Sberbank Europe AG, Vienna
Report on the Audit of the Financial Statements as of December 31, 2018 (Translation)
Notwithstanding any statutory right of third parties to receive or inspect it, this audit report is addressed exclusively to the governing bodies of the Company. The digital copy may not be distributed to third parties unless such distribution is expressly permitted under the terms of engagement agreed between the Company and Ernst & Young Wirtschaftsprüfungsgesellschaft m.b.H. Considering the requirements of Sec. 274 (7) and (8) Austrian Company Code (UGB), the electronic version does not replace the hardcopy but is an electronic copy thereof.
non-binding electronic copy We draw attention to the fact that the English translation of this audit report according to Section 273 of the Austrian Commercial Code (UGB) is presented for the convenience of the reader only and that the German wording is the only legally binding version.
Sberbank Europe AG, Vienna
Report on the Audit of the Financial Statements as of December 31, 2018 (Translation)
Duplicate
Ernst & Young Wirtschaftsprüfungsgesellschaft m.b.H. 1220 Wien, Wagramer Straße 19, IZD-Tower
Tel.: [43] (1) 211 70 Fax: [43] (1) 216 20 77 E-Mail: [email protected] URL: www.ey.com/austria
non-binding electronic copy Sberbank Europe AG, Vienna December 31, 2018 TRANSLATION
TABLE OF CONTENT
Page
1. Audit contract and performance of the engagement 1 2. Breakdown and description of significant items in the financial statements 3 3. Summary of audit findings 3 3.1. Compliance of the accounting system, the financial statements and of the management report and the non-financial report 3 3.2. Information provided 3 3.3. Adverse Changes in the financial position and financial performance and significant losses 4 3.4. Reporting in accordance with Section 63 (3) Austrian Banking Act BWG (exercising the duty to report) 4 4. Auditor’s Report 5-11
INDEX OF APPENDICES
Appendix I Financial Statements as of December 31, 2018
Appendix II Management Report 2018
Appendix III Tax Situation
Appendix IV General Conditions of Contract for the Public Accounting Professions
non-binding electronic copy Sberbank Europe AG, Vienna December 31, 2018 TRANSLATION
To the Members of the Management Board and the Supervisory Board of Sberbank Europe AG, Vienna
We have completed the audit of the financial statements as of December 31, 2018 of
Sberbank Europe AG, Vienna (referred to as "the Company"), and report on the result of our audit as follows:
1. AUDIT CONTRACT AND PERFORMANCE OF THE ENGAGEMENT
At the extraordinary general meeting dated December 19, 2017 of Sberbank Europe AG, Vienna, we were elected and appointed as auditor for the fiscal year 2018. The Company, represented by the supervisory board, concluded an audit contract with us to audit the financial statements as of December 31, 2018, including the accounting system and the management report pursuant to Sections 60 – 63 Austrian Banking Act BWG and section 269 et seqq. Austrian Company Code UGB. We prepared a separate report on the audit of the consolidated financial statements as of December 31, 2018, which was also part of the agreement.
The audited company is a public interest entity according to section 189a UGB (Austrian Company Code) and does meet the criteria for the mandatory establishment of a supervisory board.
The Company is a large pursuant to section 221 UGB (Austrian Company Code).
The audit is a statutory audit.
The audit included assessing whether the statutory requirements were adhered to concerning the preparation of the financial statements. The management report is to be assessed whether it is consistent with the financial statements and whether it was prepared in accordance with the appli- cable legal regulations.
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According to section 63 (4) BWG the audit also includes the audit of regulatory requirements. In accordance with section 63 (5) BWG the result of our audit will be reported in a separate Attach- ment to the audit report.
The auditor should also state whether a non-financial statement as part of the management report or a non-financial report (section 243b UGB (Austrian Company Code)) was prepared.
Concerning reporting as to article 11 of the regulation (EU) 537/2014 we refer to the separate report to the audit committee; the reporting according to article 11 of the regulation mentioned is not part of this report.
We conducted our audit in accordance with the legal requirements and generally accepted stand- ards on auditing as applied in Austria. These standards require that we comply with International Standards on Auditing (ISA). An auditor conducting an audit obtains reasonable assurance about whether the financial statements are free from material misstatement. Absolute assurance is not attainable due to the inherent limitations of any accounting and internal control system and due to the sample-based test nature of an audit, there is an unavoidable risk that material misstatements in the financial statements remain undetected. Areas which are generally covered in special en- gagements were not included in our scope of work.
We performed the audit, with interruptions, from October to December 2018 (interim audit) as well as from January to March 2019 (final audit) mainly at the Company’s premises in Vienna. The audit was substantially completed at the date of this report.
Auditor responsible for the proper performance of the engagement is Mr. Ernst Schönhuber, Austrian Certified Public Accountant.
Our audit is based on the audit contract concluded with the Company. The "General Conditions of Contract for the Public Accounting Professions" issued by the Austrian Chamber of Tax Advisers and Auditors (refer to Appendix IV) form an integral part of the audit contract. These conditions of contract do not only apply to the Company and the auditor, but also to third parties. Section 275 Austrian Company Code UGB and Section 62a Austrian Banking Act BWG applies with regard to our responsibility and liability as auditors towards the Company and towards third parties.
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2. BREAKDOWN AND DESCRIPTION OF SIGNIFICANT ITEMS IN THE FINANCIAL STATEMENTS
The breakdown and description of all significant financial statement items are included in the notes to the financial statements and in the management report. Therefore, we refer to the re- spective disclosures made by the management board in the notes to the financial statements and in the management report.
3. SUMMARY OF AUDIT FINDINGS
3.1. Compliance of the accounting system, the financial statements and of the management report and the non-financial report
During our audit, we obtained evidence that the statutory requirements and generally accepted accounting principles in Austria have been complied with.
In line with our risk and controls based audit approach and to the extent we considered necessary for the purpose of expressing an opinion, we considered internal controls related to sub processes of the financial reporting process as part of our audit.
With regard to the compliance of the financial statements and of the management report with all applicable statutory requirements we refer to the auditor’s report.
The company has not yet prepared a non-financial report according to section 243b UGB (Austrian Company Code) for the financial year 2018 at the time of the finalization of our audit. The legal representatives have declared to us that this obligation would be met within the legal deadline.
3.2. Information provided
The Company's legal representatives provided all evidence and explanations requested by us. We obtained a representation letter signed by the legal representatives, which we included in our working papers.
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3.3. Adverse changes in the financial position and financial performance and significant losses
In carrying out our duties as auditors, we have noted facts according to section 273 (1) fifth sen- tence UGB.
We draw attention to the loss after tax of EUR -56.167.581,13. This negative net result is due to the following material items:
Negative operating result (EUR -12,1 mio) Valuation of interest in affiliated undertakings (EUR -8,1 mio) Valuation of loans and advances and provisions for contingent liabilities and commitments amounting to EUR –34,2 mio (including EUR-24.9 mio one-off effect per 1.1.2018 from first-time application of the valuation method based on IFRS 9).
3.4. Reporting in accordance with Section 63 (3) Austrian Banking Act BWG (exercising the duty to report)
During our audit we did not note any facts which might require us to report pursuant to section 63 (3) Austrian Banking Act BWG.
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non-binding electronic copy Sberbank Europe AG, Vienna December 31, 2018 TRANSLATION
4. AUDITOR’S REPORT *)
Report on the Financial Statements
Audit Opinion
We have audited the financial statements of
Sberbank Europe AG, Vienna.
These financial statements comprise the balance sheet as of December 31, 2018, the income statement for the fiscal year then ended and the notes.
Based on our audit the accompanying financial statements were prepared in accordance with the legal regulations and present fairly, in all material respects, the assets and the financial position of the Company as of December 31, 2018 and its financial performance for the year then ended in accordance with Austrian Generally Accepted Accounting Principles and banking regulatory re- quirements.
Basis for Opinion
We conducted our audit in accordance with the regulation (EU) no. 537/2014 (in the following "EU regulation") and in accordance with Austrian Standards on Auditing. Those standards require that we comply with International Standards on Auditing (ISA). Our responsibilities under those regulations and standards are further described in the "Auditor’s Responsibilities for the Audit of the Financial Statements" section of our report. We are independent of the Company in accor- dance with the Austrian General Accepted Accounting Principles and professional requirements and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the fiscal year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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In the following, we describe the key audit matters from our perspective:
Impairment allowances for loans and advances to customers
Our Description: In order to take account of risk of losses in the loan portfolio, risk provisions are created in the form of loan loss provisions.
The financial statements for December 31, 2018 of Sberbank Europe AG include individual loan loss provisions amounting to EUR 66.564.557,42 and portfolio loan loss provisions amounting to EUR 33.428.327,82. These represent the best estimate of the Executive Board for expected credit losses in the loan portfolio at the reporting date.
The measurement of loans and advances to customers for 2018 is based on the provisions of IFRS 9 for the first time. The determination of the amount of loan loss provisions is highly based on the stage allocation and its material assumptions used to assess significant increase in default risk (Stage 2) or default events (objective evidence of impairment - Stage 3).
Loan loss provisions are calculated using the discounted cash flow method. The expected cash flows are estimated as well as the expected proceeds from the collateral exploitation. Estimates are made for loan receivables that have already defaulted on an individual basis (individual loan loss provisions) or for loan receivables for which no default event has yet been identified, based on a blanket assessment (portfolio loan loss provisions).
In this regard, we refer to the comments of the Management Board in section "B. Reporting and Valuation Methods" and "C.I.3. Loans and Advances to Customers" in the notes of the financial statements.
The determination of the amount of loan loss provisions is subject to considerable discretion due to the assumptions and estimates made. In addition, in the financial year 2018 the requirements of IFRS 9 were taken into account for the first time, which led to significant changes in processes and models in connection with the determination of allowances for credit claims. Therefore, we have identified this area as a key audit matter.
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How we addressed the matter in the context of the audit:
In order to assess the appropriateness of the loan loss provisions made, we have established the main processes and models in credit risk management, with special reference to the provisions of IFRS 9 that were taken into account for the first time.
In particular, we examined the processes and models for the stage allocation designed by the Company and its material assumptions for assessing significant increase in default risk or default events, in order to assess whether these processes and models used are suitable for the identifica- tion of significant increase in default risks or default events and the requirement of loan loss provi- sions. We have identified the internal control system, in particular the essential controls on loan origina- tion, ongoing monitoring and the early detection process. We reviewed the internal control system in the area of credit risk management, in particular with regard to the correct application of rating models and collateral valuation.
Based on a selection of loan receivables that have already defaulted, we checked whether specific bad debt allowances were sufficiently considered. For these loans, we have critically assessed the estimates made by Management Board regarding future cash flows that are expected to come from repayments and collateral.
In addition to complying with internal rating and collateral allocation rules, based on a selection of loans, we have examined whether any significant increase in default risks or loss events have been fully identified.
When examining portfolio risk provision, we assessed the valuation models and parameters used to determine whether they are suitable for the determination of appropriate provisions. We also examined the underlying data basis for its data quality and reconstructed the mathematical cor- rectness of the risk provision.
In addition we have verified whether the information provided by the Company´s Executive Board in the notes referring to loans and advances to customers is complete and that the valuation pro- cedure has been correctly disclosed.
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Responsibilities of Management and of the Audit Committee for the Financial Statements
Management is responsible for the preparation of the financial statements in accordance with Austrian Generally Accepted Accounting Principles and banking regulatory requirements, for them to present a true and fair view of the assets, the financial position and the financial performance of the Company and for such internal controls as management determines are nec- essary to enable the preparation of financial statements that are free from material misstate- ment, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Audit Committee is responsible for overseeing the Company's financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an audi- tor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU regulation and in accordance with Austrian Standards on Auditing, which require the application of ISA, always detect a mate- rial misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with the EU regulation and in accordance with Austrian Stand- ards on Auditing, which require the application of ISA, we exercise professional judgment and maintain professional scepticism throughout the audit.
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We also:
identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not de- tecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. obtain an understanding of internal control relevant to the audit in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opin- ion on the effectiveness of the Company’s internal control. evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a go- ing concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Com- pany to cease to continue as a going concern. evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in inter- nal control that we identify during our audit.
From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse con- sequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Comments on the Management Report
Pursuant to Austrian Generally Accepted Accounting Principles, the management report is to be audited as to whether it is consistent with the financial statements and as to whether the manage- ment report was prepared in accordance with the applicable legal regulations.
Management is responsible for the preparation of the management report in accordance with Aus- trian Generally Accepted Accounting Principles and banking regulatory requirements.
We conducted our audit in accordance with Austrian Standards on Auditing for the audit of the management report.
Opinion
In our opinion, the management report for the Company was prepared in accordance with the valid legal requirements and is consistent with the financial statements.
Statement
Based on the findings during the audit of the financial statements and due to the thus obtained understanding concerning the Company and its circumstances no material misstatements in the management report came to our attention.
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Additional information in accordance with Article 10 EU regulation
We were elected as auditor by the extraordinary general meeting at December 19, 2017. We were appointed by the Supervisory Board on December 19, 2017. We are auditors without cease since 2012.
We confirm that the audit opinion in the Section "Report on the financial statements" is consistent with the additional report to the audit committee referred to in Article 11 of the EU regulation.
We declare that no prohibited non-audit services (article 5 par. 1 of the EU regulation) were pro- vided by us and that we remained independent of the audited company in conducting the audit.
Vienna, March 1, 2019
Ernst & Young Wirtschaftsprüfungsgesellschaft m.b.H.
Mag. Andrea Stippl mp Mag. Ernst Schönhuber mp Wirtschaftsprüferin / Certified Public Accountant Wirtschaftsprüfer / Certified Public Accountant
______
*) This report is a translation of the original report in German, which is solely valid. Publication or sharing with third parties of the financial statements together with our auditor's opinion is only allowed if the financial statements and the management report are identical with the German audited version. This audit opinion is only applicable to the German and complete financial statements with the management report. Section 281 paragraph 2 UGB (Austrian Company Code) applies to alternated versions.
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non-binding electronic copy Appendix I
FINANCIAL STATEMENTS AND MANAGEMENT REPORT AS OF 31ST DECEMBER 2018
(TRANSLATION)
SBERBANK EUROPE AG, VIENNA
non-binding electronic copy Sberbank Europe AG Balance
Balance
Assets 31.12.2018 31.12.2017 EUR EUR EUR thousand 1. Cash in hand, balances with Central Banks 767,922,764.31 1,203,800 Treasury bills and other bills eligible for refinancing with 2. Central Banks 282,265,949.54 268,808 a) Treasury bills and similar securities 282,265,949.54 268,808 thereof interest accruals 4,989,698.06 4,749 3. Loans and Advances to Credit Institutions 485,030,033.65 622,552 a) repayable on demand 135,036,968.66 129,685 b) other loans and advances 349,993,064.99 492,867 thereof interest accruals 801,658.51 1,044 4. Loans and Advances to Customers 1,000,009,340.94 1,630,747 thereof interest accruals 2,308,154.74 3,522 5. Bonds and other fixed income securities 110,302,618.24 12,883 b) from other issuers 110,302,618.24 12,883 thereof interest accruals 1,143,873.15 58 6. Participating Interests 1,022,228.01 1,022 thereof: in credit institutions 0.00 0 7. Shares in Affiliated Companies 968,572,236.22 968,369 thereof: in credit institutions 966,337,235.22 966,134 8. Intangible Fixed Assets 4,150,997.80 4,398 9. Tangible Assets 3,363,131.98 4,367 10. Other Assets 4,715,983.83 25,736 11. Deferred Expenses 1,904,011.92 1,368 Total assets 3,629,259,296.44 4,744,050
Off Balance Sheet Items 31.12.2018 31.12.2017 1. Foreign Assets 2,450,989,787.33 3,210,716
non-binding electronic copy Sberbank Europe AG Balance
Liabilities 31.12.2018 31.12.2017 EUR EUR EUR thousand 1. Liabilities to Credit Institutions 1,078,409,106.03 1,569,080 a) repayable on demand 38,958,281.12 137,300 b) with agreed maturity dates or periods of notice 1,039,450,824.91 1,431,780 thereof interest accruals 15,646.24 124 2. Liabilities to Customers (non‐banks) 954,569,074.09 1,516,988 a) other liabilities hereof 954,569,074.09 1,516,988 aa) repayable on demand 614,234,326.06 609,377 bb) with agreed maturity dates or periods of notice 340,334,748.03 907,611 thereof interest accruals 483.06 0 3. Other Liabilities 12,302,700.86 22,548 4. Accruals and deferred income 5,376,052.96 8,984 5. Provisions 37,466,883.05 28,951 a) Provisions for severance payments 2,002,657.00 2,678 b) Provision for taxes 3,168,795.27 3,544 b) Other provisions 32,295,430.78 22,729 Supplementary Capital pursuant to part 2 title 1 chapter 4 6. of CRR No 575/2013 326,223,280.56 326,219 thereof interest accruals 1,223,280.56 1,219 7. Subscribed Capital 389,032,300.00 389,032 8. Capital Reserves 1,682,903,871.71 1,682,904 a) Committed 1,584,583,267.09 1,584,583 b) Uncommitted 98,320,604.62 98,321 9. Retained Earnings 709,669.27 710 a) Statutory Reserves 709,146.69 709 b) Other Reserves 522.58 1 10. Liability Reserve pursuant to Article 57 para. 5 BWG 59,813,933.92 59,814 11. Net Loss –918,482,964.42 –862,315 12. Deferred Investment Grants 935,388.41 1,135 Total liabilities 3,629,259,296.44 4,744,050
Off Balance Sheet Items 31.12.2018 31.12.2017
1. Contingent Liabilities 344,855,380.90 395,146 hereof: guarantees and assets pledged as collateral security 341,478,307.49 390,427 2. Credit Risks 223,950,830.43 190,845 3. Eligible Capital pursuant to part 2 of CRR No 575/2013 1,534,822,230.77 1,590,746 thereof: supplementary capital pursuant to part 2 title 1 chapter 4 of CRR No 575/2013 325,000,000.00 325,000 Capital Requirement pursuant to Article 92 of CRR Nr 4. 575/2013 2,819,512,019.98 3,436,290 thereof: capital requirement pursuant to Art 92 Para 1 lit a to c of CRR No 575/2013 Hard Core Capital Ratio 42.91% 36.83% Core Capital Ratio 42.91% 36.83% Total Capital Ratio 54.44% 46.29% 5. Foreign Liabilities 1,990,001,241.01 3,077,263
non-binding electronic copy Sberbank Europe AG Profit and Loss Profit and Loss
31.12.2018 31.12.2017 EUR EUR EUR EUR thousand 1. Interest receivable and similar income 86,578,544.79 105,011 2. Interest payable and similar expenses –34,511,744.68 –56,403 I. NET INTEREST INCOME 52,066,800.11 48,608
3. Commission income 18,050,771.76 19,639 4. Commission expenses –15,989,306.53 –10,743 5. Net profit or net loss on financial operations –203,211.05–10 6. Other operating income 13,107,234.54 12,176 II. OPERATING INCOME 67,032,288.83 69,670
7. General administrative expenses –71,337,697.39 –92,367 a) Staff costs –40,326,064.94 –45,169 aa) Wages and salaries –31,898,551.26 –32,976 bb) Expenses for statutory social contributions and compulsory contributions related to wages and salaries –5,850,591.93 –6,186 cc) Other social expenses –994,159.11 –2,147 dd) Expenses for pensions and assistance –1,034,638.82 –1,077 ee) Expenses for severance payments and contributions to severance and retirement funds –548,123.82 –2,783 b) Other administrative expenses –31,011,632.45 –47,198 8. Value adjustments in respect of asset items 8 and 9 –2,298,348.98 –2,686 9. Other operating expenses –5,462,815.64 –1,102 III. OPERATING EXPENSES –79,098,862.01 –96,155
IV. OPERATING RESULT –12,066,573.18 –26,485
10. Value adjustments in respect of of loans and advances and provisions for contingent liabilities and commitments –49,477,414.66 –67,025 11. Value re‐adjustments in respect of loans and advances and provisions for contingent liabilities and commitments 15,267,305.14 11,333 12. Value adjustments in respect of transferable securities held as financial fixed assets, participating interest and shares in affiliated undertakings –8,796,782.88 –50,554 13. Value re‐adjustments in respect of transferable securities held as financial fixed assets, participating interest and shares in affiliated undertakings 0.00 1,894 V. LOSS / PROFIT ON ORDINARY ACTIVITIES –55,073,465.58 –130,837
14. Tax on profit or loss 206,116.36 –39,718 15. Other taxes not reported under item 14 –1,300,231.91 –2,042 VI. LOSS FOR THE YEAR AFTER TAX –56,167,581.13 –172,597
16. Loss brought forward –862,315,383.29 –689,718 VII. NET LOSS –918,482,964.42 –862,315
non-binding electronic copy Sberbank Europe AG Notes/1
Notes for the Fiscal Year 2018
A. General Notes
The Company was established on the basis of the Articles of Incorporation dated 29 July 1997. At the extraordinary General Meeting of 15 October 1999, the transformation of the Company into a stock corporation based on the transformation balance sheet as of 31 July 1999 was decided. Registration was effected on 2 December 1999.
The Company is entered in the Commercial Register of the Commercial Court of Vienna under number 161285 i.
The license to conduct banking transactions (sub-banking license) was granted by decision of 9 May 2000 by the Federal Ministry of Finance. The licence was expanded to include authorisation to conduct guarantee transactions (§ 1 Para. 1 nos. 8 BWG) by Decision of 6 April 2005.
With the enactment of the decision of 22 May 2013 by the Austrian Financial Market Authority (FMA), there was a significant expansion of the banking license, which allows Sberbank Europe AG (SBAG) among other things to conduct deposit, current account, bill broking and custodial business.
After having been ranked by the European Central Bank (ECB) as a significant credit institution due to its considerable cross-border operations by resolution of 1 September 2014, the ECB took over direct supervision of Sberbank Europe AG and its subsidiaries in the participating member states Sberbank banka d.d. (Slovenia) starting 4 November 2014.
The Company prepares the consolidated financial statements for the smallest group and Sberbank of Russia, with residence in Moscow, for the largest group of companies. The consolidated financial statement for the smallest group of companies is filed with the Commercial Court of Vienna; the consolidated financial statement for the largest group of companies is filed with the Central Bank of the Russian Federation.
As at 31 December 2018, SBAG maintains a trading book and meets all regulatory requirements, during the financial year 2018 no transactions in the trading book were carried out.
non-binding electronic copy Sberbank Europe AG Notes/2
B. Reporting and Valuation Methods
The annual financial statements as of 31 December 2018 were prepared according to the applicable provisions of the Austrian Banking Act (BWG) and the Austrian Commercial Code (UGB).
The previous form of presentation was substantially maintained. The structure of the balance sheet and profit and loss account follows the adaptations published in the JAB-surveys 05 (JKAB-V Annex B1), 14 (A1) and 62 (A3) in accordance with RÄG 2014.
The financial statements were prepared in compliance with generally accepted accounting principles and the general standard which requires an accurate reflection of the net assets, financial and earnings position of the Company.
The principle of completeness was followed in drawing up the financial statements.
The principle of individual valuation was followed and the continued operation of the Company as a going concern was assumed in the valuation of the individual assets and liabilities.
The principle of prudence was accounted for by recognizing only those profits realized as of the reporting date and all identifiable risks and impending losses were taken into account.
Rounding differences may occur during addition as a result of the presentation of comparison values from the 2017 financial statements in EUR thousand since the calculation of the individual items are based on figures in EUR.
Receivables from banks and other receivables and also receivables from customers were measured as current assets according to the regulations of § 207 UGB.
The Financial Market Authority (FMA) and the Austrian Financial Reporting and Auditing Committee (AFRAC) published a joint position paper on questions of subsequent valuation at banks on 20 September 2017. The recommendation contains clarifications regarding the valuation of credit claims with regard to the UGB and BWG as amended by RÄG 2014. On this basis, Sberbank Europe AG decided to apply the IFRS 9 model also under company law with 1.1.2018. The IFRS 9 methods to estimate the necessary impairment level is applied for all stages. Receivables in accordance with § 207 UGB were measured at fair value. In addition to credit risk, the fair value also takes into account other factors such as interest rate and other market risks. The 12-month expected credit loss method of IFRS 9 has been applied to exposures that have not yet experienced material impairment deterioration (Stage 1) ". For loans where the default risk has increased significantly, portfolio loan loss provisions have been applied on the basis of the lifetime expected credit loss (Stage 2). Lifetime expected credit loss in Stage 3 includes specific allowances. Provisions for off-balance-sheet items were calculated using the same method.
The change from IBNR methodology (used until 31.12.2017) to the methodology based on IFRS 9 affected loans and advances to banks and customers and off-balance-sheet items such as guarantees, letters of credit, credit commitments. In total EUR 24,864 thousand of risk provisions were posted to the income statement as a conversion effect at the beginning of the year. A simulation of the risk provisions according to the IBNR methodology applied until the end of 2017 as at the reporting date 31.12.2018 would lead to EUR 19,588 thousand lower risk provisions as at 31.12.2018.
Foreign currency amounts were converted at the average exchange rate as of the reporting date.
non-binding electronic copy Sberbank Europe AG Notes/3
Securities dedicated to financial assets are valued according to the moderate lower of cost or market principle. Extraordinary write-downs are recognized on long-term impairments of fixed asset securities. Unless there are indications of permanent impairment, no extraordinary depreciation is applied. Indications for a non-permanent impairment include, in particular, securities with a long-term intention to hold, fluctuations in market volatility and interest-rate fluctuations. If an extraordinary write-down is made on a security dedicated to the financial assets and if in a later financial year it turns out that the reasons no longer exist, the amount of the write-down is credited in the amount of the increase in value. In the case of securities of financial assets acquired above par, the premium is depreciated pro rata temporis pursuant to § 56 (2) BWG. In the case of securities held as financial assets, which are acquired at par, a pro rata write-up is made in accordance with section 56 (3) BWG.
Marketable securities dedicated to trading are carried at market value.
Recognition of shareholdings, shares in affiliated companies and other share rights is done at the mitigated lowest value principle. Sberbank Europe AG (SBAG) performs an annual impairment test as of the reporting date, although an impairment test is also carried out during the year if there is reason to believe that an impairment may exist. The method used is based on IAS 36. For all cash-generating units (each subsidiary as legally independent unit) an impairment test is carried out in order to check the existing shareholding assets value. The value of the Company's assets is determined on the basis of a discounted cash flow method which is based on the distributable earnings of Sberbank Europe's subsidiary banks using medium-term planning. A 3-phase-model is in place for this. In the first phase, the earnings from the medium-term planning until the year 2021 are subjected to country-specific discounts. In the second phase, the earnings until the year 2023 are derived through interpolation of earnings based on the required capital. The required capital is derived from the RWA assessment and a target Tier I ratio. The third phase (perpetual annuity from 2024) is calculated based on profit after taxes of the last year of the second phase and discounted. According to the principles followed above, the company's value is compared to the book value of the respective shareholding and subsequently undergoes a depreciation test1.
Measurement of tangible and intangible fixed assets was done at cost minus scheduled depreciation.
The useful life of office furniture and equipment is currently either 5 or 10 years, for standard EDP 4 years. For the core banking systems and its satellite a useful life of 12 years was determined. For assets acquired in the first half of the fiscal year, the full annual depreciation amount is written down, while for assets purchased in the second half of the fiscal year, half of the annual depreciation amount is written down.
Liabilities are carried at their repayment amount in compliance with the principle of prudence.
Based on the AFRAC (Austrian Financial Reporting and Auditing Committee) opinion on severance provisions, a harmonization of the calculation methods with regard to UGB and IFRS was carried out in 2016 and the IAS 19 International Accounting Standard was also followed since then in the UGB. According to generally accepted actuarial principles, the present value of the "defined benefit obligation" and the expected "current service cost" of the following year have now been determined for each obligation in accordance with the projected unit credit method ("projected unit credit method"). An interest rate for accounting purposes of 2.005% was used (31.12.2017: 1.825%). A retirement age of 60 years for women and 65 years for men was
1 Investments in subsidiaries shall be initially recognized at cost (§ 203 UGB) and written down in case of impairment (§ 204 (2) UGB). According to AFRAC Stellungnahme 24 on Beteiligungsbewertung (UGB) Rz 14the liquidation value forms a potential floor for the valuation. To determine the equity as liquidation value is a generally accepted practice and therefore also SBAT only writes down in UGB till equity (or previously existing book values).
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assumed. Salary raises of 3.50% are assumed (same as previous year). The latest Austrian pension insurance table AVÖ 2018-P of the Actuarial Association of Austria was used as a basis of calculation.
Under other provisions, in compliance with the principle of prudence, all identifiable risks at the time of preparation of the balance sheet as well as liabilities for which the amount and reason were uncertain were taken into account with the amounts required in accordance with the principles of prudent commercial appraisal.
The nominal values of off-balance sheet transactions are recognized in the items below the balance sheet. Provisions were created for these in case of impending utilization.
The market values of derivative financial instruments are checked regularly. In case of a negative market value, an other liability is recorded In case of a positive market value it is shown as other receivable. As of 31 December 2018, Sberbank Europe AG had a license to perform activities within the trading booking and fulfils the related regulatory requirements, but no activities in respect to the trading book have been performed.
Provisions due in more than one year are stated at their discounted settlement amount. The relevant items with a maturity of more than one year were discounted with 3.5 %.
Deferred tax assets and liabilities are recognized, when there are temporary differences between the carrying amounts of the assets and the liabilities in the balance sheet according to the Austrian Commercial Code (UGB) in comparison to the values according to the tax regulations. There is also an option for deferred tax assets on tax loss carried forward. Deferred tax assets are not considered, as no taxable return is expected in the planning horizon to recognize deferred tax assets as a deduction of future taxes.
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C. Notes on the Financial Statements
I. Notes on the individual Balance Sheet items
1. Balances at Central Banks
Balances at Central Banks in the amount of EUR 767,922,764.31 (31.12.2017: EUR 1,203,800 thousand) mainly refer to a balance payable on demand at the Austrian National Bank in the amount of EUR 753,595,520.23 (31.12.2017: EUR 1,105,021 thousand) and the minimum reserve kept with the Austrian National Bank in the amount of EUR 7,792,513.44 (31.12.2017: EUR 91,941 thousand).
2. Treasury bills and other bills eligible for refinancing with Central Banks
As of 31 December 2018, Sberbank Europe AG holds several government bonds approved for refinancing at the Central Bank. They are capitalized in the financial assets at acquisition cost. Since the nominal value exceeds the purchase price, the difference is released on a pro-rata basis to interest income.
Purchase Price Nominal Value 31.12.2018 Remaining term < 1 year 268,346,589.98 247,148,000.00 Remaining term > 1 year 28,581,811.25 26,262,000.00 31.12.2017 Remaining term < 1 year 269,946,916.79 259,846,000.00 Remaining term > 1 year 0.00 0.00
The bonds are held until maturity.
3. Loans and Advances to Customers
Loans and advances to customers in the gross amount of EUR 1,100,002,226.18 (31.12.2017: EUR 1,630,747 thousand) include receivables from affiliated companies in the amount of EUR 7,000,537.44 as well as from external customers in the amount of EUR 1,093,001,688.74. In 2018, loans have been granted for the first time in the German branch.
31.12.2018 31.12.2017 in EUR in EUR thousand Gross book value loans to customers 1,100,002,226.18 1,630,747 Specific loan loss provision –66,564,557.42 –68,696 Portfolio risk provision loans to customers –33,428,327.82 –26,140 Loan loss provisions –99,992,885.24 –94,836
Net book value loans to customers 1,000,009,340.94 1,535,911
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4. Breakdown of Receivables and balances by maturity
From banks 31.12.2018 31.12.2017 in EUR in EUR thousand repayable on demand 135,036,968.66 129,685 with a remaining term of up 3 months 82,615,866.80 211,387 with a remaining term of 3 months to 1 year 106,167,058.58 151,408 with a remaining term of 1 to 5 years 113,210,139.61 85,072 with a remaining term of more than 5 years 48,000,000.00 45,000 485,030,033.65 622,552
From customers 31.12.2018 31.12.2017 in EUR in EUR thousand repayable on demand 547,857.70 134,273 with a remaining term of up 3 months 72,814,670.35 9,032 with a remaining term of 3 months to 1 year 238,086,471.92 291,854 with a remaining term of 1 to 5 years 557,603,632.01 1,111,331 with a remaining term of more than 5 years 130,956,708.96 84,257 1,000,009,340.94 1,630,747
5. Bonds and other fixed income securities
As of 31 December 2018, Sberbank Europe AG holds bonds with foreign banks. They are capitalized in the financial assets at acquisition cost. Since the nominal value exceeds the purchase price, the difference is released on a pro-rata basis to interest income.
Purchase Price Nominal Value 31.12.2018 Remaining term < 1 year 71,916,859.29 71,330,000.00 Remaining term > 1 year 37,912,110.80 37,665,000.00 31.12.2017 Remaining term < 1 year 12,890,566.51 12,700,000.00 Remaining term > 1 year 0.00 0.00
The zero-coupon bonds are held until maturity.
6. Shares in Affiliated Companies
The shares in affiliated companies recognized under assets pursuant to § 189a letter 8 UGB are composed as of 31 December 2018 as follows (no shares in affiliated companies are listed on the stock exchange):
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2018 Share in % Equity Profit/Loss 2018 EUR thousand EUR thousand Sberbank CZ, a.s., Czech Republik 100.00 338,314 14,663 Sberbank Magyarország Zrt., Hungary 98.93 138,881 4,334 Sberbank banka d.d., Slovenia 99.99 172,590 8,183 Sberbank d.d., Croatia 100.00 151,451 9,163 Sberbank BH d.d., Bosnia‐Herzegovina 100.00 89,035 3,654 Sberbank a.d. Banja Luka, Bosnia‐Herzegovina 99.64 64,363 1,933 Sberbank Srbija a.d. Beograd, Serbia 100.00 208,879 11,082 BEVO‐Holding GmbH, Vienna 100.00 2,224 –3 Garay Center Kft 100.00 326 –26
2017 Share in % Equity Profit/Loss 2017 EUR thousand EUR thousand Sberbank CZ, a.s., Czech Republik 100.00 342,846 16,595 Sberbank Magyarország Zrt., Hungary 98.93 140,701 1,606 Sberbank banka d.d., Slovenia 99.99 172,120 3,006 Sberbank d.d., Croatia 100.00 153,372 –18,272 Sberbank BH d.d., Bosnia‐Herzegovina 100.00 88,761 2,957 Sberbank a.d. Banja Luka, Bosnia‐Herzegovina 99.64 64,513 2,708 Sberbank Srbija a.d. Beograd, Serbia 100.00 203,623 6,777 BEVO‐Holding GmbH, Vienna 100.00 2,227 –5 Garay Center Kft 100.00 357 616
Impairment on participation value of Sberbank d.d., Croatia, in the amount of EUR 8,796,782.88 was carried out in the financial year 2018 (2017: Impairment for participations Croatia and Ukraine EUR 50,554.73 thousand). There have been no appreciation in 2018. (2017: appreciation of Sberbank Banja Luka (Bosnia- Herzegovina) EUR 1,893.60 thousand).
The composition and development of asset items are presented in the schedule of movements in fixed assets.
7. Breakdown of Receivables from affiliated companies
31.12.2018 31.12.2017 in EUR in EUR thousand Loans and Advances to Credit Institutions 141,351,610.17 196,402 of which subordinated loans 134,776,254.66 114,500 Receivables from customers 7,000,537.44 8.000 Other Assets 1,580,524.96 2,940 149,932,672.57 207,342
Receivables from affiliated companies to banks in the amount of EUR 141,351,610.17 (31.12.2017: EUR 196,402 thousand) consist of balances at foreign subsidiaries and foreign parent company, loans and advances to foreign subsidiaries and foreign parent company and their corresponding interest accruals.
Loans granted to foreign affiliated companies in the amount of EUR 137,376,914.10 (31.12.2017: EUR 119,155 thousand) include supranational financing in the amount of EUR 2,600,659.44 (31.12.2017: EUR 4,655 thousand) to Sberbank d.d. in the amount of EUR 866,649.89 (31.12.2017: EUR 1,552 thousand), to
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Sberbank a.d. Banja Luka in the amount of EUR 1,734,009.55 (31.12.2017: EUR 3,103 thousand) as well as subordinated loans in the amount of EUR 134,776,254.66 (31.12.2017: EUR 114,500 thousand) to Sberbank banka d.d. in the amount of EUR 52,020,459.11 (31.12.2017: EUR 52,000 thousand), to Sberbank Magyarország Zrt in the amount of EUR 28,186,418.67 (31.12.2017: EUR 28,000 thousand), to Sberbank Srbija a.d. in the amount of EUR 15,008,818.33 (31.12.2017: EUR 15,000 thousand), to Sberbank BH d.d. in the amount of EUR 12,546,793.33 (31.12.2017: EUR 12,500 thousand), Sberbank d.d., Croatia of EUR 20,010,855.55 (31.12.2017: EUR 0 thousand) and to Sberbank CZ, a.s., in the amount of EUR 7.000.000,00 (31.12.2017: EUR 7,000 thousand)
Other assets in the amount of EUR 1,580,524.96 (31.12.2017: EUR 2,940 thousand) mainly result from re- invoicing of management and personnel services, re-invoicing of consulting services to foreign subsidiaries as well as payables arising from drawn guarantees.
8. Other Assets
31.12.2018 31.12.2017 in EUR in EUR thousand Positive market value of derivatives 433,264.19 17,721 Receivables from affiliated companies 2,041,455.64 4,973 Withholding of foreign income for posted employees 850,280.34 874 Receivables from Personnel 162,612.11 78 Receivables from tax authorities 7,116.43 9 Other receivables 1,221,255.12 2,081 4,715,983.83 25,736
Other assets in the amount of EUR 971,860.54 (31.12.2017: EUR 1,368 thousand) have a remaining term of more than one year.
Other assets include earnings in the amount of EUR 4,487,583.68 (31.12.2017: EUR 24,368 thousand), which will become cash-effective after the reporting date. Here are receivables arising from the re-invoicing of management and personnel services as well as receivables towards tax authorities included.
9. Deferred expenses
The accrued items amounting to EUR 1,904,011.92 (31.12.2017: EUR 1,368 thousand) are related to salaries in the amount of EUR 951,132.21 already paid out for January 2018 as well as accrued commission fees and other accruals in the amount of EUR 952,879.71.
10. Deferred tax assets
In 2018 as well as in 2017, no deferred tax asset or liability is booked as the business plan does not support any deferred tax recognition from future profitability perspective.
Due to the estimated tax loss carried forward of EUR 453,920,675.39 (31.12.2017: EUR 422,473 thousand) with a tax rate of currently 25%, a maximum amount of up to EUR 113,480,168.85 (31.12.2017: EUR 105,618 thousand) would be recognizable. The deferred taxes from temporary differences would lead to an active net asset of EUR 12,682,163.60 (31.12.2017 EUR 7,479 thousand), but are not recognized, as no taxable return is expected in the planning horizon to recognize deferred tax assets as a deduction of future taxes payable.
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11. Breakdown of Liabilities
to banks 31.12.2018 31.12.2017 in EUR in EUR thousand repayable on demand 38,958,281.11 137,300 with a remaining term of up 3 months 329,880,275.07 409,861 with a remaining term of 3 months to 1 year 100,000,000.00 516,451 with a remaining term of 1 to 5 years 609,570,549.85 505,468 with a remaining term of more than 5 years 0.00 0 1,078,409,106.03 1,569,080
to customers 31.12.2018 31.12.2017 in EUR in EUR thousand repayable on demand 614,234,326.06 609,377 with a remaining term of up 3 months 67,237,386.57 292,733 with a remaining term of 3 months to 1 year 166,547,900.10 371,440 with a remaining term of 1 to 5 years 106,549,461.36 243,438 with a remaining term of more than 5 years 0.00 0 954,569,074.09 1,516,988
Sberbank Europe AG provides banking services to German customers through its German branch through online banking (only EUR). As a direct bank, the German branch offers sight deposits and term deposits with terms going up to 5 years. As of 31 December 2018, the liabilities to customers can be split as following:
31.12.2018 31.12.2017 Corporates in EUR in EUR thousand sight deposits 67,347,295.49 47,059 term deposits 7,860,262.01 8,338 SME & Private Individuals sight deposits 546,887,030.57 562,318 term deposits 332,474,486.02 899,273
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12. Other Liabilities
Other liabilities break down as follows:
31.12.2018 31.12.2017 in EUR in EUR thousand Liabilities from guarantees 616,226.49 7,907 Tax and contribution liabilities 1,335,709.97 5,414 Liabilities from EDP services 1,565,608.63 3,279 Negative market value of derivatives 3,148,641.43 2,488 Liabilities from legal and consulting services 251,950.89 1,677 Withholding of foreign income for posted employees 1,400,163.03 1,425 Liabilities to affiliated companies 415,278.05 116 Liabilities payroll 2,118,059.54 62 other items 1,451,062.83 181 12,302,700.86 22,548
Liabilities in the amount of EUR 10,902,537.83 (31.12.2017: EUR 21,755 thousand) have remaining terms up to one year.
13. Provisions
In 2018, the provision for corporate income tax that had been booked in 2016 in the amount of EUR 312.915,34 was released as a result of the final tax assessment of corporate income tax for 2016 issued by the tax authority on 23.04.2018.
Other provisions include provisions for unused holidays and overtime performed, for auditing expenses, for impending losses, for adjustments of incurred but not identified off-balance risks (off-balance IBNRs) and not yet invoiced third-party services amounting to EUR 32,295,430.78 (31.12.2017: EUR 22,729 thousand).
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Other provisions break down as follows2:
31.12.2018 31.12.2017 in EUR in EUR thousand Provisions for other personnel costs 9,449,633.78 10,779 Provisions for not yet invoiced third‐party services 2,580,779.47 7,468 Provision off‐balance IBNR n.a. 2,170 Provision for off‐balance sheet items 17,951,212.81 n.a. Provisions for unused holidays 1,883,324.72 1,836 Provisions for auditing costs 325,480.00 336 Provisions for impending losses 0.00 140 Provision for onerous contracts 105,000.00 0
32,295,430.78 22,729
2 IBNR is not calculated in 2018 anymore, as it is replaced by the calculation method of IFRS 9
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14. Breakdown of Liabilities to affiliated companies
31.12.2018 31.12.2017 in EUR in EUR thousand Liabilities to banks 174,486,241.23 108,645 Other Liabilities 958,745.46 605 175,444,986.69 109,250
Liabilities to affiliated companies in the amount of EUR 175,444,986.69 (31.12.2017: EUR 109,250 thousand) exist to Sberbank of Russia, Sberbank CZ, a.s., Sberbank d.d., Sberbank Srbija a.d., Sberbank banka d.d., Sberbank a.d. Banja Luka, Sberbank BH d.d. as well as Sberbank Magyarország Zrt.
Supplementary capital received from Sberbank of Russia is displayed in a separate balance sheet position.
15. Supplementary Capital pursuant to part 2 title 1 chapter 4 of CRR No 575/2013
The position of supplementary capital amounting to EUR 326,223,280.56 (31.12.2017: EUR 326,219 thousand) includes the supplementary capital received from the owner Sberbank of Russia.
The individual maturities and interest rates break down as follows:
Tranche Currency Maturity Interest Rate 175,000,000.00 EUR 05.03.2024 3.40% + EURIBOR3M 100,000,000.00 EUR 31.07.2024 3.80% + EURIBOR3M 50,000,000.00 EUR 28.11.2024 4.95% + EURIBOR3M
The interest accrual as of 31 December 2018 amounts to EUR 1,223,280.56 (31.12.2017: EUR 1,219 thousand).
16. Capital Reserves
Since the appropriate capital reserves meet the requirements of § 229 Para. 6 UGB, an allocation to the statutory reserves was not required in the fiscal year 2018.
The non-restricted capital reserves amount to EUR 98,320,604.62 (31.12.2017: EUR 98,321 thousand).
The restricted capital reserves amount to EUR 1,584,583,267.09 (31.12.2017: EUR 1,584,583 thousand).
17. Deferred income relating to investment grants
in EUR as of Allocation Release as of 01.01.2018 31.12.2018 Deferred Investment 1,135,344.89 0 199,956.48 935,388.41 Grants
The deferred income relates to investment grants concerning a construction cost subsidy which will be released proportionally over the anticipated useful life of 10 years for office furniture and equipment.
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18. Contingent Liabilities, Credit Risks and Assets pledged
31.12.2018 31.12.2017 in EUR in EUR thousand Guarantees for customers in Eastern Europe and Cyprus 296,525,466.63 346,475 Guarantees for subsidiary banks and others 44,952,840.86 43,951 Letters of credit 3,377,073.41 4,720 Contingent Liabilities 344,855,380.90 395,146
The position guarantees for subsidiary banks includes guarantees for Sberbank d.d., Sberbank Srbija a.d., Sberbank CZ, a.s., Sberbank banka d.d., Sberbank BH d.d. and Sberbank Magyarország Zrt. Following counter guarantees in the amount of EUR 9,136,737.71 (31.12.2017: EUR 14,935 Tsd.) received from Sberbank of Russia are existing. In 2017 provisions for impending claims from customers in Eastern Europe in the amount of EUR 1,479 thousand were built and are disclosed under other provisions. In 2018, provisions for off-balance sheet risks for customers in the amount of EUR 17,951,212.81 were formed on the basis of IFRS 9. Provisions are recognized under other provisions and include provisions for guarantees, framework agreements and letters of credit.
Credit risks in the amount of EUR 223,950,830.43 (31.12.2017: EUR 190,845 thousand) result basically from granted credit lines to foreign subsidiaries in the amount of EUR 125,000,000.00 as well as credit lines granted to customers..
The following assets are pledged as collaterals against the following liabilities:
31.12.2018 31.12.2017 in EUR in EUR thousand Cash 1,000,000.00 16,980 Margin Calls 3,107,861.15 0 Loans and Advances to Customers 53,000,000.00 63,000 Bonds 242,498,000.00 245,459
corresponding liabilities: Contingent Liabilities 0.00 2,538 Negative market value of derivatives 3,148,641.43 0 Liabilities to banks (with agreed maturity) 278,000,000.00 278,000
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II. Notes on the Profit and Loss Statement
1. Net Interest income
Interest income (including interest similar income) amounting to EUR 86,578,544.79 (2017: EUR 105,011 thousand) mainly arises from lending business as well as money market transactions. The decreased credit portfolio and lower interest rates led to a proportional decrease in interest income.
Interest-similar income in the amount of EUR 694,105.66 (2017: EUR 685 thousand) results mainly from commitment commissions for unused loan commitments in Eastern Europe.
Interest expenses amounting to EUR 34,511,744.68 (2017: EUR 56,403 thousand) results primarily from liabilities to banks EUR 8,708,093.19 (2017: EUR 16,330 thousand) and from supplementary capital in the amount of EUR 11,329,779.87 (2017: EUR 11,318 thousand), as well as from interest expenses for liabilities to customers of EUR 9,638,883.28 (2017: EUR 21,593 thousand).
2. Net commission income
Income from commissions in the amount of EUR 18,050,771.76 (2017: EUR 19,639 thousand) mainly results from lending operations, issued guarantees and granted credit lines.
Commission expenses in the amount of EUR 15,989,306.53 (2017: EUR 10,743 thousand) arise primarily from lending operations and guarantee fees.
3. Other operating income
Other operating income in the amount of EUR 13,107,234.54 (2016: EUR 12,176 thousand) mainly results from the re-invoicing of costs to subsidiaries (Central and Eastern Europe) as well as the release of other provisions.
4. Administrative expenses
In 2017 the position expense for severance payments and contributions to corporate pension insurance funds includes expenses for the allocation to the provision for severance pay under a social compensation plan in the amount of EUR 1,627 thousand, which was not the case in 2018. Expenses for the cash-effective statutory and voluntary severance payment are included with EUR 144,749.64 (2017: EUR 576 thousand), as well as expenses for contributions to the corporate pension fund in the amount of EUR 403,374.18 (2017: EUR 455 thousand).
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Material expenses break down as follows:
31.12.2018 31.12.2017 in EUR in EUR thousand Material expenses for EDP 12,718,442.05 21,022 Auditing and consulting expenses 9,247,266.91 15,910 Rental and leasing expenses 3,041,201.22 2,912 Contributions to associations and organisations 2,385,441.07 2,661 Advertising and representation 891,359.91 1,354 Vehicle operating expenses and other travel expenses 616,170.04 752 Expenses from previous periods 165,273.05 518 Training 278,944.05 404 Occupancy expenses, maintenance, business insurance 269,096.03 276 Telecommunication expenses 192,091.84 254 Other insurances 186,128.55 219 Events 107,443.30 94 Office materials, forms and literature 65,483.12 87 Advertisements 36,436.86 36 Other administrative expenses 810,854.45 699 31,011,632.45 47,198
Aside from the running costs, the main drivers within the material expenses arise from external consultancy expenses and costs related to projects for the further development of the business and compliance with regulatory and accounting standards. Furthermore, fees for external consulting in connection with the IT- related developments within Sberbank Europe AG are included in “Material expenses for EDP”. The expenses for the resolution funds amounted to EUR 918,627.01 (2017: EUR 700.98 thousand).
The expenses towards the auditor are as following: 31.12.2018 31.12.2017 in EUR in EUR thousand Statutory audit of the financial statement (local and SBEU group) 402,900.00 313 Non Audit Service cost (NAS) 318,680.40 692 Other audit 255,108.00 261 Tax consultancy services 25,478.40 107 Other services 38,094.00 324
5. Impairments and provisions
Due to the necessary provisions and in line with IFRS 9, the following impairment allowances are recorded in 2018: For individual clients impairments in the amount of EUR 25,170,604.36 (2017: EUR 45,917.39 thousand) were considered. The value adjustments for receivables in Stage 1 and Stage 2 amount to EUR 8,375,099.25 . For the last time in 2017, the item value adjustments for existing but not yet identified balance sheet and off- balance sheet risks (IBNR) was reported in the amount of EUR 21,107.39 thousand.
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The addition to provisions for off balance items in 2017 had an impact of EUR 2,170.01 thousand. In 2018, provisions for off-balance-sheet risks in the amount of EUR 15,799,098.20 will be allocated on the basis of IFRS 9.
Income from the reversal of loan loss provisions in 2018 amounts to EUR 15,267,305.14 and is primarily attributable to the sale of loans. In 2017, the income was mainly due to the reversal of the IBNR loan loss provisions due to early repayments (EUR 6,223.32 thousand) and the discontinuation of an off-balance sheet obligation, which was taken into account in previous years as a provision (EUR 2,400 thousand).
The impairment result of EUR 8,796,782.88 (2017: EUR 48,661.13 thousand) results mainly from the revaluation of investments in affiliated companies.
6. Taxes
The expenses/income under the item Income Tax in the amount of income of EUR 206,116.36 (2017: loss of EUR 39,717.48 thousand) result (2017: from the reversal of deferred taxes assets in the amount of EUR 39,111.01 thousand) from withholding tax payments in the amount of EUR 31,776.92 (2017: EUR 518.86 thousand), the net amount in corporate tax in the amount of EUR –272,977.48 (2017: EUR 46.18 thousand) and the trade tax in the amount of EUR 35,084.20 (2017: EUR 41.42 thousand).
Other taxes amount to EUR 1,300,231.91 (2017: EUR 2,042.37 thousand). This item includes mainly expenses for the Banking Tax amounting to EUR 841,931.22 (2017: EUR 844.66 thousand) but also cost for resolution fund and other taxes.
III. Additional Information
1. Information pursuant to § 64 Para. 1 nos. 2 BWG
Total amount of assets as well as liabilities denominated in foreign currency:
Assets EUR 227,938,012.38 Liabilities EUR 86,977,469.40
2. Information regarding derivative financial instruments § 238 (1) Z 1 UGB
FX Swaps are concluded since 2014 in order to compensate the surplus of EUR excess liquidity in contrast to USD. This surplus arose from USD lending operations with customers. Entering into USD FX Swaps enabled to meet the demand for USD denominated loans. The FX Swaps were assessed in the books with the respective forward rates. The market value of the contracted FX Swaps is the present value of both, current and future, cash flows in EURO equivalent.
The FX Swaps were evaluated in the front-office system Murex which uses the mark-to-model approach by discounting future cash flows.
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31.12.2018 31.12.2017 FX Swaps in EUR in EUR thousand Nominal Value 139,963,493.45 422,442 positive market value 433,264.19 17,721 negative market value 3,148,641.43 2,488 provision n/a n/a
In the annual financial statements as of 31 December 2018, FX swaps with positive and negative market values are not offset in other assets or other liabilities.
3. Information according to § 238 (1) Z 14 UGB
Obligations from the use of fixed assets not shown in the balance sheet (vehicle leasing and building rent) as a result of contracts for the following fiscal year existing on the reporting date, amount to EUR 2,781,179.58 (31.12.2017: EUR 2,786 thousand) and EUR 14,765,660.08 for the next 5 years (31.12.2017: EUR 14,789 thousand).
4. Usage of the balance sheet loss
No dividend payment is proposed as there is a balance sheet loss as of 31 December 2018.
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D. Miscellaneous Information
The Company's share capital amounts to EUR 389,032,300.00 (31.12.2017: EUR 389,032 thousand). It is divided into 3,890,323 no-par-value ordinary bearer shares (31.12.2017: 3,890,323 ordinary shares).
As of 31 December 2018, the shareholding structure of Sberbank Europe AG is presented as follows:
Shareholder Ordinary Shares Nominal Share Capital Nominal Shareholding Value Value Percentage Sberbank of Russia, Moscow 3,890,323 389,032,300 100%
The share capital is held entirely by the Sberbank of Russia, Moscow.
Own Funds of Sberbank Europe AG (single-entity)
The following table displays the own funds of Sberbank Europe AG pursuant to CRR as of 31 December 2018 (Status as per delivery to OENB on 12.2.2019) and as of 31 December 2017 (in EUR thousand).
31.12.2018 31.12.2017 in EUR in EUR thousand Subscribed Capital 389,032,300.00 389,032 Disclosed Reserves 1,743,427,474.90 1,743,427 Intangible Assets –4,150,997.80 –4,398 Value adjustments due to the requirements for prudent valuation –3,581.91 0 Net Loss –918,482,964.42 –862,315 Core Capital (Tier I) 1,209,822,230.77 1,265,746 Supplementary Capital (Tier II) 325,000,000.00 325,000 Total eligible own Capital Funds 1,534,822,230.77 1,590,746 Required Equity 225,560,961.60 274,903 Equity Surplus 1,309,261,269.17 1,315,843
The risk weighted calculation basis and the resulting own funds required are as follows:
31.12.2018 31.12.2017 in EUR in EUR thousand Credit risk 216,407,023.76 264,147 Operational risk 9,124,633.66 10,378 Own funds requirement due to adjustments credit valuation 29,304.18 378 Total own funds requirement 225,560,961.60 274,903
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Capital Ratios pursuant to Art 92 Para 1 lit a to c of CRR No 575/2013
31.12.2018 31.12.2017 Common Equity Tier I Ratio 42.91% 36.83% Core Capital Ratio 42.91% 36.83% Total Capital Ratio 54.44% 46.29%
As in the previous year, the capital requirements were met at all times during the 2018 financial year.
Own Funds of Sberbank Europe Group (consolidated)
The following tables display the own funds of the Sberbank Group pursuant to CRR with IFRS values as of 31 December 2018 (Status as per delivery to OENB on 12.2.2019) and as of 31 December 2017 (in EUR thousand).
31.12.2018 31.12.2017 in EUR in EUR thousand Tier I Capital 1,316,054,118.61 1,420,129 Common Equity Tier I 1,315,947,177.80 1,419,886 Additional Tier I Capital 106,940.81 243 supplementary capital 325,740,528.72 326,376 Total own funds 1,641,794,647.33 1,746,505 Required Equity 635,011,890.08 656,860 Equity Surplus 1,006,782,757.25 1,089,645
The risk weighted calculation basis and the resulting own funds required are as follows:
31.12.2018 31.12.2017 in EUR in EUR thousand Credit risk 571,650,069.35 591,566 Operational risk 57,630,915.68 61,920 Own funds requirement according credit value adjustments 1,400,426.78 1,422 Own funds requirement position, fx, commoditiy risk 4,330,478.27 1,952 Total own funds requirement 635,011,890.08 656,860
Capital Ratios pursuant to Art 92 Para 1 lit a to c of CRR No 575/2013
31.12.2018 31.12.2017 Common Equity Tier I Ratio 16.58% 17.29% Core Capital Ratio 16.58% 17.30% Total Capital Ratio 20.68% 21.27%
As in the previous year, the capital requirements were met at all times during the 2018 financial year.
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Calculating the return of assets (section 64 (1) no. 19 BWG):
The calculation of the total return on assets (net profit after tax / balance sheet total) results in a negative value due to the negative result and is therefore not informative.
Information about branches
Name of the branch Sberbank Europe AG Branch Germany, Frankfurt Business Retail business Country of residence Germany Net interest income in EUR thousand –9,786 Operating income in EUR thousand –10,405 Loss for the year before tax in EUR thousand –12,854 Tax on profit or loss in EUR thousand –70 Full-time employees 14 Received public subsidies 0
Information regarding personnel expenditure
During the fiscal year, Sberbank Europe AG employed an average of 288 (2017:296) members of staff.
The total remuneration paid to members of the Management Board, being active in 2018, was EUR 5,162,572.11 (2017: EUR 4,912 thousand). The total remuneration paid to former members of the Management Board was EUR 0.00 (2017: EUR 383 thousand). Thereof severance payments amounted to EUR 0.00
EUR 223,170.47 (2017: EUR 226 thousand) were spent for severance payment and pension fund for members of the Management Board. Furthermore EUR 371,765.50 (2017: EUR 1,156 thousand) were spent for executives and EUR 689,413.81 (2017: EUR 2,150 thousand) for other employees regarding severance payment and pension fund.
Compensation to the Members of the Supervisory Board of Sberbank Europe AG in the fiscal year 2018 amounted to EUR 210,000.00 (2017: EUR 140 thousand). After the reporting date, payments in the amount of EUR 210,000.00 were made for activities relating to 2018.
Information on the organizational structure, the risk management and the risk capital situation can be found in the management report.
Material events occurring after the balance sheet date
No significant events took place after the closing date. The disclosure pursuant to Article 431 ff of the Capital Requirement Regulation (CRR) No. 575/2013 is published on the Internet on the bank's homepage at www.sberbank.at.
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Bodies
Supervisory Board:
Chairman Siegfried Wolf (since 16 February 2012)
Deputy Chairman Igor KOLOMEYSKIY (Supervisory Board member since 11th August 2017; Deputy Chairman since 23 May 2018) Maxim POLETAEV (from 2 June 2017 until 17 October 2018)
Members Alexander MOROZOV (from 18 July 2013 until 13th April 2018) Alexander VEDYAKHIN (from 15 September 2015 until 18 October 2018) Stanislav KUZNETSOV (since 11th May 2017) Pavel BARCHUGOV (since 11th May 2017) Grigory ANASHKIN (since 11th May 2017) Ernst WELTEKE (since 14 December 2017) Dzhangir DZHANGIROV (since 14 September 2018)
Delegated by the Workers' Council Jörg LANGNER (since 6 December 2012) Csongor KRISTO (since 6 December 2012) Martina VUCKOVIC (from 6 December 2012 until 10 February 2017; since 11th May 2017) Heinz KALVODA (since 8 February 2018)
State Commissioners: Paul SCHIEDER (since 1 January 2011) Elisabeth GRUBER (from 1 June 2016 until 31 August 2018) Kristina FUCHS (since 1 October 2018)
Government Commissioners: Melitta SCHÜTZ (since 1 July 2013) Sabine SCHMIDJELL-DOMMES (since 1 March 2017)
Management Board:
Chief Executive Officer Gerhard RANDA (from 1 July 2016 until 30 June 2018) Sonja SARKÖZI (Management Board member since 1 August 2017; Chief Executive Officer since 1 July 2018)
Members Arndt RÖCHLING (since 1 June 2016) Stefan ZAPOTOCKY (since 2 January 2017) Alexander WITTE (since 6 December 2017) Aleksei MIKHAILOV (since 7 March 2018
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Signing of the financial statements
Vienna, on 1 March 2019
The Management Board
Sonja Sarközi Dr. Arndt Röchling
Dr. Alexander Witte Dr. Stefan Zapotocky
Aleksei Mikhailov
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Schedule of movement in fixed assets of Sberbank Europe AG (as at 31 December 2018)
.
Accumulated Acquisition cost depreciation Balance as of Balance as of Balance as of Balance as of Book value Book value Re‐ Discount / Re‐ 01.01.2018 Additions classification Premium Bonds Disposals 31.12.2018 01.01.2018 Additions classification Appreciation Disposals 31.12.2018 31.12.2018 31.12.2017 I. Licences AT 6,614,741.61 864,167.70 141,117.05 0.00 –12,939.12 7,607,087.24 –2,856,739.69 –1,040,241.14 0.00 0.00 12,939.12 –3,884,041.71 3,723,045.53 3,758,001.92 II. Software AT 499,040.17 0.00 0.00 0.00 0.00 499,040.17 –374,452.15 –71,335.75 0.00 0.00 0.00 –445,787.90 53,252.27 124,588.02 III. Asset under construction/Advances intangible assets 515,817.05 0.00 –141,117.05 0.00 0.00 374,700.00 0.00 0.00 0.00 0.00 0.00 0.00 374,700.00 515,817.05 Intangible Assets 7,629,598.83 864,167.70 0.00 0.00 –12,939.12 8,480,827.41 –3,231,191.84 –1,111,576.89 0.00 0.00 12,939.12 –4,329,829.61 4,150,997.80 4,398,406.99
I. Technical office equipment/computer system AT 3,221,847.13 134,870.54 0.00 0.00 –208,117.02 3,148,600.65 –2,321,214.04 –516,267.76 0.00 0.00 204,940.82 –2,632,540.98 516,059.67 900,633.09 II. Telephon‐ / security systems (SBDE) 4,646.81 0.00 0.00 0.00 0.00 4,646.81 –1,408.03 –422.40 0.00 0.00 0.00 –1,830.43 2,816.38 3,238.78 III. IT‐equipment (Hardware) (SBDE) 31,374.83 18,601.49 0.00 0.00 0.00 49,976.32 –21,162.90 –6,892.10 0.00 0.00 0.00 –28,055.00 21,921.32 10,211.93 IV. Furniture and office equipment AT 6,647,625.27 30,202.73 0.00 0.00 –32,719.56 6,645,108.44 –3,252,247.70 –647,256.64 0.00 0.00 24,987.44 –3,874,516.90 2,770,591.54 3,395,377.57 V. Office equipment (SBDE) 69,320.29 0.00 0.00 0.00 0.00 69,320.29 –17,066.91 –5,332.32 0.00 0.00 0.00 –22,399.23 46,921.06 52,253.38 VI. Installations in foreign buildings (SBDE) 8,597.31 0.00 0.00 0.00 0.00 8,597.31 –2,915.62 –859.68 0.00 0.00 0.00 –3,775.30 4,822.01 5,681.69 VII. car pool AT 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 VII. Low‐value assets AT 0.00 8,935.61 0.00 0.00 –8,935.61 0.00 0.00 –8,935.61 0.00 0.00 8,935.61 0.00 0.00 0.00 IX. Low‐value assets (SBDE) 0.00 805.58 0.00 0.00 –805.58 0.00 0.00 –805.58 0.00 0.00 805.58 0.00 0.00 0.00 X. Work in progress 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 II. TANGIBLE ASSETS Other fixed assets, Operating and office equipment *) 9,983,411.64 193,415.95 0.00 0.00 –250,577.77 9,926,249.82 –5,616,015.20 –1,186,772.09 0.00 0.00 239,669.45 –6,563,117.84 3,363,131.98 4,367,396.44
I. Participating interest 1,022,228.01 0.00 0.00 0.00 0.00 1,022,228.01 0.00 0.00 0.00 0.00 0.00 0.00 1,022,228.01 1,022,228.01 II. Shares in affiliated companies 1,434,961,042.83 9,000,000.00 0.00 0.00 0.00 1,443,961,042.83 –466,592,023.73 –8,796,782.88 0.00 0.00 0.00 –475,388,806.61 968,572,236.22 968,369,019.10 III. Treasury bills and securities 281,690,209.98 322,583,733.14 0.00 130,904,952.35 –342,610,327.69 392,568,567.78 0.00 0.00 0.00 0.00 0.00 0.00 392,568,567.78 281,690,209.98 III. FINANCIAL ASSETS 1,717,673,480.82 331,583,733.14 0.00 130,904,952.35 –342,610,327.69 1,837,551,838.62 –466,592,023.73 –8,796,782.88 0.00 0.00 0.00 –475,388,806.61 1,362,163,032.01 1,251,081,457.09
TOTAL ASSSETS 1,735,286,491.29 332,641,316.79 0.00 130,904,952.35 –342,873,844.58 1,855,958,915.85 –475,439,230.77 –11,095,131.86 0.00 0.00 252,608.57 –486,281,754.06 1,369,677,161.79 1,259,847,260.52
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Management Report
1 Report on Business Development and the Economic Situation
1.1 Economic environment in 2018
International development
Since the middle of 2016, the global economy has been in a period of economic upswing which also continued in 2018. But, while growth was still robust, first signs appeared indicating an approaching slowdown. On the one hand, the global economic situation was far less balanced in 2018 than it had been in 2017, and, on the other hand, downside risks strengthened in all areas in the second half of 2018. Growth rates in countries such as Mexico, Brazil, Turkey or South Africa were significantly weaker in 2018 than originally expected. Furthermore, concerns about a global trade war impacted expectations in the 2. half‐year and the start of a more restrictive monetary policy dominated the price trends at stock exchanges. This downward trend at the stock exchanges was not completed by the turn of the year and will continue to have a significant effect on the outlook for 2019. That means, expressed in figures: The year 2018 marks the end of an economic cycle still bringing a respectable growth in the global economy of 3.7% (i.e. ‐0.2 percentage points compared to the forecasts); in this scenario, the USA closes the year 2018 with a real GDP growth of 2.9% and China was able to grow by 6.6%.
Developments in the European Union
According to preliminary figures for 2018, the EU’s GDP increased in real terms by 2.2% and that of the euro zone by approx. 2%. Within the EU, major countries such as England (probable GDP growth in 2018: 1.4%), Italy (1.2%) and France (1.6%) lagged behind in terms of economic growth. In England, uncertainties about the period after the exit from the EU mainly led to fewer investments, while Italy and France suffer from well‐known structural problems. A positive example was Spain (the fifth biggest economy in the EU) whose GDP grew by 3% in 2018.
CEE/SEE (Central‐ and Eastern Europe (CEE) and South Eastern Europe (SEE))
The economic development in these countries was positive in 2018 – as in the years before – and the real economic growth far exceeded the EU’s average. CEE countries which are member states of the EU achieved growth rates (preliminary figures) in 2018 of slightly above 4%, but even the Western Balkan countries reported a robust growth of 3.8%. Serbia should be emphasized here which experienced a respectable upswing, with GDP growing by approx. 4.3% in real terms in 2018 – after 2% in 2017. Inflation in the EU‐CEE countries was 2.6%, on average, and 1.9% in the Western Balkan countries, the unemployment rate in the EU‐CEE was 4.5%, on average, and 15.7% in the Western Balkan countries.
Austria
Austria’s economy grew very strongly in the first quarter of 2018 and has experienced a significant decline in its growth rates since then. In 2018, the economic development was clearly supported by the manufacturing sector – the manufacturing of goods was, in real figures, up by 5%, the output of industrial services rose by 4.1%. The export growth achieved a preliminary rise of 4.7% in real terms and equipment investments were up by almost 4% in 2018. The unemployment rate fell by 0.6 percentage points to 4.9% (EU definition). Some sectors have, in the meantime, been experiencing a massive shortage of qualified professionals. Consumer prices remained relatively stable at approximately 2%, in line with the euro zone. In summary, 2018 was a good year for the Austrian economy with a real GDP growth of 2.7%, but the economic boom times are probably coming to an end also in Austria.
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1.2 Business development for 2018
1.2.1 Situation in Austria
Since July 2014, a number of economic sanctions have been enacted against several Russian banks, including Sberbank of Russia, by both the European Union and the US Office of Foreign Asset Control (OFAC), due to the crisis in Ukraine. These sanctions have also affected Sberbank Europe AG and its subsidiaries to some extent. Whereas Sberbank Europe AG and its EU‐based subsidiaries are specifically excluded from the EU sanctions, its non‐EU subsidiaries (in Serbia, Bosnia and Herzegovina) have been affected. The US sanctions, on the other hand, pertain to the entire Sberbank Europe Group. The EU and US sanctions limit equity measures for the affected members of the Sberbank Europe Group and also impose a limit on providing funding with a maturity term of over 30 (EU) / 14 (US) days.
Sberbank Europe AG has made significant efforts to implement additional controls to avoid circumventing the prevailing. This includes the active involvement of the compliance department in the business processes and the rigorous review of transactions.
As part of its digitization strategy, Sberbank Europe AG launched online lending in Germany in 2018. The development of Austrian business in 2018 was mainly driven by further contraction of corporate loans with subsequent optimization of liquidity and funding positions. Another prominent success in 2018 was the reduction of the concentration risk in the corporate portfolio, decrease in NPL indicators and transfer of Agrokor exposure from Austrian books to Sberbank of Russia through funded risk participation agreement in December 2018. The bank had demonstrated the seamless adoption of new IFRS standards in 2018 (IFRS 9) and well‐ managing of the post‐implementation phase on the IFRS 9 risk provision calculation.
The optimization in funding cost, liquidity and funding position, careful cost management and successful implementation of the NPL reduction strategy fully compensated the missing income from the corporate loan portfolio reduction and enabled to secure a solid improvement in the annual result before tax in 2018 to EUR ‐55.07 million (improvement by EUR 75.76 million compared to 2017 result).
Since the closure of the transaction on sale and disposal of Ukrainian subsidiary VS Bank in December 2017, the market presence of Sberbank Europe AG has not been changed. The Sberbank Europe AG remained active in the following markets: Austria, Bosnia‐Herzegovina, Croatia, the Czech Republic, Germany, Hungary, Serbia, and Slovenia.
Sberbank Europe AG strengthened further its subsidiary banks’ market presence by subscribing to issues shares with core capital and issuing subordinated loans. The following capital measures were taken in 2018: Sberbank Magyarország Zrt. (Hungary) received a capital increase totalling EUR 9.00 million Sberbank d.d. (Croatia) received a subordinated debt totalling EUR 10.00 million
The impairment test of 2018 result in an impairment of EUR 8.80 million for the entity of Sberbank, d.d. (Croatia). Main driver of the impairment was on the one hand side an increase in the target tier 1 ratio, which resulted in lower distributable dividend cash flows and an increased consideration of country risk premiums compared to previous periods.
In 2018, the following changes in the senior management level of Sberbank Europe AG took place:
Gerhard Randa´s contract as Chief Executive Officer expired on 30 June 2018 Sonja Sarközi, formerly Chief Retail Banking Officer since 1 August 2017, was appointed as Chief Executive Officer on 1 July 2018 Aleksei Mikhailov as Chief Technological Officer since 7 March 2018 In September 2018, the rating agency Fitch confirmed Sberbank Europe AG’s BB+ Long‐term Issuer Default Rating with ‘Positive’ outlook.
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Economic development and performance figures of Sberbank Europe AG
Total assets amounted to EUR 3,629.26 million as at the balance sheet date of December 31, 2018. This represents a decrease of 23.50% compared to the balance sheet date of December 31, 2017. Changes in the balance sheet total:
Figures in EUR million 31.12.2018 31.12.2017 31.12.2016 Total assets 3,629.26 4,744.05 5,363.18 Change y‐o‐y –23.50% –11.54% 4.17%
The decrease in the total balance sheet in 2018 was driven by the following factors:
- The decrease in the corporate portfolio through contractual repayments and several early prepayments, which were not compensated by the new transactions. The receivables from customers decreased from EUR 1,630.75 million to EUR 1,000.00 million or 38.68% y‐o‐y in 2018. - The optimisation the liquidity position and decrease in liquid funds following the decrease in corporate loan portfolio and decrease in German deposits: Cash and cash equivalents decreased from EUR 1,203.8 million to EUR 767.92 million or 36.21% y‐o‐y in 2018, receivables from financial institutions decreased from EUR 622.55 million to EUR 485.03 million or 22.09% y‐o‐y compared to 2017.
Development of shares in affiliated companies:
Figures in EUR million 31.12.2018 31.12.2017 31.12.2016 Shares in affiliated companies 968.57 968.37 1,022.02 Change y‐o‐y 0.02% –5.25% –12.75%
Besides the capital injections in Hungarian subsidiary amounting to EUR 9.00 million, the depreciation was also taken into account at yearend.
The book value markdowns: Sberbank d.d., Croatia EUR ‐ 8.80 million
On the liability side, the following major changes took place in 2018: - The decrease in deposits from customers from EUR 1,516.99 million to EUR 954.57 million or 37.07% y‐ o‐y driven by a planned decrease in German deposits following the lower funding needs related to the decrease in corporate loan portfolio in Austria. Despite the decrease in customer deposit base in 2018, the German branch remains a considerable contributor for stable funding for Austrian business. - The decrease in liabilities to financial institutions from EUR 1,569.08 million to EUR 1,078.41 million or 31.27% y‐o‐y in 2018 following several repayments of large loans from banks as part of the funding optimisation.
The percentage of equity in relation to the balance sheet total of Sberbank Europe AG has developed in the last three years as follows:
Figures in % 31.12.2018 31.12.2017 31.12.2016 Equity in relation to balance sheet total 33.45% 26.77% 31.49%
The Sberbank Europe AG managed to improve its net result before tax from EUR ‐130.84 million in 2017 to EUR ‐55.07 million in 2018. The net interest income was at EUR 52.07 million (increase by EUR 3.50 million or 7.12% y‐o‐y in 2018). The development of net interest income was driven by: - lower interest income due to further corporate loans repayments in 2018; - the decrease in interest expenses due to a decrease in the interest rate on German deposits and
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liabilities to financial institutions; and - the decrease in interest expenses due to a decrease in balances of German deposits and liabilities to the financial institutions. Liabilities to banks were deliberately reduced due to the lower refinancing requirement.
In 2018, the decrease in net commission and fee income from EUR 8.90 million to EUR 2.06 million was mainly driven by: - lower fee income (lower volume of corporate business in 2018, lower guarantee fee business income); - a higher guarantee fee expense on Agrokor loans under Sberbank Russia guarantee; and which was partially compensated by fee income from early prepayments of the corporate loans in 2018.
The result from other operating activities amounted to EUR 13.11 million in 2018 (2017: EUR 12.18 million).
The operating income decreased from EUR 69.67 million to EUR 67.0 million in 2018 mainly driven by the decrease in net fee and commission income.
The value adjustments in respect of loans and advances decreased by EUR 21.5 million to EUR 34.2 million mainly driven by corporate portfolio repayments with subsequent releases of the loan provisions, stable quality of the remaining portfolio with no major new NPL inflows.
The general administrative expenses amounted to EUR 71.34 million in 2018, which comprised a decrease by EUR 21.03 million or 22.77% y‐o‐y compared to 2017. Such remarkable improvement in the cost base was mainly driven by lower staff costs (decrease in FTEs) and a decrease in consultancy and project related expenses on the business and regulatory related investments (e.g. MCP, IFRS9, etc.) in 2018.
The income tax improvement in 2018 was driven by the one‐off effect in 2017 (write‐off of deferred tax asset of EUR 39.11 million).
In 2018, the annual loss after tax was EUR ‐56.17 million, which was an improvement compared to loss after tax in 2017 by EUR 116.43 million.
The development of return on equity (ROE) (based on result before tax) in the last three years was as following:
31.12.2018 31.12.2017 31.12.2016 ø Equity (EUR million) 1,242.06 1,316.44 1,345.96 Result before tax (EUR million) –55.07 –130.84 –46.05 ROE before tax (in %) –4.43% –9.94% –3.42%
Corporate & Investment Banking
Overall, portfolio reduction was in line with the strategic decision of shareholder to focus on the growth in the subsidiary banks. Sberbank Europe AG corporate portfolio was reduced faster than expected due to early repayments and the transfer of one non‐performing loan portfolio to Sberbank of Russia. Despite lower loan volumes, sound operating income was achieved. Together with lower risk costs and lower operating costs, net profit for the corporate segment in Austria was improved by EUR 26 million compared to 2017. The main challenge for Corporate Banking division was a generation of new business in an environment of an overall decreasing loan portfolio. The further focus was placed on the implementation of new products in Trade Finance and on projects in Global Markets to build up the base for future business development in the capital markets.
Branch (Sberbank Direct)
Since entering the market in Germany in 2014, Sberbank Direct has established itself as a specialist for attractive savings products such as call money and time deposits in the highly competitive and dynamic German retail market. In 2018, the bank expanded its product portfolio with online consumer credit. The new product offers
non-binding electronic copy Sberbank Europe AG Management Report / 5 attractive interest rates, real‐time credit decisions and a digital end‐to‐end process. Credit demand developed very successfully and resulted in a loan volume of around EUR 70.5 million at the end of 2018.
Sberbank Direct stands for innovative products and strong customer orientation. Customers can easily register online and manage their products through Sberbank Direct's modern and secure online banking. As early as July 2015, Sberbank Direct implemented a video identification system that allows customers to prove their identity quickly, securely and conveniently during the onboarding process.
1.2.2 Human Resources
Sberbank Europe AG employed an average of 288 employees during the 2018 financial year (Head Count):
31.12.2018 31.12.2017 Ø Employees (headcount) Sberbank Europe AG 288 296 thereof branch in Germany, Frankfurt1 17 19
The strategic goal of our Human Resources is to attract, develop and engage talented employees with a pioneering spirit in order to provide the best service to our customers. Sberbank Europe Group puts a strong emphasis on learning and development, fostering the health of its employees, guaranteeing a fair and market‐ oriented remuneration and living diversity.
Sberbank Europe strives to be an organization where continuous learning is a priority. Therefore, we support the development of core competencies, skills and knowledge of our employees. In Vienna HQ of the Group, the “Sharing is Caring” initiative was continued, as well as the 2017 initialized mentoring program.
For Sberbank Europe AG, it is a concern to help employees maintain their health by promoting a healthy and athletic lifestyle. At the company headquarters in Vienna, the works council organized health days, during which employees could seek advice from experts on various health issues. In 2018, Sberbank Europe employees participated in various sporting events such as the "Wien Energie Business Run", the Sberbank Europe Ski Championship in Kranjska Gora or the "Winter Sberbankiada" in Sochi. Sberbank Europe AG uses Willis Towers Watson's salary comparison system to evaluate and ensure fair and market‐oriented pay. In addition, Sberbank Europe was able to simplify the bonus process in 2018 and thus complete the bonus payment earlier than in previous years.
The variety of more than 30 nationalities working at Sberbank Europe’s Headquarters in Vienna reflects the cultural diversity of the Group’s eight markets. Two thirds of the total workforce at the HQ have a foreign citizenship. Also, for furtherly stressing out the importance of diversity, the HQ established a diversity policy in 2018.
1.3 Customer portfolio
Sberbank Europe AG serviced 117 corporate customers and approximately 47,500 private customers as of yearend 2018. The digital channel is expected to be further developed in 2019 with a substantial increase in online lending volumes.
1.4 Non‐financial performance indicators
Sberbank Europe recognizes the need to regularly provide reports on its impact on society, the economy and the environment and strives to ensure transparency about all its related activities. Based on the reporting requirement according to the Sustainability and Diversity Improvement Act (NaDiVeG), Sberbank Europe Group
1 Including employess from Austria assigend to Germany
non-binding electronic copy Sberbank Europe AG Management Report / 6 will publish a consolidated non‐financial report for 2018 with the aim to transparently inform its stakeholders about the main non‐financial performance indicators of the bank. The report will be available in print as well as for download on the company’s website as of April 2019.
In 2018, Sberbank Europe has conducted a sustainability survey among its stakeholders in Austria as well as in all countries of the bank’s presence. A significant sample size of employees, clients, representatives of the shareholder, regulators as well as the bank’s top management has responded to the survey, providing Sberbank Europe crucial input and a foundation for defining and setting its priorities in the area of sustainability. Stakeholders were asked how important it is for them to be committed to a specific sustainability area and how they perceive Sberbank Europe's current commitment to this issue. Within a materiality analysis conducted by the bank’s core sustainability team, the following non‐financial performance areas have been identified and prioritized for Sberbank Europe:
• Products & Services: Ensuring quality and accessibility of our products and services, focusing on a consequent development of innovative banking solutions. Striving to add value for our customers by offering transparent and convenient products as well as extraordinary customer experience across all channels and markets of Sberbank Europe’s presence. • Employees: Supporting health and work‐life balance by fostering corporate culture, employee engagement and promoting a healthy lifestyle. Enhancing and living diversity, offering learning & development opportunities based on active talent management as well as ensuring a fair and transparent remuneration policy. • Responsible and Regional Financing: Contributing to regional economic development and prosperity by providing financial solutions to local customers in the region of Sberbank Europe’s presence. Serving as a bridge to Russia for CEE companies doing business in Russia/CIS countries. • Environment: Enhancing energy efficiency and minimizing negative impact on the environment by sustainable and active resources management. • Privacy & Data Protection: Ensuring information security and data protection of all Sberbank Europe stakeholders. • Ethics & Compliance: Prevention of corruption and money laundering as well as protection of human rights by responsible and ethical conduct. • Charity & Sponsorship: Supporting local initiatives, projects and events with a social or cultural dimension. • Stakeholder Communication: Enhancing a transparent and regular communication with all stakeholders of Sberbank Europe through a broad range of communication channels.
All materiality topics are linked to specific non‐financial performance indicators and are subject to a yearly assessment and evaluation by the bank’s core sustainability team. In addition, the risk identification and risk assessment related to non‐financial risks has been further developed in 2018 and will be reviewed on a yearly basis.
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2 Report on the company’s expected development and risks
2.1 Outlook for 2019
International environment
Forecasts assume that emerging countries, such as Brazil, Argentina or even Turkey and South Africa will be specifically affected by the increasing trade restrictions on the one hand and by the rising US interest rates on the other hand – further rate hikes of the FED fund rates to 3% are possible until the middle of 2019 – and by a higher volatility in the financial markets. It is assumed that the global economy’s growth rate will decline to 3.5% in 2019, where not only developing and emerging countries, but also the USA and China should be prepared to experience a lower growth rate (USA: 2.5% instead of 2.9%; China 6.2% instead of 6.6%). After the oil price fell significantly toward the end of 2018 from its peak in early autumn, its forward quotations for 2019 only speak of moderate price increases.
Uncertain for 2019 is whether the trade war between the USA and China can actually be solved by negotiations or only takes a break and whether the announced punitive tariffs on cars from the EU will be put to rest. A lot will depend on whether the turbulences on the financial markets over the last weeks of the year 2018 are the harbingers of an effective trend reversal or only a temporary over‐reaction of nervous markets. In its last World Economic Outlook, the International Monetary Fund found that the trade restrictions and punitive tariffs announced by the USA would have a significant impact on the economic development, mostly in the USA itself. If the current announcements were really implemented, the USA’s GDP would decrease by one percent in the long term, that of China by a little over 0.5 percentage points, Europe’s by 0.1 percentage points and glob‐ally it would decline by 0.4 percentage points. These effects are not included in the baseline scenario of the forecast for 2019.
European Union
The economic trend will flatten slightly in 2019 also in the EU. Whether the EU 27 will experience a soft landing does not depend on international insecurities, but also on whether we will actually see a hard Brexit at the end of March 2019. All forecasts agree that, in such a case, England would fall in a recession, but even the EU would experience certain declines in growth. And, if the UK exits without a deal, the decoupling of the capital markets will be difficult as well – London is, after all, the centre of the EU financial market. The end of the purchasing programme of the ECB might also result in a slight ’increase’ of the ECB’s interest rate on deposits from currently ‐0.40% to ‐0.20% from the middle of 2019.
Assuming that no international downside risks arise and that no hard Brexit occurs, the EU’s economic development will probably have a soft landing. In this case, a slight decline of GDP growth from 2.2% in 2018 to 1.9% in 2019 is to be expected. With a stable inflation rate of less than 2%, a falling unemployment rate (7%), an increase in investments of 3.2%, in real terms, the growth of domestic demand (+2.1%) would be able to compensate the negative effects of a lower global demand.
Austria
Austria’s growth has slowed down notably since the 2. half of 2018, in line with that of the EU. An analysis of the total growth in 2019 which is forecast to amount to 2% in real terms, according to the components of the final demand of the GDP, shows that exports will generate by far the biggest contribution (export growth 3.9% in real terms, of which goods ex‐ports of 4.2%) to GDP growth in 2019. Investments in equipment will amount to 3.1% in the upcoming year and thus continue to rise stronger than the GDP. The number of employed people will also increase in 2019 by 1.5% and the declining trend of the unemployment rate is still unbroken. It will fall to 4.6% in 2019, after 6% at the beginning of the upswing in 2016. A small budget surplus of 0.2% to 0.4% of GDP should be achieved in 2019 which provides a certain leeway for the tax reform planned for 2020. It remains to be seen which priorities will be set by the government in terms of the optimisation of the tax structure and how it will achieve a certain social balance as a precondition for a general acceptance of such a re‐form.
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The forecast for 2019 is, in total, based on solid grounds. Austria’s economy will not be hit as hard by the Brexit as other EU countries. That holds true, except for the automotive supply industry which could suffer both from a hard Brexit and an escalation of the trade war with the US. More negative effects might also arise from a new financial crisis in Italy, less due to the interlocking of the financial sector – the potential effects of which are relatively well se‐cured in the Euro zone and based on conditions issued by the ECB – but more by the fact that Italy is the third largest trade partner of Austria.
CEE/SEE (Central‐ and Eastern Europe (CEE) and South Eastern Europe (SEE))
The baseline scenarios for 2019 assume that the peak of the economic cycle has been exceeded, also in the CEE/SEE countries, where most of them will only experience a moderate slowdown of growth. But, the forecasts still speak of a significantly higher growth than in the EU countries. The six countries (Czech Republic, Hungary, Slovenia, Croatia, Serbia and Bosnia‐Herzegovina) will still achieve GDP growth rates of a little less than 3% to 3.5%, in real terms. Unemployment rates are very low in the EU‐CEE (average in 2019: 4.3%). But, this group of countries is facing an issue, since some of them (Czech Republic, Hungary) are already suffering from dried‐out labour markets due to the good economic trend of the past years. The Western Balkan countries, in contrast, still report high unemployment rates (15.3%) and the rate of participation in the labour market is relatively low. In addition, the outflow of qualified professionals is increasingly becoming a problem in the Western Balkan countries. Both factors result in a decline of their potential GDP growth rate. Inflation is generally low in these countries.
In general, the same applies here, that the downside risks for growth in 2019 are the threatening trade conflicts and a higher volatility of the financial markets, which will be higher for non‐Euro countries of the region than for the Euro block. It will also remain to be seen, how the increasing interest from China, but also from Turkey and Russia will affect the future of the countries in the West Balkans.
2.2 Company development
Overall positive macroeconomic development in the countries, where the group is active, provides a solid base for business growth in 2019. The Sberbank Europe AG expects further boost in retail and SME business in subsidiary countries, a substantial increase in German lending partially compensating the further reduction in the corporate portfolio in Austria and mitigating the concentration risks. The performance of the subsidiary banks is expected to improve further compared to 2018: growth of business volumes, improvement in the net interest margin, stronger collection of fee and commission income, stable operating expenses through the strict cost management and stable risk provisions through further implementation of the NPL reduction program to lower the NPL ratio.
Corporate & Investment Banking (CIB)
Overall, the focus in Corporate Banking is on diversification and exposure management in order to optimize returns as well as new client acquisitions in the mid‐cap area. Trade and Export Finance, as well as GM products, will be focal for the relationship management to improve cross‐selling efficiency. East‐West trades serve as the basis for the solid expansion of the trade finance business.
In Austria, the CIB team will focus on steering/holding functions and maintaining a strong relationship with the teams of the subsidiary banks, supporting them with the group expertise in contacting customers and business development. The target is the acquisition of new clients and deepening the relationship with existing customers in the CEE. Active portfolio management to monitor concentration is another focal point for the corporate business in Austria.
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German Branch (Sberbank Direct) – retail business
On the German side, the ambition for 2019 is to quadruple the existing loan portfolio. A further task is to prepare the German operation to become a fully‐fledged online bank, offering in addition to saving and loan products also giro accounts and credit cards. The long‐term goal is to become one of the leading digital players in Germany with best‐in‐class processes and features together with attractive products.
2.3 Risk report
2.3.1 Organization of risk management
The organizational structure of Sberbank Europe AG contains all essential core functions of risk management. The head of the Bank's Risk Management area is the Chief Risk Officer (CRO), who reports to the CEO, Chairman of the Management Board of the Bank, who takes responsibility for organizing an appropriate operational and organizational structure for risk management and acts independently of the market units.
The core tasks of risk management include introducing the risk strategy and the risk appetite of the bank, managing counterparty risks, credit processes, the continuous monitoring of each and every identified risk, restructuring non‐performing loans and the effective management of market risks, liquidity risks and operational risks. Monitoring risk bearing capacity and managing economic requirements are additional important risk management tasks.
2.3.2 Overall bank risk management and risk bearing capacity calculation
The Group risk strategy is regularly updated and contains the core principles for sufficient risk management. The risk strategy ensures that risk management is incorporated in all business activities.
All risk management activities must be documented in internal guidelines and handbooks. The willingness to take risks is determined as part of the Group’s risk appetite. The risk profile reflects the target structure that the Group is aiming to achieve. The risk bearing capacity process is closely related to the strategic business objectives of the bank as well as its appetite for risk, the risk profile and capital adequacy.
The method for identifying risks includes both quantitative and qualitative elements for assessing individual risks and the methods and systems which are used for monitoring and controlling risks.
In 2018 the risk identification and assessment process was extended: clear quantitative factors for classification of the significance were established.
The basis for assessing the risk bearing capacity is the quantification of material risks and comparing this risk exposure to the available coverage capital. Other non‐material risks are taken into account with a risk buffer. Risk limits are derived from the economic coverage capital for calculating the risk bearing capacity and aligned with the budget process. The monitoring results are reported to the management on a regular basis at monthly meetings of the risk committee. A continuous development of the internal risk processes takes place to ensure compliance with new regulatory requirements (e.g. EBA guidelines, ECB recommendations) and changes in the business or risk strategy.
Another integral part of risk management is carrying out stress tests which are conducted on the basis of individual material risks. Sberbank Europe AG also conducts scenario analyses and reverse stress tests within the recovery planning.
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2.3.3 Credit risk
Sberbank Europe AG, as the operating unit, focuses on the corporate business with a significant percentage of business being generated with customers incorporated outside Austria. Standardized funding is primarily offered with a medium‐term maturity structure and denominated in EUR. In 2018 Sberbank Europe AG launched for private individuals with standardized consumer lending products which are provided through On Line platform. Those lending products where solely granted on the German market. For that purpose an operative business unit was established in Germany. The steering of this business field and the local based operation is done by dedicated units of Sberbank Europe AG. Subordinate forms of funding respectively equity related financing transactions are not part of the product range of the lending business. Given its role as a primary lender, this represents a cornerstone in limiting default risk.
The credit risk resulting from the lending business of Sberbank Europe AG is defined by potential losses which occur as a result of borrowers, issuers and other contractual parties defaulting. Credit risks also encompass losses resulting from credit risk out of non‐performance under contingent liabilities, through restrictions imposed by the state and the negative changes to the value of the collateral provided.
In 2018 EUR 118.94 million as total risk provision (on‐ and off‐balance) is recorded in the balance sheet of Sberbank Europe AG (2017: EUR 98.39 million). The total risk provision increases from 4.6 % (2017) in relation to customer receivables to 10,8 % (2018).
In an attempt to limit the credit risk, method and process requirements are implemented which form a uniform standard for both the risk and business segment and are binding for both parties. In 2016 a Credit Policy was implemented which defines clear rules for the lending business. A key element for limiting the credit risk is the strict separating of the front office and the back office functions during each phase of the credit procedure. Furthermore, no individual decision‐making powers are implemented. Credit decisions are made collectively by a credit committee regulated by the articles of association. The Management Board member responsible for risk management has the right of veto in this committee.
The individual credit rating assessment of the borrower is conducted based on a standardised system‐based analysis of qualitative and quantitative factors. The result of these factors is weighted depending on the model and is presented in the form of a customer rating, which in turn correlates to a certain probability of default.
As part of assessing the financial commitment, the procedure of coordinating the existing risk strategy and the risk appetite defined by the bank with the approved product features is evaluated. The risk‐adjusted pricing approach for each transaction is a core element for the ultimate credit decision considering the standard risk costs, the absorbing capital consumption, transaction costs and potential charges covering transfer risks.
The existing credit portfolio is continuously examined for a potential decline in the customer credit rating, the market environment and in factors which may have a negative impact on the ability of the borrower to make a repayment. This process is standardized and parameterized with clearly distinctive warning signals in order to enable critical aspects to be verified almost immediately and counteracted with measures. Compliance with the monitoring process is monitored by the credit risk unit.
Receivables at risk of default are quantified using the monitoring process and divided into segments depending on the extent of critical factors. These receivables are subject to further treatment based on the corresponding 4‐tier risk profiles. Receivables which have a high probability of default are managed in a single unit which is assigned to the risk department.
Defaulted customers are quantified in accordance with the stipulated default criteria and are assigned their own rating category. The amount of impairments for non‐performing exposures is continuously verified in terms of accuracy.
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A decision‐making body has been established alongside the credit committee which takes decisions on strategies for defaulting loans and the scope of impairments needed ‐ additionally regularly information on the development of such engagements is reported to the members in this committee as well. A uniform credit risk reporting system has been implemented and will issue a report each month. This report will be sent to the body that is responsible for deciding on the bank’s overall risk situation on a regular basis and has a permanent place on the agenda. The standardized reporting system will issue ad‐hoc reports on different aspects of company management.
2.3.4 Market risk
The management of market risks is an integral and key element of the risk management framework at Sberbank Europe AG.
Market risks at Sberbank Europe AG arise from currency risk (open currency positions and participation risk in non‐EUR currencies), interest rate risk in the banking book and credit spread risk.
Market risk limits (for ICAAP and internal monitoring purposes) are established on the basis of Risk Committee decisions. The limits are stipulated by taking into account the risk profile of the bank or by using recommendations of the Asset Liability Committee or the Risk Committee of SBAG. The entire limit regulation process ensures that risks from market activities are firmly integrated into the limit system.
Market risks within the trading book are limited via Value‐at‐Risk, interest rate sensitivity, OCP and stop‐loss limits. The regulatory own funds requirement for the trading book is calculated using the standardised approach. Interest rate risk and FX risk in banking book are also managed within a set of limits. In addition Credit Spread Risk is regularly monitored and presented to Committees.
The current reporting framework, tailored to the company’s needs, ensures a continuous flow of information and makes it possible, if necessary, to take and implement measures quickly and effectively, using pre‐defined escalation processes. Monitoring and reporting of the market risk limit utilizations of the trading book are performed on a daily basis. This report serves also as a source for the regular ALCO and Risk Committee reports.
2.3.5 Operational risk
Quantitative and qualitative methods are used to measure the operational risks of Sberbank Europe AG. The calculation of own funds in line with CRR and CRD IV is conducted using the standardized approach.
The required own funds for operational risk decreased from EUR 61.92 million in 2017 to EUR 57.63 million in 2018 for SBEU Group.
The line management responsible for managing operational risks is supported by the operational risk management function. Sberbank Europe AG uses an operational risk management platform which has been rolled out group wide and the event data (loss database) is recorded therein. Existing and potential risks are identified and analysed in yearly risk assessments.
Internal model has been implemented for calculation of operational risk capital requirement under Pillar 2. In 2018 Sberbank Europe AG focused on improvement of the Group internal loss database, enhancement of internal control system and monitoring of outsourcing relationships.
The operational risk management function reports regularly to the risk committee. This enables the operational risks of Sberbank Europe AG to be managed comprehensively.
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2.3.6 Investment risk
Investment risk is risks from potential losses in value from the provision of equity, such as write‐downs on impairments, losses on disposals, dividend losses or the reduction of hidden reserves, as well as from liability risks for letters of comfort or payment obligations. The majority of direct and indirect investments are fully consolidated in the consolidated balance sheet and their risks are thus recorded in detail. This covers potential risks of investments, including in other types of risk, and their monitoring and control methods.
Due to its focus as a universal bank, Sberbank Europe AG holds only participations in subsidiary banks as well as other immaterial participations that support the banking business.
Sberbank Europe AG carries out an impairment test on its investments on the balance sheet date on an annual basis, whereby an impairment test is carried out during the course of the year even if there is an indication of impairment. Methodologically, this is done in accordance with IAS 36.
2.3.7 Liquidity risk
Liquidity management is performed in Sberbank Europe AG by the ALM (Asset Liability Management) / Treasury department. In this function, ALM/Treasury is particularly responsible for the development of the liquidity strategy, the operational liquidity management, the development of liquidity contingency plans and the implementation of funds transfer pricing and liquidity models. Liquidity risk management is carried out by the Market Risk Management Department. The risk unit is responsible within this area for the implementation of the liquidity stress tests, limits monitoring and verification of reports and models created by ALM. In 2018 a new process for the validation of the liquidity models have been introduced.
Both units report to the ALCO (Asset Liability Committee), which acts as the central decision‐making body regarding all liquidity‐related (and liquidity risk‐related) issues. CEO, CFO, CRO and the Chief Corporate Banking Officer of Sberbank Europe are entitled to vote at ALCO, together with the Head of ALM/Treasury and the Head of Market & Liquidity Risk. Sberbank Europe AG is exercising necessary efforts to accommodate recent regulatory changes in the area, as well as continuously improve its liquidity management (and liquidity risk management). The overall liquidity and funding situation of Sberbank Europe AG remained consistently stable throughout 2018. The existing over‐liquidity has been used to optimize the funding portfolio and to reduce the funding risks of the bank.
2.3.8 Other risks
Other risks are intrinsically linked to the business activities and are not of major significance to the Sberbank Europe AG. It is not possible to measure all other risks by using a business model. A capital reserve has been formed to mitigate these other risks. This capital reserve is regularly validated via stress‐tests or scenario analyses.
3 Report on research and development
Sberbank Europe AG currently does not conduct any research or development activities.
4 Internal Control System and Risk Management System with regard to the Accounting Process
An important objective for SBAG is to produce reliable and complete financial statements that comply with all relevant statutory requirements. The Management Board is responsible for setting up and structuring an
non-binding electronic copy Sberbank Europe AG Management Report / 13 appropriate internal control and risk management system with regard to the entire accounting process that meets the company’s requirements. The main risk associated with the accounting process is that the actual net assets, financial position and results of operations of the company do not represent fair and true view. This applies if the information in the accounts and notes to the accounts differs substantially from the correct values and if said information could influence the recipients and the decisions they take on the basis of the accounts. The potential consequences would be financial losses, sanctions imposed by the financial authorities or damage to their reputation.
The objective of the internal control system in the SBAG is therefore to set‐up and manage a solid internal control system (ICS) to limit these risks.
4.1 Control environment
The Management Board defines the key elements for implementing the internal control system in the ICS guideline (Internal Control System Policy). As described in the ICS regulation, the responsibility for implementing the system at Sberbank Europe AG, however, lies with the competent specialist departments with the support of the operational risk management.
The implementation of the internal control system with respect to the accounting process is stipulated in comprehensive internal guidelines and instructions. Postings in the general ledger must generally comply with the dual control principle. Each receipt must be signed by the employee who has issued it and the authorising and certifying officer. The employee who has issued the booking order is documented in the general ledger booking system in electronic format. In addition to the dual control principle, written approval is required from the Management Board before paying invoices above a certain maximum amount.
In order to ensure automation and enhancement of the workflows in the accounting process, a standard software (BMD NTSC) was implemented in the third quarter of 2015. Thus, each document is recorded and stored in a digital archive and signatures of authorizing personnel are obtained electronically, before the document is eventually booked under the 4‐eye‐principle.
During the year end closing process the Bank performs a comprehensive stock taking procedure when all balance sheet accounts and off‐balance sheet items are verified to receive evidences about the completeness and accuracy of the balances. The Bank uses different methodologies for stock taking based on the characteristic of the open balances. Tangible assets are physically counted, and inspected whether impairment recognition is necessary based on their condition. Intangible assets are checked whether they are still in use, and they are also assessed by impairment test. Useful remaining life of tangibles and intangibles is also re‐estimated. Debt securities are reconciled using the statements of clearing houses to compare the records in the systems with the statements. In case of financial debt instruments excluding securitized debt instruments, confirmation letters are requested from third parties or bank statements are sent to the clients to compare their records with the records of Sberbank Europe AG. Also the verification of the provision amounts are done during the stock take. Legal court case claims are recorded in the banks “legal court case register”. The claims are compared with court files, risk level is assessed (low, medium, high) and the highest probable losses are re‐estimated. For credit risk relating off‐balance sheet items the same methodology is used like for debt instruments. For the remaining accounts a reconciliation of their yearly movements is carried out.
4.2 Risk assessment
Risks with respect to the individual process and division are recorded and monitored by the process owners assisted by the responsible risk management. The focus is on the risks considered to be material. This mainly encompasses the correctness of the accounting entry, the timely bank transfer, the correct calculation and the timely payment of taxes.
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4.3 Control measures
Control measures are taken in the course of ongoing business processes in order to avoid potential errors and to detect and correct inconsistencies in reporting. The control measures vary, for example, from the review of various periods by the management to the specific reconciliation of accounts and positions and the analysis of the ongoing processes in accounting.
In the context of the internal control system, there are two types of controls: Operational controls, which include manual controls performed by employees based on specific steps, automated controls performed by means of IT systems and preventive controls aimed at preventing errors and risks through the separation of functions, the definition of responsibilities and access authorization. Management controls are conducted on a sample check level by the responsible head and serve to ensure, that employees comply with the operational controls and processes.
The periodicity of the checks is to be documented by the executive (department, department manager, group leader) depending on the risk content.
The controls performed at random are documented in the control plan in a manner understandable to third parties. The management controls that have been conducted are documented using a database. The results are reported to the risk committee.
4.4 Information and communication
Guidelines and regulations relating to reporting are regularly updated by the management of Sberbank Europe AG and communicated to all relevant employees.
In addition, accounting employees are also trained on an ongoing basis with regard to accounting reforms in order to be able to identify risks of unintentional incorrect reporting at an early stage.
Further to management reporting, which provides an overview of the controls that have been conducted at least every quarter, a semi‐annual report is also issued to the audit committee of the Supervisory Board on the status of the internal control system.
4.5 Monitoring the internal control system
Two functions of the bank play a key role in improving and monitoring the internal control system:
The Controlling function with its regular financial and business management analyses (e.g. comparisons of budgeted and actual figures between Accounting and Controlling department) which can be used as the basis for managing the company or specific company divisions.
The reporting is primarily conducted in a semi‐automated manner using pre‐systems and automatic interfaces and guarantees current data for controlling, segment income statements and other evaluations. The information from the accounting system is based on the same database and is coordinated monthly for reporting purposes. Due to the close cooperation between the Accounting and Controlling departments, comparisons of budgeted and actual figures will be carried out continuously for controlling and coordination purposes. Regular financial reporting and monitoring of the internal control system is ensured by submitting monthly and quarterly reports to the Management Board and the Supervisory Board.
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The Internal Audit division also has a self‐monitoring and supervisory function as part of its activities. As an independent organizational unit, the Internal Audit division is process‐independent, but is as close to the business processes as possible and is responsible for monitoring all company divisions, especially as far as the efficiency of the internal control system components are concerned.
The Internal Audit division has the task of examining and evaluating all company divisions. The focus of all these audit procedures is however on monitoring the completeness and reliability of the internal control system. Each year, the Internal Audit division must issue a quarterly report to the Group’s Management Board, Supervisory Board and audit committee documenting its findings. The Internal Audit Department reports the internal audit assessment results to the Management Board, organizationally the department reports directly to the Audit Committee/Supervisory Board and its operation is regularly examined by the financial auditor, the Regulator and the assessor through the mandatory external quality assessment based on IIA standard No. 1312.
5 Information on share capital, voting and control rights and obligations associated therewith
The share capital of Sberbank Europe AG was as follows on 31 December 2018:
Number of ordinary Calculated value Nominal amount Shareholder Percentage of share shares EUR EUR capital
3,890,323 EUR 100.00 389,032,300.00 Sberbank of Russia, 100.00% Moscow
The share capital of EUR 389,032,300.00 is divided into 3,890,323 no‐par value shares (sole shareholder: Sberbank of Russia, Moscow)
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Vienna, 1 March 2019
The Management Board
Sonja Sarközi Dr. Arndt Röchling
Dr. Alexander Witte Dr. Stefan Zapotocky
Aleksei Mikhailov
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Sberbank Europe AG Information on Legal Status /1
Information on Legal Status
The share capital of the Company amounts to EUR 389.032.300,00 (31.12.2017: EUR 389.032.300,00) and is divided into 3.890.323 no-par ordinary registered shares (31.12.2017: 3.890.323 ordinary shares).
The Company was established in the legal form of a private limited company with Articles of Association of 29th July 1997. At the extraordinary General Meeting of 15th October 1999, the transformation of the Company into a stock corporation based on the transformation balance sheet as of 31st July 1999 was decided. Registration was effected on 2nd December 1999.
The last amendment to the Articles of Association took place in fiscal year 2018; it was related to amendments of the Austrian Banking Act (BWG) as well as linguistic adjustments.
The Company is registered in the Register of Companies of the Commercial Court of Vienna under the number 161285i.
The nature and purpose of the business of the Company is defined in § 4 of the Articles of Association and essentially comprises:
Receipt of client’s money to administer or as deposit (deposit business) - § 1 Para. 1 nos. 1 BWG;
Execution of cashless payment and clearing on a current account basis for others (current account business) - § 1 Para. 1 nos. 2 BWG;
Completion of money loan agreements and granting money loans (loan business) - § 1 Para. 1 nos. 3 BWG;
Purchase of cheques and bills of exchange, especially discounting bills of exchange (bill-broking) - § 1 Para. 1 nos. 4 BWG;
Safe custody and administration of securities for others (Safe custody business) - § 1 Para. 1 nos. 5 BWG;
Issuing and managing means of payment such as credit cards, bank cheques and travellers cheques, whereby for credit cards the period of crediting is unlimited - § 1 Para. 1 nos. 6 BWG;
Trading on own or third parties account with - § 1 Para. 1 nos. 7 BWG: a) Foreign currencies (foreign exchange and foreign currency transactions); b) Money market instruments; c) Financial futures including equivalent instruments with cash and, buy and sell options using those instruments mentioned in lit. a and d to f including equivalent instruments with cash (future and option business) d) Interest futures, forward rate agreements (FRA), interest and currency swaps and swaps on asset value and share index (equity swaps); e) Transferable Securities (Securities business); f) Instruments derived from lit. b to e, in as much as the trade is not performed for personal assets; Trading on own’s account or on behalf of others in financial instruments according to § 1 Para. 7 lits. e to g and j Securities Supervision Act 2018 - WAG 2018, except the trade by persons according to § 2 Para. 1 nos. 13 WAG 2018 as well as trading provided that is in conducted using private assest –§ 1 Para.1 nos. 7a BWG; Taking possession of pledges, guarantees and other liabilities for others in as much as the assumed liabilities are denominated in cash (guarantee business) - § 1 Para. 1 nos. 8 BWG;
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Issue of bonds, municipal bonds and covered bonds and the investment of the revenue according to the applicable regulations, limited to the issue of covered bonds (issue of securities business) - § 1 Para. 1 nos. 9 BWG; Issue of fixed-interest securities to invest the revenue in other banking business (other securities business) - § 1 Para. 1 nos. 10 BWG; Participation in the issuance of third-party securities of one or more of the instruments mentioned in § 1 nos. 7 lit. b to f BWG and the associated services (loro issuance business) - § 1 Para. 1 nos. 11 BWG; Financing business by acquisition and reselling of equity rights (equity financing business) - § 1 Para. 1 nos. 15 BWG; Acquisition of trade debts, taking possession of risk of collectability of such debts – except for bad debts insurance - and the collection of such debts in that regard (factoring business) - § 1 Para. 1 nos. 16 BWG; Operation of money broking business on the interbank market - § 1 Para. 1 nos. 17 BWG; Brokering of business according to: - § 1 Para. 1 nos. 18 BWG a) Nos. 1, except by insurance companies; b) Nos. 3 except those covered by real estate brokers and mortgage and personal loans already arranged by a brokerage for personal loans, mortgage loans and financial consulting; c) Nos. 7 lit. a, in as much as this pertains to the money market business; d) Nos. 8. Execution of investments, especially the acquisition, management and sale of participations in local and foreign companies; Acquisition, arrangement, consultation and support for issuance.
The Company is authorized to perform all essential bank business according to § 1 Para. 1 nos. 1 to nos. 11 and nos. 15 to nos. 18 BWG. The required concession was granted for the first time with decision of the Federal Ministry of Finance GZ 23 5492/4-V/13/00 of 9th May 2000 for banking business according to § 1 Para. 1 nos. 3, nos. 10, nos. 11 and nos. 15. In addition the decision of the Financial Market Supervisory Authority GZ 23 5492/13-FMA-I/2/05 on 6th April 2005 granted the concession to trade in guarantee business according to § 1 Para. 1 nos. 8 BWG. The concession in banking business was expanded according to § 1 Para. 1 nos. 1, 2, 4 to 7, 7a, 9 and 16 to 18 BWG with the decision of the Financial Market Authority GZ FMA-KI23 5492/0065-SYS/2012 of 22nd May 2013.
The fiscal year corresponds to the calendar year.
The executive bodies of the Company are listed in the notes.
During the fiscal year 2018, the share capital of the Company was not increased.
Sberbank of Russia, Moscow, holds the total share capital.
The annual general meeting on 23rd May 2018 passed the following resolutions:
The annual financial statements, the consolidated financial statements and the management report as well as the group management report of the management board of the fiscal year 1st January 2017 to 31st December 2017 along with the supervisory board report were received and approved. Formal approval of the activities of management board members and members of the supervisory board was granted for the fiscal year 2016.
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Resolution on the adaption of the Articles of Association. Approval of policy for reimbursement of expenses incurred by members of the Supervisory Board.
The appointment of the auditor and the group auditor for the business year 2019 took place at the extraordinary meeting of shareholders on 18th December 2018.
In the fiscal year 2018 overall seven shareholders’ meetings were held, which dealt with
the formal approval of the activities of the management board members and the supervisory board members, the approval of the annual financial statements, the consolidated financial statements and the management report as well as the group management report of the management board along with the supervisory board report, Resolution on the adaption of the Articles of Association, Approval of policy for reimbursement of expenses incurred by members of the Supervisory Board the elections to the supervisory board and the appointment of the annual auditor.
The supervisory board held four meetings in the fiscal year 2018 in which it was informed of the legality, effectiveness and economic efficiency of the management and took into account the current reports of the management board and the required resolutions passed in the fiscal year.
The supervisory board formed the following committees:
Audit and Compliance committee; Remuneration committee; Nomination committee; Personnel committee; Risk committee; Credit committee.
MMag. Paul Schieder (state commissioner), MMag. Elisabeth Gruber (state commissioner-deputy until 31 August 2018) and Mag. Kristina Fuchs, MPA (state commissioner-deputy since 1 October 2018) acted as state commissioners in the fiscal year.
As of 31st December 2018, the Company is part of the Sberbank of Russia Group, Moscow, and is a fully consolidated member.
The company is a superordinated credit institution according to § 30 Para. 1 BWG. A consolidated financial statement was compiled and audited. There is a separate report on this audit.
non-binding electronic copy Appendix IV
(6) The contractor is not obliged to render any services, issue any warnings or provide any information beyond the scope of the contract.
(7) The contractor shall have the right to engage suitable staff and other performing agents (subcontractors) for the execution of the contract as well as to have a person entitled to exercise the profession substitute for him/her in executing the contract. Staff within the meaning of these General Conditions of Contract Conditions of Contract refers to all persons who support the contractor in his/her operating activities on a regular or permanent basis, irrespective of for the the type of underlying legal transaction.
(8) In rendering his/her services, the contractor shall exclusively take Public Accounting Professions into account Austrian law; foreign law shall only be taken into account if this has been explicitly agreed upon in writing. (AAB 2018) (9) Should the legal situation change subsequent to delivering a final professional statement passed on by the client orally or in writing, the Recommended for use by the Board of the Chamber of Tax Advisers and contractor shall not be obliged to inform the client of changes or of the Auditors, last recommended in its decision of April 18, 2018 consequences thereof. This shall also apply to the completed parts of a contract.
Preamble and General Items (10) The client shall be obliged to make sure that the data made available by him/her may be handled by the contractor in the course of (1) Contract within the meaning of these Conditions of Contract refers rendering the services. In this context, the client shall particularly but not to each contract on services to be rendered by a person entitled to exercise exclusively comply with the applicable provisions under data protection law profession in the field of public accounting exercising that profession (de and labor law. facto activities as well as providing or performing legal transactions or acts, in each case pursuant to Sections 2 or 3 Austrian Public Accounting (11) Unless explicitly agreed otherwise, if the contractor electronically Professions Act (WTBG 2017). The parties to the contract shall hereinafter submits an application to an authority, he/she acts only as a messenger be referred to as the “contractor” on the one hand and the “client” on the and this does not constitute a declaration of intent or knowledge other hand). attributable to him/her or a person authorized to submit the application.
(2) The General Conditions of Contract for the professions in the field (12) The client undertakes not to employ persons that are or were staff of public accounting are divided into two sections: The Conditions of of the contractor during the contractual relationship, during and within one Section I shall apply to contracts where the agreeing of contracts is part of year after termination of the contractual relationship, either in his/her the operations of the client’s company (entrepreneur within the meaning of company or in an associated company, failing which he/she shall be the Austrian Consumer Protection Act. They shall apply to consumer obliged to pay the contractor the amount of the annual salary of the business under the Austrian Consumer Protection Act (Federal Act of member of staff taken over. March 8, 1979 / Federal Law Gazette No. 140 as amended) insofar as Section II does not provide otherwise for such business. 2. Client‘s Obligation to Provide Information and (3) In the event that an individual provision is void, the invalid provision Submit Complete Set of Documents shall be replaced by a valid provision that is as close as possible to the desired objective. (1) The client shall make sure that all documents required for the execution of the contract be placed without special request at the disposal of the contractor at the agreed date, and in good time if no such date has SECTION I been agreed, and that he/she be informed of all events and circumstances which may be of significance for the execution of the contract. This shall 1. Scope and Execution of Contract also apply to documents, events and circumstances which become known only after the contractor has commenced his/her work. (1) The scope of the contract is generally determined in a written agreement drawn up between the client and the contractor. In the absence (2) The contractor shall be justified in regarding information and of such a detailed written agreement, (2)-(4) shall apply in case of doubt: documents presented to him/her by the client, in particular figures, as correct and complete and to base the contract on them. The contractor (2) When contracted to perform tax consultation services, consultation shall not be obliged to identify any errors unless agreed separately in shall consist of the following activities: writing. This shall particularly apply to the correctness and completeness a) preparing annual tax returns for income tax and corporate tax as well as of bills. However, he/she is obliged to inform the client of any errors value-added tax (VAT) on the basis of the financial statements and other identified by him/her. In case of financial criminal proceedings he/she shall documents and papers required for taxation purposes and to be submitted protect the rights of the client. by the client or (if so agreed) prepared by the contractor. Unless explicitly agreed otherwise, documents and papers required for taxation purposes (3) The client shall confirm in writing that all documents submitted, all shall be produced by the client. information provided and explanations given in the context of audits, expert b) examining the tax assessment notices for the tax returns mentioned opinions and expert services are complete. under a). c) negotiating with the fiscal authorities in connection with the tax returns (4) If the client fails to disclose considerable risks in connection with the and notices mentioned under a) and b). preparation of financial statements and other statements, the contractor d) participating in external tax audits and assessing the results of external shall not be obliged to render any compensation insofar as these risks tax audits with regard to the taxes mentioned under a). materialize. e) participating in appeal procedures with regard to the taxes mentioned under a). (5) Dates and time schedules stated by the contractor for the If the contractor receives a flat fee for regular tax consultation, in the completion of the contractor’s products or parts thereof are best estimates absence of written agreements to the contrary, the activities mentioned and, unless otherwise agreed in writing, shall not be binding. The same under d) and e) shall be invoiced separately. applies to any estimates of fees: they are prepared to best of the contractor’s knowledge; however, they shall always be non-binding. (3) Provided the preparation of one or more annual tax return(s) is part of the contract accepted, this shall not include the examination of any (6) The client shall always provide the contractor with his/her current particular accounting conditions nor the examination of whether all relevant contact details (particularly the delivery address). The contractor may rely concessions, particularly those with regard to value added tax, have been on the validity of the contact details most recently provided by the client, utilized, unless the person entitled to exercise the profession can prove particularly have deliveries made to the most recently provided address, that he/she has been commissioned accordingly. until such time as new contact details are provided.
(4) In each case, the obligation to render other services pursuant to Sections 2 and 3 WTBG 2017 requires for the contractor to be separately 3. Safeguarding of Independence and verifiably commissioned. (1) The client shall be obliged to take all measures to prevent that the (5) The aforementioned paragraphs (2) to (4) shall not apply to services independence of the staff of the contractor be jeopardized and shall requiring particular expertise provided by an expert. himself/herself refrain from jeopardizing their independence in any way. In particular, this shall apply to offers of employment and to offers to accept contracts on their own account.
non-binding electronic copy (2) The client acknowledges that his/her personal details required in 6. Correction of Errors this respect, as well as the type and scope of the services, including the performance period agreed between the contractor and the client for the (1) The contractor shall have the right and shall be obliged to correct all services (both audit and non-audit services), shall be handled within a errors and inaccuracies in his/her professional statement made orally or in network (if any) to which the contractor belongs, and for this purpose writing which subsequently come to light and shall be obliged to inform the transferred to the other members of the network including abroad for the client thereof without delay. He/she shall also have the right to inform a purpose of examination of the existence of grounds of bias or grounds for third party acquainted with the original professional statement of the exclusion and conflicts of interest. For this purpose the client expressly change. releases the contractor in accordance with the Data Protection Act and in accordance with Section 80 (4) No. 2 WTBG 2017 from his/her obligation (2) The client has the right to have all errors corrected free of charge if to maintain secrecy. The client can revoke the release from the obligation the contractor can be held responsible for them; this right will expire six to maintain secrecy at any time. months after completion of the services rendered by the contractor and/or – in cases where a written professional statement has not been delivered – six months after the contractor has completed the work that gives cause 4. Reporting Requirements to complaint.
(1) (Reporting by the contractor) In the absence of an agreement to the (3) If the contractor fails to correct errors which have come to light, the contrary, a written report shall be drawn up in the case of audits and expert client shall have the right to demand a reduction in price. The extent to opinions. which additional claims for damages can be asserted is stipulated under Item 7. (2) (Communication to the client) All contract-related information and opinions, including reports, (all declarations of knowledge) of the contractor, his/her staff, other performing agents or substitutes 7. Liability (“professional statements”) shall only be binding provided they are set down in writing. Professional statements in electronic file formats which are (1) All liability provisions shall apply to all disputes in connection with made, transferred or confirmed by fax or e-mail or using similar types of the contractual relationship, irrespective of the legal grounds. The electronic communication (that can be stored and reproduced but is not contractor is liable for losses arising in connection with the contractual oral, i.e. e.g. text messages but not telephone) shall be deemed as set relationship (including its termination) only in case of willful intent and gross down in writing; this shall only apply to professional statements. The client negligence. The applicability of Section 1298 2nd Sentence ABGB is bears the risk that professional statements may be issued by persons not excluded. entitled to do so as well as the transfer risk of such professional statements. (2) In cases of gross negligence, the maximum liability for damages due (3) (Communication to the client) The client hereby consents to the from the contractor is tenfold the minimum insurance sum of the contractor communicating with the client (e.g. by e-mail) in an unencrypted professional liability insurance according to Section 11 WTBG 2017 as manner. The client declares that he/she has been informed of the risks amended. arising from the use of electronic communication (particularly access to, maintaining secrecy of, changing of messages in the course of transfer). (3) The limitation of liability pursuant to Item 7. (2) refers to the The contractor, his/her staff, other performing agents or substitutes are not individual case of damages. The individual case of damages includes all liable for any losses that arise as a result of the use of electronic means of consequences of a breach of duty regardless of whether damages arose communication. in one or more consecutive years. In this context, multiple acts or failures to act that are based on the same or similar source of error as one (4) (Communication to the contractor) Receipt and forwarding of consistent breach of duty if the matters concerned are legally and information to the contractor and his/her staff are not always guaranteed economically connected. Single damages remain individual cases of when the telephone is used, in particular in conjunction with automatic damage even if they are based on several breaches of duty. Furthermore, telephone answering systems, fax, e-mail and other types of electronic the contractor’s liability for loss of profit as well as collateral, consequential, communication. As a result, instructions and important information shall incidental or similar losses is excluded in case of willful damage. only be deemed to have been received by the contractor provided they are also received physically (not by telephone, orally or electronically), unless (4) Any action for damages may only be brought within six months after explicit confirmation of receipt is provided in individual instances. those entitled to assert a claim have gained knowledge of the damage, but Automatic confirmation that items have been transmitted and read shall not no later than three years after the occurrence of the (primary) loss following constitute such explicit confirmations of receipt. This shall apply in the incident upon which the claim is based, unless other statutory limitation particular to the transmission of decisions and other information relating to periods are laid down in other legal provisions. deadlines. As a result, critical and important notifications must be sent to the contractor by mail or courier. Delivery of documents to staff outside the (5) Should Section 275 Austrian Commercial Code (UGB) be firm’s offices shall not count as delivery. applicable (due to a criminal offense), the liability provisions contained therein shall apply even in cases where several persons have participated (5) (General) In writing shall mean, insofar as not otherwise laid down in the execution of the contract or where several activities requiring in Item 4. (2), written form within the meaning of Section 886 Austrian Civil compensation have taken place and irrespective of whether other Code (ABGB) (confirmed by signature). An advanced electronic signature participants have acted with intent. (Art. 26 eIDAS Regulation (EU) No. 910/2014) fulfills the requirement of written form within the meaning of Section 886 ABGB (confirmed by (6) In cases where a formal auditor’s report is issued, the applicable signature) insofar as this is at the discretion of the parties to the contract. limitation period shall commence no later than at the time the said auditor’s report was issued. (6) (Promotional information) The contractor will send recurrent general tax law and general commercial law information to the client electronically (7) If activities are carried out by enlisting the services of a third party, (e.g. by e-mail). The client acknowledges that he/she has the right to object e.g. a data-processing company, any warranty claims and claims for to receiving direct advertising at any time. damages which arise against the third party according to law and contract shall be deemed as having been passed on to the client once the client has been informed of them. Item 4. (3) notwithstanding, in such a case the 5. Protection of Intellectual Property of the Contractor contractor shall only be liable for fault in choosing the third party.
(1) The client shall be obliged to ensure that reports, expert opinions, (8) The contractor’s liability to third parties is excluded in any case. If organizational plans, drafts, drawings, calculations and the like, issued by third parties come into contact with the contractor’s work in any manner the contractor, be used only for the purpose specified in the contract (e.g. due to the client, the client shall expressly clarify this fact to them. Insofar pursuant to Section 44 (3) Austrian Income Tax Act 1988). Furthermore, as such exclusion of liability is not legally permissible or a liability to third professional statements made orally or in writing by the contractor may be parties has been assumed by the contractor in exceptional cases, these passed on to a third party for use only with the written consent of the limitations of liability shall in any case also apply to third parties on a contractor. subsidiary basis. In any case, a third party cannot raise any claims that go beyond any claim raised by the client. The maximum sum of liability shall (2) The use of professional statements made orally or in writing by the be valid only once for all parties injured, including the compensation claims contractor for promotional purposes shall not be permitted; a violation of of the client, even if several persons (the client and a third party or several this provision shall give the contractor the right to terminate without notice third parties) have sustained losses; the claims of the parties injured shall to the client all contracts not yet executed. be satisfied in the order in which the claims have been raised. The client will indemnify and hold harmless the contractor and his/her staff against (3) The contractor shall retain the copyright on his/her work. Permission any claims by third parties in connection with professional statements to use the work shall be subject to the written consent by the contractor. made orally or in writing by the contractor and passed on to these third parties.
non-binding electronic copy (9) Item 7. shall also apply to any of the client’s liability claims to third 10. Termination in Case of Default in Acceptance and Failure to parties (performing agents and vicarious agents of the contractor) and to Cooperate on the Part of the Client and Legal Impediments to Execution substitutes of the contractor relating to the contractual relationship. (1) If the client defaults on acceptance of the services rendered by the contractor or fails to carry out a task incumbent on him/her either according 8. Secrecy, Data Protection to Item 2. or imposed on him/her in another way, the contractor shall have the right to terminate the contract without prior notice. The same shall apply (1) According to Section 80 WTBG 2017 the contractor shall be obliged if the client requests a way to execute (also partially) the contract that the to maintain secrecy in all matters that become known to him/her in contractor reasonably believes is not in compliance with the legal situation connection with his/her work for the client, unless the client releases or professional principles. His/her fees shall be calculated according to him/her from this duty or he/she is bound by law to deliver a statement. Item 11. Default in acceptance or failure to cooperate on the part of the client shall also justify a claim for compensation made by the contractor for (2) Insofar as it is necessary to pursue the contractor’s claims the extra time and labor hereby expended as well as for the damage (particularly claims for fees) or to dispute claims against the contractor caused, if the contractor does not invoke his/her right to terminate the (particularly claims for damages raised by the client or third parties against contract. the contractor), the contractor shall be released from his/her professional obligation to maintain secrecy. (2) For contracts concerning bookkeeping, payroll accounting and administration and assessment of payroll-related taxes and contributions, (3) The contractor shall be permitted to hand on reports, expert a termination without prior notice by the contractor is permissible under opinions and other written statements pertaining to the results of his/her Item 10. (1) if the client verifiably fails to cooperate twice as laid down in services to third parties only with the permission of the client, unless he/she Item 2. (1). is required to do so by law.
(4) The contractor is a data protection controller within the meaning of 11. Entitlement to Fee the General Data Protection Regulation (“GDPR”) with regard to all personal data processed under the contract. The contractor is thus (1) If the contract fails to be executed (e.g. due to withdrawal or authorized to process personal data entrusted to him/her within the limits cancellation), the contractor shall be entitled to the negotiated of the contract. The material made available to the contractor (paper and compensation (fee), provided he/she was prepared to render the services data carriers) shall generally be handed to the client or to third parties and was prevented from so doing by circumstances caused by the client, appointed by the client after the respective rendering of services has been whereby a merely contributory negligence by the contractor in this respect completed, or be kept and destroyed by the contractor if so agreed. The shall be excluded; in this case the contractor need not take into account contractor is authorized to keep copies thereof insofar as he/she needs the amount he/she obtained or failed to obtain through alternative use of them to appropriately document his/her services or insofar as it is required his/her own professional services or those of his/her staff. by law or customary in the profession. (2) If a continuing agreement is terminated, the negotiated (5) If the contractor supports the client in fulfilling his/her duties to the compensation for the list of assignments to be completed shall be due upon data subjects arising from the client’s function as data protection controller, completion or in case completion fails due to reasons attributable to the the contractor shall be entitled to charge the client for the actual efforts client (reference is made to Item 11. (1). Any flat fees negotiated shall be undertaken. The same shall apply to efforts undertaken for information with calculated according to the services rendered up to this point. regard to the contractual relationship which is provided to third parties after having been released from the obligation to maintain secrecy to third (3) If the client fails to cooperate and the assignment cannot be carried parties by the client. out as a result, the contractor shall also have the right to set a reasonable grace period on the understanding that, if this grace period expires without results, the contract shall be deemed ineffective and the consequences 9. Withdrawal and Cancellation („Termination“) indicated in Item 11. (1) shall apply.
(1) The notice of termination of a contract shall be issued in writing (see (4) If the termination notice period under Item 9. (3) is not observed by also Item 4. (4) and (5)). The expiry of an existing power of attorney shall the client as well as if the contract is terminated by the contractor in not result in a termination of the contract. accordance with Item 10. (2), the contractor shall retain his/her right to receive the full fee for three months. (2) Unless otherwise agreed in writing or stipulated by force of law, either contractual partner shall have the right to terminate the contract at any time with immediate effect. The fee shall be calculated according to 12. Fee Item 11. (1) Unless the parties explicitly agreed that the services would be (3) However, a continuing agreement (fixed-term or open-ended rendered free of charge, an appropriate remuneration in accordance with contract on – even if not exclusively – the rendering of repeated individual Sections 1004 and 1152 ABGB is due in any case. Amount and type of the services, also with a flat fee) may, without good reason, only be terminated entitlement to the fee are laid down in the agreement negotiated between at the end of the calendar month by observing a period of notice of three the contractor and his/her client. Unless a different agreement has months, unless otherwise agreed in writing. verifiably been reached, payments made by the client shall in all cases be credited against the oldest debt. (4) After notice of termination of a continuing agreement and unless otherwise stipulated in the following, only those individual tasks shall still (2) The smallest service unit which may be charged is a quarter of an be completed by the contractor (list of assignments to be completed) that hour. can (generally) be completed fully within the period of notice insofar as the client is notified in writing within one month after commencement of the (3) Travel time to the extent required is also charged. termination notice period within the meaning of Item 4. (2). The list of assignments to be completed shall be completed within the termination (4) Study of documents which, in terms of their nature and extent, may period if all documents required are provided without delay and if no good prove necessary for preparation of the contractor in his/her own office may reason exists that impedes completion. also be charged as a special item.
(5) Should it happen that in case of a continuing agreement more than (5) Should a remuneration already agreed upon prove inadequate as a two similar assignments which are usually completed only once a year (e.g. result of the subsequent occurrence of special circumstances or due to financial statements, annual tax returns, etc.) are to be completed, any special requirements of the client, the contractor shall notify the client such assignments exceeding this number shall be regarded as thereof and additional negotiations for the agreement of a more suitable assignments to be completed only with the client‘s explicit consent. If remuneration shall take place (also in case of inadequate flat fees). applicable, the client shall be informed of this explicitly in the statement pursuant to Item 9. (4). (6) The contractor includes charges for supplementary costs and VAT in addition to the above, including but not limited to the following (7) to (9):
(7) Chargeable supplementary costs also include documented or flat- rate cash expenses, traveling expenses (first class for train journeys), per diems, mileage allowance, copying costs and similar supplementary costs.
(8) Should particular third party liabilities be involved, the corresponding insurance premiums (including insurance tax) also count as supplementary costs.
non-binding electronic copy (9) Personnel and material expenses for the preparation of reports, (3) At the request and expense of the client, the contractor shall hand expert opinions and similar documents are also viewed as supplementary over all documents received from the client within the scope of his/her costs. activities. However, this shall not apply to correspondence between the contractor and his/her client and to original documents in his/her (10) For the execution of a contract wherein joint completion involves possession and to documents which are required to be kept in accordance several contractors, each of them will charge his/her own compensation. with the legal anti-money laundering provisions applicable to the contractor. The contractor may make copies or duplicates of the (11) In the absence of any other agreements, compensation and documents to be returned to the client. Once such documents have been advance payments are due immediately after they have been requested in transferred to the client, the contractor shall be entitled to an appropriate writing. Where payments of compensation are made later than 14 days fee (Item 12. shall apply by analogy). after the due date, default interest may be charged. Where mutual business transactions are concerned, a default interest rate at the amount stipulated (4) The client shall fetch the documents handed over to the contractor in Section 456 1st and 2nd Sentence UGB shall apply. within three months after the work has been completed. If the client fails to do so, the contractor shall have the right to return them to the client at the (12) Statutory limitation is in accordance with Section 1486 of ABGB, cost of the client or to charge an appropriate fee (Item 12. shall apply by with the period beginning at the time the service has been completed or analogy) if the contractor can prove that he/she has asked the client twice upon the issuing of the bill within an appropriate time limit at a later point. to pick up the documents handed over. The documents may also further be kept by third parties at the expense of the client. Furthermore, the (13) An objection may be raised in writing against bills presented by the contractor is not liable for any consequences arising from damage, loss or contractor within 4 weeks after the date of the bill. Otherwise the bill is destruction of the documents. considered as accepted. Filing of a bill in the accounting system of the recipient is also considered as acceptance. (5) The contractor shall have the right to compensation of any fees that are due by use of any available deposited funds, clearing balances, trust (14) Application of Section 934 ABGB within the meaning of Section 351 funds or other liquid funds at his/her disposal, even if these funds are UGB, i.e. rescission for laesio enormis (lesion beyond moiety) among explicitly intended for safekeeping, if the client had to have anticipated the entrepreneurs, is hereby renounced. counterclaim of the contractor.
(15) If a flat fee has been negotiated for contracts concerning (6) To secure an existing or future fee payable, the contractor shall bookkeeping, payroll accounting and administration and assessment of have the right to transfer a balance held by the client with the tax office or payroll-related taxes and contributions, in the absence of written another balance held by the client in connection with charges and agreements to the contrary, representation in matters concerning all types contributions, to a trust account. In this case the client shall be informed of of tax audits and audits of payroll-related taxes and social security the transfer. Subsequently, the amount secured may be collected either contributions including settlements concerning tax assessments and the after agreement has been reached with the client or after enforceability of basis for contributions, preparation of reports, appeals and the like shall be the fee by execution has been declared. invoiced separately. Unless otherwise agreed to in writing, the fee shall be considered agreed upon for one year at a time. 14. Applicable Law, Place of Performance, Jurisdiction (16) Particular individual services in connection with the services mentioned in Item 12. (15), in particular ascertaining whether the (1) The contract, its execution and the claims resulting from it shall be requirements for statutory social security contributions are met, shall be exclusively governed by Austrian law, excluding national referral rules. dealt with only on the basis of a specific contract. (2) The place of performance shall be the place of business of the (17) The contractor shall have the right to ask for advance payments and contractor. can make delivery of the results of his/her (continued) work dependent on satisfactory fulfillment of his/her demands. As regards continuing (3) In absence of a written agreement stipulating otherwise, the place agreements, the rendering of further services may be denied until payment of jurisdiction is the competent court of the place of performance. of previous services (as well as any advance payments under Sentence 1) has been effected. This shall analogously apply if services are rendered in installments and fee installments are outstanding.
(18) With the exception of obvious essential errors, a complaint concerning the work of the contractor shall not justify even only the partial retention of fees, other compensation, reimbursements and advance payments (remuneration) owed to him/her in accordance with Item 12.
(19) Offsetting the remuneration claims made by the contractor in accordance with Item 12. shall only be permitted if the demands are uncontested and legally valid.
13. Other Provisions
(1) With regard to Item 12. (17), reference shall be made to the legal right of retention (Section 471 ABGB, Section 369 UGB); if the right of retention is wrongfully exercised, the contractor shall generally be liable pursuant to Item 7. or otherwise only up to the outstanding amount of his/her fee.
(2) The client shall not be entitled to receive any working papiers and similar documents prepared by the contractor in the course of fulfilling the contract. In the case of contract fulfillment using electronic accounting systems the contractor shall be entitled to delete the data after handing over all data based thereon – which were prepared by the contractor in relation to the contract and which the client is obliged to keep – to the client and/or the succeeding public accountant in a structured, common and machine-readable format. The contractor shall be entitled to an appropriate fee (Item 12. shall apply by analogy) for handing over such data in a structured, common and machine-readable format. If handing over such data in a structured, common and machine-readable format is impossible or unfeasible for special reasons, they may be handed over in the form of a full print-out instead. In such a case, the contractor shall not be entitled to receive a fee.
non-binding electronic copy SECTION II (9) Contracts on Recurring Services:
15. Supplementary Provisions for Consumer Transactions (a) Contracts which oblige the contractor to render services and the consumer to effect repeated payments and which have been concluded (1) Contracts between public accountants and consumers shall fall for an indefinite period or a period exceeding one year may be terminated under the obligatory provisions of the Austrian Consumer Protection Act by the consumer at the end of the first year, and after the first year at the (KSchG). end of every six months, by adhering to a two-month period of notice.
(2) The contractor shall only be liable for the willful and grossly (b) If the total work is regarded as a service that cannot be divided negligent violation of the obligations assumed. on account of its character, the extent and price of which is determined already at the conclusion of the contract, the first date of termination may (3) Contrary to the limitation laid down in Item 7. (2), the duty to be postponed until the second year has expired. In case of such contracts compensate on the part of the contractor shall not be limited in case of the period of notice may be extended to a maximum of six months. gross negligence. (c) If the execution of a certain contract indicated in lit. a) requires (4) Item 6. (2) (period for right to correction of errors) and Item 7. (4) considerable expenses on the part of the contractor and if he/she informed (asserting claims for damages within a certain period) shall not apply. the consumer about this no later than at the time the contract was concluded, reasonable dates of termination and periods of notice which (5) Right of Withdrawal pursuant to Section 3 KSchG: deviate from lit. a) and b) and which fit the respective circumstances may be agreed. If the consumer has not made his/her contract statement in the office usually used by the contractor, he/she may withdraw from the contract (d) If the consumer terminates the contract without complying with application or the contract proper. This withdrawal may be declared until the period of notice, the termination shall become effective at the next the contract has been concluded or within one week after its conclusion; termination date which follows the expiry of the period of notice. the period commences as soon as a document has been handed over to the consumer which contains at least the name and the address of the contractor as well as instructions on the right to withdraw from the contract, but no earlier than the conclusion of the contract. The consumer shall not have the right to withdraw from the contract
1. if the consumer himself/herself established the business relationship concerning the conclusion of this contract with the contractor or his/her representative,
2. if the conclusion of the contract has not been preceded by any talks between the parties involved or their representatives, or
3. in case of contracts where the mutual services have to be rendered immediately, if the contracts are usually concluded outside the offices of the contractors, and the fee agreed upon does not exceed €15.
In order to become legally effective, the withdrawal shall be declared in writing. It is sufficient if the consumer returns a document that contains his/her contract declaration or that of the contractor to the contractor with a note which indicates that the consumer rejects the conclusion or the maintenance of the contract. It is sufficient if this declaration is dispatched within one week.
If the consumer withdraws from the contract according to Section 3 KSchG,
1. the contractor shall return all benefits received, including all statutory interest, calculated from the day of receipt, and compensate the consumer for all necessary and useful expenses incurred in this matter,
2. the consumer shall pay for the value of the services rendered by the contractor as far as they are of a clear and predominant benefit to him/her.
According to Section 4 (3) KSchG, claims for damages shall remain unaffected.
(6) Cost Estimates according to Section 5 Austrian KSchG:
The consumer shall pay for the preparation of a cost estimate by the contractor in accordance with Section 1170a ABGB only if the consumer has been notified of this payment obligation beforehand.
If the contract is based on a cost estimate prepared by the contractor, its correctness shall be deemed warranted as long as the opposite has not been explicitly declared.
(7) Correction of Errors: Supplement to Item 6.:
If the contractor is obliged under Section 932 ABGB to improve or complement his/her services, he/she shall execute this duty at the place where the matter was transferred. If it is in the interest of the consumer to have the work and the documents transferred by the contractor, the consumer may carry out this transfer at his/her own risk and expense.
(8) Jurisdiction: Shall apply instead of Item 14. (3)
If the domicile or the usual residence of the consumer is within the country or if he/she is employed within the country, in case of an action against him/her according to Sections 88, 89, 93 (2) and 104 (1) Austrian Court Jurisdiction Act (JN), the only competent courts shall be the courts of the districts where the consumer has his/her domicile, usual residence or place of employment.
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