Half-Yearly Report 2017 UniCredit Bank Czech Republic and Slovakia, a.s.

Transcription

1 Half-Yearly Report 2017 UniCredit Bank Czech Republic and Slovakia, a.s. Issued on 30 September 2017 UniCredit Bank Czech Republic and Slovakia, a.s. Želetavská 1525/ Prague 4

2 UniCredit Bank Czech Republic and Slovakia, a.s., Reg. No. (IČ) , having its registered office at Želetavská 1525/1, Prague 4, as an issuer of listed securities publishes the present Half-Yearly Report, for the public, which is compiled pursuant to Article 19 of Act No. 256/2004 Coll. on Capital Market Undertakings, as amended. The Half-Yearly Report has not been audited by an auditor. Table of contents: 1. Commentary on Bank s Financial Results 2. Expected Development 3. Interim Consolidated Financial Statements according to the IFRS 4. Statement Made by Authorised Person 2

3 1. Commentary on Bank s Financial Results The profit or loss from operations of the UniCredit Bank Czech Republic and Slovakia Group after tax increased year-on-year by 22.4% compared to the previous year's half-year results, from million CZK as at 30 June 2016 to million CZK as at 30 June Statement of complete results Net interest income grew in comparison with the first half-year 2016 by 6.4% to mil. CZK (5 078 mil. CZK as at 30 June 2016). The Group was able to repeat a similar level of net interest income in a persistent low interest rate environment and competition fight in the banking market, mainly due to customer base growth and increased volume of business in both markets where the Group operates. Net revenues and commission income amounted to million CZK (as at 30 June 2016: mil. CZK), which represents a 0.1% decline. Net profit from the sale of financial assets and liabilities dropped to 226 mil. CZK (the value was 886 mil. CZK as at 30 June 2016, and it was affected mainly by revenues derived from an international transaction the transformation of the company Visa Europe in which the Bank had a capital participation). The Group also strengthened its position in trading: the trading profit grew by 83.3% from 951 mil. CZK as at 30 June 2016 to mil. CZK as at 30 June 2017, respectively. The Group achieves excellent results with respect to terminating interventions against the koruna-euro exchange rate, in the area of financial market trading due to the development of interest rates and risk premiums, and in the area of exchange market trading. Operating revenues reached mil. CZK, and increased by 5.1% in comparison with mil. CZK as at 30 June 2016, which reflects a dynamically growing client base and higher transaction volumes and the effects described above. Administrative costs were reported in the amount of mil. CZK (as at 30 June 2016: mil. CZK), which represents a 0.5% growth. Impairment losses on loans and receivables decreased year-on-year by 157.2% (from -542 mil. CZK as at 30 June 2016 to +310 mil. CZK as at 30 June 2017). The trend shows a Group s continuous responsible approach in the field of managing the cost of risk and a good condition of the economy. Statement of financial position Assets As at 30 June 2017, the total assets of the Group reached billion CZK, representing a 17.2% growth in comparison with the end of 2016 when the balance amount was 635 billion CZK. Financial assets measured at fair value against cost and revenue accounts dropped by 18.4% from the end of 2016, by 9 billion CZK to 7.4 billion CZK. Available-for-sale securities dropped by 22.8% to 61,9 billion CZK (at the end of 2016, the value was 80.2 billion CZK). The drop was caused by the sale of a part of government bonds that form a majority of the portfolio. As at 30 June 2017, they represented 58% of this item. Receivables from clients grew by 3% to total billion CZK compared to the status at the end of 2016 (385.6 billion CZK). Loans in retail banking continue to grow year-on-year at double-digit rates, mainly thanks to mortgage credits, even despite a slight deceleration of dynamics resulting from the regulation. Within the corporate segment, the Group also achieved a significant growth in lending, particularly to small and medium-sized businesses. Within leasing receivables, there was a slight decrease due to the repayment of large real estate transactions, however, the Group continues the double-digit growth in the strategic segment of vehicles up to 3.5t. 3

4 A strong capital base and the growing base of stable deposits of retail clients and small businesses paves the way for further growth of responsible lending in areas of strategic focus of the Bank. Combined with a wide range of other banking services, the Bank creates business relationships with long-term positive benefits for its economy. Receivables from banks, compared to the situation as at 31 December 2016, grew by 84.4% (258 billion CZK as at 30 June 2017 compared to billion CZK as at the end of 2016), mainly thanks to a growth of receivables from reverse repos. The increase in the value of intangible assets from million CZK as at 31 December 2016 to million CZK as at 30 June 2017 is caused by continued implementation of a common architecture for IT systems of the Czech and Slovak head-office, which will complete the integration of both banks after the merger in The common architecture will allow a reduction of the cost of investments and maintenance. Liabilities As at mid-2017, liabilities to banks grew by 97.9% from billion CZK, as at the end of 2016, they grew to billion CZK as at mid Here the growth is also caused mainly by an increase of liabilities from repo transactions. Client deposits decreased by 3.1% compared to the end of 2016, to total billion CZK. (from billion CZK as at 31 December 2016). The decrease is caused mainly in the area of liabilities from repo transactions, deposits in current accounts and term deposits remained the same as at the end of Deposits of retail clients recorded a marked double-digit year-on-year growth, which strengthens the structural value of the entire deposit base and allows the optimisation of its total amount with respect to refinancing costs. However, debt securities issued remained in the same value as at the end of 2016, in the amount of 60 billion CZK. Capital As at 30 June 2017, the Bank equity was 69.5 billion CZK, which represents a 3.8% growth compared to the end of This year and in 2016, the Group did not pay the dividend. 4

5 2. Expected Development in 2017 After the excellent results in 2016, the Bank expects the net profit at record levels again in On the revenue side, a positive growth in net interest income has been kept, mainly due to the growth in trade volumes and a modest contribution to the CNB's interest rate increase. The termination of the intervention scheme of the koruna exchange rate was used by the Bank to increase the trading result, on the one hand by providing a hedge of currency risk services to clients and, on the other hand, by the sound management of its own positions. Although it is a phenomenon of the first half-year, its contribution to the all-year result will remain significant. In the field of costs, the Bank starts to make significant savings in the execution of activities within the Groupwide programme Transform 2019, focusing on cost savings and optimisation of the branch network following the successful expansion of digital services for clients. The positive situation in the area of the costs of risks continues thanks to a high economic growth and the ability of the Bank to successfully deal with overdue loans even in 2017, and it will remain another significant contributor to the Bank's results. For growth sustainability in the long term, the Bank continues to grow its client base, particularly in the retail segment and the small and medium-sized business segment. Emphasis on risk and capital management will be positively reflected in the amount of risk-weighted assets, while contributing to the growth of return on capital consumption and improvement of the capital adequacy of the Bank. 5

6 3. Interim Financial Statements according to the IFRS (consolidated) ASSETS CONSOLIDATED STATEMENT OF FINANCIAL POSITION mil. CZK mil. CZK Cash Financial assets measured at fair value against cost and revenue accounts, held for trading not held for trading - - Available-for-sale securities Held-to-maturity securities Receivables from banks Receivables from clients Positive fair value of hedging derivatives Investments in affiliated companies Tangible assets Intangible assets Tax assets, Current tax Deferred tax Non-current assets held for trading 4 4 Other assets Total assets LIABILITIES Liabilities to banks Liabilities to clients Debt securities issued Financial liabilities held for trading Negate fair value of hedging derivatives Tax liabilities, Current tax Deferred tax Other liabilities Provisions Total liabilities EQUITY Share capital Share premium Funds from revaluation Retained earnings and reserve funds Profit for the accounting period Total equity Total liabilities and equity

7 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME mil. CZK mil. CZK Interest and similar income Interest and similar expense (528) (937) Net interest and similar income Fee and commission income Fee and commission expenses (563) (521) Net fee and commission income Dividend income 1 - Net profit/loss from financial assets and liabilities held for trading Net profit/loss from coverage of the risk of variations of fair values 2 5 Net profit/loss from sale of financial assets and liabilities Net profit/loss from financial assets and liabilities measured at fair value against cost and revenue accounts not held for trading - 3 Operating income Impairment losses for financial assets 310 (542) Administrative costs (4 173) (4 151) Creation and reversal of provisions (100) (2) Amortisation and impairment losses on tangible assets (476) (370) Amortisation and impairment losses on intangible assets (29) (22) Other operating income and costs Operating costs (4 401) (4 149) Profit/loss from participating interests in affiliated companies Profit/loss from sale of non-financial assets (4) 182 Profit/loss from operations before tax Income tax (1 026) (897) Profit/loss from operations after tax Profit/loss from operations after tax attributable to Group owners Profit/loss from operations after tax attributable to minority shares - 1 Another comprehensive result Items that may be derecognised subsequently into profit/loss from operations: Fund from revaluation of hedging instruments: (485) 537 Changes in net fair value of derivatives for cash flow hedges reported in another comprehensive result (476) 565 Net fair value of derivatives for cash flow hedges transformed into profit/loss from operations (9) (28) Fund from revaluation of available-for-sale securities: (736) (704) Change of revaluation of available-for-sale securities reported in another comprehensive result (686) (205) Revaluation of available-for-sale securities transformed into profit/loss from operations (50) (499) Exchange differences from consolidation of foreign branch (386) 48 Another comprehensive result (1 607) (119) Another comprehensive result attributable to Group owners (1 607) (119) Another comprehensive result attributable to minority shares - - Total comprehensive result Total comprehensive result attributable to Group owners Total comprehensive result attributable to minority shares - 1 7

8 CONSOLIDATED STATEMENT OF CASH FLOWS mil. CZK mil. CZK Profit after tax Adjustments for non-monetary transactions: Impairment losses on loans and receivables and financial investments (344) 542 Revaluation of securities and derivatives (1 859) 321 Creation and reversal of other provisions 7 - Depreciation of tangible and intangible assets Profit/loss from sale of tangible and intangible assets 4 (182) Taxes Other non-monetary changes (469) 939 Operating profits before change of operating assets and liabilities Financial assets and liabilities held for trading (3 391) Receivables from banks ( ) (34 644) Loans and receivables from clients (11 267) (23 102) Other assets Liabilities to banks Liabilities to clients (11 602) Other liabilities Income tax paid (616) (571) Net cash flow generated from operating activities (15 816) Change in available-for-sale securities and other financial assets (134) Purchase of a subsidiary company - - Proceeds from the sale of tangible and intangible assets Purchase of tangible and intangible assets (986) (634) Dividends received 1 - Net cash flow generated from investing activities Dividends paid - - Debt securities issued (404) (2 067) Net cash flow generated from financing activities (404) (2 067) Cash and other quick liquid resources at the beginning of the period Net cash flow generated from operating activities (15 783) Net cash flow generated from investing activities Net cash flow generated from financing activities (404) (2 067) Cash and other quick liquid resources at the end of the period Interest received Interest paid (196) (668) 8

9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY mil. CZK Share Share Fund from revaluation Retained earnings and reserve funds Profit Equity capital premiu m of hedging available-forsale Exchange Reserve funds Specialpurpose Exchange Retained for the current instruments securities difference and reserve differences earnings period s from other fund from consoliforeign capital branch funds dation Balance as at 31 December (2) Transactions with company owners, contributions by and distributions to owners Profit distribution for (5 640) - Payment of dividend - - Impact of consolidation (1) (1) Total comprehensive result Profit/loss from operations after tax for the period Another comprehensive result Change in revaluation of available-for-sale securities Change in revaluation of available-for-sale securities reported in another comprehensive result (218) (218) Revaluation of available-for-sale securities transformed into profit/loss from operations (618) (618) Deferred tax Changes in net fair value of derivatives for cash flow hedges Changes in net fair value of derivatives for cash flow hedges reported in another comprehensive result Net fair value of derivatives for cash flow hedges transformed into profit/loss from operations (34) (34) Deferred tax (131) (131) Exchange differences from consolidation of foreign branch Total comprehensive result for the period 537 (704) 48 (119) Balance as at 30 June (3)

10 mil. CZK Share Share Fund from revaluation Retained earnings and reserve funds Profit Equity capital premiu m of hedging available-forsale Exchange Reserve funds Specialpurpose Exchange Retained for the current instruments securities difference and reserve differences earnings period s from other fund from consoliforeign capital branch funds dation Balance as at 31 December Transactions with owners of the Company, contributions by and distributions to owners Profit distribution for (6 045) - Payment of dividend - - Impact of consolidation (63) (63) Total comprehensive result Profit/loss from operations after tax for the period Another comprehensive result Change in revaluation of available-for-sale securities Change in revaluation of available-for-sale securities reported in another comprehensive result (806) (806) Revaluation of available-for-sale securities transformed into profit/loss from operations (62) (62) Deferred tax Changes in net fair value of derivatives for cash flow hedges Changes in net fair value of derivatives for cash flow hedges reported in another comprehensive result (590) (590) Net fair value of derivatives for cash flow hedges transformed into profit/loss from operations (11) (11) Deferred tax Exchange differences from consolidation of foreign branch (386) (386) Total comprehensive result for the period (486) (736) (386) (1 608) Balance as at 30 June (63)

11 Annex of Interim Financial Statements (consolidated) CONSOLIDATION GROUP On 14 February 2014, the Bank signed contracts for the purchase of a 100% stake in UniCredit Leasing CZ, a.s. at the acquisition cost of million CZK and of a 71.3% stake in UniCredit Leasing Slovakia, a.s. at the acquisition cost of 16 mil. EUR. The main activity of both companies is leasing and hire purchase. The contracts were signed between the Bank and UniCredit Leasing SpA.; thus, these transactions are transactions under common control. At the same period, both leasing companies bought Czech or Slovak real property of a project company from their original owner, UniCredit Leasing SpA. These transactions also represent transactions under common control. UniCredit Group's sales were made due to the reorganization of equity holdings within the UniCredit Group aimed at creating a strong financial group on local markets and boosting the business potential. The Bank then transferred a 91.2% share in UniCredit Leasing Slovakia, a.s. (a purchased share of 71.3% a and a share of 19.9% that was in Bank s property as early as at the end of 2013) as a non-monetary contribution to the share capital of UniCredit Leasing CZ, a.s. and on 18 April 2014, thus the value of the Bank's investment in UniCredit Leasing CZ, a.s. increased by 570 mil. CZK. Within the purchase of real estate project companies, UniCredit Leasing CZ, a.s. acquired the companies CA-Leasing Praha s.r.o. and CAC IMMO, s.r.o., which were merged on 1 November 2014 into the company HVB Leasing Czech Republic s.r.o. On 8 October 2014, the company UniCredit Leasing Insurance Services, s.r.o. was established, which is 100% owned by UniCredit Leasing Slovakia, a.s. The main activity of the company is intermediary activity in the field of services. UniCredit Leasing Real Estate s.r.o., which was acquired by UniCredit Leasing Slovakia, a.s. as part of real estate project companies, was merged on 8 January 2015 into UniCredit Leasing Slovakia, a.s. On 20 January 2015, the Bank completed the acquisition of the 100% stake in Transfinance, a.s., which was acquired from the owner outside the UniCredit Group. The investment value is 197 mil. CZK. The main activity of the company is financing, the collection and securing of short-term receivables from clients from various branches of industry. The aim of this acquisition for the Group is mainly a further expansion of the offer of products and services of corporate banking by factoring, which is intended mainly for small and medium-sized companies. In May 2015, the company changed the name to UniCredit Factoring Czech Republic and Slovakia, a.s. In June 2015, CAC Real Estate, s.r.o. owned by UniCredit Leasing CZ, a.s. was sold outside the UniCredit Group. In February 2016, INPROX Poprad, spol. s r.o. and INPROX SR I., spol. s r.o. merged and formed the company UniCredit Leasing Slovakia, a.s. with effect from 1 January In March 2016, BACA Leasing Gama s.r.o. owned by UniCredit Leasing CZ, a.s. was sold outside the UniCredit Group. In August 2016, INPROX Chomutov, s.r.o. and INPROX Kladno, s.r.o. merged and formed the company UniCredit Leasing CZ, a.s. with effect from 1 January In February 2017, CA-Leasing EURO, s.r.o. owned by UniCredit Leasing CZ, a.s., was sold outside the UniCredit Group. 11

12 CONSOLIDATION GROUP (Continued) As at 30 June 2017, the consolidation group consists of the following companies: Company name Company activity Seat Owner Group s share Consolidation method UniCredit Factoring Czech UniCredit Bank Czech Republic and Slovakia, a.s. Factoring Prague Republic and Slovakia, a.s. 100% complete Prague UniCredit Bank Czech complete UniCredit Leasing CZ, a.s. Leasing Republic and Slovakia, a.s. 100% UniCredit Fleet Management Rental of motor vehicles Prague complete s.r.o. UniCredit Leasing CZ, a.s. 100% UniCredit pojišťovací makléřská Prague complete spol. s r.o. Mediation of services UniCredit Leasing CZ, a.s. 100% Financing of motor Prague RCI Financial Services, s.r.o. vehicles UniCredit Leasing CZ, a.s. 50% equivalence Real estate project Prague complete ALLIB Leasing s.r.o. activity UniCredit Leasing CZ, a.s. 100% Real estate project Prague complete BACA Leasing Alfa s.r.o. activity UniCredit Leasing CZ, a.s. 100% Real estate project Prague complete CA-Leasing OVUS s.r.o. activity UniCredit Leasing CZ, a.s. 100% HVB Leasing Czech Republic Real estate project Prague complete s.r.o. activity UniCredit Leasing CZ, a.s. 100% UniCredit Leasing Slovakia, a.s. Leasing Bratislava UniCredit Leasing CZ, a.s. 100% complete UniCredit Fleet Management Rental of motor vehicles UniCredit Leasing Slovakia, complete s.r.o. Bratislava a.s. 100% Mediation of services UniCredit Leasing Slovakia, complete UniCredit Broker, s.r.o. Bratislava a.s. 100% UniCredit Leasing Insurance Mediation of services UniCredit Leasing Slovakia, complete Services, s.r.o. Bratislava a.s. 100% ACCOUNTING METHODS These financial statements have been prepared in accordance with the International Accounting Standard IAS 34 Interim Financial Reporting as adopted by the European Union and have not been audited. For the interim financial statements, the same accounting policies and methods as in the most recent annual financial statements as at 31 December 2016 were used. The figures are stated in millions of CZK unless otherwise stated. For the interim financial statements, the same material accounting estimates and assumptions as in the most recent annual financial statements as at 31 December 2016 were used. In the first half of 2017, the Bank did not start to use any IFRS standards and interpretations that could have a material impact on the financial statements. 12

13 CASH Petty cash Other deposits in central banks Total For the purposes of compiling a cash flow statement, cash is defined as cash and quick liquid resources. FINANCIAL ASSETS MEASURED AT FAIR VALUE AGAINST COST OR REVENUE ACCOUNTS (a) (i) Held for trading By the quality of input used in the measurement at the fair value mil. CZK Level 1 Level 2 Level 3 Total 30 June 2017 Debt securities Derivatives Total mil. CZK Level 1 Level 2 Level 3 Total 31 December 2016 Debt securities Derivatives Total (ii) By the issuer s field of business Debt securities Public administration Total

14 AVAILABLE-FOR-SALE SECURITIES (a) By the quality of input used in the measurement at the fair value mil. CZK Level 1 Level 2 Level 3 Total 30 June 2017 Debt securities Shares Total mil. CZK Level 1 Level 2 Level 3 Total 31 December 2016 Debt securities Shares Total (b) By the issuer s field of business Debt securities Banking Governments and central banks Another public sector Other Shares Other Total (c) Ownership interests Business company Registered office Date of acquisition Acquisition cost Net book value 2017 Net book Group s share value 2016 as at Group s share as at CBCB - Czech Banking Credit Bureau, a.s. (banking register) Prague % 20% Total

15 RECEIVABLES FROM CLIENTS (a) Analysis of receivables from clients in net value by the type of receivables mil. CZK Without default With default Total 30 June 2017 Current accounts (bank overdrafts) Reverse repo transactions Resident mortgage loans Other mortgage loans Leasing Credit cards and consumer credits Factoring Other loans Total December 2016 Current accounts (bank overdrafts) Reverse repo transactions Resident mortgage loans Other mortgage loans Leasing Credit cards and consumer credits Factoring Other loans Total When defining a client default, the Group applies it according to the CNB Decree 163/2014 Coll. or according to the Regulation (EU) No 575/2013 of the European Parliament and of the Council, specifically an obligor s default means a situation when: a) the obligor is past due more than 90 days on any repayment of the principal or accessions of any its obligation to the bank, and/or b) there is a likelihood that the obligor will not be able to repay its liabilities in time and in full, without the bank having to proceed to the exercise of security. 15

16 RECEIVABLES FROM CLIENTS (continued) (b) Classification of receivables from clients and impairment loss mil. CZK Gross value Identified individual losses 30 June 2017 Identified portfolio losses Net value Standard (1 459) Monitored (189) Non-standard (2 685) Doubtful (1 131) Loss-making (5 963) Total (9 779) (1 648) December 2016 Standard (1 746) Monitored (269) Non-standard (3 140) Doubtful (1 093) Loss-making (6 030) Total (10 263) (2 015) (c) Analyses of receivables from clients in net value by sectors Financial institutions Non-financial corporations Government sector Natural persons and others Total LIABILITIES TO CLIENTS Analysis of liabilities to clients by type of liabilities Current accounts Term deposits Repo transactions Other Total

17 DEBT SECURITIES ISSUED Analysis of debt securities issued Mortgage bonds Structured bonds Zero-coupon bonds Other debt securities issued Total PROVISIONS Provisions consist of the following items: Provisions for off-balance-sheet credit items Lawsuits Provisions for restructuring Other Total provisions mil. CZK Provisions for offbalancesheet credit items Lawsuits Provisions for restructuri ng Other Total Balance as at 1 January Creation during the year Use during the year - - (1) (84) (85) Reversal of unnecessary provisions and other (196) (8) (13) 8 (209) Total as at 30 June AMORTISATION AND IMPAIRMENT LOSSES ON TANGIBLE ASSETS In the first half of 2017, the Group did not reverse the impairment loss on tangible assets (in the first half of 2016, the Group reversed 1 mil. CZK). DIVIDEND In the first half of 2017 and 2016, the Group did not pay the dividend. 17

18 SEGMENTAL ANALYSIS IFRS 8 Operating Segments provides for the presentation and reporting of operating segments according to performance criteria monitored by the person who bears the main responsibility for the operational decision. In the case of a group, this person is the Board of Directors of the bank. The Group primarily presents business segments broken down by client types: retail and private banking, corporate and investment banking, and others. The results from operations of the individual segments are monitored by the Board of Directors and other members of the Group's management on a monthly basis. Reported segments generate revenues mainly from loans and other bank products. Retail and private banking includes, in particular, the following products and services - loans, mortgages, account administration, payment system services including payment cards, saving and term accounts, investment advice. Corporate and investment banking includes, in particular, the following products and services - the provision of banking services to companies and government institutions - loans, bank guarantees, account administration, payment system services, opening of letters of credit, term deposits, derivative and foreign currency transactions, including the subscription of client shares, investment advice and advice in the field of acquisitions and mergers. Other services services not being part of the above categories. mil. CZK Retail and private banking Corporate and investment banking Other Total As at 30 June 2017 Net interest income and dividend income Other net income Amortisation and impairment losses on tangible and intangible assets (51) (417) (37) (505) Impairment of assets and provisions (155) 310 Cost of segment (2 180) (2 146) 49 (4 277) Profit before tax Income tax - - (1 026) (1 026) Result of segment (483) Assets by segments External sources by segments The income tax for all segments is reported in the segment Other. The Group does not have a client or a client group generating more than 10% of Group revenues. 18

19 SEGMENTAL ANALYSIS (continued) mil. CZK Retail and private banking Corporate and investment banking Other Total As at 30 June 2016 Net interest income and dividend income (31) Other net income Amortisation and impairment losses on tangible and intangible assets (45) (323) (24) (392) Impairment of assets and provisions 3 (545) - (542) Cost of segment (1 803) (1 936) (232) (3 971) Profit before tax Income tax (897) (897) Result of segment (162) Assets by segments External sources by segments CONTINGENT ASSETS AND CONTINGENT LIABILITIES Within ordinary commercial transactions, the Group enters various financial operations which are not posted within the Group balance sheet, and which are marked as off-balance-sheet financial instruments. Unless otherwise indicated, the figures provided below represent nominal amounts of off-balance-sheet operations. Contingent liabilities Lawsuits As at 30 June 2017, the Group assessed lawsuits conducted against it. Provisions were created for these lawsuits. In addition to these lawsuits, the Group was exposed to lawsuits arising out of ordinary commercial activities. The management does not expect that the outcome of these legal proceedings will have a significant impact on the Group's financial position. Liabilities deriving from guarantees and credit facilities and other contingent liabilities The major contingent liabilities include the values of undrawn credit facilities. Credit facilities issued by the Group include the commitments of loans or guarantees and also undrawn credit amounts, for bank overdraft facilities. Revocable commitments are commitments of loans or guarantees issued by the Group that the Group may revoke at any time without giving any reason. By contrast, irrevocable commitments represent an obligation of the Group to extend a loan or issue a guarantee the performance of which, if this linked to the fulfilment of contract terms by the client, is to a large extent independent of the Group s will. Liabilities deriving from financial guarantees represent an irrevocable confirmation that the Group will make payments in case that the conditions defined in the guarantee certificate are fulfilled. These confirmations carry a similar risk to loans and, therefore, the Group creates provisions for them based on an algorithm that is similar to loans. 19

20 CONTINGENT ASSETS AND CONTINGENT LIABILITIES (continued) Documentary letters of credit represent a written irrevocable obligation of the Group, issued on the basis of a request from its client (the principal) that a certain performance will be provided to a third party or to order of the party (the beneficiary, the authorised person) provided that conditions of letter of credit are met within a certain time period. The Group creates provisions for such financial instruments based on an algorithm that is similar to loans. The Group created provisions for off-balance-sheet items to cover the losses incurred as a result of the value impairment resulting from the credit risk. As at 30 June 2017, the total amount of these provisions was 413 mil. CZK (as at 31 December 2016: 553 mil. CZK). Letters of credit and financial guarantees Other contingent liabilities (undrawn credit facilities) Total TRANSACTIONS WITH RELATED PARTIES Entities are considered persons that have a special relationship in case that one entity is able to control the activity of the other entity or to exercise a significant influence on the entity's financial or operating policies. In the ordinary course of business, transactions with persons with a special relationship are carried out. These transactions are mainly loans, deposits and other types of transactions. These transactions are carried out on the basis of ordinary business terms and at normal market prices so that no party suffers any detriment. Predominantly parent companies and sister companies within the UCI/HVB/BA Group, subsidiaries, and associated companies, and Board of Directors members and leading personnel of the Bank were identified as related parties. The UniCredit Group prepared a UniCredit Group Employee Participation Program, in which employees can purchase UniCredit Group's investment shares at a discount in the form of discount shares. A ban on the sale applies to discount shares during the tied period. Tied shares will forfeit if an employee terminates his/her employment in the Group or sells investment shares before the end of the tied period. The discount granted is allocated to particular companies in the Group which joined the programme, and the companies will defer and recognise them during the tied period. 20

21 TRANSACTIONS WITH RELATED PARTIES (continued) (a) Transactions with the parent company Until 30 September 2016, the parent company of the Bank was UniCredit Bank Austria AG; starting from 1 October 2016, the parent company of the Bank is UniCredit S.p.A. (i) Transactions with UniCredit S.p.A Assets Receivables from banks Available-for-sale securities Total Liabilities Liabilities to banks Total Off-balance-sheet items Guarantees issued Irrevocable credit facilities Total mil. CZK Interest and similar income 22 1 Interest and similar expense (10) - Fee and commission income 2 - Fee and commission expenses (25) - Net profit/loss from financial assets and liabilities held for trading - - Net profit/loss from coverage of the risk of variations of fair values - - Administrative costs (15) (43) Total (26) (42) 21

22 TRANSACTIONS WITH RELATED PARTIES (continued) (ii) Transactions with UniCredit Bank Austria AG Assets Receivables from banks Positive fair value of hedging derivatives Total Liabilities Liabilities to banks Financial liabilities held for trading Negative fair value of hedging derivatives Total Off-balance-sheet items Guarantees issued Irrevocable credit facilities - - Total mil. CZK Interest and similar income Interest and similar expense Fee and commission income 10 2 Fee and commission expenses (1) (1) Net profit/loss from financial assets and liabilities held for trading 172 (40) Net profit/loss from coverage of the risk of variations of fair values - (1) Administrative costs - 49 Total

23 TRANSACTIONS WITH RELATED PARTIES (continued) (b) Transactions with other related parties Assets Financial assets held for trading UniCredit Bank AG Receivables from banks UniCredit Bank AG Yapi ve Kredi Bankasi AS UniCredit Bank Hungary Zrt ZAO UniCredit Bank Receivables from clients UCTAM CZ UCTAM SK Board of Directors - 2 Other members of the management Positive fair value of hedging derivatives UniCredit Bank AG Total

24 TRANSACTIONS WITH RELATED PARTIES (continued) Liabilities Liabilities to banks UniCredit Luxembourg S.A UniCredit Bank AG UniCredit Bank Hungary Zrt Liabilities to clients UniCredit Leasing (Austria) GmbH Pioneer Asset Management a.s Pioneer Investment Company UniCredit Business Integrated Solutions S.p.A Board of Directors Other members of the management Financial liabilities held for trading UniCredit Bank AG Negative fair value of hedging derivatives UniCredit Bank AG Total Off-balance-sheet items Guarantees issued UniCredit Bank AG UniCredit Bank Hungary Zrt Irrevocable credit facilities UniCredit Bank AG UCTAM CZ ZAO UniCredit Bank - 22 Board of Directors 1 1 Other members of the management 4 10 Total

25 TRANSACTIONS WITH RELATED PARTIES (continued) mil. CZK Interest and similar income UniCredit Bank AG Yapi ve Kredi Bankasi AS ZAO UniCredit Bank 2 9 Interest and similar expense 10 (2) UniCredit Bank AG 10 - Fee and commission income UniCredit Bank AG Fee and commission expenses (2) (2) UniCredit Bank AG - - Net profit/loss from financial assets and liabilities held for trading UniCredit Bank AG Net profit/loss from coverage of the risk of variations of fair values 150 (219) UniCredit Bank AG 148 (219) Administrative costs (726) (723) UniCredit Business Integrated Solutions S.p.A. (726) (711) Total (264) (445) SUBSEQUENT EVENTS The Group management is not aware of any events occurring after the balance sheet date that would require adjustment of the Bank's interim financial statements. 25

26 4. Statement Made by Issuer s Authorised Persons The present Half-Yearly Report, to the best of our knowledge, gives a true and fair picture of the financial position, business activities and operating results of the issuer and its consolidation unit over the past halfyear and the prospects of future financial development, business activities and operating results of the issuer and its consolidation unit. In Prague, on 30 September 2017 Ing. Jiří Kunert The Chairman of the Board of Directors Ljubiša Tešić The Member of the Board of Directors 26