ANNUAL REPORT
CONTENT:
REVIEW OF THE YEAR 4 Income Statement 5 Balance Sheet 6 Cash Flow Statement 8 Statement of Other Comprehensive Income 9 Statement of Changes in Equity 10 Letter to Shareholders 13 Members of the Executive Board 13 Members of the Board of Directors 15 FINANCIAL REVIEW 18 RISK MANAGEMENT 21 RETAIL BANKING 22 Household Lending Division 23 Deposits and Personal Banking Department 23 Digital Banking & Business Performance Department 24 Alternative Sales and Partnership Banking Department 25 Small Business Banking 26 CORPORATE BANKING 26 Corporate Banking Division 28 INVESTMENT BANKING AND MONEY MARKET 28 Treasury Division 30 TROUBLED ASSET MANAGEMENT 30 Troubled Asset Sector 32 OTHER ACTIVITIES OF THE BANK 32 Environmental protection 32 Waste management 32 Energy and climate change 32 Responsible financing - environmental and social risk 32 management system 32 Green product - e-statements 32 Green Procurement Policy 34 GROUP SUBSIDIARIES 34 ERB Property Services 37 APPENDICES 39 CORPORATE SOCIAL RESPONSIBILITY REPORT 40 Bank profile and strategy 46 Key Stakeholders 49 CORPORATE GOVERNANCE 55 HUMAN RESOURCES 63 CLIENTS 73 SUPPLIERS 77 LOCAL COMMUNITY 85 ENVIRONMENTAL PROTECTION 91 GRI INDEX AND INDICATORS Annual Report 2017
2 REVIEW OF THE YEAR
Annual Report 2017
3 INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017
ALL AMOUNTS ARE EXPRESSED IN 000 RSD UNLESS STATED OTHERWISE
Income statement 2017 2016 Interest income 7.403.094 7.472.472
Interest expenses (831.447) (1.033.784)
Net interest income 6.571.647 6.438.688
Fee and commission income 2.698.097 2.381.548
Fee and commission expense (547.833) (397.536)
Net fee and commission income 2.150.264 1.984.012
Net gains from financial assets held for trading 3.155 1.636
Net loss from hedging (14.798) •
Net gains from financial assets available for sale 3.679 • Net foreign exchange gains/(losses) (19.383) 25.205
Other operating income 134.486 61.684 Net provisions and losses from impairment of financial asset and (699.384) (885.115) off-balance sheet credit risk items Total operating income 8.129.666 7.626.110
Salaries, benefits and other personnel expenses (1.908.932) (1.818.653)
Depreciation and amortization (394.372) (416.001)
Other expenses (3.308.046) (3.244.670)
Profit before tax 2.518.316 2.146.786
Income tax (135.169) • Deferred income tax profit /(loss) (201.392) (85.461)
Profit for the year 2.181.755 2.061.325
Earnings per share
Basic earnings per share (in RSD, without paras) 8.582 8.108
Annual Report 2017
4 BALANCE SHEET FOR THE YEAR ENDED 31 DECEMBER 2017
ALL AMOUNTS ARE EXPRESSED IN 000 RSD UNLESS STATED OTHERWISE
Balance sheet 31 December 2017 31 December 2016 Assets
Cash and balances with Central Bank 18.005.519 21.714.061
Pledged financial assets 3.110.300 692.590
Financial assets at fair value through profit and loss held for trading 322.759 26.712
Financial assets available for sale 9.938.015 14.993.529
Loans and deposits to banks and other financial institutions 14.303.432 12.245.083
Loans and receivables from customers 106.134.695 94.819.179
Investments in associates 43.681 20.479
Intangible assets 1.944.890 1.846.161
Property, plant and equipment 3.583.152 3.653.311
Current tax assets • 131.796
Deferred tax assets • 58.034
Other assets 1.026.652 431.756
Total assets 158.413.095 150.632.691
Equity and Liabilities Financial liabilities at fair value through profit and loss held for 13.222 31.335 trading Deposits and other liabilities due to banks, other financial 9.225.583 7.033.192 institutions and central bank Deposits and other liabilities due to customers 96.617.011 93.532.515
Provisions 411.558 446.586
Current tax payables 3.373 •
Deferred tax liabilities 141.516 •
Other liabilities 849.943 623.225
Total Liabilities 107.262.206 101.666.853
Shareholders' equity
Share capital 31.481.926 31.481.926
Own shares repurchase (500) •
Retained earnings 10.096.705 7.914.950
Reserves 9.572.758 9.568.962
Total shareholders' equity 51.150.889 48.965.838
Total Equity and Liabilities 158.413.095 150.632.691
Annual Report 2017
5 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017
ALL AMOUNTS ARE EXPRESSED IN 000 RSD UNLESS STATED OTHERWISE
Cash Flow Statement 2017 2016
Cash inflow from operating activities
Inflow from interest 6.787.783 6.828.481
Inflow from fees and commissions 2.692.035 2.401.428
Inflow from other operating income 181.381 119.327
Inflow from dividends 743 532
9.661.942 9.349.768
Cash outflow from operating activities
Outflow from interests (840.438) (1.094.639)
Outflow from fees and commissions (513.837) (371.439)
Outflow from gross salaries, benefits and other personal expenses (1.851.566) (1.786.860)
Outflow from taxes, contributions and other duties charged to income (663.444) (691.383)
Outflow from other operating expenses (2.757.842) (2.740.294)
(6.627.127) (6.684.615)
Net cash inflow for operating activities before increase or decrease in loans 3.034.815 2.665.153 investments and deposits
Decrease in loans and investments, and increase in deposits
Decrease in securities • 36 Increase in deposits and other liabilities with banks, other financial organizations and 6.977.920 5.145.620 customers
6.977.920 5.145.656
Increase in loans and investments, and decrease in deposits
Increase in loans and placements with banks, other financial organizations and customers (19.243.295) (9.427.362)
Increase in securities (308.270) •
(19.551.565) (9,427,362)
Net cash inflow for operating activities before profit tax (9.538.830) (1,607,553)
Profit tax paid • •
Net cash inflow for operating activities (9.538.830) (1.607.553)
Cash flow from investing activities
Inflow from selling of long term investments 16.783.256 14.127.658
Inflow from selling of intangible assets and fixed assets 135.114 3.979
16.918.370 14.131.637
Annual Report 2017
6 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017
ALL AMOUNTS ARE EXPRESSED IN 000 RSD UNLESS STATED OTHERWISE
Cash outflow from investing activities 2017 2016
Outflow for purchase of long term investments (13.700.062) (13.432.666)
Outflow for investments in affiliated companies (38.000) •
Outflow for purchase of intangible assets and fixed assets (637.233) (357.951)
(14.375.295) (13.790.617)
Net cash flow from investing activities 2.543.075 341.020
Cash inflow from financing activities
Increase in borrowings 24.337.395 15.884.290
24.337.395 15.884.290
Cash outflow from financing activities
Outflows in own shares repurchase (500) •
Decrease in borrowings (22.157.527) (14.052.064)
(22.158.027) (14.052.064)
Net cash inflow from financing activities 2.179.368 1.832.226
Cash outflow 57.895.627 44.520.351
Net cash inflow/(outflow) (62.712.014) (43.954.658)
Cash at the beginning of the year (4.816.387) 565.693
Gotovina na početku godine 15.239.177 14.698.021
Foreign exchange gains 13.270.161 8.318.173
Foreign exchange losses (13.374.251) (8.342.710)
Cash at the end of the reporting period 10.318.700 15.239.177
Annual Report 2017
7 STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017
ALL AMOUNTS ARE EXPRESSED IN 000 RSD UNLESS STATED OTHERWISE
Statement of Other Comprehensive Income 2017 2016 Profit for the period 2.181.755 2.061.325
Items that will not be reclassified to profit and loss
Actuarial gains/(losses) on defined benefit pensions plans (3.624) 5.490
Items that may be reclassified subsequently to profit and loss
Gains/(Losses) on fair value changes of financial assets available for sale 5.578 (64.613)
Income tax relating to items that may be reclassified 1.843 8.868
Other comprehensive income for the year, net of tax 3.797 (50.255)
Total comprehensive income for the year 2.185.552 2.011.070
Total comprehensive income attributable to: Owners of the parent 2.185.552 2.011.070
Annual Report 2017
8 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017
ALL AMOUNTS ARE EXPRESSED IN 000 RSD UNLESS STATED OTHERWISE
Retained earnings/ Total Share and Share Revaluation Other Accumulated shareholder’s other capital premium reserves reserves loss equity As at 31 December 2015 25.429.927 6.051.999 60.881 9.558.335 5.853.625 46.954.768
AFS portfolio revaluation • • (64.613) • • (64.613)
Deferred tax on revaluation reserves • • 9.692 • • 9.692
Actuarial gains • • 5.490 • • 5.490
Deferred tax on actuarial gains • • (824) • • (824)
Current period profit • • • • 2.061.325 2.061.325 As at 31 December 2016 25.429.927 6.051.999 10.625 9.558.335 7.914.950 48.965.838
AFS portfolio revaluation • • 5.578 • • 5.578
Deferred tax on revaluation reserves • • 1.298 • • 1.298
Actuarial gains/(losses) • • (3.624) • • (3.624) Deferred tax on actuarial 544 544 gains / (losses) • • • •
Current period profit • • • • 2.181.755 2.181.755 Other - decrease (500) • • • • (500) As at 31 December 2017 25.429.427 6.051.999 14.423 9.558.335 10.096.705 51.150.889
Annual Report 2017
9 LETTER TO SHAREHOLDERS
Dear Shareholders and Partners,
Eurobank Serbia had another successful year in 2017. We have demonstrated that we are open to changes, and that we are able to set and follow ambitious goals in a very competitive market. In a continuously low interest rate environment and with a challenging economic macro environment, Eurobank closed its business year with a profit before tax amounting to EUR 21.7m, almost 25% higher year on year.
The economy kept growing in 2017, albeit at a somewhat slower pace of 1.9%YoY, mostly due to the reduced agricultural output caused by adverse weather conditions over the summer months. The growth was driven mostly by personal consumption and investments, while net exports weighted in negatively. Industrial production grew by a solid rate of 3.9% year on year, while manufacturing, the most important contributor of industry, rose by 6.3%. At the same time, both energy output and mining underperformed for the second year in a row. The banking sector followed positive trends, increasing the total loan books by 6.2% in euro terms (two thirds of loans are still euro-denominated), with retail still outpacing the corporate sector.
The banking sector is highly competitive with 29 banks operating in the country, just one fewer than in the previous year. There were 3.5% fewer employees and 5.5% reduction in the branch network throughout the country (91 branches), as operational streamlining continued through the sector. Total assets of the banking sector rose by 6.7%, to ca. EUR 28bn, around 76% of GDP, which is in line with CEE/SEE averages. The efforts to bring down NPLs came to fruition, with sectoral average almost halving in 2017 to 9.8%, coming under 10 percent for the first time in a decade. This allowed for more propulsive crediting policies, and is a good signal for the future period.
Market conditions, however, remained increasingly challenging, both due to the fierce competition in a crowded market and to the record low interest rates in both local and foreign currencies. Regulatory environment at the same time is becoming more demanding, while the capital and risk management issues remained the constant focus.
Eurobank Serbia’s maintained a strong network with 80 branches and 5 business centres, effectively covering the entire country and providing conditions for an excellent service to both retail and business clientele. During 2017, a Branch Redesign Project was initiated in order to provide a modern interior and better branch visibility, but also a wholly improved banking experience. The new concept is designed to attract young, urban population by introducing digital innovations while maintaining traditional business approach for the existing Eurobank customers. The main characteristics include better transparency, new design and reorganization of work positions within the branch, “Brand Wall”, “Focus Wall” and “Digital Corner”.
We managed to further improve our performance, with the growth of our balance sheet total by 5% to RSD 158bn, thus outpacing the sector’s average. The net loan book totalled RSD 106bn (EUR 896m), or ca. 15% higher. Net interest income improved 3%, despite falling margins, on a higher loan book, while net fees and commissions rose a very solid 10% YoY. Overall, the net profit came to EUR 18.4m, vs. EUR 16.7m a year earlier. Capital adequacy ratio stood at 29.15% well above the legal threshold of 12%. As the economy indicators improved, the repayment performance of the Bank’s portfolio continues to stabilize. As a consequence, Eurobank booked impairment charges of RSD 725m (ca. EUR 5.8m), down ca. 24% from year 2016.
Eurobank continued to perform strongly in the consumer segment, where we have shown time and again to be one of the most dynamic competitors in Serbia. In 2017, though, our wholesale sector picked up pace, with significant growth from the “large corporate” segment.
In the consumer segment, the focus stayed on refinancing loans as the Bank’s top-selling product while at the same time the Bank exploited other high margin products, such as overdraft and credit cards. Eurobank remained one of the main issuers of credit cards, partly attributable to the exclusive cooperation with Manchester United FC.
In 2017, Eurobank continued enhancing its products and service. The Bank is positioned as one of the leaders in digitalization after the continuous improvements in m-banking and e-banking. Mutual respect, flexibility and the capacity to offer innovative products are the key elements of the Bank’s operations and the reason it remains one of the key players in the Serbian banking market.
Annual Report 2017
10 The Bank’s funding is based on client deposits, where we have seen solid growth of 8%, despite the declining interest rates. Additionally, our Bank was successful at maintaining and increasing cooperation with a number of international financial institutions (EBRD/IFC/EIB), especially through mid-term bilateral lines with competitive pricing, to fund and develop the wholesale portfolio.
The Trade Facilitation Programme (TFP) of the European Bank for Reconstruction and Development (EBRD) awarded Eurobank as the most active issuing bank in Serbia for the third year in a row. As one of the leading foreign investors in Serbia, Eurobank joined the EBRD’s TFP in 2011 and since then has supported export and import operations of its clients.
In line with our long-standing CSR strategy, we continually implement projects related to education. For the 11th consecutive year, Eurobank provided support to HRH Crown Prince Aleksandar II in the organisation of the reception for 600 best secondary school graduates from Serbia and Republika Srpska. Towards the end of the year, Eurobank organized a series of events with the famous children poet Ljubivoje Ršumović for pupils of primary schools as a part of the campaign “A Lesson Designed for You”. Books were donated to five school libraries and more than 500 children had an opportunity to meet the poet.
We are also proud that the “Big Heart“affinity card project marked another successful year. Over the past 8 years, Eurobank and the Foundation “Ana i Vlade Divac” have renovated more than 40 playgrounds in kindergartens, a large number of rooms in schools and health institutions, with the aim of improving the conditions for growth and development of the youngest.
For more than a decade, Eurobank Serbia has proven to be one of the most reliable financial institutions in Serbia, providing a strong foundation for serving our clientele and fulfilling our role in the society. At Eurobank, we believe that our role is to support and encourage economic and social growth enabling better quality of life, while at the same time meeting expectations of all other stakeholders. Banking in general is going through a transition period together with the changes in the world around us, but Eurobank maintains a strong position in the Serbian market and remains reliable a partner to its customers.
Michalis Louis Slavica Pavlović President of the Board of Directors President of the Executive Board
Annual Report 2017
11 Annual Report 2017
12 EXECUTIVE BOARD BOARD OF DIRECTORS
PRESIDENT PRESIDENT
Slavica Pavlović Michalakis Louis
MEMBERS MEMBERS
Predrag Janković Stavros Ioannou Head of Risk Management Division Anastasios Nikolaou Michail Vlastarakis Vuk Zečević Head of Treasury Division INDEPENDENT MEMBERS
Milan Vićentić Theodoros Karakasis, Deputy President Head of Corporate Division Ivan Vujačić Angelos Tsichrintzis Dušan Mihailović Head of Retail Sector
Annual Report 2017
13 Annual Report 2017
14 FINANCIAL REVIEW
Annual Report 2017
15 Serbian economy continued its growth in 2017, which was somewhat lower compared to last year (1.8%). Such growth was driven mostly by personal consumption and investments, while net exports weighted negatively on higher growth rates. As far as production is concerned, agriculture made a negative contribution to overall growth rate (0.6pp), while contribution of other sectors was positive.
Industrial production output grew by a solid rate of 3.9% year on year, while as in previous years, manufacturing showed the greatest vitality with an increase of 6.3%. At the same time, both energy output and mining underperformed due to bad weather conditions for the second year in a row.
FDIs amounted to EUR 2.4bn, a full 27% higher year on year, although there was a higher share of reinvested earnings and intercompany loans by non-residents than typical green field investments. After a long time, imports outpaced exports in 2017 (13.8% vs. 12.0%), which contributed to trade deficit growth rate, coming in at EUR 4.4bn, vs 3.6bn in 2016. Consequently, the balance of payments deficit increased to 5.7% of GDP.
The National Bank of Serbia BS continued with easing, with two quarter point reductions of the KPR during the year, ending at 3.5%. As a result, interest rates continued their downward trend, which prompted further improvements in the credit market. Overall lending activity showed a 5.9% increase YoY in local currency, with a more balanced growth this year between corporate and retail segments. Inflation remained stable, ending the year just on target of 3.0%. Fiscal consolidation yielded significant improvements, as Serbia showed a budget surplus (of 0.5%) for the first time in a decade. Public debt, therefore, came down to 61.5% at the end of 2017.
Economy is expected to speed up considerably in the next two years, and show growth rates of GDP of 3.0% to 3.5%. This growth should be driven by improved EU demand, i.e. net exports, new investments, higher state capital spending and increase in private consumption.
OPERATING REVENUE
2016 2017 2016 2017
7,472 7,403 1,034 831
-1% -20%
Interest income (in RSD million) Interest expense (in RSD million)
INTEREST INCOME INTEREST EXPENSE
Although lending portfolio of the Bank rose in 2017, as During 2017, interest expense downward trend compared to 2016, interest income recorded a drop of continued, despite deposit rise compared to 2016. RSD 69 million (1%). The drop in interest income was The Bank was focused on the reduction of funding mainly due to decrease in RSD reference rate, affecting costs and was constantly reducing the cost of significant part of the Bank’s total assets, and due to deposits. This approach resulted in the decrease of increased pricing competition among banks, primarily interest expense by 20% YoY. Such decrease is the regarding corporate loans. result of overall market trend and significant effort from the Bank to reduce the cost of deposits.
Annual Report 2017
16 2016 2017 NET FEE AND COMMISSION INCOME
In 2017, net fee and commission income was 2,150 increased by 8% compared to last year. Net fee 1,984 income increase was mostly due to increase of monthly account maintenance fee, credit card currency conversion fee and Bancassurance fee. +8%
Net fee and commisison income (in RSD million)
2016 2017
5,611 5,479
OPERATING EXPENSE +2% In 2017, OPEX were 2.7% higher than last year by 2%. OPEX (in RSD million)
2016 2017 IMPAIRMENT CHARGES
In 2017, the Bank continued its significant 885 improvement regarding impairment charges. 699 Impairment charges were reduced by RSD 186 million (21%). Significant improvement in impairment charge is -21% coming from the fact that the Bank had managed to fully stabilize its lending portfolio and there were no Impairment charges (in RSD million) new significant inflows of NPL.
FINAL RESULT CAPITAL ADEQUACY
As at December 31, 2017, the Bank recorded a profit As at December 31, 2017, capital adequacy (CAD) ratio of RSD 2.2 billion and continued its sustainable of the Bank was 29.15% as compared to the prescribed profitability. ratio of 8% (as at December 31, 2016: 18.54%). It is necessary to note that retained earnings of the Bank amounting to RSD 10.1 billion were not included in CAD calculation, as they have not been distributed yet. Including the retained earnings into CAD would increase the stated CAD ratio by approximately 8.6 percentage points.
Annual Report 2017
17 RISK MANAGEMENT
Effective risk management is one of the main In order to protect the Bank against unforeseen priorities of Eurobank Serbia and, at the same time, market-related losses and to contribute to income a source of its competitive advantage. The Bank stability through independent identification, has made significant efforts to improve its risk assessment and understanding of market risks management policy, procedures, methodology and arising from banking, the Bank has developed and infrastructure in order to ensure effectiveness and implemented effective risk management policy for compliance with the regulations of the National currency risk and other market risks, as well as for Bank of Serbia and international best practices interest rate risk. Market Risk Department regularly pertaining to risk management, with focus on the monitors exposure to the above risk types and their most significant risk types: liquidity, credit, market, adherence with the defined limits. interest rate and operational risk. Eurobank considers operational risk management of The Bank’s liquidity policy and procedures are great importance for its performance. The strategic designed to ensure that sufficient liquid assets are objectives of the Bank’s operational risk management maintained to meet liabilities as they arise and to are safeguarding the security of the Bank and its manage liquidity risk. resources at an acceptable level through an ongoing process of anti-fraud protection, reduction of Eurobank implements a well-defined loan operational losses and safeguarding of the Bank’s origination, limit and control establishment process. capital, as well as increasing the responsiveness and Credit risk is monitored on a continuous basis and is adequacy of the Bank’s activities in that respect. subject to quarterly reporting to the Risk Committee of the Board of Directors. After loan origination, the quality of the Wholesale Banking and Retail Banking credit exposure is monitored and assessed by the Credit Control Department, thus safeguarding the Bank’s assets quality.
Over the past few years, the Bank has put significant effort into non-performing loans management. Troubled Assets Sector is in charge of managing troubled exposures, hence strongly contributing to an efficient NPL resolution and preservation of portfolio quality. Adhering to best practice in risk management, the Bank has significantly strengthened its team in charge of risk modeling and data management.
Annual Report 2017
18 Annual Report 2017
19 Annual Report 2017
20 RETAIL BANKING
Annual Report 2017
21 HOUSEHOLD LENDING DIVISION
The year 2017 was another successful year for Household Lending Division, during which Eurobank confirmed its market position. High level of banks’ activities in the consumer loan market, with low level of interest rates and prolonged tenors, continued in 2017, creating very competitive market environment. Eurobank responded to such market activities with an adequate offer and high level of services provided to its customers.
In the consumer loan market, Eurobank stood out from its competitors with three ATL cash loan campaigns. Attractive and transparent loan terms were recognized by customers, which resulted in record high sales performance and increase in number of new customers.
Consumer loan disbursement in 2017 had record high results in the Bank’s history. During the year, Eurobank disbursed loans in the amount of 162 million euros, which is 20 percent more comparing to 2016. The Bank finished the year with consumer loan portfolio of 274 million euros, which is 32 percent more than last year.
Consumer loan success is a result of wide product range with competitive terms, simple and fast procedures for product approval, as well as constant investment in customer relations and care.
In the area of credit cards, Eurobank continued its growth trend and confirmed its position as one of the most active banks in the market. During the year, total number of credit cards in Bank portfolio increased by 12 thousand compared to last year. The Bank closed the year with market share of 21 percent in the total number of credit cards in Serbia.
Owing to its innovative approach and continuous striving to provide our clients with the highest quality services, the Bank developed web installment functionality. The Bank also successfully implemented Certification of Contactless POS and Chip Validation during STIP mode.
Eurobank continued to provide discounts for card payments with its trade partners. The Bank constantly promoted purchases in installments without interest, for which Eurobank is recognized on the market.
Special attention was paid to cooperation with the famous football club Manchester United, which is a unique partnership in this part of Europe. Thanks to the Manchester United agreement, Eurobank conducted numerous activities during the year to promote Manchester United payment cards, both to the existing and new clients of the Bank. For all football and sport fans, "Red Week" campaign was organized four times during the year, which was accompanied by a special product offer and gifts for customers.
In the area of mortgage loans, Eurobank continued its activities aimed at improvement of its offer and sales. The year was closed with mortgage loan portfolio of 159 million euros and market share of 4.9 percent.
During 2017, Eurobank continued to improve its current account segment and package services accompanying the payroll account. Eurobank stands out on the market as the bank which provides a complete offer of products and services within account packages. Free health checks in renowned "Bel Medic" clinic, tailored to the account package and in particular to our clients’ needs is recognized as a special benefit by our clients among regular products and services. In 2017, we opened over 29 thousand accounts, reaching the record high number of more than 111 thousand active current accounts.
Annual Report 2017
22 DEPOSITS AND PERSONAL BANKING DEPARTMENT
In accordance with the Bank management decision, Deposits and Personal Banking Department successfully managed to decrease interest expense and maintain solid market share. In July 2017, interest rates on FX current and standard savings products were cancelled which resulted in savings of about 83 bps.
Alignment of term-deposit accounts’ interest rates with market movements led to interest expense decrease of 20 bps. In accordance with the Bank's strategy focused on continuous growth and improvement of banking products and services, in November 2017 we introduced new TD product EuroStep – 25 months, as a bank offer during the Savings Week. A clearly defined strategy, efficient coordination between Deposits and Personal Banking Department and branches led to noticeable results in the Savings Week period. A slight increase in the number of Personal Banking clients resulted in the increase of PB deposit throughout 2017. Exclusive package sale was successful in all months of 2017, while in the last quarter budget achievement exceeded 100%.
DIGITAL BANKING AND BUSINESS PERFORMANCE DEPARTMENT
In accordance with Eurobank Digital Strategy, Digital Banking and Business Performance Department implemented a number of new digital services during 2017. At the same time, a significant growth was recorded in all digital business segments.
Digital transactions reached 1.77 million (an increase of 23% compared to last year), while total turnover exceeded EUR 1.7 billion. As in previous period, mobile banking is a digital service recording the highest growth (64% increase in number of mobile transactions and more than 8,000 new mobile banking customers).
Payment institutions are now the biggest growth generator of Eurobank transactional business, almost tripling total number of payment orders processed by the Bank from around 267 thousand in December 2016 to 748 thousand in December 2017. As for total number of payment orders, 24% are digital, 61% PI payments with only 15% of payment orders now initiated in branches.
A new Call Center solution was implemented in March, providing for the first time a complete customer contact history, improved communication with back offices via ticketing, customer satisfaction feedback (with average grade of our agents: 4.7) and new cross-sales features. In December, new communication channels were opened to our customers, namely chat and video-chat. Our customers now also have the option to retrieve account and card balances or split credit card transactions via automatic IVR services. In addition, we are preparing to enable Viber and FB messenger live chat to our customers.
Digital signature solution was implemented in December 2017, allowing Eurobank customers to sign contractual documentation on-line, but also serving as a basis for further digitalization of internal Bank documents. Digital Signage solution was implemented in several redesigned branches, communicating promotional messages and allowing our customers to interact with the Bank in Digital corner.
In December 2017, a new electronic banking solution was offered to our customers. This upgraded solution, available on all platforms, provides our customers with a number of new services. Most notably, for the first time our customers are provided with on-line services, which enable them to fill out an application form and complete registration for a number of bank services and products without visiting a branch office.
Annual Report 2017
23 ALTERNATIVE SALES AND PARTNERSHIP BANKING DEPARTMENT
In line with market trends related to higher investments in alternative customer acquisition channels, Eurobank continued to promote these innovative sales channels that proved to be a stable basis for further portfolio growth in all directions and segments.
In 2017, Alternative Sales and Partnership Banking Department recorded a significant growth in all segments, disbursing more than EUR 30 million through independent sales channels (DSA and POS Financing) and acquiring almost 55,000 customers, which represents 27% YoY growth. As for dependent channels (Telemarketing and Bancassurance), Alternative Sales and Partnership Banking Department disbursed an additional amount of EUR 20 million, which represents 23% increase compared to 2016.
The tables below show results and trends by segment for 2015, 2016 and 2017:
2015 2016 2017 2015 2016 2017
20 15 +19% 15 +34% 10 +17%
10 +65% 5 EUR milion 5 EUR milion
0 0
DSA disbursement POS Financing disbursement
DIRECT SALES CHANNEL: POINT OF SALES FINANCING NETWORK:
• DSA Mobile Banking team continued its growth in • Through our great merchant network and with 2017 to targeted 100 sales agents mediating in almost 180 sales agents, we managed to disburse acquisition of 7,500 customers, 3,200 of which are EUR 14 million and issue almost 51,000 new credit disbursed with a total amount of EUR 16.4 million, cards, representing 19% increase compared to 2016. representing growth of 34% compared to last year. Eurobank Serbia is one of the leaders in durable goods financing market with 31% market share (based on our survey).
• In 2017, we managed to acquire 39,000 new customers through POS financing network, which represents 56% of total new customers acquired; the number of new customers increased by 15% compared to last year, while POS financing share in total customer acquisition increased from 54% last year to 56% this year.
Annual Report 2017
24 2015 2016 2017 2015 2016 2017
20 4 +23% +25% 15 3 +83% 183%
10 2 EUR milion EUR milion 5 1
0 0
Telemarketing disbursement Bancassurance
TELEMARKETING: BANCASSURANCE:
• Telemarketing team contacted 130,000 customers • Bancassurance achieved excellent results in 2017. in 2017 with a special tailor-made offer which Licensed employees in Eurobank branches resulted in almost EUR 16 million disbursement, managed with great sales effort to generate representing 23% growth compared to 2016. significant income of almost EUR 1.35 million (with a total of EUR 3.2 million in collected premiums), representing 25% growth compared to last year. Great cooperation with and support from Partner Insurance Company Wiener Stadtische through planned promotions, as well as exceptional work and commitment of over 150 authorized insurance agents of the Bank contributed to these excellent results. Eurobank Serbia will continue to invest in SMALL BUSINESS alternative sales channels in the future aiming to BANKING (SBB) provide quality service to its customers, as necessary.
• During 2017, Small Business Banking Division (SBB) • In order to provide customers with additional funds actively worked on improving lending conditions in for their business, Eurobank introduced "Frame order to support small enterprises and Line" product in 2017, thus improving its offer, entrepreneurs in more efficient and adequate ensuring significantly lower costs and making manner. Lending activity to SBB segment Bank products accessible to customers. increased, while support to businesses was above economic growth. • SBB Division plans to provide considerable support to new projects over the next year, which will make • Namely, lending activities to SBB segment in 2017 the economy more competitive. grew by 50% compared to 2016, especially during the fourth quarter, which ranks Eurobank among • The plan is to continue with the increase of lending the most active banks on the market. activities and market shares, as well as to further develop new products and innovations, so we • Also, on the basis of market trends and customer could provide more efficient support to the requirements, we have further improved our credit business needs of our customers. approval criteria in order to position ourselves as a bank focused on supporting customer business needs. We have also revised the interest rates and loan fees to make our offer more attractive to customers.
Annual Report 2017
25 CORPORATE BANKING CORPORATE BANKING DIVISION
Despite very strong competitive market, Corporate LC successfully participated in the largest syndication Banking Division had a very successful business deal in the market – refinancing of "Moji Brendovi". With year, with performance significantly improved in all regard to deposits, further improvement of deposit business areas. base led us to the highest level since 2011, whereby the actual volume was 28% higher than the budgeted. As far as Small and Medium Enterprises (SME) are As far as revenue is concerned, positive growth concerned, volume of issued DBD products amounted trend is recorded in H2 mainly due to a significantly to EUR 22.71 million, which is EUR 3.64 million over the higher average of outstanding loans. Additionally, pre- budget. Outstanding balance of accrued loans stood provision income is 21% higher compared to 2016. at EUR 153 million, which is in line with budget and represents an increase of EUR 17 million compared During 2017, EBRD further increased its limit under to December 31, 2016, despite refinancing of the Trade Facilitation Program (to EUR 70 million), which existing loans of EUR 12 million by major competitors. was actively used to support trade (export/import) Third "Pre-approval campaign” was finalized by end activities of corporate clients. of Q3, whereby 46 new customers were acquired Owing to our extensive participation in Trade Facilitation with approved loan amount balance of EUR 12.6 Program, our bank was recognized again by EBRD as million. Total commission income amounted to EUR the most active issuing bank in Serbia in 2017. 1,079 thousand, which exceeded the budget by EUR 72 thousand. Total deposits amounted to EUR 70.19 million, exceeding the budget by EUR 30.35 million.
As for Large Corporate Department, significant disbursements in the second half of 2017 strongly boosted YE O/S of performing loans to the level which represents yearly growth of 35% (highest since 2014). Growth rate of total loans was 17% compared to Market’s 1.8%. The amount achieved is 17 million euros higher than the budgeted volume. Also, Large Corporate Department successfully cooperated with clients: Merin Plaza, Hotel Sheraton Novi Sad and Ušće Shopping Center as the most important cornerstones, as well as NIS, the biggest Serbian company.
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26 Annual Report 2017
27 INVESTMENT BANKING AND MONEY MARKET
2017 was very successful for Treasury and Foreign Continuous improvement and development of Exchange Division. Its main priority was to ensure different kinds of products and services for our liquidity, sustain and increase profitability, decrease international and domestic customers, small, business risk and continue further customer- medium and large-sized enterprises, institutional oriented development, expand and promote and private customers were the main goal in 2017, cooperation with IFIs. which ensured protection of our customers against different risks in financial markets. Owing to our In 2017, Eurobank continued implementation of its Group presence in the region, we managed to meet clear and strong development strategy, primarily our customers’ needs outside Serbia as well, where based on strengthening the liquidity position. Liquidity cross-selling became a very important part of the coordination and capital management by Treasury Treasury’s sales activity. and Foreign Exchange Division was instrumental in dealing with all the challenges the Bank faces.
During 2017, cooperation with EBRD London was successfully continued (cross-currency interest rate swap (CIRS) transactions was more than EUR 105 million).
Due to leading positions, active involvement and market presence, Trading Department was able to offer extremely competitive quotations in money and foreign exchange market. In order to ensure risk diversification, Trading Department also managed to achieve the most important goal in 2017 – to provide high liquidity level with excellent cost management. Continuous performance of T-bills portfolio, following business units’ needs for funding, resulted in maximum return on revenue.
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28 Annual Report 2017
29 TROUBLED ASSET MANAGEMENT TROUBLED ASSETS SECTOR
Eurobank has always been focused on remedial management and NPE resolution, especially after global economic crisis which affected Serbian banking sector. The Bank fully supports and endorses Serbian government’s strategy for NPL decrease.
Therefore, in previous years, the top management decided to strictly demark performing portfolio and troubled assets, and responsibility for each so as to monitor and resolve the latter. Adequate implementation of governance system, further development of forbearance measure and closure solutions, procedure update, compliance with regulatory requirements and improved decision making all led to more efficient processes, increased recoveries (absolute value and a percentage of managed assets), reduced costs and steady progress in 2017 building on the results achieved in 2015 and 2016.
The above-mentioned improvements coupled with healthy portfolio growth (due to improved credit policy and positive economic environment) contributed to a significant drop of NPE ratio to 11.4% in December 2017.
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31 OTHER ACTIVITIES OF THE BANK ENVIRONMENTAL PROTECTION
As a socially responsible company, Eurobank pays special attention to environmental protection. Striving for continuous improvement and implementation of environmental programs and initiatives, the Bank has analyzed its overall impact on the environment. As the result of such analysis the following key initiatives stand out, as a ground for the Bank`s Environmental Management System:
WASTE MANAGEMENT "GREEN PROCUREMENT” POLICY
The Bank has adopted internal procedures for The Bank endeavors to transfer its environmental solid waste management, compliant with waste protection culture to its clients and suppliers. management basic principles: reduce, reuse and Within this context, the Bank continues to develop recycle. Through sorting, collection and management and apply environmental protection criteria when of hazardous and non-hazardous waste, the Bank assessing its suppliers and products and services has reduced solid waste pollution. In 2017, theBank they offer. continued its recycling program for waste paper, plastics and empty ink and toner cartridges as well as electrical and electronic waste at all locations in ENERGY AND CLIMATE CHANGES Serbia. With respect to the importance of reduction in RESPONSIBLE FINANCING – SOCIAL AND greenhouse gas emission, the Bank continues to ENVIRONMENTAL RISK MANAGEMENT SYSTEM monitor the consumption of electric energy and all pertaining emissions accordingly. The Bank has integrated Social and Environmental Risk Management System into its loan origination process pursuant to international standards and best practice. This System is one of the core elements of good cooperation established with the European Bank for Reconstruction and Development. The expansion of application of this responsible financing system to all portfolios is currently under way.
GREEN PRODUCTS – E-STATEMENTS
Since 2011, when e-Statements were first introduced, the Bank has continued to improve the strategy of replacing hard copies with electronic documents. This practice reduces the consumption of paper and toners and contributes to the mitigation of waste impact on the environment.
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32 Annual Report 2017
33 GROUP SUBSIDIARIES
ERB PROPERTY SERVICES
In 2017, ERB Property Services continued development and expansion of its services. As an exclusive appraiser of Eurobank Group, ERB Property Services has performed more than 2,044 appraisals for the Bank and third parties. All appraisal reports are created in accordance with the IVSC standards. The largest projects in 2017 include monitoring of the following facilities: BIG C, Biogas Energy, Fininvest, etc.
Last year, in cooperation with Business Network Development Department, the Company was involved in definition of prices for rental business network.
ERB Property Services intensified its cooperation with IMO PI to ensure more efficient sales and rentals of IMO portfolio.
In addition, the Company continued successful cooperation with third parties including Ušće, BIG C, Waikiki, Treća petoletka, etc.
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34 Annual Report 2017
35 Annual Report 2017
36 APPENDICES
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37 FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
ALL AMOUNTS ARE EXPRESSED IN 000 RSD UNLESS OTHERWISE STATED
Annual Report 2017
38 3 General information 3 Summary of significant accounting policies 23 Critical accounting estimates and judgments 25 Financial Assets per categories and classes 25 Risk management policies 48 Interest income and expense 48 Fee and commission income and expense 49 Net gains(losses) from financial assets held for trading 49 Net loss from hedging 49 Net gains from financial assets available for sale 49 Net foreign exchange gains 49 Operating and other income 50 Net provisions and impairment losses on loans and advances 50 Salaries, benefits and other personnel expenses 50 Depreciation and amortization expenses 50 Operating and other expenses 51 Income tax 52 Earnings per share 52 Cash and balances with Central Bank 53 Pledged financial assets 53 Financial assets at fair value through profit and loss held for trading 54 Financial assets available for sale 54 Loans and deposits to banks and other financial institutions 55 Loans and receivables from customers 56 Investments in associates 57 Intangible assets 58 Property, plant and equipment 59 Deferred tax assets and liabilities 60 Other assets 61 Financial liabilities at fair value through profit and loss for trading 61 Net Debt Reconciliation 61 Deposits and other liabilities due to banks, other financial institutions and Central Bank 62 Deposits and other liabilities due to customers 63 Provisions 64 Other liabilities 65 Shareholder’s equity 67 Contingent liabilities and commitments 67 Compliance with regulatory requirements 68 Related parties transactions 71 Foreign exchange rates 71 Reconciliation of loans, deposits and other liabilities with clients 71 Board of Directors 71 Events after the reporting period
Annual Report 2017
1 INDEPENDENT AUDITOR’S REPORT made by management, as well as evaluating the overall presentation of the financial statements.
To the shareholders of Eurobank a.d. Beograd We believe that the audit evidence we have obtained is sufficient and appropriate to provide We have audited the accompanying financial a basis for our audit opinion. statements of Eurobank a.d. Beograd (the “Bank”) which comprise the balance sheet as of 31 Opinion December 2017 and the income statement, statement of other comprehensive income, In our opinion, the accompanying financial statement of changes in equity and cash flow statements present fairly, in all material respects, statement for the year then ended and notes, the financial position of Eurobank a.d. Beograd as comprising a summary of significant accounting of 31 December 2017, and of its financial policies and other explanatory information. performance and its cash flows for the year then ended in accordance with International Financial Management’s responsibility for the financial Reporting Standards. statements Saša Todorović Management is responsible for the preparation PricewaterhouseCoopers d.o.o. Beograd and fair presentation of these financial statements Licensed Auditor in accordance with International Financial Reporting Standards and for such internal control Belgrade, 19 April 2018 as management determines is necessary to enable the preparation of financial statements PricewaterhouseCoopers d.o.o, that are free from material misstatement, whether Omladinskih brigada 88a, due to fraud or error. 11070 Beograd, Republika Srbija T: +381 11 3302 100, F: +381 11 3302 101, Auditor’s responsibility www.pwc.rs
Our responsibility is to express an opinion on these financial statement based on our audit. We conducted our audit in accordance with Law on Auditing and auditing regulation effective in the Republic of Serbia. This regulation requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements 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 entity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
Annual Report 2017
2 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
1. GENERAL INFORMATION
Eurobank A.D. (hereinafter ‘’The Bank”) has been established by the merger of Eurobank EFG a.d. Beograd and Nacionalna Štedionica Banka a.d. that was completed on 20 October 2006.
The Bank is registered in Serbia for carrying out payment, credit and deposit operations in the country and abroad. The Bank operates in accordance with Law on Banks based on principles of liquidity, safety and profitability.
The registered office of the Bank is Vuka Karadžića 10, Belgrade.
As at 31 December 2017 the Bank had 1,467 employees (31 December 2016: 1,450 employees). The Bank’s network comprises of 80 branches and business centres (31 December 2016: 80).
The Bank’s Registration number is 17171178. The Bank’s Tax identification number is 100002532.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 BASIS OF PREPARATION
The Bank prepares its financial statements in accordance with the accounting regulations prevailing in the Republic of Serbia, and with the National Bank of Serbia Regulations. Pursuant to the Law on Accounting (Official Gazette of the Republic of Serbia no. 62/2013), banks are required to maintain their books of account and to prepare financial statements in accordance with International Financial Reporting Standards (IFRS).
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). These financial statements have been prepared under the historical cost convention and on ongoing concern basis, as modified by the revaluation of available-for-sale financial assets and financial assets and liabilities at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.
The Bank’s presentation currency is the RSD being the functional currency of the Bank.
The Bank’s financial statements have been prepared on a going concern basis, which assumes that the Bank will continue in operational existence for the foreseeable future. In making this judgment management considered the Eurobank Group’s financial position, current intentions, profitability of operations and access to financial resources, and analyzed the impact of the recent financial crisis on future operations of the Eurobank Group.
Annual Report 2017
3 a) New and amended Standards and interpretations
Sledeće izmene i dopune standarda, izdate od strane Odbora za međunarodne računovodstvene standarde (IASB) stupaju na snagu 1. januara 2017. godine:
The following amendments to standards, as issued by the International Accounting Standards Board (IASB) apply from 1 January 2017:
IAS 7, Amendment - Disclosure Initiative. The amendment requires disclosure of information enabling users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes from cash flows and non-cash changes. The disclosure requirements also apply to changes in financial assets, such as assets that hedge liabilities arising from financing activities, if cash flows from those financial assets were or future cash flows will be, included in cash flows from financing activities. The adoption of the amendment had no impact on the Bank’s financial statements.(Note 31)
IAS 12, Amendment - Recognition of Deferred Tax Assets for Unrealized Losses. The amendment clarifies that (a) unrealized losses on debt instruments measured at fair value in the financial statements and at cost for tax purposes may give rise to a deductible temporary difference irrespective of whether the entity expects to recover the carrying amount of the debt instrument by sale or use, (b) estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences, (c) the estimate of probable future taxable profits may include the recovery of an asset for more than its carrying amount, if there is sufficient evidence that it is probable that this will be realized by the entity, and (d) a deferred tax asset is assessed in combination with all of the other deferred tax assets where the tax law does not restrict the sources of taxable profits against which the entity may make deductions on the reversal of that deductible temporary difference. Where restrictions apply, deferred tax assets are assessed in combination only with other deferred tax assets of the same type. The adoption of the amendment had no impact on the Bank’s financial statements.
Annual Improvements to IFRSs 2014-2016 Cycle. IFRS 12 ‘Disclosure of Interests in Other Entities’: It is clarified that the disclosure requirements in IFRS 12 apply to an entity’s interest in a subsidiary, a joint venture or an associate classified as held for sale except for the requirement for summarized financial information. The adoption of the amendment had no impact on the Bank’s financial statements. b) Standards that have been issued but are not yet effective
A number of new standards, amendments to existing standards and interpretations are effective after 2017, as they have not yet been endorsed by the European Union or have not been early applied by the Bank. Those that may be relevant to the Bank are set out below:
IAS 19, Amendment –Plan Amendment, Curtailment or Settlement (effective 1 January 2019). The amendment clarifies that when a change to a defined benefit plan i.e. an amendment, curtailment or settlement takes place and a remeasurement of the net defined benefit liability or asset is required, the updated actuarial assumptions from the remeasurement should be used to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. Additionally, the amendment includes clarifications about the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The adoption of the amendment is not expected to impact the Bank’s financial statements.
IAS 28, Amendment – Long Term Interests in Associates and Joint Ventures (effective 1 January 2019). The amendment clarifies that IFRS 9 ‘Financial Instruments’ including its impairment requirements, applies to long term interests in associates or joint ventures that form part of the entity’s net investment in the associate or joint venture but are not accounted for using equity accounting. According to the amendment, any adjustments to the carrying amount of long term interests resulting from the application of IAS 28 should not be considered when applying the IFRS requirements which apply to long term interests before applying the loss allocation and impairment requirements of IAS 28. The adoption of the amendment is not expected to impact the Bank’s financial statements.
IAS 40, Amendment-Transfers of Investment Property (effective 1 January 2018). The amendment clarifies that a transfer of property, including property under construction or development, into or out of investment property should be made only when there has been a change in use of the property. Such a change in use occurs when the property meets, or ceases to meet, the definition of investment property and should be supported by evidence. The adoption of the amendment is not expected to impact the Bank’s
Annual Report 2017
4 financial statements. IFRS 2, Amendment-Classification and Measurement of Share-based Payment Transactions (effective 1 January 2018). The amendment addresses (a) the measurement of cash-settled share-based payments, (b) the accounting for modifications of a share-based payment from cash-settled to equity-settled and c) the classification of share-based payments settled net of tax withholdings. Specifically, the amendment clarifies that a cash-settled share-based payment is measured using the same approach as for equity-settled share-based payments. It also clarifies that the liability of cash- settled share-based payment modified to equity-settled one is derecognized and the equity-settled share- based payment is recognized at the modification date fair value of the equity instrument granted and any difference is recognized in profit or loss immediately. Furthermore, a share-based payment net by withholding tax on the employee’s behalf (a net settlement feature) is classified as equity settled in its entirety, provided it would have been classified as equity-settled had it not included the net settlement feature. The adoption of the amendment is not expected to impact the Bank’s financial statements.
IFRS 4, Amendment-Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (effective 1 January 2018). The amendment addresses the accounting consequences of the different effective dates of IFRS 9 ‘Financial Instruments’ and the forthcoming new insurance contracts Standard. It introduces two options for entities that issue insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach. The optional temporary exemption from IFRS 9 is available to entities whose activities are predominantly connected with insurance, allowing them to continue to apply IAS 39 ‘Financial Instruments: Recognition and Measurement’ while they defer the application of IFRS 9 until 1 January 2021 at the latest. The overlay approach is an option for entities that adopt IFRS 9 and issue insurance contracts, to adjust profit or loss for eligible financial assets, effectively resulting in IAS 39 accounting for those designated financial assets. This approach can be used provided that the entity applies IFRS 9 in conjunction with IFRS 4 and classifies financial assets as fair value through profit or loss in accordance with IFRS 9, when those assets were previously classified at amortized cost or as available-for-sale in accordance with IAS 39. The adoption of the amendment is not expected to impact the Bank’s financial statements.
Transition to IFRS 9, ‘Financial Instruments’ and impact assessment. In July 2014, the IASB published the final version of IFRS 9 ‘Financial Instruments’ which replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’. IFRS 9 includes revised requirements on the classification and measurement of financial assets and liabilities, impairment of financial assets and hedge accounting.
Classification and measurement IFRS 9 establishes a new classification and measurement approach for all types of financial assets that reflects the entity’s business model for managing the assets and their contractual cash flow characteristics. IFRS 9 requires financial assets to be classified into one of the following measurement categories: amortized cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). The standard eliminates the existing IAS 39 categories of held-to-maturity, loans and receivables and available for sale.
Financial assets will be measured at amortized cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest (SPPI). Financial assets will be measured at FVOCI if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and their contractual cash flows represent solely payments of principal and interest. All other financial assets will be classified at FVTPL.
An entity may at initial recognition, designate a financial asset at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. Furthermore, on initial recognition of an equity instrument that is not held for trading, an entity may irrevocably elect to present subsequent changes in fair value through OCI. This election is made on an investment-by-investment basis.
Under IFRS 9, embedded derivatives in contracts where the host is a financial asset in the scope of the standard are no longer bifurcated. Instead, the hybrid financial instrument is assessed for classification as a whole.
IFRS 9 retains most of the existing requirements for financial liabilities. However, for financial liabilities designated at FVTPL, gains or losses attributable to changes in own credit risk shall be presented in OCI and shall not be subsequently transferred to profit or loss, unless such a presentation would create or enlarge an accounting mismatch. Under IAS 39, all fair value changes of liabilities designated at FVTPL are recognized in profit or loss, unless this would create or enlarge an accounting mismatch.
Annual Report 2017
5 Business model assessment The business model reflects how the Bank manages the assets in order to generate cash flows. That is, whether the Bank’s objective is solely to collect contractual cash flows from the asset, to realize cash flows from the sale of assets, or both to collect contractual cash flows and cash flows from the sale of assets. Financial assets that are held for trading or managed on a fair value basis will be measured at FVTPL.
The Bank’s approach is to perform the business model assessment consistently with its operating model and the information provided to key management personnel. In making the above assessment, the Bank will consider a number of factors including:
• the stated policies and objectives for each portfolio; • how the performance of each portfolio is evaluated and reported; • the risks associated with the performance of the business model and how those risks are managed; • how managers are compensated; • past experience on how the cash flows from those portfolios were collected and how the Bank’s stated objective for managing the financial assets is achieved; and • the frequency, volume and timing of sales in prior periods, the reasons for such sales and expectations about future sales activity. Irrespective of their frequency and value, sales due to an increase in the financial assets’ credit risk and sales made due to liquidity needs in case of an unexpected stress case scenario, are consistent with a hold-to-collect business model.
SPPI assessment In assessing whether the contractual cash flows are solely payments of principal and interest, the Bank will consider whether the contractual terms of the instrument are consistent with a basic lending arrangement i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin. This will include an assessment of whether a financial asset contains a contractual term that could change the amount or timing of contractual cash flows in a way that it would not be consistent with the above condition. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset will be measured at FVTPL.
Assessment of changes to the classification and measurement on transition For the purpose of the transition to IFRS 9, the Bank is carrying out a business model assessment across various portfolios and a detailed review of the contractual terms (SPPI review) for its debt instruments portfolios to determine any potential changes to the classification and measurement. The assessment is being performed based on the facts and circumstances that exist at the date of initial application i.e. 01/01/2018. Furthermore, it is performed on a sample basis for the retail and part of the wholesale portfolio where contracts are of standardized form, whereas for the remaining wholesale portfolio is being performed on an individual basis. The business model assessment and the SPPI review are not expected to result in any significant changes compared to how financial assets are measured under IAS 39, except where noted below. In particular: • loans and advances to banks and customers that are measured at amortized cost under IAS 39, are also expected to be measured at amortized cost under IFRS 9; • the debt securities classified as available-for-sale under IAS 39, are expected to be measured at AC; • trading and derivative assets that are measured at FVTPL under IAS 39 are also expected to be measured at FVTPL under IFRS 9; • equity securities classified as available-for-sale under IAS 39 are expected to be measured at FVTPL under IFRS 9.
IFRS 9 requires the business model assessment to be made based on the facts and circumstances that exist at the date of initial application, therefore, the Bank carried a roll forward assessment during 2017 to determine the actual impact taking into account the business model strategies and the composition of its portfolios as at 1 January 2018.
Impairment of financial assets IFRS 9 introduces an expected credit loss (ECL) model that replaces the incurred loss model in IAS 39. The new requirements eliminate the threshold in IAS 39 that required a credit event to have occurred before credit losses were recognized and will apply to a broader population of financial instruments compared to IAS 39. The estimate of ECL will require the use of complex models and significant judgment about future
Annual Report 2017
6 economic conditions and credit behavior. The new impairment model, which introduces a “three stage approach” that will reflect changes in credit quality since initial recognition, will apply to financial assets that are not measured at FVTPL, including loans, lease receivables, debt securities, financial guarantee contracts and loan commitments issued. Accordingly, no impairment loss will be recognized on equity investments.
Upon initial recognition of instruments in scope of the new impairment principles, the Bank will record a loss allowance equal to 12-month ECL, being the ECL that result from default events that are expected within the next twelve months. Subsequently, for those financial instruments that have experienced a significant increase in credit risk (SICR) since initial recognition, a loss allowance equal to lifetime ECL will be recognized, arising from default events that are expected over the expected remaining life of the instrument. Financial assets for which 12-month ECL are recognized will be considered to be in ‘stage 1’; financial assets which are considered to have experienced a significant increase in credit risk will be allocated in ‘stage 2’, while financial assets that are considered to be credit impaired will be in ‘stage 3’. The loss allowance for purchased or originated credit impaired (POCI) financial assets will always be measured at an amount equal to lifetime ECL, as explained below.
Allocation of Exposures to Stages Banka će razlikovati finansijska sredstva između onih koja se odmeravaju na osnovu 12-omesečnih ECL The Bank will distinguish financial assets between those which are measured based on 12-month ECLs (stage 1) and those that carry lifetime ECLs (stage 2 and 3), depending on whether there has been a significant increase in credit risk as evidenced by the change in the risk of default occurring on these financial assets between the reporting date and origination date.
To determine the risk of default, the Bank applies a default definition for accounting purposes, which is consistent with the NBS definitions. In particular, the Bank will determine that financial instruments are in stage 3 by applying consistent measures of default across all of its portfolios:
• the objective criterion of 90 days past due and; • the existence of unlikeness to pay (UTP) criteria.
Accordingly, upon transition, the Bank considers all non-performing exposures in accordance with NBS definitions as credit-impaired and classifies those exposures at stage 3 for financial reporting purposes.
Purchased or originated credit impaired (POCI) financial assets, which include assets purchased at a deep discount and substantially modified assets arising from derecognition of the original asset and are considered originated credit impaired, are not subject to stage allocation and are always measured on the basis of lifetime ECL. The Bank will recognize interest income of financial assets at stage 3 as well as POCI by applying the effective interest rate (EIR) on their net carrying amount. Financial assets that experience a significant increase in credit risk since initial recognition will be in stage 2. In assessing whether a financial asset has experienced a significant increase in credit risk since initial recognition, the Bank intends to use a combination of quantitative, qualitative and backstop criteria including: • relative change of the actual remaining lifetime probability of default compared to the lifetime probability of default at initial recognition; • relative change of the 12-month probability of default compared to the 12-month probability of default at initial recognition; • absolute change of the actual remaining lifetime probability of default compared to the lifetime probability of default at initial recognition; • absolute change of the 12-month probability of default compared to the 12-month probability of default at initial recognition; • watch list status; • forbearance; and • 30 days past due as backstop indicator.
In the calculation of the first time adoption impact, the Bank used absolute thresholds on the 12-month probability of default (along with watch list status, forbearance and 30 days past due) as a simplified rule to determine exposures which should be allocated to stage 2. The thresholds have been defined prudently, taking into account historical experience and characteristics of the Bank’s portfolio. However, the Bank plans to enhance the staging allocation approach, by fully implementing the aforementioned criteria regarding change
Annual Report 2017
7 of the probability of default. Management may apply temporary individual or collective overlays on exposures sharing the same credit risk characteristics to take into account specific situations which otherwise would not be fully reflected in the impairment models.
Hence, upon transition, the Bank considers all performing forborne loans as stage 2, along with any performing exposures that have been assessed to have experienced a significant increase in credit risk since initial recognition.
The Bank will classify all remaining financial assets which are not classified at stage 2, 3 or POCI in stage 1, measured based on 12-month ECL. The Bank will recognize interest income of financial assets at stage 2 and at stage 1, by applying the EIR on their gross carrying amount.
When the criteria for stage 2 classification are no longer met and the financial asset is not credit impaired, it will be reclassified to stage 1. In addition, subsequent transfers from stage 3 to stage 2 will take place when the financial asset ceases to be credit impaired based on the assessment as described above. Generally, transition among stages 1, 2 and 3 is allowed based on meeting condition of the given stage. pomenutih kriterijuma u vezi sa promenom verovatnoće od neispunjenja obaveza.
Measurement of expected credit losses The measurement of ECLs will be a probability-weighted average estimate of credit losses that will reflect the time value of money. A credit loss is the difference between the cash flows that are due to the Bank in accordance with the contractual terms of the instrument and the cash flows that the Bank expects to receive (i.e. cash shortfalls) discounted at the original effective interest rate (EIR) of the same instrument, or the credit-adjusted EIR in case of purchased or originated credit impaired assets (POCI). In measuring ECL, information about past events, current conditions and reasonable and supportable forecasts of future conditions should be considered.
For the purposes of measuring ECL, the Bank will estimate expected cash shortfalls, which reflect the cash flows expected from all possible sources including collateral and other credit enhancements that are part of the contractual terms and are not recognized separately. In the case of a collateralized financial instrument, the estimated expected cashflows related to the collateral reflects the amount and timing of cash flows that are expected from foreclosure on the collateral less the discounted costs of obtaining and selling the collateral, irrespective of whether foreclosure is probable.
ECLs will be calculated over the maximum contractual period over which the Bank is exposed to credit risk. The maximum contractual period is defined based on the substantive terms of the instrument, including the Bank’s ability to demand repayment or cancellation and the customer’s ability to require extension. However, for revolving credit facilities (i.e. those that include both a loan and an undrawn commitment component) the period of exposure is determined in accordance with the Bank’s expected credit risk management actions to mitigate credit risk, including terminating or limiting credit exposure. In doing so, the Bank will consider its normal credit risk mitigation process, its past practice, future intentions and expected credit risk mitigation actions, the period over which the Bank was exposed to credit risk on similar instruments, and the length of time for defaults to occur on similar instruments following a significant increase in credit risk.
ECLs on individually large credit impaired loans , above pre-defined materiality thresholds set in accordance with the Group’s risk management policy are measured individually. For the remaining retail exposures and some corporate exposures, ECLs will be measured on a collective basis. This incorporates borrower specific information, collective historical experience of losses and forward-looking macroeconomic information.
The ECL calculation is based on the probability of default (PD), the loss given default (LGD), the exposure at default (EAD) and other input parameters such as the credit conversion factor (CCF). Generally, the Bank intends to derive these parameters from internally developed statistical models and historical data, mainly observed defaults and losses.
The PD represents the likelihood of a borrower defaulting on its financial obligations either on the next 12 months or over the expected remaining lifetime. In accordance with IFRS 9, the Bank will use point-in-time unbiased PDs that will incorporate forward looking information and macroeconomic scenarios.
LGD represents the Bank’s expectation of the extent of loss on a defaulted exposure and is the difference between the contractual cash flows due and those that the Bank expects to receive including any amounts
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8 from collateral liquidation. LGD varies by type of counterparty, type and seniority of claim, availability of collateral or other credit support, and is usually expressed as a percentage of EAD (see below). In the calculation of the LGD, the Bank will separately observe collections and costs from real estate collateral sales and collections from other sources.
EAD represents the exposure that the Bank expects to be owed at the event of default. The EAD of a financial asset will be the expected gross carrying amount in the event of default. Estimation of the EAD for off- balance positions, such as guarantees and loan commitments, will be based on the regulatory credit conversion factors.
The PD and LGD used for accounting purposes may differ from those used for internal capital requirements calculation. PD under IFRS 9 is a point-in-time estimate whereas for internal capital requirements calculation purposes PD is a ‘through-the-cycle’ estimate. In addition, LGD for internal capital requirements calculation purposes is based on loss severity experienced during economic downturn conditions, while under IFRS 9, LGD reflects an unbiased and probability-weighted amount.
The CCF factor is used to convert the amount of a credit line and other off-balance sheet amounts to an EAD amount. CCFs that will be used in the ECL calculation will be based on regulatory values.
Forward looking information Forward looking information (FLI) reflecting future expected evolution on the market required by the Standard is incorporated into particular components (PD, LGD, etc.). The Bank will evaluate a range of forward looking economic scenarios in order to achieve an unbiased and probability weighted estimate of ECL, using justified set of weight for particular scenarios.
Hedge accounting IFRS 9 includes a new general hedge accounting model which aligns hedge accounting more closely with risk management. Under the new model, more hedging strategies may qualify for hedge accounting, new hedge effectiveness requirements apply and discontinuation of hedge accounting will be allowed only under specific circumstances. The IASB currently has a separate project for the accounting of macro hedging activities. Until the above project is completed, entities have an accounting policy choice to continue applying the hedge accounting requirements in IAS 39.
IFRS 9 Implementation Program A Group-wide IFRS 9 Program, led jointly by Group Risk and Group Finance, was initiated in 2015 to ensure a robust and high quality implementation in compliance with the requirements of the Standard and respective regulatory guidance.
At the Bank level, a Steering Committee has been established in order to monitor implementation of the project related to IFRS 9 requirements. The Steering Committee includes senior management of the Bank and it is mandated to oversee the implementation in accordance with the Standard, monitor timelines and the quality of the project’s deliverables, review project’s results, approve deliverables and changes in the scope of the project where appropriate. The Executive Board, the Risk Committee, the Audit Committee, the Board of Directors, Group Risk and Group Finance have been regularly informed about the project implementation status. Day-to-day tasks have been handled by the project team, formed for the purpose of IFRS 9 implementation.
The Bank has largely completed the IFRS 9 accounting policies, and the ECL methodologies while further refinements will continue during 2018.
Comparative information on transition The new requirements of IFRS 9 will be applied retrospectively by adjusting the Bank’s balance sheet on the date of transition on 1 January 2018. The Bank intends to apply the exemption not to restate comparative figures for prior periods; therefore the Bank’s 2017 comparatives will be presented on an IAS 39 basis.
Impact assessment The impact of transitioning to IFRS 9, before tax, is estimated to be RSD 999 million at 1 January 2018, as depicted in the table below per IFRS 9 area.
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9 IFRS 9 impact as of 1 January Impact attributed to: 2018 (in RSD m) Impairment
- Loans and advances to customers 1.128
- Other financial assets (115)
Total impairment 1.013
Classification & Measurement (14) Hedging • Total IFRS 9 impact 999
Further analysis of the IFRS 9 impact is presented below. a. Impairment allowance for ECL –Loans & Advances to Customers
The following table presents the IFRS 9 impact analysis per stage and type of lending exposure according to NBS classification as of 1 January 2018. U 000 RSD Of which: Impairment Allowance: Total Gross Total On- Total Off- Change Stage Exposure balance balance Non- Promena Performing performing IAS 39 IFRS 9 Stadijum 1 110.114.645 86.807.624 23.307.021 110.114.645 • 400.876 363.394 (37.482) Stadijum 2 11.387.579 10.755.331 632.249 11.387.579 • 89,460 432.654 343.194 Stadijum 3 19.859.581 17.197.250 2.662.331 • 19.859.581 8.271.801 9.094.229 822.428 Ukupno 141.361.805 114.760.205 26.601.601 121.502.224 19.859.581 8.762.137 9.890.277 1.128.140
In terms of impact per stage of lending exposures, the outcome of the exercise demonstrated a minor positive effect of RSD 37,482 thousand in Stage 1, a negative impact of RSD 343,194 thousand in Stage 2 and a negative impact of RSD 822,428 in Stage 3. The main drivers of the impact from the move to the IFRS 9 ECL model are set out below. • Implementation of the models for PD parameter in line with IFRS 9 requirements • Lifetime ECL calculation for exposures with significant increase of credit risk (stage 2) • Improvement of LGD assessment
In respect to the PD parameter, the Bank implemented a new model for PD assessment for Corporate clients, which incorporates financial and qualitative variables. Behavioral models have been developed and implemented for Retail clients (SBB, mortgage and consumer exposures) PD assessment.
Regarding LGD parameter, the methodology for the assessment has been considerably improved. Namely, instead of basing the loss given default calculation on the collection from exposures that are more than 360 days past due, LGD is now assessed for exposures that are more than 90 days past due. At the same time, a prudent approach has been defined for LGD for unsecured exposures, which reaches 100% already after 3 years, as well as for secured exposures, where collateral haircuts for the collective assessment increase to 100% for the exposures which are long time in default status (mainly affecting exposures from SBB segment). b. Impairment allowance for ECL – Investment securities, banks and other financial assets
The estimated impact of ECL calculation for investment securities, banks and other financial assets is expected to be positive: RSD 115,274 thousand. This is primarily attributed to ECL impairment of exposures to banks, which is presented in the following table:
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10 IN 000 RSD
Impairment Allowance: Stage Total Gross Exposure Change IAS 39 IFRS 9
Stage 1 29.876.419 144.052 4.246 (139.806) Stage 2 • • • • Stage 3 • • • • Total 29.876.419 144.052 4.246 (139.806)
The following table presents the ECL allowance of debt securities i.e. investment securities carried at amortized cost, per IFRS 9 portfolio: IN 000 RSD
Impairment Allowance: Stage Total Gross Amount Investment securities at amortised Total cost
Stage 1 13.026.503 22.510 22.510 Stage 2 • • • Stage 3 • • • Total 13.026.503 22.510 22.510
(1) Total gross amount is defined as the amortized cost of investment securities before any loss allowance. c. Classification and Measurement
The estimated impact from the classification and measurement of IFRS 9 is expected to be positive in the amount of RSD 14.1 million before tax as of 1 January 2018. It is related to release of revaluation reserves due to reclassification of shares from AFS to FVTPL.
Regulatory capital The Bank’s estimation of the capital impact from the initial application of IFRS 9 is an increase in the fully loaded CET 1 ratio by 49 basis points and increase of regulatory capital by 50 basis points. As a result, CET 1 ratio on a fully loaded basis is expected to be increased from 29.15% to 29.64% and CAD ratio from 29.15% to 29.65% due to the first time application of IFRS 9, corresponding to an impact of approximately RSD 278 million in regulatory capital as at 1 January 2018.
The Bank’s estimation of the capital impact from the initial application of IFRS 9 as shown in the table below: As at Total change 31 December 2017 01 January 2018 in m RSD IAS 39 IFRS 9 IFRS 9 vs. IAS 39
Common equity tier I Capital 34.008.884 34.286.739 277.855
Total regulatory Capital 34.013.184 34.291.039 277.855
Risk weighted assets 116.682.915 115.669.620 (1.013.295)
Common equity tier I (CET1) Ratio 29,15% 29,64% 0,49%
CAD Ratio 29,15% 29,65% 0,50%
All the assumptions, accounting policies and calculation techniques used by the Bank for the estimation of the IFRS 9 impact will continue to be subject to reviews and refinements and therefore the estimated impact may change until the Bank finalizes its financial statements for the year ending 31 December 2018.
IFRS 15, Revenue from Contracts with Customers and IFRS 15 Amendments (effective 1 January 2018). Standard establishes a single, comprehensive revenue recognition model for determining when and how much revenue to recognize and replaces existing revenue recognition guidance, including IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’ and IFRIC 13 ‘Customer Loyalty Programs’.
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11 IFRS 15 applies to all contracts with customers, except those in the scope of other standards such as: • Financial instruments and other contractual rights or obligations within the scope of IFRS 9 ‘Financial Instruments’ or IAS 39 ‘Financial Instruments: Recognition and Measurement’, IFRS 10 ‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’, IAS 27 ‘Separate Financial Statements’ and IAS 28 ‘Investments in Associates and Joint Ventures’; • Lease contracts within the scope of IAS 17 ‘Leases’ (or IFRS 16 ‘Leases’); and • Insurance contracts within the scope of IFRS 4 ‘Insurance Contracts’. Prema tome, prihodi od kamata i naknada koji su sastavni deo finansijskih instrumenata će nastaviti da budu izvan delokruga MSFI 15. Therefore, interest and fee income integral to financial instruments will continue to fall outside the scope of IFRS 15.
IFRS 15 specifies that revenue should be recognized at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services. It introduces the concept of recognizing revenue for performance obligations as they are satisfied and the control of a good or service (i.e. the ability to direct the use of and obtain the benefits from them), is obtained by the customer. For services provided over time, such as management fee income earned for asset management services provided and variable performance fee income based on the return of the underlying asset at a particular date, consideration is recognized when the service is provided to the customer provided that it is probable that a significant reversal of consideration will not occur.
Extensive disclosures will be required in relation to revenue recognized and expected from existing contracts.
IFRS 15 was amended in April 2016 to provide several clarifications, including that in relation to the identification of the performance obligations within a contract.
The Bank, is currently in the process of finalizing the impact assessment of IFRS 15, however the adoption of the standard is not expected to have a significant impact on the Bank’s financial statements as net interest income, which is a primary revenue stream of the Bank, is not impacted by adoption of IFRS 15 and the existing Bank accounting treatment for revenue from contracts with customers is generally in line with IFRS 15.
IFRS 16, Leases (effective 1 January 2019). IFRS 16, which supersedes IAS 17 ‘Leases’ and related interpretations, introduces a single, on-balance sheet lease accounting model for lessees, under which the classification of leases for a lessee, as either operating leases or finance leases, is eliminated and all leases are treated similarly to finance leases under IAS 17. The new standard provides for the recognition of a ‘right- of-use-asset’ and a ‘lease liability’ upon lease commencement in case that there is a contract, or part of a contract, that conveys to the lessee the right to use an asset for a period of time in exchange for a consideration.
The right-of-use-asset is, initially, measured at cost, consisting of the amount of the lease liability, plus any lease payments made to the lessor at or before the commencement date less any lease incentives received, the initial estimate of restoration costs and any initial direct costs incurred by the lessee and, subsequently, at cost less accumulated depreciation and impairment.
The lease liability is initially recognized at an amount equal to the present value of the lease payments during the lease term that are not yet paid.
Accordingly, the typical straight line operating lease expense of operating leases under IAS 17 is replaced by the depreciation charge of the ‘right-of-use-asset’ and the interest expense on the ‘lease liability’. The recognition of assets and liabilities by lessees, as described above, is not required for certain short term leases and leases of low value assets. Additionally, the accounting treatment for lessors is not substantially affected by the requirements of IFRS 16.
The Bank is currently assessing the impact of IFRS 16 on its financial statements, and it is impracticable to quantify its estimated impact as at the date of the publication of these financial statements. Operating lease commitments currently in place are set out in note 36.
IFRS 17, Insurance Contracts (effective 1 January 2021). IFRS 17, which supersedes IFRS 4 ‘Insurance Contracts’ provides a comprehensive and consistent accounting model for insurance contracts. It applies
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12 to insurance contracts issued, all reinsurance contracts and to investment contracts with discretionary participating features that an entity issues provided it also issues insurance contracts. Financial guarantee contracts are allowed to be within the scope of IFRS 17 if the entity has previously asserted that it regarded them as insurance contracts.
According to IFRS 17 general model, groups of insurance contracts which are managed together and are subject to similar risks, are measured based on building blocks of discounted, probability-weighted future cash flows, a risk adjustment and a contractual service margin (‘CSM’) representing the unearned profit of the contracts. Under the model, estimates are remeasured in each reporting period. A simplified measurement approach may be used if it is expected that doing so a reasonable approximation of the general model is produced or if the contracts are of short duration.
Revenue is allocated to periods in proportion to the value of expected coverage and other services that the insurer provides during the period, claims are presented when incurred and any investment components i.e amounts repaid to policyholders even in the insured event does not occur, are not included in revenue and claims. Insurance services results are presented separately from the insurance finance income or expense.
IFRS 17 is not relevant to the Banks’s activities.
Annual Improvements to IFRSs 2014-2016 Cycle (effective 1 January 2018). The amendments introduce key changes to four IFRSs following the publication of the results of the IASB’s 2014-16 cycle of the annual improvements project. The topics addressed by these amendments are set out below:
-IAS 28 ‘Investments in Associates and Joint Ventures’: It is clarified that venture capital organizations, mutual funds, unit trusts and similar entities are allowed to elect measuring their investments in associates or joint ventures at fair value through profit or loss. The adoption of the amendment is not expected to impact the Bank’s financial statements.
Annual Improvements to IFRSs 2015-2017 Cycle (effective 1 January 2019). The amendments introduce key changes to four IFRSs following the publication of the results of the IASB’s 2015-17 cycle of the annual improvements project. The topics addressed by these amendments are set out below: -IFRS 3 ‘Business Combinations’ and IFRS 11 ‘Joint Arrangements’: It is clarified how an entity accounts for increasing its interest in a joint operation that meets the definition of a business. •If a party obtains control of a business that is a joint operation, then the transaction constitutes a busi- ness combination achieved in stages and the acquiring party remeasures the entire previously held interest in the assets and liabilities of the joint operation at fair value. •If a party obtains joint control, then the previously held interest is not remeasured.
- IAS 12 ‘Income Taxes’: It is clarified that all income tax consequences of dividends, including payments on financial instruments classified as equity, should be recognized in profit or loss, other comprehensive income or equity, depending on where the originating transaction or event that generated distributable profits giving rise to the dividend, was recognized. - IAS 23 ’Borrowing costs’: It is clarified that any borrowing originally made to develop a qualifying asset should be treated as part of general borrowings when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. The adoption of the amendments is not expected to impact the Bank’s financial statements.
IFRIC 22, Foreign Currency Transactions and Advance Consideration (effective 1 January 2018). The amendment provides requirements about which exchange rate to use in reporting foreign currency transactions that involve an advance payment or receipt. The interpretation clarifies that in this case, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income is the date of the advance consideration, i.e. when the entity initially recognized the non-monetary asset (prepayment asset) or non-monetary liability (deferred income liability) arising from the advance consideration. If there are multiple payments or receipts in advance, the entity must determine a date of transaction for each payment or receipt. The adoption of the amendments is not expected to impact the Bank’s financial statements.
IFRIC 23, Uncertainty over Income Tax Treatments (effective 1 January 2019, not yet endorsed by EU).The interpretation clarifies the application of the recognition and measurement requirements in IAS 12 ‘Income Taxes’ when there is uncertainty over income tax treatments. In such a circumstance, recognition and
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13 measurement of current or deferred tax asset or liability according to IAS 12 is based on taxable profit (tax loss), tax bases, unused tax losses and tax credits and tax rates determined applying IFRIC 23.
According to the interpretation, each uncertain tax treatment is considered separately or together as a group, depending on which approach better predicts the resolution of the uncertainty and the entity should assume that a tax authority with the right to examine tax treatments will examine them and will have full knowledge of all relevant information. If an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, it should determine its accounting for income taxes consistently with that tax treatment. If it concludes that it is not probable that the treatment will be accepted, the effect of the uncertainty in its income tax accounting should be reflected in the period in which that determination is made, using the method that best predicts the resolution of the uncertainty (ie the most likely amount or the expected value method).
Judgments and estimates made for the recognition and measurement of the effect of uncertain tax treatments should be reassessed whenever circumstances change or new information that affects those judgments arise (eg actions by the tax authority, evidence that it has taken a particular position in connection with a similar item or the expiry of its right to examine a particular tax treatment). The adoption of the interpretation is not expected to impact the Bank’s financial statements. c) Position of the Group
Greece’s real GDP grew by 1.4% in 2017, according to the Hellenic Statistical Authority’s (ELSTAT) first estimate from -0.02% in 2016, while the real GDP growth consensus forecast for 2018 is at 2.1% (compared to an official target of 2.5%). The unemployment rate in December 2017 was 20.8%, based on ELSTAT data (31 December 2016: 23.5%). On the fiscal front, Greece’s primary surplus for 2017 is expected at 2.44% of GDP, according to the 2018 Budget data, outperforming the respective Third Economic Adjustment Program (TEAP) primary balance target of 1.75%. According to Bank of Greece and ELSTAT data the current account deficit decreased at -0.8% of GDP in 2017 (2016: -1.1 %).
Greece, following the conclusion of the TEAP second review in June 2017 and the consequent release of the € 8.5 bn loan tranche, reached a staff level agreement with the European institutions on the policy package of the third review on 4 December 2017 and implemented all prior actions by early 2018, which paved the way for the disbursement of the first sub-tranche of € 5.7 bn in the second half of March 2018. The second sub-tranche of € 1 bn will be disbursed in the second quarter of 2018 subject to positive reporting by the European institutions on the clearance of net arrears and the unimpeded flow of e-auctions. On the back of the aforementioned positive developments, Greece returned to the financial markets through the issue of a € 3 bn five-year bond at a yield of 4.625% on 24 July 2017 (for the first time since July 2014) and a € 3 bn seven-year bond at a yield of 3.5% on 8 February 2018. The proceeds of the bond issues are used for further liability/debt management and for the build-up of a state cash buffer that would facilitate the country’s market access after the end of the program in August 2018.
The completion of the fourth and final review of the TEAP, which will be carried out by June 2018 according to the implementation plan, an expected significant rise in investments (2018 Budget estimate at 11.4% compared to 9.6% increase in 2017), and a forecasted strong tourism season support expectations for a further improvement in domestic economic activity in 2018. The decisive implementation of the reforms agreed in the context of the TEAP, the implementation of further debt relief measures in accordance with 24 May 2016 Eurogroup decisions, the mobilization of European Union (EU) funding to support domestic investment and job creation, the attraction of foreign and domestic capital and the adoption of an extrovert economic development model will facilitate the restoration of confidence in the prospects of the Greek economy and the further stabilization of the domestic economic environment, which are necessary conditions for the return of the country to a strong and sustainable growth path.
The main risks and uncertainties are associated with (a) the possible delays in the implementation of the reforms’ agenda in order to meet the next targets and milestones of the TEAP, (b) the possible delays in the agreement of the post-program relation between Greece and the Institutions, (c) the impact on the level of economic activity and on the attraction of direct investments from the fiscal and social security-related measures agreed under the reviews of the TEAP, (d) the ability to attract new investments in the country, (e) the timing of a full lift of restrictions in the free movement of capital and the respective impact on the level of economic activity, (f) the possible slow pace of deposits inflows and/ or possible delays in the effective management of non-performing exposures (NPEs) as a result of the challenging macroeconomic conditions in Greece and (g) the geopolitical conditions in the broader region and the external shocks from a slowdown in the global economy. In accordance with the agreement with the European partners the authorities are committed to preserving
Annual Report 2017
14 sufficient liquidity in the banking system, as long as Greece meets its obligations under the European Stability Mechanism (ESM) program. The gradual stabilisation of the macroeconomic environment, following the completion of the second and the third review of the TEAP, has enhanced Greece’s credibility towards the international markets, improved the domestic economic sentiment and facilitated the return of deposits as well as the further relaxation of capital controls. The successful completion of the fourth review of the TEAP and an agreement on the post-program relation of Greece with its official creditors will help further reinstating depositors’ confidence and thus accelerate the return of deposits, and it will positively influence the financing of the economy.
The Group monitors closely the developments in the Greek macroeconomic environment taking into account its direct and indirect exposure to sovereign risk. A key priority is the active management of NPEs, with the aim to substantially reduce their stock in accordance with the Bank’s operational targets and taking advantage of the Group’s internal infrastructure, the important legislative changes and the external partnerships that have taken or are expected to take place.
In parallel, the Group recorded a net profit attributable to shareholders of € 104 million for 2017. In the context of its strategic plan, the Bank has undertaken significant initiatives towards the fulfillment of the remaining commitments of the restructuring plan and it proceeded with the redemption of the preference shares by issuing Tier 2 bonds at early 2018, which count in its total capital adequacy ratio. The Group’s Common Equity Tier 1 (CET1) ratio stood at 17.9 % at 31 December 2017, while the respective pro-forma ratio with the redemption of preference shares/issue of Tier 2 bonds and the completion of the sale transaction in Romania would be 15.8%. The impact of the adoption of IFRS 9 on Group’s CET1 as at the end of 2018, according to the transitional arrangements for the 5-year phase in period, will be 16 bps.
Eurobank, along with the other three Greek systemic banks directly supervised by the European Central Bank (ECB), undergoes the 2018 EU-wide stress test launched by the European Banking Authority (EBA) on 31 January 2018. The results for the Greek systemic banks are expected to be published in May 2018.
Within an environment of positive growth, the Group is well on track to achieve the 2018 NPE reduction targets, maintain profitability, continue the creation of organic capital and strengthen its position in the Greek market and abroad. d) Position of the Bank
As at 31 December 2017, the Bank does not rely on funding from the Parent bank but predominantly on locally collected deposits, its own capital base and, to a lesser extent, funding from international financial institutions. The bank’s capital adequacy ratio (as prescribed by NBS) is higher than the regulatory minimum of 8% (Note 5.5). Article 33 of the Law on Banks (RS Official Gazette No 107/05, 91/10 and 14/15) prescribes that a bank’s exposure to all related parties must not exceed 25% of the bank’s regulatory capital. As at 31 December 2017, 31 December 2016 and the date of approval of these financial statements, the Bank's exposures to the related parties of the Bank did not exceed the amount prescribed by the Law. e) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.
Assets and liabilities denominated in foreign currencies have been translated into the functional currency at the market rates of exchange ruling at the balance sheet date and exchange differences are accounted for in the income statement.
The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognized in profit or loss.
Annual Report 2017
15 f) Functional and presentation currency
Items included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”).
The financial statements are presented in RSD (Serbian dinar), which is the Bank’s functional and presentation currency.
2.2 INCOME STATEMENT a) Interest income and expense
Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or designated at fair value through profit or loss, are recognized within ‘interest income’ and ‘interest expense’ in the income statement using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been impaired as a result of a loss event, interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. b) Fee and commission income
Fees and commissions, except for those, which form part of the effective interest rate of the instruments, are generally recognized on an accrual basis when the service has been provided. Fees and commissions mostly comprise of fees for payment operations services, issued guarantees and other services. c) Net trading income
Net trading income comprises gains less loss related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest and foreign exchange differences.
2.3 INCOME TAX EXPENSE
Income tax expense comprises current and deferred tax. Current income tax presents the amount calculated and paid to the tax authorities based on legislations of Republic of Serbia. Estimated monthly instalments are calculated by the Bank and paid in advance on a monthly basis. Income tax at the rate of 15% is payable based on the profit calculated as per the tax return. In order to arrive at the taxable profit, the accounting profit is adjusted for certain differences and reduced for certain investments made during the year. Tax return is submitted to tax authorities until the 30 June of the following year.
Deferred income tax is provided, using the liability method, for tax loss carry forwards and temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the financial statements. Deferred tax liabilities are recognized for all taxable temporary differences between the tax basis of assets and liabilities at the balance sheet date, and their amounts disclosed for reporting purposes, which will result in taxable amounts in future periods.
Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that future taxable profits will be sufficient to enable realization (utilization) of deductible temporary differences. The deferred tax asset on income tax losses carried forward is recognized as an asset when it is probable that future taxable profits will be available against which these losses can be utilized.
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16 Deferred tax related to changes in fair values of available-for-sale investments and cash flow hedges which are recognised to other comprehensive income, is also recognised to other comprehensive income, and is subsequently recognised in the income statement together with the deferred gain or loss.
Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Current and deferred income tax is recognized in the current year’s income statement.
2.4 EMPLOYEE BENEFITS a) Employee’s benefits
Short term benefits to employees include salaries and social contributions. They are recognized as an expense in the period when they are incurred.
The Bank and its employees are obliged to make payments to the pension fund of Republic of Serbia in accordance with the defined contribution plan. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expense when they are due. b) Other employee’s benefits
The Bank provides other benefits for the retirement. An employee is usually entitled to these benefits if they were employees of the Bank until reaching the prescribed age for retirement and the minimum required years of employment. The above mentioned benefits are accumulated during the service. The defined retirement obligations are estimated annually by an independent certified actuary through the projected credit unit valuation method. The present value of benefit obligations is determined by discounting the expected future cash payments by reference to the interest rates of the high quality bonds expressed in the same currency, which mature approximately at the same period when retirement obligations are due.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. c) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Bank recognizes termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.
2.5 FINANCIAL ASSETS
The Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the classification of its investments at initial recognition. a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception.
Annual Report 2017
17 A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorized as held for trading unless they are designated as hedging instruments.
Financial assets and financial liabilities are designated for at fair value through profit or loss when: - Doing so significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases - Certain investments, such as equity investments, are managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis. b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. c) Held-to-maturity financial assets
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity. If the Bank was to sell other than an insignificant amount of held-to-maturity assets, the entire category would be reclassified as available for sale, and prevent the Bank from classifying investment securities as held- to-maturity for the current and the following two financial years.
Held-to-maturity investments are stated at amortized cost using effective interest rate method, less any provision for impairment. Interest earned whilst holding investment securities is reported as interest income. The amortized cost is calculated taking into consideration all discounts and premiums received at the date of purchase. The Bank assesses its intention and ability to hold to maturity its held-to-maturity investments not only when those financial assets are initially recognised, but also at each subsequent balance sheet date. d) Available-for-sale financial assets
Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. e) Financial instruments - accounting treatment
Regular-way purchases and sales of financial assets at fair value through profit or loss, held to maturity and available for sale are recognized on trade-date – the date on which the Bank commits to purchase or sell the asset. Investments are initially recognized at fair value increased for transactions costs for all financial assets not held at fair value through profit or loss. Trading securities, derivatives and other financial instruments at fair value through profit or loss are initially recorded at fair value. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the Bank has transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortized cost using the effective interest rate method. Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of available for-sale financial assets are recognized directly in equity, until the financial asset is derecognized or impaired at which time the cumulative gain or loss previously recognized in equity is recognized in profit or loss. However, interest calculated using the effective interest method is recognized in the income statement. Dividends on equity instruments are recognized in the income statement when the entity’s right to receive payment is established.
The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Bank establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.
Annual Report 2017
18 2.6 DERIVATIVES
Derivatives are financial instruments:
a) whose value is changed in response to the change in specified interest rate, financial instrument price, foreign exchange rate, index of prices and rates, credit rates or credit index or other variable; b) that requires no initial net investment or an initial net investment is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; c) that are settled at a future date.
Derivative financial instruments, including foreign exchange contracts, forward currency agreements, currency swaps, and other derivative financial instruments are usually not recognised initially on the face of the balance sheet as they are often entered into at no cost (i.e. the net fair value of the receivables and payables is zero). When the net investment is not zero derivatives are are initially recognized in the balance sheet at fair value on the date on which a derivative contract is entered into, and subsequently are re- measured at their fair value. Fair values are obtained from quoted market prices, including recent market transactions, discounted cash flow models as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The changes in the fair value of derivatives are included in the income statement. The Bank does not apply hedge accounting.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
2.7 IMPAIRMENT OF FINANCIAL ASSETS a) Assets carried at cost and amortized cost
The Bank establishes allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The assessment of incurred losses is performed at individual level for corporate and individually significant retail exposures and at collective level for groups of financial assets with similar credit risk characteristics.
At each reporting date Bank determines whether objective evidence of impairment of financial asset or group of financial assets exists. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is an objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria that the Bank takes into consideration to determine if there is an objective evidence of impairment include: • Delinquency in contractual payments of principal or interest; • Significant financial difficulties experienced by the borrower; • Breach of loan covenants or conditions; • Initiation of bankruptcy proceedings;
If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, or assesses zero provisions at individual level, it includes the asset in the group of financial assets with similar credit risk characteristics and collectively assesses its impairment. Assets that are individually assessed for impairment and for which an impairment loss is calculated at individual level, are not included in a collective assessment of impairment.
The amount of the loss for individually assessed financial assets is calculated as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted using the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. If a loan or held-to-maturity investment has a variable interest rate,
Annual Report 2017
19 the discount rate for measuring any impairment loss is updated using the latest data on the variable part of an interest rate. The calculation of the present value of the estimated future cash flows may include cash flows from liquidation of collaterals. These cash flows include inflows that may result from foreclosure of collateral less costs for obtaining and selling the collateral.
For the purposes of a collective assessment of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the Bank’s portfolio segments, as well as rating model or days in delay). Those characteristics are relevant for the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due, according to the contractual terms.
Future cash flows for a group of financial assets for which impairment is collectively assessed are estimated on the basis of the historical data for assets with similar credit risk characteristics. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.
Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed and back tested regularly by the Bank to reduce any differences between loss estimates and actual loss experience.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the income statement in impairment charge for credit losses.
When a loan is uncollectible, it is written off. Such loans are written off after all the necessary procedures have been completed and after the Bank recognises loss allowance in the amount of 100% of its gross carrying amount. b) Assets classified as available for sale
The Bank assesses at each reporting date whether there is an objective evidence that a financial asset or a group of financial assets is impaired. In the case of securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired.
If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value – is removed from other comprehensive income and recognized in the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement.
2.8 CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise of cash on Giro and current accounts in dinars, cash in hand, other cash and cash equivalents in dinars, foreign currency account, cash in hand and other cash and cash equivalents in foreign currency.
2.9 SALE AND REPURCHASE AGREEMENTS
Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or re-pledge the securities; the corresponding liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to purchase and sell (“reverse repos”) are recorded as due from other banks or loans and advances to customers, as appropriate. The difference between purchase and sale price is treated as interest and accrued over the life of the agreements using the effective interest rate method.
Annual Report 2017
20 2.10 INVESTMENTS IN ASSOCIATES
Associates are entities over which the Bank has significant influence (directly or indirectly), but not control, generally accompanying a shareholding of between 20 and 50 present of the voting rights. Investments in associates are accounted for using the equity method of accounting, and are initially recognised at cost. The carrying amount of associates includes goodwill identified on acquisition less accumulated impairment losses, if any. Dividends received from associates reduce the carrying value of the investment in associates. Other post-acquisition changes in Bank’s share of net assets of an associate are recognised as follows: (i) the Bank’s share of profits or losses of associates is recorded in the profit or loss for the year as share of result of associates; (ii) the Bank’s share of other comprehensive income is recognised in other comprehensive income and presented separately. However, when the Bank’s share of losses in an associate equals or exceeds its interest in the associate, the Bank does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
2.11 PROPERTY AND EQUIPMENT
All property and equipment are carried at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to income statement of the financial period in which they are incurred.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: 2017 in years 2016 in years Buildings 77 77 Leasehold improvements up to 18 up to 18 Computer equipment 5-7 5-7 Furniture and other equipment 7-25 7-25 Motor vehicles 5 5
The assets’ residual value represents the estimated amount that the Bank might obtain at present through the sale of the asset, decreased by the estimated cost of sale. If the Bank expects to utilize the asset until the expiration of its useful life, the residual value amounts to zero. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in other operating income/expenses in the income statement.
2.12 INTANGIBLE ASSETS
Licenses
Licenses are initially recognized at cost. They have limited useful life and are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over their estimated useful lives (from 1 to 15 years).
Software
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives. Costs associated with developing or maintaining computer software are recognized as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Bank and will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include the costs of employees involved in software development.
Computer software development costs recognized as assets are amortized over their estimated useful lives from 3 to 15 years.
Annual Report 2017
21 2.13 IMPAIRMENT OF NON-FINANCIAL ASSETS
Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
2.14 REPOSSESSED PROPERTIES
Land and buildings repossessed through an auction process to recover impaired loans are, except where otherwise stated, included in "Other Assets". Assets acquired from an auction process are held temporarily for liquidation and are valued at the lower of cost and net realizable value. Any gains or losses on liquidation are included in "Other operating income".
2.15 LEASES
The Bank is a lessee Leases entered into by the Bank are primarily operating leases. With an operating lease, a significant part of both risk and benefits remains with the lessor. The total payments made under operating leases are charged to other operating expenses in the income statement on straight-line basis over period of the lease.
The Bank has entered into commercial leases for premises, equipment and motor vehicles. The majority of the Bank’s leases are under long-term agreements, according to the usual terms and conditions of commercial leases of each jurisdiction, including renewal options. The Bank’s lease agreements, do not include any clauses that impose any restriction on the Bank’s ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.
When an operating lease is terminated before lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place.
The Bank is a lessor A lease is an agreement whereby the lessor conveys to the lessee in return for a payment, or series of payments, the right to use an asset for an agreed period of time.
The Bank is leasing the assets under operating lease. The asset under operating lease is included in the balance sheet of the Bank based on the nature of the asset. Lease income is recognised over the term of the lease on a straight-line basis.
2.16 SHARE CAPITAL a) Ordinary shares and share issue costs a
Ordinary shares are classified as equity. Share issue costs directly attributable to the issue of new shares are shown in equity as a deduction. Any excess of the fair value of consideration received over the par value of shares issued is recorded as share premium in equity. b) Dividends on ordinary shares
Dividends are recognized as liabilities for the period in which the decision of their payment has been reached. Dividends approved for the year after the balance sheet date are dealt with in the subsequent events note. c) Earnings per share
Earnings per share are determined by dividing the profit or loss attributable to owners of the Bank by the weighted average number of participating shares outstanding during the reporting year.
Annual Report 2017
22 2.17 BORROWINGS, INCLUDING DEBT SECURITIES IN ISSUE
Borrowings are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. Borrowings are subsequently stated at amortised cost and any difference between net proceeds and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.
2.18 DUE TO BANKS
Amounts due to banks are recorded when money or other assets are advanced to the Bank by counterparty banks. The non-derivative liability is carried at amortised cost.
2.19 CUSTOMER ACCOUNTS
Customer accounts are non-derivative liabilities to individuals, state or corporate customers and are carried at amortised cost.
2.20 PROVISIONS
Provisions for restructuring costs and legal claims are recognized when the Bank has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and reliable estimates of the amount of the obligation can be made. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If, subsequently, it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
2.21 OTHER LIABILITIES
Other liabilities are recognized initially at fair value net of transaction costs incurred. Other liabilities are subsequently stated at amortized cost.
Other liabilities are classified as current liabilities, unless the Bank has indisputable right to postpone the settlement of obligations for at least 12 months after the balance sheet date.
2.22 RELATED PARTY TRANSACTIONS
Related parties include associates, fellow subsidiaries, directors, their close families, companies owned or controlled by them and companies whose financial and operating policies they can influence. Transactions of similar nature are disclosed on an aggregate basis. All banking transactions entered into with related parties are in the normal course of business and on an arm's length basis.
2.23 FINANCIAL GUARANTEES
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the Bank’s liabilities under such guarantees are measured at the higher of the initial measurement, less amortization calculated to recognize in the income statement the fee income earned on a straight line basis over the life of the guarantee and the best estimate of the expenditure required to settle any financial obligation arising at the balance sheet date. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgment of Management. Any increase in the liability relating to guarantees is taken to the income statement.
Annual Report 2017
23 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. a) Impairment losses on loans and advances
The Bank reviews its loan portfolios to assess impairment on a monthly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. The evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
A 10% increase in the actual loss experience compared to the estimated future discounted cash flows from individually assessed loans, which could arise from differences in amounts and timing of the cash flows, would result in an increase in loan impairment losses of RSD 216,098 thousand. On contrary, a 10% decrease in the actual loss experience compared to the estimated future discounted cash flows from individually assessed loans, would result in an decrease in loan impairment losses of RSD 510,953 thousand. b) Provisions for litigation cases
The Bank continuously monitors status of litigation cases and as a part of that process Bank performs testing of the adequacy of calculated provisions on quarterly basis. In making this judgment, the Bank divided all litigation cases in two major groups: a) Litigation cases for which provisions are assessed on the individual basis and b) Interest rate related litigation cases for which provisions are assessed and monitored on the “portfolio” level. i.e. assessment is made whether total level of provisions is adequately covering claim amount plus penalty interest. c) Uncertain tax position
The Bank's uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period. d) Deferred income tax asset recognition
The recognized deferred tax asset represents income taxes recoverable through future deductions from taxable profits, and is recorded in the income statement. Deferred income tax assets are recorded to the extent that realization of the related tax benefit is probable. The future taxable profits and the amount of tax benefits that are probable in the future are based on a medium term business plan prepared by management and extrapolated results thereafter. The business plan is based on management expectations that are believed to be reasonable under the circumstances. e) Fair value of financial assets and liabilities
The fair values of quoted investments in active markets are based on current bid prices (financial assets) or offer prices (financial liabilities). If there is no active market for a financial instrument, the Bank establishes
Annual Report 2017
24 fair value using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. The valuation models reflect current market conditions at the measurement date which may not be representative of market conditions either before or after the measurement date. As at the balance sheet date, management has reviewed its models to ensure they appropriately reflect current market conditions, including the relative liquidity of the market and credit spreads.
Information about fair values of instruments that were valued using assumptions that are not based on observable market data is disclosed in Note 5.6.
4. FINANCIAL ASSETS PER CATEGORIES AND CLASSES
Financial assets per categories and classes are as follows: 31 December 2017 31 December 2016 Cash and balances with Central bank 18.005.519 21.714.061 Loans and receivables 120.438.127 107.064.262 Financial assets at fair value through profit or loss held for trading 322.759 26.712 Financial assets available for sale (including pledged assets - Note 13.048.315 15.686.119 20) Other asset (financial part) 477.605 76.254 Total 152.292.325 144.567.408 Pledged assets (Note 20) 3.110.300 692.590
5. RISK MANAGEMENT POLICIES
The Bank’s activities expose it to a variety of financial risks, which have to be properly managed, i.e. identified, measured, monitored, controlled and if necessary mitigated. Risk management division is in charge of the oversight and management of the identified risks. The Bank has defined procedures and methodologies for risk identification, measurement, monitoring, mitigation and risk management overall, in accordance with the relevant regulation and best practice.
The Bank’s risk management policies are designed to identify and analyse exposure to risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information and reporting system.
The Bank is exposed to the following most important risks:
5.1. Credit risk 5.2. Market risk 5.3. Liquidity risk 5.4. Operational risks
Market risk includes: • Foreign currency risk • Interest rate risk • Other price risks
5.1 CREDIT RISK
Credit risk is the risk of negative impact on the financial result and capital of the bank if a debtor fails to meet its contractual obligations. For the risk management reporting purposes, the Bank considers all relevant elements of credit risk exposure (such as individual obligor default risk, concentration risk in terms of groups of related parties, sector concentration risk).
5.1.1 MANAGEMENT OF CREDIT RISK
The Bank approves loans in accordance with credit policies. Maturity dates of loans approved and interest rates are aligned with the purpose of loans, type of the loan or client and creditworthiness of its clients.
Annual Report 2017
25 The Board of Directors has delegated responsibility for the approval of credit exposures to several different levels in accordance with the limits set forth by the Board. The underlying foundation of the credit processes is the application of the “four-eye principle”, which assumes involvement of the business units („front office“) and Risk Management for all exposures above the business unit level of approval. In case of exposures approved within the business unit level of approval, the “four-eye principle” is ensured within that business unit.
Business Units, under the Corporate Banking Division, incorporate the following: • Large Corporate (LC) Department • Small & Medium Enterprises (SME) Department
Business Divisions, responsible for retail lending operations, incorporate the following: • Household Lending Division • Small Business Lending Division
The Risk Management Division (RMD) incorporates the following units handling credit risk: • Credit Risk Department (CRD) • Credit Control Department (CCD) • Risk Modelling Department • Integrated Risk Management Department • Collateral Management Department
Troubled Asset Sector is also involved in credit risk management, by handling Non-Performing Loans (NPL Department) and collection in Retail segment (Retail Collection Division).
Credit Control Department, Credit Risk Department and Risk Modelling Department are responsible for oversight of the Bank’s credit risk, including:
• Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. This task is performed by Credit Control Department and Credit Risk Department. • Credit Risk Department assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the relevant business unit, and provides independent credit opinion. Renewals and reviews of facilities are subject to the same assessment process. • Limiting concentrations of exposure to counterparties, countries and industries (for loans and advances), and by issuer, credit rating and market liquidity (for investment securities). • Developing and maintaining the Bank’s risk grading (rating) policy in order to categorize exposures according to the level of exposure to credit risk enabling to put more focus on the observed risks. The rating system is maintained by Risk Modelling Department. The rating system is used in the calculation of the credit risk loss allowance. The current risk grading framework for wholesale placements consists of eleven grades, while for retail exposures distinction is made depending on the delinquency (days past due). Ratings are subject to regular reviews.
Reviewing compliance of business units with defined exposure limits, including those for selected industries and product types is the responsibility of Credit Control Department. Reporting about the indicators of the quality of the portfolios and information are regularly provided to various Bank’s bodies, based on which appropriate corrective actions are considered.
Each business unit is required to implement Bank’s credit policies and procedures, with credit approval authorities delegated from the Board of Directors. Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval.
The Bank has developed and adopted a credit policy for each lending business unit. Each credit policy of Eurobank a.d. (hereinafter: the Credit Policy) defines basic concepts, guidelines and rules that ensure the proper management of the process of approving, disbursing, monitoring and collecting of loans and other exposures.
Annual Report 2017
26 Credit Policy includes: • the goals of the credit policy, • the basic concepts of credit policy, • lending principles, • the organization of credit operations, • responsibilities and decision making, • the procedure for granting loans and other placements, • guidelines on credit risk analysis, • acceptable collateral instruments, • procedures for collecting outstanding amounts.
For the purposes of implementing the Credit Policies, relevant guidelines and procedures have been defined.
When assuming credit risk, the Bank applies a number of important fundamental rules.
A prerequisite for every financing transaction is the understanding of the economic background of the transaction.
A loan is granted only when the Bank has sufficient information on the borrower’s creditworthiness. The Bank will not grant a loan (or increase an existing one) to a borrower who is unwilling or unable to provide sufficient information.
Collateral is accepted only to support an exposure. It cannot serve as a substitute for the borrower’s ability to meet obligations (exception: Lombard loans, cash collateralized loans, etc.).
The large exposures towards any borrower (or group of connected borrowers), exposures towards related parties as well as the total exposure of the Bank (both on and off-balance sheet), is kept within limits prescribed by the Law on Banks and relevant decisions of the National bank of Serbia.
The Bank approves new loans or decides to extend or not to extend the existing ones based on creditworthiness of the client, as well as details and characteristics of the transaction.
All Bank credit facilities are based on relevant approvals, which lay down the terms and other conditions for their implementation. The approval levels and limits are defined by the relevant Board of Directors Decision on approval levels.
For wholesale placements, appropriate approval authority levels depending on exposures are defined, with the highest one being Board of Directors (or other nominated authority) in case of large exposures and exposures to related parties.
For retail placements, there are also different approval levels depending on the type of business (consumer lending, mortgage lending or SBB lending), with the highest authority being specific Credit Commission for each business type.
In each committee/commission, risk management has the right of vote. All decisions must be unanimous.
In addition to the client’s creditworthiness, risk limits are also determined taking into account various collateral instruments. Risk exposure to individual borrower, including banks, is limited and includes both balance and off- balance sheet risk exposures. The total risk exposure per individual client (or group of related parties) with regards to the limits, is considered and analysed prior to completion of the transaction.
In order to ensure the safety of the business operations, and based on the estimated risks of potential losses, the Bank calculates provisions, which arise from loans and off-balance sheet exposures. Levels of provision are related to the risk grade of the placement.
Annual Report 2017
27 Rating system for wholesale (corporate) clients
The 11 grade system derives the rating of the borrower (and not the credit facility) and it is based on the weighted average of the following risk parameters: • Financials • Sector • Management • Operations
In addition, other factors such as debt servicing, change in the borrower’s ownership, etc., may affect the final rating of a customer.
The credit rating is based on a profound analysis of qualitative and quantitative factors:
Qualitative factors: are those that deal with the borrower’s management, industry, operating conditions, etc.
Quantitative factors: are those that refer to a set of various ratios (main ratios: profitability, leverage, liquidity) emerging from the borrower’s financial statements (balance sheet, income statement, notes to financial statements etc.)
Credit related commitments The primary purpose of undrawn credit commitments is to ensure that funds are available to a customer in accordance with the agreement.
Guarantees and letter of credits expose the Bank to the credit risk as well. Appropriate credit conversion factors are applied in the process of loss allowance calculation.
5.1.2. IMPAIRMENT AND PROVISIONING POLICY
Impaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan / securities agreement(s). Exposures are treated as impaired in accordance with the following rules:
Consumer portfolio • exposures in delinquency more than 90 dpd; • exposures classified as non-performing, including non performing forborne
MLU portfolio • iexposures in delinquency more than 90 dpd; • exposures classified as non-performing, including non performing forborne
SBB portfolio • exposures in delinquency more than 90 dpd; • exposures classified as non-performing, including non performing forborne.
Wholesale Banking portfolio • exposures in delinquency more than 90 dpd; • exposures of the clients in rating categories 8-11; • exposures classified as non-performing, including non performing forborne
Past due but not impaired loans
Past due but not impaired loans and securities are those where contractual interest and/or principal payments are past due but the Bank assessed that there is no objective evidence of impairment. The criteria used by the Bank for the purpose of this disclosure are:
Annual Report 2017
28 All portfolios (Consumer, MLU, SBB, Corporate) • exposures in delinquency up to 89 days (1-89 dpd); • Performing Forborne loans that are delinquent not more than 90 dpd.
Allowances for impairment
The Bank recognises allowance for impairment losses which represents its estimate of incurred losses in its loan portfolio. Components of this allowance are specific loss component that relates to individually significant exposures assessed as impaired, specific loss component related to exposures that are not individually significant, but assessed as impaired, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been reported. Impairment of wholesale (corporate) placements
Clients with materially significant exposure, in line with Bank’s internal regulations and credit process, are individually assessed in order to identify existence of any impairment trigger. For exposures to borrowers assessed as impaired (with a rating 8 or worse), allowances for impairment are calculated on individual basis in accordance with IAS 39 requirements, taking into account expected cash payments, collateral sale, repayments from others sources based on the analysis of the particular client. For other exposures (ratings 1-7), provisions are calculated on collective basis, taking into account Bank’s historical experience on defaults and losses, as well as coverage of exposure with the eligible collateral. When calculating value of real estate collaterals that can be used for the purpose of credit risk mitigation, appropriate haircuts and realization periods are applied, calculated on the basis of the Bank’s historical experience on collateral sales. If the estimated value of the allowance for impairment of the exposure under individual assessment equals 0, the above mentioned exposure is included in the calculation on collective basis i.e. the calculation of allowance for impairment based on historical experience, as defined by the internal regulations.
Impairment of retail placements
The classification of retail clients, except individually significant exposures, is fully based on the delinquency analysis. The required impairment allowances are computed by applying the appropriate provisioning rate to the gross exposure per each product group and subgroup (where it exists) and per each delinquency bucket. In addition, coverage of exposure with the eligible collateral is taken into account. When calculating value of real estate collaterals that can be used for the purpose of credit risk mitigation, appropriate haircuts and realization periods are applied, calculated on the basis of the Bank’s historical experience on collateral sales. In case of individually assessed impaired loans, future expected cash-flows are estimated and discounted in accordance with IAS 39 requirements, in order to arrive to appropriate level of impairment.
Special reserves
For both wholesale and retail placements, as per the regulatory requirements of the National Bank of Serbia, the Bank calculates reserves for estimated losses as defined by the Decision on the Classification of Banks Balance Sheet Assets and Off-Balance Sheet Items, and other relevant regulations of the National Bank of Serbia.
Write-off policy
The Bank writes off a loan/security balance (and any related allowances for impairment losses) when it is determined that the loans/securities are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to collect entire exposure. For unsecured retail loans, write off decisions generally are based on a product specific past due status. Any write-off is approved by the relevant body in accordance with the decision of Board of Directors. In accordance with NBS Decision (‘’Official Gazette of Republic of Serbia’’, no. 77/2017) effective from 30 September 2017 on the accounting write-off of bank balance sheet assets, the Bank performed write-off of loans for which loss allowance equals 100% of its gross book value.
Annual Report 2017
29 5.1.3 COLLATERALS
Collaterals are the most commonly used credit risk mitigation technique. Most often the collateral consists of one or more of the following collateral instruments:
• guarantees from the government, government funds or first class banks, • guarantees from parent companies, other legal entities and individual persons, • letters of comfort from parent companies, • mortgage over real estate, • pledge over movable property, • own blank bills of exchange, • pledge over shares or ownership stakes • a pledge over other securities (e.g. bonds) or precious metals, • assignment of receivables (with or without notification) etc., • assignment of insurance policies.
Valuations of collaterals are performed at the time of loan origination, and generally are updated periodically in accordance with the relevant internal regulations.
5.1.4. CREDIT RISK MONITORING
The Bank constantly monitors the state of the borrower’s business and any change in its creditworthiness. Besides the regular evaluation of financial statements, the responsible business units carry out regular checks of the borrower’s business operations. In addition, special monitoring mechanism is defined by the Credit Risk Management Policy, on individual client level for Corporate and materially significant Retail exposures, and on portfolio level for the rest of the portfolio, focusing on clients/portfolios with early indicators of increased credit risk.
The monitoring of the borrower is institutionalized through regular credit reviews. Credit reviews are prepared by the relevant business unit and approved by the relevant approval authority in accordance with Approval levels and Credit policies. In case of wholesale customers, the review frequency depends on their risk grade.
The Bank’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the Balance sheet. For guarantees and commitments to extend credit, the maximum exposure to credit risk is the amount of the commitment.
The table below represents the Bank’s maximum credit risk exposure as at 31 December 2017 and 31 December 2016 respectively, without taking account of any collateral.
Annual Report 2017
30 Credit risk exposure relating to on balance sheet assets: 31 december 2017 31 december 2016 Loans and deposits to banks and other financial institutions 14.447.514 12.325.886 Less: Impairment allowance (144.082) (80.803) Financial instruments at fair value through profit or loss: Derivative financial instruments 322.759 26.712 Loans and advances to customers: 114.663.993 115.064.026 - Corporate 46.796.973 43.666.932 - SBB 10.757.184 17.412.376 - Mortgage 18.852.090 21.913.636 - Consumer 38.257.746 32.071.082 Less: Impairment allowance (8.529.298) (20.244.847) Investment securities: - Debt securities 13.026.503 15.668.507 Credit risk exposures relating to off-balance sheet items: - Guarantees and other commitments 27.377.463 22.898.425 Less: Provisions (223.613) (229.216) Total 160.941.239 145.428.689
5.1.5. LOANS AND ADVANCES
Portfolio quality
The Bank manages the quality of financial assets through internal classification of loans and advances.
The following table presents the quality of the portfolio (gross loans, payable and performance guarantees, as well as revocable and irrevocable commitments i.e. credit risk bearing balance sheet assets and off- balance exposures) per types of exposure based on the Bank’s classification system as at 31 December 2017:
RSD 000 Neither past due nor impaired Substandard Past due but not Satisfactory quality Other Impaired Total 2017 quality impaired Loans and deposits to banks 14.437.522 • • • 9.992 14.447.514 Loans and receivables from 91.142.618 2.625.643 21.049 3.514.921 17.359.762 114.663.993 customers:
• Corporate 40.088.728 1.061.396 21.049 343.723 5.282.077 46.796.973
• SBB 4.964.601 183.266 • 145.072 5.464.245 10.757.184
• Mortgage 14.568.848 659.005 • 202.933 3.421.304 18.852.090 • Consumer 31.520.441 721.976 • 2.823.193 3.192.136 38.257.746 Guarantees and other com- 23.990.720 711.768 12.643 2.662.332 27.377.463 mitments • Total 129.570.860 2.625.643 732.817 3.527.564 20.032.086 156.488.970
Annual Report 2017
31 Portfolio quality per types of placements based on the Bank classification system as at 31 December 2016 is presented in the table below: RSD 000 Neither past due nor impaired
Satisfactory Substandard Past due but not quality quality Other impaired Impaired Total 2016 Loans and deposits to banks 12.325.886 • • • • 12.325.886 Loans and receivables from 73.875.937 2.193.190 27.579 5.493.846 33.473.474 115.064.026 customers: - Corporate 27.511.100 1.274.631 27.579 2.641.213 12.212.411 43.666.933 - SBB 4.298.375 44.792 • 271.846 12.797.363 17.412.376 - Mortgage 16.572.033 275.808 • 322.314 4.743.481 21.913.636 - Consumer 25.494.430 597.959 • 2.258.473 3.720.219 32.071.081 Guarantees and other com- 19.997.813 44.729 3.809 43.257 2.808.817 22.898.425 mitments Total 106.199.636 2.237.919 31.388 5.537.103 36.282.291 150.288.337
Overdue analysis of loans and placements to banks and customers that are past due but not impaired as at 31 December 2017: Up to 30 days 31 – 60 days 61 – 90 days Over 90 days Total 2017 Loans and receivables from customers: 2.367.263 875.976 271.532 151 3.514.922 - Corporate lending 319.522 • 24.201 • 343.723 - SBB lending 115.797 26.413 2.861 • 145.071 - Mortgage lending 41.762 146.076 14.944 151 202.933 - Consumer 1.890.182 703.487 229.526 • 2.823.195 Guarantees and other commitments 10.339 2.172 131 • 12.642 Total 2.377.602 878.148 271.663 151 3.527.564
Maturity analysis of loans and placements to banks and customers that are past due but not impaired as at 31 December 2016: Up to 30 days 31 – 60 days 61 – 90 days Over 90 days Total 2016 Placements to clients: 4.357.488 858.856 277.502 • 5.493.846
- Corporate lending 2.641.213 • • • 2.641.213
- SBB lending 164.953 57.581 49.312 • 271.846
- Mortgage lending 83.129 231.359 7.826 • 322.314
- Consumer 1.468.193 569.916 220.364 • 2.258.473
Guarantees and other commitments 34.460 8.398 399 • 43.257
Total 4.391.948 867.254 277.901 • 5.537.103
Annual Report 2017
32 The structure of classified balance and off balance assets and allowances for impairment, determined in accordance with Bank internal methodology stated as at 31 December 2017 is presented in the table below: Individual assessment Group assessment Total
Classified Allowance for Classified balance Allowance for Classified balance Allowance for balance assets impairment assets impairment assets impairment Corporate 5.157.012 2.936.969 41.639.960 309.253 46.796.972 3.246.222
SBB 120.672 78.732 10.636.512 2.919.837 10.757.184 2.998.569
Mortgage 132.134 330 18.719.957 528.107 18.852.091 528.437 Consumer • • 38.257.746 1.756.070 38.257.746 1.756.070 Total 5.409.818 3.016.031 109.254.175 5.513.267 114.663.993 8.529.298
Classified off Classified off Classified off balance assets Provisions balance assets Provisions balance assets Provisions Corporate 429.420 147.602 17.870.403 63.419 18.299.823 211.021 SBB • • 1.788.127 6.402 1.788.127 6.402 Consumer • • 7.289.513 6.190 7.289.513 6.190 429.420 147.602 26.948.043 76.011 27.377.463 223.613
Total 5.839.238 3.163.633 136.202.218 5.589.278 142.041.456 8.752.911
The structure of classified balance and off balance assets and allowances for impairment, determined in accordance with Bank internal methodology stated as at 31 December 2016 is presented in the table below:
Individual assessment Group assessment Total Classified Allowance for Classified Allowance for Classified Allowance for balance assets impairment balance assets impairment balance assets impairment Corporate 11.295.266 7.696.680 32.371.665 267.234 43.666.931 7.963.914
SBB 728.791 516.896 16.683.585 8.733.674 17.412.376 9.250.570
Mortgage 156.774 12.126 21.756.863 733.366 21.913.637 745.492 Consumer • • 32.071.082 2.284.871 32.071.082 2.284.871 12.180.831 8.225.702 102.883.195 12.019.145 115.064.026 20.244.847 Classified off Classified off Classified off balance assets Provisions balance assets Provisions balance assets Provisions Corporate 453.861 145.679 13.990.900 64.447 14.444.761 210.126
SBB 2.569 1 1.790.403 13.729 1.792.972 13.730 Consumer • • 6.660.691 5.360 6.660.691 5.360 456.430 145.680 22.441.994 83.536 22.898.424 229.216
Total 12.637.261 8.371.381 125.325.190 12.102.681 137.962.451 20.474.063
Restructured loans
In order to protect from the risk of borrower default or to minimize losses arising from default, the Bank undertakes the following measures in managing receivables: restructuring, repossession of assets in collection of receivables, initiation of court proceedings, and other measures. The Bank approves restructuring of receivables to the borrowers who experience certain setbacks in their business operations.
Annual Report 2017
33 Individually impaired Other Total 2017
Vrsta plasmana Bruto Neto Bruto Neto Bruto Neto Corporate 4.760.721 2.170.968 55.851 55.085 4.816.572 2.226.053
SBB 2.711.332 1.366.710 184.223 183.267 2.895.555 1.549.977
Mortgage 1.598.557 1.493.974 670.785 670.657 2.269.342 2.164.631
Consumer 1.378.442 850.091 951.621 943.784 2.330.063 1.793.875
Total 10.449.052 5.881.743 1.862.480 1.852.793 12.311.532 7.734.536
Individually impaired Other Total 2016
Vrsta plasmana Bruto Neto Bruto Neto Bruto Neto Corporate 8,457,206 3,866,645 1,274,326 1,259,566 9,731,532 5,126,211
SBB 6,496,817 2,060,003 44,792 44,616 6,541,609 2,104,619
Mortgage 2,352,633 2,213,275 306,691 306,516 2,659,324 2,519,791
Consumer 1,594,474 966,962 743,774 738,156 2,338,248 1,705,118
Total 18,901,130 9,106,885 2,369,583 2,348,854 21,270,713 11,455,739
Total amount of restructured loans for corporate clients at the end of 2017 amounted to RSD 4,816,572 thousand (allowance for impairment stood at RSD 2,590,519 thousand). Total amount of restructured loans SBB, Mortgage and Consumer clients amounted to RSD 7,494,960 thousand (allowance for impairment stood at RSD 1,986,477 thousand).
Forbearance is a modification of contract terms and conditions, which is considered as concession due to financial difficulties of the obligor. According to internal definition, the Bank distinguishes between Performing and Non-performing category of forborne loans as follows: a) Exposures are considered as Forborne Performing in the following cases (it is assumed that the exposure fulfils conditions not to be classified as Non-performing):
• Modified contract with more favorable terms than other debtors with similar risk profile • Total or partial refinancing of a troubled debt contract due to financial difficulties • Modified contract which has been more than 30 dpd even if the clause was included in the original contract • Forborne Non Performing Exposures for which conditions to be treated as cured have been met, after at least one year from the date of modification. b) The following cases are considered as Forborne Non Performing exposure:
• Modification of contract terms and conditions or refinancing, when the client was under Non Performing status and for at least one year after the last concession • A Forborne Performing exposure, which during the Forborne Performing probation period met the criteria for Non Performing status • Modifications of exposures which were Non Performing and after one year under Forborne Non Performing probation period met the criteria for entering the Forborne Performing („cured“) status, but during the Forborne Performing probation period, the exposure was either re-modified or more than 30 days past due • Renewals of forbearance coming from Forborne Performing exposure (less than 90 days past due and not unlikely to pay/defaulted/impaired), will be classified as Forborne Performing if there has been more than one additional concession during probation period.
Annual Report 2017
34 Segmentation of Forbearance measures (indicative):
1. Short-term forbearance measures (duration up to 2 years): Arrears Capitalization, Arrears Repayment Plan, Reduced Payment above interest only, Interest only, Reduced Payment below interest only and Grace Period
2. Long-term forbearance measures (duration > 2 years): Interest Rate Reduction, Loan term extension, Split balance, Partial Debt Forgiveness/Write Down, Operational Restructuring and Debt/Equity Swap
The following table presents a summary of the types of the Bank’s forborne activities as at 31 December 2017 and 31 December 2016: 31 December 2017 31 December 2016 Forbearance measures: Interest only schedule 1.038.936 1.482.463 Reduced payment schedule 579.409 777.284 Payment moratorium/Holidays 4.777 1.708 Term extension 341.871 2.541.163 Arrears capitalization 74.686 170.428 Hybrid (i.e. combination of more than one type) 3.620.561 3.684.313 Other 2.074.296 2.798.378 Total net amount 7.734.536 11.455.737
Credit risk mitigation (collaterals)
The amount and type of the requested collateral depends on estimated credit risk of a borrower or transaction. Conditions for all collaterals are determined by the analysis of the client’s solvency, type of credit risk exposure, loan maturity, as well as the exposure amount.
Through its internal methodology, the Bank determined acceptable types of collateral and the parameters of their valuations.
Valuations of collaterals are performed at the time of loan origination, and generally are updated periodically in accordance with the relevant internal regulations.
The Bank monitors the movements in the collateral market value and demands additional collateral in accordance with the loan agreements (where it is applicable).
Collateral overview 31 December 2017 31 December 2016 Neither past due nor impaired • Real estate property 37.219.430 34.494.648 • Financial assets 1.149.463 1.026.952 • Other • • Past due but not impaired • Real estate property 386.421 1.819.399 • Financial assets 6.506 31.264 • Other • • Individually impaired • Real estate property 13.757.949 16.386.756 • Financial assets 368.169 209.619 • Other • • Total 52.887.938 53.968.638
Annual Report 2017
35 The financial effect of collateral - impact on provisions
The financial effect of collateral is presented by disclosing impact of collateral and other credit enhancements on impairment loss recognized for the year. Without holding collateral and other credit enhancements, the impairment provisions would be higher by the following amounts:
As at 31 December 2017 Corporate 2.860.019 SBB 1.552.673 Mortgage 1.437.501 Consumer 281 Total 5.850.474
Receivables in default
The Bank pays particular attention to monitoring of defaults, by observing development of the defaulted exposures.
Bank’s default definition is aligned with NBS definition stated in the Decision on Capital Adequacy of Banks. Defaults are observed on individual client (or in exceptional cases exposure) level and monitored per each portfolio in accordance with Bank’s internal segmentation.
Significant decrease of defaulted exposure is partly coming from the Bank’s activities in collection and restructuring, but the main reason of the deviation is the material amount of write-offs, as a direct consequence of the NBS Decision on write-offs.
According to the Decision, all exposures which are fully covered with impairment allowance have to be written-off. The structure of classified balance assets and default receivables as of 31 December 2017 is presented in the table below:
Value of receivable Default receivable Corporate 46.796.973 5.282.077 SBB 10.757.184 5.464.245 Mortgage 18.852.090 3.421.304 Consumer 38.257.746 3.192.136 Finances and insurance sector 14.447.513 9.992 Total as at 31 December 2017 129.111.506 17.369.754 Total as at 31 December 2016 127.389.913 33.473.474
5.1.6. SECURITIES, TREASURY BILLS AND OTHER ELIGIBLE BILLS
As at 31 December 2017, the Bank has dinar bonds of Republic of Serbia Ministry of Finance in the total amount of RSD 12,442,932 thousand (31 December 2016: RSD 12,117,793 thousand), and foreign currency bonds of Republic of Serbia Ministry of Finance in the amount of RSD 894,864 thousand (31 December 2016: RSD 3,550,714 thousand) – (Note 20). The above mentioned bonds and trading securities are not rated. The rating of country is BB stable based on Standard and Poor’s rating. As of 31.12.2017 part of the RS Ministry of Finance bills in dinars in amount of RSD 3,110,300 thousand are used as pledge given as collateral for deposits taken from companies in bankruptcy.
Annual Report 2017
36 5.1.7. REPOSSESSED COLLATERAL
As at 31 December 2017 Bank had the following assets that were obtained by taking possession of collateral held as security: Nature of assets Carrying amount 31 December 2017 31 December 2016 Residential property 6.183 6.183
5.1.8. CONCENTRATION OF RISKS OF FINANCIAL ASSETS WITH CREDIT RISK EXPOSURE a) Geographical sectors
The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorized by the geographical sectors of counterparties: Serbia Greece Other Total Financial assets at fair value through profit and 322.759 322.759 loss held for trading • • Financial assets available for sale 13.048.315 • • 13.048.315 Loans and deposits to banks and other financial 5.904.421 6.442.197 2.100.896 14.447.514 institutions Loans and advances to customers: 114.588.917 15.826 59.250 114.663.993 - Corporate 46.779.278 • 17.695 46.796.973 - SBB 10.757.184 • • 10.757.184 - Mortgage 18.795.463 15.826 40.801 18.852.090 - Consumer 38.256.992 • 754 38.257.746 Other assets 1.026.652 • • 1.026.652 As at 31 December 2017 134.891.064 6.458.023 2.160.146 143.509.233
As at 31 December 2016 134.628.504 3.410.809 5.495.186 143.534.499 b) Industry sectors
The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorized by the industry sectors of counterparties: Commerce Financial Private and services Construction services Manufacturing individuals Other Total
Financial assets at fair value through profit and 322.759 322.759 loss held for trading • • • • • Financial assets available for sale • • • • • 13.048.315 13.048.315 Loans and deposits to banks and other finan- 9.494.916 4.952.598 14.447.514 cial institutions • • • •
Loans and advances to customers: 33.025.887 4.294.824 4.461 12.733.483 61.023.547 3.581.791 114.663.993
- Corporate 29.536.982 3.742.135 4.461 11.202.403 293.584 2.017.408 46.796.973
- SBB 3.488.905 552.689 • 1.531.080 3.683.870 1.500.640 10.757.184 - Mortgage • • • • 18.852.090 • 18.852.090 - Consumer • • • • 38.194.003 63.743 38.257.746 Other assets • • • • • 1.026.652 1.026.652 As at 31 December 2017 33.025.887 4.294.824 9.499.377 12.733.483 61.023.547 22.932.115 143.509.233
As at 31 December 2016 28.772.892 3.370.633 11.417.280 12.326.727 60.938.753 26.708.214 143.534.499
Annual Report 2017
37 5.2. MARKET RISK
The Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific movements and changes in the level of volatility of market rates or prices such as interest rates, foreign exchange rates and equity prices.
5.2.1. FOREIGN EXCHANGE RISK
The Bank is necessarily exposed to foreign exchange risk, i.e. to the risk of changes in FX rates since it has been working with different foreign currencies. Daily FX transactions cause the possible loss to the Bank due to uncertainty of the FX rate at which an open FX position can be closed, as well as in terms of negative effects of the revaluation of net open FX positions in individual currencies in the event of adverse movements in foreign exchange rates.
In order to protect Bank’s equity and financial result the Bank identify, measure, monitor and manage exposure to foreign exchange risk on daily basis.
The Bank manages the exposure to foreign exchange risk in a manner that will ensure compliance of currency structure of its assets and liabilities with the risk ratios prescribed by the National Bank of Serbia, as well as with the limits prescribed in the internal acts enacted by the Bank’s management and Risk Committee. Bank is using scenario analysis for measurement of FX risk.
The table below summarises the Bank’s exposure to foreign currency exchange rate risk at the end of the reporting period: At 31 December 2017 At 31 December 2016 Monetary Monetary Monetary Monetary financial financial financial financial assets liabilities Derivatives Net position assets liabilities Derivatives Net position EUR 69.089.441 79.440.094 11.115.207 764.554 66.950.862 80.552.244 14.540.313 938.931
CHF 13.144.315 2.176.039 (11.040.032) (71.756) 16.824.398 2.330.135 (14.625.574) (131.311) Ostalo 2.286.441 2.193.602 • 92.839 2.611.484 2.433.548 • 177.935 Ukupno 84.520.198 83.809.736 75.175 785.637 86.386.745 85.315.928 (85.261) 985.556
5.2.2. INTEREST RATE RISK
Interest rate risk is defined as Bank’s exposure to adverse movements in interest rates which can cause negative effects on Bank’s earning and economic value of capital. Interest rate risk could come in the variety of forms, including reprising risk, yield curve risk, basis and optionality risk.
In order to protect Bank’s equity and financial result the Bank identify, measure, monitor and manage exposure to interest rate risk on monthly basis separately for all major currencies.
In measuring and assessing interest rate risk the Bank applies the following techniques: • Gap analysis of interest rate risk, • Scenario analysis, • Stress testing, • Analysis of embedded options.
The Bank manages the exposure to interest rate risk by applying the following techniques, which are executed on open interest rate positions recognized in the gap analysis: • The natural hedge – is achieved by adjusting dates and re-pricing tenor of new products, which should influence decrease of an open gap in specific time bucket, • Hedging an open interest rate position with OTC derivatives such as: interest rate swaps and options on interest rates. The table below summarises the Bank’s exposure to interest rate risks. The table presents the aggregated amounts of the Bank’s financial assets and liabilities at carrying amounts, categorised by the earlier of contractual interest repricing or maturity dates:
Annual Report 2017
38 Demand and less From 1 to 6 From 6 to 12 Non-interest than 1 month months months More than 1 year bearing Total 31 December 2017
Total financial assets 85.831.775 29.734.635 4.816.283 32.502.360 5.499.944 158.413.095
Total financial liabilities 34.986.988 23.969.667 15.390.581 32.773.454 51.292.405 158.413.095 Net interest sensitivity gap at 31 December 50.844.787 5.764.968 (10.574.298) (271.094) (45.764.363) • 2017 31 December 2016
Total financial assets 111.416.390 12.424.874 5.387.700 15.846.221 5.557.506 150.632.691
Total financial liabilities 43.430.681 15.608.231 12.405.901 29.775.453 49.412.425 150.632.691 Net interest sensitivity gap at 31 December 67.985.709 (3.183.357) (7.018.201) (13.929.232) (43.854.919) • 2016
For purpose of measurement of interest rate risk, Bank is using sensitivity analysis by applying duration- based sensitivity weights, followed with stress tests incorporating various changes in interest rate variables. The Bank is managing interest rate risk through set of interest rate exposure limits.
5.2.3. SENSITIVITY ANALYSIS
The management of interest rate risk and currency risk against gap limits is supplemented by monitoring the sensitivity of the Bank’s income statements to various interest rate and foreign currency rate scenarios. The sensitivity of the income statement is the effect of the assumed changes in interest rates and FX rate on the net interest income for one year.
An analysis of the Bank’s sensitivity to an increase or decrease in market interest rates and FX rates (assuming no asymmetrical movements in yield curves and constant balance sheet position) is as follows:
Sensitivity of income statement Interest rate sensitivity 2017 2016 Increase in basis points +100 bps parallel shift 547.869 529.452 Foreign exchange sensitivity 10% depreciation of RSD 110.623 10.657
5.3. LIQUIDITY RISK
Liquidity risk is the risk that the Bank is unable to meet its payment obligations when they come due, which can have a negative result on the Bank’s financial results and equity. Liquidity risk is imminent in the banking business which arises from the nature of the basic activity of the Bank and maturity transformation necessary performed by the Bank.
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 management of the Bank represents a continuous process of perceiving liquidity needs and maintaining a satisfactory liquidity level in a variety of business scenarios, as well as contingency planning. In order to implement these activities most attention is directed to analyse stability and level of deposits concentration and other sources of funding of the Bank that include:
• customer’s deposits with different maturities, • deposits from the money market and available lines with financial institutions, • available lines form the majority shareholder, • share capital. Sources of liquidity are regularly reviewed so as to maintain a wide diversification by currency, geography, provider, product and term.
Annual Report 2017
39 Diversity and stability of core deposit base involves an analysis allowing the Bank to more effectively controls and measures deposit based liquidity and more accurately measures liquidity risk by defining deposit inputs. Liquidity risk measurement includes assessment of the risk under normal market conditions and under stress scenarios. Scenarios, which are defined based on historical data and case studies, should allow the bank to evaluate the potential adverse impact these factors can have on its liquidity position. Liquidity risk is monitored through set of short term limits. Following NBS methodology, the Bank had defined minimum level of liquidity expressed as short term liquidity ratio. For internal methodology purposes, limit framework includes ratios as limit definition of acceptable levels of short term liquidity mismatches.
Non – derivative cash flow
The amounts disclosed in the table below are the contractual undiscounted cash flows for liabilities and discounted cash flows for assets for the years 2017 and 2016.
Balance sheet and off-balance sheet items
As at 31 December 2017 Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years Total Due to banks, central bank and other 211.774 6.681.283 2.305.374 35.232 9.233.663 financial institutions • Due to customers 31.284.884 7.895.443 22.116.312 18.960.118 16.525.413 96.782.170 Other liabilities 849.943 • • • • 849.943 Loan commitments • • 7.559.382 9.872.279 342.785 17.774.446 Guarantees and acceptances • • 1.779.010 2.366.131 4.730.721 8.875.862 Other irrevocable commitments • • 1.095.896 • • 1.095.896 Operating lease • • 66.785 • • 66.785 Capital commitments • • 124.091 • • 124.091 Total liabilities (contractual maturity 32.346.601 7.895.443 38.522.759 33.503.902 21.634.151 133.791.256 dates) Assets held for managing liquidity 29.575.255 9.673.783 30.035.256 62.953.230 20.647.529 152.885.053 risk (contractual maturity dates)
As at 31 December 2016 Up to 1 month 1-3 months 3-12 months 1-5 years Over 5 years Total Due to banks, central bank and other 7.513.907 7.513.907 financial institutions • • • • Due to customers 18.090.423 6.408.976 18.581.733 51.016.910 166.765 94.264.807 Other liabilities 623.225 • • • • 623.225 Loan commitments • • 4.918.546 7.860.840 793.150 13.572.536 Guarantees and acceptances • • 2.131.953 2.509.836 4.830.202 9.471.991 Other irrevocable commitments • • 917.527 • • 917.527 Operating lease • • 71.810 • • 71.810 Capital commitments • • 36.803 • • 36.803 Total liabilities (contractual maturity 26.227.555 6.408.976 26.658.372 61.387.586 5.790.117 126.472.606 dates) Assets held for managing liquidity 50.588.054 4.012.287 20.355.730 22.702.986 52.973.634 150.632.691 risk (contractual maturity dates)
Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment disclosed in the above maturity analysis, because the Bank does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit as included in the above maturity table does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.
Annual Report 2017
40 Derivative cash flow
The Bank’s derivatives that are be settled on gross basis include foreign exchange swaps over-the-counter (OTC). As at 31 December 2017 and as at December 2016 the Bank did not have derivatives that are be settled on gross basis.
5.4. OPERATIONAL RISK
Operational risk is the risk of possible negative effects on the financial result and capital of the bank caused by human error, inadequate internal procedures and processes, inadequate management of the information management of the information system and other systems in the bank, as well as by unforeseeable external events and includes legal risk. Legal risk is the risk of adverse effects on the bank’s financial result and capital arising from court or out-of-court proceedings relating to the bank’s operation (contracts and torts, labour relations, etc.).
Operational risk processes consist of risk identification, exposure assessment (including measurement and valuation), control management and risk mitigation, operational risk reporting and performance improvement applying following operational risk methods: Risk and Control Self-Assessment (RCSA), Key Risk Indicators (KRI), Operational Risk Events Management, Operational Risk Reporting, Operational Risk Capital Charge Calculation and Allocation and Operational Risk Stress Testing.
The Bank includes in its risk management system all risks that arise from outsourcing activities and from launching of new products and services.
5.5. CAPITAL MANAGEMENT
The Bank actively manages capital base to cover risk inherent to the business. The Bank’s objectives, when managing capital, which is a broader concept than “equity” on the face of the balance sheet, are:
• To comply with the capital requirements set by the National Bank of Serbia • To provide an adequate level of capital so as to enable the Bank to continue its operations as a going concern • To maintain a strong capital base to support the development of its business.
Capital adequacy, as well as the use of the Bank’s capital is monitored on a monthly basis by the Bank’s management.
As of 30 June 2017 a new Decision on Capital Adequacy, prescribed by the National Bank of Serbia (Official Gazette of Republic of Serbia’’, no. 103/2016), which introduced Basel III standards and imposed new capital limits, entered into force.
The National Bank of Serbia has defined the following capital limits:
• The minimum amount of the capital of EUR 10 million • Capital adequacy ratio of 8% • Tier I CAD – minimum prescribed 6% • Core Tier I CAD – minimum prescribed 4.5 %
Additional capital buffers are:
• Capital conservation buffer – 2.5% of total RWA; • Countercyclical capital buffer – Rates of this buffer are determined quarterly by NBS for exposures in Serbia they are 0%; • System risk buffer - The systemic risk buffer rate is equal to 3% of total foreign currency and foreign currency- indexed placements of a bank approved to corporates and households in the Republic of Serbia. All banks whose share of foreign currency and foreign currency-indexed placements approved to corporates and households in the Republic of Serbia in total placements of that bank approved to corporates and households in the Republic of Serbia exceeds 10% are obliged to maintain the systemic risk buffer. The Bank’s total capital comprises of tier 1 and tier 2 capital with corresponding deductible items.
Annual Report 2017
41 Tier 1 capital: The share capital is the basic share capital and additional share capital. Basic Bank's share capital is the sum of share capital from ordinary shares, corresponding share premium, and reserves from profit and other reserves Tier 1 deductible items comprise intangible assets, deferred tax assets that are dependent on future profitability other than those arising from temporary differences, net of related deferred tax liabilities, and regulatory adjustments i.e. required reserve for estimated losses as prescribed by relevant NBS regulations.
Tier 2 capital: share capital from preference shares, share premium from preference shares, and acquired own preference shares as Tier 2 capital deductible items.
The risk weighted balance and off-balance assets are determined in accordance with the prescribed risk weights for all types of assets. When calculating the capital adequacy ratio, and in accordance with the regulations of the National Bank of Serbia, the overall credit risk-weighted balance and off-balance assets are increased for the calculated foreign currency, price risk and operational risk capital requirements divided by 8%.
The table below summarizes the structure of the Bank’s capital as at 31 December 2017 and 31 December 2016, as well as the capital adequacy ratio: 31 December 2017 31 December 2016 Shareholders' equity 25.422.400 25.422.400 Share premium 6.051.999 6.051.999 Retained earnings 9.558.335 9.558.335 Intangible assets (1.944.891) (1.846.161) CET 1 deductible items (5.078.960) (21.847.524) CET 1 34.008.884 17.339.049 TIER I capital 34.008.884 17.339.049 Preference shares 4.800 4.800 Revaluation reserves • 7.360 TIER II capital 4.800 12.160 Tier II deductible items (500) (10.239) Total regulatory capital 34.013.184 17.340.970 Risk weighted assets Credit and counterparty risk 98.120.258 81.414.458 Market risk 1.729.150 637.695 Operational risk 16.833.508 11.490.285 Total risk weighted assets 116.682.915 93.542.438 Capital adequacy 29,15% 18,54%
In accordance with the NBS Decision on the accounting write-off of balance sheet assets, from September 30, 2017, the Bank performed writte-off of receivables that resulted in a significant decline in the NPL ratio. This enabled decrease in required reserve for estimated losses, in accordance with the Classification Decision, which consequently led to an increase in the regulatory capital level, an increase in RWA and capital adequacy.
5.6. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Fair value presented in financial statements is the amount for which an asset may be exchanged, or a liability settled, between informed, willing parties in an arm’s length transaction.
Fair value is calculated using market information available as at the reporting date as well as the individual assessment methods of the Bank. Fair value of a financial instrument presented at nominal value is approximately equal to its bookkeeping value. This includes cash as well as liabilities and receivables without defined maturity or fixed interest rate. For other liabilities and receivables the expected future cash flow is discounted up to their present value by means of current interest rate. Bearing in mind that the variable interest rates are contractual for the majority of Bank assets and liabilities, changes in the current interest rates lead to changes in the agreed interest rates. Quoted market prices are used for trading securities. Fair value of other securities is calculated as net present
Annual Report 2017
42 value of the future expected cash flows. Fair value of irrevocable loan obligations and potential obligations is the same as their bookeeping values.
Assessment of financial instruments
Bank measures fair value by means of the following fair value hierarchy reflecting the importance of the inputs used in measurement.
Level 1: quoted market prices (uncorrected) in active markets for identical instrument. Level 2: Assessment techniques based on the observable inputs that are not the quoted prices from the level 1, whether directly (as prices) or indirectly (derived from prices). This category includes instruments valued through their use: quoted prices in active markets for similar instruments; stated prices for same or similar instruments in the markets considered as less active; or other assessment techniques in which all important inputs are directly or indirectly observable from the market data. Level 3: Assessment techniques used for non-observable inputs. This category includes all instruments relative to which the valuation techniques include inputs not based on observable data and non-observable inputs that have a significant effect on the valuation of the instruments. This category includes instruments valued on the basis of quoted prices of similar instruments with significant non observable adjustments or assumptions necessary to maintain the difference between the instruments.
Fair value of financial assets and liabilities traded in active markets is based on quoted market prices or prices quoted by dealers. For all other financial instruments the Bank determines fair value by means of assessment techniques.
Assessment techniques include net present value and discounted cash flow models, comparisons with similar instruments for which there is an observable market price and other assessment models.
Assumptions and inputs used in assessment techniques include risk free and benchmark interest rates, loan margins and other premiums used in assessment of discount rate, bond and share prices, foreign currency exchange rates, capital and capital indexed prices and expected oscillations of the prices and correlations. The aim of assessment techiques is to determine the fair value which reflects the price of a financial instrument as at the reporting date that would be defined by market participants in free transactions carried out at an arm’s length.
The Bank uses widely accepted assessment models in determining the fair value of common and simpler financial instruments such as interest rates and currency swaps which make use only of observable market data and require little judgement and assessment by the management. Quoted prices and model inputs are usually available in the market for quoted debt and proprietary securities, trading derivatives and simple derivaties such as interest rate swaps.
The availability of the observable market prices and model inputs decreases the need for assessment by management and reduces the uncertainty arising from determining the fair value. The availability of the observable market data and inputs varies based on the product and market and is prone to change due to particular occurrences and general condition of the future markets.
Table below analyses financial instruments measured at fair value at the end of the reporting period according to the fair value hierarchy within which the fair value measurement takes place:
Financial assets at fair value 31.12.2017 31.12.2017 Book value Fair value Financial assets at fair value through profit and loss 322.759 322.759 Financial assets available for sale (Note 22) 13.048.315 13.048.315 Total 13.371.074 13.371.074 Financial assets at fair value 31.12.2016. 31.12.2016. Knjigovodstvena vrednost Fer vrednost Financial assets at fair value through profit and loss 26.712 26.712 Financial assets available for sale (Note 22) 15.686.119 15.686.119 Total 15.712.831 15.712.831
Annual Report 2017
43 31 December 2017 Level 1 Level 2 Level 3 Total Financial assets at fair value through profit and loss Equities (Note 21) 418 • • 418 Treasury bonds 311.293 • 311.293 Derivative assets (Note 21) • 11.048 • 11.048 Financial assets available for sale • Equities (Note 22) 21.812 • • 21.812 Treasury bonds (Note 22) 13.026.503 13.026.503 Total assets 22.230 13.348.844 • 13.371.074 Derivative liabilities (Note 30) • 13.222 13.222 Total liabilities • 13.222 • 13.222
31 December 2016 Level 1 Level 2 Level 3 Total Financial assets at fair value through profit and loss Equities (Note 21) 559 • • 559 Treasury bonds • 26.153 • 26.153 Derivative assets (Note 21) Financial assets available for sale • Equities (Note 22) 17.612 • • 17.612 Treasury bonds (Note 22) 15.668.507 15.668.507 Total assets 18.171 15.694.660 • 15.712.831 Derivative liabilities (Note 30) • 31.335 31.335 Total liabilities • 31.335 • 31.335
The following table presents the fair value of financial instruments not measured at fair value and analyses them according to the fair value hierarchy within which the fair value measurement takes place:
31.12.2017. 31.12.2016. Book value Fair value Book value Fair value Financial (monetary) assets Cash and balances with Central bank 18.005.519 18.005.519 21.714.061 21.714.061 Assets held to maturity • • • • Loans and receivables from banks and 14.303.432 14.303.432 12.245.083 12.245.083 other financial organizations Loans and receivables from customers 106.134.695 107.926.257 94.819.179 99.779.447 Other assets (financial part) 477.605 477.605 76.254 76.254 Total 138.921.251 140.712.813 128.854.577 133.814.845
Financial (monetary) liabilities Deposits and other liabilities towards 9.225.583 9.225.583 7.033.192 7.033.192 banks and other financial organizations Deposits and other liabilities towards 96.617.011 96.617.011 93.532.515 93.532.515 customers Other liabilities (suppliers) 142.121 142.121 181.508 181.508 Total 105.984.715 105.984.715 100.747.215 100.747.215
Annual Report 2017
44 Fair value 31.12.2017. Level 1 Level 2 Level 3 Total Assets Loans and receivables from clients • 107.926.257 • 107.926.257 Loans and receivables from banks and other financial 14.303.432 14.303.432 organizations • • Total • 122.229.689 • 122.229.689
Liabilities Deposits and other liabilities towards banks and other 9.225.583 9.225.583 financial organizations • • Deposits and other liabilities towards clients • 96.617.011 96.617.011 Totalo • 105.842.594 • 105.842.594
31.12.2016. Level 1 Level 2 Level 3 Total Assets Loans and receivables from clients • 99.779.447 • 99.779.447 Loans and receivables from banks • 12.245.083 • 12.245.083 Total • 112.024.530 • 112.024.530 Liabilities Deposits and other liabilities towards banks • 7.033.192 • 7.033.192 Deposits and other liabilities towards clients • 93.532.515 93.532.515 Total • 100.565.707 • 100.565.707
Where possible, fair value of borrowings and advances is based on the observable market transactions. If observable market transactions are not available, fair value is assessed by means of assessment models such as cash flow discount techniques. Assessment technique inputs include the expected loan losses over the course of loan duration, interest rates, advances, and source data or secondary market data. For collateral dependant reduced (impaired) loans, fair value is measured based on the value of the attending collateral. Model inputs may include data by third party brokers based on the OTC trading activity, and information obtained from other market participants which include observable primary and secondary transactions.
In order to improve the accuracy of retail loans and smaller commercial loans assessment, homogenous loans are grouped into portfolios according to similar characteristics such as origin, LTV ratios, quality of collateral, type of product and debtor, advances and non-performance, and standard probability.
Fair value of bank and client deposits is determined by cash flows discount technique by applying rates offered for deposits of similar maturity and conditions. Fair value of payable a vista deposits is the payment amount as at the reporting date.
Annual Report 2017
45 Table below presents Bank classification for each class of financial assets and liabilities and their fair value as at 31 December 2017: Fin. assets Loans and at fair value Held to receiva- Available for Amortized Total book through P&L matu-rity bles sale cost value Fair value Cash and assets held at NBS • • 18.005.519 • • 18.005.519 18.005.519 Assets held to maturity • • • • • • • Available-for-sale financial 13.048.315 13.048.315 13.048.315 assets • • • • Financial assets at fair value 322.759 322.759 322.759 through profit and loss • • • • Loans and receivables from banks and other financial • • 14.303.432 • • 14.303.432 14.303.432 organizations Loans and receivables from 106.134.695 106.134.695 107.926.257 clients • • • • Other assets • • • • 1.026.652 1.026.652 1.026.652 Total assets 322.759 • 138.443.646 13.048.315 1.026.652 152.841.372 154.632.934 Financial liabilities at fair 13.222 13.222 13.222 value through profit and loss • • • Deposits and other liabilities towards banks and other • • • • 9.225.583 9.225.583 9.225.583 financial organizations Deposits and other liabilities 96.617.011 96.617.011 96.617.011 towards clients • • • • Other liabilities • • • • 849.943 849.943 849.943 Total liabilities 13.222 • • • 106.692.537 106.705.759 106.705.759
Annual Report 2017
46 Table below presents Bank classification for each class of financial assets and liabilities and their fair value as at 31 December 2016: Fin. assets Loans and at fair value Held to receiva- Available for Amortized Total book through P&L matu-rity bles sale cost value Fair value Cash and assets held 21.714.061 21.714.061 21.714.061 at NBS • • • • Assets held to maturity • • • • • • • Available-for-sale 15.686.119 15.686.119 15.686.119 financial assets • • • • Financial assets at fair value through profit 26.712 • • • • 26.712 26.712 and loss Loans and receivables from banks and other • • 12.245.083 • • 12.245.083 12.245.083 financial organizations Loans and receivables 94.819.179 94.819.179 99.779.447 from clients • • • • Other assets • • • • 431.756 431.756 431.756 Total assets 26.712 • 128.778.323 15.686.119 431.756 144.922.910 149.883.178 Financial liabilities at fair value through profit 31.335 • • • 31.335 31.335 and loss Deposits and other lia- bilities towards banks 7.033.192 7.033.192 7.033.192 and other financial • • • • organizations Deposits and other lia- 93.532.515 93.532.515 93.532.515 bilities towards clients • • • • Other liabilities • • • • 623.225 623.225 623.225 Total liabilities 31.335 • • • 101.188.932 101.220.267 101.220.267
Methodologies and assumptions used in determining fair value of those financial instruments not yet recorded at fair value in the financial statements are described below.
Assets whose fair value approximates their bookkeeping value
For financial assets and liabilities that are liquid or have short term maturity (less than one year), the assumption is that their bookkeeping value approximates their fair value. This assumption is also applied to a vista deposits, non-term savings accounts, and financial instruments with variable rate.
Annual Report 2017
47 6. INTEREST INCOME AND EXPENSE 2017 2016 Interest income Interest income from dinar assets Loans 6.276.899 6.212.181 Deposits in banks 139.108 142.871 Securities 561.218 590.209 Other placements 97.569 56.478
Interest income from foreign currency assets Loans 108.213 160.238 Deposits in banks 86.177 58.266 Securities 28.702 105.042 Other placements 105.208 147.187 7.403.094 7.472.472 Interest expense Interest expense from dinar liabilities Borrowings • • Deposits in banks (372.724) (253.757) Other liabilities • (1)
Interest expense from foreign currency liabilities Borrowings (48.442) (78.864) Deposits in banks (348.740) (628.522) Other liabilities (61.541) (72.640) (831.447) (1.033.784) Net interest income 6.571.647 6.438.688
7. FEE AND COMMISSION INCOME AND EXPENSE 2017 2016 Fees and commissions income Fees for banking services 2.208.977 2.041.943 Commissions from issued guarantees and other sureties 94.516 100.029 Other fees and commissions 394.604 239.576 2.698.097 2.381.548 Fees and commissions expense Fees for domestic payment transactions (32.674) (19.421) Fees for payment transactions abroad (40.338) (39.431) Other fees and commissions (474.821) (338.684) (547.833) (397.536) Net fees and commissions income 2.150.264 1.984.012
Other fees and commission income for the year ended 31 December 2017 in the amount of RSD 394,604 thousand mainly comprise of the following items: insurance fees and commissions in the amount of RSD 144,279 thousand, fees for the conversion of foreign exchange in the amount of RSD 90,841, fees for the changes of the terms of the loan in the amount of RSD 32,810 thousand, settlement fees in the amount of RSD 37,514 thousand and other fees and commissions income in the amount of RSD 89,160 thousand.
Annual Report 2017
48 8. NET GAINS(LOSSES) FROM FINANCIAL ASSETS HELD FOR TRADING
Net gains/ (losses) from sale of securities at fair value through profit and loss are as follows: 2017 2016 Gain from financial assets held for trading 152 10 Gains from change of value of derivatives 14.176 1.626 Losses from financial assets held for trading (142) • Losses from change of value of derivatives (11.031) Net gains / (losses) 3.155 1.636
9.NET LOSS FROM HEDGING 2017 2016 Impairment of investments in associated companies (14.798) • Impairment of investments in associated companies (14.798) •
As at 31 December 2017 Bank performed impairment test of the equity participation and book impairment in the amount of RSD 14,798 thousand in associated company ERB Leasing a.d. after the company entered in process of voluntary liquidation.
10. NET GAINS FROM FINANCIAL ASSETS AVAILABLE FOR SALE 2017 2016 Gains from financial assets available for sale 3.679 • Net gains from financial assets available for sale 3.679 •
As at 31 December 2017 Bank’s gains from financial assets available for sale were related for gains on sale of State treasury bills.
11. NET FOREIGN EXCHANGE GAINS 2017 2016 Foreign exchange gains 38.836.734 151.207.561 Foreign exchange losses (38.856.117) (151.182.356) Net foreign exchange rate gains (19.383) 25.205
12. OPERATING AND OTHER INCOME 2017 2016 Release of provisions for legal cases and client damages (Note 34) 8.678 17.112 Lease of premises 3.999 3.933 Gains from sale of fixed assets and intangible investments 38.255 926 Gains from sale of other placements 2.620 • Collected damages and lawsuits 36.456 13.899 Other income 44.478 25.814 Total 134.486 61.684
Annual Report 2017
49 13. NET PROVISIONS AND IMPAIRMENT LOSSES ON LOANS AND ADVANCES 2017 2016 Income from reversal of provisions and impairment losses Loans and receivables from customers (Note 24) 3.779.154 206.095 Other assets (Note 29) 2.791 821 Off balance sheet items (Note 33) 87.974 92.226 Banks 1.026 7,393 Collected written off loans and receivables 140.331 69.205 Subtotal 4.011.276 375.740
Expenses for provisions and Impairment charge Loans and receivables from customers (Note 24) (4.517.848) (1.153.896) Other assets (Note 29) (3.298) (1.537) Off balance sheet items (Note 33) (91.617) (2.032) Banks (67.724) (78.980) Direct write off (30.173) (24.410) Subtotal (4.710.660) (1.260.855) Net provisions and impairment (699.384) (885.115)
14. SALARIES, BENEFITS AND OTHER PERSONNEL EXPENSES 2017 2016 Salaries (1.334.504) (1.280.293) Tax on salaries and benefits (168.432) (161.902) Contributions on salaries and benefits (350.326) (332.216) Other personnel expenses (28.559) (29.741) Expenses for temporary and occasional work • • Loss on retirement benefits (27.111) (14.501) Total (1.908.932) (1.818.653)
15. DEPRECIATION AND AMORTIZATION EXPENSES 2017 2016 Intangible assets (Note 26) 203.694 233.732 Property, plant and equipment (Note 27) 190.678 182.269 Total 394.372 416.001
16. OPERATING AND OTHER EXPENSES 2017 2016 Administrative expenses 1.513.894 1.460.656 Non-material expenses (excluding taxes and contributions) 1.068.232 1.128.319 Contributions 314.868 302.229 Materials 143.652 149.257 Taxes 55.881 54.191 Disposals and write-offs of intangible assets and PPE 14.578 274 Legal expenses and taxes 57.215 40.507 Other expenses 88.581 87.168 Provisions for legal cases (Note 33) 51.145 22.069 Total 3.308.046 3.244.670
Annual Report 2017
50 Detailed breakdown of administrative expenses is presented in the table below: 2017 2016 Transportation services 72.763 73.877 Communication services 127.191 123.325 Telephone 21.902 22.626 Software maintenance 421.415 422.654 Hardware maintenance 55.937 61.093 Maintenance of fixed assets 35.153 37.492 ATM maintenance 15.347 15.055 Marketing and advertising 270.433 219.239 Donations 14.975 14.494 Rent 377.772 380.336 Other services 101.006 90.465 Total 1.513.894 1.460.656
As of 31 December 2017, non–material expenses in the amount of RSD 1,068,232 thousand comprise of the following expenses: deposit insurance expenses in the amount of RSD 485,140 thousand, expenses for legal services in the amount of RSD 193,486 thousand, employee transportation expenses in the amount of RSD 44,395 thousand, cleaning services in the amount of RSD 23,198 thousand, safeguarding expenses in the amount of RSD 35,963 thousand, expenses for printing statements for cards in the amount of RSD 37,044 thousand, services of youth organization in the amount of RSD 8,572, collection services in the amount of RSD 24,940 thousand, information system services in the amount of RSD 25,783 thousand, intellectual services in the amount of RSD 29,148 thousand and other expense.
As of 31 December 2016, non–material expenses in the amount of RSD 1,128,319 thousand comprise of the following expenses: deposit insurance expenses in the amount of RSD 472,871 thousand, expenses for legal services in the amount of RSD 202,675 thousand, employee transportation expenses in the amount of RSD 44,268 thousand, cleaning services in the amount of RSD 25,297 thousand, safeguarding expenses in the amount of RSD 33,406 thousand, expenses for printing statements for cards in the amount of RSD 33,580 thousand, services of youth organization in the amount of RSD 6,590, collection services in the amount of RSD 28,065 thousand, information system services in the amount of RSD 29,456 thousand, intellectual services in the amount of RSD 34,165 thousand and other expense.
17. INCOME TAX
Income tax: 2017 2016 Current income tax (135.169) • Deferred tax (201.392) (85.461) Total (336.561) (85.461)
The tax on the Bank's profit or loss before tax differs from the theoretical amount that would arise by using prescribed tax rate: 2017 2016 Profit before tax 2.518.316 2.146.786 Tax calculated at the rate of 15% (377.747) (322.018) Tax effect of non-deductible expenses and non-taxable revenues 94.038 17.623 Tax effect from the current year result (283.709) (304.395) Tax effect of temporary differences (4.510) 22.567 Release of previously recongized tax credits (67.946) (87.879) Tax effect of utilized tax losses carried forward and tax credits 148.540 304.395 (Release of deferred tax assets on tax losses carried forward (128.936) (20,149) Income tax (336.561) (85.461)
Annual Report 2017
51 As at 31 December 2017, the Bank has taxable profit in the amount of RSD 1,856,987 thousand (2016: taxable profit of RSD 2,029,301) and taxable capital gain in the amount of RSD 34,407 thousand. As at 31 December 2017, the Bank has utilized all of the previous year losses in the amount of RSD 859,574 thousand. The Bank has realized all deferred tax assets arising from losses carried forward in the amount of RSD 128,936 thousand. The Bank has also utilized all of tax credit for investments in fixed assets from year 2013 in the amount of RSD 19,604 thousand. Current income tax liability for year 2017 in the amount of RSD 135,169 thousand will be offset by the Bank’s overpayments of income tax from previous years in the amount of RSD 131,796 thousand, the remaining amount of liability of RSD 3,373 thousands will be paid when it becomes due.
18. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the net profit attributable to equity holders of the Bank by the weighted average number of ordinary shares in issue during the year.
As at 31 December 2017, the Bank has 48 preference shares issued. No preference dividends are declared, therefore there is no effect on basic earnings per share. 2017 2016 Profit 2.181.755.010 2.061.324.967 attributable to equity holders of the Company 254.224 254.224 Weighted average number of ordinary shares in issue Basic earnings per share (expressed in RSD per share) 8.582 8.108
19. CASH AND BALANCES WITH CENTRAL BANK 31 December 2017 31 December 2016 In dinars Current account 6.668.347 8.424.147 Cash in hand 1.097.633 1.007.613 Revocable loans and deposits • • In foreign currency Cash in hand 1.382.771 2.483.496 Other cash and cash equivalents 2.975 1.549 Required reserve at Central Bank 8.853.793 9.797.256 Total 18.005.519 21.714.061
Mandatory reserves in local currency and in foreign currency are calculated by Bank in accordance with the Decision of the National bank of Serbia (Official Gazette of Republic of Serbia no. 3/2011, 31/2012, 57/2012, 78/2012, 87/2012, 107/2012, 62/2013, 125/2014, 135/2014 and 4/2015,78/2015 and 102/2015), and "Guidelines for Implementing the Decision on mandatory reserves with the National Bank of Serbia" (Official Gazette of Republic of Serbia no. 8/2011, 43/2011, 57/2012, 65/2013, 118/2013, 127/2014, 141/2014 and 114/2017).
As at 31 December 2017 calculated mandatory reserves in local currency amounted to RSD 6,496,464 thousand (in 2016: RSD 6,465,308 thousand). Mandatory reserves in local currency are included in the balance of the current account, therefore not presented separately. The Bank can use mandatory reserves to maintain its liquidity.
As at 31 December 2017 calculated mandatory reserves in foreign currency amounted to EUR 74,410 thousands (in December 2016: EUR 77,337 thousands). Pursuant to NBS Decision on mandatory reserves the Bank is obligated to set aside funds for mandatory reserves in foreign currency on the separate account with NBS.
From January 2016, foreign currency mandatory reserves on deposits with maturity up to 2 years stand at 20%. The reserves should be maintained as follows: 38% of the reserve should be maintained in dinars and 62% of reserve should be maintained in euros. Local currency mandatory reserves on deposits with maturity up to 2 years stand at 5%.
Foreign currency mandatory reserves on deposits with maturity over 2 years stand at 13%. This reserve should be maintained as follows: 30% of the reserve should be maintained in dinars and 70% of the reserve should be
Annual Report 2017
52 maintained in euros. Local currency mandatory reserves on deposits with maturity over 2 years do not require any reserves.
For the purpose of the cash flow statement, cash and cash equivalents comprise the following balances with less than 90 days maturity: Cash and balances with the Central bank (Note 19) 31 December 2017 31 December 2016 In dinars Current account 6.668.347 8.424.146 Cash in hand 1.097.633 1.007.613 In foreign currency Cash in hand 1.382.771 2.483.496 Other cash and cash equivalents 2.975 1.549
Loans, advances and deposits to Financial Institutions (Note 23) Foreign currency account 1.166.974 3.322.373
Total cash flow 10.318.700 15.239.177
20. PLEDGED FINANCIAL ASSETS
As at 31 December 2017 the Bank has pledged financial assets in the amount of RSD 3,110,300 thousand relate to the pledged RS Ministry of Finance bills in dinars that was given as collateral for deposits taken from companies in bankruptcy. As at 31 December 2016 the Bank has pledged financial assets in the amount of RSD 692,590 thousand.
21. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS HELD FOR TRADING 31 December 2017 31 December 2016 In dinars Shares 418 559 Bonds 311.293 •
In foreign currency Increase in fair value of derivatives 11.048 26.153 Total 322.759 26.712
Derivative assets and liabilities: 31 December 2017 31 December 2016 Fair values Fair values Contract/notional Contract/notional amount Assets Liabilities amount Assets Liabilities Derivatives held for trading Currency swaps • • • • • • Interest rate swaps 14.451.324 11.048 13.222 23.872.241 26.153 31.335
Total 14.451.324 11.048 13.222 23.872.241 26.153 31.335
Annual Report 2017
53 22. FINANCIAL ASSETS AVAILABLE FOR SALE 31 December 2017 31 December 2016 In dinars RS Ministry of Finance bills 12.131.639 12.117.793
In foreign currency • • RS Ministry of Finance bills 894.864 3.550.714 Shares 21.812 17.612 Available for sale (Including pledged assets) 13.048.315 15.686.119 Pledged financial assets (Note 20) (3.110.300) (692.590) Total 9.938.015 14.993.529
23. LOANS AND DEPOSITS TO BANKS AND OTHER FINANCIAL INSTITUTIONS 31 December 31 December 2017 2016 Financial National Bank of Domestic banks Foreign banks institutions Serbia Total Total Repo in dinars • • • 4.501.606 4.501.606 • Receivables for calculated 50 50 interest • • • • Deposits in dinars • • • • • • Other deposits 400.000 • • • 400.000 940.000 Deposits in foreign currency • • • • • • Foreign banks accounts • 1.166.912 62 • 1.166.974 3.322.373 Other deposits 892.040 6.927.794 • • 7.819.834 7.143.609 Other special purpose deposits • • 436.022 • 436.022 869.897 Placements in dinars • • • • • • Investment loans • • • • • • • Other loans • • 99.284 • 99.284 683 Accrued interest receivables 90 • 230 • 320 157 Placements in foreign currency • • • • • • Other placements • • 6.185 • 6.185 28.960 Accrued interest receivables 198 928 16.113 • 17.239 20.207 Loans and placements, gross 1.292.378 8.095.634 557.896 4.501.606 14.447.514 12.325.886 Less: Provisions (605) (143.383) (94) • (144.082) (80.803) Loans and placements, net 1.291.773 7.952.251 557.802 4.501.606 14.303.432 12.245.083
Annual Report 2017
54 24. LOANS AND RECEIVABLES FROM CUSTOMERS
31 December 2017 31 December 2016 Foreign Companies Entrepreneurs Individuals Other clients Total Total entities Deposits in dinars Other special purpose 31.500 31.500 25.000 deposits • • • •
Deposits in foreign currency
Other special purpose deposits • • • • • • • Placements in dinars
Interest and fee receivables 262.979 220.767 220.343 23 98.504 802.616 1.585.760 Investment loans 3.227.293 388.096 • • 15.681 3.631.070 1.515.678 Overdrafts 266.842 61.204 814.261 • 723 1.143.030 1.253.020 Working capital loans 31.955.763 2.638.042 • • 4.260 34.598.065 41.603.055 Mortgage loans • • 18.502.883 56.546 1 18.559.430 21.528.497 Other loans 10.032.644 760.495 5.028.075 • • 15.821.214 11.407.192 Cash loans • • 32.211.893 • • 32.211.893 26.171.509 Consumer loans • • 64.986 • • 64.986 174.202 Other placements 1.263.563 2.165 4.085 • 4.466 1.274.279 1.726.008 Accrued interest receivables 71.644 10.677 228.680 82 17.910 328.994 392.594 Placements in foreign currency Interest and fee receivables 19 • • • • 19 25.823 Import loans 4.496.468 • • • • 4.496.468 3.766.663 Other loans 139.052 • • • • 139.052 49.111 Other placements 1.695.991 • • 17.695 • 1.713.686 4.014.126 Accrued interest receivables 3.279 • • • • 3.279 2.571 Income deferral using effec- (83.343) (72.244) (155.588) (176.783) tive interest rate • • • Loans and placements, 53.332.194 4.081.446 57.034.462 74.346 141.545 114.663.993 115.064.026 gross Less: Provisions (4.827.311) (1.392.062) (2.280.735) (3.014) (26.176) (8.529.298) (20.244.847)
Loans and placements, net 48.504.883 2.689.384 54.753.727 71.332 115.369 106.134.695 94.819.179
Interest rates for indexed loans to legal entities ranged between 1.7% and 4.1% per annum and for RSD loans between 3.3% and 5.6% per annum. The Bank approves indexed loans to retail customers, where the interest rate ranges from 2.1%-16.5% per annum and RSD loans with interest rates between 4.3%-34.5% .
Annual Report 2017
55 Movements in impairment allowance for loans and receivables from customers are presented below: Other Corporate Consumer Mortgage SBB placements Interest Total Closing balance 2015 4.602.301 1.976.070 552.112 8.116.306 3.229.586 1.239.469 19.715.844 Impairment charge 370.734 228.469 182.118 172.181 162.289 38.105 1.153.896 (Note 13) Release (Note 13) • (12.858) (18.984) (77.204) • (97.048) (206.094) BAN 2 implementation • • (31.267) • • • (31.267) Net foreign exchange 55.821 7.644 12.652 127.425 50.528 21.324 275.394
Write off (609.501) (19.032) • (33.141) • (1.252) (662.926) Closing balance 2016 4.419.355 2.180.293 696.631 8.305.567 3.442.403 1.200.598 20.244.847 Impairment charge 1.533.280 739.399 187.333 546.281 1.318.160 193.395 4.517.848 (Note 13) Release (Note 13) (1.459.579) (425.033) (168.854) (642.331) (846.520) (216.897) (3.759.214) BAN 2 implementation • • (19.940) • • • (19.940) Net foreign exchange (153.046) (25.332) (62.754) (429.167) (164.661) (40.815) (875.775)
Write off (2.625.969) (784.306) (148.014) (5.087.432) (2.245.565) (687.182) (11.578.468)
Closing balance 2017 1.714.041 1.685.021 484.402 2.692.918 1.503.817 449.099 8.529.298
25. INVESTMENTS IN ASSOCIATES 31 December 2017 31 December 2016 Equity shares 43.681 20.479 43.681 20.479
As at 31 December 2017 the Bank is holding 49.49% of the voting rights of the ERB Leasing a.d. Beograd (31 December 2016: 25.56%). In May 2017 Bank participated in recapitalization of ERB Leasing a.d. in the amount of RSD 38,000 thousand (380 new shares were issued in the nominal value of RSD 100,00 thousand per one share). After the ERB Leasing a.d. entered in process of voluntary liquidation, Bank performed impairment of the equity participation in the amount of RSD 14,798 thousand.
Annual Report 2017
56 26. INTANGIBLE ASSETS In course of construction and Intangible assets advances Total As at December 2015 Cost 3.527.369 83.331 3.610.700 Accumulated amortization (1.795.207) • (1.795.207) Net book value 1.732.162 83.331 1.815.493
Year ended 31 December 2016 Opening net book value 1.732.162 83.331 1.815.493 Additions 264.400 264.400 Disposals/write offs • • • Transfers 290.588 (290.588) • Amortization (Note 15) (233.732) (233.732) Closing net book value 1.789.018 57.143 1.846.161
At 31 December 2016 Cost 3.808.857 57.143 3.866.000 Accumulated amortization (2.019.839) • (2.019.839) Net book value 1.789.018 57.143 1.846.161
Year ended 31 December 2017 Opening net book value 1.789.018 57.143 1.846.161 Additions • 311.615 311.615 Transfers 250.444 (250.444) • Amortization (Note 15) (203.694) (203.694) Closing net book value 1.835.768 118.314 1.945.082
At 31 December 2017 Cost 4.059.301 109.122 4.168.423 Accumulated amortization (2.223.533) • (2.223.533) Net book value 1.835.768 109.122 1.944.890
Book value of intangible assets does not materially differ from fair value.
Annual Report 2017
57 27. PROPERTY, PLANT AND EQUIPMENT In course of Equipment and construction and Land and buildings other assets advances Total At 1 januaru 2016.
Cost 4.033.480 1.599.511 13.017 5.646.008 Accumulated depreciation and impairment (775.829) (1.154.696) • (1.930.525) Net book value 3.257.651 444.815 13.017 3.715.483
Year ended 31 December 2016
Opening net book amount 3.257.651 444.815 13.017 3.715.483 Additions 6.169 • 114.905 121.074 Transfers 11.801 59.219 (71.020) • Disposal/Write off (13) (966) • (979) Depreciation (Note 15) (79.101) (103.168) • (182.269) Closing net book value 3.196.507 399.901 56.903 3.653.311
At 31 December 2016
Cost 4.042.824 1.447.495 56.903 5.547.222 Accumulated depreciation and impairment (846.317) (1.047.594) • (1.893.911) Net book value 3.196.507 399.901 56.903 3.653.309
Year ended 31 December 2017
Opening net book amount 3.196.507 399.901 56.903 3.653.311 Additions 38.658 • 194.697 233.355 Transfers 5.565 232.168 (237.733) • Disposal/Write off (99.756) (13.080) • (112.836) Depreciation (Note 15) (78.139) (112.539) • (190.678) Closing net book value 3.062.835 506.450 13.867 3.583.152
At 31 December 2017
Cost 3.932.475 1.563.557 13.867 5.509.899 Accumulated depreciation and impairment (869.640) (1.057.107) • (1.926.747) Net book value 3.062.835 506.450 13.867 3.583.152
Rental expenses in the amount of RSD 377,772 thousand (2016: RSD 380,336 thousand) in relation to the rental of property are included in the operating expenses (Note 16).
As at 31 December 2017 there are no charges over the Bank’s fixed assets.
Annual Report 2017
58 28. DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities as at 31 December: 2017 2016 Deferred tax assets 23.786 227.741 Deferred tax liabilities (165.302) (169.707) (141.516) 58.034
Deferred tax is recognized on temporary differences, losses carried forward and unused tax credits.
Movements in net deferred tax assets
31 december 2017 31 december 2016 Opening balance of deferred tax (assets) 58.034 134.626 Changes during the year: Decrease/(increase) of deferred tax liabilities and (decrease)/ increase (4.510) 22.567 of deferred tax assets related to temporary differences Deferred tax assets on losses carried forward (128.936) (20.149) Deferred tax assets on tax credits (67.946) (87.878) Total deferred tax (expense)/income for the year (201.392) (85.461) Deferred tax on revaluation reserves 1.298 9.692 Deferred tax on actuarial losses 544 (824) Net deferred tax assets (141.516) 58.034
Na dan 31. decembra 2017. godine i 31. decembra 2016. godine, Banka nema nepriznata odložena poreska sredstva na gubitke preneta u budući period.
Deferred tax income/ (expense) relates to the following items: 2017 2016 Depreciation 2.562 (2.787) Long term provisions (7.072) 25.354 Losses carried forward (128.936) (20.149) Tax credits (67.946) (87.878) (201.392) (85.461)
Annual Report 2017
59 29. OTHER ASSETS 31 december 2017 31 december 2016 Prepayments and accrued income in dinars Accrued interest 24 127 Prepayments 278.513 241.591 Other prepayments and accrued income 460.581 65.411
Prepayments and accrued income in foreign currency Accrued interest 109 119 Other prepayments and accrued income • • 739.227 307.248 Other receivables in dinars Employees 177 5 Advances for current assets 26.157 11.168 Advances for property, plant and equipment 118.896 39.372 For prepaid taxes and contributions 402 120 Suspense and temporary accounts (14.355) (14.897)
Other fee receivables 46.464 47.206 Other receivables 116.235 54.010
Other receivables in foreign currency Advances for current assets 921 2.318 Suspense and temporary accounts 8.574 2.382
Other fee receivables 5.003 5.200 Other receivables 115.509 119.915 423.983 266.799 Inventory Assets received in collection of claims 12.415 12.415 Material 3.374 3.016 15.789 15.431
Other assets, gross 1.178.999 589.477 Less: Impairment (146.115) (151.489) Less: Provisions for repossessed collateral (6.232) (6.232) Other assets, net 1.026.652 431.756
Movements in impairment allowance are presented below: 31.12.2017 31.12.2016 Opening balance 151.489 149.139 Impairment charge (Note 13) 3.298 1.534 Release (Note 13) (2.791) (821) Net foreign exchange (5.500) 1.863 Write off (381) (226) Other • • Closing balance 146.115 151.489
Annual Report 2017
60 30. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS FOR TRADING 31.12.2017 31.12.2016 Liabilities in dinars Increase in fair value of derivatives 2.174 5.182 Liabilities in foreign currency Increase in fair value of derivatives 11.048 26.153 Total (Note 21) 13.222 31.335
31. NET DEBT RECONCILIATION
The table below sets out an analysis of our debt and the movements in Bank’s debt for each of the periods presented. The debt items are those that are reported as financing in the statement of cash flows. Borrowed funds Own shares Total Net debt at 1 January 2016 5.175.518 • 5.175.518 Cash flows 1.832.226 • 1.832.226 Foreign exchange adjustments 107.826 • 107.826 Net debt at 31 December 2016 7.115.570 • 7.115.570 Cash flows 2.179.868 (500) 2.179.368 Foreign exchange adjustments (336.521) • (336.521) Net debt at 31 December 2017 8.958.917 (500) 8.958.417
32. DEPOSITS AND OTHER LIABILITIES DUE TO BANKS, OTHER FINANCIAL INSTITUTIONS AND CENTRAL BANK 2017 2016 Foreign Domestic Financial banks banks institutions Total Total Transaction deposits in dinars 27.793 • 49.577 77.370 209.407 Transaction deposits in foreign 316 1 10.783 11.100 113.060 currency Other deposits and liabilities in dinars Special purpose deposits 210 • • 210 210 Other deposits • • 190.000 190.000 175.000 Other financial liabilities • • • • 48 Interest and fees accruals in dinars • • 1.264 1.264 153
Other deposits and liabilities in foreign currency Special purpose deposits currency 183.020 • 96.599 279.619 192.207 Other deposits • • 59.303 59.303 175.706 Received loans 2.014.036 • 6.585.661 8.599.697 6.174.356 Interest and fees accruals 1.769 • 5.251 7.020 7.513
Deferred costs using effective interest (14.468) rate • • • •
Total 2.227.144 1 6.998.438 9.225.583 7.033.192
Annual Report 2017
61 33. DEPOSITS AND OTHER LIABILITIES DUE TO CUSTOMERS
2017 2016 Public Private Foreign Other sector Companies Entrepreneurs individuals entities clients Total Total Transaction deposits 723 3.922.100 1.250.619 3.200.864 26.504 882.703 9.283.513 6.853.039 in dinars Transaction deposits 2.355.435 70.656 19.169.656 1.202.508 135.831 22.934.086 21.917.501 in foreign currency • Other deposits and liabilities in dinars Savings deposits • • • 940.641 9.316 • 949.957 1.063.996 Special purpose 77.858 3 22.138 2.072 102.071 230.135 deposits • • Deposits pledged as 70.634 1.200 8.827 80.661 84.240 collateral • • • Other deposits 56.100 2.876.122 29.516 • • 8.635.295 11.597.033 7.202.132 Overnight • • • • • • • • Other financial liabilities • 125 • 47.152 • 397 47.674 36.761 Interest, provisions and 186 63 49 1 299 240 fees payable • • Interest accruals 119 4.335 59 8.446 187 22.938 36.084 25.743 Deferred costs using effective interest rate • • • • • • • •
Other deposits and liabilities in foreign currency Savings deposits • • • 42.171.751 702.465 • 42.874.216 48.352.607 Special purpose 431.500 662 146.328 2.894.696 31.898 3.505.084 411.937 deposits • Deposits pledged as 625.578 11.409 630.510 1.857 1.269.354 1.106.886 collateral • • Other deposits • 2.262.728 • • • 1.100.950 3.363.678 5.092.397
Received loans 386.221 • • • • • 386.221 941.214 Other financial liabilities • 52.873 • • • 353 53.226 52.159 Interest, provisions and fees payable in foreign • • • 264 • • 264 311 currency Interest accruals 121 1.317 24 124.273 7.476 379 133.590 161.217
Total 443.284 12.680.791 1.364.211 66.470.899 4.847.082 10.810.744 96.617.011 93.532.515
No interest rates calculated on demand corporate deposits in local/foreign currency during 2017. Term corporate deposits in local currency carry interest rate from 1.1% to 3.4% per annum and corporate foreign currency term deposits carry interest rate from 0.4% to 1.0% per annum.
The interest rate on the current and demand deposits of citizens range up to 0.5% per annum for EUR and up to 4.9% for RSD (stock of old products). New production of current and demand deposits is 0.0% for EUR and 2.4%RSD. Interest rate on foreign currency term deposits varied from 0.1% to 1.5% in EUR while interest rate on RSD term deposits of citizens ranged from 1.5% to 3.6% per annum.
Annual Report 2017
62 34. PROVISIONS 31 december 2016 31 december 2016 Provisions for off-balance sheet exposures 223.614 229.218 Provisions for legal cases (Note 36 b) 117.706 168.963 Provisions for retirement 40.869 36.759 Provision for bonuses and other - IAS 19 29.369 11.646 Provisions for restructuring • • Total 411.558 446.586
Movements in total provisions: Bonuses and Provisions for other - IAS 19 Retirement Legal cases restructuring Off balance sheet Total Opening balance 2016 3.700 36.699 202.534 • 313.694 556.627 Provisions paid during the year • (1.004) (39.407) • • (40.411) New provisions 7.946 6.554 22.069 • 2.032 38.601 Release of provisions (5.490) (17.112) (92.226) (114.828) (Note 11, 10) • • Net exchange gain/loss • • 879 • 5.717 6.596 Closing balance 2016 11.646 36.759 168.963 • 229.217 446.586
Provisions paid during the year (7.814) (1.088) (93.777) • • (102.679) New provisions 25.537 1.574 51.145 • 91.617 169.873 Release of provisions 3.624 (8.678) (87.974) (93.028) (Note 10, 11) • • Net exchange gain/loss • • 53 • (9.246) (9.193) Closing balance 2017 29.369 40.869 117.706 • 223.614 411.558
Principal actuarial assumptions used for retirement indemnities (expressed as weighted averages): 2017 2016 Discount rate 5.0% 5.2% National average salary increase 2.5%-4.5% 1.8%-4.5% Inflation rate 3.5% 3.5%
Annual Report 2017
63 35. OTHER LIABILITIES 31 december 2017 31 december 2016 Liabilities for salaries and benefits Temporary and occasional assignments 6.839 6.255 Other liabilities towards employees 3.329 15.910 10.168 22.165
Other liabilities in dinars Operations managed on behalf of third parties 236 5.964 Advances received 11.940 2.131 Suppliers 132.681 137.364 Temporary and suspense accounts 10.210 37.235 Liabilities from profit 700 700 Other liabilities 19.960 26.786 Liabilities for interest and fees 21.996 9.888
Other obligations in foreign currency Advances received 49.710 45.342 Suppliers 9.439 44.144 Temporary and suspense accounts 95 560 Other liabilities 4.654 4.448 261.621 314.562
• • Value added tax 54.698 45.920 Other taxes and contributions 8.427 9.573 63.125 55.493
Accruals and deferred income in dinars Other accrued expenses 75.526 49.291 Deferred income from fees 17.654 16.561 Deferred interest income 6.742 6.807 Other accruals and deferred income 388.962 152.886
Accruals and deferred income in foreign currency Other accrued expenses 16.009 3.079 Other accruals and deferred income 10.136 2.381 515.029 231.005 Total 849.943 623.225
Annual Report 2017
64 36. SHAREHOLDER’S EQUITY
Capital of the bank comprises share capital, share premium, statutory reserves, revaluation reserves and accumulated gains and losses: 31 december 2017 31 december 2016 Share capital and other capital Share capital common shares 25.422.400 25.422.400 Share capital preference shares 4.800 4.800 Share premium 6.051.999 6.051.999 Other capital 2.727 2.727 31.481.926 31.481.926 Own shares (500) • Statutory and other reserves 9.558.335 9.558.335 9.557.835 9.558.335 Revaluation reserves Revaluation reserves - AFS securities 14.237 7.360 Actuarial loss on defined retirement benefits 186 3.266 14.423 10.626
Accumulated gains 7.914.950 5.853.626 Accumulated losses • • Current year profit 2.181.755 2.061.325 10.096.705 7.914.950 Total shareholder’s equity 51.150.889 48.965.838 Number of issued shares 254.272 254.272
Nominal value of the shares amounts to RSD 100,000 per share.
Annual Report 2017
65 The shareholders structure of the Bank as at 31 December 2017 is presented in the table below: Ordinary Preference Total Shareholder shares % shares % shares % Eurobank Ergasias 141.868 55,80% 17 35,42% 141.885 55,80% Berberis Investments Limited 3.690 1,45% • 0,00% 3.690 1,45% ERB N.E. BV Holding Company Holland 108.666 42,74% • 0,00% 108.666 42,74% Agromerkantilija zemljoradnička zadruga • 0,00% 3 6,25% 3 0,00% AKT • 0,00% 1 2,08% 1 0,00% Bambi banat • 0,00% 3 6,25% 3 0,00% Buducnost • 0,00% 2 4,17% 2 0,00% Dunav AD • 0,00% 1 2,08% 1 0,00% Eurobank a.d. • 0,00% 5 10,42% 5 0,00% Kopaoničanka ZP • 0,00% 2 4,17% 2 0,00% Saobraćajni institut CIP • 0,00% 3 6,25% 3 0,00% Siemens IT solutions and service • 0,00% 2 4,17% 2 0,00% Stem • 0,00% 1 2,08% 1 0,00% TP Beogradelektro • 0,00% 6 12,50% 6 0,00% Trustex • 0,00% 1 2,08% 1 0,00% ZZ Bajina Bašta • 0,00% 1 2,08% 1 0,00% Total 254.224 100,00% 48 100,00% 254.272 100,00%
The reconciliation of the movements in number of common and preference shares is as follows: Common shares Preference shares Closing balance 2017 254.224 48 Closing balance 2016 254.224 48
Share issues and the changes in the Eurobank’s share capital structure During 2017 the Bank did not perform any capital increase.
During 2017 Bank executed repurchase of own preference shares from the shareholder Habit Pharm in bankruptcy in total amount of RSD 500 thousand (5 shares with nominal value RSD 100 thousand per one share). The Bank plans to carry out the annulment of repurchased own preference shares during the year 2018.
Share premium Share premium represents amounts issued over par. As at 31 December 2017 the Bank’s share premium was RSD 6,051,999 thousand (31 December 2016: RSD 6,051,999).
Statutory reserves As at 31 December 2017 statutory reserves and other reserves in total amount of RSD 9,558,335 thousand (31 December 2016: RSD 9,558,335 thousand) are formed in accordance with regulations and the Statute of the Bank.
Annual Report 2017
66 37. CONTINGENT LIABILITIES AND COMMITMENTS a) Operating lease commitments
Non-cancellable operating lease rentals are payable as follows: 31 december 2017 31 december 2016 Not later than one year 66.785 71.810 Later than one year but no later than five years • • Later than five years • • Total 66.785 71.810 b) Litigations
As at 31 December 2017, the Bank has provisions for legal cases in the amount of RSD 117,706 thousand (31 December 2016: RSD 168,963 thousand). Provisions in the amount of RSD 110,796 thousand relate to litigations for the unilateral increase in interest rates that was performed in the past (31 December 2016: RSD 96,814 thousand). The Bank also has two legal claims filed against the Bank in respect of payments of frozen bonds made to unauthorized persons based on forged documents. Although, the Bank acts as an Agent of the Government of the Republic of Serbia, servicing “old foreign currency savings bonds” the Bank has made provision for claims related to the frozen bonds payments in the amount of RSD 3,584 thousand (31 December 2016: 62,309 thousand).
As at 31 December 2017, the Bank has RSD 14,195,715 thousand loans denominated in CHF. In September 2016 there was one first instance verdict in favour of the client against one Serbian bank for termination of CHF mortgage loan contract due to significant change of market conditions (strengthening of CHF exchange rate comparing to RSD). This resulted in increased number of litigations of clients with claims for contract termination against the Bank. Despite this one verdict of the contract termination, there is still great uncertainty related to the decision of higher instance court and how this will affect the relationship between banks and client. Management continue to monitor the issue and will decide on the need for a provision to be booked in accordance with IAS 37 once more information is available, given the issue is quite recent. At the moment, the management does not consider that possible negative implications for the Bank are probable.
38. COMPLIANCE WITH REGULATORY REQUIREMENTS
The Bank is obliged to comply with ratios defined by the Law on Banks. As at 31 December 2017, the Bank's ratios were in compliance with the prescribed levels:
Regulatory Regulatory Business indicators limit 2017 limit 2016 Capital adequacy min 8% 29.15% min 12% 18.54% Tier I CAD ratio min 6% 29.15% CET 1 ratio min 4.5% 29.15% Long term investments indicator max 60% 10.53% max 60% 21.07% Large exposure of the Bank max 25% 20.77% max 25% 24.63% Large exposures indicator max 400% 66.69% max 400% 119.67% Liquidity indicator: - first month of reporting period min 1 1.37 min 1 1.48 - second month of reporting period min 1 1.52 min 1 1.85 - last month of reporting period min 1 1.46 min 1 1.80 Currency risk max 20% 3.71% max 20% 1.31% Liquidity coverage ratio min 100% 552,22% Leverage ratio n/a 18.33%
As at 31 December 2017, the Bank was in compliance with all regulatory requirements.
Annual Report 2017
67 39. RELATED PARTIES TRANSACTIONS
Eurobank a.d. Beograd is a subsidiary of Eurobank Ergasias (‘Eurobank’) which is listed on the Athens Stock Exchange.
In November 2015, following the completion of the Eurobank’s share capital increase, fully covered by investors, institutional and others the percentage of the Eurobank’s ordinary shares with voting rights held by the Hellenic Financial Stability fund (HFSF) decreased from 35.41% to 2.38%.
Despite the aforementioned significant decrease of its percentage, the HFSF is still considered to have significant influence over the Eurobank. In particular, in the context of the Law 3864/2010, as in force, HFSF exercises its voting rights in the Eurobank’s General Assembly only for decisions concerning the amendment of the Eurobank’s Articles of Association, including the increase or decrease of the Eurobank’s capital or the granting of a corresponding authorization to the Eurobank’s Board, decisions concerning the mergers, divisions, conversions, revivals, extension of duration or dissolution of the Eurobank, the transfer of assets (including the sale of subsidiaries), or any other issue requiring approval by an increased majority as provided for in Company Law 2190/1920. In addition, the Eurobank has entered into a new Relationship Framework Agreement (RFA) with the HFSF on 4 December 2015 replacing the previous one, signed on 26 August 2014, which regulates, among others, (a) the Eurobank’s corporate governance, (b) the restructuring plan and its monitoring, (c) the monitoring of the implementation of the Eurobank’s Non-Performing Loans (NPLs) management framework and of the Eurobank’s performance on NPLs resolution, (d) the Material Obligations and the switch to full voting rights, (e) the monitoring of the Eurobank’s actual risk profile against the approved Risk and Capital Strategy, (f) the HFSF’s prior written consent for the Eurobank’s Group Risk and Capital Strategy and for the Eurobank’s Group Strategy, Policy and Governance regarding the management of its arrears and non-performing loans and any amendment, extension, revision or deviation thereof, and (g) the duties, rights and obligations of HFSF’s Representative in the Eurobank’s Board.
A number of banking transactions are entered into with related parties in the normal course of business and are conducted on an arm's length basis. These include loans, deposits and guarantees. In addition, as part of its normal course of business in investment banking activities, the Group at times may hold positions in debt and equity instruments of related parties.
Annual Report 2017
68 Transactions with related parties for the year ended on 31 December 2017 are presented in the table below:
ERB ERB Eurobank Be- New New Private Business IMO ERB ERB ERB IT Europe Europe bank Eurobank Eurobank Exchanges Property Property ERB Asset Shared Funding Holding Luxemburg Bulgaria Ergasias S.A Investemnts Services Leasing Fin Services BV BV S.A a.d Assete Foreign currency account 43.794 • • • • • • • • • • Interest and fee receivables 877 • 2.559 • • • • 4.738 • • • Loans to clients 6.397.526 • 651.600 116 • • • • • • • Investment in sheres • • • • 58.479 • • • • • • Derivative assets 240 • • • • • • • • • • Other receivables • • • 4 • • • • • • • Total assets 6.442.437 • 654.159 120 58.479 • • 4.738 • • • Liabilities Due to customers 195.528 • 264.666 39.319 183.650 • • 112 45.175 5.311 10.184 Interest and fee payables • • • • • • • • • • • Suppliers 4.317 • • • • • • • • • • Derivative liabilities 10.808 • • • • • • • • • • Total liabilities 210.653 • 264.666 39.319 183.650 • • 112 45.175 5.311 10.184 Income Interest income 69.821 • 17.079 • • • • • • • • Interest income on derivatives 3.760 • • • • • • • • • • MtM 2.438 • • • • • • • • • • Fee and commission income • • • • • • • • • • • Services 15.020 • 310 76 118 54 • 4.848 • • 25 Other • • • • 1.814 • • • • • • Total income 91.039 • 17.389 76 1.932 26 • 4.848 • • 25 Expenses • • • • • • • • • • Interest expense 2.751 • 1.181 82 366 61 • • • • • Interest expense from derivatives 23.077 • • • • • • • • • • Fee and commission expense 37.356 1.433 • 15.114 • • • • • • • Services 17.264 • 6.709 4.097 • • 80.512 • • • • Other • • • 2.080 • • • • • • • Total expenses 80.448 1.433 7.890 21.373 366 61 80.512 • • • • Off balance sheet • • Guarantees • • • • • • • • • • • Derivatives 1.331.094 • • • • • • • • • • Other • • • 184 • • • • • • •
Annual Report 2017
69 Transactions with related parties for the year ended on 31 December 2016 are presented in the table below: ERB ERB Eurobank Be- New New Private Business IMO ERB RECO ERB ERB IT Europe Europe bank Eurobank Eurobank Exchanges Property Property ERB Real Asset Shared Funding Holding Luxemburg Bulgaria Ergasias S.A Investemnts Services Leasing Property Fin Services BV BV S.A a.d
Assets
Foreign currency account 31.579 • • • • • • • • • • • Interest and fee receivables 355 • • • • 132 • • 4.938 • • 4 Loans to clients 3.370.794 • 681.730 • • 24.694 • • • • • • Investment in shares 20.479 • • • • • • • Derivative aasets 6.571 • • • • • • • • • • • Other receivables • • 17 • • • • • • • • • Total assets 3.409.299 • 681.747 • 20.479 24.826 • • 4.938 • • 4 Liabilities
Due to customers 203.077 • 341.372 33.656 124.087 100.564 89.696 • • 47.079 5.535 10.175 Interest and fee payables • • Suppliers 2.563 3.334 • 5.587 • 363 • • • • • • Derivative liabilities 19.581 • • • • • • • • • • • Total liabilities 225.222 3.334 341.372 39.243 124.087 100.927 89.696 • • 47.079 5.535 10.175 Income
Interest income 52.792 • 16.189 • • 1.038 • • • • • • Interest income on derivatives 6.364 • • • • • • • • • • • MtM 26.233 • • • • • • • • • • • Fee and commision income 10.562 • 348 68 210 6.932 26 • 4.918 • • 62 Services • • • • 1.837 • • • • • • • Other • • • • • • • • • • • • Total income 95.951 • 16.537 68 2.047 7.970 26 • 4.918 • • 62 Expenses • • • • • • • • • • • Interest expense 2 • 2.371 280 2.007 554 1.346 • • • • • Interest expense from derivatives 41.207 • • • • • • • • • • • Fee and commision expense 27.234 4.452 • 11.697 • • • • • • • • Services 14.477 • 6.801 2.890 19 63.326 • 131.924 • • • • Other • • • 6.719 • 40 • • • • • • Total expenceses 82.920 4.452 9.172 21.586 2.026 63.920 1.346 131.924 • • • • Off balance sheet • • Guarantees • • • • • 298.260 • • • • • • Derivatives 3.730.406 • • • • • • • • • • • Other • • • 257 • • • • • • • •
As at 31 December 2017, loans to employees amounted to RSD 2,149,311 thousand (31 December 2016: RSD 2,207,849 thousand). All loans are given under terms defined in the Bank’s lending policy and interest rates were in range from 1.7% to 5.1% for mortgage loans in EUR and from -0.6% to 2.0% for mortgage loans in CHF, while for consumer loans interest rates for RSD loans were in range from 5.3% to 14.8%.
Annual Report 2017
70 Payments key management personnel 2017 2016 Salaries and other contributions 67.714 78.232 67.714 78.232
40. FOREIGN EXCHANGE RATES
The official exchange rates of major currencies which were used for translation of balance sheet items as at 31 December were as follow: 31 december 2017 2016 USD 99.1155 117.1353 EUR 118.4727 123.4723 CHF 101.2847 114.8473
41. RECONCILIATION OF LOANS, DEPOSITS AND OTHER LIABILITIES WITH CLIENTS
As required by the Accounting and Auditing Law, the Bank has performed reconciliation of loans, deposits and other liabilities with clients as at 31 December 2017.
42. BOARD OF DIRECTORS
Members of the Board of directors of Eurobank as at 31 December 2017 are listed below: President Members Michalakis Louis Karakasis Theodoros Stavros Ioannou Angelos Tsichrintzis Anastasios Nikolaou Michail Vlastarakis Ivan Vujačić
Events after the reporting period
There were no significant events after balance sheet date that would require disclosure in the Financial Statements.
Slavica Pavlović Vladimir Tofoski President of the Executive Board Chief Financial Officer
Annual Report 2017
71 Annual Report 2017
38 CORPORATE SOCIAL RESPONSIBILITY REPORT
Annual Report 2017
39 ABOUT THE BANK
EUROBANK GROUP
Eurobank Group is a dynamic banking organization with total assets of EUR 60 billion (as at December 31, 2017) offering universal banking products and services in seven countries. With its overall network of 700 branch offices in Greece and abroad, the Group offers a variety of retail and corporate banking and financial products and services. Eurobank Group also holds strategic position in Bulgaria and Serbia in respect of retail and corporate operations. Additionally, the Group provides specialized services regarding asset management in Cyprus, Luxembourg and London, and is also present in Romania. www.eurobank.gr
EUROBANK A.D.
Eurobank a.d. has been operating in Serbia since 2003, and today is one of the largest foreign investment and financial organizations in the country with the total assets of EUR 1.38 billion and credit portfolio of EUR 900 million. After more than a decade of successful operations in Serbia, Eurobank offers a wide range of standard and innovative banking products and services. Eurobank business network comprises 80 branch offices and 5 trade finance offices on major business, cultural and historical locations.
Eurobank is a company which fully incorporates its social responsibility into its business operations through five areas of its activities:
• corporate governance, as a transparent system of managing and monitoring the company`s operations; • working environment, relating to safe and motivating working conditions; • market and clients, fair relationship with suppliers and competition; • local community, support to its economic and social development; • environment, through responsible disposal of resources and minimization of adverse effects. BASIC DATA ON THE BANK
Name: Eurobank a.d. Address: 10 Vuka Karadžića, Belgrade Website: www.eurobank.rs E-mail: [email protected] EuroPHONE: 0800/1111-44
Annual Report 2017
40 MISSION AND VISION
“To be first choice bank, which operates with the sense of responsibility in respect of all our stakeholders – clients, shareholders, employees and community.“
Bank’s development is based on strong principles and values, in particular the following:
MERITOCRACY we offer equal possibilities and treatment to all our employees.
TEAM WORK we highly value team work and joint efforts as our corporate success.
QUALITY we are constantly working on enhancing improving our products and services.
TRUST we are building relationships of mutual trust, so that our clients could rely upon our employees and services we offer.
EFFICIENCY we make effort to accomplish projected goals and always try to achieve best possible results.
CREATIVITY we strive for innovations and search for new ideas in order to improve the level of our products and services.
RESPECT we understand, respect and acknowledge the needs of our clients, colleagues and fellow citizens.
COMMUNITY CONTRIBUTION our contribution to local communities in which the Bank operates reflects the orientation of our company and values of all interested parties.
THE TEN PRINCIPLES OF THE UN GLOBAL COMPACT
Bank’s operations are completely in compliance with the Ten Principles of the United Nation`s Global Compact. The Ten Principles of the UN Global Compact are derived from: Universal Declaration of Human Rights, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, as well as the United Nations Convention Against Corruption. In its activities, the Bank spares no effort always to comply with the following. Ten Principles of the UN Global Compact: HUMAN RIGHTS Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: Businesses shall make sure that they are not complicit in human rights abuses.
LABOUR Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: The elimination of all forms of forced and compulsory labour; Principle 5: The effective abolition of child labour; and Principle 6: The elimination of discrimination in respect of employment and occupation.
ENVIRONMENT Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: Undertake initiatives to promote greater environmental responsibility; and Principle 9: Encourage the development and diffusion of environmentally friendly technologies.
ANTI-CORRUPTION Principle 10: Business should work against corruption in all its form, including extortion and bribery.
Annual Report 2017
41 STRATEGY AND DESCRIPTION OF KEY INFLUENCES, RISKS AND OPPORTUNITIES
In 2017, we made significant efforts to operate in compliance with market conditions, to focus on the possibility of business development and increase of credit activities, as well as on further promotion of internal policies, procedures and methodologies.
Profitability of the banking sector in 2017 was exceptionally good. In previous years, a high level of non- performing loans posed a great pressure on the profitability of banking sector, due to high costs of provisions for credit losses. Gradual stabilization of economic conditions, adoption of the Strategy for non-performing loan resolution at the national level and amendments to regulations gave rise to additional improvements of non-performing loans (NPL), consequently having a positive effect on the profitability of the banking sector, as well. However, it should be noted that, at the same time, banks operate under the conditions of extremely low interest rates which limit the interest income and overall income growth.
For Eurobank 2017 was very successful. We recorded credit growth of more than 15% and, more importantly, this growth was balanced for both segments – retail and corporate. We promoted the range of our services offered through digital channels and increased client base. In 2017, Eurobank realized profit before tax in the amount of EUR 21,7 million being 25% higher in comparison to the results in 2016.
In the period to come, we shall also remain focused on growth and development of operations. In view of the fact that the focus of our activities is on products and services tailored to meet the needs of our clients, we would like, through further promotion and development of the said, to increase the growth of placements and our client base, both through traditional banking and by following contemporary trends regarding ``digitalization`` of operations and orientation to new, innovative services and products increasingly overwhelming the banking market. We consider socially responsible operations to be significantly important and integral part of operating activities and therefore, we continue, with the same intensity, to implement projects and initiatives in local communities where we conduct business operations.
In 2017, a corporate campaign was launched based on four pillars of business operations and strategic orientation of the Bank: clients, employees, socially responsible activities and innovations. This campaign was implemented through a large number of communication channels including TV, announcements in printed media, bill-boards, social networks, branch office branding, digital channels, all with the aim of conveying the message on our focus on the above pillars of business operations. In that respect, a new slogan of our Bank was introduced which complies with the logo: Jednostavno moja (Simply Mine).
Annual Report 2017
42 Bank` s Contribution to Domestic Product
Domestic product 2017. 2016. Group contribution to "Domestic Product" In RSD million Bank`s turnover 10.208 9.943 Interests and fees expenses -1.379 -1.431 Value adjustment expenses -699 -885 Domestic product and distribution 8.130 7.627 I Employees Gross earnings 2.309 2.207 Health and social insurance 665 634 Payroll tax 168 162 Total 3.142 3.003 II. Suppliers of goods and services 2.803 2.786 III. Donations/Sponsorships 15 15 IV. State Corporate income tax and other taxes 336 85 VAT 0 0 Deposit insurance 485 473 Health and social insurance -665 -634 Payroll tax -168 -162 Total -12 -238 V. Bank Profit 2.182 2.061 Domestic product 8.130 7.627
BANK`S MEMBERSHIPS
Since its very establishment, Eurobank has joined the local network of international initiatives promoting development of business environment in Serbia. The Bank is also a member of networks encouraging socially responsible concept in business sector and contributing to the expansion and development of responsible business practices:
• American Chamber of Commerce; • Foreign Investors Council; • Hellenic Association for Economics; • Serbian Chamber of Commerce; • Association of Serbian Banks; • Responsible Business Forum; • United Nations Environment Programme Finance Initiative – UNEP FI; • United Nations Global Compact; • Serbian Association of Economists; • Serbian Public Relations Society;
Annual Report 2017
43 REWARDS AND AWARDS OF RECOGNITION
AWARD OF RECOGNITION FOR REPORTING UNDER INTERNATIONAL GRI METHODOLOGY
Eurobank received an award for reporting under international GRI methodology in November 2017, at “Contribution of Responsible Business Forum Member Companies to Sustainable Development“ Conference.
MOST ACTIVE ISSUING BANK IN THE FIELD OF TRADE FINANCING IN 2017
Trade Financing Program (TFP) of the European Bank for Reconstruction and Development (EBRD) rewarded Eurobank as the most active issuing bank in Serbia. As one of leading foreign investors in Serbia, Eurobank joined TFP Program of EBRD in 2011, and since then it has been supporting export - import business activities of its clients.
Award of Recognition for supporting development and promotion of sports activities of persons with disabilities in Serbia by Serbian Sports Association of Persons with Disabilities.
REPORTING METHODOLOGY AND PARAMETERS
REPORTING PARAMETERS
• First Report on the Bank`s Socially Responsible Business, published in 2009, as a separate edition (for the previous 2008), following the publishing rate of Annual Financial Report.
• Previous Report on Socially Responsible Business – for 2016, which was published in 2016 as an integral part of Annual Report.
• Report on Socially Responsible Business for 2012 was for the first time prepared under internationally recognized Global Reporting Initiative, thus achieving B reporting level. Report on Socially Responsible Business for 2013 and 2014 was extended by additional basic GRI indicators, and also contains indicators from sector addendum for the financial sector. The above reports are made in accordance with G3.1 version, while the reports for 2015 and 2016 are made in compliance with G4 version of these guidelines. 2016 and 2017 reports forms an integral part of the Bank`s Annual Report and complies with 33 indicators, 21 of which are fully complied with, while 12 are partially complied with.
• Interested parties may find the above reports on the following site: www.eurobank.rs/finansijski-izvestaji.881.html
Annual Report 2017
44 CONTACT PERSON FOR REPORTS ON SUSTAINABILITY:
Name and Surname: Milena Stupar, Corporate Communication Specialist, Marketing and Corporate Communications Division
Phone number: 011 308 2863
E-mail: [email protected]
INCLUSION OF STAKEHOLDERS AND MATERIAL ASPECTS
Stakeholders are all interested parties (individuals, groups or organizations) influencing/or under the influence of the Bank and its operations. The Bank makes its best efforts to actively consult its stakeholders in the process of strategic decision making. As part of our regular activities, we use various methods to include stakeholders, with the aim of obtaining their opinions, positions and expectations.
Annual Report 2017
45 KEY STAKEHOLDERS
STAKEHOLDER GROUP COMMUNICATION AND INCLUSION CHANNELS TOPICS RELEVANT FOR STAKEHOLDERS EMPLOYEES
Executive Board and Management of the Bank "Euro NEWS" internal newspapers "EuroPORT" internal portal Potential for development and promotion "Idea box" platform on the portal through Employees in the Network which employees can propose ideas for Improvement of internal communication improvement of business operations Corporate Facebook, Twitter, Google+, Other employees Employee satisfaction LinkedIn, YouTube accounts Electronic letters from the top management Union Regular Division meetings
CUSTOMERS EuroPHONE customer service 0800 11 4444 Private individuals E-mail address: [email protected] Timely, accurate and available information Bank’s website: www.eurobank.rs on products and services Legal entities – small and medium-sized Corporate Facebook, Twitter, Google+, enterprises LinkedIn, YouTube account, Chat and Video Continuous improvement of customer chat support Legal entities – large corporate customers Bank’s Network Customer Relations Service Responsible advertising Annual Survey by the Customer Experience Management Unit SHAREHOLDERS AND INVESTORS
Minority shareholders Bank’s website www.eurobank.rs Annual Report Transparent management Bank’s General Assembly sessions Business results Majority shareholders Regular meetings
STATE INSTITUTIONS
Regulatory bodies Annual Report Transparent management Meetings and consultations Business results Ministries/Government institutions Conferences Compliance with legal regulations
LOCAL COMMUNITY Annual Report Local self-governments Meetings and consultations Investments in the development of local Involvement in regional Chambers’ boards communities Procedure for the provision of donations Partnership projects and sponsorships BUSINESS COMMUNITY
Business associations Meetings and consultations Annual Report Partnership projects Suppliers Involvement in working groups and Transparency in supplier selection business associations’ boards Business partners
MEDIA Press conferences Timely and open communication National media Public announcements, interviews, PR Business results texts Community investments and investments Local media Direct contact with Corporate to meet the specific needs of the Communications Department community CIVIL SECTOR Partnership projects Meetings and consultations Non-government/non-profit organisations Community investments Procedure for the provision of donations Promotion of socially responsible and sponsorships business Annual Report Promotion of volunteering
Annual Report 2017
46 INCLUDING INTERESTING PARTIES AND MATERIAL ASPECTS
Eurobank objectives, activities and plans in areas recognised in two-way communication as topics relevant for stakeholders are presented in this Report through relevant material aspects defined in GRI guidelines.
An overview of material aspects:
ECONOMIC IMPACTS
• Economic performance • Market presence
RESPONSIBLE ATTITUDE TOWARDS THE WORKING ENVIRONMENT
• Employment • Training courses and education • Diversity and equal opportunities • Supplier operating practices assessment
HUMAN RIGHTS
• Anti-discrimination • Freedom of association and collective bargaining • Supplier human rights assessment
SOCIAL IMPACT
• Local communities • Anti-corruption • Supplier social impact assessment
PRODUCT-RELATED RESPONSIBILITY
• Product and service labelling • Marketing and communications • Customer privacy • Portfolio of products and services
ENVIRONMENTAL RESPONSIBILITY
• Energy • Compliance
The above listed material aspects are relevant in the context of direct and indirect impacts made by the Bank, which also include impacts produced through the supply chain and impacts made by the products and services.
Annual Report 2017
47 Annual Report 2017
48 CORPORATE GOVERNANCE
Annual Report 2017
49 Effective and sustainable governance is an important part of corporate identity and values of Eurobank Group and of all its affiliates, with transparency and accountability being one of the basic business requirements which ultimately protect shareholders’ interests and rights.
Accountable management and control of Bank operations are ensured through good corporate governance practices, including but not limited to aspects such as ethical and sound business practice, timely and accurate financial reporting, compliance with local legislation and Group regulations, safeguarding of stakeholders’ interests due to sustainable risk management system, adequate rewarding programme and promotion of human talent.
The Bank observes the highest standards of business conduct and operations based on sustainable corporate governance principles and rules set out by local regulatory bodies and the Group. Board of Directors of the Bank constantly strives to improve Bank's management processes and policies not only to ensure business compliance but also to provide transparent decision-making process and accountability, and to develop corporate culture founded upon sound corporate ethics.
Control functions of the Bank, as well as supporting units, facilitate smooth application of the best practices and recommendations for continuous improvement, by securing:
• compliance with laws and regulations; • clear management and competence lines; • transparency and accountability; • timely disclosure of relevant information, and • effective cooperation and communication with all stakeholders.
The Bank maintains its overall governance structure by Internal Control Manual, an umbrella document of Group members, and a series of policies such as: Risk Management Policy, Internal Control Policy and Compliance Policy. Code of Conduct integrates both sensitive and general rules and guidelines of ethical business. The rules defined by the Code of Conduct supplement the regulatory requirements and aim to establish a minimum of unique internal rules and principles of professional conduct and ethics applicable to Bank employees and employees of the Group companies operating in Serbia when performing their activities. Conflict of Interest Policy regulate prevention of conflict of interest and personal transactions rules applicable to all employees equally. On the basis of this Policy, the Bank shall establish rules and principles for dealing with situations that may lead to conflicts of interest during the conduct of business activities and determine the rules of conduct for employees to be adhered to in order to avoid situations of conflict of interest when performing their duties. Special emphasis is placed on activities such as investment research, advisory services, trading for own account (own trading), Bank and/or client portfolio management, securities underwriting, or providing advice on corporate mergers and acquisitions issues. Policy on Reporting Unethical Conduct additionally strengthens the framework of internal control systems and fraud risk management as well as Bank management’s zero tolerance to any fraudulent behaviour either by employees or external collaborators.
The Bank operates in compliance with locally prescribed governance model as set out by the national banking supervisor (National Bank of Serbia) in the Law on Banks. The Bank is committed to providing sustainable business growth while realizing relationship of mutual trust with the community where it conducts its operations.
Annual Report 2017
50 GOVERNANCE STRUCTURE, TERM OF OFFICE AND COMPOSITION OF MANAGEMENT BODIES
The management bodies1 of the Bank are Board of Directors and Executive Board. The ultimate body of the Bank is the General Assembly consisting of the Bank’s shareholders.
The General Assembly appoints the members of the Board of Directors in line with local regulations. Their term of office is four years and may be renewed. Members of the Board of Directors have good business reputation and rich finance experience along with other relevant qualifications in accordance with the regulations of the National Bank of Serbia.
The Board of Directors holds quarterly meetings and more frequently, if necessary. One of the main responsibilities of the Board of Directors is to ensure compliance with laws, regulations and acts of the National Bank of Serbia, internal acts of the Bank and guidelines of the Group in achieving long-term objectives of the Bank.
The Board of Directors comprises seven members including the President, three of whom are non- executive independent members. The Board of Directors held a total of 13 sessions in 2017. Some of the most notable items on its agenda in terms of strategy and business decisions were: regular reviews of the Bank’s financial performance, strategy and business initiatives, consideration of risk management issues, internal control issues, business and audit compliance and review of its subcommittee key activities.
The Board of Directors employs subcommittees which serve to assist it in carrying out its duties within risk management and internal control areas, in accordance with local legal framework, internal acts of the Bank and Group policies and guidelines.
At the end of 2017, the Executive Board, as a management body appointed by the Board of Directors, comprised five members (including the President).
The Executive Board meets weekly. In 2017, it held a total of 55 sessions. One of the main responsibilities of the Executive Board is to oversee daily operations of the Bank and ensure that the overall organisation of the Bank adequately supports the implementation of business strategy and objectives of the Bank.
The Executive Board also appoints its functional committees which serve to assist the said in performance of duties, committed to review of wider risk-related matters, business compliance in terms of preventing money laundering and terrorist financing, staff-related matters, IT and operations, etc.
INTERNAL CONTROL SYSTEM
Bank’s internal control system, in addition to the management bodies, includes risk management function, compliance function and internal audit function, which are independent in their work and report to the Bank’s management bodies, as well as to the Audit Committee and Risk Committee, and relevant management levels of Eurobank Group.
The Bank applies a comprehensive approach to risk management through its strategies, policies, procedures, guidelines and other internal acts stipulating risk management principles, methods and mechanisms for identification, monitoring, measuring, reporting and mitigation of potential risks. Risk management and internal control are subject to regular monitoring by the Board of Directors, Audit Committee, Executive Board, and Risk Committee of the Bank.
1Composition of management bodies and relevant subcommittees in 2017 is provided in a separate table.
Annual Report 2017
51 REMUNERATION AND PERFORMANCE
Bank’s Policy on Remuneration and Other Earnings is an integral part of good corporate governance. It has been developed in compliance with operational model, business strategy and risk management strategy of the Bank. According to its basic principles, individual employees’ goals should be aligned with long-term business objectives and strategy of the Bank, and with long-term value creation for shareholders and all stakeholders.
Remuneration plays a significant role in attracting and retaining human talent, whose performance and contributions are exceptionally important in the Bank’s overall result. Remuneration mechanisms include principles considering employees’ skills and performance, while supporting long-term business objectives. Employees’ salaries comprise a fixed and variable component.
Bank’s Policy on Remuneration and Other Earnings supports reasonable and cautious risk taking. Employee remuneration system is based on achievement of business objectives and is symmetrical (i.e. total fund of variable earnings component is determined in compliance with the realization of business objectives and includes bonus-malus principle).
Bank’s Policy is applicable to all its employees. Remuneration of specific categories of employees is approved by the Board of Directors, upon proposal by Remuneration Committee and following ratification by Remuneration Committee of Eurobank Group and Supervisory Board for Remunerations of Eurobank Group.
The Board of Directors prepares and submits to the General Assembly proposal for remunerations of its independent members, upon proposal by the Supervisory Board for Remunerations of Eurobank Group. This proposal is prepared based on the Bank’s Policy and best banking practices, taking into account the time dedicated and the performance achieved by the members of the Board of Directors. SUSTAINABILITY MANAGEMENT
Bank’s mission and vision include corporate social responsibility (CSR) principles. Bank defines socially responsible business principles and main directions of CSR strategy, which is an integral part of Corporate Communications Strategy. Marketing and Corporate Communications Division is in charge of implementation of CSR activities. The said reports directly to the President of the Bank’s Executive Board, and if required, it notifies the Bank’s Board of Directors of the planned strategy approach in CSR field.
In these challenging times, Bank’s management shall continue to develop and follow best practices, as well as to strengthen relevant structures and skills, in order to ensure the achievement of targets, monitoring of results and long-term sustainability thereof.
In the following period, the Bank shall continuously work on further strengthening of management structures and frameworks in order to ensure strategic management, continuous development and observance of best practices and to set measurable goals, with special care and focus on utmost interests of its employees, shareholders and stakeholders.
Annual Report 2017
52 NON-EXECUTIVE BOARD OF EXECUTIVE AUDIT RISK CREDIT REMUNERATION DIRECTORS DIRECTORS BOARD COMMITTEE COMMITTEE COMMITTEE ALCO COMMITTEE
M. Louis President • •
S. Ioannou •
M. Vlastarakis •
S. Papantonopoulos Chair
V. Gkioulmpaxiotis •
A. Nikolaou • Chair
NON-EXECUTIVE BOARD OF EXECUTIVE AUDIT RISK CREDIT REMUNERATION DIRECTORS DIRECTORS BOARD COMMITTEE COMMITTEE COMMITTEE ALCO COMMITTEE
T. Karakasis • • Chair
A. Tsichrintzis • • •
I. Vujačić •
L. Scaramanga Chair
NON-EXECUTIVE BOARD OF EXECUTIVE AUDIT RISK CREDIT ALCO REMUNERATION DIRECTORS DIRECTORS BOARD COMMITTEE COMMITTEE COMMITTEE COMMITTEE
S. Pavlović President • • •
P. Janković • • • •
V. Zečević • Chair
M. Vićentić • • •
D. Mihailović • •
V. Tofoski •
A. Bursać •
B. Petrović •
Annual Report 2017
53 Annual Report 2017
54 HUMAN RESOURCES
Annual Report 2017
55 WORK ENVIRONMENT
Since its foundation, Eurobank Group has determined one of its major priorities to be the development of human resources, bearing in mind that contribution of all employees is crucial to achieving business success. Accordingly, during 2017, we continued to select highly qualified personnel and to develop, train, evaluate and reward our employees. In addition to the abovementioned areas, the activities of Human Resources Division also refer to the matters of compensation and benefits for employees, administration and regulation of labour relations, as well as internal communication.
EQUAL EMPLOYMENT 1 OPPORTUNITIES RESPONSIBLE EMPLOYMENT PRACTICES
Eurobank has adopted clear procedures applied to the recruitment and promotion of employees. Equal employment opportunities for all persons meeting the requirements for any position at the Bank are guaranteed by the Employment Policy and procedures, which all executives are well-familiar with, as well as by other documents governing this field. By adapting to local market conditions, in 2017 there was a slight increase in the number of employees (1,314 employees in 2017 compared to 1,305 in 2016). The average age of Bank employees in 2017 was 42, 89 of whom were under the age of 30, 982 under the age of 50 and 243 above the age of 50. Compared to the previous year, the differences are insignificant: 99 employees were under the age of 30, 980 employees under the age of 50 and 226 above 50 years of age. Age structure of the Executive Board is in accordance with average age of Bank’s employees. In line with modern trends in the field of financial services, women prevail in relation to men employed at the Bank – there are 71% of women and 29% of men. Gender representation among the Bank’s management is balanced, implying that senior management includes 46% of women compared to 54% of men, while the representation among other employees is 74% of women and 26% of men. Bank’s Head Office is located in Belgrade, with 65% of its employees working there. Besides Belgrade, business operations are divided into three more regions (Novi Sad, Niš, Kragujevac), whereas branch offices are located in several cities throughout Serbia. More than 99% of employees are local population. Bank’s practice is to employ local workforce, which means that the regions’ (regional centres’) workforce employed is exclusively made up of locals, who also occupy management positions within their respective organisational units.
2016 2017 By location (region) By employment type and agreement 897 895
129 136 156 54 125 133 148 51
Belgrade Kragujevac Niš Novi Sad
Ukupan broj zaposlenih
Annual Report 2017
56 2016 2017
69% 74% 72% 73% 68% 73% 69% 71% of whom women
32% 27% 31% 29% 31% 26% 28% 27% of whom men
7% 12% 10% 17% 3% 9% 3% 8% of whom employees with fixed-term agreements
Belgrade Kragujevac Niš Novi Sad
Employee structure
2016 2017 M Ž
105 112 97 89
55 45
7 7,60 6 5,84
Retirements Newly employed Employment agreement Fluctuation (%) Terminated employment termination during 2017.(%)
Total number and rate of employee fluctuation
EMPLOYEE SELECTION
In accordance with the business needs during 2017, the Bank offered a number of new jobs with the aim of attracting new future colleagues to achieve mutually beneficial relationships. Characteristics required by the Bank in candidates included technical knowledge, team spirit, dynamism and willingness to participate in the process of continuous improvement, while the key criteria in the selection of new employees were expertise and professional approach to business obligations. The greatest number of job vacancies was present in IT Division, Risk Management Division, Network Division, Corporate Banking Division and Internal Audit Division.
The educational profile of candidates is high, implying that 81.32% are employees with college and university education and 18.68% with secondary education.
Employee selection process is based on the values of Eurobank Group, while selection criteria include interviews, psychometric methods, foreign languages proficiency and possessing other specialised skills. Apart from usual methods of candidate search and selection, the Bank has continued its active cooperation with relevant institutions such as the Association of Banks of Serbia, Centre for Career Development, University of Belgrade, Faculty of Organisational Sciences, Faculty of Economics, Belgrade Banking Academy and Hellenic Business Association. Additionally, the Bank uses new digital channels for candidate searches, such as social networks. By providing opportunities for professional internship to high school students of Economics and Law, the Bank granted to these future professionals an insight into practical knowledge and thus facilitated their further choice of educational profile. During 2017, the internship included a total of 28 high-school and 14 university students.
As in the previous period, in accordance with the organisational changes implemented during 2017, employment was specifically directed in line with the identified business needs of organisational units.
Annual Report 2017
57 HUMAN RESOURCE 2 DEVELOPMENT ACHIEVEMENT ASSESSMENT SYSTEM
The results of the Bank have been achieved through individual contributions, abilities and efforts of employees. For this reason, great importance was placed on objective assessment of each employee's contribution. Performance assessment process is designed so as to enable transparent evaluation and it is based on clearly defined procedures. Assessment system refers to the level of achievements of goals and competence employee exhibits, whereby integrated quantitative and qualitative criteria provide a bigger picture of such achievements. Achievement assessment is conducted for all employees (100% of employees) working for at least three months in the year relevant for such assessment. All employees acting as assessors in the process of annual assessment are trained in applying objective assessment of employees’ performance, in accordance with Annual Assessment Policy. Also, an integral part of this process is defining the development areas where an employee needs to be provided with further training and development. Each employee has the opportunity to give opinion on their assessment and present their interests in terms of further development.
TRAINING
Training in the Bank is intended for all employees and adapted to the specificities of operations performed at the Bank. The programmes are designed to contribute to continuous improvement of knowledge and skills in accordance with annual training plan prepared in collaboration with all sectors of the Bank and in line with their business needs and market circumstances. Training is based on a combination of theoretical and practical knowledge, with internal training held by colleagues from different sectors who convey their knowledge to the attendants. For the purpose of fast and efficient integration of new employees into the work environment, the Bank has put in place a flexible Induction program, covering several topics depending on the type of work to be performed by the new employee. The unique programmes include: banking basics (General banking knowledge), basic principles of working with customers (Customer service), sales skills, Bank’s operating systems training (IT training) and specialised training prescribed by legal regulations, such as training in the field of prevention of money laundering and terrorist financing . The above training (prevention of money laundering and terrorist financing) was carried out in the electronic form and was attended by 850 employees. In addition, as part of a continuous process of communication and training on anti-corruption policies and procedures of the Bank, all new employees attended the program in the field of information security (IT Security awareness) within the Induction training. Given the adoption of the updated Code of professional conduct, series of training programs covering this topic were conducted in the Network Division by region. Throughout December of 2017, 90 employees attended this program. During 2017, the percent of training carried out via the Internet (e-learning) compared to traditional classroom teaching methods remained virtually the same as in the previous year. Using these methods, training was available to all employees within a shorter period of time, with significant cost savings. Some of the regular training programmes available in the electronic form included: prevention of money laundering and terrorist financing and Counter Fraud program. In line with the practice of a responsible employer who takes proper care of its employees, and in accordance with the legislation of the Republic of Serbia, with the support of external expert lecturers and trainers, the Bank successfully held training in the field of occupational health and safety and fire protection.
2016 2017
93,58 38,70 37,38 126 88,05 25,39 21,72 91
% % % % Staff who completed of internal training of e-learning hours in Number of conducted at least one training compared to % the total of training hours training programmes session per year external training
Annual Report 2017
58 The percentage of employees who attended at least one training during 2017 is 88.05%, which, as an indicator, falls within the expected scope of last year's performance of 93.58%. The total number of training hours was 21,325. On average, the same number of training hours was organised for managers and employees, whereby the average training time for managers amounted to 10.55 hours and 11.25 hours for employees. By gender, the average number of training hours was balanced, so that the average number of training hours for women was 12.50, whereas the average number of training hours for men was 11.46.
HARVARD BUSINESS SCHOOL PROGRAMME CERTIFICATION PROGRAMMES
Owing to its results and the fact that former In accordance with the Group practice, Eurobank participants rated the programme as very useful, in supports its employees in obtaining necessary 2017 we continued our cooperation with the certificates for performing certain types of jobs. prestigious educational institution Harvard Business During 2017, the Bank covered the costs of training School Publishing which began in 2008. The and certification such as ACCA (Association of programme was attended by two participants who Chartered Certified Accountants), CIA (Certified successfully completed the theoretical modules Internal Auditor) and the certificates necessary for and passed the certification tests. They were given our colleagues in IT sector, as well as the access to a wide selection of titles by the world's colleagues from Finance and Control Division. leading authors in the fields of leadership, managerial skills and coaching. After successful completion of the program, all attendants receive diplomas certified by Harvard Business School Publishing. CELEBRATING THE EUROPEAN MONEY WEEK SPECIALISED SEMINARS – FINANCIAL EDUCATION
During 2017, we continued the practice of employee On the occasion of the European and Global Money participation in specialised seminars and Week, together with a number of banks gathered conferences held by professional organisations around the Working Group of the ASB for Financial such as the Association of Banks of Serbia and Education and literacy, the Association of Serbian Serbian Chamber of Commerce, dedicated to Banks developed a programme of activities which different business areas including: risk management, were conducted in Serbia in the period from March business compliance, internal audit, corporate 27th to 31st 2017 to promote financial literacy and banking and finance. Recognising the needs of the improve financial education of a large number of Network Division, we organised a series of training target groups, ranging from the youngest (aged 3-6), programs in the field of advanced sales and through lower grades of elementary school and negotiation techniques (client approach students of high schools of economics, to students standardisation). In cooperation with Serbian and adults through the Open Door activity for Chamber of Commerce, we organised training for financial education. In cooperation with the Working obtaining and renewing insurance licenses issued Group of the ASB for Financial Education and by the National Bank of Serbia on the grounds of Literacy, our Bank actively participated in the successfully passed tests. Pursuant to the provision following activity: of the National Bank of Serbia on cash flow On the third day of the European Money Week, March processing and monitoring, the employees of the 29, 2017 we organized “Banks’ Open Door and Virtual Network Division were sent to NBS training on the Open Door”. Bank premises near the entrance to the entire territory of Serbia. For departments with an branch office located in Vuka Karadžića Street were important control function (such as Risk Management marked to indicate the place of financial education. Division, Finance and Control Division and others), a Citizens, mostly the Bank’s customers, had the series of specialised programmes in the field of risk opportunity to ask questions and receive answers management was organised. on various matters in the domain of everyday finance. At the same time, the Bank announced the activity of “Virtual Bank’s Open Door” via social networks, answering the questions from clients and potential new customers.
Annual Report 2017
59 EMPLOYEE 3 SATISFACTION RIGHTS OF EMPLOYEES
The Bank guarantees its employees the right to join an association, without discrimination on the basis of membership in associations or unions.
There is a trade union in the Bank established in March 2011 which has 228 members. As an employer, Eurobank supports their active and successful operations and maintains regular communication with the union representatives. The idea of the trade union at Eurobank Belgrade is to be a place providing support and assistance to all colleagues. Additionally, representatives of the trade union organise additional activities such as travels, celebrations, education of its members and other.
So far there has been no collective agreement, so the rights of all employees have been governed by the Rules of Procedure, which is fully in line with the Labour Law. If a collective agreement is concluded, it will apply to all employees in the same manner as the applicable Rules of Procedure.
Eurobank performs its legal obligations in the field of occupational safety and health and implements proper protective measures, such as proper training of employees in occupational safety, training in fire protection, training in first aid and regular control of potential workplace risks. Eurobank has adopted Rulebook on Occupational Safety and Health and Risk Assessment Act, and has appointed a person in charge of -safety affairs, notifying all the employees thereof. Risk Assessment Act has been formulated on the basis of the Law on Occupational Safety and Health, which is consistent with international standards, thus the Bank operates in accordance with these, although it does not have OHSAS 18001 standard.
Given the fact that Risk Assessment Act does not define any high-risk workplaces in terms of occupational health and safety, in 2017 there were no fatal workplace injuries or occupational diseases which would result in a longer absence from work. In 2017, a total of 8 occupational injuries were recorded, 4 of which were occupational injuries in the Belgrade region, 3 in the region of Novi Sad, 1 in the Niš region. Due to these 8 injuries in the course of 2017, the employees spent a total of 1.760 working hours on sick leave. All employees who were forced to take sick leave due to injuries at work or work-related injuries, were paid the full amount of salary during the period of sick leave, without any deduction applicable to other sick leave types.
During 2017, there were 36 maternity leaves at the Bank, compared to 50 in 2016. All cases of maternity leave are related to the female colleagues. In 2016, there were no male colleagues taking such leave. As in 2016, all 36 employees (100%) returned to work after the end of maternity leave and occupied positions they held before such leave. STAFF CARE
Compensations (money compensations) and other benefits
Compensations and benefits policy is based on the principles of competitiveness and achievement-based rewarding.
In the Bank, the employees’ compensation comprises fixed and variable part, where applicable. The fixed part is determined by the so-called grading system, which provides position structure within the organisation based on the data from the local labour market and on professional qualifications (educational level) of an employee, previous work experience and qualifications. The variable parts are bonuses and rewards for outstanding achievements.
In 2017, we continued our cooperation with the renowned Bel Medic General Hospital, where the Bank provided all its employees with free of charge regular medical examinations and, if necessary, further examinations for employees and their family members at special prices and discounts.
Annual Report 2017
60 In addition, new “Medifree” program was introduced for employees as well as “Medifree Kids” program for employees’ children under the age of 18. These programs consist of unlimited number of examinations by doctors of certain specialities. Within “Medifree Kids” program, besides free of charge examination, discounts are provided for certain medical services for children. In addition, all Bank employees are insured in case of surgery and/or serious disease, in case of injury and/or temporary or permanent work incapacity, as well as in cases of accidents in accordance with the insurance policy covered by the Bank. Also, scholarships are provided for children of the deceased colleagues during their regular schooling, and flexible working hours are allowed in special cases (e.g. the employees in the Head Office in Belgrade with residence outside Belgrade have the possibility to spend part of the work week in their respective place of residence). COMPLAINT MECHANISMS
If the Bank employees think they have a reason to make a complaint, they may do so by following a regular procedure defined either legally (Law on Prevention of Harassment at Work, Law on Protection of Whistle- blowers) or by internal policies and procedures (Rules of Procedure on Internal Alerting System, Policy on Reporting Unethical Conduct, Procedure for Handling Customer Complaints). Additionally, the employees are free to contact their manager or representative of HR Division directly and to submit any request or complaint, which will be processed in line with the presented content. In 2017, as well as in 2016, there was not a single complaint submitted in relation to violations of human rights. During 2017 and 2016, there were no complaints of employees regarding discrimination based on race, sex and religion, either. INTERNAL COMMUNICATION AND EMPLOYEES’ INVOLVEMENT IN CSR ACTIVITIES
High-quality internal communication can significantly contribute to the increasing motivation and productivity. Namely, it is the basis of good relationships in the organisation and it preserves understanding between the management and employees. If internal communication functions properly, employees are more committed to the organisation and have a stronger sense of belonging, as they perceive the company as their own.
A major goal of Bank’s internal communication is to strengthen among all its employees the Bank's image of a socially responsible company that takes good care of its employees, customers, shareholders and the business environment. Through various communication channels (the Intranet, EuroNews internal magazine, e-mail, regular division meetings), the employees can learn about and stay up to date with all current events, business decisions and changes within the Bank. They can propose ideas for improving communications, work and business operations and other via Idea Box platform.
Another way of involving employees in socially responsible projects implemented by the Bank is volunteering. The employees have shown understanding for the most vulnerable and sensitive social groups, and have independently organised and collected necessary supplies for all vulnerable groups.
In the educational texts in EuroNews internal magazine, special attention is paid to individual and corporate volunteering. In order to highlight the importance of volunteering, the most common forms of voluntary activities have been presented, as well as useful links with detailed information. ACHIEVEMENTS IN 2017: Objectives for 2018:
• intensifying promotion and implementation of • new specialised training programmes in all areas creative ideas and initiatives of the employees; of the Bank’s business operations; • continued training in the field of customer • further improvement of employees’ benefits; approach standardisation in all Eurobank branch • development of the platform for performance offices for the employees of Network Division; assessment process in the electronic format; • a series of specialised training in various fields of • celebration of 15 years of Eurobank operations in Bank operations such as risk management Serbia. intended for all sectors involved in risk control process.
Annual Report 2017
61 Annual Report 2017
62 CLIENTS
Annual Report 2017
63 As a stable and systemically important bank successfully operating in Serbia since 2003, Eurobank Serbia has always been strategically oriented towards efficient service provision and special customer care to its extensive client base of 520,000 private individuals, companies of all sizes, entrepreneurs and state institutions. Eurobank continuously puts effort in providing its customers with tailor-made and personalised solutions, as well as in retaining their trust in order to build and keep healthy and lasting relationships.
PRODUCTS AND 1 SERVICES
Eurobank strives to respond to different customers’ needs in the most efficient and best possible manner. Therefore, Eurobank pays special attention to its offer, ensuring that in addition to standard banking products, it also comprises specially designed products, as well as facilities intended for vulnerable customer categories. It is our common objective to build partner relationship with our clients and provide them with best possible solutions.
• Medifree Kids – Medifree is a programme • On-line Overdraft Application – any client specially designed for children (up to 18 years of visiting Eurobank website may submit an age) of EuroPLATA Premija, EuroPLATA Sport and electronic application for overdraft; Exclusive package users and includes a number of benefits such as free of charge skin prick tests • Special offer for customers during the “Savings for air borne and food allergens, as well as Week” – as a traditionally reliable and recognized paediatric, physiatrist and ENT specialist partner when it comes to savings, in order to examination at the renowned Bel Medic Health revive interest among clients, Eurobank has Care Centre; designed Euro STEP, which is a special offer with interest rates of up to 2.5%; this attractive offer • Big Heart Mastercard – Affinity card by Eurobank applies to 25-month term deposits, during which and "Ana and Vlade Divac Foundation". Through the period interest rate increases in increments; use of this card, clients help reconstruction of playgrounds in public pre-schools throughout • A record high number of current accounts Serbia; – 110,000 active current accounts;
• Cash loan for pensioners with free life • Digital signature solution implementation – it insurance; not only allows clients to sign contractual documentation on-line, but it also serves as the • Working Capital Loan with 0% interest and basis for further digitalization of internal Bank without early repayment charges - designed in documents; order to help legal entities and entrepreneurs develop their business, as well as products and • Eurobank does not charge any fees or any related services they offer; costs for the accounts opened for the purpose of collecting humanitarian aid, whether by a • Overdraft – overdraft period extended to two humanitarian organisation or a private individual. years, whereby Eurobank has become the only bank in the market to approve overdraft to current account users in the amount of two salaries for the period of two years;
Annual Report 2017
64 CUSTOMER 2 CARE
Provision of high-quality services is the key to any organisation’s success. A satisfied customer has a direct impact on revenues and profitability increase. Eurobank is strategically oriented towards provision of quality services to its clients and is deeply committed to building competitive advantage on such grounds.
• Strong business network – 80 branch offices and 5 business centres in 45 cities and towns throughout Serbia.
• Branch redesign – Branch redesign project started in 2017 providing modern interior along with better branch visibility. This new concept is designed to attract young, urban population through introduction of digital innovations, but also to keep traditional business approach to existing Eurobank clients. The main novelties include: greater transparency and distinguishing branch entrance features, modern office furniture, new design and reorganization of workplaces within the branch, "Brand Wall", "Focus Wall" and "Digital Corner". Special attention is given to implementation of "digital moment" by installing information and advertising screens, "Video Wall" and other modern and aesthetically more attractive means of advertising and communication with clients. "Digital Corner" will enable clients to learn of electronic services of the Bank, its General Terms and Conditions, Tariff of Charges and up-to-date information. Moreover, clients are provided with mobile device chargers.
• Special Bank department dedicated to customer care, customer satisfaction management and service quality surveys – this Department is responsible for constant development, project management and control, processes and activities of the Bank that produce effect on customer service excellence, or customer loyalty and satisfaction level. One of the main goals is to measure service quality and to consider critical points for the improvement of services offered by the Bank. Standardisation in primary communication with customers and focus on meeting customers’ needs also represent one of the main activities of this Department. Therefore, main indicators of the Bank's market position, brand dynamics and key indices over time are constantly monitored, in order to determine appropriate standards of quality services. On the other hand, compliance with standards and practices of the Bank as well as of its major competitors are simultaneously monitored, in order to provide qualitative market insights.
• Product and service availability for customers with disabilities – Eurobank continuously provides support to the inclusion of persons with disabilities in regular everyday activities by making its facilities accessible to everyone through adaptation of its branch offices and head office and removal of physical barriers. Bank’s Head Office premises have been completely adapted in compliance with "Design for All" principles, or in compliance with principles of the International UN Convention on the Protection and Promotion of the Rights and Dignity of Persons with Disabilities. Eurobank Centre holds Inclusion Certificate awarded by the European Institute for Design and Disability. Three Eurobank branch offices in Belgrade and one branch office in Novi Sad, Niš and Zrenjanin, respectively, have been renovated and tailored to meet the needs of persons with disabilities.
• "Your Opinion is Important to Us" Project – this is a comprehensive platform connecting all communication networks and channels between the Bank and its client. In this respect, all available channels are used to exchange information in a timely manner and enable clients to express their request/requirement/ question/objection. Clients can use the following channels:
Annual Report 2017
65 • Contact Centre – EuroPHONE;
• official website (redesigned in 2017) and e-mail address of the Bank – www.eurobank.rs; office@eurobank. rs; The most important novelty is that our web site is responsive, meaning that it automatically adapts to any device it is accessed from (mobile phone, tablet, desktop, laptop…).
• official account of the Bank and its social media presence (Facebook, Twitter, LinkedIn, Google+)
• network of 80 branch offices and five corporate banking centres.
• Personal Banking is a financial services model based on dedicated banking officers (personal bankers, advisers) who recognise customers’ needs and offer various financial services tailored to their individual needs. In 2010, Eurobank was the first bank in the market to implement this new key customer business model. Currently, there are 54 personal bankers in 80 branch offices. Personal bankers or advisers are responsible for servicing PB customers in branch offices, thus managing the relationship between the Bank and its customers. This business and financial relationship between personal banking officers and customers includes: funds management (current and savings accounts, debit cards), credit cards, deposit funds, loans and all other banking services (SMS, standing orders, e-banking, t–banking, m-banking). Personal Banking Benefits for customers are as follows:
• personalised service offered by personal banker (adviser); • prompt responses to all inquiries; • proactive identification of financial needs, as well as devising and provision of adequate solutions; • specially designated area allowing for discretion and privacy during exclusive service provision to PB clients.
• Internal surveys conducted by the Customer Experience Management Unit and “Increase of Productivity and Profit through Quality Services” questionnaires – survey results are used for defining action plans for the observed Bank departments, the implementation of which ensures the highest possible standards related to the customer care approach.
• Qualitative research is conducted with the aim to be used by other organisational units in the Bank in order to better understand a customer’s standpoint and aspects relevant for specific products. The aim is to accurately determine measures for the improvement of communication, product characteristics and sales methods, and to align customers’ needs and the Bank’s offer.
• Customer Satisfaction Research - Satisfaction of Bank’s clients is in general at a high level, as well as Net Promo Score. Overall, Bank’s clients with lower educational level are more satisfied with majority of touchpoints. In line with that, clients’ experience with the Bank is mostly positive and accounts for high satisfaction scores regarding branch office organization and atmosphere, as well as service provided by the employees, in particular their competence and cordiality. These touchpoints, along with payroll account, represent the greatest drivers of customer loyalty (compared to competition, these are the points which makes us different from Komercijalna banka); In comparison to the previous wave, conducted in 2015, most service aspects are in line, even though there has been a noticeable increase in customer satisfaction with specific aspects. The greatest increase in satisfaction has been recorded in everyday banking, branch offices and website in general, quality of website information, staff’s efficiency and availability, as well as loan processing period and overall competitiveness of loan offer in the Bank. As regards new loan TV commercial, it is highly recognizable and has encouraged a number of Bank clients to find out more about loans.
Annual Report 2017
66 0-7 8+9 10 Completely satisfied
8.9 9 8.4 8 8.5 8.7 8.7 8.9 8.1 8.1 8.1 9.1 61 61 47 42 37 61 52 58 44 41 34 59
30 27 30 32 48 29 24 24 29 30 37 22
19 15 28 28 31 16 15 14 24 27 15 12
Everyday Payroll Credit Loans E-banking Mobile banking Account Cards banking
8.6 9.1 8.7 9.3 8.7 8.7 8.2 9.1 8.5 9.2 44 69 55 70 56 56 35 66 49 69
41 22 29 21 28 37 20 26 20 27
24 13 11 17 19 11 20 20 9 15
Website ATMs Branch Branch Office Call Center Offices Staff
Customer Satisfaction Research in 2017.
• Service quality research through "Mystery Shopping" methodology Customer impression regarding branch offices, approach and sales conversation, building a positive atmosphere and relationship with the client, adjusting offer to customer needs, argumentation, emphasizing the benefits of our products and conclusion of negotiation with follow up sales are just a few of essential study main segments. A complete survey has been conducted in order to optimize interaction with customers, improve business conduct and sales skills, as well as to find solutions to ensure customers’ satisfaction and loyalty. Overall achievement for the entire network of Bank branch offices, during the four waves in 2017 is 82%, which represents an increase in Service Quality Index (SQI) compared to 2016. This achievement implies high quality of service provided to customers, which is improvement in all analyzed section criteria.
Annual Report 2017
67 BRANCH OFFICE IMPRESSION SQI CASH OFFICE INTERACTION CLIENT MANAGEMENT
100 98 96 96 96 95 94 94
90 91 89 90 85 86 85 82 82 82 83 80 81 81 81 79 78 78 79 77 75 76
70 71 69 69 68 68 66 65 TOTAL 2017 Q1Y17 Q2Y17 Q3Y17 Q4Y17
Service quality research through "Mystery Shopping" methodology in 2017
The second segment of the research refers to Mystery call, which included calls directed to branch offices and our Call Centre. The segments observed consist of: providing information by telephone, interest in attracting customers and recommending them to visit a branch office and giving basic product information. Given that phone interaction differs from interaction in person, Bank employees present the product and recognise customers’ needs in an adequate way. They are also very friendly, speak clearly and do not allow any client to wait too long for a response.
CUSTOMER SATISFACTION MANAGEMENT THROUGH COMPLAINT HANDLING
Permanent education, both for clients and employees, has led to the reduction of dissatisfaction expressed through complaints. Good customer relationship and cooperation realized in previous years were fostered in 2017. As in the past, high goals aiming to remove causes of customer dissatisfaction, accompanied by constant analysis of causes of dissatisfaction and process improvement, have resulted in further strengthening of cooperation. Customer care and handling each individual request have helped preserve the enviable level of customer loyalty. Compliance with complaint handling procedure and shortening the deadline for response submission, form a good basis for customers to have confidence in the Bank. Out of the total number of complaints submitted in 2017, Eurobank did not receive a single customer complaint that pertained to human rights violation or discrimination.
Annual Report 2017
68 2016 2017
100 90 80 70 60 50 40 30 20 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Okt Nov Dec 89 91 86 72 69 60 64 80 55 69 75 78 44 64 67 41 53 85 91 77 55 34 54 62
Complaints overview for 2016/2017
2016 2017
14 12 10 8 6 4 2 0 Jan Feb Mar Apr May Jun Jul Aug Sep Okt Nov Dec
Average time required for complaint resolution in 2016/2017
Grounded Not Grounded Compromise
23 8 8 13 5 9 13 18 11 11 5 8 9
50 33 46 47 29 35 61 60 59 32 24 38 44
5 3 10 7 7 9 11 13 7 12 5 8 6
Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Okt-17 Nov-17 Dec-17
Overview of complaints' grounds in 2016/2017
Annual Report 2017
69 ALTERNATIVE COMMUNICATION CHANNELS
• m-B@nking – a cutting-edge mobile application enabling customers to complete financial transactions in a simple manner by using their mobile device without visiting the Bank’s branch offices. This service is available to legal entities, as well. Mobile banking is a digital service with the highest growth, that is, 64% increase in number of mobile transactions and more than 8,000 of new mobile banking customers;
• e–B@nking – customers can carry out all required transactions in a quick and simple manner, without visiting the Bank’s branch offices. This new, upgraded electronic banking solution has been available since December 2017;
• t-B@nking – servis telefonskog bankarstva, koji klijentima omogućava da putem telefonskog razgovora sa operaterom Kontakt centra obavljaju transakcije i pristupaju informacijama o različitim proizvodima koje imaju u Banci;
• Electronic communication – customers are enabled to receive their monthly account/credit card statements and other important notifications via their e-mail addresses or SMS, thus reducing the need for paper printing and acting responsibly towards nature. The quality of service and communication has been improved, while the number of non-delivered and returned mail has been significantly reduced;
• APS – a device enabling customers to repay their loans and credit card instalments, and to make cash payments to their current accounts, without queuing;
• ATMs – a device enabling customers to withdraw cash 24/7 at 128 locations countrywide;
• Official Facebook, Twitter, Instagram ,LinkedIn and Google+ accounts, YouTube channel, Chat and Video chat are an important element in communication with customers, and primarily aim at achieving closer ties with customers while developing a unique platform to assist further efforts by the Bank on improvement of its image of a modern, transparent and customer-oriented institution.
Annual Report 2017
70 TRANSPARENT 3 ADVERTISING
Marketing communication within the Bank is fully aligned with the Law on Advertising and Law on the Protection of Financial Service Consumers. The Bank has adopted all objections listed in the report by the National Bank of Serbia and rectified all irregularities. Information about Bank’s products and services is available on the Bank’s website.
Eurobank has developed an internal document (Operating Guidelines) that refers to responsible advertising and sets ethical standard and proves that the Bank conducts its business operations as a responsible corporate entity. Its standards are applicable in all aspects of marketing communications with the public, with a special focus on advertising. In cases where an advertising message about deposits or loans includes interest rates or any other numerical data pertaining to price or revenues, representative example shall include the following pieces of information: deposit or loan type, total amount thereof, nominal annual interest rate and its variability, effective interest rate, agreement term, costs to be borne by the user.
Customer Complaint Department (CCD) – this Department works closely with the National Bank of Serbia (Consumer Protection Centre) in order to ensure transparency and impartiality in the Bank’s customer relation management.
ACHIEVEMENTS IN 2017: OBJECTIVES FOR 2018:
• customer satisfaction survey conducted; • new cycle of service assessment through "Mystery Shopping" research; • service quality assessment through "Mystery Shopping" research; • promote business conduct standards, employees’ communication with customers and customer • communication improvement, enhancement of treatment throughout the entire process; customer service quality in the entire business network and increased overall performance; • further improvement of employees’ sales performance through identification of customers’ • branch redesign project commencement. needs;
• continuation of branch redesign project in order to create better visibility and strengthen the Bank’s image.
Annual Report 2017
71 Annual Report 2017
72 SUPPLIERS
Annual Report 2017
73 Eurobank builds and fosters transparent relationship with its business partners and suppliers, on the basis of "win-win" principle, by establishing transparent tender requirements and equal treatment of all participants while adhering to Procurement Policy. The Procurement Policy defines basic guidelines for the procurement of products and services for the Bank and member companies of the Group in Serbia. Department of Administrative Affairs and Procurement coordinates the procurement of products and services and facilitates the organisation of procurement within its competence. Procurement Committee is a steering committee established by the Executive Board of the Bank. The Procurement Committee is authorised to estimate the necessity of investments/costs and business justification of any procurement request.
TRANSPARENT SELECTION AND COMMUNICATION 1 WITH SUPPLIERS
In order to ensure proper business conduct, the Bank regularly conducts market research so as to expand the register of potential suppliers to participate in tender procedure for the procurement of products/services. Based on tender requirements and invitations to bid compliant with the above policy, the Bank defines obligations of suppliers which apply to all participants with respect to the specificities of products/services procured, thus avoiding any discrimination or favouring of suppliers. The Bank uses an electronic procurement platform – Ariba, to ensure that the entire procurement procedure is automated and transparent. Upon supplier selection, all details are regulated in the form of a contract.
Evaluation of suppliers with whom the Bank has concluded the contract is carried out annually, with the involvement of the department being the end user of a particular service/product. Two-way evaluation is not obligatory, but is carried out on a voluntary basis depending on the Bank’s suppliers. Complaints and claims made by suppliers are defined in Supplier Evaluation Procedure and in Procurement Contract. Suppliers are predominantly local, while Eurobank hires foreign suppliers mostly in connection with IT procurement which is centralised at the Group level.
INTRODUCTION OF CSR CRITERIA INTO SUPPLIER 2 SELECTION
As a socially responsible company, Eurobank is continuously trying to promote socially responsible practices among its business partners as well. In addition to economic and technical criteria which form the basis of supplier selection, since 2012, the invitation to bid has also included other criteria such as contribution to environmental protection and respect for human rights.
In accordance with tender requirements, when submitting their bids, suppliers are required to provide the following evidence of responsible business operations:
• certificate of regular earnings payment to employees – Tax Administration Certificate including all public revenue liabilities administered by Tax Administration, given that these cover regular payments of taxes and contributions for employees’ earnings;
• Certificate of No Criminal Conviction proving that the Company has not been convicted of any violation of the Labour Law over the past five years, on Company letterhead;
• certificate proving that over the past 12 months the Company has experienced no serious adverse events affecting its reputation regarding social and employment-related matters, on Company letterhead.
Annual Report 2017
74 All suppliers, subcontractors and business partners (a total of 130 in 2017) have been subject to human rights compliance control, which forms an integral part of the Invitation to bid in tender procedure.
Through implementation of social responsibility rules, the Bank encourages and realizes a positive effect on its suppliers, as well as on raising their awareness in terms of quality of the attitude towards product/ service they offer, their employees, charity involvement, reduction of costs and increase of environmental protection, product ECO-labelling, introduction of ISO standards.
Eurobank implements "green procurement" principles which imply purchase of products that contribute to minimization of adverse environmental impacts. Therefore, the Bank uses exclusively FSC paper and purchases appliances with maximum energy efficiency. Purchase of products that have less adverse environmental impact is certainly preferred compared to their equivalents.
SOCIAL ENTERPRISES IN THE SUPPLY CHAIN
Eurobank purchases certain products from social enterprises, thus including them in its supply chain.
ACHIEVEMENTS IN 2017: OBJECTIVES FOR 2018:
• regular quality control of suppliers; • promote socially responsible practices among suppliers; • new suppliers underwent CSR Evaluation; • enhanced support for social enterprises; • new visual concept of Eurobank branches interior (redesign project). • further development of green procurement system;
• strengthening BCP activities in the supply chain;
• exchanging new experiences and use thereof in the supply chain;
• implementation of new requirements and inspection of suppliers’ compliance with GDPR regulation.
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75 Annual Report 2017
76 LOCAL COMMUNITY
Annual Report 2017
77 The market position of Eurobank as one of the leading banks in Serbia, and its overall contribution to economy as a strategic investor, are not solely related to its financial performance. They also stem from the fact that Eurobank is a socially responsible agent, having set corporate social responsibility as an integral part of its strategy from its very foundation.
Through comprehensive corporate social responsibility programme entitled “We invest in European values”, over four million euros have been invested so far in various projects and initiatives planned by the Bank according to the needs and specificities of the local community in which it conducts business. When selecting the projects it will support and become involved in, the Bank recognises the interests of all stakeholders – employees, clients, investors, non-governmental sector and others. It also gives special consideration to the impact of its operations on the local community. The Bank strives to boost positive and reduce negative effects of its operations, and to continuously encourage economic and social development of local communities. Eurobank has branch offices in 45 cities, while the towns of Bor and Priboj belong to underdeveloped areas.
SUPPORT TO THE LOCAL COMMUNITY
EDUCATION
Support to secondary school graduates in cooperation with the HRH Crown Prince Alexander II Foundation for Education
For the tenth year in a row, we traditionally supported the top 600 secondary school graduates in Serbia and Republika Srpska at a ceremony organised together with the HRH Crown Prince Alexander II Foundation for Education.
“A Lesson Designed for You” in primary schools
Eurobank organised a gathering with Ljubivoje Ršumović, a famous child poet, for pupils of Belgrade primary schools “Karađorđe”, “Rade Drainac”, “Jelena Ćetković” and “Jovan Sterija Popović” as part of “A Lesson Designed for You” campaign. Our wish was to give the primary school pupils a slightly different class in which they would have fun, learn something new, and where books would be presented to them while making friends with the poet. “A Lesson Designed for You” Initiative promotes a culture of reading and true values from the earliest age.
Annual Report 2017
78 “Big Heart” Mastercard - Affinity Card
We are proud of “Big Heart“, one of our longest- lasting humanitarian projects. “Big Heart“, Mastercard, an affinity credit card launched by Eurobank and “Ana and Vlade Divac Foundation“, under the auspices of the Ministry of Education, Science and Technological Development of the Republic of Serbia, has been providing better and safer playgrounds for children all over Serbia for the eighth year now.
The use of Mastercard affinity credit card provides an opportunity for the Bank’s clients to support the reconstruction of playgrounds throughout Serbia without any additional costs. The Bank allocates 1% of the amount of each transaction effected through the use of “Big Heart” card and 50% of the monthly account maintenance fee, and deposits these amounts to the Foundation’s account for the reconstruction of playgrounds. Clients opting for “Big Heart” MasterCard credit card do not bear any additional costs and may use it as any other standard credit card – for purchase and withdrawal purposes.
As a joint project of Eurobank and “Ana and Vlade Divac Foundation”, since 2010 “Big Heart” card has helped renovation of 43 kindergartens and schools throughout Serbia attended by over 25 thousand children. The funds for continuous donations are provided by over 22 thousand holders of “Big Heart” card, who have donated 62 million dinars for development and reconstruction of kindergartens.
In 2017, as before, focus was placed on educational institutions, public kindergartens and healthcare institutions. A total of six activities within "Big Heart" project was carried out by “Ana and Vlade Divac Foundation” and Eurobank in 2017.
Around one hundred children in “Mila Jevtović” kindergarten within “Čika Jova Zmaj” preschool institution in the municipality of Voždovac, Belgrade, were in June given a better and safer place to play and grow up in. Funds collected through “Big Heart” affinity card of Eurobank and “Ana and Vlade Divac Foundation” were used to renovate the playground and place rubber mats, which provide greater safety of children during their everyday activities.
Thanks to “Big Heart” affinity card users, equipment has been provided for rooms at Maxillofacial Surgery Clinic. The clinic operates within the Faculty of Dental Medicine, one of the oldest higher education institutions in our country. The donation was received by Dr Milan Petrović, Director of the Clinic, who pointed out that this facility has become a modern medical institution keeping abreast of global trends in treatment.
The start of a new school year for pupils of “14. oktobar” school in Niš was marked by improved conditions for children and employees at this educational institution. “14. oktobar”, school for primary and secondary education, is celebrating its 50th jubilee this year. In the year of the jubilee, the school’s boiler room started working again, boiler room facilities were refurbished, and subject-based classroom were provided with computer equipment.
Annual Report 2017
79 In November, “Neven” kindergarten in Pirot opened its renovated playground, which will be used by more than 250 children. This donation was used to purchase a wide range of new playground equipment such as slides, playhouses, seesaws, trains, as well as climbers for the youngest who attend nursery groups.
For the end of 2017, “Big Heart” project brought joy and provided better conditions for playing and learning to children at “Snežana” kindergarten, “Naše dete” preschool in Šabac and “Jovan Cvijić” primary school in Debrc. Thanks to the funds raised by “Big Heart” affinity card, a new playground was built and safer conditions for children’s outdoor activities were provided at “Snežana” kindergarten. The value of this donation amounted to over one million dinars. The donation in Šabac was also supported by its citizens who used “Big Heart” card, thus making Šabac second-ranked in terms of number of transactions realized with the affinity card. Primary school pupils of “Jovan Cvijić” from Debrc were provided with new reconstructed classrooms, with laminate flooring installed, where painting and plaster works were carried out. Part of the school’s roof was also reconstructed.
As in previous years, “Big Heart” project has been communicated to all interested parties: our clients as the users of “Big Heart” card by media announcements and through local communities; our employees by email, internal newspapers and EuroPORT; the media attending playground opening ceremonies, and by public releases, photographs, as well as project documentary films distributed following the opening ceremonies. The general public was informed about the project through Facebook and Twitter social networks. “Big Heart” Facebook page has over 15,000 followers and over 40 photograph albums of reconstructed playgrounds and associated activities, whereas “Big Heart” documentary content on YouTube channel has over 1,000 views.
CULTURE
“Book Night”
Traditionally, Eurobank is a general sponsor of "Book Night", a regional event organised by Laguna publishing company and Delfi bookstore chain. In order to contribute to the improvement of overall reading culture, Eurobank has joined this unique festival of the written word. We believe that by promoting cultural values and healthy lifestyle we can all contribute to the welfare of wider community.
Annual Report 2017
80 “SHE ASKED FOR IT” PLAY
Through support of the Pan Theatre’s play ”She asked for it“, Eurobank has joined a project aimed at raising awareness of violence against women. This project was designed as an omnibus composed of stories, monologues and confessions. Besides personal experiences, the play draws on police records and archives. In addition to the play, the project included public debates and art photography exhibitions inspired by crime scene evidence. The play was performed in Belgrade, Niš and Novi Sad.
ECOLOGY
Earth Day Celebration By planting 10 seedlings at Block 44 in Novi Beograd, the Bank has joined the initiative of Gradsko Zelenilo (Greenery Belgrade) and Story magazine. The campaign, joined by other large companies, was aimed at raising awareness of the importance of ecology and environmental protection.
EQUALITY
Socially responsible activities with our partner in payment card issuing – Manchester United F.C.
May 2017 saw the beginning of collaboration with the Serbian Sport Association of Persons with Disabilities. The Bank helped in the formation of its first football team. On this occasion, an informal match between mixed Bank and Association teams took place. Nemanja Vidić, one of Manchester United’s best players, made the opening kickoff. Manchester United F.C. and Eurobank are partners in providing continuous support and promotion of inclusion of persons with disabilities.
Annual Report 2017
81 Donations and sponsorships
DONATION/SPONSORSHIP RECIPIENT PROJECT AMOUNT IN RSD
Pan Theatre Sponsorship of ”Sama je tražila’’ (She asked for it) play 300.000,00
Serbian Association of Economists Sponsorship of Kopaonik Business Forum 2016 215.000,00
Support to “Tesla i bitka na magnetnom polju’’ (Tesla and the Battle in Children’s Cultural Centre 180.000,00 the Magnetic Field) musical
“Marketing mreža” Agency Sponsorship of "Izazov 2017" (2017 Challenge) Forum 125.000,00
Hellenic Foundation for Culture Sponsorship of the promotion of Greek film 30.000,00
Serbian Sport Association of Persons with Donation for the organisation of the national championship in 430.000,00 Disabilities bowling and athletics for persons with disabilities HRH Crown Prince Alexander II Foundation for Project of awarding the best 600 secondary school graduates 1.200.000,00 Culture and Education Ministry of Internal Affairs, the City of Belgrade Donation of office furniture 0 Police Administration
Foundation for Science and Art Studies Donation for education and professional training of students 100.000,00
Foundation for Young Talents of the City of Belgrade Donacija polovnih računara 0
Donation for "Tatina humana strana" (Dad’s humane side) parent All Communications 180.000,00 education programme
Faculty of Electrical Engineering Donation of used computers 0
Sponsorship of "Ideje za akciju" (Ideas for action) project – Retraining Business Development Network 180.000,00 for women "Adligat" Society for Culture, Art and International Donation of used furniture 0 Cooperation
Užice National Theatre Sponsorship of “Svedobro” (All good) play 125.000,00
Laguna Publishing company Sponsorship of two Book Nights 750.000,00
Sponsorship of “Basal stimulation by professor Fröhlich” educational "Asclepios" Association workshops
Art Brut Serbia Balkan Art Brut salon 180.000,00
Donation for implementation of "Klasika za mame i tate" (Classical "Romag" Romani non-profit organisation 124.000,00 music for moms and dads) project Donation for the improvement of relations with the public, Serbian Public Relations Association 120.000,00 implementation of professional programmes and conferences Support for “100 žena-100 minijatura’’ (100 women – 100 miniatures) "Ethno Network" Association 50.000,00 miniature exhibition
"Jenejart" Association Sponsorship of a concert at BELEF (Belgrade Summer Festival) 80.000,00
"Vrnjačka Banja Youth Centre" Sponsorship of creative activities for children within "International 180.000,00 Citizen Association Carnival of Vrnjci"
“Mišić’s Days” Directorate Implementation of “Mišić’s Days” event 30.000,00
Association of Serbian banks Udruženje Seminar participation 14.000,00 banaka Srbije
"Zvezdanik" Association Support to a project for children with special needs 180.000,00
Annual Report 2017
82 Donations and sponsorships
DONATION/SPONSORSHIP RECIPIENT PROJECT AMOUNT IN RSD
Support for the implementation of 3 basal stimulation "Asclepios" Association 180.000,00 workshops
Festival of Health Sponsorship of the Festival of Health 180.000,00
Association of nurses of preschool institutions of Support to “Plesić antistresić” (Anti-Stress Dance) 180.000,00 Serbia educational programme Children’s workshops for the prevention of obesity and Dental media 180,000.00 diabetes
Unicef Donation for “Fair Play Basket Tournament” 55.000,00
TGI Group international Sponsorship of the “17th Economic Summit of Serbia” 900.000,00
"Vuk Karadžić" Cultural centre “Vukov sabor” Event 50.000,00
"Mungosi" Futsal Club Support for the activities of children with disabilities 173.000,00
HRH Crown Princess Katherine Foundation Financial support for the Foundation 120.000,00
Partizan Handball Academy Donation for the sports club of children with disabilities 150.000,00
Business Football League Purchase of sports equipment 30.000,00
"maliVeliki ljudi" humanitarian organisation Participation in "Sanke Deda Mraza" (Santa’s Sleigh) event 68.000,00
"Dr Miroslav Zotović" Rehabilitation clinic Donation of goods 179.000,00
Serbian Public Relations Association Sponsorship of “Prilika 2017” (2017 Opportunity) Conference 180.000,00
Applications and inquiries for sponsorships and donations may be sent by all interested parties to the e-mail address [email protected]. All applications will be considered by the responsible department. If there is an interest in supporting a specific project, the department will send a response within 30 days. The method of donation approval and further action in this respect is governed by the Internal Procedure for Managing Requests for Sponsorships and Donations.
ACHIEVEMENTS IN 2017: OBJECTIVES FOR 2018:
• extension of “Big Heart” project to pre-school • further activities within “Big Heart” project that institutions attended by children with disabilities, will include new pre-school institutions primary schools and healthcare institutions; throughout Serbia; • implementation of comprehensive project entitled “Godina dobrih dela’’ (The Year of Good • competition for new design/creative solution of Deeds); “Big Heart” affinity card
• socially responsible activities with Manchester • extending cooperation further in the field of United F.C., our partner in payment card issuing. socially responsible activities with Manchester United F.C., our partner in payment card issuing.
Annual Report 2017
83 Annual Report 2017
84 ENVIRONMENTAL PROTECTION
Annual Report 2017
85 As a socially responsible company, Eurobank continuously analyses its business processes and assesses possible measures to be taken in order to mitigate negative effects on the environment. Daily Bank’s activities directly affect the environment, primarily due to consumption of energy, water, paper and other natural resources. During 2017, Eurobank continued to apply the practice of responsible financing through which the Bank endeavours to contribute to the reduction of indirect impacts.
ENVIRONMENTAL MANAGEMENT SYSTEM
Following environmental protection and socially responsible business principles, the Bank continues to adhere to key initiatives, the objective of which is to reduce negative effects on the environment:
1. Rationalization of energy consumption and reduction of greenhouse gas emission; 2. Rationalization of use of natural resources (water and energy); 3. "Green Procurement" principles; 4. Minimization of waste generated through daily activities; 5. Waste Management – separation of solid waste, safe waste storage intended for recycling; 6. Recycling of generated waste – paper, cardboard, electrical and electronic waste materials, used toners; 7. Responsible Financing – Environmental and Social Risk Management System; 8. Development of "green" products and services.
ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT SYSTEM
Pursuant to international standards and best practices, Eurobank continues to implement Environmental and Social Risk Management System in loan processing as an important part of operation and development strategy. ESRM has been one of the key elements of good cooperation established with European Bank for Reconstruction and Development. Preparations for implementation of responsible financing system in the entire portfolio are ongoing. Also, during the process of approval of applications for sponsorships and donations, special attention is paid to environmental impact assessment as one of the criteria for decision making in project financing.
CONSERVATION OF NATURAL RESOURCES
ENERGY AND WATER
Direct energy consumption refers to combustion of natural gas and oil used for heating, while indirect consumption refers to electricity used for Bank’s business operations.
The Bank monitors and keeps records of energy consumption for all its business premises. In 2017, the electricity consumption was 4,329,778 kWh, which in comparison to total electricity consumption in 2016 is lower by 3.47%.
Annual Report 2017
86 7.173.448 6.700.152 6.371.081 5.553.926 4.485.266
2013. 2014. 2015. 2016. 2017.
TOTAL ELECTRICITY CONSUMPTION (kWh)
PRIMARY ENERGY QUANTITY 2016. 2017. Natural gas used for heating 245.012 kWh (25.368 m3) 239.912 kWh (24.840 m3) Oil used for heating 193.011 kWh (18.382 m3) 284.886 kWh (27.132 m3)
WATER CONSUMPTION 2016. 2017. Water consumption (m3) 11.353 14.944 * Bank is supplied with water from public waterworks
ENERGY MANAGEMENT
The implementation of an efficient program for energy management and reduction of energy consumption is a highly significant component of greenhouse gas emission reduction. To this end, the Bank continues to undertake the following activities:
• installation of energy-efficient lamps and bulbs (LED) on all new and renovated premises; • installation of energy efficient air-conditioners on all new and renovated business premises; • in 2017/2018, transition from oil fuel to low-sulfur gas oil for heating purposes of building in 3 Kraljice Marije Street, in order to comply with new harmful gas emission limit values.
These activities constitute the first phase of our efforts put into continual increase of energy efficiency, which will lead to positive effects on climate change.
Despite the fact that the Bank has predominantly indirect effect on greenhouse gas emission (through electricity consumption), the importance of monitoring of such impact on climate change is classified as one of our priorities in our fight for conservation of environment, which leads to monitoring of consumption of all kinds of energy, as well as resulting gas emissions.
Annual Report 2017
87 TOTAL, DIRECT AND INDIRECT GAS EMISSION BY WEIGHT
Total emission of CO2 was measured on the basis of consumption of direct and indirect forms of energy.
CO2 emission (t)
Energy resources 2015. 2016. 2017. Natural gas 49,56 49,48 48,45
Oil 51,53 51,53 76,06
Electricity 4.220,69 3.408,56 3.290,40
SOLID WASTE MANAGEMENT
During 2017, the Bank continued the implementation of its program of collecting and recycling waste paper and used toners in all branch offices and on all business premises.
PAPER RECYCLING AND USE
In order to protect natural resources and reduce generation of waste paper, Eurobank implements its paper saving program. During 2017, Eurobank continued the following activities:
• sending e-statements; • broad implementation of document digitalization; • improvement of printing management system, i.e. two-side document printing.
Broad implementation of document digitalization allowed transformation of paper-based operations to electronic-based operations, providing our customers with improved and more efficient services while reducing costs and protecting the environment through optimization of paper and toner consumption.
Designated baskets for waste paper, cardboard and plastic collection are placed on all Bank premises and in all branch offices.
In 2015, the Bank recycled 10.83 tons of paper, i.e. 15% of purchased paper.
In 2016, the Bank recycled 13.96 tons of paper, i.e. 19.12% of purchased paper.
In 2017, the Bank recycled 5.42 tons of paper, i.e. 5.48% of purchased paper.
Annual Report 2017
88 TONER RECYCLING
Since 2011 all used toners and ink cartridges have been sent from branch offices and administration buildings for recycling. During 2017, a total of 0.7 t of used toners was recycled.
ELECTRONIC AND ELECTRICAL EQUIPMENT MANAGEMENT
Through compliance with legal regulations governing the disposal of hazardous waste, Eurobank signed an agreement with an authorized operator for hazardous waste transport, disposal and treatment. The process of 17.72 t electrical and electronic waste recycling was completed by the middle of 2017.
TOTAL RECYCLED ELECTRICAL AND ELECTRONIC WASTE BY YEAR (t)
2013. 2014. 2015. 2016. 2017. 2,46 10,38 0,80 0 17,72
ACHIEVEMENTS IN 2017: OBJECTIVES FOR 2018:
• provision of a maintenance service provider • support during implementation of Group whose operations are in compliance with Environmental and Social Risk Management Policy regulations governing environmental and social in the entire portfolio; risks; • provision of a maintenance service provider • continual monitoring of statutory regulations and whose operations are in compliance with compliance of Bank’s activities with such regulations governing environmental and social regulations in the most efficient manner; risks;
• work on the implementation of Group • continual monitoring of statutory regulations and Environmental and Social Risk Management Policy compliance of Bank’s activities with such in the entire portfolio. regulations in the most efficient manner;
• continuation of support for "Bottle Cap for a Smile" (Čepom do osmeha)
Annual Report 2017
89 Annual Report 2017
90 GRI INDEX AND INDICATORS
Annual Report 2017
91 GRI INDEX AND INDICATORS
GENERAL INFORMATION STRATEGY AND ANALYSIS G4 -1 INTRODUCTORY ADDRESS BY THE PRESIDENT OF THE EXECUTIVE BOARD ORGANIZATIONAL PROFILE G4-3 COMPANY NAME G4-4 PRIMARY BRANDS, PRODUCTS AND/OR SERVICES G4-5 LOCATION OF ORGANIZATION’S HEADQUARTERS G4-6 NUMBER OF COUNTRIES WHERE THE ORGANIZATION OPERATES G4-7 NATURE OF OWNERSHIP AND LEGAL FORM G4-8 MARKETS SERVED G4-9 SIZE OF ORGANIZATION G4-10 EMPLOYEES G4 -11 PERCENTAGE OF TOTAL EMPLOYEES COVERED BY COLLECTIVE BARGAINING AGREEMENTS G4-12 DESCRIPTION OF ORGANIZATION’S SUPPLY CHAIN SIGNIFICANT CHANGES DURING THE REPORTING PERIOD REGARDING THE ORGANIZATION’S SIZE, G4-13 STRUCTURE, OWNERSHIP OR SUPPLY CHAIN COMMITMENTS TO EXTERNAL INITIATIVES G4-14 RISK MANAGEMENT IN THE CONTEXT OF THE UNITED NATION’S PRECAUTIONARY PRINCIPLE G4-15 SUBSCRIPTION OR ENDORSEMENT TO EXTERNALLY DEVELOPED INITIATIVES G4-16 MEMBERSHIP IN ASSOCIATIONS IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES LIST OF ALL ENTITIES INCLUDED IN THE ORGANIZATION’S CONSOLIDATED FINANCIAL STATEMENTS OR G4-17 EQUIVALENT DOCUMENT G4-18 PROCESS OF DEFINING THE REPORT CONTENT AND THE ASPECT BOUNDARIES G4-19 LIST OF ALL MATERIAL ASPECTS IDENTIFIED G4-20 INTERNAL BOUNDARIES OF MATERIAL ASPECTS G4-21 EXTERNAL BOUNDARIES OF MATERIAL ASPECTS EXPLANATION AND REASONS FOR ALL THE RESTATEMENTS OF INFORMATION PROVIDED IN G4-22 PREVIOUS REPORTS SIGNIFICANT CHANGES FROM PREVIOUS REPORTING PERIOD IN THE SCOPE AND ASPECT G4-23 BOUNDARIES STAKEHOLDER ENGAGEMENT G4-24 LIST OF STAKEHOLDERS ENGAGED G4-25 PROCESS FOR IDENTIFICATION AND SELECTION OF STAKEHOLDERS G4-26 APPROACH TO STAKEHOLDER ENGAGEMENT G4-27 KEY TOPICS AND CONCERNS RAISED BY STAKEHOLDERS REPORTING PARAMETERS G4-28 REPORTING PERIOD G4-29 DATE OF THE MOST RECENT PREVIOUS REPORT G4-30 REPORTING CYCLE CONTACT POINT FOR QUESTIONS G4-31 REGARDING THE REPORT G4-32 GRI CONTENT INDEX G4-33 ASSURANCE
Annual Report 2017
92 GOVERNANCE G4-34 GOVERNANCE STRUCTURE OF THE ORGANIZATION G4-35 PROCESS FOR DELEGATING AUTHORITY FOR ECONOMIC, SOCIAL AND ENVIRONMENTAL TOPICS G4-38 COMPOSITION OF THE HIGHEST GOVERNANCE BODY MANAGEMENT AND EXECUTIVE FUNCTION OF THE CHAIR OF THE HIGHEST GOVERNANCE G4-39 BODY G4-40 PROCEDURES FOR NOMINATION OF BOARD MEMBERS G4-41 EXISTING PROCEDURES TO ENSURE CONFLICTS OF INTEREST ARE AVOIDED BOARD AND SENIOR MANAGEMENT ROLE IN DEVELOPING, APPROVAL AND UPDATING OF G4-42 MISSION, STRATEGIES, POLICIES AND GOALS RELATED TO SUSTAINABILITY POLICY OF REMUNERATIONS FOR THE HIGHEST MANAGEMENT BODY AND SENIOR G4-51 MANAGEMENT G4-52 PROCESS FOR DETERMINING REMUNERATION ETHICS AND INTEGRITY G4-56 ORGANIZATION’S VALUES, PRINCIPLES, STANDARDS AND NORMS
GRI AREAS AND INDICATORS 2017. GRI SUSTAINABILITY REPORTING GUIDELINES (G4)* CATEGORY: ECONOMICS–APPROACH TO GOVERNANCE ASPECT: ECONOMIC PERFORMANCE – APPROACH TO GOVERNANCE 1. G4 -EC1 DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED • ASPECT: MARKET PRESENCE – APPROACH TO GOVERNANCE G4 – EC6 PROPORTION OF SENIOR MANAGEMENT HIRED FROM THE LOCAL 2. COMMUNITY AT SIGNIFICANT CATEGORY: ENVIRONMENT – APPROACH TO GOVERNANCE ASPECT: ENERGY – APPROACH TO GOVERNANCE 3. G4 - EN 3 ENERGY CONSUMPTION WITHIN THE ORGANIZATION • 4. G4- EN 6 REDUCTION OF ENERGY CONSUMPTION ASPECT: WATER – APPROACH TO GOVERNANCE 5. G4 -EN 8 TOTAL WATER CONSUMPTION, BY THE SOURCE • ASPECT: EMISSIONS – APPROACH TO GOVERNANCE 6. G4- EN 15 DIRECT GREENHOUSE GAS EMISSIONS (GHG – SCOPE 1) 7. G4- EN 16 ENERGY INDIRECT GREENHOUSE GAS EMISSIONS (GHG – SCOPE 2) ASPECT: EFFLUENTS AND WASTE – APPROACH TO GOVERNANCE 8. G4- EN 23 TOTAL WEIGHT OF WASTE BY TYPE AND DISPOSAL METHOD IN T • ASPECT: COMPLIANCE – APPROACH TO GOVERNANCE G4- EN29 MONETARY VALUE OF SIGNIFICANT FINES AND TOTAL NUMBER OF 9. NON-MONETARY SANCTIONS FOR NON-COMPLIANCE WITH ENVIRONMENTAL • LAWS AND REGULATIONS CATEGORY: SOCIETY – APPROACH TO GOVERNANCE SUBCATEGORY: LABOUR PRACTICES AND DECENT WORK – APPROACH TO GOVERNANCE ASPECT: EMPLOYMENT – APPROACH TO GOVERNANCE G4- LA1 TOTAL NUMBER AND RATES OF NEW EMPLOYEE HIRES AND EMPLOYEE 10. TURNOVER BY AGE GROUP, GENDER AND REGION
Annual Report 2017
93 G4 – LA2 BENEFITS PROVIDED TO FULL-TIME EMPLOYEES THAT ARE NOT 11. PROVIDED TO TEMPORARY OR PART-TIME G4- LA 3 C THE RETURN TO WORK AND RETENTION RATES OF EMPLOYEES 12. WHO TOOK PARENTAL LEAVE, BY GENDER ASPECT: OCCUPATIONAL SAFETY AND HEALTH – APPROACH TO GOVERNANCE G4- LA 6 RATES OF INJURY, OCCUPATIONAL DISEASES, LOST DAYS, AND 13. ABSENTEEISM, TOTAL NUMBER OF WORK-RELATED FATALITIES, BY REGION ASPECT: TRAINING AND EDUCATION – APPROACH TO GOVERNANCE 14. G4 -LA 9 TOTAL HOURS OF TRAINING BY EMPLOYEE CATEGORY • G4- LA 10 PROGRAMS FOR SKILLS MANAGEMENT AND LIFELONG LEARNING 15. THAT SUPPORT THE CONTINUED EMPLOYABILITY OF EMPLOYEES AND ASSIST THEM IN MANAGING CAREER ENDINGS G4- LA 11 PERCENTAGE OF EMPLOYEES RECEIVING REGULAR 16. PERFORMANCE AND CAREER DEVELOPMENT REVIEWS • ASPECT: DIVERSITY AND EQUAL OPPORTUNITY – APPROACH TO GOVERNANCE G4- LA 12 COMPOSITION OF GOVERNANCE BODIES AND BREAKDOWN OF EMPLOYEES PER EMPLOYEE CATEGORY ACCORDING TO GENDER, AGE 17. GROUP, MINORITY GROUP MEMBERSHIP, AND OTHER INDICATORS OF • DIVERSITY ASPECT: SUPPLIER ASSESSMENT FOR LABOUR PRACTICES – APPROACH TO GOVERNANCE G4-LA 14 PERCENTAGE OF NEW SUPPLIERS THAT WERE SCREENED USING 18. LABOUR PRACTICES CRITERIA • SUBCATEGORY: HUMAN RIGHTS – APPROACH TO GOVERNANCE ASPECT: NON-DISCRIMINATION – APPROACH TO GOVERNANCE G4- HR 3 TOTAL NUMBER OF INCIDENTS OF DISCRIMINATION AND 19. CORRECTIVE ACTIONS TAKEN • ASPECT: FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING – APPROACH TO GOVERNANCE G4 – HR 4 OPERATIONS AND SUPPLIERS IDENTIFIED IN WHICH THE RIGHT TO EXERCISE FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING 20. MAY BE VIOLATED OR AT SIGNIFICANT RISK, AND MEASURES TAKEN TO SUPPORT THESE RIGHTS ASPECT: SUPPLIER HUMAN RIGHTS ASSESSMENT – APPROACH TO GOVERNANCE G4- HR 10 PERCENTAGE OF NEW SUPPLIERS THAT WERE SCREENED 21. USING HUMAN RIGHTS CRITERIA • ASPECT: HUMAN RIGHTS GRIEVANCE MECHANISMS –APPROACH TO GOVERNANCE G4- HR 12 NUMBER OF GRIEVANCES ABOUT HUMAN RIGHTS IMPACTS 22. FILED, ADDRESSED AND RESOLVED THROUGH FORMAL GRIEVANCE • MECHANISMS SUBCATEGORY: SOCIETY – APPROACH TO GOVERNANCE ASPECT: LOCAL COMMUNITIES – APPROACH TO GOVERNANCE G4- SO 1 PERCENTAGE OF LOCALITIES AND OPERATIONS/ACTIVITIES WITH 23. IMPLEMENTED LOCAL COMMUNITY ENGAGEMENT, IMPACT ASSESSMENTS, • AND DEVELOPMENT PROGRAMS FS 13 ACCESS POINTS IN LOW-POPULATED OR ECONOMICALLY 24. DISADVANTAGED AREAS BY TYPE
Annual Report 2017
94 FS 14 INITIATIVES TO IMPROVE ACCESS TO FINANCIAL PRODUCTS FOR 25. MEMBERS OF VULNERABLE GROUPS • ASPECT: ANTICORRUPTION – APPROACH TO GOVERNANCE G4- SO 4 COMMUNICATION AND TRAINING ON ANTI-CORRUPTION POLICIES 26. AND PROCEDURES ASPECT: SUPPLIER ASSESSMENT FOR IMPACTS ON SOCIETY – APPROACH TO GOVERNANCE G4- SO9 PERCENTAGE OF NEW SUPPLIERS THAT WERE SCREENED USING 27. CRITERIA FOR IMPACTS ON SOCIETY • SUBCATEGORY: PRODUCT RESPONSIBILITY – APPROACH TO GOVERNANCE ASPECT: PRODUCT AND SERVICE LABELLING – APPROACH TO GOVERNANCE (ADDITIONALLY INCLUDES THE FORMER FS16 INDICATOR – INITIATIVES FOR ENHANCING FINANCIAL LITERACY, BY USER TYPE) G4- PR 3 TYPE OF PRODUCT AND SERVICE INFORMATION REQUIRED BY THE ORGANIZATION’S RULES AND PROCEDURES, AND PERCENTAGE OF 28. SIGNIFICANT PRODUCTS AND SERVICE CATEGORIES SUBJECT TO SUCH • INFORMATION REQUIREMENTS G4- PR 4 TOTAL NUMBER OF INCIDENTS OF NON-COMPLIANCE WITH 29. REGULATIONS AND VOLUNTARY CODES CONCERNING PRODUCT AND SERVICE • INFORMATION AND LABELLING, BY TYPE OF OUTCOMES G4- PR 5 PRACTICES RELATED TO CUSTOMER SATISFACTION, INCLUDING 30. RESULTS OF SURVEYS MEASURING CUSTOMER SATISFACTION • ASPECT: MARKETING – APPROACH TO GOVERNANCE G4- PR 7 TOTAL NUMBER OF INCIDENTS OF NON-COMPLIANCE WITH REGULATIONS AND VOLUNTARY CODES CONCERNING MARKETING 31. COMMUNICATIONS, CODES CONCERNING MARKETING COMMUNICATIONS, • INCLUDING ADVERTISING, PROMOTION AND SPONSORSHIP ASPECT: CUSTOMER PRIVACY – APPROACH TO GOVERNANCE G4- PR 8 TOTAL NUMBER OF SUBSTANTIATED COMPLAINTS REGARDING 32. BREACHES OF CUSTOMER PRIVACY AND LOSSES OF CUSTOMER DATA • ASPECTS OF RELEVANCE FOR THE SECTOR ACCORDING TO GRI G4 DATA FOR FINANCIAL SECTOR ASPECT: PORTFOLIO OF PRODUCTS AND SERVICES – APPROACH TO GOVERNANCE FS 7 C MONETARY VALUE OF PRODUCTS AND SERVICES DESIGNED TO 33. DELIVER A SPECIFIC SOCIAL BENEFIT FOR EACH BUSINESS LINE, BROKEN • DOWN BY PURPOSE
INDICATOR COMPLIANCE LEVELS ACCORDING TO GRI • COMPLETELY FULFILLED PARTIALLY FULFILLED
* INDICATORS FROM THE GRI G4 SECTORAL SUPPLEMENT FOR THE FINANCIAL SERVICES ARE MARKED WITH RED COLOUR
** THE REPORT WAS PREPARED IN ACCORDANCE WITH THE BASIC (CORE) GRI G4 GUIDELINES’ OPTION. SOME OF THE REQUIREMENTS FOR THE COMPREHENSIVE OPTION WERE ADDITIONALLY MET: G4-35, G4-38 THROUGH G4-42, G4-51, G4-52
Annual Report 2017
95 Annual Report 2017
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