MUNICIPAL BANK AD AUDITOR'S REPORT AND ANNUAL FINANCIAL STATEMENTS

MUNICIPAL BANK AD AUDITOR'S REPORT AND ANNUAL FINANCIAL STATEMENTS December 31, 2005 (Unofficial translation from Bulgarian)

Deloitte Audit Ltd. Делойт Ogum ООД 55, Al. Stambolijski Blvd. бул. Ал. Стамболийски" 55 Sofia 1000 София 1000 Bulgaria България Tel. +359 (0) 2 980 8500 фирмено дело 10638/96 Fax +359 (0) 2 980 0436 при Софийски градски съд www.deloitte.bg банкова сметка: ИНГ БАНК код 14591458 сметка в лева: 1000270610 AUDITOR'S REPORT (Unofficial translation from Bulgarian) To the shareholders of Municipal bank AD We have audited the accompanying balance sheet of Municipal bank AD ("the Bank") as of December 31, 2005, and the related statements of income, cash flows and changes in shareholders' equity for the year then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2005, and the results of its operations, cash flows and changes in shareholders' equity for the year then ended, in accordance with the statutory accounting legislation, applicable for the banks in Bulgaria, as stated in note 2 to the accompanying financial statements. March 1, 2006 Sofia

BALANCE SHEET AS OF DECEMBER 31, 2005 Note 31.12.2005 31.12.2004 ASSETS Cash, balances with the Central Bank and nostro accounts with other banks Placements and deposits with other banks Receivables under repurchase agreements Trading securities Securities available for sale Loans and advances to customers Other assets Fixed assets 4 5 6 7 8 9 10 11 58,547 72,202 11,644 150,689 2,070 157,637 1,191 10,855 53,082 62,723 7,712 153,411 939 179,406 1,571 12,080 TOTAL ASSETS 464,835 470,924 LIABILITIES Deposits from banks Due to other depositors Liabilities under repurchase agreements Longterm borrowings Shortterm borrowings Other liabilities 12 13 6 14 14 15 8,553 349,817 200 55,010 6,910 3,079 8,488 360,271 53,648 6,705 2,792 TOTAL LIABILITIES 423,569 431,904 Net assets 41,266 39,020 SHAREHOLDERS' EQUITY Share capital Current year profit Reserves 17 17 25,000 3,565 12,701 25,000 2,974 11,046 TOTAL SHAREHOLDERS' EQUITY 41,266 39,020 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 464,835 470,924 These financial statements have been accented by the Board of Directors and approved by the Supervisory Board of Municipal Bank AD.

INCOME STATEMENT Note Year ended 31.12.2005 Year ended 31.12.2004 Interest and similar income Interest expenses and similar charges Net interest margin 18 18 18,521 (7,708) 10,813 15,393 (5,355) 10,038 Net fee and commission income Net gains from dealings with trading securities Net gains from dealings in foreign currency Net other income General and administrative expenses Allowances for impairment and uncollectability Profit before tax 19 20 21 22 23 24 6,592 13,164 810 129 (23,558) (3,645) 4,305 6,087 11,980 730 887 (22,883) (3.087) 3,752 Taxation 16 (740) (778) Net profit for the year 3,565 2,974 These financial statements have been accepted by the Board of Directors and approved by the Supervisory Board of Municipal Bank AD.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AS OF DECEMBER 31, 2005 Share capital Revaluation reserve Statutory reserves General reserves Retained earnings Total Balance as of January 1, 2004 Dividends paid of the profit for 2003 Transformation of net profit into statutory reserves Transformation of net profit into general reserves Decrease in revaluation reserve from disposal of fixed assets Net profit for the year ended December 31,2004 25,000 306 (28) 4,576 214 5,522 428 1,874 (1,232) (214) (428) 28 2,974 37,278 (1,232) 2,974 Balance as of December 31, 2004 25,000 278 4,790 5,950 3,002 39,020 Dividends paid of the profit for 2004 Transformation of net profit into statutory reserves Transformation of net profit into general reserves Decrease in revaluation reserve from disposal of fixed assets Donation at the expense of general reserves Net profit for the year ended December 31,2005 (43) 1,718 (35) (1,284) (1,718) 43 3,565 (1,284) (35) 3,565 Balance as of December 31, 2005 25,000 235 6,508 5,915 3,608 41,266

CASH FLOW STATEMENT Cash flows from operations Profit after tax Allowances for impairment and uncollectability for the period Revaluation of trading securities Depreciation and amortization Change in operating assets Increase/(decrease) in loans and advances to customers Increase/(decrease) in trading securities Increase/(decrease) in receivables under repurchase agreements Increase in other assets Change in operating liabilities Increase/(decrease) in deposits from banks (Decrease)/increase in amounts due to other depositors (Increase)/decrease in liabilities under repurchase agreements Increase/(decrease) in other liabilities Net cash provided by operations Note Year ended 31.12.2005 3,565 3,645 (1,555) 2,202 7,857 18,124 4,277 (5,575) 380 65 (10,454) 200 287 15,161 Year ended 31.12.2004 2,974 3,087 (2,727) 2,121 5,455 (62,210) (9,348) 2,331 609 (2,329) 87,017 (2,023) (1,434) 18,068 Cash flows from investing activities (Decrease)/increase in securities available for sale Purchase of property and other fixed assets Net cash used for investing activities (1,131) (977) (2,108) 358 (2,352) (1,994) Cash flows from financing activities Proceeds from longterm and shortterm financing Dividends paid and donation at the expense of reserves Net cash provided by financing activities 1,567 (1,319) 248 31,298 (1,232) 30,066 Net increase in cash and cash equivalents 13,301 46,140 Cash and cash equivalents at beginning of period 123,345 77,205 Cash and cash equivalents at end of period 28 136,646 123,345

NOTES TO THE FINANCIAL STATEMENTS 1. Organization and operations Municipal Bank AD (the Bank) is a joint stock company registered in the Republic of Bulgaria in April 1996. The Bank's registered address is 6, Vrabcha Street, Sofia 1000, Bulgaria. The Bank was granted a license by the Bulgarian National Bank (the BNB), which is the Central bank of the Republic of Bulgaria, to perform all banking activities both locally and internationally, including taking deposits in local and foreign currency, granting of loans, dealing with foreign currencies and precious metals, dealing in securities and transactions under Art. 54, par. 1 of the Public Offering of Securities Act, and other. The Bank's operations are conducted through a Head Office, 4 branches in Sofia, 15 branches in the country, 25 bank offices and 11 supporting offices. 2. Basis for preparation of the financial statements and accounting convention General These financial statements have been prepared for the year ended December 31, 2005. The financial statements are stated in thousand Bulgarian Levs (BGN'000). Comparative figures for the prior year are presented in the accompanying financial statements. These financial statements are prepared for general purposes. Accounting convention These financial statements are prepared in compliance with Bulgarian national accounting legislation, applicable for banks in Bulgaria. In accordance with the Accountancy Act (AA), effective January 1, 2005 on the territory of the Republic of Bulgaria shall be effective International Financial Reporting Standards (IFRS), endorsed by the European Union Commission. Those standards shall be translated officially into Bulgarian language, adopted also by the Council of Ministers of the Republic of Bulgaria and promulgated in the State Gazette (SG). the date of approval of the financial statements by the Bank's management, the IFRS endorsed by the European Union Commission have not yet been adopted by the Council of Ministers of the Republic of Bulgaria and have not been promulgated in the SG in Bulgarian language. For this reason these financial statements are prepared based on the core International Accounting Standards (IAS), edition 2002, approved by decision of the Council of Ministers 21/4.02.2003 and published in SG, issue 13/2003. Furthermore, the Banking Law stipulates that banks shall periodically assess loans and other risk assets, including their offbalance sheet liabilities, and shall allocate allowances to cover the risk of losses, according to criteria set by an ordinance of the Central Bank. According to the Banking Law these allowances are part of accounting expenses and a corrective of the carrying amount of the assets. Management believes, that the chosen basis for preparation of the financial statements for 2005 provides users with useful and fair information about the financial position and operating results of the Bank. (Unofficial translation from Bulgarian) 5

2. Basis for preparation of the financial statements and accounting convention (continued) Accounting convention (continued) When preparing the financial statements the Bank uses as a basis for reporting of assets and liabilities the historical cost method, except for securities held for trading and derivative financial instruments, which are revalued at fair value. The presentation of financial statements requires management to apply certain accounting estimates and reasonable assumptions that affect some of the reported amounts of carrying amount of assets and liabilities as of the date of the financial statements, as well as the amount of revenues and expenses during the reporting period and to disclose contingent assets and liabilities. These estimates and assumptions are based on the information available as of the date of the financial statements and the future actual results could differ from those estimates. 3. Summary of significant accounting policies Cash and cash equivalents Cash and cash equivalents for the purposes of the cash flow statements include cash, unrestricted balances with the Central Bank, nostro accounts, placements with, loans and advances to other banks and receivables under repurchase agreements with banks with remaining maturity up to 3 months. Securities Trading securities Trading securities are securities, which were either acquired for generating profit from shortterm fluctuations in price or dealer's margin, or are securities included in a portfolio in which a pattern of shortterm profit taking exists. Trading securities are initially recognized at cost and subsequently remeasured at fair value. The trading securities are carried at fair value based on quoted prices. All related realized and unrealized gains and losses are included in net gains or losses from trading securities. Differences between the carrying amounts of securities sold and their selling price are recorded in the income statement as net gain or loss from sale of trading securities. Any changes in the carrying amount of the trading securities, in result of their presentation at quoted market prices, are reported in the income statement as gains or losses on revaluation of trading securities. Interest earned whilst holding trading securities is reported as net gain from dealings with trading securities. Securities available for sale Securities available for sale are those securities that are not classified as trading securities or held to maturity. Securities available for sale represent debt bonds and equity investments in entities, in which the Bank does not have a controlling interest. Such assets are valued at fair value, based on quoted market prices in an active market. When quoted market prices are not readily available or the market does not meet the requirements for active market, these securities are presented at acquisition cost or their fair value is estimated using other applicable valuation models to reflect the specific circumstances of the issuer. Dividends from equity investments are reported as income when reasons for their receipt arise. (Unofficial translation from Bulgarian) 6

3. Summary of significant accounting policies (continued) Receivables and payables under repurchase agreements Receivables and payables under repurchase agreements are valued at cost, which represents the funds placed with/received by the Bank, secured by the value of the corresponding collateral securities along with the respective receivables/payables on accrued interest up to date. Loans and advances, originated by the Bank and allowances for impairment and uncollectability Loans and advances originated by the Bank through direct providing of money to a borrower, are categorized as loans and advances, originated by the Bank and are measured at amortized cost, less allowances for impairment and uncollectability. Allowances for impairment and uncollectability are measured having regard to specific risk. The risk relates to those amounts receivable that have been specifically identified as bad or doubtful. In determining the level of the impairment required, management considers numerous factors including domestic economic conditions, the composition of the loan portfolio and prior bad debt experience. Allowances for impairment and uncollectability are determined as the difference between the carrying amount of a financial asset and its estimated recoverable amount. The Bank has adopted a methodology for calculation of loan allowances based on the requirements of banking legislation in Bulgaria. The Bank classifies loans in several groups. Outside the Standard loans group are applied rates, exceeding the minimum required by regulators, and with these rates are decreased the contractual cash flows, which subsequently are discounted by the effective interest rate, as stated above. Cash flows, related to shortterm loans are not discounted. Other specific requirements of regulators are related to terms for reclassification of Substandard loans back to the group of Standard loans and recognition of liquid collaterals for the purposes of determining of allowances for impairment of loans. Any difference between the carrying amount and recoverable amount of the financial assets (loss on impairment and uncollectability of loans) is charged to the income statement for the period it occurs. A reversal of any loss on impairment and uncollectability is taken to income for the respective period. Recoveries of amounts previously written off are treated as income. The net book value of uncollectible loans and advances is nil as a result of accrued provisions for impairment and uncollectability amounting to hundred percent. Such loans are written off upon decision of the competent body of the Bank after all required legal procedures have been completed and the amount of the loss has been determined. (Unofficial translation from Bulgarian) 7

3. Summary of significant accounting policies (continued) Fixed assets Fixed assets are carried at cost less accumulated depreciation. Depreciation on fixed assets is calculated on a straightline basis designed to write off the assets over their estimated useful lives. The Bank applies the following depreciation and amortization rates for 2005: Buildings Plant and equipment Office equipment computers Motor vehicles cars Fixtures and fittings Software Intangible fixed assets, for which there are legal restrictions on the exploitation term/leasehold improvements Interest income and expense 4% 20% 30% 20% 15% 30% According to the legally restricted exploitation term, but not higher than 25% (25 years) (5 years) (3 years) (5 years) (7 years) (3 years) (more than 4 years) Interest income and expense is recognized on a time proportion basis using effective interest rate method as amortization of any difference between the amount at initial recognition of the respective asset or liability and the amount at maturity. For loans originated by the Bank and liabilities to depositors, where the interest is calculated on a daily basis by applying contracted interest rate to the outstanding balance, the effective interest rate is considered to be equal to the contracted interest rate. The recognition of interest income ceases when payment of interest or principal is overdue for more than 90 days. Interest is included in income only when it is received. Loans are returned to the accrual basis only when doubt about collectability is removed and when the outstanding arrears of interest and principal are received. Interest earned whilst holding trading securities is reported as net gain from dealings with trading securities. Fees and commissions Fees and commissions consist mainly of fees for transactions in Bulgarian Levs and foreign currency, fees for granting of loans, opening of letters of credit and guarantees issuing. The fees and commissions for granting and handling of longterm loans, which represent an integral part of the effective income, are deferred over the life of the loan and are recognized as a correction of the interest income, using the contracted interest rate. Foreign exchange transactions Transactions denominated in foreign currencies have been translated into BGN at the rates of the BNB on the date of transaction. Receivables and payables denominated in foreign currencies are translated into BGN at balance sheet date using closing exchange rates of the BNB on that date. (Unofficial translation from Bulgarian) 8

3. Summary of significant accounting policies (continued) Foreign exchange transactions (continued) Significant exchange rates at the balance sheet dates include: Currency December 31,2005 December 31,2004 USD 1.65790 1.43589 EUR 1.95583 1.95583 Effective from January 1, 1999 and following the introduction of the Euro, the exchange rate of the Bulgarian Lev is fixed to the Euro by law at a rate of EUR 1 = BGN 1,95583. Net gains or losses from foreign exchange rate differences as a result of revaluation of receivables, payables and FX deals, are included in the income statement for the period, in which they arise. Taxation Taxes currently due are calculated in accordance with the Bulgarian legislation. Income tax is computed on the basis of taxable profit, calculated by adjusting the statutory financial result for certain income and expenditure items, as required under Bulgarian law and IFRS. Tax effect, related to transactions or other events, which are reported in the income statement, is also reported in the income statement, and the tax effect related to transactions or other events, which are reported directly to equity, is also reported directly to equity. A deferred tax liability is recognized for all taxable temporary differences unless it arises from the initial recognition of an asset or liability in a transaction, which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). Deferred tax assets are recognized for all deductible temporary differences to the extent that is probable that taxable profit will be available against which the deductible temporary difference can be utilized, unless the deferred asset arises from the initial recognition of an asset or liability in a transaction, which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). Deferred taxes are recognized as income or expense and are included in the net profit for the period except to the extent that the tax arises from a transaction or event which is recognized in the same or different period, directly in equity. Deferred taxes are charged or credited directly to equity when the tax relates to items that are credited or charged in the same or a different period, directly to equity. December 31, 2005 and 2004, the Bank does not have deferred tax liabilities and assets. Financial instruments The Bank uses derivative financial instruments both to meet the financial needs of its customers, acting as an agent, and in its proprietary transactions. These instruments include, inter alia, open market foreign currency FX transactions, open market security purchase and sale transactions, open market forward exchange rate agreements and currency swaps. Subsequent to initial recognition and measurement, financial instruments are remeasured at each balance sheet date and reported at their fair value. Changes in derivatives held for trading are included in the income statement. December 31, 2005 there are no derivative transactions that qualify for hedge accounting under the specific rules of IAS 39 and are thereafter treated as derivatives held for trading where gains and losses in result of the changes in their fair value are reported in the income statement. December 31, 2005 there are no open derivative contracts outstanding. (Unofficial translation from Bulgarian) 9

3. Summary of significant accounting policies (continued) Financial instruments (continued) Contracts for purchase or sale of financial assets that require settlement within the time frame generally established by regulation or convention in the market place (the socalled "regular way" contracts) are recognized in the balance sheet on the settlement date. Changes in the fair value of assets to be received, are recognized as income for the period. A financial asset is derecognized on the value date when the Bank loses control of the contractual rights that comprise the financial asset. This results when the Bank realizes the rights, the rights expire, or when the Bank surrenders those rights. A financial asset is derecognized when it is paid off. Financial assets and liabilities are offset and the net amount is reported in the balance sheet when the Bank has a legally enforceable right to set off the recognized amounts and the transactions are intended to be settled on a net basis. In the normal course of business, the Bank has formed offbalance sheet financial instruments comprising financial guarantees. Such financial instruments are reported in the balance sheet when they are funded. Fair value of financial assets and liabilities International Accounting Standard 32 "Financial Instruments: Disclosure and Presentation", provides for the disclosure in the notes to financial statements of information about fair value of financial assets and liabilities. Fair value for this purpose is defined as the amount for which an asset can be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction. It is the policy of the Bank to disclose the fair value information on those assets and liabilities for which published market information is readily available and whose fair value is materially different from their reported carrying amounts. Most of the Bank's assets, such as cash, nostro accounts and accounts with the Central Bank, placements with, and deposits to other banks, trading securities, the sum of which represents approximately 60% of all assets of the Bank, are presented at market prices, which are considered to be their fair value. Sufficient market experience, stability and liquidity do not currently exist for purchases and sales of loans and advances to customers, other assets and all liabilities of the Bank, for which published market information is readily available. Accordingly, their fair values cannot be reliably determined. In the opinion of management, the reported recoverable amounts of such assets and the amounts required for settlement of such liabilities at the balance sheet date, are useful for the purpose of the financial statements, in the circumstances. Provisions for guarantees and other offbalance sheet credit related commitments The amount of provisions for guarantees and other offbalance sheet credit related commitments is recognized as an expense and a liability when the Bank has present legal or constructive obligations, which have arisen in result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle that obligation and a reasonable estimate of the amount of the resulting liability can be made. Any loss resulting from recognition of provision for liability is recognized in the income statement for the period. December 31, 2005 and 2004 the Bank has no allocated provisions for offbalance sheet credit related commitments, because there is no reason for this. {Unofficial translation from Bulgarian) 10

3. Summary of significant accounting policies (continued) Bank regulators, established by the Central Bank (legal framework) The Bank's activities and operations are governed by the Law on Banks, Regulation No 8 on the Capital Adequacy of Banks, Regulation No 9 on the Evaluation and Qualification of Risk Exposures of Banks and the respective allocation of allowances for impairment and uncollectability, Regulation 11 on the Liquidity Management and Supervision of Banks, and in compliance with other regulations issued by the BNB. In addition, the BNB supervises Municipal Bank's compliance with banking laws and regulations. 4. Cash, balances with the Central bank and nostro accounts with other banks 31.12.2005 31.12.2004 Cash on hand Current account with the Central Bank Nostro accounts with local banks Nostro accounts with foreign banks Total 16,303 36,160 474 5,610 58,547 14,541 35,890 555 2,096 53,082 Balances with the Central Bank include minimum, noninterest bearing reserves, amounting to BGN 32,556 thousand and BGN 32,995 thousand, as of December 31, 2005 and 2004, respectively, and Reserve Guarantee Fund to ensure the settlement of payments through the Real Time Gross Settlement System RINGS as required by the Central Bank regulations, amounting to BGN 28 thousand and BGN 56 thousand, as of December 31, 2005 and 2004, respectively. No restrictions have been imposed by the Central Bank for using the minimum reserves. Such reserves are determined based on deposits held at the Bank. 5. Placements and deposits with other banks In Bulgarian Levs Placements with local banks In foreign currency Placements with foreign correspondents Placements with local banks Total 31.12.2005 1,300 68,249 2,653 70,902 72,202 31.12.2004 10,301 47,713 4,709 52,422 62,723 December 31, 2005 the Bank has placements in BGN provided to one commercial bank, registered in the Republic of Bulgaria (Investbank AD). December 31, 2004 the Bank has placements in BGN provided to five commercial banks, registered in the Republic of Bulgaria (BNP Parisbas Bulgaria, Bulgarian Post Bank AD, ProCredit Bank AD, SG Expressbank, Encouragement Bank AD), where approximately 48% of the placements are provided to one bank (Bulgarian Post Bank AD) with international credit rating of Fitch: BB+: B. (Unofficial translation from Bulgarian) 11

5. Placements and deposits with other banks (continued) December 31, 2005 the Bank has placements in foreign currency provided to one commercial bank, registered in the Republic of Bulgaria (BACB AD) with international credit rating of Standard & Poor's: BB: B. December 31, 2004 approximately 94% of the placements to local banks in foreign currency are concentrated in two local banks (First Investment Bank AD and Eurobank AD) with international credit rating Standard & Poor's: B+ and Moody's: В1: E+. December 31, 2005 the Bank has placements provided to three foreign banks (Bank Austria Vienna, Unicredito Italiano Milano, DZ Bank London), with rating higher than A according to the international rating organizations Standard & Poor's and Fitch. December 31, 2004 the Bank has placements provided to three foreign banks (Bank Austria Vienna, ING Amsterdam, Unicredito Italiano Milano), with rating higher than A according to the international rating organizations Standard & Poor's and Fitch. The average interest rate on placements with and loans to banks in USD and in EUR for the year ended December 31, 2005 is 3.04% and 2.04%, respectively. The average interest rate on placements with and loans to banks in USD and in EUR for the year ended December 31, 2004 is 2.25% and 2.12%, respectively. Placements of deposits to banks as of December 31, 2005 and 2004 are with less than three months maturity. 6. Receivables/payables under repurchase agreements The receivables under repurchase agreements as of December 31, 2005 and 2004 amount to BGN 11,644 thousand and BGN 7,712 thousand, respectively. December 31, 2005 and 2004 these receivables represent sellbuy repurchase agreements with local banks (BGN 5,897 thousand and BGN 7,540 thousand) and other financial institutions (BGN 5,747 thousand and BGN 172 thousand). The remaining maturity of repurchase agreements as of December 31, 2005 and 2004 is within 1 month. December 31, 2005 the Bank has liabilities under repurchase agreements at the amount of BGN 200 thousand, with remaining maturity within 1 month. December 31, 2004 the Bank has no liabilities under repurchase agreements. 7. Trading securities Bulgarian government securities In Bulgarian Levs In foreign currency Total 31.12.2005 126,810 23,879 150,689 31.12.2004 116,220 37,191 153,411 (Unofficial translation from Bulgarian) 12

7. Trading securities (continued) Trading securities are stated at fair value, which represents their market value. December 31, 2005 and 2004 various issues of Bulgarian government securities amounting to BGN 127,760 thousand and BGN 141,831 thousand were pledged with the Central Bank as a collateral for maintaining of State Budget accounts. December 31, 2005 the amount of government securities pledged as collateral under repurchase agreements is BGN 201 thousand. December 31, 2004 the Bank has no government securities pledged as collateral under repurchase agreements. December 31, 2005 the interest rate of Bulgarian government bonds in Bulgarian Levs and foreign currency varies from 3.5% to 9% and from 5.75% to 7.5%, respectively. December 31, 2004 the interest rate of Bulgarian Government bonds in Bulgarian Levs and foreign currency varies from 4.7% to 9% and from 5.75% to 8.25%, respectively. 8. Securities available for sale Shares in companies Bonds, issued by Bulgarian issuers Compensatory bonds and compensatory bills Total 31.12.2005 1,254 617 199 2,070 31.12.2004 702 230 7 939 9. Loans and advances to customers a) Analysis by type of customer Households and individuals Private enterprises State owned enterprises State Budget Allowances for impairment and uncollectability Total 31.12.2005 22,846 134,786 13,007 5,707 176,346 (18,709) 157,637 31.12.2004 17,510 162,557 12,546 1,857 194,470 (15,064) 179,406 (Unofficial translation from Bulgarian) 13

9. Loans and advances to customers (continued) (b) Analysis by industry 31.12.2005 31.12.2004 Manufacturing Agriculture Construction Trade Transport Services State Budget Individuals 33,558 4,792 8,223 36,584 21,364 43,272 5,707 22,846 176,346 42,719 3,802 11,823 51,500 22,886 42,546 1,857 17,337 194,470 Allowances for impairment and uncollectability (18,709) (15,064) Total 157,637 179,406 In 2005 there are no writtenoff receivables under granted loans. In 2004, following a decision of the Bank's Board of Directors, receivables under granted loans at the amount of BGN 47 thousand have been writtenoff at the expense of allocated provisions. The contracted interest rates for loans granted in BGN are variable and are calculated on the basis of base interest rate of the Central Bank plus a set margin. The margin is stipulated in the contract and ranges between 5 and 12 per cent. The weighted average contracted interest rates on loans in USD and EUR for the year ended December 31, 2005 are variable and are approximately 10.06% and 8.37%, respectively, and for the year ended December 31, 2004 11% and 9.8%. 10. Other assets Prepayments Deferred expenses Materials Other Total 31.12.2005 214 350 160 467 1,191 31.12.2004 192 227 300 852 1,571 In 2004 other receivables at the amount of BGN 10 thousand have been writtenoff at the expense of allocated provisions. (Unofficial translation from Bulgarian) 14

11. Fixed assets (Unofficial translation from Bulgarian) 15

12. Deposits from banks December 31, 2005 approximately 72% of the deposits in BGN represent term deposit from one local bank (Investbank AD). Approximately 78% of the deposits in foreign currency are from one local bank (Tokuda Bank AD) and represent term deposits in USD and EUR and current accounts balances. All term deposits received from banks as of December 31, 2005 mature within one month. December 31, 2004 approximately 96% of the deposits represent term deposits in USD from four local banks. Approximately 52% of the deposits received from banks as of December 31, 2004 mature within one month and 48% mature within three months. The average interest rate for deposits from banks in USD and EUR for the year ended December 31, 2005, is 2.67% and 1.90%, respectively, and for the year ended December 31, 2004 0.4% and 0.7%, respectively. The average interest rate for deposits from banks in BGN is 0.95% and 0.10% for the years ended December 31, 2005 and December 31, 2004, respectively. 13. Due to other depositors (Unofficial translation from Bulgarian) 16

13. Due to other depositors (continued) The average interest rates on various types of deposits for the year ended December 31, 2005 are as follows: December 31, 2005 approximately 13% of the total amount due to other depositors represent bank accounts of one customer and his related parties. The average interest rates on different types of deposits for the year ended December 31, 2004, are as follows: December 31, 2004 approximately 10% of the total amount due to other depositors represent bank accounts of one customer. 14. Longterm and shortterm borrowings December 31, 2005 and 2004, the Bank has received longterm and shortterm financing under loan agreements for the purpose of using such funds to provide longterm and shortterm loans to Bank's customers. Longterm loans are reported at amortized cost. Fees paid on the loans received by the Bank, which represent an integral part of the effective income, are amortized for the period to maturity of the respective credit lines, by applying effective interest rate. The amount of unamortized fees under these loans as of December 31, 2005 and 2004 is BGN 604 thousand and BGN 574 thousand, respectively. (Unofficial translation from Bulgarian) 17

15. Other liabilities Bank transfers not processed represent liabilities for transfers in foreign currency ordered by customers on the last day of 2005, with value date for bank transfer within two days, reported on the first working day of 2006. 16. Taxation Current income tax expense represents the amount of tax due under Bulgarian law at statutory tax rates of 15% as of December 31, 2005 and 19.5% as of December 31, 2004. Deferred tax income or expense results from change in the carrying amount of deferred tax assets and deferred tax liabilities. No deferred tax liabilities are accrued in 2005 and 2004. The relationship between tax expense and accounting profit is as follows: 17. Share capital and reserves Share capital The Bulgarian legislation requires that companies register their share capital at court. December 31, 2005 the issued and registered share capital of the Bank amounts to BGN 25,000 thousand, fully paidin. The share capital of the Bank comprises 2,500,000 ordinary voting shares with a par value of BGN 10 each. (Unofficial translation from Bulgarian) 18

17. Share capital and reserves (continued) Reserves Reserves comprise statutory reserves, revaluation reserves, general reserves and retained earnings from prior periods. The revaluation reserves comprise the revaluation surplus of assets. Under the local legislation Municipal bank AD is required to allocate minimum 20 percent of its current year profit to statutory reserves to reach the amount of 1.25% of assets and offbalance sheet commitments. Every year these reserves are replenished to the amount required by Bulgarian law by decision of the BNB Bank Supervision and upon decision of the General Meeting of Shareholders of the Bank. The general reserves are allocated according to Art. 246 2, item 4 of the Commercial Act upon decision of the General Meeting of Shareholders. 18. Interest income and interest expenses (Unofficial translation from Bulgarian) 19

19. Net fee and commission income 20. Net gains from dealing with trading securities 21. Net gains from dealing with foreign currency 22. Net other income (Unofficial translation from Bulgarian) 20

23. General and administrative expenses 24. Allowances for impairment and uncollectability Movements in allowances for impairment and uncollectability in 2005 is as follows: 25. Related parties During the reporting period the following companies are related parties: Related party Sofia Municipality Lizingovo Drujestvo OOD Type of relation Major shareholder of the Bank Share participation in Bank's equity of 9.8% The major shareholder of the Bank Sofia Municipality, owns 67% of the Bank's registered capital. Approximately 13% of the amounts due to nonfinancial institutions represent funds of the major shareholder of the Bank and its related parties. There are no preferential terms provided for servicing these accounts. December 31, 2005 the Bank has an exposure on issued bank guarantees to related parties of the major shareholder, representing 0.42% of total issued bank guarantees. December 31, 2004 the Bank has an exposure on granted loans and issued guarantees to the companies related to the major shareholder representing 0.15% of the total loans and 1.09% of the total guarantees issued. (Unofficial translation from Bulgarian) 21

25. Related parties (continued) December 31, 2005 and 2004 the granted loans and received deposits from companies related parties are as follows: All loans of employees and administrators are collaterised wholly by mortgages, cash or other collaterals. December 31, 2005 the amount of the remuneration of the management represents shortterm income of hired persons as salaries, social and health securities, paid annual leave, paid sick leave and premiums at the total amount of BGN 698 thousand. 26. Risk management Liquidity and interest rate risk The liquidity risk measures the ability of the Bank to perform its obligations at maturity, to manage the unexpected decreases or changes in the financing resources and to convert its assets into cash as fast as possible and with minimum loss of their value. The Bank maintains its liquidity profile in compliance with the regulations of the Central Bank. The tables below analyze assets and liabilities of the Bank into relevant maturity groupings based on the remaining period to the balance sheet date and to the contractual maturity date. (Unofficial translation from Bulgarian) 22

26. Risk management (continued) The assets and liabilities of the Bank mature over the following periods as of December 31, 2005 based on remaining maturity: (Unofficial translation from Bulgarian) 23

26. Risk management (continued) The assets and liabilities of the Bank mature over the following periods as of December 31, 2004 based on remaining maturity: The dynamics of the liquidity exposures of the Bank is analyzed and monitored on a daily basis. Different techniques and models are applied for liquidity management. Management believes that the diversification of deposits by number and type of depositors, and the past experience of the Bank provide reason to believe that the deposits ensure a longterm and sustainable source of funding for the Bank. The Bank is exposed to the effects of changes in the prevailing levels of market interest rates on its financial position and cash flows. The Bank's interest rate exposures are managed using interest rate sensitivity time gap models, as well as by daytoday monitoring and analysis of the structure of the interest rate balance sheet and offbalance sheet exposures and the net interest income. (Unofficial translation from Bulgarian) 24

26. Risk management (continued) The table below summarizes the effective interest rates by major currencies for monetary financial instruments: Credit risk The Bank is exposed to a credit risk, which is the risk in case a counterparty fails to pay amounts in full when due. 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 a group of borrowers. To manage the level of credit risk, the Bank deals with counterparties of high credit standing and always ensures adequate collateral. Exposure to credit risk is also managed through regular analysis of the ability of borrowers to meet interest and principal repayment obligations. To avoid concentration of loans to nonfinancial institutions the Bank has established and observes industry limits. For transactions with other banks without collateral, limits for deposits, FX transactions and portfolio limits, approved by management are observed. The limits are determined using the method of internal rating, based on international credit ratings of foreign correspondent banks and the financial position of local banks. Market risk All market instruments are subject to market risk. The instruments are recognized at fair value and all changes in market conditions directly affect net trading income. Exposure to market risk is managed by the Bank in accordance with risk limits set by management. (Unofficial translation from Bulgarian) 25

27. Foreign currency exposures The financial exposure of the Bank and its cash flows are subject to exchange rates fluctuations. The Bank monitors on a daily basis its foreign currency exposure for compliance with the regulatory requirements of the Central Bank for observing the limits for open positions by currencies and net open position. The table below summarizes the exposure to foreign currency exchange rate risk as of December 31, 2005. Included in the table are the Bank's assets and liabilities at carrying amounts in thousand Bulgarian Levs, distributed by type of currency. EUR USD BGN Other Total Assets Cash and balances with the Central Bank and nostro accounts with other banks Placements with, and loans and deposits to other banks Receivables under repurchase agreements Trading securities Securities available for sale Loans and advances to customers Other assets Fixed assets 3,484 52,820 21,423 4 47,879 6 10,855 1,920 18,082 2,456 21 8,726 48,304 1,300 11,644 126,810 2,045 101,032 1,183 4,839 2 58,547 72,202 11,644 150,689 2,070 157,637 1,191 10,855 Total assets 136,471 31,205 292,318 4,841 464,835 Liabilities Deposits from banks Amounts due to other depositors Liabilities under repurchase agreements Longterm borrowings Shortterm loans Other liabilities 1,311 38,309 54,299 6,910 770 1,971 28,389 552 1,802 282,445 200 711 1,743 3,469 674 14 8,553 349,817 200 55,010 6,910 3,079 Total liabilities 101,599 30,912 286,901 4,157 423,569 (Unofficial translation from Bulgarian) 26

27. Foreign currency exposures (continued) The table below summarizes the exposure to foreign currency exchange rate risk as of December 31, 2004. EUR USD BGN Other Total Assets Cash and balances with the Central Bank and nostro accounts with other banks Placements with, and loans and deposits to other banks Receivables under repurchase agreements Trading securities Securities available for sale Loans and advances to customers Other assets Fixed assets 2,887 46,688 31,378 55,127 27 1,629 5,457 5,813 18 23,164 47,152 10,301 7,712 116,220 921 101,115 1,542 12,080 1,414 277 2 53,082 62,723 7,712 153,411 939 179,406 1,571 12,080 Total assets 136,107 36,081 297,043 1,693 470,924 Liabilities Deposits from banks Amounts due to other depositors Longterm borrowings Shortterm loans Other liabilities 154 37,331 52,797 5,911 758 8,213 26,755 888 121 295,252 851 794 1,146 933 8,488 360,271 53,648 6,705 2,792 Total liabilities 96,951 35,856 298,164 933 431,904 December 31, 2005 over 29% of the assets denominated in foreign currency and 24% of the liabilities denominated in foreign currency of the Bank are in EUR, which bears no foreign exchange rate risk, since from January 1, 1999 a fixed exchange rate of the EUR to the BGN was officially introduced in Bulgaria, as disclosed in Note 3. (Unofficial translation from Bulgarian) 27

28. Cash and cash equivalents Cash and cash equivalents as of the end of the reporting period comprise the following balances: Cash in hand Balances with the Central Bank (unrestricted amount) Nostro accounts with local banks Nostro accounts with foreign banks Placements with, and advances to banks Receivables under repurchase agreements Total 31.12.2005 16,303 36,160 474 5,610 72,202 5,897 136,646 31.12.2004 14,541 35,890 555 2,096 62,723 7,540 123,345 29. Commitments and contingencies Commitments and contingencies of the Bank comprise issued guarantees, unutilized amounts under contracted loans and liabilities under commercial letters of credit. December 31, 2005 and 2004 the Bank has issued guarantees to its clients in favor of third parties, amounting to BGN 32,974 thousand and BGN 34,804 thousand, respectively, including BGN 16,749 thousand (2004: BGN 11,842 thousand) for performance bonds, collateralized by blocked deposits at the Bank or by other assets of the customers. The unutilized amounts under contracted loans and overdrafts as of December 31, 2005 and December 31, 2004 amount to BGN 11,592 thousand and BGN 14,870 thousand, respectively. December 31, 2005 and December 31, 2004 the Bank has a liability under commercial letters of credit at the amount of BGN 145 thousand and BGN 71 thousand, respectively. December 31, 2005 and as of the date of approval of these financial statements there are three new commercial lawsuits filed against the Bank as colitigant. The claims bear no property interest regarding Municipal Bank AD. There are three litigations against the Bank in process a labour dispute, civil suit and an administrative suit. The amount of claims is not material. Management believes that no provision should be accrued, as there is no reason to believe that any loss will arise for the Bank. (Unofficial translation from Bulgarian) 28