ZEPTER BANKA A.D., BEOGRAD. Financial Statements December 31, 2006 and Independent Auditors Report

Transcription

1 Financial Statements and Independent Auditors Report

2 CONTENTS Page Independent Auditors Report 1 2 Statement of Income 3 Balance Sheet 4 Statement of Changes in Equity 5 Statement of Cash Flows 6 Notes to the Financial Statements 7 36

3 INDEPENDENT AUDITORS REPORT To the Board of Directors and Shareholders of Zepter banka A.D., Beograd We have audited the accompanying financial statements (page 3 to 36) of Zepter banka A.D., Beograd (the Bank ), which comprise the balance sheet as of, and the related statements of income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Law on Accounting and Auditing of the Republic of Serbia and regulations of the National Bank of Serbia related to financial reporting of the banks. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. 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 International Standards on Auditing and the Law on Accounting and Auditing of the Republic of Serbia. 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 present fairly, in all material respects, the financial position of Zepter banka A.D., Beograd as of, and its financial performance, changes in equity and its cash flows for the year then ended in accordance with the Law on Accounting and Auditing of the Republic of Serbia, regulations of the National Bank of Serbia related to financial reporting of the banks and basis for the preparation and presentation of the financial statements disclosed in the Note 2 to the financial statements. (Continues)

4 INDEPENDENT AUDITORS REPORT To the Board of Directors and Shareholders of Zepter banka A.D., Beograd (Continued) Emphasis of Matter Without qualifying our opinion we draw attention to the following matters: a) As disclosed in Note 23b to the financial statements, the Bank is required to maintain certain minimum or maximum ratios with respect to its activities and composition of risk assets in compliance with the Law on Banks and with the National Bank of Serbia Regulations. As of, all ratios were within their prescribed limits, except for the ratio of the open foreign currency position that due to the booking entries made in the period up to February 28, 2007 with the value date amounted to 31 percent of the Bank s core capital (prescribed maximum 30 percent). b) As disclosed in Note 27b to the financial statements, on February 22, 2007, the Bank's management was informed by external lawyer office representing the Bank in the dispute, that the Commercial court, deciding in the subject matter of Sartid a.d. bankruptcy assets as a plaintiff vs. Bank as a defendant, decided in favor of plaintiff. On February 23, 2007 the Bank filed an appeal with Higher Commercial court as a second instance court. According to the external lawyer office, Higher Commercial court should accept reasoning from the appeal and revoke primary court decision by reason of major violation of the litigation provisions and misusage of material law. Deloitte d.o.o. Belgrade March 5,

5 STATEMENT OF INCOME Year Ended () Notes Interest income 3.1, 4a 563, ,379 Interest expense 3.1, 4b (190,283) (75,648) Net interest income 373, ,731 Fee and commission income 3.1, 5a 236, ,506 Fee and commission expense 3.1, 5b (35,335) (40,126) Net fee and commission income 200, ,380 Net gains on the sale of securities 3.7, 3.8 4,794 4,346 Net foreign exchange gains ,105 7,822 Other operating income 6 298,106 61,934 Losses on impairment and provisions 3.5, 8a (219,631) (166,471) Other operating expenses 7 (690,099) (582,484) (Losses)/gains on the valuation of financial assets and liabilities, net 3.4 (135,041) 215,655 (568,766) (459,198) PROFIT BEFORE TAXATION 5,549 55,913 Income taxes 3.12, 9 (1,214) (3,648) Deferred tax income 3.12, 9 1, PROFIT FOR THE YEAR 5,803 52,943 Earnings per share in RSD Basic earnings per share The accompanying notes form an integral part of these financial statements. These financial statements were approved by the management of Zepter banka A.D., Beograd on February 27, Signed on behalf of Zepter banka A.D., Beograd: Aleksandra Mikić Snežana Otašević Dostinja Mentov Chairman Member Head of the Finance and of the Executive Board of the Executive Board Accounting Department 3

6 BALANCE SHEET As of () Notes ASSETS Cash and cash equivalents 10 1,082, ,775 Deposits with the central bank and securities available for refinancing with the central bank 11 1,807,929 1,815,940 Interest, fees and commissions receivable 12 26,005 22,445 Placements with other banks ,456 Loans and advances to customers 14 4,017,982 2,721,267 Trading securities 15a 17, ,523 Securities held-to-maturity 15b ,331 Equity investments and securities available-for-sale 15c ,865 Income tax prepayments 2,130 - Intangible assets 16 70,941 70,440 Property and equipment , ,859 Other assets and accruals ,783 63,273 Deferred tax assets 9b 1, Total assets 7,353,831 6,556,367 LIABILITIES AND EQUITY Liabilities Amounts owed to other banks 18 13,751 45,007 Amounts owed to customers 19 5,761,926 4,972,976 Interest, fees and commissions payable 4, Income taxes payable Other operating liabilities 20 53,671 54,223 Provisions 22 55,190 54,308 Other liabilities and accruals 21 47,195 16,521 5,935,846 5,144,185 Equity 23a Share capital 1,284,350 1,284,350 Share premium 8,044 8,044 Bank s reserves 125,591 79,780 Retained earnings - 40,008 1,417,985 1,412,182 Total liabilities and equity 7,353,831 6,556,367 OFF-BALANCE-SHEET ITEMS 24 1,825,267 3,058,202 The accompanying notes form an integral part of these financial statements. 4

7 STATEMENT OF CHANGES IN EQUITY Year Ended () SHARE CAPITAL Balance, January 1 1,284,350 1,284,350 Balance, December 31 1,284,350 1,284,350 SHARE PREMIUM Balance, January 1 8,044 8,044 Balance, December 31 8,044 8,044 BANK S RESERVES Balance, January 1 79,780 66,845 Transfer of the current year profit to reserves for potential losses 5,803 - Transfer from retained earnings 40,008 - Transfer from retained earnings with respect to provision for category A - 12,935 Balance, December ,591 79,780 RETAINED EARNINGS Balance, January 1 40,008 - Transfer to the Bank s reserves (40,008) Profit for the year 5,803 52,943 Transfer to the Bank s reserves for potential losses (5,803) - Transfer to the Bank s reserves with respect to provision for category A - (12,935) Balance, December 31-40,008 TOTAL EQUITY 1,417,985 1,412,182 The accompanying notes form an integral part of these financial statements. 5

8 STATEMENT OF CASH FLOWS Year Ended () CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from operating activities 964, ,061 Interest receipts 572, ,942 Fee and commission receipts 234, ,599 Receipts from other operating income 156,873 87,520 Cash payments from operating activities 858, ,994 Interest payments 180,284 75,206 Fee and commission payments 35,544 43,111 Payments to, and on behalf of employees 223, ,765 Taxes, contributions and other duties paid 41,823 43,824 Payments from other operating expenses 377, ,088 Net operating cash flows before changes in placements and deposits 105,351 27,067 Net decreases in placements and increases in deposits 1,553, ,693 Decrease in placements with other banks and financial institutions 93,910 - Decrease in loans to customers - 526,693 Decrease in trading securities and short-term securities held-to-maturity 220,386 - Increase in deposits from customers 1,238,958 - Net increases in placements and decreases in deposits 1,482,540 1,116,288 Increase in loans and placements with banks and other financial institutions - 701,831 Increase in placements with customers 1,452,278 - Increase in trading securities and short-term securities held-to-maturity - 215,331 Decrease in deposits from customers - 39,799 Decrease in deposits with banks and other financial institutions 30, ,327 Net cash from operating activities before income taxes 176,065 - Net cash used in operating activities before income taxes - 562,528 Income taxes paid 3,841 1,030 Net cash from operating activities 172,224 - Net cash used in operating activities - 563,558 CASH FLOWS FROM INVESTING ACTIVITIES Cash inflows from investing activities 403,948 17,642 Proceeds from the sale of equity investments 171,055 - Proceeds from the disposal of property and equipment and intangible assets 232,893 17,642 Cash outflows from investing activities 73, ,420 Purchases of property and equipment, and intangible assets 73, ,420 Net cash from investing activities 330,723 - Net cash used in investing activities - 200,778 CASH FLOWS FROM FINANCING ACTIVITIES Cash outflows from financing activities 130, ,530 Repayments of long-term borrowings 130, ,530 Net cash used in financing activities 130, ,530 TOTAL CASH INFLOWS 2,921,254 1,262,396 TOTAL CASH OUTFLOWS 2,549,172 2,127,262 NET INCREASE IN CASH AND CASH EQUIVALENTS 372,082 - NET DECREASE IN CASH AND CASH EQUIVALENTS - 864,866 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 769,775 1,608,617 Foreign exchange (losses)/gains (59,645) 26,024 CASH AND CASH EQUIVALENTS, END OF YEAR 1,082, ,775 The accompanying notes form an integral part of these financial statements. 6

9 1. BANK S ESTABLISHMENT AND OPERATING POLICY Zepter banka A.D., Beograd (the Bank ) was established as a privately-held bank on July 9, 1992 under the name of Mešovita banka (MB) Zepter banka, Beograd. Under the July 14, 1995 Decision on the Foundation of Zepter banka, a Shareholding Entity, the Founding Statutes of MB Zepter banka D.D., Beograd ceased to be effective. By the aforecited decision, the Bank s business activities were harmonized to comply with the provisions of the Law on Banks and Other Financial Institutions. On June 9, 1995, the National Bank of Yugoslavia approved the Agreement on the Establishment of Zepter Banka A.D., Beograd. The Bank is registered in the Republic of Serbia to provide a wide range of banking services related to payment transfers, credit and deposit activities in the country and abroad, and in accordance with the Republic of Serbia Law on Banks, is to operate based on principles of liquidity, security of placements and profitability. At the Bank was comprised of a Head Office domiciled in Belgrade, at the address of Bulevar M. Pupina 117, and of eleven branch offices (: eleven branch offices) located in the major cities of: Zrenjanin, Valjevo, Niš, Kragujevac, Pančevo, Čačak, Novi Sad, Subotica, Kruševac, Novi Pazar and Velika Plana. As of and the Bank had 252 and 231 employees, respectively. The Bank s corporate taxpayer identification number is BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS 2.1. Basis of Preparation and Presentation of Financial Statements Pursuant to the Law on Accounting and Auditing (Official Gazette of the Republic of Serbia no. 46 of June 2, ), legal entities and enterprises incorporated in Serbia are required to maintain their books of account, to recognize and value assets and liabilities, income and expenses, and to present, submit and disclose financial statements in conformity with the prevailing legislation and professional rules which include: 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. Pursuant to its Decision numbered of December 30, 2003, the Republic of Serbia Ministry of Finance determined and issued the Framework and IAS that were applied as of 2002, and upon which both the previous and the newly-enacted Law on Accounting and Auditing were based. The amendments to the IAS and to the newly-issued IFRS released after the adoption of the previous Law on Accounting and Auditing, have not been published and officially enacted in the Republic of Serbia, and accordingly, they have not been applied in the preparation of the accompanying financial statements. The management is assessing the impact of the changes to the IAS, the newly-issued IFRS and to the interpretations to the financial statements. Although the majority of these changes are not applicable to the Bank s operations, the Bank s management does not express an explicit and unreserved statement in the accompanying financial statements of compliance with IAS and IFRS, which have been applied in the periods presented in the accompanying financial statements. 7

10 2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued) 2.1. Basis of Preparation and Presentation of Financial Statements (Continued) The accompanying financial statements are presented in the format prescribed under the Guidelines on the Prescribed Form and Content of the Financial Statements of Banks and Other Financial Institutions (Official Gazette of the Republic of Serbia no. 8 of January 23, 2007). Such statements represent the complete set of financial statements as defined under the law, which differ from those defined under the provisions of IAS 1, Presentation of Financial Statements and IAS 7, Cash Flow Statements, and differ in some respects, from the presentation of certain amounts as required under the aforementioned standards. The Bank did not apply the new accounting policies (Notes 3.1 and 3.5 to the financial statements) as required under the provisions of IAS 8, Net Income and Loss For the Period, Fundamental Errors and Changes in Accounting Policies, in accordance which the financial statements, including comparative figures for the previous period, are restated as if the new accounting policy had always been applied, with a corresponding adjustment made to the opening balance of retained earnings. In accordance with the above-described matters, these financial statements as of, and for the year ended cannot be described as having been prepared in accordance with International Financial Reporting Standards. In the preparation of the accompanying financial statements, the Bank has adhered to the accounting policies described in Note 3, which are in conformity with the accounting, banking and tax regulations prevailing in the Republic of Serbia. The Bank s financial statements are stated in thousands of dinars (RSD). The dinar is the official reporting currency in the Republic of Serbia Comparative Figures The accounting policies adopted in the preparation and presentation of the financial statements for the year ended differ from the IFRS requirements in the following significant respects: In, the Bank s management estimated allowances for the impairment of financial instruments in accordance with the relevant NBS Regulations. Such a policy results in departures from the amounts which would be determined, had the allowances for the impairment of financial instruments been estimated based on discounted expected future cash flows by applying the original effective interest rate, as required by IAS 39, Financial Instruments: Recognition and Measurement. In the comparative figures for the year ended, loan origination fees are credited to income when the respective service has been performed. According to the provisions of IAS 18, Revenue and IAS 39, Financial Instruments: Recognition and Measurement, these fees are considered as being an integral part of generating an ongoing involvement with the resultant financial instrument, and should be deferred and recognized as an adjustment to the effective interest yield. In order to conform the presentation of figures to the current reporting period, certain reclassifications have been made to the amounts reported in the financial statements for the year ended. 8

11 2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued) 2.3. Use of Estimates The presentation of the financial statements requires the Bank s management to make best estimates and reasonable assumptions that effect the: assets and liabilities amounts, the disclosure of contingent liabilities and receivables as of the date of preparation of the financial statements, as well as the income and expenses arising during the accounting period. These estimations and assumptions are based on information available to us, as of the date of preparation of the financial statements. However, actual results may vary from these estimates. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. Income and Expense Recognition Interest income and interest expense, including penalty interest and operating income and expenses are accounted for on an accrual basis. Fees and commissions are accrued when earned or due. Fee and commission income from loan origination fees is recognized in the Statement of Income on a proportional basis throughout the repayment period of the loan. In, fee and commission income from loan origination fees was recognized when collected or due. The Bank has not retrospectively applied the new accounting policy, which represents a departure from IAS 8, Net Income or Loss of the Period, Fundamental Errors and Changes in Accounting Policy, pursuant to which the financial statements including comparable information for the previous period, are to be presented as though the new accounting policy had always been in effect, and each adjustment or correction that arises as a result, is to be stated as an adjustment of the retained earnings at the beginning of the period Foreign Exchange Translation Transactions denominated in foreign currencies are translated into dinars at official exchange rates at the date of each transaction. Assets and liabilities denominated in foreign currencies are translated into dinars by applying the official exchange rates that are prevailing at the balance sheet date. Foreign exchange gains or losses arising upon the translation of transactions, and the assets and liabilities denominated in foreign currencies are credited or charged to the statement of income. Off-balance-sheet items denominated in foreign currencies are translated into dinars by applying the official exchange rates that are prevailing at the balance sheet date. 9

12 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.3. Property, Plant and Equipment and Intangible Assets Property, plant and equipment, and intangible assets as of are stated at their revalued cost less accumulated depreciation. The revaluation of property, plant and equipment and intangible assets was performed up to 2002, in accordance with accounting regulations prevailing at that time, by applying the officially published coefficients derived from the movements in the consumer price index, to the cost and accumulated depreciation, so as to approximate their replacement cost. The revalued net book value of property and equipment and intangible assets as of 2003 is recognized as a deemed cost. Depreciation and amortization are provided for on a straight-line basis to the cost or revalued cost of property, equipment and intangible assets, in order to write them off over their useful lives. Depreciation and amortization are calculated using the following prescribed rates: Buildings 1.3% Computers 20.0% Other equipment 10.0% % Intangible assets 20% The depreciation of property, plant and equipment commences at the moment in which the respective asset is placed into use Loans and Advances Originated by the Bank Loans originated by the Bank are stated at the amount of principal outstanding, less allowances for impairment, which are based on an evaluation of specifically-identified exposures, and also on the coverage of losses that are inherent in the Bank s loan portfolio. The Bank s management applies the methodology prescribed by the NBS in its evaluation of the risks and respective estimations of the allowances (Note 3.5). Loans, that are disbursed in dinars and index-linked to the dinar-euro exchange rate or to the officially published coefficients derived from the changes in the consumer price index, are revalued in accordance with the covenants delineated under the individual loan agreements. The effects of such revaluation are included under gains and losses on the valuation of financial assets Allowances for Impairment and Provisions for Contingent Liabilities The Bank makes an allowance for the entire amount of the outstanding receivable balances that are overdue, if, as per management s assessment, the receivables are deemed as being unrecoverable. As of, the Bank estimated allowance for impairment based on the internally adopted methodology that is compliant with the requirements of IAS 39 Financial Instruments: Recognition and Measurement. Estimated amount of allowance for impairments and provision for contingent liabilities are charged to the Statement of Income. 10

13 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.5. Allowances for Impairment and Provisions for Contingent Liabilities (Continued) Special reserve for potential losses is determined in accordance with the requirements of the relevant NBS Regulation. Loans, other placements, guarantees, and other on- and off-balancesheet exposures are classified into the categories A, B, V, G and D, in accordance with the evaluation of their collectability and associated risk exposures, which depends upon the number of days the payments are in arrears, the financial standing of the counterparty, and the quality of the collateral obtained on the exposures. An estimate of the allowances for impairment and the provision for contingent liabilities is calculated by applying the percentages in the range 1-2%, 5-15%, 20-35%, 40-75% and 100 on the amounts of the particular exposures classified into categories A, B, V, G and D, respectively. Difference between the amount of special reserve for potential losses calculated in accordance with the National Bank of Serbia requirements, and the amount of allowance for impairments and provision for contingent liabilities estimated in accordance with the internally adopted methodology, is presented as reserve within the equity and is charged to retained earnings. Special reserve for potential losses is set aside as appropriation of retained earnings. If current year profit and retained earnings from prior years are not sufficient to cover estimated amount of special reserve, the difference is recognized as additionally required provision. As of, allowance for impairment and provision for contingent liabilities have been determined in accordance with the relevant NBS regulations that were in effect at that time. The Bank has not retrospectively applied newly adopted internal methodology for the calculation of impairment losses, which represents a departure from IAS 8, Net Income or Loss of the Period, Fundamental Errors and Changes in Accounting Policy, pursuant to which the financial statements including comparable information for the previous period, are to be presented as though the new accounting policy had always been in effect, and each adjustment or correction that arises as a result, is to be stated as an adjustment of the retained earnings at the beginning of the period. A write-off of uncollected receivables is performed either pursuant to a court order, or based on a settlement agreed between the parties involved, or otherwise, on the basis of a resolution of the Bank s Board of Directors, as further approved by the Shareholders Assembly Repurchase and Reverse Repurchase Transactions Securities purchased from the National Bank of Serbia under agreement to resell, pursuant to the provisions of the NBS Agreement on the Sale of Securities with an Obligation to Repurchase are stated at amortized cost at the balance sheet date Trading Securities Trading securities are comprised of foreign currency public savings bonds and are initially recognized at cost, and are valued at their market values at the balance sheet date. All realized and unrealized gains and losses, arising on sale and remeasurement of these securities are stated within Net gains and losses on the sale of securities. 11

14 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.8. Securities Available-for-Sale Securities available-for-sale comprise investments in the equity of related and other legal entities, for which, an active market and reliable market values, do not presently exist. Securities availablefor-sale are stated at cost less allowances for impairment. All realized gains arising on sale are shown under Net gains on the sale of securities Cash and Cash Equivalents For purposes of the Statement of Cash Flows, Cash and cash equivalents include cash and balances on the current accounts held with the National bank of Serbia and with other banks Managed Funds and Non-Operating Assets and Funds The Bank manages funds on behalf of, and for the account of third parties, thereby charging fees for these services. These items have not been included in the Bank s balance sheet Employee Benefits The Bank does not have defined benefit plans or share-based remuneration options as of. The management believes that the present value of the future obligations to employees with respect to retirement benefits and jubilee anniversary awards are not materially significant as of Income Taxes Current Income Tax Current income tax represents the amount calculated in accordance with the Income Tax Law effective in the Republic of Serbia. The annual corporate income tax is payable at the rate of 10% on the tax base reported in the annual income tax return, as reduced by any applicable tax credits. The taxable base includes the profit stated in the statutory statement of income, as adjusted for permanent differences that are specifically defined under local tax rules. The effective tax regulations in the Republic of Serbia do not allow any tax losses of the current period to be used to recover taxes paid within a specific carryback period. However, any current year losses may be used to reduce or eliminate taxes to be paid in future periods, but only for a duration of no longer than ten ensuing years. Deferred Income Taxes Deferred income tax is determined using the balance sheet liability method, for temporary differences arising between the tax bases of assets and liabilities components, and their carrying values in the consolidated financial statements. The currently-enacted tax rates at the balance sheet date are used to determine the deferred income tax amount. Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for deductible temporary differences, and the tax effects of income tax losses and credits available for carry forward, to the extent that it is probable that future taxable profit will be available against which deferred tax assets may be utilized. 12

15 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair Value The accompanying financial statements are prepared on an historical cost basis, including adjustments and provisions made to reduce assets to their estimated recoverable amounts. It is the policy of the Bank to disclose the fair value information of those financial assets and financial liabilities for which published market information is readily and reliably available, and whose fair value is materially different from their recorded amounts. Sufficient market experience, stability and liquidity do not exist for the purchase and sale of loans and other financial assets or liabilities, given that published market information is not readily available. Hence, fair value cannot reliably be determined. In the opinion of management, the reported recoverable amounts represent the most valid and useful reporting values in accordance with the Law on Accounting and Auditing of the Republic of Serbia and the regulations of the National Bank of Serbia which govern the financial reporting of banks. 4. INTEREST INCOME AND EXPENSE a) Interest Income Year Ended Deposits with the central bank 145,752 51,429 Placements with other banks 26,077 12,205 Loans and advances to customers 389, ,075 Securities 2,552 2,670 b) Interest Expense 563, ,379 Year Ended Amounts owed to other banks 15,340 13,462 Amounts owed to customers 174,943 62, ,283 75,648 13

16 5. FEE AND COMMISSION INCOME AND EXPENSE a) Fee and Commission Income Year Ended Fee and commission income from domestic payment transfers 85,913 67,332 Loan origination fees 32,573 13,031 Banking services to retail customers 50,320 45,744 Fee and commission income from banking services to other banks 10,483 7,320 Fee and commission income from international payment transfers 25,940 27,146 Fees on issued guarantees and other contingent liabilities 25,708 22,151 Other fee and commission income 5,144 17, , ,506 b) Fee and Commission Expense Year Ended Fee and commission expense arising on domestic payment transfers 10,441 8,879 Fee and commission expense arising on international payment transfers 14,992 11,118 Fee and commission expense arising on foreign currency purchases and sales 2,999 10,639 Fee on received guarantees and other contingent liabilities 5,093 8,479 Other fee and commission expenses 1,810 1,011 35,335 40, OTHER OPERATING INCOME Year Ended Release of provision for impairment losses 273,753 33,843 Release of provision for contingent liabilities 10,421 15,896 Write-off of liabilities Rental income 8,418 2,329 Other income 5,434 9, ,106 61,934 14

17 7. OTHER OPERATING EXPENSES Year Ended Material and energy 31,112 29,142 Services 33,823 35,426 General and administrative costs 36,439 40,160 Entertainment 8,420 5,578 Insurance premiums 13,974 7,327 Rent 100,038 79,115 Advertising and promotions 15,281 15,564 Property security 47,705 56,521 Donations and sponsorships 39,197 22,545 Losses on the disposal of property and equipment Maintenance 26,109 15,490 Net salaries 158, ,466 Social security costs 68,800 56,714 Other personnel costs 4,613 4,366 Depreciation and amortization 49,850 40,515 Indirect taxes and contributions 46,115 36,786 Write-off of receivables 3,989 3,476 Other expenses 6,304 3, , , LOSSES ON IMPAIRMENT AND PROVISIONS a) Charge for the Year Year Ended Provision charged during the year: - placements with customers 126,654 83,102 - interest, fee and commission receivables and other assets 79,383 75,390 - securities 2, , ,492 Provision for pending litigation 3,781 - Provision for contingent liabilities 7,522 7,979 11,303 7, , ,471 15

18 8. LOSSES ON IMPAIRMENT AND PROVISIONS (Continued) b) Movements in the Balance of Allowances for Impairment Placements with Other Banks Loans and Advances to Customers Interest, Fees, Commissions Receivable and Other Assets Securities Total Balance, beginning of the year 3, , ,696 10, ,110 Charged during the year - 126,654 79,383 2, ,328 Foreign exchange fluctuations - (7,373) 14 (7,359) Release of provision during the year - (185,001) (88,752) - (273,753) Write-offs (3,450) (314,351) (153,593) (400) (471,794) Balance, end of the year - 256,149 24,748 12, ,532 c) Special reserve for potential losses As of, the Bank has determined special reserve for potential losses in accordance with the National Bank of Serbia requirements, and classification of risk-bearing balance sheet and off-balance sheet exposures into prescribed categories. In accordance with the National Bank of Serbia Decision on the classification of balance sheet and off-balance sheet exposures, difference between the amount of special reserve for potential losses calculated in accordance with the National Bank of Serbia requirements, and the amount of allowance for impairments and provision for contingent liabilities estimated in accordance with the internally adopted methodology, is presented as reserve within the equity and is charged to the retained earnings. Special reserve for potential losses determined as per the National Bank of Serbian requirements with respect to:: - balance sheet exposures 554,055 - off-balance sheet exposures 52, ,482 Allowance for impairment and provision for contingent liabilities determined in accordance with internally adopted methodology (IAS 39): - allowance for impairment (293,531) - provision for contingent liabilities (24,548) (318,079) Provision for contingent liabilities determined in accordance with IAS 39 exceeding the amount of provision as per the NBS Decision 41 Provision for potential losses to be shown within reserves 288,444 Reserve for potential losses formed from: - prior years profits (25,245) - current year s profits (5,803) (31,048) Additional provision for potential losses to be set aside as appropriation of retained earnings 257,396 Additionally required provision for potential losses will be set aside as appropriation of the Bank s future profits. 16

19 9. INCOME TAXES a) Components of Income Tax Current income tax 1,214 3,648 Deferred income taxes (1,468) (678) (254) 2,970 b) Numerical Reconciliation Between Tax Expense and the Product of Accounting Results Multiplied by the Applicable Tax Rate Profit before tax 5,549 55,913 Income tax at the statutory tax rate of 10% 555 5,591 Tax effect of expenses not deductible in determining taxable profit 404 1,027 Tax credits for capital expenditures (4,871) (4,924) Non-recognized deferred tax assets 3,658 1,276 Income taxes (254) 2,970 Effective tax rate (4.58%) 5.31% As of and, the Bank did not recognize deferred tax assets with respect to unused tax credits which may be carried forward to future fiscal periods (not to exceed ten ensuing years), given that it is uncertain if these assets can be utilized in the future. At deferred tax assets in the amount of RSD 1,661 thousand relate to the temporary differences between the carrying values of the property, equipment and intangible assets and their tax base. 10. CASH AND CASH EQUIVALENTS Cash on hand: - in dinars 73,868 70,647 - in foreign currencies 77,189 81,459 Giro account 583, ,239 Deposits with NBS 30, ,000 Other cash and cash equivalents in dinars 17,428 48,294 Foreign currency accounts held with foreign banks 299, ,136 1,082, ,775 17

20 10. CASH AND CASH EQUIVALENTS (Continued) Foreign currency accounts held with foreign banks as of primarily include the balances held with: Deutsche Bank Trust Company Americas, New York (RSD 167,801 thousand), Union Bank of Switzerland (RSD 46,641 thousand) and Deutsche Bank AG, Frankfurt am Main (RSD 35,761 thousand). During, the Bank deposited overnight funds with the National Bank of Serbia, at annual interest rate of 6 percent in the period January-August and annual interest rate ranging from 11 to 14 percent in the period September-December. The Bank s obligatory reserves represent the minimum deposits set aside in accordance with the NBS Regulation on the Obligatory Reserves of Banks to be Held with the NBS. Pursuant to the relevant decisions published in the Republic of Serbia Official Gazettes numbered 48/2004, 86/2004, 90/2004, 136/2004, 46/, 69/, 77/, 80/, 86/, 91/, 95/, 102/, 109/, 28/, 39/, 49/ and 73/, the obligatory reserve is to be calculated on the basis of the average amount of dinar deposits, borrowings and other related liabilities in effect during a period of one month to which a ranging from 15 percent to 60 percent is applied, depending on maturity and source of funding, and is subsequently maintained on the Bank s giro account. In, the annual interest rate earned on the Bank s obligatory reserve account was ranging from 2.5 percent to 3 percent. 11. DEPOSITS WITH THE CENTRAL BANK AND SECURITIES AVAILABLE-FOR- REFINANCING WITH THE CENTRAL BANK Obligatory reserves in foreign currencies held with NBS 1,507,929 1,103,010 Securities purchased under agreements to resell 300, ,930 1,807,929 1,815,940 The obligatory reserves in foreign currencies represent the minimum deposits set aside in accordance with the NBS Regulation on the Obligatory Reserves of Banks to be Held with the NBS. The obligatory reserve is to be calculated on the basis of the average amount of deposits, borrowings and other related liability balances in foreign currencies, or that have been indexlinked to the dinar-euro exchange rate existing during a period of one calendar month, to which a rate ranging from 20 percent to 100 percent is applied, depending on type and maturity of related liabilities. 18

21 11. DEPOSITS WITH THE CENTRAL BANK AND SECURITIES AVAILABLE FOR REFINANCING WITH THE CENTRAL BANK (Continued) In accordance with the Addendum and Amendments to the NBS Decision on Interest Rates (Official Gazette numbered 46/) of June 10,, deposits placed in foreign currencies with the National Bank of Serbia are non-interest bearing ones. The Bank is required to maintain an average daily balance on its foreign currency accounts held with the NBS, in an amount not lower than the calculated amounts of the obligatory reserves. At securities purchased under agreements to resell in the amount of RSD 300,000 thousand relate to 3,000 bonds purchased from the NBS, with 14-day maturities and issued at annual interest rates ranging from 14 percent to 15.5 percent. This transaction is governed by the NBS Agreement on the Sale of Securities with an Obligation to Repurchase. 12. INTEREST, FEES AND COMMISSIONS RECEIVABLE Matured interest: - in dinars 30,669 58,941 - in foreign currencies 50 2,272 30,719 61,213 Fee and commission receivable: - in dinars 9,652 10,632 40,371 71,845 Less: Allowance for impairment (14,366) (49,400) 26,005 22, PLACEMENTS WITH OTHER BANKS Loans to domestic banks in dinars - 230,000 Matured loans - 3,450 Other placements 776 5, ,906 Less: Allowance for impairment - (3,450) ,456 As of, loans to domestic banks in dinars in the amount of RSD 230,000 thousand are associated with loans granted for liquidity purposes, having 5-day maturities and issued at an annual interest rate of 12 percent. 19

22 14. LOANS AND ADVANCES TO CUSTOMERS Short-term loans: - in dinars 1,138, ,815 - in foreign currencies 4,045 67,235 Matured receivables: - in dinars 320, ,109 - in foreign currencies 11,911 50,828 Current maturities of long-term loans: - in dinars 824, ,777 - in foreign currencies 178, ,533 Long-term loans: - in dinars 1,503, ,422 - in foreign currencies 8,037 22,138 Short-term deposits with foreign banks 282, ,635 Cash cover for issued letters of credit and guarantees 3,002 7,995 4,274,131 3,357,487 Less: Allowance for impairment (256,149) (636,220) 4,017,982 2,721,267 Short-term loans in dinars and in foreign currencies are primarily granted for periods ranging from one month up to one year, at annual interest rates in the range of 2.9 percent to 18 percent. Long-term loans extended to legal entities in dinars and foreign currencies are mainly issued for periods ranging from thirteen months to ten years, at annual interest rates in the range of 2.9 to 18 percent. Long-term loans in dinars and foreign currencies include the amount of RSD 116,523 thousand associated with the loans granted to small and medium-sized enterprises primarily for the purposes of financing the purchase of equipment and machinery, construction of warehouse facilities for machinery storage, as well as for working capital requirements. A portion of these loans in the amount of RSD 103,742 thousand is funded from the borrowings received from the National Bank of Serbia, Department of Revolving Fund Management (Note 19), whereas the amount of RSD 12,751 thousand was granted from the Bank s own funds. The aforedescribed loans are granted for periods ranging from two to five years with applicable annual interest rates equal to three months LIBOR + 6 percent and three months LIBOR percent, respectively. Long-term loans in dinars and foreign currencies include the amount of RSD 13,262 thousand associated with the loans extended to small and medium-sized enterprises for the purposes of financing the purchase of new equipment and for funding working capital. These loans are funded from the borrowings received from Kreditanstalt für Wiederaufbau ( KfW ), Frankfurt am Main (Note 19). Such loans are granted with 3-year maturities, having a grace period of three to six months, and are issued at annual interest rates ranging from 10 to 11.5 percent. Long-term loans to retail customers in dinars primarily represent loans extended for financing residential housing loans and the purchase of automobiles, and are granted for periods ranging from two to fifteen years, at annual interest rates ranging from 2.9 to 20 percent. Short-term loans to retail customers in dinars were primarily extended for periods of up to one year, at annual interest rates ranging from 3.9 percent to percent. 20

23 14. LOANS AND ADVANCES TO CUSTOMERS (Continued) As of, short-term deposits with foreign banks primarily relate to the funds placed with Bank Austria Creditanstalt AG, Vienna (RSD 276,500 thousand) for a period of six days, at annual interest rate of 3.5 percent. Loan Concentration The economic sector risk concentrations within the customer loan portfolio are as summarized below: Trade 536, ,986 Retail customers 1,781, ,578 Public sector 98, ,996 Transportation and traffic 93, ,065 Civil engineering 119,689 84,472 Agriculture and food processing 609, ,810 Foreign entities 451, ,646 Other 328, ,714 4,017,982 2,721, SECURITIES a) Trading Securities Foreign currency public savings bonds 17, ,523 Commercial papers 8,093 8,093 25, ,616 Less: Allowance for impairment (8,093) (8,093) 17, ,523 b) Securities Held-To-Maturity Discounted bills ,973 Matured discounted bills 4,499 22,009 5,361 41,982 Less: Allowance for impairment (4,542) (2,651) ,331 21

24 15. SECURITIES (Continued) c) Equity Investments and Securities Available-For-Sale Interest in the shares of related entities: - Zepter Komerc banka A.D., Banja Luka - 135,693 - Zepter osiguranje A.D., Beograd - 28,600 Interest in the shares of other legal entities ,865 During, the Bank sold its equity investments in Zepter Komerc banka A.D., Banja Luka (FY : equity share of 18%) and insurance company, Zepter osiguranje A.D., Beograd (FY : equity share of 8%). Gain realized on the sale of these equity investments amounts to RSD 4,309 thousand. 16. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS Equipment Construction and Other in Progress Intangible Buildings Assets and Advances Total Assets Cost Balance, beginning of year 34, , , ,803 93,225 Additions - 6,412 30,432 36,844 18,552 Transfers from construction in progress - 28,031 (28,031) - - Disposals - - (296,433) (296,433) - Balance, end of year 34, ,556 17, , ,777 Accumulated Depreciation /Amortization Balance, beginning of year ,581-75,944 22,785 Charge for the year ,345-31,799 18,051 Balance, end of year , ,743 40,836 Net Book Value: - as of 34, ,630 17, ,471 70,941 - as of 34, , , ,859 70,440 At buildings stated in the Bank s books of account in the net book value of RSD 8,491 thousand were recognized as the Bank s property based on the executed purchase and sale agreements. The respective ownership titles were not registered in the relevant cadastral books. 22

25 16. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (Continued) The Bank has not assigned or pledged as collateral any component of its fixed assets as of. Pursuant to the terms of the Agreement on the Sale of Real Estate, dated March 29,, the Bank and Zepter osiguranje, Beograd as joint investors and owners, sold the Zora Building presently under construction. The sale of the part owned by the Bank has been made at the selling price equal to its carrying value in the Bank s books of accounts of RSD 296,433 thousand. 17. OTHER ASSETS AND ACCRUALS Advances: - in dinars 2,437 2,431 - in foreign currencies 3,370 19,198 Receivables arising on the sale 65,726 1,509 Overpaid taxes and contributions Receivables from employees 9, Prepaid expenses: - insurance premiums 1,767 2,035 - advertising rental expenses for property and equipment 4,708 8,706 Other accruals 2,120 2,344 Accrued interest: - in dinars 8,223 4,370 - in foreign currencies 1,315 20,265 Receivables arising on paid guarantees and acceptances 5,986 78,468 Receivables from individuals based on payment card transactions and cheques of other banks 4,754 4,467 Tangibles received in lieu of debt settlement 8,495 11,266 Receivables arising on the transfer of debt - 23,794 Receivables arising on foreign currency purchases 48,752 1,906 Other receivables 8,232 20, , ,569 Less: Allowance for impairment (10,382) (138,296) 164,783 63,273 As of, receivables arising on the sale in the amount of RSD 65,726 thousand primarily relate to not matured installment related to the sale of part of the Zora Building presently under construction of RSD 63,541 thousand (Note 16). 23

26 18. AMOUNTS OWED TO OTHER BANKS Demand deposits: - in dinars 467 5,030 - in foreign currencies 13,106 34,439 Liabilities to the National Bank of Serbia 178 5,538 The demand deposits in dinars and foreign currencies are non-interest bearing ones. 13,751 45, AMOUNTS OWED TO CUSTOMERS Demand deposits: - in dinars 1,774,792 1,227,738 - in foreign currencies 1,812,897 1,762,885 Short-term deposits: - in dinars 415, ,694 - in foreign currencies 1,157, ,136 Long-term deposits: - in dinars 19,589 12,764 - in foreign currencies 430, ,098 Current portion of long-term loans 77, ,516 Long-term loans in foreign currencies 56, ,179 Other financial liabilities: - in dinars in foreign currencies 17, ,761,926 4,972,976 A breakdown of amounts owed to customers (excluding borrowings), by customer type, is as follows: Enterprises 1,567,094 1,774,383 Retail customers 2,642,275 2,100,056 Governmental institutions 941, ,656 Foreign entities 476, ,063 Foreign banks and financial institutions 1,828 3,123 5,628,559 4,696,281 The demand deposits in dinars of enterprises, governmental institutions and other legal entities, primarily are comprised of current account balances. These deposits carry an annual interest rate of 1 percent. 24

27 19. AMOUNTS OWED TO CUSTOMERS (Continued) The demand deposits in foreign currencies of enterprises and governmental institutions are noninterest bearing ones, except for customers whose daily balance on the foreign currency account exceeds EUR 50,000 and EUR 100,000, that earn interest an annual interest rate of 0.8 percent and 1 percent, respectively. The short-term deposits of enterprises in dinars and foreign currencies carry interest rates ranging from 0.9 to 1.2 percent monthly. The long-term deposits of enterprises are non-interest bearing ones, given that these funds were primarily pledged as instruments of collateral on loans issued to other customers from the Bank s own funds. On the current accounts of retail customers, the Bank calculates annual interest at a rate of 2.5 percent, whereas the giro accounts of retail customers and entrepreneurs are non-interest bearing ones. The demand deposits in foreign currencies of retail customers earn annual interest rates ranging from 0.4 to 2 percent. The short-term deposits of retail customers in foreign currencies earn annual interest rates ranging from 0.45 to 4.5 percent. The long-term term deposits of retail customers that are placed so as to serve as collateral on loans that are extended to other customers from the Bank s own funds are ordinarily non-interest bearing ones. The other long-term retail customer deposits in foreign currencies earn annual interest rates ranging from 1.2 to 4.9 percent. The long-term loans from domestic banks in foreign currencies in the amount of RSD 103,742 thousand (including the current portion) relate to the loans received from the National Bank of Serbia, Department of Revolving Fund Management. These funds were allocated for the purposes of providing financing to small and medium-sized enterprises (Note 14). On the loans received up to April 15,, the Bank pays annual interest at the quarterly LIBOR rate +2%. On the loans withdrawn after this date, the Bank pays annual interest at the quarterly LIBOR rate +1.5%. The long-term loans originated by foreign financial institutions in foreign currencies in the amount of RSD 29,625 thousand (including the current portion) represent borrowings received from Kreditanstalt für Wiederaufbau ( KfW ), Frankfurt am Main, with 3-year maturities, and the purposes of providing financing to small and medium-sized enterprises (Note 14). The repayments are to be made in six-month installments and have an interest rate equal to the sixmonth EURIBOR rate +2% annually. 25