Financial Statements. of the CROATIAN NATIONAL BANK FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK

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2 Financial Statements 8 of the CROATIAN NATIONAL BANK FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK

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4 ANNUAL REPORT 2005 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 157

5 158 Income Statement Income Statement for the year ended 31 December 2005, Notes Year ended 31 December 2005 Year ended 31 December 2004 Interest and similar income 3 1,193, ,050 Interest expense and similar charges 4 (361,048) (400,264) Net interest income 832, ,786 Fee and commission income 5,744 4,796 Fee and commission expense (3,157) (3,124) Net fee and commission income 2,587 1,672 Dividend income 4,740 4,549 Net result from financial operations 5 86, ,604 Net effect of revaluation of precious metals (104) 87, ,500 Net foreign exchange losses 6 (400,824) (379,155) Other income 7 7,458 7,814 Operating income 533, ,166 Operating expenses 8 (279,552) (246,634) Decrease/(increase) in provisions 9 7,342 (1,043) Operating surplus 261,708 56,489 Allocated to general reserves (52,342) (56,489) Allocated to State Budget (209,366)

6 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 159 Balance Sheet Balance Sheet as at 31 December 2005, Notes As at 31 December 2005 As at 31 December 2004 Assets Cash and current accounts with other banks 10 8,716 7,063 Due from other banks 11 28,250,507 24,319,677 Trading securities 12 26,572,991 25,023,661 Loans 13 4,201, ,134 Placements with International Monetary Fund 14 3,259,112 3,200,964 Equity investments 15 57,541 33,085 Accrued interest and other assets , ,953 Tangible and intangible assets , ,388 Total assets 62,880,507 53,474,925 Liabilities Banknotes and coins in circulation 14,374,538 12,826,645 Due to banks and other financial institutions 18 39,621,119 31,862,457 Due to the State and State institutions , ,120 Due to the International Monetary Fund 20 3,251,453 3,194,754 Accrued interest and other liabilities , ,421 Total liabilities 57,858,178 48,511,397 Equity Capital 22 2,500,000 2,500,000 Reserves 22 2,522,329 2,463,528 Total equity 5,022,329 4,963,528 Total equity and liabilities 62,880,507 53,474,925 The financial statements set out on pages 158 to 177 were approved on 10 March 2006 by: Director of Accounting Department: Ivan Branimir Jurković ANNUAL REPORT 2005

7 160 Statement of Changes in Equity Statement of Changes in Equity for the year ended 31 December 2005, Capital General reserves Revaluation reserves Unrealised gains Operating surplus Total capital Balance at 1 January ,500,000 2,149, ,665 4,907,039 Transferred to general reserve from revaluation reserves 5,588 (5,588) Operating surplus 56,489 56,489 Operating surplus transferred to general reserves 56,489 (56,489) Balance at 31 December ,500,000 2,211, ,077 4,963,528 Transferred to general reserves from revaluation reserve 5,102 (5,102) Exchange differences on available-for-sale financial assets 1,346 1,346 Changes in the value of equity investments 5,113 5,113 Operating surplus 261, ,708 Operating surplus transferred to general reserves 52,342 (52,342) Operating surplus allocated to the State Budget (209,366) (209,366) Balance at 31 December ,500,000 2,268, ,975 6,459 5,022,329

8 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 161 Statement of Cash Flows Statement of Cash Flows for the year ended 31 December 2005, Cash flows from operating activities Interest received 1,192, ,181 Interest paid (382,916) (403,857) Commissions received 5,670 4,062 Commissions paid (2,917) (2,970) Dividends received 4,741 4,549 Other receipts 10,163 11,335 Expenses paid (216,613) (192,833) 610, ,467 Changes in operating assets and liabilities (Increase)/decrease in deposits with other banks (4,140,498) 630,885 (Increase)/decrease in loans (3,797,626) 571,142 Purchases of trading securities (1,759,814) (594,692) Net (increase)/decrease in other assets/liabilities (261,643) 214,154 Decrease in amounts due to the IMF (1,428) (2,525) Increase of currency in circulation 1,548, ,248 Increase in amounts due to banks and other financial institutions 7,868,194 4,620,383 Increase/(decrease) in amounts due to State 17,598 (1,150,445) (526,284) 4,859,150 Net cash from operating activities 84,424 5,175,617 Cash flows from investing activities Purchase of property and equipment (33,149) (64,525) Acquisitions of equity investments (18,256) Net cash from investing activities (51,405) (64,525) Cash flow from financing activities Net issue of CNB bills (5,036,313) Net cash from financing activities (5,036,313) Effect of exchange differences (29,942) (74,841) Net increase/(decrease) in cash 3,077 (62) ANNUAL REPORT 2005 Cash at the beginning of the year 11,900 11,962 Cash at the end of the year (Note 24) 14,977 11,900 The accompanying notes form an integral part of these financial statements.

9 162 Accounting Policies and Notes to the Financial Statements Note 1 General Information and Accounting Standards 1.1 General information The Croatian National Bank is the central bank of the Republic of Croatia, whose status has been defined by law. The owner of the Croatian National Bank is the Republic of Croatia, which guarantees the liabilities of the Bank. It is headquartered in Zagreb, Trg hrvatskih velikana 3. Its area of competence comprises the responsibility for achieving and maintaining price stability. The Croatian National Bank is an independent organization, and reports to the Croatian Parliament, which has adopted its Statute. The Governor of the Croatian National Bank represents the Croatian National Bank. The tasks performed by the Croatian National Bank as provided by the Constitution and law include the following: Determining and implementing monetary and foreign currency policy; Maintaining and managing international reserves of the Republic of Croatia; Issuing banknotes and coins; Issuing and withdrawing banking licenses, and supervising the operations of banks; Maintaining bank accounts and performing payment transactions on those accounts, issuing loans to other banks and receiving deposit funds from other banks; Regulating, improving and supervising payment operations; Performing tasks on behalf of the Republic of Croatia as defined by law; Promulgating regulations from its area of competence; and Performing other tasks specified by law. 1.2 Accounting standards and conventions These financial statements are prepared using the accrual method and under historical cost convention as modified for revaluation of tangible assets and certain financial assets and liabilities to fair value in accordance with International Financial Reporting Standards. The financial statements are presented in thousands of Croatian kunas. The preparation of financial reports in accordance with generally accepted accounting standards requires the use of estimates and judgments that influence the amounts of assets and liabilities at the reporting date and the amounts of income and expenditures for the reporting period. Although the

10 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 163 estimates are based on the management s best estimate of current events and operations, they may differ from the actual results. Note 2 Summary of Significant Accounting Policies 2.1 Interest income and expense Interest income and expense are recognized in the income statement on an accrual basis. Interest income includes interest earned on coupons for fixed-yield financial instruments, as well as accrued discount on purchased securities. Accrued discount on issued treasury bills is treated as interest expense, as is also any premium on purchased securities. 2.2 Fee and commission income and expense Fee and commission income earned on financial services provided by the Croatian National Bank and is recognized when the corresponding service is provided. Fee and commission expense is included in the income statement when the services are received. 2.3 Dividend income Dividend income on equity investments is recognized in the income statement when the right to receive dividends is established. 2.4 Foreign exchange gains and losses Transactions in foreign currencies are translated into HRK at the rate of exchange ruling at the date of the transaction. All monetary assets and liabilities denominated in a foreign currency are retranslated at the balance sheet date at the rate effective on that date. Gains and losses on translation are included in the income statement for the period in which they occur. They are translated at the midpoint exchange rate of the Croatian National Bank, except for the Special Drawing Rights (XDRs), which are translated to Croatian kuna at the exchange rate provided by the International Monetary Fund. Foreign exchange gains and losses arising from fluctuations in exchange rates are recorded in the income statement as unrealized gains or losses in the period when they occur. ANNUAL REPORT 2005 Foreign exchange gains and losses arising from financial instruments available-for-sale are recognized directly in equity. Gains and losses arising from trading in foreign currencies are included in realized income or expenditure in the period in which they occur. The exchange rates of major foreign currencies at 31 December 2005 were as follows: USD 1 = HRK (2004: HRK ) EUR 1 = HRK (2004: HRK ) XDR 1 = HRK (2004: HRK ).

11 Provisions for commitments and contingencies The Croatian National Bank recognizes a provision when it has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the obligation. If all these conditions are not met, no provision is recognized. 2.6 Financial instruments Classification Financial assets of the Croatian National Bank are classified into the following categories: a) Financial assets at fair value through profit or loss This category comprises marketable debt securities in which the Croatian National Bank invests international reserve funds for the purpose of earning interest income or changes in the fair value of the underlying instrument. b) Loans and receivables This category comprises loans approved by the Croatian National Bank without the intention of short-term profit taking. c) Financial assets available for sale This category comprises the Croatian National Bank s investments in equity securities Recognition The Croatian National Bank recognizes financial assets on the settlement date. Any gains and losses arising from changes in the fair value of financial assets are recognized as of the last day of the reporting period Measurement Financial instruments are measured initially at cost, which includes transaction costs. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, which corresponds to the quoted market price in an active financial market. Financial instruments with no quoted market price and with fixed maturities are stated at amortized cost, by applying the effective interest rate method. Those that do not have a fixed maturity and whose fair value cannot be reliably measured are measured at cost, less any impairment loss. 2.7 Impairment of financial assets Financial assets are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, the asset s recoverable amount is estimated, and an allowance is made to reduce the asset to its recoverable amount. 2.8 Repurchase and reverse repurchase agreements The Croatian National Bank enters into a securities purchase/sale agreement where it contracts to resell/repurchase the same instrument on a specific

12 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 165 future date at a fixed price. Securities purchased under reverse repurchase agreements are not recognized in the balance sheet. Outflows arising from these agreements are recognized as due from banks or other financial institutions, and are collateralized by appropriate securities pledged under the repurchase agreement. Securities sold under repurchase agreements are not removed from the balance sheet but are reported in accordance with the accounting policy for such financial assets. Inflows from sales of securities are recognized as due to banks or other financial institutions. The difference between sale and repurchase price is treated as interest income or expense and accrued over the period of transaction. 2.9 Balances with International Monetary Fund Balances with the International Monetary Fund are denominated in Special Drawing Rights (XDR) Gold and other precious metals Gold and other precious metals are held at the market value. Gains and losses arising from a change in the fair value are recognized in the income statement in the period when they occur Cash in circulation The legal tender in the Republic of Croatia is the Croatian kuna. Banknotes and coins in circulation are carried at face value Taxation The Croatian National Bank is not subject to Croatian income tax Tangible and intangible assets Tangible and intangible fixed assets are stated in the balance sheet at cost or revalued amount less accumulated depreciation. Depreciation is provided under the straight-line method at prescribed rates designed to write off the cost or valuation of assets over their useful lives. Assets are revalued by independent expert reference to their market values. Any gains on revaluation are included in revaluation reserves as a separate component of equity. Losses on revaluation are recorded against revaluation reserves to the extent of previously recognized gains. Losses in excess of previously recorded gains are recognized as an impairment charge in the income statement. ANNUAL REPORT 2005 The following annual rates are used: in % Item Business buildings Flats 5.0 Garages Air-conditioning system Fire alarm system

13 166 Item Mobile phones Fixed telephony Office equipment Restaurant equipment Machinery and other equipment Furniture Safes Motor vehicles Servers and other computer equipment Software Immaterial assets Security system and video surveillance equipment Appropriations The surplus of income over expenditures is transferred in accordance with Article 53 of the Law on the Croatian National Bank. Note 3 Interest and Similar Income Item Deposits 668, ,133 Trading securities 460, ,103 International Monetary Fund Loans to domestic banks 59,068 5,903 Other 5,181 1,890 1,193, ,050 Note 4 Interest and Similar Expense Item Kuna reserve requirements 166, ,897 Foreign currency reserve requirements 125, ,938 Kuna CNB bills 254 Mandatory CNB kuna bills 128 Foreign currency CNB bills 9,488 International Monetary Fund arrangements 1,403 2,533 Repurchase arrangements 64,721 32,229 Other interest expense 3,137 1, , ,264

14 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 167 Note 5 Net Financial Result and Revaluation of Precious Metals Item Net result on sale and changes in the fair value of trading securities 86, ,604 Net effect of revaluation of precious metals 724 (104) 87, ,500 Note 6 Net Exchange Differences Since the international reserves of the Republic of Croatia account for over 90% of the balance sheet of the Croatian National Bank, any changes in foreign exchange rates imminently affect both the balance sheet and the income statement Exchange Rate Movement HRK vs. USD in 2004 and 2005 Considering the currency structure of international reserve funds, the movements in major exchange rates (USD, EUR, XDR) in relation to kuna during 2005 and 2004 are illustrated below. CNB midpoint exchange rate I II III IV V VI VII VIII IX X XI XII month HRK/USD 2004 HRK/USD Exchange Rate Movement HRK vs. EUR in 2004 and Exchange Rate Movement HRK vs. XDR in 2004 and CNB midpoint exchange rate CNB midpoint exchange rate ANNUAL REPORT I II III IV V VI VII VIII IX X XI XII I II III IV V VI VII VIII IX X XI XII month month HRK/EUR 2004 HRK/EUR 2005 HRK/XDR 2004 HRK/XDR 2005

15 168 The graph below illustrates movements in net exchange differences during 2005 and 2004: 8.4 Movements in Net Exchange Differences from 1 January 2004 to 31 December billion HRK I II III IV V VI VII VIII IX X XI XII month The movements in net losses on remeasurement of the balance sheet items according to the fluctuations in foreign exchange rates over the past five years are presented below: Year Net loss , ,240, , , ,824 Note 7 Other Income Item Gains on sales of numismatics 1,194 1,337 Other income 6,264 6,477 7,458 7,814 Note 8 Operating Expenses Item Staff costs (Note 8.1) 133, ,832 Materials, services and administrative expenses 89,124 68,202 Costs of banknotes and coins in Croatian currency 34,217 34,795 Depreciation and amortization 22,505 17, , ,634

16 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 169 Note 8.1 Staff Costs Item Net salaries 58,063 53,714 Contributions from and on salaries 34,206 32,224 Taxes and local taxes 16,614 16,515 Other staff costs 24,823 23, , ,832 The average number of employees during the year was 561 (2004: 541). Note 9 Decrease/Increase in Provisions Item Loans New provisions made 4 Amounts collected (9,481) (10,688) Accrued interest Amounts collected (385) Provisions for risks and charges New provisions made 7,444 16,123 Provisions released (5,305) (4,011) (7,342) 1,043 Note 10 Cash and Current Accounts With Other Banks Cash on hand 5,157 5,529 Current accounts with foreign banks 3,559 1,534 8,716 7,063 Note 11 Deposits With Other Banks ANNUAL REPORT 2005 Foreign central banks 373, ,816 Foreign commercial banks 27,863,021 23,740,579 Domestic commercial banks 14,091 14,282 28,250,507 24,319,677

17 170 Note 12 Trading Securities Securities denominated in EUR 21,643,381 19,754,380 Securities denominated in USD 4,929, ,664 Certificates of deposit 307,617 26,572,991 25,023,661 Note 13 Loans a) By type of loan Loans to domestic banks Repo auctions 4,201, ,985 Intervention 63,228 63,228 Liquidity 9,342 18,823 Other loans Gross loans 4,274, ,866 Less: provision for loan impairment (73,251) (82,732) 4,201, ,134 b) Movements in allowances for impairment losses Balance at 1 January 82,732 93,416 New impairment allowances made 4 Amounts collected (9,481) (10,688) Balance at 31 December 73,251 82,732 Note 14 Placements With the International Monetary Fund Membership quota 3,252,851 3,196,127 Special Drawing Rights (XDR) and deposits 6,261 4,837 3,259,112 3,200,964

18 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 171 Note 15 Equity Investments Membership in other international institutions 44,374 25,031 Domestic enterprises 13,167 8,054 57,541 33,085 The membership in other international institutions relates to the shares of the Bank for International Settlements, Basle, and the shares of SWIFT (Society for Worldwide Interbank Financial Telecommunication). Domestic equity investments represent the share of the Croatian National Bank in the capital of the Croatian Monetary Institute. Note 16 Accrued Interest and Other Assets Accrued interest 70,975 59,732 Prepaid expenses 67,075 65,947 Numismatics 10,293 10,666 Gold and other precious metals 2,726 1,948 Other assets 83,364 74, , ,841 Impairment allowance (77,888) (77,888) 156, ,953 Movements in provisions Balance at 1 January (77,888) (78,342) New provisions made Amounts collected 385 Write offs 69 Balance at 31 December (77,888) (77,888) The major portion of prepaid expenses in the amount of HRK 63,823 thousand (2004: HRK 62,893 thousand) relates to the costs of printing banknotes and coining coins. ANNUAL REPORT 2005

19 172 Note 17 Tangible and Intangible Assets Land and buildings Computers Furniture and equipment Motor vehicles Other assets Investments in course of construction Software and licenses Balance at 31 December 2004 Cost or revaluation 306,052 53,845 30,525 6,922 3,124 44,299 6, ,782 Accumulated depreciation (24,133) (35,603) (20,940) (5,032) (3,686) (89,394) Net book amount 281,919 18,242 9,585 1,890 3,124 44,299 2, ,388 Year ended 31 December 2005 Opening net book amount 281,919 18,242 9,585 1,890 3,124 44,299 2, ,388 Additions ,798 34,971 Assets brought into use 86 12,725 5, (27,073) 8,435 Revaluation Net write-offs (194) (38) 4 Charge for the year (5,932) (9,226) (4,018) (719) (2,610) (22,505) Closing net book amount 276,073 21,547 11,170 1,578 3,350 52,024 8, ,858 Balance at 31 December 2005 Cost or revaluation 306,138 65,683 34,703 6,999 3,350 52,024 14, ,347 Accumulated depreciation (30,065) (44,136) (23,533) (5,421) (6,334) (109,489) Net book amount 276,073 21,547 11,170 1,578 3,350 52,024 8, ,858 Total The tangible fixed assets of the Bank are neither subject to a mortgage nor to a fiduciary relationship. Note 18 Due to Banks and Other Financial Institutions Kuna reserve requirements 17,605,236 14,674,409 Foreign currency reserve requirements 13,492,115 10,755,318 Other deposits of domestic banks 8,462,135 6,409,404 Foreign banks and other financial institutions 18,944 18,071 Court-mandated deposits 42,689 5,255 39,621,119 31,862,457 Note 19 Due to the State and State Institutions Domestic currency account balances Foreign currency account balances

20 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 173 Note 20 Due to the International Monetary Fund Bills of exchange denominated in HRK 3,243,301 3,186,744 Other IMF s accounts 8,152 8,010 3,251,453 3,194,754 The bills of exchange denominated in Croatian kuna relate to the membership of the Republic of Croatia in the International Monetary Fund. Note 21 Accrued Interest and Other Liabilities Accrued interest 15,251 29,166 Due to employees 5,064 4,886 Taxes and contributions 4,578 4,343 Due to the Ministry of Finance 215,418 6,356 Amounts due to suppliers 11,516 10,440 Other liabilities 65, , , ,421 Other liabilities include long-term provisions for risks and charges, out of which HRK 14,040 thousand (2004: HRK 12,747 thousand) are in respect of litigation provision and HRK 12,163 thousand (2004: HRK 11,317 thousand) in respect of provisions for employee benefits. Note 22 Capital and Reserves The capital funds of the Croatian National Bank consist of the initial capital and reserves. The initial capital in the amount of HRK 2,500,000 thousand is held by the Republic of Croatia. The capital is non-transferable and cannot be encumbered by any guarantees. The increase in the reserves of the Croatian National Bank resulted from the transfer of operating surplus in the amount of HRK 52,342 thousand. Note 23 Contingencies and Commitments, and Treasury Inventory System ANNUAL REPORT 2005 Legal actions: As at 31 December 2005 there were several legal actions outstanding against the Bank. In the opinion of the management and internal legal advisors of the Croatian National Bank, there is a possibility that the Bank will lose certain cases, and, consequently, provisions for potential losses on such cases were made by the Bank in the amount of HRK 14,040 thousand (see Note 21). Capital commitments: At 31 December 2005, the Croatian National Bank had capital commitments in the amount of HRK 29,424 thousand (2004: HRK 13,219 thousand).

21 174 Treasury inventory system: Non-issued banknotes and coins 82,666,032 86,339,863 Stamp duties and bills of exchange 250, ,619 82,916,461 86,637,482 Note 24 Cash Cash on hand 5,157 5,529 Current accounts with foreign banks 3,559 1,534 Special Drawing Rights (XDR) and deposits with the IMF 6,261 4,837 14,977 11,900 Note 25 Appropriations Surplus of income over expenditure 261,708 56,489 Transfer of surplus to general reserves (52,342) (56,489) Transfer of surplus to the State Budget (209,366) Note 26 Risk Management The Bank maintains active trading positions in money market and capital market instruments that are appropriate for central banks. The Bank pays special attention to the monitoring of credit, foreign exchange and interest rate risks, as well as other types of risks. The Bank s investment gain corresponds to assumed risks and reflects its basic investment principles safety and liquidity. Note 27 Credit Risk The Bank is subject to credit risk that may arise as a result of counterparties default on their obligations to the Bank. Therefore, the Bank monitors the credit ratings of governments and financial institutions with which it places its international reserve funds on an ongoing basis. The Croatian National Bank only deals with counterparties of the highest credit standing, by setting limits for placements with individual countries and financial institutions.

22 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 175 Geographical concentration of assets and liabilities: Item Total assets Total liabilities Balance at 31 December 2005 Croatia 4,724,539 54,605,765 OECD countries 54,430, USA 3,725,192 3,252,395 Other countries 12 62,880,507 57,858,178 Item Total assets Total liabilities Balance at 31 December 2004 Croatia 886,007 45,310,397 OECD countries 46,535,907 6,183 USA 6,052,979 3,194,817 Other countries 32 53,474,925 48,511,397 Note 28 Foreign Exchange Risk The majority of the Bank s assets is held in foreign currencies (international reserves). Therefore, the Bank has a large exposure to foreign exchange risk. As a result, there are high fluctuations in the income statement, primarily because of the effects of exchange differences on the financial result of the Bank for the year. The analysis of significant items of assets and liabilities by currency is provided below: Item EUR USD XDR Other foreign currencies HRK Total Balance at 31 December 2005 Assets Cash and current accounts with other banks 3,994 2,212 2, ,716 Due from other banks 25,030,213 3,206,203 14,091 28,250,507 Trading securities 21,643,381 4,929,610 26,572,991 Loans 4,201,237 4,201,237 Placements with International Monetary Fund 3,259,112 3,259,112 Equity investments 78 44,296 13,167 57,541 Accrued interest and other assets 28,923 8, , ,545 Tangible and intangible assets 1, , ,858 Total assets 46,708,396 8,146,861 3,303,416 2,510 4,719,324 62,880,507 Liabilities Banknotes and coins in circulation 14,374,538 14,374,538 Due to banks and other financial institutions 13,301, ,992 26,129,004 39,621,119 Due to the State and State institutions 10, , , ,126 Due to the International Monetary Fund 3,251,453 3,251,453 Accrued interest and other liabilities 3,719 1, , ,942 Total liabilities 13,315, ,630 3,251,453 2,931 41,095,770 57,858,178 Net balance sheet position 33,393,002 7,954,231 51,963 (421) (36,376,446) 5,022,329 Balance at 31 December 2004 Total assets 37,024,075 12,343,699 3,225, ,495 53,474,925 Total liabilities 6,305,931 4,499,404 3,194, ,510,462 48,511,397 Net balance sheet position 30,718,144 7,844,295 31,161 (105) (33,629,967) 4,963,528 ANNUAL REPORT 2005

23 176 Note 29 Interest Rate Risk The Bank has an exposure to market interest rates on its financial position and cash flows. As a result of the application of clearly set guidelines, the Bank s exposure to interest rate risk is low and in compliance with its basic principle of international reserves investment safety and liquidity. Item Up to 1 month 1 to 3 months 3 months to 1 year 1 to 5 years Non-interest bearing Balance at 31 December 2005 Assets Cash and current accounts with other banks 8,716 8,716 Due from other banks 23,171,808 5,064,608 14,091 28,250,507 Trading securities 26,572,991 26,572,991 Loans 4,201,237 4,201,237 Placements with International Monetary Fund 1,634 3,257,478 3,259,112 Equity investments 57,541 57,541 Accrued interest and other assets 156, ,545 Tangible and intangible assets 373, ,858 Total assets 53,947,670 5,064,608 3,868,229 62,880,507 Liabilities Banknotes and coins in circulation 14,374,538 14,374,538 Due to banks and other financial institutions 31,097,351 8,523,768 39,621,119 Due to the State and State institutions 208,849 85, ,126 Due to the International Monetary Fund 3,251,453 3,251,453 Accrued interest and other liabilities 316, ,942 Total liabilities 31,306,200 26,551,978 57,858,178 Net balance sheet position 22,641,470 5,064,608 (22,683,749) 5,022,329 Balance at 31 December 2004 Total assets 44,892,227 4,831,255 3,751,443 53,474,925 Total liabilities 25,430,854 23,080,543 48,511,397 Net balance sheet position 19,461,373 4,831,255 (19,329,100) 4,963,528 Total The table below summarizes the average interest rate by major currencies for monetary financial instruments at 31 December 2005: in % Balance at 31 December 2005 EUR USD XDR HRK Assets Current accounts with other banks Special Drawing Rights (XDR) 3.03 Due from other banks Trading securities Loans 3.50 Liabilities Due to domestic banks Due to the International Monetary Fund Due to foreign banks

24 FINANCIAL STATEMENTS OF THE CROATIAN NATIONAL BANK 177 in % Balance at 31 December 2004 EUR USD XDR HRK Assets Current accounts with other banks Special Drawing Rights (XDR) 2.22 Due from other banks Trading securities Loans 9.50 Liabilities Croatian National Bank bills 2.51 Due to domestic banks Due to the International Monetary Fund Due to foreign banks Note 30 Liquidity Risk Liquidity risk arises in the general funding of the liabilities due or of other activities of the Croatian National Bank. Therefore, the Croatian National Bank has to ensure sufficient funds available on a daily basis to meet all of its liabilities and contractual commitments. The following table provides an analysis of the financial assets and liabilities of the Croatian National Bank into relevant maturity groupings based on the remaining period to repayment. Item Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total Balance at 31 December 2005 Assets Cash and current accounts with other banks 8,716 8,716 Due from other banks 23,171,808 5,064,608 14,091 28,250,507 Trading securities 26,572,991 26,572,991 Loans 4,201, ,201,237 Placements with International Monetary Fund 1,634 3,257,478 3,259,112 Equity investments 57,541 57,541 Accrued interest and other assets 39,030 5,292 34,941 63,823 13, ,545 Tangible and intangible assets 6, , ,858 Total assets 53,995,279 5,076,322 34,941 63,823 3,710,142 62,880,507 Liabilities Banknotes and coins in circulation 14,374,538 14,374,538 Due to banks and other financial institutions 39,602,174 18,945 39,621,119 Due to the State and State institutions 294, ,126 Due to the International Monetary Fund 3,251,453 3,251,453 Accrued interest and other liabilities 36, ,366 33,041 38, ,942 Total liabilities 39,932, ,366 33,041 38,126 17,644,936 57,858,178 Net liquidity gap 14,062,570 4,866,956 1,900 25,697 (13,934,794) 5,022,329 Balance at 31 December 2004 Total assets 44,926,886 4,837,865 10,815 87,813 3,611,546 53,474,925 Total liabilities 32,402,584 7,152 62,191 16,039,470 48,511,397 Net liquidity gap 12,524,302 4,837,865 3,663 25,622 (12,427,924) 4,963,528 ANNUAL REPORT 2005

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