KREDITNA BANKA ZAGREB d.d. Financial statements for the year ended 31 December 2016 together with the Independent Auditor's Report
KREDITNA BANKA ZAGREB d.d.
Financial statements for the year ended 31 December 2016
together with the Independent Auditor's Report
Kreditna banka Zagreb d.d. 31 December 2016
Contents Page Annual report for the year 2016 1 - 14 Declaration on the application of the Corporate Governance Code 15-16 Responsibility for the financial statements 17
Independent Auditor’s Report 18 - 24
Financial statements
Statement of comprehensive income for the year ended 31 December 2016 25
Statement of financial position as at 31 December 2016 26
Statement of changes in equity for the year ended 31 December 2016 27
Statement of cash flows for the year ended 31 December 2016 28
Notes to the financial statements 29
Appendix 1 – Supplementary statements for the Croatian National Bank 89
Appendix 2 – Reconciliation of financial statements and supplementary statements for the Croatian National Bank
96
Kreditna banka Zagreb d.d. 31 December 2016
Zagreb, 25 April 2017
MANAGEMENT REPORT ON THE BANK’S OPERATIONS IN 2016
MANAGEMENT BOARD OF THE BANK
Kreditna banka Zagreb d.d. 31 December 2016
3
MANAGEMENT REPORT ON THE BANK’S OPERATIONS IN 2016
Contents:
1. Management Board and Supervisory Board of the Bank
2. Operations of Kreditna banka Zagreb d.d.
Business environment and financial result for 2016
Expectations in 2017
3. Operating risks
4. Information on the purchase of treasury shares
5. Events after the balance sheet date
Kreditna banka Zagreb d.d. 31 December 2016
4
1. MANAGEMENT BOARD AND SUPERVISORY BOARD OF THE BANK
MANAGEMENT BOARD Boris Zadro President of the Management Board since 19 February 2015 Nataša Jakić Felić Member of the Management Board since 19 February 2015 SUPERVISORY BOARD Nadira Eror President of the Supervisory Board Ankica Čeko Deputy president of the Supervisory Board since 13 February 2015 Ivan Penić Member of the Supervisory Board since 13 February 2015 Silvije Orsag Member of the Supervisory Board since 24 February 2016
2. OPERATIONS OF KREDITNA BANKA ZAGREB D.D.
Kreditna banka Zagreb d.d. (hereinafter: the “Bank”) was incorporated as a public limited liability
company in accordance with applicable laws of the Republic of Croatia. It was registered at the
Commercial Court in Zagreb in 1994. The Bank's registered office is in Zagreb, Ulica grada Vukovara 74.
The principal activities of the Bank include all types of corporate and retail deposit and lending
operations, domestic and foreign payment transactions, issuance of guarantees, bills of exchange
and other forms of guarantees, repurchase of recourse or non-recourse receivables, finance leases
(leasing), payment services in compliance with special laws, rental of safes, credit-related services
such as data collection, preparation of analyses, issuance of other payment instruments and their
management, custody of financial instruments, securities trading, investment and ancillary services
and activities prescribed by a special law regulating the capital market and other banking services.
The Bank performs insurance agency operations in accordance with the insurance laws, in the part
that relates to bank insurance activities, based on the Approval dated 14 February 2007.
The Bank performs its operations through a business network of 21 branch offices and 3 local offices at the following addresses:
o Branch office Zagreb, Ulica grada Vukovara 74
o Branch office Zagreb, Koledinečka 1
o Branch office Jastrebarsko, Šetalište braće Kazića 2
o Branch office Velika Gorica, Slavka Kolara 17A
o Branch office Karlovac, Prilaz Većeslava Holjevca 2A
o Branch office Kutina, Školska ulica 11
o Branch office Sisak, Frane Lovrića 17A
o Branch office Zaprešić, Mihovila Krušlina 14
o Branch office Varaždin, Zagrebačka 63
o Branch office Split, Varaždinska 54
Kreditna banka Zagreb d.d. 31 December 2016
5
o Branch office Split, Matice Hrvatske 1
o Branch office Split, Domovinskog rata 60
o Branch office Makarska, Obala kralja Tomislava 15A
o Branch office Zadar, Obala kneza Branimira 5
o Branch office Rijeka, Riva 8
o Branch office Poreč, Ulica Alda Negria 3
o Branch office Osijek, Vukovarska cesta 31
o Branch office Osijek, Hrvatske Republike 12
o Branch office Slavonski Brod, Petra Svačića 1A
o Branch office Vinkovci, Ulica bana Jelačića 3
o Branch office Dubrovnik, Dr. Ante Starčevića 20
o Local office Sinj, Splitska 1
o Local office Opuzen, Tisno b.b.
o Local office Zvijezda, Zagreb, Marijana Čavića 1.
Kreditna banka Zagreb d.d. has no subsidiaries in EU member states or in third countries, i.e. its activity is performed solely in the territory of the Republic of Croatia.
Kreditna banka Zagreb d.d. 31 December 2016
6
Business environment and financial result for 2016
Another very dynamic business year has passed, a year in which we have long since felt a slight macroeconomic recovery and positive signs in business operations of our entrepreneurs. The economy has achieved a very solid growth of over 2.5%, i.e. a growth of the gross domestic product of 3%. The final results of banks have also taken a positive turn, which after the effects of the CHF loans conversion in 2015, have achieved a very good, some banks even a record, business result. In such circumstances, Kreditna banka Zagreb d.d. has operated very well with a slight growth in the Bank’s assets, which is especially valuable when it is evident that it consists of the growth of the substance of the banking business, i.e. loans to legal entities and natural persons. In the past year, we have also been very actively considering the operating margins of the business where we managed to slow down the trend of decreasing active rates to the trend of decreasing passive rates. The realised fall in gross interest income is considerably lower than the fall in interest expense, as newly-made deposits to natural persons, still being the main source of finance, are more favourable than the previously agreed rates. Nevertheless, the structure of the Bank's sources of finance experiences a significant turnaround. Namely, as seen in the structure of Bank's assets, a significant part refers to the securities portfolio (mainly government bonds). In addition to the interest income earned by this kind of investment, the Bank has also used the securities from its own portfolio as a source of very favourable borrowing at the Croatian National Bank through structural repo auctions. In these transactions, the Bank has provided sources at very low fixed interest rates, which it continued to offer to highly creditworthy clients (clients with whom the Bank could not do business in the past given the client's desired cost of capital and the Bank's capability to provide it). We have also successfully used the volatility of bond prices and at favourable times we realised the purchase or sale and achieved a respectable result in the category of available-for-sale financial assets. In responding to the challenges of the business environment, the Bank's management has undertaken ongoing activities in terms of revising the terms and conditions for expanding the offer of placements to legal entities and the public, as well as other products of the Bank. In creating a new loan offer, we have put special focus on the adequacy of collaterals, which is why we have succeeded in achieving an ever-increasing level of adequacy at levels above 17%. The rate of non-performing placements of the Bank is still lower than the market average, both in terms of the portfolio of loans to legal entities and the portfolio of loans to individuals. Throughout the year, the collection of non-performing placements was one of the key business goals. In that respect, we redefined business processes, some being fully automated, and hired additional staff. In conclusion, the Bank's business is stable, profitable, at a significantly higher level of capitalisation than the one envisaged by the law and the Regulator. We would like to use this opportunity to thank all our employees who, with their support, dedication and professionalism, contributed to the result we are very pleased with.
Kreditna banka Zagreb d.d. 31 December 2016
7
SUMMARY OF INDICATORS
HRK'000 31 December 2016
ASSETS 3,550,592
LOANS 1,795,143
DEPOSITS 2,598,001
REGULATORY CAPITAL 334,662
INCOME 202,829
PROFIT BEFORE PROVISIONS 43,744
BANK’S RANKING IN CROATIA 10
BALANCE SHEET
The Bank’s total assets amounted to HRK 3.5 billion at the end of the year. In 2016, they increased
by 2.33%. Loans to customers amounted to HRK 1.8bn and accounted for 50% of the total assets of
the Bank, which is 7% higher than in 2015.
Bank liabilities are dominated by customer deposits (HRK 2.6bn), accounting for 74% of the
balance sheet, and decreased by 10% compared to the end of 2015.
ASSETS
2016
2015
Index 16/15
Cash and balances with Croatian National Bank 518,381 569,390 91
Placements with other banks 121,458 205,354 59
Financial assets at fair value through profit or loss 12,277 12,156 101
Loans to customers 1,795,143 1,672,935 107
Held-to-maturity investments 120,800 67,621
179
Available-for-sale investments 834,004 781,022 107
Tangible and intangible assets 96,791 97,802 99
Other assets 51,738 63,399 82
TOTAL ASSETS 3,550,592 3,469,679 102
Kreditna banka Zagreb d.d. 31 December 2016
8
LIABILITIES
2016
2015
Index 16/15
Deposits from other banks 15,116 -
Deposits from customers 2,598,001 2,905,692 89
Borrowings 480,478 126,500 380
Issued subordinated and hybrid instruments 82,000 82,000
100
Other liabilities 65,150 72,502 90
Provisions for contingent liabilities 1,951 2,150 91
TOTAL LIABILITIES 3,242,696 3,188,844 102
SHAREHOLDERS’ EQUITY
2016
2015
Index 16/15
Share capital 193,775 193,775 100
Share premium 50,541 50,541 100
Profit/loss for the year 13,575 8,349 163
Reserves and retained earnings 38,669 35,320 109
Unrealised loss/gains on available-for-sale financial assets 11,336 (7,150) (159)
TOTAL SHAREHOLDERS’ EQUITY 307,896 280,835 110
TOTAL EQUITY AND LIABILITIES 3,550,592 3,469,679 102
INCOME STATEMENT
All circumstances described in the introductory section of this report are clearly defined and
reported in the Bank’s income statement.
The total income of the Bank amounted to HRK 203 million. Compared to the previous year it
decreased by 3%, i.e. by HRK 6 million.
In the structure of income, interest income accounts for the most significant portion with 71%,
while in 2015, interest income had a share of 81% in total income.
In 2016, interest income fell by 14% or HRK 24 million compared to 2015 and in 2016, it amounted
to HRK 143 million. In 2016, net interest income amounted to HRK 69 million and in 2015 HRK 64
million.
Fee and commission income did not experience higher fluctuations and remained at similar levels,
i.e. they increased by HRK 1.4 million or 5% compared to the previous year.
Kreditna banka Zagreb d.d. 31 December 2016
9
Net fee and commission income increased in 2016 and amounted to HRK 20.8 million, while in the
previous year it amounted to HRK 18.6 million.
In 2016, total sales amounted to HRK 186 million and are lower by HRK 14 million compared to the
previous year. Interest expense decreased by HRK 28 million due to falling interest rates on
customer deposits and a reduction in the deposit base of customers.
The fee and commission expense decreased, as well as administrative and general expenses by HRK
2 million.
Impairment and provision expenses increased significantly by HRK 17 million or 163% compared
to the previous year.
Operating expenses account for 41% in the total cost structure (2015: 38%).
In 2016, fee and commission expenses were slightly lower than in the previous year.
INCOME STATEMENT
2016
2015
Index 16/15
Interest and similar income 143,434 167,335 86
Interest and similar expense (74,909) (103,243) 73
Net interest income 68,525 64,092 107
Fee and commission income 28,716 27,300 105
Fee and commission expense (7,894) (8,615) 92
Net fee and commission income 20,822 18,685 111
Net gains from dealing in foreign currencies 10,856 9,776 110
Net gains from fair valuation of securities 121 156 77
Gain/loss from available-for-sale financial assets 17,338 2,492 696
Gain/loss from held-to-maturity financial assets - - -
Other operating income 2,261 1,296 182
Net operating income 119,923 96,497 124
Operating expenses (76,179) (77,879) 98
Impairment losses and provisions (26,606) (10,093) 264
Profit before tax 17,138 8,525 201
Income tax 3,563 176 2,024
Net profit for the year 13,575 8,349 163
INTEREST INCOME
2016
2015
Index 16/15
Kreditna banka Zagreb d.d. 31 December 2016
10
Loans to corporate clients 78,068 94,860 82
Loans to citizens 32,448 34,410 94
Placements with other banks 126 553 23
Debt securities 25,952 30,461 85
Other companies 6,840 7,051 97
Total interest income 143,434 167,335 86
INTEREST EXPENSE
2016
2015
Index 16/15
Citizens 53,645 77,032 70
Corporate clients 6,350 11,473 55
Banks 6,929 2,601 266
Other companies 5,056 8,070 63
Non-residents 2,929 4,067 72
Total interest expense 74,909 103,243 73
FEE AND COMMISSION INCOME
2016
2015
Index 16/15
Fee and commission income from corporate clients 16,528 16,709 99
Fee and commission income from citizens and craftsmen 5,120 4,822 106
Fee and commission income from banks 7,068 5,769 123
Total fee and commission income 28,716 27,300 105
FEE AND COMMISSION EXPENSE
2016
2015
Index 16/15
Fee and commission for domestic payment transaction services 5,258 5,733 92
Other fees and commissions 2,636 2,882 91
Fee and commission income from banks 7,894 8,615 92
Kreditna banka Zagreb d.d. 31 December 2016
11
EXPECTATIONS IN 2017
The realised business result of the Bank and the banking sector of the Republic of Croatia once
again undoubtedly underscores the thesis on the scope and intensity of the impact of economic
circumstances. Available macroeconomic forecasts for 2017 and the expected growth of the
Croatian economy continue to provide room for business optimism.
The legal framework will surely play an important role in the business results of 2017. We have
witnessed many times that its instability or the influence of socio-political decisions may
discourage investors, and they are of crucial importance to us; investments are the "engine" of
every economy. We have recently witnessed the adoption of emergency legal measures whose
effects will be strongly felt for a long period of time.
In such circumstances, we at KBZ continue to maintain the strategic goals we have set for ourselves,
i.e. further strengthening the market position by increasing our own efficiency and recognisability,
which means monitoring trends in banking and maximising the satisfaction of our clients.
3. OPERATING RISKS
The most significant types of financial risk to which the Bank is exposed are credit risk, liquidity
risk, market risk and operational risk. Market risk includes currency risk, interest rate risk and debt
and equity quoted securities price risk.
The Bank has established an integrated system of risk management by introducing a set of policies
and procedures and establishing the limits of risk levels acceptable to the Bank. The methodology
and models for managing operational risk have been developed.
a) Credit risk
The Bank takes on exposure to credit risk which is the risk upon that the counter party will be
unable to pay amounts in full when due. The Bank structures the levels of credit risk it undertakes
by placing limits on the amount of risk accepted in relation to one borrower, or groups of
borrowers, and to industry segments. Such risks are monitored on a revolving basis and subject to
an annual or more frequent review.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential
borrowers to meet interest and principal repayment obligations and by changing these lending limits
where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate
and personal guarantees. In accordance with the legal provisions governing the internal control system,
when approving loans the Bank has established decision-making levels governed by the principle that
when the loan approval decision is not made by the Bank's Management Board and the amount of client
exposure exceeds the internally specified amounts of client exposure, at least two persons should
participate, whereby the person with the sales function makes a decision which is approved by the
person from the Credit Risk Assessment Service or a member of the Management Board responsible for
control functions. Also, prior to making a decision in case when the client's exposure exceeds certain
internally established exposure amounts, the draft decision of the sales function is subject to a review
by the Credit Risk Assessment Service.
In addition the Bank monitors and analyses the structure and quality of its loan portfolio through
different indicators pointing to the improvement or deterioration in asset quality of the Bank, thus
enabling the Bank a better credit risk management as well as timely actions in order to reduce
credit risk. Also, the Bank monitors and analyses the degree of concentration of loans by sector and
the largest client exposures using the HHI index methodology.
Kreditna banka Zagreb d.d. 31 December 2016
12
Credit related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer as
required. Guarantees and standby letters of credit represent irrevocable assurance that the Bank
will make payments in the event that customer cannot meet its obligations to third parties and
carry the same credit risks as loans given. Documentary and commercial letters of credit are
written undertakings on behalf of a customer authorizing a third party to draw drafts on the Bank
up to a stipulated amount under specific terms and conditions.
Letters of credit are secured by collateral in the form of goods to which they relate.
Loans are classified into the following three main groupings, in accordance with the regulations of
the CNB:
fully recoverable loans – A Risk Group – measured on the collective basis
partially recoverable loans – B Risk Group – measured on an individual basis, or on the
collective basis for a "small loans portfolio" that are not sued, or secured by adequate
collateral according to the CNB Decision on Classification of Placements and Off-Balance-
Sheet Liabilities of Credit Institutions
fully irrecoverable loans – C Risk Group – measured on an individual basis, or on the
collective basis for a "small loans portfolio" that are not sued, or secured by adequate
collateral according to the CNB Decision on Classification of Placements and Off-Balance-
Sheet Liabilities of Credit Institutions
All three levels contain sub-categories, which are mandatory for partially recoverable loans. In
certain cases, the Bank's policy is to require a suitable guarantee prior to the disbursement of
approved loans. Collateral for loans, guarantees and letters of credit is usually in the form of
deposits, pledges, investments, housing or commercial mortgages, bills of exchange, promissory
notes or other types of assets.
Commitments to lend represent unused portions of authorizations to extend credit in the form of
loans, guarantees or letters of credit. With respect to credit risk on commitments to lend, the Bank
is potentially exposed to loss in an amount equal to the total unused commitments. However, the
likely amount of loss is less than the total unused commitments, as most commitments to lend are
contingent upon customers maintaining specific credit standards. The Bank monitors the term to
maturity of credit commitments because long-term commitments generally have a greater degree
of credit risk than short-term commitments.
b) Liquidity risk
The Bank is exposed to daily calls which it settles through available cash resources, which include
overnight deposits, current account funds, maturing deposits and loan drawdowns.
The matching and controlled mismatching of the maturities and interest rates of assets and
liabilities is fundamental to the management of the Bank. It is unusual for banks ever to be
completely matched since business transacted is often of uncertain term and of different types. An
unmatched position potentially enhances profitability, but can also increase 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
guarantee payments and standby letters of credit are considerably less than the amount of the
Kreditna banka Zagreb d.d. 31 December 2016
13
commitment because the Bank does not generally expect the third party to draw funds under the
agreement.
The Bank carries out its liquidity risk management through a gap analysis in which the maturity of
assets and liabilities are divided into several time categories and differences are observed in certain
time categories in order to timely harmonise its assets and liabilities. In addition, the Bank
monitors and analyses the movement of the minimum liquidity ratio (weekly and monthly) in
terms of legislation and established internal limits. In the event that an indicator of the minimum
liquidity ratio falls below the internally prescribed limits, the Risk Control Department shall inform
the Assets and Liabilities Commission as well as the Bank’s Management Board in order to take
measures. As of 1 January 2017, the statutory obligation of monitoring this indicator ceased.
In accordance with EU regulations, the Bank monitors and analyses the movement of the liquidity
coverage ratio in terms of legislation and established internal limits. In the event that the liquidity
coverage ratio falls below the internally prescribed limits, the Risk Control Department shall inform
the Assets and Liabilities Commission as well as the Bank’s Management Board in order to take
measures.
The total outstanding contractual amount of commitments to extend credit at the balance sheet
date does not necessarily represent future cash flows, since many of these commitments will expire
or be terminated without being funded.
c) Market risk
The majority of available-for-sale instruments are subject to market risk, the risk that future
changes in market conditions may impair the value of the instrument. The instruments are
recognised at fair value, and all changes in market conditions directly affect net trading income. The
Bank manages its use of trading instruments in response to changing market conditions.
The limits are defined following the needs and strategy of the Bank and in accordance with the
senior management risk policy provisions.
The exposure to market risk is formally managed in accordance with the risk limits approved by the
senior management and revised at least annually. The exposure figures and limit utilization are
delivered to the Treasury Division on a daily basis. In addition, limit control is performed by the
Risk Control Department as a second level of control, which in the case of exceeding certain limits
of market risk notifies the Management Board.
d) Interest rate risk
The Company is exposed to various risks associated with the effect of changes in market interest
rates on its financial position and cash flows. The interest rate gap table summarises the Bank's
exposure to interest rate risks. Included in the table are the Bank’s assets and liabilities at carrying
amounts, categorized by the earlier of contractual re-pricing or maturity dates (see Note 33).
The Bank carries out the control and analysis of interest rate risk exposure via a standard interest
rate shock, a methodology prescribed by by-laws and according to which the interest rate risk in
the banking book is viewed as a change in the value of banking book in relation to its regulatory
capital. In addition to statutory limits, the Bank prescribed internal limits that are monitored by the
Risk Control Department and in case they are exceeded, it notifies the Assets and Liabilities
Commission as well as the Management Board of the Bank.
Kreditna banka Zagreb d.d. 31 December 2016
14
e) Foreign exchange risk
The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange
rates on its financial position and cash flows. The Bank sets limits on the level of exposure by
currency and in total for both overnight and intra-day positions.
In addition to monitoring currency risk and open foreign currency position on a daily basis, in
accordance with the by-laws, the Bank monitors and analyses the impact of the currency risk on the
basis of stress tests under certain conditions. Monitoring with the use of the VAR indicators
methodology is also being introduced.
Foreign currency balance sheet and foreign exchange risk table summarizes the Bank’s exposure to
foreign currency exchange rate risk at 31 December 2016 and 31 December 2015. Included in the
table are the Bank’s assets and liabilities at carrying amounts, categorised by domestic currency
and foreign currency (see Note 34).
f) Equity price risk
Equity price risk is the possibility that equity prices will fluctuate affecting the fair value of equity
investments and other derivative instruments.
The primary exposure to equity prices arises from the Bank’s holding of equity instruments
available for sale. The Bank does not actively trade in equity securities.
4. INFORMATION ON THE PURCHASE OF TREASURY SHARES
During 2016, the Bank did not purchase treasury shares.
5. EVENTS AFTER THE BALANCE SHEET DATE
There were no significant changes in the current period after the balance sheet date.
Zagreb, 25 April 2017 President of the Management Board Boris Zadro
15
DECLARATION ON THE APPLICATION OF THE CORPORATE GOVERNANCE CODE
In accordance with Article 272p of the Companies Act, and Article 22 of the Accounting Act, the Management Board of Kreditna banka Zagreb d.d. declares that the Bank voluntarily applies the Corporate Governance Code, as jointly prepared by the Croatian Financial Services Supervisory Agency (“HANFA”) and the Zagreb Stock Exchange (“ZSE”). The Corporate Governance Code is published on the website of HANFA and ZSE.
The 2016 Annual Questionnaire (available on the Bank’s website, www.kbz.hr and on the website of the ZSE www.zse.hr) which reflects the state and the practice of Corporate Governance is enclosed and forms an integral part of the Declaration, in relation to the recommendations contained in the Corporate Governance Code, with explanations of certain discrepancies. Namely, at the Bank Corporate Governance is realised not only by fulfilling the regulatory requirements in their entirety, but it also emanates from the established corporate culture and personal integrity of management and employees.
In accordance with the consistent application of the Code, the Bank develops and operates in accordance with good corporate governance practices and with its business strategy, business policy, key internal documents and business practice strives to contribute to transparent and efficient business operations and strong relations with the business environment in which it operates.
In order to protect the interests of all investors, shareholders, customers, employees and other stakeholders, the Bank has established high standards of corporate governance.
In accordance with applicable legal regulations, the Bank has drafted a Declaration on the Application of the Corporate Governance Code for 2016, confirming its operation and development in accordance with good corporate governance practice in all business segments.
Pursuant to the principles of the Code and its recommendations based on the “PROCEED OR EXPLAIN” principle, below the Bank states those parts of the Code from which it deviates together with explanations, as follows:
15
Are the shareholders allowed to participate and to vote at the general assembly of the company using modern communication technology? (if not, explain)
NO
No, there was no recorded need. The shareholders did
not express the need for such form of voting.
18 Did the management of the company publish the data on legal actions, if any, challenging those decisions? (if not, explain)
NO There were no such cases.
23
Is the remuneration received by the members of the Supervisory or Management Board entirely or partly determined according to their contribution to the company’s business performance? (if not, explain)
NO
The fees received by the members of the
Supervisory Board are determined in a fixed
amount.
25
Have detailed records on all remunerations and other earnings of each member of the Supervisory or Management Board received from the company or from other persons related
NO We do not consider this to
be necessary.
16
to the company, including the structure of such remuneration, been made public? (if not, explain)
26
Does every member of the Supervisory or Management Board inform the company of each change relating to their acquisition or disposal of shares of the company, or to the possibility to exercise voting rights arising from the company’s shares, not later than five trading days, after such a change occurs? (if not, explain)
NO
The Supervisory Board does not own any shares. Should this change, steps will be taken according to
the rules.
29 Did they obtain prior approval of the Supervisory or Management Board? (if not, explain)
NO There were no such
contracts or agreements.
30 Are important elements of all such contracts or agreements included in the annual report? (if not, explain)
NO There were no such
contracts or agreements.
34 Was the majority of the committee members selected from the group of independent members of the Supervisory Board? (if not, explain)
NO The members of the Audit Committee are members of the Supervisory Board.
43
Did the audit committee ensure the submission of high quality information by dependent and associated companies, as well as by third parties (such as expert advisors)? (if not, explain)
NO There were no such
situations.
47
Did the company publish a statement on the remuneration policy for the management, Management Board and the Supervisory Board as part of the annual report? (if not, explain)
NO There is no such policy.
48
Is the statement on the remuneration policy for the management or executive directors permanently available on the website of the company? (if not, explain)
NO There is no such policy.
49
Are detailed data on all earnings and remunerations received by each member of the management or each executive director from the company published in the annual report of the company? (if not, explain)
NO Aggregate data is available.
50
Are all forms of remuneration to the members of the management, Management Board and Supervisory Board, including options and other benefits of the management, made public, broken down by items and persons, in the annual report of the company? (if not, explain)
NO
There were no special remunerations for the
Management and Supervisory Board beyond the fixed benefits and fees.
56 Has the company publicly disclosed the fees paid to external auditors for the audit performed and other services rendered? (if not, explain)
NO We do not consider this to be necessary, Bank rules.
Data on significant shareholders in the company are listed in the overview of the ownership structure. The description of the main elements of the internal controls and risk management system in relation to the financial reporting process is provided below in this Report.
17
Responsibility for the financial statements
Pursuant to the Croatian Accounting Act (Official Gazette 78/15 and 134/75), the Management Board is
responsible for ensuring that the financial statements are prepared for each financial year in accordance with
statutory accounting regulations applicable to banks in Croatia in order to give a true and fair view of the
financial position and results of the Bank for that period.
The Management Board has a reasonable expectation that the Bank has adequate resources to continue in
operational existence for the foreseeable future. For this reason, the Management Board continues to adopt
the going concern basis in preparing financial statements.
In preparing the financial statements, the responsibilities of the Management Board include ensuring that:
suitable accounting policies are selected and then applied consistently;
judgements and estimates are reasonable and prudent;
applicable accounting standards are followed, subject to any material departures disclosed and explained in
the financial statements; and
the financial statements are prepared on the going concern basis unless it is inappropriate to presume that
the Bank will continue in business.
The Management Board is responsible for keeping proper accounting records, which reflect with reasonable
accuracy at any time the financial position of the Company and their compliance with the Croatian Accounting
Act (Official Gazette 78/15 and 134/75). The Management Board is also responsible for safeguarding the
assets of the Bank and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
Signed on behalf and in the name of the Management Board:
Boris Zadro Nataša Jakić Felić
President of the Management Board Member of the Management Board
Kreditna banka Zagreb d.d.
Ulica grada Vukovara 74
10000 Zagreb
Republic of Croatia
25 April 2017
PricewaterhouseCoopers d.o.o., Ulica kneza Ljudevita Posavskog 31, 10000 Zagreb, Croatia T: +385 (1) 6328 888, F:+385 (1)6111 556, www.pwc.hr Commercial Court in Zagreb, no. Tt-99/7257-2, Reg. No.: 080238978; Company ID No.: 81744835353; Founding capital: HRK 1,810,000.00, paid in full; Management Board: J. M. Gasparac, President; S. Dusic, Member; T. Macasovic, Member; Giro-Account: Raiffeisenbank Austria d.d., Petrinjska 59, Zagreb, IBAN: HR8124840081105514875.
Independent Auditor’s Report
To the Shareholders and Management Board of Kreditna banka Zagreb d.d.:
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Kreditna banka Zagreb d.d. (the “Bank”) as at 31 December 2016, and its financial performance and its cash flows for the year then ended in accordance with accounting regulations applicable to banks in Croatia as set out in Note 2 – ‘Basis of preparation’ to the financial statements.
What we have audited
The Bank’s financial statements comprise:
the statement of financial position as at 31 December 2016;
the statement of comprehensive income for the year then ended;
the statement of changes in equity for the year then ended;
the statement of cash flows for the year then ended; and
the notes to the financial statements, which include significant accounting policies and other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Bank in accordance with the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other
ethical responsibilities in accordance with the IESBA Code.
Our audit approach
Overview
Materiality Overall materiality for financial statements as a whole: HRK (Croatian kuna) 5 million, which represents 2.5% of total revenues (interest and similar income, fee and commission income and other revenue).
Key audit matters Impairment of loans and advances to customers
How we tailored our audit scope
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Bank, the accounting processes and controls, and the industry in which the Bank operates.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall materiality for the financial statements as a whole as set out in the table below.
These, together with qualitative considerations, helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any,
both individually and in aggregate on the financial statements as a whole.
Overall materiality for financial statements as a whole
HRK 5 million
How we determined it 2.5% of total revenues (interest and similar income, fee and commission income and other revenue).
Rationale for the materiality benchmark applied
We have considered using profit before tax as the benchmark, but due to significant fluctuations of profit (loss) before tax in previous years, we decided to use total revenue as we believe it is a reasonable indicator of the Bank’s operations. We selected 2.5% based on our professional judgement, noting that it is also within the range of commonly acceptable quantitative materiality thresholds.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter How our audit addressed the Key audit matter
Impairment of loans and advances to
customers
See note 14 of the financial statements under
the heading “Loans and advances to
customers” in the amount of HRK 1,795,143
thousand, note 3.17 (Critical accounting
estimates and assumptions) and notes 9 and
31 for more information.
Impairment allowances are the management’s best estimate of inccurred losses of loans and receivables portfolio at the reporting date.
The allowance for potential loan losses is established if there is objective evidence that the Bank will not be able to collect all amounts due. The amount of the allowance is determined in accordance with accounting regulations applicable to banks in Croatia described in Note 2. It is generally determined as the difference between book value and recoverable value, which represents the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate for a loan.
We tested controls for approving and monitoring of loans and advances to customers, including appropriateness of classification of performing and non-performing loans, calculation of days past due and calculation of impairment allowances.
We have selected a sample of loans and advances to customers with focus on exposures with potentially highest impact on the financial statements due to their size or risk profile. We have also focused on other exposures we independently assessed as highly risky, such as restructured exposures and non-performing loans with low coverage of impairment allowances.
We have reviewed supporting documentation for selected exposures and discussed any issues with responsible persons. For impaired exposures, we have re-examined key assumptions used in future cash flows estimates, such as value of collateral to ensure the exposures have been classified and measured in accordance with accounting regulations applicable to banks in Croatia.
We found no material issues arising from our work.
Other information
Management is responsible for the other information. The other information comprises the Annual Report of the Bank, which includes the Management Report and Corporate Governance Statement, but does not include the financial statements and our independent auditor’s report thereon.
Our opinion on the financial statements does not cover the other information, including the Management Report and Corporate Governance Statement.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
With respect to the Management Report and Corporate Governance Statement, we also performed procedures required by the Accounting Act in Croatia. Those procedures include considering whether the Management Report includes the disclosures required by Article 21 of the Accounting Act, and whether the Corporate Governance Statement includes the information specified in Article 22 of the Accounting Act.
Based on the work undertaken in the course of our audit, in our opinion:
the information given in the Management Report and the Corporate Governance Statement for the financial year for which the financial statements are prepared is consistent, in all material respects, with the financial statements;
the Management Report has been prepared in accordance with the requirements of Article 21 of the Accounting Act; and
the Corporate Governance Statement includes the information specified in Article 22 of the
Accounting Act.
In addition, in light of the knowledge and understanding of the Bank and its environment obtained in the course of the audit, we are also required to report if we have identified material misstatements in the Management Report and Corporate Governance Statement. We have nothing to report in this respect.
Responsibilities of management and those charged with governance for the financial statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting regulations applicable to banks in Croatia as set out in Note 2 – ‘Basis of preparation’ to the financial statements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Bank’s financial reporting process.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an independent auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our independent auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our independent auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our independent auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
PricewaterhouseCoopers d.o.o. Siniša Dušić Ulica kneza Ljudevita Posavskog 31, Zagreb Member of the Board, certified auditor 28 April 2017
This version of our report is a translation from the original, which was prepared in Croatian language. All possible care has been
taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of
information, views or opinions, the original language version of our report takes precedence over this translation.
Statement of comprehensive income
For the year ended 31 December 2016
(all amounts are expressed in thousands of HRK)
The notes to the financial statements are an integral part of the Statement of comprehensive income. 25
Note 2016 2015
Interest and similar income 4 143,434 167,335
Interest and similar expense 5 (74,909) (103,243)
Net interest income 68,525 64,092
Fee and commission income 6 28,716 27,300
Fee and commission expense 6 (7,894) (8,615)
Net fee and commission income 20,822 18,685
Net gains from dealing in foreign currencies 7 10,856 9,776 Gain/loss from financial assets at fair value through profit or loss 7 121 156
Gain/loss from available-for-sale financial assets 7 17,338 2,492
Other operating income 7 2,261 1,296
Operating income 119,923 96,497
Operating expenses 8 (76,179) (77,878)
Impairment losses and provisions 9 (26,606) (10,093)
Operating expenses (102,785) (87,971)
Profit before tax 17,138 8,525
Income tax 10 (3,563) (176)
Net profit for the year 13,575 8,349
Net other comprehensive income reclassified in the future to profit or loss
Available-for-sale financial assets:
Unrealised gains (losses) on available-for-sale financial
assets
18,485 (7,840)
Other comprehensive income 18,485 (7,840)
Total comprehensive income 32,060 509
Earnings per share in HRK 26 7.01 4.43
Statement of financial position
as at 31 December 2016
(all amounts are expressed in thousands of HRK)
The notes to the financial statements are an integral part of the Statement of financial position. 26
Note
31 December 2016
31 December 2015
ASSETS
Cash and balances with Croatian National Bank 11 518,381 569,390
Placements with other banks 12 121,458 205,354
Financial assets at fair value through profit or loss 13 12,277 12,156
Loans to customers 14 1,795,143 1,672,935
Held-to-maturity financial assets 15 120,800 67,621
Available-for-sale financial assets 16 834,004 781,022
Intangible assets 17 25,772 26,789
Tangible assets 18 71,019 71,013
Other assets 19 51,738 63,399
Total assets 3,550,592 3,469,679
LIABILITIES
Deposits from other banks 20 15,116 -
Deposits from customers 20 2,598,001 2,905,692
Borrowings 21 480,478 126,500
Issued subordinated instruments 23 82,000 82,000
Other liabilities 22 65,150 72,502
Provisions for contingent liabilities 27 1,951 2,150
Total liabilities 3,242,696 3,188,844
SHAREHOLDERS’ EQUITY
Share capital 24 193,775 193,775
Share premium 24 50,541 50,541
Unrealised (loss)/gains on available-for-sale financial assets
11,336 (7,150)
Retained earnings and reserves 25 38,669 35,320
Profit/(loss) for the year 13,575 8,349
Total shareholders’ equity 307,896 280,835
Total liabilities and shareholders’ equity 3,550,592 3,469,679
Statement of changes in equity
For the year ended 31 December 2016
(all amounts are expressed in thousands of HRK)
The notes to the financial statements are an integral part of the Statement of changes in equity. 27
Share capital
Share premium
Unrealised (loss)/gains on
available-for-sale financial assets
Retained earnings
and reserves
Profit/loss for the year Total
At 31 December 2014 186,553 44,763 690 73,412 (38,092) 267,326
New paid shares 7,222 5,778 - - 13,000
Transfer to reserves - - - -
Transfer of profit to retained earnings - - - (38,092) 38,092 -
Total transactions with owners 7,222 5,778 - (38,092) 38,092 13,000
Net profit for the year - - - - 8,349 8,349
Unrealised loss from available-for-sale financial assets - - (7,840) - - (7,840)
Total comprehensive income - - (7,840) - 8,349 509
At 31 December 2015 193,775 50,541 (7,150) 35,320 8,349 280,835
Dividends paid - (5,000) - (5,000)
Transfer to reserves - - - 417 (417) -
Transfer of profit to retained earnings - - - 7,932 (7,932) -
Total transactions with owners 193,775 50,541 (7,150) 38,669 - 275,835
Net profit for the year - - - - 13,575 13,575
Unrealised loss from available-for-sale financial assets - - 18,486 - - 18,486
Total comprehensive income - - 18,486 - 13,575 32,060
At 31 December 2016 193,775 50,541 11,336 38,669 13,575 307,896
Statement of cash flows
For the year ended 31 December 2016
(all amounts are expressed in thousands of HRK)
The notes to the financial statements are an integral part of the Statement of changes in equity. 28
Note 2016 2015
CASH FLOW FROM OPERATING ACTIVITIES
Profit before tax 17,138 10,150
Adjustments:
Depreciation and amortisation and impairment 7,183 6,599
Impairment of other assets (3,456) (6,362)
Impairment of loans given 29,723 21,983
Impairment of investments available-for-sale 537 (2,948)
(Decrease)/increase in contingent liabilities (199) (3,156)
Income tax 3,564 1,801
Other gains/losses (20,446) (24,032)
Cash flow from operating activities before working capital changes
34,045 4,035
Decrease/(increase) in receivables from CNB and other banks
(123,167) 38,206
(Increase)/decrease in loans and advances to customers (122,208) 251,504
Decrease in deposits from other banks 83,896 6,766
(Decrease)/increase in deposits from customers (292,575) (690,696)
Increase in other assets 11,809 3,197
Increase/(decrease) in other liabilities (7,352) 6,952
Income tax paid (147) (50)
Net cash flow from/(used in) operating activities (449,744) (384,121)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of tangible and intangible assets (6,174) (3,997)
Increase/decrease in available-for-sale securities (52,982) (285,724)
Increase/decrease in assets at fair value through profit or loss
(121) 1,685
Increase/decrease in held-to-maturity assets (53,178) 291,837
Net cash flow from investing activities (112,455) 3,801
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from/(repayment of) borrowings 353,978 (132,020)
Share capital increase - 13,000
Issued/returned subordinated/hybrid instruments - 9,000
Net cash flow (used in)/from financing activities 353,978 (110,020)
Net (decrease)/increase in cash and cash equivalents (174,175) (486,305)
Cash and cash equivalents at beginning of year 29 520,449 1,006,754
Cash and cash equivalents at end of year 29 346,274 520,449
Notes to the financial statements
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 29
1. General information
Kreditna banka Zagreb d.d. (the Bank) was incorporated as a public limited liability company in accordance
with applicable laws of the Republic of Croatia. It was registered at the Commercial Court in Zagreb in 1994.
The Bank's registered office is in Zagreb, Ulica grada Vukovara 74.
The principal activities of the Bank include all types of corporate and retail deposit and lending operations,
domestic and foreign payment transactions, issuance of guarantees, bills of exchange and other forms of
guarantees, securities trading and other banking services. The Bank operates only in the banking sector
through 24 branch offices on the Croatian market.
The Bank performs insurance agency operations in accordance with the insurance laws, in the part that relates
to bank insurance activities, based on the license dated 14 February 2007.
Management Board
Boris Zadro
Nataša Jakić Felić
President of the Management Board from 19 February 2016
Member of the Management Board from 19 February 2016
Supervisory Board
Nadira Eror President of the Supervisory Board from 1 October 2014
Ankica Čeko Vice President of the Supervisory Board from 13 February 2015
Ivan Penić
Silvije Orsag
Member of the Supervisory Board from 13 February 2015
Member of the Supervisory Board from 24 February 2016
Audit Committee
Nadira Eror President of the Supervisory Board from 1 October 2014
Ankica Čeko Vice President of the Supervisory Board from 13 February 2015
Ivan Penić Member of the Supervisory Board from 13 February 2015
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 30
2. Basis of preparation
2.1. Compliance with statutory requirements for accounting of banks in Croatia
The financial statements have been prepared in accordance with statutory accounting requirements for banks
in Croatia. The Bank's operations in Croatia are subject to the Credit Institutions Act, in accordance with which
the Bank’s financial reporting is regulated by the Croatian National Bank (the CNB) which is the central
monitoring institution of the banking system in Croatia. These financial statements have been prepared in
accordance with these banking regulations.
The accounting regulations for banks in the Republic of Croatia are based on International Financial Reporting
Standards (IFRS) as adopted in the European Union, modified for specific accounting rules issued by the CNB.
The main differences between the requirements of the International Financial Reporting Standards (IFRS) and
the accounting regulations of the CNB relate to the recognition of impairment losses of financial assets
calculated on a portfolio basis. In accordance with CNB regulations, banks domiciled in Croatia should
recognise provisions on the portfolio basis by the prescribed rates (except for financial assets carried at fair
value) on balance sheet and off-balance sheet exposure to credit risk of counterparties for which impairment on
individual basis is not determined, while IFRS requires that the provisions on the portfolio basis should be
determined for existing but unidentified losses on the basis of valuation models taking into account individual
characteristics of the Bank and the counterparty in the portfolio (e.g. collateral, type and rating of a debtor,
etc.).
Additionally, CNB prescribes the minimum levels of impairment losses against certain specifically identified
impaired exposures, which may be different from the impairment loss required to be recognised in accordance
with IFRS.
2.2. Basis of preparation of the financial statements
The financial statements have been prepared in Croatian kuna (HRK), which is the primary currency of the
economic environment in which the Bank operates (the functional currency) and are rounded to the nearest
thousand.
The financial statements have been prepared on the historical cost basis except for financial assets and
liabilities carried at fair value in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
The financial statements have been prepared on the accrual basis of accounting, under the going concern
assumption.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 31
2. Basis of preparation (continued)
2.2. Basis of preparation of the financial statements (continued) The Bank has adopted the following new and amended IFRS and IFRIC interpretations during the year which
were endorsed by the EU. When the adoption of the standard or interpretation is deemed to have an impact on
the financial statements or performance of the Bank, its impact is described below.
Standards and interpretations issued and effective:
The new standards, amendments and interpretations that are effective for annual periods beginning on or after
1 January 2016 are not applicable to the Bank’s financial statements.
New standards and interpretations not yet adopted:
Certain new standards and interpretations have been published that are not mandatory for 31 December 2016
reporting periods and have not been early adopted by the Bank. None of these is expected to have a significant
effect on the Bank's financial statements, except for the following standards:
IFRS 9 Financial instruments and associated amendments to various other standards (effective for
annual periods beginning on or after 1 January 2018)
The complete version of IFRS 9 replaces most of the guidance in IAS 39. IFRS 9 retains but simplifies
the mixed measurement model and establishes three primary measurement categories for financial
assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification
depends on the entity’s business model and the contractual cash flow characteristics of the financial
asset. Investments in equity instruments are required to be measured at fair value through profit or loss
with the irrevocable option at inception to present changes in fair value in OCI. There is now a new
expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For
financial liabilities, there were no changes to classification and measurement except for the recognition
of changes in own credit risk in other comprehensive income, for liabilities designated at fair value
through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright
line hedge effectiveness tests. It requires an economic relationship between the hedged item and
hedging instrument and for the ‘hedged ratio’ to be the same as the one the Management Board
actually uses for risk management purposes. Adequate documentation is still required but is different
to that currently prepared under IAS 39. The Bank plans to adopt this new standard on the effective
date as of and when adopted by the EU. The Bank is still assessing the impact of this standard.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 32
2. Basis of preparation (continued)
2.2. Basis of preparation of the financial statements (continued)
IFRS 15 Revenue from contracts with customers and associated amendments to various other
standards (effective for annual periods beginning on or after 1 January 2018)
The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 which
covers contracts for goods and services and IAS 11 which covers construction contracts.
The new standard is based on the principle that revenue is recognised when control of a good or
service transfers to a customer – so the notion of control replaces the existing notion of risks and
rewards.
Key changes to current practice are:
• Any bundled goods or services that are distinct must be separately recognised, and any
discounts or rebates on the contract price must generally be allocated to the separate
elements.
• Revenue may be recognised earlier than under current standards if the consideration varies
for any reasons (such as for incentives, rebates, performance fees, royalties, success of an
outcome, etc.)
• The point at which revenue is able to be recognised may shift: some revenue which is
currently recognised at a point in time at the end of a contract may have to be recognised over
the contract term and vice versa.
• There are new specific rules on licenses, warranties, non-refundable upfront fees and,
consignment arrangements, to name a few; and
• As with any new standard, there are also increased disclosures.
Entities will have a choice of full retrospective application, or prospective application with additional
disclosures. The Bank is currently assessing the impact of the amendments on its financial
statements, but does not expect any impact. The Bank plans to adopt this amendment on its effective
date.
IFRS 16 Leases (issued in January 2016 and effective for annual periods beginning on or after 1
January 2019)
The new standard sets out the principles for the recognition, measurement, presentation and
disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the
lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16
eliminates the classification of leases as either operating leases or finance leases as is required by
IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to
recognize: a) assets and liabilities for all leases with a term of more than 12 months, unless the
underlying asset is of low value, and b) depreciation of lease assets separately from interest on lease
liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting
requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or
finance leases, and to account for those two types of leases differently. The Bank is currently
assessing the impact of the amendments on the financial statements.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 33
2. Basis of preparation (continued)
2.3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Bank’s accounting policies, the Management Board is required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period or
in the period of the revision and future periods if the revision affects both current and future periods.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance
sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed below.
While it is possible that in particular periods the Bank may sustain losses, which are substantially relative to the
allowance for impairment losses, it is the judgement of Management that the allowance for impairment losses
is adequate to absorb losses incurred on the risk assets.
There are several legal actions against the Bank, which have arisen from the regular course of its operations.
The Management Board believes that any ultimate liability of the Bank as a result of the outcome of the
disputes will have no additional significant negative effects - after making provisions up to the date of this report
- on the financial position or future results of the Bank's operations.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 34
3. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below.
These accounting policies have been consistently applied to all the years presented, unless otherwise stated.
3.1. Interest income and expense
Interest income and expense are accounted for on an accrual basis at the effective interest rate, which includes
the amortisation of any discount or premium or other differences between the initial carrying amount of an
interest-earning instrument and its amount at maturity, calculated on an effective interest rate basis.
The effective interest method is the method of calculating the amortised cost of a financial asset and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts, including all paid or received fees that form an integral part of the effective
interest rate, transaction costs and other premiums or discounts, through the expected life of the financial
asset, or, where appropriate, a shorter period.
Loan origination fees are deferred, together with related direct costs, and recognised as an adjustment to the
effective yield on the loan and as such adjust interest income or expense.
When loans become impaired, they are written down to their recoverable amounts and interest income
thereafter is recognised based on the rate of interest that was used to discount the future cash flows for the
purpose of measuring the recoverable amount. Other fees receivable are recognised when earned. Dividend
income is recognised when the right to receive payment is established.
3.2. Fee and commission income and expense
Fee and commission income is comprised mainly of fees receivable from enterprises for loans and guarantees
granted and other services provided by the Bank, together with commissions from managing funds on behalf of
legal entities and individuals and fees for foreign and domestic payment transactions.
Fees and commissions are recognised on an accrual basis.
3.3. Foreign currencies
Income and expenses arising from transactions in foreign currencies are translated into HRK at the official
rates of exchange on the transaction date. Monetary assets and liabilities denominated in foreign currencies
are translated into HRK at the middle exchange rate of the CNB on the last day of the accounting period. Gains
and losses resulting from foreign currency translation are included in the income statement for the year.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 35
3. Summary of significant accounting policies (continued)
3.3 Foreign currencies (continued)
The Bank has assets and liabilities originated in HRK, which are linked to foreign currencies with a one-way
currency clause. Due to this clause, the Bank has an option to revalue the asset by the higher of: foreign
exchange rate valid as of the due date or foreign exchange rate valid as of the date of origination of the
financial instrument. In case of a liability linked to this clause, the counterparty has this option. Due to the
specific conditions of the market in the Republic of Croatia, the fair value of this option cannot be calculated as
the forward rates for HRK for periods over 6 months are generally not available. Accordingly, the Bank
calculates its assets and liabilities related to this clause at the higher of: the middle exchange rate of the
Croatian National Bank at the balance sheet date or the agreed reference rate (rate valid at origination).
3.4. Personnel contributions
According to national legislation, the Bank is obliged to pay contributions to pension and health insurance
funds. This obligation relates to all employees and provides for paying contributions in the amount of certain
percentages determined on the basis of the gross salary as follows:
2016 2015
Pension insurance contributions 20% 20%
Health insurance contributions 15% 15%
Contribution to the Croatian Employment Service 1.7% 1.7%
Occupational injuries 0.5% 0.5%
Contributions on behalf of employees and the employer are recognised as an expense in the period when incurred.
3.5. Income tax
Income tax expense represents the sum of the tax currently payable and deferred tax.
The current tax liability is based on taxable profit for the year. Taxable profit differs from profit as reported in the
income statement because it excludes items of income or expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible. The Bank’s liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable based on differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit, calculated using the liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences, and deferred tax assets are generally recognised to the extent
that it is probable that taxable profits will be available against which those deductible temporary differences can
be utilised.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 36
3. Summary of significant accounting policies (continued)
3.5 Income tax (continued)
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realised. Deferred tax is recognised as an expense or income in profit
or loss, except when they relate to items credited or debited directly to equity, in which case the deferred tax is
also recognised directly in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation
authority and the Bank has the ability and intention to settle its current tax asset and liability on a net basis.
The Bank is liable to pay various indirect taxes which have been presented under administrative expenses.
3.6. Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand, balances
with the CNB, balances with banks on giro accounts and term deposits with other banks with original maturities
of three months or less from the date of acquisition.
Cash and cash equivalents exclude the obligatory reserves with the CNB as these funds are not available for
the Bank’s day to day operations. The obligatory reserve with the CNB is a required reserve to be held by all
commercial banks licensed in Croatia.
3.7. Financial assets and financial liabilities
The Bank’s financial assets and financial liabilities recorded on the balance sheet include cash and cash
equivalents, marketable securities, trade and other receivables and payables, long-term loans, deposits and
investments. The accounting principles for these items are disclosed in the respective accounting policies.
The Bank recognises financial assets and liabilities on its balance sheet when, and only when, it becomes a
party to the contractual provisions of the instrument.
Financial assets held by the Bank are categorised into portfolios in accordance with the Bank’s intent upon
acquisition of a financial asset and pursuant to the Bank’s investment strategy. Financial assets and liabilities
are classified as ‘At fair value through profit or loss’, ‘Held to maturity’, ‘Assets available for sale’ or as ‘Loans
and receivables’. The principal difference among the portfolios relates to the measurement of financial assets
and the recognition of their fair values in the financial statements as described below.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 37
3. Summary of significant accounting policies (continued)
3.7 Financial assets and financial liabilities (continued)
Financial assets and liabilities are offset and the net amount is recognised in the balance sheet when there is a
legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or
to realise the asset and settle the liability simultaneously.
All routine financial instrument transactions are recognised at the date when the instruments are transferred
(settlement date). Under the settlement date accounting, the underlying asset or liability is not recognised until
the settlement date, with the changes in fair value of the underlying asset or liability being recognised starting
from the trade date. When a financial asset or financial liability is recognised initially, the Bank measures it at
its fair value plus transaction costs, in the case of financial assets, that are directly attributable to the
acquisition or issue of the financial asset or financial liability.
Financial assets at fair value through profit or loss
Upon initial recognition designated by the Bank as at fair value through profit or loss in accordance with the
Bank’s investment policy, any financial asset within the scope of IAS 39 can be classified as designated at fair
value through profit or loss except for investments in equity instruments that do not have a quoted market price
in an active market, and whose fair value cannot be reliably measured.
Measurement:
Subsequent to initial recognition, financial assets at fair value through profit or loss are accounted for and
stated at fair value which approximates the price quoted on recognised stock exchanges or acceptable
valuation models. The Bank includes unrealised gains and losses in ‘Net profit/(loss) from financing activities’.
Interest earned on assets at fair value through profit or loss is accrued on a daily basis and reported as
‘Interest income’ in the income statement.
Held-to-maturity financial assets
Investments held to maturity are non-derivative financial assets with fixed or determinable payments and fixed
maturity that the Bank has the positive intent and ability to hold to maturity. This portfolio comprises debt
securities. Held-to-maturity investments are carried at amortised cost using the effective interest method, less
any allowance for impairment.
The Bank assess on a regular basis whether there is an objective evidence that an investment held to maturity
may be impaired. The amount of the impairment loss for assets carried at amortised cost is calculated as the
difference between the asset’s carrying amount and the present value of the expected future cash flows
discounted at the financial instrument’s original effective interest rate. When an impairment of assets is
identified, the Bank recognises allowances through the income statement under “Allowance for impairment
losses on securities”.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 38
3. Summary of significant accounting policies (continued)
3.7 Financial assets and financial liabilities (continued)
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as available for
sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at
fair value through profit or loss.
This portfolio comprises equity securities, as well as receivables under factoring and forfeiting arrangements.
Subsequent to initial recognition, equity securities as part of available-for-sale financial assets are re-measured
at fair value based on quoted prices. The fair value of unquoted equity instruments is estimated using the
present value of expected cash flows and/or comparative assessment methods based on indicators of market
capitalisation. Financial assets are derecognised when the rights to receive cash flows from the financial assets
have expired or where the Bank has transferred substantially all risks and rewards of ownership.
For available-for-sale assets, gains and losses arising from changes in fair value are recognised directly in
equity until the financial asset is disposed of or is determined to be impaired, at which time the cumulative gain
or loss previously recognised in equity is included in the net profit or loss for the period.
Dividends on securities available for sale are recorded as declared and included as a receivable in the balance
sheet line ‘Other assets’.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market, other than (a) those that the Bank intends to sell immediately or in the short term,
which shall be classified as held for trading, and those that the entity upon initial recognition designates as at
fair value through profit or loss; (b) those that the Bank upon initial recognition designates as available for sale;
or (c) those for which the Bank may not recover substantially all of its initial investment, other than because of
credit deterioration, which shall be classified as available for sale. This portfolio comprises loans granted to
customers.
Loans originated by the Bank by providing money directly to the borrower are categorised as loans granted by
the Bank and are carried at amortised cost using the effective interest method, less any allowance for
impairment. Third party expenses, such as legal fees, incurred in securing a loan are treated as part of the cost
of the transaction as well as fees received from customers. Loan origination fees for loans which are probable
of being drawn down, are deferred (together with related direct costs) and recognised as an adjustment to the
effective yield of the loan and as such adjust the interest income. All loans and advances are recognised when
loans are issued, or cash is advanced to borrowers.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 39
3. Summary of significant accounting policies (continued)
3.7 Financial assets and financial liabilities (continued)
The allowance for potential loan losses is established if there is objective evidence that the Bank will not be
able to collect all amounts due. The amount of the allowance is determined as the difference between book
value and recoverable value, which represents the present value of expected cash flows, including amounts
recoverable from guarantees and collateral, discounted at the original effective interest rate for a loan.
The loan loss allowance also covers losses where there is objective evidence that these losses are present in
components of the loan portfolio at the balance sheet date. These have been estimated based upon historical
patterns of losses in each component, the credit ratings allocated to the borrowers and reflecting the current
economic climate in which the borrowers operate, in accordance with the methodologies prescribed by positive
regulations in the segment of decisions/regulations of supervision of credit institutions.
When a loan is uncollectible, it is fully written off. Subsequent recoveries are credited to the income statement.
Collateral pending sale
The Bank occasionally acquires real estate in exchange for settling certain loans and advances. Real estate is
stated at the lower of net recoverable value of dependent loan and advances receivables and the current fair
value of such assets. Gains or losses on disposal are recognised in the income statement. Real estate used as
collateral for loans given to customers can be sold only through an enforcement procedure.
Sale and repurchase agreements
Securities sold under sale and repurchase agreements (repos) are retained in the financial statements and the
counterparty is included in due to banks or customers as appropriate. Securities purchased under agreements
to resell (reverse repo) are recorded as placements with other banks and loans to customers as appropriate.
The difference between the sale and repurchase price is treated as interest and accrued on a straight-line
basis over the life of the agreements at the effective interest rate.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 40
3. Summary of significant accounting policies (continued)
3.8. Tangible and intangible assets
Property and equipment are initially carried at cost less accumulated depreciation and any accumulated
impairment losses. Cost includes the purchase price and all costs directly attributable to bringing the asset to
working condition for its intended use. Maintenance and repairs, replacements and improvements of minor
scale are expensed when incurred. Items of tangible and intangible assets with a unit value less than HRK
2,000 are expensed when put into use.
Depreciation and amortisation are computed under the straight-line method over the estimated useful life of the
assets according to the following annual rates:
2016 2015
Description % %
Buildings 2.50 - 3.03 2.50 - 3.03
Computer hardware 15 15
Furniture and equipment 10 10
Motor vehicles 20 20
Computer software 10 10
Leasehold improvements 10 10
Land is not depreciated.
The Management Board periodically tests whether there are circumstances indicating the impairment of
tangible and intangible assets. Where the carrying amount of an asset is greater than its estimated recoverable
amount, it is written down to its recoverable amount. Gains and losses on disposal of non-current assets are
determined by reference to their carrying amount and are recognised in the income statement line ‘Other
income/(expense)’ in the year of disposal. Repairs and maintenance are charged to the income statement
when the expenditure is incurred.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 41
3. Summary of significant accounting policies (continued)
3.9. Foreign currency translation
The financial statements are presented in Croatian kuna (HRK) and rounded to the nearest thousand. The
year-end exchange rates were as follows:
31 December 2016 EUR 1 = HRK 7.557787 USD 1 = HRK 7.168536
31 December 2015 EUR 1 = HRK 7.635047 USD 1 = HRK 6.991801
Transactions in foreign currencies are translated at the foreign exchange rate at the date of the transaction.
Monetary assets and monetary liabilities in foreign currencies and linked to foreign currencies are translated at
the middle exchange rates of the Croatian National Bank valid on the balance sheet date. Foreign currency
differences arising on translation are recognised in the income statement.
3.10. Off-balance-sheet financial instruments
In the ordinary course of business, the Bank disclosed in its off-balance-sheet records contingent liabilities and
commitments, comprising primarily guarantees, letters of credit and undrawn loan commitments. Such financial
instruments are recognised in the Bank’s balance sheet if and when they become payable.
3.11. Provisions
The Bank recognises a provision when it has a present obligation as a result of a past event, it is probable that
the Bank will have to settle the obligation and the amount of this obligation can be reliably estimated. The
Management Board determines the allowance based upon reviews of individual items and past experience,
considering all relevant factors.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 42
3. Summary of significant accounting policies (continued)
3.12. Derivative financial instruments
Derivative financial instruments include foreign exchange rate forward contracts and are initially recognised in
the balance sheet at fair value and subsequently re-measured at their fair value. Fair values are obtained from
quoted market prices or pricing models as appropriate. All derivatives are carried as assets when fair value is
positive and as liabilities when fair value is negative.
Derivative financial instruments also include contracts with one-way currency clause whose reference
exchange rate, placement date and contracted value are recognised initially in off-balance-sheet records and
as a loans given with a one-way currency clause in the balance sheet. They are subsequently measured at
amortised cost just as all other placements that carry credit risk in the balance sheet. Increase in exchange
rates (fair value of the embedded derivative) above the contracted rate is recorded in the balance sheet as an
embedded derivative and recognised within profit or loss from embedded derivatives in the income statement.
The Bank's derivative instruments do not qualify for hedge accounting. Changes in the fair value of any
derivative instrument that does not qualify for hedge accounting are recognised immediately in the income
statement under net trading income. However, the gains and losses arising from changes in the fair value of
derivatives that are managed in conjunction with designated financial assets or financial liabilities are included
in ‘net income from financial assets designated at fair value’.
3.13. Managed funds
The Bank manages funds for and on behalf of corporate and retail customers, for which it charges a fee. As
these amounts do not represent the Bank's assets and liabilities, they are excluded from the accompanying
balance sheet (Note 28).
3.14. Sale and repurchase agreements
If a financial asset is sold under an agreement to repurchase it at a fixed price or at the sale price plus a
lender’s return or if it is loaned under an agreement to return it to the transferor, it is not derecognised as the
Bank retains substantially all the risks and rewards of ownership.
Securities sold under sale and repurchase agreements (“repos”) are recorded in the balance sheet items in line
with the original classification of assets or the Bank reclassifies them in its balance sheet. The liability to the
counterparty is included within “Borrowings”.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 43
3. Summary of significant accounting policies (continued)
3.15. Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a
legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or
realise the asset and settle the liability simultaneously.
3.16. Accounting for financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse
the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with
the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other
bodies on behalf of customers to secure loans, overdrafts and other banking products.
Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee
was given. The initial fair value is amortised over the life of the financial guarantee. The guarantee liability is
subsequently carried at the higher of this amortised amount or the present value of any expected payment
(when a payment under the guarantee has become probable). Financial guarantees are included within other
liabilities.
Any increase in guarantee liabilities is recognised in profit or loss.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 44
3. Summary of significant accounting policies (continued)
3.17. Significant accounting estimates and judgements
Judgements
In the process of applying the Bank’s accounting policies, the Management Board has made the following
judgements, which have the most significant effect on the amounts recognised in the financial statements:
Held-to-maturity financial assets
The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as held to maturity. This classification requires significant
judgement. In making this judgement, the Bank evaluates its intention and ability to hold such investments to
maturity. If the Bank fails to keep these investments to maturity other than in specific circumstances (such as
selling an insignificant amount close to maturity), it will be required to reclassify the entire class as available for
sale and measure it at fair value instead of at amortised cost.
Estimation uncertainty
Key estimates and assumptions are based on historical experience and various other factors that are believed
to be reasonable under the circumstances and information available at the date of the financial statements, the
results of which form the basis for making judgements about the value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ significantly from these estimates. Key estimates
and assumptions are discussed below.
Provision for impairment of loans and receivables
The Bank regularly reviews the balances of loans and receivables in order to assess whether there is objective
evidence of impairment. The Bank uses its experienced judgement to estimate the amount of any impairment
loss in cases where a borrower is in financial difficulties and there are few available historical data relating to
similar borrowers. Similarly, the Bank estimates changes in future cash flows based on the observable data
indicating that there has been an adverse change in the payment status of borrowers in a group, or national or
local economic conditions that correlate with defaults on assets in the group. The Management Board uses
estimates based on historical loss experience for assets with credit risk characteristics and objective evidence
of impairment similar to those in the group of loans and receivables. The Bank uses its experienced judgement
to adjust observable data to reflect current circumstances.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 45
4. Interest and similar income
2016 2015
Loans to corporate clients 78,068 94,860
Loans to retail clients 32,448 34,410
Placements with other banks 126 553
Debt securities 25,952 30,461
Other companies 6,840 7,051
143,434 167,335
a) Analysis by product
2016 2015
Loans to customers 117,356 136,321
Placements with banks 126 553
Debt securities 25,952 30,461
143,434 167,335
5. Interest and similar expense
2016 2015
Retail clients 53,645 77,032
Corporate clients 6,350 11,473
Banks 6,929 2,601
Other companies 5,056 8,070
Non-residents 2,929 4,067
74,909 103,243
a) Analysis by product
2016 2015
Deposits 67,650 100,599
Borrowings 7,259 2,644
74,909 103,243
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 46
6. Fee and commission income and expense
2016 2015
Fee and commission income
Commission income from corporate clients 16,528 16,709
Commission income from retail clients 4,982 4,822
Commission income from banks 7,068 5,657
Commission income from non-residents 138 112
28,716 27,300
Fee and commission expense
Commission for domestic payments (5,258) (5,733)
Other fees and commissions (2,636) (2,882)
(7,894) (8,615)
7. Net profit from financing activities
2016 2015
Net gains from dealing in foreign currencies 10,857 9,231
Gain/loss from financial assets at fair value through profit or loss 121 156
Gain/loss from available-for-sale financial assets 17,338 2,492
Other operating income 2,261 1,841
30,577 13,720
8. Operating expenses
2016 2015
Staff costs (Note 8.1) 24,437 25,301
Material and services 33,795 34,056
Depreciation and amortisation (Note 17 and 18) 7,183 6,023
Administration and marketing expenses 1,365 1,194
Insurance premiums 6,401 7,131
Taxes and contributions 994 830
Other expenses 2,003 1,719
76,179 76,254
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 47
8.1. Staff costs
2016 2015
Net salaries 13,678 14,217
Taxes and contributions from salaries 6,218 6,379
Contributions on salaries 3,469 3,582
Other staff costs 1,072 1,123
24,437 25,301
As at 31 December 2016, the Bank had 187 employees (31 December 2015: 183).
9. Impairment losses and provisions
Note 2016 2015
Loans to customers 14 (54,427) (59,614)
Interest 19 (2,356) (3,459)
Investments in debt securities (until maturity) (739) (2,191)
Other assets 19 (17,126) (32,587)
Impairment of tangible assets - (576)
Provisions for legal disputes against the Bank (45) (146)
Contingent liabilities 27 (4,366) (5,270)
(79,059) (103,842)
Less: amounts collected and reversed
Loans to customers 14 24,704 37,631
Interest 19 3,317 4,773
Investments in debt securities (until maturity) 202 5,139
Other assets 19 19,665 37,781
Contingent liabilities 27 4,565 8,426
52,453 93,749
Total impairment losses and provisions (26,606) (10,093)
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 48
10. Income tax
Income tax is determined by applying the rate of 20% to taxable profits (2015: 20%).
Reconciliation of income tax:
2016 2015
Current income tax (3,563) (177)
Effect of deferred tax (1,074) (1,624)
(4,637) (1,801)
Tax returns remain open and subject to tax audit at least over a three-year period. The Management Board
believes that the Bank has made adequate provisions for tax liabilities in the accompanying financial
statements. However, the risk remains that the relevant authorities could take a different view with regard to the
interpretation of the applicable provisions.
Reconciliation of current tax:
2016 2015
Accounting profit/(loss) before tax 17,138 8,525
Effect of non-taxable income 504 293
Effect of non-deductible expenses (1,184) (772)
Taxable profit 17,818 9,004
Utilised tax losses carried forward - (8,122)
Income tax base for the year 17,818 882
Income tax at 20% 3,563 117
Current income tax (3,563) (177)
Effective tax rate 20.79% 2.07%
Non-deductible expenses mostly relate to the entertainment costs, costs of personal transportation, write-offs
of receivables, non-deductible costs of property valuation and other non-deductible expenses.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 49
11. Cash and balances with Croatian National Bank
31 December
2016 31 December
2015
Cash on hand 55,530 47,191
Instruments in the course of collection - -
Total cash 55,530 47,191
Giro account with Croatian National Bank 266,651 264,387
Obligatory reserve in HRK 192,919 224,554
Obligatory reserve in foreign currency - 33,258
Other deposits with Croatian National Bank 3,281 -
Total assets with the Croatian National Bank 462,851 522,199
Total cash and balances with the Croatian National Bank 518,381 569,390
The CNB determines the requirement for banks to calculate an obligatory reserve, which is required to be
deposited with the CNB and held in the form of other liquid receivables.
The statutory reserve requirement ratio in 2016 was 12%, the same as in 2015.
As at 31 December 2016, the required rate of maintenance of the HRK obligatory reserve with the CNB
amounted to 70% (31 December 2015: 70%), while the remaining 30% (31 December 2015: 30%) had to be
held in the form of other liquid receivables. This includes the part of the foreign currency obligatory reserve
required to be held in HRK (see below).
60% of the foreign currency part of the obligatory reserve (31 December 2015: 60%) was allocated to the CNB
until 13 July 2016, when a new Obligatory Reserve Decision (Official Gazette No. 55/2016) came into force
stating that the foreign currency component of the OR is not allocated, i.e. that it is 0%, while 75% of the
foreign currency component of the obligatory reserve is still included in the accrued HRK component of the
obligatory reserve and is allocated in HRK (see above).
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 50
12. Placements with other banks
31 December
2016 31 December
2015
Current accounts with other banks
- denominated in foreign currency 98,181 195,085
Loans and time deposits with other banks
- denominated in foreign currency 3,928 17,633
- denominated in HRK 25,000 -
Total placements with other banks 127,109 212,718
Allowance for impairment losses (5,651) (7,364)
Total placements with other banks, net 121,458 205,354
Of the total amount of placements with other banks, HRK 3,928 thousand relates to guarantee deposits with Erste
Bank with the original maturity exceeding 3 months.
Geographical analysis:
31 December
2016 31 December
2015
Germany 40,496 78,581
Italy 10,175 16,203
Croatia 32,837 24,240
Austria 17,146 35,335
USA 2,185 20,905
Spain 7,241 33,961
Belgium 11,377 3,342
Norway - 150
121,458 212,718
All foreign placements are kept with banks with credit ratings from A+ to BBB+.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 51
13. Financial assets at fair value through profit or loss
31 December
2016 31 December
2015
Units in investment funds 12,277 12,156
Total financial assets at fair value through profit or loss 12,277 12,156
In its portfolio of at fair value through profit or loss, the Bank values certain units in investment funds.
14. Loans to customers
a) Analysis of lending portfolio
31 December
2016 31 December
2015
Retail clients 529,461 465,888
Corporate clients 1,210,882 1,219,418
Other companies 82,951 93,206
Financial institutions 155,225 48,923
Gross loans 1,978,519 1,827,435
Less: impairment allowance (183,376) (154,499)
Total loans to customers 1,795,143 1,672,936
Loans are secured by specific pledges on properties of appropriate value, deposits, guarantees, securities, policies
and other types of collaterals.
In the period from 1 January 2016 to 31 December 2016, the interest rates on loans to corporate clients were set at
5.55% to 10.55% (2015: from 5% to 12.9%), and for loans to retail clients they were set at 2.25% to 9.88% (2015:
2.6% to 10.50%), while for financial institutions the interest rates were set at 0.35% to 2.2% during 2016 (2015: 0.25%
to 5%).
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 52
14. Loans to customers (continued)
b) Changes in the principal of partially and fully recoverable loans
2016 2015
Partially
recoverable
loans
Fully
irrecoverable
loans
Partially
recoverable
loans
Fully
irrecoverable
loans
At 1 January 230,872 65,261 212,184 60,555
___________ ___________ ___________ ___________
Transfer from fully recoverable loans 121,633 1,184 61,845 933
Transfer from fully irrecoverable loans 433 - 2,321 -
Transfer from partially recoverable
loans - 17,917 - 8,533
Transfer to fully recoverable loans (38,446) (1,263) (16,410) (1,359)
Transfer to fully irrecoverable loans (17,917) - (8,533) -
Transfer to partially recoverable loans - (433) - (2,321)
Collection (33,021) (163) (22,390) (934)
Write-offs - (541) - (79)
Other increases 1,742 287 3,463 236
Other decreases (2,492) (499) (1,608) (303)
___________ ___________ ___________ ___________
At 31 December 262,804 81,750 230,872 65,261
___________ ___________ ___________ ___________
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 53
14. Loans to customers (continued)
c) Movements in impairment allowances
Specific impairment allowances
Impairment allowance on
collective assessment
basis Total
At 31 December 2014 114,826 17,915 132,741
New impairment losses (Note 9) 36,969 22,645 59,614
Amounts collected (Note 9) (12,378) (25,252) (37,630)
Write-off (79) - (79)
Foreign exchange differences (147) - (147)
At 31 December 2015 139,191 15,308 154,499
New impairment losses (Note 9) 38,799 15,628 54,427
Amounts collected (Note 9) (10,359) (14,346) (24,705)
Write-off (541) - (541)
Foreign exchange differences (304) - (304)
At 31 December 2016 166,786 16,590 183,376
d) Deferred fee income recognised as an adjustment to the effective interest
2016 2015
At 1 January 7,503 7,702
Collected and deferred fees (7,229) (6,800)
Fees recognised 7,288 6,601
At 31 December 7,562 7,503
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 54
15. Held-to-maturity financial assets
31 December
2016 31 December
2015
Other securities 24,007 517
Bonds 98,530 68,304
Allowance for impairment losses (1,737) (1,200)
Total held-to-maturity financial assets 120,800 67,621
As at 31 December 2016, other securities mature in 2017 within a period of eight months.
The portfolio also includes HEP foreign exchange dollar bonds with an interest rate of 6% and a maturity of 2017.
As at 31 December 2016, the collective assessment based allowances for financial assets held to maturity amounted
to HRK 1,220 thousand.
16. Available-for-sale financial assets
31 December
2016 31 December
2015
Available-for-sale debt securities 787,304 736,713
Available-for-sale equity securities 46,700 44,309
834,004 781,022
Available-for-sale debt securities
31 December
2016 31 December
2015
Treasury bills of the Ministry of Finance - 79,339
Bonds /i/ 782,446 657,374
Commercial papers 4,858 -
787,304 736,713
Listed on the stock exchange 787,304 736,713
Not listed on the stock exchange -
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 55
16. Available-for-sale financial assets (continued)
/i/ Bonds
31 December
2016 31 December
2015
Bonds of the Republic of Croatia 627,288 435,532
State corporate bonds 22,159 13,390
Other corporate bonds 15,000 14,976
Bank bonds 89,513 112,470
Foreign government bonds 28,486 81,006
782,446 657,374
Listed on the stock exchange 782,446 657,374
Available-for-sale equity securities
31 December
2016 31 December
2015
Investments in investment funds 42,730 43,695
Securities listed on the stock exchange 93 93
Securities not listed on the stock exchange 3,877 521
46,700 44,309
Equity securities which are not listed on stock exchange markets contain a number of smaller individual investments
carried at cost less impairment losses. There is no market for such investments which amount to less than 1% of their
share capital.
Movements in equity securities during the year:
2016 2015
At 1 January 44,309 44,507
Change in fair value of shares 16 19
Purchase of shares/units in investment funds 13,340 -
Sale of shares/units in investment funds (10,401) -
Change in fair value of units 230 180
Realised gain 380 -
Foreign exchange differences (1,174) (396)
At 31 December 46,700 44,309
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 56
17. Intangible assets
External software
and other rights
Internally developed
software
Other intangible
assets
Intangible assets under
construction
Total intangible
assets
Cost
At 1 January 2015 29,574
5,502
8,539 669 44,283
Additions 327 1,547 1,547 581 2,455
Transfer from assets under construction (533) (327) (860)
At 31 December 2015 29,368
7,049
8,539 923 45,878
Additions - 1,562 18 505 2,085
Transfer from assets under construction 687 - - (687) -
Write-offs/disposals (3,980) - (7) (3,987)
At 31 December 2016 26,074 8,611 8,550 741 43,976
Amortisation
At 1 January 2015 9,461 6,705 - 16,166
Charge for the year 2,466
-
458 - 2,923
Expense -
-
- - -
At 31 December 2015 11,927 - 7,163 - 19,089
Charge for the year 5,336
870 6,206
Write-offs/disposals (6,649)
(442) - (7,091)
At 31 December 2016 10,613 - 7,592 - 18,205
Net book amount
At 31 December 2015 17,441 7,049 1,376 923 26,789
At 31 December 2016 15,462 8,611 958 741 25,772
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 57
18. Tangible assets
Land
Buildings
IT and other
equipment
Furniture, vehicles and
similar assets
Other tangible
assets
Tangible assets under
construction Total
Cost
At 1 January 2015 15,130 86,669 7,894 7,444 13,392 16,867 147,397
Additions - - - - 1,239 1,239
Transfer from assets under construction - - 1,007 397 300 (1,244) 460
Transfers - - - - - - -
Disposals/write-off - - - - (281) - (281)
At 31 December 2015 15,130 86,669 8,901 7,841 13,411 16,862 148,814
Increase in assets under construction - - - - 4,245 4,245
Transfer from assets under construction - 999 2,734 311 220 (4,282) (18)
Disposals/sales - - - (119) - - (119)
Write-offs - - (1,175) (175) (7,101) - (8,451)
At 31 December 2016 15,130 87,668 10,460 7,858 6,530 16,825 144,471
Depreciation
At 1 January 2015 - 49,472 3,038 4,844 10,695 6,965 75,015
Charge for the year - 1,628 536 408 1,170 - 3,742
Impairment - (823) 182 - - - (641)
Disposals/sales - - - (30) (281) - (311)
At 31 December 2015 - 50,277 3,756 5,222 11,584 6,965 77,804
Charge for the year - 3,646 1,548 1,205 1,761 - 8,160
Disposal/sales - (1,823) (1,803) (839) (8,047) - (12,514)
At 31 December 2016 - 52,100 3,501 5,588 5,298 6,965 73,452
Net book amount
31 December 2015 15,130 36,392 5,145 2,619 1,827 9,897 71,010
31 December 2016 15,130 35,568 6,959 2,270 1,232 9,860 71,019
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 58
18. Tangible assets (continued)
As at 31 December 2016, there is no pledge over the building and depreciation is calculated at a rate of 3.03%.
19. Other assets
31 December
2016 31 December
2015
Non-financial assets
Accrued interest 19,578 24,653
Repossessed assets 17,063 21,020
Total non-financial assets 36,641 45,673
Financial assets
Fees and commissions 1,187 1,311
Receivables from credit card operations 3,344 2,768
Prepaid expenses and deferred income 8,100 9,381
Guarantee funds 1,086 2,541
Other receivables 6,007 7,347
Total financial assets 19,724 23,348
Total other assets before impairment 56,365 69,021
Less impairment allowance: (4,627) (5,623)
Total other assets 51,738 63,398
Accrued interest and fee income is presented on a net basis less accumulated impairment amounting to HRK
15,483 thousand (31 December 2015: HRK 18,356 thousand), while the impairment of other assets is
presented in the table and amounts to HRK 4,627 thousand (31 December 2015: HRK 5,623 thousand).
All stated assets become due within one year.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 59
19. Other assets (continued)
Changes in impairment allowance
Interest and
fees Other
assets
At 31 December 2014 19,622 5,708
Impairment allowance on collective assessment basis - (57)
New allowances (Note 9) 4,292 1,124
Amounts collected (Note 9) (5,537) (1,150)
Amounts written off (21) (2)
At 31 December 2015 18,356 5,623
Impairment allowance on collective assessment basis - (52)
New allowances (Note 9) 3,029 386
Amounts collected (Note 9) (3,914) (1,328)
Amounts written off (356) (2)
At 31 December 2016 17,116 4,627
The allowance based on collective assessment includes other receivables from clients based on issued
invoices, fees and expenses paid for the client, except for accrued interest, which according to the
Classification of placements are fully provided for on an individual basis.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 60
20. Deposits from banks and customers
31 December
2016 31 December
2015
Demand deposits
Banks and financial institutions 119,880 90,563
Retail clients 187,762 154,649
Corporate clients 140,149 111,959
Other companies 5,642 4,377
Total demand deposits 453,434 361,548
Time deposits
Banks and financial institutions 80,479 79,686
Retail clients 1,925,884 2,233,653
Corporate clients 122,542 197,025
Other companies 30,778 33,780
Total term deposits 2,159,683 2,544,144
Total amounts due to customers 2,613,117 2,905,692
The interest rate on demand deposits for legal entities ranged from 0.05% to 0.20% during 2016 (2015: from
0.10% to 0.20%).
The interest rate on term deposits for retail clients ranged from 0.05% to 7.0% during 2016, and from 0.10% to
7.0% during 2015, while for term deposits of legal entities and other companies the interest rate in 2016 ranged
from 0.10% to 3.00% (2015: from 0.20% to 3.15%), and for financial institutions it ranged from 0.30% to 2.10%
during 2016 (2015: from 0.10% to 5.56%).
21. Borrowings
31 December 2016
31 December 2015
Long-term borrowings 112,216 123,700
Short-term borrowings - -
Repo loans 368,262 2,800
Total borrowings 480,478 126,500
31 December 2016
31 December 2015
Denominated in HRK 420,016 126,500
Denominated in foreign currency 60,462 -
Total borrowings 480,478 126,500
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 61
21. Borrowings (continued)
Borrowings comprise the following:
31 December 2016
31 December 2015
CROATIAN NATIONAL BANK 305,000 -
CROATIAN BANK FOR RECONSTRUCTION AND DEVELOPMENT
(HBOR) 112,216
123,700
ZAGREBAČKA BANKA d.d. 60,462 -
KD LOCUSTA FONDOVI (LOCUSTA INVEST) 2,800 2,800
480,478 126,500
Borrowings from the Croatian Bank for Reconstruction and Development (HBOR) relate to borrowings placed
by HBOR through the Bank in accordance with its financing programs. The relationship between the Bank and
HBOR is the subject of a separate agreement. The interest rate on HRK borrowings from HBOR ranged from
0% to 5%, while for the end user of these borrowings the interest rate ranged from 1% to 6% during 2016
(2015: from 1% to 7%). Other borrowings from financial institutions were set at an interest rate of 0.05% to
1.8% (2015: from 0.80% to 3.00%).
Collaterals
At 31 December 2016, the Bank had repo loans received from the CNB in the amount of HRK 305 million, for
which the Bank has pledged government bonds of the Ministry of Finance of the Republic of Croatia
denominated in HRK and foreign currencies with a fixed interest rate of 1.4% and 1.8% and maturities
throughout 2020. For bank repo loans received from Zagrebačka banka that mature in January 2017 in the
amount of EUR 8 million, the Bank has pledged government bonds of the Ministry of Finance of the Republic of
Croatia with a fixed interest rate of 0.05% due in November 2017, while for the repo loan received from Locusta
Value I in the amount of HRK 2.8 million and also maturing in January 2017, the Bank has pledged a bond of
the Ministry of Finance of the Republic of Croatia due in November 2017.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 62
22. Other liabilities
31 December
2016 31 December
2015
Accrued expenses:
Accrued interest 48,959 63,084
Deferred income 35 112
Total accrued liabilities 48,994 63,196
Financial liabilities:
Trade payables 4,993 4,706
Liabilities for credit card operations 1,791 450
Other liabilities 9,372 4,150
Total financial liabilities 16,156 9,306
Total other liabilities 65,150 72,502
23. Issued subordinated instruments
31 December 2016
31 December 2015
Subordinated bonds 82,000 82,000
82,000 82,000
Subordinated instruments were issued at an interest rate set at 6% and maturity on 31 July 2022. Interest on
subordinated bonds is paid on a semi-annual basis.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 63
24. Equity
As at 31 December 2016, the Company’s share capital amounts to HRK 197,775,300 (2015: HRK
193,775,300) and is divided among 1,937,753 ordinary shares (KBZ-R-A) with a nominal value of HRK 100 per
share.
The following shareholders owned more than a 5% share in the Bank as at 31 December 2016 and 31
December 2015:
Shareholders Holding in share capital (%)
31 December 2016
31 December 2015
Euroherc osiguranje d.d. 19.97 19.98
Jadransko osiguranje d.d. 19.97 19.97
Agram životno osiguranje d.d. 19.86 19.86
Euroleasing d.o.o. 1.02 7.42
Podravska banka 13.21 5.47
Primorska banka 11.20 -
Varaždinska banka - 5.16
Agram Invest d.o.o 10.10 4.37
Others 4.67 17.77
Total share capital 100.00 100.00
Share premium
During 2016, there were no changes in share premium (in 2015 it was increased by HRK 5,778 thousand).
Dividends
Based on the decision of the General Assembly, the net profit for 2015 amounting to HRK 8,348 thousand was
transferred to retained earnings amounting to HRK 7,932 thousand and the legal reserves amounting to HRK
417 thousand. In addition, based on the decision of the General Assembly, dividends in the amount of HRK
5,000 thousand were paid from retained earnings of previous years.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 64
24. Share capital (continued)
Regulatory capital
In accordance with legal requirements arising from Directive EU 575/2013, regulatory capital was calculated as
at 31 December 2016 and 31 December 2015 as follows:
31 December 2016
31 December 2015
HRK`000 HRK`000
Regulatory capital
Regular basic capital 244,316 244,316
Legal and statutory reserves and retained earnings less
current year result 38,670 35,321
Recognised profit or loss - -
Less: Intangible assets (-) (25,769) (26,789)
Unrealised loss from impairment of available-for-sale financial assets (4,555) (12,335)
Total basic capital 252,662 240,512
Supplementary capital
Paid capital instruments and subordinated loans - -
Subordinated instruments 82,000 82,000
Hybrid instruments - -
Gross supplementary capital 82,000 82,000
Deductions -
Total deductions from supplementary capital - -
Total supplementary capital (gross supplementary capital less deductions) 82,000 82,000
Gross regulatory / guarantee capital 334,662 322,512
Risk weighted assets
Credit risk weighted exposure 1,732,369 1,728,985
Other weighted assets 202,044 207,400
Total risk weighted assets 1,934,413 1,936,385
Capital adequacy ratio 17.30% 16.66%
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 65
25. Retained earnings and reserves
Retained earnings include accumulated profits from prior years.
In accordance with the local legislation, 5% of the net profit of the Bank is required to be transferred to a non-
distributable legal reserve to equal 5% of the share capital of the Bank. The legal reserve, in the amount of up
to 5% of the issued share capital, can be used for covering losses from the current and prior years.
On 27 June 2016, the General Assembly decided to allocate the profit realised in 2015 to retained earnings
and legal reserves.
26. Earnings per share
Basic
For the purposes of calculating earnings per share, earnings are calculated as the profit (after tax) for the year
attributable to equity holders of ordinary shares after deducting amounts relating to preference dividends. For
the reconciliation of profit after tax which is distributed to ordinary shareholders please see below:
2016 2015
Profit for the year in HRK 13,574,704 8,348,895
Weighted average number of ordinary shares in issue 1,937,753 1,885,516
Earnings per ordinary share in HRK 7.01 4.43
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 66
27. Contingent liabilities and commitments
a) Legal disputes in progress
There are several outstanding legal disputes against the Bank. The Bank records provisions in accordance with
the decision of the Croatian National Bank on the provisions for legal disputes outstanding against the Bank in
the total amount of HRK 176 thousand as at 31 December 2016 (31/12/2015: HRK 149 thousand). No material
losses are expected from ongoing proceedings.
b) Guarantees and credit commitments
The total amount of guarantees, letters of credit and unused lines of credit was as follows:
31 December
2016 31 December
2015
Guarantees in HRK 93,769 77,600
Guarantees in foreign currency 6,643 21,027
Letters of credit 65 2,760
Unused lines of credit 91,816 110,266
Total guarantees and credit commitments 192,293 211,653
c) Movement in provisions
2016 2015
At 1 January 2,150 5,316
Additional provisions (Note 9) 4,390 5,346
Decrease (Note 9) (4,589) (8,512)
At 31 December 1,951 2,150
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 67
28. Managed funds
The Bank manages funds for and on behalf of legal entities and citizens with respect to custodian activities.
The related income and expense are charged to the customer, and the Bank does not bear any liabilities.
Net assets and liabilities from operations in the name and on behalf of third parties are as follows:
31 December
2016 31 December
2015
Assets
Retail clients 14,835 3,367
Corporate clients 27,608 43,891
Financial institutions 54,295 124,125
Total assets 96,739 171,383
Sources
Retail clients 14,835 3,367
Corporate clients 27,608 43,891
Financial institutions 54,295 124,125
Total sources 96,739 171,383
29. Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances
with less than 90 days maturity:
31 December
2016 31 December
2015
Cash account at Croatian National Bank (Note 11) 167,562 264,387
Cash on hand (Note 11) 55,530 47,192
Instruments in the course of collection (Note 11) - -
Total placements with other banks (Note 12) 123,181 208,871
Total cash and cash equivalents 346,274 520,449
The Bank has significant reserves of primary and secondary liquidity.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 68
30. Risk management
This note provides details of the Bank’s exposure to risk and describes the methods used by management to
control risk. The most significant types of financial risk to which the Bank is exposed are credit risk, liquidity
risk, market risk and operational risk. Market risk includes currency risk, interest rate risk and debt and equity
quoted securities price risk.
The Bank has established an integrated system of risk management by introducing a set of policies and
procedures and establishing the limits of risk levels acceptable to the Bank. The methodology and models for
managing operational risk have been developed.
a) Credit risk
The Bank takes on exposure to credit risk which is the risk upon that the counter party will be unable to pay
amounts in full when due. The Bank structures the levels of credit risk it undertakes by placing limits on the
amount of risk accepted in relation to one borrower, or groups of borrowers, and to industry segments. Such
risks are monitored on a revolving basis and subject to an annual or more frequent review.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers
to meet interest and principal repayment obligations and by changing these lending limits where appropriate.
Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees.
In accordance with the legal provisions governing the internal control system, when approving loans the Bank
has established decision-making levels governed by the principle that when the loan approval decision is not
made by the Bank's Management Board and the amount of client exposure exceeds the internally specified
amounts of client exposure, at least two persons should participate, whereby the person with the sales function
makes a decision which is approved by the person in charge of the risk control function. Also, prior to making a
decision in case when the client's exposure exceeds certain internally established exposure amounts, the draft
decision of the sales function is subject to a review by the risk control function.
In addition the Bank monitors and analyses the structure and quality of its loan portfolio through different
indicators pointing to the improvement or deterioration in asset quality of the Bank, thus enabling the Bank a
better credit risk management as well as timely actions in order to reduce credit risk. Also, the Bank monitors
and analyses the degree of concentration of loans by sector and the largest client exposures using the HHI
index methodology.
Credit related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer as required.
Guarantees and standby letters of credit represent irrevocable assurance that the Bank will make payments in
the event that customer cannot meet its obligations to third parties and carry the same credit risks as loans
given. Documentary and commercial letters of credit are written undertakings on behalf of a customer
authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and
conditions.
Letters of credit are secured by collateral in the form of goods to which they relate.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 69
30. Risk management (continued)
a) Credit risk (continued)
Loans are classified into the following three main groupings, in accordance with the regulations of the CNB:
fully recoverable loans – A Risk Group – measured on the collective basis
partially recoverable loans – B Risk Group – measured on an individual basis, or on the collective
basis for a "small loans portfolio" that are not sued, or secured by adequate collateral according to the
CNB Decision on Classification of Placements and Off-Balance-Sheet Liabilities of Credit Institutions
fully irrecoverable loans – C Risk Group – measured on an individual basis, or on the collective basis
for a "small loans portfolio" that are not sued, or secured by adequate collateral according to the CNB
Decision on Classification of Placements and Off-Balance-Sheet Liabilities of Credit Institutions
All three levels contain sub-categories, which are mandatory for partially recoverable loans. The Bank's policy
is to require suitable collateral to be provided by certain customers prior to the disbursement of approved loans.
Collateral for loans, guarantees and letters of credit is usually in the form of deposits, pledges, investments,
housing or commercial mortgages, bills of exchange, promissory notes or other types of assets.
Commitments to lend represent unused portions of authorizations to extend credit in the form of loans,
guarantees or letters of credit. With respect to credit risk on commitments to lend, the Bank is potentially
exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is
less than the total unused commitments, as most commitments to lend are contingent upon customers
maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because
long-term commitments generally have a greater degree of credit risk than short-term commitments.
b) Liquidity risk
The Bank is exposed to daily calls which it settles through available cash resources, which include overnight
deposits, current account funds, maturing deposits and loan drawdowns.
The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is
fundamental to the management of the Bank. It is unusual for banks ever to be completely matched since
business transacted is often of uncertain term and of different types. An unmatched position potentially
enhances profitability, but can also increase 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 guarantee payments and
standby letters of credit are considerably less than the amount of the commitment because the Bank does not
generally expect the third party to draw funds under the agreement.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 70
30. Risk management (continued)
The Bank carries out its liquidity risk management through a gap analysis in which the maturity of assets and
liabilities are divided into several time categories and differences are observed in certain time categories in
order to timely harmonise its assets and liabilities. In addition, the Bank monitors and analyses the movement
of the minimum liquidity ratio (weekly and monthly) in terms of legislation and established internal limits. In the
event that an indicator of the minimum liquidity ratio falls below the internally prescribed limits the Control and
Risk Management Department shall inform the Assets and Liabilities Commission as well as the Bank’s
Management Board in order to take measures.
The total outstanding contractual amount of commitments to extend credit at the balance sheet date does not
necessarily represent future cash flows, since many of these commitments will expire or be terminated without
being funded.
Liquidity risk is presented in the maturity analysis of assets and liabilities as at 31 December 2016 and 31
December 2015 (see Note 32).
c) Market risk
The majority of available-for-sale instruments are subject to market risk, the risk that future changes in market
conditions may impair the value of the instrument. The instruments are recognised at fair value, and all
changes in market conditions directly affect net trading income. The Bank manages its use of trading
instruments in response to changing market conditions.
The limits are defined following the needs and strategy of the Bank and in accordance with the senior
management risk policy provisions.
The exposure to market risk is formally managed in accordance with the risk limits approved by the senior
management and revised at least annually. The exposure figures and limit utilization are delivered to the
Treasury Division on a daily basis. In addition, limit control is performed by the Control and Risk Management
Department as a second level of control, which in the case of exceeding certain limits of market risk notifies the
Management Board.
d) Interest rate risk
The Company is exposed to various risks associated with the effect of changes in market interest rates on its
financial position and cash flows. The interest rate gap table summarises the Bank's exposure to interest rate
risks. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorized by the earlier
of contractual re-pricing or maturity dates (see Note 33).
The Bank carries out the control and analysis of interest rate risk exposure via a standard interest rate shock, a
methodology prescribed by by-laws and according to which the interest rate risk in the banking book is viewed
as a change in the value of banking book in relation to its regulatory capital. In addition to statutory limits, the
Bank prescribed internal limits that are monitored by the Control and Risk Management Department and in
case they are exceeded, it notifies the Assets and Liabilities Commission as well as the Management Board of
the Bank.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 71
30. Risk management (continued)
e) Foreign exchange risk
The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its
financial position and cash flows. The Bank sets limits on the level of exposure by currency and in total for both
overnight and intra-day positions.
In addition to monitoring currency risk and open foreign currency position on a daily basis, in accordance with
the by-laws, the Bank monitors and analyses the impact of the currency risk on the basis of stress tests under
certain conditions. Monitoring with the use of the VAR indicators methodology is also being introduced.
Foreign currency balance sheet and foreign exchange risk table summarizes the Bank’s exposure to foreign
currency exchange rate risk at 31 December 2016 and 31 December 2015. Included in the table are the Bank’s
assets and liabilities at carrying amounts, categorised by domestic currency and foreign currency (see Note
34).
f) Equity price risk
Equity price risk is the possibility that equity prices will fluctuate affecting the fair value of equity investments
and other derivative instruments.
The primary exposure to equity prices arises from the Bank’s holding of equity instruments available for sale.
The Bank does not actively trade in equity securities.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 72
31. Credit risk
a) Total credit risk exposure – balance sheet and off-balance-sheet
At 31 December 2016
Gross
placements
Individually based
impairment allowance
Collectively based
impairment allowance
Net placements ____________ ____________ ____________ ________
A. Balance sheet exposure
Cash and balances with Croatian
National Bank (Note 11) 462,851 - - 462,851
Placements with other banks (Note
12) 127,109 - 5,652 121,458
Available-for-sale financial assets
(Note 16) 787,304 - - 787,304
Financial assets at fair value through
profit or loss - - - -
Held-to-maturity financial assets
(Note 15) 122,537 517 1,220 120,800
Loans to customers (Note 14) 1,978,519 166,786 16,590 1,795,143
- fully recoverable 1,633,965 - 16,590 1,642,374
- partially recoverable 262,804 85,085 - 152,720
- completely irrecoverable 81,750 81,701 - 49
Interest, fees and other assets 38,327 21,575 168 16,585
Total balance sheet exposure 3,516,647 188,877 23,629 3,304,141
B. Off-balance-sheet exposure
Customers 192,294 38 1,912 190,343
- fully recoverable 191,220 - 1,912 189,308
- partially recoverable 1,046 10 - 1,035
- completely irrecoverable 28 28 - -
Total off-balance-sheet exposure 192,294 38 1,912 190,343
TOTAL EXPOSURE (A+B) 3,708,941 188,916 25,541 3,494,484
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 73
31. Credit risk (continued)
a) Total credit risk exposure – balance sheet and off-balance-sheet (continued)
At 31 December 2015
Gross
placements
Individually based
impairment allowance
Collectively based
impairment allowance
Net placements ____________ ____________ ____________ ________
A. Balance sheet exposure
Cash and balances with Croatian
National Bank (Note 11) 522,199 - - 522,199
Placements with other banks (Note
12) 212,718 - 7,363 205,355
Available-for-sale financial assets
(Note 16) 763,713 - - 763,713
Held-to-maturity financial assets
(Note 15) 68,821 517 683 67,621
Loans to customers (Note 14) 1,827,434 139,193 15,307 1,672,935
- fully recoverable 1,530,634 - 15,307 1,515,327
- partially recoverable 231,540 73,994 - 157,546
- completely irrecoverable 65,261 65,198 - 63
Interest, fees and other assets 45,820 23,760 220 21,840
Total balance sheet exposure 3,413,705 163,470 23,573 3,226,663
B. Off-balance-sheet exposure
Customers 211,653 63 2,087 209,503
- fully recoverable 208,691 - 2,087 206,604
- partially recoverable 2,942 43 - 2,899
- completely irrecoverable 20 20 - -
Total off-balance-sheet exposure 211,653 63 2,087 209,503
TOTAL EXPOSURE (A+B) 3,625,358 163,533 25,671 3,436,165
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 74
31. Credit risk (continued)
b) Uncollected past due receivables
Uncollected past due receivables include gross receivables based on maturity of both due and not due principal, on
an individual basis, including due but uncollected interest and other income related to the principle. Other past due
receivables include uncollected interest not past due and receivables written off whose collection is still in progress.
The total amount of individual placement is allocated to the maturity class of the oldest uncollected receivable, relating
to either principal or the interest. The financial statements do not include the impairment of loans and other
receivables.
At 31 December 2016
Past due up to 30
days
______
Past due from 31
to 90 days
______
Past due from 91
to 180 days
______
Past due from 181
to 365 days
______
Past due from 1 to
2 years
_____
Past due from 2 to
3 years ______
Past due over 3 years
______
Loans to customers 810,842 70,439 13,634 64,978 75,423 31,209 128,181
Held-to-maturity financial assets
- - - - - - 517
Available-for-sale financial assets
- - - - - - -
Other past due receivables
6,729 654 353 454 452 1,438 19,205
Total uncollected past due receivables
817,571 71,093 13,987 65,432 75,875 32,647 147,903
At 31 December 2015
Past due up to 30
days
______
Past due from 31
to 90 days
______
Past due from 91
to 180 days
______
Past due from 181
to 365 days
______
Past due from 1 to
2 years
_____
Past due from 2 to
3 years ______
Past due over 3 years
______
Loans to customers 671,346 282,635 13,107 12,123 38,121 42,622 92,097
Held-to-maturity financial assets
- - - - - - 517
Available-for-sale financial assets
- - - - - - -
Other past due receivables
5,312 6,574 678 250 1,776 3,724 17,489
Total uncollected past due receivables
676,658 289,208 13,785 12,373 39,897 46,346 110,102
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 75
31. Credit risk (continued)
c) Placements secured by collateral
At 31 December 2016
Deposit
_______
Housing mortgages
________
Commercial mortgages
________
Other instruments
________
No collateral
________
A. Balance sheet exposure
Cash and balances with Croatian National Bank
- - - - 462,851
Placements with other banks - - - - 127,109
Loans to customers 489,588 333,608 695,057 460,267 -
Held-to-maturity financial assets - - - 122,537 -
Other assets - - - 38,327 -
Total balance sheet exposure 489,588 333,608 695,057 621,131 589,960
B. Off-balance-sheet
exposure
Guarantees 22,393 19,532 53,272 97,031 -
Letters of credit - 65 - - -
Unused lines of credit - - - - -
Total off-balance-sheet
exposure 22,393 19,597 53,272 97,031 -
Total exposure (A+B) 511,981 353,205 748,329 718,162 589,960
At 31 December 2015 Deposit
_______
Housing mortgages
________
Commercial mortgages
________
Other instruments
________
No collateral
________
A. Balance sheet exposure
Cash and balances with Croatian National Bank
- - - - 522,199
Placements with other banks - - - - 212,718
Loans to customers 118,962 63,106 600,053 1,045,313 -
Held-to-maturity financial assets - - - 68,821 -
Other assets - - 45,820 -
Total balance sheet exposure 118,962 63,106 600,053 1,159,954 734,917
B. Off-balance-sheet
exposure
Guarantees 8,438 - 22,897 99,116 -
Letters of credit - - 769 1,990 -
Unused lines of credit - - - 78,442 -
Total off-balance-sheet
exposure 8,438 - 23,667 179,548 -
Total exposure (A+B) 127,400 63,106 623,720 1,339,502 734,917
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 76
d) Allowances ratio in loans to customers
31 December 2016 31 December 2015
Loans to customers (%)
Allowances ratio in loans (%)
Loans to customers (%)
Allowances ratio in loans (%)
Fully recoverable 82.59 1.00 83.76 1.00
Partially recoverable 13.28 51.01 12.67 53.16
Completely irrecoverable 4.13 100.00 3.57 100.00
Total 100.00 100.00
32. Liquidity risk
The amount of the total assets and liabilities was analysed according to the most conservative assumption of the
remaining maturity from the balance sheet date to the contractual maturity.
At 31 December 2016 0 - 30 days
1-3 months
3-12 months
1 - 2 years
2 - 3 years
Over 3 years Total
Assets Cash and balances with Croatian National Bank 342,413 29,431 101,434 19,867 20,711 4,525 518,381
Placements with other banks 121,458 - - - - - 121,458
Financial assets at FVTPL - - - - - 12,277 12,277
Loans to customers 208,674 68,483 310,908 214,183 174,856 818,038 1,795,143 Held-to-maturity financial assets 752 1,691 118,358 - - - 120,800 Available-for-sale financial assets - 31,619 253,829 17,232 15,742 515,582 834,004
Intangible assets - - - - - 25,772 25,772
Tangible assets - - - - - 71,019 71,019
Other assets 28,035 - - - - 23,703 51,738
Total assets 701,332 131,224 784,529 251,283 211,308 1,470,916 3,550,592
Liabilities
Deposits from banks 15,116 - - - - - 15,116
Deposits from customers 622,527 330,401 1,138,734 223,039 232,504 50,797 2,598,001
Borrowings 59,819 - 15,700 15,505 937 388,516 480,478
Other liabilities 65,126 - 23 - - - 65,150
Subordinated instruments - - - - - 82,000 82,000
Provisions for other liabilities 1,038 360 306 159 65 23 1,951
Total liabilities 763,627 330,762 1,154,763 238,702 233,505 521,336 3,242,696
Maturity gap (62,295) (199,538) (370,233) 12,581 (22,197) 949,580 307,896
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 77
32. Liquidity risk (continued)
At 31 December 2015 0 - 30 days
1-3 months
3-12 months
1 - 2 years
2 - 3 years
Over 3 years Total
Assets Cash and balances with Croatian National Bank 358,452 27,639 119,579 40,180 13,703 9,838 569,390
Placements with other banks 191,582 6,772 7,000 - - - 205,354
Financial assets at FVTPL - - - - - 12,156 12,156
Loans to customers 252,867 98,475 187,156 261,156 185,896 686,655 1,672,935 Held-to-maturity financial assets - - - 67,621 - - 67,621 Available-for-sale financial assets - 749 142,625 213,473 43,261 380,913 781,022
Intangible assets - - - - - 26,789 26,789
Tangible assets - - - - - 71,013 71,013
Other assets 35,132 - - - - 28,262 63,395
Total assets 838,033 133,634 456,359 583,161 242,860 1,215,628 3,469,675
Liabilities
Deposits from customers 528,300 311,506 1,347,720 452,852 154,436 110,877 2,905,692
Borrowings 2,802 - 15,050 16,419 24,976 67,252 126,500
Other liabilities 72,324 - 178 - - - 72,502
Subordinated instruments - - - - - 82,000 82,000
Provisions for other liabilities 1,197 246 336 312 19 40 2,150
Total liabilities 604,622 311,752 1,363,285 469,585 179,431 260,169 3,188,844
Maturity gap 233,415 (178,118) (906,925) 113,576 63,429 955,458 280,835
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 78
33. Interest rate risk
The following table is the Management Board’s estimate of the interest rate risk for the Bank at 31 December 2016
and 31 December 2015. The table provides some indication of the sensitivity of the Bank’s earnings to movements in
interest rates. Earnings will also be affected by the currency of the assets and liabilities.
At 31 December 2016
0 - 30 days
1-3 months
3-12 months
1 - 3 years
Over 3 years
Interest free
Total
Assets
Cash and balances with Croatian National Bank 462,851
-
-
-
-
55,530
518,381
Placements with other banks 121,458
-
-
-
-
-
121,458 Financial assets at FVTPL - - - - - 12,277 12,277
Loans to customers 1,670,809
52,164
72,170
-
-
-
1,795,143
Available-for-sale financial assets 775,026
-
-
-
-
58,978
834,004
Held-to-maturity financial assets 120,800
-
-
-
-
-
120,800
Tangible and intangible assets -
-
-
-
-
96,791
96,791
Other assets 36,641
-
-
-
-
15,097
51,738
Of which assets at fixed interest rate 1,655,816
1,655,816
Total assets 3,187,585
52,164
72,170
-
-
238,674
3,550,592
Liabilities
Deposits from banks 15,116
-
-
-
-
-
15,116
Deposits from customers 2,598,001
-
-
-
-
-
2,598,001
Borrowings 480,478
-
-
-
-
-
480,478
Subordinated instruments - - - - 82,000 - 82,000
Provisions for contingent liabilities -
-
-
-
-
1,951
1,951
Other liabilities 65,150
-
-
-
-
-
65,150
Of which liabilities at fixed interest rate 1,785,420
82,000
1,867,420
Total liabilities 3,158,745
-
-
-
82,000
1,951
3,242,696
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 79
33. Interest rate risk (continued)
At 31 December 2015
0 - 30 days
1-3 months
3-12 months
1 - 3 years
Over 3 years
Interest free
Total
Assets
Cash and balances with Croatian National Bank 522,199
-
-
-
-
47,192
569,930
Placements with other banks 191,582
6,772
7,000
-
-
-
205,354 Financial assets at FVTPL - - - - - 12,156 12,156
Loans to customers 1,591,851
-
-
43,291
37,793
-
1,672,935
Available-for-sale financial assets 736,713
-
-
-
-
44,309
781,022
Held-to-maturity financial assets 67,621
-
-
-
-
-
67,621
Tangible and intangible assets -
-
-
-
-
97,803
97,803
Other assets -
-
-
-
-
63,395
63,395
Of which assets at fixed interest rate 1,487,337
-
-
-
-
-
1,487,337
Total assets 3,109,966
6,772
7,000
43,291
37,793
264,854
3,469,675
Liabilities
Deposits from customers 2,905,692
-
-
-
-
-
2,905,692
Borrowings 126,500
-
-
-
-
-
126,500
Subordinated instruments - - - - 82,000 - 82,000
Provisions for contingent liabilities -
-
-
-
2,150
2,150
Other liabilities 72,326
-
-
-
-
-
72,326
Of which liabilities at fixed interest rate 1,652,393
-
-
-
82,000
-
1,734,393
Total liabilities 3,104,518
-
-
-
82,000
2,150
3,188,668
The concentration of assets as well as multiple coverage of current liabilities suggests resistance to possible shocks
from the environment as well as the possibility of recalibration of the portfolio maturity during sudden yield curve
changes.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 80
33. Interest rate risk (continued)
The following table summarizes the effective average interest rate by major currencies for monetary financial
instruments as follows:
31 December 2016 31 December 2015
HRK Foreign currency
HRK Foreign currency
% % % %
Assets
Cash and balances with Croatian National Bank - - - -
Placements with other banks 0.52 0.01 - 0.03
Financial assets at fair value through profit or loss - - - -
Loans to customers 6.33 4.48 7.11 5.29
Available-for-sale investments 4.03 3.15 5.52 3.51
Held-to-maturity investments 6.41 5.43 8.50 5.42
Tangible and intangible assets - - - -
Other assets - - - -
Of which assets at fixed interest rate 3.70 2.83 4.30 2.66
Total assets 4.95 2.77 6.18 2.94 Liabilities
Deposits from banks 0.78 0.05 - 0.20
Deposits from customers 1.06 2.03 2.80 2.71
Borrowings 1.42 0.05 1.15 -
Provisions for contingent liabilities - - - -
Other liabilities 0.17 - 6.00 -
Of which liabilities at fixed interest rate 1.70 1.62 3.42 2.53
Total liabilities 1.15 1.96 2.84 2.71
The table below shows the sensitivity of interest-bearing assets and liabilities on changes in interest rates. For the
calculation of the interest rate sensitivity on the income statement, the Bank used the assumption of an interest rate
increase by 1% except for cash and balances at the Croatian National Bank and other assets. If the interest rates
would have decreased by the same percentage, the result would have been interest income in the same amount.
Assumed interest rate growth
Effect on income
statement for 2016
Effect on income
statement for 2015
Assets
Cash and balances with Croatian National Bank %
-
Deposits given 1.00% 1,011 2,107
Loans and receivables 1.00% 18,351 16,923
Other assets 1.00% 9,740 8,723 Liabilities
Liabilities arising from deposits 1.00% 22,026 26,050
Borrowings 1.00% 4,844 1,266
Other liabilities -% -
Impact on net interest income 2,232 436
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 81
34. Foreign exchange risk
As at 31 December 2016, the Bank had the following foreign exchange position:
EUR
USD
Other foreign
currencies
Total foreign
currencies HRK Total
Assets
Cash and balances with Croatian National Bank 108,952
712
1,291
110,955
407,426
518,381
Placements with other banks 66,025
6,218
28,845
101,088
20,370
121,458
Assets at fair value through P&L -
-
-
-
12,277
12,277
Loans to customers 1,176,521
1,032
-
1,177,553
617,590
1,795,143
Held-to-maturity investments 52,545
29,121
-
81,666
39,134
120,800
Available-for-sale investments 329,183
73,482
-
402,665
431,339
834,004
Intangible assets -
-
-
-
25,772
25,772
Tangible assets -
-
-
-
71,019
71,019
Other assets 11,616
798
-
12,414
39,324
51,738
Total assets 1,744,842
111,363
30,136
1,886,341
1,666,251
3,550,592
Liabilities
Deposits from banks 15,116
-
-
-
-
15,116
Deposits from customers 1,681,296
109,602
29,871
1,820,769
777,232
2,598,001
Borrowings 83,672
-
-
83,672
396,806
480,478
Subordinated instruments -
-
-
-
82,000
82,000
Other liabilities 31,873
1,137
409
33,419
31,731
65,150
Provisions for contingent liabilities -
-
-
-
1,951
1,951
Total liabilities 1,811,957
110,739
30,280
1,952,976
1,289,720
3,242,696
Net foreign exchange position (67,115)
624
(144)
(66,635)
374,531
307,896
Contingent liabilities and commitments -
-
-
-
192,293
192,293
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 82
34. Foreign exchange risk (continued)
As at 31 December 2015, the Bank had the following foreign exchange position:
EUR
USD
Other foreign
currencies
Total foreign
currencies HRK Total
Assets
Cash and balances with Croatian National Bank 41,500
1,021
1,450
43,971
525,419
569,390
Placements with other banks 143,384
26,806
35,164
205,354
-
205,354
Assets at fair value through P&L -
-
-
-
12,156
12,156
Loans to customers 1,277,419
1,630
-
1,279,049
393,886
1,672,935
Held-to-maturity investments 38,728
28,893
-
67,621
-
67,621
Available-for-sale investments 392,397
96,232
-
488,629
292,393
781,022
Intangible assets -
-
-
-
26,789
26,789
Tangible assets -
-
-
-
71,013
71,013
Other assets 15,731
1,277
1
17,009
46,390
63,399
Total assets 1,909,159
155,859
36,615
2,101,633
1,368,046
3,469,679
Liabilities
Deposits from customers 1,852,963
152,640
34,676
2,040,279
865,413
2,905,692
Borrowings 24,661
-
-
24,661
101,839
126,500
Subordinated instruments -
-
-
-
82,000
82,000
Other liabilities 42,868
2,739
512
46,119
26,383
72,502
Provisions for contingent liabilities -
-
-
-
2,150
2,150
Total liabilities 1,920,492
155,379
35,188
2,111,059
1,077,785
3,188,844
Net foreign exchange position (11,333)
480
1,427
(9,426)
290,261
280,835
Contingent liabilities and commitments 22,749
5,943
-
28,692
182,691
211,653
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 83
34. Foreign exchange risk (continued)
The table below presents the sensitivity of the Bank's net assets and profit or loss to fluctuations in the CNB's middle
exchange rate. If the same assumed percentage would have been applied to the decrease in the middle exchange
rate of the CNB, the impact on profit or loss by individual currency on a net basis would have been equal and
opposite, that is, the total impact on all currencies would have been charged to 2016. The result of the exchange rate
changes is reflected in the income statement as foreign exchange gains or losses.
Currency as at 31 December 2016
Assumed increase in
CNB's middle exchange rate
Effect on income
statement
Effect on income
statement
Effect on income
statement
Assets Liabilities Net
EUR 0.16% 2,689 3,660 (971)
USD 0.95% 1,049 1,902 (853)
Other currencies 292 600 (308)
Currency as at 31 December 2015
Assumed increase in
CNB's middle exchange rate
Effect on income
statement
Effect on income
statement
Effect on income
statement
Assets Liabilities Net
EUR 0.18% 2,882 3,760 (879)
USD 0.92% 1,419 2,136 (718)
Other currencies 317 594 (277)
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 84
35. Fair value of financial assets and liabilities
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing
parties in an arm's length transaction.
Financial assets at fair value through profit or loss and available-for-sale financial assets are measured at fair value.
The Bank categorises fair values by levels in line with the following hierarchy:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
(level 3).
The following table presents assets that are measured at fair value at:
Level 1 Level 2 Level 3 Total
31 December 2016
Assets
Financial assets at fair value through profit or
loss 12,277 - - 12,277
Available-for-sale financial assets 830,664 - 3,340 834,004
Total 842,941 - 3,340 846,281
31 December 2015
Assets
Financial assets at fair value through profit or
loss 12,156 - - 12,156
Available-for-sale financial assets 781,022 - - 781,022
Total 793,178 - - 793,178
A summary of the major methods and assumptions used in estimating the fair values of financial instruments not
measured at fair value is set out below.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 85
35. Fair values of financial assets and liabilities (continued)
Loans
The fair value of loans is calculated based on discounted expected future principal and interest cash flows. Loan
repayments are assumed to occur at contractual repayment dates, where applicable. For loans that do not have fixed
repayment dates repayments are estimated based on experience from previous periods when interest rates were at
levels similar to current levels, adjusted for any differences in interest rate expectation. Expected future cash flows are
estimated considering credit risk and any indication of impairment. Expected future cash flows for homogeneous
categories of loans, such as residential mortgage loans, are estimated on a portfolio basis and discounted at current
rates offered for similar loans to new borrowers with similar credit profiles. The estimated fair values of loans reflect
changes in credit status since the loans were originated and changes in interest rates in the case of fixed rate loans.
As the Bank has a very limited portfolio of loans with fixed rates and longer-term maturity, the fair value of loans is not
significantly different from their carrying value.
Deposits from banks and customers
For demand deposits and deposits with no defined maturities, fair value is taken to be the amount payable on demand
at the balance sheet date. The estimated fair value of fixed-maturity deposits is based on discounted cash flows using
rates currently offered for deposits of similar remaining maturities. The length of relationship with depositors is not
taken into account in estimating the fair value. As most of the Bank’s deposits are given at variable rate, there is no
significant difference between the fair value of these deposits and their carrying amount.
Borrowings
As most of the Bank's long-term borrowings carry a variable interest rate, there is no significant difference between
their carrying and fair value.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 86
36. Related party transactions
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence
over the other party in making financial or operational decisions.
Transactions and open items between related parties within the group are disclosed in the financial statements of the
entity.
Pursuant to the definition of IAS 24 and IFRS 10, the group is comprised by the parent company and its subsidiaries.
Since there is no parent company, the Company cannot disclose the name of the parent company or ultimate entity that
has control over the Company, i.e. there are no transactions that would be considered as transactions within the group.
Related party transactions are reported on the basis of the Croatian National Bank Resolution of 21 April 2015. The
Bank has fully met, within the prescribed deadlines, the measures determined by the Regulator.
The table below shows the transactions with the above related parties and the Management of the Bank:
Management Board Related parties
Type of transaction 2016 2015 2016 2015
Loans given 754 999 217,056 105,140
Material loan security and exemption from exposure - - 172,104 58,241
Deposits and loans received 54 491 178,564 148,530
Fees and other receivables 6 5 1,237 5,213
Trade and other payables - 6 4,765 3,850
Off-balance-sheet items 66 72 9,226 8,743
Total income 27 67 14,713 15,637
Total expenses 6 14 18,744 21,407
Salary and fee expenses (825) (973)
In the period from 1 January to 31 December 2016, remunerations to the Supervisory Board were paid in the amount
of HRK 371 thousand (2015: HRK 304 thousand).
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 87
37. Commitments for operating lease of vehicles and equipment
As at 31 December 2016, the Bank has 3 operating lease agreements for vehicles (2015: 3 lease agreements).
Annual commitments under operating leases are as follows:
31 December
2016 31 December
2015
Within one year 70 121
From 2 to 5 years 22 115
92 236
38. Commitments for business premises leases
As at 31 December 2016, the Bank has 22 lease agreements for business premises (31/12/2015: 24 lease
agreements). Contracted annual lease liabilities for business premises are as follows:
31 December
2016 31 December
2015
Within one year 7,762 6,499
From 2 to 5 years 31,048 25,996
From 5 to 10 years 38,810 32,495
77,620 64,990
39. Regulatory measures
In previous periods, the Bank's operations were subject to the direct supervision of the Croatian National Bank. The
Bank carried out all measures prescribed by the regulator within the prescribed deadlines.
Notes to the financial statements (continued)
For the year ended 31 December 2016
Kreditna banka Zagreb d.d. 88
40. Events after the balance sheet date
There were no significant changes in the current period after the balance sheet date.
41. Approval of financial statements
These financial statements were approved by the Management Board on 25 April 2017.
Signed on behalf of the Management Board:
President of the Management Board Member of the Management Board
Boris Zadro Nataša Jakić Felić