Translation of the Bank s financial statements issued in the Romanian language

Transcription

1 Financial Statements Prepared in Accordance with International Financial Reporting Standards Translation of the Bank s financial statements issued in the Romanian language

2 FINANCIAL STATEMENTS CONTENT Auditors report Statement of Financial Position 3 Statement of Comprehensive Income 4 Statement of Changes in Equity 5 Statement of Cash Flows 6 Notes to the financial statements 7 61

3 STATEMENT OF FINANCIAL POSITION As at 31 December 2015 Notes 31/12/ /12/2014 ASSETS Cash on hand 4 56,251 37,408 Balances with National Bank 5 211, ,321 Due from banks 6 174, ,723 Loans and advances to customers 7 379, ,068 Financial investments available-for-sale 8 111,703 34,214 State securities held-to-maturity 8 163, ,773 Property and equipment 9 9,748 14,027 Intangible assets 10 7,335 6,234 Deferred tax assets 18 1,489 1,978 Other assets 11 16,941 25,483 Total assets 1,132,412 1,078,229 LIABILITIES Due to banks 12 7,893 22,904 Other borrowings , ,047 Due to customers , ,288 Other liabilities 15 12,185 6,086 Subordinated liabilities - - Deferred tax liabilities 18-8,413 Total liabilities 722, ,738 SHAREHOLDERS EQUITY Ordinary shares , ,130 Statutory reserve 17 14,200 14,200 Accumulated deficit (332,092) (358,527) Revaluation of available for sale financial investments 77 (312) Total shareholders equity 410, ,491 Total liabilities and shareholders' equity 1,132,412 1,078,229 The accompanying notes are an integral part of these financial statements. The financial statements were authorized for issue on 18 March 2016 by the Executives of the Bank represented by: President Juan Luis Martin Ortigosa Chief Accountant Victoria Galben 3

4 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Notes Interest and similar income 20 95,482 75,123 Interest and similar expense 20 (14,141) (17,774) Net interest income 81,341 57,349 Impairment of loans, net 7, 24 (7,735) (12,774) Net interest income after impairment loss 73,606 44,575 Fee and commission income 21 14,961 12,432 Fee and commission expense 21 (8,072) (2,478) Net fee and commission income 6,889 9,954 Financial income, net 22 11,000 6,226 Other operating income 23 3,804 1,333 Total non-interest income 14,804 7,559 Personnel expenses 25 (27,305) (22,613) General and administrative expense 26 (35,243) (34,524) Depreciation and amortization expense 27 (7,484) (7,107) Provision for other assets (4,557) (6) Total non-interest expense (74,589) (64,250) Operating loss before tax 20,710 (2,162) Tax expense 18 5,725 (1,554) Net profit/(loss) for the year 26,435 (3,716) Other comprehensive income Revaluation of available-for-sale financial assets 389 (312) Total Other comprehensive income 389 (312) Total comprehensive income for the year 26,824 (4,028) The accompanying notes are an integral part of these financial statements. The financial statements were authorized for issue on 18 March 2016 by the Executives of the Bank represented by: President Juan Luis Martin Ortigosa Chief Accountant Victoria Galben 4

5 STATEMENT OF CHANGES IN EQUITY 31 December 2015 Share capital Reserve capital Retained earnings Revaluation of available for sale financial investments Total MDL'000 MDL'000 MDL'000 MDL'000 MDL'000 Balance as at 1 January 728,142 14,200 (358,539) (312) 383,491 Issued ordinary shares Premium shares Net profit for the year ,435-26,435 Other comprehensive income Balance as at 31 December 728,142 14,200 (332,104) , December 2014 Share capital Reserve capital Retained earnings Revaluation of available for sale financial investments Total MDL'000 MDL'000 MDL'000 MDL'000 MDL'000 Balance as at 1 January 627,580 14,200 (354,823) - 286,957 Issued ordinary shares 100, ,550 Premium shares Net profit for the year - - (3,716) - (3,716) Other comprehensive income (312) (312) Balance as at 31 December 728,142 14,200 (358,539) (312) 383,491 The accompanying notes are an integral part of these financial statements. 5

6 STATEMENT OF CASH FLOWS Note Cash flows from operating activities Interest receipts 83,376 62,958 Interest payments (14,520) (16,214) Net fee and commission receipts 6,887 9,954 Net financial and other operating income receipt 19,447 7,559 Staff costs paid (27,305) (22,613) Payments of general and administrative expenses (27,513) (34,196) Operating profit before working capital changes 40,372 7,448 (Increase) / decrease in operating assets: Balances with National Bank (15,043) (28,863) Due from banks (4,643) - Loans and advances to customers 52,465 31,901 Other assets (1,120) 2,196 Increase / (decrease) in operating liabilities - Due to banks (15,011) (11,653) Due to customers 87,813 78,061 Other liabilities 1,275 1,038 Net cash flow from operating activities before income tax 105,736 72,680 Income tax payments - - Net cash from operating activities 146,108 80,128 Cash flows from investing activities Purchase of property and equipment and intangible assets (3,158) (1,663) Receipts from sale of property and equipment and intangible assets (1,148) (6,325) Proceeds from transaction related to financial investments available-for-sale (77,056) (275,871) Proceeds from transaction related to state securities held to maturity 223, ,701 Payment from transaction related to state securities held to maturity - - Net cash used in investing activities 142,176 (109,158) Cash flows from financing activities Receipts from increase in share capital - 100,562 Repayments of borrowings (42,751) (66,901) Net cash from financing activities (42,751) 33,661 Net increase/(decrease) in cash and cash equivalents 245,533 4,631 Balance as at 1 January 226, ,633 Balance as at 31 December , ,264 The accompanying notes are an integral part of these financial statements. 6

7 1. Corporate information Banca Comercială Romana Chisinau SA (hereinafter the Bank) was established in October The Bank activates as a commercial and savings Bank, offering a large spectrum of services and banking products for all client categories through Front Office, one branch and one agency in Chisinau and one branch in Balti (2014: 2 branchs and 1 representative offices). Banca Comerială Română Chisinau S.A. is 100% subsidiary of Banca Comerciala Româna S.A. The ultimate parent of the Bank is Erste Group Bank AG. At year-end 2015 the Bank possessed the license number A MMII nr , granted by the National Bank of Moldova at 02 December 2008, which allows the Bank to be engaged in all banking activities stipulated in article 26 of Law of financial institutions nr.550 XIII from 21 July The Bank has 72 employees as at 31 December 2015 (66 as at 31 December 2014). The registered office of the Bank is located at Pushkin Street, 60/2, Chisinau, Republic of Moldova. As the Bank s operations do not have significantly different risks and returns and 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. 2. Accounting policies 2.1 Basis of preparation The financial year starts on 1 January and ends on 31 December, and includes all operations performed by the Bank during this period. All the effective indices related to Bank s activity and which reflect Bank s financial and economical results of the activities performed during the financial year are included and reflected in the financial statements of the financial year. The financial statements have been prepared on a historical cost basis, except for available for sale investments, which have been measured at fair value. The financial statements are presented in Moldovan lei ( MDL ), the currency of the country in which the Bank operates, and all values are rounded to the nearest thousand Moldovan lei, except when otherwise indicated. The financial statements are prepared on a going concern basis. Statement of compliance The financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by IASB. 7

8 2. Accounting policies (continued) 2.2 Significant accounting judgments and estimates The preparation of financial statements in accordance with International Financial Reporting Standards requires management to make estimates and assumptions that affect the amounts and balances reported in the financial statements and accompanying notes. Impairment losses on loans and advances The Bank reviews its problematic loans and advances at each reporting date to assess whether an allowance for impairment should be recorded in the income statement. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. In addition to specific allowances against individually significant loans and advances, the Bank also makes a collective impairment allowance against exposures, which although not specifically identified as requiring a specific allowance, have a greater risk of default than when originally granted. This takes into consideration factors such as any deterioration in country risk, industry, and technological obsolescence, as well as identified structural weakness or deterioration in cash flows. For this purpose, the Bank determines the parameters such as the probability of default (PD) and loss given default (LGD) for homogeneous customer portfolios as risk profile, taking into account the Bank's products and segments and debt service situation. To determine PD migration matrix is used a period of 12 months of non-default status in default. LGD is calculated by estimating the net present value (NPV) of the cash flows of voluntary payments, and guarantees realization for exposures in default. Deferred tax assets Deferred tax assets is recognized in respect of tax losses and temporary deductible differences to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits, together with future tax-planning strategies. The Bank approves on an annually basis the budget, including the taxable profit to cover the cumulative fiscal loss for which the deferred tax asset is calculated. Refer to Note 18 for related disclosure of deferred tax. The Bank has re-assessed the recoverability of the fiscal loss, taking into account local legislation and estimation of profit for the next year. As at 31 December 2015, the Bank did not recognize the deferred tax asset related to loss carried forward because it assumes that the conditions to use the cumulative fiscal loss will not be met. As at 31 December 2015, the Bank recognized a deferred tax asset related to temporary differences, other than the loss carried forward, because it estimates that the profit will be sufficient in the period when the temporary difference will be reversed. 2.3 Changes in accounting policies and disclosures The accounting policies adopted are consistent with those of the previous financial year except for the following amended IFRSs which have been adopted by the Bank as of 1 January 2015: Annual Improvements to IFRSs Cycle 8

9 2. Accounting policies (continued) 2.3 Changes in accounting policies and disclosures (continued) When the adoption of the standard or interpretation is deemed to have an impact on the financial statements or performance of the Bank, its impact is described below: The IASB has issued the Annual Improvements to IFRSs Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January Management will assess if the application of the change will have an impact on its financial position and performance IFRS 3 Business Combinations: This improvement clarifies that IFRS 3 excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. IFRS 13 Fair Value Measurement: This improvement clarifies that the scope of the portfolio exception defined in paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definition of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation. IAS 40 Investment Properties: This improvement clarifies that determining whether a specific transaction meets the definition of both a business combination as defined in IFRS 3 Business Combinations and investment property as defined in IAS 40 Investment Property requires the separate application of both standards independently of each other. 3. Significant accounting policies a. Foreign currency translation Foreign currency transactions are recorded at the rate of exchange on the date of the transaction. At the date, monetary assets and liabilities denominated in foreign currencies are reported using the closing exchange rate established by NBM. The year end and average rates for the period were: USD Euro USD Euro Average for the period Year end Exchange differences arising on the settlement of the transactions at rates different from those at the date of the transaction, and unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities are recognized in the income statement. b. Due from banks These are stated at amortized cost, less any provisions for impairment. 9

10 3. Significant accounting policies (continued) c. Loans and advances to customers Loans originated by the Bank represent loans where money is provided directly to the borrower and are recognized when the cash is advanced to borrowers. They are initially recorded at the fair value of the cash disbursed, and are subsequently measured at amortized cost using the effective interest rate method. The Bank presents the information regarding its loan portfolio and the provision for impairment based on the following classification of clients: - corporate lending - microenterprise lending - consumer lending uncollaterilized - consumer lending collaterilized - residential mortgages d. Impairment of loans If there is objective evidence that the Bank will not be able to collect all amounts due (principal and interest) according to original contractual terms of the loan, such loans are considered impaired. The amount of the impairment loss is the difference between the loan carrying amount and the present value of expected future cash flows discounted at the loan s original effective interest rate or is the difference between the carrying value of the loan and the fair value of collateral less costs for obtaining and selling the collateral, if the loan is collateralised, whether or not foreclosure is probable. Impairment and un-collectability are measured and recognised individually for loans and receivables that are individually significant, and on a portfolio basis for a group of similar loans and receivables that are not individually identified as impaired. 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 group of financial assets with similar credit risks 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. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced to its estimated recoverable amount by a charge to income through the use of a provision for loan impairment account. A write off is made when all or part of a loan is deemed uncollectible. Write offs are charged against previously established provisions and reduce the principal amount of a loan. Recoveries of loans written off in earlier periods are included in profit and loss. If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is credited to the provision for loan losses expense. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank s internal credit rating that considers credit risk characteristics such as industry, collateral type, past-due status and other relevant factors. Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. 10

11 3. Significant accounting policies (continued) e. 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 effective interest rate (EIR). f. Financial investments State securities - Held-to-maturity State securities - held-to-maturity are those which carry fixed or determinable payments and have fixed maturities and which the Bank has the intention and ability to hold to maturity. These state securities are part of Loans and receivables according to IAS 39, because they are not traded on an active market. After initial measurement, state securities - held-to-maturity are subsequently measured at amortised cost using the effective interest rate method, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included in Interest and similar income in the income statement. The losses arising from impairment of such investments are recognized in the income statement line Impairment losses on financial investments. Available- for- sale financial investments All the investments which are not classified as held-to-maturity or financial assets held for trading are included in available-for-sale category. All purchases and sales of investments that require delivery within the time frame established by regulation or market convention are recognized at settlement date. Interest bearing securities (state securities, treasury bills) are measured at fair value against Other comprehensive income (OCI). g. Property and equipment Property and equipment are stated at cost less accumulated depreciation and any impairment loss. Expenses for repairs and maintenance are charged to operating expenses as incurred. Subsequent expenditure on property and equipment is only recognized as an asset when the expenditures improve the condition of the asset beyond the originally assessed standard of performance. Where the carrying amount of an asset is greater than the estimated recoverable amount, it is written down to its recoverable amount. Gains and losses on disposals of property and equipment are determined by reference to their carrying amount and are taken to income or expenses. Depreciation is computed on a straight-line basis over the estimated useful life of the asset, as stated below: Fixed assets Rate per annum (%) Buildings 3% Furniture and equipment 20-33% Vehicles 20% 11

12 3. Significant accounting policies (continued) h. Intangibles Intangible assets are accounted at cost less accumulated depreciation. Subsequent expenses are capitalized, when it will increase the useful life or the future economic benefits inflow associated with these assets. Other expenditures are expensed as incurred. Amortization is calculated using the straight line method according to the useful life of intangible assets. The approved amortization rates are presented below: Intangible assets Rate per annum (%) Licenses 10-20% Software % i. Leasing 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. j. Borrowings Borrowings are initially recognized at fair value, being their issue proceeds net of transaction costs incurred. Subsequently borrowings are stated at amortized cost and any difference between net proceeds and the redemption value is recognized in the income statement over the period to maturity using the effective yield method. k. Offsetting financial assets and liabilities Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle or realize on a net basis or realize the asset and settle the liability simultaneously. l. Sale and repurchase agreements Securities sold with a simultaneous commitment to repurchase at a specified future date (repos) continue to be recognized in the statement of financial position as securities and are measured in accordance with respective accounting policies. The liability for amounts received under these agreements is included in due to banks and other financial institutions. The difference between sale and repurchase price is treated as interest expense using the effective yield method. Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos) are recorded as loans and advances to other banks or customers as appropriate. 12

13 3. Significant accounting policies (continued) m. 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. Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the bank s liabilities under such guarantees are measured at the higher of the initial measurement, less amortization calculated to recognise in the income statement the fee income earned on a straight line basis over the life of the guarantee and the best estimate of the expenditure required to settle any financial obligation arising at the statement of financial position 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. n. Income and expenses recognition Interest income and expense are recognized in the income statement for all interest bearing instruments, including loans that are classified as non-performing, on an accrual basis using the effective yield method. Interest income includes coupons earned on fixed income investment and trading securities and accrued discount and premium on treasury bills and other discounted instruments. Fees and direct costs relating to loan origination are deferred and amortized to interest income over the life of the loan using the effective interest rate method. Commission income and fees for various banking services are recorded as income when collected. Dividends are recognized when the shareholders right to receive the payments is established. o. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise cash in hand, current accounts and short-term placements at other banks, treasury bills and other short term highly liquid investments, with less than 90 days maturity from the date of acquisition. p. Provisions The Bank recognizes provisions when it has a present legal or constructive obligation to transfer economic benefits as a result of past events and a reasonable estimate of the obligation can be made. q. Pension costs and employees benefits The Bank makes contributions to the funds set up by the State of Moldova for pensions, health care and unemployment benefits calculated on the basis of salaries of all employees of the Bank. The Bank does not operate any other retirement plan and has no obligation to provide further benefits to current or former employees. r. Repossessed assets Repossessed assets include foreclosed collateral on non-performing loans. They are initially recognized at fair value and are subsequently measured at the lower of carrying amount and fair value less costs to sell. Repossessed assets are disclosed in the Note 11 Other assets. It is the Bank s policy to dispose of repossessed assets in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Bank does not occupy repossessed properties for business use. 13

14 3. Significant accounting policies (continued) s. Related parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related party transactions represent a transfer of resources or obligations between related parties, regardless of whether a price is charged. t. Taxation A provision is made for all foreseeable taxation liabilities in accordance with domestic legislation currently in force. Differences between financial reporting under IFRS and local tax regulations give rise to differences between the carrying value of certain assets and liabilities and their tax base. Deferred income tax is provided using the liability method, for all such temporary differences arising between the tax base of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted at the statement of financial position date. u. Recognition and de-recognition of financial instruments The Bank recognizes a financial asset or a financial liability on its statement of financial position when, and only when, the Bank becomes a party to the contractual provisions of the instrument. All regular way purchases and sales of financial assets are recognized on the settlement date, i.e. the date that an asset is delivered to or by the Bank. Regular way purchases of sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place. A financial asset is derecognized where: The rights to receive cash flows from the asset have expired; The Bank retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or The Bank has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Bank has neither transferred nor retained substantially all the risks and rewards of the asset, the asset is recognized to the extent of the Bank s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. 14

15 3. Significant accounting policies (continued) v. Standards and interpretations issued but not yet effective IAS 16 Property, Plant & Equipment and IAS 38 Intangible assets (Amendment): Clarification of Acceptable Methods of Depreciation and Amortization. The amendment is effective for annual periods beginning on or after 1 January The amendment provides additional guidance on how the depreciation or amortization of property, plant and equipment and intangible assets should be calculated. This amendment clarifies the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, the ratio of revenue generated to total revenue expected to be generated cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. Management will assess if the application of the change will have an impact on its financial position and performance. IAS 19 Defined Benefit Plans (Amended): Employee Contributions The amendment is effective for annual periods beginning on or after 1 February The amendment applies to contributions from employees or third parties to defined benefit plans. The objective of the amendment is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. Management will assess if the application of the change will have an impact on its financial position and performance. IFRS 9 Financial Instruments: Classification and Measurement The standard is effective for annual periods beginning on or after 1 January 2018, with early application permitted. The final version of IFRS 9 Financial Instruments reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. The amendment has not yet been endorsed by the EU. Management will assess if the application of the change will have an impact on its financial position and performance. IFRS 11 Joint arrangements (Amendment): Accounting for Acquisitions of Interests in Joint Operations The amendment is effective for annual periods beginning on or after 1 January IFRS 11 addresses the accounting for interests in joint ventures and joint operations. The amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business in accordance with IFRS and specifies the appropriate accounting treatment for such acquisitions. Management will assess if the application of the change will have an impact on its financial position and performance. IFRS 15 Revenue from Contracts with Customers The standard is effective for annual periods beginning on or after 1 January IFRS 15 establishes a fivestep model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard s requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity s ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset and liability account balances between periods and key judgments and estimates. The standard has not been yet endorsed by the EU. Management will assess if the application of the change will have an impact on its financial position and performance. 15

16 3. Significant accounting policies (continued) v. Standards and interpretations issued but not yet effective (continued) IAS 27 Separate Financial Statements (amended) The amendment is effective for annual periods beginning on or after 1 January This amendment will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements and will help some jurisdictions move to IFRS for separate financial statements, reducing compliance costs without reducing the information available to investors. Management will assess if the application of the change will have an impact on its financial position and performance. Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. The amendments have not yet been endorsed by the EU. Management will assess if the application of the change will have an impact on its financial position and performance. IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (Amendments) The amendments address three issues arising in practice in the application of the investment entities consolidation exception. The amendments are effective for annual periods beginning on or after 1 January The amendments clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value. Also, the amendments clarify that only a subsidiary that is not an investment entity itself and provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. Finally, the amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. These amendments have not yet been endorsed by the EU. Management will assess if the application of the change will have an impact on its financial position and performance. IAS 1: Disclosure Initiative (Amendment) The amendments to IAS 1 Presentation of Financial Statements further encourage companies to apply professional judgment in determining what information to disclose and how to structure it in their financial statements. The amendments are effective for annual periods beginning on or after 1 January The narrow-focus amendments to IAS clarify, rather than significantly change, existing IAS 1 requirements. The amendments relate to materiality, order of the notes, subtotals and disaggregation, accounting policies and presentation of items of other comprehensive income (OCI) arising from equity accounted Investments. Management will assess if the application of the change will have an impact on its financial position and performance. 16

17 3. Significant accounting policies (continued) v. Standards and interpretations issued but not yet effective (continued) The IASB has issued the Annual Improvements to IFRSs Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 February Management will assess if the application of the change will have an impact on its financial position and performance. IFRS 2 Share-based Payment: This improvement amends the definitions of 'vesting condition' and 'market condition' and adds definitions for 'performance condition' and 'service condition' (which were previously part of the definition of 'vesting condition'). IFRS 3 Business combinations: This improvement clarifies that contingent consideration in a business acquisition that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of IFRS 9 Financial Instruments. IFRS 8 Operating Segments: This improvement requires an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments and clarifies that an entity shall only provide reconciliations of the total of the reportable segments' assets to the entity's assets if the segment assets are reported regularly. IFRS 13 Fair Value Measurement: This improvement in the Basis of Conclusion of IFRS 13 clarifies that issuing IFRS 13 and amending IFRS 9 and IAS 39 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting if the effect of not discounting is immaterial. IAS 16 Property Plant & Equipment: The amendment clarifies that when an item of property, plant and equipment is revalued, the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount. IAS 24 Related Party Disclosures: The amendment clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity. IAS 38 Intangible Assets: The amendment clarifies that when an intangible asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount. The IASB has issued the Annual Improvements to IFRSs Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January Management will assess if the application of the change will have an impact on its financial position and performance. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: The amendment clarifies that changing from one of the disposal methods to the other (through sale or through distribution to the owners) should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. There is therefore no interruption of the application of the requirements in IFRS 5. The amendment also clarifies that changing the disposal method does not change the date of classification. 17

18 3. Significant accounting policies (continued) 1. Standards and interpretations issued but not yet effective (continued) IFRS 7 Financial Instruments: Disclosures: The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. Also, the amendment clarifies that the IFRS 7 disclosures relating to the offsetting of financial assets and financial liabilities are not required in the condensed interim financial report. IAS 19 Employee Benefits: The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. IAS 34 Interim Financial Reporting: The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the greater interim financial report (e.g., in the management commentary or risk report). The Board specified that the other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. If users do not have access to the other information in this manner, then the interim financial report is incomplete. IFRS 16: Leases The standard is effective for annual periods beginning on or after 1 January IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ( lessee ) and the supplier ( lessor ). The new standard requires lessees to recognize most leases on their financial statements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged. The standard has not been yet endorsed by the EU. Management will assess if the application of the change will have an impact on its financial position and performance. 4. Cash on hand 31/12/ /12/2014 Cash 43,254 26,475 Cash in ATMs 12,990 10,924 Other ,251 37,408 18

19 5. Balances with National Bank 31/12/ /12/2014 Current accounts 19 75,688 2,937 Overnight 80,427 65,384 Compulsory reserves 19 55,025 39, , ,321 Current account and compulsory reserves The National Bank of Moldova (NBM) requires commercial banks to maintain for liquidity purposes minimum reserves calculated at a certain rate of the average funds borrowed by banks during the previous month (period between the date of 8 of the previous month and 7 of current month) including all customer deposits. Based on the decision Nr. 85 of the Administrative Council of NBM dated 15 April 2004, the method for calculation and maintaining the compulsory reserves changed. Funds attracted in Moldovan Lei (MDL) as well as nonconvertible currencies are reserved in MDL. Funds attracted in convertible currencies are reserved in US Dollars (USD) and/or EURO (EUR). As of 31 December 2015 the rate for calculation of the minimum compulsory reserve in MDL was 35% and for foreign currencies was 14% (31 December 2014: the rate for calculation of the minimum compulsory reserve in all currencies was 14%). The Bank maintains its compulsory reserves on a current account opened with the NBM in amount of 35% of funds attracted in Moldovan Lei and non-convertible currencies. 14% reserves on funds denominated in USD and EUR are held in a special compulsory reserve account with NBM. The minimum average balance for the period 8 December January 2016 was calculated in amount of 57,614 (31 December 2014: 24,685). 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 1,252 and EUR 000 2,310 respectively (31 December 2014 USD 000 1,175 and EUR 000 2,268). The interest received from by NBM on the compulsory reserves during 2015 varied between 0.25% and 0.54% per annum for reserves in foreign currency and between 3.69% and 16.5% for reserves in MDL (2014: between 0.50% and 1.27% p. a. in foreign currency (FCY) and between 0.31% and 0.87% in MDL). The compulsory reserves held in the current account at NBM are available for use in the Bank s day to day operations. 6. Due from banks 31/12/ /12/2014 Current accounts , , , ,723 19

20 7. Loans and advances to customers 31/12/ /12/2014 Gross value Provision Net value Gross value Provision Net value MDL 00 0 Corporate lending 340,638 69, , ,792 45, ,251 Microenterprise lending 8,709 2,395 6,313 11,093 1,116 9,977 Consumer lending uncollateralized 4,923 3, ,924 3,413 1,511 Consumer lending collateralized 2, ,634 1, ,302 Residential mortgages 109,399 9,423 99, ,527 11, ,027 Total 465,720 85, , ,049 61, ,068 Loan portfolio analysis by industries is presented below: Gross value 31/12/ /12/2014 Provision Net value Gross value Provision Net value Manufacturing 47,572 10,663 36,910 65,909-65,909 Trade 91,684 3,449 88,235 91,318 3,083 88,235 Services 208,861 57, , ,964 43, ,391 Individuals 116,374 13, , ,165 15, ,840 Construction 1, ,128 2,693-2,693 Agricultural and food - - industry ,720 85, , ,068 61, ,068 The average interest rate for the year on loans granted in USD 4.34% (2014: 6.93%) and in EUR 12.53% (2014: 6.28%), MDL 12,53% (2014: 9.13%). During 2015 no loans in USD were granted, in 2014 the average interest rate for loans in USD was 6.93%. 20

21 7. Loans and advances to customers (continued) The movements in provision for impairment of loans by classification of clients during the years 2015 and 2014 are presented below: 31/12/2015 Corporate lending Microenterprise lending Consumer lending uncollateralized Consumer lending collateralized Residential mortgages Total At 1 January 45,541 1,116 3, ,499 61,981 Recoveries Decrease in provision (1,680) (783) (653) (11) (4,258) (7,385) Increase in provision 18,227 1, ,085 22,124 Charge for the year 7, ,070 At 31 December 69,621 2,395 3, ,422 85,790 Individual Impairment Collective Impairment 69,206 2,180 3, ,856 83, ,566 2,775 At 31 December 69,621 2,395 3, ,422 85,790 31/12/2014 Corporate lending Microenterprise lending Consumer lending uncollateralized Consumer lending collateralized Residential mortgages Total At 1 January 12,549 1, ,517 24,903 Recoveries Decrease in provision (995) (889) (1,046) (74) (89) (3,093) Increase in provision 32, ,036 38,950 Charge for the year 1, ,370 (332) (2,965) 1,221 At 31 December 45,541 1,116 3, ,499 61,981 Individual Impairment Collective Impairment 45,377 1,115 3, ,019 60, ,480 1,908 At 31 December 45,541 1,116 3, ,499 61,981 21

22 7. Loans and advances to customers (continued) Loans and advances are summarized as follows: 31/12/2015 Corporate lending Microenterprise lending Consumer Consumer lending lending uncollateralized collateralized Residential mortgages Total Neither past due nor impaired 213,576 3, , ,068 Past due but not impaired ,681 16,095 Individually impaired 57,441 3, ,248 67,768 Total 271,017 6, ,634 99, ,930 31/12/2014 Corporate lending Microenterprise lending Consumer Consumer lending lending uncollateralized collateralized Residential mortgages Total Neither past due nor impaired Past due but not impaired Individually impaired 214,436 3, , , ,884 21,172 96,655 5, , ,804 Total 311,251 9,977 1,511 1, , ,068 The fair value of collateral that the Bank holds relating to loans individually determined to be impaired at 31 December 2015 amount to 70,557 (2014: 69,185). The collateral consists of letters of guarantee, commercial and residential premises, land and equipment. 22

23 7. Loans and advances to customers (continued) The table below presents the aging of past due but not impaired loans: 31/12/2015 Less than 30 days From 31 to 60 days From 61 to 90 days More than 91 days Total Corporate lending Microenterprise lending Consumer lending uncollateralized Consumer lending collateralized Residential mortgages 6,989 3,436 4,231 1,025 15,681 Total 7,190 3,436 4,435 1,032 16,095 31/12/2014 Less than 30 days From 31 to 60 days From 61 to 90 days More than 91 days Total Corporate lending Microenterprise lending Consumer lending uncollateralized Consumer lending collateralized Residential mortgages 9,211 6,684 2,209 1,781 19,884 Total 9,242 6,759 2,286 2,886 21, Financial investments State securities - held-to-maturity 31/12/ /12/2014 State securities 163, , , ,773 23

24 8. Financial investments (continued) Financial investments-available-for-sale 31/12/ /12/2014 State securities 110,685 33, ,685 33,196 Share capital in SRL Biroul de Credit 1,018 1, ,703 34,214 Investments in state securities and certificates issued by NBM Investments in state securities as at 31 December 2015 represent MDL treasury bonds and treasury bills of 91 to 731 days maturity issued by the Ministry of Finance of the Republic of Moldova with an interest rate between 24.02% and 26.51% p.a. Investments in state securities as at 31 December 2014 represent MDL treasury bonds and treasury bills of 91 to 731 days maturity issued by the Ministry of Finance of the Republic of Moldova with an interest rate between 6.00% and 12.88% p.a. Investments in securities are presented below: Domain of Participation 31/12/2015 activity quote SRL Biroul de Credit Credit service 6.70% 1,018 1,018 Available for sale investments in equity securities are carried at cost as there is no active market to determine reliably their fair value. 24