BC ENERGBANK SA INDIVIDUAL STATEMENT OF FINANCIAL POSITION As at 31 December 2016

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1 INDIVIDUAL STATEMENT OF FINANCIAL POSITION As at 31 December 2016 Note ASSETS Cash and balances with National Bank 3 688, ,344 Current accounts and deposits with banks 4 132, ,409 Financial investments, debt securities - held to maturity 5 538, ,970 Loans, net 6 865, ,852 Financial investments, equity securities - available-for-sale 7 3,331 3,331 Investments in associates Intangible assets 9 1,969 2,426 Property and equipment , ,098 Current income tax asset 855 1,345 Other assets 11 53,764 76,113 Total assets 2,415,426 2,224,935 LIABILITIES Due to banks Due to customers 13 1,674,857 1,541,115 Other borrowings , ,196 Other liabilities 15 17,219 10,033 Current income tax liability - - Deferred tax liabilities 16 2,923 2,784 Total liabilities 1,874,033 1,742,128 Shareholders' equity Ordinary shares , ,000 Property revaluation reserve 15,966 15,966 Other reserves , ,210 Retained eamings 278, ,631 Total shareholders' equity 541, ,807 Total liabilities and shareholders equity 2,415,426 2,224,935 The accompanying notes are an integral part of these financial statements. The financial statements were authorized for issue on 21 April 2016 by the Executives of the Bank represented by: President Mr. Iurii Vasilachi Chief Accountant Mr. Sergiu Slobodean

2 INDIVIDUAL STATEMENT OF COMPREHENSIVE INCOME Note Interest and similar income , ,848 Interest expense and similar charges 22 (78,242) (75,290) Net interest income 106,621 83,558 Fee and commission income 23 50,421 43,047 Fee and commission expense 23 (9,390) (7,194) Net fee and commission income 41,031 35,853 Financial income, net 24 50,292 69,971 Other operating expenses, net 25 1,723 1,518 Total operating income 199, ,900 Impairment of loans Impairment of receivables and other assets 6 11 (7,152) (13,099) (31,137) (22,618) Net operating income 179, ,145 Personnel expenses General and administrative expenses Depreciation and amortization ,10 (68,311) (30,784) (5,507) (55,619) (25,928) (5,318) Total operating expenses (104,602) (86,865) Profit before tax 74,814 50,280 Income tax expense 16 (6,228) 10,455 Profit for the year 68,586 60,735 Other comprehensive income Impairment of non-current assets held for sale _ 174 Other comprehensive income - - Total comprehensive income for the year 68,586 60,909 Eamings per share (MDL per share) 32 34, The accompanying notes are an integral part of these individual financial statements. The individual financial statements were authorized for issue on 21 April 2016 by the Executives of the Bank represented by: President Mr Iurii Vasilachi Chief Accountant Mr Sergiu Slobodean

3 INDIVIDUAL STATEMENT OF CHANGES IN EQUITY Acţiuni ordinare Rezerve din reevaluare a mijloacelor fixe Alte rezerve Profit nerepartizat Total Balance at 1 January ,000 15, , , ,807 Dividends (10,000) (10,000) Transfer to reserves ,901 (12,901) - Transactions with owners ,901 (12,901) (10,000) Profit for the year * - 68,586 68,586 Total comprehensive income ,586 68,586 Balance at 31 December ,000 15, , , Balance at 1 January ,000 15, , , ,898 Dividends (5,000) (5,000) Transfer to reserves - - (11,603) 11,603 - Transfer to reserves - (11) - 11 _ Transactions with owners - (11) (11,603) 6,614 (5,000) Profit for the year ,735 60,735 Revaluation of property and equipment Total comprehensive income ,735 60,909 Balance at 31 December ,000 15, , , ,807 The accompanying notes are an integral part of these individual financial statements.

4 INDIVIDUAL STATEMENT OF CASH FLOWS Nota Cash flows from operating activities Interest receipts 184, ,138 Interest payments (80,117) (73,524) Net fee and commission receipts 41,031 35,853 Net financial and other operating income 50,131 82,982 Staff costs paid (61,187) (51,062) Payments of general and administrative expenses (29,869) (25,529) Cash flows before working capital changes 104, ,858 (Increase) / decrease in operating assets: Due from NBM 11,757 (15,008) Investment debt securities over 90 days (76,244) (30,167) Loans (5,910) 104,284 Other assets 15,224 48,680 Increase /(decrease) in operating liabilities: Due to banks - (553) Due to customers 138, ,061 Other liabilities (2,320) (2,530) Net cash from operating activities before income tax 185, ,625 Income tax paid (5,599) (7,800) Net cash from/(used in) operating activities 179, ,825 Cash flows from investing activities Purchase of intangible assets (383) (163) Purchase of property and equipment (17,783) (5,010) Proceeds from disposal of property and equipment Payments of tangible assets available for sale - (71) Proceeds from the sale of financial investments Net cash used in investing activities (18,006) (4,754) Cash flows from financing activities Proceeds from loans and borrowings 90, ,366 Repayment of loans and borrowings (99,491) (187,441) Dividends paid (10,000) (5,000) Net cash from/(used in) financing activities (19,406) (18,075) Net foreign exchange difference 1,896 (11,819) Net increase/(decrease) in cash and cash equivalents 144, ,178 Cash and cash equivalents at 1 January 876, ,091 Cash and cash equivalents at 31 December 21 1,020, ,269 The accompanying notes are an integral part of these individual financial statements. 4

5 1. General Information about Bank BC Energbank SA ( the Bank ) was established in the Republic of Moldova on 16 January 1997 as a closed joint stock company. The Bank is principally engaged in retail banking operations in the Republic o f Moldova. The Bank operates through its head office located in Chisinau, 22 branches (22 branches as at 31 December 2015) and 43 agencies (44 agencies as at 31 December 2015) located throughout the country. At year-end 2016 the Bank possessed a license granted by the National Bank of Moldova, which allows the Bank to be engaged in all banking activities. The number of employees employed by the Bank as at 31 December 2016 was 593 (588 as at 31 December 2015). The registered office o f the Bank is located at 23/3 Tighina Street, Chisinau, Republic of Moldova. As Bank s operations do not have significantly different risks and retums and considering the regulatory environment, the nature of its services, the business process, as well as the types of customers for the products and services and the methods used to provide the services are homogenous for all Bank s activities, the Bank operates as a single business segment unit and its activities are exclusively carried out in the Republic of Moldova. The Board of Directors formulates policies for the operation of the Bank and supervises their implementation. The Board is composed of 6 members appointed by the General Meeting of Shareholders. As at 31 December 2016 the Board of Directors comprised the following members: - Mr. Vladimir Tonciuc, Chairman of the Board; - Mr.Valeriu Usatii, Energoimpex, Member of the Board; - Mr.Mihail Pop, Member of the Board; - Mrs. Natalia Cecetova, Gamaiun SRL, Member of the Board; - Mrs.Maximenco Galina, Member of the Board; - Mrs.Natalia Covanji, Member of the Board. These financial statements were authorised for issue on 21 April 2016 by the Executives o f the Bank represented by the President and the Chief Accountant. 2. Accounting policies 2.1 Basis of preparation Statement of compliance The financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Basis of measurement The financial statements have been prepared under the historic cost convention, except for land and buildings, investment properties and available-for-sale assets that have been measured at fair value. 5

6 2. Accounting policies (continued) 2.1 Basis of preparation (continued) Funcţional and presentation currency The financial statements are presented in Moldovan lei ( MDL ), which is also its funcţional currency and the currency of the country in which the Bank operates. AII financial information presented in MDL has been rounded to the nearest thousands, except when otherwise indicated. 2.2 Significant accounting judgments and estimates The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next fmancial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (i) Impairment losses on loans and advances The Bank reviews its loan portfolios to assess impairment at least on a monthly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a Bank, or naţional or local economic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence o f impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Where the final outcome of these factors is different from the amounts that were initially recorded, such differences could materially impact the provision for loan impairment in the period in which such determination is made. (ii) Going concern The Bank s management has made an assessment of the Bank s ability to continue as a going concern and is satisfied that the Bank has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Bank s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. (iii) Fair value of financial instruments The fair value of fmancial instruments that are not traded in an active market is determined by using valuation techniques. The management uses its judgment to select the valuation method and make assumptions that are mainly based on market conditions existing at each balance sheet date. 6

7 2. Accounting policies (continued) 2.3 Change in accounting policies The accounting policies adopted are consistent with those of the previous financial year. The adoption of new standards and interpretations effective for the Bank from 1 January 2014 did not have any impact on the accounting policies, financial position or performance of the Bank. 2.4 Summary of signifîcant accounting policies The principal accounting policies applied in the preparation o f these financial statements are set out below. a. Foreign currency translation Foreign currency transactions are trahslated into the funcţional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost o f the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognized in profit or loss, and other changes in the carrying amount are recognized in equity. Translation differences on non-monetary items, such as equity investments classified as available-for-sale financial assets, are included in the fair value reserve in equity. The year-end and average rates for the year were: USD Euro USD Euro Average for the period Year end b. Financial assets The Bank classifies its financial assets in the following categories: loans and receivables, held-to-maturity investments and available-for-sale financial assets. Management determines the classification of its investments at iniţial recognition. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those that the entity intends to sell immediately or in the short term, which are classified as held for trading, and those that the entity upon iniţial recognition designates as at fair value through profit or loss; (b) those that the entity upon iniţial recognition designates as available for sale; or (c) those for which the holder may not recover substantially all of its iniţial investment, other than because of credit deterioration. (ii) Held-to-maturity Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank s management has the positive intention and ability to hold to maturity. If the Bank were to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available-for-sale. Included in this category are, also, treasury bills and NBM certificates. 7

8 2. Accounting policies (continued) 2.4 Summary of significant accounting policies (continued) b. Financial assets (continued) (iii) Available-for-sale Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Regular - way purchases and sales of financial assets at fair value through profit and loss, held-to-maturity and available-for-sale are recognized on trade-date - the date on which the Bank commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all fmancial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit and loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when they are extinguished, that is, when the obligation is discharged, cancelled or expired. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortized cost using the effective interest method. Gains and losses arising from changes in the fair value of the fmancial assets at fair value through profit or loss category are included in the income statement in the period in which they ari se. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognized directly in equity, until the financial asset is derecognized or impaired. At this time, the cumulative gain or loss previously recognized in equity is recognized in profit or loss. However, interest calculated using the effective interest method and foreign currency gains and losses on monetary assets classified as available for sale are recognized in the income statement. Dividends on availablefor-sale equity instruments are recognized in the income statement when the entity s right to receive payment is established. The fair values of quoted investments in active markets are based on current bid prices, or if no such price is available, the last traded price on such day. If the market for a financial asset is not active (and for unlisted securities), the Bank establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. c. Investments in associates An associate is an entity in which the Bank has significant influence and which is neither a subsidiary nor a joint venture. In the separate financial statements of the Bank, investments in associates are carried at cost less impairment losses. d. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. 8

9 2. Accounting policies (continued) 2.4 Summary of significant accounting policies (continued) e. Interest income and expense Interest income and expense are recognized in the income statement for all instruments measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and commissions paid or reoeived between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a Bank of financial assets has been written down as a result of an impairment loss, interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. f. Fee and commission income Fees and commissions are generally recognized on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognized as an adjustment to the effective interest rate on the loan. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party - such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses - are recognized on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognized based on the applicable service contracts, usually on a time-apportion basis. g. Sale and repurchase agreements Securities sold subject to repurchase agreements ( repos ) are classified in the financial statements as availablefor-sale securities (treasury bills) and the counter party liability is included in amounts due to banks or customers, as appropriate. Securities purchased under agreements to resell ( reverse repos ) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life o f the agreements using the effective interest method. Securities held by the Bank as collateral for lending activities with financial institutions are not recognized in the financial statements, unless these are sold to third parties, in which case the purchase and sale are recorded with the gain or loss included in trading income. The obligation to retum them is recorded at fair value as a trading liability. h. Derecognition The Bank derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been 9

10 2. Accounting policies (continued) 2.4 Summary of significant accounting policies (continued) h. Derecognition (continued) recognized in other comprehensive income is recognized in profit or loss. The Bank derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate. In transfers where control over the asset is retained, the Bank continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. i. Impairment of financial assets (i) Assets carried at amortized costs The Bank s assesses at each balance sheet date whether there is objective evidence that a financial asset or Bank of financial assets is impaired. A fmancial asset or a Bank of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the iniţial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or Bank of financial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence o f an impairment loss include: Delinquency in contractual payments of principal or interest; Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales); Breach of loan covenants or conditions; Initiation ofbankruptcy proceedings; Deterioration of the borrower s competitive position; Deterioration in the value of collateral; and Downgrading below investment grade level. The estimated period between a loss occurring and its identification is determined by management for each identified portfolio. In general, the periods vary from 6 months to 12 months. 10

11 2. Accounting policies (continued) 2.4 Summary of significant accounting policies (continued) i. Impairment of financial assets (continued) The Bank first assesses whether objective evidence o f impairment exists individually for financial assets that are individually significant, and thereafter individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a Bank of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The amount of the loss is measured as the difference between the asset s carrying amount and the present value o f estimated future cash flows (exeluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are Banked on the basis of similar credit risk characteristics (i.e., on the basis of the Bank s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for Banks of such assets by being indicative o f the debtors ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a Bank of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects o f conditions in the historical period that do not exist currently. Estimates of changes in future cash flows for Banks of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative o f changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount o f the reversal is recognized in the income statement in impairment change for credit losses. 11

12 2. Accounting policies (continued) 2.4 Summary of significant accounting policies (continued) i. Impairment of financial assets (continued) (ii) Assets carried at fair value The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a Bank of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decime in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for- sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss - is removed from equity and recognized in the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement. (iii) Renegotiated loans Where possible, the Bank seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated any impairment is measured using the original Effective Interest Rate ( EIR ) as calculated before the modification of terms and the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan s original EIR. j. Impairment of non - financial assets Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are Banked at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. k. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity of the assets at acquisition dates including: cash, non-restricted balances with National Bank of Moldova, treasury bills, NBM certificates, amounts due from other banks and amounts due from quick payment systems. 1. Intangible assets Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized on the basis of the expected useful lives (three to five years) using the straight-line method. Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. 12

13 2. Accounting policies (continued) 2.4 Summary of significant accounting policies (continued) m. Property and equipment Buildings are stated at revalued amounts, being its fair value at the date of revaluation, less accumulated depreciation and less provision for impairment, where required. Other property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Asset type Ani Buildings _ Fumiture and equipment 2-20 Motor vehicles 7-10 Other 5-20 Assets under construction are not depreciated until there are brought in use. The assets residual value and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset s fair value less costs to sell and value in use. Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amount. These are included in their operating expenses in the income statements. n. Investment property Property held for long-term rentai yields or for capital appreciation or both, which is not occupied by the Bank is classified as investment property. Investment property comprises freehold land. Investment property is carried at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Bank uses alternative valuation method such as sales comparison method by comparing similar or substitute properties sold in the market with subject property. These valuations are reviewed annually by Directors. If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment and its fair value at the date of reclassification becomes its cost for accounting purposes of subsequent recording. Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property. If an item of property, plant and equipment becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is recognised in equity as a revaluation of property, plant and equipment under IAS 16. However, if a fair value gain reverses a previous impairment loss, the gain is recognised in the income statement. Upon the disposal of such investment property, any surplus previously recorded in equity is transferred to retained eamings; the transfer is not made through the income statement. 13

14 2. Accounting policies (continued) 2.4 Summary of significant accounting policies (continued) o. Leases The determination of whether an arrangement is a lease or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Bank as a lessee Lease which does not transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased item are operating leases. Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term. Bank as a lessor. Leases where the Bank does not transfer substantially all the risk and benefits o f ownership of the asset are classified as operating leases. Iniţial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rentai income. p. Defined contribution plan The Bank, in the normal course of business makes payments to the Moldovan State funds on behalf of its employees for pension, health care and unemployment benefit. All employees of the Bank are members of the State pension plan. The Bank does not operate any other pension scheme and, consequently, has no further obligation in respect of pensions. The Bank does not operate any other defined benefit plan or post-retirement benefit plan. The Bank has no obligation to provide further services to current or former employees. q. Provisions Provisions and legal claims are recognized when the Bank has a present legal or constructive obligation to transfer economic benefits as a result of past events. It is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense. r. Financial guarantee contracts Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities. 14

15 2. Accounting policies (continued) 2.4 Summary of significant accounting policies (continued) r. Financial guarantee contracts (continued) Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to iniţial recognition, the bank s liabilities under such guarantees are measured at the higher of the iniţial measurement, less amortization calculated to recognise in the income statement the fee income eamed on a straight line basis over the life o f the guarantee and the best estimate of the expenditure required to settle any financial obligation arising at the balance sheet date. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgment of Management. Any increase in the liability relating to guarantees is taken to the income statement under other operating expenses. s. Taxation Income tax payable on profits, based on the applicable Moldovan tax law is recognized as an expense in the period in which profits arise. The tax effects of income tax losses available for carry forward are recognized as an asset when it is probable that future taxable profits will be available against which these losses can be utilised. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. The principal temporary differences arise from depreciation of equipment, provisions for loans and advances to customers, other assets and other liabilities. The rates enacted or substantively enacted at the balance sheet date are used to determine deferred income tax. However, the deferred income tax is not accounted for if it arises from iniţial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred tax assets are recognized where it is probable that future taxable profit will be available against which the temporary differences can be utilised t. Borrowings Borrowings are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Subsequently borrowings are stated at amortised cost and any difference between net proceeds and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. u. Dividends Dividends are not accounted for until they have been approved at the Annual General Meeting. 15

16 2. Accounting policies (continued) 2.4 Summary of significant accounting policies (continued) v. Assets for resale Assets for resale include foreclosed collateral on non-performing loans. They are classified as assets held for sale as their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. The Bank considers impairment both at the time of classification as assets for resale as well as in subsequent periods. At the time of recognition as assets for resale, any impairment loss is recognised in profit or loss unless the asset had been measured at revalue d amount in accordance with IAS 16 or IAS 38, in which case the impairment is treated as a revaluation decrease. In the subsequent periods, any impairment loss is calculated based on the difference between the adjusted carrying amounts of the asset and fair value less costs to sell. Any impairment loss that arises is recognised in profit or loss, even for assets that previously carried at revalued amounts. 2.5 New and revised standards that are effective for annual periods beginning on or after 1 January 2016 A number of new and revised standards are effective for annual periods beginning on or after 1 January These amendments had no material effect on the financial statements for any period presented and therefore were not presented. 2.6 Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Bank At the date of authorisation of these financial statements, certain new standards, and amendments to existing standards have been published by the IASB that are not yet effective, and have not been adopted early by the B. Information on those expected to be relevant to the Bank s fmancial statements is provided below. Management anticipates that all relevant pronouncements will be adopted in the Bank s accounting policies for the first period beginning after the effective date of the pronouncement. New standards, interpretations and amendments not either adopted or listed below are not expected to have a material impact on the Bank s financial statements. IFRS 9 Financial Instruments (2014) The IASB recently released IFRS 9 Financial Instruments (2014), representing the completion of its project to replace IAS 39 Financial Instruments: Recognition and Measurement. The new standard introduces extensive changes to IAS 39 s guidance on the classification and measurement of financial assets and introduces a new expected credit loss model for the impairment of financial assets. IFRS 9 also provides new guidance on the application o f hedge accounting. The Bank s management has yet to assess the impact of IFRS 9 on these fmancial statements. The new standard is required to be applied for annual reporting periods beginning on or after 1 January

17 2. Politici contabile (continuare) 2.6 Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Bank (continued) IF R S 15 Revenue from Contracts with Customers IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 Revenue, IAS 11 Construction Contracts, and several revenue-related Interpretations. The new standard establishes a controlbased revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities. IFRS 15 is effective for reporting periods beginning on or after 1 January The Bank s management believes that the adoption of IFRS 1'5 will have a non-significant impact on financial statements because most of Bank s revenues are recognized in accordance with IFRS 4 Insurance contracts. IFRS 16 L eases IFRS 16 will replace IAS 17 and three related Interpretations. It completes the IASB s long-running project to overhaul lease accounting. Leases will be recorded on the statement of financial position in the form of a rightof-use asset and a lease liability. IFRS 16 is effective from periods beginning on or after 1 January Management is yet to fully assess the impact of the Standard and therefore is unable to provide quantified information. However, in order to determine the impact the Bank are in the process of: performing a full review of all agreements to assess whether any additional contracts will now become a lease under IFRS 16 s new definition deciding which transitional provision to adopt; either full retrospective application or parţial retrospective application (which means comparatives do not need to be restated). The parţial application method also provides opţional relief from reassessing whether contracts in place are, or contam, a lease, as well as other reliefs. Deciding which o f these practicai expedients to adopt is important as they are one-off choices assessing the additional disclosures that will be required. Amendments to IAS 7 Disclosure Iniţiative The amendments require an entity to provide disclosures that enables users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and noncash-flows. The amendments do not prescribe a specific format to disclose financing activities, however a Bank may fulfill the disclosure objective by providing a reconciliation between the opening and closing balances in the statements of financial position for liabilities arising from financing activities. The amendments apply prospectively for annual periods beginning on or after 1 January 2017 with earlier application permitted. Entities are not required to present comparative information for earlier periods. 17

18 i. Cash and balances with National Bank Cash on hand 257, ,771 Current account with NBM 241, ,685 Overnight placements 80,000 Included in cash and cash equivalents (Note 22) 579, ,456 Mandatory reserve 109, ,888, 688, ,344 Current account and obligatory reserves The National Bank of Moldova (NBM) requires commercial banks to mamtain for liquidity purposes minimum reserves calculated at a certam rate of the average funds borrowed by banks during the previous month (between the 8th of the current month and the 7th of the following month), including all customer deposits. Based on the decision Nr 85 by the Administrative Council of NBM dated 15 April 2004, the method for calculation and maintaining the compulsory reserves was changed. Funds attracted in Moldovan Lei (MDL) and in nonconvertible currencies are reserved in MDL. Funds attracted in freely convertible currencies are reserved in US Dollars (USD) and/or EURO (EUR). As of 31 December 2016 the rate for calculation of the minimum compulsory reserve in all currencies was in US Dollars (USD) and/or EURO (EUR) 14.0% (31 December 2015: 14.0%), in Moldovan Lei (MDL) 35.0% (31 December 2015: 35.0%). As at 31 December 2016 the balance reserved in the current account held with the NBM amounted to 241,784 (31 December 2015: 226,686). This balance included compulsory reserve on funds attracted in Moldovan Lei and non-convertible currencies. The balance reserved on USD and EUR compulsory reserve accounts amounted to USD 000 2,536 and EUR 000 2,811 respectively (31 December 2015: USD 000 2,896 and EUR 000 2,977). The interest paid by NBM on the compulsory reserves during 2016 varied between 0.20% and 0.65% per annum for reserves in foreign currency and 6.00% % for reserves in MDL (2015: 0.27% and 0.41% for reserves in foreign currency and 7.46% % per annum for reserves in MDL). The compulsory reserves on funds attracted in USD and EUR are placed in Nostro accounts of NBM at correspondent banks incorporated in OECD countries. The obligatory reserves held in the current account at NBM are available for use in the Bank s day to day operations. 18

19 4. Current accounts and deposits with banks Current accounts Overnight placements 46,518 86, , ,790 Included in cash and cash equivalents (Note 21) 132, , , ,409 The major part of current accounts and deposits are held with foreighn banks. As at 31 December 2016 ovemights include balances denominated in USD with Bank of New York during 2016 the interest rate on overnight deposits from 0.05% and 0.25%. 5. Financial investments, debt securities State securities 238, ,353 Certificates issued by the NBM 299, , , ,970 Included in cash and cash equivalents (Note 21) 299, ,617 Debt securities with maturity over 90 days 238, , , ,970 State securities as at 31 December 2016 represent MDL medium term securities issued by the Ministry of Finance of the Republic of Moldova with interest rate ranging from 5.16% to 26.48% per annum (2015: 6.40% to 12.51%). Certificates issued by the National Bank of Moldova as at 31 December 2016 are 14 days original maturity bearing with interest rate ranging from 9.0% to 19.5 % per annum (2015: from 6.5 %- to 19.5%). As of 31 December 2016 and 2015 the Bank did not hold any state securities as mortgage for loan from the NBM. 19

20 6. Loans, net Loans 899, ,981 Less: Allowance for impairment losses (33,871) (24,129) 865, ,852 For the year ended 31 December 2016 the interest accrued on individually impaired loans amounted to 7,831 (31 December 2015: 5,679). Analysis o f loan portfolio by industry is presented below:, Manufacturing and trade 275, ,675 Agriculture and food industry 193, ,955 Consumer loans 151,896 99,285 Loans granted to financial non-banking sector 67,640 73,654 Real estate, construction and land improvement 38,492 50,502 Other 171, , , ,981 Range of loan interest rates practiced by the Bank is presented below: % % Interest rate on loans (min/max) The movement in provision for impairment of loans during the years 2016 and 2015 are presented below: Balance as at 1 January 24,129 26,772 Write-offs (9) (34,387) Recoveries 2, Charge for the year 7,152 31,137 Balance as at 31 December 33,871 24,129 Individual impairment 23,805 12,339 Collective impairment 10,066 11,790 33,871 24,129 20

21 6. Loans, net (continued) Allowances fo r impairment The Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for Banks of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment. Write off policy The Bank writes off a loan balance (and any related allowance for impairment losses) when the Bank determines that the loans are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. 7. Financial investments, equity securities - available-for-sale Investment securities available-for-sale include unlisted equity investments in local companies. The analysis of equity investments is as follows: Field of activity Ownership 2016 Ownership % % Electrosistem SA Leasing ,287 2,287 Garant In vest SRL Credit guarantee Birou de credit SRL Credit bureau Other ,331 3,331 All available-for-sale equity securities as at 31 December 2016 and 2015 are carried at cost because there is no quoted market price in an active market for them and the fair value cannot be reliably determined. No impairment was assessed in respect of these investments as at 31 December 2016 and

22 7. The movements in investment portfolio of the Bank are presented below: Balance as at 1 January 3,331 3,337 Additions - 71 Disposals - (77) Balance as at 31 December 3,331 3, Investment property Movements in investment property are as follows: Balance as at 1 January Net change from fair value adjustment - - Balance as at 31 December As at 31 December 2016, the balance of investment property comprised of a plot of land located in Onitcani (Republic of Moldova). Investment properties are stated at fair value, which has been determined based on valuations performed by Vlasercom Ltd, an independent specialist in valuing these types of investment properties. The fair value of the investment property was determined using sales comparison approach. 22

23 9. Intangible assets Cost Balance as at 1 January 9,547 9,385 Additions Disposals (590) - Balance as at 31 December 9,340 9,547 Accumulated depreciation Balance as at 1 January 7,121 6,214 Charge for the year Disposals (590) - Balance as at 31 December 7,371 7,121 Net book value At 31 December 1,969 2,426 The intangible assets represent computer software and workstation licenses. As at 31 December 2016 the cost of fully amortized intangible assets amounted to 5,293 (as at 31 December 2015: 5,127).

24 NOTES TO THE INDIVIDUALFINANCIAL STATEMENTS 10. Property and equipment Land and Furniture and Assets under buildings equipment Motor vehicles construction Total Cost or valuation Balance as at 1 January ,127 32,891 5, ,154 Additions 177 2,659-15,299 18,135 Transfers 13, ,981 (15,499) - Reclassification (122) (122) Reevaluation Disposals (325) (920) (643) (77) (1,965) Balance as at 31 December ,162 34,965 7, ,202 Accumulated depreciation Balance as at 1 January ,635 2,703-25,056 Charge for the year 1,440 2, ,667 Disposals - (884) (445) - (1,329) Balance as at 31 December ,158 23,298 2,938-28,394 Net book value At 31 December ,004 11,667 4, ,808 At 31 December ,409 11,256 3, ,098 As at 31 December 2016, the cost of fully depreciated property and equipment still used by the Bank amounted to 15,057 (as at 31 December 2015: MDL ,998). On the revaluation of buildings BC ENERGBANK was performed by interdependent assessment company Vibimobil SRL. The revaluation result was recorded increase the balance sheet value of buildings amounting to MDL' and 174 MDL'000 a difference in the revaluation reserve. The evaluation was performed using comparable sales method. 31 December 2016 management has analyzed market prices and found that they approximate the levels existing at the date of revaluation report..

25 NOTES TO THE INDIVIDUALFINANCIAL STATEMENTS 10. Property and equipment (continued) Terenuri şi Mobilier şi Active în curs de Clădiri echipamente Autovehicule execuţie Total MDL 000 Cost or valuation Balance as at 1 January ,333 32,179 5, ,179 Additions 623 3, ,092 Transfers (571) - Reclassification (348) (9) (103) - (460) Reevaluation (5,481) (5,481) Disposals - (2,912) - (264) (3,176) Balance as at 31 D ecem ber ,127 32,891 5, ,154 Accum ulated depreciation Balance as at 1 January ,147 22,077 2,255-29,479 Charge for the year 1,479 2, ,411 Reclassification - - (101) - (101) Reevaluation (5,906) (5,906) Disposals (2) (2,825) - - (2,827) Balance as at 31 D ecem ber ,635 2,703-25,056 Net book value At 31 December ,409 11,256 3, ,098 At 31 December ,186 10,102 3, ,700 25

26 For the Year Ended 31 December Other assets Receivables from money transfer systems 8,676 2,787 Settlements with other individuals Debtors on capital investments Assets for resale 56,136 81,385 Inventory and spare parts 1,606 1,583 Prepayments Other assets 4,298 4,259 Less: Allowance for losses on assets taken in possession (18,727) (15,684) 53,764 76,113 Assets acquired include land and buildings, taken into possession by the Bank in exchange for repayment of loans. Management analysed and established that there are no significant indicators of impairment of acquired assets. 12. Due to banks Bank does not have due to other banks nor as at 31 December 2016 neither as at 31 December

27 For the Year Ended 31 December Due to customers Corporate customers Current accounts 526, ,835 Term deposits 95,653 83, , ,433 Individuals Current accounts 150, ,198 Term deposits 902, ,484 1,052,439 1,006,682 1,674,857 1,541,115 The annual interest rates paid by the Bank for the MDL and FCY deposits of individuals and companies ranged as foliows: MDL FCY MDL FCY % % % % % % % % min max min max min max min max Enterprises Demand deposits Term deposits up to 3 months Term deposits >3 months< 1 year Term deposits over 1 year Individuals Demand deposits Term deposits up to 3 months Term deposits >3 months< 1 year Term deposits over 1 year Other borrowings Interest rate, % Borrowings RISP loans with floating rate due ,131 84,017 FIDA loans with floating rate due ,408 56,029 PAC loans with floating rate due ,496 13,333 KFW loans with floating rate due ,411 2,659 Filiera Vinului loans with floating rate due ,720 30,460 Livada Moldovei 0,9 8,927 - Interest accrued 1,941 1, , ,196 During 2016 and 2015 the Bank didn t have any defaults of principal, interest or other breaches of contractual terms. 27

28 For the Year Ended 31 December Other liabilities Suspense accounts 3, Amounts in transit Settlements with employees 6,293 4,691 Settlements with other individuals and institutions 6,488 4,010 Dividends payable Creditors on capital investments Other 500 1,020 17,219 10,033 Suspense accounts represent balances o f customers with incomplete information, which after the clearance are transferred to customers accounts. 16. Taxation The major components o f tax expense and the reconciliation of the expected tax expense based on the effective tax rate of 12% (2015: 12%) and the reported tax expense in profit or loss are as follows: Profit before tax 74,814 50,280 Moldovan statutory income tax rate 12% 12% Expected tax expense 8,978 6,034 Effect o f deductible/non-deductible expenses/revenue (2,750) (191) Impact of tax facilities application - (16,298) Actual tax expense 6,228 (10,455) Tax expense comprises: Current tax expense 6,089 7,002 Deferred tax expense: - Origination and reversal of temporary differences 139 (17,457) Tax expense 6,228 (10,455) Impact of change in tax legislation refers to changing the allowance for losses on assets and condiţional commitments, which entered into force on 1 May In accordance with changing tax laws of the Republic of Moldova, financial institutions are allowed for deducting losses on assets and condiţional commitments. calculated according to International Financial Reporting Standards (IFRS). Prior to this change, it was permitted deduction for losses calculated according to regulations approved by the National Bank of Moldova (NBM). 28

29 For the Year Ended 31 December Taxation (continued) Deferred taxes arising from temporary differences are summarized as follows: Deferred tax assets (liabilities) 1 January 2015 Assets Recognized in profit and loss 31 December 2015 Loans and advances to customers Property and equipment (3,347) 331 (3,678) Other assets Liabilities Other liabilities (2,784) (139) (2,923) Recognised as: Deferred tax asset Deferred tax liability (2,784) (139) (2,923) Deferred tax assets (liabilities) 1 January 2015 Assets Recognized in profit and loss 31 December 2015 Loans and advances to customers (16,298) 16,298 - Property and equipment (4,086) 739 (3,347) Other assets 143 (143) Liabilities Other liabilities (20,241) 17,457 (2,784) Recognised as: Deferred tax asset - - Deferred tax liability (20,241) 17,457 (2,784) Deferred tax was calculated by applying the 2016 standard tax rate of 12% (2015 standard tax rate of 12%). 17. Ordinarv shares Share capital as at 31 December 2016 represents 2,000 thousand (31 December 2015: 2,000 thousand) ordinary shares authorized and issued. As at 31 December 2016 and 2015 the nominal value per share is MDL 50. All shares have equal voting rights and are fully paid. 29

30 For the Year Ended 31 December Ordinary shares Shareholders with a holding of more than or equal to 5% of the issued share capital are as follows: Capitalul acţionar consistă din: % % ICS RED UNION FENOSA SA Hostex Establishment Esperan Property Consultants Ltd Dima-Holding SRL Sfinx-Impex SA Enteh SA Evident-Electro SA D unavim Other, less than 5% There are 44 other shareholders (31 December 2015: 44) of which 34 represent individuals and 10 - enterprises (31 December 2015: 34 individuals and 10 enterprises). 18. Reserves Statutory reserves 10,002 10,002 General reserves for banking risks 137, , , ,210 In accordance with local legislation, the Bank is required to create a legal reserve by appropriation of 5% of the net profit for the year until this reserve is equal to at least 10% of the issued and fiilly paid share capital. This is a non-distributable reserve. General reserves for banking risks include amounts resulting from differences between assets impairment under IFRS and calculated but not provided for under prudential (NBM) norms. This reserve is non-distributable. Revaluation reserves are made in respect of property and equipment. This reserve is non-distributable. 19. Dividends per share In year 2016 were proposed and distributed dividends for ordinary shares in the total amount o f MDL' (MDL 5.0/share). In year 2015: 5,000 (MDL 2.5/share). 30

31 For the Year Ended 31 December Capital management The Bank s objectives when managing capital are to safeguard the Bank s ability to continue as a going concern in order to provide retums for shareholders and benefits for other stakeholders and to maintam an optimal capital structure to reduce the cost of capital. In order to maintam or adjust the capital structure, the Bank may adjust the amount of dividends paid to shareholders, retum capital to shareholders, issue new shares or sell assets to reduce debt. No changes were made in the objectives, policies and processes from the previous years. Capital adequacy and the use of regulatory capital are monitored by the Bank s management, employing techniques based on the requirements developed by the National Bank of Moldova. The NBM requires each bank or banking Bank to hold the minimum level of the regulatory capital of 200,000 (31 December 2015: 200,000) and maintam a ratio of total regulatory capital to the riskweighted asset at minimum of 16% (31 December 2015: 16%). Weighted average assets and contingent commitments in accordance with NBM regulations Total normative capital in accordance with NBM regulations Risk weighted capital adequacy in accordance with NBM regulations, % 890, , , , Cash and cash equivalents For the purposes o f the cash flow statement, cash and cash equivalents comprise the following balances with less than three months maturity: Nota Cash and balances with National Bank 3 579, ,456 Current accounts and deposits with banks 4 132, ,409 Debt securities 5 299, ,617 Other assets 11 8,676 2,787 1,020, ,269 31

32 For the Year Ended 31 December Interest and similar income and expense Interest and similar income Loans and advances to customers Available-for-sale/held to maturity investments Loans and advances to banks 100, ,324 59,229 19,109 25,269 29,415 Interest expense and similar charges Deposits from individuals Deposits from corporate clients Deposits and loans from banks Other borrowings 184, ,848 (65,696) (60,363) (5,232) (8,295) (35) (704) (7,279) (5,928) (78,242) (75,290) Net interest income 106,621 83, Net fee and commission income Fee and commission income Processing of payments by clients Commission on guarantees and letters of credit Transactions with debit cards Other 44,256 38,194 1,352 1,853 1,757 1,173 3,056 1,827 Fee and commission expense Commissions on debit card services Payment transactions Other 50,421 43,047 (5,006) (3,751) (3,887) (3,302) (497) (141) (9,390) (7,194) Net fee and commission income 41,031 35,853 32

33 For the Year Ended 31 December Financial income, net Gains on trading of foreign currency, net 48,396 81,790 Foreign exchange losses 1,896 (11,819) 50,292 69, Other operating expenses, net Rent income Gains/(losses) on disposal o f property and equipment and other assets Gains/(losses) on disposal of subsidiary company Other non-interest income ,723 1, Personnel expenses Salaries and bonuses 42,952 36,065 Social insurance and contributions 10,889 8,917 Medical insurance 2,069 1,647 Other personnel expenses 6,880 4,907 Provision for unused vacation 5,521 4,083 68,311 55,619 The Bank makes contributions to the State pension system of the Republic o f Moldova calculated as a percentage of gross salary. These contributions are charged to the income statement in the period in which the related salary is eamed by the employee. 33

34 For the Year Ended 31 December General and administrative expenses Utilities and rent 6,698 5,744 Postage and telephone 2,480 2,244 Safeguarding of assets and security costs 3,775 3,351 Advertising and charity 3,829 1,810 Stationery and supplies 1,966 1,307 Repairs and maintenance 6,527 5,543 Professional services 1,639 1,459 Guarantee fund Taxes and penalties ' Other 2,642 3,316 30,784 25, Guarantees and other financial commitments The aggregate amounts of outstanding fmancial guarantees, commitments, and other off-balance sheet items as at 31 December 2016 and 2015 are: Financial guarantees 76,960 76,739 Financing commitments and other 106,426 53, , ,943 In the normal course of business, the Bank issues guarantees and letters of credit on behalf of its customers. The credit risk on guarantees is similar to that arising from granting of loans. In the event of a claim on the Bank as a result of a customer's default on a guarantee these instruments also present a degree of liquidity risk to the Bank. Financing commitments represent the Bank s commitments to grant loans and advances to customers. Financing commitments do not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded. 29. Capital commitments There were no capital commitments as at 31 December 2016 and

35 For the Year Ended 31 December Operating lease commitments Where the Bank is lessee, the future minimum lease payments under non-cancellable building and vehicles operating leases are as follows: No later than 1 year 2,896 3,172 Later than 1 year and no later than 5 years 3,059 4,905 Later than 5 years 1,818 2,374, 8,773 10, Contingencies As at 31 December 2016 and 2015 the Bank is a defendant in a number of lawsuits arising out of normal corporate activities. In the opinion of Management and the Bank s legal department, the probability of loss is remote. 32. Earnings per share Ordinary shares Profit attributable to equity Basic earnings issued holders of the Parent per share MDL As at 31 December ,000,000 68, As at 31 December ,000,000 60, Basic earnings per share are calculated by dividing net profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares issued during the year. As at 31 December 2016 and 2015 there were no dilutive equity inscruments subscribed to by the Bank. 35

36 For the Year Ended 31 December General and administrative expenses Utilities and rent 6,698 5,744 Postage and telephone 2,480 2,244 Safeguarding of assets and security costs 3,775 3,351 Advertising and charity 3,829 1,810 Stationery and supplies 1,966 1,307 Repairs and maintenance 6,527 5,543 Professional services 1,639 1,459 Guarantee fund Taxes and penalties > Other 2,642 3,316 30,784 25, Guarantees and other financial commitments The aggregate amounts of outstanding fmancial guarantees, commitments, and other off-balance sheet items a; at 31 December 2016 and 2015 are: Financial guarantees 76,960 76,73S Financing commitments and other 106,426 53, , ,94^ In the normal course of business, the Bank issues guarantees and letters of credit on behalf of its customers. Th credit risk on guarantees is similar to that arising from granting of loans. In the event of a claim on the Bank as result of a customer's default on a guarantee these instruments also present a degree of liquidity risk to the Bank. Financing commitments represent the Bank s commitments to grant loans and advances to customers. Financin commitments do not necessarily represent future cash requirements, since many o f these commitments wi expire or terminate without being fimded. 29. Capital commitments There were no capital commitments as at 31 December 2016 and

37 For the Year Ended 31 December Operating lease commitments Where the Bank is lessee, the future minimum lease payments under non-cancellable building and vehicles operating leases are as follows: No later than 1 year 2,896 3,172 Later than 1 year and no later than 5 years 3,059 4,905 Later than 5 years 1,818 2,374, 8,773 10, Contingencies As at 31 December 2016 and 2015 the Bank is a defendant in a number of lawsuits arising out of normal corporate activities. In the opinion of Management and the Bank s legal department, the probability of loss is remote. 32. Earnings per share Ordinary shares Profit attributable to equity Basic earnings issued holders of the Parent per share MDL As at 31 December ,000,000 68, As at 31 December ,000,000 60, Basic earnings per share are calculated by dividing net profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares issued during the year. As at 31 December 2016 and 2015 there were no dilutive equity instruments subscribed to by the Bank. 35

38 33. Fair value of financial instruments The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjustcd) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. The following table shows an analysis o f financial instruments recorded at fair value by level of the fair value hierarchy: 2016 Carrying Carrying value Level 1 Level 2 Level 3 Fair value value Level Level 2 Level 3 Fair value Financial assets Cash and balances with NBM Loans and advances to banks Investments held-tomaturity Loans and advances to customers 688, , , , , , , , , , , , , , , , , , , , , , , ,503 Financial liabilities Due to banks.. Other borrowings 179,034 - Due to customers 1,674,857 - (i) Credite şi avansuri acordate băncilor 179,034 1,673, ,034 1,673, ,196 1,541,115 Credite şi avansuri acordate băncilor includ plasamente şi credite interbancare. Valoarea justă a plasamentelor cu rată flotantă a dobânzii şi a depozitelor overnight aproximează valoarea lor de bilanţ. Valoarea justă estimată a plasamentelor cu rata fixă a dobânzii se determină pe baza fluxurilor de mijloace băneşti actualizate, utilizând rata dobânzii predominantă pe piaţă pentru datoriile cu riscul de credit şi scadenţă similară. 188,196 1,538, ,196 1,538,286

39 33. Fair value of financial instruments (continued) (i) Loans and advances to banks Loans and advances to banks include inter-bank placements and loans. The fair value of floating rate placements and overnight deposits approximates their carrying amount. The estimated fair value of fixed interest bearing placements is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity. (ii) Loans and advances to customers Loans and advances are net of impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. (iii) Liabilities, including due to other banks, due to customers and other borrowed funds The fair value of floating rate borrowings approximates their carrying amount. The estimated fair value of fixed interest-bearing deposits and other borrowings without quoted market price is based on discounted cash flows using interest rates for new debts with similar remaining maturity. 34. Related parties During the year, a number of banking and non-banking transactions were entered into with related parties in the normal course o f business. These include loans granting, deposit taking, trade finance, payment settlement, foreign currency transactions and acquisition of services and goods from related parties. In considering each possible related party relationship, special attention is directed to the substance of the relationship, and not merely the legal form. In considering each possible relationship with related parties, special attention is drawn to the substance of the relationship and not only to the legal form. Details of transactions between the Bank and other related parties are disclosed below. 37

40 34. Related parties (continued) Expenses and revenues from transactions with related parties are presented below: Subsidiaries Associates Key management personnel Other related parties - (in ) Interest and similar income 1,834 2, Fee and commission income Interest expense and similar charges Rent expense Personnel expenses ,003 11, ,845 2,013 16,900 11,856 2,151 1,931

41 34. Related parties (continued) Balances and transactions with related parties are presented below: (in ) Subsidiaries Associates Key management personnel Other relatedjjarties Assets Equity instruments - - 2,287 2, Loans and advances ,408 20,098 4,286 4,435 12,552 4,589 Liabilities Deposits ,648 8,443 33,754 43,000 Commitments, guarantees and other Issued , ,479 Received _ - 6,759 5,565 3,241 3,701 15,444 6,657 Provisions for liabilities, guarantees and commitments ,275 1, ,478 29,326 18,827 18,528 62,577 55,743 The total remuneration of Board members, the Executive committee and Censor Committee of the Bank for the year ended 31 December 2016 and 31 December 2015 is represented by short-term employee benefits. Terms and conditions o f transactions with related parties The above mentioned outstanding balances arose from the ordinary course of business. The interest charged to and by related parties is at normal commercial rates. Loans to employees were granted at market rates. Outstanding balances at the year-end are unsecured. There have been no guarantees received from any related parties. For the year ended 31 December 2065, the Bank has not incurred doubtful debts relating to amounts owed by related parties (2015: nil). 39

42 35. Risk management The Bank s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operaţional risks are an inevitable consequence of being in business. The Bank s aim is therefore to achieve an appropriate balance between risk and retum and minimise potential adverse effects on the Bank s financial performance. The Bank s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and Controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. Risk management is carried out by the Risk Management Committee (Risk Committee) under policies approved by the Board of Directors. The Risk Committee identifies, evaluates and hedges financial risks in close cooperation with the Bank s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments. In addition, internai audit is responsible for the independent review o f risk management and the control environment. The most important types of risk are credit risk, liquidity risk, market risk and other operaţional risk. Market risk includes currency risk, interest rate and other price risk. The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Credit risk is the most important risk for the Bank s business; management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans and advances, and investment activities that bring debt securities and other bills into the Bank s asset portfolio. There is also credit risk in off-balance sheet financial instruments, such as loan commitments. The credit risk management and control are centralised in credit risk management team of the Risk Committee and reported to the Board of Directors and head of each business unit regularly. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or Banks of borrowers, and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. Limits on the level of credit risk by product and industry sector are approved quarterly by the Board of Directors. The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on- and off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees, but a significant portion is personal lending where no such facilities can be obtained. 40

43 35. Risk management (continued) 35.1 Credit risk (continued) The Bank assesses the probability of default of individual counterparties using internai rating tools tailored to the various categories of counterparty. They have been developed intemally and combine statistical analysis with credit officer judgment and are validated, where appropriate, by comparison with extemally available data. Clients of the Bank are segmented into five rating classes. The Bank s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principie, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their predictive power with regard to default events. Bank s rating Description bf the grade 1 Standard 2 Watch 3 Sub-standard 4 Doubtful 5 Loss Credit quality by class o f financial assets The table below shows the credit quality by class of asset for all fmancial assets exposed to credit risk, based on the Bank s internai credit rating system. The amounts presented are gross o f impairment allowances Neither past due Past due but not Individually Nota nor impaired impaired impaired Total Balances with National Bank 3 430, ,915 Current accounts and deposits with banks 4 132, ,672 Financial investments, debt securities -held to maturity 5 538, ,037 Loans 6 707, ,156 90, ,076 Other financial assets 11 11,576 - " 11,576 1,820, ,156 90,721 2,012,276 41

44 35. Risk management (continued) 35.1 Credit risk (continued) 2015 Neither past duepast due but not Individually Nota nor impaired impaired impaired Total Balances with National Bank 3 347, ,573 Current accounts and deposits with banks 4 356, ,409 Financial investments, debt securities -held to maturity 5 271,970 _ 271,970 Loans 6 700, ,072 63, ,981 Other financial assets 11 5, ,428 1,681, ,072 63,548 1,872,361 Loans and advances Loans and advances are summarized as follows: Enterprises Individuals Enterprises Individuals Neither past due nor impaired Past due but not impaired Individually impaired 533,500 82,986 90, ,699 18, , ,039 63, ,521 16,033 Gross 707, , , ,554 Less: allowances for impairment (30,461) (3,410) (21,606) (2,523) Net 676, , , ,031

45 35. Risk management (continued) 35.1 Credit risk (continued) (i) Loans and advances neither past due nor impaired The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internai rating system adopted by the Bank. Enterprises Individuals Enterprises Individuals Standard 289, , ,409 88,302 Watch 232,801 45, ,412 29,219 Sub-standard 11,569 2,137 8,019 - Doubtful Loss , , , ,521 (ii) Loans and advances past due but not impaired Past due loans and advances are not considered impaired, unless other information is available to indicate the contrary. Gross amount of loans and advances by class to customers that were past due but not impaired were as folio ws: Enterprises Individuals Enterprises Individuals Less than 30 days 13,332 10,049 25,799 9, to 60 days 31, , More than 61 days 38,259 7,129 66,541 6,188 82,986 18, ,039 16,033 The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property, stock of materials and equipment as well as corporate guarantees and cash deposits. Upon iniţial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In subsequent periods, the fair value is updated by reference to market price or indexes of similar assets. Due to system limitations it is impracticable to report on the fair value of collateral placed against past due but not impaired loans. 43

46 35. Risk management (continued) 35.1 Credit risk (continued) (iii) Loans and advances individually impaired As at 31 December 2016 the individually impaired loans and advances to customers before taking into consideration the cash flows from collateral held is MDL ,721 (31 December ,548). The fair value of collateral that the Bank holds relating to loans individually determined to be impaired at 31 December 2016 amounts to 88,010. The collateral consists of properties and equipment (iv) Loans and advances renegotiated Restructuring activities include extended payment arrangements, approved externai management plâns, modification and deferral of payments. Following restructuring, a previously overdue customer account is reset to a normal status and managed together with other similar accounts. Restructuring policies and practices are based on indicators or criteria which, in the judgment of local management, indicate that payment will most likely continue. These policies are kept under continuous review. Renegotiated loans that would otherwise be past due or impaired amounts to 132,755 at 31 December 2016 (2015: 166,937). Credit-related commitments The primary purpose o f these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit - which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties - carry the same credit risk as loans. Documentary and commercial letters of credit - which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions - are collateralised by the underlying shipments of goods to which they reiate and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. 44

47 35. Risk management (continued) 35.1 Credit risk (continued) Maximum exposure to credit risk before collateral held or other credit enhancements: Nota Balances with National Bank 3 430, ,573 Current accounts and deposits with banks 4 132, ,409 Financial investments, debt securities 5 538, ,970 Loans, net 6 865, ,852 Other financial assets 11 11,576 5,428 1,978,405 1,848,232 Off-balance sheet items , ,943 Total credit risk exposure 2,161,791 1,978,175 The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2016 and 2015, without taking account of any collateral held or other credit enhancements attached. For on balance sheet assets, the exposures set out above are based on net carrying amounts as reported in the balance sheet. Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank. Risk concentrations o f the maximum exposure to credit risk The Bank s concentrations of risk are managed by client/counterparty and by industry sector. The maximum credit exposure to any client or counterparty as at 31 December 2016 was 0,00 (as at 31 December 2015: 35,717) before taking account of collateral or other credit enhancements. The loans granted to 20 major customers (Banks) of the Bank as at 31 December 2016 amounted at 353,136 representing 39% of the Bank s gross loan portfolio (as at 31 December 2015: 417,440 or 47%). These are analyzed by industries as follows: Manufacturing and trade 129, ,3 50 Agriculture and food industry 126, ,699 Other 97, , , ,440 For significant credit risk concentration at the industry level please refer to note 6. 45

48 35. Risk management (continued) 35.2 Market risk The economy of the Republic o f Moldova continues to display characteristics of an emerging market. These characteristics include, but are not limited to, the existence o f a currency that is not freely convertible outside of the country; a low level of liquidity in the public and private debt and equity markets and relatively high inflation. Additionally, the financial services sector in the Republic of Moldova is vulnerable to adverse currency fluctuations and economic conditions. The prospects for future economic stability in the Republic of Moldova are largely dependent upon the effectiveness of economic measures undertaken by the government, together with legal and regulatory developments. The Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices. The Bank separates exposures to market risk into either trading or non-trading portfolios. The market risks arising from trading and non-trading activities are concentrated in the Bank's Treasury and monitored by two teams separately. Regular reports are submitted to the Board of Directors and heads of each business unit. Trading portfolios include those positions arising from market-making transactions where the Bank acts as principal with clients or with the market. 46

49 35. Risk management (continued) Foreign exchange risk The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. Sensitivity analysis to currency risk The Bank performed a sensitivity analysis to currency risk at which it is reasonably exposed at 31 December 2016, showing how income statement could have been affected as a result of possible changes in currency rates. The tables below show the currencies for which the Bank has significant exposure to currency risk as at 31 December 2016 and as at 31 December 2015, for the balance sheet items that are sensitive to the currency rates modifications. The analysis demonstrates the effect of reasonably possible changes in currency rates against Moldovan Leu with all other variables held constant: As at 31 December 2016 Increase in currency rates, % Effect on PBT Decrease in currency rates, % Effect on PBT MDL'000 EUR +5% (1,547) -5% 1,547 USD +5% 579-5% (579) As at 31 December 2015 Increase in Effect on PBT Decrease in Effect on PBT currency rates, M D L 000 currency rates, % % EUR +5% (1,823) -5% 1,823 USD +5% (337) -5% 337 The tables below summarize the Bank s exposure to foreign currency exchange rate risk at 31 December 2016 and 31 December Included in the table are the Bank s financial assets and liabilities at carrying amounts, categorized by currency. 47

50 35. Risk management (continued) Foreign exchange risk (continued) As at 31 December 2016 Total MDL USD EUR Other ASSETS Cash and balances with National Bank 688, , , ,185 8,819 Current accounts and deposits with banks 132,672 93,942 37,620 1,110 Financial investments, debt securities - held to maturity 538, ,037 _ - Loans, net 865, , , ,995 - Financial investments, equity securities - available-for-sale 3,331 3,331 _ -. Other financial assets 11,576 4,556 2,198 3,480 1,342 Total assets 2,239,559 1,447, , ,280 11,271 LIABILITIES Due to banks Due to customers 1,674, , , ,845 4,968 Other borrowings 179, ,207 45,806 28,021 - Other fmancial liabilities 8,916 5,103 2,434 1, Total liabilities 1,862,807 1,057, , ,226 4,987 GAP 376, ,570 (30,946) 6,284 48

51 35. Gestiunea riscurilor (continuare) Riscul valutar (continuare) Total MDL As at 31 December 2015 USD EUR Other ASSETS Cash and balances with National Bank 528, ,119 81, ,914 3,079 Current accounts and deposits with banks 356, , ,366 7,045 Financial investments, debt securities - held to maturity 271, ,970 _. Loans, net 866, , , ,306. Financial investments, equity securities - available-for-sale 3,331 3,331.. Other financial assets 5,428 2, , Total assets 2,032,334 1,126, , ,945 10,449 LIABILITIES Due to banks Due to customers 1,541, , , ,840 7,092 Other borrowings 188,196 89,558 73,264 25,374 - Other financial liabilities 3,509 2, Total liabilities 1,732, , , ,411 7,107 GAP 299, ,369 (6,731) (36,466) 3,342 Other currencies mainly include Russian Rouble, Belorussian Rouble and Ukrainian Hrivna. 49

52 35. Risk management (continued) Interest rate risk Interest sensitivity o f assets, liabilities and o ff balance sheet items - repricing analysis Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because o f changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because o f changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored daily. According to the internai and externai fmancial market evolution, the Bank forecasts the evolution of interest rates for its assets and liabilities and the impact of these possible changes on the net interest income. The Bank estimates a fluctua ti on o f+/- 100 and +/- 50 basis points: Increase in basis points Sensitivity of Net Interest Income, Decrease in basis points Sensitivity of Net Interest Income, , (5,084) +50 2, (2,542) , (3,506) +50 1, (1,753) The tables below summarize the Bank s exposure to interest rate risks at 31 December 2016 and 31 December Included in the table are the Bank s financial assets and liabilities at carrying amounts, categorized by the earlier of contractual repricing or maturity dates. 50

53 35. Risk management (continued) Interest rate risk (continued) 31 December 2016 Total Less than 1 month From 1 inontli to 2 months From 2 months to 3 months From 3 months to 6 months From 6 months to 9 months From 9 months to 12 months From 1 to 5 years More than 5 years Non-interest bearing items ASSETS Cash and balances with National Bank 688, , ,210 Current accounts and deposits with banks 132,672 86,964 45,708 Financial investments, debt securities - held to maturity 538, ,154 27,670 40,616 76,074 28,958 21, Loans, net 865,205 71, , ,230 Financial investments, equity securities - available-for-sale 3,331 _ 3,331 Other financial assets 11, ,576 Total assets 2,239, , ,970 40,616 76,074 28,958 21, ,055 LIABILITIES Due to banks Due to customers 1,674,857 1,141, ,823 Other borrowings 179,034 41,634-5, ,253-4, ,118 Other financial liabilities 8,916 4,127 - * - - 4,789 Total liabilities 1,862,807 1,186,795-5, ,253-4, ,730 Interest gap 376,752 (256,474) 731,970 35,519 (48,179) 28,958 16, (131,675) 51

54 35. Risk management (continued) Interest rate risk (continued) 31 December 2015 Total Less than 1 month From 1 month to 2 months From 2 months to 3 monllis From 3 months to 6 months From 6 months to 9 months MDL 000 From 9 montlis to 12 months From 1 to 5 years More than 5 years Non-interest bearing items ASSETS Cash and balances with National - Bank 528, , ,945 Current accounts and deposits with banks 356, , ,348 Financial investments, debt securities - held to maturity 271, ,159 15,160 20,385 42,068 38,692 27,506 _ Loans, net 866, , , ,478 Financial investments, equity securities - available-for-sale 3,331 _ ,331 Other fmancial assets 5, ,428 Total assets 2,032, , ,252 20,385 42,068 38,692 27, ,530 LIABILITIES Due to banks Due to customers 1,541, , , , ,073 Other borrowings 188,196 31,876-5, , ,287 Other fmancial liabilities 3,509 2, * " - 1,261 Total liabilities 1,732, , ,293 5, ,603 3, ,621 Interest gap 299, ,057 (173,041) 14,916 (102,535) 35,167 27,506 (465) - (51,091)

55 NOTES TO THE INDIVID! \ L FINANCIAL STATEMENTS 35. Risk management (continued) 35.3 Liquidity risk The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw-downs and guarantees. The Bank does not maintain cash resources to meet all of these needs, as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of inter-bank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels o f demand. The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Bank. It is unusual for financial institutions to be completely matched, as transacted business is often of uncertainty term and different types. An unmatched position potentially enhances profitability, but also increases the risk o f losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important factors in assessing the liquidity of the Bank and its exposure to changes in interest rates and exchange rates. Management is confident that in spiţe of a substantial portion of deposits having contractual maturity dates within three months, diversification of these deposits by number and type o f deposits, and the past experience of the Bank would indicate that these deposits provide a long-term and stable source of funding for the Bank. The table below summarizes the maturity profile of the Bank s financial assets and liabilities at 31 December 2016 and 31 December 2015 based on contractual undiscounted cash flows. 53

56 35. Risk management (continued) 35.3 Liquidity risk (continued) La 31 decembrie 2016 Total Less than 1 month MDL 000 From 1 nionth to 2 months MDL 000 From 2 months to 3 months MDL 000 From 3 months to 6 months From 6 months to 9 months MDL 000 From 9 months to 12 months From 1 to 5 years More than 5 years ASSETS Cash and balances with National Bank 688, ,738 Current accounts and deposits with banks 132, , Financial investments, debt securities - held to maturity 547, ,024 28,498 42,113 79,427 30,883 22, _ Loans, net 1,019,092 98,387 43,953 42, ,026 88,410 90, ,155 28,909 Financial investments, equity securities available-for-sale 3,331 _ _.. 3,331 Other financial assets 11,576 11,533 " 43 Total assets 2,403,300 1,275,354 72,451 84, , , , ,330 32,283 LIABILITIES Due to banks Due to customers 1,715, ,944 88,575 85, , , , ,625 10,446 Other borrowings 199,235 4, ,119 6,459 21, ,186 16,329 Other financial liabilities 8,916 8,916 - * Total liabilities 1,923, ,340 89,553 85, , , , ,811 26,775 Maturity gap 479, ,014 (17,102) (1,361) 11,394 (137,206) (148,017) 241,519 5,508

57 35. Risk management (continued) 35.3 Liquidity risk (continued) La 31 decembrie 2015 Total MDL 000 Less than 1 month MDL 000 From 1 month to 2 months MDL 000 From 2 months to 3 months MDL 000 From 3 months to 6 months MDL 000 From 6 months to 9 months MDL 000 From 9 months to 12 months MDL 000 From 1 to 5 years MDL 000 More than 5 years MDL 000 ASSETS Cash and balances with National Bank 528, ,344 Current accounts and deposits with banks 356, ,409 Financial investments, debt securities - held to maturity 289, ,632 15,514 21,282 45,345 44,245 34, Loans, net 1,004, ,708 43,511 44, , , , ,459 24,353 Financial investments, equity securities - available-for-sale 3,331 _. 3,331 Other fmancial assets 5,428 5, Total assets 2,187,117 1,134,478 59,025 66, , , , ,780 27,727 LIABILITIES Due to banks Due to customers 1,595, ,385 87,111 60, , , , ,921 10,754 Other borrowings 207,792 2, ,025 2,002 31, ,954 15,915 Other financial liabilities 3,509 3, Total liabilities 1,807, ,030 87,111 60, , , , ,875 26,669 Maturity gap 380, ,448 (28,086) 5,475 (20,516) (86,886) (129,325) 162,905 1,058 55

58 35. Risk management (continued) 35.3 Liquidity risk (continued) The tables below show the contractual expiry by maturity o f the Bank s contingent liabilities and commitments: Less than 3 From 3 months From 1 to 5 More than 31 December 2016 months to 1 year years 5 years Total Commitments and guarantees 67,188 61,712 54, ,386 67,188 61,712 54, , December 2015 Less than 3 months From 3 months to 1 year From 1 to 5 years More than 5 years Total Commitments and guarantees 53,719 32,031 44, ,943 53,719 32,031 44, ,943 The Bank expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments. 56

59 35. Risk management (continued) 35.3 Liquidity risk (continued) The tables below show the contractual expiry by maturity o f the Bank s assets and liabilities: 31 December 2016 Up to 12 months ASSETS More than 12 months Cash and balances with National Bank 688, ,738 Current accounts and deposits with banks 132, ,672 Financial investments, debt securities - held to maturity 537, ,037 Loans, net 418, , ,205 Financial investments, equity securities - available-for-sale 3,331 3,331 Investment property Intangible assets 1,969 1,969 Property and equipment 130, ,808 Current income tax asset Other assets 16,355 37,409 53,764 Total Total assets 1,798, ,201 2,415,426 LIABILITIES Due to customers 1,549, ,864 1,674,857 Other borrowings 42, , ,034 Other liabilities 17,219 17,219 Deferred tax liabilities 2,923 2,923 Total liabilities 1,612, ,171 1,874,033 Gap 185, , ,393 57

60 35. Risk management (continued) 35.3 Liquidity risk (continued) 31 D ecem ber 2015 A SSE T S C ash and balances w ith N ational B ank C urrent accounts and deposits w ith banks Financial investm ents, debt securities - held to m aturity U p to 12 m onths 528, ,409 M ore than 12 m onths 271, Total 528, , ,970 Loans, net Financial investments, equity securities - available-for-sale Investment property Intangible assets Property and equipment 467,634 3, , ,852 3, ,426 2, , ,098 Current income tax asset 1,345 1,345 Other assets 10,412 65,701 76,113 0 Total assets 1,639, ,782 2,224,935 LIABILITIES Due to customers Other borrowings Other liabilities Deferred tax liabilities 1,424, ,383 1,541,115 42, , ,196 10,033 10,033 2,784 2,784 Total liabilities 1,480, ,689 1,742,128 Gap , ,807 58

61 36. Segment reporting An segment of activity is component of the Bank which engages in business activities which may generate income and incur expenses, whose results are examined periodically by Bank s decision factors with the purpose of allocating resources to segments and evaluating their performance and for which separate financial information is available. During 2016 and 2015 the Bank performed bank transactions that were provided only on the Moldovan market. Management considers that the inherent risks and benefits of banking activity do not differ significantly between clients categories as well as between different geographical regions, and therefore does not require the need for separate reporting on segments that will provide some additional benefits. The Bank does not monitor the activity on different segments because it considers it less relevant to the internai decision making process. The results are examined by the Bank only at Bank level, as a unique segment. Please refer to Note 6 for the structure o f the loan portfolio and Note 14 for the deposit structure. Decision about segment reporting is made by the management of Bank. 37. Subsequent events No subsequent events took place. 59