consolidated annualreport

Transcription

1 consolidated annualreport

2 Your trust is what we care about

3 Content 1. Address by the managing director 4 2. General information about the company 8 3. Brief description of the macroeconomic 16 and competitive environment 4. Report on business activities 20 and property situation in 5. Consolidated financial statements Branch network 104

4 1. Address by the Managing Director Dear Clients, Business Partners, and Shareholders, Precisely a year ago, when we were setting our goals for, we had both feet planted firmly on the ground, aware of the economic forecasts. We wanted to make the best possible use of the potential of our large sale network with respect to the bank s performance. Today, with the current economic results for the past year now available, we can see that we have managed to not only fulfill our goal, but have also exceeded our expectations. The year was another year of changes. Our work teams changed, we made changes to several products, and how we communicate underwent a considerable overhaul as well. All this was done because we care about what services we provide to our clients. We wanted to move forward and get closer to our clients and take care of them. I dare say that these changes were for the better. You can judge for yourselves. Poštová banka ended the fiscal year with a net profit of 68,172 million euros. The positive financial results primarily resulted from an increase in business - retail and corporate banking, along with optimal management of growth in operating expenses. At the same time, we managed to continue the trend of increasing our loan portfolio, despite the ever-stronger competitive environment. Our loans increased by 145 million euros (8.4%) in total. In addition, we registered another year-on-year increase in the amount of resources from clients in the amount of 434 million euros (15.2%). The total amount of resources from clients reached 3.28 billion euros at the end of. The growing trust of clients in our bank was also reflected in their number - we are now taking care of one million clients. 4 We are also delighted about the development of our subsidiaries. PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY (First Pension Management Company of Poštová banka) established two new funds during. In other funds, it raised the amount of assets to 487 million euros, which represents an increase of almost 29%. During, the company maintained its place among competitors and expanded its market share from 8.6% to 11.5%. At the same time, we launched a new line of business - administration of funds for third parties. By implementing a new information system, we further simplified and accelerated the process of investing. One of the results is an award in the Gold Coin (Zlatá minca) competition, where we defended second place in the Real Estate Funds category.

5 Last year, our Dôchodková správcovská spoločnosť (Pension Management Company) changed its information system, in addition to a change in its depository management. First and foremost, the company saw a considerable increase in the number of savers, despite an amendment to legislation, which led to the opening of the second (private) pillar of the pension system. We continue administering four funds in the Pension Management Company, also leaving room for clients who are interested in the fund with a passive management of the portfolio. Development changes also did not bypass Poisťovňa Poštovej banky (Poštová banka Insurance Company). The product Detské poistenie pre nezbedníkov (Children s Insurance for the Naughty) was added to the range of its products in February and Cestovné poistenie ONLINE (Travel Insurance ONLINE) in June. Similarly to its sister companies, it continued its dynamic growth in - the Insurance Company s profit after tax rose to 1.9 million euros (1.7 million euros in ). Its profitability is among the highest of all insurance companies in the Slovak market. This result reflects a proper management of the product mix, in addition to strictly controlled costs and the introduction of several new additions. Last year confirmed that our clients received these changes positively. Therefore, we plan to continue making changes and improvements for the benefit of our clients and further develop cooperation with our strategic partner, Slovenská pošta a.s. (Slovak Post joint stock company). I believe that, based on joint efforts and thanks to your trust, we will manage to move Poštová banka forward again. We will do everything in our power for the bank to not only maintain, but also considerably strengthen, its position as an important retail player on the Slovak banking market. Marek Tarda Chairman of the Board of Directors and CEO 5

6 SIMPLICITY We have decided to give you simple products that will make your lives easier Children s Insurance for the Naughty Travel Insurance ONLINE Loans with zero interest in the middle of the maturity period Transparent and Advantageous goodaccount Non-fixed term deposit ONLINE

7 Poštová banka and its subsidiaries form a strong group that improves its position on the Slovak market every year. Marek Tarda, Chairman of the Poštová banka Board of Directors

8 2. General Information About the Company Legal name: Poštová banka, a.s. Registered office: Dvořákovo nábrežie 4, Bratislava Identification number (IČO): Date of establishment: 31 December 1992 Legal form: Joint stock company Scope of activities: a) Pursuant to Article 2 (1) and (2) of the Act on Banks: 1. Acceptance of deposits; 2. Provision of loans; 3. Provision of payment services and clearing; 4. Provision of investment services, investment activities and secondary services pursuant to the Act on Securities, within the scope referred to in Section (b) of this point, and investment into securities in one s own account; 5. Trading on one s own account in a) Financial money market instruments in euros and foreign currency, including exchange activities; b) Financial capital market instruments in euros and foreign currency; c) Precious metal coins, commemorative bank notes and commemorative coins, bank notes sheets and sets of coins in circulation; 6. Administration of clients receivables in their accounts, including related consulting; 7. Financial leasing; 8. Provision of guarantees, opening and certification of letters of credit; 9. Provision of consulting services in the area of business activities; 10. Issuance of securities, participation in the issuance of securities and provision of related services; 11. Factoring; 12. Safekeeping of items; 13. Renting of safe deposit boxes; 14. Provision of bank information; 15. Activities as a depository; 16. Handling of bank notes, coins, commemorative bank notes and commemorative coins; 17. Issuance and administration of electronic money; 18. Factoring according to special legislation as an independent financial agent in the sector of insurance and reinsurance; 8 b) Pursuant to Article 79a (1) in conjunction with Article 6 (1) and (2) of the Act on Securities: 1. Acceptance and forwarding of client s instruction concerning one or several financial instruments in relation to the following financial instruments: a) Negotiable securities; b) Money market instruments; c) Participating certificates and securities issued by foreign entities of collective investment; d) Options, futures, swaps, forwards and other derivatives connected with securities, currencies, interest rates or revenues, which may be settled by delivery or in cash; 2. Execution of client s instruction on their account in relation to the following financial instruments: a) Negotiable securities; b) Money market instruments; c) Participating certificates and securities issued by foreign entities of collective investment; d) Options, futures, swaps, forwards and other derivatives connected with securities, currencies, interest rates or revenues, which may be settled by delivery or in cash;

9 3. Trading on one s own account in relation to the following financial instruments: a) Negotiable securities; b) Money market instruments; c) Participating certificates and securities issued by foreign entities of collective investment; d) Options, futures, swaps, forwards and other derivatives connected with securities, currencies, interest rates or revenues, which may be settled by delivery or in cash; 4. Investment consulting in relation to the following financial instruments: a) Negotiable securities; b) Money market instruments; c) Participating certificates and securities issued by foreign entities of collective investment; d) Options, futures, swaps, forwards and other derivatives connected with currencies, interest rates or revenues, which may be settled by delivery or in cash; 5. Subscription and placement of financial instruments on the basis of fixed commitment in relation to the following financial instruments: a) Negotiable securities; b) Participating certificates and securities issued by foreign entities of collective investment; 6. Placement of financial instruments without a fixed commitment in relation to the following financial instruments: a) Negotiable securities; b) Participating certificates and securities issued by foreign entities of collective investment; 7. Custody and administration of financial instruments on the client s account, including holder administration, and related services, particularly administration of cash and financial collateral, in relation to the following financial instruments: a) Negotiable securities; b) Money market instruments; c) Participating certificates and securities issued by foreign entities of collective investment; 8. Provision of credits and loans to investors to facilitate the realization of transactions involving one or several financial instruments, in cases where the credit or loan provider is involved in such transactions; 9. Realization of transactions in foreign exchange assets if these are connected with the provision of investment services; 10. Execution of investment survey and financial analysis, or another form of general recommendation concerning trading in financial instruments; 11. Services related to the subscription of financial instruments. 9

10 10 Poštová banka Board of Directors as of 31 December Marek Tarda Chairman of the Board of Directors from 15 December 2009, re-elected from 15 December Graduated from the Department of Law at Comenius University in Bratislava. From 2004, he worked as director of the Legal Division of the company ISTROKAPITAL, a. s. In 2006, he became director of the Legal Department of ISTROKAPITAL SLOVENSKO, a. s. He was a member of the Supervisory Board of Poštová banka, a.s. and later also a member of the Supervisory Board of Poisťovňa Poštovej banky, a. s. and PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY a. s. As of 15 December 2009, he became chairman of the Board of Directors and CEO of Poštová banka. Dana Kondrótová Deputy Chairwoman of the Board of Directors Graduated from the University of Economics in Bratislava. In , she worked for Všeobecná úverová banka (General Credit Bank), where she went through several positions in the branch and mortgage division, all the way to product management and CONSUMER FINANCE HOLDING activities. From 2009, she gained further experience in the position of director of the ZUNO BANK branch in Slovakia. In October 2011, she began to work for Poštová banka, holding the position of advisor to the CEO on the bank s project management. From 5 December 2011, she became a member of the Board of Directors, being responsible for banking services, project and program management, and public relations. On 10 August, she was appointed as chairwoman of the Board of Directors.

11 Daniela Pápaiová member of the Board of Directors Graduated from the Department of Business Management at the University of Economics in Bratislava. In , she was primarily involved in the insurance sector, working for the companies ING Nationale - Nederlanden poisťovňa, a.s., Aegon Životná poisťovňa, a.s., and Aegon, d.s.s., a.s., as well as for Poisťovňa Poštovej banky, a. s. as a member of the Board of Directors. From May 2009 until the end of 2010, she held the position of member of the Board of Directors in the company Credium Slovakia, a.s. She joined Poštová banka in 2011 as director of the Finance Division. From 26 July, in her capacity as member of the Poštová banka Board of Directors, she assumed responsibility for the area of finances and back-office activities. Jan Kotek member of the Board of Directors Graduated from the University of Economics in Prague. He arrived at Poštová banka from the position of director of the Credit Risk Management Division of J&T Banka, a.s., Prague. He previously worked in the audit area for several years and was subsequently involved in consulting at the company PriceWaterhouseCoopers. Since 8 November, he has been a member of the Poštová banka Board of Directors, responsible for the risk management area. Members of the Poštová banka Supervisory Board as of 31 December Mario Hoffmann (chairman, re-elected from 29 April ) Jozef Salaj (member) Vladimír Ohlídal (member) Jozef Tkáč (member since 5 December, deputy chairman since 19 December ) (based on an amendment to the Articles of Association) Tomáš Drucker (member since 5 December ) Peter Kapusta (member until 5 December ) Roman Fečík (member until 5 December ) Vratko Čársky (member until 5 December ) Igor Barát (member until 5 December ) 11

12 List of shareholders of Poštová banka, a.s. as of 31 December Legal name and registered office of the shareholder J&T Finance, a.s. Pobřežní 297/14, Prague J&T BANKA, a.s. Pobřežní 297/14, Prague ISTROKAPITAL SE Klimentos Street, 1061 Nicosia Slovenská pošta, a.s. Partizánska cesta 9, Banská Bystrica Ministerstvo dopravy, výstavby a regionálneho rozvoja Slovenskej republiky (Ministry of Transport, Construction, and Regional Development of the Slovak Republic) Námestie slobody 6, Bratislava UNIQA Versicherungen AG Untere Donaustrasse 21, 1029 Wien Total number of shares Participation in share capital in % Participation in share capital in 143, ,351, , ,364,200 27, ,937,329 4, ,444, , , , ,304,686 Capital participation in selected business entities Company name PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. Number of shares held by Poštová banka Poštová banka s participation in share capital in % Poštová banka s participation in share capital in 50, ,700, Poisťovňa Poštovej banky, a. s. 348, ,560, Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s ,949, POBA Servis, a. s , PB PARTNER, a. s. 8, , PB Finančné služby, a. s , SPPS, a. s ,

13 13

14 Responsive web design Online sale of products CARE We care about you being well taken care of Quick contactless payments Online card payments via iterminal Modern POS terminals 33 new ATMs More than POSTOMAT ATMs New branch in Prievidza

15 The unfavorable economic situation and strong competition did not deter us. On the contrary, we did not stop growing last year, either. Jan Kotek, member of the Poštová banka Board of Directors

16 16 3. Brief Description of the Macroeconomic and Competitive Environment The year in Slovakia was characterized by the gradual acceleration of economic growth and a slowdown in price growth. However, last year was the third year in a row during which the performance of the Slovak economy slowed down. Despite the slower economic growth than in previous years, the situation on the labor market improved, as the unemployment rate slightly declined. Last year, the annual growth in Slovakia s GDP by 0.9% was primarily driven by foreign demand, which is the driving force for our export-oriented companies. However, foreign demand, too, decelerated as a result of the slowdown in economic growth and recession in the countries of Slovakia s most important customers. In spite of this, Slovak foreign trade posted a record-high surplus. Slovak household consumption more or less stagnated, as Slovaks continued to be cautious with their purchases, given the continuing unfavorable situation on the labor market. Thanks to the slower growth in prices, we earned more money in real terms last year. The average inflation rate reached 1.4% according to the national consumer price index (CPI) and 1.5% according to the harmonized consumer price index (HICP) in. According to the national CPI index, the highest price hikes, by more than 6%, were recorded in the area of education. On the other hand, transport became cheaper by 1.1% year-on-year. The most costly items in the family budgets of Slovaks are foodstuffs and housing. With the end of the year approaching, however, the growth in the prices of foodstuffs gradually fell to 0.2% in December, but foodstuffs recorded an overall price increase of 3.5% year-on-year. We paid only 0.4% more for housing in, compared to. The lines of the unemployed at labor offices became shorter during, and the registered unemployment rate decreased from 14.8% in January to 13.5% in December, which translated at the end of the year into more than 364,000 unemployed ready to immediately take up a job. However, the total number of unemployed was almost 400,000. Also last year, slow economic growth was not sufficient for any considerable creation of new jobs. The decrease in the unemployment rate also resulted, to an extent, from an increase in the number of job-seekers deleted from the records. In the past year, state financial management was better than planned, and the annual deficit was one-third better than had been assumed when the state budget was drawn up. The state budget closed the year with a deficit of 2.02 billion, which means that the annual deficit was reduced by 46.9%. The state budget income saw an increase by 8.2% year-on-year, whereas expenditures were cut by 5.2%. During the course of, the stagnating economy of the euro zone and the long-term failure to meet the inflation target of the European Central Bank (ECB) resulted in a further reduction in the prime interest rate in the euro zone. At the ECB session taking place in Bratislava for the first time in history in May, European central bankers cut the prime interest rate to 0.5% and, half a year later, in November, to 0.25%. There had never been such low interest rates in the euro zone before. As these are connected vessels, the lower ECB prime rate was reflected in lower interest rates on the interbank market. Not only banks loaned each other money at lower rates, but also the governments of European countries, including Slovakia. The euro exchange rate against the dollar moved within a relatively narrow range of EUR /USD EUR /USD during the course of. This range was considered narrow, because the difference between the strongest and weakest exchange rate of the euro against the dollar had been considerably broader in previous years, for example, three times broader in the crisis year of An interesting event from the viewpoint of Slovak consumers was the November decision of the Czech central bank (ČNB) to launch interventions against the Czech koruna with the aim of weakening it. Consequently, shopping tourism of Slovaks beyond the borders became the subject of debate again.

17 As of 31 December, a total of 13 banks having their registered offices in the territory of the Slovak Republic (including two banks without foreign capital participation and 11 banks with foreign capital participation), 15 branches of foreign banks, and one central bank were in operation in the Slovak banking sector. This means that the total number of banks did not change at the end of, compared to. Over the course of the same year, the number of branches and other organizational units in the banking sector increased by 13 to 1,256. By the end of, 19,551 employees were working in the Slovak banking sector, which was 0.6% less than at the end of. According to preliminary results, total assets recorded in the banking sector amounted to more than 59 billion last year. Deposits from citizens presented at the end of amounted to 25.8 billion, growing by 2.7% year-on-year. Loans to citizens increased by 9.9% to 19.6 billion compared to. According to preliminary data, the banking sector generated a net profit of more than 552 million, which represents an increase of approximately 10.7% compared to. 17

18 COMPREHENSIBILITY Our goal is that you understand us and, at the same time, that you know that we listen to you New style of communication Clear rules Open approach Transparent information

19 We are aware that continuous improvement in products and services is behind any success in business. This goes hand-in-hand with simplification and streamlining, which have become part of our work. Dana Kondrótová, deputy chairwoman of the Poštová banka Board of Directors

20 20 4. Report on Business Activities and Property Situation in The year was successful for the Poštová banka group in terms of business, as evidenced by a profit of almost 69.6 million. The group includes PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol. a.s. (FIRST PENSION MANAGEMENT COMPANY OF POŠTOVÁ BANKA), which continues selling participating certificates of real estate funds. Insurance services are provided by Poisťovňa Poštovej banky, a.s. (Insurance Company of Poštová banka), which scored success in. It was among the top five insurance companies in the Trend TOP ranking in Slovakia. At the same time, it launched several new products. Both subsidiaries achieved very good financial results, thus contributing to the growth of the entire group. The new subsidiary PB Finančné služby, a.s. (PB Financial Services) proved to be very successful, with its main activities consisting of the provision of financial and operational leasing, as well as factoring. Brokerage activities are provided by the subsidiary PB Partner, a.s. and real estate management and registry services are carried out by the company POBA Servis, a.s. The main activity of Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a.s. (Pension Management Company of Poštová banka) is management of pension funds. In, the balance sheet amount of the group reached 3,843.0 million, growing by 12.5% compared to the previous year. Financial parameters that influenced the amount of the financial result are described in detail in the Notes to the Consolidated Annual Financial Statements. ASSETS The largest part of group assets consisted of loans provided to clients and securities. As of 31 December, interest-bearing assets amounted to 3,481.6 million. The share of interest-bearing assets, including the required minimum reserves, stands at 90.6% of the total assets. Compared to, the bank s credit portfolio increased by 8.9% and reached a net value of 1,875.5 million (after taking the created value adjustments into consideration), representing 48.8% of total bank assets. Consumer loans provided amounted to million, of which Dostupná pôžička (Accessible Loan) accounted for million and Lepšia splátka (Better Installment) (previously Pôžička na bývanie (Housing Loan)) amounted to million. The amount of consumer loans rose by 10.8% year-on-year. Corporate loans increased by 8.1% to 1,219.4 million. As of 31 December, the group had in its portfolio securities in the amount of 1,537.8 million (including coupon and accruals). The share of securities in total assets was 40.0%. From the total volume of securities, government bonds represent 1,013.8 million, other bonds million, and promissory notes, shares, and participating certificates million. In, accounts in banks of issue and other banks represented 7.0% of total assets with a value of million. According to the IFRS, these assets are primarily presented as part of cash equivalents. Over the course of, the bank deposited the required minimum reserves in the National Bank of Slovakia in compliance with prudent banking rules. By the end of, the volume of the required minimum reserves represented million. The bank deposited its temporarily available funds in banks of issue in the form of loans and short-term deposits. As of 31 December, term deposits in

21 the Czech National Bank (ČNB) amounted to 33.0 million. At the end of, deposits in other banks amounted to 13.1 million for the entire group, including euro deposits of 10.0 million and foreign currency deposits of 3.1 million. Cash assets amounted to 20.6 million as of 31 December, including 18.9 million in euros and 1.7 million in foreign currency. The share of tangible and intangible assets in total assets represents 1.3% ( 47.8 million) as of 31 December. EQUITY AND LIABILITIES Primary resources from clients amounted to 3,267.8 million as of 31 December, growing by 15.5 million year-on-year. They account for 85.0% of the balance sheet amount. The biggest growth was achieved by term deposits, whose volume increased year-on-year by million to 2,031.1 million by the end of the year, representing 16.0% growth. The amount of deposits in passbooks reached million, growing by 6.0% year-on-year. Funds in personal accounts reached the amount of million, growing year-on-year by 7.0%. In, 98,000 new personal accounts were established. Secondary resources (accounts of banks of issue and other banks) amounted to 7.6 million as of 31 December. As of 31 December, equity of the group amounted to million, which represents an increase of 59.5 million compared to the previous year. Share capital of the group amounts to million, funds created from profit account for 24.4 million, and the financial result of the current year totals 69.6 million. SELECTED INDICATORS The development of selected qualitative indicators is documented in the table below. Indicator Actual figures as of 31 December Actual figures as of 31 December Interest-bearing assets/assets 90.6% 90.2% Loans (net)/assets 48.8% 50.5% Financial institutions + central banks/assets 7.0% 3.1% Government bonds/assets 26.4% 28.2% Other bonds/assets 5.1% 4.8% Interest-bearing liabilities/liabilities 86.9% 87.1% ROA 1.8% 1.9% ROE 15.0% 16.2% Explanatory notes Central banks: NBS National Bank of Slovakia, ČNB - Czech National Bank ROA Return on assets ROE Return on equity 21

22 22 The Return on Equity (ROE) indicator for the entire group for amounted to 15.0% and the Return on Assets (ROA) indicator reached 1.8% as of 31 December. The number of employees in the group increased by 0.5% compared to the previous year. As of 31 December, the number of employees was 1,311. As of 31 December, the individual subsidiaries employed 414 people in total, including: Poisťovňa Poštovej banky, a.s employees PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a.s. and Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a.s employees in total PB PARTNER, a.s employees Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a.s employees POBA Servis, a.s employees PB Finančné služby, a.s employees. Our goal is a professional approach to the selection of high-quality people and a positive perception of the brand. The most frequent reasons for an interest in working for the Poštová banka group include the good reputation of the company, an interesting job description, and job opportunities in the regions. We have introduced a system to measure the satisfaction of candidates and managers with the selection process. The quality of candidates is supported by the building of a database and a wide range of selection methods, which has been reflected in the fact that only one employee did not have his employment contract extended after one year due to his unsuitable personality profile as an employee. Managers are supported in building and leading successful teams by HR business partners, who, in their capacity as the liaisons between HR and the divisions entrusted to them, provide comprehensive consulting to managers and employees on HR issues and recommend appropriate decisions and procedures in accordance with HR methodologies, the bank s directives, and legislation. In the area of talent management, we support both internal and external talent. Within the framework of stabilization and development of talented key people in, we identified 86 employees who were given increased individual care by their supervising managers and HR in the areas of individual career development, rewards, and benefits. In the area of support for external talent, was the fourth year in which we successfully completed a Trainee Program, which was extended from 10 to 12 months. After the completion of the program, six specialists out of 13 trainees included in the / program were hired by the Poštová banka group on a permanent basis. Following an assessment of the fourth year, we launched the fifth year for /2014, with 14 new trainees from the bank and its subsidiaries being added to the Poštová banka team. In the area of development, the concept of training and development of the bank s employees was approved this year, becoming the starting point for us for future periods. We continued to invest financial resources in training in a targeted and effective manner, focusing our attention on professional training, which we intend to improve and increase its level in the following year. Through an internal instructor, we continued the development of soft skills as well. By primarily using closed training sessions, we continued to strive for a more targeted and specific focus of training with respect to individual target groups. Within the framework of manager training in, we continued carrying out internal training focused on supporting basic managerial skills, where two activities were carried out in the form of pilot projects: a Basic HR Course for Managers and external Leadership training. Both courses were designed as highly interactive training in HR processes and instruments, which were available to Poštová banka managers to achieve high performance together with their people. We also launched a pilot project to support inspiration (internal and external) and self-development of employees - the Let Us Draw Inspiration Forum, which we will systematically continue in 2014 as well. In, priorities in the area of rewards and benefits included motivation and satisfaction of employees and an increase in labor productivity. We successfully completed a new remuneration system, which is simple, transparent, competitive, and motivating for our

23 employees. In order to value and stabilize employees and develop talent, we have introduced and expanded a new system of employee benefits called Cafeteria. We have maximally adjusted the structure of benefits to the preferences and activities of our employees. Benefits have been divided into five basic groups: Work and Social Benefits, Product Advantages, Family, Health, Sport and Further Education, and Social and Cultural Events. The aim of Poštová banka s new policy of benefits is to reinforce the perception of the value of benefits as part of total rewards, make it easier to attract qualified and high-performing employees on the market, and build employee pride in their company. In, the Human Resources Division ensured the comprehensive processing of payroll records for individual subsidiaries and partially also the processing of personnel records and HR consulting. The objective and purpose of these activities is to harmonize, simplify, and streamline individual work processes and procedures to the largest possible extent for the purpose of reporting and other required outputs. 23

24 Second place in the FORBES ranking in the category of Money Market Funds First place in the Golden Coin competition, category of Term Deposits QUALITY We provide you with high-quality and professional services. Evidence of this are the rewards that we received in : Acquiring Innovation TOP 5 among insurance companies according to TREND TOP Second place in the Golden Coin competition, category of Real Estate Funds

25 Our results reflect our ambitious goals, of which we are not afraid. Behind their fulfillment are high-quality and motivated employees. Daniela Pápaiová, member of the Poštová banka Board of Directors

26 26 5. Consolidated financial statements Prepared in accordance with International Financial Reporting Standards as adopted by the European Union (English Translation) Year ended 31 December

27 Consolidated statement of financial position As at 31 December Assets Notes Cash and deposits at central banks 6 292, ,782 Trading assets 7 10,494 35,994 Loans and advances to banks ,928 Loans and advances to customers 9 1,875,479 1,722,781 Investment securities 10 1,527,343 1,344,210 Property and equipment 11 21,658 31,557 Intangible assets 12 26,188 24,222 Deferred tax asset 13 21,624 46,501 Tax asset 14 1,531 9,087 Other assets 15 65,983 49,057 3,843,041 3,415,119 Liabilities Trading liabilities 7 1, Deposits by banks 16 7,629 61,079 Customer accounts 17 3,267,808 2,829,928 Received loans 18 55,778 75,094 Provisions Provisions for insurance contracts 20 6,888 5,747 Tax liabilities 21 1, Other liabilities 22 30,192 29,360 Subordinated debt 23 8,013 8,013 3,379,250 3,010,808 Share capital and reserves Share capital , ,703 Share premium Reserves and retained earnings , ,813 Share capital and reserves 463, ,311 3,843,041 3,415,119 These consolidated financial statements, which include the notes on pages 33 to 101, were approved on 29 April 2014 by: Chairman of the Board of Directors Marek Tarda Member of the Board of Directors Daniela Pápaiová 27

28 Consolidated income statement Year ended 31 December Interest income and similar income from debt securities Notes , ,556 Interest expense 29 (58,968) (57,416) Net interest income 191, ,140 Fee and commission income 30 51,566 46,043 Fee and commission expense 31 (32,309) (26,628) Net fee and commission income 19,257 19,415 Dividends received 537 1,009 Net trading income/(loss) 32 10,600 (20,960) Net other income/(loss) 33 8,412 (2,856) Net earned premiums 34 9,173 7,842 Net non-interest income 47,979 4,450 Operating income 239, ,590 Administrative expenses 35 (85,826) (72,554) Depreciation and amortisation 36 (10,348) (8,488) Claim costs 37 (2,287) (1,799) Operating expenses (98,461) (82,841) Operating profit before impairment losses and provisions 140,704 96,749 Impairment losses on investment securities 10 (710) (2,483) Impairment losses on loans and advances to customers 9 (39,861) (20,123) Impairment losses on intangible assets 12 1,527 (455) Impairment losses on other assets 15 (135) (197) Provisions for liabilities Profit before taxation 101,525 73,503 Income tax 39 (31,935) (7,910) Profit after taxation 69,590 65,593 Attributable to: Shareholders of the Bank 69,590 65,593 Non-controlling interest - - The notes on pages 33 to 101 are an integral part of these consolidated financial statements. 28

29 Consolidated statement of comprehensive income Year ended 31 December Notes Profit for the year 69,590 65,593 Other comprehensive income Change in fair value of available-for-sale financial assets: Items that may be reclassified to profit or loss in the future from available-for-sale securities (19,113) 36,105 Reclassification of profit and loss from securities available-for-sale to profit or loss 6,929 (18,912) Income tax on other comprehensive income 39 2,857 (3,937) (9,327) 13,256 Translation difference from foreign operations (783) 181 Other comprehensive income after tax (10,110) 13,437 Total comprehensive income for the year 59,480 79,030 Attributable to: Shareholders of the Bank 59,480 79,030 Non-controlling interest ,480 79,030 The notes on pages 33 to 101 are an integral part of these consolidated financial statements. 29

30 Consolidated statement of changes in equity Year ended 31 December Share capital Share premium Fair value reserve Legal reserve fund Retained earnings Other capital funds Translation reserve Total As at January 232, ,000 17,497 65,849 73, ,311 Total comprehensive income for the year Profit for , ,590 Other comprehensive income Net change in fair value of available-for-sale financial assets, net of tax Translation difference from foreign operations - - (9,327) (9,327) (783) (783) Total comprehensive income for the year - - (9,327) - 69,590 - (783) 59,480 Transactions with owners, recorded directly in equity Transfer to legal reserve fund Increase in share capital ,915 (6,915) , (135) (73,467) - - Total transactions with owners 73, ,915 (11,650) (73,467) - - At 31 December 306, ,673 24, ,389 - (783) 463,791 The notes on pages 33 to 101 are an integral part of these consolidated financial statements. 30

31 Consolidated statement of changes in equity - continued Year ended 31 December Share capital Share premium Fair value reserve Legal reserve fund Retained earnings Other capital funds Translation reserve Total As at 1 January 232, , ,847 - (181) 372,679 Corrections (222,554) 179,837 - (42,717) As at 1 January restated 232, ,647 (100,707) 179,837 (181) 329,962 Total comprehensive income for the year Profit for , ,593 Other comprehensive income Net change in fair value of available-for-sale financial assets, net of tax Translation difference from foreign operations , , Total comprehensive income for the year ,256-65, ,030 Transactions with owners, recorded directly in equity Transfer to legal reserve fund Costs relating to increase in share capital Cancellation of compensation rights Contribution to other capital funds Settlement of receivables from shareholders Use of capital funds to cover losses (850) (124) (124) (179,837) - (179,837) , , (100,000) - (100,000) ,813 (101,813) - - Total transactions with owners - (124) ,963 (106,370) - (4,681) At 31 December 232, ,000 17,497 65,849 73, ,311 The notes on pages 33 to 101 are an integral part of these consolidated financial statements. 31

32 Consolidated statement of cash flows Year ended 31 December Cash flows from operating activities Notes Profit before changes in operating assets and liabilities , ,233 Decrease/(increase) in trading assets 25,500 (7,176) Increase in compulsory minimum reserves (121,560) (89,678) Decrease/(increase) in loans and advances to banks 1,521 (368) Increase in loans and advances to customers (192,559) (361,759) (Increase)/decrease in other assets (17,061) 179,426 Increase in trading liabilities Decrease in deposits by banks (53,450) (39,139) Increase in customer accounts 437, ,450 Increase in other liabilities 832 2,719 Income tax returned 3,827 3,749 Net cash flow from/(used in)operating activities 224,222 (27,853) Cash flows from investing activities Purchase of property and equipment (4,774) (4,985) Proceeds from sale of property and equipment 10,314 15,524 Purchase of intangible assets (5,611) (14,940) Purchase of investment securities (183,843) (212,440) Acquisition of subsidiary - (4,616) Net cash flow used in investing activities (183,914) (221,457) Cash flows from financing activities Loans (repaid)/received (19,316) 75,094 Deposit from minority shareholders - 95,443 Share issue costs off-set against share premium - (124) Net cash flow from (used in) financing activities (19,316) 170,413 Net increase/(decrease) in cash and cash equivalents 20,992 (78,897) Cash and cash equivalents at the beginning of the year 47, ,545 Cash and cash equivalents at the end of the year 6 68,566 47,574 The notes on pages 33 to 101 are an integral part of these consolidated financial statements. 32

33 Notes to the consolidated financial statements Year ended 31 December 1. General information Poštová banka, a. s. ( the Bank ) was incorporated in the Commercial Register on 31 December The Bank commenced activities on 1 January The registered office of the Bank is Dvořákovo nábrežie 4, Bratislava. The Bank s identification ( IČO ), tax ( DIČ ) and value added tax ( IČ DPH ) numbers are as follows: IČO: DIČ: IČ DPH SK (valid until 31 December ) IČ DPH SK (valid from 1 January ) The change of IČ DPH relates to the registration of the Bank as a member of the Poštová banka group. The Group comprises the Bank and its subsidiaries. Principal activities The principal activities of the Group are as follows: Accepting and providing deposits in euro and in foreign currencies; Providing loans and guarantees in euro and foreign currencies; Providing other retail banking services to the public; Providing services on the capital market; Providing investment management services; and Providing life and general insurance services. The Bank operates through 41 branches located in Banská Bystrica, Bánovce nad Bebravou, Bardejov, Bratislava, Brezno, Dubnica nad Váhom, Dunajská Streda, Humenné, Komárno, Košice, Lučenec, Michalovce, Nitra, Nové Mesto nad Váhom, Nové Zámky, Pezinok, Poprad, Prešov, Rožňava, Sečovce, Skalica, Spišská Nová Ves, Trebišov, Trenčín, Trnava, Zvolen, Žiar nad Hronom and Žilina. In addition, under an agreement with Slovenská pošta, the Bank sells its products and services through 1,538 post offices and selected bank services through 45 offices of Pošta-Partner, located throughout the country. Subsidiaries and foreign branch The Bank extended its activities to the Czech Republic in Poštová banka, a. s. pobočka Česká republika ( the Branch ) was registered in the Commercial Register of the Czech Republic on 18 November The Branch commenced its activities on 1 March At 31 December, the Bank had the following subsidiaries and jointly controlled entity: Group Name Activity interest % PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. Asset management 100 Poisťovňa Poštovej banky, a. s. Insurance 100 PB PARTNER, a. s. Financial brokerage 100 Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s. Management of pension funds 100 POBA Servis, a. s. Real estate administration 100 PB Finančné služby, a. s. Financial and operational leasing 100 Jointly controlled entity: SPPS, a. s. Payment services 40 All entities are resident in the Slovak Republic. 33

34 On 10 December, the Bank set up a 100% subsidiary, PB IT a.s. The Bank paid up 100% of the capital in cash before registration of the company PB IT, a.s. PB IT, a.s. was established on 17 January 2014 by registration in the Commercial Register. PB IT, a.s. will, in particular, render services related to IT operations, internal development and project management in the area of IT that will be provided for the whole group of Poštová banka, a.s. The Bank acts as a founder of the following non-profit oriented organisation as at 31 December : NADÁCIA POŠTOVEJ BANKY Charitable foundation 100% The foundation is not included in the consolidated financial statements of the Bank. Shareholders of the Bank at 31 December Name Address Total numbers of shares Ownership of capital share % J&T FINANCE, a.s. Pobřežní 297/14, Praha, Česká republika 143, J&T BANKA, a.s. Pobřežní 297/14, Praha, Česká republika 100, ISTROKAPITAL SE Klimentos Street, 1061 Nicosia, Cyprus 27, Slovenská pošta, a.s. Partizánska cesta 9, Banská Bystrica 4, Ministerstvo dopravy, výstavby a regionálneho rozvoja SR Námestie slobody 6, Bratislava UNIQA Versicherungen AG Untere Donaustrasse 21, 1029 Wien, Austria , J&T FINANCE, a.s. had acquired a majority share of 51.70% of the share capital as at 1 July and J&T BANKA, a.s. owns 36.36% share of the share capital of the Bank. The share of ISTROKAPITAL SE has decreased to 10.10%. This purchase was approved by the National Bank of Slovakia and by the Antimonopoly Office. Members of the Board of Directors Marek Tarda Dana Kondrótová Daniela Pápaiová Jan Kotek President Vice-president Member Member Pavol Lipovský Member until 20 February Members of the Supervisory Board Mario Hoffmann Chairman of the Supervisory Board Jozef Salaj Vladimír Ohlídal Jozef Tkáč Member since 5 December Tomáš Drucker Member since 5 December Roman Fečík Member since 5 December Vratko Čársky Member since 5 December Igor Barát Member since 5 December Peter Kapusta Member since 5 December 34 The consolidated financial statements of the Group for the preceding accounting period, the year ended 31 December, were approved on 23 April by the General Meeting of shareholders.

35 The Group s financial statements are included in the consolidated financial statements of TECHNO PLUS, a.s., Lamačská cesta 3, Bratislava. The consolidated financial statements will be available at the registered office of J&T FINANCE GROUP. Ultimate owner of the whole group is TECHNO PLUS, a.s., Lamačská cesta 3, Bratislava, owned by Jozef Tkáč and Ivan Jakabovič as the sole shareholders. 2. Basis of preparation of the consolidated financial statements (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRSs ) as adopted by the European Union. These financial statements are prepared as the consolidated financial statements required by Section 22 of the Slovak Act on Accounting 431/2002, as amended. (b) Basis of measurement These financial statements have been prepared on the historical cost basis except for the following that are measured at fair value: Derivative financial instruments; Financial instruments at fair value through profit or loss; Available-for-sale financial assets. (c) Going concern assumption The financial statements were prepared using the going concern assumption that the Bank will continue in operation for the foreseeable future. (d) Functional and presentation currency These financial statements are presented in euro ( ), which is the Group s functional currency. Except as otherwise indicated, financial information presented in euro has been rounded to the nearest thousand. (e) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is provided in notes 3 and 4. (f) Comparative figures The comparative figures have been regrouped or reclassified, where necessary, on a basis consistent with the current period. 3. Significant accounting policies The accounting policies set out below have been applied consistently in both periods presented in these separate financial statements. (a) Basis for consolidation The consolidated financial statements include the financial statements of the Bank and those of its subsidiaries and jointly controlled entity (see note 1) prepared for the year ended 31 December. 35

36 Subsidiaries are entities controlled by the Bank. Control exists when the Bank has direct or indirect power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Associates are those enterprises in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group s share of the total recognised gains and losses of associates, on the basis of equity accounting from the date that significant influence commences until the date that significant influence ceases. When the Group s share of losses exceeds the carrying amount of the investment in an associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. Jointly controlled entities are consolidated using the proportionate method of consolidation, i. e. using the percentage share of the entity s assets and liabilities owned by the Bank. Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. The acquiree s identifiable assets, liabilities and contingent liabilities that meet the recognition criteria under IFRS 3 are recognized at their fair value at the acquisition date. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Any non-controlling interest in an acquiree is measured as the non-controlling interest s proportionate share of the acquiree s net identifiable assets. Goodwill arising in a business combination is recognised as an asset and is not amortised but is reviewed for impairment at least annually. Where a business combination is achieved in stages, the Group s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i. e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non/controlling interest and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity accounted investment or as an available-for-sale financial asset depending on the level of influence retained. The accounting principles and procedures applied by the consolidated companies in their financial statements were unified in the consolidation, and agree with the principles applied by the Bank. (b) Foreign currency (i) Foreign currency transactions Transactions denominated in foreign currencies are translated into euro at the exchange rates valid on the date of the transaction. Monetary assets and liabilities are translated at the rates of exchange valid at the balance sheet date. All resulting gains and losses are recorded in Net trading income in profit or loss. 36 (ii) Foreign operations The assets and liabilities of foreign operations are translated to euro at spot exchange rates at the balance sheet date. The income and expenses of foreign operations are translated

37 to euro at spot exchange rates on the date of the transactions. Exchange rate differences on the translation of foreign operations are recognised in other comprehensive income. Foreign exchange rate gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognised in other comprehensive income in the translation reserve. (c) Interest income and expense Interest income and expense are recognised in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. The effective interest rate is determined on initial recognition of the financial asset or liability and is not revised subsequently. The calculation of the effective interest rate includes all fees paid or received, transaction costs and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or retirement of a financial asset or liability. Interest income and expense from financial assets and liabilities through profit or loss are presented as part of Interest income and expense, and changes in the fair values of such instruments are presented at fair value in Net trading income. Interest income and expense in the income statement include: Interest on financial assets and liabilities at amortised cost calculated on an effective interest basis; Interest on investment securities and trading securities calculated on an effective interest basis; Interest income on assigned receivables is recognised when received. (d) Fees and commissions Fees and commission income and expenses that are integral to the effective interest rate of a financial asset or liability, are included in the calculation of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised when the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period. Other fees and commissions relate mainly to transaction costs and service fees, which are recognised as the services are received. (e) Net trading income Net trading income comprises gains and losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes and foreign exchange rate differences. (f) Dividends Dividend income is recognised when the right to receive income is established. (g) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. 37

38 Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. (h) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except for items recognised directly in equity, or in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (j) Financial assets and liabilities (i) Recognition The Group initially recognises loans and advances, deposits by banks, customer accounts, loans received and debt securities on the date they are originated. All purchases and sales of securities are recognised on the settlement date. Derivative instruments are initially recognised on the trade date, at which the Group becomes a party to the contractual provisions of the instrument. A financial asset or financial liability is measured initially at fair value plus transaction costs that are directly attributable to its acquisition or issue (for items that are not valued at fair value through profit or loss). (ii) Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. 38 The Group also derecognises certain assets when it writes off assets deemed to be uncollectible.

39 (iii) Offsetting Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the reporting standards, or for gains and losses arising from a group of similar transactions such as in the Group s trading activity. (iv) Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation, using the effective interest method, of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. (v) Fair value measurement Standard IFRS 13 Fair Value Measurement was adopted by the EU on 11 December and is in force as from the beginning of the first financial year starting on or after 1 January. It does not change when an entity should use fair value, but rather prescribes how the entity, in compliance with this standard, should use fair value in situations when it is necessary or possible to use fair value. The application of this standard has no impact on the financial situation or profit or loss of the Group. The definition of Fair Value according to IFRS 13 reads as follows: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The determination of the fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded on active markets. For all other financial instruments, fair value is determined by using valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market-observable prices exist and valuation models. The Group uses widely recognised valuation models for determining the fair value of the more common financial instruments like options and interest rate and currency swaps. For these financial instruments, inputs into models are market observable. Fair value hierarchy is monitored in relation to the valuation of quoted market prices, the valuation models with input data directly from the market, and input data that cannot be observed on the market. (vi) Identification and measurement of impairment At each end of a reporting period, the Group assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows of the asset that can be reliably estimated. The Group considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. Assets that are not individually significant are also collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. Objective evidence that financial assets (including investment securities) are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as a deterioration in economic conditions or adverse changes in the payment status of borrowers or issuers in that group. 39

40 In assessing collective impairment, the Group uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lower than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly compared to actual outcomes to ensure that they remain appropriate. Impairment losses on assets carried at amortised cost are calculated as the difference between the book value of the financial asset and the present value of estimated future cash flows discounted at the asset s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss. Impairment losses on available-for-sale investment securities are recognised by transferring the difference between the amortised acquisition cost and current fair value that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. When a subsequent event causes the amount of impairment loss on an available-for-sale debt security to decrease, the impairment loss is reversed through profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. Changes in impairment losses attributable to time value are reflected as a component of Net interest income. (j) Cash and cash equivalents Cash and cash equivalents comprises cash, unrestricted balances held with the National Bank of Slovakia and highly liquid financial assets with original maturities of less than three months, which are subject to an insignificant risk of changes in their fair value and are used by the Group in the management of short-term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position. (k) Trading assets and liabilities Trading assets and liabilities are those assets and liabilities that the Group acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together with achieving short-term profit or maintaining position. Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position with transaction costs taken directly to profit or loss. All changes in fair value are recognised as part of Net trading income in the income statement. Trading assets and liabilities are not reclassified subsequent to their initial recognition except that non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition, may be reclassified out of the fair value through profit or loss category if they are no longer held for the purpose of being sold or repurchased in the near term and the following conditions are met: If the financial asset would have met the definition of loans and receivables, and it had not been required to be classified as held for trading at initial recognition, then it may be reclassified if the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. 40 If the financial asset would not have met the definition of loans and receivables, then it may be reclassified out of the trading category only in rare circumstances.

41 (l) Derivatives held for risk management purposes Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or liabilities. Derivatives held for risk management purposes are measured at fair value in the statement of financial position. The treatment of changes in their fair value depends on their classification into the following categories: (i) Fair value hedge When a derivative is designated as a hedge of the change in fair value of a recognised asset or liability or a firm commitment, changes in the fair value of the derivative are recognised immediately in profit or loss together with changes in the fair value of the hedged item that are attributable to the hedged risk (in the same income statement line item as the hedged item). If the derivative expires or is sold, terminated, or exercised, no longer meets the criteria for fair value hedge accounting, or the designation is revoked, hedge accounting is prospectively discontinued. Any adjustment up to that point to a hedged item for which the effective interest method is used is amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life. (ii) Cash flow hedge When a derivative is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. The amount recognised in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same income statement line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the derivative expires or is sold, terminated or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount previously recognised in other comprehensive income and presented in the hedging reserve remains there until the forecast transaction affects profit or loss. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in other comprehensive income is recognised immediately in profit or loss. (iii) Other non-trading derivatives When a derivative is not held for trading and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in profit or loss as a component of net income from financial operations. (iv) Embedded derivatives Derivatives may be embedded in another contractual arrangement (a host contract ). The Bank accounts for embedded derivatives separately from the host contract when the host contract is not itself carried at fair value through profit or loss and the characteristics of the embedded derivative are not clearly and closely related to the host contract. Separated embedded derivatives are accounted for depending on their classification and are presented in the statement of financial position together with the host contract. (m) Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the near term. When the Group is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of an asset to the lessee, the agreement is presented within loans and advances. 41

42 When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date ( reverse repo or stock borrowing ), the agreement is accounted for as a loan or advance, and the underlying asset is not recognised in the Group s financial statements. Loans and advances are initially measured at fair value plus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest method. (n) Investment securities Investment securities are initially measured at fair value plus incremental direct transaction costs and subsequently accounted for depending on their classification as either held-to-maturity or available-for-sale. (i) Held-to-maturity Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity and which are not designated at fair value through profit or loss or available-for-sale. Held-to-maturity investments are carried at amortised cost using the effective interest method. Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity, except for sales or reclassifications in accordance with IAS 39.9, would result in the reclassification of all held-to-maturity investments as available-for-sale and prevent the Group from classifying investment securities as investments held-to-maturity for the current and the following two financial years. (ii) Available-for-sale Available-for-sale investments are non-derivative investments that are not designated as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are carried at fair value. Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised in profit or loss when the Group becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in profit or loss. Other fair value changes are recognised in other comprehensive income and presented in the fair value reserve in equity until the investment is sold or impaired and the cumulative gain or loss is then recognised in profit or loss. (o) Property and equipment (i) Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of the cost of that equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property. (ii) Subsequent costs The cost of replacing part of an item of property is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be reliably measured. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred. 42 (iii) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.

43 The estimated useful lives for the current and comparative periods are as follows: Buildings Furniture, fittings and equipment Motor vehicles Software 40 years, straight line 4 to 15 years, straight line 4 years, straight line 4 years, straight line Depreciation commences when the asset is put into use. Depreciation methods, useful lives and residual values are reassessed at the reporting date. (p) Intangible assets Software Software is stated at cost less accumulated amortisation and impairment losses. Amortisation is recognised on a straight line basis over the estimated useful life of the software, which is reassessed on a yearly basis. Goodwill Goodwill arising on a business combination is measured as the excess of the cost of the acquisition of the subsidiary over the interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is recognised in the statement of financial position in Intangible assets. Goodwill is stated at cost less accumulated impairment losses. Amortisation is not charged. Instead, goodwill is reviewed at each reporting date for impairment and an impairment loss is recognised in profit or loss when the carrying amount of goodwill exceeds its recoverable value. Value of business acquired (VOBA) Expected rights and obligations arising from agreements on pension saving funds ( PSF ) acquired in business combinations are measured at fair value at the time of acquisition. The difference between the fair value of acquired rights and obligations under those agreements and the value of intangible assets measured in accordance with accounting principles applicable to the Group (deferred transaction costs) are capitalized as intangible assets (present value of the acquired portfolio of active contracts - VOBA). VOBA is amortized on a straight line basis over the life of the contracts acquired. The present value of an active portfolio of contracts is subject to an impairment assessment test as at the date of the financial statements. The fair value of the rights and obligations arising from PSF contracts acquired is defined as the present value of net future cash flows over the remaining life of the acquired contracts. Estimates of the best conditions for cancellations, costs, fees and mortality adjusted for appropriate risk premium are used for calculating the present value of the acquired portfolio of active contracts. (q) Leased assets Leases under which the Group assumes substantially all the risks and rewards of ownership, are classified as finance leases. On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to the initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. All other leases are operating leases and the assets are not recognised on the Group s statement of financial position. (r) Impairment of non-financial assets The carrying amounts of the Group s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset s recoverable amount is estimated. 43

44 An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised directly in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (s) Deposits, customer accounts, loans received and subordinated debt Deposits, customer accounts, loans received and subordinated debt are the Group`s sources of debt funding. Deposits, customer accounts, loans received and subordinated debt are initially measured at fair value plus transaction costs, and subsequently measured at their amortised cost, including accrued interest, using the effective interest method. When the Group sells a financial asset and simultaneously enters into a repo or stock lending agreement to repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Group s financial statements. (t) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. (u) Employee benefits (i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement when they are due. 44 (ii) Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date.

45 (iii) Short-term benefits Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be reliably estimated. (v) Insurance and investment contracts Insurance contracts in non-life insurance Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder are classified as insurance contracts. Insurance risk is risk other than financial risk. Financial risk is the risk of a possible future change in interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating, credit index or other variable provided that the variable is not specific to a party to the contract. Insurance contracts may also contain certain financial risk. Contracts under which the transfer of insurance risk from the policyholder to the Group is not significant are classified as investment contracts. Revenue (premiums) Gross premiums written comprises the amounts of premiums arising from insurance contracts due in the accounting period regardless of whether these amounts relate fully or partially to future periods (unearned premiums). Premiums written include estimates for premiums from insurance contracts with the beginning of insurance coverage in the accounting period, which may not be delivered at the end of the reporting period, and adjustments to estimates of premiums written in previous years. Written premiums are recognised net of bonuses and similar discounts offered on contract conclusion or renewal. Premiums from co-insurance are the proportional part of total premiums from the co-insurance contracts due to the Group and are recognised as revenue. The earned proportion of premiums is recognised as revenue. Premiums are earned from the date of attachment of risk, over the coverage period, based on the pattern of the risks underwritten. Unearned premiums provision The provision for unearned premiums ( UPR ) comprises the portion of gross premiums written which is estimated to be earned in the following or subsequent financial years, computed separately for each insurance contract using the daily pro rata method (365 method), adjusted, if necessary, to reflect any variation in the incidence of risk during the period covered by the contract. Claims Claims incurred comprise the settlement and handling costs of paid and outstanding claims arising from events occurring during the financial year together with adjustments to prior and current year claims provisions. Claim costs are decreased by the amount of recourses. Claim provisions Claims outstanding comprise provisions for the estimate of the ultimate cost of settling all claims incurred but unpaid at the end of reporting period whether reported or not, and related internal and external claims handling expenses and an appropriate prudential margin. Claims outstanding are assessed by reviewing individual claims and making allowance for claims reported but not yet settled ( RBNS ) and claims incurred but not yet reported ( IBNR ), taking into account the effect of both internal 45

46 and external foreseeable events, such as changes in claims handling procedures, inflation, judicial trends, legislative changes and past experience and trends. When the claim payments are made in form of annuities, the provision is determined using actuarial methods. Provisions for claims outstanding (excluding annuities) are not discounted. Unexpired risk provision A provision is made for unexpired risks arising from non-life insurance contracts where the expected value of claims and expenses attributable to the unexpired periods of contracts in force at the end of the reporting period exceeds the unearned premiums provision in relation to such policies after the deduction of any deferred acquisition costs. The provision for unexpired risks is calculated by referencing classes of business which are managed together, after taking into account the future investment return on investments held to back the unearned premiums and unexpired claims provisions. The unexpired risk provision is the result of a liability adequacy test in non-life insurance. Revenue (premiums) Gross premiums written comprise premiums due in the accounting period, estimates for premiums and adjustments to estimates of premiums written in previous years. The earned portion of premiums is recognised as revenue. Premiums are earned from the date of attachment of risk, over the coverage period, based on the pattern of the risks underwritten. Unearned premiums provision The provision for unearned premiums comprises the portion of gross premiums written which is estimated to be earned in the following or subsequent financial years, computed separately for each insurance contract using the daily pro rata method (365 method), adjusted, if necessary, to reflect any variation in the incidence of risk during the period covered by the contract. Claims Claims include maturities, annuities, surrenders and death claims, policyholder bonuses allocated in anticipation of a bonus declaration and claim payments from riders. Maturity and annuity claims are recognised as an expense when due for payment. Surrender claims are recognised when paid together with release of claim provision. Death claims and claims from riders are recognised when notified by creation of RBNS. Claim provisions Claims outstanding comprise provisions for the estimate of the ultimate cost of settling all claims incurred but unpaid at the end of the reporting period, whether reported or not. These represent the claim payments from contracts classified as insurance contracts or investment contracts with discretionary participation feature ( DPF ) and claim payments from related riders. It includes appropriate internal and external expenses related to settlement. Claims outstanding are assessed by reviewing individual claims and making allowance for claims reported but not yet settled ( RBNS ) and claims incurred but not yet reported ( INBR ), taking into account the effect of both internal and external foreseeable events, such as changes in claims handling procedures, inflation, judicial trends, legislative changes and past experience and trends. When the claim payments are made in the form of annuities, the provision is determined using actuarial methods. Provisions for claims outstanding (excluding annuities) are not discounted. 46 Life assurance provision The life assurance provision represents the actuarial estimate of the Group s liabilities from traditional life insurance contracts. Life assurance provisions are calculated for each individual policy separately using the prospective Zillmer method, taking into account all guaranteed future benefits, already allocated profit-sharing and future Zillmer premium paid by policyholders. The provision is calculated using the same assumptions as used for the calculation of premiums. Changes in the life assurance provision are recognised in the period the change occurs.

47 Provision for premium deficiency A liability adequacy test is performed at the reporting date. The test is performed by using actual actuarial assumptions (appropriately adjusted for risk margin) at the time of the test and the discounted cash flow methodology. If such test indicates that the initially determined life assurance provision is deficient as compared to the result of the liability adequacy test, an additional provision for premium deficiency is created as an expense of the current period. (w) Pension saving funds Contracts that are concluded in accordance with the Act on pension saving funds are classified as service contracts under IAS 18 (pension saving funds). These are pension saving funds (hereinafter PSF ) that are concluded by the subsidiary DSS Poštová banka, a.s. with its clients. The method of accounting for revenue from PSF contracts is described below. Deferred acquisition costs of acquisition of PSF contracts Transaction costs related to acquisition of PSF contracts are deferred by the subsidiary. Transaction costs are represented by commissions paid to intermediaries and organizers of the network of PSF brokers. Direct transaction costs are deferred up to the amount of their expected returns from future revenues associated with these contracts. Commissions paid are recognized as deferred transaction costs. If this expense does not meet the requirements in accordance with IAS 38 (the likelihood that it will bring economic benefit in the future is low, or it is not directly attributable to a particular PSF contract), it is accounted for as costs in its full amount when it occurs. Deferred transaction costs recognized in the financial statements are part of the brokerage commissions for PSF contracts paid that are deferred to future periods. Deferred costs of acquisition of PSF contracts are amortized using the straight-line basis over the expected life of the contract. At the termination of the contract a one-time write-off is made. The subsidiary tests deferred transaction costs for impairment on a regular basis (as at the date of the financial statements). (x) New standards and interpretations not yet adopted IFRS 10 Consolidated Financial Statements and IAS 27 (2011) Separate Financial Statements Effective for annual periods beginning on or after 1 January 2014; earlier application is permitted if IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011) are also applied early. This standard is to be applied retrospectively when there is a change in control conclusion. IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that currently are SPEs in the scope of SIC-12. IFRS 10 introduces new requirements to assess control that are different from the existing requirements in IAS 27 (2008). Under the new single control model, an investor controls an investee when: (1) It is exposed or has rights to variable returns from its involvements with the investee; (2) It has the ability to affect those returns through its power over that investee; and (3) There is a link between power and returns. The new standard also includes the disclosure requirements and the requirements relating to the preparation of consolidated financial statements. These requirements are carried forward from IAS 27 (2008). The impact of the initial application of the amendment will depend on the specific facts and circumstances of the investees of the Group held at the date of initial application. Therefore, the Group is not able to prepare an analysis of the impact this will have on the financial statements until the date of initial application. 47

48 Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities Effective for annual periods beginning on or after 1 January 2014; early adoption is permitted; to be applied retrospectively subject to transitional provisions. The amendments provide an exception to the consolidation requirements in IFRS 10 and requires qualifying investment entities to measure their investments in controlled entities as well as investments in associates and joint ventures at fair value through profit or loss, rather than consolidating them. The consolidation exemption is mandatory (i.e. not optional), with the only exception being that subsidiaries that are considered as an extension of the investment entity s investing activities must still be consolidated. An entity qualifies as an investment entity if it meets all of the essential elements of the definition of an investment entity. According to these essential elements an investment entity: (1) Obtains funds from investors to provide those investors with investment management services; (2) Commits to its investors that its business purpose is to invest for returns solely from appreciation and/or investment income; and (3) Measures and evaluates the performance of substantially all of its investments on a fair value basis. The amendments also set out disclosure requirements for investment entities. The Group does not expect the new standard to have any impact on the financial statements, since it does not qualify as an investment entity. IFRS 11 Joint Arrangements Effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively subject to transitional provisions. Earlier application is permitted if IFRS 10, IFRS 12, IAS 27 (2011) and IAS 28 (2011) are also applied early. IFRS 11, Joint Arrangements, supersedes and replaces IAS 31, Interest in Joint Ventures. IFRS 11 does not introduce substantive changes to the overall definition of an arrangement subject to joint control, although the definition of control, and therefore indirectly of joint control, has changed due to IFRS 10. Under the new standard, joint arrangements are divided into two types, each having its own accounting model defined as follows: A joint operation is one whereby the jointly controlling parties, known as the joint operators, have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is one whereby the jointly controlling parties, known as joint venturers, have rights to the net assets of the arrangement. IFRS 11 effectively carves out from IAS 31 Jointly Controlled Entities those cases in which, although there is a separate vehicle for the joint arrangement, separation is ineffective in certain ways. These arrangements are treated similarly to jointly controlled assets/operations under IAS 31, and are now called joint operations. The remainder of IAS 31 Jointly Controlled Entities, now called joint ventures, are stripped of the free choice of equity accounting or proportionate consolidation; they must now always use the equity method in their consolidated financial statements. The Group does not expect IFRS 11 to have material impact on the financial statements since it is not a party to any joint arrangements. IFRS 12 Disclosure of Interests in Other Entities 48 Effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively, except not required to present comparative information for unconsolidated structured entities for any periods before the first annual period for which IFRS 12 is applied. Earlier application is permitted.

49 IFRS 12 requires additional disclosures relating to significant judgements and assumptions made in determining the nature of interests in an entity or arrangement, interests in subsidiaries, joint arrangements and associates and unconsolidated structured entities. The Group does not expect that the new Standard will have a material impact on the financial statements. IAS 27 (2011) Separate Financial Statements Effective for annual periods beginning on or after 1 January Earlier application is permitted if IFRS 10, IFRS 11, IFRS 12 and IAS 28 (2011) are also applied early. IAS 27 (2011) carries forward the existing accounting and disclosure requirements of IAS 27 (2008) for separate financial statements, with some minor clarifications. As well, the existing requirements of IAS 28 (2008) and IAS 31 for separate financial statements have been incorporated into IAS 27 (2011). The standard no longer addresses the principle of control and requirements relating to the preparation of consolidated financial statements, which have been incorporated into IFRS 10, Consolidated Financial Statements. The Group does not expect IAS 27 (2011) to have a material impact on the financial statements, since it does not result in a change in the entity s accounting policies. IAS 28 (2011) Investments in Associates and Joint Ventures Amendments effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively. Earlier application is permitted if IFRS 10, IFRS 11, IFRS 12 and IAS 27 (2011) are also applied early. There are limited amendments made to IAS 28 (2008): Associates and joint ventures held for sale. IFRS 5, Non-current Assets Held for Sale and Discontinued Operations applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. For any retained portion of the investment that has not been classified as held for sale, the equity method is applied until disposal of the portion held for sale. After disposal, any retained interest is accounted for using the equity method if the retained interest continues to be an associate or a joint venture. Changes in interests held in associates and joint ventures. Previously, IAS 28 (2008) and IAS 31 specified that the cessation of significant influence or joint control triggered remeasurement of any retained stake in all cases, even if significant influence was succeeded by joint control. IAS 28 (2011) now requires that in such scenarios the retained interest in the investment is not remeasured. Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities Effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively. Earlier application is permitted, however the additional disclosures required by Amendments to IFRS 7 Disclosures Offsetting Financial Assets and Financial Liabilities must also be made. The amendments do not introduce new rules for offsetting financial assets and liabilities; rather they clarify the offsetting criteria to address inconsistencies in their application. The amendments clarify that an entity currently has a legally enforceable right to set-off if that right is: Not contingent on a future event; and Enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the Bank and all counterparties. Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets Effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively. Earlier application is permitted, however the Group shall not apply the amendments in periods (including comparative periods) in which it does not also apply IFRS

50 The amendments clarify that recoverable amount should be disclosed only for individual assets (including goodwill) or cash-generated units for which an impairment loss was recognised or reversed during the period. The amendments also require the following additional disclosures when an impairment for individual assets (including goodwill) or cash-generated units has been recognised or reversed in the period and the recoverable amount is based on fair value less costs to disposal: The level of IFRS 13 Fair value hierarchy within which the fair value measurement of the asset or cash-generating unit is categorised; For fair value measurements categorised within Level 2 and Level 3 of the fair value hierarchy, a description of the valuation techniques used and any changes in that valuation technique together with the reason for making it; For fair value measurements categorised within Level 2 and Level 3, each key assumption (i.e. assumptions to which the recoverable amount is most sensitive) used in determining fair value less costs of disposal. If fair value less costs of disposal is measured using a present value technique, the discount rate(s) used both in current and previous measurement should be disclosed. The Group does not expect that the new standard will have a material impact on the financial statements. Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting Effective for annual periods beginning on or after 1 January 2014; to be applied retrospectively. The Group shall not apply the amendments in periods (including comparative periods) in which it does not also apply IFRS 13. The amendments allows hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws and regulations, when the following criteria are met: The novation is made as a consequence of laws or regulations A clearing counterparty becomes a new counterparty to each of the original counterparties of the derivative instrument. Changes to the terms of the derivative are limited to those necessary to replace the counterparty The Group does not expect the new standard to have any impact on the financial statements, since it does not novate derivatives designated as hedging instruments to central counterparties as a consequence of laws and regulations. 4. Use of estimates and judgements These disclosures supplement the commentary on financial risk management. Key sources of estimation uncertainty Allowances for impairment Assets accounted for at amortised cost are evaluated for impairment on the basis described in accounting policies and accounting methods 3 (i)(vi). 50 The specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based on management s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about the counterparty s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits and the workout strategy and estimate of cash flows considered recoverable. The head of the Risk Management Division is responsible for the assessment of the extent of impairment of individually assessed receivables and for determining the amount of any impairment loss.

51 The valuation of collateral that is part of the calculation takes into account the conclusions of the professional evaluation performed by the Group s expert valuators. According to the current methodology of the Group, the source value is the actual value in Group s value that reflects the valuation of the collateral that is expected to be received on the market, the basis is a collateral in forced realization (irrespective of the costs relating to acquisition and sale). The Group also takes into account the depreciation of the movable assets (machinery technological devices, vehicles) by discounting with a coefficient of 5% p.a. for the period from the calculation of the allowance for impairment until the expected date of realization of the collateral. Subsequently, the Group estimates the percentage loss from realization of the collateral as well as the expected date of realization. Collectively assessed impairment allowances cover credit losses inherent in portfolios of claims with similar economic characteristics when there is objective evidence to suggest that they contain impaired claims, but the individual impaired items cannot yet be identified. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters based on historical experience and current economic conditions. The accuracy of the allowances depends on how well these estimate future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances. The Group creates the collective impairment losses based on the probability of default ( PD ) and loss given default ( LGD ). A change of the LGD parameter by +/-5% or +/-10%, would result in a change in the allowances for impairment by +/-5.6% (in absolute numbers +/- 5,491 thousand), or +/- 11.2% (in absolute numbers +/- 10,982 thousand). Insurance provisions The Group also uses estimates, assumptions and judgments when determining insurance technical provisions (in particular IBNR provisions and life assurance provisions). A set of assumptions is used when estimating future cash flows arising from the existence of insurance contracts and investment contracts with discretionary participation features ( DPF ). It cannot be assured that actual development will not significantly differ from the development predicted based on assumptions. All assumptions are estimated based on the Group s own experience. All provisions arising from insurance contracts and investment contracts with DPF are subject to the liability adequacy test, in which the carrying amount of technical provisions and liabilities is compared to the present value of future cash flows arising from these contracts. The present value of future liabilities is determined using the best estimate assumptions at the time of the test. Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy 3(i)(v). For financial instruments that trade infrequently and have little price transparency, fair value is less objective and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Determining the fair value of such instruments is also influenced by the assessment of the credit risk of the counterparty in accordance with the principles and procedures stated in point 5(b) Management of financial risks credit risk. Further information about the values of financial instruments at fair value, analyzed according to valuation methodology (broken down into individual valuation levels), is given on page 34. Critical judgements in applying the Group s accounting policies Critical accounting judgements made in applying the Group s accounting policies include: Classification of insurance contracts Contracts are classified as insurance contracts if significant insurance risk is transferred from the policyholder to the Group. For some contracts, the Group assesses whether the 51

52 extent of insurance risk transferred is significant. This is mostly the case when a contract also includes a savings component. The significance of insurance risk is assessed according to whether there may be situations in which the Group would be required to pay significant additional benefits compared to comparable savings product. In assessing whether a scenario exists under which these additional benefits would be payable and significant, the whole duration of the contract is taken into account as well as all insurance risks, which the contract transfers, including negotiated riders. A contract that classifies as an insurance contract remains an insurance contract until it expires. Some contracts include the right to a profit share. The Group assesses whether additional benefits under this right are likely to be a significant portion of the total contractual benefits and whether the amount and timing of allocation are at the discretion of the Group, and thus whether they are considered to be contracts with DPF. Such an assessment is made at the time of inception of the contract. Financial asset and liability classification The Group s accounting policies provide scope for assets and liabilities to be designated at inception into different accounting categories in certain circumstances: In classifying financial assets or liabilities as at fair value through profit or loss, management has determined that the Group meets the description of trading assets and liabilities set out in accounting policy 3 (k). In classifying financial assets as held-to-maturity, management has determined that the Group has both the positive intention and ability to hold the assets until their maturity date as required by accounting policy, note 3 (n)(i). Impairment of investment in equity securities Investments in equity securities are evaluated for impairment on the basis described in accounting policy 3(i)(vi). For an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. In this respect, the Group regards a decline in fair value in excess of 20 percent to be significant and a decline in a quoted market price that persist for nine months or longer to be prolonged. Valuation of financial instruments The Group s accounting policies and methods for fair value measurements is discussed under note 3(i)(v). The Group measures fair values using the following hierarchy of methods: Quoted market price in an active market for an identical instrument (Level 1). Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data (Level 2). Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant effect on the instrument s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments (Level 3). 52 Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using valuation techniques.

53 Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premiums used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date, that would have been determined by market participants acting at arm s length. The Group uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available on the market for listed debt and equity securities, exchange-traded derivatives and simple over-the-counter derivatives like interest rate swaps. The availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. The availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. For more complex instruments, the Group uses proprietary valuation models, which are usually developed based on recognised valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived from market prices or rates or are estimated based on assumptions. Examples of instruments involving significant unobservable inputs include certain over-the-counter structured derivatives, certain loans and securities for which there is no active market and certain investments in subsidiaries. Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in determination of fair value. Management judgement and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of the probability of counterparty default and prepayments and selection of appropriate discount rates. The Group has an established control framework with respect to the measurement of fair values. This framework includes a control function performed by the Market Risks Department, which is independent from front office management. Specific controls include: verification of observable pricing inputs and reperformance of model valuations; a review and approval process for new models and changes to models; calibration and back-testing of models against observed market transactions; analysis and investigation of significant daily valuation movements; and review of significant unobservable inputs and valuation adjustments. Fair values of financial asset tools are determined based on standard measurement methods. Usually the Group uses the method of discounted cash flow. Basic parameters that enter into the evaluation model are the projections of future cash flows and discount rate. Projected future cash flows stem from historic records as well as from the business plan of a particular company. The discount rate is composed of different parameters such as expected market revenue, risk-free interest rate, additional charge for risk of country, discount factor for perpetuity and beta factor. For fair value measurement of debt financial instruments the Group uses models based on net present value. The discount rate represents the basic estimation. Determination of the discount rate is based on the risk free market rate which corresponds to the incremental maturity of a particular financial instrument and a risk premium. A risk premium is determined that it is consistent with regular market practice and in compliance with the internal inputs of valuation. Even though these valuation techniques are considered to be appropriate and in compliance with market practice, the estimations of the discount interest rate and changes of basic assumptions in future cash flows may lead to differences in the fair value of financial instruments. 53

54 The reported amounts of financial instruments at fair value analysed according to the valuation methodology were as follows: 31 December Note Assets Quoted market prices in active markets Valuation techniques: observable inputs Valuation techniques: unobservable inputs Total Trading assets 7 2,423 8, ,494 Investment securities 10 Available-for-sale 392,357 48, , ,536 Held to maturity 767, ,807 Loans and advances to customers 9-1,705, ,894 1,875,479 1,162,587 1,762, ,552 3,413,316 Liabilities Trading liabilities 7 - (1,451) - (1,451) 31 December Note Quoted market prices in active markets Valuation techniques: observable inputs Valuation techniques: unobservable inputs Total Assets Trading assets 7 25,131 10, ,994 Investment securities 10 Available-for-sale 266,433 4, , ,094 Held to maturity 821, ,116 Loans and advances to customers 9-1,596, ,821 1,722,781 1,112,680 1,612, ,941 3,102,985 Liabilities Trading liabilities The following table shows a reconciliation of the beginning balance to the ending balance of fair values in particular categories. Valuation techniques unobservable inputs: Investment securities At 1 January 252, Total gains or losses: in profit or loss 10,780 - in other comprehensive income 1,865 - Settlements (70,085) - Purchases 123,939 - Transfers into the category - 251,933 Transfers out of the category - (549) At 31 December 318, ,120 54

55 Favourable and unfavourable effects for equity financial instruments in the category Valuation techniques: unobservable inputs were calculated using changes in expected future cash flows used in the fair value calculation by +/- 30% and changes in the discount interest rate by +200bp/-200bp. As at 31 December, the increase of discount interest rate by 200bp with decrease of future cash flows would have an unfavourable effect on recognised fair value amounting to 18 thousand. In case of decrease in the discount interest rate by 30% and increase in future cash flows, the favourable effect would be 18 thousand. In regards to the fair value assessment of debt financial instruments, the Group has simulated changes of credit risk premiums by +/-200bp against their current value. As at 31 December, the increase in credit risk premiums by 200bp would have an unfavourable effect on recognised fair value amounting to 11,852 thousand. In case of decrease in credit risk premiums, the favourable effect would be 12,888 thousand. The following table shows information regarding the investment movements between all the groups of valuation methods during. Trading assets Quoted market prices in active markets Valuation techniques: observable inputs Valuation techniques: unobservable inputs Transfers into the group - 2,457 - Transfers from the group (2,457) - - Investments Transfers into the group - 38,846 - Transfers from the group (38,846) - - Total (41,303) 41,303 - Securities in the overall amount of 41,303 thousand were transferred from level 1 to level 2 as a result of weaker market activity during. However, there was sufficient information on the market based on the observable inputs for their fair value assessment. 5. Financial, operational and insurance risk management (a) Introduction The Group has exposure to the following main risks: Credit risk, Liquidity risk, Market risk, Operational risk, Insurance risk. The Board of Directors of each company in the Group is responsible for risk management. Information on the exposure to each of the above risks, the objectives, policies and processes for measuring and managing risk and the management of the Bank s capital is set out below. Risk management framework The highest body responsible for risk management in the Bank is the Board of Directors. The Board of Directors has overall responsibility for the establishment and oversight of the Bank s risk management framework. Some responsibilities are delegated to special advisory bodies ALCO, Credit Committee, Mortgage Committee, Operational Risk Management Committee, Program and Project Committee, Change Committee and Compensation Committee. The Bank s risk management policies are based on the Risk Management Strategy, which is the primary document for risk management. The Strategy has been approved by the Board of Directors, and is regularly reassessed and updated. The risk management process is a dynamic and constant process of identification, measurement, monitoring, control and reporting of risks within the Bank. The process involves establishing limits and processes to monitor risks and adherence to those limits. Risk management policies and systems are reviewed and amended regularly to reflect changes in legislation, market conditions, products and services offered. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. For risk management policies related to Group please refer to Note 5(g). 55

56 The Bank s Audit Committee is responsible for monitoring the effectiveness of the internal control and risk management systems. Its activities also cover a review of the external auditor s independence and evaluation of the findings from the audit of the financial statements by the external auditor. The Committee monitors compliance to the financial accounting standards of the Bank. The Audit Committee is assisted in these functions by Internal Audit. (b) Credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank s loans and advances to customers, the provisions of guarantees, the issuance of documentary credits, loans and advances to other banks and the purchase of investment securities. For risk management reporting purposes, the Bank considers and consolidates all elements of its credit risk exposure (such as individual obligor default risk, management failure, country risk, sector and concentration risk). Credit risk management within the Bank is the responsibility of two independent departments within the Risk Management Division. The Board of Directors has delegated responsibility for the oversight of credit risk to its Credit Committee in compliance with a formal order establishing authorities and responsibilities. Credit risk management includes: Examination of the clients creditworthiness, Assessing limits for clients and economically connected parties, including monitoring portfolio concentration, Assessing limits for counterparties, countries, banks, products and sectors, Mitigation of risk by various forms of collateral, Continuous monitoring of the loan portfolio development and prompt decision-making to minimise possible losses. Several methods of credit risk measurement, monitoring and mitigation are used in the Bank. In order to mitigate credit risk the Bank assesses the creditworthiness of the client/ deal using a rating tool with parameters specific to each client segment when providing the loan as well as during the life of the credit/ loan trade. The Bank currently uses three rating systems for the evaluation of the financial statements prepared according to Slovak accounting standards, Czech accounting standards and International Financial Reporting Standards. Each rating system evaluates quantitative and qualitative indicators. When assessing quantitative indicators the rating system evaluates the financial ratios of economic activity set by the Bank (e.g. liquidity ratio, profitability, gearing, etc.) and it compares them to the optimum median values of these financial ratios. The qualitative indicators take into consideration subjective evaluation of the client performed by the Bank. The Bank categorizes them to rating levels from the best to the worst, the worst level representing the highest probability of default. The Bank has established a process of setting up the ratings and their regular updating and a control process for assigning the rating and these are defined in the Bank s internal guidelines. The Bank continuously monitors, assesses and evaluates the compliance with the limits on country, maximum exposure, sector group and related parties and translates these into its activities. When analyzing the client/ deal the Bank uses: Country rating, Bank rating, Client and deal rating, Project assessment tool, Scoring for retail loans. The approval process of active bank transactions includes a review of the individual applicant of the transactions, credit limit of the counterparty and collateral in order to mitigate credit risk. The Bank monitors the development of the portfolio of active bank transactions yearly or more often if necessary, to ensure that prompt action can be taken to minimize potential risks. 56 Credit risk limits are generally determined on the basis of an economic analysis of the client, sector, region or country. Their design and evaluation are in the responsibility of the Risk Management Division and are approved by the relevant authority. The procedure of determining individual limits is part of the Bank s internal guidelines.

57 To mitigate credit risk, the Bank uses the following types of limits: Financial involvement limits of client or economically connected entities (clients), Country limits, Limits on banks Limits on sectors. Loans and advances were granted to customers in the following sectors (gross amount): Individuals 622, ,209 Other services (accommodation services, property investment activities) 376, ,677 Trading companies 483, ,363 Financial services 293, ,945 Manufacturing companies 140,356 94,058 Real estate construction 40,944 19,151 Transport and telecommunication 18,012 9,801 Health care and public services Agriculture ,975,646 1,783,093 Loans and advances were made to customers in the following countries (gross amount): Slovak Republic 1,257,568 1,176,521 Other EU countries 718, ,572 Out of which: Cyprus 468, ,220 Czech Republic 119, ,317 Great Britain 71,206 - Bulgaria 21,875 25,401 Romania 20,000 20,000 Netherlands 11,982 19,515 Poland 4,470 5,119 1,975,646 1,783,093 Classification of receivables Individually significant receivables are classified into five categories (standard, special mention receivables, non-standard, doubtful and loss receivables), which, for the purposes of monitoring and reporting, are further classified into the following categories: Non-impaired, Impaired Impairment not more than 20%, Impairment more than 20%, but not more than 50%, Impairment more than 50%, but not more than 95%, Impairment more than 95%, Out of which: Defaulted. Receivables that are not individually significant, which are assessed on a portfolio basis, are classified based on the number of overdue days, as follows: Non-impaired overdue 0 days Impaired overdue 1 90 days Default overdue more than 90 days 57

58 The Group sets the level of significance at 166 thousand. Loans and advances with a value equal or higher than 166 thousand are assessed individually. The gross amounts of individually impaired loans and advances to customers, banks and investment debt securities by risk grade are as follows: Individually assessed Loans and advances to customers Loans and advances to banks Investment debt securities Bank guarantees and credit lines Not impaired 1,155,354 1,104, , ,925 1,336,667 1,228, , ,075 Out of which Overdue, but not impaired Impaired, out of which: 200, , defaulted 83,015 45, restructured loans 42,798 31, Book value 1,355,678 1,241, , ,925 1,336,667 1,228, , ,516 Allowance for impairment (30,430) (10,377) (99) Net book value 1,325,248 1,230, , ,925 1,336,667 1,228, , ,417 Collectively assessed Not significant 619, , , ,140 Book value 619, , , ,140 Allowance for impairment (69,737) (49,935) (52) (52) Net book value 550, , , ,088 Total net book value 1,875,479 1,722, , ,925 1,336,667 1,228, , ,505 Individually assessed loans and advances The Group uses an internal rating system for providing and monitoring loans and advances granted to corporate clients. The rating is given based on the assessment of the financial standing, future prospects and the client s market share. A risk level category is assigned to the client by classifying a particular rating class when an active bank trade is provided to the client. The receivables are reported as not impaired if they do not present any of the following triggers of impairment: a) Significant financial difficulty of issuer or debtor, b) Breach of contract, e.g. default or delay in repayment of principal or interests, c) Lender granting to a borrower a concession that the lender would not otherwise consider, d) Borrower will enter bankruptcy or other financial reorganisation. Impaired loans and securities Impaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s). Past due but not impaired loans Loans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of accepted collateral or status of repayments of amounts owed to the Bank. 58 Loans with renegotiated terms Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower s financial position and where the Bank has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent of satisfactory performance after restructuring.

59 Allowances for impairment The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment. Provisions In accordance with International Accounting Standard IAS 37 the Bank creates provisions for off balance sheet liabilities (valid credit lines, bank guarantees and letters of credit) if it expects emergence of potential credit risk. The Bank creates provisions in accordance with materiality levels separately for individual off balance sheet liabilities over 166 thousand and portfolio off balance sheet liabilities below 166 thousand. For individually assessed liabilities the Bank set the percentage of loss to the same level as for undrawn receivables. Based on a conservative expert opinion the Bank sets the percentage of loss for the portfolio of balance sheet liabilities at 0.05%. Write-off policy The loan/security balance (and any related allowances for impairment losses) is written off when the Group discovers that the loans/securities are uncollectible. This decision is reached after considering information such as the occurrence of significant changes in the borrower/issuer s financial position such that the borrower/ issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balances of standardised loans, the write-off decision is generally based on a number of days past-due specific for a given product. Set out below is an analysis of the gross and net amounts of individually impaired loans and advances to customers by risk grade. Loans and advances to customers Impaired receivables: Gross Net Impaired not more than 20% 116, ,502 Impaired and defaulted: Impairment more than 20%, but not more than 50% 59,923 52,466 Impairment more than 50%, but not more than 95% Impairment more than 95% 23,446 13, , ,894 Impaired receivables: Impaired not more than 20% 90,802 89,658 Impaired and defaulted: Impairment more than 20%, but not more than 50% 31,865 30,994 Impairment more than 50%, but not more than 95% - - Impairment more than 95% 13,531 5, , ,821 59

60 The exposure according to client types (internal classification) is as follows: Retail clients: Gross amount Impairment allowances Carrying amount Gross amount Impairment allowances Carrying amount Quick loans 216,663 38, , ,406 31, ,639 Housing loan 353,556 25, , ,792 13, ,566 Personal debits 27,000 2,577 24,423 26,725 1,974 24,751 Other consumer loans Other receivables 1, ,101 1, ,467 Practical mortgage 18, ,341 12, ,272 Sold receivables 6, ,865 9,113-9, ,101 66, , ,593 47, ,419 Corporate clients: Large clients 776,347 24, , ,876 7, ,395 Foreign currency loans 70,671-70,671 89,487-89,487 Repo deals 247, , , ,295 Overdrafts 226,703 4, , ,183 2, ,702 Small clients 2,722 1, ,188 1,567 90,621 Credit accounts 2,528 1,422 1,106 2,343 1,163 1,180 Other receivables Sold receivables 5,563 1,398 4,165 6,305-6,305 Leasing 19, ,057 19, ,307 1,351,545 33,622 1,317,923 1,232,500 13,138 1,219,362 Total 1,975, ,167 1,875,479 1,783,093 60,312 1,722,781 Collateral The Group holds collateral against loans and advances to customers in the form of mortgage interests over property and other registered securities over assets and guarantees. Estimates of fair values are based on the value of collateral assessed at the time before executing the deal and are reassessed in compliance with the internal methodology of the Bank. Generally, collateral is not held on loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity. The Group s assessment of the net realisable value of the collateral is based on independent expert appraisals, which are reviewed by bank specialists, or internal evaluations prepared by the Bank. The net realisable value of collateral is derived from this value using a correction coefficient that is the result of the current market situation and reflects the Group s ability to realize the collateral in case of involuntary sale for a price that is possibly lower than the market price. The Group, at least annually, updates the values of the collateral and the correction coefficient. 60

61 An estimate of the fair value of collateral and other security held against financial assets is shown below: Loans and advances to customers Against individually not impaired Real estate 252, ,372 Movables 52,729 48,516 Debt securities ,194 Equity securities 354, ,045 Bank guarantee - 8 Other 77,367 18, , ,511 Against individually impaired Real estate 103,857 79,392 Movables 27, Debt securities ,492 Equity securities 4,142 - Bank guarantee Other ,203 97,016 Against collectively assessed Real estate 16,294 11,905 Movables Other ,708 12,380 Total 890, ,907 As noted above, to mitigate credit risk before providing loans to corporate clients, the Bank generally requires collateral. The following collateral types are accepted: Cash, State guarantees, Securities, First-class receivables, Bank guarantees, Guarantees issued by a reputable third party, Real estate, Machinery and equipment. Recovery of delinquent receivables Receivables whose repayment is threatened are administrated by the Legal and Compliance Division. The Legal Department takes the necessary steps to obtain the maximum recovery from default receivables including realisation of collateral and acts as the Bank s representative in creditor committees when the debtor is in bankruptcy. 61

62 The Risk Management Division, Department of Retail Loans Collection (DRLC) is responsible for collection of retail loans. In the retail segment, the recovery process for overdue receivables is defined and centrally operated by workflow systems (the workflow system in the Bank s environment is Loxon-supplied recovery management system. The system provides complex evidence of delinquent receivables, it uses segmented strategy of recovery and it also processes numerous task flows, automated collection tasks, etc.), which initiate activities for early recovery by the Risk Management Division and DRLC. The Bank also uses the outsourcing services of collection companies. The Risk Management Division is responsible for defining the procedures for recovery and measurement, as well as the measurement of their effectiveness. Settlement risk The Bank s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed. For certain types of transactions the Bank mitigates this risk by conducting settlements through a settlements /clearing agents to ensure that a trade is settled only when both parties have fulfilled their contractual obligations. Settlement limits form part of the credit approval/limit monitoring process. Acceptance of settlement risk on free settlement trades requires transaction-specific or counterparty-specific approval from the Risk Management Department. Credit risk for the asset management company is defined as non-fulfilment of an issuer s or a counterparty s debt. The potential impact of credit risk on the value of assets is considered to be moderate. Unit funds minimise credit risk through trading with securities mainly by making deals with the units fund s assets in compliance with the law, so that the principle of delivery against payment in terms usual on the organised market is used. Risk management consists of verifying the credibility of the issuer or counterparty, setting the limit for the issuer or counterparty in terms of elimination and distribution of risks, inputting this limit to the information system of PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a.s. and its subsequent recalculation. Country risk The Group monitors country risk in accordance with internal guidelines and in compliance with national legislation. Detailed information on concentration of the portfolio of government securities can be found in Note 10 Investment securities. (c) Liquidity risk Liquidity risk arises from the type of financing of the Bank s activities and the management of its positions. It includes financing the Bank s assets with instruments of appropriate maturity and the Bank s ability to dispose of its assets for acceptable prices within acceptable time periods. The Bank promotes a conservative and prudent approach to liquidity risk management. The Group has a system of limits and indicators consisting of the following elements: Short-term liquidity management is performed by the Bank s Dealing Department by monitoring the liabilities and receivables due, and fulfilling the compulsory minimum reserves, Long-term liquidity risk management is based on a model of core deposits using the Value at Risk method, Long-term liquidity management is also performed using gap analysis (the classification of assets and liabilities based on their maturity into different maturity ranges) and evaluation of indicators of the net statement of financial position in euro. 62 Management of liquidity risk The Group s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank s reputation.

63 The Group finances its assets mostly from primary sources. In addition, the Bank has open credit lines from several financial institutions and is also able to finance its assets from interbank deposits. Due to its suitable structure of assets the Bank has at its disposal sufficient amount of bonds that are, if necessary, acceptable for acquiring additional resources through refinancing operations organised by the European Central Bank. The Finance Division s specialised ALM Department is responsible for liquidity management. The Treasury Division receives information from other departments regarding the liquidity profile of their financial assets and liabilities and details about other projected cash flows arising from projected future business. The Treasury Division then maintains a portfolio of short-term liquid assets, made up of loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole. The daily liquidity position is monitored and monthly liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. The Bank also has an emergency plan and crisis communication plan that describes the principles and procedures of management in extraordinary conditions and secures the availability of financial backup sources. All liquidity policies and procedures are subject to review and approval by ALCO. Reports on the liquidity position of the Bank are produced daily. A summary report, including any exceptions and remedial action taken, is submitted to ALCO at least once a month. Exposure to liquidity risk The key measures used by the Bank for managing liquidity risk are: the liquidity ratio of fixed and illiquid assets, the ratio of liquid assets, the ratio of primary liquidity, liquidity coverage ratio, modified liquidity gap ratio and net stable funding ratio. Details of the Bank s liquidity ratios at the reporting date and during the reporting period were: The liquidity ratio of fixed and illiquid assets 31 December yearly 31 December yearly End of the period Average for the period Maximum for the period Minimum for the period Ratio of liquid assets 31 December yearly 31 December yearly End of the period Average for the period Maximum for the period Minimum for the period The liquidity ratio of fixed and non-liquid assets is the ratio of the sum of fixed assets and non-liquid assets to the selected liabilities. The value of the ratio may not exceed 1. The ratio of liquid assets is the ratio of the sum of liquid assets to the sum of volatile liabilities. The value of the ratio may not decrease below 1. The ratios are defined in the provision of the National Bank of Slovakia Measure No. 18/2008 on Bank liquidity. The remaining period to maturity of financial assets and liabilities as at 31 December are set out in the following table, which shows the undiscounted cash flows on the basis of their earliest contractual maturity. The Bank s expected cash flows may vary from this analysis. 63

64 Assets Cash and deposits at central banks Trading assets, out of which: Total carrying amount Less than 3 months 3 months to 1 year 1-5 years More than 5 years Not specified Total 292, , ,334 securities 9, ,774 9,814 derivative instruments cash in , ,589 cash out - 15, ,641 Loans and advances to banks Loans and advances to customers ,875, , ,413 1,120, ,526-2,598,790 Investment securities 1,527, , , , , ,677 1,868,816 Deferred tax asset 21, , ,624 Tax asset 1,531 1, ,531 Other assets 65,962 65, ,962 3,795, , ,038 1,859,911 1,078, ,670 4,860,226 Liabilities Trading liabilities derivative instruments cash in - 79, ,251 cash out 1,451 80, ,711 Deposits by banks 7,629 7, ,629 Customer accounts 3,267,808 2,378, , , ,844 3,304,316 Accepted loans 55,778 50,804 5, ,810 Provisions Provisions for insurance contracts 6, ,270 1, ,046 6,888 Tax liabilities 1,439 1, ,439 Other liabilities 30,192 27, ,416 Subordinated debt 8, ,705 9,172-11,304 3,379,250 2,626, , ,761 10,411 20,830 3,413,394 The Group monitors the expected maturity of core deposits and of other significant items of assets and liabilities. As to core deposits, based on historical evidence, the Bank expects that these will periodically renew and remain in the Bank. The remaining period to maturity of financial assets and liabilities as at 31 December was as follows: 64

65 Total carrying amount Less than 3 months 3 months to 1 year 1-5 years More than 5 years Not specified Total Assets Cash and deposits at central banks 149, , ,782 Trading assets, out of which: securities 35, ,548 35,548 derivative instruments cash in , ,471 cash out - 25, ,028 Loans and advances to banks Loans and advances to customers 1,928 1, ,928 1,721, , ,330 1,123, ,362-2,311,729 Investment securities 1,344, , , , , ,910 1,715,227 Deferred tax asset 46, , ,501 Tax asset 9,087 9, ,087 Other assets 49,057 48, ,057 3,359, , ,236 1,783, , ,596 4,319,302 Liabilities Trading liabilities derivative instruments cash in - 153, ,427 cash out , ,505 Deposits by banks 61,079 61, ,097 Customer accounts 2,829,928 2,034, , , ,471 2,872,055 Provisions Provisions for insurance contracts 5, ,045 2,676-5,746 Tax liabilities Other liabilities 29,360 27, ,360 Subordinated liabilities 8, ,705 10,024-12,156 2,935,714 2,124, , ,738 13,061 5,523 2,981,165 The Group monitors the expected maturity of core deposits and of other significant items of assets and liabilities. As to core deposits, based on historical evidence, the Bank expects that these will periodically renew and remain in the Bank. The remaining period to contractual maturity of commitments and contingencies items as at 31 December is set out in the following table: 65

66 Total carrying amount Commitments and contingencies Less than 3 months Less than 1 year 1-5 years More than 5 years Not specified Total Guarantees to clients 217, ,475 8,565 50, , ,758 Confirmed credit lines 204, , , , ,355 8,565 50, , ,638 Notional amount of derivatives Currency swaps: purchase 76,494 76, ,500 Currency swaps: sale 77,045 77, ,057 Forward contracts to buy shares Forward contracts to sell shares 19,336 19, ,340 19,292 19, ,296 (507) (513) (513) The remaining period to contractual maturity of commitments and contingencies items as at 31 December is set out in the following table: Total carrying amount Less than 3 months Less than 1 year 1-5 years More than 5 years Not specified Total Commitments and contingencies Guarantees to clients 419, ,857 9,966 46, ,291 Confirmed credit lines 168, , , , ,071 9,966 46, ,505 Notional amount of derivates Currency swaps: purchase 159, , ,000 Currency swaps: sale 160, , ,384 Forward contracts to buy shares Forward contracts to sell shares 18,543 18, ,545 18,499 18, ,501 (311) (340) (340) Cash flows expected by the Bank for certain assets and liabilities may differ significantly from their contractual flows. For example, for deposits from clients (current accounts, term deposits without notice period) the Bank expects that they will remain in the Bank over a longer period, or, more precisely, their value will increase over time as a result of receiving new funds. Receivables from clients may be also prematurely repaid or prolonged. The amounts of undiscounted cash flows in the tables above are calculated as follows: Type of financial instrument Non-derivative assets and liabilities Derivatives Method of undiscounted cash flows calculation Undiscounted cash flows which include expected interest payments Undiscounted cash flows in contractual value 66

67 (d) Market risk Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor s/issuer s credit standing) will affect the Bank s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Group separates its exposure to market risk between the trading and non-trading portfolios. Trading portfolios include proprietary position-taking, together with financial assets and liabilities that are managed on a fair value basis. Management of market risks Overall authority for market risk is vested in the ALCO. Market Risk Management is responsible for the development of detailed risk management policies. The principal tool used to measure and control market risk exposure within the Bank s trading portfolios is Value at Risk (VaR). The VaR of a trading portfolio is the estimated loss that will arise on the portfolio over a specified period of time (holding period) from an adverse market movement with a specified probability (confidence level). The VaR model used by the Bank is based upon a 99 percent confidence level and assumes different holding periods based on the type of risk. The Bank applies daily VaR on the foreign exchange and equity risks and monthly VaR on the interest rate risk. The VaR model used is based mainly on simulation. Taking account of market data from the previous years, and observed relationships between different markets and prices, the model generates a wide range of plausible future scenarios for market price movements. Although VaR is an important tool for measuring market risk, the assumptions on which the model is based do give rise to some limitations, including the following: A holding period assumes that it is possible to hedge or dispose of positions within that period. This is considered to be a realistic assumption in almost all cases but may not be the case in situations in which there is severe market illiquidity for a prolonged period. A 99% confidence level does not reflect losses that may occur beyond this level. Even within the model used there is a one percent probability that losses could exceed the VaR. VaR is calculated on an end-of-day basis and does not reflect exposures that may arise on positions during the trading day. The use of historical data as a basis for determining the possible range of future outcomes may not always cover all possible scenarios, especially those of an exceptional nature. The VaR measure is dependent upon the Bank s position and the volatility of market prices. The VaR of an unchanged position reduces if the market price volatility declines and vice versa. The Bank has defined VaR limits on the foreign exchange risk and equity risk. The overall structure of VaR limits is subject to review and approval by ALCO. VaR are allocated to the trading portfolios. Daily reports of utilisation of VaR limits are submitted to Market Risk Management and regular summaries are submitted to ALCO. A summary of the VaR position of the Bank s trading portfolios as at 31 December and 31 December is as follows: 31 December Average Maximum Minimum 31 December Foreign exchange risk Equity risk December Average Maximum Minimum 31 December Foreign exchange risk Equity risk

68 The limitations of the VaR methodology are recognised by supplementing VaR limits with other position and sensitivity limit structures, including limits to address potential concentration risks within each trading portfolio. In addition, the Bank uses a wide range of stress tests to model the financial impact of a variety of exceptional market scenarios on individual trading portfolios and the Bank s overall position. Interest rate risk The main source of the Bank s interest rate risk results from revaluation risk, which is due to timing differences in maturity dates (fixed rate positions) and in revaluation (variable rate positions) of banking assets and liabilities and positions in commitments, contingencies and derivative financial instruments. Other sources of interest rate risk are: Yield curve risk effects from changes in interest rates on the financial market will occur to different extents at different time for the same interest sensitive financial instruments, Different interest base risk - reference rates, to which active and passive transactions are attached, are different and do not move simultaneously, On the assets side of the statement of financial position, the Bank manages interest rate risk mainly by providing a majority of loans with variable rates and by managing its investment securities portfolio mostly related to fixed rates. The Bank continuously implements balance sheet management in its interest risk management. When purchasing bonds, the current interest position of the Bank is taken into account, which then serves as a basis for purchase of fixed or variable bonds. The priorities of the Bank for interest rate risk management of liabilities comprise: Stability of deposits, especially over longer time periods, Fast and flexible reactions to significant changes in inter-bank interest rates through adjustments to interest rates on deposit products, Continuously evaluating interest rate levels offered to clients compared to competitors and actual and expected development of interest rates on the local market, Manage the structure of liabilities in compliance with the expected development of money market rates in order to optimise interest revenues and minimise interest rate risk. The Bank s methods of measuring interest rate risk consist of: Standard methods of interest rate risk measurement based on quantification of changes in the Bank s revenues due to changes in the interest rate (Gap analysis), Sensitivity change of the economic value of the Bank, Basis Point Value analysis, Value at Risk. Part of the Bank s revenue is generated through planned differences between interest-sensitive assets and liabilities. Management of interest rate risk Limits, indicators and methods of interest rate risk management are defined in accordance with the principles described in the Market Risk Management Strategy. The Bank identifies, monitors and reports interest rate risk through the following methods: Stress and back testing, Sensitivity of the business value of the Bank, Gap analysis, Duration analysis, Basis Point Value analysis. The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. The ALCO is the monitoring body for compliance with these limits and is assisted by Risk Management in its day-to-day monitoring activities. 68 ALCO is responsible for setting interest rates for the Bank s products.

69 The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a yearly basis include a 200 basis point (bp) parallel fall or rise in yield curves with maturity up to one year. An analysis of the Bank s sensitivity to an increase or decrease in market interest rates (assuming no asymmetrical movement in yield curves and a constant statement of financial position) is as follows: Sensitivity of economic value of the Bank: 200 bp parallel increase 200 bp parallel decrease 31 December As at 31 December (46,407) 45,138 Average for the period (46,098) 45,881 Maximum for the period (49,974) 40,320 Minimum for the period (40,320) 50, December As at 31 December (43,683) 43,683 Average for the period (37,441) 37,441 Maximum for the period (46,366) 46,366 Minimum for the period (27,093) 27,093 The Bank s Economic Value represents the difference between the fair value of the interest rate sensitive assets recorded in the bank book and the fair value of interest rate sensitive liabilities recorded in the bank book. Interest rate sensitive assets and liabilities are assets and liabilities for which fair value is variable depending on changes in market interest rates. Particular assets and liabilities are divided into re-pricing gaps based on their contractual re-pricing period, volatility of interest margins (for selected liability products) or roll forward (for assets and liabilities where it is not possible to use statistical models). In case the asset or the liability does not bear interest risk, it is assigned a 1 day maturity. A change in the Bank s Economic Value reflects the impact of a parallel interest shock on the value of interest sensitive assets and liabilities of the Bank. The table above shows that an increase in the interest curve decreases the Bank s value and vice versa. It should be emphasized, that this measure highlights the effect of a shift in interest curves on the present structure of assets and liabilities, and excludes assumptions about future changes in the structure of the balance sheet. Sensitivity of reported equity to interest rate movements: 200 bp parallel increase 200 bp parallel decrease 31 December As at 31 December (27,427) 27,427 Average for the period (24,190) 24,190 Maximum for the period (27,427) 27,428 Minimum for the period (21,910) 21, December As at 31 December (21,464) 21,464 Average for the period (15,233) 15,233 Maximum for the period (22,406) 22,406 Minimum for the period (4,631) 4,631 ALCO is responsible for setting interest rates for the Bank s products. 69

70 Sensitivity of reported equity to interest rate movements Interest rate movements affect reported equity in the following ways: Retained earnings arising from increases or decreases in net interest income and the fair value changes reported in profit or loss, Fair value reserves arising from increases or decreases in fair values of available-forsale financial instruments reported directly in equity, Hedging reserves arising from increases or decreases in fair values of hedging instruments designated in qualifying cash flow hedge relationships. Overall non-trading interest rate risk positions are managed by the Treasury Division, which uses investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Bank s non-trading activities. Share price risk Share price risk is the risk of movements in the prices of equity instruments held in the Bank s portfolio and financial derivatives derived from these instruments. The main source of the Bank s share price risk is speculative positions held in shares and positions held for strategic reasons. When investing in shares, the Bank: Follows an investment strategy which is updated on a regular basis, Has a preference for publicly traded stocks, Monitors limits to minimise share price risk (stop loss limits, asset concentration and equity VaR indicators), Performs risk analysis, which usually includes forecasts of the development of the share price, various models and scenarios for the development of external and internal factors with an impact on the income statement, asset concentration and the adequacy of own resources. Limits, indicators and methods of share price risk management are defined in accordance with principles described in the Market Risk Management Strategy. The Bank uses the following limits and indicators in the management of share price risk: Credit risk limits relating to share price risk (limits for industries, countries, banks and individual issuers), Stop loss limits for shares, Portfolio limits, Limits for shares as set out in the Act on Banks, VaR indicator. The Bank identifies, monitors and reports share price risk using the following methods: Overview of the current share positions of the Bank, Equity VaR calculation (historical simulation method), Stress and back testing. Foreign exchange risk The main source of foreign exchange risk is the difference between assets and liabilities denominated in different currencies. This difference arises mainly from transactions in the trading book, which are of a speculative nature. The main source of foreign exchange risk in the banking book is from loans provided in foreign currency, while the Bank obtains the necessary resources from currency derivatives on the inter-bank market. The Bank aims to hedge these positions in the banking book to the maximum extent possible through hedging instruments (for example, currency derivatives), and thereby to minimise the foreign exchange risk. The Bank reduces its foreign exchange risk through limits on unsecured foreign exchange positions and maintains an acceptable level for its size and business activities. The main currencies in which the Bank holds positions are Czech crowns and US dollars. Limits, indicators and methods of foreign exchange risk management are defined in accordance with principles described in the Market Risk Management Strategy. 70 The Bank identifies, monitors and reports the Bank s foreign exchange risk using the following methods: Report on unsecured foreign exchange position of the Bank, An overview of the current foreign exchange position,

71 Monitoring the structure of foreign currency assets and liabilities by particular currencies, Foreign currency VaR model, Stress and back testing. The Bank performs daily stress testing and back testing of foreign exchange risk in VaR models. In specific cases, the Bank prepares development scenarios for selected parameters for significant open transactions. For liquidity risk management, the Bank has defined basic and alternative scenarios which reflect the development of external and internal factors. The verification and subsequent reassessment is performed annually. The Bank performs daily stress testing of foreign exchange and share price risk by applying internally defined stress scenarios for individual types of risks. The Bank subsequently verifies the impact of the results of stress testing on the Bank s capital. The results of stress testing are taken into consideration when setting procedures and limits for risk exposure. The Group had the following assets and liabilities denominated in foreign currencies at 31 December : Assets Czech crown US dollar Other Total Cash and deposits at central banks 44,243 1,762 2,093 48,098 Trading assets 4, ,630 Loans and advances to banks Loans and advances to customers 142, ,493 Investment securities 23,762 4,465-28,227 Deferred tax asset Other assets ,932 6,231 2, ,564 Liabilities Deposits by banks 10, ,258 Customer accounts 123,010 5,365 2, ,750 Tax liability Other liabilities ,414 5,367 2, ,163 The Bank had the following assets and liabilities denominated in foreign currencies at 31 December : Assets Czech crown US dollar Other Other Cash and deposits at central banks 34,273 1,213 3,525 39,011 Trading assets 25, ,748 Loans and advances to banks Loans and advances to customers 208, ,895 Investment securities 22,788 4,760-27,548 Deferred tax asset Other assets 87 5, , ,913 11,731 3, ,192 Liabilities Deposits by banks 19, ,579 Customer accounts 108,632 9,797 3, ,723 Tax liability Other liabilities ,837 9,824 3, ,981 71

72 (e) Operational risk Operational risk is the risk of loss, including the damage caused by the Bank s processes, to the Bank by inappropriate or incorrect procedures, human factor failure, failure of used systems and from external factors other than credit, market and liquidity risks. A part of the operational risk is legal risk arising from unenforceable contracted receivables, unsuccessful legal cases or verdicts with negative impact on the Bank. Operational risk arises from all of the Bank s operations and is faced by all business entities. The primary goals of the Bank s operational risk management are the mitigation or reduction of losses caused by operational risk and to reduce the negative impact of operational risk on the profit or loss and equity of the Bank. The Bank has chosen the basic indicator approach to operational risk management. In the short-term within a one year period the Bank will improve: implemented process of operational risk identification, usage of KRI indicators, self-evaluation procedures, planning of unforeseeable events and business continuity of the Bank. The Bank will implement operational risk management on a consolidated basis. In the long-term, the Bank will continue the improvement of self-evaluation and mitigation of operational risk, with the aim to introduce more advanced methods for operational risk management. The Bank is entitled to implement additional methods of identification, estimation, monitoring and mitigation of operational risk. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management in each division. This responsibility is supported by the development of overall standards for the management of operational risk in the following areas: Requirements for the reconciliation and monitoring of transactions, Compliance with regulatory and other legal requirements, Documentation of controls and procedures, Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified, Requirements for the reporting of operational losses and proposed remedial action, Development of contingency plans, Training and professional development, Ethical and business standards, Risk mitigation, including insurance where this is effective. Compliance with the Bank s standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the relevant managers, with summaries submitted to the Supervisory Board, the Board of Directors and the Audit Committee. Legal risk Legal risk forms part of operational risk and is the loss arising from unenforceable contracts, threats of unsuccessful legal cases or verdicts with negative impact on the Bank. In the environment of the Bank, the risk of sanctions from regulators may be connected with reputational risk. Legal risk management is performed by the legal divisions in the Group companies. Risks related to outsourcing Outsourcing activities provide a separate group of operational risks. Outsourcing involves the long-term performance of activities by a third party, which support the Bank s activities and are carried out on a contractual basis with focus on effectiveness. 72 A specific risk of the asset management company results mainly from the insolvency of the issuer. When evaluating this risk, it is necessary to take into account all publicly available information about: Management risk, Operational risk, Financial risk, Risk of early repurchase, Risk of conversion.

73 (f) Insurance risk The insurance company is exposed to insurance risk and to underwriting risk arising from the life and non-life insurance products. Internal guidelines are used to manage the risk relating to the development and valuation of products, determination of technical provisions, reinsurance determination and also to establish the rules for underwriting insurance. Life insurance is exposed to insurance risk of morbidity, mortality, longevity and risk of concentration in case of epidemics and disasters. To eliminate these risks medical and financial underwriting or reinsurance (change in credit risk of the reinsurer) are used. In non-life insurance, the company is particularly exposed to the risk of the adequacy of future premiums (due to the unexpected development of future claims, administrative costs, increased rates of cancellation, etc.), risk of extreme events (catastrophic risk) and the sufficiency of reserves for claims (due to unexpected development of already incurred claims, lawsuits, etc.). Claims development Claims development information is provided in the following tables in order to illustrate the risk arising from insurance contracts. The tables compare the development of the estimated ultimate loss on an accident-year basis. The first part of the table provides a review of current estimates of cumulative claims and demonstrates how the estimated claims have changed at subsequent accounting year-ends. The estimate is increased or decreased as losses are paid and more information becomes known about the frequency and severity of unpaid claims. The second part of the table shows the amount of claims paid according to the year of the insured event. Various factors may influence the re-estimated provisions and the cumulative excess or deficit presented in each table. These include inadequate information when reporting an insured event, problems with settlement etc. The information in the table provides a historical perspective on the adequacy of unpaid claims estimates, and may not be a reliable base for extrapolating surpluses or deficits of past provisions to current unpaid loss balances. The Group assumes that the expectation of unpaid claims at the year end is appropriate. Analysis of claims development gross of reinsurance Estimate of cumulative claims < Total At the year-end when the claim occurred 820 1,634 2,922 1, one year later 1,065 2,506 3,035 1, two years later 1,070 2,562 2, three years later 1,073 2,744 2, four years later 1,060 2,961 2, five years later 1,076 2,985 2, six years later 1,078 3,049 2, seven years later 1,075 3,064 2,920 eight years later 1,065 2,950 nine years later 1,076 Estimate of cumulative claims 1,076 2,950 2, ,801 Cumulative payments Cumulative claims provision (RBNS+IBNR) 1,076 2,733 2, ,

74 Analysis of claims development net of reinsurance Estimate of cumulative claims At the year-end when the claim occurred < , Total one year later 531 1,829 2, two years later 539 1,876 2, three years later 542 1,903 2, four years later 539 2,003 2, five years later 546 1,913 2, six years later 641 2,043 2, seven years later 546 2,050 2,252 eight years later 541 2,004 nine years later 546 Estimate of cumulative claims 546 2,004 2, ,875 Cumulative payments Cumulative claims provision (RBNS+IBNR) 546 1,917 2, , Risks arising from life insurance contracts Summary of life insurance contract liabilities 31 December Life insurance contracts Investment contracts with DPF Total Before reinsurance 5, ,985 After reinsurance 5, , December Traditional and general life insurance Investment contracts with DPF Total Before reinsurance 4, ,767 After reinsurance 4, ,737 Other risks Other risks associated with insurance contracts with discretionary participation features ( DPF ) are persistency risk, market risk and expense inflation. Persistency risk is the risk that the client cancels the contract or stops paying new premiums into the contract, thereby exposing the insurance company to a loss resulting from an adverse movement in the actual experience compared to that expected in the product pricing. The insurance company manages this risk by making appropriate charges for early surrender where possible and by maintaining high levels of customer care. The insurance company is exposed to diminishing investment management revenues in line with the decline in asset values. Market risk is the risk of loss in fair value resulting from adverse fluctuations in interest and foreign currency exchange rates and equity prices, and the consequent effect that this has on the value of charges earned by the Group and on any guarantees in the contracts. 74 The risk of expense inflation is the risk that the actual costs will be higher than cost calculation of the products in relation to the expected sale of contracts, long term development of all insurance contracts in the portfolio, price levels, etc.

75 Financial risk The insurance company is exposed to financial risk through its life insurance contracts, financial assets, financial liabilities (including investment contracts with DPF) and reinsurers share on insurance provisions arising from insurance contracts. As stated above, the goal of the insurance company is to invest assets relating to liabilities from insurance and investment contracts with DPF into assets, which face equal or similar risks. This principle ensures that the insurance company can meet its contractual liabilities when they become due. The insurance company is exposed to residual financial risk mainly due to the following: It is not possible to perfectly match financial assets to liabilities from insurance. This relates mainly to non-life insurance, traditional and general life insurance contracts and to pension life insurance contracts. Additional risks relate to guarantees and options embedded in insurance and investment contracts with DPF. The insurance company invests part of the capital into financial assets, which is not matched to liabilities from insurance and financial liabilities from investment contracts with DPF. Existing credit risk relating to reinsurers share on provisions resulting from insurance contracts. Solvency Under Article 34 of Act No. 8/2008 Coll. (Act on Insurance) as amended, the insurance company has an obligation to continuously maintain a minimum required solvency margin. The method of calculation and presentation of the solvency margin was set out by the National Bank of Slovakia in Decree No. 25/2008 that was later amended by National Bank of Slovakia Decree No. 2/. The insurance company maintained the required margin throughout the year. The actual solvency margin in was in the amount of 13,782 thousand (: 13,425 thousand) while the required solvency amount as of 31 December was in the amount of the guarantee fund, which is set by decree to a minimum amount of 7,400 thousand. (g) Regulatory requirements of the asset management company The asset management company ( the management company ) is obliged to comply with regulatory requirements of the National Bank of Slovakia ( NBS ) which are set out under Act No. 203/2011 on collective investment and according to NBS Decree No 7/2011 on capital resources of asset management companies. These include limits and restrictions on capital adequacy. These requirements apply to all asset management companies in Slovakia and their compliance is determined on the basis of reports submitted by the asset management company under statutory legal regulations. The requirements applicable since 1 January are as follows: Initial capital of the management company is at least 125,000. The management company is obliged to comply with adequacy requirements on its own funds. Own funds of the management company are considered appropriate under this Act, unless they are below: a) 125 thousand plus 0.02% of the value of the assets in the funds managed by the company exceeding 250,000 thousand. This amount is not increased when it reaches 10,000 thousand. b) One quarter of the average general operating costs of the management company for the previous calendar year. If the management company exists for less than one year, a quarter of the amount of general operating costs according to its business plan. c) The management company may not acquire a share of fund assets or its own assets when acting jointly with any managed funds of more than 10% of the total nominal value of shares with voting rights issued by a single issuer. d) The management company may not acquire a share of fund assets with voting rights which would entitle the management company to have a significant influence over the management of the issuer that is established in the Slovak republic, or in a non EU member State. e) The management company is required to comply with restrictions on the acquisition of significant influence in the management of an issuer that is established in a Member State, according to the laws of that Member State, taking into account the assets managed in open-ended funds. 75

76 f) The management company must provide elimination of risk imposed a fund s unit holders interest or its clients by a conflict of interest between the management company and its clients, between two of its clients mutually, between one of its clients and unit holders of a share fund or between the unit holders or unit holders of a European fund or between the shareholders of unit funds and European funds mutually. Capital adequacy The management company regularly and on a timely basis informs the NBS about the amount of initial capital, its own resources and structure according to the NBS Decree No. 7/2011 on capital resources of asset management companies and reports the information about proportionality of its own resources in accordance with the Act No. 203/2011 on collective investments as amended. (h) Regulatory requirements of the pension fund management company The pension fund management company in the administration and the creation of pension funds is obliged to comply with regulatory requirements of the National Bank of Slovakia, as stated in Act No. 43/2004 Z. on pension saving funds (hereinafter Act on PSF ). These requirements apply to all pension fund management companies in Slovakia. Among the important requirements of the Act on PSF are included: The share capital of the pension fund management company is at least 9,950 thousand. The pension fund management company shall meet specific capital requirements. Equity is adequate when: a) It is not less than 25% of general operating expenses for the previous year. If the pension fund management company is operating less than one year, 25% of the amount of general operating expenses stated in its commercial and financial plan and b) The ratio of the difference between liquid assets and liabilities and receivables to the value of assets in all pension funds under management is not less than (according to the Act No. 43/2004 Section 60 as amended). c) The manager of assets in the pension fund is obliged to act with due care and diligence in the best interests of savers and pensioners and the interest of their protection in compliance with generally binding legal regulations, the statutes of the pension fund and the decisions of the National Bank of Slovakia. d) The pension fund management company can buy and sell property, which may be subject to investment only if it does not conflict with the interests of savers and pensioners. The pension fund management company may not put its interest over the interest of savers and pensioners. e) The pension fund management company s property or assets in the pension funds under management, may not acquire more than 5% of the total nominal value of shares issued by one issuer. f) The pension fund management company may not acquire shares with voting rights which would enable the management company to exercise a significant influence over the management of the issuer to own assets or assets in the pension funds under management. (i) Capital management The Bank s regulator, the National Bank of Slovakia ( NBS ), sets and monitors capital requirements. In implementing current capital requirements, the NBS requires the Bank to maintain a prescribed ratio of total capital to total risk-weighted assets. The Bank has been required to comply with the provisions of the Basel II framework in respect of regulatory capital with effect from 1 January The Bank uses the standardised approach to credit, the simplified approach to the trading book risks and the basic indicator approach to operational risk. 76 The Bank s regulatory capital is analysed into three tiers: Tier 2 capital includes revaluation reserves fund not included in regulatory capital and subordinated debt with maturity over 5 years. Tier 3 capital includes subordinated debt not included in Tier 2.

77 Banking operations are categorised as either a banking book or trading book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and subordinated debt. The Bank has complied with all externally imposed capital requirements throughout the year. The Bank s consolidated regulatory capital position was as follows: Regulatory capital Tier 1 capital Ordinary share capital and share premium (notes 24 and 25) 307, ,498 Unpaid share capital - - Reserve funds and other funds created from profit (note 26) 23,629 17,497 Accumulated profit from current year, if loss - - Retained earnings, excluding current year profit (note 26) 58, Audited accumulated profit from current year 39,349 18,939 Other non-deductible items of ordinary regulatory capital - 73,467 Less: intangible assets (18,251) (27,145) surplus of expected losses over impairment allowances (29,921) (29,096) negative revaluation differences (7,786) (397) Total tier 1 372, ,019 Tier 2 capital Subordinated debt 8,000 8,000 Positive revaluation differences 10,558 14,801 Total tier 2 18,558 22,801 Tier 3 capital Subordinated debt - - Total tier Regulatory capital total 391, ,820 The share capital and intangible assets values entering into the calculation of the share capital for the purpose of the audited financial statements are adopted from the IFRS financial statements. Capital resources requirements as at 31 December and as at 31 December are shown below: Capital Resources Requirements Capital required to cover: Credit risk 194, ,681 Business partner risk Risks from debt financial instruments, capital instruments, foreign exchange and commodities 1,450 7,002 Operating risk 28,163 25,669 Total capital requirements 223, ,429 Capital ratios Capital resources as a percentage of total risk weighted assets 13.99% 12.18% Tier 1 capital as a percentage of total risk weighted assets 13.32% 11.29% 77

78 6. Cash and deposits at the central bank Cash in hand 20,642 21,963 Balances at the central banks Compulsory minimum reserves 223, ,208 Term deposits 33,033 13,717 Other deposits 2,246 3,538 Loans and advances to banks by contractual maturity - 3 months or less (note 8) 12,645 8, , ,782 The compulsory minimum reserve account contains funds from payments as well as funds that the Bank is obliged to maintain on average in order to fulfil requirements of the National Bank of Slovakia. Therefore, the compulsory minimum reserve account balance may significantly vary depending on the amount of incoming and outgoing payments. Compulsory minimum reserves are maintained at a level set by requirement of the National Bank of Slovakia. The amount of set reserve depends on the amount of deposits accepted by the Bank and is calculated by multiplying particular items of the basis by the valid rate for calculation of the compulsory minimum reserve. The Bank, during the reporting period, fulfilled the set amount of compulsory minimum reserves, which in December represented 28,913 thousand. Cash and cash equivalents are as follows: Cash in hand 20,642 21,963 Balances at the central banks Term deposits 33,033 13,717 Other deposits 2,246 3,538 Loans and advances to banks by contractual maturity - 3 months or less (note 8) 12,645 8,356 68,566 47, Trading assets and liabilities Trading assets Securities (a) 9,550 35,548 Derivative instruments (b) Trading liabilities 10,494 35,994 Derivative instruments (b) 1, a) Securities European government bonds - Greece 1, Equity securities 7,693 34,675 9,550 35,548 78

79 Reclassification of financial assets In 2008, following the issuance of Reclassification of Financial Assets, the amendments to IAS 39 and IFRS 7 (stated in note 3(j)), the Bank reclassified certain trading assets to available-for-sale investment securities. The Bank identified financial assets eligible under the amendments, for which it had changed its intent so that it no longer held these financial assets for the purpose of selling in the short term. For the trading assets identified for reclassification, the Bank determined that the deterioration of the financial markets during 2008 constituted exceptional circumstances that permitted reclassification out of the trading category. Under IAS 39 as amended, the reclassifications were made with effect from 1 July 2008 at fair value as at that date. The financial assets reclassified and their carrying and fair values were as follows: Trading assets reclassified to available-for-sale investment securities Carrying value Fair value Carrying value Fair value 2011 Carrying value 2011 Fair value 8 8 5,218 5,218 6,012 6, ,218 5,218 6,012 6,012 Part of the reclassified securities was sold during. There were no reclassifications of trading assets during,, 2011, 2010 and The tables below set out the amounts actually recognised in profit or loss and equity as at 31 December and as at 31 December in respect of financial assets reclassified out of trading assets in 2008: Reclassification in 2008 Profit or loss 2009 Other comprehensive income 2009 Profit or loss 2008 Other comprehensive income 2008 Period before reclassification: Trading assets reclassified to available for-sale investment securities: Net trading loss - - (6,686) - Reclassification in 2008 Profit or loss Other comprehensive income Profit or loss Other comprehensive income Period after reclassification: Trading assets reclassified to available for-sale investment securities: Dividend income Net change in fair value - (861) - (674) Impairment loss (710) 710 (2,483) 2,483 Sale of security Foreign exchange gain (120) - (53) (151) (2,020) 1,809 79

80 Reclassification of financial assets The table below sets out the amounts that would have been recognised as at 31 December and if the reclassifications had not been made. Reclassifications in 2008 Profit or loss Profit or loss Trading assets reclassified to available-for-sale securities Dividend income Net change in fair value (861) (674) Foreign exchange gain/(loss) 159 (120) Net trading loss (702) (211) b) Derivative instruments Contract/ notional amount Fair value Assets Liabilities Contract/ notional amount Fair value Assets Liabilities Currency derivatives Currency swaps 77, , Forward on equity share 10, , , , , Loans and advances to banks Repayable on demand 8,638 5,485 Other loans and advances to banks by contractual maturity: - 3 months or less 4,007 2,871-1 year or less but over 3 months over 5 years 403 1,574 13,052 10,284 Less amounts with original contractual maturity up to 3 months (note 6) (12,645) (8,356) 407 1, Loans and advances to customers Repayable on demand 330, ,027 Other loans and advances to customers by contractual maturity: - 1 year or less but over 3 months 261, ,024-5 years or less but over 1 year 378, ,233 - over 5 years 1,005, ,809 1,975,646 1,783,093 Allowances for impairment (100,167) (60,312) 1,875,479 1,722, The Group has assigned receivables to a recovery agency. The conditions of the assignment do not allow for derecognition of the receivables as the Group has retained substantially all the risks and rewards of ownership of the transferred assets through maintaining the right to participate in most of the recoveries after the assignment. These receivables, before allowances for impairment, amounted to 1,792 thousand (: nill thousand) and impairment loss of 742 thousand (: nill thousand) was recognised.

81 Impairment losses on loans and advances The movements in impairment losses on loans and advances to customers were as follows: Individual allowances for impairment: As at 1 January 10,399 11,238 Acquisition of subsidiary Net charge to profit or loss 20, Release of impairment losses on loans written-off - (1,354) As at 31 December 30,430 10,377 Collective allowances for impairment: As at 1 January 49,935 39,321 Net charge to profit or loss 19,830 20,027 Release of impairment losses on loans written-off (28) (9,413) As at 31 December 69,707 49, Investment securities 100,137 60,312 Securities held to maturity (a) 767, ,116 Securities available for sale (b) 759, ,094 a) Securities held to maturity 1,527,343 1,344,210 Slovak government bonds 542, ,355 Government bonds of EU member countries 225, ,761 Out of which: Greece 46,087 42,863 Hungary 129, ,880 Ireland - 57,734 Cyprus 49,450 48,052 Austria Slovenia Impairment losses on held-to-maturity securities Impairment losses on held-to-maturity securities: 767, ,116 As at 1 January - 274,757 Use of impairment allowance on Greek bonds - (274,757) As at 31 December - - As at 31 December, the Group pledged securities with a carrying value of 187,334 thousand (: 394,766 thousand) out of which held-to-maturity amounted to 187,334 thousand (: 325,544 thousand) and available-for-sale to 0 thousand (: 69,222 thousand) as security for payables to other banks in respect of settlement payables and interbank trades. 81

82 The market price of securities held-to-maturity as at 31 December amounted to 847,731 thousand (: 873,791 thousand). As at 31 December, held-to-maturity investment securities with a carrying value of 585,049 thousand are expected to be recovered after more than twelve months from the reporting date (: 699,468 thousand). (i) Greek government bonds In, the Greek government carried out a restructuring of its debt (Private Sector Involvement or PSI ) replacing old Greek government bonds issued under Greek legislation for new bonds. The replacement was completed on 12 March. In light of the above, on 12 March the account of the Bank was credited by the new issues of Greek and EFSF bonds with total nominal value of 246,548 thousand and so called GDP-linked (derivative instrument that was booked into the trading portfolio at its fair value). New Greek bonds were booked at their first fair value in the amount of 127,319 thousand. The table below summarizes the Group s holding of Greek government bonds as at 31 December : Securities portfolio First book value Nominal value Market value Impairment loss Trading securities 1,905 1,857 1,857 n/a Held-to-maturity securities 37,925 46,087 90,774 - Available for sale securities 87, Total 127,319 47,944 92,631 - The whole exposure of Greek government bonds has maturities from 2023 to EFSF bonds (the European Financial Stability Facility) guaranteed by the European Monetary Union have been sold on the secondary market for 87,603 thousand in April. The Group has assessed possible impairment of Greek bonds. The Group evaluates the situation in Greece and regularly evaluates, in accordance with IAS 39, whether there is objective evidence to decrease the value of Greek bonds. As at 31 December, the Bank has not identified any signs of decrease in the value. Due coupons of new Greek bonds were fully paid out in February in the amount of 3,175 thousand. A positive indicator is the fact that the European Central Bank accepts Greek bonds as collateral in their monetary-financial operations. Poštová banka, a.s. leads international arbitration proceedings against the Hellenic Republic (ICSID Case No. ARB/13/8) on the basis of an international agreement between the Government of the Czech and Slovak Federal Republic and the Government of the Hellenic Republic on the Promotion and Reciprocal Protection of Investments from 3 June International arbitration is conducted in the International Centre for Settlement of Investment Disputes registered in Washington DC, USA. The reason for the action brought to international arbitration is the forced exchange of Greek government bonds in March, which was based on Greek national legislation unilaterally and retrospectively changing the conditions of government bonds issuance (the CAC clause). 82 (ii) Hungarian Government Bonds As at 31 December, the Group held in its portfolio securities issued by the Hungarian government in the nominal amount of 125,588 thousand. The net book value including accrued interest amounted to 129,367 thousand.

83 Securities portfolio Nominal value Book value Fair value Impairment loss Held-to-maturity securities 125, , ,522 - The whole exposure of Hungarian government bonds has maturity in A Hungarian government bond was paid out in February in the amount of 39,710 thousand. In January 2014, another Hungarian state bond was paid out in the amount of 10,973 thousand. As at 31 December, the Group did not recognize any impairment. (iii) Cypriot Government Bonds As at 31 December, the Group held in its portfolio securities issued by the Cypriot government in the nominal amount of 51,965 thousand. The net book value including accrued interest amounted to 49,450 thousand. The table below summarizes the Group s holding in these bonds as at 31 December : Securities Portfolio Nominal value Book value Fair value Impairment loss Held-to-maturity securities 51,965 49,450 47,848 - The whole exposure of Cypriot government bonds has maturity in The Group has assessed possible impairment of Cypriot bonds, as well. During the reporting period, the Group did not identify any objective evidence of impairment of financial asset. Cypriot government bond coupon in the amount of 1,949 thousand was fully paid out in November. b) Securities available for sale Debt securities: Slovak government bonds 160,456 72,656 Government bonds of EU member countries 85,507 69,606 Out of which: Ireland - 10,432 Lithuania - 5,215 Poland 85,507 53,959 Corporate bonds 193, ,265 Bills of exchange 128, ,131 Equity securities: 568, ,658 Corporate equity securities 191, ,270 Other 123 2, , ,919 Less allowances for impairment (710) (2,483) 190, , , ,094 Impairment losses on available-for-sale investment securities were reclassified from other comprehensive income and recognised in profit or loss for the year. 83

84 11. Property and equipment Cost Land and buildings Furniture fittings and equipment Motor vehicles Assets not yet in use Total As at 1 January 30,860 22,948 4, ,884 Additions ,774 4,774 Transfers 1,371 2,412 1,074 (4,857) - Disposals (9,389) (2,242) (632) (67) (12,330) As at 31 December 22,842 23,118 4, ,328 Accumulated depreciation As at 1 January (11,756) (13,338) (2,233) - (27,327) Charge for the year (1,589) (2,438) (860) - (4,887) Disposals 1, ,544 As at 31 December (12,087) (15,005) (2,578) - (29,670) Net book value As at 31 December 10,755 8,113 2, ,658 Property and equipment is insured against natural disasters, malicious damage, theft and robbery. Motor vehicles are insured against damage caused during operation or in a crash. The Group s property is not pledged. Land and buildings Furniture fittings and equipment Motor vehicles Assets not yet in use Total Cost As at 1 January 21,904 21,220 1,807 8,950 53,881 Additions ,849 4,985 Transfers 8,534 4, (12,965) - Write-off (56) (56) Disposals (54) (2,570) (593) (49) (3,266) Acquisition of subsidiary ,787-3,340 As at 31 December 30,860 22,948 4, ,884 Accumulated depreciation As at 1 January (10,509) (13,317) (991) - (24,817) Depreciation (1,344) (2,849) (709) - (4,902) Disposals 142 2, ,848 Acquisition of subsidiary (45) (29) (1,382) - (1,456) As at 31 December (11,756) (13,338) (2,233) - (27,327) Net book value As at 31 December 19,104 9,610 2, ,557 84

85 12. Intangible assets Goodwill VOBA Software Assets not yet in use DAC Total Cost As at 1 January 8,535 3,168 30,182 3,205 8,159 53,249 Additions ,580 1,558 7,138 Transfers - - 3,984 (3,984) - - Disposals - - (91) - (1,168) (1,259) As at 31 December 8,535 3,168 34,075 4,801 8,549 59,128 Accumulated amortisation At 1 January (2,924) (612) (23,436) - (2,055) (29,027) Depreciation - (378) (2,821) - (2,262) (5,461) Disposals Impairment - release ,527 1,527 As at 31 December (2,924) (990) (26,236) - (2,790) (32,940) Net book value As at 31 December 5,611 2,178 7,839 4,801 5,759 26,188 The Group tests goodwill for impairment once a year. As at 31 December the goodwill was not impaired based on the achieved financial results of subsidiaries. Goodwill VOBA Software Assets not yet in use DAC Total Cost As at 1 January 8,535 5,189 25,885 1, ,966 Acquisition of subsidiary Additions ,231 8,502 14,941 Transfers - - 4,082 (4,082) - - Disposals - (2,021) (30) - (664) (2,715) As at 31 December 8,535 3,168 30,182 3,205 8,159 53,249 Accumulated amortisation As at 1 January (2,924) - (21,017) - (1,072) (25,013) Acquisition of subsidiary - - (3) - - (3) Depreciation - (612) (2,446) - (528) (3,586) Disposals Impairment - creation (455) (455) As at 31 December (2,924) (612) (23,436) - (2,055) (29,027) Net book value As at 31 December 5,611 2,556 6,746 3,205 6,104 24,222 The value of business acquired (VOBA) relates to the acquisition of subsidiary in

86 Goodwill PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. 4,138 4,138 Poisťovňa Poštovej banky, a. s. 1,474 1,474 As of 31 December 5,611 5,611 Goodwill related to Prvá penzijná správcovská spoločnosť, a.s. includes goodwill related to majority (100%) shareholding in the amount of 9,230 thousand. The amount of goodwill when purchasing shares amounted to 7,061 thousand, after recognition of impairment in 2006 its amount is 4,138 thousand. Goodwill related to Poisťovňa Poštovej Banky, a.s. includes goodwill related to majority (100%) shareholding in the amount of 11,411 thousand arose in 2008 on the acquisition of this subisdiary operating in the field of insurance. The amount of goodwill amounted to 1,474 thousand. Goodwill is tested for impairment annually or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. Management considers both companies to be separate cash generating units for the purposes of impairment testing. The basis on which the recoverable amount was determined for both subsidiaries, the value in use (value in use), is by using the expected future cash flow projections based on the most recent budgets approved by senior management. The discount rate applied to future cash flows projection is adjusted by projected growth rate. Discount rate and projected growth rate were determined with respect to the field and the territorial scope of business. The following rates are used by the Group: PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. 8.61% 9.24% Poisťovňa Poštovej banky, a. s % 13.32% The calculation of value in use for both subsidiaries considers the following key assumptions: Interest margins, Discount rates, Market share during the budget period, Projected growth rates used to extrapolate cash flows beyond the budget period. 13. Deferred tax asset Recognised deferred tax asset and deferred tax liabilities The deferred tax asset and deferred tax liabilities for the Group are calculated using a corporate income tax rate of 22% (: 23%) are as follows: 86 Deferred tax asset Assets/ (liabilities) Assets/ (liabilities) Property and equipment (30) (137) Bonuses Impairment losses on loans and advances 7,413 4,966 Discount on assigned receivables Discount on rental contracts Investment securities available for sale (1,249) (4,104) Losses carried forward 14,356 44,807 Other As at 31 December 21,600 46,487

87 The deferred tax asset and deferred tax liabilities for the Branch in the Czech Republic (calculated using a corporate income tax rate of 19%) are as follows: Deferred tax asset Assets/ (liabilities) Assets/ (liabilities) Property and equipment (2) (5) Bonuses Other - administrative expenses 1 1 As at 31 December Movements in deferred tax: As at 1 January 46,501 56,656 Debited to profit or loss (note 39) (27,734) (6,218) Charged to other comprehensive income (note 39) 2,857 (3,937) As at 31 December 21,624 46, Tax liability Tax liability 1,531 9, Other assets Prepayments 19,639 12,602 Other debtors 26,940 17,720 Items in the course of clearing from post offices 17,474 16,442 Receivables from funds Insurance receivables Assets from reinsurance Accrued income Receivables from real estate companies Inventory Other ,196 50,135 Allowances for impairment (1,213) (1,078) 65,983 49,057 Items in the course of clearing from post offices comprise deposits and other transactions of the Bank s customers that have been made in post offices and not received by the Bank at the end of the reporting period. Generally, items clear within three days. 87

88 The movements of allowances for impairment were as follows: As at 1 January 1,078 1,941 Transfer of impairment allowance to DAC - (455) Adjustment from previous year - (605) Increase As at 31 December 1,213 1, Deposits by banks Repayable on demand 7,629 10,557 Other deposits by banks with contractual maturity: - up to 3 months - 50,522 As at 31 December 7,929 61, Customer accounts Repayable on demand 1,083, ,684 Other deposits with contractual maturity dates or periods of notice, by agreed maturity: - up to 3 months 956, ,841-3 months to 1 year 575, ,425-1 year to 5 years 653, ,459 - above 5 years 1, As at 31 December 3,269,808 2,829, Received loans Loans from central bank 5,000 - Received loans 50,778 75,094 As at 31 December 55,778 75,094 The Bank recognizes a client REPO trade with maturity on 4 February It represents a loan received with interest rate of 0.53% p.a. with secured transfer of financial assets that are considered as collateral. Collateral is a Hungarian state bond. 88 A loan of 5,000 thousand was provided by Eximbanka, a.s. to PB Finančné služby, a.s. with interest rate 0.832%. The loan matured on 23 February 2014.

89 19. Provisions The movements in provisions were as follows: As at 1 January Release (note 38) - (12) As at 31 December Provisions relate to passive litigation and other commitments and contingencies. 20. Provisions for insurance contracts Provision for life insurance 5,537 4,350 Provision for insurance accruals Provision for insurance payments 980 1,063 As at 31 December 6,888 5,747 The movements in provisions were as follows: At 1 January 5,747 4,854 Release of provisions: - Insurance accruals (note 34) Life insurance (note 37) 1, Insurance payments (note 37) (77) (24) As at 31 December 6,888 5, Tax liabilities Income tax payable 1,

90 22. Other liabilities Accruals 13,916 12,763 Other creditors 7,275 9,684 Withholding taxes payable 1,894 1,987 VAT, payroll and other tax liabilities 2,435 1,814 Financial liabilities from transfer of financial assets - 1,047 Liabilities to employees 2, Deferred income Insurance and reinsurance liabilities Liabilities from leasing Other 3 - Advances received As at 31 December 30,192 29,360 The movements on the social fund account included in Liabilities to employees were as follows: As at 1 January Creation of social fund Release of social fund (566) (585) As at 31 December Subordinated debt Subordinated debt 8,000 8,000 Accrued interest As at 31 December 8,013 8,013 The Bank entered into a subordinated debt agreement with J&T BANKA, a.s. on 21 September 2011 for 8,000 thousand. This loan will mature in 2021 and bears interest of 5.34% p. a. In the event of bankruptcy or liquidation of the Bank, the loan will be subordinated to the claims of all other creditors of the Bank. 24. Share capital As at 1 January 232, ,703 Increase in share capital 73,602 - As at 31 December 306, ,703 90

91 The Bank increased the share capital by the amount of 73,602 thousand using 73,468 thousand from other capital funds and 134 thousand from retained earnings based on a decision of the General Meeting of shareholders held on 5 December. The share capital consists of 276,698 shares with a nominal value of 1,107 (: 841) each. 25. Share premium As at 1 January Usage of share premium - (124) As at 31 December Reserves and retained earnings Fair value reserve Legal reserve fund Retained earnings Capital and other funds Revaluation reserve Total As at 1 January ,647 (100,707) 179,837 (181) 96,340 Transfer to legal reserve fund (850) Revaluation gain on securities available-for-sale Translation difference from foreign operations Cancellation of compensation rights 13, , (179,837) - (179,837) Other capital funds , ,280 Settlement of receivable from shareholder Use of capital funds to cover losses (100,000) - (100,000) ,813 (101,813) - - Profit for the year , ,593 As at 31 December 14,000 17,497 65,849 73, ,813 As at 1 January 14,000 17,497 65,849 73, ,813 Transfer to legal reserve fund - 6,915 (6,915) Revaluation loss on securities available for sale Translation difference from foreign operations (9,327) (9,327) (783) (783) Share capital increase - - (135) (73,467) - (73,602) Profit for the year , ,590 As at 31 December 4,673 24, ,389 - (783) 156,691 (a) Legal reserve fund Following the increase in share capital, the legal reserve fund was increased. Under the Slovak Commercial Code, all companies are required to maintain a legal reserve fund to cover future adverse financial conditions. The Bank is obliged to contribute an amount to the fund each year which is not less than 10% of its annual net profit until the aggregate amount reaches a minimum level equal to 20% of the issued share capital. The legal reserve fund is not readily distributable to shareholders. (b) Fair value reserve The fair value reserve represents the cumulative net change in the fair value of availablefor-sale investment securities net of deferred tax. 91

92 (c) Translation reserve of foreign operations The translation reserve comprises all foreign exchange rate differences arising from the translation of the financial statements of foreign operations. (d) Proposed allocation of the profit The Board of Directors will propose the following allocation of the profit for the year ended 31 December : Legal reserve fund 6,817 Retained earnings 61,355 68,172 (e) Dividends for The General Meeting of shareholders held on 25 April decided that no dividends would be paid from the profit for the year ended 31 December. 27. Contingencies, commitments and derivative financial instruments Contingencies: Guarantees in favour of clients 217, ,291 Other commitments: Irrevocable letter of credit - - Confirmed credit lines 204, ,214 Derivative financial instruments (note 7) 87, ,425 As at 31 December 509, ,930 Breakdown of contingencies and commitments by country is as follows: Guarantees in favour of clients Confirmed credit lines Guarantees in favour of clients Confirmed credit lines Slovak Republic 202, , , ,868 Czech Republic 10,924 11,759-11,596 European Union countries 4, , Other European countries Venezuela Total 217, , , ,214 92

93 Breakdown of contingencies and commitments by sector is as follows: Guarantees in favour of clients Confirmed credit lines Guarantees in favour of clients Confirmed credit lines Central bank 121, ,008 - Energy 30, ,327 - Telecommunications 34,915-34,851 - Wholesale 4,103 6,536-22,527 Retail - 37,101-3,916 Manufacturing 7,000 20,635 15,000 7,979 Construction 1, ,274 Services and good sale 5,532 27,003 68,405 24,841 Financial services 11,850 9, Rent Households - 104, ,141 Total 217, , , , Interest income and similar income from debt securities Deposits at the central bank 907 2,016 Loans and advances to customers 186, ,471 Debt securities 63,073 66,975 Other , ,556 Included in the various categories of interest income for the year ended 31 December is interest income of 10,133 thousand accrued on impaired financial assets (: 6,837 thousand). Interest income from investment securities for the year ended 31 December includes 35,166 thousand (: 43,050 thousand) relating to held-to-maturity debt securities; and interest income from available-for-sale investment securities of 27,863 thousand (: 23,918 thousand) and interest income from trading securities was 44 thousand (: nil). 29. Interest expense Deposits by banks (624) (888) Customer accounts (57,896) (56,099) Subordinated debt (427) (429) Other (21) - (58,968) (57,416) 93

94 30. Fee and commission income Clients 34,922 32,604 Banks 1,741 1,739 Other processing fees 14,903 11,700 51,566 46, Fee and commission expense Banks (2,299) (1,964) Other processing fees (17,846) (15,254) Deposit protection fund - (2,128) Special levy for banking institutions (12,164) (7,282) (32,309) (26,628) 32. Net trading gain/(loss) Financial assets held for trading 9,617 (24,528) Financial assets available for sale 9, Foreign currency transactions (8,316) 3,010 Other (104) (155) 10,600 (20,960) 33. Net other income/(loss) Net loss from assigned receivables (804) (3,465) Investment securities 44 - Rental income 1, Revenues from leasing 5, Reimbursements received Net profit from disposals of property and equipment 627 (1,088) Shortages and damages (138) (120) Other 1, ,412 (2,856) 94

95 34. Net earned premiums Gross premiums written 9,656 8,297 Change in unearned premium provision ( UPR ) (note 20) (37) (47) Written premiums ceded (445) (430) Reinsurers share in the change in UPR (1) 22 9,173 7, Administrative expenses Wages and salaries (including bonuses) (32,402) (30,767) Social expenses (10,854) (9,210) Personnel costs (43,256) (39,977) Marketing expenses (6,973) (6,541) Services (17,410) (14,997) Rent (5,884) (4,161) Other administrative expenses (532) (1,794) Material expenses (6,927) (2,454) Operating expenses (1,166) (609) Other services (3,678) (2,021) (85,826) (72,554) Average number of employees for the period 1,298 1,243 of which, management The costs of services provided by the statutory auditor (including VAT) were as follows: Audit (including regulatory assurance services) (642) (658) Tax advisory (55) (34) (697) (692) 36. Depreciation and amortisation Property and equipment (note 11) (4,887) (4,902) Intangible assets (note 12) (5,461) (3,586) (10,348) (8,488) 95

96 37. Claim costs Claims paid (1,142) (936) Claims paid ceded Change in claim provisions (note 20) Change in claim provisions ceded (69) (53) Change in life insurance provision (note 20) (1,181) (870) Other - 2 (2,287) (1,799) 38. Impairment losses and provisions Impairment losses on loans and advances (note 9) (39,861) (20,123) Impairment losses on investment securities (note 10) (710) (2,483) Impairment losses on other assets (note 15) (135) (197) Impairment losses on intangible assets (note 12) 1,527 (455) Provisions for liabilities (note 19) ,179 (23,246) 39. Income tax Current tax expense: Current tax expense payable (4,201) (1,690) Withholding tax - (2) Deferred tax (note 13) (27,734) (6,218) (31,935) (7,910) Taxation is charged on the taxable profit for the year of each company in the Group at a rate of 23% (: 19%). The Parliament has approved a decrease in the corporate income tax from 23% to 22% from 1 January Income tax recognised in other comprehensive income: Available-for-sale financial assets before tax (12,184) 17,193 Income tax (note 13) 2,857 (3,937) Net of tax (9,327) 13,256 96

97 Reconciliation of the effective tax rate: Tax base Tax at 23% Tax base Tax at 19% Profit before taxation 106,125 24,409 73,503 13,968 Tax deductible items: Dividend income (5,136) (1,181) (3,871) (735) Fees for loans and advances to clients taxed in previous periods (3) (1) (4) (1) Difference between tax and accounting depreciation (335) (77) (288) (55) Allowance for impairment on securities - - (274,757) (52,204) Bonuses and provisions (2,982) (686) (2,989) (561) Release of discount - - (679) (129) Release of impairment losses (2,074) (472) (17,806) (3,383) Other (2,977) (685) (635) (121) Total tax deductible items (13,507) (3,101) (301,029) (57,189) Tax non-deductible items: Impairment losses on loans and advances to clients, net 27,781 6,390 29,317 5,570 Difference between tax and accounting depreciation Bonuses and provisions for liabilities 4,854 1,116 3, Other 15,919 3,661 8,056 1,531 Total non-deductible items 49,019 11,274 40,826 7,749 Income tax expense 32, Adjustment in respect of previous year (28,585) - Witholding tax Deferred tax 27,734 6,218 Tax recognition under foreign jurisdiction - 1,105 Total income tax 31,935 7,910 Effective tax rate 30.09% 10.76% Many parts of Slovak tax legislation remain untested and there is uncertainty about the interpretation that the tax authorities may apply in a number of areas. The effect of this uncertainty cannot be quantified and will only be resolved as legislative precedents are set or when the official interpretations of the authorities are available. 97

98 40. Profit/(loss) before changes in operating assets and liabilities Profit after taxation 69,590 65,593 Adjustments for non-cash items: Depreciation and amortisation 10,348 8,488 Impairment losses on loans and advances to customers 39,861 20,123 Write-off on loans and advances to customers - 3,465 Investment revaluation (12,184) 17,193 Impairment losses on other assets Impairment losses on investment securities 710 2,483 Impairment (release)/creation to intangible assets (1,527) 455 Loss on disposal of property and equipment (627) (2,540) Sunk costs in property and equipment - 56 Provisions for liabilities - (12) Provisions for insurance contracts 1, Income tax 4,201 1,692 Deferred tax 27,734 6,218 Translation difference on foreign operations (783) 181 Receivable from subsidiary - (6,705) 138, ,233 Net cash flow from operating activities includes the following cash flows: Interest received 240, ,777 Interest paid (49,100) (49,514) 191, , Lease commitments Minimum lease payments: up to 1 year 3,840 3,342 up to 5 years ,963 3, Related party transactions Parties are considered to be related, if one party has the ability to control the other party, or if it has in its financial and operational decisions significant influence over the other party. Related parties include subsidiaries and jointly controlled entities, as well as key management personnel and persons related to them. 98 The following person or companies meet the definition of related parties: a) Companies that directly or indirectly through one or more intermediaries control or are controlled, have significant influence or are under joint control by the reporting company; (b) Affiliated company in which the parent company has significant influence and which is not a subsidiary, or a joint venture;

99 (c) Individual owning, directly or indirectly, a share in the voting rights of the Bank that gives them significant influence over the Bank and any other individual who may be expected to influence, or be influenced by that person in their dealings with the Bank; (d) Key management personnel, i.e. persons having authority and responsibility for planning, management and controlling activities of the Bank, including directors and managing employees of the Bank and persons related to them; (e) Companies in which a dominant share of voting rights is owned, directly or indirectly, by any person described in point (c) or (d) or over which such party may have a significant influence. This includes companies owned by directors or major shareholders of the Bank and companies that have key member of management common with the Bank. a) Shareholders J&T FINANCE GROUP, a.s.; J&T BANKA, a.s./istrokapitál SE (31 December ) Loans and advances to customers - 13,987 Loans and advances to banks Other assets 24 - Customer accounts (7,338) (2) Trading liabilities (660) - Subordinated debt (8,013) - Interest income Net trading income 7,209 - Fee and commission expense (3,083) - b) Companies related to Group shareholders Companies related to J&T FINANCE GROUP, a.s.; J&T BANKA, a.s./istrokapitál SE (31 December ) Investment securities 59,663 38,142 Loans and advances to customers (6,468) - Customer accounts (1,450) (428) Interest income 1,859 3,595 Interest expense (57) - c) Key management personnel (KMP) and related parties to KMP KMP Loans and advances to customers Customer accounts (2,193) (1,243) Income Expense (4,058) (4,926) Related parties to KMP Loans and advances to customers 11 6 Customer accounts (288) (39) Income 2 3 Expense (7) (5) 99

100 d) Others Investment securities 60,619 5,953 Loans and advances to customers 32,593 5,149 Liabilities (1,223) (339) Interest income 6, Expense (56) (10) Total remuneration and bonuses paid to members of the Supervisory Board and Board of Directors in was 4,036 thousand (: 4,906 thousand). 43. Custodial services The Group administers assets received into its custody from customers totalling 630,601 thousand (: 563,314 thousand). The assets comprise securities and other valuables. 44. Fair values Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimated fair values of the Group s financial assets and liabilities were as follows: Carrying value Fair value Carrying value Fair value Financial assets Cash and balances at central banks 292, , , ,782 Trading assets 10,494 10,494 35,994 35,994 Loans and advances to banks ,928 1,928 Loans and advances to customers 1,875,479 1,872,792 1,722,781 1,816,657 Investment securities 1,527,343 1,607,267 1,344,210 1,396,885 Financial liabilities Trading liabilities 1,451 1, Deposits by banks 7,629 7,629 61,079 61,079 Customer accounts 3,267,808 3,251,938 2,829,928 2,842,756 Loans received 55,778 55,778 75,094 75,094 Subordinated debt 8,013 8,013 8,013 8,013 The following methods and assumptions were used in estimating the fair values of the Group s financial assets and liabilities: Trading assets The fair values of trading assets are calculated using quoted market prices or theoretical prices determined by discounting future cash flows by referencing the relevant interest rate for the term of the instrument. 100 Loans and advances to banks The fair value of current accounts with other banks approximates to book value. For amounts with a remaining maturity of less than three months, it is also reasonable to use book value as an approximation of fair value. The fair values of other loans and advances to banks are calculated by discounting the future cash flows using current interbank rates.

101 Loans and advances to customers Loans and advances are stated net of allowances for impairment. For loans and advances to customers with a remaining maturity of less than three months, it is reasonable to use book value as an approximation of fair value. The fair values of other loans and advances to customers are calculated by discounting the future cash flows using current market rates and an estimate of current risk margins. Investment securities The fair values of held-to-maturity investment securities are calculated using quoted market prices. When quoted prices are not available, securities are valued by discounting future cash flows using the capital asset pricing model. Trading liabilities Trading liabilities are stated using quoted market prices or theoretical prices determined by discounting future cash flows by referencing the relevant interest rate for the term of the instrument. Deposits by banks The fair value of current accounts with other banks approximates to book value. For other amounts owed to banks with a remaining maturity of less than three months, it is also reasonable to use book value as an approximation of fair value. The fair values of other deposits by banks are calculated by discounting the future cash flows using current interbank rates. Customer accounts The fair values of current accounts and term deposits with a remaining maturity of less than three months approximate their carrying amounts. The fair values of other customer accounts are calculated by discounting the future cash flows using current deposit rates. Loans received Fair values of loans are calculated by discounting future cash flows using effective interbank rates. For received loans with a remaining maturity of less than three months, it is reasonable to regard their book value as approximate fair value. Subordinated debt The fair values of subordinated debt are calculated by discounting the future cash flows using current market rates and an estimate of current risk margins. 45. Information on events occurring between the balance sheet date and the date of preparation of financial statements No events with material impacts that would require adjustment or disclosure in the Financial Statements as at 31 December occurred after the date of preparation of the Financial Statements. 101

102 Fair play What we have received from the community around us, we want to bring back. Therefore we proudly support: Slovak National Hockey Team HC Slovan Bratislava Radosinske Naive Theatre Slovak National Museum Unity of Pensioners of Slovakia Children s Museum

103 Clients are our motivation. Because of them and for them we are moving forward. Therefore we are everywhere, where they need us. We are the most accessible bank in Slovakia. Peter Krištofovič, Deputy of General Director of Postova banka

104 Branch network 42 of our own commercial locations Bánovce nad Bebravou Nám. Ľudovíta Štúra 8/8B, Bánovce nad Bebravou, tel.: 038/ , fax: 038/ Banská Bystrica Dolná 62, Banská Bystrica, tel.: 048/ , fax: 048/ Bardejov Hviezdoslavova 3, Bardejov, tel.: 054/ , fax: 054/ Bratislava Čachtická 25, Bratislava, tel.: 02/ , fax: 02/ Gorkého 3, Bratislava, tel.: 02/ , fax: 02/ Karloveská 34, Bratislava, tel.: 02/ , fax: 02/ Ľudovíta Fullu 3, Bratislava, tel.: 02/ , fax: 02/ Nám. SNP 35, Bratislava, tel.: 02/ , fax: 02/ Odborárske nám. 2, Bratislava, tel.: 02/ , fax: 02/ Prievozská 2/B, Bratislava, tel.: 02/ , fax: 02/ Tomášikova 21, Bratislava, tel.: 02/ , fax: 02/ Vlastenecké nám. 4, Bratislava, tel.: 02/ , fax: 02/ Dvořákovo nábrežie 4, Bratislava, tel.: 02/ , fax: 02/ * Brezno Nám. M. R. Štefánika 7, Brezno, tel.: 048/ , fax: 048/ Dubnica nad Váhom Nám. Matice slovenskej 12/1298, Dubnica nad Váhom, tel.: 042/ , fax: 042/ Dunajská Streda Bacsákova ul., Dunajská Streda, tel.: 031/ , fax: 031/ Humenné Nám. slobody 3, Humenné, tel.: 057/ , fax: 057/ Komárno Damjanichova ul. 3, Komárno, tel.: 035/ , fax: 035/ Košice Škultétyho 1, Košice, tel.: 055/ , fax: 055/ Toryská 3, Košice, tel.: 055/ , fax: 055/ Lučenec T. G. Masaryka 19, Lučenec, tel.: 047/ , fax: 047/ Levice P. O. Hviezdoslava 2/A, Levice, tel.: 036/ , fax: 036/ Martin Andreja Kmeťa 5397/23, Martin, tel.: 043/ , fax: 043/ Michalovce Ul. kpt. Nálepku 26, Michalovce, tel.: 056/ , fax: 056/ Nitra Mostná 15, Nitra, tel: , fax: Sládkovičova 1, Nitra, tel.: 037/ , fax: 037/ Nové Mesto nad Váhom Hviezdoslavova 19, Nové Mesto nad Váhom, tel.: 032/ , fax: 032/ Nové Zámky Komárňanská 2, Nové Zámky, tel.: 035/ , fax: 035/ Pezinok Meisslova 1/A, Pezinok, tel.: 033/ , fax: 033/ Poprad Vajanského 71, Poprad, tel.: 052/ , fax: 052/ Prešov Hlavná 114, Prešov, tel.: 051/ , fax: 051/ Prievidza Bojnická cesta 15, Prievidza, tel.: 046/ , fax: 046/ Rožňava Janka Kráľa 4, Rožňava, tel.: 058/ , fax: 058/ Sečovce Nám. Cyrila a Metoda 150/28, Sečovce, tel.: 056/ , fax: 056/ Skalica Potočná 20, Skalica, tel.: 034/ , fax: 034/ Spišská Nová Ves Letná 51, Spišská Nová Ves, tel.: 053/ , fax: 053/

105 Trebišov M. R. Štefánika 2393/25, Trebišov, tel.: 056/ , fax: 056/ Trenčín Nám. sv. Anny 23, Trenčín, tel.: 032/ , fax: 032/ Trnava Hlavná ulica 33, Trnava, tel.: 033/ , fax: 033/ Zvolen T. G. Masaryka 955/8, Zvolen, tel.: 045/ , fax: 045/ Žiar nad Hronom Nám. Matice slovenskej 2820/24, Žiar nad Hronom, tel.: 045/ , fax: 045/ Žilina Na priekope 19, Žilina, tel.: 041/ , fax: 041/ * commercial place dedicated to VIP clients Post offices Post offices in Slovakia, from which: 142 Post offices with shared counters 173 Post offices with adjacent acquisition office 45 Post offices Pošta Partner More than commercial locations make us the most accessible Bank in Slovakia. Commercial locations of Slovak Post Branches of Poštová banka 105

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