Hellenic Bank Group. Annual Financial Report. For the year ended 31 December 2016

Hellenic Bank Group Annual Financial Report For the year ended 31 December

Hellenic Bank Group Annual Financial Report for the year ended 31 December CONTENTS MANAGEMENT REPORT 3-10 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF HELLENIC BANK PUBLIC COMPANY LIMITED 11-15 CONSOLIDATED INCOME STATEMENT 16 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 17 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 18 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 19-20 CONSOLIDATED STATEMENT OF CASH FLOWS 21 INCOME STATEMENT 22 STATEMENT OF COMPREHENSIVE INCOME 23 STATEMENT OF FINANCIAL POSITION 24 STATEMENT OF CHANGES IN EQUITY 25-26 STATEMENT OF CASH FLOWS 27 NOTES TO THE FINANCIAL STATEMENTS 1. INCORPORATION AND PRINCIPAL ACTIVITY 28 2. SIGNIFICANT ACCOUNTING POLICIES 28-43 3. USE OF ESTIMATES AND JUDGEMENTS 44-48 4. INTEREST INCOME 48 5. INTEREST EXPENSE 48 6. FEE AND COMMISSION INCOME 48 7. FEE AND COMMISSION EXPENSE 49 8. NET GAINS ON DISPOSAL AND REVALUATION OF FOREIGN CURRENCIES AND FINANCIAL INSTRUMENTS 49-50 9. OTHER INCOME 51 10. STAFF COSTS 51 11. ADMINISTRATIVE AND OTHER EXPENSES 52-53 12. IMPAIRMENT LOSSES AND PROVISIONS TO COVER CREDIT RISK 53 13. TAXATION 53-55 14. PROFIT FROM DISCONTINUED OPERATIONS AFTER TAXATION 55-57 15. BASIC AND DILUTED (LOSS)/EARNINGS PER SHARE 57 16. CASH AND BALANCES WITH CENTRAL BANKS 58 17. PLACEMENTS WITH OTHER BANKS 58 18. LOAN AND ADVANCES TO CUSTOMERS 59-69 19. DEBT SECURITIES 70-71 20. RECLASSIFICATION OF DEBT SECURITIES 71 21. EQUITY SECURITIES 72-73 22. INVESTMENTS IN SUBSIDIARY COMPANIES 73 23. PROPERTY, PLANT AND EQUIPMENT 74-76 24. INTANGIBLE ASSETS 76-78 25. DEFERRED TAX ASSET 78-80 26. OTHER ASSETS 80-81 27. DEPOSITS BY BANKS 81-82 28. AMOUNTS DUE TO CENTRAL BANKS 82 29. CUSTOMER DEPOSITS AND OTHER CUSTOMER ACCOUNTS 82-83 30. DEFERRED TAX LIABILITY 83-84 31. OTHER LIABILITIES 85 32. LOAN CAPITAL 86-93 33. SHARE CAPITAL 94-95 34. REVALUATION RESERVES 96 35. CONTINGENT LIABILITIES AND COMMITMENTS 96-97 36. DERIVATIVES 97 37. CASH AND CASH EQUIVALENTS 98 38. DIRECTORS INTEREST IN THE SHARE CAPITAL OF THE BANK 98 39. RELATED PARTY TRANSACTIONS 99-102 40. SHAREHOLDERS HOLDING MORE THAN 5% OF THE SHARE CAPITAL 102 41. FAIR VALUE 102-106 42. SEGMENTAL ANALYSIS 43. CATEGORISATION OF FINANCIAL INSTRUMENTS 106-107 108-109 44. ECONOMIC ENVIRONMENT 110-111 45. BANK RECOVERY AND RESOLUTION DIRECTIVE (BRRD) 112 46. DECISIONS OF THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF HELLENIC BANK PUBLIC COMPANY LIMITED 112 47. EUROPEAN DEPOSIT INSURANCE SCHEME (EDIS) 113 48. RISK MANAGEMENT 114-138 49. EVENTS AFTER THE REPORTING PERIOD 138-139 DECLARATION BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE BANK OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE FINANCIAL STATEMENTS 140 REPORT OF THE BOARD OF DIRECTORS ON CORPORATE GOVERNANCE FOR THE YEAR 141-164 Page

HELLENIC BANK PUBLIC COMPANY LIMITED GROUP MANAGEMENT REPORT INCORPORATION, ACTIVITIES AND BRANCH NETWORK Hellenic Bank Public Company Limited (the Bank ) was incorporated in Cyprus and is a public company in accordance with the provisions of the Companies Law Cap. 113, the Cyprus Stock Exchange Laws and Regulations and the Income Tax Laws. The Bank s registered office is located at 200, Corner of Limassol and Athalassa Avenues, 2025 Strovolos, P.O. Box 24747, 1394 Nicosia. The Bank is the holding company of Hellenic Bank Group (the Group ). The principal activity of the Group during continued to be the provision of a wide range of banking and financial services, including financing, investment, insurance services, custodian and factoring services as well as management and disposal of properties. The Bank provides banking and financial services through its branch network which includes 52 branches in Cyprus as well as its representative offices in South Africa, Ukraine and Russia. On 17 November the Bank was granted approval by the Central Bank of Cyprus for the operation of a Representative Office in Athens. For further details and recent developments on the Group s structure refer to Note 22 of the Financial Statements. EXAMINATION OF THE DEVELOPMENT POSITION, AND PERFORMANCE OF THE GROUP S ACTIVITIES 1 Loss attributable to the Bank s shareholders for the year ended 31 December amounted to 63,5 million. Profit attributable to the Bank s shareholders for the year ended 31 December amounted to 12,1 million and included a profit of 4,8 million from discontinued operations that related to the disposal of a building owned by the Group in Moscow, following the sale of its Russian banking subsidiary in 2014. Group s loss before taxation for the year ended 31 December amounted to 12,0 million (Bank: 14,3 million) compared to a profit of 3,5 million (Bank: 5,1 million) reported for the year ended 31 December. The reported loss of was primarily due to increased impairment losses and provisions to cover credit risk. During, a deferred tax asset of 51,2 million was derecognised and charged in the income statement. The derecognition of the deferred tax asset resulted from tax losses for which is no longer probable that the related tax benefit will realise, as the majority of these losses will expire by 31 December 2018. The carrying amount of the deferred tax asset is based on judgements of the Management of the Bank on its ability to generate future taxable profits. These judgements are based on available information including historical data, improved macroeconomic estimates, the reduction in deposit rates, the stabilisation of the non-performing loans, the bank's impairment process and the results of operations. As at 31 December, the Group s total assets amounted to 7,0 billion, down by 5% compared to 31 December. This was reflected in the decreased placements with other banks following the early repayment of the TLTRO 2 borrowing on 29 June. 1 The Financial Statements and the Group s Financial Results presentation for the year ended 31 December are available on the Group s website www.hellenicbank.com (Investor Relations). The Financial Statements are also available at the Bank s registered office. 2 The Bank participated in the targeted longer-term refinancing operations (TLTRO) program in December 2014 by borrowing 236 million at an interest rate of 0,15% for 4 years. 3

Income Statement Analysis Net interest income The Group s net interest income for the year ended 31 December was 147,5 million (Bank: 147,1 million), up by 1% (Bank: increase of 2%) compared to the year ended 31 December. The lower deposit rates in compared to caused a substantial decrease in the interest expense, with a positive impact on net interest income. Reduction in interest income on a yearly basis was mainly due to lower lending rates and due to the decreased carrying amount of the impaired 3 loan portfolio. The Group s net interest margin for the year ended 31 December amounted to 2,2% (31 December : 2,0%). Non-interest income The Group s total non-interest income for the year ended 31 December amounted to 100,2 million (Bank: 90,2 million), recording a decrease of 10% (Bank: decrease of 14%) compared to the year ended 31 December. Net fee and commission income for the year ended 31 December was 52,0 million (Bank: 52,7 million) down by 11% (Bank: down by 11%), compared to the year ended 31 December with the decrease mainly reflecting lower card interchange fees and reduced commission income in the International Business Division due to the Bank s efforts to reposition its strategy on the said business. The Group s and the Bank s net gain on disposal and revaluation of foreign currencies and financial instruments for the year ended 31 December was 27,4 million, down by 16% compared to 32,6 million for the year ended 31 December. This amount included a gain of 14,0 million from the disposal of the shares in Visa Europe Limited in, while in included a gain of 16,7 million from the disposal of Cyprus Government bonds. Expenses Group s total expenses for the year ended 31 December amounted to 144,5 million (Bank: 136,4 million), reduced by 5% compared to 152,1 million (Bank: 143,4 million, reduced by 5%), for the year ended 31 December due to lower administrative and other expenses. Staff costs Staff costs for the year ended 31 December accounted for 56,8% of the Group s total expenses recording an increase of 2% compared to the year ended 31 December (Bank: 56,1%, increase 3% compared to last year),, mainly due to the increase in the number of employees from 1.555 to 1.646 as at 31 December (Bank: December : 1.531 employees, December : 1.438 employees). Analysis of staff costs are disclosed in Note 10 of the Financial Statements. Administrative and other expenses Group s total administrative and other expenses for the year ended 31 December amounted to 56,4 million, down by 16% compared to 67,3 million for the year ended 31 December. Administrative and other expenses for the year ended 31 December included a charge of 1,1 million regarding the cost of early retirement of 4 members of the staff (out of which 3 were Key Management personnel), compared to the charge of 3,1 million (36 employees) for the year ended 31 December. Excluding the aforementioned one off charges from each year, the decrease is revised at 14% (down by 8,8 million) and was primarily due to lower cost of advisory services and lower charge for provisions for pending litigations or complaints which were partly offset by the penalty 4 of 1,0 million imposed by the Central Bank of Cyprus (CBC), charged in. Bank s total administrative and other expenses for the year ended 31 December amounted to 53,9 million, down by 16% compared to 64,2 million for the year ended 31 December. 3 As defined in IAS39. 4 CBC financial penalty relating to controls omissions and weaknesses in the implementation of due diligence measures and customer identification procedures identified in 2014 and related to preceding years. The penalty does not relate to any identification of incidents of suppression of proceeds from any illegal activities. The Bank has made significant progress in rectifying these issues, following an independent review and subsequent restructuring of part of its business initiated since 2014 and overseen by the Board of Directors. At the same time, the Bank is continuing repositioning its International Banking Division strategy reflecting the changing regulatory environment with specific focus on anti-money laundering issues. 4

Analysis of total fees for statutory auditors are disclosed in Note 11 of the Financial Statements. The Group s cost to income ratio for the year ended 31 December was 58,3%, compared to 59,3% for the year ended 31 December whereas the Bank s cost to income ratio for the year ended 31 December and was 57,5%. Impairment losses and provisions to cover credit risk The Group s and the Bank s total impairment losses and provisions to cover credit risk amounted to 115,2 million for the year ended 31 December, up by 14% compared to the year ended 31 December. As announced on 30 December 5, the Bank proceeded with the adoption of more conservative assumptions in relation to its provisioning methodology for calculating impairment losses and as part of the regulatory engagement with European Central Bank (ECB) in relation to the Supervisory Review and Evaluation Process (SREP). The cost of risk for the year ended 31 December was 2,8% compared to 2,3% for the year ended 31 December. Statement of Financial Position Analysis Deposits Customer deposits amounted to 6,1 billion as at 31 December (31 December : 6,1 billion). They comprised of 4,6 billion deposits in Euro and 1,5 billion deposits in foreign currencies, mostly US Dollars. Trends in customer deposits reflect the Bank s strategy to maintain a low cost of deposits taking into account its existing strong liquidity position. The Bank s deposits market share 6 as at 31 December was 12,6% (31 December : 13,5%). Loans Total new lending for the year ended 31 December reached 353,7 million (31 December: 376,7 million). The Bank continued providing lending to creditworthy businesses and households while examining other growth opportunities. Gross loans 7 as at 31 December amounted to 4.300 million (31 December : 4.396 million) recording a decrease of 2% from 31 December. A key driver in the reduction of gross loans is the increased restructuring activity including the debt to asset swap arrangements, loan repayments and customer efforts to deleverage. During the year ended 31 December exposures of 160,5 million were written off (31 December 123,9 million). The Bank s loan market share 6 as at 31 December was 7,4% (31 December : 7,0%). The net loans to deposits ratio stood at 47,9% as at 31 December (31 December : 50,4%). Loan Portfolio Quality Committed efforts to resolve problematic loans continued. The level of NPEs reached 2.504 million at 31 December, down by 4% compared to 31 December. Terminated loans included in NPEs amounted to 1.593 million as at 31 December (31 December : 1.477 million). Gross loans with forbearance measures as at 31 December amounted to 1.311 million (31 December : 1.317 million). During the Bank continued focusing on the restructuring of NPEs, using a toolset of sustainable solutions, such as debt to asset swaps, balance/instalment reductions, extensions of maturity, grace periods etc. An amount of 700,6 million relating to total customers exposures, was restructured during, while an amount of 160,5 million was written off as part of the whole curing process. In 123,9 million exposures were written off mostly due to legal changes. The Group s stock of properties held for sale, which are mostly from customers debt settlement, amounted to 117,6 million as at 31 December (31 December : 71,2 million). 5 See announcement dated 30 December (Trading update for the financial results for the fourth quarter of ) posted on the Group s website www.hellenicbank.com (Investor Relations). 6 Source: CBC and Hellenic Bank. 7 Excluding the contractual interest on impaired loans of 164,0 million for, gross loans amounted to 4.136 million. 5

The NPEs 8 to gross loans 7 ratio for the Group and the Bank as at 31 December, was reduced to 58,2% (31 December : 59,2%). Accumulated impairment losses for the Group and the Bank, amounted to 1.374 million as at 31 December (31 December : 1.303 million) and represented 32,0% of the total gross loans (31 December : 29,6%). The NPEs 8 provision coverage for the Group and the Bank, stood at 54,9% as at 31 December (31 December : 50,1%), with the overall coverage taking into account tangible collaterals 9 totalling 113,1%. SHARE CAPITAL At 31 December, 198.474.712 fully paid shares were in issue, with a nominal value of 0,50 each (: 198.434.584 shares with a nominal value 0,50 each). Details on the development of the share capital are disclosed in Note 33 of the Financial Statements. There are no restrictions on the transfer of the Bank s ordinary shares, other than the provisions of the Business of Credit Institutions Law of Cyprus which require the approval of the Central Bank of Cyprus prior to acquiring shares of the Bank in excess of certain thresholds and the requirements of the EU Market Abuse Regulation. The Bank does not have any shares in issue which carry special control rights. LOAN CAPITAL Loan capital developments are disclosed in Note 32 of the Financial Statements. CAPITAL BASE AND ADEQUACY The Group maintains capital adequacy ratios, above the minimum required by the relevant regulatory authorities. Under Pillar I (transitional basis), the Capital Adequacy Ratio of the Group as at 31 December was 17,24% (Bank: 17,21%), the Tier 1 Ratio was 17,01% (Bank: 16,97%) and the Common Equity Tier 1 Ratio (CET 1) was 13,83% (Bank: 13,79%). The Group s risk weighted assets as at 31 December amounted to 3.744 million (Bank: 3.748 million) (31 December, Group: 3.958 million, Bank: 3.957 million). As from 20 November the Bank is required to maintain, on a consolidated basis, a CET 1 capital ratio of 11,75%,including a fully loaded capital conservation buffer (CCB) of 2,5%. The ECB decision was based on the Supervisory Review and Evaluation Process (SREP) conducted on the information available with reference date 31 December 2014. In February 2017, the House of Representatives in Cyprus passed into law, an amendment in the Business of Credit Institutions Law which introduces a transitional period for the application of CCB requirement with retrospective application from 1 st January of 0,625% with full implementation from 1 st January 2019 of 2,5%. If the provisions of the above law amendment are applied the minimum CET 1 ratio is reduced to 9,875% for. In December, following ECB s final decision in establishing prudential requirements, which was based on the SREP with reference date 31 December the Bank is required to maintain for 2017, on a consolidated basis, a phase-in Capital Adequacy Ratio of 12,75%. 8 Excluding the contractual interest on impaired loans of 164,0 million for, the ratio of NPEs to gross loans and the coverage of the NPEs by provisions were 56,6% and 51,7% respectively. 9 Based on open market values (capped at client exposure). 6

Taking into account the phased-in legislation for capital conservation buffer, the Group s minimum CET1 and Tier 1 ratios effective as from 1 st January 2017 are set at 9,25% and 10,75% respectively. In addition to the above, the ECB has set, on a consolidated basis, a Pillar II capital guidance to be made up entirely of CET 1 capital, effective as from 1 st January 2017. Details of the capital management of the Group are disclosed in Note 48 of the Financial Statements. DIVIDEND The Bank is currently under a regulatory dividend distribution prohibition and therefore the Board of Directors of the Bank does not propose the payment of a dividend for the year ended 31 December at the shareholders Annual General Meeting. No dividend was paid or proposed for the year ended 31 December. STRATEGIC TARGETS AND OUTLOOK The Bank s strategy focuses on two aspects: Fix and Build. The Fix aspect predominantly relates to the reduction of the high level of non-performing exposures (NPEs). As part of its Fix strategy, the Bank is continuing repositioning its International Banking Division strategy reflecting the changing regulatory environment. The Build aspect of the strategy relates to the growth of the loan portfolio and the strengthening of customer relationships, be those of deposit or lending nature. It also relates to advancements in technology and enhancement of the customer service, as well as simplification of procedures and processes. Further, in order to meet the challenges of the competitive environment and streamline/empower the Executive Committee, the Bank revised its Group organisational structure. The Bank, advancing towards decisive actions to tackle its loan portfolio quality, has reached an agreement with APS Holding a.s (APS) for the management of real estate assets and servicing of the entire portfolio of NPEs of the Bank (refer to Note 49). The economy has been exhibiting significant positive growth since the beginning of which accelerated in with real GDP growing by an annual 2,8%. The better than expected outcome in the economy, along with the gradual restructuring of the banking sector, have created and maintained an environment of improved confidence which is reflected in the upgrades of the country s and the largest domestic banks credit rating by international rating agencies. The rise in deposits for the banking system as a whole, combined with deleveraging of the market, results in a declining loan-todeposit ratio, suggesting positive effects on growth of the economy. From a sectoral point of view, growth in was driven by the tourism sector, which performed well throughout, along with a continued strong growth in the business and professional services sectors. At the same time, the high percentage of NPEs remains the biggest challenge for the banking sector and the economy at large and the successful strategic reduction in their levels will reduce the pressure on the banks profitability, resulting in increased confidence towards the Cypriot banking sector and economy. It is encouraging that the first positive results from the application of all relevant actions are becoming visible. The economic recovery is expected to accelerate the pace of tackling NPEs. As part of implementing its strategic targets, the Group is focused on supporting the economy s recovery and contributing towards sustainable economic growth. The Bank maintains sufficient liquidity to exploit opportunities while maintaining its focus on organic growth. In order to undertake this, a key priority is to address the high level of NPEs, which continue to affect the Group s interest income and to pressure profitability through elevated provisions. At the same time the Bank recognises that the real estate market continues to be subdued. The Bank has managed to navigate successfully through the banking crisis. It has maintained throughout the crisis its reputation for stability and trust and is concentrating on strengthening and better focusing of its market positioning. Through its focus on its Fix and Build initiatives, the Group has all the ingredients to continue the implementation of its strategy. At the same time the operating environment remains challenging and the Bank will remain vigilant of developments to turn them into opportunities both in Cyprus and internationally. 7

RISK MANAGEMENT The Group is exposed to a variety of risks, the most important of which are described and analysed in Note 48 of the Financial Statements. The management and monitoring of risks is centralised under a uniform management, which covers the entire range of the Group s operations. AGREEMENTS WITH MEMBERS OF THE BOARD OF DIRECTORS OR THE STAFF OF THE BANK The employment contract of the Executive Member of the Board/Group General Manager Corporate Development, include terms governing payment of compensation as a result of his premature and unjustified termination by the Bank. More detailed reference is made in the Remuneration Policy Report for. On 15 December the Bank has announced that Board of Directors has decided to appoint Mr Ioannis A. Matsis as Group Chief Executive Officer, replacing Mr Pijls. The appointment of Mr Matsis is subject to approval from the regulatory authorities. In the meantime the duties of the Chief Executive Officer will be officiated by Mr Phivos Stasopoulos, Group General Manager Business & Insurance. CORPORATE GOVERNANCE STATEMENT The Corporate Governance Code published by the Cyprus Stock Exchange (4 th Edition Revised April 2014) has been fully adopted by the Bank s Board of Directors. The Board of Directors recognises the importance of implementing sound Corporate Governance based on the Code in combination with the mandate and practices followed by the various Committees of the Board of Directors in order to achieve the target of maximising the shareholders investment. The Corporate Governance Code is publicly available on the Cyprus Stock Exchange (CSE) website www.cse.com.cy. Information on Members of the Board of Directors retiring and being eligible for re-election, as well as on the composition and operation of the Bank s Board of Directors and its committees are set out in section B of the Report on Corporate Governance. Any amendments to the Articles of Association of the Company are only valid if approved by a Special Resolution at a General Meeting of the shareholders. Details of restrictions in voting rights and special control rights in relation to the shares of the Bank are set out in the share capital section above. The Board of Directors may issue share capital if there is sufficient authorised capital which has not been issued and as long as the new shares to be issued are offered first to the existing shareholders, pro-rata to their percentage holding in the Bank s share capital. In the event that a share capital increase requires an increase in the authorised share capital or if the new shares will not be offered to existing shareholders, the approval of the shareholders at a General Meeting must be obtained. The Board of Directors may also propose to a General Meeting of the shareholders a share buyback scheme. SHAREHOLDERS HOLDING MORE THAN 5% OF THE SHARE CAPITAL Shareholders holding more than 5% of the share capital of the Bank are disclosed in Note 40 of the Financial Statements. ENVIRONMENTAL ISSUES The Bank, in the context of its wider environmental culture and actions, plays a pioneering role in the field of energy management. It has established an Energy Management Policy four years ago, through which it has managed to reduce ( v. 2012) its energy consumption by almost 30%, as a result its CO2 emissions by over 20% and its electricity cost by over 50%. As of the beginning of the Bank is certified with the international standard ISO 50001 Energy Management System, being the first organization in Cyprus to achieve this certification. The ISO 50001 Energy Management System is implemented across the entire Group and its success depends to a 8

great extent on the awareness, contribution and involvement of all staff, providing a systematic approach towards the continuous improvement of energy performance, including energy efficiency, use and consumption. In addition, Hellenic Bank, in cooperation with the environmental organization Cymepa has achieved certification of a number of its buildings with Green Key (Head Office building) and Green Offices (30 branches and offices). The Green Offices program is again a pioneering activity of Hellenic Bank Group in cooperation with Cymepa, as it has been for the first time implemented in Cyprus. Through this scheme environmental targets and action plans are activated in the buildings and branches participating. EMPLOYEE MATTERS The Bank is in the process of negotiation with the Cyprus Union of Bank Employees for the renewal of the Collective Agreement which has expired on 31 December. The Bank upgraded the Performance Management System based on best practices. The new upgraded system is in line with the Strategic Pillars and Values of the Bank and has been implemented at the beginning of 2017. In addition, to create a healthier working environment, the Bank has amended its Policies/Codes such as the Whistleblowing Policy and the Code of Business Conduct and Ethics and has introduced the "Code for Dealing with Harassment in the Workplace" aiming to prevent and avoid any form of harassment amongst staff, customers and associates and ensure that if such conduct occurs, the necessary mechanisms for monitoring and non-repetition will be directly implemented. PREPARATION OF PERIODIC REPORTS The Group has in place an effective system of internal controls, the adequacy of which is evaluated at least annually by the Board of Directors and in more frequent intervals by the Board s Audit Committee, in respect of financial and operational systems as well as for compliance with any risk management regulations that may arise. The adequacy of the system of internal controls secures the validity of financial data and compliance with relevant legislation and aims to ensure the management of risks, while providing reasonable assurance that no loss will incur. The Group s internal audit and risk management systems incorporate effective procedures aiming at the identification and prevention of errors, omissions or fraud that could result in material misstatements during the preparation of Financial Statements and relevant disclosures which are included in the periodic reporting provided by the Group based on Part II of the Transparency Requirements Law (Securities admitted to trading on a Regulated Market) Laws of 2007 up to 2014. EVENTS AFTER THE REPORTING PERIOD Events after the reporting period are disclosed in Note 49 of the Financial Statements. 9

BOARD OF DIRECTORS The Members of the Board of Directors as at 31 December were the following: Irena A. Georgiadou Marinos S. Yannopoulos Dr Evripides A. Polykarpou Ioannis A. Matsis Marianna Pantelidou Neophytou David Whalen Bonanno Christodoulos A. Hadjistavris Andreas Christofides Lambros Papadopoulos Andrew Charles Wynn Stephen John Albutt Georgios Fereos Non-Executive Chairwoman Non-Executive Vice Chairman Non-Executive Member of the Board Non-Executive Member of the Board Non-Executive Member of the Board Non-Executive Member of the Board Non-Executive Member of the Board Non-Executive Member of the Board Non-Executive Member of the Board Non-Executive Member of the Board Non-Executive Member of the Board Executive Member of the Board During the changes in the Board of Directors of the Bank were as follows: Mr Andrew Charles Wynn was appointed as an Independent Non-Executive Member of the Board of Directors of the Bank with effect from 19 th February. Mr Stephen John Albutt was appointed as an Independent Non-Executive Member of the Board of Directors of the Bank with effect from 21 st September. On 15 December Mr Henricus Lambertus (Bert) Pijls resigned from the position of Chief Executive Officer and Executive Member of the Board. Reference to Directors emoluments, fees and compensation is made in Note 39 of the Financial Statements. In accordance with the Company s Articles of Association, Mrs Irena A. Georgiadou, Mr Marinos S. Yannopoulos, Mr Christodoulos A. Hadjistavris and Mr Georgios Fereos will retire, and being eligible, will offer themselves for re-election. The vacancies so created will be filled by election. DIRECTORS INTEREST IN THE SHARE CAPITAL OF THE COMPANY The interest in the share capital of the Bank held by Members of the Board of Directors are disclosed in Note 38 to the Financial Statements. INDEPENDENT AUDITORS The independent auditors KPMG Limited have expressed their willingness to continue in office as the Bank s auditors. A resolution authorising the Board of Directors to fix their remuneration will be proposed at the Annual General Meeting. On behalf of the Board of Directors, Irena A. Georgiadou Chairwoman Nicosia, 30 March 2017 10

To the Members of HELLENIC BANK PUBLIC COMPANY LIMITED Report on the audit of the consolidated and Bank s separate financial statements Opinion We have audited the accompanying consolidated financial statements of Hellenic Bank Public Company Limited (the Bank ) and its subsidiaries (the Group ), and separate financial statements of Hellenic Bank Public Company Limited which are presented on pages 16 to 139 and comprise the consolidated statement of financial position and the statement of financial position of the Bank as at 31 December, and the consolidated income statement, consolidated statements of comprehensive income, changes in equity and cash flows, and the income statement and statements of comprehensive income, changes in equity and cash flows of the Bank for the year then ended, and notes to the consolidated and separate financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated and separate financial statements give a true and fair view of the consolidated financial position of the Group and the Bank as at 31 December, and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and the requirements of the Cyprus Companies Law, Cap. 113, as amended from time to time (the Companies Law, Cap. 113 ). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We are independent of the Bank in accordance with the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants (IESBA Code), and the ethical requirements in Cyprus that are relevant to our audit of the consolidated and the separate financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 11

Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated and the separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Impairment of loans and advances to customers (see Note 18) The key audit matter: Impairment of loans and advances to customers is a key audit matter due to the significance of the balances, and complexity and subjectivity over estimating timing and amount of impairment. The estimation of the impairment loss allowance on an individual basis requires the Bank to make judgments to determine whether there is objective evidence of impairment and to make assumptions about the financial condition of the borrowers and expected future cash flows. The estimation of the impairment loss allowance on a collective assessment basis, relates to individually non- significant loans and losses incurred but not yet identified (IBNR loss allowance) on other loans. The audit matters include accuracy of input and appropriateness of methodology used. How the matter was addressed in our audit Our procedures in this area included: assessing and testing the design and operating effectiveness of the controls over the Group s loan impairment process for example: controls over the completeness and accuracy of data input into provisioning tools for individual impairment testing; IT controls including access, segregation of duties and data management, for the principal underlying IT system generating impairment allowance data, the management review process over the calculations and assessment of the relevant impairment loss allowance; for individually significant loans: assessing the appropriateness of individually significant loans impairment methodology; performing credit assessment on a sample of loans assessing the appropriateness of impairment loss allowance and reasonableness of the amount of estimated recoverable cash flows, including realizable value of collateral; this work involved assessing the work performed by external experts used by the Group to value the collateral and assessing the estimates of future cash flows. for impairment loss allowance on a collective assessment basis: assessing the appropriateness of the impairment calculation methodology; assessing whether the modelling assumptions used considered the relevant risks and were reasonable in light of historical experience, economic climate, current operational processes and the circumstances of the borrowers; using our IT specialists to test the accuracy of key inputs into the models; using our credit modeling internal specialists to re-perform the calculations using our inhouse challenger model; and assessing whether disclosures in the financial statements appropriately reflect the Group s exposure to credit risk. 12

Other information The Board of Directors is responsible for the other information. The other information comprises the information included in the Annual Report for the year ended 31 December, but does not include the consolidated and separate financial statements and our auditors report thereon. Our opinion on the consolidated and separate financial statements do not cover the other information and we do not express any form of assurance conclusion thereon, except as required by the Companies Law, Cap. 113. In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Please also refer to the Report on other legal requirements section were we are reporting on other legal requirements with respect to the Management Report and the Corporate Governance Statement included as specific sections of the Annual Report. Responsibilities of the Board of Directors for the consolidated and the separate financial statements The Board of Directors is responsible for the preparation of consolidated and separate financial statements that give a true and fair view in accordance with IFRS-EU and the requirements of the Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated and the separate financial statements, the Board of Directors is responsible for assessing the Group s and the Bank s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless there is an intention to either liquidate the Bank or to cease operations, or there is no realistic alternative but to do so. The Board of Directors is responsible for overseeing the Group s financial reporting process. Auditors responsibilities for the audit of the consolidated and the separate financial statements Our objectives are to obtain reasonable assurance about whether the consolidated and the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated and the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank s and the Group s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors. 13

Conclude on the appropriateness of the Board of Directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank s and the Group s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the consolidated and the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group and the Bank to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated and the separate financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves a true and fair view. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the consolidated and the separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal requirements Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts of Law 2009, L.42(I)/2009, as amended from time to time ( Law 42(I)/2009 ), we report the following: We have obtained all the information and explanations we considered necessary for the purposes of our audit. In our opinion, proper books of account have been kept by the Bank, so far as it appears from our examination of these books. The Bank s consolidated and separate financial statements are in agreement with the books of account. In our opinion and to the best of our information and according to the explanations given to us, the consolidated and separate financial statements give the information required by the Companies Law, Cap. 113, in the manner so required. In our opinion, the Management Report on pages 3 to 10, the preparation of which is the responsibility of the Board of Directors, has been prepared in accordance with the requirements of the Companies Law, Cap. 113, and the information given is consistent with the consolidated and separate financial statements. In the light of the knowledge and understanding of the business and the Group s environment obtained in the course of our audit, we have not identified material misstatements in the Management Report. In our opinion, the information included in the Corporate Governance Statement is in accordance with the requirements of subparagraphs (iv) and (v) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113, and has been prepared in accordance with the requirements of the Cyprus Companies Law, Cap, 113, and is consistent with the consolidated and separate financial statements. In our opinion, and in the light of the knowledge and understanding of the Group and its environment obtained in the course of our audit, we have not identified material misstatements in the Corporate 14

Governance Statement in relation to the information disclosed for items (iv) and (v) of subparagraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113. In our opinion, the Corporate Governance Statement includes all information referred to in subparagraphs (i), (ii), (iii) and (vi) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113. Other matter This report, including the opinion, has been prepared for and only for the Bank s members as a body in accordance with Section 34 of Law 42(I)/2009 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to. The engagement partner on the audit resulting in this independent auditors report is Panayiotis A. Peleties. Panayiotis A. Peleties FCA Certified Public Accountant and Registered Auditor for and on behalf of KPMG Limited Certified Public Accountants and Registered Auditors 14 Esperidon Street 1087 Nicosia Cyprus 30 March 2017 15

HELLENIC BANK GROUP CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER Note Continuing Operations Interest income 4 185.236 205.766 Interest expense 5 (37.744) (60.406) Net interest income 147.492 145.360 Fee and commission income 6 56.640 63.349 Fee and commission expense 7 (4.648) (4.933) Net fee and commission income 51.992 58.416 Net gains on disposal and revaluation of foreign currencies and financial instruments 8 27.435 32.603 Other income 9 20.763 20.035 Total net income 247.682 256.414 Staff costs 10 (82.006) (80.048) Depreciation and amortisation 23,24 (6.101) (4.767) Administrative and other expenses 11 (56.375) (67.284) Total expenses (144.482) (152.099) Profit from ordinary operations before impairment losses and provisions to cover credit risk 103.200 104.315 Impairment losses and provisions to cover credit risk 12 (115.233) (100.788) (Loss)/profit before taxation (12.033) 3.527 Taxation 13 (50.628) 4.642 (Loss)/profit for the year from continuing operations (62.661) 8.169 Discontinued Operations Profit from discontinued operations after taxation 14 -- 4.826 (Loss)/profit for the year (62.661) 12.995 (Loss)/profit attributable to: Shareholders of the parent company from continuing operations (63.477) 7.251 Shareholders of the parent company from discontinued operations -- 4.826 (63.477) 12.077 Non-controlling interests 816 918 (Loss)/profit for the year (62.661) 12.995 Basic and diluted (loss)/earnings per share (cent) 15 (32,0) 6,4 Basic and diluted (loss)/earnings per share (cent) from continuing operations 15 (32,0) 3,9 The notes on pages 28 to 139 form an integral part of the Financial Statements. 16

HELLENIC BANK GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER Note (Loss)/profit for the year (62.661) 12.995 Other comprehensive (expenses)/income Items that will not be reclassified in the income statement Taxation relating to components of other comprehensive income 13 (12) (41) Items that are or may be reclassified subsequently in the income statement (12) (41) Surplus on revaluation of available for sale equity and debt securities 490 16.083 Transfer to the income statement on disposal of investments in equity available for sale 34 (12.381) -- Amortisation of revaluation of reclassified debt securities available for sale 34 (733) (1.492) Transfer to the income statement on impairment of investments in equity available for sale 34 -- (315) (12.624) 14.276 Other comprehensive (expenses)/income for the year net of taxation (12.636) 14.235 Total comprehensive (expenses)/income for the year (75.297) 27.230 Total comprehensive (expenses)/income for the year attributable to: Shareholders of the parent company from continuing operations (76.133) 21.500 Shareholders of the parent company from discontinued operations -- 4.826 (76.133) 26.326 Non-controlling interests 836 904 (75.297) 27.230 The notes on pages 28 to 139 form an integral part of the Financial Statements. 17

HELLENIC BANK GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER Assets Note Cash and balances with Central Banks 16 2.083.444 2.029.180 Placements with other banks 17 548.902 909.849 Loans and advances to customers 18 2.926.033 3.092.773 Debt securities 19 1.149.132 1.043.012 Equity securities & Collective investment units 21 16.008 15.140 Property, plant and equipment 23 99.648 98.564 Intangible assets 24 26.526 22.640 Tax receivable 127 66 Deferred tax asset 25 8.465 58.094 Other assets 26 179.319 128.055 Total assets 7.037.604 7.397.373 Liabilities Deposits by banks 27 100.652 76.938 Amounts due to Central Banks 28 -- 236.373 Customer deposits and other customer accounts 29 6.111.088 6.138.705 Tax payable 5.422 5.314 Deferred tax liability 30 1.980 1.472 Other liabilities 31 111.924 114.307 6.331.066 6.573.109 Loan capital 32 139.667 181.468 Equity Share capital 33 99.237 99.217 Reserves 464.252 540.380 Equity attributable to shareholders of the parent company 563.489 639.597 Non-controlling interests 3.382 3.199 Total equity 566.871 642.796 Total liabilities and equity 7.037.604 7.397.373 Contingent liabilities and commitments 35 854.887 790.047 The Consolidated Financial Statements have been approved by the Board of Directors on 30 March 2017. I. A. Georgiadou Chairwoman of Board of Directors M. S. Yannopoulos Member of the Board of Directors L. Papadopoulos Chairman of the Audit Committee of the Board P. Stasopoulos, Group General Manager, Corporate and Insurance Division M. Keleshi, Group Chief Accountant The notes on pages 28 to 139 form an integral part of the Financial Statements. 18

HELLENIC BANK GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER Share Capital (Note 33) Reduction of share capital Reserve (Note 33) Attributable to shareholders of the parent company Share premium Revenue Translation reserve Revaluation reserves Noncontrolling reserve reserve (Note 34) Total interests Total Balance 1 January 99.217 260.269 515.592 (286.013) 39 50.493 639.597 3.199 642.796 Total comprehensive (expenses)/income for the year net of taxation (Loss)/profit for the year -- -- -- (63.477) -- -- (63.477) 816 (62.661) Other comprehensive (expenses)/income -- -- -- -- (12.656) (12.656) 20 (12.636) Transfer of excess depreciation on revaluation surplus -- -- -- 317 -- (317) -- -- -- Disposal of immovable property -- -- -- 11 -- (11) -- -- -- -- -- -- (63.149) -- (12.984) (76.133) 836 (75.297) Loss from the dissolution of a subsidiary company (Note 22) -- -- -- (6) (6) -- (12) -- (12) Transactions with shareholders Contributions and distributions Issue of shares to CEO as part of his variable remuneration package 20 -- 17 -- -- -- 37 -- 37 Dividends by subsidiary -- -- -- -- -- -- -- (653) (653) 20 -- 17 -- -- -- 37 (653) (616) 31 December 99.237 260.269 515.609 (349.168) 33 37.509 563.489 3.382 566.871 The notes on pages 28 to 139 form an integral part of the Financial Statements. 19