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Transcription

1 ADDITIONAL NOTES! "! #$% $#&"'() ' '$#&"'() ' *$# +

2 1. Infrmatin n the structure f bank s expsure t specific entities, capital grups, industrial and gegraphical market segments, tgether with the expsure risk assessment 1.1. Infrmatin regarding the Bank s expsure t specific industries is presented in the table belw. The data d nt include the interest accrued: Sectrs f the ecnmy Grss lans as at Grss lans as at December 31, 2004 Private individuals Whlesale Other prductin Prductin f fd and beverages Municipal and husing services Cnstructin services Prductin f metal gds Timber and wden gds Retail trade in grceries Retail trade in industrial gds Htels and mtels Cmmercial intermediaries Land transprt Nn-banking financial services Textiles and fabric prductin Ceramics and glass Paper and statinery Rubber and plastic prducts Electrical prducts Print shps and publishers Mtr vehicles Furniture and accessries Scial utility services Ecnmic building industry Trade in means f transprt Science and technlgy services Cal and crude il prducts Other chemical prducts Metallurgical industry Medical services within scial care Other services Other industries Ttal Data n the Bank s expsure by the main gegraphical regins f Pland are presented in the table belw. Interest, amunts due frm banks and value adjustments n accunt f effective settlement f cmmissin are nt included. Gegraphical regins f Pland Grss lans as at Grss lans as at December 31, Eastern Regin Małplska Regin Western Regin Silesia Regin Nrthern Regin TOTAL Securities and Exchange Cmmissin 2

3 Fr the needs f the abve cmparisn, - the Malplska Regin cmprises the fllwing prvinces: Malplska, Pdkarpackie and Swietkrzyskie, - the Silesia Regin cmprises the fllwing prvinces: Silesia and Oplskie, - the Eastern Regin cmprises the fllwing prvinces: Mazvia, Lublin, Łód, Warmia-Mazuria and Pdlasie, - the Western Regin cmprises the fllwing prvinces: Wielkplska, West Pmerania, Lwer Silesia and Lubuskie, and - the Nrthern Regin cmprises the fllwing prvinces: Pmerania and Kujawy - Pmerania Data regarding the Bank s expsure t specific ecnmic sectrs is presented in the Table belw. Interest and value adjustment n accunt f effective settlement f cmmissin are nt included. Entity type Grss lans as at Grss lans as at December 31, 2004 Financial sectr 59,961 49,704 - insurance institutins and pensin funds ther financial intermediaries 57,938 48,890 - auxiliary financial institutins 1, VISA card settlements with financial institutins Nn-financial sectr 4,334,497 3,422,935 - State-wned enterprises and cmpanies 40,306 43,594 - private enterprises and cmpanies and cperatives 3,255,316 2,658,661 - individual entrepreneurs 244, ,671 - individuals 774, ,044 - individual farmers nn-cmmercial institutins perating in favr f husehlds - settlements with nn-financial entities n accunt f VISA card settlements 6,288 4,675 12,793 13,460 State budget sectr lcal budgetary units settlements with budget entities n accunt f VISA card settlements 3 1 TOTAL 4,394,996 3,472,694 In Sectins 1.1., 1.2. and 1.3. amunts receivable due frm the financial, nn-financial and State budget sectrs are presented, excluding transactins with banks Data regarding the Bank s expsure t specific custmers and capital grups As at, the Bank did nt exceed the maximum expsure limit determined in the Banking Law with respect t any custmer r capital grup. As regards sixteen (16) custmers, the Bank s expsure exceeded 10% f equity and ttaled PLN 1,249 millin, as cmpared t December 31, 2004 when in relatin t fur (4) custmers the Bank s expsure exceeded 10% f its equity and ttaled PLN 241 millin Data regarding the Bank s credit risk cncentratin The Bank s expsure fcuses n the fllwing sectrs: prductin, services and trade, and private individuals, and it amunts t 31%, 27%,22% and 18% f the credit prtfli value respectively, as at the end f December As far as all ther sectrs are cncerned, the expsure is relatively lw. As cmpared t December 31, 2004, the Bank decreased its expsure in services and trade, whereas the prductin and private individual sectrs expsure augmented. The largest mdificatins were nted in mtr vehicles industry expsure decrease by 79%. Detailed infrmatin n credit risk cncentratin in specific industries, where the Bank s expsure exceeds 5% f ttal lan amunt extended is presented in item e f the. 2. Data regarding the surce f depsit acquisitin, brken by industrial and gegraphical market segments 2.1. Data n the surce f funds acquisitin by the main gegraphical regins f Pland are presented in the Table belw. Interest is nt included. Securities and Exchange Cmmissin 3

4 Gegraphical regins f Pland Depsits as at Depsits as at December 31, Eastern Regin 1,241, ,511 - Małplska Regin 953, ,066 - Silesia Regin 419, ,700 - Western Regin 373, ,741 - Nrthern Regin 335, ,298 TOTAL 3,324,607 2,801, Infrmatin regarding fund acquisitin by the Bank frm specific industries is presented in the Table belw. Interest is nt included. Sectrs f the ecnmy Depsits as at Depsits as at December 31, 2004 Private individuals 1,271,935 1,167,981 Whlesale 268, ,506 Cnstructin services 150, ,153 Prductin f metal gds 126, ,570 Prductin f fd and beverages 79,237 43,891 Brkerage services 77,650 18,026 Legal and ecnmic services 73,767 70,369 Other prductin 72,804 74,346 Science and technlgy services 70,791 37,662 Services within scial utility 66,464 13,412 Nn-life insurance 60, ,803 Land transprt 54,211 43,026 Retail trade in industrial gds 48,697 29,809 Municipal and husing services 46,452 24,021 Other transprt means 45,242 73,386 Htels and mtels 38,403 19,236 Timber and wden gds 30,756 14,856 Rubber and plastic prducts 27,739 16,639 Mtr vehicles 25,746 15,484 Prductin f nn-electrical machines 19,225 13,372 Publishing services 18,015 14,518 Electrical prducts 16,013 12,364 Develpers 15,630 1,920 Nn-banking financial services 15,001 22,231 Paper and statinery 13,813 18,449 Other industries 90,407 88,254 Other services 500, ,032 Ttal 3,324,607 2,801,316 Securities and Exchange Cmmissin 4

5 In Sectins 2.1. and 2.2., amunts due t the financial sectr (excluding banks), nn-financial sectr and State budget sectr are presented. 3. Infrmatin abut changes in the value f subsidies fr freign branches, with the balance as at the beginning f the perid, increases and decreases, brken by specific entities, and the balance as at the end f the perid. The Bank des nt have any freign branches. 4. Infrmatin abut financial instruments, cnsidering the Issuer s specific nature 4.1. Financial Assets and Liabilities: The Bank classifies its financial assets and liabilities n the day f their purchase r riginatin int the fllwing categries: a) Financial assets r liabilities held fr trading - financial assets r liabilities which were purchased in rder t btain ecnmic gains as a result f shrt-term price changes and fluctuatins f ther market factrs, including derivatives; b) Credits and lans granted by the Bank and ther wn receivables f the Bank - lans and credit facilities granted by the Bank (financial assets which riginated as a result f giving cash earmarked fr a specific purpse directly t the ther party t a cntract), and ther wn receivables except fr lans and credit facilities which were granted with the intentin f immediate r fast sale, included int financial assets held fr trading; c) Financial assets held t maturity financial assets purchased fr investment purpses, which the Bank intends t hld t maturity, i.e. until the date f their repurchase by the issuer. As at, the Bank held n such assets; d) Financial assets available fr sale ther financial assets that are nt classified int categries enumerated in letters a), b) r c) abve; The Tables belw present the change f the balance f financial assets held fr trading, lans and credit facilities granted by the Bank and wn receivables nt held fr trading, financial assets held t maturity, financial assets available fr sale and ther financial liabilities: Financial assets held fr trading January 1, 2005 t January 1, 2004 t December 31,2004 Opening balance 65, ,972 Increases (n accunt f) 2,493,550 1,404,208 - purchase 2,465,483 1,359,256 - measurement f financial instruments 26,373 30,275 - measurement f securities premium / discunt 1,146 - cupn interest ,534 Decreases (n accunt f) (2,495,994) (1,480,827) - sale (2,473,549) (1,479,243) - measurement f financial instruments (11,574) (127) - measurement f securities (68) - premium / discunt (23) (984) - interest (10,780) (473) Ending balance 62,909 65,353 Securities and Exchange Cmmissin 5

6 Lans and credit facilities granted by the Bank and wn receivables nt held fr trading January 1, 2005 t January 1, 2004 t December 31, 2004 Opening balance 4,652,442 3,612,938 Increases (n accunt f) 959,225 1,067,899 - change in the net depsit balance frm banks 915,016 - change in net lan balance 941, ,399 - change in the balance f receivables due n accunt f LC discunt 1,630 5,005 - change in the balance f receivables due n accunt f settlements with VISA cards 2,010 - change in net interest balance 7,100 14,518 - change n accunt f the measurement f interest-bearing bnds f Credit Suisse First Bstn Singapre Branch 4,620 - change in specific prvisins balance 3,925 1,951 Decreases (n accunt f) (22,000) (28,395) - change in specific prvisins balance (7,180) - change in the net depsit balance frm banks (21,350) - change in dcumentary transactin receivables balance (21,215) - change in the balance f receivables due n accunt f settlements with VISA cards (650) Ending balance 5,589,667 4,652,442 Financial assets available fr sale January 1, 2005 t January 1, 2004 t December 31, 2004 Opening balance 327, ,001 Increases (n accunt f) 1,385,320 2,085,218 - purchase 1,375,555 2,062,425 - discunt 6,167 4,805 - premium 7 - cupn 1,377 - measurement 2,101 17,981 - FX rate differences 120 Decreases (n accunt f) (1,411,427) (2,189,760) - sale (1,408,694) (2,178,421) - interest (2,726) (1,291) - measurement f securities (5) (9,979) - premium - FX rate differences (2) (7) Ending balance 301, ,459 Bth as at and December 31, 2004, the Bank s prtfli included n financial assets held t maturity. (62) Securities and Exchange Cmmissin 6

7 4.2. Liabilities related t derivative financial instruments January 1, 2005 t January 1, 2004 t December 31, 2004 Opening balance 51,136 1,093 Increases (n accunt f) 76,351 50,043 - derivative instruments measurement 75,932 33,759 - interest liability n accunt f derivative instruments ,284 Decreases (n accunt f) (75,548) - derivative instruments measurement (65,877) - interest liability n accunt f derivative instruments (9,671) Ending balance 51,939 51, Infrmatin n financial assets and liabilities brken by categries f financial instruments: a) Financial assets and liabilities The detailed descriptin f financial assets brken by categries f financial instruments is presented in financial ntes N. 13A thrugh 13E t the financial statement. Except fr the negative adjustments f derivative measurement, all financial liabilities are recgnized in financial liabilities nt held fr trading. The detailed descriptin f financial liabilities nt held fr trading is presented in financial ntes N t the financial statement. b) Descriptin f methds and essential assumptins adpted t establish fair value f financial assets and liabilities: Fair value is the amunt that a given asset culd be exchanged fr and als a liability settled thrugh a transactin effected n market terms between the interested, well-infrmed, nt affiliated parties. Measurement f securities Debt securities held fr trading are measured at market value, whereas assets which have n existing active market at fair value using valuatin methds based upn market interest rates. The effects f a change in the market r fair value are recgnized as net financial result. Debt securities available fr sale are measured at fair value and the effects f a change in the fair value are recgnized as the revaluatin fund. Debt securities are entered int accunting bks at the purchase price and transactin date. Between the transactin date and value date, a given security is recrded in ff-balance sheet items in a nminal value. Measurement f derivative instruments FX Frward and FX Swap transactins are measured at fair value. The effects f a change in the fair value f derivatives are recgnized in the FX result. In the Bank s balance sheet statement, the valuatin f derivatives related t FX Frward and FX Swap is presented in ther financial assets r liabilities in respect f financial instruments. The fair value f FX Spt transactins, FX Frward and FX Swap transactins is cmputed by cmparisn f the transactin rate with the market rate binding fr similar transactins at the end f a reprting perid, when there is mre than tw (2) days difference between the value date and the current date. In ther cases, the NBP mid-rate is the reference rate. IRS cntracts are measured t market value as at a reprting date using the Discunted Cash Flw methd. Discunting factrs are estimated based n the market yield curve as at the measurement date. The market value is cmpared with the value f interest cmputed pursuant t the cntract prvisins. The difference is bked as either csts r incme n accunt f financial transactins, accrdingly. FX Futures cntracts are measured t market value every day. The daily measurement is recgnized either as csts r incme n accunt f financial transactins, respectively. FRAs are measured using the Discunted Cash Flw methd based n the market yield curve. Measurement differences are psted in the same manner as fr IRS cntracts. FX Eurpean ptins sld and purchased are measured t fair value using the Black-Schles mdel in the versin Securities and Exchange Cmmissin 7

8 adapted t the abve ptins. The vlatility parameter which is required when using the abve mdel is assumed in the frm f the s-called implied vlatility parameter which ensures cnsistency f the price btained with the actual market price. Interest rate ptins are measured t fair value using a mdified versin f the Black-Schles mdel. The vlatility parameter which is required when using the abve mdel is assumed in the frm f the s-called implied vlatility parameter which ensures cnsistency f the price btained with the actual market price. Shares and minrity hldings are recgnized at their purchase price taking int cnsideratin relevant writedwns fr impairment lss. Shares in the Bank s subsidiary, i.e. Frtis Securities Plska SA are measured using the equity methd. The results f the measurement f the shares f Frtis Securities Plska SA are recgnized in the fllwing: Revaluatin reserve fund, in the part resulting frm mvements in wn equity f the unit in which the investment was made and which were nt recgnized in the prfit and lss accunt, Prfit and lss accunt, with regard t the remaining part. Valuatin f in-built derivative instruments Ordinance f the Finance Minister f February 23, 2004 regarding the detailed recgnitin rules, measurement methd, scpe f disclsure and manner f presentatin f financial instruments (Dz.U. (Jurnal f Laws) N. 31, item 266) in Sub-Paragraph 1a in Paragraph 10 prvides fr specific cases f a clse cnnectin between the nature f an in-built derivative instrument and risk inherent in such instrument and the nature f the respective agreement and risks arising frm that agreement. The existence f a clse relatin between an in-built derivative instrument and the respective agreement releases the given unit frm the bligatin t separately recgnize and measure an in-built instrument in its accunting bks. Lease agreements cncluded by Frtis Bank Plska S.A. where a payment is denminated in a freign currency meet the cnditins set ut in Paragraph 10, Sub-Paragraph 1a f the said Ordinance. As a result, the Bank has nt recgnized and measured separately in-built derivative instruments arising frm such agreements in its financial statements fr c) Rules f entering int accunting bks financial instruments purchased frm the regulated market. The Bank acquires derivative instruments - futures cntracts frm the regulated market. FX futures cntracts are standardized stck exchange cntracts fr freign currency exchange. The essence f a cntract is a daily stck exchange market valuatin and related cash flws. The cntracts may be settled thrugh a physical delivery f currencies r thugh transferring the difference between the cntract rate f exchange and the final settlement price. Futures cntracts are measured daily in market value. The daily measurement is recgnized as either csts r incme n financial transactins, respectively. d) Infrmatin n interest rate risk In 2005, the Bank pursued a plicy f matching average interest rate re-pricing perids f USD, EUR and CHF assets and liabilities, which are re-priced in ne-, three- and six-mnth perids. The Bank has renewed the maturing prtin f its securities prtfli and lengthened the average duratin f the prtfli by selling securities with shrt maturity fr lnger psitins. Detailed infrmatin n the actual interest rate risk is presented in item heref. e) Infrmatin n credit risk The Bank s credit activity fcuses n the service f small and medium-sized enterprises. The majrity f lans are granted t entities perating in trade, services and prductin and als t private individuals. The table belw presents credit risk in sectrs in which the Bank s expsure exceeds 5% f the ttal vlume f lans granted by the Bank. In the item Nn-perfrming lans, receivables are reprted that are classified by the Bank as: - watch, - substandard, - dubtful, - lst, with the specificatin f the lst items. Credit risk in sectrs December 31, 2004 Securities and Exchange Cmmissin 8

9 where the Bank s ttal lans Including nnperfrming lans expsure exceeds 5% f the ttal lans granted by the Bank In PLN thusand % f ttal lans In PLN thusand % f ttal lans In PLN thusand Ttal lans % f ttal lans Including nnperfrming lans In PLN thusand % f ttal lans Private individuals 783, % 31, % 473, % 18, % f which lst 16, % 14, % whlesale 710, % 62, % 543, % 73, % f which lst 40, % 56, % Other services 454, % 62, % 410, % 77, % f which lst 25, % 26, % Other prductin 322, % 20, % 156, % 20, % f which lst 16, % 16, % Prductin f fd and beverages 260, % 15, % 160, % 7, % f which lst 5, % 6, % Financial assets that are measured t amrtized csts. Credit expsures are measured at amrtized cst using effective interest rate and taking int accunt the rules f creating prvisins fr risk related t banking activity. Credits and lans, fr which were fixed terms and amunts f future cash flws (schedule f credit repayments), are under measurement t amrtized cst with effective interest rate. Specific prvisins built under the Ordinance f the Finance Minister dated December 10, 2003 regarding the rules f creating prvisins fr risk related t banking activity (Jurnal f Laws N. 218 item 2147). The required prvisins are created at the end f each reprting perid. Prvisins fr receivables denminated in freign currencies are translated int Plish zltys. When classifying credit expsures int risk categries, the Bank applies tw independent criteria: timeliness f a lan principal and/r interest repayment, financial standing f the debtr. Fllwing the regulatins n creating specific prvisins fr risk related t banking activity, when classifying credit expsures int risk categries, the Bank can take int accunt the type f cllateral which secures such expsures. Detailed criteria f credit expsure classificatin and reclassificatin are defined by separate internal regulatins. Specific prvisins are created with regard t credit expsures classified int the fllwing risk categries: perfrming with regard t credit expsures arising frm retail lans and credit facilities; watch categry; nn-perfrming including expsures classified int substandard, dubtful r lst categries. Fr irrevcable ff-balance-sheet receivables bearing the nn-perfrming custmer risk, specific prvisins are made in cmpliance with the binding regulatins. Liabilities which are neither held fr trading nr are derivatives are measured in the amunt f the payment required Assets and liabilities that are nt measured t fair value. Assets available fr sale and held fr trading as well as liabilities held fr trading are measured t fair value. Cnsidering that there is n active trading market fr NBP bnds held in the held-fr-trading prtfli and their immaterial impact, the bnds are measured using the amrtized cst methd. As at, the value f such securities ttaled PLN 26,277 thusand. Shares and interest in subsidiaries are measured using the equity methd. Other shares and interest recgnized in fixed assets are measured at their purchase price, taking int accunt write-dwns fr impairment lss In 2005, the Bank was nt a party t any agreement under which financial assets are transfrmed int securities r repurchase agreement Data regarding the effects f measurement f available-fr-sale financial assets t fair value: Securities and Exchange Cmmissin 9

10 As at the available-fr-sale securities were measured t market value. The measurement value was recgnized in the Bank s balance sheet statement in the Revaluatin Reserve item. The measurement results are presented in the Table belw: Measurement f shares December 31, 2004 Treasury bills (5) 286 Treasury bnds 2,101 (765) TOTAL 2,096 (479) Table presenting changes in the financial instrument revaluatin reserve specifying the balance at the beginning and at the end f the reprting perid and its increases and decreases. January 1 - January 1 - December 31, Revaluatin reserve at the beginning f the reprting perid (674) (7,853) a) frm available-fr-sale securities measurement (388) (6,938) b) frm the measurement f shares in a subsidiary (286) (915) 1.1. Revaluatin reserve changes 2,579 7,179 a) increase (n accunt f) 10,275 22,117 - available-fr-sale securities measurement 9,136 20,172 - measurement f shares in a subsidiary 1,139 1,945 b) decrease (n accunt f) (7,696) (14,938) - available-fr sale securities measurement (7,050) (13,622) - measurement f shares in a subsidiary (646) (1,316) 2. Revaluatin reserve at the end f the reprting perid 1,905 (674) a) including: frm available-fr-sale securities measurement 1,698 (388) d) measurement f shares in a subsidiary 207 (286) Infrmatin abut incme and cst frm financial assets available fr sale, which were remved (sld, liquidated) frm the balance sheet statement: In 2005, Frtis Bank Plska SA sld the fllwing securities frm the prtfli f assets available fr sale: - Treasury bills f the ttal nminal value amunting t PLN 31,000 thusand: The Bank incurred lss n the abve transactins in the amunt f PLN 20 thusand, while the sld discunt amunted t PLN 1,479 thusand; - Treasury bnds f the ttal nminal value amunting t PLN 40,000 thusand: The Bank incurred lss n the abve transactins in the amunt f PLN 339 thusand, while the sld premium/discunt amunted t PLN 421 thusand; Infrmatin abut incme and expenses n accunt f financial assets sld whse fair value culd nt be reliably measured befre, with the indicatin f the balance sheet value f the assets determined as at the sale date. In 2005, the Bank did nt generate any incme r incur any expenses n the abve accunt In 2005, n financial assets measured at fair value were reclassified int assets measured at the adjusted cst f acquisitin In 2005, there was a change in the value f subsidiary s shares held by the Bank. The measurement value increase at the end f the half amunted t PLN 2,778 thusand. The change f the value was recgnized in Nte N. 7B t the balance sheet statement Revenues n accunt f interest n lans granted and wn receivables are presented in the table belw: Securities and Exchange Cmmissin 10

11 Data fr the perid starting January 1, 2005 ending Interest accrued Interest received Data fr the perid starting January 1, 2004 ending December 31, 2004 Interest accrued Interest received Interbank placements , ,692 Interest n bligatry reserve and nstr accunt with NBP 165 2, Credits 22, ,047 15, ,948 interest n bnds recgnized as lans and receivables interest n receivables related t dcumentary transactins 7,223 1,541 2,191 7,571 Receivables purchased Guarantees paid 14 5 Purchase f securities transactins 30 TOTAL 30, ,141 18, ,940 The Bank s recrds des nt shw interest brken by maturity Deferred interest incme: December 31, 2004 Interest capitalized Deferred interest incme n receivables purchased 29 Deferred interest incme n guarantees paid 5,332 4,713 Deferred interest incme n lans 102,576 97,381 TOTAL 107, , Interest expense due t financial, nn-financial and the State budget sectrs, brken by paid and accrued are presented in the Table belw: Data fr the perid starting Jan. 1, 2005 ending Data fr the perid starting Jan. 1, 2004 ending December 31, 2004 Interest accrued Interest paid Interest accrued Interest paid Current accunts , ,216 Interbank depsits ,087 1,501 14,916 Term depsits 4,452 54,187 4,117 40,197 Blcked depsits ,101 6,656 Credit facilities and lans received 2,799 20,370 3,406 18,699 insurance plicies 1,022 4,356 1, Interest n hedging transactins 1,094 8,641 Ttal 9, ,324 11, , Infrmatin abut underlying instruments Within its peratins, the Bank makes derivative transactins. The transactins are effected fr cmmercial purpses and t manage the currency risk and interest rate risk. Derivative transactins are als ffered t custmers. Derivative instruments IRS cntracts cnsist in an exchange f interest payments based n a variable market interest rate fr interest accrued at a fixed interest rate agreed upn in the cntract. They are measured by discunted cash flw mdel based n the market yield curve. The purpse f the cntract is t hedge against interest rate risk. FX frward - cnsists in a purchase / sale f a specific currency at a predetermined date in the future at the exchange rate agreed n the transactin date. It is measured by cmparisn f the transactin FX rate with the Securities and Exchange Cmmissin

12 market rate fr similar transactins. The purpse f the cntract is t hedge against FX rate risk and maintain liquidity. Instrument FX swap - cnsists in the purchase r sale f a specific currency at a spt exchange rate and a simultaneus sale r purchase f the same amunt f the currency at a frward rate agreed at the transactin date, hwever the transactins may be cncluded as a cmbinatin f a transactin with the value date equal t the transactin date and the simultaneus reverse transactin fr the value date f the fllwing day. It is measured by cmparisn f the transactin FX rate with the market rate fr similar transactins. The purpse f the cntract is t regulate liquidity and hedge against FX rate risk f the Bank s currency lan prtfli. FX Futures cnsist in a purchase / sale f freign currencies at the exchange rate agreed at the mment f cncluding the transactin at the Warsaw Cmmdity Exchange (Warszawska Giełda Twarwa S.A.). The cntracts are standardized in terms f amunts and maturity. They are measured at a market rate prvided by the Warsaw Cmmdity Exchange. Simultaneusly, cash flws resulting frm the futures measurement (marking t market) are made n a daily basis. The purpse f the cntract is t hedge against FX rate risk. Interest rate ptins cnsist in a purchase f a right t receive the settlement amunt in exchange fr a premium paid/received. Depending n the ptin type (cap/flr), the cunterparty receives n a specified settlement day the settlement amunt resulting frm the difference between the predetermined transactin rate and the reference rate. It is measured based n a mdified Black-Schles mdel. The purpse f the transactin is t hedge against interest rate risk and t maintain liquidity. FX ptins cnsist in a purchase f a right, but nt the bligatin, t buy/sell a freign currency at the frward FX rate established n the transactin cnclusin date in exchange fr a premium paid/received. It is measured based n the Black-Schles mdel. The purpse f the transactin is t hedge against FX risk and t maintain liquidity FRA cnsists in an agreement between the parties t the transactin upn a fixed interest rate fr a specific value f depsit. On the day f the transactin settlement, the buyer f FRA cntract shall pay the settlement amunt t the seller if the reference rate n the date f effecting the transactin was lwer than the transactin rate. At the same time the seller f the instrument shall pay the buyer, n the transactin settlement date the settlement amunt when the reference rate is higher than the transactin rate. FRA is usually cncluded fr the term up t 1 year and it allws, n ne hand, t hedge against the grwing interest rate (FRA purchase), and n the ther t hedge assets against interest rate decrease (FRA sale). The instrument is measured by the discunted cash flws mdel based n the market yield curve. Securities frward - cnsists in a sale / purchase f securities at a predetermined date in the future at the price agreed n the transactin date. It is measured by discunted cash flw mdel based n the market yield curve. The instrument is held fr trading. Derivative instruments prfile as at () Number f nt matured transactins Future revenue / payments Pssibility f exchange int r Maturity substitutin by anther asset/ liability Hedging instruments against interest rate risk Agreed rates/ amunts f incme and payment dates Other cnditins IRS 1 variable n variable n FX frward 989 variable FX swap 20 variable Optins 802 variable IRS 16 variable FX instruments held fr trading n variable n n variable n Interest rate instruments held fr trading Risk type Interest rate, liquidity and cunterparty risks FX, liquidity, and cunterparty FX, liquidity and cunterparty n variable n FX n variable n Optins 2 variable n variable n FRA CIRS 13 6 variable n variable variable n variable Derivative instruments prfile as at December 31, 2004 Interest rate, liquidity, cunterparty Interest rate, liquidity, cunterparty Interest rate Securities and Exchange Cmmissin 12 n n Interest rate, FX

13 Instrument Number f nt matured transactins Future revenue / payments Pssibility f exchange r maturity substitutin by anther asset/ liability Hedging instruments against interest rate risk Agreed rates/ amunts f incme and payment dates Other cnditins IRS 1 variable n variable n FX frward 564 variable FX swap 9 variable Optins 366 variable IRS 16 variable FX instruments held fr trading Optins 2 variable FRA 5 variable n variable n n variable n Interest rate instruments held fr trading Risk type Interest rate, liquidity and cunterparty risks FX, liquidity, cunterparty FX, liquidity, cunterparty n variable n FX n variable n n variable n n variable n interest rate, liquidity, cunterparty interest rate, liquidity, cunterparty interest rate As at and December 31, 2004, the derivative instruments that had nt yet matured were the fllwing: Initial maturity date f interest-rate risk hedging instruments at nminal value, As at: Instrument type/ maturity IRS 1 t 5 years 150, ,000 - banks 150, ,000 Ttal 150, ,000 Initial maturity f FX speculative instruments at nminal value, As at: December 31, 2004 Instrument type/ FX FX FX FX maturity frward FX swap Optins Ttal frward FX swap ptins Ttal Up t 3 mnths 711, ,354 56,150 1,651, ,586 1,403, ,796 2,001,641 - banks 883,354 28, ,440 1,976 1,403,259 81,398 1,486,633 - ther 711,989 28, , ,610 81, ,008 3 mnths up t 1 year 589, ,137 1,356,073 2,242, , , ,146 - banks 297, , , , ,963 - ther 589, ,615 1,269, , , ,183 1 t 5 years 44,577 97,081 36, ,282 17,045 23,496 40,541 - banks 97,081 18, ,398 11,748 11,748 - ther 44,577 18,307 62,884 17,045 11,748 28,793 Ttal 1,345,593 1,277,572 1,448,847 4,072, ,851 1,403, ,218 2,607,328 Initial maturity f interest-rate instruments held fr trading at nminal value, As at: December 31, 2004 Instrument type / maturity IRS CIRS FRA Optins ttal IRS FRA ptins ttal Up t 3 mnths 515, ,000 - banks 515, ,000 - ther Securities and Exchange Cmmissin 13

14 3 mnths t 1 year 469, ,568 75,000 11,200 86,200 - banks 469, ,568 75,000 5,600 86,200 - ther 5,600 5,600 1 t 5 years 68,299 3,860 72, ,000 45, ,000 - banks 34,000 1,930 35, ,000 45, ,000 - ther 34,299 1,930 36,229 Abve 5 years 428, ,860 - banks 389, ,430 - ther 39,430 39,430 Ttal 428,860 68, ,568 3,860 1,485, , ,000 11, ,200 Derivative transactins are cncluded by the Bank at market prices binding n transactin dates. The table belw presents valuatin f nt matured derivatives as at and December 31, 2004: Instrument type () Psitive market value December 31, 2004 () () Negative market value December 31, 2004 () Banks Other Banks Other Banks Other Banks Other Interest-Rate Risk Hedging Instruments IRS 6,903 1,947 FX instruments held fr trading - FX frward 10,301 18,188 10, ,637 - FX swap 8,987 5,310 2, FX ptins 6,375 13,325 3,717 1,548 13,325 6,375 1,534 3,731 Ttal 15,362 23,626 9,027 19,736 15,398 16,431 2,308 29,368 Interest rate instruments held fr trading - IRS 4,731 2,399 3, ,762 - ptins CIRS FRA Ttal 5, , , ,926 In additin t the abve, the Table belw shws balance sheet equivalents f derivative instruments calculated in accrdance with the rules prvided fr under Reslutin N. 4/2004 f the Banking Supervisin Cmmissin dated September 8, 2004 regarding the scpe and detailed rules f determinatin f capital requirements n accunt f specific risk types [ ], rules f cmputing a capital adequacy rati f a bank [ ]. (Official Jurnal f the NBP N. 15, item 25). The balance sheet equivalent is understd as the sum f replacement cst r the expected future lss. Balance sheet equivalent () Instrument As at As at December 31, 2004 type Banks Other Banks Other Interest Rate Risk Hedging Instruments IRS 750 FX instruments held fr trading FX frward , ,162 FX swap 12,929 1,502 ptins 7,655 15, Ttal 20,955 34,883 1,856 11,573 Interest rate instruments held fr trading IRS 10,775 1,304 1,857 ptins 3 FRA Ttal 10,966 1,304 1, Risk management bjectives and rules Securities and Exchange Cmmissin 14

15 Liquidity risk The Bank defines liquidity risk as the risk f lsing the Bank s ability t: a) settle its payment bligatins timely, b) acquire funds alternative t the funds currently held, c) generate psitive cash flw balance within a specified time hrizn. One f the main factrs generating the liquidity risk is liquidity management prcess defects. Negative cnsequences f such defects may vary; therefre, it is difficult t anticipate and cntrl them when they ccur. The Bank s strategy cnsists in ensuring high quality standards fr the liquidity management prcesses. Under the strategy, steps twards quality imprvement f the liquidity management prcesses have been assigned the tp pririty at the Bank. The Bank perates in a market and ecnmic envirnment which is subject t the free market rules. Such psitining ensures multiple pprtunities t regulate the liquidity level; hwever this als makes the Bank susceptible t envirnment crises, if any. The Bank s strategy is t ensure that the Bank s dependence n market cnditins is limited t such an extent that in a market crisis the Bank will be able t keep its liquidity fr three mnths, withut limiting the range f services r initiating changes in the cre business. In the event f a market crisis lasting fr a lnger perid, the Bank s strategy prvides that liquidity is sustained, hwever, the previus develpment directin might be changed in this situatin and the Bank wuld allw fr cstly changes in the business prfile. A separate categry f liquidity risk generating factrs includes unfavrable events relating t the Bank; much talk abut such events in mass media may result in a negative respnse f the market envirnment. As an immediate cnsequence f such events, ther banks may dramatically restrict credit line availability t the Bank, likewise custmers are likely t panic and withdraw their depsits. The Bank s strategy is t minimize, in an active way, the prspect fr the ccurrence f unfavrable events fr the Bank. Since, hwever, the prbability that such factrs ccur may nt be cmpletely eliminated, the Bank s strategy cnsists als in ensuring that, shuld such factrs ccur, the Bank will sustain its financial liquidity at minimum wn csts (measurable and immeasurable) and take efficient steps t regain the cnfidence f custmers and financial institutins as sn as pssible. Currency risk The Bank s strategy cnsists in ensuring high quality standards fr the currency risk management prcesses. Under the strategy, actins twards quality imprvement f the currency risk management prcesses have been assigned high pririty at the Bank. The Bank s strategy with respect t expsures t market currency risk cnsists in the Bank s making peratins resulting in assuming currency psitins sensitive t market FX rate changes in rder t generate a psitive financial result. Mrever, the level f the Bank s expsure t the market currency risk is at all times limited by a ceiling in such a way as t be able t ensure with high prbability that: in a situatin f an rdinary (nt emergency) market vlatility, n any day f a calendar year: - the annual cumulated financial prfit/lss (generated n accunt f the Bank s expsure t the currency risk), des nt reach a lss exceeding the duble prfit planned fr this year (n accunt f the Bank s expsure t the currency risk), in a situatin f a market crisis, n any day f a calendar year: - the annual cumulated financial prfit/lss (generated n accunt f the Bank s expsure t the currency risk), des nt reach a lss exceeding 10% f the capital. The applied FX risk mnitring methdlgy is cmpliant with the Banking Supervisin Cmmissin s recmmendatins and, in additin t checking standard risk parameters, the Bank makes simulatins f FX rate shck changes. The manner f analyzing FX risk is in line with Frtis standards. The aim f the plicy f separating business frm peratinal functins and risk cntrl is t ensure that the quality f FX risk level cntrl will nt deterirate as a result f any internal cnflict f interest and that any cntrl results shwing an excessive FX risk level will trigger ff an apprpriate respnse f the Bank s Management. Securities and Exchange Cmmissin 15

16 Interest rate risk The Bank s strategy cnsists in ensuring high quality standards fr the interest rate risk management prcesses. Under the strategy, actins twards quality imprvement f the interest rate risk management prcesses have been assigned high pririty at the Bank. The Bank s strategy with respect t expsures t market interest rate risk cnsists in the Bank s making peratins resulting in assuming pen interest rate risk psitins in rder t generate a psitive financial result. Mrever, the level f the Bank s expsure t the market interest rate risk is at all times limited with a ceiling in such a way as t be able t ensure with high prbability that: in a situatin f an rdinary (nt emergency) market vlatility, n any day f a calendar year: - the cumulated financial prfit/lss 1 amunt (generated n accunt f transactins subject t the expsure t the market interest rate risk), tgether with the cumulated change f the capital value 2, des nt reach a negative value exceeding the prfit planned fr this year (n accunt f transactins subject t the expsure t the market interest rate risk), in a situatin f a market crisis, n any day f a calendar year: - the amunt f accumulated financial result (achieved frm peratins subject t the expsure t a market interest rate risk) alng with the accumulated capital value change, will nt have a negative value exceeding 10% capital. The applied interest rate risk mnitring methdlgy is cmpliant with the Banking Supervisin Cmmissin s recmmendatins and Frtis standards. The aim f the plicy f separating business frm peratinal functins and risk cntrl is t ensure that the quality f interest rate risk level cntrl will nt deterirate as a result f any internal cnflict f interest and that any cntrl results shwing an excessive interest rate risk level will trigger ff an apprpriate respnse f the Bank s Management. Operatinal Risk Fr the needs f the peratinal risk management, Frtis Bank Plska SA has adpted a risk definitin prpsed by the Basel Cmmittee n Banking Supervisin: The peratinal risk is the risk f direct r indirect lss resulting frm inadequate r failed internal prcesses, peple and systems r frm external events. Fr the needs f peratinal risk mnitring and the future capital requirement determinatin n accunt f this risk, the peratinal risk includes als legal risk. The Bank s strategy cnsists in implementing and maintaining high quality standards fr the peratinal risk management t guarantee that custmer depsits and the equity are secure and the Bank s financial result is stable. Under the Bank s peratinal risk management strategy, bjectives are defined with respect t: - quality f peratinal risk management, - the manner in which the Bank is adjusted t the New Capital Accrd requirements and the legal requirements resulting frm Recmmendatin M issued by the Banking Supervisin Cmmissin. The peratinal risk is a fundamental risk, which due t its cmplexity is characteristic f any rganizatin, including banks. Frtis Bank Plska SA has established a special rganizatinal divisin, cnstituting an integral part f the Risk Management Department, respnsible fr n-ging peratinal risk analysis, develpment and imprvement f adequate risk cntrl techniques in the Bank. The Bank s Bard f Executives makes a peridic assessment f hw the Bank peratinal risk management strategy assumptins are executed. With this end in view, the Bank s Bard f Executives is kept infrmed n an n-ging basis n the scale and the types f peratinal risk the Bank is expsed t, and als its cnsequences and peratinal risk management methds. The Bank s peratinal risk mnitring systems use databases that cntain infrmatin n peratinal lsses incurred. The databases that recrd peratinal lsses have been used in analyzing peratinal risk and mitigating this risk in the Bank. The Bank is particularly cmmitted t reducing peratinal risk by imprving internal prcesses and t limiting peratinal risk related t launching new prducts and services. Frtis Bank Plska SA has als adpted a special Business Cntinuity Plan, cvering all the Bank s key business functins. 1 That is, the amunt summed frm the beginning f the calendar year t a given day f the calendar year. 2 the cumulated changed f the capital value, understd as the cumulated change f the fair value f financial instruments (riginated as a result f interest rate change), the measurement f which, under the binding accunting law, is recgnized in the Bank s capital. Securities and Exchange Cmmissin 16

17 Credit Risk Credit risk is assessed n the basis f the Bank s internal standards, taking int accunt credit regulatins in frce in the cuntry and als standards binding in the Frtis Bank grup. The Bank s credit decisin-taking mdel is based n the fllwing criteria: ttal credit expsure f the Bank twards a business entity/grup f entities affiliated by capital r management, Business Line t which a custmer belngs, internal rating and risk categry. In the credit prcess, custmer acquisitin, sales f credit prducts and credit risk assessment functins are separated in the rganizatin. While custmer acquisitin and sales f prducts are tasks perfrmed by business lines (Retail Banking and Cmmercial Banking), risk assessment is ensured by the Credits functin. Mnitring is carried ut n the basis f internal prcedures f the Bank that take int accunt the fllwing: - prvisins issued by the Ministry f Finance n December 10, 2003 regarding creatin f prvisins related t banking activity, - brrwer risk classificatin system applied in the Frtis Bank grup, - Frtis Masterscale internal rating system implemented under preparatins t the New Capital Accrd requirements. Fr mnitring purpses the Bank uses a Mnitring Card IT applicatin t ensure efficiency, cmpleteness and unifrm standard fr peridic review f credit prtfli. Risk is mitigated and hedged by applying the fllwing rules: - t grant entities a financing crrespnding t their creditwrthiness assessed and risk level; - t limit sectr expsure; - t establish legal cllateral fr lan repayment; - t measure the value f cllateral in real terms; - t establish individual strategies (curse f actins) twards debtrs with large credit expsure invlving an increased risk; - t create and plan specific prvisins fr existing and frecast credit expsures invlving an increased risk; - t mnitr the credit prtfli Infrmatin n applied hedge accunting rules brken dwn by fair value hedging, cash flw hedging and hedging investments in a freign entity a) The Bank applies hedge accunting t a limited extent. Out f the existing three types f hedging relatins, i.e. fair value hedging, cash flw hedging and net investment hedging, the Bank applies nly the fair value hedging. b) T hedge interest rate risk f purchased interest-bearing bnds f Credit Suisse First Bstn, Singapre branch an IRS cntract was cncluded in the nminal value f PLN 150,000 thusand. The bnds measurement adjustment t fair value was f PLN 6,765 thusand, the cupn accrued equalled PLN 1,093 thusand, the premium t be settled amunted t PLN 1,011 thusand. Fr the abve transactin, the Bank applies hedge accunting rules. Interest rate based hedging transactins were measured by the Bank t fair value. Adjustments t fair value were recgnized in the prfit and lss statement f the Bank. c) The Bank applies hedge accunting with respect t hedging against the risk f fair value changes as a result f interest rate alteratins. The fair value is hedged t limit a risk that fair value changes resulting frm a specific risk related t financial assets and liabilities r a specific part theref entered int accunting bks may affect the financial result. d) The Bank started t apply hedge accunting in the secnd half f At present the Bank des nt intend t enter int any transactins that will be hedged The Bank des nt generate any prfit r incur any lsses n accunt f the measurement f the IRS hedging instrument t the Revaluatin Reserve (Fund) Infrmatin n interest rate risk expsure Frtis Bank Plska S.A. applies the methdlgy f Value-at-Risk (VAR), sensitivity f the whle investment prtfli t parallel shift f interest rates and Basis-Pint-Sensitivity (BPS) at any pint f the curve. VAR stands fr the amunt f lss at a given psitin whse level wuld likely nt be exceeded within the next tw mnths (99% level Securities and Exchange Cmmissin 17

18 f cnfidence). The BPS methdlgy enables t estimate the whle prtfli valuatin sensitivity t changes at specific pints f interest rate curves by 1 basis pint (0.01%). At the end f 2005, Frtis Bank Plska S.A. interest rate change risk was the fllwing: VaR (2-mnth, ttal) PLN 12.5 millin which accunts fr 95% f the VaR limit. This value results mainly frm the structure f securities purchased t the ALM prtfli in Taking int accunt the current structure f the Bank s assets and liabilities, the risk f exceeding the abve limit is small. Bp sensitivity (+1bp), data in : AUD CAD CHF CZK DKK EUR GBP JPY NOK PLN SEK USD Ttal D7 1 1 M M M M M M M M M9 1 1 M10 - M M Y Y Y Y Y Y Y Y9 1 1 Y Ttal Sensitivity (+100bp), data in : AUD - CAD -1 CHF -213 CZK - DKK 0.5 EUR 28 GBP 47 HUF - JPY 10 NOK - Securities and Exchange Cmmissin 18

19 PLN -9,983.5 SEK - USD 627 Ttal -9,485 The basis-pint-sensitivity analysis value shws a lw interest rate risk in freign currencies and a mderate risk in PLN. As far as the Plish currency is cncerned, the interest rate risk expsure riginates mainly frm securities held within the ALM prtfli and therefre market interest rate risk changes affect the results t a little extent. 5. Data regarding cntracts cncluded fr subscriptin ptins r rdinary share sales In 2005, the Bank did nt cnclude any cntracts fr either subscriptin ptins r rdinary share sales. 6. Detailed infrmatin n assets that cnstitute cllateral fr wn cmmitments and cmmitments f a third party, and als n the value f cmmitments cllateralized by these assets. As at, the fllwing assets f Frtis Bank Plska SA cnstituted cllateral fr cmmitments: Treasury bills f the nminal value f PLN 3,920 thusand that cllateralize the Guaranteed Means Prtectin Fund under the Bank Guarantee Fund. As at the value f funds cvered by the guarantee system accumulated in the Bank amunted t PLN 3,099,367 thusand. 7. Infrmatin regarding rep transactins nt recrded in the balance sheet statement. As at the balance sheet date, the Bank recrded n repurchase agreements. 8. Infrmatin abut credit facilities granted, including irrevcable cmmitments. The Table belw presents ff-balance sheet financial cmmitments granted, brken by types f entities and prducts: entity/prduct - credit lines in lan accunts - verdraft facilities in current accunts - pen VISA limits - pen VISA limits - imprt Letters f Credit Off-balance sheet financial cmmitments () December 31, 2004 State State financial nn-financial budget Ttal financial nn-financial budget entities entities sectr entities entities sectr Ttal 163, , ,937 21, , , , ,999 1, ,250 10, , , , , ,136 34,961 34, ,895 99,495 1,938 79,886 81,824 - Framewrk Financing Agreements 230, , , ,025 Ttal 164,358 1,801, ,966,069 25,213 1,262,036 11,045 1,298,294 The table belw shws unused credit lines brken dwn by an entity type and maturity: entity / maturity December 31, 2004 up t 1 year 1 year r lnger up t 1 year 1 year r lnger financial entities 120,558 42,570 21,596 nn-financial entities 687, , ,356 44,617 budget units 223 Ttal 807, , ,579 66,213 Securities and Exchange Cmmissin 19