ANNUAL REPORT SERBIA
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ANNUAL REPORT
SERBIA
2
3
ANNUAL REPORT 2008
Contents
THE YEAR IN REVIEW 5
RETAIL BANKING SERVICE NETWORKS 17
CORPORATE BANKING 23
INVESTMENT BANKING & CAPITAL MARKETS 27
INTERNATIONAL PRESENCE 31
Financial Highlights 6Letter to Shareholders 10Members of the Executive Board and Board of Directors 12Financial Review 14
Retail Banking Network 18Consumer Lending 18Mortgage Lending 19Small Business Banking 20
Corporate Banking 24EFG Leasing 24
Treasury 28Custody Services 28
Eurobank EFG presence in New Europe 32Bulgaria 32Romania 32Turkey 33Poland 33Ukraine 34Cyprus 34
OTHER SUBSIDIARIES 37
OTHER ACTIVITIES OF THE BANK 41
RISK MANAGEMENT 47
CORPORATE GOVERNANACE 51
APPENDICES 55
EUROBANK EFG GROUP AND EFG GROUP 61
EFG Property Services 38EFG Securities 38EFG Business Services 38
Payment Services 42e-Banking 44
Financial Statements 58
The Year in Review
6
FINANCIAL REVIEWFINANCIAL HIGLIGHTS
Note2008
Reclassified
2007
Interest income 6 12.162.261 7.015.327
Interest expenses 6 (3.693.699) (2.331.565)Net interest income 8.468.562 4.683.762
Fee and commission income 7 1.742.740 1.144.422Fee and commission expense 7 (179.855) (189.408)Net fee and commission income 1.562.885 955.014
Net gains from sale of securities 8 44.275 30.883Net foreign exchange gains/(losses) 9 (5.820.004) 373.642Operating and other income 10 237.969 312.852Net provisions and impairment losses on loans and advances 11 (1.317.045) (628.331)Salaries, benefits and other personal expenses 12 (1.781.026) (1.310.993)Depreciation expenses 13 (604.104) (493.658)Operating and other expenses 14 (3.036.605) (2.626.240)Income arising from change in value of assets and liabilities 15 49.449.630 5.946.244Expenses arising from change in values of assets and liabilities 15 (43.010.367) (5.816.926)Profit before tax 4.194.170 1.426.249
Income tax 16 (217.060) (10.807)Profit/(loss) from creation/reduction in deferred tax assets 16 95.499 (96.746)Profit after tax 4.072.609 1.318.696
Earnings per share
Basic earnings (expressed in RSD per share) 17 16,62 8,31
Income Statement in RSD 000
7
ANNUAL REPORT 2008
Assets Note2008
Reclassified
2007
Cash and cash equivalents 18 15.345.227 6.603.153
Callable deposits and credits 19 9.860.633 20.084.883Interest, fees and commission receivables, change in fair value of derivatives and other receivables 20 344.940 141.819
Loans, advances and deposits 21 92.075.597 51.887.418Securities (excluding own shares) 22 141.070 73.620Equity investments 23 20.479 20.479Other lending 24 30.700 5.761Intangible assets 25 1.107.393 965.780Property, plant end equipment 26 4.070.235 3.760.160Deferred tax assets 27 167.803 72.304Other assets, prepayments and accrued income 28 865.189 494.312
Total assets 124.029.266 84.109.689
LiabilitiesTransaction deposits 29 8.012.520 9.683.529Other deposits 30 77.168.271 49.961.806Borrowings 31 23.120 10.152Interest, fees and commissions payable and change in fair value of derivatives 32 6.706 16.452
Tax liabilities 33 47.728 32.553Provisions 34 217.062 96.079Liabilities from profit 35 207.854 6.938Other liabilities, accruals and deferred income 36 2.649.151 1.737.689Total liabilities 88.332.412 61.545.198
Shareholders’ equityShare capital and other capital 37 31.481.926 22.422.172Reserves 37 568.083 568.083Accumulated gains 37 28.556 28.556Accumulated losses 37 (454.320) (1.773.016)Current year profit 37 4.072.609 1.318.696Total shareholders' equity 35.696.854 22.564.491
Total liabilities and shareholders' equity 124.029.266 84.109.689
Off Balance Sheet itemsFunds managed on behalf of third parties 38 2.603.269 2.737.809Guaranties, sureties, assets pledged as collateral and irrevo-cable commitments 38 46.176.531 25.444.138
Guaranties, sureties and collaterals received 38 15.704.922 9.640.549Derivatives 38 69.863.421 39.116.127Other off-balance sheet items 38 287.074.416 215.071.236
421.422.559 292.009.859
Balance Sheet in RSD 000
8
Cash inflow from operating activities 2008Reclassified
2007
Inflow from interest 11.567.484 6.778.390
Inflow from fees and commissions 1.908.278 1.478.059Inflow from other operating income 2.983.898 750.162
16.459.660 9.006.611
Cash outflow from operating activitiesOutflow from interests (3.199.692) (2.119.782)Outflow from fees and commissions (158.664) (254.703)Outflow from gross salaries, benefits and other personal expenses (1.923.387) (1.314.277)Outflow from taxes, contributions and other duties charged to income (65.559) (313.406)Outflow from other operating expenses (2.565.083) (2.419.099)
(7.912.385) (6.421.267)
Net cash inflow for operating activities before increase or decrease in loans investments and deposits
8.547.275 2.585.344
Decrease in loans and investments and increase in deposits Decrease in securities - 7.029.022Increase in deposits 25.504.711 14.144.563
25.504.711 21.173.585
Increase in loans and investments and decrease in depositsIncrease in loans and placements with banks and other financial organizations (33.817.992) (27.169.268)Increase in securities (23.175) -
(33.841.167) (27.169.268)
Net cash inflow for operating activities before profit taxProfit tax paid (16.144) -Dividends paid - -Net cash inflow for operating activities 194.675 (3.410.339)
Cash flow from investing activitiesCash inflow from investing activitiesInflow from selling of long term investments - 5.418.410Inflow from selling of intangible assets and fixed assets 6.966 22.598
6.966 5.441.008
Cash outflow from investing activitiesOutflow for obtaining equity instruments - (16.200)Outflow for purchase of intangible assets and fixed assets (1.035.036) (2.783.132)
(1.035.036) (2.799.332)
Net cash flow from investing activities (1.028.070) 2.641.676Cash flow from financing activities
Inflow from share issue 9.059.754 6.055.947Net cash inflow from financing activities 9.059.754 6.055.947
Cash inflow 51.031.091 41.677.151
Cash outflow (42.804.732) (36.389.867)
Net cash inflow/(outflow) 8.226.359 5.287.284
Cash at the beginning of the year 6.603.153 1.471.226
Foreign exchange gains 21.093.583 11.403.896Foreign exchange losses (20.577.868) (11.559.253)Cash at the end of the reporting period 15.345.227 6.603.153
Cash flow Statementin RSD 000
9
ANNUAL REPORT 2008
Share and other capital
Share premium Other reserves
AFS revaluation reserves
Retained earnings/
Accumulated loss
Total shareholder’s
equity
As at 1 January 2007 15.020.927 1.345.299 568.083 249.057 (1.744.460) 15.438.906
Disposal of AFSsecuri-ties - - - (249.057) - (249.057)
14th issue of shares 1.484.400 671.600 - - - 2.156.00015th issue of shares 2.685.100 1.214.846 - - - 3.899.946Current period profit - - - - 1.318.696 1.318.696As at 31 December 2007 19.190.427 3.231.745 568.083 - (425.764) 22.564.491
16th issue of shares 5.165.200 2.334.670 - - - 7.499.87017th issue of shares 1.074.300 485.584 - - - 1.559.884Current period profit - - - - 4.072.609 4.072.609As at 31 December 2008
25.429.927 6.051.999 568.083 - 3.646.845 35.696.854
Statement of changes in equityin RSD 000
10
Dear Shareholders,
Despite the extraordinary market conditions we experienced at the end of the year, 2008 was another very successful year for Eurobank EFG in Serbia. Our bank climbed to the fourth position in the market in terms of assets and is well positioned for continuing its successful operations with a strong network of retail branches and corporate Business Centres, a wide range of products and services and significant market shares in all key business segments.
Financial results were excellent with the total profit after tax reaching RSD 4.1 billion (cca € 50 million) showing a 209% increase over 2007. As a result, ROE increased to 14% compared to 6.9% in 2007 whilst ROA stood at 3.9%.
Total assets increased by 32% to RSD 124 billion (cca €1.4 billion) as a result of strong lending and deposit growth across all categories. Our bank achieved one of the highest growths in market share from all banks operating on the market, as our share grew from 5.4% to 7%.
Deposits grew by 27% compared to 2007 amounting to RSD 62 billion (cca €700 million). Despite the fact that in the last quarter of the year the banking sector experienced a significant outflow of deposits (over 1bn EUR of deposits were withdrawn, representing over 15% of the total market) we managed to protect our deposit base and service our clients without any disruptions. We should also note the very good results we achieved in retail deposits where our market share of 11% - as compared to our share of branches in the country of 5% - is a reflection of the confidence and trust of the Serbian public towards our Bank.
Loans (including cross border lending) also increased by 32% to reach RSD 97.5 billion (just over €1.1
Letter to Shareholders
billion). In retail lending our Bank achieved further growth of its share in the most dynamic segments of the market and is now within the top banks in lending to entrepreneurs (with a market share close to 20%), credit cards (over 15%), mortgage loans and consumer loans (close to 10% in both areas).
Significant progress was also made in the area of wholesale lending, as we extended our network of Business Centres dedicated to servicing corporate clients, grew our portfolio by 50% and are now one of the top lenders in the country co-financing major projects such as the USCE Shopping Mall and the renovation of the “Metropol” hotel in Belgrade.
Tight control of expenses resulted in a substantial improvement in operating efficiency as the Cost-to-Income ratio decreased from 68.3% in 2007 to 49.6% in 2008.
Filippos Karamanolis President of the Executive Board
11
ANNUAL REPORT 2008
Our bank is amongst the best capitalised banks on the market with a statutory capital adequacy ratio of 16% at the end of 2008. During the year, 2 further capital increases were carried out to a total amount of RSD 9.1 billion.
At the end of 2008, Eurobank EFG had a network of 123 branches with wide national coverage and eleven business centres offering high quality services to private individuals and companies. During the year a number of new products and services were introduced such as the APS (Automatic Payment System) terminals for the payment of credit card and loan installments, various enhancements to our e-banking service and the “Ask the Expert” section on our website where customers can address questions to our executives regarding banking products. There was also a change to the legal name of the bank, that is now “Eurobank EFG a.d. Beograd”.
Continuing the expansion of our business activities, a new company – “EFG Asset Fin” – was established, specializing in operating leasing. Together with our other Group companies in Serbia: “EFG Leasing” (specializing in financial leasing), “EFG Securities” (specializing in brokerage), “EFG Property Services” (real estate services) and “EFG Business Services” (Payroll management) we can readily cover all the business needs of our clients.
We also continued with the successful imple me- n t a tion of our Corporate Social Responsibility (CSR) program “We invest in European values” because we truly believe that it is our duty to give back to the community in which we successfully operate. During the course of this program almost €2.8 milli-on have been allocated to projects which support education, public health, environmental protection and the social inclusion of persons with disabilities. In 2009 the successful implementation of our CSR programme was recognized through the receipt of the “Virtus” award for our long-standing cooperation with the Centre for Inclusive Society, the CSR award by the “Serbian Association of business jou rnalists” the “Golden Globe” CSR award by magazine “Bi-znis”.
Looking ahead, it is clear that 2009 will be a very challenging year for the banking sector. The world
is in the midst of a financial crisis of unprecedented scale in recent history, the worst in the last 70 years. Most countries in the region of Central and Eastern Europe are facing significant challenges such as the financing of large current account deficits, a slowdown in both domestic demand and exports and pressure on their currencies. Some of these countries – including Serbia – have already turned towards the IMF and other international financial organisations for assistance and there will surely be more to follow.
In this environment of great uncertainty and low visibility, our main objective in 2009 is to operate with a full sense of responsibility towards our major stakeholders: our clients (both those that have trusted us with their deposits and our lending clients), our staff and our shareholders. To this end, we will be focusing on:
Maintaining and further enhancing our strong ��capital and liquidity positionRisk management and the whole credit cycle ��from underwriting (where more stringent credit criteria are already in place to reflect the in-creased credt risk in the market) to strengthe-ning our Collections activitiesIncreasing pre-provision revenue by active ��management of our Balance SheetTight control of expenses��
We are also fully committed to supporting the Serbian economy and intend to participate actively in any Government programs with this objective.
Despite the current global downturn we remain optimistic about the longer-term prospects of the Serbian economy and are fully committed to continuing our successful operations in the county.
Belgrade, June 2009
12
Filippos KaramanolisPresident of the Executive Board
Slavica PavlovićChief Financial Officer and Board Member
Antonios ChatzistamatiouHead of Corporate Banking Division and Board Member
Danilo ĐurovićHead of Risk Management Division and Board Member
Vuk Zečević Head of Treasury Division and Board Member
EXECUTIVE BOARD
Georgios Michalakopoulos Head of Operations and Organisation Division and Board Member
Nataša KovačevićHead of Human Resources Divisionand Board Member
13
ANNUAL REPORT 2008
BOARD OF DIRECTORS
David WatsonPresident
Members:
Independent Members:
Piergiorgio Pradelli
Nikolaos Aliprantis
Slobodan Slović
Georgios Michelis
Angelos Tsichrintzis
Theodoros Karakassis
Stavros Ioannou
Evvagelos Kavvalos
14
FINANCIAL REVIEWThe year 2008 was very challenging and at the same time very successful for Eurobank EFG. In the dawn of global financial crisis, the Bank has reacted promptly in order to safeguard its assets and ensure stabil-ity of operations in this turbulent time. As a result of substantial growth, along with increasingly signifi-cant role in the market, the financial result for 2008 exceeded the targets set by the Bank’s management at the beginning of the year. More specifically, the Bank realized net profit in the amount of RSD 4.1 bil-lion (EUR 50 million) as compared to 2007 net profit of RSD 1.3 billion (EUR 16.5 million).
The Bank’s assets increased by 32% and amounted to RSD 124 billion (EUR 1.4 billion) at the end of 2008 as compared to RSD 84 billion (EUR 1.1 bil-lion) at the end of 2007. This increase was mainly accounted for by the dynamic expansion of the loan portfolio (excluding placements to domestic and for-eign banks and short term placements to the mother company and including cross border lending), which grew by 32% reaching RSD 97.5 billion (EUR 1,101 million). More specifically, lending to retail custom-ers (mortgage, consumer and lending to entrepre-neurs) increased by 18% to RSD 48.5 billion (EUR 547 million) and business lending increased by 50% to RSD 49 billion (EUR 553 million) – including cross border lending.
Deposits from clients (excluding liabilities to domes-tic and foreign banks and short term borrowings from the mother company) increased by 27% reach-ing RSD 61.9 billion (EUR 699 million).
The growth of the Bank’s loan portfolio and in-creased capital investments led to 78% increase in net interest income, which amounted to RSD 8,5 bil-lion (EUR 104 million). In 2008 net interest margin reached at 8.1%.
16.5
Net Profit (in EUR mio)
203%
2007 2008
50.0
833
Total Gross Loans (in EUR mio)*
2007
32%
2008
1,101
*Excluding placements to domestic and foreign banks and short term placements to the mother company and including cross border lending
550
Deposits (in EUR mio)*
2007
27%
2008
699
*Excluding liabilities to domestic and foreign banks and short term borrowings from the mother company
15
ANNUAL REPORT 2008
Net fee and commission income registered increase of 61% reaching RSD 1.6 billion (EUR 19 million, due to increase in commission from banking ser-vices and documentary business.
Net Interest and Commission income increased by 75%, reaching RSD 10 billion (EUR 123 million) and accounted for 92% of the total operating income of the Bank. Total operating income increased by 66% and reached RSD 10.9 billion (EUR 134 million).
Despite very significant growth and expansion of the Bank, its efficiency ratio showed more than a signifi-cant improvement. More specifically Cost to Income ratio decreased from 68% to 49%.
The improvement of the Bank’s profitability led to in-crease in the average Return on Assets (after taxes) which reached 3.9% as compared to 1.8% in 2007. At the end of 2008, capital adequacy ratio reached 16%. The Bank reached 4th place in the market in terms of total assets and 3rd in terms of shareho–lders’ equity.
12
Net Fee andCommission Income (in EUR mio)
2007
61%
2008
19
59
Net Interest Income (in EUR mio)
2007
78%
2008
104
81
Operating Income (in EUR mio)
2007
66%
2008
134
68.3%
Operating Income (in EUR mio)
2007 2008
49.6%
Retail Banking Service Networks
18
Retail Banking Network
In 2008 Eurobank EFG continued with Branch Network expansion, finishing the year with 123
branches, 11 business centers and 5.1% of the market share of the total number of branches in Serbia. In 2008, we have implemented a new ser-vice named Automated Payment System (APS), with the aim of raising the overall quality of services at Eurobank EFG Serbia to a higher level.
Direct Sales Agents (DSAs), as the bank’s alte-rnative distibution channel, began the sale of Small Business Banking loans in February 2008. New DSAs as well as cu rrent DSA top performers in Customer Lending were trained in the sale of Small Business Banking loans. DSA participation in total Retail Net-work Products Sale was as fo llows: Consumer Lend-ing - 13.29% on average (Credit Cards - 11.85%, Payrolls– 19.06%, Consumer Loans - 8.96%) and Small Business Banking – 8.63%. The Direct Sales force ended the year with 51 agents.
The Retail Deposits Unit continued executing its strategic decision to become the top of mind Serbian bank for savings. In 2008, Eurobank EFG managed to increase its deposits level under the manage-ment of Retail deposits by 23.32%, despite Octo-ber turmoil that caused the entire market to face a decline. This overall increase in deposits led to an increase in the market share of private individuals’ deposits from 8.87% in December 2007 to 10.91% in December 2008.
The Small Business Banking Sales Department trained over 100 Small Business Banking Officers (SBBOs) and all of the Branch Managers in the Net-work Division over the course of 2008. The number of SBBOs has increased from 96 to 170 since the training commenced this year.
We have achieved the first place in the Small Busi-ness Banking segment with a 20% of market share, and more than 100% of increasing portfolios. These exce llent results were aided by Direct Sales Agents, who acted as an alternative sales channel, as well
as by the accounting agencies, real estate agencies and Group Sales clients whom we had exce ptional coo peration with.
Consumer Lending2008 was a challenging year for the Consumer Lending market as the Division saw significant changes. The main characteristic of these changes was a tightening of the monetary policy imposed by the National Bank, aimed at restricting customers’ exposure to lending. As a consequence of this, the Consumer Lending market decreased by 4.5% in 2008. The main driver of this decrease was the si-gni ficant reduction in cash loans, following a trend that started in 2007. Despite all this, Eurobank EFG has managed to maintain its leading position in the Consumer Lending market and is among the top three banks in the area of Consumer Lending - increasing its market share to 9.03% in 2008 ver-sus 8.96% in 2007.
A main contributor to this success was the growth of credit cards. Quicker application processing and the availability of instant cash within 24 hours after card approval made Eurobank’s credit card product very attractive and massively accepted by custo-mers. As a result of this heightened performance, in 2008 Eurobank positioned itself as a leader in credit cards while issuing for Visa, Master Card and DinaCard across the Serbian market. Eurobank si-gnificantly increased its market share of the indu-stry to 18.91% this year, compared with 16.71% in 2007.
Although outstanding balances in Consumer Lend-ing in 2008 have decreased by almost 4%, profi-tability was maintained at very good levels, exhibi-ting the quality of our portfolio.
Apart from greater emphasis on the credit quality of our portfolio this year, efforts and resources were focused on fraud prevention. A major success du-ring this period was the completion of the project to have chip cards accepted in all Eurobank ATM
19
ANNUAL REPORT 2008
Keeping this in mind and remembering that Serbian ML/GDP ratio is 4% (in contrast to across Eastern Europe where the same ratio is 7%, the EU where the ratio is 36% and some other developed cou-ntries where the ratio is up to 80%), it is evident that there still remains a wide gap to be filled by the mortgage loan industry in Serbia.
Currently, the number of mortgage loans made in Serbia is around 65,000, of which 6,500 are co-mming from Eurobank EFG. The total outstanding balance of disbursed loans in Serbia is around EUR 2 billion, of which EUR 192 million are Eurobank EFG mortgage loans.
The world economic crisis, which also impacted the Serbian market, together with restrictive measures from the Serbian Central Bank caused a significant decrease in all of the bank’s lending activities, inclu-ding mortgage loans.
According to Credit Bureau data, market growth declined in 2008 to around 48.8%, compared with 105% in 2007 and 131% in 2006.
machines for Visa and MasterCard. This new mea-sure prevents Eurobank EFG from beeing liable for fradulent transactions.
In 2008, Eurobank EFG continued its effort to in-crease and improve customer service for all its exi-sting products and for newly introduced ones. This year the product mix was enriched by the addition of another very well known and popular product, Visa Electron. By offering this product to current account holders, Eurobank EFG is able to further prove its continuous effort to maintain high levels of customer loyalty and satisfaction.
Additionally, during 2008 Eurobank EFG further strengthened and expanded in the area of mer-chant clientele. Despite the market slow down, Eu-robank EFG continues to be perceived as one of customers’ first choice when it comes to consumer loans. As a result of this, 2008 market share in this segment increased to 8.93% versus 6% in the pre-vious year. In the car loan business, Eurobank EFG continued financing customers through cla ssic car loan products, maintaining the top position in this and in leasing financing categories among the first five banks.
Mortgage LendingThe Serbian real estate market is slowly developing (growing), but demand continues to be four times higher than supply. This, in combination with credit expansion, has contributed to an increase in real esta te prices in last few years.
To satisfy increasing demand it is estimated that it would be necessary to build 30,000 apartments each year. Currently, around 10,000 apartments are built each year across Serbia. Taking into co-nsideration current supply and demand on real estate market, saturation of mortgage loan ma–rket is not expected in near future.
The average salary in the country is around EUR 400 monthly and the average mortgage loan is made for around EUR 30,000 across an average of 20 years. The average mortgage loan installment is for EUR 200 – amounting to 50% of the average salary.
10%
90%
10% Eurobank EFG 90% Other banks
Mortgage lending market share in 2008
20
Small Business Banking A strategic focus on this market segment, combined with product innovation and Eurobank EFG’s spe-cialized advisor expertise, led to an impressive 80% increase in small business lending this year. Small business lending reached EUR 220 million by the end of 2008. With this achievement, Eurobank EFG assumed the leading role in small business lending in Serbia.
Known for its flexibility and responsiveness, the Bank continued to improve its products on offer. Thanks to continuous investment in process auto-mation, the Bank managed to further enhance its capacity and operational efficiency in order to be able to serve a much larger number of clients faster than before.
In addition to lending activities, Eurobank EFG reinfo-rced its full banking relationship approach towards small business clients. In this respect, it offered a very favorable interest bearing current account which is linked to a set of characteristics aimed at facilitating daily transactions for the small business client (including overdraft, advanced e-banking se–rvices, etc).
Small Business Banking Loans (in EUR mio)
127
220
0
50
100
150
200
250
2007 2008
300
80%
Outstanding Balances of ML per Month (in EUR mio)
PLACEMENTS
0
50
100
150
200
250
JANUARY
FEBRUARYMARCH
APRILMAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
21
ANNUAL REPORT 2008
Corporate Banking
24
Leasing facilities (see later section),��
M & A advisory services via the Bank’s affili-��ates.
Finally, in 2008, the Division was reinforced with the establishment of the Business Development Department which supports sales units via targeted campaigns addressing the needs of specific market segments, new product developments and internal workflow re-engineering.
EFG Leasing2008 has been a prosperous year for Eurobank EFG’s leasing activities in Serbia. This is mainly due to an expansion of the local market, a wider range of products on offer and the establishment of a new company EFG Asset Fin d.o.o. to cover operational leasing.
EFG Leasing and EFG Asset Fin can now offer a variety of flexible solutions to clients and can com-pete successfully on the local market. Besides the standard financial leasing products (passenger and commercial vehicles, construction and industrial equipment), EFG Leasing has developed a variety of additional attractive products, including a Sale & Lease Back option, Subleasing and Vendor Financ-ing.
In 2008 EFG Leasing achieved dynamic growth evidenced by satisfactory profitability and a higher market share.
A close relationship with other members of the Eurobank EFG Group makes the company’s susta-inability much more likely than that of its compe-titors.
EFG Asset Fin was officially established in March 2008 and its operations commenced in April 2008. EFG Asset Fin offers operational leasing with a focus on vehicles and construction machinery.
For the first time, EFG Asset Fin has succeeded over the last six months to cover all market needs and be-come a respectable player within the Serbian leas-ing market. Furthermore, strong cooperation with several official distributors has been established.
Corporate Banking
The Corporate Banking Division of Eurobank EFG continued its expansion during 2008. The high
quality of its lending portfolio, developed during the previous two years, was expanded to include sev-eral medium large entities and numerous small me-dium enterprise (SME) companies. The SME port-folio has been significantly increased by more than 150% during 2008. Overall, the Corporate Banking portfolio grew from EUR 322 million at the end of 2007 to EUR 494 million at the end of 2008. The Corporate Banking Division offers a wide range of flexible banking services and products to both ex-isting and potential clients through its specialized sales network.
This network includes:
Large Corporate Department, located in Be-��lgrade, which addresses the global banking needs of companies with a turnover of more than EUR 10 million; andSME Department, covering the banking require-��ments of companies with a turnover of EUR 0.5 million to EUR 10 million. This Department ope rates via a specialized network of business centers in Belgrade (2 locations), Novi Sad, Niš, Kragujevac, Čačak, Šabac, Subotica and Novi Pazar (i.e., in all geographical regions in Serbia).
Corporate clients enjoy a wide range of regular and complex banking services which are summarized below:
Working capital credit lines,��
Investment loans for expansion of production, ��warehousing, or office facilities,Treasury products,��
Cash management and transactional banking ��services, Project financing covering residential, comme–��rcial and retail projects,Trade finance,��
Payroll services,��
25
ANNUAL REPORT 2008
Current market share in terms of new production is at 3.26%.
Overall, at the end of 2008 our leasing activities have recorded growth in the volume of investments within the leasing segment up by 158% compared to the previous year.
DateEFG Leasing
participation on the market
December 31, 2006 0.5%
December 31, 2007 2%
September 30, 2008 3.4%
Investment Banking & Capital Markets
28
2008 turned into a year full of challenges for the Treasury Division of Eurobank EFG in Serbia.
A strategic objective for the Treasury Division was to consolidate and obtain a leading po-
sition for Eurobank EFG in Capital Markets so that during these volatile times additional liquidity could be provided to the Bank. Most of the money markets were not functioning during 2008 (especially from the end of September on) and trust between banks worldwide was severely diminished. Eurobank EFG had implemented a clear and strong strategy from the beginning of 2008 to improve its deposit port-folio and to gather liquidity. This stra tegy has been accomplished thanks to the well organized deposit units within the Bank, as well as to our long-term cooperation and strong relationships with existing and new clients.
The Trading Department (FX, MM and Bonds) generated increased profits in 2008 thanks to its active involvement in all aspects of market development, its strategy seeking to disperse risk and most importantly in this year, its ability to provide liquidity. These excellent results were mainly due to the department’s utilization of opportunities that arose during 2008. Eurobank EFG was, and still is a leader in the FCSB Bond market holding a 95% market share in 2008.
Still very high in its two week REPO rate, the Division sustained significant trading volumes in its operations with the Central bank (from a 9.50% increase to 17.75% at the end of 2008).
Proper staffing and organization structure allowed the Treasury Sales Department to increase its profits. This was encouraged by a wide range of new clients, including large and medium size enterprises, institutional customers and private customers - all of whom require a wide range of products and services (FX, interest rates, bonds and derivatives).
During the past year, the Division continued to develop front-office systems – a centralized information system for the real time recording and
monitoring of transactions. In addition, the Division implemented back-office systems for the execution and clearing of deals (GATOS).
Despite the credit-crunch and liquidity crisis, the Treasury Division managed to ensure major functions, including necessary funds and liquidity, would enable the Bank to sustain high loan growth rates in order to increase its market share in Serbia.
Custody Services
Eurobank EFG Serbia is a leading local bank in providing securities services to the local market. In August 2007, the Securities and Exchange Commission licensed Eurobank EFG Serbia to initiate custody operations in the Securities Market (decision number 5/0-11-4295/4-07).
Within one year, up to 2008, the Bank has managed to be among the top 3 local custodian banks according to assets under custody. Our Custody is fully committed to the idea of taking a leading position on the securities services market while offering a wide range of services to our clients.
Eurobank EFG has become a confidential partner to our custody clients by offering competitive quality products such as: safekeeping and settlement services, income processing, corporate actions, recordkeeping, reporting and tax reclaims. Since last year when new, high-class, secure software for supporting custody services was implemented, the Bank was able to meet the most comprehensive and complex custodial needs. High straight-through-processing rates (STP), the largest amount of experience in the local market in working with securities and the availability and reliability of our services, all significantly contribute to its results.
Treasury
29
ANNUAL REPORT 2008
International Presence
32
Eurobank EFG presence in New Europe
In 2008, the Eurobank EFG group sustained its balanced growth in the seven countries of New Eu-
rope where it operates,i.e. Bulgaria, Serbia, Roma-nia, Turkey, Poland, Cyprus and the Ukraine, offering sophisticated and attractive products and services, through an extensive network of 1,244 branches, business centres and points of sale, and a work-force of more than 14,000 people. Special empha-sis was placed throughout the year on enhancing the deposit base and further reinforcing internal risk management structures, with the aim of safeguard-ing the Group in anticipation of the gradual deterio-ration of the international financial climate.
Slowly, but surely, the global economic crisis is also being felt in New Europe, affecting economic activ-ity, investment and the financial sector. Dealing with the crisis promptly and efficiently will require coop-eration among supranational organizations, govern-ments and regulators, with the active involvement of financial institutions.
The Eurobank EFG group has made strategic invest-ments in the region, addressing a market with a to-tal population of more than 195 million, which fea-tures a low degree of financial service penetration and shows excellent long-term growth prospects. Taking into account the major economic slowdown anticipated of in all countries, as well as the adver-sity of the overall economic environment, in 2009 Eurobank EFG will continue to emphasize on main-taining adequate liquidity and ensuring asset qual-ity, as well as operating cost discipline, and to stand by its clients by offering functional and rationally-priced products and services.
Moreover, Eurobank EFG is consistently pursuing its active involvement in the social process of the re-gion, through multiple social responsibility initiatives and the sponsorship of selected foundations and organizations from the fields of Education, Health, Culture, the Environment and Sports.
BulgariaThe year 2008 has been another year of successful operation for Postbank, which retained its leading position among the three top banks in the country, offering innovative and competitive products and services.
The Bank is ranked fifth in terms of assets, with a market share of 7.8%. In 2008, the Group’s loans in Bulgaria recorded a 37% increase to €3.3 billion, while deposits increased by 15% to €1.9 billion. In deposits, the market share reached 9.1% by the end of the year. The sound expansion of the Bank and its subsidiaries’ operations, along with cost growth containment, led to an impressive 43% increase in profits, which amounted to €71 million.
The upgrade of 231 branches and 17 business cen-tres that employ 3,000 people, as well as their reno-vation during 2008, helped optimize the services rendered.
In 2008, the Bank, in cooperation with EFG Eu-robank Securities, introduced EFG’s mutual funds to the Bulgarian market, thus covering a wide range of investment proposals and stock market services.
The nomination of Postbank as the top investment intermediary; its distinction as “Bank of the Year” at the financial exhibition “Banks, Investment, Mon-ey”; its distinction for innovation and quality in in-vestment products; and the award it received as the “Best Bank in Tourism”, attest to the high quality of its products and services, and the commitment of its personnel and management towards customers and shareholders.
Always adhering to the principles of corporate social responsibility, Postbank took initiatives related to the natural environment, and offered on-the-job training to students and scholarships to school pupils.
RomaniaIn 2008, Bancpost established itself as one of the leading financial institutions of Romania, reaching the eighth place in terms of assets, with a market
33
ANNUAL REPORT 2008
share of 4.7%. This was due to the growth of its net-work, which reached 293 branches and 17 business centres, and to the management’s prompt response to the extremely volatile conditions prevailing in the market.
Bancpost covered the needs of the Group’s retail customers in Romania and supported the busi-nesses’ plans, contributing to the growth of the lo-cal economy. The 26.5% increase of the Group’s assets in Romania, which reached €6.0 billion, was mainly based on deposit growth through the offer of targeted savings programs. The public’s response to these programs led to a 68% increase in deposits and a consequent increase in market share from 4.0% in 2007 to 4.9% in 2008, but also led to a large drop of the loans to deposits ratio to 159% from 214% in the previous year. Loans amounted to €4.0 billion, increased by 25.8%.
Expense growth was contained to 2007 levels, de-spite the expansion of the Branch network, leading to a 12 percentage point improvement of the cost/income ratio, which stood at 59% by the end of 2008.
Special mention should be made to the awards granted to the Organization for its performance dur-ing 2008. More specifically, Bancpost was select-ed as “Retail Bank of the Year” by the prestigious “Saptamana Financiara” magazine, and was named “Bank of the Year” by “The Diplomat” magazine. Distinctions were also granted to high-ranking ex-ecutives of the Bank for their contribution and busi-ness activity, with Mr. Yannis Kougionas selected as “Greek Businessman of the Year” by “The Diplomat” magazine, and Mrs. Manuela Plapcianu,
Managing Director, receiving the “Most Admired Businesswomen 2008 – Leading Corporate Execu-tive Award” by the “Bucharest Business Week”.
TurkeyIn 2008, Tekfenbank was fully aligned to the vision and business strategy of the Eurobank EFG Group. In this vein, the Group’s Turkish subsidiary bank was renamed from Tekfenbank to Eurobank Tekfen
A.Ş. in January 2008. The Bank continued to grow, opening seven new Business Centres in Istanbul and Ankara, while the existing branch network was renovated in accordance with the new corporate identity. Moreover, many infrastructure projects, as well as the organizational structures required for op-erations growth, were realized. More specifically, all back office operations, as well as the loan approval, review and monitoring functions were centralized.
The lending portfolio, which mostly consists of loans to medium-sized and large enterprises, stood at to €1.0 billion, increased by 43% year-on-year, while the Bank also improved its position in the leasing and factoring sectors. There was enhanced presence in the capital markets’ segment, as EFG Istanbul Secu-rities captured 8.3% of foreign investor transactions executed at the Istanbul Stock Exchange in 2008.
As part of its growth strategy, the Bank expanded its products and services offer. In the past year it cre-ated a Custody Department, and restructured the Affluent Banking sector, emphasizing on the sale of capital market products. Moreover, the range of investment products was expanded through the cre-ation of type A Mutual Funds and the restructuring of type B Fund management, in cooperation with EFG Istanbul Securities.
PolandIn 2008, less than three years since its launching, Polbank EFG turned profitable, delivering €13.4 mil-lion. This is a remarkable achievement given that the Bank’s growth has been purely organic, gradu-ally opening 325 branches and six business centres all over the country.
Polbank EFG outperformed the Polish banking mar-ket in terms of business growth, increasing its as-sets by 124% to €4.9 billion and capturing a 4.3% market share in retail lending and 1.5% in depos-its.
The Bank’s brand awareness was improved in 2008, reaching 51% of the public, according to the relevant surveys. Polbank EFG won many awards and distinctions, including: a “Nomination for Bank-
34
ing IT leader” by the Gazeta Bankowa publication, the “Golden Consumer’s Laurel” award for its retail savings account and the “Consumer Award 2008” of the Grupa Media Partner organization, the “Effie nomination” for financial services advertising and a ranking as the “2nd Best Account” by the Gazeta Wyborcza newspaper.
UkraineDuring its second year as a member of the Eurobank EFG group, Universal Bank was transformed from a locally focused bank to a credit institution with a widespread geographical footprint in the Ukraine, controlling a network of 180 branches and five busi-ness centres. Universal Bank is continuously im-proving its position in the country’s banking market, which comprises more than 160 banks, rising from the 74th place in 2007 to the 25th place in terms of assets (€0.8 billion) by late 2008.
Its customer base, which mainly consists of retail customers, rose from 40,000 in early 2008 to more than 150,000 by the end of the year. Customer confidence reflects the bank’s very strong credit-worthiness. More specifically, in September 2008 Universal Bank was assigned a uaAA rating with a stable outlook by Credit-Rating, the country’s na-tionally recognized credit rating agency. This is the second highest rating in the Ukraine. The suprema-cy of Universal Bank’s products was recognized by many agencies. The Bank won the second prize in the “Most Dynamic Bank” and “Best Banking Prod-uct” categories of the Master Card awards and won the Silver EFFIE 2008 advertising award in the new product category.
CyprusIn the brief period of its operation in Cyprus, Eu-robank EFG has financed a large number of Cypriot and other companies, while developing the provi-sion of investment services to institutional clients and extending its cooperation with international firms. The offer of investment and deposit products was highly successful, as deposits reached €1.0 bil-lion by the end of the year.
In March, all operations of the Cyprus Branch were transferred to the Group’s new subsidiary, Eurobank EFG Cyprus Ltd, after the necessary license was granted by the Central Bank of Cyprus. The Group proceeded to a €100 million share capital increase, bringing the Bank’s issued and paid up capital in Cyprus to a total of €197 million. In April, the Group was granted an official permit by the Central Bank of Russia to establish and operate a Representation Office in Moscow for purposes of market research, the provision of information about the Eurobank EFG Group to Russian entrepreneurs, as well as the pro-vision of any possible assistance to entrepreneurs wishing to operate in the Russian market. Eurobank EFG Cyprus Limited established three new Business Centres in Limassol and Larnaca. Thus, the Cypriot network comprises four Business Centres, focused on Large Corporate, Organizations, International Business, Private Banking, Investment Banking and Institutional Fund Management.
New Europe Profits (in EUR mio)
88
Total PAT
PAT(excl. Ukraine)
2007 2008
+88%73
174,7
137
35
ANNUAL REPORT 2008
Balance Sheet
Romania Bulgaria Serbia Cyprus Poland Turkey Ukraine New Europe
∆%
TotalAssets 6,018 4,212 2,013 1,162 4,922 2,104 830 21,242 48,4%
TotalLoans 3,953 3,347 1,145 426 4,097 1,022 741 14,732 59,2%
TotalDeposits 2,417 1,943 697 955 1,766 741 225 8,731 61,7%
P&L
Operating Income 333,8 201,9 129 14,2 204,9 92,8 69,6 1,043.8 63,5%
Operating Expenses 196,8 101,2 74,8 8,5 151,5 56,6 82,2 669 38,3%
Profitbefore Tax(before MI)
42,2 77,9 39 3,6 16,6 24,5 (48,8) 155,1 83,8%
Net Profit 27,3 70,8 39,4 4 13,4 19,8 (38) 136,7 88,2%
Resourses
Retail Network 293 223 123 - 325 - 180 1,144 -
Wholesale Network 19 11 11 4 7 43 6 101 -
Bulgaria 70,8
27,3
39,4
19,8
13,4
4
-38
Romania
Serbia
Turkey
Poland
Ukraine
2008 2007
Cyprus
New Europe – Key Figures (in EUR mio)
Net Profits per Country (in EUR mio) Cost / Income Ratio (in EUR %)
H 07
82,477,4 75,8
66,2 65 63,6 64,1
9M 07 2007
Q 08
H 08
9M 08 2008
Other Subsidiaries
38
EFG Property Services
EFG Property Services Belgrade continued its su-ccessful expansion and market presence in Serbia during 2008. Despite heavy competition, EFG Pro–perty Services increased its activities on the local market and acquired several large-scale projects from internationally renowned companies. After suc-cessful completion of leasing the “Ušće” Shopping Center in cooperation with Merrill Lynch, EFG Pro-perty Services became an exclusive leasing agent, as well as consultant for Plaza Centers for their three projects currently under construction.
EFG Property Services has assisted the Network Development Department in locating over 35 new branches for Eurobank EFG, thus greatly strength-ening the Bank’s presence on the market.
As Eurobank’s exclusive appraisers, we have per-formed over 4,000 appraisals for the Bank as well as for third parties and have expanded our appraisal network to cover the entire territory of Serbia while maintaining the highest professional and ethical standards. We are strictly compliant with IVSC stan-dards in performing all of our valuations. We have expanded our scope of services to include plant and machinery appraisals, business and industrial
complexes, highest and best use analyses and prop-erty and facility management for two properties ac-quired by our Investment Real Estate Fund with third parties.
EFG Securities
In 2008, Eurobank EFG’s broker finalized the trans-formation from Prospera Securities to EFG Securi-ties. The focus was put on altering the company to fit the demanding standards of the Group and this was reflected throughout all departments, including trading, sales, research and investment banking.
However, the capital markets crisis severely affe-cted the performance of EFG Securities, as the majority of United States and European Union insti-tutional clientele moved to the sidelines after suffe-ring heavy losses all over the world markets. This resulted in a decrease of the market share of EFG Securities from 4.1% to 2.7% in 2008. The liquidity of EFG Securities on the Belgrade Stock Exchange dropped substantially, thus further affecting the performance of the brokerage.
Simultanesouly, EFG Securities’ Research Depa-rtment began producing highly accurate research reports in line with Group standards. It is one of the few research departments in the country publishing its reports for renowned world institutions.
EFG Business Services
Since April 2008, one more company within the Eu-robank EFG Banking Group is operating in Serbia - EFG Business Services. Our new company provides integrated operational support services in the field of payroll administration by using the superior software solutions of EFG Business Services S.A.
HIGH
MEDIUM
LOW
25% 50% 75%
EFG PROPERTYSERVICES
MARKET SHARE
QUAL
ITY
OF S
ERVI
CE
39
ANNUAL REPORT 2008
Athens, which holds a leading position in payroll calculation in Greece.
Employees of companies who decide to receive their salary through Eurobank EFG acquire the special benefits package of banking products and services called ‘’Euro PLATA.’’
Our goal is to identify clients who are seeking a ‘’know-how“ in payroll administration. With supe-rior software solutions and a team of experienced officers, EFG Business Services provides compa-nies with measurable benefits in time and money through its recognizable package of services known as OPM (Outsourcing Payroll Management).
We achieved successful cooperation in the area of payroll calculation with subsidiary companies of Eu-robank EFG, as well as with other strong companies operating in the country.
Other Activities Of The Bank
42
Payment Services Our long term strategy in payment services is to fu-rther improve our global transaction banking envi-ronment in order to deliver customized solutions for client segment-specific needs. We hope that these solutions will embrace a wide range of banking se-rvices such as payment transactions, liquidity ma-nagement, trade finance and securities services.
Eurobank EFG delivers an ample range of services through an international network linked by advanced technology, including significant online banking ca-pability. Our payments businesses consist of:
A significant customer base��
Significant business volumes��
Full coverage of all business lines (Cash Ma–��nagement, Trade Finance, Capital Markets Sales and Securities Services) And a wide range of products for Financial In-��stitutions and Corporations (Current Accounts, Sight Deposits / Overdrafts, Global Payments & Collection Services, Check Services, Liqui-dity Management, Information and Reporting Se rvices, Wholesale Solutions, International Trade Products, Equities and Custody Service)
Through the centralization of our middle and back-office functions, there is streamlined co-operation within the Corporate Banking Division, the Treasury & Capital Markets Division and among the Private & Business clients. Through our continued and disci-plined cost management, we are aiming for ambi-tious targets.
We put sustained effort into identifying the impo-rtant need differences between large corporate businesses, SMEs and individual customers and payment instruments in order to safeguard cu–stomers so they can enjoy flexible and tailored pay-ment services. We protect payment users and pro-viders from fraud by developing a ‘future proofed’ approach that sets clear principles and guidelines rather than defining problems and prescribing pre-set solutions. We are clear and detailed in providing
information for what happens and who is liable if things go wrong. We have increased our competitive value while maintaining sufficient stability in the system and only implement efficient processes with the highest quality controls.
Currently, we are intensively working on the long-term project of changing our customers’ habits through standardization of processes. We are ho-ping to streamline these in order to make cash only used primarily for small payments so that we can increase efficiency by minimizing the number of pay-ments affected by cash.
The 2008 Payment Services activities are detailed in the tables below.
Month
Number of transactions
Incoming - total
Individuals
Corporate
0
200
400
600
800
1,000
1,200
121110987654321
Domestic payments - outgoing number of transactions
43
ANNUAL REPORT 2008
Month
Number of transactions
Incoming - total
Individuals
Corporate
0
500
1,000
1,500
2,000
2,500
1211109876543210
50,000
100,000
150,000
200,000
250,000
300,000
350,000
121110987654321Month
Number of transactions
Outgoing - total
Individuals
Corporate
Month
Number of transactions
Incoming - total
Individuals
Corporate
0
200
400
600
800
1,000
1,200
121110987654321
Domestic payments - incoming number of transactions
International payments – outgoing number of transactions
International payments - incoming number of transactions
44
Percent
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
121110987654321
Value of trn Number of trnMonth
e-Banking Since our operational merger with Nacionalna štedionica and the establishment of the FC@e-bank-ing application – as the Group’s standard and the Bank’s alternative customer service cha nnel - an emphasis has been placed on the stabilization and localization of the services. This includes services being offered to the Bank’s customers (both Retail and Corporate) and this new competitive emphasis fares well against existing e-banking solutions in the local market. These improvements and empahsis on e-banking were guided by the Bank’s need to reduce its operating costs stemming from day-to-day trans-actional business. The provi ssion of an easy-to-use application has been able to benificially extend the Bank’s business communication with its customers in an accessible manner.
Through constant improvement of its functions, our Bank is able to offer today a full scope of electronic services to end-users which follow in line with cu stomers’ habits and new market trends. The e-Banking channels are designed to provide access to all business lines and its flexibility has allowed acco modations for specific customer needs distinctively.
e-Banking share in Bank’s domestic outgoing payments
Domestic payments - value of outgoing transaction
Month
Number of transactions
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
121110987654321Month
Value of transactions
- €
10,000,000 €
20,000,000 €
30,000,000 €
40,000,000 €
50,000,000 €
60,000,000 €
70,000,000 €
121110987654321
Domestic payments - outgoing number of transaction
45
ANNUAL REPORT 2008
Risk Management
48
Effective risk management is a top priority, as well as a major competitive advantage, for
Eurobank EFG. The Bank has allocated ample re-sources for upgrading its policies, methods and infrastructures in order to ensure compliance with best international practices and the regulations of the National Bank of Serbia. Eurobank EFG imple-ments a well-defined credit approval process, in-dependent credit reviews and overall effective risk management policies for market and operational risk. The risk management policies implemented by the Bank, as well as those implemented by the internal audit and compliance departments, are re-viewed annually.
Credit RiskEurobank EFG follows international best practices by implementing a well-defined credit approval pro-cess, independent credit reviews and an overall effective risk management functions. The segrega-tion of duties in the process imposes independence across account officers responsible for the relation-ship between duties, the approval process and the disbursement and credit monitoring done over the life of the loan. The Bank’s credit policies are re-viewed on an annual basis.
The adequacy of the Bank’s provisioning policy is reviewed yearly, while provisions are calculated on a monthly basis and booked on a quarterly basis. Provisions are based on delinquency analysis in the case of retail customers and based on credit rating in case of corporate customers. In case of impaired loans, Eurobank EFG calculates provisions based on impairment analysis, taking into account expected cash-flows, projected recoverability period and re-coverable amount, etc. in compliance with IAS 39 requirements. Special reserves for potential losses are calculated in accordance with NBS require-ments.
In all lending activities, the Bank ensures that the “four-eyes” principle is always applied.
For the evaluation of consumer credit quality and performance, Eurobank EFG uses proper statistical
models (scorecards). The approval process is ce–ntralized and the portfolio is also monitored though a set of statistical analyses.
In mortgage lending, Eurobank EFG employs centra-lized approval. All property collateral valuations are performed by authorized evaluators. Loan amounts depend upon the collateral appraisal and the bo-rrower’s creditworthiness. Portfolio quality is also monitored through a range of statistical analyses.
With respect to small business banking loans, credit approval is based on the following framework: ce-ntralized approval procedures and clear guidelines on collateral.
Corporate lending makes greater use of financial analysis. Liquidity and financial strength are evalu-ated together with various qualitative factors. The evaluation of the corporate lending portfolio is based on a credit rating system that takes the above mentioned factors into account. This system is also used for the quarterly calculation of provisions for the Corporate Banking portfolio.
Moreover, the Credit Control Department regularly audits the various lending units of the Bank, ensu–ring the proper implementation of lending policies.
Credit Review PoliciesFollowing approval, the quality of the Wholesale Banking and Retail Banking exposures is monitored and assessed by the Credit Control Department. The Credit Control Department evaluates the quality of the portfolios through field reviews (case-by-case) for wholesale lending and statistical analyses on a portfolio basis for retail banking.
The Department is also responsible for monitoring the credit review policy. The Credit Control Depa-rtment operates independently from all business units of the Bank and reports to the Risk Executive.
The Bank has set limits and controls regarding the concentration of risk to individual parties, groups or industries. Such risks are monitored on a continual basis and are subject to quarterly or semi-annual re-
49
ANNUAL REPORT 2008
views and approvals by the Board of Directors’ Risk Committee.
Market RiskMarket Risk is the potential loss that may occur from changes in market fundamentals (interest rates, exchange rates, share prices, product/commodity prices and the volatilities of these risk factors).
In order to ensure the efficient monitoring of risks that emanate from the market’s overall activities, the Bank adheres to certain principles and policies. The objectives of these policies are to:
Set the framework and minimum standard for ��market risk control and management through-out the Bank Enable compliance with local regulations and ��EFG Group standardsEstablish a framework that will eventually ��allow the Bank to gain competitive advantage through risk-based decision-making
Liquidity RiskLiquidity risk is the risk that the Bank will be unable to fund assets to meet obligations at reasonable cost or at all; for financial assets the risk is that an instrument cannot be sold or otherwise exchanged for its full market value.
The Bank places funds for mandatory reserve with the National Bank of Serbia for protection against sudden and significant withdrawals of deposits. The Bank manages the liquidity risk by constantly moni-toring a mix of assets and liabilities and by analyzing projected cash flows in order to enable the Bank to fulfill its obligations at any moment.
It is the responsibility of the Assets and Liabilities Management Committee to set liquidity policies and to monitor liquidity in order to guarantee that there are no liquidity issues. The Bank’s liquidity policies are designed to ensure that:
Sufficient liquid assets are maintained to meet ��liabilities as they arise The liquidity position is monitored closely on a ��daily basisSufficient lines are available with Eurobank ��EFG Athens and other counterparties in order to meet all obligations as necessary
Operational RiskOperational risk is the risk of loss resulting from ina-dequate or failed internal processes, people and systems, or from external events.
Above and beyond the need to comply with local regu latory requirements and international best practices, Eurobank EFG recognizes that opera-tional risk management has a crucial effect on the Bank’s overall performance.
The active management of operational risks inherent in operations of the Bank is gradually and methodi-cally embedded into the procedures of organizatio-nal under operation. The individual business units retain principal responsibility for the management of operational risk inherent in their own activities. The Operational Risk Unit reports to the Risk Executive of the Bank and is responsible for the implementa-tion of the operational risk management principles and policy, the establishment of the appropriate tools and the providing of support to individual units regarding the identification, assessment, mitigation, monitoring and reporting of operational risks and for the improvement of internal controls.
Corporate Governance
52
Since its beginning, Eurobank EFG a.d. Belgrade has paid special attention to corporate gove–
rnance issues complying with prescribed guidelines and regulations of the local and Group regulatory bodies.
Operating in an emerging market that is continuou–sly adjusting to the best legal and corporate practic-es of the EU laws, the transparent and accountable governance was one of the most important items on the management agenda. As a member of EFG Group, the bank respects and follows regulations of the Swiss Federal Banking Commission, as well.
Corporate governance sets to secure responsible and good relations between the banks’ manage-ment bodies and its shareholders. It is responsible for the implementation of sound governance rules which comply with the National Bank of Serbia Law on Banks, the Law on Companies of the Republic of Serbia and other prescribed guidelines applied in the regulatory frame of the country in which the bank operates and on the Group level.
MANAGEMENT BODIES OF THE BANKBoard of Directors regularly meets every quarter and makes sure to summon extraordinary meetings whenever needed. In 2008, a total of eight meetings were held at the premises of the Bank in Belgrade.
The Board of Directors consists of nine members including the President, four of whom are indepe–ndent, thus securing highly transparent decision- making process.
Executive Board of the Bank also appoints its sub committees which have a mandate to monitor and discuss other bank business areas.
The Bank has a separate Corporate Governance Unit which facilitates smooth implementation of the best practices. It records managerial, operational and internal control frameworks for the bank and its subsidiaries in the country and makes sure to secure:
Responsible and value-driven management ��and controlEffective cooperation between all governing ��bodes of the Bank
Based on “Internal Governance Manual”, the Bank lays foundation to its overall structure and gove–rnance. In addition, Banks’ “Code of Conduct” was updated in 2008 in an aim to incorporate both the general and sensitive directions towards account-able business conduct, operations and any pote–ntial issues of conflict of interest. It serves as a legal and ethical set of directions that is applicable to all employees equally thus ensures its practical imple-mentation and purpose.
BOARD OF DIRECTORS
AUDIT COMMITTEE EXECUTIVE BOARD ASSET-LIABILITYCOMMITTEE RISK COMMITTEE
CREDIT COMMITTEE REMUNERATIONCOMMITTEE
53
ANNUAL REPORT 2008
Appendices
EUROBANK EFG A.D. BEOGRAD
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008
3, Kolarčeva Street, Belgrade, Serbiawww.eurobank.gr, Tel: (+30) 210 333 7000
www.eurobankefg.rs; EuroPHONE: 0800 1111 44Company Registration No: 17171178
Tax Registration No: 100002532
58
FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2008
Independent auditor’s report 1 1. General information 2 2. Summary of significant accounting policies 3 3. Critical accounting estimates and judgments 17 4. Financial assets per categories and classes 18 5. Risk management policies 19 6. Interest income and expense 39 7. Fee and commission income and expense 40 8. Net gains/(losses) from sale of securities at fair value through profit and loss 40 9. Net foreign exchange gains/ (losses) 4010. Operating and other income 4111. Net provisions and impairment losses on loans and advances 4112. Salaries, benefits and other personal expenses 4213. Depreciation and amortization expenses 4214. Operating and other expenses 4315. Income and expenses arising from revaluation of assets and liabilities 4416. Income tax 4417. Earnings per share 4518. Cash and cash equivalents 4619. Callable deposits and loans 4620. Interest, fees and commission receivables, change in fair value of derivatives and other receivables 4721. Loans, advances and deposits 4822. Securities (excluding own shares) 4923. Equity investments 5024. Other lending 5025. Intangible assets 5026. Property and equipment 5127. Deferred tax assets 5328. Other assets, prepayments and accrued income 5429. Transaction deposits 5530. Other deposits 5631. Borrowings and other financial liabilities 5732. Interest, fees and commissions payable and change in fair value of derivatives 5733. Tax liabilities 5734. Provisions 5835. Liabilities from profit 5936. Other liabilities, accruals and deferred income 6037. Shareholder’s equity 6138. Off balance sheet 6439. Contingent liabilities and commitments 6540. Compliance with regulatory requirements 6541. Related parties transactions 6642. Foreign Exchange rates 6843. Reconciliation of loans, deposits and other liabilities with clients 6844. Board of directors 6845. Post balance Sheet Events 68
Contents:
2
1. General information
Eurobank EFG A.D. Beograd has been established by merger of Eurobank EFG a.d. Beograd and Nacionalna Štedionica Banka a.d. that was completed on 20 October 2006.
The Shareholders’ Assembly of the Nacionalna Štedionica Banka a.d. Beograd and the Sharehold-ers’ Assembly of the EFG Eurobank a.d. Beograd that were held on 28th July 2006 have adopted the Decision on Merger of the Nacionalna Štedionica Banka a.d. Beograd with EFG Eurobank a.d. Beograd.
On 20th October 2006, the Business Register Agency issued the Decision on merger with acquisi-tion of the Nacionalna Štedionica Banka a.d. Beograd with EFG Eurobank a.d. Beograd by which the process of merger with acquisition has been effected.
On the same date the Business Registers Agency issued the decision regarding the change of the Bank’s name to Eurobank EFG Štedionica a.d. Beograd.
The Bank is registered in Serbia for carrying out payment, credit and deposit operations in the country and abroad. The bank operates in accordance with Law on Banks and other Financial Insti-tutions based on principles of liquidity, safety and profitability.
As at 31 March 2007 the Bank has changed registered office to Kolarceva 3 in Belgrade. Previous registered office of the Bank was in Durmitorska 20 in Belgrade.
As at 31 December 2008, the Bank has changed business name to “Eurobank EFG A.D. Beograd”. Previous business name of the Bank was “Eurobank EFG Štedionica A.D. Beograd”
As at 31 December 2008 the Bank had 1,535 employees (31 December 2007: 1,369 employees). The Bank’s network comprises of 123 branches (31 December 2007: 103 branches)
The Bank’s Registration number is 17171178. The Bank’s Tax identification number is 100002532.
The Financial statements have been approved by Board of Directors on 26th February 2009.
3
ANNUAL REPORT 2008
2. Summaryofsignificantaccountingpolicies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless other-wise stated.
2.1. Basis of preparation
The financial statements have been prepared in accordance with Accounting and Auditing Law • which requires full compliance with IFRS, as well as in accordance with regulations of the National bank of Serbia. These regulations are as follows: Rules on the Forms and Content of Items in Finan-cial Statement Forms to be Completed by Banks (Official gazette of RS no. 74/2008 and 3/2009), Rules on the Chart of Accounts and Content of Accounts within the Chart for Banks (Official gazette of RS no. 98/2007, 57/2008 and 3/2009), Accounting and Auditing Law (Official gazette of RS no. 46/2006)
The applied accounting policies differ from the IFRS requirements in the following materially signifi-• cant areas:
1. The Bank has not made certain disclosures in accordance with IAS 1 – Presentation of financial statements since the presentation of the financial statements is defined by the National Bank of Serbia.
2. “Off balance sheet assets and liabilities” are disclosed in the balance sheet form (Note 38). In ac-cordance with IFRS, off balance sheet items do not represent either assets or liabilities.
In accordance with the regulations of the National bank of Serbia, presentation of Financial State-• ments for year ended 31 December 2008 has been changed. Comparative figures for 2007 have been reclassified to reflect these changes.
The preparation of financial statements in conformity with IFRS requires the use of certain critical • accounting estimates. It also requires management to exercise its judgment in the process of apply-ing the Bank’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
a) Amended and new standards and interpretations effective after 1 January 2008
The amended and new standards and interpretations effective from 1 January 2008 listed below • are not relevant for the Bank’s operations therefore they did not result in changes to the Bank’s accounting policies:
IFRIC 16 - Hedges of a net investment in a foreign operation•
IFRIC 13 - Customer loyalty programmes•
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IFRIC 12- Service Concession Arrangements•
IFRIC Interpretation 14, IAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Require-• ments and their Interaction,
The application of the changes in the Reclassification of Financial Assets: Amendments to IAS • 39- Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Dis-closures, effective from 1 July 2008, did not have material effect on the Bank’s Financial State-ments.
b) Standards and Interpretations issued but not yet effective
The following standards and interpretations that were issued but not yet effective for accounting periods beginning on 1 January 2008 have not been early adopted:
IAS 27 (Revised) - Consolidated and separate financial statements (effective from 1 July 2009)•
IFRS 2 (Amendment) - Share-based Payment-Vesting Conditions and Cancellations (effective from • 1 January 2009)
IFRS 5 (Amendment) - Non-current assets held for sale and discontinued operations and conse-• quential amendment to IFRS 1 - First-time adoption (effective from 1 July 2009)
IFRS 3 (Revised), ‘Business combinations’ (effective from 1 July 2009).•
IFRS 8, ‘Operating segments’ (effective from 1 January 2009).•
IAS 23 (Amendment) - Borrowing costs (effective from 1 January 2009)•
IAS 28 (Amendment) - Investments in associates and consequential amendments to IAS 32 - Fi-• nancial Instruments: Presentation and IFRS 7 - Financial instruments: Disclosures (effective from 1 January 2009)
AS 36 (Amendment) - Impairment of assets (effective from 1 January 2009)•
IAS 38 (Amendment) - Intangible assets (effective from 1 January 2009)•
IAS 19 (Amendment) - Employee benefits (effective from 1 January 2009)•
IAS 37 - Provisions, contingent liabilities and contingent assets•
IAS 39 (Amendment) - Financial instruments: Recognition and measurement (effective from 1 Janu-• ary 2009)
IAS 1 (Amendment) - Presentation of financial statements (effective from 1 January 2009)•
There are a number of minor amendments to IFRS 7 - Financial instruments: Disclosures, IAS 8 - • Accounting policies, changes in accounting estimates and errors, IAS 10 - Events after the reporting
5
ANNUAL REPORT 2008
period, IAS 18 - Revenue and IAS 34 - Interim financial reporting, which are part of the IASB’s an-nual improvements project published in May 2008 (not addressed above). These amendments are unlikely to have an impact on the Bank’s accounts and have therefore not been analyzed in detail.
IAS 16 (Amendment) - Property, plant and equipment and consequential amendment to IAS 7 - • Statement of cash flows (effective from 1 January 2009)
IAS 27 (Amendment) - Consolidated and separate financial statements (effective from 1 January • 2009)
IAS 28 (Amendment) - Investments in associates and consequential amendments to IAS 32- Finan-• cial Instruments: Presentation and IFRS 7 - Financial instruments: Disclosures (effective from 1 January 2009)
IAS 29 (Amendment) - Financial reporting in hyperinflationary economies (effective from 1 January • 2009)
IAS 31 (Amendment) - Interests in joint ventures and consequential amendments to IAS 32 and • IFRS 7 (effective from 1 January 2009)
IAS 38 (Amendment) - Intangible assets (effective from 1 January 2009)•
IAS 40 (Amendment) - Investment property and consequential amendments to IAS 16 (effective • from 1 January 2009)
IAS 41 (Amendment) - Agriculture (effective from 1 January 2009)•
IAS 20 (Amendment) - Accounting for government grants and disclosure of government assistance • (effective from 1 January 2009)
IFRIC 15 - Agreements for construction of real estates (effective from 1 January 2009)•
IFRIC 17 – Distribution of non cash assets to owners (effective from 1 July 2009),•
IFRIC 18 - Transfers of Assets from Customers (effective from 1 July 2009)•
The application of these new standards and interpretations which are relevant for the Bank’s op-erations will not have a material impact on the Bank’s financial statements in the period of initial application.
These financial statements do not comply with all requirements of IFRS. Therefore, these financial statements are not prepared to present financial position of the Bank, result and cash flows in ac-cordance with accounting principles accepted outside of Republic of Serbia.
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c) Basis of measurement
The financial statements have been prepared on the historical cost basis except for the following:
• derivate financial instruments are measured at the fair value,
• financial instruments at fair value through profit or loss are measured at fair value and
• liabilities from trading activities are measured at the fair value.
2.2. Comparatives
Comparatives for the year ended as at 31 December 2007 have been reclassified in accordance with changes of the presentation of Financial Statements issued by the National Bank of Serbia.
The financial statements for the year ended 31 December 2007, have been prepared in accordance with Rules on Forms and Content of Individual Items in Financial Statement Forms to be Completed by Banks and Other Financial Organizations (Official gazette of RS no. 18/2007), Rules on the Chart of Accounts and Content of Accounts within the Chart for Banks and Other Financial Organizations (Official gazette of RS no. 133/2003 and 4/2004) and Accounting and Auditing Law (Official ga-zette of RS no. 46/2006)
The financial statements for the year ended 31 December 2008, have been prepared in accor-dance with Rules on the forms and content of items in financial statement forms to be completed by banks (Official gazette of RS no. 74/2008 and 3/2009), Rules on the Chart of Accounts and Content of Accounts within the Chart for Banks (Official gazette of RS no. 98/2007, 57/2008 and 3/2009) and Accounting and Auditing Law (Official gazette of RS no. 46/2006).
2.3. Foreign currency translation
a) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.
Assets and liabilities denominated in foreign currencies have been translated into the functional currency at the market rates of exchange ruling at the balance sheet date and exchange differences are accounted for in the income statement.
b) Functional and presentation currency
Items included in the financial statements of the Bank are measured using the currency of the pri-mary economic environment in which the entity operates (“the functional currency”).
The financial statements are presented in RSD (Republic Serbia Dinar), which is the Bank’s func-tional and presentation currency.
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ANNUAL REPORT 2008
2.4. Derivatives
The Bank uses derivative financial instruments such as foreign currency derivative contracts to hedge its risks associated with interest rate and foreign currency fluctuations.
Derivative financial instruments, including foreign exchange contracts, forward currency agree-ments, currency swaps, and other derivative financial instruments, are initially recognized in the balance sheet at fair value on the date on which a derivative contract is entered into and subse-quently are re-measured at their fair value. Fair values are obtained from quoted market prices, including recent market transactions, discounted cash flow models as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e., the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instru-ment (i.e., without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.
Embedded derivatives
The Bank negotiates a currency or general price-index clause with the beneficiaries of the loans. General price-indexed loans are embedded derivatives that are not closely related to host contract and are accounted for separately from the host. Embedded derivatives are measured at market value, while the change of their value is stated in the current period profit and loss. The value of embedded derivatives is determined on the basis of official consumer price-index which is applied to the outstanding liability.
Foreign-currency clause is an embedded derivative that is not accounted for separately from the host contract since the economic characteristics and risks of the embedded derivative are closely related to the host contract. Gains/losses arising on this basis are recorded in the income state-ment as foreign exchange gains/losses.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
2.5. Income statement
a) Interest income and expense
Interest income and expense for all interest-bearing financial instruments, except for those classi-fied as held for trading or designated at fair value through profit or loss, are recognized within ‘inter-est income’ and ‘interest expense’ in the income statement using the effective interest method.
8
The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or re-ceipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instru-ment (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.b)
b) Fee and commission incom
Fees and commissions are generally recognized on an accrual basis when the service has been provided. Fees and commissions mostly comprise of fees for payment operations services, issued guarantees and other services.
Loan origination fees are deferred and amortized to interest earned on loans and advances over the life of the loan using the straight - line method, which approximates the effective interest rate method. Loan origination fees are presented within Interest income (Note 6).
2.6 Property and equipment
All property and equipment are stated at cost less accumulated depreciation and impairment. His-torical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognized as a separate as-set, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and main-tenance are charged to income statement of the financial period in which they are incurred.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:
Years
Buildings 75
Computer equipment 2-4
Furniture and other equipment 6-9
Motor vehicles 5
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ANNUAL REPORT 2008
The assets’ residual value represents the estimated amount that the Bank might obtain at present through the sale of the asset, decreased by the estimated cost of sale. If the Bank expects to utilize the asset until the expiration of its useful life, then the residual value amounts to zero. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in other operating expenses in the income statement.
2.7. Intangible assets
Licenses
Licenses are initially recognized at cost. They have limited useful life and are stated at cost less ac-cumulated amortization. Amortization is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives (from 3 to 10 years).
Software
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives (from 5 to 10 years).
Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Costs that are directly associated with identifiable and unique software prod-ucts controlled by the Bank and will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include the cost of the software develop-ment employees and an appropriate portion of relevant overheads.
Computer software development costs recognized as assets are amortized over their estimated useful lives (not exceeding 10 years).
2.8. Financial assets
The Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale fi-nancial assets. Management determines the classification of its investments at initial recognition.
a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception.
10
A financial asset is classified as held for trading if it is acquired or incurred principally for the pur-pose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorized as held for trading unless they are des-ignated as hedging instruments.
Financial assets and financial liabilities are designated for at fair value through profit or loss when:
- doing so significantly reduces measurement inconsistencies that would arise if the related de-rivatives were treated as held for trading and the underlying financial instruments were carried at amortized cost
- Certain investments, such as equity investments, are managed and evaluated on a fair value ba-sis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis.
- Financial instruments, such as debt securities held, containing one or more embedded derivatives significantly modify the cash flows.
b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
c) Held-to-maturity financial assets
Held-to-maturity investments are non-derivative financial assets with fixed or determinable pay-ments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity. If the Bank was to sell other than an insignificant amount of held-to-maturity as-sets, the entire category would be reclassified as available for sale.
Held-to-maturity investments are stated at amortized cost using effective interest method. The am-ortized cost is calculated taking into consideration all discount and premiums received at the date of purchase.
d) Available-for-sale financial assets
Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.
e) Investment in associates
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ANNUAL REPORT 2008
Associated entities are those legal entities in which the Bank has a significant influence, and which are neither dependant entities nor joint investments.
The Bank’s investment in its associates is initially recognized at cost. At the balance sheet data, investment in an associate is stated at cost.
f) Accounting treatment and calculation
Regular-way purchases and sales of financial assets at fair value through profit or loss, held to ma-turity and available for sale are recognized on trade-date – the date on which the Bank commits to purchase or sell the asset. Investments are initially recognized at fair value increased for transac-tions costs for all financial assets not held at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subse-quently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortized cost using the effective interest method. Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the in-come statement in the period in which they arise. Gains and losses arising from changes in the fair value of available for-sale financial assets are recognized directly in equity, until the financial asset is derecognized or impaired at which time the cumulative gain or loss previously recognized in eq-uity is recognized in profit or loss. However, interest calculated using the effective interest method is recognized in the income statement. Dividends on equity instruments are recognized in the income statement when the entity’s right to receive payment is established.
The fair values of quoted investments in active markets are based on current bid prices. If the mar-ket for a financial asset is not active (and for unlisted securities), the Bank establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market partici-pants.
2.9.Impairmentoffinancialassets
a) Assets carried at cost and amortized cost i
The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’)
12
and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include:
Delinquency in contractual payments of principal or interest; •
Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage • of sales);
Breach of loan covenants or conditions; •
Initiation of bankruptcy proceedings; •
Deterioration of the borrower’s competitive position; •
Deterioration in the value of collateral; and.•
The estimated period between a loss occurring and its identification is determined by the local management for each identified portfolio type. In general, the periods used vary between three and twelve moths; in exceptional cases longer periods are warranted.
The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current interest rate determined under the contract.
The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the Bank’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant fac-
13
ANNUAL REPORT 2008
tors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current con-ditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.
Estimates of changes in future cash flows for groups of assets should reflect and be directionally-consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improve-ment in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjust-ing the allowance account. The amount of the reversal is recognized in the income statement in impairment charge for credit losses.
b) Assets classified as available for sale
The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value – is recognized in the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement.
c) Renegotiated loans
Loans and advances renegotiated activities include extended payment arrangements, modification and deferral of payments. Provided that the customer account is performing for a period of one
14
year following the renegotiation date, a previously overdue customer account is reset to a normal status.
2.10. Provision for potential loses in accordance with the requirements of the National Bank of Serbia
In accordance with the Decision of the Central Bank of Serbia, the Bank is obliged to classify loans, other placements, guarantees and other on balance sheet and off balance sheet exposures into the categories A, B, C, D and E, based on evaluation of their collectability and associated risk expo-sures, which depends upon the number of days the payments are in arrears, the financial position of the counterparty, and the quality of the collaterals obtained on the exposure. An estimate of the provision for potential losses is calculated by applying the percentages of 1%-2% for A category, 5%-15% for B category, 20%-35% for C category, 40%-70% for D category and 100% for E category.
The difference in provision calculated in accordance with the requirements of the Central bank and impairment losses calculated in accordance with policy described in the Note 2.9 is charged to the retained earnings and disclosed within special reserves account which is part of the shareholder’s equity. Banks operating with losses do not charge those provisions to the accumulated losses. In this situation the Bank is obliged to disclose amount of uncovered provisions for potential losses (Note 37).
2.11.Impairmentofnon-financialassets
Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impair-ment loss is recognized for the amount by which the asset’s carrying amount exceeds its recover-able amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
2.12. Sale and repurchase agreements
Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial state-ments as pledged assets when the transferee has the right by contract or custom to sell or re-pledge the collateral; the counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recorded as callable deposits and credits (Note 19). The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.
2.13. Borrowings
Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost.
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ANNUAL REPORT 2008
Borrowings are classified as current liabilities, unless the Bank has indisputable right to postpone the settlement of obligations for at least 12 months after the balance sheet date.
2.14. Leases
The Bank is the lessee
The leases entered into by the Bank are primarily operating leases. With operating lease a signifi-cant part of both risk and benefits remains with the lessor. The total payments made under operat-ing leases are charged to other operating expenses in the income statement on a straight-line basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which ter-mination takes place.
2.15. Income tax and deferred income tax
Income tax presents the amount calculated and paid to the tax authorities based on legislations of Republic of Serbia. Estimated monthly instalments are calculated by the Tax authority and paid in advance on a monthly basis.
Income tax at the rate of 10% is payable based on the profit disclosed in the Tax return. In order to arrive at the taxable profit, the accounting profit is adjusted for certain permanent differences and reduced for certain investments made during the year. Tax return is submitted to tax authorities 10 days after submission of the financial statements, i.e. until the 10 March of the following year.
Deferred income tax is provided, using the liability method, on temporary differences arising be-tween the tax basis of assets and liabilities and their carrying amounts in the financial statements. Deferred tax liabilities are recognized for all taxable temporary differences between the tax basis of assets and liabilities at the balance sheet date, and their amounts disclosed for reporting purpos-es, which will result in taxable amounts for future periods. Deferred tax assets are recognized for all deductible temporary differences, unused tax assets and unused tax losses, to the extent that it is probable that future taxable profits will be sufficient to enable realization (utilization) of deductible temporary differences, unused tax assets and unused tax liabilities.
Current and deferred income tax is recognized in the current year income statement.
Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Bank and it is probable that the difference will not reverse in the foreseeable future.
2.16.Employeebenefits
a) Employee’s benefits
Short term benefits to employees include salaries and social contributions. They are recognized as an expense in the period when they are incurred.
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The Bank and its employees are obliged to make payments to the pension fund of Republic of Ser-bia in accordance with the defined contribution plan. The Bank has no legal or constructive obliga-tions to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expense when they are due.
b) Other employee’s benefits
The Bank provides other benefits for the retirement. An employee is usually entitled to these ben-efits if they were employees of the Bank until reaching the prescribed age for retirement and the minimum required years of employment. The above mentioned benefits are accumulated during the service. The defined retirement obligations are estimated annually by an independent certified actuary through the projected credit unit valuation method. The present value of benefit obligations is determined by discounting the expected future cash payments by reference to the interest rates of the high quality bonds expressed in the same currency, which mature approximately at the same period when retirement obligations are due.
c) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Bank recognizes termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.
2.17. Repossessed properties
Land and buildings repossessed through an auction process to recover impaired loans are, except where otherwise stated, included in “Other Assets”. Assets acquired from an auction process are held temporarily for liquidation and are valued at the lower of cost and net realizable value. Any gains or losses on liquidation are included in “Other operating income”.
2.18. Related party transactions
Related parties include associates, fellow subsidiaries, directors, their close families, companies owned or controlled by them and companies whose financial and operating policies they can influence. Transac-tions of similar nature are disclosed on an aggregate basis. All banking transactions entered into with related parties are in the normal course of business and on an arm’s length basis.
2.19. Provisions
Provisions are recognized when the Bank has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and reliable estimates of the amount of the obligation can be made.
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ANNUAL REPORT 2008
2.20. Share capital
a) Share issue costs
Share issue costs directly attributable to the issue of new shares are shown in equity as a deduction.
b) Dividends on ordinary shares
Dividends are recognized as liabilities for the period in which the decision of their payment has been reached. Dividends approved for the year after the balance sheet date are dealt with in the subsequent events note.
2.21. Financial guarantees
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the Bank’s liabilities under such guarantees are measured at the higher of the initial measurement, less amortization calculated to recognize in the income statement the fee income earned on a straight line basis over the life of the guarantee and the best estimate of the expenditure required to settle any financial obligation arising at the balance sheet date. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgment of Management. Any increase in the li-ability relating to guarantees is taken to the income statement.
2.22. Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash and non-restricted balances with Central Bank, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term government securities.
2.23. Assets managed on behalf of third parties
Assets and income arising from administrated business operations, where the Bank acts in a fidu-ciary capacity such as nominee, trustee or agent, are excluded from the financial statements.
The bank manages foreign currency frozen bonds issued by Republic of Serbia on behalf of the state and acts as an agent in this business.
3. Critical accounting estimates and judgments
The Bank makes estimates and assumptions that affect the reported amounts of assets and liabili-ties within the next financial year. Estimates and judgments are continually evaluated and based
18
All amounts are expressed in 000 RSD unless otherwise stated
on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
a) Impairment losses on loans and advances
The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determin-ing whether an impairment loss should be recorded in the income statement, the Bank makes judg-ments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. The evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local eco-nomic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The method-ology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
b) Income tax
The Bank is subject to income taxes in Serbia. Certain estimates are required in determining the provision for income taxes. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Fair value of financial assets and liabilities
The fair values of quoted investments in active markets are based on current bid prices (financial assets) or offer prices (financial liabilities). If there is no active market for a financial instrument, the Bank establishes fair value using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. The valuation models reflect current market conditions at the measurement date which may not be representative of market conditions either before or after the measurement date. As at the balance sheet date management has reviewed its models to ensure they appro-priately reflect current market conditions, including the relative liquidity of the market and credit spreads.
Measures taken by the Bank
The Bank has taken all necessary measures in order to mitigate the adverse effects of the crisis on both day to day operations and strategic - long term business perspective.
4. Financial assets per categories and classes
Financial assets per categories and classes are as follows:
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ANNUAL REPORT 2008
2008 2007
Loans and receivables 92,075,597 51,887,418Financial assets at fair value through profit or loss 141,070 73,620
Held-to-maturity investments 1,525,220 4,299,570Total 93,741,887 56,260,608
5. Risk management policies
The Bank’s activities expose it to a variety of financial risks and those activities involve the analy-sis, evaluation, acceptance and management of some degree of risk or combination of risks. Risk management is done through specialized Risk management department. The Bank has defined procedures for risk identification, measurement and risk management in accordance with regula-tions and best practices.
The Bank’s risk management policies are designed to identify and analyze these risks, to set appro-priate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems.
The Bank is exposed to the following most important risks:
5.1. Credit risk
5.2. Market risk
5.3. Liquidity risk
5.4. Operational risks
Market risk includes:
foreign currency risk •
interest rate risk •
other price risks •
5.1. Credit risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial in-strument fails to meet its contractual obligations, and arises principally from the Bank’s loans and advances to customers and banks and investment securities. For risk management reporting pur-poses, the Bank considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, sector risk, repayment risk, etc.).
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5.1.1. Management of credit risk
The Bank approves loans in accordance with business policy and by adjusting maturity dates of loans approved and interest rates with the purpose of loans, type of the loan or client and credit-worthiness of its clients.
For risk management purposes, credit risk arising on trading securities is managed independently, but reported as a component of market risk exposure.
The Board of Directors has delegated responsibility for the approval of credit exposures to several different levels in accordance with the limits set forth by the Board. The underlying foundation of the credit processes is the application of the “four-eye principle” on one side from the Business Units and on the other side from Risk Management for all exposures above the business unit level of approval. In case of exposures approved within the business unit level of approval, the “four-eye principle” is ensured within that business unit.
Business Units, under the Corporate Banking Division, incorporate the following:
Large Corporate (LC) Department•
Small & Medium Enterprises (SME) Department•
Business Units, responsible for retail lending operations, incorporate the following:
Consumer lending unit•
Mortgage lending unit•
Small Business lending unit•
The Risk Management Division (RMD) incorporates the following units handling credit risk:
Credit Risk Department (CRD)•
Credit Control Department (CCD)•
Non-Performing Loans Department (NPL)•
Credit Control Department and Credit Risk Department are responsible for oversight of the Bank’s credit risk, including:
Formulating credit policies in consultation with business units, covering collateral requirements, • credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. This task is performed by Credit Control Department
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ANNUAL REPORT 2008
Credit Risk Department assesses all credit exposures in excess of designated limits, prior to fa-• cilities being committed to customers by the business unit concerned, and provides independent credit opinion. Renewals and reviews of facilities are subject to the same review process.
Limiting concentrations of exposure to counterparties, countries and industries (for loans and ad-• vances), and by issuer, credit rating band and market liquidity (for investment securities).
Developing and maintaining the Bank’s risk grading policy in order to categorize exposures accord-• ing to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is maintained by Credit Control Department. The risk grading system is used in determining where impairment provisions may be required against specific credit expo-sures. The current risk grading framework for wholesale placements consists of eleven grades and for retail exposures of fourteen grades (delinquency based) reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. Risk grades are subject to regular reviews.
Reviewing compliance of business units with agreed exposure limits, including those for selected • industries, country risk and product types is the responsibility of Credit Control Department. Regu-lar reports are provided to various Bank bodies on the credit quality of portfolios and appropriate corrective action is taken. One of its main tasks is providing advice, guidance and specialist skills to business units to promote best practice throughout the Bank in the management of credit risk.
Each business unit is required to implement Bank’s credit policies and procedures, with credit ap-proval authorities delegated from the Board of Directors. Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval.
The bank has developed and adopted a credit policy for each lending business unit. Each credit policy of Eurobank EFG a.d. (hereinafter: the Credit Policy) defines basic concepts, guidelines and rules that ensure the proper management of the process of approving, disbursing, monitoring and collecting of loans and other exposures.
Credit Policy defines:
the goals of the credit policy,•
the basic concepts of credit policy,•
lending principles,•
the organization of credit operations,•
responsibilities and decision making,•
the procedure for granting loans and other placements,•
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credit risk,•
collateral instruments,•
procedures for collecting outstanding amounts,•
For the purposes of implementing the relevant Credit Policy, the Bank has also passed other neces-sary acts, decisions, rules, procedures, etc.
When assuming credit risk, the Bank applies the following fundamental rules:
A prerequisite for every financing transaction is the understanding of the economic background of the transaction.
A loan is granted only when the Bank has sufficient information on the borrower’s creditworthiness. The Bank will not grant a loan (or increase an existing one) to a borrower who is unwilling or unable to provide sufficient information.
Collateral is accepted only to support an exposure. It cannot serve as a substitute for the borrower’s ability to meet obligations (exception: Lombard loans, cash collateralized loans, etc.).
The large and largest exposures towards any borrower (or group of connected borrowers), exposures towards connected persons as well as the total exposure of the Bank (both on and off-balance sheet), is kept within limits prescribed by the Law on Banks and relevant decisions of the National bank of Serbia.
The Bank approves new loans or decides to extend or not to extend the existing ones based on the customer rating of the borrower and its development, as well as details and characteristics of the transaction.
All Bank credit facilities are based on relevant approvals, which lay down the terms and other condi-tions for their implementation. The approval levels and limits are defined by the relevant Board of Directors Decision on approval levels.
For wholesale placements, there are 5 approval authority levels with the highest one being Board of Directors (or other nominated authority) in case of large exposures and exposures to related par-ties.
For retail placements, there are also different approval levels depending on the type of business (consumer lending, mortgage lending or SBB lending), with the highest authority being specific Credit Commission for each business type.
In each committee/commission, risk management has the right of vote. All decisions must be unan-imous with the exception of very specific and limited (amount-wise) wholesale lending cases which are regulated in details by the relevant procedures.
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ANNUAL REPORT 2008
In addition to the client’s creditworthiness, risk limits are also determined taking into account vari-ous collateral instruments. Risk exposure to individual borrower, including banks, is limited and includes both balance and off balance sheet risk exposures. The total risk exposure per individual client (or group of related parties) with regards to the limits, is considered and analyzed prior to completion of the transaction.
In order to ensure the safety of the business operations, and based on the estimated risks of poten-tial losses, the Bank calculates provisions, which arise from loans and off balance sheet exposures. Levels of provision are related to the risk grade of the placement.
Risk grading system for wholesale clients
The 11 grade system derives the rating of the borrower (and not the credit facility) is based on the weighted average of the following risk parameters:
Financials•
Sector•
Management•
Operations•
In addition, other factors such as debt servicing, change in the borrower’s ownership, etc., may af-fect the final rating of a customer.
The credit rating is based on a profound analysis of qualitative and quantitative factors:
Qualitative factors: are those that deal with the borrower’s management, industry, operating condi-tions, etc.
Quantitative factors: are those that refer to a set of various ratios (main ratios: profitability, leverage, liquidity) emerging from the borrower’s financial statements (balance sheet, income statement, notes to financial statements etc.)
Credit related commitments
The primary purpose of undrawn credit commitments is to ensure that funds are available to a cus-tomer in accordance with the agreement.
Guarantees and letter of credits carry the same credit risk as loans.
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5.1.2. Impairment and provisioning policy
Impaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan / securities agreement(s). Individually impaired assets are those which have been individually assessed for impairment and for which an impairment loss has been recognized. For individually assessed accounts, loans are treated as impaired as soon as there is objective evi-dence that an impairment loss has been incurred. Accounts in portfolios of homogeneous loans are treated as impaired once facilities are 90 days or more overdue for consumer and SBB placements, and 180 days or more overdue for mortgage placements.
Past due but not impaired loans
Loans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security / collateral available and / or the stage of collection of amounts owed to the Bank. The term ‘past due financial asset’ is defined as ‘day-1 delay’. That is when a counterparty has failed to make a payment when contractu-ally due. The buckets used by the Bank for the purpose of this disclosure are:
Consumer Lending: 1 – 89 days past due•
Mortgage: 1 – 179 days past due•
SBB: 1– 89 days past due (loans for which specific provisions have been recognized are excluded).•
Corporate Lending: 1 – 359 days past due and internal grading score below eight (loans which have • been recognized as individually impaired are excluded).
Loans with renegotiated terms
Loans with renegotiated terms are loans that have been restructured are no longer considered to be past due but are treated as new loans. In subsequent years, if the asset becomes past due, it is disclosed under past due but not impaired or impaired as appropriate.
Allowances for impairment
The Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment.
Impairment of wholesale placements
For exposures to borrowers with a rating of 7 or worse, NPV charge is calculated in accordance with
25
ANNUAL REPORT 2008
IAS 39 requirements. This charge is added up to the amount of provisions calculated in accordance with the appropriate provisioning rate and the sum represents total provisions.
Impairment of retail placements
The classification of retail clients is based on the full delinquency analysis. The required provisions are computed by applying the appropriate provisioning rate to the net exposure per each product group and per each delinquency bucket. In case of individually impaired loans, future expected cash-flows are discounted in accordance with IAS 39 requirements, in order to obtain the appropri-ate impairment charge.
Special reserves
For both wholesale and retail placements, as per the regulatory requirements of the National Bank of Serbia, the Bank also calculates special reserves for estimated losses as defined by the Deci-sion on the Classification of Banks Balance Sheet Assets and Off-Balance Sheet Items, and other relevant regulations of the National Bank of Serbia.
Write-off policy
The Bank writes off a loan/security balance (and any related allowances for impairment losses) when it is determined that the loans/securities are uncollectible. This determination is reached af-ter considering information such as the occurrence of significant changes in the borrower/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standar-dized loans, charge off decisions generally are based on a product specific past due status. Any write-off is approved by the relevant body in accordance with the decision of Board of Directors.
5.1.3. Collaterals
For a majority of placements granted to borrowers, the Bank will require collateral instrument. Col-lateral generally is not held over loans and advances to banks. Most often the collateral consists of one or more of the following collateral instruments (or instruments for credit support):
cash deposits in dinars and foreign currencies,•
guarantees from the government, government funds or first class banks,•
guarantees from parent companies, other legal entities and individual persons,•
letters of comfort from parent companies,•
mortgage over real estate,•
pledge over movable property,•
26
own blank bills of exchange,•
pledge over shares or ownership stakes•
a pledge over other securities (e.g. bonds) or precious metals,•
assignment of receivables (with or without notification) etc.,•
assignment of insurance policies.•
The Bank reserves the right to request any other type of instruments (or variation of the above in-struments) which it may deem necessary.
Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are updated periodically in accordance with the relevant credit policy except when a loan is individually assessed as impaired in which case a new appraisal is performed if deemed neces-sary.
5.1.4. Credit monitoring
The Bank constantly monitors the state of the borrower’s business and any change in its creditwor-thiness. To this end, besides the regular evaluation of financial statements, the responsible busi-ness units carry out regular checks of the borrower’s business operations.
The monitoring of the borrower is institutionalized through regular credit reviews. Credit reviews are prepared by the relevant business unit and approved by the relevant approval authority. In case of wholesale customers, the review frequency depends on their risk grade.
5.1.5. Maximum exposure to credit risk before collateral held or other credit enhancements:
Balance sheet assets 2008Reclassified
2007Interest, fees and commission receivable 344,940 141.819Loans and advances to banks 29,126,676 3.270.873Loans and advances to customers:
- Corporate lending 5,418,568 8.124.980- Consumer lending (including credit cards) 21,525,390 20.136.421- Mortgages 17,024,654 10.875.387
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ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
- Small business lending 18,980,309 9.479.757Securities (excluding own shares) 141,070 73.620Equity investments 20,479 20.479Other lending 30,700 5.761Other assets, prepayments and accrued income 865,189 494.312
93.477.975 52.623.409
Off-balance sheet itemsPayment guarantees and performance bonds 32.199.838 16.958.132Loan commitments and other credit related liabilities 12.386.143 47.632.114
44.585.981 64.590.246
As at 31 December 138.063.956 117.213.655
5.1.6. Loans and advances
Loans and advances are summarized as follows:
31 December 2008Reclassified
31 December 2007Loans and
advances to customers
Loans and advances to
banks
Loans and advances to
customers
Loans and advances to
banks
Neither past due nor impaired 50.077.478 29.126.676 38.952.511 3.270.873Past due but not impaired 12.353.180 - 9.550.543 - Impaired 2.470.895 - 1.407.200 - Total gross amount 64.901.553 29.126.676 49.910.254 3.270.873
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All amounts are expressed in 000 RSD unless otherwise stated
a) Loans and advances neither past due nor impaired
The credit quality of the portfolio of loans and advances that were neither past due nor impaired at 31 December 2008 can be assessed by reference to the Bank’s standard grading system. The following information is based on that system:
31 December 2008Reclassified
31 December 2007Loans and
advances to customers
Loans and advances to
banks
Loans and advances to
customers
Loans and advances to
banks
Neither past due nor impaired - grades: 16.680.990 29.126.676 7.885.491 3.270.873
Satisfactory risk (wholesale grades 1 to 6) 5.242 - 9.466 -
Watch list and special mention (wholesale grade 7) 33.391.246 - 31.057.554 -
Total retail 50.077.478 29.126.676 38.952.511 3.270.873
b) Loans and advances past due but not impaired
Loans and advances past due but not impaired as at 31 December 2008 are as follows:
Retail customers Wholesale
31 December 2008 Mortgages Consumer lending
Business lending
Corporate lending Total
Past due up to 29 days 458.473 2.479.799 1.438.766 3.024.265 7.401.303
Past due 30 - 89 days 906.217 2.330.807 1.673.031 11.761 4.921.816Past due 90 - less than 1 year 29.765 - - 296 30.061
Total gross amount 1.394.455 4.810.606 3.111.797 3.036.322 12.353.180
Fair value of collateral 1.333.974 837.859 1.680.081 2.877.072 6.728.986
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ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
Loans and advances past due but not impaired as at 31 December 2007 are as follows:
Retail customers Wholesale
31 December 2007. Mortgages Consumer lending
Small Business lending
Corporate lending Total
Past due up to 29 days 2.327.526 4.159.099 685.049 86.770 7.258.444
Past due 30 - 89 days 438.053 1.601.890 234.054 3.483 2.277.480Past due 90 - less than 1 year 13.097 - - 1.522 14.619
Total gross amount 2.778.676 5.760.989 919.103 91.775 9.550.543
Fair value of collateral 2.602.669 1.078.230 550.078 50.412 4.281.389
c) Loans and advances individually impaired
The breakdown of the gross amount of individually impaired loans and advances by class, along with the fair value of related collateral held by the Bank as security, as at 31 December 2008 are as follows:
Retail Wholesale
31 December 2008 Mortgages SBB Corporate lending Total
Individually impaired loans - gross 24.433 900.325 512.027 1.436.786
Fair value of collateral 21.887 420.005 26.042 467.934
Retail Wholesale
31 December 2007 Mortgages SBB Corporate lending Total
Individually impaired loans - gross 6.513 210.624 419.552 636.689
Fair value of collateral 6.513 78.671 124.583 209.767
d) Loans and advances renegotiated
Loans and advances renegotiated are as follows:
2008Reclassified
2007Consumer lending 2.470 -Small business lending 3.473 32.421Corporate lending - 51.026Total gross amount 5.943 83.447
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All amounts are expressed in 000 RSD unless otherwise stated
5.1.7. Securities, treasury bills and other eligible bills
As at 31 December 2008, the Bank has treasury bills of the Central Bank in the amount of RSD 1,525,220 thousand and trading securities of Republic of Serbia (frozen savings bonds) in the amount of RSD 141,070. The above mentioned bills and trading securities are not rated. The rating of country is BB - based on Standard and Poor’s rating.
5.1.8. Repossessed collateral
As at 31 December 2008 Bank had the following assets that were obtained by taking possession of collateral held as security:
Nature of assets Carrying amount
2008Reclassified
2007Residential property 12.415 12.415
5.1.9.Concentrationofrisksoffinancialassetswithcreditriskexposure
a) Geographical sectors
The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorized by the geographical sectors of our counterparties:
Serbia Greece Western Europe Total
Interest, fees and commission receivable 336.140 8.800 - 344.940
Loans and advances to banks 2.464.714 26.661.962 - 29.126.676
Loans and advances to customers:- Corporate lending 5.418.568 - - 5.418.568
- Consumer lending 21.525.390 - - 21.525.390
- Mortgages 17.024.654 - - 17.024.654
- Small business lending 18.980.309 - - 18.980.309
Securities (excluding own shares) 141.070 - - 141.070
Equity investments 20.479 - - 20.479
Other lending 30.700 - - 30.700
Other assets, prepayments and accrued income 845.295 1.642 18.252 865.189
As at 31 December 2008 66.787.319 26.672.404 18.252 93.477.975
As at 31 December 2007 51.774.057 799.362 49.990 52.623.409
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ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
b) Industry sectors
The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorized by the industry sectors of our counterparties:
Commerce and services Construction
Financial services Manufacturing
Private indi-viduals Other Total
Interest, fees and commission receivable
98.907 9.974 16.051 24.199 180.731 15.078 344.940
Loans and advances to banks - - 29.126.676 - - - 29.126.676
Loans and advances to customers:- Corporate lending 4.000.184 548.677 60.549 600.964 - 208.194 5.418.568
- Consumer lending - - - - 21.525.390 - 21.525.390
- Mortgages - - - - 17.024.654 - 17.024.654
- Small business lending 6.153.072 784.905 22.593 3.061.223 8.600.849 357.667 18.980.309
Securities (excluding own shares) - - - - - 141.070 141.070
Equity investments - - 20.479 - - - 20.479
Other lending - - - - - 30.700 30.700
Other assets, prepayments and accrued income
65.212 7.968 87.316 - 424.738 279.955 865.189
As at 31 December 2008 10.317.375 1.351.524 29.333.664 3.686.386 47.756.362 1.032.664 93.477.975
As at 31 December 2007 8.583.723 234.476 4.350.996 1.029.318 35.737.879 2.687.017 52.623.409
5.2. Market Risk
The Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific movements and changes in the level of volatility of market rates or prices such as inter-est rates, foreign exchange rates and equity prices.
5.2.1. Foreign exchange risk
Exposure to foreign currency risk is monitored on regular basis by complying with the require-ments of the National Bank of Serbia. The Bank hedges its foreign currency position by granting loans that are indexed to foreign currency. The Bank also actively manages the foreign currency risk by careful estimation of the open foreign currency positions and compliance with the risk ratios prescribed by the National Bank of Serbia as well as the limits prescribed in the internal acts enacted by the Bank’s management and risk management commission.
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All amounts are expressed in 000 RSD unless otherwise stated
5.2.2. Interest rate risk
Interest rate risk is the exposure of bank’s financial condition to adverse movements in interest rates. Generally, there are two ways on which the bank could be affected by changes in interest rates. Firstly, changes in interest rates are affecting the value of banks assets, liabilities and off-balance sheet items, and secondly, it impacts banks future cash flows that the bank will obtain. Interest rate risk could come in the variety of forms, including reprising risk, yield curve risk and basis risk. The Bank’s interest rates are set taking into account the market interest rates and other factors (such as cost of risk, reserve requirement, etc.) and the Bank regularly adjusts them.
The purpose of the interest rate management activities is to optimize the net interest income, and to maintain the interest margins on a consistent level in accordance to the Bank’s business strat-egy. The management is based on maturities matching of the assets and liabilities’ on the basis of: macro and micro economic estimations, estimations of the conditions for achieving liquidity, and the estimation of the interest rates’ trends.
The Bank’s exposure to interest rate risk is shown in the table on the next page. The table includes assets and liabilities classified according to the earlier of the date of re-pricing or the maturity date.
5.2.3. Sensitivity analysis
The management of interest rate risk and currency risk against gap limits is supplemented by moni-toring the sensitivity of the Bank’s income statements to various interest rate and foreign currency rate scenarios. The sensitivity of the income statement is the effect of the assumed changes in interest rates and FX rate on the net interest income for one year.
An analysis of the Bank’s sensitivity to an increase or decrease in market interest rates and FX rates (assuming no asymmetrical movements in yield curves and constant balance sheet position) is as follows:
Sensitivity of income statement
Interest rate sensitivity 2008Reclassified
2007Increase in basis points +100 bps parallel shift 1.912 10.820 Foreign exchange sensitivity 10% depreciation of RSD 5.513 19.124
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ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
5.3. Liquidity risk
Liquidity risk is the risk that the Bank is unable to meet its payment obligations which can have a negative result on the Bank’s financial results and equity. The Bank manages liquidity risk by ob-taining different funding sources that include:
customer’s deposits with different maturities•
deposits from the money market and available lines with financial institutions•
Available lines form the majority shareholder•
share capital•
Sources of liquidity are regularly reviewed so as to maintain a wide diversification by currency, ge-ography, provider, product and term.
The matching and controlled mismatching of the maturities and interest rates of assets and li-abilities is fundamental to the Management of the Bank. It is unusual for banks to be completely matched, as transacted business is often of uncertain term and of different types. An unmatched position potentially enhances profitability, but also increases the risk of losses.
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest bearing liabilities as they mature, are important factors in assessing the liquidity of the Bank and its exposure to changes in interest rates and exchange rates.
Liquidity requirements to support calls under guarantees and standby letters of credit are consid-erably less than the amount of the commitment because the Group does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of com-mitments to extend credit does not necessarily represent future cash requirements, as many of these commitments will expire or terminate without being funded.
34
Non – derivative cash flow
The amounts disclosed in the table below are the contractual undiscounted cash flows for the years 2008 and 2007.
As at 31 December 2008
Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years Total
Transaction and other deposits 43.220.675 12.960.461 27.347.934 2.630.199 988.783 87.148.052
Borrowings 23.120 - - - - 23.120
Subordinated liabilities - - - 443.005 - 443.005
Other liabilities 338.021 138.634 - - - 476.655
Total 43.581.816 13.099.095 27.347.934 3.073.204 988.783 88.090.832
As at 31 December 2007
Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years Total
Transaction and other deposits 25.881.181 8.241.922 22.816.480 4.228.584 - 61.168.167
Borrowings 10.152 - - - - 10.152
Subordinated liabilities - - - 462.232 - 462.232
Other liabilities 265.533 - - - - 265.533
Total 26.156.866 8.241.922 22.816.480 4.690.816 - 61.906.084
As at 31 December 2008 No later than 1 year 1-5 years Over 5 years Total
Loan commitments 7.657.997 4.097.959 630.187 12.386.143
Guarantees and acceptances 703.298 21.405.280 10.091.260 32.199.838
Other irrevocable commitments 280.708 1.309.842 - 1.590.550
Operating lease 97.171 - - 97.171
Capital commitments 167.128 - - 167.128
Total 8.906.302 26.813.081 10.721.447 46.440.830
As at 31 December 2007
Loan commitments 2.847.829 4.001.268 30.619 6.879.716
Guarantees and acceptances 6.539.885 5.438.180 4.980.066 16.958.131
Other irrevocable commitments 1.606.291 1.606.291
Operating lease 70.255 - - 70.255
Total 11.064.260 9.439.448 5.010.685 25.514.393
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ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
Derivative cash flow
Derivatives settled on a net basis
The Bank’s derivatives that will be settled on a net basis include foreign exchange swaps over-the-counter (OTC).
The table below analyses the Bank’s derivative financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet to the con-tractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Financial liabilities as of 31 December 2008 Manje od 2
meseca
Between 1 and 3 months
Between 3 and 12
monthBetween 1
and 5 yearsOver 5
yearBalance sheet
amounts
Swap 6.862 - - - - 3.100
Total 6.862 - - - - 3.100
5.4. Operational risk
Operational risk is the risk of negative effects on the financial result and capital of the bank caused by human error, inadequate internal procedures and processes, inadequate management of the information system and other systems in the bank, as well as by unforeseeable external events (economic environment, changes in the banking system, technological development etc.). Part of this risk is legal risk, arising from bank’s failure to comply with the legal or contractual provisions, negatively affecting the operations or status of the Bank.
They are monitored per business lines and per operational loss event types, and regularly reviewed in order to take corrective actions where necessary.
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5.5. Capital management
The Bank’s objectives, when managing capital, which is a broader concept than “equity” on the face of the balance sheet, are:
To comply with the capital requirements set by the National Bank of Serbia •
To provide an adequate level of capital so as to enable the Bank to continue its operations as a • going concern
To maintain a strong capital base to support the development of its business.•
Capital adequacy, as well as the use of the Bank’s capital is monitored on a monthly basis by the Bank’s management.
The National Bank of Serbia has defined the following capital limits:
The minimum amount of the capital of EUR 10 million •
Capital adequacy ratio of 12% •
Gross dinar placements to the citizens in the amount of 150% of the tier 1•
The Bank’s total capital comprises of tier 1 and tier 2 capital and deductible items.
Tier 1 capital: share capital from ordinary shares, share premium, statutory reserves, cumulative loss or gain, capital gain and loss from purchased own shares, intangible investments and pur-chased own actions as tier 1 deductible items.
Tier 2 capital: share capital from preference shares, share premium from preference shares, revalu-ation reserves related to fixed assets and share in capital, retained earnings for general banking risks up to 1.25% of risk-weighted assets, subordinated liabilities up to 50% of tier 1 capital, and purchased own preference shares as Tier 2 capital deductible items.
Deductible items: collective impairment allowances, share in capital of banks or other financial institutions exceeding 10% of capital of the organisation that is invested into, and 10% of the invest-ing bank capital and the amount of the tier 2 capital of the bank which exceeds its tier 1 capital.
The risk weighted balance and off-balance assets are determined in accordance with the prescribed risk ratios for all types of assets. When calculating the capital adequacy ratio, and in accordance with the regulations of the National Bank of Serbia, the overall risk-weighted balance and off-bal-ance assets are increased for the calculated foreign currency and price risk.
The table below summarizes the structure of the Bank’s capital as at 31 December 2008, as well as the capital adequacy ratio:
37
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
2008Reclassified
2007TIER 1 capital 30.549.535 20.264.072 TIER II capital 270.603 321.745 Deductible items
Shortfall amount of provisions against potential losses (14.640.639) (7.147.817)Investments in shares over 10% (20.479) (20.479)Total regulatory capital 16.159.020 13.417.521
Risk weighted assets:
Balance sheet 70.704.500 31.918.707 Off balance sheet 29.843.621 18.346.921 FX risk 72.111 93.231 Price risk 216.966 - Total risk weighted assets 100.837.198 50.358.859
Capital adequacy 16,0% 26,6%
5.6. Fairvalueoffinancialassetsandliabilities
Fair value is the amount for which an asset could be exchanged or a liability settled, between know-ledgeable, willing parties in an arm’s length transaction. A market price, where an active market (such as a recognized stock exchange) exists, is the best evidence of the fair value of a financial instrument. However market prices are not available for a significant number of financial assets and liabilities held by the Bank. Therefore, for financial instruments where no market price is available, the fair values of financial assets and liabilities are estimated using present value or other estima-tion and valuation techniques based on current prevailing market conditions.
The values derived using these techniques are significantly affected by underlying assumptions concerning both the amounts and timing of future cash flows and the discount rates used. The following methods and assumptions indicate that the fair values of financial assets and liabilities approximate their carrying amounts:
a) trading assets, derivatives and other transactions undertaken for trading purposes as well as trea-sury bills, available-for-sale securities and assets and liabilities designated at fair value through profit or loss are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then the fair values are estimated using valuation tech-niques based on observable market data.
38
All amounts are expressed in 000 RSD unless otherwise stated
b) substantially all of the Bank’s other financial assets and liabilities are at floating rates of interest, which re-price at frequent intervals. Therefore the Group has no significant exposure to fair value fluctuations and the carrying value of the financial assets and liabilities is substantially equivalent to their fair values, unless otherwise stated.
5.7. Financial crisis
Recent volatility in global and Serbian financial markets
The ongoing global liquidity crisis which commenced in the middle of 2007 has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the banking sector, and, at times, higher interbank lending rates and very high volatility in stock markets.
The first signs of financial crisis in Serbia became apparent at the beginning of October 2008, pri-marily in the area of retail savings where the market has recorded significant decline since October 2008. Decrease in retail savings has resulted in slowing down lending activities of the banks. Local currency has started depreciating as foreign investors partially pulled away from the Serbian mar-ket and FDIs decreased. At the beginning of 2009 the Serbian government has introduced various measures which will lessen the impact of crisis.
Impact on liquidity
As mentioned above, retail savings has decreased significantly since beginning of October 2008. It is estimated that the 15% of total retail savings has been withdrawn from the system. In the same time liquidity of interbank market has also decreased significantly. Such circumstances have af-fected the ability of banks to obtain new retail deposits and retain existing deposits at terms and conditions similar to those applied to earlier transactions. Therefore the bank has undertaken vari-ous steps in order to increase its deposit base and restore the confidence of the clients.
Impact on borrowers
Borrowers of the Bank may be affected by the lower liquidity situation and depreciation of the local currency which could in turn impact their ability to repay the amounts owed. Deteriorating operat-ing conditions for borrowers may also have an impact on management’s cash flow forecasts and assessment of the impairment of financial and non-financial assets. To the extent that information is available, management has properly reflected revised estimates of expected future cash flows in their impairment assessments.
Impact on collateral (especially real estate)
The amount of provision for impaired loans is based on management’s appraisals of these assets at the balance sheet date after taking into consideration the cash flows that may result from foreclosure less costs for obtaining and selling the collateral. The market in Serbia for many types of collateral, especially real estate, has not yet been affected by the recent volatility in global financial markets. However, it is expected that real estate prices will decrease somewhat and as a result, the actual realizable value on foreclosure may differ from the value ascribed in estimating allowances for impairment.
39
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
6. Interest income and expense
2008Reclassified
2007Interest income
Interest income from dinar assetsLoans 9.703.339 5.350.383Deposits 33.873 73.535Securities 282.424 647.627Other placements 1.843.672 753.878
Interest income from foreign currency assetsLoans 21.011 2.508Deposits 186.923 64.073Securities 86.908 118.257Other placements 4.111 5.066
12.162.261 7.015.327
Interest expense
Interest expense from dinar liabilities Loans - (38)Deposits (700.273) (432.733)Securities (47.550) (105.050)
Interest expense from foreign currency liabilities Loans (27.104) (307.159)Deposits (2.918.772) (1.486.585)Securities - -
(3.693.699) (2.331.565)
Net interest income 8.468.562 4.683.762
40
All amounts are expressed in 000 RSD unless otherwise stated
7. Fee and commission income and expense
2008Reclassified
2007Fees and commissions income
Fees for banking services 1.146.234 834.573Commissions from issued guarantees and other sureties 351.039 179.577
Other fees and commissions 245.467 130.2721.742.740 1.144.422
Fees and commissions expense
Fees for domestic payment transactions (25.924) (24.939)Fees for payment transactions abroad (15.833) (16.206)Commissions for received guarantees and sureties (11.637) (8.832)Other fees and commissions (126.461) (139.431)
(179.855) (189.408)
Net fees and commissions income 1.562.885 955.014
8. Netgains/(losses)fromsaleofsecuritiesatfairvaluethroughprofitandloss
2008Reclassified
2007Gain from securities 45.472 35.952Loss from securities (1.197) (5.069)Net (losses)/gains 44.275 30.883
9. Net foreign exchange gains/ (losses)
2008Reclassified
2007Foreign exchange gains 59.960.467 22.727.523Foreign exchange losses (65.780.471) (22.353.881)Net foreign exchange rate gains/(losses) (5.820.004) 373.642
In accordance with the regulations of the National bank of Serbia, chart of accounts and presenta-tion of Financial Statements for year ended 31 December 2008 have been changed. Consequently, in 2008, exchange rate gains and losses arising from RSD loans and deposits indexed in foreign currency have been reclassified from net foreign exchange gains/losses in 2007 to income and expenses arising from revaluation of assets and liabilities in 2008 (Note 15).
41
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
10. Operating and other income
2008Reclassified
2007Sale of receivables 50.544 -Collected written-off claims 814 20.041Maintenance of dormant accounts 180.507 279.224Gains from sale of fixed and intangible assets 1.292 3.814Lease of safe boxes 379 2.711Collected damages and lawsuits 97 1.127Other income 4.336 5.935Total 237.969 312.852
As of 31 December 2008 income from maintenance of the dormant accounts in the amount of RSD 180,507 thousand (31 December 2007: RSD 279,224 thousand) relates to the fee charged for maintenance of dormant accounts. Dormant accounts are accounts without turnover from 2002 and individual balances are less than EUR 30. Since the Bank has maintained database of dormant accounts and it did not close those accounts, the management of the bank has decided to charge a fee for maintenance of dormant accounts, in accordance with internal procedures. Fee is charged by debiting dormant accounts.
11. Net provisions and impairment losses on loans and advances
2008Reklasifikovana
2007Income from releases of provisions and reversal of impairment losses on loans and advances
Reversal of impairment for balance sheet itemsInterest, fees and commission receivables (Note 20) 784 10.361Loans, advances and deposits (Note 21) 52.317 138.241Other assets (Note 28) 11 1.530
53.112 150.132
Release of provisions for retirement (Note 34) 1.507 -Release of provisions for court proceedings (Note 34) 7.474 -Release of provisions for off-balance sheet positions (Note 34) - 8.231
Total 62.093 158.363
Expenses for provisions and impairment losses on loans and advances
42
All amounts are expressed in 000 RSD unless otherwise stated
2008Reclassified
2007Impairment for balance sheet items
Interest, fees and commission receivables (Note 20)Loans, advances and deposits (Note 21) (75.400) (37.791)Other assets (Note 28) (1.180.422) (668.692)
(7.965) (9.414)Provisions for off-balance sheet items (Note 34) (1.263.787) (715.897)
Provisions for legal cases (Note 34) (65.580) (28.131)Provision for retirement (Note 34) (36.823) (31.139)Other provisions (Note 34) - (11.527)Total (12.948) -Ukupno (1.379.138) (786.694)
Net income/(expense) from indirect write-off of lending and provisioning (1.317.045) (628.331)
12. Salaries,benefitsandotherpersonalexpenses
2008Reclassified
2007Salaries 1.269.602 943.301Tax on salaries and benefits 189.126 145.418Contributions on salaries and benefits 278.749 216.995Fees for temporary and occasional assignments 2.279 -Other personal expenses 41.270 5.279Total 1.781.026 1.310.993
13. Depreciation and amortization expenses
2008Reclassified
2007Intangible assets (Note 25) 196.988 137.296Property, plant and equipment (Note 26) 407.116 356.362Total 604.104 493.658
43
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
14. Operating and other expenses
2008Reclassified
2007Administrative expenses 1.525.197 1.323.413Non-material expenses (excluding taxes and contributions) 924.195 763.726
Contributions 286.659 223.427Materials 190.420 169.098Taxes 80.736 57.197Write off of receivables 7.151 15.314Disposals and write-offs of intangible assets and PPE 10.745 27.233Other expenses 11.502 46.832Total 3.036.605 2.626.240
Detailed breakdown of administrative expenses is presented in the table below:
2008Reclassified
2007Transportation services 48.584 28.599Communication services 130.665 89.909Telephone 71.317 92.878Software maintenance 299.792 217.997Hardware maintenance 40.063 31.398Maintenance of fixed assets 35.260 39.786ATM maintenance 10.126 6.162Marketing and advertising 346.489 325.520Donations 36.607 76.950Rent 489.195 400.002Other services 17.099 14.212Total 1.525.197 1.323.413
As of 31 December 2008, non-material expenses in the amount of RSD 924,195 thousand com-prise of the following expenses: expenses for services of EFG Retail Services in the amount of RSD 321,652 thousand, deposit insurance expenses in the amount of RSD 167,131 thousand, security and safeguarding expenses in the amount of RSD 73,545 thousand, intellectual services in the amount of RSD 40,931 thousand, cleaning services in the amount of RSD 35,851 thousand, infor-mation system services in the amount of RSD 20,195 thousand, and other expense.
44
All amounts are expressed in 000 RSD unless otherwise stated
15. Income and expenses arising from revaluation of assets and liabilities
2008Reclassified
2007Income arising from change in value of assets and liabilities
Placements and receivables - exchange rate gains 49.383.167 5.942.239Loans revalued with retail price index 655 4.005Liabilities 65.807 -Increase of market value of derivatives 1 -
49.449.630 5.946.244
Expenses arising from change in value of assets and liabilities
Placements and receivables - exchange rate losses (42.924.612) (5.816.926)Liabilities (82.655) -Decrease of market value of derivatives (3.100) -
(43.010.367) (5.816.926)
Net income/(expense) from change in value of assets and liabilities 6.439.263 129.318
As of 31 December 2008 income from revaluation of assets and liabilities in the amount of RSD 654 thousand relates to revaluation of dinar loans with agreed indexation for increase in retail prices (2007: RSD 4,004 thousand).
In accordance with the regulations of the National bank of Serbia, chart of accounts and presenta-tion of Financial Statements for year ended 31 December 2008 have been changed. Consequently, in 2008, exchange rate gains and losses arising from RSD loans and deposits indexed in foreign currency have been reclassified from net foreign exchange gains/losses in 2007 to income and expenses arising from revaluation of assets and liabilities in 2008 (Note 9).
16. Income tax
Income tax is composed of the following taxes:
2008Reclassified
2007Current income tax (217.060) (10.807)Deferred tax 95.499 (96.746)Total (121.561) (107.553)
45
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
The tax on the Bank’s profit or loss before tax differs from the theoretical amount that would arise using the average tax rate:
2008Reclassified
2007Profit/ (Loss) before tax 4.194.170 1.426.249Tax calculated at the rate of 10% (419.417) (142.625)Tax effect of non deductible expenses (14.702) (19.041)Tax effect from the current year result (434.119) (161.666)
Tax effect of losses carried forward and tax credits - (197)Tax effect of temporary differences 3.594 (7.102)Tax effect of recognized deferred tax on tax credits 91.905 50.606Utilized unrecognized tax credits 217.060 10.806Income tax income (121.560) (107.553)
As at 31 December 2008, corporate tax payable amounts to RSD 207,154 and comprise of corpo-rate tax liability in the amount of RSD 217,060 thousand for the profit realized in 2008 which is off set with prepaid corporate tax in previous years in the amount of RSD 9,906 thousand. Breakdown is provided below:
2008Reclassified
2007Current tax liability for the profit realized 217.060 10.807Prepaid corporate tax (9.906) (4.569)Total tax payable 207.154 6.238
17. Earnings per share
Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Bank by the weighted average number of ordinary shares in issue during the year.
2008Reclassified
2007Profit attributable to equity holders of the Company 4.072.609 1.318.696Weighted average number of ordinary shares in issue 244.982 158.608Basic earnings per share (expressed in RSD per share) 16.62 8.31
46
All amounts are expressed in 000 RSD unless otherwise stated
18. Cash and cash equivalents
2008Reclassified
2007In dinars Current account 11.054.885 676.412Cash in hand 774.835 463.373Cash equivalents 1.525.220 4.299.570Other cash and cash equivalents 46.967 13.868
In foreign currency Foreign currency accounts 156.836 175.576Cash in hand 1.775.055 960.803Other cash and cash equivalents 11.429 13.551Total 15.345.227 6.603.153
In accordance with the Decision of the National bank of Serbia (Official Gazette of Republic of Serbia no. 116/2006, 3/2007, 31/2007, 93/2007, 35/2008, 94/2008, 100/2008, 107/2008, 110/2008, 112/2008), mandatory reserves in local currency are included in the balance of the current account, therefore it is not presented separately. As at 31 December 2008 calculated man-datory reserves in local currency amounted to RSD 7,239,166 thousand. The Bank can use manda-tory reserves to maintain its liquidity.
19. Callable deposits and loans
2008Reclassified
2007REPO with the Central bank - 6.215.374Mandatory reserves in foreign currency 9.860.633 13.869.509Total 9.860.633 20.084.883
Pursuant to NBS Decision on mandatory reserves (Official Gazette of Republic of Serbia no. 116/2006, 3/2007, 31/2007, 93/2007, 35/2008, 94/2008, 100/2008, 107/2008, 110/2008, 112/2008), the Bank is obligated to set aside funds for mandatory reserves in foreign currency on the separate account with NBS which is calculated as a percentage of an average monthly balance of foreign currency deposits. Mandatory reserve is calculated by applying rate ranging from 40% - 45% to the average balance of foreign currency deposits and indexed deposits. The amount of cal-culated mandatory reserve is decreased by the amount of long term loans insured with the National Corporation.40% of the calculated mandatory reserves in foreign currency has to be maintained in local currency. Mandatory reserve at the rate of 100% is calculated on the deposits of the leasing companies, at rate of 20% on the subordinated liabilities.
47
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
20. Interest, fees and commission receivables, change in fair value of derivatives and other receivables
2008Reclassified
2007Receivables in dinars Interest 349.751 193.576Fees 54.086 8.949Sales 7.941 7.068Fair value of derivatives 1 -
Receivables in foreign currency Interest 2.362 2.181Fees 4.419 618Sales 474 821Interest, fees and commission receivable, gross 419.034 213.213
Less: Provision for impairment (74.094) (71.394)Interest, fees and commission receivable, net 344.940 141.819
Movements in provision for impairment are presented below:
2008Reclassified
2007Opening balance 71.394 40.204
New provisions (Note 11) 75.400 37.791 Release of provision (Note 11) (784) (10.361)Net foreign exchange (9.847) 140 Write off (62.069) (3.434)Other – reclassification (Note 29) - 7.054 Closing balance 74.094 71.394
48
All amounts are expressed in 000 RSD unless otherwise stated
21. Loans, advances and deposits
2008Reclassified
2007Banking
sectorFinancial
institutions CompaniesEntrepre-
neurs IndividualsForeign enti-
ties Total TotalDeposits in dinars Other deposits 1.180.000 - - - - - 1.180.000 1.050.000
Deposits in foreign currency Other deposits 1.284.715 - - - - 17.861.962 19.146.677 3.014.937Other special purpose deposits
- - - - - 88.268 88.268 33.791
Placements in dinars Investment loans - - 1.330.147 901.980 - - 2.232.127 1.246.592
Overdrafts - 12.789 763.493 768.306 588.778 - 2.133.366 1.807.340Working capital loans - - 8.596.305 7.031.437 - - 15.627.742 7.244.234
Mortgage loans - - - - 16.867.310 - 16.867.310 10.734.876
Other loans - - 5.571.984 180.617 22.142.432 8.800.000 36.695.033 27.789.560
Placements in foreign currency
258.982
Other placements - - 57.706 - - - 57.706 -
Loans and placements, gross
2.464.715 12.789 16.319.635 8.882.340 39.598.520 26.750.230 94.028.229 53.180.312
Less: Provisions - - (671.073) (233.081) (1.048.477) - (1.952.631) (1.292.894)
Loans and placements, net
2.464.715 12.789 15.648.562 8.649.259 38.550.042 26.750.230 92.075.597 51.887.418
Interest rates for indexed loans to legal entities range between 4% and 36% per annum and for RSD loans between 16% and 25.5%.
The Bank approves foreign currency indexed RSD loans to retail customers, where the interest rate ranges from 7% - 26% per annum and RSD loans with interest rates between 17.5% and 33.5%.
49
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
Movements in provisions for loans and advances to customers are presented below:
Corporate Consumer Mortgage SBB Total
Opening balance 2007 271.706 430.955 23.494 46.306 772.461
New provisions (Note 11) 87.115 404.517 16.792 160.268 668.692
Release of provision (Note 11) (79.020) (55.732) - (3.489) (138.241)
Net foreign exchange (2.075) 3.707 (5) (589) 1.038
Write off - - - (11.056) (11.056)
Opening balance 2008 277.726 783.447 40.281 191.440 1.292.894
New provisions (Note 11) 19.794 581.505 - 579.123 1.180.422Release of provision (Note 11) (31.277) (195) (20.845) - (52.317)Net foreign exchange 55.851 179.399 8.484 (133.238) 110.496Write off - (526.199) - (52.665) (578.864)Closing balance 2008 322.094 1.017.957 27.920 584.660 1.952.631
22. Securities (excluding own shares)
2008Reclassified
2007Foreign currency frozen bonds 141.070 73.620
141.070 73.620
Foreign currency frozen bonds are bonds issued by Republic of Serbia based on the Law on Settle-ment of Public Debt of the Federal Republic of Yugoslavia arising from the Citizens’ Foreign Ex-change Savings (Official Gazette of Republic of Serbia no. 36/2002). Bonds are zero-coupon bonds and they are transferable. Bonds are denominated in EUR and payable either in EUR or in RSD and are registered in the Central register. Bonds are actively traded in the Belgrade Stock Exchange.
50
All amounts are expressed in 000 RSD unless otherwise stated
23. Equity investments
2008Reclassified
2007Equity shares 20.479 20.479
20.479 20.479
As at 31 December 2008 the Bank is holding 25.56% of the voting rights of the EFG Leasing a.d. Beograd (31 December 2007: 25.56%).
24. Other lending
2008Reclassified
2007Other placements in dinars Payments claimed under issued guarantees 7.680 2.439Other placements 1.545 -
Other placements in foreign currencyOther mandatory deposits 3.544 3.169Other placements 21.240 1.369Other lending, gross 34.009 6.977
Less: Provisions (3.309) (1.216)Other lending, net 30.700 5.761
25. Intangible assets
Licenses and software
In course of construction Total
At 1 January 2007
Cost 676.358 256.955 933.313Accumulated amortization (216.148) - (216.148)Net book value 460.210 256.955 717.165
Year ended 31 December 2007
Opening net book value 460.210 256.955 717.165Additions 59.466 324.007 383.473Transfers 522.635 (522.635) -Transfers to/PPE (Note 26) 5.265 (658) 4.607Other 1.218 (3.387) (2.169)Amortization (Note 13) (137.296) - (137.296)Closing net book value 911.498 54.282 965.780
51
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
Licenses and software
In course of construction Total
At 31 December 2007
Cost 1.259.676 54.282 1.313.958Accumulated amortization (348.178) - (348.178)Net book value 911.498 54.282 965.780
Year ended 31 December 2008
Opening net book value 911.498 54.282 965.780Additions - 338.601 338.601Transfers 289.975 (289.975) -Amortization (Note 13) (196.988) - (196.988)Closing net book value 1.004.485 102.908 1.107.393
At 31 December 2008
Cost 1.549.651 102.908 1.652.559Accumulated amortization (545.166) - (545.166)Net book amount 1.004.485 102.908 1.107.393
Book value of intangible assets does not materially differ from fair value.
26. Property and equipment
Land andbuildings
Equipment and other assets
In course of construction
and advances TotaAt 1 January 2007
Cost 893.077 1.180.629 162.548 2.236.254Accumulated depreciation (194.843) (376.190) - (571.033)Net book value 698.234 804.439 162.548 1.665.221
Year ended 31 December 2007
Opening net book amount 698.234 804.439 162.548 1.665.221Additions 5.852 84.568 2.409.658 2.500.078Transfers 188.966 228.817 (417.783) -Transfers to/from intangible assets (Note 25)
(4.607) - - (4.607)
Reclassification to intangible assets (Note 25)
(1.048) 1.048 - -
Reclassification to other assets (10.171) (6.873) - (17.044)Disposals (19.166) (7.960) - (27.126)Other - - - -Depreciation (Note 13) (105.925) (250.437) - (356.362)Closing net book value 752.135 853.602 2.154.423 3.760.160
At 31 December 2007
52
All amounts are expressed in 000 RSD unless otherwise stated
Land andbuildings
Equipment and other assets
In course of construction
and advances TotalAt 31 December 2007
Cost 1.031.153 1.453.097 2.154.423 4.638.673Accumulated depreciation and impair-ment
(279.018) (599.495) - (878.513)
Net book value 752.135 853.602 2.154.423 3.760.160
Year ended 31 December 2008
Opening net book amount 752.135 853.602 2.154.423 3.760.161Additions - - 706.727 706.727Transfers 271.087 344.386 (615.473) -Transfers from advances included in the Other assets
- 27.369 - 27.369
Disposals - (5.137) - (5.137)Write off (4.517) (6.983) - (11.501)Other - (282) 14 (268)Depreciation (Note 13) (142.362) (264.754) - (407.116)Closing net book value 876.343 948.201 2.245.691 4.070.235
At 31 December 2008
Cost 1.294.135 1.737.974 2.245.691 5.277.801Accumulated depreciation and impair-ment
(417.792) (789.773) (1.207.566)
Net book value 876.343 948.201 2.245.691 4.070.235
Book value of property and equipment does not materially differ from fair value.
Rental expenses in the amount of RSD 489,195 thousand (2007: RSD 400,002 thousand) in rela-tion to the rental of property are included in the operating expenses (Note 14).
As at 31 December 2008 there are no charges over the Bank’s fixed assets.
53
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
27. Deferred tax assets
Deferred tax assets are recognized on temporary differences, losses carried forward and unused tax credits.
2008Reclassified
2007Deferred tax assets on unused tax credits - from 2007 160.499 45.018 - from 2006 - 5.588 - from 2004 - 9.815 - from 2003 - 8.173Deferred tax assets on temporary differences 7.304 3.710
167.803 72.304
Movements in deferred tax assets
2008Reclassified
2007Opening balance of deferred tax (assets) 72.304 169.050
Changes during the year:Decrease/(increase) of deferred tax liabilities and (decrease)/ increase of deferred tax assets related to temporary differences
3.594 (7.102)
Deferred tax assets on losses carried forward - (139.310)Reversal of tax assets on expired tax credits - (940)Deferred tax assets on tax credits 91.905 50.606Total deferred tax (expense)/income for the year 95.499 (96.746)
Deferred tax assets 167.803 72.304
Deferred income tax income relates to the following items:
2008Reclassified
2007Depreciation 3.594 (7.102)Losses carried forward - (139.310)Tax credits 91.905 49.666
95.499 (96.746)
As at 31 December 2008 the Bank has unrecognized deferred tax assets on the tax credits in the amount of RSD 409,276 thousand. Tax credits are from the year 2003 to 2006 and will expire 10 years from date of origination. Management believes it is not certain that the future profits will en-able utilization of these tax credits.
54
All amounts are expressed in 000 RSD unless otherwise stated
28. Other assets, prepayments and accrued income
2008Reclassified
2007Prepayments and accrued income in dinars Accrued interest 526.102 213.001Other accrued income 9.637 6.006Prepayments 78.995 101.720Other prepayments and accrued income 31.361 35.965
Prepayments and accrued income in foreign currency Accrued interest 2.009 2.926Other accrued income - 99Interest prepayments - 447Other prepayments and accrued income 2.668 2.534
650.772 362.698
Other receivables in dinarsEmployees 603 755Advances for current assets 32.138 26.219Advances for property, plant and equipment 51.089 9.836For prepaid taxes and contributions 1.682 4.297Cards receivables 18.111 31.316Suspense and temporary accounts (4.342) (16.353)Other receivables in dinars 100.424 51.274
Other receivables in foreign currency Employees 1 32Advances for current assets 2.987 2.362Suspense and temporary accounts 1.483 2.924Other receivables 25.386 21.932
229.562 134.594
Inventory Consumables 13.343 13.343Assets received in collection of claims 13.490 13.500Material 1.094 1.607
27.927 28.450
Other assets, gross 908.261 525.742
Less: Impairment (28.654) (17.596)Less: Write off of stock (14.418) (13.834)Other assets, net 865.189 494.312
55
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
Movements in provision for impairment are presented below:
2008Reclassified
2007Opening balance 17.596 22.554
New provisions (Note 11) 7.965 9,414 Release of provision (Note 11) (11) (1,530) Net foreign exchange 3.103 (166)Write off - (5.622)Other – reclassification (Note 20) - (7.054)Closing balance 28.653 17.596
29. Transaction deposits
2008Reclassified
2007Transaction deposits in dinarsBanks and other financial organizations 1.654 22.362Companies 1.338.024 1.635.278Entrepreneurs 547.561 380.255Private individuals 796.613 900.466Foreign entities 89.199 5.911Other clients 222.054 246.000
Transaction deposits in foreign currency Banks and other financial organizations 185.870 309.450Companies 2.014.828 2.181.742Entrepreneurs 23.252 32.095Private individuals 2.527.457 3.693.985Foreign entities 234.621 274.516Other clients 31.387 1.469Total 8.012.520 9.683.529
56
All amounts are expressed in 000 RSD unless otherwise stated
2008
Recl
assi
fied
2007
Dom
estic
ba
nks
Publ
icse
ctor
Com
pani
esEn
trepr
e-ne
urs
Priv
ate
indi
vidu
als
Fore
ign
entit
ies
Othe
r cl
ient
sTo
tal
Tota
lOt
her d
epos
its in
di
nars
Sa
ving
s de
posi
ts
--
--
51.9
41-
-51
.941
60.8
10Sp
ecia
l pur
pose
de
posi
ts
--
18.5
42-
25.4
0121
.947
-65
.890
144.
864
Dep
osits
ple
dged
as
col
late
ral
-22
.324
23.4
00-
9.76
9-
-55
.493
35.3
53
Othe
r dep
osits
1.
213.
555
565.
001
2.22
4.45
516
.158
-
-63
.300
4.08
2.46
92.
471.
448
Othe
r dep
osits
in
fore
ign
curr
ency
Sa
ving
s de
posi
ts
--
-40
.984
.861
1.12
7.40
1-
42.1
12.2
6217
.337
.438
Spec
ial p
urpo
se
depo
sits
-
-38
5.95
9-
209.
769
299.
774
8.17
590
3.67
711
.344
.195
Dep
osits
ple
dged
as
col
late
ral
--
95.2
2017
.058
3.16
6.87
936
3-
3.27
9.52
03.
207.
135
Othe
r dep
osits
1.
291.
870
-1.
785.
864
-4.
266
23.3
79.2
4015
5.77
926
.617
.019
15.3
60.5
63To
tal
2.50
5.42
558
7.32
54.
533.
440
33.2
1644
.452
.886
24.8
28.7
2522
7.25
477
.168
.271
49.9
61.8
06
The
inte
rest
rate
rang
ing
from
3%
to 6
% p
er a
nnum
is c
alcu
late
d on
dem
and
corp
orat
e de
posi
ts in
loca
l cur
renc
y, w
hile
in
tere
st ra
te o
n fo
reig
n cu
rren
cy d
epos
its v
arie
s fro
m 1
.5%
to 2
.25%
. Ter
m d
epos
its c
arry
inte
rest
rate
of 1
6% to
18%
.
The
inte
rest
rate
on
the
dem
and
depo
sits
of c
itize
ns ra
nged
from
0.7
5% to
9.5
% p
er a
nnum
, dep
endi
ng o
n th
e cu
rren
cy
and
mat
urity
whi
le in
tere
st ra
te o
n te
rm d
epos
its v
arie
d fro
m 2
.5%
to 1
0.6%
. The
low
est i
nter
est r
ate
is p
aid
for C
HF
depo
sits
. The
inte
rest
rate
on
RSD
term
dep
osits
of c
itize
ns ra
nged
from
9%
to 1
5.77
% p
er a
nnum
.
30.
Oth
er d
epos
its
57
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
31. Borrowingsandotherfinancialliabilities
2008Reclassified
2007Other financial liabilities in dinars 1.197 4.468Other financial liabilities in foreign currency 21.923 5.684Total 23.120 10.152
32. Interest, fees and commissions payable and change in fair value of derivatives
2008Reclassified
2007Liabilities in dinarsInterest 9 4.646Fees and commissions 3.021 1.818Fair value of derivatives (Note 5.3.) 3.100 -
Liabilities in foreign currencyInterest 559 6.996Fees and commissions 17 2.992
6.706 16.452
Derivative liabilities:
2008Reclassified
2007Fair values Fair values
Derivatives held for trading
Contract/ notional amount Assets Liabilities
Contract/ notional amount Assets Liabilities
OTC currency derivativesCurrency swaps 11.402.949 1 3.100 - - -Total 11.402.949 1 3.100 - - -
33. Tax liabilities
2008Reclassified
2007Withholding tax 19.115 15.917Value added tax 7.286 9.159Other taxes and contributions 21.327 7.477Total 47.728 32.553
58
All amounts are expressed in 000 RSD unless otherwise stated
34. Provisions
2008Reclassified
2007Provisions for off balance sheet exposures 104.258 26.288Provisions for legal cases (Note 39 b) 75.441 42.494Provision for retirement indemnities 24.415 27.297Other provisions 12.948 -Total 217.062 96.079
As at 31 December 2008 other provisions in the amount of RSD 12,948 thousand relate to the provision made in relation to potential unauthorised withdrawal of money related to frozen bonds.
Movements in total provisions:
Retirement indemnities Legal cases
Other provisions
Off balance sheet Total
Opening balance 2007 16.250 11.322 - 7.147 34.719
New provisions (Note 11) 11.527 31.139 - 28.131 70.797
Release of provisions (Note 11) - - - (8.231) (8.231)
Indemnities paid (480) - - - (480)
Net exchange gain/loss - 33 - (759) (726)
Closing balance 2007 27.297 42.494 - 26.288 96.079
New provisions - 36.823 12.948 65.580 115.351Release of provisions (Note 11) (1.507) (7.474) - - (8.981)Indemnities paid (1.375) - - - (1.375)Net exchange gain/loss - 3.598 - 12.390 15.988Closing balance 2008 24.415 75.441 12.948 104.258 217.062
Principal actuarial assumptions used for retirement indemnities (expressed as weighted averages):
2008Reclassified
2007% %
Discount rate 6,5% 5,5%National average salary increase 4,0% 4,5%Inflation rate 3,0% 3,0%
59
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
35. Liabilitiesfromprofit
2008Reclassified
2007Liabilities from profit 700 700Income tax 207.154 6.238Total 207.854 6.938
60
All amounts are expressed in 000 RSD unless otherwise stated
36. Other liabilities, accruals and deferred income
2008Reclassified
2007Liabilities for salaries and benefits Net salaries 111.020 7Tax on salaries and benefits 10.548 (3)Contributions on salaries and benefits 16.915 -Temporary and occasional assignments - 69Other liabilities towards employees 151 509
138.634 582
Other liabilities in dinarsOperations managed on behalf of third parties 5.260 3.579Advances received 462 594Suppliers 153.797 98.813Temporary and suspense accounts 39.589 28.108Other liabilities 27.671 17.124
Other obligations in foreign currency Advances received 4.279 27.259Suppliers 51.343 32.009Temporary and suspense accounts - 1.084Other liabilities 486 438
282.887 209.008
Accruals and deferred income in dinars Accrued interest expense 37.676 4.612Other accrued expenses 91.507 60.986Deferred income from fees 658.202 581.558Deferred interest income 19.305 4.174Other accruals and deferred income 41.651 59.406
Accruals and deferred income in foreign currencyAccrued interest expense 865.031 393.461Other accrued expenses 7.879 3.200Other accruals and deferred income 63.374 24.519
1.784.625 1.131.916
Subordinated liabilities in foreign currency Subordinated liabilities 443.005 396.183
Total 2.649.151 1.737.689
61
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
During 2005, the Bank received subordinated loan from the majority shareholder EFG Eurobank Ergasias, Athens in the amount of EUR 5,000 thousand (as at 31 December 2008: RSD 443,005 thousand). The loan was granted for a period of six years at variable interest rate.
37. Shareholder’s equity
Capital of the bank comprises of share capital, share premium, statutory reserves, revaluation re-serves and accumulated losses:
2008Reclassified
2007Share capital and other capitalShare capital common shares 25.422.400 19.182.900Share capital preference shares 4.800 4.800Share premium 6.051.999 3.231.745Other capital 2.727 2.727
31.481.926 22.422.172
Statutory reserves 303.549 303.549Reserves for potential losses 34.142 34.142Other reserves 230.392 230.392
568.083 568.083
Accumulated gains 28.556 28.556Accumulated losses (454.320) (1.773.016)Current year profit 4.072.609 1.318.696
3.646.845 (425.764)
Total shareholder’s equity 35.696.854 22.564.491
Number of issued shares 254.272 191.877
Nominal value of shares in RSD 100.000 per individual share.
62
All amounts are expressed in 000 RSD unless otherwise stated
The shareholders structure of the Bank as at 31 December 2008 is presented in the table below:
ShareholderOrdinary
shares %Preference
shares % Total shares %
EFG Eurobank Ergasias 140.366 55,21% 17 35,42% 140.383 55,21%Berberis Investments Limited
3.690 1,45% - 0,00% 3.690 1,45%
EFG N.E. BV Holding Com-pany Holland
108.666 42,74% - 0,00% 108.666 42,74%
Republika Srbija, Vlada 1.502 0,59% - 0,00% 1.502 0,59%Agromerkantilija zemljorad-nicka zadruga
- 0,00% 3 6,25% 3 0,00%
AKT - 0,00% 1 2,08% 1 0,00%Bambi Banat - 0,00% 3 6,25% 3 0,00%Buducnost - 0,00% 2 4,17% 2 0,00%Dunav AD - 0,00% 1 2,08% 1 0,00%Habit pharm - 0,00% 5 10,42% 5 0,00%Kopaonicanka ZP - 0,00% 2 4,17% 2 0,00%Saobracajni institut CIP - 0,00% 3 6,25% 3 0,00%Siemens IT solutions and service
- 0,00% 2 4,17% 2 0,00%
Stem - 0,00% 1 2,08% 1 0,00%TP Beogradelektro - 0,00% 6 12,50% 6 0,00%Trustex - 0,00% 1 2,08% 1 0,00%ZZ Bajina Basta - 0,00% 1 2,08% 1 0,00%Total 254.224 100,00% 48 100,00% 254.272 100,00%
The reconciliation of the movements in number of common and preference shares is as follows:
Common shares Preference sharesOpening balance 2007 150.134 48
14th share capital issue 14.844 -15th share capital issue 26.851 -Closing balance 2007 191.829 48
16th share capital issue 51.652 -17th share capital issue 10.743 -Closing balance 2008 254.224 48
63
ANNUAL REPORT 2008
Share issues and the changes in the Eurobank EFG’s share capital structure
During 2008 the bank has realized two capital issues. Based on the Decision of the Shareholders’ Assembly, from November 2007, on the share capital increase without public offer, the 16th share capital issue took place in the amount of RSD 7,499,870 thousand. 51,652 shares were issued with nominal value of RSD 100 thousand per share. Shares were sold at price of RSD 145,200 per share resulting in a share premium in the amount of 2,334,670 thousand. The share issue was completed in January 2008. The share issue in its entirety was acquired by the existing shareholder of the Bank, EFG New Europe Holding Company Holland.
The 17th share capital issue took place in the amount of RSD 1,599,884 thousand. 10,743 shares were issued with nominal value of RSD 100 thousand per share. Shares were sold at price of RSD 145,200 thousand per share resulting in a share premium in the amount of RSD 485,584 thou-sand. The share issue was completed in June 2008. The share issue in its entirety was acquired by the existing shareholder of the Bank, EFG New Europe Holding Company Holland.
Donation of the shares to the Republic of Serbia
In accordance with the Sales and purchase agreement for the acquisition of Nacionalna štedionica banka a.d. Beograd, signed between the Republic of Serbia and EFG Eurobank Ergasias Athens, the EFG Eurobank Ergasias has to donate to the Republic of Serbia 1% of the ordinary shares of the Bank determined at the date of completion of the merger between Eurobank EFG a.d. Beograd and Nacionalna štedionica banka a.d. Beograd. Donation of shares was completed in March 2008. The number of shares donated to the Republic of Serbia amounted to 1,502 shares.
Share premium
Share premium represents the difference between the market price and nominal value of the shares. As at 31.12.2008 the Bank’s share premium was RSD 6,051,999 thousand (31 December 2007: RSD 3,231,745).
Statutory reserves
Statutory reserves in the amount of RSD 533,941 thousand are formed in accordance with the law regulations and the Statute of the Bank, whereas the reserves in the amount of RSD 34,142 thou-sand represent the reserves from previous years for unidentified losses within loan portfolio.
Shortfall amount of provisions against potential losses
As at 31 December 2008, the uncovered provisions for the potential credit losses for balance sheet and off balance sheet exposures classified according to the Decision of the National Bank of Serbia amounted to RSD 14,640,639 thousand (31 December 2007: RSD 7,147,817 thousand).
64
All amounts are expressed in 000 RSD unless otherwise stated
Accumulated loss
As at 31 December 2008 the Bank had accumulated losses from previous years in the amount of RSD 454,320 thousand and accumulated gains from previous years in the amount of RSD 28,556 thousand (31 December 2007: accumulated losses from previous years in the amount of RSD 1,773,016 thousand and accumulated gains from previous years in the amount of RSD 28,556 thousand). Loss is covered in accordance with local legislation and Statue of the Bank.
38. Off balance sheet
a) Funds managed on behalf of third parties
2008Reclassified
2007Funds managed on behalf of public sector - agriculture - Short-term 1.407.363 1.510.035 - Long-term 1.051.636 1.127.210Long-term loans - young couples program 144.270 100.564Total 2.603.269 2.737.809
b) Guarantees, sureties, assets pledged as collateral and irrevocable commitments
2008Reclassified
2007In dinarsIssued guarantees and other sureties 643.805 418.600Loan commitments 7.547.580 6.796.280Other irrevocable commitments 1.374.352 1.362.891
In foreign currency Issued guarantees and other sureties 31.556.033 16.539.532Loan commitments 4.838.563 83.435Other irrevocable commitments 216.198 243.400Total 46.176.531 25.444.138
c) Guarantees, sureties, assets pledged as collateral and irrevocable commitments
2008Reclassified
2007Mortgage loans insured with National Mortgage Insurance Corporation 15.704.922 9.640.549
Total 15.704.922 9.640.549
65
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
d) Derivatives
2008Reclassified
2007Derivatives 69.863.421 39.116.127Total 69.863.421 39.116.127
e) Other off balance sheet items
2008Reclassified
2007Collaterals received 65.541.942 36.286.989Received guarantees and letters of credit 11.946.469 16.575.246Foreign currency frozen bonds in Central register 137.930.528 115.025.950Securities from repo transactions with NBS 1.593.700 10.595.000Other off-balance assets 70.061.777 36.588.051Total 287.074.416 215.071.236
39. Contingent liabilities and commitments
a) Operating lease commitments
Non-cancellable operating lease rentals are payable as follows:
2008Reclassified
2007Not later than one year 97.171 70.255Later than one year but no later than five years - -Later than five years - -
97.171 70.255
b) Litigations
As at 31 December 2008, there are three legal claims filed against the Bank in respect of payments of frozen bonds made to unauthorized persons based on forged documents. Although, the Bank acts as an Agent of the Government of the Republic of Serbia, servicing “old foreign currency sav-ings bonds” the Bank has made provision for claims related to the frozen bonds payments in the amount of RSD 64,711 thousand (31 December 2007: RSD 30,208 thousand).
As at 31 December 2008, the provision for other legal cases amounted to RSD 10,730 thousand (31 December 2007: RSD 12,286 thousand) – Note 34.
40. Compliance with regulatory requirements
The Bank is obliged to comply with ratios defined by the Law on Banks and Other financial institu-tions. As at 31 December 2008 the Bank’s ratios were in compliance with the prescribed levels:
66
All amounts are expressed in 000 RSD unless otherwise stated
Business indicators Determine level 2008Capital adequacy min 12% 16,00%Long term investments indicator max 60% 25,19%Exposure to related parties max 20% 8,18%Large exposures indicator max 400% 39,97%Liquidity indicator: first month of reporting period min 1 1,92second month of reporting period min 1 3,76last month of reporting period min 1 2,28Currency risk max 30% 0,37%
Effective from 30th September 2008, the National bank of Serbia has introduced a new method of calculation of capital adequacy ratio. The major changes relate to the following:
• Different treatment of mortgage loans and commercial loans
• Introduction of risk weight of 125% for indexed loans related to the borrowers that have open FX position and no collaterals and risk weight of 75% if loans are secured with collateral on the resi-dential property
• Inclusion of market risks in the calculation of CAD
If the methodology for calculation of CAD had not been changed, as at 31 December 2008, the Bank’s capital adequacy ratio would have been higher by approximately 8% i.e. at the level of 24%.
As at 31 December 2008, the Bank was in compliance with all regulatory requirements.
41. Related parties transactions
Eurobank EFG is subsidiary of EFG Eurobank Ergasias listed in the Athens Stock Exchange. EFG Eu-robank Ergasias is a member of the EFG Group, the ultimate parent company of which is EFG Bank European Financial Group, a bank incorporated in Switzerland, which owns 43.7% of the ordinary shares. The remaining 56.3% of the shares are widely held. All the voting rights in EFG Bank Euro-pean Financial Group are held by the Latsis family, the ultimate controlling party of the Group.
The Bank enters daily into transactions with major shareholders and other related parties in the ordinary course of business. Transactions with related parties at 31 December 2008 are presented in the table below:
67
ANNUAL REPORT 2008All amounts are expressed in 000 RSD unless otherwise stated
Euro
bank
Er
gasi
asEF
G R
etai
l Se
rvic
esEF
G p
rope
rty
serv
ices
EFG
Lea
sing
EFG
Ass
et F
inBu
sine
ss
exch
ange
Rom
ania
IT
Sha
red
Serv
ices
RECO
Rea
l Pr
oper
ty
EFG
New
Eu
rope
Fu
ndin
g BV
EFG
Sec
u-rit
ies
Serb
iaEF
G B
usin
ess
Serv
ices
Asse
tsFo
reig
n cu
rren
cy
acco
unt
129.
492
--
--
--
--
-
Inte
rest
and
fe
e re
ceiv
able
s10
.437
397
385
--
--
--
-
Loan
s to
cu
stom
ers
and
depo
sits
26.6
61.9
6247
.744
12.7
39-
--
--
-12
.805
Equi
ty s
hare
s-
--
20.4
79-
--
--
-Ot
her
rece
ivab
les
--
--
--
--
--
Tota
l ass
ets
26.8
01.8
9148
.141
13.1
2420
.479
--
--
-12
.805
-Li
abili
ties
Due
to
cust
omer
s-
12.7
6432
.351
1.05
2.83
157
.142
--
109.
811
--
17.8
57
Borr
owin
gs23
.220
.094
--
--
--
--
--
Subo
rdin
ated
lia
bilit
ies
443.
005
--
--
--
--
--
Inte
rest
pa
yabl
e71
.764
-32
42.
845
--
--
--
517
Othe
r lia
bilit
ies
--
--
--
--
--
Tota
l lia
bilit
ies
23.7
34.8
6312
.764
32.6
751.
055.
676
57.1
42-
-10
9.81
1-
-18
.374
Inco
me
Inte
rest
in
com
e77
2.65
66.
178
1.55
449
31.
195
--
4.75
1-
276
-
Inte
rest
in
com
e fro
m
deriv
ativ
es80
.970
--
--
--
--
--
Net
gai
ns fr
om
secu
ritie
s36
.526
--
--
--
--
--
Fee
inco
me
-15
710
081
936
3-
-61
4.21
8-
-To
tal i
ncom
e89
0.15
26.
335
1.65
41.
312
1.55
8-
-4.
812
4.21
827
6-
Expe
nses
Inte
rest
ex
pens
e33
1.33
6-
324
11.1
141.
682
--
--
-51
7
Rent
exp
ense
--
--
2.19
6-
--
--
-Se
rvic
es-
293.
357
10.1
32-
-6.
657
179.
041
--
--
Tota
l exp
ense
s33
1.33
629
3.35
710
.456
11.1
143.
878
6.65
717
9.04
1-
--
517
Off b
alan
ce
shee
t11
.525
.292
--
143.
358
60.6
00-
--
--
-
Lette
r of
guar
ante
es11
.402
.949
--
--
--
--
--
Der
ivat
ives
--
41-
--
--
-3.
622
-Ot
her o
ff ba
lanc
e sh
eet
68
All amounts are expressed in 000 RSD unless otherwise stated
As at 31 December 2008, loans to employees amounted to RSD 1,237,050 (31 December 2007: RSD 884,516). All loans are given under terms defined in the Bank’s lending policy and interest rates vary from 9.5% to 18% for mortgage loans, while for consumer loans interest rates vary from 7% to 9%.
a) Payments to directors and key management personnel
2008 ReclassifiedSalaries and other contributions 61.141 77.342
61.141 77.342
42. Foreign Exchange rates
The official exchange rates of major currencies which were used for translation of balance sheet items as at 31 December were as follow:
31 December2008 Reclassified 2007
USD 62,9000 53,7267EUR 88,6010 79,2362CHF 59,4040 47,8422
43. Reconciliation of loans, deposits and other liabilities with clients
As required by the Accounting and Auditing Law, the Bank has performed reconciliation of loans, deposits and other liabilities with clients as at 30 November 2008.
44. Board of directors
Members of the Board of directors of Eurobank EFG as at 31 December 2008 are listed below:
Chairman MembersDavid Watson Piergiorgio Pradelli
Stavros Ioannou Nikolaos Aliprantis Evagelos Kavvalos Angelos Tsichrintzis Slobodan Slović Georgios Michelis
Karakasis Theodoros
45. Post balance Sheet Events
There were no significant events after balance sheet date that would require disclosure in the Fi-nancial Statements.
ANNUAL REPORT 2008
Eurobank EFG Group & EFG Group
62
Greece
Eurobank EFG is subsidiary of EFG Eurobank Erga-sias listed in the Athens Stock Exchange. EFG Eu-robank Ergasias is a member of the EFG Group, the ultimate parent company of which is EFG Bank Eu-ropean Financial Group, a bank incorporated in Swi-tzerland, which owns 43.6% of the ordinary shares.The remaining 56.4% of the shares are widely held.
All the voting rights in EFG Bank European Financial Group are held by the:
EFG Eurobank Ergasias S.A.20, Amalias Avenue105 57 AthensΤel.: (+30) 210 333 7000Fax: (+30) 210 323 3866Website: www.eurobank.gre-mail: [email protected] Nanopoulos: Chief Executive Officer
EFG GroupEFG Bank European Financial Group S.A.24,quai du Seujet1211 Geneva 2SwitzerlandΤel.: (+41) 22 918 72 72Fax: (+41) 22 917 72 73Website: www.efggroup.come-mail: [email protected] Petalas: Chief Executive Officer
EFG International A.G.12, Bahnhofstrasse8001 ZurichSwitzerlandΤel.: (+41) 44 226 18 50 Fax: (+41) 44 226 18 55Website: www.efginternational.comLawrence D. Howell: Chief Executive Officer
63
ANNUAL REPORT 2008
64
SERBIAEurobank EFG A.D. Belgrade3, Kolarčeva Str.11000 Belgrade, SerbiaΤel: (+381) 11 2065 882 (Cabinet)Fax: (+381) 11 3027 536Euro PHONE: (+381) 11 2023 353Website: www.eurobankefg.rsFilippos Karamanolis: President of Executive Board
EFG Securities Α.D. Belgrade36-38 Takovska Str11000 Belgrade, SerbiaTel: +381 11 30 23 401Fax: +381 11 30 23 430Branka Kokanović: President of Board of Directors
EFG Leasing A.D. Belgrade7v, Milutina Milankovića Str.11070 New Belgrade, SerbiaΤel: (+381) 11 3637 114Fax: (+381) 11 3637 111Website: www.efgleasing.rsNenad Maksić: General Manager
EFG Property Services d.o.o. Belgrade62-64, Cara Dušana Str.11000 Belgrade, SerbiaΤel: (+381) 11 2022 410Fax: (+381) 11 3287 122Website: www.efgpropertyservices.rs
GREECEEFG Eurobank Ergasias S.A.20, Amalias Avenue105 57 AthensΤel: (+30) 210 333 7000Fax: (+30) 210 323 3866Website: www.eurobank.gre-mail: [email protected] Nanopoulos: Chief Executive Officer
ROMANIABancpost S.A.6-6A, Calea Vitan, Sector 3031296 Bucharest, RomaniaΤel: (+40) 21 308 0901Fax: (+40) 21 326 8520Website: www.bancpost.roMihai Bogza: Executive President & Chairman of the Board
BULGARIAPostbank(Eurobank EFG Bulgaria A.D.)14, Tzar Osvoboditel Blvd.Sofia 1048, Bulgaria Τel: (+359) 2 816 6000Fax: (+359) 2 988 8110Website: www.postbank.bgAnthony Hassiotis: Chief Executive Officer
POLANDPolbank EFG(Branch network of EFG Eurobank Ergasias S.A.)19, Mokotowska Street 00-560 Warsaw, PolandΤel: (+48) 22 347 70 00Fax: (+48) 22 347 70 01Website: www.polbankefg.plemail: [email protected] Stańczak: General Manager
65
ANNUAL REPORT 2008
TURKEYEurobank Tekfen A.Ş.Eski Bϋyϋkdere CaddesiTekfen Tower No:2094 Levent, 34330 Istanbul, TurkeyΤel: (+90) 212 357 07 07Fax: (+90) 212 357 08 [email protected] Sönmez:Managing Director
UKRAINEO.J.S.C. Universal Bank54/19, Avtozavodska Str.04114 Κiev, UkraineΤel: (+380) 44 39 15 777Fax: (+380) 44 39 15 770Website: www.universalbank.com.uaEmail: [email protected] Papanikolaou: Managing Director
CYPRUSEFG Eurobank Cyprus Ltd.41 Arch. Makarios Avenue, 5th Floor1065 Nicosia, CyprusTel: (+357) 22 208000Fax: (+357) 22 875402Michalis Louis: Managing Director
UNITED KINGDOMEFG Eurobank Ergasias S.A.(London Branch)24, Grafton StreetW1S 4EZ London, United KingdomΤel: (+44) 207 973 8630Fax: (+44) 207 973 8632John Makris: General Manager
LUXEMBOURGEurobank EFG Private Bank Luxembourg S.A.5, rue Jean MonnetP.O. Box 897L-2018 Luxembourg-KirchbergΤel: (+352) 42 07 24 1Fax: (+352) 42 07 24 650Francois Ries: Managing DirectorLena Lascari: General Manager
1
ANNUAL REPORT 2008
INDEPENDENT AUDITORS’ REPORT
To the shareholders of Eurobank EFG a.d. BeogradWe have audited the accompanying financial statements of Eurobank EFG a.d. Beograd (the “Bank”) which com-prise the balance sheet as at 31 December 2008 and the income statement, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes. The statistical annex is an integral part of these financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with the requirements of the Law on Accounting and Auditing of the Republic of Serbia and the regulations of the National Bank of Serbia. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting esti-mates that are reasonable in the circumstances.
Auditor’s ResponsibilityOur 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers inter-nal control relevant to the Bank’s preparation and fair presentation of the financialstatements 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 internal control. An audit also includes evaluating the appro-priateness of accounting policies used and the reasonableness of accounting estimates made by manage-ment, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
The above translation is made by PricewaterhouseCoopers using the Serbian official version of the Report of the auditors.Not being an official translation, PricewaterhouseCoopers expressly disclaims to any person in respect of anything done in reliance of the content of this translation.
OpinionIn our opinion, the accompanying financial statements present fairly, in all material respects, the financial positionof Eurobank EFG a.d. Belgrade as at 31 December 2008, and of its financial performance and its cash flows for the year then ended in accordance with the requirements of the Law on Accounting and Auditing of the Republic of Serbia, the regulations of the National Bank of Serbia and the provisions disclosed in Note 2 to the financial statements.
Belgrade, April 13, 2009
PricewaterhouseCooperas d.o.o BeogradJelena PešićCertified auditor
EUROBANK EFG A.D. BEOGRAD
www.eurobankefg.rs
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