Fortis Bank Polska SA SAB R 2003 ADDITIONAL NOTES

Transcription

1 Frtis Bank Plska SA SAB R 2003 ADDITIONAL NOTES 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 PLN thusand PLN thusand Whlesale Private individuals Cnstructin services Mtr vehicles Prductin f fd and beverages Other prductin Municipal and husing services Timber and wden gds Retail trade in grceries Retail trade in industrial gds Prductin f metal gds Pwer plants, gaswrks and waterwrks Ecnmic building industry Nn-banking financial services Land transprt Print shps and publishers Trade in means f transprt Furniture and accessries Rubber and plastic prducts Paper and statinery Htels and mtels Other chemical prducts Develper services Other services Other sectrs Ttal 555, , , , , , , , ,215 95, ,325 93, , ,967 90,075 26,480 88,699 14,197 81,683 85,289 77,167 51,259 51,479 58,594 50,577 21,933 49,717 44,354 46,073 32,251 39,589 29,695 31,281 15,539 31,252 14,537 25,778 19,009 25,288 12,992 25,262 3,425 23,001 13,116 21, , , ,560 76,968 3,341,323 2,281, Data n the Bank s expsure by the main gegraphical regins f Pland are presented in the table belw. Interest is nt included. Securities and Exchange Cmmissin 53

2 Frtis Bank Plska SA SAB R 2003 Gegraphical regins f Pland Grss lans as at PLN in thusands Grss lans as at PLN in thusands - Eastern Regin 1,876,290 1,320,616 - Małplska Regin 433, ,366 - Western Regin 427, ,862 - Silesia Regin 325, ,577 - Nrthern Regin 279, ,238 TOTAL 3,341,323 2,281,659 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 Ople, - the Eastern Regin cmprises the fllwing prvinces: Mazvia, Lublin, Łdz, 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 are presented in the Table belw. Interest is nt included. Entity type Grss lans as at PLN in thusands Grss lans as at PLN in thusands Financial sectr 49,465 46,116 - insurance institutins and pensin funds ther financial intermediaries 48,717 45,742 - auxiliary financial institutins Nn-financial sectr 3,291,770 2,234,243 - State-wned enterprises and cmpanies 94,446 65,719 - private enterprises and cmpanies and cperatives 2,457,492 1,646,148 - individual entrepreneurs 269, ,724 - individuals 451, ,984 - individual farmers nn-cmmercial institutins perating in favr f husehlds - settlements with nn-financial entities n accunt f VISA card settlements 5,833 8,215 11,507 10,520 The budget sectr 88 1,300 - lcal budgetary units 88 1,300 TOTAL 3,341,323 2,281,659 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. Securities and Exchange Cmmissin 54

3 Frtis Bank Plska SA SAB R Data regarding the Bank s expsure t specific custmers and capital grups As at the end f 2003, the Bank did nt exceed the maximum expsure limit determined in the Banking Law with respect t any custmer r capital grup. As regards nine (9) custmers, the Bank s expsure exceeded 10% f equity and ttaled PLN 599 millin, as cmpared t when in relatin t five (5) custmers the Bank s expsure exceeded 10% f its equity and ttaled PLN 308 millin. 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. Gegraphical regins f Pland Depsits as at Depsits as at PLN in thusands PLN in thusands - Eastern Regin 959, ,509, - Małplska Regin 706, ,696 - Western Regin 298, ,100 - Silesia Regin 289, ,933 - Nrthern Regin 265, ,035 TOTAL 2,519,722 2,310, Infrmatin regarding fund acquisitin by the Bank frm specific industry sectrs is presented in the Table belw. Interest is nt included. Sectrs f the ecnmy Depsits as at December 31, 2003 PLN thusand Depsits as at December 31, 2002 PLN thusand Private individuals 1,333,358 1,361,577 Other services 345, ,134 Whlesale 171, ,943 Cnstructin services 84,805 64,808 Prductin f metal gds 54,983 44,237 Other prductin 53,247 34,606 Retail trade in industrial gds 48,877 33,076 Land transprt 45,137 20,166 Legal and ecnmic services 41,958 24,228 Prductin f fd and beverages 37,200 32,324 Science and technlgy services 28,372 23,277 Municipal and husing services 23,343 18,166 Timber and wden gds 21,633 5,114 Scial insurance 20,268 1,529 Htels and mtels 16,907 7,289 Mtr vehicles 16,430 12,398 Electric prducts 15,937 7,616 Nn-banking financial services 14,519 18,008 Securities and Exchange Cmmissin 55

4 Frtis Bank Plska SA SAB R 2003 Husing building industry 13,052 11,524 Pwer plants, gaswrks and waterwrks 11,605 4,546 Publishing services 11,323 29,923 Other sectrs 109, ,784 Ttal 2,519,722 2,310,273 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 specificity 4.1. Financial assets and liabilities - 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, - Financial assets held t maturity financial assets fr which cntracts prvide the date f nminal value payments and determine the right t receive ecnmic gains at specific dates such as the interest rate in the amunt fixed r pssible t determine, prvided that the Bank intends and is able t hld these assets t maturity, except fr lans granted by the bank and its wn receivables; - Financial assets available fr sale ther financial assets that are nt lans granted by the bank r the bank s wn receivables; - Credits and lans granted by the Bank and wn receivables nt held fr trading - 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), ther wn receivables and debt securities that are nt classified int the held-fr-trading, held-t-maturity r available-fr-sale categries. - Other financial liabilities - liabilities riginated as a result f the measurement f derivative instruments t fair value. 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 in PLN thusand in PLN thusand Opening balance 155,620 12,673 Increases (n accunt f) 1,459, ,568 - purchase 1,457, ,937 - measurement f financial instruments interest 1,431 Decreases (n accunt f) (1,473,159) (106,621) - sale (1,467,184) (97,364) - measurement f financial instruments (3,289) (9,257) - measurement f securities (706) - discunt (1,980) Ending balance 141, ,620 Securities and Exchange Cmmissin 56

5 Frtis Bank Plska SA SAB R 2003 Lans and credit facilities granted by the Bank and wn receivables nt held fr trading in PLN thusand in PLN thusand Opening balance 2,663,880 3,099,884 Increases 1,252, ,707 - change in net credit balance 1,058,678 94,673 - increase related t the purchase f interest-bearing bnds f Credit Suisse First Bstn Singapre Branch 152,301 - change in net interest accrued balance 17,795 12,666 - change in ther receivables balance 23,972 2,639 - change in specific prvisins balance 78,729 Decreases (303,694) (624,711) - change in specific prvisins balance (4,545) (110,787) - change in net depsit balance frm banks (299,149) (513,924) Ending balance 3,612,932 2,663,880 Financial assets held t maturity in PLN thusand in PLN thusand Opening balance Increases (n accunt f) Decreases (n accunt f) (16 764) (62 176) - redemptin (16 652) - interest (112) (75) - redemptin f participatin units in pen investment funds (62 101) Ending balance Financial assets available fr sale in PLN thusand in PLN thusand Opening balance 510, ,671 Increases (n accunt f) 2,664,340 1,894,017 - purchase 2,662,577 1,890,489 - interest 1,755 3,418 - measurement FX rate differences 8 6 decreases (n accunt f) (2,743,160) (1,631,867) - sale (2,728,978) (1,623,727) - interest (3,660) (6,596) - measurement f securities (10,522) (1,544) Ending balance 432, ,821 Liabilities related t financial instruments in PLN thusand in PLN thusand Securities and Exchange Cmmissin 57

6 Frtis Bank Plska SA SAB R Opening balance - - Increases (n accunt f) 1, interest liability n accunt f derivative instruments 1,093 - Ending balance 1, Infrmatin n financial assets and liabilities brken by categries f financial instruments: a) Financial assets Financial assets held fr trading as at the prtfli f securities held fr trading included Treasury bills in the fair value amunting t PLN 129,577 thusand. In this item, the Bank recgnizes als Treasury bnds whse fair value as at the end f December 2003 amunted t PLN 10,816 thusand. Financial assets held fr trading include als a psitive result f measurement f derivative instruments in the amunt f PLN 1,579 thusand; Financial assets held t maturity the Bank des nt hld any assets f this categry; Financial assets available fr sale - in this item, the Bank recgnizes Treasury securities: bills and bnds. These instruments are t hedge the interest rate risk and utilizatin f liquidity surplus. As at the end f December 2003, their ttal value std at PLN 431,949 thusand. In this item, the Bank recgnizes als its shares in SWIFT in the amunt f PLN 52 thusand; Lans and credit facilities granted by the Bank and wn receivables nt held fr trading in this item, the Bank recgnizes receivables due frm custmers in the amunt f PLN 3,293,117 thusand n accunt f lans granted, decreased by the specific prvisin created and increased by the interest accrued, interbank placements with the interest PLN 143,836 thusand and receivables related t discunting letters f credit and dcumentary transactins PLN 23,678 thusand and interest-bearing bnds f Credit Suisse First Bstn Singapre Branch in the nminal value f PLN 150,000 thusand tgether with the cupn calculated in the amunt f PLN 1,094 thusand, the premium t be settled in the amunt f PLN 1,711 thusand and a adjustment n accunt f hedging the fair value f the interest rate risk in the amunt f PLN (504) thusand. 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 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 fair value and the effects f a change in the fair value are recgnized as net financial result. Debt securities held t maturity are recgnized at their purchase price adjusted fr accrued interest, discunt and premium. Debt securities held t maturity are adjusted fr write-ffs n accunt f an impairment lss. 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, taking int accunt the value date. Between the transactin date and value date, a given security is recrded in ff-balance sheet items in a nminal value, cnsidering the side f the transactin effected. Measurement f derivative instruments 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 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 Securities and Exchange Cmmissin 58

7 Frtis Bank Plska SA SAB R 2003 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. Eurpean ptins sld and purchased are measured at the FX rate t fair value using the Black-Schles mdel in the versin 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. Shares and minrity hldings are recgnized at their purchase price taking int cnsideratin relevant write-ffs n accunt f 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. Amunts receivable and payable n accunt f lans, credit facilities and ther receivables are recgnized at the amunt f required payment, which includes als interest due, taking int cnsideratin specific prvisins built under the Ordinance f the Finance Minister dated December 10, 2001 regarding the rules f creating prvisins fr risk related t banking activity (Jurnal f Laws N 149 item 1672, as amended). The required prvisins are created at the end f each reprting perid. Prvisins fr receivables denminated in freign currencies are translated int Plish zltys tgether with the amunts receivable cvered by the prvisins. Valuatin f in-built derivative instruments Ordinance f the Finance Minister f February 23, 2004, amending the Ordinance regarding the detailed recgnitin rules, valuatin/measurement methd, scpe f disclsure and manner f presentatin f financial instruments (Jurnal f Laws Dz.U. n. 31, item 266), inserted Sub-Paragraph 1a int Paragraph 10, which 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 the accunting year ending. 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 payment flws related. The cntracts may be settled thrugh a physical delivery f currencies r thugh transferring the difference between the cntract FX rate 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 2003, the Bank pursued a plicy f matching average interest rate re-pricing perids f USD and EUR assets and liabilities, which are re-priced in ne, three and six mnth perids. At the same time, the Bank maintained lnger interest rate re-pricing perids f PLN assets versus PLN liabilities, in rder t ensure that interest incme n the Bank s capital invested will remain in 2004 at the current level despite further interest rate cuts expected this year. In rder t achieve lnger interest rate re-pricing perids in PLN assets, the Bank invested its liquidity surplus in State Treasury bnds f fixed interest rate and maturity up t ten years, and Treasury bills. e) Infrmatin n credit risk The Bank s credit activity fcuses n the service f small and medium enterprises. The majrity f lans are Securities and Exchange Cmmissin 59

8 Frtis Bank Plska SA SAB R 2003 granted t entities perating in trade and services ecnmic sectrs. 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-list, - sub-standard, - dubtful, - lst, with the specificatin f the lst items. Credit risk in sectrs where the Bank s expsure exceeds 5% f the ttal lans granted by the Bank Perfrming lans Nn-perfrming lans Perfrming lans Nn-perfrming lans In PLN thusand % f ttal lans In PLN thusand % f ttal lans In PLN thusand % f ttal lans In PLN thusand % f ttal lans Other services 525,393 16% 130,232 4% 439,354 19% 108,877 5% f which lst 29,439 1% 34,141 1% Whlesale trade 455,141 14% 100,305 3% 323,639 14% 78,821 3% f which lst 52,289 2% 50,280 2% Private individuals 427,537 13% 24,442 1% 194,748 9% 16,897 1% f which lst 14,562 0% 12, % Cnstructin services 115,639 3% 68, % 72,931 3% 70, % f which lst 46, % 41, % Mtr vehicles 169,461 5% 7,592 0% 161,197 7% 5,372 0% f which lst 235 0% 551 0% Prductin f fd and beverages 161,390 5% 11,825 0% 80,239 4% 14,832 1% f which lst 7, % 6, % Financial assets that are measured t amrtized csts. Assets available fr sale are measured t fair value. As the fair value f NBP bnds blcked fr the mandatry reserve may nt be measured in a reliable way, the Bank applied the methd f amrtized cst t such items. As f , the value f such securities ttaled PLN thusand. Lans and credit facilities frm financial and nn-financial entities and the State and lcal gvernment institutins are recgnized at the amunt f required payment, which includes als interest due, taking int accunt specific prvisins built under the Ordinance f the Finance Minister dated December 10, 2001 regarding the rules f creating prvisins fr risk related t banking activity (Jurnal f Laws N 149 item 1672, as amended) Assets and liabilities that are nt measured t fair value. The Bank measures t fair value all assets that are s required: held-fr-trading and available-fr-sale assets. Shares in subsidiaries are measured using the equity methd. Other shares recgnized in fixed assets are measured t their purchase price, taking int accunt impairment lss. Fixed assets and intangible assets are measured at the end f each reprting perid at purchase prices less depreciatin charges. Mrever, the Bank als recgnizes revaluatin cnducted in accrdance with applicable regulatins and impairment lss. Other assets and liabilities, including cash and wn equity, are measured t nminal value. Financial liabilities, which are neither held fr trading nr are derivatives are recgnized in the amunt f the payment required, which includes als the interest due. Securities and Exchange Cmmissin 60

9 Frtis Bank Plska SA SAB R In 2003, 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: As at January 1, 2003 and 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 value in PLN thusand January 1, 2003 Treasury bills 1, Treasury bnds 995 (8,569) TOTAL 2,041 (8,481) Infrmatin abut incme and cst frm financial assets available fr trade, which were remved (sld, liquidated) frm the balance sheet statement: In 2003, Frtis Bank Plska SA sld the fllwing securities frm the prtfli f assets available fr sale: - Treasury bills f the nminal value amunting t PLN 113,790 thusand. The Bank earned prfit n the abve transactins in the amunt f PLN 517 thusand, while the discunt sld amunted t PLN 3,527 thusand. In additin t the abve, T-bills in the bk value f PLN 5,032 thusand were transferred frm the available-fr-sale asset prtfli t the held-fr-trading asset prtfli. - The fllwing Treasury bnds in the ttal nminal value f PLN 93,000 thusand: OK0804 ISIN PL , in the nminal value f PLN 40,000 thusand, PS0608 ISIN PL , in the nminal value f PLN 20,000 thusand, OK0805 ISIN PL , in the nminal value f PLN 33,000 thusand, The Bank earned prfit n the abve transactins in the amunt f PLN 560 thusand and the discunt/premium sld amunted t PLN 2,029 thusand. - The NBP cash bills in the nminal value f PLN 400,000 thusand. The Bank incurred lss n the abve transactins in the amunt f PLN 3 thusand, while the discunt sld amunted t PLN 104 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 2003, the Bank did nt generate any incme r incur any expenses n accunt At the end f 2003, n financial assets measured at fair value were reclassified int assets measured at the adjusted cst f acquisitin In 2003, there was a change in the value f subsidiary s shares held by the Bank. 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: in PLN thusand Interest accrued interest received in PLN thusand interest accrued interest received Interbank placements 18 25, ,216 Lans 11, ,177 7, ,002 interest n the interest-bearing bnds f Credit Suisse First Bstn Singapre 1, Securities and Exchange Cmmissin 61

10 Frtis Bank Plska SA SAB R 2003 Branch interest n financial instruments interest n receivables related t dcumentary transactins Receivables purchased Guarantees paid securities bught under repurchase agreements TOTAL 13, ,558 8, , Deferred interest incme: in PLN thusand in PLN thusand Interest capitalized Deferred interest incme n receivables purchased Deferred interest incme n guarantees paid 4,220 3,667 Deferred interest incme n lans 87,813 73,070 TOTAL 92,118 77, Interest expense due t financial, nn-financial and the State budget sectrs, brken by paid and accrued are presented in the Table belw: in PLN thusand in PLN thusand Interest accrued Interest paid Interest accrued Interest paid Current accunts 65 18, ,010 Interbank depsits , ,169 Term depsits 3,989 36,459 5,348 80,324 Blcked depsits 964 7,370 1,461 18,851 Credit facilities and 1,685 15,852 4,764 16,838 lans received insurance plicies TOTAL 7,327 91,382 11, , Infrmatin abut underlying instruments The Bank makes derivative transactins. The transactins are effected in cmmercial purpses and t manage the FX risk and interest rate risk. Transactins in derivatives are als ffered t custmers. 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 market rate fr similar transactins. The purpse f the cntract is t hedge against FX rate risk and maintain liquidity. 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 cnsists 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. IRS cntracts cnsists in an exchange f interest payments based n a variable market interest rate fr Securities and Exchange Cmmissin 62

11 Frtis Bank Plska SA SAB R 2003 interest accrued at a fixed interest rate agreed upn in the cntract. It is measured by discunted cash flw mdel based n the market yield curve. The purpse f the cntract is t hedge against interest rate risk. 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. Descriptin f derivative instruments as at (in PLN thusand) Instrument FX Frward FX Swap FX Futures IRS Securities frward number f transactins that have nt matured yet Future revenue/payments variable variable variable variable variable Maturity pssibility f exchange int anther asset / liability item n n n n n Agreed rates/amunts f revenue and payment dates variable variable variable variable variable ther cnditins nne nne nne nne nne risk type FX rate, liquidity, cunter party FX rate, liquidity, cunter party FX rate, WCE liquidity interest rate, liquidity, cunter party interest rate, liquidity, cunter party As at, the derivative instruments that had nt yet matured were the fllwing: Instrument type Nminal value in PLN thusand Maturity in PLN thusand up t 3 mnths 3 mnths - 1 year 1 year 5 years Banks Other Banks Other Banks Others Ttal Banks Other Ttal FX rate 1,050, , , ,169 11,742 2,292, , , ,502 - FX frward 1, , ,152 11, , , ,105 - FX swap 1,048, ,885 1,796, , ,397 - FX futures 68,748 7,017 75,765 Interest rate 150, ,000 IRS cntracts 150, ,000 Ttal 1,050, , , , ,000 11,742 2,442, , , ,502 Derivative transactins are made by the Bank at market prices binding n transactin dates. The Table belw presents valuatin f instruments that did nt mature as at : Instrument type (in PLN thusand) Psitive market value (in PLN thusand) (in PLN thusand) Negative market value (in PLN thusand) Banks Other Banks Other Banks Other Banks Other FX rate 24,431 5,217 4,691 13,828 23,359 6,617 3,389 11,399 - FX frward 1 5,217 13, ,455 11,399 - FX swap 24,430 4,691 23,356 3,389 - FX futures 162 Interest rate 493 Securities and Exchange Cmmissin 63

12 Frtis Bank Plska SA SAB R IRS cntracts 493 Ttal 24,924 5,217 4,691 13,828 23,359 6,617 3,389 11,399 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 5/2001 f the Banking Supervisin Cmmissin dated December 12, 2001 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. 22, item 43 as amended). The balance sheet equivalent is understd as a nminal value f derivative instruments weighted by the prduct risk and cunter party risk/ The Bank des nt have cmparable data as at. Balance sheet equivalent Instrument type Banks Others - FX frward 4,863 3,800 - FX swap FX futures IRS cntracts 3,000 - Ttal 7,863 3, Risk management bjectives and rules The Bank s strategy as regards risk has the fllwing bjectives: prtectin f funds and liabilities f ther type, such as depsits, share capital, securities, entrusted t the Bank by clients and sharehlders; preventin against lsses and using the pprtunities t earn prfit in the cntrlled envirnment, i.e. within determined prcesses, rules, parameters that are subject t peridical review and changes implemented by the Bank s Bard f Executives; develpment f peratinal activity in cmpliance with assumptins adpted by the Bard f Executives and Supervisry Bard; Effective risk management regarding the entire bank has becme a frmal necessity due t changeable ecnmic and scial parameters, which are e.g. characterized by frequently changing interest rates and FX rates and als mre and mre cmplex law prvisins envirnment. Main rules Any new prducts and services that invlve liquidity, interest rate, credit and/r peratinal risks, are subject t the fllwing verificatin prcess befre the launch f the cncerned prduct r service: Step 1: identificatin f ptential risks invlved. Step 2: check whether the Bank is able t assess and mnitr identified ptential risks in an efficient way frm start t maturity. Step 3: check if identified ptential risks can be hedged at market prices, under which cnditins and t what extent. Step 4: check if envisaged sales prices cver hedging csts (risk premium). Step 5: check if existing systems and prcedures allw t prcess transactins in a prfessinal way. If a new prduct r service des nt meet the Bank s criteria f sund risk management nevertheless gd reasns exist fr launching the prduct r service, the Bard f Executives will decide whether r nt r under which cnditins the new prduct r service can be ffered. The same rule als applies t fundamental changes t existing prducts and services if such changes affect market, liquidity, credit r peratinal risks. Liquidity risk Limits The Bank mnitrs liquidity risk thrugh a multidimensinal system f limits and reprts. Securities and Exchange Cmmissin 64

13 Frtis Bank Plska SA SAB R 2003 In liquidity management the Bank relies n the liquidity gap analysis. Results f such analysis are used fr infrmatin purpses and are directly translated int management decisins thrugh the system f liquidity limits relating t the size f liquidity gap. The Bank applies the fllwing limits fr the maximum cumulative liquidity gap: Lng-term liquidity limit All Currencies Shrt-term liquidity limit All Currencies Lng-term liquidity limit PLN Shrt-term liquidity limit PLN Lng-term liquidity limit USD Shrt-term liquidity limit USD Lng-term liquidity limit EUR Shrt-term liquidity limit EUR Limits are cnstructed in such a way as t make sure that in nne f the ne-day ranges the cumulative liquidity gap des nt exceed the level determined by the limit. Limits are subject t verificatin and review at least n an annual basis. The Bank uses limits ther than gap limits in liquidity management: Current liquidity limit Unstable Liabilities Current liquidity limit Largest Depsitrs Current liquidity limit Largest depsit cncentratin by ecnmic sectr Current liquidity limit Minimum Level Current liquidity limit Ptential Cmmitments These are the limits valid as at the balance sheet date. They may be changed r new limits may be added at any time by the ALCO Cmmittee. The ALCO Cmmittee reviews limits and reprting techniques at least nce a year. Liquidity Risk Management Objectives Market risk t keep PLN depsits priced at table rates at a minimum level f apprximately 40% f ttal PLN custmer depsits. t keep PLN depsits with a cntractual maturity exceeding 3 mnths at a minimum level f apprximately 30% f ttal PLN custmer depsits. T ensure a lng-term, stable surce f funding fr freign currency credit prductin. The Bank mnitrs market risk, i.e. FX risk and interest rate risk thrugh a multidimensinal system f limits and reprts. Interest rate risk The Bank uses limits fr the maximum value at risk and the maximum psitin fr the purpse f interest rate risk management. Freign Exchange Risk The Bank uses limits fr the maximum value at risk and the maximum psitin fr the purpse f FX risk management. The ALCO Cmmittee reviews limits and reprting techniques at least nce a year. The fllwing instruments are applied fr hedging purpses: - Securities, Treasury bnds and bills issued by the State Treasury and the NBP, Securities and Exchange Cmmissin 65

14 Frtis Bank Plska SA SAB R Interbank mney market transactins, - Interbank freign exchange swap transactins. The ALCO Cmmittee may decide at any time t amend this list r t add new hedging instruments. The hedging strategy f the Bank is reviewed and decided by the ALCO Cmmittee taking int cnsideratin existing limits, revenue pprtunities, current market situatin and mst prbable market develpment, each time the Cmmittee meets. 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 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 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. The Rle f ALCO Cmmittee in Banking Risk Management ALCO Cmmittee sets limits fr: general market risk psitin (interest rate, currency, price fluctuatins risk), interest rate risk fr specific prtflis maintained in accunting recrds. ALCO Cmmittee establishes risk management strategies fr shrt, medium and lng-term time hrizns subject t the apprval f the Bard f Executives and the Supervisry Bard. ALCO Cmmittee makes peridic adjustments t the implementatin f respective market risk management strategies fr shrt, medium and lng-term time hrizns. Risk Management Department The Risk Department supprts the Bard f Executives in all issues pertaining t banking activity risk, except fr credit risk. The risk management includes: ALM Asset and Liability Management (business line respnsible fr the management f the Bank s assets and liabilities) market risk, risk mdeling, transfer pricing, peratinal risk. The Risk Management Department Directr directly reprts t the Vice-President, Chief Financial Officer, and is a member f the ALCO Cmmittee. The Risk Management Department is respnsible fr: Securities and Exchange Cmmissin 66

15 Frtis Bank Plska SA SAB R 2003 Credit Risk interest rate re-pricing dates mismatch mnitring and reprting it t ALCO, presenting risk hedging strategies t ALCO, mnitring the utilizatin f risk limits and reprting it t ALCO. The risk is analyzed using a standard assessment methdlgy applied in the Bank. When assessing credit risk, bth a given credit prduct risk and the ttal Bank s credit expsure risk twards an entity, including all lans granted and ther risk-bearing financial prducts, are analyzed. The Bank has in place a multi-level credit applicatin analysis and credit decisin-making system. The analysis and decisin-making level depends n the ttal Bank s expsure twards an ecnmic entity r a grup f affiliated entities. The system adpted by the Bank aims t ensure maximum bjectivity in the applicatin assessment prcess and minimum risk related t the Bank s credit expsure. The Bank s credit decisins pertain bth t the lan applied fr by a given entity (lan amunt and terms), and t the ttal Bank s expsure twards this entity. As regards entities that qualify t, r have been classified int a higher-risk categry using a classificatin system adpted by the Bank, additinal prcedures are applied alng with the generally binding nes, t mitigate the Bank s risk. In the Bank s credit prcess, client acquisitin and credit prduct sales functins are rganizatinally separated frm credit risk assessment. Client acquisitin and credit prduct sales are the main tasks f CB and RB Business Lines, while risk assessment is the respnsibility f the Credits. There are tw business lines in the Bank: Cmmercial Banking BL- respnsible fr the service f medium enterprises and crprate entities; and Retail Banking BL that ffers services t Individuals and Small Enterprises. T balance bth functins, the fur eyes principle has been adpted fr credit decisin making. The rule means that with regard t each case, the decisin is made by a representative f the Credits and a representative f either CB r RB Business Line. Mnitring is cnducted based n internal Bank s prcedures, taking int accunt the prvisins f the Finance Minister Ordinance dated December 10, 2001 regarding the creatin f prvisins fr risk related t banking activities, and the rating rules binding in the Frtis grup. At present, these prcedures are updated in cnnectin with the implementatin, effective January 1, 2004, f an Ordinance f the Minister f Finance dated December 10, 2003 that amended the previus prvisins. Risk is mitigated and secured by applying the fllwing rules: entities are granted financing in the amunt crrespnding t the assessment f their creditwrthiness and risk level, legal cllateral fr the lan repayment is established, the cllateral value is realistically assessed, the Bank s Credit Cmmittee determines an individual strategy as regards debtrs f large credit expsure with heightened risk, specific prvisins are created and planned fr the existing and frecast higher-risk credit expsures Infrmatin regarding hedge accunting applied 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 fair value f this instrument as at amunted t PLN 493 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 Securities and Exchange Cmmissin 67

16 Frtis Bank Plska SA SAB R 2003 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 part theref entered int accunting bks may affect the financial result. d) Previusly the Bank has nt applied hedge accunting The Bank at present 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). 5. Data regarding cntracts cncluded fr subscriptin ptins r rdinary share sales In 2003, 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 194,000 thusand blcked against a technical lan facility extended t the Bank by the NBP. The technical lan is cntracted in the amunt f 80% f the bills blcked; Treasury bills f the nminal value f PLN 12,000 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 2,712,064 thusand; Bnds related t the reductin f the mandatry reserve rates, in the value f PLN 24,979 thusand, cnverted by the Natinal Bank f Pland in February 2002 (marketable bnds). 7. Infrmatin regarding rep transactins nt recrded in the balance sheet statement. In 2003, the Bank entered int three rep agreements (buy-sell-back transactins) with custmers f the Bank regarding T-bills in the ttal nminal value f PLN 32,300 thusand, fur buy-sell-back transactins with banks regarding cash bills in the ttal nminal value f PLN 400,000 thusand. As at the end f 2003, the abve transactins did nt appear in the Bank s balance sheet statement. 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 Off-balance sheet financial cmmitments (in PLN thusand) State nn-financial budget Ttal financial nn-financial entities sectr entities entities financial entities State budget sectr - credit lines in lan accunts 37, , ,635 10, , ,993 - verdraft facilities in current accunts Ttal 1, ,344 1, ,559 2, ,906 2, ,146 - pen VISA limits 83 55, , , ,779 - imprt Letters f Credit 12,911 46,929-59,840-44,057-44,057 - Framewrk Financing Agreements - 153, , , ,516 - interbank depsits with the future value date , ,000 Ttal 52, ,846 1,782 1,025,886 80, ,936 2, ,491 The table belw shws unused credit lines brken dwn by an entity type and maturity: Securities and Exchange Cmmissin 68

17 Frtis Bank Plska SA SAB R 2003 entity / maturity in PLN thusand in PLN thusand up t 1 year 1 year r lnger up t 1 year 1 year r lnger financial entities - 37,764-10,998 nn-financial entities 280,304 36, ,136 17,859 Ttal 280,304 74, ,136 28, Data abut ff-balance sheet items, in particular abut cntingent liabilities, including a breakdwn f guarantees and sureties issued (tgether with bill-f-exchange and ther guarantee-like liabilities), with a separate list f guarantees r sureties issued in favr f affiliated entities. The Table belw shws ff-balance-sheet guarantee cmmitments, brken by types f entities and prducts: Off-balance sheet guarantee cmmitments (in PLN thusand) Entity / prduct financial entities nnfinancial entities State budget sectr Ttal financial entities nnfinancial entities State budget sectr - guarantees issued 2, , , , ,750 - Framewrk Guarantee Agreements - 23,717-23,717-8,933-8,933 - cnfirmed exprt Letters f Credit /accepted drafts 12, ,448 7, ,931 Ttal 14, , ,829 8, , ,614 Ttal The Table belw shws ff-balance -sheet liabilities granted, brken by subsidiaries, affiliated entities and ther entities: in PLN thusand in PLN thusand Specificatin related t guarantees related t guarantees financing financing Parent entity - 1, Subsidiaries Affiliated entities 50, , Other entities 975, , , ,688 Ttal 1,025, , , ,614 As at the end f, the Bank held the fllwing ff-balance sheet items related t affiliated entities: Parent entities: Three guarantees issued t Frtis Bank Brussels fr the ttal amunt f PLN thusand fr the perid frm ne (1) mnth t three (3) years; Guarantees and suretyships received frm Frtis Bank Brussels fr the ttal amunt f PLN 133,173 thusand; An IRS cntract in the amunt f PLN 150,000 thusand, cncluded t hedge a financial instrument. Affiliated entities: Frtis Lease Plska Sp. z..: Securities and Exchange Cmmissin 69

18 Frtis Bank Plska SA SAB R 2003 a limit in VISA card in the amunt f PLN 12 thusand granted t Frtis Lease Plska sp. z.., the ff-balance sheet debt n that accunt amunts t PLN 8 thusand; unused credit line in the amunt f PLN 37,764 thusand granted t Frtis Lease Plska Sp. z.. fr up t five (5) years; Frtis Lease Plska Sp. z.. held als a dcumentary L/Cs pened fr the ttal amunt f PLN 12,911 thusand. Frtis grup banks: A guarantee issued t an affiliated entity in the amunt f PLN 323 thusand; Guarantees and suretyships frm affiliated entities in the ttal amunt f PLN 11,116 thusand; A credit line granted by an affiliated entity in the amunt f PLN 7,753 thusand fr the perid f between three (3) and five (5) years. By analgy, at the end f 2002, the Bank held the fllwing ff-balance sheet items related t affiliated entities: Parent entities: Tw guarantees issued t Frtis Bank SA in Brussels fr the ttal amunt f PLN 603 thusand fr the perid frm ne mnth t three years; Guarantees and suretyships received frm Frtis Bank Brussels fr the ttal amunt f PLN 75,927 thusand; A subsidiary: A VISA card limit in the amunt f PLN 75 thusand granted t Frtis Securities Plska SA; Affiliated entities: Frtis Lease Plska Sp. z..: a limit in VISA card in the amunt f PLN 12 thusand granted t Frtis Lease Plska sp. z..; unused credit line in the amunt f PLN 10,998 thusand granted t Frtis Lease Plska Sp. z.. fr up t five (5) years; Frtis grup banks: A guarantee issued t an affiliated entity in the amunt f PLN 323 thusand; Guarantees and suretyships frm affiliated entities in the ttal amunt f PLN 16,713 thusand; Credit lines granted by an affiliated entity in the amunt f PLN 10,219 thusand fr the perid f between three (3) and five (5) years. 10. Infrmatin abut a prpsed dividend payment. The Bard f Executive will recmmend the Sharehlders' Meeting t allcate the 2003 net prfit in the amunt f PLN 36,021, t the general risk fund. Frtis Bank Plska SA has nt issued any preference shares. 11. Infrmatin abut liabilities related t apprved dividend payment. As at the date f filing this annual reprt, the Bank had n cmmitments related t the apprved dividend payment. 12. Data abut liabilities due t the State Budget r lcal gvernment authrities arising frm the acquisitin f an wnership title t buildings and cnstructins. As at, the Bank did nt have any liabilities due t the State Budget r lcal gvernment authrities arising frm the acquisitin f an wnership title t buildings r cnstructins. 13. Infrmatin abut revenues, csts and results f peratins discntinued in a given perid r expected t be discntinued in the subsequent perid, and reasns fr such discntinuance. In 2003, the Bank did nt discntinue any peratins and des nt cnsider reducing the current scpe f its business. Securities and Exchange Cmmissin 70

19 Frtis Bank Plska SA SAB R Cst f fixed assets under cnstructin, fixed assets fr wn needs. In 2003, the Bank incurred csts f fixed assets under cnstructin, fixed assets fr wn needs in the amunt f PLN 12.5 millin. 15. Investment made and investments planned fr the next 12 mnths frm the balance-sheet date, including nn-financial fixed assets. 16. In 2004, the Bank plans t make investment utlays in the amunt f PLN 14.5 millin. The Table belw presents investment csts incurred as at and as at : PLN thusand PLN thusand Investments in prgress 4,589 8,878 Advances n investment Fixed assets 4,447 4,479 Equipment 1,497 2,767 Means f transprt 2,320 1,438 Other Intangible fixed assets 3,208 2,195 Cmputer sftware purchased 3,208 2,195 TOTAL 12,244 15, Infrmatin abut the issuer s transactins with affiliated entities, als thse capital r rganizatinally affiliated under the Banking Law Act, related t the transfer f rights and bligatins, including the principles f the Bank credit plicy twards affiliated entities and a percentage share assigned t transactins with such entities. - Lan Agreement cncluded n September 24, 1998 with Frtis Bank S.A. and Frtis Bank Nederland NV (frmer Generale Bank). On Nvember 12, 1999, an Annex t the Agreement was signed. Under the Agreement, the Bank was granted a credit line f up t DEM 200 millin (at present abut EUR 102 millin) fr seven (7) years. It was replaced by a lan agreement cncluded n January 30, 2004 described in Item 28 f Additinal ntes. - Lan Agreement dated September 24, 2001 with Frtis Bank (Nederland). Under the Agreement, the Bank was granted a credit line f EUR 50 millin fr fur (4) years. - Frtis Bank Plska SA cncludes transactins n the interbank market with Frtis Bank in Brussels. As at, Frtis Bank Plska SA had n interbank placements r depsits, either placed with r depsited by Frtis Bank Brussels, r vernight depsits. Frtis Bank Brussels als has nstr and vstr accunts. The interest rate n these accunts crrespnds t market rates. - Frtis Securities Plska SA sub-leases frm Frtis Bank Plska SA ffice premises and parking space. The sub-lease agreement was cncluded n February 15, 2001, fr five (5) years and is renewable. - Cperatin Agreement dated January 7, 2000 tgether with subsequent annexes, entered int by the Bank and Frtis Securities Plska SA. Under the agreement, the Bank s custmers may use investment prtfli management services thrugh FSP Custmer Service Outlets (POK) and Infrmatin Pints (PI) that are situated in the Bank s branches. - Revlving Credit Agreement dated Nvember 17, 2000 with Frtis Lease Plska Sp. z.. tgether with the subsequent annex Under the Agreement, a revlving multi-currency credit facility was granted in the amunt f PLN 55 millin t be repaid by Nvember 17, 2005, bearing the market interest rate. As at the end f 2003, the credit utstanding balance amunted t PLN 48,427 thusand. Frtis Lease Plska Sp. z.. had at the end f 2003 an unused credit limit granted in the amunt f PLN 51 millin. - Overdraft Credit Facility Agreement dated April 5, 2002 with Frtis Lease Plska Sp. z.. Under the Agreement, Frtis Lease was granted an verdraft facility in the amunt f PLN 0.5 millin under the market cnditins, t be repaid by April 7, Data cncerning affiliated cmpanies n: Securities and Exchange Cmmissin 71