KOMERCIJALNA BANKA A.D., BEOGRAD Consolidated Financial
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KOMERCIJALNA BANKA A.D., BEOGRAD Consolidated Financial Statements Year Ended December 31, 2017 and Independent Auditors’ Report KOMERCIJALNA BANKA A.D. BEOGRAD CONTENTS Page Independent Auditors' Report 1-2 Consolidated Financial Statements: Consolidated Income Sheet 3 Consolidated Statement of Other Comprehensive Income 4 Consolidated Balance Statement 5 Consolidated Statement of Changes in Equity 6-7 Consolidated Statement of Cash Flows 8-9 Notes to the Consolidated Financial Statements 10 -192 Group’s Annual Business Report KOMERCIJALNA BANKA A.D. BEOGRAD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2017 1. ESTABLISHMENT AND OPERATIONS OF THE BANKING GROUP Komercijalna banka ad, Belgrade (hereinafter "The Parent Bank") was established on December 1, 1970, and was transformed into a joint stock company on May 6, 1992. The Bank was registered with the Commercial Court in Belgrade on July 10, 1991, and was legally re-registered in the Business Registers Agency on April 14, 2006. The Bank was granted a banking license from the National Bank of Yugoslavia on July 3, 1991. The tax identification number of the Parent Bank is 100001931. The largest share in the controlling activities of the parent banks is: Republic of Serbia 41.74% EBRD, London 24.43% The parent bank has three dependent legal entities with ownership: - 100% - Komercijalna banka ad, Budva, Montenegro - 100% - Investment Management Company KomBank INVEST ad, Belgrade, Serbia - 99.998% - Komercijalna banka ad, Banja Luka, Bosnia and Herzegovina. The minority owner in Komercijalna banka ad, Banja Luka, with 0.002% is the Agency for Export, Insurance and Financing of the Republic of Serbia. Consolidated financial statements and notes to the consolidated financial statements are the data of the Parent Bank, Komercijalna Banka AD, Budva, Komercijalna Banka ad, Banja Luka and KomBank INVEST ad Investment Company, Belgrade (in further text: "Group"). Komercijalna banka ad, Budva was founded in November 2002 as an affiliate of Komercijalna banka ad, Belgrade and registered in the central registry of the Commercial Court in Podgorica on March 6, 2003. The registration number of Komercijalna banka ad, Budva is 02373262. Komercijalna banka AD, Banja Luka was established in September 2006 and on September 15, 2006 it was registered in the court register by the Decision of the Basic Court in Banja Luka. The registration number of Komercijalna banka ad, Banja Luka is 11009778. Investment Management Company KomBank INVEST ad, Belgrade was established in December 2007 and registered on February 5, 2008. The Company's registration number is 20379758. The Group's activities include credit, deposit and guarantee operations and payment transactions in the country and abroad in accordance with the Banking Law, as well as investment fund management activities. The Group is obliged to operate according to the principles of liquidity, safety and profitability. On December 31, 2017, the Group consists of: the head office and the headquarters of the Home Bank in Belgrade, at St. Sava Street no. 14; the headquarters of Komercijalna banka ad, Budva in Budva - PC Podkosljun bb; headquarters of Komercijalna banka ad, Banja Luka in Banja Luka - Veselina Maslese street no. 6; the head office of the Investment Management Company KomBank INVEST AD, Belgrade, Belgrade, Kralja Petra br.19; 11 business centers, 13 branches and 220 branches in the territory of Serbia, Montenegro and Bosnia and Herzegovina (2016: 34 branches and 228 branches). As at 31 December 2017, the Group had 3,106 employees, and on December 31, 2016, 3,152 employees. 10 KOMERCIJALNA BANKA A.D. BEOGRAD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2017 2. BASIS FOR CONSTRUCTION AND EXPRESSION OF CONSOLIDATED FINANCIAL STATEMENTS 2.1. Basis for compiling and presenting consolidated financial statements The Group's consolidated financial statements for 2017 were compiled in accordance with International Financial Reporting Standards (IFRS). The attached consolidated financial statements are presented in the format prescribed by the Decision on the Forms and Contents of Positions in the Forms of the Financial Statements for Banks ("Official Gazette of the Republic of Serbia" No. 71/2014 and 135/2014). Consolidated financial statements have been prepared in accordance with the historical cost principle, unless otherwise stated in the accounting policies set out below. In preparing these financial statements, the parent bank applied the accounting policies set out in Note 3. During 2017, the Group members kept their accounts and compiled individual financial statements in accordance with local legal regulations, other regulations based on International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), as well as regulations of competent central banks and regulatory body. The individual financial statements have been audited by external auditors, in accordance with local regulations. For the purpose of preparing consolidated financial statements, individual financial statements of subsidiary banks have been adapted to the presentation of financial statements based on the accounting regulations of the Republic of Serbia. The consolidated financial statements of the Group are expressed in thousands of RSD. Dinar represents the official reporting currency in the Republic of Serbia. Unless otherwise stated, all amounts are quoted in RSD and rounded up in thousands. Functional currencies of the EUR from the financial statements of Komercijalna banka AD, Budva and BAM from the financial statements of Komercijalna banka ad, Banja Luka are converted into the reporting currency, ie the functional currency of the Parent bank - dinar (RSD) on the basis of the official published rates in the Republic of Serbia. 11 KOMERCIJALNA BANKA A.D. BEOGRAD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2017 2. BASIS FOR CONSTRUCTION AND EXPRESSION OF CONSOLIDATED FINANCIAL STATEMENTS 2.2. Changes in accounting policy and disclosures The accounting policies adopted are consistent with those of the previous financial year except for the following amended IFRSs which have been adopted by the members of the Group as of 1 January 2017: x IAS 12: Recognition of Deferred Tax Assets for Unrealized Losses (Amendments) The objective of the Amendments is to clarify the requirements of deferred tax assets for unrealized losses in order to address diversity in practice in the application of IAS 12 Income Taxes. The specific issues where diversity in practice existed relate to the existence of a deductible temporary difference upon a decrease in fair value, to recovering an asset for more than its carrying amount, to probable future taxable profit and to combined versus separate assessment. The Amendments were not applicable for the Group. x IAS 7: Disclosure Initiative (Amendments) The objective of the Amendments is to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The Amendments specify that one way to fulfil the disclosure requirement is by providing a tabular reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities, including changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates, changes in fair values and other changes. The Amendments were not applicable for the Group. x The IASB has issued the Annual Improvements to IFRSs 2014 – 2016 Cycle , which is a collection of amendments to IFRSs. The following annual improvement has not yet been endorsed by the EU. This improvement did not have an effect on the Group’s financial statements. ¾ IFRS 12 Disclosure of Interests in Other Entities: The amendments clarify that the disclosure requirements in IFRS 12, other than those of summarized financial information for subsidiaries, joint ventures and associates, apply to an entity’s interest in a subsidiary, a joint venture or an associate that is classified as held for sale, as held for distribution, or as discontinued operations in accordance with IFRS 5. 12 KOMERCIJALNA BANKA A.D. BEOGRAD NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2017 2. BASIS FOR CONSTRUCTION AND EXPRESSION OF CONSOLIDATED FINANCIAL STATEMENTS 2.3. Standards issued but not yet effective and not early adopted x IFRS 9 Financial Instruments: Classification and Measurement The standard is effective for annual periods beginning on or after 1 January 2018, with early application permitted. The final version of IFRS 9 Financial Instruments reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. Management has made an assessment of the effect of the fist-time adoption of standard and has disclosed it in the Notes to the Financial Statements. x IFRS 15 Revenue from Contracts with Customers The standard is effective for annual periods beginning on or after 1 January 2018. IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the