NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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4 OTP banka Srbija a.d. Novi Sad NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 Consolidated legal entites: - OTP banka Srbija a.d. Novi Sad - OTP Investments d.o.o. Novi Sad Novi Sad, April 2011

5 CONTENTS: I FINANCIAL STATEMENTS Profit and Loss Statement Report on overall operations Balance Sheet Cash Flow Statement Changes in equity and reserves... 9 II NOTES TO THE FINANCIAL STATEMENTS

6 I FINANCIAL STATEMENTS 1. Profit and Loss Statement (thousands of RSD) Group of accounts, account POSITION Note No OPERATING INCOME AND EXPENSES 70 Interest income 4 2,126,116 2,688, Interest expenses 4 1,163,024 1,275,417 Profit on interest 963,092 1,413,518 Loss on interest Fee and commission income 5 725, , Fee and commission expenses 5 93,684 76,464 Profit on fees and commissions 631, ,305 Loss on fees and commissions Net profit on sale of securities at fair value through Profit and Loss Statement Net loss on sale of securities at fair value through Profit and Loss Statement Net profit on sale of securities available for sale Net loss on sale of securities available for sale Net profit on sale of securities held to maturity Net loss on sale of securities held to maturity Net profit on sale of participating interests (equity shares) Net loss on sale of participating interests (equity shares) Net profit on sale of other placements Net loss from sale of other placements 7 274, Currency exchange gains and losses, net income Currency exchange gains and losses, net expenses 8 2,448,787 1,801, Income from dividends and participating interests ,042 74,76 (except766 Other operating income 10 83, ,339 & 769) Net income on indirect write-offs of placements and provisions Net expenses on indirect write-offs of placements and provisions 11 1,934,517 2,261, Salary, benefits and other personnel expenses ,751 1,285, Amortization costs , ,162 64(except Operational and other operating expenses 14 1,189,019 1,431, ), 3

7 Group of accounts, account 66(except 669) POSITION Note No Income from change of value of assets and liabilities Expenses from change of value of assets and liabilities 15 3,771,274 2,814, ,172, ,257 PROFIT FROM REGULAR OPERATIONS - - LOSS FROM REGULAR OPERATIONS 2,756,176 3,194, NET PROFIT FROM DISCONTINUED OPERATIONS NET LOSSES FROM DISCONTINUED OPERATIONS PERIOD RESULT PROFIT BEFORE TAX - - PERIOD RESULT LOSS BEFORE TAX 2,756,176 3,194, Profit tax 17 1, Profit from created deferred tax assets and reduction of deferred tax liabilities 18 5,858 12, Loss from created deferred tax assets and creation of deferred tax liabilities - - PROFIT - - LOSS 2,751,371 3,182,998 Net profit belonging to minority shareholder - - Net profit belonging to the owners of the parent company - - Net loss of minority shareholders - - Net loss of the owners of the parent company 2,751,371 3,182,998 Earning per share (in dinars without paras) - - Basic earning per share (in dinars without paras) Reduced (diluted) earning per share (in dinars without paras) Report on overall operations POSITION Note No PERIOD RESULT LOSS BEFORE TAX 2,756,176 3,194,774 Revaluation reserves , ,030 Non-realized losses from securities available for sale 23 1,

8 2. Balance Sheet (thousands of RSD) Group of accounts, account POSITION Note no Net Net ASSETS 00,05,07 Cash and cash equivalents 19 2,117,576 2,757,465 01,06 Revocable deposits and loans 20 7,884,732 9,051,569 02,08 Receivables based on interests, fees, sale, fair value change of derivatives and other receivables , ,973 10,11,20,21 Loans granted and deposits placed 22 27,995,007 27,202, (except 128), 22 Securities (excluding treasury shares) ,042 1,379,274 13,23 Participating interests (equity shares) ,26 Other placements , , Intangible assets , ,351 34,35 Fixed assets and investment property 27 3,255,503 3,390, Fixed assets for sale and assets from discontinued operations 28 42,382 54, Deferred tax assets ,09,19, 29,30,38 Other assets , , Loss exceeding capital 0 0 part 13, 23 Participating interests (equity shares) in the equity of affiliated companies according to the equity method 28,630 28,668 TOTAL ASSETS 42,653,623 44,846,113 LIABILITIES 400,500 Transaction deposits 31 4,018,891 3,917, ,402,403,404, 405, 501,502,503, Other deposits 32 14,371,206 7,873, , ,407, 408, ,507, 508,509 Loans received ,625 8,940,791 41, 51 Liabilities on securities , 52 Liabilities on interests, fees and change of value of derivatives 34 24,188 22,644 from 450 to 454 Provisions , , ,457 Liabilities for taxes 36 5,630 5, ,455 Liabilities arising from profit , , Liabilities arising from assets held for sale and assets from discontinued operations Deferred tax liabilities 38 12,256 18,114 5

9 2. Balance Sheet (thousands of RSD) Group of accounts, POSITION Note no account 43(except 434), 44,48,49 53,58,59 Other liabilities 39 16,109,747 14,147,791 TOTAL LIABILITIES 35,870,161 35,309, minus 128 Equity 40 6,950,295 6,950, Reserves from profit 40 4,913,705 4,913, (except 823) Revaluation reserves , , Non-realized losses from securities available for sale 23 1, Profit 259, , (except 842) Loss to the amount of capital 5,990,885 3,341,382 Positive cumulative differences based on exchange rate adjustments of - - foreign operations Negative cumulative differences based on exchange rate adjustments of - - foreign operations TOTAL EQUITY 6,783,462 9,536,885 TOTAL LIABILITIES 42,653,623 44,846,113 Minority owners intrest - - OFF-BALANCE SHEET POSITIONS 19,242,298 18,096,544 90, and/or 95 Managed funds , , (except 911 & 916) and/or Future commitments 42 4,017,801 4,357, (except 961 & 966) 911,916,932, and/or 961,966,982 Warrantees received 43 87,208 68,730 92, and/or 97 Derivatives , (except 932), and/or 98(except 982) Other off-balance sheet positions 45 14,699,717 13,518,705 6

10 3. Cash Flow Statement (thousands of RSD) POSITION A. CASH FLOWS FROM OPERATING ACTIVITIES I Cash inflows from operating activities 3,584,851 4,713, Interest inflow 2,410,975 3,391, Inflow from fees and commissions 787, , Inflow from other operating income 386, , Inflow from dividends and participating interests II Cash outflows from operating activities 3,423,351 4,244, Outflow for interest 1,066,591 1,347, Outflow for fees and commissions 137,977 77, Outflow for gross salaries, benefits and other personnel expenses 937,900 1,289, Outflow for taxes, contributions and other duties charged to income 268, , Outflow for other operating expenses 1,012,312 1,254,871 III Net cash inflow from operating activities prior to increase or decrease in placements and deposits 161, ,062 IV Net cash outflow from operating activities prior to increase or decrease in placements and deposits - - V Decrease in placements and increase in deposits 2,322,583 1,355, Decrease in loans and placements to banks and clients 1,303,031 1,355, Decrease in securities at fair value through Profit and Loss Statement, trading placements and short-term securities held to maturity 1,019, Increase in deposits from banks and clients - - VI Increase in placements and decrease in deposits 3,237,704 4,396, Increase in loans and placements to banks and clients Increase in securities at fair value through Profit and Loss Statement, trading placements and short-term securities held to maturity - 1,371, Decrease in deposits from banks and clients 3,237,704 3,025,922 VII Net cash inflow from operating activities before profit tax - - VIII Net cash outflow from operating activities before profit tax 753,621 2,572, Profit tax paid 9,057 34, Dividends paid - - IX Net cash inflow from operating activities - - X Net cash outflow from operating activities 762,678 2,606,735 B. CASH FLOWS FROM INVESTMENT ACTIVITIES I Cash inflows from investment activities 18,568 20, Inflows from long-term investments into securities Income from sale of participating interests (equity shares) Inflows from sale of intangible assets and fixed assets 18,556 20, Inflows from sale of investment property Other inflows from investment activities - - II Cash outflows from investment activities 93, , Outflows from investments into securities Outflows from purchase of participating interests (equity shares) Outflows from purchase of intangible assets and fixed assets 93, , Outflows from purchase of investment property Other outflows from investment activities - - III Net cash inflow from investment activities - - IV Net cash outflow from investment activities 74, ,604 V. CASH FLOWS FROM FINANCING ACTIVITIES I Cash inflows from financing activities 142, Inflows from capital increase - -

11 POSITION Net cash inflows from subordinated liabilities Net cash inflows from loans 142, Net inflows from securities Inflows from sale of treasury shares Other inflows from financing activities - - II Cash outflows from financing activities - 40, Outflows from purchase of treasury shares Net cash outflows from subordinated liabilities Net cash outflows from loans - 40, Net outflows from securities Other outflows from financing activities - - III Net cash inflow from financing activities 142,890 - IV Net cash outflow from financing activities - 40,727 G. TOTAL NET CASH INFLOWS 6,068,892 6,088,939 D. TOTAL NET CASH OUTFLOWS 6,763,399 8,923,005 ð. NET CASH INCREASE - - E. NET CASH DECREASE 694,507 2,834,066 Ž. CASH, BEGINNING OF YEAR (Note 19) 2,757,465 5,565,440 Z. EXCHANGE GAINS 126, ,426 I. EXCHANGE LOSSES 72, ,335 J. CASH, END OF PERIOD (Note 19) 2,117,576 2,757,465 8

12 4. Changes in equity and reserves (thousands of RSD) Share capital Other capital Subscribed, unpaid share capital Share premium Reserves from profit and other reserves Revaluation reserves Profit Loss to the amount of capital Treasury shares Non-realized losses on securities available for sale Total Loss exceeding capital Balance as of January 1 of the preceding year 6,600, ,734 3,570, ,262 1,656, ,831,533 0 Adjustments of material errors and change of accounting policies in the preceding year increase Adjustments of material errors and change of accounting policies in the preceding year decrease Adjusted opening balance as of January 1 of 6,600, ,734 3,570, ,262 1,656, ,831,533 0 the preceding year Total increase in the preceding year ,091,081 3,941 47,076 3,182, ,368-1,044,268 0 Total decrease in the preceding year ,676 5,173 1,342, ,644 2,091,996 0 Balance as of December 31 of the preceding year Adjustments of material errors and change of accounting policies in the current year - increases Adjustments of material errors and change of accounting policies in the current year decreases 6,600, ,734 4,913, , ,936 3,182, ,695, , , Adjusted opening balance as of January 1 6,600, ,734 4,913, , ,936 3,341, ,536,885 0 of the current year Total increase in the current year , ,004 2,751, ,218-2,507,065 0 Total decrease in the current year , , , , ,358 0 Balance as of December 31 of the current year 6,600, ,734 4,913, , ,072 5,990, ,863 6,783,462 0

13 II NOTES TO THE FINANCIAL STATEMENTS 1. FOUNDING AND BUSINESS OPERATIONS OF THE BANK Consolidated financial statements are comprised of stand-alone statements of OTP banka Srbija a.d. Novi Sad and statements of the subsidiary company OTP Investments d.o.o. Novi Sad. OTP banka Srbija a.d. Novi Sad, as the parent company of the subsidiary OTP Investments d.o.o. Novi Sad prepares the consolidated financial statements. OTP banka Srbija a.d. Novi Sad (hereinafter referred to as: the Bank) is the legal successor of Kulska banka a.d. Novi Sad. Kulska banka a.d. Novi Sad was registered as a joint-stock company at the Commercial Court in Sombor by the Decision No. Fi 488/95 as of May 5, Based on the Agreement on Merger and consent by the Boards of Directors, the merger of Zepter banka a.d. Belgrade and Niška banka a.d. Niš to Kulska banka a.d. Novi Sad was carried out on January 1, Based on the Decision of the Business Registers Agency No. BD 32735/2007 as of May 18, 2007, the name Kulska banka a.d. Novi Sad was changed into OTP banka Srbija a.d. Novi Sad. The Bank is registered in the Republic of Serbia to perform payment operations as well as credit and deposit operations in the country and abroad and pursuant the Law on Banks it is obligated to operate based on principles of liquidity, security and profitability. On December 31, 2010, the Bank was comprised of the Head Office in Novi Sad, 80, Bulevar Osloboñenja, 10 Flagship Branches, 34 Universal Branches and 7 Basic Branches. On December 31, 2010, the Bank had 706 employees, while on December 31, 2009 the number of employees was 781. Tax identification number of the Bank is OTP Investments d.o.o. is the legal successor of the company KB-NS Investments d.o.o. KB- NS Investments d.o.o. was founded by the Memorandum of Association on 19 January 2006 as the limited liabilities company. The company is registered with the Business Registers Agency in Novi Sad with the Decision no. BD /2006. The primary activity of the company is factoring and consulting. The share of the Bank in this company is 100%. On December 31, 2010, the company had no employees (in 2009, the company had 1 employee). Tax identification number of the company OTP Investments is BASES FOR PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS The Bank s consolidated financial statements as of December 31, 2010 have been prepared in compliance with the current regulations in the Republic of Serbia based on the Law on Accounting and Audit ( Official Gazette of the Republic of Serbia, No. 46/2006), Law on Banks ( Official Gazette of the Republic of Serbia, No. 107/2005) and the accompanying regulations of the National Bank of Serbia issued based on the abovementioned laws.

14 The consolidated financial statements for 2010 are are presented in the format stipulated by the Rules on Content and Form of Forms of Financial Statements for Banks and Other Financial Organizations" ( Official Gazette of the Republic of Serbia Nos. 74/2008, 3/2009, 2/2010 and 102/2010). Law on Accounting and Audit and Law on Banks stipulate keeping of business books, recognition and assessment of assets and liabilities, income and expenses, preparation, presentation, submission and disclosure of financial statements in accordance with the legal and professional regulations, comprising of the Framework for Preparation and Presentation of Financial Statements, International Accounting Standards (IAS), and/or International Financial Reporting Standards (IFRS), as well as the interpretations that are the integral part of the Standards. Taking into consideration the differences between IAS 1 requirements and particular requirements of accounting regulations of the Republic of Serbia and National Bank of Serbia, the Management of the Bank is reserved in relation to reconciliation of the form of financial statements with the requirements of this standard. At the same time, the Management of the Bank states that it has covered and implemented all relevant International Accounting Standards with adopted and implemented accounting policy and thus provided true and objective disclosure of its financial positions. In the course of preparation of the financial statements, the Bank applied the accounting policies, explained in the Note 3, based on accounting, banking and tax regulations of the Republic of Serbia and harmonized with the International Accounting Standards. The Bank keeps business books and prepares the financial reports in Dinars (RSD) i.e. in functional currency which is the domicile currency of the Republic of Serbia. The financial statements of the Bank are declared in thousands of dinars. 3. OVERVIEW OF THE BASIC ACCOUNTING POLICIES 3.1. Interest Income and Expenses Interest income and interest expenses are recognized in the Profit and Loss Statement for all interest-bearing instruments, based on calculated interests by implementation of the effective yield method. Interest income and expenses are recorded in the Profit and Loss Statement for the period they refer to, according to the principle of causality of income and expenses and conditions from contractual relations defined by the contract between the Bank and the client. Fees based on approved loans are recognized in the Profit and Loss Statement as interest income i.e. as correction of the effective yield from loans proportionally to the time elapsed for loan utilization. The Bank adjusts the interest that has been previously recognized as placement income classified, according to the Instruction for Reduction of Placement Value, Recognition of Interest Income and Production of Cash Reserves for Possible Obligations i.e. Off-Balance Sheet Items which are the integral part of the Accounting Policies of the Bank, into risk category A, whereas the interests related to placements in risk categories B and C, the Bank discloses as suspended interest. 11

15 3.2. Fees and Commissions Income and Expenses Fees and commissions income and expenses accrued by providing and/or using of banking services (payment operations, issuance of guarantees and other warranties, letters of credit, currency exchange transactions and other banking services) based on the principle of invoiced realization at the moment when the service is being provided. Income from fees and commissions on guarantees, warranties and letters of credit is deferred and recognized as income proportionally to the elapsed time for which those guarantees, warranties and letters of credit have been approved. The Bank recognizes income from fees which are the part of the effective interest rate as interest income Foreign Currency Translation Assets and liabilities declared in foreign currency on the balance sheet date are translated into dinars according to the middle exchange rate of the National Bank of Serbia, effective on that date. Gains and losses created based on translation of receivables, liabilities and equity are recorded in favor of or they are charged to the Profit and Loss Statement. The transactions in foreign currency are translated into dinars according to the exchange rate, effective on the transaction day. Net currency exchange gains and losses created during business transactions in foreign currency and during translation of balance sheet positions in foreign currency are recorded in favor of or they are charged to the Profit and Loss Statement as gains and losses based on currency differences. Commitments and contingences in foreign currency are translated into dinars according to the official middle exchange rate of the National Bank of Serbia on the balance sheet date. The exchange rates of the most important currencies used during the translation of the Balance Sheet positions: currency Official middle exchange rate as of December 31, 2010 Official middle exchange rate as of December 31, 2009 USD CHF EUR Income from Sale of Securities Securities for trading are initially recognized at purchase price, and subsequently are valued at market value. Determining the market value is based on public, quoted price at the active market or the price at the authorized dealer, price models (using assumptions based on market and economic conditions) or the Management's assessment, if applicable. All realized and non-realized gains and losses arising from change of the market value are recognized in the Profit and Loss Statement as income and expenses from change of value of securities. 12

16 Securities held to maturity are declared according to the depreciated value using the effective yield method decreased for estimated impairment. Depreciated value is calculated taking into consideration all discounts and premiums during the purchase, within maturity period. Calculated interest on the balance sheet date is booked as income in the Profit and Loss Statement. Changes in the fair value are also declared in the Profit and Loss Statement as income from change in value. Securities held for sale are declared according to the market value principle. Non-realized gains and losses created during changes in the market value of investments available for sale are declared as reserves within the capital until the financial asset is sold, collected or alienated in any other way, or until it is established that the financial asset is impaired. During the sale, the corresponding amount of previously created revaluation reserves is declared in the Profit and Loss Statement as net gain or loss for the period. Dividend income, based on investments into shares of other legal entities and based on share in capital of other legal entities is included in the dividend income when the right of the Bank to receive the dividend disbursement is established Expenses of Indirect Write-Offs of Placements and Provisions Expenses of indirect write-offs of placements and provisions represent expenses based on creation of separate provisions for protection from possible losses in the balance and offbalance sheet assets of certain degree of payability and they are calculated according to the Accounting Policy of the Bank adopted in compliance with the International Accounting Standard 39, defined in the Instruction for Reduction of Placement Value, Recognition of Interest Income and Production of Cash Reserves for Possible Obligations i.e. Off-Balance Sheet Items and the Manual for Classification of Loans and Possible Obligations i.e. Off- Balance Sheet Items Cash and Cash Equivalents Cash and cash equivalents mean cash in dinars and foreign currency, assets on current accounts with the National Bank of Serbia also including the required reserve in dinars, as well as the assets on current accounts of other domestic and foreign banks in dinars and foreign currency. Cash equivalents are comprised of gold and other precious metals initially valued according to the purchase value, and subsequently according to the market value. Determining of the market value is performed based on the quoted price of precious metals on the world market. The increase of the market value is recognized as income whereas the decrease as an expense in the Profit and Loss Statement Financial Instruments Loans and placements Loans granted by the Bank are recognized in the Balance Sheet from the moment of transfer of funds to the beneficiary. They are initially recorded at the price that represents the market value of cash given as loan, including transaction costs, and subsequently they are valued according to the depreciated value applying the effective yield method. The Bank performs value adjustment for loans when collectibility is no longer certain in compliance with the Instruction for Reduction 13

17 of Placement Value, Recognition of Interest Income and Production of Cash Reserves for Possible Obligations i.e. Off-Balance Sheet Items. During 2009 and 2010, in order to protect itself from the risk, the Bank contracted the currency clause with a particular number of beneficiaries. Income generated on this basis is recorded in the Profit and Loss Statement as income from change in value of assets and liabilities (Note 15). Currency clause represents a derivative which is not recorded separately from the basic contract, since economic benefits and risks of embedded derivative are closely related to the basic contract. In its Balance Sheet, the Bank has loans indexed by retail price growth rate (officially published) approved and contracted in previous periods. Income created on this basis is recorded as income from change in value of assets and liabilities (Note 15). Contracted indexing of receivables by using the retail price growth rate represents the embedded (concealed) derivatives closely related to the basic contract but recorded separately from the basic contract Provisions for potential losses Provisions for potential losses in the balance and off-balance sheet assets are executed according to: - Accounting Policies of the Bank adopted in compliance with the International Accounting Standard 39. These provisions are recorded in the Balance Sheet as value adjustments of receivables for balance sheet positions and as provisions for off-balance sheet items in the Balance Sheet and as expense in the Profit and Loss Statement. - Decision of the National Bank of Serbia on Classification of Balance Sheet Assets and Off-Balance Sheet Items of the Bank ( Official Gazette of the Republic of Serbia", Nos. 129/2007, 63/2008 and 104/2009), according to which the amount of provisions for estimated losses is established as the difference between provisions created on the basis of the Accounting Policy of the Bank and the required amount of provisions established in compliance with the above Decision of the National Bank of Serbia, covered from the retained earnings after taxation, by creating a special reserve for estimated losses, decided upon by the Shareholders' Assembly of the Bank Securities acquired in repo transactions with the National Bank of Serbia Securities which the Bank purchased from the National Bank of Serbia, with contracted obligation to resell, based on the Framework Agreement on Sale of Securities with the Obligation of Purchase of those Securities on the balance sheet day are declared according to the depreciated value. On the balance sheet date, the Bank did not have any securities acquired in repo transactions with the National Bank of Serbia Securities held for trading Securities held for trading include all the securities of the Bank kept for selling, for purpose of realization of profit from short-term Stock Exchange price fluctuations. On the balance sheet date, December 31, 2010, the Bank did not have any securities held for trading in its portfolio. 14

18 Securities held to maturity Assets held to maturity are financial assets with fixed or definable yield and fixed maturity date which the Bank intends to keep until the maturity date. This category is comprised of discount bonds, commercial notes and treasury bills Equity investments Equity investments represent long-term financial investments in capital of other legal entities which are not acquired with the intention of sale in near future. In the category Equity investments, the Bank has classified the following securities: - Equity investments in a subsidiary - Equity investments in an affiliate company All shares are initially recorded according to the nominal value. Equity investments in a subsidiary Investments in a subsidiary are recorded in the Bank s financial statements by the historical cost method. The Bank recognizes the income from investment only if the subsidiary has conducted distribution of results, i.e. if the Bank accepted dividends from the subsidiary. This income is recorded in the Profit and Loss Statement. Any distribution executed by the subsidiary exceeding the amount of the stated profit is recorded as decrease of investment in the subsidiary and not as income in the Profit and Loss Statement, since such distributions are considered to be recovery of investment. On December 31, 2010, the Bank holds 100% share in the business company OTP Investments d.o.o. Novi Sad which is a financial sector entity. The Bank also prepares consolidated financial statements with OTP Investments d.o.o. Novi Sad applying the full consolidation method in compliance with IAS 27. Equity investments in an affiliate company Affiliates are the companies where the Bank has a significant influence, i.e.: 1. in case of direct or indirect equity investment in a legal entity in the amount of 20% or more; 2. in case the Bank is represented in the Board of Directors; 3. in case the Bank participates in policy creation of the given legal entity; 4. in case there are significant activities between the Bank and the legal entity in which the Bank participates, exchange of qualified personnel and providing of vital technical data. In the financial statements of the Bank, investments in affiliates are recorded by participation method i.e. investments in affiliates are initially recorded based on purchase value. The amounts of investments on the balance sheet date are either increased or decreased for the percentage of the share of the Bank in the result of the affiliate. Value adjustment of investment in percentages is performed also in a situation when there is a change in equity of the affiliate. Changes in equity of an affiliate may arise as a result of revaluation of fixed assets of the affiliate, currency gains and losses and on the basis of differences arising from business associations. 15

19 Since the Bank, on the balance sheet date, does not have the precise information on realized results of affiliates, it performs the adjustment of its share for the percentage of the realized result of affiliates in the following year. On December 31, 2010, the Bank has an investment in the following affiliated company: - OTP Leasing d.o.o. Novi Sad with 30% share Securities available for sale Assets available for sale are financial instruments to be held for an indefinite time period, and may be sold due to the need of securing of liquidity or due to changes of interest rates, foreign exchange rates or equity prices. Securities available for sale cover securities initially classified as equity investments in other legal entities where the Bank participates with less than 20% without significant influence on the business operation, as well as reclassified securities held for trading. Pursuant to modification of IAS 39 in 2008, allowing reclassification of securities held for trading into securities available for sale through Profit and Loss Statement, the Bank carried out the abovementioned reclassification and during 2009 it recognized them as securities available for sale. Investments in securities available for sale are declared according to the market value principle or historical cost principle. Establishing the market value of securities available for sale is usually based on quotation of the market price on the Stock Exchange. Non-realized gains and losses generated during the change in the market value are declared as reserves within capital until the financial asset is sold, collected or alienated in any other way, or until it is established that the financial asset is impaired. Equities, for which the market value can not be established precisely, are evaluated according to the nominal value, subsequently reduced for possible adjustment and provisions established in compliance with the methodology of the National Bank of Serbia Intangible Assets and Fixed Assets Fixed assets and intangible assets are declared at the purchase value (historical cost) reduced for the accumulated value adjustment on the basis of amortization. Amortization of fixed assets is calculated by the straight line method, writing-off the purchase value during the estimated lifetime of assets. Annual amortization rates are as follows: Intangible assets 0% 20% Computers 20% Buildings 1% 6.95% Motor vehicles 15,5% Communication equipment 10% Heating equipment 16.5% Copying equipment 14.3% Furniture 12.5% Other 11% 16

20 Property, plants and equipment are reviewed periodically in order to determine the indications of possible impairment. The estimation is performed by authorized appraisers. During 2009, the Bank carried out assessment of the value of property which the Bank ceased to use for the purpose of functional operations during the calendar year, which were continued to be recognized as fixed assets (Note 26). During 2010, the Bank carried out an assessment of the remaining useful life for particular categories of assets (IAS 16, Paragraph 51) and since expectations are different in comparison to previous years, the adjustment has been calculated in compliance with IAS 8 (Note 27) Investment Property Investment property is defined as a property held by the Bank for realization of income from renting and/or increasing of value of capital. Investment property is valued according to the market (fair) value with all the changes of the market value recorded in the Profit and Loss Statement. The Bank does not calculate amortization on investment property. Gain and loss from retirements and disposals of investment property is established as the difference between the net inflow from disposals and carrying value. During subsequent disposal or retirement, the revaluation surplus is directly transferred into retained earnings and it is not recorded in the Profit and Loss Statement. During 2010, the Bank conducted assessment of the value of investment property (Note 26) Fixed Assets for Sale Fixed assets for sale are assets that are classified, at the moment of purchase, as fixed assets, but after a certain period of utilization, the Bank decided to sell them. During the reclassification of assets into fixed assets for sale, the assets are valued using the lower value depending whether carrying value or fair value is lower. In case the carrying value is lower, the Bank shall continue the valuation according to the carrying value, whereas in case the fair value is lower, the revaluation reserves shall be cancelled up to the level of created revaluation reserves, while for the remaining difference, the expense of the period shall be declared representing impairment of property. The expense created as an expense from impairment is transferred to an expense from sale in case the assets are sold in the same year when they were reclassified as assets for sale. In case the reclassification is performed from investment property at fair value, the valuation rules do not have to be applied. In order to reclassify from the category of investment property into fixed assets for sale, the decision on sale is not sufficient, we also need the capital expense of translation of those assets into assets for sale. Amortization of fixed assets for sale is not performed. Sale of fixed assets for sale is recorded according to the net principle. 17

21 During 2009, the Bank conducted reclassification of property that satisfied the criteria from IFRS 5 from fixed assets into fixed assets for sale (Note 26). During 2010, the Bank sold a part of property previously classified as fixed assets for sale in compliance with IFRS 5. Remaining assets classified in this group fulfill the requirements of IFRS 5 for recognition in the fixed assets for sale. (Note 27) Assets Held for Further Sale Tangibles received based on collection of receivables as well as the property from joint investments are classified as assets held for further sale and they are presented within the position Other assets. Assets for sale are measured according to the carrying value or fair value reduced for costs of sale (recognition is made based on lower of the two). Calculation of amortization is not performed for these assets as long as they are classified as assets for sale Equity Equity of the Bank is as follows: share capital, share premium, reserves and retained earnings and/or loss. Share capital Share capital of the Bank is formed from invested assets of the Bank s founders in monetary form. For invested assets into equity, the shareholders receive a corresponding number of securities or certificates in compliance with the Law on Securities. The shareholders can not withdraw funds invested into the Bank s capital. The Bank uses the capital for execution of banking operations as well as for risk coverage arising from business operations. Reserves from profit for potential losses Reserves from profit for potential losses are calculated as the difference between the total reserve for potential losses calculated in compliance with the Decision on Classification of Balance Sheet Assets and Off-Balance Sheet Items and total value adjustments and provisions estimated in compliance with the internal act of the Bank. Revaluation reserves Profit determined by assessment of fixed assets value is booked within the revaluation reserves (Note 40). During the sale or disposal of fixed assets for which the Bank previously has booked positive effects by assessment, corresponding part of the revaluation reserve is transferred directly to retained earnings. During the decrease of fair value of property due to lower market value than the carrying value, the Bank shall terminate revaluation reserves up to the level of previously generated revaluation reserves (Note 26). Non-realized gains and losses arising from change of market value of securities available for sale are recorded within the revaluation reserves (Note 40). Structure and changes in equity are presented in the Note

22 3.13. Deposits Obligations for loans and deposits are recognized in the Balance Sheet upon placement of assets. During the initial recognition they are measured at fair value increased for expenses of the transaction that can be directly accrued or declared as appropriated financial liability. After the initial recognition of obligation for loans and deposits, they are measured according to the amortized price using the effective interest method. Foreign currency deposits are declared in dinars according to the middle exchange rate of currencies valid on the balance sheet date. Depending on due dates, the Bank declared deposits as sight deposits, short- and long-term deposits Managed Funds Assets given for activities for and on behalf of third parties, managed by the Bank for a commission are not included in the balance sheet of the Bank and are declared within the offbalance sheet records (Note 40) Employees Benefits The Bank neither has its own pension funds nor options for disbursements to employees in form of shares and according to that does not have any identified liabilities as of December 31, The Bank has calculated the future severance payments in compliance with IAS 19. Therefore, it engaged an authorized actuary and increased provisions as of December 31, The increase of provisions is the result of inflation growth rate during 2010 in comparison to December 31, Taxes and Contributions Current income tax Income tax is calculated in the amount of 10% of the amount of taxable income determined in the Tax Statement. Taxable income is determined by adjustment of profit declared in the Profit and Loss Statement for particular income and expenses in the manner stipulated by tax regulations. Income tax is calculated and paid according to the republic regulations. Estimated monthly advance tax amount is paid each month, whereas the correction of the advance tax payment is carried out at the end of the year, and/or upon delivery of the Tax Statement to the tax administration for advance payment final establishing of the company's income tax. Considering that in 2010 the Bank declared loss, it did not declare any taxable profit in the tax statement, only liabilities for income tax arising from capital gains. Tax Statement of the Bank for 2010 is presented in Note

23 Deferred taxes Deferred tax is calculated and recorded in temporary differences between the tax base of assets and liabilities and their amounts declared in the financial statements of the Bank in compliance with IAS 12. Liabilities on deferred income tax are recognized for all taxable temporary differences on the balance sheet date between the tax base of assets and liabilities and their amounts declared for the purpose of financial reporting which shall result in taxable amounts in future periods. Deferred taxation of assets and liabilities is measured according to tax rates for which it is expected to be implemented in the period when the asset is realized or liability settled, based on tax rates that have been adopted or are to be adopted by the balance sheet date. In 2010, the Bank has calculated deferred tax obligations representing offset deferred tax assets and deferred tax liabilities based on assets subject to amortization, as well as based on unpaid public duties in 2010 (Note 19) Taxes and contributions not depending on results Taxes and contributions not depending on financial results include the following: property tax, value added tax, taxes and contributions for salaries charging the employer, as well as other taxes and duties in compliance with republic, local and tax regulations. These taxes and contributions are declared in the Profit and Loss Statement within operational expenses and expenses of salaries and salary benefits. On the other hand, the value added tax is declared as an liability in the Balance Sheet Financial Derivatives The Bank initially recognized the financial derivatives according to contracted (purchase) value in off-balance sheet records which represents the fair value of given or received fee, whereas each translation to market value on the balance sheet date is recorded through Balance Sheet and Profit and Loss Statement Fair Value The accounting policy of the Bank is to disclose the information on the fair value of assets and liabilities for which there is an official market information, in case when the fair value is significantly different from the carrying value. The Bank declares placements according to the fair value because the conditions upon which the Bank grants placements are adjusted to the market prices via variable interest rate. All placements of the Bank, including the placements with fixed interest rates, have a contracted clause that allows the Bank to change the lending conditions due to change of market conditions. That creates a possibility and right of the Bank to adjust the placements with fixed interest rate with the market conditions. 20

24 Value adjustment for potential losses is carried out for the amount of estimated risks in cases where it is expected that the carrying amount shall not be realized. 4. INTEREST INCOME AND EXPENSES Interest income from loans 1,963,170 2,449,131 out of that fees which are the part of EIR 163, ,979 from deposits 58, ,822 from securities 102,374 47,895 from other placements 2,335 3,087 Total interest income 2,126,116 2,688,935 Interest expenses from loans 597, ,213 from deposits 562, ,533 subsidiary (5,251) (9,329) from other placements 7,749 0 Total interest expenses 1,163,024 1,275,417 Profit on interest, in the period January 1 December ,092 1,413,518 The Bank recognizes interest income referring to non-risk weighted placements with probable collection in line with IAS 18. Interest income include fee income as a part of the effective interest rate. Calculated interest on risk weighted placements is declared within the off-balance sheet records on the positions of suspended interest, and it is recognized in income from suspended interest at the moment of collection. Interest expenses based on other placements in the amount of 7,749 thousand dinars refers to dividends from cumulative preference shares related to FEE AND COMMISSION INCOME AND EXPENSES Fee and commission income for approval of loans which are not part of EIR 47,555 43,053 for card transactions 254, ,093 payment operations 66,426 55,471 subsidiary (33) (99) custody operations 1,856 1,275 other fees and commissions 355, ,976 21

25 Total fee and commission income 725, ,769 Fee and commission expenses for other financial liabilities 4, subsidiary 3 0 for card transactions other fees and commissions 88,500 75,591 Total expenses 93,684 76,464 Profit on fees and commissions, in the period January 1 December , , NET LOSS ON SALE OF SECURITIES AVAILABLE FOR SALE AT FAIR VALUE Expenses from sale of securities available for sale - shares 0 10 Net loss on sale of securities available for sale NET LOSS ON SALE OF OTHER PLACEMENTS Income from sale of other placements 0 0 Expenses from sale of other placements 274,462 0 Net loss from sale of other placements 274,462 0 The loss of 274,462 thousand dinars refers to the sale of receivables from FPM Beograf to the factoring company OTP Factoring Serbia, conducted by the Bank on September 29, The amount of 274,009 thousand dinars refers to the sale of the principle whereas the remaining amount refers to the sale of the receivables arising from fees. Total balance sheet exposure of the Bank towards the client FPM Beograf on the date of sale amounted to 1,376,290 thousand dinars. Calculated suspended interest amounted to 77,974 thousand dinars. On September 29, 2010, OTP Factoring Serbia paid the Bank the amount of 1,164,252 thousand dinars for purchase of the receivables. The receivables were sold with 20% discount. The final effect of the sale of the receivables of FPM Beograf is as follows: (thousands of RSD) Loss arising from sale Net income from collected suspended interest Income from cancellation of value adjustments Net loss from sales 274,462 62,424 60, ,945 22

26 8. CURRENCY EXCHANGE LOSSES, NET Foreign exchange gains Calculated exchange gains and losses 3,231,324 3,722,096 Realized exchange gains and losses 258, ,734 Total exchange gains 3,490,100 3,890,830 Foreign exchange losses Calculated exchange gains and losses 5,839,980 5,656,010 Realized exchange gains and losses 98,907 35,973 Total exchange losses 5,938,887 5,691,983 Currency exchange gains and losses, net expenses 2,448,787 1,801, INCOME FROM DIVIDENDS AND PARTICIPATING INTERESTS Income from dividends and participating interests Dividend income 245, subsidiary (245,000) 0 Dinar income from shares acquired free of charge Total income from dividends and participating interests 268 1,042 The amount of 245,000 thousand dinars refers to paid dividend of OTP Investments, a subsidiary of the Bank. The dividend was paid from the retained earnings from previous periods. 10. OTHER OPERATING INCOME Other income from operations 51,131 47,323 Income from rentals of business premises 40,379 36,923 Safety deposit box rentals 7,969 7,830 Income from operations collection of damages from insurance companies 1,625 1,890 Other operating expenses 1, Profit from sale of fixed assets and intangible assets 9,728 8,773 Profit from sale of equipment 715 7,906 Profit from sale of property 9, Income from reduction of liabilities 13,279 7,595 23

27 Other income 8,338 52,137 subsidiary 946 1,511 Total other operating income 83, ,339 Other income refers to determined surpluses arising from the inventory and recognition of advance payments for tax contributions. 11. NET EXPENSES ON INDIRECT WRITE-OFFS OF PLACEMENTS AND PROVISIONS Expenses of indirect write-offs of placements in balance sheet positions interests, fees and commissions 25,015 30,795 loans granted 3,487,409 3,280,517 securities 4,367 75,533 participating interests (equity shares) 0 2,398 other assets 73,325 13,492 subsidiary (19) 0 Expenses for provisions for off-balance sheet positions 198, ,637 Expenses from other provisions - IAS 19 retirement benefits 2,603 0 Expenses on suspended interest 19, ,475 subsidiary 0 3,198 Total expenses 3,810,348 3,782,045 Income of indirect write-offs of placements in balance sheet positions interests, fees and commissions 14,962 25,247 loans granted 1,233,009 1,185,865 securities 4,812 7,187 other assets 7,015 10,698 subsidiary (2) 0 Income from provisions for off-balance sheet positions 77,436 32,815 Income from other provisions - IAS 19 retirement benefits 0 4,266 Income on suspended interest 538, ,019 Total income 1,875,831 1,520,097 Net expenses on indirect write-offs of placements and provisions 1,934,517 2,261, SALARY, BENEFITS AND OTHER PERSONNEL EXPENSES Salaries 621, ,662 subsidiary 539 3,422 24

28 Salary benefits 18,628 12,535 subsidiary 0 2,689 Taxes on salaries and salary benefits 98, ,904 subsidiary Contributions on salaries and salary benefits 137, ,528 subsidiary Expenses for temporary and periodical work Other personnel expenses 20, ,173 subsidiary Total salary, benefits and other personnel expenses 897,751 1,285,083 Other personnel expenses refer to severance payments in the amount of 12,481 thousand dinars, gifts for employees children in the amount of 2,026 thousand dinars and earnings of the members of the Board of Directors in the amount of 6,487 thousand dinars. 13. AMORTIZATION COSTS Amortization costs property owned by the Bank 31,170 41,803 Amortization cost for equipment under financial leasing Amortization costs investments in other property 30,328 39,898 Amortization costs intangible assets 58,467 66,018 Amortization costs computer equipment 50,110 63,262 subsidiary Amortization costs office devices 30,107 34,091 Amortization costs other equipment 87, ,368 Total amortization costs 288, ,162 In 2010, the Bank reviewed the useful life of property and equipment in accordance with the requirements of the Paragraph 51, IAS 16. The assessment of the useful life of property was performed by authorized appraisers, whereas the assessment of the useful life for the equipment was performed by the Bank departments. The assessment of the useful life of the equipment performed by the Bank departments was based on historical data on actual useful life of particular equipment, technical and technological progress and OTP Group standards. All the changes of amortization rates that resulted in change of useful life of property and other equipment remained within the framework stipulated by the Accounting Policy of the Bank. Changes in the useful life of the property have reduced the amortization costs for 10,363 thousand dinars, whereas the changes in the useful life of equipment have reduced the amortization costs for 28,130 thousand dinars. 25

29 14. OPERATIONAL AND OTHER OPERATING EXPENSES Material costs 111, ,793 subsidiary Other production services 353, ,732 subsidiary 6,916 6,868 Administrative costs (excluding taxes and contributions) 407, ,518 subsidiary 2,985 12,384 Tax costs 80,711 61,472 subsidiary Contribution costs 144, ,254 subsidiary Other costs 19,490 84,239 subsidiary 1, Expenses from write-off of non-collected receivables 18,800 4,169 Other expenses 40,886 43,452 Total operational and other operating expenses 1,189,019 1,431,893 In 2010, the Bank invested significant efforts to decrease operational costs. Advertising costs were reduced for 78,519 thousand dinars, rental costs of business premises for 39,259 thousand dinars and ATM maintenance costs for 29,307 thousand dinars. 15. INCOME FROM CHANGE OF VALUE OF ASSETS AND LIABILITIES Income from change of value of placements and receivables foreign currency clause 3,727,486 2,751,140 Income from change of value of placements and receivables retail price index 30,874 59,282 Income from change of value of placements and receivables income from change of value of gold and other precious metals 7,179 3,333 Income from change of value of liabilities Income from change of value of derivatives 4,927 0 Total income from change of value of assets and liabilities 3,771,274 2,814,528 Income from change of value of deriviatives largely refers to spot purchase and sale of foreigh currency T+2. On the balance sheet date, the Bank declares fair value of contracted derivates in the Profit and Loss Statement. 16. EXPENSES FROM CHANGE OF VALUE OF ASSETS AND LIABILITIES Expenses from change of value of placements and receivables foreign currency clause 1,164, ,136 Expenses from change of value of placements and receivables retail price index 0 10,028 26

30 Expenses from change of value of placements and receivables expenses from change of tangibles acquired through collection of receivables 0 23,937 Expenses from change of value of securities Expenses from change of value of liabilities 1,311 1,992 Expenses from change of value of fixed assets ,476 Expenses from change of value of participating interests and equity shares 0 0 subsidiary 0 38,688 Expenses from change of value of derivatives in foreign currency 6,569 0 Total expenses from change of value of assets and liabilities 1,172, ,257 On 31 December 2009, the Bank performed impairment of tangibles acquired through collection of receivables due to change of realistic fair value in the total amount of 23,937 thousand dinars. Impairment refered to goods and property. Furthermore, the Bank performed impairment of buildings and investment property in the total amount of 4,651 thousand dinars following the assessment by authorized appraisers and impairment of intangible assets in the total amount of 38,825 thousand dinars related to impairment of software not used by the Bank. Expenses from change of value of deriviatives largely refers to spot purchase and sale of foreigh currency T INCOME TAX Income taxes 1, Total income tax, balance as of December 31 1, Tax Statement is presented in the following table: Loss (2,504,827) (3,134,989) Capital profit 9,013 (8,184) Capital loss 0 10 Costs not documented 2,099 - Interest due to untimely paid taxes, contributions and other duties 9,208 2,645 Costs arising from procedures of forced collection of taxes and other debts, costs of tax violation and other procedures before competent authorities 13,535 - Fines, stipulated damages and penalties 2, Earnings of employees and other persons arising from share in profit 7,749 - Expenses not created for business operations 13,096 23,304 Severance payments and reimbursements based on termination of employment, calculated but unpaid in the tax period 2,603 - Severance payments and reimbursements based on termination of employment, calculated in the previous period, but paid in the tax period of the current Tax Statement (589) - 27

31 Advertising expenses for the affiliate 279 Expenses on impairment of assets 1,701 67,413 Correction of basis for calculation of temporary difference between amortization according to IAS and tax regulations 64,879 98,153 Value adjustment of individual receivables with maturity under 60 days, as well as write-off of individual receivables not previously included in profit, not written-off as unrecoverable, having no evidence on failed collection 18,800 4,169 Value adjustment exceeding the amount defined by regulations of the National Bank of Serbia 258,375 - Taxes, contributions and other public duties not depending on business results and not collected in the tax period, based on which the taxpayer declares expenses in business books 3,063 - Value adjustments of individual receivables recognized as expenses, for which the conditions for direct write-off have not been cumulatively fulfilled in the tax period when the direct write-off is performed 8,010 - Income based on dividends and shares in profit of other resident taxpayers 245,082 Loss (2,353,546) (2,946,643) Total capital losses for the year 21,061 8,174 Tax base 21,061 8,174 Tax rate Calculated profit tax 2, Adjustment for tax loans based on investments 1, based on new employments - - Total adjustment 1, Calculated tax after reduction 1,053 - Paid tax advances 1,053 - Current profit tax liabilities (Note 36) In the Tax Statement for 2010, the Bank declared loss in the amount of 2,353,546 thousand dinars. The Bank declared capital gain in the amount of 21,061 thousand dinars. Capital gain was realized in its entirety through sale of property. Tax base for 2010 has been determined in the amount of 21,061 thousand dinars. In the Tax Statement for 2010, the Bank has calculated income tax in the amount of 2,106 thousand dinars. After the reductions for tax reliefs arising from investments into fixed assets in the amount of thousand dinars, the final obligation based on the current tax for 2010 is thousand dinars. Tax reliefs arising from investments into fixed assets are not fully utilized, thus the amount of 10,764 thousand dinars is transferred to the account of income tax for future reporting periods. The amount of 171,159 thousand dinars is consisted of unused part of the tax loan from previous years in the amount of 160,395 thousand dinars and 10,764 thousand dinars of unused tax loan from Since the Bank paid advances for income tax in previous periods, the final obligation for the current income tax for 2010 does not exist. 28

32 18. PROFIT FROM CREATED DEFERRED TAX ASSETS AND REDUCTION OF DEFERRED TAX LIABILITIES Profit from created deferred tax assets and reduction of deferred tax liabilities 5,858 12,185 Profit from created deferred tax assets and reduction of deferred tax liabilities, with balance as of December 31 5,858 12,185 Profit/loss before tax (2,504,827) (3,134,989) Expenses not recognized in tax balance permanent differences 151, ,346 Taxable profit (2,353,546) (2,946,643) Capital profit/loss 21,061 8,173 Tax base 21,061 8,173 Tax rate 10% 10% Calculated income tax 2, Decrease of calculated tax based on tax incentives (1,053) (408)) Current tax income: (1,053) (409) Decrease of loss from cancellation of deferred tax liabilities 5,858 12,185 Increase of profit from cancellation of deferred tax liabilities - - Total tax income/expense 4,805 11,776 Net profit (2,500,022) (3,123,213) 19. CASH AND CASH EQUIVALENTS RSD Giro account 1,454,325 1,861,797 Cash in hand 288, ,568 Total in RSD 1,742,650 2,297,365 FX Foreign currency accounts with other banks 15,571 42,014 Regular foreign currency accounts with foreign banks 61, ,017 Cash in hand in foreign currency 277, ,885 Other cash in foreign currency 53 0 Total in FX 354, ,916 Gold and precious metals 20,362 13,184 Total cash and cash equivalents, balance as of December 31 2,117,576 2,757,465 29

33 Required reserve in dinars represents the minimal reserve in dinars appropriated in compliance with the Decision of the National Bank of Serbia on Required Reserve with the National Bank of Serbia ( Official Gazette of the Republic of Serbia, Nos. 116/2006, 3/2007, 31/2007, 93/2007, 35/2008, 94/2008, 100/2008, 107/2008, 110/2008, 112/2008, 12/2009, 39/2009, 44/2009, 47/2009, 111/2009, 12/2010 and 78/2010), which stipulates that banks calculate the required reserve at 5% rate on the dinar reserve base. The dinar reserve base for calculation of the required reserve comprises average daily balance of obligations in dinars during previous calendar month, in particular: - non-indexed obligations from dinar deposits, loans, securities and other obligations in dinars to domestic legal entities and private individuals and - non-indexed obligations from dinar deposits, loans and other obligations in dinars to abroad Dinar portion of the calculated required reserve for December 2010 amounted to 1,818,666 thousand dinars out of which the calculated dinar required reserve amounted to 199,099 thousand dinars whereas the dinar portion of the obligation for appropriation of the equired reserve in foreign currency amounted to 1,619,567 thousand dinars. The Bank is obligated to maintain the average daily balance of the appropriated required reserve in dinars on its giroaccount. The calculated required reserve in dinars is appropriated in dinars to the Bank s giroaccount. As of December 31, 2010, the Bank is harmonized with regulations of the National Bank of Serbia in relation to calculation and appropriation of the required reserve in dinars. 20. REVOCABLE DEPOSITS AND LOANS Loans under repo transactions in dinars 0 1,800,000 Required reserve with the NBS in foreign currency 7,884,732 7,251,569 Revocable deposits and loans, balance as of December 31 7,884,732 9,051,569 The required reserve in foreign currency represents a minimum reserve in foreign currency appropriated in compliance with the Decision on Banks' Required Reserves Held with the National Bank of Serbia ( Official Gazette of the Republic of Serbia Nos. 116/2006, 3/2007, 31/2007, 93/2007, 35/2008, 94/2008, 100/2008, 107/2008, 110/2008, 112/2008, 12/2009, 39/2009, 44/2009, 47/2009, 111/2009, 12/2010 and 78/2010), which stipulates that banks calculate the required reserve in foreign currency at 25% rate of the foreign currency reserve base. The foreign currency reserve base for calculation of the required reserve comprises the amount of average daily bookkeeping balance of foreign currency obligations in previous calendar month and average daily bookkeeping balance of dinar obligations with foreign currency clause in previous calendar months, in particular: - obligations from deposits, loans, securities and other foreign currency obligations to abroad - obligations from deposits, loans, securities and other foreign currency obligations to domestic legal entities and other obligations - foreign currency savings deposited at banks - indexed obligations arising from dinar deposits, loans, securities, other obligations in dinars, including obligations arising from dinar deposits received under transactions 30

34 performed for and on behalf of third parties exceeding the amounts of placements given by the Bank from these deposits The Bank appropriates the required reserve calculated on the foreign currency reserve base into a foreign currency account with the National Bank of Serbia. 21. RECEIVABLES BASED ON INTERESTS, FEES, SALE, FAIR VALUE CHANGE OF DERIVATIVES AND OTHER RECEIVABLES RSD FX Total RSD FX Total Interest receivables 46,087 1,168 47,255 95, ,816 Value adjustment (205) (0) (205) (772) 0 (772) 45,882 1,168 47,050 94, ,044 Fee and commission receivables 135, , , ,596 subsidiary (1) 0 (1) Value adjustment (67,939) (66) (68,005) (58,522) (51) (58,573) 67, ,250 41, ,023 Sales receivables 13, ,234 14, ,319 Value adjustment (7,946) 0 (7,946) (413) 0 (413) 5, ,288 13, ,906 Receivables from change of value of derivatives Value adjustment Other receivables: 0 4,678 4, Value adjustment 0 (2,648) (2,648) ,030 2, Total receivables for interests, fees, sales, changes of fair values of derivatives, balance as of December ,418 3, , , , LOANS GRANTED AND DEPOSITS PLACED RSD FX Total RSD FX Total Loans on transaction accounts 1,558, ,558,678 1,767, ,767,017 Value adjustment (489,671) 0 (489,671) (320,122) 0 (320,122) 1,069, ,069,007 1,446, ,446,895 Consumer loans 303, , , ,160 Value adjustment (67,719) 0 (67,719) (69,179) 0 (69,179) 235, , , ,981 31

35 RSD FX Total RSD FX Total Working capital loans 9,170,825 87,327 9,258,152 7,658,481 91,101 7,749,582 Value adjustment (2,495,156) (30,646) (2,525,802) (1,450,913) (22,391) (1,473,304) 6,675,669 56,681 6,732,350 6,207,568 68,710 6,276,278 Export loans 584, , , ,359 Value adjustment (9,805) 0 (9,805) (1,145) 0 (1,145) 574, , , ,214 Investment loans 5,017, ,114 5,901,188 5,439, ,666 6,355,083 Value adjustment (844,833) (409,758) (1,254,591) (424,981) (356,413) (781,394) 4,172, ,356 4,646,597 5,014, ,253 5,573,689 Housing loans 4,045, ,045,389 3,319, ,319,324 Value adjustment (221,784) 0 (221,784) (146,385) 0 (146,385) 3,823, ,823,605 3,172, ,172,939 Other loans 10,677, ,145 10,972,051 12,024, ,807 12,271,619 Value adjustment (2,489,677) (287,049) (2,776,726) (1,741,183) (240,317) (1,981,500) 8,188,229 7,096 8,195,325 10,283,629 6,490 10,290,119 Loans granted 24,739, ,133 25,277,233 26,559, ,453 27,194,115 Deposits placed 3 2,717,771 2,717, ,459 8,462 Loans granted and deposits placed 24,739,103 3,255,904 27,995,007 26,559, ,912 27,202, SECURITIES RSD FX Total RSD FX Total Securities available for sale 536,429 1, , ,065 1, ,606 Value adjustment (519,070) (1,831) (520,901) (519,342) (1,541) (520,883) 17, ,359 19, ,723 Securities held to maturity 419, ,798 1,428, ,428,840 Value adjustment (69,115) 0 (69,115) (69,289) 0 (69,289) 350, ,683 1,359, ,359,551 Total securities, net with balance as of December , ,042 1,379, ,379,274 32

36 23.1. INVESTMENTS IN SECURITIES AVAILABLE FOR SALE Shares of banks - reclassified 5,631 7,334 Shares of insurance companies - reclassified 582 1,008 Shares of other financial organizations 2,243 2,875 Shares of holding companies 121, ,669 Shares of holding companies reclassified Shares of other companies 128, ,792 Shares of other companies - reclassified 1, Shares of other clients 278, ,836 Securities available for sale 538, ,606 Nominal value of securities available for sale 576, ,638 Deviation from nominal value (38,085) (36,032) Value adjustment 520, ,883 Securities available for sale, net as of December 31 17,359 19, INVESTMENTS IN SECURITIES HELD TO MATURITY Bill discount 68,685 71,757 Commercial notes 3,004 4,034 Treasury bills 342,933 1,347,820 Other securities 5,176 5,229 Total securities held to maturity 419,798 1,428,840 Nominal value 429,889 1,451,936 Deviation from nominal value (10,091) (23,096) Value adjustment 69,115 69,289 Securities held to maturity, net as of December ,683 1,359,551 Decrease of securities held to maturity is mostly related to treasury bills due in Structure of treasury bills as of December 31, 2010 is comprised of three sub-accounts out of which two will be due in April 2011 with interest rates of 9.84% and 9.60% and nominal values of 159,841 and 159,881 thousand dinars respectively and one with maturity in November 2011 and nominal amount of 23,211 thousand dinars. 33

37 24. OTHER PLACEMENTS RSD FX Total RSD FX Total Placements based on accepting, avalising and payments per guarantees 794, , , ,857 80, ,362 Value adjustment (510,575) (66,626) (577,201) (544,346) (47,135) (591,481) 284,337 68, , ,511 33,37 239,881 Covered letters of credit and other sureties Value adjustment (4) (4) Other placements 26,189 8,482 34,671 40,360 71,649 83,229 Value adjustment (23,471) (5,415) (28,886) (23,475) (3,120) (26,595) 2,718 3,067 5,785 16,885 68,529 85,414 Total other placements, balance as of December ,055 71, , , , , INTANGIBLE ASSETS Licenses 108,257 85,526 Software 372, ,693 Intangible assets in preparation Total intangible assets 480, ,448 Value adjustments of intangible assets (333,313) (275,097) Intangible assets, balance as of December , , FIXED ASSETS AND INVESTMENT PROPERTY Land Buildings 2,841,486 2,839,040 Equipment 1,469,917 1,471,813 subsidiary Fixed assets in preparation 63,515 29,075 subsidiary 165, ,522 Fixed assets leased 4,047 4,047 Investments in other fixed assets 180, ,152 Investment Property 23,997 23,997 subsidiary 19,194 19,194 34

38 Total fixed assets and investment property 4,584,032 4,556,863 Fixed assets and investment property value adjustment (1,513,425) (1,343,098) subsidiary (274) (200) Fixed assets and investment property, present value as of December 31 3,255,503 3,390,746 Changes in the Bank s property, plants and equipment: Land and buildings Equipment and other assets Investment property Investments Intangible in progress assets (thousands of RSD) Total Purchase value Balance as of January 1, ,027,931 1,475,861 23,997 29, ,448 5,014,313 Increase , ,066 23, ,580 Transfer from on-going investments 2,162 17,587 0 (19,801) 52 0 Disposal and removal (7,821) (65,757) 0 (2,826) (481) (76,885) Revaluation Other Balance as of December 31, ,022,556 1,473,964 23,997 63, ,976 5,065,008 Fixed assets value adjustment Balance as of January 1, , , ,097 1,618,196 Amortization 61, , , ,769 Impairment Amortization of completely written-off group of fixed assets Disposal and removal (4,011) (56,130) 0 0 (251) (60,392) Revaluation Other Balance as of December 31, , , ,313 1,846,738 Value not written-off, balance as of 2,361,562 December 31, ,533 23,997 63, ,663 3,218,270 As of December 31, 2010, the Bank does not have fixed assets under mortgage as loan collaterals. 27. FIXED ASSETS FOR SALE AND ASSETS FROM DISCONTINUED OPERATIONS During 2010, the Bank neither acquired nor sold tangibles acquired through collection of receivables. Fixed assets for sale 42,382 54,325 Total fixed assets for sale and assets from discontinued operations 42,382 54,325 35

39 Position Fixed assets for sale as of December 31, 2010 is comprised of the following: BUILDING AREA Value Apartment for sale, Belgrade, Prote Mateje 66, 151m² 14,877 Business premises, Crna Trava,Trg M.Popovića bb 30m² 558 Business premises, Vladičin Han, Slobodana Penezića 1 108m² 2,511 Business premises, Vranjska banja, Kralja Petra I 73 50m² 1,128 Business premises, Niš, Rentgenova bb 38m² 1,182 Building, Novi Sad, Bulevar osloboñenja m² 18,170 Garage, Prokuplje, 21. srpske divizije 1 15m² 50 Business premises, Prokuplje, Ive Andrića m² 2,405 Garage, Vranje, Stefana Prvovenčanog m² 514 Business premises, Niš, Knjaževačka bb 15.16m² 987 TOTAL: 42,382 During 2010, the Bank sold four properties classified as permanent fixed assets for sale. Other assets for sale fulfill the conditions stipulated by IFRS 5 and are available for sale. 28. OTHER ASSETS RSD FX Total RSD FX Total Receivables from advances given for working capital 3, ,054 8, ,828 subsidiary 7, ,418 12, ,998 Receivables from prepayments for permanent investments 11,405 4,195 15,600 12,853 3,624 16,477 Receivables from prepaid tax and contributions 8, ,371 8, ,376 subsidiary 5, ,187 4, ,037 Receivables for prepaid tax on profit 26, ,465 33, ,598 Receivables in calculation 126,671 15, ,829 71,139 14,341 85,480 Other receivables 172,307 1, , ,826 2, ,375 subsidiary 7, ,307 11, ,103 Total other receivables 368,185 21, , ,758 20, ,272 Value adjustments of other receivables (150,086) (1,823) (151,909) (90,148) (75) (90,223) subsidiary (1,987) 0 (1,987) (1,987) 0 (1,987) Value of other receivables, net 216,112 19, , ,623 20, ,062 Accrued receivables for calculated interest 79,831 2,103 81,934 79,101 15,723 94,824 Accrued receivables for other calculated income , ,831 Other accrued costs 5, ,718 8, ,220 Other prepayments and accrued income in dinars subsidiary 1, , Total accrued receivables 87,688 2,104 89, ,460 15, ,183 Inventories , ,552 36

40 RSD FX Total RSD FX Total Assets acquired through receivables collection 9, ,328 9, ,328 Equipment in use 33, ,430 31, ,428 Total inventory 43, ,325 42, ,308 Value adjustment of inventories (35,033) 0 (35,033) (33,684) 0 (33,684) Net value of inventory 8, ,292 8, ,624 Total other assets, balance as of December ,092 21, , ,707 36, , PARTICIPATING INTERESTS (EQUITY SHARES) IN THE EQUITY OF AFFILIATED COMPANIES ACCORDING TO THE EQUITY METHOD Banking sector - subsidiary 33,043 33,043 Deviation from purchase value (4,413) (4,413) Net participating interests (equity shares) in banking sector 28,630 28,630 Other companies - subsidiary 0 80 Deviation from purchase value 0 (42) Net participating interests (equity shares) in other companies 0 38 Total participating interests (equity shares), as of December 31 28,630 28,668 During 2010, the subsidiary OTP Rent d.o.o. Novi Sad was liquidated. Shares in capital of subsidiaries and affiliates refer to the following legal entities: Purchas e value Deviation Deviatio from n from purchase Purchas purchas value Net % share e value e value % share (thousands of RSD) Net Equity investment in affiliate companies OTP Leasing d.o.o. Novi Sad 33,043 4,413 28, ,043 4,413 28, OTP Rent doo Novi Sad Total equity investment in affiliate companies 33,043 4,413 28,630-33,123 4,455 28,668 - Based on the Foundation Deed of the Limited Liability Company for Activities of Financial Leasing, concluded on 19 December 2007 between the Bank and Merkantil bank Zrt. from Budapest, OTP Leasing had a share capital increase. Share capital increase was carried out in December 2007 increasing the basic capital of OTP Leasing to 1,300,000 euros. Share of the Bank was increased from 100,000 to 390,000 euros, by which the Bank acquired 30% of the total capital of OTP Leasing, while the share of Merkantil bank Zrt. amounts to 70% 37

41 of the total capital. Upon the share capital increase, the Bank performed reclassification of shares in subsidiaries and equity investments in affiliate companies. During 2008, in cooperation with Merkantil Bank Zrt. the Bank founded OTP Rent d.o.o Novi Sad with the share of 19.9%, but with a more significant influence on decision-making, due to which it was initially classified as the share in affiliated companies. The Foundation Deed of the Limited Liability Company, OTP Rent Novi Sad was concluded on April 30, On November 09, 2010, OTP Rent Novi Sad was removed from the Companies' Register by the Decision of the Business Registers Agency BD /2010. Since, on the date of preparation of the financial statements, the Bank does not have the precise information on realized results of the affiliate, it does not make an adjustment of its share for the percentage of the realized result of the affiliate in PROVISIONS FOR IDENTIFIED LOSSES IN BALANCE SHEET POSITIONS Provisions for receivables from interests, fees and commissions, sale 78,804 59,758 Provisions for loans granted, deposits and other placements 7,952,185 5,391,109 Provisions for securities 590, ,172 Provisions for participating shares (equity shares) 0 0 Provisions for other receivables 151,910 90,224 subsidiary (17) 0 Total provisions for potential losses in balance sheet positions, balance as of December 31 8,772,899 6,135,718 Changes in provisions for identified losses in balance sheet positions: (thousands of RSD) Opening balance Definitive write-off Increase during the year Decrease during the year Decrease from previous years Exchange gains and losses Closing balance Provisions for receivables from interests, fees and commissions 59,758 2,295 46,975 14,351 14,962 3,679 78,804 Provisions for loans granted, deposits and other placements 5,391,109 5,377 5,703,995 2,216,586 1,233, ,053 7,952,185 Provisions for securities 590, , ,190 4, ,017 Provisions for participating shares (equity shares) 4, , Provisions for other receivables 90,224 2,422 97,610 31,895 7,015 5, ,910 subsidiary 0 0 (19) 0 (2) 0 (17) Total provisions for potential losses in balance sheet positions in ,135,718 10,136 6,319,118 2,729,022 1,264, ,430 8,772,899 38

42 Special reserve for potential losses Based on classification of placements established in line with the regulations of the National Bank of Serbia as of December 31, 2010, the Bank calculated special reserve for potential losses based on the total exposure of the Bank to the credit risk: Calculated special reserve for potential losses in accordance with the Decision of the National Bank of Serbia on the basis of: (thousands of RSD) Balance sheet receivables 18,198,289 Off-balance sheet items 644,319 Total 18,842,608 Value adjustment and provisions calculated in accordance with the internal methodology (IAS 39): (thousands of RSD) 2010 Value adjustments of balance sheet assets 8,772,916 Provisions for losses on off-balance sheet items 275,124 Reserves from profit for potential losses on balance sheet assets and off-balance sheet items: (thousands of RSD) Reserves from profit for potential losses 4,897,927 Missing amount of reserves for potential losses 5,203,891 Total reserves from profit necessary 10,101,818 In compliance with the Decision of the National Bank of Serbia on Classification of Balance Sheet assets and Off-Balance Sheet Items, the difference of the amount of special reserve for potential lossess calculated in accordance with the abovementioned Decision and the amount of value adjustment of Balance Sheet assets and provisions for losses in off-balance sheet items calculated in accordance with the internal methodology, is recorded in a separate account within reserves from profit for potential losses (Note 40). When there is an insufficient profit for allocation of reserves for potential losses, the Bank reduces its regulatory capital for the missing amount of reserves. 31. TRANSACTION DEPOSITS RSD FX Total RSD FX Total Banking sector 71,644 50, , ,458 24, ,922 subsidiary (39,485) 0 (39,485) (283,876) 0 (283,876) Public companies 34, ,752 41, ,185 Other companies 845,002 1,076,674 1,921,676 1,137, ,158 2,036,903 Entrepreneurs 273,508 19, , ,808 16, ,755 Public sector 1, ,500 1,86 14,061 15,921 Retail sector 509, , , , ,799 1,000,682 39

43 Foreign entities 26, , ,605 14, , ,088 Farmers 66, ,500 62, ,706 Other clients 188,622 32, , ,545 5, ,928 Total transaction deposits, as of December 31 1,977,644 2,041,247 4,018,891 2,390,512 1,526,702 3,917, OTHER DEPOSITS Overview of deposits per product and currency: RSD FX Total RSD FX Total Savings deposits 189,496 6,802,515 6,992, ,137 4,499,196 4,706,333 Deposits based on granted loans 27, , ,649 40, , ,057 Special-purpose deposits 77, , , , , ,431 Other deposits 2,606,364 3,750,766 6,357, ,043 1,744,007 2,190,050 Total other deposits, as of December 31 2,901,039 11,470,167 14,371, ,738 7,078,133 7,873, Overview of deposits per product, initial tenor and currency: RSD FX Total RSD FX Total Savings deposits Sight deposits 147,544 2,815,430 2,962, ,270 2,110,739 2,244,009 Short-term deposits 41,952 3,986,421 4,028,373 73,867 2,387,850 2,461,717 Long-term deposits Deposits based on granted loans 189,496 6,802,515 6,992, ,137 4,499,196 4,706,333 Short-term deposits ,153 40, ,226 41,455 Long-term deposits 27, , ,261 39, , ,602 Special-purpose deposits 27, , ,649 40, , ,057 Sight deposits 71,181 49, ,630 87,115 18, ,592 Short-term deposits 3, , , ,434 27,120 Long-term deposits 2, , ,832 14,604 56,115 70,719 Other deposits 77, , , , , ,431 Sight deposits ,475 49,252 6,725 48,473 55,198 40

44 RSD FX Total RSD FX Total Short-term deposits 2,601,788 3,648,634 6,250, ,777 1,645,614 2,081,391 Long-term deposits 3,799 53,657 57,456 3,541 49,920 53,461 2,606,364 3,750,766 6,357, ,043 1,744,007 2,190,050 Total other deposits, as of December 31 2,901,039 11,470,167 14,371, ,738 7,078,133 7,873, Overview of deposits per product, remaining tenor and currency: Savings deposits RSD FX Total RSD FX Total Sight deposits 147,544 2,815,430 2,962, ,383 2,110,818 2,244,201 Due up to 1 year 41,852 3,977,679 4,019,531 73,556 2,383,110 2,456,666 Due from 1 to 5 years 100 9,406 9, ,268 5,466 Deposits based on granted loans 189,496 6,802,515 6,992, ,137 4,499,196 4,706,333 Sight deposits 1,034 10,729 11, ,986 3,024 Due up to 1 year 12, , ,166 12, , ,707 Due from 1 to 5 years 14, , ,720 27, , ,326 Special-purpose deposits 27, , ,649 40, , ,057 Sight deposits 71,183 75, ,992 87,139 21, ,847 Due up to 1 year 4, , ,530 1,113 73,357 74,470 Due from 1 to 5 years 2, , ,894 14,153 5,961 20,114 Other deposits 77, , , , , ,431 Sight deposits 777 2,692,262 2,693,039 6, , ,619 Due up to 1 year 2,602,158 1,058,504 3,660, ,173 1,402,113 1,838,286 Due from 1 to 5 years 3, ,403 3, ,145 2,606,364 3,750,766 6,357, ,043 1,744,007 2,190,050 Total other deposits, as of December 31 2,901,039 11,470,167 14,371, ,738 7,078,133 7,873,871 41

45 33. LOANS RECEIVED RSD FX Total RSD FX Total Liabilities due in one day (overnight) 570,421 12, ,088 30,094 8,831,359 8,861,453 Loans received 153,142 2, ,141 3,444 17,192 20,636 Other financial liabilities 68,153 15,243 83,396 53,736 4,966 58,702 Total loans received, as of December ,716 30, ,625 87,274 8,853,517 8,940, LIABILITIES ON INTERESTS, FEES AND CHANGE OF VALUE OF DERIVATIVES RSD FX Total RSD FX Total Liabilities for interest 11,085 1,164 12,249 6,352 2,614 8,966 subsidiary (204) 0 (204) (727) 0 (727) Liabilities arising from fees and commissions 8,976 1,722 10,698 14, ,405 subsidiary (1) 0 (1) 0 0 Liabilities from change of value of derivatives 1, , Total liabilities on interests, fees and change of value of derivatives 21,302 2,886 24,188 20,030 2,614 22, PROVISIONS Provisions for possible outflows for disputes 31,201 31,571 Provisions for losses on off-balance sheet assets 275, ,115 Provisions for pensions 10,710 8,696 Provisions, as of December , ,382 On March 21, 2006, the plaintiff Sartid a.d. Bankrupt s Estate filed a claim against the Bank before the Commercial Court in Belgrade for collection of receivables. The proceedings are under the reference number 17P-8947/07. The value of the dispute amounts to 217,201 thousand dinars. On January 23, 2007, it was decided in favor of the plaintiff. On October 23, 2007, the judgment was overruled based on the Bank s appeal. Retrial is pending before the Commercial Court in Belgrade under business no. 527/2010. At the hearing held on February 2, 2011, it was stated that the expert will provide its opinion in writing to plaintiff s remarks regarding performed expertise. We expect of the court to conclude the main trial in the next hearing scheduled for April

46 On December 31, 2010, the provisions for potential outflows for disputes amount to 31,201 thousand dinars. The Management of the Bank does not expect any additional losses in the upcoming period arising from disputes. Increase of provisions for pensions is the result of the new actuary calculation of provisions for pensions for 2010 amounting to 10,710 thousand dinars (in 2009 it amounted to 8,696 thousand dinars). 36. LIABILITIES FOR TAXES VAT liabilities 1,345 2,042 Liabilities for taxes on salary and other personal income encumbering the Bank 53 1,283 Salary contributions and other personal income encumbering the Bank Liabilities for contributions for city construction land 2,056 2,002 Liabilities for other contributions-fee for company sign Liabilities for tax for interests from retail savings 1,189 0 Liabilities for personal income taxes Liabilities for other taxes and contributions subsidiary 46 0 Total liabilities for taxes, balance as of December 31 5,630 5, LIABILITIES ARISING FROM PROFIT Liabilities from profit for dividends on common shares 19,545 19,544 Liabilities from profit for dividends on preference shares Liabilities from profit for common dividends from previous years (prior 2003) Liabilities from profit for preference dividends from previous years (prior 2003) Liabilities from profit for common dividends ,157 4,157 Liabilities from profit for preference dividends Liabilities from profit for common dividends ,337 6,337 Liabilities from profit for preference dividends Liabilities from profit for preference dividends ,849 8,849 Liabilities from profit for preference dividends ,282 47,282 Liabilities from profit for preference dividends ,282 47,282 Liabilities from profit for preference dividends ,282 47,282 Liabilities from profit for preference dividends ,748 0 Liabilities for profit tax from previous periods 0 7,689 Liabilities from profit, balance as of December , ,523 During 2010, the Bank made an adjustment of the opening balance of the accumulated loss for the amount of liabilities for dividends which according to the Decision on Issuance of 43

47 Ordinary and Preference Shares from the 21 st Issue Without Public Offer for the Purpose of Conversion of Reserves into Fixed Capital and Based on That to Perform Adequate Replacement of the Shares to Increase Their Nominal Value, adopted by the Shareholders Assembly on June 20, 2007, belong to the holders of priority (preference) shares. Holders of convertible priority (preference) shares from this Decision are entitled to the following: - Right to the preference dividend in the amount of 3%; the preference dividend is distributed within the period ascertained by the Shareholders Assembly. If the dividend is not distributed in the current business year, the right of distribution is transferred to the next year. Distribution of the preference dividend may be postponed only once based on the Decision of the Shareholders Assembly, to a period not longer than three years. The dividend may not be distributed to ordinary shareholders, until dividends for preference shares are completely distributed. If the Bank realizes gain insufficient for settlement of obligations arising from the preference shares, the distribution of dividends based on those shares is decreased accordingly to the realized gain, and the part of unsettled obligations is transferred to the next year. - Convertible preference share of the Bank, entitles the holder to request conversion of such share into an ordinary share, at 1:1 parity, providing that the Bank s Board of Directors makes a positive decision upon the holders written request. The Bank s Board of Directors can make a positive decision on conversion of preference into ordinary shares, providing that, at the moment of decision-making, the shareholder does not have any due, outstanding obligations toward the Bank as the issuer. - Right of priority in distribution of dividends over the ordinary shareholders - Right of priority over the ordinary shareholders, in division of liquidation estate in case of liquidation of the Bank - Other rights in compliance with the Law and the Bank s general acts These terms and conditions were valid for holders of preference shares of the former Kulska banka. The Bank has declared the liabilities for dividends for preference shares referring to 2010 in the Profit and Loss Statement for DEFERRED TAX LIABILITIES Deferred tax liabilities 12,255 18,113 subsidiary 1 1 Liabilities for taxes, balance as of December 31 12,256 18,114 (thousands of RSD) Amount of difference Deferred tax amount Total as of December 31, ,188 Taxable temporary difference based on assets subject to amortization - deferred tax liabilities 39,693 (3,969) Taxable temporary difference based on assessment (fair value of securities) deferred tax assets (798) 80 Total as of December 31, ,895 30,299 44

48 (thousands of RSD) Amount of difference Deferred tax amount Taxable temporary difference based on assets subject to amortization - deferred tax liabilities 186,829 18,682 Taxable temporary difference based on assessment of buildings deferred tax assets (5,695) (569) Total as of December 31, ,134 18,113 Taxable temporary difference based on assets subject to amortization - deferred tax liabilities 136,326 13,632 Taxable temporary difference based on provisions for severance payments in compliance with IAS 19 deffered tax assets Taxable temporary difference based on unpaid public income deferred tax assets (10,710) (3,063) (1,071) Total as of December 31, Changes in deferred tax liabilities are as follows: In 2010, the Bank decreased the deferred tax liabilities for 5,858 thousand dinars. The decrease was performed based on temporary difference between the assets subject to amortization, temporary difference from performed provisions for severance payments and temporary difference from unpaid public income. Deferred tax assets from temporary difference based on provisions for severance payments and unpaid public income were declared for the first time in 2010 due to the amendments to the Enterprise Profit Tax Law. At the end of the year, the total deferred tax liabilities amounted to 12,256 thousand dinars. (306) 39. OTHER LIABILITIES RSD FX Total RSD FX Total Due to suppliers 58,676 50, ,912 58,564 15,021 73,585 subsidiary (1,491) 0 (1,491) Liabilities based on advances received 36,626 16,316 52,942 35,844 12,175 48,019 subsidiary 18, , Other liabilities from business relations 18, ,752 25, ,889 subsidiary , ,415 Liabilities in calculation 29, ,724 26, ,545 Total other liabilities 160,327 66, , ,414 28, ,453 Liabilities for net salaries Liabilities for salary and salary benefits taxes Liabilities for salary and salary benefits contributions Other liabilities to employees , ,298 Total liabilities for salaries and benefits , ,404 Total subordinated liabilities 0 15,530,941 15,530, ,698,401 13,698,401 45

49 RSD FX Total RSD FX Total Accrued liabilities for calculated interest 18, , , ,312 65,999 Accrued liabilities for other calculated expenses 63, ,055 39, ,163 Accrued interest income 33, ,415 31, ,990 Accrued income for receivables declared according to amortized value by applying of the effective interest rate 95, , , ,472 Other accrued income 11, ,440 14, ,909 Other accruals and deferred income Total accruals and deferred income 222, , , ,221 65, ,533 Total other liabilities, balance as of December ,561 15,727,186 16,109, ,039 13,791,752 14,147, EQUITY The Bank s equity is comprised of the following: share capital, reserves, share premium, retained earnings and loss. Share capital of the Bank is comprised of common (ordinary) and cumulative preference shares. Share capital Common shares 6,342,259 5,024,495 Cumulative preference shares 258,302 1,576,066 Total share capital 6,600,561 6,600,561 Share premium 349, ,734 Share premium 349, ,734 Reserves Revaluation reserves based on change of value of fixed assets 652, ,459 Revaluation reserves based on share in equity 684 1,571 Reserves 15,778 15,776 Reserves from profit for potential losses 4,897,927 4,897,927 Total reserves 5,566,843 5,568,733 Non-realized losses from securities available for sale 1, Retained earnings Retained earnings from previous years 4 360,936 Retained earnings from current year 259,068 0 Total retained earnings 259, ,936 46

50 Current period loss 2,751,371 3,230,280 Previous period loss 3,239, ,020 Equity, balance as of December 31 6,783,462 9,853,653 Pursuant to the Decision of the Securities Commission, No. 4/ /4-10 as of December 16, 2010, the Bank converted 26,600 convertible preference shares with nominal value of 49, dinars, with CFI code EFNXCR and ISIN number RSKULBE89816 into ordinary shares with nominal value of 49, dinars, with CFI code ESVUFR and ISIN number RSKULBE As of December 31, 2010, the Bank has 128,023 ordinary shares with nominal value of 49, dinars and 5,214 preference shares with nominal value of 49, dinars. Cumulative preference shares of the Bank are recognized in accordance to Paragraph 29, IAS 32 as complex financial instrument. Difference between the sum of nominal value of share capital of banks prior to the merger and nominal value of the acquirer after the statutory change and substitution of shares of the merged banks was recorded in favor of the share premium. Revaluation reserves on equity share are formed based on establishing of the market value of securities available for sale. Reserves for estimated losses were created in compliance with the Decision of the National Bank of Serbia on Classification of Balance and Off-Balance Sheet Assets (Official Gazette of the Republic of Serbia, Nos. 129/2007, 63/2008 and 104/2009) Note 30. Pursuant to the Decision from the 48 th session of the Bank s Assembly, retained earnings from the previous period were distributed as follows: 32,681 thousand dinars of retained earnings generated based on revocation of revaluation reserves from sale of property was transferred to coverage of 2009 loss and 9,401 thousand dinars of retained earnings from the previous years of the former Niška banka were transferred to coverage of a part of 2009 loss. Shareholders structure As of December 31, 2010, the Bank has 88 shareholders in total (as of December 31, 2009: 87 shareholders). The shareholders structure, as of December 31, 2010 with the share over 1% and data on number of shares recorded in the Central Securities Depository and Clearing House: 47

51 Common shares Shareholder Bookkeeping value in thousands of dinars No. of shares % share OTP Bank Rt. Budapest, Hungary 5,861, , % Home art & Sales services a.g. 259,689 5, % Dunav a.d. Ivanovo 111,069 2, % Total 6,232, , % Other 109,681 2, % Total common shares 6,342, , % Cumulative preference shares Shareholder Bookkeeping value in thousands of dinars No. of shares % share OTP Bank Rt. Budapest, Hungary 172,994 3, % Republic of Serbia 27, % Vojvoñanska banka custody 19, % AIK Niš doo 8, % Home art & Sales services a.g. 6, % Vojvoñanska banka ad Novi Sad 5, % Total 240,616 4, % Other 17, % Total preference shares 258,302 5, % Loss per share During 2010, the Bank generated a loss, hence the basic loss per share amounts to 19, dinars. The Bank did not calculate the decreased (diluted) loss per share because liabilities for dividends per preference shares are declared as the expense of the period and it does not have equity warrants and options that can be converted into ordinary shares). 41. MANAGED FUNDS Managed funds Other companies sector 34,870 37,862 Public sector 70, ,846 Total provisions for managed funds, balance as of December , ,708 48

52 Activities for on behalf of public sector are related to lending to agriculture sector from the funds of the Development Fund of the Republic of Serbia and funds of Ministry of Agriculture. 42. FUTURE COMMITMENTS RSD FX Total RSD FX Total Guarantees given and other warranties Payable guarantees 1,052, ,737 1,360,192 1,172, ,216 1,544,848 Performance bonds 1,061, ,969 1,304,280 1,210, ,418 1,362,938 Avals and acceptances 49, , ,459 13, ,737 Letters of credit 0 36,539 36, ,683 9,683 Guarantees given and other warranties, total 2,163, ,245 2,750,514 2,505, ,595 3,053,206 Commitments for unwithdrawn loans and placements that can not be cancelled unconditionally and without announcement 1,167,531 77,429 1,244, ,771 70, ,148 Other assumed commitments that can not be cancelled unconditionally and without announcement 0 22,327 22, , , ,047 Total future commitments, balance as of December 31 3,330, ,001 4,017,801 3,522, ,087 4,357, WARRANTEES RECEIVED Warranties for liabilities in foreign currency 87,208 68,730 Total warranties received, balance as of December 31 87,208 68, DERIVATIVES Receivables/liabilities arising from derivatives for currency exchange rates - forward transactions 16,000 0 Receivables/liabilities arising from derivatives for currency exchange rates - spot 316,495 0 Total derivatives, balance as of December ,495 0 Spot trade implies an operation upon which the Bank is obligated to transfer dinar i.e. foreign currency counter-value of purchased foreign currency i.e. dinars and at the same time claims foreign currency i.e. dinars from other bank. Transaction date is T+2. As of December 31, 2010, the Bank has contracted spot purchases of foreign currency with banks on the territory of the Republic of Serbia. 49

53 45. OTHER OFF-BALANCE SHEET POSITIONS Suspended interest 5,883,864 3,381,832 Deposited savings bonds 7,034,838 6,814,933 Other off-balance sheet assets 9,073 12,405 Cash equivalents 1 1,800,001 Letters of credit and guaranties 110,281 68,73 Credits per credit cards 4,203 4,204 Commitments that can be cancelled unconditionally and without announcement 1,340,297 1,110,080 Other off-balance sheet assets capitalized interest 12,873 12,873 Collaterals 279, ,172 Other off-balance sheet assets 24,986 24,475 Total other off-balance sheet positions, balance as of December 31 14,699,717 13,518,705 Changes in the position of cash equivalents are represented by repo operations that the Bank had with the National Bank of Serbia in 2009 purchasing short-term treasury bills. In 2010, the Bank did not have intensive repo operations. 46. RELATED PARTIES TRANSACTIONS Related parties disclosures are in the form of participating interests of founders, placements and deposits to subsidiaries and affiliates where the Bank has a significant equity share or where the Bank has relations with the parent bank or an entity related to the parent bank. Total receivables and liabilities towards subsidiaries and affiliates on December 31, 2010 are as follows: (thousands of RSD) Receivables OTP Leasing OTP Investments OTP Factoring OTP Bank LTD Budapest OTP Financing Netherlands Interest receivables Receivables from change of value of derivatives Fee and commission receivables Foreign currency accounts ,729 0 Equity investments 33, , Other receivables Deviation from purchase value of participating interests (4,413) Receivables from payment operations arising from payment cards Value adjustments of other receivables 0 (19) Loans on transaction accounts ,

54 (thousands of RSD) OTP Leasing OTP Investments OTP Factoring OTP Bank LTD Budapest OTP Financing Netherlands Value adjustment of loans on transaction accounts 0 0 (103) 0 0 Other deposits given in foreign currency ,551,013 0 Accrued receivables for calculated interest in foreign currency Total receivables 28, ,802 10,754 1,552,895 0 Liabilities Transaction deposits in dinars , ,570 0 Special-purpose deposits Other deposits in dinars 68, ,000,000 0 VAT liabilities Liabilities due in one day (overnight) ,667 0 Liabilities for interest Due to suppliers 77 1, ,709 0 Accrued liabilities for interest in dinars ,057 0 Accrued liabilities for other calculated expenses ,258 0 Accrued income for receivables declared according to amortized value Transaction deposits in foreign currency ,323 0 Other deposits in foreign currency 1, ,637,455 0 Subordinated liabilities ,530,941 Accrued liabilities for interest in foreign currency ,730 59,320 Total liabilities 71,450 41, ,736,433 15,590,261 Equity Share capital ,034,815 0 Total equity ,034,815 0 Total liabilities and equity 71,450 41, ,771,248 15,590,261 Total net (42,792) 162,583 10,692 (9,218,353) (15,590,261) Warranties in foreign currency ,208 0 Receivables/liabilities arising from derivatives for currency exchange rates ,000 0 Counter-guarantees ,385 0 Non-used limits for overdraft 0 0 4, Off-balance sheet positions 0 0 4, ,593 0 Other deposits given in foreign currency to OTP LTD Budapest represent a loan in the amount of 11,500 thousand euros with interest of 1.89%, contracted on December 31, 2010 and matured on January 4, 2011 and the loan of 4,000 thousand Swiss francs with interest of 1.68%, contracted on December 31, 2010 and matured on January 7, Other deposits in foreign currency from OTP LTD represent the amount of 25,000 thousand euros that the Bank borrowed, at the end of June 2010, from the parent bank as a termdeposit for the period of nine months with interest rate three-month EURIBOR %. 51

55 Subordinated liabilities in foreign currency from OTP Financing are comprised of the following amounts with corresponding interest rates: Contracted amount Debt balance as of December 31, 2010 Final due date Interest rate on an annual level 40,000, EUR 40,000, EUR January 9, 2013 Three-month EURIBOR % 20,000, EUR 20,000, EUR March 18, 2013 Three-month EURIBOR % 60,000, EUR 60,000, EUR June 9, 2013 Three-month EURIBOR % 24,000, CHF 24,000, CHF April 29, 2013 Three-month CHF LIBOR+2.26% 10,000,000 CHF 10,000,000 CHF September 5, 2013 Three-month CHF LIBOR+3.00% Realized income and expenses from transactions with related parties in the reporting period were as follows: (thousands of RSD) Income OTP Leasing OTP OTP Investments Factoring OTP Bank LTD Budapest OTP Financing Netherlands Interest income ,135 0 Fee and commission income Income from rentals of business premises , Income from cancellation of provisions for potential losses on the balance sheet assets Profit from sale of equipment Dividend in dinars 0 245, Other income Income from change of value of derivatives Income based on realized currency exchange gains and losses ,770 0 Income based on calculated currency exchange gains and losses , ,778 Total income ,937 1, , ,778 Expenses Interest expenses 5,512 5, , ,100 Fee and commission expenses Expenses from business operations ,178 0 Expenses for provisions on potential losses on the balance sheet assets Other non-business expenses and business expenses Expenses based on realized currency exchange gains and losses ,068 0 Expenses based on calculated currency exchange gains and losses ,101 2,405,003 52

56 (thousands of RSD) OTP Leasing OTP OTP Investments Factoring OTP Bank LTD Budapest OTP Financing Netherlands Total expenses 6,651 6, ,716 2,899,103 Total net (6,286) 239,801 1,768 (783,057) (2,331,325) In 2010, the Bank did not grant to related parties any placements under more favorable terms and conditions than the market ones. During 2010, the following amounts were appropriated to the members of the Executive Board and the Board of Directors: (thousands of RSD) Gross salary of the Executive Board Members 53,258 Net salary of the Executive Board Members 42,023 Rentals for the Executive Board Members 927 Costs of business vehicles for the Executive Board Members 1,015 Costs of reimbursements for the Executive Board Members 230 Costs of mobile phones for the Executive Board Members 534 Gross reimbursements for the Board of Directors Members 7,799 Net reimbursements for the the Board of Directors Members 6, RISK MANAGEMENT POLICY Liquidity Risk Liquidity of a bank represents its ability to perform its obligations within maturity period towards its depositors and creditors. Liquidity risk is a risk from occurrence of negative effects to the financial result and capital of the Bank due to inability of the Bank to meet its due obligations. The Bank continuously monitors exposure to the liquidity risk and its harmonization with the set limits. The Bank maintained the level of liquidity in 2010 within prescribed limits, keeping the average liquidity ratio during 2010 on the level of 1.99%. During 2009, the average liquidity ratio was 3.62%. During 2010, liquidity ratio ranged from 1.16% (May 21) to 4.81% (March 12). Net liquidity assets ratio in comparison to clients deposits as of December 31, 2010 amounted to 4.34%. The Bank is in position to rely on liquid assets of the parent bank, hence in the event of deterioration of liquidity due to disturbance on financial market it can bridge such deterioration by borrowing from the parent bank. During 2010, the Bank managed liquidity also through direct participation at the interbank financial market. For the purpose of risk liquidity measurement and monitoring, the Bank measures and monitors net cash flows through monitoring of assets and liabilities of the Bank based on the remaining period to maturity, by measuring cash inflows and outflows i.e. through GAP analysis. The essence of the liquidity risk management is to calculate the Bank s GAP liquidity for particular time intervals which represents the difference between anticipated sources and potential use of the assets by the Bank. 53

57 The Bank drafts GAP report for dinars that make 32% of the Bank s total assets as well as for significant currencies that make more than 1 percentage point of the Bank s total assets. Those currencies are euro, comprising 61% of the Bank's total assets and Swiss franc comprising 7% of the Bank's total assets. GAP liquidity for RSD Item 0-30 days days 3-12 months 1-5 years years Placements/liabiliti es without contracted due date (thousands of RSD) Due placements/ liabilities Cash and cash equivalents ,763, ,763,013 Revocable deposits and loans Receivables based on interests, fees, sale, fair value change of derivatives and other receivables ,405 93,404 - subsidiary Loans granted 43, ,865 1,789,287 1,817, ,911 1,215, ,359 7,354,795 Deposits placed Securities (excluding treasury shares) , ,359 7, ,042 Participating interests (equity shares) , subsidiary , Other placements 333 5, , , ,136 Intangible assets , ,663 Fixed assets and investment property ,070, ,255,503 - subsidiary , TOTAL Fixed assets for sale and assets from discontinued operations , ,382 Deferred tax assets Other assets 96,116 8,972 39,317 3,393 1,012 56,000 50, ,250 - subsidiary 19, Loss exceeding capital Participating interests (equity shares) in the equity of affiliated companies according to the equity method , ,630 TOTAL ASSETS 159, ,175 2,171,537 1,821,159 4,337,101 3,054,216 1,273,382 13,459,821 Transaction deposits ,017, ,977,644 - subsidiary ,485 0 Other deposits 153,928 2,460,876 31,701 27, ,197 37,736 2,897,513 Loans received 708,978 1, ,008 13, ,717 Liabilities on securities

58 Item 0-30 days days 3-12 months 1-5 years years Placements/liabiliti es without contracted due date Due placements/ liabilities TOTAL Liabilities on interests, fees and change of value of derivatives 3,466 1, ,045 3,701 21,299 - subsidiary Provisions 0 275, ,201 10, ,035 Liabilities for taxes 1,345 4, ,630 - subsidiary Liabilities arising from profit 188, ,583 Liabilities arising from assets held for sale and assets from discontinued operations Deferred tax liabilities , ,256 - subsidiary Other liabilities 223, ,539 4,668 5, ,204 9, ,025 - subsidiary 16, TOTAL LIABILITIES 1,296,391 2,742,739 33,260 63,630 28,317 2,365,098 64,267 6,593,702 Equity ,759, ,783,462 - subsidiary ,497 0 TOTAL LIABILITIES 1,296,391 2,742,739 33,260 63,630 28,317 9,148,560 64,267 13,377,164 - GAP RSD 1,137,140-2,099,564 2,138,277 1,757,529 4,308,784-6,094,344 1,209,115 82,657 GAP liquidity for EUR Item 0-30 days days 3-12 months 1-5 years years Placements/liab ilities without contracted due date (thousands of RSD) Due placements/ liabilities Cash and cash equivalents , ,514 Revocable deposits and loans ,765, ,765,812 TOTAL Receivables based on interests, fees, sale, fair value change of derivatives and other receivables ,873 26,873 Loans granted 85, ,959 2,698,698 7,999,292 2,286,343 7,096 1,572,963 15,392,970 Deposits placed ,373, ,373,710 Securities (excluding treasury shares) Participating interests (equity shares) Other placements 0 32,657 68,940 21, , , ,547 Intangible assets Fixed assets and investment property Fixed assets for sale and assets from discontinued operations Deferred tax assets

59 Item 0-30 days days 3-12 months 1-5 years years Placements/liab ilities without contracted due date Due placements/ liabilities Other assets -14,184 2,242 1, ,033 48,470 Loss exceeding capital TOTAL ASSETS 71, ,858 2,769,020 8,020,900 2,286,343 10,357,197 1,759,143 26,041,896 Transaction deposits ,934, ,934,387 Other deposits 16,049 1,196,876 3,998, , ,985 5,518, ,166 11,287,484 Loans received 0 0 2, , ,193 Liabilities on securities Liabilities on interests, fees and change of value of derivatives TOTAL ,082 1,455 2,792 Provisions Liabilities for taxes Liabilities arising from profit Liabilities arising from assets held for sale and assets from discontinued operations Deferred tax liabilities Other liabilities 118, ,659, , ,810,824 TOTAL LIABILITIES 134,558 1,197,021 4,001,585 12,838, ,985 7,500, ,680 26,051,680 Equity TOTAL LIABILITIES 134,558 1,197,021 4,001,585 12,838, ,985 7,500, ,680 26,051,680 GAP EUR -63, ,163-1,232,565-4,817,932 2,047,358 2,857,178 1,618,463-9,784 GAP liquidity for CHF (thousands of RSD) Item 0-30 days days 3-12 months 1-5 years years Placements/liabilities without contracted due date Due placements/ liabilities Cash and cash equivalents , ,040 Revocable deposits and loans Receivables based on interests, fees, sale, fair value change of ,410 1,410 derivatives and other receivables Loans granted ,217 2,506, ,529,467 Deposits placed , ,783 Securities (excluding treasury shares) Participating interests (equity shares) Other placements Intangible assets Fixed assets and investment property Fixed assets for sale and assets from discontinued operations TOTAL Deferred tax assets

60 Item 0-30 days days 3-12 months 1-5 years years Placements/liabilities without contracted due date Due placements/ liabilities Other assets 6, ,297 Loss exceeding capital TOTAL ASSETS 6, ,217 2,506, ,823 1,410 2,984,997 Transaction deposits , ,409 Other deposits ,245 31, , ,220 Loans received , ,718 TOTAL Liabilities on securities Liabilities on interests, fees and change of value of derivatives Provisions Liabilities for taxes Liabilities arising from profit Liabilities arising from assets held for sale and assets from discontinued operations Deferred tax liabilities Other liabilities 10, ,871, ,882,066 TOTAL LIABILITIES 11,362 35,245 31,862 2,871, , ,026,465 Equity TOTAL LIABILITIES 11,362 35,245 31,862 2,871, , ,026,465 GAP CHF -5,012-35,245-31,734-2,847,940 2,506, ,043 1,351-41,468 GAP liquidity - Total Item 0-30 days days 3-12 months 1-5 years years Placements/liabi lities without contracted due date Due placements/ liabilities Cash and cash equivalents ,117, ,117,576 Revocable deposits and loans ,884, ,884,732 Receivables based on interests, fees, sale, fair value change of derivatives and other receivables , ,692 - subsidiary Loans granted 129,155 1,371,824 4,488,114 9,840,275 5,654,323 1,222,221 2,571,321 25,277,233 Deposits placed ,717, ,717,774 Securities (excluding treasury shares) , ,359 7, ,042 Participating interests (equity shares) , subsidiary , Other placements ,995 68,940 21, , , ,683 Intangible assets , ,663 TOTAL 57

61 Item 0-30 days days 3-12 months 1-5 years years Placements/liabi lities without contracted due date Due placements/ liabilities TOTAL Fixed assets and investment property ,070, ,255,503 - subsidiary , Fixed assets for sale and assets from discontinued operations , ,382 Deferred tax assets Other assets 90,139 11,213 43,513 3,393 1,012 55, , ,713 - subsidiary 19, Loss exceeding capital Participating interests (equity shares) in the equity of affiliated companies according to the equity method , ,630 TOTAL ASSETS 238,947 1,421,032 4,943,500 9,865,276 9,129,513 14,021,415 3,033,940 42,653,623 Transaction deposits ,058, ,018,891 - subsidiary ,485 0 Other deposits 170,430 3,711,340 4,087, , ,303 5,773, ,147 14,371,206 Loans received 708,978 1,083 3, ,917 13, ,625 Liabilities on securities Liabilities on interests, fees and change of value of derivatives 3,467 1, ,128 5,227 24,188 - subsidiary Provisions 0 275, ,201 10, ,035 Liabilities for taxes 1,345 4, ,630 - subsidiary Liabilities arising from profit 188, ,583 Liabilities arising from assets held for sale and assets from discontinued operations Deferred tax liabilities , ,256 - subsidiary Other liabilities 353, ,539 15,535,609 5, ,261 9,253 16,109,747 - subsidiary 16, TOTAL LIABILITIES 1,442,559 3,993,350 4,092,023 15,776, ,302 10,090, ,263 35,870,161 Equity ,759, ,783,462 - subsidiary ,497 0 TOTAL LIABILITIES 1,442,559 3,993,350 4,092,023 15,776, ,302 16,873, ,263 42,653,623 GAP TOTAL December 31, ,203,612-2,572, ,477-5,910,871 8,862,211-2,852,564 2,825,677 0 GAP TOTAL December 31, ,998,372-2,166,706 3,050, ,451 8,217,419-11,525,559 1,037,

62 The above tables represents the analysis of due dates of assets and liabilities of the Bank as of December 31, 2010 based on contracted terms Interest Rate Risk Interest rate risk reflects uncertainty referring to the Bank s profitability, due to possible interest rate changes on domestic and foreign market. Interest rate changes have a direct affect on income and expenses of the Bank. The Bank mostly contracts variable interest rates both on placed assets as well as on the sources of the assets. Thus, the amount of assets contracted with variable interest rate as of December 31, 2010 amounted to 17,6 billion dinar or 41% of the total assets whereas the amount of liabilities with the contracted variable interest amounted to 16 billion dinars or 38% of the total liabilities. Therefore, in 2010, the Bank was very little exposed to the interest rate risk. (thousands of RSD) over 2 Non-interest Item 0-30 days days days days days years bearing TOTAL Cash and cash equivalents ,117,576 2,117,576 Revocable deposits and loans ,884,732 7,884,732 Receivables based on interests, fees, sale, fair value change of derivatives and other receivables 48,125 52, , ,977 14, ,692 Fixed interest rate 24, , , ,878 Variable interest rate 23,612 52, ,791 Non-interest bearing ,024 14,023 - subsidiary Loans granted 5,127,776 13,636, , , ,668 5,393, ,278,591 Fixed interest rate 1,818,359 77,085 62, , ,668 5,393, ,738,114 Variable interest rate 3,309,417 13,559, ,878 1, ,540,477 Non-interest bearing Deposits placed 2,716, ,716,416 Fixed interest rate 2,716, ,716,413 Variable interest rate Non-interest bearing Securities (excluding treasury shares) 7, ,081 23, ,042 Fixed interest rate 7, ,081 23, ,742 Variable interest rate Non-interest bearing Participating interests (equity shares) , subsidiary ,783 Other placements 39, , , ,683 Fixed interest rate 39, , ,563 Variable interest rate Non-interest bearing , ,120 Intangible assets , ,663 Fixed assets and investment property ,070,607 3,255,503 - subsidiary ,896 59

63 Item 0-30 days days days days days over 2 years Non-interest bearing TOTAL Fixed assets for sale and assets from discontinued operations ,382 42,382 Deferred tax assets Other assets , ,713 - subsidiary ,320 Loss exceeding capital Participating interests (equity shares) in the equity of affiliated companies according to the equity ,630 28,630 method TOTAL ASSETS 7,939,699 13,688,633 1,071, , ,952 5,396,906 14,114,345 42,653,623 Transaction deposits 4,018, ,018,891 Fixed interest rate 4,058, ,018,891 - subsidiary -39, Variable interest rate Non-interest bearing Other deposits 6,382,953 3,272,474 3,026, , , , ,829 14,371,206 Fixed interest rate 5,825,460 3,272,474 3,026, , , , ,222,884 Variable interest rate 557, ,493 Non-interest bearing , ,829 Loans received 248, , , ,625 Fixed interest rate 238, , ,674 Variable interest rate 10, ,000 Non-interest bearing , ,951 Liabilities on securities Liabilities on interests, fees and change of value of derivatives , ,875 24,188 Fixed interest rate 5, ,983 - subsidiary Variable interest rate 1, ,330 Non-interest bearing ,875 16,875 Provisions , ,035 Liabilities for taxes ,584 5,630 - subsidiary Liabilities arising from profit , ,583 Liabilities arising from assets held for sale and assets from discontinued operations Deferred tax liabilities ,255 12,256 - subsidiary Other liabilities 7,091,085 8,439, ,806 16,109,747 Fixed interest rate Variable interest rate 7,091,085 8,439, ,530,941 Non-interest bearing , ,806 - subsidiary ,578 TOTAL LIABILITIES 17,748,626 11,712,478 3,026, , , ,344 2,280,965 35,870,161 Equity ,759,965 6,783,462 - subsidiary ,497 TOTAL LIABILITIES 17,748,626 11,712,478 3,026, , , ,344 9,064,427 42,653,623 GAP December 31, ,808,927 1,976,155-1,955, ,093-41,025 5,192,562 5,049,918 0 CUMULATIVE GAP -9,808,927-7,832,772-9,788,362-10,201,455-10,242,480-5,049,

64 Item GAP December 31, over 2 Non-interest 0-30 days days days days days years bearing TOTAL - 7,259, , , ,569 3,866,924 2,827, ,048,511 Aiming to measure the exposure to the interest rate risk, the Bank uses methods stipulated by the National Bank of Serbia that are in line with Basel II. Positive amounts in GAP analysis show that the interest-bearing assets (IBA) is higher than the interest-bearing liabilities (IBL) and vice versa, in case of negative amounts, the interest-bearing liabilities (IBL) are higher than interest-bearing assets (IBA). Positive amounts indicate that the Balance Sheet of the Bank is more exposed to the interest rate risk for funds placed, whereas the negative amounts indicate that the Bank is more exposed to the interst rate risk for funds received. As of December 31, 2010, in the time interval up to 30 days, days, days and days the Bank had a negative GAP. This means that the interest rate change affects more the Bank s liabilities than the placements in that time interval as well as that the Bank is exposed to the growth of the interest rate risk on the market. Overview of interest rates of OTP banka Srbija for 2010: Annual interest rates (%) RSD EUR Financial assets Required reserve- interest bearing portion 2,5% Short-term loans to clients medium and large enterprises 2w repo+2.75% up to 2w repo+9.00% 3m EURIBOR+0.50% to 3m EURIBOR+18.5% small enterprises and entrepreneurs 2w repo-6% to 2w repo+16.5% 3m EURIBOR+3.5% to 3m EURIBOR+30.2% private individuals 25% to 34.49% 5.5% to 22% Long-term loans to clients legal entities 2w repo+3.30% up to 2w repo+8.50% 3m EURIBOR+9.00% to 3m EURIBOR+13.00% small enterprises and entrepreneurs 2w repo-6% to 2w repo+14.5% 3m EURIBOR+3.5% to 3m EURIBOR+30.2% private individuals 12.95% to 33.27% 5.5% to 22% Financial liabilities 10.6% -11.5% (O/N) Deposits to banks 14.3% (for 3 m) Due to clients 2w repo-1.70% to 2w repo+2.00% (on termdeposits) small, medium and large enterprises local self governments, autonomous 2w repo-1.30% to NBS discount rate+2.00% province and Republic of Serbia (on term-deposits) entrepreneurs 6% - 7% (on term-deposits) private individuals up to 9.50% (on term-deposits) up to 18% (on sight saving deposits) 0.7% -1.1% (O/N) 1% (for 1 week) 3.20% to 4.20% (on term-deposits) 2,6% - 3,3% (on term-deposits) up to 7.20% (on term-deposits) up to 11.10% (on sight saving deposits) Currency Risk Currency risk is a risk from the exchange rate fluctuations that can affect changes in volume and structure of assets and liabilities declared in foreign currency which, in return, can have an impact on the financial result and capital of the Bank. 61

65 Currency risk management of the Bank has to be in line with the limits set by the National Bank of Serbia and limits set by the Bank itself, not jeopardizing the Bank's profitability. Currency risk limits are established on such level that the Bank shall not sustain significant losses due to exchange rate movements in comparison to dinar. Exposure to the currency risk for a particular currency represents a risk of possible changes in value of receivables and obligations of the Bank for a particular currency attributable to changes in exchange rates. Currency risk presumed by the Bank for a particular currency is measured by the difference between the total amount of receivables and total amount of obligations denominated in that currency (open foreign currency position). Obligations and receivables with currency clause represent obligations and receivables where the contract stipulates that the value in dinars is linked to the value of other currency. Such obligations and receivables are included into measuring of the Bank s exposure to the currency risk. Currency risk indicator is the basic indicator of balance and structure of the Bank's foreign currency receivables and obligations in comparison to the capital. The Bank manages the currency risk in an efficient manner which is confirmed by the currency risk indicator on an average level of 1.26% in 2010, significantly lower than the limit of 20% set by the National Bank of Serbia. During 2010, the liquidity ratio indicator ranged from 0.12% (January 14) to 11.02% (January 29). It was mostly within the range up to 2%. Occasional deviations from that level are the result of subsequent calculations and recording of value adjustments for loans with currency clause. The open position in euros was increased from time to time during the year for those amounts, resulting in breach of established limits of the Bank s open positions and increase of the currency risk indicator. After performed booking of value adjustment, the open position in euros was returned within prescribed limits. Currency risk indicator on the last day of the year amounted to 0.96%. Item RSD EUR EUR INDEXED USD CHF (thousands of RSD) CHF INDEXED Other Total Cash and Cash Equivalents 1,763, , , , ,951 2,117,576 Revocable deposits and loans 0 7,765, , ,884,732 Receivables based on interests, fees, sale, fair value change of derivatives and other receivables 93,406 3,270 23, , , subsidiary Loans granted and deposits placed 7,354,799 2,911,842 14,854,837 6, ,783 2,529, ,995,007 Securities (excluding treasury shares) 368, ,042 Participating interests (equity shares) 203, subsidiary -203, Other placements 132,136 71, , ,683 Intangible assets 147, ,663 Fixed assets and investment property 3,070, ,255,503 62

66 Item RSD EUR EUR INDEXED USD CHF CHF INDEXED Other Total - subsidiary Fixed assets for sale and assets from discontinued operations 184, , ,382 Deferred tax assets Other assets 254,929 16,911 31,560 2, ,281 1, ,713 Participating interests (equity shares) in the equity of affiliated companies according to the equity method - subsidiary 19, , ,630 Loss exceeding capital TOTAL ASSETS 13,459,822 10,976,978 15,064, , ,839 2,537,158 14,783 42,653,623 Transaction deposits 2,017,129 1,934, ,433 37, ,018 4,018,891 - subsidiary -39, Other deposits 2,897,513 11,283,958 3,526 83,763 94, ,227 14,371,206 Loans received 791,716 16, ,997 12, ,625 Liabilities on securities Liabilities on interests, fees and change of value of derivatives ,506 2, ,188 - subsidiary Provisions 317, ,035 Liabilities for taxes 5, ,630 - subsidiary Liabilities arising from profit 188, ,583 Liabilities arising from assets held for sale and assets from discontinued operations Deferred tax liabilities 12, ,256 - subsidiary Other liabilities 365,446 12,810, ,829 2,882, ,109,747 - subsidiary 16, TOTAL LIABILITIES 6,593,702 26,047,620 4, ,065 3,026, ,248 35,870,161 EQUITY 6,759, ,783,462 - subsidiary 23, TOTAL LIABILITIES 13,377,164 26,047,620 4, ,065 3,026, ,248 42,653,623 GAP December 31, ,658-15,070,642 15,060,857-31,940-2,578,626 2,537, Credit Risk Credit risk is a risk from occurrence of negative effects to the financial result and capital of the Bank due to debtors inability to meet their due obligations toward the Bank. The Bank is 63

67 exposed to the credit risk when approving loans and that risk represents a possibility that the beneficiary shall became incapable to fulfill due obligations, partially or in the full amount. The Bank s business policy requires identification, measurement and assessment of the credit risk according to the debtor s creditworthiness and its regular settlement of obligations toward the Bank. The Bank manages the credit risk by determining the limit levels of the credit risk level by establishing the limits of acceptable credit risk in relation to one or more debtors. The Bank manages the credit risk through regular analysis of the capability of the borrower and potential borrowers to fulfill their repayment obligations of interest and principal i.e. by setting of loan limits. There is a dispersion in the Bank in relation to decision-making levels referring to placement of funds. This dispersion was achieved by setting of limits up to which certain persons or bodies of the Bank can make such decisions. The Bank continuously monitors the credit risk through: - solvency and creditworthiness of the client of the Bank and means (instruments) of collaterals (continuously or according to the need), - level of loan, interest and fee collection (daily and monthly monitoring), - defining of adequate loan price that covers the placement risk, - reviewing of the Bank's exposure to the credit risk, assessment of the total loan portfolio s risk level in compliance with stipulated standards, upon which special reserves are formed (monthly monitoring), - recording of potential losses for each client individually. The Bank is protected against the credit risk primarily through: - reviewing (assessment) of possibilities of the debtor to settle its obligations in contracted terms, - assessment and establishing of profitability of operations and yield rate on placed funds, - taking of adequate collaterals from debtors (beneficiaries): deposits, mortgages, warranties, guaranties of other banks, bills of exchange, etc. - diversification of loans to a greater number of clients, - contracting of currency clause in order to preserve the real value of placements, - setting of limits on the client level and client - affiliate group level and the like. The Bank assess recoverability i.e. loss of each placement prior to approval of placement through the analysis and in compliance with prescribed credit analyses, as well as periodically (monthly) during the business relations. Provisions for risks of potential losses is assessed in compliance with the internal methodology and IAS 39, as well as regulations of the National Bank of Serbia. The amount of provisions for loans kept based on the amortized value is calculated by application of discounting of future cash flows. Assessment of risk of failing to fulfill obligations, i.e. possible loss for exposure comprised of receivables for which value adjustment of balance sheet assets and provisions for losses according to off-balance sheet items is calculated on an individual basis (individual assessment) is performed by classifying into particular risk categories of each placement individually and within stated part of the credit portfolio through discounting of future cash flows in order to establish the required amount of present value of placement. The remaining amount of the loan portfolio made of receivables classified on group basis is classified based on the number of days in default in settlement of debtor s obligation towards 64

68 the Bank as the main principle, whereas the special reserve is created by direct application of percentages stated in the table for the given group. This group of receivables is classified into subgroups with similar features. Provisioning/Impairment Matrix Legal entities A B Product/Category A1 A2 A3 A4 B1 B2 B3 B0 Days of default up to Investment loans 0% 1% 1.5% 2% 11% 30% 70% 80% 100% Working capital loans 0% 2% 5% 7% 25% 35% 80% 85% 100% Overdraft for legal entities; revolving loans; other 1% 2% 7% 10% 30% 50% 85% 90% 100% C Private individuals A B Product/Category A1 A2 A3 A4 B1 B2 B3 B0 Days of default up to Housing loans 0% 1% 1.5% 2% 11% 30% 70% 80% 100% Car loans 0% 1.5% 2% 5% 20% 40% 80% 85% 100% Consumer loans 0% 2% 5% 10% 30% 50% 90% 90% 100% Other loans 0% 2% 5% 7% 30% 50% 85% 90% 100% Other: overdrafts, credit cards, loans without purpose and the like Recorded value adjustments and provisions for losses based on the individual assessment were determined by an analysis of the existing information and events based on which it may be expected that the placements shall not be collected. The Bank assesses the existence of objective evidence on impairment of financial assets. If the Bank determines the existence of objective evidence on impairment of financial assets, the amount of value adjustment is estimated as the difference between the carrying value of assets and present value of future cash flows calculated by application of the contracted effective interest rate of the financial asset. Such calculated value adjustment of the balance sheet assets and provisions for losses for off-balance sheet items is charged to the expenses of the Bank. Assessment of the existence of objective evidence on impairment is performed on an individual level of financial assets that are individually significant or on a group level for financial assets that are less significant. If the Bank, through individual assessment, establishes that there is no objective evidence on impairment of financial assets, such assets are included into the assessment on the group level of financial assets of a similar credit risk. Those assets for which impairment is established and acknowledged through individual assessment are not included into the group level assessment. The group level assessment is diversified upon the following criteria: type of debtor, type of placement and maturity. Special reserve for estimated losses is assessed in accordance with the regulations of the National Bank of Serbia. Loans, placements and other exposures of the Bank are classified into categories A, B, V, G and D, in accordance with the assessment of collectibility of loans and other placements, depending upon: number of days exceeding the maturity of the principal and the interest, financial position of the client and quality of acquired collaterals. Estimated amount of the special reserve for estimated losses is calculated by application of 0% for placements classified into A category, 5% for placements classified into B category, C 65

69 20% for placements classified into V category, 40% for placements classified into G category and 100% for placements classified into D category. Reserves from profit for potential losses are calculated as a sum of established positive differences between the special reserve for potential losses calculated in compliance with the regulations of the National Bank of Serbia ( Official Gazette of the Republic of Serbia", Nos. 129/2007, 63/2008, 104/2009 and 30/2010) and value adjustment of the balance sheet asset and provisions for losses according to the off-balance sheet items estimated in compliance with the internal act of the Bank. In case the profit of the Bank is not sufficient for creation of calculated level of this provision, the difference is stated as the amount of provision that is missing Loan commitments The main purpose of these instrument is insurance of availability of assets according to clients needs. Guarantees and approved letters of credit are irrevocable warranties that the Bank shall perform disbursement in case of inability of the client to settle its obligations toward third parties and represent an equal credit risk as the loan itself. Loan commitments represent unused parts of approved overall loans (revolving loans and credit cards), guaranties or letters of credit as well as other types of warrantees. Considering that credit risk is related to loan commitments, the Bank is potentially exposed to a loss in the amount equal to the total amount of unused assets. However, the expected amount of loss is smaller than the total amount of unused approved assets, since most of the loan commitments are related to maintenance of specific loan standards by the client. The Bank monitors the period until the maturity of loan commitments, considering that the given long-term obligations represent a greater loan risk than short-term loans. The Bank managed the credit risk in compliance with the adopted policy and has identified the most significant changes in fluctuations that could impact the credit risk Maximum exposure to the credit risk prior to taking of collaterals or other increases of credit standing of securities The table below represents the maximum exposure to the credit risk irrespective of collaterals or other increases of credit standing of securities. The exposure is based on carrying values from the Balance Sheet. Maximum exposure per balance sheet items, with balance as of December 31, 2010 in comparison to December 31, 2009 was increased for 7.01%, mostly related to loans, for 10.5%, as well as in relation to off-balance sheet items for 4.6%. Receivables from interests, fees and commissions 182, ,412 Loans granted and deposits placed 35,341,105 31,975,606 Securities at fair value through Profit and Loss Statement in RSD 0,0 0 Securities available for sale 538, ,606 Securities held to maturity in RSD 419,798 1,428,840 Other placements 964, ,376 66

70 Other assets 349, ,715 Maximum exposure per balance sheet items 37,795,771 35,318,556 Payable guarantees 1,360,191 1,544,848 Performance bonds 1,304,281 1,362,937 Avals and bill acceptances 49, ,737 Letters of credit 36,539 9,683 Warrantees for liabilities 87,208 68,730 Irrevocable commitments 1,267,287 1,304,196 Receivables for derivatives 332,495 0 Other off-balance sheet assets 1,427,505 1,178,811 Maximum exposure per off-balance sheet items 5,865,009 5,604, Placements Total provisions for impairment of placements on individual basis is 7,952,186 thousand dinars, whereas, in 2009, it was 5,391,110 thousand dinars, out of which 6,488,858 thousand dinars were the provisions for individually impaired loans, whereas the remaining amount of 1,463,326 thousand dinars were the group level provisions. During 2010, the Bank s placements were increased for 5.6% as the result of a higher credit activity with banks. Aiming to minimize the potential increase of the credit risk exposure, the Bank shall focus more on retail clients with adequate collaterals. Neither due nor impaired Release for individually impaired loans Total release for impairment (thousands of Due but not Release for group RSD) impaired Impaired impaired loans Total net Housing loans 886,379 1,394 3,157, ,996 99, ,784 3,823,606 Overdrafts 179,957 9, ,237 5, , , ,141 Cash loans 1,705,833 2, , , ,342 1,862,741 Cards 1,059,331 6, ,437 2, , ,072 1,158,317 Consumer 110, , ,486 65, ,209 Other consumer 250, ,597 72,988 46, , ,007 MSE 281,733 9,906 4,707,294 1,200, ,209 1,632,372 3,366,562 Corporate 214,941 33,132 19,164,792 4,796,836 22,596 4,819,432 14,593,433 Municipalities Loans to banks 1,160,483 2, , ,144 2, ,581 1,166,267 as of December 31, ,849,164 66,378 28,833,044 6,488,858 1,463,326 7,952,186 26,796,402 (thousands of RSD) Neither due nor impaired Due but not impaired Impaired Release for individually impaired loans Release for group impaired loans Total release for impairment Total net Housing loans 895,249 1,102 2,422,973 47,701 98, ,386 3,172,938 Overdrafts 168,440 5, ,188 5, , , ,465 Cash loans 538,410 4, , , , ,484 Cards 1,160,667 8, , , ,558 1,291,706 Consumer 151, , ,966 68, ,302 Other consumer 174,452 4, ,915 43,045 25,270 68, ,324 MSE 341,940 16,115 4,551, , , ,607 4,097,909 Corporate 263,765 32,455 20,275,328 3,206,050 20,512 3,226,562 17,344,986 67

71 (thousands of RSD) Neither due nor impaired Due but not impaired Impaired Release for individually impaired loans Release for group impaired loans Total release for impairment Total net Municipalities Loans to banks 0 16, , ,724 2, ,994 10,757 as of December 31, ,694,318 89,846 29,134,816 4,015,153 1,375,956 5,391,110 27,527, Placements neither due nor impaired Loan quality of the portfolio of placements neither due nor impaired can be assessed via internal rating system adopted by the Bank. Loans neither due nor impaired make 16.8% of the total loans, out of which 98.99% belong to the group of loans being repaid according to the internal rating of the Bank. (thousands of RSD) Loans being repaid Loans to be monitored Loans below average Suspicious loans Bad loans Housing loans 886, ,379 Overdrafts 179, ,957 Cash loans 1,683,833 22, ,705,833 Cards 1,059, ,059,331 Consumer 110, ,479 Other consumer 250, ,028 MSE 280,438 1, ,733 Corporate 179, , ,941 Municipalities Loans to banks 1,160, ,160,483 as of December 31, ,790,375 23,313 35, ,849,164 Loans being Loans to be Loans below Suspicious (thousands of RSD) Bad loans Total repaid monitored average loans Housing loans 895, ,249 Overdrafts 168, ,440 Cash loans 538, ,410 Cards 1,160, ,160,667 Consumer 151, ,395 Other consumer 174, ,452 MSE 336,050 4,540 1, ,940 Corporate 235,881 27, ,766 Municipalities Loans to banks as of December 31, ,660,305 32,610 1, ,694,319 Total Placements due but not impaired Loans due but not impaired make 0.20% of the total loans, out of which 56.17% belong to the group of loans that are either not due or are due up to 30 days. Gross amount of placements per classes of clients in default but not impaired is as follows: 68

72 (thousands of RSD) Due up to 30 days Due days Due days Due days Due days Due 1-5 years Due over 5 years Housing loans 1, ,395 Overdrafts 9, ,269 Cash loans 2, ,743 Cards 6, ,620 Consumer Other consumer MSE 9, ,906 Corporate 5, , ,132 Municipalities Loans to banks 2, ,716 as of December 31, , , ,378 Total Collateral fair value 4, (thousands of RSD) Due up to 30 days Due days Due days Due days Due days Due 1-5 years Due over 5 years Housing loans Overdrafts ,102 Cash loans 5, ,799 Cards 3, ,475 Consumer 8, ,443 Other consumer MSE 4, ,272 Corporate 16, ,115 Municipalities 29, , ,455 Loans to banks 16, ,884 Balance as of December 31, 85, , , Collateral fair value 8, Total Renewed placements Rescheduling is performed in cases when the Bank considers highly unlikely that the debtor shall fully settle its obligation toward the Bank in accordance with the existing loan agreement and loan arrangement. Rescheduling activities involve arrangements with prolonged repayment, approved plans for external management, amendments and delay in repayment. If after rescheduling, the client continues to service regularly its obligations related to the new loan arrangement, the placement is no longer treated as problematic. The decision on rescheduling is adopted when the Bank, based on the review of the client s financial standing and its market potential, determines that rescheduling and/or restructuring of the client s obligations in the Bank and/or all obligations in all credit institutions would enable the client to overcome the existing problems and allow the client to continue with regular servicing of its obligations with its business operations and future financial results. Rescheduling/restructuring is defined by the Procedure on Classification of Balance Sheet Assets and Off-Balance Sheet Items of the Bank in compliance with the Decision of the 69

73 National Bank of Serbia and Procedure for Classification of Loans and Potential Liabilities internal classification system in compliance with the IAS. During 2010, the Bank performed restructuring/reprogramming in the total amount of 23,906 thousand euros i.e. 2,522,127 thousand dinars Concentration of risks of financial assets with exposure to credit risk Concentrations of risk arise due to financial instruments that have similar features and which are similarly affected by the changes of economic and other conditions. a) Concentration per regions The following tables show the breakdown of exposure of the Bank according to the carrying amounts, categorized according to geographical regions on December 31, 2010 and December 31, For these tables, the Bank determined exposures per regions of the Republic of Serbia. (thousands of RSD) Vojvodina Belgrade Serbia Total Receivables from interests, fees and commissions 77,398 31,430 73, ,510 Loans granted and deposits placed 19,140,151 6,425,583 9,775,371 35,341,105 Securities available for sale 538, ,261 Securities held to maturity in RSD 381,739 20,684 17, ,798 Other placements 493, , , ,770 Other assets 1,344, ,351 (1,140,801) 349,327 Maximum exposure per balance sheet items, as of December 31, ,975,945 6,761,041 9,058,786 37,795,771 (thousands of RSD) Vojvodina Belgrade Serbia Total Receivables from interests, fees and commissions 84,245 39,772 72, ,412 Loans granted and deposits placed 15,964,861 7,346,774 8,663,971 31,975,606 Securities available for sale 540, ,606 Securities held to maturity in RSD 1,388,708 20,729 19,403 1,428,840 Other placements 422, , , ,376 Other assets 154,722 78, ,715 Maximum exposure per balance sheet items, as of December 31, ,555,496 7,652,687 9,110,372 35,318,555 a) Concentration per activities The table below provides an overview of the main exposure of the Bank according to declared values, categorized per industrial sectors of clients. 70

74 Financial institutions Production Property Public sector Other Entrepreneurs Private individuals Bankruptcy (thousands of RSD) Trade Total Receivables from interests, fees and commissions 2,483 80,398 2,729 40, ,895 11,609 15,781 14, ,510 Loans granted and deposits placed 3,040,123 12,041, ,614 6,331, ,067, ,248 8,528,535 1,781,639 35,341,105 Securities available for sale 130, , , , ,261 Securities held to maturity in RSD 0 56, , , , ,798 Other placements 7, , , ,810 7,999 28, , ,770 Other assets 3,206 75,711 4,312 29,794 24, ,917 7,887 5,510 16, ,327 Maximum exposure per balance sheet items, as of December 31, ,183,360 12,708, ,713 6,594, ,378 2,296, ,743 8,578,142 2,472,860 37,795,771 Financial institutions Production Property Trade Public sector Other Entrepreneurs Private individuals (thousands of RSD) Total Receivables from interests, fees and commissions 1, ,912 5,216 45, ,755 11,921 12, ,412 Loans granted and deposits placed 244,216 13,324,454 1,149,969 7,285, ,142,075 1,022,718 6,806,955 31,975,606 Securities available for sale 289, , , ,606 Securities held to maturity in RSD 1,640 64, ,434 1,347,820 3, ,428,840 Other placements 95, ,615 7, , ,852 7,999 27, ,376 Other assets 3,997 65,556 4,175 18,569 4, ,931 5,139 1, ,715 Maximum exposure per balance sheet items, as of December 31, ,227 14,218,257 1,299,396 7,590,554 1,352,309 2,326,171 1,047,777 6,848,864 35,318,555 c) Maturity of off-balance sheet records Guarantees given and other warranties 2,750,514 3,053,206 up to 1 year 2,665,172 2,908,485 from 1 to 5 years 41,633 25,778 over 5 years 43, ,943 Warrantees for liabilities 87,208 68,730 up to 1 year 0 0 from 1 to 5 years 87,208 68,730 over 5 years 0 0 Irrevocable commitments 1,267,287 1,304,195 up to 1 year 290,161 1,024,372 from 1 to 5 years 38, ,418 over 5 years 938, ,405 71

75 Derivatives 332,495 0 up to 1 year 332,495 0 from 1 to 5 years 0 0 over 5 years 0 0 Other off-balance sheet assets 1,427,505 1,178,810 up to 1 year 1,340, ,729 from 1 to 5 years 87, ,081 over 5 years 0 0 Maturity of off-balance sheet records up to 1 year 4,628,125 4,124,586 from 1 to 5 years 254,821 1,241,007 over 5 years 982, ,348 Total - maturity of off-balance sheet records 5,865,009 5,604, Value adjustment Reconciliation of accounts for reserves for losses on placements per class: Short-term loans Long-term loans Value adjustments RSD FX RSD FX Balance as of January 1, ,027, ,646 1,126, ,475 Increase of value adjustment during ,814, ,054 2,364, ,253 Decrease of value adjustment during ,382, ,801 2,318, ,174 Balance as of December 31, ,458, ,899 1,172, ,554 Value adjustments Interests Fees and commission Other assets Balance as of January 1, , ,304 Increase of value adjustment during ,527 47, ,614 Decrease of value adjustment during ,094 38, ,185 Balance as of December 31, , ,733 Value adjustments Securities Balance as of January 1, ,172 Increase of value adjustment during ,508 Decrease of value adjustment during ,663 Balance as of December 31, ,017 72

76 48. SENSITIVITY ANALYSES Currency Risk Since the Bank s liabilities in foreign currency are higher than the receivables, the sensitivity of the Bank to the exchange rate changes is related to dinar depreciation. In the sensitivity analysis it was assumed that the local currency may depreciate at best 5%, in moderate 10% and in the worst case scenario 15%. During 2010, dinar was depreciated for 10% in comparison to euro. This jeopardized the planned inflation level. However, at the beginning of February 2011 (on February 3 - the middle exchange rate of the NBS for EUR was RSD) there was an appreciation of dinar for 1.63%. Since the exchange rate should reflect the ratio of offer and demand of foreign currency on the market and in that sense it is realistic to expect that the stable trend shall be maintained, with slight daily fluctuations in comparison to Foreign currency reserves are stable despite the fact that, during the year, the NBS intervened at the interbank foreign currency market by selling 2,579 billion euros and purchasing of 226,5 million euros. Besides, beginning of the EU accession process, decrease of the country risk by international credit rating agencies, as well as sale of Telekom, may lead to increase of foreign capital inflow that could eventually mean strengthening of dinar. For that reason, the sensitivity analysis did not assume decrease of dinar for more than 15%, the percentage provisioned in the worst case scenario. As of December 31, 2010, the Bank has an open short position and is vulnerable to dinar depreciation. The long open position is in euros, whereas the short open position is in dollars and Swiss francs. The Bank uses VaR analysis for calculation of the currency risk and daily limit for 99%. Oneday VaR is set to 7.25 million dinars. The stop-loss limit is at the same level, therefore in case the Bank s limit is jeopardized due to high exchange rate fluctuations, it shall decrease the open position to the level ensuring the movement of potential loss within the defined limits. In the sensitivity analysis to change of dinar exchange rate, we considered only the balance sheet positions with foreign currency sign. We applied the percentage of exchange rate increase of 5%, 10% and 15% to those amounts and got the amounts that would increase the value at risk recorded on December 31, (thousands of RSD) Item ASSETS Balance December 31, 2010 Exchange rate change 5% 10% 15% Cash and Cash Equivalents 354,563 17,728 35,456 53,184 Revocable deposits and loans 7,884, , ,473 1,182,710 Receivables based on interests, fees, sale, fair value change of derivatives and other receivables 28,287 1,414 2,829 4,243 Loans granted and deposits placed 20,640,207 1,032,010 2,064,021 3,096,031 Other placements 226,547 11,327 22,655 33,982 Other assets 59,465 2,974 5,946 8,920 TOTAL ASSETS 29,193,801 1,459,690 2,919,380 4,379,070 73

77 Item LIABILITIES Balance December 31, 2010 Exchange rate change 5% 10% 15% Transaction deposits 2,041, , , ,187 Other deposits 11,473, ,685 1,147,369 1,721,054 Loans received 30,909 1,545 3,091 4,636 Liabilities on interests, fees and change of value of derivatives 2, Other liabilities 15,727, ,387 1,572,772 2,359,159 TOTAL LIABILITIES 29,276,458 1,463,823 2,927,646 4,391,469 Value at Risk -82,658-4,133-8,266-12,399 Exchange rate change Balance December 31, % 10% 15% Value at Risk 2010 (82,658) (4,133) (8,266) (12,399) 5% 10% 20% Value at Risk 2009 (56,988) (113,975) (227,950) Interest Risk Interest risk represents uncertainty in respect to income and expenses due to interest rate changes, directly affecting the relation between income and expenses of the Bank. In 2011, domestic loan interests shall primarily depend on the amount of the country credit risk premium, fluctuations of reference interest rate and inflation rate, exchange rate stability, as well as interests paid by banks for their sources, primarily for foreign currency savings of private individuals. NBS performed significant correction of the reference interest rate in 2010, from 9.50% at the end of 2009 to 11.50%, as of December 31, By this, it has been increased for 200 base points. In January 2011, the reference interest rate was additionally increased for 50 base points and it is currently at 12%. With the increase of the reference interest rate, the National Bank of Serbia strives to secure the inflation, in the midterm, within the limits of set target of 4.5 % (plus-minus 1.5 %) for the end of 2011 and 4% (plus/minus 1.5 %) for the end of Namely, in the first quarter of 2011, the inflation increase is expected and it will remain on a high level during the second quarter whereas in the second half of the year significant decrease is expected. The trend of the reference interest rate is in compliance with the inflation fluctuations, hence we can expect its growth in the first half of the year. It is obvious that further growth of the reference interest rate shall lead to an inevitable adjustment of loan prices which would result in additional increase of loan prices and sources of financing. In 2010, the three-month EURIBOR ranged from to and at the end of the year it was Namely, throughout the entire year, EURIBOR had a continuous increase thus, 74

78 hence we expect a slight growth in As regards to the interest risk sensitivity analysis we have started from the assumption that the interest risk might increase as follows: in the zone of low risk for ten index points, in the zone of average risk for twenty and in the zone of high risk for fifty index points. Since the Bank s obligations in foreign currency are higher for 1.6 billion dinars than the receivables in foreign currency, the trend of EURIBOR increase could result in decrease of net interest income. Only the balance sheet positions with variable interest rate were considered in the sensitivity analysis. Due to this reason the data for 2009, when we considered the total amounts of particular balance sheet positions, cannot be compared with the value at risk for (thousands of RSD) Item TOTAL December 31, 2010 RSD FX Low Moderate High RSD 0.50% 1.00% 1.50% FX 0.10% 0.20% 0.50% ASSETS Loans granted and deposits placed 17,540,469 3,576,482 13,963,987 31,846 63, ,467 Securities (excluding treasury shares) Receivables based on interests, fees, sale, fair value change of derivatives and other receivables 69,807 47,382 22, TOTAL ASSETS 17,610,576 3,624,164 13,986,412 32,107 64, ,295 LIABILITIES 0 Other deposits 557, , ,787 5,573 8,360 Loans received 10,000 10, Liabilities on interests, fees and change of value of derivatives 1,330 1, Other liabilities 15,579, ,579,722 15,580 31,159 77,899 TOTAL LIABILITIES 16,148, ,673 15,579,722 18,423 36,846 86,429 Value at Risk ,462,181 3,055,491-1,593,310 13,684 27,368 37, Stress Test Stress test is consisted of two parts: 1. Analysis of effects of exchange rate change 2. Analysis of effects of interest rate change (thousands of RSD) Low Moderate High Low Moderate High Exchange rate risk 4,133 8,266 12,399 56, , ,95 Interest rate risk 13,684 27,368 37,866 9,431 18,863 78,718 Share risk ,793 68, ,927 Total Value at Risk 17,817 35,634 50,265 80, , ,645 75

79 49. BUSINESS OPERATIONS PER SEGMENTS Overview of the Bank s net income and expenses per sectors (thousands of RSD) 2010 Retail sector Corporate sector Other Total Net interest income/expenses 602, ,993 (7,840) 957,841 Net fee and commission income 330, ,364 5, ,974 Net loss from sale of other placements 0 274, ,462 Currency exchange gains and losses, net income/expenses (592,624) (1,876,464) 20,301 (2,448,787) Income from dividends and participating interests 0 245, ,268 Other income 13,238 36,639 32,599 82,476 Net income/expenses on indirect write-offs of placements and provisions 16,636 (1,933,783) (17,388) (1,934,534) Salary, benefits and other personnel expenses ,982 Amortization costs ,769 Operational and other operating expenses 169, , ,222 1,177,335 Net income from change of value of placements and liabilities 881,299 1,711,818 5,366 2,598,483 Loss from regular operations ,504,827 Profit tax paid ,053 Profit from created deferred tax assets and reduction of deferred tax liabilities ,858 Loss (2,500,022) (thousands of RSD) 2009 Retail sector Corporate sector Other Total Net interest income 554, ,643 91,892 1,404,189 Net fee and commission income 286, ,069 19, ,404 Net loss on sale of securities available for sale Currency exchange gains and losses, net income/expenses (426,900) (1,143,946) (230,307) (1,801,153) Income from dividends and participating interests ,042 Other income 18,409 37,034 60, ,828 Net income/expenses on indirect write-offs of placements and provisions (39,041) (2,232,671) 12,962 (2,258,750) Salary, benefits and other personnel expenses ,276,802 Amortization ,067 Operational and other operating expenses 165, , ,442 1,411,629 Net income/expenses from change of value of placements and liabilities 419,277 1,530,795 64,113 1,885,959 Loss from regular operations ,134,989 Profit tax paid Profit from created deferred tax assets and reduction of deferred tax liabilities ,185 Loss (3,123,213) 76

80 Retail sector covers both domestic and foreign private individuals, as well as farmers and entrepreneurs, whereas corporate sector covers public enterprises, other companies and foreign legal entities. The sector of others covers all sector structures not included in the previous two groups Overview of the Bank s income and non-current assets per geographical division Region Income Non-current assets Income Non-current assets Belgrade 2,037, ,902 2,115, ,358 Serbia 3,138,446 1,268,451 3,273,595 1,367,266 Vojvodina 7,140,798 1,763,917 6,280,406 1,840,492 Total 12,316,722 3,218,270 11,669,129 3,396, Overview of Consolidiated Profit and Loss Statement (thousands of RSD) Total Internal relations Consolidated Total Internal relations Consolidated Net interest income 957,841 5, ,092 1,404,189 9,329 1,413,518 Net fee and commission income 631, , , ,305 Net loss on sale of securities available for sale Net loss from sale of other placements 274, , Currency exchange gains and losses, net expenses 2,448, ,448,787 1,801, ,801,153 Income from dividends and participating interests 245, , , ,042 Other income 82, , ,828 1, ,339 Net expenses on indirect write-offs of placements and provisions 1,934, ,934,517 2,258,750 3,198 2,261,948 Net income from change of value of assets and liabilities 2,598, ,598,483 1,885,959-38,688 1,847,271 Other expenses 2,363,086 12,527 2,375,613 3,043,498 28,650 3,072,148 Profit from regular operations Loss from regular operations 2,504, ,349 2,756,176 3,134,989 59,785 3,194,774 Period result loss before tax 2,504, ,756,176 3,134, ,194,774 Profit tax paid 1, , Profit from created deferred tax assets and reduction of deferred tax liabilities 5, ,858 12, ,185 Net profit Net loss 2,500, ,751,371 3,146, ,182, EQUITY MANAGEMENT The Bank is obligated to reconcile its scope and structure of business activities with business activity indicators stipulated by the Law on Banks and bylaws. 77

81 Generated indicators of business operations of the Bank referring to capital requirements as of December 31, 2010 were within values prescribed by the National Bank of Serbia. Foreign currency open position, net as of December 31, 2010 amounted to 0.96% of the Bank s capital. The Bank has reconciled placements and obligations per currencies and actively implements the policy of foreign currency open positions striving to harmonize with the exchange rate movements, before all with dinar/euro rates. The Bank has set limits by the parent bank for the open position in euros in the amount of 240 million dinars and the total open position of 400 million dinars, which is lower than 20% of the Bank s capital stipulated by the National Bank of Serbia. 51. TERMINATION OF RECOGNITION OF FINANCIAL ASSETS The Bank did not have any cases of termination of recognition of financial assets in the sense of loss of control over the financial assets. 52. NON-SETTLEMENT OF LIABILITIES AND BREACH OF LIABILITIES The Bank did not have any unsettled liabilities and/or breach of its liabilities. 53. HEDGING The Bank does not apply hedge accounting. 54. COLLATERALS The Bank has sureties received for its liabilities in the total amount of 87,208 thousand dinars. This surety refers to the guarantee taken from the parent bank and it is related to the guarantee in favor of Visa International. 55. POST BALANCE SHEET EVENTS On January 5, 2011, the Bank repaid the loan from OTP LTD in the amount of 25,000 thousand euros, three months prior to maturity. On January 13, 2011, the Bank sold its loan portfolio to the company OTP Factoring Serbia in the amount of 9,9 million euros. On December 31, 2010, the Bank created a level of value adjustment for sold placements in the amount that enabled the net bookkeeping value to correspond the market i.e. sale price. Sale of receivables referred to receivables of 19 clients, Medoprodukt DOO Tavankut being the largest client. 78