currency positions by selling short-term currency deposits in banks and concluding currency swaps with Société Générale, Paris and foreign exchange spot transactions with Bulgarian National Bank. The Bank analyses the fluctuations in the value of financial instruments resulting from changes in market prices. The Bank maintains small open currency positions and a trading book with fixed income to serve its corporate and institutional clients. These exposures have been disclosed and monitored at centralized level. Liquidity Risk Société Générale Expressbank AD manages its liquidity risk according to the requirements of local legislation. Liquidity control is carried out through asset management (providing liquid assets to meet current needs of resources) and liability management (attracting resources to the money market with the purpose of offsetting the shortage of cash inflows). The Bank generates stable strategies, policies, processes and systems for identifying, reporting, management and monitoring of liquidity risk over appropriate time periods, including daily, to ensure the observance of adequate liquidity levels. These strategies, policies, processes and systems are adapted to business lines, currencies and structures and include adequate liquidity management mechanisms. The Bank manages liquidity risk to be consistent with the maturity structure of assets and liabilities by an Asset and Liability Management Committee. In order to effectively manage liquidity, the Bank s management constantly takes measures for the proper distribution of liquid assets and current liabilities and exercises daily control on liquidity at various levels. 5

6 III. STRUCTURE AND ELEMENTS OF THE CAPITAL BASE SOCIETE GENERALE EXPRESSBANK AD As per the provisions of Ordinance No 8 on the Capital Adequacy of Credit Institutions, the equity of Société Générale Expressbank AD on an individual basis is formed from the sum of Tier-one capital under Article 3 (initial capital) and Tier-two capital under Article 4 (supplementary capital), less the amounts in Article 6 of the same Ordinance. The main objective of the Bank s capital management is to guarantee that it maintains a stable credit rating and adequate capital ratios to maintain its business and to maximize shareholder value. The Bank manages its capital structure and adjusts it according to the changes in the economic conditions. Minimum amount, elements and structure of own funds of credit institutions and the minimum capital requirements for risks taken by them are determined under Ordinance No 8 of BNB. The Bank fulfils the supervisory requirements and recommendations of BNB, according to which tierone capital adequacy ratio and the overall capital adequacy ratio should be not less than 10% and not less than 12%, accordingly. In 2013, the Bank has complied with the capital adequacy requirements, set by БНБ. In 2013 there have been no changes in objectives, policy and processes Initial Capital: Own equity 33,674 Premium reserve 45,070 Reserve Fund 360,595 Reduction: Valuation differences in AFS equities (211) Book value of intangible assets (10,922) Total Initial Capital: 428,206 Supplementary Capital: Revaluation reserves for the real estate 34,444 Subordinated term debt 17,602 Total Supplementary Capital: 52,046 Total Initial and Supplementary Capital: 480,252 Reduction: Book value of investments in shares of participating interests amounting to more than 10% of the paidin capital of the bank or other financial institution (8,792) Specific provisions for credit risk when using Standardized Approach (22,596) Capital Base : 448,864 Minimum required paid-in capital: 10,000 Tier-one capital adequacy ratio: 12.82% Overall capital adequacy ratio: 13.95% 6

7 To restrict negative effects of the crisis and to maintain bank stability, in 2012 BNB introduced a compulsory measure, observed strictly by the Bank in also during 2013, namely maintenance of initial capital adequacy of minimum 10%. IV. CAPITAL REQUIREMENTS 1. Internal Analysis of Capital The Bank performs a regular internal analysis of the amount, type and distribution of necessary capital that is sufficient to cover all risks to which the Bank is or may be exposed by using reliable and efficient strategies. The responsible authority is the Asset and Liability Committee. Each year, the Bank s management approves a plan to increase capital. Predicting required capital is calculated on the basis on pre-prepared business plan, taking into account all risk to which the Bank is exposed locally. The main sources to increase capital are as follows: capitalization of profit; subordinated term debts; increase of shareholder capital. 2. Credit Risk Capital Requirements according to Exposure Classes Incompliance with article 23 of Ordinance No 8 on the Capital Adequacy of Credit Institutions, in 2013 as well the Bank used the Standardized Approach to calculate capital requirements for credit and market risk, and to calculate the capital requirements for operational risk it has used the Basic Indicator Approach. Capital requirements by 31 December 2013 by exposure classes and types of risk after implementation of the requirements of Ordinance No 8 of BNB are as follows: 7

8 Thousand BGN CAPITAL REQUIREMENTS OVERALL CAPITAL REQUIREMENTS FOR CREDIT RISK Central governments and central banks Regional governments or local authorities 421 Institutions Corporates Retail exposures Exposures, secures on real estate property Past due items Other items OVERALL CAPITAL REQUIREMENTS FOR POSITION, FOREIGN EXCHANGE RISK AND COMMODITY RISK OVERALL CAPITAL REQUIREMENTS FOR OPERATIONAL RISK Other specific capital requirement/increase in capital requirements after the multiplication under art 7/ Incl., other specific capital requirement for credit risk Other specific capital requirement for market risk 819 Other specific capital requirement for operational risk Overall capital adequacy ratio (%) 13.95% Tier-one capital adequacy ratio (%) 12.82% V. EXPOSURE TO COUNTERPARTY CREDIT RISK The Bank allocates capital for counterparty credit risk, resulting from the derivative transactions using the Marking to Market Method. The requirement under article 238 of Ordinance No 8 for calculating the exposure value by adding up the current replacement cost and the potential future credit exposure have been observed, using the corresponding percentages set out in Table 1 of Annex No 7 Counterparty Credit Risk of Ordinance No 8. In calculating of counterparty credit risk, exposures to banks and corporate are taken into account. VI. EXPOSURE TO CREDIT RISK AND DILUTION RISK The Bank assesses and classifies its risk exposures when there is objective evidence of impairment, (when it is likely the Group not to be able to collect or there is no longer reasonable assurance that it can collect all amounts due according to the contractual terms of the credit agreement). Provision for impairment losses and uncollectability The main criteria in determining impairment losses on loans is the delay in due payments on principals and interests and deterioration of the borrower s financial state. The Bank classifies its exposures in ten main groups depending on the degree of existing risk and if there is objective evidence of necessity of impairment, such is recorded. The impairment losses are calculated as the difference between the carrying amount and the recoverable amount of the exposure and the amount of the eligible collateral as per the internal rules of the Bank management of accepting collaterals. 8

9 The Bank determines impairment separately for individually significant exposures and on a portfolio basis. The Bank assesses individually each borrower s exposure while in assessing the impairment an analysis is made of the solvency of the borrower, his ability to improve his financial position in case of financial crisis and the ability to ensure other financial support to cover his financial liabilities. In discounting the Bank applies the average effective interest rate on the respective credit product. Impairment is calculated at the end of each reporting period. The Bank identifies as sensitive corporate clients whose financial status requires special monitoring because of the possibility of quality deterioration of the credit exposure performance. Those clients have been considered as well performing and the impairment losses for them have been calculated and recorded on a portfolio basis. Impairment on an aggregated basis is done for loans which are not individually significant (loan portfolio of individuals and small and medium-sized enterprises). The Bank allocates the loans in classification groups depending on the period they have been overdue. The estimated cash flows are determined on a historical basis in accordance with the return achieved in prior reporting periods. In discounting the Bank applies the average effective interest rate on the respective credit product. Impairment is calculated at the end of each reporting period, and the estimated impairment is approved at a group level. The total amount of exposures after provisions and adjustments of the value before taking into account the effect of credit risk mitigation and adjusting the off-balance sheet position by the conversion factors of 31 December 2013 is as follows: Thousand BGN EXPOSURE CLASS On-balance sheet position Off-balance sheet position Central governments and central banks Regional governments or local authorities Institutions Corporates Retail exposures Exposures, secures on real estate property Past due items Other items TOTAL:

10 Distribution of exposures according to sectors, broken down by exposure classes, before and after impairment as of are as follows: 2013 Industry 864,388 Construction 78,439 Agriculture and forestry 65,303 Transport and communications 51,097 Trade and services 543,585 Other 389,930 Corporate clients - total 1, 992,742 Impairment collective basis (27,304) Impairment individual basis (75,012) Corporate client net amount 1,890,426 Consumer loans 710,768 Housing loans 256,074 s and households total 966,842 Impairment collective basis consumer loans (63,154) Impairment collective basis housing loans (2,310) s and households net amount 901,378 Credits granted to clients net amount 2,791,804 The concentration of the credit portfolio, calculated as the ratio of the ten largest exposures of clients to the gross amount of loans, granted to clients by is 17,61 %. 10

11 Tables below present the amount of impaired and past due exposures, shown separately according to sectors and value of provisions. Impaired Sector Value before provisions IAS Provisions Specific provisions Industry Construction Agriculture and forestry Transport and communications Trade and services Other Total: Past due, but not impaired Sector Value before provisions IAS Provisions Specific provisions Industry Construction Agriculture and forestry Transport and communications Trade and services Other Total: VII. INFORMATION ON THE NOMINATED ECAIS AND ECAS IN APPLYING THE STANDARDISED APPROACH FOR CREDIT RISK In compliance with article 49 of Ordinance No 8 of BNB to establish the risk weights of its exposure under the Standardized Approach for credit risk, the Bank uses the credit ratings of the rating agencies Standard&Poor s, Moody s and Fitch. When counterparty has credit ratings from more than one recognized agency, the less favourable credit rating is considered. Exposure classes, for which external agencies ratings are used are: Exposures to central governments and central banks; Exposures to institutions; Exposures to corporates. Awarded credit ratings are equalized to the approved by BNB credit quality degrees by determining risk weights of the exposures. 11

12 VIII. INTERNAL MODELS FOR MARKET RISK Société Générale Expressbank AD does not apply internal models for market risk. ІХ. CAPITAL REQUIREMENTS FOR FOREIGN EXCHANGE AND POSITION RISK Foreign exchange risk is the risk where the value of financial instruments is affected by changes in exchange rates of foreign exchange. As a result of the currency board in effect in Bulgaria, the Bulgarian lev is fixed to the Euro at BGN to 1 EUR, so these currency positions do not cause foreign exchange risk. Since the currency in which the Bank submits its financial reports is the Bulgarian lev, financial reports are affected by the movements of exchange rates between currencies outside the Euro Area and the Bulgarian lev. These changes are monitored and analyzed daily by the Bank s experts using various hedging techniques to maintain the risk within normal limits. The table below shows the sensitivity of the pre-tax profit and the equity for the significant positions according to types of foreign currencies of the Bank by 31 December The study of sensitivity of significant positions in foreign currencies has no impact on the equity, since the Bank reports the currency revaluation in the Income Statement. Change in Exchange Rate in % 2012 Effect on pretax profit 2012 г. Effect on equity 2012 г. US$ +9% % (80) - British pounds +8% (1) - -4% 1 - As of 31 December 2013, the Bank reported no capital requirements for the foreign exchange risk. Position risk is the risk of a change in the prices of debt and equity instruments in the trading book. The Bank reviews general position risk that is the risk of a price change in a financial instrument due to a change in the level of interest rates in case of traded debt instrument or derivative. Derivative financial instruments include forwards, swaps, options, etc. and are initially recognized the moment the Bank becomes a party to contracts at acquisition cost (including acquisition expenses) and are subsequently revaluated to fair value. The fair value is determined based on quoted market prices or, in their absence, it is calculated by other techniques for reliable determination of the fair value. When calculating the market risk, the bank uses the Maturity-Based Approach for General Risk as per article 278 of Ordinance No 8. X. EXPOSURE TO OPERATIONAL RISK As of Société Générale Expressbank AD uses the Basic Indicator Approach in the calculation of the capital requirements for operational risk by multiplying the bank s average annual gross income by a coefficient of The average gross annual income is the sum of the net interest income and net non-interest income averaged over the last three calendar years on the basis of the audited financial reports for the respective years. 12

13 The annual gross income is calculated before offsetting the provisions for covering impairment losses and after exclusion of: Income from sale of financial assets available for sale; Other operating income. XІ. EQUITY INSTRUMENTS IN THE BANKING BOOK These assets may be sold in response to changes in market risks or liquidity requirements and include shares and participations in local and foreign trade companies, shares in other financial institution and government securities. Subsequent evaluation is according to fair value, unless their fair value cannot be reliably evaluated. The bank impairs its capital investment classified as financial assets available for sale in the presence of significant or prolonged decline in their fair value below their on-balance sheet value or when there is objective evidence of impairment. Determination whether the decline is significant or prolonged requires evaluation of all relevant factors such as sensitivity of the price of capital investment, etc. Unrealized profit and losses arising from change in the fair value of these financial assets are reported in the own funds. As of 31 December 2013, the on-balance sheet amount of capital instruments is BGN 639 thousand. The total amount of the investments in assets is reported with 100% risk in Other Items exposure class. XIІ. INTEREST RATE RISK IN THE BANKING BOOK The matching or the controlled mismatching of interest rates of assets and liabilities is of key importance in managing the Bank s profitability. To reflect the the exposure of the Bank to interest rate risk, imbalance of all interest rate exposures, including derivatives are monitored. Interest rate exposures are grouped into four different time intervals according to the most recent date that is either the date of the next change of the interest under a contract or the date of scheduled principal payment. The next date of change of interest is the date when the interest rate on floating rate instrument can be changed as per the conditions of the contract or the contractual maturity date depending on which comes first. Residual maturity is the period from the reporting date to the final contractual maturity of the instrument. To avoid negative effects of changes in interest rates, interest rates levels on borrowing and loans, when this is required by a change in the market conditions, is discussed on a meeting of the Assets and Liabilities Committee. All loans of the Bank bear floating interest rates equal to the floating basic interest rate plus fixed points provided for in the respective contract. The basic interest rate is set by the Bank s management in response to the changes in the market conditions prevailing in the country. The table below indicates the sensitivity of the net interest rate income and the equity as of 31 December 2013 in reasonable potential change in interest rate levels, while all other indicators in the income report remain the same: 13

14 Increase in basis point Sensitivity of net interest income in thousand BGN from 0 to 6 m Sensitivity of equity from 6 m to 1 y from 1 y to 5 y over 5 y Total BGN ,344 (89) (333) (105) - (527) +100 EUR 10, (89) - (89) +100 US$ (518) - (518) +100 Other Increase in basis point Sensitivity of net interest income in thousand BGN. from 0 to 6 m Sensitivity of equity from 6 m to 1 y from 1 y to 5 y over 5 y Total BGN -100 (4,344) EUR -100 (10,635) US$ -100 (448) Other -100 (112) The Sensitivity in the income report has been calculated on the basis of the net currency effect (results) from the revaluation of the net currency position in the event of increase/decrease in the exchange rates of main currencies. The effect of change in the exchange rates is on the assumption that all other parameters remain unchanged. The analysis of equity sensitivity reflects the change in fair values of financial assets available for sale under the the above stated conditions. XIІI. SECURITISATION The Bank does not apply securitisation. ХІV. CREDIT RISK MITIGATION TECHNIQUES The Bank requires borrowers to provide collateral that is acceptable in terms of type, value and liquidity and corresponds to the risk profile of the client and the type of credit transaction. Collaterals are factors to decrease credit risk and to reduce the required regulatory capital. The contracts for the provision of credit transactions are concluded in the statutory form for validation of collaterals, and when such is not provided in simple writing form. The bank has adopted rules to assess the type of collateral and its liquidity. The bank accepts the following main types of collateral: 14

15 Mortgage on real property; Pledge of movables and receivables (the pledge can be real or specific); receivables; stocks, shares and other assets; surety and guarantees (corporate, bank and government); other collaterals as defined by law. The bank defines standard criteria for eligibility of the collateral. As per these criteria, collaterals are subject to control during the approval of loans, it is observed for their legal force and are subject to periodical review and revaluation. Complying with rules such as provision of all necessary documents, identifying the collateral; the amount of the collateral to be enough to cover the debt of the debtor during the whole term of the loan and last but not least it allows for rapid realization, the collateral to be clearly defined, correctly established and accounted this has a direct impact on reducing the bank s credit risk, measuring of the concentration in case of guarantors risk. The collaterals that are used to reduce credit risk in determining risk-weighted exposures for calculating capital requirements are: financial collaterals restricted cash and pledged securities in compliance with the requirements of the ordinance; real property when it is occupied or will be leased to the owner and when there is low correlation between the fair value of the property and the borrower s creditworthiness and guarantees that comply with the requirements of Chapter Six Credit Risk Mitigation. Highly liquid collaterals according to the internal regulations on the Group s credit operation management are bank guarantees received from foreign banks and deposits. In collateral in the form of recognized guarantee, the portion of the exposure that fully covers it is weighted with the risk weight of the protection provider. The total amount of exposures after provisions and adjustments to its value after taking into account the effect of credit risk mitigation and adjustment of the off-balance sheet position by conversion factors as of 31 December 2013 is as follows: EXPOSURE CLASS On-balance sheet position Thousand BGN Off-balance sheet position Central governments and central banks Regional governments or local authorities Institutions Corporates Retail exposures Exposures, secures on real estate property Past due items Other items TOTAL:

16 XV. REMUNERATION POLICY AND PRACTICE The Remuneration Policy of Societe Generale Expressbank AD is designed in compliance with the mandatory requirements and in line with the best practices in this area. The Remunerations Policy and its amendments are subject to periodic reviews of the senior management, Management Board and the Supervisory Board. The Remunerations Committee of SGEB is a body, supporting the performance of the functions of the Supervisory Board, related to assessment and independent review of the Remunerations Policy of the Bank in accordance with the regulatory requirements, European Commission recommendations and international good practices in the field of good corporate governance and remuneration policy in the financial sector. The members of the committee are the Supervisory board members and others with relevant experience and functionally independent as per the organizational structure at Societe Generale Expressbank AD and capabilities for independent assessment on the remuneration policy, including its impact on the risk management. The Remuneration Policy is designed on the following levels: remuneration of staff members - a justifiable and motivating return for the responsibilities and performance; remuneration of the staff members, the positions of which could have impact on the risk profile of the bank and its subsidiaries risk takers; remuneration of the members of the Management Board and other representatives of the bank and its subsidiaries decision makers. The Remuneration Policy is designed on the grounds of the following high level principles: the business strategy of Societe Generale Expressbank Group, its risk tolerance, objectives, values and long-term interests; the transparancy within the company and adequacy is case of external disclosure; the combination of individual contribution and collective company s performance; the non-discrimination while structuring the remuneration packages no discrimination shall be applied with regards to sex, age, race, religion etc. The remunerations shall be either fixed or variable. The monthly salary represents the fixed part of the remuneration and is determined for each employee individually based on: responsibilities inherent in the function assigned to an employee; complexity of work and qualification in compliance with the knowledge and skills of the employee required the position; remuneration benchmark in the field; individual efficiency - the ability of the employee to perform his functions in a more expedient and targeted way; to actively support the constant improvement of the performance. The monthly salary consists of the following elements: the basic salary the remuneration for the performance of the assigned tasks and responsibilities associated to the position, in compliance with the standards for quantity and quality as well as the working hours; additional remunerations the additional remunerations such as for length of work experience; for work during the night, in the exceptional cases of work during the weekend or official holidays and other cases provided by law. Such additional remunerations are considered as having compensatory nature and not being an important motivation or performance driver. The bonus forms a variable part of the remuneration. The bonus is based on the results of the group, individual performance and behavior. Bonuses are distributed based on two factors 16

17 company performance The company performance is associated to the financial result of the company; the market shares; the reputation and level of risk. It is considered at the level of SG Group, BHFM, SGEB Group; individual performance The individual performance is related to results. Some quantitative indicators could are applied to measure individual performance. Such quantitative performance indicatorscould be achievement of annual targets for product sales; following of deadlines and schedules, typical for projects, but still available in daily functions. The monthly salary is paid in cash. The bonuses it is recommended by regulators to also include deferred components company financial instruments; funds held in trust in the system of bonusmalus etc. Bonuses related directly to financial performance, if any, shall be subject to claw back clauses if it proves that they are result of fraudulent activity or linked to avoidance of the applicable rules. A special emphasis is put on the remuneration of the employees occupying positions related to internal control functions: permanent control credit risk, financial risks, operational risks, etc., periodic control and permanent supervision. The remuneration of these position holders shall be adequate and compliant with the benchmarks of the industry, so as to allow SGEB to attract highly qualified, well experienced professionals and to guarantee their independence and loyalty. The remuneration is based on the performance and efficiency of these functions and the achievement of their control and risk management objectives. The remuneration shall be linked to the overall performance of the company, but shall not be directly dependent on the performance of the business units that such functions control. On the grounds of the requirements as per the Regulation 4 regarding the variable part of the remuneration and according to the Societe Generale Group s Remuneration Policy, certain categories of staff are identified, for which the specifics requirements related to the variable part of the remuneration to be applied. For the past year, the variable remuneration to none of the employees exceeded the threshold set by the Societe Generale Group and applied in Societe Generale Expressbank group. Summarized quantitative information regarding the remuneration of staff by activities is given in table 1. The quantitative information regarding the remuneration of the staff as per art.2, point 1, 2 and 4 from the Ordinance No. 4 of 21 December 2010 on the Requirements for Remunerations in Banks as well as art. 335, par.13 from the Ordinance No. 8 of 14 December 2006 on the Capital Adequacy of Credit Institutions regarding the personnel as per par.10 from the Law on Credit Institutions is considered as confidential, hence on the grounds of arl.335. par.7 from the Ordinance No. 8 of BNB, the information as per letter a) to f) under the particular point shall not be disclosed. Table 1 Paid remuneration 2013 Segment Paid remuneration 2013 Retail banking 57% Corporate banking 11% Risk 4% Others 28% Total 100 % 17

18 The information is available at the bank and could be further disclosed upon request by the authorized bodies. 18