NLB West-East bank AD Corporate governance 4. Directors report 6. Income statement 11. Balance sheet 12

Annual report 2008

Contents

Contents NLB WEST-EAST BANK AD FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION 31 DECEMBER 2008 NLB West-East bank AD Corporate governance 4 Directors report 6 Income statement 11 Balance sheet 12 Statement of changes in shareholders equity 14 Statement of cash flows 15 Notes to the financial statements 17 Contact list of NLB West-East bank AD 63 Annual Report 2008 3

NLB West-East bank AD Corporate governance

NLB Wes t-eas t BAnk AD CorpoRAte governance s HAREHOLDERs s tructure Nova Ljubljanska banka d.d., Slovenia 97.01 % Factor banka d.d., Slovenia 2.99 % s UPERVIs ory BOARD Andrej Hazabent President of the Supervisory Board Boris Pesjak Member of the Supervisory Board Gregor Kaiser Member of the Supervisory Board MANAGEMENT BOARD Vito Cigoj President of the Management Board and Executive Director Nabil Issa Member of the Management Board and Executive Director Georgi Georgiev Member of the Management Board and Executive Director Annual Report 2008 5

Directors report

DIRectoRs report Annual activity report from the Management of NLB West-East bank AD The financial year 2008 started with very favourable global market conditions, but in the last quarter of the year a drastic change of trends on the financial markets occurred followed by liquidity and credit shortage all over the world. The main effect of these events on the local Bulgarian market, but much less than in other countries of the region, was the decreased liquidity especially of the local banks owned by large foreign banking groups. Therefore, banks were forced to increase the competition for local deposits, which resulted in unexpectedly high levels of interest rates. The Bank s main focus in 2008, with special emphasis at year s end, was to manage the operational and structural liquidity, to reassess the credit risk of the Bank s loan portfolio and also the market risks, aiming to keep stable capital position and control over the operational costs. All of these resulted in a slowdown of the credit activities, increment of the funding activities and increase of the impairments for credit risk, but still resulted in ending the fiscal year with profit, although a decreased one. The growth of the Bank s business volume was very contained and lower than planned. Parallel to regular business activities of the Bank, the process of consolidation to NLB Group was given special focus. The main impact of this consolidation has been imposed on the field of credit, market and operational risk management, liquidity management, internal audit and business strategy of the Bank. Although Bank s main business orientation to offer banking services and products to small and medium enterprises present on the local market but with economic interests (also ownership) in Slovenia and Middle East did not change. Bank s final aim is to serve these clients throughout the NLB Group. Figure 1: Growth balance sheet size and loan portfolio Annual Report 2008 7

DIRectoRs report Key events for the Bank in 2008 Based on decision taken at an extraordinary General meeting of the shareholders of NLB West-East bank AD in September 2007, the increase of the share capital was registered on 16 January 2008. As a result, the total registered number of ordinary shares as at 31 December 2008 is 21,650,000 (2007: 15,800,000), having nominal value of BGN 1 each and carrying equal voting rights. The main shareholders of the Bank are: Nova Ljubljanska banka d.d., holding 21,002,665 number of ordinary shares (97.01% from the share capital); and Factor banka d.d., holding 647,335 number of ordinary shares (2.99% from the share capital). Figure 2: Structure of total assets as of 31.12.2008 In June 2008, based on decision taken by the Supervisory Board of NLB West-East bank AD, Mr. Vito Cigoj was appointed President of the Management Board of NLB West-East bank AD, succeeding the position from Mr. Dusan Valencic. Future plans of the Bank Bank s business and financial plans for the period 2009-2011 are adjusted to the strategic targets and guidelines of NLB Group. The main focus in 2009 is consolidation within the group, strengthening of the corporate governance, risk management, internal audit, debt collection and bad loans management. Special efforts are to be invested also in the diversification of the deposit base and loan portfolio. The cooperation among group members should also increase in the field of client business support. Financial plan 2009 is still emphasizing the stable operational and structural liquidity position, strong capitalization, high coverage of the loan portfolio with provisions for credit risk and control over costs. Figure 3: Loan portfolio by sectors as of 31.12.2008 8 Annual Report 2008

DIRectoRs report Other issues related to the Bank No significant events occurred after the preparation of the Financial Statement of the Bank. Figure 4: Liabilities structure as of 31.12.2008 The Board Members do not have the right to acquire shares and bonds from the Bank. Therefore, the Board Members of the Bank do not have any acquired, possessed or transferred shares and bonds of the Bank through the year 2008. No contracts are signed by the Board Members or related to the Board Members parties beyond the regular activity of the Bank or significantly different from the market conditions. Total gross remuneration received from the Board Members for the year 2008 amounts to EUR 239 thousand (BGN 467 thousand). In our opinion the accompanying financial statements for the 2008 financial year give a true and fair view of the financial position of the Bank. The management has prepared the enclosed financial statements in accordance with IFRS as adopted by the EU. The Management confirms that suitable accounting policies have been used and applied consistently and reasonable and prudent judgements and estimates have been made in the preparation of the financial statements for the year ended 31 December 2008. The Management confirms that the financial statements were prepared in accordance with IFRS as adopted by EU and on going concern basis. NLB West-East bank AD will also in the future continue to be the Bank, which is providing high quality banking services and products to its clients and is striving to remain the best banking partner. Annual Report 2008 9

Income statement Balance sheet s tatement of changes in shareholders equity s tatement of cash flows

Income s tatement Income statement Income statement Notes Year ended 31 December 2008 2007 Interest and similar income 4 18,757 15,199 Interest expense and similar charges 4 (7,609) (5,394) Net interest income 11,148 9,805 Fee and commission income 5 1,406 911 Fee and commission expense 5 (33) (51) Net fee and commission income 1,373 860 Net trading income 6 379 647 Other operating expenses 7 (4,474) (4,111) Impairment charge for credit losses 15 (7,237) (3,093) Other operating income 69 - Profit before income tax 1,258 4,108 Income tax credit/expense 9 46 (423) Profit for the year 1,304 3,685 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 11

BALAnce shheet Balance sheet Balance sheet Notes As at 31 December 2008 2007 ASSETS Cash and balances with the Central Bank 10 15,003 18,154 Loans and advances to banks 11 22,745 21,934 Trading assets 12 1,013 1,253 Investment securities: - available-for-sale 13 57 57 held-to-maturity 13 5,355 7,775 Loans and advances to customers 14 168,236 148,191 Current income tax assets 175 - Other assets 19 671 715 Intangible assets 17 236 312 Property, plant and equipment 18 1,021 1,031 Total assets 214,512 199,422 LIABILITIES Deposits from banks 20 61,084 47,437 Due to customers 21 33,572 52,022 Other borrowed funds 23 81,383 56,829 Debt securities issued 22 9,783 9,785 Other liabilities 24 1,231 9,278 Current income tax liabilities - 59 Deferred income tax liabilities 30-265 Total liabilities 187,053 175,675 Continued on next page The notes to the financial statements are integral part of these financial statements. 12 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

BALAnce shheet Balance sheet (continued) Notes Year ended 31 December 2008 2007 SHAREHOLDERS EQUITY Share capital 28 21,650 15,800 Profit for the year 1,304 3,685 Reserves and retained earnings 4,505 4,262 Total shareholders equity 27,459 23,747 Total shareholders equity and liabilities 214,512 199,422 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 13

s tatement of CHAnges in s HARehoLDeRs equity s tatement of changes in shareholders equity Statement of changes in equity Share capital Statutory reserves Retained earnings Total Balance at 1 January 2007 15,800 404 4,679 20,883 Transfer to reserves - 1,176 (1,176) - Dividends paid (referring 2006) - - (821) (821) Profit for the year - - 3,685 3,685 Balance at 31 December 2007 15,800 1,580 6,367 23,747 Balance at 1 January 2008 15,800 1,580 6,367 23,747 Increase of share capital 5,850 - - 5,850 Transfer from retained earnings to the income statement (Note 15) - - (1,860) (1,860) Dividends paid (referring 2007) - - (1,582) (1,582) Profit for the year - - 1,304 1,304 Balance at 31 December 2008 21,650 1,580 4,229 27,459 14 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

s tatement of CAs H flows s tatement of cash flows Cash flow statement (continued) Notes Year ended 31 December 2008 2007 Cash flows from operating activities Interest received 17,746 15,738 Interest paid (8,226) (4,534) Fees and commissions received 1,406 911 Fees and commissions paid (33) (51) Cash payments to employees and suppliers (4,105) (3,552) Income tax paid (453) (658) Cash flows from operating activity before changes in operating assets and liabilities 6,335 7,854 Changes in operating assets and liabilities - net increase/decrease in reserve with the Central Bank 2,691 (7,104) - net increase in trading securities 240 2,953 - net increase/decrease in loans to banks 6,523 (1,242) - net decrease in loans to customers (27,159) (50,818) - net increase/decrease in other assets 131 (31) - net increase in deposits from banks 13,647 8,034 - net increase/decrease in due to customers (18,450) 4,384 - net increase/decrease in other liabilities (1,811) 6,403 Net cash used in operating activities (17,853) (29,567) Cash used in investing activities Purchase of investment securities - (8,119) Proceeds on disposal of investment securities 2,364 6,560 Proceeds from sale of investment in subsidiary - 399 Purchase of intangible fixed assets (44) (39) Purchase of property, plant and equipment (238) (750) All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 15

s tatement of CAs H flows Cash flow statement (continued) Notes Year ended 31 December 2008 2007 Net cash used in investing activities 2,082 (1,949) Cash flows from financing activities Dividends paid (1,582) (821) Proceeds from borrowed funds and debt securities issued 24,227 35,608 Repayments of borrowed funds and debt securities issued - (7,863) Net cash flow from financing activities 22,645 26,924 Net increase in cash and cash equivalents 6,874 (4,592) Cash and cash equivalents at beginning of period 18,427 23,019 Cash and cash equivalents at end of period 29 25,301 18,427 16 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

Notes to the financial statements

1. General information and summary of significant accounting policies of available-for-sale investment securities, financial assets and financial liabilities held at fair value through profit or loss. NLB West-East bank AD (the Bank ) was established on 11 November 2002 as a result of the foundation meeting held by the following shareholders: Aktiva Holding B.V., Factor banka d.d. and LB Maxima d.o.o. The Bank was registered as a Bulgarian joint stock company on 28 August 2003 with the Sofia Court after receiving a licence from the Bulgarian National Bank on 13 August 2003. The Bank started its operations on 1 October 2003. The Bank is managed and represented by Supervisory Board incorporating three members and Management Board incorporating three members elected for a period of three years. The main business orientation of the Bank is lending to small and medium sized enterprises, being Slovenian companies registered in Bulgaria, Bulgarian companies doing business with Slovenian companies or clients of NLB Group, Bulgarian companies doing business with other countries, especially in the Middle East and companies with other interest in the broad geographical area. The Bank also gives banking support to Slovenian and Middle East individuals as well as Bulgarian individuals in business relation with the Bank. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. It also requires Management to exercise its judgement in the process of applying the Bank s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed under Note 3. (a) Standards, amendments and interpretations effective in 2008 but not relevant IFRIC 11, IFRS 2 - Group and Treasury Share Transactions IFRIC 12, Service concession arrangements IFRIC 13, Customer loyalty programmes The Bank s activities are performed through its headquarters in Sofia. IFRIC 14, IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction These financial statements have been approved by the Management Board, MB decision 0301/0058A dated 20.03.2009. IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective for annual periods beginning on or after 1 October 2008) The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. A. Basis of presentation The financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The financial statements are presented in the national currency of Bulgaria, the Leva (BGN). The financial statements have been prepared under the historical cost convention, as modified by the revaluation (b) Standards, amendments and interpretations to existing standards that are not yet effective and not adopted earlier by the Bank IAS 1 (Amendment), Presentation of Financial Statements (effective as of 1 January 2009); IFRS 3 (Amendment), Business Combinations (effective as of 1 January 2009); IFRS 5 (Amendment), Non-current assets held for sale and discontinued operations (and consequential amendment 18 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

to IFRS 1, First-time adoption of IFRSs) (effective from 1 July 2009); IAS 23 (Amendment), Borrowing costs (effective from 1 January 2009); IAS 27, Consolidated and Separate Financial Statements; IAS 28 (Amendment), Investments in associates; IAS 32 (Amendment), Financial instruments: Presentation and IAS 1 (Amendment), Presentation of financial statements financial instruments available for sale and obligations arising from liquidation (effective from 1 January 2009); IFRS 7 Financial instruments: Disclosures, IAS 8 Accounting policies, changes in accounting estimates and errors, IAS 10 Events after reporting period date, IAS 18 Revenue, IAS 34 Interim financial reporting, which are part of the IASB s annual improvements project published in May 2008 (not mentioned above). (c) Standards, amendments and interpretations to existing standards that are not yet adopted by the European Union IAS 39, Financial instruments: Recognition and Measurement; IAS 27, Consolidated and Separate Financial Statements; IAS 36 (Amendment), Impairment of assets (effective from 1 January 2009) - the amendment is part of the IASB s annual improvements project published in May 2008; IFRS 1, First-time adoption of international financial reporting standards (amended in December 2008 effective for first IFRS financial statements for periods beginning on or after 1 July 2009); IAS 38 (Amendment), Intangible assets (effective from 1 January 2009) - the amendment is part of the IASB s annual improvements project published in May 2008; IFRS 3, Business Combinations; IFRIC 17, Distribution of Non-Cash Assets to Owners; IAS 19 (Amendment) Employee Benefits (effective from 1 January 2009) - the amendment is part of the IASB s annual improvements project published in May 2008; IAS 37 Provisions, Contingent Liabilities and Contingent Assets - required than contingent liabilities be disclosed and not recognized (IAS 19 was amended for compliance as a result); IFRIC 18, Transfers of Assets from Customers. B. Foreign currencies (a) Functional and presentation currency Items included in the financial statements of the Bank are measured and presented in BGN, which is the Bank s functional and presentation currency. IAS 39 (Amendment) Financial instruments: Recognition and Measurement (effective from 1 January 2009). The amendment is part of the IASB s annual improvements project published in May 2008. The amended version allows reclassification to and from the category for measurement at fair value in the profit or loss when a derivative enters into or ceases to be in conformity to the requirements for hedging instruments for cash flow or net investment hedging; (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 19

differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity. At 31 December 2008, monetary assets and liabilities denominated in foreign currency are translated into Bulgarian Leva at the official Central Bank exchange rate BGN 1.95583 for EUR 1 and BGN 1.38731 for USD 1 (31 December 2007: BGN 1.95583 for EUR 1 and BGN 1.33122 for USD 1). C. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or dispose of the asset and settle the liability simultaneously. D. Interest income and expense Interest income and expense are recognized in the income statement for all interest bearing instruments on an accrual basis using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. In calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and commissions paid or received between parties to the contract that are integral part of the effective interest rate, transaction costs and all other premiums or discounts. Interest income includes coupons earned on fixed income investment and trading securities. When loans become doubtful of collection, they are written down to their recoverable amounts and interest income is thereafter recognized based on the interest rate that was used to discount the future cash flows for the purpose of measuring the recoverable amount. E. Fees and commission income Fees and commissions are generally recognised on an accrual basis when the service has been provided. Fee and commission income incorporates mainly fees for local and foreign currency money transfers, cash operations, and are generally recognised on an accrual basis or at the date of transaction, as appropriate. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and the Bank retained no part of the loan package for itself or retained a part at the same effective interest rate for the other participants. F. Financial assets The Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the classification of its investments at initial recognition. (a) Financial assets at fair value through profit or loss This category includes financial assets held for trading. A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorised as held for trading. Financial assets held for trading are initially recognized at fair value plus transaction costs and subsequently remeasured at fair value based on current bid prices at the reporting date. All related realized and unrealized 20 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

gains and losses are included in net trading income in the period in which they arise. Interest earned whilst holding financial assets held for trading is reported as interest income. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted at active market, other than: (a) those that the entity intends to sell immediately or in short term, which are classified as held for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss; (b) those that the entity upon initial recognition designates as available for sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration. (c) Held to maturity Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank s Management has the positive intention and ability to hold to maturity. Were the Bank to sell other than an insignificant amount of held-tomaturity assets, the entire category would be tainted and reclassified as available for sale. Held-to-maturity investments are carried at amortised cost using the effective interest method, less any provision for impairment. Interest earned whilst holding investment securities is reported as interest income. The Bank assesses its intention and ability to hold its heldto-maturity investments to maturity not only when those financial assets are initially recognized, but also at each subsequent balance sheet date. (d) Available for sale Available for sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Purchases and sales of trading securities, held to maturity and available for sale are recognised on trade-date the date on which the Bank commits to purchase or sell the asset. Financial assets are initially recognised at fair value together with transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards of ownership. Available for sale financial assets and trading securities are subsequently carried at fair value. Loans and receivables and held to maturity investments are carried at amortised cost using the effective interest method. Gains and losses arising from changes in the fair value of trading securities are included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in equity, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity should be recognised in profit or loss. However, interest calculated using the effective interest method is recognised in the income statement. The fair values of quoted investments at active markets are based on current bid prices. If the market for a financial asset is not active (also for unlisted securities), the Bank establishes fair value by using valuation techniques. G. Impairment of financial assets (a) Assets carried at amortised cost The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 21

reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Bank against the following loss events: Delinquency in contractual payments of principal or interest; Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales); Breach of loan covenants or conditions; Initiation of bankruptcy proceedings; Deterioration of the borrower s competitive position; Deterioration in the value of collateral; and Downgrading below investment grade level. The Bank initially assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk features and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan or heldto-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument s fair value using an observable market price. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk features (i.e., on the basis of the Bank s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those features are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk features similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the income statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment 22 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

was recognised (such as an improvement in the debtor s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement. (b) Assets classified as available for sale The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the financial asset below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available for-sale-financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss is removed from equity and recognized in the income statement. Impairment losses recognized in the income statement on equity instruments, classified as available-for-sale, are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement. (c) Renegotiated loans Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the asset is considered to be past due and disclosed only if there is non-compliance with the renegotiated conditions. H. Property, plant and equipment Property and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement when the expenditure is incurred. Depreciation is calculated on the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The following depreciation rates have been used: Buildings 4 % Computers & peripherals 25 % Software 25 % Vehicles 25 % Leasehold improvements 15 % Other fixed assets 15 % Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset s fair value less costs to sell and value in use. Gains and losses on disposal of property and equipment are determined by comparing proceed with carrying amount. These are included in the income statement. All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 23

The depreciation rate adopted under leasehold improvements is based on the direct renewal of the rent contract of the Bank on the provided termination date. I. Intangible fixed assets Intangible assets comprise mainly computer software and are stated at cost less accumulated depreciation and impairment. Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values over their estimated useful life of four years. J. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition including: cash, balances with the Bulgarian National Bank (BNB) excluding the statutory minimum required reserves, and amounts due from other banks. K. Deferred income taxes Taxation has been provided for in the financial statements in accordance with Bulgarian legislation currently in force. Current tax is calculated on the basis of the taxable profit for the year, using the tax rates enacted at the balance sheet date. Taxes other than on income are recorded within operating expenses. M. Borrowings, including debt securities issued Borrowings are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. N. Share capital Incremental external costs directly attributable to the issue of new shares are deducted from equity net of any related income taxes. O. Operating leases Payments made under operating leases are charged against income in equal instalments over the period of the lease. P. Financial guarantee contracts Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other bank facilities. Deferred income tax is provided using the balance sheet liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Income tax payable on profit, based on the applicable tax law in the jurisdiction, is recognised as an expense in the period in which profit arises. The tax effects as a result of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised. L. Provisions Provisions are recognised when the Bank has a present legal or constructive obligation as a result of past events, it is more likely that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation is possible to be made. Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the Bank s liabilities under such guarantees are measured at the higher of the initial measurement, less amortisation calculated to recognise in the income statement the fee income earned on a straight line basis over the life of the guarantee and the best estimate of the expenditure required to settle any financial obligation arising at the balance sheet date. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgment of Management. Any increase in the liability relating to guarantees is considered in the income statement under other operating expenses. 24 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

Q. Sale and repurchase agreements Securities sold subject to repurchase agreements ( repos ) are retained in the financial statements as trading securities and are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is included in amounts due to other banks, or deposits due to customers, as appropriate. Securities purchased under agreements to resell ( reverse repos ) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of repo agreements using the effective interest method. In calculating the provision the Bank estimates the present value of its future pension obligations considering the probability of the employees to retire while employed in the Bank. As at 31 December 2008 and 31 December 2007 the amount of the retirement benefit obligations estimated was immaterial and therefore no provision was recognised in the financial statements. S. Dividends Dividends are recognised as a liability when authorized by the General Assembly of the Shareholders. Subsequently they are deducted from equity when distributed. Dividends will not be declared according to the long-term strategy of the Bank. Securities lent to counterparties are also retained in the financial statements. Securities borrowed are not recognised in the financial statements, unless these are sold to third parties, in which case the purchase and sale are recorded with the gain or loss included in trading income. The obligation to return them is recorded at fair value as a trading liability. R. Employee benefits (a) Social, pension and health funds The Bank is obliged by the current Bulgarian legislation to make fixed contribution on behalf of the employees in a social fund operated by the Government. All those payments/liabilities are recognised as an expense in the period to which those relate. (b) Pension obligations In accordance with article 222, para. 3 of the Bulgarian Labour Code, in the event of termination of a labour contract, after the employee has reached the statutory required retirement age, regardless of the reason for the termination, the employee is entitled to a compensation as follows: 2 gross monthly salaries in all cases and 6 gross monthly salaries if the employee has been engaged with the Bank for at least 10 years. In the end of every reporting period the Bank estimates and recognises the provision for its pension obligations. 2. Financial risk management In performing its activities the Bank is exposed to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Bank s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Bank s financial performance. The Bank s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. The process of risk management includes the following stages: Risk Identification definition of its nature and description of the risks for the Bank. Risk measuring methods for measuring the risks and ensuring of reliable outgoing data for risk measuring. All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 25

Rules and procedures for risk management written rules and procedures for risk management, approved by the Management Board of the Bank. Analysis and supervision ensuring the proper working of the Bank within certain rules and procedures /control over the limits, investigation and resolving of violations/. Reports and information regarding the risk and risk management reports for the risk to the regulatory Bodies and shareholders. Check up of the effectiveness of risk management follow up of the effective functioning of the system for analysis, assessment, supervision and management of the risk. Risk Management Department co-ordinates the work of the departments, related to analysis, assessment, supervision, management and control over the risk; develops and implements an internal rating system for the customers of the Bank; develops and implements approaches to meet the requirements of the new capital Accord Basel II and the respective internal regulation; and assists in the process of harmonizing the internal rules and procedures of the Bank with the internal rules and procedures of Nova Ljubljanska banka d.d. concerning risk management policy and techniques. taking all the necessary measures to support the sustainability and growth of the Bank s business in the current circumstances. Impact on borrowers Borrowers of the Bank may be affected by the lower liquidity situation which could in turn impact their ability to repay the amounts owed. Deteriorating operating conditions for borrowers may also have an impact on management s cash flow forecasts and assessment of the impairment of financial and non-financial assets. To the extent that information is available, management have properly reflected revised estimates of expected future cash flows in their impairment assessments. The amount of provision for impaired loans is based on management s appraisals of these assets at the balance sheet date after taking into consideration the cash flows that may result from foreclosure less costs for obtaining and selling the collateral. The four general areas of risk monitoring by the Bank are credit risk, market risk, operational risk and liquidity risk. A. Credit risk The Bank takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due. Impairment provisions are provided for losses that have been incurred at the balance sheet date. Significant changes in the economy, or in the health of a particular industry segment that represents a concentration in the Bank s portfolio, could result in losses that are different from those provided for at the balance sheet date. Management therefore carefully manages its exposure to credit risk. Recent volatility in global and local financial markets The ongoing global liquidity crisis which commenced in the middle of 2007 has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the banking sector, and, at times, higher interbank lending rates and very high volatility in stock markets. Indeed the full extent of the impact of the ongoing financial crisis is proving to be impossible to anticipate or completely guard against. Management is unable to reliably estimate the effects on the Bank s financial position of any further deterioration in the liquidity of the financial markets and the increased volatility in the currency and equity markets. Management believes it is The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and the geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. (a) Loans and advances In measuring credit risk of loan and advances to customers and to banks at a counterparty level, the Bank reflects three components: 26 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

the probability of default by the client or counterparty on its contractual obligations; current exposures to the counterparty and its likely future development, from which the Bank derives the exposure at default ; and the likely recovery ratio on the defaulted obligations (the loss given default ). The Bank manages the credit risk of loans and advances to customers and to banks through a comprehensive set of policies and procedures to ensure that all aspects of credit risk are adequately covered. the Bank has sufficient updated information on the debtor s financial state and on the sources for repayment of his liabilities, as well as other documents relating to his activity. Watch exposures a risk exposure shall be classified as watch, provided that it one of the following conditions obtains: principal or interest arrears payments have been past-due 31 to 60 days; and the debtor uses the loan for purposes other than those specified in the loan agreement. Financial risk is assessed following a detailed analysis of the financial statements of the borrower/guarantor(s) on the basis of a system of creditworthiness factors. Market risk is assessed based on the economic characteristics / prospects of the relevant market and the competitive position of the proposed borrower. Risk exposures are evaluated and classified based on the credit risk level, the period of delay of amounts due, the assessment of the debtor s financial state and the main sources for repayment of the debtor s obligations. Assessment of the financial situation includes a qualitative and quantitative analyses reflecting all circumstances which may affect debt repayment according to the clauses of the loan agreement. The Bank s risk exposures are classified into four classification groups according to the criteria based on credit risk level: Standard risk exposures a risk exposure shall be classified as standard, provided that all of the following conditions obtain: principal and interest are repaid in accordance with the contractual agreement terms, or payments on them have been past-due up to 30 days, provided the delay is justified or accidental; Substandard exposures a risk exposure shall be classified as substandard, provided that it satisfies one of the following conditions obtains: principal or interest arrears payments have been past-due 61 to 90 days; and the debtor s financial state has substantially deteriorated and may result in inability to repay his obligations. Non performing exposures a risk exposure shall be classified as non-performing, provided it satisfies the general conditions under paragraph 1 or one of the following conditions: principal or interest arrears payments have been past-due over 90 days; the debtor suffers a permanent shortage of money; the debtor has been declared bankrupt or is in a liquidation procedure, and there is a risk of leaving creditors unsatisfied; the claim reported as a balance-sheet item is subject to court proceedings or the court has awarded it to the Bank but it has not been collected; and other conditions providing grounds to consider that the risk exposure is jeopardized by non-repayment. the debtor uses the loan for the purposes stipulated in the loan agreement; and All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 27

B. Risk limit control and mitigation policies The Bank manages limits and controls concentrations of credit risk wherever they are identified in particular, to individual counterparties and groups, and to industries. The Bank has established a set of credit approval levels with relevant approval bodies in order to manage the credit risk. Depending on the amount of facility requested credits are submitted for approval to the appropriate approval level. The Bank assesses the financial, market and business risk, as well as the adequate structuring of the deals. Longer-term finance and lending to corporate entities are generally secured. In order to minimize the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. (b) Credit related commitments The credit risk is measured following a detailed analysis of the financial statements of the borrower/guarantor on the basis of a system of creditworthiness factors. The credit reviews for local banks are prepared by International department of the Bank and sent to Credit risk of the Parent company who submits a proposal to Group Credit Committee for final approval. The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on- and off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. (a) Collateral The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The principal collateral types for loans and advances are: Mortgages over residential properties; Charges over business assets such as premises, inventory and accounts receivable; Charges over financial instruments such as debt securities and equities; and Guarantees and standby letters of credit, which represent irrevocable assurance that the Bank will make the payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralized with cash deposits or other collateral pledged to the Bank, and accordingly the Bank normally assumes minimal risk. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of the loan. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. (c) Maximum exposure to credit risk before collateral held or other credit enhancements The table on the next page represents a worst case scenario of credit risk exposure to the Bank as at 31 December 2008, without taking account of any collateral held or other credit enhancements attached. For onbalance sheet assets, the exposures set out above are based on net carrying amounts as reported in the balance sheet. Issued corporate guarantees. 28 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

Maximum exposure At 31 December 2008 2007 Loans and advances to banks 22,745 21,934 Loans and advances to customers: Mortgage loans 118,847 82,847 Agriculture loans 14,645 16,766 Commerce loans 34,507 46,416 Consumer loans 237 2,162 Trading assets debt securities 1,031 1,253 Investment securities- debt securities 5,355 7,775 Other assets 671 715 Credit risk exposures relating to off-balance sheet items are as follows: Financial guarantees 15,264 29,797 Letters of credit 5,174 7,007 Undrawn loan commitments 21,210 16,286 C. Loans and advances Loans and advances are summarized as follows: Balance at 31 December 2008 Loans and advances to customers Neither past due nor impaired 124,780 Past due but not impaired 28,401 Impaired 29,595 Gross 182,776 Less: allowance for impairment 14,540 Net 168,236 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 29

Balance at 31 December 2007 Loans and advances to customers Neither past due nor impaired 114,671 Past due but not impaired 17,658 Impaired 21,545 Gross 153,901 Less: allowance for impairment 5,710 Net 148,191 The total impairment provision for loans and advances is BGN 14,540 thousands (2007: BGN 5,710 thousands) of which all concern the individually impaired loans. Further information of the impairment allowance for loans and advances to customers is provided in Note 15. During the year ended 31 December 2008, the Bank s total loans and advances increased by 13.53% as a result of the expansion of the lending business. In order to minimize the potential increase of credit risk exposure, the Bank has focused more on the business with small and medium enterprises with good credit rating or retail customers providing sufficient collateral. (a) Loans and advances neither past due nor impaired Loan and advances that were neither past due nor impaired at 31 December 2008 fall into standard risk exposures category based on the credit risk assessment. The credit quality can be evaluated by reference to criteria used for exposure to be classified as standard, described above. (b) Loans past due but not impaired 31 December 2008 Consumer lending Mortgages Agriculture Corporate Lending Total Past due up to 29 days - 25,123-3,278 28,401 Past due 30 89 days - - - - - Past due 90 less than 1 year - - - - - Total - 25,123-3,278 28,401 Fair value of collateral - 98,124-9,154 107,278 31 December 2007 (continued) Consumer lending Mortgages Agriculture Corporate Lending Total Past due up to 29 days 14 12,871 2,377 2,396 17,658 Past due 30 89 days - - - - - Past due 90 Less than 1 year - - - - - 30 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

31 December 2007 (continued) Consumer lending Mortgages Agriculture Corporate Lending Total Total 14 12,871 2,377 2,396 17,658 Fair value of collateral 17 11,967 9,204 2,150 23,338 All loans which are past due more than 30 days are individually impaired. (c) Loans and advances individually impaired For individually assessed accounts, loans are treated as impaired as soon as there is objective evidence that an impairment loss has been incurred. The criteria used by the Bank to determine that there is objective evidence of impairment include: known cash flow difficulties experienced by the borrower; overdue contractual payments of either principal or interest; breach of loan covenants or conditions; the probability that the borrower will enter bankruptcy or other financial reorganisation; and a downgrading in credit rating by an external credit rating agency. 31 December 2008 Mortgages Agriculture Corporate Lending Total Individually impaired loans 14,538 14,154 903 29,595 Fair value of collateral 11,400 31,177 868 43,445 31 December 2007 Mortgages Agriculture Corporate Lending Total Individually impaired loans 7,351 13,747 447 21,545 Fair value of collateral 11,735 20,765 257 32,757 The disclosed fair value of collateral is determined by local certified actuaries and represents value realisable by the legal owners of the assets. Management considers the loans covered by collateral as impaired because experience shows that a significant proportion of the collateral cannot be enforced due to administrative and legal difficulties. The impairment provisions reflect the probability that management will not be able to enforce its rights and repossess collateral on defaulted loans. Despite difficulties in enforcing repossession of collateral, the Bank s management will vigorously pursue the outstanding debts with all possible means at their disposal. Wholesale borrowers are rated on a case-by-case basis following the Internal Credit Rating System. The credit rating is based on a profound analysis of qualitative and quantitative factors. Qualitative factors are those that deal with the borrower s management, industry, operating conditions, the market sector in which the borrower operates, securities, loan servicing etc. Quantitative factors are those that refer to a set of ratios (main ratios: profitability, leverage, liquidity) emerging from the borrower s financial statements (balance sheet, income statement, notes to the financial statements etc.). All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 31

(d) Loans and advances renegotiated Restructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Following restructuring, a previously overdue customer account is reset from to a normal status and managed together with other similar accounts. Restructuring policies and practices are based on indicators or criteria which, in the judgment of the management, indicate that payment will most likely continue. These policies are kept under continuous review. Renegotiated loans that would otherwise be past due or impaired are presented in the following table: 31 December 2008 2007 Loans and advances to customers : 120,495 44,342 D. Debt securities The following table presents an analysis of debt securities by rating agency designation, based on the credit assessments of nominated External Credit Assessment Institutions. In the table below is shown Standard and Poor s ratings or their equivalent: 31 December 2008 Rating Trading securities Investment securities Total AAA - - - AA- to AA+ - - - A- to A+ - - - Lower than A- - 5,355 5,355 Unrated 1,013 57 1,068 Total 1,013 5,412 6,423 31 December 2007 Rating Trading securities Investment securities Total AAA - - - AA- to AA+ - - - A- to A+ - 991 991 Lower than A- - 6,323 6,323 Unrated 1,253 518 1,771 Total 1,253 7,832 9,085 The unrated debt securities represent bonds of local companies. 32 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

E. Concentration of risks of financial assets with credit risk exposure Geographical sectors The following table breaks down the Bank s main credit exposure at their carrying amounts, as categorized by geographical region as at 31 December 2008. For this table, the Bank has allocated exposures to regions based on the country of domicile of its counterparties. Total assets Total liabilities 2008 2007 2008 2007 Bulgaria 180,978 182,249 47,568 70,415 Slovenia 24,514 10,013 120,808 82,506 Other countries 9,020 7,160 18,677 22,754 Total 214,512 199,422 187,053 175,675 F. Loans and advances to banks The following table presents an analysis of loans and advances to banks by rating agency designation at 31 December 2008, based on the credit assessments of nominated External Credit Assessment Institutions. In the table below is shown Standard and Poor s ratings or their equivalent: 31 December 2008 31 December 2007 Rating Loans and advances to banks Rating Loans and advances to banks AAA - AAA - AA- to AA+ - AA- to AA+ - A- to A+ - A- to A+ 4,978 Lower than A- 2,000 Lower than A- 5,697 Unrated 20,745 Unrated 11,259 Total 22,745 Total 21,934 The unrated loans and advances to banks and other financial institutions are internally rated based on an analysis of qualitative and quantitative factors. All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 33

G. Market risk The Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices. The factors that generate market risk are the interest rate risk, foreign exchange risk and the equity price risk. The interest rate risk is the risk of potential loss from adverse changes in interest rates. These include reprising risk, yield curve risk, basis risk, volatility risk. The foreign exchange risk is the risk of potential loss from adverse changes in foreign currency exchange rates, against the base currency. It includes outright risk, volatility risk and conversion risk. The equity price risk is the risk of potential loss from adverse changes in equity prices. It includes outright risk, volatility risk, spread risk, dividend risk and other risks. The Bank s Market Risk Policy is maintained by Risk Division and approved by the Board of Directors of the Bank. The Market Risk policy is reviewed at least annually and submits changes to the Board. The Market Risk Policy applies to the control of market risk arising on all Bank s assets, liabilities and off-balance sheet positions; it therefore covers Treasury and non-treasury activities that are subject to market risk. The Market Risk Policy is in compliance with the Parent company Risk Guidelines, which pertain to market risk. The objectives of market risk control and supervision are to: protect the Bank against unforeseen market losses; contribute to more stable and predictable earnings; and develop transparent, objective and consistent market risk information as the basis for sound decision making. H. Market risk measurement techniques The Bank has to include all positions that are exposed to market risk in the measurement system. The risk factors that generate market risk and have to be included in the market risk measurement system consist of, but are not limited to: foreign exchange rates; interest rates; and equity prices. Currently market risk measurement is done using notional exposure data and notional level limits. 34 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

I. Foreign exchange currency risk The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Management sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The following table summarizes the Bank s exposure to foreign currency exchange rate risk at 31 December 2008. Included in the table are the Bank s financial instruments at carrying amounts, categorized by currency. As at 31 December 2008 BGN EUR Other currencies Total Assets Cash and balances with BNB 13,384 1,470 149 15,003 Loans and advances to banks 2,001 20,601 143 22,745 Trading securities 1,013 - - 1,013 Investment securities held to maturity 3,054 2,301-5,355 Investment securities available for sale 37 20-57 Loans to customers 27,694 135,522 5,020 168,236 Other assets 344 502-846 Tangible and intangible fixed assets 1,257 - - 1,257 Total assets 48,784 160,416 5,312 214,512 Liabilities Deposits from banks 322 56,993 3,769 61,084 Due to customers 6,716 25,325 1,531 33,572 Other borrowed funds 8,197 73,186-81,383 Debt securities issued - 9,783-9,783 Other liabilities 191 852 188 1,231 Total liabilities 15,426 166,139 5,488 187,053 Net balance sheet position 33,358 (5,723) (176) 27,459 Credit commitments 4,596 30,839 6,213 41,648 As at 31 December 2007 (continued) BGN EUR Other currencies Total Assets Cash and balances with BNB 16,399 1,519 236 18,154 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 35

As at 31 December 2007 (continued) BGN EUR Other currencies Total Loans and advances to banks 500 20,892 542 21,934 Trading securities 1,253 - - 1,253 Investment securities held to maturity 3,573 4,202-7,775 Investment securities available for sale 37 20-57 Loans to customers 29,099 114,742 4,350 148,191 Other assets 178 537-715 Tangible and intangible fixed assets 1,343 - - 1,343 Total assets 52,382 141,912 5,128 199,422 Liabilities Deposits from banks 793 43,632 3,012 47,437 Due to customers 21,202 29,195 1,625 52,022 Other borrowed funds 10,574 46,255-56,829 Debt securities issued - 9,785-9,785 Other liabilities 217 8,450 935 9,602 Total liabilities 32,786 137,317 5,572 175,675 Net balance sheet position 19,596 4,595 (444) 23,747 Credit commitments 14,475 31,741 6,244 52,460 J. Sensitivity of assets and liabilities Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Management reviews the level of mismatch of interest rate and the necessary reprising that may be undertaken on a monthly basis. The Bank is exposed to the fluctuations of the different types of market risk. The sensitivity analysis on the next page illustrates the potential impact on the income statement and equity for reasonable possible shifts. In the table on the next page, the Bank is presenting reasonable possible shifts, chosen based on the market and economic environments that have been observed during the reporting period. 36 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

As at 31 December 2008 Sensitivity of income statement Sensitivity of equity Interest Rate +100 bps parallel shift -100 bps parallel shift 225 (225) 202 (202) As at 31 December 2007 Sensitivity of income statement Sensitivity of equity Interest Rate +100 bps parallel shift -100 bps parallel shift 146 (146) 131 (131) The following table summarises the Bank s exposure to interest rate risks. Included in the table are the Bank s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. As at 31 December 2008 (continued) Up to 1 month 1 3 months 3 12 months 1 5 years Noninterest bearing Total Assets Cash and balances with BNB - - - - 15,003 15,003 Loans and advances to banks 22,155 590 - - - 22,745 Trading securities 1,013 - - - - 1,013 Investment securities held to maturity - 501 4,854 - - 5,355 Investment securities available for sale - - - - 57 57 Loans to customers 18,381 32,303 94,916 22,636-168,236 Other assets - - - - 846 846 Tangible and intangible fixed assets - - - - 1,257 1,257 Total assets with interest 41,549 33,394 99,770 22,636 17,163 214,512 Liabilities Deposits from banks 59,128-1,956 - - 61,084 Due to customers 22,933 5,134 2,204 3,301-33,572 Other borrowed funds 15,037 31,510 29,343 5,493-81,383 Debt securities issued - - 9,783 - - 9,783 Other liabilities - - - - 1,231 1,231 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 37

As at 31 December 2008 (continued) Up to 1 month 1 3 months 3 12 months 1 5 years Noninterest bearing Total liabilities with interest 97,098 36,644 43,286 8,794 1,231 187,053 Interest sensitivity gap (55,549) (3,250) 56,484 13,842 15,932 27,459 Total As at 31 December 2007 (continued) Up to 1 month 1 3 months 3 12 months 1 5 years Noninterest bearing Total Assets Cash and balances with BNB - - - - 18,154 18,154 Loans and advances to banks 15,552 1,956 4,426 - - 21,934 Trading securities 1,011 - - - 242 1,253 Investment securities held to maturity - 2,932 4,843 - - 7,775 Investment securities available for sale - - - - 57 57 Loans to customers 26,368 47,213 70,728 3,882-148,191 Other assets - - - - 715 715 Tangible and intangible fixed assets - - - - 1,343 1,343 Total assets with interest 42,931 52,101 79,997 3,882 20,511 199,422 Liabilities Deposits from banks 34,240 11,241 1,956 - - 47,437 Due to customers 37,977 5,360 8,685 - - 52,022 Other borrowed funds 14,403 5,873 26,139 10,414-56,829 Debt securities issued - - 9,785 - - 9,785 Other liabilities - - - - 9,602 9,602 Total liabilities with interest 86,620 22,474 46,565 10,414 9,602 175,675 Interest sensitivity gap (43,689) 22,627 33,432 (6,532) 10,909 23,747 38 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

K. Fair values of financial assets and liabilities Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation and is best evidenced by a quoted market price. The estimated fair values of financial instruments have been determined by the Bank using available market information, where it exists, and appropriate valuation methodologies. The following table summarizes the carrying amounts and fair values of financial assets and liabilities of the Bank. Market prices are used to estimate fair values of assets and liabilities. Carrying value Fair value 2008 2007 2008 2007 Financial assets Loans and advances to banks 22,745 21,934 22,745 21,934 Loans to customers 168,236 148,191 168,236 148,191 Investment securities held to maturity 5,355 7,775 5,347 7,821 Financial liabilities Deposits from banks 61,084 47,437 61,084 47,437 Due to customers 33,572 52,022 33,572 52,022 Other borrowed funds and debt securities 91,166 66,614 91,166 66,614 (a) Loans and advances to banks Loans and advances to banks include inter-bank placements and items in the course of collection. The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity. (b) Loans to customers Loans are carried at amortised cost and are net of provisions for impairment. The estimated fair value of fixed rate loans and advances to customers represents the discounted amount of estimated future cash flows, expected to be received. To determine fair value estimated future cash flows are discounted at market interest rates prevailing at the balance sheet dates. (c) Investment securities held to maturity The fair value of investments held-to-maturity is estimated using their market quotations as at the year-end. All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 39

(d) Deposits from banks and due to customers The fair value of deposits from banks and customer current accounts and term deposits approximates their carrying amount due to their short-term nature. (e) Other borrowed funds The estimated fair value of other borrowed funds without quoted market price is based on discounted cash flows using interest rates for new debts with similar remaining maturity. L. Liquidity risk Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to replay depositors and fulfil commitments to lend. Liquidity risk management process The Bank designates appropriate liquidity policies which have to ensure that: sufficient liquid assets are maintained to meet liabilities as they arise; a prudent proportion of medium term assets are funded by medium term liabilities; and the liquidity position is monitored closely on a daily basis and continuously throughout the dealing operations. The Board of Directors of the Bank assigns the Assets and Liabilities Committee as the primary responsible body to advise the Board for the strategy for the liquidity management. Assets and Liabilities Committee manages: the Bank s assets and liabilities to ensure regular and timely meeting of current and future obligations; the Bank s cash inflows and outflows /liquidity sources and uses/ and the ratios between assets and liabilities; the target liquidity ratios set by Parent company; and the liquidity ratios recommended by the Regulator. The operational management of the Bank s Assets and Liabilities and the execution of Assets and Liabilities Committee decisions regarding Liquidity is assigned to the Head of Treasury. The following table presents the cash flows payable by the Bank under non-derivative financial liabilities by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows calculated on spot rates. 40 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

As at 31 December 2008 Gross nominal outflow Less than 1 month 1-3 months 3-12 months 1-5 years More than 5 years Non-derivative liabilities Due to other banks 61,225 59,184-2,041 - - Due to customers 34,242 23,338 5,173 2,238 3,493 - Debt securities in issue 9,975 - - 9,975 - - Other borrowed funds 92,958 597 4,539 19,074 59,369 9,379 Other liabilities 1,231 1,038 143 50 - - Total liabilities (contractual maturity dates) 199,631 84,157 9,855 33,378 66,862 9,379 As at 31 December 2007 Gross nominal outflow Less than 1 month 1-3 months 3-12 months 1-5 years More than 5 years Non-derivative liabilities Due to other banks 47,722 33,983 7,921 5,818 - - Due to customers 52,406 36,491 3,179 11,175 1,561 - Debt securities in issue 10,597 - - 545 10,052 - Other borrowed funds 66,091-1,607 9,005 42,472 13,007 Other liabilities 9,602 9,111 204 287 - - Total liabilities (contractual maturity dates) 186,418 79,585 12,911 26,830 54,085 13,007 The following table analyses assets and liabilities of the Bank by maturity based on the remaining period at balance sheet date to the contractual maturity date. Maturities of assets and liabilities (continued) As at 31 December 2008 Up to 1 month 1 3 months 3 12 months 1 5 years Not defined Total Assets Cash and balances with BNB 15,003 - - - - 15,003 Loans and advances to banks 22,155 590 - - - 22,745 Trading securities - - 1,013 - - 1,013 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 41

Maturities of assets and liabilities (continued) As at 31 December 2008 Up to 1 month 1 3 months 3 12 months 1 5 years Not defined Total Investment securities held to maturity - - 4,854 501-5,355 Investment securities available for sale - - - 57-57 Loans to customers 7,297 19,957 72,212 49,144 19,626 168,236 Other assets - 175 671 - - 846 Tangible and intangible fixed assets - - - - 1,257 1,257 Total assets 44,455 20,722 78,750 49,702 20,883 214,512 Liabilities Deposits from banks 59,128-1,956 - - 61,084 Due to customers 22,933 5,134 2,204 3,301-33,572 Other borrowed funds 344 4,128 16,625 51,608 8,678 81,383 Debt securities issued - - 9,783 - - 9,783 Other liabilities 1,038 143 50 - - 1,231 Total liabilities 83,443 9,405 30,618 54,909 8,678 187,053 Net liquidity gap (38,988) 11,317 48,132 (5,207) 12,205 27,459 Cumulative net liquidity gap (38,988) (27,671) 20,461 15,254 27,459 - Maturities of assets and liabilities (continued) As at 31 December 2007 Up to 1 month 1 3 months 3 12 months 1 5 years Not defined Total Assets Cash and balances with BNB 18,154 - - - - 18,154 Loans and advances to banks 15,552 1,956 4,426 - - 21,934 Trading securities - 242-1,011-1,253 Investment securities held to maturity - - 2,419 5,356-7,775 Investment securities available for sale - - - 57-57 Loans to customers 11,701 10,043 60,241 66,206-148,191 Other assets - 15 700 - - 715 Tangible and intangible fixed assets - - - - 1,343 1,343 42 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

Maturities of assets and liabilities (continued) As at 31 December 2007 Up to 1 month 1 3 months 3 12 months 1 5 years Not defined Total Total assets 45,407 12,256 67,786 72,630 1,343 199,422 Liabilities Deposits from banks 34,240 11,241 1,956 - - 47,437 Due to customers 37,977 5,360 8,685 - - 52,022 Other borrowed funds 275-3,420 53,134-56,829 Debt securities issued - - - 9,785-9,785 Other liabilities 9,111 204 287 - - 9,602 Total liabilities 81,603 16,805 14,348 62,919-175,675 Net liquidity gap (36,196) (4,549) 53,438 9,711 1,343 23,747 Cumulative net liquidity gap (36,196) (40,745) 12,693 22,404 23,747 - M. Off-balance sheet items (a) Loan commitments The dates of the contractual amounts of the Bank s off-balance sheet financial instruments that commit it to extend credit to customers and other facilities, are summarised in the following table: (b) Financial guarantees and other financial facilities. Financial guarantees are included in the following table, based on the earliest contractual maturity date. (c) Operating lease commitments Where the Bank is the lessee, the future minimum lease payments under non-cancellable operating leases are summarized in the following table. (d) Capital commitments Capital commitments for the acquisition of buildings and equipment are summarized in the following table. All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 43

At 31 December 2008 (continued) No later than 1 year 1-5 years Over 5 years Total Guarantees: - guarantees and standby letters of credit 3,508 11,692 64 15,264 - other guarantees - - - - Commitments: - undrawn loan commitments 21,210 - - 21,210 - documentary credits 5,174 - - 5,174 Operating lease commitments - - - - At 31 December 2007 No later than 1 year 1-5 years Over 5 years Total Guarantees: - guarantees and standby letters of credit 29,601 96 100 29,797 - other guarantees - - - - Commitments: - undrawn loan commitments 16,286 - - 16,286 - documentary credits 7,007 - - 7,007 Operating lease commitments - - - - N. Capital management The Bank s Management objectives when managing capital, which is a broader concept than the equity on the face of balance sheets, are: to comply with the capital requirements set by the regulators of the banking markets where the Bank operates; to safeguard the Bank s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and to maintain a strong capital base to support the development of its business. Capital adequacy and the use of regulatory capital are monitored by the Bank s management, employing techniques based on the guidelines developed by the Basel Committee and the European Community Directives, as implemented by the Bulgarian National Bank (Authority), for supervisory purposes. The required information is filed with the Authority on a quarterly basis. 44 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

The Authority requires each bank or banking group to: (a) hold the minimum level of the regulatory capital of BGN 10 000 thousand and (b) maintain a ratio of total regulatory capital to the risk-weighted asset of 12%. The Bank s regulatory capital is divided into two tiers: (a) Tier-one capital which comprise the following elements: Registered and paid-in capital, excluding the preference shares; Reserve fund; Other reserves for general purposes formed out of the profit after paying the profit tax due; Retained earnings from previous years. The Bank includes in the capital the retained profit under item 4 after the annual financial report has been adopted by the general shareholders meeting, the dividends have been paid and the other deductions have been made. Once included as part of tire-one capital, retained earnings from previous years can be used for dividends only after approval by BNB. The amount of the tier-one capital is reduced by: losses for the current and previous years; the book value of the credit institution s own shares; the amount of intangible assets; unrealised loss from financial instruments held for sale. (b) Tier-two capital which comprise the following elements: Revaluation reserves for the real estate, occupied by the credit institution The amounts attracted by the credit institution in long term debt and other financial instruments, including permanent cumulative preferential shares, provided that these instruments meet the following specific requirements: their repayment is not limited by a term their repayment is not guaranteed in any form by the credit institution in case of liquidation or insolvency of the credit institution, the repayment of these funds is admissible after all other creditors claims have been satisfied claims on these instruments as regards the principal may not be collectable without the permission of the BNB in writing the terms under which the credit institution has attracted these funds entitle the credit institution to defer repayment of interest income on them in case the credit institution has not generated profit or the profit is insufficient. The amounts attracted by as a long term debt as well as term cumulative privileged shares and long term debt, provided that debt meets the following specific requirements: the amounts on the instruments are fully repaid their repayment is not guaranteed in any form by the credit institution All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 45

their original term to maturity is at least 5 years the instruments may not be repaid ahead of term without the permission of BNB in writing the contract may not provide for a possibility for the collection of the debt in advance in case of liquidation of the credit institution, the repayment of the debt is admissible after all other creditors claims have been satisfied. During the last 5 years to maturity, the amount of the instruments under item 3 is included in the tier-two capital reduced by 20 percent for each year. After the instruments had matured, they are entirely excluded from own funds (capital base) calculation. The Bank can not include in their own funds: reserves from cash flow hedges of positions previously measured at amortised cost and cash flow hedges related to forecasted transactions gains or loss on liabilities valued at fair value due to changes in the credit institution s credit quality rating unrealised gain from investment property and from financial instruments available for sale. Tier-two capital cannot exceed 50% of tier-one capital. The own funds shall be reduced by: the book value of investments in shares or in other form of participating interests amounting to more than 10 per cent of the paid-in capital of a credit institution or other financial institution under the Law on Credit Institutions, as well as the investments in long term debt and in long term debt in such institutions, in which the credit institution holds more than 10 per cent of the paid-in capital for each individual case where they are not consolidated in its balance sheet; the net book value of investments in shares or in other form of participating interests in the Capital in long term debt in another credit institution or other financial institutions under the Law on Credit Institutions, where their total amount exceeds 10 per cent of the credit institution s own funds prior to the reductions under this item. the net book value of the investments in shares or another form of direct or indirect participation of insurance undertakings, reinsurance undertakings and insurance holding companies, when they present 20 or more than 20 per cent of the registered and paid-in capital. the book value of investments in shares or in other form of participating interests, which represent 10 or more than 10 percent of the paid-in capital of unconsolidated undertakings other than those under item 1. The amounts under items 1 to 4 should be reduced at a 50% ratio from tier-one capital and 50% from tier-two capital and where the respective reduction exceeds tier-two capital then that excess should be reduced from tier-one capital. The risk-weighted assets are measured by means of a hierarchy of five risk weights classified according to the nature of and reflecting an estimate of credit, market and other risks associated with each asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposure, with some adjustments to reflect the more contingent nature of the potential losses. The following table summarizes the composition of regulatory capital and the ratios of the Bank for the years ended 31 December. During those two years, the Bank complied with all of the externally imposed capital requirements to which they are subject. 46 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

2008 2007 Tier 1 capital Share capital 21,650 15,800 General bank reserves 4,505 2,402 Less: Intangible assets (236) (312) Total qualifying Tier 1 capital 25,919 17,890 Tier 2 capital Long term debt 7,432 8,606 50% of the book value of investments in shares or in other form of participating interests amounting to more than 10 percent - - Total qualifying Tier 2 capital 7,432 8,606 Risk-weighted assets Balance sheet items 173,537 165,602 Off-balance sheet items 14,279 26,164 Total risk weighted assets 187,816 191,766 Capital adequacy ratio 14.43 % 12.99 % 3. Critical accounting estimates and judgements in applying accounting policies The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. A. Impairment losses on loans and advances The Bank reviews its loan portfolio to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgements as to whether there is any observable data indicating measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk features and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 47

B. Held-to-maturity investments The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, The Bank evaluates its intention and ability to hold such investments to maturity. If The Bank fails to keep these investments to maturity other than for the specific circumstances for example, selling insignificant amount close to maturity it will be required to reclassify the entire item as available-for-sale. The investments would therefore be measured at fair value, not amortised cost. 4. Net interest income 2008 2007 Interest income Loans and advances to customers 17,933 14,139 Banks and financial institutions 368 467 Trading securities 76 64 Investment securities-held to maturity 379 527 Dividends 1 2 Total interest income 18,757 15,199 Interest expense Banks and financial institutions 1,576 1,590 Customer deposits 1,251 1,228 Other borrowed funds 4,782 2,576 Total interest expense 7,609 5,394 5. Net fee and commission income (continued) 2008 2007 Fee and commission income Transfers 433 355 Guarantees and letters of credit 653 349 Others 320 207 Total fee and commission income 1,406 911 48 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

(continued) 2008 2007 Fee and commission expense Bank transfers 12 11 Others 21 40 Total fee and commission expense 33 51 6. Net trading income 2008 2007 Gain/loss from foreign currency, net 394 327 Gain/loss from trading securities, net (15) 320 Net trading income 379 647 7. Other operating expenses 2008 2007 Administrative expenses 2,335 2,187 Staff costs (Note 8) 1,364 1,061 Depreciation and amortisation (Notes 17 and 18) 355 425 Operating lease rentals 313 341 Materials 107 97 Total operating expenses 4,474 4,111 8. Staff costs 2008 2007 Wages and salaries 1,203 919 Social security costs 161 142 Total staff costs 1,364 1,061 The number of employees at the end of 2008 was 42 (2007: 40 employees). All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 49

9. Income tax expense 2008 2007 Current tax 219 364 Deferred tax (Note 30) (265) 59 (46) 423 The tax on Bank s profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows: Profit before income tax 1,259 4,108 Theoretical tax at a tax rate of 10 % (2007: 10 %) 126 411 Tax effect from expenses not deductible for tax purposes 14 57 Tax effect on tax benefit not previously recognized in profit or loss (186) - Tax effect from income not subject to tax - (45) Income tax expense/income (46) 423 10. Cash and balances with the Central Bank 2008 2007 Cash in hand 2,533 2,989 Balances with the Central Bank other than mandatory reserve 23 27 Included in cash and cash equivalents (Note 29) 2,556 3,016 Mandatory reserve with the Central Bank 12,447 15,138 Total cash and balances with the Central Bank 15,003 18,154 In 2008 the statutory minimum required reserves represented 10 % (2007: 12 %) of the demand and time deposits, excluding deposits of funds attracted: from other local banks; through branches of a local bank abroad; through debt/capital (hybrid) instruments; as subordinated term debts. Mandatory reserve deposits are not available for use in the Bank s day-to-day operations. Cash in hand and balances with central banks and mandatory reserve deposits are non-interest-bearing. 50 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

11. Loans and advances to banks 2008 2007 Placements with foreign banks 20,151 479 Placements with local banks 2,000 12,219 Current accounts with foreign banks 575 2,691 Current accounts with local banks 19 22 Included in cash and cash equivalent (Note 29) 22,745 15,411 Loans and advances to other banks - 6,523 Total loans and advances to banks 22,745 21,934 As at 31 December 2008 there are no loans with variable rates (2007: nil). 12. Trading securities 2008 2007 Debt securities 1,013 1,011 Equity securities -listed - 242 Total trading securities 1,013 1,253 All debt securities have variable coupons (2007: all had variable coupons). Included in debt securities are accrued interest receivables of BGN 13 thousand (2007: BGN 11 thousand). 13. Investment securities 2008 2007 Equity securities available for sale: -unlisted 57 57 Debt securities held to maturity: -listed 5,355 7,775 Total investment securities 5,412 7,832 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 51

All debt securities have fixed coupons except BGN 501 having variable coupon (2007: all had fixed coupons except BGN 501 having variable coupon). The investment securities held to maturity include accrued interest receivables of BGN 92 thousand (2007: BGN 148 thousand). Listed debt securities held to maturity of BGN 5,355 thousand (2007: BGN 5,379 thousand) have been pledged with UniCredit Bulbank AD and Reiffeisenbank (Bulgaria) EAD to secure money market deposits received (Note 27) 14. Loans and advances to customers 2008 2007 Loans to: Private enterprises 179,693 151,739 Individuals 3,083 2,162 Total gross loans and advances 182,776 153,901 Less: impairment charge for credit losses (Note 15) (14,540) (5,710) Total net loans and advances 168,236 148,191 Included in loans to customers are accrued interest receivables of BGN 3,249 thousand (2007: BGN 2,060 thousand). Loans with variable rates equal BGN 109,085 thousand (2007: BGN 91,281 thousand) and fixed rates equal BGN 73,691 thousand (2007: BGN 62,620 thousand). 15. Impairment charge for credit losses (continued) Agriculture loans Mortgages Commercial loans Consumer Total Balance at 1 January 2007 1,453 610 650 34 2,747 Charge for the year 3,391 195 (460) (34) 3,093 Amounts written off (130) - - - (130) At 1 January 2008 4,715 805 190-5,710 Charge for the year 2,410 6,687 - - 9,097 Amounts written off (267) - - - (267) At 31 December 2008 6,858 7,492 190-14,540 52 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

Movement of loan loss provisions in the income statement 2008 2007 Net increase in loan loss provisions 9,097 3,093 Reintegrated provisions (1,860) - Net effect in the income statement 7,237 3,093 For IFRS purposes the Bank estimates loan loss provision in accordance of IAS 39. In addition to that the Bank calculates loan loss provision in accordance with BNB regulation 9, which are not element of the accounting expenses. The difference between loan loss provision under IFRS and BNB reg. 9 is amounting to BGN 000 1,860 as of 1 January 2007. In relation to changes in the national legislation the Bank has recognised this amount in the income statement as credit to the income from recovered provision and debit to the retained earnings. 16. Economic sector risk concentrations within the customer loan portfolio before provisions 2008 2007 Commerce 35,971 19.68 % 25,874 16.81 % Agriculture 21,502 11.76 % 21,480 13.96 % Construction and real estate 82,656 45.23 % 69,194 44.96 % Services 4,745 2.60 % 5,733 3.73 % Manufacturing 28,021 15.33 % 20,974 13.63 % Tourism 6,797 3.72 % 8,484 5.51 % Individuals 2,365 1.29 % 1,450 0.94 % Staff 719 0.39 % 712 0.46 % Total gross loans and advances 182,776 100.00% 153,901 100.00% As at 31 December 2008 the ten largest loans and advances to customers represented 26.80% of the Bank s loan portfolio net of provisions. As at the end of 2007 the ten largest loans and advances to customers represented 29.53 % of the Bank s loan portfolio net of provisions. All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 53

17. Intangible assets Software programs Intangible assets under development Total At 1 January 2007 Cost 1,134 107 1,241 Accumulated depreciation (709) - (709) Net book amount 425 107 532 Year ended 31 December 2007 Opening net book amount 425 107 532 Additions 38-38 Disposals (1) - (1) Transfer 107 (107) - Depreciation (257) - (257) Closing net book amount 312-312 At 31 December 2007 Cost 1,279-1,279 Accumulated depreciation (967) - (967) Net book amount 312-312 Year ended 31 December 2008 Opening net book amount 312-312 Additions 44-44 Depreciation (120) - (120) Closing net book amount 236-236 At 31 December 2008 Cost 1,314-1,314 Accumulated depreciation (1,078) - (1,078) Net book amount 236-236 54 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

18. Property, plant and equipment At 1 January 2007 Buildings Equipment Vehicles Leasehold improvements Assets under construction Total Cost - 743-61 127 931 Accumulated depreciation - (440) - (28) - (468) Net book amount - 303-33 127 463 Year ended 31 December 2007 Opening net book amount - 303-33 127 463 Additions 231 224 237 58-750 Disposals - (14) - - - (14) Transfer - 127 - - (127) - Depreciation-current charge - (157) - (11) - (168) Closing net book amount 231 483 237 80-1,031 At 31 December 2007 Cost 231 1,059 237 119-1,646 Accumulated depreciation - (576) - (39) - (615) Net book amount 231 483 237 80-1,031 Year ended 31 December 2008 Opening net book amount 231 483 237 80-1,031 Additions - 231-8 - 239 Disposals - (14) - - - (14) Transfer - - - - - - Depreciation (9) (148) (60) (18) - (235) Closing net book amount 222 552 177 70-1,021 At 31 December 2008 Cost 231 1,210 237 127-1,805 Accumulated depreciation (9) (658) (60) (57) - (784) Net book amount 222 552 177 70-1,021 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 55

19. Other assets 2008 2007 Prepayments and deferred expenses 613 536 Other receivables 50 166 Materials 8 13 Total other assets 617 715 20. Deposits from banks 2008 2007 Deposits from banks 60,567 46,529 Current accounts of other banks 517 908 Total deposits from banks 61,084 47,437 Deposits from banks include accrued interest of BGN 64 thousand at the end of 2008 (2007: BGN 356 thousand). As at 31 December 2008 deposits from banks having fixed interest rates equal BGN 59,128 thousand; these having variable interest rates equal BGN 1,956 thousand (2007: having fixed interest rates equal BGN 27,601 thousand; having variable interest rates equal BGN 19,836 thousand). 21. Due to customers 2008 2007 Corporate customers Current/settlement accounts 13,283 21,351 Term deposits 13,272 26,603 Individuals Current/settlement accounts 1,878 2,231 Term deposits 5,139 1,837 Total due to customers 33,572 52,022 Due to customers includes accrued interest of BGN 331 thousand at the end of 2008 (2007: BGN 947 thousand). As at 31 December 2008 the ten largest deposits from customers represent 49.43 % of the Bank s total due to customers (2007: 65.22 %) and 8.87 % of total liabilities (2007: 19.31 %). 56 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

22. Debt securities issued 2008 2007 EUR 5 million floating-rate notes due 2009 9,783 9,785 Total debt securities issued 9,783 9,785 Debt securities issued include accrued interest of BGN 4 thousand at the end of 2008 (2007: BGN 6 thousand). Debt securities issued are at floating interest rate of six month EURIBOR + 0.75% p.a. (originated in 2006) and are not traded with at secondary market. 23. Other borrowed funds 2008 2007 Zemedelie State Fund 8,197 10,574 Subordinated loans from Nova Ljubljanska banka d.d. 10,782 10,442 Loans from Nova Ljubljanska banka d.d. 39,526 16,113 Loans from other banks 22,878 19,700 Total other borrowing funds 81,383 56,829 As at 31 December 2008 the other borrowed funds include accrued interest of BGN 574 thousand (2007: BGN 563 thousand). Financing received from Zemedelie State Fund is at fixed interest rate of 2 % p.a. The subordinated facility from 2005 is at floating interest rate of six month EURIBOR + 0.2 % p.a. The subordinated facility from 2007 is at floating interest rate of six month EURIBOR + 4 %. p.a. Loans from Nova Ljubljanska banka d.d. are at floating interest rate of six month EURIBOR + 2.1% p.a.; at floating interest rate of six month EURIBOR + 1.85 % p.a.; at floating interest rate of six month EURIBOR + 1.6 % p.a.; at floating interest rate of six month EURIBOR + 1.5 % p.a.; at floating interest rate of six month EURIBOR + 2.5 % p.a.; at floating interest rate of six month EURIBOR + 1.8 % p.a. Loans from other banks are at floating interest rate of six month EURIBOR + 1.25 % p.a.; at floating interest rate of three month EURIBOR + 2.25 % p.a.; at floating interest rate of three month EURIBOR + 1.85 % p.a. All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 57

24. Other liabilities 2008 2007 Ordered transfers 829 2,473 Sundry creditors 170 6,574 Accruals 153 144 Deferred fees on guarantees and letters of credit 50 74 Taxes other than income tax 29 13 Total other liabilities 1,231 9,278 25. Contingent liabilities and commitments 2008 2007 Guarantees and standby letters of credit 15,264 29,797 Undrawn credit commitments 21,210 15,656 Documentary and commercial letters of credit 5,170 7,007 Total contingent liabilities and commitments 41,648 52,460 26. Operating lease commitments Where the Bank is the lessee the future minimum lease payments under non-cancellable building operating lease are as follows: 2008 2007 Less than 1 year 25 38 Over 1 year and less than 5 years - - Over 5 years - - Total 25 38 58 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

27. Assets pledged Assets are pledged as collateral under money market transactions with other banks. Mandatory reserve deposits are held with the Central Bank in accordance with statutory requirements. Asset Related liability 2008 2007 2008 2007 Mandatory reserves with BNB (Note 10) 12,447 15,138 - - Investment securities held-to-maturity (Note 13) 5,355 5,379-5,379 Total 17,802 20,517-5,379 28. Share capital At 31 December 2008 the total share capital represents 21,650,000 ordinary shares (2007: 15,800,000) having nominal value of BGN 1 each. All shares carry equal voting rights and are fully paid. On 14 April 2006 Nova Ljubljanska banka d.d. had acquired 72.51 % of the share capital and on 28 December 2006 had acquired additional 24.50% of the capital of the Bank. As of 31 December 2008 the shareholders of the Bank are: 31 December 2008 31 December 2007 BGN (%) BGN (%) Nova Ljubljanska banka d.d. 21,002,665 97.01 % 15,327,580 97.01 % Factor banka d.d. 647,335 2.99 % 472,420 2.99 % Total 21,650,000 100.00 % 15,800,000 100.00 % Based on decision taken at an extraordinary General meeting of NLB West-East bank AD shareholders (24 September 2007) a procedure for increase of the share capital has started. The amount of BGN 5,850 thousand was transferred in an escrow account with Reiffeisenbank (Bulgaria) EAD, as follows: Nova Ljubljanska banka d.d. BNG 5,675 thousand (97.01 %); Factor banka d.d. BGN 175 thousand (2.99 %). As at 31 December 2007 the legal procedure for share capital increase has not yet been completed. The increase of capital is registered in court in January 2008 with certificate for actual legal status dated 16 January 2008. 29. Cash and cash equivalents 2008 2007 Cash in hand and balances with the Central Bank (Note 10) 2,556 3,016 Loans and advances to banks (Note 11) 22,745 15,411 Total cash and cash equivalents 25,301 18,427 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 59

30. Deferred income taxes Deferred income taxes are calculated on all temporary differences under the liability method using a tax rate of 10 %, which is the tax rate effective as of 1 January 2008 (2007: 10 %). The movement on the deferred income tax account is as follows: 2008 2007 Deferred tax liability at beginning of year 265 206 Income statement charge (Note 9) (265) 59 Deferred tax liability at end of year - 265 Deferred income tax assets and liabilities are attributable to the following items: 2008 2007 Deferred income tax liabilities Allowance for impairment of loans - 265 Net deferred tax liability - 265 31. Related party transactions The Bank is controlled by Nova Ljubljanska banka d.d. (incorporated in Slovenia), which owns 97.01 % of the ordinary shares. The ultimate parent is Nova Ljubljanska banka d.d. LHB Internationale Handelsbank AG, NLB Tuzlanska banka d.d., NLB Tutunska banka d.d. and NLB Leasing Sofia EOOD, as part of NLB Group, are considered related parties as at December 2008. NLB Koroska banka d.d. which was considered related party as at 31 December 2007, as part of NLB Group, had officially merged with NLB d.d. in 2008. NLB Prishtina a.d. was founded on 1 January 2008 through the merger of NLB New Bank of Kosova sh.a., Prishtina and Kasabank sh.a., Prishtina (which was considered related party as at 31 December 2007 as part of NLB). A number of banking transactions are entered into with related parties in the normal course of business The volumes of the related party transactions outstanding at the year end, and relating expense and income for the year are as follows: Factor banka d.d.: 2008 2007 Current account with Factor banka d.d. 300 2,280 Deposits due from Factor banka d.d. 10,371 7,002 Deposits due to Factor banka d.d. 10,171 4,029 Interest income 184 231 Interest expense (93) (86) 60 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

Nova Ljubljanska banka d.d.: 2008 2007 Subordinated loans 10,782 10,442 Loans 39,557 16,113 Current account with Nova Ljubljanska banka d.d. 107 45 Deposits 44,365 12,726 Current account of Nova Ljubljanska banka d.d. with NLB West-East bank AD 322 793 Interest expense (3,419) (1,589) Interest income 14 1,754 Fee and commission income - 1 Administrative expenses - - LHB Handelsbank AG: 2008 2007 Current account with LHB Handelsbank AG 64 33 Deposits due to LHB Handelsbank AG - - Loans 5,872 5,873 Interest income 12 21 Interest expense (409) (232) Fee and commission income 2 - NLB Koroska banka d.d.: 2008 2007 Deposits due to NLB Koroska banka d.d. - 7,853 Interest expense (70) (412) NLB Tuzlanska banka d.d.: 2008 2007 Current account of NLB Tuzlanska banka d.d. with NLB West-East bank AD 61 33 Fee and commission income 1 - NLB Tutunska banka d.d.: 2008 2007 Current account of NLB Tutunska banka d.d. with NLB West-East bank AD 25 33 All amounts are in thousands Bgn unless otherwise stated. Annual Report 2008 61

NLB Prishtina a.d.: 2008 2007 Current account of NLB Prishtina a.d. with NLB West-East bank AD 2 2 NLB Leasing Sofia EOOD 2008 2007 Current account of NLB Leasing Sofia EOOD with NLB West-East bank AD 60 97 Interest income 28 - Interest expense (27) (13) Fee and commission income 9 4 Income non banking services 35 28 In 2008, the total remuneration of the key management personnel was BGN 467 thousand (2007: BGN 238 thousand). 62 Annual Report 2008 All amounts are in thousands Bgn unless otherwise stated.

Contact list of NLB West-East bank AD