We are closest to you wherever you need us.

Transcription

1 ANNUAL REPORT

2 Content 1. Address by the managing director 4 2. General information about the company 6 3. Company structure Main events Corporate social responsibility Personnel policy Description of the macroeconomic and competitive environment Report on business activities Financial statements Branch network 116 We are closest to you wherever you need us.

3 1. Address by the Managing Director Dear Clients, Business Partners, and Shareholders, We have another demanding year behind us; as usual, it was a year full of changes. The life of banks, including ours, was undoubtedly influenced by the large amount of new legislation adopted both at the national level and at the level of the European Union. In addition to a number of new or modified regulatory rules, we also participated in the implementation of the single area of cashless payments, SEPA - Single Euro Payments Area. In contrast to the aforementioned regulation, we continue simplifying our services and products for clients and thus believe in making their everyday lives easier. We have launched a new product - the Good Loan (Dobrá pôžička), continued to expand our ATM network, and have fundamentally expanded the number of cash dispensary sites thanks to the CashBack service. All this proves that we are progressing with our strategy of being the most accessible bank in Slovakia, thanks in part to our partnership with Slovak Post (Slovenská pošta). We have also simplified our portfolio of deposit products and are convinced that, even in this time of low interest rates, it is possible to offer our clients a fair appreciation of their savings. while leaving room for savers who were interested in a passively managed fund, i.e., the Perspektíva index-based non-guaranteed pension management fund, in as well. Despite the decreased financial result of Poisťovňa Poštovej banky (Poštová banka Insurance Company) compared to, we are happy that it has managed to maintain its profitability (profit in proportion to gross premiums written), which is one of the highest among insurance companies in the Slovak market. I believe that the past year, too, confirmed the stable position of the Poštová banka group in the Slovak financial market and creates good prerequisites for its further development. Marek Tarda Chairman of the Board of Directors and CEO We also support a more beautiful life in Slovakia - in addition to long-term partnerships, such as with Radošinské naivné divadlo (Naive Theater of Radošiná), the Association of Pensioners in Slovakia, and the Slovak National Museum, within the framework of our sponsoring activities, we announced the grant program called Idea for 3 Generations in September. It is aimed at supporting good ideas for improving community life, which require the cooperation of three generations - children and youth, people of active ages, and seniors. Everything is on a voluntary basis. We are happy that our subsidiaries also did well. Prvá penzijná (First Pension Management Company) ended with assets in its funds totaling 624 million euros, which represented a market share of 10.9%. In, Prvá penzijná received an award in the Gold Coin (Zlatá minca) competition, where it took an excellent second place in the Mixed Funds category with the fund Dynamické portfólio o.p.f. (Dynamic Portfolio). Dôchodková správcovská spoločnosť Poštovej banky (Pension Management Company of Poštová banka) ended with 102,733 savers, thus managing to break through the ceiling of 100,000 savers during the year. It continues managing four pension funds, 4 5

4 We are a Slovak bank that is already trusted by one million people. GENERAL INFORMATION ABOUT THE COMPANY ČIČMANY An ethnographic village known for its folk displays.

5 2. General Information about the Company Legal name: Poštová banka, a.s. Registered office: Dvořákovo nábrežie 4, Bratislava Identification number (IČO): Date of incorporation: 31 December 1992 Legal form: Joint stock company Scope of activities: a) Pursuant to Article 2 (1) and (2) of the Act on Banks: 1. Acceptance of deposits; 2. Provision of loans; 3. Provision of payment services and clearing; 4. Provision of investment services, investment activities and secondary services pursuant to the Act on Securities, to the extent referred to in Section (b) of this point, and investment into securities in own account; 5. Trading on own account in a) financial money market instruments in euros and foreign currency, including exchange activities; b) financial capital market instruments in euros and foreign currency; c) precious metal coins, commemorative bank notes and commemorative coins, bank notes sheets and sets of coins in circulation; 6. Administration of clients receivables in their accounts, including related consulting; 7. Financial leasing; 8. Provision of guarantees, opening and certification of letters of credit; 9. Provision of consulting services in the area of business activities; 10. Issuance of securities, participation in issuance of securities and provision of related services; 11. Factoring; 12. Safekeeping of items; 13. Renting of safe deposit boxes; 14. Provision of bank information; 15. Activities as a depository; 16. Handling of bank notes, coins, commemorative bank notes and commemorative coins; 17. Issuance and administration of electronic money; 18. Factoring according to special legislation as an independent financial agent in the sector of insurance and reinsurance; 19. Factoring according to special legislation as an independent financial agent in the sector of old-age pension saving. 3. Trading on own account in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with securities, currencies, interest rates or revenues, which may be settled by delivery or in cash; 4. Investment consulting in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with currencies, interest rates or revenues, which may be settled by delivery or in cash; 5. Subscription and placement of financial instruments on the basis of fixed commitment in relation to the following financial instruments: a) negotiable securities; b) participating certificates and securities issued by foreign entities of collective investment; 6. Placement of financial instruments without fixed commitment in relation to the following financial instruments: a) negotiable securities; b) participating certificates and securities issued by foreign entities of collective investment; 7. Custody and administration of financial instruments on the client s account, including holder administration, and related services, particularly administration of cash and financial collateral, in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; 8. Provision of credits and loans to investors to facilitate the realization of transactions involving one or several financial instruments, in cases where the credit or loan provider is involved in such transactions: 9. Realization of transactions in foreign exchange assets if these are connected with the provision of investment services; 10. Execution of investment survey and financial analysis, or another form of general recommendation concerning trading in financial instruments; 11. Services related to the subscription of financial instruments. Share capital: EUR 366,305,193 Paid-up share capital: EUR 366,305,193 b) Pursuant to Article 79a (1) in conjunction with Article 6 (1) and (2) of the Act on Securities: 1. Acceptance and forwarding of client s instruction concerning one or several financial instruments in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with securities, currencies, interest rates or revenues, which may be settled by delivery or in cash; 2. Execution of client s instruction on their account in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with securities, 8 currencies, interest rates or revenues, which may be settled by delivery or in cash; 9

6 company STRUCTURE TERCHOVÁ A village on a mountain slope with a large number of settlements that forms the cultural area of the region. Poštová banka and its subsidiaries form a strong group, offering comprehensive financial services to clients.

7 3. Company structure Board of Directors JUDr. Marek Tarda Chairman of the Board of Directors Graduated from the Department of Law at Comenius University in Bratislava. From 2004, he worked as director of the Legal Division of the company ISTROKAPITAL, a. s. In 2006, he became director of the Legal Department of ISTROKAPITAL SLOVENSKO, a. s. He was a member of the Supervisory Board of Poštová banka, a.s. and later also a member of the Supervisory Board of Poisťovňa Poštovej banky, a. s. and PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY správ. spol., a. s. As of 15 December 2009, he became chairman of the Board of Directors and CEO of Poštová banka. Ing. Daniela Pápaiová member of the Board of Directors Graduated from the Department of Business Management at the University of Economics in Bratislava. In , she was primarily involved in the insurance sector, working for the companies ING Nationale - Nederlanden poisťovňa, a.s., Aegon Životná poisťovňa, a.s., and Aegon, d.s.s., a.s., as well as for Poisťovňa Poštovej banky, a. s. as a member of the Board of Directors. From May 2009 until the end of 2010, she held the position of member of the Board of Directors in the company Credium Slovakia, a.s. She joined Poštová banka in 2011 as director of the Finance Division. From 26 July 2012, in her capacity as member of the Poštová banka Board of Directors, she assumed responsibility for the risk management area. Ing. Peter Krištofovič member of the Board of Directors Graduated from the Department of Business Management at the University of Economics in Bratislava. In 1996, he established his own consulting company, which expanded to Ukraine, the Czech Republic, Romania, and Russia. One year later, he became involved in training in the area of self-development through his other company, ALLSCHOLA, s.r.o. He is also the founder of the financial group Salve Group, a. s. From, he held the position of deputy managing director at Poštová banka. He became a member of the Poštová banka Board of Directors on 5 May. He assumed responsibility for the retail banking area and later also for the area of banking services, marketing, and communication. JUDr. Ján Nosko member of the Board of Directors Graduated from the Department of Law at Matej Bel University in Banská Bystrica. He has worked for Poštová banka since 2010, when he assumed the position of head of the Department of Credit Claims and later became director of the Division of Legal Services and Compliance. He later became deputy managing director for internal services. He was elected as a member of the Poštová banka Board of Directors on 10 April. He is responsible for the corporate banking area. Supervisory Board Mario Hoffmann chairman Ing. Jozef Tkáč deputy chairman Ing. Mgr. Tomáš Drucker member Ing. Vladimír Ohlídal, CSc. member 12 Mgr. Jozef Salaj member 13

8 List of shareholders in Poštová banka, a.s. as of 31 December Legal name and registered office of the shareholder Number of shares Participation in share capital in % Participation in share capital in EUR J&T FINANCE GROUP SE Pobřežní 297/14, Prague 8, Czech Republic J&T BANKA a.s. Pobřežní 297/14, Prague 8, Czech Republic ISTROKAPITAL SE Klimentos Street, 1061 Nicosia, Cyprus Slovenská pošta, a.s Partizánska cesta 9, Banská Bystrica, Slovak Republic Ministerstvo dopravy, výstavby a regionálneho rozvoja Slovenskej republiky (Ministry of Transport, Construction, and Regional Development of the Slovak Republic) Námestie slobody 6, Bratislava, Slovak Republic UNIQA Versicherungen AG Untere Donaustrasse 21, 1029 Wien, Austria 174, ,578, , ,137,753 27, ,937,329 4, ,444, , , , ,305,193 Capital participation by Poštová banka in selected business entities Company name Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s. PNumber of shares Participation in share capital in % Participation in share capital in EUR ,949, PB Finančné služby, a.s , PB IT , PB PARTNER, a. s. 28, ,800,00.00 Poisťovňa Poštovej banky, a. s. 348, ,560, POBA Servis, a. s , PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. 50, ,700,00.00 SPPS, a. s ,

9 We set ourselves high goals in order to provide you the best possible products and services. MAIN EVENTS ŠTRBSKÉ PLESO The highest village in Slovakia.

10 4. Main events January Foundation of the Seventh Subsidiary PB IT The six subsidiaries of the Poštová banka group were joined by another subsidiary PB IT, a.s. in January. PB IT was established to carry out IT services and administer the IT assets that used to be carried out by the IT division with the goal of providing complex services to the entire Poštová banka group. New look for payment cards Poštová banka has been supporting Slovak culture and arts for a long time. Therefore, we used the ornamental elements of Čičmany embroidery on our re-designed payment cards. This is a great way to spread the beauty and uniqueness of Slovak folk creativity at home and around the world. Non-fixed term deposit online Poštová banka was the first bank in Slovakia that made it possible to establish a term deposit online, namely the Neviazaný termínovaný vklad (Non-Fixed Term Deposit). This product is unique in our market, because it combines the freedom of a current account with the attractive interest rate of a term deposit. In addition, clients were able to establish it without the condition of opening a personal account. February New website of Poštová banka Poštová banka launched a new website with a more clearly organized content, structure, and design. The new website reflects the bank s new strategy focused on transparency and simplicity. The most significant change is the adaptation of the website to mobile device screens. Second place for the fund KORUNA in the category of Money Market Funds Our fund Krátkodobý dlhopisový o.p.f. KORUNA (short-term bond fund) found itself among the top funds in the Investment of the Year competition. We obtained an excellent second place in the Money Market Funds category. Successful and Smooth Implementation of SEPA Payments Poštová banka is among the few Slovak banks that managed to successfully and smoothly implement the SEPA standards without any restrictions for its clients. In the transfer period, all of our services were accessible to clients. During SEPA Weekend they could use Internet banking as well as the services at our points of sale, which were open as usual during that first weekend of February. March May New product - consumer loan Good Loan The new consumer loan Dobrá pôžička (Good Loan) combined three other loan products into one. It is the continuation of Poštová banka s endeavor to be a simple, comprehensible, and transparent bank. Simplification of the deposit product portfolio Poštová banka adjusted its offer of deposit products for its clients, thus continuing its set strategy of simplification. We adjusted a broad portfolio of 39 deposit products into four products with the most popular time terms. A transparent portfolio is expected to contribute to a greater comprehensibility and make the lives of our clients that much easier. June Placement of the IBAN code on payment cards Following the implementation of the SEPA in Slovakia, the account number in the international IBAN format became part of our bank clients everyday life. In order for our clients to get used to the new format of their accounts, it became part of every payment card associated with a personal account at Poštová banka issued after 15 May. Launching of the CashBack service CashBack is an easy way to withdraw cash via POS terminals in shops. Thanks to this service, among other things, our clients get access to their money at more than 6,500 locations all over Slovakia. Redesigning of the branch in Komárno The branch in Komárno was the first that Poštová banka dressed up in a new outfit. It is thus changing the established notion that banking institutions must be austere and severe in appearance. Following the branch in Komárno, the branches in Trenčín and Bratislava-Rača were redesigned as well. August Implementation of the Comprehensive Cash Service for corporate clients From 1 August, the Comprehensive Cash Service was included in the portfolio of services for our corporate clients. This service can be used by clients who need to pay large amounts in cash or supply their establishments with coins. September Opening of the grant program Idea for 3 Generations Within its sponsoring activities, Poštová banka opened the first round of the grant program called Idea for 3 Generations. The program was intended for active people from city and village communities all over Slovakia who have the idea of volunteering close to their heart. We supported the selected projects with a total amount of 20,000 euros. October 10 years of the Pension Management Company Dôchodková správcovská spoločnosť Poštovej banky (Pension Management Company of Poštová banka) celebrated its 10 th anniversary in October. New CEO at Poisťovňa Poštovej banky Following Alexandra Pavlovičova s departure from the company, Peter Brudňák was appointed the new CEO of the insurance company Poisťovňa Poštovej banky. December Gold Coin In the Gold Coin competition of financial products, the Poštová banka group received two awards. The Poštová banka Term Deposit took second place in the category Term Deposits. The same place was taken by the product Dynamic Portfolio o.p.f of the First Pension Management Company of Poštová banka. We installed 59 new ATMs throughout the year One of the priorities of Poštová banka in was to bring its services and products even closer to its clients. The installation of 59 ATMs contributed to this goal. As a result, Poštová banka counted a total of 214 ATMs throughout Slovakia at the end of the year

11 CORPORATE SOCIAL RESPONSIBLITY Life in Slovakia, its culture and history are at the center of our interest. KOŠICE The holder of the title European Capital of Culture according to the European Commission and the European Parliament.

12 5. Corporate social responsibility Poštová banka works hard to be a socially responsible company. Through the sponsoring of activities and its foundation, Nadácia Poštovej banky, the bank supports several valuable projects and institutions. Our oldest sponsored partners are the Slovak National Museum and the Children s Museum. We have been supporting both museums since Through the 120-year-old institution, the Slovak National Museum, we are thus taking care of 50 museums and castles all over Slovakia. Thanks to the Children s Museum, we helped stage children s interactive exhibitions of almost 30,000 children per year. Through our partnership with the Radošinské naivné divadlo Theatre that we launched in, we helped open the theatre s sixth decade and premiere its 58th play. No bank is as close to seniors as Poštová banka. It is therefore natural for us to form an alliance with the Association of Pensioners in Slovakia, which brings together more than 1,500 general organizations all over Slovakia. Since 2009, we have been helping the Association of Pensioners in Slovakia prepare nation-wide meetings of seniors, where they present their singing, artistic, athletic, and other skills, but, first and foremost, actively spend their free time. A new project from is the grant program Idea for 3 Generations, whose ambition is to support volunteer projects that bring together volunteers of all three generations. Informal initiatives and individuals could also enter, as we also wanted to offer an opportunity for grant support to the smallest communities throughout Slovakia. A strong area for sponsoring in - was sports, where we primarily focused on ice hockey. Over the past two years, we supported the two Slovak largest ice hockey organizations as their main partners, namely the HC Slovan club in the KHL league and the Slovak Ice Hockey Association. We supported the latter during two world championships, as well as during dozens of games played by teams of all age categories. We also helped Slovak ice hockey via the Institute of Ice Hockey Studies and its School Field Hockey and Ice Hockey Leagues. In, we also supported three unique sports events, namely the Štiavnica Triathlon, the Donovalský drapák mountain bike race, and the junior soccer Michalovce Cup, where the Slovak team met with top soccer teams in its category. Thanks to our close cooperation with Slovenská pošta, we traditionally have an opportunity to cooperate in the unique project Christmas Mail, thanks to which Slovenská pošta processes and responds to more than 80,000 letters from children with their Christmas wishes before the Christmas holidays every year. On the occasion of the change in the design of Poštová banka payment cards, which we dressed in the typical pattern of the Čičmany village in, we supported two organizations operating in Čičmany, namely the folk ensemble Lastovienka and the launching of its first DVD, as well as the Považské Museum - Museum in Čičmany. The year was also successful for our foundation, Nadácia Poštovej banky, owing mostly to top-quality projects. Last year we organized, for the fifth year running, the Swimming Camp of Martina Moravcová, where 164 young swimming talents participated in three groups. Thanks to support from the Foundation, as many as 42 children could take part in the camp free of charge. Young swimmers enjoyed the full attention of Martina Moravcová and five other experienced trainers the entire time. Children learned new exercises, removed technical deficiencies in their swimming styles, and examined the technique of world swimmers on videos. Another sports project of which we are proud is the Sport Family for All led by canoeist Juraj Bača. The project is intended for children who enjoy engaging in sports and are doing canoeing, but whose unfavorable financial situation or disadvantaged social background do not allow them to develop their enthusiasm and talent. In, the Sport Family for All consisted of 51 children training in three swimming clubs. Their results are improving each year and the quality of their performance is continuously growing, which is also testified to by their results in the Slovak championship this year, where they won 15 titles. Another swimming project that we support does not lag behind when it comes to excellent results. Young swimmers from the swimming club SPK Bratislava are among the top in Slovakia. They confirmed this position in as well, ending in first place in the Slovak Cup of Teams. The year saw many records broken and medals all around for them, as they won 137 medals in the Slovak Championships alone. In addition to sports projects, we have also supported the educational project School in the Museum in cooperation with the Slovak National Museum since Financial support from the Foundation is primarily intended to facilitate access to cultural activities and interesting educational programs for children and youth in museums in Slovakia, in addition to the purchase of learning aids and providing free entry for visiting children. Thanks to support from the Poštová banka Foundation, more than 6,500 children participated in various educational programs in museums of the Slovak National Museum in. This was the third year when we also carried out our own projects, which were completely organized and coordinated by the Foundation. The first taste was the project for the Revitalization of Cycling Trails in the territory of Bratislava and, after its completion, we enthusiastically embarked on another project, the Mengusovce Cross-Country Skiing Paradise. During, we managed to mark cross-country skiing trails with kilometer markers and destination signs on the route and build bridges over creeks. Within this project, the Foundation, in cooperation with the Mengusovce Forest Landowners Association and the Komenského Elementary School in Svit, built the Kimbiark informational trail, which was ceremonially opened on 3 July. The informational trail is situated between Svit and Mengusovce, is 13 kilometers long, and lined with 12 informative signs. The Foundation also does not forget about individual requests that it supports through open grant programs in the area of social welfare aid, health care, sports, and education. Our aid is directed at people who find themselves in a difficult situation due to an illness or destitution. In addition, we regularly support organizations focusing on helping children in need and disabled children. In addition to projects that we have carried out on a long-term basis, we are also happy about new projects brought about by our staff. They prove that they really enjoy helping others, which is why the Poštová banka Foundation decided to invest some of its funds in supporting employee projects. Through the MAJÁK (Lighthouse) employee grant program launched in, employees may obtain financial support for activities and projects serving the public good, in which our colleagues are involved as volunteers in their free time. We thank all of our supporters for helping others together with us in as well! 22 23

13 PERSONNEL POLICY ŠPANIA DOLINA A mining village that became famous all over Europe for its deposits of copper ore with a high content of silver. Our wealth is the people who form Poštová banka.

14 6. Personnel Policy Our goal is a professional approach to the selection of high-quality people and a positive perception of the brand. The most frequent reasons for an interest in working for Poštová banka include the job description and the good reputation of the company. We carry out regular measurements of the satisfaction of candidates and managers with the selection process. For candidates, Poštová banka represents professionalism, reliability, and an opportunity for a stable job with good prospects. As of 31 December, the number of employees was 854, decreasing by 3.9% compared to the previous year. Managers are supported in building and leading successful teams by HR business partners, who provide comprehensive consulting to managers and employees on HR issues. In the area of performance management, we are implementing the itutor information system, in which the process of assigning and assessing goals and employee objectives of personality will take place. The implementation of the system will do away with administrative steps and information on the performance of employees will be centralized in one place. Assessment results will be linked to the process of development planning and 360 feedback directly in the system. The system is customized to the needs of Poštová banka in order to allow for easy and friendly use by all employees and management. We have updated the personality competencies with the aim of identifying the key - and expected - behaviors of employees that lead to the bank s success achieving results, partnership and cooperation, self-management, improvement and development, and professional expertise. us to launch e-learning platforms in the bank. We have already successfully carried out the first internally-created e-learning courses this year. We also successfully continued the implementation of the platform to support inspiration and self-development of employees - the Let Us Draw Inspiration Forum where we carried out eight meetings with a very positive response, and will continue this project in 2015 as well. In, priorities in the area of rewards and benefits included the implementation of a new program of benefits. In April, we launched a new system of employee benefits called Cafeteria. Benefits have been divided into five basic groups: Labor and Social Benefits, Product Advantages, Family, Health, Sport, and Further Education, and Social and Cultural Events. Today, our employees may choose from a wide range of offers the benefits that suit their current needs. The Cafeteria system offers employees an attractive package of benefits in the area of all-year health care, specialized preventive medical examinations, dentistry, sport, culture, traveling, and further education. The aim of Poštová banka s new policy of benefits is to reinforce the perception of the value of benefits as part of total rewards, make it easier to attract qualified and high-performing employees on the market, and build employee pride in their company. We successfully completed a new remuneration system, which is simple, transparent, competitive, and motivating for our employees. In the area of talent management, we support both internal and external talent. Within the framework of stabilization and development of talented key people, we identified 86 employees who were given increased individual care by their supervising managers and HR in the areas of individual career development, rewards, and benefits. In the area of support for external talent, was the fifth year of the Trainee program and, at the same time, we successfully completed the previous run, from which six specialists out of 13 trainees were hired on a permanent basis. In the new year, 16 new trainees were added to the Poštová banka team in the bank and its subsidiaries. The building of high-quality cooperation of individual departments in the bank and its subsidiaries is supported by customer targets, with this year being the fourth year in which they are evaluated via feedback. This year, we carried out activities resulting from the concept of training and development of bank employees. We continued to use financial resources invested in training in a targeted and effective manner. We focused our attention on the area of professional training. Within this professional training, we improved the level of consulting provided by training specialists in selecting and targeting external professional activities. We reinforced the team with another internal instructor and continued the development of both soft skills and managerial skills through two internal instructors. By primarily using closed training sessions, we continued to strive for a more targeted and specific focus of training with respect to individual target groups. A new innovation was the provision of individual coaching primarily to the group of managers nominated to the Talent program. We carried out 124 coaching sessions for approximately 50 employees. Feedback regarding this method of development was very positive, with managers highly appreciating the possibility of individual support and targeting their development on specific issues and situations. We will certainly continue this form of development in the following year as well. Within the framework of manager training in, we continued carrying out internal training focused on supporting managerial skills we carried out an internal HR Managerial Minimum course for two groups (approximately 15 managers) and an external training course called Leadership Inspired by Amundsen for three groups (approximately 25 managers). Selected members of the Board of Directors were given the possibility of using external coaching provided by internationally certified coaches. We devoted a lot of attention and energy to ensuring development and training activities within the framework of the Talent program (for approximately 80 employees) and, within this program, we also launched a pilot project for mentoring. Last year was also marked by the preparation and, first and foremost, customization of the itutor 26 information system, which will provide system support for the entire training process and will enable 27

15 Poštová banka has a solid position among strong competitors. DESCRIPTION OF THE MACROECONOMIC AND COMPETITIVE ENVIRONMENT SPIŠSKÉ PODHRADIE A village dominated by the largest castle in Europe.

16 7. Description of the macroeconomic and competitive environment The year in Slovakia was characterized by stronger economic growth than in the previous year. The performance of the Slovak economy returned to above 2%. While the GDP growth accelerated in the first two quarters of, a moderate slowdown occurred in the second half of the year. The situation in the labor market developed hand-in-hand with the stronger economic growth, with the unemployment rate slightly declining last year. The price growth rate gradually slowed down throughout last year. The annual growth in Slovakia s GDP at the level of 2.4% was primarily driven by domestic demand last year. The traditional driving force represented by foreign trade did not drive our economy as strongly as we were used to. The slower growth in Slovak exports last year was the result of geopolitical tension, sanctions between the EU and the Russian Federation, and restrictions to foreign trade. Consequently, the Slovak economy grew primarily thanks to the consumption of Slovak households, public administration, and non-profit institutions, with businesses significantly putting their shoulders to the wheel with their investment activities. Consumption of Slovak households was supported by the slow growth in prices, among other things, last year. The inflation rate reached -0.1% according to both the national consumer price index (CPI) and the harmonized consumer price index (HICP) in. An important role in the price development this year was played by foodstuffs, which became cheaper by 0.8% year-on-year according to the national CPI index for the entire year of. However, the largest drop in prices was seen in transport, by as much as 1.5% (according to the CPI), being driven by lower oil prices and the introduction of free railroad travel for certain groups of citizens. Last year, we paid less for housing and utilities year-on-year. Costs of housing, utilities, and foodstuffs are highly weighted in our consumer basket, which is why they also significantly influenced the overall development of price levels in Slovakia. As of 31 December, a total of 13 banks having their registered offices in the territory of the Slovak Republic (including two banks without foreign capital participation and 11 banks with foreign capital participation), 15 branches of foreign banks, and one central bank were in operation in the Slovak banking sector. This means that the total number of banks did not change at the end of, compared to. Over the course of the same year, the number of branches and other organizational units in the banking sector increased by 21 to 1,277. By the end of, 19,683 employees were working in the Slovak banking sector, which was 0.7% more than at the end of. According to preliminary results, total assets recorded in the banking sector amounted to more than EUR 62.5 billion last year. Deposits from citizens presented at the end of amounted to EUR 26.9 billion at the end of, growing by 4.2% year-on-year. Loans to citizens increased by 12.1% to EUR 22 billion compared to. According to preliminary data, the banking sector generated a net profit of EUR million, which represents an increase of only 0.6% compared to. The lines of the unemployed at labor offices became shorter during, with the registered unemployment rate decreasing from 13.61% in January to 12.29% in December, which translated at the end of the year into more than 331,000 unemployed ready to immediately take up a job. However, the total number of unemployed was more than 373,000. This means that the revival of economic growth was translated into the creation of new jobs in the Slovak economy. In the past year, state financial management was better than planned, and the annual deficit was lower by approximately 11% than had been assumed when the state budget was drawn up. The state budget closed the year with a deficit of EUR 2.92 billion, with the annual deficit increasing by 45% year-on-year. The state budget income saw a decrease by 2.3% year-on-year, whereas expenditures increased by 4.1 %. During the course of, the stagnating economy of the euro zone and the long-term failure to meet the inflation target of the European Central Bank (ECB) resulted in a further reduction in the prime interest rate in the euro zone all the way to a technical zero. Similarly to, the ECB reduced the prime interest rate twice in. In June, the ECB cut the interest rate to 0.15%. However, it was only three months later that the central bank decided to cut it further, all the way to the current level of 0.05%. There had never been such low interest rates in the euro zone before. As these are connected vessels, the lower ECB prime rate was reflected in lower interest rates on the interbank market. Not only banks loaned each other money at lower rates, but also the governments of European countries, including Slovakia. The euro exchange rate against the dollar underwent significant changes during the course of. During the first five months of last year, the euro traded at close to EUR /USD. However, it began to gradually weaken in the following months, all the way to approximately EUR / USD in December. But the decrease did not end there. This was primarily due to events concerning Greece, the Russian-Ukrainian conflict, and the general economic development on both sides of the Atlantic Ocean. During the course of last year, the European currency strengthened against the Hungarian forint, the Polish zloty, and the Czech koruna. Nevertheless, the Czech central bank (ČNB) continues intervening against the latter with the aim of weakening it

17 DEVÍN A city district of the capital city established at the junction of the important Amber and Danube trade routes. REPORT ON BUSINESS ACTIVITIES Making the right decision is always a challenge challenge to us. But this is precisely thanks to the way in which we always move forward.

18 8. Report on business activities and property situation in The year was successful for Poštová banka from the viewpoint of improving its services to clients and introducing new products that contributed to an increased interest among clients. As of 31 December, Poštová banka recorded an 8.9-percent increase in its primary resources year-on-year, with its loan portfolio growing year-on-year by 22.2%. The balance sheet amount of the bank reached 4,202.9 million, growing by 9.4% compared to the previous year. Profit after tax amounted to 41.8 million and was influenced by an increased banking tax rate, payment to the Deposit Protection Fund, and the creation of value adjustments to corporate loans. ASSETS The largest part of bank assets consisted of loans provided to clients and securities. As of 31 December, interest-bearing assets amounted to 3,888.1 million. The share of interest-bearing assets, including the required minimum reserves, in total assets stands at 92.5%. Compared to, the bank s credit portfolio increased by 22.2% and reached a net value of 2,295.0 million (after taking the created value adjustments into consideration), representing 54.6% of total bank assets. In, the bank reclassified selected debt securities to the portfolio of loans and receivables in the amount of million (this amount is included in the increase). Consumer loans provided amounted to million, of which the Dobrá pôžička (Good Loan) product accounted for million and Lepšia splátka (Better Installment) amounted to million. The amount of consumer loans rose by 9.0% year-on-year. Corporate loans increased by 14.6% to 1,536.5 million. As of 31 December, the bank had in its portfolio securities in the amount of 1,447.3 million (including coupon and accruals). The share of securities in total assets was 34.4%. From the total volume of securities, government bonds represent 1,134.0 million, other bonds million, and promissory notes, shares, participating certificates and other shares million. In, accounts in banks of issue and other banks represented 8.0% of total assets with a value of million. According to the IFRS, these assets are primarily presented as part of cash equivalents. Over the course of, the bank deposited the required minimum reserves in the National Bank of Slovakia in compliance with prudent banking rules. By the end of, the volume of the required minimum reserves represented 30.2 million. The bank deposited its temporarily available funds in banks of issue in the form of loans and short-term deposits. As of 31 December, term deposits in the Czech National Bank (ČNB) amounted to million. At the end of, deposits in other banks amounted to million, including euro deposits of million and foreign currency deposits of 3.3 million. Cash assets amounted to 20.0 million as of 31 December, including 18.4 million in euros and 1.6 million in foreign currency. The share of tangible and intangible assets in total assets represents 0.64 % ( 27.0 million) as of 31 December. SELECTED INDICATORS The development of selected qualitative indicators is documented in the table below. Indicator Actual figures as of 31 December Actual figures as of 31 December Interest-bearing assets/assets 92.5 % 90.3 % Loans (net)/assets 54.6 % 48.9 % Financial institutions + NBS/Assets 3.9 % 6.9 % Government bonds/assets 26.9 % 26.1 % Interest-bearing liabilities/liabilities 85.6 % 87.2 % ROA 1.00 % 1.77 % ROE 7.39 % % NBS National bank of Slovakia ROA Return on assets (based on average annual amounts) ROE Return on equity (based on average annual amounts) The Return on Equity (ROE) indicator for amounted to 7.39% and the Return on Assets (ROA) indicator reached 1.00% as of 31 December. EQUITY AND LIABILITIES Primary resources from clients amounted to 3,574.6 million as of 31 December, growing by million year-on-year. They account for 85.1% of the balance sheet amount. Balances of term deposits form the largest part of primary resources, amounting to 2,089.3 million and growing by 2.9% year-on-year. The biggest growth was achieved by deposits in passbooks, whose volume increased year-on-year by million to million by the end of the year, representing a 23.2% growth. Funds in personal accounts reached the amount of million, growing year-on-year by 16.4%. In, 63,000 new personal accounts were established. Secondary resources (accounts of banks of issue and other banks) amounted to 13.5 million as of 31 December. As of 31 December, equity amounted to million, growing by million compared to the previous year. Share capital of the bank amounts to million, funds created from profit account for 30.6 million, retained earnings from previous years are at million, and the financial result of the current year totals 41.8 million

19 We are trying to bring transparency and simplicity into everything that we do. FINANCIAL STATEMENTS MARTIN The most transparent city in according to the Transparency International ranking

20 9. FINANCIAL STATEMENTS Separate statement of financial position As at 31 December Prepared in accordance with International Financial Reporting Standards as adopted by the European Union (English Translation) Year ending 31 December. Assets Notes Cash and cash equivalents 6 361, ,527 Trading assets 7 1,600 9,054 Loans and advances to customers 9 2,295,039 1,878,166 Investment securities 11 1,402,969 1,516,348 Investments in subsidiaries and jointly controlled entities 12 42,777 40,668 Property and equipment 13 13,239 13,870 Intangible assets 14 13,796 11,844 Deferred tax asset 15 21,838 21,640 Tax asset ,439 Other assets 17 50,147 63,453 4,202,918 3,843,009 Liabilities Notes Trading liabilities Deposits by banks 18 13,475 7,629 Customer accounts 19 3,574,641 3,283,678 Provisions Received loans 21-50,778 Tax liabilities 22 15, Other liabilities 23 24,479 28,869 Subordinated debt 24 8,013 8,013 3,636, Share capital and reserves Notes Share capital , ,305 Share premium Reserves and retained earnings , ,432 Share capital and reserves 566, ,532 4,202,918 3,843,009 These separate financial statements, which include the notes on pages 10 to 84, were approved on 17March 2015 by: Chairman of the Board of Directors Member of the Board of Directors Marek Tarda Slavomír Varcholík 38 39

21 Separate income statement Year ended 31 December Separate statement of profit or loss and other comprehensive income Year ended 31 December Notes Notes Interest income and similar income from debt securities , ,097 Profit for the year 41,830 68,172 Interest expense 30 (54,996) (59,178) Net interest income 202, ,919 Fee and commission income 31 45,832 42,070 Fee and commission expense 32 (38,493) (36,450) Net fee and commission income 7,339 5,620 Dividends received 5,999 5,136 Net trading income 33 11,140 10,760 Net other income/(loss) 34 (10,284) 259 Net non-interest income/(loss) 14,194 21,775 Operating income 216, ,694 Administrative expenses 35 (72,106) (67,747) Depreciation and amortisation 36 (5,840) (5,375) Operating expenses (77,946) (73,122) Other comprehensive income Change in fair value of available-for-sale financial assets: Items that may be reclassified to profit or loss in the future from available-for-sale securities Reclassification of profit and loss from securities available-for-sale to profit or loss 13,502 (19,089) (10,761) 6,907 Income tax on other comprehensive income 37 (603) 2,848 2,138 (9,334) Translation difference from foreign operations (172) (783) Other comprehensive income after tax 1,966 (10,117) Total comprehensive income for the year 43,796 58,055 The notes on pages 10 to 84 are an integral part of these separate financial statements. Operating profit before impairment losses and provisions 139, ,575 Impairment losses on loans and advances to customers 9 (79,725) (39,736) Impairment losses on investment securities 11 (5) (710) Release of provisions to other assets Provisions for liabilities 20 (14) - Profit before taxation 59,326 98,202 Income tax 37 (17,496) (30,030) Profit after taxation 41,830 68,172 The notes on pages 10 to 84 are an integral part of these separate financial statements

22 Separate statement of changes in equity Year ended 31 December Separate statement of changes in equity - continued Year ended 31 December Notes Share capital Share premium Legal reserve fund Fair value reserve Retained earnings Other capital funds Translation reserve Total Notes Share capital Share premium Legal reserve fund Fair value reserve Retained earnings Other capital funds Translation reserve Total As at 1 January 306, ,805 3, ,747 (783) 462,532 As at 1 January 232, ,060 12,997 67,455 73, ,477 Total comprehensive income Profit for the year 41,830 41,830 Other comprehensive income Net change in fair value of available-for-sale financial assets, net of tax after reclassification to profit or loss 27 2,138 2,138 Translation difference from foreign operations Total comprehensive income Transaction with owners, recorded directly in equity Transfer to legal reserve fund (172) (172) 2,138 41,830 (172) 43, ,817 (6,817) Increase in share capital 25 60,000 60,000 Other transactions with shareholders Total transactions with owners 26 (57) (57) 60,000 (57) 6,817 (6,817) 59,943 At 31 December 366, ,622 5, ,760 (955) 566,271 Total comprehensive income Profit for the year 68,172 68,172 Other comprehensive income Net change in fair value of available-for-sale financial assets, net of tax after reclassification to profit or loss 27 (9,334) (9,334) Translation difference from foreign operations Total comprehensive income Transaction with owners, recorded directly in equity Transfer to legal reserve fund (783) (783) (9,334) 68,172 (783) 58, ,745 (6,745) Increase in share capital 25 73,602 (135) (73,467) Total transactions with owners 73,602 6,745 (6 880) (73,467) At 31 December 306, ,805 3, ,747 (783) 462,532 The notes on pages 10 to 84are an integral part of these separate financial statements. The notes on pages 10 to 84 are an integral part of these separate financial statements

23 Separate statement of cash flows Year ended 31 December Notes to the separate financial statements Year ended 31 December Cash flows from operating activities Notes The notes on pages 10 to 84 are an integral part of these separate financial statements. Profit before changes in operating assets and liabilities , ,963 Decrease in trading assets 7,454 25,684 Decrease/(Increase) in compulsory minimum reserves 193,611 (121,560) Increase in loans and advances to customers (496,598) (185,182) Decrease/(Increase) in other assets 13,569 (11,101) (Decrease)/Increase in trading liabilities (622) 253 Increase/(Decrease) in deposits by banks 5,847 (53,450) Increase in customer accounts 290, ,147 (Decrease)/Increase in other liabilities (4,390) 180 Income tax (paid)/returned (1,810) 6,012 Net cash flow fromoperating activities 155, ,946 Cash flows from investing activities Purchase of property and equipment (4,133) (2,292) Proceeds from sale of property and equipment 1, Purchase of intangible assets (4,642) (5,343) Sales/(Purchase) of investment securities 113,374 (185,731) Acquisition of subsidiary (2,109) - Decrease in share capital paid by subsidiary - 6,705 Net cash from/(used in) investing activities 103,755 (185,791) Cash flows from financing activities Loans repaid (50,778) (24,316) Increase of share capital 60,000 - Other transactions related to share issue (57) - Net cash from/(used in) financing activities 9,165 (24,316) Net increasein cash and cash equivalents 268,509 15,839 Cash and cash equivalents at the beginning of year 62,759 46,920 Cash and cash equivalents at the end of year 6 331,268 62, General information Poštová banka, a.s. ( the Bank ) is a private joint stock company which was incorporated in the Commercial Register on 31 December 1992 and commenced activities on 1 January The registered office of the Bank is Dvořákovo nábrežie 4, Bratislava. The Bank s identification ( IČO ), tax ( DIČ ) and value added tax ( IČ DPH ) numbers are as follows: IČO: DIČ: IČ DPH SK The change of IČ DPH relates to the registration of the Bank as a member of the Poštová banka group. Principal activities The principal activities of the Bank are as follows: Accepting and providing deposits in euro ( ) and in foreign currencies; Providing loans and guarantees in euro and foreign currencies; Providing banking services to the public; and Providing services on the capital market. The Bank operates through 42 branches and sub-branches located in Banská Bystrica, Bánovce nad Bebravou, Bardejov, Bratislava, Brezno, Dubnica nad Váhom, Dunajská Streda, Humenné, Komárno, Košice, Levice, Lučenec, Martin, Michalovce, Nitra, Nové Mesto nad Váhom, Nové Zámky, Pezinok, Poprad, Prešov, Prievidza, Rožňava, Sečovce, Skalica, Spišská Nová Ves, Trebišov, Trenčín, Trnava, Zvolen, Žiar nad Hronom and Žilina. In addition, under an agreement with Slovenská pošta, the Bank sells its products and services through 1,540 post offices and selected bank services through 45 offices of Pošta-Partner, located throughout the country. The Bank extended its activities to the Czech Republic with the establishment of a branch operation in Prague. Poštová banka, a.s. pobočka Česká republika ( the Branch ) was registered in the Commercial Register of the Czech Republic on 18 November The Branch commenced its activities on 1 March At 31 December, the Bank had the following subsidiaries: Activity Share % Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s. Management of pension funds 100 PB Finančné služby, a.s. Financial and operational leasing 100 PB PARTNER, a. s. Financial intermediary 100 POBA Servis, a. s. Real estate administration 100 Poisťovňa Poštovej banky, a. s. Insurance 100 PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. Asset management 100 Jointly controlled entity: SPPS, a.s. Payment services 40 All entities are resident in the Slovak Republic. The Bank acts as a founder of the following non-profit oriented organisation as at 31 December : NADÁCIA POŠTOVEJ BANKY Charitable foundation 100 % 44 The Foundation is not included in the consolidated financial statements of the Bank. 45

24 Shareholders of the Bank at 31 December 2. Basis of preparation of the separate financial statements Name J&T FINANCE GROUP SE J&T BANKA, a.s. ISTROKAPITAL SE Address Pobřežní 297/14, Praha, Česká republika Pobřežní 297/14, Praha, Česká republika Klimentos Street, 1061 Nicosia, Cyprus Total numbers of shares Ownership of capital share % 174, , , (a) Statement of compliance The separate financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRSs ) as adopted by the European Union. These financial statements are prepared as the separate financial statements required by Section 17 of the Slovak Act on Accounting 431/2002, as amended. Consequently, in these financial statements, the Bank s investments in subsidiaries are accounted for at cost decreased by impairment losses, if any. Slovenská pošta, a.s. Partizánska cesta 9, Banská Bystrica 4, (b) Basis of measurement Ministerstvo dopravy, výstavby a regionálneho rozvoja SR UNIQA Versicherungen AG Námestie slobody 6, Bratislava Untere Donaustrasse 21, 1029 Wien, Rakúsko , These separate financial statements have been prepared on the historical cost basis except for the following: derivative financial instruments are measured at fair value; financial instruments at fair value through profit or loss are measured at fair value; available-for-sale financial assets are measured at fair value. Since 1 July, the majority of the equity interests of the Bank are owned by J&T FINANCE GROUP SE and J&T BANKA, a.s. This purchase was approved by the National bank of Slovak Republic and by the Antimonopoly Office on that date. Members of the Board of Directors Marek Tarda chairman from 15 December 2009, re-elected from 15 December Daniela Pápaiová board member since 26 July 2012 Ján Nosko board member (appointed10 April ) Peter Krištofovič board member (appointed 5 May ) Dana Kondrótová vice-chairman (resigned 18 December ) Ján Kotek board member(resigned 10 April ) Members of the Supervisory Board Mario Hoffmann Jozef Tkáč Tomáš Drucker Vladimír Ohlídal Jozef Salaj Chairman Deputy chairman board member, board member board memberre-elected on 18 December with the effective date of 19 January 2015 (c) Going concern assumption The financial statements were prepared using the going concern assumption that the Bank will continue in operation for the foreseeable future. (d) Functional and presentation currency These financial statements are presented in thousand euro ( ), which is the Bank s functional currency. Except as otherwise indicated, financial information presented in euro has been rounded to the nearest thousand. (e) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is provided in notes 3 and 4. The Bank s financial statements are included in the consolidated financial statementsof J&T FINANCE GROUP, SE, Pobřežní 297/14, Prague, Czech Republic. The consolidated financial statements will be available at the registered office of J&T FINANCE GROUPSE

25 3. Significant accounting policies The accounting policies set out below have been applied consistently in both periods presented in these separate financial statements. (a) Foreign currency (i) Foreign currency transactions Transactions denominated in foreign currencies are translated into euro at the exchange rates valid on the date of the transaction. Monetary assets and liabilities are translated at the rates of exchange valid at the balance sheet date. All resulting gains and losses are recorded in Net trading income in profit or loss. (ii) Foreign operations The assets and liabilities of foreign operations are translated to euro at spot exchange rates at the balance sheet date. The income and expenses of foreign operations are translated to euro at spot exchange rates on the date of the transactions. Exchange rate differences on the translation of foreign operations are recognised in other comprehensive income. Foreign exchange rate gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognised in other comprehensive income in the translation reserve. (b) Interest income and expense Interest income and expense are recognised in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. The effective interest rate is determined on initial recognition of the financial asset and liability and is not revised subsequently. The calculation of the effective interest rate includes all fees paid or received, transaction costs and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or retirement of a financial asset or liability. Interest income and expense from financial assets and liabilities through profit or loss are presented as part of Interest income and expense, and changes in the fair values of such instruments are presented at fair value in Net trading income. Interest income and expense in the separate income statement include: Interest on financial assets and liabilities at amortised cost calculated on an effective interest basis; Interest on investment securities, trading securities and securities in Loans and receivables portfolio calculated on an effective interest basis; Interest income on receivables handed over for administration is recognised when received. (c) Fees and commissions Fee and commission income and expenses that are integral to the effective interest rate of a financial asset or liability are included in the calculation of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised when the related services are performed. Other fees and commissions relate mainly to transaction costs and service fees, which are recognised as the services are received. (d) Net trading income Net trading income comprises gains and losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes and foreign exchange rate differences. (e) Dividends Dividend income is recognised when the right to receive income is established. (f) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. (g) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except for items recognised directly in equity, or in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (h) Financial assets and liabilities (i) Recognition The Bank initially recognises loans and advances, deposits by banks, customer accounts, loans received and debt securities on the date they are originated. All purchases and sales of securities are recognised on settlement. Derivative instruments are initially recognised on the trade date, at which the Bank becomes a party to the contractual provisions of the instrument. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment A financial asset or financial liability is measured initially at fair value plus transaction costs that are fees are recognised on a straight-line basis over the commitment period. directly attributable to its acquisition or issue (for items that are not valued at fair value through profit or loss)

26 (ii) Derecognition The Bank derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability. (vi) Identification and measurement of impairment At each end of a reporting period, the Bank assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows of the asset that can be reliably estimated. The Bank derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Bank enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. The Bank also derecognises certain assets when it writes off assets deemed to be uncollectible. (iii) Offsetting Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Bank has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Right to offset financial assets and financial liabilities are applicable only if it is not contingent on a future event and is enforceable by all counterparties in the normal course of business, as well as in the event of insolvency and bankruptcy. Compensation refers mainly to supplier-customer relations, accounted for only based on supported evidence of offsetting. Income and expenses are presented on a net basis only when permitted by the reporting standards, or for gains and losses arising from a group of similar transactions such as in the Bank s trading activity. (iv) Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation, using the effective interest method, of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. (v) Fair value measurement Standard IFRS 13 Fair Value Measurement adopted by the EU on 11 December 2012 (in force as from the beginning of the first financial year starting on or after 1 January ). It does not change when an entity should use fair value, but rather prescribes how the entity, in compliance with this standard, should use fair value in situations when it is necessary or possible to use fair value. The application of this standard has no impact on the financial situation of profit or loss of the Bank. The definition of the Fair Value according to IFRS 13 reads as follows: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Bank considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. Assets that are not individually significant are also collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. Objective evidence that financial assets (including investment securities) are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as a deterioration in economic conditions or adverse changes in the payment status of borrowers or issuers in that group. In assessing collective impairment, the Bank uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lower than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly compared to actual outcomes to ensure that they remain appropriate. Impairment losses on assets carried at amortised cost are calculated as the difference between the book value of the financial asset and the present value of estimated future cash flows discounted at the asset s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss. Impairment losses on available-for-sale investment securities are recognised by transferring the difference between the amortised acquisition cost and current fair value that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. When a subsequent event causes the amount of impairment loss on an available-for-sale debt security to decrease, the impairment loss is reversed through profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. Changes in impairment losses attributable to time value are reflected as a component of Net interest income. (i) Cash and cash equivalents Cash and cash equivalents comprises cash, unrestricted balances held with the National Bank of Slovakia and highly liquid financial assets with original maturities of less than three months, which are subject to an insignificant risk of changes in their fair value and are used by the Bank in the management of short-term commitments. The determination of the fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded on active markets. For all other financial instruments, fair value is determined by using valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market-observable prices exist and valuation models. The Bank uses widely recognised valuation Cash and cash equivalents are carried at amortised cost in the statement of financial position. models for determining the fair value of the more common financial instruments like options and interest rate and currency swaps. For these financial instruments, inputs into models are taken from (j) Trading assets and liabilities market. The fair value hierarchy is monitored in relation to the valuation of quoted market prices, the valuation models with input data directly from the market, and input data that cannot be observed Trading assets and liabilities are those assets and liabilities that the Bank acquires or incurs on the market. principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio 50 that is managed together with achieving short-term profit or maintaining position. 51

27 Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position with transaction costs taken directly to profit or loss. All changes in fair value are recognised as part of Net trading income in the income statement. Trading assets and liabilities are not reclassified subsequent to their initial recognition except that non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition may be reclassified out of the fair value through profit or loss category if they are no longer held for the purpose of being sold or repurchased in the near term and the following conditions are met: If the financial asset would have met the definition of loans and receivables, and it had not been required to be classified as held for trading at initial recognition, then it may be reclassified if the Bank has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If the financial asset would not have met the definition of loans and receivables, then it may be reclassified out of the trading category only in rare circumstances. (k) Derivatives held for risk management purposes Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or liabilities. Derivatives held for risk management purposes are measured at fair value in the statement of financial position. The treatment of changes in their fair value depends on their classification into the following categories: (i) Fair value hedge When a derivative is designated as a hedge of the change in fair value of a recognised asset or liability or a firm commitment, changes in the fair value of the derivative are recognised immediately in profit or loss together with changes in the fair value of the hedged item that are attributable to the hedged risk (in the same income statement line item as the hedged item). If the derivative expires or is sold, terminated, or exercised, no longer meets the criteria for fair value hedge accounting, or the designation is revoked, hedge accounting is prospectively discontinued. Any adjustment up to that point to a hedged item for which the effective interest method is used is amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life. (iv) Embedded derivatives Derivatives may be embedded in another contractual arrangement (a host contract ). The Bank accounts for embedded derivatives separately from the host contract when the host contract is not itself carried at fair value through profit or loss and the characteristics of the embedded derivative are not clearly and closely related to the host contract. Separated embedded derivatives are accounted for depending on their classification and are presented in the statement of financial position together with the host contract. (l) Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Bank does not intend to sell immediately or in the near term. When the Bank is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of an asset to the lessee, the agreement is presented within loans and advances. When the Bank purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date ( reverse repo or stock borrowing ), the agreement is accounted for as a loan or advance, and the underlying asset is not recognised in the Bank s financial statements. Loans and advances are initially measured at fair value plus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest method. (m) Debt securities included in portfolio of loans and receivables Debt securities included in portfolio of loans and receivables are non-derivative financial assets with fixed or determinables payments that are not listed at an active market other than: the debt securities held with intention to sell immediately or in short time and the debt securities the unit defines as valuated in fair value through profit or loss at initial recognition; the debt securities the unit classified as available for sale at initial recognition. Such securities are valuated at amortized value. (ii) Cash flow hedge When a derivative is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. The amount recognised in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same income statement line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the derivative expires or is sold, terminated or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount previously recognised in other comprehensive income and presented in the hedging reserve remains there until the forecast transaction affects profit or loss. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in other comprehensive income is recognised immediately in profit or loss. (n) Investment securities Investment securities are initially measured at fair value plus incremental direct transaction costs and subsequently accounted for depending on their classification as either held-to-maturity or available-for-sale. (i) Held-to-maturity Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Bank has the positive intent and ability to hold to maturity and which are not designated at fair value through profit or loss or available-for-sale. Held-to-maturity investments are carried at amortised cost using the effective interest method. Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity, except for sales or reclassifications in accordance with IAS 39.9, would result in the reclassification of all held-to-maturity investments as available-for-sale and prevent the Bank from classifying investments securities as investments held-to-maturity for the current and the following two financial years. (iii) Other non-trading derivatives When a derivative is not held for trading and is not designated in a qualifying hedge relationship, all (ii) Available-for-sale changes in its fair value are recognised immediately in profit or loss as a component of net income Available for sale investments are non derivative investments that are not designated as another from financial operations. category of financial assets. All other available for sale investments are carried at fair value. 52 Interest income is recognised in profit or loss using the effective interest method. Dividend income 53

28 is recognised in profit or loss when the Bank becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in profit or loss. The estimated useful lives for the current and comparative periods are as follows: Other fair value changes are recognised in other comprehensive income and presented in the fair value reserve in equity until the investment is sold or impaired and the cumulative gain or loss is then recognised in profit or loss. (o) Investments in subsidiaries and jointly controlled companies Buildings Furniture, fittings and equipment Motor vehicles Software 40 years, straight line 4 to 15 years, straight line 4 years, straight line 4 years, straight line Since 1 January standard IFRS 12 Disclosure of Interests in Other Entities is effective. The standard requires additional disclosure about significant judgments and assumptions which are used to define character of investments in the company or an agreement, investments in subsidiaries, joint-agreements and affiliates and in non-consolidated structured units. Depreciation methods, useful lives and residual values are reassessed at the reporting date. (q) Intangible assets Subsidiaries are entities controlled by the Bank. The Bank controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. When the Bank loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests and other component of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. The Bank s interests in equity-accounted investees comprise interests in associates and joint venture. Associates are those entities in which the Bank has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Bank has joint control, whereby the Bank has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. (p) Property, equipment and intangible assets (i) Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of the cost of that equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property. (ii) Subsequent costs The cost of replacing part of an item of property is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be reliably measured. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred. Software Software is stated at cost less accumulated amortisation and impairment losses. Amortisation is recognised on a straight line basis over the estimated useful life of the software, which is reassessed on yearly basis. (r) Leased assets Leases under which the Bank assumes substantially all the risks and rewards of ownership, are classified as finance leases. On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to the initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. All other leases are operating leases and the assets are not recognised on the Bank s statement of financial position. (s) Impairment of non-financial assets The carrying amounts of the Bank s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised directly in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (iii) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. Depreciation commences when the asset is put into use

29 (t) Deposits, customer accounts, loans received and subordinated debt Deposits, customer accounts, loans received and subordinated debt are the Bank`s sources of debt funding. Deposits, customer accounts, loans received and subordinated debt are initially measured at fair value plus transaction costs, and subsequently measured at their amortised cost, including accrued interest, using the effective interest method. When the Bank sells a financial asset and simultaneously enters into a repo or stock lending agreement to repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank s financial statements. (u) Provisions A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for onerous contracts is recognised when the expected benefits to be derived by the Bank from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Bank recognises any impairment loss on the assets associated with that contract. (v) Employee benefits (i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement when they are due. (ii) Termination benefits Termination benefits are recognised as an expense when the Bank is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. (iii) Short-term benefits Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be reliably estimated. (w) New standards and interpretations not yet adopted The Amendments do not introduce new rules for offsetting financial assets and liabilities; rather they clarify the offsetting criteria to address inconsistencies in their application. IFRS 9 Financial Instruments ()* (Effective for annual periods beginning on or after 1 January 2018; to be applied retrospectively with some exemptions. The restatement of prior periods is not required, and is permitted only if information is available without the use of hindsight. Early application is permitted.) assets or financial liabilities continues to apply, and entities have an accounting policy choice between applying the hedge accounting requirements of IFRS 9 or continuing to apply the existing hedge accounting requirements in IAS 39 for all hedge accounting. A financial asset is measured at amortized cost if the following two conditions are met: the assets is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and, its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. The impairment model in IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss model, which means that a loss event will no longer need to occur before an impairment allowance is recognised. IFRS 9 includes a new general hedge accounting model, which aligns hedge accounting more closely with risk management. The types of hedging relationships fair value, cash flow and foreign operation net investment remain unchanged, but additional judgment will be required. The Bank expects that the new Standard IFRS 9, when initially applied, will have a significant impact on the financial statements, since the classification and the measurement of the Bank s financial instruments are expected to change. The application of the new Standard IFRS 9 will also, in case of credit risk, have a significant impact on the financial statements, since the creation of impairment allowances in time and amount will change. IFRS 15 Revenue from contracts with customers (Effective for annual periods beginning on or after 1 January Earlier application is permitted.) The new Standard provides a framework that replaces existing revenue recognition guidance in IFRS. Entities will adopt a five-step model to determine when to recognise revenue, and at what amount. The new model specifies that revenue should be recognised when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognised: over time, in a manner that depicts the entity s performance; or at a point in time, when control of the goods or services is transferred to the customer. The Bank does not expect that the new Standard, when initially applied, will have material impact on the financial statements. The timing and measurement of the Entity s revenues are not expected to change under IFRS 15 because of the nature of the Entity s operations and the types of revenues it earns. Amendments to IAS 1 (Effective for annual periods beginning on or after 1 January Early application is permitted.) The Amendments to IAS 1 include the following five, narrow-focus improvements to the disclosure requirements contained in the standard. The guidance on materiality in IAS 1 has been amended to clarify that: Immaterial information can detract from useful information. Materiality applies to the whole of the financial statements. Materiality applies to each disclosure requirement in an IFRS. The guidance on the order of the notes (including the accounting policies) have been amended, to: Remove language from IAS 1 that has been interpreted as prescribing the order of notes to the financial statements. Clarify that entities have flexibility about where they disclose accounting policies in the financial statements. This Standard replaces IAS 39, Financial Instruments: Recognition and Measurement, except that The Bank expects that the amendments, when initially applied, will not have a material impact on 56 the IAS 39 exception for a fair value hedge of an interest rate exposure of a portfolio of financial the presentation of the financial statements of the Bank. 57

30 Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (Effective for annual periods beginning on or after 1 January 2016; to be applied prospectively. Early application is permitted.) These Amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that constitutes a business. Business combination accounting also applies to the acquisition of additional interests in a joint operation while the joint operator retains joint control. The additional interest acquired will be measured at fair value. The previously held interests in the joint operation will not be remeasured. It is expected that the Amendments, when initially applied, will not have a material impact on the Bank s financial statements. 4. Use of estimates and judgements These disclosures supplement the commentary on financial risk management. Key sources of estimation uncertainty Allowances for impairment Assets accounted for at amortised cost are evaluated for impairment on the basis described in accounting policies and accounting methods 3 (h)(vi). The specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based on management s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about the counterparty s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits and the workout strategy and estimate of cash flows considered recoverable. The head of the Risk Management Division is responsible for the assessment of the extent of impairment of individually assessed receivables and for determining the amount of any impairment loss. The valuation of collateral that is part of the calculation takes into account the conclusions of the professional evaluation performed by the Bank s expert valuators. The baseline for the valuation, according to the current methodology of the Bank, is the actual Bank`s value that reflects the valuation of collateral in case of forced realization achievable on the market (irrespective of the costs relating to acquisition and sale). The Bank also takes into account the depreciation of the movable assets (machinery technological devices, vehicles) by discounting with a coefficient of 5% p.a. for the period from the calculation of the allowance for impairment until the expected date of realization of the collateral. Subsequently, the Bank estimates the percentage loss from realization of the collateral as well as the expected date of realization. Collectively assessed impairment allowances cover credit losses inherent in portfolios of claims with similar economic characteristics when there is objective evidence to suggest that they contain impaired claims, but the individual impaired items cannot yet be identified. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters based on historical experience and current economic conditions. The accuracy of the allowances depends on how well these estimate future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances. Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy 3 (h)(v). For financial instruments that trade infrequently and have little price transparency, fair value is less objective and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Determining fair value of such instruments is also influenced by assessment of credit risk of the counterparty in accordance with principles and procedures stated in point 5(b) Management of financial risks credit risk. Further information about the values of financial instruments at fair value, analyzed according to valuation methodology (broken down into individual valuation levels) are included in this note later. Critical judgements in applying the Bank s accounting policies Critical accounting judgements made in applying the Bank s accounting policies include: Financial asset and liability classification The Bank s accounting policies provide scope for assets and liabilities to be designated on inception into different accounting categories in certain circumstances: In classifying financial assets or liabilities as at fair value through profit or loss, management has determined that the Bank meets the description of trading assets and liabilities set out in accounting policy 3 (j). In classifying financial assets as held-to-maturity, management has determined that the Bank has both the positive intent and ability to hold the assets until their maturity date as required by accounting policy, note 3 (m)(i). Impairment of investment in equity securities Investments in equity securities are evaluated for impairment on the basis described in accounting policy 3(h)(vi). For an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. In this respect, the Bank regards a decline in fair value in excess of 20 percent to be significant and a decline in a quoted market price that persist for nine months or longer to be prolonged. Valuation of financial instruments The Bank s accounting policies and methods for fair value measurements are discussed under note 3(h)(v). The Bank measures fair values using the following hierarchy of methods: Quoted market price in an active market for an identical instrument (Level 1). Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data (Level 2). Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant effect on the instrument s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments (Level 3). The Bank creates the collective impairment losses based on the probability of default ( PD ) and loss given default ( LGD ). A change of the LGD parameter by +/-5% or +/-10%, would result in a change in the allowances for impairment by +/-4.08% (in absolute numbers +/- 5,531 thousand), or +/- 8.16% (in absolute numbers +/- 11,063 thousand). Back-testing carried out by the Bank in confirmed the adequacy of LGD settings, so the bank has not acceded to changes during Fair values of financial assets and financial liabilities that are traded in active markets are based the reporting period. on quoted market prices or dealer price quotations. For all other financial instruments, the Bank 58 determines fair values using valuation techniques. 59

31 Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discount rates. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date that would have been determined by market participants acting at arm s length. The Bank uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple over-the-counter derivatives like interest rate swaps. The availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. The availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. For more complex instruments, the Bank uses proprietary valuation models, which are usually developed based on recognised valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived from market prices or rates or are estimated based on assumptions. Example of instruments involving significant unobservable inputs include certain over-the-counter structured derivatives, certain loans and securities for which there is no active market and certain investments in subsidiaries. Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value. Management judgement and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of the probability of counterparty default and prepayments and selection of appropriate discount rates. The Bank has an established control framework with respect to the measurement of fair values. This framework includes a control function performed by the Market Risks Department, which is independent from front office management. Specific controls include: verification of observable pricing inputs and reperformance of model valuations; a review and approval process for new models and changes to models; calibration and back-testing of models against observed market transactions; analysis and investigation of significant daily valuation movements; and review of significant unobservable inputs and valuation adjustments. Basic parameters entering into the valuation model to determine the fair value of equity financial instruments are forecast economic results and equity of the company, market multiples indicators such as EBITDA, sales etc. for comparable companies, which are published by reputable companies for different sectors. Also, the Bank uses the equity method (as appropriate), in which case owned assets of the Bank are valued at market prices. The reported amounts of financial instruments at fair value analysed according to valuation methodology were as follows: 31. December Assets Note Quoted market prices in active markets Valuation techniques: observable inputs Valuation techniques: unobservable inputs Total Trading assets 7 1, ,600 Investment securities Available-for-sale Liabilities , , , , , ,625 Trading liabilities december Assets Note Quoted market prices in active markets Valuation techniques: observable inputs Valuation techniques: unobservable inputs Total Trading assets 7 1,857 7,197 9,054 Investment securities Available-for-sale Liabilities ,912 48, , , ,769 55, , ,907 Trading liabilities For fair value measurement of debt financial instruments the Bank uses models based on net present value. The key estimation parameter is the discount interest rate. Determination of the discount interest rate is based on the risk free market rate, which corresponds to the incremental maturity of particular financial instruments and on a risk premium. The risk premium is determined to be consistent with regular market practice. Even though these valuation techniques are considered to be appropriate and in compliance with market practice, still the estimations in discount interest rate and changes of basic assumptions in future cash flows lead to different fair value of financial instruments

32 The following table shows a reconciliation of the beginning balance to the ending balance of fair values in the category: Valuation techniques - unobservable inputs: Investment securities At 1 January 317, ,115 Total gains or losses: in profit or loss 8,971 10,804 in other comprehensive income 3,369 1,745 Maturities and sales (218,988) (67,183) Purchases 95, ,900 Transfers into the category 5,201 Transfers out of the category (85,213) At 31 December 126, ,381 Favourable and unfavourable effects for equity financial instruments in the category Valuation techniques unobservable inputs, were calculated using changes in expected future cash flows used in the fair value calculation by +/- 10% and changes in the discount interest rate by +200bp/ - 200bp. As at 31 December, the change of these parameters would have an unfavourable effect on recognised fair value amounting to 627 thousand. In the case of an opposite movement, the favourable effect would be 628 thousand. The following table shows information regarding the investment movements between all the groups of valuation methods during : Trading assets Quoted market prices in active markets Valuation techniques: observable inputs Valuation techniques: unobservable inputs Transfers into the group Transfers from the group Investments Transfers into the group 5,201 Transfers from the group 5,201 Total 5,201 5,201 The Bank as at 30 June reclassified bills of exchange and bonds to the portfolio of Loans and receivables debt securities. Based on this they were transferred from the Level 3 Valuation techniques: unobservable inputs. These debt securieties were transferred in amount of 85,213 thousand. Securities in total amount of 5,201 thousand were moved from level 2 to level 3 due to smaller market activity in. In regards to the fair value assessment of debt financial instruments, the Bank has simulated changes of credit risk premiums by +/- 200bp against their current value. As at 31 December, the change of these parameters would have an unfavourable effect on recognised fair value amounting to 8,561 thousand. In the case of an opposite movement, the favourable effect would be 9,467 thousand. Financial instrument type Valuation technique Fair value as at 31 December Significant unobservable input Range employed Sensitivity to reported fair value Debt financial instruments Discounted cash flow 118,799 (: 317,194) Credit surcharge 2.00% (: 2.00%) Credit surcharge increase will cause decrease of fair value and vice versa. Assets value increase will cause equity increase and fair value increase and vice versa. Sales multiplicator increase will cause increase of company value and vice versa. Equity instruments Comparative method 7,433 (: 188)* Asset value change Sales multiple change (sales multiple) 10.00% (: 30%; 2.00%)** * In the Bank used the model of discounted future cash flows to determine fair value. Discount interest rate consisted of various parameters such as expected market return, risk-free interest rate, surcharge for country risk, perpetuity discount factor and beta factor. ** The range used in considered change of expected cash flows by + 30% / - 30% and change of discount interest rate by + 200bp / -200bp

33 31 December Assets 31 December Assets Note Quoted market prices in active markets Valuation techniques: observable inputs Valuation techniques: unobservable inputs Total Cash and cash equivalents 6 20,627 20,627 Deposits in banks 6 265, ,900 Loans and advances to customers 9 1,708, ,894 1,878,166 Invesment securities , ,495 Investments in subsidiaries and jointly controlled entities Liabilities Note Quoted market prices in active markets Valuation techniques: observable inputs Valuation techniques: unobservable inputs Total Cash and cash equivalents 6 19,977 19,977 Deposits in banks 6 341, ,448 Loans and advances to customers 9 1,973, ,611 2,295,039 Invesment securities , ,944 Investments in subsidiaries and jointly controlled entities Liabilities 12 42,777 42, ,944 2,334, ,388 3,289,185 Deposits by banks 18 13,475 13,475 Customer accounts 19 3,574,641 3,574,641 Subordinated debt 24 8,013 8,013 3,596,129 3,596, ,668 40, ,495 1,994, ,562 2,971,856 Deposits by banks 18 7,629 7,629 Customer accounts 19 3,283,678 3,283,678 Subordinated debt 24 8,013 8,013 3,299,320 3,299, Financial risk management (a) Introduction The Bank has exposure to the following main risks: credit risk, liquidity risk, market risk, operational risk. Information on the exposure to each of the above risks; the objectives, policies and processes for measuring and managing risk; and on the management of the Bank s capital is set out below. Risk management framework The highest body responsible for risk management in the Bank is the Board of Directors. The Board of Directors has overall responsibility for the establishment and oversight of the Bank s risk management framework. Some responsibilities are delegated to special advisory bodies ALCO, Credit Committee, Mortgage Committee, Operational Risk Management Committee, Program and Project Committee, Change Committee and Compensation Committee. The Bank s risk management policies are based on the Risk Management Strategy, which is the primary document for risk management. The Strategy has been approved by the Board of Directors, and is regularly reassessed and updated. The risk management process is a dynamic and constant process of identification, measurement, monitoring, control and reporting of risks within the Bank. The process involves establishing limits and processes to monitor risks and adherence to those limits. Risk management policies and systems are reviewed and amended regularly to reflect changes in legislation, market conditions, products and services offered. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. The Bank s Audit Committee is responsible for monitoring the effectiveness of the internal control and risk management systems. Its activities cover also a review of the external auditor s independence and evaluation of the findings from the audit of the financial statements by the external auditor. The Committee monitors compliance to the financial accounting standards of the Bank. The Audit Committee is assisted in these functions by Internal Audit. (b) Credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank s loans and advances to customers, the provisions of guarantees, the issuance of documentary credits, loans and advances to other banks and the purchase of investment securities. For risk management reporting purposes, the Bank considers and consolidates all elements of its credit risk exposure (such as individual obligor default risk, management failure, country, sector and concentration risk). Credit risk management within the Bank is the responsibility of two independent departments within the Risk Management Division. The Board of Directors has delegated responsibility for the oversight of credit risk to its Credit Committee in compliance with a formal order establishing authorities and responsibilities. Credit risk management includes: examination of the clients creditworthiness, assessing limits for clients, economically connected parties, including monitoring portfolio concentration, assessing limits for counterparties, industries, countries, banks, products and regions, 64 mitigation of risk by various forms of collateral, 65

34 continuous monitoring of the loan portfolio development and prompt decision-making to minimise possible losses. Several methods of credit risk measurement, monitoring and mitigation are used in the Bank: In order to mitigate credit risk the Bank assesses the creditworthiness of the client/ deal using a rating tool with parameters specific to each client segment when providing the loan as well as during the life of the credit/ loan trade. The Bank currently uses rating system for the evaluation of the financial statements prepared according to International Financial Reporting Standards. The rating system evaluates quantitative and qualitative indicators of economic activities (eg. liquidity ratio, profitability, gearing etc.). The Bank categorizes them to rating levels from the best to the worst, the worst level representing the highest probability of default. The Bank has established a process of setting up the ratings and their regular updating and a control process of assigning of the rating and these are defined in the Bank s internal guidelines. The Bank continuously monitors, assesses and evaluates the compliance with the limits on country, maximum exposure, sector group and related parties and translates these into its activities. When analyzing the client/ deal the Bank uses: Country rating, Bank rating, Sector rating, Client and deal rating, Project assessment tool, Scoring for retail loans. The approval process of active bank transactions includes a review of the individual applicant of the transactions, credit limit of the counterparty and collateral in order to mitigate credit risk. The Bank monitors the development of the portfolio of active bank transactions yearly, or more often if necessary, to ensure that prompt action can be taken to minimize potential risks. Credit risk limits are generally determined on the basis of economic analysis of the client, sector, region or country. Their design and evaluation is in the responsibility of the Risk Management Division and are approved by the relevant authority. The procedure of determining individual limits is part of the Bank s internal guidelines. To mitigate credit risk, the Bank uses the following types of limits: Financial involvement limits of client or economically connected entities (clients) Country limits, Limits on banks, Industry limits. Loans and advances were granted to customers in the following sectors (gross amount): Loans and advances were made to customers in the following countries (gross amount): Individuals 663, ,984 Financial services 534, ,901 Other services (accommodation services, property investment activities) 498, ,686 Trading companies 390, ,102 Manufacturing companies 110, ,356 Real estate construction 24,110 40,944 Transport and telecommunication 15,969 18,012 Health care and public services Agriculture ,238,091 1,977,771 Slovak Republic 1,306,579 1,259,693 Other EU countries 931, ,078 Out of which: Cyprus 549, ,876 Czech Republic 251, ,669 Poland 89,588 4,470 Romania 20,000 20,000 Netherlands 11,102 11,982 Bulgaria 9,860 21,875 Great Britain 71,206 2,238,091 1,977,771 Classification of receivables Individually significant receivables are classified into five categories (standard, special mention receivables, non-standard, doubtful and loss receivables), which, for the purposes of monitoring and reporting, are further classified into the following categories: non-impaired, impaired impairment not more than 20%, impairment more than 20%, but not more than 50%, impairment more than 50%, but not more than 95%, impairment more than 95%, out of which: defaulted. Receivables that are not individually significant, which are assessed on a portfolio basis, are classified based on the number of overdue days, as follows: Non-impaired overdue 0 day, Impaired overdue 1 90 days, Default overdue more than 90 days

35 The Bank sets the level of significance at 166 thousand. The loans and advances with a value equal or higher than 166 thousand are assessed individually. The gross amounts of individually impaired loans and advances to customers, banks and investment debt securities by risk grade are as follows: Impaired loans and securities Impaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s). Individually assessed Loans and advances to customers Loans and advances to banks Investment debt securities Bank guarantee and credit lines Past due but not impaired loans Loans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of accepted collateral or status of repayments of amounts owed to the Bank. Loans with renegotiated terms Not impaired 1,470,731 1,158, , ,801 1,251,690 1, , ,263 Out of which Overdue, but not impaired 2, Impaired, out of which: 298, , defaulted 203,743 83, Out of total amount of individually assessed restructured loans 164,493 42,798 Book value 1,768,766 1,357, ,801 1,251,690 1,325, , ,993 Allowance for impairment (65,427) (29,868) Net book value 1,703,339 1,327, ,801 1,251,690 1,325, , ,993 Collectively assessed Not significant 662, , , ,697 Book value 662, , , ,697 Allowance for impairment (71,080) (69,737) (52) Net book value 591, , , ,645 Total net book value Individually assessed loans and advances 2,295,039 1,878, , ,801 1,251,690 1,325, , ,638 The Bank uses an internal rating system for providing and monitoring of loans and advance granted to corporate clients. The rating is given based on the assessment of the economical health, prospect and the client market share. The receivables are reported as not impaired if they do not present any of the following triggers of impairment: a) significant financial difficulty of issuer or debtor, b) breach of contract, e.g. default or delay in repayment of principal or interests, c) lender granting to a borrower a concession that the lender would not otherwise consider, d) borrower will enter bankruptcy or other financial reorganisation. Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower s financial position and where the Bank has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent of satisfactory performance after restructuring. Receivables Gross receivables Impairment allowances Net receivables Non-performing 299, , ,669 Non-performing total 299, , ,669 Performing: Without relief 1,920,427 14,595 1,905,832 With relief refinanced 7, With relief in form of conditions modification 204,261 6, ,446 Performing total 2,131,907 21,537 2,110,370 Total 2,431, ,507 2,295,039 The Bank distinguishes between performing and non-performing receivables, where the monitored features are the number of days overdue and the probability of default, without the realization of collateral. To considered receivable as non-performing, it is sufficient to meet at least one of these criteria. Performing receivables are subsequently divided to performing without relief, performing with relief refinanced and perfroming with relief in the form of conditions modification. The Bank assesses receivable as performing with relief refinanced when the loan was provided for full or partial repayment of the original loan. The Bank assessed receivables as performing with relief in the form of conditions modification when there was changes in the contract`s conditions made and the loan is not refinanced. These changes would not be made if the client`s financial position did not deteriorate. The loans which do not have any of the characteristics above are assessed by the Bank as performing without relief. Allowances for impairment The Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been 68 identified on loans subject to individual assessment for impairment. 69

36 Provisions The exposure according to client types (internal classification) is as follows: In accordance with International Accounting Standard IAS 37 the Bank creates provisions for off balance sheet liabilities (valid credit lines, bank guarantees and letters of credit) if it expects emergence of potential credit losses. The Bank creates provisions in accordance with materiality levels separately for individual off balance sheet liabilities over 166 thousand and portfolio off balance sheet liabilities below 166 thousand. For individually assessed liabilities The Bank sets the percentage of loss to the same level as for undrawn receivables. Gross amount Impairment allowances Carrying amount Gross amount Impairment allowances Carrying amount Write-off policy The loan/security balance (and any related allowances for impairment losses) is written off when the Bank discovers that the loans/securities are uncollectible. This decision is reached after considering information such as the occurrence of significant changes in the borrower/issuer s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balances of standardised loans, the write-off decision is generally based on a number of days past-due specific for a given product. Set out below is an analysis of the gross and net amounts of individually impaired loans and advances to customers by risk grade. Loans and advances to customers Retail clients: Quick loans 240,407 33, , ,663 38, ,478 Loan on housing 380,744 33, , ,556 25, ,005 Personal debits 25,437 3,148 22,289 27,000 2,577 24,423 Other consumer loans Other receivables 1, ,141 1, ,101 Practical mortgage 15, ,691 18, ,341 Sold receivables 4, ,384 6, , ,323 71, , ,101 66, ,556 Impaired receivables: Impaired not more than 20% Gross Net 94,291 87,359 Corporate clients: Large clients 1,326,092 35,979 1,290, ,975 24, ,827 Foreign currency loans 49, ,313 70,671 70,671 Repo deals 80,943 80, , ,014 Impaired and defaulted: Overdrafts 281,948 28, , ,819 4, ,497 Impairment more than 20%, but not more than 50% 124,780 86,139 Impairment more than 50%, but not more than 95% 32,059 31,596 Impairment more than 95% 46,905 27, , ,608 Small clients , Credit accounts ,528 1,422 1,106 Other receivables Sold receivables 24, ,430 5,563 1,398 4,165 1,763,223 65,473 1,697,750 1,353,670 33,060 1,320,610 Impaired receivables: Impaired not more than 20% 116, ,302 2,431, ,507 2,295,039 1,977,771 99,605 1,878,166 Impaired and defaulted: Collateral Impairment more than 20%, but not more than 50% 59,923 52,466 Impairment more than 50%, but not more than 95% Impairment more than 95% 22,884 13, , ,894 The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property and other registered securities over assets and guarantees. Estimates of fair values are based on the value of collateral assessed at the time before executing the deal and are reassessed in compliance with the internal methodology of the Bank. Generally, collateral is not held on loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity. The Bank s assessment of the net realisable value of the collateral is based on independent expert appraisals, which are reviewed by bank specialists, or internal evaluations prepared by the Bank. The net realisable value of collateral is derived from this value using a correction coefficient that is the result of the current market situation and reflects the Bank s ability to realize the collateral in case of involuntary sale for a price that is possibly lower than the market price. The Bank, at least annually, updates the values of the collateral and the correction coefficient

37 An estimate of the fair value of collateral and other security enhancement held against financial assets is shown below: Loans and advances to customers Against individually not impaired Real estate 218, ,191 Movables 31,765 52,729 Debt securities 6, Equity securities 398, ,244 Other 78,364 77,667 Against individually impaired 733, ,732 Real estate 148, ,858 Movables 27,398 27,097 Debt securities 336 Equity securities 4,142 Bank guarantee Other 9, Against collectively assessed 185, ,203 Real estate 16,951 16,294 Movables Other ,156 16,708 Total 936, ,643 Assets obtained by taking possession of collateral As at 31 December and 31 December, the Bank did not account for assets obtained by taking possession of collateral pledged in favour of the bank for loans. In January 2015 the bank obtained by taking possession into its assets receivables in amount of 372 thousand. The receivables were valued by an independent external expert. As noted above, to mitigate credit risk before providing loans to corporate clients, the Bank generally requires collateral. The following collateral types are accepted: Cash, State guarantees, Securities, First-class receivables, Bank guarantees, Guarantees issued by a reputable third party, Real estate, Machinery and equipment. Recovery of delinquent receivables Receivables whose repayment is threatened are administrated by the Legal and Compliance Division. The Legal Department takes the necessary steps to obtain the maximum recovery from default receivables including realisation of collateral and acts as the Bank s representative in creditor committees when the debtor is in bankruptcy. The Risk Management Division, Department of Retail Loans Collection (DRLC) is responsible for collection of retail loans. In the retail segment, the recovery process for overdue receivables is defined and centrally operated by workflow systems (the workflow system in the Bank s environment is a recovery managed by the system provided by the company Loxon. The system provides complex evidence of delinquent receivables, it uses segmented strategy of recovery and it also processes numerous task flows, automated collection tasks, etc.), which initiate activities for early recovery by the Risk Management Division and DRLC. The Bank also uses the outsourcing services of collection companies. The Risk Management Division is responsible for defining the procedures for recovery and measurement, as well as the measurement of their effectiveness. Settlement risk The Bank s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed. For certain types of transactions, the Bank mitigates this risk by conducting settlements through a settlement/clearing agent to ensure that a trade is settled only when both parties have fulfilled their contractual obligations. Settlement limits form part of the credit approval/limit monitoring process. Acceptance of settlement risk on free settlement trades requires transaction-specific or counterparty-specific approval from the Risk Management Department. Country risk The Bank monitors country risk in accordance with internal guidelines and in compliance with national legislation. Detailed information on concentration of portfolio of government securities can be found in Note 11 Investment securities. (c) Liquidity risk Liquidity risk arises from the financing of the Bank s activities and the management of its positions. It includes financing the Bank s assets with instruments of appropriate maturity and the Bank s ability to dispose of its assets for acceptable prices within acceptable time periods. The Bank promotes a conservative and prudent approach to liquidity risk management. The Bank has a system of limits and indicators consisting of the following elements: Short-term liquidity management is performed by the Bank s Dealing Department by monitoring the liabilities and receivables due, and fulfilling the compulsory minimum reserves. Long-term liquidity risk management is based on a model of core deposits using the Value at Risk method. Long-term liquidity management is also performed using Gap Analysis (the classification of assets and liabilities based on their maturity into different maturity ranges) and evaluation of indicators of the net statement of financial position in euro

38 Management of liquidity risk The Bank s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank s reputation. The Bank finances its assets mostly from primary sources. In addition, the Bank has open credit lines from several financial institutions and is also able to finance its assets from interbank deposits. Due to its structure of assets the Bank has at its disposal sufficient amount of bonds that are, if necessary, acceptable for acquiring additional resources through refinancing operations organised by the European Central Bank. The Finance Division s specialised ALM Department is responsible for liquidity management. The liquidity ratio of fixed and non-liquid assets is the ratio of the sum of fixed assets and non-liquid assets to selected liabilities. The value of the ratio cannot exceed 1. The ratio of liquid assets is the ratio of the sum of liquid assets to the sum of volatile liabilities. The value of the ratio cannot decrease below 1. The ratios are defined in the Provision of the National Bank of Slovakia No. 18/2008 on Bank liquidity. The remaining period to maturity of financial assets and liabilities as at 31 December and 31 December are set out in the following table, which shows the undiscounted cash flows on the basis of their earliest contractual maturity. The Bank s expected cash flows may vary from this analysis. The Treasury Division receives information from other departments regarding the liquidity profile of their financial assets and liabilities and details about other projected cash flows arisitng from projected future business. TheTreasury Division then maintains a portfolio of short-term liquid assets, made up of loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole. 31. december Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Total The daily liquidity position is monitored and monthly liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. The Bank also has an emergency plan and crisis communication plan that describes the principles and procedures of management in extraordinary conditions and secures the availability of financial back-up sources. All liquidity policies and procedures are subject to review and approval by ALCO. Reports on the liquidity position of the Bank are produced daily. A summary report, including any exceptions and remedial action taken, is submitted to ALCO at least once a month. Exposure to liquidity risk The key measures used by the Bank for managing liquidity risk are: the liquidity ratio of fixed and illiquid assets, the ratio of liquid assets 1, the ratio of primary liquidity, liquidity coverage ratio, modified liquidity gap ratio and net stable funding ratio. Details of the Bank s liquidity ratios at the reporting date and during the reporting period were: Assets Cash and deposits at central banks Trading assets, out of which: 361, , ,426 securities 1,111 1,111 1,111 derivative instruments cash in , ,000 cash out 103, ,479 Loans and advances to customers 2,295, , ,741 1,414, ,501 3,177,581 Investment securities 1,402,969 70,519 78, , , ,279 1,697,353 Investments in subsidiaries and jointly controlled entities 42,777 42,777 42, December yearly 31 December yearly Deferred tax asset 21, ,818 22,475 Tax asset The liquidity ratio of fixed and illiquid assets End of the period Other assets 50,147 50,147 50,147 4,175, , ,337 2,137,269 1,432, ,167 5,353,479 Average for the period Maximum for the period Minimum for the period Ratio of liquid assets End of the period Average for the period Maximum for the period Minimum for the period By Amendment of Provision no. 18/2008 about bank liquidity, the liquid assets ratio was cancelled with effectiveness on and replaced by liquidity coverage ratio, which value was 1,7 as at This is illustrative value

39 31. december Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Total Liabilities Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Total Liabilities Trading liabilities derivative instruments cash in 1,700 1,700 cash out 38 1,740 1,740 Deposits by banks 13,475 13,475 13,475 Customer accounts 3,574,641 2,568, , ,154 4,115 13,746 3,614,041 Accepted loans Tax liabilities 15,935 15,935 15,935 Other liabilities 24,479 24,479 24,479 Subordinated debt 8, ,705 8,746 10,878 3,636,505 2,622, , ,859 12,861 13,746 3,678,768 The Bank oversees remaining periods to maturity on the basis of estimated withdrawals or expected maturity of each item in asset and liabilities. 31. december Assets Cash and deposits at central banks Trading assets, out of which: Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Total 286, , ,527 securities 8,945 8,945 8,945 derivative instruments cash in 109 6,500 6,500 cash out 6,390 6,390 Loans and advances to customers 1,878, , ,402 1,127, ,856 2,633,235 Investment securities 1,516, , , , , ,677 1,855,471 Investments in subsidiaries and jointly controlled entities 40,668 40,668 40,668 Trading liabilities derivative instruments cash in 70,000 70,000 cash out ,666 70,666 Deposits by banks 7,629 7,629 7,629 Customer accounts 3,283,678 2,385, , , ,844 3,315,824 Accepted loans 50,778 50,804 50,804 Tax liabilities Other liabilities 28,869 28,869 28,869 Subordinated debt 8, ,705 9,172 11,304 3,379,105 2,472, , ,994 9,529 10,844 3,414,562 The Bank oversees remaining periods to maturity on the basis of estimated withdrawals or expected maturity of each item in asset and liabilities. The remaining period to contractual maturity of commitments and contingencies items as at 31 December is set out in the following table, in which are listed undiscounted cash flows in accordance to their earliest contractual maturity: Total carrying amount Commitments and contingencies Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Total Guarantees to clients 158, ,258 8,200 18, ,928 Confirmed credit lines 238, , ,910 Notional amount of derivatives ,168 8,200 18, ,838 Currency swaps 105, , , , , ,220 Deferred tax asset 21, ,640 Tax asset 1, ,439 Other assets 63, ,453 3,817, , ,728 1,862,308 1,073, ,336 4,911,

40 The remaining period to contractual maturity of commitments and contingencies items as at 31 December was as follows: Total carrying amount Commitments and contingencies Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Total Guarantees to clients 217, ,475 8,565 50, , ,758 Confirmed credit lines 204, , , , ,355 8,565 50, , ,638 Management of market risks Overall authority for market risk is vested in the ALCO. Market Risk Management is responsible for the development of detailed risk management policies. The principal tool used to measure and control market risk exposure within the Bank s trading portfolios is Value at Risk (VaR). The VaR of a trading portfolio is the estimated loss that will arise on the portfolio over a specified period of time (holding period) from an adverse market movement with a specified probability (confidence level). The VaR model used by the Bank is based upon a 99 percent confidence level and assumes different holding period based on the type of risk. The Bank applies daily VaR on foreign exchange and equity risks, monthly VaR on interest rate risk. The VaR model used is based mainly on simulations. Taking account of market data from the previous years, and observed relationships between different markets and prices, the model generates a wide range of plausible future scenarios for market price movements. Notional amount of derivatives Currency swaps 77,045 77,045 77,045 77,045 77,045 77,045 Cash flows expected by the Bank for certain assets and liabilities may differ significantly from their contractual flows. For example, for deposits from clients (current accounts, term deposits without notice period) the Bank expects that they will remain in the Bank over a longer period, or, more precisely, their value will increase over time as a result of receiving new funds. Receivables from clients may be also prematurely repaid or prolonged. The amounts of undiscounted cash flows in the tables above are calculated as follows: Type of financial instrument Non-derivative assets and liabilities Derivatives (d) Market risk Method of undiscounted cash flows calculation Undiscounted cash flows which include expected interest payments Undiscounted cash flows in contractual value Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor s/issuer s credit standing) will affect the Bank s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Bank separates its exposure to market risk between the trading and non-trading portfolios. Trading portfolios include proprietary position-taking, together with financial assets and liabilities that are managed on a fair value basis. Although VaR is an important tool for measuring market risk, the assumptions on which the model is based do give rise to some limitations, including the following: A holding period assumes that it is possible to hedge or dispose of positions within that period. This is considered to be a realistic assumption in almost all cases but may not be the case in situations in which there is severe market illiquidity for a prolonged period. A 99 % confidence level does not reflect losses that may occur beyond this level. Even within the model used there is a one percent probability that losses could exceed the VaR. VaR is calculated on an end-of-day basis and does not reflect exposures that may arise on positions during the trading day. The use of historical data as a basis for determining the possible range of future outcomes may not always cover all possible scenarios, especially those of an exceptional nature. The VaR measure is dependent upon the Bank s position and the volatility of market prices. The VaR of an unchanged position reduces if the market price volatility declines and vice versa. The Bank has defined VaR limit on the foreign exchange risk and equity risk. The overall structure of VaR limits is subject to review and approval by ALCO. VaR are allocated to the trading portfolios. Daily reports of utilisation of VaR limits are submitted to Market Risk Management and regular summaries are submitted to ALCO. A summary of the VaR position of the Bank s trading portfolios as at 31 December and 31 December is as follows: 31 December 31 December Average Maximum Minimum Foreign exchange risk Equity risk December 31. december Average Maximum Minimum Foreign exchange risk Equity risk The limitations of the VaR methodology are recognised by supplementing VaR limits with other position and sensitivity limit structures, including limits to address potential concentration risks within each trading portfolio. In addition, the Bank uses a wide range of stress tests to model the financial impact of a variety of exceptional market scenarios on individual trading portfolios and the Bank s overall position. Under stress scenario involving a significant increase of volatility in exchange rates, the Bank estimates one day VaR on foreign exchange risk at 37 thousand

41 Interest rate risk The main source of the Bank s interest rate risk results from revaluation risk, which is due to timing differences in maturity dates (fixed rate positions) and in revaluation (variable rate positions) of banking assets and liabilities and positions in commitments, contingencies and derivative financial instruments. Other sources of interest rate risk are: Yield curve risk risk of changes in the yield curve due to the fact that a change in interest rates on the financial market will occur in different extents at different periods of time for interest-sensitive financial instruments, Different interest base risk - reference rates, to which active and passive transactions are attached, are different and do not move simultaneously, Risk from provisioning resulting from the decrease of interest sensitive exposure with increasing volume of impairment loss allowances. Reducing exposure affects bank interest sensitivity based on a short or long position. On the assets side of the statement of financial position, the Bank manages its interest rate risk mainly by providing a majority of loans with variable rates and including in its investment securities portfolio mostly fixed rates instruments. The Bank continuously uses asset-liability management in its interest risk management. When purchasing bonds, the current interest position of the Bank is taken into account, which then serves as a basis for purchase of fixed or variable bonds. The priorities of the Bank for interest rate risk management of liabilities comprise: Stability of deposits, especially over longer time periods Fast and flexible reactions to significant changes in inter-bank interest rates through adjustments to interest rates on deposit products Continuously evaluating interest rate levels offered to clients compared to competitors and actual and expected development of interest rates on the local market Managing the structure of liabilities in compliance with the expected development of money market rates in order to optimise interest revenues and minimise interest rate risk. Part of the Bank s revenue is generated through planned differences between interest-sensitive assets and liabilities. Management of interest rate risk Limits, indicators and methods of interest rate risk management are defined in accordance with principles described in the Market Risk Management Strategy. point (bp) parallel fall or rise in yield curves with maturity up to one year. The analysis of the Bank s sensitivity to an increase or decrease in market interest rates (assuming no asymmetrical movement in yield curves and a constant statement of financial position) is as follows: Sensitivity of economic value of the Bank: 31 December 200 bp parallel increase 200 bp parallel decrease As at 31 December (64,414) 27,709 Average for the period (55,461) 39,436 Maximum for the period (65,339) 50,020 Minimum for the period (47,391) 27, December As at 31 December (46,407) 45,138 Average for the period (46,098) 45,881 Maximum for the period (49,974) 40,320 Minimum for the period (40,320) 50,733 The Bank s Economic Value represents the difference between the fair value of the interest rate sensitive assets recorded in the bank book and the fair value of interest rate sensitive liabilities recorded in the bank book. Interest rate sensitive assets and liabilities are assets and liabilities for which fair value is variable depending on changes in market interest rates. Particular assets and liabilities are divided into re-pricing gaps based on their contractual re-pricing period, volatility of interest margins (for selected liability products) or roll forward (for assets and liabilities where it is not possible to use statistical models). In case the asset or the liability does not bear interest risk, it is assigned a 1 day maturity. Change in the Bank s Economic Value reflects the impact of a parallel interest shock on the value of interest sensitive assets and liabilities of the Bank. The table above shows that an increase in the interest curve decreases the Bank s value and vice versa. It should be emphasized that this measure highlights the effect of a shift in interest curves on the present structure of assets and liabilities, and excludes assumptions on future changes in the structure of the balance sheet. The Bank identifies, monitors and reports interest rate risk through the following methods: Stress and back testing, Sensitivity of the business value of the Bank, Gap analysis, Duration analysis, Basis Point Value analysis. The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. The ALCO is the monitoring body for compliance with these limits and is assisted by Risk Management in its day-to-day monitoring activities. ALCO is responsible for setting interest rates for the Bank s products. The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank s financial assets and liabilities to various standard and non-standard 80 interest rate scenarios. Standard scenarios that are considered on a yearly basis include a 200 basis 81

42 Sensitivity of reported equity to interest rate movements: 31 December 200 bp parallel decrease 200 bp parallel increase As at 31 December (53,409) 53,409 Average for the period (43,807) 43,807 Maximum for the period (53,755) 53,755 Minimum for the period (31,678) 31, December As at 31 December (27,427) 27,427 Average for the period (24,190) 24,190 Maximum for the period (27,427) 27,427 Minimum for the period (21,910) 21,910 Sensitivity of reported equity to interest rate movements Interest rate movements affect reported equity in the following ways: Retained earnings arising from increases or decreases in net interest income and the fair value changes reported in profit or loss. Fair value reserves arising from increases or decreases in fair values of available-for-sale financial instruments reported directly in equity. Hedging reserves arising from increases or decreases in fair values of hedging instruments designated in qualifying cash flow hedge relationship. Overall non-trading interest rate risk positions are managed by the Treasury Division, which uses investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Bank s non-trading activities. Share price risk Share price risk is the risk of movements in the prices of equity instruments held in the Bank s portfolio and financial derivatives derived from these instruments. The main source of the Bank s share price risk is speculative positions held in shares and positions held for strategic reasons. When investing in shares, the Bank: Follows an investment strategy which is updated on a regular basis, Has a preference for publicly traded stocks, Monitors limits to minimise share price risk (stop loss limits, asset concentration and equity VaR indicators), Performs risk analysis, which usually includes forecasts of the development of the share price, various models and scenarios for the development of external and internal factors with an impact on the income statement, asset concentration and the adequacy of own resources. Limits, indicators and methods of share price risk management are defined in accordance with principles described in the Market Risk Management Strategy. The Bank uses the following limits and indicators in the management of share price risk: Credit risk limits relating to share price risk (limits for industries, countries, banks and individual issuers), Stop loss limits for shares, Portfolio limits, Limits for shares as set out in the Act on Banks, VaR indicator. The Bank identifies, monitors and reports share price risk using the following methods: Overview of the current share positions of the Bank, Equity VaR calculation (historical simulation method), Stress and back testing. Quantitative information about for share price risk is provided in note 5 (d) in Market risk management. Foreign exchange risk The main source of foreign exchange risk is the difference between assets and liabilities denominated in different currencies. This difference arises mainly from transactions in the trading book, which are of a speculative nature. The main source of foreign exchange risk in the banking book is from loans provided in foreign currency, while the Bank obtains the necessary resources from currency derivatives on the inter-bank market. The Bank aims to hedge these positions in the banking book to the maximum extent possible through hedging instruments (for example, currency derivatives), and thereby to minimise the foreign exchange risk. The Bank reduces its foreign exchange risk through limits on unsecured foreign exchange positions and maintains an acceptable level for its size and business activities. The main currencies in which the Bank holds positions are Czech crowns and US dollars. Limits, indicators and methods of foreign exchange risk management are defined in accordance with principles described in the Market Risk Management Strategy. The Bank identifies, monitors and reports the Bank s foreign exchange risk using the following methods: Report on unsecured foreign exchange position of the Bank, Monitoring the structure of foreign currency assets and liabilities by particular currencies, Foreign currency VaR model, Stress and back testing. The Bank performs daily stress testing and back testing of foreign exchange risk in VaR models. In specific cases, the Bank prepares development scenarios for selected parameters for significant open transactions. The Bank performs daily stress testing of foreign exchange and share price risk by applying internally defined stress scenarios for individual types of risks. The Bank subsequently verifies the impact of the results of stress testing on the Bank s capital. The results of stress testing are taken into consideration when setting procedures and limits for risk exposure

43 The Bank had the following assets and liabilities denominated in foreign currencies at 31 December : Assets Cash and deposits at central banks Czech crown US dollar Other Total 130,939 2,232 1, ,991 Trading assets 113, ,951 Loans and advances to customers 7,800 7,800 Investment securities Deferred tax asset Other assets 82 6,239 6,321 Liabilities 252,869 8,477 1, ,168 Deposits by banks Customer accounts 134,929 6,691 1, ,345 Tax liability Other liabilities ,078 6,778 1, ,587 The Bank had the following assets and liabilities denominated in foreign currencies at 31 December : Assets Cash and deposits at central banks Czech crown US dollar Other Total 44,577 1,762 2,400 48,739 Trading assets 4,630 4,630 Loans and advances to customers 142, ,493 Investment securities 23,762 4,465 28,227 Deferred tax asset Other assets 330 5, Liabilities 215,810 11,724 2, ,935 Deposits by banks 10, ,258 (e) Operational risk Operational risk is the risk of loss, including the damage caused by the Bank s processes, to the Bank by inappropriate or incorrect procedures, human factor failure, failure of used systems and from external factors other than credit, market and liquidity risks. A part of the operational risk is legal risk arising from unenforceable contracted receivables, unsuccessful legal cases or verdicts with negative impact on the Bank. Operational risk arises from all of the Bank s operations and is faced by all business entities. From 31 December, the Bank uses a standardized approach for measuring system and operational risk management. The Bank continuously aims to improve implemented process of operational risk identification, usage of KRI indicators, self-evaluation procedures, planning of unforeseeable events and business continuity of the Bank. The Bank will implement operational risk management on a consolidated basis. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management in each division. This responsibility is supported by the development of overall standards for the management of operational risk in the following areas: requirements for the reconciliation and monitoring of transactions, compliance with regulatory and other legal requirements, documentation of controls and procedures, requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified, requirements for the reporting of operational losses and proposed remedial action, development of contingency plans, training and professional development, ethical and business standards, risk mitigation, including insurance where this is effective. Compliance with the Bank s standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the relevant managers, with summaries submitted to the Supervisory Board (also cover the functions of Audit Committee) and the Board of Directors. Legal risk Legal risk forms part of operational risk and is the loss arising from unenforceable contracts, threats of unsuccessful legal cases or verdicts with negative impact on the Bank. In the environment of the Bank, the risk of sanctions from regulators may be connected with reputational risk. Legal risk management is provided by the Legal services department. Risks related to outsourcing Outsourcing activities provide a separate group of operational risks. Outsourcing involves the long-term performance of activities by a third party, which support the Bank s activities and are carried out on a contractual basis. Customer accounts 123,010 5,365 2, ,750 Risk management relating to outsourcing is part of the overall bank risk management. It is in the Tax liability responsibility of the Board of Directores and include: managing strategy for the risks associated with outsourcing, which is approved by the Board of Other liabilities Directors, as well as other particular internal directives relating to outsourcing, security crisis plans 134,414 5,367 2, ,163 for individual outsourced activities, or for plan of the finishing of outsourced activities, Examination of the quality of service providers before and during the outsourcing, Regular inspections of performance of outsourcing companies by Department of Internal control and internal audit, 84 minimalization of the risk related to outsourcing when extraordinary events occur. 85

44 (f) Capital management In implementing current capital requirements, the National Bank of Slovakia requires the Bank to maintain a prescribed ratio of total capital to total risk-weighted assets. From 1 January, the Bank is required to calculate own resources in accordance with the Regulation of the European Parliament and the EU Council no. 575/ (Capital Requirement Regulation). The Bank uses the standardised approach to credit risk, the simplified approach to the trading book risks and the basic indicator approach to operational risk. The Bank s regulatory capital is analysed into two tiers: Tier 1 capital includes ordinary share capital, share premium, reserve funds and other funds created from profit, retained profit from previous years and other capital funds after deduction of losses for the current year, intangible assets and other specified deductible items. Tier 2 capital includes approved part of subordinated debt with maturity over 5 years Banking operations are categorised as either a banking book or trading book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and contingent liabilities. The Bank has complied with all externally imposed capital requirements throughout the year. The Bank s position of ownd funds as at 31 December (defined in accordance with National bank of Slovakia Provision no. 4/2007) is displayed in the following table: Regulatory capital Tier 1 capital Ordinary share capital and share premium (notes 25 and 26) 307,100 Reserve funds and other funds created from profit (note 27) 23, 021 Accumulated profit from prior years 60,576 Accumulated profit for 6 months of current year 39,349 Other capital funds Less: intangible assets (11,844) surplus of expected losses over impairment allowances (29,921) negative revaluation differences (7,786) Total tier 1 380,495 Tier 2 capital Subordinated debt 8,000 Positive revaluation differences 9,792 Total tier 2 17,792 Items deductible from the regulatory capital Net book value of the Bank s investments in other banks or financial institutions (note 12) (40,559) Regulatory capital total 357,728 * The surplus of anticipated losses over allowances was a regulatory entry decreasing own funds, which was calculated in accordance with NBS Provision no. 11/

45 The Bank s position of own funds as at 31 December according to the Capital Requirement Regulation is displayed in the following table. The own funds as at 31 December (calculated according to the methodology from Capital Requirement Regulation) are stated for comparison. Requirements on own funds as at 31 December and 31 December in accordance with the Capital Requirement Regulation are displayed in the following table. Requirements on own funds as at 31 December in accordance with the Capital Requirement Regulation are only illustrative: Capital Resources Requirements Regulatory capital Tier I Capital Equity and share premium 367, ,100 Reserve funds and other funds created from profit 30,622 23,805 Selected components of accumulated other comprehensive income (955) (8,569) Profit or loss of previous years 121,930 60,576 Audited profit of current year 39,349 Intangible assets (13,797) (11,848) Additional valuation adjustments (914) (4,026) Additional filters and subtractions (16,103) Total Tier I Capital 503, ,282 Tier II Capital Subordinated debt 8,000 8,000 Total Tier II Capital 8,000 8,000 Regulatory capital total 511, ,282 Own funds requirements as at 31 December (determined in accordance with NBS Decree no. 4/2007) are shown in the following table: Capital Resources Requirements Capital required to cover: Credit risk 232, ,100 Risk on value adjustment to receivable 1 Risks from debt financial instruments, capital instruments, foreign exchange and commodities 139 1,366 Operating risk 30,596 28,163 Total capital requirements 263, ,630 Capital ratios Capital resources as a percentage of total risk weighted assets % % Tier 1 capital as a percentage of total risk weighted assets % % 6. Cash and balances at the central bank The account Compulsory minimum reserve contains funds from the payment system as well as funds that the Bank is obliged to maintain in average in order to fulfill requirements of the National Bank of Slovakia. Therefore, the account balance of Compulsory minimum reserve may significantly vary depending on the amount of incoming and outgoing payments. Compulsory minimum reserves are maintained at a level set by requirement of the National Bank of Slovakia. The amount of set reserve depends on the amount of deposits accepted by the Bank and is calculated by multiplying particular items of the basis by the valid rate for calculation of the compulsory minimum reserve. The Bank, during the reporting period, fulfilled the set amount of compulsory minimum reserves, which in December represented 29,722 thousand. Capital required to cover: Credit risk 192,469 Risk on value adjustment to receivable Risks from debt financial instruments, capital instruments, foreign exchange and commodities 1,366 Operating risk 28,163 Total capital requirements Capital ratios Capital resources as a percentage of total risk weighted assets % Tier 1 capital as a percentage of total risk weighted assets % 88 89

46 Cash in hand 19,977 20,627 Balances at the central banks Compulsory minimum reserves 30, ,768 Term deposits 128,646 33,033 Other deposits 6,527 2,246 Loans and advances to banks by contractual maturity - 3 months or less (note 8) 176,118 6,853 Cash and cash equivalents are as follows: 361, ,527 Cash in hand 19,977 20,627 Balances at the central banks Term deposits 128,646 33,033 Other deposits 6,527 2,246 Loans and advances to banks by contractual maturity - 3 months or less (note 8) 176,118 6, Trading assets and liabilities 331,268 62,759 financial markets during 2008 constituted rare circumstances that permitted reclassification out of the trading category. Under IAS 39 as amended, the reclassifications were made with effect from 1 July 2008 at fair value as at that date. The financial assets reclassified and their carrying and fair values were as follows: Trading assets reclassified to availablefor-sale investment securities Carrying value 2012 Fair value Carrying value The outstanding part of the reclassified securities was sold during the year. During 2009 to there were no reclassifications of trading assets. Fair value Carrying value Fair value 8 8 5,218 5, ,218 5,218 The tables below set out the amounts actually recognised in profit or loss and equity in and in respect of financial assets reclassified out of trading assets in 2008: Reclassification in 2008 Trading assets Securities (a) 1,111 8,945 Derivative instruments (b) ,600 9,054 Period before reclassification: Trading assets reclassified to available for-sale investment securities: Profit or loss 2009 Other comprehensive income 2009 Profit or loss 2008 Other comprehensive income 2008 Trading liabilities Derivative instruments (b) Net trading loss (6,686) Reclassification in 2008 (a) Securities Profit or loss Other comprehensive income Profit or loss Other comprehensive income European government bonds 1,111 1,857 Equity securities 7,088 1,111 8,945 Period after reclassification: Trading assets reclassified to available for-sale investment securities: Dividend income Reclassification of financial assets In 2008, following the issuance of Reclassification of Financial Assets, the amendments to IAS 39 and IFRS 7 (stated in note 3(j)), the Bank reclassified certain trading assets to available-for-sale investment securities. Net change in fair value (6) (861) Impairment loss (5) 5 (710) 710 Sale of security Foreign exchange gain 159 (4) (1) (53) (151) The Bank identified financial assets eligible under the amendments, for which it had changed its intent so that it no longer held these financial assets for the purpose of selling in the short term. For the trading assets identified for reclassification, the Bank determined that the deterioration of the 90 91

47 The table below sets out the amounts that would have been recognised during and if the reclassifications had not been made. Trading assets reclassified to available-for-sale securities: Reclassifications in 2008 Profit or loss Profit or loss Net change in fair value (6) (861) Foreign exchange 159 The movements in impairment losses on loans and advances to customers were as follows: Individual allowances for impairment: As at 1 January 29,868 9,962 Foreign exchange difference 3 Net charge to profit or loss 54,497 19,906 Release of impairment losses on loans written-off (18,941) As at 31 December 65,427 29,868 Net trading loss (6) (702) Derivative instruments Collective allowances for impairment: Currency derivatives Contract/ notional amount Fair value Assets Liabilities t Contract/ notional amount Fair value Assets Liabilities Currency swaps 105, , As at 1 January 69,737 49,935 Net charge to profit or loss 25,225 19,830 Release of impairment losses on loans written-off (23,882) (28) As at 31 December 71,080 69, ,507 99, Loans and advances to banks Repayable on demand 94,747 4,377 Other loans and advances to banks by contractual maturity: - 3 months or less 81,371 2,476 The Bank has assigned receivables to a recovery agency. The conditions of the assignment do not allow for derecognition of the receivables as the Bank has retained substantially all the risks and rewards of ownership of the transferred assets through maintaining the right to participate in most of the recoveries after the assignment. These receivables, before allowances for impairment, amounted to 1,792 thousand (: 1,792 thousand) and impairment loss of 744 thousand (: 742 thousand) was recognised. 10. Loans and receivables debt securities Less amounts with original contractual maturity up to 3 months (note 6) 9. Loans and advances to customers 176,118 6,853 (176,118) (6,853) The bank reclassified selected debt securities from its available-for-sale portfolio to its portfolio of loans and receivables based on IAS 39. The reclassification took place on 30 June. The fair value of reclassified debt securities in the available for sale portfolio in amount of 141,108 thousand became the new acquisition cost in loans and receivables portfolio. The amount 773 thousand from revaluation of securities for sale will be gradually released into revenues Repayable on demand, up to 3 months 381, ,819 Other loans and advances to customers by contractual maturity: - 1 year or less but over 3 months 185, ,511-5 years or less but over 1 year 514, ,577 - over 5 years 1,156,479 1,004,864 Debt securities Corporate funds 85,660 Bills of exchange 107,795 These debt securities are also stated in note ,455 2,238,091 1,977,771 Allowances for impairment (136,507) (99,605) Debt securities (note 10) 193,455 As at 31 December 2,295,039 1,878,166 Impairment losses on loans and advances 92 93

48 11. Investment securities The table below summarizes the Bank s holding of Greek government bonds as at 31 December : Securities held to maturity (a) 589, ,495 Securities available for sale (b) 813, ,853 (a) Securities held to maturity 1,402,969 1,516,348 Slovak government bonds 489, ,591 Government bonds of EU member countries 100, , , ,495 As at 31 December, the Bank pledged securities with a carrying value of 138,700 thousand (: 187,334 thousand) out of which held-to-maturity amounted to 138,700 thousand (: 187,334 thousand). The bank did not realize any collateralized transactions with the central bank as at 31 December. The market price of securities held-to-maturity as at 31 December amounted to 684,892 thousand (: 847,731 thousand). As at 31 December, held-to-maturity investment securities with a carrying value of 508,242 thousand are expected to be recovered after more than twelve months from the reporting date (: 585,049 thousand). Securities portfolio First book value Nominal value Market value Impairment loss Trading securities 1,905 1,111 1,111 n/a Held-to-maturity securities 87,489 49,848 86,091 Available for sale securities 37,925 Total 127,319 50,959 87,202 The whole exposure of Greek government bonds has maturity in 2023 up to EFSF bonds (the European Financial Stability Facility) guaranteed by the European Monetary Union were sold on the secondary market for 87,603 thousand in April The Bank has assessed possible impairment of Greek bonds. The Bank evaluates the situation in Greece and regularly evaluates, in accordance with IAS 39, whether there is objective evidence to decrease the value of Greek bonds. As at 31 December, the Bank has not identified any signs of decrease in value. Due coupons of new Greek bonds were fully paid out in February in the amount of 3,175 thousand. Poštová banka, a.s. entered to international arbitration proceedings against the Greek Republic (ICSID Case No. ARB/13/8) on the basis of an international agreement between the Government of the Czech and Slovak Federal Republic and the Government of the Greek Republic on the Promotion and Reciprocal Protection of Investments from 3 June International arbitration is conducted in the International Centre for Settlement of Investment Disputes registered in Washington DC, USA. The reason for the litigation brought to international arbitration is the forced exchange of Greek government bonds in March 2012, for which the basis was change in the Greek national legislation which unilaterally and retrospectively changing the conditions of government bonds issuance (the CAC clause). In January, a Hungarian government bond was paid out in amount of 10,973 thousand. In July another Hungarian government bond was paid out in amount of 122,856 thousand. (b) Securities available for sale Cypriot government bond coupon in amount of 1,949 thousand was paid in November in full amount. Debt securities: i) Greek government bonds In 2012, the Greek government carried a restructuring of its debt (Private Sector Involvement or PSI ) replacing old Greek government bonds issued under Greek legislation for new bonds. The replacement was completed on 12 March In light of the above, on 12 March 2012 the account of the Bank was credited by the new issues of Greek and EFSF bonds with total nominal value of 246,548 thousand and so called GDP-linked (derivative instrument that was booked into the trading portfolio at its fair value). New Greek bonds were booked at their first fair value in the amount of 127,319 thousand. Slovak government bonds 272, ,387 Government bonds of EU member countries 270,887 85,130 Corporate bonds 118, ,745 Bills of exchange 128, , ,177 Equity securities: Corporate equity securities 151, ,263 Other , ,386 Less allowances for impairment (5) (710) 151, , , ,

49 12. Investments in subsidiaries and jointly controlled entities Investments in subsidiaries and jointly controlled entities at cost: PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. a dcérske spoločnosti ( PPSS ) 9,230 9,230 Poisťovňa Poštovej banky, a.s. 11,411 11,411 Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s. 14,500 14,500 POBA Servis, a.s PB Partner, a.s. 2, SPPS, a.s PB Finančné služby, a.s. 4,615 4,615 PB IT, a.s ,777 40,668 The investment in PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a.s. ( PPSS ) comprises 100% of the issued capital of the company. PPSS is a company incorporated in the Slovak Republic, which is engaged in asset management. The investment in Poisťovňa Poštovej banky, a. s., which the Bank acquired in 2008, comprises 100% of the issued capital of the company. The principal activity of the company is the provision of life and general insurance services. On 17 May 2011, the Bank acquired 100% of the share capital of ČSOB d.s.s., (renamed Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a.s.). The principal activity of the company is pension fund management. On 15 June 2011 POBA Servis, a. s. was established and 100% of the shares are owned by the Bank. The Company provides services relating to real estate management, registry services and supplementary bank services. In 2009, PPSS established a wholly-owned subsidiary PB Partner a.s., a company incorporated in Slovakia, which is engaged in financial intermediary activities. On 15 July 2010, the Bank purchased 100% of the issued capital of the company PB PARTNER, a.s. from PPSS. Bank as a 100% shareholder at 27 May decided to increase the share capital of the company PB PARTNER, a.s. as of the Eur 2,000 thousand. On 10 February 2012 Poštová banka, a.s. with a 40% share of equity and Slovenská pošta, a.s. with a 60% shares of equity established SPPS, a.s. The company provides modern payment services. Bank as at 30 June decided to increase share capital of the company SPPS, a.s. as of Eur 54 thousand. On 17 July 2012, the Bank purchased the remaining 92.16% shares in Auto Leas a.s. and became 100% shareholder of this company. The principal activity of the company renamed PB Finančné služby, a.s. is financial and operational leasing. On 10 December the Bank founded its subsidiary PB IT, a.s. with 100% share on its equity. The company was established on 17 January by registration in the Business Register. PB IT, a.s. provides mainly services relating to IT maintenance, internal development services and IT project management for Poštová banka, a.s. group. 13. Property and equipment Cost Land and buildings Furniture, fittings and equipment Motor vehicles Assets not yet in use Total As at 1 January 18,202 20, ,962 Additions 4,133 4,133 Transfers 177 2,315 (2,492) Disposals (1,122) (1,246) (155) (1,408) (3,931) As at 31 December 17,257 21, ,164 Accumulated depreciation As at 1 January (11,543) (13,895) (654) (26,092) Charge for the year (569) (2,486) (95) (3,150) Disposals 1,031 1, ,317 As at 31 December (11,081) (15,235) (609) (26,925) Net book value As at 31 December 6,176 6, ,239 Property and equipment is insured against natural disasters, malicious damage, theft and robbery. Motor vehicles are insured against damage caused during operation or in a crash. The Bank s property is not pledged. Cost Land and buildings Furniture, fittings and equipment Motor vehicles Assets not yet in use Total As at 1 January 18,578 19, ,729 Additions 2,292 2,292 Transfers 92 1,959 (2,051) Disposals (468) (1,505) (86) (2,059) As at 31 December 18,202 20, ,962 Accumulated depreciation As at 1 January (11,121) (12,586) (570) (24,277) Charge for the year (898) (1,954) (170) (3,022) Disposals As at 31 December (11,543) (13,895) (654) (26,092) Net book value As at 31 December 6,659 6, ,

50 14. Intangible assets Cost Software Assets not yet in use Total As at 1 January 30,990 4,761 35,751 Additions 4,642 4,642 Transfers 7,358 (7,358) Disposals (167) (167) As at 31 December 38,181 2,045 40,226 Accumulated amortisation At 1 January (23,907) (23,907) Depreciation (2,690) (2,690) Disposals As at 31 December (26,430) (26,430) Net book value As at 31 December 11,751 2,045 13,796 Cost Software Assets not yet in use Total As at 1 January 27,372 3,036 30,408 Additions 5,343 5,343 Transfers 3,618 (3,618) Disposals As at 31 December 30,990 4,761 35,751 Accumulated amortisation At 1 January (21,554) (21,554) Depreciation (2 353) (2,353) Disposals As at 31 December (23,907) (23,907) Net book value As at 31 December 7, , Deferred tax asset Recognised deferred tax asset The deferred tax asset and deferred tax liabilities for the Bank are calculated using a corporate income tax rate of 22% (: 22%) and are as follows: Deferred tax asset Assets/(liabilities) Assets/(liabilities) Property and equipment (129) 47 Bonuses Impairment losses on loans and advances 11,660 7,358 Discount on assigned receivables Discount on rental contracts Investment securities available for sale (1,636) (1,033) Losses carried forward 10,841 14,356 As at 31 December 21,821 21,640 The deferred tax asset and deferred tax liabilities for the Branch in the Czech Republic (calculated using a corporate income tax rate of 19 %) are as follows: Deferred tax asset Assets/(liabilities) Assets/(liabilities) Property and equipment (2) (2) Bonuses Other administrative expenses 1 As at 31 December Movements in deferred tax: As at 1 January 21,640 46,849 Debited to profit or loss (note 37) 801 (28,057) Charged to other comprehensive income (note 37) (603) 2,848 As at 31 December 21,838 21, Tax asset Tax asset 88 1,

51 17. Other assets Other debtors 18,242 26,646 Prepayments 17,311 18,998 Items in the course of clearing from post offices 14,271 17,474 Accrued income Inventory Other Provisions The movements in provisions were as follows: As at 1 January Decrease in provisions 14 As at 31 December Provisions relate to passive litigation and other commitments and contingencies. 50,244 63,583 Allowances for impairment (97) (130) 50,147 63, Received loans Items in the course of clearing from post offices comprise deposits and other transactions of the Bank s customers that have been made in post offices and not received by the Bank at the end of the reporting period. Generally, items clear within three days. Received loans 50, Tax liabilities The movements of allowances for impairment were as follows: Income tax payable 15, As at 1 January Decrease (33) (76) 23. Other liabilities As at 31 December Deposits by banks Repayable on demand 13,475 7,629 As at 31 December 13,475 7,629 Accruals 9,593 14,000 Other creditors 6,918 8,143 Liabilities to employees 4,177 2,767 Withholding taxes payable 1,760 1,894 VAT, payroll and other tax liabilities 1,054 1,067 Other Customer accounts Advances received As at 31 December 24,479 28,869 Repayable on demand 1,315,887 1,090,613 Other deposits with contractual maturity dates or periods of notice, by agreed maturity: - up to 3 months 1,021, ,730-3 months to 1 year 508, ,623 - included in deposits as bill of exchange 1,500 39,132-1 year to 5 years 727, ,603 Included deposit bills of exchange 30,134 - above 5 years 1,361 1,109 Stav k 31. decembru 3,574,641 3,283,

52 The movements on the social fund account included in Liabilities to employees were as follows: 27. Reserves and retained earnings As at 1 January Creation of social fund Release of social fund (284) (494) As at 31 December Fair value reserve Legal reserve fund Retained earnings Capital and other funds Revaluation reserve Total 24. Subordinated debt 25. Share capital Subordinated debt 8,000 8,000 Accrued interest ,013 8,013 The Bank entered into a subordinated debt agreement with J&T BANKA, a.s. on 21 September 2011 for 8,000 thousand. This loan will mature in 2021 and bears interest of 5.34% p.a. In the event of bankruptcy or liquidation of the Bank, the loan will be subordinated to the claims of all other creditors of the Bank. t As at 1 January 306, ,703 Increase in share capital 60,000 73,602 As at 31 December 366, ,305 On 19 June the shareholders decided at the General Meeting to raise equity by 60,000 thousand. Equity was increased by issuing new shares in amount of 54,201 pieces on 11 July. Equity consists of 330,899 shares with nominal value 1, Share premium As at 1 January Usage of share premium (57) As at 31 December As at 1 January 12,997 17,060 67,455 73, ,979 Transfer to legal reserve fund 6,745 (6,745) Revaluation gain on securities available-for-sale Translation difference from foreign operations (9,334) (9,334) (783) (783) Profit for the year 68,172 68,172 Share capital increase (135) (73,467) (73,602) As at 31 December 3,663 23, ,747 (783) 155,432 As at 1 January 3,663 23, ,747 (783) 155,432 Transfer to legal reserve fund 6,817 (6,817) Revaluation gain on securities available for sale Translation difference from foreign operations 2,138 2,138 (172) (172) Profit for the year 41,830 41,830 As at 31 December 5,801 30, ,760 (955) 199,228 a) Legal reserve fund Following the increase in share capital, the legal reserve fund was increased. Under the Slovak Commercial Code, all companies are required to maintain a legal reserve fund to cover future adverse financial conditions. The Bank is obliged to contribute an amount to the fund each year which is not less than 10% of its annual net profit until the aggregate amount reaches a minimum level equal to 20% of the issued share capital. The legal reserve fund is not readily distributable to shareholders. b) Fair value reserve The fair value reserve represents the cumulative net change in the fair value of available-for-sale investment securities net of deferred tax. c) Translation reserve of foreign operations The translation reserve comprises all foreign exchange rate differences arising from the translation of the financial statements of foreign operations

53 d) Proposed allocation of the profit The Board of Directors will propose the following allocation of the profit for the year ended 31 December : Legal reserve fund 4,183 Retained earnings 37,647 e) Dividends for 41,830 The General Meeting of shareholders held on 10 April decided that no dividends would be paid from the profit for the year ended 31 December. 28. Contingencies, commitments and derivative financial instruments Contingencies: Guarantees to clients 158, ,758 Irrevocable letters of credit 18,900 Other commitments: Confirmed credit lines 238, ,880 Derivative financial instruments (note 7) 105,229 77,045 The breakdown of contingencies and commitments by country is as follows: 521, ,683 The breakdown of contingencies and commitments by sector is as follows: Guarantees to clients Confirmed credit lines 29. Interest income and similar income from debt securities Guarantees to clients Confirmed credit lines Central Bank and bank 121, ,767 Energy 1,857 30,652 Telecommunications 17,520 34,915 Wholesale 1,948 2,635 4,103 6,536 Retail 13,140 37,101 Manufacturing ,440 7,000 20,635 Construction 1, , Services and good sale 4,176 66,685 5,532 27,003 Financial services 9,787 11,584 11,850 9,054 Healthcare 25 Rent Households 106, ,439 Total 158, , , ,880 Deposits at the Central bank Loans and advances to customers 198, ,358 Debt securities 59,090 62,435 Other Guarantees to clients Confirmed credit lines Guarantees to clients Confirmed credit lines 257, ,097 Included in the various categories of interest income for the year ended 31 December is interest income of 9,713 thousand accrued on impaired financial assets (: 10,133 thousand). Slovak Republic 151, , , ,096 Czech Republic 2,749 64,404 10,924 11,759 European Union countries 4,688 2,757 4, Other European countries 2 Interest income from investment securities for the year ended 31 December includes 29,265 thousand (: 35,166 thousand) relating to held-to-maturity debt securities; interest income from available-for-sale investment securities of 23,369 thousand (: 27,266 thousand), and interest income from trading securities for 405 thousand (: 3 thousand). Interest income from debt securities in the portfolio of loans and receivables was 6,501 thousand (in : 0). Total 158, , , ,

54 30. Interest expense 34. Net other (loss)/income Deposits by banks (942) (607) Customer accounts (53,585) (58,123) Other (42) (21) Subordinated debt (427) (427) (54,996) (59,178) Net loss from assigned receivables (14,250) (788) Rental income Reimbursements received Net (loss)/profit from disposals of property and equipment (119) 18 Shortages and damages (74) (63) Other 4, Fee and commission income (10,284) Administrative expenses Clients 37,223 34,746 Banks 2,089 1,571 Other processing fees 6,520 5, Fee and commission expense 45,832 42,070 Banks (2,545) (2,289) Other processing fees (22,256) (21,998) The Special levy for banking institutions (10,299) (12,163) Deposit protection fund (3,393) (38,493) (36,450) Wages and salaries (including bonuses) (22,615) (24,313) Social expenses (7,780) (7,918) Personnel costs (30,395) (32,231) Services (16,216) (14,379) Operating expenses (2,513) (883) Marketing expenses (5,106) (6,487) Rent (6,296) (6,486) Material expenses (1,712) (1,702) Other administrative expenses (4,932) (2,291) Other services (4,935) (3,288) (72,106) (67,747) Average number of employees for the period of which, management Net trading income Financial assets held for trading 141 9,754 Financial assets available for sale 10,417 9,403 Foreign currency transactions 626 (8,293) Other (44) (104) The costs of services provided by the statutory auditor (including VAT) were as follows: Audit (including regulatory assurance services) (439) (441) Tax advisory (13) (40) (452) (481) 11,140 10,

55 36. Depreciation and amortisation Reconciliation of the effective tax rate: Property and equipment (note 13) (3,150) (3,022) Tax base Tax at 23% Tax base Tax at 23% Intangible assets (note 14) (2,690) (2,353) 37. Income tax Current tax expense (5,840) (5,375) Current year (18,297) (1,973) Deferred tax (note 15) 801 (28,057) Total income tax expense (17,496) (30,030) Taxation is charged on the Bank s taxable profit for the year at a rate of 22% (: 23%). The Parliament has approved a decrease in the corporate income tax from 23% to 22% from 1 January. Income tax recognised in other comprehensive income: Available-for-sale financial assets before tax 2,741 (12,182) Net of tax (603) 2,848 Net of tax 2,138 (9,334) Profit before taxation 59,325 13,052 98,202 22,586 Tax deductible items: Dividend income (5,999) (1,320) (5,136) (1,181) Difference between tax and accounting depreciation (175) (39) (242) (56) Bonuses and provisions (3,789) (834) (2,709) (623) Fees for loans (3) (1) Allowances for impairment on securities (528) (116) Release of impairment losses (10,998) (2,420) (2,050) (472) Other (2,325) (512) (536) (123) Tax non-deductible items: Impairment losses on loans and advances to clients, net (12,816) (2,821) (8,626) (1,984) 46,419 10,212 27,475 5,859 Bonuses and provisions for liabilities 3, , Other 2, ,506 1,266 52,287 11,503 29,710 7,983 Income tax expense 21,734 30,356 Losses carried forward - use (3,614) (28,585) Tax payable 18,120 1,771 Witholding tax Deferred tax (801) 28,057 Total income tax 17,496 30,030 Effective tax rate 29,49% 30,60% Many parts of Slovak tax legislation remain untested and there is uncertainty about the interpretation that the tax authorities may apply in a number of areas. The effect of this uncertainty cannot be quantified and will only be resolved as legislative precedents are set or when the official interpretations of the authorities are available

56 38. Profit/(loss) before changes in operating assets and liabilities 39. Lease commitments Profit after taxation 41,830 68,172 Adjustments for non-cash items: Depreciation and amortisation 5,840 5,375 Impairment losses on loans and advances to customers 79,725 39,736 Investment revaluation 2,741 (12,182) Impairment losses on investment securities Release of provisions to other assets (33) (76) Profit/(loss) on disposal of property and equipment 119 (18) Provisions for liabilities 14 Income tax 18,297 1,973 Deferred tax (801) 28,057 Translation difference on foreign operations (172) (784) Net cash flow from operating activities includes the following cash flows: 147, ,963 Interest received 250, ,307 Interest paid (66,200) (49,082) 184, ,225 The following person or companies meet the definition of related parties: (a) Companies that directly or indirectly through one or more intermediaries control or are controlled, have significant influence or are under joint control with the reporting company; (b) Affiliated company in which the parent company has significant influence and which is not a subsidiary, nor a joint venture; (c) Individual owning, directly or indirectly, share in the voting right of the Bank that gives them significant influence over the Bank and any other individual who may be expected to influence, or be influenced by that person in their dealings with the Bank; (d) Key management personnel, i.e. persons having authority and responsibility for planning, management and controlling activities of the Bank, including directors and managing employees of the Bank and persons related to them; (e) Companies in which a dominant share of voting rights is owned, directly or indirectly, by any person described in point (c) or (d) or over which such party may have a significant influence. This includes companies owned by directors or major shareholders of the Bank and companies that have key member of management common with the Bank. a) Shareholders J&T FINANCE GROUP SE; J&T BANKA a.s Receivable from trading 488 Loans and advances to banks 32, Other assets 3, Customer accounts (10,022) (7,338) Trading liabilities (660) Subordinated debt (8,013) (8,013) Interest income Net trading income 2,454 7,209 Loss from financial operations (2,055) Minimum lease payments: Fee and commission expense (443) (3,083) b) Spoločnosti spriaznené s akcionármi skupiny up to 1 year 3,669 3,840 up to 5 years Related party transactions 3,772 3,963 Parties are considered to be related, if one party has the ability to control the other party, or if it has in its financial and operational decisions significant influence over the other party. Related parties include subsidiaries and jointly controlled entities, as well as key management personnel and persons related to them. Companies related to J&T FINANCE GROUP SE; J&T BANKA, a.s. Investment securities 27,482 59,663 Loans and advances to customers Customer accounts (24) (1,450) Net profit from financial operations 81 Interest income 2,043 1,859 Interest expense (83) (57)

57 c) Subsidiaries and jointly controlled entities PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. Other assets Customer accounts (5,664) (4,362) Fees and commissions income 1,426 1,110 Interest expense (13) (12) Poisťovňa Poštovej banky, a. s. Other assets Customer accounts (9,952) (9,885) Fees and commissions income 2,896 2,406 Interest expense (131) (218) PB PARTNER, a. s. Other assets 7,472 6,202 Customer accounts (1,080) (1,219) Other liabilities (823) Other income Fees and commissions expenses (5,833) (5,818) Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s. Other assets 7 Customer accounts (54) Fees and commissions income (1) 18 POBA Servis, a. s. Loans and advances to customers 4,970 3,514 Other receivables 1,333 1,423 Customer accounts (558) (642) Other liabilities (445) (471) Fees and commissions income Other income 27 Rental expense (4,552) (4,034) PB Finančné služby, a. s. Loans and advances to customers 28,495 18,120 Customer accounts (99) (94) Interest income Interest expense (70) (43) Nadácia Poštovej banky, a. s. Customer accounts (150) (131) PB IT, a. s. Loans and advances to customers Customer accounts (384) Other income 16 Fee and commission expense (1,958) Co-operatively controlled company SPPS, a. s. Loans and advances to customers Customer accounts (782) (533) Other income Fee and commission expense (1,251) (469) d) Key management personnel (KMP) and related parties to KMP KMP e) Others Loans and advances to customers Customer accounts (664) (2,193) Income Expense (3,271) (4,058) Related parties to KMP Loans and advances to customers Customer accounts (316) (288) Income 2 2 Expense (4) (7) Investment securities 13,547 60,619 Loans and advances to customers 77,462 32,593 Liabilities (5,407) (1,223) Net profit from fianncial operations 2 Interest income 9,672 6,279 Net loss from fianncial operations (151) Expense (29) (56) Total remuneration and bonuses paid to members of the Supervisory board and Board of directors in was 3,528 thousand (: 4,036 thousand)

58 41. Custodial services The Bank administers assets received into its custody from customers totalling 135,638 thousand (: 63,784 thousand). The assets comprise securities and other valuables. 42. Fair values Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimated fair values of the Bank s financial assets and liabilities were as follows: Financial assets Carrying value Fair Value Carrying value Fair Value Cash and balances at central banks 361, , , ,527 Trading assets 1,600 1,600 9,054 9,054 Loans and advances to customers 2,295,039 2,561,799 1,878,166 1,959,937 Investment securities 1,402,969 1,497,916 1,516,348 1,597,585 Investments in subsidiaries and jointly controlled entities 42,777 42,777 40,668 40,668 Financial liabilities Trading liabilities Deposits by banks 13,475 13,475 7,629 7,629 Customer accounts 3,574,641 3,591,320 3,283,678 3,296,607 Trading liabilities Trading liabilities are stated using quoted market prices or theoretical prices determined by discounting future cash flows by reference to the relevant interest rate for the term of the instrument. Deposits by banks The fair value of current accounts with other banks approximates to book value. For other amounts owed to banks with a remaining maturity of less than three months, it is also reasonable to use book value as an approximation of fair value. The fair values of other deposits by banks are calculated by discounting the future cash flows using current interbank rates. Customer accounts The fair values of current accounts and term deposits with a remaining maturity of less than three months approximate their carrying amounts. The fair values of other customer accounts are calculated by discounting the future cash flows using current deposit rates. Loans received Fair values of loans are calculated by discounting future cash flows using effective interbank rates. For received loans with a remaining maturity of less than three months, it is reasonable to regard their book value as approximate fair value. Subordinated debt The fair values of subordinated debt are calculated by discounting the future cash flows using current market rates and an estimate of current risk margins. 43. Information on events occurring between the balance sheet date and the date of preparation of financial statements After the date of preparation of the financial statements, no significant events occurred that would require adjustment or disclosure in the financial statements as at 31 December. Loans received 50,778 50,778 Subordinated debt 8,013 8,033 8,013 8,013 The following methods and assumptions were used in estimating the fair values of the Bank s financial assets and liabilities: Trading assets The fair values of trading assets are calculated using quoted market prices or theoretical prices determined by discounting future cash flows by reference to the relevant interest rate for the term of the instrument. Loans and advances to customers Loans and advances are stated net of allowances for impairment. For loans and advances to customers with a remaining maturity of less than three months, it is reasonable to use book value as an approximation of fair value. The fair values of other loans and advances to customers are calculated by discounting the future cash flows using current market rates and an estimate of current risk margins. Investment securities The fair values of held-to-maturity investment securities are calculated using quoted market prices. When quoted prices are not available, securities are valued by discounting future cash flows using the capital asset pricing model. Investments in subsidiaries and jointly controlled entities The investments in subsidiaries and jointly controlled entities are valued by discounting future cash flows expected to be generated by the subsidiary using the capital asset pricing model

59 We are the most accessible bank in Slovakia with the highest number of commercial locations. BRANCH NETWORK POPRAD Tourism center and junction connecting the entire Slovakia.

60 10. Branch network 42 own commercial locations Bánovce nad Bebravou Nám. Ľudovíta Štúra 8/8B, Bánovce nad Bebravou, tel.: 038/ fax: 038/ Banská Bystrica Dolná 62, Banská Bystrica, tel.: 048/ , fax: 048/ Bardejov Hviezdoslavova 3, Bardejov, tel.: 054/ , fax: 054/ Bratislava Čachtická 25, Bratislava, tel.: 02/ , fax: 02/ Gorkého 3, Bratislava, tel.: 02/ , fax: 02/ Karloveská 34, Bratislava, tel.: 02/ , fax: 02/ Ľudovíta Fullu 3, Bratislava, tel.: 02/ , fax: 02/ Nám. SNP 35, Bratislava, tel.: 02/ , fax: 02/ Odborárske nám. 2, Bratislava, tel.: 02/ , fax: 02/ Prievozská 2/B, Bratislava, tel.: 02/ , fax: 02/ Tomášikova 21, Bratislava, tel.: 02/ , fax: 02/ Humenné Nám. slobody 3, Humenné, tel.: 057 / , fax: 057/ Komárno Mederčská 4987/4, Komárno, tel.: 035/ , fax: 035/ Košice Škultétyho 1, Košice, tel.: 055/ , fax: 055/ Toryská 3, Košice, tel.: 055/ , fax: 055/ Lučenec T. G. Masaryka 19, Lučenec, tel.: 047/ , fax: 047/ Levice P. O. Hviezdoslava 2/A, Levice, tel.: 036/ , fax: 036/ Martin Andreja Kmeťa 5397/23, Martin, tel.: 043/ , fax: 043/ Michalovce Ul. kpt. Nálepku 26, Michalovce, tel.: 056/ , fax: 056/ Nitra Štefánikova trieda 65, Nitra, tel.: 037/ , fax: 037/ Sládkovičova 1, Nitra, tel.: 037/ , fax: 037/ Prievidza Bojnická cesta 15, Prievidza, tel.: 046/ , fax: 046/ Rožňava Janka Kráľa 4, Rožňava, tel.: 058/ , fax: 058/ Sečovce Nám. Cyrila a Metoda 150/28, Sečovce, tel.: 056/ , fax: 056/ Skalica Potočná 20, Skalica, tel.: 034/ , fax: 033/ Spišská Nová Ves Letná 51, Spišská Nová Ves, tel.: 053/ , fax: 053/ Trebišov M. R. Štefánika 52, Trebišov, tel.: 056/ , fax: 056/ Trenčín Nám. sv. Anny 23, Trenčín, tel.: 032/ , fax: 032/ Trnava Hlavná ulica 33, Trnava tel.: 033/ , fax: 033/ Zvolen T. G. Masaryka 955/8, Zvolen, tel.: 045/ , fax: 045/ Žiar nad Hronom Nám. Matice slovenskej 2820/24, Žiar nad Hronom, tel.: 045/ , fax: 045/ Žilina Na priekope 19, Žilina tel.: 041/ , fax: 041/ * commercial location dedicated to VIP clients 1,581 points of sale of Slovenská pošta More than 1,500 commercial locations make us the most accessible Bank in Slovakia. Vlastenecké nám. 4, Bratislava, tel.: 02/ , fax: 02/ Dvořákovo nábrežie 4, Bratislava, tel.: 02/ , fax: 02/ * Brezno Nám. M. R. Štefánika 7, Brezno, tel.: 048/ , fax: 048/ Dubnica nad Váhom Nám. Matice slovenskej 12/1298, Dubnica nad Váhom, tel.: 042/ , fax: 042/ Nové Mesto nad Váhom Hviezdoslavova 19, Nové Mesto nad Váhom, tel.: 032/ , fax: 032/ Nové Zámky Komárňanská 2, Nové Zámky, tel.: 035/ , fax: 035/ Pezinok Meisslova 1/A, Pezinok, tel.: 033/ , fax: 033/ Poprad Vajanského 71, Poprad, tel.: 052/ , fax: 052/ Dunajská Streda Bacsákova ul., Dunajská Streda, Prešov tel.: 031/ , fax: 031/ Hlavná 114, Prešov, 118 tel.: 051/ , fax: 051/ Commercial locations of Slovenská 119 pošta Branches of Poštová banka