DEPOSIT INSURANCE AGENCY, BELGRADE. Financial Statements for the Year Ended 31 December 2015 and Independent Auditor s Report

Transcription

1 Financial Statements for the Year Ended 31 December 2015 and Independent Auditor s Report Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized MOORE STEPHENS Revizija i Računovodstvo d.o.o., Beograd, Studentski trg 4/V Tel: , , Fax: office@revizija.co.rs Matični broj , PIB ,

2 DEPOSIT INSURANCE AGENCY BELGRADE CONTENTS Page INDEPENDENT AUDITOR S REPORT 1-2 FINANCIAL STATEMENTS: BALANCE SHEET 3 INCOME STATEMENT 4 STATEMENT OF OTHER COMPREHENSIVE INCOME 5 STATEMENT OF CHANGES IN EQUITY 6 STATEMENT OF CASH FLOWS

3 Privredno društvo za reviziju računovodstvo i konsalting MOORE STEPHENS Revizija i Računovodstvo d.o.o. Studentski Trg 4/V, Beograd, Srbija Tel: +381 (0) , ; Fax: office@revizija.co.rs, Matični broj/id: ; PIB/VAT: This is a translation of the original Independent Auditors Report issued in the Serbian language. All due care has been taken to produce a translation that is as faithful as possible to the original. However, if any suggestion arise related to interpretation of the information contained in the translation, the Serbian version of the document shall prevail. INDEPENDENT AUDITOR S REPORT To the Board of Directors of Deposit Insurance Agency Report on the Financial Statements We have audited the accompanying financial statements of the Deposit Insurance Agency, Belgrade (hereinafter the Agency ), which comprise the balance sheet as at 31 December 2015, the income statement, statement of other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management of the Agency is responsible for the preparation and fair presentation of these financial statements in accordance with the accounting regulations prevailing in the Republic of Serbia, based on the Law on Accounting, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Law on Auditing and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements, in all material respects, give a true and fair view of the financial position of the Agency as of 31 December 2015, and its financial performance and its cash flows for the year then ended, in accordance with the accounting regulations prevailing in the Republic of Serbia, based on the Law on Accounting of the Republic of Serbia and accounting policies disclosed in Note 3 to the financial statements.

4 INDEPENDENT AUDITOR S REPORT To the Board of Directors of Deposit Insurance Agency - Continued Other Matter The financial statements of the Agency as of 31 December 2015 were audited by another auditor, whose Report dated 7 April 2015 expressed a unqualified audit opinion on those financial statements. Report on other legal and regulatory requirements We have reviewed compliance of the attached Annual business report (report on operations) of the Agency for 2015 with audited financial statements for the year ended 31 December In accordance with the Law on Accounting and the Law on the Deposit Insurance Agency of the Republic of Serbia, the management of the Agency is responsible for the preparation of the accompanying annual business report. In accordance with the Law on auditing of the Republic of Serbia our responsibility is to express an opinion on consistency of the annual business report with the financisal statements for year ended 31 December In our opinion, the financial information published in the annual business report of the Agency for 2015 are in line with the accompanying financial statements for the year ended 31 December Belgrade, 4 April 2016 MOORE STEPHENS Revizija i Računovodstvo doo, Beograd Bogolјub Aleksić, Managing Partner

5 DEPOSIT INSURANCE AGENCY BELGRADE BALANCE SHEET as of 31 December 2015 (in RSD thousand) Note 31/12/ /12/ /01/2015 ASSETS Cash and balances with Central Bank 5 387,420 81, ,342 Financial assets initially carried at fair value through profit and loss held for trading 6 3,510, ,920 - Loans and receivables from banks and other financial institutions 7 29,617,225 16,052,137 4,866,479 Loans and advances to customers 8 22,188 21,532 20,685 Investments in associates Intangible assets ,025 1,707 Property, plant and equipment 10 1,543 1,476 1,831 Current tax assets 5,660 20,169 Deferred tax assets Other assets 12 23,733,758 21,575,613 2,681,835 TOTAL ASSETS 57,273,599 38,710,096 7,890,636 LIABILITIES Deposits and other liabilities due to banks, other financial institutions and the Central Bank 13 17,487,772 13,225,974 - Provisions 14 12,985 10,156 8,632 Current tax liabilities 5, Other liabilities 15 13,090,519 13,988,443 7,532,158 TOTAL LIABILITIES 30,597,127 27,224,573 7,540,790 CAPITAL 16 Share capital 26,322,531 11,368, ,100 Profit 353, ,018 78,746 Loss TOTAL CAPITAL 26,676,472 11,485, ,846 TOTAL LIABILITIES 57,273,599 38,710,096 7,890,636 This is a translation of the original Independent Auditors Report issued in the Serbian language. All due care has been taken to produce a translation that is as faithful as possible to the original. However, if any suggestion arise related to interpretation of the information contained in the translation, the Serbian version of the document shall prevail. 3

6 DEPOSIT INSURANCE AGENCY BELGRADE INCOME STATEMENT for the period from 01 January to 31 December 2015 (in RSD thousand) Note Interest income , ,869 Interest expense 17 48, ,506 Net interest income 112,339 97,363 Fee and commission expense ,804 46,411 Net fee and commission income 148,804 46,411 Net gains from hedging Net foreign exchange losses and effects of contracted foreign currency clause (2,691) Other operating income , ,839 Net income from the decrease in financial assets impairment and credit risk-weighted off-balance sheet items 1,507 TOTAL NET OPERATING INCOME 416, ,934 Salaries, compensations and other personal expenses 21 77,066 66,614 Amortisation and depreciation 976 1,036 Other expenses 22 62,289 44,780 PROFIT BEFORE INCOME TAXES 276,655 99,504 Income taxes 19,251 14,509 Deferred tax income PROFIT FOR THE YEAR 257,428 85,010 This is a translation of the original Independent Auditors Report issued in the Serbian language. All due care has been taken to produce a translation that is as faithful as possible to the original. However, if any suggestion arise related to interpretation of the information contained in the translation, the Serbian version of the document shall prevail. 4

7 DEPOSIT INSURANCE AGENCY BELGRADE STATEMENT OF OTHER COMPREHENSIVE INCOME for the period from 01 January to 31 December 2015 (in RSD thousand) Note Profit for the period 257,428 85,010 Other comprehensive income Components of other comprehensive income that may not be reclassified to profit or loss - - Components of other comprehensive income that can be reclassified to profit and loss - - TOTAL COMPREHENSIVE INCOME 257,428 85,010 This is a translation of the original Independent Auditors Report issued in the Serbian language. All due care has been taken to produce a translation that is as faithful as possible to the original. However, if any suggestion arise related to interpretation of the information contained in the translation, the Serbian version of the document shall prevail. 5

8 DEPOSIT INSURANCE AGENCY BELGRADE STATEMENT OF CHANGES IN EQUITY for the period from 01 January to 31 December 2015 (in RSD thousand) Funds Profit for the year Total Opening balance as of 1 January ,100 78, ,846 Increase 23,648,249-23,648,249 Decrease (12,550,844) (46,738) (12,597,582) Profit for the year - 85,010 85,010 Closing balance as of 31 December ,368, ,018 11,485,523 Increase 15,084,265-15,084,265 Decrease (130,239) (85,010) (215,249) Profit for the year - 321, ,933 Closing balance as of 31 December ,322, ,941 26,676,472 This is a translation of the original Independent Auditors Report issued in the Serbian language. All due care has been taken to produce a translation that is as faithful as possible to the original. However, if any suggestion arise related to interpretation of the information contained in the translation, the Serbian version of the document shall prevail. 6

9 DEPOSIT INSURANCE AGENCY BELGRADE CASH FLOW STATEMENT for the period from 01 January to 31 December 2015 (in RSD thousand) CASH FLOWS FROM OPERATING ACTIVITIES Cash inflow from operating activities 10,076,355 8,811,045 Interest receipts 193, ,947 Fee and commission receipts 452, ,898 Receipts from other operating activities 9,430,117 8,465,200 Cash outflow from operating activities (786,444) (709,059) Interest paid (48,133) (348,506) Fees and commission paid (148,953) (2,001) Payments for gross salaries, compensations and other personal expenses (77,918) (68,652) Taxes, contributions and other duties paid (24,742) (58,067) Outflow for other operating expenses (486,698) (231,833) Net cash flows from/(used in) operating activities before increase or decrease in placements and deposits 9,289,911 8,101,986 Decrease in placements and increase in deposits and other liabilities 28,609,560 5,866,730 Decrease in loans and placements to banks, other financial organizations, central banks and customers 26,685,148 5,866,730 Decrease in financial assets initially carried at fair value through profit and loss, financial assets held for trading and other securities not held with investment purposes 1,924,412 Increase in loans and decrease in deposits and other liabilities (47,698,997) (6,984,653) Increase in loans and receivables due from banks, other financial institutions, the central bank and customers (43,318,665) (6,018,455) Increase in financial assets initially carried at fair value through profit and loss, financial assets held for trading and other securities not held (4,380,332) (966,198) with investment purposes Net cash inflows from operating activities before income tax 6,984,063 Net cash outflows from operating activities before income tax (9,799,526) Income tax paid (7,741) Net cash generated from operating activities 6,984,063 Net cash lost in operating activities (9,807,267) CASH FLOWS FROM FINANCING ACTIVITIES Cash inflow from financing activities 6,206,325 15,432,128 Proceeds from borrowings 4,189,474 13,212,648 Other inflows from financing activities 2,016,851 2,219,480 This is a translation of the original Independent Auditors Report issued in the Serbian language. All due care has been taken to produce a translation that is as faithful as possible to the original. However, if any suggestion arise related to interpretation of the information contained in the translation, the Serbian version of the document shall prevail. 7

10 DEPOSIT INSURANCE AGENCY BELGRADE CASH FLOW STATEMENT - continued for the period from 01 January to 31 December 2015 (in RSD thousand) Cash outflow from financing activities (31,083) (12,498,215) Repayment of borrowings (20,571) (9,915,646) Other outflows from financing activities (10,512) (2,582,569) Net cash inflow from financing activities 6,175,242 2,933,913 Net cash outflow from financing activities - - Total net received cash 44,892,240 30,109,903 Total net cash payments (48,524,265) (20,191,927) NET INCREASE IN CASH - 9,917,976 NET DECREASE IN CASH (3,632,025) - CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 9,976, ,666 GAINS ON EXCHANGE 100,633 - LOSS ON EXCHANGE - (269,127) CASH AND CASH EQUIVALENTS, END OF YEAR 6,445,123 9,976,515 This is a translation of the original Independent Auditors Report issued in the Serbian language. All due care has been taken to produce a translation that is as faithful as possible to the original. However, if any suggestion arise related to interpretation of the information contained in the translation, the Serbian version of the document shall prevail. 8

11 According to the Rules on the Chart of Accounts and the Contents of Accounts in the Chart of Accounts for Banks ( Official Gazette of RS, no 71/2014 and 135/2014), Law on the Deposit Insurance Agency ( Official Gazette of RS, no 14/15), Law on Accounting ( Official Gazette of RS, no. 62/13) and other relevant legislation in the Republic of Serbia, Deposit Insurance Agency, Belgrade, registration no , presents the following: FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER AGENCY'S ESTABLISHMENT AND PRINCIPAL ACTIVITIES Pursuant to the new Law on the Deposit Insurance Agency, this Law governs the status, organization, powers and functions of the Deposit Insurance Agency (hereinafter: the Agency ). The statute of the Agency was changed and thereby the Agency became an independent legal entity. The Agency is not be considered as a user of the budget and public funds in terms of the law governing the public procurement in case of the selection of the payout agent bank in the manner prescribed by the law regulating the deposit insurance, the law governing the activities of public agencies, the regulations limiting the number of employees in the public sector, and the budget system regulations. In accordance with the new Law competence of the Agency was reduced, so the Agency performs the following activities: - deposit insurance of individuals, entrepreneurs, micro, small and medium sized legal entities in Banks for the purpose of protection of these persons deposits in relation with possible bankruptcy or liquidation of the banks in accordance with the Law on Deposit Insurance; - manages the assets transferred in the restructuring of banks and perform other activities related to the process of bank restructuring in line with the law governing banks; - act as a bankruptcy or liquidation administrator for banks, insurance companies and leasing companies in line with the Law governing bankruptcy and liquidation of banks and insurance companies and the law governing financial leasing; - organizes the Investor Protection Fund in line with the Law governing the Capital Markets; In addition to activities described above, and in accordance with transitional provisions, the Agency shall continue to perform the activities it performs in accordance with the Law on the Deposit Insurance Agency ( Official Gazette of the Republic of Serbia, Nos. 61/05, 116/08 and 91/10), which are not included in this law, until they are taken over by the ministry in charge of finance or other competent body, in accordance with law and these are: - implementation of the procedure for the sale of shares of the banks whose shareholder is the Republic of Serbia, initiated up to the date this law enters into force, in accordance with the law and instructions of the ministry in charge of finance, for a fee in the amount of up to 0.1% of the actual sales price of the shares, which is decided upon by the Government; - implementation of the procedure for the sale of the socially owned capital in insurance companies as set forth in the law governing insurance; - implementation of the procedure for the collection of receivables assumed on behalf and for the account of the Republic of Serbia, including the Autonomous Province of Vojvodina, initiated up to the date this law enters in force, with the right to the compensation for the court and other costs in the amount of actual costs incurred for managing those proceedings and for a fee at the level of 3% of the amount collected. The funds that the Agency uses in its operations consists of the following: 1) deposit insurance fund assets; 2) investor protection fund assets; 9

12 1. AGENCY'S ESTABLISHMENT AND PRINCIPAL ACTIVITIES (Continued) 3) the funds used by the Agency in performing activities of manages the assets transferred in the restructuring of banks and perform other activities related to the process of bank restructuring in line with the law governing banks; 4) the funds used by the Agency in implementation of the procedure for the collection of receivables assumed on behalf and for the account of the Republic of Serbia, including the Autonomous Province of Vojvodina, initiated up to the date this law enters in force. Deposit Insurance Fund (hereinafter: the Fund ) is formed from: deposit insurance premiums paid by banks, revenues from investments of the Fund s assets, the Agency s claims recovered from the bankruptcy or liquidation estates of banks on the basis of insured deposits, funds provided by borrowings, from donations and funds from the budget of the Republic of Serbia and other funds in line with the Law. The Fund's resources are specifically allocated funds to be used for payment of the insured deposits with associated costs of payments, in case of bankruptcy or liquidation of the bank, to finance the process of restructuring of the bank to the extent and under the conditions stipulated by the law regulating banks, to finance the cost of management of deposits and covering operational costs of the Agency, as well as for the return of borrowed funds used for the purposes stipulated by the Law. The Law on Deposit Insurance allows the Agency to invest dinars funds held in the Deposit Insurance Fund into debt securities issued by the Republic of Serbia or the National Bank of Serbia, while foreign currency funds shall be invested by the National Bank of Serbia in foreign securities, based on the agreement concluded with the Agency and upon the order of the Agency, in its own name and on behalf of the Agency, or deposited with foreign banks, in accordance with the foreign reserve management policy. The funds for carrying out other activities within its principal activities, the Agency provides from revenues obtained through its operations, from donations, from the budget and otherwise, in accordance with the law. Pursuant to the Law on the Budget of the Republic of Serbia for 2016, financing of the Agency was not envisaged within the expenditures of the Ministry of Finance of the Republic of Serbia, and therefore the Agency will not use the budget funds in The Statute of the Agency regulates organization and manner of performing Agency activities, scope of activities of the Agency's bodies, representation and acting on behalf of the Agency, and other matters important for the Agency's activities. As of 31 December 2015, the Agency had 32 employees (31 December 2014 and 2013: 29 and 27 employees). The Agency's business operations are conducted from leased premises in Belgrade, no. 2, Knez Mihailova Street. The Agency's registration number is Its tax identification number is

13 2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS Annual financial statements of the Agency, together with the audit report as of 31 December 2015, are submitted to the Government and the National Bank of Serbia, not later than 15 May 2016 in accordance with the new legislation Statement of compliance The Agency maintains records and prepares financial statements in accordance with the Law on the Deposit Insurance Agency ( Official Gazette RS 14/15), the Law on Accounting ( Official Gazette of RS 62/13) and other relevant legislation in the Republic of Serbia. According to the Law on Accounting, legal entities and entrepreneurs incorporated in Serbia are required to prepare and submit financial statements in accordance with the prevailing legislation, professional and internal regulations, where professional regulations refer to: the Framework for the Preparation and Presentation of Financial Statements (the Framework ), International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), as well as the related interpretations representing an integral part of these standards i.e. or the text of IAS and IFRS, which has been implemented, does not include the basis for concluding, illustrative examples, guidance, comments, opposing viewpoints, elaborated examples or other additional material which may be adopted in relation to standards, i.e., interpretations, except when it is expressly stated that it is an integral part of the standard or interpretation. The accompanying financial statements have been prepared in the format prescribed by the Decision on the Form and Content of the Financial Statements of Banks ( Official Gazette of RS no. 71/2014 and 135/2014) and the Decision on the form and content of the Statistical Report for Banks ( Official Gazette of RS no. 71/2014). In the preparation of the accompanying financial statements the Agency has adhered to the accounting policies described in Notes 3.1 to The financial statements have been prepared in accordance with the going concern assumption and the following principles: Business event principle (accrual principle) implies that financial statements are prepared in accordance with the business event principle. The effects of business changes and other events are recognized when they occur, and accordingly recorded in the books in order to be included in financial statements in the period in which they occur. Going concern principle implies that financial statements are prepared on the assumption that the Agency will continue to operate for indefinite period of time. The principle of consistency implies that the accepted accounting rules for business events, business transactions and financial performance of all transactions are carried out consistently over a prolonged period. In the case of changes in accounting rules, the reasons for their change and the corresponding effects on the Agency's financial position shall be disclosed. The principle of identity implies that the opening balance of each year shall coincide with the closing balance of the previous year. 11

14 2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued) 2.1. Statement of compliance (Continued) The principle of individual assessment implies that assets and liabilities are measured accordingly to "item by item" principle, where possible group measurements shall be derived from individual assessments. The Agency's financial statements are based on the adopted accounting policies. Accounting policies are the specific principles, bases, rules and practices for the valuation of balance sheet positions, preparation and presentation of financial statements adopted by the Agency. The accounting policies adopted are related to the recognition, nullifying the recognition, measurement and evaluation of assets, liabilities, income and expenses of the Agency. In the selection of accounting policies the principles referred by the Conceptual Framework for Financial Reporting are applied: the principle of understandability, relevance; authenticity; immateriality; timeliness; comparability and other principles. The accounting policies are based on: Conceptual Framework for Financial Reporting, Individual International Accounting Standards, International Financial Reporting Standards and applicable interpretations of the International Financial Reporting Standards and other professional regulations. The Agency's accounting policies are consistently applied from period to period. Changes in accounting policies may be made in the event of changes to IAS/IFRS and interpretations of IAS/IFRS and when the change results in a more realistic expression of balance sheet positions. In the event of a change in accounting policy, the implementation is performed retroactively, except when there is objective impracticability of retroactive application Basis of measurement The financial statements have been prepared in accordance with the (historical) cost principle, except for financial instruments at fair value through profit and loss. Changes in accounting estimates do not apply retroactively, but only to current and future reporting periods. In case these changes have impact on assets, liabilities and equity, these effects are recognized by the Agency in the period in which the change of accounting estimates occurred. For all of the elements of assets and liabilities for which the policy of measuring at fair value was adopted, the relevant international standards of financial reporting and accounting policies prescribed by the regulations on accounting and accounting policies are applied. 12

15 2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued) 2.3. Official reporting currency The Agency's financial statements are stated in thousands of dinars (RSD). Dinar is the official reporting currency in the Republic of Serbia Use of estimates The presentation of the financial statements in accordance with the applied reporting framework requires from management to make best estimates and reasonable assumptions that effect assets and liabilities amounts, as well as income and expenses, during the accounting period. These estimates and assumptions are based on experience, as well as on information available on the date of preparation of the financial statements. Changes in accounting estimates do not apply retroactively, but only to current and future reporting periods. In case these changes have impact on assets, liabilities and equity, these effects are recognized in the period in which the change of accounting estimates occurred. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income and expenses Income includes the gross inflow of economic benefits during the given period, arising from the ordinary activities of the Agency regardless of the time of collection, as well as gains from sale and purchase of securities and gains from sale of other investments. Revenue is measured at the fair value of the consideration received or receivable under the condition that the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Agency. However, when uncertainty arises from the non-collectability of an amount already included in revenue or the amount for which the likelihood of collection has expired, it is recognized as an expense. Operating expenses represent expenses incurred in the course of ordinary activities of the Agency and losses on sales of securities and losses on sale of other investments. Expenses are recognized in the accounting period to which they relate and at the same time serves to reduce assets or increase liabilities. The Agency uses estimates of income and expenses relating to the corresponding period upon which a financial plan is constituted at both the Agency level and at the level of the Deposit Insurance Fund and the Investor Protection Fund Interest income and expenses Interest income and interest expenses, including penalty interest, are recognized on an accrual basis in the period to which they belong, so that real revenues and real expenses are recorded, depending on time period and interest rates. Calculated interest income and expenses represent income and expenses of the period in which they occurred. 13

16 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.2. Fee and commission income and expenses Fee and commission income and expenses earned/incurred from banking services are recognized on an accrual basis and are recorded in income statement in the period in which they occurred Net foreign exchange currency gains and losses Assets and liabilities positions contracted in foreign currencies at the balance sheet date are translated into dinars at the middle exchange rate prevailing at the balance sheet date. Foreign exchange gains arising from the translation are recognized in income and foreign exchange losses are charged to expenses of the accounting period. Foreign exchange rate gains on translation of these items are credited to income, foreign exchange losses are charged to expenses. If the positions of assets and liabilities are contracted in foreign currency using the contracted exchange rate then on the translation into dinars the contracted rate is applied, as well as on the balance sheet date Other operating income and expenses Other operating income and expenses are recorded on appropriate accounts depending on business transaction type. Other operating income relates to services rendered and donations received, on the basis of administration of projects for which donations were used. Other operating expenses comprise expenses incurred in the reporting period and relate to operating and other expenses of the Agency. Salary expenses refer to gross salaries, remuneration, compensation of members of the Board of Directors and other employee benefits Gains and losses on valuation of securities Gains and losses on valuation of securities refer to the difference in their market and carrying values and are recognized as income and expenses of the period through profit or loss Profit and loss from discontinued operations Extraordinary income and expenses include revenues and expenses during the accounting period from extraordinary events, that have not been recorded on balance sheet positions of other income and expenses from the Agency's operating activities. They are recorded in the positions of gains and losses from discontinued operations Borrowing costs Borrowing costs are interest and other costs incurred in connection with the borrowing of funds for the Agency and include interest expenses and exchange differences arising from borrowing in foreign currency. All borrowing costs are recognized as expenses in the period in which they are incurred. 14

17 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.8. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, balances on current account in RSD or foreign currency held with the National Bank of Serbia, the State Treasury and with commercial banks. Cash equivalents presented in the balance sheet comprise short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk that impacts their value. Cash flows arising from foreign currency transactions are recorded in functional currency by applying the exchange rate on the day of cash inflow or outflow, or at the contracted rate in accordance with the contracts concluded Financial instruments The Agency classifies its financial assets in the following categories: financial assets held for trading, loans and receivables and investment securities. The Agency's balance sheet includes financial instruments in accordance with IAS 39, Financial Instruments - Recognition and Measurement. The financial instrument pertains to any agreement which creates a financial asset or financial liability. All financial assets and financial liabilities (placements, deposits) are recognized in the balance sheet at fair value on the basis of a contract under which the financial asset or financial liability result. Valuation of financial assets and financial liabilities is carried at amortised cost and fair value. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Loans, short-term receivables and other receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and which the Agency does not intend to sell. Loans are stated in the balance sheet at the amount of principal outstanding, including all interest, fees and commissions receivable, as well as accruals relating to accrued receivables on these grounds, net of principal repayments, accrued benefits that are included in the calculation of effective interest rates and allowance for impairment based on an estimate of the risks identified for individual loans as well as the risks for which the Agency's experience indicates that they are included in the portfolio. Amortized cost represents the initial value of investments, net of the amount of instalments paid, adjusted for accumulated amortization of any difference between the initial amount and the maturity amount reduced by estimated allowance for impairment due to impairment or inability to collect. Loans granted by the Agency are recorded in the balance sheet when cash is advanced to borrowers. For complete non-performing loans to banks that are in bankruptcy or liquidation, allowance for impairment is made for the overall amount of loans. 15

18 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.9. Financial instruments (Continued) Loans, short-term receivables and other receivables Receivable due from banks in bankruptcy and liquidation for payments of insured deposits, together with the incurred costs of the Agency in the process of payment of the insured deposits of individuals, entrepreneurs, micro, small and medium-sized legal entities, or receivables based on investor protection, are recorded as receivables from banks in bankruptcy and liquidation and other legal entities in bankruptcy and liquidation. Receivables from the previous paragraph represent the costs of the bankruptcy proceedings against the bank initiated by the decision of the Commercial Court in Belgrade, whose settlement to the Agency is made in the manner determined by regulations governing the bankruptcy proceedings of banks and insurance companies. Receivables from housing loans granted to employees are recorded in the balance sheet on the account of housing loans. Housing loans granted in dinars depend on the contractual terms of the loan. For the amounts of contracted revaluation or contracted interest rates, loan principals are carried at fair value or amortized cost, and the effects of the amounts translated using the contracted index values are reported as income from the changes in value of receivables or interest income in an amount calculated to the date of the balance sheet. The Agency recognizes a provision for the due receivables in respect of principal and interest not collected within 60 days of the due date. Agency s funds held with commercial banks under the most favourable conditions are recorded on the account of deposits. Investment securities The Agency classifies its financial assets in the following categories: financial assets at fair value through profit and loss and securities held to maturity. Classification depends on the purpose for which assets have been obtained. Management classifies its financial assets at initial recognition. Financial assets at fair value through profit and loss and securities held to maturity According to the Agency's accounting policies financial assets at fair value through profit and loss include old foreign currency savings bonds issued by the Republic of Serbia, securities - bonds and treasury bills issued by the Republic of Serbia. Securities classified as held to maturity relate to the Government bonds of the Republic of Serbia. These bonds are coupon bonds with semi-annual coupon payments and prescribed annual interest rate. a) Securities issued by the Republic of Serbia - treasury bills are recorded at discounted value, and recognition of the effects of the difference between market and book value is recognized as income or expense of a given period. 16

19 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.9. Financial instruments (Continued) b) Bonds and short-term securities issued by foreign countries are initially recognised at cost. Subsequently, monitoring and analysis is carried out in order to measure market value at the balance sheet date. The National Bank of Serbia (the NBS) manages foreign currency assets of the Deposit Insurance Fund, invests these in securities and trades in securities in a manner that decreases risk, realizes adequate income and maintain the Fund's liquidity. The aforementioned foreign exchange assets are managed in accordance with the policy for managing foreign exchange reserves held with the NBS (based on the general and operating guidelines for managing reserves held with the NBS). Gains and losses on the valuation and sale of financial assets at fair value are recognised in the income statement Tangible and intangible assets Tangible assets that are subject to depreciation and recognized in accordance with IAS 16 "Property, Plant and Equipment", are assets whose useful life is greater than one year and whose individual cost at the time of purchase was higher than the average gross wage per employee in the Republic of Serbia according to the latest published data of the authority responsible for statistics. If the tangible asset does not meet the specified criteria, it is recognized as inventory or expense of the period, except for the furniture and IT equipment which must be recognized as tangible assets, regardless of their cost. Intangible assets subject to amortisation and recognized in accordance with IAS 38 "Intangible Assets", are assets whose useful life is greater than one year and whose individual cost at the time of procurement was higher than the average gross wage per employee in the Republic of Serbia, according to the latest published data of the authority responsible for statistics. If an intangible asset does not meet the above requirements, it is recognized as the expense of the period. For the purposes of this Rule Book, tangible and intangible assets comprise the following: - Tangible assets: equipment (motor vehicles, furniture and immobile inventory, computer equipment, office equipment and other equipment). - Intangible assets: License and software. The Agency's equipment and intangible assets consist of computer equipment, office furniture and a company car, which are measured at cost less accumulated depreciation/amortization and any impairment loss. 17

20 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Tangible and intangible assets (Continued) Depreciation is calculated on a straight-line basis in order to fully write-off the cost of such assets over their estimated useful lives by applying the following depreciation rates per annum: Computer equipment 16.7% Furniture and other equipment 10% - 20% Licences 25% Software 20% The depreciation of equipment and amortization of intangible assets commences when these assets are placed into use. Depreciation/amortization is not calculated for assets under construction. For the amount of depreciation calculated for fixed assets received in the form of donations reversal of deferred income is performed and credited to the income statement for the period. In accordance with tax regulations for tax purposes, the Agency has charged tax depreciation on fixed assets. In 2015, the Agency reported deferred tax assets, based on the calculated tax depreciation. Tax depreciation is calculated in the lower amount than the depreciation calculated by accounting regulations, so that the Agency recognized higher tax revenue from the accounting income Taxes and contributions and other liabilities Income tax Income taxes are calculated and paid in accordance with the provisions of the Law on corporate profit and the relevant by-laws. Income tax is calculated by applying the rate of 15% on the tax base reported in the tax balance. Tax regulations in the Republic of Serbia do not allow tax losses of the current period to be used to recover taxes paid within a specific previous period. The losses of the current period can be carried forward to the income stated in the annual accounts for future periods, but not longer than five years. Taxes and contributions In accordance with the legal regulations of the Republic of Serbia, the Agency is required to pay contributions to tax authorities and to various state social security funds that guarantee social security insurance benefits to employees. These obligations include the payment of taxes and contributions on behalf of the employee by the employer, in an amount computed by applying specific, legally prescribed rates. The Agency is also legally obligated to withhold contributions from gross salaries to employees, and on behalf of its employees to transfer the withheld portions directly to the applicable government funds. The Agency is not under obligation to pay benefits which are the liability of the Republic of Serbia Pension Fund. These taxes and contributions payable on behalf of the employee and employer are charged to expenses in the period in which they arise. Deferred tax assets and deferred tax liabilities Calculation of tax depreciation of fixed assets is performed in accordance with statutory tax rules and for tax purposes. In 2015, the Agency reported deferred tax assets, based on calculated tax depreciation. 18

21 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Taxes and contributions and other liabilities (Continued) Retirement benefits In accordance with labour by-laws, the Agency is obliged to pay retirement benefits in the amount of five monthly gross salaries earned in the Agency in the month prior to the month in which the retirement benefit is paid. The costs of the aforementioned compensations are accumulated throughout the employment period. The Agency does not have its pension funds and, accordingly, no liability identified in the previous period. As of 1 January 2007, the Agency has made a provision for retirement benefits, i.e. the provision for other benefits to employees for the first time. Provisions for retirement benefits and jubilee awards for 2015 were recognized as provision expenses in the income statement and increased provisions in the balance sheet statement. The Agency has not made provisions for unused vacation days, since each employee transfers the second part of annual vacation in accordance with the general rules of the Agency which regulate salaries, remuneration and other employee benefits. Other liabilities Other liabilities are recognized in the amount of cost, and refer to: accounts payable and other operating liabilities. Funds received from donations are recorded under accruals Equity Equity consists of the Deposit Insurance Funds, Investor Protection Funds and Other Equity. Agency's funds consist of Deposit Insurance Fund assets and funds used to carry out other activities within its jurisdiction. The Deposit Insurance Fund (hereinafter: the Fund) is financed from: premiums that banks are obliged to pay for deposit insurance, revenues earned by investing the Deposit Insurance Fund assets, funds from the Agency's receivables from bankruptcy estate of a bank based on the previously paid insured deposits amount, from the sale of special purpose bank, by debt collection on behalf of the initial capital from bankruptcy or liquidation proceeds of a special purpose bank, the Agency's borrowings, donations, and from the budget of the Republic of Serbia. Fund's assets represent allocated funds with purpose, used for payment of the insured amounts in case of a bank's bankruptcy, for administrative expenses payments incurred in relation to payments of these amounts and with management of Fund's assets, as well as for return of borrowed funds used for these purposes. Based on the Government's Decision, the Fund's assets may be used to provide financial support, as well as for establishment of a bank for special purpose. The Deposit Insurance Fund assets are recorded separately for payment of deposit insurance premiums in respect of insurance of local currency deposits of individuals, entrepreneurs and small and medium-sized entities, and separately for the payment of insurance premiums in foreign currency deposits from individuals, entrepreneurs and small and medium-sized entities. 19

22 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Equity (Continued) The Agency provides funds for other activities within its competence from income earned through its operations, from compensations in accordance with the law which governs bankruptcy and liquidation of banks, insurance companies and lessors in accordance with the law governing bankruptcy and liquidation of banks and insurance companies and the law governing the leasing fees obtained in the procedure for selling shares of banks whose shareholder is the Republic of Serbia as well as compensation from receivables collection assumed in the name and on behalf of the Republic of Serbia. Other capital refers to the Agency's other sources of funding, such as initial assets of the fund for the rehabilitation of banks increased by revaluation that is calculated in accordance with the legislation applied in the previous period. On 23 July 2012, the Republic of Serbia Securities Commission adopted a regulation that authorizes the Deposit Insurance Agency to organize Investor Protection Fund's operations. Accordingly, the Agency manages the Fund, undertakes all actions on behalf of the Fund and represents the Fund in all dealings with national, judicial, administrative and other bodies for its protection and realization of its rights. The Fund's purpose is protection of receivables of the Fund's members' clients, when the Fund's member is unable to pay/or return these receivables to client if an insured event occurs. The Agency, as the organizer of the Fund, charges regular quarterly contribution of 1.20% of total revenues generated through safekeeping and administration of financial instruments on behalf of clients, including keeping these instruments and related services, such as administration of funds and collateral, as well as 1.00% of the total income generated by portfolio management Result from operations According to the income statement for 2015, the Agency incurred profit in the amount of RSD 276,655 thousand. Due to the fact that the Agency stated higher taxable income compared to accounting income for 2014, by RSD 24 thousand, profit for the year was increased by the amount of deferred tax assets amounting to RSD 24 thousand. In 2015, in accordance with the Corporate Income Tax Law, the Agency calculated income tax in the amount of RSD 19,251 thousand, resulting in net profit in the amount of RSD 257,428 thousand Off-balance sheet assets and liabilities Funds managed by the Agency on behalf of, and for the account of third parties entirely relate to the operations performed by the Agency on behalf of and for the account of third parties. According to the laws and regulations passed by the Republic of Serbia's Government, the Agency is authorized to take all necessary actions for the collection of the receivables assumed. On off-balance sheet positions the Agency records all short-term and long-term investments in dinars and in foreign currency that the Agency has assumed in accordance with the adopted regulations. On the other off-balance sheet assets and liabilities collaterals for commitments assumed from end-borrowers, as well as other security instruments on other grounds are recorded. 20

23 4. SUB-STATEMENTS BALANCE SHEET AND INCOME STATEMENT 4.1. AGGREGATED BALANCE SHEET As of 31 December 2015 Agency Deposit insurance fund Investor protection fund Total ASSETS Cash and balances with the central bank 56, , ,420 Financial assets held to maturity 524,832 2,985,570-3,510,402 Loans and receivables from banks and other financial institutions 6,799,969 22,783,809 33,447 29,617,225 Loans and receivables from customers 22, ,188 Changes in fair value of items subject to risk hedging Intangible assets Property, plant and equipment 1, ,543 Deferred tax assets Other assets 102,916 23,629,100 1,742 23,733,758 TOTAL ASSETS 7,508,679 49,729,147 35,773 57,273,599 Deposits and other liabilities to banks, other financial institutions and the central bank Deposits and other liabilities to other customers Changes in fair value of items that are the subject of hedging - 17,487,772-17,487, Provisions 12, ,985 Current tax 5,851 5,851 Other liabilities 6,903,584 6,185,530 1,405 13,090,519 TOTAL LIABILITIES 6,922,420 23,673,302 1,405 30,597,127 EQUITY Share capital 239,819 26,055,845 26,867 26,322,531 Profit for the year 319,987 1, ,933 Profit from previous years 32,008 32,008 TOTAL EQUITY 586,259 26,055,845 34,368 26,676,472 TOTAL EQUITY AND LIABILITIES 7,508,679 49,729,147 35,773 57,273,599 21